Smith v Australian Executor Trustees Ltd

[2017] NSWSC 1406

Supreme Court

New South Wales

Medium Neutral Citation:

Smith v Australian Executor Trustees Limited;; Creighton v Australian Executor Trustees Limited [2017] NSWSC 1406

Hearing dates:

26 September 2017

Date of orders:

13 October 2017

Decision date:

16 October 2017

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

(1) PwC’s application for summary dismissal of the second cross claim is dismissed.
(2) Leave to file the proposed amended second cross claim in the form annexed to the affidavit of AET’s solicitor be refused.
(3) Those paragraphs of the second cross claim alleging: breach of duty of care by PwC ([18], [56], [94], [132]) and causation of loss ([19], [57]; [95], and [133]) (those paragraphs relating to the negligence claims for all financial years); audit wrongdoing and causation of loss ([23], [26], [31], [33], [61], [64], [69], [71], [99], [102], [107], [109], [137], [140], [145], [147]) (those paragraphs relating to the allegations of misleading and deceptive conduct for all financial years); and the corresponding allegations in the contribution claims for all financial years ([39], [40], [41], [77], [78], [79], [115], [116], [117], [153], [154], and [155]), as well as references to corresponding (but not specified) provisions of legislation in other States or Territories both in the claims directly made by AET against PwC and in the contribution claims, be struck out.
(4) AET is directed to serve a further proposed amended second cross claim in accordance with these reasons within 14 days and, if consent to the filing of that further proposed amended second cross claim is not forthcoming from PwC, then AET is to apply to Ball J’s associate to have the matter relisted before his Honour to determine whether leave should be granted to AET to file the said further proposed amended second cross claim.
(5) Notice of motion filed 30 June 2017 is otherwise dismissed.
(6) AET is to pay PwC’s costs thrown away by any amendment allowed to the second cross claim.
(7) Costs of the notice of motion, so far as they relate to PwC’s summary dismissal claim, be costs in the cause and, so far as they relate to the application to strike out parts of the second cross claim, be borne by AET.

Catchwords:

PRACTICE AND PROCEDURE – applications for summary dismissal pursuant to r 13.4 and/or to strike out parts of the pleadings pursuant to r 14.28 of the Uniform Civil Procedure Rules 2005 (NSW)

Legislation Cited:

Australian Securities and Investments Commission Act 2001 (Cth)
Civil Liability Act 2002 (NSW), ss 5B, 5D(1)(a), 5D(1)(b)
Civil Procedure Act 2005 (NSW)
Corporations Act 2001 (Cth), ss 283F, 283DA, 313, 318
Fair Trading Act 1987 (NSW)
Fair Trading Act 1999 (Vic), s 6(2)
Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 5(1)(c)
Trade Practices Act 1974 (Cth), s 52
Trade Practices Act 1974 (NSW)
Uniform Civil Procedure Rules 2005 (NSW), rr 13.4, 14.28
Wrongs Act 1958 (Vic), s 23B

Cases Cited:

ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65
ACQ Pty Ltd v Cook (2008) 72 NSWLR 318; [2008] NSWCA 161
Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41
Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310
ANZ Banking Group Ltd v Turnbull (1991) 33 FCR 265
Banque Commerciale SA (in Liq) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11
Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334
Bathurst Regional Council v Local Government Financial Services Pty Ltd (No. 2) (2011) 82 ACSR 617; [2011] FCA 309
Bialkower v Acohs Pty Ltd (1998) 83 FCR 1
Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863
Brambles Australia Ltd Trading as CHEP Australia v Tatale Pty Ltd [2006] NSWSC 204
Brookfield Multiplex Ltd v Owners Corp Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36
Bruce v Odhams Press Ltd [1936] 1 KB 697
Bryan v Maloney (1995) 182 CLR 609; [1995] HCA 17
Built NSW v EvolveBuilt Contracting [2014] NSWSC 255
Burke v LFOT Pty Ltd (2000) 178 ALR 161; [2000] FCA 1155
Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17
Caason Investments v Cao (2015) 236 FCR 322; [2015] FCAFC 94
Caltex Oil (Australia) Pty Ltd v Dredge “Willemstad” (1976) 136 CLR 529
Caltex Refineries (Qld) Pty Limited v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258
CJD Equipment v A&C Constructions [2009] NSWSC 1362
Cox v Journeaux (No. 2) (1935) 52 CLR 713
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
Dorrough v Bank of Melbourne Limited [1995] FCA 1573
Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; [1997] HCA 8
Garzo v Liverpool/Campbelltown Christian School Ltd [2011] NSWSC 292
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69
Graphite Energy Pty Ltd v Lloyd Energy Systems Pty Ltd [2014] NSWSC 1326
Gunns Ltd v Marr [2005] VSC 251
Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709
HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in Liq) (No 2) [2016] FCA 446
HIH Claims Support Ltd v Insurance Australia Ltd (2011) 244 CLR 72; [2011] HCA 31
Hoxton Park Residents Action Group Inc v Liverpool City Council [2012] NSWSC 1026
Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10
Hunter and New England Area Health District v McKenna (2014) 253 CLR 270; [2014] HCA 44
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1219
Ingot Equity Capital Markets Pty Ltd v Macquarie Equity Capital Investments Ltd [2004] NSWSC 1136
Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566
Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564; [2000] FCA 1572
Jones v Mortgage Acceptance Nominees Ltd (1996) 63 FCR 418Jonstan Pty Limited v Nicholson (2003) 58 NSWLR 223; [2003] NSWSC 500
Leitch v Abbott (1886) 31 Ch D 374
Lukey v Corporate Investment Australia Funds Management Pty Ltd [2005] FCA 298
McGuirk v University of New South Wales [2009] NSWSC 1424
Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591
Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254; [2000] HCA 61
NSW v Spearpoint [2009] NSWCA 233
Paul v Cooke (2013) 85 NSWLR 167; [2013] NSWCA 311
Perera v Genworth Financial Mortgage Insurance Pty Ltd [2017] NSWCA 19
Perpetual Trustee Company Ltd v Milanex Pty Ltd (in liq) [2011] NSWCA 367
Perpetual Trustees Victoria Ltd v Dunlop [2009] VSC 331
Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36
PPK Willoughby Pty Ltd v Roads and Maritime Services [2014] NSWSC 407
Ramsey v Vogler [2000] NSWCA 260
Redbro Investments Pty Ltd v Ceva Logistics (Australia) Pty Ltd [2015] NSWCA 73
Re HIH Insurance Ltd (in liq) (2016) 113 ACSR 318; [2016] NSWSC 482
R Lowe Lippmann Figdor & Franck v AGC Ltd [1992] 2 VR 671
Schellenberg v Tunnel Holdings Pty Limited (2000) 200 CLR 121; [2000] HCA 18
Shaw v State of New South Wales [2012] NSWCA 102
Shelton v National Roads and Motorist Association Ltd (2004) 51 ACSR 278; [2004] FCA 1393
Skalkos v Smiles [2006] NSWSC 192
Stuart v Kirkland-Veenstra (2009) 237 CLR 215; [2009] HCA 15
Sullivan v Moody (2001) 207 CLR 562; [2001] HCA 59
Sunlea Enterprises Pty Ltd v Pollock [No 3] [2015] WASC 330
Su v Direct Flights International Pty Limited [1998] ATPR 41-662
Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (a Firm) [2015] FCA 1098
Tame v State of NSW; Annetts v Australian Stations Pty Ltd (2002) 211 CLR 317; [2002] HCA 35
Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951
Thorp v Holdsworth (1876) 3 Ch D 637
Travel Compensation Fund v Tambree (2005) 224 CLR 627; [2005] HCA 69
Ultramares Corporation v Touche (1931) 174 NE 441 Wallace v Kam (2013) 250 CLR 375; [2013] HCA 19
Waller v James (2015) 90 NSWLR 634; [2015] NSWCA 232
Weston v Publishing and Broadcasting Ltd (2012) 88 ACSR 80; [2012] NSWCA 79
Weston v Publishing and Broadcasting Ltd(2011) 83 ACSR 206; [2011] NSWSC 433
Whyte v Ahrens (1884) 26 Ch D 717;
Williams & Humbert v W & H Trade Marks (Jersey) Ltd [1986] AC 368
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16
Wride v Schulze [2004] FCAFC 216
X (Minors) v Bedfordshire County Council [1995] 2 AC 633
Young Investments Group Pty Ltd v Mann (2012) 293 ALR 537
Young v Tieco International (1999) 182 LSJS 367

