Octaviar Administration Pty Ltd (in liquidation) v Craig; Octaviar Ltd (receivers and managers appointed) (in liquidation) v Craig
[2013] NSWSC 1116
•15 August 2013
Supreme Court
New South Wales
Medium Neutral Citation: Octaviar Administration Pty Ltd (in liquidation) v Craig and Ors; Octaviar Ltd (receivers and managers appointed) (in liquidation) v Craig and Ors [2013] NSWSC 1116 Hearing dates: 13 August 2013 Decision date: 15 August 2013 Before: Adamson J Decision: (1) In proceedings 292506 of 2012, grant leave to Octaviar Administration Pty Limited (in liquidation) to file and serve a Further Amended Statement of Claim in the form of the document MFI1;
(2) In proceedings 292490 of 2012, grant leave to Octaviar Limited (receivers and managers appointed) (in liquidation) to file and serve a Further Amended Statement of Claim in the form of the document MFI1.
(3) Unless an application is made by either party for a different costs order within seven days:
(a) The plaintiffs are, subject to (b), to pay the defendants' costs of the amendment, including costs thrown away.
(b) The costs of the hearing of the motion are to be costs in the cause.
Catchwords: PRACTICE AND PROCEDURE- application for leave to amend pleadings- pleadings to be read as a whole- causal nexus adequately pleaded Legislation Cited: - Corporations Act 2001 (Cth), s 307C(3), s 324CA, s 324CB, s 324CD, s 324CE
- Trade Practices Act 1974 (Cth)
- Fair Trading Act 1987 (NSW)
- Fair Trading Act 1989 (Qld)
- Fair Trading Act 1999 (Vic)Cases Cited: - Aon Risk Services Ltd v Australian National University [2009] HCA 27; 239 CLR 175
- Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394
- March v E & MH Stramare Pty Ltd [1991] HCA 12; 171 CLR 506
- Metropolitan Gas Co. v Federated Gas Employees' Industrial Union [1925] HCA 5; 35 CLR 449
- Wardley Australia Ltd v State of Western Australia [1992] HCA 55; 175 CLR 514Category: Interlocutory applications Parties: 2012/292506
Octaviar Administration Pty Ltd (in liquidation) (Plaintiff)
Mitchell Munro Craig and others (Defendant)
2012/292490
Octaviar Ltd (receivers and managers appointed) (in liquidation) (Plaintiff)
Mitchell Munro Craig and others (Defendant)Representation: Counsel: AG Bell SC and SW Aspinall (Plaintiffs)
JRJ Lockhart SC and JA Arnott (Defendants)
Solicitors: Henry Davis York (Plaintiffs)
Allens Linklaters (Defendants)
File Number(s): 2012/292490; 2012/292506 Publication restriction: Nil
Judgment
Introduction
Octaviar Limited (in liquidation) (Octaviar) and Octaviar Administration Pty Limited (in liquidation) (Octaviar Administration) have each brought proceedings against the named defendants as partners of KPMG (KPMG), an accountancy firm, for damages for breach of contract, negligence and misleading or deceptive conduct in breach of the Trade Practices Act 1974 (Cth) and Fair Trading Acts of NSW, Queensland and Victoria.
Octaviar was incorporated on 4 February 2004. It was placed into voluntary administration on 13 September 2008, became the subject of a deed of company arrangement on 12 January 2009, was placed into provisional liquidation on 31 July 2009 and was placed into liquidation on 9 September 2009. Octaviar Administration was one of Octaviar's wholly owned subsidiaries and provided administrative and clerical services to Octaviar and the group of companies of which Octaviar was the ultimate holding company. It also performed a treasury function for the group. Octaviar Administration was also placed in voluntary administration, was the subject of a deed of company arrangement, was placed into provisional liquidation and was wound up on 9 September 2009.
At all material times, KPMG were the auditors of the Octaviar group and also provided other professional services to the group. The plaintiffs allege that Mr Craig, the first defendant, was the lead auditor in respect of the 2006 and 2007 audits.
