Whittenbury v Vocation Limited

LEGISLATION 12 It is appropriate at this point to set out several relevant provisions of the Corporations Act 2001 (Cth) ('the Act') relied upon by the applicants: 1041H Misleading or deceptive conduct (civil liability only) (1) A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive. 1041E False or misleading statements (1) A person must not (whether in this jurisdiction or elsewhere) make a statement, or disseminate information, if: (a) the statement or information is false in a material particular or is materially misleading; and (b) the statement or information is likely: (i) to induce persons in this jurisdiction to apply for financial products; or (ii) to induce persons in this jurisdiction to dispose of or acquire financial products; or (iii) to have the effect of increasing, reducing, maintaining or stabilising the price for trading in financial products on a financial market operated in this jurisdiction; and (c) when the person makes the statement, or disseminates the information: (i) the person does not care whether the statement or information is true or false; or (ii) the person knows, or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading. 13 The applicants also rely upon similar provisions in the Australian Securities and Investments Commission Act 2001 (Cth) and the Australian Consumer Law. However, I do not need to rehearse these provisions.

THE PLEADING 14 Putting aside the allegations relating to loss, the various allegations made in the ACSOC concerning PWC are as follows: I.2 PWC Retainer 212. On or about 4 December 2013, Vocation retained PWC for the purpose of auditing, as required by s 301 of the Corporations Act, the Financial Report to be included in Vocation's FY2014 Annual Report (PWC Retainer). Particulars i. The PWC Retainer is referred to in Vocation's FY2014 Annual Report on pp.20 and 612. i.ii. The auditor's independence declaration was signed by Bourke as the lead auditor pursuant to s 307C(3) of the Corporations Act implying that an audit firm being PWC was appointed to conduct the audit of Vocation. ii.iii. Further particulars of the PWC Retainer may be provided after discovery. 213. As auditor of Vocation for the year ended 30 June 2014, PWC (through Bourke) was obligated (Statutory Auditing Obligations): (a) pursuant to s 307 of the Corporations Act to form an opinion as to whether: (i) the financial report contained in Vocation's FY2014 Annual Report was in accordance with the Corporations Act, including whether it complied with the accounting standards, and whether it gave a true and fair view of the financial position and performance of Vocation; and (ii) whether PWC had been given all information, explanation and assistance necessary for the conduct of the audit; and (b) pursuant to s 307A of the Corporations Act to conduct the audit in accordance with applicable auditing standards. 214. It was a term of the PWC Retainer that PWC would use reasonable skill and care in providing services pursuant to the PWC Retainer. Particulars i. The term was implied to give business efficacy to the relationship between PWC and the entities PWC was required to audit pursuant to the PWC Retainer. ii. Further particulars will be provided after discovery. I.3 PWC conduct and knowledge 215. From a time presently unknown to the Applicants after 4 December 2013 and prior to 21 August 2014, Bourke and other persons acting on behalf of PWC and/or at the direction or with the consent or agreement of PWC and/or Bourke in providing professional accounting and auditing services to Vocation, including conducting the Statutory Auditing Obligations and performing work under the PWC Retainer: (a) attended at the premises at which business records of Vocation were held; (b) required officers and employees of Vocation to provide PWC with: (i) access to the books of Vocation; and (ii) information, explanations and other assistance to enable PWC to form opinions about the books of Vocation; (c) had access to board papers and board minutes of Vocation; (d) attended meetings of Vocation's Audit and Risk Committee and meetings of Vocation's Board; and (e) had access to and reviewed documents which set out, inter alia, processes, procedures, guidance and other material relevant to the conduct of PWC's audit (including the need to consider the reliability of management representations and to corroborate management representations by reviewing supporting evidence). 216. In the course of the conduct pleaded in paragraph 215, Bourke and other persons acting on behalf of PWC had access to the Replacement Prospectus (which disclosed the Prospectus Revenue Recognition Policy) and the "Financial Report for the year ended 30 June 2013" lodged by each of BAWM and Aspin. 217. By reason of the matters pleaded in paragraphs 215 and 216, by no later than 19 August 2014 PWC and/or Bourke became aware: (a) of the Prospectus Revenue Recognition Policy; (b) of the FY14 Guidance; and (c) that the Prospectus Revenue Recognition Policy was the basis for the FY14 Guidance Statement (as pleaded in paragraph 65 above). 218. By reason of the matters pleaded in paragraphs 215 and 66, by no later than 15 August 2014, PWC and/or Bourke became aware of the New Revenue Recognition Policy. Particulars i. Bourke and Matthew Palmer attended a meeting of Vocation's Audit and Risk Committee held on 24 June 2014 (VOC.003.001.2586 at 2587) at which the committee discussed the revenue recognition policy. ii. Between 24 June 2014 and 19 August 2014, PWC tested the application of the revenue recognition policy (VOC.003.001.2586 at 2588). iii. PWC attended a meeting of Vocation's Audit and Risk Committee held on 19 August 2014 (19 August ARC Meeting) and/or prepared a report (by no later than 15 August 2014) for presentation at that meeting (VOC.003.001.2586 at 2688) (15 August PWC Report), which commented on the revenue recognition policy (at 2691, 2696). iv. Further particulars will be provided after discovery. 219. By no later than 15 August 2014, PWC and/or Bourke became aware that the effect of the adoption by Vocation of the New Revenue Recognition Policy was as pleaded in paragraph 67. Particulars i. The particulars to paragraph 218 and 67 are repeated. ii. Further particulars may be provided after discovery. 220. By no later than 15 August 2014, PWC and/or Bourke became aware: (a) of the BAWM Investigation and the Aspin Investigation; (b) of the Victorian Funding Suspensions; (c) that Vocation's management had agreed to repay DEECD $4.0 million (which would result in a reversal of revenue in the financial statements for FY2014); (d) Vocation's management did not propose to make any provision against the remaining accrued withheld revenue of approximately $14.4 million. Particulars i. PWC attended the 19 August ARC Meeting and/or prepared the 15 August PWC Report for presentation at that meeting, which referred to these matters (at .2697). ii. Further particulars may be provided after discovery. 221. PWC and Bourke engaged in the conduct pleaded in paragraphs 215 to 220 for the purpose of performing the Statutory Auditing Obligations and their obligations pursuant to the PWC Retainer. I.4 19 August 2014 Representations 222. By no later than 19 August 2014: (a) PWC and/or Bourke became aware that Vocation was shortly to release to the ASX the FY14 Results Documents (containing the statements pleaded in paragraph 69 to 71); (b) PWC and/or Bourke became, or ought to have become, aware that the FY14 Results Documents did not contain the statements pleaded in sub-paragraphs 72(a) to 72(b). (c) PWC and/or Bourke became, or ought to have become, aware that in releasing the FY14 Results Documents to the ASX, Vocation would make each of the Outperformance Representation, Same Basis Representation and/or True and Fair View Representation; (d) PWC and/or Bourke became, or ought to have become, aware that the FY14 Results Documents did not contain the statements pleaded in sub-paragraphs 72(c) to 72(e) (to the extent that those statements relate to the Victorian Funding Suspensions). Particulars i. As to sub-paragraphs (a) and (b): A. PWC attended the 19 August ARC Meeting and/or presented the 15 August PWC Report; B. the Appendix 4E was on the agenda for that meeting (VOC.003.001.2586); C. the draft FY14 Appendix 4E was reviewed in detail by Vocation's Audit and Risk Committee at the 19 August ARC Meeting (Minutes of Board Meeting held 19 August 2014 (VOC.003.001.3132 at 3133)); and D. by reason of these matters, PWC was aware of the positive statements pleaded in sub-paragraph (a), and, by reason of its awareness (as pleaded in paragraphs 216 to 219), PWC was or ought to have been aware of the omissions referred to in sub-paragraph (b). ii. As to sub-paragraph (c), particular (i), and paragraphs 69 to 71 and 76(a) to 76(c) are repeated. iii. As to sub-paragraph (d): A. particulars i.A to i.C are repeated; and B. by reason of these matters, and, by reason of its awareness (as pleaded in paragraph 220), PWC was or ought to have been aware of the omissions referred to in sub-paragraph 222(d). iv. Further particulars may be provided after discovery 223. On or about 19 August 2014, PWC: (through Bourke) represented to Vocation (and/or the Audit and Risk Committee of Vocation) that: (a) stated to Vocation (and/or the Audit and Risk Committee of Vocation) that in their opinion, preparing the financial information for the purposes of the FY14 Appendix 4E on the basis of the New Revenue Recognition Policy (without disclosure of the change in policy or the revenue that would have been recognised had the former revenue recognition policy being the Prospectus Revenue Recognition Policy been applied) was appropriate and/or would give a true and fair view of Vocation's financial position and financial performance in FY14 (PWC 19 August Revenue Recognition RepresentationOpinion); (b) represented to Vocation (and/or the Audit and Risk Committee of Vocation) that the PWC 19 August Revenue Recognition Opinion was based upon reasonable grounds and was the product of an exercise of reasonable skill and care (PWC 19 August Revenue Recognition Representation); (b)(c) stated to Vocation (and/or the Audit and Risk Committee of Vocation) that in their opinion, preparing the financial information for the purposes of the FY14 Appendix 4E without disclosing the Victorian Funding Suspensions would give a true and fair view of Vocation's financial position and financial performance in FY14 (PWC 19 August Immateriality of Funding Suspension RepresentationOpinion); (d) represented to Vocation (and/or the Audit and Risk Committee of Vocation) that the PWC 19 August Immateriality of Funding Suspension Opinion was based upon reasonable grounds and was the product of an exercise of reasonable skill and care (PWC 19 August Immateriality of Funding Suspension Representation) (the representations at (b) and (d) are the PWC 19 August Representations) Particulars i. The PWC 19 August Revenue Recognition Representations were Opinion was partly express and partly implied. A. To the extent the representations were that it was express, the Applicants say that: (i) On 15 August 2014, PWC (through Bourke) advised the Audit and Risk Committee in writing that "Following the release of the Appendix 4E, management will continue to finalise the full Annual Report and financial statements and, based on our current work to date, once the directors approve the financial statements and notes, and sign their director's declaration, we expect to issue an unqualified audit opinion. If circumstances change or we become aware of additional information, we will let you know, as this may affect our audit opinion and this report" (VOC.003.001.2586 at 2689). (i)(ii) PWC (through Bourke) advised the Audit and Risk Committee of Vocation that the audit process was progressing well, and, while some further policies and procedures needed to be established in writing, PWC recognised this will would take some time (VOC.003.001.3132 at 3133). B. To the extent the representations were that it was implied, the Applicants say that: (i) PWC and Bourke assisted Vocation to develop the New Revenue Recognition Policy (and the particulars to paragraph 218 and paragraph 66 are repeated); and (ii) PWC (through Bourke) did not raise any significant issues in the private session held during the 19 August ARC Meeting (VOC.003.001.3132 at 3133), and/or did not advise Vocation that the New Revenue Recognition Policy was not appropriate to be used as the basis for the financial information contained in the FY14 Appendix 4E. ii. The PWC 19 August Revenue Recognition Representation in paragraph 223(b) was implied from the conduct of PWC (through Bourke) in giving the PWC 19 August Revenue Recognition Opinion, coupled with the absence of any or any adequate reservation or qualification to that opinion. ii.iii. The PWC 19 August Immateriality of Funding Suspension Representations were Opinion was partly express and partly implied. A. To the extent the representations were that it was express, the Applicants say that: (i) On 15 August 2014, PWC (through Bourke) advised the Audit and Risk Committee in writing that "Following the release of the Appendix 4E, management will continue to finalise the full Annual Report and financial statements and, based on our current work to date, once the directors approve the financial statements and notes, and sign their director's declaration, we expect to issue an unqualified audit opinion. If circumstances change or we become aware of additional information, we will let you know, as this may affect our audit opinion and this report" (VOC.003.001.2586 at 2689). (i)(ii) PWC (through Bourke) advised the Audit and Risk Committee of Vocation that the audit process was progressing well, and, while some further policies and procedures needed to be established in writing, PWC recognised this will would take some time (VOC.003.001.3132 at 3133). B. To the extent the representations were that it was implied, the Applicants say that: (i) PWC (through Bourke) did not raise any significant issues in the private session held during the 19 August ARC Meeting (VOC.003.001.3132 at 3133), and/or did not advise Vocation that it was not appropriate for Vocation to prepare its financial report for FY14 without disclosing the Victorian Funding Suspensions. (ii) PWC and Bourke did not include the $4.0 million adjustment in the schedules of difference in the PWC 15 August Report. iv. iiiiv. The PWC 19 August Immateriality of Funding Suspension Representation in sub-paragraph 223(d) was implied from the conduct of PWC (through Bourke) in giving the PWC 19 August Immateriality of Funding Suspension Opinion, coupled with the absence of any or any adequate reservation or qualification to that opinion; iii.v. Further particulars may be provided after discovery. 224. Vocation relied upon the PWC 19 August Revenue Recognition Representations and/or the PWC 19 August Immateriality of Funding Suspension Representations in approving the FY14 Results Documents to be released to the ASX as pleaded in paragraph 68 above. Particulars Minutes of Vocation's Board meeting held on 19 August 2014 (VOC.003.001.3132). I.5 2 September 2014 Representations 225. Further, or alternatively, by no later than 2 September 2014: (a) PWC and/or Bourke became aware that Vocation had, or was to, release to the ASX the Audited Annual Report (containing the statements referred to in sub- paragraph 90(a)). (b) PWC and/or Bourke became, or ought to have become, aware that the Audited Annual Report did not contain the statements pleaded in sub-paragraphs 72(a) to 72(b). (c) PWC and/or Bourke became, or ought to have become, aware that in releasing the Audited Annual Report to the ASX, Vocation would make (and/or repeat) each of the Outperformance Representation, Same Basis Representation and/or True and Fair View Representation; (d) PWC and/or Bourke became, or ought to have become, aware that the FY14 Results Documents did not contain the statements pleaded in sub-paragraphs 72(c) to 72(e) to the extent that those statements relate to the Victorian Funding Suspensions). Particulars i. As to sub-paragraphs (a) and (b), PWC audited the financial report contained in the Audited Annual Report, and in the course of that audit examined the final version of the financial report. ii. As to sub-paragraph (c), particular i and paragraphs 69 to 71, 49A(a)-(c) and 49O 76(a) to 76(c) and 90 are repeated. iii. As to sub-paragraph (d): A. Particular (i) is repeated; B. By reason of these matters, and, by reason of its awareness (as pleaded in paragraph 121N220), PWC was or ought to have been aware of the omissions referred to in sub-paragraph (d). iv. Further particulars may be provided after discovery. 226. On or about 2 September 2014, PWC (through Bourke): made the following representations to Vocation (each a PWC 2 September Representation): (a) stated to Vocation that, in their opinion, the financial report contained in the FY14 Annual Report gave a true and fair view of Vocation's financial position and financial performance in FY14 (PWC 2 September True and Fair Accounts RepresentationView Opinion); (b) PWC:represented to Vocation that the PWC 2 September True and Fair View Opinion was based upon reasonable grounds and was the product of an exercise of reasonable skill and care (PWC 2 September Representation). (i) had used the necessary skill and expertise to an appropriate professional standard and/or exercised reasonable skill and care in undertaking the audit of the financial report contained in the Audited Annual Report and in giving its audit opinion as to that financial report; and (ii) had reasonable grounds, based on an adequate examination of the books and records of Vocation, for the opinion comprising the PWC 2 September True and Fair Accounts Representation, (PWC 2 September Audit Representations). Particulars i. The PWC 2 September True and Fair Accounts Representation View Opinion was express, and was contained in PWC's Independent Auditor's Report dated 2 September 2014. ii. The PWC 2 September Audit Representations were in sub- paragraph (b) was implied from the conduct of PWC (through Bourke) in giving the PWC 2 September True and Fair View Opinion, making the other representations set out above, coupled with the absence of any or any adequate reservation or qualification to those representationsthat opinion. iii. Further particulars may be provided after discovery. 