BETWEEN : THE BELL GROUP LTD (In Liq) (ACN 008 666 993)

THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR DOLFINNE PTY LTD (In Liq)

THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR INDUSTRIAL SECURITIES PTY LTD

THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR MARANOA TRANSPORT PTY LTD

THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR NEOMA INVESTMENTS PTY LTD

BELL GROUP FINANCE (In Liq) (RECEIVER AND MANAGER APPOINTED)

BELL GROUP (UK) HOLDINGS LTD (In Liq) (IN ADMINISTRATIVE RECEIVERSHIP)

GEOFFREY FRANK TOTTERDELL AS LIQUIDATOR OF FIRST PLAINTIFF AND OF FIRST, SECOND, THIRD, FIFTH, NINTH, TENTH, ELEVENTH, THIRTEENTH, FOURTEENTH, SIXTEENTH, SEVENTEENTH AND NINETEENTH NAMED SEVENTH PLAINTIFFS

ANTONY LESLIE JOHN WOODINGS AS LIQUIDATOR OF THE THIRD PLAINTIFF, FIFTH PLAINTIFF AND OF THE FOURTH, SIXTH, SEVENTH, EIGHTH, TWELFTH, FIFTEENTH, EIGHTEENTH NAMED SEVENTH PLAINTIFFS

GARRY JOHN TREVOR AS LIQUIDATOR OF THE SIXTH PLAINTIFF

BETWEEN : COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)

BELL GROUP FINANCE PTY LTD (In Liq) (RECEIVER AND MANAGER APPOINTED) (ACN 009 165 182)

STATE GOVERNMENT INSURANCE COMMISSION OF WESTERN AUSTRALIA

STATE GOVERNMENT INSURANCE COMMISSION OF WESTERN AUSTRALIA

AUSTRALIAN CONSOLIDATED INVESTMENTS LTD (ACN 008 670 924)

BELL RESOURCES DEVELOPMENTS PTY LTD (ACN 009 152 569)

W A GLENDINNING & ASSOCIATES PTY LTD (ACN 008 762 721)

Practice and procedure - Pleadings - Amendment to statement of claim - Turns on own facts

Second Plaintiffs : Mr R M Robson QC & Mr J T Svehla

Fourth Plaintiff : Mr R M Robson QC & Mr J T Svehla

Seventh Plaintiffs : Mr R M Robson QC & Mr J T Svehla

Eighth Plaintiff : Mr R M Robson QC & Mr J T Svehla

First Defendant : Mr T M Jucovic QC, Mr J L B Allsop QC &

Second Defendants : Mr T M Jucovic QC, Mr J L B Allsop QC &

Third Defendants : Mr T M Jucovic QC, Mr J L B Allsop QC &

First Plaintiff : Mr T M Jucovic QC, Mr J L B Allsop QC &

Second Plaintiff : M T M Jucovic QC, Mr J L B Allsop QC &

Third Plaintiff : Mr T M Jucovic QC, Mr J L B Allsop QC &

Fourth Plaintiff : Mr T M Jucovic QC, Mr J L B Allsop QC &

Fifth Plaintiff : Mr T M Jucovic QC, Mr J L B Allsop QC &

Sixth Plaintiff : Mr T M Jucovic QC, Mr J L B Allsop QC &

Seventh Plaintiffs : Mr T M Jucovic QC, Mr J L B Allsop QC &

Eighth Plaintiffs : Mr T M Jucovic QC, Mr J L B Allsop QC &

Second Defendant : Mr R M Robson QC & Mr J T Svehla

Fourth Defendant : Mr R M Robson QC & Mr J T Svehla

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1 This is an application by the plaintiffs to amend the statement of claim in an action in which, among other things, they seek to set aside certain securities which the companies had granted in favour of the defendants. The defendants have also sought leave to amend their defence and counterclaim. These reasons deal only with the application to amend the statement of claim.

2 The background that I am about to outline comes largely (although not entirely) from material provided by the plaintiffs. It therefore reflects the case as the plaintiffs presently see it. I have used this material to set the scene, as it were. What is contained in this section should not, therefore, be regarded as findings of fact and nor, to the extent that it relies on interpretations of documents or events, should it be taken as indicating that I have formed a view to that effect.

3 The plaintiffs are numerous companies within the Bell Group of companies. Most of them are in liquidation. Others of the plaintiffs are the liquidators of one or more of the companies. The defendants fit into three categories. Some of them constitute a syndicate of Australian Banks (which I will call "the Australian Banks") that loaned moneys to the plaintiff companies or some of them. Another group of defendants is a syndicate of overseas Banks (which I will call "the Lloyds Syndicate") which also loaned moneys to the plaintiff companies or some of them. Another defendant is a corporation which is a director of one of the plaintiff companies.

4 The case involves a transaction by which control of assets of the Bell Group of companies was granted to certain Banks which were unsecured creditors of three companies only in the Group. Those companies were The Bell Group Ltd ("TBGL"), Bell Group Finance Pty Ltd ("BGF") and Bell Group (UK) Holdings Ltd ("BG(UK)"). Another company in the group was Bell Group NV ("BGNV"), which acted as a financier to other group members. The plaintiffs say that the transaction was entered into when TBGL and BGF were unable to repay loans owed to certain Australian Banks and that the Banks knew they were obtaining an advantage at the expense of other unsecured creditors. The plaintiffs also say that the directors effected the transaction in breach of their duties to companies within the Group at the expense of the other unsecured creditors and in the interest of the ultimate shareholder of the Group, Bond Corporation Holdings Ltd ("BCH") and Alan Bond. It is alleged that the Banks knowingly participated or assisted in the breaches of duties by the directors.

5 The critical transactions by which the Banks took security over the assets of the various companies occurred in January 1990. I will adopt the terminology used in the proposed amended statement of claim by which the transactions are referred to as "Transactions" and the series of transactions is referred to as "the Scheme". It will be convenient for me, at this point, to set out the text of par 19A of the proposed amended statement of claim because it encapsulates what this litigation is all about:

"The Banks and [companies in the Bell Group] were parties to a scheme (hereafter called the 'Scheme') constituted by a series of transactions (each, a 'Transaction') entered into during the period from about 8 January 1990 to about 31 July 1990 (the 'Scheme Period'), effected by or required by the instruments pleaded in [nominated paragraphs] whereby all significant and worthwhile assets of [companies in the Bell Group] were made available to the Banks for repayment of the debts owed to the Banks by BGF and BG(UK) in priority to the claims of all other creditors and future creditors of [companies in the Bell Group] (save for certain immaterial exceptions)."

6 In October 1987, TBGL was the parent company of a group of companies ("the Bell Group") controlled by the late Robert Holmes à Court. The Bell Group held investments in other listed companies. One of its investments was a minority interest of some 39.4 per centum in Bell Resources Limited ("BRL"), another public listed company controlled by Holmes à Court. BRL later changed its name to Australian Consolidated Investments Ltd ("ACIL"). I will use the designations "BRL" and "ACIL" interchangeably as the context requires.

7 Prior to the October 1987 stock market crash, Holmes à Court, through his companies, had sought to take over BHP. At one stage his interests had amassed over 40 per centum of BHP's share capital. After the October 1987 share crash, Holmes à Court abandoned his plans to take over BHP. He set about selling investments and discharging debts. By August 1988, Holmes à Court had managed to bring the bank debt of the Bell Group down to some $1.3 billion. BRL also realised assets and had cash in excess of $1 billion.

8 BCH was a public listed company controlled by Alan Bond through his private company Dallhold Investments Pty Ltd ("Dallhold"). Between May and August 1988, BCH acquired a majority shareholding in TBGL and gained effective control of BRL. BCH had approximately 57.6 per centum of BRL through TBGL's shareholding in BRL and other direct and indirect holdings in BRL. In August 1988 (after BCH obtained control of the Bell Group) Mr Peter Mitchell and Mr Anthony Oates were appointed directors of TBGL at the request of BCH and as representatives of BCH. On or about 13 October 1988, Mr David Aspinall was appointed managing director and chief executive of TBGL at the request of BCH and as a representative of BCH. He remained in those positions until at least November 1990.

9 Until about 1 January 1990, Aspinall was an employee of BCH and on or about 1 January 1990, became an employee of Western Australian Newspapers Ltd ("WAN"). At that stage WAN was also a member of the Bond Group. Messrs Oates and Mitchell were employees of BCH. Messrs Mitchell, Oates and Aspinall were directors of other Bond companies. They were receiving or entitled to receive fees and salaries in respect of their positions as officers of BCH and other Bond companies including certain of the Bell Group. They also had significant share interests in BCH and other Bond companies.

10 The plaintiffs' case is that once BCH had gained control of the Bell Group and the BRL Group, the Bond Group interests set about accessing the $1 billion odd in cash from BRL.

11 The Bell Group, which BCH took over, had two main classes of financiers, namely convertible bondholders and Banks. The convertible bondholders were owed some $550 million. There were five bond issues:

12 In December 1985 bonds with a value of $75,000,000 were issued by BGNV to the public. The proceeds were on-loaned by BGNV to TGBL.

13 In December 1985 bonds with a value $75,000,000 were issued by TBGL to Heytesbury Securities Limited.

14 In May 1987 bonds with a value of $175,000,000 were issued by BGNV to the public. The proceeds were on-loaned by BGNV to BGF.

15 In May 1987 bonds with a value of $75,000,000 were issued by BGF to Heytesbury Securities Limited.

16 In July 1987 bonds with a value of £75,000,000 were issued by BGNV to the public. The proceeds were on-loaned by BGNV to BGF.

17 The terms of each bond issue differed slightly. Under each BGNV issue, TBGL guaranteed the liability of BGNV. Under the BGF issue, TBGL guaranteed the liability of BGF. The bonds were convertible into shares in TBGL on certain terms. If not converted, the bonds were redeemable. Under each bond issue The Law Debenture Trust Corporation plc ("LDTC") acted as trustee for the bondholders.

18 As I have said, Holmes à Court had reduced the bank debt to some $1.3 billion by the time the Bond Group interests took over the Bell Group. The reduction was effected through asset sales.

19 By the end of 1989, approximately $132,000,000 was owed to six Australian Banks in varying amounts. About £60,000,000 (approximately $131,000,000) was owed to the Lloyds Syndicate Banks. The amounts owed to the Australian Banks were owed under various facilities. None were secured. They were all due for repayment by the end of July 1989. The amounts owed to the Lloyds Syndicate Banks were owed under a single agreement entitled the Restated Lloyds Facility Agreement dated 27 August 1987. This loan was also unsecured. It was repayable in May 1991.

20 It follows, according to the plaintiffs, that both the bonds and the bank debt were unsecured. However, in 1987, TBGL had entered into a Negative Pledge Guarantee with the Banks under which TBGL was bound to ensure that neither it nor any of its relevant subsidiaries would grant security (save for immaterial exceptions) without the consent of each bank which was a party to that Negative Pledge Guarantee.

21 At the material time there were two main assets of the Bell Group. One asset was the shareholdings in BRL (ACIL). The other was the shareholdings in Bell Publishing Group Pty Ltd ("BPG"), which controlled "the West Australian" newspaper, other newspapers and a printing works called Bell Group Press. A feature of the asset and liability structure of the Bell Group was that the borrowing companies (BGF from the Australian Banks and BG(UK) from the Lloyds Syndicate) did not hold these two main assets of the group. The parent, TBGL, was the guarantor of these borrowings.

22 Once BCH had assumed control of the Bell Group it took over the treasury and administrative functions of the latter. The plaintiffs say that by the beginning of 1989, BCH realised that it would not be able to repay the Bell Group's Australian Bank facilities as they fell due. BCH set about the task of refinancing the obligations to the Australian Banks. In about March 1989, BCH approached the Lloyds Syndicate Banks to release TBGL from the negative pledge structure so that the Australian Bank loans could be refinanced on a secured basis. Further, BCH approached the Australian Banks seeking an extension of their facilities. Neither the Lloyds Syndicate Banks nor the Australian banks agreed to these requests.

23 At the same time, BCH was coming under quite substantial financial pressure from other sources. In 1988, BCH had embarked on a take over scheme for a United Kingdom based company called Lonrho. Lonrho resisted the attempt and in November 1988, released a detailed report on the finances of the Bond Group (including the Bell Group) entitled the "Lonrho Report". The report alleged that both the BCH Group and the Bell Group were insolvent. In May 1989, BCH was the subject of a current affairs television report on the programme called "Four Corners". In the programme queries were raised about many aspects of the company's 1988 accounts and adverse comments were made about its financial position.

24 In April 1989, BRL released its half yearly accounts. They disclosed substantial borrowings by BCH. In May 1989, BCH announced the sale of its brewing assets to BRL. The agreement proposed was that the borrowings from BRL would be converted into a $1.2 billion deposit on the purchase of the brewing assets.

25 The Banks allege that in order to avoid a winding-up of the Bell Group of companies the directors believed that it was necessary to consider and implement a restructuring of the financial position of each company in the Bell Group of companies.

26 The next part of this background includes a recitation of some material concerning what the plaintiffs say is the financial predicament of BCH and the Bond group of companies generally. It may seem a little strange that this material finds its way into the background of a dispute about the Bell Group. However, some persons were directors of both Bell and Bond companies. The plaintiffs wish to amend the statement of claim to allege that the directors acted in a conflict of interest situation, namely that they were acting in the interests of Bond companies rather than Bell companies. Accordingly, the plaintiffs see the financial position of the Bond companies as relevant. I have also included material about publicity given to these matters and to the activities of the Banks during this period. This material is seen as relevant to, among other things, the state of knowledge of the Banks. To the extent that this litigation involves claims under the Barnes v Addy principle, the Banks state of knowledge is an issue.

27 BCH had a corporate planning and development department which was headed by Mitchell. In May 1989, BCH reviewed its financial position and concluded that there was a possibility of restructuring the entire group. The restructuring proposal included asset sales and the repurchase of bonds which had been issued by BCH, TBGL and BRL at a discount. Under the May review, it was proposed to repurchase the Bell Group bonds (with a face value in excess of $500 million) for some $87,300,000. BCH concluded that if it was able to carry out the proposed restructure the Bond Group would have a net worth of some $1.1 billion. Without the restructure it would be insolvent.

28 From about at least May 1989 until well into 1990, BCH actively examined proposals for restructuring the Group developed by Mitchell's planning and development department. Each proposal had a common element. The bonds that had been issued by the BCH Group, the Bell Group and the BRL Group were selling at a significant discount to face value. The proposals involved acquiring the bonds at a discounted value, thereby generating shareholder value. The proposals went by a variety of names including Project Benjamin (dated 27 July 1989), Project Phoenix (26 August 1989), the Lebow Proposal (29 January 1990) and the Bond/Bell Group Restructure of February 1990.

29 The intention of the Bond Group to restructure was widely publicised and was a matter of public record. It was formally announced on 20 October 1989. The intention of BCH to repurchase the bonds issued by BGNV and TBGL (among other companies) was referred to in the auditors report included in the BCH annual accounts dated 13 November 1989.

30 On 18 December 1989, the Board of BCH met and discussed restructuring proposals for BCH. The Board instructed Aspinall to liase with Mr Mitchell in the preparation of a letter to Mr Clarke of the National Australia Bank "seeking the bank's continuing support during this difficult period and stressing the importance of Bond Corporation's continuing existence". On 5 February 1990 the "Phoenix" proposal was considered by the board of BCH. Price Waterhouse was retained to review its feasibility. The further restructure proposal dated 8 February 1990 provided (among other things) for the purchase of the Bell Group bonds at a discount.

31 The plaintiffs says that at no time prior to 26 January 1990 did the directors of TBGL develop a financial restructuring proposal for the Bell Group independent of the proposal put forward by BCH for the Bell Group. According to the plaintiffs, at all times prior to 26 January 1990 the restructuring proposal was viewed by the Bell Group directors (to the extent that they considered the restructuring at all) from the point of view of BCH, rather than from the point of view of the Bell Group and its creditors.

32 Until July 1989, the attempts to renegotiate the bank loans to the Bell Group had been carried out by Oates (the Chief Financial Officer of BCH) and Mr Simon Farrell, an employee of BCH. In July 1989, Mr Peter Beckwith (the Chief Executive Officer of BCH) instructed Aspinall and Mr Colin Simpson (Aspinall's Executive Assistant) to sort out the bank loans to the Bell Group.

33 In July 1989, Simpson met with the Australian Banks to seek an extension of the bank loans. Some of the Banks raised the need for security during these meetings. At the same time, Oates once again approached the Lloyds Syndicate Banks to seek to dismantle the negative pledge structure.

34 On 6 September 1989, the Commonwealth Bank of Australia ("CBA") (one of the Australian Bank lenders) demanded repayment by BGF of some $12,000,000. On 14 September the Bank made a demand on TBGL under its guarantee. On 20 September 1989 the demands were withdrawn. The plaintiffs say that BGF and TBGL were unable to meet the demands but that the Bank decided to pursue security as the best option. Extensive negotiations took place between the Banks and TBGL. The Australian Banks wanted security. The Lloyds Syndicate Banks were not prepared to dismantle the negative pledge structure unless they received a similar security to that being offered to Australian Banks.

35 The plaintiffs allege that one issue which concerned the Banks was whether the existing facility should be discharged and a new facility with security granted or whether the existing facility should be extended on security. The Banks were advised that to grant a fresh security could expose them to the double jeopardy of the discharge of the existing facilities being regarded as a voidable preference and the danger of the security for the new facility being set aside. The Banks retained various solicitors to assist them in the negotiations to obtain security over the assets of the Bell Group. Allen & Overy and Mallesons Stephen Jaques (London) acted for the Lloyds Syndicate Banks. Parker & Parker acted for the Australian Banks. Ultimately, the three firms of solicitors advised all Banks. Mallesons (Australia) acted for one of the Australian Banks, Standard Chartered Bank Australia Limited ("SCBAL").

36 In September 1989, the Banks also received a cash flow from the Bell Group for the period from July 1989 which disclosed that BPG's cashflow (the only then material operating enterprise of the Bell Group) was not sufficient to meet the interest commitments of the Bell Group to the Banks and bondholders. It also revealed that the receipt of the full proceeds of the sale of certain shareholdings and the receipt of dividends and management fees relating to shareholdings in ACIL and other nominated companies was critical to meet the shortfall of the cashflow.

37 The plaintiffs allege that at this time, each Australian Bank:

(a) wanted its loan repaid and did not wish to extend the loan;

(b) believed the other Australian Banks also wanted their loans repaid and did not wish to extend their loans;

(c) was aware the Bell Group was unable to repay all or any significant part of the Australian Bank loans and believed that no Australian Bank would stand by and allow another to be repaid without a commensurate repayment of its own loans; and

(d) was aware the Bell Group of companies could not provide it with security without the consent of all the Banks and that no bank would consent unless it too received security.

38 It was then proposed that the Australian Banks accept security by the Bell Group (the securities to be shared by the Lloyds Syndicate Banks) and that they extend their loans to May 1991. The proposal envisaged that the Bell Group of companies would reduce the bank loans by approximately $60,000,000 prior to May 1991 and that they would refinance the bank loans at that time.

39 The plaintiffs say that the choice faced by the Australian Banks was to press for payment, which inevitably would have led to the liquidation of the group in which the Banks would prove as unsecured creditors, or to extend their loans on security. The latter option may have been effective to give the Banks priority over the other unsecured creditors. At worst (or so the Banks were then advised by their lawyers), it may have left the Banks as unsecured creditors. In other words, the Banks were being offered a transaction which could improve their prospects of recovering their loans at the expense of other creditors but not leave them worse off. This is a central feature of the plaintiffs' case against the Banks.

40 From about late September 1989, the Banks worked together to agree on common terms and conditions. A meeting was held on 4 October 1989 attended by representatives of all the Banks. Among other matters, the meeting discussed the formulation of common terms and conditions under which all the Banks could continue their existing facilities. The meeting formulated a revised terms. This document was refined from time to time until the execution of the transaction documents.

41 Meanwhile, the pressure on the Bond Group continued to mount. On 18 September 1989, the National Australia Bank Ltd ("NAB") appointed investigating accountants as syndicate representatives to inspect books and records of Bond Brewing Holdings Group. Further, on 20 October 1989, BCH announced a loss of $980,000,000 which was the then largest corporate loss in Australian history.

42 On 21 October 1989, Alan Bond announced to the public the proposal to buy back bonds at a discount and thereby save the group. On 27 October 1989, the Banks received a formal opinion from senior counsel on the proposal for the Banks to take security over the assets of the Bell Group. The advice was given on the assumption that the security providers were presently insolvent and would eventually be wound up. Senior counsel advised, inter alia, that if both assumptions were correct, it would not avail the Banks either to extend the existing facilities or to discharge the existing facilities and grant new facilities with security.

43 On 16 November 1989, BCH issued its annual report. The auditor's report was heavily qualified in relation to the carrying value of numerous assets. It stated that unaudited information indicated that BCH and the Group's losses were continuing. The auditors stated that "there is some doubt that BCH and the BCH Group will be able to continue as a going concern".

44 During December 1989, several matters of significance occurred. On 4 December 1989, SCBAL terminated its facility with BGF and made demand on BGF for immediate payment of the debt owed by BGF to SCBAL. On 7 December 1989, SCBAL made further demand on BGF for payment of its debt and issued a statutory demand under s 364(2) of the Companies (Western Australia) Code, which is the predecessor to Div 2 of Pt 5.4 of the Corporations Law. On about 8 December 1989, SCBAL informed TBGL that BGF had failed to pay the amount demanded and made demand on TBGL for immediate payment under its guarantee. On about 11 December 1989, SCBAL made further demand on TBGL for payment of its debt and issued a statutory demand. The indebtedness of BGF to SCBAL was not repaid in accordance with the demands.

45 Aspinall wrote to SCBAL asking it to withdraw the demand notices. He said that if they were not withdrawn by 18 December 1989 an event of default would arise under some of the existing facility arrangements. This could lead to a call up of the Banks' loans and of Bell group convertible bond issues. Aspinall also informed SCBAL that certain subordinated debts would either share in any receivership or liquidation on the same level as the existing bank debt or would rank ahead of the existing bank debt. Aspinall also told SCBAL that if the letters of demand and notices were not withdrawn by 18 December 1989, the directors were bound to notify an event of default to LDTC as trustee for the BGNV bondholders.

46 SCBAL took legal advice on the substance of Aspinall's suggestion that the Banks may rank pari passu with the bondholder debts. Their advice was that whilst it was unlikely that the subordinated debt would rank ahead of unsecured creditors, there was a risk that it may rank equally with unsecured creditors. SCBAL instructed its solicitors to withdraw the notices. Formal notice to that effect was given by SCBAL's solicitors on 19 December 1989.

47 The plaintiffs allege that the failure by TBGL to comply with SCBAL's demand gave rise to an event of default under the terms of the three BGNV Trust Deeds and that at least Simpson, SCBAL and Mallesons were aware of this. This default was not notified to LDTC. The plaintiffs also allege that the possibility of the subordinated debt ranking at least equally with the claims of unsecured creditors was, and continued to be, a matter of concern to the Banks as the restructuring proposal was being negotiated. It was the subject of on-going legal advice and opinion and of inter-Bank and intra-Bank communications.

48 Another matter which occurred in December 1989 was that the Bond Group lost control of BRL and with it access to management fees. In late November or early December 1989, companies associated with the Adsteam group had sought to have a receiver appointed. The Bond Group settled the proceedings by surrendering control over BRL to an independent board of directors.

49 December 1989 also saw the occurrence of what came to be referred to as the Academy transaction. In substance, TBGL caused a subsidiary of BRL to purchase the issued share capital of Academy Investments No 2 Pty Ltd ("Academy") from TGBL for about $100,000. Another subsidiary of BRL advanced about $26,000,000 to Academy to enable it to repay some of the debt that Academy owed to TGBL. The plaintiffs say that the assets owned by Academy were worthless and that it was wrong for the directors to have caused BRL's subsidiaries to enter into the transaction. The plaintiffs also say that TGBL needed the $26,000,000 in part to pay interest on the on-loan of the First BGNV Issue to BGNV and to pay approximately $8,250,000 to LDTC for interest due on the TBGL issue. After the independent directors were appointed to BRL they sought repayment of the monies and ultimately issued a statutory demand to TBGL.