The proceedings were commenced by statements of claim filed on 19 September 2012, which were subsequently amended by pleadings filed on 17 October 2012. KPMG were first served in 2013 and filed an appearance on 11 April 2013. No defence has yet been required to be filed, by reason of the attempts to resolve KPMG's objections to the pleadings, initially by correspondence, and eventually by the motion for leave to amend. Accordingly there is no indication of what matters are in dispute. For this reason, in so far as facts are stated in these reasons, they should be taken as no more than allegations.
The parties made submissions by reference to the draft pleading in the proceedings commenced by Octaviar Administration. Accordingly the reference to paragraph numbers in these reasons is a reference to that pleading. Although the pleadings are not identical in each proceedings, they are sufficiently similar not to require separate consideration of them, except when it comes to making final orders.
The application for leave to amend
By notice of motion filed on 5 August 2013, Octaviar and Octaviar Administration (the plaintiffs) seek leave to amend their pleadings. KPMG resist the amendment in so far as it adds paragraphs referable to what has been described as the "independence requirement". This term is, in part, referable to the requirements of Part 2M.4 of the Corporations Act 2001 (Cth), including s 307C(3), 324CA, 324CB, 324CD and 324CE which are defined in the pleading as "Auditor Independence Requirements".
KPMG object to the amendments on the grounds that the allegations made by the plaintiffs in relation to KPMG's lack of independence in carrying out the 2007 audit do not identify a causal connection between the alleged breach and any loss. This issue arises in both proceedings.
In the course of the hearing of the motion it became apparent from the submissions of Mr Lockhart SC, who appeared for KPMG, that KPMG also objected to paragraphs in the pleading as filed. He sought to have me determine whether these paragraphs ought remain although no motion to strike out the pleadings had been filed. Mr Bell SC, who appeared for the plaintiffs, objected to this course and submitted that the only motion before the Court for determination was the plaintiffs' application for leave to amend and that I should not entertain any other application without notice.
In many circumstances it is desirable that an amendment application and a strike-out application be heard together in order that any outstanding issues with the pleading can be resolved in a single hearing. I accept that in correspondence between the solicitors, KPMG has objected to certain paragraphs in the existing pleading. However, in the absence of a motion, which gives the plaintiffs adequate time to consider the paragraphs objected to, I do not consider that it would be fair to the plaintiffs either to defer the determination of their amendment application or to require them to deal with a strike-out application of which they had no specific notice. I asked KPMG in the course of the hearing to provide me with a document listing the paragraphs of the amended pleading to which objection is taken. Mr Lockhart indicated that KPMG would also provide a list of paragraphs in the pleading as filed to which objection is taken. I do not, for the reasons given above, propose to deal with those paragraphs, but only the paragraphs in the proposed pleading, except in so far as the proposed pleading is to be understood by reference to those paragraphs.
In order to understand KPMG's opposition to the proposed amendment it is necessary to set out in brief the allegations made against KPMG which touch on the independence requirement. The pleadings are, as is not uncommon in such cases, lengthy and detailed. The parties have requested that I decide the amendment application as a matter of urgency since there is a potential limitation point that could shortly arise, in that the 2007 audit report was provided by KPMG on 20 August 2007. The plaintiff accepts that an argument may be available that any new cause of action for breach of contract filed after 20 August 2013 might be statute-barred since such a cause of action accrues six years after breach, rather than when the damage is suffered as in the case of tort or damages for misleading and deceptive conduct.
By reason of time constraints I shall endeavour to be brief in delivering these reasons in order to afford the parties sufficient time to take what steps they are advised to take before the expiry of the limitation period. In these circumstances my summary of the plaintiffs' cases as pleaded will be relatively short and is not intended to paraphrase, except in general terms, the allegations contained in the pleading or the proposed amended pleading.
