Cordon Investments Pty Limited v Lesdor Properties Pty Limited

Aon Risk Services Australia Limited v Australian National University [2009] HCA 27 Bomanite Pty Ltd v Slatex Corp Aust (1991) 32 FCR 379 Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194; [2000] HCA 47. CASES CITED : Cropper v Smith (1884) 26 Ch D 700 Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146; [1997] HCA 1 Ketteman v Hansel Properties Ltd [1987] AC 189 Sali v SPC Ltd 1993) 67 ALJR 841 ; 116 ALR 625 ; [1993] HCA 47.

PARTIES : Cordon Investments Pty Limited (Plaintiff) Lesdor Properties Pty Limited (Defendant)

COUNSEL : Mr F Corsaro SC, Mr B Bradley (Plaintiff) Mr TS Hale SC, Mr MSM White (Defendant)

SOLICITORS : Anthony C Simpson & Associates (Plaintiff) Solari Legal (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY AND CONSTRUCTION LIST

55067/07 Cordon Investments Pty Limited v Lesdor Properties Pty Limited JUDGMENT The notice of motion 1 There is before the court a notice of motion brought by the defendant seeking leave to rely at the hearing upon a number of new affidavits:

iv. that of Mr Semken made on 25 November 09 2 The motion is opposed 3 In October 2009 the defendant brought a similar application before the court which was refused on the basis that the defendant had offered no reasonable excuse as to why the further evidence was not brought forward prior to the expiry of Justice McDougal's guillotine order in December 2008. Procedural history 4 These proceedings were commenced on 12 April 2006 by way of summons together with a notice of motion seeking interlocutory relief. There have been countless defaults by both sides in complying with orders for discovery and the service of evidence. 5 The substantive proceedings concern a dispute between parties to a joint venture deed for the purposes of developing land at Kingsway, Miranda entered in September 2002. The plaintiff was the builder and the defendant the owner of the land. An occupation certificate for the development was issued by Sutherland Shire Council on 1 December 2005. The defendant refused to execute the strata plans in respect of the property to allow sales of the residential units to complete. 6 The plaintiff's initial motion sought an order that the defendant execute specific strata plans in respect of the property. The parties relied on substantial evidence in support of that application, including expert evidence as to defective works and the scope of rectification work required to address same. 7 Justice Barrett dismissed the plaintiff's interlocutory application on 5 May 2006. His Honour found that he could not grant the interlocutory orders sought on the basis of the evidence before him. His Honour believed that there was no obligation on the defendant to execute the strata plans until actual completion, including rectification of minor defects and omissions, had been completed. 8 The plaintiff then attended to rectification works and served evidence in support of its contention that all defective works had been attended to in October 2006. 9 On 3 November 2006, the parties entered into an Interim Management Agreement and Interim Settlement Orders (IMA) to allow the Strata Plan to be registered and the residual residential units to be sold. 10 Between June 2007 and February 2008, the parties were engaged in the discovery process. 11 In February 2008, orders were made for the plaintiff to complete service of its further evidence in this matter. By 13 June 2008, the plaintiff had completed service of its primary lay and expert evidence. The evidence addressed all alleged defective work raised by the defendant as well as evidence as to the value of the building works. 12 As a result of the defendant's continued failure to comply with the IMA, on 3 October 2008, the Court appointed a receiver over the residual lots to give effect to same. The order appointing a receiver was stayed pending an appeal to the Court of Appeal. 13 The defendant was in substantial default of the Court timetable in serving its evidence in reply in the substantive proceedings. On 17 October 2008, Justice McDougall made orders including the following:

i. The defendant is to serve all evidence, including expert evidence, on which it intends to rely by 5:00pm on 16 December 2008.

ii. The defendant is not permitted without leave of the Court to rely on any evidence not so served.

