AET was appointed as the trustee for debenture holders on either 24 November 2005 (the date of amendment of the relevant trust deed) or at an earlier time, 7 December 2004, when it was resolved that it replace the then trustee, a related company - IOOF Australia Trustees (NSW) Limited. AET contends that the later (2005) date is the relevant date but the second cross claims plead both dates in the alternative (and hence, to anticipate what follows, AET submits that even if the complaints made by PwC as to the pleaded claims for FY04 were to succeed on the basis that it was not then the trustee, the same argument would not apply to the claims for FY05 for the purposes of the summary dismissal applications).
PwC had undertaken annual audits and half year reviews of Provident from October 1998. Relevantly, for the purpose of the present claims, it was retained as Provident's auditor by letters of engagement dated 28 January 2003 (pertaining to the audits for the financial reports for the years ending 30 June 2004 and 30 June 2005 - FY04 and FY05) and 24 March 2006 (pertaining to the audits for the financial reports for the years ending 30 June 2006 and 30 June 2007 - FY06 and FY07) (see affidavit sworn 30 June 2017 by the solicitor acting for PwC, Moira Louise Saville, at [19(g)]). PwC does not dispute that it owed implied contractual duties to Provident to exercise reasonable care and skill in the conduct of the audits over that period.
The last audit PwC carried out in respect of Provident was for FY07. Provident informed PwC, by letter dated 12 December 2007, that it had decided to replace PwC as auditor (Saville affidavit at [28]). The firm Walker Turnbull was appointed as auditor on 3 January 2008. On 26 July 2010, that firm too was replaced as auditor - by HLB Mann Judd.
Broadly speaking, the allegation made against AET by the debenture holders in the respective proceedings is that, as trustee for the debenture holders, it should have formed certain opinions and taken certain action (either from around November 2004 in the Smith proceedings or from around January 2009 in the Creighton proceedings) and that its failure to do so has caused the plaintiffs and group members to suffer loss. AET's claims against PwC relate to audit work the period from the end of September 2004 when PwC issued its audit report for FY04. Thus it can be seen that some of AET's contribution claims related to work carried out earlier than the alleged contravention of the relevant statutory provisions by AET as pleaded by the debenture holders.
PwC was joined to the respective proceedings in December 2016, following the service on AET on 30 September 2016 of expert evidence in the Smith proceedings and, in particular, service of the report dated 30 September 2016 of an accountant (Mr Michael Potter), who was retained by the plaintiffs in the Smith proceedings (the Potter Report) (see [6]-[16] of the affidavit affirmed 23 August 2017 of AET's solicitor, Bradley Bruce Woodhouse).
The relevance of the Potter Report is that it calls into questions the assertion made in the particulars to the allegation of loss contained in the pleading in the Smith proceedings (see particular (iii) to [32] of the further amended statement of claim in the Smith proceedings) that, at all material times up to and including 31 December 2007, the value of Provident's assets that would have been realised by a receiver and manager would have exceeded all of Provident's liabilities, including the amount of debenture moneys. It was the Potter Report (as was made clear in the course of oral argument on the present applications) that led to the making of the cross claims against PwC. Those claims are expressly predicated on the acceptance of the conclusions in that report to the effect that, had an investigating accountant been appointed to Provident on certain dates between mid July 2005 and mid December 2007, he or she would have formed the view that there was more than likely a material deficiency in assets available to repay debenture holders over the period from December 2004 to December 2007.
The claims brought by AET against PwC are broadly the same in each of the proceedings and may be grouped into three categories: claims in tort; claims for misleading and deceptive conduct in breach of various statutory provisions; and claims for statutory or equitable contribution in respect of any liability AET is found to have to the debenture holders. I will consider in more detail the substance of those claims in due course.
AET contends that if the conclusions in the Potter Report are accepted then, having regard to various matters including the magnitude of the shortfalls in assets over the relevant period(s), it may be inferred that PwC did not take the steps that a competent auditor exercising reasonable care would have taken in the conduct of the audit of Provident's financial report for the various financial years and in the preparation of the audit reports (see, for example, the particulars to [18] of the proposed amended second cross claims). The only steps to which AET points in that regard relate to the sufficiency of the size of the sample of loans or "Past Due Loans" to be reviewed (particulars (1) and (2) to [18] of the proposed amended second cross claims), the check to be made of the existence/content of a written policy for assessing the need to make a provision or impairment in respect of a loan written by Provident (particular 3) and the review to be made of Provident's loan arrears reports to ascertain the identity, frequency and amounts of loan arrears (particular 4). AET unashamedly bases its claims against PwC on an inferential process of reasoning (res ipsa loquitur). In oral argument, Senior Counsel made clear that AET's contention is that PwC did not take the steps set out in particulars (1)-(4) to [18], though in my opinion there is still uncertainty as to what is alleged by AET in this regard, which I will address in due course.
On 15 June 2017, prior to the filing of the present applications for summary dismissal/strike out, PwC filed extensive defences to the respective cross claims.
On 23 June 2017, PwC's hard copy working papers and electronic audit files for the relevant years were provided to AET by way of discovery, subject to a reservation in relation to any potential claim for legal professional privilege on the part of Provident. Subsequent communications between the lawyers for the respective parties have identified the particular documents over which the receivers and liquidators of Provident have made a claim of legal professional privilege. A procedure was also put in place for confidentiality undertakings as to commercially sensitive documents produced on discovery. Leaving aside any issue as to the seemingly limited category of documents over which privilege is claimed by the receivers and liquidators of Provident, the position is that AET has had access to the PwC audit files and working papers since 23 June 2017.
Following the filing of the present applications, AET's lawyers notified PwC's lawyers (on 14 July 2017) of AET's proposal to amend its claims for contribution in the terms contained in proposed amended second cross claims (each in relevantly similar form). PwC has not consented to the proposed amendment of the pleadings.
AET's expert evidence was due to be filed on 13 October 2017 and, as I understand it, that evidence was anticipated to deal with whatever has been revealed from the expert's analysis of PwC's audit files relevant to the matters in issue in the second cross claims. By now, therefore, it might be expected that AET will know (and hence be able properly to plead) the material facts as to the conduct of the audits so as to be in a position to provide a more meaningful articulation of what it is said that a competent auditor exercising reasonable care would or would not have done, and what PwC did or did not do, than is presently contained in the particulars to [18] of the proposed amended second cross claims. I note that AET has already indicated its intention to seek leave further to amend the proposed amended second cross claims after the filing of its expert evidence, which for practical purposes renders moot any application for leave to amend in terms of the current proposed amendment to the pleadings.
[2]
Allegations made against PwC in the proposed amended second cross claims
Before turning to the principles to be applied on the present applications and a summary of the parties' positions in relation thereto, it is convenient at this stage to outline the structure of the claims made against PwC. For that purpose, as was the approach adopted in oral argument on the hearing of these applications, I will refer to the proposed amended second cross claim in the Creighton proceedings (a copy of which is exhibited to Mr Woodhouse's affidavit), which is broadly in the same terms as that in the Smith proceedings).
The structure of the pleading follows the same format in each of the audit years. A material difference as between the audit years (as adverted to above) is that AET had not been appointed as the trustee for debenture holders at the time that Provident's financial report for FY04 was issued and, if AET's principal position on this issue is accepted, neither was it the trustee at the time that the FY05 report was issued. I will return to this issue in due course.
[3]
Claims for damages in negligence
For FY04, the negligence claim is to be found at [9]-[19]. A corresponding claim is made for each of the other financial years in which PwC audited Provident's financial reports (see [47]-[57] for FY05; [85]-[95] for FY06; and [123]-[133] for FY07).
The pleading of the claims in negligence follows the structure that, after identifying: the date on which the relevant financial report was issued by Provident (see [9]; [47], [85]; [123]); various statements that were contained in that report (including as to the debentures on issue at the time and Provident's net assets) (see [10]; [48]; [86]; [124]) and that PwC's audit report was issued containing certain expressions of opinion as to Provident's financial report (see [11]; [49]; [87]; [125]), it is alleged that:
PwC owed a duty to AET to take reasonable care, in the conduct of its audit and in the preparation of its audit report, to avoid the risk that AET would suffer harm in the form of economic loss - that economic loss being identified as liability to debenture holders under s 283F of the Corporations Act for failure to discharge its duties under s 283DA of that Act (see [17]; [55]; [93]; [131]);
PwC breached that duty of care by failing to take reasonable care in the conduct of the relevant audits and in the preparation of the relevant audit reports ([18]; [56]; [94]; [132]); and
that breach of duty has caused AET loss ([19]; [57]; [95]; [133]).
As to FY04 the duty of care is said to be owed to AET "as a future trustee for debenture holders" - reflecting the fact that AET had not been appointed by the time the audit report was issued for that year (see [17]). There is no such qualification pleaded to the capacity in which subsequent duties of care are alleged to have been owed to AET ([55], [93], [131]). Similarly, the risk of harm for FY04 (pleaded at [14]) refers to the position of "the trustee for debenture holders, or a replacement trustee for debenture holders" (my emphasis), whereas subsequent iterations of the pleaded risk refer simply to the position of AET (see [52], [90], 128]).
The duty of care allegedly owed to AET in each of the financial years (whether as a current or future trustee to debenture holders), namely, the duty to exercise reasonable care to avoid AET suffering economic harm by the incurring by AET of liability to debenture holders for breach by AET of its statutory duties as trustee, is pleaded to arise by reason of the following matters: the statutory obligations of Provident, as a disclosing entity, and PwC, respectively, under the Corporations Act in relation to the preparation and audit of financial reports (see [8]); the contractual obligation owed by PwC to Provident to exercise reasonable care and skill in auditing the financial report and issuing its audit report (see [12]); that PwC knew or ought reasonably to have known that Provident had debentures on issue and that there was a trustee for debenture holders (and, in the case of FY04 that the trustee could be replaced with a new trustee) which owed the duties under s 283DA of the Corporations Act (see [13]); that certain matters were reasonably foreseeable by PwC at the time of its audit (including, broadly, that the trustee for debenture holders would consider any audit report prepared by PwC and that such a report would affect its assessment of the matters it was required to ascertain and do in accordance with its own statutory obligations), this being the pleaded risk of harm (see [14] and corresponding paragraphs); that the pleaded risk of harm was not insignificant (see [15] and corresponding paragraphs); and the pleaded vulnerability of the trustee (or a replacement trustee) for debenture holders (see [16] and corresponding paragraphs).
Pausing here, PwC emphasises that the risk of harm pleaded (at [14]; [52]; [90]; [149]) is, in effect, that if PwC did not satisfy the alleged duty of care to AET this would lead to economic harm because the trustee would be liable to the debenture holders for the trustee's own breach of duty. To anticipate part of the argument raised by PwC, it is said that this amounts to AET in effect sub-delegating to it AET's statutory/fiduciary duties of care and seeking to render AET the insurer for any loss (see, for example, the discussion as to normative causation from [85] below; and [107]). AET denies the construction placed by PwC on its pleaded case in this respect.
The alleged breach of the duty of care is pleaded simply as the failure to take reasonable care. It is then particularised (with the introduction of the qualification that these are "[t]he best particulars that AET can currently provide") by reference to the following matters: what it is asserted a competent auditor exercising reasonable care would have done (see particulars (1)-(4) to [18]); certain conclusions extracted from the Potter Report (particular (5)); and then the inference that it is said "may be" derived from acceptance of the conclusions in the Potter Report, namely, that PwC did not take the steps particularised at (1)-(4) (particular (6)).
