Facade Designs International Pty Ltd v Yuanda (Vic) Pty Ltd
[2024] VSC 31
•9 February 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY, ENGINEERING & CONSTRUCTION LIST
S ECI 2021 04727
| FACADE DESIGNS INTERNATIONAL PTY LTD (ACN 099 706 859) | Plaintiff |
| v | |
| YUANDA (VIC) PTY LTD (ACN 166 473 089) | Defendant |
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JUDGE: | COSGRAVE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 February 2024 |
DATE OF JUDGMENT: | 9 February 2024 |
CASE MAY BE CITED AS: | Facade Designs International Pty Ltd v Yuanda (Vic) Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 31 |
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CIVIL PROCEDURE – Leave to file counterclaim – No completed cause of action – Contingent claim – Pleading embarrassing – Substantial delay in conduct of litigation – Leave refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Roberts KC | Piper Alderman |
| For the Defendant | Mr M Christie SC with Mr D Hume and Mr H Fielder | Fusion Legal |
| For the Second Defendant by Counterclaim | Mr T Mullen | Colin Biggers & Paisley |
HIS HONOUR:
Introduction
By summons filed 22 January 2024, the defendant (‘Yuanda’) sought an order granting it leave to file and serve a proposed draft second counterclaim in the form provided to the parties on or about 22 November 2023. The proposed defendant (‘Bond’) and the plaintiff (‘FDI’) both oppose the application.
Background
The dispute between the parties concerns a construction project at 447 Collins Street in Melbourne.
Yuanda engaged FDI as a sub-contractor for the project for a contract price of $14.5 million.
FDI and Yuanda have engaged in litigation already in relation to the project. FDI made claims for payment pursuant to the Building and Construction Industry Security of Payment Act 2002 (Vic) (‘SOPA’). Ultimately, after an extended hearing before Riordan J and a subsequent appeal to the Court of Appeal, FDI was unsuccessful in that application.
FDI commenced these proceedings on 15 December 2021 by a writ endorsed with a statement of claim.
On 24 March 2022, the Court ordered amongst other things that FDI file and serve any amended statement of claim within 14 days after receiving correspondence from Yuanda identifying alleged deficiencies in the statement of claim.
On 25 May 2022, FDI filed and served an amended statement of claim.
On 22 July 2022, Yuanda filed and served a defence and counterclaim which included FDI, the director of FDI, Mr Calipari and Bond as cross-defendants.
On 14 October 2022, the Court ordered that the defence and counterclaim be struck out.
On 16 December 2022, Yuanda served a proposed defence and counterclaim which named FDI as a cross-defendant.
FDI opposed the grant of leave to Yuanda to file the proposed defence and counterclaim against it.
In January 2023, Yuanda filed a summons seeking leave to file the defence and counterclaim against FDI. The summons was to be heard on 20 April 2023.
On 19 April 2023, the associate to Delany J advised the parties of his Honour’s preliminary view that he was minded to grant Yuanda’s application. On the same day, FDI consented to orders whereby Yuanda had leave to file the defence and counterclaim against FDI.
On 1 August 2023, FDI filed and served its reply and defence to counterclaim.
On 10 August 2023, Yuanda requested further particulars of FDI’s reply and defence to counterclaim. Several days later, the Court ordered FDI to respond to the request for particulars.
On 14 September 2023, FDI responded as directed.
On 22 November 2023, Yuanda’s solicitors provided FDI and Bond with a copy of the proposed second counterclaim against Bond.
In December 2023, the solicitors for FDI and Bond both wrote to Yuanda’s solicitors setting out their grounds of opposition to the application.
Nature of the counterclaim
The proposed counterclaim is divided into sections. Broadly, it commences with Bond’s status and duties. Yuanda alleges that Bond was at all material times an employee of Yuanda and that the terms of his employment was set out in a written document dated December 2007. As a result, Bond was an agent of Yuanda with limited authority to act on behalf of the company in approving variations and settlements with Yuanda’s sub-contractors. However, Bond could not approve such variations and settlements without the approval of a director of Yuanda.
Yuanda alleged that there were various terms of Bond’s employment agreement including the following:
• in performing his duties (as defined) Bond must:
(i) serve Yuanda faithfully and diligently and exercise all due skill and care:
(ii) act in the best interests of Yuanda at all times;
(iii) avoid all conflicts of interest and otherwise refrain from acting contrary to the interests of Yuanda;
(iv) use his best endeavours to protect and promote Yuanda’s good name and reputation; and
(v) report all things that he becomes aware of that are relevant to Yuanda’s interests.
• Bond was obliged to act only in accordance with the scope of his actual authority.
• Bond had a duty of good faith to Yuanda.
• Bond was obliged to act in accordance with any policies of Yuanda notified to him from time to time.
Yuanda claimed that Bond had duties arising from his employment agreement whereby he was to administer the sub-contractor agreements, obtain required approval from Yuanda’s directors and ensure that sub-contractors discharged their duties in accordance with their sub-contracting arrangements.
Yuanda alleged that it had a policy for how to approve variations and that Bond was aware of this policy. However, Yuanda contended that Bond did not observe the policy and approved variations for Yuanda without authority and in breach of the policy.
