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[2007] VSC 127
Supreme Court of Victoria
2007-05-04
BYRNE J
Original judgment source is linked above.
PRACTICE AND PROCEDURE - judgment under contract of indemnity - whether judgment prior to indemnified debtor's payment of debt - whether order that indemnifier pay creditor direct - "leap frog" order.
1 Two days before the first anniversary of the publication of my reasons for judgment in this matter, the interested parties have returned to court to obtain judgment in the claims between the thirdnamed defendant by counterclaim, MWH Australia Pty Ltd, formerly Montgomery Watson Aust Pty Ltd, ("Montgomery Watson"); the fourthnamed defendant by counterclaim, Wynton Stone Australia Pty Ltd (in liq) ("Wynton Stone"), the seventhnamed defendant by counterclaim, ACN 001 282 711 Pty Ltd, formerly Taylor Thomson Whitting Pty Ltd ("TTW"), and Clifford Alfred Matthew Sloggett, a third party joined by TTW.
2 I will not rehearse the contractual and factual background that brought these parties to litigation. These are set out in my reasons for judgment of March 2006.[1] Montgomery Watson is an engineering enterprise which is liable for the design defects which led to the failure of the sewerage tanks at Lorne and Apollo Bay owned by Barwon Water and against which I have given judgment in favour of Minson Nacap.
Montgomery Watson Claims
3 Montgomery Watson had sub-let the relevant design work to Wynton Stone whose principal was Mr Sloggett. I found that the Wynton Stone design was seriously flawed so that Wynton Stone was in breach of its sub-consultancy agreement with Montgomery Watson.[2] Notwithstanding this, I found that Wynton Stone was not liable for this breach because, by a deed of novation dated 6 May 1997 Montgomery Watson released Wynton Stone from any such liability which by the same deed was assumed by TTW.[3]
4 By cl. 4 of the deed of novation, Wynton Stone warranted to Montgomery Watson the due performance of its design obligations. It is in breach of this warranty and is liable in damages to Montgomery Watson for this. Having regard to findings made in the judgment and to subsequent orders made in respect of the parties who appear above Montgomery Watson in the list of parties to the litigation,[4] it was accepted that the measure of damages for this breach of warranty is $4,138,696.
5 Notwithstanding this, counsel for Wynton Stone resisted a judgment reflecting this. The point taken was that the claim of Montgomery Watson, as pleaded, was that Wynton Stone will have breached the warranty if Montgomery Watson itself is found liable to Minson Nacap by reason of a breach of contract by Wynton Stone.[5] This is correct. It was said that I made no finding of liability in Montgomery Watson towards Minson Nacap that the case as pleaded was not made out. After hearing argument, I indicated that the Wynton Stone submission was rejected so that judgment would go against that party for the agreed amount. This judgment has been authenticated. These are my reasons for rejecting the Wynton Stone submission.
6 What happened at trial was that Aquatec had in fact no real defence to the claim of Barwon Water and Minson Nacap had no real defence to the claim of Aquatec because, in each case, Aquatec and Minson Nacap were contractually bound by design and construct obligations. There were, of course, issues as to quantum. Similarly, Montgomery Watson had no defence to Minson Nacap's claim provided the failure of the tanks was due to a design defect, as was generally accepted by those parties.
7 What must be seen as a matter of regret, if not criticism, is that, notwithstanding this, these parties contested liability from the time of the admitted failure of the tanks in late 1997 for some three years until the proceeding was commenced in 2000. And, even more so, that they continued to contest liability at what I must suppose was an enormous expense to the clients, throughout the inordinate period that it took to bring the case to trial some six years later. Meantime, the supervising engineers, Fisher Stewart, and the design engineers, Wynton Stone, have gone into liquidation and TTW has, rather ominously, changed its name to ACN 001 282 711 Pty Ltd. No doubt I shall hear more of this when the successful parties line up for orders for costs.
