Facade Designs International Pty Ltd v Yuanda Vic Pty Ltd (No 2)
[2024] VSC 125
•22 March 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY, ENGINEERING AND CONSTRUCTION LIST
S ECI 2021 04727
| FAÇADE 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: | 8 March 2024 |
DATE OF JUDGMENT: | 22 March 2024 |
CASE MAY BE CITED AS: | Façade Designs International Pty Ltd v Yuanda Vic Pty Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 125 |
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Catchwords: PRACTICE AND PROCEDURE – Application by defendant for leave to join third party out of time – Balance of discretionary factors – Significant delay – Pleading unsatisfactory – Not in the interests of the just, efficient, timely and cost effective resolution of dispute – Application refused.
Legislation Cited: Building and Construction Industry Security Of Payment Act 2002 (Vic); Civil Procedure Act 2010 (Vic); Wrongs Act 1958 (Vic).
Cases Cited: Facade Designs International Pty Ltd v Yuanda Vic Pty Ltd [2024] VSC 31.
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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 Walter Bond | Mr T Mullen | Colin Biggers & Paisley |
HIS HONOUR:
Introduction
By summons dated 4 March 2024, the defendant Yuanda seeks leave to file and serve a third party notice against Walter Bond. The essence of the claim is that when Bond administered the construction contract between Yuanda and the plaintiff (‘FDI’), he breached duties which he owed to Yuanda in tort, contract and equity. As a result, Bond exposed Yuanda to the alleged liabilities for which FDI is now suing.
Parties’ submissions
Yuanda contends that the Court should grant leave to file and serve a third party notice on Bond. In summary, Yuanda says that this is appropriate for several reasons:
(a) there is no reason in principle why a third party notice cannot be served upon Bond. A defendant can bring a claim against a third party even though the claim will not arise until the plaintiff succeeds in its claim against the defendant. Yuanda’s claims against Bond will not advance unless it is found liable to FDI. To that extent, the third party claims depend upon a contingency occurring in the future, namely, Yuanda is unsuccessful in defending the case brought by FDI;
(b) Yuanda contends that the criticisms made by Bond and FDI of the previous pleading in relation to the contract between Yuanda and Bond are no longer valid. Yuanda says the proposed third party notice is adequately particularised;
(c) as to delay, Yuanda contends that the proceedings are at an early stage and FDI has not yet filed or served any evidence. While Yuanda accepts some responsibility for the slow progress of the litigation, it says that it is not solely responsible and that FDI itself has been responsible for two periods of delay totalling to approximately nine months. Yuanda also alleged that FDI was slow to respond to queries about whether it relied upon the ‘Settlement Agreement’;
(d) Yuanda contends that broader case management considerations favour the grant of leave. It says that if leave is not given, there will be duplication, additional cost and a greater burden placed upon the Court and the parties.
In addressing the various discretionary factors, Yuanda drew attention to a number of matters which it said favoured the grant of an order. It argued that if leave were not given, Yuanda would probably commence separate proceedings against Bond. This would lead to a multiplicity of proceedings where there would be a common issue in relation to the circumstances in which each disputed variation came to be issued. Also, if leave were given, Bond could argue that the third party claim should be effectively stayed until the outcome of the dispute between FDI and Yuanda was known.
Next, Yuanda said that it could wait until the completion of the current proceedings before suing (save perhaps except for its contract claim). This would probably involve a duplication of evidence and cross-examination and create the risk of inconsistent judgments – this was not desirable.
Finally, Yuanda contended that the best time to examine the potential impact of the third party claim on the current proceeding was after Bond filed his defence to the third party claim.