Texts Cited:

J Campbell, “Contribution, Contributory Negligence and Section 52 of the Trade Practices Act” (1993) 67 ALJ 87

Category:

Procedural and other rulings

Parties:

In the Smith proceedings (2015/00171592):

 

John Smith (First Plaintiff)
Rosemary Smith (Second Plaintiff)
Australian Executor Trustees Limited (Defendant/Cross-Claimant on 2nd cross claim/Respondent on motion)
Marcus Jonathon Anderson Laithwaite and ors (Cross-Defendants on 2nd cross claim/Applicants on motion)

 

In the Creighton proceedings (2015/00306222):

  Innes John Creighton (Plaintiff)
Australian Executor Trustees Limited (Defendant/Cross-Claimant on 2nd cross claim/Applicants on motion)
Marcus Jonathon Anderson Laithwaite and ors (Cross-Defendants on 2nd cross claim/Applicants on motion)

Representation:

Counsel:
J Kirk SC with DFC Thomas, A d’Arville and A Shearer (Cross-Defendants on 2nd cross claim/Applicants on motion in both proceedings)
MJ Darke SC with S Lawrance (Defendant/Cross-claimant on 2nd cross claim/Respondent to motion in both proceedings)

  Solicitors:
King & Wood Mallesons (Cross-defendants on 2nd cross claim/Applicants on motion in both proceedings)
Corrs Chambers Westgarth (Defendant/Cross-claimant on 2nd cross claim/Respondent to motion in both proceedings)
Slater & Gordon (Plaintiffs in both proceedings)

File Number(s):

2015/00306222; 2015/00171592

Publication restriction:

Nil

Judgment

1. HER HONOUR: There are two sets of representative proceedings in this Court arising out of the collapse in mid 2012 of Provident Capital Limited (Provident), a company which carried on the business of fixed rate mortgage lending using funds generated by the issue of debentures pursuant to Ch 2L of the Corporations Act 2001 (Cth). The respective proceedings will, for convenience, be referred to as the Creighton proceedings (2015/00306222), which were first commenced in the Federal Court of Australia and then cross-vested to this Court, and the Smith proceedings (2015/00171592). Both proceedings are presently listed for a concurrent 12 week hearing before Ball J, commencing on 30 July 2018.

2. The respective proceedings are brought by and on behalf of debenture holders against Australian Executor Trustee Limited (AET), in its capacity as trustee for the debenture holders. In both proceedings, the group members are persons who held debentures issued by Provident as at 29 June 2012, when Provident was placed into receivership. One relevant difference between the proceedings is that the class of group members is closed in the Smith proceedings but not in the Creighton proceedings. Another is that the period of alleged wrongdoing on the part of AET in the Smith proceedings is put as from November 2004, whereas in the Creighton proceedings it is around January 2009.

3. In both sets of proceedings, the debenture holders claim damages from AET on the basis of alleged breaches of statutory duties under the Corporations Act and/or fiduciary duties owed to the debenture holders.

4. AET has filed cross claims in each set of proceedings: against its insurers (Liberty, Chubb, Swiss Re and Willis) (the first cross claims); against the partners of HBL Mann Judd, as auditors of Provident in relation to financial reports issued by it for the financial years 2010-2011 (the third cross claims); and against the partners of PricewaterhouseCoopers (PwC) as auditors of Provident for the financial years ended 2004-2007 (the second cross claims). The applications before me relate only to the second cross claim in each proceeding.

5. By notices of motion filed 30 June 2017, PwC has sought the summary dismissal of particular paragraphs of the second cross claims, pursuant to r 13.4, or that they be struck out pursuant to r 14.28, of the Uniform Civil Procedure Rules 2005 (NSW). It has argued that leave to re-plead should not be granted.

6. For the reasons that follow, I am of the opinion that PwC’s complaint as to pleading deficiencies in each of the second cross claims is largely made good but that the cross claims should not be summarily dismissed. AET should have an opportunity to address the pleading defects.

Background

7. AET was appointed as the trustee for debenture holders on either 24 November 2005 (the date of amendment of the relevant trust deed) or at an earlier time, 7 December 2004, when it was resolved that it replace the then trustee, a related company – IOOF Australia Trustees (NSW) Limited. AET contends that the later (2005) date is the relevant date but the second cross claims plead both dates in the alternative (and hence, to anticipate what follows, AET submits that even if the complaints made by PwC as to the pleaded claims for FY04 were to succeed on the basis that it was not then the trustee, the same argument would not apply to the claims for FY05 for the purposes of the summary dismissal applications).

8. PwC had undertaken annual audits and half year reviews of Provident from October 1998. Relevantly, for the purpose of the present claims, it was retained as Provident’s auditor by letters of engagement dated 28 January 2003 (pertaining to the audits for the financial reports for the years ending 30 June 2004 and 30 June 2005 – FY04 and FY05) and 24 March 2006 (pertaining to the audits for the financial reports for the years ending 30 June 2006 and 30 June 2007 – FY06 and FY07) (see affidavit sworn 30 June 2017 by the solicitor acting for PwC, Moira Louise Saville, at [19(g)]). PwC does not dispute that it owed implied contractual duties to Provident to exercise reasonable care and skill in the conduct of the audits over that period.