Summary of allegations concerning KPMG's lack of independence
Allegations relevant to KPMG's alleged lack of independence are made in the pleading as filed and also in the paragraphs sought to be added in the proposed draft. The plaintiffs' case, by reference to these paragraphs is summarised below. Except where indicated the paragraphs referred to are in the pleading as filed.
(1) KPMG was required to meet the independence requirements specified in the Corporations Act (defined as Auditor Independence Requirements): ([21(e)]).
(2) KPMG had a contractual requirement to meet their statutory obligations as auditor, including the Auditor Independence Requirements: ([22(a)]).
(3) It was an implied term of the 2006 and 2007 contracts of retainer that KPMG would give a declaration that they had complied with the Auditor Independence Requirements only if this were true ([23(d)]) and would perform their duties with due care and skill.
(4) KPMG had a Conflict of Interest (as defined) in relation to the 2007 audit and breached the Auditor Independence Requirements ([85]-[102]).
(5) The Conflict of Interest arose from the following three matters ([98]).
(a) The quantum of fees earned by KPMG from non-audit services provided to the Octaviar Group ([98(a)]). It is alleged that the 2007 Financial Report quantified audit services of $483,600 and non-audit services of $771,098 ([92]) and that by 30 June 2007 there were unbilled fees of at least $3m and expected future fees of $694,000 relating to vendor due diligence performed by KPMG for the sale of an equity interest in Stella ([90] and [93]).
(b) The significance of work performed by KPMG with respect to Stella, a major business undertaking of the Octaviar Group ([98(b)]). The assets and liabilities of Stella were classified in the 2007 financial report as assets held for sale on acquisition. KPMG had identified a going concern risk if Stella was not sold by 30 June 2007.
(c) The relationship between KPMG and Mr Anderson ([98(c)]). Mr Anderson had been employed by KPMG from 1980 until 1994; he had been a partner of KPMG from 1994 until 2002 and had specialised in audit services. He subsequently became the Chief Financial Officer of the Octaviar Group and was the KPMG audit team's main point of contact with the Octaviar Group ([97]).
(6) KPMG ought to have applied to ASIC for consent to resign as auditors of the plaintiffs and companies within the Octavia Group ([103]).
(7) Carrying out the 2007 audit in circumstances of the Conflict of Interest was itself a breach of contract and negligent ([103AA] of the proposed pleading).
(8) Carrying out the 2007 audit in circumstances of the Conflict of Interest contributed to the other breaches of contract, negligence and misleading and deceptive conduct ([103A] of the proposed pleading).
(9) KPMG's lack of independence is pleaded as a particular of negligence in relation to each of the other complaints made by the plaintiffs against KPMG in relation to the 2007 audit:
(a) Failed adequately to consider the Reverse Listing (a proposed transaction that would affect the shareholding of companies in the Octaviar Group that were wholly owned by Octaviar. The transaction was the subject of Heads of Agreement entered into on about 22 May 2007 but it had not been completed, or indeed substantially performed, by 30 June 2007): ([124(i)] of the proposed pleading).
(b) Failed properly to consider the adequacy of the provision for the 2007 PAC Receivables Impairment (PAC was a New Zealand company that was ultimately wholly owned by Octaviar. Its primary business was to raise money from the public of New Zealand and then lend the proceeds in the form of funding of loans secured by mortgages over real estate): additional particular (iv) added by proposed pleading to [135].
(c) Failed properly to review the PIC Receivables Impairment of the $97.5m loan (PIC was a company created by the Octaviar Group as a securitisation vehicle with the principal purpose of meeting its business needs, including for funds): additional particular (iv) added by the proposed pleading to [147].
(d) Failed adequately to investigate the nature and circumstances of the Proposal (a consolidation involving a retirement village portfolio): additional particular (H) added by the proposed pleading to particular (ii) to [160].
(e) Failed adequately to investigate and consider the transactions relating to the Remaining HFA Shares (being shares that were owned by one of Octaviar's wholly owned subsidiaries): additional particular (xii) added by the proposed pleading to [176].