Bond objected to Yuanda’s third party application. In broad terms, Bond’s response to Yuanda was as follows:
(a) although some kinds of third party claims could be brought on a contingent basis, that did not mean that the Court could or should necessarily grant Yuanda leave to issue this third party notice. It was significant that both the proposed third party and the plaintiff objected to the application and that Yuanda was bringing the application well out of time;
(b) Yuanda failed to plead and particularise properly the claim which it seeks to make against Bond. This was significant in a context where Yuanda had previously sought to raise claims against Bond and both Bond and FDI had given detailed responses to Yuanda explaining alleged deficiencies in the pleading;
(c) Yuanda could not sensibly maintain its submission that it had not delayed the existing proceeding and/or that allowing it to serve the third party notice at this point would not cause further delay to the principal proceeding; and
(d) case management considerations including the practical consequences for Bond, FDI and other prospective parties, and in turn the Court, told against Yuanda obtaining leave from the Court.
For its part, FDI also raised a number of objections against the grant of the third party order in Yuanda’s favour:
(a) FDI contended that the proposed third party notice contained serious pleading flaws: the alleged employment relationship was devoid of relevant particularisation and support in crucial respects; it was vague and unsatisfactory to speak of an employment arrangement being ‘transferred’ from a parent company to a subsidiary; the allegation of a breach of fiduciary duty by Bond necessarily involved Yuanda demonstrating vulnerability on its part to the actions of Bond as the alleged fiduciary – the pleading did not explain how the vulnerability arose in the present case, particularly as there was no allegation of Bond breaching any policy in a way which led to Yuanda suffering loss or damage; notwithstanding the fact that it had been referred to earlier, there was no prayer for relief;
(b) in the context of causation issues, FDI had previously sought to highlight alleged deficiencies in the earlier version of Yuanda’s claim.
Analysis
Context is important in considering this kind of third party application. Whether or not to grant such an application is discretionary in the sense that there is no general rule which will necessarily determine the outcome in every case. Rather, the Court is obliged to examine the evidence, decide what factors are relevant to the exercise of the discretion, weigh the competing factors and make a decision based upon a conscientious assessment of those matters. In so acting, the Court is to pay close regard to the Civil Procedure Act 2010 (Vic) (“the CPA”). The Court must seek to give effect to the overarching purpose[1] when exercising or interpreting any of its powers.[2] The overarching purpose is to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute. Section 9 of the CPA lists a range of objects to which the Court can have regard in furthering the overarching purpose.
[1]See section 7 of the CPA.
[2]Section 8 of the CPA.
This is not the first time that Yuanda has sought to raise a claim against Bond in this proceeding. In its original defence and counterclaim dated 20 July 2022, Yuanda raised a counterclaim against Bond as the second defendant to counterclaim. Delany J struck out that pleading on 14 October 2022. When he made that order, the judge directed that Yuanda deliver another proposed amended defence and counterclaim on the other parties by 4.00pm on 18 November 2022. Those parties could review the document and if they did not oppose it, the proposed pleading would stand. If they did object to the filing of the document, Yuanda was to file and serve an application to amend by 28 November 2022.
By order made on 7 December 2022, Delany J repeated the substance of the orders made on 14 October 2022 but extended the dates for compliance. Thus, Yuanda was to deliver the proposed draft pleading by 4.00pm on 16 December 2022; the plaintiff and defendants to counterclaim (including Bond) were to respond by 21 December 2022; if those parties objected to the pleading, Yuanda was to file and serve an application for leave by 23 January 2023 and the matter was adjourned to the directions hearing before Delany J on 3 February 2023.
It appears that Yuanda issued a summons on 23 January 2023 seeking leave to file and serve its proposed draft defence and counterclaim in the form provided to the other parties in December 2022.
By orders made on 30 January 2023, Delany J adjourned the directions hearing and the hearing of Yuanda’s summons until 24 March 2023. By order made on 20 February 2023, his Honour adjourned the hearing of the defendants’ summons to 20 April 2023.
Then on 19 April 2023, Delany J ordered inter alia, that Yuanda advise the other parties by 7 June 2023 whether it intended to make a counterclaim against Bond. This order seems to have arisen in circumstances where the counterclaim against Callipari, a director of FDI, was withdrawn and Yuanda was ordered to pay Callipari’s costs of and incidental to the proceeding on a standard basis.
