Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 2) [2011] FCA 309 (30 March 2011)

Last Updated: 1 April 2011

FEDERAL COURT OF AUSTRALIA

Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 2) [2011] FCA 309

Citation:		Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 2) [2011] FCA 309
Parties:		BATHURST REGIONAL COUNCIL v LOCAL GOVERNMENT FINANCIAL SERVICES PTY LTD ACN 001 681 741, ABN AMRO BANK NV ARBN 84 079 478 612 and MCGRAW-HILL INTERNATIONAL (UK) LIMITED; AMERICAN HOME ASSURANCE COMPANY ABN 67 007 483 267 COOMA MONARO SHIRE COUNCIL ABN 19 204 741 100, COROWA SHIRE COUNCIL ABN 43 874 223 315, DENILIQUIN COUNCIL ABN 41 992 919 200, EUROBODALLA SHIRE COUNCIL ABN 47 504 455 945, MOREE PLAINS SHIRE COUNCIL ABN 46 566 790 582, MURRAY SHIRE COUNCIL ABN 77 334 235 304, NARRANDERA SHIRE COUNCIL ABN 96 547 765 569, NARROMINE SHIRE COUNCIL ABN 99 352 328 405, OBERON COUNCIL ABN 13 632 416 736, ORANGE CITY COUNCIL ABN 85 985 402 386, PARKES SHIRE COUNCIL ABN 96 299 629 630 and CITY OF RYDE ABN 81 627 292 610 v LOCAL GOVERNMENT FINANCIAL SERVICES PTY LTD ACN 001 681 741, ABN AMRO BANK NV ARBN 84 079 478 612 and MCGRAW-HILL INTERNATIONAL (UK) LIMITED; AMERICAN HOME ASSURANCE COMPANY ABN 67 007 483 267 STATECOVER MUTUAL LIMITED v LOCAL GOVERNMENT FINANCIAL SERVICES PTY LTD ACN 001 681 741, ABN AMRO BANK NV ARBN 84 079 478 612 and MCGRAW-HILL INTERNATIONAL (UK) LIMITED; AMERICAN HOME ASSURANCE COMPANY ABN 67 007 483 267
File number(s):		NSD 936 of 2009 NSD 1073 of 2009 NSD 1268 of 2010
Judge:		JAGOT J
Date of judgment:		30 March 2011
Catchwords:		PRACTICE AND PROCEDURE – application for summary dismissal of claims in negligence pursuant to s 31A of the Federal Court of Australia Act 1976 – whether application should be heard and determined in advance of other issues in proceedings
Legislation:		Federal Court of Australia Act 1976 (Cth) Australian Securities and Investments Commission Act 2001 (Cth) Corporations Act 2001 (Cth)
Cases cited:		Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951 Kowalski v MMAL Staff Superannuation Fund Pty Ltd [2009] FCAFC 117; (2009) 178 FCR 401 Tepko Pty Limited v Water Board [2001] HCA 19; (2001) 206 CLR 1
Date of hearing:	30 March 2011
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	29
In NSD 936 of 2009:
Counsel for the Applicant:	Mr J E Thomson
Solicitor for the Applicant:	McIntosh McPhillamy & Co, Solicitors
Counsel for the First Respondent:	Mr J C Giles
Solicitor for the First Respondent:	Norton Rose
Counsel for the Second Respondent:	Mr M J Darke
Solicitor for the Second Respondent:	Allens Arthur Robinson
Counsel for the Third Respondent:	Mr A Archibald QC with Mr M A Izzo
Solicitor for the Third Respondent:	Clayton Utz
Solicitor for the Cross-Respondent to the Third Cross-Claim:	Ms H Nash-Smith of Wotton and Kearney Lawyers
In NSD 1073 of 2009:
Counsel for the Applicants:	Mr N Hutley SC with Mr C Withers
Solicitor for the Applicants:	Piper Alderman
Counsel for the First Respondent:	Mr J C Giles
Solicitor for the First Respondent:	Norton Rose
Counsel for the Second Respondent:	Mr M J Darke
Solicitor for the Second Respondent:	Allens Arthur Robinson
Counsel for the Third Respondent:	Mr A Archibald QC with Mr M A Izzo
Solicitor for the Third Respondent:	Clayton Utz
Solicitor for the Cross-Respondent to the Third Cross-Claim:	Ms H Nash-Smith of Wotton and Kearney Lawyers
In NSD 1268 of 2010:
Counsel for the Applicant:	Mr N M Bender
Solicitor for the Applicant:	DLA Phillips Fox
Counsel for the First Respondent:	Mr J C Giles
Solicitor for the First Respondent:	Norton Rose
Counsel for the Second Respondent:	Mr M J Darke
Solicitor for the Second Respondent:	Allens Arthur Robinson
Counsel for the Third Respondent:	Mr A Archibald QC with Mr M A Izzo
Solicitor for the Third Respondent:	Clayton Utz
Solicitor for the Cross-Respondent to the Third Cross-Claim:	Ms H Nash-Smith of Wotton and Kearney Lawyers

