Joss v Crowe Horwarth

Supreme Court of NSW|2017-05-09|Before: Lonergan J, Bryson J

Judgment

These proceedings, commenced by statement of claim filed on 15 June 2016, concern a claim for professional negligence against the defendant accounting firm. It is alleged that in 2010, just before the end of the financial year, certain advice was given to the plaintiffs that was negligent and which led to the plaintiffs incurring additional tax liabilities, penalties, interest and professional fees that they otherwise would not have incurred had competent professional advice been given. The statement of claim also pleads causes of action in contract and negligent misrepresentation.
The issue that is the subject of the notice of motion filed on 21 December 2016 arises from certain paragraphs in the further amended statement of claim that are, it is asserted, insufficiently clear to the extent that the defendant is unable to plead to those allegations. They concern, in particular, paragraphs 23, 23A, 23B, and consequentially, 8E(a) of the further amended statement of claim.
The affidavit in support of the notice of motion provided some background correspondence between the parties directed towards ironing out asserted deficiencies in the prior iterations of the statement of claim. An impasse was reached late in 2016 leading to this notice of motion.
Orders are sought that the offending paragraphs be struck out pursuant to the Uniform Civil Procedure Rules 2005 (NSW) r 14.28, and that in consequence of that order, the proceedings ought to be dismissed pursuant to UCPR r 13.4, or alternatively some other appropriate consequential order and that the plaintiffs pay the defendant's costs of the proceedings to date, or alternatively, the costs of the notice of motion.
The proceedings were not commenced in the Professional Negligence List. The relevant Practice Note (SC CL 7) does not specify that accountant's negligence proceedings must be commenced in that list, however it is evident from what follows that it would have been beneficial if the proceedings had been commenced in that list, not only because of the case management that would have followed, but that the proceedings would have had to be filed and accompanied by (as required by UCPR r 31.36) an expert report that supported the assertions of breach of duty of care, damage, and the causal connection between the two.

Defendant's submissions

The defendant's complaints about the statement of claim focus on the failure of the pleading to identify, with appropriate specificity, material facts that define the alternative scenarios that it is asserted would have comprised "competent taxation advice" by the defendant. It also complains that, in the chapeau to paragraph 23A, the plaintiffs leave the door open to widen their case in that they describe the competent taxation advice as advice that should have "included" three particular types of advice set out in sub-paragraphs a), b), and c) of 23A.
The relevant parts of the Further Amended Statement of Claim are as follows: 23 But for the defendant's conduct pleaded at paragraphs 9 to 14 above, the plaintiffs would have acted in accordance with competent taxation advice. 23A The advice referred to in the preceding paragraph would have included advice that: a) the plaintiffs take steps to interpose a limited liability company between CJC and its shareholders ("holding company"), such that: i. the shareholders would own all of the shares in the holding company which would, in turn, own all of the shares in CJC; and ii. CJC would pay a fully franked dividend to the holding company, or alternatively, an unfranked dividend should the holding company and CJC be consolidated for tax purposes; b) alternatively, the plaintiffs take steps to create subsidiaries of CJC to carry on the trading operations of that company, such that CJC would transfer assets to those subsidiaries as part of a tax consolidated group; or c) in the further alternative, the plaintiffs do nothing. 23B Had the plaintiffs acted in accordance with the advice referred to in the preceding paragraph, the first and second plaintiffs would not thereby have incurred the additional tax liability, penalties, interest and professional fees referred to in paragraph 25 below.
The defendant complained that subparagraph c) of 23A, "in the further alternative, the plaintiffs do nothing" is meaningless. The defendant is unable to identify what would be considered to be the "status quo", even if the defendant was able to read into that asserted option that it was a reference to continuing with the same corporate structures and same approach as had been followed by the defendant to date.
The defendant submitted that in the context of the corporate structures and taxation advice provided in the past and the subject of this particular complaint in the statement of claim, what is meant by competent taxation advice option (a) and competent taxation advice option (b) remains unclear because the descriptions are too broad. It was pointed out that subparagraph (a) had within it a number of alternative components that were difficult to work through as to what those alternatives meant, and in any event, the defendant should not have to do that. It was submitted that subparagraph 23A(b) contained a number of vagaries, in particular what subsidiaries would be created, what "carrying on the trading operations of that company [CJC]" could mean, and what was meant by "CJC being able to transfer assets to the subsidiaries as part of a tax consolidated group". There is no pleading as to how long, how soon and to what extent these avenues of advice should have been followed, to be competent taxation advice.
The defendant complained that, given these failures, both paragraph 23 which asserts that, but for the defendant's conduct, the plaintiffs "would have acted in accordance with competent taxation advice", and paragraph 23B, "had the plaintiffs acted in accordance with the advice referred to in paragraph 23A, they would not have incurred the damage" cannot be responded to without proper identification of the counterfactuals proposed in 23A.
It was submitted that this lack of specificity infected the defendant's ability to be able to request appropriately directed and confined particulars, and that, in any event answers to a request for particulars do not cure a fundamental deficiency in the pleading.
The defendant set out in detail in correspondence on 18 October 2016 the problems it saw with the initial statement of claim, and again, in its letter of 25 November 2016, the remaining problems with the amended pleading. Whilst adjustments were made to the statement of claim after the first letter, deficiencies remained and it appears there was no substantive reply to the matters raised in the November 2016 letter.

