Sutherland v GHR Accounting Group Pty Ltd

Background

1. The plaintiff's father died in 1991 when the plaintiff was age 25, and after probate was granted he was left in control of considerable assets. He had no close relatives that he could turn to for advice regarding either personal or professional matters. Throughout the course of his life, he has had to seek out any type of advice that he wanted on a fee for service basis.
2. The plaintiff is a long-term academic. His field of academic research is classical political theory. He says that his mathematical skills are limited to the consecutive numbering of the pages of his academic work. From 1993 onwards, for the most part, the plaintiff lived overseas and studied humanities. In late 2002, he returned to Australia where his time was mostly spent writing up his academic research.
3. The plaintiff is suing the defendant for alleged breaches of duty of care in contract and tort in relation to financial advice allegedly given in around 2006 through to about June 2008. The advice allegedly related to the acquisition of certain properties by a company, Quadratus Pty Ltd ("Quadratus"), of which the plaintiff was the sole shareholder and director.

Procedural history

1. These proceedings have had a protracted history. It is as follows:
2. On 18 December 2015, Hall J dismissed the plaintiff's claim against Macquarie Bank Limited (who had provided funding to Quadratus for the purchase of the properties) pursuant to UCPR 13.4. The plaintiff's statement of claim was also struck out with leave to replead the claim against the defendant: see Sutherland v GHR Accounting [2015] NSWSC 1946 at [52], [67] and [68] ("Sutherland (No 1)").
3. On 31 May 2016, the defendant filed a notice of motion ("the second notice of motion") seeking an order dismissing the plaintiff's amended statement of claim pursuant to UCPR 12.7(1) or, in the alternative, an order dismissing the proceedings pursuant to UCPR 13.4(1)(b).
4. On 15 February 2017, the second notice of motion was listed for hearing before Button J, at which time the plaintiff sought an adjournment. Button J observed that the plaintiff's position was that he had now come to appreciate the legal distinction between Quadratus and himself, and in order to overcome the basal criticism of his claim he was trying to "revive" the company or otherwise somehow have it joined to the proceedings: see Sutherland v GHR Accounting [2017] NSWSC 100 at [11] ("Sutherland (No 2)").
5. The second notice of motion was stood over to 31 March 2017. On 7 April 2017, Button J ordered that the amended statement of claim be struck out with a further order that the plaintiff file and serve any further statement of claim upon which he relies by 5 May 2017: see Sutherland v GHR Accounting (No 3) [2017] NSWSC 373 at [44] ("Sutherland (No 3)").
6. On 5 May 2017, a further amended statement of claim ("FASC") was filed.
7. On 7 June 2017, the defendant filed the present notice of motion seeking an order dismissing the plaintiff's FASC filed on 5 May 2017 pursuant to UCPR 12.7(1) or, in the alternative, an order dismissing the proceedings pursuant to UCPR 13.4(1)(b) of the UCPR.
8. On 27 July 2017, orders were made to reinstate Quadratus pursuant to s 601AH of the Corporations Act 2001 (Cth) and appoint Steve Naidenov and David lannuzzi of Veritas Advisory as joint and several liquidators.
9. On 21 August 2017, the plaintiff served a further reiteration of the FASC which added two more plaintiffs: Quadratus Pty Ltd and Steve Naidenov, liquidator of Quadratus.
10. On 21 August 2017, an order was made requiring the defendant to advise the plaintiff by 30 October 2017 of its position in relation to the PFASC. On 28 August 2017, the defendant through its solicitors, informed the plaintiff that it objected to the PFASC being filed or otherwise relied upon.
11. Since that time, a number of adjournments have been granted so that the plaintiff could receive pro bono assistance to properly plead his case. In summary, these have been as follows: 1. On 8 March 2018, the defendant's notice of motion filed 7 June 2017 was stood over for hearing on 15 June 2018. The plaintiff was ordered to serve a proposed second further amended statement of claim ("P2FASC") and any further affidavit evidence he intended to rely upon by 8 June 2018. An order was made that the plaintiff be referred to a Registrar for a further referral to a barrister or solicitor for legal assistance. 2. On 13 June 2018, the defendant's notice of motion filed 7 June 2017 was stood over for hearing on 13 July 2018. The plaintiff was to serve a P2FASC and any further affidavit evidence he intended to rely upon by 2 July 2018. 3. On 12 July 2018, the defendant's notice of motion filed 7 June 2017 stood over for hearing on 15 August 2018. The plaintiff was to serve a PFASC and any further affidavit evidence he intended to rely upon by 6 August 2018. 4. On 15 August 2018, the defendant's notice of motion over for hearing on 7 September 2018. The P2FASC and further affidavit evidence was to be served on the defendant by 5 September 2018. An order was made that save exceptional circumstances, the plaintiff's failure to serve a copy of the P2FASC and any further affidavits would result in the plaintiff's proceedings being dismissed.
12. Delays have also been incurred because Mr Sutherland has been assessed by a psychiatrist as having a significant mental health disorder, and from early 2015 to August 2018 he has technically been an outpatient of Manly hospital.
13. The plaintiff has now served a P2FASC and has had the benefit of pro bono legal advice. The defendant opposes the filing of the P2FASC. Pursuant to UCPR r 19.2, the plaintiff has added Quadratus as second plaintiff to his P2FASC. As the deed of company arrangement means that Quadratus has been reinstated to the ASIC's company register, the defendant does not object to the joining of Quadratus as second plaintiff (T3.15).

