Hopkins v AECOM Australia Pty Ltd [2014] FCA 1043 | Case summary

REASONS FOR JUDGMENT 1 The cross-respondent to the tenth cross-claim (Mallesons) filed by the cross-claimant (AECOM), acted as legal adviser to the second respondent (RCMML) and the third respondent (RCMS) and various other companies referred to as "the RiverCity Motorway Group" in connection with an offer by RCMML of financial products in the form of stapled units (RCM Staples Units) in the Rivercity Motorway Investment Trust and Rivercity Motorway Holding Trust (RCM Trusts). The purpose of the offer was to raise funds to finance the design, construction and operation of the North-South Bypass Tunnel (NSBT). The offer was made under a product disclosure statement (the PDS) dated 21 June 2006. RCMML was the issuer of the RCM Stapled Units and the responsible entity for the RCM Trusts. The PDS was prepared by RCMS on behalf RCMML. Mallesons was named in the PDS as legal advisers to RCMML and Rivercity Motorway Group in relation to the NSBT bid and the offer. The PDS also included a statement that Mallesons "expressly disclaims and takes no responsibility for any part of this PDS." 2 Section 9 of the PDS, entitled "Experts' and Consultants' Reports", included a summary (the Summary Letter) prepared by AECOM of its traffic forecasting methodology and its traffic forecasts for the "base (otherwise known as equity)" scenario (but not those for "[t]he 'bank' scenario for consideration by the debt market") found in AECOM's full traffic report to RCMML in respect of the NSBT. AECOM consented to the inclusion of this material (the Consented Material) in the PDS pursuant to s 1013K of the Corporations Act 2001 (Cth) (the Act). 3 In this proceeding the applicants allege that AECOM is liable under s 1022B of the Act for a contravention of s 1021L of the Act. Broadly speaking, a person who consents to material for inclusion in a product disclosure statement, contravenes s 1021L if such material contains a misleading or deceptive statement, or omits information, which statement or omission is, or would be, materially adverse from the point of view of a reasonable person considering whether to acquire the financial product. 4 The applicants also allege that the PDS was "defective" for the purposes of s 1022A of the Act and that, under s 1022B of the Act, RCMML is liable as the person on whose behalf the PDS was prepared, and that RCMS is also liable as the person who prepared the PDS or as a person who was involved in the preparation of the PDS who, directly or indirectly, caused or contributed to the PDS being defective. By virtue of s 1022B(3)(b)(ii) of the Act, a person involved in the preparation of a PDS who, directly or indirectly, caused the PDS to be defective or contributed to it being defective may be liable to a person who suffers loss and damage because the PDS was defective. 5 AECOM has filed a cross-claim against Mallesons which it seeks leave to amend. Mallesons has not yet filed a defence to the existing cross-claim. It opposes AECOM's application for leave to amend on the ground that the pleading fails to identify a tenable cause of action against Mallesons. With the exception of RCMML and RCMS (both of which are now in liquidation) all other cross-respondents have either filed defences to the cross-claims brought against them by AECOM or are required to do so in the near future pursuant to orders and directions previously made. AECOM's affidavit evidence on most issues is due to be filed on 1 December 2014. 6 The principal allegation made by the applicants against AECOM is that it did not have reasonable grounds to make its traffic forecasts which, it is alleged, substantially overestimated the annual average daily traffic that would use the NSBT. However, there are other allegations against AECOM including (inter alia) that the Consented Materials omitted the following information: any disclosure of the risks associated with the use of AM peak period modelling only, the use of expansion factors, and the sensitivity of the traffic and revenue forecasts to the assumed expansion factors that were used; any disclosure that AECOM's earlier forecasts prepared in late 2004 or early 2005 for Brisbane City Council used an "all hour" traffic model rather than an "AM peak period model"; any disclosure of the fact that the earlier forecasts were approximately 50% lower than the forecasts summarised in the PDS; any reference to the failure of recently opened Australian toll roads (including the Cross City Tunnel); any disclosure of the fact that AECOM's traffic forecasts were prepared as part of the RCM Group's bid to win the NSBT concession; any disclosure that a significant amount of AECOM's consulting fee (up to $1 million of the $2.5 million) would be paid only if and after the RCM Group secured the NSBT concession; any disclosure that AECOM had been given instructions or directions by a number of members of the RCM Group and sponsor clients in respect of a number of assumptions and methodological steps which AECOM performed when preparing its forecasts and the summary letter. 