Sons of Gwalia Ltd (Administrators Appointed) v Ernst & Young (A Firm)

[2007] WASC 181

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   SONS OF GWALIA LTD (ADMINISTRATORS APPOINTED) -v- ERNST & YOUNG (A FIRM) & ORS [2007] WASC 181

CORAM:   LE MIERE J

HEARD:   25 JULY 2007

DELIVERED          :   9 AUGUST 2007

FILE NO/S:   CIV 1152 of 2005

BETWEEN:   SONS OF GWALIA LTD (ADMINISTRATORS APPOINTED) (ACN 008 994 287)

Plaintiff

AND

ERNST & YOUNG (A FIRM)
First Defendant

EARDLEY MAITLAND ROSS-ADJIE
Second Defendant

PETER KEVIN LALOR
Third Defendant

CHRISTOPHER JOHN LALOR
Fourth Defendant

THOMAS ANDREW LANG
Fifth Defendant

JEFFREY PHILLIP DOWLING
Sixth Defendant

MICHAEL MINOSORA
Seventh Defendant

Catchwords:

Civil practice and procedure - Time limits for filing of pleadings - Whether time limit should be set for filing of defences - Turns on own facts

Legislation:

Nil

Result:

Defendants to file requests for particulars by 22 August 2007
Plaintiff to file answers to requests by 12 October 2007
Directions hearing in relation to filing of defences adjourned

Category:    B

Representation:

Counsel:

Plaintiff:     Mr P Wood & Mr K J Mony de Kerloy

First Defendant             :     Mr B C Oslington QC & Mr S A Goodman

Second Defendant         :     Mr P G Clifford

Third Defendant           :     Mr G R Donaldson SC

Fourth Defendant          :     Mr G R Donaldson SC

Fifth Defendant            :     Mr P B M Marks

Sixth Defendant            :     Mr B C Oslington QC & Mr S A Goodman

Seventh Defendant        :     Mr B C Oslington QC & Mr S A Goodman

Solicitors:

Plaintiff:     Freehills

First Defendant             :     Blake Dawson Waldron

Second Defendant         :     Karp Steedman Ross-Adjie

Third Defendant           :     Maxim Litigation Consultants

Fourth Defendant          :     Maxim Litigation Consultants

Fifth Defendant            :     Peter Marks Esq

Sixth Defendant            :     Blake Dawson Waldron

Seventh Defendant        :     Blake Dawson Waldron

Case(s) referred to in judgment(s):

Nil

1. LE MIERE J:  These are my reasons for decision in relation to the fourth directions hearing in this matter, held on 25 July 2007.

The pleadings to date

1. The plaintiff issued its writ on 10 February 2005.  The writ was subsequently amended numerous times.  The plaintiff filed and served its statement of claim on 21 February 2007.  It is 129 pages long and divided into the following parts:

   Part A:Parties, audit contracts, duties and accounting and disclosure requirements.

   Part B:Claim against the first defendant in relation to indexed put options and unmatched and undesignated USA dollar transactions.

   Part C:Claim against the defendants in relation to unauthorised gold and USA dollar derivatives trading.

   Part D:Claim against the first defendant in relation to the plaintiff's wrongful payment of dividends.

   Part E:Prayer for relief for each of Parts B, C and D.

2. On 20 April the plaintiff filed and served a document entitled "Particulars and document references to the statement of claim".  The document gives voluntary particulars of the statement of claim and document references for the benefit of the reader that may form part of the evidence in support of the plea.  The particulars are voluntary in that they were not given in response to a request from any defendant.  The voluntary particulars are 110 pages long and contain hundreds of document references.  The particulars include references to transactions, and other matters contained in schedules.  On 29 June 2007 the plaintiff filed and served a document entitled "Schedules and document references to the particulars of the statement of claim".  The schedules are 381 pages long and contain thousands of items referring to transactions, contracts, options and other information such as exchange rates, gold prices and valuations.

First directions hearing in the Commercial and Managed Cases List

1. On 19 April 2007 I entered the action into the Commercial and Managed Cases List and, at the request of the plaintiff, made orders for the plaintiff to file and serve on the defendants, voluntary particulars of the statement of claim and the schedules referred to in the voluntary particulars of the statement of claim.  I also gave directions relating to the settlement of interlocutory disputes and directed the parties to confer in relation to the first defendant giving discovery in stages and in relation to an electronic document exchange protocol.