50 The plaintiffs allege that prior to 26 January 1990, the advice given to the Banks, and accepted, was that there was a risk the security transactions may be set aside. However, the Banks would be no worse off if that were to happen than if they did not enter into the transactions.

51 On 29 December 1989, receivers were appointed by the Supreme Court of Victoria to the Bond Brewing Holdings Ltd brewing operations on the application of NAB. As a result, the shares of BCH and BRL were suspended from trading by the ASX. Before the receiver was appointed NAB had been warned by the solicitors for the Bond Brewing companies that it would cause defaults to arise under a number of BCH's bond issues as well as its bank debt and their likely acceleration.

52 In early January 1990, the US bondholders of Bond Brewing Holdings sought repayment of approximately $US510,000,000.

53 On 8 January 1990, the Banks commenced to enter into the documents necessary to give effect to the Scheme. They entered into a Security Trust Deed and Inter Creditor Agreement under which, inter alia, Westpac agreed to act as trustee for and as agent for the Australian Banks and the Lloyds Syndicate Banks.

54 On 26 January 1990, BGF, TBGL, and the Australian Banks entered into the Australian Banks Supplemental Agreement ("ABSA") and the Australian Banks Facilities Agreement ("ABFA"). BGF, TBGL, BG(UK), the Lloyds Syndicate Banks and Westpac entered into an agreement dated 26 January 1990, and entitled Lloyds Supplemental Agreement No 2 ("LSA No 2"). By those agreements, those companies and others agreed with the Banks that, subject to certain conditions, the indebtedness to the respective Banks should be governed by the terms of those agreements and certain other instruments that were contemplated by their terms. In substance, the Banks extended their loans until 31 May 1991 and took security over all the worthwhile assets of the Bell Group. Various security documents were thereafter entered into to give effect to these arrangements.

55 By a subordination deed dated 15 February 1990, certain companies (including TBGL and BGF) entered into a subordination agreement with the Banks whereby each agreed that until the Banks' debt had been repaid they would:

(a) subordinate rights and claims as a creditor of certain of the Bell Group companies to any rights and claims by the Banks against such companies;

(b) not demand any moneys owing or seek to enforce their rights or claims against the Bell Group companies without the consent of the Banks until liquidation of that company; and

(c) hold on trust for the Banks any payment received as creditor prior to such liquidation and any distributions received in any such liquidation.

56 Another central element of the plaintiffs' case is that although the Scheme documents provided for the extension of the Australian Bank loans and the Lloyds Syndicate loans to 31 May 1991, it was evident before 26 January 1990 that the Bell Group would not be able to observe the agreements entered into. The terms of the transactions were such that the affairs of the Bell Group effectively would fall under the control of the Banks as soon as the security was given and at the latest by May 1990.

57 The plaintiffs allege that by 26 January 1990 many of the Bell Group companies including TBGL, BGF, BGNV and BG(UK) were insolvent, or alternatively were nearly insolvent, of doubtful solvency or would inevitably become insolvent. The grounds for so alleging are extensively pleaded and particularised. For example, the plaintiffs say that the borrowers in the Bell Group could not repay the Banks although the Banks wished to be repaid. Further, because of their guarantees and subordinations, other non-borrower Bell Group Companies such as BPG, secured their assets in favour of the Banks as part of the refinancing agreements and become insolvent. The plaintiffs also allege that the Banks were aware of the events which needed to occur for the Bell Group to be able to pay its debts.

58 In February 1990, a meeting of all the Bank representatives was held in Perth. This was convened by Westpac to inquire into the status of the subordinated bonds and to establish how the Bell Group would perform over the ensuing months. The plaintiffs say that the Banks were aware that in order to support existing debt structure through to 31 December 1990 there would need to be asset sales and repayments of loans by Bond Group companies. According to the agreement with the Banks, however, any proceeds from asset sales would have to be paid to the Banks. The plaintiffs say, therefore, that it was obvious the Bell Group would not meet its obligations even in the short term unless the Banks waived their rights under the agreements. The survival of the Bell Group in the whole of the ensuing twelve months was completely in the Banks' hands.

59 On 31 July 1990, BGNV entered into a subordination agreement with the Banks (the "BGNV Subordination Deed") in like terms to that referred to previously in respect of the debts owed to it by TBGL and BGF, each of whom had provided security to Westpac, as trustee for and agent for the Banks. Under the terms of the initial transaction documents, TBGL had agreed to use reasonable endeavours to procure BGNV to enter into the subordination deed.

60 As at 26 January 1990, the Bell Group had significant external creditors other than the Banks. These included (in approximate amounts) $550,000,000 to bondholders, $120,000,000 to the Deputy Commissioner of Taxation, $22,500,000 to Godine Developments Pty Ltd, $168,500 to the State Government Insurance Commission and $56,000 in declared but unpaid dividends. In relation to tax, an audit had been commenced in 1989. By 26 January 1990, tax assessments of about $34,000,000 had issued and officers of the department had foreshadowed further assessments to the Bell Group for about $63,000,000. Eventually, the additional assessments were issued in an amount of approximately $83,000,000.

61 On or about 12 February 1990, Bell Group Press was sold for approximately $25,800,000. The initial arrangement was for the proceeds to be held by Westpac and distributed to the Banks at the end of February 1990. The Banks, however, waived the obligation and allowed about $9,000,000 to be deducted to meet termination payments and other costs and expenses with the balance of the money held over until 30 March 1990. At the end of March, the Banks waived their rights to this sum and held it over to 30 April 1990. On 11 May 1990, the Banks permitted those moneys to be used to meet the liability of BGNV and BGF for interest in respect of the Second BGNV Issue of $17,500,000 and the BGF Issue of $7,500,000 that had been due on 4 May 1990.

62 It is now necessary to go back to July 1989. On 13 July 1989, LDTC made its first request of the Bell Group for certificates of solvency for each of the bond issues. Previously, LDTC had requested compliance certificates. The insolvency certificates were requested "in light of concerns which have been expressed to us on behalf of certain holders of bonds convertible into shares of the guarantor and in the light of current press comments".

63 The form of certificate sought was refused by the Bell Group. In particular, LDTC had sought a certificate that BGNV, BGF and TBGL were solvent. Ultimately, on 19 October 1989, LDTC was provided with certificates of solvency as follows:

"The company certifies that it is able to pay its debts and meet its obligations in respect of the Trust Deed as and when they fall due and the realisable value of the company's assets exceeds the amounts of its liabilities, including prospective and contingent liabilities".

64 Further certificates of solvency were sent dated 11 December 1989. Certificates of solvency were requested again by LDTC as at 31 December 1989. On 22 January 1990, LDTC wrote to TBGL requesting certificates of compliance "in the usual form in view of recent events". Compliance certificates dated 24 January 1990 were sent by the Bell Group.

65 The plaintiffs allege that information was deliberately withheld from LDTC by the Bell Group companies contrary to their obligations under the trust deeds. It is also alleged that the Banks (or some of them) were aware that relevant information was not being given to LDTC.

66 After 3 July 1990, several attempts were made to restructure the Bell Group. None of the attempts came to fruition. Eventually the companies collapsed. By April 1991 defaults had been committed under the terms of the Scheme documents. On 18 April 1991 the Banks appointed receivers and managers to BGF and BPG. The receivers and managers proceeded to sell assets. They obtained some $226,000,000 from the publishing and printing assets. In addition, Westpac, as trustee of agent for the Banks sold the ACIL shares under share mortgages for about $60,000,000. There were some other recoveries made by the Banks, for example about $900,000 from debtors of BGF. The monies have been distributed to the Banks.

67 In July 1991 Mr Geoffrey Totterdell of Price Waterhouse was appointed liquidator of TBGL. In March 1993 Mr Antony Woodings was appointed as liquidator of BGF. From time to time other companies in the Bell Group have been wound up.

68 On 18 December 1995 the plaintiffs commenced these proceedings by application in the Federal Court. On 16 October 1996 the first version of the statement of claim was filed. The parties are, by and large, the same as they are at present except that Aspinall, Oates, Mitchell, Bond and other persons were sued in their capacity as directors of various companies.

69 The gravamen of the claims as outlined in the original statement of claim had many of the central features of the claims that are now advanced. It involved allegations that at the time when the Banks took the securities the Bell Group companies were insolvent. By causing the companies to grant the securities the directors were in breach of their duties. There were further breaches of duty by the holders of shares in ACIL. It was alleged that the Banks knew of the breaches of duty and they knowingly participated in, and knowingly received benefits of, those breaches. There are additional and other claims by reason of which the plaintiffs alleged the Banks were liable to repay the proceeds from the asset realisations and were liable also in damages.

70 At some point (and for reasons that are not relevant for the purposes of this application) the proceedings were discontinued as against the directors. The statement of claim underwent refinement and amendment. On 19 May 1997 the Banks lodged a defence and counterclaim. There is no need, at this stage, to describe the defence in detail. It is sufficient to say that the Banks challenge the assertions made by the plaintiffs as to the status of the subordinated debt with a consequent impact on the position brought about by the entry into the Scheme documents on 26 January 1990. The Banks also challenge the assertion that the directors had acted in breach of their duties or that the Banks were aware they had done so. It is put that the Banks believed or were reasonably entitled to believe that the directors were of the view that entry into the Scheme documents provided the Bell Group with real and substantial benefits. It is also put that the Banks did not know that the Bell Group companies were insolvent.

71 In the counterclaim the Banks call in aid s 52 of the Trade Practices Act 1974 (Cth). They say that between 1985 and 1989 TGBL, BGNV and BGF represented to them that their liabilities arising from the bond issues were subordinated to, and ranked behind, the indebtedness of the companies in the group to the Banks. If, as is alleged by the plaintiffs in the statement of claim, the on-loans were not subordinated, the representations were misleading and deceptive. Further, if the Scheme documents are liable to be set aside because of the unsubordinated status of the on-loans the Banks have suffered loss and damage as a result of the misleading conduct.

72 The proceedings were under management by Carr J in the Federal Court of Australia. On 16 June 1999 his Honour commenced to hear an application by the plaintiffs to amend the eighth amended statement of claim. There was also listed for hearing a motion by the Banks for leave to amend their defence and for leave to proceed with the cross-claim. On 17 June 1999 the High Court handed down its decision in Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 198 CLR 511. Due to the jurisdictional uncertainties that the decision raised, the proceedings before Carr J came to an abrupt halt. Shortly thereafter the parties took out a series of fresh motions to ascertain whether the Federal Court had jurisdiction to hear the action and, even if it did, whether the matter should be cross-vested to this Court. In April 2000 Carr J decided that although the Federal Court did have jurisdiction, this Court was the more appropriate forum and that the action ought to be transferred: Bell Group Ltd v Westpac Banking Corporation [2000] FCA 439; (2000) 104 FCR 305. I should add that in June 1999 (and subject to the amendments that were the subject of the June listing) the action was close to being ready for trial. In fact a trial had previously been listed to commence in August 1998 but it was adjourned. The reasons for the adjournment are not now material but I think they included doubts about the finality of the pleadings and other matters having an impact on the readiness of the action to go to trial at that stage.

73 There is a further piece of background material which I should recite. On 1 October 1996 the Banks commenced an action in this Court (CIV 2061 of 1996) against LDTC, TGBL, BGF, Totterdell, Woodings and the State Government Insurance Commission (which has since changed its name to "Insurance Commission of Western Australia") ("ICWA"). The action concerns the TGBL bonds issued in December 1985 and the BGF bonds issued in 1987. On 25 July 1988 TBGL and BGF respectively entered into trust deeds with LDTC and the bondholder in relation to the terms of the bond issues. The trust deeds permitted LDTC (as trustee) to make modifications to the deed with the approval of TGBL or BGF as the case may be. The deeds also contained certain promises which, according to the Banks, were for the benefit of unsubordinated non-bondholder creditors. On 28 July 1988 the subordinated bonds were acquired by ICWA.

74 LDTC, at the request of ICWA, had executed certain supplemental deeds which purported to vary or modify the trust deeds. However the supplemental deeds were not to become effective unless they were executed by the liquidators of TBGL and BGF respectively. The Banks seek declarations against LDTC, ICWA, TBGL, BGF and their respective liquidators that in executing the supplemental deeds, LDTC has acted improperly in a number of respects. It is also alleged that the liquidators would be acting improperly if they executed the deeds. The plaintiffs seek injunctions to restrain LDTC from giving effect to the supplemental deeds and to restrain the liquidators from executing them. It is alleged against the liquidators that the execution by them of the supplemental deeds, on behalf of TBGL and BGF respectively, would involve a breach by TBGL of the Scheme documents entered into in January 1990. In their respective defences, all the defendants have contended, in effect, that the Scheme documents are void or voidable and that they should be set aside. This, of course, is the same issue that arises in the CIV 1464 of 2000.

75 In Commonwealth Bank of Australia & Ors v The Law Debenture Trust Corporation plc, unreported; SCt of WA (Templeman J); Library No 980023; 27 January 1998 , the Court acceded to an application by the Banks that the proceedings be stayed generally pending finalisation of the (then) Federal Court proceedings. For all practical purposes the action remained dormant under the stay until the directions process took hold in this Court after the transfer of CIV 1464 of 2000. I mention it here because it is relevant to what has come to be referred to as the "overlap issues" between the two actions.

The Application to Amend - General Considerations

76 Not surprisingly, the statement of claim and the defence and counterclaim have undergone constant change. The statement of claim was amended once without leave and further with leave on 10 February 1997, 16 May 1997, 12 August 1997, 1 October 1997, 24 June 1998, and 24 December 1998. The pleading that is current is the "seventh amended statement of claim" (which I will call "7ASC"). What is before me is an application to bring into existence "the eighth amended statement of claim". I will refer to it as "8ASC". The minute detailing the proposed further amendments is not the first minute filed in relation to the eighth amended statement of claim. The defence and counterclaim has also been subject to regular review. It has been amended by leave granted on 12 August 1997, 2 October 1997, 20 October 1997, 24 June 1998 and 12 March 1999. An application to amend further the defence and counterclaim in accordance with a minute dated 14 July 2000 is extant. The further and better particulars of each of the statement of claim and the defence and counterclaim are voluminous and have, themselves, undergone revision from time to time. Some of those amendments have been in response to amendments made to the statement of claim. But there are some respects in which the approach taken by the Banks has itself altered. I am not reciting this history by way of criticism of the parties or their advisers. It simply reflects the complexity of the legal and factual issues with which the collapse of the Bell Group has been beset. It is a complexity which I fully appreciate.

77 The face of litigation has changed over recent decades. Commerce has become more complex and so too have the dispute resolution procedures that have to be employed when things go wrong. There is a need properly to manage a scarce public resource, namely the judicial and administrative functions of the courts. This has brought to the surface tensions between the imperatives of case management and the desirability of allowing a party to bring before the court the dispute that it really wants to air. Nowhere are these tensions better illustrated than in the decision of the High Court in J L Holdings Pty Ltd v Queensland [1997] HCA 1; (1997) 189 CLR 146. A myriad of considerations intrude into the decision making process when a judicial officer is asked to permit a party to amend its pleadings. Does the amendment disclose a cause of action known to law? Is it set out in a way that it is not embarrassing? What affect will the change have on the way the parties prepare for trial? Will it result in an unreasonable delay in bringing the matter to trial? Why was the new matter not included in the pleading at the outset or at an earlier time? Will the other party be prejudiced by the change, either because of the delay or the nature of the new material or for any other reason?

78 In the end, however, it all comes down to one simple point: the interests of justice. The pleadings should not be allowed to fetter or prevent an adjudication of the real issues between the parties. But nor should the interests of fairness to parties affected by a proposed amendment be ignored. The judicial officer is called upon to exercise a discretion. He or she must make a value judgment and must strike a balance between the competing interests. This can only be done according to the facts of the individual case.

79 The reason for having pleadings is well known. Put succinctly it is to delineate and confine the issues so that the parties will know the case they have to meet. The principles governing applications to amend are well known but I think it is necessary to say a little bit about them.

80 The plaintiffs wish to amend the statement of claim. The proposed amendments are many and various. The Banks oppose many of the amendments. They do so on the grounds that they do not disclose a reasonable cause of action, they are embarrassing and they may prejudice or delay the fair trial of the action. Not all of those bases apply to each of the proposed amendments.

81 In deciding whether to allow an amendment the judicial officer must decide whether there is a reasonably arguable cause of action. In this respect the task is very similar to that which the courts adopt in deciding whether to dismiss an action or claim summarily or to strike out a pleading or claim. The dicta of Barwick CJ in General Steel Industries Industries Inc v Commissioner for Railways (New South Wales) [1964] HCA 69; (1964) 112 CLR 125 has long been the benchmark that the courts use. The jurisdiction summarily to terminate an action (or to deny the right to bring a claim at all) is to be sparingly employed and is not to be used except in a clear case where the court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion. The authorities uniformly adhere to the view that a plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind it brings, unless the lack of a cause of action is clearly demonstrated. The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them (the pleadings) to stand would involve useless expense". At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or "so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument"; "so to speak apparent at a glance". As I have said, some of these expressions occur in cases in which the inherent jurisdiction was invoked and others in cases founded on statutory rules of court. But although the material available to the court in either type of case may be different the need for exceptional caution in exercising the power whether it be inherent or under statutory rules is the same. As Dixon J put it in Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 at 91:

"A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But 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, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process."

82 In General Steel Industries, Barwick CJ concluded his remarks by saying that great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand, the exercise of the jurisdiction need not be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.

83 In other words the test whether the plaintiffs can demonstrate a reasonable cause of action is not whether, assuming they establish the underlying factual basis, they will or must succeed at trial but whether they could do so.

84 Looked at in its own right this action is just another piece of commercial litigation. However, it has assumed gargantuan proportions. It arose from one of the more notorious episodes in Australian commercial history. It has attracted the interest of the public. It is no secret that the Government of Western Australia, or perhaps more accurately one of its agencies is involved in the funding arrangements of the plaintiffs. At first glance that might indicate the proceedings are imbued with an element of the public interest, as opposed to matters that are of interest to the public (which is a different concept). I do not think the litigation can properly be seen as catering to the public interest in that sense. The involvement of the Government might equally be seen as furthering the commercial interests of the agency.

85 There is a great deal at stake for all parties. If the plaintiffs are successful the amount which the Banks will have to pay by way of disgorgement of the proceeds from the realisation of the assets and (perhaps) damages will be very significant. It will make a significant difference to the return that creditors will, or may, receive. The allegations made against the Banks are serious. It is no small thing for banks with an international presence and widespread operations to be accused of participating knowingly in a breach by directors of duties which they (the directors) owed to (among others) public companies. Apart from the sheer size of the payout with which they would be faced, the Banks also have a commercial reputation to protect.

86 Whatever may have been the position in 1998, the fact is that the pleadings have not yet closed. The identity of the parties who or which ought to be before the court is not even finalised. Estimates of the time that the trial will take vary from eight months to something considerably longer. Even if it is only eight months the court schedules are such that hearing dates could not be allocated at short notice. Accordingly, there will be a reasonable time before trial within which to accommodate the additional lines of inquiry and interlocutory processes and general preparation that will inevitably be brought about by the amendments.

87 The question of embarrassment, as it applies in the circumstances of this case, relates to the from of the proposed amendments. They must be enunciated in a way that permits the Banks to know precisely the case they have to meet. Prejudice can take many forms. It may arise, for example, because the passage of time will effectively deny the Banks an opportunity to investigate the factual basis and to gather evidence to meet it.

88 Taking into account all of the circumstances I have come to the view that if the plaintiffs can demonstrate an arguable cause of action that is pleaded in a way that is not embarrassing, I should lean towards allowing the amendments unless the Banks can demonstrate prejudice that cannot be cured by reasonable activity and efforts. Having heard the argument, senior counsel for the plaintiffs indicated that there were aspects of the statement of claim that could have been more happily phrased and that they would be changed to accommodate some of the objections raised by senior counsel for the Banks. I have also taken that matter into account.

89 I propose now to examine each of the broad areas that are the subject of the proposed amendments. Before doing so I wish to make some further general comments about the proposed pleading. The plaintiffs assert that it does not withdraw material facts, claims for relief or causes of action contained in 7ASC but that it does add further factual material and additional causes of action. In the main I think this is correct. The minute of 8ASC is not easy to read. In some instances, paragraphs from 7ASC have been renumbered, relocated and changed. Paragraphs 60 and 61 from 7ASC are examples. Some of the substantive paragraphs have been removed from the statement of claim and included in the further and better particulars, which is a separate document. Paragraphs 62 and 63 are examples. This has made the task following the text of the proposed amendments a little difficult. That is why in these reasons it will not always appear clearly whether individual passages were or were not in the previous pleading. It also explains why, when I am describing material facts, I have not always identified the paragraph number (whether in the minute of the statement of claim or the particulars) where it is to be found.

90 There are several versions of the minute of 8ASC. The one that is in the cleanest form extends to 120 pages. The accompanying particulars are over 500 pages in length. I started this exercise by attacking the pleading and particulars line by line and examining each objection that had been taken. It proved an impossible task. I have therefore taken a more general approach and have not dealt with every point. I hope that I have covered all of the items of principle and enough of the issues of form to enable the parties to reassess their respective positions in relation to the statement of claim.

91 It might properly be said that the most significant change which the plaintiffs wish to make in the pleadings relates to the addition of a claim sounding in equitable fraud. It will be convenient to commence with this proposed change. Equitable fraud, as a discrete cause of action, is not present in 7ASC although the plaintiffs assert that it does not extend the range of factual issues to any great extent. The Banks dispute this characterisation of the position.

92 Any comments that I make that are of a general nature run the risk of inaccuracy due to oversimplification of a complex legal and factual matrix. However, I think it is fair to say that the plaintiffs case as disclosed in 7ASC is largely a Barnes v Addy claim. It is predicated on a breach of fiduciary duty by the directors of the relevant companies. During the hearing reference was sometimes made to "misconduct" by the directors. If I use that term in these reasons I am doing so as a shorthand way of referring to a breach of fiduciary duty. It is trite to say that if there were no breach of a fiduciary duty it is difficult to see how the Banks could be liable, at least under that head. What I propose to do is examine the equitable fraud claim in a broad sense and then return to specific issues relating to the pleading of directorial misconduct.

93 The breaches of fiduciary duty alleged against the directors in, and which underpin the claims made in, 7ASC can broadly be described as lack of corporate benefit to the companies entering in to the transactions, failure of the directors to take into account the interests of creditors and the furtherance of an improper purpose. The 8ASC adds an allegation of a further instance of breach of duty, namely a conflict of interest. It also extends the claim to all companies coming within the definition "Bell Participant", namely any Bell group company that entered into a Transaction. Those companies within the Bell Group that are plaintiffs and those which were part of the Bell Publishing group were already caught by 7ASC. This now includes other companies within the Bell Group which entered into a Transaction but which were neither a plaintiff nor part of the Bell Publishing group. The allegations of misconduct against the directors are expanded to include participation in an equitable fraud.

94 In pleading the equitable fraud claim the plaintiffs call in aid the allegations in par 111 to par 126 and go on to say in par 65M (leaving out marked changes from the various minutes of 8ASC) :

"65M. Further, or alternatively, by reason of the matters pleaded in paragraphs 1 to 65K and paragraphs 111 to 125 the Scheme and the Transactions effected under the Scheme constituted:

(d) an imposition and deceit on the Bell Participants and their creditors (save for the Banks), future creditors or indirect creditors including LDTC as trustee for the BGNV Bondholders;

(e) an inequitable and unconscientious bargain upon each Bell Participant and/or

(f) a fraud on the insolvency laws;

and thereby, or in any event, was an equitable fraud entitling some or all of the first to twelfth plaintiffs to the relief claimed in the prayer for relief."

