Kirby v Centro Properties Limited (No 5)

Case •

[2012] FCA 468

•

4 May 2012

FEDERAL COURT OF AUSTRALIA

Kirby v Centro Properties Limited (No 5) [2012] FCA 468

Citation: Kirby v Centro Properties Limited (No 5) [2012] FCA 468
Parties:

RICHARD KIRBY v CENTRO PROPERTIES LIMITED (ACN 078 590 682), CPT MANAGER LIMITED (ACN 054 494 307), PRICEWATERHOUSECOOPERS and CENTRO RETAIL AUSTRALIA LIMITED (ACN 149 781 322)

RICHARD KIRBY v CENTRO RETAIL LIMITED (ACN 114 757 783), CENTRO MCS MANAGER LIMITED (ACN 051 908 984), PRICEWATERHOUSECOOPERS and CENTRO RETAIL AUSTRALIA LIMITED (ACN 149 781 322)

NICHOLAS STOTT v PRICEWATERHOUSECOOPERS SECURITIES LIMITED (ACN 003 111 617)

NICHOLAS VLACHOS, MONATEX PTY LTD AND RAMON FRANCO v PRICEWATERHOUSECOOPERS
File number(s): VID 326 of 2008
VID 327 of 2008
VID 1028 of 2010
VID 1041 of 2010
Judge: GORDON J
Date of judgment: 4 May 2012
Date of hearing: Determined on the papers
Date of publication of reasons: 8 May 2012
Date of last submissions: 1 May 2012
Place: Melbourne
Division: GENERAL DIVISION
Category: No Catchwords
Number of paragraphs: 39
Counsel for the Applicant (Kirby / Stott): Mr MBJ Lee SC with Mr WAD Edwards
Solicitor for the Applicant (Kirby / Stott): Maurice Blackburn
Counsel for the Applicant (Vlachos): Ms RM Doyle SC with Ms RL Enbom
Solicitor for the Applicant (Vlachos): Slater & Gordon
Counsel for Centro Properties Limited & CPT Manager Limited : Mr Collinson SC
Solicitor for Centro Properties Limited & CPT Manager Limited: Freehills
Counsel for Centro Retail Limited, Centro MCS Manager Limited & Centro Corporate Services: Mr P Jopling QC and Mr P Wallis
Solicitor for Centro Retail Limited, Centro MCS Manager Limited & Centro Corporate Services: Middletons
Counsel for PricewaterhouseCoopers & PricewaterhouseCoopers Securities Limited: Mr RG McHugh SC with Mr JA Watson
Solicitor for PricewaterhouseCoopers & PricewaterhouseCoopers Securities Limited: King & Wood Mallesons

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 326 of 2008
BETWEEN:

RICHARD KIRBY
Applicant
AND:

CENTRO PROPERTIES LIMITED (ACN 078 590 682)
First Respondent

CPT MANAGER LIMITED (ACN 054 494 307)
Second Respondent

PRICEWATERHOUSECOOPERS
Third Respondent

CENTRO RETAIL AUSTRALIA LIMITED (ACN 149 781 322)
Fourth Respondent

JUDGE:

GORDON J

DATE OF ORDER:

4 MAY 2012

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The Applicant have leave to file his proposed amended pleading, the Sixth Further Amended Statement of Claim, in the form circulated to the court and the parties by email on 25 April 2012 at 12:57pm.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 327 of 2008
BETWEEN:

RICHARD KIRBY
Applicant
AND:

CENTRO RETAIL LIMITED (ACN 114 757 783)
First Respondent

CENTRO MCS MANAGER LIMITED (ACN 051 908 984)
Second Respondent

PRICEWATERHOUSECOOPERS
Third Respondent

CENTRO RETAIL AUSTRALIA LIMITED (ACN 149 781 322)
Fourth Respondent

JUDGE:

GORDON J

DATE OF ORDER:

4 MAY 2012

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The Applicant have leave to file his proposed amended pleading, the Sixth Further Amended Statement of Claim, in the form circulated to the court and the parties by email on 25 April 2012 at 3:34pm.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 1028 of 2010
BETWEEN:

NICHOLAS STOTT
Applicant
AND:

PRICEWATERHOUSECOOPERS SECURITIES LIMITED (ACN 003 111 617)
Respondent

JUDGE:

GORDON J

DATE OF ORDER:

4 MAY 2012

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The Applicant have leave to file his proposed amended pleading, the Second Further Amended Statement of Claim, in the form circulated to the court and the parties by email on 26 April 2012 at 5:30pm.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 1041 of 2010
BETWEEN:

NICHOLAS VLACHOS
First Applicant

MONATEX PTY LTD
Second Applicant

RAMON FRANCO
Third Applicant
AND:

PRICEWATERHOUSECOOPERS
Respondent

JUDGE:

GORDON J

DATE OF ORDER:

