FEDERAL COURT OF AUSTRALIA Adelaide Steamship Co Ltd v Spalvins [1999] FCA 781 PRACTICE AND PROCEDURE – application for leave to file and serve a further amended statement of claim – allegations of delay prejudice and oppression – whether applicant made an election or waived its rights to make the application – conduct of respondents contributing to delay Cairns' Australian Civil Procedure 3rd Ed Bullen and Leake and Jacob's Precedents of Pleadings 12 Ed Odgers' Principles of Pleading and Practice, 21 Ed Australian Securities Commission Act (1989) (Cth) s 50 Brisbane South Regional Health Authority v Taylor [1996] 186 CLR 541 applied The State of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 followed Cropper v Smith (1884) 26 Ch D 700 followed Clough and Rogers v Frog (1974) 4 ALR 615 followed The Adelaide Steamship Company Limited v Spalvins (1997) 24 ACSR 536 noted The Adelaide Steamship Company Limited v Spalvins (1998) 152 ALR 418 noted Industrial Equity Ltd v Blackburn (1977) 137 CLR 567 referred to Hall v Eve (1876) 4 ChD 341 at 348 followed The Duke Group Ltd (In liquidation) v Arthur Young (unreported: judgment delivered 26 June 1991) applied Interior Projects v Players Ltd (unreported: judgment delivered 19 June 1997) applied Walton v Gardiner [1993] 177 CLR 378 distinguished C.F. Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723 referred to Zucker v Straightlace Pty Ltd (1986) 11 NSWLR 87 referred to Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1994-1995) 182 CLR 26 applied Tropical Traders Ltd v Goonan (1964) 111 CLR 41 applied Commonwealth of Australia v Verwayen (1990) 170 CLR 394 distinguished Elders Trustee and Executor Co Ltd v Commonwealth Homes & Investment Co Ltd (1942) 65 CLR 603 applied Sargent v ASL Developments Limited (1974) 131 CLR 634 applied Bruce v Odhams Press Ltd (1936) 1 KB 697 at 712-713 followed Rubenstein v Truth and Sportsman Ltd [1960] VR 473 followed H 1976 Nominees Pty Ltd v Galli (1979) 40 FLR 242 followed Trade Practices Commission v David Jones (Australia) Pty Ltd (1985) 7 FCR 109 followed THE ADELAIDE STEAMSHIP COMPANY LIMITED v JANIS GUNARS SPALVINS & ORS NO SG 3036 OF 1994 O'LOUGHLIN J 11 June 1999 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SG 3036 OF 1994 BETWEEN: THE ADELAIDE STEAMSHIP COMPANY LIMITED Applicant AND: JANIS GUNARS SPALVINS First Respondent MICHAEL JAMES KENT Second Respondent NEIL LESLIE BRANFORD Third Respondent KENNETH WILLIAM RUSSELL Fourth Respondent MICHAEL STEVENSON GREGG Fifth Respondent DELOITTE HASKINS AND SELLS Sixth Respondent DELOITTE ROSS TOHMATSU Seventh Respondent JUDGE: O'LOUGHLIN J DATE OF ORDER: 11 JUNE 1999 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. Leave be granted to the applicant to file and serve, within a period of three weeks of this date, a further amended statement of claim in terms, subject always to the provisions of par 2 hereof, of the proposed further amended statement of claim that was lodged in Court by the applicant on 22 January 1999. 2. The applicant be at liberty to amend the proposed further amended statement of claim prior to its filing in the manner following that is to say: 2.1 by deleting par 172D and by inserting in lieu thereof a new paragraph in terms consistent with these reasons 2.2 by making all and any amendments consequential upon the amendment to par 172D. 2.3 by correcting such of the errors and deficiencies (if any) as counsel may advise, being limited to those errors and deficiencies that have been identified by the sixth and seventh respondents in their written submissions to the Court. 3. To the extent that any of the amendments raise a new cause of action within the meaning of Weldon v Neale (1887) 19 QBD 394 and do not arise out of the same facts or substantially the same facts as those already pleaded within the meaning of Order 13 rule 2(7) of the Federal Court Rules, the amendments shall operate with effect from 21 February 1997 as to those amendments of which notice was given on that date and from 8 September 1998 as to those amendments of which notice was given on that date. 4. The applicant pay the costs of the respondents of and incidental to the applicant obtaining the leave of the Court to file and serve a further amended statement of claim other than the costs that were incurred as a result of the respondents opposing the application for such leave. 5. The respondents pay, jointly and severally, the costs of the applicant occasioned as a result of the respondents opposing the application for such leave. 6. Both sets of costs are to be taxed in default of agreement and set-off is to apply. 7. Subject as aforesaid, the question of the respondents' costs thrown away as a consequence of the applicant seeking and obtaining the leave of the Court to file and serve a further amended statement of claim are referred to the trial judge. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SG 3036 OF 1994 BETWEEN: THE ADELAIDE STEAMSHIP COMPANY LIMITED Applicant AND: JANIS GUNARS SPALVINS First Respondent MICHAEL JAMES KENT Second Respondent NEIL LESLIE BRANFORD Third Respondent KENNETH WILLIAM RUSSELL Fourth Respondent MICHAEL STEVENSON GREGG Fifth Respondent DELOITTE HASKINS AND SELLS Sixth Respondent DELOITTE ROSS TOHMATSU Seventh Respondent JUDGE: O'LOUGHLIN J DATE: 11 JUNE 1999 PLACE: ADELAIDE REASONS FOR JUDGMENT Application for leave to file and serve a further amended statement of claim The Parties to the Litigation 1 The applicant in these proceedings is The Adelaide Steamship Company Limited ("Adsteam"). By notice of motion dated 17 March 1997, as amended during course of argument, it has sought the leave of the Court to file and serve a further amended statement of claim in terms of the document that was lodged in Court by the applicant on 22 January 1999. Subject to some qualifications that will be identified in due course, that leave should be granted despite the many objections that were raised by the respondents during the hearing of the application. 2 Adsteam is suing its former directors and auditors for losses that are said to have arisen as a consequence of the payments by Adsteam of an interim and a final dividend to its shareholders in respect of the 1990 financial year. The claim is that the dividends were paid out of capital, not out of profits. 3 Notwithstanding the identity of Adsteam as the applicant, the suit has been instituted and is being conducted by the Australian Securities and Investments Commission ("ASIC") pursuant to the powers vested in it by s 50 of the Australian Securities Commission Act (1989) (Cth). That section provides as follows: "Where, as a result of an investigation or from a record of an examination ... it appears to the Commission to be in the public interest for a person to begin and carry on a proceeding for: (a) the recovery of damages for fraud, negligence, default, breach of duty, or other misconduct, committed in connection with a matter to which the investigation or examination related; or (b) recovery of property of the person; the Commission: (c) if the person is a company - may cause; or (d) otherwise - may, with the person's written consent, cause; such a proceeding to be begun and carried on in the person's name." 4 The first named respondent is Mr Janis Spalvins; he was Adsteam's managing director during the period that is relevant to these proceedings. He was represented by Mr B C Oslington QC with Mr S R Rushton on instructions from Messrs Thomson Playfords. The second and third respondents, Messrs Kent and Branford, were former executive directors of the company at that time; they were represented by Mr AJ Besanko QC and Mr I C Robertson on instructions from Messrs Finlaysons. The fourth and fifth respondents, Messrs Russell and Gregg, were former non-executive directors of the company; they were represented by Mr RV Gyles QC, Mr JLB Allsop SC and Ms J Gleeson on instructions from Messrs Phillips Fox. Finally there were the auditors, the sixth and seventh respondents, who were represented, initially, by Mr DAC Robertson, and later by Mr A McGrath on instructions from Messrs Mallesons Stephen Jacques. Mr TA Gray QC, Mr RJ Whitington QC and Mr MF Blue appeared as counsel for Adsteam on instruction from ASIC. Order 13 rule 2(1) and the Court's discretion 5 The applicant has sought the leave of the Court to amend its statement of claim by virtue of the provisions of O 13 r 2(1). That sub-rule gives to the Court a general discretionary power to permit amendments to pleadings. It provides as follows: "Subject to the following provisions of this rule, the Court may, at any stage of any proceeding, on application by any party or of its own motion, order that any document in the proceeding be amended, or that any party have leave to amend any document in the proceeding, in either case in such manner as the Court thinks fit." 6 Of particular significance in this case is the provision in subr 2(2) and its reference to "determining the real questions raised …"; the sub-rule is in the following terms: "All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings." 7 The conclusion that I have reached is based on the premise that the proposed amendment is necessary so as to ensure that "the real questions" will be determined. 8 It is within the discretion of the Court whether to grant leave to an applicant to file and serve a fresh statement of claim. As it is a discretion to grant an application, the applicant must satisfy the Court that grounds exist for exercising the discretion in its favour: c.f. Brisbane South Regional Health Authority v Taylor [1996] 186 CLR 541 at 544 per Dawson J; 547 per Toohey and Gummow JJ and 551 per McHugh J. 9 Described by Kirby J in The State of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 at 164-165 as the "classical statement of the approach to be taken to the exercise" of the discretion afforded by the rules, Bowen LJ said in Cropper v Smith (1884) 26 Ch D 700 at 710-711: "[T]he object of courts is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases … I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the court ought not to correct, if it can be done without injustice to the other party … as soon as it appears that the way in which a party has framed his case will not lead to a decision of the real matter in controversy, it is as much a matter of right on his part to have it corrected, if it can be done without injustice, as anything else in the case is a matter of right." 10 The High Court adopted those words of Bowen LJ in Clough and Rogers v Frog (1974) 4 ALR 615 at 618, saying: "As the defence, if established, would be a complete answer in either action, the amendments sought should have been allowed unless it appeared that injustice would thereby have been occasioned to the respondent, there being nothing to suggest fraud or improper concealment of the defence on the part of the appellants. With the exception of the suggestion of prejudice arising in respect of the loss of the possible claim against the nominal defendant, the matters relied upon by the respondent in opposition to the amendment sought go at the most to delay and irregularity only, matters which are relevant to costs but do not constitute injustice to the respondent in the sense in which that expression is used." 11 Suggestions by the Full Court of this Court in The State of Queensland v J L Holdings Pty Ltd that times have changed and that issues of case management have assumed a greater degree of importance, were rejected by the High Court on appeal who expressly reaffirmed the dicta in the passages from Cropper v Smith and Clough and Rogers v Frog that are set out above. 12 Dawson, Gaudron and McHugh JJ concluded their joint judgment in The State of Queensland v J L Holdings Pty Ltd by saying: "Save in so far as costs may be awarded against the party seeking the amendment, such an application is not the occasion for the punishment of a party for its mistake or for its delay in making the application. Case management, involving as it does the efficiency of the procedures of the court, was in this case a relevant consideration. But it should not have been allowed to prevail over the injustice of shutting the applicants out from raising an arguable defence, thus precluding the determination of an issue between the parties. In taking an opposite view, the primary judge was, in our view, in error in the exercise of her discretion."(at 155) 13 The statements from the cases then represent the general principles that are to be applied when considering whether to grant an application for leave to amend pleadings. The Pleadings and the History of the Litigation 14 Proceedings in this matter were commenced when an application and statement of claim were filed in the Adelaide Registry of this Court on 20 April 1994. The respondents filed their defences on 31 August and 1 September 1994, some four months after the filing of the statement of claim. 15 The applicant responded by filing requests for further and better particulars of all defences on 14 and 30 September 1994. On 30 September the applicant also filed an amended statement of claim which I will call "the second version". The amendments were numerous but, with a few exceptions that need not be addressed in these reasons, they were not substantial. 16 The applicant's replies to all defences were also filed on 30 September 1994. The expedition with which the applicant attended to the filing of its replies and its requests for particulars, and the time taken by the respondents within which to file their defences, is worthy of note in light of the attacks that have been made by the respondents about the applicant's delay in bringing this current application before the Court. 17 In order to appreciate the competing arguments with respect to the present application for leave to file and serve a further amended statement of claim, it is necessary to give an outline of the history of the litigation to date. At a directions hearing on 13 May 1994, following the filing of the original application, the matter was listed for trial to commence on 19 April 1995. That date was fixed after discussions with all counsel and with their concurrence. However, hopes for a speedy disposal of the litigation were dashed as a result of a decision of the auditors, shortly thereafter, to seek judicial review of the decision of the ASIC to cause these proceedings to be instituted in the name of the company ("the judicial review proceedings"). The judicial review proceedings only came to an end some two years or more later, in December 1996, when the High Court refused the auditors special leave to appeal from the decision of a Full Court of this Court that had upheld the decision of the ASIC. The other respondents (who I will refer to from time to time as "the former directors") had not initially joined with the auditors in the judicial review proceedings. However, in January 1995, they instituted like proceedings which they discontinued in December 1996 following upon the decision of the High Court. 18 Meanwhile, on 30 January 1995, the trial date was vacated because of the (then) unresolved judicial review proceedings. 