Fletcher Construction Australia Ltd v Skep Pty Ltd
[2000] VSC 106
•30 March 2000
| SUPREME COURT OF VICTORIA | |
| BUILDING CASES LIST | Not Restricted |
No. 8773 of 1995
| FLETCHER CONSTRUCTION AUSTRALIA LIMITED | Plaintiff |
| v | |
| SKEP PTY LTD | Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 November 1999 | |
DATE OF JUDGMENT: | 30 March 2000 | |
CASE MAY BE CITED AS: | Fletcher Construction Aust Ltd v Skep Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 106 | |
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Practice and Procedure – application to amend statement of claim – additional claims in the nature of claims in a third party proceeding – causes of action incomplete.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr J. Digby QC and Mr F. Tiernan | Phillips Fox |
| For the Defendant | Mr P. Murdoch QC and Mr R. Manly | Connery & Partners |
HIS HONOUR:
By summons returnable in the Building Cases List and dated 1 November 1999 the plaintiff ("Fletcher") seeks leave to amend its statement of claim in the form of exhibit "SMR1" to the affidavit of Shirley Maree Rooney sworn 29 October 1999. That application is opposed by the defendant ("Skep").
The background to this proceeding is that Fletcher, by a construction agreement dated 31 December 1992 with a "special purpose company" ("Varnsdorf"), agreed to design, construct and commission certain co-generation plants for a project known as the Victorian Hospitals Co-Generation Project. There are a number of other agreements relating to the project between participating entities. The core document is an Energy Services Agreement dated 6 July 1993 between Varnsdorf and the Victorian Minister for Health. There is an Operating Agreement dated 31 December 1992 between Varnsdorf and Command Energy Pty Ltd ("Command") and a Supply Agreement dated 31 December 1992 between Fletcher and "Detco".
Fletcher engaged Skep to provide engineering services in relation to the project.
Arising out of these agreements and the works performed thereunder a number of large disputes arose between the various parties which have gone to arbitration. Four arbitration proceedings the earliest of which began in December 1994, have been consolidated: Fletcher, Varnsdorf, Command and Detco are the parties involved. The hearing is yet to commence.
The writ in this proceeding is dated 22 December 1995 and the statement of claim was filed on 30 May 1997. Further and better particulars of the statement of claim were delivered in August 1997. However, no defence has been delivered and Fletcher has not sought to press for its delivery. Clearly, priority has been given to the arbitrations. Also Skep has outstanding complaints about the particulars and Fletcher has not contended that a defence should nevertheless be delivered.
The statement of claim seeks damages based, inter alia upon breach of contract, alternatively negligence, by Skep. In substance, Fletcher alleges, negligent design and other breaches by Skep under a "GMP Phase Agreement", made in or about January 1992, in the provision of engineering services regarding the "Guaranteed Maximum Price Phase" of the Project. Further or in the alternative, Fletcher sues upon a Deed of Engagement dated 31 December 1992, whereby Skep was engaged "to provide full and complete design requirements to meet Section 1 of the Project manuals for each of the co-generation plants". Breaches of various terms of the Deed of Engagement are alleged. In substance, negligent design in relation to many elements of the co-generation plants is alleged. The Statement of Claim (para.30 (g) ) also pleads that it was a term of the Deed of Engagement that Skep would indemnify Fletcher against all proceedings against it and damages and losses suffered or incurred by it "arising out of or in connection with any failure by [Skep] its servants or agents to perform their obligations under the Deed of Engagement at the times and in the manner required by the conditions of engagement . . ."
The proposed amendments firstly seek to append to paragraph 31 of the statement of claim, which contains broad allegations of breaches of the Deed of Engagement in relation to a large number of specified areas of the plants, a set of particulars. Twenty numbered particulars are set out. Some of these particulars provide some specificity in relation to the breaches alleged, others remain very broad. All probably call for the provision of further and better particulars. The proposed particulars end with the following two sentences:
"Further particulars of each of the above breaches are set out in the arbitration pleadings of Varnsdorf Pty. Ltd. and Command Energy Pty. Ltd. referred to in particulars to paragraph 32 below, and in the witness statements referred to therein. Copies of those pleadings together with the witness statements relating to the above particulars may be inspected at the offices of the Plaintiff's solicitors upon appointment."
I record immediately that Skep complains, and I agree, that it should not be required to search through the arbitration pleadings and witness statements of Varnsdorf and Command to identify these further particulars.
