King v AG Australia Holdings Ltd [2003] FCA 543 | Case summary

REASONS FOR JUDGMENT 1 An issue has arisen in a representative proceeding brought by Mr Shane King ("the applicant") on his own behalf and on behalf of certain shareholders in AG Australia Holdings Ltd (ACN 054 573401) (formerly GIO Australia Holdings Ltd) ("GIO"). Various respondents say they are entitled to further particulars of the applicant's claims. The proceeding is against GIO, an adviser to GIO, Grant Samuel and Associates Pty Ltd ("Grant Samuel"), and nine directors of GIO. One of the directors, Mr Steffey ("the fifth respondent") was an executive director (he was the chief executive officer of GIO) and the remaining eight were not ("the non-executive directors"). The proceeding concerns a period in the history of GIO when it was the subject of a takeover offer by AMP Insurance Investment Holdings Pty Ltd ("AMP") and relates to advice given to shareholders of GIO about whether the offer should be accepted. 2 Broadly described, the case alleged by the applicant is as follows. In August 1998 AMP announced a $4.75 cash offer for GIO shares with an alternative offer of two AMP shares for nine GIO shares. The directors of GIO recommended that the offer be rejected. The offer was embodied in a Part A statement sent on 4 December 1998 though a revision of the offer was announced on 9 December 1998 which was an offer of $5.35 per GIO share or one AMP share for four GIO shares. A media release of 9 December 1998 quoted the fifth respondent as continuing to urge shareholders to reject AMP's "inadequate bid". That day the board of GIO resolved unanimously to reject the revised offer and authorised one of the non-executive directors, the chairman of the Board, Mr David Mortimer (the third respondent) and the fifth respondent to sign the Part B statement made under s 647 and Part B of s 750 of the then Corporations Law. The Part B statement then issued and took the form, in substance, of two booklets. The second booklet was a report of Grant Samuel valuing GIO shares in the range $5.66 to $6.71. 3 Central to the applicant's case is the way in which the information provided to shareholders dealt with risk factors relevant to GIO's reinsurance business ("GIO Re"). Its relevance was explained, at an early point in the proceedings, by counsel for the applicant in the following way. The first 24 pages of the first booklet set out prominently and in relatively straightforward language the various reasons for rejecting AMP's bid. The balance of the first booklet was statutory information, and a 9-page appendix, which contained a financial forecast of GIO for 1999. The second booklet is Grant Samuel's report, which was 175 pages of detailed accounting analysis, plus appendices. In the 1999 forecast (booklet one) and in the Grant Samuel report (booklet two) there was reference to various risk factors associated with the reinsurance business conducted by GIO. Those risk factors were, the applicant contends, given no prominence, and the material was presented in such a way that a reader without special expertise in the insurance industry would not know that it was of special importance. 4 It is part of the applicant's case that, in fact, the business of GIO was substantially dependent on its reinsurance business (including risk factors referred to in the Part B Statement). GIO Re's business was critically dependent on various risk factors. However, the circumstances were such that, if various of the risks materialized, the effect on GIO Re would be catastrophic. The consequences for the GIO share price would in turn be disastrous, because of the relative significance of GIO Re in the business of GIO. Accordingly, given the financial structure and size of GIO Re, the risk factors meant that the GIO share price was capable of being profoundly, and rapidly, affected by foreseeable contingencies of the reinsurance business. In consequence, the GIO shares were an inherently risky investment, the value of which could fall dramatically and swiftly. 5 Soon after the close of the bid, GIO Re posted increasing losses and revised provisions for losses, with the result that the share price of GIO fell to about $2.50 per share. A scheme of arrangement was approved which involved AMP acquiring all shares in GIO not yet owned by it for a consideration amounting to $2.75 per share. 6 By early 2003, a point had been reached where directions could be given so the parties would take the final steps to prepare for a trial of at least the common issues in the representative proceeding. In a judgment of 19 March 2003: [2003] FCA 212, I dealt with several issues, including an issue about whether the applicant should be required to put on his expert evidence before any of the respondents put on any of their evidence. The respondents contended this course should be followed. The applicant contended the expert evidence should be put on after all parties had filed their non-expert evidence. I accepted the approach of the applicant. However in relation to a contention that the respondents might be prejudiced by following, I said: The prejudice pointed to by the fifth respondent (and other respondents) in following this course arose from an earlier intimation by the solicitors acting for the applicant that certain particulars sought by certain respondents some time ago would not be provided. Instead information which might otherwise be provided by particulars would be provided in reports of experts. By this means the particulars would be given. This was accepted by the respondents. I was told that this was particularly relevant in relation to an