19 At the same directions hearing on 30 January 1995, the first respondent, Mr Spalvins, and the sixth and seventh respondents, the auditors, also sought and obtained orders vacating earlier orders with respect to pleadings and interlocutory processes. In effect, the litigation was put on hold, awaiting the outcome of the auditors' challenge to the ASIC's decision. Orders having the same effect were also made at directions hearings on 16 March and 24 April. A directions hearing listed for 3 October 1995 was vacated with the consent of all parties and the matter was further adjourned to await the outcome of the auditors' challenge. 20 The respondents are not to be criticised for their conduct in challenging the ASIC's decision to institute these proceedings; they had an arguable case and it was reasonable for them to exercise their rights in the hope that they might have the litigation summarily dismissed. But the consequence of their exercising their rights was to delay, substantially, the prosecution of this litigation – at least from January 1995 to about September 1996. The applicant was not, in any way, responsible for that delay. The conduct of the respondents, who must be held collectively responsible for the loss of the trial date whilst they challenged the ASIC decision, is a factor that I have weighed against all respondents when considering their complaints about by the ASIC. The Original Claim 21 It was claimed, in both the original and the second version of the statement of claim, that Adsteam had investments in four named companies and that the value of the investments in each of those subsidiaries had been overstated in the company's accounts for the six months ending on 31 December 1989 and for the twelve months ending on 30 June 1990. 22 Of the four companies whose net worth was attacked, three were described as wholly owned subsidiaries of Adsteam at all relevant times. They are Jomet Pty Ltd ("Jomet"), Gourlay Cabinets (SA) Pty Ltd ("Gourlay") and Buckley and Nunn (Antiques) Pty Ltd ("Buckley and Nunn"). The fourth company, which was described only as a subsidiary company of Adsteam, is Camberley Pty Ltd ("Camberley"). 23 The case for the applicant was pleaded upon the premise that Adsteam's investment in each of these four companies was, at all material times in 1989 and 1990, virtually worthless. It was alleged in effect that, in respect of each investment, Adsteam should have written down the book value of its investments to nil. Although there were some changes in the amounts, the most recent version of the proposed statement of claim (the fifth version) alleges that the amounts in the accounts of Adsteam that were said to be receivable from the four subsidiary companies as at 31 December 1989 were: Jomet $227m Gourlay $190m Camberley $ 20m Buckley & Nunn $ 86m $523m (I have rounded off figures to the nearest million dollars). The thrust of the applicant's case was that if the $523m had been written off – as it allegedly should have been – there would have been no lawful sources available, by way of retained profits or reserves, in the accounts of Adsteam, out of which to declare and pay the interim and final dividends. 24 In fact however, an interim dividend of about $131m was declared in February 1990 and a final dividend of about $97m was declared in the following November. Both the interim and final dividends were paid out to shareholders in due course. 25 It was submitted on behalf of Adsteam that its case, as originally pleaded, was based on an acceptance of its profit and loss account for the financial year ending on 30 June 1990, save for the four transactions to which reference has just been made; I will refer to them in these reasons from time to time as "the challenged transactions" for brevity. The case for the applicant was that if the challenged transactions had been correctly treated in its books of account and financial records, that treatment would have annihilated its profit and its retained earnings that would otherwise have been available for the payment of the two dividends. The applicant's case was ultimately pleaded on a three-fold premise: 1. there was no profit from which the interim and final dividends in respect of the 1990 financial year could have been paid; 2. it was imprudent and improper of the directors to declare and pay the two dividends: and 3. the auditors were negligent in approving the accounts, and in particular the four challenged transactions that are the subject of the applicant's primary case. 26 The primary allegations in the statement of claim are to be found in subpars 171.1 and 173.1 where it is alleged that Adsteam's profits for the six months ending 31 December 1989 and for the twelve months ending 30 June 1990 were overstated. In the first and second versions of the statement of claim the overstatement for the six months was said to be an amount in excess of $102m but in the fifth version that was changed to $463m. The overstatement for the twelve months was allegedly an amount in excess of $518m and that figure has remained constant. There then follows allegations that the directors had no sufficient grounds to expect that there would be any sufficient improvement in Adsteam's financial position and that they knew, or ought to have known, these things. There are further allegations that there were no reserves out of which to pay the interim and final dividends and in the fifth version of the statement of claim pars 172B and 174B have been added to plead that, in any case, it would have been unlawful to have paid the dividends out of reserves. 27 In addition to this summary, it should be added that there were allegations that the respondents respectively knew, or ought to have known, the true state of affairs with respect to the four challenged transactions and their effect on Adsteam's accounts. The third, fourth and fifth versions of the statement of claim 28 The issue of the applicant filing and serving a further amended statement of claim ("the third version") was first raised before the Court at a directions hearing on 6 September 1996 – that is, over two years from the filing of the defences but, nevertheless at a time when the parties were still awaiting the decision of the High Court in the judicial review proceedings. On that occasion this Court ordered the applicant to serve on the respondents a copy of its proposed amended pleading by 27 September. Subject to that, leave was granted to the applicant to file and serve a notice of motion (returnable on 11 October for mention only) for an order granting it leave to file and serve the third version. The applicant did not meet that time-table; as I have said in par 1 of these reasons, its notice of motion was not filed until 17 March 1997, an unacceptable delay of some six months. Adsteam, on that date, sought leave to file and serve the third version of the statement of claim, a copy of which was annexed to the affidavit of Mr Nicholas David Bampton of the same date. Mr Bampton, who gave evidence in the hearing, was, at the time, a solicitor retained as a civil litigation consultant to the ASIC. 29 That application, which was opposed by all respondents, was called on for hearing before me on 22 July 1997. However, argument on the motion was overwhelmed by arguments with respect to certain subpoenas that the respondents had issued relative to the application for leave to file and serve the third version. Judgment with respect to issues of legal professional privilege concerning some of the documents that were identified in the subpoenas was reserved and delivered on 1 August 1997: The Adelaide Steamship Company Limited v Spalvins (1997) 24 ACSR 536. A subsequent appeal to the Full Court by Adsteam was determined on 2 March 1998: see The Adelaide Steamship Company Limited v Spalvins (1998) 152 ALR 418, reversing in part my decision of 1 August. This aspect of the litigation lead to a further delay from July 1997 to March 1998 for which a measure of the responsibility must be accepted by Adsteam. 30 The issues relating to the subpoenas having been resolved, argument on the application for leave to file and serve the third version of the statement of claim was able to resume. 31 The new aspect of the case that the applicant now wishes to pursue, proceeds upon the premise that the respondents (or, as I would have it, the first three respondents) have, in their respective defences, asserted that there were surplus assets or, alternatively, other value elsewhere in the Adsteam group, that could have been transferred or made available to the applicant so as to generate sufficient profits out of which to pay the interim and the final dividends. The alleged ability to have regard to the value of other companies in the group was sometimes called "the other value argument" and on other occasions "the valuation issue" and it will be convenient to continue with the use of the phrases. In order to meet this assertion, the applicant seeks to amend its statement of claim so that it may allege that, on the true value of the Adsteam group, there were no assets within the group that were lawfully available to the applicant which were of a size sufficient to provide alternative sources out of which to declare and pay the dividends. The applicant also submits that the amendments that are now sought would allow it to advance a further basis for the existing allegation that the conduct of the directors and the auditors was imprudent and in breach of their respective duties. 32 The applicant argues that, because of the assertions in the defences, the valuation issue will be a live issue in the trial and that the applicant will have to meet it; it also argues that, as each of the defences takes a different position with respect to the subject of other value, it would be more orderly and convenient to amend the statement of claim rather than supplying further and better particulars of its replies. In my opinion, that is a justifiable argument and one that favours granting leave to the applicant to file and serve a fresh statement of claim. 33 The first version of the statement of claim was prepared by Mr Paul Dugan, a solicitor in the employ of the Australian Securities Commission (as the ASIC was then called). In affidavits that were filed for the purpose of this application, and in the course of his oral evidence, Mr Dugan said that he considered, but dismissed the prospect of pleading a rejection of the valuation issue in the statement of claim. He said that he did not consider that such a defence was available to the respondents but that, should it be raised, he believed that the applicant could meet it by way of reply. I accept Mr Dugan's evidence on this subject as I accept Mr Bampton's evidence which was to the same effect. Those advising the ASIC had considered that they could rely on the decision of the High Court in Industrial Equity Ltd v Blackburn (1977) 137 CLR 567. The head note to that case, so far as it is relevant to these proceedings, reads as follows: "… profits available for distribution by a company which is a holding company by way of dividend are the profits of the holding company and not the group profits disclosed by the consolidated accounts of the holding company and its subsidiaries." Mason CJ (with whom Stephen, Murphy and Aickin JJ agreed) said at 576 that the relevant statute should be understood as referring to the profits of the company which declared and paid the dividend. The remaining member of the Court, Jacobs J, said at 580 that he was satisfied that: "… the relevant profits earned must be profit in the company itself, that undistributed profits from subsidiaries cannot as such be taken into account." 34 It would not be appropriate, at this stage of an interlocutory process, for me to comment on the availability of this or any other defence that the respondents have raised; there is no application before the Court to strike out any part of any defence. I believe that my attention should be focussed entirely on the application by Adsteam for leave to amend its statement of claim. For this purpose, consideration may have to be given to the contents of the existing defences, but only as part of the narrative to explain the conduct of the applicant. 35 Whether as a result of objections that were raised by the respondents subsequent to the circulation of the third version of the proposed statement of claim, or whether as a result of the applicant's advisers revisiting the third version, the applicant prepared and circulated to the respondents a fourth version; a copy of that version was also lodged with the Court on 9 September 1998, on which day, at a directions hearing, this matter was listed for further argument on 1 February 1999. Because of the large number of counsel involved, an earlier date could not be found that would have been convenient to the parties and the Court. On 22 January 1999, the applicant circulated yet another version of the proposed amended statement of claim ("the fifth version") and it is in respect of this fifth version that the Court is now required to adjudicate. 36 I have not attempted to analyse the differences in the pleadings in the third version as compared with the fourth and fifth versions. The first respondent has complained that there has been a material shift in ground. Even though that might be so, (as to which I express no opinion) it does not, in my opinion, constitute cause for inquiry. The issue at stake is whether leave should be given to the applicant to amend its statement of claim so that it may now plead the wider valuation issue. If that leave is granted, it will be because the Court has assessed the contents of the fifth version and deemed it appropriate to grant that leave. The fact that, at an earlier stage in the proceedings, the applicant had proposed to apply for leave on a different premise or on different particulars fades away. 37 The biggest hurdle that all respondents had to face in the resolution of this present application was, in my opinion, the fact that it was the approach of the first three respondents to the defence of this litigation that has caused the ASIC to address the question of the wider valuation issue. From there, the further issue arose of choosing between its replies or a fresh statement of claim as the best place in which to answer the defences. It will also be necessary to address questions of delay, prejudice and oppression, and election and waiver in due course, but, at this stage, I am only addressing the fundamental reason for the proposal to amend. 38 The ASIC was, presumably, content to commence and run this litigation by attacking only the four challenged transactions that it identified in its statement of claim. In brief, the case pleaded was to the effect that a proper accounting for those four transactions would have warranted write-offs of such dimensions that Adsteam would not have had any profits or reserves out of which to declare and pay the dividends. It was feasible that the defences might likewise have been limited to the four transactions by denying the claims of "no value". But the first three respondents elected to take a broader approach. They elected to claim that they could look elsewhere in the group to justify and validate the payments of the dividends. 