Weston Energy Pty Ltd v National Ceramic Industries Australia Pty Ltd

Notices of Motion

1. This judgment deals with the issues raised by two Notices of Motion, both filed by Weston.
2. The first Amended Notice of Motion, which was filed on 8 March 2023, seeks an order in the following terms: "An order pursuant to r 33.4(1) of the Uniform Civil Procedure Rules 2005 setting aside the whole of the subpoena addressed to the plaintiff that was filed by the defendant on 21 February 2023."
3. That Amended Notice of Motion ("the Subpoena Motion") also seeks an order for costs.
4. The second Notice of Motion filed by Weston was filed on 17 March 2023, in which it seeks the following orders: "1. An order pursuant to s 64 of the Civil Procedure Act 2005 (NSW) and r 12.6(1) of the Uniform Civil Procedure Rules 2005 (NSW) that the cross-defendant have leave to file a further amended defence to the cross-claim in the form annexed to this notice of motion and marked 'A'. 2. In the alternative to order 1 above, an order pursuant to s 64 of the Civil Procedure Act and r 12.6(2) of the Uniform Civil Procedure Rules that the cross-defendant have leave to file a further amended defence to the cross-claim in the form annexed to this notice of motion and marked 'A'."
5. That Notice of Motion ("the Amendment Motion") also sought an order for costs.
6. On 13 June 2023, the Court heard both of these Notices of Motion. With the consent of the parties, it ordered that the Motions be heard together and that the evidence in each Motion be evidence in the other Motion.
7. By way of context to the hearing of the two Motions, National Ceramic has filed a Notice of Motion seeking security for costs. That Notice of Motion was heard by the Court on 27 June 2023 and judgment has been reserved. This judgment does not deal with that Motion.

The Amendment Motion

1. It is convenient to start with the proposed amendment. The amendment is relatively easy to describe but it has generated significant controversy between the parties. In order to understand the pleaded defence and the submissions on the Amendment Motion, the pleading in the Cross-Claim needs to be set out.
2. It is convenient to start with paragraphs 20 and 21 of the Cross-Claim where five representations are to be found: "20. The conduct engaged in by the cross-defendant as pleaded … represented to the cross-claimant that: (a) there existed and was available in March 2022, a Price Capping Insurance product in the terms stated in the proposed Agreement ('the First Representation'); (b) the cross-defendant had the ability and capacity to obtain the Price Capping Insurance in the terms stated in the proposed Agreement ('the Second Representation'); (c) the cross-defendant intended as at 2 March 2022, to obtain the Price Capping Insurance in performance of the Agreement ('the Third Representation'); and (d) the cross-defendant would comply with the Agreement and obtain Price Capping Insurance for the benefit of itself and the cross-claimant ('the Fourth Representation'). 21. Further, by its conduct after entering into the Agreement, in purporting to pass on the insurance premium for the Price Capping Insurance to the cross-claimant by charging for it in its invoices at the rate of $0.15/GJ, the cross-defendant represented to the cross-claimant that it had taken out Price Capping Insurance to protect itself against gas commodity price rises on the spot market and was charging the cross‑claimant the agreed premium ('the Fifth Representation')."
3. Paragraph 23 of the Cross-Claim is in the following form: "23. The First, Second, Third, Fourth and Fifth representations were untrue and, as such, were misleading or deceptive or likely to mislead or deceive. Particulars (a) As at 2 March 2022 Price Capping Insurance did not exist and was not available to the cross-defendant; (b) As at 2 March 2022 and continuing during the life of the agreement, the cross-defendant did not intend to obtain the Price Capping Insurance in accordance with the Agreement; and (c) The cross-defendant did not obtain the Price Capping Insurance in accordance with the Agreement or incur any premium for such insurance during the life of the Agreement."
4. The existing Amended Defence of Weston to paragraph 23 which was filed on 25 January 2023, is in the following form: "9. In response to paragraph 23 of the [Statement of Cross-Claim], the cross-defendant says: (a) price capping insurance was not available on terms that were commercially reasonable; (b) it did not take out price capping insurance; (c) it was under no obligation to do so; and (d) otherwise does not admit the paragraph."
5. The amendment proposed in the Amendment Motion is to delete sub‑paragraph 9(a), to which it will be convenient to refer to as "[9(a)]", and to make minor consequential changes by the re-ordering of the paragraph descriptions.

Submissions for Weston

1. First, Weston submits that having regard to the fact that the proceedings are still at a relatively early stage of case management, and have not been fixed for hearing, it should be granted leave to amend its defence to National Ceramic's cross-claim so that its defence concentrates on the real questions raised in the proceedings. It points to s 64(2) of the Civil Procedure Act 2005 ("the CPA") in support of that submission. It says that the content of the existing [9(a)] of the Amended Defence is irrelevant to any issue raised in the Cross-Claim, and so ought to be removed.
2. Weston next submits that, contrary to the assertions of National Ceramic, the words in [9(a)] of the Defence do not constitute any admission of fact. Weston draws attention to the fact that the paragraph contradicts the assertion in paragraph 23(a) of the Cross-Claim that PC Insurance did not exist and says that [9(a)] makes the contrary assertion, namely, that there was in fact PC Insurance in existence, but that it was unavailable on reasonable terms to Weston.
3. It submits that as [9(a)] contradicts the pleaded assertion, it cannot constitute an admission of any matter pleaded in the Cross-Claim.
4. Weston submits that the statement in [9(a)] of the Defence does not operate for the benefit of National Ceramic as it asserts.
5. Weston submits that having regard to the fact that in the remaining parts of paragraph 9 of the Defence, as it has admitted that it did not take out PC Insurance, the words which it seeks to remove have no role to play in the breach of contract claim of National Ceramic articulated by its Cross‑Claim. Weston notes that the breach of the contract which is pleaded is the failure to obtain and take out PC Insurance. It points to the fact that the real dispute on the breach of contract claim is two-fold, namely: 1. whether, in accordance with the Agreement, it was contractually obliged to take out such PC Insurance with a third-party provider; and 2. whether Weston's failure to take out PC Insurance had any causal role to play in the suspension of Weston for failure to satisfy the margin-call made by the Regulator.
6. Weston submits that since they are the two principal issues, the words which it wishes to delete are of no benefit to National Ceramic.
7. Weston submits that the same argument is applicable to the claims for breach of the ACL, and that the two principal issues are also directly relevant to the ACL claims.
8. Weston submits that, as National Ceramic have not acted to their detriment upon the basis of [9(a)], there has been no prejudice suffered by them. In that respect, Weston draws attention to an open letter sent by Mr James Simonian, its Chief Executive, to the solicitors for National Ceramic on 6 June 2022, which included the following sentence: "Further, before entering into the agreement, your Managing Director, Chris Schneider, was made specifically aware by our team that Weston Energy could only provide insurance for the gas commodity price by insuring against Weston Energy's own book and physical supply arrangements because following July 2021 spikes, there were no traditional vendors of an insurance product at a $15 cap." (emphasis added)
9. With respect to the proposed amendment, as earlier noted, Weston submits that it should be entitled to remove material from its Defence which it regards as being otiose or irrelevant, and that such step is, having regard to the overriding purpose of s 56 of the CPA, an appropriate one to be taken in the interests of justice.

National Ceramic Submissions

1. National Ceramic submits that [9(a)], insofar as it made a positive assertion of fact, was a statement which was "obviously relevant to NCIA's contract claim as it assists to prove breach of the agreement". It was on that basis that National Ceramic submitted that the statement in [9(a)] was of forensic advantage to it, and that it would be inappropriate for the Court to permit the proposed amendment which is intended to remove it. National Ceramic also submitted that [9(a)] assisted in the proof of the falsity of the Second, Third, Fourth and Fifth Representations.
2. National Ceramic submits that having regard to the issues joined about the falsity of the five representations, or else their quality as being misleading or deceptive, the words in [9(a)] indicate that Weston knew of the existence of PC Insurance products at the relevant time and must have formed a view, or intention, about whether or not to enter into such PC Insurance arrangements with a third party. It submitted that with regard to the dispute about the proper interpretation of the Agreement (namely, whether Weston was obliged to take out PC Insurance with a third party), the conduct of Weston with respect to considering any form of such insurance, either before or else after the agreement was entered into, assists in the understanding and interpretation of any ambiguity which may arise in the agreement. It would thereby assist, National Ceramic submitted, in the determination of whether or not the contract included the obligation upon Weston to obtain such insurance from a third party.
3. National Ceramic draws attention to the fact that there is no evidence from Weston which provides any explanation at all as to why it is that [9(a)] of the Defence was inserted in the first place. In particular, National Ceramic notes that it is not asserted that that pleading was inadvertent or mistaken or accompanied by such other excuse. National Ceramic also notes that there is no evidence of, or else substantial explanation for, any reason why Weston is disadvantaged if [9(a)] remains in its Defence.
4. In those circumstances, National Ceramic submits that the Court would not grant leave for the proposed amendment.
5. Finally, National Ceramic submitted that the withdrawal of the "admission" should be seen by the Court as a forensic decision so that one legitimate forensic purpose for the production of the documents under the subpoena to produce dated 21 February 2023, would be removed. Put differently, National Ceramic submits that the proposed amendment is a strategy relied upon by Weston to strengthen its arguments on the Subpoena Motion, and for no other reason.

Discernment

1. One of the sources of power relied upon in the Amendment Motion for the Court to grant leave to amend a defence is s 64 of the CPA. Section 64 is a plenary power which permits the Court to, at any stage of the proceedings, either order that a document be amended, or else grant leave to a party to amend any document.
2. Section 58 of the CPA is also relevant. It requires the Court when making an order for the amendment of a document to "… seek to act in accordance with the dictates of justice": CPA, s 58(1).
3. In determining what the dictates of justice are in any one case, the Court must have regard to the overriding purpose in s 56(1) of the CPA, namely, the just, quick and cheap resolution of the real issues in the proceedings. It must also have regard to the timely disposal of the proceedings at a cost affordable by the respective parties: s 57(1)(d) of the CPA. Of the other matters set out in s 58(2)(b) of the CPA, relevant to the dictates of justice and which is of direct relevance to this matter is "… the degree of injustice that would be suffered by the respective parties as a consequence of any order …": CPA, s 58(2)(b)(vi).
4. Weston sought the consent of National Ceramic to the filing of an Amended Defence to the Cross-Claim. National Ceramic declined to give that consent. In a letter dated 10 March 2023, the solicitor for National Ceramic drew the attention of Weston to r 12.6(2) of the Uniform Civil Procedure Rules ("UCPR"). That provoked a response from Weston's solicitors which put in issue whether the contents of [9(a)] of the Defence amounted to an admission or not.
5. No doubt, this exchange led to the inclusion in the orders sought in the Amendment Motion of the reference to both rr 12.6(1) and 12.6(2) of the UCPR. It also led to the extensive written and oral submissions about what "an admission" was and whether, following the authorities in this area, if [9(a)] of the Defence was not an admission, it was nevertheless a statement from which National Ceramic benefited forensically in the conduct of the case.
6. The invocation of rr 12.6(1) and 12.6(2) of the UCPR was unfortunate and tends to be a distraction. Rule 12.6 is relevant to a defined procedure, namely, the filing of a Notice of Withdrawal under r 12.6(3), either with consent, or with the grant of leave endorsed.
7. Weston does not seek leave to file such a Notice here, nor does it seek leave to withdraw any admission made in its Defence.
8. It follows that the appropriate basis for the Court to make the orders sought is s 64 of the CPA. In the exercise of this power, it will ordinarily be appropriate to consider what prejudice, if any, a party can establish will befall them if an order for amendment is made. Such prejudice may be able to be established if the amendment incorporates the withdrawal of an admission, or else a statement of forensic value to that party. Whether or not there would be any prejudice, and the extent of it, including whether the adverse effects of such prejudice can be remedied, are all matters to be considered on an amendment application under s 64(1) of the CPA. In approaching the matter in this way, the requirements of s 58(2)(b)(vi) of the CPA will be addressed in a relevant case.
9. In Jeans v The Commonwealth Bank of Australia Ltd [2003] FCAFC 309; (2003) 204 ALR 327 at [32], the Full Court of the Federal Court of Australia (Hill, Madgwick and Conti JJ) said: "Ultimately, as his Honour realised, the question is one of 'the attainment of justice' as Dawson, Gaudron and McHugh JJ observed at 143 in JL Holdings. That involves balancing all relevant circumstances including the prejudice which must attach to one party or the other."
10. The description "the attainment of justice" is in substance no different from the dictates of justice as contemplated in the CPA.
11. The first question for consideration is whether National Ceramic has established any prejudice by reason of an unexplained withdrawal of an "admission". This raises the need for the Court to consider whether it is persuaded that the words in [9(a)] constitute an admission. I am not persuaded that they do. First, as was ultimately conceded, the substance of the factual allegation made by National Ceramics in the Cross-Claim is that during, and after, the making of the Agreement, PC Insurance did not exist. The words of [9(a)] contest that proposition, asserting that PC Insurance did exist, but that it is not commercially viable for Weston to access such insurance from a third party. Insofar as there is any other pleading referring to PC Insurance, it is to be found in dealing with the central issue, namely, whether the terms of the Agreement upon their proper construction require Weston to take out, with a third party, a policy of PC Insurance. That contest depends upon the terms of the Agreement itself, which are not in evidence before me, and is not directly affected by whether such insurance product existed or not. Although it must be said that the interpretation contended for by National Ceramic would be a commercially curious one if no such insurance product existed, as it pleads.
12. To the extent that [9(a)] does not contain an admission, as I have found it is relevant to consider whether National Ceramic has established any prejudice because it contains material which is of benefit, or of forensic value, to National Ceramic.
13. In my view, it is not of any benefit or forensic value. Insofar as National Ceramic claims damages for breach of the Agreement, there is a simple issue, namely, whether or not the Agreement required Weston to take out PC Insurance with a third-party insurer. If the contract so required Weston to do, then it is clear on the pleadings that it did not do so. If the contract did not require it, then whether or not Weston investigated the question of whether it would take the insurance out but did not, is wholly irrelevant.
14. In those circumstances, the content of [9(a)] is of no direct impact on the case which National Ceramic seeks to argue.
15. However, the question is whether it might have an indirect impact, by amounting to conduct external to the Agreement which the Court may be entitled to take into account in coming to a conclusion about the terms of the Agreement - including resolving any ambiguity which may exist about those terms.
16. This question is again to be resolved by reference to the pleadings. Weston pleads the existence of a written agreement and the terms relevant to its claim. In its defence to the pleading, National Ceramic admits that Weston and it entered into an "Interval Gas Supply Agreement". Both parties in their pleadings refer to a particular identified clause (by number) of the Agreement. Their reference makes it clear that the undisputed position is that the Agreement is one constituted in writing.
17. There is no suggestion in any of the pleadings that the Agreement is otherwise than in writing, nor is there any assertion by National Ceramic that the interpretation of cl 1.8 of the Agreement for which it contends, is to be informed by any conduct on the part of Weston. It does plead conduct which it alleges was misleading and deceptive, thereby giving rise to a claim for damages based on the ACL. But the particulars of that alleged misleading conduct are that it is to be identified from an email dated 2 March 2022, from an office of Weston, and as well, the terms proposed for cl 1.8 of the Agreement.
18. In light of these matters, I am unpersuaded that [9(a)] of the Amended Defence to the Cross-Claim has any indirect effect on the determination by the Court of the proper interpretation and meaning of the terms of the Agreement about PC Insurance.
19. Whilst it can be accepted that in considering the exercise of its discretion to permit a party to amend a pleading, a relevant matter is the context of any explanation which is provided to the Court about either the derivation of the pleading (i.e., that it was pleaded in error) or else another circumstance which may have arisen. National Ceramic submits that the absence of an explanation here is fatal to the Amendment Motion.
20. Whilst an explanation will "generally speaking … be called for …" (Aon Risk Service Pty Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [103]), it is not a universal requirement, particularly where no prejudice is advanced by the party opposed to the amendment. To the extent that an explanation was proffered, namely that the pleading is now otiose, I will take that into account.
21. Senior counsel for National Ceramic did not submit that as a consequence of the presence of the content of [9(a)] of the Amended Defence, his client had taken any step or steps from which it could not now resile. The evidence adduced on the Motions does not support any conclusion that there is any prejudice at all to National Ceramic, either in the defence of the claim against it, nor in propounding its cross-claim.
22. Having considered all of the matters advanced, including the relatively early stage of the proceedings, and in light of my foregoing conclusions, I am satisfied that it is in the interests of justice to allow Weston to further amend its Amended Defence to delete the contents of [9(a)] and re-order the balance of the paragraphs.
23. Accordingly, in respect of the Amendment Motion, the Court should make an order granting leave to Weston to file and serve a Further Amended Defence to the Cross-Claim within 14 days.

Subpoena Motion

1. By the Subpoena Motion, Weston seeks an order setting aside the whole of the Subpoena addressed to it that was filed by National Ceramic on 21 February 2023.
2. After discussions between the parties leading to agreement in part, the provisions of paragraphs 2 and 3 of the Subpoena remain the relevant provisions for the purpose of this judgment.
3. They are in the following form: "2. Copies of any documents or correspondence (including, without limitation, file notes and draft documents) in relation to attempts made by the officers or agents (including through any brokerage or consultancy firm) of Weston Energy Pty Ltd (Weston) to source price capping insurance (as referred to in paragraph 9(a) of the sealed Amended Defence dated 25 January 2023) or a similar product from an insurance vendor in the period between 1 January 2020 to 23 May 2025. 3. Copies of all documents or correspondence (including, without limitation, file notes and draft documents) in the period from 1 January 2021 to 31 December 2022 between Weston and the Australian Energy Regulator and/or the Australian Energy Market Operator (AEMO) regarding: (a) any margin calls made on Weston by the AEMO and Weston's failure to satisfy any such margin call; and (b) the suspension notice issued by the AEMO on 23 May 2022."
4. Weston submits that the Subpoena ought be set aside. It submits that these two paragraphs of the Subpoena lack any legitimate forensic purpose, and that the documents which are being sought are not relevant to the matters in issue and, ultimately, that the terms of these paragraphs of the Subpoena indicate that it really is an attempt, impermissibly, to engage in a "fishing expedition": see Commissioner for Railways (NSW) v Small (1938) 38 SR (NSW) 564.
5. With respect to paragraph 2 of the Subpoena, Weston submits that, particularly in light of the Court's ruling on the Amendment Motion that [9(a)] ought be permitted to be removed from the Amended Defence, the issue of what attempts (if any) were made by Weston to obtain PC Insurance are simply not a relevant issue in the proceedings. Weston points to the fact that the pleading of National Ceramic is that PC Insurance did not exist. Weston submits that on its face, this paragraph of the Subpoena must be seen to be entirely irrelevant.
6. Weston also characterises paragraph 2 of the Subpoena as, in substance, an application for discovery on the topic of PC Insurance.
7. With respect to paragraph 3 of the subpoena, Weston submits that all the relevant facts of and surrounding the suspension of its licence to supply gas are admitted on the pleadings.
8. In particular, Weston submits that the attempt by National Ceramic to suggest that this paragraph is relevant to the pleaded issue in the Cross-Claim of the connection between the absence of PC Insurance and the inability of Weston to satisfy the margin call made by AEMO is, upon examination, without substance. As well, Weston points to the time period covered, which dates back more than a year before the Agreement was made, as demonstrating that the Subpoena is too broad and is in the nature of discovery.

