Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited

CATCHWORDS : Practice and Procedure - Leave to amend summons - Overriding Purpose Rule - Discussion of the objects of case management and the suite of provisions in the Civil Procedure Act which interlock with the overriding purpose

LEGISLATION CITED : Civil Procedure Act (NSW) 2005

Baulderstone Hornibrook Engineering Pty Limited ABN 95 003 898 397 (Plaintiff) Gordian Runoff Limited (formerly GIO Insurance Limited) ABN 11 052 179 647 (First Defendant) PARTIES : CGU Insurance Limited (formerly Commercial Union Assurance Company of Australia Limited, trading as, inter alia, Pacific Indemnity) ABN 27 004 478 371 (Third Defendant) AMP General Insurance Limited ABN 30 008 405 632 (Eleventh Defendant)

Mr S Finch SC, Mr A McInerney (Plaintiff) Mr R Smith SC, Mr A Jones (First Defendant) COUNSEL : Mr Robb SC, Mr C Ellis (Third Defendant) Mr S T White, Mr R Hollo and Mr M O'Meara (Eleventh Defendant)

Freehills (Plaintiff) Corrs Chambers Westgarth (First Defendant) SOLICITORS : Colin Biggers & Paisley (Third Defendant) Moray & Agnew (Eleventh Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL DIVISION

Thursday 15 December 2005 ex tempore Revised 20 December 2005

50176/03 Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (formerly GIO Insurance Limited) & 10 Ors JUDGMENT The pleading issue 1 These are complex commercial proceedings. This is the thirty-fifth day of the final hearing. There are almost 3000 pages of transcript which have been taken. There are nine counsel briefed of whom eight have been regularly at the bar table on most days. 2 There are a veritable minefield of issues to be determined ranging from extremely complex questions of fact through to extremely complex questions of the proper construction of insurance policies. Originally there were 11 insurers joined as defendants. By the time the final hearing commenced there were only three groups of insurers as defendants. 3 On 14 October 2005 [being a date prior to the commencement of the final hearing] BHE had filed a suite of amended replies to the amended defences of the defendants which had importantly pleaded that the proper construction of the material contracts of insurance was that coverage was extended to BHE upon one or more of nominate events including:

"7.3 a claim made, or where BHE had incurred loss, damage or expense, arising out of an act, error or omission in the conduct of professional activities or duties committed by specialist designers or consultants acting on behalf of BHE pursuant to any contract of service for whom BHE was responsible, in accordance with Special Provision 2 of the HIH Contract." Application for leave to amend the summons 4 The occasion for referring to that particular provision and for this judgment is the application by the plaintiff for leave to file a second further amended summons. Commencement of the final hearing 5 The final hearing commenced. Very extensive outline submissions covering at least 500 pages were submitted by the parties. What then followed was a reasonably detailed opening address by Mr Finch SC leading counsel for BHE. 6 At some stage an issue had been raised by some or all of the defendants contending that there had not been leave granted to file the 14 October replies to the amended defences of the defendants. I presently have some difficulty in recalling precisely when that matter was raised. 7 In any event BHE's Outline of Submissions included the claim that each of the HIH, Gordian and CGU policies responded to BHE's claim, inter alia pursuant to:

(a) Clause 1 to the HIH policy - breach of professional duty in the profession, not limited to but including:

(i) Extension 6 Trade Practices and Related Legislation, to the HIH policy Amended Reply to Amended Defence of the First Defendant to the Further Amended Summons, paras [27] to [36]; Amended Reply to Amended Defendant of the Third Defendant to the Further Amended Summons, paras [34] to [43], and [52] ;

(ii) Clause 11, Assumed Liability, Endorsement to the HIH policy Further Amended Summons, at para [6]; Amended Reply to Amended Defence of the First Defendant to the Further Amended Summons, paras [12.1]; Amended Reply to Amended Defence of the Third Defence of the Third Defendant to the Further Amended Summons, para [13]. ,

(b) Clause 2 to the HIH policy - costs and expenses incurred in defendant or settlement of the claim Further Amended Summons, at para [4], and paras [9] and [13] ;

