Tredrea v KPMG Financial Advisory Services (Australia) Pty Ltd
[2019] NSWSC 130
•21 February 2019
Supreme Court
New South Wales
Medium Neutral Citation: Tredrea v KPMG Financial Advisory Services (Australia) Pty Ltd [2019] NSWSC 130 Hearing dates: 15 February 2019 Date of orders: 15 February 2019 Decision date: 21 February 2019 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Plaintiff’s Notice of Motion filed 25 January 2019 is dismissed with costs
Catchwords: CIVIL PROCEDURE – representative proceedings – conduct of proceedings – plaintiff sought leave to rely on alternate expert’s evidence served out of time – whether plaintiff’s original expert was likely to cooperate or fail to comply with duty to the Court – consideration of prejudice to defendant by late service of expert evidence Category: Procedural and other rulings Parties: Edgar George Tredrea (Plaintiff/Applicant)
KPMG Financial Advisory Services (Australia) Pty Ltd (Defendant/Respondent)Representation: Counsel:
Solicitors:
J Giles SC (Plaintiff/Applicant)
J Kirk SC with P Herzfeld (Defendant/Respondent)
Piper Alderman (Plaintiff/Applicant)
Corrs Chambers Westgarth (Defendant/Respondent)
File Number(s): SC 2017/234966
Judgment
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On 15 February 2019, I dismissed with costs the plaintiff’s Notice of Motion of 25 January 2019 seeking leave to rely upon the expert report of Mr Michiel McCarty dated 7 January 2019.
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These are my reasons for that decision.
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These proceedings are listed for hearing for three weeks commencing 25 March 2019. That trial date was fixed on 10 August 2018.
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The proceedings are a shareholders’ class action arising from a failed off-market hostile takeover of Discovery Metals Limited. The defendant, KPMG Financial Advisory Services (Australia) Pty Ltd, prepared an Independent Expert Report which was included in the Target Statement. That report stated that the offer price of the bidder, Cathay Fortune Investment Limited, was fair and reasonable. That statement is said to have been misleading or deceptive. It is said to have caused the representative party, the plaintiff Mr Tredrea, and the group members he represents, loss and damage by reason of the takeover failing and the share price of Discovery Metals subsequently falling.
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There is an issue as to whether the takeover would have failed in any event.
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Related to that is another issue as to whether the bidder, Cathay Fortune Investment Limited, would have waived a bid condition concerning the existence of a “change of control” provision in Discovery Metals’ finance facility documents.
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During 2018, in compliance with the Court’s directions, the parties exchanged expert reports from experts in the area of mergers and acquisitions relating to those issues. The following reports were served:
report dated 22 March 2018 of Mr Andrew Molony (for Mr Tredrea);
report dated 17 August 2018 of Mr Stuart Nash (for KPMG); and
reply report dated 25 October 2018 of Mr Molony.
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Mr Tredrea sought to rely on Mr McCarty’s 7 January 2019 report, in lieu of Mr Molony’s reports, by reason of what Mr Giles SC, who appeared for Mr Tredrea, described as Mr Tredrea’s legal team’s “lack of confidence” concerning Mr Molony’s likely cooperation between now and the hearing.
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That lack of confidence was said to arise from disagreement that occurred in August 2018 concerning Mr Molony’s preparedness to provide his reply report.
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In early August 2018, various members of Mr Tredrea’s legal team at Piper Alderman tried, without success, to contact Mr Molony. Ultimately, on 29 August 2018, Mr Molony sent an email to Ms Anne Freeman, the partner at Piper Alderman with carriage of this matter:
“I am unavailable due to a change in my personal circumstances. That’s it. I ask that your firm ceases to email, call and drop into my offices.”
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Correspondence ensued and ultimately, on 20 September 2018, Mr Molony’s solicitor, Mr David Hope, wrote to Ms Freeman. That letter included the following:
“Mr Molony disputes…that his brief included the preparation of an independent expert report in reply.
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Mr Molony has completed the independent expert report he was instructed to prepare and remains willing to attend Court to give evidence in relation to that report.
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Mr Molony’s reticence to undertake further work has, in part, been influenced by the manner in which his previous engagement was conducted. Having reflected further on the matter, he is prepared to accept a new brief to review the reply report, and consider with you, and prepare, an appropriate response on the provisos that:
[Mr Hope set out Mr Molony’s requirements concerning payment of fees]
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(d) it is acknowledged and agreed that whilst Mr Molony is willing to discuss in detail the contents of any draft report, he is entitled to cease those discussions should he consider that to do so would conflict with his paramount duty to the court.”
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A written exchange concerning Mr Molony’s engagement to provide a reply report followed, including an estimate of fees, in which Piper Alderman acknowledged the proviso referred to at [11] above.
