Phi Finney McDonald acts for the Representative Applicant in class action proceedings commenced in the Federal Court of Australia against Deloitte Touche Tohmatsu (DTT) and Deloitte Corporate Finance Pty Ltd (Deloitte Entities), on behalf of aggrieved investors in building services company Hastie Group Limited (Hastie). The class action is funded by litigation funder Omni Bridgeway.
Until 2012, Hastie was an ASX-listed company providing technical services to the building and infrastructure sectors in Australia and overseas. DTT acted as Hastie’s auditor from 2005 to 2012. On 14 June 2011, Hastie lodged a ‘Pathfinder Prospectus’ with the ASX for a $160m capital raising by way of institutional placements and a renounceable entitlement offer. On 17 June 2011, Hastie lodged a largely identical formal Prospectus for the capital raising. The Pathfinder Prospectus and Prospectus each contained pro forma financial statements for the year ending 30 June 2011, and forecasts of Hastie’s likely future earnings. The financial statements and forecasts were reviewed by the Deloitte Entities, which issued reports included in the Prospectus documents in which the entities gave assurances as to the reasonableness of Hastie’s financial statements and forecasts. In the months following the successful completion of the capital raising, the company announced a series of asset impairments, substantially downgraded its full year earnings guidance, and announced an anticipated earnings loss of $146m for the half year ending 31 December 2011. In May 2012, Hastie declared that it had discovered ‘accounting irregularities’ in its services business dating back to 2009, resulting in the resignation of two non-executive directors. The company was placed into voluntary administration shortly thereafter. PPB was appointed as administrators, and later liquidators of Hastie. On 21 January 2013, PPB Advisory released its Administrators’ Report to Creditors of Hastie. The Report:
- confirmed that the Hastie Group was insolvent, and recommended that it be placed into liquidation;
- detailed the likely reasons for the collapse of the Group, including that Hastie’s net asset position and likely future earnings at the time of the capital raising each were much lower than the financial statements and forecasts contained in the Prospectus and Pathfinder Prospectus; and
- identified a number of potential breaches of statutory and general law duties by the company’s directors, auditor and professional advisors.
About the Class Action
On 13 June 2017, Sadie Ville Pty Ltd (as trustee for Sadie Ville Pty Ltd) issued representative proceedings in the Victorian Registry of the Federal Court of Australia against the Deloitte Entities, on behalf of persons who acquired an interest in shares in Hastie in the period from 14 June 2011 to 21 February 2012 (inclusive) and who entered into a litigation funding agreement with Omni Bridgeway in relation to the proceedings on or before 9 June 2017 (group members). The proceedings allege that the Deloitte entities contravened sections of the Corporations Act, the ASIC Act, and the Australian Consumer Law in giving certain assurances contained in Hastie’s Pathfinder Prospectus and Prospectus issued in June 2011, relating to the reliability and accuracy of Hastie’s financial statements and earnings forecasts.
DTT resisted providing discovery of the audit files, claiming that their disclosure would place the lead auditor, Reuben Saayman, at risk of self-incrimination. The Federal Court has ordered production of the audit files, and has found that Mr Saayman’s privilege against self-incrimination does not provide a valid basis for DTT to avoid production. DTT unsuccessfully appealed those judgments. We have now received those audit files, and we are engaging with experts in respect of them.