39 What then is the ASIC to do when faced with that defence? It is hardly likely to accept it without some sort of fight. It could of course respond in its reply; that was what was originally intended. But somewhere along the way (the how and why is by no means clear) there was a change in plan and the proposal evolved to attack this line of defence by amending the statement of claim in order to allege that the group as a whole did not have the resources out of which to pay the dividends. Whether or not there was other value in the applicant or the Adsteam Group as a whole will be an issue in the trial that will involve substantial evidence. The subject must be addressed by the applicant and, as counsel for the applicant conceded in their written submissions, it would be appropriate that it be addressed as part of the applicant's evidence in chief. Bearing in mind that the defences are not in the same terms, I agree with counsel for the applicant that it would be more orderly and convenient to amend the statement of claim rather than supply the information by way of further and better particulars in its replies (which replies must address differently presented defences). Subject to resolving the issues of delay, prejudice, oppression, election and waiver, I am of the opinion that the applicant must be given the right to meet the challenge that is contained in the defences. The defence of Mr Spalvins – the first respondent and the former managing director 40 The respondents have denied liability. Some of them have, in different ways and with different emphasis, raised the issue that refers to the net worth of the Adsteam group. For example, in his amended defence, Mr Spalvins, addressed the Jomet loan by claiming, in pars 49 and 143, that he reasonably believed that a number of Adsteam's subsidiary companies had net assets, the value of which substantially exceeded the value at which Adsteam carried its investments in its accounts, and that Adsteam could have caused those subsidiary companies to undertake the liability to repay the Jomet loan. Mr Spalvins thereafter raised the same defence in pars 63 and 154 with respect to the Gourlay loan, in pars 73 and 163 with respect to the Camberley loan and pars 86 and 170 with respect to the Buckley and Nunn loan. 41 In par 225 of his defence, Mr Spalvins broadened the scope of his defence materially by pleading that : "225 There were sufficient distributable profits and reserves in Adsteam and in the Adsteam Group of Companies to enable Adsteam to pay the interim and final dividends." The significance of this plea cannot be overstated: the applicant had been prepared to run a case on the premise that the applicant, as the company that had paid out dividends, did not have, because of the four challenged transactions, sufficient accumulated profits and reserves out of which to pay those dividends. That case has been met with a denial and with the further argument that, in any event, the company could have looked to its subsidiaries to help it pay the dividends. The Defences of Messrs Kent and Branford - the second and third respondents and the former executive directors 42 Although they filed separate defences, the relevant passages in the defences of Messrs Kent and Branford are identical. In general, they followed the line of Mr Spalvins' defence; they also claimed that they reasonably believed that a number of subsidiary companies had net assets, the value of which substantially exceeded the value at which Adsteam carried its investments in its accounts, and that Adsteam could have caused those subsidiary companies to undertake the liability to repay the four investments that represented the challenged transactions. In pars 177A and 177B of their respective defences, Messrs Kent and Branford, pleaded that if the loans that were represented by the challenged transactions "were not recoverable, were bad or were such that they should have been written down … there were sufficient distributable profits in Adsteam and its subsidiary companies for the payment of the interim dividend and the payment of the final dividend", and, furthermore "there were sufficient reserves including the asset revaluation reserve of Adsteam for the payment of the interim dividend and the payment of the final dividend". In comparing this defence with that advanced by Mr Spalvins, it can be seen that it went further by specifically calling in aid the asset revaluation reserve. 43 It is obvious from the terms of these defences that, if the matter proceeds to trial – irrespective of what may be the ultimate attitude of the remaining four respondents – that is the non-executive directors and the auditors – the issues will not be limited to the four challenged transactions. It will be necessary to examine the value of the assets of subsidiaries to ascertain whether they had a legal ability to assume, and a material worth to meet, liability for the debts owing to the parent company and the reasonability of the beliefs of Messrs Spalvins, Kent and Branford as to those matters. As to Mr Spalvins' defence in par 225, and Messrs Kent's and Branford's defence in pars 177A and 177B, they do not claim to rely on a reasonable belief: each asserts, as a fact, that the group had sufficient distributable profits and reserves. That assertion will call for a painstaking investigation into the financial affairs of the group. 44 It was to counter this argument, that the applicant prepared and circulated the third version of the statement of claim. It was intended to extend the claims of Adsteam beyond the four challenged transactions and to present a case to the effect that the respondents knew, or ought to have known, that the real value of the company and the group was such that there were no sufficient profits to sustain the interim and final dividends. Incorporation of the valuation issue into the pleadings would mean that the trial would not be limited to an examination of the four investments and the respondents' knowledge of them; it would now have to address a valuation exercise of Adsteam and, perhaps, a valuation of the whole Adsteam group (which is said to have then comprised in excess of 1000 companies) and the respondents' knowledge as to those subjects. The first three respondents have raised these matters: the applicant did not. The applicant must be permitted to respond to them. I have no doubt about that. The only question is whether that response should come by way of the applicant's replies or, as it proposes, by way of amendments to its statement of claim. 45 The opposition to the present application that has been advanced on Mr Spalvins' behalf has not been easy to understand. Presently, it is argued on his behalf that the applicant should not be able to plead the other valuation argument at all, but if, contrary to that submission, it is allowed, then the applicant should only be able to raise it in its reply. On the other hand, when this matter was first argued in July 1997, different senior counsel then represented him. On that occasion (see transcript at p 105) senior counsel is recorded as saying: "…the question of whether it is finally done in a new statement of claim, or in the reply, is secondary to the issue of raising it at all. I would concede at the end of the day that there is much to be said for the proposition that if they are to be allowed to raise it, subject to questions of litigation (sic: limitations?), there are procedural advantages in it being raised in a statement of claim." The defences of Messrs Russell and Gregg - the fourth and fifth respondents and the former non-executive directors 46 The defences of the non-executive directors, the fourth and fifth respondents, Messrs Russell and Gregg, show that they have adopted a different position to that of the first three respondents because, as non-executive directors, they claim reliance on the information that was made available to them by officers of the company. 47 After pleading that there were "valid and acceptable reasons" upon which they and others "could reasonably form the opinion that the inter-company loans to subsidiaries could be carried" at their book values, Messrs Russell and Gregg then raised a further defence in par 194 of their separate defences. Mr Gregg pleaded: "194. If, which is denied, all the allegations in the Amended Statement of Claim in relation to the alleged defects in the accounts of the Applicant are made out with the consequence that the profit and loss account of the Applicant for the year ended 30 June 1990 should have shown a substantial loss reflecting all the writedowns referred to in the Amended Statement Claim: (1) the interim dividend and the final dividend were properly declared and paid there being sufficient retained profits or retained profits and reserves; or (2) a director in the position of the Fifth Respondent could reasonably have taken the view that the interim and final dividends were able to be declared and paid by reason of the existence of the said retained profits or retained profits and reserves." The same plea appears in the defence of Mr Russell. This was a two pronged defence. In the first place it amounted to an assertion of fact: there were "sufficient retained profits or retained profits and reserves". Secondly, they moved away from the assertion of fact and raised the defence of reasonable belief. 48 The fourth and fifth respondents submitted in argument that they had not thereby raised the other value defence; rather, they say that they reasonably relied on the reported audited accounts. It is not necessary to resolve that issue, but, even though this should be the case, it is not, in my opinion, a justifiable reason for denying the applicant the right to file and serve the proposed new version of the statement of claim or, at least, to address the other value defence in its replies. 49 Mr Mark Graham Williams is a senior associate in the employ of Messrs Phillips Fox. In his affidavit dated 11 November 1998, Mr Williams claimed that in correspondence, as far back as October 1994, his firm had stated that its clients "do not raise value otherwise than by relying on the published accounts". He also deposed to a telephone conversation that he had with Mr Bampton on 21 November 1994 in which, according to Mr Williams, Mr Bampton said: "… whilst I do not think you have raised the valuation of the group as a defence, I think the executive directors have done so." 50 Mr Williams went on to say that he reaffirmed Mr Bampton's understanding saying: "We are not raising valuation as a defence or in our particulars." to which Mr Bampton replied: "I understand that." 51 What Mr Williams has stated in his affidavit is consistent with the remarks made by Mr Whitington QC who appeared as counsel for the applicant at a directions hearing on 8 April 1997. Addressing the subject of a fresh statement of claim, Mr Whitington said: "The second major subject of the amendment addresses the issue of value of what we have called the wider Adsteam Group and in large part it is an amendment that has been prompted by the Defences of some of the respondents, principally Mr Spalvins, but also to an extent Mr Kent and Mr Branford …". It is significant that Mr Whitington made no mention of Messrs Russell and Gregg, who, as non-executive directors, were in a different category to Mr Spalvins, the former managing director and Messrs Kent and Branford, both of whom had been executive directors. 52 Counsel for Messrs Russell and Gregg also pointed to the letter (Ex AX1) dated 29 January 1999 from Messrs Phillips Fox to the ASIC. In that letter, the solicitors maintained that "it is not and has not been the case of the fourth and fifth respondents to plead actual value". The letter went on to explain that the fourth and fifth respondents were advancing the defence that they reasonably relied upon the various matters that are set out in detail in their defences. The letter suggested that, if necessary, their respective defences would be the subject of an application for leave to amend par 194 in terms that were then set out in the letter. 53 Thus, so it was submitted, no other value argument was intended to be raised by the fourth and fifth respondents. Even so, out of an abundance of caution, counsel thereupon moved orally for leave to amend par 194 so as to make it clear that the fourth and fifth respondents were not raising the defence of other value; that leave was granted. 54 Subsequent to judgment being reserved in this matter, on 16 April 1999, Messrs Russell and Gregg filed amended defences pursuant to the leave given to them on 24 February 1999. Paragraph 194 of their respective defences has been deleted and replaced with a new paragraph. The paragraph in each defence now reads as follows: "If, which is denied, the allegations in the Amended Statement of Claim are correct as to the need otherwise to write down against the profit and loss account all or any of the matters referred to in the Amended Statement of Claim, the [relevant] Respondent, in dealing with an interim dividend and final dividend of the size declared, could have taken into account the reported retained profits, the undistributed profits in subsidiaries apparent from the accounts of Adsteam and from the accounts of its subsidiaries and the reported general and revaluation reserve, reasonably relying on the accounts as referred to in paragraph 191 above." (emphasis added) There were some other like amendments that need not be addressed save to say that they were consistent with the amendment to par 194 in emphasising that Messrs Russell and Gregg were raising a defence based on a reasonable reliance "upon the reliability, completeness and accuracy of the financial and accounting information and board papers …": see par 191(1). 55 As I understand it, a pleading in these terms is intended to allow Messrs Russell and Gregg to argue that there would not now be the need to have an investigation into the truth or the accuracy of the accounts or the financial records of Adsteam or any of its subsidiaries. The use of the words "reported" and "apparent" suggests that the defence would seek to argue that it would have been sufficient for Messrs Russell and Gregg to take the accounts and records at face value. Should this be correct, it would, so it was submitted, avoid the parties engaging in the costly exercise of a valuation of the whole Adsteam Group – an exercise which it was suggested, during the course of submissions, would be the largest in Australian corporate history. 56 Subject to one qualification, I do not think that I should express any conclusion on the nature or effect of this amendment as it may become a matter for the trial judge. The qualification is that I must address the contents of the defences of Messrs Russell and Gregg for the purpose of resolving the application for leave to file and serve a further amended statement of claim. For that purpose, I state my conclusions in these terms. Even though there may have been doubts about whether par 194, as originally pleaded, raised the other value issue, as to which I need not express an opinion, the recent amendment has the effect of removing that defence. I think that that is all that need be said by me on that particular subject. 57 The first three respondents have not, however, sought leave to make like amendments to their defences. 