The pleading in the P2FASC

1. It is necessary that I briefly set out the pleading framework in the plaintiff's P2FASC here.
2. The plaintiff's P2FASC relevantly states: "3 The defendant, GHR Accounting Group Pty Ltd (GHR Accounting): a. is and was at all material times from 26 June 2006 incorporated; b. is and was at all material times a corporation engaged in trade or commerce, to whom the Trade Practices Act 1974 (Cth) had application; c. at all material times from 26 June 2006 included David Robert Gordon (Gordon) as one of its directors; d. at all material times from 26 June 2006 until 1 July 2010 included Bernadette Louise Gore (Gore) as one of its directors; e. at all material times: i. carried on business as an accounting practice and provider of accounting services and financial advice; ii. provided accounting services and financial advice to Sutherland and to Quadratus. Particulars of (e)(i) and (ii) The plaintiffs refer by way of example only to: (a) invoices issued by GHR Accounting in the name of Quadratus, dated 24 May 2007 concerning preparation of BAS and various meetings and discussions concerning Dakhni Indian Restaurant and 30 April 2008, in respect of work performed preparing and lodging the 2007 tax return for Quadratus[;] (b) invoices dated 30 April 2008 in the name of Sutherland, in respect of work performed preparing and lodging Sutherland's 2007 tax return; and (c) statement of account in the name of Sutherland dated 9 July 2009 listing invoices for work performed for him personally from 17 October 2004. Copies of these documents are available for inspection. Events prior to 26 June 2006 4 Prior to September 2002 the plaintiffs obtained accounting services and financial advice from Gren Olsen, a chartered accountant. 5 In or around September 2002: a. Mr Olsen told Sutherland that he was merging his accountancy practice with "GHR Accounting Group", a group said to include Gordon and Gore. b. Mr Olsen described the practice of GHR Accounting Group to Sutherland as: i. well experienced in the usual facets of accounting and tax work; ii. having a particular interest in wealth creation and investment planning for their clients. Particulars The information and description is contained in a letter from Mr Olsen to Sutherland dated 9 September 2002. A copy of the letter is available for inspection. 6 Also in or about September 2002, Gore told Sutherland that: a. the GHR Accounting Group had the attributes pleaded at paragraph 5b above; and b. the group would advise Sutherland and Quadratus in relation to wealth creation. Particulars Gore told Sutherland these matters at a meeting at 'Skippers Restaurant' in Manly attended by Gore, Sutherland, and Olsen. … 8 On or about 3 February 2006, in the presence of Gordon and Gore, Macquarie Bank Limited (Macquarie) proposed the provision of certain new banking facilities in favour of Quadratus. Particulars This proposal took place at a meeting held at the offices of Group. 9 On or about 26 April 2006 Macquarie, Quadratus, and Sutherland agreed that: a. Macquarie would provide two facilities in favour of Quadratus, one facility, Facility XXXXXX with a limit of $525,000, the second facility XXXXXX with a limit of $600,000; b. facility XXXXXX was to refinance an existing Quadratus asset, real property situated at and known as XXX Abercombie St, Darlington New South Wales (Darlington); c. facility XXXXXX was to assist with the purchase of real property situated at and known as XXX Bridge Road Glebe New South Wales (Bridge Road); d. security for the Macquarie facilities would comprise: i. first ranking mortgages over Darlington & Bridge Road; ii. a first ranking mortgage over land which Quadratus was proposing to purchase being land situate at and known as XXX St Johns Rd Glebe New South Wales (St Johns); iii. a first ranking mortgage over Avalon, at or about that time valued for Macquarie at $900,000; iv. a personal guarantee from Sutherland; v. Mortgage security over funds held on deposit by Macquarie. Particulars The agreement between Macquarie, Quadratus, and Sutherland, was contained in facility letters dated 20 March 2006. Copies of the relevant facility letters and of the valuation of Avalon are available for inspection. 10 On or about 20 July 2006 facility XXXXXX was varied so as to: a. remove St Johns as security; b. substitute in its place a property situated at and known as XXX Glebe Point Rd, Glebe New South Wales (Glebe Road); c. reduce the amount of the facility limit to $510,000. Particulars The variation was in writing. A copy of the letter of variation is available for inspection. After 26 June 2006: GHR Accounting Provides Advice 11 As at 27 July 2006: a. Quadratus was or was entitled to be the registered proprietor of each of Darlington, Bridge Road and Glebe Road b. Quadratus was indebted to Macquarie: i. in relation to facility XXXXXX directly referable to Darlington in the amount of $510,000; ii. in relation to facility XXXXXX directly referable to Bridge Road in the amount of $395,660 (with a facility limit of $600,000); iii. in relation to a further facility directly referable to Glebe Road and Avalon, in the amount of $675,000 (with a facility limit of $1,391,250) (together, the Macquarie Facilities); c. Quadratus had $617,612 on deposit in its savings account; d. Sutherland had personally guaranteed facility XXXXXX and facility XXXXXX; e. Each facility was secured by a first ranking mortgage granted by Sutherland over Avalon. … 18 In or about early September 2006, Gordon advised Sutherland there was no reason not to proceed with the proposed purchase of the vacant property (the First GHR Accounting Advice). Particulars The First GHR Accounting Advice was oral and communicated to Sutherland by Gordon in or about early September 2006. 19 In or about October 2006, in reliance upon First GHR Accounting advice: a. Quadratus purchased the Vacant Property for $1,150,000; b. Quadratus purchased the Vacant Property by using the Macquarie Facilities: i. secured by mortgages over Avalon, Bridge Road, Darlington, and Glebe Road; and ii. personally guaranteed by Sutherland[.] Particulars A copy of the transfer stamped 24 October 2006 is available for inspection[.] … 24 Also in or about February 2008: a. Sutherland proposed to Gordon that Quadratus sell Glebe Road in order to meet Quadratus' outstanding debts; b. Gordon advised Sutherland this was not necessary and that he should wait for Macquarie to propose a solution to Quadratus' financial position (the Second GHR Accounting Advice). Particulars The Second GHR Accounting Advice was oral and communicated to Sutherland by Gordon in or about early February 2008. 25 On 4 April 2008: a. Quadratus was in default of its facilities with Macquarie; b. Macquarie demanded that Quadratus and/or Sutherland pay Macquarie in excess of $1,391,250 by 11 April 2008; c. Macquarie demanded that Quadratus and/or Sutherland pay Macquarie in excess of $510,000 by 11 April 2008; d. Macquarie demanded that Quadratus and/or Sutherland pay Macquarie in excess of $557,882.51 by 11 April 2008; (together, the Initial Macquarie Demands). Particulars The Initial Macquarie Demands were in writing and made in reliance upon the Macquarie Facilities. Copies of the Initial Macquarie Demands are available for inspection. 26 In or about June 2008: a. Quadratus was in default of its facilities with Macquarie; b. Macquarie demanded that Quadratus and/or Sutherland repay money owing under those facilities (the Second Macquarie Demands); c. GHR Accounting was aware of the matters pleaded at paragraphs 14-26a and 26b above; d. Sutherland proposed to Gordon that Quadratus sell each of Glebe Road, Darlington, Bridge Road, the Restaurant Property, and the Vacant Property to repay Quadratus' debts to Macquarie; e. Gordon advised Sutherland that: i. Quadratus should instead seek to refinance each of Glebe Road, Darlington, Bridge Road, the Restaurant Property, and the Vacant Property; and ii. Sutherland should seek to refinance Avalon; to pay Quadratus' and Sutherland's debts to Macquarie (the Third GHR Accounting Advice); Particulars (a) The Second Macquarie Demands were oral, and made at a meeting between David Gordon and Lisa Callaghan of GHR Accounting, Sutherland, Mr Jaffe, and Ms Margot Ferassie of Macquarie. (b) Sutherland made the proposal pleaded at (c) above orally. (c) The Third GHR Accounting Advice was oral and communicated by Gordon to Sutherland.
3. In relation to the First GHR Accounting Advice, the plaintiff pleads at [40] to [44]: "The First FHR Accounting Advice - GHR Accounting Owed a Duty of Care 40 …GHR Accounting owed a duty to each of Quadratus and/or Sutherland to exercise reasonable care in the provision of: a. accounting services and financial advice; and b. The First GHR Accounting Advice; the required content of which is set out in paragraph 39a-39e (the GHR Accounting Duty of Care). 41 By reason of the matters pleaded at paragraphs 9, 10, 11, 12b, 13, 14, 15, 16, 17b and 17c above it was reasonably foreseeable that: a. if GHR Accounting failed to exercise reasonable care in the provision of the First GHR Accounting Advice, Quadratus and/or Sutherland would suffer economic loss, including that as a consequence of cashflow pressures, Quadratus would default on the Macquarie facilities; and b. default could trigger calls on securities and personal guarantees granted by Quadratus and Sutherland. 42 Having regard to the matters pleaded at paragraphs 9, 10, 11, 12b, 13, 14, 15, 16, 17b and 17c above There was a not insignificant risk that: a. if GHR Accounting failed to exercise reasonable care in the provision of the First GHR Accounting Advice that Quadratus and/or Sutherland would suffer economic loss, including that as a consequence of cashflow pressures, Quadratus would default on the Macquarie facilities; and b. default could trigger calls on securities and personal guarantees granted by Quadratus and Sutherland. 43 Having regard to: a. the probability that Quadratus and Sutherland would suffer economic loss, and b. the seriousness of the exposure of Quadratus and Sutherland to enforcement of securities and guarantees, a reasonable accountant faced with the circumstances set out and particularised in paragraphs 11, 12b, 13, 14, 15, 17b and 17c above: c. would not have given the First GHR Accounting Advice; and d. would have advised Quadratus and Sutherland not to purchase the Vacant property. Breach of Retainer and breach of the GHR Accounting Duty of Care - the First GHR Accounting Advice 44 In breach of the terms of The Retainer and, alternatively, in breach of the GHR Accounting Duty of Care, GHR Accounting: a. failed to use reasonable care, skill and diligence in the provision of accounting services and financial advice to each of Quadratus and Sutherland when providing the First GHR Accounting Advice; b. failed to exercise reasonable care, skill and diligence when advising in relation to the prudence or otherwise of the specific investment options available to Quadratus and Sutherland, in particular, concerning the Vacant Property in circumstances where the proposed investment by Quadratus involved the use of borrowed funds guaranteed personally by Sutherland; c. when advising in relation to the prudence or otherwise of investment in the Vacant Property failed to carefully and diligently review The Projections and assess risks both as a stand-alone investment and in light of the overall financial position of both Quadratus and Sutherland; d. failed to advise both Quadratus and Sutherland that there was a real risk that the proposed investment in the Vacant Property might: i. expose Quadratus and Sutherland to cash flow pressures; ii. be unsuitable on account of it not being accompanied by an income stream at the time of purchase; iii. put undue pressure on cash reserves held by Quadratus and/or Sutherland to meet any liability that may arise from time to time; iv. have the consequence that Quadratus might default in its facilities with Macquarie with the further consequence that Quadratus and/or Sutherland might be forced to sell real property assets to meet liabilities to Macquarie. …"
4. The pleadings with respect to a duty of care for the Second GHR Accounting Advice are substantially similar to those with respect to the First GHR Accounting Advice. The allegations of breach are pleaded at [51]: "Breach of Retainer and breach of GHR Accounting Duty of Care - the Second GHR Accounting Advice 51 In breach of the terms of The Retainer and, alternatively, in breach of the GHR Accounting Duty of Care, GHR Accounting: a. failed to use reasonable care, skill and diligence in the provision of accounting services and financial advice to each of Quadratus and Sutherland when providing the Second GHR Accounting Advice; b. failed to exercise reasonable care, skill and diligence when advising in relation to the prudence or otherwise of selling the Glebe Road Property where Quadratus' investments involved the use of borrowed funds guaranteed personally by Sutherland; c. failed to advise both Quadratus and Sutherland that there was a real risk that failing to sell the Glebe Road Property might: i. expose Quadratus and Sutherland to cash flow pressures; ii. put undue pressure on cash reserves held by Quadratus and/or Sutherland to meet any liability that might arise from time to time; iii. have the consequence that Quadratus might default in its facilities with Macquarie with the further consequence that Quadratus and/or Sutherland might be forced to sell real property assets to meet liabilities to Macquarie. …"
5. The plaintiff's pleadings with respect to the duty of care for the Third GHR Accounting Advice are also substantially similar to those with respect to the First GHR Accounting Advice. The allegations of breach are pleaded at [58]: "Breach of Retainer and breach of the GHR Accounting Duty of Care - the Third GHR Accounting Advice 58 In breach of the terms of The Retainer and, alternatively, in breach of the GHR Accounting Duty of Care, in GHR Accounting: a. failed to use reasonable care, skill and diligence in the provision of accounting services and financial advice to each of Quadratus and Sutherland when providing the Third GHR Accounting Advice; b. failed to exercise reasonable care, skill and diligence when advising in relation to the prudence or otherwise of Quadratus refinancing each of Glebe Road, Darlington, Bridge Road, the Restaurant Property, and the Vacant Property, and Sutherland refinancing Avalon, to pay Quadratus' debts to Macquarie, where Quadratus' investments involved the use of borrowed funds guaranteed personally by Sutherland; c. failed to advise both Quadratus and Sutherland that refinancing each of Glebe Road, Darlington, Bridge Road, the Restaurant Property, the Vacant Property, and the Avalon Property might: i. expose Quadratus and Sutherland to cash flow pressures; ii. put undue pressure on cash reserves held by Quadratus and/or Sutherland to meet any liability that may arise from time to time."
6. In relation to the first accounting advice, the plaintiff pleads at [82]: "Damages - the First GHR Accounting Advice 82 As a consequence of the conduct pleaded at 44 above and/or the conduct pleaded at paragraphs 61-67 above, each of Quadratus and Sutherland has suffered loss and damage. Pleadings The losses suffered by each of Quadratus and Sutherland are to be assessed by reference to the position which they would have been in if there had been no breach. Quadratus would still have owned the Darlington, Bridge Road, Glebe Road, and Restaurant Properties and Sutherland would still have owned Avalon. The monetary consequences of those matters will be further particularised prior to trial."

