Gordian Runoff v Price & Ors

Supreme Court of NSW|2004-06-11|Before: McDougall J, Dougall J

Introduction 1 Baulderstone Hornibrook Engineering Pty Ltd ("BHE") entered into a contract with Sydney Airports Corporation Ltd ("SACL" - then known as the Federal Airports Corporation) under which BHE undertook responsibility for the design and construction of the third runway at Sydney's Kingsford Smith Airport. SACL claims that there are defects in the design and construction of the retaining walls for the third runway. That claim has given rise to a multiplicity of litigation. In chronological order of commencement, the relevant proceedings are:

(1) Proceedings 6115 of 2001, brought by BHE against certain consultants ("the BHE proceedings") at a time when BHE was aware of the likelihood of a claim against it and brought with the specific intention of preserving BHE's causes of action against those consultants having regard to the relevant limitation period prescribed by s 14 of the Limitation Act 1969 (NSW).

(3) Proceedings 50176 of 2003 ("the indemnity proceedings") brought by BHE against a number of insurers, including the present plaintiff ("Gordian" - formerly known as GIO Insurance Ltd), claiming indemnity in respect of the SACL proceedings under multi layered project specific policies of insurance.

(4) These proceedings ("the Phillips Fox proceedings") in which Gordian seeks to restrain the firm of Phillips Fox, and specifically a partner thereof, Mr Timothy Randolph Price, from acting further against Gordian in the indemnity proceedings and from advising, among others, BHE and any related companies in relation to the indemnity proceedings or their subject matter. 2 BHE is not a party to the Phillips Fox proceedings. By notice of motion filed on 2 June 2004, it sought, among other relief, an order that it be joined to these proceedings as a second defendant pursuant to Pt 8 r 8(1)(b) of the Supreme Court Rules. I made an order to that effect on 11 June 2004, and said that I would give my reasons for doing so. These are my reasons.

The role of Phillips Fox 3 Phillips Fox acted for BHE in the indemnity proceedings from their inception until, on 7 May 2004, Freehills were appointed to act for BHE. 4 Phillips Fox also acted, and continue to act, for BHE and AWB in the SACL proceedings. It appears that the SACL proceedings are close to settlement. The negotiations for the settlement were aided by a process of facilitation undertaken with the assistance of the Hon T R H Cole QC. That facilitation included many meetings between the parties and their legal advisers. Mr Price and his firm were closely involved in that process. 5 Phillips Fox did not, and do not, act for BHE in the BHE proceedings. 6 Phillips Fox have prepared BHE's documents for discovery in the SACL proceedings. The documents - said to be in excess of 650 files - are presently held at the offices of Phillips Fox. It is likely that they will be required to be discovered in the indemnity proceedings. Although the process of discovery will now be undertaken, on behalf of BHE, by Freehills, it is clear that the relevant partners and staff of Freehills will need to confer with Mr Price and other relevant partners and staff of Phillips Fox to ensure that discovery is handled as effectively and cheaply (having regard to the change in solicitors) as possible. 7 Ms Amanda Yvette Davidson, a partner in Freehills having responsibility for the day-to-day carriage of the indemnity proceedings on behalf of BHE, gave the following unchallenged evidence of the involvement of Phillips Fox and Mr Price in her affidavit sworn 2 June 2004: " 20 I am instructed that [Phillips Fox] has had a lengthy involvement in the various related proceedings and holds information essential to the pursuit of the Indemnity Proceedings of which Freehills currently has carriage. Accordingly, the proceedings against Phillips Fox have the potential to adversely affect (including as to delay and additional costs) our client in the Indemnity Proceedings. 21 Any order or undertaking in the [Phillips Fox] Proceedings will have a direct effect on the process of the Indemnity Proceedings, including matters related to the provision of evidence as to relevant matters of fact by Mr Price and Phillips Fox's conclusion of a proposed settlement of related proceedings involving QBE. 22 Additionally, the nature of the handover is such that a number of experts briefed to advise in relation to the SACL Proceedings will be required to assist or their evidence will be of significance to the Indemnity Proceedings. It is envisaged that separate to expert reports and evidence, the assistance of Mr Price will be important in relation to assessing the way in which the expert evidence was compiled. 23 Phillips Fox's on-going identification at our request of various factual and administrative issues associated with the handover process of the matter from Phillips Fox to Freehills has been a necessary step in the effective administration of the matter. Since we were first made aware of the handover of the Indemnity Proceedings to us we have made all efforts to obtain the appropriate information to continue the carriage of the Indemnity Proceedings for our client. An order limiting the ability of Phillips Fox to assist with this transition will present a significant impairment in our client's ability to efficiently prosecute the Indemnity Proceedings."

