Cooper & Ors v Touche Ross & Co & Anor [2010] QSC 251

SUPREME COURT OF QUEENSLAND CITATION: Cooper & Ors v Touche Ross & Co & Anor [2010] QSC 251 PARTIES: RALPH DUNCAN COOPER, GRAEME ROBERT COOPER and GRAEME COOPER HOLDINGS PTY LTD (Plaintiffs/applicants) v TOUCHE ROSS & CO (First Defendant/respondent) WARREN AUSTIN (Second Defendant/respondent) FILE NO/S: 1672 of 1995 1673 of 1995 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court DELIVERED ON: 21 June 2010 DELIVERED AT: Brisbane HEARING DATE: 10 March 2010 JUDGE: Philippides J ORDER: 1. The application for leave to proceed is granted. 2. The application to strike out the proceedings for want of prosecution is refused. CATCHWORDS: PROCEDURE – DELAY – DELAY OF MORE THAN TWO YEARS – Uniform Civil Procedure Rules, r 389 – LEAVE TO PROCEED – striking out for want of prosecution Uniform Civil Procedure Rules, rules 5, 280, 371(2), 389(2) Aon Risk Services Australia Ltd v Australian National University [2009] 239 CLR 175 Brisbane South Regional Health Authority v Taylor [1996] 186 CLR 541 Cooper v Hopgood & Ganim [1999] 2 Qd R 113 Cummins & Anor v Davis & Anor [2001] QCA 293 Hood & Anor v State of Queensland & Ors [2003] QCA 408 Perez v Transfield (Qld) Pty Ltd (1979) Qd R 444 Porzuczek v Toowoomba District Health Services [2007] QSC 177 Quinlan v Rothwell [2002] 1 Qd R 647 -- 1 of 10 -- 2 The Commonwealth v Verwayen (1990) 170 CLR 394 Tyler v Custom Credit Corp Ltd & Ors [2000] QCA 178 COUNSEL: L Bowden for the plaintiffs S Brown for the defendants SOLICITORS: Gateway Lawyers for the plaintiffs Walsh Halligan Douglas for the defendants PHILIPPIDES J: Background [1] The plaintiffs, Ralph Cooper, Graeme Cooper and Graeme Cooper Holdings Pty Ltd, have brought an application for leave to proceed pursuant to r 389(2) UCPR, two years having passed since the last step in the proceedings. The first defendant, Touche Ross & Co, and the second defendant, Warren Austin, have brought a cross application that the proceedings be dismissed for want of prosecution, pursuant to rules 5, 280 and 371(2) UCPR and the inherent jurisdiction of the Court, on the grounds that there has been extensive delay in this matter, and that to continue the action after such extensive delay would be prejudicial to the defendants. [2] The plaintiffs make claims relating to losses allegedly suffered by them in relation to the Mooloolaba Wharf Joint Venture entered into by them on 11 September 1987 with Woodwark Bay Development Corporation Limited, Nessale Pty Ltd and other parties. The plaintiff’s claim against the defendants arises from allegations of breach of contract and negligence, the defendants being auditors of the Joint Venture appointed pursuant to letters of 14 September 1989. [3] The joint venture concerned the development of certain land at Mooloolaba into a shopping complex, marina and licensed premises. It is alleged that by the terms of the joint venture agreement, substantial sums were to be borrowed for the puposes of the joint venture, Nessale was entitled to a 40% interest or equity in the joint venture, Woodwark would have an option to purchase the land, and Woodwark had a right to acquire the land through the acquisition of the share capital of Nessale. [4] The plaintiffs allege that the Joint Venture Management Committee appointed Woodwark to manage the financial affairs of the joint venture and that it was a trustee to the joint venturers in the management of its finances and moneys. It is alleged that between October 1987 and July 1991 Woodwark misappropriated substantial sums of joint venture moneys (the defalcations) and caused various inaccurate/false/fraudulent entries to be made in the books of account of the joint venture. [5] The defendants do not dispute that the first defendant accepted the appointment pursuant to a letter of 14 September 1989, but dispute the scope of their engagement and also dispute the allegations made that they were not independent auditors. Chronology of proceedings [6] As can be seen in the following chronology, proceedings were issued in September 1995 and thereafter continued in an unremarkable fashion until mediation in November 1999, after which matters proceeded in a remarkably leisurely manner. -- 2 of 10 -- 3 Date Event 1995 12 September Writ issued in proceedings 1672 of 1995 and 1673 of 1995 1996 17 September Entry of appearance in 1672 of 1995 and 1673 of 1995 1997 27 March Statement of Claim delivered in 1672 of 1995 24 April Request of