Cappello v Lyons

The prosecution of this proceeding

1. By their statement of claim filed in this proceeding, the Cappellos alleged, in substance, that the defendant negligently failed to plead, or assert, in the Cappellos' claim (which was in the form of a Technology & Construction List Statement) that non-compliance with cll 15.4 and 15.5 constituted a defence to the builders claim, in the original List Statement filed on 9 January 2019 or an amended version filed on 2 August 2019. Further, when the builders brought their Cross-Claim, the Cappellos alleged that the defendant negligently failed to plead the same defence in the Technology and Construction List Response.
2. By their original Statement of Claim, the Cappellos alleged that the defendant's breaches prevented them from succeeding with their own claim at first instance and on appeal.
3. In this Court, the proceedings have already seen multiple interlocutory disputes. On 9 August 2021, the plaintiff failed in a motion to set aside a notice to produce. On 15 October 2021, Weber SC DCJ rejected the defendant's strike out application, based upon an abuse of process and also advocates' immunity, and a costs order was made against the defendant on 19 November 2021.
4. On 7 December 2021, the defendant filed its Defence.
5. The Cappellos served their evidence by 25 May 2022. On 31 May 2022, the matter was listed for hearing to commence on 17 August 2022 (with a 3-day estimate).
6. On 1 July 2022, the defendant served its evidence; comprising a single affidavit from himself.
7. No expert liability evidence has been served by the parties as to whether a failure by the defendant to plead, or recommend to the plaintiffs that cl 15 be pleaded, in answer to the builders claim was consistent with the professional standard of care in s 5O of the Civil Liability Act 2002 (NSW) or alternatively, was consistent with the precautions that a solicitor in the defendant's position would have taken consistently with s 5B of the Civil Liability Act 2002 (NSW).

The motion

1. Also on 1 July 2022, the Cappellos filed this motion, by which they seek leave to amend their pleading and to read a supplementary affidavit from Mr Rosario Cappello. At the date that the motion was filed, it appears, that affidavit had not been prepared. Indeed, it appears to have first been prepared either on the eve of the hearing (a Sunday) or yesterday, when it was handed up in Court. Written submissions were supplied on the eve of the hearing by their solicitor, Mr Hall. Mr Raine appeared, as agent, for the applicants at the hearing of the motion.
2. Counsel for the defendant, Mr Ng, appeared for the respondent and made oral submissions. Mr Ng did not rely upon any evidence at the hearing of the applications.

The applicants' arguments

1. The proposed amended statement of claim has two main (related) categories of amendment. The first category has the objective of adding another provision of the contract, in cl 16 of the contract, to cl 15, as a provision which, it is said, was negligently omitted from the Cappellos' defence to the builders' claim in the Supreme Court proceeding.
2. Clause 16 of the contract deals with variations. A number of parts to that provision emphasise that variations are to be in written form.
3. In a draft affidavit from Mr Cappello, he states that his solicitors in this proceeding have advised him that any non-compliance with cl 16 should have been raised in the proceeding in the Supreme Court. This appears to be somewhat distinct from the advice Mr Cappello said he received about cl 15, which, he apparently says, was received prior to the hearing of the appeal in the Supreme Court. Mr Hall, the Cappellos' solicitor, who prepared an affidavit in support of the application, also stated that the advice about cl 16 was only delivered after the institution of this proceeding and, more particularly, in the preparation of the case for trial after Counsel's advice had been received.
4. The second main category of amendments has the objective of particularising the claim for damages alleged to have arisen from the defendant's negligence.

