VANTAGE HOLDINGS GROUP PTY LTD -v- DONNELLY [No 5] [2025] WASC 176 (15 May 2025)

1. For the reasons that also follow, an order should be made that the stay prohibiting Australian Reliance proceeding against the Auditors be discharged.

The parties that made submissions and adduced evidence in respect of this application

1. As a result of the dispute as to the extent and effect of the stay orders being brought to the attention of the court, on 28 February 2025, orders were made that Australian Reliance file and serve affidavits and submissions as to:

(a) whether the effect of order 9 made on 8 November 2019 (and extended by order 7 made on 19 December 2019) continues to have effect to stay its claims against any of the defendants; and

(b) if so, whether the stay should be discharged.

1. Orders were also made that the defendants file and serve any affidavits and submissions in opposition to the application, and the application be determined on the papers.
2. The plaintiffs filed their submissions, and a supporting affidavit on 14 March 2025.[1] The Auditors filed their submissions on 7 April 2025 and affidavits in response on 3 April and 8 April 2025.[2] DFK filed its submissions and a supporting affidavit on 7 April 2025.[3]
3. Mr Donnelly and Mr Hanson did not file any submissions or supporting affidavit material.

1. Mr English was a director of PA Audit, and an employee of DFK.
2. The plaintiffs plead that at all relevant times Mr English was an accountant and audit practitioner who at material times was the accountant and auditor for Australian Reliance, in conjunction with DFK.
3. The plaintiffs plead the relationship between each of the plaintiffs and the other material defendants at material times:[4]

(1) Vantage is, and was, the holding company (and as such the ultimate parent company) of Australian Reliance.

(2) Australian Reliance provided general insurance broking services, and was required to and did hold an Australian Financial Services Licence (AFSL) and maintain a separate trust account pursuant to pt 7.8 div 2 of the Corporations Act 2001 (Cth).

(3) Mr Donnelly was the CEO and a director of Australian Reliance.

(4) Mr Hanson was a director of Australian Reliance and the CFO of a corporate group of which Australian Reliance was a part.

(5) Mr English was an accountant for Mr Donnelly and Mr Hanson and their related entities.

Background to the security of costs and stay order Principles - Construction of court orders

1. In WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 4], the Court of Appeal relevantly set out the principles to be applied in construing an order of the court:[5]

In relation to the construction of orders of a court, as opposed to written instruments generally, this court has recently said:

In determining the meaning of ... orders, on their proper construction, it is permissible to have regard to context including surrounding circumstances (much the same as it is permissible to have regard to the surrounding circumstances known to the parties and to the purpose and object of a transaction when construing a commercial contract). However, in having regard to surrounding circumstances, it is relevant to keep in mind that orders are generally framed with a view to their being self-contained and self-explanatory. Also, the surrounding circumstances are not admissible to contradict the language of the orders where that language is unambiguous or susceptible of only one meaning. In this respect the position is no different to the position pertaining to the construction of a commercial contract. (citations omitted)

It should also be remembered that, ordinarily, the purpose of a court order is to give effect to reasons for decision - the reasons for decision are the source of the order. As the order is derived from the reasons the order must conform with the reasons. Hence it is said that reasons for decision have 'primacy' as a source for interpretation of an order.

1. In applying these principles in this matter it is relevant to have regard to the fact that security for costs orders were only sought and obtained by the Auditors, and for the reasons that follow, that the express terms of the security orders and the stay order only applied to Australian Reliance. The court should also have regard to other relevant orders sought by the Auditors and the plaintiffs on 8 November 2019 and 19 December 2019, together with the oral reasons (recorded in the transcript at the times those orders were made) as to why the stay orders were made in the context of why particular orders were sought by the plaintiffs and the Auditors at those hearings.

The reasons why the stay orders were made as between the Auditors and Australian Reliance only and why the stay was made to take effect at a later date if security was not furnished

1. In 2019 the Auditors applied for orders to strike out the writ of summons and the further re‑amended statement of claim filed on 15 January 2019, insofar as relief was claimed against them. They also made an application for security for costs against Vantage, Australian Reliance and Reliance Group, and to remove the second plaintiff, Reliance Franchise Partners Pty Ltd (who was then in liquidation) as a party to the proceedings.
2. The Auditors were partly successful in their strike out application, and were granted leave to replead. Their security for costs application was also partly successful.[6]
3. On delivery of judgment on 8 November 2019, the plaintiffs sought certain orders including Australian Reliance provide security for the Auditors' costs, and orders that they file a substituted statement of claim and that the Auditors and DFK file defences and Mr Donnelly and Mr Hanson file amended defences. The Auditors opposed orders that they file defences. They sought an order staying the proceedings consequent on the order for security for costs, and an order that they ought not be required to take any further steps in the proceedings.
4. In the usual case it is not necessary to make a stay order because O 25 r 6 of the Rules of the Supreme Court 1971 (WA) operates as an automatic stay of the action against all parties, consequent on a security of costs order.
5. Order 25 r 6 provides where security is ordered the action or other proceeding shall be stayed until the security is furnished, unless the Court otherwise orders. The effect of this rule is as found in by King CJ in Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (in respect of an identical rule):[7]

The framers of the rule could quite reasonably have taken either of two alternative approaches. They could have provided that the action is totally stayed subject to power in the court to allow the action to proceed against some defendants. Alternatively they could have provided that the action is stayed only against the defendants in respect of whom the plaintiff is in default as regards security with power in the court to order a stay of the whole action. Which course was in fact taken must be ascertained by an examination of the language of the rule.

The meaning of the language of the rule appears to me to be plain and unambiguous. The word 'action' describes, in its ordinary connotation, the whole of the plaintiff's action including all claims included in it against all defendants against whom those claims are made. It seems to be that the whole action is stayed until the security ordered is furnished.

