Willcocks v Croft

Willcocks v Croft - [2021] NSWSC 1610 - NSWSC 2021 case summary — Zoe

[4]

Headnote [This is not to be read as part of the judgment] This is an application by the sixth and seventh defendants for summary dismissal. The matter has settled between the plaintiff and the first to fifth defendants. The plaintiff, Mark Willcocks, was the beneficial owner of Active Tree Services Pty Ltd, a large tree lopping company. In 2003, the plaintiff alleges that he, through the agency of Bernard Croft (the first defendant), retained Joshua Cardwell (seventh defendant), employee of Deloitte Tax Services Pty Limited (sixth defendant), to advise him on the steps to be taken to effect an interposition. This is a process which places a new company between an asset rich trading company and potential future creditors in a tax neutral fashion. The plaintiff alleges that between 2003 and 2005, Cardwell/Deloitte negligently provided incorrect advice to himself and Mr Croft. The essence of the alleged error is that Cardwell/Deloitte failed to explain that the shares issued in the new company, which would be exchanged for the plaintiff's shares in the old company, needed to reflect the value of the old company's shares, a critical step required under s 124-G of the Income Tax Assessment Act 1997 (Cth). In reliance on this advice, the plaintiff took steps to effect the interposition which were ultimately ineffective. The result of this was that the plaintiff lost the pre-CGT status of his shares, and he was issued with an amended assessment for the 2005 financial year by the Commissioner of Taxation, which had the effect of imposing an additional tax liability on the plaintiff as well as penalties and interest. The plaintiff disputed this amended assessment leading to Federal Court proceedings which were ultimately settled on 24 July 2014 when Croft admitted that he had backdated documents. Both Croft and Cardwell had involvement throughout the ATO review process and both of them provided affidavit evidence for the trial. Cardwell prepared a brief for the plaintiff's then legal counsel which did not include the admission that he knew that there was a problem with the way the interposition was effected. On 8 February 2017, the plaintiff commenced these proceedings against Cardwell/Deloitte for failure to exercise reasonable care and skill in advising on and implementing the interposition. On 27 February 2019, Cardwell provided an affidavit which suggested that he knew there was a problem with the interposition at the time it was being carried out. The plaintiff now alleges that the conduct of Cardwell in not admitting his knowledge of the problem with the interposition at the time amounted to fraud or fraudulent concealment and seeks to file a second further amended statement of claim reflecting these allegations. The plaintiff submits that due to operation of s 55 of the Limitation Act 1969 (NSW) the claims are not time barred. In answer to these allegations, Cardwell/Deloitte say that there was no retainer and they did not provide the alleged advice. They say that the plaintiff did not rely upon any advice provided by Cardwell/Deloitte when he executed documents giving effect to the interposition. Cardwell/Deloitte submit that each cause of action the plaintiff is pursuing became time barred under s 14 of the Limitation Act or extinguished well before 9 April 2018 and seek summary dismissal of the proceedings.

[6]

Summary judgment and summary dismissal

In seeking summary dismissal, the defendants rely upon UCPR 13.4 and 14.28. They read: "13.4 Frivolous and vexatious proceedings (1) If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings- (a) the proceedings are frivolous or vexatious, or (b) no reasonable cause of action is disclosed, or (c) the proceedings are an abuse of the process of the court, the court may order that the proceedings be dismissed generally or in relation to that claim. (2) The court may receive evidence on the hearing of an application for an order under subrule (1). 14.28 Circumstances in which court may strike out pleadings (1) The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading - (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or (c) is otherwise an abuse of the process of the court. (2) The court may receive evidence on the hearing of an application for an order under subrule (1)."
UCPR 14.28 enunciates grounds upon which a defective pleading may be struck out, while UCPR 13.4 focuses on the weakness of a party's case rather than the defects of a pleading: Brimson v Rocla Concrete Pipes Ltd [1982] 2 NSWLR 937 ("Brimson").
Where the court is asked to summarily dismiss a plaintiffs case, the fundamental principle is that prima facie a plaintiff is entitled to have their case come to trial and that an application to deprive them of that right will succeed only in the clearest of cases: see Brimson at 944. Usually, a party is not to be denied the opportunity to place their case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. Therefore the defendants' application needs to be approached upon the basis that the power to make such an order should be sparingly employed: Dey at [91]; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 ("General Steel"); Webster v Lampard (1993) 177 CLR 598 at 602-603 ("Webster").
The test to be applied by a court when considering summary dismissal is clear. It has been variously expressed as a claim being "so obviously untenable that it cannot possibly succeed", "manifestly groundless", or "so manifestly faulty that it does not admit of argument": General Steel at 128-129. The test is not whether the plaintiff would probably fail in his action against the defendants, but whether the material before the Court demonstrates that the action should not be permitted to go to trial in the ordinary way because it is apparent that it must fail: Webster at 602.
Consequently, for a summary dismissal application to succeed, a high degree of certainty is required about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way. See: Agar v Hyde (2000) 201 CLR 552 at 575-576 ("Agar")). It must be a clear case with no real question of fact or law to be determined: Dixon J in Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91 ("Dey")
The mere fact (if it be the case) that a plaintiff's prospects of success might be characterised as slim would not be enough to strike out a pleading: Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 271 ("Esanda"); Preston v Star City Pty Ltd [1999] NSWSC 1273 at [31] ("Preston"). The question for determination is whether a reasonable cause of action is disclosed, that is a cause of action which has some chance of success, or which could conceivably give the plaintiff a right to relief, or which, although weak, is properly debatable and has some apparent legitimate basis if the facts upon which it is alleged to be based are made good: Preston at [37].
By bringing an application for summary dismissal, the defendants undertake the burden of establishing that there is no triable issue: Wickstead v Browne (1992) 30 NSWLR 1 at 11 ("Wickstead").
It is my view that I should take the plaintiff's case at its highest. To do so the where there are discrepancies between the FASC and the P2FASC, the P2FASC is the pleading to which I will refer.

[10]

Factual Background

I have largely adopted the plaintiff's background some of which is uncontroversial. The reason for this approach is to take the plaintiff's case at its highest. Over the two days of hearing of these notices of motion, I was taken to the particular portions of the relevant documents in evidence. I have referred to some relevant parts of them.
These proceedings concern claims against the plaintiff's former advisers in respect of a number of transactions involving Active Tree Services Pty Limited ("ATS"), which is, and at all material times has been, a valuable company which conducts an extensive and profitable commercial tree pruning business.
One set of defendants (referred to as the 'Croft defendants') is comprised of the plaintiff's personal accountant, Croft, and his associated partnerships and companies. The second set of defendants is comprised of a specialist tax adviser, Cardwell, and his employer, Deloitte.
In February 2017, these proceedings in this Court were initially commenced against the Croft defendants. On or about 24 April 2018, Cardwell and Deloitte were joined to the proceedings under the FASC.
As stated earlier, the plaintiff has since settled with the Croft defendants, so the only claims in issue are those against Cardwell and Deloitte.
Prior to about mid-2004, the plaintiff beneficially owned all 10 of the shares on issue in ATS. He was the registered holder of 9 shares and the remaining share was held on trust for him by his father, Mr Richard Willcocks ("the plaintiff's father").
The 9 shares which the plaintiff held directly were 'pre-capital gains tax' ("CGT") assets. That is, because the plaintiff had acquired them prior to 20 September 1985, he could dispose of them - all other things being equal - without attracting capital gains tax. Given that ATS had grown since the issue of the shares and was expected to continue to grow, the shares' pre-CGT status was very valuable to the plaintiff. The remaining share held on trust for the plaintiff by the plaintiff's father was not a pre-CGT asset.
On 27 March 2003, the plaintiff sought Croft's advice in relation to the proposed separation of ATS' residential business from its retail/government business ("proposed separation").
In May 2003, Croft contacted Cardwell seeking his advice in relation to the proposed separation. On 5 June 2003, a letter of engagement was sent from Cardwell to Willcocks. On 24 July 2003, a meeting between Croft and Cardwell took place. In July/August 2003, Cardwell provided written advice.

[12]

The interposition

An interposition is a corporate restructure which places a new company between an asset rich trading company and potential future creditors in a tax neutral fashion. It involves the following steps: 1. The original shareholders of an asset rich company, X, want to protect their assets, so they establish a new company, Y, with a nominal shareholding. Y then acquires a small parcel of shares in X. 2. The original shareholders then exchange the pre-CGT shares they own in X for shares in Y. 3. X then cancels the original shares, and Y records a credit in its share capital account which is equivalent to the value of the shares in X which have been cancelled. This will usually involve a valuation of the shares in X. 4. The original shareholders seek rollover relief under s 122-A and s 124-G of the Tax Act 1997 when they file their next tax return in order to maintain the pre-CGT status of their investment.
One of the benefits of an interposition from the plaintiff's perspective was to provide a degree of asset protection in the event that claims for property damage or personal injury were brought against ATS. However, a critical objective was to ensure that the benefit of the existing CGT status attaching to the 9 ATS shares directly held by the plaintiff was not lost.
As suggested above at 36, the CGT regime at the time provided "rollover relief" for such transactions whereby the benefit of the existing "pre-CGT" status could be preserved if certain requirements were met.
In order to obtain rollover relief under subdivision 124-G of the Tax Act 1997, it was necessary for the following to be satisfied (see Tax Act 1997 s 124-370(1)): 1. the interposed company must acquire no more than 5 shares in the original company; 2. these must be the first shares that the interposed company acquires in the original company; 3. a member of the original company and at least one other entity (the exchanging members) must own all the remaining shares in the original company; 4. the original company must redeem or cancel those remaining shares; and 5. each exchanging member must receive shares (and nothing else) in the interposed company in return for their shares in the original company being redeemed or cancelled.
Between September 2003 and March 2004, the plaintiff and Croft took a number of steps towards effecting the interposition. Cardwell says he heard nothing from the plaintiff or Croft during this period, which is disputed by the plaintiff.
There is a degree of uncertainty about the precise dates on which particular steps occurred. This is because Croft admitted when giving evidence in the Federal Court that he had backdated at least some documents. It is not disputed that these backdated documents were signed by Mr Willcocks.
The steps taken were: 1. on or about 25 September 2003, the plaintiff and Croft incorporated a new company, Actwill Holdings Group Pty Ltd ("AGH") with 10 shares on issue at an issue price of $1 each. The plaintiff was issued 9 of those shares for $9, and the plaintiff's father was issued 1 of those shares for $1; 2. on each of 16 December 2003, 5 and 7 January 2004, together with an unidentified date post 15 January 2004, the plaintiff says he executed various documents prepared by Croft pertaining to the interposition; and 3. on or about 5 January 2004: 1. the share in ATS then held by the plaintiff's father was cancelled; and 2. 5 shares in ATS were issued to AGH; 1. on or about 29 January 2004, the plaintiff's 9 shares in ATS were cancelled. 2. between 29 January 2004 and 9 February 2004, Croft corresponded with ASIC on the plaintiff's behalf concerning the interposition. 3. ASIC forms recording the interposition were lodged with ASIC on various occasions (sometimes with incorrect details which were later corrected).
This sequence of steps did not satisfy the requirement in s 124-370(1)(e) of the Tax Act 1997 that the plaintiff and his father receive their shares in AGH in return for the redemption or cancellation of their ATS shares. Instead, the plaintiff and his father received their shares in AGH in return for the $1 per share issue price.
On the basis that ATS was valued at about $48.7 million at the time (which is the plaintiff's evidence), in order for the interposition to have been correctly carried out, 48.7 million $1 shares in AGH should have been issued to the plaintiff and his father in consideration for the cancellation of their shares in ATS. This missing step never occurred. Instead, there were only ever 10 x $1 shares issued in AGH.
There is a further issue with the interposition, which is referred to in the evidence, as to whether there were two exchanging entities so as to satisfy s 124-370(1)(c) of the Tax Act 1997. The issue was whether the plaintiff's father was an 'independent entity' in circumstances where he held the share on trust for the plaintiff. The plaintiff's case is that there were two exchanging entities and the expert evidence served by the plaintiff supports that proposition: see McGill Report 17/7/19 at [106]-[109].
The plaintiff has provided a chronology and a helpful diagram showing the interposition as it was done and as it should have been done. See: CB Vol 9, Tab 29

