Barunga Village Inc v SMEC Australia Pty Ltd

[2015] SADC 160

District Court of South Australia

(Civil: Interlocutory Application)

BARUNGA VILLAGE INC v SMEC AUSTRALIA PTY LTD

[2015] SADC 160

Ruling of His Honour Judge Slattery (ex tempore)

30 October 2015

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - DISCHARGE BY AGREEMENT - NOVATION

Plaintiff is the owner and developer of a retirement village project in rural South Australia. Unitl 1 November 2008 Dare Sutton Clarke Pty Ltd (DSC) provided engineering services to the project. Prior to that date DSC assigned to SMEC Australia Pty Ltd the contract between DSC and the plaintiff. After 1 November 2008 the defendant trading as SMEC-DSC provided the same engineering services and reported to the plaintiff in the same way under the same formal arrangements.

The development has been damaged by inter alia subsidence and associated issues. The plaintiff alleges breaches by the builder and the engineer DSC are a cause of the loss suffered by it consequent upon such damage. DSC has been deregistered; the builder is in liquidation.

In its first 7 filed or proposed Statements of Claim the plaintiff pleads causes of action against SMEC for breach of duty and contract arising from the conduct of DSC prior to 1 November 2008.

Defendants application under Rule 232 for summary judgment. Plaintiff seeks leave to file a fresh Statement of Claim in the form of its third draft Fifth Statement of Claim: this draft includes a plea of novation. That plea had been included in earlier drafts of the plaintiff's pleadings but had been abandoned.

During the hearing the plaintiff abandoned its breach of duty claim against SMEC arising out of conduct of DSC prior to 31 October 2008.

Held:

1. Leave to the plaintiff to file an amended version of its third draft Fifth Statement of Claim as its pleading.

2. The application of SMEC for orders under Rule 232 of the District Court Rules 2006 is refused.

3. Observations about the operation of Rule 232 and novation in contract.

4. SMEC is entitled to particular costs orders because of the conduct of the plaintiff.

District Court Rules 2006 Rule 232, referred to.
Ampol Petroleum Queensland Pty Ltd v Champ [1955] QWN 83; New Zealand Loan and Mercantile Agency Co v Taylor [1955] QWN 68; Allen v Healton  [1942] St R Qd; Trinity Enterprises Pty Ltd v Drum Services (WA) Pty Ltd (1992) 7 WAR 587; Gemmell v Gemmell  (SASC Lagoe J No. 1402 4 April 1989); West Cost Transport Pty Ltd v Adams Groups Services Pty Ltd (2001) 10 Tas R 264; Olsson v Dyson (1969) 120 CLR 365; Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 ; Spencer Constructions Pty Ltd v G and M Aldridge Pty Ltd (1997) 76 FCR 452; Re United Railways of the Havana v Regla Warehouses Limited [1960] 1 Ch 52 ; Redman v Permanent Trustee Company of New South Wales Limited (1916) 22 CLR 84 ; Norman v FCT (1963) 109 CLR 9; Credit Lyonnais Australia Limited v Darling (1991) 5 ACSR 705; King v David Allen and Sons, Bill Posting Limited [1916] AC 54; Caltex Limited v FCT (1960) 106 CLR 205; Mulcahy v Hoyne  (1925) 36 CLR ; Sydney Corporation v West (1965) 114 CLR 481 ; Vickery v Woods (1952) 85 CLR 336 ; Dudley Buildings Pty Ltd v Rose (1933) 49 CLR 84 ; Williams v Frayne (1937) 58 CLR 710 ; Rohrlach v Christianos (1980) 26 SASR 161 (affirmed (1981) 55 ALJR 681); Immer (No. 145) Pty Ltd v The Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26; George v Roach (1942) 67 CLR 253 ; Fitzgerald v Masters (1956) 95 CLR 420 ; Re Douglas [1930] 1 Ch 342 ; Chatsworth Investments Limited v Cussins (Contractors) Limited  [1969] 1 WR 1; Lakatoi Universal Pty Ltd v L A Walker; Ensile Pty Ltd v Walker Consolidated Investments [2000] NSWSC 113 ; Alpine Beef Pty Ltd v Trycill Pty Ltd [2010] FCA 136 , applied.
Settlement Wine Co Pty Ltd v National & General Insurance Co Ltd (1988) 146 LSJS 150 ; Benefit Strategies Group Inc v Prider [2005] SASC 194; Proude v Visic (No 4) [2013] SASC 154 ; Three Rivers District Council v Bank of England [No 3] [2003] 2 AC 1 ; South Australian Farmers Fuels Pty Ltd v Whittingham [2008] SASC 211, discussed.
Ceneavenue Pty Ltd v Martin (2008) 106 SASR 1; Davies v The Minister for Urban Development and Planning (2011) 109 SASR 518; Batistatos v Roads and Traffic Authority New South Wales (2006) 226 CLR 256; Spencer v The Commonwealth (2010) 241 CLR 118; JT Nominees Pty Ltd v Macks (2007) 97 SASR 471 ; Tschirn and Anor. v Australian Executor Trustees Limited [2015] SASC 58; Boston Commercial Services Pty Ltd v GE Capital Finance A/asia Pty Ltd (2006) 236 ALR 720; [2006] FCA 1352 ; Williams v Reid [2010] SASC 264; Vivid Entertainment LLC v Digital Sinema Australia Pty Ltd (2007) 209 FLR 212; Tranquillity Pools and Spas Pty Ltd v Huntsman Chemical Co Australia Pty Ltd [2011] NSWSC 75 ; Hillam v Iacullo [2015] NSWCA 196; Better Sprinkler Systems Pty Ltd v George Koussidis [1999] SASC 191 , considered.

BARUNGA VILLAGE INC v SMEC AUSTRALIA PTY LTD
[2015] SADC 160

JUDGE SLATTERY

1. Interlocutory application of the second defendant SMEC Australia Pty Ltd dated 28 October 2015 for an order pursuant to Rule 232 of the District Court Rules that the court give summary judgment for the second defendant on the whole of the plaintiff's claim against the second defendant as that claim is set forth in the fourth statement of claim.

2. The success or otherwise of that application is connected to and is interdependent with any decision that I make about whether or not the plaintiff should have leave to file as its pleading a draft document which is currently described as the third draft fifth statement of claim.

3. Notwithstanding the content of the interlocutory application of the second defendant and the reference therein to the fourth statement of claim, the way the matter proceeded revolved around the content of the third draft fifth statement of claim.

4. This matter first came before me on 30 July 2015 for a Directions Hearing. On that date, Counsel for the defendant Mr Ross-Smith tendered for consideration a second proposed draft of the fifth Statement of Claim which was intended to include pleadings about particular works as disclosed on a plan delivered by the plaintiff that day. The Directions Hearing was adjourned for argument to Monday 17 August 2015. There was liberty to apply. The questions arising on the argument to occur on 17 August 2015 depended upon the content of the proposed second draft of the fifth Statement of Claim of the plaintiff. Counsel appearing for the defendant, Mr Goodall made it clear on that occasion that the defendant made a fundamental challenge to the pleadings of the plaintiff.

5. The plaintiff is a registered proprietor of land at Port Broughton. It is an incorporated association involved in provision of a retirement village and other services in a reasonably remote part of rural South Australia. The first defendant, McCracken, was a builder and the second defendant, SMEC is a corporation carrying on business as a structural and civil engineering firm. On or about 30 September 2008, SMEC purchased the business of Dare Sutton Clarke Pty Ltd, Engineers. Prior to that date, Dare Sutton Clarke (DSC) had provided structural and civil engineering services to the building works being constructed for the plaintiff on the property by McCracken. The building was for a retirement village. There were a number of contracts and stages of works. As a result of alleged breaches of contract and duties, the plaintiff alleges that it has suffered loss and damages and seeks remedies against SMEC and against McCracken. McCracken has now been placed in liquidation.

6. In its fourth Statement of Claim at paragraph 74 et seq, the plaintiff pleads material facts and causes of action against SMEC. At paragraph 77, the plaintiff pleads that from 1 October 2008 SMEC assumed (there is no particularity to disclose what ‘assumes’ means here) DSC’s role in the building works and then pleads that SMEC breached its engineering contract and a duty of care as a consequence of which the plaintiff has suffered loss and damage. In the alternative, the plaintiff then pleads a further cause of action against SMEC for breach of contract and breach of duty.

7. The plaintiff pleads at paragraph 82 that SMEC knew or ought to have known that if the engineering services were not performed with all reasonable care, skill, diligence and competence so as to ensure that the building works were performed in accordance with the contract specifications then the plaintiff would suffer loss and damage. The plaintiff alleges that SMEC had breached its duty of care and also pleads that SMEC is responsible for the breaches of duty alleged against DSC, the entity from which it had purchased the engineering business. It was on the basis of that form of pleadings that Mr Goodall announced SMEC’s challenge.