1. The reason why order 9 was made as an 'otherwise order' to effect a stay only against Australian Reliance's claims against the Auditors and why the stay was only to take effect if security was not paid by a certain date is reflected in the following exchange between counsel and the bench on 18 November 2019:

SMITH J: All right. Well, if I was to make an order to stay the proceedings, consequent on the order for security for costs, I would only make an order - and, I think, it's only proper to make an order - for security for costs as against the third plaintiff, Australian Reliance Proprietary Limited, because the other plaintiffs don't make a claim against the fifth and sixth defendant, so if I was to make that order, what other orders should I make?

Should I also make an order for enabling the first, third and fourth plaintiffs to serve a substituted statement of claim, or should I await, should those orders be - await until the security is paid?

MACMILLAN, MS [counsel for the Auditors]: Sensibly, I would say those orders should await until security is paid.

SMITH J: Well, it's a bit difficult to make an order that the first and fourth plaintiff file and serve a substituted statement of claim.

BENNETT, MR: The alternative is to make an order that stays the proceedings if we don't provide the security within 14 days. So you will note that today is the 8th. We seek to file the statement of - substituted statement of claim by the 22nd. That is, in fact, 14 days from today, and our intention is to propose a resolution to the security for costs that will be achieved within that 14 days. So if we fail to provide security by the 22nd, thereafter the proceedings be stayed.

1. Following this exchange, orders 8 and 9 were made as follows:

1. In relation to the fifth and sixth defendants' [the Auditors] application for security for costs up to and including entry for trial (Security for Costs Application):

(a) the third plaintiff [Australian Reliance] is to provide security for the fifth and sixth defendants' [the Auditors] costs of this action up to and including entry for trial in the sum of $125,000 at a time and in a form to be determined by further order;
>
> (b) the fifth and sixth defendants [the Auditors] have liberty to apply for an order requiring the third plaintiff [Australian Reliance] to provide further security for their costs after entry for trial; and
>
> (c) the Security for Costs Application be otherwise dismissed.

1. The claim made by the third plaintiff [Australian Reliance] be stayed if security is not given by 21 November 2019.
2. In addition, orders were made that Vantage, Australian Reliance and Reliance Group file and serve a substituted statement of claim by 22 November 2019, and that the Auditors file any defence to the substituted statement of claim by 10 February 2020.
3. As reflected in the exchange above, the reasons why order 9 was made to delay the effect of a stay to 21 November 2019 was to allow the plaintiffs to a file an amended statement of claim within a short period of time. In addition, because security orders were only to take effect against two of the seven defendants, the stay was to only be effective as against Australian Reliance's claim against the Auditors, as the other plaintiffs seek no relief as against the Auditors.
4. Because no other party other than the Auditors and the plaintiffs appeared on delivery of judgment on 8 November 2019 no orders were made requiring the filing of defences by other parties, or the removal of Reliance Franchise Partners as a party to the proceedings. As a consequence, the matter was listed for directions on 19 December 2019, to enable the other parties to be heard as to the filing of defences and the removal of Reliance Franchise Partners as a party to the proceedings.
5. As required by the orders made on 8 November 2019, Vantage, Australian Reliance and Reliance Group filed a substituted statement of Claim on 22 November 2019.
6. In the meantime, the Auditors filed an appeal against the strike out orders (CACV 144 of 2019).
7. At the directions hearing on 19 December 2019, the plaintiffs, the Auditors, and Mr Donnelly appeared by counsel. No other defendant appeared at the hearing. The court was informed that DFK was not represented as the solicitors on the record (who also represented the Auditors) were no longer acting for DFK, and no appearance was expected at the directions hearing on their behalf.[8] The court was also informed that the plaintiffs' solicitors had written to the current directors of DFK on 25 November 2019 (attaching a copy of the substituted statement of claim) and referred to the fact that DFK had not filed its defence as required by previous orders, and put DFK on notice that if no defence was filed prior to the upcoming directions hearing the plaintiffs would seek orders compelling DFK to file its defence.[9]
8. After hearing the parties present at the hearing on 19 December 2019, orders were made:

(a) removing Reliance Franchise Partners as a party to the proceedings;

(b) requiring Mr Donnelly, Mr Hanson and the third defendant, Hawkstone to file any amended defence, and requiring DFK to file a defence (to the substituted statement of claim dated 22 November 2019) by 16 January 2020.

1. In addition, as a result of the filing of the appeal in CACV 144 of 2019 by the Auditors, an order was also made to extend the time for compliance with order 9 of the orders made on 8 November 2019 until 14 days after the determination of the appeal (order 7). This had the effect of delaying the stay coming into effect and delaying the obligation on Australian Reliance to pay security for costs in satisfaction of order 8 of the orders made on 9 November 2019.
2. An order was also made on 19 December 2019 staying the order that the Auditors file any defence to the substituted statement of claim, until further order of the court.
3. On 17 January 2020, DFK filed a notice of representation appointing new solicitors. DFK did not file a defence. Instead on 6 February 2020 its solicitors wrote to the plaintiffs' solicitors seeking that the plaintiffs (who by then were only Vantage, Australian Reliance and Reliance Group) agree to pay DFK $149,149 security for costs up to and including trial (with liberty to apply for further security).[10]
4. It does appear that there was conferral between DFK's solicitors and the plaintiffs' solicitors regarding security for DFK's costs but no outcome was ultimately agreed.[11] Despite the fact that the stay order at that point in time had not become operative at all, DFK did not file its defence, or make an application for security of costs.

