QBE Insurance v Westpoint Realty [2009] NSWSC 1298 | Case summary

1 HIS HONOUR: The plaintiff (QBE) paid to a Mr Shepard, as receiver and manager of Bayshore Port Melbourne (Bayshore) an amount in excess of $3.5 million. The payment was made pursuant to two performance bonds issued by QBE in favour of Bayshore. In these proceedings, QBE seeks, from the defendants, reimbursement for the amounts that it has paid. 2 I am presently concerned with two applications. One is brought by QBE. The other is brought by the second defendant (Mr Carey). It is convenient to deal first with QBE's application. That application is brought by Notice of Motion filed on 26 October 2009. QBE seeks leave to use documents discovered, affidavits served and documents produced pursuant to subpoenas in these proceedings for the purpose of proceedings proposed to be commenced by it against Mr Shepard. Mr Shepard opposes the application. 3 Mr Shepard's opposition is based on a number of factors. It is convenient to state, at the outset, that none of those factors relates to prejudice flowing from the nature of the documents in respect of which the leave of the court is sought. 4 The first point raised by Mr Shepard is that, since he is already a party to these proceedings as a cross-defendant at the suit of Mr Carey, the claims that QBE wishes to make against him should be brought by amendment in these proceedings. If that were done, Mr Shepard says, it would not be necessary for QBE to have the leave that it seeks. However, Mr Shepard says, if QBE had sought to proceed that way, it would not be given leave to amend. Indeed, as Mr Shepard points out, QBE had initially proposed to proceed by way of amendment but, upon being apprised of Mr Shepard's objections, had decided to proceed instead in the way that I have outlined. 5 The second basis of objection raised by Mr Shepard relates to what he says are deficiencies in the claims that QBE wishes to bring. 6 The third ground of objection raised by Mr Shepard is that he will suffer prejudice if the order is made. That prejudice will flow, he says, in exactly the same way as he would have been prejudiced had QBE sought, and been granted, leave to amend. In essence, Mr Shepard says, the area of the litigious controversy will be enlarged, further parties may need to be joined, further evidence will have to be obtained and the likely hearing date will be delayed. In circumstances where, Mr Shepard says, the receivership is essentially at an end save for the resolution of these proceedings, that is, he says, substantial prejudice. 7 The submissions for Mr Shepard in effect approach the matter by asking what would happen if QBE had proceeded with its original intention of seeking leave to amend. That approach is relevant, it was submitted, because QBE has taken the present course so as to avoid scrutiny of matters such as delay and other "Aon" factors (a reference to the decision of the High Court of Australia in Aon Risk Services Australia Ltd v Australian National University (2009) 83 ALJR 951. Thus, as it was put in submissions, the application for leave to use the documents obtained in these proceedings for the purpose of fresh proceedings is in effect an attempt by QBE to come through the back door when the front door is barred. 8 The reference to Aon appears to involve as much of a misconception as to what was actually held in that case as did previous references (in submissions in other cases) to the High Court's decision in State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146. That is because, when appeals are made to Aon (as previously they were made to JL Holdings), attention seemed to be focused on statements of principle, divorced from their factual context, as though they were the commands of a statute. 9 The facts in Aon are relevant to what was said in that case. Proceedings were commenced against two defendants. On the third day of a 4-week hearing, the plaintiff settled with one of the defendants. It sought an adjournment to amend (or further amend) its claim against the remaining defendant. The purpose of the proposed amendments was not to refine some existing claim but to allege, for the first time, new heads of claim. The amendment was allowed by the trial judge, and the majority of the Court of Appeal of the Supreme Court of the Australian Capital Territory affirmed the decision of the trial judge in that regard. However, the High Court took a different view, and it is in the context of the facts that I have briefly outlined them that they made the various statements of principle on which, both today and frequently, reliance is placed. 10 If the matter proceeded by way of amendment, it is quite clear that costs would be wasted. To the extent that those wasted costs are costs of litigation (for example, costs as to the amendment of pleadings - to use an inaccurate but convenient term) they could be recouped through an order for costs: if necessary, on an indemnity basis. To the extent that there are other costs (for example, in holding open the receivership whilst the proceedings are determined) it is at least arguable that they would not be recouped through an order for costs. Accordingly, the mere fact that there will be a delay in the hearing if there were to be granted leave to amend does occasion prejudice in a relevant and effectively incurable sense. 11 To the extent that granting leave to amend would lead to further interlocutory procedures (including, perhaps, the joining of further parties, and certainly including the obtaining of further evidence) those are costs that would arise to be dealt with on a final hearing. If QBE succeeded on the hypothetical amendment, and recovered its costs, the fact that Mr Shepard had incurred costs in meeting the hypothetical amendment would not of itself seem to be a relevant source of prejudice. 