18 Smith also deposed in his affidavit that as WMC was at that time about to file an amended counterclaim, he decided, following discussions with his solicitor, not to pursue any contribution proceeding against Steuler until after consideration of WMC's amended counterclaim. Smith deposed that in order to protect Protec's position, the writ in the present proceeding was filed on 30 April 2004.
19 As mentioned, the general indorsement on the writ alleges, in essence, that Steuler is liable to pay damages to Protec for loss caused as a result of negligent misstatements made to Protec as to the suitability of Bekaplast for the operating conditions of the WMC plant. Smith deposed that it was intended that Protec's claim against Steuler in the writ be finally formulated once the basis of WMC's claim against Protec and Steuler was clarified by WMC's final amended pleading. On 28 July 2004, WMC duly filed a fifth amended counterclaim against Steuler.
20 In 2005 the parties obtained further expert reports. An expert briefed by Steuler, Dr Glueck, wrote a report dated 24 January 2005 and provided to Protec on 15 April 2005, which concluded that "there are no doubts as to the suitability of BEKAPLAST PE-HD sheets to protect concrete as a lining for concrete containers to store the SHELLSOL kerosene types commonly used in solvent extraction plants". As to this, Dr Glueck stated that, according to test results obtained at Steuler's laboratory in January 2004, the chemical resistance of PE-HD to SHELLSOL kerosene types was judged as "resistant" under the Section 9 of the relevant German standard. After amending its pleadings again in July 2005, WMC also provided further expert reports.
21 Pursuant to an order made on 7 October 2005 by the Judge in the Building Cases List, a joint conference of experts was held over several days in late January and early February 2006, with experts from each of the three parties in attendance. On 7 February 2006 the facilitator Dr Charrett filed and served a joint report as to that conference. The report contained the responses of the individual experts to a draft list of agreed questions and, in addition, joint responses where agreement was reached. Relevantly, as to the causes of the lining not performing its intended purpose (if that were the case), Dr Glueck's response was that "the reasons and causes for the liner not performing its intended purpose are poor design and welding failures. Different service conditions from the Bid Request could also contribute to failures". Steuler's other expert, Mr Rohringer stated that the cause of the lining failure was "Probably deviation from the specified service conditions and consequent welding failure. According to my experience the most probable explanation could be seen in a combination of overheating and chemical influences. According to my experience temperature was for a longer service period exceeding the specified service temperature by far".
22 Smith deposed that Steuler had changed its position in the joint report. That is, while Steuler had previously (in common with Protec) sought to defend the counterclaim by WMC on the basis that the cause of the problems was the solvent Shellsol 2046 used by WMC, it now asserted that the cause of the problems was poor design and installation and that Bekaplast was suitable for the application. I interpolate that there was some dispute in the affidavits as to when Protec became aware that Steuler was no longer attributing the problems to aromatic solvents. Michael Steuler asserted in his affidavit that Protec was aware of this matter in April 2005 upon receiving Dr Glueck's report. Smith responded in his affidavit by deposing that he did not understand Dr Glueck's report as leading to the conclusion that Steuler was abandoning the aromatic solvent defence. It is unnecessary to resolve this conflict in the evidence. I note the assertion of Michael Steuler as to what Smith understood by the report of Dr Glueck but that assertion is inadmissible. That said, the reports speak for themselves. In my view, there was enough in the report of Dr Glueck to at least put Smith and Protec on notice that Steuler may abandon, or at the least place less reliance on, the aromatic solvent defence. I do not overlook Smith's evidence that it took he and Protec's solicitors and his expert months to read and understand the experts' reports, but, in the circumstances, Protec must be taken to have appreciated, at a time before the joint experts conference, the possibility that Steuler might depart from the apparently common defence previously adopted.
23 Smith deposed that Steuler's "change of position" made it "far more difficult" for Protec to defend the WMC claim, as Protec had been relying on Steuler to assist it with running the aromatic solvent defence and Protec did not have the resources to attempt to resolve the conflicts in the expert evidence by itself. Primarily for this reason, Protec sought to reach agreement with WMC. Negotiations led to the execution of a Deed of Settlement between Protec and WMC in March 2006.