Part 8 rule 8 8 Part 8 r 8(1) provides, so far as is relevant: "8(1) Where a person who is not a party - (a) ought to have been joined as a party; or (b) is a person whose joinder as a party is necessary to ensure that all matters in dispute in the proceedings may be effectually and completely determined and adjudicated upon, the Court, on application by him or by any party or of its own motion, may order that he be added as a party and make orders for the further conduct of the proceedings." 9 Paragraph (a) covers the situation where a necessary party - someone who "ought to have been joined as a party" - has not been joined. It follows, I think, that paragraph (b) may apply notwithstanding that, on the face of them, proceedings as commenced are sufficiently constituted to enable the Court to determine the matter in issue: see Re Great Eastern Cleaning Services Pty Ltd (1978) 2 NSWLR 278, 280. 10 To satisfy the test of necessity in paragraph (b), something more is required than that the joinder be just or convenient: Vandervell Trustees Ltd v White [1971] AC 912. It is, however, difficult, and certainly undesirable, to formulate an exhaustive statement of principle to cover cases where the rule should be applied: Gurtner v Circuit [1968] 2 QB 587; Great Eastern Cleaning. 11 In Pegang Mining Company Ltd v Choong Sam [1969] 2 MLJ 52 at 55-56 Lord Diplock, delivering the opinion of the Judicial Committee of the Privy Council on an appeal involving the then Malaysian equivalent of Pt 8 r 8(1)(b), said that although the rule was not engaged simply because a person might be better off financially if the litigation were decided one way rather than another, nonetheless the distinction between "legal" and "commercial" interests was not helpful. His Lordship said that a better way of expressing the test required by the rule was: "Will his rights against all liabilities to any party to the action in respect of the subject matter of the action be directly affected by any order which may be made in the action?" 12 His Lordship's words were cited with approval by the Full Court of the Federal Court of Australia in News Limited v Australian Rugby Football League (1996) 64 FCR 410. The Full Court said, at 525, that "[t]he test involves matters of degree and ultimately judgment, having regard to the practical realities of the case and the nature and value of the rights and liabilities of the third parties which might be directly affected". Their Honours drew attention to the need to bear in mind that remedies in the nature of injunctive relief "are likely to affect other people to a greater or lesser extent": citing Silktone Pty Ltd v Devreal Capital Pty Ltd (1990) 21 NSWLR 317, 322 (Kirby P). They then said: "The requirement of a direct effect on rights or liabilities differentiates the case where a person ought to be joined, from other cases where the effect of the order on non-parties can be characterised as only indirect or consequential." 13 In State of Victoria v Sutton (1998) 195 CLR 291, at 316-317, McHugh J cited with approval what Lord Diplock had said in Pegang Mining and what the Full Court had said in News Limited. He said at [77] to [78] (omitting citations): "[77] The rules of natural justice require that, before a court makes an order that may affect the rights or interests of a person, that person should be given an opportunity to contest the making of that order. Because that is so, it is the invariable practice of the courts to require such a person to be joined as a party if there is an arguable possibility that he or she may be affected by the making of the order. [His Honour stated, in a footnote, that the power was derived both from the common law and by implication from powers such as that conferred by Pt 8 r 8.] That practice also assists in avoiding duplication of hearings on the same issues, and in avoiding the spectre of inconsistent decisions by courts or the judges of the same court. [His Honour then referred to what Lord Diplock had said in Pegang Mining. ] [78] The test for determining whether a person is a necessary party has usually arisen in the context of a person seeking to join proceedings rather than a failure to join a relevant person. But the same principle must apply in both situations. [His Honour referred to the decision of the Full Court in News Limited. ]" 14 It is not an answer to an application under Part 8 r 8(1)(b) that no relief is claimed against the person seeking to be joined as a party: Great Eastern Cleaning, where no relief in the proceedings was sought (or could be sought) against the applicant. There are, however, decisions that this consideration may be relevant, and in some cases dispositive: Vandervell; Walker v Commonwealth Trading Bank of Australia (1985) 3 NSWLR 496. This apparent divergence of judicial views seems to me to confirm what I have said in para [10] above as to the difficulty and undesirability of seeking to formulate an exhaustive statement of principle.