Conduct of the parties after the delivery of the decision in the strike out appeal until early 2025

1. The Court of Appeal heard the appeal in CACV 144 of 2019 on 16 October 2020.[12]
2. On 23 March 2021, on the delivery of judgment, the Court of Appeal made orders granting leave to appeal, varied certain of the strike out orders made on 8 November 2019, and remitted the proceedings for further directions relating to the re‑pleading of the statement of claim (as against the Auditors).
3. As a consequence of the disposition of the appeal, Australian Reliance was required to satisfy the security costs orders by 6 April 2021. However, Australian Reliance did not satisfy the security costs orders by that date, and the stay came into effect as between Australian Reliance and the Auditors on and from 7 April 2021.
4. Thus, to date, Australian Reliance and the Auditors have been prohibited by the operation of order 9 of the orders made on 8 November 2019 (as extended by order 7 made on 19 December 2019) from taking any step in the proceedings as against each other.
5. Australian Reliance did satisfy order 8 of the security for costs orders approximately by payment into court of the amount ordered on 17 February 2022.
6. Until at least the filing of written submissions seeking that the stay be discharged in March 2025, the plaintiffs appeared to be firmly of the opinion that once security had been paid into court (approximately 11 months after the stay orders required security to be furnished) Australian Reliance's claim as against the Auditors was not stayed, and the Auditors were obligated to file their defences.
7. The Auditors have since the stay became operative on 7 April 2021 taken the view that no steps could be taken in the proceedings by any party while the stay was in place.
8. The Auditors were correct in their assertion that Australian Reliance and the Auditors could take no step in the proceedings in so far as the claim by Australian Reliance was made against the Auditors. In any event, by order 1 of the orders made on 19 December 2019, the Auditors were relieved from the obligation to file their defences until further order of the court, which order is still in effect. However, they were not correct to assert that no party could take any step in the proceedings.
9. It is not entirely clear why DFK have not filed a defence in these proceedings. The claims made against it in these proceedings were not, and are not, the subject of any stay order.
10. Also, the claims made by the plaintiffs against Mr Donnelly, Mr Hanson, and their related companies (Hawkstone and Insubi), are also not the subject of any stay order.
11. It is notable that an order was made on 19 December 2019 requiring the parties within five business days after the determination of the appeal to inform the Associate to the case manager of the proceedings of their unavailable dates to attend a directions hearing. This did not occur.
12. However, it appears the plaintiffs' solicitors did seek to confer with the other parties after security was paid into court by Australian Reliance.
13. On 30 March 2022, the plaintiffs' solicitors filed a minute of proposed orders, and wrote to the defendants' respective solicitors and referred to the fact that security had been provided and sought agreement to the orders set out in the minute of proposed orders. The minute proposed orders that: (a) by 22 April 2022, the plaintiffs file and serve an amended substituted statement of claim; and (b) by 20 May 2022: Mr Donnelly, Mr Hanson and Insubi file and serve any amended defences; and the Auditors and DFK file and serve a defence.[13]
14. Conferral was not successful. The Auditors' solicitors responded to the minute of orders in a letter dated 16 June 2022 stating that the proposed orders were premature given the proceedings were still stayed and took the point that the mere payment into court of the $125,000 did not automatically re‑enliven the proceeding in relation to Australian Reliance, and that as such Australian Reliance was now required to make an application to the court to have the stay discharged or time for compliance extended.[14]
15. Mr Donnelly's solicitors also responded in June 2022 advising that they were not in a position to file and serve their clients amended defence by 30 June 2022 as they had recently been engaged to act in the matter and were yet to receive and review all the relevant documents that would enable the preparation of an amended defence. In addition, they advised that they were not at that time in a position to provide an estimate of when they would be in a position to file an amended defence.[15]
16. None of the parties sought to have the matter listed for a directions hearing.
17. It is not clear whether DFK's solicitors responded to the plaintiffs' proposed minute of orders. This appears to be because some time prior to June 2023, the solicitor who had conduct of the matter ceased to be employed by the firm acting for DFK.
18. It also appears that the solicitor who had conduct of the matter on behalf of the plaintiffs also left the employment of the firm acting for the plaintiffs, in or about August 2022.
19. In any event it appears that the plaintiffs' solicitors did not seek to further confer with any party until 2023.
20. On 5 April 2023, the Auditors' solicitors wrote to the Principal Registrar requesting that the matter be placed on the Inactive Cases List, on grounds that it had been inactive for over two years stating that the last procedural step taking in the proceeding for the purposes of O 4A r 24 was the delivery of the judgment in the appeal on 23 March 2021.[16] It is to be noted that the disposition of the appeal could not constitute a step in the proceedings as an appeal is a separate proceeding.
21. On 11 April 2023, pursuant to O 3 r 7, the plaintiffs filed a notice of intention to proceed, stating that the plaintiffs gave notice that they intended to proceed with the matter by filing and serving an amended substituted claim by 2 May 2023.[17]
22. The solicitors for the plaintiff had been at that time in the course of preparing and settling an amended substituted statement of claim since February 2023.[18]
23. On 15 April 2023, the Auditors' solicitors wrote again to the Principal Registrar stating that the plaintiffs' notice of intention to proceed did not constitute a procedural step for the purposes of O 4A r 24.[19] They made no mention of the stay orders in this letter or in their letter dated 5 April 2023.
24. Order 4A r 24 deems a case where no party has taken a procedural step in a case for 12 months to be inactive, but creates a discretion for the case manager to order otherwise.
25. The Auditors were correct to submit that the filing of a notice of intention to proceed does not constitute a procedural step in a proceeding, and that by at least April 2023, the case was inactive. In Crane v The State of Western Australia, the Court of Appeal relevantly observed in respect of the steps that will constitute a procedural step in the proceeding, and those steps that will not:[20]

In Citicorp, McPherson SPJ (with whom Ryan and Dowsett JJ agreed), in considering an equivalent Queensland rule, said (at 594) that it 'must have the characteristic of carrying the cause or action forward'; that it must be 'something in the nature of a formal step in the prosecution of an action'. His Honour distinguished such an act or activity from 'acts done in the recesses of a solicitor's office', such as inspecting documents, preparing an affidavit of discovery or preparing proofs of witnesses, which, although necessary to bring the action to trial, 'cannot be fairly described as a 'proceeding' in the cause' within the meaning of the rule.

In Argo Pty Ltd v Attorney - General (Tas) (No 3) [2004] TASSC 51; (2004) 13 Tas R 69, Underwood J, having canvassed a number of authorities, concluded that 'proceeding' in the Tasmanian equivalent to O 3 r 7, means some step in the action required by the rules of procedure, but not necessarily carried out in accordance with those rules, to carry the action forward to a final judgment [27].