expert report or reports concerning corporate governance (the duties of directors and their breach) on which the applicant might rely. If the applicant's experts' reports were not made available at an early stage, the respondents would have to put on their evidence before they knew the full nature of the case against them. I accept that it is possible that because the respondents accepted that their request for particulars could be dealt with in this way, they may be prejudiced if the applicant's expert evidence is put on after they are required to put on evidence. However that potential prejudice can equally be dealt with, in my opinion, by allowing the respondents to make further application for particulars. I have accommodated this in the orders made by enabling the respondents to move the Court to seek further particulars, and I presently intend that any such motion will be determined and any resultant particulars provided well before the respondents are required to put on evidence. 7 I did not intend to suggest by these comments that if evidence was filed in the sequence proposed by the applicant (and accepted by me), it would follow that further particulars would have to be provided by the applicant to avoid prejudice. From some submissions recently made in support of the provision of further particulars, it appears this may have been the understanding of some of the respondents or their legal advisers. In making the above comments, I was intending to indicate that respondents who believed they would be prejudiced (without, at that stage, agreeing they would be), would have the opportunity to establish the need for further particulars. If they did, the potential for prejudice would be made out but then removed by the provision of further particulars. 8 It is against this background that Grant Samuel, the fifth respondent and the non-executive directors seek orders requiring the provision further particulars by the applicant. I deal firstly with the request for further particulars from Grant Samuel and then, jointly, with the requests from the fifth respondent and the non-executive directors. Request by Grant Samuel for Further Particulars 9 Counsel for Grant Samuel referred, in support of the provision of further particulars, to several paragraphs in the seventh further amended statement of claim ("statement of claim"). The first was par 26 which pleads that GIO and the directors made certain representations, some of which arose from the terms in which the Part B statement was expressed. Paragraph 27 alleges that those representations were false, misleading and deceptive. Paragraph 34 then relevantly pleads: 34. By making the representations and statements alleged in paragraphs 14, 15 and 16 above and by not informing adequately or at all about the risk factors as alleged in paragraph 25, Grant Samuel impliedly represented to the Applicant and the group members that: (a) … (b) GIO, Grant Samuel and the Directors had undertaken all necessary and reasonable investigations before publishing the Part B Statement to the Applicant and the group members and had satisfied themselves on reasonable grounds following those investigations that the Part B Statement was accurate, balanced, reasonable and not misleading or deceptive in any respect; … 10 Counsel then referred to par 35 which alleges the representations in par 34 were false misleading and deceptive. Paragraph 36 pleads two additional implied representations made by Grant Samuel and par 38 alleges that Grant Samuel did not have reasonable grounds for making the representations alleged in par 36 because of the matters alleged in par 35. Paragraph 54 alleged a breach of a duty of care including a failure: (b) to ensure that the Part B Statement was not misleading or deceptive or likely to mislead or deceive in any of the ways alleged in paragraphs 27, 35 and 38 above; 11 Counsel for Grant Samuel referred to consolidated particulars provided by the applicant on or about 26 October 2001. In those particulars the applicant did not seek to differentiate (for present purposes) between the position of GIO, the directors, or Grant Samuel. In par 26 of the particulars, the applicant listed 54 matters (in sub-paragraphs (a) to (bbb)) which constituted investigations, reviews and inquiries or reasonable analysis and consideration that should have been undertaken by the respondents. Later in those particulars, the applicant particularised the basis upon which it was said that, amongst others, Grant Samuel was aware of the risk factors and their significance. The sources of information relied on by Grant Samuel were particularised (in pars 72, 73 and 78) but at a level of generality. There was then set out, in relation to each of the risk factors, matters demonstrating why, it was alleged, the disclosure of information in the Part B statement was inadequate. 12 By letter dated 9 April 2003, Grant Samuel's solicitors wrote to the applicant's solicitors seeking further particulars in the following terms: As to Paragraphs 27 to 35 1. In respect of each of the relevant matters, is it alleged that Grant Samuel should itself have undertaken some or all of the Investigations? 2. If so: (a) which Investigations; and (b) on what basis and by reference to what standard, including the usual particulars of any communication said to have put Grant Samuel on notice of the existence or materiality of each of those matters? 3. On what basis and by reference to what standard is it alleged that the Investigations into each of the relevant matters were: (a) necessary; and (b) reasonable. 