7 The applicants allege that AECOM contravened s 1021L by failing to disclose this information in the Consented Material. As I understand AECOM's defence, it denies that there was any such non-disclosure but says that, even if there was, then the information not disclosed was not information that was required to be disclosed in the PDS. 8 Against that background, I turn to the claims made by AECOM against Mallesons in the proposed amended cross-claim. The proposed amended cross-claim repeats some very broad allegations against Mallesons (found in the Third Further Amended Defence (3rd FAD) but incorporated by reference in the proposed amended cross-claim) but must be read in conjunction with particulars that were separately provided on 24 March 2014 pursuant to orders previously made. Some additional assistance in understanding how AECOM puts its claims against Mallesons is gained from AECOM's written submission dated 9 September 2014. The latter focuses upon six specific matters that form part of the omitted information which are said to render Mallesons liable to the applicants under s 1022B(3)(b)(ii), viz. as a person involved in the preparation of the PDS who, directly or indirectly, caused the PDS to be defective or contributed to it being defective. 9 The case against Mallesons is put contingently in the sense that AECOM denies that the Consented Material included any misleading or deceptive statement or failed to include any information that it was required to include. However, AECOM says that if it be wrong about that, and it is liable to the applicants due to its non-disclosure of relevant information, then Mallesons would, if it had been sued by the applicants, also be liable to them, and that Mallesons is liable to contribute on that basis. No argument was put to me by Mallesons as to the applicability of the contribution legislation in circumstances involving co-ordinate liability under s 1022B(3)(b)(ii) of the Act. Rather, the arguments advanced on Mallesons' behalf focused on two issues: first, whether the cross-claim sufficiently identified what Mallesons is alleged to have done wrong, and second, whether Mallesons owed a duty of care to the applicants and other investors who acquired the RCM Stapled Units under the PDS. 10 It is alleged that Mallesons provided legal advice in relation to the PDS and that it "signed off" on the PDS by letter dated 13 June 2006 (the Opinion Letter) addressed to (inter alios) the Directors of RCMS and RCMML. AECOM alleges that Mallesons was represented on the Due Diligence Committee (DDC) and on the Traffic Due Diligence Sub-Committee (TDDSC). 11 The DDC (and, presumably, the TDDSC) was apparently established with the aim of ensuring that the PDS complied with the requirements of the Act and to provide (inter alios) RCMS and RCMML with the opportunity to establish the "reasonable steps" defence under s 1022B(7) of the Act. That provision may, at least in some situations, enable persons who issue or prepare a defective PDS, or who cause or contribute to the PDS being defective, to avoid liability under s 1022B by taking reasonable steps to ensure that the PDS is not defective. 12 Paragraph 81 of the 3rd FAD (which is also repeated for the purposes of the cross-claim) asserts: At all material times: (a) Mallesons acted for the RCM Consortium or, in the alternative, RCMML and RCM Services, and provided legal advice and other legal services, in connection with: (i) due diligence required for the preparation of the PDS and the RCM IPO; (ii) the role and actions of the DDC and TDDSC; (iii) the preparation, form and contents of the PDS; (iv) whether the PDS complied with the Corporations Act; (v) whether the PDS was misleading or deceptive or likely to mislead or deceive; (vi) whether there were material omissions from the PDS; (vii) the RCM IPO; and (viii) all other legal aspects of the NSBT Project; (b) two Mallesons partners were, and acted as, members of the DDC; (c) other Mallesons partners and, or in the alternative, lawyers employed by Mallesons, attended DDC meetings and provided legal advice to the DDC; (d) Mallesons partners and, or in the alternative, lawyers employed by Mallesons, attended TDDSC meetings and provided legal advice to or for the TDDSC; (e) between no later than in or about December 2005 and 13 June 2006, Mallesons: (i) assumed responsibility for the drafting of, and drafted, at least the following sections of the PDS (Mallesons' PDS Preparation): (A) section 5 (Corporate Structure and Taxation); (B) section 6 (Board and Management); (C) section 8 (Risk Factors); (D) section 10 (Additional Information); and (E) section 11 (Glossary); and (ii) advised that, or, in the alternative advised that they believed on reasonable grounds that: (A) the PDS complied with Part 7.9 of the Corporations Act; (B) no statement in the PDS was misleading or deceptive; and (C) there were no omissions of required material from the PDS having regard to the disclosure requirements of Subdivision C of Division 2 of Part 7.9 of the Corporations Act, (together, Mallesons' RCM IPO Actions). (particulars omitted) 13 The TDDSC is alleged to have prepared a "key issues report" which canvassed various traffic related topics including expansion factors, "confidence in key outcomes", "Low Case v Base Case" and the Cross City Tunnel. 