In Burns v Korff [1982] 8 QL 201, 208, it was said in respect of the then Queensland equivalent to O 3 r 7, that the common feature of a 'proceeding' is that 'in a general way, the activity is recognised by the Rules as an activity which positively advances the cause and its conduct towards ultimate judgment, whether in favour of a plaintiff or a defendant.'

In general terms then, a 'proceeding' in O 3 r 7 is something in the nature of a formal step which a party is required or permitted by the rules of court, or an order of the court, to take for the purpose of advancing the case towards final judgment.

It is apparent that much that parties do in the course of litigation will not constitute a 'proceeding' for the purpose of O 3 r 7. Thus, for example, it has been held that a letter requesting delivery of a statement of claim was not a step in the proceedings: Ives & Barker v Willans [1894] UKLawRpCh 64; [1894] 2 Ch 478, 483 ‑ 484; an agreement to extend the time for delivering a defence was not a step in the action, although an application to the court for an extension of time to do so would have been a step: Brighton Marine Palace and Pier Ltd v Woodhouse [1893] UKLawRpCh 64; [1893] 2 Ch 486, 488 ‑ 489; making an application to set aside judgment was not a step in the action: ANZ Banking Group Ltd; the filing of affidavits in opposition to an application for the appointment of a receiver, in an action for the dissolution of a partnership, was not a step in the proceedings: Zalinoff v Hammond [1898] UKLawRpCh 60; [1898] 2 Ch 92; a letter calling for compliance with an order for delivery of an affidavit of documents was not a proceeding in the action: Mundy; the inspection of copies of discovered documents in the solicitor's office was not itself a step in the action: Citicorp (albeit, it was accepted that the provision of copies of discovered documents was a step in the action: Wright v Ansett Transport Industries Limited [1990] 1 Qd R 297); delivery of a draft list of documents and unexecuted affidavit, accompanied by a letter confirming the provisional or interim basis of those documents, is not a step in a proceeding: Raabe v Brisbane North Regional Health Authority [2000] QSC 257; interviewing a potential witness is not a step in the action: Smiley v Watson [2001] QCA 269; [2002] 1 Qd R 560; an order for the transfer of an action from one court to another was not a step in the action: IH Dempster Nominees Pty Ltd v Chemgoods Pty Ltd [1993] 2 Qd R 377, 378; notice of a change of solicitors was not a step in the action and nor was an notice of intention to proceed: Kaats v Caelers; and, the taking out by a plaintiff of money paid into court, and payment into court for a cross-claim are not steps in a proceeding: Spincer v Watts [1889] UKLawRpKQB 103; (1889) LR 23 QBD 350.

1. The Auditors were not correct to assert that the matter had been inactive for two years. The filing by the plaintiffs' minute of proposed orders on 30 March 2022 can be construed as constituting an application to the court for the orders sought in that minute, namely the filing of amended pleadings by the plaintiffs and defendants. As such, it was a formal step in the proceeding for the purpose of advancing the case. Although Australian Reliance was prohibited by the stay from taking a step in the proceedings as against the Auditors, Australian Reliance, Vantage and Reliance Group were not prohibited in pursuing their claims as against the other defendants including DFK, Mr Donnelly and Mr Hanson. However, irrespective that the filing of these orders constituted a step in the proceedings, 12 months had expired since the filing of that minute. Consequently, O 4A r 24 was invoked.
2. The matter was not, however, placed on the Inactive Cases List. This is because the plaintiffs had effect given an undertaking in the notice of intention to proceed filed on 11 April 2023 that they intended to file a re‑amended substituted statement of claim by 2 May 2023.
3. In these circumstances, it was clear that there may be good reason to exercise the discretion conferred on a case manager pursuant to O 4A r 24 to order that the case not be deemed inactive. It is established that the filing and service of a pleading or an amended pleading is a procedural step in a case.[21] Providing that the plaintiffs complied with that undertaking the court could be satisfied there was good reason to deem the matter active.
4. Accordingly, the parties were advised by the court by email on 17 April 2023 that:

(a) an order would be made that '[A]lthough no procedural step was taken in the case for 12 months by any party, pursuant to O 4A r 24 until further order of the court the case will not be taken to be inactive'; and

(b) unless the plaintiffs file and serve an amended substituted statement of claim by 2 May 2023, as stated in their notice of intention to proceed, the matter would be listed, pursuant to O 4A r 22, for the plaintiffs to show cause why the case should not be put on the Inactive Cases List.

1. The order foreshadowed in the email was made by the court on 20 April 2023, and the plaintiffs filed an amended substituted statement of claim on 2 May 2023.
2. Because of the effect of the stay orders prohibited Australian Reliance from taking any step in the proceedings as against the Auditors, and as such the filing of the amended substituted statement of claim could not be operative as against the Auditors in respect of the claim made by Australian Reliance against them. However, because Vantage and Reliance Group were not the subject of the stay order it was proper for these plaintiffs to take a step in the proceedings by filing the amended substituted statement of claim dated 2 May 2023. In addition, Australian Reliance was not prohibited from taking a step in the proceedings as against any of the defendants other than the Auditors.
3. It is notable, however, although Vantage and Reliance Group alleged certain matters as against the Auditors in the amended substituted statement of claim, as referred to above they do not seek any relief as against the Auditors. Australian Reliance is the only plaintiff who seeks relief as against the Auditors. Vantage, Australian Reliance and Reliance Group each seek relief as against Mr Donnelly and Mr Hanson,[22] and Australian Reliance seeks relief as against DFK.[23]
4. All of the amendments made in the amended substituted statement of claim filed on 2 May 2023 relate to the conduct of Mr Donnelly, Mr Hanson and the Auditors.
5. Despite the fact that the amendments made relate in part to the conduct of the Auditors, the matters pleaded against the Auditors in this pleading are also relevant to the pleas that Australian Reliance pleads as against DFK. It appears to be a central plank in the accessorial liability claim against DFK that Mr English carried out accountancy and audit functions on behalf of PA Audit and in conjunction with DFK,[24] and DFK was the accountant in conjunction with PA Audit for Australian Reliance.[25]
6. In pars 178 to 179 and 181 to 182, Australian Reliance plead in respect of the diversion of funds in the Austin Financial Services Pty Ltd (Austin) loan forgiveness issue that:

(a) (in par 178) the Auditors knowingly assisted Mr Donnelly and Mr Hanson's breaches of their common law and statutory duties by reason of the matters pleaded in pars 163 to 174 as pleaded in par 48B (sic) [par 179];

(b) (in par 179) Mr English knew, and PA Audit (and DFK) are deemed to have known, of the facts comprising Mr Donnelly's and Mr Hanson's contraventions of their common law and statutory duties;

(c) (in par 181) the Auditors and DFK were involved, as defined in s 79(a) and/or (c) of the Corporations Act, in Mr Donnelly's and Mr Hanson's contraventions of their statutory directors' and officers' duties; and

(d) (in par 182) in respect to the matters pleaded in pars 178 and 181, the Auditors and DFK are liable for damages, and compensation to Australian Reliance pursuant to s 1317H of the Corporations Act, to the extent of Australian Reliance's loss and damage referred to in par 175 (being the sum of $2,340,682 of Australian Reliance's funds that it claims Mr Donnelly and Mr Hanson misappropriated).

1. After the filing of the amended substituted statement of claim on 2 May 2023, the plaintiffs conferred with legal representatives of the Auditors, Mr Donnelly and DFK, about the filing of defences. The plaintiffs' solicitors also conferred with Mr Hanson (who was by this time unrepresented).
2. In their correspondence, the plaintiffs' solicitors continued to wrongly maintain their position that the proceedings were not stayed after security was given, and the stay orders simply reflected O 25 r 6. In response, the Auditors correctly maintained the position that an application was necessary as the stay remained in place.
3. Instead of the plaintiffs' solicitors and the Auditors' solicitors repeatedly debating the issue as to whether or not the stay was still in place after the security was furnished on 18 February 2022, Australian Reliance should have brought the dispute back to the court for resolution when the dispute first arose.
4. Instead the affidavit material filed on behalf of the plaintiffs and the Auditors show they continued to debate this issue until at least June 2024, when the plaintiffs' solicitors wrote to the solicitors for the Auditors, Mr Donnelly and DFK (and Mr Hanson personally) referring to each of the positions taken by the parties, including DFK's request for security for costs in 2020.
5. In a letter dated 12 June 2024, the plaintiffs' solicitors proposed the parties agree orders:[26]

4.1 for the avoidance of doubt, and to the extent necessary, any stay of the proceedings be discharged;

4.2 the filing service of any defence or amended defence (as the case may be); and

4.3 the filing and service of any reply.

1. In this letter also the plaintiffs' solicitors requested the other parties to advise if this was agreed, and if so consent orders would be circulated. No response was received from any party. As a result, on 21 August 2024 the plaintiffs' solicitors sent a further letter requesting consent to their proposed orders.[27]
2. It appears from the affidavit material filed by the plaintiffs and the Auditors that no response was received from any defendant about this proposal.
3. On 31 January 2025, the plaintiffs filed another notice of intention to proceed pursuant to O 3 r 7, and the plaintiffs' solicitors sent a copy of the notice and an email to the parties. In this email, the plaintiffs' solicitors apologised for the delay in progressing the matter last year and stated, among other matters, that during this period of time they had managed to research 'considerably more material on the relationship between the auditor and Mr Donnelly and Mr Hanson. In those circumstances, at the expiration of one month, we intend to file a further amended statement of claim.'[28]
4. Following the filing of this notice of intention, the court listed this matter for a directions hearing on 27 February 2025 following which programming orders for submissions of affidavits were made for the court to resolve the issue between the parties as to the effect of the stay.

The plaintiffs' explanation for the lengthy delay

1. The plaintiffs accept there has been a delay in progressing these proceedings and offer an apology.
2. The only explanation for the 11 month delay in making the payment into court and not progressing these proceedings before and after the security was furnished is an account of what is said to be complex and time-consuming work carried out by the plaintiffs' solicitors in related proceedings involving Mr Donnelly and the Reliance Franchise Partners Pty Ltd (in liq) and other related parties, and lengthy unrelated proceedings, in and from 2021 to 2024 in this court, and in the Federal Court.[29]
3. The plaintiffs say that a failure to progress these proceedings has been fundamentally a combination of inadvertence on behalf of their solicitors, and litigation fatigue on the part of those who instruct their solicitors.
4. The plaintiffs argue that at no stage have the defendants actively sought to progress the matter either by filing amended defences or defences.
5. The plaintiffs say they are committed to advancing the proceedings and will deal with their obligations to advance the proceedings to the close of pleadings, supplementary discovery and mediation.
6. The principal of the plaintiffs' solicitors has given an undertaking to the court that within the firm he will take steps to ensure there are sufficient practitioners assigned to this matter so as to ensure it is not reliant on a single practitioner for day‑to‑day management.

1. The Auditors oppose the lifting or discharge of the stay.
2. When considering whether to discharge the stay the Auditors argue that the court should be guided by the following considerations:

(a) whether strict compliance with a stay order will work an injustice in the sense of hardship upon the party seeking to lift the stay having regard to:

(i) the history of the proceedings;

(ii) the conduct of the parties;

(iii) the nature of the litigation; and

(iv) the consequences for the parties of the grant or refusal of the application for an extension of time;

(b) the length of the delay;

(c) the explanation for the delay;

(d) the prejudice to the Auditors if the action is allowed to proceed notwithstanding the delay; and

(e) the conduct of the Auditors in the litigation.

