Solarus Projects v Vero Insurance

EX TEMPORE Judgment 1CAMPBELL J: The present proceedings are an action on a Project Contract Works Insurance Policy issued by the defendant. The plaintiff says it is an insured under that policy, which the defendant denies. The application before me today is the plaintiff's application to have the question of whether it is insured under the policy determined separately and in advance of all other issues in the case under the provisions of r 28.2 Uniform Civil Procedure Rules 2005 (NSW). 2I have decided to give an extempore decision given the impending commencement of the long vacation. I hope, in dealing with the matter in this way, that I will do justice to the very careful arguments advanced by learned senior counsel for each party. 3The plaintiff is the registered proprietor of certain land at Townsville in the State of Queensland. During a period from about the end of 2006 to beyond the early part of 2009, various contractors were constructing a substantial development, including 73 residential units and other premises of a commercial nature, on that land. As is well known, Queensland was greatly affected by cyclonic weather conditions in the early part of 2008 and 2009 and Townsville, as well as other parts of Queensland, was subject to extensive flooding. Solarus says that the project under development underwent very substantial damage due to that flooding, which required extensive rectification works costing a considerable sum measured in some nine millions of dollars. The total amount insured under the policy is $35 million in respect of each occurrence. 4The issues in the proceedings are many and indeed while it is fair to say that the question of whether the plaintiff is an insured is a fundamental issue it is only one of a number of questions informing a larger issue as to whether it is entitled to recover under the policy for any loss suffered. 5In her affidavit Amelia Heather Kelly, the solicitor with carriage of this matter on behalf of the plaintiff, at paragraph 14 identifies some seven matters which it might be said go to the entitlement of the plaintiff to cover under the policy, in addition to the question of whether Solarus is an insured. Moreover, she deposes to the fact that the issues going to quantum, some of which are bound up with questions of entitlement to cover, are likely to be exceedingly complex. On her assessment, based on her experience of similar litigation, the case is likely to occupy some two months of hearing time, if not more, if all issues are required to be determined by the Court, with costs in the range of $700,000 to about $1.5 million. 6The plaintiff's case in relation to the issue of whether it is an insured is advanced on a number of alternative bases which, it must be said, occupy some 53 paragraphs over 10 pages of an amended statement of claim which runs to, in substance, 17 pages and 72 paragraphs. Vero disputes the facts pleaded by the plaintiff to establish, and denies each basis of the plaintiff's argument, that it is an insured. 7The definition of "insured" appearing in the schedule to the policy, and repeated in the policy wording, is an extended one. There is a named insured, which is Glen Alpine Properties Pty Ltd, a company which at least at the inception of the insurance had as its sole director the same person who was the sole director of the plaintiff, which was then named Glen Alpine Projects Pty Ltd. The argument advanced, I think in order of significance, is that (a) the plaintiff is an affiliated or associated company or organisation of the named insured; (b) that it is a company with whom the named insured has entered into agreement in connection with the subject matter of the insurance and the works (which ground has two separate parts); and (c) as a matter of construction, on the basis of the approach adopted by the Court of Appeal in Tanzone v Westpac [2000] NSWCA 25, Glen Alpine Properties Pty Ltd should be read as a reference to Glen Alpine Projects Pty Ltd, the registered proprietor of the land on which the development is taking place. 8In the course of his argument Mr Leopold SC, who appears with Ms Horvath for the plaintiff, outlined for me succinctly, but in some detail, the nature of the argument and the evidence that would be advanced in a separate hearing, taking me briefly to various contractual documents, of which there are three, which may be relevant to part of the argument and to the records of ASIC which show the commonality of officers and shareholders amongst five relevant companies, including the plaintiff, which have some relevance to, or involvement in, the project. I do not propose to descend into the detail of the argument, but the main point of senior counsel taking me through those matters was to demonstrate that the plaintiff's case in relation to the separate issue, if an order is granted, can be dealt with (a) on documentary evidence and (b) as a matter of legal construction of the policy, and perhaps of the various agreements which might be relevant to giving content to the extended definition of "insured" appearing in the policy. 