[14]

The 27 April 2004 Letter

On 27 April 2004, Croft sent Cardwell a letter attaching documents pertaining to the interposition ("27 April 2004 Letter"). The letter reads: "Please find enclosed copies of resolutions and other documents and elections in relation to the rollover of shares owned by Mark Wilcocks in Active Tree Services Pty Limited. Would you please advise that these have been completed in accordance with your previous advice. In addition I enclose a copy of the Willcocks Family Trust and two amending deeds for your review and advice. I advise that I am presently undertaking a valuation of Active Tree Services Pty Limited for the purposes of correctly capitalizing (AGH). This valuation should be completed within the next seven days. I trust the above is satisfactory and if you require any further information or assistance please do not hesitate to contact the writer."
The attachments to the letter included an extract of subdivision 124-G of the Tax Act 1997. The requirements for rollover relief are set out at ss 124-370, 124-375 and 124-380. In the version sent to Cardwell in the 27 April 2004 letter, Croft had applied a handwritten tick to each of the requirements, including the requirement at 124-370(1)(e) that "each exchanging member receives shares (and nothing else) in the interposed company in return for their shares in the original company being redeemed or cancelled)" ("Legislation Extract with Ticks Only") (CB, Vol 2, p 912). At that point, Croft's state of mind is apparently that the requirements for rollover relief are satisfied.
In the 2PFASC the plaintiff alleges that Croft did not receive a response to the 27 April 2004 letter and failed to pursue a response. This is disputed by the defendants who plead in their defence that Cardwell spoke to Croft on 5 May 2005 about the documents attached to the 27 April 2004 letter. The defendants say Cardwell made a note of his conversation with Croft some 7 days later on 5 May 2004 ("5 May 2004 Filenote"). The plaintiff disputes that the 5 May 2004 Filenote is a record of a conversation between Cardwell and Croft.
On 5 May 2004, Croft lodged various forms and documents with ASIC, recording that the interposition had taken place in December 2003. There were numerous problems with these forms. The problems included, critically, that a declaration of trust (concerning the shares held by the plaintiff's father) had been backdated, which the plaintiff says gave rise to a risk (about which he was not told), that: 1. the interposition would be seen by the Commissioner of Taxation ("the Commissioner") as a divestment of the plaintiff's interest in ATS, for which rollover relief would not apply, meaning that thereafter the plaintiff's shares in AGH would (if sold) be subject to capital gains tax; and 2. the Commissioner would consider that the interposition, formation of the consolidated tax group and subsequent return of capital was one transaction and fell within the definition of a 'scheme for obtaining a tax benefit' within the meaning of s 45B of the Income Tax Assessment Act 1936 (Cth) ("Tax Act 1936").

[15]

The 5 May 2004 Filenote

On 5 May 2004, Cardwell reviewed the documents attached to the 27 April 2004 letter, including the Legislation Extract with Ticks Only, and made a filenote of his review (CB, Vol 3, p 1668).
The 5 May 2004 Filenote reads: "Review Rollover Documents+ Trust Deeds As only one shareholder rollover is pursuant to 122-A not 124-G but C2 not covered by 122-A so cannot use 122-A Form 484 - pge 4 of 9 - Capital reduction - Consideration is shares in Holdco. Form 484 - pge 5 of 9 - Are beneficially held Form 207C - pge 3 s/b - Richard not beneficially held (with an arrow pointing to 1. above) 724-G requires 2 or more entities. a trust is an entity per 960-100 section 16022PB(i)(j) did contemplate trusts new law omitted it. - need to take position."
The 5 May 2004 Filenote describes the two concerns held by Cardwell on 5 May 2004 which he later described at [34] of the Cardwell Aff 27/2/19 being: 1. the contents of page 4 of 9 of the Form 484 prepared by Croft states that the 10 shares in ATS are cancelled with the consideration being $2, whereas the consideration needed to be shares in AGH; and 2. the problem that there was only 1 beneficial shareholder in ATS.
I accept there is a dispute as to whether the 5 May 2004 Filenote is a record of the conversation with Croft which Cardwell refers to in Cardwell Aff 27/2/19 at [35]. The 5 May 2004 Filenote itself makes no reference to Croft and does not purport to be a record of a conversation. On its face, it records Cardwell's notes of his review of the documents provided under cover of the 27 April 2004 letter. Further, Cardwell himself says only that the 5 May 2004 Filenote was a note of his review of the documents; he does not suggest it was a contemporaneous note of his conversation with Croft (Cardwell Aff 27/2/19, at [33] (CB, tab 4, p67)). The submissions for Cardwell and Deloitte assert a conclusion which is at odds with the evidence and, even if were not, would be a disputed question of fact which can only be resolved at trial.

[19]

Overview of the plaintiff's tax affairs and Federal Court proceedings

In about June 2008, the Australian Tax Office ("ATO") commenced a review of the plaintiff's tax affairs as part of an investigation into the tax affairs of wealthy individuals. That process resulted in assessments to the plaintiff's income tax, plus penalty tax and interest in respect of the Payment on the basis that either the Payment was a dividend under ss 6 and 44 of the Tax Act 1936, or pursuant to s 45B of the same Act was deemed to have been a dividend.
The plaintiff challenged the assessments in Federal Court proceedings NSD 1553/2012, which went to trial in 2014 ("the Federal Court proceedings") (CB, Vol 5, p 3720).
Both Croft and Cardwell had involvement throughout the ATO review process and both of them provided affidavit evidence for the trial. Croft was cross examined at trial, during which he admitted that he had backdated at least some of the documents which effected the interposition. After Croft made the admission of backdating documents, the plaintiff's then legal advisors took the view that this conduct by Croft was likely to lead the Court to find that the interposition and Payment were part of a scheme to avoid paying tax such that the Payment would be deemed a dividend by reason of s 45B of the Tax Act 1936. They acted immediately to settle the proceedings.
On 24 July 2014, the Commissioner and the plaintiff signed terms of settlement to conclude the Federal Court proceedings. Notwithstanding that the Federal Court proceedings concerned only income tax, penalties and interest on the Payment, the plaintiff says that the Commissioner was alive to the fact that the interposition did not satisfy the requirements for rollover relief in the manner described above.
The settlement between the plaintiff and the Commissioner comprised of: 1. payment of the amount of primary income tax due in respect of the Payment, plus interest and penalties in agreed amounts; and 2. the setting of a cost base for the AGH shares held by the plaintiff and his father by reference to the then current value of those shares on the basis that the shares were CGT assets.
On 24 August 2014, the plaintiff paid the sum of $4,860,397.32 to the ATO, in respect of tax, interest and penalties which were agreed to with the ATO as part of the Federal Court proceedings settlement.

[21]

The Cardwell affidavit in the Federal Court proceedings

On 22 March 2013, Cardwell affirmed an affidavit in the Federal Court proceedings ("Cardwell Federal Court Aff") (CB, Vol 6, p 4270). Settlement occurred before Cardwell was to give evidence.
The Cardwell Federal Court Aff relevantly deposes: "[2] From time to time I have been retained by Mr Mark Willcocks (Applicant) to provide specialist taxation advice from about 2003 onwards. [6] [During a meeting or conversation in mid-2003] … I was told that a number of separate companies had been formed with a view to isolating asset ownership from these risks, but the problem remained that the increasing value of ATS remained in that entity. One of the reasons for that was that ATS was a pre capital gains tax company and the Applicant and Croft were very concerned not to change that status. I advised that it may be possible to interpose a new holding company and utilise CGT rollover relief to preserve the pre capital gains tax status and requested some more information. … [8] I met again with Croft a month or so later, probably in about September 2003. By that time I had finalised my thoughts about how to proceed with the demerger and I had given further consideration as to how to introduce of a new holding company, including obtaining rollover relief. [9] I recall giving Croft a draft suite of documents that would be suitable to give effect to the majority of the proposed changes. I had no subsequent involvement in the creation of the holding company and gave no advice to Croft about the preparation of accounts to reflect these transactions in the books of the new holding company, which I now know was [AGH]. ... [10] I next heard from Croft in about early 2005. Croft wanted to discuss how the Applicant could get money out of AGH. I recall expressing surprise when I was told that ATS had not paid a dividend to AGH shortly after the interposition. … [13] Accordingly, I advised Croft that the only practical way of permanently moving cash from AGH to the Applicant was for AGH to make a return of capital to its shareholders. [14] In about May 2005 I recall either meeting with and/or having a telephone conversation with Croft and the Applicant to go through the steps required for AGH to make a return of capital to its shareholders. Whilst accounts for the year had not yet been prepared, Croft was aware that the return of capital would have to be debited against the share capital account of AGH as there was no other account against which it could have been debited. [15] Shortly after that meeting I recall reviewing the documentation which had been prepared to give effect to the return of capital and the formation of the TCG [tax consolidated group]. I advised Croft that in my opinion the documents were in order. After that review I had no further involvement in the matter until I was contacted by Croft in about 2009 to assist him in dealing with an audit by the Respondent of the Applicant's tax affairs. (plaintiff's emphasis)"
At [2] Cardwell acknowledges that he was retained by, and provided services to, the plaintiff, and at [6] he acknowledges that he was aware the plaintiff was concerned to preserve the existing pre-CGT status of his shares.
At [10] Cardwell describes being approached about a return of capital in AGH (being the newly interposed company) and expressed surprise that ATS had not immediately paid a dividend to AGH. It appears that at this point, which is prior to the Payment being made, Cardwell knew that the interposition had occurred.
At [13] to [15] Cardwell suggests that he reviewed the documentation giving effect to the interposition and Payment and considered they were in order. The plaintiff says that this was a false narrative in light of the Cardwell Aff 27/2/19, at [34].

[22]

The new claims against Cardwell and Deloitte in the 2PFASC

The plaintiff has already pleaded a claim against his accounting and tax advisers for failure to exercise reasonable care and skill in advising on and implementing the interposition and Payment ("the negligence claim"). As I understand the defendants' submissions, their main complaint is that the negligence claim is statute barred and should be dismissed on that basis in this summary judgment application. For reasons given later in this judgment, it is not appropriate to resolve whether the negligence claim is statute barred on this summary judgment application.
On 27 February 2019, Cardwell served the Cardwell Aff 27/2/19 in these current proceedings. The foundation of the plaintiff's new claims for fraud and deceit in the P2FASC is found at [34] and [35] of this affidavit.
At [34] Cardwell admitted that in May 2004, upon reviewing documents sent to him by Croft, he realised that the interposition may not satisfy the requirements for rollover relief because, "Croft had not followed the requirements of the steps under the Act by not issuing shares to Willcocks and his father, Richard Willcocks as consideration for the cancellation of the shares in ATS".
Cardwell also deposes in Cardwell Aff 27/2/19 at [35], that shortly after reviewing those documents he telephoned Croft and said: "I've received the documents and looked over them. Willcocks may not be eligible for the CGT rollover relief. The last step is missing, there hasn't been a further issue of shares to Willcocks and his father in consideration of the redemption of the shares ("the missing step"). Also, there is only one beneficial shareholder in the Newco and so rollover may not be available."
In Crofts affidavit evidence in these current proceedings (Croft Aff 18/2/19 at [45]-[62]), served a few days before the Cardwell Aff 27/2/19, he paints a picture that is entirely at odds with being told those matters by Cardwell.
There are two options arising from the facts. They are: 1. Cardwell informed Croft of the problem with the interposition (the missing step) and Croft did not act on that advice; or 2. Cardwell did not inform Croft of, or otherwise act on, his realisation that the interposition had been carried out incorrectly and "may not" qualify for rollover relief.
It is the plaintiff's case against Cardwell and Deloitte that option (2) is correct. If summary judgment is not entered, the defendants may file a defence to contend option (1) is correct should the matter go to trial.
The core of the case that the plaintiff seeks run at trial against Cardwell (aside from the negligence claim) falls into two areas, the first being the 2004-2005 fraud and deceit claim, and the second being that from 2005 and in particular throughout the period of 2009 to 2014 Cardwell actively concealed his fraud.