4. In relation to each of the relevant matters, please indicate: (a) whether it is alleged that the Investigations were not undertaken by Grant Samuel? (b) If so, please set out the facts matters and circumstances alleged to give rise to the allegation; (c) Whether it is alleged that investigations were carried out by Grant Samuel but that the outcome of those investigations had not been reasonably analysed or taken account of by it? (d) If so, in respect of each of the relevant sub-paragraphs, please identify the person or persons on behalf of Grant Samuel alleged to have undertaken the investigation, the nature of the investigation including (where appropriate) by reference to any document which records it, and the facts matters and circumstances relied upon to give rise to the allegations as to the alleged failures. (e) Whether it is alleged that GIO had failed to carry out the Investigations? (f) If so, please set out the facts matters and circumstances alleged to give rise to the allegation. (g) Whether it is alleged that GIO had undertaken the Investigations but failed to undertake a reasonable analysis and consideration of the outcome of them. (h) If so, please set out the facts matters and circumstances said to give rise to the allegation. (i) Is it alleged that Grant Samuel had knowledge of any failure on the part of GIO to make the Investigations and/or undertake a reasonable analysis or consideration of the outcome? (j) If so please provide the usual particulars of the communication/s alleged to give rise to such knowledge. 5. The basis upon which it is alleged that Grant Samuel was obliged to satisfy itself that GIO had carried out such Investigations and analysis where it had not done so itself. 6. Please set out in respect of each of the relevant matters the facts matters and circumstances relied upon to support the allegation that had the Investigations been undertaken by GSA, this would have led to the Risk Factors being adequately disclosed before the publishing the Part B Statement. [sic] 7. Please identify all facts matters and circumstances relied upon to assert that Grant Samuel had not, following the Investigations, satisfied themselves that the Part B Statement was accurate, balanced, reasonable and not misleading and deceptive in any way? As to Paragraph 38 8. Is it alleged that Grant Samuel had knowledge of each of the risk factors? 9. If so, please set out the facts matters and circumstances relied upon to support the allegation including the usual particulars of any relevant communication/s relied upon. 10. If so, on what basis is it alleged that such knowledge supports or is relevant to the allegation that the representations set out in sub-paragraphs 36(a) and (b) were not made on reasonable grounds? 11. If not, on what basis is it alleged that the matters set out in sub-paragraphs 35(a), (b) and (d) support or are relevant to the allegation that the representations in sub-paragraphs 36(a) and (b) were not made on reasonable grounds? 12. On what basis is it alleged that the matters set out in sub-paragraph 35(b) (read by reference to the particulars thereof) support or are relevant to the allegation that Grant Samuel did not have reasonable grounds for making the representations set out in sub-paragraph 36(a) and (b)? 13. On what basis it is alleged that any failure to carry out the Investigations or otherwise to properly consider and analyse the outcome thereof support or are relevant to the allegation that Grant Samuel did not have reasonable grounds for making the representations in sub-paragraphs 36(a) and (b). … As to Paragraph 54 17. Is it alleged that Grant Samuel had knowledge of each of the risk factors? 18. If so: (a) please set out the facts matters and circumstances relied upon to support the allegation including the usual particulars of any relevant communication/s relied upon; and (b) upon what basis is it alleged that Grant Samuel failed to exercise reasonable skill, care and diligence in giving the Applicants adequate and accurate advice about the existence and materiality of such maters; [sic] and (c) What is alleged that it ought to have done in this respect? 19. If not: (a) Upon what basis is it alleged that Grant Samuel failed to exercise reasonable care skill and diligence in giving advice as to matters of which it had no knowledge? (b) What is alleged it ought to have done in this respect? 20. Upon what basis is it alleged that Grant Samuel failed to exercise reasonable care skill and diligence in ensuring that the Part B statement was not misleading or deceptive or likely to mislead or deceive in any of the ways alleged in paragraphs 27, 35 and 38? 21. What is alleged ought to have been done in this respect? 22. Upon what basis is it alleged that Grant Samuel failed to exercise reasonable skill, care and diligence in ensuring that the Part B Statement contained information and advice that was fair, reasonable and balanced by appropriate discussion of the risk factors? 23. What is alleged ought to have been done in this respect? 13 Further particulars were provided by the applicant in a document dated 2 May 2003. In relation to one of the matters presently in issue (broadly described as the investigations which the applicant alleges Grant Samuel should have undertaken), the applicant provided the following particulars: 8. In relation to each of the matters set out in paragraphs 25(a) to (l) and 26(a) to (bbb) of the Consolidated Particulars, the Applicant's case is that: (a) in no case was a comprehensive Investigation undertaken with an appropriate level of examination by Grant Samuel or otherwise; (b) to the extent that any Investigation was undertaken there was inadequate analysis of the outcome of that Investigation; (c) to the extent that there was analysis of the outcome of an Investigation it was not reasonably taken into account in the Grant Samuel Report. 