Marahra Holdings Pty Limited v Insurance Australia Limited

Supreme Court of NSW|2024-10-17|Before: Schmidt AJ

JUDGMENT

Marahra Holdings Pty Ltd is the owner of an industrial property at Smithfield which was significantly damaged in a July 2018 fire which occurred while the premises were leased to Metal World Recycling Pty Ltd. At the time of the fire Metal World conducted a scrap metal and recycling business at the premises and Insurance Australia was its public liability insurer. Metal World has since been deregistered, that posing challenges for both parties.
The fire was investigated both by fire authorities and SafeWork NSW, which issued a number of prohibition notices to Metal World under s195 of the Work Health and Safety Act 2011 (NSW). Reports about the fire were also produced, which are in the parties' hands.
By its 2021 statement of claim Marahra pleaded that the fire originated at the leased premises, as the result of Metal World's breach of various provisions of its lease and of negligence, for which Metal World was vicariously liable.
Marahra pursues damages against the insurer, relying on Metal World's policy, as well as s51 of the Insurance Contracts Act 1984 (Cth), the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) and s601AG of the Corporations Act 2001 (Cth).
The claims are defended, Insurance Australia having admitted in its March 2022 defence various of Marahra's pleadings, both as to factual and legal matters. It relies on various exclusions in Metal World's policy, as well as provisions of the legislative schemes, to resist Marahra's claims.
This judgment deals with Marahra's application for leave to file and serve an amended statement of claim in terms annexed to the June 2024 affidavit of its solicitor, Mr Bailey, which Insurance Australia opposes.
There Mr Bailey explained the circumstances in which the leave came to be sought, after he became the solicitor on the record in April 2023 and formed the view that there was no evidentiary basis for various factual matters earlier pleaded. Mr Bailey was not required for cross examination, but still his evidence was challenged.

The parties' cases

The proceedings had been commenced in November 2021 and an amended defence filed in May 2023, after Marahra had served its evidence. Orders requiring the service of further evidence were then made. It appeared at that stage that there would be no factual dispute about the matters pleaded and that what was in issue concerned the application of the exclusions in Metal World's insurance policy, as well as the quantum of damages.
Marahra later instructed its solicitors to file the amended statement of claim, having been advised that certain of its earlier pleaded allegations were unlikely to be established on the available evidence, given relevant differences between notices issued to Metal Work after the fire and later reports. Insurance Australia refused its consent to the proposed repleading. After an explanation for that refusal was given, the statement of claim was further amended, but consent to its filing was still refused.
Mr Bailey explained why the repleading was pursued. That arose from his view that the exact mechanism of the fire was not known, with the result that the plaintiff needed to pursue a res ipsa loquitur case. Both breach of the lease and negligence having been pleaded, various factual allegations in the statement of claim needed to be withdrawn, Marahra having no direct or expert evidence about the cause of the fire. It had to rely on information which had emerged from the earlier investigations into the fire. But he had formed the view that they provided no evidentiary basis for the parts of the pleadings which were sought to be withdrawn.
Their withdrawal was still opposed by Insurance Australia, it having already admitted those facts. The leave sought was also opposed because it considered that the statement of claim would then be deficient, the amendments proposed resulting in the pleading not making necessary allegations about material facts which supported the claims advanced against it. That resulting in it not knowing the case it has to meet.
Reliance was placed on Kelly v Mina [2014] NSWCA 9, where reference was made at [64] to the principle "succinctly stated" by Hasluck J in Chandler v Water Corporation [2001] WASC 166 at [41]: "A party to civil litigation is entitled to a statement of the opponent's case in sufficiently clear terms to allow the opposing party the fair opportunity to meet the case being advanced. An action may not be pleaded in general terms and must be pleaded with particularity: Bruce v Odhams Press Ltd [1936] 1 KB 697 at 705. The purpose of pleadings and particulars is to concentrate the issues of fact and to prevent surprise and consequent delay: Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 at 221."
It was also claimed that the practical result of the proposed amendments would be to effectively reverse the onus of proof in relation to factual matters which it had already admitted. While on the currently pleaded case, Insurance Australia did not have to lead any evidence, in order to advance its construction of the exclusion provisions on which it relied to resist Marahra's claims. It followed that the leave sought could not justly be granted.
That was because it was entitled to rely upon those matters to advance its case, that certain exclusions in Metal World's policy had been triggered. There presently being no dispute between the parties about those factual matters which Marahra had only sought to withdraw after Insurance Australia's amended defence had been served.

