Limit (No 3) Limited v Ace Insurance Limited (No 2)

[2009] NSWSC 1060

CITATION:	Limit (No 3) Limited v ACE Insurance Limited (No 2) [2009] NSWSC 1060
HEARING DATE(S):	12 & 13 February 2009
JUDGMENT DATE :	23 February 2009
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Rein J
DECISION:	Permit defendant to partially withdrawal of admission.
CATCHWORDS:	EVIDENCE – admissions – application to withdraw admission in Scott Schedule – general principles
LEGISLATION CITED:	Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005
CATEGORY:	Procedural and other rulings
CASES CITED:	Dennis v Australian Broadcasting Corporation [2008] NSWCA 37 Drabsch v Switzerland General Insurance Co Ltd (Supreme Court of New South Wales, Santow J, 16 October 1996, unreported) Glover v Australian Ultra Concrete Floors Pty Limited [2003] NSWCA 80 Jeans v Commonwealth Bank of Australia Limited (2003) 204 ALR 327 Maile v Rafiq [2005] NSWCA 410 Nowlan v Marson Transport Pty Limited [2001] NSWCA 346 Sirius Shipping Corporation v the Ship Sunrise [2006] NSWSC 164 Zisis v Knighton [2008] NSWCA 42
PARTIES:	Limit (No 3) Limited (First plaintiff) Oak Dedicated Limited (Second plaintiff) The Underwriter Insurance Company Limited (Third plaintiff) GE Frankona Reinsurance Limited (Fourth plaintiff) ACE Insurance Limited (Defendant)
FILE NUMBER(S):	SC 50191/05
COUNSEL:	Mr S Donaldson SC, Mr J Neal (Plaintiffs) Mr J Simpkins SC, Mr T W Marskell (Defendant)
SOLICITORS:	Deacons (Plaintiffs) Wotton & Kearney (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Rein J

Date of Hearing: 12-13 February 2009
Date of Judgment: 23 February 2009

50191/05 Limit (No 3) Limited and ors v ACE Insurance Limited

JUDGMENT

1 REIN J: By this application the defendant (“Ace”), for whom Mr Simpkins SC appears with Mr Marskell, seeks to withdraw admissions made in a Scott Schedule.

2 The framework in which the Scott Schedule arises is as follows. In 2001 a joint venture (“JV”) effected an insurance policy with the plaintiffs, a number of Lloyds syndicates for whom Mr Donaldson SC appears with Mr Neal, and to whom I shall refer as Lloyds. The JV also effected a policy with Ace.

3 The JV conducted extensive excavation and tunnelling work in Singapore as a result of which neighbouring properties and infrastructure such as gas, electricity and sewerage pipes and lines suffered damage. The JV made a claim on the Ace policy and Ace appointed a claims assessor, Crawfords Singapore, to investigate the first claim, and then subsequently, the further claims as they were received. The JV provided information to Crawfords and advised of proposals to deal with and rectify these problems.

4 The JV did proceed to rectify the damage to a number of adjoining properties and infrastructure. In due course it claimed from Lloyds and Ace that it had incurred approximately SGD$18.8 million in carrying out this work, some of the claims being for amounts paid to third parties under sub-contracts or for items purchased, some for internal allocations of labour and equipment and some for indirect costs in the nature of preliminaries and overheads.

5 Ace did not agree to pay the claim. As far as the JV and Lloyds were concerned Ace denied liability or at least refused to admit liability and how their response is to be characterised is an issue in the case but not presently important.

6 The JV then sought indemnity from Lloyds under the Lloyds policy on the basis that even though it was essentially an excess policy it had a ‘drop down’ provision which required Lloyds to indemnify the JV if Ace would not. Lloyds accepted that it was obliged to indemnify the JV and had its loss adjuster, Mr Davies, assess the claim. Mr Davies adjusted the claim with the consequence that Lloyds paid an amount of SGD$13 million to the JV in satisfaction of its claims under the Lloyds policy except for one remaining claim relating to the second of two temples the property of which had been damaged. That amount (approximately SGD$800,000) is yet to be finalised and is not included in the SGD$13 million paid.

7 The SGD$13 million paid was expressed in a settlement deed between Lloyds and the JV to be made up as SGD$11.6 million for direct costs and SGD$1.3 million for indirect costs (see p 6.2398 of the Court Book).

8 Lloyds seeks to recover the SGD$13 million paid (and whatever amount will be determined in respect of the the Jin Fu Gong Temple (“the Jin Temple”)) from Ace. Ace resists that claim on many bases.