(c) Special Provision 2 to the HIH policy - claim, loss, damage or expenses, arising out of an act, error or omission in the conduct of professional activities or duties committed by specialist designers or consultants acting on the Insured's behalf pursuant to any contract for service and for whom the insured are responsible Amended Reply to Amended Defence of the First Defendant to the Further Amended Summons, paras [7.3] and [8.1]; Amended Reply to Amended Defence of the Third Defendant to the Further Amended Summons, paras [7.3] and [8.1]. ;

(d) Special Provision 1 to the HIH policy - loss, damage or expenses, arising from an act, error or omission in connection with the professional activities Amended Reply to Amended Defence of the First Defendant to the Further Amended Summons, paras [7.2] and [8.1]; Amended Reply to Amended Defence of the Third Defendant to the Further Amended Summons, paras [7.2] and [8.1]. ." 8 In early November the Court heard and determined an application brought by CGU and AMPG [joined in only to a limited extent by Gordian] to strike out nominate paragraphs of BHE's reply to the amended defences. A judgment was delivered which is self-explanatory essentially allowing BHE's reply. 9 On that occasion there was no claim to strike out any of the provisions in the Reply which had pleaded that coverage was extended to BHE upon a claim made, or where BHE had incurred loss, damage or expense, arising out of an act, error or omission in the conduct of professional activities or duties committed by specialist designers or consultants acting on behalf of BHE pursuant to any contract of service for whom BHE was responsible, in accordance with Special Provision 2 of the HIH Contract. 10 There is no doubt that the defendants were afforded considerable time in which to consider the terms of BHE's ultimate form of amended Reply to the defences, which was in due course filed by leave on 24 November 2005 11 In recent weeks there have been a number of occasions when questions have been sought to be raised from the bar table as to the pleadings. An example is to be found at transcript 2214.6 -.22. The matter was raised against on the same day [at transcript 2234.45-2235.49 and at 2236.5-.45]. These claims were replied to by Mr McInerney, junior counsel for BHE, on the same day [transcript 2237.21, 2246]. 12 On 7 December 2005 subject only to some documentary matters, BHE closed its case [transcript 2528.30]. The context was that BHE was to clarify precisely how it now put its case in the summons: announcements having been made that several matters would not be pressed and the summons being required to be precise in this regard. Other matters of clarification may be attempted in the form of the amended summons then under consideration. 13 At the very same time, the third defendant had been working to produce an additional statement by Mr Boyd. The transcript records the following:

"ROBB: … There are three things that I would wish to raise, if it please the Court...My learned friend Mr Finch and I have had the briefest of discussions about the issue of pleadings concerning reliance upon special provisions 1 and 2.

Now, I will say something to your Honour which I think is a fair summary of the position but I would invite Mr Finch to correct me if I am wrong.

One, in some way related to the matters that I agitated the other day Mr Finch proposes to seek to amend. Now, at the moment I don't know what he is going to amend and how he is going to do it but I am content to wait the fruits of his work.

The second thing is that, as is obvious from whatever it was that triggered my concern that I anticipate where some of these things going and for reasons I simply don't need to elaborate, if my guess is right, then Mr Boyd has to be given an opportunity to give certain additional evidence in chief. I have over the last two days been working on that and I believe that I will have a draft statement in anticipation probably tomorrow afternoon, worse by Friday morning. That is likely to be in the order of 20 odd pages. While it explains Mr Boyd's position, it doesn't introduce any completely unexpected evidence.

I am content to proceed on the basis that Mr Finch can work on his amendment and I will finish this anticipatory statement in the hope that the two will match, because we all join in the view that, one, by hook or by crook, Mr Boyd must be cross-examined on Monday and at worst on Tuesday, but hopefully exactly when anticipated. [Transcript 2528-2529] 14 A few pages further on one finds the following:

"HIS HONOUR: Mr Finch, perhaps I can just ensure that we are all ad idem on what is agreed to occur. As I understand it number 1 the plaintiffs are in writing to identify the extent to which and manner in which, as it were, by reference to the existing pleading the good faith breaches are pressed. I don't accede to the suggestion that it is necessary for an amended pleading to come forward but the document which is going to identify the extent to which what is pleaded is pressed will become an exhibit for purposes of clarity. It will need to be a fairly carefully drawn piece of paper. That really deals with the good faith parameter. As I said my own perhaps misunderstanding or cloudiness now as to how the lack of good faith case is put requires assistance.

Secondly, in relation to the so called second special provision 2 issue; the plaintiffs are going to, as I understand it, actually propound an amendment to their current summons which they contend is not strictly necessary but to assist and to avoid appeal difficulties and the like they are going to produce. I think as far as the question of Professor Leshchinsky and Dr Ingold is concerned I simply have to leave it to the obvious common sense of every one on the plaintiff's side of the bar table. I have little doubt that where it is perceived that parameters of Dr Ingold's approach are not to be pursued, if it's practicable to do so your side will make that clear so we aren't working on false issues." [Transcript 2531-2532] 15 Ultimately either over the weekend, or more likely at the commencement of Monday 12 December, BHE circulated proposed further amendments to its already amended summons. In anticipation of that event a draft statement of Mr Boyd was circulated either over the weekend or on the same Monday morning. The additional statement was a substantial statement extending well outside the originally served statement of Mr Boyd. 16 The proceedings could not continue on Monday for reasons which are transcribed, essentially involving the need for BHE's counsel and solicitors to obtain particular instructions in relation to the second statement of Mr Boyd. But also, as I understood it, to permit the defendants to examine the form of the amended summons being propounded. 17 On the following day the evidence of Mr Boyd was taken: objections to the statement being initially ruled upon. There was no submission that it was inappropriate for this likely last witness to be called by the third defendant until the pleading issue was determined. Submissions taken on the grant of leave 18 Against that background submissions have today been taken as to whether or not to leave should be granted to BHE to file the newest form of amended summons being propounded. 19 There have been a number of submissions taken from the first and third defendants in support of the proposition that that leave should not be granted. 20 The eleventh defendant has not taken issue with the entitlement of the plaintiff to file the newest form of amended summons save in a minor respect, which is to be accommodated, as I understand it, as a matter of consensus. 21 For present purposes the latest summons includes the following paragraphs: "The SACL Claim in the SACL Proceedings is: 42.1 a claim against BHE for breach of professional duty in the 'profession stated in the Schedule'; 42.2 by reason of an act, error or omission; 42.3 committed or alleged to have been committed on the part of BHE in the conduct or execution of the Professional Activities and Duties as defined, within the meaning of each of the HIH Contract, the Gordian Contract and the Pacific Indemnity Contract…

44 In the circumstances described above and those pleaded in Schedule 3 to this Summons, subject to the policy limits pleaded above, BHE is entitled to indemnity from HIH, Gordian and Pacific Indemnity pursuant to each of those parties' respective policies." 22 Schedule 3 includes:

"4 Special Provision 2 of the HIH Contract, provides an indemnity against "claims (and/or loss, damage or expense as defined in Special Provision 1)": "The coverage provided by this Policy is extended to indemnify the Insured, subject to the Policy's terms and conditions, against their legal liability for claims (and/or against loss, damage or expense as defined in Special Provision 1) arising out of any act, error or omission in the conduct of professional activities or duties committed by specialist designers or consultants acting on the Insured's behalf pursuant to any contract for service and for whom the insured are responsible …"… 22 The claim made by SACL against BHE, described in paragraphs [15] to [17] above in Schedule 3, or paragraphs [18] to [21] above in Schedule 3, or paragraphs 40 to 46 of the Second Further Amended Summons, was a claim within the meaning of one or more of the insuring clauses described in paragraphs [3] to [9] above in Schedule 3, of the HIH Contract, Gordian Contract and Pacific Indemnity Contract:

22.1 For breach of professional duty (whether in contract, tort or contravention of statute) in the profession by reason of any act, error or omission after the retroactive date committed or alleged to have been committed on the part of BHE in the conduct and execution of the Professional Activities and Duties. Particulars Clause 1 of the HIH Policy Wording BHE's Outline of Submissions dated 11 October 2005, at paras [265] and [443] 22.4 Arising out of any act, error or omission in the conduct of the professional activities or duties committed by specialist designers or consultants acting on the Insured's behalf, that is, RE and CW, pursuant to a contract for service and for whom the Insured are responsible. Particulars Special Provision 2 of the HIH Policy Wording BHE's Outline of Submissions dated 11 October 2005, at paras [265] and [443] The special provision 2 issue 23 One only of the claims by the first and third defendants as to the suggested impropriety of permitting the grant of leave to file the second further amended summons concerns special provision 2 and the extent to which it is submitted that the pleading of this provision should not at this stage in these proceedings be allowed a position of honour as part and parcel of the summons. 24 In my view there is no substance in the proposition that special provision 2 is inappropriate to be pleaded in the fashion now sought in the second further amended summons. There are a number of reasons for this. 25 First and foremost in my view it is necessary to consider the context in which Mr Boyd's evidence came forward. Mr Boyd's second statement was proffered, as I had understood it, for the purpose of the third defendant treating with that which it understood was needed to be treated with qua the case sought to be put by the plaintiff in the second further amended summons being propounded, at least in important part. 26 The plaintiff having closed its case, it was, in my view, an entirely inappropriate course of conduct for the third defendant not to have raised the issue of any suggested difficulties with the propounding of the second further amended summons and to blithely raise that matter only after Mr Boyd's evidence had been adduced and he had been fully cross-examined. 27 Outside of that parameter it is appropriate to refer, [not only in relation to special provisions 1 and 2, but also in relation to each of the areas where the first and third defendants have sought to take issue with the second further amended summons] to the manner in which the principled exercise of case management techniques in proceedings such as these fall to be exercised. Section 56 28 Section 56 sets the overriding purpose:

"The overriding purpose of the Act and of the rules of the court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings". 29 Clearly enough that statement emphasises the fundamental judicial obligation to administer justice according to law and to determine proceedings by resolution of the real issues in proceedings. As the annotations to Ritchies Uniform Civil Procedure New South Wales make clear, the proscriptive statement of the overriding purpose in section 56 imposes on the court an express obligation to give effect to the overriding purpose in the exercise of any power conferred by the CP Act and rules. Section 58 30 In addition, section 58 of the Act mandates the matters to which regard must be had in deciding whether to make orders or directions for management of proceedings. 31 Naturally key parameters include the elimination of delay and the efficient use of curial resources as well as the just resolution of the real issues in the proceedings. Section 58 (2) 32 Next, section 58 (2) of the Civil Procedure Act, [following subparagraph (1) which requires the court in deciding inter alia to make any order or direction, including an order for amendment of a document, to seek to act in accordance with the dictates of justice] continues as follows:

"For the purpose of determining what are the dictates of justice in a particular case the court;

(a) must have regard to the provisions of sections 56 and 57, and

(b) may have regard to the following matters to the extent to which it considers them relevant….. (i) The degree of difficulty or complexity to which the issues in the proceedings give rise…

(v) The use that any party has made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under the rules of court the practice of the court or any direction of a procedural nature given in the proceedings.

(vi) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction. Section 57 33 The objects of case management are set out in section 57 of the Act. Subsection (1) provides that:

"For the purpose of furthering the overriding purpose referred to in section 56 (1), proceedings in any court are to be managed having regard to the following objects: (a) the just determination of the proceedings.

(b) the efficient disposal of the business of the court.

(c) the efficient use of available judicial and administrative resources.

(d) the timely disposal of the proceedings and all other proceedings in the court at a cost affordable by the respective parties." 34 I turn in general terms on an overview basis, to the particular matters which have been sought to be raised by the first and third defendants in opposition to the form of second further amended summons sought to be propounded. 35 There is no doubt but that the proceedings are complex in the extreme. Not only in terms of fact but also in terms of law and importantly also in terms of understanding the respective contentions which have come forward from the parties. 36 There are cases where the litigation is conducted on a basis outside of the rails of the pleadings. They commonly represent a regrettable state of affairs, but from time to time, particularly in litigation of high order, it is not uncommon for the parties to be expected, even late in the hearing, to bring the pleadings in to line with the matters which have been litigated. 37 One of the matters which I have found extremely surprising in terms of the submissions which have come forward particularly from the third but to an extent from the first defendant, is the proposition that there is surprise raised at the end of the adducing, effectively, of all evidence, as to what are the issues which have been litigated all that time. 38 Mr Robb has submitted that the extensive overview submissions furnished by the plaintiff have never been regarded as pleadings. That having been said, and no one as I understand it has ever contended that those submissions should be regarded as pleadings, the purpose of an opening, and the purpose of overview submissions, is to the extent practicable and possible, to identify the case of the plaintiff. Commonly I invite the defendant's counsel, should they wish to, to also open their cases. As far as I can recall there were some brief openings by some only perhaps of the parties but essentially the major opening was that here of the plaintiff. 39 I do not propose presently to travel through, because I see it as unnecessary to do so, each of the contentions of the first and third defendants as to the reasons why the summons, in its present form as propounded should not be permitted. I do intend to refer in particular, however, to paragraph 445.1 E of the plaintiff's overview submissions under the subheading in paragraph 5, "Breach Of Professional Duty". That is where the plaintiff, albeit in overview submissions, made clear that its case included that the HIH policy responded to the claim made by SACL in circumstances where there was an act, error or omission in the design, engineering construction, management or certification of the reinforced earth walls having regard to:

"(e). The failure on the part of the designer to identify that the introduction of creases, wrinkles or folds into the geotextile could lead to sand loss through, and around, the geotextile in the absence of gluing the geotextile all along its length on either side of the joint." 40 In proceedings of this complexity, with the number of counsel involved, the obvious intense preparation of the proceedings for final hearing, the literally hundreds of folders of evidence lining the court's walls, I cannot accept that a party such as the third defendant can be accepted if indicating that it was unaware, for example, that that particular subparagraph formed a part of the plaintiff's case sought to be here conducted. How have the proceedings been litigated? 41 I turn from that particular issue, to the question of how the proceedings have been litigated. An extensive case management approach was taken, as I have understood it, by the list judge, Justice Bergin, over a number of years in order to try to best ready the case at case management level for hearing. My understanding was that the case had been fixed to commence some time earlier in 2005 but that date was moved for reasons which are common and unexceptional. 42 In any event, the case management of these proceedings and an examination of the documents which formed part of the court file as at the commencement of the hearing, makes plain that the most excruciating and minute attempts were made by the court in case management technique to bring an extraordinarily difficult case to a point where it was ready to be heard. I had understood that Justice Bergin had regarded the case management for a period of time as of such importance as to deal with it outside of the constraints of her Honour's usual Friday list. 43 One of the matters which Mr Robb submitted in support of the proposition that the court should not accede to the grant of leave, was that the third defendant had dealt with the plaintiff's case in terms of endeavouring to understand that case at least in part from the evidence which was being deployed [transcript 2785.10]. In many ways the extraordinary complexity of the pleadings from summons, through to defences to the summons, through to replies to the summons [and taking into account the several occasions when pleadings have been amended] is not to be unexpected in litigation raising questions of the type which have here been raised. 44 It seems always to have been an accident waiting to happen for the respective parties to, first in the conventional way, put forward their expert's evidence, and then, in the conventional way, seek in cross-examination to destroy or otherwise qualify the expert evidence adduced by the other party. It is common in such circumstances, [here particularly bearing in mind the complexities of the factual issues and the interrelated insurance issues] for a party to seize on some parameter of the cross-examination of the other party's witnesses in an endeavour to further their own case. To my mind that parameter has been quite obvious across the bar table. That is to say, the first and third defendants, and the plaintiff have sought to score points in the usual way through cross-examining one another's witnesses. 45 No do I accept that no issue arises concerning whether or not the insurers consent to the SACL settlement was obtained. 46 My understanding is that to the extent that the defendants have in the course of their pleadings sought to rely upon particular exclusion clauses, those exclusion clauses have been pleaded without detailed particulars of the evidence to be called to substantiate the suggested engagement of those provisions. To the extent that there is any substance in the proposition that the plaintiffs have approached the matter of their contentions that the policies did respond in like fashion, it seems to me that the parties have, from the commencement of the hearing until the end of the evidence given by the final witness, travelled the same road. 47 None of the other submissions by way of claims that particular pleading paragraphs are demurrable are of substance. 48 Ultimately the principled exercise of the relevant discretion must take into account the interests of justice. I have absolutely no doubt but that the principled exercise of that discretion is to allow the second further amended summons in the form now sought to be propounded for the many reasons which I have given, including as I have said, my very firm view that it was an entirely unacceptable course of procedure for the third defendant, in advance of taking a pleading point of significance, to call a witness put forward as having prepared a particular statement for the purpose of coping with the putative pleading. 49 For those reasons the second further amended summons will be allowed. The second further amended summons in the form which had the tracking on it, for the purposes of the record, will be exhibit 15/12/05-pleading.

Order 50 I grant leave to the plaintiff to file in court the second further amended summons in the form which I initial and date 15 December. I certify that paragraphs 1 - 50 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 15 December 2005 and revised 20 December 2005

      Susan Piggott
      Associate

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