[23]

The 2004-2005 fraud and deceit claim

The 2004-2005 fraud and deceit claim ("2004-2005 claim") relates to the period up to and including 30 June 2005 when the Payment was made and is pleaded at paragraph [54] of the 2PFASC as follows: 1. In May 2004, Cardwell had actual knowledge that the interposition "may not" have satisfied the requirements for rollover relief because shares in AGH had not been issued "to Willcocks and his father, Richard Willcocks as consideration for the cancellation of the shares in ATS" as per Cardwell Aff 27/2/19 at [34]; 2. Cardwell did not inform Croft of, or otherwise act on, his realisation, contrary to his assertion in Cardwell Aff 27/2/19, at [35]; 3. When approached in relation to the Payment in mid-2005, and knowing at least by that point that the interposition had occurred, Cardwell still did not reveal his knowledge and instead put forward a false - and by reason of (1) a knowingly false - series of steps by which the interposition had occurred in the 9 June 2005 email; 4. As a result of that deliberate choice, the Payment proceeded and the plaintiff lost the opportunity to remedy the interposition so as to retain the benefit of the pre-CGT status and to carry out a return of capital of $10 million at a later stage in a way which was not a dividend or deemed dividend; and 5. Cardwell actually appreciated, or was willfully blind or recklessly indifferent as to, the tax consequences of the Payment proceeding.
In regards to (4) above, the plaintiff relies on the expert evidence of Mr McGill, who provided a report following his review of Cardwell Aff 27/2/19. In the McGill Report 17/7/19 he opined that the Payment put an end to the opportunity which had existed to remedy the problem with the interposition. See: McGill Report 17/7/19 at [16]-[18] and [96]-[110]. Mr McGill's evidence is to the effect that had the plaintiff approached the Commissioner after the interposition was incorrectly carried out but before the Payment was made, there was a good likelihood that the Commissioner would have permitted problems with the interposition to be rectified (for example, by the issue of the further 48.7 million AGH shares under a deed making it clear that such issue was in consideration for the cancellation of the ATS shares held by the plaintiff and his father). In contrast, once the Payment occurred, Mr McGill considers that the Commissioner would have viewed the interposition as part of an attempt to obtain a tax benefit and would not have agreed to any proposal to remedy it.
The plaintiff's case is that had such a rectification attempt occurred and been accepted by the Commissioner, then the plaintiff's shares in AGH would be pre-CGT assets and AGH's share capital account would have been properly credited to the amount of $48.7 million. The plaintiff contends he could later have carried out the Payment in a way that did not trigger the anti-avoidance provision in s 45B of the Tax Act 1936.

[26]

Pleading Inadequacies in the 2PFASC

At the hearing the defendants addressed nearly every new paragraph contained in the FASC and 2PFASC. They criticised them as being not properly pleaded, and illogical, and then drew attention to alleged pleading defects. The defendants have set out in detail the pleadings of both the FASC and the PFASC, but as I understand it in oral argument the defendants only object to the negligence allegations on the basis that they are statute barred (T26.39-45). I do not intend to set out the same history of the facts as has already been set out at length earlier in this judgment, but it is sufficient to acknowledge that the defendants dispute the facts as set out by the plaintiff. I have identified where that occurs throughout this judgment. Disputed factual matters can only be determined at trial not on a summary judgment or strike out application. As such, I will focus on the defendants' main criticisms.
I emphasise that mainly the function of pleadings is to state, with sufficient clarity, the case that has to be met by the defendant. In this way, pleadings serve to define the issues for decision and ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her: Banque Commerciale SA En Liquidation v Akhill Holdings Ltd [1990] HCA 11; 169 CLR 279 at 286-287 and 302-3.
Rather than set out the defendants' arguments in relation to new allegations in the pleadings in the 2PAFSC, I shall confine this analysis to one illustrative example, but will deal with the defendants' other criticisms shortly.
A regular criticism is that the plaintiff had not properly pleaded "knowledge". The plaintiff pleads that Cardwell had "actual knowledge".
On the topic of knowledge, Senior Counsel for the defendants relied on Peter David and Ors v Halliday Financial Management Pty Ltd & Ors [2014] NSWSC 1371 ("Halliday") Senior Counsel for the plaintiff relied upon Banks v Alphatise Pty Ltd [2014] NSWSC 1437 ("Alphatise"). In Hailliday at [8], Kunc J quoted the paragraphs from the proposed amended statement of claim that pleaded that the third defendant had actual knowledge that the representations made to the first to sixth defendants were untrue and had actual knowledge that there was no reasonable basis to make that representation.
In Halliday, His Honour continued at [19]-[20]: "[19] On behalf of the plaintiffs, Mr Young submitted that the material fact, namely actual knowledge, had now been pleaded. He said that, as a matter of pleading, all that was required to be done had been done. This was not a case where any further material fact was required to be alleged to stand behind the fact which his client ultimately wished to prove at trial, namely the allegation of actual knowledge. [20] However, Mr Young went on to contend that if anything more was required that would be in the nature of the evidence. He said that the solicitor's affidavit had volunteered what that evidence would be, so that the defendants could be in no doubt as to the case which they would have to meet. Insofar as it was objected by the defendants that the paragraphs of the amended statement of claim would be difficult to plead to, Mr Young submitted that could not be the case. There was a plain allegation of fact, he said, of actual knowledge on the part of those defendants. It would be a simple and appropriate matter for them to respond by denying the allegation if that was to be their case."
In Alphatise at [7] and [17]-[20], Brereton JA stated: "[7] With great respect, but for the reasons that I will now elaborate, I am unable to agree that the facts from which it is contended that an inference of actual knowledge should be drawn are material facts that must be pleaded in a pleading. … [17] The reason for excluding actual knowledge from the requirement to plead or, in the first instance at least, particularly, the facts from which it will be inferred is, in my view, obvious. Generally speaking, actual knowledge or the state of the defendant's mind in that respect, is something that is primarily in the knowledge of the defendant. A defendant does not need particulars to know whether or not to admit actual knowledge. It might ultimately be proved by documents elicited in the course of discovery, or by admissions in cross-examination. It might be inferred from other matters, but they are all matters of evidence which inform the material fact of actual knowledge. [18] As I have said, to require one to plead facts from which actual knowledge is to be inferred would be contrary to the fundamental principle that one does not plead evidence, but only the material facts that constitute the cause of action. … [20] That is not to say that the Court might not order particulars, pursuant to UCPR r 15.15 of the facts from which an inference of actual knowledge was to be drawn. The rule makes clear that such particulars can be ordered, and the cases to which I have referred confirm as much, at least since the amendments to the rules after Burgess v Beethoven, but - as Kunc J said, there will be cases where the mere allegation of actual knowledge will be sufficient. In my view, it will always be sufficient as a matter of pleading, and it will often be so as a matter of particulars, because the defendant does not need particulars to admit or deny what was in his or her own mind. In this case, what is alleged is that the first defendant company did not have reasonable grounds for making a representation. It is further alleged that the second defendant Mr Pearson was the directing mind and will of the company at the relevant time, and that it was through him that the company acted. In those circumstances, it is not difficult to see how it is said that the defendant had actual knowledge of whether or not the company had reasonable grounds for making the representation."
My view accords with the decision of Brereton JA in Alphatise on the basis that actual knowledge, or the state of the defendant's mind, is something that is primarily in the knowledge of the defendants and they do not need particulars to know whether or not to plead actual knowledge. Their knowledge might ultimately be proven by documents elicited in the course of discovery or by admissions in cross examination, or inferred by other matters, but they are all matters of evidence which inform the material fact of actual knowledge. Therefore I reject the defendants' submission that the plaintiff has not properly pleaded knowledge.
After a careful reading of the allegations contained in the 2PFASC, I am satisfied that Cardwell and Deliotte know well the case they have to meet. They are in a position to be able to amend their defence to plead to the additional allegations. This submission fails.

[27]

The claims in the FASC

In respect of the claims in the FASC, the plaintiff relies on s 14 of the Limitation Act 1969 (NSW), and s 82 of the Trade Practices Act 1974 (Cth) ("Trade Practices Act"). They relevantly read: "14 General (1) An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims - (a) a cause of action founded on contract (including quasi contract) not being a cause of action founded on a deed, (b) a cause of action founded on tort, including a cause of action for damages for breach of statutory duty, …. 82 Actions for Damages (1) A person who suffers loss or damage by an act of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person. (2) An action under sub-section (1) may be commenced at any time within 3 years after the date on which the cause of action accrued."
The defendants submit that, pursuant to either of the above sections, the claims in the FASC are time barred.
In order to determine when time begins to run under a limitation statute for these types of claims, it may be necessary to focus upon the precise interest which is infringed by the impugned conduct. This concept was identified by Gaudron J in Hawkins v Clayton (1988) 164 CLR 539 at 600 where her Honour commented as follows: "The various and complex economic relationships which are a feature of present day economic organisation suggest that loss may manifest itself in various forms, and it is for this reason that there may be occasions where it is necessary to identify precisely the interest which has been infringed."
In Wardley Australia Ltd v the State of Western Australia (1992) 175 CLR 514 ("Wardley") the plurality, adopting Gaudron J's approach, stated: "Economic loss may take a variety of forms and, as Gaudron J noted in Hawkins v Clayton ((1988) 164 CLR 539 at 600-601), the answer to the question when a cause of action for negligence causing economic loss accrues may require consideration of the precise interest infringed by the negligent act or omission. The kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected (See Cane, Tort Law and Economic Interests (1991), pp 16-17). With economic loss, as with other forms of damage, there has to be some actual damage (Forster v Outred and Co [1982] 1 WLR at 94). Prospective loss is not enough."
The defendant refers to a passage in Peter Cane, Tort Law and Economic Interests, (1991, Oxford University Press), referred to in Wardley that has been relied upon for setting out the types of economic interests protected by the law of negligence, and it bears repeating (at pp 16-17): "There are at least four different types of economic loss or damage which may flow from interference with or invasion of economic interests. The first consists in reduction of (the value of) existing assets: for example, damage to physical property or the incurring of out-of-pocket expenses. Often the law compensates for such reduction in terms of the value of the affected assets; in the case of physical property, the law sometimes compensates in terms of the cost of restoring the assets to their former state. The second type of loss consists in the interruption of a stream of income which the plaintiff expected would continue uninterrupted: earnings or profits are the typical examples. Such loss may or may not be consequential upon physical damage to property The third type of economic loss consists in the failure to realize or obtain some increase in one's assets which was expected to materialize in the future: for example, failure to obtain an expected legacy under a will - this type of loss is often referred to as the loss of an expectation. The fourth type of 'loss' is only loosely so called because it consists in an accretion to the assets of the defendant."
When identifying the date at which a plaintiff first suffers 'any actual damage which is not negligible', the defendant says that the Court should not be distracted by the plaintiff's pleaded heads of damage. Rather the focus needs to be on the plaintiff's cause of action. This concept (and the rationale behind it) is helpfully explained by Leeming JA (sitting in common law) in Loulach Developments Pty Ltd v Roads and Maritime Services [2019] NSWSC 438 ("Loulach Developments") at [212]-[217]: "[212] First, the question posed by 14(1)(b) does not turn on the particular heads of damages a plaintiff claims or does not claim. It looks to the plaintiff's cause of action, and asks when that cause of action first accrues: D'Agostino v Anderson [2012] NSWCA 443 at [7] where Bathurst CJ collected earlier authorities. In Hawkins v Clayton (1988) 164 CLR 539 at 587; [1988] HCA 15, Deane J said that "A cause of action in negligence is complete when the damage caused by the breach of duty is sustained. It is at that time that, in the ordinary case, the cause of action 'first accrues"'. [213] Put differently, a plaintiff suing on a cause of action for which damage is the gist cannot escape the operation of the statute merely by declining to sue for heads of damage which have been suffered more than six years before commencement, and confining its claim to those heads of damage that were suffered within time... [217] I do not regard the High Court in Wardley as purporting to lay down as a rule that each type of "economic interest" reflects a distinct cause of action. To the contrary, damages in actions for negligence will not uncommonly include more than one category of the losses described by Professor Cane. The analysis required by s 14(1)(b) does not turn on the "interest" protected by the common law duty to take reasonable care. It turns upon when the cause of action first accrued. There can be no dispute that wasted expenditure (expenditure which would not have been incurred, which did not advance approval for the Desired Development) incurred in reliance on a negligent misrepresentation is a head of recoverable damages. Once a class of economic loss is recognised as being recoverable following a particular species of negligent act or omission, then the ordinary rules as to the accrual of a cause of action apply...."