227. Vocation relied upon the PWC 2 September True and Fair Accounts Representation and PWC 2 September Audit Representations in approving the Audited Annual Report to be released to the ASX as pleaded in paragraph 90 above. Particulars i. Vocation's reliance is to be inferred from the statements in the Minutes of Vocation's Board meeting held on 19 August 2014 that: A. "The Board noted that the audited financial results and Annual Report are progressing well and no major amendments are expected at this stage. It was agreed a Committee be established to review and approve the audited financial results, subject to calling a full Board meeting if significant matters are to be addressed" (VOC.003.001.3132 at 3134); and B. "Resolved (unanimously): That, subject to the final review, amendment and approval by a Committee of any two Directors, and subject to there being no substantive issues that require full Board review… the Company Secretary is authorised to lodged the 2014 Full Year Report, the Independent Audit Report on the Financial Report and the Directors' Report with the ASX immediately [after] approval is received from the Committee" (VOC.003.001.3132 at 3135). ii. Further particulars may be provided after discovery. I.6 PWC ASX Representations 228. Further, on or about 3 September 2014, PWC (through Bourke): made the following representations to the market of investors or potential investors in Vocation (each a PWC ASX Representation): (a) stated to the market of investors or potential investors in Vocation that in their opinion, the financial report contained in the Audited Annual Report gave a true and fair view of the financial position and performance of Vocation (PWC ASX True and Fair Accounts RepresentationView Opinion); (b) PWC: represented to the market of investors or potential investors in Vocation that the PWC ASX True and Fair View Opinion was based upon reasonable grounds and was the product of an exercise of reasonable skill and care (PWC ASX Representations). (i) had used the necessary skill and expertise to an appropriate professional standard and/or exercised reasonable skill and care in undertaking the audit of the financial report contained in the FY14 Annual Report and in giving its audit opinion as to that financial report; and (ii) had reasonable grounds, based on an adequate examination of the books and records of Vocation, for the opinions pleaded in paragraph 228(a) above, (PWC ASX Representations). Particulars i. The PWC ASX True and Fair Accounts View Opinion Representation was express, and was contained in PWC's Independent Auditor's Report to the members of Vocation Ltd" dated 2 September 2014. ii. The PWC ASX Audit Representations were in sub-paragraph (b) was implied from the conduct of PWC (through Bourke) in making giving the other representations set out abovePWC True and Fair View Opinion, coupled with the absence of any or any adequate reservation or qualification to those representationsthat opinion. iii. Further particulars may be provided after discovery. 229. The PWC ASX Audit Representations were was also contained in the FY14 Annual Report released to the ASX by Vocation on 16 September 2014. Particulars Sub-paragraph 97(a) and the particulars to paragraph 77 and 228 are repeated. I.7 PWC Contravening Conduct I.7.1 Contravening conduct as at 19 August 2014 230. By making each of the PWC 19 August Representations, PWC and/or(through Bourke): (a) engaged in conduct which was: (i) in relation to financial products (being Vocation Securities), within the meaning of subsections 1041H(1) and 1041H(2)(b) of the Corporations Act; (ii) in trade or commerce, in relation to financial services within the meaning of s 12DA(1) of the ASIC Act; (iii) in trade or commerce, within the meaning of s 4 of the Australian Consumer Law.; (b) further, made a statement, and/or conveyed disseminated information, that was likely to have the effect of increasing, maintaining or stabilising the price for trading in financial products on a financial market operated in Australia, namely Vocation Securities, within the meaning of s 1041E(1)(b)(iii) of the Corporations Act. Particulars i. The statements made, or information disseminated, were the PWC 19 August Representations. ii. The PWC 19 August Representations caused, and were at the time they were made likely to cause, the market price for Vocation Securities to be substantially greater than their true value and/or the market price that would otherwise have prevailed (that is, they caused and/or were likely to cause the market price to be inflated). iii. Inflation was caused, and was at the time the PWC 19 August Representations were made likely to be caused, by the making of those representations to Vocation, which relied on those representations in approving the FY14 Results Documents containing the August FY14 Results Representations to be released to the ASX. iv. The applicants refer to paragraphs 224, 248(d)(iii), 251, 251A and 252 below and the particulars thereto. 231. As at 19 August 2014: the PWC 19 August Revenue Recognition Opinion was not based upon reasonable grounds and was not the product of an exercise of reasonable skill and care. (a) preparing the financial information for the purposes of the FY14 Appendix 4E on the basis of the New Revenue Recognition Policy would not give a true and fair view of Vocation's financial position and financial performance in FY14 (without disclosure of the New Revenue Recognition Policy and its impact); and (b) PWC and/or Bourke did not have reasonable grounds for the PWC 19 August Revenue Recognition Representations (or any of them). Particulars i. Subparagraphs 181(a) to 181(c) are repeated. i. By reason of the matters pleaded at paragraphs 212-214, and pursuant to Auditing Standard ASA 200, PWC was obliged, for the purpose of giving its audit opinion, inter alia: A. To obtain reasonable assurance about whether the financial report as a whole was free from material misstatement; B. To apply the concept of materiality in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial report, for which purpose misstatements, including omissions, would be considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report; and A.C. To exercise professional judgment and maintain professional scepticism throughout the planning and performance of the audit, including by questioning the reliability of documents and responses to enquiries and other information obtained from management and those charged with governance. ii. By reason of the matters pleaded in paragraphs 65 to 67, tThe New Revenue Recognition Policy was not consistent with the Prospectus Revenue Recognition Policy, and the difference between the two was material, such that by reason of Australian Accounting Standards AASB 101 and AASB 108, Vocation was obliged to disclose the change in accounting policy (with such disclosure comparing the revenue that would have been reported had the Prospectus Revenue Recognition Policy continued to be used). The presentation of financial information for FY14 without such disclosure would mean that a true and fair view was not presented of Vocation's financial position and performance in FY14. iii. PWC, did not, in the 15 August PWC Report or thereafter prior to 3 September 2014, identify any basis upon which, notwithstanding the matters pleaded in sub-paragraph (i) above, the non-disclosure by Vocation that the New Revenue Recognition Policy was a change in accounting policy (and/or the quantum of revenue affected by its adoption) was or could be justified. iii.iv. By reason of the matters pleaded at (i) to (ii) above, PWC failed to obtain sufficient appropriate audit evidence upon which to justify the non-disclosure by Vocation that the New Revenue Recognition Policy was a change in accounting policy (and/or the quantum of revenue affected by its adoption) and/or failed to conduct the audit in accordance with reasonable care and skill in not disclosing advising Vocation to disclose the New Revenue Recognition Policy was a change in accounting policy (and/or the quantum of revenue affected by its adoption); iv.v. Further, or alternatively to (iv), by reason of the matters pleaded at (i) to (ii) above, PWC failed to obtain sufficient appropriate audit evidence upon which to justify the non- disclosure by Vocation that the New Revenue Recognition Policy was a change in approach to the application of an accounting policy (and/or the quantum of revenue affected by that change in approach) and/or failed to conduct the audit in accordance with reasonable care and skill in not disclosing advising Vocation to disclose that the New Revenue Recognition Policy was a change in approach to the application of an accounting policy (and/or the quantum of revenue affected by that change in approach) v.vi. Further particulars will be provided with the Applicants' opinion evidence in chief. 232. By reason of the matters pleaded in paragraph 231, the conduct of PWC and/or(through Bourke) in making the PWC 19 August Revenue Recognition Representation was misleading or deceptive, or likely to mislead or deceive, and a Misleading Conduct Contravention (PWC's First 19 August Misleading Conduct Contravention). 