95 The relief claimed in the prayer for relief is, itself, broad ranging but includes, relevantly, a claim for equitable compensation. The reference to "first to twelfth plaintiffs" is to all current plaintiffs. Paragraphs 108 to 125 plead a similar equitable fraud claim on behalf of LDTC. This will depend on the fate of the application to join LDTC as the thirteenth plaintiff. Within par 111 to par 126 there is further incorporation of par 87 to par 89 and par 108 to par 110. In other words almost every allegation of fact in the pleading is called in aid of the equitable fraud claim. I have no intention of setting them out in detail, although I will return to some of them a little later. The plaintiffs conceded that the equitable fraud claim was, at least in part, designed to anticipate and meet the aspects of the Banks' defence and counterclaim, including that :

(a) the directors acted properly in entering into the Transactions as they believed and it was the fact, that the Transactions provided time to restore value to assets, enable the sale at reasonable value of those assets, explore the possibility of a restructuring of the financial position of the Bell Group;

(c) there was an estoppel arising from representations contained in the minutes of directors' meetings provided to the Banks;

(d) there was a representation that the BGNV on-loans were or would be treated as subordinated, (being the basis of the Bank's estoppel and misleading and deceptive conduct claims);

(e) the Australian directors acted and were entitled to act on the basis that the BGNV on-loans were subordinated.

96 There are, of course, rules or conventions that frown on anticipatory pleadings. However, in the peculiar circumstances of this case I do not think the usual vices apply. From the plaintiffs' submissions, I think the following is an adequate summary of factual basis which, if established, could justify the allegation of an imposition or deceit on the Bell Participants and on external creditors:

(a) the financial condition of the Bell Group prior to the Transactions and the Scheme;

(b) the fact that immediately prior to the Transactions and the Scheme, the Bell Participants faced a situation where they would be wound up or have their assets liquidated unless they entered into a valid and effective restructuring of their financial position;

(c) the Transactions and their terms, including that by the security documents the Banks obtained security over all significant and worthwhile external assets as well as all significant intra Bell Group shareholdings and that all known intra Bell Group creditors of such security providers subordinated the debts owed to them by such security providers;

(d) the need for the Banks (the Australian Banks previously had no arrangements inter se and previously had no connection with the Lloyds Syndicate Banks) which were unsecured creditors of only three companies in the Bell Group (TBGL, BGF and BG(UK)) to enter into agreements to combine together for their common benefit as a class;

(e) the entry into the Scheme by the Banks and the Bell Participants;

(f) the detrimental and prejudicial effects of the Transactions and the Scheme upon creditors of the Bell Group, in particular external creditors, other than the Banks;

(g) the awareness of directors of the Bell Participants and the Banks of these matters;

(h) the breaches of fiduciary duties committed by some or all of the directors of the Bell Participants (which are alleged in pars 36A to 36P, 39A to 39E, 46 and 47 of 8ASC);

(i) the steps taken by the directors and the Banks to facilitate the entry into the Transactions and the Scheme by not calling up debts owed to the Banks and by information not being provided to LDTC as trustee for the BGNV Bondholders so as not to trigger a situation where those Transactions and the Scheme may not have been entered into or may have been opposed by LDTC; and

(j) the steps taken by the directors and the Banks between January 1990 and September 1990 to the same end.

97 What this leads to, the plaintiffs submit, is that the steps taken to restructure the financial position of the Bell Group which encompassed steps to buy back the public debt (which included the debts owed to the BGNV Bondholders), were to the advantage of the Banks as a class of creditors of a limited number of companies within the Bell Group and to the inevitable or probable detriment of other creditors. The arrangements were imposed on the Bell Participants and their external creditors without their consent and in a situation in which they would be detrimentally and prejudicially affected. All this occurred, the plaintiffs submit, in a context of actual or inevitable insolvency of the Group and where the external creditors were not told of matters which the directors and the Banks knew, believed or suspected about the financial position of the Group or what they intended to achieve from the Transactions. All of this amounts to misconduct by the directors and the Banks were aware of it.

98 The plaintiffs allege that in these circumstances and given the financial position of the Group and the terms and effects of the Transactions, for the debtors and some creditors (namely, the Banks) to enter into a private arrangement encompassing not only the debtors but also companies related to the debtors and without informing other creditors, constitutes an imposition and deceit.

99 The plaintiffs further assert (for similar reasons) that the Scheme and the Transactions constituted an inequitable and unconscientious bargain upon each of the Bell Participants and a fraud on the insolvency laws.

Equitable Fraud - Some Relevant Legal Principles

100 The equitable fraud claim is based on the fourth category of fraud mentioned in Earl of Chesterfield v Janssen [1750] EngR 119; (1751) 2 Ves Sen 125; 28 ER 82 where Lord Hardwicke LC said, at 100:

"A fourth kind of fraud may be collected or inferred in the consideration of this court from the nature and circumstances of the transaction, as being an imposition and deceit on the other persons not parties to the fraudulent agreement."

101 Counsel for the Banks submitted that this category of fraud has as its foundation the knowing misrepresentation, by the transaction or agreement, of the true nature of the relationship and rights and obligations of the parties to that transaction or agreement, to third parties who are interested in and rely on their understanding of the transaction or agreement. Counsel for the plaintiffs submitted that it was not so limited and referred to the dicta of Viscount Haldane LC in Nocton v Lord Ashburton [1914] AC 932, at 952-54:

"But in addition to this concurrent jurisdiction, the Court of Chancery exercised an exclusive jurisdiction in cases which, although classified in that Court as cases of fraud, yet did not necessarily import the element of dolus malus. The Court took upon itself to prevent a man from acting against the dictates of conscience as defined by the Court...'. ... In Chancery the term 'fraud' thus came to be used to describe what fell short of deceit, but imported breach of a duty to which equity had attached its sanction. What was laid down by Lord Eldon in this House in Bulkley v Wilford explains the nature of the duty. ... But when fraud is referred to in the wider sense in which the books are full of the expression, used in Chancery in describing cases which were within its exclusive jurisdiction, it is a mistake to suppose that an actual intention to cheat must always be proved. A man may misconceive the extent of the obligation which a Court of Equity imposes on him. His fault is that he has violated, however innocently because of his ignorance, an obligation which he must be taken by the Court to have known, and his conduct has, in that sense, always been called fraudulent, even in such a case as a technical fraud on a power ... What it really means in this connection, is not moral fraud in the ordinary sense, but breach of the sort of obligation which is enforced by a Court that from the beginning regarded itself as a Court of conscience ..."

102 It is true, as counsel for the Banks pointed out, that it is not pleaded that the Transactions did not represent the true nature of the relationship between the Banks and the Bell Participants. I think it must be accepted that fraud in equity is a much wider concept than fraud at common law. It is not necessary, therefore to establish (and therefore to plead) an actual intention to cheat or deceive. An equitable fraud can be committed in circumstances which the common law would regard as innocent. It must also be borne in mind that equity acts according to conscience and is adept at fashioning remedies (and doctrines) to meet circumstances that offend conscience. This, of course, is subject to the stricture that it must stem from established principle rather than from "idiosyncratic notions of fairness and justice". Nonetheless, in so many areas it is said that the categories of cases in which equity will intervene are not closed. Equitable fraud is one of them: La Rosa; Ex parte Norgard v Rocom Pty Ltd (1990) 21 FCR 270 at 288.

Equitable Fraud - A Reasonable Cause of Action

103 I will deal first with the equitable fraud claim based on imposition and deceit. Counsel for the Banks submitted that the whole claim was inapposite because, among other things, it relied on an assertion that the directors breached duties they owed to creditors of the companies. Counsel relied on Spies v The Queen [2000] HCA 43; (2000) 201 CLR 603. There, the High Court held that a director does not owe an independent duty to creditors of the company. However, as I understand it, it is not at the heart of the plaintiffs' case on this issue that directors owed a duty to creditors (either direct or indirect). A distinction must be drawn between the duty to take the interests of creditors into account and a duty owed directly to creditors. It is the former, rather than the latter, that is at the heart of this aspect of the litigation. In Spies the Court explained comments made Mason J in Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1, to the effect that because of the insolvency of a company its directors owed a duty to that company to consider the interests of the creditors and potential creditors of the company in entering into transactions on behalf of the company. The Court said that it is extremely doubtful whether Mason J intended to suggest that directors owe an independent duty directly to creditors. This was because to give some unsecured creditors remedies in an insolvency which are denied to others would undermine the basic principle of pari passu participation by creditors.

104 As Gummow J pointed out in Re New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler [1994] FCA 1117; (1994) 122 ALR 531 at 550, where a company is insolvent or nearing insolvency, the creditors are to be seen as having a direct interest in the company and that interest cannot be overridden by the shareholders. This restriction does not, in the absence of any conferral of such a right by statute, confer upon creditors any general law right against former directors of the company to recover losses suffered by those creditors. The result is that there is a duty of imperfect obligation owed to creditors, one which the creditors cannot enforce save to the extent that the company acts on its own motion or through a liquidator.

105 If, then, the claim is based on a duty of directors to act in the interests of the company as a whole (which might, in circumstances of insolvency or doubtful insolvency, include the interests of creditors) it does not offend anything the High Court said in Spies.

106 It is I think, convenient, to deal at this point with another pleading aspect of the reference to creditors. It is the reference to "indirect creditors" and to "future creditors" at various places in the pleading. The nature of the Transactions and the Scheme contended for by the plaintiffs is pleaded in par 19A. More detail of its effect and the way it worked is provided in par 33C. Subparagraphs 33C(k), (l) and (m) contain reference to detriment and prejudice that would be suffered by indirect creditors or indirect creditors and future creditors. The term "indirect creditor" is defined in par 7D of 8ASC. These references were criticised by counsel for the Banks.

107 Counsel for the plaintiffs disavowed any claim or contention that directors owed a duty to indirect creditors or that it was part of the case that any such duty had been breached. The reliance placed by the plaintiffs on the position of indirect creditors can be explained by this example. An external creditor relies on company A for payment and company A is relying on company B for payment. The external creditor is an indirect creditor of company B. The plaintiffs are saying that the directors, when they entered into the Transactions, gave effect to the Scheme knowing that there were these linkages and knowing the consequences of the Scheme. The directors, the plaintiffs allege, knew that if company B pledged its assets to the Banks the consequence would be that the creditors of company A would not get paid. It is merely the linkages and the consequence of the transactions. The fact that the external creditor would not get paid by company A because company A could not get paid by company B would not itself involve a breach of duty of a director to either company A or company B. The reference to indirect creditors does not signal an argument that a duty is owed to those external creditors. Its sole relevance is that the directors were bound to realise the consequences of the Scheme, which are summarised in par 19A.

"... whereby all significant and worthwhile assets of the Bell Participants were made available to the banks for repayment of the debts owed to the banks by BGF and BG(UK) in priority to all claims of all other creditors and future creditors of Bell participants (save for immaterial exceptions)."

108 I think the same can be said for the references to "future creditors". It is not intended to assert a specific duty to future creditors. In part, the reliance on future creditors picks up the companies that are said to have been insolvent at the time the Scheme was entered into. In some instances it may also incorporate contingent liabilities.

109 I can understand the point that counsel for the Banks was making. He characterised it as an allegation that these directors breached their duty to the company because they failed to take into account and prejudiced the interests of people who were not creditors of the company at all. Those persons came within the description of indirect creditors in some chain of facts. He also pointed out that this was quite different from the way it was put in 7ASC, particularly in par 36, par 38 and par 48. It is true that a creditor in a chain of creditors leading to the ultimate debtor company is not a creditor. However, looked at in the way explained by counsel for the plaintiffs I think it is arguable that the duty to look to the interests of a company as a whole might extend in the way pleaded.

110 On balance, I do not think the references to "indirect creditors" and "future creditors" does any great damage to the efficacy of the pleading.

111 I think the Banks are concerned at the change of direction which 8ASC brings about. It moves from a concentration in 7ASC on individual transactions (each of which is to be assessed on its merits) to the more global approach contained in 8ASC where the transactions are looked at individually but also in the combined effect as the Scheme. One of the issues that will inevitably arise is ratification. The plaintiffs say (or will say) that ratification is not available, not because the directors owed duties to creditors but because the directors of various companies were the same persons and privy to the same information. The companies were entering into the transactions for the same purposes, namely the financial restructuring and the prevention of a winding up of the entire group. Once the directors of, for example TBGL, have breached their duties to TBGL it would be a further improper exercise of power to cause TBGL to ratify or give a consent to another company entering into a relevant transaction when it is infected to the same extent. The other company, in turn cannot act on the purported ratification or consent. To do so would involve its directors in another breach of fiduciary duty because they know of the relevant circumstances including the overall effect of the Scheme.

112 The enunciation of principle on which counsel for the Banks relied came largely from cases dealing with compositions with creditors. The plaintiffs concede that this is not a composition case. In those cases there generally has been a finding of misrepresentation. However, if it required a knowing misrepresentation it would take it from equitable to actual fraud. What equity does is infer, having regard to nature and circumstances of the transaction, a fraud. It is arguable that although there were numerous transactions there was one "commercial event", namely the Scheme. It is also arguable that the combination of factors arising from the individual transactions and the Scheme, might amount to an imposition or deceit. I have already set those factors out but they include the conduct of the banks, the terms of the transactions, the breaches of duty by the directors and the knowledge the Banks and the directors had about the financial condition of the companies. It also includes the position and extent of other creditors, the effect on persons who were not parties to them and steps taken by the directors so that LDTC did not take steps to call in its debts.

113 The second limb of the plaintiffs' case is that the Transactions and the Scheme constitute an inequitable and unconscientious bargain. The equitable principles underpinning this doctrine are well known. From time to time doubts are expressed as to the reach of this doctrine where both parties are large commercial organisations operating at arms length and in receipt of expert advice. There is no hard and fast rule that denies the reach of unconscionability in those circumstances and I would not reject the proposed plea on the basis that it does not disclose a reasonable cause of action However, the pleading is, I think, embarrassing.

114 Paragraph 65M(e) does not indicate material facts which would identify exactly how the plaintiffs intend to advance the case that the bargain is unconscionable or inequitable. The Banks might be able to infer from what is said under the head of imposition and deceit but that does not cure the problem. Unconscionability is an equitable doctrine of wide import. But I have already commented that it can only operate and be applied according to established principle and not by resort to "idiosyncratic notions of fairness and justice". What is the "established principle" on which the plaintiffs rely in this respect? It should not be left to the Banks (or the Court) to trawl through par 1 to par 65K and par 111 to par 125 and the voluminous particulars to many of those paragraphs and to guess why it is said that the factual matrix so disclosed renders the bargain unconscionable.

115 The case might be advanced, for example, on the basis that the plaintiffs were at a special disadvantage or for some similar reason special circumstances exist: Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447. During argument counsel for the plaintiffs alluded to special circumstances constituted by "ignorance and [sic] LDTC and the other creditors were ignorant of the precise terms of these transactions and most importantly, the information the banks had been given about the solvency or in fact the insolvency of the Bell Group". I confess that I am not sure exactly what that means in this context. In what way is it said that the ignorance of LDTC allows Bell Group companies to say the Scheme is inequitable and unconscionable? What is encompassed in the phrase "other creditors"? Does this mean "indirect creditors" in the sense of creditors of creditors of an ultimate debtor which is a Bell Group company? Does it include Bell Participants who were parties to transactions and which were creditors of other Bell Participants? These things may be capable of ready explanation but they are not clear to me on the face of the pleading as it is currently structured.

116 Nor do I think that the problem can be resolved by resort to the very broad notions of public policy or public utility. True it is, as junior counsel for the plaintiffs submitted in reply, that the root of the cause of action is what was referred to by Lord Hardwicke in Earl of Chesterfield as public utility. But in a case of this complexity the pleader still needs to identify with precision what he or she says is the matrix leading to the conclusion that the Scheme is an offence to public utility.

117 The final limb is that the Scheme is a fraud on the insolvency laws. There is much to be said for the simple proposition advanced by counsel for the Banks that either the Transactions are voidable as a consequence of the application of the relevant corporations law statutes or they are not. I am not convinced there is a proper answer to that proposition and I would not allow that aspect of the proposed amendment.

118 In my view there is a reasonably arguable cause of action that an equitable fraud arises because of imposition or deceit but not because it might amount to a fraud on the insolvency laws. The proposed pleading of an equitable fraud arising from an unconscientious bargain cannot stand in its present form.

119 I have stressed the importance to the plaintiffs' case of the allegations that the directors acted in breach of their fiduciary duties. I now wish to reflect on a number of issues all of which relate to that question.

The Pleading of the Directors' Breach of Duties

120 The Banks contrast the way the breach of duty is pleaded in 7ASC with that proposed in 8ASC. In the former, the relevant duties are pleaded in par 37 as a duty to act bona fide in the interests of the company as a whole (including the interests of all creditors) and to exercise their powers properly. Paragraph 38 pleads that the directors caused the company (in this case BGF) to enter into the instruments when BGF was insolvent or nearly insolvent or of doubtful solvency and many other factual matters of the type I have already described and when the directors "knew or ought to have known of" those matters. Paragraph 39 is in these terms:

"In causing BGF:

(a) to enter into the instruments ... and in procuring, together with TBGL, the other companies in the Bell Group to enter into the respective instruments

.............

in the circumstances and, in the case of subparagraph (c)(i) below, with the actual knowledge, and otherwise with the actual or attributed knowledge pleaded in paragraph 38, [the directors], as directors of BGF,

(c) in breach of the duty [to act in the interests of the company as a whole], failed to act bona fide in the best interests of BGF as a whole, including all of its creditors, in that:

(i) none of [the directors] then held a genuine belief that all of the instruments ..., were in the best interests of BGF as a whole, including all its creditors in that:

(A) they knew, as was the fact, that those instruments prejudiced BGF's creditors, other than the Banks, as pleaded ..., or

(B) the matters in subparagraph (A) above are repeated and [the directors] also knew, as was the fact, that by those instruments the creditors of BGF, other than the Banks, obtained no prospect, alternatively no probable prospect of benefit but had cast upon them the probable prospect of loss, as pleaded ..., or were recklessly indifferent as to whether that was so, as pleaded ..., and/or

(ii) with respect to sub-paragraph (a), they thereby caused BGF, together with TBGL, to implement, alternatively, with respect to sub-paragraph (b), they thereby caused BGF to participate in, a scheme constituted by the transactions effected by the instruments ..., whereby BGF's assets and the means of realising those assets were made available exclusively to the Banks for repayment of the debts owed by BGF and BG(UK) to the Banks, and further when there was no prospect, alternatively no probable prospect of benefit for, but the probable prospect of loss to, BGF's other creditors, to the prejudice of BGF's other creditors, ... whereby the instruments were not within the interests of BGF as a whole, including all its creditors; and/or

(iii) the instruments entered into by BGF rendered it liable for, and exposed BGF's assets to being applied in satisfaction of, the debts of an insolvent company, namely BG(UK) and by virtue of all the instruments ..., the means of realising BGF's assets were made available exclusively to the Banks for repayment of the debts owed by BGF and BG(UK) to the Banks, and BGF's entry into and procuration of such instruments with such effect was not reasonably incidental to, or within the scope of carrying on, the business of BGF and, hence, exceeded the proper interests of BGF; and

(d) in breach of the duty [to exercise powers properly], failed to exercise their powers properly, in that:

(i) they exercised their powers in a way which was not reasonably incidental to and within the scope of carrying on, BGF's business, for the reason pleaded in sub-paragraph (c)(iii) above; and/or

(ii) with respect to subparagraph (a), they thereby caused BGF, together with TBGL, to implement, alternatively, with respect to sub-paragraph (b), they thereby caused BGF to participate in, a scheme constituted by the transactions effected by the instruments ..., whereby BGF's assets and the means of realising those assets were made available exclusively to the Banks for repayment of the debts owed by BGF and BG(UK) to the Banks, and further when there was no prospect, alternatively no probable prospect of benefit for, but the probable prospect of loss to, BGF's other creditors, to the prejudice of BGF's other creditors, .... whereby the instruments were not within the interests of BGF as a whole, including all its creditors."

121 Counsel for the Banks pointed out that this pleading, with its attendant particulars was specific as to the relevant state of mind of the directors. What the directors knew or ought to have known was clearly set out. It went on to assert that the directors held no "genuine belief" of the things set out in par 39(c)(i). The particulars limited the case in relation to "genuine belief" by excluding the possibility of conscious wrongdoing. The 7ASC involved no element of dishonesty, or to be more precise, dishonesty in the sense that it was related to a precise state of circumstances.

122 In 8ASC the relevant duties are pleaded in a similar fashion except for the addition of the conflict of interest plea in par 37 (c). It is phrased as follows:

"... there existed a conflict or potential conflict of interest between the interests of the director or others and those of the company, not to exercise his or its powers in the interests of himself, itself or others or to the disadvantage of the company."

123 I will deal separately with the question of conflict of interest. The equivalent to par 38 of 7ASC is now to be found in the particulars to par 39A. That paragraph is in these terms:

"39A. In causing each Bell Participant of which the Directors were respectively directors:

(a) to enter into each Transaction which it entered into;

(b) to enter into and give effect to the Scheme;

in the circumstances pleaded ... the Directors, as directors of that company, in breach of their duties pleaded ...:

(d) failed to act bona fide in the best interests of that company as a whole, including, where that company was in the financial position pleaded ... all of its creditors and future creditors;

(e) failed to exercise their powers properly; and

(f) where there existed a conflict or potential conflict of interest between the interests of the director or others and those of that company, not to exercise his powers in the interests of himself or others or to the disadvantage of the company."

124 Particulars to par 39A cover some 27 pages. They make numerous assertions and are phrased in a variety of ways. For example in par (a) it is said that the directors "failed to have any or any proper regard to the effect on that company as a whole, including all of its creditors, future creditors or shareholders of its Transactions and the Scheme". Paragraph (c) provides that the directors "did not hold a genuine belief that, and no honest and intelligent director could have reasonably formed the view that, its Transactions and the Scheme, were in the best interests of the company as a whole, including all of its creditors, future creditors and shareholders". Paragraph (d) states that the directors "knew, believed, suspected or ought to have known or recklessly disregarded the prejudicial effect of its Transactions and the Scheme on the creditors etc...". Paragraph (f) provides that the directors "had improper regard to giving effect to the Scheme as a whole rather than having regard to the bona fide interests of that company as a whole including all of its creditors etc".

125 Counsel for the Banks submitted that this aspect of 8ASC leaves open a number of possibilities as to the case that will be made on the relevant state of mind and intent on the part of the directors. He said that the plaintiffs left the new pleading in a state of embarrassment as to exactly what they are saying. It could be that the plaintiffs are asserting a case that the conduct was in excess of the objective limits of the directors' powers and/or that the directors consciously acted knowing that they were not properly exercising their powers, or that the transaction was not in the best interests of the company, its creditors, its future creditors and shareholders or that they held no belief at all. Counsel for the Banks contended that the pleading leaves the Banks in the position where they do not know what it is that will have to be negatived both in relation to the directors and in relation to the knowledge of the Banks. Where the allegation is made that Banks were knowingly concerned in the conduct amounting to the breach, the Banks are entitled to know with precision what allegation is made in relation to the conduct to which the defendants are said to be concerned, so that the Banks know the case that will be put and which the defendants have to answer.

126 On such an important issue as this the Banks are entitled to know exactly what it is that is alleged to be the state of mind and intention with which the directors acted. I agree with the submission that the Banks are entitled to know if, and to what extent, the plaintiffs are alleging that there was conscious wrongdoing by the directors. After all, the Banks are alleged to have participated knowingly in the breaches of duty. In some instances this is clear. For example, par (c) contains both subjective and objective elements. But counsel for the Banks submitted it did not emerge clearly from, for example, pars (g), (h), (i), (k), (m) and (n) whether conscious wrongdoing is being alleged. The problems are highlighted by pars (o) and (p). It could be the case that the allegation is that the directors knew and intended to do what is alleged in those paragraphs either believing it was in the best interests of the companies or not believing it was in the best interests of the companies either because they had no belief as to the interests of the companies or they actually believed it was not in the interests of the companies.