(f) Failed adequately to investigate and consider the transactions relating to the sale of shares in RAP (a wholly owned subsidiary of Octaviar): additional particular (J) added by the proposed pleading to particular (ii) to [194].
(g) Failed properly to consider whether the accounts of PIF should have been consolidated into the 2007 Consolidated Financial Statements (PIF was a managed investment scheme. The majority of the directors of its responsible entity were employees of the Octavia Group. Octavia was bound to provide funds to the responsible entity to meet any relevant shortfall.): additional particular (M) added by the proposed pleading to particular (ii) to [213].
(h) Failed adequately to consider the correct carrying value of Stella and the Going Concern Assumption (an implied term): [276(n)] of the proposed pleading.
(10) As a result of KPMG's breaches of contract, duty of care and misleading or deceptive conduct, the directors of Octaviar believed that KPMG had not contravened the Auditor Independence Requirements: [309].
(11) As a result of the directors' beliefs, Octaviar continued to trade as it had previously traded: [311].
(12) But for the defects in the audits, Octaviar would have proceeded to appoint an external controller by about 1 December 2007 and would therefore have avoided losses which it incurred by continuing to trade: [317]-[320].
Each of the paragraphs sought to be introduced by the draft pleading referred to above is objected to ([103A], [103AA], [124(i)], particular (iv) to [135], particular (iv) to [147]; particular (ii)(H) to [160]; particular (xii) to [176]; particular (ii)(J) to [194]; particular (ii)(M) to [213] and [276(n)]).
The proposed amendment to add paragraphs [103A] and [103AA] requires consideration of the terms of the paragraphs; whereas the remaining paragraphs objected to ([124(i)]; particular (iv) to [135]; particular (iv) to [147]; particular (ii)(H) to [160]; particular (xii) to [176]; particular (ii)(J) to [194]; particular (ii)(M) to [213] and [276(n)]) can be dealt with together since they follow the same formula and were not distinguished in submissions.
General principles: whether amendments ought be allowed
Because of the time at which the amendment is sought, there is no ground to refuse it on the basis of delay, unfair prejudice, or that allowing the amendment would interfere with timely resolution of the dispute or otherwise undermine confidence in the legal system (Cf. Aon Risk Services Ltd v Australian National University [2009] HCA 27; 239 CLR 175 at [5], [30], [95], [102]-[103]). It is of significance that this is the first amendment application since the pleading was served and that KPMG has not yet been required to file a defence.
Actions for breach of contract and negligence against auditors may, in their nature, pose greater challenges to the pleader than other proceedings, including other professional negligence claims. It is desirable that any difficulties with the pleading be identified at an early stage before a defence is filed and evidence required to be served. The correspondence between the parties' solicitors relating to the pleading shows that there has been appropriate consultation and consideration before the filing of the motion for leave to amend.
Amendments ought be allowed unless they are futile because they are obviously bad in law. However, the threshold for refusing an amendment on this basis is high in that the pleading must be so obviously bad in law that it does not raise an arguable claim. As Dawson J said in Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394 (Verwayen) at 456:
"In granting leave to amend, a court is concerned with the raising of issues and not with their merits. Of course, an amendment which is futile because it is obviously bad in law will not be allowed. But it is no ground for refusing an amendment that it raises a claim or defence which ought not to succeed. That will be an issue upon trial."
Paragraphs [103AA] and [103A]
The proposed pleading seeks to add the following paragraphs to which the defendants object:
103AA. In carrying out the 2007 Audit while it had a Conflict of Interest, and while it had not complied with the Auditor Independence Requirements. KPMG:
(a) breached its Auditor's Contractual Obligations: and
(b) breached its duty to act with Superior Skill and Care, or alternatively its duty to act with reasonable skill and care, to the plaintiff.
Particulars
Failing to carry out the 2007 Audit with the independence and with the objective and impartial judgment required of an auditor acting with Superior Skill and Care, or alternatively reasonable skill and care.