Issues

In issue was whether: 1. the proposed pleading adhered to r14.7 of the Uniform Civil Procedure Rules 2005 (NSW), which requires pleadings to contain "a summary of the material facts on which the party relies"; 2. r12.6, on which Insurance Australia relied, applied to the application to amend the statement of claim, given its proper construction; 3. Marahra seeks to amend its statement of claim for purely tactical reasons; 4. there is a reversal of the onus of proof if Marahra amends its statement of claim in the way proposed; 5. Insurance Australia has changed its position in reliance on the admissions made in Marahra's original statement of claim; 6. the leave sought to amend can justly be granted; and 7. Marahra's proposed amended statement of claim sufficiently pleads its case, notably whether it sufficiently pleads: 1. the cause of the fire; 2. the duty of care it alleges Metal Works owed; 3. the risk of harm; and 4. vicarious liability.
In resolving what is in issue the principle known as "res ipsa loquitur" needs to be understood. It involves a process of reasoning explained in Schellenberg v Tunnell Holdings Pty Limited (2000) 200 CLR 121; [2000] HCA 18, available to be used where there is a lack of evidence about the specific cause of an accident: at [24].
If an occurrence which has caused injury is of a kind that within the common knowledge and experience of people would not ordinarily occur without negligence, proof that the event occurred may itself be sufficient to raise a case which calls for explanation by the defendant. But that requires a finding that an accident "would not ordinarily have occurred without negligence on the part of the defendant": at [18].
At [25] it was also explained that a plaintiff may rely on this principle even though particular acts or omissions of negligence on the part of the defendant have also been pleaded, provided that the tribunal of fact concludes that: "1. there is an 'absence of explanation' of the occurrence that caused the injury; 2. the occurrence was of such a kind that it does not ordinarily occur without negligence; and 3. the instrument or agency that caused the injury was under the control of the defendant."
If the cause of the occurrence, in this case the fire, is proven on the evidence, the principle has no role to play in a negligence claim such as this. But if it is not and it is concluded that such fires do not occur if those who have control of premises such as those here in question take proper care, Marahra will be entitled to rely on the principle: at [27].

Was the leave sought and resisted for improper tactical advantage?

I am not persuaded that the proposed amendments were only sought or resisted for improper tactical reasons.
Ordinarily it is for a plaintiff to prove the facts which engage an insurance policy and for the insurer to prove facts which engage an exclusion clause. There is no issue that Insurance Australia is presently entitled to rely on the matters pleaded in the statement of claim which it has admitted.
Insurance Australia thus contends that the proposed amendments merely reflect a tactical decision by Marahra, which results in a reversal of the onus of proof as to facts on which it relies to trigger certain policy exclusions. It not needing to prove the admitted underlying facts sought to be withdrawn, "in order to argue its construction of the exclusions in the policy".
But the construction of an insurance policy cannot depend on the particular circumstances in which the terms of the policy are claimed to be engaged. Its provisions having to be construed objectively, given the words used in the policy.
What here arises to be considered is a situation where a legal representative gives unchallenged evidence that pleaded facts are not supported by the available evidence, even if no further evidence has become available since the original pleading was prepared. That is an opinion which plainly departs from that formed by the original legal representative.
Both of them cannot be correct and so what arises for consideration includes admitted representative error. On the evidence I am satisfied that it may be accepted that the application for leave is the result of advice which the current solicitor has given and the client has accepted.
While it was argued for Insurance Australia that it may be inferred from these circumstances that the leave was only sought for tactical advantage, that is not an inference I am prepared to draw, given that the solicitor was not required for cross examination.
I consider that the Court must be slow to conclude that the proposed amendments do not reflect steps properly taken to correct the errors the solicitor deposes he identified, but rather an improper tactical manoeuvre, he having appreciated the insurer's difficulty in proving the facts sought to be withdrawn.
Against the insurer it was also contended that it was a tactical manoeuvre on its part to oppose the leave sought, given that the available evidence did not support the pleaded facts. This is also not a conclusion it is necessary to come to, despite the submissions the insurer advanced about the available evidence not being admissible.
I consider that those submissions did not support its case, for reasons which I will return to.
In the circumstances, even though what is sought is the withdrawal of pleaded facts which operate for the benefit of the insurer, I am not persuaded that justice permits the view being taken that either party is pursuing its position merely for tactical advantage.
That conclusion is supported by the time at which the current solicitor became responsible for the case, the leave Marahra sought having been pursued after the defence was amended to withdraw an admission of quantum, which resulted in orders for the service of further evidence. That the matter has not been listed for hearing is also relevant to the question of whether the leave sought should be granted and in fact supports it being granted.

Does r12.6(2) apply to the leave sought?