Plaintiff's submissions

The plaintiffs argued that what had been included in the Further Amended Statement of Claim was sufficient to comply with the rules regarding "pleading as briefly as the case permits", the "material facts relevant to the case".
They asserted that within the context of this professional litigation, it is evident to the defendant what is meant by 23A(c) that the plaintiffs "do nothing", given the defendant has been the plaintiffs' accountant for some years before 2010 and was part of the implementation of the negligent taxation advice.
The plaintiffs asserted that they have already dealt in correspondence with the use of the word "included" in its description of the "competent taxation advice" in 23A, and have assured the defendant that any additional particular of "competent taxation advice" upon which the plaintiffs wish to rely would be the subject of an amendment to the pleading on application to the court only if and when that arose.
They rejected the suggestion raised by the defendant in its correspondence that it would need to plead the counterfactuals of the advice and how the advice would have played out and what options it would have chosen, because each option, a), b) and c) would have all had the effect of creating the exact same position, that being no additional tax liability, no penalties, no interest, and no professional fees.
The plaintiffs argued that issues of competent taxation advice would be covered in their expert report(s) which would be served in due course, and that other relevant details would be covered in other evidence at the trial. In particular, there would be oral evidence of what the plaintiffs would have done if advised competently.
During argument, senior counsel for the plaintiff stated that that their case would be that no preference for one of the three alternative advice strategies set out in paragraph 23A should have been emphasised by the defendant, as they were all competent as advice strategies and all would have had the same end result. Any decision as to what action was likely to be followed upon being provided with advice is a decision for the trial judge: see Symonds v Gadens Lawyers Sydney Pty Ltd (No 2) [2013] NSWSC 1578.

Defendant's submissions in reply

In reply to these matters, senior counsel for the defendant argued that Symonds was not a pleadings case and thus provided no particular guidance or assistance to the argument.
Further, the Further Amended Statement of Claim does not identify the "status quo", and even if the defendant was able to identify what the salient features of the status quo were in its opinion, this may be wrong and therefore a pleading to it in a Defence could create difficulties for the defendant and consequences that were unintended.

Uniform Civil Procedure Rules and Legal Principles

Rule 14.7 of the Uniform Civil Procedure Rules states that a party's pleading must contain only a summary of the material facts on which the party relies and not the evidence by which those facts are to be proved. Rule 14.8 provides that a pleading must be as brief as the nature of the case allows.
Rule 14.6 also identifies problems with form that affect the Further Amended Statement of Claim. It prescribes that: 1. The pleading must be divided into paragraphs; and 2. Each matter must, so far as convenient, be put in a separate paragraph; and 3. The paragraphs must be numbered consecutively.
Rule 14.28 sets out the circumstances in which a court may strike out pleadings. It provides: (1) The court may at any stage of the proceedings order that the whole or any part of a pleading by struck out if the pleading: (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or (c) is otherwise an abuse of the process of the court.
In its written submissions, the defendant relied upon Mechniff v Simpson [1968] VR 62 at 69 (per Winneke CJ, Adam and Gowans JJ) cited in McGuirk v University of New South Wales [2009] NSWSC 1424 at [30], where it was stated that a pleading is embarrassing where it is unintelligible, ambiguous, vague, or too general so as to embarrass the opposite party who does not know what is alleged against him.
Reliance was also placed on Northam v Favelle Favco Holdings Pty Ltd (Bryson J, unreported, NSWSC, 7 March 1995), where Justice Bryson observed at [5], that a pleading may be embarrassing if: the material facts alleged are couched in expressions which leave difficulties or doubts about recognising or piecing together what is referred to, or if imprecise or slang words are used with unduly broad ranges of possible meanings, or without clear meanings. It is not fair to require a defendant to flesh out general expressions or indirect allusions by piecing together information in other documents such as affidavits or expert reports. He might get it wrong, and the greater the complexities are, the more probable it is that he will understand what is alleged in some different way to what the plaintiffs will rely on. Procedural justice can be upset just as much by opportunistic advocacy exploiting a choice among several possibilities as by an ambush from complete concealment. (emphasis added)

