VADARO NOMINEES PTY LTD T/AS CORRECT LINE DRAINAGE AND PLUMBING

Appeal from Deputy Registrar's decision - Application to amend defence - Complex multi-contract relationship - Admission as to contract pleaded in statement of claim - Amendment to withdraw admission and plead alternative contract

Essex Securities Ltd v Lunt and Anor [2006] WASCA 58

Hutton v Meston [2004] WASCA 178

Queensland v JL Holdings (1989) CLR 146

SLEIGHT DCJ: This is an appeal against a decision of Deputy Registrar Harman made on 24 June 2009 where he disallowed in part an application to amend the defence of the first defendant as per a minute, undated but filed on 23 June 2009.

1 The appeal is a complete review of the matter de novo (see Hazart Pty Ltd v Rakemaker (1993) 11 WAR 26). The first defendant now seeks an amendment as per a minute of Proposed Further Re-amended First Defendant's Defence and Counterclaim, undated but filed on 1 July 2009 (referred to as the minute dated 1 July 2009).

2 The power to amend a pleading arises under O 21 r 5 Rules of the Supreme Court.

(i) The background to this matter is that the plaintiff and the first defendant had entered into a series of contracts for the first defendant to provide engineering definition and design services as a part of a project relating to the installation of sewerage in residential premises throughout the State of Western Australia.

(ii) On 19 June 2001 the plaintiff by a memo engaged the first defendant to undertake a design review of the Eaton 1H and 3C pump station and pressure main ("the Eaton project"). This included preparing drawings for a pump station and included a wet well, a valve pit and a series of overflow tanks linked by pipes. The first defendant had prepared earlier designs and a review was necessary to bring the designs up to date with "current development" and "the latest criteria" (see the letter from the plaintiff to the first defendant and being annexure FE 17 of an affidavit of Frances Evans sworn on 28 May 2009).

(iii) The letter of engagement dated 19 June 2001 (and correspondence referred to therein) do not refer to any formal contractual documents and the emerging issue in this appeal is which of the earlier contractual documents covered this review undertaking. The consequences in terms of contractual provisions is significant in terms of what contractual standards and obligations existed and what rights the plaintiff has to seek recovery of damages against the first defendant.

(1) On 1 January 2003 the first defendant submitted to the plaintiff the final review drawings for the Eaton project.

(2) On 7 March 2003 the plaintiff engaged a contractor to perform the works.

(3) Between May 2003 and July 2003 the contractor performed the works.

(4) On 8 July 2003 the pipes developed leaks requiring them to be replaced at a cost of $430,177.75.

(v) The plaintiff did not commence proceedings until December 2007, although it is clear from affidavit material that negotiations had taken place between the parties in an effort to resolve the matter prior to the commencement of proceedings. A statement of claim was filed on 11 March 2008.

(vi) The plaintiff pleads against the first defendant a breach of its contractual obligations and as a result of this breach the plaintiff claims damages for loss suffered as a result of having to replace the alleged flawed pipes.

(vii) In the statement of claim the plaintiff pleaded (I paraphrase):

(a) The parties entered into a contract dated 27 December 2000 consisting of a formal contract dated 27 December 2000 and correspondence and various other contractual documents (referred to collectively as "the BSD contract"). This contract and its constituent documents were pleaded in pars 4 and 5 of the statement of claim.

(b) Pursuant to the BSD contract the plaintiff commissioned the first defendant to undertake the works of the design review relating to the Eaton project (par 7 of the statement of claim).

(viii) The defendant filed its original defence on 26 March 2008. The defendant by par 3 of its original defence admitted the contractual relationship pleaded in pars 4 and 5 of the statement of claim.

In relation to par 7 of the statement of claim, the first defendant by par 5 of its defence admitted that it was commissioned to provide a design review of the Eaton project but did not admit or deny or plead at all to the allegation that the design review of the Eaton project was pursuant to the BSD contract.