4 MAY 2012

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The Applicants have leave to file their proposed amended pleading, the Fifth Further Amended Statement of Claim, in the form circulated to the court and the parties by email on 26 April 2012 at 7:39am.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 326 of 2008
BETWEEN:

RICHARD KIRBY
Applicant
AND:

CENTRO PROPERTIES LIMITED (ACN 078 590 682)
First Respondent

CPT MANAGER LIMITED (ACN 054 494 307)
Second Respondent

PRICEWATERHOUSECOOPERS
Third Respondent

CENTRO RETAIL AUSTRALIA LIMITED (ACN 149 781 322)
Fourth Respondent

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 327 of 2008
BETWEEN:

RICHARD KIRBY
Applicant
AND:

CENTRO RETAIL LIMITED (ACN 114 757 783)
First Respondent

CENTRO MCS MANAGER LIMITED (ACN 051 908 984)
Second Respondent

PRICEWATERHOUSECOOPERS
Third Respondent

CENTRO RETAIL AUSTRALIA LIMITED (ACN 149 781 322)
Fourth Respondent

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 1028 of 2010
BETWEEN:

NICHOLAS STOTT
Applicant
AND:

PRICEWATERHOUSECOOPERS SECURITIES LIMITED (ACN 003 111 617)
Respondent

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 1041 of 2010
BETWEEN:

NICHOLAS VLACHOS
First Applicant

MONATEX PTY LTD
Second Applicant

RAMON FRANCO
Third Applicant
AND:

PRICEWATERHOUSECOOPERS
Respondent

JUDGE:

GORDON J

DATE:

4 MAY 2012

PLACE:

MELBOURNE

REASONS FOR JUDGMENT

INTRODUCTION

  1. On 4 May 2012, I made the following Orders:

    1.In VID 326/2008:  The Applicant have leave to file his proposed amended pleading, the Sixth Further Amended Statement of Claim, in the form circulated to the Court and the parties by email on 25 April 2012 at 12:57pm.

    2.In VID 327/2008:  The Applicant have leave to file his proposed amended pleading, the Sixth Further Amended Statement of Claim, in the form circulated to the Court and the parties by email on 25 April 2012 at 3:34pm.

    3.In VID 1028/2010:  The Applicant have leave to file his proposed amended pleading, the Second Further Amended Statement of Claim, in the form circulated to the Court and the parties by email on 26 April 2012 at 5:30pm.

    4.In VID 1041/2010:  The Applicants have leave to file their proposed amended pleading, the Fifth Further Amended Statement of Claim, in the form circulated to the Court and the parties by email on 26 April 2012 at 7:39am.

  2. These are the reasons for making those Orders.

  3. There were four applications for leave to amend the claims made against PwC and, to a more limited extent, against PwCS.  Applications were brought by both the Kirby / Stott applicants and the Vlachos applicants.

  4. The applications may be conveniently grouped into four categories.  Each grouping identifies the relevant proceedings, the proposed paragraphs the subject of the amendment application and the party or parties which sought leave to amend.

  5. Before dealing with each group of amendments in turn, it is necessary to say something about the history of the application.  The Kirby / Stott applicants first gave notice of these applications on 22 April and again on 25 April 2012.  The Vlachos applicants indicated an intention to apply on 26 April 2012.  The applications were listed for hearing on 27 April 2012.  PwC sought, and was granted, two contested deferrals of the hearing of the oral applications for leave to amend to permit them more time to respond.  The second deferral was granted on terms that, if appropriate, the application could probably be determined on the papers.  PwC then filed substantial written submissions objecting to all the amendments sought.  They had previously indicated that they did not object to some of the amendments.  The Kirby / Stott and Vlachos applicants then filed reply submissions.  Having regard to the form and content of the various submissions and the nature of the applications, I formed the view that the applications to amend could, and should, be dealt with on the papers. 

  6. It is of course necessary to bear steadily in mind that these reasons are confined to whether the applicants should have leave to amend their respective pleadings.  To the extent to which it is necessary, consideration is given to whether the amended and new claims are arguable.  These reasons express no view about whether the amendments for which leave is given state claims that should actually succeed.  

    GROUP 1:  PWC’S ALLEGED KNOWING INVOLVEMENT IN CENTRO’S BREACH OF ITS CONTINUOUS DISCLOSURE OBLIGATIONS IN RELATION TO ITS CURRENT LIABILITIES: 

    Kirby 326 SFASOCParagraphs 60, 62, 63, 95A, 96 - 100 of the proposed Sixth Further Amended Statement of Claim filed by Kirby in VID 326/2008 (Vlachos 1041 FFASOC) and paras 40A, 40C, 40D, 40E, 40F, 40J, 40K and 40L of the proposed Fifth Further Amended Statement of Claim filed by the Vlachos applicants in VID 1041/2010 ()

    Summary of existing pleading and proposed amendments

  7. Prior to the amendments now under consideration, the applicants’ respective pleadings alleged that PwC was knowingly involved in Centro’s breach of its continuous disclosure obligations in relation to the discovery of the misclassification of the “JP Morgan Current Liability” of $1.1 billion and Centro’s subsequent conduct. 