On 5 July 2023, Delany J ordered that Yuanda was to advise the other parties by 28 July 2023 whether it intended to make a counterclaim against Bond. Again, on 15 August 2023, Delany J made the same order giving Yuanda until 15 September 2023 to advise the other parties of its intentions regarding a counterclaim against Bond.
Yet again on 10 October 2023, Delany J ordered Yuanda to so advise the other parties about any proposed counterclaim by 27 October 2023.
On or about 22 November 2023, Yuanda served a proposed defence and counterclaim upon FDI and Bond. On 29 November 2023, Delany J ordered that Bond and FDI were to inform the defendant by 15 December 2023 whether they consented to the filing of the draft counterclaim provided to them a week earlier. If they objected, those parties were to deliver a short outline of submissions to Yuanda explaining the basis of the opposition to the leave application. The Court then granted Yuanda time to consider the other parties’ submissions. Delany J ordered that by 22 January 2024, Yuanda was to either serve any amended version of the draft counterclaim or file a summons seeking leave to file the counterclaim, whether in its current form or as amended after taking account of the other parties’ criticisms. If the leave application became necessary, it was made returnable before Delany J on 2 February 2024.
Consistent with the Court’s orders, both FDI and Bond provided detailed written critiques to Yuanda about its proposed pleading. Notwithstanding the criticisms made, Yuanda did not further amend its pleading but pressed ahead with its application to file an amended counterclaim.
I heard Yuanda’s application on 2 February 2024 and dismissed it.[3]
[3]Facade Designs International Pty Ltd v Yuanda Vic Pty Ltd [2024] VSC 31.
Accordingly, this application by Yuanda represents another attempt to join Bond as a party to the proceeding.
The time within which a defendant such as Yuanda could issue a third party notice as of right has long expired. If a defendant does not file a third party notice within 30 days after the time limited for service of the defence, it requires the written consent of all the other parties or the leave of the Court. Yuanda filed its defence on 20 July 2022. So any third party notice should have been filed by about late August 2022. Accordingly, Yuanda’s application is approximately 18 months late.
In my opinion, the circumstances of this application are such that Yuanda should explain to the Court:
·why it did not act sooner in filing the third party notice application;
·why the Court should grant the leave sought, especially in circumstances where both the plaintiff and the putative third party resist the application.
Given the history of the proceeding, it was appropriate for Yuanda to file evidence underpinning the third party claim especially to the extent that Yuanda relied upon a new proposed pleading which contained new material not covered in the proposed second defence and counterclaim which was the subject of argument before me on 2 February 2024. I note also that on 9 February 2024, I indicated that if Yuanda sought to make an application to file and serve a third party notice, then I expected that Yuanda would file good affidavit material in support of the application.[4]
[4]Transcript 9.
Yuanda has not addressed these matters, especially the former, in any significant detail. I note that in paragraph 2 of its submissions filed in support of its application, Yuanda said that it:
“previously sought to join Bond by way of counterclaim. It did so in circumstances where the Court’s directions of 29 November 2023 provided for the delivery of a counterclaim in respect of Bond, as distinct from a third party notice. On 12 February 2024, the Court dismissed Yuanda’s application to join Bond by way of counterclaim.”
Yuanda appears to contend that its decision to file a counterclaim against Bond was governed or directed by the Court and that Yuanda did no more than comply with the Court’s directions. If I have correctly characterised Yuanda’s argument on this issue, it concerns me. While courts have a general supervisory jurisdiction and broad powers which they can invoke to manage litigation, from the time the writ is issued until judgment, the primary responsibility for the conduct of contentious litigation lies with the parties. Here, it was Yuanda’s decision in the first instance to raise a counterclaim against Bond in its defence. When the initial defence and counterclaim was struck out, Yuanda continued on the same path. The Court granted another pleading opportunity to Yuanda. But it did not demand or require that Yuanda file a counterclaim against Bond. It is not appropriate for Yuanda to seek to avoid responsibility for its decision by blaming the Court.