Consideration of Issues

The difficulties created by the potential complexities of the scenarios associated with the alternative of "competent taxation advice[s]" referred to in paragraph 23A are apposite to the comments by Bryson J.
It appears at least on the face of the pleading that there has been some reluctance to close the gates around the case that is being made, in the use of the word "included" in the chapeau to paragraph 23A. It is inappropriate in a pleading that should define the case to appear to deliberately leave the door open for some further assertion at a later point in time.
In a case of this type where the causal chain between negligence and the net result of a series of "competent alternative advices" is alleged, it is insufficient in my view to simply state in elliptical form a broad statement of the advice without pleading facts of materiality as to how it is alleged each counterfactual scenario would have unfolded in the context of the plaintiffs' corporate and financial positions and structures. Without this, the Defendant cannot properly respond in its Defence in a way that delineates the issues.
Paragraph 23A of the Further Amended Statement of Claim does not comply with the requirements of r 14.6. It squeezes within each sub-paragraph a shortly expressed number of potential alternatives which do not permit a response of clarity in a corresponding paragraph in a Defence.
The problems with paragraph 23A infect paragraphs 23 and 23B and consequentially paragraph 8E(a). The defendant is unable to respond to paragraph 23 because of the lack of clarity regarding the "competent taxation advice" options.
Paragraph 8E of the statement of claim is part of the same issue with the additional problem that it uses the term "competent advice" as opposed to "competent taxation advice". Senior counsel for the plaintiffs stated that it was understood to be referring to the same advice as set out in paragraph 23A, but it illustrates the problems with the lack of precision in the pleading.
In the circumstances, I accept the submissions of the defendant and conclude that paragraphs 23, 23A, 23B, and 8E(a) of the Further Amended Statement of Claim should be struck out pursuant to r 14.28.
Rather than proceeding to an order to dismiss the proceedings, it is appropriate to allow a confined period within which the plaintiffs are to provide a Second Further Amended Statement of Claim addressing the lacunas in the pleading of their case.
I am of the view that the matter is appropriate for management in the professional negligence list and I will refer the proceedings for management in that list. I consider it is consistent with s 56 of the Civil Procedure Act to so order. This will entail an order in the short term for the plaintiff to complete service of its expert report(s) on liability so that this matter can progress. It is of some concern that the proceedings were commenced in June 2016 and, nearly 11 months later, the proceedings have not progressed past the initiating pleading being sufficiently clear to allow a Defence to be filed.

Costs

In its letter of 25 November 2016, the defendant proposed resolution of the issues between it and the plaintiffs setting out in detail the remaining issues with the lack of clarity in the Further Amended Statement of Claim. The issues raised were valid and clearly articulated. The letter proposed a way forward focussed upon narrowing issues and progressing the proceedings which had, by that stage, stagnated.
That proposal (or any of it) was not taken up. It should have been. The defendant has succeeded on its motion and does not seek orders other than that the plaintiffs pay the defendant's costs of the motion on the usual basis.

Orders

I make the following orders: 1. Pursuant to Rule 14.28(b), paragraphs 23, 23A, 23B and 8E(a) of the Further Amended Statement of Claim be struck out. 2. The plaintiffs have leave to file a Second Further Amended Statement of Claim on or before 7 June 2017. 3. The proceedings are to be transferred to the Professional Negligence list. 4. The proceedings are to be listed before the Registrar on Wednesday 21 June 2017. 5. The plaintiffs are to pay the defendant's costs of the notice of motion.

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: 01 June 2017

At a glance

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Judgment (9 paragraphs)

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