Commonwealth Bank of Australia v White (No.1 of 2004)
[2004] VSC 267
•6 August 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 5660 of 1997
| COMMONWEALTH BANK OF AUSTRALIA | Plaintiff |
| v | |
| PETER EVERETT WHITE | Defendant |
| and | |
| THE SOCIETY OF LLOYD’S | Third Party |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 August 2004 | |
DATE OF JUDGMENT: | 6 August 2004 | |
CASE MAY BE CITED AS: | Commonwealth Bank v White (No.1 of 2004) | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 267 | |
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PRACTICE AND PROCEDURE – application to strike out paragraphs of statement of claim – whether plea concerning material causes of defendant’s loss disclosed arguable defence of third party to misleading conduct claim.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms M Loughnan | Ryrie Bridges |
| For the Defendant | Mr C N Scerri, QC with Mr P H Solomon | Foster Hart |
| For the Third Party | Mr P Jopling, QC with Dr I J Hardingham, QC | Freehills |
HIS HONOUR:
By summons dated 2 December 2003 the defendant (“White”) applies for orders striking out various paragraphs of the third party’s (“Lloyd’s”) Defence to White’s Sixth Amended Statement of Claim as follows:
(a) paras. 13(2), 16(a) and (b), 17-40 and 44(g) on the grounds that they are either embarrassing or do not disclose a defence;
(b) para. 58(c) on the grounds that it is defective and embarrassing;
(c) paras. 12(4), 41(2) and (3) on the grounds that they were amended or inserted without leave.
The principal matter debated arose from para. 44(g) of Lloyd’s defence which states:
“(g) If it is the case that White has suffered any such loss or damage, then Lloyd’s says that the material causes of any such loss or damage were the following:
(i) the catastrophes and/or perils which gave rise to the claims on White’s syndicates and/or the unprofitable nature of the business underwritten by those syndicates; and/or
(ii) the acts, defaults and/or neglects of the managing agents and/or active underwriters and/or auditors of White’s syndicates; and/or
(iii) the acts, defaults and/or neglects of White’s members’ agents in not informing him adequately of the risks attendant upon the syndicates of which he became a member.”
That pleading is made in the context in which White alleges that as a result of an initial representation, which was false and thereby constituted misleading and deceptive conduct by Lloyd’s, he became a member of Lloyd’s (“a Name”) and in which White further alleges that as a result of subsequent representations, which were also false and constituted misleading and deceptive conduct by Lloyd’s, he continued to be a Name and to participate in insurance underwriting through Lloyd’s syndicates. White then alleges in effect that but for the said misleading conduct of Lloyd’s he would not have become or remained a Name and that he has therefore suffered loss “by” the said misleading conduct comprised of the losses incurred by him as a member of various Lloyd’s syndicates (and called up by Lloyd’s from the plaintiff Bank under letters of credit).
Para. 44(g) of Lloyd’s Defence says, on the assumption that there was such misleading conduct (which is denied) and that White suffered loss and damage (which is denied), that the “material causes” of such loss and damage were the many matters therein pleaded. It can be seen that para. 44(g) casts the net very wide. Included in what are said to be the material causes of any loss or damage suffered by White are (potentially) all of the events which gave rise to claims upon all of the syndicates in which White participated and the “unprofitable nature” of the business underwritten by those syndicates and all of the so-called acts and neglects of managing agents and active underwriters and auditors and further the acts and neglects of White’s members’ agents in not informing him adequately of the risks.
In para. 44(a) and (b) Lloyd’s puts in issue whether, and denies that, any of its conduct caused loss and damage to White, but para. 44(g) positively alleges what were material causes of any loss and damage suffered by White.
It was submitted on behalf of White that para. 44(g) did not disclose an arguable defence to White’s claim because White’s case was that, but for the misleading conduct of Lloyd’s, he would not have been, or continued to be, a Name and would therefore have suffered either none of the losses which he suffered as a result of initial representation, or such of the losses which he respectively suffered after the various subsequent representations. It was therefore irrelevant for Lloyd’s to raise the question of the immediate or contributing causes of each individual insurance loss because White’s case was that but for the misleading conduct he would not have underwritten the risk giving rise to such loss at all.
It was submitted on behalf of Lloyd’s, even accepting the way in which White put his case, that Lloyd’s was entitled to rely upon subsequent events as having broken the chain of causation and as constituting, as a matter of fact and law, the “real” causes of any or all losses suffered by White.
I was referred by Lloyd’s to a passage in the judgment of Mason CJ in March v E. & M.H. Stramare Pty Ltd[1] in which it was said:
“Novus Actus Interveniens
In similar fashion, the "but for" test does not provide a satisfactory answer in those cases in which a superseding cause, described as a novus actus interveniens, is said to break the chain of causation which would otherwise have resulted from an earlier wrongful act. Many examples may be given of a negligent act by A which sets the scene for a deliberate wrongful act by B who, fortuitously and on the spur of the moment, irresponsibly does something which transforms the outcome of A's conduct into something of far greater consequence, a consequence not readily foreseeable by A In such a situation, A's act is not a cause of that consequence, though it was an essential condition of it. No doubt the explanation is that the voluntary intervention of B is, in the ultimate analysis, the true cause, A's act being no more than an antecedent condition not amounting to a cause. But this explanation is not a vindication of the adequacy of the "but for" test.
