Hastie Group Ltd (in liq) v Bourne; Hastie Group Ltd

Caason Investments Pty Ltd v Cao (2015) 236 FCR 322; [2015] FCAFC 94 CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11 Clough and Rogers v Frog (1974) 4 ALR 615 at 618; 48 ALJR 481 Commissioner for Railways v Bielewicz [1963] NSWR 482; [1963] SR (NSW) 466 Commonwealth v McLean (1996) 41 NSWLR 389 Commonwealth Bank of Australia v ZYX Learning Centres Limited [2014] NSWSC 1676 Dare v Pulham (1982) 148 CLR 658; [1982] HCA 70 Dey v Victorian Railway Commissioners (1949) 78 CLR 62; [1949] HCA 1 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69 Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301; [1994] FCA 921 Hastie Group Limited (in Liquidation) v Moore [2016] NSWSC 1682 HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in Liq) (No 2) [2016] FCA 446 Horton v Jones (No 2) (1939) 39 SR (NSW) 305 Hoxton Park Residents Action Group Inc v Liverpool City Council [2012] NSWSC 1026 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1219 Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437; 50 ALJR 666 McGuirk v University of New South Wales [2009] NSWSC 1424 Middleton v O'Neill (1943) 43 SR (NSW) 178; 60 WN (NSW) 101 Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591 New Cap Reinsurance Corporation v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 PPK Willoughby Pty Ltd v Roads and Maritime Services [2014] NSWSC 407 Renowden v McMullin (1970) 123 CLR 584; [1970] HCA 24 Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66; [2009] FCA 320 Riverina Wines Pty Limited v Tetra Pak Marketing Pty Limited [2007] NSWSC 1014 S1 v The Trustees of Marist Brothers [2016] NSWSC 970 Steiner v Strang [2016] NSWSC 9 Tamaya Resources Limited (in Liq) v Deloitte Touche Tohmatsu (A Firm) [2015] FCA 1098 Tamaya Resources Limited (in Liq) v Deloitte Touche Tohmatsu (a Firm) (2016) 332 ALR 199; [2016] FCAFC 2 Ucak v Avante Developments Pty Ltd [2007] NSWSC 367 Weldon v Neal (1887) 19 QBD 394 Wentworth v Rogers (No. 5) (1986) 6 NSWLR 534 Weston v Publishing and Broadcasting Limited (2012) 88 ACSR 80 Wride v Schulze [2004] FCAFC 216 Category: Procedural and other rulings Parties: 2015/00378222 Hastie Group Limited (in liq) and 7 others (Plaintiffs) Trevor Bourne and 9 others (Defendants)

2016/00253555 Hastie Group Limited (in liq) and 43 others (Plaintiffs) Bruce Ivan Moore trading as Deloitte Touche Tohmatsu and 422 others (Defendants) Representation: Counsel:

2015/0037822 PB Murdoch QC with N Frenkel (Plaintiffs) JR Williams (1st, 4th to 8th Defendants) V Whittaker (2nd Defendant) A Campbell (Solicitor) (3rd Defendant) F Roughley (9th Defendant) P Holmes (10th Defendant)

2016/00253555 PB Murdoch QC with N Frenkel (Plaintiffs) RG McHugh SC, A Shearer, VL O'Halloran (Defendants)

2015/00378222 Hall & Wilcox (Plaintiffs) King & Wood Mallesons (1st, 4th to 8th defendants) Quinn Emanuel Urquhart & Sullivan (2nd defendant) Gilbert + Tobin (3rd defendant) Lander & Rogers (9th defendant) Clyde & Co Australia (10th defendant) Macpherson Kelley Lawyers (11th defendant)

2016/00253555 Hall & Wilcox (Plaintiffs) Clifford Chance (Defendants) File Number(s): 2015/00378222; 2016/00253555 Publication restriction: Nil

INDEX JUDGMENT Introduction [1] Background General [7] Commencement of proceedings against Deloitte in 2014/2015 [12] Present proceedings [22] Directors' Proceeding [23] Auditors' Proceeding [30] Overview of the respective proceedings [36] Applications for leave to amend [45] Claims as proposed now to be made in the respective proceedings [55] Directors' Proceeding Claims made against the Hastie directors - Section C - [26]-[281] [62] Identification of the content of the alleged duties of care and diligence [63] Identification of statutory obligations of Hastie in relation to its financial accounts [28]-[35] [66] The Construction Contracts - [36]-[159] [67 Allegations as to divisional reporting - [160]-[174]; financial misreporting - [175]-]231]; and write-offs - [232]-[234] [76] Defaults - [235]-[238] [80] Dividend - [239]-[246] [83] Loans - [247]-[265] [85] Breach of duties of care and diligence - [266]-[270] [89] Loss and damage - [271]-[272] [90] Alternative claim for breach of s 344 of the Corporations Act - [273]-[281] [92] Claims made against Messrs Hammond and Galvin the Hastie directors - Sections D and E [93] Auditors' Proceeding [99] Hastie's obligations - [19]-[30] [100] Deloitte's contractual/statutory obligations - [31]-[34]/[35]-[36] [101] Construction contracts - [37]-[129] [102] Financial reporting allegations - [130]-[172] [106] Write-offs - [173]-[175]; dividends - [176]-180]; loans - [181]-[183] [111] Negligence and breach of contract - [184]-[199]; [207]-[220] [113] Misleading and deceptive conduct - [200]-[206]; [221]-[225] [123] Loss and Damage - [228]-[238] [127] Complaints as to adequacy of respective proposed amended commercial list statements [136] The Construction contracts ([36]-[159] in the Directors] Proceeding; [37]-[129] in the Auditors' Proceeding) [139] Financial misreporting claims (Directors' Proceeding - [175]-[238], [271]-[272]; Auditors' Proceeding - [173]-[183] [158] Defaults (Directors' Proceeding - [235]-[238]; Breach of section 344 (Directors' Proceeding - [272]-[281]) [170] Dividend claim (Directors' Proceeding - [239]-[246], [271]-[272]; Auditors' Proceeding - [176]-[180]) [173] Inter-company loans (Directors' Proceeding - [247]-[265]; [271]-[272] [176] The position of Mr Harris and Mr Woodward [181] The position of Mr Hammond [183] The position of Mr Galvin [199] Auditors' Proceeding - claim for negligence and breach of contract - [184]-[200]; [207]-[220] [204] Misleading and deceptive conduct - [200]-[[206]; [221]-[227] [216] Causation - [228]-[232]; [233]-[237] [217] The plaintiffs' response on the pleading deficiencies [223] Power to grant leave to amend [228] Determination on pleading issues [234] Discretionary matters [255] Plaintiffs' submissions as to leave to re-plead [267] Determination [272] Costs [279] Orders [280] Appendix [280]

Judgment

1. HER HONOUR: The plaintiffs (all companies in the Hastie Group of companies (the Hastie Group)), which are now in liquidation have, through the liquidators appointed to them, brought two separate proceedings following the collapse in 2012 of the Hastie Group. Both sets of proceedings are now in the Commercial List of the Equity Division and the applications before me are brought by the plaintiffs for leave to amend their commercial list statements in those proceedings. There is a substantial overlap in the allegations made in the respective proceedings and, as a result, the amendment applications were heard together on 7 and 8 April 2017. I directed that, on the present applications, evidence in each proceeding shall be evidence in the other.
2. The first of the said proceedings (2015/00378222), to which I will refer as the Directors' Proceeding, brings claims against various individuals who occupied executive, non-executive or managerial roles in one or more of the companies forming part of the Hastie Group at particular times.
3. The second of the said proceedings (2016/00253555), to which I will refer as the Auditors' Proceeding, brings claims against the partners at relevant times of the firm of accountants (Deloitte) which was engaged by the holding company of the group, Hastie Group Limited (Hastie), to perform audit services for the Hastie Group. As commenced, this proceeding was confined to claims in respect of the audits of the Hastie Group in respect of the 2010 financial year. The proposed amendment would introduce similar claims for the 2011 financial year. Earlier proceedings against the auditors in relation to the 2008 and 2009 financial years were dismissed by Ball J in November 2016 (Hastie Group Limited (In Liquidation) v Moore [2016] NSWSC 1682; see [18] below).
4. Each amendment application is opposed and the defendants in both proceedings seek orders, if leave to amend is not granted, for the dismissal of the respective proceedings on the basis of the conceded deficiencies in the existing filed commercial list statements. The defendants submit that discretionary considerations weigh strongly against the grant of liberty to re-plead.
5. For the reasons that follow, I am of the view that leave should not be granted for the filing of the respective proposed amended commercial list statements but that a further opportunity should be allowed to the defendants to rectify the deficiencies identified in the existing commercial list statement in each proceeding, limited (in the case of the auditors) to claims in relation to the 2011 audit period and (in the case of the defendants in the Directors' Proceeding) limited to claims that would not be statute barred if now commenced. Unless there is a proper identification of the basis on which defendants such as Mr Harris and Mr Woodward are said to be liable for losses on inter-company loans made after they had left the Hastie Group, or on which Mr Hammond and Mr Galvin are said to be liable for losses incurred in relation to construction projects where the relevant work was performed prior to the time at which they had any divisional responsibility for the relevant contracting entity, no such claims should be included in any proposed further amended commercial list statement.

General

1. Prior to its entry into administration, Hastie, through its various subsidiaries, carried on business in the construction industry. Hastie did not itself provide construction services. Rather, its subsidiaries entered into sub-contracts on various construction projects for the provision of mechanical, electrical and plumbing services in a number of countries including, relevantly for present purposes, countries in the Middle East as well as Australia. The Hastie Group had approximately 7,000 employees and an annual turnover in excess of $1.8 billion.
2. On 28 May 2012, voluntary administrators were appointed to Hastie and 43 of its subsidiaries. On the same day, receivers were appointed to a number of the companies by a banking syndicate which had provided secured funding to the group (the Banking Syndicate).
3. In the course of the administrators' investigation into the affairs of the Hastie Group, an analysis was conducted of the group's financial statements by independent accountants - Saward Dawson Chartered Accountants (Saward Dawson), who were retained by the administrators in around July 2012. A report (the Saward Dawson Report) was provided by those accountants on or around 31 August 2012, identifying what were described as potentially significant issues with the Hastie Group's audit procedures, accounting records and internal controls (see [26] of the affidavit sworn 13 February 2015 by one of the liquidators, Mr Crosbie, in support of a notice of motion filed by the Hastie Group which sought an extension of time for the service of the statement of claim in proceeding commenced against Deloitte in 2014). A copy of this affidavit was tendered by Deloitte on the present applications, for the admissions contained in it.
4. By January 2013, all of the companies in the Hastie Group had been placed in liquidation. As a result of the liquidator's investigations and the Saward Dawson Report, the liquidators formed the view around that time that there were arguable causes of action against Deloitte in relation to the audit reports for the 2008 to 2011 financial years by reason of Deloitte's failure to address various specified matters - including potentially overstated trade and other receivables, for at least the 2010 and 2011 financial years, and potentially significantly overstated inventories, since at least the 2009 financial year (see [29(c)-(d)] of Mr Crosbie's affidavit). The view was formed that the audit process in each of the 2008 to 2011 financial years was likely to have been substantially similar and that, by extrapolation, the "inherent deficiencies" identified in the 2010 and 2011 audits would extend to the 2008 and 2009 audits; hence the view that the Hastie Group had arguable causes of action against Deloitte in relation to those earlier audits (see Mr Crosbie's affidavit at [29]; [31]).

Commencement of proceedings against Deloitte in 2014/2015

1. In 2014, on the eve of the expiry of the applicable limitation period for claims in relation to the 2008 audit (and before any public examinations had been undertaken), proceedings were commenced in the Common Law Division of this Court (the 2014 auditors' proceeding) against those persons who had then been identified as partners of Deloitte as at August 2008, alleging negligence and misleading and deceptive conduct.
2. It was conceded by Mr Crosbie (in the proceedings before Ball J) that as at the time the 2014 auditors' proceeding was commenced he knew that the pleading was not properly pleaded (see T 124.49; 11 November 2016) and he accepted that there "wasn't any basis for any of the claims for [i.e., by] any of the plaintiffs" (see T 124.42). As I read the transcript, in context this concession seems to relate to the acceptance in 2015 that the position in 2014 was that there was no basis for claims to be made by all of the plaintiffs, in that it was not known at that time which of the 44 plaintiffs did have a claim, though it was considered that some at least had a claim. It was accepted that by the time of service of the commercial list statement on Deloitte, 36 of the 43 Hastie subsidiaries had no claim at all against Deloitte and, further, that the claim was not properly pleaded. That was in essence the position as explained to Moshinsky J in the proceedings in the Federal Court in October 2016 by Mr Frenkel of Counsel, when the plaintiffs sought approval of funding arrangements for the litigation (though it was a proposition resisted by the plaintiffs' solicitor when the matter was before me - see T 55.28-35). In any event, on Mr Crosbie's evidence the 2014 auditors' proceeding was issued in the form that it then was (naming 44 plaintiffs the majority of whom it is now accepted had no claim at all) in order to preserve a cause of action (see [61] of Mr Crosbie's affidavit).
3. As at February 2015, when Mr Crosbie swore the affidavit to which I have above referred, the liquidators considered it necessary for public examinations to be conducted of up to 20 key Hastie Group and Deloitte personnel, among other things to identify potential causes of action against both the directors and the auditors of the Hastie Group (Mr Crosbie's affidavit at [32]-[34]). They had earlier (from about November 2012) unsuccessfully sought funding from the Banking Syndicate for the purpose of conducting those examinations. However, Mr Crosbie deposed that at times during the course of the liquidation (ex hypothesi prior to February 2015) there were funds available with which to conduct public examinations but the liquidators had chosen (for the reasons he there gave) not to do so (affidavit at [44]). Again, the plaintiffs' solicitor on the present applications took issue with that proposition.

Dismissal of 2014/2015 auditors' proceedings

1. In July 2016, both the 2014 and 2015 auditors' proceedings were transferred to the Commercial List. In November 2016, on the application of the Deloitte defendants, Ball J held that the various ex parte extensions of time that had been granted in respect of the service of the pleadings in those proceedings should not have been granted. His Honour discharged the relevant orders and dismissed both the 2014 and 2015 auditors' proceedings with costs.
2. Relevantly, I note that the Banking Syndicate had refused to provide funding for the public examinations, or the claims themselves, and had given its consent to the bringing of proceedings by the liquidators only on the basis that it not be involved in those proceedings. Senior Counsel then appearing for the plaintiffs before Ball J (Mr Newlinds SC) informed his Honour that there was no realistic prospect that any creditor would benefit from the proceedings other than the Banking Syndicate (and Mr Crosbie conceded that the Court had not previously been told that this was the case) (see T 23.21-37; 10 November 2016). Mr Crosbie also accepted that it was obvious to the liquidators in 2014 that the main creditors who would benefit from the proceedings were the banks, who had the funds to run the case but had no desire to run it themselves (T 31.4-32.19; 10 November 2016).
3. In his affidavit of February 2015, Mr Crosbie estimated (at [37]) that the Hastie Group had creditors of approximately $966.6 million, comprising secured creditors (the Banking Syndicate) of approximately $529.9 million, priority creditors of approximately $47 million and unsecured creditors of approximately $390 million. The liquidators at that stage held approximately $6.2 million in funds of which $1.4 million had been quarantined for distribution to priority creditors (at [40]). The liquidators' understanding was that the Banking Syndicate would suffer a shortfall on its debts exceeding $100 million ([38]).
4. I have referred to Mr Crosbie's evidence in the proceedings before Ball J (relied on by Deloitte for the admissions there made) because in the proceedings before me Deloitte pointed to inconsistency between that evidence and certain of the evidence given by the plaintiffs' solicitor, Mr Kelcey, on the present applications. On the scenario as deposed to by Mr Crosbie in February 2015, it can readily be seen that there is no realistic prospect that unsecured creditors will benefit at all from the present proceedings and that the likelihood is that the only creditors to benefit would be the Banking Syndicate.

Present proceedings

1. That brings me to the two sets of proceedings presently on foot, in respect of which leave to amend the commercial list statements is now sought.