9 It became apparent in the course of openings and dealing with objections to the evidence of Mr Funge, a quantity surveyor formerly employed by the JV who had prepared the JV’s SGD$18.8 million claim, that Ace wanted to advance a number of arguments that related to matters that Lloyds had not understood to be in issue:

(1) to argue that there having been no judgment, arbitral award or settlement between the JV and third party property owners (“ the property owners ”), Ace could have no liability to indemnify the JV;

(2) to amend Ace’s Commercial List Response to include a contention that the liability incurred by the JV to the property owners was as a result of ‘blasting’ or failure to supervise;

(3) to argue that not only was there no liability to pay indirect costs such as overheads and preliminaries, which was clearly an issue, but that there was no liability to pay for amounts incurred by the JV that represented allocated costs that were not amounts paid to third parties. I shall refer to this category as “ direct allocated costs ”. So for example, if a bulldozer was owned by the JV and used in repair, Ace would argue that internally allocated costs would not be a loss for the purposes of the Ace (or Lloyds) policy. Another example was the use of employees already employed by the JV. If there was no overtime, Ace wanted to argue that the JV suffered no loss. Ace also wanted to challenge whether monitoring, grouting work and the use of recharge wells to deal with the settlement problems were recoverable since these amounts, it asserted, had a purpose beyond merely rectifying existing damage.

10 So far as the first point is concerned, I held that it was a matter that ought to have been pleaded but indicated that I would permit Ace to amend its defence in this respect. So far as the second point is concerned I indicated that the final determination of whether amendments should be allowed ought await the outcome of the conclave of experts since one of the issues, at least, may become irrelevant.

11 So far as the third point is concerned, in my view, Ace had admitted by the Scott Schedule that SGD$13.4 million had been ‘incurred’ by the JV in rectification costs, and on this view the arguments which Ace wanted to advance were not open. Mr Donaldson concluded that in fact the SGD$13.4 million included an amount for the Jin Temple and he would accept that, to that extent, Ace has made an error from which it would be permitted to resile.

12 Following my decision on the Scott Schedule Ace sought to withdraw the admissions made in it, at least in a qualified form.

13 I received detailed submissions on the point and due to the need to enable Mr Funge to depart Australia that afternoon, it was agreed that I should indicate my conclusion and deliver reasons later. I indicated that I had concluded that Ace should be permitted to partially withdraw the admission but in precise terms and subject to terms which I shall describe. My reasons and a more precise elucidation of the extent of the withdrawal follow.

14 My attention was drawn to a number of authorities on the question of how an application to withdraw an admission should be approached. There was agreement that the approach of Santow J (as he then was) in Drabsch v Switzerland General Insurance Co Ltd (Supreme Court of New South Wales, Santow J, 16 October 1996, unreported) provided the commencement point, although there was some debate about the precise manner in which the guidelines set out by his Honour should be viewed.

15 The critical passage (omitting citations) is found at p 7 of the LexisNexis CaseBase version (BC9604909):

“1. Where a party under no apparent disability makes a clear and distinct admission which is accepted by its opponent and acted upon, for reasons of policy and the due conduct of the business of the court, an application to withdraw the admission, especially at appeal, should not be freely granted;

2. The question is one for the reviewing judge to consider in the context of each particular appeal, with the general guideline being that the person seeking on a review to withdraw a concession made should provide some good reason why the judge should disturb what was previously common ground or conceded;

3. Where a court is satisfied that admissions have been made after consideration and advice such as from the parties' expert and after a full opportunity to consider its case and whether the admissions should be made, admissions so made with deliberateness and formality would ordinarily not be permitted to be withdrawn. A court will not lend its approval to the withdrawal of admissions where, by analogy with the making of amendments, this is actuated by purely tactical reasons;

4. It will usually be appropriate to grant leave to withdraw an admission where it is shown that the admission is contrary to the actual facts. Leave may also be appropriate where circumstances show that the admission was made inadvertently or without due consideration of material matters. Irrespective of whether the admission has or has not been formally made, leave may be refused if the other party has changed its position in reliance upon the admission; and

5. Following Cohen v Mc William and Anor (1995) 38 NSWLR 476, a court is not obliged to give decisive weight to court efficiency, such that a party who wishes to defend its claim is entitled to a hearing on the merits, with cost orders being available as a means of compensating the other party for any costs thereby unnecessarily incurred or not fairly visited on the other party.”

16 In Maile v Rafiq [2005] NSWCA 410 the NSW Court of Appeal referred to the Drabsch summary of principles and appeared to regard them as appropriate: see [56] and [74] – [77]. In Jeans v Commonwealth Bank of Australia Limited (2003) 204 ALR 327 at [18] the full Federal Court noted that the trial judge had accepted the principles set out in Drabsch and at [27] expressed the view that there was no error in him so doing. The Full Court noted:

“the question whether leave should be given was one which involved weighing all the relevant circumstances, the weight which might be given to any particular circumstance is a matter for the primary judge in the exercise of his discretion.”