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 936 of 2009

BETWEEN:	BATHURST REGIONAL COUNCIL Applicant
AND:	LOCAL GOVERNMENT FINANCIAL SERVICES PTY LTD ACN 001 681 741 First Respondent ABN AMRO BANK NV ARBN 84 079 478 612 Second Respondent MCGRAW-HILL INTERNATIONAL (UK) LIMITED Third Respondent AMERICAN HOME ASSURANCE COMPANY ABN 67 007 483 267 Cross-Respondent to the Third Cross-Claim

JUDGE:	JAGOT J
DATE OF ORDER:	30 MARCH 2011
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The third respondent’s Notice of Motion filed 28 February 2011 be adjourned for mention on the first day of the hearing (4 October 2011).
2. Exhibits 1, 2 and 3 be returned.
3. The third respondent pay the other parties’ costs of the Notice of Motion to date as agreed or taxed, excluding the costs of American Home Assurance Company.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1073 of 2009

BETWEEN:

COOMA MONARO SHIRE COUNCIL ABN 19 204 741 100 First Applicant COROWA SHIRE COUNCIL ABN 43 874 223 315 Second Applicant DENILIQUIN COUNCIL ABN 41 992 919 200 Third Applicant EUROBODALLA SHIRE COUNCIL ABN 47 504 455 945 Fourth Applicant MOREE PLAINS SHIRE COUNCIL ABN 46 566 790 582 Fifth Applicant MURRAY SHIRE COUNCIL ABN 77 334 235 304 Sixth Applicant NARRANDERA SHIRE COUNCIL ABN 96 547 765 569 Seventh Applicant NARROMINE SHIRE COUNCIL ABN 99 352 328 405 Eighth Applicant OBERON COUNCIL ABN 13 632 416 736 Ninth Applicant ORANGE CITY COUNCIL ABN 85 985 402 386 Tenth Applicant PARKES SHIRE COUNCIL ABN 96 299 629 630 Eleventh Applicant CITY OF RYDE ABN 81 627 292 610 Twelfth Applicant

AND:

LOCAL GOVERNMENT FINANCIAL SERVICES PTY LTD ACN 001 681 741 First Respondent ABN AMRO BANK NV ARBN 84 079 478 612 Second Respondent MCGRAW-HILL INTERNATIONAL (UK) LIMITED Third Respondent AMERICAN HOME ASSURANCE COMPANY ABN 67 007 483 267 Cross-Respondent to the Third Cross-Claim

JUDGE:	JAGOT J
DATE OF ORDER:	30 MARCH 2011
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The third respondent’s Notice of Motion filed 28 February 2011 be adjourned for mention on the first day of the hearing (4 October 2011).
2. Exhibits 1, 2 and 3 be returned.
3. The third respondent pay the other parties’ costs of the Notice of Motion to date as agreed or taxed, excluding the costs of American Home Assurance Company.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1268 of 2010

BETWEEN:	STATECOVER MUTUAL LIMITED Applicant
AND:	LOCAL GOVERNMENT FINANCIAL SERVICES PTY LTD ACN 001 681 741 First Respondent ABN AMRO BANK NV ARBN 84 079 478 612 Second Respondent MCGRAW-HILL INTERNATIONAL (UK) LIMITED Third Respondent AMERICAN HOME ASSURANCE COMPANY ABN 67 007 483 267 Cross-Respondent to the Third Cross-Claim