particulars made by defendants in 1672 of 1995 16 July Amended Statement of Claim in 1672 of 1995 18 July Particulars supplied by plaintiffs in 1672 of 1995 22 July Request by plaintiffs for further and better particulars of Amended Statement of Claim in 1672 of 1995 15 September Statement of Claim in 1673 of 1995 11 November Defence to Amended Statement of Claim in 1672 of 1995 15 December Defence delivered in 1673 of 1995 1998 12 February Order of Supreme Court consent to consolidate 1672 of 1995 and 1673 of 1995 25 June List of plaintiffs’ documents 15 July List of defendants’ documents 25 August Consent Orders under ADR for mediation 1999 2 November Mediation 2001 8 June Plaintiffs’ Notice of Intention to Proceed 26 June Nessdale Pty Ltd was deregistered. 16 July Plaintiffs’ Notice of Intention to Proceed 16 August Plaintiff’s inspection of defendants’ documents 2002 7 February Plaintiff inspection of defendants’ documents 2003 3 October Plaintiffs’ Notice of Intention to Proceed 4 November Plaintiffs’ request for trial forwarded to the defendant’s solicitors [7] In December 2003, the plaintiffs’ solicitors proposed a further mediation. As there was no response, by letter dated 13 January 2004, an indication was sought as to whether the matter was to be further mediated or the request for trial date returned. [8] On 15 January 2004, the plaintiffs’ solicitors wrote to the defendants’ solicitors as follows: “… by our file the last step between the parties in the action was an inspection which occurred at your office on 9 February 2002. As you are no doubt aware, the time by which our client will need to seek leave of the Court to take a step in the proceedings is fast approaching. To avoid the necessity for our clients to make any application prior to 9 February 2004, could you please provide your prompt response to the issue of whether the matter can be referred to -- 3 of 10 -- 4 mediation by way of consent order, or alternatively, return the Request for Trial to us. …” [9] By facsimile letter dated 22 January 2004, Mr Leach of the plaintiffs’ solicitors wrote to the defendants’ solicitors as follows: “Further to the writer’s telephone conversation with your Mr Lindwell of 20 January 2004, we confirm that there does not seem to be any merit in proceeding to a further mediation, at this stage of the action. We note your comments that you are to seek instructions to not certify the action ready for trial, on the basis of the plaintiffs allowing your client a reasonable time in which to consider their state of preparation and that the defendants do not take any objection to two years having passed from the last step having been taken in the action between the parties. Could you kindly confirm by return that this is the agreement reached between us.” [10] It is to be noted that in relation to this letter that the critical two year mark was accepted as being 9 February 2004. [11] By facsimile letter dated 2 February 2004, Mr Leach again sought a response, indicating that the plaintiffs’ solicitors would otherwise be left with no alternative but to make an application. By facsimile dated 4 February 2004, Mr Leach confirmed Mr Lindwell’s telephone advice of 3 February 2004 that the defendants’ solicitors agreed with the terms of the letter of 22 January 2004. [12] By facsimile letter dated 18 February 2004, the plaintiffs’ solicitors inquired as to whether the defendants’ solicitors had had an opportunity to consider the period of time required “to take steps on behalf of your client to finalise its preparation for trial”. [13] Under cover of letter dated 17 May 2004, the plaintiffs’ solicitors wrote to the defendants’ solicitors stating that they wished to take up the invitation to discuss the matter and provided two CD Roms containing all documents in Schedule A to the Statement of Claim. [14] Nearly four years passed before the plaintiffs’ solicitors communicated with the defendants’ solicitors, delivering on 2 May 2008 a Notice of Intention to Proceed. Thereafter, by letter dated 3 June 2008 from Mr Leach to Mr Lindwell, a copy of a report by Mr Traynor of Pilot Partners dated 2 August 2007 was provided to the defendants. By this stage, there had been a change in the law firm representing the defendants, although Mr Lindwell continued to be their solicitor. [15] On 18 July 2008, Mr Leach wrote to Mr Lindwell inquiring whether he had been able to obtain his clients’ file from their former solicitors. There were further telephone