Rule 12.6 provides: "12.6 Withdrawal of matter in defence or subsequent pleading (cf SCR Part 21, rules 3 and 5; DCR Part 18, rule 2; LCR Part 17, rule 2) (1) A party raising any matter in a defence or subsequent pleading may withdraw the matter at any time. (2) Despite subrule (1), a party may not withdraw any admission, or any other matter that operates for the benefit of another party, except with the consent of the other party or by leave of the court. (3) A withdrawal under this rule is to be made by filing a notice of withdrawal stating the extent of the withdrawal. (4) If the withdrawal is by consent, the notice under subrule (3) must be accompanied by a notice from each party whose consent is required by subrule (2) to the effect that the party consents to the admission or other matter being withdrawn in accordance with the notice of withdrawal."

The authorities

In Sergi v Sergi [2019] NSWSC 865, Darke J considered that r 12.6(2) "when read in its context alongside r12.6(1) and as part of Division 2 of Part 12 of the UCPR, does not seem to be concerned with plaintiffs or cross-claimants who are pursuing claims in proceedings.": at [22]. However, he proceeded "on the assumption that UCPR r 12.6(2) can apply to pleadings other than 'a defence or subsequent pleading' and can therefore apply to a statement of cross-claim, which is generally treated by the rules as equivalent to a statement of claim (see UCPR r 9.1(3)).": at [22].
As I will explain, I do not share his Honour's reservations.
Darke J referred to Khouri v National Australia Bank Ltd [2007] NSWSC 987, where Gzell J took the view that r12.6(2) is "stated in general terms with respect to any admission and, in my view, leave is required to amend the statement of claim to withdraw the admission of benefit under the original mortgage": at [2]. I agree with Gzell J.
His Honour referred to Maile v Rafiq [2005] NSWCA 410 where a defendant's withdrawal of an admission arose to be considered. It was there observed at [77] that "admissions made with deliberateness and formality would 'ordinarily' not be permitted to be withdrawn on the one hand and, on the other, that it would 'usually' be appropriate to grant leave to withdraw an admission where it was shown that it was contrary to the actual facts."
In this case it was because Marahra's current solicitor formed the view that pleaded facts, including in relation to the source of ignition of the fire, were not proven by the available evidence, that leave to amend the statement of claim was sought. That evidence comprises reports prepared by independent third parties, rather than experts who the parties have engaged.
In Khouri, Gzell J granted leave to withdraw admissions in circumstances where he concluded that the application had been brought after a solicitor had become aware of a relevant judgment and that it was as the result of his mistake about the relevant law, that the admission in issue had earlier been made. His Honour concluded that the leave had been sought "at an early stage in the proceedings, certainly not on appeal and certainly not just before the hearing.": at [17]. The matter had not been set down for trial and there was ample time for proper investigation to be made by the defendant: at [17].
The situation here has relevant similarities.
Further, his Honour concluded that "this was a situation in which the concession was made without due consideration of the appropriate principles of law and was made inadvertently in that sense…[and] falls within the example given by Santow J in Drabsch [v Switzerland General Insurance Co Ltd (Supreme Court (NSW), 16 October 1996, unrep)] where one usually expects leave to be granted": at [18]. There Santow J explained that: "1. Where a party under no apparent disability makes a clear and distinct admission which is accepted by its opponent and acted upon, for reasons of policy and the due conduct of the business of the court, an application to withdraw the admission, especially at appeal, should not be freely granted; Coopers Brewery Ltd v Panfida Foods Ltd (1992) 26 NSWLR 738 per Rogers CJ Comm D, followed in IOL Petroleum Ltd v O'Neill per Young J (Young J, 17 November 1995, unreported) and Apex Pallett Hire Pty Ltd v Brambles Holdings Ltd (full Supreme Court of Victoria, 8 April 1988, unreported), and in that respect not following H Clark (Doncaster) Ltd v Wilkinson [1965] Ch 694 at 703. 2. The question is one for the reviewing judge to consider in the context of each particular appeal, with the general guideline being that the person seeking on a review to withdraw a concession made should provide some good reason why the judge should disturb what was previously common ground or conceded; IOL Petroleum Ltd v O'Neill (above), in the context of withdrawing a concession made before the Registrar. 3. Where a court is satisfied that admissions have been made after consideration and advice such as from the parties' expert and after a full opportunity to consider its case and whether the admissions should be made, admissions so made with deliberateness and formality would ordinarily not be permitted to be withdrawn; Coopers Brewery Ltd v Panfida Foods Ltd (above) at 745 and 748. Thus a court will not lend its approval to the withdrawal of admissions where, by analogy with the making of amendments, this is actuated by purely tactical reasons; compare Devae Prufcoat Pty Ltd v Altex Industrial Paints Ltd (Cole J, 15 March 1989, unreported). 4. It will usually be appropriate to grant leave to withdraw an admission where it is shown that the admission is contrary to the actual facts. Leave may also be appropriate where circumstances show that the admission was made inadvertently or without due consideration of material matters. Irrespective of whether the admission has or has not been formally made, leave may be refused if the other party has changed its position in reliance upon the admission; H Clark (Doncaster) Ltd v Wilkinson (above), in that respect not doubted."
It is considerations such as this which must be dealt with on this application. In this case the matters which Marahra seeks to withdraw because of the unchallenged conclusions reached by its current solicitor, not being evidenced by the results of the investigations into the fire by third parties.