Directors' Proceeding

1. The Directors' Proceeding was commenced on 24 December 2015 in the Corporations List of the Equity Division by the filing of an originating process dated 23 December 2015 and an affidavit in support sworn by Mr Crosbie on 22 December 2015. The originating process was not served at that time. On 4 February 2016, an order extending the time for service of the originating process to 3 June 2016 was made on an ex parte basis. Most of the defendants were served with the originating process by that date (the exceptions being the sixth defendant (Mr Boon), who was served shortly thereafter and instructed his solicitors to accept service, and the eleventh defendant (against whom the proceedings were discontinued with no order as to costs in September 2016).
2. The first commercial list statement in the Directors' Proceeding was filed on 9 September 2016. Following complaint as to the adequacy of that document, the plaintiffs consented to orders for an amended commercial list statement to be filed by 20 January 2017. The first proposed amended commercial list statement was filed on 27 January 2017. There was again complaint as to the adequacy of that document. On 10 February 2017, orders were made requiring the plaintiffs to provide a further version of the proposed amended commercial list statement by 14 February 2017 and for any opposition to the filing of that document to be heard on 6 April 2017. A second proposed amended commercial list statement was served on 15 February 2017. When the defendants again complained as to defects in the pleading, the plaintiffs sought a further opportunity to amend the pleading (and unsuccessfully sought the vacation of the 6 April 2017 hearing). The final (i.e., third) version of the proposed amended commercial list statement was served on 31 March 2017.
3. There are in effect two groups of defendants in the Directors' Proceeding. The first group (to which I will refer collectively as the Hastie directors), referred to (at [25]) in the proposed amended commercial list statement as the Hastie Board, is comprised of those defendants who were directors of Hastie itself (and, in some cases, also of one or more Hastie subsidiaries who are also plaintiffs in these proceedings - the Subsidiary Plaintiffs), whether in an executive capacity (Mr Harris and Mr Woodward) or as a non-executive director (Messrs Bourne, Anderson, Gaskell, Boon, and Martin). The second group is comprised of two former directors of some or all of the Subsidiary Plaintiffs who occupied managerial roles with responsibility for particular divisions within the Hastie Group at various times (Mr Hammond and Mr Galvin).

Auditors' Proceeding

1. The Auditors' Proceeding (that being the only currently subsisting proceeding against the auditors following the decision of Ball J to which I have earlier referred), was commenced in the Commercial List on 23 August 2016 by the filing of a summons and commercial list statement. As noted earlier, when they were commenced, the proceedings concerned only the audit performed by Deloitte of the Hastie Group for the financial year 2009/10. However, the proposed amended commercial list statement for which leave is now sought introduces similar claims in respect of the subsequent year's audit (i.e., for the financial year 2010/11).
2. The commercial list statement in the Auditors' Proceeding was served on 9 September 2016. Since then (and following various objections raised by the Deloitte defendants as to the adequacy of the commercial list statement, and subsequent proposed amendments thereto, as well as the making of directions by the Court), successive iterations of a proposed amended commercial list statement have been provided to the defendants.
3. First, a proposed amended commercial list statement was provided by letter dated 28 November 2016. Then on 3 February 2017 a further proposed amended commercial list statement was provided, with the subsequent provision on 7 February 2017 of the schedules referred to in that version of the proposed amended commercial list statement. On 2 March 2017, a number of typographical errors that had been identified upon review of the further proposed amended commercial list statement were notified to the defendants. Next, on 3 March 2017 the defendants' consent was sought to the filing and serving of notices of discontinuance by 36 (of the then) plaintiffs by whom no cause of action was sought to be maintained in the further proposed amended commercial list statement. Finally, on 31 March 2017, the plaintiffs served a further version of the amended commercial list statement, that being the document for which leave to amend is now sought.
4. As is the case in the Directors' Proceeding, there have therefore already been a number of iterations of the proposed amended commercial list statement in this proceeding though, as the plaintiffs point out in their submissions, this is the first actual amendment application to have been made in either of the proceedings.
5. The relevant retainers in respect of the audit engagement for the financial years ended 30 June 2010 and 30 June 2011 were entered into by Deloitte with Hastie for the provision of audit services in relation to the consolidated entity (proposed amended commercial list statement at [13] and [14]). The first retainer agreement the subject of any claim in these proceedings is that alleged to have been entered into on 3 February 2010 ([29]). The first financial report provided by Deloitte to the ARMC in the course of that retainer was provided on 24 August 2010 ([130]).

Overview of the respective proceedings

1. By way of overview, the plaintiffs complain that the Hastie Group's internal control processes and systems were deficient; that the directors should have caused proper procedures and controls to be put in place (so as to ensure compliance with the approval procedures for variation works under the relevant construction contracts); and that the auditors should have identified and reported on the said deficiencies.
2. The particular deficiencies identified in the Hastie Group's internal control processes and systems are twofold: first, the lack of preparation (or any requirement for the preparation) by Subsidiary Plaintiffs, in respect of any significant construction project on which that Subsidiary Plaintiff was engaged, of a contract administration manual tailored to the particular terms of the relevant contract and containing particular provisions; and, second, the lack of standardised monthly reports by the Subsidiary Plaintiffs to the Hastie Board of matters in relation to variation works under the said construction contracts (the plaintiffs say that in only one of the projects was there a contract administration manual and then only from about January 2012, referring to the CSB/IPU contracts to which I refer at [75(ii)] below). In oral submissions (but not in terms in the pleadings) the complaint is that Deloitte failed to report the "endemic" failure of the Hastie Group entities to obtain approval for variation works as required under the terms of the particular construction contracts (which differed from project to project).
3. The significance attributed by the plaintiffs from an accounting perspective to the lack of internal control processes or systems of the kind they contend should have been put in place relates to the manner in which variation claims could properly be booked as revenue in the relevant company's accounts. The plaintiffs contend that, in the absence of written variation approvals (obtained in accordance with the terms of the respective contracts) and the proper recording of variation approvals, it could not be said that it was probable that the variation claims would be paid; and thus that those amounts should not have been booked as revenue in the accounts.
4. On that basis (and also having regard to complaints made as to the time at which certain provisions for doubtful debts were ultimately made in relation to particular projects) the plaintiffs argue that the 2010 and 2011 accounts did not demonstrate the true and fair position of the Hastie Group companies and hence that a dividend payment made by Hastie to its shareholders in 2010 should not have been made, nor should certain inter-company loans have been made in the period from 2011/2012 from one subsidiary (Hastie Holdings Pty Ltd - HHPL) to another (HIP) in relation to the group's Middle Eastern business.

Applications for leave to amend

1. The respective amendment applications are made pursuant to s 64 of the Civil Procedure Act 2005 (NSW), which provides, relevantly, that: 64(1) At any stage of proceedings, the court may order: (a) that any document in the proceedings be amended, or (b) that leave be granted to a party to amend any document in the proceedings. (2) Subject to s 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings. …
2. In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27, French CJ (at [14]) noted the distinction between the discretion of a court to allow a party to amend its pleading on that party's motion and the requirement to make all such amendments as may be necessary to determine the real questions in controversy (the latter engaging with the authority conferred on the court to make amendments of its own motion).
3. Subject to any rights to amend without leave given to the parties by the rules of court, the question of further amendment of a party's claim is dependent upon the exercise of the court's discretionary power; which must be in accordance with s 64(2) of the Civil Procedure Act and must adhere to the "dictates of justice" (ss 56, 57 and 58 of the Civil Procedure Act). In Aon the factors to be weighed in the exercise of this discretion were said (at [102]) to include: the nature and importance of the amendments to the plaintiffs; the effect of the proposed amendments on the defendants; the delay in making the amendments; and, where there is delay in applying for amendment, whether an adequate explanation for the delay has been given.
4. The plaintiffs contend that the amendments sought to be made are necessary for the purpose identified in s 64(2) of the Civil Procedure Act, acknowledging that the existing filed commercial list statements are defective (by reason of a lack of pleading of material facts, particularly in relation to causation and loss). They argue that the introduction of claims in relation to the 2011 audit period will avoid a multiplicity of proceedings.
5. The plaintiffs characterise (unfairly in my view) the defendants' position on the present applications as raising an "arid debate" about the difference between material facts and particulars; and baldly assert that all the defendants know the case they have to meet. Their response to various of the pleading deficiencies that have been identified by the defendants is, in effect, that the pleading is perfectly adequate as it is (an assertion largely made simply by reference back to the very paragraphs of the documents containing conclusory statements about which complaint is made), but that any deficiency is capable of being cured by further amendment, including the provision of further particulars.

Claims as proposed now to be made in the respective proceedings

1. Before summarising the complaints made as to the adequacy of the proposed amended commercial list statements in the respective proceedings, it is convenient to set out a summary of the claims now proposed to be made in each set of proceedings. Unfortunately, given the length of the documents, that will not be a short task.
2. The structure in each of the proposed amended commercial statements is similar. After introductory sections dealing with the identification of the parties, Hastie's statutory obligations and, in the case of the Auditors' Proceeding, the articulation of various accounting standards and allegations as to Deloitte's statutory and contractual obligations, both the proposed amended commercial list statements contain: a section headed "Construction Contracts", in which allegations are made as to seven particular construction projects in which one of the Subsidiary Plaintiffs in each case was involved; sections dealing with: alleged financial misreporting and the making of write-offs by the Hastie Board, the making of the 2010 dividend payment, and the making of the inter-company loans in 2011/2012 by HHPL to HIP; and then sections dealing with alleged breach of duty and breach of s 344 of the Corporations Act (in the case of the directors) and with alleged breach of contract, negligence and misleading and deceptive conduct in the case of the auditors. In the Directors' Proceeding there are separate sections containing the allegations about each of Mr Hammond and Mr Galvin, the claims against each being limited to the Variation Loss (albeit for the whole of that loss).
3. The claimed loss and damage is pleaded in substantially similar terms in both of the proposed amended commercial list statements. In each, the Variation Loss is particularised in respect of each of the seven construction contracts by reference to separate attachments listing a number of unpaid or partly-paid variation works for which it is said claims have "or ought to have" been made.
4. The plaintiffs have pointed to the provisions in the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) as to the requisite contents of a commercial list statement: namely, that it be in summary form and that the plaintiffs' contentions should: avoid formality, state the allegations made with adequate particulars and identify the legal grounds for the relief claimed (referring to UCPR rr 14.7 and 15.1; Practice Note SC Eq 3 at [8] and [9]). They maintain that what they have served satisfies those requirements.

Claims made against the Hastie directors - Section C - [26]-[281]

1. The claims made against the Hastie directors are set out in Section C of the proposed amended commercial list statement. The claims are for alleged breaches of duties of care and diligence owed to each of the plaintiffs of which the relevant defendant was a director or officer (or shadow director) pursuant to s 180(1) of the Corporations Act and for breach of the "substantially identical" duties in tort and equity ([26]). Each of the three categories of loss is sought to be recovered from these defendants.

Identification of the content of the alleged duties of care and diligence

1. The articulation at [27] of what the duties of care and diligence allegedly required of the Hastie directors is the foundation for the allegations of breach in relation to the various construction projects in respect of which the Variation Loss is claimed, as well as the claims for the Dividend Loss and Loans Loss. Given its foundational significance, I have set it out in full in the appendix to these reasons.
2. A number of the sub-paragraphs of [27] are framed in terms of a duty requiring the said defendants not merely to cause the Subsidiaries to do something (such as (b)) or to take all reasonable (though unidentified) steps to ensure that the Subsidiaries did certain things (such as (c)), but rather to "ensure" certain arrangements were in place (such as that each Subsidiary had certain processes or systems and controls in place - see (i), (k)-(l), (o)-(r) - and that each Subsidiary followed such processes, systems or controls - see (j), (n)).
3. The duties of care and diligence said to have been owed by each of these defendants also include the requirement that they: "ensure that Hastie Group's financial reports for the 2008, 2009, 2010 and 2011 were true and fair" (see (t)); pay a dividend to Hastie's shareholders only where it was reasonable to do so (see (u)); and permit loans to be made by the Subsidiary Plaintiffs or Hastie only in certain specified circumstances (see (v)-(y)).

Identification of statutory obligations of Hastie in relation to its financial accounts - [28]-[35]

1. At [28]-[35], certain statutory obligations of Hastie in relation to its financial accounts are set out, by reference to s 286(1) of the Corporations Act and to particular Australian Accounting Standards (including AASB 118 Revenue; AASB 136 Impairment of Assets; AASB 139 Financial Instruments: Recognition and Measurement; AASB 111 Construction Contracts, and AASB 101 Presentation of Financial Statements).

The Construction contracts - [36]-[159]

1. The "Construction Contracts" section (from [36]-[159]) sets out details in relation to a series of construction contracts entered into by the Hastie Group in the United Arab Emirates and Australia (for sums ranging from $20-$30 million to $140 million). Broadly speaking, the claim made in relation to these contracts is for losses sustained when amounts claimed (or which it is said ought to have been claimed) in respect of variation works were not recovered by the relevant Subsidiary Plaintiff which carried out the work. The plaintiffs emphasise that each of the contracts contained different provisions as to the circumstance in which the contract work could be varied by the sub-contractor and the circumstances in which the sub-contractor would be permitted to make claims for payment in relation to the cost of such works.
2. The first basis on which liability on the part of the Hastie directors is said to arise for those losses is that these defendants were (at varying times specified for each) obliged, in effect, to cause the relevant contracting entity (a Subsidiary Plaintiff) to prepare and maintain relevant internal controls and processes (and to ensure that those processes were followed); that they failed to do so; and that, had they done so, either the relevant variation (or out of scope) works would either not have been carried out at all or approval for those works would have been obtained such that the risk of non-recovery of the expenses in relation to those works would have been reduced or eliminated. I refer to this as the "internal controls allegation".
3. The required contents of the manual that it is said these defendants were obliged to cause to be prepared by the relevant Subsidiary Plaintiff (see [27(a)]) include: a checklist of the procedures for making variation claims; templates for variation claim documents; a template variation register; and a direction to project managers to comply with the contractual procedures for variations and separately to record the costs of variation works in "Pronto", the Hastie Group's internal electronic accounting system.
4. The further or alternative basis on which liability for the Variations Loss is alleged to have arisen (to which I will refer as the "monthly reporting allegation") is that the said defendants were obliged (again at varying times specified for each): to cause the provision by the relevant contracting entity (a Subsidiary Plaintiff) to the Hastie Board of "standardised monthly reports" in respect of the projects containing particular information; to ensure that the costs incurred in respect of variation (or out of scope) works were identified in Pronto as costs being incurred in respect of variation works; and to understand the true financial position of the project and of the contracting entity in question.

Allegations as to divisional reporting - [160]-[174]; financial misreporting - [175]-[231]; and write-offs - [232]-[234]

1. The section headed "divisional reporting" contains allegations, among other things, that the consolidated results reported to the Hastie Board in respect of five distinct periods were inaccurate because the reported revenues in relation to particular projects were overstated (because they included revenue in respect of unapproved variations) and it was not probable that the revenue would be realised (see [170]-[173]). It is said (at [174]) that, by reason of the matters at [160]-[173] (which include allegations as to the reliance by the Hastie Board on the consolidated financial results reported to it), at all material times between December 2009 and May 2012 the Hastie Board did not understand the true financial position of: the identified construction projects; each of the Subsidiary Plaintiffs; and the Hastie Group.
2. The financial misreporting allegations section contains allegations that successive financial reports (for the financial years ended 30 June 2008 through to 30 June 2011) were not true and fair in that they overstated revenue and failed to make adequate provision in connection with the construction projects. In respect of a series of projects (including projects other than the seven referred to in the construction contracts section) for which provision for doubtful debts was made in 2011 and/or 2012, the complaint is that "the facts giving rise to those provisions" existed at an earlier date and that the provisions should have been made in an earlier financial report (see for example [177]). The plaintiffs disavow any claim made in respect of those additional projects but say that, had these problems been identified, then losses elsewhere might have been prevented - T 26-27; T 72. They say that what is meant by the allegation that the "facts giving rise to those provisions" existed at an earlier date is that the conditions had not changed from the time when the provisions ought earlier to have been recorded (see T 131.)
3. Pausing there, it can be seen that although claims for breach of contract or negligence accruing before 2010 would have been statute barred at the time of commencement of the Directors' Proceeding, nevertheless for the purpose of responding to the divisional reporting/financial misreporting allegations enquiry will need to be made as to events going back at least as far as the 2008 financial year.

