Khattar v AAI Limited

Supreme Court of NSW|2019-10-31|Before: Lonergan J

Judgment

By notice of motion filed on 10 September 2019, the first second and third defendant seek leave to file and serve amended defences to add allegations that the plaintiffs failed to mitigate their loss and that the loss was caused by the plaintiffs' contributory negligence.
The plaintiffs oppose the amendments because, it is asserted, they are too late and they put the hearing date at risk given the requirements for further evidence to be obtained in response to evidence to be relied upon by the defendant that is yet to be served.
The proceedings, commenced in October 2016, arise out of damage by fire to a building at 12-16 Bridge Street, Lidcombe on 18 October 2014 ("the property").
The plaintiffs allege that the second and third defendants, who at the time of the fire occupied the first floor from which they operated a restaurant, caused the fire by failing to dispose of combustible waste properly, creating fire hazards and failing to take appropriate precautions against the risk of fire. In terms of lease obligations, the plaintiffs allege breaches of conditions of the lease requiring the property be kept clean, waste disposed of properly, compliance with regulations for rubbish removal and other breaches of the lease regarding insurance cover.

Proposed amendments

The first amendment - failure to mitigate - is contained in paragraph [31] of the proposed Amended Defence: "31. As to the whole of the Amended Statement of Claim, the Second and Third Defendants say that to the extent that any damage was suffered by the Plaintiffs as a result of any act, omission or conduct of the Second Defendant, Third Defendant and/or Fourth Defendant (which is denied), the Plaintiffs have failed to mitigate their loss: Particulars (a) Failing to cover the damaged section of the roof of the Premises so as to prevent the ingress of water and to otherwise protect the inside of the Premises (both upper and lower levels) from the elements. (b) Demolishing sections of the upper level of the Premises including walls, the roof and the upper level of the front facade. (c) Failing to maintain or adequately maintain the Premises so as to prevent further damage and/or deterioration. (d) Failing to salvage, or adequately salvage, the contents and/or fixtures within the Premises. (e) Failing to repair and re-let the upper and /or lower levels of the Premises."
The second proposed amendment - contributory negligence - is contained in paragraph [32]: "32. In the alternative, as to the allegations in the Amended Statement of Claim, to the extent that the Plaintiffs suffered loss as the result of any wrong of the Second, Third and / or Fourth Defendant (which is denied), that loss was caused or contributed to by the negligence of the Plaintiffs, as the owners of the Property and adjoining area, in that: (a) the Plaintiffs failed to remove (or cause to be removed) combustible waste and/or the wire cage that was placed under or near the Property's rear external fire stairs; (b) the Plaintiffs failed to terminate the occupation of the Property by the Second, Third and / or Fourth Defendant; (c) the Plaintiffs failed to maintain or adequately maintain the Property by failing to remove straw or organic matter from the roof cavity of the Property."
This position was refined to add the word "and/" before the word "or" to read "straw and/or organic matter".

Applicable principles

The Court may, at any stage of the proceedings, grant a party leave to amend any document in the proceedings: Civil Procedure Act 2005 (NSW) ("CPA"), s 64. The power is to be exercised in accordance with the overriding purpose of the CPA, and the dictates of justice: ss 56-58.
The factors to be weighed in the exercise of discretion to grant leave to amend include (Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [102] ("Aon")): 1. the nature and importance of the amendments to the party applying; 2. the delay in making the amendments, and the explanation for it; and 3. any prejudicial effect on the opposing party. However, leave to amend "will generally be granted if the application is made in a timely manner and for a proper purpose": Galati v Deans (No 2) (2018) 133 ACSR 516; [2018] NSWSC 1813 at [57].
The issue then is whether the amendments are timely; given that I have no doubt that they are for a proper purpose.
The other issue, bearing in mind the High Court's statements in Aon, is that any leave to amend is not granted without bearing in mind the requirements of case management and efficiency of the conduct of proceedings. As French CJ noted: "[23] …the adversarial system has been qualified by changing practices in the courts directed to the reduction of costs and delay and the realisation that the courts are concerned not only with justice between the parties, which remains their priority, but also with the public interest in the proper and efficient use of public resources." and similarly, in the joint judgment of Gummow, Hayne, Crennan, Kiefel and Bell JJ: "[93] …the rules concerning civil litigation no longer are to be considered as directed only to the resolution of the dispute between the parties to a proceeding. The achievement of a just but timely and cost-effective resolution of a dispute has an effect upon the court and upon other litigants. … [98] … 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."

Defendants' submissions

Senior counsel for the defendants, Mr Chen, argued cogently and persuasively that the amendments are both important and supported by evidence.