1. The Auditors contend the following matters in particular are relevant to the exercise of the court's discretion to make an order to lift or discharge the stay in this matter:

(a) the overarching principles and objects contained in O 1 r 4A and r 4B;

(b) Australian Reliance have engaged in inordinate and unexplained delay in complying with the stay orders, in raising any issues with obtaining security with the parties or the court, or making any application to extend the time for compliance with the security orders or to lift or discharge the stay;

(c) the proceeding has effectively become an inactive matter as defined in O 4A r 21; and

(d) any steps that Australian Reliance or the plaintiffs generally will take to ensure that the matter will be progressed expeditiously.

1. The Auditors submit that modern case management principles establish that where there is such an inordinate delay in compliance with case management orders as in this case Australian Reliance needs to show the application was bought in good faith, and the circumstances giving rise to the delay in complying with the order for security, and failing to take steps to lift or discharge the stay orders.
2. The Auditors say that Australian Reliance has not provided any evidence of any injustice that will be foisted upon it if a discharge of the stay is not granted so that no weight should be attributed to this consideration. Nor have they explained why the security was paid 318 days late, or why it has taken just over three years to press for a discharge of the stay.
3. They also point out that the only explanation for the delay is to solely address delays occasioned by Australian Reliance solicitors, who were too busy to progress the proceeding, but not too busy to progress other proceedings in which it was involved.
4. In these circumstances the Auditors argue it would not be harsh or unfair to Australian Reliance to refuse lifting or discharging the stay when regard is had to the principles and objectives of O 1 r 4A and r 4B.
5. In contrast, the Auditors say to lift the stay would prejudice the Auditors. First, there is 'presumptive prejudice' because of the length of time which these proceedings have been on foot in circumstances where it is well‑known that memories fade and that relevant evidence becomes lost even when written records are kept.[30] In addition, the Auditors have been entitled to rely upon the stay for the past three years.
6. They also say the continuation of these proceedings is in itself prejudicial to the Auditors because of the allocation of resources that are necessary for the conduct of the litigation and the anxiety and worry produced by involvement in litigation proceedings, particularly in so far as the proceedings are brought against Mr English personally.
7. Further, they say as Australian Reliance alleges professional negligence with respect to the Auditors, the delay in bringing an action on for hearing imposes additional prejudice in circumstances where both the uncertainty of an adverse finding and the seriousness of the allegations could:

(i) result in the suspension of or cancellation of PA Audit's AFSL or otherwise restrict its ability to continue operating as an accounting and auditing business;

(ii) restrict the Mr English from practicing as an auditor; and

(iii) impact the Mr English's registration as a Chartered Accountant ANZ.

1. The Auditors also refer to other matters of personal hardship to PA Audit and Mr English in a second affidavit affirmed by Mr Millar as follows:[31]

1. On 1 April 2025, I was informed by Mr Kathal Kester Spence, a director and secretary of the Fifth Defendant (PA Audit), and Ms Mohamed Jazeema Noordeen, a senior manager of PA Audit, that the impact which these proceedings have had on PA Audit includes:

(a) an inability to attract new customers to the firm, as a consequence of the financial uncertainty associated with the outcome of these proceedings;
>
> (b) clients have either reduced their business with PA Audit, or taken their business elsewhere due to PA Audit being named in these proceedings, together with the allegations of professional misconduct;
>
> (c) the difficulty in obtaining insurance, and an increase in costs for insurance, since these proceedings commenced;
>
> (d) personal stress and anxiety which have been prolonged due to the delay;
>
> (e) staff members that were involved in the audit, which is the subject of the Third Plaintiff's [Australian Reliance's] claim against PA Audit, have since left the firm and are not available to provide evidence in respect of relevant events; and
>
> (f) due to the prospect of an adverse finding against PA Audit, it has been unable to retain key staff as the firm is perceived as being a 'dead-end' while the proceedings against it remain active.

1. On 6 April 2025, I was informed by Mr Mark Anthony English, the Seventh Defendant, that the impact that these proceedings have had on him includes:

(a) he is now nearly 70 years of age;
>
> (b) he has fading memories with respect to relevant events which occurred in 2014 and 2015;
>
> (c) he does not have access to all relevant paperwork and computer files (which to the best of his knowledge, are in the possession of PA Audit and/or the Seventh Defendant [DFK]);
>
> (d) he believes he has lost some of the physical papers, file notes or other documents over the course of moving house four times while the proceedings have been on foot; and
>
> (e) the negative impact on Mr English's mental health over an approximate 9-year period dealing with the stress and anxiety of litigation.

2. DFK questions whether Australian Reliance will diligently progress its claim if the stay is discharged. It refers to the fact that Australian Reliance has not agreed to pay security for costs to it, and questions whether Australian Reliance is able to furnish further security on the basis that it has not provided any assurance in the affidavit material that it would be able to satisfy such an order. DFK says this factor militates against the court's discretion to discharge a stay, where there is a likelihood the matter will be stayed again in a matter of weeks or months.
3. DFK also says that the submission that Australian Reliance has litigation fatigue is not supported by any evidence, and it appears from the limited evidence, that Australian Reliance leaves prosecuting this action up to its solicitors, and in these circumstances it is hard to reconcile such a somnambulistic approach to litigation to fatigue.
4. DFK also says it has suffered prejudice caused by the long delay in these proceedings. In a supporting affidavit, Ms McLauchlan states:[32]
   1. I have been instructed by Kathal Spence of the Seventh Defendant [DFK] that he believes the impact of this litigation to date on the Seventh Defendant [DFK] has included:
      1. documents and information relevant to the proceedings have moved locations several times and the firm has incurred a cost of approximately $20,000 to maintain old servers to preserve information potentially relevant to the litigation that otherwise would have been taken offline several years ago;
      2. difficulty in obtaining insurance and costs to do so have increased significantly since the proceedings were first commenced;
      3. stress related to dealing with the drawn-out litigation is high; and
      4. the firm has not been able to expand its business for the 6 years the litigation has been on foot due to the financial uncertainty associated with the outcome of the proceedings.