9Senior counsel contended, pre-emptively, that there is no overlap or intertwining of the issue of insured with the other seven issues going to cover and that there is no overlapping of the nature of the evidence that might need to be led for the determination of the separate question when considered against the evidence necessary to be called on a full hearing of all issues. Essentially, his argument was that the determination of whether the plaintiff is an insured is capable of finally resolving this issue - one might add necessarily if decided adversely to his client. Naturally, if that issue is decided in the plaintiff's favour, a full hearing of all other issues will still be necessary, but in those circumstances there will be no duplication of the evidence in relation to this discrete issue at the full hearing and indeed the parties could then proceed with confidence that the full extended hearing would not be wasted from their point of view or that of the Court. He also argued that to the extent to which the authorities speak of a need to avoid fragmentation of proceedings by way of interlocutory appeals being generated by the determination of a separate question, appeal is an inevitable part of the judicial process and is a matter which ought only be accorded little weight in the exercise of the Court's discretion in resolving this interlocutory dispute. 10Mr Martin SC, who appears with Mr Hynes for the defendant, submitted that an order for the separate determination of a question should only be made if its appropriateness has been demonstrated with clarity. He relied upon six factors which he submitted indicated that it could not be seen with clarity that a separate question was appropriate in the present case. 11Senior counsel's first point was that the determination of the question involves questions of contestable fact. There are a number of matters to which he referred, but I think it fair to say that the most significant of them related to the plaintiff's averment in paragraph 38 of its amended statement of claim that Mr Peter Bega was the linchpin, and person in control, of all five companies. As against this, Mr Martin pointed to evidence contained in exhibit PM 2, the exhibit to the affidavit of his instructing solicitor Mr Patrick Mead sworn on 19 November 2013, which showed that a Mr Bosganas occupied the position of managing director of something described as the Bega Group at relevant times during the period of cover and made significant commercial decisions in relation to the conduct of the affairs of the Group. 12Secondly, Mr Bosganas was likely to be called as a witness in the separate question proceedings by his client and is an essential witness in what he referred to as the main proceedings, particularly in relation to the issues relating to the failure of the plaintiff to provide prompt notice of its claim, whether it had complied with the "all reasonable precautions" conditions and other matters. The point of this, of course, is that the prospect of an adverse credit finding would be undesirable in a separate determination if he was an essential witness later because it would necessarily, or in all probability anyway, lead to the judge who heard the separate question being disqualified from hearing the main proceedings, which may be undesirable in terms of court efficiency. 13Thirdly, fragmentation was a real issue in this case. It is fair to observe at this point that the proceedings on behalf of the plaintiff are being run by Westpac Banking Corporation in its capacity as a substantial creditor of the plaintiff company and the substantial lender in respect of the development. Vero is of course a large general insurance company. These are large commercial entities with deep pockets who are unlikely to be satisfied with a determination of the separate question at first instance and who would inevitably take the matter on appeal if dissatisfied with the outcome. This would lead to, as I have said, fragmentation, which would substantially delay the determination of the main proceedings. 14Fourthly, costs will only be saved if the plaintiff loses. Again, a loss is unlikely to be accepted at first instance. In this regard, parties who bring complex cases need to address the quantum issues from the outset, and the Court can work on the basis that those costs will have been, at least in substantial part, already incurred. Obviously, the costs of the hearing have not been. 15Fifthly, there could be no prospect of successful settlement of the case unless each party has incurred the costs in relation to preparing the quantum issues because unless each party knew what was at stake, no sensible negotiations could be entered into. Accordingly, there would be no savings by separating the issue. 16Sixthly, as a matter of principle and the general policy of the law, cases should be heard once. Separate hearings offend the finality principle. Moreover, trial judges are required to determine all issues in dispute for the facilitation of the exercise by parties of their rights of appeal and the exercise by the Court of Appeal of its ample powers in the exercise of appellate jurisdiction. 