Construction

On its face r12.6(1) is concerned only with withdrawal of matters raised in "a defence or subsequent pleading", while r12.6(2) with the withdrawal of "any admission, or any other matter that operates for the benefit of another party", irrespective of where they have been raised.
The word "pleading" is defined in the Dictionary to the Rules to include "a statement of claim, defence, reply and any subsequent pleading for which leave is given under Part 14, but does not include a summons or notice of motion."
Rule 14.4 permits a plaintiff to file a reply to a defence in proceedings in this Court. Rule 14.5 precludes a party filing any pleading subsequent to a reply, except by the Court's leave, which must be sought within 14 days after service of the reply.
A "subsequent pleading" is not defined, but given these provisions, it must be concluded that r12.6(1) is not concerned with matters raised in a statement of claim. Thus when a plaintiff seeks to withdraw such a pleaded matter, an order under s64(1) of the Civil Procedure Act 2005 (NSW), is required.
That is because it is s64 which empowers the Court to order the amendment of any document in the proceedings, or to grant a party leave to amend any document, at any stage of the proceedings. That includes a statement of claim, as well as an amended statement of claim.
By way of contrast to r12.6(1), r12.6(2) is not concerned with pleadings.
The word" admission" is not defined in the Rules or the Act. It must be approached in light of its ordinary meaning and the context in which it is used in the rules. That includes Parts 14 and 17, the latter providing both for admissions to be made voluntarily after service of a notice and their withdrawal, with the Court's leave.
Rule 14.26 deals with admissions made in pleadings, providing relevantly: "(1) An allegation of fact made by a party in a pleading is taken to be admitted by any opposite party required to plead in response unless - (a) in the pleading in response, the opposite party traverses the allegation, or (b) a joinder of issues under rule 14.27 operates as a denial of the allegation. (2) A traverse may be made by denial or by a statement of non-admission, either expressly or by necessary implication, and either generally or as to any particular allegation."
It follows that an admission can be made in many different ways. Before or after proceedings are commenced, in a conversation or written communication, for example. In a pleading or later served notice. In a witness statement, affidavit, oral evidence or even a submission.
There was thus no issue that an admission may be made in a statement of claim, if a representation is there made which is adverse to the plaintiff's interests.
If admissions are made by a party, the Court may also "give any judgment or make any order to which the other party is entitled on the admissions.": r17.7(1). That contrasts with r12.6(2), which precludes not only the withdrawal of admissions, but also the withdrawal of "any other matter that operates for the benefit of another party", whether made "in pleadings or otherwise", except with consent or by the Court's leave.
In this case, while Insurance Australia does not consent to the withdrawal of matters pleaded in the statement of claim which it has admitted, it has not suggested that r17.7 has been engaged. This reflects that the Rules do not contemplate that pleading a matter that merely "operates for the benefit of another party", will entitle that party to have judgment given in their favour.
Consistently with this, in the Dictionary to the Evidence Act 1995 (NSW), 'admission" is defined to mean a previous representation that is: "(a) made by a person who is or becomes a party to a proceeding (including a defendant in a criminal proceeding), and (b) adverse to the person's interest in the outcome of the proceeding."
Neither the hearsay nor opinion rules apply to evidence of admissions: s81. Although exclusion of evidence of admissions in particular circumstances is dealt with in ss 82, 83 and 84. In criminal proceedings special provision is also made in relation to admissions: s85-90.
It follows that in civil proceedings, if parties are not entitled under r17.7 to ask the Court to enter a consent judgment despite some relevant facts having been admitted, on which reliance may be placed at trial, admissible evidence which establishes that the Court can make the orders a party pursues, will then have to be led. That could be provided by an agreed statement of facts, by the tender of documents, by calling evidence from relevant witnesses, as well as by drawing inferences available to be drawn from established facts.
But r12.6(2) also contemplates that before hearing, a party may seek leave to withdraw either an admission or any other matter that operates for the benefit of another party. And that such leave may be granted, if that is what justice requires, even if the other party does not consent.
If such leave is granted the pleading will have to be amended. In the case of a statement of claim or cross claim, there may also have to be resulting amendments to other pleadings, including a defence.