9. Such an investigation and examination should have involved Grant Samuel: (a) seeking information from senior officers of GIO Re and GIO's Chief Financial Officer, and its directors, so as to satisfy itself on reasonable grounds that in the circumstances all necessary and reasonable investigations had been carried out and all relevant information was provided to Grant Samuel; (b) scrutinising in detail any information, calculation or valuation models provided to it by GIO Re management either itself or through an appropriate independent specialist; (c) subjecting any assumptions or calculations to rigorous analysis and investigation and ensuring that the assumptions and methodologies were reasonable and drew on source data which was appropriate; (d) making reasonable requests for briefings and written advice from management in relation to the areas of their responsibility and to insist on the same right of access to company records that an auditor would have; (e) insofar as those briefings or advice did not reveal adequate information, Grant Samuel should have taken further action to investigate those matters including in appropriate cases making direct inquiries to the employees, consultants, outside professionals and others in possession of relevant information in those areas. 10. Where (any) [the addition of this word was proposed by counsel for the applicant at the hearing of Grant Samuel's motion for further particulars] information regarding the operations of GIO Re had been provided to or obtained by Grant Samuel which either: (a) was inconsistent with the information proposed to be included in the Part B Statement; or (b) should have raised doubts as to whether the information proposed to be included in the Part B Statement was accurate, balanced, reasonable and not misleading or deceptive in any respect, in the context of the: (i) complexity and volatility of international reinsurance; (ii) prevailing market conditions of the time; (iii) importance of reinsurance in the activities and assets of GIO; (iv) qualifications and experience of Grant Samuel; (v) purpose and readership of the Part B Statement; and (vi) entitlement of Grant Samuel to access all relevant information, Grant Samuel should have required further briefings and written advice from GIO, its directors and management in relation to the areas of their responsibility and, where any such inconsistency or doubt was not then resolved, made direct inquiries to the employees, consultants, outside professionals and others with relevant information in those areas. Grant Samuel was obliged to carry out or cause to be carried out all reasonable and necessary investigations to resolve any such inconsistencies or doubts. 11. Such inquiries would have resulted in: (a) the identification of the Risk Factors by Grant Samuel; (b) the proper and adequate disclosure of the Risk Factors in the report prepared by Grant Samuel; (c) the taking of those Risk Factors into account in determining its value of GIO and in Grant Samuel's assessment of the fairness and reasonableness of the takeover offer. 14 Grant Samuel contended that the particulars that have been provided are inadequate in several respects, though they seem to be related. It appears from Grant Samuel's written submissions that these inadequacies are said to create difficulties in preparing its evidence. The first inadequacy pointed to is that the particulars do not identify, with sufficient specificity, what the information Grant Samuel was provided with which should have been disclosed in its report or caused Grant Samuel to make further inquiries or otherwise act differently. Paragraph 10 of the most recent particulars concerns information which had been provided to Grant Samuel or obtained by it which would have led to it taking further action. Grant Samuel complained that the particulars do not specify what information is relied upon. An allied criticism, as I understood the submission, was that to the extent that the information is found in documents, the applicant has not identified the documents (of documents provided as tender bundles by the applicant as part of the applicant's non-expert evidence) which are relevant to the applicant's case against Grant Samuel. In addition, Grant Samuel said that in the most recent particulars (2 May 2003), pars 11 and following deal with what should have flowed from the inquiries Grant Samuel ought to have made which would have avoided the alleged deficiencies in its report and valuation. It was submitted that particulars should be provided which would reveal how the applicant contends the valuation should have been undertaken (including the assumptions that should have been made for the purposes of the valuation). 15 The response of counsel for the applicant was as follows. First Grant Samuel misunderstands the applicant's case. It is not alleged (in par 10 of the particulars of 2 May 2003) that any specific information was provided by GIO to Grant Samuel. Rather, the contention is that if information was provided with the characteristics in subparas (a) and (b), Grant Samuel should have done certain things. More generally, it was contended that the applicant is a small shareholder and does not know what occurred, at least at the level of particularity sought by Grant Samuel. To answer questions such as who read what document could require the applicant to interrogate large numbers of people, which is not desirable. Insofar as Grant Samuel has complained that the deficiencies in its approach to the process of valuation are not identified, that will be dealt with in any experts the applicant relies on, to which Grant Samuel can reply. 