58 My assessment of the matter is that I must address the application for leave to file and serve the proposed further amended statement of claim by having regard to the defences as now filed. By this I mean that there is a discretionary element that must not be overlooked. If for example, all respondents had chosen to abandon the other value defence that might have weighed in favour of a decision not to grant the leave now sought. But as Mr Spalvins and the executive directors have apparently elected to stand firm, I must address ASIC's application in the knowledge that those three respondents wish to defend themselves by putting forward a particular defence – albeit that it is one that does not find favour with the non-executive directors. As it is my decision to grant the applicant the leave that it has sought, as I think I must, it may incur the non-executive directors in costs that they might not otherwise have incurred. But should that be the case, it will be as a consequence of the actions of the first three respondents – not through the fault of the applicant. The defence of the auditors, the sixth and seventh respondents 59 The auditors did not advance the valuation issue as a defence, notwithstanding submissions by the applicant to the contrary. In par 235 of their defence they claimed that there were sufficient reserves to enable Adsteam to pay the interim and final dividends, but the outer limits of their defence were in par 231 where they claimed that the loans that were owing by the four subsidiary companies to Adsteam "were supported by the assets" of those companies and that the auditors reasonably believed that Adsteam was "ready willing and able to support Gourlay, Jomet, Camberley and Buckley and Nunn to the extent that all loans owing by each such company to Adsteam remained and would continue to remain receivable by Adsteam". 60 Counsel for the auditors opposed the application for leave to file and serve a further amended statement of claim on the grounds of oppression and prejudice. However, counsel made it clear, contrary to my remarks in my earlier judgment, that his client never did support the earlier submissions of the other respondents with respect to the conduct of the ASIC and the allegations of bad faith that had been made against it. I accept counsel's submission. The New Case 61 The complaints of the respondents to the fifth version of the statement of claim were directed, in the main, to the inclusion of pars 172A to 172D (dealing with the interim dividend) and pars 174A to 174D (dealing with the final dividend); as I understand it, they did not regard the remaining amendments as either substantial or material. 62 In pars 172A to 172D the applicant pleaded that Adsteam and its directors purported to pay the interim dividend only out of profits – not out of reserves – and, in any event, so it was claimed, it could not have paid the interim dividend out of reserves because (inter alia) of the provisions of the company's articles of association which prohibited the payment of a dividend except out of the profits of the company. There are then alternative pleas that Adsteam and its directors did not take any steps to transfer any amount from its or any of its subsidiaries' asset revaluation reserves or general reserves and that the directors could not reasonably have determined that it was prudent or in the best interests of the company to fund the interim dividend out of the distributable reserves of the company and its subsidiaries. 63 The language of pars 174A to 174D, dealing with the final dividend, mirrors the language of pars 172A to 172D with one important exception. In par 172D, the alternative plea is limited to the allegation that the directors could not reasonably have determined that it was prudent or in the best interests of the company to fund the interim dividend out of distributable reserves of the company and its subsidiaries. In par 174D that same allegation appears (changing only the reference to interim dividend to final dividend) but with an additional allegation. It is this: in respect of the final dividend, there is the additional plea that the directors could not reasonably have determined that there were sufficient distributable reserves or other value of Adsteam or its subsidiaries to fund the final dividend. 64 It is in these last few words that the greatest heat of battle has been generated. The case that the applicant now wishes to put and the case that the respondents will be asked to meet is the allegation that the value of the Adsteam Group was insufficient to fund the final dividend. However, despite my observation that this proposed amendment attracted the most opposition from the respondents, I am of the view that the issue that is represented by the proposed amendment is one that is basically addressing, in converse, the issue of other value that is found in the defences of Mr Spalvins and the former executive directors, Messrs Hunt and Branford. Further Amendments 65 Counsel for the auditors, alone of the respondents, raised numerous complaints of form with respect to the contents of the proposed statement of claim. 66 These complaints, when first raised and served on the applicant, were (in part at least, as I understand it) responsible for the applicant preparing the fifth version of the statement of claim. However, although counsel for the auditors acknowledged that many of the defects had been cured, it was submitted that not all had been attended to. From a random check that I conducted, I agree with counsel for the auditors. 67 Subsequent to the circulation of the fifth version of the statement of claim, Messrs Mallesons Stephen Jacques requested further amendments of the ASIC. Although they were numerous, many were merely grammatical or textual, or errors in references to paragraph numbers. Counsel for the applicant informed the Court from the Bar table that, without making any concessions that the proposed pleading was inadequate, his client was prepared to address the concerns that have been expressed and make further amendments where that might be necessary or desirable. 68 One particular complaint that was raised on behalf of the auditors warrants a brief mention. Time and again, a paragraph in the different versions of the statement of claim refers back to one or more other paragraphs which, in turn, refers to other paragraphs and so on. This "incorporation by reference", as it was described by counsel, can be tedious and frustrating. But the alternative – the repetition of that which is already set out in the referred paragraphs – is more frightening when one considers the likely increase in the bulk of the document. The fifth version of the proposed statement of claim already runs to 332 pages plus schedules; the prospect of a material increase in size is not a happy thought. Despite its obvious drawbacks, incorporation by reference does have one specific attribute. The reader of the document will know at a glance that exactly the same allegation is being made in the paragraph under consideration as has been made in the referred paragraphs. If this technique were not used – if, instead, the drafter repeated in full the plea earlier made in another paragraph, the reader would face the task of checking the language of both passages to satisfy himself or herself that there have been no variations in the language of the two pleas. That would be equally tedious and frustrating. Either way, it is a fact of life that complex commercial litigation seems destined to breed complex pleadings. The applicant's replies 69 Mr Gray QC for the applicant submitted that it was not just a matter of mere convenience to raise the issue of other value in the statement of claim as distinct from the replies; he considered the statement of claim to be the preferable pleading so as to forestall any argument that the subject is somehow beyond the scope of a reply. As to this, Mr Gyles QC, counsel for Messrs Russell and Gregg, submitted that, subject always to a debate about what might legitimately be included in a reply, the applicant should be held to its original intended course. I find this argument on behalf of the respondents unattractive; it seems to have the potential for further interlocutory disputes. It is only a small matter, but it nevertheless pushes me away from having the other value question confined to the applicant's replies. 70 It is clear that the ASIC made a conscious choice to limit its case, as originally pleaded in the first version of its statement of claim, to one that was based only on the inadequacy of the four challenged transactions: see par 10 of Mr Dugan's affidavit on 18 July 1997; see also his evidence and the evidence of Mr Bampton. But this does not constitute some form of waiver or estoppel as was inferentially suggested by counsel for Messrs Russell and Gregg who, in his written submissions, wrote: "The ASIC should be held to this decision as far (at least) as the statement of claim is concerned." With respect, that statement cannot be right. One need only go so far as to look at O 13 r 3(1) which provides that: "A party may, without leave, amend any pleading of his once at any time before the pleadings are closed." Thereafter, the matter becomes one involving the discretionary power of the Court. But the ability to amend once without leave is a powerful answer to any suggestion that the ASIC "should be held" to its original decision; the Rules of Court contemplate that there will be circumstances in which a party may amend its pleadings without the leave of the Court. 71 The applicant's reply to Mr Spalvins' defence addressed his claimed reasonable belief in pars 49 (the Jomet loan), 63 (the Gourlay loan), 73 (the Camberley loan) and par 86 (the Buckley and Nunn loan investment), to the effect that subsidiary companies had net assets of substantial value, by pleading that the applicant: "is not able to plead to the allegations "(in the relevant sub-paragraphs)" as they are vague, general and embarrassing (and should be struck out unless adequately particularised) and refers to its request for particulars dated 14 September 1994." 72 The second aspect of the reply to Mr Spalvins' defence to which reference need be made is that dealing with the wider plea in par 225. That was the paragraph that referred to the availability of "sufficient distributable profits and reserves in Adsteam and in the Adsteam Group" out of which to pay the dividends. The reply commenced with a denial of each allegation, followed by an assertion that the allegations were "vague, general and embarrassing". 73 The reply, in par 11, continued by alleging that there were "no distributable profits in Adsteam" but, even if there were, Mr Spalvins would be unable to rely on any purported existence of reserves because of the failures on the part of the former directors to make all necessary appropriations. 74 The applicant also raised further issues that, so it claimed, would have prevented access to reserves (if indeed, there were available reserves). Four observations of significance may be made about the applicant's reply to Mr Spalvins' defence: · in the first place, it claimed an inability to plead appropriately because, so it was claimed, the relevant pleadings were vague, general and embarrassing; · secondly, it joined issue with Mr Spalvins about the availability of distributable profits – but only by denying their existence in Adsteam; it did not deny their existence in the Adsteam Group; · thirdly, as an alternative plea, it argued that if (which was denied) there were distributable profits or available reserves in Adsteam then because of failures to attend to procedural matters or because of the contents of articles of association or because of accounting principles, Adsteam could not use those profits or those reserves; · finally, the reply asserted that Mr Spalvins "could not reasonable have determined" (inter alia) that it was prudent, or in the best interests of Adsteam, to fund or support the dividends. (Again, no reference was made to the Adsteam Group). 75 In par 12 of the reply to Mr Spalvins' defence, the question of the Adsteam Group is then addressed. It started with the assertion that Mr Spalvins "cannot rely upon the purported existence of profits or amounts standing to the credit of reserves in the subsidiaries of Adsteam" to source the dividends. In subpar 12.1, the reasons that were advanced for that alleged inability were mainly procedural. For example, it was alleged that there had been no attempt to appropriate any amount standing to the credit of a reserve to the profit and loss account of the relevant subsidiary and no "determination" had been made to fund the payment of the dividends from the reserves of subsidiaries. 76 In subpar 12.2, it is then pleaded as follows: "even if (which is denied) there were sufficient amounts standing to the credit of subsidiaries of Adsteam's reserves" to fund the dividends, the amounts that stood to the credit of the share premium reserve and the capital redemption reserve were not distributable because of nominated statutory provisions and the amount standing to the credit of the foreign currency translation reserve was not distributable "as it comprised the value of foreign exchange currency translation differences." 77 The references in the reply to the value of the subsidiary companies in the Adsteam Group had, to this stage of the pleadings, been merely incidental to the basic assertions that procedural failures and statutory prohibitions denied access to the profits and reserves of the subsidiaries. 78 It was only in subpar 12.4 that the applicant directly addressed the wider issue when it pleaded in further answer to the allegations in par 225 of Mr Spalvins' defence: "that dividends were payable by Adsteam only out of the profits of Adsteam and not out of the profits or reserves of its subsidiaries." 79 The presence of the word "only" in subpar 12.4 indicated that the applicant was challenging the right of any respondent to have recourse to the wider Adsteam Group. However, the challenge that the applicant now wishes to raise in its proposed further amended statement of claim goes a stage further. Its effect is to say, not only is it impermissible for the directors to have regard to the assets of subsidiary companies in the Adsteam Group, but, even if regard were to be had to them, they did not have the worth to fund the interim and the final dividends. 80 Whilst I acknowledge that this is an expansion on what was contained in the reply to Mr Spalvins' defence, I do not regard it as exceptional or unexpected or unfair in any sense. That conclusion can, I think, be tested in this manner. If Mr Spalvins wishes to assert that Adsteam was entitled to have recourse to its subsidiary companies so that it might meet its obligations to its shareholders when the time came to pay out the interim and the final dividends, there would be an evidentiary onus on Mr Spalvins to lead evidence pointing to the existence of the assets (be they accumulated profits, available reserves or whatever) of a size sufficient to source the dividends. It would not be sufficient for him to satisfy the Court that, as a matter of law, recourse could be had to the subsidiaries unless the Court was also satisfied, as a matter of fact, that the subsidiaries had the financial ability to meet the financial demands that would be placed on them. Whether there would be an evidentiary onus on Mr Spalvins to adduce that evidence, as I have propounded, or a switching onus on the applicant to negate the defence, is not really material at this interlocutory stage for either way, it would mean that evidence would have to be lead so that the Court could adjudicate on the worth of the subsidiary companies. 