Leave to withdraw is required

It follows that r12.6(2) applies to Marahra's application. Insurance Australia is entitled to rely on the facts currently pleaded in the statement of claim which it has admitted in the defence, unless the leave Marahra seeks to withdraw those pleadings is granted. There was no issue that an application for leave under s12.6(2) must be approached in the same way as an application for leave under s64 of the Civil Procedure Act.
The current position is that such facts having been so admitted, there has been no joinder of issue about them, with the result that they are agreed and do not fall to Insurance Australia, who relies on them, to prove unless the leave to withdraw them is given.
That is relevant to the determination of whether the leave sought can justly be granted.

Should leave to withdraw the disputed matters be granted?

To obtain the Court's leave Marahra must provide good reason for withdrawing what was previously common ground: Inglis v English Language Company Australia Pty Ltd [2022] NSWSC 1538 at [2] and [14] applying Drabsch v Switzerland General Insurance Co Ltd at 7-8.
Marahra contends that is provided by the advice its solicitor has given.
I am satisfied that this must be accepted, Insurance Australia not having contended that the view the solicitor has reached about what the available evidence is capable of proving, is not available, irrespective that the result is that there is no agreement about the cause of the fire, with the parties then each having to prove factual matters on which they rely.
That being the ordinary position when an insurer seeks to rely on factual matters on which an exclusion clause in a policy depends.