12 It is necessary to look at matters in this way, the submissions for Mr Shepard went, because that is in truth what is being sought to be achieved. However, that submission seems to me to overlook to some extent an important consideration. There is no legal impediment to the commencement of fresh proceedings. They are not out of time, or otherwise somehow finally barred. Thus, to adapt what was said in Aon at [96], QBE is in the position of a party that has "the right to invoke the jurisdiction and the powers of the court in order to seek a resolution of [its] dispute". Further, as was said at [112], QBE "has the right to bring proceedings" and "choices as to what claims are to be made and how they are to be framed". As was emphasised at [114] the importance of that common law right will vary according as to whether what was sought was an amendment to an existing case (in which case various case management and other discretionary factors will come into play) or the commencement of fresh proceedings. 13 What I have said so far might seem to be somewhat sterile. However, Mr Wood of counsel (who appeared with Mr Lazarus of counsel for Mr Shepard) submitted that it was relevant even on the particular application with which I am concerned, considered in its own terms. That is because, he submitted, the impact of questions of delay on Mr Shepard, coupled with what he submitted was the absence of any real explanation for the delay in bringing the application, was a factor relevant to the grant of leave that was sought. 14 Assuming for the moment that the submission is correct at the point of principle, and bearing in mind that I am still considering the matter as though it were an application for leave to amend and am not dealing with the factors that have sometimes been identified in relation to the exercise of the discretion that is actually in question, I do not think that the prejudice through delay is of such magnitude that it would tell against the grant of leave to amend. This case is, factually, very different to the facts in Aon. In Aon, as I have said, the application for leave to amend was made after the commencement of the hearing. There has as yet been no allocation of a hearing date in this matter, although Mr Shepard says that he is, and since the end of July has been, ready for a hearing date to be allocated. 15 If the matter were to go back to the list judge now, for allocation of a date, it is likely (on the assumption that the hearing will take three to four weeks) that a date would not be available until about August 2010. If, as Mr Shepard's solicitor estimated, delays flowing through what is sought mean that the matter would not be ready for trial until late 2010, a hearing date can be allocated - now if necessary - for, say, November 2010. In other words, the period of delay is of the order of three months. 16 Mr Wood submitted that the period of delay was in fact longer, because a hearing date could have been allocated back in July or August of this year. That may be so; but it was not. We are concerned with actual delay, not with hypothetical or reconstructed delay. 17 In my view, delay of the kind apparently in contemplation, even acknowledging that it will involve additional costs through extension of the duration of the receivership, is not of itself a factor of sufficient weight to tell against a hypothetical application for leave to amend. 18 Thus, in considering both the "back door/front door" and prejudice submissions, and as I have said dealing with the matter as though it were an application for leave to amend, I do not think that those factors of themselves would tell against the grant of leave. 19 I have not overlooked the fact that the explanation for the delay in bringing the application is, to put it kindly, somewhat exiguous. However, explanation of delay is, whilst always relevant, only one of the factors to be tossed up in considering how to exercise the discretion in question. It is usually more relevant where delay in bringing the application will lead to substantial prejudice through extension of the time to deal with the hearing. In this case, as I have said, the extension of time is of the order of three months and even assuming that it could have been avoided had the application been brought earlier, it does not seem to me that a failure to explain the delay in bringing the application goes any further. 20 I turn to the suggested deficiencies in the case that is sought to be advanced. QBE wishes to rely in substance on three different claims. The first relates to the demand that Mr Shepard caused Baycorp to make. The performance bonds in question were relevantly unconditional, in the sense that they provided that if a demand complying with certain prescribed formalities were made, QBE was obliged to pay. One of the prescribed formalities was that the demand should be accompanied by a statutory declaration stating that there had been default and that the amount demanded was owing. In this case, the default was said to be failure in achieving practical completion by the contractual date, and the amount said to be owing was liquidated damages calculated pursuant to the contract. 21 QBE wishes to argue that Mr Shepard (who made the declaration, and did so in relevantly unqualified terms) knew or should have known of matters that, QBE says, either falsified or, at the least, cast doubt upon the entitlement that was the subject of the demand. Thus, QBE wishes to argue, Mr Shepard should not have made a declaration in the form that he did, and should have made some more qualified declaration. In those circumstances, QBE wishes to say, since Mr Shepard made the declaration that he did and not the declaration that he should have made he caused Bayshore to engage in misleading or deceptive conduct, and was himself an accessory to that conduct (meaning thereby to refer to s 75B of the Trade Practices Act 1974). 22 Alternatively, QBE wishes to say, Mr Shepard is liable to it in negligence for mis-statement of Bayshore's entitlement to the moneys demanded. 