81 The conclusion that I have therefore reached is that the wider valuation issue has been raised in the defence of Mr Spalvins and the applicant has joined issue with it in its reply. 82 This conclusion therefore refutes any suggestion that the applicant has engaged in any forensic manoeuvre that might be called improper conduct, or an "ambush", or a withholding of the true nature of its case. 83 That defence and the reply to it has established the presence in the pleadings of the wider valuation issue. Even though, at the other end of the spectrum, the auditors did not raise the other value question as a defence, they are caught up in the larger litigious process. As a result of leave being given to the applicant to file and serve a further amended statement of claim which will plead the wider valuation issue, they and the other respondents will be able to file and serve an amended defence in which they will be able to respond to the insertion of the allegations that deal with that issue in such manner as they may be advised. 84 Counsel for Messrs Russell and Gregg was critical of the conduct of the applicant with respect to its replies as first filed. He submitted that further and better particulars of the replies could have been and should have been provided at a much earlier stage and that there was a failure on the part of counsel for the applicant, at various directions hearings, to disclose the applicant's intention to rely upon the wider matters relating to the valuation issue; he submitted that there was no acceptable explanation for these omissions and delays. 85 I do not consider that these complaints are justified. There is no warrant for the exercise of the Court's discretionary powers in a manner that would be unfavourable to the applicant. It must have been apparent to all respondents that the applicant would be forced to address the valuation issue in detail. That could not have come as a surprise. 86 The replies contained complaints that certain allegations in the defences were vague and the ASIC took the view that, because of a lack of particularity in the defences, it was impossible to plead with appropriate particularity in the replies. Argument about the adequacy of the particularity in the defences was listed for hearing, based on the applicant's notices of motion, on 30 January 1995. That also was the time for the respondents to act if they then felt, as they now submit, that there were inadequacies in the replies. 87 However, on 16 January 1995, Lindgren J delivered his judgment in the auditor's judicial review proceedings in which he indicated that if the proceedings were amended to attack the appropriate decision he would set it aside as an improper exercise of power. The applicant submitted that the practical effect of the judgment of Lindgren J was that there was, with the concurrence of all parties, a procedural moratorium in all interlocutory steps pending the final determination of the judicial review proceedings and the subsequent appeal processes. 88 Mr Gray QC submitted, on behalf of the applicant, that because new facts may be set up in an applicant's reply, where they are raised solely to meet a particular defence, it was not incumbent upon an applicant "to anticipate a defence which may never be made": Hall v Eve (1876) 4 ChD 341 at 348 per Bramwell JA: see also Cairns' Australian Civil Procedure 3rd Ed p 200; Bullen and Leake and Jacob's Precedents of Pleadings 12 Ed p 71 and Odgers' Principles of Pleading and Practice, 21 Ed p 91. That argument, which in my opinion, must be correct, was accepted by Perry J in The Duke Group Ltd (In liquidation) v Arthur Young (unreported: judgment delivered 26 June 1991). 89 Once it becomes evident that the question of other value will find its way into the pleadings via the replies, as it must in the pleadings in this litigation, one is left wondering why the respondents have expended so much time and energy in a debate in which, if they are successful, the question of other value will still be ventilated in the trial. In this limited issue (because there are doubtless many more issues to be canvassed) the contest between the parties which the trial judge will have to resolve, is whether there were or were not lawful sources available to Adsteam out of which certain dividends could be declared. The applicant commenced the litigation by pointing to four transactions, saying of them, that their worth was so diminished that no profits were available to the applicant out of which to declare a dividend. The first three respondents seek to defend themselves by saying that there was other value to which Adsteam could have had recourse so as to source those dividends. It quite escapes me how the first three respondents consider that they can avoid a full inquiry into and argument on the merits of their defence. No forensic manoeuvres, distinguishing between the limited contents of a reply and the more general assertions that can be made in a statement of claim, can be called in aid to avoid or restrict a proper assessment of the valuation issue. As to this, no proper assessment can be made without the benefit of fully articulated pleadings from the applicants. 90 Furthermore, it has been submitted on behalf of the ASIC that additional information has come into its possession subsequent to the filing of its replies; that information was generally identified as some analysts' reports, some information with respect to bankers' meetings and some knowledge of cross shareholdings. This material was not the subject of direct evidence; it came forth more by way of submissions from counsel. However, as I see it, it is not so much a matter of evidence as it is a matter of pleadings and, in such circumstances, the Court is entitled to rely on the information that counsel presents to the Court. 91 Whether that additional information comes before the Court via replies or by way of a further amended statement of claim might be, to some, an inconsequential matter. But if the applicant might, in some way, be inhibited, if it were limited to addressing the valuation issue in its replies, that would be a ground, in itself, for favouring the present application to allow the amendment to the statement of claim. The ultimate object, when this matter goes to trial is for "the true issues and the real merits, factual and legal" to be litigated; they are not to be artificially avoided: The State of Queensland v J L Holdings Pty Ltd per Kirby J at 169. 92 Counsel also alluded to the possibility that the introduction of the valuation issue into the applicant's replies might amount to it splitting its case. Order 11 r 8 provides: "8(1) A party shall not in any pleading make an allegation of fact, or raise any ground or claim, inconsistent with a previous current pleading of his. (2) Subrule (1) does not affect the right of a party to make allegations of fact, or raise grounds or claims, in the alternative." 93 Would it be open to the respondents to argue that the valuation issue is a new and different case and that it should not be found in a reply? Although it is not necessary to investigate the answer to that question, the fact that the question might be raised is sufficient to take steps to avoid it. Upon that premise, I consider that the applicant made the correct decision in applying to the Court for leave to file and serve the proposed further amended statement of claim rather than attempting to place the valuation issue in its replies. On the other hand, that does not mean that I am of the opinion that a mistake was made in the formulation of the first version of the statement of claim. As I have said, the applicant was not obliged to guess at what the respondents may raise by way of defence. 94 I turn now to consider the further complaints that have been raised by the respondents. The first of them is the applicant's delay. Delay 95 It was necessary for the applicant to address the reasons for the delay in making this application; it carries the onus of satisfying the Court that the granting of this application will not prejudice the respondents: see The State of Queensland v J H Holdings Pty Ltd at 152 per Dawson, Gaudron and McHugh JJ; see also Interior Projects v Players Ltd (unreported: Lander J; judgment delivered 19 June 1997). For reasons which are developed later in these reasons, I am satisfied that it has. 96 In Interior Projects v Players there had been a last-minute request by a party to make a substantial amendment to a pleading – an amendment that had been suggested by the Court many months before. In the circumstances, the amendment was allowed because his Honour was satisfied that the fault was that of the solicitors and not of the party and because none of the other parties could raise an issue of prejudice that could not be compensated with a costs order. In coming to this conclusion his Honour was, of course, operating under the approach of the High court in The State of Queensland v J L Holdings Pty Ltd. 97 Whilst it is true to say that the applicant bears the responsibility of satisfying the Court that allowing the filing and serving of a fresh statement of claim will not cause the respondents prejudice (which cannot be cured by an order for costs), it still remains necessary for the respondents to identify the possible prejudice. It is not a case of the respondents standing by mute, leaving it to the applicant to progress through a series of possibilities or probabilities, raising hypothetical issues not knowing whether they are relevant to the circumstances of the respondents or not. Standing back and assessing the matter objectively, there is no doubt that there has been delay in this matter. But the delay has been occasioned by both sides – i.e. the applicant on the one hand and one or other of the respondents on the other. When one compares the applicant's delay as against the respondents' delay, it is, in my opinion, appropriate to find that the applicant's delay, whilst substantial, has not been of such a nature as to warrant the Court refusing it leave to file and serve the fresh statement of claim. 98 Notwithstanding the delay that had been brought about by the judicial review proceedings, Messrs Phillips Fox, the solicitors for the fourth and fifth respondents, Messrs Russell and Gregg, throughout the greater part of 1995, repeatedly wrote the ASIC seeking further and better particulars of the applicant's replies to their defences. The witness, Mrs Rigney, a partner in the firm of Messrs Phillips Fox, was the legal practitioner who had the care and conduct of this matter on their behalf. On 22 December 1994, Mrs Rigney had caused a member of her staff to write to the ASIC requesting further and better particulars of its replies; that letter was not answered. Thereafter, like letters were written by Messrs Phillips Fox at (roughly) monthly intervals throughout 1995; they were not answered. Finally, in their letter of 9 October 1995 to the ASIC, Messrs Phillips Fox forwarded a copy of a notice of motion in which orders were sought that the applicant provide answers to the requests for particulars of its replies. Curiously, in light of the arguments that were advanced in this hearing, the letter stated: "… we propose to have the notice of motion lie on a (sic) table, along with the other notices of motion for argument at the next directions hearing, whenever that may be." In his affidavit of 6 June 1997, Mr Bampton said that, from January 1995 to September 1996, he had, save for the above mentioned notice of motion, treated "the interlocutory or other substantive steps in this action as being suspended…". This was because of the currency of the judicial review proceedings. 99 A substantial amount of time was devoted to this issue of unanswered correspondence, involving much heat and energy but little substance. Whilst it is true that Mr Bampton made the tactical mistake of not protecting himself by putting some response on the record, the short answer to the whole affairs is this: if Mrs Rigney was truly concerned about the ASIC's failure to supply further and better particulars of its replies she could have prosecuted a notice of motion seeking interlocutory relief immediately after it became apparent that her firm's letters remained unanswered. I do not attach any weight to this complaint. Either her firm was tardy in its conduct of the matter or it was as unconcerned, throughout 1995, about the prosecution of the proceedings as was Mr Bampton. In either event, it does not amount to a justifiable cause of complaint about the conduct of the ASIC. 100 There is some evidence that suggests that the issue of amending the statement of claim to incorporate the subject of other value may have been considered by the ASIC and its advisers as early as 24 April 1995. On that date Messrs Bampton, Dugan and Whitington QC met in a coffee shop following a directions hearing in this matter. Mr Dugan made a note (Ex AX2) of the discussions; that note addressed the question of a fresh statement of claim. Neither Messrs Bampton nor Dugan had an independent recollection of the discussion and Mr Whitington did not give evidence (for which the applicant was strongly criticised by counsel for Messrs Russell and Kent who claimed that his absence brought in the principle of Jones v Dunkel). I do not attach much significance to the note or to the fact that the subject of a fresh statement of claim alleging other value may have then been raised. It is not uncommon in any litigation for ideas to be floated, dismissed, floated again and later accepted. 101 I accept the evidence that was led by the applicant – a firm decision to apply for leave to amend the statement of claim to plead the subject of other value was made at the end of August 1996 or thereabouts, and work commenced on the redraft sometime in late September. It is obvious that there would have been earlier and ongoing discussions about the pleadings and the available causes of action. But if there had been an earlier decision of the ASIC, details would have been recorded and that record would have been disclosed (as was Ex AX2) as part of the discovery process. The delays that have been incurred in the prosecution of this matter, including the delays of the ASIC and those advising it, have prevented all parties from preparing their cases in a timely fashion. I do not believe, however, that fault can be brought home exclusively to the ASIC as was suggested by the respondents during the course of their submissions. 102 The applicant produced the fees notes of Mr Whitington QC at the request of the respondents (Ex AX9). They reveal that Mr Whitington did not charge for any conference on 24 April 1995; I find that the absence of such a fee note lends some support to the applicant's proposition that, whilst such a conversation may have taken place, it was informal and casual and – most importantly – not acted on. Other support for my finding that the applicant did not decide to plead the other value issue until August or September 1996 comes from Mr Dugan's internal memorandum of 11 September 1996 to officers of the ASIC. It said in part (after referring to a meeting that had been held earlier that day): "As discussed, an important aspect of the amended statement of claim will be the pleading of material facts which give rise to the knowledge or imputed knowledge of the directors and also the auditors as to the real value of Adsteam …" This is a statement that is consistent with a decision that has recently been made. It is not consistent with one that had been made about eighteen months earlier. 