127 There may be a simple answer to this. In the plaintiffs' further written submissions dated 30 November 2000 this is said:

"The plaintiffs have made it clear that they do not allege actual dishonesty by the directors and have made submissions at Tr971-989 as to why there is no requirement upon them to allege actual dishonesty (or conscious impropriety) by the directors, which the Banks knew of.

Expressions in the particulars such as 'no genuine belief', 'improper regard', etc must be understood in this context. It is simply incorrect for the Banks to assert that they do not know the case they have to meet in this regard.

As there is no allegation of actual dishonesty made, of which the Banks knew, many of the Banks' complaints fall away."

128 I will deal in the next section with the argument that it is not necessary to allege or establish actual dishonesty. I am proceeding on the basis that the plaintiffs' case does not rely on allegations of conscious wrongdoing.

129 I think there is merit in the Banks' contention that the use of the terms "proper regard" and "improper regard" in pars (a), (i) and (l) are embarrassing. The term "proper regard" fails to put the reader on notice of what regard is said to have been had and why such regard was not proper. If what is involved is some standard which, it is alleged, has not been reached, that standard is not exposed and the case that has to be met is not clear. The term "improper regard" in particular 39A(i) suffers from the same problem. It is not clear what regard is said to have been had, and why it was improper. Nor is the standard against which the regard is to be tested exposed. It may be that the allegations of "proper" and "improper" add nothing to the allegations of conduct "not reasonably incidental" to and "within the scope" of the company's business. Whether or not this is so is not clear on the pleadings.

130 The particulars in (f), (g) and (h) are embarrassing because it is not clear whether the plaintiffs allege that any company authorised, consented to or ratified the execution of documents. If such an allegation is made the plaintiffs must reveal which company, which document and the facts relied on for the assertion. It is not clear what par (n) is intended to add to the pleas in pars (f), (g) and (h) in relation to companies that had assets and liabilities.

131 In relation to par (d) counsel for the Banks submitted that where a case of dishonesty is pleaded, the facts which support, or an allegation that facts were "known", has to be separately identified from a case that alleges that facts "ought to have been known". Counsel relied on Richard Brady Franks Ltd v Price [1937] HCA 42; (1937) 58 CLR 112 as authority for that proposition. I will come back to that case when dealing with the conflict of interest issue. However, I am not sure that it stands for the proposition put by counsel in this regard. It might be said that, while the subjective aspect whether or not a person "knew" of a state of affairs is one thing, the statement that he ought to have known is another. However, I note that a similar pleading structure appears in 7ASC: see for example par 35(a), (b) and (d). I see no reason to intervene at this stage.

132 Another issue arises in relation to the particulars to par 39A. It affects a number of other sections of the particulars. The relevant provisions are set out in a table attached to the Banks written outline of submissions. The problem is that the particulars are replete with phrases such as "includes", "by way of example", "inter alia", "among others" and 'for instance". Counsel for the plaintiffs explained that this approach was taken because, at least in some instances, what was being particularised was in fact evidence. The word "include" (and other similar phrases) was used so that the plaintiffs would not be shut out from advancing further evidence if it came to hand on that particular issue.

133 I think the Banks' criticism of this approach has merit. On an issue of this importance the Banks have a right to know the case they have to meet. I do not believe it would be an appropriate use of resources to require the plaintiffs to go through the entire 500 or so pages and identify what is evidence and what are truly particulars. But to the extent that they are included within the framework of particulars, the Banks are entitled to have them treated as such. There would be little point in having pleadings or particulars at all (a tempting thought) if the range of issues could be expanded as new "evidence" came to light during the preparation of the case. If, as a result of material which comes to light during preparation, the plaintiffs see the need to revisit the pleadings or add to the particulars there is a process by which it can be done. But it must not be left open ended.

134 It is to be remembered that the conflict of interest plea appears in proposed par 37(c). It pleads that the directors owed a fiduciary duty to the companies where there existed a conflict or potential conflict of interest between the interests of the director or others and those of that company, not to exercise his powers in the interests of himself or others or to the disadvantage of the company. The breach is pleaded in proposed par39A(f). The grammar is not easy to follow but I think the intention is to plead the directors breached the duty referred to in par 37(c) by causing the company to enter into the Transactions and give effect to the scheme in a situation where there existed a conflict or potential conflict of interest between the interests of the director or others and those of that company.

135 The alleged conflict is particularised. For example in par 39A(o) it is said that the directors exercised their powers for an improper purpose, relevantly:

(ii) to protect BCH by removing a threat to its continuing survival, namely the winding up or liquidation of assets of the Bell Participants;

(iii) as a step in or towards a restructuring or possible restructuring of the financial position of BCH which had as an element the buying back at a discount the bonds the subject of the three BGNV bond issues; and

(iv) to protect the directors' financial interests in BCH and other Bond companies

136 The particulars in par 39A(p) state that the directors acted in their own interests and in the interests of BCH and other Bond companies.

137 I wish to deal first with a legal issue that also resonates as a significant pleading point. The question is whether it is necessary to establish, in essence, the equivalent of fraud, bad faith or dishonesty or, put another way, that the person alleged to be in conflict was conscious of the impermissible purpose or wrongdoing on which he or she had embarked. The Banks contend that the answer to this question is in the affirmative. The plaintiffs assert the contrary proposition

138 The starting point is Richard Brady Franks Ltd. There, the directors themselves took the debentures, they being creditors of the company. The case against them failed. Counsel for the Banks submitted that this was because fraud or bad faith had not been shown and that what has to be shown is that they did not conduct themselves to further any purpose of the company. Rather the directors consciously conducted themselves for their own or some other person's benefit. Before going to the cases I should describe the essence of the Banks' submission on this point. The Banks say it would be necessary to allege against them facts which showed that they knew, in some way or another, that the directors had consciously conducted themselves for their own or some other person's benefit. What the pleading does not do is indicate how the Banks knowingly participated in that conscious favouring of themselves or some other person's interest and not to further the interests of these companies.

139 In Richard Brady Price Ltd Rich J said, at 138:

"In order to succeed in a case like the present, the plaintiff must prove the equivalent of fraud or bad faith. In Hirsch v Sims the Earl of Selbourne formulated a test which seems applicable in the present case as follows: 'If the true effect of the whole evidence is, that the defendants truly and reasonably believed at the time that what they did was for the interests of the company, they are not chargeable with dolus malus or breach of trust merely because in promoting the interest of the company, they were also promoting their own'."

140 In the same case Dixon J said, at 142 and 144-145, respectively:

"It follows that a transaction carried out by directors for their own or some other person's benefit and not to further any purpose of the company is voidable but not void.

..........

Moreover, the question is not whether the operation of the transaction was or might give a preference over ordinary creditors or benefit those receiving debentures at their expense, but whether the object was wholly the advantage of the directors or their associates so that the interests of the company were sacrificed or disregarded. The burden of establishing bad faith in this sense has not been sustained."

141 Counsel for the Banks also relied on Mills v Mills [1938] HCA 4; (1937-38) 60 CLR 150. The directors of a company passed a resolution which increased the voting power of one of the directors but which was believed by them to be in the best interests of the company. The court held that the mere fact that one of the directors derived some benefit did not invalidate it when it was passed in good faith.

142 I should also refer to Marchesi v Barnes [1970] VicRp 56; (1970) VR 434, a case involving a prosecution for a breach of s 124 (1) of the Companies Act 1961 (Vic). Gowans J said, at 438:

"A breach of the obligation to act bona fide in the interests of the company involves a consciousness that what is being done is not in the interests of the company, and deliberate conduct in disregard to that knowledge."

143 Counsel for the plaintiffs submitted that it was important in this area to distinguish between the civil and criminal aspects of attacks on the exercise of fiduciary powers. On the one hand, in criminal cases a consciousness that what was being done was wrong will satisfy the element of mens rea and the criminal offence created by the statute. But in the civil field it is unnecessary to allege or establish dishonesty. In fact, counsel submitted the cases go so far as to say that it is still possible to breach the fiduciary duty even though the directors are acting honestly.

144 Counsel characterised Richard Brady Franks Ltd and Mills (both of which were civil cases) as being concerned with an analysis of the true purpose behind the exercise of the power rather than whether the power was exercised with a consciousness of wrongdoing. In the former, Dixo J, at 144 referred to the finding of the trial Judge, namely that he was not satisfied the sole purpose of issuing the debentures was to benefit depositors or guarantors and indicated that he would not overturn the finding. Similarly Latham CJ, at 136:

"The question is whether it is shown that they did not honestly act for what they regard as the benefit of the company. In my opinion, the finding of the learned judge upon this question is supported by evidence and should be upheld. Thus I am of the opinion that the appeal should be dismissed."

"A resolution may have been passed honestly in the exercise of the directors' discretion but also with a view of creating voting power to which it was thought that ordinary shareholders, in view of the relative extent of their interest in the assets of the company were fairly entitled. Again, even though the view of the directors in passing the resolution was not solely that of creating voting power which could be used by them as desired, yet, if the substantial object of the directors was to bring about this result the resolution might be held to be invalid."

146 I think this must be taken as meaning that even if the directors had acted honestly in passing the resolution in the exercise of their discretion, it may still be invalidated if, on an objective view, its purpose is improper. This, it seems to me, is consistent with the proposition that it is not necessary to establish that the directors were conscious of the fact that the resolution was in their interests rather than in the best interests of the company and yet they dishonestly and consciously went ahead nevertheless.

147 Counsel also referred to Ngurli Ltd v McCann [1953] HCA 39; (1954) 90 CLR 425, Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483, Howard Smith Ltd v Ampol Petroleum Ltd [1974] 48 ALJR 5, and Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285 all of which were civil cases and all of which supported the proposition that it was not necessary to establish conscious dishonesty. Counsel put it this way by reference, in particular, to Harlowe's Nominees: "All they had to do was establish the negative proposition that whatever induced the board's decision in favour of the agreement, it was not a purpose of thereby serving the interests of the company as a whole. Nothing about conscious dishonesty". As counsel said, if a claimant was able to show conscious dishonesty as a factual matter it would probably have a much better chance of showing it was an improper purpose or a breach of the duty. However, in formulating a statement of claim the question is what are the essential elements that have to be satisfied, not what will ensure (or at least give the best chance of) success at trial.

148 Finally, reference was made to Permanent Building Society (In Liquidation) v Wheeler (1994) 11 WAR 187. This was a case involving allegations of improper purpose which spilled over into a conflict of interest. Ipp J (with whom Malcolm CJ and Seaman J agreed) said, at 218:

"The principles applicable in determining whether directors of a company have acted for an improper purpose and in abuse of their powers are well settled. Relevantly, as regards the issues that arise in this case, it may be said that those principles are:

(a) Fiduciary powers and duties of directors may be exercised only for the purposes for which they were conferred and not for any collateral, or improper purpose.

(b) It must be shown that the substantial purpose of the directors was improper or collateral to their duties as directors of the company. The issue is not whether a management decision was good or bad; it is whether the directors acted in breach of their fiduciary duties.

(c) Honest or altruistic behaviour by directors will not prevent a finding of improper conduct on their part if that conduct was carried out for an improper or collateral purpose. Whether acts were performed in good faith and in the interest of the company is to be objectively determined, although statements by directors about their subjective intentions or beliefs will be relevant to that inquiry.

(d) The court must determine whether but for the improper or collateral purpose the directors would have performed the act impugned.

See Carter v Drake (1992) 9 WAR 82 at 94-95 (per Malcolm CJ); Darvall v North Sydney Brick and Tile Company Limited & Ors (1989) 16 NSWLR 260; Mills v Mills [1938] HCA 4; (1937) 60 CLR 150 at 185; Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285 at 292; Howard Smith Limited v Ampol Petroleum Limited [1974] AC 821 at 838.

149 It is not easy to reconcile these authorities. It is true that the cases such as Richard Brady Franks Ltd and Mills refer to "bad faith", to the requirement to act "honestly" and not to act "capriciously". It may be that this language was influenced by the primary statutory obligation in force at the time which spoke of the duty of a director to act honestly in the performance of duties. On the other hand, it is difficult to see how, if honest or altruistic behaviour by directors will not prevent a finding of improper conduct on their part if that conduct was carried out for an improper or collateral purpose, it should be necessary to plead conscious dishonesty.

150 However, the Corporations Law now distinguishes between the civil and criminal aspects. The change may have been made because of confusion or uncertainty about the word "honesty": see, for example, Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261; Chew v The Queen [1992] HCA 18; (1992) 173 CLR 626. Sections 181 and 182 provide that a director must exercise powers and discharge duties in good faith in the best interests of the company and for a proper purpose and must not improperly use the position to gain an advantage for someone else or cause detriment to the corporation. These are clearly noted as civil obligations. On the other hand, s 184 provides that the equivalent conduct will be an offence if the director is reckless or intentionally dishonest.

151 In my view the proposition contended for by the plaintiffs is reasonably arguable. Because it is such an important issue they must not the leave the question in any doubt. Counsel for the Banks said that the position was clear under 7ASC: the plaintiffs were not alleging conscious dishonesty in relation to the breaches of duty on which the claim was based. In relation to the conflict of interest allegation, if the plaintiffs wish to advance a case without asserting conscious dishonesty they can do so. If the Banks wish to argue at trial that this is not sufficient to ground liability, they can do so. As I said in the previous section, the plaintiffs further written submissions indicate that there is no allegation of conscious wrongdoing. I am proceeding on that understanding. They will be bound by the pleading.

152 In summary, then, I am concerned to ensure that there is no doubt that, in relation to any allegation of a breach of duty, the plaintiffs are not alleging that it involved conscious dishonesty. There are, as there was in 7ASC, a number of areas where it is said that the directors knew or ought to have known about a state of affairs or facts. It does not necessarily follow that, for example, entering into a transaction armed with that knowledge necessarily and inevitably involves conscious dishonesty. Because of the importance of the breach of duties as the underpinning to both the Barnes v Addy and equitable fraud claims, the plaintiffs must state their case with precision. If I have wrongly apprehended the plaintiffs' position I should be told as I would take a different view of the pleadings.

Breaches of Duty - Bond Corporation, Directors Interests and Conflict

153 In pars 36A to 36P of 8ASC the plaintiffs allege that the Transactions and the Scheme were entered into and given effect by the vast majority of the Bell Participants in circumstances where the directors of those companies preferred either their personal interests or the interests of certain other companies in the Bond Group.

154 The matters alleged in par 36A to 36P are the basis from which the plaintiffs wish to argue that named directors of various companies breached their fiduciary duties to exercise powers properly. It is also pleaded that the Banks knowingly participated and assisted in these breaches and as a consequence have received gains. This is to be found, in particular, in pars 59M to 59Q and 65H to 65K of the minute. In this respect 8ASC is not significantly different (at least in substance) from its predecessor.

155 The same matters form the basis of the conflict of interest plea that is found in pars 37(c), 39A(f) and 39C(e) of 8ASC. As to the position of BCH, the allegation is that restructuring of the company is contained in par 36M. The plaintiffs submit that a potential for conflict arises from the pleaded facts. The issue is whether the directors exercised their powers in a way which gave rise to a breach of duty by failing to prefer the interests of the company concerned. Such a finding is an inference arising from the pleaded facts.

156 I will come to the issue of prejudice later. Subject to what I am about to say concerning specific issues, it seems to me that the allegations of a conflict of interest could form a legitimate basis from which to conclude there had been a breach of duty by the directors. I also believe that the factual basis from which the Court will be invited to reach that conclusion is adequately articulated in the paragraphs to which I have referred.

157 One specific issue to which counsel for the Banks drew attention was the concept of a "valid and effective restructuring". It first appears in par 33C of 8 ASC:

"At the commencement of the Scheme Period, by reason of the matters pleaded in paragraphs 7 to 12 and 20A to 29B, unless the Bell Participants were able to enter into a valid and effective restructuring of their financial position, those companies would have been wound up or their assets liquidated, save:

(a) in the case of a solvent Bell Participant, its shares, where owned by another Bell Participant, might have been sold to a third party as part of the winding up or liquidation of the assets of such shareholder; and

(b) in the case of a Bell Participant which had neither assets nor liabilities."

158 The concept of a "valid and effective restructuring" is repeated in pars 33C(c), (j), (k) and (l), 36N(f), 59B(h), 59D, 59K, and 59P(f). It is also relevant to the particulars of the alleged breaches of duty because the particulars to par 36P rely, among other things, on the matters pleaded in pars 33B and 33C. Counsel for the Banks submitted that in ascertaining whether there was a conflict or a real or substantial possibility of a conflict and what is the content of the allegations of conduct to the disadvantage of the company, what is meant by "a valid and effective restructuring" is not disclosed, nor is the basis of such restructuring disclosed. Nor is there any elucidation of the allegation made that the grant of security actually prejudiced the Bell Group creditors in any restructuring that might be effected. This is material because knowledge of the Banks concerning a valid and effective restructuring is pleaded in pars 59D and 59K. The Banks say it is necessary, in order to ascertain the case which the plaintiffs wish to make in relation to the alleged conflict, properly to plead and particularise what is meant by a "valid and effective restructuring" of the financial position of the Bell Group of companies and what it is said that ought to have involved and how and why it was to be achieved.

159 Counsel submitted that the failure to do so leaves unascertained the content of the allegation in par 36P. These matters are necessarily material to the ascertainment of whether there was a conflict or a real or substantial possibility of conflict and how the grant of security damaged the companies and actually prejudiced the creditors in any restructuring of the financial position of the companies that might be effected.

160 Counsel for the plaintiffs countered these submissions by pointing out that it was not part of the plaintiffs' case that steps should have been taken to effect a valid reconstruction. The case the plaintiffs wish to put is that what the directors did was in breach of their fiduciary duties and the Banks were a knowing party to that transaction, or a knowing recipient. That is the Barnes v Addy claim. The plaintiffs do not assert that any particular steps should have been taken. Rather, the directors ought not to have done what they did. Counsel also took issue with the submission that the term "valid and effective restructuring" is not explained. He pointed out that the term "restructuring of the financial position" is one adopted by the Banks in their defence: see, for example pars 48A(c) (viii)(a) and (xii) and 48AA(3)(i). Counsel said that the words "valid and effective" were put in as an abundance of caution to pick up what is implicit in the Banks' defences, namely that restructuring is effective (debts will be paid when they fall due) and valid (that is, not unlawful). This, counsel submitted, does not require the plaintiffs to set out something which they were not alleging. The plaintiffs are not required to say, and do not say, what the directors ought to have done. The case is simply that in doing what they did, they breached their fiduciary duties to the companies concerned.

161 There were similar criticisms of the references in 8ASC and the particulars to the Bond restructuring. They appear, for example, in pars 36M, 36O(d) and 59PA and in various places in the particulars. However, these references are to be read as encompassing a restructuring or possible restructuring of the financial position of BCH which had as an element the buying back at a discount of bonds the subject of the three BGNV issues. It only covers a restructuring proposal for BCH and other Bond companies that included the Bell Group of companies and, in particular, the buying back at a discount of the bonds the subject of the three BGNV issues. If there were other proposals to restructure BCH they are not covered by the pleadings.

162 In my view the case which the Banks have to meet is sufficiently exposed by the pleadings.

The Effect of the Transactions and the Scheme

163 It can be seen from what I have written to date that a critical feature of the plaintiffs' case is the effect of the Transactions and the Scheme. From a pleading perspective it is important that what the plaintiffs are alleging in this respect is clear. The criticism seems to be that there is an inappropriate emphasis of the effect of the Scheme on the Bell Group generally. As directors duties are owed to the companies of which they are officers it is necessary to look at the financial circumstances of the individual companies to assess whether there was a breach of duty in relation to that company. According to counsel for the Banks, this is what 7ASC did but 8ASC does not do so to the same extent.

164 One answer to this is that the information contained in par 36 of 7ASC (and which, at least in the sense of form was not objected to by the Banks) remained in the pleading but by way of particulars. There is a description of the format of the particulars at p 943 of the Transcript which supports this assertion.

165 This covers the position of the Bell Participants who are plaintiffs and those that were members of the Bell Publishing Group. In 8ASC there is a reference to other Bell Group companies that do not fit into either category. They were not included in par 36 of 7ASC and therefore do not appear in the particulars to 8ASC. They are referred to as the third category of Bell Participants. No relief is claimed on their behalf and it is important to see why they have been included.

166 There are 60 or 70 companies in this category. Counsel for the plaintiffs said they were included because they entered into Transactions and because they are relevant to a matter contained in the defence. The Banks have pleaded in par 48C of the defence that the conduct of certain of the companies about which it is said the directors acted in breach of their duties has been excused because either their creditors or their shareholders have consented to the transaction.

167 What the plaintiff has done is to plead the financial circumstances, the documents entered into by each company and the effect of the Transactions. For example, the plaintiffs have pleaded that the company entered into a subordination deed the effect of which was to subordinate its claims against other Bell companies to the Banks and to impose an obligation on the company to hold any moneys received in payment of a debt due by a Bell company to be held on trust for the Banks.

168 There is not in the pleading the same degree of detail concerning the financial circumstances of the third group of Bell participants as there is in relation to the other two. Nor are the legal consequences (in relation to individual companies) of the various Transaction documents spelled out. Nonetheless, it seems to me that in relation to those companies that are not claimants for relief and that have been included in the pleading for a limited purpose, there is sufficient particularity to apprise the Banks of the case they have to meet.

169 The plaintiffs make claims against the Banks under Barnes v Addy both in respect of knowing assistance and participation and as recipients of property. In 7ASC the case of knowing participation and receipt was related into the entry into of the transactions and the knowledge was related to knowledge as at that time, that is, at the time when the transactions were entered into. The plea in pars 60 and 61 has the attribute of (relative) simplicity. I cannot say the same about the comparable paragraphs in 8ASC. They are much more complicated and I have had considerable difficulty in following them. That, however, is not a reason to disallow the amendment.

170 In the section under the heading "Background" I have set out in a little detail some of the factual allegations that the plaintiffs make about the state of knowledge of the Banks and the way they attained that knowledge. I will not repeat what is there set out.

171 Paragraph 65H of 8ASC provides that by reason of the matters pleaded in pars 16 to 19C, 49 to 59U (save for one exception) the Banks knowingly assisted and participated in the breaches of duty of the directors as pleaded in pars 39A to 39E. The allegation of knowing assistance and participation hinges, in part, on knowledge in 49 to 59U. The Bank's knowledge is said to derive, at least in part, from the argument that they were in a partnership of joint venture. This is the subject of pars 49 to 49D. I will deal with that issue separately. A number of the nominated paragraphs plead knowledge before, during and after the Scheme Period as relevant to the Banks' knowing, participation and assistance by entering into the transactions. The Scheme Period is defined in the glossary as the period 8 January 1990 to on or about 31 July 1990.

172 One of the objections taken by the Banks is that knowledge gained after the Transactions were entered into could not be relevant to a case of knowing participation and assistance. In my view this has merit so long as the place of "Transactions" within the "Scheme" is borne in mind. The "Scheme" is defined, in the glossary and by reference to par 19A, as, essentially the series of Transactions effected by or required by the instruments pleaded in par 16, 17 and 19. They are not, therefore, limited to the documents. However, the Scheme is a definite term. It relates to an identifiable series of transactions. In terms of deciding what was the Banks' state of knowledge it must be as at a certain time. There is, in my view, no justification in law or in logic in alleging that knowledge gained after the conclusion of the Scheme Period might be relevant to a claim of knowing assistance or participation.

173 Paragraph 59TA can be cited as an example of the problem. It provides that with the knowledge belief and suspicion pleaded in pars 59B to 59T the Banks refrained from seeking information about the "current" financial position of Bell Participants. Taken literally this would include the open-ended period from 31 July 1990 and following.