233. Further: (a) by reason of the matters pleaded in paragraph 231, the PWC 19 August Revenue Recognition Representation was false in a material particular, and/or materially misleading, within the meaning of s 1041E(1)(a) of the Corporations Act. (b) PWC and/or Bourke ought reasonably to have known that the PWC 19 August Revenue Recognition Representation was false in a material particular and/or materially misleading, within the meaning of s 1041E(1)(c)(ii) of the Corporations Act; ought to have known that the 19 August Revenue Recognition Representation was false in a material particular, or materially misleading; and Particulars The Applicants repeat paragraphs 215 to 220 to 2212 and 231 (and the particulars thereto) insofar as they relate to the change in Revenue Recognition policy, and say that; i. Bourke and PWC ought reasonably to have known that the PWC August 19 Revenue Recognition Opinion (pleaded in sub-paragraph 223(a)) lacked reasonable grounds because of the matters referred to in particular (ii) to paragraph 231, being matters which a reasonable auditor acting in accordance with the PWC Retainer and particular (i) to paragraph 231 would have known. ii. Bourke and PWC ought thereby reasonably to have known that the representation pleaded in sub-paragraph 223(b) was misleading because Bourke and PWC ought reasonably to have known the matters referred to in sub-paragraph (i). ii. The Applicants repeat the particulars to paragraph 231. (c) by reason of the matters pleaded in paragraphs 230(b) and sub-paragraphs (a) and (b), PWC and/or (through Bourke) contravened s 1041E of the Corporations Act (and engaged in a Section 1041E Contravention) (PWC's First 19 August s 1041E Contravention). 234. As at 19 August 2014, the PWC 19 August Immateriality of Funding Suspension Opinion was not based upon reasonable grounds and was not the product of an exercise of reasonable skill and care. PWC did not have reasonable grounds for the PWC 19 August Immateriality of Funding Suspension Representation. Particulars i. Sub-paragraph (i) of the particulars to paragraph 231 is repeated; ii. The 15 August PWC Report stated: "Management has received notification from the Victorian government that they have suspended payment of Vocation's June and July claims, subject to the completion of an RTO audit that is currently ongoing. The correspondence and discussion between Vocation and the Victorian government indicates that they are investigating claims with total revenue claimed of $4.0m. We understand that management is going to accept that this revenue has been incorrectly claimed and repay it to the Victorian government. Accordingly the revenue and related costs recognised in FY14 will be reversed in the FY14 financial statements. No provision has been recognised against the remaining accrued revenue of $14.4m, being the June claim and that accrued based on the July and August claims as noted above. We are currently discussing with management whether there is any reason to suggest that this will not be received from the Victorian government" (VOC.003.001.2586 at 2697); iii. Notwithstanding the matters pleaded at (ii) above, on 15 August 2014 PWC advised the Audit and Risk Committee in writing that "Following the release of the Appendix 4E, management will continue to finalise the full Annual Report and financial statements and, based on our current work to date, once the directors approve the financial statements and notes, and sign their director's declaration, we expect to issue an unqualified audit opinion. If circumstances change or we become aware of additional information, we will let you know, as this may affect our audit opinion and this report" (VOC.003.001.2586 at 2689); i.iv. By reason of the matters pleaded at (i) above, aA reasonably competent professional auditor in PWC's position who was told that Vocation's management had agreed to repay DEECD $4.0 million (which would result in a reversal of revenue in the financial statements for FY14), shwould have had material concerns that the remaining accrued (but withheld) revenue of $14.4m would not be recovered from DEECD, which event would convert the reported profit of Vocation for FY14 into a material loss; ii.v. By reason of the matters pleaded at (i) to (iv) above, PWC, as aA reasonably competent professional auditor, acting in accordance with Australian Auditing Standards, shwould have caused the Victorian Funding Suspensions to be disclosed by Vocation; and/or either advised Vocation to raised a provision in the amount of all or part of the revenue the subject of the Victorian Funding Suspensions, or advised Vocation disclosed that there was insufficient audit evidence available to determine the extent of such a provision; iii.vi. By reason of the matters pleaded at (i) to (v) above, PWC failed to obtain sufficient appropriate audit evidence upon which to justify the non-disclosure by Vocation of the Victorian Funding Suspensions and the omission failure by Vocation to raise a provision in respect of all or part of the amount the subject of the Victorian Funding Suspensions, and/or failed to conduct the audit in accordance with reasonable care and skill by, in the absence of such audit evidence, failing to advise Vocation to raise a provision in accordance with Australian Accounting Standards AASB 139 and 118, or alternatively disclosing advised Vocation that there was insufficient audit evidence to determine the extent of such a provision as ought be made; iv.vii. Further particulars will be provided with the Applicants' opinion evidence in chief. 235. By reason of the matters pleaded in paragraph 234, the conduct of PWC and/or (through Bourke) in making the PWC 19 August Immateriality of Funding Suspensions Representation was misleading or deceptive, or likely to mislead or deceive, and a Misleading Conduct Contravention (PWC's Second 19 August Misleading Conduct Contravention). 236. Further: (a) By reason of the matters pleaded in paragraph 234, the PWC 19 August Immateriality of Funding Suspensions Representation was false in a material particular, or materially misleading, within the meaning of s 1041E(1) of the Corporations Act; (b) PWC and/or Bourke ought reasonably to have known that the PWC 19 August Immateriality of Funding Suspension Representation was false in a material particular and/or materially misleading, within the meaning of s 1041E(1)(c)(ii) of the Corporations Act; ought to have known that the 19 August Immateriality of Funding Suspensions Representation was false in a material particular, or materially misleading; and Particulars The Applicants repeat paragraphs 215 to 222 and 234 (and the particulars thereto) insofar as they relate to the Victorian Funding Suspension, and say that i. Bourke and PWC ought reasonably to have known that the PWC 19 August Immateriality of Funding Suspension Opinion (pleaded in sub-paragraph 223(c)) lacked reasonable grounds because of the matters which Bourke and PWC knew (as pleaded in paragraph 220) and the matters referred to in particulars (iv) and (v) to paragraph 234, being matters which a reasonable auditor acting in accordance with the PWC Retainer and particular (iv) to paragraph 234 would have known. ii. Bourke and PWC ought thereby reasonably to have known that the representation pleaded in sub-paragraph 223(d) was misleading because Bourke and PWC ought reasonably to have known the matters referred to in sub-paragraph (i). i. The Applicants repeat paragraph 219. ii. The Applicants repeat the particulars to paragraph 234. (c) by reason of the matters pleaded in paragraphs 230(b) and sub-paragraphs (a) and (b), PWC and/or(through Bourke) contravened s 1041E of the Corporations Act (and engaged in a Section 1041E Contravention) (PWC's Second 19 August s 1041E Contravention). I.7.2 Contravening conduct as at 2 September 2014 237. By making each of the PWC 2 September Representations, PWC and/or(through Bourke): (a) engaged in conduct which was: (i) in relation to financial products (being Vocation Securities), within the meaning of subsections 1041H(1) and 1041H(2)(b) of the Corporations Act; (ii) in trade or commerce, in relation to financial services within the meaning of s 12DA(1) of the ASIC Act; (iii) in trade or commerce, within the meaning of s 4 of the Australian Consumer Law. (b) further, made a statement, and/or conveyed disseminated information, that was likely to have the effect of increasing, maintaining or stabilising the price for trading in financial products on a financial market operated in Australia, namely Vocation Securities, within the meaning of s 1041E(1)(b)(iii) of the Corporations Act. Particulars i. The statement made, or information disseminated was the PWC 2 September Representation. ii. The PWC 2 September Representation caused, and was at the time it was made likely to cause, the market price for Vocation Securities to be substantially greater than their true value and/or the market price that would otherwise have prevailed (that is, they caused and were likely to cause the market price to be inflated). iii. Inflation was caused, and was at the time the PWC 2 September Representation was made likely to be caused, by the making of that representation to Vocation, which relied on that representation in approving the Audited Annual Report containing the August FY14 Results Representations to be released to the ASX. iv. The Applicants refer to paragraphs 248(d)(iii), 251, 251A and 252 below and the particulars thereto. 