Inabu Pty Ltd as trustee for the Alidas Superannuation Fund v CIMIC Group Ltd

1. Paragraphs 33, 34, 37 and 38 of the Further Amended Statement of Claim dated 7 August 2018 be struck out.
2. Leave be granted to the applicant to re-plead those paragraphs.
3. The parties confer and within 7 days file proposed agreed or disagreed orders for the further conduct of the matter. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JAGOT J: 1 The respondent has applied to strike out paragraphs 33, 34, 37, 38 and 41 of the applicant's further amended statement of claim (FASOC) dated 7 August 2018 under r 16.21(1) of the Federal Court Rules 2011 (Cth). Although the relevant part of r 16.21(1) was not specifically identified in the respondent's application, the essence of the respondent's submissions was that the impugned paragraphs were ambiguous (r 16.21(1)(c)) and likely to cause prejudice in the proceeding (r 16.21(1)(d)). 2 Consistent with the respondent's approach, it is convenient to deal with paragraphs 33, 34, 37 and 38 together, and paragraph 41 separately. 3 It is necessary first to understand the function of paragraphs 33, 34, 37 and 38 within the FASOC. Those paragraphs define the Senior Executive Corruption Taint Risk Information, the Corrupt Business Practices Risk Information, the Senior Executive Corrupt Contract Procurement Information, the Corrupt Business Practices Information, the Corruption Cover-up Risk Information, and the Corruption Cover-up Information. 4 By paragraph 47 of the FASOC it is alleged that the respondent, on and from a specified date, became immediately obliged to tell the Australian Securities Exchange (the ASX) the Senior Executive Corruption Taint Risk Information, Corrupt Business Practices Risk Information and/or the Corruption Cover-up Risk Information. 5 By paragraph 54 of the FASOC it is alleged that the respondent, on and from a specified date, became immediately obliged to tell the ASX the Senior Executive Corrupt Contract Procurement Information, the Corrupt Business Practices Information, and/or the Corruption Cover-up Information. 6 It is the failure to tell the ASX these things which founds the allegation that the respondent breached its continuous disclosure obligations as specified by ASX Listing Rule 3.1 and s 674(2) of the Corporations Act 2001 (Cth). 7 The respondent's complaint is that the definitions involve a "forest of contingencies" which do not identify with clarity the information which it is said the respondent should have disclosed to the ASX, and thus the pleading suffers from the vice identified by the High Court in Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486 at [27] that: The task of the pleader is to allege the facts said to constitute a cause of action or causes of action supporting claims for relief. Sometimes that task may require facts or characterisations of facts to be pleaded in the alternative. It does not extend to planting a forest of forensic contingencies and waiting until final address or perhaps even an appeal hearing to map a path through it. In this case, there were hundreds, if not thousands, of alternative and cumulative combinations of allegations. As Keane CJ observed in his judgment in the Full Court: The presentation of a range of alternative arguments is not apt to aid comprehension or coherence of analysis and exposition; indeed, this approach may distract attention from the central issues. 8 Perhaps the most extreme example which the respondent has in mind is presented by paragraph 33. That paragraph alleges (in part) that: As at, and from 23 November 2010, there existed a material risk that: (a) by reason of the matters pleaded in paragraphs 31 to 32A, Senior Leighton Executives were, or may have been, aware of conduct which was corrupt or potentially corrupt, and further or alternatively involved in: (i) approving conduct which was corrupt or potentially corrupt; and/or (ii) procuring contracts to be awarded to Leighton subsidiaries by approving conduct which was corrupt or potentially corrupt, (Senior Executive Corruption Taint Risk Information). 9 Senior Leighton Executives is a defined term in paragraph 14(a) of the FASOC. It means Wal King, David Stewart, David Savage and Bill Wild. 10 The respondent took the example of David Stewart and paragraph 33(a). When analysed, it becomes apparent that what is alleged in paragraph 33(a) is (at least) that: (1) David Stewart was aware of conduct which was corrupt; (2) David Stewart was aware of conduct which was potentially corrupt; (3) David Stewart may have been aware of conduct which was corrupt; (4) David Stewart may have been aware of conduct which was potentially corrupt; (5) David Stewart was aware of conduct which was corrupt and further was involved in approving conduct which was corrupt; (6) David Stewart was aware of conduct