Willcocks v Croft

[2021] NSWSC 1610

Supreme Court

New South Wales

Medium Neutral Citation:

Willcocks v Croft [2021] NSWSC 1610

Hearing dates:

3-4 August 2021

Date of orders:

10 December 2021

Decision date:

10 December 2021

Jurisdiction:

Common Law

Before:

Harrison AsJ

Decision:

The Court orders:

(1)   The defendants’ notice of motion dated 10 July 2020 seeking summary dismissal is dismissed.

(2)   The plaintiff’s notice of motion dated 12 November 2019 seeking to file the proposed second further amended statement of claim is granted.

(3)   The second further amended statement of claim is to be filed and served within 14 days (24 December 2021).

(4)   The sixth and seventh defendants are to pay the plaintiff’s costs of their notice of motion filed 10 July 2020 and, the plaintiff should pay the defendants’ costs thrown away by reason of the amendments.

Catchwords:

CIVIL PROCEDURE - PRACTICE AND PROCEDURE – Uniform Civil Procedure Rules 2005 (NSW), rr 13.4(1) and 50.16A – Application for dismissal – Whether proceedings frivolous or vexatious – Limitation Act 1969 (NSW), s 55 – Whether claims in the new pleading are statute barred – Whether claim is arguable – Dismissed

Legislation Cited:

Civil Procedure Act 2005 (NSW) ss 64-65

Income Tax Assessment Act 1997 (Cth) Div 124

Limitation Act 1969 (NSW) s 14, 55

Tax Assessment Act 1936 (Cth) ss 6, 44 and 45B

Taxation Administration Act 1953 (Cth) Pt IVC

Trade Practices Act 1974 (Cth) s 82

Uniform Civil Procedures Rules 2005 (NSW) rr 13.4, 14.28

Cases Cited:

ACN 092 745 330 Pty Ltd [2018] NSWSC 1185

Agar v Hyde (2000) 201 CLR 552; HCA 41

AJG Pty Ltd v Mobile Communications Systems Pty Ltd [2015] VSCA 231

Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868

Argyropoulos v Layton [2002] NSWCA 183

Banks v Alphatise Pty Ltd [2014] NSWSC 1437

Banque Commerciale SA En Liquidation v Akhill Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279

BCI Finances Ply Ltd (in liq) v Binetter (No 4) (2016) 117 ACSR 18

Beach Petroleum NL v Johnson (1993) 115 ALR 411

Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1

Blazai Pty Ltd & Ors v John Palasty [2009] NSWSC 50

Brimson v Rocla Concrete Pipes Ltd [1982] 2 NSWLR 937

Christie v Purves [2007] NSWCA 182

Clifton v Keyy J Investments Pty Ltd tlas Clenergy [2020] FCAFC 5; 379 ALR 593

Clifton v Keyy J Investments Pty Ltd tlas Clenergy [2020] FCAFC 5; 379 ALR 593

Clurname Pty Limited v McGraw-Hill Financial, Inc [2017] FCA 1319

Commonwealth v Cornwell (2007) 229 CLR 519

D'Agostino v Anderson [2012] NSWCA 443

Dey v Victorian Railway Commissioners (1949) 78 CLR 62

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 24

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125

Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435

Hall v Poolman (2007) 65 ACSR 123

Hamilton v Kaljo (1987) 17 NSWLR 381

Hawkins v Clayton (1988) 164 CLR 539

Larking v Great Western (Nepean) Gravel Ltd (in liq) [1940] HCA 37; 64 CLR 221

Lee v Travers [2009] NSWSC 398

Lewis Securities v Carter (2018) 355 ALR 703

Loulach Developments Pty Ltd v Roads and Maritime Services [2019] NSWSC 438

Magill v Magill (2006) 226 CLR 551

Peter David and Ors v Halliday Financial Management Pty Ltd & Ors [2014] NSWSC 1371

Preston v Star City Pty Ltd [1999] NSWSC 1273

Segal v Fleming [2002] NSWCA 262

Seymour v Seymour (1996) 40 NSWLR 358

SzeTu v Lowe (2014) 89 NSWLR 317

Wardley Australia Ltd v the State of Western Australia (1992) HCA 55; 175 CLR 514

Webster v Lampard(1993) 177 CLR 598

Texts Cited:

Peter Cane, Tort Law and Economic Interests, (1991, Oxford University Press)

Category:

Procedural rulings

Parties:

Mark Willocks (Plaintiff)
Bernard Croft (First Defendant)
Croft Gooden Partners Pty Limited (Second Defendant)
Gooden & Co Pty Lmited (Third Defendant)
M Duggan & Associates Pty Limted (Fourth Defendant)
Croft’s CA Pty Limited (Fifth Defendant)
Deloitte Tax Services Pty Limited (Sixth Defendant)
Joshua Cardwell (Seventh Defendant)

Representation:

Counsel:
A J McInerney SC with D Barnett (Plaintiff)
D Williams SC with A Horvath (Sixth and Seventh Defendants)

Solicitors:
HWL Ebsworth Lawyers (Plaintiff)
Thomson Geer Lawyers (Sixth and Seventh Defendants)

File Number(s):

2017/40276

Publication restriction:

Nil

Headnote

Judgment

Summary judgment and summary dismissal

The key evidence

Factual Background

The new claims against Cardwell and Deloitte in the 2PFASC

Pleading Inadequacies in the 2PFASC

The claims in the FASC

The new claims in the P2FASC

Agency

The Retainer

Discretion

Final Resolution

Orders

Headnote

[This is not to be read as part of the judgment]

This is an application by the sixth and seventh defendants for summary dismissal. The matter has settled between the plaintiff and the first to fifth defendants.

The plaintiff,    Mark Willcocks, was the beneficial owner of Active Tree Services Pty Ltd, a large tree lopping company. In 2003, the plaintiff alleges that he, through the agency of Bernard Croft (the first defendant), retained Joshua Cardwell (seventh defendant), employee of Deloitte Tax Services Pty Limited (sixth defendant), to advise him on the steps to be taken to effect an interposition. This is a process which places a new company between an asset rich trading company and potential future creditors in a tax neutral fashion.

The plaintiff alleges that between 2003 and 2005, Cardwell/Deloitte negligently provided incorrect advice to himself and Mr Croft. The essence of the alleged error is that Cardwell/Deloitte failed to explain that the shares issued in the new company, which would be exchanged for the plaintiff’s shares in the old company, needed to reflect the value of the old company’s shares, a critical step required under s 124-G of the Income Tax Assessment Act 1997 (Cth). In reliance on this advice, the plaintiff took steps to effect the interposition which were ultimately ineffective. The result of this was that the plaintiff lost the pre-CGT status of his shares, and he was issued with an amended assessment for the 2005 financial year by the Commissioner of Taxation, which had the effect of imposing an additional tax liability on the plaintiff as well as penalties and interest.