The proposed amendments next add particulars of loss and damage to paragraph 32 of the Statement of Claim. A long list of items of pecuniary loss and damage in the nature mainly of building costs is already appended to paragraph 28 of the statement of claim and is repeated in relation to paragraph 32. The additional damages now sought to be particularised or at least identified in a broad fashion, are the damages, costs and interest involved in various arbitration proceedings to which Fletcher is a party and which Fletcher "incurs and/or becomes liable to pay" and which so far as damages are concerned, are "alleged to have been caused, inter alia, by reason of the defective design of the facilities". These proposed particulars end with the following two sentences:
"Further particulars shall be provided when they come to hand in relation to the Fletcher/Varnsdorf and Command/Fletcher arbitrations. The hearing of the Fletcher/Varnsdorf arbitration is due to commence on 7 March 2000."
Next, the amendments seek to substitute and add new paragraphs 41 to 48 which contain a series of allegations which are in the nature of claims which might be made in a third party proceeding. Paragraph 41 refers to the Fletcher/Varnsdorf and the Command/Fletcher arbitrations. Paragraph 42 sets out numerous claims made by Varnsdorf against Fletcher in the Fletcher/Varnsdorf arbitration "based, inter alia, upon alleged defective design of the facilities". Paragraph 43 refers to Varnsdorf's claim as against Fletcher that by reason of, inter alia, the said claims, Varnsdorf has suffered time damages, performance damages, damages, interest and other losses and costs. Paragraphs 44 and 45 contain allegations of a like nature in relation to Command's claims against Fletcher in the Command/Fletcher arbitration. Paragraph 46 says that Fletcher disputes these claims by Varnsdorf and Command -
"… but if the allegations or some or one of them are proven, the Defendant, inter alia, has failed to perform its obligations under the Deed of Engagement and is in breach of the following terms and conditions thereof or some or one of them and/or is in breach of the warranties or representations made by the Defendant under or in connection with the Deed of Engagement, namely –
(a)the obligation under clause 2.1 with respect to the sufficiency and accuracy of the Defendant's design and its performance being in accordance with standards of care and diligence normally found within the industry, particularly in respect of the generation of steam and electricity;
(b)the obligation under clause 3 to ensure that the Defendant's design complied with and met the requirements of the Project Manual Section 1, all Codes, Acts, laws and regulations, and the published requirements of any authority having jurisdiction over the Works as in force at the time the design and details documented were issued to the Plaintiff for construction;
(c)the representation and warranty under clause 4.2 that the Defendant had the requisite technology, skill, personnel and that it would employ sub-consultants that collectively provided the ability to perform all of the Defendant's obligations under the Deed of Engagement;
(d)the representation and warranty under clause 4.3 that the Defendant's performance would be in accordance with standards of care and diligence normally found within the industry, particularly in respect of the generation of steam and electricity;
(e)the representation and warranty under clause 4.4 that the Services to be provided by the Defendant with respect to the Facility and each Separate Part would be fit for use as stated in the Project Manual Section 1 and suitable for the purposes for which they were intended to be used by Varnsdorf as stated in the Project Manual Section 1 (including any sub-contractor of Varnsdorf such as CEES), and that the design and documentation of the Facility and each Separate Part would be free from all but minor and incidental deficiencies and non-conformances (as defined in AS1057, 1985); and
(f)the representation and warranty under clause 4.5 that all Services of the Defendant with respect to the Facility would be in accordance with all relevant Australian Standards applicable to the Facility and if no Australian Standards was applicable, then the Plaintiff and the Defendant may have agreed on the application of relevant International Standards."
Paragraph 47 says in substance that Skep denies that Fletcher is entitled to be kept indemnified in relation to the claims made by Varnsdorf and Command. Paragraph 48 pleads that, by reason of the matters alleged in paragraphs 30(a) and 41-47, Fletcher is entitled to be kept indemnified by Skep against the claims by Varnsdorf and Command, and against any damages, losses, costs and expenses suffered or incurred by Fletcher arising out of or in connection with the claims by Varnsdorf and Command.
Finally, the Prayer for Relief is sought to be amended by substituting a new paragraph F claiming a:
"Declaration that the Plaintiff is entitled to be kept indemnified by the Defendant against the claims referred to in paragraphs 41-48 and against any damages, losses, costs and expenses suffered or incurred by the Plaintiff arising out of or in connection with those claims."