103 The ASIC wrote the solicitors for all respondents on 4 September 1996 (Ex MGW1, 473). On the one hand, its contents support the proposition that proceedings had been "on hold" because of the judicial review proceedings. It said that it had arranged a directions hearing in the matter and that its primary reason for doing so was to inform the Court of the recent decision of the Full Court in the judicial review proceedings and "to submit that there is now no good reason why the matter should not proceed with expedition". On the other hand, the letter failed to make clear the nature of the amendments that the applicant intended to make to its statement of claim. After recognising that there was a need for it to meet requests for further and better particulars it said: "The ASIC is of the view that it ought to amend the statement of claim in light of these requests and answers and also to take the opportunity to correct minor typographical and arithmetic errors." 104 The failure of ASIC to explain, openly and frankly, in that letter, its wider proposal was not satisfactorily explained. 105 It has been submitted, with apparent justification, that the applicant was on notice, prior to the filing of the first version of the statement of claim, that the respondents were likely to raise the valuation issue. Its knowledge was said to have been acquired as a consequence of information gathered by the ASIC during the course of various earlier proceedings, such as the judicial review proceeding, and the public examination of the respondents. Let it be assumed that this is correct. That would not, in my opinion, amount to some form of waiver or an election that would forever bind the applicant to pursue its case in the manner first pleaded. How was the applicant to know what defences would be raised? Was it incumbent on the applicant to anticipate every likely defence and plead the contrary cause in its statement of claim? Even if the ASIC did have such information that does not, in my opinion, require it to make an assumption about the likely contents of the respondents' defences. It must plead its basic case, but subject to that obvious qualification, it is entitled to wait and see how the respondents will react in their defence. 106 As is apparent from what appears elsewhere in these reasons, it was, in my opinion, reasonable and practicable for the applicant to endeavour to contain the scope of this case. The first three respondents are the ones who have chosen to broaden it by bringing in the question of the valuation issue; it does not now become them to complain when the applicant sets out to meet this wider issue. 107 Another answer to this proposition is to be found in the ambivalence of the first three respondents about their pursuit of the valuation issue as a defence. As I have already said, counsel for Messrs Russell and Gregg claims that his clients never intended to raise it as a defence but nevertheless, his clients saw fit to amend their defence to remove any doubts about the ambit of their pleas. 108 As for the other former directors, their counsel commented, during the course of their final submissions, that they would like time to consider whether they should advise their clients to persist with the valuation issue as a defence. Counsel for Mr Spalvins alluded to the possibility that his client might abandon the other value argument, in the expectation that, thereby, the question might disappear. Counsel for Messrs Kent and Branford, the executive directors, generally adopted the arguments that were advanced on Mr Spalvins' behalf, including, in particular, the possibility that they might likewise abandon that defence. I do not consider that it would be appropriate for me to express any view of such possibilities; I think that my task must be to make a decision that is based on the present state of the pleadings. However, the uncertainty to which I have referred shows, in some small measure, that the decision of the applicant to wait and see what was in the defences was practical and sensible. 109 I accept the submission that was made on behalf of the ASIC that it and its officers faced a difficult task in mastering the complex corporate structure that was the Adsteam Group of companies. I also accept that the respondents would not have suffered like disadvantages in that one could assume that, as directors and auditors, they would have had prior working knowledge of its structure. In a direct comparison, it must be acknowledged that there would have been much work to be done before the ASIC could presume to think that it had the same knowledge of the group structure as the respondents. In considering the accusation of delay on the part of the ASIC this is a factor to be borne in mind; it is therefore necessary to offer to the ASIC a degree of tolerance that might not otherwise be offered to a litigant in more routine litigation. 110 Counsel for the fourth and fifth respondents advanced six major factors that, so it was submitted, should be taken into account when considering questions of delay. I set them out hereunder for, in my opinion, each point raises a relevant consideration: 1. Why was the valuation issue not pleaded in the first version of the statement of claim? I think that question has been adequately addressed. It was intended as a cost –saving device and the applicant was not required, in any event, to guess at what might be included in the defences. 2. What material, if any, is now known, but was not known in 1994, and when did this new material become known? There was some reference to unspecified new material but it was not sufficiently particularised. In my assessment of the matter, the applicant has not sufficiently particularised this new material and can draw no assistance from the claim that such new material exists. 3. If the pleading had previously been intended to be part of the replies, why had there not been a proper compliance by the applicant with the provisions of O 11 r 18. That provides as follows: "When a party in any pleading denies an allegation of fact in the previous pleading of the opposite party, he must not do so evasively or generally, but must answer the point of substance, in accordance with rule 13 of this Order." This matter was obscured to a certain extent because of the applicant's complaints about the inadequacies in the defences and the need for further and better particulars. Mr Bampton suggested, during the course of his evidence, that it was necessary to await the report of the expert valuer, Mr Lonergan, but that does not seem a likely explanation as they had possessed a draft of his report for quite some time. I am of the opinion that the applicant could have better addressed the other value issue in its replies and that it was at fault in not doing so. However, such blame as might attach to the applicant dissipated when proceedings were put on hold because of the judicial review proceedings. 4. Was the amendment brought forward promptly? Clearly, the answer to this question is: No! A period of two years or so elapsed before it was identified by the applicant. However, a greater part of that delay arose because the parties were awaiting the outcome of the judicial review proceedings and that was the responsibility of the respondents. 5. Was the withholding of facts a conscious forensic choice for tactical reasons? I find in favour of the applicant on that question. I am satisfied that the answer is: No! 6. Are the amendments necessary to do justice? In my opinion, the answer to this question must clearly be: Yes! 111 There was a further delay by the ASIC from September 1996, when it first advised that it would be pleading the valuation issue, until February 1997, when the third version of the proposed statement of claim was circulated. In that period Mr Dugan had commenced work on the new version but he left the employ of the ASIC at Christmas time 1996. Mr Bampton had to pick up the task and complete it. Mr Dugan's departure and the Christmas break would account for some of the time but a period of five months seems to me to be an inordinately long period of time when ASIC's counsel had advised the Court in September that he expected to have a draft of the third version in circulation within fourteen days. 112 At one stage, during the course of his submissions, counsel for Messrs Russell and Gregg, advanced the proposition that a deliberate choice not to make parties aware, in a timely fashion, of the matters reflected in the proposed amendment, coupled with a failure to explain adequately the reasons for that conduct, is a powerful consideration in refusing an amendment. I do not consider that this submission, which savours of a deliberate decision to withhold information is applicable in the circumstances of the case. There is no evidence that would, in my opinion, warrant such an adverse finding. As I have said elsewhere in these reasons, it was the respondents who raised the question of other value and the Court is presently concerned with the conduct of the ASIC in how it has reacted to an issue that was raised by the respondents. Counsel's submission would be more appropriate to a case where an applicant raised (unexpectedly and through no fault of the respondents) a new issue for the first time. Is there prejudice to the respondents? 113 As the matter does not now have a trial date, the respondents are not able to argue that allowing the applicant to file and serve a fresh statement of claim, will interfere with their preparation for trial. The earlier trial date was lost because of the auditors' unsuccessful judicial review proceedings. 114 I do not see that allowing the filing and serving of a further amended statement of claim will mean that substantial costs will be thrown away; in fact, as it seems to me, the investigatory costs of all parties will be virtually the same, irrespective of where the other value issue is found in the pleadings. However, that is a matter that I intend to leave for the trial judge. There will be additional costs occasioned as a direct result of the presentation of a fresh statement of claim and the respondents will be entitled be compensated in part. On the other hand, as they have chosen, unsuccessfully, to defend the application, they must pay the applicant's costs of the disputed hearing. 115 It was suggested by counsel that allowing the fresh statement of claim will prolong the matter, causing worry and concern to the respondents and aggravating the ill-health of one of them in particular. That is a factor that is to be taken into account, but in the particular circumstances of this case, the weight to be attached to it is not as much as it might otherwise have been. I have come to that conclusion for three reasons; first, the first three respondents – not the applicant – have raised the question of other value and if, by raising it, they thereby prolong the matter, that cannot be said to be the applicant's fault; secondly, the respondents (as is their right) have taken interlocutory steps from time to time in the hope of avoiding this matter going to trial. One cannot criticise them for doing that but, the respondents have thereby prolonged the matter. Finally, whilst the defences remain in their present form, the question of the other value will remain alive. If it is not addressed by the applicant in its statement of claim it will find its way into its replies. It must be permitted to join issue on this subject. Hence, it will not be so much the new statement of claim that will prolong the matter, causing worry and concern and aggravating ill-health; it will be the existence of the other value issue that will be the cause. 116 There is no doubt, in my opinion, that all parties have been hampered by the delays that have occurred thus far. For example, Ms Hickey, a partner in the firm of Messrs Finlaysons, the solicitors for Messrs Kent and Branford drew attention in her affidavit of 22 July 1997 to the circumstances surrounding Petersville Sleigh Ltd ("Petersville"). It was a company in the Adsteam Group, but in 1991 it was taken over by Pacific Dunlop Ltd which in turn disposed of many of Petersville's assets in 1995. The value of the shares in Petersville could be a matter or significance in the other value issue. However, Ms Hickey has deposed in her affidavit in these terms: "The likely effect of the sale by Pacific Dunlop Ltd in 1995 of [Petersville's] food assets … is that the respondents will have been prejudiced by the applicant's failure to plead the value of the wider Adsteam group in 1994 due to an increased likelihood that: (a) relevant documents will have been further disposed (b) relevant documents may have been called." 117 For the time being, there are three answers to the concerns expressed by Ms Hickey. In the first place, those concerns have not just come into existence; if they exist, the probabilities are that they might have started to come into existence in 1994, but – at least – in 1995. Furthermore, the first three respondents raised the other value issue in 1994 when they filed their defences. They were thereby alert to the need to preserve documents before Pacific Dunlop's sale of Petersville's assets in 1995. In the second place, the difficulties at this stage are hypothetical. But the last answer is the most important. The respondents, as a result of the discovery process will have available to them all the material that the ASIC has obtained. If material of importance is missing, there is a distinct possibility that ASIC might be the greater loser for it carries any relevant onus. I do not suggest that the concerns that have been expressed by Ms Hickey are illusory; on the contrary that could be quite real; but at this stage, there is no way of knowing who is likely to suffer (if, indeed, any party will suffer.) 118 No respondent gave evidence of memory impairment. Such impairment as would exist does not raise this case above the ordinary level of the many cases that come to trial years after the relevant events. Memories fade over time, but that is a fact of life in all litigation. The compensating features ( which are not always available ) are first, that much of this case will be based on written material that will be equally available to all parties, and secondly, it is more likely than not that all respondents (save only for questions of ill-health) are astute and experienced commercial people. 119 Questions of health, including stress and worry are not be overlooked, but they can only be factors that are to be weighed in the balance. In this particular case, I am satisfied that they must give way to the greater public interest that requires this case to be brought to a conclusion only after there has been a detailed consideration of all relevant issues on the merits. Public confidence in the administration of justice would be impaired if a public authority was inhibited in presenting evidence on a subject that has arisen as a consequence of allegations that have been made in the defences of the first three respondents. 