conversations on 6 and 26 August 2008 and further correspondence on 11 September 2008 to the same effect. By letter dated 7 November 2008, Mr Lindwell wrote to the plaintiffs’ solicitors as follows: “I refer to your letter of 2 May enclosing a notice of intention to proceed and subsequent correspondence. I have located the file. -- 4 of 10 -- 5 In view of the delay since the last step in the action it seems your client would need to obtain leave from the court to proceed. My client would oppose the making of such an order on the basis of the prejudice it has suffered as a result of the delay to the present time. The last activity on the file was the supply of 2 CD-Roms under cover of your letter of 17 May 2004. The only concession, if it can be called that, was that our client agreed to the request in your letter of 22 January 2004 to ‘not take objection to two years having passed form the last step having been taken in the action’. Another four and a half years have since passed …” [16] On 12 August 2004, Ms Natalie Aitkin, the Audit Manager of the first defendant who had worked under the supervision of Mr Austin in relation to the general purpose audit carried out by the first defendant for the Joint Venture died. On 10 October 2009, Mr Adams, General Counsel of KPMG, who had carriage of management of the claim from its inception, died. [17] On 3 December 2009 the plaintiffs filed their application for leave to proceed, which was adjourned by consent on a number of occasions, with the defendants filing their application to strike out for the proceedings for want of prosecution on 5 March 2010. Estoppel [18] Relying on authorities such as The Commonwealth v Verwayen (1990) 170 CLR 394, counsel for the plaintiffs submitted that the correspondence, particularly the letter of 22 January 2004 amounted to an agreement or representation that the defendants would not take the point that two years had elapsed since the last step in the proceeding. It was submitted that there was an arrangement between the parties’ solicitors that “it is up to the defendants to assert that a reasonable time had passed and that all matters concerning their evidence had been fully considered”. Furthermore, the plaintiffs had “acquiesced” to the defendants’ request for a reasonable time to consider their state of preparation for trial, on the basis that the defendants did “not take any objection to the two years having passed from the last step having been taken in the action between the parties”. It was said that “on that basis the action was, at the defendants’ request, allowed to go to sleep”. [19] I do not consider that the arrangement disclosed in the correspondence can be seen as raising an estoppel against the defendants in the manner contended for by the plaintiffs. It would seem that the delivery of the two CD roms under cover of the letter of 17 May 2004 amounted to a step in the proceeding, which no prior leave having been obtained amounted to an irregularity (Perez v Transfield (Qld) Pty Ltd (1979) Qd R 444, Porzuczek v Toowoomba District Health Services [2007] QSC 177) and one which fell within the arrangement contemplated by the parties, particularly given that there was no objection by the defendants. However, it is an entirely different matter to contend that the defendants were forever precluded from taking issue with the plaintiffs’ entitlement to proceed, notwithstanding the general prohibition against an action continuing where no step has been taken for two years. [20] While the disclosure of the expert report of Mr Traynor to the solicitor for the defendant pursuant to r 429 under cover of letter of 2 June 2008, was able to constitute a step in the action, it was one which required leave, as the defendants’ -- 5 of 10 -- 6 solicitors pointed out. And there was nothing in the correspondence which amounted to an estoppel precluding the defendants from so contending. The defendants are thus not estopped from asserting that the plaintiffs should not have leave to proceed, nor from applying to strike the proceedings out for want of prosecution. Leave to proceed/ strike out of proceedings for want of prosecution [21] The discretion in r 389(2) UCPR to grant leave to proceed, notwithstanding the general prohibition against an action continuing where no step has been taken for two years, is a broad one and turns on the relevant circumstances of the case for determination: Cooper v Hopgood & Ganim [1999] 2 Qd R 113,118-9, 124; Hood v State of