Defaults - [235]-[238]

1. The proposed amended commercial list statement then sets out general allegations of default by the Hastie directors in relation to the internal controls allegation and the monthly reporting allegation. It is not clear from the document whether these allegations are intended to go beyond the allegations of default in relation to the construction contracts in the construction contracts section. My understanding from the oral submissions is that the claims made in this section of the pleading are to be read with, and as part of, the claims made in the general default section of the pleading.
2. The format adopted is that of an allegation (see [235] and [237]) as to what a reasonable person in the position of these defendants would have done or understood (first, corresponding to the internal controls allegation and then to the monthly reporting allegation) coupled with an allegation (see [236] and [238]) that the said defendants failed to do those things or have that understanding.
3. The particulars provided of the alleged defaults largely consist of assertions as to the lack of internal controls, the failure of the Hastie Board to direct certain things in relation to internal controls, the lack of provision of standardised monthly reports containing the information specified, and the lack of steps taken by the said defendants to ensure the provision of such reports (without the identification of what steps it is said should have been taken).

Dividend - [239]-[246]

1. The next series of allegations relates to the Dividend Loss; by reference to the payment by Hastie of a dividend to its shareholders in October 2010 at a time when the Hastie Group had reported a net profit of $40,578,000 whereas the true position is said to be that in the 2010 financial year it had made a net loss of $72,282,000 (see particulars to [241], themselves incorporating by reference earlier parts - [190]-[201] - of the document).
2. It is alleged: that a reasonable person in the position of these defendants would have made "adequate" enquiries as to, and would have discovered, the group's true financial position in the 2010 financial year and would not have participated in the making of the resolution for the payment of the dividend or the payment itself ([241]); that the Hastie directors did not make those enquiries and did not discover the true financial position ([242]); that, had they done so, the resolution (to pay the dividend) would not have been made and the dividend would not have been paid ([243]); and that the resolution for, and payment of, the dividend was not reasonable in the circumstances ([244]-[245]). It is then alleged that the Hastie directors failed to ensure that a dividend was paid only where it was reasonable to do so ([246]).

Loans - [247]-[265]

1. The final category of claim relates to the making of loans by one of the Subsidiary Plaintiffs (HHPL), described in oral argument as the "banker" to the group (T 12.4), to another Subsidiary Plaintiff (HIP) in the Middle East, in the sum of $59,515,238 ([259]), at a time when it is said (in oral submissions) the Hastie Board must have recognised there would be no ability in HIP to repay those moneys.
2. It is alleged that those loans were made in the period from 2 May 2011 to 28 March 2012, after the Hastie Group's Middle East businesses had been identified (in a McGrath Nicol report of 11 April 2011) as a reason for the group's cash emergency and the viability of those businesses had been questioned (see [250]); and that all but two of the loans were made after there had been a direction by the Hastie Board (in June 2011) that management not remit any further funds to the group's Middle East division without the prior approval of the Board or the chairman until the Middle East strategy was resolved ([252]). (Pausing here, the proposed amended commercial list statement in the Auditors' Proceeding does not replicate [250]-[252]. Nor is there any pleaded allegation in either proceeding that the Hastie Board or its chairman approved the making of these loans to HIP (though in oral submissions it was said that this could be inferred from the fact of the making of the loans - T 138-139).)
3. The proposed amended commercial list statement here again adopts the format of: an allegation as to what a reasonable person in the position of the former directors and officers would have done before the loans were made ([261]); what it is alleged the directors of Hastie and HHPL ought to have known ([262]); an allegation as to the failure of the Hastie directors to ensure certain things in relation to the loans (including that the loans could and would be repaid; and that loans only be made if there was a commercial benefit to the company making the loans) ([263]); and an allegation that, had they ensured the matters, the loans would not have been made ([264]).
4. Somewhat surprisingly (given that the total claimed as the Loans Loss is the aggregation of the amounts that were paid out) it is then alleged that of those loans the sum of (only) $2,945,419 was repaid ([265]). In other words, the claim for the Loans Loss appears to be for the whole of the loans identified as having been paid by HHPL to HIP, even though it is here acknowledged that there was repayment of nearly $3 million of that amount.

Breach of duties of care and diligence - [266]-[270]

1. From [266]-[270], the document tracks, in effect, the provisions of the Civil Liability Act 2002 (NSW) as to breach of duty but does so by stating a series of conclusions, namely as to: the risk of harm (particularised as the risk of financial losses) if the Hastie directors and officers did not comply with the duties of care and diligence ([266]); that at all material times the Hastie directors ought to have taken precautions against that risk of harm (particularised by reference to [235], [237], [241] and [261]) ([267]); the foreseeability of the risk of harm, that it was not insignificant and that a reasonable person in their position would have taken the said precautions ([268]); the failure of the Hastie directors to take the precautions ([269]); and hence their breach of the duties of care and diligence owed by them ([270]).

Loss and damage - [271]-[272]

1. It is alleged that if the Hastie directors had not breached their duties of care and diligence, they would have become aware of the matters set out at [36]-[231] and [261]-[262] (i.e., that they would have become aware of the matters referred to in almost the whole of the preceding parts of the document); would have taken remedial action including that set out at [271(b)(i)-(iv)]; and would have prevented or mitigated the losses which arose from the contracts; that they would not have made the resolution for, and payment of, the dividend and would have prevented or mitigated "the need for, and payment of" the loans ([271]). (How they would have prevented the "need" for any loans required, say, for cash flow reasons, is neither articulated nor immediately apparent.)
2. The plaintiffs claim statutory compensation, damages and equitable compensation particularised by reference to the Variation Loss ($39,041,692); the Dividend Loss ($9,590,000) and the Loans Loss ($59,515,237), totalling $108,146,929.

Alternative claim for breach of s 344 of the Corporations Act - [273]-[281]

1. Further or in the alternative, there is a claim, based on the matters pleaded in relation to the financial accounts, of breach by the Hastie directors of the duty to take all reasonable steps to comply with or secure compliance with the financial reporting obligations at [30]-[35] (see [273]-[281]). In essence, [280]-[281] mirror the allegations at [271] and [272] but in the context of the alleged breach of s 344 of the Corporations Act.

Claims against Messrs Hammond and Galvin - Sections D and E

1. Sections D and E of the proposed commercial list statement set out the claims made against the two directors of the Subsidiary Plaintiffs with managerial responsibility for divisions within the Hastie Group at particular times (Mr Hammond and Mr Galvin, respectively). They follow substantially the same format.
2. Each is said to have owed duties of care and diligence to the Subsidiary Plaintiffs of which he was a director pursuant to s 180(1) of the Corporations Act and substantially identical duties in tort and in equity ([282]; [296], respectively). The content of those duties is set out (non-exhaustively) at [283]-[284] in the case of Mr Hammond and at [297] (and in the particulars to [296]) in the case of Mr Galvin. Relevantly, the terms in which the duties are framed in various instances again include the requirement to "ensure" that things be done (and in some instances are stated by reference to the taking of "adequate" - and again unidentified - steps).
3. It is alleged that each was responsible at divisional level for certain projects ([285]; [298]) both in his role as chief executive officer of the relevant division and as a director of the relevant company engaged in the projects.
4. What is then alleged is: what a reasonable person in the position of Mr Hammond/Mr Galvin would have done at all relevant times ([286]; [299]); that all relevant times Mr Hammond/Mr Galvin failed to do those things ([287]-[288] in the case of Mr Hammond; [300]-[301] in the case of Mr Galvin); that at all material times there was a risk that particular Subsidiary Plaintiffs would suffer harm if there was not compliance with the said duties of care and diligence (that risk being that financial losses would be suffered) ([289]; [302]); and that at all material times Mr Hammond/Mr Galvin ought to have taken precautions against the risk of harm ([290]; [303]). Similar allegations to those made against the Hastie directors are then made as to the foreseeability and not insignificant nature of the risk of harm and that a reasonable person in his position would have taken the precautions ([291]; [304]).
5. Each of Mr Hammond and Mr Galvin is alleged at all material times to have failed to take the precautions that it is alleged (at [286] and [299] respectively) a reasonable person in his position would have taken ([292]; [305]); and to have breached his duties of care and diligence ([293]-[306]). It is then alleged, again mirroring the allegations against the Hastie directors that if Mr Hammond/Mr Galvin had not breached the said duties then the relevant Subsidiary Plaintiff would have prevented or mitigated the losses arising from the projects ([294]; [307]); and that by reason of those matters the relevant Subsidiary Plaintiff suffered loss and damage and the plaintiffs are entitled to recover that loss and damage as statutory compensation, damages and equitable compensation ([295]; [308]).

Auditors' proceedings

1. As the claims made against Deloitte rest generally (though with some differences in the pleading of the counterfactual) on the same premises as those made against the defendants in the Directors' Proceeding, the contents of the proposed amended commercial list statement on which the plaintiffs now seek to rely in the Auditors' proceeding can be dealt with more briefly.

Hastie's obligations - [19]-[30]

1. The proposed amended commercial list statement sets out (from [19]-[25]) Hastie's financial reporting and disclosure obligations and (from [26]-[30]) identifies the various Australian Accounting Standards with which it is said Hastie was obliged to comply (AASB 118, 136, 139, 111 and 101).

Deloitte's contractual/statutory obligations - [31]-[34]/[35]-[36]

1. Deloitte's contractual obligations are pleaded at [31]-[34], including that Deloitte would use all reasonable skill and care in the carrying out of the relevant audits. Its statutory obligations are pleaded at [35]-[36]. In oral argument on the present application, emphasis was placed by the plaintiffs on the obligation pleaded at [36(e)], namely the obligation to: obtain an understanding of each of Hastie and the Subsidiaries, their environment and internal controls, sufficient to identify and assess the risk of material misstatement of the financial report whether due to fraud or error, and sufficient to design and perform further audit procedures, which included, among other things, to make those charged with governance or management aware, as soon as practicable, and at an appropriate level of responsibility, of material weaknesses in the design or implementation of internal control which have come to the auditor's attention; Particulars ASA 315 'Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement' (2010 Audit) ASA 315 'Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment' (2011 Audit)

Construction contracts - [37]-[129]

1. Paragraphs [37]-[129] contain allegations as to the same seven construction contracts about which complaint is made in the Directors' Proceeding. It is alleged that, in relation to each of those contracts, Hastie ought to have done various things (broadly corresponding to the internal controls and monthly reporting allegations in the Directors' Proceeding) ([38]).
2. It is then alleged that an auditor in Deloitte's position needed to be reasonably satisfied: that Hastie Group had internal controls and processes in relation to construction contracts entered into by companies in Hastie Group to ensure certain things (see [39]); that at all material times Hastie Group did not have adequate internal controls and processes to ensure those things ([40]); that at all material times the Hastie Group's internal controls and processes were deficient ([41]); and that at all material times Deloitte failed to detect and report to Hastie's directors and officers the said deficiencies in Hastie Group's controls and processes as set out in [40]-[42]. I have set out [40]-[42] in full in the appendix to these reasons. (Deloitte emphasises that the allegation is not that it detected the deficiencies and failed to report them but, rather, that it failed to detect them at all.) Relevantly, at [42] it is alleged that at all material times, Deloitte failed to detect and report to Hastie's directors and officers the deficiencies in Hastie Group's controls and processes (as set out at [40]-[41]). This seems to be the nub of the allegations made against Deloitte in respect of the Variation Loss.
3. There then follow specific allegations in relation to each of the seven construction contracts (similar to those in the Directors' Proceeding) as to: the terms of the contracts (relevantly, the terms relating to variation works); the incurring by the relevant Subsidiary Plaintiff of expenses in relation to variation or out of scope works; and the failure of the relevant entities accurately to record costs, claims and provisions so that proper financial statements could be prepared. It is again alleged that, by reason of those matters, it was not probable that the entities would realise any revenue from the variation works in the sums there specified and that it was unable to recover those expenses. (In most cases, the amount identified as the expenses alleged to have been incurred in respect of the variation works is the same as the amount of the variation works in respect of which it is alleged the Subsidiary Plaintiff failed to receive or obtain written approval, but not always - see for example [49] in relation to the Zayed University Project costs where there is a differential of roughly $3 million between the two, the difference not necessarily being explicable by the fact that some of the expenses in relation to variation works for that project were ultimately recovered.)

Financial reporting allegations - [130]-[172]

1. At [130], the plaintiffs refer to the provision by Deloitte of a report to the ARMC on about 24 August 2010 in respect of the year ended 30 June 2010, which contains the statement that the auditors had not identified any material weaknesses in the controls relating to the prevention and detection of fraud and error which would impact on the ability to provide an opinion on the group's 2010 financial results.
2. Paragraphs [131]-[146] then set out what are alleged to be misstatements in the 2010 Financial Report as audited by Deloitte, including by reference to various projects not limited to the seven construction contracts referred to earlier in the pleading. It is alleged that, in relation to various projects where provision for doubtful debts was made in 2011 and 2012, "the facts giving rise to the provision" existed as at June 2010 and a provision in that (or some lesser amount) should have been made in the 2010 Financial Report. The allegation as to provisioning for doubtful debts includes projects in respect of which no claim for loss is made: see, DI Project ([137]); Burj 58/59 ([138]); Hotel Jal and Mut Tower ([139]); Dalma Mall ([140]); Bovis/Leeds Oncology ([141]). Further, at [142], it is alleged that the Hastie Group failed to make a provision in the sum of $4,100,000 for impairment to amounts due to Rotary (International) Ltd under the TCI Hospital Project (another project not the subject of a Variation Claim or referred to in the construction contracts section of the proposed amended commercial list statement), particularised by reference to the principal contractor becoming bankrupt as at 30 June 2010. It is alleged that full provision should have been made for this (not half). (Deloitte points out that the ARMC report in relation to this project made clear that the parties were in negotiations in relation to payment, arguing that the fact of bankruptcy is not itself a reason for the making of a provision and that the plaintiffs need to have alleged some audit deficiency in the light of what the auditors were told about the prospects of recovery.)
3. At [144], it is alleged that the overstatement of revenue and failure to make provisions (referring back to [136]-[143]) resulted in overstatement of assets and profits in the 2010 Financial Report in at least $112,860,000.
4. At [145] there is an allegation as to what, at all material times, a reasonable auditor in Deloitte's position would or would not have done. At [146], the allegation is made that: At all material times, Deloitte: a. failed to ascertain the true financial position of the Hastie Group for the 2010 financial year; b. failed to notify the Hastie Board of the true financial position of the Hastie Group for the 2010 financial year; c. reported in the 2010 Audit Report that the 2010 Financial Report gave a true and fair view of the financial position and performance of Hastie Group; d. reported in the 2010 Audit Report that the 2010 Financial Report complied with the Corporations Act, the Australian Accounting Standards and the Corporations Regulations 2001. Particulars The plaintiffs refer to and repeat paragraphs 134 to 144 above.

Write-offs - [173]-[175]; dividends - [176]-[180]; loans - [181]-[183]

1. As in the Directors' Proceeding, the proposed amended commercial list statement sets out details as to the authorisation of certain write-offs, write-backs, provisioning or impairments made by the Hastie Board between the 2010 and 2012 financial years ([173]-[175]); the payment of the dividend by Hastie on 18 October 2010 in circumstances where it is alleged it was not reasonable to pay it ([176]-[180]); and the making of the loans by HHPL to HIP totalling $59,515,237 ([181]-[183]).
2. As noted earlier, there is in this document no reference to the matters at [250]-[252] in the proposed amended commercial list statement in the Directors' Proceeding (to which Deloitte attaches some significance in light of the allegation that, had Deloitte not breached its obligations as auditor, the Hastie directors would have taken certain steps to prevent the loans being made). Deloitte points out that this counterfactual is asserted notwithstanding that it is alleged in the Directors' Proceeding that a direction had already been made by the Hastie Board that funds not be remitted to the Middle Eastern business without prior approval of the Hastie Board or the Chairman. As adverted to earlier, the plaintiffs submit (though it is not alleged in the proposed amended commercial list statements that the making of the loans was so approved) that it would be inferred, from the fact that the payment was made, that it had been made with board approval or approval from the chairman (T 138-139).