103A. In relation to the 2007 Audit. KPMG's Conflict of Interest and failure to comply with the Auditor Independence Requirements materially contributed to:
(a) the breaches by KPMG of its Auditor's Contractual Obligations hereinafter pleaded at paragraphs 104 to 278;
(b) the breach of KPMG's duty of care pleaded at paragraph 279;
(c) KPMG's conduct in making the 2007 Audit Representations and the Going Concern Representations.
The effect of [98] on [103AA] and [103A]
Mr Lockhart submitted that [98] in the pleading as filed (which is paraphrased in the summary of the plaintiffs' allegations set out above) was objectionable. He contended that it was embarrassing because it did not specify whether the Conflict of Interest (as defined) was actual or perceived and that, as it was a serious allegation, it was not a matter that ought be left to be clarified by particulars.
Mr Lockhart also submitted that it was necessary for the plaintiffs to make specific allegations as to the way in which the three matters referred to in [98] actually or potentially affected KPMG's performance of their work. He submitted that the plaintiffs were obliged to plead the factor or factors that actually motivated the auditors to do otherwise than perform their statutory duty to be impartial.
He contended that the deficiencies in [98] infected [103AA] and [103A] and that for this reason, although there was no strike out motion before the Court, the Court ought not allow [103AA] and [103A] to be added.
The plaintiffs submitted that [98] was not embarrassing. Although the paragraph did not specify whether the Conflict of Interest was actual or perceived, a fair reading of the pleading as a whole made it plain that actual Conflict of Interest was alleged in so far as KPMG's own performance of its obligations was affected. In so far as the directors' appreciation of KPMG's Conflict of Interest was concerned, a perceived conflict was sufficient since the directors, had they been aware of the perceived conflict, would have be inclined to treat KPMG's advice and audit in a different way.
I accept the plaintiffs' submissions that [98] is sufficiently pleaded so as not to give rise to any consequential objection to [103AA] and [103A]. Although whether the Conflict of Interest is actual or potential is a matter of importance I see no reason why it cannot be the subject of a request for particulars and why it is necessary that it be included in the pleading.
In any event, as Mr Bell SC submitted, it is necessarily the case that the Conflict of Interest is actual at least in so far as it is alleged to affect KPMG's conduct of its audit role. A fair reading of the pleading as a whole makes this plain. A pleading ought be read and considered as a whole. If a matter that might be unclear when reading a paragraph of a pleading in isolation can be resolved by a fair reading of the pleading as a whole, then it is not necessary, in my view, that the pleading be amended to specify that which can fairly be understood. As Isaacs and Rich JJ said in Metropolitan Gas Co. v Federated Gas Employees' Industrial Union [1925] HCA 5; 35 CLR 449 at 455:
"It is a received canon of interpretation that every passage in a document must be read, not as if it were entirely divorced from its context, but as part of the whole instrument. Ex antecedentibus et consequentibus fit optima interpretatio. In construing an instrument,
every part of it should be brought into action, in order to collect from the whole one uniform and consistent sense, if that may be done, or in other words, the construction must be made upon the entire instrument, and not merely upon disjointed parts of it; the whole context must be considered, in endeavouring to collect the intention of the parties, although the immediate object of inquiry, be the meaning of an isolated clause
- Broom's Legal Maxims (9th ed ), pp 367 and 368, and cases there cited."
I reject KPMG's submission that it is necessary for the plaintiffs to specify how the quantum of non-audit fees, the due diligence work with respect to Stella and the relationship between KPMG and Mr Anderson is said to have compromised KPMG's audit role. For the purpose of the pleading it is sufficient that the plaintiffs have alleged that these matters did compromise the performance of the audit role.