14 The proposed amended cross-claim alleges that by 13 June 2006 Mallesons knew or ought to have known of various matters which together make up what are referred to in para 100 of the 3rd FAD as the "Mallesons' Traffic Forecast Facts". AECOM relies upon Mallesons' involvement in the DDC, the TDDSC and the key issues report (referred to in the 3rd FAD as the TDDSC Key Issues Report) in support of its allegation that Mallesons knew or ought to have known of the Mallesons' Traffic Forecast Facts. 15 In the Opinion Letter Mallesons expresses various opinions relevant to the due diligence process and the availability of the "reasonable steps" defence under (inter alia) s 1022B(7) of the Act. The Opinion Letter also includes statements that Mallesons believed that the PDS complied with Part 7.9 of the Act, that the PDS does not contain any statement that is misleading or deceptive, and that "there are no omissions of required material from the PDS having regard to the disclosure requirements of Subdivision C of Division 2 of Part 7.9 of the…Act." AECOM contends that the PDS would never have been issued had Mallesons not issued the Opinion Letter and thereby approved and "signed off" on the PDS. 16 Paragraph 223 of the 3rd FAD is of particular relevance having regard to the way the proposed amended cross-claim is pleaded which ties the claims made by AECOM against Mallesons back to what are referred to as "the Alleged Mallesons Omissions". This expression is defined in para 223 of the 3rd FAD which states: The Applicants allege against AECOM Australia (which is denied) that: (a) AECOM Australia's Consented Material contained misleading or deceptive statements for the purposes of section 1021L(1)(b)(i) of the Corporations Act and AECOM Australia refers to and repeats, for the purposes of this apportionment defence only, paragraph 31 of the SFASOC; (b) there were Omissions from AECOM Australia's Consented Material for the purposes of section 1021L(1)(b)(ii) of the Corporations Act and AECOM Australia refers to and repeats, for the purposes of this apportionment defence only, paragraph 32 of the SFASOC; and (c) AECOM Australia failed to act with reasonable care in preparing the Summary Letter and AECOM Australia refers to and repeats, for the purposes of this apportionment defence only, paragraph 45 of the SFASOC, in each case because, relevantly to this apportionment defence in relation to Mallesons, AECOM Australia's Consented Material did not contain: (d) any disclosure of the risks associated with the use of AM Peak modelling only and AECOM Australia refers to and repeats, for the purposes of this apportionment defence only, paragraph 28(a) of the SFASOC; (e) required disclosures in relation to AECOM Australia's Earlier EIS Forecasts and AECOM Australia refers to and repeats, for the purposes of this apportionment defence only, paragraph 28(c) and (d) of the SFASOC; (f) any reference to the failure of recently opened Australian toll roads to meet forecast traffic numbers and AECOM Australia refers to and repeats, for the purposes of this apportionment defence only, paragraph 28(e) of the SFASOC; (g) any disclosure that the Forecasts were prepared as part of a competitive bid to win the NSBT Concession and AECOM Australia refers to and repeats, for the purposes of this apportionment defence only, paragraph 28(m) of the SFASOC; (h) any disclosure of AECOM Australia's Retainer Discount and AECOM Australia refers to and repeats, for the purposes of this apportionment defence only, paragraph 28(n) of the SFASOC; and (i) any disclosure of the matters alleged to be omissions in paragraph 28(na) of the SFASOC and AECOM Australia refers to and repeats, for the purposes of this apportionment defence only, paragraph 28(na) of the SFASOC, (together, the Alleged Mallesons Omissions). 