Negligence and breach of contract - [184]-[199]; [207]-[220]

1. From [184]-[199] are the allegations of negligence and breach of contract in the conduct of the 2010 audit. Similar allegations of negligence and breach of contract in relation to the conduct of the 2011 audit are contained from [207]-[220]. Those respective groups of allegations follow the same format.
2. What is pleaded first is the requirement of the auditors to comply with the statutory obligations and accounting standards as set out earlier in the commercial list statement ([186]; [208], and including, in the case of the 2011 audit, ASA 600).
3. For the claim in negligence there is then pleaded: the reliance by the plaintiffs on the auditors in relation to the audits and the plaintiffs' vulnerability and likelihood of financial loss if the auditors did not carry out the audits or express their opinions with reasonable skill and diligence ([187]; [209]); that at all material times the auditors knew or ought to have known of such reliance, vulnerability and likelihood of financial loss ([188]; [210]); and that, in the premises, the auditors owed Hastie and each of the plaintiffs a duty at common law to exercise reasonable skill, care and diligence in the carrying out of the audits ([189]; [211]), this being defined as the "[2010 or 2011 as the case may be] Auditor's Duty".
4. There is reference to, and a repetition of, the allegations at [38]-[42] (namely as to what Deloitte ought to have done in carrying out the audit; that an auditor in its position needed to be reasonably satisfied as to the internal controls and processes in relation to construction contracts; that the Hastie Group did not have adequate internal controls and processes and that its internal controls and processes were deficient; and that Deloitte failed to detect and report to the directors and officers in relation to the said deficiencies) ([192]; [212]).
5. There are then allegations as to what Deloitte did or did not do in carrying out the audits (including relying "too heavily" on secondary evidence and relying on statements from management "without treating those statements with professional scepticism") ([191]; [213]); and as to what a reasonable auditor in Deloitte's position would have done ([192]; [214]).
6. It is alleged that at all reasonable times there was a risk that the plaintiffs would suffer harm if the auditors did not comply with the duty of care (that risk of harm being particularised as the risk that they would suffer financial losses "by reason of the failure of Deloitte to identify and report to them that the Hastie Group had inadequate internal controls in respect of project management and financial management and that the Hastie Group's financial position had been misrepresented in the 2010 [and 2011] Financial Report[s]") ([193]; [215]).

Misleading and deceptive conduct - [200]-[206]; [221]-[225]

1. The next set of allegations is of misleading and deceptive conduct in connection with each of those audits ([200]-[206] in relation to the 2010 audit; [221]-[225] in relation to the 2011 audit).
2. These are based on alleged express or implied representations: made in the respective ARMC reports, that there were no material weaknesses (for the 2010 report) or no significant deficiencies (for the 2011 report) in the Hastie Group's internal controls ([200]; [221]); made in the respective audit reports, that the relevant financial report gave a true and fair view of the financial position and performance of Hastie Group and complied with the Corporations Act, Australian Accounting Standards and Corporations Regulations ([201]; [222]); and, insofar as those representations were statements of opinion, that: the opinions in the audit report were honestly held on reasonable grounds; Deloitte had exercised reasonable skill, care and diligence in forming the opinions expressed in the audit report; the audit had been undertaken in accordance with the Australian Accounting Standards; and that it had sufficient appropriate audit evidence upon which to base the opinions expressed in the audit report ([202]; [223]).
3. It is alleged that the audit representations were made in trade or commerce ([203]; [224]); that certain steps were taken in reliance on them ([204]; [225]); and that, contrary to the audit representations, there were material weaknesses (or significant deficiencies) in the Hastie Group's internal controls; the financial report did not comply with the said legislation or accounting standards; the opinions contained in the audit report were not formed on reasonable grounds; Deloitte had not exercised reasonable skill, care and diligence in forming the opinions expressed in the audit report and did not have sufficient appropriate audit evidence upon which to base those opinions; and the audit had not been undertaken in accordance with the said standards ([205]; [226]).
4. Thus it is alleged that by making the respective audit representations Deloitte engaged in conduct that was misleading or deceptive or likely to mislead or deceive in breach of the relevant consumer legislation ([206]; [227]).

Loss and Damage - [228]-[238]

1. The allegations as to loss and damage appear at [228]-[238].
2. It is alleged that, at the time of the publication of the respective financial reports, the directors of the plaintiffs believed certain things ([228]; [233]) and that, contrary to those beliefs, the facts were as stated at [229]; [234].
3. The counterfactual (i.e., what the position would have been had the auditors conducted the audits in accordance with the terms of the audit engagement, the Auditor's Duty, and (somewhat confusingly) the "[2010/2011] Audit Representations") is pleaded at [230]; [235]. (I say somewhat confusingly because the Audit Representations speak as to what had been done not prospectively as to what was to be done.)
4. In summary, the pleaded counterfactual includes that the auditors would have informed the directors of the requirement to make or increase provisions against revenue and assets and would have given a qualified opinion in the audit reports (and, for the 2011 year, that the auditors would have informed the directors of the risks presented by carrying on business in the Middle East without proper controls). The content of the qualification that it is said would have been made to the relevant audit opinion is not specified.
5. It is alleged that if Deloitte had informed the directors of the matters "and taken the steps it should have taken" as referred to in the previous paragraph of the pleading, certain things would have happened or not happened as the case may be ([231]; [236]) (see the appendix). In relation to the Variation Loss, as noted earlier, this is simply an allegation that the directors would have taken steps to prevent or mitigate the losses. Those steps are not identified.
6. It is then alleged (at [232]; [237]) that "[b]y reason of" the matters set out at [229]-[232] (for the 2010 year) or the matters set out at [233]-[236] (for the 2011 year), after the relevant audit report the Hastie Group continued to trade in the same manner it previously had and the directors did not consider and understand the matters identified at [229] (or [235]) and did not take "such action as was warranted by those matters", including the action referred to at [231(c)-(q)] (or [236(c)-(e)]).
7. At [238] is the claim that the plaintiffs suffered loss and damage by reason of the matters set out above, that being particularised in three components in the same fashion as that in the Directors' Proceeding: the Variation Loss with respect to the construction contracts of $39,041,692; the Dividend Loss ($9,590,000) and the Loans Loss ($59,515,237) (again claiming the full amount of the loans notwithstanding that some portion thereof has admittedly been repaid).

Complaints as to adequacy of respective proposed amended commercial list statements

1. In general, complaint is made by all of the defendants as to the failure of the plaintiffs to plead the material facts relied on for the allegations of breach and causation of loss, including as to the conclusory nature of much of what is alleged against them. There is specific complaint by Mr Hammond as to the claim for loss in respect of variation works performed by companies at times when it is not alleged that he had any divisional responsibility at all in respect of those companies (a complaint about which Senior Counsel for the plaintiffs had no instructions to make any submissions - see T 141.31). There is a similar complaint by Mr Galvin. There are also specific complaints by Mr Harris and Mr Woodward as to claims made against them in relation to inter-company loans made at times after they had ceased their positions within the Hastie Group.
2. Contrary to the assertion by the plaintiffs, the defendants maintain that they do not know, from the relevant proposed amended commercial list statement, what case it is that they have to meet (i.e., what precisely they did or did not do which is alleged to have been a breach of duty and the causal nexus between that breach and the loss claimed). Understandably, they contend that they should not have to speculate in this regard.
3. Turning then to the particular complaints made by the respective defendants, I propose, given the commonality of a number of the complaints, to address them by reference to the particular sections of the proposed amended commercial list statements to which they relate. I have already noted the complaint, which in my opinion is well-founded, by the Hastie directors (and, by adoption, by Mr Hammond) that there is no identification of the material facts on which the plaintiffs rely for the shadow director allegations. Whether those facts be pleaded as such or be provided by way of particulars, it should be made clear to the relevant defendants on what facts the plaintiffs rely for the allegation that each was a shadow director of the identified companies at relevant times.

The construction contracts ([36]-[159] in the Directors' Proceeding; [37]-[129] in the Auditors' Proceeding)

1. As adverted to already, Deloitte points out that it is not alleged that the preparation of a contract administration manual and the provision of standardised monthly reports are accounting controls for the purposes of any particular accounting or auditing standard. It emphasises the difference between a company having prudent "internal controls and processes", for the management of aspects of its business operations, and the company having necessary accounting controls for the purposes of financial reporting standards. It argues (but the plaintiffs deny this) that what the plaintiffs are seeking in effect to do is to make Deloitte responsible for the management of Hastie and its subsidiaries. Reference is made to some of the alleged deficiencies in the Hastie Group's internal controls and processes (such as the absence of a process for fixed project reviews with head office, risk management frameworks for assessing contracts, project management policies, and the appointment of a risk manager), which Deloitte says could not be regarded as accounting controls and which it maintains highlight the need for the pleading of material facts connecting the relevant complaint to some relevant accounting and/or auditing standard.
2. As to the content of the internal controls allegation, complaint is made by the respective defendants that the proposed amended commercial list statements do not identify, in relation to each of the variation works for each of the seven construction projects, matters such as: the actual work alleged to have been outside the scope of the contract; the basis on which that work was outside the scope of the contract; whether a written request for variation works was made in respect of the work; whether the request was refused and, if so, on what basis; whether the variation request was disputed and, if so, on what basis; when the instruction in respect of the variation works was provided; when the variation work was started or completed; when a claim was made for payment; the details of any refusal to pay the claim; and the basis on which it is alleged that it was not probable that the relevant Subsidiary Plaintiff would recover the costs of that work.
3. It is said that the attachments do not remedy that defect because they do not identify the work in question in any meaningful way and they do not say anything about what it is about such work that rendered it outside the scope of the contract or as to the likely inability of the Subsidiary Plaintiff to recover the costs of performing it.

Financial misreporting claims (Directors' Proceeding - [175]-[238], [271]-[272]; Auditors' Proceeding - [173]-[183])

1. Again, the complaint made by the defendants is that this section contains a series of conclusory assertions. Complaint is also made that many of these allegations involve the retrospective application of the treatment of certain matters in subsequent periods to an earlier period - see for example [176] in the Auditors' Proceeding. In particular, complaint is made that there is no pleading of the material facts which existed as at the date of the earlier accounts which it is alleged required the making of any particular provision for any given year, nor any identification of the relevant part of any applicable accounting standard engaged by those alleged facts.
2. By way of example, the Hastie directors say that, to the extent that the plaintiffs' misstatement allegations are based on AASB 136, there is no pleading of: the impairment tests said to apply; the impairment indicators which it is alleged gave rise at the date of the accounts to a possibility of impairment; the testing which ought to have been done in response to the impairment indicators; the results of that testing; or the conclusion as to impairment which should have been drawn from those results.
3. The Hastie directors submit that the plaintiffs are required to identify the particular facts existing as at the date of each of the impugned accounts which are alleged to have compelled the conclusion that a provision was required (and in what amount). They complain that it is inadequate to say only that the (unidentified) facts giving rise to the making of provisions in later years existed at an earlier time. By way of example, Deloitte points to what was said in the ARMC December 2011 report as to the additional provisions raised on the Zayed University Project, namely that they represented a change in management's view of the recoverability of the value of claims "due to the passage of time and ongoing disputes". As a matter of logic it is said (and seemed to be accepted by the plaintiffs' solicitor, for what that is worth) that the "passage of time" as at say 2011 cannot have been the same as that existing at an earlier time.
4. Insofar as the relevant accounting standards would require the making of assessments by the company as to matters such as the future performance of construction contracts or the likelihood of debts being paid, the Hastie directors submit that this could only be made having regard to the facts known at the time (and they submit that all the circumstances affecting a project will not be identical at two points in time a number of years apart).

Defaults (Directors' Proceeding - [235]-[238]); Breach of section 344 (Directors' Proceeding - [273]-[281])

1. As to the generalised allegations of default at [235]-[238], the Hastie directors complain that it is not clear whether the alleged "defaults" are intended to have free-standing operation separate from the claims based on the seven construction contracts and the financial misreporting claims; but, if they are, then the deficiencies referred to above remain. They argue that what is required for the purposes of s 5B of the Civil Liability Act is the identification of the precautions that the Hastie directors needed to take against the relevant risk of harm but that there is here no identification of the particular precautions or what the directors failed to do - just a list of conclusions in relation to alleged failures.
2. As to the alternative claim that the Hastie directors failed to comply with their obligation under s 344(1) of the Corporations Act in failing to take all reasonable steps to comply with, or secure compliance with, Hastie's statutory financial record keeping and reporting obligations, again the complaint by those defendants is that the proposed commercial list statement does not identify the reasonable steps that it is alleged they were required to take in this regard. They point to the particulars to [279] (which it is assumed are meant to refer to the allegation at [238]) and argue that [238] does no more than plead conclusions.
3. They complain that what is required is a pleading as to the steps or actions that it is said the Hastie directors were required to take, but failed to take, to ensure that the Hastie Group's financial reports for the 2008, 2009, 2010 and 2011 financial years were true and fair. (The same complaint is made as to the pleading of causation and loss at [280]-[281] as that made in relation to [271]-[272].)

Dividend claim (Directors' Proceeding - [239]-[246], [271]-[272]; Auditors' Proceeding - [176]-[180])

1. The Hastie directors complain that the allegation of breach of duty in relation to this claim (at [241]-[242]), which is particularised by reference to [190]-[201], does no more than identify the alleged misstatement in the 2010 accounts: it does not identify any respect in which the Hastie directors are alleged to have failed to make adequate enquiries or what they were obliged to do in order to "discover Hastie's true financial position".
2. Again rhetorically, the Hastie directors ask why it is that they were not entitled to declare a dividend based on audited accounts and what it is that a careful and diligent non-executive director would have done (that they failed to do) to discover the true financial position contrary to the position presented in audited accounts; i.e., what actual steps is it said that they should have taken when presented with audited accounts to come to the view that a dividend should not have been paid on the basis of those accounts. They maintain that these are essential ingredients of any claim of negligence in relation to the payment of the dividend and are material facts that should have been pleaded.
3. Deloitte's complaint in this regard (at least in relation to the previous iteration of the proposed amended commercial list statement) was as to what was meant by "reasonable" in the context of the allegation that the dividend was paid in circumstances where it was not reasonable to pay it. The current version, however, makes clear (albeit in the particulars) that the circumstance in which it is said to have been not reasonable to pay the dividend is that a net profit had been reported whereas the true position was that there was a net loss (and the particulars refer back to [144] where it is alleged that the overstatement of revenue and failure to make provision had resulted in an overstatement in the 2010 Financial Report of the asset position). Deloitte's complaint, at least to that extent, has arguably been remedied by the provision of the relevant particulars. What however does seem to remain as a live issue is the substance of the claim based on an overstatement of revenue insofar as this depends on the provisioning allegations.

Inter-company loans (Directors' Proceeding - [247]-[265], [271]-[272])

1. The Hastie directors complain that the pleading (at [261]-[263]) does not allege what they needed to do in order to discharge their duties; rather the conclusion is asserted that they failed to ensure that the loans were not made. Referring to the particulars to [263] (in which it is asserted that no enquiries were made by Hastie head office as to whether the loans would ever be repaid and that no due diligence was conducted as to whether the loans could and would be repaid), the Hastie directors maintain that, particularly in circumstances where it is not alleged that they authorised or were otherwise involved in the making of the loans (see the particulars to [259] which assert that the loans were requested by Mr Davidson, a finance manager in the Middle East division, and arranged by Mr Reid, the Hastie Group's treasury manager), it is necessary for the plaintiffs to set out the material facts on which the allegation of breach is based: namely, what it is that they were required to do to ensure that the loans were not made. (Pausing there, I note that this would presumably at least entail a pleading as to what enquiries should have been made and by whom; and what due diligence should have been performed and by whom.)
2. Complaint is also made as to a lack of clarity as to whether the alleged breaches of duty are made in respect of duties owed to HHPL (the company that made the loans) or duties owed to Hastie, reference being made (at [262]) to what the "directors of Hastie and HHPL" ought to have known. The Hastie directors argue that, insofar as there is reference (at [263(b)], [264(d)] and in particular (iv) to [263]) to a "commercial benefit" to the company making the loans, this is suggestive of an allegation as to a breach of duty owed to HHPL not Hastie. If so, then they complain that the basis for the existence of such a duty is not properly pleaded because none of them was an appointed director of HHPL at any material time and there is no pleading of the material facts relied upon for the allegation that each was a de facto director and officer of HHPL. (In that regard, they point out that there is no allegation of matters such as: (a) the respects in which each acted as a director of the subsidiary; (b) the instructions or directions each of them gave to the directors of the subsidiary and in accordance with which those directors were accustomed to act; or (c) the decisions in which each of them participated affecting the whole or substantially the whole of the subsidiary's business.)

