(3) The cost of redrafting witness statements, in the context that the draft 6 FAS (so Mr Black said) "does not identify which facts are alleged to falsify any individual representation." He said that "It would be extremely difficult (if not impossible) to allocate the costs incurred in meeting with witnesses and preparing draft witness statements into costs of the work relating to this part of the statements (which will be wasted if the plaintiffs are given leave to amend) and the work relating to other parts of the statements which may still be relevant to matters in issue in the proceedings."
53 Mr Black was not challenged on this evidence. Mr Bonner agreed with much of it: for example, with the proposition that the identification and classification of costs as wasted or not wasted by reason of the amendments would be very difficult; and with the proposition that work such as reinspection of discovered documents would be necessary if leave to amend were granted. I accept Mr Black's evidence. Further, although it relates in terms only to the Macquarie Parties, I accept that its substance may be taken to apply to the other defendants. Indeed, the plaintiffs did not suggest otherwise.
54 There are three particular issues relating to costs. The first relates to the cost of the mediation. Mr Black said, and I accept, that had he known before the mediation that the plaintiffs would seek leave to amend if the mediation did not lead to a resolution of the disputes, then he would have advised the Macquarie Parties to apply to the Court to defer the mediation so that it "could deal with the case which the plaintiffs in fact intended to press against the Macquarie Parties"; and that, if the Court had not acceded to such an application, he would have advised the Macquarie Parties to approach the mediation in a different (and, I infer, less expensive) manner. Although Mr Black was challenged as to the underlying premise (which was that he had no notice of "any intention of the plaintiffs to further amend the Summons if the matter did not settle at the mediation"), I accept his evidence that he did not. I also accept his evidence as to the position that he would have taken had he been given notice, prior to the mediation, of that intention.
55 Mr Black said that the Macquarie Parties had incurred very substantial costs in relation to the mediation. It is clear, and one would in any event infer from the nature of the proceedings and the issues in dispute, that a very substantial amount of work was necessary to prepare for the mediation; and the mediation itself occupied three days. Presumably, the costs would include not just legal costs but the costs of the mediator (the Hon G E Fitzgerald QC), and perhaps associated costs such as the costs of hiring an appropriate venue. In addition, of course, every party would have invested a substantial amount of time and resources (for example, management time) into its preparation for and conduct of the mediation.
56 None of the other defendants gave evidence that they would have taken a different approach to the mediation had they known of the plaintiffs' intention to seek leave to amend if the mediation did not lead to resolution of the disputes. In the absence of that evidence, I do not think I should draw the inference that they would have. I can understand that some parties, had they known of that, might nonetheless have thought that it was worth attending the mediation to see if settlement, with all its benefits, could be achieved. But I have no difficulty in inferring that all parties who attended the mediation incurred substantial costs, and devoted substantial resources, to their preparation for and attendance at the mediation.
57 The defendants submitted that the costs related to the mediation were wasted costs that should be included in any order for indemnity costs. The plaintiffs submitted that they were not. Mr Bonner said in cross-examination that he did not accept that costs relating to the mediation should be regarded as wasted. It would be open to me to resolve this dispute (if I were otherwise minded to grant leave further to amend) by ordering that the defendants should have, as part of their wasted costs, their costs of and incidental to the mediation. Even if it is not clear that some or all of those costs (and, if some only, the proportion) could strictly speaking be regarded as "wasted", such an order would ensure that, where doubt exists, the benefit of the doubt goes to the innocent party. In other words, it would ensure that, as between the party causing the problem and the party suffering it, it is the former that bears the burden. Such an approach could be criticised as being somewhat arbitrary; but, I think, there is much to be said for the proposition that, in seeking to dispel prejudice, the Court should act with resolution rather than hesitation. An approach that requires the drawing of nice distinctions is unlikely to achieve that result.