Queensland [2003] QCA 408. [22] The exercise of the court’s discretion in a case of this kind involves the balancing of a number of considerations. Factors relevant in considering whether or not to dismiss an action for want of prosecution or whether to give leave to proceed under r 389 UCPR, were listed by Atkinson J (McMurdo P and McPherson JA agreeing) in Tyler v Custom Credit Corp Ltd [2000] QCA 178; see also Hood v State of Queensland [2003] QCA 408, Arc Holdings Pty Ltd v Riana Pty Ltd [2008] QSC 191; Mark Anthony Field trading as M&N Waterproofing & Restoration Services v Luxor Products Pty Ltd [2009] QSC 218, and include: (1) how long ago the events alleged in the statement of claim occurred and what delay there was before the litigation was commenced; (2) how long ago the litigation was commenced or causes of action were added; (3) what prospects the plaintiff has of success in the action; (4) whether or not there has been disobedience of Court orders or directions; (5) whether or not the litigation has been characterised by periods of delay; (6) whether the delay is attributable to the plaintiff, the defendant or both the plaintiff and the defendant; (7) whether or not the impecuniosity of the plaintiff has been responsible for the pace of the litigation and whether the defendant is responsible for the plaintiff’s impecuniosity; (8) whether the litigation between the parties would be concluded by the striking out of the plaintiff’s claim; (9) how far the litigation has progressed; (10 whether or not the delay has been caused by the plaintiff’s lawyers being dilatory. Such dilatoriness will not necessarily be sheeted home to the client but it may be. Delay for which an applicant for leave to proceed is responsible is regarded as more difficult to explain than delay by his or her legal advisers; (11) whether there is a satisfactory explanation for the delay; and -- 6 of 10 -- 7 (12) whether or not the delay has resulted in prejudice to the defendant leading to an inability to ensure a fair trial. [23] As her Honour stated in Tyler v Custom Credit Corp Ltd at [5]: “The onus is on the applicant for striking out the plaintiff’s action for want of prosecution to show that the matter should be struck out. On an application for leave to proceed, the applicant for leave must ‘show that there is good reason for excepting the particular proceedings from the general prohibition’ in a case in which three years have elapsed from the time when the last proceeding was taken. The rationale of the rule requiring leave to proceed after a long delay is to prevent abuse of process. The Court must be satisfied that the continuation of the proceedings would not involve injustice or unfairness to one of the parties by reason of delay”. [24] A court should take into account whether there is an irreparable element of unfair prejudice in unnecessarily delaying proceedings: Aon Risk Services Australia Ltd v Australian National University [2009] 239 CLR 175 at 182 per French CJ. Undue delay can lead to palpable deterioration, such as when crucial witnesses are dead, or an important document has been destroyed. But the deterioration in quality of justice may not be so readily recognisable and prejudice can exist without the parties realising that it exists: Brisbane South Regional Health Authority v Taylor [1996] 186 CLR 541 at 551 per McHugh J. Undue delay has ramifications outside the parties as it can undermine confidence in the rule of law: Aon Risk Services Australia Ltd v Australian National University [2009] 239 CLR 175 at 189 per French CJ. Unnecessary delay has a tendency to bring the legal system into disrepute and to decrease the chance of there being a fair and just result: Tyler v Custom Credit Corp Ltd [2000] QCA 178, per Atkinson J. Consideration of the relevant factors [25] In relation to the consideration of a plaintiff’s prospects of success, it is unnecessary for a defendant opposing the grant of leave to demonstrate that the plaintiff has no prospects of success: Hood & Anor v State of Queensland [2003] QCA 408, [32]; Porzuczek v Toowoomba District Health Services [2007] QSC 177, [23]. Nor must the plaintiff demonstrate a certainty of success. The issue of the merits of the plaintiffs’ claim is not one that can be easily determined presently and was not the subject of any lengthy submissions. [26] Counsel for the plaintiffs acknowledged that the matter was a complicated one, but submitted that the strength of the plaintiffs’ case