The position of Mr Harris and Mr Woodward

1. Mr Harris raises one "bespoke" complaint, namely that there can be no claim in relation to loans made after he ceased to be a director on 7 October 2011 yet at [259(f)-(o)] there are a series of loans identified which were made when he was no longer a director.
2. Similarly, Mr Woodward notes that he left the Hastie Group on 25 October 2011 yet a number of the loans for which claim is made against him were made after that date.

The position of Mr Hammond

1. As noted earlier, Mr Hammond held divisional responsibility within the Hastie Group only at particular specified times, and the only claim made against him is for the Variation Loss. The loss is identified (at [294]) as "the losses which arose from those projects referred to in paragraph 285 above" (i.e., the seven construction projects), and is particularised at [295] by reference to "sub-paragraph A [sic; scil (i)] of the particulars to paragraph 272" (i.e., the total loss referable to all the construction projects).
2. Counsel for Mr Hammond, Ms Roughley, points out that there are three relevant periods to consider in relation to Mr Hammond. The first, from 5 September 2006 to 30 June 2010, was when he was the chief executive officer of the electrical division (at which time only one of the Subsidiary Plaintiffs was in that division and none of the constructions projects at issue which were on foot at that time were within his divisional responsibility). The second was from July 2010 to 28 May 2012 (when a new division was created on Mr Galvin's departure and six of the Subsidiary Plaintiffs responsible for construction projects at the time were in that new division - but not HIP, which was responsible for the Zayed University Project and which represents some $21 million of the $39,041,692 claimed in respect of the Variation Loss Claim). The third (overlapping to some extent with the second) is from July 2010 to November 2010 when all projects (leaving aside the Zayed University Project) were then on foot and said to fall within his divisional responsibility.
3. Relevantly, although the alleged Variation Loss relates to the seven construction projects to which reference has earlier been made, Mr Hammond is not alleged to have been a director or officer at all relevant times for the relevant company involved in each of these seven projects.
4. Mr Hammond makes two complaints which are specific to his position (but apply by analogy also to that of Mr Galvin).
5. First, that there is no identification as to the actual amount of the Variation Loss that is alleged to be referable to Mr Hammond's conduct (as opposed to the conduct of other defendants). Second, that there is no identification of the causal nexus between any alleged act or omission on his part and whatever portion of the alleged $39 million of loss which the plaintiffs assert was loss caused by him personally.

The position of Mr Galvin

1. Mr Galvin is in a similar position to that of Mr Hammond, in that he had divisional responsibility within the Hastie Group only over a specified period, namely divisional responsibility for those Subsidiary Plaintiffs which were members of the Mechanical and Hydraulics Division of the Hastie Group (see 10) between 24 December 2009 and 7 July 2010. The claimed loss for which recovery is sought against Mr Galvin is particularised (at [308]) by reference to sub-paragraph A of the particulars to [272] "insofar as it relates to the projects referred to in paragraph 298 above" (i.e., to the five construction projects there noted).
2. Mr Galvin makes similar complaints as to the claim for the whole of the Variation Loss notwithstanding his limited management involvement and as to the conclusory nature of the allegations made against him and the failure to identify what steps it is alleged that he should have taken but did not do (or that he did but should not have done). He points, by way of example, to the allegation (at 300) that he failed "adequately [to] oversee, guide and monitor those companies' businesses, including their significant projects" and (at 300) that he failed to "take responsible steps to be informed of the material business activities of those companies". He notes that there is no identification as to the steps that it is said he should have taken, but failed to take, to "oversee, guide and monitor" the relevant businesses and projects or "to be informed of the material business activities" of the relevant companies.
3. The particulars to [300] refer to and repeat a large number of the preceding paragraphs of the proposed amended commercial list statement ([37]-[126] and [160]-[174]). Complaint is made that there is no identification as to what relationship, if any, exists between those 105 paragraphs and the alleged breaches of Mr Galvin's duties and that he should not be required to speculate as to which of the 105 paragraphs referred to in the particulars to [300] are said to be aspects or incidents of individual "failures" pleaded at [300].
4. As to the allegation of breach of the alleged requirement to cause companies in the relevant Division to prepare, in respect of significant projects, a contract administration manual with the characteristics outlined at [297] (see [301]), Mr Galvin's complaint is that there is no pleading as to what the relevant companies would have done to prevent or mitigate those project losses had he not committed the alleged breaches; nor how doing those things would have prevented or mitigated the losses. Hence, he submits that the causal link between his conduct and the relevant project losses claimed to be recoverable from him is not made clear.

Auditors' Proceeding - claim for negligence and breach of contract - [184]-[200]; [207]-[220]

1. Deloitte's fundamental complaint is that the proposed amended commercial list statement does not allege what a reasonably competent auditor in the position of Deloitte would have done in respect of any particular complaint, or what Deloitte failed to do by reference to the standard of the reasonably competent auditor; i.e., the audit work which the plaintiffs say a reasonably competent auditor was required to do and that it did not do in respect of any given complaint.
2. Deloitte complains that, in relation to the various alleged non-compliances with accounting or auditing standards, the plaintiffs do not allege material facts engaging with those standards in respect of any particular complaint and then identifying what a reasonably competent auditor would have done in relation to the requirements of such standards; rather, there is simply a series of conclusions.
3. As to the identification of the circumstances giving rise to the alleged duty of care at common law, the complaint is that there is simply an allegation that Deloitte knew or ought to have known that the Hastie Group (which, it points out, is defined as including Hastie and all of its subsidiaries - even those who are no longer plaintiffs) were relying on Deloitte in various respects and were vulnerable and likely to suffer financial loss in certain circumstances (see for example [188] in relation to the 2010 audit), particularised by reference to [184]-[187] (the last of which is an allegation of the fact of reliance/vulnerability on the part of the plaintiffs).
4. Complaint is made that no material facts are alleged in respect of the allegation as to Deloitte's knowledge (as to the position of the parent and all subsidiaries); that the risk of harm is not properly identified and articulated; and that there is no pleading of the material facts and circumstances allegedly giving rise to vulnerability in respect of each of the eight plaintiffs. Again, Deloitte points out that it had no contractual relationship with seven of the plaintiffs. Deloitte submits that it is not readily apparent why each of the Subsidiary Plaintiffs was vulnerable to Deloitte (as the auditor for Hastie) not telling it how to run its businesses and manage its construction contracts.
5. As to the allegations of breach, Deloitte complains that the pleading fails to articulate with specificity in relation to any given complaint as to the conduct of the audit what a reasonably competent auditor should have done and as to how the audit work performed by Deloitte departed from that standard.

Misleading conduct - [200]-[206]; [221]-[227]

1. Deloitte's complaint as to the pleading of the misleading or deceptive conduct claims is that the plaintiffs do not allege material facts on the basis of which the alleged audit representations are impugned. It notes that the allegations impugning the "2010 Audit Representations" and the "2011 Audit Representations" respectively ([205], [226]) simply state as conclusions the converse of the alleged representations, and then repeat as particulars of those matters the bulk of the preceding parts of the document ([37]-[173] and [191]-[192] in respect of the 2010 audit and [37]-[180] and [213]-[214] in respect of the 2011 audit), about which complaint is also made.

Causation - [228]-[232]; [233]-[237]

1. The fundamental complaint by Deloitte in relation to the pleading of causation is that there is no clear identification of what each individual plaintiff would have been done but for the alleged wrongful conduct and how that would have led to some different result so as to establish the causal connection between the wrongdoing and the claimed loss (Deloitte there referring to what was said in Barnes v Forty Two International Pty Limited (2014) 316 ALR 408; [2014] FCAFC 152 at [119]-[122] (Beach J, Siopis and Flick JJ agreeing)). It maintains that particulars cannot make good this deficiency (referring to Bond Corp Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215 at 223 (French J, then sitting in the Federal Court); Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591 at 44, 154 (Goldberg J at 44, 154); and PPK Willoughby Pty Ltd v Roads and Maritime Services [2014] NSWSC 407 at [46] (Campbell J)).
2. As to what Deloitte would have become aware of and should have done ([230]; [236]), insofar as there is a suggestion that Deloitte should have given a qualified opinion in the 2010 Audit Report, Deloitte complains that the qualification is not pleaded. Deloitte submits that the circumstances said to require the qualification, and what the qualification might be, are not apparent from the proposed amended commercial list statement.
3. As to what the directors of the plaintiffs would have done in response (the counterfactual pleaded at [231] and [236]), Deloitte's complaint is that the proposed amended commercial list statement fails properly to articulate what it is that it is said would have been done in the event that Deloitte had acted in conformity with its obligations. It argues that the matters alleged at [231] and [236] do not plead any material facts that identify any causal link with the losses asserted in respect of the construction contracts.
4. Among other things, Deloitte makes reference to the allegation at [231(c)] that the directors would have taken remedial action "including (but not limited to)" correcting errors and misstatements in the financial reports, conducting impairment reviews; significantly writing down the value of assets, including the goodwill and the receivables and/or WIP on construction contracts; and "reforming the reporting framework, accounting policies and commercial governance and practices of the Hastie Group". Deloitte argues that those matters identify no causal connection to the claimed loss in relation to the construction contracts and that the allegation (at (iv)) is "completely opaque" as to what would have been done. Similarly, complaint is made as to the allegation at (d) that "the directors of the plaintiffs would have taken steps to prevent or mitigate the losses which arose from the Contracts" that it does not plead any material facts as to the steps that would have been taken and hence identifies no causal link.

The plaintiffs' response on the pleading deficiencies

1. As already noted, the plaintiffs' response to the various complaints made by the defendants as to the adequacy of the proposed amended commercial list statements is broadly that the statements adequately address the elements of the various causes of action contained therein; that, on any reasonable view, the proposed amended commercial list statements disclose a cause of action; that, if there are any further deficiencies, they are capable of being cured by amendment, and to assert that the defendants know the case they have to meet.
2. So, for example, it is said (T 12.25-43) that moneys owed by a contractor to a sub-contractor must be regarded as assets for the purposes of impairment provisions in accounting standards (AASB 108) and therefore if there is doubt as to the ability or willingness of the contractor to pay those moneys the impairment provisions must be applied. Thus it is said that if at any stage it becomes apparent that the claims will not be met, and those claims have been taken into revenue, then there is an obligation to recognise this as an expense (T 12.43). I pause to note here that there is no allegation in the proposed commercial list statements as to the ability or willingness of a contractor to pay any particular variation claim at any particular time (other than the reference to insolvency in relation to the Rotary Human Joint Venture which is not one of the seven construction projects); nor as to when it is said that it was, or should have been, apparent to Deloitte (or the Hastie directors) that the claim would not be met.
3. The plaintiffs expressly disavow an allegation that Deloitte is liable for losses that occurred before it was retained but nevertheless argue that the fact that some of the construction contracts were entered into before the commencement of Deloitte's retainer is irrelevant (see for example #[152] above). (The proposed amended commercial list statement does not, however, identify the connection between any such earlier losses and Deloitte's alleged liability for those losses. Is it alleged that, had Deloitte identified at an earlier time the existence of particular unapproved variation works, then losses in respect of those works (as opposed to future works) would not have been suffered? If so, why? What steps is it said would have been taken at what time by the directors to "prevent or mitigate" those losses?)

Power to grant leave to amend

1. Before addressing the argument as to the pleading deficiencies I should also note that Deloitte raised a submission that this Court does not have power to permit the proposed amendments concerning the 2010 audit on the basis that they do not arise from the same, or substantially the same, facts as those giving rise to an existing cause of action and claim for relief as set out in the existing commercial list statement, which was filed in 2016.
2. Section 65 of the Civil Procedure Act provides: 65(1) This section applies to any proceedings commenced before the expiration of any relevant limitation period for the commencement of the proceedings. (2) At any time after the expiration of the relevant limitation period, the plaintiff in any such proceedings may, with the leave of the court under s 64(1)(b), amend the originating process so as: ... (c) to add or substitute a new cause of action, together with a claim for relief on the new cause of action, being a new cause of action that, in the court's opinion, arises from the same (or substantially the same) facts as those giving rise to an existing cause of action and claim for relief set out in the originating process. (3) Unless the court otherwise orders, an amendment made under this section is taken to have had effect as from the date on which the proceedings were commenced. (4) This section does not limit the powers of the court under s 64. (5) This section has effect despite anything to the contrary in the Limitation Act 1969. ...
3. Accepting, for the purpose of this argument, that s 65 of the Civil Procedure Act applies to a commercial list statement, Deloitte nevertheless argues that the proposed amendments concerning the 2010 audit (in respect of which a claim would now be statute-barred if commenced afresh) do not arise from the same (or substantially the same) facts as those giving rise to an existing cause of action and claim for relief because the existing commercial list statement was devoid of material facts. Hence it is submitted that the traditional (settled) rule that amendment is not permitted to set-up a cause of action which at the time of the amendment is statute barred (see Weldon v Neal (1887) 19 QBD 394; Renowden v McMullin (1970) 123 CLR 584; [1970] HCA 24) is not overcome.
4. The plaintiffs, on the other hand, maintain that the Court does have power to grant the amendments sought under s 64(1) and (2) of the Civil Procedure Act because they are not seeking to add or substitute a new cause of action. They point out that the causes of action referred to in the filed summons and commercial list statement in the Auditors' Proceeding were breach of contract, negligence and misleading and deceptive conduct in connection with Deloitte's audit of Hastie Group for the financial year ended 30 June 2010 and that the causes of action the subject of the proposed amendments remain the same. Further they say that even if (which they dispute) the proposed amendments constitute a new cause of action, they arise from the same, or substantially the same, facts as those giving rise to an existing cause of action and the plaintiffs seek leave under s 65(2)(c) accordingly.

Determination on pleading issues

1. In my opinion the criticisms made of the respective proposed amended commercial list statements have considerable force and in broad terms should be accepted. Even though some of the complaints could in my opinion be adequately dealt with by the provision of particulars, the fundamental problem I see with both of the proposed amended commercial list statements is the failure adequately to plead what it is that the respective defendants did, or failed to do, that amounted to a breach of their respective duties/obligations and the causal link between that breach and the losses claimed in each case against the respective defendants.
2. In Ucak v Avante Developments Pty Ltd [2007] NSWSC 367, Hammerschlag J made clear (at [6]) that even though a commercial list statement (and response) should avoid formality, the Practice Note in the Commercial List does not dispense with the fundamental requirement that each disclose a reasonable cause of action and defence respectively. His Honour said (at [7]-[8]): The principle that the Court has as an incident of its jurisdiction the power to, and will, strike out a pleading which discloses no reasonable cause of action or defence, or which has a tendency to cause prejudice, embarrassment or delay in the proceedings or which otherwise is an abuse of the process of the Court, is recognised in para 51 of the Practice Note and applies to a Statement and Response in this List with no less force albeit Pt 14 of the UCPR does not strictly apply. The management procedures in this List are directed to the just, quick and cheap disposal of proceedings. Those aims will not be achieved by permitting Statements and Responses which fail to comply with the Practice Note in material respects.
3. Further, as the defendants have pointed out, the Court will not grant leave to allow an amendment if it would be liable to be struck out had it appeared in the original pleading (see Horton v Jones (No 2) (1939) 39 SR (NSW) 305 at 310; McGuirk v University of New South Wales [2009] NSWSC 1424 at [18]). Leave to amend will therefore not be granted in respect of a pleading, or amendment, likely to be struck out as embarrassing (referring to Tamaya Resources Limited (in Liq) v Deloitte Touche Tohmatsu (A Firm) [2015] FCA 1098 at [142]-[143] (Gleeson J); Caason Investments Pty Ltd v Cao (2015) 236 FCR 322; [2015] FCAFC 94 at [21] (Gilmour and Foster JJ); ACN 074 971 109 v The National Mutual Life Association of Australasia Ltd [2010] VSC 186 at [29] (Croft J); Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66; [2009] FCA 320 at [21], [23] (Kenny J)). (See also Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (1995) 58 FCR 26 (Lindgren J, Lockhart and Tamberlin JJ agreeing).) In HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in Liq) (No 2) [2016] FCA 446, for example, Foster J said (at [56]) that it would be a wrong exercise of the Court's discretion to allow an amendment for which there was no arguable basis in fact.