Some of the particulars as to what a competent auditor exercising reasonable care would have done (see particulars (1) and (2)) are framed in very general terms (i.e., to review a sample of loans or Past Due Loans "sufficiently large to provide the auditor with comfort that the results were representative", without any indication of how large a sample it is said would have been sufficient for that purpose in the present case). Similarly, particulars (3) and (4) simply assert that certain checks or a particular review would be made, without indicating what it is said a competent auditor exercising reasonable care would have identified in the course of those checks or that review. Nor is it clear from the particulars (or the pleading itself) whether the allegation is that PwC did not carry out those checks/review at all or that it did so negligently (and, if the latter, in what way it is alleged that the checks/review were or was not carried out with reasonable care and skill).
The particulars of breach then rather uninformatively conclude with the statement that further particulars will be provided following disclosure of documents and issuance of subpoenas. (I was not made aware of any subpoenas issued to date for production of documents by or relating to PwC's audits.)
Insofar as reliance is placed by AET on an inference that it says "may be" derived from acceptance of the conclusions in the Potter Report, PwC emphasises that the Potter Report does not in terms go to what a competent auditor exercising reasonable care would have done; rather, it approaches the matter by reference to what an investigating accountant would have concluded. AET, however, relies (see particular (6)(E) to [18]) on the asserted similarity between what it says a competent auditor exercising reasonable care would have done and "the approach of the putative investigating accountant described in the Potter Report". Ultimately, the weight to be placed on the Potter Report is likely to be affected by what view is found as to the consonance between the positions of investigating accountant/auditor.
The pleading of causation of loss is also framed in general terms. The particulars of causation (expressly predicated on AET being liable to the plaintiff and group members as alleged in the statement of claim - thus, this is clearly a derivative claim) are by reference to what it is alleged that, but for PwC's breach of duty, PwC would have done (including informing Provident, Provident's members and the then current trustee of certain matters) and as to what the trustee would then have done.
For example, for FY04 (see [19]), it is asserted (seemingly in the alternative), first, that IOOF would have enforced the charge under the debenture deed by appointing a receiver to the assets of Provident and/or otherwise exercised its powers so as to require Provident to repay debenture holders and prevent it from borrowing further moneys from the public (particular (3) to [19]) and, second, that IOOF would have informed AET of the relevant matters upon AET becoming the trustee and AET having enforced the charge and/or otherwise so acted (particular (4) to [19]). In either case, it is said that AET would not have consented to being named in any further debenture prospectus and, as a result, would not be liable to the plaintiff or group members (or would be liable in a lesser amount).
[4]
Claims for statutory damages for misleading and deceptive conduct
The claims for misleading and deceptive conduct again follow the same structure for each of the financial years.
It is alleged that PwC's conduct in issuing the report was conduct in trade or commerce and in relation to financial products ([20] for FY04; [58] for FY05; [96] for FY06; [134] for FY07). There is then an allegation (based, as made apparent in oral submissions on no more than an assertion as to the common experience in relation to such matters) that PwC issued its audit report by use of postal or telegraphic services ([21]; [59]; [97]; [135]) (an allegation necessary for AET to bring its claim within the provisions of the now repealed Trade Practices Act 1974 (Cth), as PwC is not a corporation).
It is alleged that, by issuing its audit reports for the relevant years, PwC represented that it had conducted its audit with reasonable care and that it had reasonable grounds for the opinion that the relevant financial reports gave a true and fair view of the financial position of Provident for the relevant period ([22]; [60]; [98]; [136]). The pleading goes on to allege (see [23]-[24]; [61]-[62]; [99]-[100]; [137]-[138]) that, contrary to the alleged representations, PwC did not conduct its audits with reasonable care and did not have reasonable grounds for the stated opinion. Particulars of those paragraphs mirror the particulars earlier provided of the allegation of breach of duty in the negligence claims. (Hence, PwC submits that the vice in those earlier breach of duty allegations also applies to the misleading and deceptive conduct allegations and the contribution claims.)
By virtue of those matters it is alleged that, by issuing its audit reports, PwC engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of various statutory provisions (including the Trade Practices Act, the Corporations Act, the Australian Securities and Investments Commission Act 2001 (Cth), the Fair Trading Act 1987 (NSW) and the "corresponding prohibitions on misleading and deceptive conduct under the statutes of the other States and Territories" (see [25]; [63]; [101]; [139]).
The allegation of loss (at [26]; [64]; [102]; [140]) is similarly particularised by reference to the particulars of causation earlier provided in the negligence claims ([19]; [26]; [64]; [102]; [140]) though including the additional statement that if PwC had not issued the audit reports or made the representations then it would have been necessary for Provident to obtain another audit report and that other audit report would have identified the matters particularised at 19.
There is an alternative claim in relation to an alleged representation by PwC (in trade or commerce and in connection with the supply of PwC's audit services) that its audit services were of a particular standard, namely that they accorded with the Australian Auditing Standards (see [28]-[29]; [66]-[67]; [104]-[105]; [142]-[143]). It is here that there is the only reference in the pleading to any auditing standard. It is alleged that the Australian Auditing Standards (particularised by reference to AUS 202.04(d) and AUS 202.08) required that an audit be conducted with professional competence [and] due care and so as to provide reasonable assurance that the financial report taken as a whole was free from material misstatement ([30]; [68]; [106]; [144]); that the relevant audits had not been so conducted (particularised by reference again to earlier particulars of the negligence claim (see [31]; [69]; [107]; [145]); and that, by reference to this the representation as to the audit services was false and there was a contravention of other statutory provisions (the former s 53AA of the Trade Practices Act, the former s 44(b) of the Fair Trading Act and, again, the "corresponding prohibitions on misleading and deceptive conduct under the statutes of the other States and Territories (see [32]; [70]; [108]; [146]).
There is then a broad allegation of causation of loss ([33]; [71]; [109], [147]) particularised by reference to the earlier particulars of loss in the negligence claim (see eg [26] which repeats the particulars of causation of loss at [19]).
AET claims an entitlement from PwC to damages for the respective claims of misleading and deceptive conduct pursuant to various statutory provisions and corresponding provisions of the Fair Trading legislation of other States and Territories ([27] and [34]; [65] and [72]; [103] and [110]; [141] and [148]).
[5]
Contribution claims
AET claims contribution both under statute and in equity.
The statutory contribution claim is put on two bases.
First, it is alleged that PwC breached a duty of care owed to debenture holders by failing to take reasonable care in the conduct of the audits and preparation of the audit reports, which breach it is alleged has caused "loss to some group members" (see [40] as to the identity of the said group members - not including the plaintiff) and that this is the same loss in respect of which those group members seek to recover damages in this proceeding from AET (see [35]-[40A]). The duty allegedly owed by PwC to debenture holders is a duty to exercise reasonable care to avoid the risk of harm that debenture holders might suffer in the form of economic loss "including loss incurred by those debenture holders as a result of rolling over their debentures" (see [38] referring back to [35]).
Pausing here, the main focus of the proposed amendment to the second cross claim in this regard is as to the particular class of group members in respect of whom it is alleged that the breach of common law duty of care has caused loss. It is no longer alleged that PwC owed a duty to "future" holders of debentures (as was the case in the original version of [38]); rather, the duty is one allegedly owed only to (the then existing) "holders" of debentures. The class of group members alleged to have suffered loss no longer comprises the plaintiffs nor does it comprise all group members. Rather the allegation is that the breach of duty caused loss to "some group members", that subset of group members being comprised of those who both held debentures as at the date PwC issued the respective audit reports and were debenture holders as at 29 June 2012 as a result of having rolled over those debentures (see, for example, [40]). In the case of the claim in relation to FY07, the class of group members said to have suffered loss also includes those who, as at 29 June 2012, held debentures that had been issued before 28 September 2007 when PwC issued its FY07 audit report (see [154]).
It is relevant here to note that the term of the debentures in question was a 5 year term. The class of debenture holders as at 29 June 2012 could therefore only logically be comprised of those who had acquired debentures from 29 June 2007 (albeit that they could have done so by rolling over debentures that were held by them as at the date of the earlier PwC audit reports). In that sense, PwC maintains that the proposed amended cross claim still involves a claim as to a duty owed to future debenture holders, albeit one limited only to that subset of future debenture holders who acquired those debentures by rolling over debentures held when PwC issued the relevant audit report.
The second basis for the statutory contribution claim is that PwC engaged in misleading conduct in contravention of the statutory prohibitions pleaded earlier (at [25] and [32]) which has caused the plaintiff and group members loss, that being the same loss in respect of which the plaintiff and group members seek to recover damages in this proceeding from AET. It is asserted that, if AET is liable as alleged in the statement of claim, then that liability could have been established in tort (see [41]-[43]). (How that tortious liability could arise is not articulated in the pleading.)
The loss allegedly caused to some or all group members is particularised along similar lines to the causation pleading in the tort claim (considered above), but with the additional assertion (in the case of the claim in tort) that group members would not have rolled over their debentures and would have been repaid in full or in an amount greater than actually recovered (particulars to [39]) or (in the case of the misleading conduct claim) would not have acquired the debentures that they held as at 29 June 2012 (and in the case of the group members who held debentures as at 29 September 2004 would not have rolled over those debentures) and would not have suffered the loss claimed by them in this proceeding (see particulars to [41]).
The claim for statutory contribution is made pursuant to s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the 1946 Act), s 23B of the Wrongs Act 1958 (Vic) and "such other corresponding provision of the contribution legislation of the other States and Territories as may be applicable to each group member's claim against AET" (see, for example, [44]).
The alternative claim for contribution is made pursuant to the doctrine of equitable contribution on the basis that if AET is liable to the plaintiff or group members as alleged in the statement of claim then its liabilities are coordinate with those of PwC ([45]-[46]). For the purpose of the equitable contribution claim, the focus is on the statutory claims: the alleged breach by PwC of the statutory prohibitions on misleading and deceptive conduct and the alleged breach by AET of its statutory duties.
[6]
PwC's Contentions
In summary, PwC says the following.
First, that the FY04 and FY05 claims are not reasonably arguable: the claims in negligence, because no duty of care was owed by it to all potential future trustees of Provident; the misleading and deceptive conduct claims, because there is no basis for a claim that any representations were made to AET at a time when it was then not a trustee and with no relevant role; the contribution claims, because no duty of care was owed to all potential future debenture holders of Provident (an argument also applicable to the FY06 contribution claims); and as to all claims because there is no reasonable case in respect of normative causation for FY04 and FY05 (in the Smith proceedings) or for all years in the Creighton proceedings.
Second, that for all financial years the claims in negligence suffer from the following defects:
1. there is no proper pleading of the duty of care, including the mandatory requirements of the Civil Liability Act 2002 (NSW);
2. there are contradictory duties alleged; and
3. as to breach of duty, the allegations of wrongdoing are inadequately pleaded.
Third, that for all financial years, the statutory misconduct claims suffer from the following defects:
1. that there is no basis for the claim that the audit reports were issued by postal/telegraphic services and therefore the jurisdictional gateway for the Trade Practices Act claims is not sustainable; and that
2. the allegations of audit wrongdoing are defective.
Fourth, for all financial years, that the contribution claims suffer from the following defects:
1. they depend upon the (said to be unsustainable) contentions that PwC owed duties to future debenture holders and that any liability of PwC under the former Trade Practices Act is sufficient to engage the statutory contribution provisions;
2. the same defects said to arise in relation to the pleading of duty of care and breach in respect of the negligence claims; and further it is said
3. that leave should not be granted to amend because the plaintiff's claims are no longer representative.
Fifth, for all claims and in all financial years, that there is no proper pleading of causation, the consequence of which is said to be that there would then be a dismissal of all claims.
Sixth, for claims based on conduct outside New South Wales (for all claims and all financial years) AET has not pleaded or proved material facts sufficient to give rise to a claim under the law of other States and Territories.