The plaintiff's statement and draft affidavit dated 8 August 2018

1. Around the end of 2002, before Mr Sutherland retained the services of the defendant, his properties in Darlington and Glebe were subject to an existing small mortgage in favour of RAMS. The plaintiff's residential home in Avalon was unencumbered (Ex A, page 40).
2. On 10 July 2008, in reliance upon the Third GHR Accounting Advice, Mr Sutherland granted a mortgage over Avalon in favour of the Bank of Western Australia (P2FASC [27]).

The Skippers agreement

1. Mr Sutherland's introduction to the defendant took place around the end of 2002 at "Skippers", a restaurant at Mona Vale. Mr Sutherland alleges that after discussions at the restaurant, he and the defendant reached an agreement (the "Skippers agreement").
2. Around that time, Mr Sutherland's current accountant, Gren Olsen, had been planning to retire and merge with the defendant, GHR Accounting. It was in the context of those plans that Mr Olsen invited the plaintiff to Skippers to meet Bernadette Gore, a partner at GHR Accounting, to discuss their arrangement moving forward. At the meeting, Ms Gore told the plaintiff that GHR Accounting would provide all the services that Mr Olsen had previously provided. For example, they would be able to put the plaintiff in contact with people who could help to develop his business, and would even be able to provide more services than Mr Olsen had done. Ms Gore informed the plaintiff that GHR Accounting was dynamic and proactive, and wanted to develop a long-term business relationship with him and help him grow his business.
3. Ms Gore also said to the plaintiff, "Well, Richard, it will be of particular interest for you to know that GHR Accounting has a special expertise in real estate investment. We are able to advise you on wealth creation and loans. So we will be able to help you to increase and develop your real estate interest and develop your investment portfolio. While, of course, we will handle your tax matters, we do not want you to see us as merely tax agents. We can advise you with various things such as identifying suitable investment opportunities in the market and handling cash flow. We will be able to help you in various ways. In short, we will look after your financial interest because we have the skills and expertise to do this." She concluded the conversation by saying to him, "Don't worry about anything Richard - we will take good care of you. You can trust us."
4. After the Skippers agreement, the plaintiff largely had dealings with a partner of GHR Accounting, Mr David Gordon.