  8. The starting point in the case of Kirby was that which was already pleaded in paras 60 and 61 of the Fifth Further Amended Statement of Claim in VID 326/2008 as follows:

    60.Irrespective as to its previous state of awareness of any misclassification, on or around 13 August 2007 or shortly thereafter, CNP became aware of circumstances (Relevant Circumstances) which were likely to affect materially the results or other information contained in the Preliminary Final Report being all or any of the following:

    a.that CNP did have current interest bearing liabilities in an amount of not less than $1,096,936,000 which was due for repayment on or by 31 December 2007 (being a US$930,000,000 liability to JP Morgan (JP Morgan Current Liability)); and/or

    b.that the August Debt Representation, that it had no current interest bearing liabilities, was wrong; and/or

    c.that CNP would have on its balance sheet as at 30 June 2007 total current liabilities of at least $1,753,000,000 and total current assets of $1,337,000,000, being a deficiency in working capital of at least $415,000,000; and

    d.that material information contained in the Preliminary Final Report (as to the amount of current interest bearing liabilities) would be different from information which would be in the Concise Financial Report and the Annual Report (if they were to be prepared in accordance with CNP’s Accounting Obligations).

    61       Notwithstanding the existence of the Relevant Circumstances, CNP:

    a.         did not give immediately to the ASX an explanation of:

    i.        the Relevant Circumstances (or any of them); and

    ii.the effects the Relevant Circumstances (or any of them), were expected to have on CNP’s current or future financial performance or financial position;

    b.gave only to the ASX, at the time it lodged its statutory full year information with ASIC, its Concise Financial Report which document included a line item revealing the existence of a current liability in the amount of the JP Morgan Current Liability;

    c.did not give to the ASX, at the time it lodged its statutory full year information with ASIC, an explanation of the Relevant Circumstances; and

    d.did not explain to the ASX the Relevant Circumstances before 20 December 2007 being the date of a letter from the company secretary of CNP to the ASX.

    The failure of CNP to tell the ASX of the Relevant Circumstances was and, after the amendments now under consideration, remains defined in the claim as the “Listing Rule 4.3D Contravention” (para 63(a) of the Kirby 326 SFASOC) and the “Listing Rule 4.5A Contravention” (para 63(b) of the Kirby 326 SFASOC).  PwC’s knowing involvement in these contraventions was and is pleaded in Section S at paras 90 to 100.

  9. The starting point in the case of the Vlachos applicants was that which was already pleaded at paras 40A, 40C, 40D and 40E of the Fourth Amended Statement of Claim in VID 1041/2010. In short, the Vlachos applicants alleged a similar breach by CNP of its obligations under the ASX Listing Rules and, consequentially, a breach of s 674 of the Corporations Act 2001 (Cth). PwC’s knowing involvement in those contraventions is and was pleaded at paras 40J to 40L.

  10. The amendments sought by Kirby were evidently designed to achieve the following objectives:

    1.move the date in para 60 from “on or around 13 August” to “on or around 10 August”, move the date in para 62(a) from “on or around 13 August 2007” to “on or around 10 August 2007” and move the date in para 63(a) from “by no later than 28 August (or, alternatively, 29 August 2007)” to “by no later than 10 August 2007 (or, alternatively, shortly thereafter in August 2007)”;

    2.move the date of PwC’s alleged knowing involvement in the breaches alleged against CNP back to 10 August 2007 and alter the identity of the persons allegedly involved:  see para 95A (for ease of reference, the relevant paragraphs of the Kirby 326 SFASOC has been extracted in Annexure A);

    3.allege that PwC:

    … proposed the Deferred Disclosure Proposal [defined in para 96(a) of the Kirby 326 SFASOC] notwithstanding PWC also knew at mid August 2007 through Mr Cougle and/or Mr Fekete that:

    i.the Deferred Disclosure Proposal could only be implemented if Mr Cougle did not take any steps to comply with the Statutory Notification Obligation; and/or

    ii.Mr Cougle (as pleaded in paragraph 113) was required to comply with his Statutory Notification Obligation or, alternatively, Mr Cougle was required to take sufficient steps to commence the process of complying with the Statutory Notification Obligation so that (as pleaded in paragraph 114) CNP, faced with the prospect of Mr Cougle complying with his Statutory Notification Obligation, would have complied with Listing Rule 4.3D (or ceased its non compliance), 

    see para 96(b) and consequential amendments to paras 98 and 100;

    4.in relation to the existing pleading of an alleged agreement between CNP and PwC in para 97 (see Annexure A), add to the particulars a reference to evidence given by Mr Belcher at trial; and

    5.in relation to the existing pleading that PwC knew that the note to the accounts (pleaded in para 96(a)(iii)) was not in the Concise Financial Report for disclosure to the market and did not disclose all the Relevant Circumstances, add that PwC also knew that that conduct was in breach of Listing Rule 4.3D and/or s 674 of the Corporations Act 2001 (Cth): para 99.