The plaintiff disputed this amended assessment leading to Federal Court proceedings which were ultimately settled on 24 July 2014 when Croft admitted that he had backdated documents. Both Croft and Cardwell had involvement throughout the ATO review process and both of them provided affidavit evidence for the trial. Cardwell prepared a brief for the plaintiff’s then legal counsel which did not include the admission that he knew that there was a problem with the way the interposition was effected.

On 8 February 2017, the plaintiff commenced these proceedings against Cardwell/Deloitte for failure to exercise reasonable care and skill in advising on and implementing the interposition.

On 27 February 2019, Cardwell provided an affidavit which suggested that he knew there was a problem with the interposition at the time it was being carried out. The plaintiff now alleges that the conduct of Cardwell in not admitting his knowledge of the problem with the interposition at the time amounted to fraud or fraudulent concealment and seeks to file a second further amended statement of claim reflecting these allegations. The plaintiff submits that due to operation of s 55 of the Limitation Act 1969 (NSW) the claims are not time barred.

In answer to these allegations, Cardwell/Deloitte say that there was no retainer and they did not provide the alleged advice. They say that the plaintiff did not rely upon any advice provided by Cardwell/Deloitte when he executed documents giving effect to the interposition. Cardwell/Deloitte submit that each cause of action the plaintiff is pursuing became time barred under s 14 of the Limitation Act or extinguished well before 9 April 2018 and seek summary dismissal of the proceedings.

Judgment

1. HER HONOUR: There are two notices of motion before the Court, one by each party.

2. By notice of motion filed 12 November 2019, the plaintiff seeks an order that leave be granted to file a proposed second further amended statement of claim (“P2FASC”).

3. By notice of motion filed 10 July 2020, the sixth and seventh defendants seek an order that the further amended statement of claim filed by the plaintiff on 24 April 2018 (“FASC”) be dismissed pursuant to r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) as against them, or in the alternative, that the FASC be struck out as against them pursuant to UCPR 14.28.

4. The plaintiff is Mark Willcocks. The first defendant is Bernard Croft (“Croft”). The sixth defendant is Deloitte Tax Services Pty Ltd (“Deloitte”). The seventh defendant is Joshua Cardwell (“Cardwell”).

5. The plaintiff has settled proceedings as against the first to fifth defendants. The parties relied on a joint court book of 9 volumes (“CB”) and lengthy submissions.

Summary judgment and summary dismissal

6. In seeking summary dismissal, the defendants rely upon UCPR 13.4 and 14.28. They read:

“13.4 Frivolous and vexatious proceedings

(1) If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings-

(a) the proceedings are frivolous or vexatious, or

(b) no reasonable cause of action is disclosed, or

(c) the proceedings are an abuse of the process of the court,

the court may order that the proceedings be dismissed generally or in relation to that claim.

(2) The court may receive evidence on the hearing of an application for an order under subrule (1).

14.28 Circumstances in which court may strike out pleadings

(1) The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading—

(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or

(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or

(c) is otherwise an abuse of the process of the court.

(2) The court may receive evidence on the hearing of an application for an order under subrule (1).”

7. UCPR 14.28 enunciates grounds upon which a defective pleading may be struck out, while UCPR 13.4 focuses on the weakness of a party’s case rather than the defects of a pleading: Brimson v Rocla Concrete Pipes Ltd [1982] 2 NSWLR 937 (“Brimson”).

8. Where the court is asked to summarily dismiss a plaintiffs case, the fundamental principle is that prima facie a plaintiff is entitled to have their case come to trial and that an application to deprive them of that right will succeed only in the clearest of cases: see Brimson at 944. Usually, a party is not to be denied the opportunity to place their case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. Therefore the defendants’ application needs to be approached upon the basis that the power to make such an order should be sparingly employed: Dey at [91]; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 (“General Steel”); Webster v Lampard (1993) 177 CLR 598 at 602-603 (“Webster”).

9. The test to be applied by a court when considering summary dismissal is clear. It has been variously expressed as a claim being “so obviously untenable that it cannot possibly succeed”, “manifestly groundless”, or “so manifestly faulty that it does not admit of argument”: General Steel at 128-129. The test is not whether the plaintiff would probably fail in his action against the defendants, but whether the material before the Court demonstrates that the action should not be permitted to go to trial in the ordinary way because it is apparent that it must fail: Webster at 602.

10. Consequently, for a summary dismissal application to succeed, a high degree of certainty is required about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way. See: Agar v Hyde (2000) 201 CLR 552 at 575-576 (“Agar”)). It must be a clear case with no real question of fact or law to be determined: Dixon J in Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91 (“Dey”)

11. The mere fact (if it be the case) that a plaintiff’s prospects of success might be characterised as slim would not be enough to strike out a pleading: Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 271 (“Esanda”); Preston v Star City Pty Ltd [1999] NSWSC 1273 at [31] (“Preston”). The question for determination is whether a reasonable cause of action is disclosed, that is a cause of action which has some chance of success, or which could conceivably give the plaintiff a right to relief, or which, although weak, is properly debatable and has some apparent legitimate basis if the facts upon which it is alleged to be based are made good: Preston at [37].

12. By bringing an application for summary dismissal, the defendants undertake the burden of establishing that there is no triable issue: Wickstead v Browne (1992) 30 NSWLR 1 at 11 (“Wickstead”).

13. It is my view that I should take the plaintiff’s case at its highest. To do so the where there are discrepancies between the FASC and the P2FASC, the P2FASC is the pleading to which I will refer.

Summary dismissal the defendants’ submissions summarised

14. The defendants submitted that the proceedings should be summarily dismissed as the claims advanced in the FASC were time barred when filed, and the new claims propounded in the P2FASC were also time barred. The defendants further submitted that none of the claims are assisted by operation s 55 of the Limitation Act 1969 (NSW) (“the Limitation Act”) as the information the plaintiff suggested was concealed was in his knowledge for at least 7 years.

15. The defendants also submitted that this Court should exercise its discretion and not grant the plaintiff leave to file the P2FASC as it would cause them prejudice given the delay in bringing the claims and the lack of explanation for that delay.

Summary dismissal the plaintiff’s submissions summarised

16. The plaintiff submitted there are three particular matters which make this case inappropriate for resolution on a summary dismissal basis.

17. First, the questions about when the fraud/deceit and/or fraudulent concealment were reasonably discoverable involve questions of fact and law of some complexity.

18. Secondly, the limitation periods in respect of the non-fraud claims is subject to s 55 of the Limitation Act and the question of fraudulent concealment, such that even if it could be concluded on a summary basis that loss was first suffered in relation to the non-fraud claims more than 6 years prior to commencement of the proceedings, the claims would necessarily still be in issue at the final hearing via the fraudulent concealment allegation.

19. Thirdly, in any event, the question of when loss was first suffered in relation to the non-fraud claims is also attended by some difficulty and complexity both factually and legally.