1. Although it is notable that since February 2022, the Auditors have had the benefit of a payment into court, it is clear as the Auditors submit that Australian Reliance has engaged in inordinate delay in prosecuting this action.
2. In addition, it is also notable that the Auditors do not make an application that Australian Reliance's claim against it be dismissed for want of prosecution in response to the application to discharge the stay.
3. As the Auditors point out, the power conferred by O 3 r 5 to permit an extension of time in relation to non‑compliance in time of an order of the court is a remedial provision and a broad power to relieve against injustice, but that the grant of an extension of time under this rule is not automatic. The object of the rule is to ensure the rules which fix times for doing acts do not become instruments of injustice.[33]
4. DFK do not directly put forward any argument that the stay orders had effect as against it. What it does say is that it is unclear how Australian Reliance could proceed against DFK (at least on the current pleadings) if Australian Reliance were not proceeding against PA Audit and Mr English as Australian Reliance seeks the same relief against the Auditors and DFK, and brings in DFK to the claims based on deemed knowledge through Mr English (who it is alleged was at material times an employee of DFK.
5. This contention cannot be accepted. Although it may be the case that Australian Reliance may have difficulty proving its case as against DFK only at trial if the case against the Auditors remains stayed, but that would be a matter for Australian Reliance to consider when making forensic decisions in preparation for a trial. In this regard, it appears from the pleadings that each of the claims by the plaintiffs including the claim by Australian Reliance against the Auditors and DFK is likely to rely substantially upon contemporaneous business records.
6. Although DFK complains that it has incurred a cost of approximately $20,000 to maintain servers to preserve documents and information relevant to the proceedings, and has had difficulty in obtaining insurance in circumstances where the costs of doing so have increased significantly since proceedings have commenced, the plaintiffs make the point DFK are in default of orders requiring it to file a defence.
7. In circumstances where DFK has not made an application to the court for security costs after foreshadowing such an application in 2020, and is in default of case management orders requiring it to file a defence, and have not sought an extension of time in which to file an defence, it cannot place the entire fault for inordinate delay in the management of this action, or the prosecution of its claim against DFK in the hands of Australian Reliance.
8. As set out above, the claims made by each of the plaintiffs against Mr Donnelly and Mr Hanson are not stayed. Mr Donnelly and Mr Hanson are not strictly in default of any case management orders as order 5(a) of the orders made on 19 December 2019 are cast in terms of filing 'any amended defence to the substituted statement of claim dated 22 November 2019'. When Mr Donnelly and Mr Hanson were both represented by solicitors, they each separately filed defences in July 2017 to earlier iterations of the statement of claim.
9. However, Mr Donnelly and Mr Hanson's defences clearly need to be amended, particularly where the substantial parts of the substituted statement of claim filed on 22 November 2019 has been renumbered and re‑drafted, and amendments have been made by the plaintiffs in their cases against Mr Donnelly and Mr Hanson in the amended substituted statement of claim filed on 2 May 2023.
10. It is clear that the conduct of the Auditors has not contributed to the delay in the management of these proceedings. The Auditors properly took the point that Australian Reliance's claim is stayed as against them. They point to matters of prejudice including what is plainly 'presumptive prejudice' prejudice that occurs as a result of fading memories over a long period of time. However, the fact that adverse findings could be made at trial that could result in the suspension or cancellation of PA Audit's AFSL, or otherwise restrict its ability to continue operating as an accounting and auditing business and impact on Mr English in his practice as an auditor and registration as a Chartered Accountant, are not consequences that could be found to be attributable to any delay.
11. It is clear that Mr English and PA Audit would suffer prejudice if the stay is lifted because of the stress caused by the substantial delay of Australian Reliance in first delaying its payment of security into court, and then failing to resolve the issue as to the stay for a period of almost two years. It must be acknowledged, that it is very stressful for any individual who is a defendant in proceedings of this nature particularly where proceedings raise issues going to professional misconduct by a firm or an individual.
12. As to access of documents, although it is not entirely clear whether Mr English remains associated with PA Audit or DFK, Mr English points to the fact that the conduct complained of relates to events that occurred in 2014 and 2015, as he understandably says that his memory is fading as to those events.
13. These are issues that must be taken into account in determining who would suffer the greater injustice if the stay is or is not discharged.
14. As to Mr English's complaint that he thinks he has lost some of his papers, file notes or other documents over the course of moving house since the proceedings have been on foot is not a proper point to raise against Australian Reliance. As a party to the proceedings it is his obligation to retain relevant documents.
15. As to Mr English's point that all the relevant paperwork and computer files to the best of his knowledge are in the possession of PA Audit or DFK, as he is jointly represented with PA Audit, it is difficult to accept that he would not have access to those documents. Further, it appears from Mr Millar's second affidavit and Ms McLauchlan's affidavit that PA Audit and DFK may be associated companies as they have a common director, Kathal Spence.
16. In addition, it is to be noted that even if the stay is not discharged that Mr English may be called upon to give evidence in these proceedings, as it does not appear to be in dispute that he was at the material times an employee of DFK.
17. As to the reasons for the delay proffered by the plaintiffs, DFK properly makes the point in response to Australian Reliance's contention that they have recently conducted additional research which is reflected in a proposed amendment to the amended substituted statement of claim by the insertion of a new par 164A. This proposed amendment is claimed by Australian Reliance to result from research of 'considerable more material on the relationship between the auditor and Mr Donnelly and Mr Hanson' referred to in an email to parties from the plaintiffs' solicitors on 31 January 2025. However, the matters pleaded in the proposed paragraph appear prima facie only to be matters that may be derived from information obtained by ASIC searches before the action commenced.
18. The proposed par 164A relates a claim of diversion of funds through unsecured loans from Australian Reliance to companies associated with Mr Donnelly and Mr Hanson, Austin and Sunset Coast Nominees Pty Ltd (Sunset Coast), whereby it is proposed to plead that prior to 1998 Mr English personally held shares in the capital of Sunset Coast and in a company beneficially owned by him held shares beneficially in the capital of Sunset Coast, and that on 6 November 2000 Mr English, by his company Mark English Pty Ltd lodged on behalf of Sunset Coast with ASIC the annual return for Sunset Coast for the year 2000.
19. However, as counsel for the plaintiffs indicated at the directions hearing on 27 February 2025, the proposed amendment appears to be properly characterised as a minor amendment to Australian Reliance's claim. Consequently, this point neither favours or militates against the removal of the stay.
20. Although that delay by Australian Reliance has been lengthy to the extent of inordinate, and appears to be result of its solicitors being preoccupied by other matters which excuse is not acceptable nor reasonable, and a wrong view of the effect of the stay orders, there is no evidence that Australian Reliance or the other plaintiffs have shown a contumelious regard to compliance with orders of the court. Further, it is not the case that Australian Reliance did nothing in the period of time after Australian Reliance furnished security. To the contrary, its solicitors sought to confer with the defendants in that period of time.
21. If the stay is not discharged, the effect would be to permanently stay Australian Reliance from prosecuting its claim as against the Auditors. Put another way, Australian Reliance would be left without being able to have its claim against the Auditors determined on the merits, in the absence of any application to dismiss its claim on grounds of want of prosecution. The prejudice that flows from that consequence is obvious.
22. The failure to bring the issue back to court to resolve the issue about whether the stay remained in place can only be properly attributed to the fault of Australian Reliance's solicitors, as the issue turned plainly on an issue of proper construction of the stay orders, which is a matter of law.
23. Usually, the lack of diligence by solicitors is visited on the client, as a client cannot disassociate himself from the delay of his solicitor. Although in some matters it may be reasonable not to attribute to the client acts by a solicitor.[34]
24. In this matter, it is clear that the late payment of security can only be properly attributed to Australian Reliance itself, but it is reasonable to attribute the two year delay that followed to the conduct of its solicitors. This is because its solicitors wrongly construed the legal effect of the stay orders, instead taking the view that the stay was not in place, and they failed to bring the matter back before the court to resolve the issue in the face of a clear deadlock between the parties.
25. When regard is had to all relevant circumstances, in particular the fact that not all of the delay should be visited on the client, the court is of the view that the prejudice that would be placed upon Australian Reliance if their claim against the Auditors is in effect permanently stayed would exceed the prejudice suffered by the Auditors if the stay is discharged. Accordingly the interests of justice lay with discharging the stay.
26. However, Australian Reliance (together with the other plaintiffs should be on notice) that if they do not take prompt steps to progress these proceedings to trial, that they will likely face an application to dismiss the action on grounds of want of prosecution which may be successful.