National Ceramic Submissions

1. National Ceramic submits that even if [9(a)] is removed from the Defence to the Cross-Claim, and for the reasons described above I have granted leave to effect such change, paragraph 2 of the Subpoena is nevertheless still issued for a legitimate forensic purpose because the documents referred to in the paragraph are of apparent relevance.
2. National Ceramic submits that it bears an onus to prove the allegations set out in paragraphs 20 and 21 of the Cross-Claim, namely that the representations made were factually untrue. The documents covered by paragraph 2, it submits, bear an apparent relevance to that issue.
3. With respect to the paragraph 3 of the Subpoena, National Ceramic does not suggest that the various facts of and surrounding the margin call based on the pleadings are not admitted. It accepts that is so. But it submits that one issue upon which its claim rests is whether the absence of PC Insurance was a cause of, or a material contribution to, the suspension of Weston from trading for failure to meet the margin call, which facts it pleads as part of the causative chain leading to its damages claim. It points to the fact that Weston in its Defence to the Cross-Claim denies that its failure to meet the margin call was related to the lack of insurance, and it submits that, accordingly, there is a real issue to be determined. It submits that the cause of the issue of the margin call and Weston's financial failure and consequent suspension is a topic which calls up Weston's financial status including whether, in the past, it had the capacity to trade or pay margin calls and whether PC Insurance (if any) had been used to pay such margin calls.
4. It submits that, accordingly, the documents sought in paragraph 3 are relevant to such an issue, or at least have apparent relevance to that issue: see Secretary of the Department of Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145 at [64]-[65], [80] per Bell P.

Discernment

1. I have earlier indicated that the question of any factual conduct by Weston surrounding the entry into the Agreement is not relied upon by either party as relevant facts, matters and circumstances upon which the interpretation of the clause of the Agreement about PC Insurance rests. On the contrary, as I have said at [54]above, the interpretation of the Agreement rests on the terms of the Agreement itself.
2. In those circumstances, I am satisfied that the documents described in paragraph 2 of the Subpoena, which relate to the existence or otherwise of PC Insurance at a time prior to entry into the Agreement, are of no relevance to the issues in the proceedings. Nor am I persuaded that they have any apparent relevance. Accordingly, in my view, it follows that there is no legitimate forensic purpose established for National Ceramic sufficient to justify the production of the documents in paragraph 2. To that extent, I would set aside the Subpoena.
3. However, I have concluded that the position with respect to paragraph 3 is different. An issue in the causal chain relied upon by National Ceramic is that the financial position of Weston was such that it could not meet the margin call issued by the AEMO from within its own resources, and that it needed the existence of PC Insurance to address that shortfall. It seeks to prove that causal step by examining any past margin calls, the meeting of them by Weston, and the contents of the communication between the Regulator, AEMO, and Weston. Paragraph 3 adequately describes those documents.
4. Although Weston pointed to the lengthy period set out in the subpoena to demonstrate a lack of "legitimate forensic purpose", I am satisfied having regard to the matters just discussed, that the period is an appropriate one because National Ceramic are entitled to examine conduct prior to the entry into the Agreement over a reasonable period. The period relied upon is, in my view, reasonable.
5. In my view the documents called for in paragraph 3 of the Subpoena have apparent relevance to the issue of proof of the chain of causation raised on the Cross-Claim and put in issue by a denial in the Amended Defence of Weston.
6. It follows that insofar as the Notice of Motion seeks to attack paragraph 3 and to obtain an order setting it aside, it has failed.
7. It is appropriate that an order be made that paragraph 2 of the subpoena is to be disallowed and that the Notice of Motion be otherwise dismissed.

Costs

1. Each party has had some success with respect to each Motion. In the circumstances, I am of the view that the costs of each party of each of these Motions should be costs in the cause.

Orders

1. I make the following orders: 1. Grant leave to the plaintiff to file and serve a Further Amended Defence to the Cross-Claim within 14 days so as to remove paragraph 9(a), and renumber the remaining paragraphs. 2. Otherwise dismiss the plaintiff's Notice of Motion filed on 17 March 2023. 3. Order pursuant to r 33.4(1) of the Uniform Civil Procedure Rules that paragraph 2 of the subpoena dated 21 February 2023, issued by the defendant and addressed to the plaintiff, be struck out or set aside. 4. Otherwise dismiss the plaintiff's Notice of Motion filed on 8 March 2023. 5. Order that the costs of each party of each Notice of Motion be their costs in the cause.

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: 07 July 2023