  11. The amendments sought by the Vlachos applicants were evidently designed to achieve the following objectives:

    1.alter the dates of the alleged contraventions in paras 40A, 40C, 40E, 40F, 40J, 40K and 40L from 29 August 2007 to 14 August 2007;

    2.consequent upon amendments to paras 40C and 40D, alter the date of the alleged representation by silence in para 40F from 29 August 2007 to 14 August 2007; and

    3.in relation to the existing pleading of an alleged agreement between CNP and PwC in para 40J of the Vlachos 1041 FFASOC, add to the particulars a reference to matters the subject of evidence given by Messrs Cougle and Gore at trial.

    Rationale for application

  12. Kirby submitted that the amendments were necessary.  Put simply, Kirby submitted he was entitled to alter the way that he advanced issues against PwC relating to the reclassification of the JP Morgan Current Liability because:

    1.recently discovered documents dated 8 January 2008 (not discovered by PwC until 13 April 2012) revealed that staff of PwC who worked on the audit of CNP (Mr Duggan and Ms Evans), who were not called to give evidence by PwC, knew about the error in the classification of some of the current interest bearing liabilities of CNP on 10 August 2007 and because those documents (and the contents of them) provided additional facts and matters from which might be inferred the timing of discussions between representatives of PwC and Centro relating to that issue;

    2.other recently discovered documents dated 8 January 2008 (again not discovered by PwC until 13 April 2012) recorded internal (“and presumably candid”) discussions between, among others, Mr Fekete and Mr Cougle, which made no reference to a later account given by Mr Cougle as to the way in which PwC were said to have brought the Listing Rule obligations of CNP to the attention of representatives of Centro.

  13. The Vlachos applicants submitted that it was only after the evidence of Messrs Cougle and Gore that the state of the evidence concerning the first occasion on which PwC became aware of the JP Morgan Current Liability emerged clearly.

  14. PwC opposed the grant of leave to amend paras 95A, 96 and 99 of the Kirby 326 SFASOC and paras 40J and 40K of the Vlachos 1041 FFASOC on three general bases:

    1.no sufficient justification has been given for the “delay” in proposing the amendments and any such explanation should be given by way of affidavit;

    2.the amendments are “not clearly necessary” and are “not supported in the evidence”; and

    3.prejudice would be occasioned to PwC.

  15. PwCS has not filed any submissions in relation to the proposed amendments to the Further Amended Statement of Claim filed by Stott in VID 1028/2010.  I have assumed for the purposes of this judgment that PwCS maintains the same position in respect of the proposed pleading amendments as PwC.

  16. I will deal with each of PwC’s arguments in the context of the particular proposed amendments.

    Delay

  17. As noted above, Kirby explains his delay on the basis of the recently discovered 8 January 2008 documents, which are various drafts of a letter to ASIC which were never sent.  PwC submitted that Kirby has known since discovery was provided that the audit staff had identified by 14 August 2007 that the JP Morgan Current Liability was a potential adjustment to CNP’s financial report which was being investigated by CNP.  PwC further submitted that Kirby also had on discovery since December 2010 (in respect of the hard copy files) and June 2011 (in respect of the PwC Electronic File workpapers):

    1.from the hard copy audit files, a copy of the first page of a facsimile from JP Morgan which bears the annotation “3900-14x” and which contains a reference to a “Bridge Loan Facility Agreement dated 3 April, 2007”;

    2.a workpaper from the Electronic File titled “JP Morgan Drawdown Notice” which refers to the above workpaper 3900-14, and which was “completed” by Mr Dunlop on 10 August 2007; and

    3.a workpaper from the Electronic File titled “Long-Term Debt Lead Schedule” which also contains reference to the above workpaper 3900-14 and which was also “completed” by Mr Dunlop on 10 August 2007.

  1. Therefore, PwC submit that Kirby has known at all times since discovery was first given that PwC audit staff became aware, at some point in the period between 10 and 14 August 2007, of the potential need to reclassify the JP Morgan Current Liability, yet has always pleaded his case by reference to the events of 28 August 2007, and that the 8 January 2008 documents have done nothing to change the state of the applicants’ knowledge of the underlying circumstances.

  2. PwC’s submission is misconceived.  The amendments have been proposed following greater precision as to timing being revealed by recent PwC discovery, along with the evidence given at trial by Messrs Gore, Belcher and Cougle.  It was the 8 January 2008 documents which put the focus onto 10 August 2007, and put other documents, such as the workpapers identified above, into a new light.  It was also those documents that assisted in obtaining greater precision as to the timing of communications with Ms Evans and/or Mr Duggan about which Messrs Belcher and Gore gave evidence in cross-examination. 

  3. I do not accept that the applicants have in any relevant sense delayed in making their applications for leave to amend.  When PwC made further discovery the applicants moved promptly to amend their pleadings to reflect the matters shown by the further discovered documents.

