Plaintiff v Defendants

2 The proceeding has been set down for trial, on a second occasion, to commence on 6 February 2013 on an estimate of 15 to 20 days. The plaintiff does not want to lose the trial date. I excused the sixth defendant from attendance on the hearing of the appeal.

3 The Regis parties contend that the length of the trial will not be affected by the proposed pleading. The Regis parties contend that the claims in the proposed pleading are directly connected to the subject matter of the proceeding and arise out of documents already discovered. They contend that the effect of the refusal of leave by the associate judge is that the court cannot, at trial, fully and effectively deal with all of the issues between the parties. The proposed third party is a wholly owned subsidiary of the third defendant and represented by the same solicitors.

4 The Moran parties contend that the order made by the associate judge was appropriate, as the proposed pleading does not identify, with sufficient particularity, the allegations that it must meet at trial. It is, they submit, inevitable that the trial will be extended, alternatively delayed, and cannot fairly be conducted without proper particularisation of the allegations that are made. Given the substantial, and unexplained, delay since the right to issue contribution and third party proceedings under order 11 expired, the Regis parties should not now be permitted to file and serve the proposed third party notice and third party/contribution statement of claim.

5 Some background will assist in understanding the issues that arise on the application.

6 At all relevant times, the plaintiff has owned a property in Preston upon which there stood an aged care facility. From August 2000 until December 2005, the proposed third party occupied the premises pursuant to a lease, guaranteed by the third and fourth defendants, the Moran parties. On 1 December 2005, the relevant Moran entity (the proposed third party) assigned the lease was to the Regis parties, to the first defendant with a guarantee from the second defendant. The Regis parties continued to operate the premises as an aged care facility. The first defendant entered into a management agreement with the third defendant, a Moran company that managed the facility for the first defendant until early September 2007.

7 The relevant aspects of the plaintiff's claims in the proceedings concern its claim against the Regis parties for damages for breach of terms of the lease relating to the repair and maintenance of the premises and the obligation to 'make good' on the determination of the lease. The plaintiff claims damages of approximately $1 million for breach by the Regis parties of the covenants of the lease in this respect.

8 It is contended that, by the relevant deed of assignment of lease, the proposed third party agreed to indemnify the Regis parties against all claims 'arising before the lease assignment date including as a result of the non-payment, non-performance or non-observance of any obligations of the vendors under or in respect of the Preston lease arising before the lease assignment date'. A term of a related agreement provided that the assignee (the Regis parties) is not liable for any obligations or liabilities under or in respect of the lease, which occurred before [1 December 2005].

9 The Regis parties contend, broadly within the dispute although not particularly within the pleadings, that the liability of the Regis parties to the plaintiff is confined to an obligation to repair and maintain on and from December 2005 and that the obligation to make good is related to the condition of the demised premises at that date.

10 The management agreement that operated between the first defendant and the third defendant contained various provisions touching upon the obligation to repair and maintain the premises. The nature and extent of these obligations is a matter for trial. However, broadly, the Regis parties contend that the third defendant's obligations under the maintenance agreement operated during the period after 1 December 2005 and were at the first defendant's cost and expense. As I understand the allegations, the contractual management obligation is distinct from and different to, in its essential character, the indemnity obligation accepted by the proposed third party when assigning the lease to the first defendant.

11 The claims and cross-claims in the proceeding between the parties accordingly turn on the provisions of the lease, the assignment transaction documents and the management agreement. The legal obligations arising from these transactions appear to raise a central continuum issue of fact, which is, in the context of the obligations created by the various transaction documents, what was the state or condition of the premises on 1 August 2000, 1 December 2005 and 3 September 2007.

12 The plaintiff bases its claim on expert evidence from a quantity surveyor of the cost of making good the premises from the condition in which they were left in September 2007. In answer to my inquiry, counsel could not clearly identify the way in which the evidence in relation to the condition of the premises is being structured. I sought to understand how the parties propose to conduct that aspect of the trial, because of the submission for the Regis parties that they cannot give further or better particulars of the proposed pleading, and have done their best. The Moran parties contested that the proposed pleading clearly identified the claims being advanced or that the nature of the evidence that might be relevant to those claims was reasonably ascertainable.