The proposed amendments

What was sought to be withdrawn included pleadings about the terms of the lease on which reliance was originally placed, such as cll 22.1 and 23.1, they requiring compliance with all laws and requirements relating to Metal World's use and occupation of the premises, and not allowing the premises to be used for any noxious or dangerous purpose or occupation, in an excessively noxious manner, or in a manner that would cause damage to Marahra: at [11]-[14] of the statement of claim. Metal World was also not allowed to store inflammable, dangerous or explosive materials, or toxic or hazardous substances, except in concentrations permitted by relevant statutory authorities and licenses and permits required by law: at [15]-[16] of the statement of claim.
The terms of the lease, about which there seems to be no dispute, are plainly relevant to the cases which both parties advance. Its relevance will not depend on what is sought to be withdrawn from the statement of claim. It will be proven by its tender.
In its defence, Insurance Australia had admitted paragraphs [11]-[22] of the statement of claim, which deal with the fire, as well as what was pleaded in relation to duty of care and risk of harm, dealt with by reference to "risk of damage". Vicarious liability was also pleaded and admitted. It was the proposed amendments in relation to the pleaded negligence, particularly the cause of the fire, which were disputed.
Some of the reports on which Marahra's solicitor formed his view that there was no evidentiary basis for such earlier pleaded facts were in evidence.
On Insurance Australia's case, such reports will not be admissible at trial. It seems likely, in those circumstances, that even if Marahra sought to tender them, the insurer will object, despite what is presently pleaded.
It is in that context that the application for leave to withdraw arises to be determined.
To explain the parties' dispute, the factual pleadings that were sought to be withdrawn must be considered. What was pleaded and sought to be withdrawn included: 11. It was a term of the Lease that Metal World would comply with all laws and requirements relating to its use and occupation of the Demised Premises. Particulars of Term Clause 22.1 12. It was a further term of the Lease that Metal World would not allow the Demised Premises to be used for any noxious or dangerous purpose, activity or occupation. Particulars of Term Sub-clause 23.1 (a) 13. It was a further term of the Lease that Metal World would not use the Demised Premises in any manner which would cause damage to the plaintiff. Particulars of Term Sub-clause 23.1 (e) 14. It was a further term of the Lease that Metal World would not use the Demised Premises in an excessively noxious manner. Particulars of Term Sub-clause 23.1 (h) 15. It was a further term of the Lease that Metal World not bring into, store or use in the Demised Premises any inflammable or explosive substances unless the sale or use of such substances constitutes proper conduct of Metal World's business for the permitted use of the Demised Premises and the particular substances are stored and used only whilst taking all necessary safety precautions and in compliance with all fire and safety regulations relating to such substances. Particulars of Term Sub-clause 23.4 16. It was a further term of the Lease that Metal World will not use or permit to be used or stored at the Demised Premises any toxic or hazardous chemicals or substances except in concentrations and quantities permitted by the relevant statutory authorities and in accordance with any licences, permits or authorisations required by law and in accordance with the conditions imposed by such authorities or under their permission. Particulars of Term Sub-clause 23.11 17. For a period of time up to and including 3 July 2018 and during the currency of the Lease, Metal World, by its employees, carried out the following activities (Activities) at the Demised Premises: (a) the removal and dismantling of auto gas (LPG) cylinders from delivered loads in which they were concealedfrom motor vehicles; (a2) from time to time, although it was not its usual practice, assisting customers with the disposal of (LPG) cylinders (by undertaking the activities pleaded in the subparagraph immediately below); (b) the receipt of, handling, storage of and disposal of (by allowing another service provider to remove after storage) (LPG) cylinders containing flammable gases and liquids in undefined areas; (c) the removal and crushing of petrol tanks from vehicles. 18. Each of the Activities was carried out by persons not qualified to do so. 19. On 3 July 2018 and at all material times, employees of Metal World were permitted to smoke on the Demised Premises in areas reasonably proximate to those areas where each of the Activities was being carried out. 20. On 3 July 2018 and at all material times employees of Metal World used manual and power operated tools at the Demised Premises in areas reasonably proximate to those areas where each of the Activities was being carried out. 21. On 3 July 2018 and at all material times employees of Metal World used machinery and mechanical equipment at the Demised Premises in areas reasonably proximate to those areas where each of the Activities was being carried out. 22. At approximately 4.15pm on 3 July 2018 a fire originated at the Demised Premises (Fire). 23. The Fire was caused by the ignition of inflammable gases which had been liberated by reason of the carrying out of each of the Activities. 24. On or about 5 July 2018, following an investigation by SafeWork NSW into the cause of the Fire, SafeWork NSW issued to Metal World a number of Prohibition Notices pursuant to section 195 of the Work Health and Safety Act 2011 in respect of the Activities and in the following terms: (a) to stop allowing persons not qualified to complete the removal of auto gas (LPG) cylinders from motor vehicles on the basis that workers/other persons are exposed to a serious risk to their health or safety from fire and explosion at the workplace as evidence by the incident at the workplace on 3 July 2018; (b) to stop the handling and disposal of flammable gases and liquids in undefined areas that include and are in close proximity to ignition sources on the basis that workers/other persons are exposed to a serious risk to their health and safety as Metal World has failed to provide adequate protection around areas of the workplace where there is a risk of a fire or explosion occurring due to vehicle LPG and petrol tanks being removed from vehicles in close proximity to numerous ignition sources; and (c) to stop the removal and crushing of petrol tanks from vehicles on the basis that workers/other persons are exposed to a serious risk from fire and explosion as Metal World has no safe systems for the removal and disposal of vehicle petrol tanks. 