The key evidence

20. The plaintiff relies on the following affidavits to demonstrate there is an arguable cause of action premised by fraud, the tort of deceit, and breach of fiduciary duty against Cardwell and Deloitte:

1. affidavit of Mark Willcocks of 28 November 2018 (“Willcocks Aff 28/11/18”) (CB, Vol 3, p 2340);

2. affidavit of Bernard Croft of 18 February 2019 (“Croft Aff 18/2/19”) (CB, Vol 4, p 2907);

3. affidavit of Joshua Cardwell of 22 March 2013 ("Cardwell Federal Court Aff”) (CB, Vol 6, p 4270) 27 February 2019 (“Cardwell Aff 27/2/19”) (CB, Vol 5, p 3525) and;

4. expert reports of Scott McGill of 3 August 2017 (“McGill Report 3/8/17”) (CB, Vol 1, p 680) and 17 June 2019 (“McGill Report 17/6/19”) (CB, Vol 2, p 1169);

5. valuation of Active Group Holdings Pty Ltd (“AGC”) by Leadenhall dated 20 June 2019 (CB, Vol 9, p 6954); and

6. affidavit of Guy Moloney, the plaintiff’s solicitor, dated 14 October 2020 (“Moloney Aff 14/10/20”) (CB, Vol 5, p 3561).

21. The defendants relied upon the following evidence:

1. affidavits of solicitor, Robert McGregor, affirmed 12 November 2019 (“McGregor Aff 12/12/19”) (CB, Vol 1, p 479), affirmed 17 March 2020 (“McGregor Aff 17/3/20”) (CB, Vol 1, p 483), and affirmed 20 November 2020 (“McGregor Aff 20/11/20”) (CB, Vol 1, p 503);

2. Moloney Aff 14/10/20

3. affidavit of Tara Phelan, the defendants’ current solicitor, sworn 10 July 2020 (“Phelan Aff 10/7/20”) (CB, Vol 1, p 518).

Factual Background

22. I have largely adopted the plaintiff’s background some of which is uncontroversial. The reason for this approach is to take the plaintiff’s case at its highest. Over the two days of hearing of these notices of motion, I was taken to the particular portions of the relevant documents in evidence. I have referred to some relevant parts of them.

23. These proceedings concern claims against the plaintiff’s former advisers in respect of a number of transactions involving Active Tree Services Pty Limited (“ATS”), which is, and at all material times has been, a valuable company which conducts an extensive and profitable commercial tree pruning business.

24. One set of defendants (referred to as the ‘Croft defendants’) is comprised of the plaintiff’s personal accountant, Croft, and his associated partnerships and companies. The second set of defendants is comprised of a specialist tax adviser, Cardwell, and his employer, Deloitte.

25. In February 2017, these proceedings in this Court were initially commenced against the Croft defendants. On or about 24 April 2018, Cardwell and Deloitte were joined to the proceedings under the FASC.

26. As stated earlier, the plaintiff has since settled with the Croft defendants, so the only claims in issue are those against Cardwell and Deloitte.

27. Prior to about mid-2004, the plaintiff beneficially owned all 10 of the shares on issue in ATS. He was the registered holder of 9 shares and the remaining share was held on trust for him by his father, Mr Richard Willcocks (“the plaintiff’s father”).

28. The 9 shares which the plaintiff held directly were ‘pre-capital gains tax’ (“CGT”) assets. That is, because the plaintiff had acquired them prior to 20 September 1985, he could dispose of them - all other things being equal - without attracting capital gains tax. Given that ATS had grown since the issue of the shares and was expected to continue to grow, the shares’ pre-CGT status was very valuable to the plaintiff. The remaining share held on trust for the plaintiff by the plaintiff’s father was not a pre-CGT asset.

29. On 27 March 2003, the plaintiff sought Croft’s advice in relation to the proposed separation of ATS’ residential business from its retail/government business (“proposed separation”).

30. In May 2003, Croft contacted Cardwell seeking his advice in relation to the proposed separation. On 5 June 2003, a letter of engagement was sent from Cardwell to Willcocks. On 24 July 2003, a meeting between Croft and Cardwell took place. In July/August 2003, Cardwell provided written advice.

The 15 September 2003 Conversation

31. On 15 September 2003, Cardwell and Cross spoke again (the “15 September 2003 Conversation”). There is no dispute as to whether the pair spoke on this date, however much of the content of their conversation is disputed.

32. The plaintiff alleges that in the 15 September 2003 conversation:

1. he orally retained Cardwell/Deloitte (via Croft) to advise on how to restructure ATS by interposing a holding company between ATS and its shareholders (“the interposition”), to protect ATS’ assets from potential creditors and to preserve the pre-CGT status of the plaintiff’s ATS shares; and

2. Cardwell/Deloitte advised Croft that there were tax advantages to be obtained by the plaintiff electing to obtain rollover relief in accordance with s 124-G of the Income Tax Assessment Act 1997 (Cth) (“Tax Act 1997”) if a new company was created as part of an asset protection strategy.

33. The plaintiff alleges that in this conversation, Cardwell/Deloitte negligently failed to advise Croft that a critical step in this process was to ensure that there was an issue of shares in the new company in return for the cancellation of the plaintiff’s shares in ATS.

33. The defendants agree that Croft and Cardwell discussed ATS’ restructure, and in particular the interposition. However they deny that this discussion created a retainer, and suggest that it was merely a high level/conceptual discussion devoid of any detail.

34. Although the precise nature and scope of the advice and assistance given by Cardwell and Deloitte is in issue, it is apparent that Croft had very limited knowledge and competence in relation to tax matters and structuring (as he admitted in a number of emails) and deferred to Cardwell as the expert in such matters.

The interposition

36. An interposition is a corporate restructure which places a new company between an asset rich trading company and potential future creditors in a tax neutral fashion. It involves the following steps:

1. The original shareholders of an asset rich company, X, want to protect their assets, so they establish a new company, Y, with a nominal shareholding. Y then acquires a small parcel of shares in X.

2. The original shareholders then exchange the pre-CGT shares they own in X for shares in Y.

3. X then cancels the original shares, and Y records a credit in its share capital account which is equivalent to the value of the shares in X which have been cancelled. This will usually involve a valuation of the shares in X.

4. The original shareholders seek rollover relief under s 122-A and s 124-G of the Tax Act 1997 when they file their next tax return in order to maintain the pre-CGT status of their investment.

37. One of the benefits of an interposition from the plaintiff’s perspective was to provide a degree of asset protection in the event that claims for property damage or personal injury were brought against ATS. However, a critical objective was to ensure that the benefit of the existing CGT status attaching to the 9 ATS shares directly held by the plaintiff was not lost.

38. As suggested above at [36](4), the CGT regime at the time provided “rollover relief” for such transactions whereby the benefit of the existing “pre-CGT” status could be preserved if certain requirements were met.