16 Before dealing with these competing contentions it is convenient to refer to some of the principles governing the provision of particulars. There are many cases in which these principles are discussed. One reasonably recent authority in which they are conveniently gathered together is McCormick v Colonial Mutual General Insurance Co Ltd (1995) 8 ANZ Ins Cas 61-262 in which the following is said: 1. Particulars fulfil an important function in the conduct of litigation. They define the issues to be tried and enable the parties to know what evidence it will be necessary to have available and to avoid taking up time with questions that are not in dispute. On the one hand they prevent the injustice that may occur when a party is taken by surprise; on the other hand they save expense by keeping the conduct of the case within due bounds. Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 at 219; Esso Petroleum Co Ltd v Southport Corporation [1956] AC 218 at 241; Spedding v Fitzpatrick (1888) 38 Ch D 410 at 413. 2. It is a fundamental principle that a party should always be fairly apprised of the nature of the case that party is called upon to meet, shall be placed in possession of its broad outlines and the constitutive facts which the other party will rely on to establish or defend the case. A party is entitled to receive sufficient information to ensure a fair trial and to guard against what the law terms "surprise" although there is no entitlement to be told the mode by which the case is to be proved by the other party. R v Associated Northern Collieries (1910) 11 CLR 738 at 740. … 7. It is a matter for the court in the exercise of its discretion to determine what degree of particularity is appropriate in each case. 17 In addition, it is sometimes said that it is no answer for an applicant resisting a request for particulars to say the particulars are sought in relation to matters known to the respondent: Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 at 219 and Whelan v John Fairfax & Sons Ltd (1988) 12 NSWLR 148 at 154, though the limited knowledge of an applicant might result in particulars being provided after discovery: see Millar v Harper (1888) 38 ChD 110, Egg & Egg Pulp Marketing Board v K H Korp Tocumal Trading Co Pty Ltd [1963] VR 378, L Grollo & Co Pty Ltd v Nu‑Statt Decorating Pty Ltd (1978) 34 FLR 81 and Trade Practices Commission v CC (NSW) Pty Ltd (No 4) (1995) 58 FCR 426 at 439, 440. 18 More generally, the place of particulars in the conduct of litigation was recently described by Gleeson CJ in Goldsmith v Sandilands (2002) 190 ALR 370 at 371 where his Honour adopted the observations of Scott LJ in Bruce v Odhams Press Ltd [1936] 1 KB 697 at 712 that particulars fill in the picture of the plaintiff's cause of action with information sufficiently detailed to put the defendant on his guard as to the case he has to meet and to enable him to prepare for trial. However a party is not entitled to be told, by way of particulars, the mode by which the case is to be proved against him: R v Associated Northern Collieries (1910) 11 CLR 738 at 741 per Isaacs J. Where the line should be drawn is not a question of recent origin: see Duke & Sons v Wisden & Co (1897) 77 LT 67. 19 Returning to the contentions of Grant Samuel, I do not consider, with one qualification, that the applicant should be required to provide the further particulars sought. One difficulty that appears to arise in relation to Grant Samuel's preparation of its evidence, is its desire (as it has been explained in submissions on various occasions) to call evidence from individuals acting for that firm during the valuation process to explain not only what was done to arrive at the valuation but also to express a view about the appropriateness of the course that was followed or the steps taken. Evidence of that latter type would be expert evidence or evidence akin to that of an expert. What I generally had in mind when I gave the earlier directions about the sequence in which the non-expert evidence and the expert evidence would be filed, was that the applicant and then the respondents would, to the extent that they wished to do so to support their case, lead evidence to establish what in fact occurred at the time the position reflected in the Part B statement was put to shareholders. That would presumably include what was done in the period leading up to the preparation and publication of the Part B statement. That would create a situation where assumptions could be formulated and put to experts the parties might wish to call, which were more likely to reflect what in fact had happened. On that footing Grant Samuel could, at this point, call such evidence it wishes to rely on, concerning what occurred during the period leading up to the preparation and publication of the Part B statement without necessarily seeking to explain or justify, by way of expert analysis, what it did or did not do in that period. 20 However, I accept that it is likely that the terms of the order actually made on 7 March 2003, which speaks of "evidence…other than independent expert reports" would have been viewed as requiring Grant Samuel to put on evidence from individuals who were involved on its behalf in the preparation of the valuation in the Part B statement even if the evidence was, in part, expert evidence. Such witnesses may well have not been viewed as "independent". When making the orders I paid no particular attention to the precise terms in which, in this respect, they were formulated. If necessary, the terms of the order can be revisited. To that end I will, in the orders I make, provide for liberty to apply on seven days notice. 