First advice - Glebe Point Road property

1. In or about September 2006, the plaintiff says in his statement at Ex A page 45: "At that meeting I said to David Gordon: 'There is a property at XX Glebe Point Road which is now on the market'. David Gordon said to me: 'What type of property is it?' I said to David Gordon: 'It used to be a medical practice - but it's vacant now'. David Gordon said to me: 'Richard, how much are they asking for the property?' I said to David Gordon: 'I understand that they are asking in the vicinity of AUD $1.1 - $1.2 M as it is similar to the other shop'. I said to David Gordon: 'It is a shop - but it does not have a tenant. Also, it would be 100% financed out of the equity in the other properties. So, I am not sure. What do you think about it?' David said to me: 'Mate, I don't think that you'll have any problem getting a tenant. I think you should go ahead and buy it'. I said: 'Are you sure?' David said: 'Yes!' On the basis of Gordon's advice, I purchased the shop at auction. If he had advised against it, I would not have bought it."
2. In relation to the first advice, the plaintiff deposes (Aff, 5/9/2018 at [11]-[13]): "11. On or around 14 September 2006, I had a meeting with David Gordon in his office in Mona Vale. At that meeting David Gordon said to me: 'You have nothing to worry about. Quadratus should go ahead and purchase the vacant shop'. 12. Both I personally and Quadratus Pty Limited individually relied on the advice that David Gordon gave to us individually. 13. As a result of relying on this advice Quadratus Pty Limited became increasingly unable to service the loan facilities provided by Macquarie Bank Limited."
3. The plaintiff referred to the dealings in relation to the Glebe Point Road property. The dealings include a Historical Title search dated 15 June 2016 from Land and Property Information NSW (presumably of the Glebe Point Road property), a Transfer of Folio Identifier X/XXXXXX to Quadratus Pty Limited, and a Mortgage for Folio Identifier X/XXXXXX from Macquarie Bank Limited to Quadratus Pty Limited dated 18 October 2006 (plaintiff's documents, pages, 43, 57, 73).
4. The defendant submitted that there is no evidence that the plaintiff asked Mr Gordon for advice, nor did he ask him about the risks associated with it. It is a claim for pure economic loss, and the risk was obvious that the plaintiff's outgoings could well exceed his income (T12). Mr Sutherland does provide evidence that the plaintiffs' relied on Mr Gordon's advice. In both alleged versions, the plaintiff expressed concern and David Gordon told him to "go ahead". I shall return to the topic of obvious risk later in this judgment.

Second advice - "sit tight and do not sell the property"

1. In or about February 2008, the plaintiff says he received the Second GHR Accounting Advice. He says (Ex A p 46): "I had several discussions with David Gordon at this time about the future of the business. I said: "David, I am concerned about the future of the company. At this point, there is more money going out than what there is coming in. In addition to that, the cash flow reserves are limited and they are starting to dwindle. Shortly, the cash reserves will be gone and then there will be a real problem". … David Gordon said to me, "don't worry about it, mate, because Macquarie Bank will sort the situation out for you."
2. The plaintiff deposes (Aff, 5/09/2018 at [14]-[17], page 11 plaintiff's documents): "14. On or about February 2008 I had a further meeting with David Gordon as to whether Quadratus should sell the vacant shop or one of the properties in the portfolio to free up some cash. 15. David Gordon said to me: "Richard, don't worry about anything. There is no need to sell any of the properties in the portfolio". David Gordon further said to me: "Sit tight and wait for Macquarie to propose a solution". 16. Both I personally and Quadratus Pty Limited individually relied on the advice that David Gordon gave to each of us individually."
3. The plaintiff pleaded in his P2FASC that he proposed to Mr Gordon that Quadratus sell Glebe Road. This is consistent with his affidavit evidence. Again counsel for the defendant submitted that the plaintiff did not give any evidence that he asked for advice about the risk of not doing anything and in any event the advice concerned a matter of obvious risk. I shall return to this topic later in this judgment.

Third advice - refinance loan

1. In or about June 2008, the plaintiff says a meeting took place at Mr Gordon's office. While they were waiting for the people from Macquarie Bank to arrive, Mr Gordon said to Mr Sutherland, "This won't be a problem mate, because Macquarie will sort something out for you. They are Macquarie Bank after all, and they are skilled in financial negotiations. They will sort something out for you". (Ex A, page 46).
2. In attendance at the meeting were the plaintiff, Craig Jeffe and Margot Faraci from Macquarie Bank, and Mr Gordon and Lisa Callaghan from GHR Accounting. During that meeting, the plaintiff says that Mr Gordon gave him the Third GHR Accounting Advice. He says at Ex A pp 47 and 48: "Craig Jaffe chaired the meeting. Margot Faraci said: 'Basically, we are concerned with the way that things are progressing'. David Gordon then said: 'Is he in default?' Margot Faraci said: 'Yes, he is'. Craig Jaffe then said: 'We want you to repay the loan because you are in default'. … I was in shock. Craig Jaffe and Margot Faraci left the meeting. I said to David Gordon: 'What am I supposed to do now?' David Gordon said to me: 'Mate, you had better refinance the loan otherwise they will sell you up'. I said to David Gordon: 'Look, I am really not happy about this. This is going to make things very difficult for me as I don't know anywhere else to refinance the loan'. David Gordon then said: 'Mate, you had better start looking in the yellow pages'. David Gordon then left the meeting. That was basically the last time that I saw David Gordon face-to-face."
3. The plaintiff deposes (Aff 05/09/2018 [20]-[21]): "20. David Gordon then advised me personally and Quadratus individually to refinance the loans from Macquarie Bank Limited. 21. Further following the advice of David Gordon of GHR Accounting Group Pty Ltd four of the properties were refinanced. I refer back to the relevant historical dealing extracts already cited.
4. Both plaintiffs' statements and affidavits are consistent in relation to Mr Gordon allegedly advising the plaintiff to refinance the properties. The facsimile from the plaintiff to Craig Jaffe dated 23 April 2008 confirms that the plaintiff was in the process of refinancing at least some of his properties.
5. At [26], the plaintiffs plead that Quadratus was in default of its facilities with Macquarie Bank.
6. The plaintiff relied on UCPR 12.7, 13.4(1)(b) and 19.4.

(1) Should the proceedings be dismissed - due despatch?

1. UCPR 12.7 reads: "12.7 Dismissal of proceedings etc for want of due despatch (cf SCR Part 5, rule 12, Part 32A, rules 1 and 2; DCR Part 18, rules 3 and 9; LCR Part 17, rule 4) (1) If a plaintiff does not prosecute the proceedings with due despatch, the court may order that the proceedings be dismissed or make such other order as the court thinks fit. (2) If the defendant does not conduct the defence with due despatch, the court may strike out the defence, either in whole or in part, or make such other order as the court thinks fit."
2. The defendant submitted that the forensic history of the matter shows that the plaintiffs have been either unable or unwilling to prosecute his claim with due dispatch.
3. I accept that the present proceedings have had a protracted history (as set out earlier in this judgment). The delay has been largely due to Mr Sutherland's defective pleadings to date, and his need to consult pro bono legal representation for assistance in drafting a P2FASC. He also lacked funds and so required time to pay to have Quadratus restored to the company register at ASIC. He also suffers from ill health However, the plaintiff is a self-represented litigant and he appears to have made earnest attempts to put his claim in legal form. In these circumstances, it would be inappropriate to dismiss the proceedings on the basis that the plaintiff did not prosecute the proceedings with due despatch under UCPR 12.7(1).