(ix) In the minute of proposed amendments of defence, the subject of the application before the Deputy Registrar, the first defendant proposed to amend par 3 of the defence by withdrawing its admission on the BSD contract and substituting it with a pleading as follows:

"Save to admit that the First Defendant agreed to provide engineering and design services with due care, skill and diligence, the First Defendant does not admit paragraphs 4, 5 and 6 of the Statement of Claim ..."

In relation to par 7 of the statement of claim, the first defendant sought to amend par 5 of the defence to read:

"Save to admit that the First Defendant was commissioned to provide input to the design of certain aspects of the Eaton Project and relevantly the Overflow tanks described in subparagraph 8.2 of the Statement of Claim the First Defendant denies paragraph 7 of the Statement of claim."

Such an amendment would have the effect of incorporating in the pleading a specific denial that the review of the designs for the Eaton project was carried out pursuant to the BSD contract.

(x) The proposed amendments as outlined above were disallowed by the Deputy Registrar and this appeal seeks review of that decision.

(xi) As stated above, in this appeal the first defendant seeks different amendments to the defence and these are set out in the minute dated 1 July 2009

(xii) The effect of the minute dated 1 July 2009 is to seek to re-amend par 3 of the defence so as to admit the BSD contract (subject to pleading that its constituent documents consist of additional material) and, most significantly, further plead that the BSD contract "is not the contract under which the first defendant rendered the services that are the subject of this proceeding".

Further in relation to par 5 of the defence, the first defendant now seeks to specifically plead that the first defendant denies that the commission to perform the review of the Eaton project was pursuant to the BSD contract (new par 5(b)) and then, by new par 5(c), that the first defendant was commissioned pursuant to a Heads of Agreement contract (AS 80720F) as amended and made on or about 11 October 1999 and extended by letter dated 29 October 2001 (I will refer to this contract as the Head Contract).

Significantly, it further pleads that the original works relating to the Eaton project were commissioned on 11 October 1999 which predates the BSD contract.

3 Before the Deputy Registrar the first defendant had conceded that in its original defence it had admitted that the basal contractual document was the BSD contract. On the hearing of this appeal, the first defendant has changed its tack and submitted that the original defence only admitted the existence of the BSD contract but did not in par 5 of the defence admit that the commission to provide a design review of the Eaton project was pursuant to the BSD contract as had been pleaded by the plaintiff in par 7 of the statement of claim. Whilst this may be grammatically correct, in the context of the full pleading contained in the defence document and also the pleadings of the first defendant in the contribution claim against the second defendant and the claim in the third party proceedings, it is clear that the first defendant's position was that the BSD contract was the basal contract which applied to the review work to be undertaken.

4 Further, as correctly pointed out by counsel appearing for the plaintiff, the failure of the first defendant to traverse the allegation in par 7 of the statement of claim that the review of the Eaton project was pursuant to the BSD contract operates at law as a deemed admission (see O 20 r 14(1)).

5 Accordingly, in my view, I should proceed on the basis that there was an admission in the original defence document that the review of the Eaton project was carried out pursuant to the BSD contract.

6 The general principles concerning amendments, including the withdrawal of admissions, are set out in the first defendant's written submissions (pars 12 to 17) and the plaintiff's written submissions (pars 1 to 9). They are non-contentious.

7 In Hutton v Meston [2004] WASCA 178, McLure J (as she then was) (and with whom Murray J and Templeman J agreed) stated that the question of whether an amendment should be allowed to withdraw an admission is not to be approached on a formulaic basis but the scope of, and the weight to be given to, relevant considerations in the exercise of the wide discretion that exists is to be determined by the governing principle of the attainment of justice. This is consistent with the High Court decision in Queensland v JL Holdings (1989) CLR 146, a decision which is frequently relied upon by applicants seeking late amendments. However, her Honour McLure J went on to add a word of warning, stating at [20] as follows:

"I note as an aside that many practitioners in this jurisdiction (wrongly, in my view) regard this case as protecting them from the consequences of their inattention to the pleadings until shortly before or at trial."