which was corrupt and further was involved in approving conduct which was potentially corrupt; (7) David Stewart was aware of conduct which was corrupt and further was involved in procuring contracts to be awarded to Leighton subsidiaries by approving conduct which was corrupt; (8) David Stewart was aware of conduct which was corrupt and further was involved in procuring contracts to be awarded to Leighton subsidiaries by approving conduct which was potentially corrupt; (9) David Stewart was aware of conduct which was potentially corrupt and further was involved in approving conduct which was corrupt; (10) David Stewart was aware of conduct which was potentially corrupt and further was involved in approving conduct which was potentially corrupt; (11) David Stewart was aware of conduct which was potentially corrupt and further was involved in procuring contracts to be awarded to Leighton subsidiaries by approving conduct which was corrupt; (12) David Stewart was aware of conduct which was potentially corrupt and further was involved in procuring contracts to be awarded to Leighton subsidiaries by approving conduct which was potentially corrupt; (13) David Stewart may have been aware of conduct which was corrupt and further was involved in approving conduct which was corrupt; (14) David Stewart may have been aware of conduct which was corrupt and further was involved in approving conduct which was potentially corrupt; (15) David Stewart may have been aware of conduct which was corrupt and further was involved in procuring contracts to be awarded to Leighton subsidiaries by approving conduct which was corrupt; (16) David Stewart may have been aware of conduct which was corrupt and further was involved in procuring contracts to be awarded to Leighton subsidiaries by approving conduct which was potentially corrupt; (17) David Stewart may have been aware of conduct which was potentially corrupt and further was involved in approving conduct which was corrupt; (18) David Stewart may have been aware of conduct which was potentially corrupt and further was involved in approving conduct which was potentially corrupt; (19) David Stewart may have been aware of conduct which was potentially corrupt and further was involved in procuring contracts to be awarded to Leighton subsidiaries by approving conduct which was corrupt; (20) David Stewart may have been aware of conduct which was potentially corrupt and further was involved in procuring contracts to be awarded to Leighton subsidiaries by approving conduct which was potentially corrupt; (21) David Stewart was involved in approving conduct which was corrupt; (22) David Stewart was involved in approving conduct that was potentially corrupt; (23) David Stewart was involved in procuring contracts to be awarded to Leighton subsidiaries by approving conduct which was corrupt; and/or (24) David Stewart was involved in procuring contracts to be awarded to Leighton subsidiaries by approving conduct which was potentially corrupt. 11 The respondent produced a flow chart which in fact showed a total of 40 potential permutations involving Mr Stewart arising from the pleading in paragraph 33(a). A copy of that flow chart is annexed. The respondent noted that the number of permutations involved in the pleading in paragraph 33(a) would expand alarmingly once it was taken into account that there were four Senior Leighton Executives. The vice in the pleading, the respondent submitted, was that it was not possible to identify what exactly the applicant was alleging that the respondent ought to have disclosed to the ASX. That is, embedded within the definition of Senior Executive Corruption Taint Risk Information were so many potential permutations that, as in Forrest, a "forest of contingencies" had been planted which the applicant could map through in final address or even on appeal without ever having had to identify exactly what it is the applicant alleged the respondent had to tell the ASX. 12 I consider this complaint about the pleading is well-founded. It is not possible to know what it is that the applicant alleges the respondent should have told the ASX. The answer cannot be, for example, the "Senior Executive Corruption Taint Risk Information". If read literally, the definition includes the opening words of paragraph 33(a) "by reason of the matters pleaded in paragraphs 31 to 32A". I doubt that the applicant is saying that the respondent should have told the ASX words to this effect. And if those opening words are hived off, the definition nevertheless includes all of the permutations which have been identified, but those permutations otherwise exist in a factual vacuum. Thus, I also doubt that the applicant is saying that the respondent should have disclosed to the ASX (1) to (24) above (or some combination of (1) to (24)), repeated for each Senior Leighton Executive, absent any factual context. It is unsatisfactory for the respondent to be left in the position of not knowing what it is that the applicant alleges the respondent should have disclosed to the ASX. I am not suggesting that the disclosure cannot be on the basis of alternatives. But what it is said that should have been disclosed on each alternative basis needs to be clearly identified. 