9. The last audit PwC carried out in respect of Provident was for FY07. Provident informed PwC, by letter dated 12 December 2007, that it had decided to replace PwC as auditor (Saville affidavit at [28]). The firm Walker Turnbull was appointed as auditor on 3 January 2008. On 26 July 2010, that firm too was replaced as auditor – by HLB Mann Judd.

10. Broadly speaking, the allegation made against AET by the debenture holders in the respective proceedings is that, as trustee for the debenture holders, it should have formed certain opinions and taken certain action (either from around November 2004 in the Smith proceedings or from around January 2009 in the Creighton proceedings) and that its failure to do so has caused the plaintiffs and group members to suffer loss. AET’s claims against PwC relate to audit work the period from the end of September 2004 when PwC issued its audit report for FY04. Thus it can be seen that some of AET’s contribution claims related to work carried out earlier than the alleged contravention of the relevant statutory provisions by AET as pleaded by the debenture holders.

11. PwC was joined to the respective proceedings in December 2016, following the service on AET on 30 September 2016 of expert evidence in the Smith proceedings and, in particular, service of the report dated 30 September 2016 of an accountant (Mr Michael Potter), who was retained by the plaintiffs in the Smith proceedings (the Potter Report) (see [6]-[16] of the affidavit affirmed 23 August 2017 of AET’s solicitor, Bradley Bruce Woodhouse).

12. The relevance of the Potter Report is that it calls into questions the assertion made in the particulars to the allegation of loss contained in the pleading in the Smith proceedings (see particular (iii) to [32] of the further amended statement of claim in the Smith proceedings) that, at all material times up to and including 31 December 2007, the value of Provident’s assets that would have been realised by a receiver and manager would have exceeded all of Provident’s liabilities, including the amount of debenture moneys. It was the Potter Report (as was made clear in the course of oral argument on the present applications) that led to the making of the cross claims against PwC. Those claims are expressly predicated on the acceptance of the conclusions in that report to the effect that, had an investigating accountant been appointed to Provident on certain dates between mid July 2005 and mid December 2007, he or she would have formed the view that there was more than likely a material deficiency in assets available to repay debenture holders over the period from December 2004 to December 2007.

13. The claims brought by AET against PwC are broadly the same in each of the proceedings and may be grouped into three categories: claims in tort; claims for misleading and deceptive conduct in breach of various statutory provisions; and claims for statutory or equitable contribution in respect of any liability AET is found to have to the debenture holders. I will consider in more detail the substance of those claims in due course.

14. AET contends that if the conclusions in the Potter Report are accepted then, having regard to various matters including the magnitude of the shortfalls in assets over the relevant period(s), it may be inferred that PwC did not take the steps that a competent auditor exercising reasonable care would have taken in the conduct of the audit of Provident’s financial report for the various financial years and in the preparation of the audit reports (see, for example, the particulars to [18] of the proposed amended second cross claims). The only steps to which AET points in that regard relate to the sufficiency of the size of the sample of loans or “Past Due Loans” to be reviewed (particulars (1) and (2) to [18] of the proposed amended second cross claims), the check to be made of the existence/content of a written policy for assessing the need to make a provision or impairment in respect of a loan written by Provident (particular 3) and the review to be made of Provident’s loan arrears reports to ascertain the identity, frequency and amounts of loan arrears (particular 4). AET unashamedly bases its claims against PwC on an inferential process of reasoning (res ipsa loquitur). In oral argument, Senior Counsel made clear that AET’s contention is that PwC did not take the steps set out in particulars (1)-(4) to [18], though in my opinion there is still uncertainty as to what is alleged by AET in this regard, which I will address in due course.

15. On 15 June 2017, prior to the filing of the present applications for summary dismissal/strike out, PwC filed extensive defences to the respective cross claims.

16. On 23 June 2017, PwC’s hard copy working papers and electronic audit files for the relevant years were provided to AET by way of discovery, subject to a reservation in relation to any potential claim for legal professional privilege on the part of Provident. Subsequent communications between the lawyers for the respective parties have identified the particular documents over which the receivers and liquidators of Provident have made a claim of legal professional privilege. A procedure was also put in place for confidentiality undertakings as to commercially sensitive documents produced on discovery. Leaving aside any issue as to the seemingly limited category of documents over which privilege is claimed by the receivers and liquidators of Provident, the position is that AET has had access to the PwC audit files and working papers since 23 June 2017.

17. Following the filing of the present applications, AET’s lawyers notified PwC’s lawyers (on 14 July 2017) of AET’s proposal to amend its claims for contribution in the terms contained in proposed amended second cross claims (each in relevantly similar form). PwC has not consented to the proposed amendment of the pleadings.

18. AET’s expert evidence was due to be filed on 13 October 2017 and, as I understand it, that evidence was anticipated to deal with whatever has been revealed from the expert’s analysis of PwC’s audit files relevant to the matters in issue in the second cross claims. By now, therefore, it might be expected that AET will know (and hence be able properly to plead) the material facts as to the conduct of the audits so as to be in a position to provide a more meaningful articulation of what it is said that a competent auditor exercising reasonable care would or would not have done, and what PwC did or did not do, than is presently contained in the particulars to [18] of the proposed amended second cross claims. I note that AET has already indicated its intention to seek leave further to amend the proposed amended second cross claims after the filing of its expert evidence, which for practical purposes renders moot any application for leave to amend in terms of the current proposed amendment to the pleadings.

Allegations made against PwC in the proposed amended second cross claims

19. Before turning to the principles to be applied on the present applications and a summary of the parties’ positions in relation thereto, it is convenient at this stage to outline the structure of the claims made against PwC. For that purpose, as was the approach adopted in oral argument on the hearing of these applications, I will refer to the proposed amended second cross claim in the Creighton proceedings (a copy of which is exhibited to Mr Woodhouse’s affidavit), which is broadly in the same terms as that in the Smith proceedings).

20. The structure of the pleading follows the same format in each of the audit years. A material difference as between the audit years (as adverted to above) is that AET had not been appointed as the trustee for debenture holders at the time that Provident’s financial report for FY04 was issued and, if AET’s principal position on this issue is accepted, neither was it the trustee at the time that the FY05 report was issued. I will return to this issue in due course.

Claims for damages in negligence

21. For FY04, the negligence claim is to be found at [9]-[19]. A corresponding claim is made for each of the other financial years in which PwC audited Provident’s financial reports (see [47]-[57] for FY05; [85]-[95] for FY06; and [123]-[133] for FY07).

22. The pleading of the claims in negligence follows the structure that, after identifying: the date on which the relevant financial report was issued by Provident (see [9]; [47], [85]; [123]); various statements that were contained in that report (including as to the debentures on issue at the time and Provident’s net assets) (see [10]; [48]; [86]; [124]) and that PwC’s audit report was issued containing certain expressions of opinion as to Provident’s financial report (see [11]; [49]; [87]; [125]), it is alleged that:

• PwC owed a duty to AET to take reasonable care, in the conduct of its audit and in the preparation of its audit report, to avoid the risk that AET would suffer harm in the form of economic loss – that economic loss being identified as liability to debenture holders under s 283F of the Corporations Act for failure to discharge its duties under s 283DA of that Act (see [17]; [55]; [93]; [131]);

• PwC breached that duty of care by failing to take reasonable care in the conduct of the relevant audits and in the preparation of the relevant audit reports ([18]; [56]; [94]; [132]); and

• that breach of duty has caused AET loss ([19]; [57]; [95]; [133]).

23. As to FY04 the duty of care is said to be owed to AET “as a future trustee for debenture holders” – reflecting the fact that AET had not been appointed by the time the audit report was issued for that year (see [17]). There is no such qualification pleaded to the capacity in which subsequent duties of care are alleged to have been owed to AET ([55], [93], [131]). Similarly, the risk of harm for FY04 (pleaded at [14]) refers to the position of “the trustee for debenture holders, or a replacement trustee for debenture holders” (my emphasis), whereas subsequent iterations of the pleaded risk refer simply to the position of AET (see [52], [90], 128]).

24. The duty of care allegedly owed to AET in each of the financial years (whether as a current or future trustee to debenture holders), namely, the duty to exercise reasonable care to avoid AET suffering economic harm by the incurring by AET of liability to debenture holders for breach by AET of its statutory duties as trustee, is pleaded to arise by reason of the following matters: the statutory obligations of Provident, as a disclosing entity, and PwC, respectively, under the Corporations Act in relation to the preparation and audit of financial reports (see [8]); the contractual obligation owed by PwC to Provident to exercise reasonable care and skill in auditing the financial report and issuing its audit report (see [12]); that PwC knew or ought reasonably to have known that Provident had debentures on issue and that there was a trustee for debenture holders (and, in the case of FY04 that the trustee could be replaced with a new trustee) which owed the duties under s 283DA of the Corporations Act (see [13]); that certain matters were reasonably foreseeable by PwC at the time of its audit (including, broadly, that the trustee for debenture holders would consider any audit report prepared by PwC and that such a report would affect its assessment of the matters it was required to ascertain and do in accordance with its own statutory obligations), this being the pleaded risk of harm (see [14] and corresponding paragraphs); that the pleaded risk of harm was not insignificant (see [15] and corresponding paragraphs); and the pleaded vulnerability of the trustee (or a replacement trustee) for debenture holders (see [16] and corresponding paragraphs).

25. Pausing here, PwC emphasises that the risk of harm pleaded (at [14]; [52]; [90]; [149]) is, in effect, that if PwC did not satisfy the alleged duty of care to AET this would lead to economic harm because the trustee would be liable to the debenture holders for the trustee’s own breach of duty. To anticipate part of the argument raised by PwC, it is said that this amounts to AET in effect sub-delegating to it AET’s statutory/fiduciary duties of care and seeking to render AET the insurer for any loss (see, for example, the discussion as to normative causation from [85] below; and [107]). AET denies the construction placed by PwC on its pleaded case in this respect.

26. The alleged breach of the duty of care is pleaded simply as the failure to take reasonable care. It is then particularised (with the introduction of the qualification that these are “[t]he best particulars that AET can currently provide”) by reference to the following matters: what it is asserted a competent auditor exercising reasonable care would have done (see particulars (1)-(4) to [18]); certain conclusions extracted from the Potter Report (particular (5)); and then the inference that it is said “may be” derived from acceptance of the conclusions in the Potter Report, namely, that PwC did not take the steps particularised at (1)-(4) (particular (6)).

27. Some of the particulars as to what a competent auditor exercising reasonable care would have done (see particulars (1) and (2)) are framed in very general terms (i.e., to review a sample of loans or Past Due Loans “sufficiently large to provide the auditor with comfort that the results were representative”, without any indication of how large a sample it is said would have been sufficient for that purpose in the present case). Similarly, particulars (3) and (4) simply assert that certain checks or a particular review would be made, without indicating what it is said a competent auditor exercising reasonable care would have identified in the course of those checks or that review. Nor is it clear from the particulars (or the pleading itself) whether the allegation is that PwC did not carry out those checks/review at all or that it did so negligently (and, if the latter, in what way it is alleged that the checks/review were or was not carried out with reasonable care and skill).

28. The particulars of breach then rather uninformatively conclude with the statement that further particulars will be provided following disclosure of documents and issuance of subpoenas. (I was not made aware of any subpoenas issued to date for production of documents by or relating to PwC’s audits.)

29. Insofar as reliance is placed by AET on an inference that it says “may be” derived from acceptance of the conclusions in the Potter Report, PwC emphasises that the Potter Report does not in terms go to what a competent auditor exercising reasonable care would have done; rather, it approaches the matter by reference to what an investigating accountant would have concluded. AET, however, relies (see particular (6)(E) to [18]) on the asserted similarity between what it says a competent auditor exercising reasonable care would have done and “the approach of the putative investigating accountant described in the Potter Report”. Ultimately, the weight to be placed on the Potter Report is likely to be affected by what view is found as to the consonance between the positions of investigating accountant/auditor.

30. The pleading of causation of loss is also framed in general terms. The particulars of causation (expressly predicated on AET being liable to the plaintiff and group members as alleged in the statement of claim – thus, this is clearly a derivative claim) are by reference to what it is alleged that, but for PwC’s breach of duty, PwC would have done (including informing Provident, Provident’s members and the then current trustee of certain matters) and as to what the trustee would then have done.

31. For example, for FY04 (see [19]), it is asserted (seemingly in the alternative), first, that IOOF would have enforced the charge under the debenture deed by appointing a receiver to the assets of Provident and/or otherwise exercised its powers so as to require Provident to repay debenture holders and prevent it from borrowing further moneys from the public (particular (3) to [19]) and, second, that IOOF would have informed AET of the relevant matters upon AET becoming the trustee and AET having enforced the charge and/or otherwise so acted (particular (4) to [19]). In either case, it is said that AET would not have consented to being named in any further debenture prospectus and, as a result, would not be liable to the plaintiff or group members (or would be liable in a lesser amount).