(2) Summary judgment

1. UCPR 13.4(1)(b) provides that the court may dismiss proceedings generally, or in relation to any claim for relief, if no reasonable cause of action is disclosed.
2. In O'Brien v Bank of Western Australia Ltd [2013] NSWCA 71, the Court of Appeal applied the High Court decision of Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118 ("Spencer"). In Spencer, the High Court was concerned with s 31A(2) of the Federal Court of Australia Act 1976 (Cth), but the following principles are of general application: (a) On a summary judgment application, the real issue is whether there is an underlying cause of action or defence, not simply whether one is pleaded (at [23]). (b) The critical question can be expressed as whether there is more than a "fanciful" prospect of success (French CJ and Gummow J at [25]) or whether the outcome is so certain that it would be an abuse of the process of the court to allow the action to go forward (at [54]). Demonstration of the outcome of the litigation is required, not an assessment of the prospect of its success. (c) Powers to summarily terminate proceedings must be exercised with exceptional caution (at [55]; see also French CJ and Gummow J at [24]).
3. The present application is to strike out the plaintiff's proposed motion. Accordingly, it is necessary to take the plaintiff's case at its highest, which is the case set out in the P2FASC.

The defendant's submissions

1. The defendant made a number of written and oral submissions. The defendant submitted that the P2FASC discloses no reasonable cause of action. Even assuming the defendant was negligent, the plaintiff did not suffer any compensable loss. The defendant submitted that the plaintiff's risk of loss was obvious; that the plaintiff did not plead reliance; that the facility from Macquarie Bank was made available to Quadratus and was secured over properties owned by Quadratus, and not the plaintiff himself; and that the plaintiff was not called on to pay any amounts as guarantor pursuant to the facility, and as such did not suffer any compensable loss. Further, if the plaintiff suffered loss by way of diminution in the value of his shares in Quadratus, the prohibition on recovery of reflective loss applies to any claim made by him personally as a shareholder. Finally, the defendant submitted that the causes of action are statute barred.
2. The defendant referred to Sutherland (No 1), where Hall J stated at [66]: "If the plaintiff were to be given leave to replead it would be necessary for him to identify: (1) The relevant retainer of GHR; (2) Whether there is any material capable of establishing that the scope of care extended as far as the plaintiff alleges; (3) Whether there is any basis for an allegation of a breach of that duty in relation to any particular transaction/ the overall investment scheme and (4) Whether there would be an arguable basis that loss or damage flowed to the plaintiff as distinct from the company against GHR."
3. The defendant contends that in spite of Hall J's statement, the plaintiff has failed to cure the fundamental defects in his claim in this current proceeding.
4. The plaintiff has now joined Quadratus as second plaintiff. The plaintiffs have pleaded the terms of the retainer, the scope of the duty of care, the basis for the allegation of breach of duty of care, the particular transactions and the overall investment scheme and loss.
5. Counsel for the defendant has submitted that the P2FASC does not adequately set out the case the defendant must answer with respect to the issues of obvious risk, reliance, and loss and damage suffered by the plaintiffs. I shall deal with each of these issues in order.

(2)(i) Obvious risk

1. During the hearing, counsel for the defendant submitted that the plaintiff's claim was defective, as under s 5H of the Civil Liability Act 2002 (NSW), the defendant cannot be negligent for failing to warn the plaintiff of an obvious risk. In respect of the three advices, the defendant did not have a duty of care to warn the plaintiffs as these were obvious risks. There is no evidence that the plaintiffs specifically asked the defendant what the risks were. It was submitted that a distinction must be drawn between the plaintiff asking the defendant, "What should we do", and the plaintiff asking, "What are the risks if we do".
2. The defendant referred to ss 5F and 5H of the Civil Liability Act. They read: "5F Meaning of "obvious risk" (1) For the purposes of this Division, an 'obvious risk' to a person who suffers harm is a risk that, in the circumstances, would have been obvious to a reasonable person in the position of that person. (2) Obvious risks include risks that are patent or a matter of common knowledge. (3) A risk of something occurring can be an obvious risk even though it has a low probability of occurring. (4) A risk can be an obvious risk even if the risk (or a condition or circumstance that gives rise to the risk) is not prominent, conspicuous or physically observable. … 5H No proactive duty to warn of obvious risk (1) A person ('the defendant') does not owe a duty of care to another person ('the plaintiff') to warn of an obvious risk to the plaintiff. (2) This section does not apply if: (a) the plaintiff has requested advice or information about the risk from the defendant, or (b) the defendant is required by a written law to warn the plaintiff of the risk, or (c) the defendant is a professional and the risk is a risk of the death of or personal injury to the plaintiff from the provision of a professional service by the defendant. (3) Subsection (2) does not give rise to a presumption of a duty to warn of a risk in the circumstances referred to in that subsection."
3. In Fallas v Mourlas [2006] NSWCA 32; (2006) 65 NSWLR 418 ("Fallas"), Tobias JA stated at [98]: "[98]… It is clear from the definition of 'obvious risk' in s 5F that one is required to have regard to the particular circumstances in which the [plaintiff] suffered the relevant harm and determine whether the risk which resulted in his suffering that harm would have been obvious to a reasonable person in his position. In other words … all of the surrounding circumstances which occurred immediately prior to the [plaintiff's] suffering the relevant harm must also be identified for the purpose of determining whether the risk which materialised was 'obvious'."
4. Pursuant to s 5F of the Civil Liability Act, it is necessary to consider whether the risk, in the circumstances, would have been obvious to a reasonable person in the position of that plaintiff. It is well established that this is an objective question that must take into account the circumstances of the plaintiff. Whether or not a risk is obvious may depend upon the extent to which the probability of its occurrence is readily apparent to a reasonable person in the plaintiff's position: see Jaber v Rockdale City Council [2008] NSWCA 98 per Tobias and Campbell JJA and Handley AJA at [27], [28] and [35]; Laoulach v El Khoury [2010] NSWSC 1009 at [167]. Fallas was not a case decided on a summary basis.
5. In Takla v Nasr [2013] NSWCA 435 ("Takla"), a Court of Appeal decision involving whether a solicitor had failed to warn of an obvious risk in a financial transaction, McColl JA made reference at [56] to the decision of Sheller JA (with Meagher JA and Abadee AJA agreeing) in Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398: "The solicitor's duty is found in the terms of the retainer and the ambit of any additional assumed responsibility relied upon."
6. Like Fallas, Takla was not a case decided on a summary basis. It concerned a plaintiff who paid an 80 per cent deposit as part of a contract to purchase property, which she lost when the vendor became insolvent. She sued her solicitor for negligent advice. On appeal, McColl, Basten and Hoeben JJA determined that the primary judge did not err in his determination that the risks were obvious to a reasonable person in the plaintiff's position. McColl JA referred (at [34]) to the primary judge's consideration at [57] to [58]: "[57] I do not consider, on the facts as I have found them to be, that the defendant's retainer extended to giving business advice, or of advising on the business sense of buying the townhouse on the terms the plaintiff herself had negotiated with [the vendor]. Further, a defendant owes no duty to warn of obvious risks in a transaction: s 5H(1) Civil Liability Act 2002 (NSW). The very thing which occurred, namely [the vendor]'s insolvency, preventing her from getting her money back was a risk of which I am satisfied she was warned by [the solicitor]. [58] Before me the plaintiff accepted the transaction had contained a risk. It was put to her the risk had been acceptable to her because of the benefits the contract brought her.… Mr Sirtes submitted that the risk from releasing an eighty per cent deposit was or ought to have been obvious to her. I consider the risk was obvious to her."
7. However, while a certain amount of risk will indeed be obvious in a property venture, the specific risks associated with the viability of purchasing the vacant property, holding off on action until Macquarie Bank assisted the plaintiffs, and requiring refinancing of mortgage arrangements, are not as obvious, particularly where Mr Sutherland says he asked GHR of the risks involved before making his decisions. Mr Sutherland's evidence shows his own aptitude (or lack thereof) for investment and business dealings. It will be necessary for the facts and circumstances to be ascertained at trial in order to establish whether the risks were obvious in this case.