17Both parties are mostly in agreement about the relevant principles which govern the exercise of this discretion. Naturally, the discretion is unfettered except by the need to act judicially and, in the 21st century, by the mandatory efficiency requirements of the Civil Procedure Act 2005 (NSW) ss 56 to 60. However, subject to those considerations, the plaintiff and the defendant agree that the starting point for any discussion of the type of factors relevant to the exercise of the powers conferred by r 28.2 is Tallglen Pty Ltd v Pay TV Holdings Pty Ltd [1996] 22 ACSR 130 per Giles CJ of the Commercial Division as his Honour then was. At pp 141 to 142 his Honour set out what might be called a seminal distillation of the relevant considerations that should guide the Court in the exercise of this power: [Rule 28.2] empowers the court to make orders for the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings, and for the statement of a case and the question for decision. In the ordinary course all issues in proceedings should be decided at the one time, but separate decision of a question may be appropriate where, for example, the decision of the question is critical to the outcome of the proceedings and (at least if decided in one way) will bring the proceedings to an end. In particular circumstances the separate decision of a question may be appropriate even if it will not bring the proceedings to an end, such as where there is a strong prospect that the parties will agree upon the result when the core of their dispute is decided or where the decision will obviate unnecessary and expensive hearing of other questions, but such occasions must be carefully controlled lest fragmentation of the proceedings (particularly when the exercise of rights of appeal is borne in mind) brings delay, expense and hardship greater than that which the making of an order was intended to avoid. It is often the case that the need to make findings of fact for a decision of the separate question, especially findings which may involve issues of credit, tells strongly against the making of an order because related facts, and renewed issues of credit, will or may arise at a later stage in the proceedings. Experience teaches that it should be able to be seen with clarity that decision of a separate question will be beneficial in the conduct of the proceedings and the resolution of the parties' dispute. 18The main difference between the parties is that Mr Leopold argues that his Honour's approach, which has never been doubted, needs these days to be viewed through the prism of the Civil Procedure Act. Mr Martin, whilst acknowledging of course the overriding purpose and its consequences, argues nothing really has changed. 19In support of the argument that the Court might now be readier to make orders for separate determination, Mr Leopold referred me to the decision of Brereton J in Integral Home Loans Pty Ltd v Interstar Wholesale Finance [2006] NSWSC 1464 at [6], where his Honour expressed the view "that the Court should take a more interventionist role in identifying and separating important issues which can resolve significant parts of the litigation expeditiously", having regard to the provisions of the Civil Procedure Act 2005; and also to Allandale Blue Metal Pty Ltd v Roads and Maritime Services (2013) 195 LGERA 182, where Ward JA discussed the principles informing the grant of a separate hearing at [87] to [99]. In the course of that discussion her Honour referred to the cases which Mr Martin relied upon which advocate caution in the exercise of this power, but her Honour pointed out at [92]: ...it has also been recognised that if the separate determination of particular discrete issues may achieve economies in time and expense in the resolution of the proceedings or obviate the necessity for a trial on all issues then it may be both appropriate and desirable for there to be such an order (citations omitted). 20Her Honour referred at [96] to the potential for savings in costs and time if a separate determination of a critical issue is made. 21Mr Martin sought to demonstrate there had been no change by reference to the recent decision of Hammerschlag J in Investec Bank v Romeo [2012] NSWSC 1043. At [12] his Honour referred to the overriding purpose but expressed the view that the general practice in regard to these questions had been established since the decision of Giles CJ Comm Div in Tallglen. Moreover, his Honour emphasised the significance of the caution to be exercised in granting a separate hearing, as referred to in Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at [55]-[168]. I interpolate that Investec Bank was a case involving overlapping issues of liability, causation and damage, as well as overlapping evidence to address those issues. So far as that latter consideration is concerned, Mr Martin argued that even if there had been a change of emphasis following the enactment of the Civil Procedure Act, the relevant caselaw still indicated the significance of not truncating the evidence of a material witness who goes to more than one issue or truncating the right of parties to cross-examine that witness on all issues where his or her credit is likely to be a serious consideration in the determination of the