Moreover, it is apparent from the earlier reference to the various orders made by Delany J that the question of whether or not to proceed with the counterclaim was squarely raised with Yuanda and that, ultimately, Yuanda decided to persist with the counterclaim. The fact that Yuanda was given the time and opportunity to consider the merits of its initial decision to make a counterclaim against Bond emphasises that it is Yuanda which must accept responsibility for the decision to pursue Bond by counterclaim.
At the hearing before me on 2 February 2024 where Yuanda sought leave to file and serve an amended defence and counterclaim against Bond, I made clear my view that Yuanda was adopting the wrong procedure. I understood Yuanda’s counsel to accept or agree at the time that a third party notice was the correct option and was the one which Yuanda ought to have adopted.[5]
[5]Transcript 2:21.
Other aspects of the application trouble me.
If the application is granted, there will be more delay and cost incurred in conducting this litigation. Based on the evidence and counsel’s submissions, I expect that Bond will wish to make contribution claims against other people in relation to the alleged loss and damage which Yuanda suffered. It appears from the decisions of Riordan J and the Court of Appeal regarding the Building and Construction Industry Security Of Payment Act 2002 (Vic) (“SOP Act”) proceedings between FDI and Yuanda that there is some basis for Bond to argue that:
·the scope of any potential liability of Bond must be limited to the various claims made by FDI;
·a number of the variation claims related to the period after Bond ceased his employment with Yuanda;
·there is evidence to the effect that FDI’s variation claims were based upon directions and instructions given by people other than Bond. These people included the project manager Rith Nguon and other members of management at Yuanda such as Zhijun Liu, David Rees, Sam Cui, Fang Zhiqiang and Peter Zhao. There might also be other persons who were involved early on in the management of the project who gave instructions;
·the first four claims on the FDI Scott Schedule for invoices 1000, 1012, 1030 and 1044 concern remedial work which FDI performed on defective panels and associated fixings received from China. These claims were discussed and resolved with management and accounting staff other than Bond;
·in relation to unpaid variations, some are those which Riordan J dealt with in his judgment involving the SOP Act claims and the balance are those which post-date payment claim No 15. The first group involved people other than Bond. The latter group do not concern Bond because these claims arose only after Bond had left Yuanda.
From the above, I infer that if Bond is arguably liable to Yuanda, he will wish to contend that any such liability should be shared with the people named, especially Nguon.
Given the indication from Bond’s counsel about the path Bond would take to protect his interests, I regard it as almost inevitable that:
·more parties will be joined to the proceeding;
·further pleadings and/or amended pleadings will be filed;
·there will be additional discovery and extra pre-trial processes enlivened;
·when Bond joins more parties, FDI will have to decide whether it needs to join those parties as defendants.
As a result, the proceeding will take longer to obtain a trial date, the trial itself will become more complicated and lengthier and, consequently, will become more expensive for all involved. It will also become more emotionally exhausting for individual litigants.
This issue of delay is particularly relevant for three reasons. First, I commented in my initial judgment[6] that the parties appear to have adopted a somewhat casual approach to the performance of their obligations. This needs to stop, both for the sake of the parties and the administration of justice more generally in this State. The resources of the Supreme Court are limited and it is important for all litigants, both existing and potential, that those involved in litigation in the Court conduct themselves in an appropriate manner so that the Court’s resources are utilised efficiently for the maximum benefit of all litigants.[7]
[6]Facade Designs International Pty Ltd v Yuanda Vic Pty Ltd [2024] VSC 31 at [30].
[7]See the Civil Procedure Act 2010 (Vic).
Secondly, FDI filed proceedings in 2021 and the matter should be much closer to a final resolution than it is.