(a) Failure to mitigate

A plaintiff who suffers a breach of contractual or tortious duty is required to respond reasonably to that wrong; to take reasonable steps to mitigate their loss: Ardlethan Options Ltd v Easdown (1915) 20 CLR 285; [1915] HCA 35 at 296. A plaintiff who fails to take such steps cannot recover damages for avoidable loss: Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653; [1986] HCA 81 at 658-659, 675. Accordingly, the proposed allegation of failure to mitigate is one which, if originally pleaded, would not have been liable to be struck out. It is a matter of great significance to the defendants.
It is also an allegation with an arguable basis. That evidence is contained in the report of Mr Bullen which is dated 18 September 2019 and was served in September. He concludes: "the Premises appear to have undergone considerable deterioration in the 4.5 year period since the fire to the time of my inspections in March and April 2019".
Mr Bullen sets out the following specific instances of that deterioration: 1. Relevantly to paragraph [31(a)], (of the proposed Amended Defence) "weather protections and tie-downs for the roof sheeting were not done, leaving the fabric of the premises open to wind and rain damage. As a result, finishes and services are damaged beyond repair and damp pervades the fabric of the premises". 2. Relevantly to paragraph [31(b)], "the roofing and roof structure, ceilings and services were removed entirely… without appropriate reason and/or for reasons that can be traced to wind and rain damage permitted by failure to install appropriate weather protection… which had been recommended in February 2015. The extent of removal is unjustified…". 3. Relevantly to paragraph [31(b)], "the external walls to the first floor were removed for more than 50% of the permitter. The removal is unjustified…". 4. Relevantly to paragraph [31(c)], "the parapet of the street façade was demolished… in such an unworkmanlike manner as to cause damage to the walls and floor, the balustrades and staircase in the foyer… the manner in which this is done is not justified and is counter-productive…". 5. Relevantly to paragraph [31(d)], "it is alleged that the premises have been subject to looting" and concludes that "there is no reason why this has been allowed to occur. If security of the premises was compromised by the fire and its aftermath then, in my opinion, it would have required only a minor outlay to make the entire Premises secure by the end of November early December 2014". 6. Relevantly to paragraph [31(e)], "a further minor investment to repair finishes and services on the ground floor would also make way for the re-opening of facilities on the ground floor which would have returned the premises to an income producing facility", which would have taken "three months from 11 November 2014".
Mr Bullen articulates in paragraphs [26], [76] to [79] and [81] of his report the steps he says that the plaintiffs could have taken, at minimal cost, by late 2014 or early 2015, to protect the property and its owners from much of the damage and loss they have suffered.
Based on this evidence, it is arguable that, in each of the particularised respects, the plaintiffs failed to take reasonable steps to mitigate the loss they suffered and the damages they claim.

