Aulich & Ors v QBE Insurance (Australia) Ltd and Anor [2006] ACTSC 31 (13 April 2006)

Last Updated: 22 May 2006

JUDITH ANNETTE AULICH & ORS v QBE INSURANCE (AUSTRALIA) LIMITED AND SUNCORP-METWAY INSURANCE LIMITED

[2006] ACTSC 31 (13 April 2006)

PRACTICE & PROCEDURE - pleadings - application for leave to amend Statement of Claim - whether proposed deletion of one cause of action and particulars of others would be unfair to defendants or involve abuse of process - whether leave would be futile due to suggested estoppel and/or preponderance of evidence on relevant issues.

Civil Law (Wrongs) Act 2002, ss 206-207

Corporations Law, s 851(1)

Evidence Act 1995 (Cth), s 136

Law Reform (Miscellaneous Provisions) Act 1955 (ACT), s.26(3) (repealed)

Supreme Court Rules, Order 32, Rule 1

Aulich & Ors v QBE Insurance Limited & Anor (2002) ACTSC 61

Brooks & Anor v Wyatt [1994] NTSC 90; (1994) 99 NTR 12

Celestino v Celestino (unreported) FCFCA 16 August 1990, BC 9003531

Clough v Frog (1974) 48 ALJR 481

Deangrove Pty Ltd v Commonwealth Bank of Australia [2003] FCA 268

Jeans v Commonwealth Bank of Australia [2003] FCAFC 309

Mechanical and General Inventions Co. and Lehwess v Austin and Austin Motor Co. (1935) A.C. 346

Northern Territory Fuels Pty Ltd v Hart (1985) 73 FLR 405

QBE Insurance Limited & Anor v Aulich & Ors (2003) 152 ACTR 1

Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146

Steward v North Metropolitan Tramways Co (1886) 16 QBD 556

G Colman QC Cross Examination; A Practical Handbook, Juta & Co. Ltd., Cape Town, 1970

No SC 832 of 2000

Judge: Crispin J

Supreme Court of the ACT

Date: 13 April 2006

IN THE SUPREME COURT OF THE )

) No SC 832 of 2000

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: JUDITH ANNETTE AULICH & 181 ORS

Plaintiff

AND: QBE INSURANCE (AUSTRALIA) LIMITED

First Defendant

SUNCORP - METWAY INSURANCE LIMITED

Second Defendant

ORDER

Judge: Crispin J

Date: 13 April 2006

Place: Canberra

THE COURT ORDERS THAT:

1. The plaintiffs have leave to further amend the statement of claim in the manner identified in the draft "Second Further Further Amended Statement of Claim" handed up in Court on 17 March 2006.

1. This is an application pursuant to Order 32 rule 1 of the Supreme Court Rules for leave to file a "second further further amended statement of claim".

2. The circumstances in which the present application is made may be briefly stated. On 10 March 2000 the Plaintiffs commenced proceedings against Tax Invest Australia Pty Ltd ("Tax Invest") for damages in respect of losses allegedly sustained by them as a consequence of acting on advice to the effect that they should invest various sums of money in a scheme operated by the "The Wattle Group". The Statement of Claim pleaded a number of causes of action against Tax Invest and provided particulars. The proceedings were not defended and on 26 October 2000 judgment was entered against Tax Invest, although the court did not proceed to assess damages or grant any other form of relief at that time. The respondents to the present application ("the insurers") were not parties to those proceedings and had not agreed to be bound by the result or to indemnify Tax Invest in respect of any liability. However, the plaintiffs subsequently sought leave to commence proceedings against the insurers pursuant to s 26(3) of the Law Reform (Miscellaneous Provisions) Act 1955 (ACT) (subsequently repealed and re-enacted as ss 206-207 of the Civil Law (Wrongs) Act 2002) in order to enforce a charge said to have been created by s 25 of the Act over any insurance monies payable under the relevant policies. Leave was duly granted by Miles CJ on 24 June 2002 (see Aulich & Ors v QBE Insurance Limited & Anor (2002) ACTSC 61), and an application for leave to appeal from that decision was dismissed by the ACT Court of Appeal on 19 August 2003 (see QBE Insurance Limited & Anor v Aulich & Ors (2003) 152 ACTR 1). The plaintiffs amended their statement of claim on 26 February 2004 to plead claims against the insurers based substantially upon the same allegations that had been previously pleaded against Tax Invest. On 21 September 2005 the insurers filed a defence denying all of the allegations. However, their legal advisors obviously had second thoughts about the wisdom of this course, and on 27 September 2005 an amended defence was filed admitting many of the facts alleged. The plaintiffs filed a reply on 1 November 2005 and initiated the present application by a notice of motion filed on 2 February 2006.