8. Following the hearing before me on 30 July 2015 and on 13 August 2015 the plaintiff delivered to the defendant SMEC its second proposed fifth Statement of Claim. On 14 August 2015, the defendant brought an application pursuant to Rule 232 of the Rules that the Court give summary judgment for the second defendant on the whole of the plaintiff’s claim. That application was made on the basis of the pleadings in the fourth Statement of Claim. The defendant supported the application with written submissions delivered on 14 August 2015. In the written submissions, SMEC identifies the basis of the plaintiff’s pleaded case and it contends that the plaintiff’s position is that following SMEC’s acquisition of DSC’s business, that contractual and tortious duties owed by the legal entity DSC which was now de-registered became duties owed by SMEC and breaches by DSC of its duties became breaches of duties by SMEC. SMEC contended that such a case was legally misconceived. SMEC also contended that no such claim based in contract has any reasonable basis of success and no such claim based in tort has any reasonable basis of success and the power of the Court under Rule 232 of the Rules is attracted.

9. The matter came before me on Monday 17 August 2015. Mr Ross-Smith appeared for the plaintiff and Mr Cheney SC appeared for SMEC. Mr Ross-Smith addressed the submissions of the defendant SMEC as set out in the written submissions in the application. He submitted that the plaintiff wished to maintain its claim both in relation to all breaches of duty by SMEC (including in relation to the failures of DSC, its predecessor) and also all breaches of contract on the same basis. Implicitly Mr Ross-Smith accepted that in light of SMEC’s criticisms further pleadings would have to be brought into Court and further leave sought.

10. At that time, Mr Cheney SC submitted[1] that no particular application had been brought in relation to the proposed new pleading, rather the application was based upon the existing pleadings because none of the further pleading corrected the deficiency which the defendant SMEC submitted “bedevilled” the fourth Statement of Claim.[2] After discussion in the Court, the plaintiff sought leave to file a further Statement of Claim to address the attack of the defendant SMEC upon its existing pleading and proposed pleading. At that time, I questioned Mr Ross-Smith about the nature of the claim in contract made against the defendant SMEC. The issues I raised were matters of privity of contract and the legal basis in contract said to be at the foundation of the plaintiff’s claim about SMEC in contract. I questioned Mr Ross-Smith as to how the alleged contractual liability arises whether by some form of estoppel or novation.[3] Mr Ross-Smith agreed with that proposition but also conceded that there was no pleading of novation, in any form, in the current pleadings.

    [1]    T5.20 et seq.

    [2]    T5.25.

    [3]    T7.30-33.

11. There had previously been a pleading of novation earlier but it had been excluded. This occurred at the time that the learned Master had management of the file. It also followed a formal concession being made by the plaintiff’s solicitors that at no time had specific consent being given by the plaintiff to a novation of the engineering contract formerly performed by DSC and apparently now allegedly performed by SMEC. It is not apparent to me why such a concession was made or in what context. There are many circumstances where a Court is asked to make a finding of a novation absent any specific consent being given by one of the parties to the novation; the consent occurring implicitly. When dealing with aspects of novation, and when dealing with a novation which is to be inferred as a matter of fact, it is not necessarily always the case that there will be a manifestation of a formal acceptance to the novation by one of the parties to the novated agreement. Any absence of such a formal step is not fatal to any argument on novation. Similarly, any concession by the solicitors that there was no formal acceptance of the novation is not fatal to a novation argument.

12. At the end of the argument on 17 August 2015, Mr Ross-Smith sought leave to file a further pleading. I gave him that leave. I reserved questions of costs. The matter was adjourned for hearing to Friday 30 October 2015 at 10.00am. The plaintiff then sought leave to file a Statement of Claim in the form of the third draft fifth Statement of Claim. SMEC maintained its attack on that or any other similar form of pleading of the plaintiff.

13. Rule 232 of the District Court Rules reads as follows:-

    232—Summary judgment

    (1) The Court may, on application by a party, give summary judgment for that party.

    (2) Summary judgment may only be given if the Court is satisfied that—

    (a) if the applicant is a plaintiff—there is no reasonable basis for defending the applicant's claim; or

    (b) if the applicant is a defendant—there is no reasonable basis for the claim against the applicant.

14. The most recent Full Court authority on the meaning of Rule 25.04[4] of the former Rules are the decisions of the Full Court in Settlement Wine Co Pty Ltd v National & General Insurance Co Ltd (1988) 146 LSJS 150 and Benefit Strategies Group Inc v Prider [2005] SASC 194. That rule has now been replaced by Rule 232 and the most recent Full Court decision on the meaning of that Rule is Ceneavenue Pty Ltd v Martin (2008) 106 SASR 1.

    [4] 25.04

15. One of the contentious matters before the Full Court in Ceneavenue was about the meaning of and the test to be applied in relation to an application under Rule 232 and whether and to what extent the tests under Rule 232 were different than under Rule 25.04. The most recent decision on that topic is the decision of Bleby J in Davies v The Minister for Urban Development and Planning (2011) 109 SASR 518. His Honour discusses this question at para.[36] and following. At para.[38] his Honour referred to s.31A(2)[5] of the Federal Court Act and the relevant discussions about the operation of that section in the decision of Batistatos v Roads and Traffic Authority New South Wales (2006) 226 CLR 256. In Davies at para.[39] Bleby J also referred to the joint judgment of Hayne, Crennan, Keifel, Bell JJ on the tests applicable under that same section in Spencer v The Commonwealth (2010) 241 CLR 118. At paras.[51]-[52] their Honours held as follows:-

    [51] First, the central idea about which the provisions pivot is “no reasonable prospect” (emphasis added). The choice of the word “reasonable” is important. If s 31A is to be seen as deriving from r 24.2 of the Civil Procedure Rules 1998 of England and Wales, its provisions underwent an important change in the course of their translation from that jurisdiction to this. The English rule speaks of “no real prospect”; s 31A speaks of “no reasonable prospect”. The two phrases convey very different meanings.

    [52] Secondly, effect must be given to the negative admonition in sub-s (3) that a defence, a proceeding, or a part of a proceeding may be found to have no reasonable prospect of successful prosecution even if it cannot be said that it is “hopeless” or “bound to fail”. It will be necessary to examine further the notion of “no reasonable prospect”.

    But before undertaking that task, it is important to begin by recognising that the combined effect of sub-ss (2) and (3) is that the inquiry required in this case is whether there is a “reasonable” prospect of prosecuting the proceeding, not an inquiry directed to whether a certain and concluded determination could be made that the proceeding would necessarily fail.

    [5](2)    The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:

16. In Davies at para.[40] Bleby J further considered the decision of the plurality in Spencer and concluded that the test to be applied under the Federal Court Act which his Honour found was not materially different to Rule 232, was based upon a lower threshold than had been adopted by French CJ and Gummow J in Spencer. French CJ and Gummow J were in the minority.

17. Part of the controversy being dealt with by Bleby J in Davies was that his Honour had expressed a view about the operation of Rule 232 in his Honour’s decision in JT Nominees Pty Ltd v Macks.[6] In the Ceneavenue decision, the Full Court decided that even though the barrier to summary judgment had been lowered, the test enunciated by the High Court in Fancourt v Mercantile Credits Limited[7] that a party was entitled to summary judgment if it could satisfy the Court that there was no real question to be tried still had application notwithstanding the changed content of the wording of the Rules. In Ceneavenue, the Full Court held that, to the extent that the decision of Bleby J in Macks v Tucker was inconsistent with their decision in Ceneavenue, then it should not be followed. At paragraphs [93]-[94] of the decision in Ceneavenue, Debelle J held as follows:-

    [93] In JT Nominees Pty Ltd v Macks (at [40]-[89]), Bleby J considered the meaning and operation of para (b) of r 232(2). In doing so he also examined the earlier procedures for summary judgment including the application for immediate relief. He concluded (at [86]) that para (b) represents a substantial relaxation of the test that had been prescribed by r 25.04 of the 1987 Rules. I respectfully agree for the reasons expressed above, reasons which differ slightly from those of Bleby J.

    [94] His Honour also held (at [87]) that when applying the test in para (b) “the court will be guided by similar considerations that have guided the operation of Rule 25.02 of the 1987 Rules”. I respectfully disagree with that conclusion.