2(ii) Reliance

1. The defendant submitted that the plaintiffs have not pleaded reliance.

The plaintiff's submissions

1. On this topic, Mr Sutherland in his submissions referred to a memorandum from George Gengos (now deceased), a solicitor who did a lot of work for his family and was a great friend of his mother. The memorandum reads (T31.1-8): "Beside owning three freehold properties in the Glebe area, our client is a perpetual student. He would stoutly deny the word 'perpetual' but merely advises that he is completing his PhD in Bristol, England. He is a son of my first secretary who is now deceased and if you get to know him you will find he is a pleasant person who pays his bills properly."
2. Mr Sutherland says that this is just another illustration that he does not possess mathematical or economic acumen, which is why he says he sought the advice of the accounting firm and relied upon that advice.
3. Mr Sutherland says that he asked for Mr Gordon's advice in writing, but that Mr Gordon failed to provide it (T38.26-29).
4. Although, so far as each of the three accounting advices are concerned, the plaintiffs do not plead that they relied on those advices, it is clear from Mr Sutherland's evidence that they did so. They do however plead "reliance" in relation to each claim for misleading or deceptive conduct arising out of the three advices at [67], [74] and [81]. This oversight with the claims in contract and tort can be easily remedied by pleading it. In these circumstances, I would not be minded to disallow the filing of the P2FASC, as Mr Sutherland's evidence shows that the plaintiffs relied on the advice of the defendant and can be cured by pleading it.

The law on causation

1. The common law test for causation is no longer relevant. It has been replaced by s 5D of the Civil Liability Act: Adeels Palace (2009) 239 CLR 420; (2009) 260 ALR 628 at [41] and [44].
2. Section 5D of the Civil Liability Act provides: "5D General Principles (1) A determination that negligence caused particular harm comprises the following elements: (a) that the negligence was a necessary condition of the occurrence of the harm ('factual causation'), and (b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused ('scope of liability'). (2) In determining in an exceptional case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be accepted as establishing factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party. (3) If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent: (a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b); and (b) any statement made by the person after suffering the harm about what he or she would have done is inadmissible except to the extent (if any) that the statement is against his or her interest. (4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party."
3. Section 5E of the Civil Liability Act deals with the onus of proof: "In proceedings relating to liability for negligence, the plaintiff always bears the onus of proving, on the balance of probabilities, any fact relevant to the issue of causation."
4. In order to succeed, the plaintiff must show that it is more probable than not that, but for the breach, "particular harm" would not have been suffered. This involves two elements "factual causation" and "scope of liability": Adeels Palace at [42]; Wallace v Kam [2012] NSWCA 82 at [12].
5. Determination of factual causation under s 5D(1)(a) is a statutory restatement of the "but for" test of causation. That determination is "entirely factual, turning on proof by the plaintiff of relevant facts on the balance of probabilities in accordance with s 5E": Wallace v Kam at [14]. Proof that a change in circumstances might have made a difference does not alone prove factual causation: Adeels Palace at [50].
6. The determination of "scope of liability" involves a value judgment (Wallace v Kam), as does the determination of "factual causation" (Paul v Cooke (2013) 85 NSWLR 167 at [11]).
7. The application of the subtractive effect of s 5D(1)(b) will be a finely-balanced one: Paul v Cooke, Leeming JA at [117].
8. Section 5D(1)(b) provides a limiting factor upon the liability of a negligent party, despite the existence of factual causation, whereas, as discussed below, s 5D(2) provides for the imposition of liability despite the absence of factual causation. The operation of such a limiting factor is unlikely to arise other than in cases analogous to Paul v Cooke.
9. The requirement of s 5D(1) for "factual causation" and "scope of liability" do not include the common law concepts of material contribution or increase in risk: see Woolworths Ltd v Strong [2010] NSWCA 282 at [47]-[48]; instead, causation requires a determination that "the negligence was a necessary condition of the harm".
10. Section 5D(2) provides for the imposition of liability where the 'but for' test of factual causation is not established: see Adeels Palace at [53]. That section applies in circumstances of "an exceptional case". In Adeels Palace the High Court stated at [54]: "Section 5D(2) makes provision for what it describes as 'an exceptional case'; but the Act does not expressly give content to the phrase 'an exceptional case'. All that is plain is that it is a case where negligence cannot be established as a necessary condition of the harm; the 'but for' test of causation is not met. In such a case, the Court is commanded 'to consider (amongst other relevant things) whether or not a wide responsibility for the harm should be imposed on the negligent party. ...Beyond the statement that this is to be done 'in accordance with established principles', the provision offers no further guidance about how the task is to be formed. Whether, or when, s 5D(2) is engaged must depend, then, upon whether and to what extent 'established principles' countenance departure from the 'but for' test of causation."
11. The application of s 5D(2), inter alia, requires evidence (see King v Western Sydney Local Health Network [2013] NSWCA 162 per Hoeben JA at [155]) and needs to be raised on the pleadings (King per Ward JA at [222]). This is not an exceptional case.

The defendant's submissions

1. Counsel for the defendant referred to paragraphs [17] to [19] of the affidavit of Brendan Miller sworn 10 September 2015, where he deposed: "17. On or about 12 May 2009, Quadratus sold the Darlington property. The balance owing under Facility no XXXXXX was repaid from the proceeds of sale of the Darling Property. 18. On or about 21 July 2009, Quadratus sold the Glebe Property. The balance owing under Facility no XXXXXX was repaid from the proceeds of sale of the Glebe Property. Discontinuance of SCNSW Proceedings 19. As Quadratus had repaid the balance owing under Facility no XXXXXX and Facility no XXXXXX, on or about 18 August 2009, GHB wrote to the Supreme Court of New South Wales enclosing a Notice of Discontinuance in the 2009 Proceedings. … The [NSWSC] Proceedings were thereafter discontinued."
2. The defendant submitted that the two properties that were mortgaged to Macquarie Bank by way of security of the loans which were advanced to Quadratus (and the subject of this claim) were discharged in full by the exercise of a power of sale by Macquarie Bank. In other words, Mr Sutherland himself did not reach into his own pocket to pay out that loan as guarantor (T9.7-13).
3. The defendant made oral submissions that there is a real problem with the pleading. The plaintiff submitted that after the demand issued in December 2008, both Mr Sutherland and Quadratus were able to repay they moneys owing, with the result that they eventually lost all their properties. However, the defendant submitted that is no causal link between the default and the issue of notice of demand, and the fact that on Mr Sutherland's evidence, Macquarie Bank sold the two properties and discharged the mortgage. The plaintiff's claim also ignores Mr Sutherland's evidence there was a refinancing, and that the default occurred only after a period of time after the refinancing when a bank was willing to lend money to Mr Sutherland and Quadratus. Instead of addressing the issue of causation clearly, the plaintiff's pleadings merely contain a statement that the plaintiffs lost everything because Quadratus and Mr Sutherland could not repay the demand in December 2008.
4. In oral submissions, the defendant rhetorically asked, "How is it said that any negligence could have caused loss following a refinancing by an independent financier?" (T21.24-47). The defendant submitted that there is no causation. It is so remote, both in terms of years, events, financiers and advice that it cannot possibly succeed.
5. The defendant further submitted that Sutherland did not actually suffer any personal loss, as he was not required to reach into his own pocket in relation to Macquarie Bank's call on Quadratus' $4,000,000 revolving credit facility. He was merely the guarantor; he did not pay any money. The guarantee was discharged over the sale. The balance of the properties were refinanced, and security granted, by reference to the other properties. Most of those properties were owned by Quadratus (T22.31-41). The loss was therefore claimed when the new mortgagees sold the properties in 2009.