238. As at 2 September 2014: the PWC 2 September True and Fair View Opinion was not based upon reasonable grounds and was not the product of an exercise of reasonable skill and care. (a) the financial report contained in the Audited Annual Report did not give a true and fair view of Vocation's financial position and financial performance in FY14 by reason that it did not: (i) disclose the New Revenue Recognition Policy as a change in accounting policy, and/or disclose the impact of the change; (ii) disclose the Victorian Funding Suspensions; and/or (iii) raise a provision in the amount of all or part of the revenue the subject of the Victorian Funding Suspensions and/or disclose that there was insufficient audit evidence available to determine the extent of such a provision; (b) by reason of the matters pleaded in sub-paragraph (a), the financial report contained in the Audited Annual Report was not prepared in accordance with Australian Accounting Standards and/or the Corporations Act; and (c) by reason of the matters pleaded in sub-paragraphs (a) and/or (b) PWC and/or Bourke did not have reasonable grounds for the PWC 2 September True and Fair Accounts Representation or the PWC 2 September Audit Representations. Particulars The Applicants repeat the particulars to paragraphs 231 and 234. 239. PWC: (a) failed to use the necessary skill and expertise to an appropriate professional standard and/or exercised reasonable skill and care in undertaking the audit of the financial report contained in the Audited Annual Report and in giving its audit opinion as to that financial report; and (b) did not have reasonable grounds, based on an adequate examination of the books and records of Vocation, for the opinions comprising the PWC 2 September True and Fair Accounts Representation, Particulars i. The Applicants repeat sub-paragraph 238(a)(i) and the particulars to paragraphs 231, and say that a reasonably competent professional auditor, acting in accordance with Australian Auditing Standards, would have caused the New Revenue Recognition Policy and its impacts to be disclosed by Vocation. ii. The Applicants repeat sub-paragraphs 238(a)(ii) - (iii) and the particulars to paragraph 234, and say that a reasonably competent professional auditor, acting in accordance with Australian Auditing Standards, would have advised Vocation that caused the Victorian Funding Suspensions to should be disclosed; and/or either raised a provision raised in the amount of all or part of the revenue the subject of the Victorian Funding Suspensions, and/or would have or disclosed advised Vocation that there was insufficient audit evidence available to determine the extent of such a provision. iii. Further particulars will be provided with the Applicants' opinion evidence in chief. 240.239. As at 2 September 2014, by reason of the matters pleaded in paragraphs 238 and/or 239, the PWC 2 September True and Fair Accounts Representation was misleading or deceptive, or likely to mislead or deceive, and a Misleading Conduct Contravention (PWC's First 2 September Misleading Conduct Contravention). 241. As at 2 September 2014, by reason of the matters pleaded in paragraphs 238 and/or 239, the PWC 2 September Audit Representations were misleading or deceptive, or likely to mislead or deceive, and a Misleading Conduct Contravention (PWC's Second 2 September Misleading Conduct Contravention). 242.240. Further: (a) by reason of the matters pleaded in paragraphs 238 and/or 239, the PWC 2 September True and Fair Accounts Representation was false in a material particular, or materially misleading, within the meaning of s 1041E(1)(c)(ii) of the Corporations Act. (b) by reason of the matters pleaded in paragraphs 215 to 220 and 237, PWC and/or Bourke ought reasonably to have known that the PWC 2 September Representation was false in a material particular and/or materially misleading, within the meaning of s 1041E(1) of the Corporations Act; ought to have known that the PWC 2 September True and Fair Accounts Representation was false in a material particular, or materially misleading; and Particulars The applicants repeat paragraphs 215 to 221, 225, 231 and 234 (and particulars thereto), and say that i. Bourke and PWC ought reasonably to have known that the PWC 2 September True and Fair View Opinion (pleaded in sub-paragraph 226(a)) lacked reasonable grounds because of the matters which Bourke and PWC ought reasonably to have known as pleaded in paragraphs 233(b) and/or 236(b); ii. Bourke and PWC ought thereby reasonably to have known that the representation pleaded in sub-paragraph 226(b) was misleading because Bourke and PWC ought reasonably to have known the matters referred to in sub-paragraph (i). i. The Applicants repeat paragraphs 215 to 222 and 239; ii. The Applicants repeat the particulars to paragraphs 231 and/or 234 and/or 239. (c) by reason of the matters pleaded in paragraph 237(b) and sub-paragraphs (a) and (b), PWC and/or (through Bourke) contravened s 1041E of the Corporations Act (and engaged in a Section 1041E Contravention) (PWC's 2 September s 1041E Contravention). I.7.3 Contravening conduct as at 3 September 2014 243.241. By making each of the PWC ASX Representations, PWC and/or(through Bourke): (a) engaged in conduct which was: (i) in relation to financial products (being Vocation Securities), within the meaning of subsections 1041H(1) and 1041H(2)(b) of the Corporations Act; (ii) in trade or commerce, in relation to financial services within the meaning of s 12DA(1) of the ASIC Act; (iii) in trade or commerce, within the meaning of s 4 of the Australian Consumer Law. (b) further, made a statement, and/or conveyed disseminated information, that was likely: (i) to induce persons in Australia to acquire financial products, namely Vocation Securities; (ii) to have the effect of increasing, maintaining or stabilising the price for trading in financial products on a financial market operated in Australia, namely Vocation Securities. within the meaning of s 1041E(1)(b) of the Corporations Act. Particulars i. The statement made, or information disseminated, was the PWC ASX Representation. ii. The PWC ASX Representation caused, and was at the time it was made likely to cause, the market price for Vocation Securities to be substantially greater than their true value and/or the market price that would otherwise have prevailed (that is, they caused and were likely to cause the market price to be inflated). iii. Inflation was caused, and was at the time the PWC ASX Representation was made likely to be caused, by the release of information to the market of actual and potential investors. ii.iv. The Applicants refer to paragraphs 248(d)(iii), 251, 251A and 252 below and the particulars thereto. 244.242. As at 3 September 2014, by reason of the matters pleaded in paragraph 238, the PWC ASX True and Fair View Opinion was not based upon reasonable grounds and/or was not the product of an exercise of reasonable skill and care. and/or 239, PWC did not have reasonable grounds for the PWC ASX True and Fair Accounts Representation. 245.243. By reason of the matters pleaded in paragraphs 238 and 242 and /or 239 and/or 244, the conduct of PWC in making the PWC ASX True and Fair Accounts Representation was misleading or deceptive, or likely to mislead or deceive, and a Misleading Conduct Contravention (PWC's First ASX Misleading Conduct Contravention). 246. As at 3 September 2014, by reason of the matters pleaded in paragraphs 243(a) and 239, the PWC ASX Audit Basis Representations were misleading or deceptive, or likely to mislead or deceive, and a Misleading Conduct Contravention (PWC's Second ASX Misleading Conduct Contravention). 247.244. Further: (a) by reason of the matters pleaded in paragraphs 238 and 242 and/or 239 and/or 244, the PWC ASX True and Fair Accounts Representation was false in a material particular, or materially misleading, within the meaning of s 1041E(1) of the Corporations Act; (b) PWC and/or Bourke ought reasonably to have known that the PWC ASX Representation was false in a material particular and/or materially misleading, within the meaning of s 1041E(1)(c)(ii) of the Corporations Act; ought to have known, the PWC ASX True and Fair Accounts Representation was false in a material particular, or materially misleading. Particulars The applicants repeat paragraphs 215 to 221, 225, 231 and 234 (and particulars thereto), and say that: i. Bourke and PWC ought reasonably to have known that the PWC ASX True and Fair View Opinion (pleaded in sub- paragraph 228(a)) lacked reasonable grounds because of the matters which Bourke and PWC ought reasonably to have known as pleaded in paragraphs 233(b) and/or 236(b); ii. Bourke and PWC ought thereby reasonably to have known that the representation pleaded in sub-paragraph 228(b) was misleading because Bourke and PWC ought reasonably to have known the matters referred to in sub-paragraph (i). i. The Applicants repeat paragraphs 241 to 248 and 239; ii. The Applicants repeat the particulars to paragraphs 231 and/or 234 and/or 239. 248.245. By reason of the matters pleaded in paragraphs 241(b) 243(b) and sub- paragraphs 247(a) and (b), PWC and/or (through Bourke) contravened s 1041E of the Corporations Act (and engaged in a Section 1041E Contravention) (PWC's ASX s 1041E Contravention).