was supported by their two expert witnesses who are highly critical of the conduct of Mr Austin in the performance of his audit duties: see Calibro report, 3.3 – 3.7 and Traynor report, part 3. [27] The defendants’ submissions focused on the plaintiffs’ pleading. It was contended that the plaintiffs’ statement of claim is flawed in a number of respects. It was said that it was not suggested that the plaintiffs relied on the audit report provided to the Joint Venture. Further, it was submitted that the claim for loss of $4,500,000 concerned the equity of Nessale in the joint Venture and that any losses of Nessale could only be recovered by Nessale (which was wound up and deregistered in 2001) not the shareholders. Even if this were not so, Mr GR Cooper was not alleged to have been a shareholder of Nessale. Further, while the amended Statement of Claim -- 7 of 10 -- 8 (paragraph 28) alleges that, as a result of the breaches, the plaintiffs and/or Nessale were deprived of the opportunity to appoint receivers of the joint venture, no allegation of reliance was made by the plaintiffs upon the audit report. As such any breach by the defendants is not causative of the loss claimed. [28] In response, counsel for the plaintiffs pointed out that the plaintiffs’ case is pleaded in both contract and tort and that the plaintiffs contend that there was an assumption of responsibility by the defendants in circumstances where the audit report was relevant to the calculation of the sale price formula under the joint venture. In relation to the assertion that any loss suffered was that of Nessale, the plaintiffs say that they suffered loss in relation to the value of the shareholding to be purchased using the audit reports. In so far as the plaintiffs’ pleading is said to be deficient, the defendants may of course apply to strike it out. The defendants have not chosen to take that course notwithstanding that the amended Statement of Claim was provided a considerable time ago. An appraisal of the prospects of success is problematic until such deficiencies are addressed. [29] Also of relevance is the stage the proceedings have reached. I note that the pleadings have closed and that disclosure has occurred. The proceedings have reached a stage where, at least from the plaintiffs’ point of view, they are said to be ready to be set down for hearing. I do note however that that was also the plaintiffs’ position in 2004, yet a further lengthy report was provided in 2008. Nevertheless, the advanced state of the proceedings is a factor in the plaintiffs’ favour. [30] Moreover, because the limitation period has passed, the refusal of the plaintiffs’ application and the striking out the action for want of prosecution will effectively conclude the litigation and permanently preclude them the opportunity to pursue their claim. This is also a factor in the plaintiffs’ favour: Cummins & Anor v Davis & Anor [2001] QCA 293, [20]; Hood & Anor v State of Queensland [2003] QCA 408, [38]. [31] As already indicated, the proceedings, which were commenced in 1995, concern events that occurred in 1989. I also note that the plaintiffs were involved in other litigation concerning the joint venture which culminated in a judgment in 1991. The chronology of events reveals that delay has been a feature in the conduct of the proceedings since the failed mediation in 1999. As I have mentioned, although no step had been taken in the action for the two preceding years, no objection was taken to the delivery of the CD roms in May 2004. On the basis that the delivery of the CD roms constituted a step in the proceedings, the next step was required to be taken by May 2006. [32] However, nothing further occurred during the period between May 2004 and May 2008 that could be seen as constituting a step in the proceedings. The plaintiffs have not provided any adequate explanation for the delay between May 2004 and June 2008, nor for the further delay before the application for leave to proceed was filed in December 2009. There is no evidence that the plaintiffs are impecunious. It seems that Mr Traynor was retained in June 2004 and that there were periodic conferences with him from June 2004 to June 2005 and in February 2007. [33] I note that this case is not one where the delay has involved the plaintiffs disobeying any court orders or directions. Moreover, it must be said that the litigation has been characterised by delay on both sides and that both sides have proceeded in a manner -- 8 