58 The next issue is that, although the application for leave to amend involves directly only the defendants, there is another class of party (cross-defendants and cross-claimants who are not defendants) that will be affected. If the plaintiffs are given leave further to amend their summons, it will be necessary for the cross-claims against those cross-defendants to be redrafted (where the cross-claimants are defendants to the summons then their costs of doing so would be picked up by an appropriate costs order). However, those cross-defendants will incur costs in preparing defences to the revised cross-claims; and, to the extent that any of those cross-defendants are themselves cross-claimants, they will incur costs in revising their cross-claims and the cross-defendants to those cross-claims will incur costs in revising their defences. It would be open to me, I think, to make an order that the plaintiffs (or Deacons) should pay the costs not only of the defendants but of any party where those costs may properly be regarded as wasted by reason of the amendments, and to make it clear that those costs include the costs of non defendants in relation to any cross-claim by them, or defence to cross-claim against them, that requires revision as a result of the further amendments.
59 The last issue relating to costs is that the defendants, although having the benefit of indemnity costs orders in relation to the prior application for leave to amend, have not been able to procure payment of their costs. Mr Black gave evidence of the challenges that the plaintiffs have made to the Macquarie Parties' bill of costs. In saying this, I intend no criticism of the plaintiffs. An order for indemnity costs does not oblige the party against whom it is made to pay every item of costs that the party having the benefit of the order may claim. A party against whom an indemnity costs order is made is as much entitled to have those costs assessed on a proper basis as is a party against whom any other costs order is made. Mr Bonner said that, if an indemnity costs order were made in relation to this application, Deacons would, to the extent that it thought there were proper reasons to do so, challenge individual items (or classes) of costs in any defendant's bill of costs. Again, I mean no criticism of Mr Bonner or Deacons in saying this; it reflects no more than their entitlement at law. Deacons' acceptance of responsibility for costs should not be understood to offer the defendants a blank cheque.
60 It is clear, both from the history of the previous indemnity costs orders and from a consideration of the process of assessment and appeal, that the realisation of any entitlement to indemnity costs might take some time to achieve. Mr Bonner agreed that "It could be many months if not years before [Deacons'] liability crystallises." I accept that this is so.
61 The consequence is that the defendants, having incurred costs, will be out of pocket for "many months if not years" before they are recouped. No doubt, some of the defendants have the means to carry that position. However, not all do. Until recently, the conduct of the proceedings on behalf of a number of the defendants (the fourth defendant, Mr Ghose; the sixth defendant, Mr Daya; the ninth defendant, Mr Peck; the tenth defendant, Mr Williams; and the eleventh defendant, Mr Aroney) had been conducted by solicitors retained on their behalves by an insurer under a directors and officers' liability policy. However, the insurer has purported to avoid the policy against those defendants and has stopped advancing their defence costs. They are faced with the prospect of funding their own defences, or making other arrangements; and this will be so whether or not the plaintiffs are given leave to amend. If, however, the plaintiffs are given leave to amend, then those defendants will be forced in addition to fund the further performance of work that has already been done (in relation to the plaintiffs' case as it presently stands), but will have to wait for some (perhaps substantial) time to recoup so much of their expenditure as has been wasted. Further, to the extent that the wasted expenditure relates to costs advanced by the insurer, there will be a real question as to who is entitled to the benefit of the costs order.
62 It is, therefore, very difficult to see how a costs order could be framed that would satisfactorily protect the defendants against prejudice. Mr Bathurst QC, who appeared with Mr Peter Brereton of Counsel for PwC, submitted that the appropriate costs order would be that the plaintiffs (or Deacons) pay the whole of the defendants' costs to date on an indemnity basis. Not surprisingly, the plaintiffs did not accept that this was an appropriate measure of the wasted costs. Indeed, such an order would be overgenerous to the defendants: it is not difficult to see that there must have been some, and perhaps considerable, work that has been performed to date that will be of enduring benefit (for example, the preparation by each defendant for, and the giving of, discovery). Other defendants submitted that any indemnity costs order should be framed so as specifically to include particular items of work or classes of work (including, by way of example only, costs relating to the mediation). However, there was no unanimity among the defendants as to how such an order could be framed so as to give them complete protection; and in any event, the plaintiffs did not accept any of the proposed orders.