The Deed of Settlement
24 The Deed begins with a background section reciting in summary form the nature of the litigation, including the nature of the proceeding commenced by Protec against Steuler. Then, cl 1 states that all terms of the Deed are subject to and conditional upon Protec being successful in its application for leave to serve the writ on Steuler. Clause 2 provides for mutual releases from liability, and cl 3 provides that Protec shall instruct its solicitors to file a notice of discontinuance in relation to the WMC proceeding. By cl 4 Protec agrees to consent to the entry of judgment against it in favour of WMC for $15M in respect of the counterclaim. By cl 6, Protec agrees that in further partial satisfaction of the judgment sum, Protec will seek leave to serve the writ against Steuler and will prosecute the proceeding against Steuler. By cl 7, WMC agrees to pay Protec's costs incurred in bringing the proceeding against Steuler and indemnify Protec against any costs orders made therein. By cl 8, Protec agrees that any sum it recovers from Steuler will be applied to the judgment sum payable to WMC.
25 It is thus seen that the application to extend the time in which to file the writ is a condition precedent to Protec's settling the WMC proceeding on the terms contained in the Deed of Settlement.
Summons filed by Protec
26 Ultimately, on 30 June 2006, Protec filed a summons, returnable before a Master, seeking an order extending the time in which to serve the writ. It appears that Steuler objected to the summons not being returnable before the Judge in the Building Cases List and, after appearances before a Master and the Judge in the Building Cases List, a fresh summons was issued on 25 July 2006, returnable before the Judge in the Building Cases List on 13 September 2006.
Cross-summons filed by Steuler
27 On 16 August 2006 Steuler filed a summons returnable before the Judge in the Building Cases List on 13 September 2006, seeking an order that the proceeding be stayed pursuant to s 7 of the International Arbitration Act 1974 (Cth) or s 53 of the Commercial Arbitration Act 1984 (Vic). It appears that Steuler sought such relief on the basis of the arbitration clause contained in the 1997 cooperation agreement referred to above. On 7 September 2006 Steuler filed an amended summons, still seeking the orders previously sought and adding, as an alternative, that the proceeding be stayed generally or that there be judgment for Steuler pursuant to r 23.01.
28 The summonses ultimately came on before me on 1 March 2007. Then, at the outset of the hearing, Steuler sought, and I granted, leave to file a further amended summons. The amendment deleted the initial application for a stay under the International Arbitration Act 1974 (Cth) or the Commercial Arbitration Act 1984 (Vic), retained the application pursuant to r 23.01, and added the application pursuant to r 23.02 (a), (c) and (d) that the indorsement on the writ be struck out.
29 The above being sufficient information by way of background, it is now convenient to refer to the submissions made by counsel on the two applications. Although not commenced first in time, it is convenient to deal with Steuler's application first.
Submissions on Steuler's application
Steuler
30 Counsel for Steuler submitted that the proceeding commenced by Protec by writ was bound to fail because the incorrect plaintiff was named in the writ. The party which entered into the relevant contracts with WMC and Steuler was Protec (NSW), not Protec. And while the agreements between Smith and Steuler may have rearranged the affairs of Protec prospectively, they could not undo past events, namely the contracts between Protec (NSW) and WMC, without there being a novation of the contracts with the consent of the relevant third party. As to the fact that the claim in the writ is framed in negligence, even assuming that Steuler owed a duty of care to Protec (rather than to Protec (NSW) to whom it ostensibly made the relevant representations), the fundamental problem lies in Protec's contention that breach of the duty not to make negligent misstatements to one entity (Protec) caused another entity (Protec (NSW)) to enter into contracts with WMC.
Protec
31 Counsel for Protec submitted that the identity of the contracting party was irrelevant as the indorsement on Protec's writ alleges negligence against Steuler. It was evident from the Protec letterhead that there was more than one company in the "Protec group" and any of these companies must have been within the purview of those to whom a duty of care was owed by Steuler in making its representations as to fitness for purpose. The fact that Protec (NSW) may also have a claim in contract against Steuler is irrelevant to the claim in negligence brought by Protec. Also, the effect of the share-sale agreement and shareholders agreement was to collapse the business of Protec (NSW) into that of Protec, which counsel characterised as effectively a joint venture between Steuler and Smith. Further, the issue as to Protec (NSW) being the appropriate party was only raised in the third affidavit of Michael Steuler, sworn on 7 September 2006, and before that the parties in the WMC proceeding took no issue with the fact that the named party was Protec (rather than Protec (NSW)).