174 If I understand correctly what the plaintiffs are saying, it is that if, for example, knowledge was gained in December 1989 it continued to be known, throughout and indeed after the Scheme Period. I have no difficulty with that proposition. If it means no more than that the Banks engaged in conduct at particular times (namely the time when transactions that were part of the Scheme were entered into) with the state of knowledge, belief or suspicion which they had at that time or those times it can be accepted.

175 When this matter comes to trial it will remain open for the Banks to assert that the proper approach is not that contended for by the plaintiffs. In other words, the Banks may be able to convince the trial Judge that the proper factual matrix as found leads to a conclusion that the duties of the directors have to be assessed transaction by transaction, company by company. If that be the case, the state of knowledge at the time when the individual transaction was entered into will rule the day. But that is not the case the plaintiffs wish to lead. As a pleading matter I think I must allow the plaintiffs to plead the case (on this issue) in the way they want to. That involves looking at the Scheme (as pleaded) in its entirety and the transactions in accord with their operation as part of that Scheme. This, in turn, would permit knowledge to be ascertained as at the time when individual transactions were entered into during the Scheme Period.

176 Another objection taken by the Banks is that where dishonesty or impropriety is alleged against the directors, the Banks are entitled to very full and precise particulars of how it is said that they knew of and participated in that dishonesty or impropriety. Of course, in the argument the plaintiffs disavowed any need to establish conscious wrongdoing on the part of the directors. I have indicated that while I accept there is a reasonable argument that this is the state of the law it needs to be made abundantly clear on the face of the pleading. If there is an allegation of conscious dishonesty or impropriety on the part of the directors I incline to the view that, as a pleading point, the plaintiffs ought to disclose exactly what they say was the Banks level of knowledge, assistance and participation.

177 I accept, as the plaintiffs have submitted, that the relevant test for accessorial liability is an objective one. It may not be necessary for the party wronged to prove that the accessory knew the precise elements going to make up, in this case, the breach of fiduciary duty. It may be sufficient to establish that the accessory knew of circumstances which would reasonably indicate that a breach may be involved: Agip (Africa) Ltd v Jackson [1990] 1 Ch 265; Royal Brunei Airlines v Tan [1995] UKPC 4; [1995] 2 AC 378. Of course, what this does not resolve is the extent of the "circumstances" that are material in any given case. But how these principles are to be applied in any particular case is not all that clear. In National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd, unreported, Federal Court of Australia (Lindgren J); 564/98; 28 May 1998 Lindgren J said:

"The concepts of 'participation' and 'knowledge', in particular, are apt to give rise to difficulty. Clearly, the third party must have actually known all the circumstances constituting the elements of the breach of fiduciary duty. There has been some difference of opinion, however, as to the nature and extent of the awareness required of the third party, and, therefore, on the issue of the third party's 'fault' or 'blameworthiness': cf Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 398 (Gibbs J); Royal Brunei Airline SDN BHD v Philip Tan Kok Ming [1995] UKPC 4; [1995] 2 AC 378 at 384-385, 392; Finn, 'The Liability of Third Parties for Knowing Receipt or Assistance', above, at 214-218; Oakley, Constructive Trusts, above, at 191-220; Parkinson, above, at 748-754. This potential area of difficulty need not concern me in relation to the Pleading."

178 The reference to "all the circumstances" is interesting. In a case where the allegation is one of conscious wrongdoing by the fiduciary might it not extend to the mental state of the defaulting fiduciary? These are not matters that I am inclined to resolve on a pleading application. However, it highlights a problem that I think is of genuine concern. As a matter of fairness and to assist in the proper preparation of the case, it makes it all the more important to understand that there is no allegation of directorial dishonesty or conscious impropriety. If there were such allegations the precise way in which the Banks are said to be implicated in it by knowledge, participation and assistance, would have to be made known. The sources of the Banks' knowledge and the persons concerned in gaining it would have to be disclosed.

179 In this respect, par 59TA(b) provides an example of a pleading that can give rise to difficulties. It has a long history that was, itself, recited at length during argument. There would be little point in me going over it all again. It involves an allegation that the Bank's solicitors drafted, among other things, minutes to be signed by the directors. What is not clear is whether it is going to be said that there is some impropriety on the part of any person on behalf of the Banks arising out of what is pleaded in par 59TB(a). If so, and particularly having regard to the past history of this particular allegation, the plaintiffs ought to say so clearly so the Banks know precisely what it is that they have to negative. It may, for example, require them to call the legal advisers, both solicitors and counsel, who were retained by the Banks in relation to those matters.

180 With those caveats the general thrust of the case on the Banks' knowledge, participation and assistance set out in 8ASC can go ahead.

181 As I have said, the allegation that the Banks were associated in an agency or joint venture relationship is relevant to the issue of knowledge in the Barnes v Addy claim and it will be convenient to deal with it now.

182 In paragraphs 49 to 49D of 8ASC the plaintiffs allege material facts giving rise to a fiduciary relationship, an agency and joint venture or partnership between the Banks in relation to the Transactions and the Scheme by reason of which knowledge of each of them is attributed to the others.

183 The plaintiffs have divided into discrete new paragraphs what were formerly sub-paragraphs of par 49 of the seventh claim. Further allegations have been added in relation to:

(a) the matters in respect of which the Banks undertook to co-operate to include ways of securing and recovering their loans, the Transactions and the Scheme;

(b) the role of the solicitors in obtaining and communicating information for the Banks;

(c) the role of Lloyds Bank as agent for the Lloyds Syndicate Banks and Westpac as agent for the Australian Banks and Westpac as trustee or agent for all Banks;

(d) a joint venture or partnership of Banks formed and performed or pursued (the alternatives as to when this joint venture or partnership came into existence and its material terms).

184 The gravamen of the additional matter is the arrangements between the Banks of a sharing of information is a case of joint venture or partnership giving rise to some form of fiduciary obligation to impart information between them. It would then follow that the knowledge of one Bank is the knowledge of the others. It seems to import the notion of a partnership between the Banks inte se and fiduciary obligations between them.

185 The starting point must be the written agreement governing the relationship between them. It is the Security Trust deed and Inter Creditor Agreement dated 8 January 1990 and pleaded in par 17 of the statement of claim. As counsel for the Banks pointed out, it does not provide for a partnership of joint venture. Indeed, some clauses are inconsistent with such a relationship: see for example cls 2.4, 3.4. 3.9 and 7.2(a). They set out the relationship between the parties in a way that is not consistent with the notion of a partnership. They are specific in relation to obligations between the Banks and their agents. They do not refer to the nature of any obligations that would speak in a fiduciary category. Of course, it is trite to say that this is not the end to the story.

186 Counsel for the Banks submitted there were other reasons militating against this being, arguably, a fiduciary relationship of the type under contemplation. There is no identification in any meaningful way of what profit or loss the partners agreed to share or bear in common. The arrangements sought to be relied upon by the plaintiffs do not bear the quality or characteristics of a partnership or joint venture as those terms were explained in United Dominions Corporations Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 at 10.

187 It was also submitted that the relationship between the defendants is not one of the commonly understood fiduciary relationships. Why the court would categorise the relationship as one giving rise to a fiduciary relationship in a commercial transaction with the parties clearly at arms-length on an equal footing with no suggestion of undue influence, would need to be explained: Hospital Products Ltd v United States Surgical Corporation & Ors [1984] HCA 64; (1984) 156 CLR 41 at 70. In addition, the law does not impose positive legal duties on a fiduciary to make disclosure of information in the possession of the fiduciary to the person to whom the fiduciary owes fiduciary obligations: Breen v Williams (1996) 186 CLR 61 at 113

188 In those circumstances, counsel submitted, the plaintiffs are required, if they wish to pursue those allegations, to comply with the requirement that pleadings and particulars furnish a statement of the case to be made sufficiently clear to allow the defendants a fair opportunity to meet it. The plaintiffs had not done so and had not disclosed a cause of action. Counsel raised the following matters in relation to the pleadings and particulars:

(a) the particulars to par 49B do not delineate the case and the reference to pars 16-19C does not take it any further;

(b) the reference to pars 36T to 36APC is similarly unhelpful. None of the matters in those paragraphs has previously been put forward as a basis upon which it is alleged that there was a joint venture or a partnership. A number of the events relate to a period after 8 January 1990. How the events give rise as a matter of law to a partnership or joint venture is not something which emerges from the manner of particularisation;

(d) par 49BC is embarrassing because it is not clear whether it is alleged that the alleged relationship of partnership or joint venture was formed by and on the terms of the Inter-Creditor Agreement and the Security Trust Deed (which contention is, in any event, inconsistent with those documents) or whether the alleged joint venture or partnership was formed independently of, but came into existence when, the Inter-Creditor Agreement and the Security Trust Deed were entered into. If the latter, the basis outside the documents is not particularised;

189 (e) no particulars are provided of par 49BD. The paragraph appears to plead irrelevant matters. Further, these matters cover a time span up to 1992 so as to put the defendants in a state of uncertainty as to what material facts they need to investigate.

190 The Banks rely on Breen v Williams and National Mutual Property Services for the broad proposition that there is no obligation on the part of a fiduciary to disclose information. It may sound as a defence to a breach of fiduciary duty but there is no positive obligation to disclose information. If so, par 49C(a) discloses no reasonable cause of action.

191 National Mutual Property Services was a Barnes v Addy case involving knowing participation and assistance. Lindgren J said,

"This brings me to consider directly the pleaded obligation 'not to withhold information material to be known by the applicants' ... . The question is whether there is pleaded a duty, recognised in equity, incumbent on [the fiduciary] to take the initiative of disclosing what they had supposedly learned about the irregularities touching the role of [the wrongdoer]. Citibank submits that whatever contractual or common law duties were owed by [the fiduciary] to the applicants, there was no such positive duty of disclosure arising from fiduciary obligation. It submits that 'there is no breach of duty solely in a fiduciary agent's failure to disclose a material matter to his or her principal'. For example, while in Bowstead on Agency (16th ed, 1996) at 217, 223, it is said that an agent has a 'duty to make full disclosure' (art 46) and a 'duty to make full disclosure where he deals with his principal' (art 47), the full text of these articles shows that they are to be understood as manifestations of the conflict and secret profit rules, disclosure being a defence to what would otherwise be a breach of one or other of those rules, rather than an independent duty. In fact, there are countless statements in the authorities that fiduciaries as such (I exclude contractual undertakings) have an obligation to make voluntary disclosure, but always, so far as my researches reveal, as the means of avoiding a breach of the related duties not to have a secret interest conflicting with their duty as a fiduciary and not to make a secret profit from their fiduciary position (for two recent examples, see Law Society of New South Wales v Foreman (1994) 34 NSWLR 408 (CA) at 435G (Mahoney JA) and In the matter of an Application by the Law Society of The Australian Capital Territory in relation to the conduct of Lardner [1998] SCACT 24 at 22).

This point is made by Glover, in Commercial Equity: Fiduciary Relationships (1995), par 5.10:

'There is as yet in Australia no positive rule that a fiduciary must disclose personal interests to a beneficiary, or disclose anything else. Adequate disclosure is a defence to each of the conflict and profits rules, as we will see. Any positive disclosure rule would have to have a content. It could not be a mere prohibition. This would be contrary to the scheme of fiduciary duties sketched above.' (author's emphasis)

In Breen v Williams (1996) 186 CLR 71, a case concerned with sought rather than voluntary disclosure, the High Court has had much to say on the present issue. ... Gaudron and McHugh JJ said:

'One commentator has recently pointed to the vast differences between Australia and Canada in the understanding of the nature of fiduciary obligations. One significant difference is the tendency of Canadian courts to apply fiduciary principles in an expansive manner so as to supplement tort law and provide a basis for the creation of new forms of civil wrongs. The Canadian cases also reveal a tendency to view fiduciary obligations as both proscriptive and prescriptive. However, Australian courts only recognise proscriptive fiduciary duties. ... In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed.' (at 112-13) (citations omitted)

'Equitable remedies are available where the fiduciary places interest in conflict with duty or derives an unauthorised profit from abuse of duty. It would be to stand established principle on its head to reason that because equity considers the defendant to be a fiduciary, therefore the defendant has a legal obligation to act in the interests of the plaintiff so that failure to fulfil that positive obligation represents a breach of fiduciary duty.' (at 137-8)."

192 In my view there is merit in what the Banks have submitted. There is no general duty of disclosure, in a positive sense, that arises merely because the relationship between the parties is a fiduciary one. This is not to say that the particular relationship might not give rise to duties of this nature. Nonetheless, there is, in my view considerable difficulty with the way in which the matter is pleaded. Put bluntly, the plaintiffs wish to avoid problems that might arise if it is said that what one Bank knew was not known to another or others of them. They attempt to do so (in essence and with apologies for the generalisation) by saying that because the relationship between the Banks is of a fiduciary character and because that involves a duty to disclose, the knowledge of one of them is imputed to all. If they wish to do so, they would have to plead precisely the circumstances giving rise to the duty and its application so as to have the effect contended for. In my view the pleading does not do so.

193 This is not an area where the plaintiffs, if denied the amendment, would be left entirely without resort to the notion of an obligation to share information. They can still bring it forward under par 49 of 8ASC, although not in the guise of a fiduciary obligation. I would disallow these amendments.

194 The 8ASC introduces a concept of "steps to facilitate and protect the Scheme". It is contained in pars 36T to 36APC. The proposed pleading introduces as material facts conduct engaged in by which the directors and the Banks facilitated the entry by the various parties into the Scheme and protected the Transactions from being unwound within six months of the date of the entry of the first of the Transactions. These matters are relevant to establishing the Bankruptcy Act and Statute of Elizabeth claims against the Banks and the equitable fraud claim.

195 In the plaintiffs' written outline of submissions it is said that the material also goes to the Barnes v Addy claims against the directors and the Banks. However, in a memorandum dated 28 July 2000 delivered by the plaintiffs to the Banks it is said: "the steps to facilitate and protect the Scheme now relate to the equitable fraud claim only and do not relate to the Barnes v Addy claim". I think this is how the pleading is meant to be read. For example, par 65H pleads that by reason of the matters in several paragraphs (identified by number but which do not include pars 36T to 36ATC) the Banks knowingly participated in the breaches of duty. This may need to be clarified. By way of contrast, in par 65M reliance is placed on the matters contained in pars 1 to 65K, which, of course incorporates pars 36T to 36ATC. In other words, the facilitation and protection of the Scheme is said, expressly, to be relevant to the equitable fraud claim.

196 The plaintiffs say that they are also relevant to rebutting the Banks' defence as to the directors' and Banks' beliefs and conduct and the representation and estoppel case in relation to the BGNV on-loans. This is to be found in pars 13A to 13N, 30A, 48A, 48AA and 62AA of the defence and counterclaim.

197 The plaintiffs also say that most of the matters involved in the factual matrix are already in 7ASC in one form or another and that the details contained in the particulars show that they are relying on documents already discovered by the Banks. The elements of the existing factual ambit of the proceeding are:

(a) the fact of and the matters surrounding the demands made by SCBAL in early December 1989 and their withdrawal: pars 36T-36Y, 36AB and 36AC of 8ASC, particular 20(b)(ii) of 7ASC and par 48A of the defence;

(b) the question whether the BGNV on-loans were subordinated and the directors' and Banks' respective beliefs as to this in December 1989 and January 1990 and the effect of a default to the Banks under the terms of the Three BGNV Trust Deeds: see pars 36Y, 36Z, 36AA and 36AC of 8ASC, par 45,46 and 46A of 7ASC and particulars to par 48A(c) of the defence;

(c) the waivers in the period February to July 1990 granted by the Banks to enable the application of proceeds of sale of assets (in particular, the sale of the printing presses of Bell Group Press for approximately $25 million): particulars to par 48(c) of the defence;

(d) the steps alleged to have been taken by the directors and the Banks in May to July 1990 as part of the factual matrix within which the Banks allege that the directors took to achieve a restructuring: pars 36AM-36APC of 8ASC and par 30A(c) of the defence;

(e) the fact of and circumstances surrounding the drafting and execution of the BGNV Subordination Deed and the involvement of the Banks and directors: pars 36AO and 36AOA of 8ASC and the particulars to those paragraphs, particular 5(b)(i)(E) to(I) of 7ASC and pars 13A to 13N of the defence.

198 I am not sure whether the material contained in pars 36APA, 36APB and 36APC appears in 7ASC but it is significant because it has relevance to the position of LTDC and its claim of equitable fraud. Those allegations are:

"36APA. Further, in or about May 1990, the Banks, or some of them, and the Directors agreed or had an arrangement or understanding that as a condition of the Banks making moneys available to TBGL, TBGL would meet with LDTC as soon as possible and, inter alia, inform LDTC of the financial position of TBGL and BGNV and the plans of the Directors to restructure the financial position of the Bell Participants.

36APB. In or about July 1990, the Banks, or some of them, and the Directors agreed to waive the requirement to inform LDTC as aforesaid as to do so would not be in the interests of the Banks or the shareholders of TBGL.

36APC. The Banks or some of them and the Directors so waived their agreement, arrangement or understanding and thereby avoided or delayed informing LDTC of the Directors' proposal there be a restructuring of the financial position of the Bell Participants as it was agreed it would not be in the best interests of the Banks and the shareholders of TBGL to do so, and otherwise to protect the Scheme."

199 It is apparent from the exchange of memoranda between the parties prior to the hearing that this aspect of 8ASC was revised to take into account some of the criticisms the Banks had made. In my view the factual matrix, if established, could support the equitable fraud claim and in that sense there is a reasonably arguable cause of action. It seems to me that it is pleaded with sufficient clarity to enable the Banks to know the case they will have to meet on this issue. I am not troubled by these particular amendments.

200 I turn now to another of the more significant issues raised by the application. It is whether LDTC should be joined as an additional plaintiff. LDTC has given written consent to its joinder. The plaintiffs describe LDTC as one of the main victims of the equitable fraud. It acted, the plaintiffs say, in ignorance of the fraud in circumstances where duties were owed to it to inform it of the relevant circumstances.

201 The first question relates to the power of the Court to order joinder and the considerations that are to be taken into account. The plaintiffs rely on O 18 r 4(1) and r 6 of the Rules of the Supreme Court as providing the necessary heads of power. The plaintiffs' submission is that LDTC ought to have been joined and its presence is necessary to ensure that all matters in dispute in the proceedings are effectually and completely determined and adjudicated upon. They also say that if a separate action were brought by LDTC against the Banks, some common questions of law and fact would arise as between that action and this litigation. They further assert that the relief claimed by the plaintiffs and the rights and relief claimed by LDTC are in respect of, and arise out of, the same series of transactions.

202 The case put by the plaintiffs in favour of joinder can be summarised as follows. A party ought to have been joined as a plaintiff if it can be shown that their legal rights would be potentially affected by the matters in dispute. They must have a direct and legal interest**.** This is to be contrasted to a party simply having a commercial interest in the outcome of the dispute in common with the existing plaintiffs.

203 The purpose of O 18 r 6 is to save costs by bringing all the parties to a transaction before the Court so that their rights may be determined in the one proceeding, even though the evidence affecting them is not exactly the same. Accordingly, in considering joinder under O 18 r 6, the Court should have regard to the realities of the situation, with significant regard to the use of Court resources and issues of efficiency. The legal rights of the BGNV bondholders, represented by LDTC as trustee, are affected or potentially affected by the equitable fraud plea which the plaintiffs seek leave to introduce in par 65M. The material facts on which LDTC will rely in support of its equitable fraud claim are almost identical to those on which have been referred to by the existing plaintiffs.

204 The plaintiffs allege that the fear of the BGNV bondholders competing equally with the Banks as creditors of the Bell Group, and the desire to advance the Banks' interests over those of the BGNV bondholders, were at the forefront of the Banks' considerations. Those fears were a motivating factor in the decision of the Banks and the directors to proceed with the Transactions, and to take steps to facilitate and protect the Scheme. These matters are the subject, in particular, of pars 36AC, 59B(g), 59C and 59D of 8ASC. There are additional factors in the LDTC claim. It can point to specific obligations which were owed to it and which were breached by TBGL and BGNV, in particular, as alleged in par 116 and par 117 of 8ASC. In summary, they are obligations to:

(a) notify events of default under the three BGNV Trust Deeds;

(c) conduct their business in a proper and efficient manner.

205 In par 116 and par 117 the plaintiffs also allege that the Banks entered into the Transactions and took benefit of them with knowledge of the relevant facts, and thereby took advantage of the breaches of duty owed to LDTC on behalf of the BGNV bondholders.

206 In those circumstances, the plaintiffs say, LDTC as trustee representing the interests of the BGNV Bondholders is a natural and proper plaintiff to complain of these aspects of the equitable fraud. It is a person not a party to the transactions upon whom there has been an imposition and deceit. It stood in such a relation to the TBGL, BGNV and the Bell Group companies (by reason of their debt and equity structure) and their external assets so as to be affected by the Transactions and the Scheme or their consequences.

207 The plaintiffs also submit that when considering what matters are "in dispute", the Court should look not only to matters which arise directly on the existing pleadings, but should also consider disputed issues of fact which are subjacent to the pleadings and foreshadowed amendments to the pleadings. There are no set rules delineating when a party should be joined pursuant to O 18 r6. Each case depends on its own particular circumstances.

208 The plaintiffs also point to par 13A and following of the defence. There, the Banks allege that conduct engaged in by TBGL and BGNV gave rise to a common assumption or estoppel that should prevent their liquidators now asserting that the BGNV on-loans were unsubordinated. The parties whose rights and interests are most directly affected by that allegation are the BGNV bondholders. The Banks do not assert that any conduct of the BGNV bondholders gave rise to any common assumption or estoppel. LDTC, in its capacity as trustee for the BGNV Bondholders, now wishes to join the proceeding in order to assert the rights of the BGNV bondholders arising by virtue of the alleged equitable fraud. Those rights will be destroyed if the estoppel and common assumption allegations are made out.

209 The alternative basis on which the plaintiffs invite the Court to order the joinder is under O 18 r 4(1). It is not clear on the authorities whether O 18 r 4(1) is limited to the joining of parties at the commencement of proceedings: South West Forest Defence Foundation v CALM (1996) 131 FLR 225 at 226-27. The point was not specifically addressed in argument and I do not think I need to determine the question. I prefer to rest the application on O 18 r 6.

210 The points raised by the plaintiffs in support of the Court exercising its discretionary powers to order joinder are these. LDTC is not a stranger to the Banks or to the proceeding generally between the plaintiffs and the Banks. Many of its documents are already produced in the proceeding. The reasons for LDTC's proposed joinder at this time have been explained. They involve the circumstance of a recommendation from new senior counsel, the need for the liquidator to negotiate an appropriate indemnity, the fact that the Banks delayed and complicated the process of waiving privilege over numerous relevant documents and the fact that the equitable fraud plea is in part responsive to the "13A" defence introduced by the Banks in 1998.

211 The plaintiffs contend that LDTC has not delayed in bringing forward its claim. LDTC was not considered to be a potential litigant in this proceeding before the equitable fraud plea was contemplated. No significant additional discovery is anticipated if LDTC is joined.

212 As a general statement, I think the plaintiffs have established, at least on a prima facie level, a case that LDTC should be joined. I am satisfied that LDTC has a direct and legal interest in the subject matter of the proceedings and that its legal rights are potentially affected by the matters in dispute. I do not wish to get into the disputes between the parties as to who delayed or circumvented the processes to date. As will become apparent when I discuss the overall issue of prejudice there is an enormous amount of material containing charge and counter-charge between the parties on matters of that type. I would prefer to look at the question in a more objective fashion and deal with the substantive objections raised by the Banks. One of them is the question whether the equitable fraud claim by LDTC is statute-barred. I will deal with the limitation issues separately and in a global way.

LDTC Joinder -Objections to the Equitable Fraud Claim

213 During argument counsel for the Banks passed the comment that they viewed the equitable fraud claim by LDTC as the primary claim and the equitable fraud claim by the present plaintiffs as parasitic on it. I am not sure whether this is correct or not. The materials seem to suggest that when new senior counsel was appointed by the plaintiffs he reviewed the case and identified the equitable fraud claim as a potential cause of action. It was during the investigations of the new cause of action that the significance of LDTC's position became apparent.