8 In the matter of Essex Securities Ltd v Lunt and Anor [2006] WASCA 58 Master Newnes (as he then was) stated at [22] and [23] as follows:

"... where a party, who is legally advised and does not suffer any disability, deliberately and without mistake makes an admission, and there is no relevant change of circumstances, prima facie justice and fairness require that the party not be allowed simply to change its mind: SLE Worldwide Australia Pty Ltd v Wyatt Gallagher Bassett Pty Ltd [2005] NSWSC 816 at [56].

Although it is inappropriate to attempt to formulate general rules as to the approach to be taken, or to attempt to state exhaustively the matters to be considered on an application of this nature, in my view it will generally be relevant to consider the circumstances in which the admission was made, the reason that it is sought to be withdrawn, the significance of the admission, the time for which it has stood on the record and any prejudice that is likely to be suffered by the other side that cannot appropriately be compensated by an order for costs. In respect of the last, it must be recognised that in some cases the adverse effects consequent upon such an amendment (including effects created by delay) on the public and private interests involved in the litigation will not be adequately compensated by a costs order. Even simply delay may create adverse consequences that cannot be cured by a costs order: Jackamarra v Krakouer (1998) 195 CLR 516 at [29]."

Circumstances in which the admission was made and the extent of delay in applying to amend

9 I have indicated earlier in this decision the plaintiff filed its statement of claim on 11 March 2008 and the first defendant filed its original defence on 26 March 2008. Mr M W Schwikkard, a partner of the law firm, Jackson McDonald, deposed in an affidavit that on the basis of instructions received up until March 2008 and documents provided by the first defendant, he prepared a defence which he forwarded to the first defendant for comment on 20 March 2008. The first defendant made several minor changes but did not provide any instructions that the statement of claim had pleaded the incorrect contract. Mr Schwikkard deposed that the plaintiff made discovery on 22 May 2008 but inspection was delayed pending negotiations. Inspection occurred on 7 January 2009. Further supplementary discovery was made by the plaintiff on 20 February 2009, 20 April 2009, 12 May 2009 and 13 May 2009. From the discovered documents and from interviewing witnesses, Mr Schwikkard concluded that the relevant contract was not the BSD contract pleaded in the statement of claim but was the Head Contract as pleaded in the minute of the proposed amended defence.

10 Mr S Mullins, a solicitor employed by the first defendant's solicitors, deposed in an affidavit that he had conduct of the file on behalf of the first defendant but handed over the file to Mr Schwikkard once proceedings were commenced, but later became involved in the file after the defence was filed. He deposed that the documents discovered by the parties during the period from May 2008 to May 2009 comprised of 10 lever arch files. In March 2009 he reviewed the documents as a preparation to obtaining an explanation of the documents from the first defendant's witnesses, all of whom by this time had left the employment of the first defendant. At a meeting with one of these witnesses on 23 March 2009, Mr Mullins was referred by the witness to various documents which the witness claimed had refreshed his memory. The witness stated that the BSD contract did not apply to the works performed by the first defendant until July 2002 (that is, after the date of the commission of the review of the Eaton project). The witness stated that the applicable contract arose from a service brief dated 7 October 1999 accepted by the Water Corporation in a facsimile dated 11 October 1999 (in effect, the Head Contract).

11 The plaintiff filed an affidavit of Ms T A D'Uva, an employed solicitor of the plaintiff's solicitors. Ms D'Uva deposes that prior to the filing of the statement of claim the plaintiff sent a draft statement of claim to the first defendant's solicitors on 11 February 2008 and then later, at the request of the first defendant's solicitors, sent copies of the BSD contract documents. On 7 March 2008 (that is, before the filing of the statement of claim and defence) the plaintiff settled its claim against the second defendant subject to a suitable deed of release being entered into which occurred in or about June 2008 (that is, after the filing of the defence).