Thirdly, while FDI’s claims comprise five elements, the major claim is for $3.098 million for unpaid original contract work and loss flowing from what FDI says was Yuanda’s unlawful termination of the contract between them. This claim forms more than half the damages sought by FDI and is unaffected by any involvement of Bond. It is unsatisfactory that a major claim of this kind should be delayed due to smaller claims which cannot affect the outcome of this aspect of the case. Courts should strive to avoid a situation in which a party which has a good arguable claim for moneys owed goes into administration or liquidation before the courts make a determination on the claim.
Given the above matters, there is obvious prejudice to FDI if the application by Yuanda is granted. Similarly, there is a clear disadvantage for Bond if Yuanda can issue the third party notice. Bond becomes immediately involved in the litigation and will probably need to make prompt decisions about filing a defence and joining other parties to the case.
If Yuanda’s application is refused, its disadvantage is more limited. Yuanda noted that given the limitation periods, there was no impediment to it issuing a separate proceeding against Bond. The potential claims for negligence and breach of fiduciary duty would not crystallise until Yuanda failed in its defence against FDI. As I understand the position, Yuanda may need to commence proceedings sooner in relation to the breach of contract claim. Damage does not form an element of that cause of action so the limitation period commences earlier.
The major prejudice for Yuanda in respect of the application would be the inability for its claim to be addressed at the same time in the same hearing and have all parties bound by the same factual and legal findings. The risk of inconsistent findings becomes a possibility.
Decision
In weighing the potential outcomes, I consider that Yuanda’s application should fail. I have reached this conclusion for the following reasons.
First, Yuanda has had ample prior opportunity to bring a claim against Bond and has not successfully done so. It tried to pursue him with a counterclaim and only belatedly decided to bring a third party notice. Yuanda has chosen its procedural path and must be responsible for the consequences of its choices. Yuanda’s evidence does not persuade me that the Court should grant the indulgence sought.
Secondly, while Yuanda is entitled to the opportunity to make Bond part of the proceeding, it cannot dawdle through the process and expect the Court and other litigants to work to the same schedule. Yuanda is entitled to a fair opportunity to protect itself. It has received that opportunity and has not used it to best advantage. Yuanda cannot unreasonably:
(a) delay the progress of the proceeding and the trial by making multiple attempts to involve Bond in the proceeding; and
(b) limit or interfere with the expectations of other litigants that their access to the Court and its resources will not be unduly delayed or postponed.
Thirdly, if the courts are too indulgent in relation to parties like Yuanda and do not insist upon parties and their legal representatives acting consistently with their obligations under the CPA, it will frustrate and subvert the overarching purpose, contrary to a main objective of the CPA.[8]
[8]See section 1(1)(c) of the CPA.
Fourthly, if Yuanda were allowed to file its third party notice, it is highly likely that Bond would, in turn, seek to join other parties to the proceeding. It is reasonably clear from the material before the Court that:
·there were a number of other persons who worked for Yuanda and who were involved in giving directions or instructions in relation to the subject project;
·Yuanda has elected only to pursue Bond and not these other people;
·a number of variation claims the subject of Yuanda’s proposed claim against Bond appear weak. For example, some claims seem not to involve approval by Bond or were dealt with only after Bond had left Yuanda; and
·Bond would wish to use the provisions of the Wrongs Act 1958 (Vic) to make claims regarding proportional liability and/or contribution against others involved in the project.
Once the pleadings expand to include new parties, claims, defences and discovery, the resolution of the litigation will inevitably be delayed. The time between the commencement of the proceeding and the hearing of the trial will only lengthen. This would happen if Yuanda were allowed to file and serve its third party notice. But the situation would deteriorate even further once Bond sought to involve other parties.
