Particulars
(a) The Applicant repeats paragraphs 35A - 35C, above. Had the Contract been terminated at this time, the Project would have been completed at a cost substantially less than the cost incurred to date by the Applicant.
(b) Had the Applicant terminated the Contract following the issue of progress claim 7 (2 August 2005) and followed the procedures provided for by the contract (which are pleaded and particularised in paragraph 35 above) it would:
(i) have terminated the Contract;
(ii) have arranged to have the Contract Works completed by another builder;
(iii) have not incurred the legal costs and disbursements ($1,320,000 to date) in:
A. defending claims made and proceedings commenced by the First Respondent; and
B. commencing proceedings (other than these proceedings) against the First and Second Respondents.
(c) The Applicant has thereby incurred a liability to pay the legal costs and disbursements (to date) $1,320,000.
12 In essence, the applicant seeks to allege that that had it been aware of the true position, it would have served a show-cause notice on the first respondent, and would have terminated the Contract.
13 After some prevarication, the applicant ultimately adhered to the case as originally formulated, namely, that had the Contract been terminated the expansion project could have been completed more cheaply than it in fact had been and this constituted a compensable loss. However it sought to add, in the second further amended statement of claim, loss or damage of a different character, namely legal expenses the applicant has incurred as a result of litigation attending the performance of the Contract, being litigation by and against the first and second respondents.
14 It is now necessary to consider whether the applicant's case against the third respondent (including the proposed amendments) enjoys no reasonable prospects of success, and whether the Court should refuse to grant leave to the applicant to amend its further amended statement of claim and strike out the applicant's claim against the third respondent.
15 The third respondent has applied under s 31A of the Federal Court of Australia Act 1976 (Cth) for summary judgment in respect of the claim made against him. Section 31A commenced operation on 1 December 2005. Relevantly, it provides:
...
(2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
(4) This section does not limit any powers that the Court has apart from this section.
16 It is uncontroversial that s 31A imposes a less stringent test for summary dismissal than its various predecessors (see for example, General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125). Its operation was explained in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720, where Rares J said at [42] - [45]:
I am of opinion that, properly construed, s 31A(2)(b) requires a person moving a motion for summary disposal (the moving party) to satisfy the court that there is no reasonable prospect of the party claiming relief (the plaintiff) successfully prosecuting the proceeding or the part of the proceeding in question. Experience shows that there are cases which appear to be almost bound to fail yet they succeed. As Dixon CJ once said (Pontifical Society for the Propagation of the Faith v Scales (1962) 107 CLR 9 at 20; [1962] ALR 775 at 781):
"Experience of forensic contests should confirm the truth of the common saying that one story is good until another is told."
Brennan CJ and McHugh J applied that observation in Jackamarra [v Krakover (1998) 195 CLR 516] at [9] to a situation which an appellate court was exercising a discretion to permit a further step to be taken in an appeal that had already been instituted. Obviously, where there is a contested application under s 31A, both parties will be present to explain their case, but not in the context of a trial. The procedure envisaged by s 31A is summary. The concept of a party having "no reasonable prospect of successfully prosecuting a proceeding" has some similarity to the test at common law for determining whether a jury properly instructed could reach a verdict for the plaintiff. That test was authoritatively stated by the Judicial Committee in Hocking v Bell (1947) 75 CLR 125 at 130-1; [1948] 1 ALR 85 at 87-8 (Hocking (1947)), approving the following statement from the dissenting judgment of Latham CJ (Hocking v Bell (1945) 71 CLR 430 at 441-2 (Hocking (1945))):
If there is evidence upon which a jury could reasonably find for the plaintiff, unless that evidence is so negligible in character as to amount only to a scintilla, the judge should not direct the jury to find a verdict for the defendant, nor should the Full Court direct the entry of such a verdict. The principle upon which the section is based is that it is for the jury to decide all questions of fact, and therefore to determine which witnesses should be believed in case of a conflict of testimony. But there must be a real issue of fact to be decided, and if the evidence is all one way, so that only one conclusion can be said to be reasonable, there is no function left for the jury to perform, so that the court may properly take the matter into its own hands as being a matter of law, and direct a verdict to be entered in accordance with the only evidence which is really presented in the case. [Emphasis added]
See also Swain v Waverley Municipal Council (2005) 220 CLR 517; 213 ALR 249; [2005] HCA 4 at [9] per Gleeson CJ, [128]-[131] per Gummow J and [203], [208]-[209] per Kirby J; see also at [33]-[34] per McHugh J.
In a case to which s 31A applies, where there is a real issue of fact to be decided in the sense identified in the above principle, and, possibly, where there is a real issue of law of a similar kind, it is obviously appropriate that the matter goes to trial. And, one must be mindful that in Hocking (1945) at 487, Dixon J said that, in effect, every judge who had heard the matter (through four trials, two Full Court appeals and, to that point, the appeal to the High Court) would have formed the view that the plaintiff should have failed had they been able to decide the facts, yet the Privy Council restored the second jury verdict in her favour and so concluded the litigation. This raises a very real question, as to what reasonable prospects are for present purposes.
I am of opinion that in assessing what reasonable prospects of success are for the purposes of s 31A, the court must be very cautious not to do a party an injustice by summarily dismissing the proceedings where, in accordance with the principles in Hocking (1947), contested evidence might reasonably be believed one way or the other so as to enable one side or the other to succeed. As soon as the evidence may have such an ambivalent character prior to a final determination, I am of opinion that then, as a matter of law, at that point there are reasonable prospects of success within the meaning of s 31A. Unless only one conclusion can be said to be reasonable, the moving party will not have discharged its onus to enliven the discretion to authorise a summary termination of the proceedings which s 31A envisages. In moving the second reading of the bill introducing s 31A (the Migration Litigation Reform Bill 2005) the Attorney-General said that it strengthened … "the power of the courts to deal with unmeritorious matters by broadening the grounds on which federal courts can summarily dispose of unsustainable cases".
17 Section 31A was also considered recently by the Full Court in Jefferson Ford Pty Ltd v Ford Motor Co of Australia Ltd [2008] FCAFC 60 (Finkelstein, Rares and Gordon JJ). In Jefferson Ford, Rares J (at [73]) merely noted that the parties accepted both before the primary judge and the Full Court that the test to be applied under s 31A of the FCA was that which his Honour had earlier stated in Boston Commercial at [45].
18 It is unnecessary for me to enter the debate of what precisely is the appropriate way of applying s 31A given that, as will become apparent in the following reasons, it is plain that the applicant has no reasonable prospect of successfully prosecuting the proceeding against the third respondent.
19 As a first step in the analysis it is necessary to set out the relevant provisions of the Contract:
42. CERTIFICATES AND PAYMENTS
42.1 Payment claims, certificates, calculations and time for payment
At the times for payment claims or upon completion of the stages of the work under the Contract stated in Annexure Part A and upon the issue of a Certificate of Practical Completion and within the time prescribed by Clause 42.5, the Contractor shall deliver to the Superintendent claims for payments supported by evidence of the amount due to the Contractor and such information as the Superintendent may reasonably require. Claims for payment shall include the value of the work carried out by the Contractor in the performance of the Contract to that time, together with all amounts then otherwise due to the Contractor arising out of the Contract.
...
Within 14 days of receipt of a claim for payment, the Superintendent shall assess the claim and shall issue to the Principal and to the Contractor a payment certificate stating the amount of the payment which, in the Superintendent's opinion, is to be made by the Principal to the Contractor or by the Contractor to the Principal …
...
Subject to the provisions of the Contract, within 28 days of receipt by the Superintendent of a claim for payment or within 14 days of issue by the Superintendent of the Superintendent's payment certificate, whichever is the earlier, and within 14 days of the issue of a Final Certificate, the Principal shall pay to the Contractor or the Contractor shall pay to the Principal, as the case may be, an amount not less than the amount shown in such certificate as due to the Contractor or to the Principal, as the case may be ...
...
Payment of moneys shall not be evidence of the value of the work or an admission of liability or evidence that work has been executed satisfactorily, but shall be a payment on account only, except as provided under Clause 42.6.
43. PAYMENT OF WORKERS AND SUBCONTRACTORS
43.1 Payment of Workers
The Superintendent may, not less than 5 days before each payment certificate is due, in writing direct the Contractor to -
(a) give the Superintendent astatutory declaration by the Contractor or, where the Contractor is a corporation, by a representative of the Contractor who is in a position to know the facts declared, that all workers who have at any time been employed by the Contractor on work under the Contract have at the date of the direction been paid all moneys due and payable to them in respect of their employment on the work under the Contract; and
(b) provide documentary evidence to the Superintendent that at the date of the direction all workers who have been employed by a subcontractor of the Contractor have been paid all moneys due and payable to them in respect of their employment on the work under the Contract.
43.2 Payment of Subcontractors
Not earlier than 14 days after the Contractor has made each claim for payment under Clause 42.1, and before the Principal makes that payment to the Contractor, the Contractor shall give to the Superintendent a statutory declaration by the Contractor or, where the Contractor is a corporation, by a representative of the Contractor who is in a position to know the facts declared, that all subcontractors have been paid all moneys due and payable to them in respect of work under the Contract.
43.3 Withholding of Payment
If the Contractor fails -
(a) to provide, within 5 days of the direction by the Superintendent pursuant to Clause 43.1, the statutory declaration or the documentary evidence, as the case may be; or
(b) to comply with Clause 43.2,
then notwithstanding Clause 42.1, the Principal may withhold payment of moneys due to the Contractor until the statutory declaration or documentary evidence, as the case may be, is received by the Superintendent.
44. DEFAULT OR INSOLVENCY
...
44.2 Default by the Contractor
If the Contractor commits a substantial breach of contract and the Principal considers that damages may not be an adequate remedy, the Principal may give the Contractor a written notice to show cause.
Substantial breaches include, but are not limited to -
...
(d) failing to comply with a direction of the Superintendent pursuant to Clause 30.3;
...
(h) in respect of Clause 43, knowingly providing a statutory declaration or documentary evidence which contains a statement that is untrue.
....
44.4 Rights of the Principal
If by the time specified in a notice given under Clause 44.2, the Contractor fails to show reasonable cause why the Principal should not exercise a right referred to in this Clause 44.4, the Principal may by notice in writing to the Contractor -
(a) take out of the hands of the Contractor the whole or part of the work remaining to be completed; or
(b) terminate the Contract.
Upon giving a notice under Clause 44.2, the Principal may suspend payments to the Contractor until the earlier of -
...
If the Principal exercises the right under Clause 44.4(a), the Contractor shall not be entitled to any further payment in respect of the work taken out of the hands of the Contractor unless a payment becomes due to the Contractor under Clause 44.6.
20 The following analysis explores whether it is arguable that the appellant could have terminated the Contract in the circumstances alleged in either the further amended statement of claim or the proposed second further amended statement of claim.
21 I can accept, for present purposes, that the third respondent's allegedly false statement constitutes misleading and deceptive conduct for the purposes of the Trade Practices Act 1974 (Cth). The difficulty with the pleading is what follows, namely, that had the applicant been aware of the true position, it would have set in train a series of events that could have ultimately resulted in the termination of the Contract. Putting the matter at a high level of generality, the applicant contends that had it not been for the misleading and deceptive conduct of the third respondent, the applicant would have ultimately been entitled to terminate the Contract and the failure of the applicant to terminate the Contract has lead it to suffer loss or damage.
22 At this point it is important to note the circumstances in which the applicant, under the Contract, can serve a notice to "show cause" on the first respondent. The effect of clause 44.2 is that the applicant can provide written notice to show cause in circumstances where the first respondent has committed a substantial breach of contract, for example where the first respondent has provided "a statutory declaration or documentary evidence which contains a statement that is untrue". However, where the first respondent fails to provide a statutory declaration or documentary evidence that a subcontractor has been paid, the remedy available to the applicant is that provided in clause 44.3, namely, the withholding of payment to the first respondent. A default of this type does not, on my reading of the Contract, entitle the applicant to serve written notice to show cause (the first step on the path towards the termination of the Contract). As I see it, it merely entitles the applicant to withhold payment to the first respondent.
23 The applicant's case is based on an erroneous construction of the Contract, namely, that it would be entitled to serve written notice to show cause (the first step on the path towards termination of the Contract) where the first respondent had failed to provide documentation evidencing payment of its subcontractors.
24 The pleaded claim against the third respondent, as formulated in the second further amended statement of claim, is not a model of clarity. It appears to elide a contractual obligation to provide a statutory declaration with the concomitant obligation to state facts truthfully, with the alleged failure to reveal the true state of affairs about the non-payment of subcontractors and what the applicant would have done had the true facts being known.
25 In understanding the substance of the claim, para 35C of the proposed second further amended statement of claimappears to be central. The paragraph commences with an assumption, namely, that had the applicant been aware of the matters set out in para 34 (i.e. that the SSM Representations were false) it would have acted in particular way. Specifically, it is asserted in para 35C(a) that the applicant (presumably with that awareness or knowledge) would have insisted that the contractor, the first respondent, provide the applicant with a statutory declaration or proper documentary evidence that the contractor had complied with its obligations under clause 43.2 of the Contract. The obligation under clause 43.2 is to provide a statutory declaration declaring that subcontractors had been paid. Paragraph 35C(a) might, on one view, involve a contention that the applicant would have sought a statutory declaration or proper documentary evidence about whether, as a matter of fact, the first respondent had complied with its obligation to provide a statutory declaration that subcontractors had been paid. However, the pleading does not allege the source of any contractual obligation on the first respondent to provide a statutory declaration or proper documentary evidence about whether it had complied with its obligation to comply with clause 43.2.
26 The better view is that the applicant is alleging in subparagraph 35C(a) that the applicant would have required the first respondent to provide a statutory declaration declaring that subcontractors had been paid which may have revealed, on the facts as alleged, that the subcontractors had not been paid, being the facts of which the applicant is assumed to have been aware. But as far as I can discern that allegation leads nowhere unless, implicit in the allegation, is that the statutory declaration would have been false. However, no allegation is made (and it is difficult to see how it could be made) that on the hypothesis that the applicant was aware of the non-payment of subcontractors and requested a statutory declaration as contemplated by clause 43.2, that the first respondent (or the second respondent on its behalf) would swear a false declaration.
27 I now turn to para 35C(b), which is probably the more important paragraph given that it appears to allege that clause 43.2 imposes an obligation on the first respondent to pay its subcontractors. However, it imposes no such obligation expressly. Arguably, it impliedly imposes such an obligation. If so, a failure to pay subcontractors in breach of that implied obligation would result in non-compliance with the express obligation in clause 43.2 of the Contract to provide a statutory declaration that all subcontractors had been paid, either because no statutory declaration to that effect could be furnished or because a statutory declaration would be furnished that said that they had not been paid. Either way, non-compliance with clause 43.2 expressly confers on the contractor a right to withhold payment that had been the subject of a claim for payment under clause 42.1.
28 Paragraph 35C(c) alleges certain consequences which, for present purposes, can be assumed. However paragraphs 35C(d) and 35C(e) contain what, in my opinion, is an unsustainable step in the logical chain embodied in the pleading. It is that the failure to comply with clause 43.2 of the Contract (accepting for the moment, it entails an implied obligation to pay subcontractors) might arguably constitute a substantial breach of the Contract that would have enabled the applicant to provide the first respondent with a written notice to show cause and, in due course, terminate the Contract. It is true that the instances of substantial breaches in clauses 44.2 (a) to (h) of the Contract are not exhaustive having regard to the prefatory words "substantial breaches include but are not limited to …" at the beginning of sub-clause 44.2. However, the fact that, insofar as clause 43 is concerned, the only substantial breach is identified as knowingly providing a statutory declaration or documentary evidence that contains a statement that is untrue, clearly suggests that any other non-compliance of clause 43 is not a substantial breach. This, in my opinion, is put beyond doubt by the scheme of clause 43 which contains its own remedy, namely withholding of payment to the contractor who does not provide a statutory declaration that subcontractors have been paid and, if there is implied contractual requirement to pay them, withholding payment to the contractor who has not paid subcontractors. In my opinion, the applicant's case against the third respondent enjoys no reasonable prospects of success.
29 However, even accepting in the applicant's favour that the proceeding analysis is not correct, the presently pleaded claim against the third respondent in my opinion enjoys no reasonable prospects of success for another reason. I accept that this analysis does not bear upon the claim sought to be made for legal expenses. I am prepared to assume, although I very much doubt, that the applicant could establish the necessary causal connection between the impugned conduct of the third respondent (making the SSM Representations) and the loss said to flow from the failure to inform the contractor of the true state of affairs that would have led, so it is said, to the termination of the Contract and the consequential loss of the benefit of getting the work done by new contractor more cheaply (or, for that matter, avoiding the legal disputes which resulted in the claimed legal expenses). I add, parenthetically, that evidence on behalf of the applicant as to what it would have done is essentially self-serving and of little weight: Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471 at 483; Hanave Pty Ltd v Lfot Pty Ltd (formerly Jagar Projects Pty Ltd) and Ors (1999) 43 IPR 545 at 557.
30 It is sufficiently likely that the applicant has not sustained any loss of the type presently pleaded as a result of the third respondent's conduct such that s 31A is engaged. At a directions hearing during the early stages of this matter, I raised with the parties the possibility of preparing a report in relation to any loss that that may have been suffered by the applicant. An expert report was prepared by Manda Trautwein of VMC Global Pty Ltd (on instructions from the solicitor for the applicant) in relation to the damage suffered in respect of the various claims made by the applicant against the respondents. Although the expert report prepared by Ms Trautwein covers the various claims made by the applicant against all the respondents, it is necessary only to canvass, in the context of these reasons, Ms Trautwein's analysis in respect of the applicant's claim against the third respondent.
31 The gravamen of the applicant's claim against the third respondent (the "SSM claim") has already been discussed. It is unnecessary to repeat it, save as to say the loss claimed by the applicant is the difference between what was actually incurred by the applicant in completing the project and the cost it would have incurred had it terminated the Contract and engaged an alternate contractor to complete the project.
32 Ms Trautwein prepared draft reports in March 2008 and April 2008. In the April 2008 report, which was admitted into evidence, Ms Trautwein concluded that, in the context of the SSM claim, the applicant suffered no loss. She came to this conclusion based on the report of Mr Chris Marais (a quantity surveyor and director of Rider Levett Bucknall Qld Ltd) who himself had prepared a report for Ms Trautwein. Mr Marais was engaged to provide an opinion of revised and alternative costs, costs of works completed and costs to complete the works at different stages. Based on the Mr Marais's report, Ms Trautwein calculated that the applicant suffered no loss given that the cost incurred by the applicant in completing the project was less than the cost the applicant would have incurred had the Contract been terminated and an alternate contractor been engaged to complete the project at that time. In June 2008, Ms Trautwein prepared another draft report but I rejected its tender by the applicant. The April 2008 report, together with the report of Mr Marais, sustain, in my opinion, the conclusion that the applicant has no reasonable prospects of successfully prosecuting its presently pleaded claim against the third respondent for damages.
33 I now consider whether I should award costs in favour of the third respondent and if so, whether they should be awarded an indemnity basis. Ordinarily, costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order: Ruddock v Vardalis (No 2) (2002) 115 FCR 229 at 235. As a general principle, costs are awarded on a party-party basis unless there are special or unusual circumstances. Some of the broad classes of circumstances in which the exercise of discretion to award indemnity costs may be appropriate are referred to by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 232-234.
34 More recently, in Hamod v New South Wales (2002) 188 ALR 659 at [20], Gray J, with whom Carr and Goldberg JJ agreed, said:
Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.
35 Of its nature, a successful application under s 31A will proceed from circumstances that are special or unusual. Where summary judgment is given in all or part of a proceeding, then a conclusion that at least one of the grounds contemplated by Sheppard J in Colgate-Palmolive will ordinarily be open or at least arguable. In Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Limited) (No 2) [2007] FCA 179, Finn J summarily dismissed an application against the various respondents. According to Finn J (at [6]):
The application was a hopeless one and ought never have been brought in the form it was. The applicant may well have been badly advised. This though provides no excuse for so imposing upon the respondents.