[28]

The defendants' submissions

The causes of action against Cardwell/Deloitte in the FASC each had a 6 year period in which to commence proceedings, whether under s 14 of the Limitation Act or s 82 of the Trade Practices Act.
Pursuant to UCPR 6.28, proceedings against Cardwell/Deloitte were taken to have commenced on the date on which the order was made joining them to the proceedings (9 April 2018).
It must be uncontroversial that the contract claims against Cardwell/Deloitte pleaded in the FASC were time barred on 9 April 2018. The contractual breaches were said to have occurred on or around 15 September 2003 and 27 May 2005, and it is trite that a cause of action in contract first accrues upon breach. The contract claims require no further consideration.
The tort and the Trade Practices Act causes of action were similarly extinguished prior to 9 April 2018. To make good this point, the defendants submitted a number of propositions as to when time begins to run for pure economic loss claims.
First, a plaintiff cannot sue for damages in negligence until each element of duty, breach and damage is present. Ordinarily, it will be at the time that measurable damage caused by the breach first occurs that the cause of action accrues, irrespective of whether there is further damage: see Argyropoulos v Layton [2002] NSWCA 183 at [5] per Handley JA (with whom Hodgson JA agreed).
Secondly, absent reliance upon a special statutory provision, time may run for these types of claims before the plaintiff is aware or even could on reasonable enquiry have discovered that damage had been sustained: See Christie v Purves [2007] NSWCA 182 ("Christie") at [36] per Ipp JA (with whom Bezley and Campbell JJA agreed).
Thirdly, while prospective loss, alone, is not enough, a cause of action in negligence will accrue when the plaintiff first suffers any actual damage which is not negligible - even if most of the plaintiff's damages are prospective: See Christie at [40].
Fourthly, the principles applicable to negligence claims are also applicable to cases which seek damages for misleading or deceptive conduct under the Trade Practices Act: See Christie at [41].
Fifthly, in order to determine when time begins to run under a limitation statute for these types of claims, it may be necessary to focus upon the precise interest which is infringed by the impugned conduct.
Finally, when identifying the date at which a plaintiff first suffers 'any actual damage which is not negligible', the Court should not be distracted by the plaintiff's pleaded heads of damage. Rather the focus needs to be on the plaintiff's cause of action.
Application of these principles to the allegations against Cardwell/Deloitte in the FASC leads to the inexorable conclusion that both the negligence and Trade Practices Act claims were extinguished well before 9 April 2018.

[30]

Claim arising from the 27 May 2005 Conversation

If the plaintiff's claim pertaining to the 27 May 2005 Conversation is accepted in full, then the plaintiff effected a return of capital in other than a tax effective fashion. This gave rise to both: 1. the plaintiff incurring the costs and expenses associated with the ATO investigation and subsequent Federal Court proceedings; and 2. the obligation to pay the Commissioner $4,607,500 in income tax, plus penalties and interest.
Again taking the plaintiff's claim at its highest, he first started to incur measurable loss in either June 2009, when the plaintiff says that he retained Greenwood & Freehills for reward to perform work in responding to the ATO audit, or December 2009 when Cardwell sent an invoice to Croft which Croft sent to the plaintiff to pay, or July 2010 when Greenwood & Freehills performed substantial work for the plaintiff in responding to the audit, or even January/February 2011 when Greenwood & Freehills prepared a response to the ATO Audit Position paper for the plaintiff. As explained by the Court of Appeal in Christie at [59], in such a case the loss starts to accrue when the work was requested and performed and not when the plaintiff received or paid the relevant invoice.
Whilst the Commissioner issued the plaintiff with an amended assessment for FY05 on 16 August 2011 (which obliged the plaintiff to pay $4,607,500 in income tax, plus a $1,151,875 penalty by 9 September 2011, with interest continuing to accrue) by this date he had already suffered measurable loss.
It is irrelevant that in the FASC the plaintiff does not claim as a head of his damages the costs which he incurred in responding to the audit, for the reasons explained by Leeming J in Loulach Developments.
The effect of the matters set out above is: 1. on 9 April 2018 when leave was granted to join Cardwell/Deloitte to the proceeding the claims pleaded against Cardwell/Deloitte in the FASC were time barred under s 14 of the Limitation Act and extinguished by operation of s 82 of the Trade Practices Act; 2. the FASC ought be summarily dismissed; and 3. the plaintiff's application to amend by filing the P2FASC does not fall to be considered under s 65 of the Civil Procedure Act 2005 (NSW) ("Civil Procedure Act"). This is because s 65 applies to amendments sought to be made to proceedings commenced "before the expiration of the relevant limitation period". These are amendments sought to be made to a proceeding which was in fact commenced after the expiration of the relevant limitation period. The plaintiff's application needs to be considered by reference to the Court's power in s 64 of the Civil Procedure Act.

[31]

Interposition - CGT

Cardwell and Deloitte contend that the plaintiff necessarily first suffered loss in relation to the interposition when that transaction occurred because it is "uncontroversial that the loss of this status [pre-CGT status] reduces the value of the plaintiff's asset": defendants' submissions, [51(a)]. This proposition is disputed by the plaintiff. According to Cardwell and Deloitte, the loss is not a prospective or contingent one. This proposition is also disputed by the plaintiff.
Contrary to the submission put by Cardwell/Deloitte, the above propositions are not "uncontroversial". The label "pre-CGT status" is a convenient short hand, but it is apt to mislead in this context. What is meant by the label is that because the asset was acquired or created before a certain date, the CGT regime does not generally apply to transactions involving that asset. There is no impairment or alteration of the asset itself or any proprietary rights in it. The question of when the plaintiff suffered economic loss by reason of the interposition not satisfying the requirements for rollover relief is attended by some complexity. First, it is only upon the occurrence of a CGT event that the statutory provisions are engaged. Secondly, even if there is a CGT event, capital gains tax is only payable if and to the extent that the value of the asset at that time exceeds its cost base in respect of the relevant CGT event. It is simply not correct to say that immediately upon the interposition, the plaintiff's asset was worth less than it had been (defendants' submissions , [521]).
The plaintiff has served the McGill Report 17/7/19 which addresses the current value of AGH and of the AGH shares. Cardwell and Deloitte have not responded. Accordingly, it cannot be said that there is no dispute even as to the current value of the AGH shares, let alone when the value of the AGH shares exceeded the cost base allocated under the settlement of the Federal Court proceedings. It follows that there is no "uncontroversial" position as to when the value of the plaintiff's AGH shares exceeded the cost base and therefore no "uncontroversial" position that a disposition of those shares more than 6 years ago would necessarily have triggered capital gains tax.
The plaintiff has not yet put on his lay evidence addressing the counterfactual and the quantification of his claim for economic loss. It is anticipated that the evidence the plaintiff will give will include: 1. The plaintiff's intention was to hold his shares in ATS (and subsequently AGH) at least until he retired, after which time he would decide either to sell his shares or continue to hold them in a passive role; 2. The plaintiff had no intention of retiring before 65 years of age (which he reached on 7 February 2018); 3. Had he been properly advised as pleaded, he would have not carried out the interposition unless the problem was fixed or alternatively taken advice about correcting the interposition and followed that advice; 4. In the period since turning 65, the plaintiff has given consideration to whether to sell his AGH shares and has, to date, decided against doing so. One of the factors which the plaintiff has taken into account is that following the settlement of the Federal Court proceedings in 2014, the AGH shares are now CGT assets with a cost base, such that a sale would attract substantial capital gains tax.
Depending on whether and to what extent that evidence is accepted, there are a number of ways in which questions of what economic interest was infringed and when loss was first suffered might be answered.
First, it might be concluded that the position is similar to that considered in Commonwealth v Cornwell (2007) 229 CLR 519, namely that the plaintiff's loss is the lesser benefit which he would obtain on his retirement, being the difference between disposal at that time of his ownership of AGH/ATS with and without attracting capital gains tax.
Secondly, it might be concluded that the plaintiff has lost a valuable opportunity to dispose of his shares upon retirement without attracting capital gains tax, which opportunity first arose on 7 February 2018.
Thirdly, it may emerge at trial that but for the breaches of duty and misleading conduct alleged, there was a chance that plaintiff may have acted earlier to dispose of his shares. If so, further questions will arise, including whether that chance was sufficiently concrete and whether the value of the shares at that time exceeded the cost base, such that there was in truth a valuable opportunity that was lost.
In this respect, it is important to keep in mind that there is a significant difference between loss of a chance and chance of a loss: see Segal v Fleming [2002] NSWCA 42 at [24] per Howie J. The former, if it is has commercial value, is actual damage; the latter is prospective loss only.
A fourth possibility is that the Court may find that no measurable loss has been suffered by the plaintiff in respect of the interposition because (assuming it remains the case) he has not sold his shares so as to crystallise the loss.
The resolution of which of these possibilities is correct should be left to final hearing, rather than determined on this application.
A final point should be made regarding the interposition claims. The plaintiff's case is that the flaw in the interposition was directly linked to the Payment being taxable as a dividend. Cardwell and Deloitte have not admitted that contention. It is currently a matter to be determined at hearing. Accordingly, at trial it is possible that the Court could find that Cardwell breached his duties or engaged in misleading conduct in relation to the interposition as alleged, but that this had no consequences for the Payment. Accordingly, the Court cannot conclude on this application that loss was suffered in relation to the (non-fraud) interposition breaches at the same time as loss was suffered in respect of the Payment.

[32]

Payment - loss by reason of subsequent work done

Cardwell and Deloitte submit that loss was suffered in relation to the breaches of duty regarding the Payment in the form of a liability to Cardwell for the work done commencing 2009 in responding to the ATO audit: defendants' submissions, [55].
Four points should be made in response. First, the plaintiff does not claim those costs. It is one thing to conclude at a final hearing, as Leeming JA did in Loulach at [212]-[217], that there must inevitably have been wasted costs by reason of a particular representation, such that a limitation period was engaged. It is another to seek to apply such reasoning on a summary dismissal basis. For one thing, it would be inappropriate to have a mini-trial on this application to determine if and when costs were incurred which exceeded what would have been incurred had Cardwell acted differently and not breached his duties. Further, a statement by a single Judge at first instance does not constitute a proposition of law sufficiently established to be applied to dismiss summarily a cause of action for breach of limitation periods.
Secondly, the plaintiff alleges that this cause of action was fraudulently concealed. Accordingly, the cause of action cannot be dismissed or struck out at this point even if the Court were to consider that it was otherwise statute barred.
Thirdly, the work done by Cardwell from 2009 to 2014 itself is the subject of claims by the plaintiff for failing to disclose Cardwell's knowledge of the problems with the interposition and Payment (P2FASC, [40A]-[46D], [52A] and [55]). It is almost perverse to contend that the liability to pay fees in respect of work done by Cardwell which the plaintiff says continued the deceit and/or fraudulent concealment, and was itself negligent or misleading, is necessarily the suffering of loss in respect of the earlier payment breaches so as to render those earlier breaches statute barred without substantive hearing.
Fourthly, the plaintiff's claims in respect of the period 2009 to 2014 are for continuing breaches of duty (as distinct from a once and for all breach: see Larking v Great Western (Nepean) Gravel Ltd (in liq) [1940] HCA 37; 64 CLR 221. Accordingly, limitation periods in respect of those claims did not necessarily expire until mid-2020, well after the plaintiff commenced proceedings against Cardwell and Deloitte and filed his notice of motion to amend.