17 What are referred to as the "Alleged Mallesons Omissions" are in substance the same as various omissions relied upon by the applicants against AECOM which the applicants contend rendered the PDS defective. By its proposed amended cross-claim, AECOM alleges that if the PDS was defective, then Mallesons knew, or ought to have known, that it was defective, and should not have approved or "signed off" on the PDS. It is on this basis that AECOM asserts that Mallesons would, if sued, be liable to the applicants under s 1022B(3)(b)(ii) of the Act. 18 Mallesons raised various complaints about the width of the allegations made against it in the 3rd FAD. As I have mentioned, the proposed amended cross-claim alleges that if the PDS was defective (which AECOM denies), then Mallesons caused or contributed to the PDS being defective. However, as presently pleaded and particularised, the cross-claim against Mallesons is confined to each of the Alleged Mallesons Omissions, which are matters it is alleged Mallesons knew, or ought to have known, and which it is further alleged experienced solicitors exercising due care and skill would have required or at least advised their client to disclose in the PDS. 19 It is not disputed that the present application must be dealt with on the basis that it is at least reasonably arguable that the PDS was defective on each of the grounds pleaded and particularised by the applicants and that there was no adequate disclosure of information the absence of which is said by the applicants to render the PDS defective. Nor is it disputed that, for the purposes of the present application, the factual allegations made against Mallesons must be assumed to be correct. 20 It is convenient to consider the adequacy of AECOM's pleading and particulars in light of the alleged non-disclosure of the risks associated with the use of expansion factors in order to illustrate how AECOM's case against Mallesons is framed. 21 As summarised in the AECOM written submission: ….[T]he Applicants allege that both AECOM Australia's Consented Material and the PDS as a whole did not contain required disclosures regarding the risks associated with reliance on Expansion Factors and the sensitivity of the traffic and revenue forecasts to the values assumed for Expansion Factors. In this respect, Mallesons: (a) knew or ought to have known by reason of, inter alia, having reviewed a draft of the May 2006 Traffic Report, drafts of the Summary Letter and the TDDSC Key Issues Report, that AECOM Australia had modelled AM Peak only. These documents made it clear that AECOM Australia had used certain Expansion Factor assumptions, which could affect the reliability of the Forecasts; (b) knew or ought to have known by reason of, inter alia, having reviewed the TDDSC Key Issues Report, that the TDDSC had: (i) discussed whether disclosure of Expansion Factor assumptions in the Summary Letter at the back of the PDS met disclosure requirements; and (ii) determined that Expansion Factors should be disclosed as a risk in section 8 of the PDS, in addition to disclosures made in the Summary Letter regarding the use of Expansion Factors; (c) had assumed responsibility for drafting, inter alia, section 8 of the PDS (Risk Factors). That section included the statement at section 8.2.1 that: "Investors will bear the risk that …[NSBT]…traffic volumes and revenue may be adversely affected by…the expansion factors used in the…[NSBT]…traffic forecasts". The Applicants characterise this disclosure as inadequate; (d) knew or ought to have known that, in order for disclosures concerning Expansion Factors to be effective, they must contain all material information that a Potential RCM Stapled Unit Acquirer would reasonably require, and could reasonably expect to receive, for the purpose of deciding whether to acquire RCM Stapled Units; and (e) signed off on the adequacy of the disclosure in the PDS. (footnotes omitted) 22 Thus, the case against Mallesons with respect to expansion factors is that if the applicants are correct in their assertion that the risks associated with the use of expansion factors were not disclosed or not adequately disclosed in the PDS (thereby rendering the PDS defective), then this was a state of affairs to which Mallesons contributed, it having drafted (inter alia) that part of Section 8 of the PDS (entitled "Risk Factors") which deals with (inter alia) that particular risk, and it having also approved and "signed off" on the PDS as a whole. 23 A similar approach is taken to each of the other matters which make up the so-called Alleged Mallesons Omissions. In each case AECOM alleges that Mallesons knew or ought to have known of the information the absence of which is alleged to have rendered the PDS defective and that, by approving and "signing off" on the PDS in such circumstances, Mallesons caused the PDS to be defective or contributed to the PDS being defective. 24 I am not persuaded that the claim pleaded and particularised against Mallesons based upon an alleged co-ordinate liability under s 1022B(3)(b)(ii) is untenable. Nor am I persuaded that this aspect of the cross-claim is insufficiently pleaded and particularised to enable Mallesons to know the case it is required to meet. Of course, that is not to say that it might not be appropriate to require AECOM to provide some further and better particulars at some time in the future after discovery has taken place or after its affidavit evidence has been filed. 