23 In the further alternative, QBE wishes to say, Mr Shepard was not validly appointed as receiver and manager of Bayshore. Since by his demand he represented that he was, QBE wishes to say that Mr Shepard was himself guilty of misleading or deceptive conduct in contravention of the Fair Trading Act. 24 Mr Wood attacked each of the asserted causes of action. As to the first: he submitted in effect that what was argued was inconsistent with the unconditional nature of the guarantee in question, as established by decisions such as Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443. Mr Wood acknowledged that vitiating factors such as fraud or illegality could stand in the way of recovery under even an unconditional guarantee. However, he submitted, in general terms the guarantor was not entitled to go behind the guarantee, or more accurately was not entitled to go into the contractual dispute in respect of which the guarantee was given and to which it answered. 25 The general thrust of Mr Wood's propositions may of course be acknowledged. Guarantees of the kind in question play a very important part in trade and commerce generally, and in the building and development industries in particular. However, to acknowledge both that and the contractual force of the guarantee is not to say that s 52 of the Trade Practices Act has no application. 26 Mr Wyles of counsel, for QBE, pointed to two decisions of intermediate appellate courts which, he submitted, supported the view that it was arguable that a demand made under a guarantee could be vitiated by misleading or deceptive conduct. The first was Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd (1998) 3 VR 812. That case concerned a contractual guarantee apparently in terms not dissimilar to those with which I am concerned. The primary judge held in essence that although there might be an arguable case that the beneficiary was not entitled to draw on the guarantee, since the clear intention of a contract was that the risk of payment should lie with the guarantor rather than the beneficiary, no injunction would be granted. The Court of Appeal dismissed an appeal. Charles and Callaway JJA gave separate reasons, and Batt JA agreed with both their Honours. 27 In the course of concluding that the appeal should be dismissed, Callaway JA referred at 830 to s 52 of the Trade Practices Act. His Honour said that "if recourse to the security may be had where there is a bona fide claim, even if that claim was mistaken, it is not immediately apparent that presentation of the statutory declarations would be misleading or deceptive or likely to mislead or deceive". I take his Honour to have accepted perhaps that if there were an available case of misleading or deceptive conduct in relation to presentation of the statutory declarations, the guarantor might have been entitled to rely upon that as a circumstance vitiating the demand. However, it is necessary to note firstly that his Honour did not in terms say so and secondly that on any view his Honour's observations were obiter. 28 His Honour's observations were however picked up in the Court of Appeal of the Supreme Court of Western Australia in Ideas Plus Investments Ltd v National Australia Bank Ltd (2006) 32 WAR 467. In that case, Steytler P, with whom Buss JA agreed, referred to Fletcher at [56]. His Honour had said at [55] that the presentation of the demand could amount to no more than a representation, on the part of the party making the demand, of "a bona fide belief that the conditions had been satisfied and, perhaps...that there were reasonable grounds for holding that belief". At [56], Steytler P appeared to recognise that if a representation in those terms were made without reasonable grounds, then, based upon what Callaway JA had said in Fletcher, the demand might be vitiated. However, as Steytler P said at [57], the finding of the court below that there were reasonable grounds for forming the belief in question, and that the belief had been held in good faith, negated any prospect of an argument of misleading or deceptive conduct. Again, it will be seen, his Honour's observations were obiter. 29 Nonetheless, it seems to me, those decisions do allow, at least as a possibility, that a guarantor in QBE's position may be able to rely, against the beneficiary, on misleading or deceptive conduct (if proved) in relation to the making of demand, in an action either to avoid payment or to recover the amount paid. 30 Mr Wood submitted that even if this were so, there could have been no loss because QBE was committed to the guarantee in any event, and would have been called upon to pay sooner or later. That may be so, although the factual basis for the assertion is something that would ordinarily be investigated at trial. But the court is concerned with the statutory test of causation in s 82 of the Trade Practices Act: whether loss or damage has been sustained "by" any misleading or deceptive conduct that is proved. I do not think that it is possible to say, in some a priori fashion, that the statutory test of causation simply could not be met in the circumstances that I have briefly sketched. 31 The proposed case based on negligent mis-statement is somewhat more problematic. The pleading is brief. To the extent that there is any pleading of matters that could go to vulnerability, it is necessary to search not just through the five paragraphs in question but through the balance of the proposed list statement. However, when one does so, one finds alleged the terms of the guarantee, including the obligation of QBE to pay upon a demand conforming to the terms of the guarantee. One finds also an allegation of known reliance. In those circumstances, it seems to me, although no doubt more could have been done to allege the facts relating to vulnerability and the precise terms of the duty relied upon, there is enough there to enable the court to say that if the case were to go to trial on the basis of the facts alleged, and if those facts were to be proved, the case might succeed. 