The respondent's arguments

1. On the application to amend, Counsel for the respondent raised the following points in opposition. First, the proposed pleading does not set out the material facts. If, as appeared, the Cappellos were deploying cl 16 with a view to arguing that the builders had charged for unapproved variations, then for this particular claim to succeed, it would be necessary for the applicants to prove that the builders did in fact charge for unapproved variations; which would require that more detail was needed in the pleading than is currently proposed, to spell out what the variations were, and what were the basis for the underlying charges.
2. Secondly, the amendment opens up a significant new line of inquiry, through which the respondent would potentially need to make inquiries, if not also obtain documents; from the builders, if not the Cappellos, about whom earlier procedural history, the respondent argued, indicated that there may be some doubt about the adequacy of their compliance with coercive process. If the applicants were permitted to run a case about unapproved variations, then in order to meet such a case, all of the communications between the applicants and the builders were open for scrutiny, which might indicate what the applicants knew about additional works and when. It seemed to be insinuated that the potential line of inquiry was such that, in order to properly undertake it, the hearing date would be jeopardised; which might require a late application to vacate. At any rate, it would at least occasion potentially significant cost in the respondent.
3. Thirdly, contrary to the impression created by the applicant, the amendments to paragraph 4 are not to be taken merely as a particularisation of damages to an existing claim (centred upon the alleged negligence in not pleading or running a defence centred on cl 15), but a damages claim which represented an amalgam of the existing claim (based on cl 15) and the proposed new claim (based on cl 16).