    Amendments “not necessary” and “not supported in the evidence”

  4. In light of the 8 January 2008 documents and the evidence given at trial by Messrs Gore, Belcher and Cougle, it cannot be said that the amendments are “not supported in the evidence”.  Furthermore, the amendments may prove material.  As Kirby submitted, being a representative proceeding, the date upon which PwC engaged in contravening conduct may be determinative of parts of the claims of group members who purchased CNP securities between 10 and 28 August 2007.

    Prejudice

  5. PwC contends that they will suffer prejudice by reason of the fact that they have been denied the opportunity to cross-examine the Centro parties’ witnesses or lead evidence on this issue.  The proposed amendments do nothing more than specify an earlier date.  The matter which was the subject of the amendment was fully explored by all parties in cross-examination.  The relevant witnesses, including Messrs Gore, Belcher and Cougle, each gave their versions of events.  The failure to identify and disclose the classification of debts of CNP (and CER) during the audit is now admitted.  The amendments which are now sought seek to give an earlier date for when PwC knew facts which required consideration of classification.  I do not accept that PwC will suffer that or other prejudice by granting the applicants leave to amend.

  6. To the extent the amendments identify additional persons associated with PwC as having relevant knowledge, the amendments appear to be based upon the documents which PwC has only lately made available on discovery.  PwC suffers no prejudice on account of the amendments.

  7. PwC’s opposition to the Vlachos applicants’ proposed amendments to paras 40J and 40K was not separately particularised.  For the reasons stated above, PwC’s objections are rejected.  The Vlachos applicants sought to alter the date to “on or about 14 August 2007”.  That was, in substance, Kirby’s pleaded case before this latest round of amendments and a pleaded case to which PwC had not earlier objected. 

    GROUP2 IMPLIED REPRESENTATION: -

    Paragraphs 103, 105, 105A, 106, 106A and 107 of Kirby 326 SFASOC

  8. The “implied representation” case was pleaded at paras 103, 105, 105A, 106, 106A and 107 of the Fifth Further Amended Statement of Claim in VID 326/2008. 

  9. It was and remains a claim that PwC impliedly represented that the opinion of PwC was:

    1.that the only interest bearing liability of CNP that should be classified as a current liability in the Annual Report and the Concise Financial Report was the JP Morgan Current Liability; and/or

    2.that the only matter relating to misclassification of liabilities in the Preliminary Final Report necessary to take into account in CNP’s obligations under Listing Rule 4.3D, was the JP Morgan Current Liability.

  10. That claim against PwC has been pleaded against it since at least the date of Kirby’s Third Further Amended Statement of Claim, being 18 October 2011.  It has not substantively changed.  Contrary to PwC’s assertions, there is no “new” implied representation case.

  11. The principal change sought by the amendments was to include, as a plea in the alternative in para 103, a version of events consistent with that recounted by Mr Belcher during the course of the trial (should that version be found to be inconsistent and preferable to the version of events given by Mr Cougle).  The amendments also sought consequential amendments to paras 105 and 106, to change the date from 28 August 2007 to “10 August 2007 or shortly thereafter”, and paras 105A, 106A and 107, to change a reference to a defined term.

  12. Consistent with the Group 1 amendments, the specific change moved the date from “28 August 2007” to “28 August 2007 … or, alternatively, at the time the initial discussions took place in mid August between representatives of PWC and CNP as to a proposed reclassification of the JP Morgan Current Liability but before agreement had been reached between PWC and CNP as to any reclassification”:  see para 103 (the term “mid August 2007” is defined in para 95A(c) as “shortly after 10 August 2007 but prior to 29 August 2007”).  The proposed amendments present a range of dates as relevant.  It is neither necessary nor appropriate to consider the merits of any of those possible dates.  Moreover, it is unnecessary to consider any further questions of delay, necessity, evidentiary foundation and prejudice.  For the reasons stated earlier (see [17]-[24]), those contentions are rejected.

  13. Kirby should have leave to amend his claims in the manner proposed.

    GROUP 3 – EXTENSION OF ALLEGED KNOWING INVOLVEMENT OF PWC IN CENTRO’S FAILURE TO DISCLOSE THE ALLEGED “TOTAL JV DEBT OR THE CNP JV DEBT” IN ACCORDANCE WITH LISTING RULE 4.3A:

    Kirby 327 SFASOCParagraph 135 of Kirby 326 SFASOC, para 130 of the proposed Sixth Further Amended Statement of Claim filed by Kirby in VID 327/2008 () and paras 39V and 39W of Vlachos 1041 FFASOC

  14. This group of amendments involved the addition of individuals to the case of PwC’s knowing involvement in the failure of the Centro companies to disclose the alleged Joint Venture Debts. 

  15. The proposed amendments simply particularised the existing allegation that, as at 7 August 2007, PwC (through Mr Cronin and/or Mr Fekete) knew about the Total JV Debt and / or the CNP JV Debt. 