12 Ms D'Uva further deposed that the plaintiff forwarded its affidavit of discovery to the first defendant's solicitors on 22 May 2008 which included all documents referred to in the affidavit of Mr Mullins as being the documents which caused the witness to have his memory refreshed. This means that Mr Mullins discussed the matter with the witness approximately 10 months after the affidavit of discovery was served. Ms D'Uva deposes that Mr Schwikkard approached the plaintiff's solicitors in June 2008 suggesting that due to the extent of both parties' discovery and the costs involved, that inspection be postponed to enable settlement negotiations to take place. As a result of this suggestion apparently negotiations took place and, as I have already mentioned, inspection did not occur until January 2009.

13 This delay in conducting inspection of documents highlights the difficulty or dilemma of trying to keep costs down so as to facilitate settlement negotiations but at the same time running the risk of not coming to grips with a client's case as a result of delaying the inspection of documents and not appreciating the need to apply for an amendment to the pleadings at an early stage of the proceedings.

14 The plaintiff has filed on the appeal a lengthy affidavit of Frances Evans, an employee of the plaintiff, who deposed to the history of contractual arrangements between the parties and annexed to his affidavit 408 pages of contracts and correspondence. I believe the following summary sets out the position revealed by these documents.

1. The plaintiff had undertaken a public infrastructure project to provide deep sewerage for about 100,000 homes in Perth and rural areas over a 10-year period.
2. In May 1998 the plaintiff put out an invitation of registration of interest for consulting engineers to provide professional design services for sewer reticulation, pumping stations and pressure main designs (annexure FE 1 of Mr Evans' affidavit).

"Organisations will be required to sign a Head Agreement which will govern any subsequent contracts awarded".

1. By letter dated 26 May 1998 the first defendant sent a letter enclosing a registration of interest (annexure FE 2 of Mr Evans' affidavit). This registration of interest included a set of conditions as contained in a document headed "BSD Consultants Pty Ltd Standard Terms of Appointment".

This document has some significance if it applies to the works the subject of these proceedings because it contains two important conditions which the first defendant seeks to rely upon in its proposed amended defence:

(1) Firstly, under cl 14 the first defendant's liability is limited to $100,000;

(2) Secondly, under cl 15 the first defendant is discharged from any liability for any act or omission after one year from the completion of the services or the occurrence of the act or omission from which liability arises and no claim shall be commenced after this period.

1. By letter dated 12 August 1998 (annexure FE 3 of Mr Evans' affidavit) the plaintiff advised the first defendant that its application had been successful and it would be included in the tender panel. It confirmed that the contract included the first defendant's proposal of 26 May 1999 and the Heads of Agreement Contract No AS 80720F (that is, the Head Contract which the first defendant now says was the basal contract).
2. By letter 22 September 1999 the plaintiff instructed the first defendant to prepare inter alia design plans for the in-fill sewerage project of Eaton 1H and 3C (annexure FE 9 of Mr Evans' affidavit). This included the final design drawings for the pumping station. In this letter the heading "In-fill Sewerage - Eaton 1H and 3C" appears to be a generic description of all of the works relating to Eaton 1H and 3C, including the pumping station. By letter dated 7 October 1999 the first defendant sent a letter to the plaintiff confirming acceptance of the brief to carry out the Eaton project works and included a fee proposal. Attached to the letter was a service brief. The service brief included, again, the document headed "BSD Consultants Pty Ltd Standard Terms of Appointment" that I have earlier referred to.
3. By letter dated 11 October 1999 the plaintiff confirmed the commission of the works in accordance with the service brief sent to it by the first defendant (annexure FE 11 of Mr Evans' affidavit).
4. On 27 December 2000 the plaintiff and the first defendant entered into a formal written agreement entitled "Panel Contract Document for the Provision of Engineering Design Services for Minor Works (Panel B) by BSD Consultants Pty Ltd" (annexure FE 16 of Mr Evans' affidavit). This is the contract which the plaintiff has pleaded is the basal contract for the works the subject of these proceedings.

I note by way of passing that the contract provides for hourly rates to be charged consistent with minor works being undertaken.

1. By an undated letter, but typed on 6 March 2001, the plaintiff commissioned the first defendant to undertake a review of plans prepared in relation to the Eaton project (annexure FE 17 of Mr Evans' affidavit). As mentioned earlier, this review was necessary as the designs had been produced sometime earlier and were needed to be amended to ensure the sewer alignments were in accordance with current development and the pumping station designs were based on latest criteria.
2. On 15 June 2001 the first defendant sent a facsimile to the plaintiff agreeing to undertake the works and including a quotation (annexure FE 18 of Mr Evans' affidavit).

At this stage I comment that neither the letter from the plaintiff dated 6 June 2001 nor the response from the first defendant dated 15 June 2001 identified the basal contractual document. The letter from the first defendant dated 15 June 2001 provided for an estimate of fees described as a "Lump Sum Fee" rather than on an hourly basis as provided under the panel contract of 27 December 2000 [the BSD Contract].

1. On 19 June 2001 the plaintiff commissioned the first defendant to undertake the design review for the Eaton project (annexure FE 19 of Mr Evans' affidavit).
2. On 29 October 2001 the plaintiff sent a letter to the first defendant under the heading "Contract number. AS 80720F. The Provision of Reticulation Design, Professional Services for the In-fill Sewerage Programme".

"With reference to the above contract, we hereby offer to extend the contract for such a period as is required to allow for work, which has already been instructed by the Corporation under the contract, to be completed.

1. No new work will be instructed under the contract; and
2. Due to the significant reduction in the in-fill sewerage programme announced recently, the Corporation will not be re-tendering these services for the foreseeable future." (Annexure FE 23 of Mr Evans' affidavit)
3. By letter dated 27 November 2001 the plaintiff wrote to the first defendant on the heading referring to the BSD contract of 27 December 2000 and stated as follows:

"In future, all new engineering design services required for the in-fill sewerage programme will be obtained from Panel B (Minor Works).

Engineering design services currently in progress for the in-fill sewerage programme will be completed in accordance with the Heads of Agreement panel previously established specifically for this consultancy work." (Annexure FE 24 of Mr Evans' affidavit)

15 Based upon the above I conclude that if I allow the amendments the first defendant would have a strong arguable case that the works, the subject of these proceedings, were governed by the Head Contract. This I believe is consistent with the fact that it is clear that the original designs for the Eaton project came under the Head Contract and there is nothing in the documentation strongly indicating that the review works were pursuant to the BSD contract of 27 December 2000. On the contrary, the letters from the plaintiff to the first defendant dated 29 October 2001 and 27 November 2001 would suggest that the Head Contract applied to the review of the plans for the Eaton project.

16 I conclude that it is in the interests of justice that in all the circumstances of this case that the first defendant should be given leave to amend its defence to plead that the review of the Eaton project was governed by the contractual terms contained in the Head Contract. To deny the first defendant the opportunity to amend its defence as proposed to plead the Head Contract would potentially create a gross injustice in allowing the plaintiff's claim for breach of contract to proceed upon a false premise as to the contractual terms between the parties.

17 I reach this decision notwithstanding that the affidavit material before me does not clearly explain the reason why the first defendant approved the draft defence forwarded to it by its solicitors which contained the admission that the basal contract was the BSD contract. However, it is clear that the contractual history between the parties was complex and the significance of which contract applied may not have been immediately obvious.

18 The plaintiff also complains of the delay in making the application to amend. In my opinion the delay was not exceptional and further was not due to gross inattention, but due to a decision to postpone closer examination of the contractual documents pending an effort to negotiate a settlement between the parties. Further, allowing the amendment at this stage is unlikely to further delay the trial. On 26 June 2009 an order was made by the Principal Registrar vacating trial dates commencing on 4 August 2009 and resetting the matter for trial for six days commencing on 23 November 2009. I am informed by counsel appearing for the parties that even if the amendments are allowed, the parties remain confident that the matter can proceed to trial in November 2009 as listed.