214 In my view the claims by the plaintiffs and by LDTC arise from the same or a very similar factual matrix. They have elements in common and yet, in terms of emphasis and substance, have differences. They can stand independent of one another. Because they are so similar in their genesis, much of what I have already said about the fundamental nature of the claim and the objections to it apply with equal force to the LDTC claim in equitable fraud. However, there are some additional matters to which I must make reference.

215 The pleading of the LDTC equitable fraud claim is to be found in pars 110 to 125. I have been through some of this before but I think I will have to repeat it. Paragraph 110 incorporates the matters pleaded in pars 1 to 65G. It is to be remembered that the plaintiffs' equitable fraud plea (par 65M) incorporates pars 1 to 65K. Paragraphs 65H, 65I, 65J and 65K are the pleading of the Barnes v Addy claim. That is not, therefore, part of the LDTC equitable fraud claim. For sake of completeness I should add that the pleading of the plaintiffs' equitable fraud claim also incorporates the matters in pars 111 to 125.

216 Paragraphs 111 to 113 plead that the insolvency of TGBL and BGNV and the SCBAL demands and the failure of the recipients to comply with them constituted events of default under each of the three BGNV bond issues. Paragraph 114 says that the entry into the Transactions constituted a failure by TBGL to comply with the terms of each of the three BGNV Trust Deeds. Paragraph 115 pleads that the entry by BGNV into the BGNV Subordination Deed constituted a failure by each of TBGL and BGNV to comply with the terms of each of the three BGNV Trust Deeds. In par 116 and par 117 it is pleaded that under the terms of the BGNV Trust Deeds TBGL and BGNV had an obligation to notify LDTC of each of the matters pleaded in pars 111 to 115, and in breach of those obligations they did not do so. The pleading then proceeds:

"118. At all material times during the Scheme Period, LDTC did not know:

(a) of the matters pleaded in paragraphs 111 to 115;

(b) of the breaches of the obligations pleaded in paragraph 117; or

(c) of the entry into the Scheme and the Transactions on the terms there contained, ... (which included the covenant of TBGL to use reasonable endeavours to procure BGNV to enter into the BGNV Subordination Deed) and the BGNV Subordination Deed.

119. At all material times during the Scheme Period, the Banks knew, believed or suspected:

(a) that by 26 January 1990, and at all material times thereafter, TBGL was insolvent;

(b) that by 26 January 1990, and at all material times thereafter, BGNV was insolvent;

(d) TBGL and the other Bell Participants would or had entered into the Transactions to which each was a party; and

(e) that TBGL was taking steps to procure that BGNV enter into or that BGNV had entered into the BGNV Subordination Deed.

120. At all material times during the Scheme Period, the Banks knew, believed or suspected:

(b) of the breaches of the obligations pleaded in paragraph 117.

121. At all material times during the Scheme Period, the Banks knew, believed or suspected that LDTC did not before or during the Scheme Period know:

(a) of the matters pleaded in paragraphs 111 to 115;

• of the breaches of the obligations pleaded in paragraph 117; or
• of the entry into the Scheme and the Transactions on the terms there contained, including ABFA and RLFA No 2 (which included the covenant of TBGL to use reasonable endeavours to procure BGNV to enter into the BGNV Subordination Deed) and the BGNV Subordination Deed.

...............

123. With the knowledge, belief or suspicion referred to in paragraphs 119, 120 and 121, the Banks entered into the Transactions and the Scheme and took the steps pleaded in paragraphs 36T to 36APC to protect the Transactions and the Scheme and took the benefit of the Transactions and the Scheme.

124. By reason of the Scheme and the steps taken by the Banks and the Directors to facilitate and protect the Scheme as referred to in paragraphs 36T to 36APC, the property held by LDTC for and on behalf and for the benefit of the BGNV Bondholders was damaged and prejudiced and by reason thereof LDTC is, as trustee for the BGNV Bondholders, a person affected by the Scheme and the steps to facilitate and protect the Scheme.

125. By reason of the matters set out in paragraphs 108 to 124 the Scheme and the Transactions constituted an imposition and deceit on LDTC and/or the BGNV Bondholders and thereby, or in any event, was an equitable fraud entitling LDTC to the relief claimed in the prayers for relief."

217 I have set these pleadings out because they demonstrate what is, I think, at the heart of the claim by LDTC of an equitable fraud on it separate from the more general claim of the existing plaintiffs. In essence it is that there was an obligation of disclosure resting on TGBL and BGNV with which they did not comply. This resulted in LDTC being ignorant of matters of which it should have had knowledge and which were material to the interests which, as trustee, it represented. It had no knowledge that BGNV would enter into or that TBGL would cause it to enter into the subordination arrangement. It was ignorant of the terms of the Transactions. LDTC also points to the steps taken to facilitate and protect the Scheme. By way of reminder, they include:

(a) the making, withdrawal of and non-compliance with the SCBAL demands;

(b) the waiver by the Banks of the obligation to comply with certain aspects of the Transactions (and the reason why the Banks so waived);

(c) the participation of the Banks in the preparation of the BGNV subordination deeds;

(d) the waiver by the Banks of a prior arrangement that TGBL would advise LDTC of the financial position of companies in the group and proposals to restructure the financial position (and the reasons why the Banks so waived).

218 It is then said, in par 125 that by reason of these matters (and I repeat that they include the matters in pars 1 to 65G) the Scheme and the transactions were an imposition and deceit on LDTC and the BGNV bondholders "and thereby or in any event" were an equitable fraud.

219 One of the fundamental objections raised by the Banks is that reliance on the steps taken to facilitate and protect the Scheme could constitute an imposition or deceit on LDTC. In the first place it is said that not all of the matters pleaded in pars 36T to 36APC could constitute acts to facilitate and protect the Scheme. I am not sure this is so but even if it is, individual facts or matters which if looked at individually may not establish the matter contended for may, when taken in combination with the others, do so. The same can be said for the proposition that not all of the matters pleaded are acts by each of the Banks in respect of Bell Group companies.

220 The Banks also point out that there is no plea of a representation by the Banks to LDTC or of a relationship between them giving rise to an obligation on the Banks to disclose matters to LDTC. Indeed the Banks were under an obligation of confidence to the companies in the Bell Group arising from the banker-client relationship that would have prevented them from doing so. However, I think this overlooks the part that the plaintiffs say the Banks played in what is alleged to be the relationship and communications (or lack of communications) between TBGL and BGNV and LDTC during the relevant period. It is pleaded that the Banks knew certain things and that the Banks knew that LDTC did not know those things. They are, as I have said, matters that the pleader says were material to the interests represented by LDTC. It is also pleaded that the Banks assisted TGBL and BGNV (and I use the word "assisted" in its broadest sense rather than as it would apply to a Barnes v Addy claim) to keep that information from LDTC by waiving the obligation arising from the arrangements between the Banks and those companies for the latter to communicate with LDTC. It can be put another way, namely, that the Banks took advantage of what was, to their knowledge, a state of ignorance residing in LDTC.

221 It seems to me to be arguable (and I put it no higher) that this (taken in conjunction with the entire factual matrix about which pars 1 to 65H speak) could constitute an imposition and deceit on LDTC. I have already described the general approach taken by the courts to the question of imposition and deceit as a species of equitable fraud under the principles in Earl of Chesterfield and I do not think that I need to say much more about it.

222 There is, of course, a factual argument about the state of knowledge of LDTC. It is addressed in detail in the parties written submissions and it was the subject of oral argument. I mention, by way of example, pars 124 to 131 of the defendants' outline of submissions dated 6 October 2000, Part XXXII of the consolidated set of the plaintiffs' written submissions, pages 788 and following and pages 1066 and following of the transcript. The Banks describe the plaintiffs' evidence on these matters as "unsatisfactory" and point to the need for a party seeking leave to amend, especially so long after the commencement of the litigation, to explain matters of apparent conflict. I accept the force of that submission. But a balance has to be struck between effectively trying the issue and making sufficient sense of it to deal with an interlocutory application.

223 I am simply not in a position to reach a conclusion, tentative or otherwise, as to whether LDTC was, as a matter of fact, relevantly ignorant. There is too much material to absorb. In any event, a lot of it will be clarified, explained or amplified by oral testimony. In the absence of seeing and hearing the witnesses, I am not in a position to say one way or the other how that issue of fact will be determined. For the purpose of deciding whether there is a reasonable cause of action on equitable fraud I have first to decide whether the state of ignorance of LDTC is relevant. I think it is. Having got to that stage I have to decide whether the plaintiffs could (not will) make out a case to that effect. It is impossible to say, on the voluminous material that has been submitted, that they could not do so. This, it seems to me, resolves one aspect of the argument about whether a reasonable cause of action has been disclosed. The discretionary aspects whether leave to amend should be granted are a different matter. They fall to be considered (in the context with which I am here dealing) according to the question of prejudice.

224 There is one aspect of par 125 that, in my view renders the plea embarrassing. It is the use of the words "in any event". The pleader asserts that the Scheme is an imposition and deceit and is, accordingly, an equitable fraud. So far so good. However the pleader goes on to say that the Scheme is in any event an equitable fraud. It is to be remembered that in par 65M the equitable fraud plea is said to arise because the Scheme is an imposition and deceit, it is unconscionable or inequitable and it is a fraud on the insolvency laws. The latter two categories are not referred to in par 125.

225 To my mind the plea is plainly deficient. Equitable fraud is not an over-arching doctrine that can be called in aid whenever there is a perceived wrong. It must be applied in accordance with recognised principles. The plaintiffs (and LDTC) have to make it clear whether they are relying on actual fraud or on equitable fraud. If the latter, it must be by resort to something that sounds in the exclusive jurisdiction of equity. I am satisfied on the authorities that there is an arguable case that imposition and deceit falls into that category. So too does the doctrine of unconscionability. On one view of it LDTC may have an easier path to an unconscionability claim than do the plaintiffs because of the direct contention that it (LDTC) was ignorant of material issues. This, arguably, constitutes a special circumstance within the principles outlined in Amadio. But is that what is intended? If the pleader wishes to assert that there is a basis other than the imposition and deceit which constitutes an equitable fraud it must be clearly disclosed.

226 Still leaving to one side the discretionary aspects to the joinder of LDTC and subject to the pleading problems that I have mentioned, in my view there is a reasonably arguable cause of action in equitable fraud at the behest of LDTC. It is not the only claim that LDTC makes. It will be convenient for me to move to those other claims before returning to the discretionary aspects of the joinder.

Claims Under s 61 and 63 of the Property Law Act 1969 (WA)

227 In the only simple aspect of this application I refer to p 1099 of the transcript where counsel for the plaintiffs indicated that the foreshadowed claims under s 61 and s 63 of the Property Law Act 1969 (WA) ("PLA") would not be pursued.

Claims Under the Bankruptcy Act 1962 (C'th) and s 89 of PLA

228 Paragraphs 87 to 92A of 7ASC contain claims that nominated dispositions or alienations of property are, by reason of s 565 of the Corporations Law or s 451 of the Companies Code, void as against the respective liquidators. Those sections utilise principles imported from s 121 and 122 of the Bankruptcy Act 1962 (C'th). In par 92A there is a claim made on behalf of BGNV only that the alienations are voidable at the insistence of BGNV under s 89 of PLA. This, it will be remembered, is the modern statutory encapsulation of the Statute of Elizabeth, which makes voidable alienations of property done with intent to defeat, delay or defraud creditors.

229 In 8ASC pars 86A to 92A repeat those claims but expand them in terms of the relief sought. In relation to the s 89 claim, relief is now sought by all plaintiffs and their liquidators. LDTC also makes claims for relief under the Bankruptcy Act and s 89.

230 It seems to me that what is raised here is the nature of the relief sought if the claim can be established. In essence, what the Banks are saying is that avoidance either under the Bankruptcy Act or s 89 speaks from the date of avoidance and not before. Accordingly, if, before avoidance has taken effect, the property has been dealt with there is no personal remedy arising from the operation of the statutes. In other words, it would be possible to set aside the transactions but there could be no monetary claim because there could be no tracing or similar remedy to identifiable property against which the remedy could attach. The authority for this proposition is Brady v Stapleton [1952] HCA 62; (1952) 88 CLR 322. The case to date has been fought on the basis of what has been referred to as "the identification issue": see par 89 of the Banks outline of submissions dated 6 October 2000.

231 The plaintiffs do change the nature of the relief sought. Counsel for the plaintiffs indicated that the failure to repeat in 8ASC what is contained in pars 92(c) to (f) of 7ASC was an oversight and it would be corrected. This relates to the identification issue. They also say that the gains made by the Banks were held on trust or were subject to an equitable charge or equitable lien which attaches to those gains or alternatively to such of the gains as are identifiable in the hands of the Banks.

232 This is a difficult area. There is much to be said for the proposition put by the Banks to the effect that no remedy over and above avoidance of the transactions could be awarded. I note also the matters raised in par 89 of the Banks' outline of submissions. However, I do not believe that this significantly expands the range of factual issues that would have to be investigated and pursued at trial. The first issue is whether the transactions are voidable or have been avoided and, if so, when. The plaintiffs will have to confront the question of relief and it may well be that the Banks are correct. However, I do not think I should shut out the plaintiffs from pursuing the claim in the form in which it is pleaded in 8ASC.

233 There remain some pleading defects within the Bankruptcy Act claims. For instance, in respect of claims for interest and bank fees on the identification issue the plaintiffs have accepted that they will have to plead out the facts showing that moneys came from certain accounts to meet the interest payments to the Banks or the bank fees.

234 Counsel for the Banks raised a separate issue. It was to the effect that LDTC and other entities that are not creditors of the plaintiffs have no standing under the Bankruptcy Act or s 89 to seek to avoid the Transactions. In Spies Gaudron, McHugh, Gummow and Hayne JJ said, at [89]:

"By concentrating on the effect of the appellant's intention with regard to the creditors rather than his actions with respect to [the company], the prosecution case was misconceived in a fundamental way. Notions of intending to hinder or delay creditors which are relevant in actions based on the Statute 13 Eliz c 5 or its modern counterparts, or in determining whether an act of bankruptcy has occurred, are unlikely to have any relevance when the offence involves one person defrauding another. Moreover, it needs to be kept in mind that, in those areas of law, the hindering or delaying is of the creditors of the person doing the hindering or delaying. In those areas of law, the insolvent debtor's intention to hinder or delay constitutes an intention to defraud because his or her purpose is to prevent the distribution of his or her property in accordance with the bankruptcy laws."

235 This is a different point to the one in respect of which Spies was cited earlier. Counsel for the Banks submitted that translating that to the issue here, LDTC, could not mount a s 89 claim against TBGL because it was only an indirect creditor of the companies in the group which held the relevant assets. Section 89 claims could only be brought by persons prejudiced by the alienation and that was limited to creditors, not indirect creditors.

236 In response the plaintiffs contended that there was an arguable case that the question of standing was not so limited. The plaintiffs referred to PT Garuda Indonesia Ltd v Grellman [1992] FCA 188; (1992) 35 FCR 515 at 526 as authority for the proposition that a future creditor could have standing. There, the Court said, at 526 that the class of creditors referred to in s 121 of the Bankruptcy Act was not limited to those who at the time of disposition had claims which were susceptible of proof under s 82. In Cadogan v Cadogan (1977) 3 All ER 831 the plaintiff was, at the date of disposition, neither a creditor nor a future creditor. Nonetheless, she claimed to be a person prejudiced. On a strike-out application Buckley LJ said, at 837:

"It does not seem to me to be wholly clear that before the commencement of the 1925 Act, the law of avoidance of fraudulent dispositions was one which could only be relied on for the benefit of somebody who was, at the date of the application for relief, a creditor of the allegedly fraudulent disponent. If the learned judge was right in thinking that s172 could only be invoked by creditors, he was right in thinking that the plaintiff could not succeed on a claim for relief based on that section. But first it seems to me to be arguable that the statute of Elizabeth I was not confined to protecting the interests of creditors only, as the judge thought; and secondly, it seems to me to be arguable that the use of the word "person" in s172 was intended to make the protection of the section available to persons who are prejudiced, although they were not properly to be described as creditors and were not prejudiced in the capacity of creditors.

If there seems to be a respectable argument (by which I mean one which has a recognisable chance of success) in favour of the view that the plaintiff may be able to substantiate his claim under s172, I do not think we ought now to decide the question whether she can or cannot...".

237 The dicta from Spies is strongly worded and a serious argument will arise as to its import. However, Spies did not involve a claim under s 89 (or its equivalent in other jurisdictions) and the dicta that I have cited from [89] is obiter. In the face of the authorities to which the plaintiffs have referred I must conclude that there is an arguable case that LDTC and the other plaintiffs have standing. The amendment ought to be allowed.

238 In a plea that also reflects on the ability of the plaintiffs to mount a monetary claim, the plaintiffs have introduce what is referred to as a claim of improper retention of money by the Banks. This is to be found in pars 106 and 107 of 8ASC:

"106 By reason of the matters pleaded in paragraphs 1 to 71, the Banks knew or ought to have known when they obtained such moneys, or at all events now know or ought to know, that the moneys belong in justice and equity to and are the property of those Plaintiff Bell Companies from which the Banks obtained each part of such money.

107. The retention by the Banks and each of them of such moneys and profit earned by use thereof, are acts done in furtherance of the breaches aforesaid."

239 By calling in aid pars 1 to 71 the plaintiffs rely on all of the matters pleaded for the Barnes v Addy and equitable fraud claims. In their submissions the plaintiffs explained the import and basis of this claim as being that the Banks continue to retain the money and the profits earned on it and are thereby committing further breaches of equitable obligations owed to the plaintiffs. They characterise it as a continuing breach which gives rise to Barnes v Addy, Bankruptcy Act, equitable fraud and s 89 claims.

240 The Banks contend in their defence that the moneys received are no longer identifiable in their hands. The plaintiffs say that even if the Banks are able to establish that the moneys are no longer identifiable in their hands and were dispersed by them not long after their receipt, the Banks are to be treated as having applied their own moneys, rather than the moneys of the plaintiffs. In equity, the plaintiffs allege, the Banks have always and continue to hold the moneys received from the plaintiffs as part of a fund or a mixed fund of moneys. At all times since receipt of these moneys the plaintiffs have had an equitable proprietary interest in the fund or mixed fund to that extent.

241 As I understand it, the plaintiffs do not intend by the reference to continuing breaches to assert that knowledge gained by the Banks after the end of the Scheme period can be held against them in this regard. It does not therefore open up further lines of investigation in that way. It seems to me that the problem for the plaintiffs is the identification issue. Their answer to it is that the moneys, once obtained, were chargeable in equity and can relevantly be "followed" into moneys of the Banks. That exercise would not be limited to flow of funds through the bank clearing house system and the nostro/vostro (or inter-bank) accounts and so on to which the Banks have made reference.

242 As I have already said, the whole identification issue raises difficulties. The entire question of an account in equity for traceable product arising in pars 71, 92A and 106 and 107 has caused me considerable anxiety and I confess that I have vacillated on it. In the end I have come to the view that the plaintiffs' position, while replete with difficulties, is not manifestly untenable. I do not think I should decide these difficult issues in a final way on an interlocutory application of this nature.

243 The gravamen of the plaintiffs' financial case was, and always has been, that as at 26 January 1990 the plaintiff Bell group companies (with some exceptions, such as BPG) were insolvent or nearly insolvent or of doubtful solvency. One of the changes which the plaintiffs now wish to make is to say that the state of insolvency, near insolvency or doubtful insolvency occurred "by" (not "on") 26 January 1990 and remained so during the Scheme period, that is up until 31 July 1990.

244 Counsel for the plaintiffs indicated that the use of the word "by" does no more than indicate the reality that insolvency does not occur overnight. It is a state usually reached as a consequence of deteriorating financial condition. The reference to "during the Scheme period" reflects another reality, namely that once a company becomes insolvent it rarely returns to a state of solvency. There is a certain logic in reflecting on the state of the companies during the Scheme period because not all of the Transactions were entered into on day one.

245 I wish to stand back, as it were, and make some comments of a general nature. Most of the matters canvassed to date have involved what I might loosely call questions of liability. By this I mean matters aimed at discovering exactly what was done at the relevant time or times, by whom, with what motivation, with what assistance and to whose knowledge. This involves all of the activities that come under the (at this stage non-pejorative) description directorial misconduct, its consequences and the participation of the Banks in the matters complained of. It also involves the legal characterisation of those things and of the consequences that flow from them. As a general statement, I have taken a lenient approach in assessing the things which the plaintiffs says really are in issue between the parties and what is said to be necessary in order for those issues to be aired and determined fairly and properly. I will say more about this in discussing the general question of prejudice but I have little doubt that the amendments which I propose to allow will necessitate additional work by the parties before the matter comes to trial. Be that as it may, I think that the interests of justice require that the issues which really are at the heart of directorial misconduct (if that be the case) be brought forward by the plaintiffs (within reason) in the way that they say is essential to achieve the ends about which I have spoken.

246 There comes a time however, when the area under consideration is not pivotally connected with what I have inexactly termed the questions of liability. The plaintiffs' financial case is one of them. The financial position of the companies is an objective question of fact. It may, and probably will, depend on opinion as to the carrying value of assets, the nature and extent of liabilities and so on. But it is still largely a question of objective fact. The reasons why the plaintiffs need to rely on the financial position are obvious. But it does not call to account the conduct of individuals, which is at the heart of the liability issues. The way that it fits into the case and the import of the proposed changes can be viewed differently. It has not been said, for example, that issues of solvency (actual, near or doubtful) cannot be brought forward under the pleading in the form in which it appears in 7ASC. It is not said, for example, that without the additional liabilities for which the plaintiffs contend (and to which I will refer in a moment) the "bottom line" of the balance sheet equation would be different.

247 I am mindful of what was put by counsel for the Banks at p 850 and following of the transcript about the proposal put by the plaintiffs to the Federal Court in October 1997 in an effort to limit the financial and accounting issues and to confine them to those actually bona fide in contention. I think that is a laudable sentiment. I think that so far as is possible the amendments in this area should be limited to those that reiterate (usually in different language) the allegations in 7ASC and those that are consequential on the other amendments that I propose to allow. Similarly, the statement of claim will not make much sense unless it incorporates the Bell Participants who are not referred to in 7ASC. I think this is the third group of Bell Participants.

248 The plaintiffs say that the reference to companies that "would inevitably become insolvent" relies on the same facts and matters relied on to make out the insolvency allegations. In other words, it does not extend the range of issues that are already in contention. I accept that contention. Everything hinges around the state of solvency of the companies on 26 January 1990 and the varying effects that entry into the Scheme had on each of them. That is something that is central to the case, as it was in 7ASC. I do not believe that this particular amendment will cause excessive additional work. The concepts involved in it are readily understandable.

249 I have taken very careful note of the material in Pt 2 of the plaintiffs' consolidated submissions, pars 191 to 219 of the Banks' outline of submissions and the matters outlined by counsel for the Banks between approximately pages 848 and 881 of the transcript. I have come to the view that I should allow the amendments that are sought but with two important provisos. The first relates to assessment of the financial position as at 26 January 1990. The other concerns the references to the J N Taylor Holdings Ltd ("JNTH") matter, the Academy transaction and the future tax liabilities.

250 This is one area where it is clearly demonstrable that important and significant work has been done on a precisely defined basis. I refer to discovery and the provision of expert reports on the financial position. Paragraph 33 of 7ASC says that the companies were insolvent or nearly insolvent or of doubtful solvency "on 26 January 1990". In the defence the Banks deny each allegation in par 33. Accordingly, the solvency of the companies as at that date is put squarely in issue. A considerable amount of work was done so that the parties could understand what the other party would say about the financial position. I was taken through some of this work. For example a series of schedules known by the acronym "SNA' were prepared. To my mind they could only have been prepared with considerable and painstaking work. I am reluctant to force the parties to rework the financial data so that it will speak not only as at 26 January 1990 but "at all material times thereafter during the Scheme period". I believe it would, or at least could, entail an enormous amount of additional work and I am not sure that it would repay the effort.