    First, there is now a separate procedure in r 119 which deals with applications for urgent or immediate relief. It is to be noted that Bleby J did not at any time refer to r 119 in his reasons in JT Nominees Pty Ltd v Macks. Secondly, as is apparent from the reasons above, r 25.04 was a new rule which prescribed its own test. While r 25.04 might ultimately be traced to O 10 of the 1947 Rules, it must be recognised that r 25.04 was a new rule with its own test. All that para (b) of r 232(2) does is substitute a new test different from the test that had hitherto existed. Paragraph (b) was not intended to invoke the considerations that guided applications for urgent or immediate relief. It is also implicit in the reasoning of Bleby J in JT Nominees Pty Ltd v Macks that para (a) of r 232(2) will, like para (b) of that rule, be guided by the considerations that have guided the operation of r 25.02 of the 1987 Rules. That last conclusion is reinforced by an examination of Bleby J’s reasons on this application for summary judgment.

    In [38] of his reasons he has considered factors which apply on an application for immediate relief. For the reasons expressed above, I respectfully disagree.

    The only question to be considered is whether there is a real question to be tried and whether that question has reasonable as distinct from fanciful prospects of success. Once the court concludes that there are reasonable prospects of success, it must dismiss the application for summary judgment.

    [6] (2007) 97 SASR 471 at [61].

    [7] (1983) 154 CLR 87.

1. The appeal in Ceneavenue was from a decision of Bleby J who, at first instance, made an order for summary judgment. The Appeal Court concluded that there were reasonable prospects for success of the action and the application for summary judgment should be dismissed. The Full Court allowed the appeal. In Davies Bleby J held that to the extent that the approach of the plurality in Spencer v The Commonwealth was inconsistent with the judgment of the Full Court in Ceneavenue, his Honour felt himself bound by the decision of the plurality in Spencer. The question does not seem to have been considered at the appellate level since that time.

2. There have been a number of first instance decisions on the topic since the decision of Bleby J in Davies. In Tschirn and Anor. v Australian Executor Trustees Limited,[8] Parker J gave consideration to an appeal from a decision of a Master dismissing an interlocutory application for summary judgment. At paragraphs [39]-[44], Parker J held as follows:-

   [8] [2015] SASC 58.

   Summary judgment under Rule 232

   [39] There was little dispute between the parties about the basis upon which summary judgment may be granted under Rule 232. 

   [40] In Ceneavenue Pty Ltd v Martin,[9] Debelle J held that Rule 232(2) requires the court to identify the issues to be tried and then to assess whether the claim has reasonable prospects of success.  The question whether there is no reasonable basis for the claim must be determined in a summary way and the court is not to conduct a mini trial on that question.[10] 

   [9] [2008] SASC 158 at [81]; (2008) 106 SASR 1 at 21.

   [10] Ibid at 21 [82].

   It must be evident or obvious that there is no reasonable basis for the plaintiff’s claim, and the question must be capable of resolution without prolonged argument.[11]

   [11] Ibid.

   [41] Those principles were applied in Proude v Visic (No 4)[12]where Blue J considered the meaning of the expression “no reasonable basis for the claim” and held that no gloss should be placed upon that expression.[13]  His Honour referred to Spencer v Commonwealth, where Hayne, Crennan, Kiefel and Bell JJ held that the phrase “no reasonable prospect” ought not be paraphrased or subject to contrast with other expressions.  It was necessary to give full weight to the expression as a whole. Their Honours also noted that  the power to dismiss an action summarily is not to be exercised lightly. [14]

   [42] In Spencer v Commonwealth, French CJ and Gummow J held that the task is one of “practical judgment”.[15]  Relevantly to this appeal, their Honours said:[16]

   That may be a judgment of law or of fact, or of mixed law and fact.  Where there are factual issues capable of being disputed and in dispute, summary dismissal should not be awarded to the respondent simply because the Court has formed the view that the applicant is unlikely to succeed on the factual issue.  Where the success of a proceeding depends upon propositions of law apparently precluded by existing authority, that may not always be the end of the matter.  Existing authority may be overruled, qualified or further explained.  Summary processes must not be used to stultify the development of the law.  But where the success of proceedings is critically dependent upon a proposition of law which would contradict a binding decision of this Court, the court hearing the application under s 31A could justifiably conclude that the proceedings had no reasonable prospect of success.

   [43] French CJ and Gummow J considered the following passage of Lord Hope in Three Rivers District Council v Bank of England [No 3] to be particularly relevant where a case involves apparently complex questions of fact: [17]

   The method by which issues of fact are tried in our courts is well settled.  After the normal processes of discovery and interrogatories have been completed, the parties are allowed to lead their evidence so that the trial judge can determine where the truth lies in the light of that evidence.  To that rule there are some well-recognised exceptions.  For example, it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks.  In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of court as soon as possible.  In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance.  It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based.  The simpler the case the easier it is likely to be to take that view and resort to what is properly called summary judgment.  But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents without discovery and without oral evidence.  As Lord Woolf said in Swain v Hillman, … that is not the object of the rule.  It is designed to deal with cases that are not fit for trial at all.

   [44] The principles referred to in Spencer v Commonwealth must be applied in the present case.

   [12] [2013] SASC 154 at [14], [18]; (2013) 117 SASR 560 at 563 – 564, 566.

   [13] Ibid at 565 – 566 [17] – [18].

   [14] [2010] HCA 28 at [58] – [60]; (2010) 241 CLR 118 at 141.

   [15] Ibid at 132 [25].

   [16] Ibid.

   [17] Ibid at 130 [21], 132 [26]; Three Rivers District Council v Bank of England [No 3] [2003] 2 AC 1 at 260 [94] – [95].

3. A number of things are to be noted. In Tschirn, Parker J does not refer to the decision of Bleby J in Davies; there is reference to the decision of French CJ and Gummow J in Spencer and their Honours differed from the plurality in relation to the meaning of “no reasonable prospect” in s31A of the Federal Courts Act; and Parker J favoured the approach of Debelle J in Ceneavenue that Rule 232(2) requires the Court to identify issues to be tried and whether the claim has reasonable prospects of success. Insofar as there are any differences in approach, it is unnecessary that I attempt to resolve those differences here. I think that the proper approach for me to take in this matter is to have regard to the decision of Bleby J in Davies, the decision of the Full Court in Ceneavenue, the decision of Parker J in Tschirn and the decision of Blue J in Proude in the context of the decision of the plurality in Spencer.

4. At para.[44] of his judgment in Davies, Bleby J said as follows:-

   [44] Nevertheless, as the plurality in Spencer observed,[18] the power to dismiss an action summarily is not to be exercised lightly. The court must be cautious not to do a party an injustice by summarily dismissing the proceedings where, for example, contested evidence might reasonably be believed one way or the other so as to enable one side or the other to succeed.[19] However, what amounts to no reasonable basis will ultimately be decided through a succession of decided cases.[20]

   [18] (2010) 241 CLR 118; [2010] HCA 28 at [60].

   [19]   Boston Commercial Services Pty Ltd v GE Capital Finance A/asia Pty Ltd (2006) 236 ALR 720; [2006] FCA 1352 at [45], per Rares J.

   [20]   Spencer v Commonwealth (2010) 241 CLR 118; [2010] HCA 28 at [60].

5. I am not required to determine that this proceeding will necessarily fail. The Orders sought by the defendant may only be granted in the clearest of cases.[21] It is not necessary for me to undertake a predictive assessment of the prospects of success of a plaintiff’s claim. The issue is whether or not I am able to determine whether the claim is reasonably arguable.[22] The focus is upon the plaintiff’s claim as presently pleaded but that must now be considered in the light of the plaintiff’s proposed new pleadings.[23] That claim now contended for by the plaintiff is to be found in the third draft fifth Statement of Claim.

   [21]   Spencer v Commonwealth; Williams v Reid [2010] SASC 264.

   [22]   Boston Commercial Services Pty Ltd v GE Finance Australasia Pty Ltd (2006) 236 ALR 720; Vivid Entertainment LLC v Digital Sinema Australia Pty Ltd (2007) 209 FLR 212.

   [23]   Proude v Visic (No. 4) [2013] SASC 154.

6. It became clear in earlier appearances and in the argument before me that SMEC does not generally challenge the factual basis of the plaintiff’s claim. Rather SMEC contends that there is no reasonable basis for the claim brought against it. This contention initially was based upon the allegations in the plaintiff’s pleading taken at its highest without the need to refer to any affidavit material. This presupposes that any factual issues capable of being disputed are to be resolved in favour of the plaintiff or alternatively there are no such issues. SMEC later read into evidence some affidavit material.

7. On 28 October 2015 the defendant SMEC issued an Interlocutory Application in the following terms:

   TO THE PLAINTIFF: Barunga Village Incorporated

   Application

   The Second Defendant, SMEC (Australia) Pty Ltd, applies for the following orders:-

   1.   That the Second Defendant have permission to file this Interlocutory Application in Court on 30 October 2015 and that it be returnable instanter.

   2.   That pursuant to Rule 232 of the District Court Rules 2006 (SA), the Court gives summary judgment for the Second Defendant on the whole of the Plaintiff’s claim against the Second Defendant as that claim is set forth in the Fourth Statement of Claim filed 20 March 2015.

   3.   That the plaintiff pay the Second Defendant’s costs of the proceedings, such costs to include the Second Defendant’s costs of and incidental to:

   a.       The directions hearing on 21 May 2014, 28 October 2014, 25 November 2014, 11 February 2015, 30 July 2015 and 17 August 2015;

   b.   Applications FDN31 dated 30 June 2014, FDN34 dated 13 October 2014, FDN37 dated 21 November 2014 and this application;

   4.   That the Second Defendants costs referred to in order 3 above be assessed and payable forthwith.

   5.   The hearing set for 10 business days commencing 3 December 2015 be vacated.

8. The defendant SMEC filed further written submissions in support of its application for summary judgment. Those written submissions were similar to but not identical with the earlier submissions in support of the defendant SMEC’s summary judgment application that was before me on 17 August 2015.

9. Paragraph 2 of the defendant’s interlocutory application does discern between the particular versions of pleadings of the plaintiff. It asks for summary judgment for the second defendant SMEC on the whole of the plaintiff’s claim against the second defendant as that claim is set forth in the fourth Statement of Claim filed 20 March 2015. It is apparent from the foregoing, that on the 17 August 2015, the plaintiff sought to produce to the Court a pleading which addressed the earlier made criticisms of the defendant of the second proposed fifth Statement of Claim. Mr Cheney SC submitted on 17 August 2015 that the application of the defendant in all respects is the same: that the plaintiff’s pleading discloses no reasonable basis for a claim against the defendant (Rule 232(2)(b)). Although the interlocutory application of the defendant addressed the fourth Statement of Claim, the evolution of the argument before me focussed upon the third draft fifth Statement of Claim produced following my Orders of 17 August 2015.

10. In that proposed version, the pleadings in relation to the contractual works undertaken by the builder McCracken are largely the same as are the complaints about the breaches of the builder, the pleadings in relation to the engineering contract with DSC, the discovery of damage and the allegations of responsibility for that damage. At paragraph 42 the plaintiff continues to make a claim against DSC/SMEC for breach of contract and duty of care. In its submissions, the defendant does not challenge the ability of the plaintiff to make a claim against SMEC based in contract and in duty of care following the period commencing 1 October 2008. That date is significant on SMEC’s argument because it is the date upon which the contract made between SMEC and DSC for the purchase of the business of DSC came into effect. Prior to that date, SMEC claims that it had no connection to any engineering works concerning the plaintiff under any contract executed by the plaintiff. It points to its contract with DSC. Before 1 November 2008 all engineering services connected with the village were supplied by DSC. To the extent that the pleading in the new further proposed pleading from paragraph 42 onwards purports to allege against SMEC some breach of contract or breach of duty of care arising prior to that date, then a challenge is made by SMEC to that pleading.

11. At paragraph 48 of the third draft fifth Statement of Claim, the plaintiff pleads a novation of the engineering contract from the relationship between the plaintiff and DSC to a relationship between the plaintiff and SMEC under the same contractual terms. It alleges that between 1 September 2008 and 15 October 2008, the engineering contract previously existing between the plaintiff and DSC was novated to a contract between the plaintiff and SMEC then trading as DSC-SMEC. The particulars pleaded are that there was, in effect, a seamless transition between the plaintiff and DSC and the plaintiff and DSC-SMEC in relation to the engineering services provided under the existing DSC contract. DSC-SMEC continued to render invoices in exactly the same form as DSC had previously done and in the same chronological and numbering sequence. Engineers certificates were issued by DSC-SMEC in exactly the same form and numbering sequence as had been rendered by DSC. The same personnel continued to provide the services. The invoices that were provided by DSC-SMEC were rendered according to the same arrangements as were in place pursuant to the engineering contract with DSC. These invoices showed an approved contract sum, an approved budget, total invoices to date, less amounts previously invoiced and the amount of this invoice so that, it is said, DSC-SMEC assumed DSC’s role in or about the provision of the services under the engineering contract. It is unclear at the moment what the use of the expression “assumed” in this pleading actually means but it is unnecessary at this juncture to resolve that issue. The plaintiff alleges that no information was provided by DSC-SMEC or DSC to the plaintiff about any change in arrangements apart from some information given which I will refer to later in this judgment. There was no information directly given to the plaintiff.

12. The plaintiff sought to read affidavits from two deponents Mr Kralj and Ms Coffey.  Ms M Coffey, the business manager of the plaintiff swore two affidavits of 10 September 2015 and 10 November 2011. Mr P Kralj was the project manager for Cost Management Partnership which provided cost management services in respect of the construction of the village by the plaintiff. Mr Kralj had been involved in the process of engaging builders, engineers and consultants for construction of the village. SMEC raised a number of objections to the content of these affidavits. I have largely accepted the submissions of SMEC. The comments that I make about the affidavits hereafter are made in the context that I have largely accepted those criticisms as to relevance, admissibility or both.

13. Mr Kralj informed the Court that in September 2008 and partway through the Stage 3 works on the retirement village, SMEC Australia took over DSC. There is no evidence that SMEC Australia Pty Ltd took over DSC, rather, the evidence is that SMEC purchased the business of DSC. Mr Kralj then said to the best of his recollection he received a form of circular letter from DSC in relation to the “merger” of DSC with SMEC but he is unable to locate a copy of the documents. The form of expression “merger” is in error. A challenge was made to the use of that expression. There was no merger of DSC with SMEC. I accept that submission.

14. Mr Kralj then addressed the certification letter sent from DSC-SMEC to the plaintiff in relation to the work done of the village. He confirmed that the same engineers were employed in the work and that the process of rendering invoices was the same. Mr Kralj was unaware whether any of DSC or SMEC sought the formal consent of Barunga Village in respect of the changeover of professional services. Paragraph 12 of the affidavit sets out an assumption made by Mr Kralj. That paragraph is not in evidence before me.

15. I will also consider the content of the affidavits of Ms Coffey later in these reasons. Apart from some objections to content, the approach of SMEC was to rely upon its cross examination of Ms Coffey in and of its challenge to the existing pleading or the proposed pleading. That attack centred largely around the novation pleading and its consequence. Before dealing with the evidence of Ms Coffey, it is appropriate that I set out in some detail the plaintiff’s proposed pleadings in this regard. Some matters that are the subject of the objections of SMEC were dealt with by concession from the plaintiff.

16. At paragraph 49 et seq. of the third draft fifth Statement of Claim, the plaintiff pleads the contractual obligations derived from the fact of novation. The plaintiff pleads that SMEC were bound by the terms of the engineering contract in place of DSC and were required to administer the qualitative elements of the works in order to achieve completion of the project in accordance with the requirements of the contract.

17. At paragraph 50, the plaintiff pleads a duty of care derived from novation. I am not prepared to accept that pleading. The question of whether or not there is a reasonable basis for the claim against SMEC turns in this matter largely upon two issues and in the end only one. The first issue concerned the inclusion within the proposed pleading of a claim of duty of care as against SMEC arising before SMEC became involved in the relevant contract which I will later explain. The second revolved around a plea of novation of an engineering contract.

18. In the course of argument, the plaintiff abandoned the duty of care plea. The plaintiff did not abandon and the defendant SMEC did not criticise the plaintiff’s duty of care plea in relation to events happening after October 2008. The abandonment by the plaintiff of the duty of care plea about events prior to 31 October 2008 was appropriate; the plea was unsustainable at law. The duty of care plea now only subsists in para.51 and following of the draft pleading.

19. The application of the defendant ultimately revolved around para.48 of the proposed pleading. It reads as follows:-

    48. Further between 1 September 2008 and 15 October 2008 the Engineering Contract was novated from DSC to SMEC (the novation) particulars of the events material to the Novation (the Change-Over Events) being as follows, namely;

    48.1 On 1 September 2008 DSC issued a certificate in respect of the building works carried out in the month of August 2008;

    48.2 On 15 October 2008 SMEC trading as DSC-SMEC issued a certificate in respect of the building works carried out in the month of September 2008;

    48.3 SMEC issued certificates monthly until completion of the Project;

    48.4 On 1 October 2008 SMEC registered the trading name DSC-SMEC;

    48.5 Post 15 October 2008 the business name still contained the letters ‘DSC’;

    48.6 John Sutton whom was engaged by DSC in respect of the provision of the Services to the Project continued to provide the Services in respect of the Project;

    48.7 Mike Dare whom was engaged by DSC in respect of the provision of the Services to the Project continued to provide the Services in respect of the Project;

    48.8 The Invoices for the provision of the Services provided pursuant to the Engineering Contract continued to be rendered by SMEC according to the same fee arrangement as was in place pursuant to the Engineering Contract and in the same format as had been rendered by DSC showing;

    48.8.1 approved contract sum;

    48.8.2 approved budget;

    48.8.3 total invoice to date;

    48.8.4 less previously invoiced;

    48.8.5 this invoice;

    48.8.6 consecutive numbering of invoice attachments.

    48.9 SMEC assumed DSC’s role in or about the provision of the Services provided pursuant to the Engineering Contract;

    48.10 On 9 October 2008 DSC resolved to change its company name to Dare Sutton Clarke Pty Ltd to CAN 008 036 940 Pty Ltd;

    48.11 There was no change in the method or type of communication between Barunga Village and SMEC from the previous communications occurring between the Barunga Village and DSC;

    48.12 There was no communication from either smack [sic] or DSC that there was any change to the previous contractual arrangements constituting the Engineering Contract.

1. In support of the application SMEC filed detailed submissions and read the affidavit of Mr Maciej Getta sworn on a date unknown but annexed to an affidavit of Nicholas Gerard McCabe solicitor sworn 28 October 2015. The affidavit of Mr Getta annexes a number of documents. The first is a chronology. The second is the third Statement of Claim in which the plaintiff pleaded novation but later abandoned that pleading. Next is the business acquisition agreement between the vendor Dare Sutton Clarke Pty Ltd and the purchaser SMEC Australia Pty Ltd. This is the contract under which SMEC purchased the business of DSC. It is necessary to have some regard to the context of that agreement.

2. Under paragraph 5 of the agreement, DSC sells to SMEC all of its plant and equipment, the benefit of all of its contracts, the benefit of all of its leasehold property, plant leases, work in progress, receivables and any intellectual property free from any encumbrance. Under Clause 20 of the agreement, there is an obligation upon the parties to send letters to each of the counterparties to the agreements for the supply of professional services. The letter proposed by the agreement to be sent by DSC, reads in part as follows:-

   'As of the above date all current contracts and consultancy agreements have been assigned to and for completion by SMEC Australia Pty Ltd. We understand that in some instances the assignment of contracts requires the client's consent. We seek your consent to this action where appropriate.'

3. The letter proposed to be sent by SMEC Australia reads, in part, as follows:-

   'Further to recent correspondence from Dare Sutton Clarke we are pleased to advise that SMEC Australia Pty Ltd has acquired the operating business of Dare Sutton Clarke.

   …

   SMEC Australia Pty Ltd is expected to commence trading on 1 October 2008. As part of this business purchase, all current Dare Sutton Clarke client projects have been assigned to SMEC Australia Pty Ltd.

   We will contact you in the very near future to discuss the transition process and confirm our ongoing commitment to the delivery of your project(s)’

4. Both of the draft letters agreed to be sent to clients by DSC and SMEC are enclosed within Annexure A to the business contract. The balance of the affidavit exhibits transcript and correspondence passing between solicitors which is relevant to the question of costs.

5. I have earlier mentioned that Mr Cheney SC took objection to some of the content of the earlier affidavit of Ms Coffey. I acceded to the criticisms of SMEC about the content of that affidavit but I was also of the view that this affidavit was essential in this matter. Mr Cheney SC sought leave to cross examine on the affidavits of Ms Coffey read by the plaintiff. In my view, cross examination on affidavits in these types of matters is permitted under Rule 165 of the Rules. I am aware of authorities which indicate that it would be rarely, if ever the case that there should be cross examination on affidavits in an application of this nature. I am also aware that there are differing approaches to this issue in different jurisdictions. I permitted cross examination on the affidavit but I was mindful that the cross examination should be limited so as to prevent the matter becoming a trial of the action.[24]

   [24]   Ampol Petroleum Queensland Pty Ltd v Champ [1955] QWN 83; New Zealand Loan and Mercantile Agency Co v Taylor [1955] QWN 68; Allen v Healton [1942] St R Qd; Trinity Enterprises Pty Ltd v Drum Services (WA) Pty Ltd (1992) 7 WAR 587; Gemmell v Gemmell (SASC Lagoe J No. 1402 4 April 1989); West Cost Transport Pty Ltd v Adams Groups Services Pty Ltd (2001) 10 Tas R 264.

6. The focus of the cross examination of the defendant of Ms Coffey centred around paragraphs 21 to 24 of her affidavit. Those paragraphs read as follows:-

   “21. Whilst Barunga Village began receiving certification letters from SMEC Australia Pty Ltd Trading as DSC-SMEC, for the following reasons, it was obvious to me that Barunga Village was effectively dealing with a replacement engineer under the ongoing terms of the same contract (accepting that the engineer was a different company):

   21.1 The business name still contained the letters ‘DSC’;

   21.2 John Sutton and Mike Dare whom were engaged by DSC continued to provide monthly certifications to Barunga Village in respect of the building works;

   21.3 The invoices for work performed under the Engineering Contract continued to be rendered to Barunga Village according to the same fee arraignment as was in place pursuant to the Engineering Contract and in the same format as had been rendered by DSC showing:

   21.3.1 approved contract sum;

   21.3.2 approved budget;

   21.3.3 total invoice to date;

   21.3.4 less previously invoiced;

   21.3.5 this invoice;

   21.3.6 consecutive numbering of invoice attachments.

   21.4 Nothing changed in the dealings between Barunga Village and its engineer for the project;

   21.5 SMEC did not suggest a new contract document or any changes to the existing terms of the Engineering Contract;

   21.6 There was no suggestion from SMEC that it was doing anything other than replacing DSC as the engineer for the project and assuming the responsibilities that DSC had under the Engineering Contract.

   22. Neither DSC nor SMEC sought the formal consent of Barunga Village in respect of a changeover of the Engineering Contract.

   23. When SMEC took on DSC’s role in respect of the Engineering Contract Barunga Village assumed that:

   23.1 The relationship between SMEC and Barunga Village would be governed by the terms of the Engineering Contract entered into between Barunga Village and DSC;

   23.2 SMEC would take over all liability for the work that had previously been performed by DSC under the Engineering Contract;

   23.3 SMEC would check and continue to check that the builder had competently carried out the works constructed up to that point;

   23.4 SMEC would check and continue to check that DSC’s inspection and certification of the works up to then was competent;

   23.5 SMEC would be liable for all work it performed in respect of the Engineering Contract from the date it took over the role of DSC.

   24. Had Barunga Village been told by SMEC or DSC that it was not SMEC’s intention to take on liability for the work performed by DSC in respect of the Engineering Contract, Barunga Village would most likely have required either:

   24.1 a contract be entered into between SMEC and Barunga Village including an express terms that SMEC would assme all liability for the work that had previously been performed by DSC under the Engineering Contract; and/or

   24.2 that SMEC certify that all works performed in respect of the construction of the Retirement Village had been done in accordance with the structural and civil engineering design as set out in the building contract; and/or

   24.3 an indemnity from DSC and/or its Directors that all works performed in respect of the construction of the Retirement Village had been done in accordance with the structural and civil engineering design such that the qualitative elements of the works would achieve completion of the Retirement Village consistent with the requirements of contracts with the builder(s).

7. The cross examination of Ms Coffey largely concerned what was alleged to be an assumption made by Barunga Village. It is asserted in paragraph 23 of the affidavit that when SMEC took on DSC’s role in respect of the engineering contract certain assumptions were made. An assertion that particular people made an assumption is apparently hearsay in nature. An assertion that the Board of Barunga Village may have taken a particular point of view (recorded or not) may stand in a different category. To the extent of that deficiency the paragraph is not informative. In the balance of paragraph 23, Ms Coffey deposes to the effect of what she says is an assumption made by Barunga Village. That assumption is based upon an assertion that SMEC took on DSC’s role in respect of the engineering contract. It became apparent that little attention appears to have been given by Barunga Village to the engineering contract referred to or what might be said to be the meaning of the assertion “…when SMEC took on DSC’s role…”

8. One particular focus of the cross examination was paragraph 23.2. Ms Coffey was questioned about how it may be said that SMEC would take over all liability for the work that had previously been performed by DSC under the engineering contract prior to September, October or November of 2008. As the cross examination made clear, it was not possible for Ms Coffey to say anything apart from that she had a particular understanding at a time in the past and she could not say when it was formed or whether that understanding was accurate. A further matter of relevance, in this context, was that Barunga Village had previously commenced proceedings against DSC but that entity had been removed as a party to the proceeding. I will deal with that matter later.