The plaintiff's submissions

1. The plaintiffs' evidence is that Mr Gordon suggested the properties be refinanced, even though the situation was overall impaired.
2. The plaintiffs allege that Mr Gordon advised that the properties should be put in the name of Quadratus. When Quadratus fell over, it was inevitable that Mr Sutherland personally would fall over as well, because as a result of the way in which GHR Accounting had set things up, without Quadratus, Mr Sutherland had no personal source of income. He had no further investment properties. His only remaining property was his Avalon residence, which was subject to a mortgage on the advice of Mr Gordon.
3. Mr Sutherland submitted that the causation is not too remote for the Court, because Mr Gordon was aware of all the issues that have been raised in Mr Sutherland's submissions. Mr Gordon should have known about the relevant duties he owed a client like Mr Sutherland under the Certified Practising Accountants of Australia's Accounting Professional and Ethical Standards. Mr Sutherland alleged that Lisa Callaghan, an accountant working in GHR Accounting, said, "Oh, this tax obligation is enormous, I haven't seen a tax obligation of this magnitude". Mr Sutherland stated he was not was not the type of person to walk off the street once every 12 months to get his tax done. He was meeting with GHR Accounting on a regular basis over quite a considerable period of time, and obtaining their ongoing financial advice.
4. Quadratus alleges that it suffered loss and damage caused by the defendant by the forced sale of the Darlington and Glebe properties. The defendant argues that it is not responsible for the losses of the properties, as they had been refinanced by another mortgagee. However, it is the plaintiffs' case that Mr Sutherland's reliance on the defendant's advice, first to purchase the Glebe property and then not to sell it, caused him to default on his mortgage payments with Macquarie. In my view, it is arguable that the refinancing of those mortgages was caused by the negligent advice of the defendant, with the result that the properties were sold earlier than they should have been sold and for less than the current market value.
5. It will be for the plaintiff to prove factual causation, and whether it is appropriate for the scope of the defendant's liability to extend to the harm so caused. While the plaintiffs' case on causation may be weak, I cannot say it is hopeless. It will depend on the facts and circumstances ascertained at trial.

2(iv) Loss and damage

1. Paragraphs [82] and [83] of the P2FASC are in similar terms. Paragraph [82] pleads: "82 As a consequence of the conduct pleaded at 44 above and/or the conduct pleaded at paragraphs 61-67 above, each Quadratus and Sutherland has suffered loss and damage. Particulars The losses suffered by each of Quadratus and Sutherland are to be assessed by reference to the position which they would have been in if there has been no breach. Quadratus would still have owned the Darlington, Bridge Road, Glebe Road and Restaurant Properties and Sutherland would still have owned Avalon. The monetary consequences of those matters will be further particularised prior to trial.
2. Paragraph [84] pleads: "84 As a consequence of the conduct pleaded at 58 above and/or conduct pleaded at paragraphs 75-81 above, each of Quadratus and Sutherland has suffered loss and damage. Particulars The losses suffered by each of Quadratus and Sutherland are to be assessed by reference to the position which they would have been in if there has been no breach. Quadratus would still have owned the Darlington, Bridge Road, Glebe Road and Restaurant and Vacant Properties for more than those properties were ultimately sold for. Sutherland would still have owned Avalon. The monetary consequences of those matters will be further particularised prior to trial."
3. Identical losses and damages are pleaded in respect of the first, second and third accounting advices as set out in [82], [83] and [84] respectively. I accept that the amount of loss and damage have not been quantified by an expert.

The defendant's submissions - Mr Sutherland's claim for reflective loss

1. The defendant submitted that the plaintiff cannot claim reflective loss. The plaintiff had claimed personal loss to himself. Button J discussed this topic in Sutherland (No 3). Mr Sutherland's claim for reflective loss arises because the defendant allegedly provided him personally with negligent advice, as a result of which his personal guarantee was called up, leading to the personal loss of real property of which he was the registered proprietor: Sutherland (No 3) at [20].
2. Counsel for the defendant referred to Ekes v Commonwealth Bank of Australia (2014) 313 ALR 665; [2014] NSWCA 336 ("Ekes").
3. In Ekes, Bathurst CJ stated at [150]-[151]: "150 The principles are well established. When a company suffers loss caused by a breach of duty owed to the company, no action lies at the suit of a shareholder to make good a diminution of the value of the shareholder's shareholding where that loss merely reflects the loss suffered by the company: Prudential at 222-3; All ER 366-7, Johnson at 35 and 62; All ER 503 and 528 and Gould at 221-2; ALR 35. That principle extends to include losses suffered as a result of diminution in the value of a person's shareholding, loss of dividends and other amounts which the shareholder might have obtained from the company had it not been deprived of its funds: Johnson AC 66; All ER 532. The principle extends to a case where both the company and the shareholder have a claim for breach of duty which caused the loss: Johnson AC 62; All ER 528. 151 However, the principle does not prevent the shareholder suing for a loss suffered from a breach of duty owed to him or her where the loss is separate and distinct from the loss suffered by the company: Gould at 220, 241 and 257-8; ALR 24, 50 and 62-3 and Johnson AC 35 and 62; ALR ER 503 and 528."
4. Button J considered in some detail the topic of Mr Sutherland's claim for reflective loss in Sutherland (No 3) at [23] to [38] and [44], which I reproduce and respectfully adopt is as follows: "[23] Turning to my determination, it is convenient first to set out very briefly my understanding of the chronological development of relevant legal principle. [24] In Foss v Harbottle (1843) 67 ER 189, it was established that natural and corporate persons are separate, whatever the degree of practical connection between them. In particular, the first rule in Foss v Harbottle is that a shareholder in a company who is aggrieved by the loss of value of his or her shares in that company has (subject to certain strict exceptions) no right to commence proceedings against an alleged tortfeasor against the company who is said to have caused that diminution in value. [25] In Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 the House of Lords emphasised the importance of the distinction, and maintained it. [26] In Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75 a claim made by directors of a company against a tortfeasor in deceit was permitted to stand by the High Court of Australia, despite the fact that the tortfeasor had committed deceit against a company associated with the claimants, leading to loss to it and to them. [27] The important point of distinction in that case, however, was that the claim permitted to stand was founded upon a deceit having been committed against the plaintiffs personally, with the result that they suffered loss personally, quite apart from the tort committed against the company that led to diminution in the value of the shares of the claimants in the company. [28] In other words, in my opinion Gould v Vaggelas did not call into question the existence of the prohibition; it merely demonstrated that one can succeed on related claims that fall outside the prohibition. [29] In the rejected strike-out application of Christensen v Scott [1996] 1 NZLR 273, the New Zealand Court of Appeal expressed the view that, when each of a natural person and a company has been separately the subject of a tort, but the loss of the natural person is limited to reflective loss, then the prohibition may not apply to the claim of the natural person. [30] In the subsequent decision of the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1, a loud note of caution was sounded about the possible weakening of the prohibition that had been countenanced in New Zealand. [31] As I understand it, the High Court of Australia has not spoken subsequently with regard to this topic. However, the Court of Appeal of this State has recently done so. [32] In Ekes v Commonwealth Bank of Australia [2014] NSWCA 336, the learned Chief Justice (with the agreement of Ward J and Emmett AJA) said the following at [150]-[151]: [150] …When a company suffers loss caused by a breach of duty owed to the company, no action lies at the suit of a shareholder to make good a diminution of the value of the shareholder's shareholding where that loss merely reflects the loss suffered by the company: [Prudential Assurance Co Ltd v Newman Industries Ltd] at 222-223, [Johnson v Gore Wood & Co] at 35 and 62 and [Gould v Vaggelas] at 221-222. That principle extends to include losses suffered as a result of diminution in the value of a person's shareholding, loss of dividends and other amounts which the shareholder might have obtained from the company had it not been deprived of its funds: [Johnson v Gore Wood & Co] at 66. The principle extends to a case where both the company and the shareholder have a claim for breach of duty which caused the loss: [Johnson v Gore Wood & Co] at 62. [151] However, the principle does not prevent the shareholder suing for a loss suffered from a breach of duty owed to him or her where the loss is separate and distinct from the loss suffered by the company: [Gould v Vaggelas] at 220, 241 and 257-258 and [Johnson v Gore Wood & Co] at 35 and 62. [33] My understanding of that passage is as follows. [34] At one end of the spectrum, a plaintiff that claims only for reflective loss is prohibited from succeeding. [35] At the other end of the spectrum, a plaintiff who points to a loss suffered by him or her separately and distinctly as a result of a tort committed against him or her personally, and who also claims for reflective loss, will be prohibited from succeeding in the latter claim, but not the former. [36] In the middle of the spectrum, a plaintiff who has suffered a tort personally, but who claims only for reflective loss, is prohibited from succeeding. In other words, with respect, Christensen v Scott is not good law in New South Wales. Application of principle to claim [37] Applying the pellucid summary of the Chief Justice to this claim, it can be seen [the ASC] does claim that negligent advice was given by the defendant to the plaintiff personally. It does not claim, however, that the plaintiff suffered loss above and beyond reflective loss (that is, it does not make the disputed claim of the plaintiff from the Bar table). [38] In other words, the claim of the plaintiff as currently pleaded sits at the middle of my putative spectrum; in accordance with the analysis of the Chief Justice, it is doomed to failure. For that reason, I propose at the very least to make the ancillary order sought by counsel for the defendant. … [41] Separately, in the circumstances not only of there being sworn evidence to the contrary, but also of the plaintiff not raising the matter until the end of the hearing before me, one may seriously doubt whether it is truly the case that the third party mortgage of the plaintiff was indeed called up, thereby directly occasioning to the plaintiff a distinct and personal loss. Nevertheless, because the resolution of that is (in my mind) determinative of whether this claim could have a valid foundation or not, I do not think the claim should be dismissed in its entirety whilst that dispute remains unresolved."
5. The plaintiffs' pleadings now differ from what was before Button J, as Quadratus is now joined as second plaintiff. Mr Sutherland is a director of Quadratus and Quadratus has suffered loss. In Sutherland (No 3), Button J accepted that Mr Sutherland's claim for reflective loss fell within the middle of the punitive spectrum. According to Button J, Mr Sutherland's claim for reflective loss is not hopeless.
6. I have already covered the alleged loss suffered by Quadratus. Subject to the next issue, whether the plaintiffs' claim is statute barred, I am not satisfied that the plaintiffs' claims are hopeless. Therefore, I refuse to make an order that the plaintiffs' proceedings be summarily dismissed.