JUDGE:	JAGOT J
DATE OF ORDER:	30 MARCH 2011
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The third respondent’s Notice of Motion filed 28 February 2011 be adjourned for mention on the first day of the hearing (4 October 2011).
2. Exhibits 1, 2 and 3 be returned.
3. The third respondent pay the other parties’ costs of the Notice of Motion to date as agreed or taxed, excluding the costs of American Home Assurance Company.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 936 of 2009

BETWEEN:	BATHURST REGIONAL COUNCIL Applicant
AND:	LOCAL GOVERNMENT FINANCIAL SERVICES PTY LTD ACN 001 681 741 First Respondent ABN AMRO BANK NV ARBN 84 079 478 612 Second Respondent MCGRAW-HILL INTERNATIONAL (UK) LIMITED Third Respondent AMERICAN HOME ASSURANCE COMPANY ABN 67 007 483 267 Cross-Respondent to the Third Cross-Claim

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION		NSD 1073 of 2009
BETWEEN:	COOMA MONARO SHIRE COUNCIL ABN 19 204 741 100 First Applicant COROWA SHIRE COUNCIL ABN 43 874 223 315 Second Applicant DENILIQUIN COUNCIL ABN 41 992 919 200 Third Applicant EUROBODALLA SHIRE COUNCIL ABN 47 504 455 945 Fourth Applicant MOREE PLAINS SHIRE COUNCIL ABN 46 566 790 582 Fifth Applicant MURRAY SHIRE COUNCIL ABN 77 334 235 304 Sixth Applicant NARRANDERA SHIRE COUNCIL ABN 96 547 765 569 Seventh Applicant NARROMINE SHIRE COUNCIL ABN 99 352 328 405 Eighth Applicant OBERON COUNCIL ABN 13 632 416 736 Ninth Applicant ORANGE CITY COUNCIL ABN 85 985 402 386 Tenth Applicant PARKES SHIRE COUNCIL ABN 96 299 629 630 Eleventh Applicant CITY OF RYDE ABN 81 627 292 610 Twelfth Applicant
AND:	LOCAL GOVERNMENT FINANCIAL SERVICES PTY LTD ACN 001 681 741 First Respondent ABN AMRO BANK NV ARBN 84 079 478 612 Second Respondent MCGRAW-HILL INTERNATIONAL (UK) LIMITED Third Respondent AMERICAN HOME ASSURANCE COMPANY ABN 67 007 483 267 Cross-Respondent to the Third Cross-Claim
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION		NSD 1268 of 2010

BETWEEN:	STATECOVER MUTUAL LIMITED Applicant
AND:	LOCAL GOVERNMENT FINANCIAL SERVICES PTY LTD ACN 001 681 741 First Respondent ABN AMRO BANK NV ARBN 84 079 478 612 Second Respondent MCGRAW-HILL INTERNATIONAL (UK) LIMITED Third Respondent AMERICAN HOME ASSURANCE COMPANY ABN 67 007 483 267 Cross-Respondent to the Third Cross-Claim

JUDGE:	JAGOT J
DATE:	30 MARCH 2011
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. These reasons for judgment explain my decision not to determine the third respondent’s application by notices of motion for summary judgment of one of the claims against it under s 31A of the Federal Court of Australia Act 1976 (Cth) (the Court Act) in advance of and separate from the hearing of all other claims in the proceedings.