Claims for statutory damages for misleading and deceptive conduct

32. The claims for misleading and deceptive conduct again follow the same structure for each of the financial years.

33. It is alleged that PwC’s conduct in issuing the report was conduct in trade or commerce and in relation to financial products ([20] for FY04; [58] for FY05; [96] for FY06; [134] for FY07). There is then an allegation (based, as made apparent in oral submissions on no more than an assertion as to the common experience in relation to such matters) that PwC issued its audit report by use of postal or telegraphic services ([21]; [59]; [97]; [135]) (an allegation necessary for AET to bring its claim within the provisions of the now repealed Trade Practices Act 1974 (Cth), as PwC is not a corporation).

34. It is alleged that, by issuing its audit reports for the relevant years, PwC represented that it had conducted its audit with reasonable care and that it had reasonable grounds for the opinion that the relevant financial reports gave a true and fair view of the financial position of Provident for the relevant period ([22]; [60]; [98]; [136]). The pleading goes on to allege (see [23]-[24]; [61]-[62]; [99]-[100]; [137]-[138]) that, contrary to the alleged representations, PwC did not conduct its audits with reasonable care and did not have reasonable grounds for the stated opinion. Particulars of those paragraphs mirror the particulars earlier provided of the allegation of breach of duty in the negligence claims. (Hence, PwC submits that the vice in those earlier breach of duty allegations also applies to the misleading and deceptive conduct allegations and the contribution claims.)

35. By virtue of those matters it is alleged that, by issuing its audit reports, PwC engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of various statutory provisions (including the Trade Practices Act, the Corporations Act, the Australian Securities and Investments Commission Act 2001 (Cth), the Fair Trading Act 1987 (NSW) and the “corresponding prohibitions on misleading and deceptive conduct under the statutes of the other States and Territories” (see [25]; [63]; [101]; [139]).

36. The allegation of loss (at [26]; [64]; [102]; [140]) is similarly particularised by reference to the particulars of causation earlier provided in the negligence claims ([19]; [26]; [64]; [102]; [140]) though including the additional statement that if PwC had not issued the audit reports or made the representations then it would have been necessary for Provident to obtain another audit report and that other audit report would have identified the matters particularised at [19](2).

37. There is an alternative claim in relation to an alleged representation by PwC (in trade or commerce and in connection with the supply of PwC’s audit services) that its audit services were of a particular standard, namely that they accorded with the Australian Auditing Standards (see [28]-[29]; [66]-[67]; [104]-[105]; [142]-[143]). It is here that there is the only reference in the pleading to any auditing standard. It is alleged that the Australian Auditing Standards (particularised by reference to AUS 202.04(d) and AUS 202.08) required that an audit be conducted with professional competence [and] due care and so as to provide reasonable assurance that the financial report taken as a whole was free from material misstatement ([30]; [68]; [106]; [144]); that the relevant audits had not been so conducted (particularised by reference again to earlier particulars of the negligence claim (see [31]; [69]; [107]; [145]); and that, by reference to this the representation as to the audit services was false and there was a contravention of other statutory provisions (the former s 53AA of the Trade Practices Act, the former s 44(b) of the Fair Trading Act and, again, the “corresponding prohibitions on misleading and deceptive conduct under the statutes of the other States and Territories (see [32]; [70]; [108]; [146]).

38. There is then a broad allegation of causation of loss ([33]; [71]; [109], [147]) particularised by reference to the earlier particulars of loss in the negligence claim (see eg [26] which repeats the particulars of causation of loss at [19]).

39. AET claims an entitlement from PwC to damages for the respective claims of misleading and deceptive conduct pursuant to various statutory provisions and corresponding provisions of the Fair Trading legislation of other States and Territories ([27] and [34]; [65] and [72]; [103] and [110]; [141] and [148]).

Contribution claims

40. AET claims contribution both under statute and in equity.

41. The statutory contribution claim is put on two bases.

42. First, it is alleged that PwC breached a duty of care owed to debenture holders by failing to take reasonable care in the conduct of the audits and preparation of the audit reports, which breach it is alleged has caused “loss to some group members” (see [40] as to the identity of the said group members – not including the plaintiff) and that this is the same loss in respect of which those group members seek to recover damages in this proceeding from AET (see [35]-[40A]). The duty allegedly owed by PwC to debenture holders is a duty to exercise reasonable care to avoid the risk of harm that debenture holders might suffer in the form of economic loss “including loss incurred by those debenture holders as a result of rolling over their debentures” (see [38] referring back to [35]).

43. Pausing here, the main focus of the proposed amendment to the second cross claim in this regard is as to the particular class of group members in respect of whom it is alleged that the breach of common law duty of care has caused loss. It is no longer alleged that PwC owed a duty to “future” holders of debentures (as was the case in the original version of [38]); rather, the duty is one allegedly owed only to (the then existing) “holders” of debentures. The class of group members alleged to have suffered loss no longer comprises the plaintiffs nor does it comprise all group members. Rather the allegation is that the breach of duty caused loss to “some group members”, that subset of group members being comprised of those who both held debentures as at the date PwC issued the respective audit reports and were debenture holders as at 29 June 2012 as a result of having rolled over those debentures (see, for example, [40]). In the case of the claim in relation to FY07, the class of group members said to have suffered loss also includes those who, as at 29 June 2012, held debentures that had been issued before 28 September 2007 when PwC issued its FY07 audit report (see [154]).

44. It is relevant here to note that the term of the debentures in question was a 5 year term. The class of debenture holders as at 29 June 2012 could therefore only logically be comprised of those who had acquired debentures from 29 June 2007 (albeit that they could have done so by rolling over debentures that were held by them as at the date of the earlier PwC audit reports). In that sense, PwC maintains that the proposed amended cross claim still involves a claim as to a duty owed to future debenture holders, albeit one limited only to that subset of future debenture holders who acquired those debentures by rolling over debentures held when PwC issued the relevant audit report.

45. The second basis for the statutory contribution claim is that PwC engaged in misleading conduct in contravention of the statutory prohibitions pleaded earlier (at [25] and [32]) which has caused the plaintiff and group members loss, that being the same loss in respect of which the plaintiff and group members seek to recover damages in this proceeding from AET. It is asserted that, if AET is liable as alleged in the statement of claim, then that liability could have been established in tort (see [41]-[43]). (How that tortious liability could arise is not articulated in the pleading.)

46. The loss allegedly caused to some or all group members is particularised along similar lines to the causation pleading in the tort claim (considered above), but with the additional assertion (in the case of the claim in tort) that group members would not have rolled over their debentures and would have been repaid in full or in an amount greater than actually recovered (particulars to [39]) or (in the case of the misleading conduct claim) would not have acquired the debentures that they held as at 29 June 2012 (and in the case of the group members who held debentures as at 29 September 2004 would not have rolled over those debentures) and would not have suffered the loss claimed by them in this proceeding (see particulars to [41]).