[33]

Loss by reason of the issue of the amended assessment

Cardwell and Deloitte also submit in respect of the Payment that loss was necessarily suffered for limitation purposes when the amended assessment was issued on 11 August 2011: defendants' submissions [56].
That is certainly one possibility. As a general proposition, the issue of an amended assessment creates a debt, and the Commissioner is permitted to enforce that debt. However, Pt IVC of the Taxation Administration Act 1953 (Cth) creates a parallel regime for challenging the validity of the assessment issued. That regime was enlivened by the plaintiff and the Commissioner took no steps to enforce the amended assessments prior to the resolution of that process. During the Federal Court hearing to determine the validity of the amended assessments, the plaintiff and Commissioner reached a settlement. It was that event which created the liability which the plaintiff ultimately paid in 2014.
The question is whether loss was suffered at an earlier stage by reason of the issue of the amended assessment notwithstanding the challenge under Pt IVC.
The plaintiff is not aware of any case on point which has considered facts close to, or on all fours with, the present where the taxpayer initiated, and then prosecuted, Pt IVC proceedings to dispute the amended assessment. Further, the ATO did not seek to enforce the amended assessment as a debt during the pendency of the Pt IVC proceedings. The evidence is presently silent as to whether the Commissioner and the taxpayer entered into an agreed deferment of a Payment under s 255-10 of the Tax Act 1997, or agreed to a stay of enforcement of the amended assessment, whether formally or informally: see Hall v Poolman (2007) 65 ACSR 123 at [109]; see also Clifton v Keyy J Investments Pty Ltd tlas Clenergy [2020] FCAFC 5; 379 ALR 593 at [533].
In Pech v Tilgals (1994) 94 ATC 4206, there was no challenge to the amended assessment under the regime prescribed by Pt IVC. In BCI Finances Pty Ltd (in liq) v Binetter (No 4) (2016) 117 ACSR 18, Gleeson J accepted that loss was suffered upon the issue of revised assessments (at [332] and [336]). Later in the judgment, her Honour referred to the fact that Pt IVC challenges to the revised assessments had been made but later withdrawn (at [445]-[449]). Her Honour did not consider the operation of Pt IVC in relation to the question of when loss was suffered for limitation purposes or the relevance of the fact that the Pt IVC proceedings were withdrawn. Here, as indicated above, the Pt IVC proceedings were settled and it was that contractual settlement which gave rise to the liability which the plaintiff paid.
In accordance with Wardley, these issues should be determined at final hearing and not on this application.
Further, the plaintiff alleges that this cause of action was fraudulently concealed. Accordingly, it cannot be struck out at this point even if the Court were to consider that it was otherwise statute barred.

[35]

The new claims in the P2FASC

In regards to the new claims in the P2FASC the plaintiff relies on s 55 of the Limitation Act which relevantly reads: "55 Fraud and deceit (1) Subject to subsection (3) where - (a) there is a cause of action based on fraud or deceit, or (b) a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed, the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment. (2) Subsection (1) has effect whether the limitation period for the cause of action would, but for this section, expire before or after the date mentioned in that subsection. (3) For the purposes of subsection (1), a person is answerable for fraud deceit or concealment if, but only if - (a) the person is a party to the fraud deceit or concealment, …"
The two distinct branches of s 55(1) were described by Bryson JA in Lee v Travers [2009] NSWSC 398 at [43]: "It will be seen that there are two distinct branches in s 55. The branch traced through clause 55(1)(a) relates to a cause of action based on fraud or deceit, and concealment or fraudulent concealment is not an element of it. In this branch time begins to run when the person having the cause of action first discovers the fraud or deceit, or may with reasonable diligence first discover the fraud or deceit. In the second branch, which applies to any cause of action, including a cause of action based on fraud or deceit, where the cause of action is fraudulently concealed, the running of the time bar is postponed until the person having the cause of action first discovers or might with reasonable diligence discover the concealment.
Accordingly, each branch of s 55(1) raises its own considerations.
McLelland J (as His Honour then was) considered s 55 in Hamilton v Kaljo (1987) 17 NSWLR 381 ("Hamilton"). His Honour held that the expression "fraudulently" in s 55(1)(b) applied to conduct involving some form of dishonesty or moral turpitude. In Blazai Pty Ltd & Ors v John Palasty [2009] NSWSC 50 at [57], Smart AJ held that "[a] corresponding meaning should be applied to the word ''fraud" in s 55(1)(a)".
The Court of Appeal in Seymour v Seymour (1996) 40 NSWLR 358 ("Seymour") applied Hamilton. Mahoney ACJ (Meagher JA and Abadee AJA agreeing) at 371-2 expanded upon McLelland J's observations as follows: "In my opinion, the section is not confined to simple common law fraud. It extends to conduct beyond that. On the other hand, it is not, I think, sufficient merely that for the defendant to take advantage of the statute of limitations would be unconscionable or inequitable in the wide sense of these terms. Terms such as unconscionable or inequitable now are used to describe conduct which, in previous times, would not have fallen within them... Nor, in my opinion, is 'fraudulently' wide enough to include everything which would fall within the description of 'equitable fraud'. In my opinion, there must be in what is involved a consciousness that what is being done is wrong or that to take advantage of the relevant situation involves wrongdoing. At least, this is so in the generality of cases. (There is in this as in many things, the problem of dealing with the person who "closes his eyes to wrong" or is so lacking in conscience that he is not conscious of his own lack of proper standards.)"
Relevantly, Simpson J in Ag-Exports (Australia) Pty Ltd & Anor v Export Finance and Insurance Corporation [2003] NSWSC 175 at [69]-[70] explained as follows: "Just what the legislature intended by its reference in s 55 to the fraudulent concealment of a cause of action is not spelled out in the statute. I accept that a distinction is to be drawn between concealment of a cause of action and concealment of a fact which might provide evidence to support a cause of action. I do not accept that the two are necessarily mutually exclusive: indeed, it seems to me, concealment of a cause of action would almost invariably, if not invariably, entail concealment of facts that would provide evidence to support the cause of acti on. The converse is, of course, not necessarily the case. Concealment of an evidentiary fact is not necessarily concealment of a cause of action."
A person can be said to have relevantly discovered a fraud if they know the facts capable of proving a prima facie case. As Wigney J held in Clurname Pty Limited v McGraw-Hill Financial, Inc [2017] FCA 1319 at [78]-[79]: "[78] ... It would follow that it can be concluded that a person should, with reasonable diligence, have discovered a fraud if the person would have discovered facts capable of proving a prima facie case if they had exercised reasonable diligence. [79] What reasonable diligence would require must be evaluated by reference to the particular facts and circumstances of the case. Ordinarily, before a person could reasonably be expected to pursue an inquiry with a view to ascertaining whether a fraud has been perpetrated, something must have put the person on notice, or raised a suspicion, in respect of that matter : CE Heath Underwriting & Insurance (Australia) Pty Ltd v Daraway Constructions Pty Ltd (unreported, Supreme Court of Victoria, Batt J, 3 August 1995) at 121-2; Clark v Clark [1882) ViclawRp 39; (1882) 8 VLR (E) 303 at 328. Even then, the person might not reasonably be expected to do everything possible using all means at their disposal: Peco Arts Inc v Hazlitt Gallery Ltd [1983) 1 WLR 1315 at 1322-3. The type of enquiry that might be expected must be assessed having regard to how a person carrying on a business of the relevant kind would act if they had "adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency": Paragon Finance pie v DB Thakerar & Co [1998) EWCA Civ 1249; [1999) 1 All ER 400 at 418. And the enquiry that might be expected must be one that, if made, would have led to the discovery of the facts revealing the fraud: CE Heath at 121-2.

[41]

The contents of [34] in Cardwell Aff 27/2/19

Immediately after Cardwell formed the view described at [34] of Cardwell Aff 27/2/19, Cardwell spoke to Croft, who was plaintiff's agent. Cardwell's disclosure to Croft was a disclosure to the plaintiff.
From at least 19 April 2013, the plaintiff had the 5 May 2004 Filenote, which was Cardwell's record of the disclosure to Croft. From at least that date, the plaintiff, with reasonable diligence, could have learned about Cardwell's concern about the interposition documents.
Cardwell/Deloitte's defence, filed on 2 July 2018, says at [30A] that on 5 May 2004, Cardwell telephoned Croft to discuss the documents attached to the 27 April 2005 Letter and "noted that there was a risk that rollover relief was not available". No particulars or detail of that statement were ever sought.
As recognised by Mr Moloney in 2014, part of the Federal Court Proceedings concerned the very same question addressed in [34] of Cardwell Aff 27/2/19 - i.e. whether rollover relief was available because amongst other things the plaintiff and his father had not received their AGH shares in return for the cancellation of their ATS shares. The very realisation which Cardwell averted to in [34] of Cardwell Aff 27/2/19 was directly addressed in submissions in the Federal Court by the plaintiff's counsel.
There can be no doubt that the plaintiff had all of the information relevant to the contents of [34] of Cardwell Aff 27/2/19. Moreover, the Court could be comfortably satisfied that a solicitor acting with even less than reasonable diligence who had asked Cardwell a simple question, would have been told about his internal thoughts. After all, Cardwell assisted the plaintiff with the audit and the Federal Court proceedings from 2009 to 2014. He spoke to the plaintiff's solicitors and prepared an affidavit for the Federal Court proceedings. There is simply no evidence that Cardwell concealed the existence of a concern that the plaintiff may not have been eligible for rollover relief.

[43]

Assessment of reasonable discoverability

The only two aspects of the 6 documents (at [117] of this Judgment) which could potentially suggest that Cardwell was actually aware, prior to 30 June 2005, that rollover relief "may not" be available because the shares in AGH had not been issued "to Willcocks and his father, Richard Willcocks as consideration for the cancellation of the shares in ATS" are: 1. Point 2 of the 5 May 2005 Filenote; and 2. The Legislation Extract with Ticks and Cross.
The other documents are either neutral or, in the case of the 9 June Email and Cardwell's brief to advise and affidavit in the Federal Court proceedings, positively suggest no awareness of the problem.
Even taken in isolation, the above two documents are not "capable of proving a prima facie case" of fraud against Cardwell. In the language of the statute, the Court could not conclude on this application that the fraud, deceit or concealment which the defendants allege was reasonably discoverable upon obtaining and reviewing those two documents. They are simply too opaque for that. Their character is rather that when read in light of the admission in the Cardwell Aff 27/2/19, the documents tend to corroborate the admission and ultimately the fraud, deceit or concealment alleged.
Further, the two documents cannot be assessed in isolation. They must be must be assessed in light of the context and circumstances as a whole that existed when the documents were available to the possession of the plaintiff.
The 5 May 2005 Filenote was first obtained in about April 2013 as part of the documents produced on subpoena in the Federal Court proceedings by Deloitte (CB. Vol 6, p 4646). It does not appear to have been produced by Cardwell under his subpoena in the Federal Court proceedings.
The Legislation Extract with Ticks and Cross and the 9 June 2005 Email were also first obtained by the plaintiff in about April 2013 (along with the 27 April Letter and the 27 May Email, via various subpoenas issued to Cardwell and/or Deloitte (Moloney Aff 14/10/20 at [49]).
The following points are to be made. First, the Legislation Extract with Ticks and Cross: 1. Was not in the documents produced by Deloitte on subpoena in the Federal Court proceedings in about April 2013. The version of the 9 June Email in those documents had an attachments line which suggests that the Legislation Extract with Ticks and Cross was not an annexure to that email (Moloney Aff 14/10/20 at 49(1)); 2. Was in the documents produced by Cardwell on subpoena in the Federal Court proceedings in about April 2013 and immediately followed a version of 9 June email which had no attachments line (Moloney Aff 14/10/20 at 49(2)); 3. Was not in the documents discovered by the plaintiff in the Federal Court proceedings (Moloney Aff 14/10/20 at 49(3)).
The only evidence that suggests that the Legislation Extract with Ticks and Cross was an attachment to the 9 June 2005 Email (notwithstanding the absence of any reference to it in the attachments line of the version produced by Deloitte) is in the verified discovery lists given by Croft and Cardwell in these proceedings in September and October 2018: McGregor Aff 17/3/20 at [44]-[46].
In other words, it was only from about September or October 2018, when Cardwell took ownership of the Legislation Extract with Ticks and Cross, that there existed an evidential foundation to conclude that Cardwell had applied the handwritten cross.
A reasonable reader of the Legislation Extract with Ticks and Cross and 5 May 2004 Filenote in light of the 9 June 2005 Email would conclude that, whatever was the reference to consideration at point 2 of the 5 May 2004 Filenote and whatever the presence of both a handwritten cross and handwritten tick adjacent to s124-370(e) of the Tax Act 1997 may suggest, by 9 June 2005, Cardwell had no issues with how the interposition was implemented. If such a reasonable reader noticed the handwritten cross on the Legislation Extract with Ticks and Cross, he or she would not necessarily conclude it was made by Cardwell, much less that it conveyed a state of mind wholly at odds with the text of the 9 June 2005 Email itself.
The reasonable reader of those documents would also consider them in light of Cardwell's affidavit in the Federal Court proceedings affirmed on March 2013, which reveals apparent satisfaction on the part of Cardwell with the implementation of the interposition.
Ultimately, whether the above submissions are accepted, and indeed, whether the Legislation Extract with Ticks and Cross even was an annexure to the 9 June 2005 Email, are matters to be explored at trial. What matters for present purposes is that the Court cannot conclude on these interlocutory applications that the limitation period for the fraud claims has necessarily expired.
Cardwell and Deloitte submit that there is no explanation from Mr Moloney as to why the 9 June 2005 Email was not included in the Cardwell Federal Court Aff, or why he appears not to have asked Cardwell any questions about its contents: defendants' submissions, [147]. The question of why a document was not included in Cardwell's affidavit is more appropriately directed at the deponent; it was his affidavit after all. In relation to whether, and if so why, Mr Moloney did not ask Cardwell questions about the contents of the email, these are matters for final hearing. The prospect of questioning of witnesses in crossexamination in respect of disputed questions of fact along those lines highlights that triable issues are in play.
Even if the Court were to conclude that review of the 5 May 2004 Filenote and Legislation Extract with Ticks and Cross would have resulted in a reasonable person discovering Cardwell's fraud (which the plaintiff does not accept), the result would be that time began to run from about April 2013. Cardwell and Deloitte were joined to the proceedings in April 2018, only 5 years after time began to run. If the new amendments arise from the same or substantially the same facts as claims brought within time, then under s 65 of the Civil Procedure Act, unless the Court orders otherwise, the amendments will take effect from the date of commencement of the proceedings against Cardwell and Deloitte (April 2018). Whether or not there are existing claims within time and whether or not the amendments arise from substantially the same facts are matters of some complexity which are appropriately dealt with at trial.