Submissions on Protec's application
Protec
32 Counsel for Protec submitted that, while Protec had demonstrated good reason for the period for service of the writ to be extended, such an order was unnecessary as Steuler had effectively taken a step in the proceeding, and thereby submitted to the jurisdiction of the Court or otherwise waived any objection it might have had to jurisdiction. This, said counsel, was the short point on which the application case could be resolved in favour of Protec.
33 Counsel referred to authorities for the proposition that service of a stale writ is a mere irregularity which the defendant may waive by entering an unconditional appearance to it[5], including Fry v Moore[6] where the English Court of Appeal held that an irregularity in service of a writ had been waived by the defendant issuing a summons seeking an order that the plaintiff deliver a statement of claim. Counsel referred to the statement by Lopes LJ in Fry that the defendant's summons in that case was "utterly inconsistent with the theory that, by reason of the non-service of the writ, no action was in existence"[7]. Counsel then referred to Brealey v Board of Management of Royal Perth Hospital[8] where Ipp J said that "a step that is not consistent with or relevant to the challenge to the jurisdiction, will usually be a submission to that jurisdiction". As to the application of these principles in the present case, counsel contended that Steuler had submitted to the jurisdiction of the Court by taking three pre-meditated steps in the action (namely the filing of the three summonses referred to above) which were "utterly inconsistent" with Steuler's position of opposition to Protec's application to extend the time for service of the writ. On the contrary, he submitted, Steuler invokes the Court's jurisdiction to determine the proceeding under r 23.01. Alternatively, none of the steps taken by Steuler were relevant to its opposition to Protec's application. And contrary to the suggestion by counsel for Steuler, the application was brought and maintained as a principal application, not as an application conditional upon Steuler failing in its opposition to Protec's application.
34 Counsel then submitted, in the alternative, that Protec had demonstrated good reason to justify extending the time to serve the writ, and that there was no prejudice to Steuler if leave to serve the writ was granted. Counsel contended that the claim in the writ was not much different from the notice of contribution which, he frankly conceded, should have been served in the WMC proceeding, meaning that an extension of time would not expose Steuler to a risk it was not already exposed to in the WMC proceeding. As to Protec's reasons for not serving the writ, counsel emphasised the co-operation between Protec and Steuler in mounting a "common absolute defence" to WMC's counterclaim, and submitted that service of the writ might have seriously undermined that co-operative relationship. It was only in February 2006, following the joint conference of experts, that Protec realised that it was no longer supported by Steuler in relation to the common defence, and in these circumstances of realising the extent of its exposure to WMC and its inability to contest the technical issues raised by WMC, it promptly sought to settle the proceeding with WMC and seek leave to serve the writ against Steuler.
35 Counsel accepted that Protec should have filed a notice of contribution in the WMC proceeding, but emphasised that Protec was reluctant then to sue what was effectively its joint venture partner. Further, there were ongoing negotiations to settle the WMC proceeding, and Protec was waiting for WMC to deliver amended pleadings. Counsel also acknowledged the tactical advantage Protec perceived in not serving a notice of contribution on Steuler. He also referred to WMC's threat in March 2004 to sue Smith and Michael Steuler personally for breach of directors' duties if they failed to cause Protec to issue contribution proceedings against Steuler, and submitted that this formed a substantial part of Protec's decision to issue the writ.
Steuler
36 As to the contention that Steuler had, by filing its summonses, submitted to the jurisdiction of the Court, counsel submitted that Fry and Laurie were distinguishable from the present case in that they dealt with substituted service issues in respect of process served within time, whereas the present case concerned a writ sought to be served out of time. Nevertheless, counsel contended that what Steuler had done here was akin to what the defendant did in Laurie, namely insist upon an objection to jurisdiction but carry that objection further than was open. That could not be construed as inconsistent with, or as a waiver of, the objection. Counsel emphasised Steuler's "substantive opposition" to Protec's application to extend time for service. He submitted that, like the defendant in Laurie, "we've gone further as well and effectively we're saying ... in the event that Protec is allowed to renew the writ, then there are these other difficulties under Order 23". He submitted that this was a proper way to make use of court time to try and deal with all applications at once.