Fifthly, the case pleaded by Yuanda is unsatisfactory. In the earlier judgment I commented on the pleading of the employment relationship and its terms. The third party notice says that there was a legal relationship of employment between Bond and Yuanda. The terms were said to be the same, or substantially the same, as those set out in a written contract of employment dated December 2007 between Bond and Yuanda Australia Pty Ltd. The legal relationship of employment is said to have arisen by inference from communications between Bond and Yuanda from late 2014 onwards. These communications include communications between David Rees of Yuanda and Bond in late 2014/early 2015. The effect of the communications was that Bond would work for Yuanda and carry out management roles on its behalf. The pleading set out no other material facts or particulars of the conversation between Rees and Bond. This is important because there is no explanation of how the original agreement between Yuanda Australia Pty Ltd and Bond was discharged or terminated and, consequently, how Yuanda became the employer. The pleading does not explain whether the original agreement was novated or was superseded in some way by an oral agreement. Nor does it explain the extent to which the terms of the employment agreement now relied upon are different from the original agreement.
The pleading does not explain how and when Bond’s status changed from project manager to construction manager and whether the terms of employment were relevantly the same for both positions.
The prime focus of the variation claim is the claim that Bond wrongly approved variations worth about $2.5 million which were in fact not variations but represented work within the scope of the contract with FDI. Hence, FDI was not entitled to the extra payments made.
Here, the pleading is broad and does not articulate what reasonable steps Bond failed to take in relation to each variation claim and how, specifically, Bond’s conduct (and not the conduct of others) caused loss and damage for Yuanda. At this point, it would be difficult, if not impossible, for Bond to:
·respond to Yuanda’s allegations against him; and
·make proportionate liability and/or contributions claims against other persons at Yuanda
because there is insufficient detail to understand the allegations against him. I note that FDI and Bond raised this point against Yuanda in the context of the proposed counterclaim against Bond and Yuanda has not grappled with the issue.
Further, although the other parties drew Yuanda’s attention to the absence of a prayer for relief some time ago, Yuanda has taken no steps to rectify the position.
Sixthly, if the claim is allowed then:
(a) the hearing of FDI’s claim will be further delayed because FDI will need to consider and assess Bond’s response which might well include the joinder of extra parties; and
(b) Bond will have much greater involvement in the trial. This will cause Bond to incur significant expenditure which may prove to be wholly unnecessary if Yuanda’s defence succeeds.
Finally, the prejudice to Yuanda if the application is refused is not so great as the prejudice to the others. If the application is refused, Yuanda can issue separate proceedings because no limitation period has expired (although this course raises the risk of inconsistent findings). Yuanda seemed to argue that there was little practical difference between, on the one hand, refusing the application and Yuanda issuing a new proceeding and, on the other hand, granting Yuanda’s application in relation to the third party notice and having that claim held in abeyance until the outcome of the dispute between FDI and Yuanda was known. That may be true. But in circumstances where Yuanda has not filed persuasive material in support of its application, I do not consider it appropriate to grant leave to Yuanda.
I also acknowledge that if Yuanda issues a separate writ against Bond, there could be some duplication of work, time in court and expense for Bond and others. But, if Yuanda is permitted to file and serve the third party notice, there is an immediate prejudice for Bond. However, if Yuanda is not permitted to commence the third party claim, then the practical impact of the prejudice is avoided at best, or deferred at worst because the future of Yuanda’s claim against Bond will be governed by the outcome of FDI’s claim against Yuanda – not only whether FDI succeeded, but on what grounds and the amount recovered.
In the circumstances and for the reasons set out above, I dismiss Yuanda’s summons filed 22 January 2024. If, as it indicated at the hearing, Yuanda intends to file a new proceeding against Bond, then subject to hearing from the parties, I see merit in such proceeding being managed with this one. I suggest that the parties consider the potential benefits of a generally endorsed writ and a stay of such new proceeding pending the hearing and determination of this current action between FDI and Yuanda.
Conclusion
Subject to hearing from the parties, I order that:
(a) the defendant’s summons filed 4 March 2024 be dismissed.
(b) the defendant pay the plaintiff’s and Walter Bond’s costs of and incidental to the application, such costs to be taxed on a standard basis in default of agreement.
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