Further, it was said that Bond failed to disclose to Yuanda that he had been a director and shareholder in FDI; that he knew Anthony Calipari well and had a business relationship with him; he had a personal and financial interest in advancing the interests of Calipari and companies associated with him. These matters were said to constitute a breach of fiduciary duty by Bond.
The relief which Yuanda sought against Bond was damages for breach of contract and tortious breach of duty together with equitable compensation.
Bond opposed Yuanda’s application to file the second counterclaim on several grounds:
(a) there was no proper employment relationship pleaded in circumstances where the fact of employment was crucial to the cause of action for damages and equitable compensation;
(b) the claims made against Bond were contingent or inchoate in that they were dependent upon FDI succeeding in its claims against Yuanda.
(c) the claim represented a collateral attack on the earlier decisions of the Supreme Court regarding the alleged payments due under SOPA. The courts had made factual findings in determining the claims under that legislation. The counterclaim would have the effect of challenging findings made about the variations, the process for approval and the identity of those involved in that approval process;
(d) there were various practical reasons for refusing the application: there was lengthy delay by Yuanda in bringing the claim; significant parts of the claim were independent of the variation issue; if the claim were allowed, it would make the litigation more complicated and expensive because Bond would likely seek to make claims against other personnel at Yuanda; there is no prejudice to Yuanda because, if its defence against FDI failed, it could then sue Bond and possibly others depending on the terms of the judgment.
Consideration
In my view, Yuanda cannot proceed with the second proposed counterclaim. I say this for the following reasons.
First, it is not appropriate to make a counterclaim against Bond in the circumstances of this case. A counterclaim, like a writ, requires a completed cause of action. The current claim will fail unless FDI succeeds in its claims against Yuanda. But if Yuanda succeeds in its defence, then no claim against Bond would be possible. Yuanda cannot suffer loss or damage unless it fails against FDI. This contingency governs Yuanda’s claim against Bond. If Yuanda is to bring any claim against Bond, it should be a claim made under Order 11 of the Supreme Court Civil Procedure Rules. The rationale would be that, if Yuanda were liable to FDI, Yuanda could claim against Bond because his conduct allegedly caused or contributed to Yuanda being held liable to FDI. It is well accepted that claims can be made under Order 11 before the question of the defendant’s liability to the plaintiff has been decided. If joined to a proceeding, the third party can not only defend itself against the defendant but also oppose the plaintiff’s claim against the defendant.
I note that, during the course of the hearing, counsel for Yuanda accepted that the claim made against Bond would more appropriately have been brought as a claim under Order 11 rather than by counterclaim. Counsel intimated that this was not a particularly significant matter and that the claim could be amended. I regard the problem as more fundamental.
Secondly, the employment claim as pleaded is embarrassing. Yuanda alleges that from 1 January 2015 Bond was at all material times an employee of Yuanda. The terms of his employment were said to be set out in a written contract dated December 2007. The agreement was in writing and was particularised as being between Yuanda Australia Pty Ltd (not Yuanda) and Bond. This makes no sense. Either there is some other written agreement or the agreement with Yuanda Australia was novated or there was an oral agreement that Bond would move his employment from Yuanda Australia to Yuanda and his employment would otherwise be governed by the same written terms set out in the document signed between him and Yuanda Australia. Whatever the explanation was, it did not appear in the current pleading.
I note that there has been substantial delay in getting to this point in the litigation. Given that the proceedings issued more than two years ago, it appears that the parties are taking a somewhat casual approach to their obligations under the Civil Procedure Act 2010 (Vic). I suggest that the parties would be better served by promptly preparing the case for hearing.
While Yuanda focuses upon whether Bond was authorised to approve variations allegedly worth about $2.5 million, its proposed case against Bond does not seem to have any bearing on FDI’s claim for $3.098 million for works done at the request of Yuanda for which it has not yet been paid.
If Yuanda is allowed to make a claim against Bond at this stage, it will further delay the trial and have the possible, indeed likely, effect of introducing further claims and parties into the litigation. In circumstances where the courts have already stated that other individuals at Yuanda apart from Bond were involved in the approval process in relation to the disputed variations, it is probable that Bond would wish to join those persons so that he could seek to make claims against them. It would be understandable that Bond would wish to limit his proportionate liability for any loss and/or seek contribution from others involved in the approval process. Should this occur, there will be more pleadings and discovery, further evidence and submissions resulting in a longer and more expensive trial.
Because I am satisfied that Yuanda should not be allowed to file and serve the proposed second counterclaim, I have not addressed the argument regarding the possible collateral attack on findings already made in connection with this litigation. This is a complicated area of the law and, given the limited nature of the argument in court and the other grounds for my decision, there is no need to embark upon an analysis of this argument.
Conclusion
In the circumstances, for the reasons set out, I am of the view that Yuanda’s summons filed 22 January 2024 should be dismissed. Subject to hearing from the parties about the form of final order, I would propose to order that Yuanda pay FDI’s and Bond’s costs of and incidental to the application. Given that there is no existing claim against Bond, I consider he should be removed as a party.
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