1. It is the preliminary view of the court that orders should be made that PA Audit and Mr English be paid their costs of the hearing on 28 February 2025, and of this application.
2. The court will also hear from the parties as to whether Australian Reliance should pay the costs of DFK, and whether any costs orders should be made against Vantage Holdings and Reliance Group.
3. Before making any orders as to costs, the court will hear from the parties, as to whether such orders should be made, the form of the orders. The court also wishes to hear whether (in light of the conduct of the solicitors of Australian Reliance in pressing its obviously mistaken view of the effect at law of the stay orders) any costs orders, including indemnity costs orders should be made as against the legal representative of Australian Reliance.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] Affidavit of Alexander James Tharby affirmed 14 March 2025 (Tharby affidavit).

[2] Affidavit of Thomas Jarryd Millar (First Millar affidavit) affirmed on 3 April 2025, and Affidavit of Thomas Jarryd Millar affirmed on 8 April 2025 (Second Millar affidavit).

[3] Affidavit of Madison Ann McLauchlan (McLauchlan affidavit) affirmed 7 April 2025.

[4] Pleaded in the further re-amended statement of claim filed on 15 January 2019.

[5] WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 4] [2023] WASCA 154 [66] ‑ [67]; citing Hancock Prospecting Pty Ltd v DFD Rhodes Pty Ltd [No 2] [2023] WASCA 108 [157] and [169].

[6] Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398.

[7] Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180, 191 (Bollen & Prior JJ agreed).

[10] McLauchlan affidavit, attachment MAM1.

[12] English v Vantage Holdings Group Pty Ltd [2021] WASCA 47.

[13] Tharby affidavit, pars 21 ‑ 22 and attachment AJT5.

[14] Tharby affidavit, attachment AJT6.

[15] Tharby affidavit, attachment AJT8.

[16] First Millar affidavit, par 11 and attachment TJM-4, 16.

[17] First Millar affidavit, par 12 and attachment TJM-5, 19.

[19] First Millar affidavit, par 13 and attachment TJM-6, 21 ‑ 22.

[20] Crane v The State of Western Australia [2017] WASCA 31 [23] ‑ [27].

[21] Crane v The State of Western Australia [2017] WASCA 31 [28] - [29].

[22] Amended Substituted Statement of Claim dated 2 May 2023, first and second paragraphs of the prayer for relief.

[23] Amended Substituted Statement of Claim dated 2 May 2023, final paragraph of the prayer for relief.

[24] Amended Substituted Statement of Claim dated 2 May 2023, par 10.6.

[25] Amended Substituted Statement of Claim dated 2 May 2023, par 11.3.

[26] Tharby affidavit, par 42 and attachment AJT 9, 80 ‑ 81.

[27] Tharby affidavit, par 43 and attachment AJT 9, 82.

[28] Tharby affidavit, par 48 and attachment AJT 10, 83 ‑ 85.

[30] Referring to the observations made by McHugh JA in Herron v McGregor (1986) 6 NSWLR 246, 254 ‑ 255.

[31] Second Millar affidavit, pars 3 and 4.

[33] Referring to FAI General Insurance Co Ltd v FAI General Insurance Co Ltd v Southern Cross Exploration NL [1988] HCA 13; (1988) 77 ALR 411, 418 (Wilson J) and Gallo v Dawson (1990) 93 ALR 479, 480 (McHugh J).

[34] Gamble v Killingsworth [1970] VicRp 22; [1970] VR 161, 176 (McInerney J).