251 I acknowledge there is some tension between this approach and the change to the description of the impugned events as being "Transactions" occurring over a period and together amounting to a "Scheme". However, it is the case, as counsel for the plaintiffs said, that companies, once insolvent, rarely return to a state of solvency. I have not read anything in 7ASC, the defence, 8ASC or the particulars to suggest that it is an issue between the parties that something magical occurred between 26 January 1990 and 31 July 1990 to restore the companies (or any of them) to solvency. The real issue is whether, on 26 January 1990 the companies were insolvent and what effect the Transactions had on that position. The main "Transactions" occurred on 26 January 1990. It is true that other "Transactions" occurred from time to time thereafter but I have seen nothing to suggest that, for example, that whatever may have been the state of solvency on 26 January 1990, when the subordination deed was signed on 15 February 1990 the position was different. In saying that, I leave to one side the effect of the Transactions themselves on the financial position because that is already an issue in the case.

252 In my view, it will do no great damage to the case the plaintiffs wish to bring to require them to maintain the position they espoused in 7ASC, namely that the financial position is to be assessed as at 26 January 1990. This will relieve the parties (particularly the Banks) of considerable additional work. It seems to me not to matter much whether the wording is "on" or "by" the nominated date.

253 I turn now to the additional liabilities that the plaintiffs wish to bring to account. The insolvency administration of these companies is continuing. No doubt the liquidators have been discovering, and may continue to discover, new matters and take different views of old ones, as matters progress. However, there must, eventually, be certainty as to the basis on which the case is going to go forward. The proper allocation of the public resources which this litigation is consuming must also be taken into account.

254 The JNTH matter is already the subject of litigation. The liquidator of those companies lodged a proof of debt with the liquidator of TBGL, who admitted it. The Banks have objected to the admission of the claim and that challenge has been stayed pending the resolution of this action. The plaintiffs say that in these proceedings all the Court would need to determine is whether there was, as at 26 January 1990 (I would interpolate, and during the period until 31 July 1990) a contingent liability owed by TBGL to JNTH. All that would need to be considered is whether, as at that date or during that period there was a prospect that the liability would come to fruition. It involves an argument whether TBGL, having been entrusted with moneys by JNTH, lost them by improvident loans to other companies in the group and whether it is liability to JNTH arising from those circumstances. The matter is legally and factually complex. My impression, having seen some of the supporting material, is that it would be difficult to reach a concluded view without a very comprehensive inquiry. It may not go as far as deciding the issue whether the proof of debt ought to have been admitted but it would involve a large volume of the same issues. It would not bind the parties in that litigation. In my view it would be detrimental to the proper and efficient progress of this litigation by distracting the parties in an area that was not essential for its disposition.

255 In the Academy Transaction TBGL sold its shares (all the issued capital) of Academy to a subsidiary of ACIL. Academy's only asset was approximately 13 million preference shares in JNTH. At the time, the vendor and the purchaser of these shares had common directors (Aspinall, Mitchell and Oates). The plaintiffs allege that the Academy transaction was a means by which TBGL directly, and BCF (through TBGL) obtained access to the sum of approximately $26,000,000 then held within the Bell Resources Group. This occurred at the time when Adsteam, a significant minority shareholder in ACIL, was taking steps to have a receiver appointed to ACIL on the grounds that the ACIL directors (which included Aspinall, Mitchell and Oates) had mismanaged ACIL, including by diverting $1.2 billion of its funds into the Bond companies. The Academy Transaction was completed a few days before the Bond directors relinquished control of ACIL to an independent board.

256 The plaintiffs say that the evidence in relation to the Academy transaction is not of a wide compass. They say that the Academy transaction was an improvident transaction because the JNTH preference shares (the only asset of Academy) had little, if any, value.

257 The Banks submission is that this issue first appeared in the minute dated 31 May 2000 as an allegation relating to the propriety of the conduct of the directors. It was deleted as an issue by the minute dated 28 July 2000 and sought to be reintroduced as a particular relating to insolvency by the particulars served on 7 August 2000. At no time prior to the particulars of 7 August 2000 had it been asserted that this transaction was relevant to the solvency of the plaintiff companies and no allegations have been made at all in relation to the transaction prior to 31 May 2000.

258 The Banks contend that the plaintiffs have long known of the existence of the Academy transaction and have not raised it until 7 August 2000 as a matter relevant to the financial position of the Bell Group companies. Having chosen not to raise it as an issue and having sought to conduct the financial case as they have, the plaintiffs should not be allowed to amend their particulars in this regard to raise substantial new issues.

259 I regard the late notification of intention to raise this issue at all and the change from relying on it as a factor going to directorial misconduct to one relating to the solvency of the group as factors militating against permitting the amendment. The attitude of the plaintiffs to this issue has been somewhat schizophrenic. In at least two places in their written materials the plaintiffs attack the motives of the directors for entering into the Academy transaction. They describe it as an "improvident transaction". They allege that it "was wrong for the directors to have caused BRL's subsidiaries to enter into the transaction". The plaintiffs also say that TGBL needed the $26,000,000 to pay interest on, or on on-loans connected with, one of the bond issues. There is, I think, a danger that the attempt to include this transaction as an indicia of insolvency or as going purely to the financial position may mask another allegation of directorial misconduct. Such an allegation, getting in through the back door as it were, would not be fair. This amendment will not be permitted.

260 The other issue relates to future income tax liabilities. Again, the plaintiffs say that the only issue is whether they should have been regarded, as at 26 January 1990, as future or alternatively contingent debts of certain Bell Group companies. They include liabilities for income tax in relation to the disallowance of deductions for pre-paid interest and for amortised discount interest on commercial bills, tax from profits on the sale of shares and the tax effect from loss transfers no longer available. The events the subject of the alleged liabilities occurred in the income years 1984 to 1987 and by November 1989 the Group Tax Manager had been advised by the Tax Office that assessments for approximately $63,000,000 could issue as a result of a tax audit of the group. Assessments have since issued and are the subject of proofs of debt that have been admitted by the liquidators.

261 The Banks object to the amendments on numerous grounds. They say that each of the new liabilities raises a substantial case in itself concerning events which go back at least as far as 1984. The proposed amendments to the statement of claim served in February 1999 but not proceeded with gave notice of the plaintiffs' intention to plead the new tax liability. The Banks have done some preliminary work on analysing the basis of the assessments. That work suggests that there are real issues as to whether "future" or "contingent" debts existed as at 26 January 1990. For example, the claim relating to the amortised discount interest on commercial bills raise issues as to the timing of deductions for discounts on bills of exchange. The assessments appear to be based upon the Commissioner of Taxation's interpretation of and implementation of a decision of the Federal Court which was overturned by the High Court on appeal.

262 The Banks say that if the amendments are allowed, it will be necessary for them fully to investigate the transactions on which the assessments are based, the tax legislation which applied at the relevant times and the knowledge of the directors at relevant times. This will cause consequent disruption to the preparation of the case. It had been open to the plaintiffs from the inception of these proceedings to raise the tax liabilities but they had not done so.

263 The plaintiffs dispute this assertion and say that it will not be necessary to make these wide ranging investigations. They submit, for example, that the Court cannot find a liability to pay income tax did not exist which has been found to do so by the Commissioner based on events which occurred long ago and in respect of which there is no longer a right of objection or appeal. I do not agree. There are several reasons.

264 The finality of the income tax assessments can only speak as between the Commissioner and the taxpayer in relation to the payment of tax. This is an entirely different issue. Here, the question of the solvency of the companies as at 26 January 1990 is raised as an issue of fact: see, for example, par 20A of 8ASC. It is also raised as a matter of what the directors knew: see, for example, par 34(viii). It can be tested by reference to generally accepted accounting principles and conventions of the day. Suppose the directors had formed a firm bona fide view based on reputable advice that the Commissioner's stance was entirely misconceived. It might (and I put it no higher than that) have been acceptable to some auditors if the possibility of the receipt of assessments were made the subject of a note to the accounts without a provision being made. I think, therefore, that the Banks' contentions are correct.

265 The plaintiffs also say that it is relevant that no objection was lodged to the assessments. As I understand it, the assessments (or at least some of them) were issued in November 1991. TBGL had been placed in liquidation in July 1991. That may provide an explanation as to why objections were not lodged.

266 For these reasons I will not permit the amendments that seek to include any of the JNTH debt, the liability arising from Academy transaction or the amounts that had been foreshadowed as at 26 January 1990 as possible income tax assessments as contingent liabilities for the purpose of determining the financial position of the Group as at that date.

267 In paragraphs 93 to 98 of 8ASC the plaintiffs allege that the BGNV Subordination Deed, the Principal Subordination Deed and certain guarantees and indemnities created charges over property of the companies which entered those transactions as subordinated creditors or as guarantors.

268 The plaintiffs contend that notices of the charges (if that is what they are) were not registered under applicable Companies Code or the Corporations Law in due time or at all. Accordingly, the BGNV Subordination Deed is void as a security and the Principal Subordination Deed and the guarantees and indemnities, to the extent they created a charge over the property, are void as a security on the property which it covered. The plaintiffs contend that each is void against the respective liquidators and has been avoided.

269 It seems to me that this is essentially, although perhaps not entirely, a question of construction of the documents concerned. I doubt that it will be the most significant issue in the proceedings. The only issue taken by the Banks is that particulars have not been given specifying the provision of the instruments that renders them liable to characterisation as a charge. The plaintiffs have undertaken to do so. I will allow the amendments.

270 The Banks object to the amendments on the grounds that, in some respects, the new matter raises causes of action that are statute-barred. I can deal with this point in short order.

271 The Banks say that the equitable fraud claim is statute barred. While the Limitation Act 1935 (WA) does not make specific reference to claims of this nature it is analogous to the tort of deceit and a six year limitation period applies. The Banks rely in particular on Cohen v Cohen [1929] HCA 15; (1929) 42 CLR 91 at 99-100. The Banks contend that the limitation period commenced to run when the plaintiffs had knowledge of the facts giving rise to the alleged fraud or when their suspicions were aroused. On the basis of facts that I do not need to set out, the Banks submit that the six year limitation period expired as against the plaintiffs in early 2000 at the latest and as against LDTC in 1996 or, at the latest, early 2000.

272 To the extent that the plaintiffs or LDTC would wish to rely on O 21 r 5(5) of the Rules of the Supreme Court the Banks contend that 8ASC arises from substantially different facts as the foundation for relief to that pleaded in 7ASC. Accordingly, and to the extent that the claims are statute-barred, no amendment should be permitted.

273 The plaintiffs contend that a proper reading of the pleadings indicates that the equitable fraud claim does arise out of substantially the same factual, matrix as that pleaded in 7ASC. Accordingly, they call in aid O 21 r 5(5). In any event, they say the claims are not statute-barred. They contend that there is no analogous case in the Limitation Act to claims in equitable fraud. Thus, there is no strict limitation period and the protection which the statute usually affords is provided by equity in the application of doctrines such as laches. In this respect the plaintiffs rely on R v McNeil [1922] HCA 33; (1922) 31 CLR 76 at 100.

274 The plaintiffs submit that the questions whether there is any appropriate analogy to the claims in equitable fraud made by the plaintiffs and LDTC and, if there is, whether the defence of laches should apply as a matter of discretion, are complex and cannot be determined without a thorough investigation of all material facts and the law. To determine these matters adversely to the plaintiffs and LDTC would finally determine their rights to bring such claims. The Court should not, on the plaintiffs' application to amend and join LDTC, determine these issues adversely to the plaintiffs and LDTC.

275 In Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514, Mason CJ, Dawson, Gaudron and McHugh JJ said, at 533:

"We should, however, state in the plainest of terms that we regard it 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. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question."

276 In my view that comment is entirely apposite to the situation which arises in this case. It could very easily work an injustice if I were to decide the complex issues of law and fact necessary to determine the limitation questions on an incomplete understanding of the evidence to be tendered. I propose not to rule on any limitation questions. If they are pleaded by way of defence they can be dealt with at trial.

277 The parties also took differing positions on the question when amendments of this type should take effect. Counsel pointed to what may be a difference of approach between Morgan v Banning (1999) 20 WAR 474 and Renowden v McMullin [1970] HCA 24; (1970) 123 CLR 584.

278 The Banks seek a protective order that any amendment take effect only from the date on which 8ASC was served. The plaintiffs contend that the order should take effect from (at the latest) December 1998 when the Banks were given notice of intention to bring forward the equitable fraud claim. That, in itself, is not without complication because there has been more than one version of the proposed pleading.

279 I propose to indicate that to the extent that facts pleaded in 8ASC are found to plead a new or fresh cause of action, the pleading of such cause of action is to date from such date as is determined by the trial judge. All of the limitation questions can then be dealt with at trial.

280 A question has arisen whether documents discovered by the Banks in this action may have been used by the plaintiffs in order to formulate the LDTC claim in breach of the rule in Home Office v Harman [1983] 1 AC 280. The rule was described in Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 by Mason CJ at 10 in these terms:

"In relation to documents produced by one party to another in the course of discovery in proceedings in a court, there is an implied undertaking, springing from the nature of discovery, by each party not to use any document disclosed for any purpose otherwise than in relation to the litigation in which it is disclosed. Over a century ago, Bray on Discovery stated:

'A party who has obtained access to his adversary's documents under an order for production has no right to make their contents public or communicate them to any stranger to the suit ... nor to use them or copies of them for any collateral object ... If necessary an undertaking to that effect will be made a condition of granting an order.' "

281 The matter arose in this way. The Banks first learned of intention to join LDTC as a party and the nature of its claim when they received the minute of 31 May 2000. At a directions hearing on 20 June 2000 the issue was raised and directions were given. Counsel for the Banks referred to a number of documents annexed to affidavits sworn by Steven Paterniti on 4 August 2000 and Ashley Wharton sworn 4 August 2000 in support of the proposition that documents delivered by the Banks to the plaintiffs during the process of discovery had been used for the purpose of this application. I did not glean in the submissions of the plaintiffs on this issue that discovered documents had been used in or for the purpose of formulating the LDTC claim. The point that the plaintiffs put in issue was whether there was any impropriety on their part in so acting. This being so, I do not need to refer to the documents themselves. I should say, however, that in some respects they might involve what counsel for the banks referred to as an express undertaking. This is because in relation to some of the documents there had been a waiver of privilege and the solicitors for the plaintiffs had given a written undertaking to use the documents only for the purposes of the litigation. To that extent I do not think it adds a great deal to the protection afforded by the implied undertaking.

282 The essence of the Banks' complaint is that no leave of the Court has been sought or obtained. The information in the documents, and the documents themselves, have been used by the plaintiffs to propound a case for LDTC. The plaintiffs and those associated with LDTC appear to have decided that on material available to them LDTC had a cause of action. They sought out LDTC to propound that cause of action. They, in the course of doing so, have engaged in negotiations about financial arrangements with LDTC and other parties, and they have not disclosed to the court who the other parties were or what the indemnity provides for.

283 In my view, matters relating to indemnities and financial arrangements are not centrally relevant to the issue I have to decide here. The Corporations Law expressly authorises a liquidator to enter into what might be termed litigation funding arrangements. It seems to me that the failure of the plaintiffs in this case to disclose the detail of those negotiations and its culmination in some form of indemnity is not a matter to which I would ascribe much weight. The real question is whether the use to which the documents were put constitutes a breach of the implied undertaking

284 In Sybron Corporation v Barclays Bank plc [1985] 1 Ch 299 Scott J said, at 328:

"Joinder of additional parties as a consequence of discovery is a common procedural occurrence. Neither I nor counsel have ever in practice heard of an objection to such joinder on ground that discovered documents ought not to be used for such a purpose. If, instead of joinder, a new action is started, the substance of the situation does not seem to me to be relevantly different. I cannot see any sensible reason why the court should regard this action as inappropriate for the use of the discovered documents."

285 In Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd [1995] 57 FCR 360 Hill J said, at 378:

"It is now a well-established principle that discovered material may not be used for a collateral or ulterior purpose without the leave of the Court or the consent of the party providing the discovery. An undertaking to that effect is implied. That basic principle is not here in dispute. What is here at issue is whether use of discovered materials for the purpose of framing a cross-claim falls within the concept of collateral or ulterior purpose.

Modern discussion of the rule usually commences with the decision of the Court of Appeal in Riddick v Thames Board Mills Ltd (1977) 1 QB 881 where it was held that an internal memorandum produced on discovery in proceedings for wrongful arrest and false imprisonment could not be used as a foundation of a subsequent suit in libel for such use was for an ulterior purpose. The Master of the Rolls, Lord Denning, said that a party seeking discovery of documents: '... gets it on condition that he will make use of them only for the purposes of that action and no other purpose.'

Harman was a clear case. There, discovered material was handed to a journalist for publication, clearly a purpose outside the contemplated purpose of discovery. So to do constituted a civil contempt. The difference of opinion in that case as to whether the rule had application once the documents had been actually read in the course of a public trial, has no relevance to the present case. Similarly, the disclosure of answers to interrogatories to a person not a party to the proceedings is an abuse of process: Ainsworth v Hanrahan (1991) 25 NSWLR 155, even if on the facts of that case it was but a technical contempt."

286 Having cited the dicta of Mason CJ in Esso, to which I have already referred, Hill J continued, at 378-79:

"In my view, it follows inexorably that use of the discovered material by such of the subsequent participant banks as had ceased to be parties, for the purpose of their coming back into the litigation and cross-claiming would be a breach of the rule, albeit that, as [counsel] said, the fact that they had been dismissed as parties had been a 'mistake'. By that he clearly meant that although the application that they be dismissed had been deliberate, subsequent reflection had indicated that it was a mistake.

The cases make it clear, however, that it will not be a collateral or ulterior purpose to use documents disclosed on discovery to add new causes of action or parties to the action in which the documents have been disclosed: Matthews and Malek Discovery 1992 Sweet and Maxwell Ch 12 at 257; Wilden Pump and Engineering Company v Fusfeld (1985) FSR 581; Sybron Corporation v Barclays Bank PLC (1985) 1 Ch 299."

287 It is clear from that passage that Hill J did not mean, when he said that it would be a breach of the rule to use the documents so that a former party could come back into the liquidation, to suggest that the documents could not be used for the purpose of joining a new party. The last paragraph makes this clear.

288 Counsel for the Banks relied on Mann v Medical Defence Union Ltd, unreported, FCA (Ryan J); VG 131/1993; 7 February 1997. There the plaintiff sued for breach of contract and a contravention of the Trade Practices Act. During the discovery process a document was delivered which the plaintiff considered to be defamatory. The question at issue was whether he needed leave to use the document for the purposes of an amendment application to add a cause of action in defamation. He was not permitted to do so. Ryan J cited Allstates and canvassed many of the authorities on which Hill J had relied. His Honour then said, at 11-12:

"I accept that whether the proposed use of a discovered document is for the purposes of the action in which it has been discovered is not to be determined by concentrating on the causes of action so far pleaded or the parties to that action as constituted at the time when discovery was given. Nevertheless, the authorities to which I have been referred make it clear that the proposed use must bear a reasonable relation to the prosecution of the case sought to be made or the mounting of a defence to that case. So it is that the use of a discovered document to frame a case of fraud in addition to one of breach of contract is permissible if the fraud is said to have infected the same transaction even if additional parties are alleged to have been implicated or the allegations of fraud are sought to be raised by way of cross-claim. Allstate v ANZ Banking Group Ltd (supra) I regard as a case of this kind.

However, I do not consider a claim in defamation to have the requisite relationship with a claim for damages in the form of financial loss occasioned by breach of contract or contravention of the Trade Practices Act by misrepresentations which are alleged to have induced an applicant to enter into a contract. The damages sought to be recovered in an action for defamation are for injury to reputation. Moreover, such an action involves questions of the nature and extent of publication and a defence to it may raise issues such as qualified privilege and malice which are quite extraneous to matters in controversy between parties to a contract. The attack which the applicant seeks to make against the MDU by pleading a cause of action in defamation could succeed or fail quite without reference to the resolution of other existing issues between the parties. I therefore regard it as entirely collateral to the attack which the applicant seeks to mount through the remaining parts of his proposed further amended statement of claim. Accordingly, leave is required before the applicant can make use of the document to frame allegations of defamation ... whether in the existing proceedings before this Court or by way of a separate action."

289 The banks also cited Miller v Scorey [1996] 3 All ER 18. However, that was a case where the documents were used to commence an entirely fresh action. That is not this case.

290 I do not wish to get into the argument that developed between the parties about who should have disclosed the relevant issues and whether, as contended for by the plaintiffs, the Banks should have taken out an application alleging a civil contempt action by the plaintiffs. It seems to me that the critical issue is whether, to use the phrase adopted by Ryan J, the proposed use bears a reasonable relation to the prosecution of the case sought to be made. It is not hard to see why his Honour would have concluded that an action for defamation was fundamentally different from one sounding in breach of contract. Here, LDTC was not a complete stranger to the subject matter of the action as pleaded in 7ASC. The liabilities to the BGNV bondholders are an essential part of that pleading. As I have already said, there is a similarity in the factual matrix from which the proposed causes of action in equitable fraud are said to spring for the plaintiffs and for LDTC.

291 I am satisfied, in the circumstances of this case, that the use of the discovered documents for the purpose of joining LDTC as a party for it to assert a cause of action is not a contravention of the implied undertaking. I should not be taken as saying that this will be the result in every case. Each case must be judged according to its own peculiar fact circumstances. The place which discovery holds in the litigation process and the integrity of that process must not be undermined. Nonetheless, in this case I think there is a close nexus between the relevant interests. The documents were not used for a collateral or improper purpose.

292 This brings me to, arguably, the most important consideration that I have to bring to bear on this application. It is whether the amendments that have been proposed will cause serious prejudice to the Banks which cannot be cured by an order for costs or some other remedial process.

293 Not surprisingly, the parties adopted diametrically opposed positions on this issue. Using more than a little hyperbole, the plaintiffs contended that the amendments would cause little more than a "blip" in the steady progress of preparation for trial. The Banks pressed the view that the whole process would come to a grinding halt. It seems to me that the true position is somewhere in between the two extremes.

294 A contributing factor to the delay in getting this judgment delivered has been the compulsion I felt to attend seriously to the welter of material which bore on the prejudice issue. The plaintiffs relied on affidavits of Ian Adrian (4 August 2000), Christopher Duffett (31 May 2000 and 3 August 2000), Leta Rayney (4 August 2000), Gary Trevor (3 August 2000), Ashley Wharton (4 August 2000, 8 September 2000 and 11 September 2000), Richard Wilson (3 August 2000) and Antony Woodings (31 May 2000, 4 August 2000 and 11 September 2000). The primary affidavits relied on by the Banks, at least on this issue, are those of Steven Paterniti (12 June 1998, 4 August 2000 and 8 September 2000). Some of these affidavits relate to the reasonableness of the causes of action propounded by the plaintiffs but most of them have something to say about the question of prejudice. The material takes up many lever-arch files.

295 Ideally I would have related the question of prejudice to each of the areas in which amendments were sought. That is the way in which I commenced to write the reasons. However, I found it difficult to do so because of the repetitive charges and counter-charges flowing from the material. Had I continued down that path reasons for judgment that are already far too long were in danger of becoming unmanageable. All of this on an interlocutory application. I am saying this so that the parties will understand the way I have structured the reasons. I do not propose to examine each individual claim of prejudice and the countering explanation. Rather, I will attempt to take a somewhat broader view by reference to a few discrete areas. In this way, I hope to demonstrate that the general conclusion to which I have come is one based on a proper examination of the materials even though not every factual plank in the reasoning process will be exposed.