(b) Contributory Negligence

A plaintiff in negligence has a duty to take that degree of care for their own safety that an ordinary reasonable person would take: Civil Liability Act 2002 (NSW) ("CLA"), s 5R; Lloyd v Thornbury [2019] NSWCA 154 at [92]. A failure to take such care comprises contributory negligence, and may reduce, partly or entirely, the plaintiff's claim for damages: CLA, s 5S.
Like the alleged failure to mitigate, the defence of contributory negligence is therefore a significant one and, potentially, a full answer to the plaintiffs' claim. That matter alone tends considerably in favour of granting the amendment sought.
It is an allegation substantiated by the evidence recently obtained. In particular: 1. The proposed allegation in paragraph [32(a)] (of the proposed Amended Defence) is supported by the defendants' lay evidence. It is uncontroversial that a fire occurred on 18 October 2014 in a wire trolley located beneath the rear fire stairs at the property, which the defendants used to store their waste. In that regard, it is anticipated that the second defendant will give evidence in accordance with his statement that: "[41] Under the rear fire stairwell was an alcove. During service, the staff stored recyclable material here. When we received a pallet or cardboard boxes, which were emptied during the course of the day's trade, staff stored them under the stairs temporarily… [43] When the material was under the stairs the staff stored it in a wire trolley… I borrowed the wire trolley from Tony Khattar [the first plaintiff]. I had seen it when I went to borrow some tables from the function centre and asked Tony "can I use it?". He said "yes". From the time I first borrowed it, during the time we operated the restaurant, the wire trolley was always stored under the rear fire stairs, and used in the way I have described… [45]… none of the landlords… ever spoke to me about the material that we stored under the fire stairs. No one ever told me to move it or complained to me about it. It was therefore a long time."
In circumstances where the plaintiffs owned the property, it is arguable that their provision of the wire trolley and their failure to complain as to its use for storing rubbish close to the property, comprised a failure to take reasonable care for their own safety.
The proposed paragraph [32(b)] is a matter of interpreting the rights of the parties vis a vis the defendants' occupation of the premises. If the defendants did fail to properly dispose of their waste (as the plaintiffs allege at ASOC [8(b)-(c)], [13]), it is arguable that the plaintiffs, by not terminating the defendants' occupation or lease on that basis, failed to take reasonable care to prevent damage to the property.
The proposed allegation in [32(c)] is supported by the report of Mr Bullen as well as a report of a fire expert, Mr Kelly, who concludes that: "[7.3]… [I]t is likely the fire initially developed in the bin and the buoyant embers and smoke have risen up the outside wall of the building and then entered through the gap between the fascia and the wall… [7.7]… [T]his gap between the wall and the fascia pre-existed the fire and allowed fire to enter through the gap to ignite the build-up of light straw that appeared similar to bird's nest material… [7.8] The accumulation of light straw or similar detritus material across the top of the brick work at the roof structure junction, provided a kindling, light fuel availability that can be readily ignited as opposed to the structure of the premises… [7.9]… [T]he fire in the roof has been caused by the ignition of the light straw material by an ember that has either floated or been lifted by convection currents and smoke plume from the fire below… if the fascia was fitted correctly and the light straw material did not exist then the fire in the roof would probably not have occurred."
Mr Bullen concluded that the "gap between the fascia board and the external wall which allowed the hot gasses and embers to enter the roof void and ignite the fire… was present for some time before the fire… detectable by the reasonable inspection of a person intent on properly maintaining the Premises" and "routine and proper maintenance… would have been no more than removing the bowed timber fascia and replacing it." [1]
Thus, each of the alleged indicia of contributory negligence is supported by sufficient evidence as to make the allegations fairly arguable. That matter strongly favours the Court granting leave to the defendants to plead the proposed allegation.

The question then becomes whether the delay is excusable. The defendant argued that, whilst it may be accepted that the moving party's delay in seeking an amendment is relevant to whether the Court ought to allow it, it should bear in mind: first, the respondents' own delay in commencing proceedings and serving their evidence: Voitenko v Zurich Australian Insurance Ltd [2019] NSWCA 229 at [23], [32], and second, a failure to justify the delay will not preclude a favourable exercise of the discretion: Voitenko v Zurich Australian Insurance Ltd [2019] NSWCA 229 at [29]-[30].
The plaintiffs delayed some two years after the occurrence of the material events before commencing proceedings, and delayed a further two years in finalising their evidence. It may be inferred that those delays contributed to the defendants' delay in procuring their own evidence in response.
In any event, the relevant delay was not until the date of the filing of the motion in September, but rather until the date on which the defendants first notified the plaintiffs of the proposed amendments, being June and July 2019, respectively - some three to four months ago.
Moreover, key aspects of the allegations could not have been made at all until recently. In particular, the defendants only discovered in March 2019 that the plaintiffs had demolished large parts of the property, as set out in Mr Garnon's first affidavit at [14]. Mr Garnon was not required for cross-examination. The plaintiffs have to date failed to identify when the demolition occurred and who undertook it: Mr Garnon's second affidavit at [13], [15]-[16]. In these circumstances, the defendants' delay in articulating the complaint about the demolition is not only justifiable, but inevitable.
Finally, there is no prejudice to the plaintiffs if the Court permits the amendments because: 1. the plaintiffs have already procured expert evidence to justify their proposed demolition of the property; 2. many (if not all) of the objective facts underlying the allegations are uncontroversial; and 3. there is no trial until June 2020.
Regarding the first point, the plaintiffs have already served expert evidence relevant to the alleged failure to mitigate. As to the reasonableness of partly demolishing the property, the plaintiffs have served evidence from Peter Sarlos, an architect, that states that the walls and roof were susceptible to structural failure and collapse. [2] Mr Sarlos concluded that "the external walls require replacement". [3] In a second report dated 26 February 2018, Mr Sarlos confirms that conclusion, and provides further reasoning in support of it: at [8]-[15].
There is also a report served by the plaintiffs by Feris Chehade, an engineer, dated 20 February 2018, that: "the walls are unsafe and will have to be reinstated"; [4] "all facade walls are to be replaced"; [5] and, "due to the effects of the fire and consequent exposure to wind and weathering, the current roof has collapsed at the front of the building and partially collapsed towards the rear. Thus, the entire roof is not suitable and deemed unsafe". [6] It is not apparent that the plaintiffs would require any additional evidence to meet this allegation, although there is plenty of time to do so should they decide it necessary.
As for the remaining allegations and, in particular, the alleged contributory negligence, their factual foundation is unlikely to be contested. The plaintiffs' own evidence disclosed the presence of a "gap between the fascia board and the wall" and the presence of "straw or organic matter" in the roof cavity. [7] Likewise, it is common ground that the defendants allowed waste to accumulate near the defendant's premises and that the plaintiffs did not retake possession of the premises. The contest is therefore likely to centre on expert opinion as to what, assuming those factual circumstances, the plaintiffs ought to have done. That evidence is unlikely to be affected by the effluxion of time.
Finally, to the extent the plaintiffs do need to obtain further evidence to meet the proposed allegations, they have ample time to do so. The defendants put the plaintiffs on notice of the proposed allegations in June/July 2019. The trial in the proceedings is not until June 2020. A full year is a generous amount of time to prepare evidence on narrow points. There could be no suggestion that the plaintiffs will not have adequate time to meet the allegations, or that allowing them to do so will prejudice the trial date.