The two summary dismissal points raised by PwC are, first, its argument as to "incoherence" of the pleaded duties (namely, that the common law will not impose duties of care that are incompatible with each other) and, second, that no case for normative causation can be made out. If the argument that there is no reasonable case in respect of normative causation is made good, PwC says the result is that there would be a dismissal of all claims in the Creighton proceedings. Similarly, as noted above, it says this would be the result in both proceedings if the defect in the pleading of the causation case for all claims and all financial years is accepted.
[7]
Whether to entertain the motions at this stage
Before turning to a consideration of the applications themselves, I should logically deal first with AET's submission that, as a matter of discretion, I should decline to deal with PwC's motions now and should instead adjourn them to the final hearing.
There is no doubt that the Court has a discretion as to whether or not to hear and dispose of a proceedings on a summary basis. (AET refers in this regard to what was said in Bathurst Regional Council v Local Government Financial Services Pty Ltd (No. 2) (2011) 82 ACSR 617; [2011] FCA 309 at 621 [19] (Jagot J); Williams & Humbert v W & H Trade Marks (Jersey) Ltd [1986] AC 368 at 435-436 (Lord Templeman); Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951 at [23] (White J, as his Honour then was); Built NSW v EvolveBuilt Contracting [2014] NSWSC 255 at [27] (McDougall J).)
In support of the submission that the motions should not be dealt with at this stage, AET points first to the chronology of the proceedings to date. It notes that the second cross claims were filed and served on PwC (on 22 December 2016) over 6 months before PwC filed its present motions for summary dismissal; that there was some default in compliance with the orders for the filing of PwC's defences (the time being extended from 28 April 2017 to 12 May 2017 and the defences not being filed until 15 June 2017); and that PwC did not oppose the proceedings being fixed for hearing at the directions hearing on 17 February 2007 and did not foreshadow at that stage any application for summary dismissal of or to strike out any of the claims made against it. Thus, it submits that the motions for summary dismissal are belated applications.
Second, AET argues that PwC's applications raise two likely High Court points: first, the question as to whether the auditor of a corporation that issues debentures under Ch 2L of the Corporations Act owes a duty of care to the trustee for debenture holders and the debenture holders themselves; and, second, the question as to whether s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 can extend to statutory wrongs.
As to the first, this is said to be likely to require a consideration of the reasoning in Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; [1997] HCA 8 against the statutory framework of ss 313 and 318 of the Corporations Act and the abandonment of proximity as the general determinant of when the common law will recognise a duty of care (see Sullivan v Moody (2001) 207 CLR 562; [2001] HCA 59 at [48]).
As to the second, AET points to a divergence of views in the authorities and in academic writing (referring to Jonstan Pty Limited v Nicholson (2003) 58 NSWLR 223; [2003] NSWSC 500 at [97] (Hulme J); Dorrough v Bank of Melbourne Limited [1995] FCA 1573 at [73]; and the argument in favour of characterising the action for breach of s 52 as a tort advanced by Campbell J, as his Honour then was, writing extra judicially in "Contribution, Contributory Negligence and Section 52 of the Trade Practices Act" (1993) 67 ALJ 87, 177) on the one hand (cf ANZ Banking Group Ltd v Turnbull (1991) 33 FCR 265 at 277 (Shepherd J); Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 at 11 (Full Federal Court)); and Burke v LFOT Pty Ltd (2000) 178 ALR 161; [2000] FCA 1155 at [131] (Lehane J), dicta in ACQ Pty Ltd v Cook (2008) 72 NSWLR 318; [2008] NSWCA 161 at [174] (Campbell JA, with whom Beazley JA, as her Honour then was, and Giles JA agreed) and dicta in Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 (Bell and Gageler JJ) on the other hand.
AET anticipates that the strike out or summary dismissal of the second cross claims against PwC, on grounds that accept PwC's submissions on either of the above points, may give rise to appellate proceedings - with the likelihood that this would potentially cause the vacation of the hearing date or the prospect that the hearing be bifurcated in some fashion (i.e., without PwC's participation). Thus it is submitted that, rather than saving time and costs, there is a real prospect that deciding the matters raised by PwC's motions on a summary basis will create delay (for all parties, including the plaintiffs) and increase costs.
Against the spectre raised by AET of disruption to the course of the hearing (caused, on this hypothesis, by AET's own invocation of the appellate process - extending to the foreshadowed possibility of a special leave application to the High Court), there is, of course, the cost to which PwC will be put if the applications are not now dealt with. It maintains that it is entitled to know what are the genuine issues in dispute and points to the fact that there are still some ten months until the trial. It says it should not be put to the cost of defending what (on its argument) are inadequately pleaded and not reasonably arguable claims based on conduct extending back for some 13 years.
Insofar as AET criticises the time taken for PwC to file these applications, and that they were not foreshadowed at the February directions hearing, PwC points out that it was joined late to the proceedings and that its complaints as to the pleading were ventilated in correspondence between the respective solicitors prior to filing the applications in an attempt to resolve the issue without the need for this interlocutory application. It is submitted that the response to requests for particulars reveals that AET does not have a proper basis for a number of its allegations.
I was not persuaded, when the matter came before me on 26 September 2017, that the appropriate course at this stage was to decline to entertain PwC's applications. Nor, having now heard them, is it my view that I should decline to determine those applications.
[8]
Legal principles
Turning then to the applicable legal principles on summary dismissal/strike out applications, these can be briefly summarised. Other than as to the distinction drawn between pleadings and particulars (or perhaps more precisely the import of this distinction for the present applications), they were not in dispute.
The threshold to be met before a claim will be summarily dismissed is recognised to be a high one (see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; [1964] HCA 69 (Barwick CJ)), the power to dispose of proceedings summarily being one which calls for the exercise of "exceptional caution". The power cannot be exercised once it appears that there is a real question to be determined, whether of fact or law, and that the rights of the parties depend upon it (Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 (Dixon J, as his Honour then was).
Thus it has been said that the power to dismiss proceedings summarily is only to be exercised "when the action is clearly without foundation and ... to allow it to proceed would impose a hardship upon the defendants which may be avoided without risk of injustice to the plaintiff" (Cox v Journeaux (No. 2) (1935) 52 CLR 713 at 720 (Dixon J)); and that a "high degree of certainty" that the plaintiff's case will fail if it goes to trial is required (Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 at [57] (Gaudron, McHugh, Gummow and Hayne JJ)). More recently, it has been said that the fatal defects in a plaintiff's case must be very clear before the Court will intervene to strike out a pleading (Shaw v State of New South Wales [2012] NSWCA 102 at [30]ff, Barrett JA (Beazley JA as her Honour then was, McColl and Macfarlan JJA and McClellan CJ at CL agreeing). Caution is especially required where factual details may help to throw light on the existence of a legal cause of action (see Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 at [137]-[138]).
Where what is pleaded is a novel claim, it has been said that the court does not apply strike out procedures in a way that might stultify the development of the law (see Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564; [2000] FCA 1572 at [50]; X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at 740-741).
As to what is required by way of pleading, it is well recognised that pleadings must state all of the material facts that are necessary to constitute a complete cause of action and the relief sought (Bruce v Odhams Press Ltd [1936] 1 KB 697 at 712-713; Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591 at 44,151-44,152; Wride v Schulze [2004] FCAFC 216 at [25]), with sufficient particularity to inform the other party of the case it is required to meet and to enable the eventual trial to be conducted fairly to all parties (see Gunns Ltd v Marr [2005] VSC 251 at [57] (Bongiorno J)). In Banque Commerciale SA (in Liq) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11 (in a passage cited by Ipp JA in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206 at [422]) Mason CJ and Gaudron J noted (at [18]) that in this way pleadings "serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision". (See also Jessel MR in Thorp v Holdsworth (1876) 3 Ch D 637 at 639.)
In Young Investments Group Pty Ltd v Mann (2012) 293 ALR 537 (at [7]), the Full Federal Court (Emmett, Bennett and McKerracher JJ) emphasised that:
A statement of claim must allege a cause of action with sufficient particularity and not simply make allegations in general terms. ... A respondent or defendant is entitled to know the factual foundation for the case that is being alleged, so that the respondent or defendant can prepare to meet that case at trial. In order to disclose a reasonable cause of action, a statement of claim must contain an allegation of all of the relevant facts necessary to support any allegation made in it. A pleading that simply pleads a conclusion is embarrassing and should not be permitted to stand. [my emphasis]
It was said by Lander J in Young v Tieco International (1999) 182 LSJS 367 (at 670) (in a passage approved by McDougall J at first instance in Ingot Equity Capital Markets Pty Ltd v Macquarie Equity Capital Investments Ltd [2004] NSWSC 1136 at [46]), that a court ought to approach a consideration of the adequacy of a pleading by seeking to answer the ultimate question whether the pleading gives fair notice of the case to be made against the other party at trial, thus minimising the risk of injustice resulting from surprise.
Particulars, even those that are clear and unambiguous, cannot supply a deficiency in pleadings (see McGuirk v University of New South Wales [2009] NSWSC 1424 at [33]; Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709 at [237]). (Though AET did not expressly cavil with this proposition it did point to authority which it said indicated there was a divergence in views on this issue, referring in particular to Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566 at 570.)
The principles concerning embarrassing pleadings were outlined in McGuirk (at [21]-[35]). Consistently with the recognised function of pleadings, what is meant by an embarrassing pleading in this context relates to whether the pleading can serve the function of a pleading under the rules, namely, whether it puts the defendant properly on notice of the real substance of the claim made against it and enables the defendant to know what case it is that the defendant has to meet. A pleading will be embarrassing if it is unintelligible, ambiguous or imprecise in its identification of material factual allegations so as to deprive the opposing party of proper notice of the real substance of the claim or defence (Gunns Ltd v Marr at [14]-[15]; and see McGuirk at [30]; [31]; [33]) or if it contains inconsistent, confusing or irrelevant allegations (Shelton v National Roads and Motorist Association Ltd (2004) 51 ACSR 278; [2004] FCA 1393 at [18]).
Finally, where a question of leave to re-plead arises, questions as to the prejudice resulting from delay are of relevance (see Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863 at [42] (Tadgell and Ormiston JJ, Brooking J agreeing); Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1219; Weston v Publishing and Broadcasting Ltd at first instance (2011) 83 ACSR 206; [2011] NSWSC 433 at [449]-[451] and on appeal (2012) 88 ACSR 80; [2012] NSWCA 79 at [173] and Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (a Firm) [2015] FCA 1098 at [183] (Gleeson J)). One must also take into account the overriding purpose mandated by the Civil Procedure Act 2005 (NSW) that proceedings be conducted with a view to the just, quick and cheap resolution of the real issues in dispute.
[9]
Summary dismissal points
First, I propose to address those arguments the acceptance of which it is said would lead to summary dismissal of part or all of the claims made in the second cross claim - namely, the arguments based on incoherence and lack of normative causation.
[10]
Incoherence
As to incoherence, PwC points to at least four duties of care that are expressly or implicitly alleged to have been owed by PwC at common law: first, a contractual duty of care (which it does not dispute) to its client, Provident; second, a duty of care to the current trustee at the time of audit, to avoid the risk that the trustee would be liable at the suit of debenture holders for economic loss by reason of the trustee failing to comply with its statutory obligations to protect the interests of debenture holders; third, a duty of care to any future trustee, including a trustee for debentures issued in the future by Provident, in relation to the same type of risk; and, fourth, a duty of care to current and future holders of debentures issued by Provident, sufficient to found an allegation that PwC could be the subject of a claim for tortious or equitable contribution. As a subset of the fourth duty of care, PwC postulates a potential fifth duty of care implicit in AET's case, namely a duty to that class of future debenture holders constituted by those who buy debentures in the future by rolling over a current debenture (T 13.21).