THE PROCEEDINGS

2. Proceeding NSD 1073 of 2009 involves principal claims by twelve councils against three respondents, Local Government Financial Services Pty Limited (LGFS), ABN Amro Bank NV (ABN Amro) and McGraw-Hill International (UK) Limited (Standard and Poor’s or S&P), as well as a series of cross-claims (by LGFS against ABN Amro and S&P and against its insurer American Home Assurance Company, and by ABN Amro and S&P against each other).
3. Proceeding NSD 963 of 2009 involves principal claims by Bathurst Regional Council against LGFS, ABN Amro and S&P, as well as the same cross-claims as in proceeding NSD 1073 of 2009 (that is, by LGFS against ABN Amro and S&P and against its insurer American Home Assurance Company, and by ABN Amro and S&P against each other).
4. Proceeding NSD 1268 of 2010 involves principal claims by StateCover Mutual Limited (StateCover) against LGFS, ABN Amro and S&P, as well as the same cross-claims as in proceeding NSD 1073 of 2009.
5. The principal claims by the councils and StateCover against LGFS, ABN Amro and S&P include allegations of negligence and misleading and deceptive conduct in contravention of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and the Corporations Act 2001 (Cth) (the Corporations Act). The cross-claims also include allegations of negligence and misleading and deceptive conduct in contravention of the ASIC Act and the Corporations Act. The defences of LGFS, ABN Amro and S&P each invoke against the others the doctrines of concurrent wrongdoing and proportionate liability by reason of the alleged negligence and misleading and deceptive conduct.
6. The three proceedings (which are being case-managed and will be heard together) are fixed for hearing between 4 October and 9 December 2011.

THE NOTICES OF MOTION

7. In each of the proceedings, S&P filed a notice of motion on 28 February 2011 seeking orders for summary judgment in its favour pursuant to s 31A of the Court Act in respect of the negligence claims against it in both the principal claims (by the councils and StateCover) and the cross-claims (by LGFS in each proceeding).
8. Section 31A of the Court Act is in these terms:

(1) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is prosecuting the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.

(2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.

(3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.

(4) This section does not limit any powers that the Court has apart from this section.

9. Each of the other parties opposes the hearing of S&P’s notices of motion in advance of the hearing proper.

S&P’S SUBMISSIONS

10. S&P summarised the negligence claims as follows (emphasis in original, footnotes omitted):

(a) S&P carried on a business throughout the world, inter alia, publishing credit ratings and research reports on financial products;
(b) S&P is a leading source in Australia and throughout the world for credit ratings, indices, investment research, risk evaluation data;
(c) by August 2006:
(i) the product known as “Rembrandt 2006-2” had been assigned a “AAA” credit rating by S&P;
(ii) S&P had published a report on “Rembrandt 2006-2” which included a statement that “Rembrandt 2006-2” had been assigned a “AAA” credit rating by S&P;
(d) on and from 31 October 2006 S&P knew that ABN AMRO would publish that S&P had assigned the Rembrandt [2006-3] notes a “AAA” credit rating to a class of persons who are potential buyers (whether for the purposes of holding or on-selling) of [those] notes, and expressly or impliedly authorise ABN AMRO to so publish S&P’s credit rating of [those] notes;
(e) on or about 15 November 2006 S&P published and made available (including to ABN AMRO) for distribution in Australia a research report on the Rembrandt [2006-3] notes, which recorded that S&P had assigned a “AAA” credit rating to [those] notes (S&P Report);
(f) S&P knew or ought reasonably to have known that:
(i) it was necessary or usually necessary for persons structuring a product such as [the] Rembrandt [2006-3 notes] to obtain a minimum rating to ensure that the product could be sold to investors or to other traders in the product;
(ii) the rating it published in relation to the Rembrandt [2006-3] notes would be relied on by members of the class of persons who might buy (whether fore the purposes of holding or on-selling [those] notes when members of that class decided whether or buy or deal in [those] notes;
(iii) the S&P Report would be relied upon by members of the class of person who might buy (whether for the purposes of holding or on-selling) [the] Rembrandt [2006-3] notes when members of that class decided whether to buy or deal in [those] notes;
(g) S&P owed to the class of persons who might buy (whether for the purposes of holding or on-selling) the Rembrandt [2006-3] notes (a class which included LGFS and the Applicant Councils) a duty to exercise reasonable care in forming and publishing its opinion as to the credit worthiness of [those] notes;
(h) S&P breached the duty pleaded, in forming and publishing its opinion as to the credit worthiness of the Rembrandt [2006-3] notes;
(i) by reason of the (alleged) breach of duty, loss and damage has been suffered.