25. The Fire occurred as a result of the breach on the part of Metal World of Sub-clause 23.1 (e) each of the terms of the Lease pleaded herein. … 31. By reason of the Fire, Metal World breached its duty of care and was thereby negligent. Particulars of Negligence (a) allowing, permitting and suffering unqualified persons to complete the removal of auto gas (LPG) cylinders from motor vehicles (b) allowing, permitting and suffering the handling, storage and disposal of (LPG cylinders) containing flammable gases and liquids in undefined areas that included and were in close proximity to ignition sources (c) allowing, permitting and suffering the removal and crushing of petrol tanks from vehicles (d) allowing, permitting and suffering the dismantling of LPG gas cylinders (e) allowing the build-up and accumulation of inflammable gases in areas of potential ignition sources (f) failing to supervise and give proper instructions to employees to ensure that there was no build up and accumulation of inflammable gases in areas of potential ignition sources (g) failing to devise a system to ensure the prevention of the build up and accumulation of inflammable gases in areas of potential ignition sources (h) allowing, permitting or suffering employees to smoke in an area of the Demised Premises reasonably proximate to dismantled auto gas (LPG) cylinders (i) allowing, permitting or suffering employees to use manual and power operated tools in an area of the Demised Premises reasonably proximate to dismantled auto gas (LPG) cylinders (j) allowing, permitting or suffering employees to use machinery and mechanical equipment in an area of the Demised Premises reasonably proximate to dismantled auto gas (LPG) cylinders (k) engaging in poor, unsound and unsafe work practices (a) res ipsa loquitur
In oral submissions, the case advanced included that the negligence claim had to be understood in light of the factual matters pleaded at 17 and 31 and that they provided the relevant facts relied on by Marahra. While they did not refer to emission sources, it did not need to do so.
Still the insurer claimed that the result of the withdrawals was a lacuna. Namely, the activity which caused inflammable gases liberated at the premises to ignite. But clearly that is what a res ipsa loquitur case is directed to, when such a cause is not known. While r14.14 requires matters which might take a defendant by surprise be pleaded specifically, that cannot require the pleading of what is unknown.
There was no issue that the withdrawal of the pleaded matters means that if Insurance Australia wishes to rely on such factual matters to establish that the exclusions in the insurance policy on which it seeks to rely were engaged, it will have to prove them, if the evidence Marahra leads does not. It does not appear that the reports into the cause of the fire, even if admissible, will prove such matters.
It follows that what the insurer seeks to maintain is the admission of facts for which seemingly, there is no readily available evidentiary basis, despite what was earlier pleaded.
Section 64(1) empowers the Court to permit a pleading to be amended at any stage of the proceedings. It also provides that "[s]ubject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings": s64(2).
Despite what has been pleaded, in the circumstances it seems to me that it must be accepted that one of the real issues in these proceedings is the cause of the fire, about which what was earlier pleaded appears to have been in error. The solicitor's view, that this was not established by the investigation reports, was not challenged. Nor was his view that it was thus necessary for Marahra to pursue a res ipsa loquitur case.
In the circumstances, it must also be accepted that if the leave sought is granted, the insurer may face greater challenges in resisting a negligence and res ipsa loquitur case and establishing a basis for its claim that exclusions in the policy are engaged.
Section 58(1) requires the Court to "seek to act in accordance with the dictates of justice" in deciding whether to make any order in the management of proceedings, including any order for the amendment of a document. In doing so it must have regard to ss56 and 57, and may also have regard to the matters specified in s58(2)(b), to the extent they are relevant. They are: "(i) the degree of difficulty or complexity to which the issues in the proceedings give rise, (ii) the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities, (iii) the degree to which any lack of expedition in approaching the proceedings has arisen from circumstances beyond the control of the respective parties, (iv) the degree to which the respective parties have fulfilled their duties under section 56(3), (v) the use that any party has made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under rules of court, the practice of the court or any direction of a procedural nature given in the proceedings, (vi) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction, (vii) such other matters as the court considers relevant in the circumstances of the case."
Here it is the basis on which the statement of claim was pleaded, the reports which resulted from the investigations conducted after the fire, which Marahra has been advised do not in fact support the pleaded factual matters it seeks to withdraw, which Insurance Australia contends are not even admissible, on which what is in issue turns.
Section 56 imposes a duty on the Court to seek to give effect to the overriding purpose when it exercises its powers, that being "to facilitate the just, quick and cheap resolution of the real issues in the proceedings". Section 57 requires the Court to manage the proceedings having regard to specified objects, namely: "(a) the just determination of the proceedings, (b) the efficient disposal of the business of the court, (c) the efficient use of available judicial and administrative resources, (d) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties."
In Kelly v Mina, on which Insurance Australia relied, it was held at [47] that as well as these statutory provisions account must be taken of "a combination of factors identified by the High Court in Aon Risk Services Pty Ltd v Australian National University (2009) HCA 29: (2009) 239 CLR 175 and usefully summarised by Vickery J in Namberry Craft Pty Ltd v Watson [2011] VSC 136 (at [38]) as follows": "(a) Whether there will be substantial delay caused by the amendment; (b) The extent of wasted costs that will be incurred; (c) Whether there is an irreparable element of unfair prejudice caused by the amendment, arising, for example, by inconvenience and stress caused to individuals or inordinate pressures placed upon corporations, which cannot be adequately compensated for, whatever costs may be awarded; (d) Concerns of case management arising from the stage in the proceeding when the amendment is sought, including the fact that the time of the court is a publicly funded resource, and whether the grant of the amendment will result in inefficiencies arising from the vacation or adjournment of trials; (e) Whether the grant of the amendment will lessen public confidence in the judicial system; and (f) Whether a satisfactory explanation has been given for seeking the amendment at the stage when it is sought."
In this case it is not wasted costs or delay caused by the proposed amendments, but the difficulty which the insurer will then confront in advancing its defence, which arises to be considered. As does the consequence of forcing Marahra to pursue its claims on a factual basis which it has been advised is erroneous, the available evidence not actually supporting what has been pleaded.
It is difficult to see that granting the leave Marahra seeks would tend to lessen confidence in the judicial system, as Insurance Australia contended. To me, that would rather be the more likely result of refusing it that leave.