iii. The matter is listed for further directions on 19 December 2008. 14 By 19 December 2008, no reply evidence had been served by the defendant. The matter was listed before Justice Bergin who adjourned the matter to February 2009, leaving it for the defendant to seek leave on the next occasion to rely on any evidence served by that date. 15 By the end of February 2009, the defendant finally served evidence in reply from a building consultant as to the costs of the building works and alleged defects. Evidence was also called from two members of the defendant, Paul Semken and Les Semken. 16 On 27 February 2009, with the consent of the plaintiff, Justice Bergin gave leave for the defendant to rely on that evidence. That evidence was limited to alleged defective works in the existing commercial building, the new commercial building, the common areas and residential units 20, 21 and 25 of the property. 17 On 1 April 2009, by consent the orders appointing a receiver were set-aside in the Court of Appeal and further consent orders were made giving effect to the IMA. 18 The plaintiff completed service of all evidence in reply in the substantive proceedings by the end of June 2009. In doing so, it served a report from a tiler in relation to allegations of drummy tiles raised by Mr Goddard in those parts of the building then the subject of the dispute. 19 Prior to 24 July 2009, the plaintiff served a proposed Further Amended Cross Claim on the defendant. The proposed amendments were to ensure that issues the subject of the completed evidence were reflected in the pleadings. 20 On 24 July 2009, the Court granted leave by consent for the plaintiff to file and serve the Further Amended Statement of Claim. The defendant was to serve any proposed amended cross claim by 14 September 2009. It failed to do so. 21 On 18 September 2009, the defendant informed the Court that it intended on serving a proposed further amended cross claim and additional evidence in this matter. The plaintiff objected and the Court ordered that the defendant serve (but not be permitted to rely) on any further evidence by 15 October 2009 and that issues of leave to rely on that evidence and any proposed amended pleadings to be debated on the next occasion. 22 On 9 October 2009, the parties attended a mediation before Mr Morling QC. It was unsuccessful. 23 On 15 October 2009, the defendant served the following further evidence:

i. A further affidavit of Ken Goddard as to defective works in residential units 2, 3, 4, 5, 6, 9, 10, 11, 12, 14, 15, 16, 18, 19, 22, 23, 27, 28 as well as the common areas and his opinion as to alleged non-compliance with the plans and specifications of the subject JVA. [These residential units were not the subject of the extensive evidence served by both parties to date].

ii. A supplementary report of Ken Goddard as to alleged costings of the building works.

iii. An affidavit of Colin Cass, tiler, which goes well beyond the allegations of drummy tiles initially raised by Mr Goddard and the subject of the reply evidence of Mr Lester and includes allegations in the further residential units not the subject of the earlier evidence.

iv. An affidavit of Gerard Barry, structural engineer, annexing a report as to alleged structural defects in the glass balustrades and other "ancillary building defects". [This is the first structural engineering evidence served by the defendant in these proceedings]. 24 The plaintiff objected to the defendant being entitled to rely on this extensive further evidence at this late stage. 25 On 30 October 2009, the defendant's application seeking leave to rely on this further evidence was refused. The defendant was granted leave to rely on the Further Amended Cross Claim, subject to undertakings that other than the affidavits already served and tender of documents sourced through subpoenas to be issued to the NAB and the plaintiff, the defendant was not to rely on any further evidence in support of the new paragraphs to the Further Amended Statement of Cross Claim. Further evidence 26 In light of the substantial delays of the defendant in serving its evidence after completion of the plaintiff's evidence in June 2008, Justice McDougall ordered in October 2008 that the defendant should not be entitled to rely on any evidence served after 16 December 2008 without leave of the court. Almost twelve months have passed since that deadline. 27 Further indulgences were granted to the defendant in February 2009. The plaintiff subsequently completed service of its evidence in reply. The matter is ready to have questions referred and the parties have been informed that the proceedings are likely to have a hearing date in July or earlier, depending on whether other hearing dates become available. The plaintiff's submissions 28 The plaintiff submits that the defendant's further evidence is a substantial expansion of its case. The plaintiff objects on the following bases:

i. The affidavit of Ken Goddard sworn 14 November 2009 concerns alleged defective works in 19 residential units not the subject of previous expert evidence. These units are owned by the defendant. To meet same, the plaintiff will need to brief its expert builder to attend the site on dates and times convenient to the owners (or in most part tenants) of these units. A detailed analysis will need to be made of the alleged defects and costing to attend to the rectification of same.