21 Dealing with the last of the specific matters raised by Grant Samuel, it is not necessary, in my opinion, for the applicant to particularise how the valuation should have been undertaken. Grant Samuel is in a position to lead evidence about how it was undertaken if it wishes to do so. Presumably the applicant will call expert evidence concerning the way in which, inter alia, the risk factors should have been dealt with in the process of valuing the shares of GIO. One would expect that such evidence would be led to demonstrate, inter alia, that the risk factors should have been considered and addressed in a way which did not conform with what in fact happened. Grant Samuel will then be apprised of what is said, critically, of the way it went about, inter alia, valuing the shares and preparing its report. It will be in a position to meet that case with its own expert evidence if it wishes and no question of surprise or unfairness will, in my opinion, arise. 22 I do not accept the suggestion that the applicant is obliged to descend to a greater level of specificity about the information the applicant alleges was available to it or the inquiries it should have undertaken. The purpose of particulars was as discussed earlier. A party cannot be called on to reveal, under the guise of a request for particulars, the actual evidence that will be relied upon. The submissions of Grant Samuel appeared to go almost that far. However, other problems are created by the way the applicant said par 10 of the particulars of 2 May 2003 should be read. 23 The first part of the paragraph (subparas (a) and (b) and (i) to (vi)) serves to identify circumstances where, it is alleged, Grant Samuel should have done certain things (required further briefings and written advice and made inquiries and undertaken investigations). However the way in which the circumstances are identified is conditional. That is because it depends on whether any information with the relevant characteristics was provided or obtained. Necessarily, it appears to me, the allegation concerning what Grant Samuel should have done is similarly conditional. I would have thought that the applicant has to elect to make the allegation that the circumstances did exist with particular consequences or not make it at all. Because it is expressed conditionally it appears to me to be a speculative allegation which could be difficult to respond to. Does Grant Samuel respond by seeking to demonstrate there was no such information or, on the assumption that there was, it did not have the consequences alleged? What appears in par 10 needs to be recast or abandoned.

Request by the fifth respondent and the non-executive directors 24 A convenient starting point in dealing with the issues raised by the fifth respondent and the non-executive directors is to deal with the particulars requested by the fifth respondent. I have already referred to par 26 of the statement of claim and following paragraphs (including par 27). Paragraph 25 provides: At no time during the relevant period did any of the Respondents adequately inform the Applicant and the group members that: (a) the possible occurrence of risk factors particulars of which are given in the Schedule hereto ("the risk factors") might substantially and adversely affect the financial forecasts and the valuation of the GIO shares contained in the Part B Statement; (b) if the risk factors occurred, the value of GIO shares was likely to decline, perhaps significantly; (c) the matters in subparagraphs (a) and (b) above should be taken into account by the Applicant and the group members because they were very relevant matters in any decision whether to accept the varied takeover offers. and par 27 relevantly provides: The representations alleged in paragraph 26 were false misleading and deceptive because: (a) the risk factors were material matters which were not disclosed or not given adequate prominence in the Part B Statement and which the Applicant and the group members ought to have taken into account in deciding whether to accept or reject the varied takeover offers; (b) GIO, Grant Samuel and the Directors had not undertaken all necessary and reasonable investigations which, had they been undertaken, would have led to the risk factors being adequately disclosed before publishing the Part B Statement and had not satisfied themselves on reasonable grounds following those investigations that the Part B Statement was accurate, balanced, reasonable and not misleading or deceptive in any respect; (c) … 25 The request for further particulars made by the fifth respondent (by letter dated 11 March 2003) was in the following terms: Paragraph 25 1. In respect of each of the matters identified in subparagraphs (a), (b) and (c) separately, identify: (a) the substance of each statement that the applicant alleges ought to have been included in the Part B statement and/or the Grant Samuel Report; (b) in respect of each of the statements identified in answer to subparagraph (a), the location (by reference to a convenient description, for example, subject heading, page number, paragraph number) within either the Part B statement and/or the Grant Samuel Report where the applicant says the statement ought to have appeared; (c) in respect of each of the statements identified in answer to subparagraph (a), the format or range of formats in which the statement ought to have been presented (for example, whether it should have been in bold, different colours from the balance of the text, different point size to the words on the same page, within a paragraph containing other information, in substitution for another statement contained in the documents); (d) each of the statements that the applicant alleges ought to gave been excluded from the Part B statement and/or the Grant Samuel Report; [sic] (e) in respect of each of the statements identified in answer to subparagraph (d), the location (by reference to a convenient description, for example, subject heading, page number, paragraph number) within either the Part B statement and/or the Grant Samuel Report where the applicant says the statement to be excluded actually appeared. 