Discretionary matters

1. The respective defendants largely raise the same matters in respect of their submission that a balancing of the relevant discretionary factors should lead to the refusal of leave to re-plead.
2. First, delay by the plaintiffs. The defendants in essence contend that the plaintiffs have had ample opportunity (since their appointment as administrators in 2012) to plead a viable case, noting that the proposed amended commercial list statements now put forward are the third (in the case of the Auditors' Proceeding) and fourth (in the case of the Directors' Proceeding) versions that the plaintiffs have put forward. The obligation of a plaintiff promptly to pursue a claim initiated on the eve of the limitation period (see Bishopsgate Insurance Australia Ltd (in Liq) v Deloitte Haskins & Sells [1999] 3 VR 863) is emphasised.
3. The defendants go further and submit that there is no reason to think that more time will enable the plaintiffs to surmount the difficulties that they have not to date been able to address in the successive versions of the pleading already propounded. Reliance is placed in this regard on the concession made in cross-examination by Mr Kelcey to which I have earlier referred (namely, that the current version of the proposed amended commercial list statement in the Auditors' Proceeding represented the best attempt his firm could make of pleading a viable claim). The defendants point out that there is no suggestion that the plaintiffs need to conduct further factual inquiries in order to formulate a proper claim (noting that the plaintiffs have already conducted public examinations and have had the benefit of an expert review of the audit files). They say this is not a case where the plaintiffs have received further documents or information that they did not already have before the proceedings were commenced (or shortly thereafter); nor is it a case where amendments are sought to be made because of receipt of new substantive documents following discovery or the service of new evidence.
4. Deloitte also argues that no adequate explanation for the delay has been proffered. It says that the explanation given by Mr Kelcey (as to the time taken to obtain funding and the volume of the material which had to be reviewed) (at [49] of his affidavit sworn 3 March 2017 (and see his evidence in cross-examination in these proceedings at T 43-50) cannot be accepted, having regard to the rejection of such an explanation when the matter was before Ball J (on the first-hand evidence given by Mr Crosbie on that occasion.

Plaintiffs' submissions as to leave to re-plead

1. The plaintiffs point to the admonition by the High Court that a plaintiff should not be denied the right to prosecute a claim unless it is clearly demonstrated that there is no arguable cause of action (referring to General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; [1964] HCA 69 (Barwick CJ) and Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91; [1949] HCA 1 (Dixon J)). They submit that it is well established that the plaintiff's case should be taken at its highest on a pleading application such as an application for leave to amend (referring to S1 v The Trustees of Marist Brothers [2016] NSWSC 970 at [11]).
2. They contend that leave to re-plead ought be granted unless the Court takes the view that the proceeding is frivolous or vexatious or no reasonable cause of action is disclosed (referring to Steiner v Strang [2016] NSWSC 9 at [26]-[27], [49]; S1 at [51]-[52]) or that the case sought to be put is "hopeless" or "manifestly groundless" (referring to Wentworth v Rogers (No. 5) (1986) 6 NSWLR 534 at 536; and Commonwealth Bank of Australia v ZYX Learning Centres Limited [2014] NSWSC 1676 at [254]-[256]). They note that in CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11 at [24], the Victorian Court of Appeal said that leave to re-plead will only be refused if the amendments raise a claim that has no prospects of success, in the sense of being fanciful, in accordance with the criteria for summary dismissal set out in the Civil Procedure Act 2010 (Vic) and that the Court there recognised (at [27]) that evidence adduced at trial may shape the case in ways that have not been anticipated despite the best efforts of litigants and their lawyers.
3. As to the question of delay, they maintain that the delay has been adequately explained and that no specific prejudice to the defendants has been identified. They maintain that they only obtained litigation funding on 31 October 2016, when approval was granted by the Federal Court of Australia for entry into a funding agreement. However, the evidence of Mr Crosbie in his February 2015 affidavit makes clear in my opinion that conditional approval for funding had been obtained before October 2016 and that there were at various times funds available to conduct the public examinations (which were necessary in order to obtain advice as to prospects, which in turn was necessary for there to be a commitment to funding) but that a deliberate decision was made not to do so).

Determination

1. The liquidators were first appointed as administrators on 28 May 2012. They were subsequently appointed as liquidators of all the Hastie group companies by 31 January 2013. They were aware of the potential claims the subject of the present sets of proceedings from at least January 2013. They have had the assistance of expert advice in connection with the analysis of the audit files and have conducted public examinations. They have not only had the period since commencement of the respective proceedings against the directors and auditors to formulate their claims but have, in a practical sense, had well before that to do so.
2. The plaintiffs accept that they have (as do their solicitors) an obligation to prosecute the proceedings promptly that is heightened by the fact that they were commenced on the eve of the limitation period and were only served following an extension of the time for service.
3. I accept that an explanation for the delay has been proffered. I share Ball J's doubt as to the adequacy of the explanation for the delay in investigating the potential claims, in circumstances where it is clear that there were funds available with which to conduct the public examinations at an earlier time. That said, I do not base my decision on the question of delay in the initial investigation of the potential claims. I accept that the relevant delay on the present applications is as to the preparation of a viable commercial list statement in respect of the present proceedings (though it cannot be disputed that the liquidators have had since late 2012 to investigate the claims the subject of these proceedings).
4. Rather, the factors that I consider determinative are the obvious prejudice to the defendants if leave is granted and the lack of any real prejudice if leave is not granted to the only entities likely to benefit from the proceedings (the Banking Syndicate) other than, of course, the lawyers, liquidators and litigation funders who might be said to have taken the risk on this.
5. As to the prejudice to the defendants, there can be no doubt as to the presumptive prejudice to which the various defendants are exposed (as was considered in cases such as Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 552-553; [1996] HCA 25 (McHugh J); Weston v Publishing and Broadcasting Limited (2012) 88 ACSR 80 at [173] (Sackville AJA, with whom Campbell and Young JJA agreed); Tamaya at [183] (Gleeson J); Bishopsgate at [60] and Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1219 at [70]). Prejudice to various of the individual defendants in the Directors' Proceeding by reference to their age and/or their professional standing in the community has also been noted. It is also significant that the scope of the claims now sought to be made will require examination of events going back for many years and will involve a variety of construction projects both here and in the Middle East.

Costs

1. Costs should follow the event. Accordingly the plaintiffs should pay the respective defendants' costs of the applications for leave to amend (and in due course will be required any costs thrown away by the proposed further amendment of the respective commercial list statements). An order was sought that costs be payable forthwith (see T 102). I note that Practice Note SC Eq 3 provides that, unless otherwise ordered, a party in whose favour an order for costs is made may proceed to assessment of such costs forthwith. Therefore no such order is necessary.

Orders

1. The orders I make are as follows: In each proceeding: 1. Dismiss the plaintiffs' application for leave to file the proposed amended commercial list statement annexed to the affidavit of their solicitor. 2. The plaintiffs to pay the defendants' costs of the proceeding to date. 3. Liberty to the parties to apply on 3 business days' notice. 4. Stand the matter over to directions in the Commercial List on 13 October 2017. and in relation to the Auditors' Proceeding, 1. Dismiss the proceeding insofar as it makes claims in relation to the 2010 audit. 2. Direct the plaintiffs to serve any further proposed amended commercial list statement in relation to the 2011 audit by no later than 3 October 2017 and, if there is objection by the defendants to leave being granted for the filing of that document, to file any application for leave to file such a document by no later than 6 October 2017 to be returnable in the Commercial List on 13 October 2017. and in relation to the Directors' Proceeding: (5) Dismiss the proceeding insofar as it makes claims against any of the defendants that would be statute-barred if the proceedings were now to be commenced. (6) Direct the plaintiffs to serve any further proposed amended commercial list statement in relation to claims that are not yet statute-barred by no later than 3 October 2017 and, if there is objection by the defendants to leave being granted for the filing of that document, to file any application for leave to file such a document by no later than 6 October 2017 to be returnable in the Commercial List on 13 October 2017.

Extracts from proposed amended commercial list statements

Alleged duties of care and diligence 27. The Hastie Duties of Care and Diligence required each of Bourne. Harris, Woodward, Anderson, Gaskell, Boon, [and] Martin … to: (a) cause each of the Subsidiaries, in respect of any significant construction project on which a Subsidiary was engaged, to prepare a contract administration manual that: (i) was tailored to the particular terms of each contract; (ii) contained: (A) a checklist outlining the procedures that must be followed to identify, record, notify, submit, and obtain approval for variation works and claims in accordance with the terms of the subcontract, including time bars; (B) templates of all documents required to lodge an application for variation approval and variation claims in accordance with the terms of the subcontract; and (C) a template variation register, including a description of the works, the date submitted, identified but not submitted, approved, date approved, pending, withdrawn, rejected, taken to forecast, comments; (iii) directed the project managers and commercial managers of each contract to: (A) comply with the procedures for the recording, notification, submission and approval of variation works and claims set out in the relevant contract; (B) ensure that all costs entered into Hastie Group's internal accounting system (Pronto) (or equivalent electronic accounting system used by the Subsidiary) were: (1) approved by the project manager and/or the commercial manager before they were entered; and (2) assigned to the correct cost codes; (C) ensure that all costs incurred in respect of variation works were recorded and identified in Pronto (or other accounting system used by the Subsidiary) as being costs incurred in respect of variation works; (b) cause each of the Subsidiaries, in respect of any significant construction project on which a Subsidiary was engaged, to provide to Hastie's Board standardised monthly reports containing the following information: (i) details of current costs incurred; (ii) details of current revenue received; (iii) forecast of estimated final costs, including details of the assumptions underlying the forecast; (iv) forecast of estimated final revenues, including details of the assumptions underlying the forecast; (v) forecast of estimated final margins, including details of the assumptions underlying the forecast; (vi) details of any movements in the forecast final cost with a value of $500.000 or more; (vii) details of any movements in the forecast final revenue with a value of $500.000 or more; (viii) details of any risks which could affect the forecast final margin by $500.000 or more; (ix) details of any variations claimed, agreed and/or taken to forecast; (x) details of any claims or disputes with their head contractor or their subcontractors with a value of $1.000.000 or more; (c) take all reasonable steps to ensure that the Subsidiaries: (i) prepared and implemented the contract administration manuals referred to in paragraph 27(a) above, instructed management and employees in their use and ensured that the processes and procedures therein referred to were followed and enforced; and (ii) provided to Hastie's Board the standardised monthly reports referred to in paragraph 27(b) above. (d) understand the true financial position of: (i) any significant construction project on which a Subsidiary was engaged; (ii) the Subsidiaries; and (iii) the Hastie Group. (e) oversee, guide and monitor each Subsidiary's business, including its significant projects; (f) take responsible steps to be informed of each Subsidiary's material business activities; (g) ensure that each Subsidiary established, maintained and followed appropriate contract administration practices and procedures in relation to its significant projects; (h) ensure that each Subsidiary established, maintained and followed appropriate internal reporting systems concerning project management and administration; (i) ensure that each Subsidiary had processes in place to ensure that it received a variation order before commencing contract variation works; (j) ensure that each Subsidiary established, maintained and followed appropriate processes to support variation work claims; (k) ensure that each Subsidiary had processes in place to ensure that it claimed payment for performed variation works in a timely manner and in accordance with the contract provisions; (I) ensure that each Subsidiary company had processes in place to ensure that it appropriately recorded and reported costs incurred on each project; (m) be familiar with each Subsidiary's financial position; (n) ensure that each Subsidiary established, maintained and followed appropriate systems and controls for financial management and accounting; (o) ensure that each Subsidiary had processes in place to ensure that it had an appropriate approach to the recognition of profits by not recognising variation claims until it was probable that they would be realised and being cautious in the assessment of probability; (p) ensure that each Subsidiary had processes in place to ensure that it recognised expenses and losses on projects in accordance with applicable accounting standards; (q) ensure that each Subsidiary had processes in place to ensure that it complied with applicable accounting standards in relation to provisioning for asset impairment, the recognition of revenue and the treatment of inventories, trade and other receivables; (r) ensure that each Subsidiary had processes in place to ensure that financial reporting from subsidiary level up to Hastie was uniform and not subject to manipulation; (s) apply 'an enquiring mind' to the reliability of financial statements and overall reporting, and adequately interrogate the financial data and accounts presented for their consideration; (t) ensure that Hastie Group's financial reports for the 2008. 2009, 2010 and 2011 financial years were true and fair; (u) pay a dividend to Hastie's shareholders only where it was reasonable to do so; (v) permit Subsidiaries to make loans to Hastie or others of its subsidiaries only after being satisfied that the loans could and would be repaid; (w) permit Subsidiaries to make loans to Hastie or others of its subsidiaries only if there was a commercial benefit to the company making the loans; (x) permit Hastie to make loans to any of Its subsidiaries only after being satisfied that the loans could and would be repaid; and (y) permit Hastie to make loans to any of its subsidiaries only if there was a commercial benefit to Hastie in making the loans.

Alleged deficiencies in Hastie Group's internal controls and processes in relation to construction contracts 40. At all material times, Hastie Group did not have adequate internal controls and processes in relation to construction contracts entered into by companies in Hastie Group to ensure that: a. Hastie Group would be in a position to prepare true and fair financial reports; b. the relevant company had received a written contract signed by the customer; c. the assessed margin was the product of a full and proper costing process; d. the accumulation of costs for a project had been properly assessed, recorded and allocated to that project; e. the costs to complete had been reviewed and assessed (not just extracted from the initial budget); f. if variation works were to be performed, the relevant company had received a written variation or direction signed by the customer; g. if variation works were to be performed, such variations were supported by adequate documentation, including independent support; h. there was reliable support for all reporting made in relation to that contract (including independent support) and that any disputes with the customer were taken into account; and i. the amount reported in relation to each contract was sustainable and that no provisions ought to have been made for cost overruns or variations. 41. At all material times. Hastie Group's internal controls and processes were deficient. Particulars a. The plaintiffs refer to and repeat paragraph 40 above; b Hastie Group did not cause its contracting Subsidiaries to produce a contract administration manual which applied in respect of the Contracts containing the information referred to in sub-paragraph 38(a) above; c. Hastie Group did not cause its contracting Subsidiaries to provide to the Hastie Board standardised monthly reports in respect of the Contracts containing the information referred to in sub-paragraph 38(b) above; d. Hastie Group did not have a finance manual which applied across the Group; e. Hastie Group did not have a uniform set of accounting policies which applied across the Group; f. Hastie Group did not have an adequate project forecasting process; g Hastie Group did not have an adequate cash flow forecasting process; h. Hastie Group did not have a contingency provisioning process; i. Hastie Group did not have a balance sheet forward forecasting process; j. Hastie Group did not have an adequate profit and loss forecasting process; k. Hastie Group only appointed a risk manager on 1 December 2011 (Richard McDowell); I. Hastie Group did not have an internal audit function; m. Hastie Group did not have a process for fixed reviews in relation to the performance of businesses after acquisition. n. Hastie Group did not have a process for fixed project reviews with head office: o. Hastie Group did not have project management or contract management policies which applied across all the businesses until about 23 March 2012: p. Hastie Group did not have a risk management framework for assessing large construction contracts; q. Hastie Group did not have adequate systems and processes to ensure that appropriate financial and operational data, upon which the Hastie Board made decisions, was available and reliable; and r. Hastie Group did not have checks and controls in place to ensure that systems and processes were applied correctly and uniformly and that the financial and operational data was reliable. 42. At all material times, Deloitte failed to detect and report to Hastie's directors and officers the deficiencies in Hastie Group's controls and processes as set out in paragraphs 40 and 41 above.