[44]

Fraudulent concealment

As the phrase "fraudulently concealed" indicates, in order for a limitation period to be suspended on this basis, it is necessary to establish that a cause of action is concealed in circumstances where there is a consciousness that what is being done is wrong or that to take advantage of the situation would involve wrongdoing: Seymour at 372; Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435 ("Auzhair Supplies") at [75]- [76].
Thus, a case may fall into one of at least three categories: no concealment of the cause of action, concealment which does not involve dishonesty in the relevant sense and "fraudulent concealment": see Anthony v Morton [2018] NSWSC 1884 ("Morton") at [677]-[698] per Ward CJ in Eq.
A further issue may arise as to whether fraud after the limitation period has otherwise begun to run will suspend the running of time: Ward CJ in Eq raised this issue but did not decide the issue in Morton at [699] [706].
Here, there is some novelty to the issue of fraudulent concealment. Obviously, Cardwell did not conceal the facts which lead to the interposition not satisfying the requirements for rollover relief and the Payment attracting income tax. This is because an ASIC search or examination of the share register would reveal that further shares (beyond the original 10 shares issued for $1 each) were never issued in AGH such that the interposition did not satisfy the rollover requirements and there was an insufficient amount credited to AGH's share capital account to permit the debiting of the amount of the Payment. One might infer from that fact that negligence was involved in advising on and implementing those transactions and, depending on what Cardwell's role was, that it was his negligence.
However, the case which now emerges as a result of Cardwell Aff 27/2/19 at [34] is that Cardwell actually knew of the problem with the interposition prior to the Payment occurring. Mr McGill gives evidence as to the steps which a competent tax adviser ought to have taken in that situation: McGill Report 17/6/19, [96]-[145]. Cardwell did not take those steps. The plaintiff says that it was this negligence that was concealed by Cardwell not disclosing his knowledge to the plaintiff in the circumstances.
The fact that a more generic claim for negligence was discoverable (and indeed brought in the initial pleading against Cardwell and Deloitte) does not preclude the prospect of concealment of the claims now sought to be brought. Whether causes of action were concealed, and concealed fraudulently, is a matter for trial.

[46]

Resolution

It is arguable that it was only in September or October 2019, when Cardwell took ownership of the Legislation extract with the Ticks and Cross, that there was evidentiary foundation to allegedly conclude that Cardwell had applied the handwritten cross.
It is certainly not a foregone conclusion that being in possession of the documents to which the defendants refer, the plaintiff himself, of by extension of his agent Croft (if he is to be so regarded), was in possession of factual evidence which would have enabled him to prove a prima facie case of fraud if he had exercised reasonable diligence. The question of what information, if any, may have put the plaintiff on notice, or raised a suspicion of fraud is also not obvious.
Hence it is arguable that time under the Limitation Act began to run from October 2018, at the latest. These proceedings were commenced on 8 February 2017.
The elements in a deceit claim are sufficiently identified for present purposes in the following passages from the judgment of Gleeson CJ in Magill v Magill (2006) 226 CLR 551 at [37]-[38]: "[37] The elements of the tort of deceit were stated by Viscount Maugham, in Bradford Third Equitable Benefit Building Society v Borders as follows (omitting his Lordship's citation of authority): [38] First, there must be a representation of fact made by words, or, it may be, by conduct. The phrase will include a case where the defendant has manifestly approved and adopted a representation made by some third person. On the other hand, mere silence, however morally wrong, will not support an action of deceit. Secondly, the representation must be made with a knowledge that it is false. It must be wilfully false, or at least made in the absence of any genuine belief that it is true. Thirdly, it must be made with the intention that it should be acted upon by the plaintiff, or by a class of persons which will include the plaintiff, in the manner which resulted in damage to him. If, however, fraud be established, it is immaterial that there was no intention to cheat or injure the person to whom the false statement was made. Fourthly, it must be proved that the plaintiff has acted upon the false statement and has sustained damage by so doing."
His Lordship's reference to "mere silence" contemplates, by way of contrast, the possibility of a case where there is a legal or equitable duty to speak and disclose the true facts.
The questions for hearing will include whether by his conduct, including sending the 9 June 2005 email and "assisting" in relation to the audit and subsequent Federal Court proceedings, and otherwise remaining silent, Cardwell made representations about the interposition which were false, to the knowledge (actual of constructive) of Cardwell and with the intention that the representations be relied upon by the plaintiff. Once again, each of those matters, are triable issues for determination at the final hearing.
Something should be said here about the position of Deloitte. Cardwell was employed by Deloitte up to May 2007. Whether Deloitte can be made liable for the conduct of Cardwell for the pre-2005 fraud case will depend on the application of principles of vicarious liability and engagement in conduct by a corporation.
In relation to the post-2005 fraud case, by the time he prepared the brief to Counsel in 2012 and swore his affidavit in the Federal Court proceedings in 2013, Cardwell no longer worked for Deloitte. It is unlikely that Deloitte would be liable for those actions per se. However, the plaintiff's case is broader than that. The plaintiff's post-2005 case starts from 30 June 2005. There is a triable case that Deloitte had Cardwell's knowledge on and from that date. The plaintiff says that in those circumstances Deloitte was under an ongoing duty to warn the plaintiff of the problems with the interposition and Payment and that Cardwell/Deloitte knew of those problems prior to the Payment occurring. Whether such a duty was imposed and, if so, for how long it continued after 30 June 2005 are matters for trial.
At trial the plaintiff has indicated that he will rely on s 65 of the Civil Procedure Act which states that at any time after the expiration of the relevant limitation period, the plaintiff in any such proceedings may, with the leave of the Court under s 64(1)(b), amend the originating process so far as to add or substitute a new cause of action, together with a claim for relief on the new cause of action, being a new cause of action that, in the court's opinion, arises from the same (or substantially the same) facts as those giving rise to an existing cause of action and claim for relief set out in the originating process.
The plaintiff will argue that the new amendments arise out of the same or substantially the same facts as the claims brought in time, so the amendments will take effect from the date of the commencement of proceedings.
If the plaintiff's version of events are accepted at trial and s 65 of the Civil Procedure Act is found to be applicable, the proceedings are filed within time.
The defendants submitted that s 65 of the Civil Procedure Act is not applicable, and rather the correct section is s 64 of the Civil Procedure Act as the limitation periods of the pleaded claims have expired. If this is accepted at trial, then the date of commencement of the proceedings, will be, subject to section 65, taken to be the date on which the amendment is made: s64(3) of the Civil Procedure Act.
The question of the date from which the amendments are to take effect is not for resolution on application for summary dismissal and should be reserved to trial.

[48]

Agency

The defendants allege, as part of their argument about when the alleged fraud/fraudulent concealment was discoverable, that Croft was the plaintiff's agent so his knowledge is imputed to the plaintiff. Both parties made submissions on this point.
There is a presumption that knowledge of an agent is imputed to the principal as actual knowledge where there is a legal duty on the agent to disclose information to the principal. Such a duty exists in respect of information gained by the agent "in the course of, and which is material to, a transaction in which the agent is employed on behalf of the principal".
The scope of an agent's actual or ostensible authority will dictate what knowledge is imputed to the principal. The point was put in this way by Robb J in Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868 at [722]: "Where, during a transaction in which an agent is acting for its principal, the agent acquires knowledge of any fact material to the transaction in circumstances where it is the agent's duty to communicate its knowledge to the principal, the agent's knowledge is imputed to the principal: see Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 70 ACSR 1 at [6186]-[6194]; Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40 at 658-659; Beach Petroleum NL v Johnson (1993) 43 FCR 1 at 24-26, 31-32; Brockway v Pando (2000) 22 WAR 405; [2000] WASCA 192 at [62]; and Smits v Roach (2004) 60 NSWLR 711; [2004] NSWCA 233 at [40]-[43]."
As to circumstances in which an agent acts fraudulently in furtherance of their own interests, the comments of Spigelman CJ, Sheller and Stein JJA in Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 ("Beach Petroleum") at [473] are pertinent: "[473] Beach did not submit that its directors acted outside the scope of their actual or apparent authority when dealing with Abbott Tout. Acts of agents within the scope of their actual or apparent authority do not cease to bind the principal merely because the agents were acting fraudulently and in furtherance of their own interests: see Bowstead and Reynolds on Agency, 16th ed, Sweet & Maxwell, London, art 76 at 402. Beach relied upon decisions such as Re Hampshire Land Co [1896] 2 Ch 743, J C Houghton & Co Pty Ltd v Nothard, Lowe & Wills Ltd [1928] AC 1 and Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] 1 Ch 250 for the proposition that where directors of a company are acting in total fraud of the company their knowledge is not to be imputed to the company."
In Beach Petroleum the plaintiff company alleged that its solicitors, Abbott Tout had, breached their fiduciary duties, their retainer, and had been negligent. The claims arose in the context of a scheme devised by some of the plaintiff's directors to benefit other members of the corporate group at the expense of the plaintiff. An issue that arose, and led to the paragraph quoted above, was whether the plaintiff gave fully informed consent to Abbott Tout acting for other members of the corporate group in circumstances where a conflict might emerge. The question was whether fully informed consent could be inferred from the knowledge of the directors (imputed to the plaintiff), notwithstanding the fact that the directors were engaged in breaches of their duties. The Court considered at [476] that "[t]he position of conflict of duty and duty on the part of Abbott Tout was not so integral a part of the fraud being perpetrated by the directors, as to suggest that the company ought not be bound by their conduct in this respect." The Court noted that Abbott Tout had no knowledge of the fraud (see [477]).
In respect of third parties relying upon the apparent authority of a fraudulent agent, in Mercedes-Benz (NSW) Pty Ltd v ANZ (unreported, NSWSC, 5 May 1992) Palmer J observed that: "If a third party relies innocently on a fraudulent agent's apparent authority but in the course of the transaction breaches a tortious duty of care to the principal, or commits a breach of contract, which permits the fraud of the agent to succeed then the principal's remedy against the third party lies in tort or in contract for damages. He is not in those circumstances entitled to avoid the loss simply by denying the agent's authority to bind him. If the third party seeks to claim against the principal in reliance upon the agent's apparent authority to bind the principal, the principal's only response is a cross claim in tort or contract. However, if the third party has relied innocently upon the agent's apparent authority and has unwittingly facilitated the fraudulent transaction without breach of a tortious or contractual duty to the principal, then the loss must lie with the principal. There is no reason of policy which favours the innocent principal at the expense of the innocent third party."