    Delay

  16. The evidence as to the involvement of Mr Fekete and Mr Cronin emerged during the trial and the delay is explicable on that basis.  Mr Cougle’s evidence was that Mr Cronin prepared the comfort letter dated 6 June 2007 which referred to the JV Debt.  It must be recalled that neither Mr Fekete nor Mr Cronin provided a witness statement or was called by PwC to give evidence.

    Amendments “not necessary” and “not supported in the evidence”

  17. For the reasons explained earlier, the proposed amendments cannot be said to be either unsupported by the evidence or unnecessary.

    Prejudice

  18. The issue to which the amendments relate was explored in detail with Mr Cougle in cross-examination.  The issue of who from PwC knew of the existence of the Total JV Debt and/or the CNP JV Debt was not a matter for cross-examination of Centro’s witnesses.

  19. The applicants should have leave to amend their claims in the manner proposed.

    GROUP 4 – PwCS’ knowledge as at 12 September 2007 (time PwCS provided Investigating Accountant’s Report):

    Stott 1028 SFASOCParagraphs 13(e), (g), (i1), (j) of the Second Amended Statement of Claim in VID 1028/2010 ()

  20. No separate submissions were filed in relation to the proposed amendments.  That is not surprising.  Since the pleading was filed in 2010, para 13 has been substantively in the form set out in Annexure B, absent the underlined passages which record the amendments now under consideration.

  21. Examination of the amendments which Stott proposes to para 13 demonstrates that they do not in any respect introduce any new or different allegation of such substance against PwCS as would require refusal of leave to amend.  At least as to part, they appear intended to reflect more closely the evidence that has been received without relevant objection.  PwCS identifies no arguable prejudice of any kind.

  22. Stott should have leave to amend his claims in the manner proposed.

I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Associate:

Dated:       8 May 2012

ANNEXURE A

60Irrespective as to its previous state of awareness of any misclassification, on or around 103 August 2007 or shortly thereafter, CNP became aware of circumstances (Relevant Circumstances) which were likely to affect materially the results or other information contained in the Preliminary Final Report being all or any of the following:

a.that CNP did have current interest bearing liabilities in an amount of not less than $1,096,936,000 which was due for repayment on or by 31 December 2007 (being a US$930,000,000 liability to JP Morgan (JP Morgan Current Liability)); and/or

b.that the August Debt Representation, that it had no current interest bearing liabilities, was wrong; and/or

c.that CNP would have on its balance sheet as at 30 June 2007 total current liabilities of at least $1,753,000,000 and total current assets of $1,337,000,000, being a deficiency in working capital of at least $415,000,000; and

d.that material information contained in the Preliminary Final Report (as to the amount of current interest bearing liabilities) would be different from information which would be in the Concise Financial Report and the Annual Report (if they were to be prepared in accordance with CNP’s Accounting Obligations).

61Notwithstanding the existence of the Relevant Circumstances, CNP:

a.      did not give immediately to the ASX an explanation of:

i.the Relevant Circumstances (or any of them); and

ii.the effects the Relevant Circumstances (or any of them) were expected to have on CNP’s current or future financial performance or financial position;

b.gave only to the ASX, at the time it lodged its statutory full year information with ASIC, its Concise Financial Report which document included a line item revealing the existence of a current liability in the amount of the JP Morgan Current Liability;

c.did not give to the ASX, at the time it lodged its statutory full year information with ASIC, an explanation of the Relevant Circumstances; and

d.did not explain to the ASX the Relevant Circumstances before 20 December 2007 being the date of a letter from the company secretary of CNP to the ASX.

62By:

a.On or around 103 August 2007 or shortly thereafter, CNP was obliged pursuant to ASX Listing Rule 4.3D to tell the ASX the Relevant Circumstances; and/or

b.18 September 2007, CNP was obliged pursuant to ASX Listing Rule 4.5A to tell the ASX the Relevant Circumstances.

63In the premises, by no later than:

a.1028 August 2007 (or, alternatively, shortly thereafter in 29 August 2007) CNP contravened section 674(2) of the CA by its failure to tell the ASX immediately the Relevant Circumstances (Listing Rule 4.3D Contravention) and thereafter until 20 December 2007 the Listing Rule 4.3D Contravention was a continuing contravention; and/or

b.18 September 2007 CNP contravened section 674(2) of the CA by its failure to tell the ASX immediately the Relevant Circumstances (Listing Rule 4.5A Contravention) and thereafter until 20 December 2007 the Listing Rule 4.5A Contravention was a continuing contravention.