The facts of, and the decision in, M'Kew illustrate the same deficiency in the test. The plaintiff would not have sustained his ultimate injury but for the defendant's negligence causing the earlier injury to his left leg. His subsequent action in attempting to descend a steep staircase without a handrail in the normal manner and without adult assistance resulted in a severe fracture of his ankle. This action was adjudged to be unreasonable and to sever the chain of causation. The decision may be explained by reference to a value judgment that it would be unjust to hold the defendant legally responsible for an injury which, though it could be traced back to the defendant's wrongful conduct, was the immediate result of unreasonable action on the part of the plaintiff. But in truth the decision proceeded from a conclusion that the plaintiff's injury was the consequence of his independent and unreasonable action. “
[1](1991) 171 CLR 506, 517.
I was then referred to the decision of the High Court in Henville v Walker.[2] In that case there was a claim for damages for misleading conduct under ss.52(1) and 82(1) of the Trade Practices Act 1974 (Cth). An architect sued an estate agent in respect of the agent’s misrepresentation that there was a demand for quality home units in Albany and that they would fetch stipulated prices, in reliance upon which the architect had purchased a property in Albany for the purpose of construction of home units. The architect prepared a feasibility study which substantially underestimated the costs of the project. If either the true position about demand or an accurate feasibility study had been available, the project would have been revealed to be unprofitable. The architect claimed the entire cost of the project less the net amount received on sale. The Court held that the agent’s misleading conduct was one of two concurrent causes of the architect’s loss and that was enough to enable damages to be recovered. The Court (McHugh, Gummow and Hayne JJ, Gleeson CJ and Gaudron J contra) considered that the architect was entitled to recover the whole amount lost on the project, on the ground that this was what he had suffered by way of prejudice or disadvantage in consequence of altering his position by reason of the misleading conduct. The approach of the majority would seem to support the submission advanced on behalf of White on the present application. However, Lloyd’s pointed to a number of passages in the judgments which, it was contended, supported the defence pleaded in para. 44(g). In particular Lloyd’s referred to a passage in the judgment of McHugh J:[3]
“If the defendant's breach has "materially contributed" to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional. “
[2](2001) 206 CLR 459.
[3](2001) 206 CLR 459, 493.
So, as I understood it, Lloyd’s accepted that, as long as its misleading conduct materially contributed to the loss or damage suffered by White, it would be regarded as a cause of his loss and damage even if the matters pleaded in para. 44(g) or some of them had played a significant role in producing the loss. But what Mr Jopling QC, who appeared with Dr Hardingham QC for Lloyd’s, said was that Lloyd’s wished to “probe” whether any of the matters alleged in para. 44(g) were such that they constituted “abnormal” events which had intervened between the misleading conduct and the damage so that it would be right as a matter of common sense, as McHugh J suggested above, to hold that the misleading conduct by Lloyd’s was not a cause of White’s loss. It was apparent from the way that Mr Jopling put it that Lloyd’s wished to use the pleading as a springboard for discovery from White of the documents (no doubt many thousands if not tens of thousands of them) relevant to each of the causes of loss pleaded in para. 44(g) in order to investigate whether any and which of those causes amounted to an “abnormal” event of the kind described by McHugh J as “exceptional”.
During the course of the hearing I asked whether, in the light of the authorities mentioned, there was any reported case in the area of misleading and deceptive conduct where a court had applied the concepts of novus actus interveniens or “abnormal” event.[4] After the hearing I was provided with a copy of an unreported decision of the Court of Appeal of the Supreme Court of New South Wales (Mason P, Sheller and Ipp JJA) in Tambree v Travel Compensation Fund and ors.[5] In that case the Travel Compensation Fund made claims, inter alia, against an accountant and an auditor for damages for their misleading conduct. The trial judge (Austin J) had found that conduct in the nature of misrepresentations by the accountant and auditor had, in effect, caused the Travel Compensation Fund to renew the participation of certain travel agents in the Fund and that but for that conduct regulatory steps would have been taken which would have avoided the Fund’s losses. The trial judge held that the accountant and auditor were liable to compensate the Fund for amounts which it had been obliged to pay out to customers of the travel agents under the relevant compensation scheme. The Court of Appeal partially allowed an appeal from the judgment below by reducing the damages payable by the accountant and auditor. Sheller JA (with whom Mason P and Ipp JA agreed) referred to the passage in the judgment of McHugh J in Henville v Walker which I have set out above and decided that payments by the Travel Compensation Fund which related to activities by one of the travel agents which were not connected with the business in respect of which the accountant and auditor had made their misrepresentations were not causally connected with those misrepresentations. What had happened was that the particular person had resigned from the scheme and illegally carried on business through another entity, something which (Sheller JA said) would still not have been prevented in the absence of misrepresentations by the accountant and auditor. Sheller JA added that the activity of the travel agent could be regarded as having severed the chain of causation in the sense that it was either unforeseeable or a novus actus interveniens. It can be seen that the facts were unusual and somewhat different to the present factual context. Indeed, on one view, the Court was really saying that part of the loss suffered by the Travel Compensation Fund would have occurred irrespective of the misleading conduct of the accountant and the auditor, ie the “but for” test was not satisfied and the loss was causally unrelated to the misleading conduct.