PwC argues that these duties cannot all sit together in a coherent manner and notes that the common law will not impose a duty of care that is incompatible with other legal obligations, referring to what was said in Sullivan v Moody at [60].
AET emphasises that the test for incoherence is the test of inconsistency. While it accepts that the economic interests of the trustee for debenture holders are not the same as those of the company being audited, AET maintains that the posited duty of care (which it accepts is novel) owed to it as trustee/future trustee of debenture holders creates no incoherency of the kind contended by PwC to arise.
AET argues that there is an identity of interest (as between the trustee and the company or its members): in the company's accounts being accurate; in the audit being carried out competently and carefully; and in the auditor providing a frank and independent report on the company's accounts; and thus says that this is not a case where the posited duty of care would subject PwC to inconsistent obligations or duties (cf Sullivan v Moody at [60]-[62]; Tame v State of NSW; Annetts v Australian Stations Pty Ltd (2002) 211 CLR 317; [2002] HCA 35 at [26]). It submits that the imposition of a duty of care in this case is consistent with the statutory scheme (and in particular ss 313 and 318) under the Corporations Act because PwC has an obligation to provide the relevant information to AET and, on any view, PwC owes a duty to Provident to exercise reasonable care in conducting the audit (including the preparation of the information provided to AET) (contrasting the position in Stuart v Kirkland-Veenstra (2009) 237 CLR 215; [2009] HCA 15 at [112]-[113]; Hunter and New England Area Health District v McKenna (2014) 253 CLR 270; [2014] HCA 44 at [29]-[31]).
PwC's response to this is to say that AET's argument fails to grapple with the modern approach to the duty of care both at common law and under the Civil Liability Act. In particular, it emphasises that what is required is an identification of the relationship giving rise to a duty to avoid a particular identified risk of harm and says that the risks of harm here identified are not the same. It draws a distinction between, on the one hand, the duty owed by an auditor to the audited company in the conduct of the audit and, on the other hand, a duty to the trustee (and/or any future trustee) to avoid harm from it having breached its statutory duty. As to the duty allegedly owed by PwC directly to debenture holders, it is submitted that the very risk of harm against which the trustee here seeks to be protected is being sued by the debenture holders and that this cannot be coherent with a duty to avoid risk of harm to the debenture holders themselves.
In oral submissions, Senior Counsel for AET accepted that the identification of different risks of harm might conceivably lead to a finding of inconsistent duties but says that this is not the case here. He submits that even if there were some greater degree of scrutiny required in the conduct of the audit in order to satisfy the duty of care owed to one party than that required for another, that does not render the duties inconsistent or incompatible.
In broad terms, PwC's argument is that to start "muddying the waters" with a concern about the trustee being sued, or that the debenture holders might suffer economic harm, is to cut across the fundamental duty owed by the auditor to the audited company (a duty which in contract can be modified). PwC maintains that this is a summary dismissal point as regards all the duties of care pleaded, including that relied upon for the contribution claim, and for all claims in respect of all years in which reliance is placed on those duties of care.
[11]
Normative causation
Second, PwC argues that all of the claims made against it (in tort; for misleading and deceptive conduct; and by way of contribution) suffer from the problem that there is no reasonable case in respect of normative causation and that AET has failed to plead the material facts on which it relies to establish that it is appropriate for the scope of the negligent person's alleged liability to extend to the harm caused (referring to the discussion in Wallace v Kam (2013) 250 CLR 375; [2013] HCA 19 at [11], [16]-[17], [24] and Waller v James (2015) 90 NSWLR 634; [2015] NSWCA 232 at [173]-[175], [225], [234]). Acknowledging that there is an overlap between duty of care and normative causation, PwC says that (whether put in terms of duty of care or as a question of normative causation) it is not within its scope of responsibility to be liable, for damage suffered years later, by reference to a state of affairs in 2004/2005.
PwC emphasises the observations made by McHugh J in Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310 at 359 and in Esanda (at 287) to the effect that audit reports are 'spent' or become out of date shortly after their publication. PwC points in that regard to the issue of further audit reports (by PwC and subsequent auditors) in the financial years after the years in which its audit work is impugned.
PwC also argues that AET made its own free commercial choice to assume the position of trustee as a factor undermining any claim of responsibility on its part (referring to what was said in Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254; [2000] HCA 61 at [39]-[40] (Gleeson CJ), [108] (Hayne J); and Paul v Cooke (2013) 85 NSWLR 167; [2013] NSWCA 311 at [102] (Leeming JA)).
As to the position of AET when it was not yet a trustee, PwC says that any argument that it owed a duty of care to AET is unsustainable. PwC submits that, absent a direct assumption of responsibility or an intention to induce reliance, auditor liability does not extend to someone who is "a complete third party outsider" at the relevant time (referring to R Lowe Lippmann Figdor & Franck v AGC Ltd [1992] 2 VR 671 at 679 (Brooking J)) which was expressly endorsed by McHugh J in Esanda at 281, and points to the indeterminacy in class/time that arises if AET's posited duty of care is accepted.
Particular emphasis is placed by PwC on what was said by McHugh J in Esanda (at 275):
[T]he position in Australia to date with respect to liability for pure economic loss caused by negligent misstatement is that, absent a statement to a particular person in response to a particular request for information or advice or an assumption of responsibility to the plaintiff for that statement, it will be difficult to establish the requisite duty of care unless there is an intention to induce the recipient of the information or advice, or a class to which the recipient belongs, to act or refrain from acting on it. Mere knowledge by a defendant that the information or advice will be communicated to the plaintiff is not enough. With the exception of Columbia Coffee & Tea no Australian decision supports Esanda's claim, and R Lowe Lippmann is squarely against it. Nevertheless, the decisions have all emphasised that a lack of an intention to induce the plaintiff to act or refrain from acting is not necessarily fatal to a plaintiff's claim because other factors may be present that obviate the need for such an intention. [citations omitted]
PwC's argument is that AET is in effect here seeking to make it the insurer for anyone who suffers loss which might otherwise have been avoided.
It raises the same arguments about normative causation with respect to the misleading or deceptive conduct claim for the FY04/FY05 years (and the contribution claims). Accepting that s 5D(1)(b) of the Civil Liability Act does not apply to Federal causes of action, PwC nevertheless points to the common concepts recognised as underlying both the common law and s 5D of the Civil Liability Act; and says that its arguments about normative causation still arise in that context (referring to what was said in Travel Compensation Fund v Tambree (2005) 224 CLR 627; [2005] HCA 69 at [29]-[30] (Gleeson CJ); [45]-[49] (Gummow and Hayne JJ); [56] (Kirby J)).
Moreover, PwC argues that since the issue of normative causation was raised in its defence, and has not been the subject of a positive pleading by AET in reply, it should be concluded that there is no coherent positive case in respect of normative causation arising on the pleadings.
AET says that its case on causation is straightforward: namely, that, but for PwC's negligence, AET would have enforced the charge in the Trust Deed or taken other steps to prevent the issue of further debentures by Provident and, as a result, would not have become liable to debenture holders as a result of its putative breaches of s 283DA in January 2009 and following. AET submits that such a pleading satisfies s 5D(1)(a) of the Civil Liability Act. Further, it submits that whether s 5D(1)(b) is also satisfied is not a matter appropriate for summary determination.
As adverted to earlier, AET maintains that even if PwC's argument that the FY04 and FY05 claims are not reasonably arguable were to be accepted, this (on a summary dismissal point) arises only in relation to FY04 because, on the plaintiffs' case in the Smith proceedings AET was the trustee for debenture holders at the time of the FY05 audit (see [7b] of the second further amended statement of claim in those proceedings). AET acknowledges that this is disputed in its defence (which asserts a date of 24 November 2005; see [7c] of AET's defence) but says that for the purpose of the cross claim it is entitled to adopt the plaintiffs' allegation.
The fact that the posited duty of care is a novel one is said to weigh against, not in favour of, summary dismissal (AET referring to NSW v Spearpoint [2009] NSWCA 233 at [26]; Allsop ACJ (with whom Beazley JA, as her Honour then was, agreed); and Perera v Genworth Financial Mortgage Insurance Pty Ltd [2017] NSWCA 19 at [32]-[38]).
Both parties accept that the proper approach in a novel duty of care case is to undertake a close analysis of the facts bearing on the relationship between AET and PwC by reference to the salient features identified by Allsop P (as his Honour then was) in Caltex Refineries (Qld) Pty Limited v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258 at 676 [103] and advanced submissions as to various of those features. Those features relevantly include: the foreseeability of harm; the degree of vulnerability of the plaintiff to harm from the defendant's conduct, including the capacity and reasonable expectation of a plaintiff to take steps to protect itself ; the degree of reliance by the plaintiff upon the defendant; any assumption of responsibility by the defendant; the proximity or nearness in a physical, temporal or relational sense of the plaintiff to the defendant; the nature and consequences of any action that can be taken to avoid the harm to the plaintiff; and consistency with the terms, scope and purpose of any statute relevant to the existence of a duty.
There was debate as to whether the posited duty of care would impose, or potentially impose, liability on the defendant "in an indeterminate amount for an indeterminate time to an indeterminate class" (see Ultramares Corporation v Touche (1931) 174 NE 441 at 444 (Cardozo CJ), cited in Bryan v Maloney (1995) 182 CLR 609 at 618; [1995] HCA 17; Caltex Oil (Australia) Pty Ltd v Dredge "Willemstad" (1976) 136 CLR 529 at 568, 591; Esanda at 272; Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 at [32]). AET says it does not - pointing to the limited class of entities that may be appointed as trustee for debenture holders under s 283AC of the Corporations Act and the fact (which PwC points out is no more than happenstance) that it was a related entity of the trustee it replaced. AET argues that, while an auditor in the position of PwC may not know the identity of future trustees, it knows that a future trustee might be appointed and that such a trustee would have the characteristics necessary to satisfy the statutory requirements for appointment. AET did, however, appear to acknowledge that its argument is unlimited as to the time at which any future trustee to whom the duty is owed might be appointed. In that sense, therefore, the duty it postulates is one that is indeterminate in time - owed to a future or replacement trustee however long the period between the audit work and that trustee's appointment.
There was also debate as to the allegation of vulnerability by AET. In that regard, AET says that this is an issue that is or may be fact dependent. It says that there may be evidence to be adduced at a final hearing such as the time and expense involved in conducting an audit, the relative fees charged by the auditors and the debenture trustee and the additional expense that would be occasioned if the debenture trustee were to be unable to rely on the auditors' report and was, instead, required to conduct its own "quasi-audit" to satisfy itself of the accuracy of the debenture issuer's accounts. AET says that its case at the final hearing will be that the duplication of work and expense would be such as to prevent, as a practical matter, AET from protecting itself (and debenture holders) by using AET's powers under the trust deed to conduct a second audit of Provident's accounts, rather than relying on PwC's audit, and that this weighs against summary dismissal at this stage.
As to the complaint that the misleading and deceptive conduct claims are unsustainable in relation to audit reports issued before AET became trustee, AET maintains that an indirect causation claim is at least arguable (referring to ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65 at [1375]-[1376]; Caason Investments v Cao (2015) 236 FCR 322 at [62]-[64], [158]; Re HIH Insurance Ltd (in liq) (2016) 113 ACSR 318; [2016] NSWSC 482 at [77]). It says that the pleading should be read in this regard on the basis that for FY04 the relevant representation was to IOOF (the then trustee).
[12]
Determination as to summary dismissal points
While there is force to the criticisms made by PwC both as to the normative causation issue and as to incoherence between duties owed to the company (which may arguably be negated or reduced by contract) and duties allegedly owed to debenture holders and to trustees, and there may well be difficulties for AET in persuading a court that the alleged duties of care were owed to it whether as a current or future trustee, I am not persuaded that the General Steel test is here satisfied; i.e., that the FY04/05 claims (or claims based on liability for audit work carried out at a time when AET was not the trustee) are so obviously untenable as to warrant summary dismissal. In those circumstances, it is not appropriate for me to comment further on the merit of the arguments raised. They are matters that will fall for determination by the trial judge.