ANNEXURE B

13As at 12 September 2007, being the time PWCS provided the Investigating Accountant’s Report, PWCS knew or ought to have known:

a.that the Appendix 4E Preliminary Final Report which had been lodged with the Australian Securities Exchange Limited (ASX):

i.by CER on 7 August 2007 (CER Preliminary Final Report) identified total interest bearing liabilities of $1,443,797,000 all of which were stated to be non-current interest bearing liabilities (CER August Debt Representation);

ii.by CNP on 9 August 2007 (CNP Preliminary Final Report) identified total interest bearing liabilities of $3,603,751,000 all of which were stated to be non-current interest bearing liabilities (CNP August Debt Representation);

Particulars

Mr Fekete and/or Mr Cronin and/or Mr McKenna and/or Mr Duggan and/or Staff, knew the terms of the financial reports of CNP as appearing in the CNP 2007 Preliminary Final Report, page 11 and the terms of the financial reports of CER as appearing in the CER 2007 Preliminary Final Report, page 3.

b.that there was “an issue relating to classification of debt” of CNP which had been required to be discussed and resolved with the Financial Accounting Manager, Mr Richard Gore, and the Corporate Treasurer, Mr Michael Zickert, being the debt owing by CNP to the Royal Bank of Scotland (RBS Classification Issue);

Particulars

The issue is that referred to by Mr Duggan in the Duggan Examination at page 22.

c.the details of “a lot of debt which had been used to fund an acquisition at the US level was provided by JP Morgan and that it was a bridge facility” and a current liability;

Particulars

Duggan Examination, page 10.

d.that PWC had been informed by CER (by Mr Zickert and Mr Gore) that the Centro Group's debt (other than a JP Morgan facility of no less than $1,096,936,000 which had been identified on 28 August 2007 as a current liability of CNP, being a loan for US$930,000,000 which was due to mature on or by 31 December 2007 (JP Morgan Current Liability)), and including CER debt, would roll over under existing facilities with a remaining term of at least 12 months (Rollover Representation);

e.that PWC had advised CNP that there needed to be an adjustment to the CNP accounts and that the PWC team considered that the JP Morgan Current Liability should be classified as a current liability;

Particulars

This advice was expressly conveyed by Mr Cougle on behalf of PWC to Mr Belcher on behalf of CNP at meetings at Mount Waverly on 28 August 2007 being the meetings between Mr Cougle and Mr Belcher referred to by Mr Cougle in Cougle Examination at pages 45 and 53; Mr Duggan was aware of the substance of these communications, Cougle Examination pages 46 and 53; Cronin affidavit [7] and [8]; or as identified by Mr Gore and representatives of PWC referred to in paragraph 17 of Exhibit 923 and T1582-1584.

f.that the CNP August Debt Representation in the CNP 2007 Preliminary Final Report was wrong and was to be materially different from the amount of current liabilities to be disclosed in the financial reports in its statutory full year information;

Particulars

The circumstances in which Mr Duggan became aware of the difference are referred to in the Duggan Examination, pages 9 and 10; Cronin affidavit [7]-[10]; Mr Fekete was also aware of the matters pleaded.

g.that PWC had only commenced undertaking any detailed investigation (such as there was) relating to the classification of Centro debt between current and non current when the RBS Classification Issue arose and that the issue of classification of debt warranted further investigation to ascertain whether Centro management had been through an appropriate classification process (Further Investigation Process); or, alternatively, had not undertaken any Further Investigation Process;

Particulars

Duggan Examination, pages 22 and 23
.

h.that PWC had relied upon the Rollover Representation in forming the opinion pursuant to section 307 of the CA that the financial reports of CER for the year ending 30 June 2007 were in accordance with the Accounting Policies, including the requirement that they were in accordance with obligations pursuant to sections 296 and 297 of the CA that CER prepare financial reports for a financial year in compliance with accounting standards (as defined in section 9 of the CA) including Australian Accounting Standard AASB 101 and that the financial reports presented a true and fair view;

Particulars

The Rollover Representation was expressly conveyed to Mr Duggan in the circumstances referred to by Mr Duggan in the Duggan Examination at pages 11, 12 and 19; the fact that PWC relied upon the Rollover Representation and that it was “reasonable and it made sense” is referred to by Mr Duggan at page 12 of the Duggan Examination and the reason why Mr Duggan and PWC were “comfortable” with the Rollover Representation and relied upon it is referred to at page 20.

i.that its Engagement Director, Mr Cronin, and its Engagement Manager, Mr Duggan, had (in informing their views in relation to the current liability position of CER in relation to the 2007 Audit), relied on the Rollover Representation despite:

i.the perceived need for a Further Investigation Process when the RBS Classification Issue arose;

ii.the PWC Audit Guide providing that representations by management as to a material matter could not be a substitute for other audit evidence that could reasonably be expected to be available;

iii.the fact that reliance upon the oral Rollover Representation was inconsistent with the particular requirement for close and detailed investigation because of the perceived need for the Further Investigation Process and the general requirement that an auditor, in the circumstances of an audit such as the 2007 Audit, needed to seek corroborative audit evidence from sources inside or outside the entity (including considering the terms of the facilities themselves) and evaluate whether representations made by management such as the Rollover Representation appeared reasonable and consistent with other audit evidence obtained;