Consideration

1. The Court is specifically empowered to amend pursuant to s 64 of the Civil Procedure Act 1995 (NSW), but that discretionary power is conditioned by the 'dictates of justice' (s 58(1)(a)), a composite expression which embraces a range of considerations (in s 58(2)).
2. But before addressing those considerations, it is appropriate to deal first with the respondent's pleading point. That is, that, it is necessary for the applicants to plead the facts sustaining a contention that, in breach of cl 16 of the construction contract, the builders claimed unwritten, and therefore unapproved, variations.
3. Whilst a pleader has an obligation to plead material facts, the obligation is to plead the material facts to support the claim propounded, not facts which might be relevant to its adversary's defence to the claim. The Cappellos' proposed claim is tolerably clear: that their solicitor's failure to plead or rely upon cl 16 in their own claim or in opposition to the builders' claim in the Supreme Court proceeding deprived them of an arguable claim or defence (wholly or partly) to the builder's claim; causing them loss or damage. Their claim is that had the clause been invoked, they would not have had to pay for variations which were not in writing. At the bottom of the respondent's concern is that it would like to know of the circumstances in which, it is said informal (presumably) oral variations were made; from which some argument might be raised that the builders would likely have relied, in the Supreme Court proceeding, upon a point of construction in cl 16, permitting informal variations, or perhaps, a waiver, or an estoppel to justify an entitlement in the builders to claim for work done in the absence of written variations. But if such circumstances existed, they would be pleaded in the respondent's defence to a claim of negligence based upon the omission to plead cl 16. They would not be material, in the sense of being essential, to the Cappellos' claim itself.
4. It was notable that in the earlier strike out application before Weber SC DCJ, no point was taken by the respondent that material facts were omitted from the comparable existing claim concerning cl 15 (relating to the builders' demands for payment on progress payments), even though it might be said that there were likely to be some facts which might defeat that claim, or which might relate to a causal connection between the alleged breach and the suffering of loss or damage. Moreover, perhaps chastened by its lack of success in its earlier strike-out application in connection with the omission to plead cl 15, in its opposition to this amendment application, the respondent took no point that for the applicants to run a claim based on cl 16 would be an abuse of process since the applicants had not taken it in the Supreme Court proceeding or would be caught by advocates' immunity. The respondent does not say that cl 16 could not be invoked nor that it is inarguable to contend that the defendant should reasonably have pleaded the contractual provision.
5. The respondent's pleading point, as a basis for opposition to the proposed amendments, to the extent that they envisage a case under cl 16, therefore fails.
6. I turn now to discretionary considerations in s 58.
7. The application is belated. The platform for the proceeding was the Court of Appeal's decision I have referred to, and the legal advice which preceded that decision, to the extent that the advice suggested the availability of a reasonably arguable point about the consequences of the defendant omitting to plead (or recommend the pleading) of cl 15 in the Supreme Court proceeding. From a distance, it is surprising that the same advisers who suggested the applicants' potential invocation of cl 15 did not also raise a point about the significance of the omission to plead cl 16, either before the appeal proceeding was instituted in the Supreme Court or after the Court of Appeal delivered its judgment and prior to the institution of the professional negligence suit in this Court. To this extent, raising the point now has led to at least some inefficiency and has manifested a lack of expedition.
8. Be that as it may, it is not uncommon in litigation for litigators to think of new points as hearings loom; which, accepting Mr Hall's evidence in this respect, is what has happened here. This is not the worst case of late amendment applications seen in this Court. It was filed over 6 weeks before the hearing commences.
9. I accept that the applicants' attempt to run an argument that cl 16 was negligently omitted from the court documents in the Supreme Court proceeding potentially opens up new lines of inquiry in the litigious controversy. Whereas cl 15 had opened up inquiry about the invoices sustaining a single progress claim, in respect to a narrow or discrete period during which the contract on foot, there is no suggestion that the claim about unapproved variations is similarly limited as to time over a construction contract that was on foot from at least 1 September 2017 to 20 November 2018; a not insignificant period for residential construction work.
10. But there is no suggestion by the respondent that, contrary to the applicant's allegation, any written variation had, in fact, been approved. It should be a relatively straightforward question of fact whether any omission by the defendant to plead cl 16 was, in all the circumstances, negligent. What might cause difficulty for the applicants is proof of the remaining requirements to sustain the additional claim in negligence: proof of loss or damage and causal connection of breach to the loss or damage. But in circumstances where, beyond the existing evidence and Mr Cappello's proposed draft affidavit, there is no application brought by the applicants to rely upon additional evidence, the applicants' evidentiary case is now clear; albeit, I would be inclined to condition any amendment, subject to other discretionary considerations, upon the applicants not being permitted to rely upon any further evidence without the leave of the trial judge.
11. The critical points, concerning the discretionary exercise is the competing prejudice that would follow to the respondent, from allowing the amendments and to the applicants from refusing the amendments.
12. As I have indicated, the prejudice, as I perceive it, to the respondent from permitting the amendments is to require it to incur additional expense to investigate and, if appropriate, plead and prove that the defendant's apparent failure to plead, or advise the applicants to plead, cl 16 in answer to the builders claim would not have made any difference. Further, it was suggested that the time that such investigation was undertaken might jeopardise the current hearing date.
13. I accept that there would be additional expense. But that is always a consequence to a defendant of a new claim being permitted to be brought against a defendant, which adds to the factual base of the litigation.
14. As to the factor of time, I accept that the respondent will need to institute inquiries and that it is possible that coercive process - in the form of a notice to produce to the applicants or subpoena to produce to the builders - may be required. However, the respondent's difficulty is that, although he opposed the proposed amendments, he has been on notice of the proposed amendments for at least a full week (the motion being filed on a Friday and hearing the next Monday week) yet he chose not to give evidence to reinforce the somewhat abstract nature of the difficulty his Counsel identified. This is in a context where the respondent acted for the applicants in the building dispute adjudicated in the Supreme Court proceeding and where he might have been expected to have obtained, or at least have the opportunity of obtaining in the Supreme Court proceeding all the communications between the applicants and builder for the pendency of the building dispute, prior to the commencement of this proceeding. I appreciate that the issues in dispute for adjudication in the Supreme Court proceeding may have ultimately turned out to be of a narrower compass, but it would be surprising if the respondent had not obtained, for example, all documentary communications between his clients and the builder over a period of less than 2 years that may bear on the question of what informal variations were approved. Mr Lyons did not give evidence in this application about the information or documents he had, or does not have, that would enable him, at least as a starting point, to meet the proposed new claim. Nor did he give evidence to give concrete expression to any real concern about his not having enough time to prepare any defence to the new claim beyond the bare concern expressed by his Counsel from the (metaphorical) Bar table [1] .
15. In these respects, I do not consider that he needed to await receipt of Mr Cappello's foreshadowed affidavit to form a view as to the likely time and cost he would need to defend a new claim and, as it happens, the draft affidavit prepared by Mr Cappello would not meaningfully assist him anyway in those respects, given that the bland assertion was made that the parties did not enter into any written variation during the term of the construction works. Further, although the respondent's Counsel argued that the applicants had previously been 'difficult' about complying with an earlier notice to produce, to the extent that they fail to produce or comply with future coercive process directed to them, it would be expected that any future non-compliance with coercive process may be adverse to the success of their claim; or at least it would not assist them. Nothing was said on the respondent's behalf either about the likely capacity of the builders to readily produce documents in response to service of coercive process upon them.
16. Accordingly, although I accept, indeed presume, some prejudice to the defendant, in circumstances where the respondent has not given evidence on the application, it strikes me as being more theoretical than real. On the basis of the evidence at the hearing of this application, the spectre of a need for vacation of the hearing is not a substantial consideration against the application.
17. Set against this prejudice to the defendant, such as it is, is the prejudice to the applicants from denying them the amendment. Relevant in this context, ironically, is an argument raised by the respondent's Counsel, to the effect that the Court of Appeal may (at paragraphs 38-39) have cast some doubt about the likelihood of success, at least at a factual level, of the plaintiff's existing claim in negligence based upon the defendant's omission to plead cl 15 in defence to the Builders' claim in the Supreme Court proceeding. This circumstance heightens the significance to the applicants of an alternative claim, which I accept is reasonably arguable. The Court is not in a position to, and it is unnecessary (and inappropriate) to opine, upon the applicant's prospects of succeeding with its proposed new claim.
18. On balance, the dictates of justice support the amendments to the statement of claim, in paragraph 3 (being the particulars (c)-(e) (incl) and (g)).
19. This leads me to the respondent's opposition to the proposed amendments in paragraph 4.
20. The respondent's point, here, is that the claim for damages intermingles the claims of negligence for the existing claim of the defendant's omission to plead (or advise the applicants to plead) cl 15 and the prospective new claim. As I have found that the applicants are entitled to bring the new claim, this objection falls away. At any rate, I would also have found that, on a cursory look, it appears that most of the particulars of damage to paragraph 4 appear to relate to the existing claim, centred around the omission to plead cl 15 of the construction contract, independently of any claim based upon the omission to plead cl 16, in any event. Mr Ng did not identify which of the items of loss claimed in paragraph 4 could only relate to a new claim. The proposed amendments to paragraph 4 are permitted.
21. In relation to these amendments, to reiterate, in my view, an appropriate term to the grant of leave is that in the absence of the grant of further leave from the Court, the applicants are not permitted to rely upon further evidence that has not already been adduced by them or goes beyond that which is contained in the draft of Mr Rosario's affidavit placed before the Court in argument on the applications yesterday. The respondent should not be faced with further shifting sands in the applicants' case and is entitled to some finality in the way that the applicants plead and prove their case a reasonable period before the hearing commences.