The facts alleged in [98] are material facts and need to be pleaded to put KPMG on notice that the case against them is, as I apprehend it, that the performances of their duties to the plaintiffs were adversely affected by their own financial interest in fee-generation from other services which depended on the plaintiffs' continuing to trade and also by the close personal and professional relationship between those performing the audit work and Mr Anderson, the plaintiffs' Chief Financial Officer. If any further detail be sought, it can be the subject of a request for particulars, the answers to which will confine the plaintiffs. There is no need, in my view, for the pleading to descend to any greater detail than in the current draft. The questions postulated by Mr Lockhart in the course of oral argument, including whether it was a form of friendship that led to an attitude of non-enquiry or an acceptance by KPMG of whatever Mr Anderson said without further enquiry or investigation based on past association or professional deference, need not be answered in the pleading.
For these reasons I do not consider [98] to be objectionable and therefore I do not consider that [103AA] and [103A], in so far as they depend on it, can be impugned on the basis of any deficiency in [98].
Whether causation is adequately pleaded
The more substantive objection is the one concerning causation. Mr Lockhart submitted that [103AA] and [103A] ought not be allowed in the pleading because they were manifestly insufficient on their face to plead a causal nexus between the alleged Conflict of Interest and the breaches alleged, which was required for the causes of action to be made out.
Mr Lockhart submitted that the consequence of the alleged breach appeared in [103] in the pleading as filed, namely that KPMG ought to have applied to ASIC for consent to resign as auditors. He submitted that as a matter of "common sense and logic" this was the actual result of any alleged breach of the independence requirement and that it had been sufficiently pleaded. He submitted that what is missing from [103AA] and [103A] is any indication of what KPMG did or failed to do as a result of the Conflict and, more to the point, what would have occurred had they done what they ought to have done.
The plaintiffs' response to KPMG's objection that no causal link had or could be established is, in general terms, that KPMG's lack of independence is pleaded at three levels of causation:
(1) KPMG's conduct in performing the 2007 audit while KPMG lacked independence was itself negligent conduct which caused loss;
(2) KPMG's lack of independence materially contributed to other aspects of the audit which KPMG conducted negligently;
(3) KPMG's false assertion that they were independent was relied upon by Octaviar's directors and its controlled entities in ways which caused Octaviar to suffer loss and damage.
Because the issue of causation becomes clearer when one goes to the other paragraphs objected to, I propose to address the parties' submissions further by reference to the proposed addition to the pleading regarding Reverse Listing in [124(i)]. As neither party has suggested that there is a reason to distinguish [124(i)] from the other paragraphs objected to that follow it, I do not propose to consider the other paragraphs separately.
Alleged breaches relating to Reverse Listing
The proposed addition to the pleading relevant to Reverse Listing is [124(i)]:
124. KPMG:
...
(i) failed to adequately consider the Reverse Listing and whether OL had Control of the New NZ Structure (or alternatively PAC and PIC) with the independence and with the objective and impartial judgment required by the Auditor Independence Requirements and required of an auditor acting with Superior Skill and Care, or alternatively reasonable skill and care;
KPMG's objection to this paragraph is twofold: first, that it is not clear what the auditor ought to have done, had they approached the issue with an impartial mind, and secondly, that it is not connected by the pleading to loss suffered by the plaintiffs.
As I understand the plaintiffs' case as pleaded, including the proposed pleading, it is that, as a result of KPMG's failure to apply an impartial mind to the Reverse Listing, they gave an unqualified audit opinion notwithstanding that the Reverse Listing was incorrectly treated in the accounts. This defect in the accounts led the directors to cause Octaviar to continue to trade.
Had the audit role been performed impartially, the Reverse Listing would have either been treated differently in the accounts or the auditors would not have given an unqualified audit opinion on them. In this event, a less sanguine picture of Octaviar's fortunes would have been apparent to the directors who, in turn, would have caused Octaviar to cease to trade and appointed an external controller earlier and avoided losses. This aspect of the case appears from [309] and [311] which makes allegations of the causal connection between KPMG's breaches and the loss suffered by Octaviar.