of 10 -- 9 not in keeping with the philosophy of the UCPR as reflected in rule 5. While the plaintiffs had the carriage of the action, the defendants were largely content to let sleeping dogs lie and were content to allow the proceedings to remain dormant. Clearly, the defendants contributed to the delay by not agitating to ensure that the matter proceeded expeditiously. The defendants did not seek to have the proceedings set down for hearing, nor did they bring a timely application in to have the proceedings struck out for want of prosecution. [34] On behalf of the defendants, a number of matters of prejudice are put forward. One aspect of prejudice relied on is the death of Ms Aitkin, the Audit Manager, who is said to have carried out the general audit, under the supervision of Mr Austin. It was submitted that, in the context of allegations as to the conduct of an audit, the person responsible for the work carried out and discussions in terms of investigation, is critical. It was contended that this was not a matter which could be determined in the documents. A further matter of prejudice relied on was the death of Mr Adams, the in-house Counsel responsible for the general audit. Additionally, it was submitted that Mr Austin, the partner responsible for the general audit, now has difficulty recollecting events of so long ago. The defendants also contended that in addition to these specific instances of prejudice, they will suffer prejudice of the general type referred to by McHugh J in Brisbane South Regional Health Authority v Taylor [1996] 186 CLR 541 at 551, given the time that has passed. [35] The plaintiffs on the other hand contended that any prejudice is moderated by the nature of the present case. It was contended that, as in Quinlan v Rothwell [2002] 1 Qd R 647, the case against the defendants is well documented and largely turns on that evidence. In support of this submission, it was pointed out that Schedule A to the statement of claim lists all the items which the plaintiffs assert were defalcations and/or incorrect entries and which it is said the defendants ought to have revealed (see para 10 of the amended Statement of Claim) and that all the documentation referred to therein exists, as does the defendants’ audit reports. The plaintiffs also pointed to the previous trial between the joint venture parties outlined in their experts’ report, which was of assistance in the compilation of that report and to Mr Traynor’s ability to access relevant documentary material to prepare his report. The defendants did not assert in submissions that there were any documentary deficiencies resulting from the effluxion of time such that relevant documentation is no longer available. [36] I also note that, notwithstanding that Ms Aitken died in August 2004, the defendants’ solicitors did not raise any issue of prejudice at that time. In any event, the defendants have known of the proceedings and the details of the plaintiffs’ case for many years and ought to have been in a position to obtain relevant proof of evidence. The defendants did not contend that they have been unable to do so. As regards Mr Adams, the defendants are no doubt disadvantaged by the death of Mr Adams, but it is not clear how he would be a “crucial witness” as the defendants assert in their written submissions. Conclusion [37] While the plaintiffs have not provided an adequate explanation for the delay since May 2004, the defendants accommodated the plaintiffs’ delay in proceeding with their action and to some extent encouraged it. In circumstances where the plaintiffs’ claim cannot be determined to be clearly unmeritorious, and bearing in mind the -- 9 of 10 -- 10 stage the proceedings have reached, and that the refusal of leave and the striking out of the proceedings would terminate the plaintiffs’ ability to prosecute their claim, I am unable to conclude, that the delay and prejudice pointed to by the defendants should result in leave to proceed being refused. I also note that, while there are matters of prejudice to the plaintiffs following from the long delay, the case is one where documentary evidence will feature prominently and where the prejudice is not said to extend to the loss of documentary evidence. [38] Accordingly, the application for leave to proceed is granted and the application to dismiss the proceedings for want of prosecution is refused. I shall hear submissions as to costs and directions for the conduct of the proceedings. -- 10 of 10 --