9. Perhaps unsurprisingly, Ms Coffey admitted that she had used a “broad brush” approach when preparing her affidavit. Having accepted the criticisms of the content of the affidavit, and having heard cross examination of Ms Coffey on the affidavit, I have decided that I obtain no benefit from this content apart from matters of admissible fact which fall into a narrow category. I will identify those matters later in these reasons.

10. I refer to the affidavit of Mr Getta which exhibited the sale and purchase agreement reached between SMEC and DSC. I have already set out some of the detail contained within this agreement and I have also recorded the content of the letters that the parties to the agreement were to send to existing clients of the engineering firm DSC.

11. Under clause 5.5 of the business acquisition agreement, SMEC assumed from completion all liabilities incurred by DSC up to and including completion. Liabilities are defined to mean all liabilities of DSC except the excluded liabilities which are defined in Schedule 7. At paragraph 2 of Schedule 7, the following is defined as part of the excluded liabilities: “…2 Any and all claims arising from the conduct of the business prior to completion except in relation to contracts on foot at completion and which have been assigned to the purchaser.” It is not in contest that the agreement between the plaintiff and DSC for the provision of engineering services was assigned by DSC to SMEC at completion. Therefore, under the terms of the business acquisition agreement made between SMEC and DSC, there is a question whether any liability upon DSC for breach of its professional services agreement with the plaintiff prior to the date of completion does or does not fall within a liability for which SMEC has taken responsibility under that agreement. It will be a matter for the trial judge how this provision is interpreted and applied.

12. There is no evidence and no suggestion made by either party that the plaintiff was in any way privy to any of the negotiations taking place between DSC and SMEC. That is to be expected in the usual course. It is trite but the plaintiff is quite obviously fundamentally affected by the change of the provider of professional engineering services from DSC to SMEC. The interests of the plaintiff are quite obvious: the plaintiff’s contract was with DSC and DSC no longer provides the services under the professional services contract. It is ordinarily to be expected that DSC as a provider of professional services would have maintained the usual contract for professional indemnity insurance to cover any event of default as that expression is ordinarily to be understood in a professional indemnity insurance context. Implicitly at least, if there was to be a change of professional service provider, it would be advantageous and, at one level, necessary, for notice to be given to the recipient of those services under the existing contract, informing it of the change of professional services provider. On the affidavits as they have been filed, there is no evidence to suggest that under the business acquisition agreement, the letter of DSC or the letter of SMEC as contemplated in Annexure A to that agreement has been sent to the plaintiff.

13. There is some evidence that Costs Management Partnership received some correspondence from Dare Sutton Clarke. I refer to the affidavit of Mr Kralj. At para.8 of his affidavit he says that to the best of his recollection he received a circular letter from Dare Sutton Clarke in relation to the merger of Dare Sutton Clarke with SMEC. He says that after reviewing his project files he is unable to locate a copy of the document.

14. Ms Coffey on behalf of the plaintiff in her affidavit says that neither DSE nor SMEC sought the formal consent of Barunga Village in respect of a changeover of the engineering contract. The cross- examination of Ms Coffey disclosed that there had previously been a potential or an actual claim made against Dare Sutton Clarke so as to take advantage of the insurance coverage that that company may have had. The inference arising from the evidence is that the insurance policy held by DSC did not respond with an indemnity for the plaintiff’s claim.

15. And when referred to para.23.2 of her affidavit sworn 8 September 2015, where Ms Coffey says that SMEC would take over all liability for the work that had previously been performed by DSC under the engineering contract, being the understanding and assumption made by the plaintiff, Ms Coffey said that in effect the plaintiff was attempting to cover all bases. In my opinion the plaintiff could not be criticised for taking that position but whether or not that evidence has any particular relevance will be a matter for the trial Judge. I have ignored that evidence.

16. The affidavits filed by the plaintiff disclose that on 30 November 2008, (although this is not completely clear) the invoicing for engineering works supplied by SMEC under the name DSC SMEC, the new entity providing the professional engineering services, was in the same invoice run or numbering sequence as had previously been used by Dare Sutton Clarke. The invoices were generated upon the same basis and apparently, in respect of the same type of work. On a number of levels it is peculiar that in light of the content of the Business Acquisition Agreement and its terms about the “assumption” of the liabilities of DSC for which SMEC took responsibility, SMEC did not change the style, content and presentations of these documents. How better to focus the mind of an entity such as the plaintiff upon a changed situation than to operate on the basis of a change? The plaintiff is an incorporated body associated with the provision of retirement accommodation in rural South Australia. The level of commercial sophistication of such an entity will be a matter for the trial Judge.

17. At the outset of the submissions today I put a series of five questions to Mr Cheney SC for the second defendant. They were as follows:

    1.Under what obligation does SMEC Australia say that it undertook engineering obligations for the plaintiff's project?

    2.What document/documents does SMEC say governed the obligations upon SMEC in delivering such services?

    3.What document(s) does SMEC point to as providing the consent of the plaintiff for the interposition of SMEC as the engineer in futuro?

    4.What does SMEC say would be understood by the ordinary disinterested bystander by the provision of the first invoice from DSC SMEC to the plaintiff for the provision of such services?

    5.What objectively are said to be the terms of the contract between SMEC and the plaintiff?

18. It would be unfair upon Mr Cheney SC to say that he was unable to completely answer those questions; rather it would be fair to say that Mr Cheney's position was that a number of these matters are yet to be resolved. I understand the answer given by Mr Cheney SC but its content emphasises the number of legal and factual matters that are required to be resolved in this action. In either November or October but more likely November 2008, SMEC commenced to provide the services under an engineering contract, formerly existing between the plaintiff and Dare Sutton Clarke. It perhaps may naturally be inferred that SMEC provided these services upon the same terms and conditions as Dare Sutton Clarke the plaintiff and DSC but that is a matter for the trial judge.

19. It is also fair to say that it is arguable (although I make no findings upon these matters) that the document that governed the obligations in delivering the services by DSC-SMEC was the Dare Sutton Clarke engineering contract made with the plaintiff. Thus that document arguably governs the relationship between the plaintiff and SMEC. If that is correct then there are potentially broader issues that arise: on what basis is that contract to operate? Is it prospective only and if so why; is it universal (ie. prospective and retrospective) and if so why; if there is any retrospective operation, what is the extent of that operation and why? I am sure that a number of other questions arise but these are some that have occurred to me in the course of argument.  Neither of the parties was able to say whether there were any documents under which the plaintiff would consent to the interposition of SMEC and I refer in particular to the letters to clients in Annexure A.

20. The plaintiff delivered extensive written submissions on the topic of novation. In light of the submissions received it is appropriate to attempt to gather the principles as they are applicable to the concept of novation in contract. Those principles are as follows:-

    1.   Using the example of parties A, B and C, novation occurs when the contract between A and B becomes a contract as between A and C. That second contract as between A and C is in substitution for the contract between A and B. That can be the whole or part of the contract.[25]

    [25]   Olsson v Dyson (1969) 120 CLR 365 at 388 per Windeyer J; Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 at 461 per King CJ; Spencer Constructions Pty Ltd v G and M Aldridge Pty Ltd (1997) 76 FCR 452 at 465.

    2.   In order for a novation to occur, it is necessary for the first contract as between A and B to be rescinded by agreement of A, B and C and for that existing contract or part of that existing contract to be the subject of a new contract as between A and C in substitution for that first contract.[26]

    [26]   Re United Railways of the Havana v Regla Warehouses Limited [1960] 1 Ch 52 at 84-5.

    3.   In an ordinary novation situation, the party to whom the primary obligations under the contract are required to be fulfilled (the obligee) must be a party to the novation. The other party to the novation must be, at least, a party who is required to fulfil the obligations (the obligor). In the instant case, A is the obligee and B is initially the obligor and C becomes the obligor under the novation.

    4.   The novation agreement means that the obligations of B to A to perform the contract or the contractual obligations now becomes the obligation of C under the same term so that there is a new contract as between A and C which supersedes the previous contract as between A and B.

    5.   Ordinarily, the rescission of the contract as between A and B means that the obligations under that contract come to an end and the new contract as between A and C will take the place of that original contract.

    6.   The agreement as between A and B to rescind the contractual obligations between them must be supported by consideration.[27] Novation requires there to be an agreement as between A and B that the whole (or in some instances a relevant divisible part) of the original contract as between A and B is rescinded.

    7.   There are some circumstances where the original contract as between A and B has not been rescinded entirely but a novation occurs. This is where the parties agree that some of the obligations as between A and B will continue but that, by agreement as between A, B and C, some of the obligations previously imposed upon B will now be fulfilled by C and there will be then two independent contracts.[28]

    8.   A rescission of an original contract means that it has no further operation. The parties, by agreement and for consideration, discharge each other from further performance under the contract. Once that occurs, A looks to C for fulfilment of all of the obligations previously imposed upon B under the terms of the contract but that will occur under the terms of the new contract as between A and C.[29]

    9.   It is a matter for the parties whether B is completely released from the previous obligations under the contract as between A and B at the time of the novation. The parties are free to agree, for example, that existing causes of action as between A and B may continue to be pursued by A. At the other end of the spectrum, the parties can agree that all contractual rights and obligations as between A and B are now completely superseded by the agreement as between A and C. Novation, as the name suggests, ordinarily is seen as meaning that the whole of the executory contractual obligations as between A and B are discharged however no accrued causes of action would be discharged. Whether or not that is the case, is a question of fact in each case.

    10. Whether or not a new contract as between A and C comes into existence is determined according to the ordinary principles of contract. The essential question to be asked is whether or not the contract as between A and C is entered into as a contract which is a substitute for the original contract as between A and B.[30]

    11. The timing of novation is determined according to general principles of contract. The Court must be able to identify when consideration is being given; an agreement between A, B and C that in consideration of A and B terminating their contract, A will enter into a contract with C in ordinary circumstances is sufficient consideration.[31]

    12. Because the elements of consideration and consent are largely bound together in the example of where A and B agree that A shall enter into a new contract with C, it is necessary to give proper consideration to the arrangements made between the parties so that there can be an identification of sufficient consideration moving from the promissor. The Court will not be attracted by technical arguments of form over substance because the Court recognises that the parties are free to agree on matters in any way that they see fit.

    13. In order for a novation to occur, it is necessary and essential that consent be proved and this includes the consent of every party to the agreement. Each of A, B and C must agree to the novation occurring.[32] Although it is not necessary for parties to the novation to  be in a contractual relationship with each other at the same time, it is still necessary for the relevant contractual stages required by the principles governing contracts to be fulfilled. A failure to prove consent will constitute a failure to prove a novation.

    14. It is not appropriate to view the guiding principles about consent in the same way as, for example, consideration. Parties do not have to commit themselves to any form of writing and it is quite open to a Court to ascertain consent by way of a tacit agreement arising out of the conduct of the parties and the course of dealings between them. The Court will take the whole of the circumstances of the various arrangements between the parties into account in forming a view.[33] In Vickery v Woods[34] Dixon J (as his Honour then was) decided that whether or not there has been a novation is a question of fact and it is for the Court to entertain the enquiry whether, on the facts, the parties intended that a novation should occur by virtue of the consent that they may or may not have given to the transaction: the transaction under consideration is first the rescission of the agreement as between A and B and second, the substitution of a fresh agreement as between A and C. In all circumstances, the enquiry of the Court is one of fact about whether the contractual obligee (A) has agreed to give up its rights as against the first obligor (B) in exchange for accepting contractual obligations and obligations as between A and C. In this regard, circumstances vary. The Court may take different views according to the nature of the contractual relationships under consideration. For example, where there is a change of employment relationship, the Court’s enquiry as to consent will be more strict and narrow than, for example, in a circumstance where parties at arm’s length, and are operating in commercial agreements for their mutual benefit.[35]

    15. At a slightly different level, knowledge is an essential requirement for the party so that the parties themselves are aware of the facts giving rise to the creation of their new rights including consistent with that knowledge, the making of an informed choice to proceed with an arrangement.[36] It has been described as consensus ad idem.[37] The question of knowledge and therefore consent often go “hand in glove” although it is possible to have one without the other. It is necessary for there to be some manifestation of the consent of the obligee A but, that said, it is not necessary to point to some active step taken by A in response to changing circumstances. As a matter of fact, inactivity on the part of A can indicate consent but, in the end, that would not be sufficient for consent. Some other fact would need to be proved such as, for example, that the obligee A stood by and allowed there to be a transfer of liability under a purported novation and stood by for a long enough period of time such that, it could be said, that the obligee A has acquiesced in or consented to the transfer of the liability.[38] The argument about inactivity becomes stronger in circumstances where benefits are received by the obligee A as a result of the inactivity of A. It is to be recalled that the question here is whether or not A has accepted C as a contracting party in substitution for B. Such a finding is a question of fact in all of the circumstances. The question is whether A has been said to have consented to the novation of the obligations of B to C, and so that A is receiving benefits from C which otherwise could have demanded from B.[39]

    [27]   Redman v Permanent Trustee Company of New South Wales Limited (1916) 22 CLR 84 at 96; Norman v FCT (1963) 109 CLR 9 at 24.

    [28]   Credit Lyonnais Australia Limited v Darling (1991) 5 ACSR 705 at 717-719.

    [29]   King v David Allen and Sons, Bill Posting Limited [1916] AC 54 at 60.

    [30]   Caltex Limited v FCT (1960) 106 CLR 205.

    [31] Mulcahy v Hoyne (1925) 36 CLR 41 at 56.

    [32]   Sydney Corporation v West (1965) 114 CLR 481 at 501-2 per Windeyer J.

    [33]   Olsson v Dyson (supra) at 390; Dudley Buildings Pty Ltd v Rose (1933) 49 CLR 84 at 99; Williams v Frayne (1937) 58 CLR 710 at 724.

    [34] (1952) 85 CLR 336 at 345.

    [35]   See Rohrlach v Christianos (1980) 26 SASR 161 (affirmed (1981) 55 ALJR 681).

    [36]   Immer (No. 145) Pty Ltd v The Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26.

    [37]   George v Roach (1942) 67 CLR 253 and 261 per Rich J.

    [38]   Fitzgerald v Masters (1956) 95 CLR 420 at 432-3.

    [39]   Re Douglas [1930] 1 Ch 342 at 350.

1. In the plaintiff’s written submissions the plaintiff focused its attention upon novation by conduct and tacit novation. The plaintiff relied upon a number of well known authorities.[40] In Lakatoi, Einstein J confirmed that there may be tacit novation as a result of the creation of a later obligation inconsistent with the former obligation or where one party to an existing contract knowingly continues to carry on business where the second party is succeeded by a third party. The plaintiff also referred to the decision in Tszyu v Fight Vision Pty Ltd (1999) 47 NSWLR 473. In that case, a promoter had an existing agreement with a well known boxer. At that time a promoter was trading through a particular company. The promoter decided to change promotion companies. He told the boxer and his trainer of his intention to change his arrangements to the new company from the old promotion company. The new company was Fight Vision Pty Ltd. The question in the action was whether, in light of the fact that the promoter, the boxer and the trainer continued under the same arrangements but with the new company, there was a novation of the original contract between the original promotion company to the new promotion company. The trial Judge held that there was a novation and his judgment was upheld on appeal. The relevant passages in the appeal Court judgment are at paragraphs [83] and [86] as follows:-

   [83] In our opinion, the submission that Mr Mordey's words to Mr Tszyu and Mr Lewis were insufficient to establish novation seeks to read too much into the way in which these parties carried out much of their contractual relationships and activities. Stated simply, Mr Mordey was the promoter and Mr Tszyu was the boxer. The corporations involved were merely vehicles for the promoter to promote Mr Tszyu's fights. It is unsurprising that Mr Mordey did not know of the legal term “novation”. What non-lawyers would? Mr Mordey did know, however, that it was desired to wind Promotions down (or up, it does not matter) and have Fightvision become the exclusive promoter of Mr Tszyu's bouts. He told Mr Tszyu and Mr Lewis of this, and they were agreeable. It was informal, but it had the result that all parties to the 17 January 1992 contract agreed that there should be a new contract with Fightvision in place of Promotions.

   [86] In Upper Hunter County District Council v Australian Chilling and Freezing Co Pty Ltd (1968) 118 CLR 429 at 437, Barwick CJ said that in searching for the contractual intention, “no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements”. This equally applies, in our view, when searching for an intention that there be a novation. Given the terms of the conversations, which his Honour accepted, as well as the overwhelmingly consistent pattern of conduct of the parties after 30 January 1993, there is no ground for disturbing his Honour's finding on novation. There is little or no evidence to suggest that the parties intended that Fightvision should perform the contract on behalf of Promotions. This is an area where evidence such as accounting material between the companies, if available, would have been tendered. There was none. In our view, the appeal in relation to novation fails.

   [40]   Chatsworth Investments Limited v Cussins (Contractors) Limited [1969] 1 WR 1; Lakatoi Universal Pty Ltd v L A Walker; Ensile Pty Ltd v Walker Consolidated Investments [2000] NSWSC 113 per Einstein J at 1413; Alpine Beef Pty Ltd v Trycill Pty Ltd [2010] FCA 136 at [36]-[40].

2. The Court of Appeal of New South Wales identified both the conversations that occurred between the promoter, the boxer and his trainer as well as the consistent pattern of conduct of the parties after the date of the introduction of the new promotion company.