13 As the respondent submitted, discovery is now complete and the applicant ought to be in a position to identity with clarity the information it says should have been disclosed to the ASX. The lack of clarity of the pleading, as the respondent submitted, is in fact exposed by the applicant's submissions. The applicant said that: …if the applicant establishes that the executives were both aware of corrupt conduct in winning contracts in Iraq and authorised and endorsed that conduct, then this is what CIMIC should have disclosed. But if the applicant establishes only that the executives were aware of the conduct, or only that they authorised and endorsed it, it is only that part which is proved that should have been disclosed. 14 The pleading does not in fact say this. It may be that it was intended to be implied that the pleaded disclosure obligation is not, for example, an obligation to have disclosed the "Senior Executive Corruption Taint Risk Information" (as pleaded), but is meant to be interpreted as an obligation to disclose only that part or aspect of the "Senior Executive Corruption Taint Risk Information" which is proved. Not only is this not apparent from the pleading but, as I have said, the potential permutations of but one aspect of the Senior Executive Corruption Taint Risk Information, mean that the pleading does not squarely and fairly say what it is that had to be disclosed to the ASX. 15 I do not consider that the same vice of an over-abundance of not entirely clear contingencies affects paragraphs 34, 37 or 38 of the FASOC. Paragraph 34 contains three essential allegations which are clear in their terms, two of which have the internal alternative of corrupt or potentially corrupt. The paragraph does not, however, create the same kind of forest of contingencies as paragraph 33. Similarly, paragraph 37 also contains alternatives but they are limited in number and clear in their terms. The same may be said of paragraph 38. However, the problem with those paragraphs is, again, their function in the pleading. The paragraphs define the information which it is said was required to be disclosed to the ASX. Each paragraph contains internal cross-references to multiple other paragraphs in the pleading. If I thought it was clear that those cross-references were not intended to form part of the definition in any way, then I would not be concerned about these paragraphs. However, I am not at all certain that the definition is intended to function in a manner which excludes the cross-referenced paragraphs. 16 For example, take paragraph 38. Is the applicant saying that what had to be disclosed to the ASX was a statement to the effect as pleaded that "from 23 November 2010 Senior Leighton Executives were involved in covering up conduct which was corrupt or potentially corrupt and/or the actual or potential procurement of contracts to be awarded to Leighton subsidiaries by conduct which was corrupt of potentially corrupt"? Or is the applicant saying that there also had to be disclosure to the ASX of some or all of the facts which are pleaded in the paragraphs which are cross-referenced in paragraph 38, being paragraphs 31, 32A and 36? I do not know the answer to this question based on the current state of the pleading. If the former, the statement required to be disclosed exists in a factual vacuum. If the latter, then what parts of the cross-referenced paragraphs are intended to form part of the alleged necessary disclosure to the ASX? The same problem arises with respect to paragraphs 34 and 38. 17 Paragraph 41, as I have said, is in a different category. The paragraph alleges that as at and from 23 November 2010, by reason of the matters pleaded in paragraphs 39 and/or 40, Leighton's corporate governance structures and ethics compliance systems were insufficiently rigorous and effective to detect, in effect, corrupt conduct and/or to ensure the prompt reporting of, in effect, corrupt conduct. 