Application to rely upon further affidavit evidence from Mr Cappello

The parties' submissions

1. Mr Hall submitted that Mr Cappello's proposed second affidavit (Exhibit B at the hearing of the motion) was primarily prepared simply for convenience; with a view to annexing documents in proof of the quantum of the applicants' claim. A subsidiary purpose was to correct an error in his first affidavit.
2. Counsel for the respondent disputed Mr Hall's characterisation of purpose. The affidavit was not exclusively relevant to quantum, but raised matters relevant to the issue of breach. In this regard, Counsel singled out paragraph 5 of Mr Cappello's affidavit, which identified 5 invoices. In his draft affidavit, Mr Cappello asserted that none of the invoices complied with cll 15 and 16 of the construction contract. Although he did not refer to the paragraph in terms, I infer that Counsel would also argue that paragraph 6 contained assertions regarding the builder's omission to provide invoices containing certain detail (profit cost or income, out of pocket expenses or disbursements) which also went to proof of the issue of breach.
3. The respondent complains that this was evidence which could and should have been evidence adduced through Mr Cappello's first affidavit. Mr Ng referred to a passage (paragraphs 38-39) of the Court of Appeal's judgment on the appeal following the decision at first instances, where Leeming JA expressed commentary on the content of some of the invoices; though, as Mr Ng conceded, not in any definitive way.
4. Had Mr Cappello raised the matters that he did in paragraphs 5 and 6 of his first affidavit, the respondent could have instituted full inquiries in the ordered way set out in accordance with the Court's earlier directions. The applicants should not be permitted to split their case to adduce evidence in this way; and not in a situation where, at worst, the hearing date is looming or, at best, the respondent's preparation would be interfered with.
5. Counsel for the respondent did not cite any additional prejudice that would flow from Mr Cappello being permitted to give evidence about the other matters identified in his affidavit, or the documents annexed.