120 The respondents have submitted that allowing the applicant to plead the valuation issue at this stage will have the effect of depriving the respondents from preparing their answers in a timely fashion. There are, however, two observations that must be made. The first is that the material that I have summarised under the heading of "Delay" will also be pertinent in considering any question of prejudice – that is, the respondents must accept some of the responsibility; the second is that the need to address the valuation issues of Adsteam and the Adsteam Group is a task that will be dominated by a consideration of written material; by and large, the task in 1999 will not be all that much greater than it would have been in 1994. Memories might have faded, of course, but I believe that any problems consequential upon fading memories would be minimal in a valuation case of this nature. Counsel for the fourth and fifth respondents submitted that it would be reasonable to assume that the task would be more difficult now, nine years after the valuation date than it would have been earlier. I accept that it would be more difficult but I do not think that the degree of difficulty would be such as to deny the applicant the opportunity to test the defences of the first three respondents on the merits. Oppression 121 The first respondent submitted that to permit the applicant to plead the wider valuation case at this stage in the proceedings would lead to an abuse of process as it would lend the process of the Court to oppression and injustice. Walton v Gardiner [1993] 177 CLR 378 was a case of abuse of process; it dealt with proceedings against a group of doctors for professional misconduct after earlier – and virtually the same – proceedings had been permanently stayed many years earlier. Holding that the fresh proceedings should also be stayed as unfairly and unjustly oppressive and an abuse of process, Mason CJ, Deane and Dawson JJ pointed out that there is nothing in the authorities which supports "the proposition that a permanent stay of proceedings can only be ordered on the ground of either improper purpose or no possibility of a fair hearing."(395) Even so, I think that the facts in Walton v Gardiner distinguish that decision. In my opinion, the conclusions that I have reached also answer any question of oppression. Election 122 Even if it be the case that the applicant did not raise, in the first version of the statement of claim that was filed on 20 April 1994, the issue of the value (or lack of value) of the other assets of the applicant, that does not mean that it then (or at some later but specified date) made an election that bound it not to raise that issue. 123 In his submissions, counsel for Mr Spalvins advanced three propositions as the basis of his client's defence: · it was wrong to assume a lack of profits in the parent company (ie Adsteam) by reference to a deficiency of assets over liabilities in any particular subsidiary; · it was wrong to conclude that a loan to a particular subsidiary should be written down because of a deficiency of assets over liabilities in that subsidiary and therefore an inability to repay; · the ability of a particular subsidiary to repay a loan to the parent company had to be assessed by reference to the value of other subsidiaries in the group and external lines of credit. 124 It is the reference to "the value of other subsidiaries" that gives rise to the broader question of other value. Counsel argues, and I do not understand this to be disputed, that there will be an onus on the applicant to establish, as a matter of fact, that Adsteam's profit for the financial year ending on 30 June 1990 was non-existent (or at least insufficient to pay the interim and final dividends). Counsel then said that the applicant was faced "with an election". It could have pleaded what he described as "the technical case". That would be based on the assumed accuracy of the 1990 Adsteam accounts except to the extent of the disputes relating to the four challenged transactions. If the applicant chose the technical case, it would have known, and if it did not know, it should have known, that the respondents would assert, as they have in their defences, that there was no need to write down any inter company loan because "proper accounting practice permitted them to treat the Jomet, Gourlay and Camberley loans by reference to the value of the group disclosed in the consolidated accounts and a belief in the value of the assets reported in the consolidated accounts" 125 The second arm of the election, according to the submissions of counsel for Mr Spalvins, was for the applicant to plead the valuation issue. That case would not be premised upon a technical question of proper accounting practise, but would be one involving a detailed, time-consuming and costly examination of the value of each business unit and investment of the Adsteam Group. It would require proof, as a matter of fact, that there was no profit anywhere from which dividends could have been declared and paid. 126 The applicant's third choice, at the time when it was allegedly required to make its election, was to plead the technical case and the substantial valuation case in the alternative. 127 The case for the first respondent proceeded upon the premise that the applicant elected, deliberately, to proceed on the technical case only, aware of the inherent risk involved in taking such a course. 128 The application of the doctrine of election remains an objective exercise. As Kitto J said in Tropical Traders Ltd v Goonan (1964) 111 CLR 41 at 55: "Not that election is a matter of intention. It is an effect which the law annexes to conduct which would be justifiable only if an election had been made one way or the other." 129 An election once made and communicated, whether orally or by conduct, to the other party is final: C.F. Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723 at 733 per Rich, Dixon and Evatt JJ; see also Zucker v Straightlace Pty Ltd (1986) 11 NSWLR 87 at 93 per Young J. But, a right to plead a cause of action in the litigation process is a very fundamental right and is not one that is easily lost. Speaking of the loss of a right to rescind a contract in Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1994-1995) 182 CLR 26 Deane, Toohey, Gaudron and McHugh JJ said at 42: "the point is that where the right to rescind is a continuing one, it is not so readily concluded that the party entitled to rescind has abandoned that right completely as opposed to taking no action to exercise the right at the time in question." 130 It is my opinion that those remarks apply equally to the proposition that a litigant does not readily give up the right to plead a particular cause of action or a particular defence. 131 For the reasons that I have already canvassed, I do not think that this is a case of election at all. I repeat my earlier findings that the applicant was entitled to wait and see how the respondents would plead their defences. Waiver 132 Mention should be made of the High Court's decision in the Commonwealth of Australia v Verwayen (1990) 170 CLR 394 as it was advanced as authority for the proposition that the ASIC is, by its conduct in pleading the narrow or technical issue, now estopped from broadening the scope of its claims against the respondents. I have concluded that the facts in Verwayen's case are so markedly different to the facts in this case, that its decision cannot support an argument of estoppel against ASIC. In Verwayen's case, a member of the Royal Australian Navy, Mr Verwayen, was injured when two warships collided while engaged in combat exercises in 1964. Twenty years later, in 1984, he sued the Commonwealth for damages in negligence. By its defence, the Commonwealth admitted liability but the question of damages remained in issue; in particular, however, it did not plead that the action was statute-barred. Later, in 1986, following a change in policy, the Commonwealth obtained leave to amend its defence so that it could plead the statutory limitation and assert that it owed no duty of care to Mr Verwayen. The trial judge held that, even though the Commonwealth had waived its defence under the statute of limitations, its waiver was revocable, and that it had revoked the waiver. He held that there was no estoppel against the Commonwealth; he dismissed Mr Verwayen's action. An appeal to the Victorian Full Court by Mr Verwayen was allowed and the High Court subsequently dismissed the Commonwealth's appeal to that Court, holding that there was an estoppel against the Commonwealth. 133 The deliberate change in policy on the part of the Commonwealth in Verwayen's case is, in my opinion, the distinguishing feature. At the time when it initially filed its defence, it had a free choice to deny the existence of a duty of care and to plead the statute of limitations. It could not possibly be said that anything that was said or done by Mr Verwayen could have influenced the Commonwealth's decision; it was freely made; it was the open choice of the Commonwealth to adopt a course of action which, in its unfettered discretion, was available to it. The ultimate issue that the High Court had to resolve was, whether, in those circumstances, a litigant was entitled to change its mind and plead a defence that was diametrically opposed to the course previously taken. Holding that Mr Verwayen had suffered detriment as a result of his having relied on the Commonwealth's conduct, the High Court denied the Commonwealth the right to change its defence. 134 I can only repeat that it is my assessment of the present proceedings that the proposal by the applicant to plead the valuation issue has been occasioned by the conduct of the first three respondents and the contents of their defences. It was not a free choice brought about as a result of the ASIC or its advisers changing its policy. I conclude that there is no estoppel against the applicant. 135 Although "detriment is not an essential attribute of waiver": The Commonwealth v Verwayen at 473 per Toohey J, one must take a balanced approach when assessing a litigant's conduct with respect to attempts to implement changes to pleadings. The Commonwealth v Verwayen shows that the deliberate act of a defendant not to rely upon a defence that was available to it can lead to an estoppel. But as Toohey J said in that case: "A defence available to a defendant, whether it be on the facts or on the law, is not waived merely because the defendant does not initially plead that defence. It is commonplace for pleadings to change as an action progresses, whether by way of expansion or contraction (though usually the former). But what happened in the present case is more fundamental than a pleading point. The situation is not simply that the Commonwealth had filed a defence to the action and later sought to add a plea of limitation to that defence. The Commonwealth sought to adopt a position which had been open to it at the outset but which it deliberately chose not to make a part of the issues for adjudication." 136 I reject counsels' submission that the applicant sought to obtain an advantage by first pleading a technical case. It was not a matter of "advantage" to the applicant. It was a question of how best to initiate the prosecution of a particular action against the respondents. When the defences had been entered, it became necessary for the applicant to move away from its initial approach, which would not have permitted it to fight all issues on their merits. That was the reason for it moving to the wider valuation case. 137 Mr Dugan acknowledged that he made a conscious choice to limit the applicant's case in the first version of the statement of claim to the four challenged transactions. Mr Bampton agrees; he accepted that the decision to avoid the valuation issue was a deliberate decision. But to take these acknowledgments and seek to convert them into some form of estoppel or waiver or to treat them as a basis for a claim of oppression and prejudice is unfair and unreasonable. The choice was not made to ambush the respondents or to gain some tactical advantage. There were three justifiable reasons for the choice; first, if the case could have been contained within its planned parameters there would have been substantial costs savings for all parties; secondly, the applicant may have suspected what the respondents intended to plead by way of a defence, but it did not know - as to this point, the fourth and fifth respondents have now made it clear that they are not pursuing that defence and the auditors never did pursue it; thirdly, it was arguably reasonable that the applicant's advisers might assume, based on the decision in Blackburn's case, that the valuation issue was not available to the respondents as a defence. 138 The submission that the ASIC, from sometime in mid 1994 until September 1996 made a deliberate decision not to supply the respondents with advice or information about its proposal to plead the valuation issue also suffers as a matter of logic. Why would the ASIC do that? How could it gain by deliberately withholding such information? No theory was forthcoming that could proffer a reasonable answer to those questions. 139 On the other hand if the ASIC had committed itself to the wider valuation issue in 1994 and thereafter lost in the judicial review proceedings, all the work and time that would have been expended in preparing its case on the other value argument would have been wasted. In those circumstances, reasons of practicality justified it marking time until the outcome of those proceedings was known. 140 In that climate it is not so difficult to accept a reluctance on the part of the ASIC and its advisers to publicise a wider, more complex claim until such time as it knew that it could advance such a claim. I reject the description that it was a "forensic game" that was played by Mr Bampton in his dealings with Ms Rigney. 141 Absent prejudice to the other side, mere delay on the part of the party is not enough to amount to a waiver of rights: Elders Trustee and Executor Co Ltd v Commonwealth Homes & Investment Co Ltd (1942) 65 CLR 603 at 618; Sargent v ASL Developments Limited (1974) 131 CLR 634 at 656. Even though there are grounds for holding that the delay on the part of Adsteam was substantial, it should be evaluated against the mitigating circumstances that are identified in these reasons as well as the delay that is attributed to the respondents. Bad Faith 142 In my judgment of 1 August 1997, I concluded that in their written submissions that were filed in court preparatory to the hearing on 22 July 1997, all five former directors had attacked the bona fides of the ASIC. The auditors did not file written submissions and I now accept that they did not join in the stand taken by the former directors. I was of the opinion that the case that the former directors then intended to advance, in opposition to the application for leave to file and serve the third version of the statement of claim, was that it amounted to an "ambush" and that the ASIC has known all along that the real case against the respondents was the wider valuation issue. I found that the directors intended to argue that the only proper inference that could be drawn from the undisputed facts was that the ASIC held back its "true" case until the last moment so as to cause maximum embarrassment to the respondents. The directors have since made it clear that they do not accuse the ASIC of bad faith and, so they claim, it was never their intention to make any such allegation. Nothing that has been advanced by counsel for the directors has caused me to revise my earlier findings. I set out hereunder, extracts from the written submissions of counsel that were handed up during the course of argument in July 1997. In my opinion, they speak for themselves; they were accusations of bad faith. 