63 As to the defendants affected by their insurer's purported avoidance of the D & O policy, it was submitted (in some cases) that the plaintiffs (or Deacons) should be required to pay the assessed costs, or some proportion thereof, immediately upon presentation of a bill in assessable form, upon an undertaking by the respective solicitors for those defendants to refund any costs that were disallowed following completion of the assessment process. This, it was said, would avert the particular prejudice to those defendants. However, the plaintiffs did not accept that such an order would be appropriate; and in any event, as I have pointed out in para [61] above), it could lead to complications in the identification of the entity entitled to the real benefit of such an order.
64 In all the circumstances, I have come to the conclusion that it is unlikely that any order for costs could adequately protect the defendants against prejudice without unduly sacrificing the rights of the plaintiffs or Deacons (as would be the case if an order of the kind suggested by Mr Bathurst were made). The agreed extreme difficulty of identification of wasted costs, and the delays inherent in the assessment process (including appeals), suggest that no defendant is likely to be compensated in full for wasted costs; and, certainly, that such compensation as can be achieved will not be achieved quickly. That is so, I think, even if I ordered specifically that the costs payable include the costs of the mediation. Further, no order for costs can compensate the defendants for their individual time and effort (including, in the case of corporate defendants) management time. Finally, in the case of those defendants affected by the (purported) avoidance of the D & O policy, no order either for costs or for payment on account of costs is likely to retrieve for their benefit the costs of all wasted work to date. In their case, it is likely that they will have to bear, out of their own pockets, the costs (which may be substantial) of reperforming wasted work.
65 In substance, therefore, I accept the defendants' submissions that regardless of the orders that may be made as to costs, they will suffer prejudice, in relation to wasted costs and time, for which they cannot be compensated adequately if leave to amend is granted.
Prejudice apart from costs
66 The Macquarie parties and PwC in particular pointed to the fact that the proposed amendments would allege cases of actual breach of the law, or involvement in breaches of the law, both against entities (the Macquarie Parties) and individuals. They pointed to the decision of the Appeal Division of the Supreme Court of Victoria in Bishopsgate Insurance Australia Ltd (In liq) v Deloitte Haskins & Sells [1999] 3 VR 863. In that case, Tadgell and Ormiston JJ (with whom Brooking J agreed) dealt with prejudice of this kind at (in particular) 887-888 [60]-[62]. Their Honours said that, even in the absence of direct evidence, prejudice could be inferred where claims were made against individuals relating to their honesty or their professional competence. This, their Honours said, was a head of prejudice that could be inferred even without direct evidence and that was relevant to be taken into account:
"Where a claim is made against individuals relating to their probity or their competence, especially their professional competence, and the claim is for many millions of dollars, then it is not hard to infer that defendants against whom such allegations are made are under a heavy burden. When that burden is not merely deferred but then unjustifiably drawn out over many years, it is easier still to infer serious prejudice of the relevant kind to a defendant. … [W]here a claim extends beyond mere casual negligence to acts which reflect upon the competence or probity of a defendant, especially when that competence or probity is critical to the defendants' future livelihood, then the delay in bringing an action on for hearing will properly be held to impose severe additional prejudice on a defendant. This is particularly the case in claims alleging professional negligence, although such a description is not to be confined merely to the negligence of accountants, solicitors, doctors and the like for it is relevant to any person in respect of whom an unfavourable finding will be likely to place at risk his or her capacity to earn a living. … Thus, it is not so much the size of the claim as the effect on a person's reputation which is critical to prejudice of this kind.