19 The plaintiff has also submitted that it is inappropriate to allow the amendments given that the plaintiff settled its claim with the second defendant prior to the application for amendment. It is submitted that had the first defendant not made the admission that it did, the plaintiff may have proceeded on a different basis against the second defendant. In my opinion the submission is based upon speculation and nothing has been presented to me to substantiate that the plaintiff might have taken a different position. It is significant that according to the affidavit of Ms D'Uva the settlement reached with the second defendant (subject to the preparation of a deed of release) occurred prior to the statement of claim and defence being filed. Although it may be speculated that the terms of the deed of release may have been influenced by the admission made in the original defence, no affidavit material has been presented to me confirming this to be the case. Further, in my opinion a party entering into a settlement with a second defendant ought to take into account the possibility of amendments being allowed to the pleadings in relation to proceedings against a first defendant.

20 Further, it is submitted by the plaintiff that the effect of allowing the proposed amendments is to allow the first defendant to raise liability limitations akin to the statute of limitations by virtue of the contractual terms incorporated within the Head Contract. However, if the contractual terms between the parties provide such limitations, then in my opinion it would be unjust to deny the first defendant the benefit of those contractual terms expressly agreed between the parties.

21 Other than the amendments that arise from allowing the first defendant to plead the Head Contact applied to the review of the designs for the Eaton project, there are a number of other amendments contained in the minute dated 1 July 2009 which require brief consideration. These are as follows:

1. The first defendant has pleaded in a new par 4(a) that by reason of various facts pleaded the BSD contract did not require the first defendant to provide any services with the due skill, care and diligence that would be exercised by a geotechnical engineer, engineering geologist or scientist. This pleading is really an alternative pleading on the basis that if, which is denied, the BSD contract applies. Accordingly, par 4(a) will need to be further amended to make it clear that it is an alternative plea.
2. The first defendant has pleaded new pars 20A, 20B, 20C and 20D. By par 20A the first defendant pleads that the plaintiff's liability ought to be reduced in accordance with any amount received by the plaintiff from the second defendant. By par 20B the first defendant pleads that the plaintiff's entitlement ought not to exceed $100,000 as provided under the terms of the Head Contract. By par 20C the first defendant pleads that the plaintiff's claim ought to be denied as proceedings were not commenced by the plaintiff within one year of completion of the works or the alleged negligence and therefore, under the contractual terms of the Head Contract, are barred. By par 20D the first defendant pleads the plaintiff's entitlement ought to be reduced for contributory negligence (particulars of contributory negligence had earlier been pleaded in par 18 of the defence).

I see no reason why these amendments should not be allowed so that the full issues between the parties can be adequately adjudicated.

1. Finally, the first defendant raises a counterclaim which is an alternative plea that if the BSD contract applied then the plaintiff has been in breach of the contract by failing to provide the first defendant with the plaintiff's current design process, technical standards and manuals and ensuring that they were complied with. The first defendant pleads that such liability which might arise against the first defendant was caused by the plaintiff's breaches for which the first defendant claims damages as a counterclaim and set-off.

This pleading is not dependent upon the Head Contract but on the BSD contract pleaded by the plaintiff and I see no reason why the amendment should not be allowed so that all issues relevant can be adjudicated upon.

22 Finally, although not raised as an issue on this appeal, there are consequential amendments to the first defendant's contribution claim against the second defendant and the first defendant's third party claim against the third party arising from the amendments to the defence. Neither the second defendant nor the third party sought to be heard on the appeal and their counsel have not opposed consequential amendments in the claims against their respective clients arising from me allowing the amendment to the defence as sought by the first defendant.

23 I will hear counsel as to final orders in this matter.