39. In order to obtain rollover relief under subdivision 124-G of the Tax Act 1997, it was necessary for the following to be satisfied (see Tax Act 1997 s 124-370(1)):

1. the interposed company must acquire no more than 5 shares in the original company;

2. these must be the first shares that the interposed company acquires in the original company;

3. a member of the original company and at least one other entity (the exchanging members) must own all the remaining shares in the original company;

4. the original company must redeem or cancel those remaining shares; and

5. each exchanging member must receive shares (and nothing else) in the interposed company in return for their shares in the original company being redeemed or cancelled.

40. Between September 2003 and March 2004, the plaintiff and Croft took a number of steps towards effecting the interposition. Cardwell says he heard nothing from the plaintiff or Croft during this period, which is disputed by the plaintiff.

41. There is a degree of uncertainty about the precise dates on which particular steps occurred. This is because Croft admitted when giving evidence in the Federal Court that he had backdated at least some documents. It is not disputed that these backdated documents were signed by Mr Willcocks.

42. The steps taken were:

1. on or about 25 September 2003, the plaintiff and Croft incorporated a new company, Actwill Holdings Group Pty Ltd (“AGH”) with 10 shares on issue at an issue price of $1 each. The plaintiff was issued 9 of those shares for $9, and the plaintiff’s father was issued 1 of those shares for $1;

2. on each of 16 December 2003, 5 and 7 January 2004, together with an unidentified date post 15 January 2004, the plaintiff says he executed various documents prepared by Croft pertaining to the interposition; and

3. on or about 5 January 2004:

1. the share in ATS then held by the plaintiff’s father was cancelled; and

2. 5 shares in ATS were issued to AGH;

4. on or about 29 January 2004, the plaintiff’s 9 shares in ATS were cancelled.

5. between 29 January 2004 and 9 February 2004, Croft corresponded with ASIC on the plaintiff’s behalf concerning the interposition.

6. ASIC forms recording the interposition were lodged with ASIC on various occasions (sometimes with incorrect details which were later corrected).

43. This sequence of steps did not satisfy the requirement in s 124-370(1)(e) of the Tax Act 1997 that the plaintiff and his father receive their shares in AGH in return for the redemption or cancellation of their ATS shares. Instead, the plaintiff and his father received their shares in AGH in return for the $1 per share issue price.

44. On the basis that ATS was valued at about $48.7 million at the time (which is the plaintiff’s evidence), in order for the interposition to have been correctly carried out, 48.7 million $1 shares in AGH should have been issued to the plaintiff and his father in consideration for the cancellation of their shares in ATS. This missing step never occurred. Instead, there were only ever 10 x $1 shares issued in AGH.

45. There is a further issue with the interposition, which is referred to in the evidence, as to whether there were two exchanging entities so as to satisfy s 124-370(1)(c) of the Tax Act 1997. The issue was whether the plaintiff’s father was an ‘independent entity’ in circumstances where he held the share on trust for the plaintiff. The plaintiff’s case is that there were two exchanging entities and the expert evidence served by the plaintiff supports that proposition: see McGill Report 17/7/19 at [106]-[109].

46. The plaintiff has provided a chronology and a helpful diagram showing the interposition as it was done and as it should have been done. See: CB Vol 9, Tab 29

The 24 March 2004 Meeting

47. On 24 March 2004, Cardwell attended a meeting with Croft and the plaintiff (“24 March 2004 Meeting”). The plaintiff’s allegations concerning the 24 March 2004 Meeting are pleaded at [29] and [29A] of the FASC, where the plaintiff alleges that:

“[29] On or about 24 March 2004, Croft met with Mr Cardwell who told Croft:

(a) there would be tax advantages available to the plaintiff if a return of capital was made to the plaintiff following ATS and AGH obtaining rollover relief and forming a consolidated tax group; and

(b) there was a risk that such a transaction would fall within the definition of a scheme for obtaining a tax benefit within the meaning of s 45B of the 1936 Tax Act.

[29A] Croft did not at any time pass on or communicate to the plaintiff the comments made by Cardwell pleaded in paragraph 29(b) above.”

48. Croft made a filenote of this meeting (“24 March 2004 Filenote”)(CB, Vol 5, p 3014).

The 27 April 2004 Letter

49. On 27 April 2004, Croft sent Cardwell a letter attaching documents pertaining to the interposition (“27 April 2004 Letter”). The letter reads:

“Please find enclosed copies of resolutions and other documents and elections in relation to the rollover of shares owned by Mark Wilcocks in Active Tree Services Pty Limited.

Would you please advise that these have been completed in accordance with your previous advice.

In addition I enclose a copy of the Willcocks Family Trust and two amending deeds for your review and advice.

I advise that I am presently undertaking a valuation of Active Tree Services Pty Limited for the purposes of correctly capitalizing (AGH). This valuation should be completed within the next seven days.

I trust the above is satisfactory and if you require any further information or assistance please do not hesitate to contact the writer.”

50. The attachments to the letter included an extract of subdivision 124-G of the Tax Act 1997. The requirements for rollover relief are set out at ss 124-370, 124-375 and 124-380. In the version sent to Cardwell in the 27 April 2004 letter, Croft had applied a handwritten tick to each of the requirements, including the requirement at 124-370(1)(e) that “each exchanging member receives shares (and nothing else) in the interposed company in return for their shares in the original company being redeemed or cancelled)” (“Legislation Extract with Ticks Only”) (CB, Vol 2, p 912). At that point, Croft’s state of mind is apparently that the requirements for rollover relief are satisfied.

51. In the 2PFASC the plaintiff alleges that Croft did not receive a response to the 27 April 2004 letter and failed to pursue a response. This is disputed by the defendants who plead in their defence that Cardwell spoke to Croft on 5 May 2005 about the documents attached to the 27 April 2004 letter. The defendants say Cardwell made a note of his conversation with Croft some 7 days later on 5 May 2004 (“5 May 2004 Filenote”). The plaintiff disputes that the 5 May 2004 Filenote is a record of a conversation between Cardwell and Croft.

52. On 5 May 2004, Croft lodged various forms and documents with ASIC, recording that the interposition had taken place in December 2003. There were numerous problems with these forms. The problems included, critically, that a declaration of trust (concerning the shares held by the plaintiff’s father) had been backdated, which the plaintiff says gave rise to a risk (about which he was not told), that:

1. the interposition would be seen by the Commissioner of Taxation (“the Commissioner”) as a divestment of the plaintiff’s interest in ATS, for which rollover relief would not apply, meaning that thereafter the plaintiff’s shares in AGH would (if sold) be subject to capital gains tax; and

2. the Commissioner would consider that the interposition, formation of the consolidated tax group and subsequent return of capital was one transaction and fell within the definition of a ‘scheme for obtaining a tax benefit’ within the meaning of s 45B of the Income Tax Assessment Act 1936 (Cth) (“Tax Act 1936”).

The 5 May 2004 Filenote

53. On 5 May 2004, Cardwell reviewed the documents attached to the 27 April 2004 letter, including the Legislation Extract with Ticks Only, and made a filenote of his review (CB, Vol 3, p 1668).