Fletcher submitted that its cause of action for breach of the Deed of Engagement regarding defective design was "complete" but that the damages particularised under paragraph 32 could not be ascertained until the arbitration was completed and that therefore this proceeding should not be tried until completion of the consolidated arbitration, adding that "[i]f all matters were in court, this proceeding would be conducted as a third party claim, but because of the arbitration this is not possible…" With respect to the "indemnity claim", Fletcher submitted that although the cause of action was "not complete", Fletcher was entitled to seek a declaration.
Fletcher referred to Hobbs v Wayet (1887) 36 Ch.D. 256 in which Kekewich J said (at 259):
"I think that a man who accepts a liability, and who is therefore entitled to be indemnified directly the cloud appears – I am using a metaphor which I find made use of in that case – however small that cloud may be, is entitled to go to the man who made who made the request and I say, 'I am entitled to be indemnified,' and if the right to indemnity is denied he has a right to come to this Court and obtain a declaration that he or his testator's estate is entitled to be relieved from that liability. Here I have that very case. The action has been commenced and the liability is denied at the Bar. What more can the Plaintiff want to justify his claiming the indemnity by action than the denial at the Bar of his right to relief?"
Fletcher also referred to Arthur Young v Brunswick N.L. [1999] 1 VR 387, 394 per Brooking JA:
"In so far as a money sum is claimed, the statement of claim must, as I have said, disclose a cause of action. But this rule has no application where only a declaration is sought; I forbear from citing authority for a proposition which has become so well established."
Skep submitted that the particulars to paragraph 31 of the proposed amended statement of claim were embarrassing because (as I have accepted above) they referred to pleadings and witness statements in the Varnsdorf/Command arbitration.
Skep next submitted that, although paragraph 32 alleged that Fletcher "has suffered" loss and damage, the particulars showed that the loss and damage related to "future" liability or losses (ie to be incurred in the future, or if not incurred in the future, to be determined in the future).
Skep primarily submitted that, by its allegation in paragraphs 41-47 of the proposed amended statement of claim, Fletcher was seeking to raise a claim in the nature of a third party claim which could not be done in a statement of claim because there was no presently existing cause of action. It was contended that the whole of the new claim by Fletcher was predicated on its losing in the arbitrations. Skep submitted that there was no dispute as to the existence of the indemnity provision as opposed to a dispute as to the present existence of facts which would entitle Fletcher to such an indemnity. Accordingly, the granting of a declaration would be futile because all of the events necessary to liability thereunder might never happen.
In my view, Skep's primary submission is correct and leave for the amendments should not be granted. There is no dispute about the existence of the indemnity provision and other relevant contractual provisions placing obligations upon Skep (and a declaration as to those matters is unnecessary) but the establishment of the facts necessary to give rise to liability of Skep thereunder are tied by Fletcher's proposed amendments to questions both of liability and quantum which are in issue in the arbitration proceedings between Fletcher and Varnsdorf and Command. Fletcher's cause of action is admittedly "incomplete" and the principal amendments sought are therefore premature and hypothetical. This obstacle cannot be avoided by the pretence that only a declaration is sought. Because of the unavailability of a third party procedure, the public policy underlying such a procedure, which favours finality in litigation and the avoidance of a multiplicity of proceedings and additional costs, cannot be easily served.
Ideally, the question of Fletcher's rights should be determined as soon as possible after the determination of liability as between Fletcher and the other parties in the arbitration proceeding – a benefit available in third party proceedings. However, that consideration cannot, it seems to me, be called in aid to permit Fletcher to plead an incomplete cause of action. On the other hand, to permit Fletcher's proceeding to advance and be heard on the basis of the unamended pleading would in my opinion be very likely not to be conducive to the complete, efficient and economic determination of the disputes or potential disputes between Fletcher and Skep. It might well lead to two trials concerning the same or substantially overlapping facts and issues concerning Skep's design responsibilities and related matters.
Accordingly, I tentatively consider that it is appropriate to direct that this proceeding be stayed until the determination of the Fletcher/Varnsdorf and Fletcher/Command arbitrations, or further order. However, I will hear any further submissions which the parties may wish to make on this aspect at a convenient time.
I will make the following orders:
A. Application for leave to amend statement of claim refused.
B.Plaintiff to pay defendant's costs of the application for leave to amend statement of claim.
C.Adjourn summons for directions to a date to be fixed.
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