2. To the extent that the applicant alleges that each of the twelve risk factors ought to have been separately addressed in the Part B statement and/or Grant Samuel Report, answer the above request separately for each risk factor. Paragraph 27(a) 3. Separately in respect of each risk factor, identify: (a) the substance of each statement that the applicant alleges ought to have been included in the Part B statement and/or the Grant Samuel Report that the applicant says would represent the minimum state of information disclosure for the risk factors to satisfy the dual criteria: (i) disclosed; (ii) given adequate prominence; (b) in respect of each of the statements identified in answer to subparagraph (a), the location (by reference to a convenient description, for example, subject heading, page number, paragraph number) within either the Part B statement and/or the Grant Samuel Report where the applicant says the statement ought to have appeared; (c) in respect of each of the statements identified in answer to subparagraph (a), the format or range of formats in which the statement ought to have been presented (for example whether it should have been in bold, different colours from the balance of the text, different point size to the words on the same page, within a paragraph containing other information, in substitution for another statement contained in the documents). 4. To the extent that the applicant alleges that each of the twelve risk factors ought to have been separately addressed in the Part B statement and/or Grant Samuel Report, answer the above request separately for each risk factor. 26 Two submissions were made by counsel for the fifth respondent. The first was that this request for particulars should be adequately answered. Counsel for the applicant responded by submitting that this request was tantamount to requiring the applicant to formulate how the Part B statement should have been framed or at least one version of it. She submitted the applicant cannot be required to do so. I agree. I am not aware of any authority which suggests that an applicant needs to demonstrate (and earlier particularise), as part of its case, how a representation (or a document containing a representation) should have been framed so as to result in it not being misleading (though I accept that in this matter, the applicant has done so up to a point when providing particulars). Ordinarily an applicant, in order to make good a case of misleading and deceptive conduct involving a representation, must demonstrate why the representation framed in a particular way was, against the factual background in which it was made, false or misleading. Conclusions might be drawn by the Court about how the representation could or might have been framed as part of assessing whether the making of it constituted misleading or deceptive conduct. But that, in my opinion, is not a matter that the applicant should be required to particularise. I see no difference, in principle, if one was considering not the representation simpliciter but the document said to contain the representation. Accordingly I do not accept the first submission made by counsel for the fifth respondent concerning the adequacy of the particulars provided by the applicant. 27 The second submission was that earlier particulars which had been provided concerning the necessary and reasonable investigations referred to in subpara 27(b) of the statement of claim (set out in subparas (a) to (bbb) of par 26 of the consolidated particulars of 26 October 2001) were extremely wide ranging and possibly unrealistically so. It would be oppressive to require the fifth respondent to put on evidence effectively dealing with whether such investigations had or had not been undertaken. The more appropriate and fairer course was to revisit the earlier directions (dealt with in my judgment of 19 March 2003) concerning the sequence in which the evidence would be filed. As it transpired, particulars were provided to the fifth respondent dated 8 May 2003 which replaced what had been said (about investigations) in the consolidated particulars of 26 October 2001. However that did not alter, as I apprehend it, the substance of the point raised by the fifth respondent. What should occur, counsel for the fifth respondent submitted, was that the applicant should now put on its expert evidence (on the assumption it would include expert evidence concerning how an executive director might go about dealing with a takeover offer, the valuation of the shares of the target company and advising shareholders). The fifth respondent could then give evidence about what he did against the background where the real allegations about what he should have done would have been revealed in the evidence of any expert. 28 I do not accept that I should follow this course. First, it raises, in substance, an issue on which judgment has already been given. I do not suggest, however, that I will do anything other than endeavour to ensure that the preparation for trial and the trial itself will proceed on the footing that all parties have a fair opportunity to prepare and present their case. Nonetheless orderly case management would tend strongly against revisiting an earlier ruling unless circumstances had changed or I had failed to appreciate fully the implications of the course I had set the parties on by the ruling. Neither situation arises in relation to the matter now raised by the fifth respondent. It is true that subparas (a) to (bbb) of par 26 related to all respondents and not specifically the fifth respondent and that position has altered since judgment was given on 19 March 2003 but that is of no real relevance to the contention of the fifth respondent. I do not see why the fifth respondent should not be required to file his evidence in the sequence provided for in the timetable. 29 The position of the non-executive directors was slightly different. The issues raised by the applicant's case which were not adequately particularised were summarised in the first set of written submissions of counsel for the non-executive directors: 3. The particulars sought in the schedule relate to two central allegations made against the non executive directors in the Seventh Further Amended Statement of Claim, namely: (a) That the non executive directors failed to "adequately" disclose certain risk factors in the Part B Statement (paragraphs 28(a), 40, 48(a), (c) and (d) of the Seventh Further Amended Statement of Claim); (b) That the non executive directors failed to undertake all necessary and reasonable investigations prior to publishing the Part B Statement (paragraphs 27(b) and 48(b) of the Seventh Further Amended Statement of Claim). 30 It can be seen that the non executive directors generally focused on the same matters addressed by counsel for the fifth respondent. Counsel for the non-executive directors adopted and elaborated on the submissions of the fifth respondent. However, for the reasons just given, those submissions made on behalf of the non-executive directors should be rejected also. But counsel for the non-executive directors invited, as an alternative to revisiting the earlier ruling concerning the sequence in which the evidence should be filed, the provision of further particulars by the applicant. I took this to be a submission that if the difficulties pointed to by counsel for the fifth respondent concerning the breadth of the particulars (about the investigations) did not result in a variation of the earlier orders, better particulars should be provided about the investigations. 31 However par 51 of the particulars provided to the non-executive directors dated 9 May 2003 sets out twenty-nine mostly specific steps (by way the investigations) that should have been undertaken in relation to risk factor 1 (risk regarding inadequate outstanding claims reserved) and risk factor 2 (risk regarding inadequate unearned premium reserve/unexpired risk reserved). To similar general effect (though not as many steps are identified) is par 63 (concerning risk factor 3 (risk regarding in adequate retrocession)) and risk factor 11 (risk regarding no claims exceeding GIO retrocession program)), par 66 (concerning risk factor 4 (risk regarding poor management and control of underwriters and underwriting)), par 72 (concerning risk factor 5 (risk regarding reduced profit from reinsurance incepting from 1 January 1999)), par 77 (concerning risk factor 6 (risk regarding substantial loss if a major catastrophe occurred)), par 80 (concerning risk factor 7 (risk regarding substantial losses and run-off)), par 84 (concerning risk factor 8 (risk regarding reduction in premium income)), par 90 (concerning risk factor 9 (risk regarding no further significant catastrophe portfolio losses)), par 103 (concerning risk factor 10 (risk regarding improvement in loss ratio)) and par 108 (concerning risk factor 12 (risk regarding assumption of offset of Hurricane Georges losses by favourable or better than expected performance in other portfolios)). In my opinion, the particulars given by the applicant of the investigations that should have been undertaken is adequate. 32 While it was not the subject of any specific submissions, I note the difficulties I pointed to earlier about par 10 of the particulars provided to Grant Samuel, appear to attend par 24 of the particulars provided to the non-executive directors, as well as the fifth respondent. For the reasons earlier given, this should be addressed by the applicant. 33 I propose to order the applicant provide further particulars (within 10 days) of the matter dealt with by either par 10 or par 24 of the particulars provided to the respondents in May 2003 but only to the extent necessary to avoid what I perceive to be the defect in the particulars discussed earlier (or abandon the allegation). I will otherwise dismiss the applications of Grant Samuel, the fifth respondent and the non-executive directors for further particulars. I will extend the time by which those respondents have to file their non-expert evidence by a further 20 days (from 21 June to 11 July 2003) to accommodate the provision of any further particulars concerning par 10 or par 24. I presently see no need to otherwise vary the timetable. I certify that the preceding thirty three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.

King v AG Australia Holdings Ltd

At a glance

Court

Decision date

Before

Source

Judgment (25 paragraphs)

Parties

Cases Cited (8)

Cited By (3)