54. The 5 May 2004 Filenote reads:

“Review Rollover Documents+ Trust Deeds

As only one shareholder rollover is pursuant to 122-A not 124-G but C2 not covered by 122-A so cannot use 122-A

Form 484 - pge 4 of 9 - Capital reduction - Consideration is shares in Holdco.

Form 484 - pge 5 of 9 - Are beneficially held

Form 207C - pge 3 s/b - Richard not beneficially held (with an arrow pointing to 1. above) 724-G requires 2 or more entities. a trust is an entity per 960-100 section 16022PB(i)(j) did contemplate trusts new law omitted it. - need to take position.”

55. The 5 May 2004 Filenote describes the two concerns held by Cardwell on 5 May 2004 which he later described at [34] of the Cardwell Aff 27/2/19 being:

1. the contents of page 4 of 9 of the Form 484 prepared by Croft states that the 10 shares in ATS are cancelled with the consideration being $2, whereas the consideration needed to be shares in AGH; and

2. the problem that there was only 1 beneficial shareholder in ATS.

56. I accept there is a dispute as to whether the 5 May 2004 Filenote is a record of the conversation with Croft which Cardwell refers to in Cardwell Aff 27/2/19 at [35]. The 5 May 2004 Filenote itself makes no reference to Croft and does not purport to be a record of a conversation. On its face, it records Cardwell’s notes of his review of the documents provided under cover of the 27 April 2004 letter. Further, Cardwell himself says only that the 5 May 2004 Filenote was a note of his review of the documents; he does not suggest it was a contemporaneous note of his conversation with Croft (Cardwell Aff 27/2/19, at [33] (CB, tab 4, p67)). The submissions for Cardwell and Deloitte assert a conclusion which is at odds with the evidence and, even if were not, would be a disputed question of fact which can only be resolved at trial.

The 27 May 2005 Meeting

57. In the 2PFASC the plaintiff alleges that Cardwell’s next and final relevant involvement with the plaintiff/Croft occurred a year later in a meeting held on 27 May 2005 (“27 May 2005 Meeting”).

58. The plaintiff’s allegations concerning the 27 May 2005 Meeting are:

1. prior to the 27 May 2005 Meeting, the plaintiff had asked Croft to consider whether a payment from AGH to the plaintiff as a return of capital was a good idea and had asked Croft to give the plaintiff advice on that subject;

2. during the 27 May 2005 Meeting, Cardwell/Deloitte and Croft each told the plaintiff that, once ATS and AGH had formed a consolidated tax group, ATS could pay a $48.7m dividend to AGH, following which AGH could pay the plaintiff $10m as a capital reduction which would not be subject to tax.

59. The content of this discussion is disputed.

60. On 27 May 2005, Croft sent an email (“27 May 2005 Email”) to Cardwell which again attached the Legislation Extract with Ticks Only and stated: (CB, Vol 2, p 966):

“Attached is the sections I followed in relation to the issue of the 5 shares

I must have missed something as I have only issued 5 shares in active [ATS] to actwill [AGH] after the cancellation

I issued 10 shares in actwill [AGH] as part of the rollover.”

61. This email indicated that Croft had a doubt as to whether the interposition had been correctly completed. However, his concern was actually the wrong one. There was no problem with the number of shares in ATS issued to AGH. Five is the maximum number of shares that AGH was permitted to acquire at the outset under s124-370(1)(a) of the Tax Act 1997. While further shares in ATS could be issued to AGH subsequently under s124-370(2), there was no requirement to do so. This email must be read together with Cardwell’s response.

The 9 June 2005 Email

62. Cardwell replied to the 27 May 2005 email on 9 June 2005 (“9 June 2005 Email”), stating (CB, Vol 2, p 972):

“Please find the draft documents for your consideration and review. I note that the amount of the return per share will need to be added in. I have highlighted in red the relevant documents.

Please contact me should you wish to discuss.

In respect of the shares issued in ATS and AGH. I understood the order of events to be as follows:

Incorporate Actwill [AGH] with shares held by Mark and Richard.

Issue 5 shares in Active [ATS] to Actwill [AGH]

Issue additional shares in Actwill [AGH] to Mark and Richard.

We should discuss further.

I also note that neither Deloitte nor Croft Gooden (to my knowledge) have provided specific written advice as to the likely tax outcomes of this proposal.”

63. Attached to the 9 June 2005 Email, were various draft documents, including minutes of meetings for a return of capital. It is possible (but there is doubt about it) that a further attachment was a copy of the legislation extract with the ticks applied by Croft, but with an additional handwritten cross on the left hand side adjacent to s 124-370(e) of the Tax Act 1997, being the subparagraph requiring that shares in the interposed company be issued in exchange for the cancellation of shares in the original company (“Legislation Extract with Ticks and Cross”) (CB, Vol 2, p 976).

The Payment

64. On or about 30 June 2005, a second transaction occurred, namely an attempt by AGH to return capital to its shareholders in the sum of $1 million per share (“the Payment”). A return of capital, as distinct from a dividend, would not attract income tax.

65. Croft approached Cardwell for advice and assistance in relation to the Payment. Again, the precise nature and scope of that advice and assistance is in dispute.

66. Under ss 6 and 44 of the Tax Act 1936, the Payment would be characterised as a dividend and included in the plaintiff’s assessable income unless the amount distributed was “debited against an amount standing to the credit of the share capital account of AGH.”

67. The plaintiff alleges that, had the interposition been correctly carried out, then the Payment would not have been taxable as a dividend subject to the anti-avoidance provision in s 45B of the Tax Act 1936. That is because had the additional 48.7 million $1 shares in AGH been issued in return for the cancellation of the ATS shares, that additional share capital properly could have been recorded in AGH’s share capital account. Instead, given the steps actually carried out, the only share capital that could be recorded in AGH’s share capital account was the 10 $1 shares initially issued in that company. In other words, as a result of the way the interposition was implemented, the maximum return of capital that AGH could make at the time without the shareholders being liable for income tax was $10.

68. The plaintiff did not declare the $10 million Payment as part of his taxable income in 2005 and did not pay income tax on that amount.

Overview of the plaintiff’s tax affairs and Federal Court proceedings

69. In about June 2008, the Australian Tax Office (“ATO”) commenced a review of the plaintiff’s tax affairs as part of an investigation into the tax affairs of wealthy individuals. That process resulted in assessments to the plaintiff’s income tax, plus penalty tax and interest in respect of the Payment on the basis that either the Payment was a dividend under ss 6 and 44 of the Tax Act1936, or pursuant to s 45B of the same Act was deemed to have been a dividend.

70. The plaintiff challenged the assessments in Federal Court proceedings NSD 1553/2012, which went to trial in 2014 (“the Federal Court proceedings”) (CB, Vol 5, p 3720).