Consideration

1. In the hearing, Counsel for the respondent accepted that there had not been any prior direction from the Court for the notification or service of documents that the parties propose to rely upon at the hearing. Quite a deal of Mr Cappello's draft affidavit contains descriptive commentary on what would otherwise have been self-explanatory documents capable of tender without a witness proving them.
2. The applicants had served their evidence in chief in accordance with Court directions. They correctly recognised that they required the Court's leave to rely on additional evidence.
3. Subject to some qualifications, I agree with Mr Hall that most of the draft affidavit is directed to proving documents relevant to the proof of quantum which the applicants would have relied upon to sustain the pleading in its existing form, prior to the amendment application.
4. A first qualification is in paragraph 3, which featured a statement of correction of his earlier affidavit. Appropriately enough, Counsel for the respondent did not object to that paragraph.
5. The second qualification concerns the character of the affidavit. Whilst most of the affidavit goes to proof of quantum, there are other parts to the affidavit that relate to what might be called liability issues or issues about the nature of the loss and damage. Aside from paragraphs 5-6, which I will come to shortly, other parts of the affidavit refer to an issue of mitigation of damage (paragraph 13), and causation (paragraphs 16-20). There is force to the respondent's complaint that it is not apparent (and there was no explanation for) why this evidence could not have been included in the first affidavit.
6. However, it is also not uncommon in civil litigation in this Court conducted on the basis of affidavits or witness statements that omissions arise which a party's legal representatives need to rectify. The real question for determination, is whether or not, consistently with the dictates of justice, which includes consideration of case management of objects, omissions in a party's case can be rectified in a way that is fair to the other party.
7. The proper solution to the applicants' omission to include certain parts of the evidence (not relating solely to proof of quantum) is not, however, to deprive Mr Cappello of the opportunity to adduce such evidence. The appropriate solution is to grant leave to the defendant, if advised to put on such further evidence as he wishes to adduce in response to those particular parts of Mr Cappello's draft affidavit. That permission is to be construed strictly.
8. This leaves the objection to paragraphs 5-6. I agree with the respondent's criticism that, subject to a qualification, the subject matter of the paragraphs dealt with the existing claim in relation to the omission to plead cl 15 so that Mr Cappello's evidence is 'split' in affidavits before and after the respondent's evidence. The qualification is the last sentence to paragraph 5, which concerns the new claim (which relates to the omission to plead cl 16). There is no reason or explanation for why, subject to the qualification, the content of paragraphs 5 and 6 could not have been included in Mr Cappello's first affidavit.
9. But if there is any splitting of the applicants' evidence in paragraphs 5-6 it is difficult to see how the respondent is prejudiced by it. Although it is true that the respondent served evidence responsive to, and, it may be inferred, on the assumption that the evidence was complete, there is nothing else to indicate the respondent making irrevocable forensic decisions on account of the completeness of the evidence. As indicated on the amendment application, I am not satisfied that it is now too late for him to adjust to the change in circumstances.
10. The first sentence to paragraph 5 refers to invoices. The sentence, and the documents comprising Annexure 'B' could and should have featured in his first affidavit. If, however, there are additional invoices which are 'the subject of these proceedings', it does not strike me as unduly burdensome for the respondent to prove them.
11. The second sentence of paragraph 5 is a statement of legal conclusion and is inadmissible.
12. The last sentence of paragraph 5 to Mr Cappello's draft affidavit contains an assertion of fact, the absence of written variations. The respondent, on these applications, has not suggested that this particular assertion is wrong. If that be so, there is no prejudice to the respondent. Nevertheless, if there are matters which further inquiries to be instituted by the respondent indicate that the applicants' approval to informal variations, then the respondent will have opportunity to adduce such evidence.
13. The entirety of paragraph 6 - a very long single sentence - contains an assertion about the non-existence of certain described documents. Although this should have also been contained within Mr Cappello's first affidavit, again, it does not strike me as unduly burdensome for the respondent to prove that there are, contrary to Mr Cappello's assertion, other invoices answering the description he gives to invoices in the paragraph.
14. As to the remainder of the affidavit, with the exception of those paragraphs I have specifically dealt with, as I have indicated, these do go to proof of the quantum of the existing claim for damages and, as I interpret the applicants' position, also the new claim for damages arising from the omission to plead, cl 16 in defence to the builders' claim.
15. In relation to the categories of documents themselves, there is no suggestion that there is doubt about their authenticity. They could have been supplied simply ahead of the trial as a tender bundle. The only minor adjustment I make, which goes to form, is that the documents sought to be included should be in a composite exhibit, consistently with the requirements of r 35.6 of the Court rules.