Second directions hearing

1. The second directions hearing occurred on 9 May 2007.  I then made directions concerning, amongst other things, the plaintiff providing certain documents to each of the defendants in stages.  I directed the parties to further confer in relation to the proposed electronic document exchange protocol, in relation to discovery of specified documents and in relation to the defendants' requests for security for costs.

Third directions hearing

1. The third directions hearing took place on 31 May 2007.  I then made directions concerning applications by the defendants for security for costs and further directions concerning the production of documents by the plaintiff to the defendants in stages.  I otherwise gave directions for the parties to file any affidavits or submissions concerning further proposed directions.

Fourth directions hearing

1. At the fourth directions hearing on 25 July 2007 the parties made submissions concerning the filing of defences by the defendants and the provision by the plaintiff of particulars and other information.

Requests for particulars of statement of claim

1. The first, sixth and seventh defendants (the Ernst & Young defendants) submitted that directions should be made that they serve any request for particulars, further information and/or documents by 22 August 2007 and that the plaintiff file and serve answers by 19 September 2007.

2. The third and fourth defendants (Lalor brothers) had already served on the plaintiffs a document entitled "Request for further information and/or documents" and dated 16 July 2007.  The document is not in the form of a conventional request for particulars.  It includes requests for particulars but also includes more broad ranging requests for information and documents.  The Lalor brothers initially submitted that the plaintiff should answer the request for further information and/or documents of 16 July 2007 on or before 15 August.  The Lalor brothers also initially submitted that by 15 August 2007 the plaintiff should file and serve copies of the reports or the substance of the evidence of any expert witness whose evidence is relied upon by the plaintiff in relation to allegations referred to in certain specified paragraphs of the Lalor brothers' request for further information and/or documents.

3. At the directions hearing senior counsel for the Lalor brothers, Mr Donaldson SC, modified that suggested approach in the interests of uniformity and harmonisation of interlocutory processes between the plaintiff and the Ernst & Young defendants on the one hand and the interlocutory processes between the plaintiff and the Lalor brothers on the other hand.  Mr Donaldson SC accepted that the Court should give directions for the Lalor brothers to file and serve a new request for particulars of the statement of claim.  Mr Donaldson did not press for an answer to the Lalor brothers' request of 16 July 2007, or that the plaintiff file and serve expert reports at this stage of the proceedings.

4. Counsel for the second and fifth defendants did not dissent from the court making similar directions in relation to all of the defendants.

5. The plaintiff agrees to give particulars of its statement of claim, in response to requests from the defendants, before delivery by the defendants of their defences.  The plaintiff proposed that such particulars should be delivered by 12 October.

6. I will direct that on or before 22 August 2007 each defendant file and serve on the plaintiff any request for further and better particulars of the statement of claim, particulars and schedules.  That is the date nominated by the plaintiff and the Ernst & Young defendants for the defendants to request particulars.  On or before 12 October 2007, the plaintiff shall file and serve on the defendants, answers or objections to such requests.  That is the date nominated by the plaintiff for answering the requests and is a reasonable time.

Ernst & Young defendants' submissions concerning service of defence

1. The Ernst & Young defendants submit that the Court should not fix a date by which they should file and serve a defence but should determine that date at a future directions hearing for the following reasons:

   "(a)This matter is factually and legally complex.  The EY [Ernst & Young] defendants have not yet obtained all of the knowledge required to prepare an adequate defence.

   (b)The EY Defendants will need to retain a range of experts (including, but not limited to accounting experts, auditing experts and derivative experts) and obtain their advice before preparing their defences.

   (c)The EY Defendants will need to have their defences settled by counsel.

   (d)The ventilation of the issues in the matter is in the public interest.  The creditor claims in this matter total approximately $1,083 million and the recent High Court test case brought by shareholders illustrates the high profile nature of this matter.

   (e)The quantum of the claim is significant.  It is currently estimated at approximately $700 million, with potential for a further claim of $250 million.

   (f)The EY Defendants will be prejudiced if they are not provided with sufficient time in which to prepare their defences.