In this case the variety of serious claims made against the defendant is such that the inordinate and inexcusable delay of the plaintiff since the issue of the writ has caused real prejudice of the relevant kind to the defendant, as we would infer. …
The real issue is fairness to the defendant in the light of inordinate and inexcusable delay on the part of the plaintiff. …"
67 That was a case where proceedings instituted in February 1989, relating to events that occurred in the year ending 31 December 1982, were the subject of many procedural orders intended to produce a statement of claim that set out the plaintiff's case clearly and without pleading deficiencies. Their Honours at 882 [49] drew attention to the way in which the amendments sought to elaborate on the variety of duties and obligations said to have been broken, and to the fact that the proposed amendments were not apparently based on "one new fact discovered". Understandably, their Honours reminded themselves of the observation of Gleeson CJ in Trau v University of Sydney (1989) 34 IR 466, 475 that "[i]f one sees that a plaintiff's lawyers are experiencing extreme difficulty in formulating with clarity and particularity their client's cause of action then that is often a very good indication that there is no cause of action."
68 The ultimate decision was that the proceeding should be dismissed for want of prosecution. Clearly, there is no real comparison between the facts in Bishopsgate and the facts of the present case. On any view, in the present case, the plaintiffs have produced a satisfactory formulation of their claim: namely, 5 FAS. On any view, the plaintiffs have undertaken a great deal of work to bring their claim to a hearing. Discovery and inspection of documents have been undertaken; and the plaintiffs have filed a substantial amount of evidence.
69 Further, I think, there is in the reasons in Bishopsgate at least a trace of allocation to the plaintiffs of blame for the defaults of their legal advisers: see, for example, what the majority said at 878 [39]. If their Honours did proceed on that basis, then what they say would need to be read with extreme care, bearing in mind what the Court of Appeal in this State said in Stollznow (see para [46] above).
70 For a number of reasons, I think, the decision in Bishopsgate needs to be treated with some care. The facts before the Court in that case were substantially different (and, from the plaintiff's perspective, worse) than the facts in this: the delays were greater and the progress was less. The application decided by the Court was not one for leave to amend (although, I think, that had been involved), but to strike out for want of prosecution. Nonetheless, I accept in principle that, as their Honours said, delay may of itself cause prejudice of the kind to which they referred where allegations are made against the honesty and competence of people, bearing directly on their employment or profession, and where those allegations are not swiftly dealt with. Further, I accept in principle that prejudice of this kind may be inferred, in an appropriate case, without direct evidence.
71 In this case, the relevant events occurred six years ago. It was three years after the occurrence of those events that proceedings were commenced. Some of the defendants sought to point to that, and to the making of this and the previous application for leave to amend, to suggest that the plaintiffs were only galvanised into action by the imminence of an arguable limitation period. I am not sure that this is an appropriate inference to draw. In any event, when I granted leave to amend on the previous occasion, I did so on terms that, in effect, reserved to the trial judge a decision as to when the amendments should take effect. It was agreed that this would not prejudice, at least until the decision of the trial judge on the point, any limitation defence that might be available to any defendant. The plaintiffs accepted that if they were given leave to amend now, it should be on the same basis. Nonetheless, the fact is that proceedings relating to events that occurred six years ago have not yet been set down for hearing although (prior to the last application for leave to amend) the trial was fixed to start in March this year. The defendants were entitled to think, on the basis of what was said on the previous application for leave to amend, that the plaintiffs were in substance ready to proceed. They were entitled to think that, once the work necessitated by the previous amendment was complete, the proceedings would be given a further date for trial. If leave to amend is granted now, the trial date will be put back still further. In the meantime, the defendants would have most serious allegations hanging over their corporate and individual heads.
72 The plaintiffs relied in submissions on the cross-claims filed by Mr Peck. Mr Peck has filed two cross-claims. By his amended 12th cross-claim, he seeks contribution or indemnity from the Macquarie parties, Trowbridge and PwC. In the other, the 29th cross-claim, he seeks contribution or indemnity from Phillips Fox. The plaintiffs submitted that the claims that they wished to bring against the defendants had already been brought by Mr Peck in those cross-claims, so that even if leave to amend were refused, the defendants would be put to the anxiety and stress of defending such claims.