18 The respondent submitted that paragraph 41 suffered from the same kind of defect identified in Zonia Holdings Pty Ltd v Commonwealth Bank of Australia Ltd [2018] FCA 659. The pleading in question in Zonia was an alleged deficiency of systems for assessing, monitoring and managing a certain kind of risk. At [32] Yates J said: The particulars in para (ii) point to certain alleged deficiencies but, in general, do not go far enough to illuminate why it is said that the identified matters constituted deficiencies throughout the Relevant Period. This may be a simple matter to do - but it should, nonetheless, be done. The identified matters are not necessarily self-evident "deficiencies" in the relevant systems and a reader of the pleading should not be left to speculate why each identified matter was a "deficiency". I accept CBA's submission that, in the circumstances of the present case, it is necessary for the applicant to identify the relevant respects in which CBA's systems for assessing, monitoring and managing ML/TF Risk or, as the case might be, its systems for reporting transactions that may be affected by ML/TF Risk, should have operated; how these systems in relevant respects in fact operated; and thus how or why there was a "deficiency". This is critical to determining whether there was a "deficiency"; whether CBA was aware (in the relevant sense) of the "deficiency"; and, if so, whether that information was such that a reasonable person would expect it to have a material effect on the price of CBA shares. 19 I consider the pleading in the present case to be different from that considered in Zonia. It may be accepted that the mere fact that something went wrong is generally insufficient to prove a systemic deficiency. In the present case, however, paragraph 41 identifies with precision what the alleged deficiency is by the cross-references to paragraphs 39 and 40. One pleaded fact is that despite what they knew or ought to have been aware of (as pleaded), neither David Stewart nor David Savage took steps on or reasonably promptly after 23 November 2010 to report to Leighton's Ethics and Compliance Committee the matters the subject of the Stewart Memo (a defined term) or what they knew or ought to have been aware of (as pleaded): paragraph 39. The other pleaded fact is also that Leighton's internal ethics compliance systems did not otherwise at any time prior to November 2011 detect and report to appropriate law enforcement authorities the matters the subject of the Stewart Memo or what Senior Leighton Executives knew or ought reasonably to have been aware of as pleaded: paragraph 40. The deficiencies, accordingly, are that the relevant systems enabled those pleaded facts to arise. This is a sufficiently clear pleading to ensure that the problem identified in Zonia does not arise in the present case. 20 Accordingly, all other things being equal, I would strike out paragraphs 33, 34, 37 and 38 of the FASOC but decline to strike out paragraph 41 of the FASOC. The applicant submitted, however, that all other things are not equal and the respondent's complaint comes too late in the course of this matter to be acted upon. 21 The applicant relied on the following key facts: (1) The matter was listed for hearing on the basis of the FASOC in March 2019. (2) That hearing date was vacated for reasons entirely unconnected to the FASOC (the cause of the vacation was the respondent's belated application for leave to subpoena three witnesses to give evidence). (3) It was the respondent's position that the hearing in March 2019 could and should be retained. (4) It follows that the respondent was willing to go to trial on the basis of the FASOC. (5) The impugned paragraphs have taken largely the same form since November 2016. (6) While the respondent had previously complained about some aspects of the pleading it took no step before July 2019 to strike out any part of the pleading. (7) As a result, the respondent's claim that it does not know the case it has to meet should be met with scepticism. (8) For the respondent to bring the application now is inconsistent with s 37M of the Federal Court of Australia Act 1976 (Cth). 22 Apart from these key facts, I should record that the matter is now fixed for hearing commencing 30 March 2020. The respondent submitted that while it could be said that it should have made its application at an earlier time, the fact is the pleading is deficient in the ways identified (with which, in large part, I have agreed above), discovery is now complete, and there is sufficient time for the deficiency in the pleading to be cured. Accordingly, the order the respondent seeks should be made. 23 I understand the applicant's position but, ultimately, I am persuaded that the seriousness of the deficiency with respect to paragraphs 33 (in particular), 34, 37 and 38 of the statement of claim justifies the making of an order striking out those paragraphs on the basis that the applicant should have leave to re-plead them so that the pleading clearly discloses what it is that the applicant says the respondent should have disclosed to the ASX. I will hear from the parties about the time needed for the applicant to do so, any consequential directions which may be required, and costs. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.