3. In support of the application, Mr Mossop, who appeared for the plaintiffs, pointed out that the amendments would result in the deletion or minor amendment of a number of particulars of the negligence, breach of contract and misleading and deceptive conduct alleged, and the abandonment of a claim for "contravention of s 851 (1) of the Corporations Law". He pointed out that Order 32 rule 1 of the Supreme Court Rules provides a general power of amendment and relied upon the judgments of the High Court of Australia in Clough v Frog (1974) 48 ALJR 481 and Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146 as authority for the proposition that an amendment should be allowed unless it appears that it would cause injustice to the defendant that could not be rectified by an order for costs. He submitted that the principal purpose of the amendments proposed by the plaintiffs was to ensure that the "real questions" in the proceedings were determined, and argued that the resultant truncation of the case previously pleaded would cause the insurers no injustice.

4. The application for leave to amend was opposed by Mr Dunning SC, who appeared for the insurers. He suggested that Mr Mossop's explanation as to the implications of the proposed amendments had been beguilingly simple, and argued that, if leave were granted, they would substantially affect the position of the insurers by widening the issues in dispute in circumstances in which the factual allegations to be deleted:

* were materially identical to allegations made by the plaintiffs against Tax Invest;

* were consistent with allegations that formed the basis upon which the insurers had declined to indemnify Tax Invest;

* were materially identical to those that formed part of the factual basis upon which Connolly J relied in ordering that judgment be entered against Tax Invest;

* were materially identical to those that formed part of the case upon which Miles CJ was persuaded to grant the plaintiffs leave to proceed against the insurers;

* corresponded in some respects with the opinions of an expert witness retained by the plaintiffs;

* corresponded in some respects with evidence given by some of the plaintiffs;

* reflected the true facts; and

* became a matter of concern to the plaintiffs only after the delivery of a defence relying on them as supporting the insurers' entitlement to decline indemnity.

5. No particular point was taken about the proposed abandonment of the claim for contravention of s 851(1) of the Corporations Act 2001, presumably because it had been reliant upon conduct pleaded in other parts of the statement of claim. The competing arguments were essentially directed to the proposed deletion of particulars of the other claims.

6. Mr Dunning argued that, even if the particulars did not constitute admissions, unlike other factual assertions in statements of claim (Deangrove Pty Ltd v Commonwealth Bank of Australia [2003] FCA 268; Jeans v Commonwealth Bank of Australia [2003] FCAFC 309), they nonetheless contained factual assertions by the plaintiffs that, once admitted, provided common ground from which the balance of the litigation could be determined. Consequently, any deletion of the particulars would not merely narrow the ambit of the plaintiffs claims, as Mr Mossop had suggested, but would effectively excavate much of the common ground and require the insurers to plead, and presumably prove, each of the facts previously asserted by the plaintiffs themselves. The plaintiffs had not adduced any evidence to suggest that they had come to doubt the truth of their previous assertions and they would not need to prove them because they had been admitted in the defence. Hence, the purpose of the suggested amendments could not be to elucidate the real questions in dispute or to correct any error, and Order 32 rule 1 did not provide any power to grant the leave sought.

7. In my opinion, this aspect of the argument may be readily dismissed. The relevant portion of Order 32 rule 1 is in the following terms:

(1) Subject to subrules (2) to (7), the court may, at any stage of an action, on application by a party or on its own initiative--

(a) order that any document in the action be amended; or

(b) give leave to any party to amend any document of that party in the action;

in such manner and on such terms as the court considers just.