13 The allegations made by the proposed pleading can be shortly stated. It first sets out the relevant transactions and the obligations arising under the transactional documents. It recites the source of the claims made against the first defendant by the plaintiff and continues, by paragraph 19:

If which is denied [the second defendant] is liable to [the plaintiff] in respect of the claims made pursuant to paragraphs 45, 48 and 49 of the amended statement of claim, [the second defendant] is entitled to be indemnified by [the proposed third party] in respect of such liability pursuant to the Sale Indemnity to the extent that the liability arises prior to to 1 December 2005. [emphasis added]

Particulars have not been provided of the underlined part of that allegation.

14 The pleading continues, alleging the management agreement and the obligations arising thereunder, in order to make the second central claim raised by the pleading, that if the second defendant is liable to the plaintiff in respect of the claims made pursuant to paragraphs 45, 48 and 49 of the amended statement of claim, the third defendant will have caused loss and damage by breach of the obligations that arise under the management agreement. That loss and damage 'will be that portion of the second defendant's liability to the plaintiff that is attributable to the third defendant's failure to perform the maintenance obligation during the period from 1 December 2005 to 3 September 2007'.

15 The proposed pleading claims an indemnity from the proposed third party for the benefit of the Regis parties in respect of any liability that the Regis parties may have to the plaintiff in respect of the make good claims, to the extent that such liability arises out of the occupation of the premises by the third party prior to 1 December 2005. The pleading seeks no like relief against the third defendant, rather, seeking damages, particularised as I have already described.

16 The Regis parties have also pleaded that the proposed third party was obliged to carry out various works at the premises prior to 1 May 2003 and some particulars of those works have been given. It is alleged that the proposed third party failed to complete the 2003 works. It is not clear that this allegation is material, as it is not apparently related to either the allegations contained in paragraphs 45, 48 and 49 of the plaintiff's amended statement of claim or the allegations that the Regis parties are entitled to be indemnified by the proposed third party in paragraph 19 of the proposed pleading.

17 The Regis parties contend they cannot be required to give further particulars of a matter that they denied, that is, liability for damages in respect of any alleged breach of the lease. The Regis parties contend that the material allegations will depend upon the evidence to be led by the plaintiff at trial. It is only if any of the plaintiff's claims were found to be made out against the Regis parties that they could, upon consideration of the timing and nature of any breach the subject of those claims, supply further particulars.

18 The contention that the obligation to make good is limited to a want of repair or maintenance that has occurred since 1 December 2005 arises, I was informed from the Bar table, under cover of a bare denial to the plaintiff's claim. In my view, that issue is not satisfactorily raised on the pleadings as between the Regis parties and the plaintiff. For its part, the plaintiff disputes the interpretation of the lease obligation upon which the Regis parties base that claim. I do not think that the pleadings have properly identified the issue that arises for the purpose of preparation of evidence, particularly expert evidence, for trial.

19 I was not shown the form of this evidence apart from being referred to the witness statement of a quantity surveyor, which refers to identification of the scope of the make goods works performed by another person. It is to be borne in mind that the premises have now been demolished. If it is the case, though I think that it is not, that the plaintiff's evidence identified each alleged defect, want of repair or appropriate maintenance upon which the claim for the cost of making good the state of the premises is based and that such evidence is sufficiently detailed to identify whether that condition existed at or prior to December 2005, then the defendants are properly able to give detailed particulars of the extent to which the indemnity liability alleged against the proposed third party arose prior to 1 December 2005 as alleged in paragraph 19 of the proposed third party statement of claim. The Regis parties could have extracted such particulars from the plaintiff or independently compiled the necessary details since July 2009, and did not explain why that did not occur. Equally, the Regis parties could give proper particulars of the bare denial of the plaintiff's entitlement to the full amount of the make good damages consequent upon the interpretation of the make good clause contended for by the Regis parties. It will be a matter for the trial judge whether the pleadings will make relevant any argument concerning the proper construction of the make good clause in this respect.

20 Assuming the plaintiff succeeds, as between the Regis parties and the Moran parties, the Regis parties bear the onus of proving the extent of the indemnity to which they are entitled from the proposed third party and the quantum of the damages to which they are entitled from the third defendant. The Moran parties are, in my view, plainly entitled to proper particulars identifying what part if any of the make good work is attributable to conduct prior to 1 December 2005.

21 In Goldsmith v Sandilands,[1] Gleeson CJ observed:

It sometimes happens, in the course of litigation, that counsel will start a hare. The response of the opposing counsel may be to pursue it. One of the duties of a trial judge is to control the proceedings, to exclude irrelevancy, and to maintain proper limits upon the extent to which the parties and their lawyers will be permitted to raise and investigate matters that are of only marginal significance. The facts in issue in a civil action case emerge from the pleadings, which, in turn, are framed in the light of the legal principles governing the case. Facts relevant to facts in issue emerge from the particulars and the evidence. The function of particulars is not to expand the issues defined by the pleadings, but "to fill in the picture of the plaintiff's cause of action with information sufficiently detailed to put the defendant on his guard as to the case he has to meet and to enable him to prepare for trial". The function of evidence is to advance, or cut down, the case of a party in accordance with the rules of statute or common law that determine the nature of the information a court will receive. The primary rule of evidence is that a court will receive, and will only receive, evidence that is relevant to the issues as defined by the pleadings. Evidence is relevant if it could rationally affect, directly or indirectly, the assessment of the probability of the existence of a fact in issue in the proceeding. (Citations omitted)

These observations are pertinent when the hare is not a matter of marginal significance, but a matter that may affect issues of procedural fairness and case management.

22 The Regis parties invite me to accept that the relevant apportionment can be determined from the evidence led by the plaintiff at trial. To the extent that the witness statements on behalf of the Regis parties may be relevant, they offer to bring forward by a month the date upon which they will file and serve their witness statements. The Regis parties contend that there will be no need for further discovery, that the Moran parties are closely related, being parent and subsidiary companies and are represented by the one solicitor. They contend that the addition of a party to the proceeding and the evidence and submissions in relation to the issues raised against the proposed third party will not extend the duration of the trial. In substance, it is plain to the Moran parties that the allegation they must meet at trial is that either the proposed third party must indemnify the Regis parties in respect of make good damage relating to the period prior to December 2005 or the third defendant must pay damages in respect of the plaintiff's make good damages after that date. The request for further particulars required by the Moran parties is an unnecessary request for the evidence that will be disclosed in compliance with trial preparation directions.

23 The Regis parties refer generally to the desirability of ensuring that all matters in dispute between the parties are completely and finally determined avoiding a multiplicity of proceedings.[2] Viewed in abstract, the contention that such objectives are only discharged by permitting the joinder of the proposed third party and allowing the proposed claims to proceed is an attractive proposition and a forceful consideration in favour of the Regis parties' contentions.

24 At least to some extent, particular instances of a want of maintenance or repair in breach of the relevant covenants and agreements are in issue between the parties. It would plainly be convenient for the Regis parties for that examination of the issues to include the further issue of whether the relevant conduct occurred before 1 December 2005.

25 The cornerstone of the Civil Procedure Act 2010 is that in relation to civil proceedings the overarching purpose is to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute in the proceeding.[3] There is an evident tension in the statement of the overarching purpose. The court cannot lose sight of the fundamental requirement that a trial must be conducted fairly and in accordance with the principles of natural justice and procedural fairness.[4] That tension is also evident in the s 9 considerations to which the court has regard when furthering the overarching purpose. Under s 9(2) of the Act, I may have regard to the following matters relevantly for this application:

...

(c) the degree of promptness with which the parties have conducted the proceeding, including the degree to which each party has been timely in undertaking interlocutory steps in relation to the proceeding;

(d) the degree to which any lack of promptness by a party in undertaking the proceeding has arisen from circumstances beyond the control of that party;

(e) the degree to which each person to whom the overarching obligations apply has complied with the overarching obligations in relation to the proceeding;

(f) any prejudice that may be suffered by a party as a consequence of any order proposed to be made or direction proposed to be given by the court.

26 The Regis parties filed their defence at the end of July 2009. As of right, the Regis parties could have filed the third party notice during the next 30 days, that is during August 2009 and a third party notice shall be served on the third party within 60 days after it is filed. Thereafter, without the consent of other parties, the leave of the court is required.[5] An application for leave must be made on notice to the plaintiff. The court may then make orders or give directions under r 11.13. There is evident purpose to a discretionary power to grant leave outside these time limits. Some of the cases on the exercise of this discretion that explain the purpose of the time limits are collected in Williams Civil Procedure[6] and I do not propose to review those cases in this judgment. There is substantial correlation between the matters identified in s 9 of the Civil Procedure Act 2010 and the considerations identified in the cases prior to its enactment that concern the exercise of procedural discretions under civil procedure rules.