71. Both Croft and Cardwell had involvement throughout the ATO review process and both of them provided affidavit evidence for the trial. Croft was cross examined at trial, during which he admitted that he had backdated at least some of the documents which effected the interposition. After Croft made the admission of backdating documents, the plaintiff’s then legal advisors took the view that this conduct by Croft was likely to lead the Court to find that the interposition and Payment were part of a scheme to avoid paying tax such that the Payment would be deemed a dividend by reason of s 45B of the Tax Act 1936. They acted immediately to settle the proceedings.

72. On 24 July 2014, the Commissioner and the plaintiff signed terms of settlement to conclude the Federal Court proceedings. Notwithstanding that the Federal Court proceedings concerned only income tax, penalties and interest on the Payment, the plaintiff says that the Commissioner was alive to the fact that the interposition did not satisfy the requirements for rollover relief in the manner described above.

73. The settlement between the plaintiff and the Commissioner comprised of:

1. payment of the amount of primary income tax due in respect of the Payment, plus interest and penalties in agreed amounts; and

2. the setting of a cost base for the AGH shares held by the plaintiff and his father by reference to the then current value of those shares on the basis that the shares were CGT assets.

74. On 24 August 2014, the plaintiff paid the sum of $4,860,397.32 to the ATO, in respect of tax, interest and penalties which were agreed to with the ATO as part of the Federal Court proceedings settlement.

Brief to Peter Fraser of Counsel in the Federal Court proceedings

75. In about September 2012, Cardwell prepared a brief to Peter Fraser of counsel, who was to be (and was) the plaintiff’s counsel in the Federal Court proceedings to challenge the assessments that had been issued by the Commissioner in respect of the Payment (CB, Vol 5, p 3592).

76. The plaintiff says that the brief to Mr Fraser made no reference to the failure to issue further shares in AGH to the plaintiff and his father in consideration for the cancellation of their shares in ATS.

77. Instead the plaintiff says that Cardwell stated to Mr Fraser that “[t]he reason the issue of shares in AGH and the cancellation of shares in ATS did not take place at the same time was due to processing delays associated with the ASIC forms. The forms relating to the issue of 5 ATS shares to AGH and the cancellation of the Taxpayer’s shares in ATS were returned to the Taxpayer and had to be completed again, which lead to the delay” (CB, Vol 5, p 3595);

75. The brief to Counsel also expressed as “our view” the view that the Payment was not a dividend under ss 66 and 44 of the Tax Act 1936 because the amount of the Payment was debited from the amount of $48.7 million shown in AGH’s financial statements, notwithstanding that those financial statements were produced some time after the interposition (CB, Vol 5, p 3597).

76. The plaintiff contends that these statements knowingly conveyed a false impression. Cardwell Aff 27/2/19 at [34] now establishes that Cardwell knew that the only shares that were issued in AGH were the 10 shares issued upon its incorporation for $1 a share. The plaintiff contends that Cardwell knew that the problem was more fundamental than issues of timing and processing delays and he knew (actually or constructively) of the consequences that this more fundamental problem had for the characterisation of the Payment as a dividend. However, it appears that he did not know that Croft backdated the documents.

The Cardwell affidavit in the Federal Court proceedings

80. On 22 March 2013, Cardwell affirmed an affidavit in the Federal Court proceedings (“Cardwell Federal Court Aff”) (CB, Vol 6, p 4270). Settlement occurred before Cardwell was to give evidence.

81. The Cardwell Federal Court Aff relevantly deposes:

“[2] From time to time I have been retained by Mr Mark Willcocks (Applicant) to provide specialist taxation advice from about 2003 onwards.

[6] [During a meeting or conversation in mid-2003] … I was told that a number of separate companies had been formed with a view to isolating asset ownership from these risks, but the problem remained that the increasing value of ATS remained in that entity. One of the reasons for that was that ATS was a pre capital gains tax company and the Applicant and Croft were very concerned not to change that status. I advised that it may be possible to interpose a new holding company and utilise CGT rollover relief to preserve the pre capital gains tax status and requested some more information.

…

[8] I met again with Croft a month or so later, probably in about September 2003. By that time I had finalised my thoughts about how to proceed with the demerger and I had given further consideration as to how to introduce of a new holding company, including obtaining rollover relief.

[9] I recall giving Croft a draft suite of documents that would be suitable to give effect to the majority of the proposed changes. I had no subsequent involvement in the creation of the holding company and gave no advice to Croft about the preparation of accounts to reflect these transactions in the books of the new holding company, which I now know was [AGH].

...

[10] I next heard from Croft in about early 2005. Croft wanted to discuss how the Applicant could get money out of AGH. I recall expressing surprise when I was told that ATS had not paid a dividend to AGH shortly after the interposition.

…

[13] Accordingly, I advised Croft that the only practical way of permanently moving cash from AGH to the Applicant was for AGH to make a return of capital to its shareholders.

[14] In about May 2005 I recall either meeting with and/or having a telephone conversation with Croft and the Applicant to go through the steps required for AGH to make a return of capital to its shareholders. Whilst accounts for the year had not yet been prepared, Croft was aware that the return of capital would have to be debited against the share capital account of AGH as there was no other account against which it could have been debited.

[15] Shortly after that meeting I recall reviewing the documentation which had been prepared to give effect to the return of capital and the formation of the TCG [tax consolidated group]. I advised Croft that in my opinion the documents were in order. After that review I had no further involvement in the matter until I was contacted by Croft in about 2009 to assist him in dealing with an audit by the Respondent of the Applicant’s tax affairs. (plaintiff’s emphasis)”

82. At [2] Cardwell acknowledges that he was retained by, and provided services to, the plaintiff, and at [6] he acknowledges that he was aware the plaintiff was concerned to preserve the existing pre-CGT status of his shares.

83. At [10] Cardwell describes being approached about a return of capital in AGH (being the newly interposed company) and expressed surprise that ATS had not immediately paid a dividend to AGH. It appears that at this point, which is prior to the Payment being made, Cardwell knew that the interposition had occurred.

84. At [13] to [15] Cardwell suggests that he reviewed the documentation giving effect to the interposition and Payment and considered they were in order. The plaintiff says that this was a false narrative in light of the Cardwell Aff 27/2/19, at [34].

The new claims against Cardwell and Deloitte in the 2PFASC

85. The plaintiff has already pleaded a claim against his accounting and tax advisers for failure to exercise reasonable care and skill in advising on and implementing the interposition and Payment (“the negligence claim”). As I understand the defendants’ submissions, their main complaint is that the negligence claim is statute barred and should be dismissed on that basis in this summary judgment application. For reasons given later in this judgment, it is not appropriate to resolve whether the negligence claim is statute barred on this summary judgment application.

86. On 27 February 2019, Cardwell served the Cardwell Aff 27/2/19 in these current proceedings. The foundation of the plaintiff’s new claims for fraud and deceit in the P2FASC is found at [34] and [35] of this affidavit.