On the question of material contribution to loss it is sufficient for the plaintiffs to establish that their loss was "caused or materially contributed to" by the defendant's wrongful conduct: March vE & MH Stramare Pty Ltd [1991] HCA 12; 171 CLR 506 at 514 per Mason CJ. Further, at common law and under the Trade Practices Act and Fair Trading Acts, acts done by the representee directors in reliance on a misrepresentation constitute a sufficient connection to satisfy the concept of causation: Wardley Australia Ltd v State of Western Australia [1992] HCA 55; 175 CLR 514 at 525.
I consider these allegations to be sufficient to link the allegation in [124(i)] with the loss alleged to have been suffered by the plaintiffs.
The relevant counterfactual: objection to [309]-[313] of the existing pleading
Mr Lockhart separately objected to paragraphs within the pleading that relate to the misleading and deceptive conduct aspect of the case. He contended that [309(e)] and [311] could not stand. The plaintiffs allege that by reason of KPMG's breaches the directors of Octaviar believed that, relevantly:
KPMG has not contravened the Auditor Independence Requirements of the Corporations Act. [309(e)]
Paragraph [312] alleges that KPMG had contravened the Auditor Independence Requirements. Causation is alleged in [313]. Relevantly [313(c)] alleges that if KPMG had complied with their legal obligations, they would have informed the directors that they had contravened the Auditor Independence Requirements. Paragraph [314] relevantly alleges that if the directors had been informed of matters including the contravention referred to above, they would have done certain things, including appointing an external controller to Octaviar.
Mr Lockhart submitted that there is nothing in [314] that could, on any sensible or logical view, reflect what would have happened if KPMG had informed the directors that they had breached the Auditor Independence Requirements of the Corporations Act. He submitted that the only sensible counterfactual was that which was pleaded in [103], namely that KPMG would have sought ASIC's permission to resign.
I have set out these submissions in order to address KPMG's submission that I ought refuse leave to amend because of the deficiencies in the existing pleading. I am satisfied that these paragraphs do not affect, in any material way, the view I have formed that the amendments ought be allowed. I do not consider it to be appropriate for the reasons earlier set out that I consider these submissions further since they are properly considered in the context of any strike-out application that is brought. Nonetheless, similar considerations apply to strike-out applications as apply to amendment applications. Accordingly, an amendment ought not be refused or a pleading struck out on the ground that it ought not succeed, since the merits of an allegation are to be determined at trial: Verwayen at 456 per Dawson J.
Costs
The plaintiffs seek an order that the costs of the motion be costs in the cause (prayer (2) of the notice of motion). I have not heard the parties on costs. In order to avoid a further hearing on costs if possible, I propose to set out my reasons for the costs order that will be made if neither party seeks a different order.
The general principle is that the amending party ought pay the costs occasioned by the amendment, including costs thrown away. I apprehend that there has been substantial agreement between the parties as to the amended pleading which has reduced the length of the hearing and ambit of the notice of motion. The plaintiffs have, however, been successful on their notice of motion, since the hearing would have been avoided if KPMG had consented to the proposed amendments which have been the subject of the grant of leave. In all the circumstances I consider that the appropriate order is that the plaintiffs pay the costs of the amendment including the costs thrown away by the amendment, subject to the costs of the hearing of the motion which are to be the costs in the cause. This order is subject to the parties' right to seek a different order.
Orders
I make the following orders:
(1) In proceedings 292506 of 2012, grant leave to Octaviar Administration Pty Limited (in liquidation) to file and serve a Further Amended Statement of Claim in the form of the document MFI1;
(2) In proceedings 292490 of 2012, grant leave to Octaviar Limited (receivers and managers appointed) (in liquidation) to file and serve a Further Amended Statement of Claim in the form of the document MFI1.
(3) Unless an application is made by either party for a different costs order within seven days:
(a) The plaintiffs are, subject to (b), to pay the defendants' costs of the amendment, including costs thrown away.
(b) The costs of the hearing of the motion are to be costs in the cause.
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Decision last updated: 15 August 2013
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