47. The claim for statutory contribution is made pursuant to s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the 1946 Act), s 23B of the Wrongs Act 1958 (Vic) and “such other corresponding provision of the contribution legislation of the other States and Territories as may be applicable to each group member’s claim against AET” (see, for example, [44]).

48. The alternative claim for contribution is made pursuant to the doctrine of equitable contribution on the basis that if AET is liable to the plaintiff or group members as alleged in the statement of claim then its liabilities are coordinate with those of PwC ([45]-[46]). For the purpose of the equitable contribution claim, the focus is on the statutory claims: the alleged breach by PwC of the statutory prohibitions on misleading and deceptive conduct and the alleged breach by AET of its statutory duties.

PwC’s Contentions

49. In summary, PwC says the following.

50. First, that the FY04 and FY05 claims are not reasonably arguable: the claims in negligence, because no duty of care was owed by it to all potential future trustees of Provident; the misleading and deceptive conduct claims, because there is no basis for a claim that any representations were made to AET at a time when it was then not a trustee and with no relevant role; the contribution claims, because no duty of care was owed to all potential future debenture holders of Provident (an argument also applicable to the FY06 contribution claims); and as to all claims because there is no reasonable case in respect of normative causation for FY04 and FY05 (in the Smith proceedings) or for all years in the Creighton proceedings.

49. Second, that for all financial years the claims in negligence suffer from the following defects:

1. there is no proper pleading of the duty of care, including the mandatory requirements of the Civil Liability Act 2002 (NSW);

2. there are contradictory duties alleged; and

3. as to breach of duty, the allegations of wrongdoing are inadequately pleaded.

52. Third, that for all financial years, the statutory misconduct claims suffer from the following defects:

1. that there is no basis for the claim that the audit reports were issued by postal/telegraphic services and therefore the jurisdictional gateway for the Trade Practices Act claims is not sustainable; and that

2. the allegations of audit wrongdoing are defective.

53. Fourth, for all financial years, that the contribution claims suffer from the following defects:

1. they depend upon the (said to be unsustainable) contentions that PwC owed duties to future debenture holders and that any liability of PwC under the former Trade Practices Act is sufficient to engage the statutory contribution provisions;

2. the same defects said to arise in relation to the pleading of duty of care and breach in respect of the negligence claims; and further it is said

3. that leave should not be granted to amend because the plaintiff’s claims are no longer representative.

54. Fifth, for all claims and in all financial years, that there is no proper pleading of causation, the consequence of which is said to be that there would then be a dismissal of all claims.

55. Sixth, for claims based on conduct outside New South Wales (for all claims and all financial years) AET has not pleaded or proved material facts sufficient to give rise to a claim under the law of other States and Territories.

56. The two summary dismissal points raised by PwC are, first, its argument as to “incoherence” of the pleaded duties (namely, that the common law will not impose duties of care that are incompatible with each other) and, second, that no case for normative causation can be made out. If the argument that there is no reasonable case in respect of normative causation is made good, PwC says the result is that there would be a dismissal of all claims in the Creighton proceedings. Similarly, as noted above, it says this would be the result in both proceedings if the defect in the pleading of the causation case for all claims and all financial years is accepted.

Whether to entertain the motions at this stage

57. Before turning to a consideration of the applications themselves, I should logically deal first with AET’s submission that, as a matter of discretion, I should decline to deal with PwC’s motions now and should instead adjourn them to the final hearing.

58. There is no doubt that the Court has a discretion as to whether or not to hear and dispose of a proceedings on a summary basis. (AET refers in this regard to what was said in Bathurst Regional Council v Local Government Financial Services Pty Ltd (No. 2) (2011) 82 ACSR 617; [2011] FCA 309 at 621 [19] (Jagot J); Williams & Humbert v W & H Trade Marks (Jersey) Ltd [1986] AC 368 at 435-436 (Lord Templeman); Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951 at [23] (White J, as his Honour then was); Built NSW v EvolveBuilt Contracting [2014] NSWSC 255 at [27] (McDougall J).)

59. In support of the submission that the motions should not be dealt with at this stage, AET points first to the chronology of the proceedings to date. It notes that the second cross claims were filed and served on PwC (on 22 December 2016) over 6 months before PwC filed its present motions for summary dismissal; that there was some default in compliance with the orders for the filing of PwC’s defences (the time being extended from 28 April 2017 to 12 May 2017 and the defences not being filed until 15 June 2017); and that PwC did not oppose the proceedings being fixed for hearing at the directions hearing on 17 February 2007 and did not foreshadow at that stage any application for summary dismissal of or to strike out any of the claims made against it. Thus, it submits that the motions for summary dismissal are belated applications.

60. Second, AET argues that PwC’s applications raise two likely High Court points: first, the question as to whether the auditor of a corporation that issues debentures under Ch 2L of the Corporations Act owes a duty of care to the trustee for debenture holders and the debenture holders themselves; and, second, the question as to whether s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 can extend to statutory wrongs.

61. As to the first, this is said to be likely to require a consideration of the reasoning in Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; [1997] HCA 8 against the statutory framework of ss 313 and 318 of the Corporations Act and the abandonment of proximity as the general determinant of when the common law will recognise a duty of care (see Sullivan v Moody (2001) 207 CLR 562; [2001] HCA 59 at [48]).

62. As to the second, AET points to a divergence of views in the authorities and in academic writing (referring to Jonstan Pty Limited v Nicholson (2003) 58 NSWLR 223; [2003] NSWSC 500 at [97] (Hulme J); Dorrough v Bank of Melbourne Limited [1995] FCA 1573 at [73]; and the argument in favour of characterising the action for breach of s 52 as a tort advanced by Campbell J, as his Honour then was, writing extra judicially in “Contribution, Contributory Negligence and Section 52 of the Trade Practices Act” (1993) 67 ALJ 87, 177) on the one hand (cf ANZ Banking Group Ltd v Turnbull (1991) 33 FCR 265 at 277 (Shepherd J); Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 at 11 (Full Federal Court)); and Burke v LFOT Pty Ltd (2000) 178 ALR 161; [2000] FCA 1155 at [131] (Lehane J), dicta in ACQ Pty Ltd v Cook (2008) 72 NSWLR 318; [2008] NSWCA 161 at [174] (Campbell JA, with whom Beazley JA, as her Honour then was, and Giles JA agreed) and dicta in Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 (Bell and Gageler JJ) on the other hand.

