Bank of Communications Co., Ltd v Sparkes

[2020] NSWSC 1684

Supreme Court

New South Wales

Medium Neutral Citation:

Bank of Communications Co., Ltd v Sparkes [2020] NSWSC 1684

Hearing dates:

20 November 2020

Decision date:

27 November 2020

Jurisdiction:

Equity - Commercial List

Before:

Ball J

Decision:

The plaintiffs’ notice of motion filed 18 November 2020 be dismissed with costs.

Catchwords:

CIVIL PROCEDURE – Pleadings – Application to file amended Commercial List Statement – Where deliberate decision made not to plead issue contained in the amendment– Where reasons for the change of position insufficient – No issues of principle

Legislation Cited:

Australian Consumer Law

Category:

Procedural and other rulings

Parties:

Bank of Communications Co., Ltd (First Plaintiff)
Westpac Banking Corporation (Second Plaintiff)
Banco Bilbao Vizcaya Argentaria S.A. t/as Banco Bilbao Vizcaya Argentaria S.A., Hong Kong Branch (Third Plaintiff)
Delia Sparkes (First Defendant)
Robert Bakewell (Second Defendant | Cross Claimant)
Sarah Pearce (Third Defendant)
Herbert Smith Freehills (Cross Defendant)

Representation:

Counsel:

PW Collinson QC (Plaintiffs)
ML Rose (First Defendant)
MR Pesman SC with EAJ Hyde (Second Defendant | Cross Claimant)
N Owens SC with G O’Mahoney (Third Defendant)
D Sulan (Cross Defendant)

Solicitors:

King + Wood Mallesons (Plaintiffs)
Norton Rose Fulbright (First Defendant)
Baker McKenzie (Second Defendant | Cross Claimant)
Johnson Winter & Slattery (Third Defendant)
Clifford Chance (Cross Defendant)

File Number(s):

2019/316305

Publication restriction:

Nil

Judgment

1. Before the Court are three proceedings concerning the Arrium Group of Companies, which collapsed in April 2016.

2. In one proceeding (the Liquidators’ Proceeding), which was commenced on 24 July 2019, three companies in the Arrium Group, ACN 004 410 833 Limited (In Liq) (formerly Arrium Limited) (Arrium) (the parent company of the Group), OS Finance Pty Ltd (In Liq) (formerly Arrium Finance Pty Ltd) (Arrium Finance) and AIOH Pty Ltd (In Liq) (formerly Arrium Iron Ore Holdings Pty Ltd) (AIOH), two wholly owned subsidiaries of Arrium, and their liquidators seek financial compensation from former directors for insolvent trading. In particular, it is claimed that between 29 December 2015 and 16 February 2016, the companies incurred debts whilst insolvent by drawing down on certain facilities provided by lenders to the Arrium Group. The former directors include Ms Delia Sparkes and Mr Robert Bakewell, who were both directors of Arrium Finance and AIOH.

3. In a second proceeding (the Anchorage Proceeding), commenced on 4 April 2018, a number of original lenders, and assignees of lenders, to the Arrium Group seek damages from Ms Sparkes, three former members of the Arrium Group treasury team and Mr Bakewell in connection with drawdown notices issued by Arrium Finance and AIOH in the period December 2015 to February 2016. Ms Sparkes was at all relevant times until about January 2016 the Group Treasurer of the Arrium Group. Mr Bakewell was at all material times Arrium’s Chief Financial Officer.

4. The claims in the Anchorage Proceeding are put in various ways, but essentially it is alleged that by signing the relevant drawdown notices or causing them to be issued the defendants engaged in misleading and deceptive conduct or made negligent misstatements which caused the lenders to advance additional funds to the Arrium Group, causing them loss. Relevantly, it is alleged that by signing the drawdown notices or causing them to be signed, the defendants represented that contrary to the true position there had been no material change in the Arrium Group’s financial position which constituted a “material adverse effect” as defined in the relevant facility agreements (the MAE Issue). Mr Bakewell has also served a cross-claim against Herbert Smith Freehills in the proceeding.

5. In the proceeding with which this judgment is concerned (the BoC Proceeding), which was commenced on 10 October 2019, three additional lenders to the Arrium Group seek damages from Ms Sparkes, Mr Bakewell and Ms Sarah Pearce in connection with drawdown notices issued by Arrium Finance and AIOH to them during the period 7 January 2016 to 10 February 2016. Ms Pearce was an Assistant Group Treasurer of the Arrium Group from around the end of 2012 until 29 January 2016 and the Group Treasurer of the Arrium Group from on or about 30 January 2016. She is not a party to either of the other proceedings.