CONSIDERATION 15 It will be readily apparent that the particulars play an important part in informing PWC (and the Court) of the specific allegations made, and involve a great deal of cross-referencing to other parts of the pleading. In itself cross-referencing can be useful, and is not normally a basis for striking out a pleading. However, there may be instances where such cross-referencing would be likely to confuse or be unintelligible (as I later find in relation to one aspect of the ACSOC) so that the Court should intervene, strike out the pleading but give leave to re-plead if otherwise appropriate. This may also be desirable from a case management point of view, so that there is no confusion as to the elements of the relevant cause of action alleged (a matter again upon which I have relied on one aspect of the pleading). 16 I propose to address the main contentions of the parties by considering the first group of impugned representations, which effectively address other parts of the pleading. 17 The structure of the pleading is that two sets of 19 August 2014 Representations concerning revenue recognition and funding suspension are individually impugned. Those allegations are then essentially repeated to impugn the later representations comprising the 2 September Representations and the PwC ASX Representations. It is therefore necessary to consider the basis on which the two sets of 19 August 2014 Representations are impugned. 18 The first group of impugned representations in ACSOC [223] relate to the preparation of Vocation's Preliminary Financial Report (Appendix 4E) ('FY14 Appendix 4E') which was released on 21 August 2014 (ACSOC [68]). 19 The FY14 Appendix 4E was a report released by Vocation for the purposes of Appendix 4E of the ASX Listing Rules. Relevantly, clause 15 of Appendix 4E provides that such a report must include a statement as to whether it is (relevantly) based on accounts which "are in the process of being audited or reviewed". 20 The FY14 Appendix 4E recorded "[t]he financial statements are in the process of being audited" (item 9). It was not the financial report for the purposes of ss 292 and 295 of the Act. It was not an audited financial report for the purposes of s 301 of the Act. As pleaded, PWC's Retainer did not impose any contractual obligations in respect of that document (ACSOC [212]). There is no direct allegation that PWC was engaged to do anything in respect of the FY14 Appendix 4E or had any obligations in respect of it. 21 There is an issue which I should deal with here relevant to the above observations as to the nature of FY14 Appendix 4E. It relates to various aspects of the pleading where reference is made to the PWC Retainer. The allegations of the PWC Retainer in paragraph 212 do not relate to advising on the FY14 Appendix 4E, or at least this is unclear. There seems little doubt Mr Bourke was advising on the content of the FY14 Appendix 4E. However, Mr Bourke was not conducting an audit of the FY14 Appendix 4E. 22 If his advice as to the content of the FY14 Appendix 4E is to be regarded as part of the PWC Retainer, it should be so pleaded. Otherwise, the plea could still stand as one arising out of the fact that PWC through Mr Bourke gave the opinion and made the representation. In other words, the PWC Retainer (if put this way) is not relevant to the case pleaded. However, as I say, this should be made clear. It is important in relation to each plea where the PWC Retainer is referred to or cross-referenced, to be clear as to the source of the obligation said to be placed upon Mr Bourke (and PWC), and the content of that obligation. 23 Returning to the first group of impugned representations, it was submitted by PWC that the making of four specific representations referred to as the PWC 19 August Representations are alleged in conclusory form. The material facts giving rise to those alleged representations are not pleaded. Rather, they are said to be found in particulars to ACSOC [223]. 24 The particulars assert that the substantive opinion representations were partly express and partly implied while the reasonable grounds representations (which depend upon the substantive opinion representations) are wholly implied. The express aspect of each of the substantive representations is the same, and is particularised as follows (particulars (i)(A) and (iii)(A)): To the extent that it was express, the Applicants say that: (i) On 15 August 2014, PWC (through Bourke) advised the Audit and Risk Committee in writing that "Following the release of the Appendix 4E, management will continue to finalise the full Annual Report and financial statements and, based on our current work to date, once the directors approve the financial statements and notes, and sign their director's declaration, we expect to issue an unqualified audit opinion. If circumstances change or we become aware of additional information, we will let you know, as this may affect our audit opinion and this report" (VOC.003.001.2586 at 2689). (ii) PWC (through Bourke) advised the Audit and Risk Committee of Vocation that the audit process was progressing well, and, while some further policies and procedures needed to be established in writing, PwC recognised this would take some time (VOC.003.001.3132 at 3133). (Annotations omitted) 25 It was submitted that general statements of the kind that "based on our current work to date … we expect to issue an unqualified audit opinion" but that "[i]f circumstances change or we become aware of additional information, we will let you know, as this may affect our audit opinion" and "the audit process was progressing well" provide no support for the specific and substantive representations alleged in respect of the appropriateness of a supposed revenue recognition policy and the materiality of the Victorian Funding Suspensions. This is said to be even more apparent when reading the whole Report provided, and the covering letter to the Report from which the quote in particular (i) is taken, is considered in full: Dear Audit & Risk Committee members We are progressing well with our audit of Vocation's financial report for the year ended 30 June 2014 and thank Manvinder Grewal, Dharmendra Singh and their team for their assistance during the audit. We enclose our report to the Audit & Risk Committee, which we have prepared to communicate key auditing and accounting issues that came to our attention while performing our audit. The key matters that management has been considering and resolving are consistent with those reported to you in our Audit Plan presented on 24 June 2014. The key judgments in respect of these matters is set out on pages 6 to 9. Management is currently finalising their Appendix 4E for your approval. Due to the financial statements and our audit procedures in relation to them not being completed, as foreshadowed by management, the Appendix 4E will state that they have been extracted from the financial statements that are still in the process of being audited. Following the release of the Appendix 4E, management will continue to finalise the full Annual Report and financial statements and, based on our current work to date, once the directors approve the financial statements and notes, and sign their director's declaration, we expect to issue an unqualified audit opinion. If circumstances change or we become aware of additional information, we will let you know, as this may affect our audit opinion and this report. I look forward to the opportunity of discussing any aspects of this report with you. Yours faithfully 26 It was also submitted that the Report was contrary to the position put by the applicants. For example, in relation to the funding suspension it refers to the reversal of $4.0 million on account of this and states: "No provision has been recognised against the remaining accrued revenue of $14.4m, being the June claim and that accrued based on the July and August claims as noted above. We are currently discussing with management whether there is any reason to suggest that this will not be received from the Victorian government". It was submitted that that stood directly contrary to that document making any representation that an opinion was being given as at 19 August 2014 that preparing the financial information for the purposes of the FY14 Appendix 4E without disclosing the Victorian Funding Suspensions would give a true and fair view of Vocation's financial position and financial performance in FY14. 27 I will commence by looking at paragraph 223(a) and (b) of the ACSOC, which it is contended by PWC cannot be sustained on the particulars provided therein. 28 Undoubtedly the documentation said to give rise to the express opinion is qualified, but it is arguable that taking this express opinion in the context pleaded (including the absence of any adequate reservation having regard to what is pleaded about the Victorian Funding Suspensions and other allegations against Vocation) that the material allegation is sustainable and in that way not embarrassing or fails to disclose a reasonable cause of action. I am not asked to consider the strength of this allegation, which will depend on the evidence led concerning all the circumstances leading up to and surrounding the opinion as alleged. The absence of any adequate reservation may give rise to its misleading nature. I again note, the application by PWC is not a summary judgment application. 29 As to paragraph 223(b), that plea sufficiently sets out the allegation made, and the particulars found the implication by reference to the role and conduct of Mr Bourke - subject to clarifying the PWC Retainer or the obligation upon Mr Bourke. 30 I then turn to paragraphs 223(c) and (d). It was submitted that these allegations suffer from the same essential vice as those in paragraph 223(a) and (b). 31 Other than the issue of the PWC Retainer, I do not agree that the pleading is otherwise embarrassing or fails to disclose a cause of action. As with paragraph 223(a) and (b), it sufficiently sets the stated opinion, and by reference to the particulars indicates that the representation to Vocation was based upon reasonable grounds and was the product of an exercise of reasonable skill and care having regard to all the circumstances pleaded in the particulars. This plea also cannot be read in isolation, it must be read by reference to the pleading against Vocation and the events which are pleaded to have occurred. 32 I now turn to paragraph 231 which relates to the contravening conduct itself. The complaint here is that the applicants have not pleaded material facts, only conclusions. Further, even the particulars do not assist in setting out the material facts necessary to sustain a cause of action. 33 I commence observing again that, by referring back to the PWC Retainer, this raises the confusion as to Mr Bourke's actual obligation. 