Particulars

The particular requirement for the Further Investigation Process is referred to in the Duggan Examination, pages 22 and 23 and the general requirement is as set out in the PWC Audit Guide, PWC's guidelines for management representation letters paragraphs 4 to 7.

iv.the fact that the persons who made the Rollover Representation on behalf of CER had participated in making a misleading and deceptive representation (being the CNP August Debt Representation) and had stated, incorrectly, that the CNP Preliminary Final Report had been prepared in compliance with accounting policies relevantly identical to the Accounting Policies;

i1.further or in the alternative to (h) and (i), the view of PWC (as recorded in Exhibit 751) that all CNP debt other than the JP Morgan Current Liability was “open ended” (bring the same view of PWC in relation to all Centro Group Debt other than the JP Morgan Current Liability), was formed without adequate substantive testing being done to ascertain true current liabilities;

j.through Mr Fekete of the matters referred to in subparagraph 11(d)(vi) and, in particular, that:

i.PWC had advised CNP management that, by reason of the existence of the JP Morgan Current Liability, CNP should consider its Listing Rule disclosure obligations and despite this advice, on or about 29 August 2007 Mr Belcher advised PWC that CNP did not propose to give immediately to the ASX an explanation or, alternatively, that CNP did not propose to make a notification to the ASX;

ii.that as a consequence Mr Fekete knew that CNP had put “something out” in relation to its current liabilities, in the CNP Preliminary Final Report, “that was a billion dollars that happened to be in error”;

iii.that CNP was a listed disclosing entity and CNP, although required to notify the ASX immediately of matters in accordance with Listing Rule 4.3D, did not propose to do so and there existed a circumstance that gave Mr Fekete and the auditor, Mr Cougle, reasonable grounds to suspect a significant contravention by CNP of the CA and that, as a consequence, it was necessary for Mr Cougle to consider where “does that leave [PWC]” and the appropriate response of PWC to the non disclosure;

iv.that PWC had proposed to the management of CNP that the JP Morgan Current Liability be reclassified and that CNP put a note in its Annual Report and that the proposed note be to the effect that was subsequently included as part of Note 18 to the Notes to and forming part of the CNP Annual Report (but not in the Concise Financial Report) which was as follows: “(i)n the Appendix 4E issued on 9 August 2007 all interest liabilities were classified as non-current. Current interest bearing liabilities are being refinanced to be replaced by long term interest bearing liabilities”;

Particulars

The circumstances in which Mr Fekete became aware of these matters is detailed by Mr Cougle at page 53 of the Cougle Examination.

k.        through Mr Cronin and/or Mr Fekete of:

i.the importance of the reclassification of the JP Morgan Current Liability and that it had not (or had not sufficiently) been brought to the attention of the BARC or the directors of CER and CNP;

ii.that no detailed investigation had taken place or was conducted by PWC or PWCS or Centro management or directors of the CNP and CER entities to ascertain whether there was a problem with the classification of Centro Group debt which went beyond the JP Morgan Current Liability;

l.that no detailed investigation had taken place or was conducted to ascertain whether there was a problem with the classification of Centro Group debt which went beyond the JP Morgan Current Liability despite that fact that the RBS Classification Issue arose and that the issue of classification of debt warranted further investigation to ascertain whether Centro management had been through an appropriate classification process;

m.that by reason of the matters raised in this paragraph, the issue of proper classification of liabilities as current or non current within the Centro group was a matter requiring particularly close examination and scrutiny;

n.through Mr Grouios and/or Mr Fekete and/or Mr Duggan, by reason of their work on the CAWF Review, of the scheduled (as at 23 November 2006) maturity in December 2007 of Centro CMBS liabilities (being Centro’s Series 1 and Series 2 Commercial Mortgage Backed Securities issued by Centro Capital Pty Limited) being the scheduled maturity referred to at page 73 of the CAWF IM (PWC.502.112.0665);

o.through Mr Fekete and/or Mr Cronin and/or Mr McKenna and/or Mr Duggan that one of the transactions to be effected in implementing the Merger was a proposed Super Holding Trust Unit Transfer Agreement by which CER purchased units previously controlled by CNP in the Super Trust (an unlisted Australian trust of which CPT Custodian Pty Limited was the trustee), which transaction:

i.entitled New CER to rights and imposed liabilities in respect of underlying United States property assets;

ii.meant that (irrespective as to the true position as to control as at 30 June 2007) Super LLC would not, upon the completion of the transactions contemplated by the Merger, be owned on a 50/50 basis by CER and CNP but would be controlled by New CER;

iii.meant that if the Pro-forma Balance Sheet was a consolidated financial statement (which included the results of all controlled entities and had been prepared on the basis that the Merger was completed on 30 June 2007), it would be necessary to bring to account on a consolidated pro-forma balance sheet, as a liability of New CER, liabilities of Super LLC or, alternatively, proportionate liabilities of Super LLC.

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