87. At [34] Cardwell admitted that in May 2004, upon reviewing documents sent to him by Croft, he realised that the interposition may not satisfy the requirements for rollover relief because, “Croft had not followed the requirements of the steps under the Act by not issuing shares to Willcocks and his father, Richard Willcocks as consideration for the cancellation of the shares in ATS”.

88. Cardwell also deposes in Cardwell Aff 27/2/19 at [35], that shortly after reviewing those documents he telephoned Croft and said:

“I’ve received the documents and looked over them. Willcocks may not be eligible for the CGT rollover relief.

The last step is missing, there hasn’t been a further issue of shares to Willcocks and his father in consideration of the redemption of the shares (“the missing step”).

Also, there is only one beneficial shareholder in the Newco and so rollover may not be available.”

89. In Crofts affidavit evidence in these current proceedings (Croft Aff 18/2/19 at [45]-[62]), served a few days before the Cardwell Aff 27/2/19, he paints a picture that is entirely at odds with being told those matters by Cardwell.

90. There are two options arising from the facts. They are:

1. Cardwell informed Croft of the problem with the interposition (the missing step) and Croft did not act on that advice; or

2. Cardwell did not inform Croft of, or otherwise act on, his realisation that the interposition had been carried out incorrectly and “may not” qualify for rollover relief.

91. It is the plaintiff’s case against Cardwell and Deloitte that option (2) is correct. If summary judgment is not entered, the defendants may file a defence to contend option (1) is correct should the matter go to trial.

92. The core of the case that the plaintiff seeks run at trial against Cardwell (aside from the negligence claim) falls into two areas, the first being the 2004-2005 fraud and deceit claim, and the second being that from 2005 and in particular throughout the period of 2009 to 2014 Cardwell actively concealed his fraud.

The 2004-2005 fraud and deceit claim

93. The 2004-2005 fraud and deceit claim (“2004-2005 claim”) relates to the period up to and including 30 June 2005 when the Payment was made and is pleaded at paragraph [54] of the 2PFASC as follows:

1. In May 2004, Cardwell had actual knowledge that the interposition “may not” have satisfied the requirements for rollover relief because shares in AGH had not been issued “to Willcocks and his father, Richard Willcocks as consideration for the cancellation of the shares in ATS” as per Cardwell Aff 27/2/19 at [34];

2. Cardwell did not inform Croft of, or otherwise act on, his realisation, contrary to his assertion in Cardwell Aff 27/2/19, at [35];

3. When approached in relation to the Payment in mid-2005, and knowing at least by that point that the interposition had occurred, Cardwell still did not reveal his knowledge and instead put forward a false - and by reason of (1) a knowingly false - series of steps by which the interposition had occurred in the 9 June 2005 email;

4. As a result of that deliberate choice, the Payment proceeded and the plaintiff lost the opportunity to remedy the interposition so as to retain the benefit of the pre-CGT status and to carry out a return of capital of $10 million at a later stage in a way which was not a dividend or deemed dividend; and

5. Cardwell actually appreciated, or was willfully blind or recklessly indifferent as to, the tax consequences of the Payment proceeding.

94. In regards to (4) above, the plaintiff relies on the expert evidence of Mr McGill, who provided a report following his review of Cardwell Aff 27/2/19. In the McGill Report 17/7/19 he opined that the Payment put an end to the opportunity which had existed to remedy the problem with the interposition. See: McGill Report 17/7/19 at [16]-[18] and [96]-[110]. Mr McGill’s evidence is to the effect that had the plaintiff approached the Commissioner after the interposition was incorrectly carried out but before the Payment was made, there was a good likelihood that the Commissioner would have permitted problems with the interposition to be rectified (for example, by the issue of the further 48.7 million AGH shares under a deed making it clear that such issue was in consideration for the cancellation of the ATS shares held by the plaintiff and his father). In contrast, once the Payment occurred, Mr McGill considers that the Commissioner would have viewed the interposition as part of an attempt to obtain a tax benefit and would not have agreed to any proposal to remedy it.

95. The plaintiff’s case is that had such a rectification attempt occurred and been accepted by the Commissioner, then the plaintiff’s shares in AGH would be pre-CGT assets and AGH’s share capital account would have been properly credited to the amount of $48.7 million. The plaintiff contends he could later have carried out the Payment in a way that did not trigger the anti-avoidance provision in s 45B of the Tax Act 1936.

The post-2005 fraud and deceit claim

96. The post 2005 fraud and deceit claim (“post 2005 claim”) relates to the period after the Payment occurred on 30 June 2005 through to, and including, the ATO’s review of the plaintiff’s tax affairs and the Federal Court proceedings in the period from 2009 to 2014. It is pleaded at paragraph [55] of P2ASC.

97. The first strand of this claim is that given Cardwell’s actual knowledge that the interposition had not been completed correctly and his actual or constructive knowledge about the resulting tax consequences of the Payment, ordinary standards of honesty required Cardwell to inform the plaintiff of those matters; and that Cardwell and/or Croft had been aware of them prior to the Payment occurring.

98. The plaintiff alleges that ongoing duty was given additional force by Cardwell giving advice and assistance in relation to the ATO’s review of the plaintiff’s tax affairs and focus on the Payment commencing in about 2009.

99. The second strand of the claim is that throughout the period 2009 to 2014, Cardwell actively continued to conceal his fraud by preparing various documents, including the brief to counsel in relation to challenging the tax assessments and affirming the Cardwell Federal Court Aff.

100. The plaintiff says that those documents positively conveyed a false picture as to Cardwell’s knowledge of the interposition and Payment.

101. The post 30 June 2005 claim involves a continuing duty, with separate breaches each day, up to and at the Federal Court trial in 2014. The loss suffered by the plaintiff in that period is: the loss of the opportunity to pay the amount of the primary tax and either no or lesser amounts in respect of penalties, interest and costs; and/or the loss of the opportunity to sue Cardwell for negligence within time.

Breach of fiduciary duty claim

102. The plaintiff submitted that another way of looking at the same facts is that Cardwell was a fiduciary who was in a position of conflict because it was in the plaintiff’s interest to be told about the problems with the transactions and Cardwell’s knowledge of them, notwithstanding that such disclosure could lead to a claim against Cardwell (which was not in Cardwell’s interest). This claim is pleaded at [59] of the 2PFASC.

Pleading Inadequacies in the 2PFASC

103. At the hearing the defendants addressed nearly every new paragraph contained in the FASC and 2PFASC. They criticised them as being not properly pleaded, and illogical, and then drew attention to alleged pleading defects. The defendants have set out in detail the pleadings of both the FASC and the PFASC, but as I understand it in oral argument the defendants only object to the negligence allegations on the basis that they are statute barred (T26.39-45). I do not intend to set out the same history of the facts as has already been set out at length earlier in this judgment, but it is sufficient to acknowledge that the defendants dispute the facts as set out by the plaintiff. I have identified where that occurs throughout this judgment. Disputed factual matters can only be determined at trial not on a summary judgment or strike out application. As such, I will focus on the defendants’ main criticisms.