8 I return to the trial. At the outset, counsel for Montgomery Watson told me that their client accepted liability to Minson Nacap for the design failures. At the end of the trial they disclosed in little more detail the nature of the accepted breaches of Montgomery Watson's design services agreement with Minson Nacap.[6] This was an entirely responsible course because, as I have mentioned, it was apparent to all, except perhaps to those representing Wynton Stone and the parties down the line, that Montgomery Watson could not escape a finding that it was in breach of contract. I accepted this concession and proceeded to consider questions as to quantum and other questions which then arose in the Minson Nacap claim.
9 What is now put by counsel on behalf of Wynton Stone is that their client can escape a finding that Wynton Stone was in breach of its warranty because I made no finding in terms of the Montgomery Watson pleading. This point has as little substance as it has respectability. First, the pleading was drawn at a time when Montgomery Watson's liability to Minson Nacap was in issue so that a finding on this point might have been expected. Second, I did make a finding that Wynton Stone's design was seriously defective. In the context of this case, such a finding carried with it a finding that Montgomery Watson itself was thereby in breach of its agreement with Minson Nacap. Next, if the terms of the pleading are the source of difficulty, I would give leave to amend. I do not understand that Wynton Stone would thereby suffer any prejudice in the manner in which the trial was conducted, or otherwise. Finally, I would shudder at the prospect that counsel in modern complex commercial litigation should have to hesitate before making a responsible concession for fear that those parties whose misconduct, contractually speaking, was the cause of the litigation, might take such a point. I rejected it.
10 One of the claims brought by Montgomery Watson against Wynton Stone was that its execution of the deed of novation containing the warranty constituted misleading and deceptive conduct contrary to the Trade Practices Act and the Fair Trading Act. I rejected this claim for the reasons set out in the judgment.[7] Counsel for Montgomery Watson sought that I re-open this question on the basis that my reasons contain a misapprehension of certain matters. I declined to do this. I wrote what I intended to write; if it contains error of the kind suggested, this is for others to judge.
11 It follows from this that judgment has been given for Montgomery Watson in the sum of $4,138,696 both against Wynton Stone for damages for breach of warranty and against TTW for damages for breach of the sub-consultancy agreement for which it assumed liability under the deed of novation. I was told by counsel that the terms of the leave granted by the Master to proceed against Wynton Stone as a company in liquidation included a term that the leave not extend to the enforcement of this judgment against the company.
TTW Claims
12 The deed of novation was entered into with Montgomery Watson as a client of Wynton Stone following an agreement made between TTW and Wynton Stone in or about 1997. By this agreement the business of Wynton Stone was acquired by TTW and Mr Sloggett became an employee of TTW. Wynton Stone's work in progress, including the Barwon Water project, passed to TTW which, under the deed of novation, assumed responsibility for it. Another agreement entered into at this time was a deed of indemnity between TTW on the one hand and Wynton Stone and Mr Sloggett on the other. By cl. 1 of this deed, Wynton Stone and Mr Sloggett warranted that the work previously performed under contracts such as that with Montgomery Watson, was performed with due skill and care. My findings show that this warranty was breached and the evidence shows that Montgomery Watson has made a claim on TTW as a consequence. By cl. 3 of the deed of indemnity it was provided:
3. In consideration for TTW's undertaking to take over and perform the contracts and to be bound by their terms and conditions as if it were a party to the contracts in lieu of WS. WS and Sloggett by their execution hereof agree to indemnify and keep indemnified TTW, its directors and office bearers from any claim, damages, costs or expenses (and without limiting the foregoing including any legal costs incurred by TTW on a solicitor/client basis) resulting from a breach of the warranties contained in Clause 1 and/or a claim made by any of the clients in respect to the WIP performed by WS prior to the completion date.
13 The short point taken by counsel for Wynton Stone and Mr Sloggett is that this obligation to indemnify creates no liability in the indemnifiers unless and until TTW has made payment in respect of its own liability.
14 It was and could not be contended that such a proposition, if made good, would entitle Wynton Stone and Mr Sloggett to judgment against TTW on the third party claim against them. What was said was that I should make a declaratory order as to their liability to indemnify TTW in the sum of $4,138,696 and costs, but that any order for payment should be subject to a condition that TTW has first made the payment for which indemnity was given.
15 What was put on behalf of TTW was that I should make what was called a "leapfrog order", an order that Wynton Stone and Mr Sloggett make payment in terms of the indemnity direct to Montgomery Watson, thereby exonerating TTW from liability pro-tanto or completely.