37 As to the discretion to extend time for service, counsel submitted that Protec had not established good reason for not serving the writ within time. This was not a case where Protec had difficulty in effecting service because, for example, Steuler was evading service. Rather, Protec pursued a deliberate tactic of not serving the writ, and ordinarily a deliberate decision by a plaintiff not to serve the writ until collateral litigation has been disposed of or until some future development in that litigation occurs, will not be a good reason for extending the time for service; see Ramsay v Madgwicks[9]. Counsel urged the Court to rely on the material in Smith's affidavit as to the real reasons for Protec not serving a notice of contribution, or writ, on Steuler, and as to Smith's state of mind at the time, which counsel described as being concerned with achieving the most favourable outcome possible in a settlement with WMC. As to this, counsel submitted that Protec was aware of the relevant time limits, indeed Smith was aware that the relevant limitation period was set to expire when the writ was issued in April 2004, and the decision not to serve was made deliberately to enhance Protec's bargaining position with WMC.
38 Counsel submitted that although there was a commercial relationship between Protec and Steuler and they worked together in defending the WMC counterclaim, that did not justify the decision to not serve the writ. Although Michael Steuler was a director of Protec, there was no joint venture between Smith and Steuler. As the holder of only 12.5 percent of the shares in Protec, Steuler had no power to bind Smith and it exercised no control over Protec. On the contrary, Smith exercised his powers in a way to achieve the best tactical outcome in his dealings with WMC. He did not inform Michael Steuler that the writ had been issued, nor did he consult with him in relation to the negotiations leading to the Deed of Settlement. It was not until March 2006 that Protec advised Steuler of the Deed of Settlement, the existence of the writ and its intention to seek an extension of time for service.
39 It was not inconsistent with the ongoing commercial relationship between Protec and Steuler that Protec would seek legal redress against Steuler. Counsel referred to instances, from as early as June 1999, where Protec told Steuler that it would issue a notice of contribution, and referred to the formal step of Protec seeking leave to file and serve a notice of contribution by 30 April 2004. He submitted that the relationship was not something which had deterred Protec from seeking legal redress against Steuler.
40 Further, Protec became aware of Steuler's change of position in relation to the aromatic solvent defence on 15 April 2005, rather than in February 2006. In support of this, counsel referred to Smith's first affidavit where Smith deposed that Steuler provided the expert report of Dr Glueck in April 2005 and that Dr Glueck concluded in that report that, on the basis of tests performed by Steuler, that Bekaplast HDPE was suitable for use with Shellsol. But even if Protec did only became aware of the change of position in February 2006, that would not excuse the failure to serve the writ, because the general indorsement on the writ was conditional in nature, para 11 alleging that "if in fact" the material proposed by Steuler was unsuitable, then certain statements made by Steuler (referred to earlier in the indorsement) were made negligently. That is, the issuing and service of the writ was not dependent upon any final view as to causation. The general indorsement was more in the nature of a notice of contribution, Protec denying liability to WMC but seeking contribution from Steuler in the event that WMC made out is claims against Protec.
41 Finally, counsel submitted that the question of balancing the prejudice likely to be caused to Protec and Steuler respectively if the application was granted did not arise because Protec had failed at a threshold level to show good reason for not serving the writ within time. But even if the balance of prejudice were to be considered, there would be little prejudice to Protec as it could rely on all the matters set out in the writ in the WMC Proceeding, in the sense that under the apportionment legislation, WMC would only be able to recover form Protec such amount as may be just and equitable having regard to its acts or defaults. That is, if for example Steuler were held to be 30 percent responsible for WMC's loss, WMC could only recover 70 percent of the loss against Protec.
Decision
42 Dealing with Protec's application, it is convenient to begin with the relevant rules of court. Rule 5.11(1) provides that a proceeding shall be commenced by filing the originating process. Rule 5.12 then provides that: