Solicitors:
Wotton + Kearney (Plaintiff/Cross-Defendants/Applicants)
K & L Gates (Defendant/Cross-Claimant/Respondent)
File Number(s): SC 2014/365944
[2]
Judgment
On 7 March 2017, I refused to grant leave to the plaintiff/cross-defendant (who I referred to as "the Owner") to amend its defence to a cross-claim brought by the defendant/cross-claimant, VISA Global Logistics Pty Limited: The Trust Company Ltd v VISA Global Logistics Pty Ltd [2017] NSWSC 197.
However, for the reasons I then gave, I granted the Owner leave to reformulate its proposed defence to take into account the matters referred to in my reasons.
Such a reformulated defence has now been circulated and I have heard argument concerning that document.
It is convenient that I recount, in these reasons, the background set out in my earlier judgment.
The Owner owns industrial premises at Banksmeadow.
On 28 March 2013, the Owner entered into an Agreement for Lease with VISA.
By the Agreement for Lease, the Owner agreed to carry out building works on the property for the ultimate use of VISA, as lessee, and VISA agreed to take a lease of the property.
In the Agreement for Lease, the Owner warranted that it must procure that the building works be carried out in a proper and workmanlike manner and using good quality materials (cl 3.2).
An entity related to the Owner (in a manner not necessary to describe) engaged a builder, DZCG Pty Limited, to carry out the works.
In July 2014, the works achieved practical completion and VISA took possession.
By its cross-claim, VISA claims damages from the Owner for breach of a promise made in the Agreement for Lease that the works would be carried out in accordance with various approvals and in "a proper and workmanlike manner".
The claim arises from the alleged defective construction of the asphalt surface of a hardstand area on the property.
The Owner seeks leave to amend its defence to the cross-claim to allege that VISA's claim is an apportionable claim for the purposes of s 34(1)(a) of the Civil Liability Act 2002 (NSW) and that the builder is a "concurrent wrongdoer" for the purposes of that section; that is, that the builder's acts or omissions caused the damage of which VISA complains.
An essential element of that claim is that the builder owed VISA a duty of care to, amongst other things, exercise reasonable care and skill in performing the works.
The matter for consideration is whether that contention, as proposed to be pleaded, is "so obviously untenable or groundless that there is 'a high degree of certainty' that they will fail if allowed to go to trial; and whether this is one of the 'clearest of cases' in which the court may accordingly intervene to prevent the claims being litigated" (Shaw v New South Wales [2012] NSWCA 102 at [32] (Barrett JA, with whom Beazley, McColl and Macfarlan JJA and McClellan CJ at CL agreed)). Those remarks were directed to a case of summary dismissal; the same principles apply to disallowing a pleading amendment on the basis that it is bound to fail.
The duty contended for is said to arise because:
1. under the Agreement for Lease, the Owner was obliged to carry out the works in a proper and workmanlike manner;
2. under the building contract, the builder warranted to carry out the works in accordance with various specified requirements;
3. the builder knew, or ought to have known, that the works it was to perform under the building contract were to allow VISA to occupy and use the property and that VISA was reliant on its skill, experience and expertise;
4. the builder assumed responsibility for the design and construction of the works under the building contract in circumstances where VISA had input and gave direction concerning alterations to the plans and specifications in respect of, relevantly, the hardstand area that is said to have failed;
5. VISA knew, or ought to have known, that the Owner did not have the skill, experience or expertise to perform the works and that the works would be undertaken by the builder;
6. VISA was reliant on the skill and experience of the builder to carry out the works;
7. VISA did not have the opportunity itself to contract with the builder as the Owner required VISA to enter into the Agreement for Lease rather than a building contract as part of the structure of the transaction and, for that reason, was unable to contract with the builder to secure warranties from it in respect of the building works;
8. the Agreement for Lease contained cll 3.8, 3.10(a) and 3.10(c) (which I will refer to as the "Contractual Protections" and to which I will return);
9. the Contractual Protections afforded no, or insufficient, protection to VISA in circumstances where there was a defect in the works which arose as a result of a lack of reasonable care on the part of the builder and where, by reason of identified limitations in the Contractual Protections, VISA was unable to recover such loss from the Owners; and
10. by reason of these matters, VISA was vulnerable to the builder in respect of any economic loss it might suffer in the form of defective building works.
The full text of the proposed amendments, which appear in proposed pars 29 to 33 of the defence to cross-claim, is attached to these reasons [Pars 29 to 33 of the Second Further Amended Commercial List Cross-Claim Response (25.3 KB, pdf)].
The question is whether those allegations, assuming that they can be proved, are capable of leading to the conclusion that VISA was "vulnerable" in the sense discussed by the High Court in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; HCA 36.
Mr Kidd SC, who appeared for VISA, submitted that it was impossible that such matters could bespeak vulnerability in the relevant sense, and that leave to amend should be refused.
Mr Kidd drew attention to the following statements made by the Justices in Brookfield:
1. vulnerability refers to a "plaintiff's incapacity or limited capacity to take steps to protect itself from economic loss arising out of the defendant's conduct" at [22] (French CJ);
2. the inclusion in the contracts under consideration in Brookfield of "provisions regulating the quality of what was to be received in return for payment of the price" denied the vulnerability of the party with the benefit of those provisions and that "[t]he making of contracts which expressly provided for what quality of work was promised demonstrates the ability" of the person with the benefit of that promise to protect itself against, and deny their vulnerability to, any lack of care by the counterparty at [55] and [58] (Hayne J and Kiefel J (as her Honour then was)); and
3. vulnerability was concerned with the "inability of the plaintiff to take steps to protect itself from the risk of the loss" at [130] (Crennan, Bell and Keane JJ).
Mr Kidd's argument amounts to this: if a party, particularly an apparently sophisticated commercial party, negotiates the terms on which it is prepared to accept risk of economic loss, that, without more, shows that the party is not vulnerable. Or, as Mr Marskell, who appeared for the Owner, put it more colloquially at the earlier hearing: "as long as you have had a chance to contract with someone about the consequences of what might go wrong, that is the end of vulnerability".
Mr Kidd submitted that the position of VISA, as incoming lessee of premises then under construction by the builder, was in a materially indistinguishable position vis-à-vis the builder to that of the purchasers of the units in Brookfield (represented in that litigation by the Owners Corporation). Of course, as is well known, the High Court held that the purchasers in Brookfield were not vulnerable to Brookfield and that, accordingly, Brookfield owed no duty to them.
There is much to be said for that submission.
The purchasers in Brookfield entered into purchase contracts with the developer, Chelsea Apartments Pty Ltd. Those contracts were described by Hayne and Kiefel JJ (at [34]) as being an "integral part of the overall contractual arrangements" whereby the development proceeded. Like the Agreement for Lease in this case, those contracts contained a warranty by Chelsea that the works would be done in a "proper and workmanlike manner" (for example, Brookfield at [16] and [87]).
It was those provisions that led the Court in Brookfield to conclude that those purchasers were not vulnerable.
Indeed, Hayne and Kiefel JJ went further and said that it was not necessary to consider the proper construction of those purchase agreements but "enough to notice" that the contracts made provision to regulate the quality of what was to be received (see [20(b)] above).
Those observations appear hard to reconcile with the proposition that the Owner seeks to advance in this case, namely, that the alleged shortcomings in the protection that VISA has negotiated with the Owner under the Agreement for Lease bespeak vulnerability on VISA's part.
Further, if the Owner's contentions are correct, it would mean that in this case, and in future cases, a detailed analysis may be required of the adequacy of the contractual protection negotiated by the party whose vulnerability is asserted; and perhaps the ability of such a person to negotiate a better position than in fact achieved.
And, in this case, the Owner does not plead that VISA was not an "experienced and sophisticated [entity] negotiating on an equal footing and at arm's length" (see Brookfield at [14]) or unable to protect its own interests (cf Brookfield at [30] and [58]).
All these matters point to the difficulties lying in the way of the Owner making out the case proposed to be pleaded.
However, the conclusion to which I have come is that it is not appropriate for me, at this interlocutory stage, to come to a final conclusion about these matters.
As Mr Marskell, who appeared for the Owner, submitted, the question is best reserved for the trial judge, who can consider it in the context of all the facts proven in the case, which facts may cast a different light on the question than now appears
Thus, despite the misgivings I have expressed, I do not feel able to conclude that the case the Owner seeks to propound is "so obviously untenable or groundless" that I could conclude that there is a "high a degree of certainty" that it will fail if allowed to go to trial (see [15] above).
Accordingly, subject to what I say below as to the particularity of the proposed pleading, I propose to grant the Owner leave to amend.
[3]
The particular shortcomings alleged in the Contractual Protections
The Owner contended that the Contractual Protections were insufficient to protect VISA from the consequences of the builder not taking reasonable care for the design or construction of the works in three respects.
First, the Owner pointed to cl 3.8 of the Agreement for Lease, pursuant to which VISA accepted responsibility for the design of the works to the extent that VISA "had input into and directed that the particular design be implemented or an existing design be altered".
The proposed pleading posits (in par 32(p)(i)) the possibility that VISA might suffer damage if the builder failed to exercise reasonable care as to the design of a component of the work (for example, the asphalt surface of the hardstand area of the property) and that VISA also had input into, or direction in respect of, the implementation or alteration of that design. In that event, the Owner contends that VISA would suffer damage because of the builder's want of care but would not be able to recover that damage from the Owner.
Mr Kidd submitted that it was a logical impossibility that there could be a confluence of two such events. However, that is not a conclusion I feel able to come to at this interlocutory stage of the proceedings.
However, to make that point, the opening words of par 32(p)(i) should read "such defects were defects in design and were also the result of design errors…".
The second clause to which the Owner directed attention was cl 3.10(a) of the Agreement for Lease which makes provision for the Owner (but not for VISA) to enter the premises to rectify defects.
Paragraph 32(p)(ii) posits the possibility that VISA might suffer loss by reason of a want of reasonable care on the part of the builder in the design or construction of the works, and might suffer "additional loss" by reason of not itself being permitted, under the Agreement for Lease, to rectify defects.
However, in the course of argument, Mr Marskell accepted that in fact VISA could not suffer "additional loss" by reason of being denied the opportunity to itself rectify defects because, if there was some delay or shortcoming on the part of the Owner in exercising its rights under cl 3.10(a), and if VISA suffered damage as a result of that breach, it could recover those damages from the Owner under other provisions of the Agreement for Lease.
For that reason, I am not prepared to allow proposed par 32(p)(ii) of the proposed pleading.
Finally, the Owner directed attention to cl 3.10(c) which provides that the Owner is not required to repair defects made necessary by VISA's use or occupation of the premises.
The Owner posits the possibility that VISA might suffer loss by reason of a want of reasonable care on the part of the builder in circumstances where the relevant repairs might also be made necessary by VISA's use (not misuse) of the property.
It seems hard to think of a circumstance in which this confluence of events could occur but I do not feel confident that I could reach a conclusion about that matter at this stage of the proceedings.
Accordingly, I propose to permit the proposed amendment to include par 32(p)(i) and (iii) but not (ii).
[4]
Conclusion
With that qualification, I propose to grant the Owner leave to make the amendment sought.
The cost of the applications before me should be costs in the cause.
[5]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 31 March 2017