The leave sought must be granted

As explained in Ashrafi Persian Trading Co Pty Ltd t/as Roslyn Gardens Motor Inn v Ashrafinia [2001] NSWCA 243 at [44], "[a] cause of action in negligence depends on facts which, taken together, reveal that the defendant owed the plaintiff a duty of care, that the defendant breached that duty, and that that breach caused damage."
Whether a negligence claim has been adequately pleaded can be established by posing the question, would the negligence claim be made out, if all the pleaded facts were admitted?: Ritz Hotel Ltd v Charles of the Ritz Ltd (No 20) (1988) 14 NSWLR 124 at 125.
As I have explained, when a res ipsa loquitur case needs to be advanced, the requirements of that principle must also be taken into account.
On the cases which the parties advanced, there doesn't seem to be any issue about Metal World owing Marahra the claimed duty, or that the fire caused the damage which it pursues. It is what was originally pleaded as to the cause of the fire, which is relevant to breach and the res ipsa loquitur case, which is in issue.
The Rules require that a summary of the material facts relied on to establish the claimed negligence must be pleaded: r14.7. But the evidence by which those facts are to be proved may not be.
All facts on which a cause of action or defence depend are material and "[w]here there is a danger of surprise, which arises particularly where there is lack of precision and clarity in the pleading, it may well be appropriate to require a plaintiff, either in a statement of claim or in particulars, to explicitly relate the facts it pleads to specified causes of action": Kirby v Sanderson Motors Pty Ltd (2002) 54 NSWLR 135; [2002] NSWCA 44 at [21].
It seems to me to follow that when a party identifies that the available evidence known to the parties actually does not support pleaded facts, in this case about the cause of the fire, steps should be taken to amend the pleading. That accords with the obligations imposed by s56 of the Civil Procedure Act in relation to facilitating the overriding purpose there specified, the just, quick and cheap resolution of the real issues in the proceedings.
The insurer's contention that this was not necessary, the pleaded facts having been admitted and so there was not need to replead, because there was nothing left to prove in respect of the matters sought to be withdrawn, should not be accepted. Forcing a party to pursue a case which has no factual foundation in the available evidence, because of earlier pleading error, does not seem to me to accord with what the dictates of justice require.
Further, maintaining an objection to an amendment because pleaded facts for which there is no evidentiary foundation have been admitted, also does not appear to accord with the obligations imposed by s56.
In this case neither party had direct involvement in or knowledge of the relevant facts, including as to the cause of the fire. Necessarily that must result in them both having regard to contemporaneous documents, when making decisions about whether to pursue or resist litigation, what to plead and what to consent to or oppose.
In this case such documents could include statutory notices Metal Work had to give after the fire, as well as notices and reports which SafeWork NSW and fire authorities later made.
What should not be pleaded, either by a plaintiff or a defendant, are facts which have no basis in the available evidence. In my view if they are, the pleadings ought to be corrected and the Court ought not to be asked to make orders for which it is known there is no evidentiary basis. Nor, it seems to me can an application to withdraw a pleading for which there is no evidence justly be refused, merely because a defendant earlier admitted what had been pleaded.
In this case the solicitor's opinion that the reports are not consistent with the cause of the fire having been established, was not challenged. No expert opinions have been obtained by either party and for its part, Insurance Australia did not point to any evidence which supported the pleaded facts which it had admitted.
Still there is a dispute about whether leave to withdraw factual matters earlier pleaded should be given. In all of the circumstances, I am satisfied that justice requires that it is.

Is the proposed pleading adequate?

I have already touched on some of the relevant requirements of the Rules. They also include that particulars of any claim, defence or other matter pleaded as are necessary to enable the opposite party to identify the case that the pleading requires him or her to meet, must be given: r15.1(1). Pleadings must also be brief: r14.8
The insurer contended that the proposed amended pleading was inadequate. I consider that while spare, given that neither party knows the cause of the fire and what was finally proposed to be pleaded in the amended statement of claim, it does sufficiently put the insurer on notice of the case advanced against it, as the Rules require.

Costs

The usual costs order under the Rules is that costs follow the event. In this case that is an order that the defendant bear the plaintiff's costs, as agreed or assessed.
Unless the parties approach within 7 days with short written submissions, that will be the Court's order.

Orders

For these reasons I order that: 1. Leave to amend the statement of claim in terms finally pressed is granted; 2. Insurance Australia have leave to file a further amended defence within 28 days; and 3. Unless the parties approach within 7 days with short written submissions the defendant is to bear the plaintiff's costs, of the motion, as agreed or assessed.

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: 30 October 2024

(Cth), the Civil Liability (Third Party Claims Against Insurers) Act 2017(NSW)

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