73 The amended 12th cross-claim alleges, among other things, that the cross-defendants made various representations in the course of performing their duties relating to the convertible notes issue; that those representations were misleading or deceptive; and that, accordingly, the cross-defendants have each contravened s 52 of the Trade Practices Act or analogous provisions in other legislation. However, Mr Peck does not allege against those cross-defendants that they were themselves guilty of breaches of any other provisions of the Corporations Law, or that they were involved in the breaches by others of other provisions of the Corporations Law. That is to say, Mr Peck does not allege, against those cross-defendants, the matters now sought to be raised by the plaintiffs against the Macquarie parties, Trowbridge and PwC. Mr Peck's case against those cross-defendants essentially reflects the case that the plaintiffs by 5 FAS seek to make against them (see the summary in para [5] above).
74 Likewise, by the 29th cross-claim, Mr Peck seeks contribution or indemnity from Phillips Fox by reason of (among other things) its conduct in making a number of representations that, Mr Peck says, were misleading or deceptive. Thus, again, he claims pursuant to s 42 of the Fair Trading Act or its analogous provisions in the Corporations Law. He does not make allegations of other breaches of the Corporations Law, or of involvement in breaches by others of the Corporations Law.
75 I therefore do not accept the submission that the expanded case that the plaintiffs seek by 6 FAS to make against the relevant defendants is no more than the case sought to be made against them by Mr Peck in his cross-claims. The case that the plaintiffs now seek to make involves, in a very real and direct way, allegations that strike at the probity, or honesty, of the relevant defendants. It is, I think, appropriate to infer that the making of those allegations, at a relatively late stage in the proceedings, and some 6 years after the relevant events occurred, is likely to cause some significant prejudice to those defendants. That is prejudice that cannot be cured by any order, whether for costs or otherwise.
76 The existence of this prejudice is, I think, a serious matter. Its significance is compounded when considered in conjunction with the other head of prejudice. That is because, as I have indicated, I do not think that it is possible to formulate a costs order (other than one requiring the plaintiffs to pay the whole of the costs of the proceedings to date, with perhaps specified "carve outs" for work that on any view can be seen not to have been wasted) that would compensate the defendants for the wasted costs that they would incur by reason of the amendments; and even such an order would leave unresolved difficulties to the prejudice of at least some defendants.
Prejudice to the plaintiffs
77 In the course of argument, Mr Douglas was asked to identify the benefit to his clients in the proposed amendments. Specifically, he was invited to indicate how it was that the plaintiffs, on the assumption that they failed to make out the claims propounded by 5 FAS, could succeed on the fresh claims propounded by the draft 6 FAS. That issue was raised because, as indicated in the course of argument, it did not seem appropriate to grant leave to amend simply to enable the summons to be reorganised in a fashion that the plaintiffs or their legal advisers felt to be more convenient: particularly where the defendants did not share that view and where the proposed reorganisation makes the summons more rather than less difficult for individual defendants to follow.
78 Mr Douglas submitted that the proposed amendments would be of benefit to the plaintiffs because they would give the plaintiffs a chance of success on the new claims if they failed on the old. Thus, he said, the plaintiffs might fail in their present cases based on allegations of negligence and misleading or deceptive conduct, but succeed on cases based on involvement or knowing concern in statutory breaches by others.
79 That submission sits uneasily with the proposition advanced by Deacons that the amendments were aimed "to ensure that all issues between the parties are clearly before the Court … " (letter of 14 September 2004 - see para [32] above). It sits equally uneasily with the proposition that what was involved is "some amendment and reformulation" and was done "to reorganise the pleadings to make [the plaintiffs'] current allegations clearer and simpler to understand" (letter of 7 October 2004 - see para [33] above).