34 Further, and significantly, the pleading indicates that further particulars will be provided with the applicants' opinion evidence in chief. 35 Whatever fate this part of the pleading has on the basis of PWC's contentions, this pleading will need to be recast by deleting the reference to paragraphs 212 to 214, (or making the reference relevant by redefining the retainer or setting out the obligation of Mr Bourke), and by providing full particulars with the expert report. As a matter of case management, I would propose to order that this expert report be provided as soon as possible. 36 Otherwise, I consider the pleading is adequate, not embarrassing and discloses a cause of action sufficiently to inform PWC of the case it needs to meet at this stage of the proceeding. Much will depend upon the particulars provided with the expert opinion. 37 It will be observed that the pleading refers to paragraphs 65 to 67 of the ACSOC. Paragraphs 65 to 67 of the ACSOC provide: 65. The FY14 Guidance set out in the Replacement Prospectus was based on the following revenue recognition policy: (a) in relation to Vocation's "Enterprise" business channel (including BAWM and Aspin), revenue was to be recognised on a "stage of completion" basis, as assessed by the rendering of invoices following the completion by a student of a unit of competency; (b) in relation to Vocation's "Direct" business channel (including BAWM and Aspin), revenue was to be recognised on a "stage of completion" basis, as assessed by the rendering of invoices following the completion by a student of a unit of competency; (c) in relation to Vocation's "Solutions" business channel (including BAWM's "RTO Edge" business), revenue was to be recognised at the time at which the relevant company's entitlement to those funds had been verified, as assessed by all five of the following criteria having been met: (i) the relevant training has been delivered by the end of the reporting period; (ii) the training has been reported to the relevant authority within a month following the reporting period; (iii) data evidence of student participation has been received within a month following the reporting period; (iv) that data evidence has been subject to a quality control assessment to determine whether they are in accordance with the relevant funding contract; and (v) notification by the relevant authority of the claimed monies. (Prospectus Revenue Recognition Policy) Particulars The Applicants refer to; i. The description of the Prospectus Revenue Recognition Policy is described contained in the Replacement Prospectus at pages 61, 62, 134 and 135. ii. The statement at page 67 of the Replacement Prospectus that "[t]he Forecast Financial Information has been prepared based on the significant accounting policies adopted by Vocation, which are in accordance with the Australian Accounting Standards". iii. The statement at page b of the Replacement Prospectus that "[t]he basis of preparation and presentation of the Forecast Financial Information is, to the extent applicable, consistent with the basis of preparation and presentation of the Historical Financial Information". iv. The description of the basis of preparation of the "Historical Financial Information" at page 52 of the Replacement Prospectus. v. The Applicants also refer toT the description of the revenue recognition policy applied in respect of "Government contract training fees" contained in the "Financial report for the year ended 30 June 2013" lodged by each of Aspin and BAWM with the ASX at page 6 of each document, and the statement on pages 5 and 6 respect of the document lodged by Aspin and on page 6 in respect of the document lodged by BAWM that "Revenue is recognised to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured… Until such time as the above 5 milestones have been achieved, monies are not considered to be earned as there exists a possibility that monies will be required to be repaid to the relevant authority." Further particulars may be provided following the completion of discovery and before the initial trial. 66. By no later than 19 August 2014, Vocation and its auditor PricewaterhouseCoopers (PWC) had developed, and Vocation had approved, a new revenue recognition policy based on the following: (a) in relation to Vocation's "Enterprise" business channel (including BAWM and Aspin), revenue would now be recognised according to a "stage of delivery" basis, and recognised: (i) as to 50% when a student was enrolled; (ii) as to a further 25% at the mid point of a unit; (iii) as to the final 25% when the student completed the unit; (b) in relation to Vocation's "Direct" business channel (including BAWM and Aspin), revenue would now be recognised according to a "stage of delivery" basis, and recognised: (i) as to 35% when a student was enrolled; (ii) as to a further 35% at the mid point of a unit; (iii) as to the final 30% when the student completed the unit; (c) in relation to Vocation's "Solutions" business channel (including BAWM's "RTO Edge" business), revenue would now be recognised based on Vocation management's estimate of the courses or modules provided in a given period in respect of which management estimated that a claim for payment could be issued by the relevant company, regardless of whether a claim had in fact been prepared or issued by that company, at the time at which Vocation estimated the relevant company was in the position to issue a claim for payment rather than when the criteria set out in paragraph 65(c) were met, (New Revenue Recognition Policy) Particulars The New Revenue Recognition Policy is described in pages 3 to 6 of the report titled "Vocation Audit & Risk Committee Update" prepared by Gréwal for Vocation's Audit & Risk Committee meeting on 19 August 2014 (CFO FY14 Report), and at pages 6 and 7 of the report titled "Audit & Risk Committee report - year ended 30 June 2014" prepared by PWC for the committee (see VOC.003.001.2586). Further particulars may be provided following the completion of discovery and before the initial trial. 67. The effect of the adoption by Vocation of the New Revenue Recognition Policy relative to the Prospectus Revenue Recognition Policy was: (a) to bring forward into FY14 the recognition of material amounts of both revenue and profit which amounts otherwise would have been recognised in FY15, being approximately $15.86m revenue and $7.57m in profit, broken down as follows: Impact on FY14 Results ($m) Revenue Expenses Profit Enterprise 4.89 (1.91) 2.98 Direct 2.33 (0.16) 2.17 Solutions 8.63 (6.22) 2.42 Total 15.86 (8.29) 7.57

(b) as a consequence of (a), that Vocation's reported profit for FY14 was materially greater than it would have been if the New Revenue Recognition Policy had not been adopted. Particulars The Applicants refer to the analyses set out in the CFO FY14 Report at page 4 and 6. Further particulars may be provided following the completion of discovery and before the initial trial. 38 These references put the plea against PWC in context. The ACSOC refers to Vocation, and by reason of identified Accounting Standards, alleges Vocation was obliged to disclose the change in accounting policy. It picks up (incorrectly) paragraph (i) in the reference to the PWC Retainer, but otherwise sets out what PWC was obliged to do in sub-paragraph A, B and C. It alleges that PWC did not identify any basis upon which the non-disclosure by Vocation as alleged was or could be justified. 39 Then by reason of (i) (which in substance is A, B and C) and (ii) it is alleged PWC failed to obtain appropriate audit evidence or failed to audit in accordance with reasonable care and skill in not advising Vocation to make disclosure. 40 Then, further and alternatively to (iv), another allegation is made relating to the non-disclosure by Vocation of a change in approach to the application of the accounting policy. 41 In my view, at least at this stage of the proceeding, this adequately sets out the case PWC needs to plead to and meet, subject to the two aspects I have referred to above, which includes the provision of further particulars after the expert evidence is provided by the applicants. 42 In my view, this is not a case of mere bold assertion by the pleader like the examples given by PWC. I do not need to go to the application or interpretation of the Accounting Standards - this will be addressed by the experts and will be a matter for trial. As I have said before, this is not a summary judgment application. 43 I now turn to paragraph 234. This paragraph pleads the lack of reasonable grounds and failure to exercise reasonable skill and care. The attack by PWC is again on the particulars. The gist of the allegation is clear enough: even though (or "notwithstanding") mention was made of the $14.4 million and ongoing discussions with management, PWC advised the Audit and Risk Committee that following the release of the FY14 Appendix 4E, PWC expected to issue an unqualified opinion. PWC (as a reasonably competent auditor) should have acted in the way alleged, because PWC should have had concerns that the remaining accrued (but withheld) revenue of $14.4 would not be recovered, which event would convert the reported profit of Vocation for FY14 into a material loss. 44 The particulars in (v) and (vi), then set out what PWC should have done, by reference to certain Accounting Standards. 45 Putting aside whether it is strictly correct to suggest that an auditor in fact raises a provision in a company's account, the pleading identifies the Accounting Standards, although does not go the next step to indicate the identified aspect of the Standard as to what a reasonably competent auditor would have done and what work PWC did not do that a reasonably competent auditor would have done. 46 However, as mentioned in relation to earlier paragraphs, the applicants do indicate that further particulars will be provided with the applicants' expert evidence in chief. I propose to take the same approach in relation to this paragraph as to the earlier paragraph, and order the early preparation of an expert report to be filed by the applicants. 47 I do not need to go into the detail of the Accounting Standards - the relevant Accounting Standards have been referred to generally at this stage, and the expert evidence (along with later particulars) will provide the detail necessary for PWC and the Court to be sufficiently appraised of the specific Accounting Standards to be addressed. 48 I now turn to the allegations concerning s 1041E. I do not regard this as the occasion to determine the various constructions that may be put on the meaning and application of s 1041E, other than to observe that the pleading should refer to Mr Bourke (the relevant person) and his position. To preserve the position the applicants may wish to adopt at trial, the applicants may plead alternative positions based upon the competing constructions to s 1041E. I also observe that the claims under s 1041H and 1041E are quite distinct, and obviously have different elements. 