[13]
Pleading issues
I turn then to the complaints made as to pleading issues.
[14]
Negligence claims
In outlining the summary dismissal points raised by PwC I have already adverted to the complaint that there is not a proper and sufficient pleading as to why such a novel duty of care arises in the present case and as to the failure to plead material facts as to scope of liability. Reference is made to the conclusion reached in Hoxton Park Residents Action Group Inc v Liverpool City Council [2012] NSWSC 1026 to the effect that the scope of the alleged duty of care should not be a matter for inference (see [67]).
PwC argues that what is required (both pursuant to s 5B of the Civil Liability Act and at common law) includes: a proper articulation of the alleged "risk of harm" against which PwC was to guard, a clear identification of the "precautions" that a reasonably competent auditor would have taken in response to that risk of harm, and an identification of how the conduct of PwC deviated from those precautions (referring to Garzo v Liverpool/Campbelltown Christian School Ltd [2011] NSWSC 292 at [59]; Hoxton Park at [58], [70] and [73]).
In relation to risk of harm, PwC complains that the pleading of reliance (at [14], in which the risk of harm is identified) is a statement of "high-level and conclusory allegations" that ultimately rest on the notion that it was reasonably foreseeable that a trustee or replacement trustee might rely on PwC's audit report in discharging its duties under s 283DA of the Corporations Act, such that, if the report were not prepared properly, the trustee or replacement trustee might breach its duties under ss 283DA(a), (b) and (c) of the Corporations Act giving rise to a liability. PwC argues that Esanda makes clear (see McHugh J at 287) that the foreseeability of potential reliance does not of itself suffice to establish the existence of a duty of care and says that the only other factor pleaded in the present case (at [16]), of vulnerability, is inadequate. (AET accepts the former proposition but not the latter).
AET' argues that the duty of care owed to it by PwC was to exercise reasonable care and skill in the conduct of the audit so as to avoid the risk of economic harm to AET by reason of AET incurring liability to debenture holders for a breach by AET of its statutory or fiduciary duties. AET maintains that the risk of harm is adequately identified (at [52], [90] and [128]) and says that the material facts on which it relies are those pleaded at [8], [50]-[54], [88]-[92] and [126]-[130].
PwC further argues that the allegations of reasonable foreseeability are not sustainable given the content of the duties imposed on the trustee by ss 283DA(a), (b) and (c) of the Corporations Act. Those duties require the trustee to exercise reasonable diligence to ascertain whether the property of the borrower and of each guarantor, that is or should be available, will be sufficient to repay the amount deposited or lent when it becomes due; to exercise reasonable diligence to ascertain whether the borrower or any guarantor has committed any breach of the terms of the debentures or the provisions of the trust deed or Chapter 2L; and to do everything in the trustees' power to ensure that the borrower or a guarantor remedies any breach known to the trustee of certain matters (subject to a materiality exception).
PwC says that if, in the exercise of a trustee's obligation to exercise reasonable diligence, it is sufficient for the trustee to rely on an audit report prepared for the company, then the trustee would not breach its duty by having done so, and no reasonable foreseeability of liability would arise; conversely, that if, in the exercise of a trustee's obligation to exercise reasonable diligence, it is not sufficient to rely on an audit report, then again no reasonable foreseeability of liability would arise because the trustee has its own independent duties which are not satisfied by relying on the auditor.
In this context, PwC again points to the fact that audit reports are received each year and says it is difficult to see how or why a trustee would rely on earlier audit reports once it has received the later reports. (Similarly, as to the position of future trustees, PwC complains that the second cross claims do not set out why it is contended that a future trustee would rely on historical financial reports upon its appointment.) PwC also points out that an audit does not involve an analysis of every transaction underlying a balance in financial statements, nor does it guarantee the accuracy of the financial statements (referring by way of illustration to statements contained in the audit opinion letter for FY04, which are not necessary here to set out).
The above criticisms largely go to whether it is reasonably arguable that a duty of care of the kind alleged was owed (and hence they overlap with the normative causation point discussed earlier). That is one of the ultimate issues to be determined in light of all of the facts at the hearing (including, presumably, any evidence as to the matters that an expert auditor might say ought reasonably to have been known or foreseen by an auditor in PwC's position).
While I accept that various parts of the pleading (such as the statements at 14-(g) and corresponding paragraphs in other parts of the pleading) are framed in general and conclusory terms, broadly the nature of the allegations as to risk of harm, vulnerability and reasonable foreseeability (on which the duty of care and case on normative causation are based) are articulated in the pleading.
I would not strike out the pleading as to risk of harm as such. That said, there is force to the criticism of the allegation at 14, insofar as it appears, on its face, to misstate the role of the auditor as a duty "properly to ensure that Provident's financial report … presented a true and fair view of Provident's financial position and performance". In oral argument, AET disavowed any such allegation. Paragraph 14(e) (as do the corresponding paragraphs for the claims in relation to later audit years) therefore requires amendment to make it clear that AET is not alleging that PwC had a duty to ensure that the contents of the company's financial reports presented a true and fair view of Provident's financial position.
PwC also complains that the pleading does not make clear whether it is part of AET's case that PwC had actual knowledge of the alleged risk of harm or whether AET contends only that PwC ought to have known of the risk of harm (and the basis of those allegations). I do not read paragraph [14] as an allegation that PwC had actual knowledge of the matters there alleged to have been reasonably foreseeable. If that is an incorrect understanding of AET's pleaded position, then it would be incumbent on AET properly to plead the material facts on which it asserts that PwC held the said knowledge (including in whom the knowledge allegedly reposed at the relevant times).
AET's response to the above criticisms is to make clear that it is not its case that AET could rely solely on the audit reports as a sufficient discharge of its duties in all circumstances; and nor does it contend that the audit report was a "guarantee" of the accuracy of Provident's financial statements. Rather, it says that in the context of the statutory duties owed by AET, the audit report was a matter to which AET was entitled to have regard and PwC owed AET a duty to exercise reasonable care and skill in the conduct of that audit (as it was reasonably foreseeable that AET would have regard to it).
As to the allegation of vulnerability (at [16] and corresponding paragraphs), PwC again complains that this amounts to a series of conclusory and embarrassing allegations (and one material fact - at (b) - that it says is a statement of the patently obvious), referring to the recognition in the authorities of the requirement to aver vulnerability and to allege the material facts supporting an allegation of vulnerability (see PPK Willoughby Pty Ltd v Roads and Maritime Services [2014] NSWSC 407 (Campbell J); CJD Equipment v A&C Constructions [2009] NSWSC 1362 at [245] (McDougall J); and Brambles Australia Ltd Trading as CHEP Australia v Tatale Pty Ltd [2006] NSWSC 204 at [37]-[39] (Bergin J, as her Honour then was)). PwC thus complains that [16] of the proposed amended second cross claim does not adequately set out the basis upon which it is claimed that AET was vulnerable.
In that regard, PwC notes that, as an existing trustee, AET had extensive rights and powers under both statute and under the Trust Deed to carry out investigations of Provident's affairs, to compel the provision of information, and to give or withhold consent for any prospectus (which would be expected to apply to a future trustee). PwC also notes that a future trustee had the ability to negotiate increased abilities to investigate Provident's affairs, if the existing powers were considered by it to be insufficient; to obtain contractual indemnities from the existing trustee in respect of previous years (there referring to Brookfield Multiplex Ltd v Owners Corp Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36 at [132]); and to decline to become trustee if it was not satisfied in respect of any of the above matters. In view of these matters, PwC says that it is far from clear why it is alleged it was not possible for AET to protect itself.
AET's response is to submit that its vulnerability is itself "blindingly obvious" and that what is meant to be conveyed by [16] is that AET was vulnerable to PwC failing to audit Provident with due care and skill. It argues that the duplication of work and expense involved would have been such as to prevent AET as a practical matter from using its powers under the Corporations Act to conduct its own audit (in the particular year in question) and says that is what is meant to be conveyed by the allegation at 16.
Senior Counsel for AET disavows the suggestion that AET was vulnerable (because it could not for practical purposes carry out its own audit) in respect of earlier audit work at any particular point in time after later earlier reports had been received. Rather, he says that since duty of care (and hence vulnerability) is to be assessed at the time at which the particular audit is conducted, AET's case is that at that point (for each of the relevant years considered separately as I understand it) it was not practical for AET to have conducted its own audit because that would have involved substantial duplication of work and expense.
The allegations at 16 and (d) (and corresponding paragraphs in relation to later years) are not said to add anything to the allegation at 16 but simply to support it. In those circumstances, I think it is incumbent on AET at the very least to particularise the basis of the allegations of vulnerability as being the expense and inconvenience of carrying out its own audit, on which reliance is apparently to be placed for the allegation of lack of a practical ability to protect itself from the risk of harm pleaded at [14], and, for the financial years after FY04, to make clear that the alleged vulnerability relates not to work carried out in respect of what were by then historical audits but only to the audit currently being carried out at that time.
As to the content of the pleaded duty of care, PwC also complains that it is framed in different (and contradictory) ways throughout the pleading: at [12], as a duty to exercise reasonable care and skill in carrying out the audit; at 14, as a duty "properly" to conduct its audit and prepare its audit report; at 14, as a duty "properly to ensure that Provident's financial report for FY04 reflected a true and fair view of its financial position"; and at [17], as a duty owed by PwC to take reasonable care in the conduct of its audit and in the preparation of its audit report to avoid the risk of harm pleaded at [14].
In oral argument, as noted earlier, AET disavowed any assertion that PwC owed a duty to guarantee the accuracy of a report prepared by the directors of Provident. Amendment to 14 (and corresponding paragraphs) should thus remedy the gravamen of the complaint in this regard. The other variations in the formulations of PwC's duty of care are to be understood (as AET has confirmed) as simply a duty to exercise reasonable care and skill in the conduct of the audit.
The more fundamental defects in the pleadings that are identified by PwC go, in my opinion, to the allegations of breach of duty and causation.
As to breach, PwC maintains that the allegations of audit wrongdoing are inadequate and deficient (see [18], [56], [94] and [132]). I agree. No material facts are pleaded as to the allegation of breach; and the particulars of breach are, as PwC complains, largely conclusory and pitched at a high level of generality. Since the same particulars of breach are repeated as the basis for the alleged wrongdoing in respect of the other claims for misleading and deceptive conduct and for contribution, PwC says this vice in the pleading infects every claim made against it. Again, I agree.
Further in that regard, PwC says that if those particulars are the best particulars that could be provided at the time (as stated in the pleadings) then there was not a proper basis for the making of the conclusory allegation of wrongdoing when it was made. That complaint would best be dealt with when the ultimate costs of the proceedings are to be determined. I should, however, note AET's response, which is in effect that this is a case in which it was able to plead only in general terms before obtaining discovery from PwC and that the law has long recognised that, in such a case, a plaintiff may plead in general terms prior to obtaining the discovery necessary to finalise its pleading (there referring to Whyte v Ahrens (1884) 26 Ch D 717 at 722; Leitch v Abbott (1886) 31 Ch D 374 at 379; Skalkos v Smiles [2006] NSWSC 192 at [7]; Graphite Energy Pty Ltd v Lloyd Energy Systems Pty Ltd [2014] NSWSC 1326 at [25]; Perpetual Trustees Victoria Ltd v Dunlop [2009] VSC 331 at [32]-[33]; Sunlea Enterprises Pty Ltd v Pollock [No 3] [2015] WASC 330 at [19]). AET says that such a course is particularly appropriate where, as here, one party knows the facts and the other does not (referring to Jingellic). PwC disputes that proposition.