80 In any event, on reflection, I do not think that the submission is correct. The structure of the draft 6th FAS (both as propounded in the hearing before me, and as revised thereafter) makes it clear that substantially the same facts are relied upon to support both the negligence/misleading or deceptive conduct cases and the proposed new cases. (There are some fresh matters of fact alleged, and some further particulars relied upon, but these go only to the detail, not the substance, of the analysis.) It may be necessary to draw a distinction between the negligence case on the one hand and the misleading or deceptive conduct case on the other. For example, a negligence case could fail because the plaintiffs could not establish that a particular defendant owed them a duty of care. However, if the negligence case were to fail not on this ground but because the plaintiffs fail to establish that a particular defendant breached a duty of care found to be owed, it is likely, to the point of near certainty, that the same facts would result in a conclusion that a case of involvement in statutory breaches of others must also fail. Equally, if a case of misleading or deceptive conduct fails on the facts, it is difficult to see how, on the same facts, case of involvement in the statutory breaches of others could succeed.
81 Thus, the only real area of operation of the proposed new cases would be where a negligence case failed on the basis that no duty of care was owed. However, that would not affect a case based on misleading or deceptive conduct: the establishment of misleading or deceptive conduct, and of the suffering of damages by that conduct, does not require the demonstration of a duty of care. As I have said, if a case based on misleading or deceptive conduct fails on the facts, it is likely, to the point of near certainty, that a case of contravention of the Corporations Law, or involvement in contraventions of the Corporations Law by others, would also fail. Thus, even on the view of the possibilities that is most favourable to the plaintiffs, I do not think that it is likely that the proposed amendments give them a real, as opposed to theoretical, prospect of success in circumstances where their case as presently articulated fails.
82 I accept, in general terms, that where a case is fairly arguable a party is entitled to put it and have it heard and determined. It is not for the Court, in the ordinary circumstance, to tell the party that the case really adds nothing of practical value to what is already pleaded, and that it should not be pursued. Where, however, the introduction of that alternative case is sought in circumstances that require the exercise of the Court's discretion, then I do think that it is open to the Court to take into account whether the refusal of leave is likely to occasion significant prejudice to the party seeking it. See Kirby J in J L Holdings at 169. In the present case, because I do not accept the submission for the plaintiffs that the proposed amendments give them a real prospect of success that they would not have if their case as presently pleaded fails, I think that the refusal of leave to amend is unlikely to occasion any significant prejudice to the plaintiffs. Such prejudice as is caused is properly characterised, in my judgment, as theoretical rather than real; and it is this theoretical prejudice that is to be weighed against the real prejudice that would be caused to the defendants if leave were to be granted.
The alleged pleading defects
83 The criticisms made of the draft 6 FAS, in its original form, are contained in the defendants' written submissions. In essence, those defendants who chose to put submissions focussed on the lack of pleading or particularisation of knowledge and on the pleading of a case of misleading or deceptive conduct by omission that did not make clear that the omission was advertent (see s 4 of the Trade Practices Act; and see, for example, McHugh J in Butcher v Lachlan Elder Realty [2004] HCA 60 at [99] to [101]). In addition, there were complaints about the use of verbal formulae such as "to the extent that", "by the conduct" and "by reason of".
84 It could not be said that the defendants sought to understate the problems that, they said, they faced. Given that, firstly, the draft was substantially amended and, secondly, the orders that I have made, it is unnecessary for me to say more than that, notwithstanding the zeal with which the defendants constructed defects in the initial draft of the pleading, the substance of their complaints was justified.
85 The revised draft retained the basic structure of alleging the entirety of (what was said to be) the material facts chronologically and then moving to the cases propounded against each defendant or group of defendants. But, when it set out the case against each defendant or group of defendants, it made a number of significant changes.
86 Firstly, the allegations of knowledge were clearly defined, in that: