Bechini v Ius Pty Limited

Supreme Court of NSW|2017-06-21|Before: Harrison J

Judgment

HIS HONOUR: Mr and Mrs Bechini claim damages from their architect in terms pleaded in their further amended statement of claim filed on 1 June 2016. The Bechinis allege in general terms that IUS Pty Ltd was retained to provide them with architectural services with respect to the construction of two residences on land owned by them in Moons Avenue, Lugarno. In circumstances to which it is unnecessary to refer in detail, they allege that the architect failed to design or prepare plans in accordance with the applicable environmental planning regime in force from time to time with the result that they were not able to develop their property in a timely way and suffered loss as a consequence.
The Bechinis' architect was placed in external administration on 5 August 2013 and was due to be wound up. In those circumstances, the Bechinis thereafter joined WFI Insurance Ltd (formerly known as Lumley General Insurance Ltd) as a second defendant pursuant to s 6 of the Law Reform (Miscellaneous Provisions) Act 1946. It is not in dispute that Lumley issued two policies of insurance to the architect in respect of professional indemnity claims of the type which the Bechinis have brought against the architect. Lumley, however, deny that the policies issued by it to the architect respond to the claim in the events that have occurred. The bases of the Lumley denial are particularised in WFI Insurance Ltd's defence to the amended statement of claim filed on 9 August 2016.
M & R Insurance Brokers Pty Ltd have been joined by the Bechinis as a third defendant. M & R Insurance Brokers arranged the architect's professional indemnity insurance. It is sued upon the basis that, if neither of the policies issued by Lumley to the architect responds to the claim, the brokers will be liable to the Bechinis for any loss sustained by them. The viability of that claim does not call for consideration in the present application.
By its amended notice of motion filed on 10 February 2017, WFI Insurance Ltd seeks an order pursuant to UCPR 28.2 and s 62(2) of the Civil Procedure Act 2005 for the separate determination of the following questions: A. Is the term pleaded at paragraph 31(b) of the further amended statement of claim a term of the Lumley First Policy (defined at paragraph 27 of the further amended statement of claim)? B. Is the term pleaded at paragraph 31(c) of the further amended statement of claim a term of the Lumley First Policy? C. Do the matters pleaded and particularised at paragraph 35C of the further amended statement of claim amount to a "Claim" within the meaning of the Lumley Second Policy (defined at paragraph 27 of the further amended statement of claim)?

Applicable principles

The principles that apply in applications of this type are well known. They have been extensively canvassed by Barrett J in Robbins v The Royal Bank of Scotland plc [2010] NSWSC 39. His Honour made specific reference in that decision to the judgment of Einstein J in Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 1215 at [7].
I have taken these principles into consideration in this case.

WFI's submissions

It was contended on behalf of the insurer that a proper application of the relevant principles, particularly in light of the overriding purpose referred to in s 56 of the Civil Procedure Act 2005, clearly favoured the separate determination of the nominated questions.
First, if the questions are all answered in Lumley's favour, that will dispose entirely of the Bechinis' right of action against it. A decision on these questions is therefore "critical to the outcome of the proceedings… and [may] bring the proceedings to an end" against Lumley: Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-2.
Secondly, the separate determination of the questions will be likely to lead to significant time and cost savings. Lumley estimates that a separate hearing would take no more than one day whereas a hearing on all issues would take significantly longer, possibly up to 10 days. While the Bechinis have suggested a slightly longer estimate of between one and two days for the separate question, and a shorter estimate of 5 days for a hearing on all issues, a separate question hearing will take materially less time and incur less costs than a hearing on all issues.
If Lumley were to succeed, it would also avoid the need to prepare expert evidence concerning their principal claim, including the obtaining of expert reports from an architect, a builder, a quantity surveyor and a valuer. These are key circumstances operating in favour of a separate determination.
Thirdly, the primary facts relied upon by each party in respect of the separate issues are largely agreed and fall within a narrow compass. In particular, it is common ground that the subject policies were issued by Lumley, that Lumley was first notified of circumstances potentially giving rise to a claim in early 2014, some 6 years after the policy cover ceased and that civil proceedings were not commenced by the Bechinis until 27 March 2015. Moreover, Lumley was only notified of the proceedings on 1 April 2015 and even then not by the insured architects.
The evidence that will be relied upon by Lumley consists almost entirely of admitted facts and documentary evidence comprising the policy documents. The Bechinis have already served all of their lay evidence and no part of it relevantly bears upon the separate issues. This is unsurprising given that they had no contact with either Lumley or M & R Insurance Brokers at any relevant time. Neither Lumley, nor (as Lumley understands it) M & R Insurance Brokers, proposes to serve any lay evidence in the proceedings. It is therefore unlikely that there will be any contested oral evidence, let alone evidence from persons who would also be called in the balance of the Bechinis' case.
Fourthly, there is a "clear demarcation" between the separate issues and the Bechinis' primary case. Those issues go to the extent of the Bechinis' claims against Lumley. The principal proceedings, in contrast, concern the conduct of the architect in providing professional services.
No different view should be taken of the Bechinis' claims against M & R Insurance Brokers. Those claims only arise if the first policy is found not to include the terms pleaded in the further amended statement of claim.
A further, and potentially significant, indication of clear demarcation is that no lay evidence has yet been adduced in relation to the separate issues and no issues of credibility are likely to arise in relation to those matters. As a result, there is no risk of contradictory credit findings being made in the separate question hearing and the main trial.
Finally, the separate issues have been drafted with precision. Express reference has also been made, where appropriate, to specific paragraphs of the pleadings where each issue is dealt with. Both the parties and the Court will be in no doubt about what questions are the subject of any separate hearing. This is not a case in which an attempt is made, for example, to sever issues of "liability" from "quantum" without "any precise identification of what the 'question' to be determined separately is": Crawley v Vero Insurance Ltd [2012] NSWSC 593 at [19].

The Bechinis' submissions

The applicable principles were not put in contest. Rather, the Bechinis contended that the application should be dismissed upon the basis that to do otherwise would cause considerable inconvenience and disruption to them. Principal among these concerns was the suggestion that a separate determination of the discrete issues would disadvantage the Bechinis in their ability to prove the relevant contracts of insurance. I am unable to understand this concern. The policies are not said to be in doubt, as opposed to the extent to which they respond, or apply to, the Bechinis' claims. Lumley has made this much clear, and M & R Insurance Brokers do not suggest otherwise.
The Bechinis also express concern about delay and added costs. For example, they point to the inconvenience of the broker's witnesses "being called to attend… from Melbourne for two separate hearings." However, having regard to the attitude taken by the broker to the present application, that concern would appear only to afflict the Bechinis, and then only as a matter of principle. It does not have any practical effect upon them.
The Bechinis are also concerned about the need for two separate hearings and two sets of legal costs and hearing allocation fees. They suggest that witnesses will be inconvenienced, the Court will be required to deliver two judgments as opposed to a single judgment dealing with all issues and that the prospect of an appeal following separate determination raises a further doubt about the utility of such a course.

Consideration

In my opinion, this is a proper case for the separate determination of the three nominated questions.
The issues are in small compass. To a considerable extent the resolution of these questions turns upon the reading and interpretation of the policies, the existence and terms of which are not controversial. On one view of the matter, these issues could be determined upon the basis of an agreed bundle of documents and written submissions.
Far from increasing costs, the proposed separate determination has the distinct potential to reduce costs. For example, if Lumley remains as a party until the end of the proceedings, but is ultimately successful, the Bechinis will have exposed themselves to costs which an early determination could hypothetically have avoided. By the same token, if Lumley does not succeed in arguing on a separate determination that its policies do not respond, the Bechinis will be in no worse position, as costs of the separate determination will be likely to be ordered against it. Moreover, in the same event, the Bechinis would not then be concerned at the final hearing with the separate issues raised in defence of their claim by Lumley.
Nor does this application raise the spectre of conflicting decisions on matters of fact or the assessment of witnesses by different judges. As I have noted, the questions as drafted have the potential (at least) to be determined on the papers.
Finally, having regard to the nature of the Bechinis' claim against Lumley, a decision in its favour would completely determine Lumley's liability in the principal proceedings. At a small remove from that, it may also operate somewhat reliably to inform the wisdom of continuing with the proceedings at all. Correspondingly, a decision in favour of the Bechinis on the separate determination would potentially shorten the final hearing, with associated advantages. I acknowledge, however, that Lumley would still be entitled, in accordance with s 6, to raise any other defences that would have been available to the architects in response to the principal allegations of negligence or breach of retainer by them. In short, a separate determination carries with it the significant potential for substantially narrowing the field of litigious controversy.

Conclusions and orders

In my opinion it is appropriate to order a separate determination of the issues as sought in Lumley's notice of motion filed on 10 February 2017. The costs of this application should abide the outcome of that separate determination.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 June 2017

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