final issues. Particular reference was made to the decision of Rolfe J in ABB Engineering Construction v Freight Rail Corp [1999] NSWSC 1037 and to the decision of Austin J in Hathway v Cavanagh (2002) 43 ACSR 497. In that latter case at [40] Austin J said: I cannot be confident that the hearing and determination of the separate questions proposed by Mr Hathway would proceed wholly or largely on the basis of uncontested facts. That means that there would be a real prospect of the [separate] hearing lasting for much more than [estimated]. It also means that the [separate] procedure, which is unsuitable for the determination of wide-ranging and contested factual matters, is not a suitable process here. 22Whilst the competing arguments and considerations are finely balanced, I am of the view that this is an appropriate case to order a separate determination of the question of whether or not the plaintiff is an insured within the meaning of the insurance policy. It seems to me whilst the Tallglen principle remains apposite and applicable, it cannot be gainsaid that the exercise of procedural powers has changed since the enactment of the Civil Procedure Act and that case management considerations, as has been pointed out by the High Court of Australia in Aon Risk Services Australia Ltd v Australian National University 239 CLR 175; [2009] HCA 27 and more recently, have a greater part to play in the exercise and application of adjectival law than in the past; and, in particular, that in the 21st century the approach taken to matters of practice and procedure is to be seen in a new light. 23I accept Ms Kelly's estimate of the complexity of this case, its likely duration and the amount of costs involved. Whereas it seems to me that there are countervailing considerations relating to fragmentation and costs as raised by Mr Martin, those matters are not decisive and indeed, as Mr Leopold argued by reference to the judgment of Barr AJ in Shuttleworth v Marshall [2013] NSWSC 1400, the question of fragmentation must inevitably arise whenever an order is made under r 28.2. 24The critical question is, I think, the question of whether, on the basis of the issues to be contested, lay witnesses who are likely to be called on more than one issue are likely to be cross-examined as to their credit and whether it is would be better, in any event, to take all of their evidence once. I accept that Mr Martin will call Mr Bosganas to show that as managing director he exercised a fair amount of control over all the companies in the Bega Group at the relevant time. However, in my judgment, certainly at this preliminary stage, I cannot see that even if a finding is made at the separate hearing to that effect on the basis of his evidence, it can be decisive or determinative of the question of whether the plaintiff is, for instance, a company affiliated with the named insured. 25It seems to me that there is a high degree of probability that whatever the outcome of a separate determination, the aggrieved party will appeal and that the appeal process might extend so far as the High Court of Australia. But given the wisdom of the observations of Barr AJ in relation to the inevitability of that consideration in all matters in which the Court is asked to make an order of this nature, I do not see that that can ever be a decisive factor telling against making the order, and certainly in this case I do not regard it as such. If the plaintiff loses at first instance and ultimately after it has exhausted its appetite for, or avenues of, appeal, then much will have been gained by ordering the separate question in terms of the costs to the parties and the efficient use of court resources, which, after all, belong to and are paid for by the public. Moreover, it seems to me that if the separate question is determined in favour of the plaintiff then both parties, after any appeals are exhausted, can go forward with confidence knowing that this fundamental issue has already been resolved and address themselves to the remaining issues which I acknowledge appear to be of great complexity. It seems to me that if that is the outcome of the separate question procedure then there is likely to be a high degree of probability that commercial parties acting in their own commercial interests will come to a commercial resolution of these commercial proceedings. 26For those reasons, I make the following orders: (1)Pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005, the question of whether the plaintiff Solarus Projects Pty Ltd is an insured within the meaning of the Project Contract Works Insurance Policy issued to Glen Alpine Properties Pty Ltd and others numbered CT 5010377771 dated 2 May 2007 be determined separately from and prior to any other question in the proceedings. (2)I give the parties leave to approach the common law case management registrar forthwith for the appointment of the first available suitable hearing date. (3)The question of the costs of the application to abide the outcome of the separate determination. (4)Liberty to apply to Campbell J in the event of a failure to agree on the necessary steps for each party to take to prepare for the separate hearing.