Johnson Tiles Pty Ltd v Esso Australia Limited

[2000] FCA 1837

FEDERAL COURT OF AUSTRALIA

Johnson Tiles Pty Ltd v Esso Australia Limited [2000] FCA 1837

COURTS – practice and procedure – representative proceeding – whether there should be separate trials of the claim and cross-claim

COURTS – practice and procedure – pleadings – amendment – claim in negligence for economic loss – whether applicants’ dependence upon or vulnerability to conduct of another can be pleaded by respondent as a defence to the applicants’ claim of dependence upon and vulnerability to conduct of the respondent

Federal Court of Australia Act 1976 (Cth) Pt IVA

Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 97 FCR 175 - cited
A.M.P. Fire and General Insurance Company Ltd v Dixon [1982] VR 833 - distinguished
Philip Morris (Australia) Ltd v Nixon (2000) 170 ALR 487 - applied
Perre v Apand (1999) 164 ALR 606; [1999] HCA 36 - considered
Alexander v Cambridge Credit Corporation (1987) 9 NSWLR 310 – cited
Wickstead v Browne (1992) 30 NSWLR 1 – cited
Wickstead v Browne (1993) 10 Leg Rep SL 2 - cited

JOHNSON TILES PTY LTD V ESSO AUSTRALIA LIMITED
VG 519 OF 1998 AND VG 524 OF 1998

JUDGE:        MERKEL J
DATE:          13 DECEMBER 2000
PLACE:        MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 519 OF 1998 VG 524 OF 1998

BETWEEN:

JOHNSON TILES PTY LTD AND OTHERS
APPLICANTS

ESSO AUSTRALIA LTD AND ANOTHER
RESPONDENTS/CROSS-CLAIMANTS

AND:

STATE ELECTRICITY COMMISSION OF VICTORIA AND OTHERS
CROSS RESPONDENTS/CROSS-CLAIMANTS

BHP PETROLEUM (BASS STRAIT) PTY LTD
CROSS-RESPONDENT

JUDGE:

MERKEL J

DATE OF ORDER:

13 DECEMBER 2000

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.   Within 7 days the parties file minutes of orders to give effect to these reasons for judgment.

2.   The further hearing of directions be adjourned to 2 February 2001.

3.   Costs of each party of the respective motions concerning a separate trial of the negligence claims and the proposed amended defence be reserved.

4.   Pending the further directions hearing, directions for the trial of the negligence claims be dealt with in a case management conference before Registrar Efthim.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 519 OF 1998 VG 524 OF 1998

BETWEEN:

JOHNSON TILES PTY LTD AND OTHERS
APPLICANTS

ESSO AUSTRALIA LTD AND ANOTHER
RESPONDENTS/CROSS-CLAIMANTS

AND:

STATE ELECTRICITY COMMISSION OF VICTORIA AND OTHERS
CROSS-RESPONDENTS/CROSS-CLAIMANTS

BHP PETROLEUM (BASS STRAIT) PTY LTD
CROSS-RESPONDENT

JUDGE:

MERKEL J

DATE:

13 DECEMBER 2000

PLACE:

MELBOURNE

REASONS FOR JUDGMENT

Introduction

1. French J, a member of the Full Court in Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 97 FCR 175 at [2], summarised the present proceeding as follows:

   “This case arises out of an explosion and fire which occurred at the Longford Gas Plant in the State of Victoria on 25 September 1998.  Following the explosion gas supplies were unavailable to most consumers in the State of Victoria until 12 October 1998.  The applicants, Johnson Tiles Pty Ltd, Douglas Chalmers and Gregory Alan Dean, are respectively a business user, a domestic user and a worker stood down because of interruption of supply at his place of employment.  They bring these proceedings as representative parties under Part IVA of the Federal Court of Australia Act 1976 (Cth). Their claim is against Esso Australia Ltd and Esso Australia Resources Ltd (“Esso”) which own, operate and conduct the Longford Gas Plant. They say that as a result of misleading and deceptive conduct and negligence on the part of Esso, they and group members have suffered loss and damage arising from the interruption of gas supplies. Esso has cross-claimed against instrumentalities and authorities of the State of Victoria (State Entities) and others involved in the distribution and sale of gas to consumers. They allege, inter alia, causes of action based upon want of an emergency plan and other issues relating to the response to the interruptions to supply. The State Entities in turn have cross-claimed for contribution against other entities involved in the distribution and sale of gas and a number of insurance companies from whom they claim a right to indemnity under various policies. They have also cross-claimed against BHP Petroleum (Bass Strait) Pty Ltd (“BHP”) alleging that Esso operated the Longford plant as agents for BHP and, alternatively, that BHP was itself an operator of the plant and thereby responsible for the loss and damage said to have been suffered by the applicants and the group members.”

2. The Full Court decided that:

   ·     the misleading and deceptive conduct claim of the applicants was to be struck out as it was fatally flawed and should not be permitted to go forward: see [77];

   ·     the applicants’ cause of action in negligence was within the accrued jurisdiction of the Court and should continue in the Court: see [82], [88], [89], [95] and [97].

3. Prior to the Full Court decision, the applicants, supported by most of the cross-respondents to Esso’s cross claim, applied to have the negligence claims of a number of applicants or selected group members proceed to trial separately from the trial of Esso’s cross-claim.  The applicants did not oppose the misleading and deceptive conduct claims also proceeding to trial, although that issue no longer arises as a result of the Full Court decision.

4. Esso opposed separate trials, contending that the issues arising on the negligence claims and the cross-claim were inextricably linked as they involved overlapping issues of fact and law, with the consequence that separate trials would be impractical, unjust and prejudicial.

5. Although numerous trial alternatives were proffered by the parties, I am satisfied that the only two alternatives which warrant serious consideration are those that would bring the respective claims to finality.  The first such alternative is the applicants’ proposal for the separate trial of the negligence claims of selected applicants and group members.  The second is Esso’s proposal that the trial also include its cross-claim.  I do not regard the other proposals relating to the trial as appropriate as I am of the view that, at this stage, it is in the interests of justice that the trial should result in a final determination of either the applicants’ claims or of those claims and of Esso’s claims.

6. Plainly, the decision on whether there should be separate trials will have significant ramifications for the future conduct of the matter.  The issues arising on the negligence claim are complex but, with the co-operation of the parties, they are likely to be capable of being resolved in a trial extending over a few months.  The cross-claim raises a raft of quite separate and highly complex issues relating to the alleged failure of the State entities to have an alternative source of gas supply in place in the event of a serious interruption of gas supply.  No estimates were able to be given of the length of the trial on the cross-claim, but I expect that, even with the co-operation of the parties, it will take a very long period indeed.  I do not expect that any reliable estimate of less than a year could be given.  Obviously, if the negligence claims fail there will be no need for the cross-claim to proceed to trial.

7. Esso also brought a motion to amend its defence in the manner set out in the Proposed Amended Defence filed 5 June 2000 (“the proposed defence”).  Although many of the amendments were criticised by various parties, ultimately the amendments that were opposed were those which pleaded grounds of defence which overlapped with, or incorporated, grounds relied upon in Esso’s cross-claim.  If all of Esso’s substantive amendments are allowed that will have ramifications for the manageability and length of the trial of the negligence claim.  However, the final form of the proposed defence is a matter of significance to, but is not necessarily determinative of, the applicants’ application for separate trials.

   Separate Trials

8. On the present state of the pleadings, which I will treat as including Esso’s proposed amendments which I will permit, but as excluding those which I will not permit, I am of the view that there should be a separate trial of the negligence claims of selected applicants.  My reasons for that conclusion are as follows.

9. The trial of the negligence claims on both liability and quantum for selected applicants will not only finally determine the outcome of the particular claims, but will also, in practical terms, substantially determine the claims of most, if not all, group members because:

   ·     the selected applicants have been chosen on the basis that their claims are generally representative of the major categories of claims brought in the representative proceeding;

   ·     all parties are entitled to participate in the trial and will be bound by the outcome as well as by the findings of fact and the conclusions of law upon which that outcome is based.

10. Thus, if the negligence claims succeed, the claims of most other group members will also be likely to succeed.  Conversely, if the negligence claims fail, the representative proceeding will have failed and will be at an end.  While I expect that the outcome of the negligence claims will be the subject of appeal, an appellate court will also be well placed to deal with the matter on a final basis with greater expedition and less cost as a consequence of the negligence claims having been heard separately from the cross-claim.

11. Separate trials therefore offer a substantial degree of finality and certainty as well as a real prospect of saving time and expense.  Further, a final decision on the applicants’ claims in the selected cases will offer a better prospect for the mediation of all claims in this matter, as well as for other forms of alternative dispute resolution.  That has not occurred in any meaningful manner to date, presumably because of the difficulty in anticipating the outcome of, and the quantum involved in, the group members’ claims.

12. The alternative course proposed by Esso would require one of the largest trials undertaken in Australia.  The trial would, necessarily, be of uncertain duration and expense.  Such a course would also involve the risk of the trial of the cross-claim proving to have been entirely academic and unnecessary if the negligence claims fail.

13. Further, the present matter, whilst of undoubted importance, is nevertheless one of a large number of other important matters awaiting hearing before the Court.  The separate trial of the negligence claims is capable of achieving a measure of certainty and finality without severely prejudicing the rights of other litigants in the Court to have their matters proceed to trial.  I regard the interests of justice generally as being better served by deferring the trial of the cross-claim until it is known that it is necessary.

14. Esso’s primary argument opposing a separate trial was that the negligence claims and the cross-claim substantially overlap as they are concerned with the same question, being whether Esso or the State entities is liable in negligence for the interruption of supply.  I do not agree.  The negligence claims are concerned with whether Esso is liable in negligence for its conduct.  The question on the cross-claim, which only arises if Esso is found liable in negligence for its conduct, is whether the State entities are also liable in negligence for their conduct.  In so far as the two questions involve overlapping facts, most of those facts are not contentious.  The areas of contention in the cross-claim lie more in the facts that relate to the steps Esso alleges the State entities ought to have taken in order to have ensured an alternative source of supply.

15. Esso also contends that, if it fails in its defence of the negligence claims, it will have to pay damages without a right of contribution being able to be exercised in respect of the cross-respondents.  I do not regard that matter as carrying weight.  In monetary terms the claims that will proceed to trial constitute only a very small percentage of the total amount at issue in the present proceedings.  Even if those claims succeed and damages are required to be paid, it is not suggested that Esso faces any serious risk of being unable to recoup the funds paid from cross-respondents if it succeeds on the cross claim.  In any event, the question of whether it would be unjust to order payment of any damages can be considered if and when that question arises.

16. I am also not persuaded that there is any significant procedural or substantive unfairness in having the negligence claims heard and determined at a separate trial.  All parties having an interest in the outcome of the negligence claims will be entitled to be represented and to be heard at the trial in respect of their interest.  I expect that the parties will be able to agree upon the terms of an appropriate order which would bind all parties in respect of findings and the result.  If any difficulties arise in formulating such an order I will resolve them.  Thus, all parties will be bound by the findings and by the result.  It is difficult to identify any practical difficulty that would arise that would prevent the evidence adduced at the trial, in so far as it is relevant to the determination of the issues arising on the cross-claim, forming part of the evidence upon which the cross-claim is to be determined.  Likewise, I do not envisage any practical difficulty in findings made at the trial being able to be acted upon in so far as they relate to issues arising on the cross-claim.

17. Finally, in the unlikely event that any prejudice does arise, I am satisfied that the Court has ample procedures available to ensure a fair hearing for all parties in respect of their respective interests.

18. It is appropriate to emphasise that the present representative proceeding is probably the largest such action that has come before the courts in Australia.  Its management has presented many challenges and I expect that the efficient and fair management of the hearing will also present challenges.  My familiarity with the case is such that I am in no doubt that those challenges are better able to be met by separate trials.  In arriving at that conclusion I have had regard to the authorities calling for caution before splitting trials or having separate trials of a claim and cross-claim.  However, those cases arose in different contexts, and concerned issues that are quite different to those arising in the present case.  Indeed, Pt IVA of the Federal Court of Australia Act 1976 (Cth) anticipates staged hearings and the possibility of separate trials arising in representative proceedings which, by their nature, call for special management. Although I doubt the applicability to representative proceedings of authorities that suggest separate trials of claim and cross-claim should not be ordered unless there are “exceptional circumstances” (A.M.P. Fire and General Insurance Company Ltd v Dixon [1982] VR 833 at 836-837), I am satisfied that the circumstances of the present case are sufficiently “exceptional” to warrant separate trials.

19. Thus, for the foregoing reasons, it is expedient and in the interests of the administration of justice that the applicants’ proposal for a separate trial be adopted.

20. The above views have been expressed on the basis that the amendments that I have not permitted to be made to Esso’s defence do not form part of the pleadings that are to proceed to a trial of the negligence claims.  However, after careful consideration, I have decided that separate trials are appropriate even if those amendments were permitted to be made.  My reasons are:

    ·     the amendments only form part of the issues arising on the cross-claim;

    ·     the fact that the issues raised by the amendments may have to be traversed in the defence, of itself, is not sufficient to require that the whole of the cross-claim be heard;

    ·     the issues raised by the amendments will be more manageable at a trial of the negligence claims than at a trial of the whole of the negligence claims and all the issues arising on the cross-claim;

    ·     the time taken by the issues raised by the opposed amendments at the negligence trial is likely to be less than the time they are likely to take at the trial of the cross-claim as they do not appear to be put as the main issues arising on the defence (and therefore may not even need to be decided) whereas they are significant issues on the cross-claim;

    ·     the evidence given on the issues raised by the amendments at the negligence trial will not need to be duplicated at the trial of the cross-claim and, if findings are made on those issues, they can be available to be relied upon at the subsequent trial;

    ·     the reasons for my conclusion that there be separate trials do not lose their force or validity if the amendments are permitted.

21. Accordingly, I propose to order that the negligence claims of the selected applicants and group members be heard separately from Esso’s cross-claim and to make trial directions for the hearing of those claims.  I will refer the detail of those directions to Registrar Efthim.  I will deal with any outstanding trial directions and any other matters on which the parties are unable to agree at the adjourned directions to be heard on 2 February 2001.

    Amended Defence

22. The principles that are to be applied in granting leave to amend a pleading are well established.  The power to amend a pleading is given for the purpose of determining the real questions raised by the proceeding (see O 13, r 2, of the Federal Court Rules).  The grant of leave to amend is concerned with the raising of issues and not with their merits.  Therefore, leave will ordinarily be granted unless it can be demonstrated that the proposed amendment is bad in law and ought to be disallowed: see The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 456 per Dawson J.

23. An amendment, as with any pleading, must contain in a summary form the material facts on which the party relies, but not the evidence by which those facts are to be proved (O 11, r 2).  The permitted level of a generality of the pleading must depend on the subject matter and what is required to convey to an opposing party the case that is to be met: see generally Philip Morris (Australia) Ltd v Nixon (2000) 170 ALR 487 at 515 per Sackville J.

24. The negligence claim currently pleaded against Esso is as follows:

    ·     Esso managed and controlled the Longford plant at which it produced gas which was supplied to all, or nearly all, gas users in Victoria;

    ·     Esso supplied gas from the Longford plant to users by a system of pipes connecting the Longford plant to each gas user;

    ·     the applicants and group members were dependent upon Esso, as the sole supplier of gas, for a supply of gas which would be uninterrupted, except in the event of circumstances which were not reasonably foreseeable and reasonably preventable by Esso (“uninterrupted supply”);

    ·     Esso knew and intended, or ought to have known and reasonably foreseen, that the applicants and the group members would depend on it to provide to them (or their employers as the case may be) an uninterrupted supply of gas;

    ·     on 25 September 1998 a series of explosions and a fire occurred at the Longford plant which resulted in the supply of gas to consumers ceasing until 8 October 1998;

    ·     the applicants and the group members suffered loss and damage as a consequence of the cessation of supply;

    ·     Esso owed a duty of care to the applicants and group members when designing, installing, operating and maintaining the Longford plant to take appropriate steps to avoid causing loss and damage to them of the kind they suffered;

    ·     Esso breached the duty of care by failing to take those steps;

    ·     as a result of the breaches of duty the explosion and subsequent cessation of supply which occurred caused the applicants’ and the group members’ loss and damage.

1. Esso, in its current defence, denied the substantial allegations made against it and upon which the applicant’s cause of action in negligence depends.

2. The opposed amendments to Esso’s defence do not relate to the conduct of Esso.  Rather, they relate to allegations about the conduct of the State entities and certain other entities (who are compendiously referred to as “the State entities”) in relation to the system of gas supply and distribution established by the State entities between the tailgate of the Longford plant and the premises of the applicants and group members (“the gas distribution system”).  In reliance upon, inter alia, the same allegations, Esso has cross-claimed against the State entities, claiming that the loss suffered by the applicants and group members was caused by breaches of a duty of care owed by the State entities to those persons.  Thus, Esso is seeking to import substantive allegations, which form the basis for its cross-claim, into its defence.

3. Esso, with the support of BHP Petroleum (Bass Strait) Pty Ltd, a cross-respondent to a cross-claim of the State entities, contends that the amendments should be allowed on the ground that Esso is entitled to plead by way of defence that the applicants’ and group members’ dependence upon, and vulnerability to, the State entities in respect of continuity of supply meant no duty of care was owed to those persons by Esso.  On the issue of causation, Esso claims that certain acts and omissions of the State entities, including acts and omissions following the explosion, broke the chain of causation between any negligence established against Esso and the loss suffered by the applicants and group members.

4. The applicants and the State entities made detailed submissions opposing the proposed amendments.  They contended that the amendments relating to dependence and vulnerability were only relevant to whether the State entities were negligent in respect of the steps that were taken, or ought to have been taken, by them to avoid the loss and damage suffered by the applicants and group members.  Thus, it was contended that establishing whether the applicants or group members were dependent upon, and vulnerable to, conduct of the State entities is an issue arising on the cross-claim by Esso and not its defence.  The amendments relating to causation were also criticised on the basis that they were not capable of establishing that the State entities’ conduct, rather than Esso’s, was the sole cause of the applicants’ and group members’ loss.

5. It is appropriate to deal with the issues of dependence and vulnerability separately from the issue of causation.

   Dependence and Vulnerability

6. Although dependence and vulnerability were separately pleaded, I have found it convenient to deal with them together in these reasons as they are closely related in many respects.  However, in doing so, I acknowledge that aspects of Esso’s plea concerning vulnerability go beyond its plea concerning dependence.

   (a)       Esso’s submissions

7. The applicants and group members allege that their dependence upon Esso for uninterrupted gas supply is a material fact supporting the existence of the duty of care alleged to be owed to them by Esso.  Esso contended that the applicants and group members were not dependent upon Esso but, rather, were dependent on one or more of the State entities, and that therefore no duty of care was owed by Esso to the applicants and group members.  The principal pleas of dependence on the State entities are contained in paragraphs 6.7 to 6.15 of the proposed defence.  Paragraph 6.7 sets out the facts and matters relied upon to allege that the applicants and group members were dependent on the State entities’ gas distribution system.  Paragraphs 6.8 through to 6.16 identify each of the relevant State entities and their duties and responsibilities under statute or contract in relation to that system.  In paragraphs 6.17 to 6.25 Esso alleges that the applicants and group members were vulnerable to the State entities in relation to the risk of failure of supply from the gas distribution system.  The amended defence also alleges the matters Esso relies upon to contend that the State entities had actual or constructive knowledge of, and controlled, the relevant risk.

8. The concept of vulnerability, as enunciated in Perre v Apand Pty Limited (1999) 198 CLR 180 (“Perre”) was said to assist in determining liability in negligence for economic loss.  Esso relied upon Perre at [38], [215]-[217], [106]-[108], [129], [296], [298], [336]-[340] and [409] to contend that liability is to be imposed on the person who is relevantly in control of the risk that gives rise to the economic loss. Esso contended that the applicants and group members were not vulnerable to the conduct of Esso because it was not in sufficient control of the risk that caused the economic loss. Rather, one or more of the State entities was in direct control of the risk, being the risk of the failure of supply of gas through the gas distribution system. Thus, it was claimed that an essential element that founds any duty of care imposed on Esso to avoid that loss is absent.

9. Determining where control of the risk lies was said by Esso to include examining actual and constructive knowledge of the risk and the power and ability to act in respect of it.  Esso relied upon Pyrenees Shire Council v Day (1998) 192 CLR 330 at [168], [81], [115] and [247], subparagraph 4, Perre at [211]-[216], [13], [42], [150], [294], [325], [326] and [412]-[415], Crimmins v Stevedoring Industry Finance Committee (1999) 167 ALR 1 at [43], [45], [46], [51], [101] and [102].

10. Esso also argued that if knowledge of risk and the power or means to control or minimize that risk are relevant to showing a duty of care was owed by the State entities, the same factors are relevant to demonstrate why Esso did not possess such knowledge and power or means to control or minimize the relevant risk and why, consequently, no relevant duty of care is owed by it to the applicants and group members.

    (b)      The applicants’ submissions

11. The applicants contended that paragraphs 6.7 to 6.16 of the proposed defence do not contain any allegation which, if proved, could lead to the conclusion that the applicants and the group members were not dependent on Esso for a supply of gas which would not be interrupted.  They submitted that even if the vulnerability of the applicants and group members to the conduct of the State entities alleged in paragraphs 6.17 to 6.25 were proved, that still could not establish that they were not vulnerable to an interruption to the supply of gas as a result of Esso’s conduct.  They further contended that the risk of an interruption to the gas supply of gas users by reason of an explosion at the Longford plant was not, relevantly, in the control of anyone other than Esso, and was certainly not in the control of any of the State entities by reason of any of the matters alleged in paragraphs 6.17 to 6.25.

    (c)       The State entities’ submissions

12. The State entities contended that Esso’s pleas of vulnerability were objectionable at a number of levels.  It was submitted that the allegations in paragraphs 6.17-6.25 concerning the risks associated with the gas distribution system are irrelevant to the liability of Esso because the risk pleaded by the applicants is vulnerability to harm from Esso’s acts or omissions.  It was said that it is no answer to that plea to contend that the applicants were also vulnerable to another risk, being the failure of supply from the gas distribution system controlled by the State entities.

13. The State entities also contended that the same problems arise in the proposed plea in relation to dependence.  The applicants’ claim, to which paragraph 6 of Esso’s proposed defence purports to respond, is that because the applicants were dependent upon Esso for the supply of gas, Esso owed a duty to conduct its operation so as to guard against the risk of failure of supply eventuating from an unplanned cessation of those operations.  It was said that the only relevant response to that allegation is either an admission or a denial of the facts which are alleged, and an admission or denial of the conclusion alleged.  It was said not to be relevant, and thus not permissible, to respond to the claim, as Esso has purported to do, by alleging that there was a risk other than the risk alleged, to which the applicants were also susceptible, and against which some other party had a duty to guard but had failed to do so.  Thus, it was contended that the duty of one party to guard against a particular kind of risk is not dependent upon, or affected by, a duty of another party to guard against a risk of a different kind which is not alleged.

14. It was pointed out that Perre, for example at [118] and [127], makes it clear that vulnerability is to be assessed in terms of the defendant’s conduct and not the conduct of others. In that regard the applicants’ claim is that Esso, as manager and controller of the Longford plant was negligent in its operation of the Longford plant in circumstances where Esso knew of the applicants’ dependence on Esso to provide uninterrupted supply of gas. The State entities contended that the risk upon which the applicants’ case depends is not cessation of supply generally but, rather, cessation of supply by reason of the alleged negligent operation of the Longford facility.

15. It was further argued that the risk, and vulnerability to that risk, arises from the system as it was.  The applicants’ negligence claims are based upon Esso’s failure to guard against those risks eventuating.  Thus, so it is said, what the system could have otherwise been is not relevant to the claim of negligence against Esso.  The pleas in paragraphs 6.17-6.25 as to what the various State entities “knew or ought to have known” about alleged system inadequacies (or what they allegedly had the ability to do but failed to do) were therefore said to be irrelevant to the applicants’ alleged vulnerability.

16. The State entities also argued that whether they had, or exercised, control in relation to the system in place can be demonstrated objectively and is a separate factual issue to that of knowledge.  It was contended that whether something was known, or ought to have been known, may explain why control was or was not exercised.  However, that goes only to whether the State entities owed a duty of care to the applicants and group members or whether they properly discharged it.

17. The State entities contended that the cases cited by Esso do not support the assertion that “control includes a knowledge of the risk”.  Rather, it was said the cases refer to knowledge as being an element, together with control and other elements, that may give rise to a duty of care.  It was submitted that passages in Perre, which deal with the concept of vulnerability, for example paragraphs [38], [118-119], [126-129], [149], [216-217] and [406], do not suggest that knowledge is a sub-set of control.

    (d)      Discussion

18. Although the denial of vulnerability is not directly responsive to the plea of the applicants of dependence, on the current state of the law it is permissible to plead:

    ·     that vulnerability, rather than dependence, is a relevant criterion in a negligence claim for economic loss;

    ·     the applicants’ and group members’ vulnerability to Esso’s conduct is denied;

    ·     the material facts that support the denial.

19. The denial of dependence and vulnerability is said to be supported by Esso’s positive allegation that the risk of failure of supply came from the gas distribution system, rather than from the Longford plant.  The division sought to be drawn between the plant and the gas distribution system is somewhat artificial as each appears to be inextricably linked as different parts of the one system of gas production and supply in Victoria.  There is some difficulty with the allegation that control of supply to consumers was dependent upon one, and not the other, part of the system, or that there is a vulnerability to conduct of the operator of one, but not to the operator of the other, part of the system.

20. There is an additional difficulty with the division between the plant and the distribution system sought to be made by Esso.  A denial of the applicants’ vulnerability to Esso in respect of the risk of interruption of supply from the Longford plant cannot be established by a plea that there was also another risk, namely of failure of supply from the gas distribution system, that caused the same loss.  The allegation that the State entities controlled the latter risk may explain why those entities are also liable, but not why Esso is not liable.

21. The pleading of the material facts, but not the evidence, that support the denial of dependence upon, or vulnerability to, Esso’s conduct is permissible.  Esso’s argument in relation to the applicants’ dependence upon, or vulnerability to, the State entities for uninterrupted supply was based upon two sub-sets of allegations said to be material facts.  The first related to the gas distribution system in place at the time of the explosion, including the regulatory framework within which that system was to operate.  Those allegations are set out in respect of the State entities in paragraphs 6.7 to 6.16.  By purporting to treat the gas distribution system as a separate system, rather than as part of the system of supply of gas, the plea may be misconceived.  However, as evidence of the system in place will form part of the matrix of facts before the Court in any event, I will allow the plea without finally determining its validity: see Wickstead v Browne (1992) 30 NSWLR 1 at 5-6 per Kirby P and on appeal to the High Court (1993) 10 Leg.Rep SL 2, Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 97 FCR 175 at [4]-[5]. Accordingly, I will permit Esso to plead the aspects of the gas production and supply system in place at the date of the explosion, upon which it wishes to rely, to support its denials of vulnerability and dependence.

22. Esso’s denial of dependence and vulnerability also relied on a second sub-set of allegations, which were set out in paragraphs 6.17.3 to 6.17.7, relating to one State entity, with counterpart paragraphs in relation to other State entities.  Those allegations relate to what was known or what ought to have been known by the relevant State entity.  For example, paragraphs 6.17.3 and 6.17.4 pleaded that GFCV (one of the State entities) was in direct and immediate control of the vulnerability of the applicants and group members to its conduct given that:

    “6.17.3[GFCV] knew, alternatively ought to have known, that the injection of gas into the Gas Transmission System from the Longford Plants may be interrupted in the event of circumstances which were:

    6.17.3.1not reasonably foreseeable and reasonably preventable by the Cross-Claimants; and/or

    6.17.3.2reasonably foreseeable and reasonably preventable by the Cross-Claimants including, but not limited to, the events alleged in paragraph 14 of the State of Claim and each of them;

    6.17.4GFCV knew or ought to have known, that at all material times the Gas System Security Measures were insufficient to enable the Gas System to provide to the Applicants and the group members (or their employers as the case may be) a supply of gas that would be uninterrupted so as to avoid the damage or any part thereof in the event of a sudden unexpected interruption to the injection of gas into the Gas Transmission System from the Longford Plants and/or events like those that occurred in the events following the September Stoppage;”

    Paragraphs 6.17.5 to 6.17.7 are to similar effect.

23. While knowledge may be material to whether the State entities owed a duty of care to the applicants and group members, it is not material to, or properly pleadable as, a defence by Esso to the applicants’ claims’ of dependence and vulnerability.  This is because what the State entities knew or ought to have known about the deficiencies in the gas production and distribution system does not afford a proper basis for contending that there was no dependence upon Esso or no vulnerability to its conduct at the Longford plant in respect of the supply of gas to consumers.  Esso’s denials of dependence and vulnerability depend upon the system in place, not upon what the State entities knew or ought to have known about that system.  Accordingly, what was specifically known, or ought to have been known, by the State entities concerning any deficiencies in the system of gas production and distribution that threatened to interrupt supply to consumers is not a material fact supporting Esso’s denials.  It follows that I have formed the view that, generally, the submissions of the State entities concerning Esso’s pleading on dependence and vulnerability appear to be well-founded.

24. However, I am reluctant, on a pleading motion, to rule finally against Esso on these matters.  For the reasons set out above I am prepared to allow Esso to plead the material facts upon which it relies concerning the system in place at the date of the explosion.  In not allowing Esso to go further, and plead the other matters upon which it wishes to rely, I do not intend to foreclose it from applying during the trial to adduce such evidence as it may be advised is appropriate to support its denial of dependence and vulnerability.  If, and when, that occurs I will rule on the relevance of that evidence.

25. The delivery by Esso of its witness statements, and of the documentation on which it relies, will put the other parties on notice of the case Esso wishes to put.  Thus, the other parties will not be unfairly prejudiced when Esso applies to rely on that material.  If Esso persuades me of the relevance and admissibility of its evidence it can be admitted into evidence in support of Esso’s denials.  However, as the admissibility of the material will be contentious and as I presently doubt its relevance, I will require that the material be prepared separately from the other material so that its admissibility can be dealt with as a discrete issue.

    Causation

    (a)       Esso’s submissions

26. Paragraphs 10.3 to 10.11 of the proposed defence introduce pleas by Esso asserting intervening events sufficient to break the chain of causation between any negligent conduct of Esso established by the applicants and the loss alleged to have been suffered by the applicants and the group members.  Paragraph 10.3 pleads the factual matrix of events which occurred following the explosion on 25 September 1998 until a supply of gas to gas users was re-established.  Paragraphs 10.4 and the following paragraphs, which identify what each of the State entities did or failed to do, are alleged to constitute novus actus interveniens sufficient to break the chain of causation.

27. Esso contended that the law recognises that negligent conduct, notwithstanding the fact that it is foreseeable, may nevertheless constitute a break in the chain of causation.  Esso relied upon Mahoney v Krushich (1985) 156 CLR 522, 529-530; Wright v Lodge (1993) RTR 123; Thorpe Nominees Pty Ltd v Henderson & Lahey [1988] 2 Qd R 216; Evenden v Manning Shire Council (1929) 30 SR (NSW) 52; Lamb v Camden LBC [1981] QB 625 and Alexander v Cambridge Credit Corp (1987) 9 NSWLR 310, 361.

28. Esso also contended that there was a probable expectation that one or other of the State entities would act so as to avoid the damage alleged upon the happening of the explosion, so that Esso is entitled to rely upon the failure to act to be relieved of all liability caused thereby.  Esso relied upon Haseldine v Daw & Son [1941] 2 KB 343; approving Herschtal v Stewart and Ardern [1940] 1 KB 155 and Duncan v Cammell Laird [1940] 2 All ER 621.

29. Esso also denied causation on the basis that the loss and damage claimed was caused by acts and omissions of the State entities prior to the explosion.  The conduct referred to included conduct relied upon in Esso’s pleas on dependence and vulnerability.

    (b)      State entities’ submissions

1. The State entities accepted that what they did, or did not do, following the explosion could be relevant to the question of causation in relation to an individual claimant’s cases.  Thus, it was contended that any plea by Esso involving the State entities should specifically focus on the individual claimants’ causation cases and their individual circumstances, rather than a “rolled up” plea to cover all possible causation scenarios.

2. It was submitted that the causation case must be based upon the structure of the gas supply and distribution in Victoria as at 25 September 1998 and the events that followed the explosion.  However, it was submitted that evidence relating to how the system came to be that way, and the State entities’ knowledge of the alleged system security inadequacies prior to the explosion, and why there was no relevant alternative system of supply in place is not relevant to the causation case.  Thus, references in paragraphs 10.4-10.11 to paragraphs 6.18-6.25 were said to be inappropriate.

   (c)       Discussion

3. Although, ultimately, the causation and the novus actus interveniens pleading must be claimant specific, that is not a basis for refusing leave to plead the general nature of the defence in response to the general claims made by all applicants and group members: see Philip Morris v Nixon at 515-516.

4. I agree, however, with the submissions of the State entities that in the present case the question of causation in general, and of novus actus interveniens in particular, must take, as a starting point, the system as it was at the time of the explosion.  The material facts said to constitute intervening acts, or omissions to act, of the State entities after the explosion that have been relied upon as breaking the chain of causation may be pleaded if they are capable of establishing, in a practical sense, that those acts were the sole cause of the loss and damage: see Alexander v Cambridge Credit Corporation (1987) 9 NSWLR 310 at 361-363. The material facts that are relevant in that regard will relate to conduct which occurred after, but not before, the explosion. Thus, conduct or knowledge prior to the explosion is not properly pleaded as a material fact in support of Esso’s novus actus defence.

5. Esso also endeavoured to plead prior acts or omissions of the State entities as the cause of the applicants’ and group member’s loss and damage.  I cannot accept that such conduct could be the sole cause of the loss which occurred as a result of the explosion at Longford.  As with the denial pleas in relation to dependence and vulnerability, the causal aspects of the prior conduct may explain why the State entities may also have caused the loss, but not why Esso did not cause it.

6. However, in arriving at the above conclusions I have not formed a final view as to the evidence that might be capable of supporting Esso’s plea denying causation.  Whether evidence to support that plea is relevant and admissible is to be determined at trial on the basis of the evidence sought to be adduced.  Thus, I will make the same direction on this issue as I will make on dependence and vulnerability.

   Conclusion

7. My reasons have been confined to the material facts that may be pleaded to support Esso’s denials of dependence, vulnerability and causation.  Because of the complexity of the proceedings I have been reluctant, on a pleading motion, to rule on what may or may not be admissible as relevant evidence on those issues.  In that regard my reasons for judgment are not intended to preclude Esso from seeking to adduce evidence at the trial and to persuade me of its relevance.  Thus, although I have ruled against significant aspects of Esso’s proposed pleas, the rulings will not necessarily preclude Esso from seeking to adduce evidence in relation to the matters I have not permitted it to plead as material facts.

8. For the above reasons, I propose to make orders for the separate trial of the negligence claims of selected applicants and group members and for appropriate trial directions.  I will make directions that the parties bring in minutes of the orders that are appropriate to give effect to these reasons for judgment.

9. I am not prepared to grant the leave sought by Esso to amend its defence as set out in its Proposed Amended Defence but will permit Esso to apply for leave to plead an amended defence which accords with these reasons for judgment.  Accordingly, it is appropriate to dismiss Esso’s motion for leave to amend its defence in the form of the Proposed Amended

   Defence filed on 5 June 2000, but without prejudice to its right to apply for leave to deliver a further amended defence.

I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel.

Associate:

Dated:            13 December 2000

Counsel for the applicants:	Mr JWK Burnside QC with Mr DG Collins
Solicitors for the applicants:	Slater and Gordon, Maurice Blackburn Cashman, Phillips Fox and Lander and Rogers
Counsel for the Respondents:	Mr JE Middleton QC and Mr DMB Derham QC with Mr TJP Walker
Solicitor for the Respondents:	Middletons Moore & Bevins
Counsel for the State Entities:	Mr GAA Nettle QC and Mr JBR Beach QC with Mr SM Anderson
Solicitor for the State Entities:	Freehills
Counsel for the 21st, 22nd and 23rd Cross-Respondents:	Ms M Sloss
Solicitor for the 21st, 22nd and 23rd Cross-Respondents:	Arthur Robinson and Hedderwicks
Counsel for the 15th and 24th respondents:	Mr CM Caleo
Solicitor for the 15th and 24th respondents:	Corrs Chambers Westgarth
Counsel for the 25th to 27th Cross-Respondents:	Mr CJ Connor
Solicitor for the 25th to 27th Cross-Respondents:	Baker and McKenzie
Counsel for the State Entity Insurers:	Mr C Macaulay
Solicitor for the State Entity Insurers:	Ebsworth and Ebsworth
Counsel for BHP Petroleum (Bass Strait) Pty Ltd:	Mr CM Scerri QC and Mr PD Crutchfield
Solicitor for BHP Petroleum (Bass Strait) Pty Ltd:	Mallesons Stephen Jaques
Date of Hearing:	11 May, 28 June and 21 July 2000
Date of Judgment:	13 December 2000