Allegations of breach of contract - 2010 audit: 197. In breach of the 2010 Audit Engagement, Moore and Deloitte: a. did not perform audit services pursuant to the requirements of the Corporations Act; b. did not conduct the 2010 Audit in accordance with the ASAs; c. did not adequately audit the 2010 Financial Report; d. did not adequately perform audit procedures to obtain audit evidence about the amounts and disclosures in the 2010 Financial Report; e. did not adequately assess the risks of material misstatements in the 2010 Financial Report; f. did not adequately evaluate the appropriateness of the financial reporting framework, accounting policies used and the reasonableness of the accounting estimates made by management; g. did not adequately evaluate the overall presentation of the 2010 Financial Report; h. did not adequately consider internal controls relevant to Hastie Group's preparation of the 2010 Financial Report in order to design audit procedures that were appropriate in the circumstances; i. did not identify any material weaknesses in the design or implementation of internal controls over Hastie Group's financial reporting; j. did not use all reasonable skill and care in carrying out the 2010 Audit, being the degree of skill, care and diligence expected of a professional proving services of the same kind. Particulars Moore and Deloitte: a. did not adequately plan and perform the 2010 Audit to obtain reasonable assurance as to whether the 2010 Financial Report was free from material misstatement; b. did not form an adequate opinion and adequately report on whether the 2010 Financial Report presented to Deloitte by the directors of Hastie was in accordance with the Corporations Act, including: i. giving a true and fair view of the financial position of Hastie and of the Subsidiaries as at 30 June 2010 and of their performance for the year ended on that date: and ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001: c. did not express an adequate opinion on whether the accounting records of Hastie and the Subsidiaries were sufficient and appropriate to provide a basis for their audit opinion on the 2010 Financial Report; d. failed to have proper regard to the risk of error, misstatement or fraud in the 2010 Financial Report in circumstances where Hastie Group had experienced rapid inorganic growth which created a complex group structure with little integration or accountability; e. failed to consider whether the amount paid for goodwill on the businesses acquired in the year ended 30 June 2010 had been overvalued; f. failed to challenge the assumption that none of the $12,040,000 goodwill acquired by business acquisitions during the year ended 30 June 2010 was impaired; g. failed to conduct their own impairment reviews; h. did not apply an adequate degree of professional judgment and scepticism to question whether the 2010 Financial Report materially overstated Hastie Group's intangible assets; i. failed to challenge the valuation of receivables or WIP on construction contracts; j. failed to consider the financial reporting framework, accounting policies used (or lack of adequate accounting policies), and the reasonableness of accounting estimates made by management, with respect to the valuation of receivables or WIP on construction contracts in circumstances where the Hastie Group's policy for revenue recognition on large construction projects was predominantly based on the percentage completion method, resulting in the potential for timing differences between billings and recognition of revenue in the income statement; k. failed to assess and report on the processes for the review and timely close-out of construction contracts and the recognition of their true profitability; I. failed to comply with the requirements of the following ASA and ensure compliance by Hastie Group with the following Australian Accounting Standards: i. ASA 200, in that they failed to exercise appropriate professional scepticism so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP. debtors and Intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 200 paragraph 20); ii ASA 220, in that the audit partner failed to direct and supervise the performance of the audit to ensure that it complied with auditing standards so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 220 paragraph 25); iii. ASA 260 and ASA 265. in that, having failed to detect that Hastie Group did not have adequate internal controls and processes in place to meet the accounting requirements of AASB 111 in relation to the recognition and measurement of the value of construction contracts entered into by Hastie or its Subsidiaries, and that provisions against contract debtors and intangible assets were understated, they failed to report that failing; iv. ASA 300, in that they failed to plan the audit so that it would be performed in an effective manner so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 300 paragraph 5); v. ASA 315, in that they failed to identify and assess the risks of material misstatement through an understanding of each of Hastie and the Subsidiaries, their environment and internal controls, and to communicate material weaknesses to the management and board of Hastie and the Subsidiaries; particularly In an environment where there had been rapid inorganic growth which created a complex group structure with little integration or accountability. Other areas of potential material weakness which were not identified, assessed and reported on included: (A) cost variation; (B) unapproved contract variation; (C) foreign operations; (D) impairment of intangible assets; (E) compliance with financial covenants; (F) Hastie Group's lack of an internal audit function; (G) its reporting, quality assurance and exception management; and (H) recognition of costs and revenues, and loss making projects. vi. ASA 320, in that they failed to properly consider materiality when determining the nature, timing and extent of audit procedures so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 320 paragraph 9); vii. ASA 330, in that they failed to audit, or inadequately audited, the response of Hastie Group to assessed risks so as to identify and report the breaches by Hastie Group of AASB 101. 111. 118. 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated; viii. ASA 500, in that they failed to gather sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 500 paragraph 5); ix. ASA 501, in that they failed to obtain a sufficient understanding of the system of internal control relating to inventory in order to ensure that they obtained sufficient appropriate audit evidence regarding the existence and valuation of inventory at 30 June 2010 (ASA 501 paragraphs 5 and 7 to 9); x. ASA 508, in that they failed to obtain sufficient appropriate audit evidence regarding legal matters affecting the entity, in particular with respect to disputes associated with construction contracts, as to the probability of any material revenue or expense arising from such matters and the estimated amount thereof and of the adequacy of the accounting treatment of such matters including their disclosure in the financial report (ASA 508 paragraph 5); xi. ASA 530, in that, in light of the lack of integration of the parts of Hastie Group, they failed to determine appropriate means for selecting items for testing and to consider the attributes of the population when designing their audit samples (ASA 530 paragraphs 5, 35 and 48); xii. ASA 540, in that they failed to audit, or inadequately audited, the accounting estimates made by the management of Hastie Group, including the fair values attributed by management and related disclosures; xiii. ASA 545, in that they failed to audit, or inadequately audited, the fair value measurements made by the management of Hastie Group, including related disclosures (ASA 545 paragraph 7); xiv. ASA 560, in that they failed to adequately consider the impact of subsequent events on material contracts; xv. ASA 570, in that they failed to adequately consider the appropriateness of management's use of the going concern assumption in the preparation of the financial report in light of the economic downturn in the Middle East and elsewhere; xvi. ASA 600, in that they failed to perform procedures to obtain sufficient appropriate audit evidence that the work of the other auditor is adequate for the principal auditor's purposes, in the context of the specific assignment (ASA 600 paragraph 14); xvii. ASAs 700 and 701, in that, having failed to gather sufficient appropriate audit evidence, they wrongly formed the opinion that the financial report was free of material misstatement; m. failed to comply with the following professional standards: i. APES 205, in that they failed to take all reasonable steps to ensure that Hastie Group complied with Australian Accounting Standards when performing the audit (APES 205 paragraph 5.5); and ii. APES 210, in that they failed to comply with auditing and assurance standards (APES 210 paragraph 4.1). Particulars The plaintiffs refer to paragraphs 37 to 180 and 191 to 192 above.

Allegations as to breach of the 2011 audit engagement 219 In breach of the 2011 Audit Engagement, Saayman and Deloitte: a. did not perform audit services pursuant to the requirements of the Corporations Act; b. did not conduct the 2011 Audit in accordance with the ASAs; c. did not adequately audit the 2011 Financial Report; d. did not adequately perform audit procedures to obtain audit evidence about the amounts and disclosures in the 2011 Financial Report; e. did not adequately assess the risks of material misstatements in the 2011 Financial Report; f. did not adequately evaluate the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by management; g. did not adequately evaluate the overall presentation of the 2011 Financial Report; h. did not adequately consider internal controls relevant to Hastie Group's preparation of the 2011 Financial Report in order to design audit procedures that are appropriate in the circumstances; i. did not identify any significant deficiencies in internal control relevant to the audit of the 2011 Financial Report; j did not use all reasonable skill and care in carrying out the 2011 Audit being the degree of skill, care and diligence expected of a professional proving services of the same kind. Particulars Saayman and Deloitte: a. did not adequately plan and perform the 2011 Audit to obtain reasonable assurance as to whether the 2011 Financial Report was free from material misstatement; b. did not form an adequate opinion and adequately report on whether the 2011 Financial Report presented to Deloitte by the directors of Hastie was in accordance with the Corporations Act, including: i giving a true and fair view of the financial position of Hastie and of the Subsidiaries as at 30 June 2011 and of their performance for the year ended on that date: and ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001: c. did not express an adequate opinion on whether the accounting records of Hastie and the Subsidiaries were sufficient and appropriate to provide a basis for their audit opinion on the 2011 Financial Report; d. did not adequately evaluate the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management of Hastie Group, or adequately evaluate the overall presentation of the 2011 Financial Report; e. failed to have proper regard to the risk of error, misstatement or fraud in the 2011 Financial Report in circumstances where Hastie Group had experienced rapid inorganic growth which created a complex group structure with little integration or accountability: f. failed to conduct their own impairment reviews; g did not apply an adequate degree of professional judgment and scepticism to question whether the 2011 Financial Report materially overstated Hastie Group's intangible assets: h. failed to challenge the valuation of receivables or WIP on construction contracts; i. failed to consider the financial reporting framework, accounting policies used (or lack of adequate accounting policies), and the reasonableness of accounting estimates made by management, with respect to the valuation of receivables or WIP on construction contracts in circumstances where Hastie Group's policy for revenue recognition on large construction projects was predominantly based on the percentage completion method, resulting in the potential for timing differences between billings and recognition of revenue in the income statement; j. failed to assess and report on the processes for the review and timely close-out of construction contracts and the recognition of their true profitability; k. failed to comply with the requirements of the following ASAs and ensure compliance with the following Australian Accounting Standards: i. ASA 200. in that they failed to exercise appropriate professional scepticism so as to identify and report the breaches by Hastie Group of AASB 101.111.118. 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 200 paragraph 20); ii. ASA 220. in that the audit partner failed to direct and supervise the performance of the audit to ensure that it complied with auditing standards so as to identify and report the breaches by Hastie Group of AASB 101. 111. 118.136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 220 paragraph 25): iii. ASA 260 and 265 in that, having failed to detect that Hastie Group did not have adequate internal controls and processes in place to meet the accounting requirements of AASB 111 in relation to the recognition and measurement of the value of construction contracts entered into by Hastie or its Subsidiaries, and that provisions against contract debtors and intangible assets were understated, they failed to report that failing: iv. ASA 300. in that they failed to plan the audit so that it would be performed in an effective manner so as to identify and report the breaches by Hastie Group of AASB 101.111. 118. 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 300 paragraph 5): v. ASA 315. in that they failed to identify and assess the risks of material misstatement through an understanding of each of Hastie and the Subsidiaries, their environment and internal controls, and to communicate material weaknesses to the management and board of Hastie and the Subsidiaries: particularly in an environment where there had been rapid inorganic growth which created a complex group structure with little integration or accountability. Other areas of potential material weakness which were not identified, assessed and reported on included: (A) cost variation; (B) unapproved contract variation; (C) foreign operations; (D) impairment of intangible assets; (E) compliance with financial covenants; (F) Hastie Group's lack of an internal audit function: (G) its reporting, quality assurance and exception management; and (H) recognition of costs and revenues, and loss making projects. vi. ASA 320, in that they failed to properly consider materiality when determining the nature, timing and extent of audit procedures so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP. debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 320 paragraph 9); vii. ASA 330, in that they failed to audit, or inadequately audited, the response of Hastie Group to assessed risks so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP. debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated; viii. ASA 500, in that they failed to gather sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 500 paragraph 5); ix. ASA 501, in that they failed to obtain a sufficient understanding of the system of internal control relating to inventory in order to ensure that they obtained sufficient appropriate audit evidence regarding the existence and valuation of inventory at 30 June 2011 (ASA 501 paragraphs 5 and 7 to 9); x. ASA 502, in that they failed to obtain sufficient appropriate audit evidence regarding legal matters affecting the entity. in particular with respect to disputes associated with construction contracts, as to the probability of any material revenue or expense arising from such matters and the estimated amount thereof and of the adequacy of the accounting treatment of such matters including their disclosure in the financial report (ASA 502 paragraphs 4 to 7); xi. ASA 530, in that, in light of the lack of integration of the parts of Hastie Group, they failed to determine appropriate means for selecting items for testing and to consider the attributes of the population when designing their audit samples (ASA 530 paragraphs 5, 35 and 48); xii. ASA 540, in that they failed to audit, or inadequately audited, the accounting estimates made by the management of Hastie Group, including the fair values attributed by management and related disclosures; xiii. ASA 545, in that they failed to audit, or inadequately audited, the fair value measurements made by the management of Hastie Group, including related disclosures (ASA 545 paragraph 7); xiv. ASA 560, in that they failed to adequately consider the impact of subsequent events on material contracts; xv. ASA 570, in that they failed to adequately consider the appropriateness of management's use of the going concern assumption in the preparation of the financial report in light of the economic downturn in the Middle East and elsewhere; xvi. ASA 600, in that they failed to perform procedures to obtain sufficient appropriate audit evidence that the work of the other auditor is adequate for the principal auditor's purposes, in the context of the specific assignment (ASA 600 paragraph 14): xvii. ASA 700, 705 and 706 in that, having failed to gather sufficient appropriate audit evidence, they wrongly formed the opinion that the financial report was free of material misstatement; and I. failed to comply with the following professional standards: i. APES 205, in that they failed to take all reasonable steps to ensure that Hastie Group complied with Australian Accounting Standards when performing the audit (APES 205 paragraph 5.5); and ii. APES 210, in that they failed to comply with auditing and assurance standards (APES 210 paragraph 4.1). Particulars The plaintiffs refer to paragraphs 37 to 180 and 213 to 214 above,