63. AET anticipates that the strike out or summary dismissal of the second cross claims against PwC, on grounds that accept PwC’s submissions on either of the above points, may give rise to appellate proceedings – with the likelihood that this would potentially cause the vacation of the hearing date or the prospect that the hearing be bifurcated in some fashion (i.e., without PwC’s participation). Thus it is submitted that, rather than saving time and costs, there is a real prospect that deciding the matters raised by PwC’s motions on a summary basis will create delay (for all parties, including the plaintiffs) and increase costs.

64. Against the spectre raised by AET of disruption to the course of the hearing (caused, on this hypothesis, by AET’s own invocation of the appellate process – extending to the foreshadowed possibility of a special leave application to the High Court), there is, of course, the cost to which PwC will be put if the applications are not now dealt with. It maintains that it is entitled to know what are the genuine issues in dispute and points to the fact that there are still some ten months until the trial. It says it should not be put to the cost of defending what (on its argument) are inadequately pleaded and not reasonably arguable claims based on conduct extending back for some 13 years.

65. Insofar as AET criticises the time taken for PwC to file these applications, and that they were not foreshadowed at the February directions hearing, PwC points out that it was joined late to the proceedings and that its complaints as to the pleading were ventilated in correspondence between the respective solicitors prior to filing the applications in an attempt to resolve the issue without the need for this interlocutory application. It is submitted that the response to requests for particulars reveals that AET does not have a proper basis for a number of its allegations.

66. I was not persuaded, when the matter came before me on 26 September 2017, that the appropriate course at this stage was to decline to entertain PwC’s applications. Nor, having now heard them, is it my view that I should decline to determine those applications.

Legal principles

67. Turning then to the applicable legal principles on summary dismissal/strike out applications, these can be briefly summarised. Other than as to the distinction drawn between pleadings and particulars (or perhaps more precisely the import of this distinction for the present applications), they were not in dispute.

68. The threshold to be met before a claim will be summarily dismissed is recognised to be a high one (see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; [1964] HCA 69 (Barwick CJ)), the power to dispose of proceedings summarily being one which calls for the exercise of “exceptional caution”. The power cannot be exercised once it appears that there is a real question to be determined, whether of fact or law, and that the rights of the parties depend upon it (Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 (Dixon J, as his Honour then was).

69. Thus it has been said that the power to dismiss proceedings summarily is only to be exercised “when the action is clearly without foundation and ... to allow it to proceed would impose a hardship upon the defendants which may be avoided without risk of injustice to the plaintiff” (Cox v Journeaux (No. 2) (1935) 52 CLR 713 at 720 (Dixon J)); and that a “high degree of certainty” that the plaintiff’s case will fail if it goes to trial is required (Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 at [57] (Gaudron, McHugh, Gummow and Hayne JJ)). More recently, it has been said that the fatal defects in a plaintiff’s case must be very clear before the Court will intervene to strike out a pleading (Shaw v State of New South Wales [2012] NSWCA 102 at [30]ff, Barrett JA (Beazley JA as her Honour then was, McColl and Macfarlan JJA and McClellan CJ at CL agreeing). Caution is especially required where factual details may help to throw light on the existence of a legal cause of action (see Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 at [137]-[138]).

70. Where what is pleaded is a novel claim, it has been said that the court does not apply strike out procedures in a way that might stultify the development of the law (see Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564; [2000] FCA 1572 at [50]; X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at 740-741).

71. As to what is required by way of pleading, it is well recognised that pleadings must state all of the material facts that are necessary to constitute a complete cause of action and the relief sought (Bruce v Odhams Press Ltd [1936] 1 KB 697 at 712-713; Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591 at 44,151-44,152; Wride v Schulze [2004] FCAFC 216 at [25]), with sufficient particularity to inform the other party of the case it is required to meet and to enable the eventual trial to be conducted fairly to all parties (see Gunns Ltd v Marr [2005] VSC 251 at [57] (Bongiorno J)). In Banque Commerciale SA (in Liq) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11 (in a passage cited by Ipp JA in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206 at [422]) Mason CJ and Gaudron J noted (at [18]) that in this way pleadings “serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision”. (See also Jessel MR in Thorp v Holdsworth (1876) 3 Ch D 637 at 639.)

72. In Young Investments Group Pty Ltd v Mann (2012) 293 ALR 537 (at [7]), the Full Federal Court (Emmett, Bennett and McKerracher JJ) emphasised that:

A statement of claim must allege a cause of action with sufficient particularity and not simply make allegations in general terms. ... A respondent or defendant is entitled to know the factual foundation for the case that is being alleged, so that the respondent or defendant can prepare to meet that case at trial. In order to disclose a reasonable cause of action, a statement of claim must contain an allegation of all of the relevant facts necessary to support any allegation made in it. A pleading that simply pleads a conclusion is embarrassing and should not be permitted to stand. [my emphasis]

73. It was said by Lander J in Young v Tieco International (1999) 182 LSJS 367 (at 670) (in a passage approved by McDougall J at first instance in Ingot Equity Capital Markets Pty Ltd v Macquarie Equity Capital Investments Ltd [2004] NSWSC 1136 at [46]), that a court ought to approach a consideration of the adequacy of a pleading by seeking to answer the ultimate question whether the pleading gives fair notice of the case to be made against the other party at trial, thus minimising the risk of injustice resulting from surprise.

74. Particulars, even those that are clear and unambiguous, cannot supply a deficiency in pleadings (see McGuirk v University of New South Wales [2009] NSWSC 1424 at [33]; Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709 at [237]). (Though AET did not expressly cavil with this proposition it did point to authority which it said indicated there was a divergence in views on this issue, referring in particular to Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566 at 570.)

75. The principles concerning embarrassing pleadings were outlined in McGuirk (at [21]-[35]). Consistently with the recognised function of pleadings, what is meant by an embarrassing pleading in this context relates to whether the pleading can serve the function of a pleading under the rules, namely, whether it puts the defendant properly on notice of the real substance of the claim made against it and enables the defendant to know what case it is that the defendant has to meet. A pleading will be embarrassing if it is unintelligible, ambiguous or imprecise in its identification of material factual allegations so as to deprive the opposing party of proper notice of the real substance of the claim or defence (Gunns Ltd v Marr at [14]-[15]; and see McGuirk at [30]; [31]; [33]) or if it contains inconsistent, confusing or irrelevant allegations (Shelton v National Roads and Motorist Association Ltd (2004) 51 ACSR 278; [2004] FCA 1393 at [18]).

76. Finally, where a question of leave to re-plead arises, questions as to the prejudice resulting from delay are of relevance (see Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863 at [42] (Tadgell and Ormiston JJ, Brooking J agreeing); Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1219; Weston v Publishing and Broadcasting Ltd at first instance (2011) 83 ACSR 206; [2011] NSWSC 433 at [449]-[451] and on appeal (2012) 88 ACSR 80; [2012] NSWCA 79 at [173] and Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (a Firm) [2015] FCA 1098 at [183] (Gleeson J)). One must also take into account the overriding purpose mandated by the Civil Procedure Act 2005 (NSW) that proceedings be conducted with a view to the just, quick and cheap resolution of the real issues in dispute.