Analysis 15 In my judgment, the question of necessity posed by Part 8 r 8(1)(b) is to be assessed having regard to the practicalities of the particular matter. In some cases, it may be the case that a legal right can be shown to be affected: and if this is so, then ordinarily, joinder will be "necessary" for the purposes specified in the paragraph. However, consideration of the application of the paragraph must also accept that the necessity that it invokes differs from, and is presumably a less stringent requirement than, the concept of necessity invoked by paragraph (a). 16 I should specify the precise nature of the injunctive relief that Gordian, by its amended summons, seeks against Phillips Fox: "1 An Order that the defendants, by themselves or by their servants or agents be restrained from further acting against Gordian Runoff Limited in Supreme Court of New South Wales, Equity Division, Commercial List, proceedings 50176 of 2003. 2 An Order that the defendants, by themselves or by their servants or agents be restrained from advising any of the following parties (whether directly or indirectly, including by the provision of advice or legal professional services to any solicitor retained by any such party): (a) Baulderstone Hornibrook Engineering Pty Limited or any related companies; or (b) any of the parties to proceedings 55027 of 2002 in the Supreme Court of New South Wales, Equity Division, Technology and Construction List or any related companies; or (c) any of the parties to proceedings 6115 of 2001 in the Supreme Court of New South Wales, Equity Division or any related companies, in relation to proceedings against Gordian Runoff Limited in Supreme Court of New South Wales, Equity Division, Commercial List, proceedings 50176 of 2003 or the subject matter of them." 17 So far as BHE is concerned, an order in terms of prayer 2 would have the practical effect that Phillips Fox could not provide advice or assistance to BHE or Freehills in relation to any issue arising in the indemnity proceedings. 18 One fundamental issue in the indemnity proceedings will be whether BHE had any liability to SACL in respect of the design and construction of the third runway. Another fundamental issue will be whether BHE is entitled to be indemnified by the defendant insurers (including Gordian) in respect of any such liability. Clearly, in dealing with those questions in the context of the indemnity proceedings, BHE's solicitors will require a very detailed knowledge of the facts, issues and evidence that are (or would have been) relevant in the SACL proceedings. Clearly, much of that knowledge presently resides in Phillips Fox and, in particular, in Mr Price. The practical effect of an order in terms of prayer 2 would be to deny BHE and Freehills continuing access to that knowledge. 19 In a real and practical sense, I think that BHE's prosecution of the indemnity proceedings would be very seriously hampered if it did not have continuing access to the knowledge, relating to the SACL proceedings, residing in Phillip Fox. In my judgment, that provides a sufficient basis for the conclusion that the orders sought in the Phillips Fox proceedings might directly affect the rights of BHE. 20 Phillips Fox advanced, as a basis for supporting BHE's application to be joined as a defendant, that there would then be an effective contradictor. Phillips Fox submitted that its ability to defend the proceedings against it, in the absence of BHE, might be hindered because of questions of privilege and confidentiality as between itself and BHE. 21 The situation is not as clear as it was in Great Eastern Cleaning, where (if the Commissioner were not joined) there would be no effective contradictor but where the making of the order sought could have a direct impact on the rights of the Commissioner in other proceedings. Needham J considered the absence of an effective contradictor to be a circumstance relevant to the exercise of discretion in favour of the Commissioner. In the present case, it is going too far to say that, absent BHE, there would be no effective contradictor. Nonetheless, if BHE were joined, any difficulties of the kind adverted to would be minimised; and Phillips Fox might, perhaps, be able to take a less active role (in effect, leaving it to Gordian and BHE to argue the matters in dispute). I do think that this is a circumstance that is relevant to, although not dispositive of, the exercise of discretion.