296 The plaintiffs complained about difficulties which they say were occasioned by the Bank's approach to discovery and reluctance to waive legal professional privilege. The materials are contained in the affidavits Wharton (8 September 2000) and Paterniti (12 June 1998 and 8 September 1998). In turn the Banks were not without their complaints as to the way the plaintiffs have conducted the case generally and this application in particular. I usually find that type of argument difficult to resolve because affidavits often do not reveal the real flavour of what was occurring behind the scenes. This case has been no exception. I do not think the approach of the Banks to discovery and privilege, given the nature of the litigation and the context of the dispute, was particularly surprising or deserving of adverse comment. Nonetheless, and without attributing any fault or blame, I can see how it would have made the plaintiffs task more difficult.

297 I have no doubt that the amendments that I propose to allow will cause further work for the parties, particularly the Banks. It is inevitable that this should be the case. I do not think it could seriously be argued that any (or at least any substantial portion of the work done to date) will turn out to have been without utility. The basic arguments in the case remain the same: what was the financial position of the companies when the Scheme was entered into, how did the Scheme come about and what was its effect on the companies concerned and on other interested parties. It will inevitably be the case that some of the work that has been done will have to be revisited. In the form in which it was done, it may no longer be apposite. However, that does not mean the work itself has been useless. It will have to be reassessed and supplemented but the basic material remains relevant. The real question is the extent of the reassessment and supplementation.

298 What follows is, I think, a convenient summary of the main points raised by the Banks in their submissions concerning prejudice.

299 Counsel for the Banks made a number of points concerning discovery.

300 Existing discovery is almost complete. It has been organised on the basis of informal discovery by categories in relation to particular dates and particular time limits.

301 Discovery has been a long, involved and laborious process. Many issues have been raised. Many disputes have occurred. Those disputes have taken a long time to resolve. In the time when the action was in the Federal Court there were some 66 meetings between the parties in an effort to resolve disputes.

302 Inspection has been on the basis of the pleaded issues and documents have been reviewed against the pleaded issues.

303 4. Where there has been a need to obtain documents from third parties, the requests for documents have been deliberately limited to the pleaded issues. Counsel for the Banks referred, by way of example and in relation to the Bond reconstruction proposals, to the affidavit evidence in relation to the history of attempts to obtain documents from BCH and its liquidators: par 183 and par 185 of the Paterniti affidavit.

304 5. The Banks' solicitors had put together a legal team specifically for the purpose of discovery. They had a team but it has now been disbanded. They had an efficient system. They will now have to assemble another team, or attempt to re-gather the same people. There is consequent disruption and it affects the preparation of the remainder of the case.

305 The Banks take issue with the plaintiffs assessment that the need for further discovery will be limited. The Banks contend that there will be significant further discovery and we set out where that arises by way of example.

306 The Banks apprehend that the amendments will lead to a request for general discovery. To date discovery has been conducted on a limited and largely informal basis.

307 There will be difficulty in locating documents, especially form third parties. People move, things get destroyed and people tend to regard things as irrelevant as time passes.

308 All of this means the Banks will have to revisit their existing documents and inspect them again based upon these new issues. That could have been done before if the issues had been raised at an earlier time: Paterniti pars 189 to 195.

309 The Banks say that the proceedings will be delayed by these amendments. They estimate the delay at 18 months. They also estimate that it will extend the length of the trial by many months.

310 In the Banks view they cannot be compensated by a party and party costs order and nor will they receive value for the additional administrative costs and inconvenience occasioned by the delay.

311 Interest is claimed at a compounding rate and there are, hanging in the air, serious allegations of misconduct.

312 The Banks have a serious apprehension about the effect of further delay and the taking up of new issues on the co-operation of witnesses in this case. Witnesses tend to get tired of people coming back to them and dealing with stale and old events. It is never possible to guarantee co-operation but if co-operation is lost the prejudice is considerable.

313 The Banks contend that the Wharton affidavit in response to the Paterniti affidavit does not in any real way deal with the issues raised as to prejudice. The state of affairs against which the application should be viewed is set out in par 8 of the Banks' written outline of submissions.

314 The Banks say there have already been two trial dates set but aborted. Leaving this application and the "13A defence" to one aside, the pleadings had effectively closed and the evidence had been prepared. The plaintiffs gave the Banks notice that they wished to supplement their evidence and the Banks say they exercised reasonable diligence to press for details. They say they have had no meaningful response since the middle of 1988. Similarly, when the amendments were proposed the Banks pressed for details and have received no meaningful response. They point out that the minute before the Court is the sixth version of proposed amendments to 7ASC.

315 Counsel for the Banks submitted that the plaintiffs bore the burden of persuasion that the amendments would not cause prejudice and had not satisfied that burden.

Prejudice and Discretionary Factors - Conclusions

316 I have given very careful consideration to all of the matters raised by the Banks and have reviewed the material with them in mind. As I have already said, there undoubtedly are new matters and they will require further work. They will require work already done to be reviewed and, at least in part, to re-cast it.

317 The plaintiffs submit that a significant number of the amendments are a reformulation of or arise out of material facts already pleaded. In the body of these reasons I have traced through many of the major areas. I mention, by way of examples, the material in pars 69 to 83 and Pt III of the plaintiffs' consolidated submissions. In other areas, the plaintiffs say that in structuring the new plea they have relied on documents already discovered in the proceedings. Examples are to be found in pars 112 and 165 of the plaintiffs' submissions.

318 There is a plea relating to the financial restructuring of the group. It is raised in the defence. I accept what has been put by the plaintiffs that the addition of the words "valid and effective" have a limited meaning. It is not, as the Banks appeared initially to apprehend, a situation where they will have to deal with positive assertions of various "valid and effective restructuring" scenarios. The proposed Bond restructuring involving buying back of the bonds was already an issue. The relationship of the Bell Group and their directors with their parent company is new but many of the issues are public knowledge and would not require detailed investigation. The SCBAL demand and the waivers by the Banks were issues raised in the existing pleadings. The financial affairs of the group have always been a central factor. It is true that there will have to be a shift of focus due to the extension of the solvency (or insolvency) allegations to the Scheme period rather than simply on 26 January 1990 but the essential elements are the same.

319 The Banks appeared also to apprehend that, in relation to the Bond reconstruction plea, they would be obliged to investigate a whole range of proposals. That is not the case. The only proposals encompassed by the pleadings are those involving Bell Group companies and a buy back of the BGNV bonds.

320 There are new matters that will require attention. The conflict of interest issues are a case in point. However, the identity of the players is the same. What the directors did, or are alleged to have done, is the same. What has changed is its legal characterisation. Of course, if the allegation is of conscious wrongdoing then the state of mind of the players assumes additional importance and I accept that the passage of time can cause difficulties with recollection. But as the underlying transactions on which the case turns are the same it is difficult to believe that the players have not turned their mind to what really motivated them at the time.

321 The LDTC involvement is a new matter. However, I would have thought that its involvement as a trustee for the BGNV bondholders would have been part and parcel of the preparations to date. Certainly, the involvement of the Banks in the steps taken to facilitate and protect the Scheme will require investigation. So too will the financial case on which the plaintiffs claim for traceable product. However, in the first instance it will be up to the plaintiffs to show how they can avoid the problems of the identification issue.

322 In the end it is, like so many things in the law, a question of balance. A judicial officer confronted with a task such as I have to perform has to stand back from the welter of material and consider where the interests of justice lie. When I say "stand back from" the material I am not suggesting that it be ignored or that, for any reason, it should not be given the weight that it deserves on proper analysis. What I am saying is that, having carried out the analysis, it is necessary to take an objective view of conflicting accounts. I have come to the view that the new material, that is, material that was not present in any form in the pleadings before 8ASC, while not insignificant is not such as to place an undue burden on the Banks.

323 I believe there are steps that can be taken to ameliorate the prejudice somewhat. For example, the apprehension of the Banks that they may be vulnerable to a general discovery order overlooks the fact that this is a matter within the control of the Court. This is, it seems to me, a quintessential case for limited discovery. A party wishing to embark on a wide ranging search for any documents that are directly or indirectly relevant to a fact in issue would carry a heavy burden of satisfying the Court that it was appropriate to do so. If, during the course of further discovery or proofing of witnesses the loss or destruction of documents or the inability or incapacity of a witness to give relevant testimony becomes a real problem it can be addressed at the time.

324 I should add that I had prejudice firmly in mind in disallowing the proposed amendments that would have caused a movement away from 26 January 1990 as the critical date at which to assess the solvency of the various companies within the Bell Group.

325 I appreciate the difficulties that legal firms face in conducting large scale litigation of this nature. The greater the familiarity that an operator has with a matter the more effective that person is in arranging matters such as discovery. To reassemble a team with the requisite familiarity, or to train one up to the necessary standard will not be easy. However, I doubt it would be beyond the capacity of a competent and experienced litigation solicitor of the standing that I have seen in this case.

326 I accept also the proposition that costs orders are not a panacea that cures all ills. However, the discretion residing in the Court in relation to costs is very broad. The fact that there is additional work and some prejudice is a factor that will weigh heavily with me when I come to decide how the costs of this (and related) applications will be handled. There will undoubtedly be additional administrative costs on the Banks. But that is a function of their involvement in the litigation. I do not say that in a pejorative sense either. They did not choose to become embroiled in this matter and may eventually be found to have acted in an entirely proper fashion. In the meantime they will have to bear the inconvenience and extra cost that is entailed. I have not ignored it as a factor. It is one of the myriad of considerations that I have taken into account.

327 It is interesting to compare the submissions made by the respective parties as to the course the litigation has taken. I have already mentioned the Banks' reliance on the matters set out in par 8 of their written submissions. In Pt XIII and Pt XX of the plaintiffs' consolidated submissions a quite different picture is painted. As I have already said, I am not sure what I can make of this material. In relation to the burden of persuasion there was charge and counter-charge as to who should have (and did not) adduce evidence in a proper form to articulate and support the case they wished to make on prejudice. While the complaints may have had force in a technical sense I have preferred a broad approach which permits the material to be looked at in an objective way and according to its tenor.

328 It may seem a strange thing to say but it is still early days. The defence and counterclaim has not been finalised and nor has the reply. There is time for the party affected by the proposed amendments to reconsider its position and plead to the altered case.

329 The plaintiffs have satisfied me that the prejudice the Banks will suffer is not so great as to require that I refuse leave to amend. This conclusion has been reached as a balancing exercise. I did not arrive at it without careful thought and some hesitation.

330 Taking everything into account I am satisfied on the criteria in O 18 r 6 that LDTC ought to be joined as a party. There is nothing I wish to add to what I have already said about LDTC. To the extent that O 10 needs to be taken into account, I believe the required nexus has been demonstrated. I adopt, generally, the contentions made in par 42 and following of the plaintiffs' consolidated submissions.

331 Junior counsel for the plaintiffs explained, in summary form, the changes to the prayer for relief between 7ASC and 8ASC as follows. There is no claim for equitable compensation made by LDTC. The claims for equitable compensation are those in par 65N. Insofar as LDTC seeks relief, it is to have the transaction set aside and to have monetary compensation provided to "the Plaintiff Bell Companies". The prayer for relief in 7ASC starts with particular claims by BGF, claims by TBGL, claims by ACIL shareholders, and then miscellaneous claims. It then moves on to the Bankruptcy Act claims.

332 These claims are maintained in 8ASC. Additional ancillary relief is sought. New monetary claims are made in respect of interest and the re-categorisation of bank fees. Counsel acknowledged that there were differences in the way some of the relief is expressed in 7ASC and the additional relief in 8ASC "but they are not somehow creating some entirely new case". This is, I think, putting it in the best light for the plaintiffs. Nonetheless, I do not think there is anything seriously wrong with the way the prayer for relief has been framed.

333 In relation to the equitable fraud claim, each plaintiff seeks to set aside the Transactions to which it was a party and each other Transaction. As counsel put it, "the nub of the relief is to seek to undo the transactions, have the money put back to the identified plaintiffs and to allow the administration of the winding ups to occur".

334 I think the Banks main concerns with the prayer for relief relate to the way the monetary claims have been phrased. In particular they are concerned about the claims for account and those that speak in tracing remedies. I have ruled that despite the evident problems thrown up by the identification issue the plaintiffs' claims that sound in the imposition of an equitable charge or lien and in relation to "traceable product" are arguable. Having done so, I do not think the form in which the prayers for relief are expressed raises any additional concerns.

335 Similarly, if, as I have ruled, the equitable fraud claim is to go forward, there seems to me to be nothing objectionable in the way that the prayer for relief has been framed. Whether the plaintiffs can make good their entitlement to relief in those forms or at all is, of course, a matter for trial.

336 I will permit the plaintiffs to amend the statement of claim in the way, and to the extent, outlined in these reasons. At page 906 of the transcript counsel for the plaintiffs indicated that the pleading would be revisited in any event to accommodate some of the matters raised by counsel for the Banks during argument. It will be necessary for the plaintiffs to bring in a fresh minute.

337 I will hear the parties as to the orders that should be made.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : THE BELL GROUP LTD (In Liq) & ORS -v- WESTPAC BANKING CORPORATION & ORS [2001] WASC 315 (S)

BETWEEN : THE BELL GROUP LTD (In Liq) (ACN 008 666 993)

THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR DOLFINNE PTY LTD (In Liq)

THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR INDUSTRIAL SECURITIES PTY LTD

THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR MARANOA TRANSPORT PTY LTD

THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR NEOMA INVESTMENTS PTY LTD

BELL GROUP FINANCE (In Liq) (RECEIVER AND MANAGER APPOINTED)

BELL GROUP (UK) HOLDINGS LTD (In Liq) (IN ADMINISTRATIVE RECEIVERSHIP)

GEOFFREY FRANK TOTTERDELL AS LIQUIDATOR OF FIRST PLAINTIFF AND OF FIRST, SECOND, THIRD, FIFTH, NINTH, TENTH, ELEVENTH, THIRTEENTH, FOURTEENTH, SIXTEENTH, SEVENTEENTH AND NINETEENTH NAMED SEVENTH PLAINTIFFS

ANTONY LESLIE JOHN WOODINGS AS LIQUIDATOR OF THE THIRD PLAINTIFF, FIFTH PLAINTIFF AND OF THE FOURTH, SIXTH, SEVENTH, EIGHTH, TWELFTH, FIFTEENTH, EIGHTEENTH NAMED SEVENTH PLAINTIFFS

GARRY JOHN TREVOR AS LIQUIDATOR OF THE SIXTH PLAINTIFF

BETWEEN : COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)

BELL GROUP FINANCE PTY LTD (In Liq) (RECEIVER AND MANAGER APPOINTED) (ACN 009 165 182)

STATE GOVERNMENT INSURANCE COMMISSION OF WESTERN AUSTRALIA

STATE GOVERNMENT INSURANCE COMMISSION OF WESTERN AUSTRALIA

AUSTRALIAN CONSOLIDATED INVESTMENTS LTD (ACN 008 670 924)

BELL RESOURCES DEVELOPMENTS PTY LTD (ACN 009 152 569)

W A GLENDINNING & ASSOCIATES PTY LTD (ACN 008 762 721)

Practice and procedure - Pleadings - Amendment to statement of claim - Turns on own facts

Second Plaintiffs : Mr R M Robson QC & Mr J T Svehla

Fourth Plaintiff : Mr R M Robson QC & Mr J T Svehla

Seventh Plaintiffs : Mr R M Robson QC & Mr J T Svehla

Eighth Plaintiff : Mr R M Robson QC & Mr J T Svehla

First Defendant : Mr T M Jucovic QC, Mr J L B Allsop QC &

Second Defendants : Mr T M Jucovic QC, Mr J L B Allsop QC &

Third Defendants : Mr T M Jucovic QC, Mr J L B Allsop QC &

First Plaintiff : Mr T M Jucovic QC, Mr J L B Allsop QC &

Second Plaintiff : Mr T M Jucovic QC, Mr J L B Allsop QC &

Third Plaintiff : Mr T M Jucovic QC, Mr J L B Allsop QC &

Fourth Plaintiff : Mr T M Jucovic QC, Mr J L B Allsop QC &

Fifth Plaintiff : Mr T M Jucovic QC, Mr J L B Allsop QC &

Sixth Plaintiff : Mr T M Jucovic QC, Mr J L B Allsop QC &

Seventh Plaintiffs : Mr T M Jucovic QC, Mr J L B Allsop QC &

Eighth Plaintiffs : Mr T M Jucovic QC, Mr J L B Allsop QC &

Second Defendant : Mr R M Robson QC & Mr J T Svehla

Fourth Defendant : Mr R M Robson QC & Mr J T Svehla

Banque Commerciale SA (In Liq) v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279

BCCI v Akindele [2001] Ch 437

Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447

Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37

Kinsela v Russell Kinsela Pty Ltd (In Liq) (1986) 4 NSWLR 722

Koorootang Nominees Pty Ltd v Australian and New Zealand Banking Group Ltd [1998] 3 VR 16

Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] UKHL 1; [2001] 2 WLR 170

Nicholson v Permakraft (NZ) Ltd (In Liq) (1985) 3 ACLC 453

Pyramid Building Society (In Liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188

Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4; [1995] 2 AC 378

Spies v R [2000] HCA 43; (2000) 201 CLR 603

Sycotex Ltd v Baseler [1994] FCA 1117; (1994) 122 ALR 531

1 OWEN J: The reasons in The Bell Group Limited (In Liq) & Ors v Westpac Banking Corporation & Ors [2001] WASC 315 ("the earlier reasons") disclose my general approach to the application by the plaintiffs for leave to amend the writ and the statement of claim. At a directions hearing on 22 November 2001 I requested the plaintiffs to bring in a fresh minute of proposed amended statement of claim:

(a) incorporating changes that counsel had indicated the plaintiffs were prepared to make to accommodate some of the objections raised by the defendants; and

(b) to bring the pleading in line with the earlier reasons.

2 I made this request so that I could satisfy myself that the Eighth Amended Statement of Claim (as the pleading will become) would be in accord with what I had intended to convey in the reasons. I also wished to give the defendants an opportunity to consider the final form of the proposed pleading.

3 The plaintiffs have filed a document entitled "Minute of Plaintiffs' Eighth Amended Statement of Claim" dated 7 December 2001 ("the Minute"). The document was accompanied by two lever arch files constituting the particulars to the statement of claim. The defendants filed a memorandum dated 14 December 2001 in which they raised four matters which were of concern to them. The plaintiffs filed a memorandum dated 7 December 2001 in which they responded to the defendants' concerns.

4 I have considered the Minute, the particulars and the memoranda. These reasons, which are supplementary to those contained in [2001] WASC 315, deal with the four matters of concern raised by the defendants. My reading of the materials did not alert me to other areas in which the Minute is not consistent with the earlier reasons. These reasons constitute the finalisation of the application for leave to amend the writ and the statement of claim.

5 I made it clear in the earlier reasons and at the November 2001 directions hearing that I understood the plaintiffs not to be alleging conscious wrongdoing on the part of the directors. In my view pars 39A, 39C and 39D and the particulars accord with that understanding.

6 One of the defendants' concerns is the reference in the particulars to a "lack of a genuine belief" in a state of affairs. My recollection is that the Seventh Amended Statement of Claim (a document that I do not have available at the moment) contained similar references. As I understand it there was no suggestion that it imported an element of conscious wrongdoing into that version of the pleading. I see no reason why the Minute should be differently interpreted.

7 The problem is exemplified by the allegation that the directors exercised powers for an improper purpose. This can arise in a number of ways. For example, an objector may allege the power was exercised for purpose "A" (which on any view of it is improper) while the directors may say that it was done for purpose "B", a totally legitimate purpose. A different argument may arise if the claimant and the directors are of one mind as to what the purpose was but they part company on the question whether it was improper. In that case the purpose may be found to be improper, in which case the directors may be liable. But this does not mean that they have pursued an improper purpose knowing the purpose to be improper. That would involve conscious wrongdoing. There may be other possibilities and combinations.

8 All that need be said is that I interpret the pleading as not involving an allegation of conscious wrongdoing in the sense that I have outlined. I will hold the plaintiffs to that interpretation.

9 In my view pars 39A, 39C, 39D of the Minute and the accompanying particulars can stand.

10 The equitable fraud claim is primarily to be found in pars 65M and 65MA. It is advanced on alternative bases. First, that nominated conduct is a deceit and imposition on Bell Participants and their creditors. This needs no further comment. Secondly, the Scheme and the Transactions constituted an inequitable and unconscientious bargain. This is contentious.

11 The gravamen of the second basis for the unconscionability claim is to be found in the particulars to par 65MA. I have considered carefully the matters raised in pars 22 to 29 of the defendants' memorandum of 14 December 2001. I acknowledge that the pleading is not perfect, although I am not sure how, in relation to pleadings, perfection can ever be assessed. My concern in the earlier reasons was that it was unclear exactly what the plaintiffs were saying about the myriad of material facts which were incorporated by reference and which, on the plaintiffs' case, rendered the bargain inequitable. In my view, that problem has now been cured. The defendants are made aware how it is said various circumstances affected individual or nominated companies.

12 In my view enough is disclosed in the particulars in order for the Banks to know the case they have to meet. I am also satisfied on the matters raised in pars 28 to 30 of the plaintiffs' memorandum, that the proposed plea avoids serious embarrassment or oppression to the defendants. Whether the matters contained in the particulars, if made out, are sufficient to ground a finding that the bargain was inequitable ought to be left for trial.

13 I thought I had made my position on the limitation issues relatively clear in the earlier reasons. I propose to stand over for consideration by the trial Judge all issues relating to limitation defences.

14 These problems can, and probably will, arise in three ways. First, whether some or all of the matters raised in the Eighth Amended Statement of Claim constitute new or fresh causes of action. Secondly, if so, what is the applicable limitation period? In relation to equitable claims, this may involve arguments about analogous causes of action at law. Thirdly, if there is a new or fresh cause of action does it arise out of the same or substantially the same factual matrix as previously pleaded?

15 As I said in the earlier reasons, all of these matters are best left to trial. I have considered carefully the material in pars 30 and 31 of the defendants' memorandum and pars 31 to 34 of the plaintiffs' response. I am afraid I do not fully understand the difference between the approaches advocated by the respective parties. In any event par 31 of the defendants' memorandum accurately reflects what I had in mind as the appropriate order.

16 The defendants are concerned about the particulars to par 59TA(b). That paragraph pleads:

"Prior to the February meetings, with the knowledge, belief and suspicion which they held ... , the Banks... refrained from seeking any or any adequate information about any schemes to restructure the financial position of the Bell Participants and the position of those companies' creditors, future creditors and shareholders in any such scheme."

17 Particular (b)(i) sets out five areas in which, according to the plaintiffs, the defendants abstained from making inquiries. Particular (b)(ii) sets out what the plaintiffs say inquiries, had they been made, would have revealed. The third particular alleges that the inquiries would have been made by "honest and reasonable persons in the position of" the defendants. In the fourth particular the plaintiffs give notice they will seek to have an inference drawn that the defendants abstained from inquiry because they believed or suspected (not that they knew) that the position was as set out in particular (b)(ii). Finally, there are set out two identified memoranda and an alleged banking practice (known to one of the defendants) as matters on which the plaintiffs wish to rely.

18 I am attracted to the argument raised by the plaintiffs that:

(a) the particulars do not represent a change in the case argued on the amendment application;

(b) they narrow the case by limiting the matters in relation to which it is said the defendants abstained from making inquiry; and

(c) at least to some extent the matters cover what is already in issue in par 62AA of the defence.

19 I do not believe that the particulars raise issues that are not in accord with par 59TA(b) of the Minute or that are not within the confines of the arguments raised during the hearing of the amendment application. Nor do I think they are embarrassing or otherwise defective in form.

20 There will be leave to amend in accordance with the Minute and the particulars as contained in the two lever arch files. The order should be extracted accordingly but it will speak from today. It should provide for the limitation issues to be deferred to the trial Judge.

21 The programme for dealing with the outstanding interlocutory applications was set at the directions hearing on 22 November 2001. Once that programme has been completed the arrangements for management of the action can be reviewed.