ii. The affidavit of Colin Cass sworn 14 October 2008. Mr Goddard raised the issue of alleged drummy tiles in some areas of the commercial and common areas and three residential apartments in his report of February 2009. The plaintiff qualified a tiling expert, Mr Lester to respond to those limited allegations. The report of Colin Cass is a substantial expansion of this evidence and raises alleged defects in most of the residential units. It is not a report in reply to the evidence of Mr Lester.

iii. The affidavit of Gerard Barry sworn 14 November 2009. This is the first expert evidence from a structural engineer served by the defendant in these proceedings. Mr Barry opines as to defects and non compliance with architectural drawings and plans. In addition to alleged defects in the residual units, he opines as to the following alleged defects: a) The structural engineering condition of the Kingsway façade of the Office Building.

b) Alleged acid damage to the roof of the Office Building.

c) The structural engineering condition of the internal and external decorative glass balustrades of the Main Building; and

d) The condition of the as-built roof of the Main Building. 29 The plaintiff has drawn attention to the fact that this has not previously been the subject of evidence from a qualified structural engineer. 30 The plaintiff contends that if the Court was to allow the defendant to rely on this evidence at this late stage, :

i. the plaintiff will be required to obtain further evidence in relation to the assumptions made by Mr Barry.

ii. the plaintiff will need to qualify an expert structural engineer to respond to the allegations of structural defects and alleged non-compliance with Naylor Shaw drawings. 31 The plaintiff's contention is that the extension of the alleged defects to the residual units is a substantial expansion of the defendant's case.

32 As at February 2009, Mr Goddard opined there was $615,686.47 worth of costs to complete all rectification works. As a result of this further evidence, Mr Goddard now opines there is in excess of $1.2M in costs to complete the works said to be:

i. Costs to complete rectification of alleged defective work in the sum of $523,477.24; and

ii. Costs to rectify work not carried out in accordance with plans and specifications in the sum of $686,339.12. 33 The plaintiff's contention is that this further evidence, brought almost four years after proceedings were commenced, effectively doubles the defendant's claim and is a substantial expansion of the case. 34 The defendant now seeks to rely on a further lay affidavit from Mr Paul Semken giving rise to a completely new claim not the subject of previous evidence. Absence of explanation 35 Mr Solari has given evidence that it was not until 12 October 2009 that "it became evident to me that the parties' prior strategy to have the Residual Units sold before the proceedings were to be tried had failed and that Lesdor was not to remain in possession of the Residual Units". 36 The plaintiff has contended that this is not a credible excuse for the failure of the defendant to obtain evidence as to any alleged defects in the years prior to December 2008 for a number of suggested reasons:

i. It was always part of Lesdor's case to establish that the building works did not reach completion because of incomplete and defective works, including any allegations in relation to the Residual Lots.

ii. It is part of Lesdor's case to establish that there is a shortfall in the value of the residual lots as compared to the balance owed under the loan facility. That necessitated a proper valuation of the Residual Units allowing for any alleged defective work. This was true regardless as to whether the residual lots were sold under the IMA or to be retained by Lesdor.

iii. Lesdor has conducted a concerted campaign to stymie the sale of the residual units in compliance with its obligations under the IMA. As early as November 2007, Lesdor confirmed in writing through its solicitors that "any relisting of the properties [residual lots] would be premature and also unnecessary".

iv. In 2007, Lesdor and Cordon obtained competing valuations of the residual lots, both valuations allowed for the allegations of defective work.

v. In July 2007, Lesdor sold one of the residual lots to one of its directors in breach of the IMA and without the consent of Cordon at a price "half way between" the parties' competing valuations.