Allegations of breach of duty in respect of the 2010 audit 198 In breach of the 2010 Auditor's Duty, Moore and Deloitte: a. failed to provide services under the 2010 Audit Engagement with the degree of skill, care and diligence expected of a professional providing services of the same kind; b. failed to conduct the 2010 Audit pursuant to the Corporations Act and other relevant statutory and other requirements; c. failed to adequately plan and perform the 2010 Audit to obtain reasonable assurance as to whether the 2010 Financial Report was free from material misstatement; d. failed to adequately perform procedures (selected by application of the auditor's judgement including an assessment of the risks of material misstatement) to obtain audit evidence about the amounts and disclosures in the 2010 Financial Report; e. failed to form an adequate opinion and adequately report on whether the 2010 Financial Report presented to Deloitte by the directors of Hastie was in accordance with the Corporations Act, including: i. giving a true and fair view of the financial position of Hastie and of the Subsidiaries as at 30 June 2010 and of their performance for the year ended on that date; and ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001: f. failed to express an adequate opinion on whether the accounting records of Hastie and the Subsidiaries were sufficient and appropriate to provide a basis for their audit opinion on the 2010 Financial Report; g. failed to adequately evaluate the appropriateness of the financial reporting framework, accounting policies used and the reasonableness of accounting estimates made by management of Hastie Group, or adequately evaluate the overall presentation of the 2010 Financial Report; h. failed to adequately consider internal control relevant to the preparation of the 2010 Financial Report in order to design audit procedures that were appropriate in the circumstances and inform the directors and management of Hastie Group of any material weaknesses in the design or implementation of internal control over financial reporting that came to their attention during the audit of the 2010 Financial Report; i. failed to have proper regard to the risk of error, misstatement or fraud in the 2010 Financial Report in circumstances where Hastie Group had experienced rapid inorganic growth which created a complex group structure with little integration or accountability; j. failed to consider whether the amount paid for goodwill on the businesses acquired in the year ended 30 June 2010 had been overvalued; k failed to challenge the assumption that none of the $12,040,000 goodwill acquired by business acquisitions during the year ended 30 June 2010 was impaired; I. failed to conduct their own impairment reviews; m. failed to apply an adequate degree of professional judgment and scepticism to question whether the 2010 Financial Report materially overstated Hastie Group's intangible assets; n. failed to challenge the valuation of receivables or WIP on construction contracts; o. failed to consider the financial reporting framework, accounting policies used (or lack of adequate accounting policies), and the reasonableness of accounting estimates made by management, with respect to the valuation of receivables or WIP on construction contracts in circumstances where the Hastie Group's policy for revenue recognition on large construction projects was predominantly based on the percentage completion method, resulting in the potential for timing differences between billings and recognition of revenue in the income statement; p. failed to assess and report on the processes for the review and timely close-out of construction contracts and the recognition of their true profitability; q. failed to comply with the requirements of the following ASAs and ensure compliance by Hastie Group with the following Australian Accounting Standards: i ASA 200, in that they failed to exercise appropriate professional scepticism so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 200 paragraph 20); ii. ASA 220, in that the audit partner failed to direct and supervise the performance of the audit to ensure that it complied with auditing standards so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 220 paragraph 25); iii. ASA 260 and ASA 265, in that, having failed to detect that Hastie Group did not have adequate internal controls and processes in place to meet the accounting requirements of AASB 111 in relation to the recognition and measurement of the value of construction contracts entered into by Hastie or its Subsidiaries, and that provisions against contract debtors and intangible assets were understated, they failed to report that failing; iv. ASA 300, in that they failed to plan the audit so that it would be performed in an effective manner so as to identify and report the breaches by Hastie Group of AASB 101,111,118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 300 paragraph 5); v. ASA 315, in that they failed to identify and assess the risks of material misstatement through an understanding of each of Hastie and the Subsidiaries, their environment and internal controls, and to communicate material weaknesses to the management and board of Hastie and the Subsidiaries; particularly in an environment where there had been rapid inorganic growth which created a complex group structure with little integration or accountability. Other areas of potential material weakness which were not identified, assessed and reported on included: (A) cost variation; (B) unapproved contract variation; (C) foreign operations: (D) impairment of intangible assets; (E) compliance with financial covenants; (F) Hastie Group's lack of an internal audit function; (G) its reporting, quality assurance and exception management: and (H) recognition of costs and revenues, and loss making projects. vi. ASA 320, in that they failed to properly consider materiality when determining the nature, timing and extent of audit procedures so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP. debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 320 paragraph 9); vii. ASA 330, in that they failed to audit, or inadequately audited, the response of Hastie Group to assessed risks so as to identify and report the breaches by Hastie Group of AASB 101.111.118. 136 and 139 in that adequate provision had not been made against the amounts of contract WIP. debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated, viii. ASA 500. in that they failed to gather sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP. debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 500 paragraph 5); ix. ASA 501, in that they failed to obtain a sufficient understanding of the system of internal control relating to inventory in order to ensure that they obtained sufficient appropriate audit evidence regarding the existence and valuation of inventory at 30 June 2010 (ASA 501 paragraphs 5 and 7 to 9); x ASA 508, in that they failed to obtain sufficient appropriate audit evidence regarding legal matters affecting the entity, in particular with respect to disputes associated with construction contracts, as to the probability of any material revenue or expense arising from such matters and the estimated amount thereof and of the adequacy of the accounting treatment of such matters including their disclosure in the financial report (ASA 508 paragraph 5); xi. ASA 530, in that, in light of the lack of integration of the parts of Hastie Group, they failed to determine appropriate means for selecting items for testing and to consider the attributes of the population when designing their audit samples (ASA 530 paragraphs 5, 35 and 48); xii. ASA 540, in that they failed to audit, or inadequately audited, the accounting estimates made by the management of Hastie Group, including the fair values attributed by management and related disclosures; xiii. ASA 545, in that they failed to audit, or inadequately audited, the fair value measurements made by the management of Hastie Group, including related disclosures (ASA 545 paragraph 7); xiv. ASA 560, in that they failed to adequately consider the impact of subsequent events on material contracts; xv. ASA 570, in that they failed to adequately consider the appropriateness of management's use of the going concern assumption in the preparation of the financial report in light of the economic downturn in the Middle East and elsewhere; xvi. ASA 600, in that they failed to perform procedures to obtain sufficient appropriate audit evidence that the work of the other auditor is adequate for the principal auditor's purposes, in the context of the specific assignment (ASA 600 paragraph 14); xvii. ASAs 700 and 701, in that, having failed to gather sufficient appropriate audit evidence, they wrongly formed the opinion that the financial report was free of material misstatement; and r. failed to comply with the following professional standards: i. APES 205, in that they failed to take all reasonable steps to ensure that Hastie Group complied with Australian Accounting Standards when performing the audit (APES 205 paragraph 5.5); and ii. APES 210, in that they failed to comply with auditing and assurance standards (APES 210 paragraph 4.1). Particulars The plaintiffs refer to paragraphs 37 to 172 and 191 to 192 above.

Allegations of breach of duty re 2011 audit 220 In breach of the 2011 Auditor's Duty, Saayman and Deloitte: a. failed to provide services under the 2011 Audit Engagement with the degree of skill, care and diligence expected of a professional providing services of the same kind; b failed to conduct the 2011 Audit pursuant to the Corporations Act and other relevant statutory and other requirements; c failed to adequately plan and perform the 2011 Audit to obtain reasonable assurance as to whether the 2011 Financial Report was free from material misstatement; d. failed to adequately perform procedures (selected by application of the auditor's judgment including an assessment of the risks of material misstatement) to obtain audit evidence about the amounts and disclosures in the 2011 Financial Report; e. failed to form an adequate opinion and adequately report on whether the 2011 Financial Report presented to Deloitte by the directors of Hastie was in accordance with the Corporations Act, including: i. giving a true and fair view of the financial position of Hastie and of the Subsidiaries as at 30 June 2011 and of their performance for the year ended on that date; and ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; f. failed to express an adequate opinion on whether the accounting records of Hastie and the Subsidiaries were sufficient and appropriate to provide a basis for their audit opinion on the 2011 Financial Report; g. failed to adequately evaluate the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management of Hastie Group, or adequately evaluate the overall presentation of the 2011 Financial Report; h. failed to adequately consider internal control relevant to the preparation of the 2011 Financial Report in order to design audit procedures that were appropriate in the circumstances and inform the directors and management of Hastie Group of any significant deficiencies in internal control that they have identified during the audit of the 2011 Financial Report; i failed to have proper regard to the risk of error, misstatement or fraud in the 2011 Financial Report in circumstances where Hastie Group had experienced rapid inorganic growth which created a complex group structure with little integration or accountability: j. failed to conduct their own impairment reviews; k. failed to apply an adequate decree of professional judgment and scepticism to question whether the 2011 Financial Report materially overstated Hastie Group's intangible assets; I. failed to challenge the valuation of receivables or WIP on construction contracts; m. failed to consider the financial reporting framework, accounting policies used (or lack of adequate accounting policies), and the reasonableness of accounting estimates made by management, with respect to the valuation of receivables or WIP on construction contracts in circumstances where Hastie Group's policy for revenue recognition on large construction protects was predominantly based on the percentage completion method, resulting in the potential for timing differences between billings and recognition of revenue in the income statement; n. failed to assess and report on the processes for the review and timely close-out of construction contracts and the recognition of their true profitability; o. failed to comply with the requirements of the following ASAs and ensure compliance with the following Australian Accounting Standards: i. ASA 200. in that they failed to exercise appropriate professional scepticism so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 200 paragraph 20): ii. ASA 220, in that the audit partner failed to direct and supervise the performance of the audit to ensure that it complied with auditing standards so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 220 paragraph 25); iii. ASA 260 and 265 in that, having failed to detect that Hastie Group did not have adequate internal controls and processes in place to meet the accounting requirements of AASB 111 in relation to the recognition and measurement of the value of construction contracts entered into by Hastie or its Subsidiaries, and that provisions against contract debtors and intangible assets were understated, they failed to report that failing; iv. ASA 300, in that they failed to plan the audit so that it would be performed in an effective manner so as to identify and report the breaches by Hastie Group of AASB 101,111. 118. 136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 300 paragraph 5); v. ASA 315, in that they failed to identify and assess the risks of material misstatement through an understanding of each of Hastie and the Subsidiaries, their environment and internal controls, and to communicate material weaknesses to the management and board of Hastie and the Subsidiaries; particularly in an environment where there had been rapid inorganic growth which created a complex group structure with little integration or accountability-Other areas of potential material weakness which were not identified, assessed and reported on included; (A) cost variation: (B) unapproved contract variation, (C) foreign operations: (D) impairment of intangible assets: (E) compliance with financial covenants: (F) Hastie Group's lack of an internal audit function; (G) its reporting, quality assurance and exception management: and (H) recognition of costs and revenues, and loss making projects. vi. ASA 320, in that they failed to properly consider materiality when determining the nature, timing and extent of audit procedures so as to identify and report the breaches by Hastie Group of AASB 101, 111, 118, 136 and 139 in that adequate provision had not been made against the amounts of contract WIP. debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 320 paragraph 9); vii. ASA 330, in that they failed to audit, or inadequately audited, the response of Hastie Group to assessed risks so as to identify and report the breaches by Hastie Group of AASB 101.111.118.136 and 139 in that adequate provision had not been made against the amounts of contract WIP. debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated; viii. ASA 500, in that they failed to gather sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion so as to identify and report the breaches by Hastie Group of AASB 101.111. 118.136 and 139 in that adequate provision had not been made against the amounts of contract WIP, debtors and intangible assets and therefore recognise that assets and profits were overstated and losses were understated (ASA 500 paragraph 5); ix. ASA 501, in that they failed to obtain a sufficient understanding of the system of internal control relating to inventory in order to ensure that they obtained sufficient appropriate audit evidence regarding the existence and valuation of inventory at 30 June 2011 (ASA 501 paragraphs 5 and 7 to 9); x. ASA 502, in that they failed to obtain sufficient appropriate audit evidence regarding legal matters affecting the entity, in particular with respect to disputes associated with construction contracts, as to the probability of any material revenue or expense arising from such matters and the estimated amount thereof and of the adequacy of the accounting treatment of such matters including their disclosure in the financial report (ASA 502 paragraphs 4 to 7); xi. ASA 530, in that, in light of the lack of integration of the parts of Hastie Group, they failed to determine appropriate means for selecting items for testing and to consider the attributes of the population when designing their audit samples (ASA 530 paragraphs 5. 35 and 48); xii. ASA 540, in that they failed to audit, or inadequately audited, the accounting estimates made by the management of Hastie Group, including the fair values attributed by management and related disclosures; xiii. ASA 545, in that they failed to audit, or inadequately audited, the fair value measurements made by the management of the Hastie Group, including related disclosures (ASA 545 paragraph 7); xiv. ASA 560, in that they failed to adequately consider the impact of subsequent events on material contracts: xv. ASA 570, in that they failed to adequately consider the appropriateness of management's use of the going concern assumption in the preparation of the financial report in light of the economic downturn in the Middle East and elsewhere: xvi. ASA 600, in that they failed to perform procedures to obtain sufficient appropriate audit evidence that the work of the other auditor is adequate for the principal auditor's purposes, in the context of the specific assignment (ASA 600 paragraph 14); and xvii. ASA 700, 705 and 706 in that, having failed to gather sufficient appropriate audit evidence, they wrongly formed the opinion that the financial report was free of material misstatement; and p. failed to comply with the following professional standards: i. APES 205. in that they failed to take all reasonable steps to ensure that Hastie Group complied with Australian Accounting Standards when performing the audit (APES 205 paragraph 5.5); and ii. APES 210, in that they failed to comply with auditing and assurance standards (APES 210 paragraph 4.1). Particulars The plaintiffs refer to paragraphs 37 to 180 and 213 to 214 above.

Allegations as to what a reasonable auditor in the position of Deloitte would have done:

• for the 2010 audit 199 A reasonable auditor in Deloitte's position would have: a. performed the audit services pursuant to the requirements of the Corporations Act; b. conducted the 2010 Audit in accordance with the ASAs: c. adequately audited the 2010 Financial Report; d. adequately performed audit procedures to obtain audit evidence about the amounts and disclosures in the 2010 Financial Report; e. adequately assessed the risks of material misstatements in the 2010 Financial Report; f. adequately evaluated the appropriateness of the financial reporting framework, accounting policies used and the reasonableness of the accounting estimates made by management; g. adequately evaluated the overall presentation of the 2010 Financial Report; h, adequately considered internal controls relevant to Hastie Group's preparation of the 2010 Financial Report in order to design audit procedures that were appropriate in the circumstances; i. identified the material weaknesses in the design or implementation of internal controls over Hastie Group's financial reporting; j. used all reasonable skill and care in carrying out the 2010 Audit, being the degree of skill, care and diligence expected of a professional proving services of the same kind; k. reported that the 2010 Financial Report presented to Deloitte by the directors of Hastie did not: i. give a true and fair view of the financial position of Hastie and of the Subsidiaries as at 30 June 2010 and of their performance for the year ended on that date: ii. comply with Australian Accounting Standards; I. expressed an adequate opinion on whether the accounting records of Hastie and the Subsidiaries were sufficient and appropriate to provide a basis for their audit opinion on the 2010 Financial Report; m. adequately evaluated the appropriateness of the financial reporting framework, accounting policies used and the reasonableness of accounting estimates made by management of Hastie Group; n. adequately considered internal control relevant to the preparation of the 2010 Financial Report in order to design audit procedures that were appropriate in the circumstances and inform the directors and management of Hastie Group of the material weaknesses in the design or implementation of internal control over financial reporting that came to their attention during the audit of the 2010 Financial Report; o. had proper regard to the risk of error, misstatement or fraud in the 2010 Financial Report in circumstances where Hastie Group had experienced rapid inorganic growth which created a complex group structure with little integration or accountability: p. considered whether the amount paid for goodwill on the businesses acquired in the year ended 30 June 2010 had been overvalued; q. challenged the assumption that none of the $12.040,000 goodwill acquired by business acquisitions during the year ended 30 June 2010 was impaired; r. conducted its own impairment reviews; s. applied an adequate degree of professional judgment and scepticism to Question whether the 2010 Financial Report materially overstated Hastie Group's intangible assets; t. challenged the valuation of receivables or WIP on construction contracts; u. considered the financial reporting framework, accounting policies used (or lack of adequate accounting policies), and the reasonableness of accounting estimates made by management, with respect to the valuation of receivables or WIP on construction contracts in circumstances where the Hastie Group's policy for revenue recognition on large construction projects was predominantly based on the percentage completion method, resulting in the potential for timing differences between billings and recognition of revenue in the income statement; v. assessed and reported on the processes for the review and timely close-out of construction contracts and the recognition of their true profitability; w. complied with the requirements of the ASAs as referred to in paragraph 36 above and ensured compliance by Hastie Group with the Australian Accounting Standards as set out in paragraphs 26 to 30 above: and x. complied with the following professional standards: i. APES 205, in that they would have taken all reasonable steps to ensure that Hastie Group complied with Australian Accounting Standards when performing the audit (APES 205 paragraph 5.5); and ii. APES 210, in that they would have complied with auditing and assurance standards (APES 210 paragraph 4.1).

Allegations as to what would have happened had Deloitte informed the directors and taken the steps it is alleged it should have taken

• For the 2010 year 231 If Deloitte had informed the directors of the plaintiffs of the matters, and taken the steps it should have taken, as referred to in paragraph 230 above: a. the directors of the plaintiffs would have realised that the representation of the financial position of Hastie Group in the 2010 Financial Report was neither true nor fair; b. the directors of the plaintiffs would have realised that the 2010 Financial Report was not presented fairly and inaccordance with the Corporations Act, Australian Accounting Standards or the mandatory financial reporting requirements; c the directors of the plaintiffs would have taken remedial action, including (but not limited to): i. to correct errors and misstatements in the 2010 Financial Report and subsequent Reports; ii. to conduct impairment reviews; iii. to significantly write-down the value of assets, including the goodwill on the businesses acquired in the year ended 30 June 2010 and receivables and/or WIP on constructions contracts; and iv. to reform the reporting framework and accounting policies and commercial governance and practices of Hastie Group; d the directors of the plaintiffs would have taken steps to prevent or mitigate the losses which arose from the Contracts: e the directors of Hastie would not have made the Resolution f Hastie would not have paid the Dividend; and g the directors of the plaintiffs would have taken steps to prevent or mitigate the need for payment of the Loans and would not have made the Loans.
• For the 2011 year 236 If Deloitte had informed the directors of the plaintiffs of the matters, and taken the steps it should have taken, as referred to in paragraph 235 above, the directors of the plaintiffs would have: a realised that the representation of the financial position of Hastie Group in the 2011 Financial Report was neither true nor fair; b. realised that the 2011 Financial Report was not presented fairly and in accordance with the Corporations Act. Australian Accounting Standards orthe mandatory financial reporting requirements; c. taken remedial action, including (but not limited to): i to correct errors and misstatements in the 2011 Financial Report and subsequent Reports; ii. to conduct impairment reviews; iii. to significantly write-down the value of assets, including the goodwill on the businesses acquired in the year ended 30 June 2011 and receivables and/or WIP on construction contracts; and iv. to reform the reporting framework, accounting policies and commercial governance and practices of Hastie Group; d. taken steps to prevent or mitigate the losses which arose from the Contracts: and e. taken steps to prevent or mitigate the need for payment of the Loans and would not have made the Loans.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 April 2018