[4]For a discussion of these concepts see too: Fleming: The Law of Torts (9th edition) pp. 246-250.
[5][2004] NSWCA 24 (26 February 2004).
Clearly in an appropriate case the principles to which I have referred above and which were relied upon by Lloyd’s may be applicable to causation issues. The problem with what is pleaded in para. 44(g) is that the material facts necessary to invoke the said principles are not set out. There is simply a very wide and generalised pleading that certain matters were material causes of White’s loss. But that is not inconsistent with the misleading conduct of Lloyd’s also being a material cause of White’s loss. The pleading does not go far enough to invoke the relevant principles and it would seem, from what Mr Jopling said, that Lloyd’s does not have any real idea whether any of the matters pleaded are such that these principles can be invoked. In short, Lloyd’s wishes to embark on what seems to me to be a fishing expedition. I think that para. 44(g) should be struck out on the ground that it does not state or sufficiently state material facts giving rise to a causation issue of the kind to which I was referred in argument. Further, it is not simply a matter of re-pleading the paragraph so that it does invoke those principles. Obviously it would be easy enough (query whether it would be proper for Counsel to do so) to plead that each of the matters so widely alleged constituted abnormal or unforeseeable events and so on but I do not think that the Court should permit such a re-pleading unless affidavit material is provided to raise an arguable defence on the facts. That is particularly so where a pleading of this kind threatens to lead to an enormous and potentially oppressive discovery exercise (I say that without any determination as to whether the Court should permit such discovery even if there was a proper pleading supporting it). For those reasons para. 44(g) will be struck out without leave at this stage to re-plead.
I now turn to the other paragraphs of Lloyd’s defence which were challenged.
Lloyd’s has accepted that para. 16(a) and (b) and paras. 17-40 of its Defence should be deleted because the matters therein alleged have been rendered unnecessary to plead as a result of clarification by White of the nature of his misleading conduct claims. It is therefore inappropriate that I say anything further about this aspect.
In para. 58(c) of Lloyd’s Defence there is an allegation that White, by his conduct, had “affirmed” certain arrangements between himself and Lloyd’s and that particulars of affirmation would be provided following discovery and interrogation. It was submitted on behalf of White that the material facts constituting affirmation had not been pleaded and the paragraph was insufficient as it stood. I agree with that submission. It is not simply a matter of providing particulars. The plea that White has affirmed certain arrangements is a conclusion based upon unspecified conduct and events which would comprise the material facts relied upon to support such a conclusion and which I think ought to be pleaded. That paragraph should therefore be struck out.
White also complained of para. 41(3) of the Defence which pleaded that insofar as Lloyd’s had engaged in misleading or deceptive conduct under the Fair Trading Act 1985 (Vic) it had been engaged in “outside Victoria” and s.4(2) of the Act was not otherwise applicable. It was submitted that Lloyd’s should explain how it was said that relevant conduct had occurred outside rather than within Victoria. I am not sure whether this might be more appropriate for particulars than essential for the pleading but in any event I think that it is necessary for the fair trial of the third party proceeding that Lloyd’s inform White of the facts and matters by reason of which it is said that the alleged conduct (if any) was engaged in outside Victoria. As an Amended Defence will have to be delivered it will be convenient to strike out this paragraph as well and give Lloyd’s leave to re-plead it with the appropriate details.
Finally, White attacked the structure of para. 13 of the Defence. Para. 13 of the Defence denies that the Global Reports and other documents, which White says contained the representations of which he complains, in fact contain any of those representations (para. 13(1) of the Defence) or that such representations can be implied therefrom (para. 13(3) of the Defence). What White complains about is para. 13(2) of the Defence which pleads a series of matters some of which may be read as being relevant to whether the Global Reports and other documents make, expressly or by implication, the representations alleged. However I think that some of the matters pleaded in para. 13(2) of the Defence do not readily fit within the category of matters so relevant and it is hard to understand upon what basis they are said to relate to the question whether the Global Reports and other documents contained the alleged representations either expressly or by implication. Accordingly I consider that para. 13(2) of the Defence should be struck out with leave to re-plead.
For the foregoing reasons orders will be made as follows:
1. Paragraphs 16(a) and (b), 17-40 and 44(g) of the third party’s Defence to the defendant’s Sixth Amended Statement of Claim be struck out.
2. Paragraphs 13(2), 41(3) and 58(c) of the said Defence be struck out with a right to re-plead the same.
3. The third party file and serve an Amended Defence limited to the foregoing (within a time to be specified).
4. The third party pay the defendant’s costs of this application including any reserved costs.
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