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Mr Molony then prepared his reply report of 25 October 2018. He did so pursuant to an engagement letter that noted that he may have to give evidence at the trial. Mr Molony thus confirmed that he was willing to give evidence at the trial as to both his original report and his reply report.
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The circumstances that prompted Piper Alderman to engage Mr McCarty are set out in the following passages from an affidavit that Ms Freeman swore on 29 January 2019:
“25. Throughout the preparation of Mr Molony’s report in reply, I remained concerned about Mr Molony’s commitment to assisting further with the proceedings and because of this, I instructed Mr Weigand to continue to search for potential replacement expert witnesses, including with the assistance of Experts Direct, a company specialising in connecting lawyers with potential experts. I am informed by Mr Weigand and believe that:
(a) he contacted Experts Direct on 11 September 2018 to seek its assistance in identifying an appropriate potential replacement for Mr Molony; and
(b) in all, Mr Weigand considered and/or contacted approximately 12 potential experts, who either did not have the requisite expertise or who were unable to assist.
26. On 3 October 2018, Experts Direct sent Mr Weigand an email identifying Mr Michiel Cleve McCarty as a potential expert.
27. Mr Weigand had an initial telephone discussion with Mr McCarty on 5 October 2018 and reported to me following that discussion. Mr Weigand informed me that he considered that Mr McCarty had the requisite experience and seemed to have availability to assist in these proceedings. As a result of that, I instructed Mr Weigand to arrange a time for Senior Counsel for the Plaintiff to speak with Mr McCarty by telephone. I am informed by Mr Weigand and believe that that discussion took place on 2 November 2018.
28. I was and remain aware that the replacement of an expert is a significant decision. In the course of my nearly 25 years of working in commercial litigation, I have never had to recommend the replacement of an expert witness to a client. I also have never experienced an expert refusing to be further involved and being so difficult to contact and failing to respond. I was and remain aware of the very significant costs involved in seeking to replace Mr Molony, including the wasted costs on his on his evidence preparation, the costs of the replacement expert and the exposure to costs thrown away by the Defendant should the replacement take place.
29. For these reasons, and given the approaching mediation, I considered that it was in the best interests of the Plaintiff and the Group Members to refrain from asking Mr McCarty to commence work on a report responding to the same questions asked of Mr Molony at that time. I was hopeful that the mediation of the proceedings may result in a settlement. When that did not happen, steps were quickly taken to instruct Mr McCarty to prepare a report.”
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Piper Alderman served Mr McCarty’s report on KPMG’s solicitor, Corrs Chambers Westgarth, on 8 January 2019.
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By his Notice of Motion of 25 January 2019, Mr Tredrea sought to, in effect, substitute Mr McCarty’s report for the earlier reports of Mr Molony.
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Despite the misgivings expressed by Ms Freeman concerning Mr Molony, Mr Giles accepted before me that Mr Molony has not resiled from his stated willingness to attend Court to give evidence in relation to his reports nor given any indication that he will not attend conferences with counsel as required. Nor has Mr Molony suggested he will not attend an expert conclave or cooperate with Mr Nash in preparing a joint expert report.
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Mr Molony is plainly aware of his duty to the Court as an expert witness. He has subscribed to the Expert Code of Conduct in his reports, and has, through his solicitor, made express reference to that duty in Mr Hope’s letter of 20 September 2018. I see no reason to doubt that Mr Molony will discharge his professional obligations and duty to the Court.
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Substitution of Mr Molony’s evidence with that of Mr McCarty’s at this late stage is likely to cause serious prejudice to KPMG.
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Hammerschlag J has made the usual order for hearing. That order requires that the experts meet on or about 1 March 2019 and prepare a joint report by on or about 18 March 2019.
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KPMG’s solicitor, Ms Katrina Sleiman, has given evidence to the effect that Mr Nash will not be able to respond:
by end of February 2019 (in time for the expert conclave) to many of the matters in Mr McCarty’s report because there is insufficient time to do so; and
at all to other matters in Mr McCarty’s report because they rely on thousands of United States transactions not identified in the report and in any event, raise matters outside Mr Nash’s expertise, particularly because of Mr McCarty’s United States focus.
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In her affidavit, Ms Sleiman gave unchallenged evidence that:
“ … if [KPMG] had received the Mr McCarty report when the evidence in chief of the plaintiff was due to be served in April 2018, [KPMG’s lawyers] would have considered whether evidence might be sought from an alternative expert to Mr Nash.”
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Overall, my conclusion was that the likely prejudice to KPMG of allowing the plaintiff to rely upon Mr McCarty’s report is not justified; especially in circumstances where the plaintiff’s original expert, Mr Molony, remains available to give that evidence in accordance with his reports and is, as I have said, conscious of his obligations to the Court as an expert.
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It is for these reasons that I dismissed the plaintiff’s application to rely upon Mr McCarty’s report.
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Decision last updated: 21 February 2019
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