11. According to S&P, the motions seeking summary judgment in its favour in respect of the negligence claims should be heard and determined in advance of and separate from the balance of the issues in the proceedings.
12. First, S&P contends that whether a duty of care is owed is a threshold question suitable for a summary determination. The existence of a duty of care is a question of law and can be determined, as S&P puts it “for the purposes of the argument”, assuming that all the facts pleaded in the claims are true.
13. Second, determining the existence of the duty of care on a summary basis, said S&P, “gives due recognition to the proper role of s 31A”. Section 31A is apt for resolving disputed questions of law and “since it will be possible to determine the existence of a duty of care at a summary hearing without evidence, it would be better for that to be done”.
14. Third, according to S&P, the motions for summary dismissal can be disposed of quickly and without delaying the progress of the proceedings. S&P estimates that the motions will take one day to be heard. No evidence will be required because, for the purpose of the motions, S&P accepts that every fact pleaded against it is true.
15. Fourth, if S&P succeeds on the motions, the time and money that will need to be spent on exploring question of breach of duty of care at trial may be avoided.
16. Fifth, S&P’s motions have good prospects of success. In short , it is submitted that the duty alleged to be owed by S&P to the claimants is inconsistent with the reasoning of the High Court in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; [1997] HCA 8 (Esanda) in that: – (i) the pleadings assert no more than the mere foreseeability of economic loss by investors, and (ii) the claimants could have taken their own advice about the financial products in question and thus were not vulnerable to any conduct by S&P in rating or reporting on those products. Further, it is said by S&P that other factors weigh against the existence of any duty of care, including that: – (i) the potential class to whom the alleged duty is owed is “almost limitless”, (ii) the pleadings do not assert any transactions between the claimants and S&P, (iii) the imposition of a duty of care is inconsistent with the commercial context in which ratings are given (in this case, that of a contract between ABN Amro and S&P), (iv) the alleged duty is inconsistent with the confined task which S&P undertook pursuant to this contract, and (v) the ramifications of recognising a duty of care as alleged could be far-reaching.
17. Sixth, S&P submitted that there is specific and particular utility in determining before trial whether S&P should continue to be exposed to the risk of liability for negligence, said to be the desirability of the confines of a party’s potential liability being determined at the earliest possible stage.

DISCUSSION

18. I am not persuaded that S&P’s notices of motion should be heard and determined in advance of and separately from all other issues in the proceedings.
19. Although this was not apparently in dispute, it is appropriate that I record my view that the mere filing of the notices of motion does not mean that I am bound to hear and determine them in advance of and separately from all other issues in the proceedings. The decision whether to do so or not is discretionary. Section 31A does not limit any powers that the Court has otherwise (s 31A(4)). The Court otherwise has power to control the course of proceedings before it, including by deciding whether or not to hear and dispose of a proceeding or part of a proceeding on a summary basis. Accordingly, in the present case, the issue is not whether the question of duty of care can be resolved on a summary basis but whether, in all the circumstances of these proceedings, it should be resolved in that way. This question is not answered by identifying the existence of a duty of care as a question of law. Nor is it able to be answered at the level of general principle as regards the function of s 31A. Section 31A enhances the Court’s capacity to deal with matters on a summary basis. The discretionary considerations generally applicable to the summary dismissal process nevertheless remain relevant. In particular, the discretionary considerations of timing, utility, and risk to the balance of the proceedings are material factors (see the observations in Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951 (Telecom Vanuatu) at [21]-[25]).
20. In the present case, there is a timing issue. It is true that s 31A has no time limit. But that is not the point. All three proceedings have been fixed for hearing in respect of all issues between 4 October and 9 December 2011. These hearing dates were allocated on 28 September 2010, and a timetable for completed pleadings and evidence was resolved on the basis of the allocated dates. By the time this timetable was put in place, S&P had been a party to the proceedings for over three months (after LGFS filed and served a cross-claim against it in June 2010). On 28 September 2010 there was no suggestion by any party that an application for summary judgment might be made. S&P has not explained why such applications are being made nearly six months later. The applications, if determined now, have substantial potential to disrupt the allocated hearing dates. In brief, if these applications had been made in or about 28 September 2010 then it may well have been possible for them and any associated appeal by leave to be determined without interfering with the allocated hearing dates. As it is, if the notices of motion are determined now, there is a real prospect that the unsuccessful party would obtain leave to appeal and that any such appeal would not be determined before the allocated hearing dates. If this occurred, the options would be either to vacate the hearing or to proceed with the hearing with the risk that the appeal may yield a different result, thereby necessitating a second separate hearing on the issue of negligence. Neither option, at this late stage in the proceedings, is attractive. This observation is reinforced by the fact that this is a court of first instance, and negligence for economic loss is an area where further development of legal principle at the appellate level is likely (see Telecom Vanuatu at [25]).
21. S&P’s submission that these difficulties are ameliorated by the fact that leave would be required to appeal from any decision on the application for summary judgment is unpersuasive. The issues relating to the negligence claim are of obvious importance both to the parties and generally, making a grant of leave more than likely. All of the difficulties which the other parties identified will accordingly ensue. These considerations are relevant to the case management of the present notices of motion. It is not appropriate to defer management of important procedural issues until the almost inevitable application for leave to appeal, should S&P be successful.
22. In addition, it is difficult to see any material utility in the course S&P proposes, whilst the risks to the Court’s ability to deal with the balance of the proceedings in an orderly and efficient manner are obvious. The following factors reinforce this assessment:

(1) The negligence claims are not the only claims against S&P. Similar factual issues are raised by the misleading and deceptive conduct claims, which will remain regardless of the outcome of the applications for summary dismissal. LGFS’s proportionate liability defence, in which S&P is said to be a concurrent wrongdoer, will also remain. So too will ABN Amro’s cross-claim against S&P. Accordingly, S&P will remain a party to the proceedings and will be involved in the hearing on 4 October to 9 December 2011 even if it succeeds on the notices of motion. Similarly, even if S&P succeeds, similar factual issues will need to be explored and resolved at trial in the context of the misleading and deceptive conduct claims. The purported saving of time if S&P is successful – in relieving the Court of the need to deal with questions of breach of the alleged duty of care – is thus marginal at best in the context of the overall claims against S&P. If S&P fails, there will be no such saving of time and cost.

(2) S&P can put precisely the same substantive case in relation to the existence of a duty of care at the hearing as it puts now. Deferral of consideration of the question of the duty of care until the hearing proper will not deprive S&P of that capacity.

(3) S&P’s position – that all of the facts pleaded in the negligence claims against it may be assumed to be true – is limited to the context of determining the notices of motion. In other words, if S&P fails on the notices of motion it reserves to itself the right to prepare evidence and dispute the facts pleaded against it which are said to found the alleged duty of care. When this is considered together with the likelihood of leave to appeal being granted to any unsuccessful party on the notices of motion, the prospect of the entire hearing (or a large part of it) miscarrying if the hearing proceeds whilst an appeal remains undetermined becomes real. This is one of the considerations underpinning the basic principle that all issues should generally be tried together, and issues for separate determination must be able to be determined on the basis of facts either agreed for all purposes or found, and not on the basis of mere assumed facts (which raises the spectre of a hypothetical determination).

23. Further, while S&P may be proved correct in asserting that it owed no duty of care to the councils, StateCover or LGFS, the apparent strength of its case is by no means such as to outweigh the real risks to the proceedings as a whole identified above. There is a real debate between the parties about S&P’s characterisation of the pleadings against it in the context of the reasoning in Esanda. For example, the councils in proceeding NSD 1073 of 2009 observe that:

The difference between this [case] and Esanda is that the plaintiffs in [Esanda] did not plead that the auditor knew that the relevant representation would be communicated to Esanda or any other finance provider with respect to the obtaining of finance or for any other purpose... By contrast, the Applicants plead that S&P knew the rating would be published to the class of prospective purchasers of the Rembrandt Notes and it would be relied upon by them in deciding whether to purchase the Notes.

24. It is also apparent that while S&P is content to assert a lack of vulnerability to harm on the part of the claimants in reliance upon the pleadings, the parties claiming against S&P in negligence are not so content. They contend that the critical issue of vulnerability can only be determined on the evidence and not merely by reference to LGFS’s function as a financial services provider. For example, the councils in proceeding NSD 1073 of 2009 submit that:

...extensive evidence from the Applicants’ witnesses... establishes that LGFS did not provide the Applicants with reliable advice about the Rembrandt product, did not disclose to the Applicants the risks associated with the Rembrandt Notes and endorsed S&P’s AAA rating of the Rembrandt Notes. If that factual assertion [i.e. lack of vulnerability to harm] is pressed by S&P, the Applicants should be entitled to read all of their affidavit evidence in chief which contradicts it. The proper time and place for that to happen is at the trial of the proceedings.

25. Despite S&P’s submission that the question of vulnerability to harm is not apt for evidentiary, as opposed to analytical, resolution, I am not satisfied that the contentions about the need for evidence can be dismissed. It is not necessary to factor in the outstanding discovery issues which have recently emerged between the parties to support this conclusion. I do not share S&P’s view that evidentiary considerations may be put to one side. Accordingly, for the assessment of the discretionary considerations relevant to the question whether the notices of motion should be determined separately and in advance of all other issues, it cannot be assumed that resolution on the pleadings alone is possible. Once this is accepted, the marginal utility which the course proposed by S&P entails is further eroded. It also becomes apparent that S&P’s estimate of time for the hearing of the notices of motion (one day) is a gross underestimate. This too undermines the submission of S&P that the notices of motion can be disposed of quickly and without delaying the progress of the proceedings. It also lends support to the relevance of the observation of the Full Court in Kowalski v MMAL Staff Superannuation Fund Pty Ltd (2009) 178 FCR 401; [2009] FCAFC 117 that:

[31] It remains a matter for a judge hearing a summary dismissal application to exercise some discretion as to whether questions of law that have been raised are so difficult that they ought not to be decided summarily.

26. S&P’s submissions about the difficulties inherent in recognition of the alleged duty of care expose the scope and significance of the dispute at the levels of both principle and fact (at least in respect of vulnerability to harm). Resolution of these issues is likely to be materially assisted by considering the claims and defences in the context of the overall relationships between the parties, rather than by isolating one aspect of those relationships for separate assessment. This conclusion is reinforced by the submission of LGFS, which I accept, that:

...although determining whether a duty of care is owed is a question of law, the decision whether a duty of care is owed usually turns wholly on findings of fact (as is required by the multi-factorial approach to determining the existence of a duty) [citing Western Districts Developments Pty Ltd v Baulkham Hills Shire Council (2009) 75 NSWLR 706; [2009] NSWCA 283 at [3]- [10] and [101]-[108]].

27. Insofar as S&P submitted that there is specific and particular utility in determining before trial whether S&P should continue to be exposed to the risk of liability for negligence, the potential advantage of avoiding the burdens of non-viable causes of action at the hearing is theoretical only. In the present case, that potential advantage to S&P is far outweighed by the prejudice to the orderly and efficient conduct of the overall proceedings which is likely to be occasioned if I hear and determine the motions in advance of and separately from the remainder of the proceedings.
28. In Tepko Pty Limited v Water Board (2001) 206 CLR 1; [2001] HCA 19 at [170], Kirby and Callinan JJ stated that “single-issue trials should... only be embarked upon when their utility, economy, and fairness to the parties are beyond question”. This statement applies equally to the separation of particular claims from an overall proceeding by way of the hearing of a motion for summary dismissal. In the present case, the “utility, economy, and fairness” of the course S&P proposes to all parties is neither “beyond question” nor, indeed, apparent at all. The course of action, on the analysis above, has no real utility, will not promote any greater economy (and to the contrary creates a real risk of increased time and costs for all), and thus would be unfair to the other parties who have obtained a hearing date and will make themselves ready for trial in an orderly manner on the expectation that all issues will be resolved (at first instance at least) together in the ordinary course.
29. For these reasons I propose to adjourn the notices of motion for mention on the first day of the hearing, being 4 October 2011. I recognise that this is equivalent of not determining the notices of motion at all, but that is the necessary and appropriate course in all of the circumstances. Alternatively, the notices of motion may be dismissed.

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

Associate:

Dated: 1 April 2011