   (g)The court should exercise its discretion to provide EY Defendants with adequate time in which to file their defence."

2. Senior counsel for the Ernst & Young defendants, Mr Oslington QC, submitted that if the Court was to fix a date for the filing of defences then it should be the second quarter of 2008, that is April 2008, because any earlier date would risk the Ernst & Young defendants being prejudiced by not being provided with sufficient time in which to prepare their defences.  Mr Oslington submitted that the Ernst & Young defendants anticipate that at the end of August, or early September 2007, they will be in a better and more informed position to tell the Court exactly how much time they require in which to file a defence.

Position of Lalor brothers

1. The position of the Lalor brothers is essentially the same as that of the Ernst & Young defendants.  Senior counsel for the Lalor brothers, Mr Donaldson SC, submitted that the time by which the defendants should file and serve defences should be determined at a further directions hearing.  However, whereas Mr Oslington submitted that the date should be fixed at a directions hearing in late August or early September, Mr Donaldson submitted that the directions hearing should take place after the plaintiff has delivered answers to the defendant's request for particulars.

Position of second defendant

1. The second defendant, Mr Ross‑Adjie, submitted that he is not presently in a position to file a defence because he is in poor health and is financially insecure.  It was submitted that Mr Ross‑Adjie's poor health prevents, or impedes, him giving sufficient instructions to his solicitors to complete a defence for about the next three months.  Furthermore, Mr Ross‑Adjie's lack of financial means prevents him being able to instruct his solicitors or counsel to carry out the required work to complete a defence within that time.  In his minute of proposed directions, Mr Ross‑Adjie proposed that the directions hearing be adjourned to a date to be set by the court not before mid‑October 2007 with Mr Ross‑Adjie to report by solicitor's letter to the Court as to his medical condition and the state of his defence preparation.  Counsel for Mr Ross‑Adjie, Mr Clifford, submitted orally that the Court should make the same directions in relation to Mr Ross‑Adjie filing a defence as for the other defendants.

Position of the fifth defendant

1. The fifth defendant, Mr Lang, by his counsel, Mr Marks, in effect accepted that the Court should make the same directions in relation to the fifth defendant as in relation to the other defendants.

Position of the plaintiff

1. The plaintiff submitted that proper case management and the interests of the parties, fairly and justly balanced, requires that this action be moved towards trial with reasonable expedition.  In some instances, and the plaintiff submitted that this appears to be one, directions providing for expedition in meeting deadlines may be necessary to motivate unwilling parties into action.  The plaintiff submitted that in this case proper case management requires directions by the Court setting a date for the filing of the defences.  The plaintiff submitted that the defendants should file defences by 26 October 2007.

2. Counsel for the plaintiff, Mr Wood, submitted that the plaintiff would be prejudiced by any delay in the proceedings and that the expeditious resolution of the proceedings would be facilitated by setting a date by which the defendants were to file their defences.  Mr Wood submitted that the prejudice is threefold.  First, there is no case in which a plaintiff is not disadvantaged by delay.  Secondly, the plaintiff has been ordered to give security for costs.  It is to give security by bank guarantees.  That will require the plaintiffs to pay interest to the bank.  Thirdly, it is to be assumed that the plaintiff company maintained a directors and officers liability insurance (D & O) policy.  The Court cannot be satisfied that there is no prejudice to the plaintiff in recovering any award in its favour against the directors under the policy because D & O policies typically have limits and they might be exhausted or eaten into by other claims if the resolution of the matter were to be delayed.

3. Mr Wood submitted that the defendants should be compelled by order to put on their defences and if the defendants need another week, two weeks or a month from the date proposed by the plaintiff then the plaintiff would not debate that.  That is, the plaintiff would not argue against the defendants being required to put on a defence by, for example, 26 November 2007.

Should the defendants put on a defence before particulars?

1. Mr Wood submitted that the defendants were able to put on a defence without receiving particulars of the statement of claim, voluntary particulars or schedules.  There was extensive argument about the plaintiff's pleadings and their deficiencies and the need for further particulars.  It is not necessary or helpful to summarise, or indeed refer to, those arguments.