3. The plaintiff also referred to a number of other decisions which considered whether or not there had been a novation of a contract. In the case of Tranquillity Pools, [41] the trial Judge, Einstein J, identified at page 567 the importance that the other contracting party (said, by analogy to be the plaintiff in these proceedings,) clearly regarded itself as bound by a new agreement with the subsequent purchaser which, in correspondence, had informed subsequent purchasers that they were now the beneficiaries of warranties given by the previous company. I have not been able to obtain much assistance from this decision which turns on its own peculiar facts.

   [41]   Tranquillity Pools and Spas Pty Ltd v Huntsman Chemical Co Australia Pty Ltd [2011] NSWSC 75 at 556-570.

4. The plaintiff and SMEC both made reference to the decision of David J in South Australian Farmers Fuels Pty Ltd v Whittingham [2008] SASC 211. This action was an appeal from a decision of a Magistrate. The facts were that the parties to the proceedings executed a contract in writing dated 11 October 2004. Mr and Mrs Whittingham operated a service station in rural South Australia under the terms of that agreement. They were paid as commissioned agents. Under that arrangement, South Australian Farmers Fuel Pty Ltd supplied fuel products to the Whittinghams who would sell the products and thereby earn their commission. The terms of the commission payments were sent out in the contract.

5. The Whittinghams left the premises on 30 June 2006. Messrs Taylor and Schmidt had been two employees of the Whittinghams when they conducted the business. They took over the business from the Whittinghams. It is unclear whether the permission of Farmers Fuel was obtained for that transfer. The argument of the Whittinghams was that the take over of the business by Messrs Taylor and Schmidt amounted to a novation under the terms of the contract between the Whittinghams and Farmers Fuel. Reference was made to Clause 11 of the relevant contractual terms which prohibited transfer of the business without consent of Farmers Fuel and that, Farmers Fuel may consent to an assignment of the business. The argument of the plaintiff was that the terms of the contract itself should be interpreted to cover novation as well as assignment. The Court rejected the argument of the Whittinghams and found that there had been no novation because, at the least, there was no written consent given by Farmers Fuel under Clause 11.1 of the contract. In that instance, no novation could be inferred through an objective assessment of the parties’ intention and conduct.

6. SMEC addressed the Court on this and other authorities. The judgment of David J in Farmers Fuel does not, in any sense, break any new ground on the principles of novation. It is merely the circumstance of the application of principle. Similar views may be expressed about other decisions that the parties referred to: Hillam v Iacullo [2015] NSWCA 196 at [56] and [57]; Better Sprinkler Systems Pty Ltd v George Koussidis [1999] SASC 191 at [22]-[26].

7. The question of what would be understood by the ordinary interested bystander will be a matter for the trial judge.  It is at least arguable that objectively, the terms of the contract between SMEC and the plaintiff were those contained within the DSC engineering contract, Exhibit D1.  It follows that notwithstanding the quite obvious deficiencies in the latest version of the pleading put forward by the plaintiff, there will be contested evidence in relation to this topic. The resolution of that issue is a matter for the trial Judge.

8. There are weaknesses in the plaintiff's pleaded case and I respectfully accept Mr Cheney's criticisms of those matters. Absent the application by the plaintiff to amend its Statement of Claim to include a plea in relation to novation, I would have acceded to the application for summary judgment. For the reasons that were identified by the second defendant on 17 August 2015, the plaintiff’s claim against the second defendant for breach of duty of care arising prior to September 2008 was unsustainable. It is not possible for one party to transmit to the other its liability for a breach of a duty of care and so there may be no assignment of that liability. The reasons are simple enough. A breach of the duty of care arises in circumstances where a Court is in a position to find that, a duty of care allegedly arising between the offender and the victim exists, it has been breached and consequences follow. It is true that a party may seek an indemnity from another party in relation to that prospective breach however that is saying no more than that a party may insure against the possibility of its own breach (of duty). That is not this case. The plaintiff wished to contend that by virtue of the novation, or by some other unstated method, SMEC Australia became responsible for the alleged breaches of duty of DSC. Such an approach fails. At the hearing before me on 2 November 2015 Mr Ross-Smith properly conceded that apart from the period after November 2008, a claim against SMEC Australia for breach of duty was not sustainable. That claim was abandoned. It will be necessary for there to be consequential amendments to the Statement of Claim.

9. For the reasons that I have already set out, I am not prepared to accede to the application of the second defendant based upon the pleading of the plaintiff within the third draft fifth Statement of Claim. It is not necessary for me to decide whether there has been a novation in this matter. All that I am required to decide is whether there is no reasonable basis for the claim against the second defendant under the pleaded novation case. For the reasons which I have already set out above, the determination of the question about novation and what follows involves questions of fact and law. Although I am mindful of my view that the plaintiff’s case against the second defendant is not necessarily a strong one and it may be described as weak in some circumstances, I am unable to say that there is no reasonable basis for the claim against the second defendant. I make my assessment of the strength of the plaintiff’s case based upon the evidence received by me and the cross examination today of Ms Coffey by Mr Cheney SC.  I have made my assessment on this question arising under Rule 232(2)(b) in light of all of the matters that have been put to me, the evidence that I have received and the arguments in Court today. In those circumstances I am unable to accede to the application because, as a matter of fact and law, I am unable to make a determination that there is no reasonable basis for the claim against the second defendant. For those reasons I would dismiss the application of the second defendant.

10. The second order that I have been asked to make is in relation to the first defendant, McCracken Country Homes Pty Ltd. That company has been deregistered. All that is necessary to say is that that name should be removed from these proceedings and I so order. It follows that this action will only now proceed in the name of the second defendant as the sole defendant.

    Costs

11. On the interlocutory applications brought by the plaintiff, an application is made by SMEC for costs. Some of the applications for costs include appearances before Master Rice. In my opinion, those are matters for Master Rice but having regard to what has transpired in this matter, it is my view that insofar as SMEC has been put to any costs in dealing with or answering any of the plaintiff’s pleadings in this matter up to date (that have not otherwise been separately dealt with by Court orders) then those costs ought to be the costs of SMEC.

12. I first became involved in this matter on 30 July 2015. At that time it was unclear on what basis the plaintiff was pressing its case. At the next hearing before me on 17 August 2015 it was clear that SMEC took its application under Rule 232 of the Rules and sought other ancillary orders. It was only as a result of the matters ventilated before the Court on that day that the plaintiff has brought forward its most recent pleading, the third draft fifth statement of claim. SMEC was entirely justified in bringing its application which would have otherwise succeeded but for the further application brought by the plaintiff.

13. The defendant must have its costs of the appearances on 30 July 2015 and 17 August 2015. I certify fit for Counsel for both of those hearings. Having regard to the fact that at this hearing, the plaintiff also acceded to the defendant's argument that the duty of care case as pleaded, (apart from the matters set out in para.51 et seq. of the draft pleading,) then the defendant should also have the costs of that matter, which I fix at 50% of today's argument. I therefore order that in relation to the costs of today that the defendant should have 50% of its costs and the plaintiff should have 50% of its costs it having succeeded in overcoming the Rule 232 argument. I form that view notwithstanding that quite obviously the majority of the argument of today was taken up by the Rule 232 matter the plaintiff persisted with its failed plea in relation to a duty of care.

14. I further order that the plaintiff bring in as the fifth statement of claim, its pleading as adjusted having regard to the matters before me and corrected by close of business on Friday, 6 November 2015. A further matter before me is the question of the conduct of the trial set to commence in this court on Monday, 7 December. Having regard to the late provision of experts reports, the late finalisation of the fifth statement of claim and the necessity for the defendant to file its defence it would be impossible for that trial to proceed on 7 December. I accept the submissions of the defendant that insofar as there are costs thrown away by virtue of that adjournment they should be the costs of the defendant. It will be necessary for the defendant to file and deliver its amended defence to the fifth statement of claim by close of business on 4 December 2015. I formally order that the trial date of 7 December 2015 be vacated. I fix this matter for trial 20 June 2016, 10 days set aside. As a ten day trial this action automatically then comes back into judge management.

    
    

(1)     Where a defendant wishes to obtain summary judgment in an action or for any part thereof he shall:

·(a) file his defence or affidavit in answer to the plaintiff's affidavit;

·(b) make an application for summary judgment in the action;

·(c) file an affidavit showing why the plaintiff's claim cannot succeed or cannot succeed in this Court as the case may be on any possible view of the facts or the law.

(2)     On the hearing of the application the Court may if it is satisfied that the defendant's contentions are correct enter judgment for the defendant, stay the action or make any other order which the justice of the case may require or treat the application as an application for directions.

(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.