(2) All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the action, of correcting any defect or error in the action or avoiding multiplicity of actions.

8. The rule is clearly intended to provide the Court with a broad discretion to order or permit amendments for the purpose of ensuring that the issues in the case are accurately identified and defined. Even if the generality of the power conferred by subr (1) is constrained by the requirement that any such amendment serve one of the purposes specified in subr (2), it is clearly sufficient for applicants to demonstrate that the proposed amendments are for the purpose of "determining the real questions raised by or otherwise depending on the action ...". The "real questions" that arise for determination will usually consist simply of those that the parties intend to raise in the prosecution or defence of the action, and those questions, and only those questions, should be disclosed by reference to the competing contentions in the pleadings. The rule plainly enables the court to grant a party leave to amend a pleading for the purpose of abandoning some contentions and/or narrowing the ambit of his or her claim by the deletion of the allegations and particulars upon which relevant contentions had been based. There is nothing in the language employed in the rule to suggest that the power is limited by considerations relating to an applicant's reason for deciding to narrow the ambit of his or her claim, or the existence of some doubt as to the truth of the factual allegations to be abandoned. It will usually be sufficient that the applicant no longer intends to rely upon them.

9. Whilst the court may sometimes decline to exercise the power in order to relieve a party of earlier admissions, the power itself cannot, of course, be nullified by any decision of an opposing party to admit allegations and create an area of "common ground". Pleadings are routinely amended to permit a party to raise issues that had not previously been the subject of any dispute and, whilst evidence suggesting the absence of any bone fide dispute may be relevant to the exercise of discretion, the court's power is not constrained by such considerations. There is no basis for an implication that the court cannot grant a party leave to delete particulars when an opposing party wishes to take advantage of an earlier, and perhaps ill-considered, pleading by which he or she had been conveniently relieved of the onus of proof on some potentially decisive issue.

10. In my opinion, the real question that arises on this application is not whether the court has the power to grant the leave sought by the plaintiffs, but whether the power should be exercised.

11. Mr Dunning maintained that there were several reasons for declining to exercise the power available under Order 32 rule 1. He submitted that since the plaintiffs had maintained the relevant allegations for some years prior to service of the defence and had not suggested that any reason had emerged to doubt their truth, the application for leave to resile from them had obviously been motivated by tactical considerations, and hence had not been made in good faith. He argued that the allegations contained in the relevant particulars should either be regarded as admissions "in substance" or as sufficiently similar in effect to justify a conclusion that leave should only be granted on the grounds normally accepted as warranting the withdrawal of admissions (see generally Celestino v Celestino (unreported) FCFCA 16 August 1990, BC 9003531), and stressed that the plaintiffs had not attempted to establish any such ground. He contended that the amendments would be futile because the insurers would inevitably plead and prove the allegations in question. Then, in a deft display of the intellectual agility for which the bar is renowned, he also contended that the insurers would suffer real prejudice by being required to assume the onus of proof about these allegations at a time when the evidentiary trail had become "cold" and supervening events had occurred that might make proof difficult. Mr Dunning concluded by submitting that the attempt by the plaintiffs to resile from some of the allegations upon which they obtained judgment against Tax Invest was precluded by issue estoppel or estoppel in pais and would, in any event, constitute an abuse of process.

12. In my opinion, there are a number of general points that may be made in relation to these submissions.

13. First, as Mr Mossop pointed out, it would generally be contrary to public policy to require a party to maintain allegations that it did not wish to pursue.

14. Second, no explanation is normally required of a party seeking to abandon any such allegations and, at least in the absence of any contention that they constitute admissions, no question will normally arise as to whether they are well founded. Leave may be granted so that the relevant pleading will reflect the applicant's intention to no longer rely upon the allegations as a basis for his or her claim or defence, and hence narrow the issues to be tried. Thus, a plaintiff will usually be given leave to abandon allegations of negligence and rely solely upon other causes of action even if he or she still believes that the defendant acted negligently.

15. Third, particulars of a cause of action do not constitute admissions on the pleadings and cannot be construed as having a similar effect to such admissions. They merely delineate the ambit of the claim disclosed in the substantive paragraphs and define the issues thereby raised. Hence, an opposing party is not required to plead to them. It may sometimes be possible for an opposing party to rely upon a statement contained in particulars as evidence of an admission against interest, but a subsequent amendment to the particulars could not affect any evidentiary significance that such a statement might have and Mr Dunning did not raise any issue of this kind in opposition to the plaintiffs' application.

16. Fourth, whilst there may be cases in which it would be unfair to a defendant to permit the plaintiff to amend his or her statement of claim by omitting some allegation or allegations, the mere fact that the proposed amendments would reduce the area of common ground between the parties will not, of itself, demonstrate either unfairness or any other basis for refusing leave.

17. Fifth, an application may be made in good faith even if prompted by tactical considerations. There will inevitably be cases in which the apparent tactical considerations will suggest an absence of good faith (see Northern Territory Fuels Pty Ltd v Hart (1985) 73 FLR 405 at 411; Brooks & Anor v Wyatt [1994] NTSC 90; (1994) 99 NTR 12 at 16-20), but the word "tactics" should not be seen as a synonym for mala fides. Within an adversarial system of justice, the parties or their counsel may be expected to adopt tactics calculated to enable them to effectively advance their own contentions and test countervailing evidence adduced by the opposing party. Some tactics clearly assist courts to establish the truth. For example, cross-examination has been described as 'perhaps the most useful of all the instruments used in the administration of justice.' (G Colman QC Cross-examination: A Practical Handbook, Juta & Co., Cape Town, 1970, at 1; see also the remarks of Hanworth LJ in Mechanical and General Inventions Co. and Lehwess v Austin and Austin Motor Co. (1935) A.C. 346 at 359). Furthermore, tactical decisions often involve taking advantage of legal or evidentiary principles that have been formulated to further the interests of justice and/or public policy. For example, a plaintiff who seeks to amend a claim for the loss of goods by including an allegation of bailment may do so to take advantage of the principle that a bailee bears the onus of proving that any loss of the bailed goods was not attributable to negligence on his or her part, but that will not suggest that the application was not made in good faith. The decisive question is not whether an application is wholly or partially attributable to tactical considerations, but whether the course proposed is intended to produce an unfair result or, irrespective of any such intention, is likely to cause unfair prejudice to the opposing party.

18. Sixth, there is no general principle that a plaintiff who has obtained judgement against an insured party and then seeks to proceed against the insurer pursuant to a statutory provision, such as that formerly contained in s 26 (3) of the Law Reform (Miscellaneous Provisions) Act 1955, must do so by a statement of claim in which all of the causes of action and particulars are co-extensive with those in the statement of claim upon which the earlier judgement was obtained. Indeed, there was nothing in

s 26 that required any prior action against the insured party.

19. Mr Dunning's submissions must, in my opinion, be considered in the context of these general principles. The insurers may have assumed that any action brought against them pursuant to the grant of leave by Miles CJ on 24 June 2002 would be founded upon a statement of claim containing all of the same allegations as those pleaded against Tax Invest but, at least in the absence of facts sufficient to found estoppel or establish that any significant amendment would have constituted an abuse of process, there was no basis in principle for such an expectation. Furthermore, as Mr Mossop pointed out, the allegations contained in the disputed particulars had been common ground in the proceedings against the insurers for little more than 4 months, the amended defence admitting those particulars having been filed on 27 September 2005 and the application to delete them having been made on 2 February 2006. Whilst the insurers may have permitted the evidentiary trail to become cold, I do not accept that their apparent reliance upon a blithe expectation that the plaintiffs would maintain the allegations pleaded against Tax Invest provides a compelling ground for refusal of the present application.

20. Mr Dunning relied upon the principle that leave to amend may be refused if the amendment would put the opposing party in a worse position than he or she would have faced had the amended pleading had been served in the first place (see Steward v North Metropolitan Tramways Co (1886) 16 QBD 556 at 558). In the present case, however, it is difficult to see how that proposition could be sustained. If the insurers had not already been aware of the alleged facts upon which they now maintain that they were entitled to decline indemnity, the initial statement of claim would have alerted them to those facts. Hence, even if leave is now granted to delete the relevant allegations, the insurers may still be in a better position than they would have been if the allegations had initially been omitted. Even if one were to assume that they would, in any event, have discovered the alleged facts, the contention that the amendment would place them in a worse position than if the statement of claim had initially been pleaded in the manner now proposed could only be based upon the proposition that they refrained from due investigation by reason of an expectation that the disputed particulars would be maintained. As mentioned earlier, I do not regard this as a compelling reason for refusal of the application.

21. More fundamentally, the contention that the proposed amendments would excavate the common ground and unfairly cast an onus of proof upon the respondents was clearly predicated upon the assumption that, in the absence of the amendments, the particulars would constitute admissions on the pleadings or otherwise establish, ipso facto, the facts alleged and hence relieve the insurers of the need to prove them. No authority was cited for this proposition and, in my opinion, it is incorrect. There may, perhaps, be cases in which the particulars could be relied upon to identify a document or some other thing said to be admitted in a substantive paragraph if, indeed, allegations pleaded in a statement of claim can be relied upon as admissions on the pleadings, as seems to have been assumed in Deangrove Pty Ltd v Commonwealth Bank of Australia and Jeans v Commonwealth Bank of Australia. However, particulars are often expressed in expansive terms, with a view to ensuring that any conceivable inference capable of supporting the relevant claim or defence is within the scope of the case particularised, and they may contain inconsistent and alternative allegations. If courts were to treat them as, not only delineating the ambit of the relevant claims or defences and defining the issues, but also as potential admissions of the allegations they contain, then the implications for the manner in which cases are pleaded and particularised could be profound. To take but one example, a plaintiff might be reluctant to provide alternative particulars of a fact or circumstances if the defendant could choose the one least damaging to his or her case and maintain that the others could not be pressed because they would be inconsistent with the `common ground' thereby created. It might be possible to avoid any such risk by meticulous drafting and, in any event, such a tactic was not adopted by the insurers in the present case. Nonetheless, the proposition for which they contend would appear to involve a substantial and, in my opinion, impermissible extension of the long established role assigned to particulars.

22. Nor do I accept the submission that the present application has not been made in good faith. It is true that an applicant bears the onus of establishing that an application to amend pleadings has been made in good faith, but that will normally be presumed in his or her favour unless the nature of the proposed amendments, the timing of the application or some other factor fairly raises this issue. As previously mentioned, an applicant is not normally required to file an affidavit explaining his or her motivation for the proposed amendments and adverse inferences would not normally be drawn from any failure to do so. Furthermore, even if the plaintiffs had intended to deprive the insurers of some assistance that they believed the insurers might otherwise have gained from the manner in which they had hitherto pleaded their case, that consideration would not necessarily require the refusal of leave. Applications to amend statements of claim are almost invariably motivated by a desire to strengthen the position of the plaintiffs and correspondingly jeopardise the position of the defendants. In the present case, the insurers have pleaded that that they are not liable to the plaintiffs by reason of the exclusionary clauses contained in the relevant insurance policies and the onus of proving the factual basis for such defences normally rests upon the parties asserting them. Hence, if the proposed amendments did have the effect of enlarging the area of dispute as the insurers suggest and putting them to proof of the defences, that would not necessarily give rise to any injustice. Whilst it is appropriate to take into account both the timing of the application and any prejudice that might reasonably be suffered by the defendants as a consequence of the proposed amendments, I do not accept that this contention provides, of itself, a compelling ground for refusal of the application.

23. In my opinion, the submission that it would be futile to grant the leave sought by the plaintiffs must be rejected. Mr Dunning submitted that the evidence available to prove the facts in questions was overwhelming, and supported his submission by referring to several passages in an affidavit sworn by his instructing solicitor, Mr Sammut, which adverted to at least some of the evidence said to be available, including a report from an expert witness retained by the plaintiffs. Mr Mossop objected to the relevant passages and, during the ensuing debate, Mr Dunning conceded that at least some of them would not have been admissible at trial. He maintained, however, that I should admit the relevant passages because they were sufficient to indicate that there could be no bona fide dispute as to the truth of the allegations presently contained in the particulars that the plaintiffs seek to delete and that proof in proper form would inevitably be obtained. After some discussion, I indicated that I would defer my ruling on the objections until the substantive argument had been completed. I accept that it might be unfair to the plaintiffs to permit the defendants to rely upon evidence that would be inadmissible at the trial of the action and then to rely upon interlocutory findings based on that evidence to support a contention that it would be futile to permit the same factual questions to be litigated at the trial by reference to the normal rules of evidence. Despite these misgivings, I have concluded that the disputed passages should be admitted, but that their use should be limited, pursuant to s 136 of the Evidence Act 1995 (Cth), to an indication as to the nature of the evidence that might be available to the insurers. However, they do not, in my opinion, sustain Mr Dunning's contention that it would be futile to permit any amendment putting the relevant contentions in issue. Factual findings are, of course, usually made after a trial in which all of the relevant evidence is considered and, whilst there maybe cases in which it is possible to foresee that crucial findings will be inevitable, this is not such a case.

24. Mr Dunning also argued that leave should be refused because the amendments were intended to permit the plaintiffs to attempt to recover damages from the insurer founded on a claim substantially different from that which had formed the basis for the initial judgement against the insured. He argued that such a course could not be sustained because of issue estoppel and/or estoppel in pais and that, it would, in any event, constitute an abuse of process.

25. The issue of estoppel was debated at some length and the competing arguments where ably presented and well supported by reference to relevant authorities. I trust that neither counsel will take it as a discourtesy if I do not refer to their submissions in a manner sufficient to do justice to them. However, I have ultimately concluded that it is unnecessary to resolve the competing arguments at this stage of the proceedings. In the ordinary course of events, any contention that a party is estopped from raising a particular issue must be pleaded. This requirement is not a mere formality. It gives the other side due notice of the point to be taken and enables any factual issues to be defined. It is true, of course, that a party wishing to oppose an application for leave to amend a pleading may seek to resist the application on the ground that the grant of leave would be futile since the applicant would be estopped from maintaining the relevant allegations. However, it will not always be convenient to resolve questions of this kind on an interlocutory application when there are no pleadings to specify the factual basis for the estoppel alleged.

26. In the present case, despite the quality of the arguments advanced by counsel, I was left with the uneasy feeling that the issues were still being clarified as the argument progressed. Whilst Mr Dunning raised the issue of estoppel in his opening address and suggested that the plaintiffs were guilty of approbating and reprobating, it was only during his address in reply that he suggested that the plaintiffs had approbated, not only by relying on the relevantly unamended statement of claim in obtaining interlocutory judgment against Tax Invest in 2000, but also by relying on that pleading in obtaining leave to proceed against the insurers in 2002. This prompted Mr Mossop to protest that in the latter application the plaintiffs had relied substantially upon concessions made by counsel who then appeared for the insurers. The fact that new factual issues were being raised as late as an address that Mr Mossop described as the "reply to the reply" left me confident only of the wisdom of the normal principle that issues of this kind should be properly raised in pleadings.

27. Similar difficulties arise in relation to the submission that any departure from the case previously relied upon against Tax Invest would constitute an abuse of process, which seemed to have been dependent upon substantially the same contentions.

28. Ultimately, whilst I have considered Mr Dunning's submissions and taken them into account save to the extent indicated, I am satisfied that the plaintiffs should be granted leave to amend the statement of claim in the manner proposed. Any question of estoppel should be raised by an appropriate amendment to the defence and determined when the bases for the competing contentions have been defined.

29. I will hear counsel as to any directions that should be given for the filing and service of amended pleadings and as to costs.

I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Crispin.

Associate:

Date: 13 April 2006

Counsel for the Applicant/Plaintiffs Mr D J C Mossop

Solicitor for the Applicant/Plaintiffs Meyer Vandenberg Lawyers

Counsel for the Respondent/1^st Defendant Mr P J Dunning SC

Solicitor for the Respondent/1^st Defendant Clayton Utz

Counsel for the Respondent/2^nd Defendant Mr P J Dunning SC

Solicitor for the Respondent/2^nd Defendant Clayton Utz

Date of hearing 16 March 2006

Date of judgment 13 April 2006