143 In the written submissions of Mr Allsop SC, counsel then appearing for Messrs Russell and Gregg, the fourth and fifth respondents, the following passages appear: "As is apparent now, the ASC has always intended to propound a case ... based on the lack of any value in 1990 in the 'wider group'" and "It is a case which was masked in reply: deliberately so." and "It is a case which the ASC steadfastly refused to identify throughout 1994, 1995 and 1996 ..." and "It is a case with which presumably, it was intended to ambush the respondents in March (sic) 1995 when the matter was set down for hearing." and "While the ASC was deliberately refusing to tell the non-executive directors about the case which it intended to propound it was busy using its coercive investigative powers to gather evidence for its real case." and "It behoved it (ie ASC) to act openly, candidly and fairly with the parties, and the Court; not least in circumstances in which a dishonesty was pleaded. It has not done so. It has steadfastly refused to tell these parties and the Court what its real case is." 144 The written submissions that were filed on behalf the Mr Spalvins, the first respondent, echoed the complaints that had been made earlier by the other respondents. They refer to "the decision by the ASC not to disclose its intended case in the statement of claim" and they complain that the conduct of the ASC "reflects conduct inconsistent with that which could be expected from an authority purporting to act in the public interest". 145 Of Messrs Kent and Branford, the executive directors I said in my judgment: "The complaints of Mr Besanko, counsel for Messrs Kent and Branford, are in milder terms but no less serious." I then quoted two passages from the written submissions of counsel for the executive directors: "It (i.e. the ASIC) made a deliberate decision not to bring forward (or foreshadow) these amendments at the time these proceedings were instituted." and: "The applicant made a decision not to advise either the Court or the respondents of the fact that it was gathering evidence with a view to making the amendments." 146 In these present proceedings Mr Besanko QC, submitted that his clients had not made allegations of bad faith against the applicant. Mr Gyles QC, also submitted that the earlier submissions of counsel did not amount to accusations of bad faith. I cannot agree. The applicant in these proceedings, a public authority, was accused by some of the respondents of acting in a manner that was less than open. Mr Besanko's clients must, along with the other respondents, bear the consequences of those accusations. In a pleading issue such as this, it is not possible to differentiate between respondents – either the applicant will be given leave to amend its statement of claim against all respondents or it will not be given leave. It would be out of the question to grant leave to amend against some only of the respondents. In the pursuit of its application for leave, the applicant was unfairly accused of conduct that I label bad faith and, as a result, it was forced to take time to defend its position. That turned out to be an unnecessary waste of time for which the applicant cannot be blamed: the blame is that of the respondents collectively because of the conduct of some of them. 147 Counsel for the fourth and fifth respondents, Mr Gyles QC, challenged the proposition that I had advanced during the course of the hearing – that the allegations of bad faith had been made and withdrawn without any explanation. On reflection, I should have said that they were withdrawn without any acceptable explanation. The only explanation that I have identified is that found in a section of the written submissions of counsel for Messrs Russell and Gregg in which it is said that the affidavit of Mr Dugan of 18 July 1997 disclosed that he thought that the decision in Blackburn's case precluded the respondents from raising the substantial valuation issue. Based on that assertion, the submission continued: "In light of this, it is not submitted that the ASIC was intending to hide anything by pleading the case in the manner it did." 148 The "bad faith issue" has now disappeared and it has ceased to be a relevant issue upon which I have to adjudicate. However, the fact that it was made, and having been made, the fact that it necessitated the applicant and its advisers taking time to address it, would have occasioned delay for which the respondents must accept responsibility. Paragraph 172D of the fifth version 149 Paragraph 172D of the fifth version of the proposed statement of claim is in the following terms: "In the further alternative the Adsteam Directors did not and could not reasonably have determined that it is prudent or in the best interests of Adsteam to fund the interim dividend out of distributable reserves of Adsteam or in the alternative of the subsidiaries." 150 The allegation is then particularised, and those particulars extend over sixteen pages. In its present form I agree with the submissions of counsel for the respondents that the paragraph is not pleading material facts: it is pleading only a conclusion. There is no statement of the matters of fact upon which the applicant relies to make out the conclusion of fact. Authority persuades me that, in the interests of proper pleading, the offending paragraph should be struck out: Bruce v Odhams Press Ltd (1936) 1 KB 697 at 712-713; Rubenstein v Truth and Sportsman Ltd [1960] VR 473 at 476; H 1976 Nominees Pty Ltd v Galli (1979) 40 FLR 242 at 246-247; and Trade Practices Commission v David Jones (Australia) Pty Ltd (1985) 7 FCR 109 at 113-114. It is not saved by the detail of its particulars. However, it is clearly a case for what, in my opinion, will only amount to cosmetic surgery; hence there will be liberty to amend by inserting a replacement paragraph in terms consistent with these reasons and consistent with the material that is presently included in the proposed par 172D. Leave is also given to make all amendments consequential upon the making of the amendment to Par 172D. 151 Counsel for the respondents also complained about par 174D.1 of the fifth version of the proposed statement of claim. It is in the following terms: "174D In the further alternative: 174D.1 by reason of the value of Adsteam there was no or no sufficient distributable reserves or other value of Adsteam or in the alternative of its subsidiaries to fund the payment of the final dividend;" 152 In the particulars to sub-par 174D.1 there is a bland statement that the "value of Adsteam and/or the Adsteam Group was not more than $750million". No attempt has been made to substantiate that assertion by way of further and better particulars. If I thought it possible to address every like deficiency in the issue of particulars, it would be a worthwhile exercise to attend to it now. But the parties have not addressed that subject; they have concentrated on the broader issue of whether leave should be given to amend at all. In due course the respondents can given consideration to the issue of particulars and, if so advised, file and serve their requests for further and better particulars of the fifth version. I do not therefore intend to address this issue further. My primary concern was whether the applicant should now be allowed to plead the wider valuation issue. That was the matter of principle that attracted the substantial submissions of the respondents. 153 The order that I propose is that leave be granted to the applicant to file and serve the fifth version of the statement of claim, including in it all amendments of form that are necessary to correct the errors identified in the bundle of correspondence Ex R4. Those advising the applicant will have the opportunity to reassess the auditors' complaints and react to them by making further amendments to the statement of claim if they think them necessary or desirable. There is, of course, no obligation on the applicant to accept the auditors' criticisms but it is to be hoped that goodwill and compromise can prevail so as to avoid yet another pleading dispute. Conclusion 154 I am satisfied that the applicant has met its obligations, it has satisfied the Court that no irreversible prejudice will be suffered by any respondent as a result of it being given leave to file and serve a further amended statement of claim. In my opinion, there can be no other conclusion but that the applicant must be entitled to put its case on the valuation issue. Although it was first raised by the first three respondents in their respective defences, it seems to me that it would be an unfortunate and unnecessary splitting of the applicant's case to restrict its arguments on the issue to its replies. If it be accepted, as I think that it must, that in the trial of this matter, the valuation issue will be fully ventilated, the matters that are elsewhere identified as prejudicial to the respondents or potentially prejudicial to them (such as the strain of litigation, delay and questions of health) will exist whether the applicant is given the leave that it seeks or whether it is limited to raising this matter in its replies. Viewed in this manner, a decision can be made that is based on the most expeditious course for the handling of an interlocutory pleading point. Expressed in these terms, it seems to me to be forensically preferable to have the applicant's case laid out, with full and detailed particularity, in its statement of claim. Costs and Orders 155 The need for the third, fourth and fifth versions, and should it be the case, as I think it must be, the sixth version of the statement of claim, was not caused by the respondents; they were entitled to plead any defence that they or their advisers considered to be open to them. In those circumstances the applicant alone must assume responsibility for the existence of the different versions. The applicant chose not to address the wider valuation issue in its replies; it chose to address the issue by seeking leave to file and serve a further amended statement of claim. In making this free choice the applicant incurred costs and caused the respondents to incur costs. The respondents should not have to bear those costs; it is only right that the applicant should meet them. Those costs would include perusing the applicant's notice of motion, all reasonable costs incurred by the respondents in taking instructions, perusing the different versions of the proposed statement of claim and obtaining the advice of counsel. Their costs would extend to short attendances by junior counsel to inform the Court that an order could be made by consent. 156 On the other hand, all respondents unsuccessfully opposed the application for leave to amend; they should pay the applicant's costs to the extent to which they were occasioned by virtue of that opposition. Obviously, that would extend to counsel fees and costs of solicitors' attendances during the six days of argument. 157 The order of the Court is that the applicant is to pay the costs of the respondents of and incidental to the applicant obtaining the leave of the Court to file and serve a further amended statement of claim other than the costs that were incurred as a result of the respondents opposing the application for such leave. Incidental costs extend to the filing and serving of amended defences and any costs that are reasonably incurred by the respondents as a result of the auditors complaining about matters of form. The further order of the Court is that the respondents are to pay, jointly and severally, the costs of the applicant occasioned as a result of the respondents opposing the application for such leave. Both sets of costs are to be taxed in default of agreement and set-off is to apply. 158 In her affidavit dated 14 July 1997, Ms Rigney on behalf of the second and third respondents, Messrs Kent and Branford, claimed that should leave be granted to the applicant to file and serve a fresh statement of claim "considerable costs incurred by the respondents in defending the proceedings for the past three years … will be costs thrown away". She then deposed to some details that supported her assertion. This assertion was disputed by the applicant on several grounds, but primarily, on the ground that since the filing of the defences in September 1994, preparations for the case would have involved attention to matters going to value. I do not think that I have sufficient information to make an informed judgment on this issue. And of course, it would be necessary to consider the position, not only of her clients, but of all respondents; I therefore reserve for the trial judge, the question of all respondents' costs thrown away (other than those that I have specifically identified.) 159 The proposal that was advanced by ASIC (and I do not understand it to be opposed by the respondents) was that if the Court gave leave to the applicant to file and serve a fresh statement of claim there should be a further order in the terms set out in Ex R5, the letter dated 29 January 1999 from ASIC to Messrs Phillips Fox, the solicitors for the fourth respondents. That order is as follows: "To the extent that any of the amendments raise a new cause of action within the meaning of Weldon v Neale (1887) 19 QBD 394 and do not arise out of the same facts or substantially the same facts as those already pleaded within the meaning of Order 13 rule 2(7) of the Federal Court Rules, the amendments shall operate with effect from 21 February 1997 as to those amendments of which notice was given on that date and from 8 September 1998 as to those amendments of which notice was given on that date." There will also be an order in those terms. I certify that the preceding one hundred and fifty nine (159) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Loughlin. Associate: Dated: 11 June 1999 Counsel for the Applicant: Mr T A Gray QC, Mr R J Whitington QC and Mr M F Blue Solicitor for the Applicant: Australian Securities and Investments Commission Counsel for the first Respondent: Mr B C Oslington QC and Mr S R Ruston Solicitor for the first Respondent: Messrs Thomson Playford Counsel for the second and third Respondents: Mr A T Besanko QC and Mr I C Robertson Solicitor for second and third Respondents: Messrs Finlaysons Counsel for the fourth and fifth Respondents: Mr R V Gyles QC, Mr J L B Alsop SC and Ms J S Gleeson Solicitor for the fourth and fifth Respondents: Messrs Phillips Fox Counsel for the sixth and seventh Respondents: Mr D Robertson and Mr A McGrath Solicitor for the sixth and seventh Respondent: Messrs Mallesons Stephen Jacques Date of Hearing: 1-3 and 22-24 February 1999 Date of Judgment: 11 June 1999