Tredrea v KPMG Financial Advisory Services (Australia) Pty Ltd

On 15 February 2019, I dismissed with costs the plaintiff’s Notice of Motion of 25 January 2019 seeking leave to rely upon the expert report of Mr Michiel McCarty dated 7 January 2019.

These are my reasons for that decision.

These proceedings are listed for hearing for three weeks commencing 25 March 2019. That trial date was fixed on 10 August 2018.

The proceedings are a shareholders’ class action arising from a failed off-market hostile takeover of Discovery Metals Limited. The defendant, KPMG Financial Advisory Services (Australia) Pty Ltd, prepared an Independent Expert Report which was included in the Target Statement. That report stated that the offer price of the bidder, Cathay Fortune Investment Limited, was fair and reasonable. That statement is said to have been misleading or deceptive. It is said to have caused the representative party, the plaintiff Mr Tredrea, and the group members he represents, loss and damage by reason of the takeover failing and the share price of Discovery Metals subsequently falling.

There is an issue as to whether the takeover would have failed in any event.

Related to that is another issue as to whether the bidder, Cathay Fortune Investment Limited, would have waived a bid condition concerning the existence of a “change of control” provision in Discovery Metals’ finance facility documents.

During 2018, in compliance with the Court’s directions, the parties exchanged expert reports from experts in the area of mergers and acquisitions relating to those issues. The following reports were served:

Mr Tredrea sought to rely on Mr McCarty’s 7 January 2019 report, in lieu of Mr Molony’s reports, by reason of what Mr Giles SC, who appeared for Mr Tredrea, described as Mr Tredrea’s legal team’s “lack of confidence” concerning Mr Molony’s likely cooperation between now and the hearing.

That lack of confidence was said to arise from disagreement that occurred in August 2018 concerning Mr Molony’s preparedness to provide his reply report.

In early August 2018, various members of Mr Tredrea’s legal team at Piper Alderman tried, without success, to contact Mr Molony. Ultimately, on 29 August 2018, Mr Molony sent an email to Ms Anne Freeman, the partner at Piper Alderman with carriage of this matter:

Correspondence ensued and ultimately, on 20 September 2018, Mr Molony’s solicitor, Mr David Hope, wrote to Ms Freeman. That letter included the following:

A written exchange concerning Mr Molony’s engagement to provide a reply report followed, including an estimate of fees, in which Piper Alderman acknowledged the proviso referred to at [11] above.

Mr Molony then prepared his reply report of 25 October 2018. He did so pursuant to an engagement letter that noted that he may have to give evidence at the trial. Mr Molony thus confirmed that he was willing to give evidence at the trial as to both his original report and his reply report.

The circumstances that prompted Piper Alderman to engage Mr McCarty are set out in the following passages from an affidavit that Ms Freeman swore on 29 January 2019:

Piper Alderman served Mr McCarty’s report on KPMG’s solicitor, Corrs Chambers Westgarth, on 8 January 2019.

By his Notice of Motion of 25 January 2019, Mr Tredrea sought to, in effect, substitute Mr McCarty’s report for the earlier reports of Mr Molony.

Despite the misgivings expressed by Ms Freeman concerning Mr Molony, Mr Giles accepted before me that Mr Molony has not resiled from his stated willingness to attend Court to give evidence in relation to his reports nor given any indication that he will not attend conferences with counsel as required. Nor has Mr Molony suggested he will not attend an expert conclave or cooperate with Mr Nash in preparing a joint expert report.

Mr Molony is plainly aware of his duty to the Court as an expert witness. He has subscribed to the Expert Code of Conduct in his reports, and has, through his solicitor, made express reference to that duty in Mr Hope’s letter of 20 September 2018. I see no reason to doubt that Mr Molony will discharge his professional obligations and duty to the Court.

Substitution of Mr Molony’s evidence with that of Mr McCarty’s at this late stage is likely to cause serious prejudice to KPMG.

Hammerschlag J has made the usual order for hearing. That order requires that the experts meet on or about 1 March 2019 and prepare a joint report by on or about 18 March 2019.

KPMG’s solicitor, Ms Katrina Sleiman, has given evidence to the effect that Mr Nash will not be able to respond:

In her affidavit, Ms Sleiman gave unchallenged evidence that:

Overall, my conclusion was that the likely prejudice to KPMG of allowing the plaintiff to rely upon Mr McCarty’s report is not justified; especially in circumstances where the plaintiff’s original expert, Mr Molony, remains available to give that evidence in accordance with his reports and is, as I have said, conscious of his obligations to the Court as an expert.

It is for these reasons that I dismissed the plaintiff’s application to rely upon Mr McCarty’s report.