Insofar as PwC invokes what was said by Lehane J in Su v Direct Flights International Pty Limited [1998] ATPR 41-662, AET says that the decision in Su is distinguishable because in that case there was no pleading at all about the relevant factual issue (the alleged link between the relevant agreements and arrangements and the effect on competition) as opposed to the complaint being simply as to the adequacy of the pleading of those matters.
Leaving aside whether any pleading failures were explicable (or excusable) (and I am by no means accepting that they were, in circumstances where there were avenues available to AET to ascertain the factual basis for its claims of which it apparently chose not to avail itself), PwC's pleading complaint in essence is that the second cross claim fails to articulate the particular audit standard by reference to which it is said the auditor was obliged to take certain (identified) steps, the failure of which is said to give rise to the loss claimed. Even treating the assertions particularised at (1)-(4) as pleadings of material fact (which they clearly are not), PwC maintains that they are unsatisfactory, not being tied to any particular audit standard and many being far from obvious as to their content.
As to (1)-(2), for example, there is no articulation of the sample of loans or Past Due Loans that it is said would have been sufficiently large in the present case to provide the auditor with comfort that the results were representative in order to check the matters specified at (1)(A)-(G). It is not clear whether it is alleged that PwC reviewed no loans or an inadequate sample of loans (and if the latter as to why the sample was an inadequate sample) or whether it is alleged that it reviewed an adequate sample but for some other reason its review was inadequate (say, because it did not properly consider impairment in respect of the loans that it reviewed). Nor is it clear whether it is alleged that PwC's review (assuming there to have been a review of this kind) disclosed or failed to disclose any of the matters set out in those subparagraphs of the particulars.
Complaint is made that there is no identification of each loan which it is said was or should have been reviewed (and in respect of which it is suggested a provision or impairment was warranted) and no identification of the known facts (engaging with an identified standard as to impairment) suggesting that a provision or impairment was warranted in respect of the given loan, the steps that should have been taken in response and the outcome of taking those steps.
Insofar as the particulars anticipate an inference to be drawn as to the failure to detect some amount that should have been impaired (for which provision should have been made), there is no identification of the audit/accounting standards applicable as to impairment; no pleading of material facts engaging with those aspects of the standards requiring the raising of a provision; no pleading of material facts engaging with those standards as to what audit work a reasonably competent auditor would have done; no pleading as to the material facts as what audit work PwC did and how it fell short of that which a reasonably competent auditor would have done; and no pleading as to what consequence would have followed but for PwC's alleged negligence in that particular regard.
As to (3)-(4), PwC asks, rhetorically, what is meant by the need to check that a current valuation for the security property was held - is it that every year a valuation needed to be obtained for each property securing each loan booked? It points out that even as a matter of form there is no positive allegation that PwC did not do that which it is said a competent auditor would have done - for example, it is not positively alleged that PwC did not review Provident's files for a sample of loans to check the various matters - all that is particularised is a possible inference ("it may be inferred") that it did not do so.
PwC says that the assertions referred to in particular (5) are matters of evidence, not material facts, and do not address the position of an auditor, by reference to audit procedures or audit standards at all.
Furthermore, to the extent that AET's case is based on an inference that it is said "may be" derived from the magnitude of the asset shortfalls in the relevant years (as a res ipsa loquitur case) (particular (6)), PwC argues that to accept such submission would be tantamount to acceptance of the proposition that there is auditor negligence whenever there is a shortfall of assets and liabilities, which cannot surely be the case. It submits that invocation of the res ipsa loquitur principle is not apt in a novel duty of care case (referring to various old personal injury cases to illustrate this point). AET in response maintains that there is no reason that an inferential process of reasoning cannot be applied in an auditor negligence case (referring by way of description of the principle to what was said in Schellenberg v Tunnel Holdings Pty Limited (2000) 200 CLR 121; [2000] HCA 18 at 23-24 (Gleeson CJ and McHugh J)).
As to the complaints in relation to the allegation of breach of duty, AET says that its case on breach in respect of each financial year is put in the following way: first that Provident's accounts gave a certain description of Provident's financial position as at 30 June of the relevant year that was vastly different from the financial position described in the accounts and that the magnitude of the discrepancy between Provident's actual financial position as at financial year end and the position described in Provident's financial statements for that financial year is such that one can infer that the audit of the relevant financial statements was not carried out with reasonable care. In other words, it is said that the true financial position was so different from the financial statements that a reasonably careful audit would have discovered this. In oral submissions AET agreed that the allegation of breach ("in this cross claim" - which perhaps begs the question as to whether AET is purporting to reserve to itself an ability to allege other quite different breaches down the track) is, and is confined to the allegation, that PwC did not take the steps identified at (1)-(4) of the particulars and that it relies on an inference to establish that allegation. In my opinion that should be made clear in any amended cross claim. It should not be left to PwC to speculate as to what it is alleged it did or did not do that amounted to a breach of the alleged duty. Furthermore, as I have already indicated, AET should identify the steps that it is said should have been and were not taken (by reference where applicable to relevant audit standards) with precision - the formula "sufficiently large" is too imprecise. What is it said in the present case would have amounted to a sufficiently large sample?
As to the pleading of causation, complaint is made that AET has not properly articulated the manner in which it has (or may) suffer damage because of some breach of duty by PwC. Again, I agree. PwC complains that what is missing is the link between what it is said it may be inferred PwC did not do (as asserted at [18], particular (6), which refers back to particulars (1) to (4)), and what it is said PwC would have done but for its breach (as alleged at [19], particulars (1); (2)).
So, for example, if it were to be accepted that PwC had failed to check a (sufficient) sample of loans to check various matters as alleged at [18] (particular (1), PwC asks, rhetorically, how that leads to the conclusions at [19] (particulars (1) and (2)). It is said that, at the very least, to establish such a link it would be necessary to plead what a review of a sample would have shown at the time. Similarly, it is said that even if it were to be established that PwC had failed to check whether Provident had a written policy as to impairment (see [18], particular (3)), the pleading should articulate how that leads to the conclusions at [19], particulars (1); (2).
Further, PwC articulates a difficulty arising from the pleading of causation in so far as it postulates a duty owed to someone who it is alleged would not have become a trustee had the alleged duty been performed. It points to the circularity of such an argument.
AET says its case on causation is sufficiently identified in the particulars to [19]; i.e., that, but for PwC's negligence, the audit would have identified the asset shortfall; that would then have caused the trustee to enforce the charge or take other action to require Provident to repay debenture holders and prevent Provident from issuing further debentures; and if that had been done, AET would not be liable to debenture holders (particular (3) to [19]).
As to the circularity point referred to above, AET says that this misunderstands what is alleged in its pleading. AET says that its causation case is not one that denies that AET would have become the trustee for debenture holders. Rather, it says that the same corporate restructuring process that then occurred would still have taken place. It was made clear in oral argument that the alternative cases put in the particulars of causation in this regard both proceed on the assumption that AET became trustee at the time it did (as part of the IOOF corporate restructuring) - the difference being that on the first of the alternatives it would have been appointed at the time that a receiver had already been appointed and then would not have consented to being named in any future prospectus; rather than, on the second alternative, it being the one to appoint the receiver. That is not, in my opinion, clear from the particulars and should be made explicit (by way of pleading, not particulars).
[15]
Determination
I accept PwC's submission that the pleading of breach of duty (and corresponding allegations of audit wrongdoing on the other claims), as well as the pleading of causation, is defective for the reasons indicated above.
Relevantly, AET does not point to any identified aspect of a relevant audit standard, does not allege what a reasonably competent auditor in the position of PwC would have done in compliance with that aspect of the relevant audit standard, and does not allege what PwC failed to do by reference to the standard of the reasonably competent auditor in that regard. No material facts are alleged engaging with the relevant standards and then identifying what a reasonably competent auditor would have done in relation to the requirements of such standards. As a result, the allegations fail to articulate, with specificity and in relation to any given complaint as to the conduct of the audit, what a reasonably competent auditor should have done and how the audit work performed by PwC departed from that standard. PwC's complaint as to the adequacy of the particulars of breach (even if they can be treated as pleadings of material fact) to be well founded. The pleading of causation suffers from the defect that it does not articulate the link between particular alleged breaches and the loss said to have been caused by those breaches.
PwC points to the fact that the claims involve conduct from some 13 years ago and says that the persons whose conduct in carrying out each of the audits is now called into question are entitled to know, with specificity, the case put against them. I agree.
[16]
Statutory misconduct claims
PwC next complains that each of the statutory claims is embarrassing and is liable to be struck out.
PwC's first complaint in this regard is that the allegation necessary to found the jurisdictional oral gateway for the Trade Practices Act claims (see [21]) is not sustainable. The allegation at [21] is that:
PwC issued its audit report pleaded in paragraph 11 above by use of postal or telegraphic services.
The response to a request for particulars of that allegation was:
We do not agree that your clients' request in relation to paragraphs 21, 59, 92 and 135 of the Claim is a proper request for particulars. We also note that the manner in which PwC issued their audit report is a matter wholly within their knowledge.
Prior to the provision of discovery from PwC, the best particulars our client can currently provide are that the issuance of the relevant audit reports involve the use of one or more of: postal services, facsimile, email or other telegraphic services.
PwC argues that this indicates that AET did not have any basis on which to allege anything about how the audit report was issued at the time the pleading was filed. It submits that it would be a wrong exercise of the court's discretion to allow an allegation to stand for which the pleader has no arguable basis in fact (referring to HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in Liq) (No 2) [2016] FCA 446 at [56]; Hastie at [236]). As that allegation forms the jurisdictional gateway to the TPA claims, PwC argues that those claims should also be struck out in their entirety.
AET maintains that the allegation at [21] (that the audit report was issued by use of postal or telegraphic services) is clear and not embarrassing. I was informed that, from its review of the audit files to date, AET was unable to determine how the audits were delivered but AET says that "ordinary experience of life and commerce" suggests that it is likely that the report was sent by email, post or fax, rather than being hand delivered and maintains that that is a sufficient basis to plead the allegation. It says there is no evidence on which it could be concluded that the allegation is certain to fail.
As to this complaint, I accept that it will be a matter for evidence for AET to establish that the jurisdictional gateway has been satisfied. I cannot confidently form the view at this stage that it is doomed to failure. That said, if (as appears from AET's submissions on this point) it is the case that the allegation was made with no other basis for it than an assumption as to "ordinary experience of life and commerce", then it is difficult to see how that part of the pleading could properly have been verified; and the making of such an allegation (without apparently any factual basis to sustain it) may well have cost implications in due course if the allegation is ultimately unsustained on the facts.
PwC's second complaint is that the allegations impugning the alleged representations in each case repeat the particulars of audit wrongdoing underpinning the breach of duty in the negligence claim. For the reasons given earlier, I agree.
[17]
Claims based on legislation in other jurisdiction
PwC complains that no material facts are pleaded for the allegation that PwC engaged in misleading and deceptive conduct in contravention of "the corresponding provisions on misleading and deceptive conduct under the statutes of the other States and Territories", nor are the relevant provisions identified. A similar complaint is made as to the claims based on negligence said to arise in states other than NSW.
PwC argues that the lex loci delicti governing the choice of law for a claim in negligence is the law of the place where the alleged negligence occurred, and that the applicable law for a misleading and deceptive conduct claim depends on the place where the person was said to have been misled. PwC relies on an affidavit from its solicitor (Moira Saville) sworn on 30 June 2017 as setting out facts (not reasonably capable of dispute) that indicate that the proper law of the claims is New South Wales (at [19]). It says that no basis has been put forward to dispute those matters, and no other matters have been adverted to suggesting anything different.