[50]

The plaintiff's submissions

The defendants submit that the knowledge of Croft, as the plaintiff's agent, is to be attributed to the plaintiff and that therefore Croft's knowledge of the conversation "recorded in" the 5 May 2004 Filenote, the 27 May 2005 Email, and the 9 June 2005 Email should be attributed to the plaintiff.
First, Cardwell and Deloitte mischaracterise those documents and make assertions as to what are in truth at best triable issues. Taking each document in turn: 1. It is not Cardwell's evidence that the 5 May 2004 Filenote records a conversation he had with Croft: Cardwell Aff 27/2/19 at [33]. The Filenote in terms records "Review Rollover Docs + Trust Deeds". Moreover the 5 May 2004 Filenote is oblique at best. At hearing, there will be a contest between Cardwell and Croft as to whether the conversation asserted at [35] of the Cardwell Aff 27/2/19 occurred. The defendants cannot simply assert that it occurred; 2. The 27 May 2005 Email asks for Cardwell's review of the documents that effected the interposition. It demonstrates that Croft had a concern, but that concern was misplaced; 3. The plaintiff says that the 9 June 2005 Email concealed the true state of Cardwell's knowledge and was in fact a part of the fraud. Again whether that contention is accepted is a matter for final hearing.
Secondly, even if Croft had certain knowledge, there will be an issue at trial as to the extent to which that knowledge is to be imputed to the plaintiff. The statement that there is "no reason for the Court to act contrary to the presumption" that Croft's knowledge of the three documents is to be imputed to the plaintiff is a non-sequitur and bare assertion.
The plaintiff does not allege conduct by Croft in 2004 that would engage the "fraud exception" because the assertion made in DS [154] has not yet been pleaded by the defendants. If and when it is, the plaintiff will respond. The plaintiff disputes the propositions of fact which Cardwell/Deloitte contend in their submissions at [154]). They are matters for trial. There is no proper basis for the assumption made by Cardwell/Deloitte that each of the disputes matters of fact at defendant's submissions at [154] would be determined favourably to them.

[52]

General retainer

It appears that this retainer is said to have remained on foot until late 2014 when the Federal Court proceedings settled.
The plaintiff's primary case in the P2FASC thus rests on the contention that each of Cardwell and Deloitte: 1. owed the plaintiff ongoing obligations in tort and contract from 2003 until the latter part of 2014; 2. acted negligently and in breach of contract both during 2003 and 2005 (which is consistent with the allegations in the FASC) and engaged in additional acts of neglect in 2004 and again between 2005 and 2014; and 3. between 2005 and 2014, intentionally made implied fraudulent representations to the plaintiff by silence. These allegations are made in order to trigger s 55 of the Limitation Act.
There are two immediate and obvious difficulties with the allegation of a General Retainer.
First, the plaintiff has not pleaded what he says are the terms of the General Retainer. This is not a minor matter, noting that this is a retainer of Cardwell/Deloitte which is alleged to spring up as and when Croft made further requests of Cardwell. It is said to extend until 2014, notwithstanding that Cardwell retired from the partnership of Deloitte in 2007. Each of Croft and the plaintiff have served their evidence in the case, and there is no evidence in either affidavit which is consistent with a General Retainer. The plaintiff has also conceded that he does not know the terms of the retainer.
Secondly, the plaintiff is alleging that Croft, acting as the plaintiff's agent, engaged Cardwell/Deloitte during the 15 September 2003 Conversation, with that engagement continuing "as and when Croft made further requests of Cardwell". Despite correspondence in which Cardwell/Deloitte have sought particulars, the plaintiff has not, however, pleaded (or confirmed through correspondence) the nature of the agency relationship.
As such, there is no identification as to how the particular agency relationship was constituted, i.e the origins or scope of the agency. This is not a minor pleading issue, it is critical. Moreover, the P2FASC does not make plain whether Croft is said to be acting within or outside the scope of his actual or ostensible authority when he communicated with Cardwell in 2004 and 2005.
To the extent an agency relationship is relied upon, it needs to be expressly pleaded. A pleading of agency cannot simply be inferred. This was noted in AJG Pty Ltd v Mobile Communications Systems Pty Ltd [2015] VSCA 231, per Warren CJ and Hansen JA at [34]: "[34] Bearing in mind that rule 14.4(1) UCPR provides that a plaintiff must plead specifically any matter that may otherwise take the defendant by surprise, agency must be pleaded so that the defendant is not taken by surprise with respect to how the plaintiff may seek to put the origins, nature, or scope of authority (amongst other matters connected to agency) at trial."
The necessity for the plaintiff to fully plead the agency relationship is particularly acute in this case, where the following matters are reasonably uncontroversial: there are no written retainers; the plaintiff's affidavit served in this case does not give any evidence either about Croft's authority or the alleged general retainer; and Cardwell communicated almost exclusively with Croft and only occasionally spoke with the plaintiff. Consistently with that fact, the plaintiff says that Croft was ordinarily responsible for paying Cardwell/Deloitte's invoices.

[55]

Second Retainer

The P2FASC makes a number of allegations concerning the 24 March 2004 Meeting. Firstly, that the plaintiff attended the 24 March 2004 Meeting and retained Cardwell to advise him about the tax implications and timing issues surrounding a potential return of capital; secondly, that during the 24 March 2004 Meeting Cardwell learnt that the interposition had recently been completed; thirdly, that Cardwell agreed during the 24 March 2004 Meeting to review "the documents effecting the interposition"; and finally, in breach of his retainer and duty to the plaintiff, during the 24 March 2004 Meeting, Cardwell failed to properly explain to the plaintiff the implications of the warnings which he in fact gave about the risks associated with s 45B of the Tax Act 1936.
The amendment is the foundation for the first of the plaintiff's new fraud claims. This is because the plaintiff alleges that on 24 March 2004, Cardwell learnt that the interposition had occurred. This is a fundamental shift in the plaintiff's case, which was first floated in a draft of the P2FASC circulated on 9 December 2019.
The reason that this is such a critical allegation and a fundamental shift in the plaintiff's case is because on 5 May 2004, Cardwell reviewed the 27 April 2004 Letter. The 27 April Letter attached unsigned documents for the interposition. Upon reviewing the documents, Cardwell had concerns about whether Croft had followed the requirements under the Tax Act 1936, following which Cardwell called Croft and alerted him to those problems. With the plaintiff now saying that on 5 May 2004 Cardwell knew that the interposition had in fact already occurred (notwithstanding that Cardwell was sent draft/unsigned documents), the plaintiff uses that allegation as a springboard to contend that Cardwell knew that the interposition was ineffective (from a tax perspective) and that thereafter Cardwell deliberately concealed the vices in the documentation from the plaintiff.
The plaintiff says that Cardwell's knowledge that the interposition had in fact already occurred and been completed "is to be inferred from the discussion at the meeting" of 24 March 2004. The P2FASC then refers to 24 March 2004 Filenote of the meeting and Cardwell's evidence at [29] of the Cardwell Aff 27/2/19. However, these documents do not support the allegation. The 24 March 2004 Filenote is directly inconsistent with the proposed inference because it lists the steps that Croft still needed to take for the interposition to occur, in particular a valuation. Cardwell's evidence at [29] of the Cardwell Aff 27/2/19 is also directly inconsistent with the inference sought. Cardwell recalls Croft stating "I've tried to do the steps for the restructure, but the numbers don't add up" and Cardwell replies "I'm happy to have a look at it if you send me the documents".
Because of the importance of this amendment, and the absence of any real particulars of knowledge, it is also worth noting that the inference sought by the plaintiff (that on 24 March 2004, Cardwell knew that the interposition had already occurred) is also directly contradicted by all other evidence which has already been served in this case: 1. It is not supported by the plaintiff's affidavit of 28 November 2018 served in the proceedings (CB, Vol 3, p 2340). The plaintiff was at the 24 March 2004 Meeting, but his evidence does not support the inference sought. 2. It is not supported by the plaintiff's affidavit served on 15 March 2013 in the Federal Court proceedings (CB, Vol 5, p 3729). 3. It is not supported by the Croft Aff 18/2/19, in which Croft records (at [39]) that he said to Cardwell at the 24 March 2004 Meeting "I will provide you with all documents in relation to the interposition prepared so far for your review". 4. It is not supported by the attachments to the 27 April 2004 Letter which were unsigned documents.

[56]

Third Retainer

The Third Retainer in the P2FASC is to the effect that in March/April 2004 the plaintiff retained Cardwell/Deloitte to: review the interposition documents; advise Croft as to the effectiveness of the interposition documents; and advise Croft whether the interposition documents contained any anomalies in the way that they recorded the interposition.
The plaintiff alleges that, in purporting to carry out his obligations under the Third Retainer, on 5 May 2004 Cardwell reviewed the 27 April 2004 Letter, and understood that Croft had not yet undertaken the valuation of ATS, being a necessary step in order to determine the amount which could be credited to AGH's share capital account when the ATS shares owned by the plaintiff and his father were cancelled.
The plaintiff then combines Cardwell's alleged knowledge gained on 24 March 2004 that the interposition had occurred with his understanding gained on 5 May 2004 (that the valuation had not been undertaken), to allege that on and from 5 May 2004, Cardwell knew or was willfully blind or recklessly indifferent to, inter alia: 1. whether the plaintiff or Croft had taken each of the necessary steps in order to effect the interposition in a tax effective manner and keep the pre-CGT status of the plaintiff's shares; 2. whether or not the interposition was likely to satisfy the rollover requirements under subdivision 124-G of the Tax Act 1997, so as to maintain the pre-CGT status of the plaintiff's shares; 3. the fact that unless steps were taken to rectify the vices in the interposition documents, it was likely that any subsequent capital reduction in AGH would: 1. be treated as a dividend under the Tax Act 1936; 2. trigger the ATO to regard the interposition and capital reduction as a scheme under the Tax Act 1936; and 3. trigger a CGT event in relation to the plaintiff's shares.
Cardwell and Deloitte's alleged failure to advise the plaintiff about the anomalies in the interposition documentation is said to amount to an intentional breach of the Third Retainer and negligence.

[59]

Fifth Retainer

The plaintiff alleges that between 2009 and 2014, he retained Cardwell and Greenwood & Freehills to assist him with his dispute with the ATO.
The plaintiff alleges that when providing those services: 1. in 2009 (if not before) Cardwell and therefore Deloitte (notwithstanding that Cardwell was no longer a Deloitte's employee) knew that the Payment had occurred; 2. in 2012 Cardwell intentionally prepared a misleading brief to the barrister retained to act for the plaintiff ("Mr Fraser"), so as to mislead Mr Fraser about the tax effectiveness of the interposition. The specific acts said to have been intentionally misleading are: 1. referring in the observations to a signed letter from the plaintiff dated 6 November 2003, which stated that the AGH shares issued to the plaintiff were issued in consideration for the plaintiff agreeing to cancel his shares in ATS; and 2. stating that the reason that the issue of shares in AGH and the cancellation of shares in ATS did not take place at the same time was due to processing delays associated with the ASIC. 1. Cardwell is said to have known when preparing the observations in 2012 that each of those statements was false because, on 5 May 2004, he had read the 27 April 2004 Letter and realised that the AGH shares had not been issued in exchange for the cancellation of the ATS shares. 2. Cardwell was obliged to (but did not) tell the plaintiff of the interposition Matters at all times between 2009 and 2014.
It is difficult to see how the brief to Counsel, a copy of which was in the plaintiff's possession from at least 2012 explains this late amendment.
Moreover, the two impugned statements from the brief were repeatedly made by the plaintiff and his various agents on numerous occasions between 2005 and 2014 in documents discovered by the plaintiff in this proceeding in 2018 including: 1. on 6 October 2011, by the plaintiff in his notice of objection against the amended assessment dated 16 August 2011; 2. on 14 December 2012, by Croft as agent of the plaintiff in his submission to the Commissioner; 3. on 15 March 2013, by the Commissioner when summarising his understanding of the plaintiffs position set out in his notice of objection; 4. by Croft in a note annexed to his affidavit from the Federal Court proceedings, which according to that affidavit had been made in November 2003; 5. by the plaintiff in his affidavit in the Federal Court proceedings where he deposed to signing the letter of 6 November 2003; and 6. on 22 and 23 July 2014 by Croft during his evidence in the Federal Court proceedings.

[64]

The defendants' submissions

Even if there was utility in allowing the amendment, the plaintiff's application is a very late amendment which is contrary to the case management principles set out in s.56 and following of the CPA and the principles articulated in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175.
Ward CJ in Eq, addressed these issues in the matter of ACN 092 745 330 Pty Ltd [2018] NSWSC 1185 at [56] and following, stating: "[56] In Aon (at [102]), the factors to be weighed in the exercise of the Court's discretion to permit an amendment of pleadings were said to include the nature and importance of the amendments to the plaintiff; the effect of the proposed amendments on the defendant; the delay in making the amendments; and, where there is delay in applying for amendment, whether an adequate explanation for the delay has been given. There, the plurality (Gummow, Hayne, Crennan, Kiefel and Bell JJ) said (at [98]) that the requirements for speed and efficiency should not detract from a proper opportunity being given to the parties to plead their case and (at [102]) that the objectives stated (in the relevant rule there under consideration) do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay "as it inevitably will"; and that one factor to be weighed in the balance is the stage the litigation has reached, relative to the trial, when the application to amend is made. [57] More recently, in Dymocks Book Arcade Pty Ltd v Capral Ltd [2011] NSWSC 1423, at [7]-[8], it was said, with reference to both s 64 and s 65 of the Civil Procedure Act, that: The exercise of the discretion to grant or refuse leave must not only be in accordance with s 64(2) of the Civil Procedure Act (Greenwood v Papademetri [2007] NSWCA 221 (at [35])), it must also adhere to the "dictates of justice" (ss 56, 57 and 58 of the Civil Procedure Act). Those matters will generally require consideration of the nature and degree of any prejudice that may be suffered by the grant or refusal of the application (Itek Graphix Pty Ltd v Elliott [2002] NSWCA 104; (2002) 54 NSWLR 207). Where the proposed amendment to the pleading satisfies the express criteria in s 65(2) of the Act, it is suggested that it will be unlikely that a person opposing the grant of leave will be able to demonstrate material prejudice (Ritchie's Uniform Civil Procedure at [65.45]). The exercise of discretion necessarily involves a balancing exercise (Cement Australia Pty Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101; (2010) 187 FCR 261 at [51] and (66]) having regard to the circumstances of the particular case."
There are a number of factors which weigh heavily against exercising the discretion to allow the plaintiff to file the P2FASC. The underlying events occurred between 2003 and 2005, predominately in conversations. The plaintiff, Croft and Cardwell's memories of those conversations will have already deteriorated significantly. Furthermore, Deloitte no longer has any original documents pertaining to the plaintiff (by reason of standard document retention policies). The only documents that it has are copies of documents which it produced in answer to subpoenas in 2013. Accordingly, Deloitte is hampered in its ability to locate any documents which may assist it to investigate or defend the new allegations. Greenwood & Freehills appears to no longer have any documents pertaining to the plaintiff, which will hamper Cardwell's ability to investigate and defend the new allegations.
The plaintiff, having appropriately retreated from the explanation that the new case could not have been identified until late 2018 / early 2019, now has no explanation for why the allegations in the P2FASC were not made years earlier, other than the fact that: the plaintiff's previous solicitors did not appear to provide all of the documents to the plaintiff's current solicitors; or the solicitors retained to act for the plaintiff, who had access to the relevant documents and materials, did not particularly turn their minds to advancing the current allegations.
All of the lay evidence in support of and in response to the FASC was served by February 2019. The plaintiff served expert evidence in August 2017 (and a refresher report in June 2019) and the defendants served expert evidence in February 2020. Verified lists of documents were served in September 2018 and discovery has occurred, although the plaintiff has recently produced further documents.
Subject to the service of any reply evidence, based on the current pleadings, the case is ready to proceed to trial - and has been ready to proceed to trial for 2 years. The P2FASC raises also a belated and serious colourable allegation of fraud.
If the plaintiff is now allowed to amend the plaintiff will presumably wish to serve further evidence, concerning the events of 2003-2005, but also concerning 2009-2014. Further discovery will be required from all parties, most especially dealing with the events of 2009-2014. Such discovery is likely to give rise to complicated privilege issues which will cause further delay and expense, noting that each of Croft and Cardwell were witnesses for the plaintiff in the Federal Court proceedings and attended conferences with the plaintiff's lawyers. Further subpoenas may be necessary - most obviously for documents which may still be in the possession of Greenwood & Freehills. Further investigations and evidence will be needed on behalf of Cardwell/Deloitte, including from other employees of Greenwood & Freehills. Cardwell will also have the stress and uncertainty associated with litigation for another year or 18 months.

[65]

The plaintiff's submissions

The amendments sought to be made are reasonably arguable and are not necessarily precluded by the expiry of applicable limitation periods. That itself a powerful factor in favour of granting leave to amend bearing in mind the overarching requirement of s 56 of the Civil Procedure Act.
Cardwell and Deloitte point to the fact that the underlying events occurred between 2003 and 2005 and that memories have faded and original documents are no longer available. This is certainly sub-optimal. However, it ought not preclude the amendments sought for at least the following reasons.
First, on the plaintiff's case, that state of affairs has arisen because of Cardwell's conduct in fraudulently concealing his knowledge. It is not in the interests of justice for the plaintiff to be prevented from running a fraud case by reason of the effluxion of time resulting from that very fraud.
Secondly, this prejudice is put in very general terms. There is no suggestion, for example, of specific documents which Cardwell can recall but which are no longer available.
Thirdly, this is not a case where documents are alleged to have been fraudulently tampered with, such that the absence of original documents is problematic.
Fourthly, the evidence discloses that Deloitte had destroyed its documents in accordance with its document retention policies prior to 2013 (Cardwell Aff 22/03/13 at [5]). Whatever problems exist as a result, they are problems that existed when the proceedings were first commenced. They are not new problems that arise on this amendment application.
Finally, the lack of documents is more likely to prejudice the plaintiff than Cardwell. The plaintiff's direct involvement in the transactions was minimal. He relied on his advisors. As such, he has had to frame his entire case based on what documents are available and the affidavit evidence of Cardwell and Croft. In contrast, Cardwell was a central participant along with Croft. Although his recollection may have dimmed over the years, at least he has a recollection from which to start.
Cardwell and Deloitte next point to the delay in making in advancing the amended case: defendants' submissions, [165(d)]. As to delay, the period prior to the service of the Cardwell 27/2/19 Aff is easily explicable. The fraud claims against Cardwell were not reasonably discoverable until Cardwell served the Cardwell Aff 27/2/19. Further, Mr McGregor's evidence is that he did not in fact begin to appreciate the basis for the fraud claims until he reviewed Cardwell's affidavit: McGregor Aff 20/11/20, [18]-[24].
The next relevant period to consider delay is the period between service of Cardwell Aff 27/2/19 in these proceedings on or about 27 February 2019 and service of the first iteration of the proposed amended pleading on 30 August 2019. The sequence of events was that counsel were briefed with copies of the affidavits of Cardwell and Croft in these proceedings, the further expert report from Mr McGill was obtained and solicitors and counsel gave consideration to the serious step of pleading fraud: see McGregor Aff 17/3/20 at [53]-[59].
The final relevant period to consider is the period since service of the first iteration of the proposed amended pleading on 30 August 2019. A large part of that period has been occupied by various rounds of criticisms and requests for particulars by solicitors for Cardwell and Deloitte, and responses and updated proposed pleadings from solicitors for the plaintiff to meet those criticisms and requests as well as to deal with the settlement with the Croft parties. Both the plaintiff and Cardwell/Deloitte have, not unnaturally, spent the balance of the period awaiting the resolution of the present motions. See: McGregor Aff 17/3/20 at [59]-[81], and McGregor Aff 20/11/20 at [25]-[52] and [60]-[62].
The above evidence adequately explains the time taken to bring the amendment application insofar as that issue is relevant to the exercise of discretion.
Next, Cardwell and Deloitte point to the fact that various steps in the proceedings were taken some time ago (e.g discovery and service of affidavits): defendants' submissions, [165(e)-(i)]. However, those very steps revealed what the plaintiff says is Cardwell's fraud/deceit. This does not provide a sound basis to refuse the amendments. The plaintiff does not accept that the fraud claim is "colourable" and to the extent it is "belated", it is only so because Cardwell finally revealed the fraud on 27 February 2019.
Finally, the plaintiff served a proposed amended pleading on 30 August 2019 and filed his amendment motion on 12 November 2019. Cardwell and Deloitte could have consented to the amendments at that point; the decision refuse consent and instead seek summary dismissal has delayed the proceedings by almost 2 years already. This is leaving aside any further delays arising from appeals (or applications for leave to appeal) from the Court's resolution of the present interlocutory applications.

[66]

Resolution

In relation to discretionary factors, the defendants submitted that this very late application will cause significant prejudice to Cardwell/Deloitte. There is no evidence by Cardwell/Deloitte to support that they will suffer actual prejudice at trial. I do take into account that there may be some presumptive prejudice occasioned by the substantial delay of some 16 years since the events occurred and some 11 years since the hearing in the Federal Court. Having regard to the application of s 55(1)(a) of the Limitation Act, the claim pleaded by the plaintiff may not be statute barred if it is established at trial that the defendants' conduct was the cause of the delay. The latest allegations of fraud and deceit are very serious ones. The plaintiff's solicitor has explained the various periods of delay especially the circumstances giving rise to these allegations and in particular the documents with ticks and one cross. Then the plaintiff's legal representative rightly took time to investigate and consider whether these serious claims could be made out and they obtained an expert report. While Deloitte destroyed its documents (I make no criticism of that), the plaintiff Cardwell and the witnesses are available to give evidence. There are contemporaneous documentary evidence including filenotes after emails sent in 2004 and 2005 and further evidence and statements in 2012 which were marshaled for the Federal Court proceedings. It is my view that the plaintiff has satisfactorily explained the various periods of delay. In the exercise of my discretion, taking these circumstances into account, the amendments are arguable and raise real issues in dispute. Justice is best served if the amendments are allowed to be made.
So far as delay is concerned it is my view that the plaintiff has provided a satisfactory explanation for the delay, as the alleged fraudulent concealment was only discovered in February 2019. I accept that the lengthy delay will cause presumed prejudice but there are filenotes, and statements as to the events in 2012, 2014 and 2015. It is my view that both parties can have a fair trial. The demands of justice dictate that the plaintiff should be granted leave to file the P2FASC.

[67]

Final Resolution

In summary, the plaintiff sought leave to file the P2FASC. The defendants sought summary dismissal of the proceedings on the basis of futility as the claims currently advanced in the FASC were time barred when filed, and the new claims propounded in the P2FASC were also time barred. In this regard the defendants submitted that the new claims were not assisted by operation of s 55 of the Limitation Act as the information the plaintiff suggests was concealed was in his knowledge for at least 7 years. Further the defendants submitted that this Court should exercise its discretion and not grant the plaintiff leave to file the P2FASC as it would cause the defendants prejudice given the delay in bringing the claims and the lack of explanation for that delay.
The limitation issues turn on complex question of fact and law that can only be resolved at trial. The question of when damage or loss was suffered for the purpose of the non-fraud claims is one fraught with difficulty. There are a number of ostensibly reasonable answers, and which is correct is a matter for trial.
There is also a genuine dispute as to whether the fraud and deceit was reasonably discoverable from the documents in the plaintiff's possession from about 2013 or whether it only became reasonably discoverable following receipt of Cardwell Aff 27/2/19. It is my view that the plaintiff's claim under s 55 of the Limitation Act is arguable that there is a cause of action based on fraud and deceit and the cause of action against the plaintiff is fraudulently concealed.
This is therefore a difficult case with disputed facts and complex legal issues, which contains much contested factual material that can only be resolved at trial, not in a summary judgment application.
As to the issue of delay it needs to be recalled that the genesis for the amendment application arises as a result of the affidavit evidence of Cardwell and Croft in February 2019. In large part, it stems from the contention that the fraud was only raised by Cardwell Aff 27/2/19. The timing of the amendment application has therefore, in my opinion, been adequately explained.
The plaintiff is therefore granted leave to file the 2PFASC.

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