2. Particulars will normally be ordered before delivery of a defence only when they are necessary to enable the party to plead and the defendant must usually deliver his or her defence within the prescribed time although he or she is waiting for particulars.  However, whether particulars should be given before the filing of defences is not the issue in this case.  The plaintiff does not oppose particulars being given before defences are filed.  Indeed, the timetable proposed by the plaintiff provides for the giving of particulars before the delivery of defences.  The resistance of the Ernst & Young defendants to a date being fixed for the filing of a defence is not based on the proposition that particulars are necessary to enable those defendants to plead.  I turn then to consider the submission of the Ernst & Young defendants that they are not presently able to specify a date by which they may put on a defence.

Time for Ernst & Young defendants to put on a defence

1. Mr Oslington submitted that the position of the Ernst & Young defendants was informed by the general concept, particularly in cases in the commercial list, that pleadings should close on the footing that each party has properly informed and fully informed knowledge of what the real issues in the trial are likely to be.  That idea is particularly important in a case such as this which, if the case proceeds, will occupy considerable resources of the court, and of the parties.  Hence, it is important that the pleadings close after all the parties have a fully informed knowledge of the extent of the real issues, permitting the action to proceed efficiently and accommodating a sensible and meaningful mediation.

2. Mr Oslington submitted that those objectives would be achieved with a timetable which concludes with a defence being filed in the second quarter of 2008.  However, the Ernst & Young defendants may be able to put on a defence before then.  Those defendants have done considerable work towards a defence but have been restrained by the delivery of the plaintiff's case in instalments culminating with the delivery of the schedules at the end of June 2007.

3. The defendants rely upon an affidavit of Mr Wilke sworn on 6 July 2007 in support of an application for security for costs.  In that affidavit Mr Wilke gives estimates of time for various tasks to be performed.  Mr Wilke deposes to the tasks that must be undertaken on behalf of the Ernst & Young defendants to prepare and file a defence.  Using the estimates of time set out in Mr Wilke's affidavit, the Ernst & Young defendants estimate that they will need until at least the end of 2007 to review the pleadings and the relevant documents.  The Ernst & Young defendants then anticipate that the task of obtaining proofs of evidence from witnesses will occupy until mid‑March 2008.  From that point, the Ernst & Young defendants anticipate that a further six weeks will be required to draft and settle the defence.  Part of the time that will be required includes taking the advice of experts on technical matters.  Mr Oslington submitted that the Ernst & Young defendants had not been able to confer with derivatives experts and accounting experts on the technical matters raised in the pleadings until they received the schedules on 29 June.  Mr Oslington informed the Court that the Ernst & Young defendants:

   " … [A]nticipate at the … end of August, early September – to be in a far stronger and informed position to tell the court exactly how much time we do need [to complete the defence].  It may be that what the plaintiff proposes as the time will turn out to be adequate."

Conclusion

1. The plaintiff's case, at least against the Ernst & Young defendants, is factually and legally complicated.  It involves technical and expert matters concerning derivatives, options and other financial instruments.

2. If this matter goes to trial it will be a long and complicated trial.  It will involve expert evidence concerning options and other financial instruments, accounting and possibly other disciplines.  It will involve a huge number of documents.  The efficient and timely disposal of the proceedings will be facilitated by the pleadings disclosing each party's case as fully and clearly as possible.  To that end the defendants should not be required to put on a defence before they have had a proper opportunity to prepare a defence, including taking expert advice, so as to be able to do so as fully informed as can reasonably be accommodated within the confines of litigation.  On the other hand, time limits must be set for the filing of a defence so that the action may proceed.

3. The plaintiff proposes that the defendants put on a defence by 26 October but would not argue against the date being fixed at 26 November.  The Ernst & Young defendants submit that the matter should come back to court at the end of August or early September at which time they will be better informed of when they might be able to put on a complete defence.  In all the circumstances, I propose to adjourn the directions hearing to a date in late August or early September.  By that time I expect the Ernst & Young defendants to be able to specify a date, not later than April 2008, by which they will be able to put on a defence.

4. The plaintiff accepts that the same timetable should be applied to the other defendants as applies to the Ernst & Young defendants.  Accordingly, I will adjourn the directions hearing in relation to all defendants to a date to be fixed in September 2007.