Summary dismissal points

77. First, I propose to address those arguments the acceptance of which it is said would lead to summary dismissal of part or all of the claims made in the second cross claim – namely, the arguments based on incoherence and lack of normative causation.

Incoherence

78. As to incoherence, PwC points to at least four duties of care that are expressly or implicitly alleged to have been owed by PwC at common law: first, a contractual duty of care (which it does not dispute) to its client, Provident; second, a duty of care to the current trustee at the time of audit, to avoid the risk that the trustee would be liable at the suit of debenture holders for economic loss by reason of the trustee failing to comply with its statutory obligations to protect the interests of debenture holders; third, a duty of care to any future trustee, including a trustee for debentures issued in the future by Provident, in relation to the same type of risk; and, fourth, a duty of care to current and future holders of debentures issued by Provident, sufficient to found an allegation that PwC could be the subject of a claim for tortious or equitable contribution. As a subset of the fourth duty of care, PwC postulates a potential fifth duty of care implicit in AET’s case, namely a duty to that class of future debenture holders constituted by those who buy debentures in the future by rolling over a current debenture (T 13.21).

79. PwC argues that these duties cannot all sit together in a coherent manner and notes that the common law will not impose a duty of care that is incompatible with other legal obligations, referring to what was said in Sullivan v Moody at [60].

80. AET emphasises that the test for incoherence is the test of inconsistency. While it accepts that the economic interests of the trustee for debenture holders are not the same as those of the company being audited, AET maintains that the posited duty of care (which it accepts is novel) owed to it as trustee/future trustee of debenture holders creates no incoherency of the kind contended by PwC to arise.

81. AET argues that there is an identity of interest (as between the trustee and the company or its members): in the company’s accounts being accurate; in the audit being carried out competently and carefully; and in the auditor providing a frank and independent report on the company’s accounts; and thus says that this is not a case where the posited duty of care would subject PwC to inconsistent obligations or duties (cf Sullivan v Moody at [60]-[62]; Tame v State of NSW; Annetts v Australian Stations Pty Ltd (2002) 211 CLR 317; [2002] HCA 35 at [26]). It submits that the imposition of a duty of care in this case is consistent with the statutory scheme (and in particular ss 313 and 318) under the Corporations Act because PwC has an obligation to provide the relevant information to AET and, on any view, PwC owes a duty to Provident to exercise reasonable care in conducting the audit (including the preparation of the information provided to AET) (contrasting the position in Stuart v Kirkland-Veenstra (2009) 237 CLR 215; [2009] HCA 15 at [112]-[113]; Hunter and New England Area Health District v McKenna (2014) 253 CLR 270; [2014] HCA 44 at [29]-[31]).

82. PwC’s response to this is to say that AET’s argument fails to grapple with the modern approach to the duty of care both at common law and under the Civil Liability Act. In particular, it emphasises that what is required is an identification of the relationship giving rise to a duty to avoid a particular identified risk of harm and says that the risks of harm here identified are not the same. It draws a distinction between, on the one hand, the duty owed by an auditor to the audited company in the conduct of the audit and, on the other hand, a duty to the trustee (and/or any future trustee) to avoid harm from it having breached its statutory duty. As to the duty allegedly owed by PwC directly to debenture holders, it is submitted that the very risk of harm against which the trustee here seeks to be protected is being sued by the debenture holders and that this cannot be coherent with a duty to avoid risk of harm to the debenture holders themselves.

83. In oral submissions, Senior Counsel for AET accepted that the identification of different risks of harm might conceivably lead to a finding of inconsistent duties but says that this is not the case here. He submits that even if there were some greater degree of scrutiny required in the conduct of the audit in order to satisfy the duty of care owed to one party than that required for another, that does not render the duties inconsistent or incompatible.

178. That said, I am not persuaded that the pleading deficiencies cannot be cured. Therefore, I propose to strike out the paragraphs indicated above but to give AET an opportunity to serve a further proposed amended pleading rectifying the defects identified in the present pleading. If PwC maintains that there remain pleading deficiencies in any such further proposed amended second cross claim (other than as relate to the summary dismissal arguments dealt with on the present applications) and on that basis refuses consent to the filing of such a document then AET’s application for leave would perhaps most conveniently be determined by the trial judge (particularly having regard to the submissions made by PwC as to the likelihood that part of the cross claim relating to contribution in respect of group members’ claims may not be able to be determined at the July 2018 hearing in the absence of a plaintiff representative of the group).

Costs

181. PwC has had a substantial measure of success (though its summary dismissal applications did not succeed). In light of the attempts unsuccessfully made by it to resolve pleading issues without the need for the present interlocutory applications and its success on the strike out applications, it should nevertheless have its costs in relation to that part of the notices of motion.

Orders

182. For those reasons, on 13 October 2017, I made the following orders in each of the Smith proceedings and the Creighton proceedings:

1. PwC’s application for summary dismissal of the second cross claim is dismissed.

2. Leave to file the proposed amended second cross claim in the form annexed to the affidavit of AET’s solicitor be refused.

3. Those paragraphs of the second cross claim alleging: breach of duty of care by PwC ([18], [56], [94], [132]) and causation of loss ([19], [57]; [95], and [133]) (those paragraphs relating to the negligence claims for all financial years); audit wrongdoing and causation of loss ([23], [26], [31], [33], [61], [64], [69], [71], [99], [102], [107], [109], [137], [140], [145], [147]) (those paragraphs relating to the allegations of misleading and deceptive conduct for all financial years); and the corresponding allegations in the contribution claims for all financial years ([39], [40], [41], [77], [78], [79], [115], [116], [117], [153], [154], and [155]), as well as references to corresponding (but not specified) provisions of legislation in other States or Territories both in the claims directly made by AET against PwC and in the contribution claims, be struck out.

4. AET is directed to serve a further proposed amended second cross claim in accordance with these reasons within 14 days and, if consent to the filing of that further proposed amended second cross claim is not forthcoming from PwC, then AET is to apply to Ball J’s associate to have the matter relisted before his Honour to determine whether leave should be granted to AET to file the said further proposed amended second cross claim.

5. Notice of motion filed 30 June 2017 is otherwise dismissed.

6. AET is to pay PwC’s costs thrown away by any amendment allowed to the second cross claim.

7. Costs of the notice of motion, so far as they relate to PwC’s summary dismissal claim, be costs in the cause and, so far as they relate to the application to strike out parts of the second cross claim, be borne by AET.

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Decision last updated: 16 October 2017