Plaintiffs' submissions

Mr Laughton SC submitted that based on the affidavit of Ms Bell four additional expert reports were yet to be obtained and served on behalf of the defendants and there is no estimate as to how long before service of those documents will take place.
Mr Laughton SC also noted that on 8 October 2019 the Registrar extended the time for compliance by the defendants for service of reports to a date in December, and this raised concerns as to adequate time for the plaintiffs to respond.
The duration of the hearing, (10 days), was based on an estimate involving the Defences in the form they were in in April 2019, and the additions proposed will add to the hearing time.
With respect to the "failure to mitigate" amendments, whilst the evidence of the architect Mr Bullen puts in issue two aspects of the plaintiffs' damages, (reinstatement v demolition and rebuild; failure to act reasonably and protect the building fabric), the plaintiffs need to see all the evidence addressing those matters that the defendants will call.
With respect to the proposed amendments in 31(a)-(e), it will be necessary to call lay and expert evidence to respond to the matters raised. Evidence may be required from a commercial leasing agent as well addressing whether after its repair, the upper level could be tenanted and quantifying the rent that could be recovered.
Overall, Mr Laughton SC complained that the defendants' evidence was not yet final and so the plaintiffs "could not start the work they needed to do".
Reliance was placed on parts of Aon, emphasising that delay and resulting prejudice to another party are grounds for the Court to refuse an application to amend: "[30] It might be thought a truism that "case management principles" should not supplant the objective of doing justice between the parties according to law… Also to be considered is the potential for loss of public confidence in the legal system which arises where a court is seen to accede to applications made without adequate explanation or justification, whether they be for adjournment, for amendments giving rise to adjournment, or for vacation of fixed trial dates resulting in the resetting of interlocutory processes. … [35] …It might be said that, in those circumstances, to refuse the amendment would be punitive. It is true that a punitive response to the substance of a late amendment application is not appropriate. But neither is a party to be rewarded by weighing in its favour the disruptive consequences of its own application. In any event the granting of the amendment in this case, at the time it was granted, meant that there would still be further delay while interlocutory processes flowing from the new claims were put in place. Aon had to prepare a new defence. The further delay, in the circumstances of this case, would be such as to undermine confidence in the administration of civil justice. ... [95] …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. [96] …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. … [102] …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." (Footnotes omitted).
Reliance was also placed on Channel Seven Adelaide Pty Ltd v Manock (2010) 273 LSJS 70; [2010] SASCFC 59 ("Manock"), asserting that case stated the Court was obliged to consider: 1. Whether there has been undue delay in making the application; 2. the extent to which there will be wasted public resources in granting the amendment; 3. whether there will be inefficiency occasioned by the need to revisit interlocutory processes; 4. whether a trial date would need to be vacated or a trial adjourned; 5. whether there is any satisfactory reason for the delay in applying; 6. whether the point to be raised by the amendment would be raised in any event at the trial; 7. the likelihood of strain and uncertainty being imposed on the litigants; 8. whether any further delay would undermine confidence in the administration of civil justice; 9. any other prejudice likely to be suffered by the other party; and 10. the additional costs likely to be incurred.
"Futility" was also raised as a ground upon which I should refuse the application, however the plaintiffs' written submissions on this ground really amounted to a list of matters that the defendants will need to prove which is not yet supported, in the necessary detail, by the material currently served.