16 The contest here was one between the common law principle which required the indemnified debtor first to make payment and the equitable principle which would specifically enforce the indemnity except where the contract otherwise provided or where exceptional circumstances exist.[8]
17 In the present case, attention was focused on the terms of the deed of indemnity. An examination of the document as a whole shows that the indemnity which Wynton Stone and Mr Sloggett gave was given as part of a broader agreement which included TTW's assumption of liability to the clients of Wynton Stone for work previously done. The indemnity is expressed to be in respect of "any claim, damages, costs or expenses resulting from a breach" of the cl. 1 warranties and also in respect of "a claim made by any of the clients in respect of the work in progress performed by Wynton Stone prior to the completion date". The second circumstance appears to overlap, but to be much wider than, the first. In each, however, an indemnity is given against claims. In the former circumstance, "claim" is mentioned beside "damages, costs or expenses". Furthermore, the indemnity is supported by the obligation imposed upon Wynton Stone and Mr Sloggett to hold professional indemnity insurance in respect of "legal liability arising from a breach of professional duty or negligence".
18 These terms and the contents of the deed generally point to the conclusion that the liability of the indemnifiers in circumstances such as the present arises in respect of a stipulated claim and when such a claim is made. I see no warrant for an interpretation which would have the consequence that the liability of the indemnifiers does not arise until the liability of TTW is established and is satisfied. The evident contractual intent is that, when a relevant claim is made upon TTW, this claim would pass to the indemnifiers and then to their insurers.
19 In these circumstances, I reject the contentions put on behalf of Wynton Stone and Mr Sloggett. I will make orders to the effect sought by counsel for TTW.
20 Finally, this is not the last of the orders to be made to resolve this proceeding. It was suggested, and I agreed, that there be an order fixing a common time for any party to bring an appeal against any of the orders I make. This will avoid complications in the appeal process.
21 As with the orders made against the other defendants up the line, questions of costs are otherwise reserved.
22 I propose therefore the following orders:
TTW Claim
1. Declare that Wynton Stone and Clifford Sloggett are jointly and severally liable to indemnify TTW in respect of any liability TTW may have to Montgomery Watson in this proceeding for damages, costs or expenses.
2. Order that each of Wynton Stone and Clifford Sloggett pay to Montgomery Watson the sum of $4,138,696 together with damages by way of interest on that sum pursuant to s. 60 of the Supreme Court Act calculated from 2 March 2001 to the date of judgment.
3. Order that Wynton Stone Pty Ltd and Clifford Sloggett pay to Montgomery Watson a sum equal to the costs ordered to be paid by Montgomery Watson to Minson Nacap in this proceeding, including the costs reserved on 1 December 2006.
4. Order that Wynton Stone Pty Ltd and Clifford Sloggett pay to Montgomery Watson a sum equal to the costs ordered to be paid by TTW to Montgomery Watson in this proceeding.
5. Order that Wynton Stone and Clifford Sloggett pay to TTW its costs of the proceeding, such costs should be taxed on a solicitor and client basis.
6. Order, pursuant to rule 64.03(1), that any notice of appeal by any party to the proceeding against any decision of the Court in relation to any claim by any party against any other party be served within 14 days after the date of the last decision of the Court against all parties at first instance, or further order.
I certify that this and the 6 preceding pages are a true copy of the reasons for Judgment of Byrne J of the Supreme Court of Victoria delivered on 4 May 2007.
DATED this 4th day of May 2007.
Ha Tran
Associate to Justice Byrne
[2] [2006] VSC 117 [202].
[3] [2006] VSC 117 [213].
[4] [2006] VSC 117; [2006] VSC 270; [2006] VSC 285; [2006] VSC 459.
[5] Montgomery Watson Statement of Claim para 33J.
[6] [2006] VSC 117 at [100].
[7] [2006] VSC 117 at [217].
[8] Abigroup Ltd v Abignano [1992] FCA 567; (1992) 39 FCR 74 at 81-3.
Aquatec-Maxcon Pty Ltd
Barwon Regional Water Authority
(1992) 39 FCR 74