32 The case based on the appointment representation is somewhat different. It is said in effect that by reason of certain matters the two secured creditors who appointed (or who purported to appoint) Mr Shepard and his partner to be receivers and managers of Bayshore had no power to do so when they did. Accordingly, it is said, Mr Shepard was not validly appointed and was not entitled to make the demand. Although no declaration of invalidity is sought, the argument of invalidity is essential to this aspect of the proposed claim. But the co-appointee - Mr Shepard's partner, Mr Mentha - and the appointors are not parties. Even if they are not to be regarded as necessary parties (and perhaps they are not, since in terms relief is not sought as to the validity of the appointment) they are, in my view, nonetheless parties who should properly be joined. If that were the only claim made, I would be disinclined to allow it in its present terms because people interested in the outcome have not been joined. 33 However, in circumstances where, I think, the s 52 claim and the negligence claim are arguable, that is a matter of somewhat less significance. 34 Thus, if what was being considered were an application for leave to amend, I would not conclude that the proposed amendments should be refused because they were bound to fail. 35 Having dealt at length with an application that was not made, I turn to the application that was made. It is well settled that a party to litigation is under an obligation of law not to use documents or information obtained in the course of the litigation for purposes other than those for which they were given, at least until the documents or information are received into evidence. See Hearne v Street (2008) 235 CLR 125 at [102]. Of course, since the obligation is one that exists at least in part for protecting the integrity of the court's processes, the court may give leave to a party in effect to be dispensed from the obligation, and that is confirmed by UCPR r 21.7. In considering whether to give the leave, a number of factors have been identified as being relevant. In Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283, the Full Court of the Federal Court of Australia at [31] identified, by reference to an earlier judgment of Wilcox J, a number of relevant factors. Those factors included the nature of the documents and the circumstances in which they came into existence; the nature of the information in the documents (including whether they were sensitive); the way in which the documents came into the hands of the applicant; and the importance of achieving justice in the other proceedings. 36 In this case, there is nothing put as to the nature of the documents that would tell against the grant of leave. It is not submitted that they are of some personal or sensitive or confidential nature, or that some particular injustice would be done, if they were to be used in other proceedings, simply by the fact of that use. Nor is it put that the way in which they came into QBE's hands, in the course of this litigation, should tell against their use in the other proceedings. 37 Instead, as I have said, the debate really ranged around whether the application that was made was a back door substitute for one that should have been made. Since I have concluded in substance that the application that (on Mr Wood's submissions) should have been made would, if made, have succeeded, it seems to me that the back door argument is not one that would tell against the grant of leave even if it were something relevant to take into consideration for those purposes. 38 It cannot be doubted that the documents in question would be important to QBE in making out the case that it wishes to press. Indeed, if it does not have access to the documents and information in question, it is difficult to see how it could make out that case (of course, if the case is one which, ultimately, is open to it). 39 To the extent that the documents have been produced on discovery or subpoena then of course they could be produced, by the like means, in the fresh proceedings. The same would not apply to the affidavits. In any event, though, it seems to me, there are real reasons of cost and efficiency why, if the documents are available, they should be made available now rather than through expensive pre-trial procedures. 40 Accordingly, it seems to me, this is an appropriate case for the exercise of the discretion. 41 Before the adjournment, I enquired whether, if I were to come to conclusions of the kind that I have outlined, it would be better to proceed by giving leave to amend in the existing proceedings or by granting the leave sought, so that fresh proceedings could be commenced. It is almost inevitable that if fresh proceedings are commenced an application will be made that they be heard together with the existing proceedings. Any other course - involving rehearing of overlapping issues, and perhaps inconsistent findings as to credibility - would be inconceivable. 42 Whilst I remain of the view that in many ways amendment would be the preferable course, I cannot force upon QBE a course that it does not wish to take. On the contrary, I am bound to consider the application that it has made. In those circumstances, all I need to do is say that I propose to make orders in accordance with paragraphs 1 to 3 of QBE's Notice of Motion filed on 26 October 2009 and that I will hear the parties on costs in a moment. 43 As I have said, there is another application, in the present proceedings, by Mr Carey. It was accepted that, if I came to the conclusions that I have, then in substance, and with some detailed modifications, his application would succeed. Accordingly, I will say no more about that for the moment and I will hear the parties on what should follow, both as to costs and otherwise, from the orders that I have said I will make.

QBE Insurance v Westpoint Realty

At a glance

Court

Decision date

Before

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Judgment (13 paragraphs)

Parties

Cases Cited (7)

Cited By (1)