In response to a request (by letter dated 28 April 2017) for information as to the basis on which AET asserts that a cause of action in misleading or deceptive conduct and/or negligence arose in any State or Territory other than New South Wales, AET's response (rather unhelpfully) was that:
Paragraph 5 of your letter contains a number of statements regarding PwC's conduct. They are matters wholly within PwC's knowledge. If PwC asserts that those matters are relevant to their defences to the allegations regarding negligence and misleading or deceptive conduct in States other than New South Wales, those matters ought to be pleaded and verified in the usual manner. AET can then address those matters in any Replies that it files.
PwC disputes that the said matters are wholly within its knowledge. It refers by way of example to AET's claim that PwC made misleading representations to AET. The place at which that occurred is, it says, within AET's knowledge. It points out that, contrary to the suggestion that the matters might be addressed by way of reply, AET has not filed any reply and that the time has now passed for it to do so. PwC submits that, given that situation, it can properly be inferred that AET does not have any basis for those allegations.
AET, in response, says that PwC's submissions proceed on the incorrect assumption that the State and Territory Fair Trading Acts are mutually exclusive, so that only one such act may apply to PwC's misleading conduct. It says there is no reason why a claimant may not simultaneously enjoy statutory causes of action under more than one Fair Trading Act and, subject to the rule against double recovery, no reason why that claimant may not choose to sue under the statute that is most favourable to him or her (referring to Perpetual Trustee Company Ltd v Milanex Pty Ltd (in liq) [2011] NSWCA 367 at [86]). In that regard, it says that to characterise the issue as one of choice of law is incorrect and it argues that PwC's reliance on Ramsey v Vogler [2000] NSWCA 260 is misplaced. (PwC maintains that this issue raises considerable complexity, referring to the dicta of Leeming JA in Redbro Investments Pty Ltd v Ceva Logistics (Australia) Pty Ltd [2015] NSWCA 73 at [17]-[19].)
In the course of oral argument AET indicated that it now does not seek to rely on legislation outside NSW for any of its direct claims against PwC and maintains its contribution claims (to the extent that they are not brought under NSW legislation) only in relation to legislation in Victoria, South Australia and Tasmania. It says that it cannot be concluded that there is no prospect of AET establishing an extra-territorial connection sufficient to entitle AET to relief under the Fair Trading Act of a State or Territory other than NSW (referring in particular to s 6(2) of the former Fair Trading Act 1999 (Vic) and the residency of Mr Creighton in Victoria).
Suffice it to note that I accept the complaint by PwC that it is incumbent on AET, if it wishes to maintain a case based on causes of action arising under State legislation other than NSW, to plead the particular provisions on which it relies in jurisdictions other than NSW and the material facts giving rise to a claim by reference to those provisions. The pleadings are deficient in this respect.
[18]
Statutory contribution claims
In respect of claims for contribution under s 5(l)(c) of the 1946 Act and s 23B of the Wrongs Act 1958 (Vic), AET initially alleged that at the time of each of its audit reports, PwC was liable to the plaintiffs and group members based on a duty of care owed directly to holders and future holders of debenture and that PwC engaged in statutory misconduct causing the plaintiffs and group members loss.
PwC says that those statutory contribution claims are flawed.
Its first complaint (now arguably moot) was that, insofar as the contribution claim was based on negligence, it rested on the (said to be unsustainable) premise that PwC owed a duty of care to "holders and future holders of debentures" (my emphasis) based on the pleading as originally framed at [38]). AET now disavows any allegation that there was a duty of care owed by PwC to "future" holders of debentures in Provident. PwC nevertheless contends that, properly understood , AET's contribution claim still asserts a liability to future debenture holders albeit limited to those who were debenture holders at the time of the PwC audits and rolled over their debentures at a later time. It also maintains that there is no logic to discrimination in this way as between different classes of future debenture holders. In that regard, it seems to me that there may well be a basis for drawing such a distinction if the position of current holders of debentures that could in future be rolled over in accordance with their terms gave rise to different issues of foreseeability in terms of reliance by those debenture holders on historical audit reports but it is not necessary to pursue this a this stage. The first complaint is in essence as to whether a duty of care is owed and, as I am not persuaded that such a claim is untenable, this is a matter that I am not prepared to determine on a summary basis.
PwC's second complaint is that there is no independent basis for statutory contribution relying upon allegations that PwC engaged in statutory misconduct causing the plaintiffs and group members loss. PwC notes that a claim for contribution under s 5(l)(c) of the 1946 Act allows one "tort-feasor" to recover contribution from another "tort-feasor". It maintains that liability for breach of the Trade Practices Act and its equivalents is not liability in tort, such that it cannot give rise to an independent basis for contribution under s 5(1)(c) of the 1946 Act. While AET also relies upon s 23B of the Wrongs Act, which is not limited by the requirement that contribution would be between "tort-feasors", PwC argues that without some pleading of material facts providing a link to Victoria, the contention that s 23B applies in these proceedings should be rejected.
This raises one of the two points identified as High Court points by AET. Although PwC says that AET has accepted, through its solicitors in correspondence, that this is the position that at first instance the court would be bound to find (given the decision in ACQ Ltd v Cook , AET maintains that its argument cannot be summarily dismissed.
Further, AET disputes the proposition that the proceedings have no connection with Victoria. It says that Mr Creighton is resident in Victoria and that where Mr Creighton is resident in Victoria, suffered loss in Victoria and has claims against two wrongdoers one of which is a claim under a Victorian statute, it is at least arguable that the Victorian statute should apply to a contribution claim between those two wrongdoers.
As to the allegation (at [44]) that, if AET is liable to the plaintiffs or to the group members, as alleged, then that liability could have been established in tort (see at [43]), while PwC accepts that there is authority for the possibility that contribution may be claimed by a person even where the actual basis on which that person has been found liable is not tortious, it says that the circumstances must give rise to liability in tort such that the person is a tort-feasor (referring to Jones v Mortgage Acceptance Nominees Ltd(1996) 63 FCR 418); and that simply to point to a similarity between a claim under s 283DA of the Corporations Act and a claim in negligence is not sufficient. It says that AET must plead material facts which bring it within the application of the legislation on which it relies on and argues that, as presently pleaded, the claim is unsustainable.
AET's position is that the elements of the statutory claim against AET are "not very different" to a claim in negligence (referring to the obligation of the trustee under s 283DA(a) to exercise reasonable diligence and the obligation under s 283DA(b)). AET says that the real question is whether the common law would impose a tortious duty of care in circumstances where the Corporations Act already created civil liability under s 283F but that the Court would not conclude on a summary dismissal application that such a duty of care was not arguable. AET notes that s 283F(3) expressly recognises the possibility of civil liability arising otherwise than under that section and the situation is unlike that in Lukey v Corporate Investment Australia Funds Management Pty Ltd [2005] FCA 298 because the relevant omissions of AET giving rise to the liability are not necessarily breaches of trust under the debenture trust deed.
The second of PwC's complaints is a pleading point. I consider that there is force to the complaint that it is not sufficient simply to plead the conclusion at [44] and that, at the very least, AET should particularise the basis on which it contends that if liability is established in the AET proceedings then similar liability could have been established in tort.
[19]
Equitable contribution claims
AET also claims that if it is liable to group members, then it is entitled to equitable contribution from PwC on the basis that its liabilities to group members are co-ordinate with PwC's liabilities to group members (see [45]).
PwC points out that, for such a claim to succeed, AET would be required to prove, first, PwC's liability to the plaintiffs and group members based upon negligence or statutory misconduct; and, second, that any such liability of PwC is "co-ordinate" with AET's liability to the plaintiffs and group members for the purposes of the doctrine of equitable contribution.
Insofar as the contribution claim is based on negligence, PwC says that, for the reasons already referred to, it cannot be maintained but that in any event the absence of any co-ordinate liability is another reason why the equitable contribution claims are not maintainable.
PwC points out that the allegation that the respective liabilities are co-ordinate is put in bare terms without particulars. AET's response to a request for particulars as to how AET says that the liabilities of PwC and AET were co-ordinate in this case was first that:
AET's alleged liability is co-ordinate with PwC's liability because they are of the same nature and extent and both liabilities are to make good the same loss alleged to have been suffered by the plaintiffs and the group members.
and then that:
Taking the most common case, being a group member who acquired his or her debentures after PwC's audits and after the date on which (on the plaintiffs' case) AET should have enforced the charge:
(a) but for AET's contravention of S.283DA of the Corporations Act, the group member would not have acquired the debentures; and
(b) but for PwC's contravention of section 52 of the former Trade Practices Act 1974 (Cth) and its analogues, the group member would not have acquired the debentures.
That group member has statutory causes of action against each of AET and PwC in respect of the same loss. The liabilities of AET and PwC are therefore coordinate and equitable contribution is available.
PwC submits that the fact that the damage may be the same does not establish that the liabilities are co-ordinate. It says that AET's statutory obligations under s 283DA cannot reasonably be characterised as co-ordinate with alleged misleading and deceptive conduct by PwC (referring to Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17, where McHugh J said that: "although the conduct of both parties may ultimately have been responsible for the loss, their respective responsibility arose from the breach of substantially different obligations"; at [56]).
PwC complains that nothing is pleaded or particularised suggesting that the alleged liabilities are of the same nature and the same extent. It argues that the nature of each of the alleged liabilities of AET and PwC is fundamentally different from the other, and it points to a further difference in the time period about which the claims are made.
As to the alternative claims based on s 53 of the Trade Practices Act PwC says that, for contribution to arise, mutuality must apply (in the sense of reciprocal rights to contribution) referring to HIH Claims Support Ltd v Insurance Australia Ltd (2011) 244 CLR 72; [2011] HCA 31. It says that the specific species of misleading conduct arising under s 53 (said to involve a representation by PwC that "its audit services were of a particular standard" ([28], [41])) is not the same as for claims made by the plaintiffs against AET. Therefore, PwC says that the pleaded liabilities of AET and PwC cannot be said to be co-ordinate and AET's claims for equitable contribution should be struck-out.
AET's response is that the relevant issue at this stage is whether it is reasonably arguable that the obligations can be characterised as being of the same nature (HIH Claims Support at [39]). AET says that the obligations owed by each of AET and PwC to the relevant debenture holders relate to the protection of the debenture holder against loss of his or her investment. It says that, in its own case, that protection was afforded by AET's obligation under s 283DA(a) to exercise reasonable diligence to check that the assets available would be sufficient to repay the debentures, and in the case of PwC, that protection was afforded by PwC exercising reasonable care to check that the financial position recorded in Provident's financial statements (being a position of sufficiency of assets to repay) was an accurate reflection of Provident's true financial position. In that way, it maintains that the two obligations were sufficiently similar in nature to be co-ordinate liabilities for the purpose of equitable contribution.
As a further practical matter, PwC says that the nature of AET's contribution claim, as now put forward in the proposed amendments, would mean that the hearing of the main proceedings will determine whether AET is liable to the plaintiffs; and AET would seek to press a contribution claim in respect of that liability in circumstances where it expressly does not have grounds for that contribution claim in respect of the plaintiffs because AET cannot plead that PwC owed any duty to the plaintiffs. PwC says that it follows from this that AET's contribution claim could not be resolved at the hearing in July 2018, because that claim cannot arise in respect of the plaintiffs' claims, and cannot be the subject of any common question because no facts will be before the court by which any such common question could be determined. PwC further says that as a result the determination of AET's contribution claim against PwC in respect of Group Members (other than the Plaintiffs) would be, at any initial trial, entirely hypothetical. Reference is made in this regard to what was said in Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334; [1999] HCA 9 at [49].