49 The real problem with the current pleading in relation to s 1041E is the incorporation by reference to earlier paragraphs, which leads to a failure to focus on the various elements of s 1041E. The pleader has attempted (admirably) to avoid being prolix; but in this instance having regard to the nature of s 1041E, I consider the pleading against PWC (and Mr Bourke) should be self-contained and referrable to each element of the contravention. In my view, it otherwise lacks clarity. For instance, I consider the reference back to the various express statements made in the context of the plea in ACSOC [223] do not identify any substantive express statement made other than as set out in particulars (i)A and (iii)A. This express statement, whilst in the context of the plea in [223] is appropriate, is so general in content as not to indicate anything other than expectation and reference to the audit process. If for no other reason than proper case management, I propose to order that the pleading in respect of s 1041E be struck out, but will give leave to the applicants to re-plead. 50 However, I make these observations having regard to the submissions made by the parties. Paragraphs 215 to 222 relate to PWC's conduct and knowledge. In themselves, these paragraphs form the basis of how it is said Mr Bourke gained knowledge of certain matters. However, the pleading should make it clear the only relevant person (for the purposes of s 1041E) is Mr Bourke and the allegations should relate to his position, conduct and knowledge; the PWC Retainer should be properly defined (or not relied upon in the context of the FY14 Appendix 4E); and appropriate particulars be given (if necessary after discovery). Paragraphs 215 to 222 should focus with sufficient clarity on the material facts to support the attribution of the alleged knowledge to Mr Bourke. 51 I should also indicate that paragraph 215 refers to "professional accounting and auditing services" being provided to Vocation, which is a wider reference than the 'PWC Retainer'. I do not see any practical significance in the distinction, but as I have mentioned the pleading does at times refer to the PWC Retainer and the context of the FY14 Appendix 4E, which seems inappropriate and may cause unnecessary confusion. If it is alleged that Mr Bourke is giving advice in his capacity as an auditor, this should be made clear. 52 I observe that in my view the plea in paragraph 233 does include an attribution to Mr Bourke as what he ought reasonably to have known - I do not read the pleading as only a reference to what a reasonable auditor would have known. However, what a reasonable auditor ought reasonably to have known may be relevant to considering what Mr Bourke himself ought reasonably have known. This is a matter that can be investigated at trial and with the benefit of expert evidence. 53 However, the pleading in relation to s 1041E by its format and nature is unclear, and this should be rectified. In particular, the plea should fully set out in one place, all the elements of s 1041E, and importantly, each "statement or information" relied upon as being false or misleading, the basis on which that particular statement or information is said to be materially false or misleading, and the basis of the allegation that Mr Bourke (in particular) "ought reasonably to have known" that the "statement or information" (as previously identified) was false or misleading. As the "statement" pleaded is an opinion, and the attack is that the representations were not based on reasonable grounds or not the product of reasonable care, the pleading will need to identify the circumstances relied upon to show Mr Bourke "ought reasonably to have known" the lack of reasonable grounds or lack of reasonable care. The plea should indicate the factual foundation from which it is alleged that Mr Bourke ought reasonably to have known that the statement made was false. The pleader does set out the actual knowledge of certain matters by Mr Bourke, but that knowledge does not indicate in themselves that Mr Bourke ought to have known the impugned statements were materially false or materially misleading. As I have indicated, the fact that a competent auditor, doing their job properly, would have known that the statement was misleading, may be relevant evidence that Mr Bourke ought reasonably to have known the statement was misleading. In addition the link between the "statement" to the likely effect on the market needs to be set out. 54 It is not for the Court to draft the pleading, and it will be a matter for the applicants to present their case as so advised. It will not be necessary for any amendments to be indicated on the amended document, as it would be clearer and more comprehensible to effectively re-write the pleading in relation to s 1041E, and if thought more conducive for comprehension, the whole of the pleading against PWC. 55 I make some observations on causation and the loss and damage allegations. 56 I do not delay discussing the reliance by the applicants of the market-based causation plea, which will be a matter for trial. This was accepted as an appropriate approach by PWC. 57 A number of complaints were made as to the failure of the applicants to be specific in relation to each separate allegation, linking each allegation to the loss and damage. In my view, the applicants cannot approach the matter on a global basis (as they have done). It is not sufficient to plead, for instance, that "certain of" the statements of Vocation would not have been made without specifically identifying the basis of any loss and damage by reference to each statement. It is necessary to indicate, by reference only to the applicants as this stage, the element relied upon to show causation in respect of each representation and contravention. 58 Finally, on this aspect of causation and loss and damage, the allegation (in paragraph 254) that there was reliance by the applicants on some or all of the representation is unsatisfactory, as I think was conceded by the applicants. 59 Otherwise, I agree with the applicants that the case on causation is capable of being understood, and in my view re-pleaded once attention is given to each separate allegation. 60 As the applicants submitted: PWC's contravening conduct in making representations on 19 August was relied upon by Vocation in approving its Preliminary Final Report to be released to the ASX: ACSOC, [224]; PWC's contravening conduct in making representations in 2 September was relied upon by Vocation in approving its Annual Report to be released to the ASX: ACSOC, [227]; PWC's representations contained in the Audit Report published to the ASX as part of Vocation's Annual Report was a representation to the affected market of investors or potential investors in Vocation: see ACSOC, [228]; PWC's conduct on 19 August and 2 September was a cause of erroneous and incomplete financial information about Vocation being released to the ASX - because the imprimatur of PWC was a material contributing cause of Vocation determining to approve those financial results and publish them to the market; and Again, as the applicants submitted, the release of that financial information to the market was significant in a number of ways: (a) First, the release of erroneous and incomplete financial information resulted in the share price of Vocation trading at an inflated value: see ACSOC, [248] and [251]. Investors who bought on-market, thereby paid too high a price (ACSOC, [256]); (b) Secondly, because the Placement took place on 10 September 2014 ([91(a)]) and by reference to a VWAP (volume-weighted average price) which was calculated over the 5 trading days to 9 September, the Placement price was similarly inflated: ACSOC, [250] and [251]. Investors who subscribed in the Placement thereby paid too high a price (ACSOC, [256]) (c) Thirdly, had Vocation's share price crashed by reason of the release of the information which PWC contributed to the non-disclosure of, the Placement likely would not have occurred at all, or in the same way: ACSOC, [247B]. Investors who subscribed in the Placement would never have had the opportunity to do so (d) Fourthly, the applicants and some Group Members may have read PWC's misleading audit report and relied upon it in their decision-making: ACSOC, 254(xv). 61 However, the complaint is that the pleading does not link the specific individual allegations to the loss and damage claimed. Part of this problem lies in the fact that the "PWC 19 August Representations" and "PWC 2 September Representations" were not made to any participants in the market, but to Vocation (see ACSOC [223] and [226]). The pleader would need to show how this communication to Vocation related to the release of FY14 Appendix 4E.

CONCLUSION 62 The position is then that the ACSOC in its current form needs to be re-pleaded. I have focussed on certain specific paragraphs of the ACSOC in these reasons, but to the extent other paragraphs adopt the same or similar formula, my observation and conclusions apply equally to them. I propose to strike out paragraphs 233 to 245. I would permit the applicants to re-plead to paragraphs 233 to 245 as I have indicated, I would not strike out any other paragraphs at this time, but would allow the applicant to re-plead as so advised upon a consideration of these reasons and to provide further particulars at the appropriate time. I consider that the applicants should be given the opportunity to re-plead, as in my view it cannot be said that this would involve a futile attempt to plead an unarguable cause of action. 63 The proceeding returns before the Court on 27 October 2017 for a case management hearing. I propose to now order that the parties confer and bring to the case management hearing on 27 October 2017 an agreed minute of order reflecting these reasons, or short submissions as to form of such order, along with any other directions that need to be made to progress this matter to trial. 64 As to the form of orders in relation to the applications before me, it may be appropriate to order that the Applicant's application for leave to file the ACSOC be refused, the paragraphs of the existing pleading alleging contravention of s 1041E be struck out but otherwise PWC's application to strike out the CSOC be dismissed, and the applicants have leave to re-plead. 65 I have published these reasons prior to that case management hearing to give the parties the opportunity to consider their positions including re-pleading by the applicants as so advised, and PWC considering the question of joinder of additional parties. I appreciate joinder may depend on or be influenced by the re-pleading of the allegations concerning s 1041E. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.