vi. In September 2008, Lesdor's counsel informed the Court that Lesdor "has taken its position not to go ahead with the IMA and dispose of the remaining units for the very reason that in the current state of the market it sees a real problem and at the end of the day if it did sell those units, there would be this deficit, there is no money in it for the plaintiff and the defendant is left with a deficit". Cordon denies this to correct as the value of the remaining residual lots well exceeds the outstanding balance on the loan facility. Other matters 37 The plaintiff contends that it is the defendant's case to establish in its evidence all defective and incomplete work justifying its position that the works had not reached completion, including alleged defects in the residual lots. Cordon was entitled to assume that following the service of its evidence in February 2009, all relevant allegations of defective work had been identified. 38 Lesdor has served expert evidence as to the valuations of the residual units. Cordon was entitled to assume those valuations allowed for any allegations of defective work. 39 Given the relevance of any alleged defects in the residual lots to the proceedings, no credible explanation has been offered as to why Lesdor failed to serve evidence in relation to alleged defects in the residual lots prior to October 2009. 40 Mr Solari suggests that the evidence is now only necessary because Mr Randall opines that before the residual lots can be sold, all defective work should be rectified and as such, "Lesdor has now to be left in possession of the Residual Units". It has never been the objective intention of the parties that Lesdor was or is entitled to retain the residual lots. Cordon has offered to purchase the residual lots at the value Mr Randall opined that they were to be put to the market after any alleged defective work has been rectified. That offer has been refused by Lesdor. In those circumstances, Cordon rejects any suggestion that Lesdor would be entitled to damages being the cost of rectification work of the residual lots. 41 In addition to further evidence concerning defects in the residual lots, Lesdor also seeks to rely on a structural engineer to comment on various aspects of alleged defective work in the commercial buildings. Goddard's report in February 2009 stated that there was a need to obtain an opinion from a structural engineer on certain matters. Lesdor elected neither to obtain such evidence nor to seek further time to rely on such evidence after December 2008. No explanation has been given to justify the delay in obtaining this further evidence. The principles underpinning the exercise of the discretion to permit a party to rely upon late affidavit evidence/reports 42 Although the recent decision of the High Court of Australia in Aon Risk Services Australia Limited v Australian National University [2009] HCA 27 dealt with matters concerning the discretion to allow amendments to pleadings, the same decision sets the touchstone appropriate to the principled exercise of the discretion to allow or disallow the mobilising of late affidavit materials/reports.. Essentially the Court is dealing with case management and fairness.

[I am unable to discern any particular inconsistency as between the reasons given by the Chief Justice and those given by the majority]. 43 The majority judgment [Gummow, Hayne, Crennan, Kiefel and Bell JJ]:

i. At 89, dealt with the concept of discretion: "'Discretion' is a notion that 'signifies a number of different legal concepts'. In general terms, it refers to a decision-making process in which 'no one [consideration] and no combination of [considerations] is necessarily determinative of the result'. Rather, the decision-maker is allowed some latitude as to the choice of the decision to be made." [citing the observations by Gleeson CJ, Gaudron and Hayne JJ in Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission as apposite]

ii. The majority in Aon further observed that Gleeson CJ, Gaudron and Hayne JJ in Coal and Allied Operations went on to point out that the latitude as to choice may be considerable or it may be narrow .

iii. At 92, the majority observed that case management by the courts is now an accepted aspect of the system of civil justice administered by the courts in Australia, adding: It was recognised some time ago, by courts here and elsewhere in the common law world, that a different approach was required to tackle the problems of delay and cost in the litigation process. In its report in 2000, Managing Justice: A review of the federal civil justice system , the Australian Law Reform Commission noted that: "Over the last ten years Australian courts have become more active in monitoring and managing the conduct and progress of cases before them, from the time a matter is lodged to finalisation".

iv. At 93 the majority pointed out that "the achievement of a just but timely and cost-effective resolution of a dispute has an effect upon the court and upon other litigants. In Sali v SPC Ltd Toohey and Gaudron JJ explained that case management reflected: "[t]he view that the conduct of litigation is not merely a matter for the parties but is also one for the court and the need to avoid disruptions in the court's lists with consequent inconvenience to the court and prejudice to the interests of other litigants waiting to be heard ...".

v. At 95 and 96, the majority observed inter alia as follows: What may be just, when amendment is sought, requires account to be taken of other litigants, not just the parties to the proceedings in question. The statement is consistent with what was said in Sali v SPC , which reflected a proper understanding of case management. The statements in J L Holdings do not reflect such an understanding and are not consistent with what was said in Sali v SPC . To say that case management principles should only be applied "in extreme circumstances" to refuse an amendment implies that considerations such as delay and costs can never be as important as the raising of an arguable case; and it denies the wider effects of delay upon others. ... An important aspect of the approach taken by the plurality in J L Holdings was that it proceeded upon an assumption that a party should be permitted to amend to raise an arguable issue subject to the payment of costs occasioned by the amendment. So stated it suggests that a party has something approaching a right to an amendment. That is not the case. The "right" spoken of in Cropper v Smith needs to be understood in the context of that case and the Rule, which required amendment to permit the determination of a matter already in issue. It is more accurate to say that parties have the right to invoke the jurisdiction and the powers of the court in order to seek a resolution of their dispute. Subject to any rights to amend without leave given to the parties by the rules of court, the question of further amendment of a party's claim is dependent upon the exercise of the court's discretionary power.

vi. At 98, the majority observed as follows: Of course, a just resolution of proceedings remains the paramount purpose of r 21; but what is a "just resolution" is to be understood in light of the purposes and objectives stated. Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and cost are taken into account. The Rule's reference to the need to minimise costs implies that an order for costs may not always provide sufficient compensation and therefore achieve a just resolution. It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs. vii. At 99-101, the majority observed as follows: In the past it has more readily been assumed that an order for the costs occasioned by the amendment would overcome injustice to the amending party's opponent. In Cropper v Smith Bowen LJ described an order for costs as a panacea that heals all. …The modern view is that even an order for indemnity costs may not always undo the prejudice a party suffers by late amendment. … The views expressed by Lord Griffiths in Ketteman v Hansel Properties Ltd , that justice cannot always be measured in money and that a judge is entitled to weigh in the balance the strain the litigation imposes upon litigants , are also now generally accepted. In Bomanite Pty Ltd v Slatex Corp Aust French J said of Bowen LJ's statements in Cropper v Smith : "... That may well have been so at one time, but it is no longer true today ... Non-compensable inconvenience and stress on individuals are significant elements of modern litigation. Costs recoverable even on an indemnity basis will not compensate for time lost and duplication incurred where litigation is delayed or corrective orders necessary."

In Ketteman Lord Griffiths recognised, as did the plurality in J L Holdings , that personal litigants are likely to feel the strain more than business corporations or commercial person. So much may be accepted. But it should not be thought that corporations are not subject to pressures imposed by litigation. A corporation in the position of a defendant may be required to carry a contingent liability in its books of account for some years, with consequent effects upon its ability to plan financially, depending upon the magnitude of the claim. Its resources may be diverted to deal with the litigation. And, whilst corporations have no feelings, their employees and officers who may be crucial witnesses, have to bear the strain of impending litigation and the disappointment when it is not brought to an end. The stated object in the Court Procedures Rules , of minimising delay, may be taken to recognise the ill-effects of delay upon the parties to proceedings and that such effects will extend to other litigants who are also seeking a resolution in their proceedings.

viii. At 102-103, majority observed as follows : The objectives stated in r 21 do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay, as it inevitably will. Factors such as the nature and importance of the amendment to the party applying cannot be overlooked. Whilst r 21 assumes some ill-effects will flow from the fact of a delay, that will not prevent the parties dealing with its particular effects in their case in more detail. It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case . Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates . Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment. The fact that an explanation had been offered for the delay in raising the defence was regarded as a relevant consideration in J L Holdings . Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by r 21 to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. 44 As have already observed these observations may be readily applied to applications such as that is presently before this Court. Decision 45 Insofar as Mr Hale SC relied upon the plaintiff's amended statement of claim filed in August 2009, where claim to restitution had been raised, the circumstances were that the restitutionary claim was made by consent. Further that application was made to bring the evidence into line with the pleadings as it was part of the plaintiff's case to show the costs to actually carry out the works in the event that the joint venture agreement be terminated-apropos the quantum meruit claim based on the cost of construction. 46 Litigation is not a game. None of the explanations of Mr Solari are of substance. The principled exercise of the Court's discretion is to disallow the leave sought. Costs 47 The Court makes the following orders:

1. Order dismissing the defendant's notice of motion filed on 26 November 2009. 2. Order that the defendant pays the plaintiff's costs of the notice of motion.

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.