PwC thus says that a consequence of the amendments (if they were otherwise allowed) would be that the second cross claim would need to be postponed to a separate hearing after the determination of AET's liability.
AET in response says that while it is now alleged that only some group members have a claim in negligence against PwC ([40]), it is still alleged that all group members have a claim for misleading conduct against PwC ([41]-[42]); and that PwC's submissions assume in PwC's favour that s 5(1)(c) does not extend to statutory wrongs. AET says the plaintiffs are representative of group members insofar as the contribution claims arise from PwC's misleading conduct.
AET accepts that, insofar as the contribution claims rely on group members' causes of action against PwC for negligence, the plaintiffs are not representative of those claims. However, AET says that does not mean that AET's cross claim is deficient. It points out that AET's cross claim is not a representative proceeding. It says that it is necessary for AET to bring forward the whole of its claim against PwC now, including the contribution claim in respect of those group members falling within the class allocated [40]. It accepts that may mean that the part of the cross claim relating to contribution in respect of those group members' claims is not determined at the July 2018 hearing, but says that is not a reason to strike out the cross claim or refuse leave to amend. (It points out that this difficulty could be addressed by the joinder of a suitable party to represent the sub-group in question, though that is not a matter for it to achieve.)
I am not persuaded that it is appropriate at this stage, in advance of the final hearing, to make a determination (or comment) on the dispute as to the various matters raised in relation to the contribution claims, other than to note that to the extent that the pleading of the contribution claims alleges audit wrongdoing and causation of loss, it suffers from the same deficiencies earlier identified, and that AET should articulate which contribution regime is said to apply to what causes of action and why. PwC should not be left to speculate as to those matters.
[20]
Conclusion
In light of the above, I am of the view that the pleading in relation to the allegations of breach of duty, audit wrongdoing and causation of loss, (including those allegations forming part of the contribution claims) is defective. Those paragraphs of the second cross claim should be struck out. It is not appropriate for leave to be granted at this stage for the filing of the proposed amended second cross claim insofar as it repeats the pleading deficiencies identified above and, in any event, it is a document that AET has already indicated it will wish to amend following service of its expert evidence. The question then arises as to whether leave should be granted at this stage for AET to re-plead.
[21]
Should leave to re-plead be granted
PwC argues that AET should not be granted leave to amend its second statement of cross claim as proposed. I agree. But, as I understand it, PwC would resist any grant of leave at this stage for the filing of a further amended second cross claim on the basis that it says the pleading inadequacies cannot be cured (referring to Young Investments Group at [60]). To the extent that this submission assumes an answer as to the summary dismissal points that have not yet been decided, it cannot be accepted at this stage.
The cri de coeur in AET's written submissions, as to the difficulty in articulating its claim without discovery, ignores the fact that there are procedures of which it could have availed itself in order to obviate that difficulty (including the issuance of subpoenas - as was done in relation to the audit files of HLB Mann Judd - and an application for preliminary discovery). In permitting AET a further opportunity to plead its claims against PwC, I do not condone the course AET appears to have adopted (of bringing claims without properly pleading the material facts on which those claims based and, in at least one instance - relating to the allegation necessary to satisfy the jurisdictional gateway for the Trade Practices Act claims - seemingly based on no more than an assumption as to what occurred, apparently in the anticipation, or hope, as to what might later emerge on discovery). That is not consistent with the obligations of litigants in this Court.
That said, I am not persuaded that the pleading deficiencies cannot be cured. Therefore, I propose to strike out the paragraphs indicated above but to give AET an opportunity to serve a further proposed amended pleading rectifying the defects identified in the present pleading. If PwC maintains that there remain pleading deficiencies in any such further proposed amended second cross claim (other than as relate to the summary dismissal arguments dealt with on the present applications) and on that basis refuses consent to the filing of such a document then AET's application for leave would perhaps most conveniently be determined by the trial judge (particularly having regard to the submissions made by PwC as to the likelihood that part of the cross claim relating to contribution in respect of group members' claims may not be able to be determined at the July 2018 hearing in the absence of a plaintiff representative of the group).
[22]
Costs
PwC has had a substantial measure of success (though its summary dismissal applications did not succeed). In light of the attempts unsuccessfully made by it to resolve pleading issues without the need for the present interlocutory applications and its success on the strike out applications, it should nevertheless have its costs in relation to that part of the notices of motion.
[23]
Orders
For those reasons, on 13 October 2017, I made the following orders in each of the Smith proceedings and the Creighton proceedings:
1. PwC's application for summary dismissal of the second cross claim is dismissed.
2. Leave to file the proposed amended second cross claim in the form annexed to the affidavit of AET's solicitor be refused.
3. Those paragraphs of the second cross claim alleging: breach of duty of care by PwC ([18], [56], [94], [132]) and causation of loss ([19], [57]; [95], and [133]) (those paragraphs relating to the negligence claims for all financial years); audit wrongdoing and causation of loss ([23], [26], [31], [33], [61], [64], [69], [71], [99], [102], [107], [109], [137], [140], [145], [147]) (those paragraphs relating to the allegations of misleading and deceptive conduct for all financial years); and the corresponding allegations in the contribution claims for all financial years ([39], [40], [41], [77], [78], [79], [115], [116], [117], [153], [154], and [155]), as well as references to corresponding (but not specified) provisions of legislation in other States or Territories both in the claims directly made by AET against PwC and in the contribution claims, be struck out.
4. AET is directed to serve a further proposed amended second cross claim in accordance with these reasons within 14 days and, if consent to the filing of that further proposed amended second cross claim is not forthcoming from PwC, then AET is to apply to Ball J's associate to have the matter relisted before his Honour to determine whether leave should be granted to AET to file the said further proposed amended second cross claim.
5. Notice of motion filed 30 June 2017 is otherwise dismissed.
6. AET is to pay PwC's costs thrown away by any amendment allowed to the second cross claim.
7. Costs of the notice of motion, so far as they relate to PwC's summary dismissal claim, be costs in the cause and, so far as they relate to the application to strike out parts of the second cross claim, be borne by AET.
[24]
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: 16 October 2017
Legislation Cited (13)
Fair Trading Act 1999(Vic)
Trade Practices Act 1974(Cth)
Trade Practices Act 1974(NSW)
Trade Practices Act, the Corporations Act, the Australian Securities and Investments Commission Act 2001(Cth)
Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334
Bathurst Regional Council v Local Government Financial Services Pty Ltd (No. 2) (2011) 82 ACSR 617; [2011] FCA 309
Bialkower v Acohs Pty Ltd (1998) 83 FCR 1
Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863
Brambles Australia Ltd Trading as CHEP Australia v Tatale Pty Ltd [2006] NSWSC 204
Brookfield Multiplex Ltd v Owners Corp Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36
Bruce v Odhams Press Ltd [1936] 1 KB 697
Bryan v Maloney (1995) 182 CLR 609; [1995] HCA 17
Built NSW v EvolveBuilt Contracting [2014] NSWSC 255
Burke v LFOT Pty Ltd (2000) 178 ALR 161; [2000] FCA 1155
Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17
Caason Investments v Cao (2015) 236 FCR 322; [2015] FCAFC 94
Caltex Oil (Australia) Pty Ltd v Dredge "Willemstad" (1976) 136 CLR 529
Caltex Refineries (Qld) Pty Limited v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258
CJD Equipment v A&C Constructions [2009] NSWSC 1362
Cox v Journeaux (No. 2) (1935) 52 CLR 713
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
Dorrough v Bank of Melbourne Limited [1995] FCA 1573
Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; [1997] HCA 8
Garzo v Liverpool/Campbelltown Christian School Ltd [2011] NSWSC 292
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69
Graphite Energy Pty Ltd v Lloyd Energy Systems Pty Ltd [2014] NSWSC 1326
Gunns Ltd v Marr [2005] VSC 251
Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709
HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in Liq) (No 2) [2016] FCA 446
HIH Claims Support Ltd v Insurance Australia Ltd (2011) 244 CLR 72; [2011] HCA 31
Hoxton Park Residents Action Group Inc v Liverpool City Council [2012] NSWSC 1026
Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10
Hunter and New England Area Health District v McKenna (2014) 253 CLR 270; [2014] HCA 44
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1219
Ingot Equity Capital Markets Pty Ltd v Macquarie Equity Capital Investments Ltd [2004] NSWSC 1136
Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566
Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564; [2000] FCA 1572
Jones v Mortgage Acceptance Nominees Ltd (1996) 63 FCR 418Jonstan Pty Limited v Nicholson (2003) 58 NSWLR 223; [2003] NSWSC 500
Leitch v Abbott (1886) 31 Ch D 374
Lukey v Corporate Investment Australia Funds Management Pty Ltd [2005] FCA 298
McGuirk v University of New South Wales [2009] NSWSC 1424
Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591
Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254; [2000] HCA 61
NSW v Spearpoint [2009] NSWCA 233
Paul v Cooke (2013) 85 NSWLR 167; [2013] NSWCA 311
Perera v Genworth Financial Mortgage Insurance Pty Ltd [2017] NSWCA 19
Perpetual Trustee Company Ltd v Milanex Pty Ltd (in liq) [2011] NSWCA 367
Perpetual Trustees Victoria Ltd v Dunlop [2009] VSC 331
Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36
PPK Willoughby Pty Ltd v Roads and Maritime Services [2014] NSWSC 407
Ramsey v Vogler [2000] NSWCA 260
Redbro Investments Pty Ltd v Ceva Logistics (Australia) Pty Ltd [2015] NSWCA 73
Re HIH Insurance Ltd (in liq) (2016) 113 ACSR 318; [2016] NSWSC 482
R Lowe Lippmann Figdor & Franck v AGC Ltd [1992] 2 VR 671
Schellenberg v Tunnel Holdings Pty Limited (2000) 200 CLR 121; [2000] HCA 18
Shaw v State of New South Wales [2012] NSWCA 102
Shelton v National Roads and Motorist Association Ltd (2004) 51 ACSR 278; [2004] FCA 1393
Skalkos v Smiles [2006] NSWSC 192
Stuart v Kirkland-Veenstra (2009) 237 CLR 215; [2009] HCA 15
Sullivan v Moody (2001) 207 CLR 562; [2001] HCA 59
Sunlea Enterprises Pty Ltd v Pollock [No 3] [2015] WASC 330
Su v Direct Flights International Pty Limited [1998] ATPR 41-662
Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (a Firm) [2015] FCA 1098
Tame v State of NSW; Annetts v Australian Stations Pty Ltd (2002) 211 CLR 317; [2002] HCA 35
Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951
Thorp v Holdsworth (1876) 3 Ch D 637
Travel Compensation Fund v Tambree (2005) 224 CLR 627; [2005] HCA 69
Ultramares Corporation v Touche (1931) 174 NE 441 Wallace v Kam (2013) 250 CLR 375; [2013] HCA 19
Waller v James (2015) 90 NSWLR 634; [2015] NSWCA 232
Weston v Publishing and Broadcasting Ltd (2012) 88 ACSR 80; [2012] NSWCA 79
Weston v Publishing and Broadcasting Ltd(2011) 83 ACSR 206; [2011] NSWSC 433
Whyte v Ahrens (1884) 26 Ch D 717;
Williams & Humbert v W & H Trade Marks (Jersey) Ltd [1986] AC 368
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16
Wride v Schulze [2004] FCAFC 216
X (Minors) v Bedfordshire County Council [1995] 2 AC 633
Young Investments Group Pty Ltd v Mann (2012) 293 ALR 537
Young v Tieco International (1999) 182 LSJS 367
Texts Cited: J Campbell, "Contribution, Contributory Negligence and Section 52 of the Trade Practices Act" (1993) 67 ALJ 87
Category: Procedural and other rulings
Parties: In the Smith proceedings (2015/00171592):