Consideration

I do not accept that the proposed amendments are futile. There is still over four weeks for service of the defendants' evidence. It is always possible that the issues raised by the proposed amendments may potentially, depending on how the evidence plays out, be decided in favour of the plaintiffs. This does not amount to a basis to reject the proposed amendments for futility. This application is not a time for a mini trial on what may be the strengths and weaknesses of incomplete evidence which is in the process of being finalised to support in more detail the matters raised in the proposed Amended Defence.
In any event, I accept the submissions of Mr Chen SC that the report of Mr Bullen is sufficient on its own to identify with necessary clarity and particularity how and why the amendments are relevant, supportable and necessary for the Court to be given a full picture of the issues for determination arising from the plaintiffs' claims.
The plaintiffs' commencement of proceedings did not occur until two years after the fire. This was followed by a further two years of case management and directions before their service of evidence was complete. Those two years included postponed timetables and flexibility extended by the defendants waiting for the plaintiffs' case to be made manifest by pleadings, lay evidence and expert reports.
The expert reports served by the plaintiffs included addressing the concepts of "remediation", which is another way of addressing circumstances and issues relating to mitigation of loss. That material also addressed, gradually, factual matters relevant to the way in which the plaintiffs' overall case was and is now put against the defendants, particularly regarding loss and damage.
The factual position underpinning the plaintiffs' claims includes, inevitably, the state of the building, what is the loss truly incurred and what damage arose from the alleged negligence and breach of contract by the defendants.
That position was reasonably clear by October 2018, but arguably not before then.
Whilst it would have been better for the defendants to have carried out comprehensive expert assessments prior to March 2019, given the complexities of demolition activity some years after the fire - in 2018 - and issues of possible failure to maintain and protect the building from further loss and damage, the current position would need to be the subject of expert evidence in any event. Loss must be assessed at the date of trial. I do not class the assessments in March 2019, the proposed amendments sent to the plaintiffs' solicitors in June 2019 and the reports served in September 2019 to comprise "delay", when viewed against the whole emerging picture of the litigation.
All of the defendants' evidence is due by early December 2019. The defendants would well understand their obligation to meet this deadline.
I consider the issues articulated in the proposed Amended Defence to have been anticipated, at least in general terms, from the material already "on the table" from the plaintiffs before September 2019.
I do not consider that it will add unfairly in any way to the burden upon the plaintiffs in meeting this further material and further allegations. There is plenty of time to obtain reports in response - over 6 months - and the issues have already been the subject of analysis and consideration by the plaintiffs' fire and building experts, albeit, from a different angle of analysis.
The expert evidence to be served in further support of the proposed amendments is still able to be served within the time provided by the Court's case management timetable. The pleading is simply to reflect, openly and fairly, the positive case so far supported by the defendants' expert material with further material to be served within four weeks. I am satisfied that the notice in June 2019 of the proposed amendments reflects a responsible and timely response to the situation, despite the complete ambit of supporting reports not being in final form and able to be served at that time.
Whilst the principles extracted by Mr Laughton SC from Aon and Manock no doubt are relevant ones, I am of the view that none have been offended here.
There is no inefficiency requiring revisiting of interlocutory processes and no waste of public resources; the trial date can be easily maintained.
The "delay", if there truly be one, has been explained adequately. I am of the view it will add little if any additional hearing time to the trial. It may involve the examination, from a different angle, of some of the plaintiffs' evidence and expert evidence, but not in a way that introduces undue complexity. It will involve the introduction of further expert reports on the defendants' side which will be the subject of the usual conclave and joint evidence requirements and directions.
I do not consider any prejudice has been caused to the plaintiffs, other than what can be addressed by a costs order.
The requirements of ss 56 to 58 of the CPA have not been offended. The hearing date can be realistically maintained and the necessary steps of preparation, including expert conclaves, can be completed in the time available.

Costs

There was no resistance (appropriately) to submissions that the defendants should pay the costs of the motion and any costs thrown away as a result of the amendments.
Despite the defendants' success on the application to amend the defence, the proper order is that the defendants pay the costs of this motion and any costs thrown away by the amendments.

Orders 1. The first, second and third defendants be granted leave to file and serve amended defences in accordance with those exhibited to the affidavit of Paul Garnon dated 3 October 2019, further amended so that paragraph 32(c) of each defence includes the words "and / or remove straw". 2. The first, second and third defendants pay the plaintiffs' costs caused and thrown away by the amendments referred to in order 1. 3. The first, second and third defendants pay the plaintiffs' costs of the motion dated 11 September 2019.

Endnotes

Paragraph [86] of Mr Bullen's report.
Report dated 16 February 2018 at [16(b)], [17(e)], [21(b)(i)(C)], [32], [35]-[43].
Report dated 16 February 2018 at [38], [39].
Report dated 20 February 2018 at [3.1.1].
Report dated 20 February 2019 at [3.1.2].
Report dated 20 February 2019 at [3.5.1].
Kelly Report at [7.7]. 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 November 2019

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