104. I emphasise that mainly the function of pleadings is to state, with sufficient clarity, the case that has to be met by the defendant. In this way, pleadings serve to define the issues for decision and ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her: Banque Commerciale SA En Liquidation v Akhill Holdings Ltd [1990] HCA 11; 169 CLR 279 at 286-287 and 302-3.

105. Rather than set out the defendants’ arguments in relation to new allegations in the pleadings in the 2PAFSC, I shall confine this analysis to one illustrative example, but will deal with the defendants’ other criticisms shortly.

106. A regular criticism is that the plaintiff had not properly pleaded “knowledge”. The plaintiff pleads that Cardwell had “actual knowledge”.

107. On the topic of knowledge, Senior Counsel for the defendants relied on Peter David and Ors v Halliday Financial Management Pty Ltd & Ors [2014] NSWSC 1371 (“Halliday”) Senior Counsel for the plaintiff relied upon Banks v Alphatise Pty Ltd [2014] NSWSC 1437 (“Alphatise”). In Hailliday at [8], Kunc J quoted the paragraphs from the proposed amended statement of claim that pleaded that the third defendant had actual knowledge that the representations made to the first to sixth defendants were untrue and had actual knowledge that there was no reasonable basis to make that representation.

108. In Halliday, His Honour continued at [19]-[20]:

“[19] On behalf of the plaintiffs, Mr Young submitted that the material fact, namely actual knowledge, had now been pleaded. He said that, as a matter of pleading, all that was required to be done had been done. This was not a case where any further material fact was required to be alleged to stand behind the fact which his client ultimately wished to prove at trial, namely the allegation of actual knowledge.

[20] However, Mr Young went on to contend that if anything more was required that would be in the nature of the evidence. He said that the solicitor's affidavit had volunteered what that evidence would be, so that the defendants could be in no doubt as to the case which they would have to meet. Insofar as it was objected by the defendants that the paragraphs of the amended statement of claim would be difficult to plead to, Mr Young submitted that could not be the case. There was a plain allegation of fact, he said, of actual knowledge on the part of those defendants. It would be a simple and appropriate matter for them to respond by denying the allegation if that was to be their case.”

109. In Alphatise at [7] and [17]-[20], Brereton JA stated:

“[7]   With great respect, but for the reasons that I will now elaborate, I am unable to agree that the facts from which it is contended that an inference of actual knowledge should be drawn are material facts that must be pleaded in a pleading.

…

[17]    The reason for excluding actual knowledge from the requirement to plead or, in the first instance at least, particularly, the facts from which it will be inferred is, in my view, obvious. Generally speaking, actual knowledge or the state of the defendant's mind in that respect, is something that is primarily in the knowledge of the defendant. A defendant does not need particulars to know whether or not to admit actual knowledge. It might ultimately be proved by documents elicited in the course of discovery, or by admissions in cross-examination. It might be inferred from other matters, but they are all matters of evidence which inform the material fact of actual knowledge.

[18]   As I have said, to require one to plead facts from which actual knowledge is to be inferred would be contrary to the fundamental principle that one does not plead evidence, but only the material facts that constitute the cause of action.

…

[20] That is not to say that the Court might not order particulars, pursuant to UCPR r 15.15 of the facts from which an inference of actual knowledge was to be drawn. The rule makes clear that such particulars can be ordered, and the cases to which I have referred confirm as much, at least since the amendments to the rules after Burgess v Beethoven, but - as Kunc J said, there will be cases where the mere allegation of actual knowledge will be sufficient. In my view, it will always be sufficient as a matter of pleading, and it will often be so as a matter of particulars, because the defendant does not need particulars to admit or deny what was in his or her own mind. In this case, what is alleged is that the first defendant company did not have reasonable grounds for making a representation. It is further alleged that the second defendant Mr Pearson was the directing mind and will of the company at the relevant time, and that it was through him that the company acted. In those circumstances, it is not difficult to see how it is said that the defendant had actual knowledge of whether or not the company had reasonable grounds for making the representation.”

110. My view accords with the decision of Brereton JA in Alphatise on the basis that actual knowledge, or the state of the defendant’s mind, is something that is primarily in the knowledge of the defendants and they do not need particulars to know whether or not to plead actual knowledge. Their knowledge might ultimately be proven by documents elicited in the course of discovery or by admissions in cross examination, or inferred by other matters, but they are all matters of evidence which inform the material fact of actual knowledge. Therefore I reject the defendants’ submission that the plaintiff has not properly pleaded knowledge.

111. After a careful reading of the allegations contained in the 2PFASC, I am satisfied that Cardwell and Deliotte know well the case they have to meet. They are in a position to be able to amend their defence to plead to the additional allegations. This submission fails.

The claims in the FASC

112. In respect of the claims in the FASC, the plaintiff relies on s 14 of the Limitation Act 1969 (NSW), and s 82 of the Trade Practices Act 1974 (Cth) (“Trade Practices Act”). They relevantly read:

“14 General

(1) An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims—

321. This is therefore a difficult case with disputed facts and complex legal issues, which contains much contested factual material that can only be resolved at trial, not in a summary judgment application.

322. As to the issue of delay it needs to be recalled that the genesis for the amendment application arises as a result of the affidavit evidence of Cardwell and Croft in February 2019. In large part, it stems from the contention that the fraud was only raised by Cardwell Aff 27/2/19. The timing of the amendment application has therefore, in my opinion, been adequately explained.

323. The plaintiff is therefore granted leave to file the 2PFASC.

Result

327. For the reasons set out earlier, it is my view that the plaintiff’s case is arguable. The defendants’ notice of motion dated 10 July 2020 seeking summary dismissal is dismissed. The plaintiff’s notice of motion dated 12 November 2019 seeking to file the P2FASC is granted. The 2PFASC is to be filed and served within 14 days. The question of the date from which the amendments are to take effect should be reserved to trial.

Costs

328. As to costs, the sixth and seventh defendants should pay the plaintiff’s costs of their notice of motion filed 10 July 2020 and, the plaintiff should pay the sixth and sevenths defendants’ costs thrown away by reason of the amendments made in the P2FASC. Otherwise, the costs of the plaintiff’s notice of motion filed 12 November 2019 are reserved.

The Court orders:

1. The defendants’ notice of motion dated 10 July 2020 seeking summary dismissal is dismissed.

2. The plaintiff’s notice of motion dated 12 November 2019 seeking to file the proposed second further amended statement of claim is granted.

3. The second further amended statement of claim is to be filed and served within 14 days (24 December 2021).

4. The sixth and seventh defendants are to pay the plaintiff’s costs of their notice of motion filed 10 July 2020 and, the plaintiff should pay the defendants’ costs thrown away by reason of the amendments.

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