(3) Disallowance of amendment

1. Finally, the defendant also relied on UCPR 19.4. It reads: "19.4 Disallowance of amendment (cf SCR Part 20, rule 3; DCR Part 17, rule 3; LCR Part 16, rule 3) (1) If a party amends a pleading, as referred to in rule 19.1 (1) or (2), the court may, by order, disallow the amendment. (2) Unless the court orders otherwise, notice of motion for such an order must be filed within 14 days after the date on which the amended document was served on the applicant. (3) If, on the hearing of an application for an order under this rule, the court is satisfied that, had an application for leave to make the amendment been made, it would not have granted leave to make the whole or some part of the amendment, the court must disallow the amendment or that part, as the case may be."
2. The defendant submitted that despite having repeated opportunities to cure fundamental defects in the claim, including receiving pro bono legal advice and clear direction from Hall J, the P2FASC does not disclose a reasonable cause of action, and is likely statute barred. I have already declined to make an order dismissing the defendant's claim for summary judgment. I shall deal with the Limitation Act 1969 (NSW) issue next. The P2FASC contained some passages in italics that require the plaintiff to fill in. As the plaintiffs' claims are not hopeless, for the reasons given earlier, I will allow the proposed amendments.

Limitation Act

1. Counsel for the defendant further submitted in the hearing that the plaintiffs' claim should be struck out on the basis that the limitation period had expired. This is because the plaintiffs' action had accrued in either 2009 or 2010. While Mr Sutherland submitted that the limitation period could be suspended due to the fact that Quadratus have been deregistered for a period of time, the circumstances in the present case do not clearly align with existing authority. Specifically, in Re Auzhair Supplies Pty Ltd (in liq) [2013] NSWSC 1, the suspension of the limitation was ordered because the liquidators were reinstating the company to sue the directors. Brereton J stated at [19]-[21]: "Suspension of limitation period? [19] The plaintiff next contended that, as the company had been deregistered between June 2005 and November 2010, the court could make an order that had the effect of suspending the running of any relevant limitation period during that interval, pursuant to s 601AH(3) of the Corporations Act, which empowers the court to make "any other order it considers appropriate", if it makes an order for reinstatement under s 601AH(2), as Ward J has done. [20] In Del Borrello v Australian Securities & Investments Commission [2008] WASC 48, Beech J said (at [19]) that the authorities (to which his Honour did not refer) made it clear that this power extended to making orders to the effect that the period of deregistration would not count for the purpose of a limitation period. That was said in circumstances where the reinstatement of the relevant company was sought to enable it to be a defendant in proceedings. For present purposes, I assume (without deciding) the correctness of that proposition in that context. It might have therefore been permissible, if it were necessary, to order pursuant to s 601AH(3) that the period of deregistration not count in respect of a cause of action against the company. [21] However, in my view the power to make such an order could arise only - as it did in Del Borrello - in respect of causes of action against the company, as distinct from causes of action by the company against others. I cannot see that there is a sufficient nexus between the deregistration and reinstatement of the company Auzhair Supplies and a cause of action against its directors that an order that time not run in respect of a cause of action against the directors while the company was deregistered could be supported as ancillary to its reinstatement. The alternative view would expose not only former officers, but also complete strangers, to the resurrection of apparently time-barred suits by a company following reinstatement, potentially very many years after those causes of action had prima facie become barred. This far-reaching consequence is not to be attributed to an ancillary provision such as s 601AH(2)."
2. In Wardley Australia Limited v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514, where the High Court stated at 533 that: "It is regarded as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases."
3. Again this is a question that can only be decided when the facts and circumstances are ascertained at trial. In my view, these proceedings do not fall within "the clearest of cases".

Costs

1. As there may be an argument concerning costs, the appropriate order is that costs are reserved.

Disposition

1. The first defendant's notice of motion filed 7 June 2017 is dismissed. Leave is granted to the plaintiff to join Quardatus Pty Limited as second plaintiff. The plaintiff is to file and serve the second proposed amended statement of claim within 14 days.

The Court orders that: (1) The first defendant's notice of motion filed 7 June 2017 is dismissed. (2) Leave is granted to the plaintiff to join Quardatus Pty Limited as second plaintiff. (3) The plaintiffs are to file and serve the proposed second amended statement of claim within 14 days (4) Costs are reserved.

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: 25 March 2019