Costs of the motion

1. By order 4 of its motion, the plaintiffs' acknowledged that they should pay the defendant's costs thrown away by their amendment application. In my view, the costs order should not be so confined, but should extend to any costs thrown away by the plaintiffs being permitted to rely upon any new affidavit from Mr Cappello. Both applications sought indulgences from the Court.

Orders

1. I make the following orders: 1. Leave is granted to the plaintiffs to file and serve an Amended Statement of Claim by close of business on 14 July 2022, in accordance with the draft proposed Amended Statement of Claim handed up to the Court at the hearing on 11 July 2022, on terms: 1. that with the exception of an affidavit from Rosario Cappello, a draft of which was placed before the Court at the hearing of the motion, and whose content is affected by order 2, the applicants are not permitted to rely upon any further evidence without leave of the Court; and 2. that are in conformity with order 6. 1. The plaintiffs are granted leave to rely upon and serve on the defendant, by 14 July 2022, the affidavit of Rosario Cappello, in accordance with the draft version of the affidavit which was placed before the Court at the hearing of the motion, subject to the following: 1. Mr Cappello is not permitted to rely upon the second sentence to paragraph 5 of that affidavit; 2. the documents identified in the draft affidavit as annexures, and (where there is any difference), the categories of documents that the applicants indicated their intention to rely upon (as identified in Mr Hall's written submissions of 11 July 2022, being MFI 1) are not to be annexed to the affidavit but, in lieu thereof, are to be either compiled in a single exhibit to the said affidavit, or alternatively, are to comprise part of any tender bundle which the plaintiffs choose to compile (with or separately to the defendant) prior to the hearing. 1. The defendant is to file a Defence to the Amended Statement of Claim by 28 July 2022. 2. The defendant has leave to serve further evidence, served no later than 10 August 2022, restricted to the following: 1. evidence in opposition to the plaintiffs' new claim of negligence; and 2. such further evidence relating to Mr Cappello's second affidavit (to the extent it does not fall within (i)) as is supplementary to his first affidavit as he is advised, in accordance with these reasons. 1. To the extent to which, if at all, any other difficulties arise in connection with the preparation of their case for hearing which may imperil the commencement of the hearing, the parties have liberty to apply to the Civil List Judge on 2 days' notice. 2. The plaintiffs are to pay the defendant's costs of and occasioned by their notice of motion dated 1 July 2022.

Endnote

1. Counsel for the respondent appearing on the application by AVL. 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: 12 July 2022