25 It is also alleged in the proposed amended cross-claim that Mallesons owed a duty of care to prospective investors who might rely upon the PDS and that Mallesons breached that duty of care in drafting (inter alia) Section 8 of the PDS and advising (inter alios) RCMML and RCMS that the PDS complied with Part 7.9 of the Act, that no statement in the PDS was misleading or deceptive, and that no information that was required to be disclosed in the PDS had not been disclosed consistent with the disclosure requirements of Part 7.9 of the Act. Mallesons contends that, as a matter of law, the proposition that it owed a duty of care to the potential investors is untenable and that the claim founded upon that proposition should be summarily terminated on that basis. 26 The question whether the case pleaded by AECOM based upon a breach by Mallesons of a duty of care owed to potential investors should be summarily terminated on the basis that it is untenable is to be considered in light of the following matters: The power to terminate summarily must be exercised with caution and only if it is clear that there is no real question to be tried: Spencer v The Commonwealth (2010) 241 CLR 118 (Spencer) at [24] (per French CJ and Gummow J). There is no binding decision of the High Court that is determinative of the question whether a solicitor who is involved in the preparation of a PDS and who provides legal advice to the issuer of the PDS in relation to what it should contain can be liable to investors who take up an offer the subject of, and in reliance upon, the PDS: cf. Spencer at [25] (per French CJ and Gummow J). While the High Court's decision in Hill v Van Erp (1997) 188 CLR 159 affirms the general rule - viz. that a solicitor only owes a duty of care to his or her client - it also recognises, as the majority decision in that case showed, that there may be some (albeit rare) circumstances in which the general rule does not or at least might not apply. Determining whether or not a duty of care arises notwithstanding the general rule is likely to require a multi-factorial approach which takes into account the "the 'salient features' or factors affecting the appropriateness of imputing a legal duty to take reasonable care to avoid harm or injury": see Carey v Freehills (2013) 303 ALR 445 at [310]-[317] (per Kenny J) and Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649 at [100]-[102] (per Allsop P, as he then was). 27 An important consideration that I take into account in determining whether to exercise the power to summarily terminate the claim based upon an alleged breach of a duty owed by Mallesons to the investors who acquired RCM Stapled Units issued under the PDS is that the case against Mallesons based upon s 1022B(3)(b)(ii) is not dependent upon the existence of any such duty of care and will most likely proceed to trial regardless of whether or not the point of law raised by Mallesons is resolved at this stage of the litigation. 28 In my view it is not appropriate to seek to determine the point of law raised by Mallesons in the course of determining whether or not to grant leave to amend. If the point were wholly dispositive of the proceeding against Mallesons then that might favour a different approach, and with it, a detailed consideration of the strengths and weaknesses of the negligence case and, in particular, the factors relevant to the imputation of the postulated duty of care. However, the point is not wholly dispositive and, in those circumstances, I think the just and efficient determination of the proceedings as a whole including the point of law raised by Mallesons, is best achieved if the point is left open to be determined at trial rather than summarily on an application for leave to amend. 29 Mr Jopling QC, who appeared with Mr Williams for Mallesons, submitted that the removal of the negligence case against his client at this stage of the proceeding should result in significant time and cost savings. It was suggested, for example, that the resolution of the point at this stage would obviate the need for expert evidence. The argument has some superficial attractiveness, but on reflection, I doubt that there is likely to be any significant savings. In my view, it is highly likely that expert evidence relevant to the negligence case will be equally relevant to any one of a number of statutory defences (including under s 1022B(7) of the Act) that I anticipate Mallesons will wish to rely upon in answer to the case based upon s 1022B(3)(b)(ii) of the Act. 30 AECOM will be granted leave to file its proposed amended tenth cross-claim against Mallesons. I think the costs of and incidental to the interlocutory application seeking leave to amend the tenth cross-claim should be AECOM's costs in the tenth cross-claim. 31 Orders accordingly. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas.

Hopkins v AECOM Australia Pty Ltd

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