27 The delay by the Regis parties in the application for leave to issue the third party proceeding is substantial. Almost three years elapsed from the expiry of the r 11.05 period until a letter from the Regis parties' solicitors to other parties, seeking their consent and enclosing a copy of the proposed third party notice and statement of claim. The application comes after the first trial date that was allocated to the proceeding.

28 In Aon Risk Services Australia Ltd v Australian National University[7] the High Court had occasion to consider r 21 of the Australian Capital Territory court procedure rules, which states the purpose of those rules in terms similar to Part 2.1 of the Civil Procedure Act 2010. Bearing in mind that the court was concerned with a pleading amendment, the observations of the plurality are pertinent on this application:

The objectives stated in r 21 do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay, as it inevitably will. Factors such as the nature and importance of the amendment to the party applying cannot be overlooked. Whilst r 21 assumes some ill-effects will flow from the fact of a delay, that will not prevent the parties dealing with its particular effects in their case in more detail. 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.

The fact that an explanation had been offered for the delay in raising the defence was regarded as a relevant consideration in Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146 at 152. Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by r 21 to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. There can be no doubt that an explanation was required in this case.

29 On this application, the Regis parties have not explained the three-year delay period. As the trial date is approaching and the other parties declined to consent to the proposed third party joinder, an explanation was required in this case. I do not doubt that the application was brought in good faith and that the likely explanation was a want of competence on the part of the litigators at the time in properly identifying the relevant issues, usually described, as it was from the Bar table, as inadvertence. The consequences of that inadvertence are that, during the past three years, available procedural steps have not been taken to identify the appropriate particulars and prepare the necessary evidence for the allegations to which I have referred.

30 I am unable to ascertain whether, from all of the material available to the parties in the proceeding, it will be possible for that part of the make good works referable to the period prior to 1 December 2005 to be properly identified. I suspect that such particulars cannot now be given, but if such particulars were provided, the balance of considerations that affect the discretion would be changed. Counsel for the Regis parties suggested that particulars could be given that the whole of the make good works arose from the conduct of the Moran parties prior to 1 December 2005. It is not immediately apparent to me that such particulars would comply with the overarching obligations under Part 2.3 of the Civil Procedure Act 2010. Having regard to the structure of the proposed pleading, which alleges that the Regis parties are entitled to an indemnity in respect of part of the make up damages and have a claim for damages for the remainder, it appears unlikely that particulars in that form would be appropriate.

31 If it is now the case that by reason of the demolition of the premises and the want of attention to the need to determine the state of the premises as at December 2005 that the proper particulars of the allegation in a proposed third party proceeding cannot be determined other than by cross-examination of the plaintiff's witnesses at trial, in my view the inconvenience to the plaintiff, the third defendant and the proposed third party caused by the delay in making this application outweighs the inconvenience to the Regis parties in not having its claims against the proposed third party heard at the same time as the existing proceeding.

32 It is likely that the failure to introduce this material allegation at an earlier time has also affected the approach taken by experts in preparing their evidence and participating in joint conferences required by trial preparation directions. It has not been suggested to me that the delay of three years would have made no difference to the inability, which the Regis parties presently assert, to provide proper particulars of the third party claim.

33 Taking all of these considerations into account, the application by summons dated 3 August 2012 fails. I will order that the notice of appeal dated 6 September 2012 from the order of the associate judge given 30 August 2012 is dismissed and the orders made by the associate judge are confirmed. I will hear from counsel on the question of costs.

[1] [2002] HCA 31, (2002) 76 ALJR 1024, [1]-[2].

[2] Section 29(2) Supreme Court Act 1986 (Vic); Order 11 Supreme Court (General Civil Procedure) Rules 2005 (Vic); s 7 Civil Procedure Act 2010 (Vic).

[3] Section 7(1) Civil Procedure Act 2010.

[4] Hodgson v Amcor Ltd [2011] VSC 272, [28], [35]; Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 2) [2011] VSC 518 [29].

[7] [2009] HCA 27; (2009) 239 CLR 175 [102]-[103].