6. As currently pleaded, in the BoC Proceeding it is alleged that:

1. By no later than 7 January 2016, Arrium, Arrium Finance and AIOH were insolvent;

2. The insolvency of Arrium, Arrium Finance and AIOH constituted under the relevant facility agreements (1) a material adverse effect; and (2) an insolvency event and therefore an event of default;

3. Between 7 January 2016 and 10 February 2016 each of Arrium Finance and AIOH issued drawdown notices under the relevant facility agreements;

4. Each of the drawdown notices contained a representation that no event of default had occurred or continued unremedied and that there had been no material change in the Arrium Group’s financial position since 31 December 2012 (in the case of one facility agreement) or since the most recent accounts were provided to the lenders (in the case of the other relevant facility agreements);

5. The representations referred to in (d) were misleading and deceptive by reason of the matters referred to in (b); and

6. By causing the drawdown notices to be issued, each of the defendants engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law causing the lenders loss.

7. By a notice of motion filed on 18 November 2020, the plaintiffs seek to amend their claim by pleading that:

1. It was a term of the relevant facility agreements that the ratio of consolidated net financial indebtedness to consolidated net financial indebtedness plus consolidated net worth (the Gearing Ratio) would not exceed 0.55 to 1 at any time and that the EBITDA to debt service for any rolling 12 month period ending on a reporting date (being 30 June and 31 December of each year) (the ICR Ratio) would exceed 3.35 to 1;

2. That by no later than 7 January 2016 there had been changes in the Arrium Group’s financial position which had a material adverse effect on the ability of Arrium, Arrium Finance and AIOH to perform their obligations under the relevant facility agreements. Those changes were a material change in the Gearing Ratio, a material change in the ICR Ratio and various events which are also pleaded to be relevant to the Arrium Group’s solvency; and

3. By reason of those matters the drawdown notices were misleading and deceptive.

8. It is apparent from this brief description of the claims that prior to the proposed amendments, the plaintiffs’ case was that what caused the representations said to be made in the drawdown notices to be misleading and deceptive was the fact that the Arrium Group was insolvent. By the amendments, the plaintiffs now seek to allege that the representations were misleading and deceptive because events had occurred which had a material adverse effect on the ability of Arrium, Arrium Finance and AIOH to perform their obligations under the relevant facility agreements. That is a claim that mirrors the claim in the Anchorage Proceeding.

9. The three proceedings have been set down for a 10 week hearing commencing on 15 February 2021. On 20 November 2020, over the opposition of a number of the parties, the Court made an order that evidence in one proceeding be evidence in the others (the Joint Evidence Order) leaving any qualifications to that order to be dealt with by subsequent order or at the trial. It is apparent that a great deal of work will still need to be done by the parties to get the proceedings ready for hearing. In particular, discovery is far from complete and a great deal of pre-trial work will need to be done, including the preparation of a properly organised court book, which will be made more difficult by the intervention of the Christmas holiday period. No party, however, has suggested that the hearing date should be vacated, although it is possible that the commencement of the hearing will be delayed by one or two weeks. If the hearing date were vacated, the new hearing would not commence before the second half of next year. In addition, vacation of the hearing date would cause considerable disruption to the orderly management of the list given the length of time that has been set aside for the hearing.

10. The plaintiffs in the Anchorage Proceeding have served an expert report from Mr William Hardie on the MAE Issue. The defendants in that proceeding have served a report in response to that report prepared by Mr Quentin Olde.

11. The plaintiffs in the Liquidators’ Proceeding have served an expert report from Mr Martin Madden going to the solvency of the Arrium Group. Again, the defendants in that proceeding have served a report in response to that report prepared by Mr Olde.

12. The plaintiffs in the current proceeding have not served any expert evidence. However, prior to the amendment application they had indicated that they intended to rely on the report of Mr Madden served in the Liquidators’ Proceeding. They say that they do not seek to file any additional evidence if the amendments are allowed.

13. Ms Sparkes and Mr Bakewell do not object to the proposed amendments. However, Ms Pearce does. Mr Owens SC, who appeared for Ms Pearce, submitted that there is now insufficient time before the hearing for her to consider the proposed amendments and, in particular, to obtain advice from an expert on the MAE Issue and, if appropriate, to lead evidence from such an expert.

14. The plaintiffs in the Anchorage Proceeding also object to the amendments, although the principal focus of their objection was to the Joint Evidence Order. They point to the fact that the report they have obtained from Mr Hardie on the MAE Issue is 221 pages and cost the Anchorage plaintiffs in excess of $1 million to obtain. They submit it would be unfair to permit the plaintiffs in the current proceedings to rely on that report without contributing to its cost, which is something they will be permitted to do as a consequence of an unqualified Joint Evidence Order. They also submitted that if the plaintiffs in this proceeding were able to rely on Mr Hardie’s report in relation to the MAE Issue that would give them an unfair advantage in a mediation which is to occur between 11 and 18 December this year.

15. In response to Ms Pearce’s objections, the plaintiffs point to the fact that Ms Pearce has not served any expert evidence on the solvency issue (in response to the case as currently pleaded). They also point to the fact that the defendants in the Anchorage Proceeding have obtained a report from Mr Olde in response to the report from Mr Hardie. They submit that Ms Pearce would be entitled to rely on that report if the amendments were allowed (as, no doubt, Ms Sparkes and Mr Bakewell will do). If there are further enquiries that Ms Pearce thinks it would be desirable for Mr Olde to undertake, it is open to her to engage Mr Olde jointly with the defendants in the Anchorage Proceeding and there is no reason to think that he would not be in a position to deal with any additional issues before the commencement of the hearing. Finally, the plaintiffs submit, with considerable force, that the plaintiffs in the Anchorage Proceeding have no standing to object to the amendment application.

16. I have concluded that the amendments should not be permitted.

17. It seems apparent from what has happened that at the time the plaintiffs filed their claim they made a forensic decision to limit their claim to an allegation that the Arrium Group was insolvent at the time the drawdown notices were issued and that the drawdown notices were misleading and deceptive for that reason. They were plainly aware of the provisions of their respective facility agreements dealing with the MAE Issue, since they specifically pleaded those provisions. However, they chose not to allege that, even if the Arrium Group was not insolvent, the drawdown notices were misleading because changes in its financial position resulted in a material adverse effect. The advantage of adopting that course is that they could rely on evidence of insolvency obtained by the liquidators from Mr Madden and did not need to go to the expense and trouble of leading their own expert evidence on the MAE Issue. There was no suggestion that they could rely on the evidence of Mr Hardie in relation to the MAE Issue. Up until now, the plaintiffs in the Anchorage Proceeding have refused to provide them with a copy of Mr Hardie’s report.

18. The upshot, then, is that up until recently, the plaintiffs’ decision not to raise the MAE Issue must be understood as a deliberate one that was taken because it was thought that the advantages of raising the issue did not outweigh the costs of doing so.

19. The only reason that the plaintiffs give for a change in their position is that recently they have changed senior counsel because the senior counsel who they had retained previously is not available because of another commitment. It might also be inferred that one of the matters relevant to the change in position was the possibility, now a reality, that the plaintiffs may be entitled to rely on the expert evidence obtained from Mr Hardie on the MAE Issue.

20. In my opinion, these points provide a poor foundation for an amendment application at this stage of the proceeding. And against them must be weighed the prejudice that will be suffered by Ms Pearce if the amendments are allowed. It is true that Ms Pearce may be entitled to rely on the evidence given by Mr Olde on the MAE Issue. It is also true that Ms Pearce has chosen not to file any expert evidence of her own on the question of solvency. But I do not think that those points provide a sufficient basis for permitting the amendments.

21. The circumstances in which Ms Pearce chose not to serve her own expert evidence in relation to solvency is itself subject to some dispute. According to the plaintiffs in this proceeding, they made it clear in December 2019 that they intended to rely on expert evidence from Mr Madden. Ms Pearce took issue with that and, in resisting the Joint Evidence Order, submitted that she made a forensic decision not to lead expert evidence on the question of solvency because the plaintiffs in this proceeding had not done so. The result of the Joint Evidence Order is whatever the position may have been in the past, it seems clear that the plaintiffs will rely on the expert evidence in relation to the question of solvency and it is likely that Ms Pearce will seek to rely on the evidence from Mr Olde on that issue. However, whatever the position in relation to that issue, the fact remains that, by the amendments, the plaintiffs seek to raise a substantial factual issue that they deliberately chose not to raise before now. In the normal course of events, Ms Peace should be given a reasonable opportunity to consider how she wants to respond to that factual issue, including by retaining her own expert. The fact that for whatever reason she chose not to do that in relation to the issue of solvency does not affect the position. She is entitled to make her own assessment of how to deal with the new allegations that are sought to be raised by the amended pleading. Equally, it is apparent that having regard to the time available, and the other work that must be done to prepare the case for a hearing, it is not reasonable to expect Ms Pearce to undertake those tasks before the hearing.

22. It follows that the application of the plaintiffs to file an amended commercial list statement must be dismissed with costs.

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Decision last updated: 27 November 2020