Prejudice 22 The only submission that Gordian put as to prejudice was that, if BHE were joined as a defendant, and if the proceedings failed, Gordian might have to pay the costs of two defendants rather than one. 23 I do not think that that, of itself, is a sufficient reason not to join BHE if its joinder is otherwise justified. It is, in truth, inherent in the rule itself. The necessary consequence of joinder pursuant to Pt 8 r 8 is (where the applicant is seeking to be joined as a defendant) that the plaintiff's exposure to costs might be increased. (The joinder of a person as plaintiff may be contrasted because, ordinarily, all plaintiffs must have common representation and it would not normally be the case that the joinder of someone as an additional plaintiff would increase the costs payable by an unsuccessful defendant.) 24 In any event, it seemed to me that this consideration could be dealt with adequately by imposing, as a condition of the joinder, that it be at BHE's own risk as to costs. BHE by its counsel indicated that it would accept that condition. The effect of that condition is to displace the presumption that, if the defendants succeed, Gordian would be liable to pay the costs of Phillips Fox and of BHE. It is not intended to displace entirely any entitlement of BHE, in those circumstances, for costs. Costs will remain in the discretion of the trial judge, but a factor relevant to the exercise of that discretion in the circumstances under consideration would be that BHE sought, over the opposition of Gordian, to be joined as a defendant. 25 The circumstances that I have referred to in paras [20] and [21] would be relevant to the question of costs, should that arise. 26 Equally, if BHE is joined as a defendant and if Gordian succeeds, BHE would be exposed to a liability to pay Gordian's costs.

Conclusion 27 It is for those reasons that, on 11 June 2004, I ordered that BHE be joined as a defendant to the Phillips Fox proceedings, subject to the condition to which I have referred in para [24].

Last Modified: 06/23/2004 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.

CITATION : Gordian Runoff v Price & Ors [2004] NSWSC 535 HEARING DATE(S) : 11 June 2004 JUDGMENT DATE : 21 June 2004

CATCHWORDS : PRACTICE AND PROCEDURE - joinder - Supreme Court Rules - Pt 8 r 8(1)(b) - whether company should be joined as a second defendant - whether there is an effective contradictor - whether plaintiff would be prejudiced by joinder - where plaintiff might have to pay the costs of two defendants rather than one - condition imposed on joinder LEGISLATION CITED : Supreme Court Rules 1970 (NSW) Re Great Eastern Cleaning Services Pty Ltd (1978) 2 NSWLR 278 Vandervell Trustees Ltd v White [1971] AC 912 Pegang Mining Company Ltd v Choong Sam [1969] 2 MLJ 52 CASES CITED : News Limited v Australian Rugby Football League (1996) 64 FCR 410 Silktone Pty Ltd v Devreal Capital Pty Ltd (1990) 21 NSWLR 317 State of Victoria v Sutton (1998) 195 CLR 291 Walker v Commonwealth Trading Bank of Australia (1985) 3 NSWLR 496 PARTIES : Gordian Runoff Limited (Plaintiff) Timony Randolph Price and the persons referred to in Schedule 'A', trading as Phillips Fox (Defendants) FILE NUMBER(S) : SC 50072/04 R A Smith/M A Jones (Plaintiff) COUNSEL : P Garling SC/I Pike (Defendants)

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