17 In Sirius Shipping Corporation v the Ship Sunrise [2006] NSWSC 164, Young CJ in Eq made reference to Jeans and Drabsch and referred to the need to “attain justice”, which Ace relies on as pointing to the need not to treat the Drabsch points as absolutely determinative of the outcome.

18 I proceed on the basis that the principles outlined in Drabsch are the appropriate principles to determine this application.

19 The affidavit of Mr Robert Carey, a solicitor in the employ of Messrs Wotton & Kearney (“WK”), was read on the application and he was cross-examined upon it. Also in evidence was the Scott Schedule and correspondence passing between WK and the plaintiff’s solicitors, Deacons. Letters passing from the JV to Crawfords in which the JV set out extensive details and amounts it had incurred were tendered as representative of the degree of specificity provided by the JV to Ace through its loss assessor. I had also been taken to similar material in opening (see Exhibit A in the substantive hearing).

20 A number of matters emerge from all of this material:

(1) Ace has never advised Lloyds that it would contend that amounts for JV’s own labour and equipment, costs of monitoring, grouting, recharge wells and the like would not be covered under the Ace policy should Ace otherwise be held liable;

(2) Ace accepts that use of equipment and labour specifically for repair could, in certain circumstances amount to a cost to the JV recoverable under the policy and does not have a positive case that, in fact, those circumstances do not exist. The defendant’s approach seems to be that it would put Lloyds “to proof” of these matters;

(3) Mr Carey, on his evidence, was under the misapprehension that by agreeing in the Scott Schedule that SGD$13.4 million had been incurred by the JV in rectification, he was not agreeing that amounts for labour employed or equipment owned by the JV was included in that figure. He had not examined for himself the extensive documentation which Lloyds relied on and did not know who within the firm had done so. He does not know how the SGD$13.4 million which was admitted as ‘incurred’ was arrived at or by whom. It was Mr Carey, however, that was responsible for forwarding the Scott Schedule with accompanying correspondence to Deacons and he sought a specific clarification of why ‘incurred’ had been used in the column seeking the defendant’s response. He said that he did not review the exhibits to Mr Funge’s affidavit in detail for the purpose of preparing the Scott Schedule and he would appear to have given little attention to the affidavit itself since Mr Funge dealt with direct allocated costs in that affidavit.

21 There was agreement between counsel that if I permitted Ace to withdraw its admission then the question of direct allocated costs would need to be referred to a referee as Lloyds could not deal with the issue in the course of this hearing, and that if that course were adopted the existing dispute about indirect costs should also be referred with it.

22 I discussed with counsel the possibility of an approach which would exclude the need for a referral – whereby questions posed at a high level of principle could be determined by the Court with agreed consequences. Following a suggested rough formulation by me, Mr Donaldson indicated a willingness to proceed on the basis of MFI 2. Mr Simpkins indicated a proposed approach in MFI 3. Neither could agree to the other’s proposal.

23 Dealing with the first of the matters adverted to in Drabsch, Ace was under no disability and made in the Scott Schedule a clear and distinct admission that SGD$13.4 million worth of costs had been incurred by the JV in dealing with and rectifying the damage to third party property.

24 The Scott Schedule was, as Mr Donaldson pointed out, a matter of considerable significance in formalising the position of Ace, particularly given the context of the plaintiff seeking to ensure that it understood what was really in issue on quantum and what not. I approach this matter on the basis that leave to withdraw the admission should not be freely given.

25 So far as the second matter in Drabsch is concerned, the question is: what is advanced as the good reason to now disturb what was conceded?

26 Ace’s argument is that had Mr Carey appreciated that not all the SGD$13.4 million were amounts paid out to others he would not have completed the Schedule in the way that he did – thus Ace should be permitted to withdraw. Mr Simpkins argues that the admission in question is one which goes only to quantum, not to liability, and it is not as if permitting its withdrawal will affect liability in Ace (if it otherwise exists) to meet the claim. The figures involved seem to be in the order of at least SGD$800,000, so it is not an insignificant sum of money.

27 So far as the third factor is concerned, Ace has had a full opportunity to conduct its case and has had the benefit of advice from its experts, both legal and technical.

28 So far as the fourth matter is concerned, Ace is unable to establish that its admission that SGD$13.4 million was incurred is contrary to the facts. It appears, however, that there are significant amounts which were claimed by the JV which were not paid to third parties – whether those amounts are properly claimable depends on material not yet explored by Ace and also on the outcome of legal issues.

29 So far as court efficiency is concerned, it is said that a Court is not obliged to give decisive weight to court efficiency. Whilst this matter is not necessarily decisive, I think that the introduction of s 56 of the Civil Procedure Act 2005 and the terms of the UCPR and the Court of Appeal pronouncements in Dennis v Australian Broadcasting Corporation [2008] NSWCA 37 per Spigelman CJ at [28] – [29] with whom Basten and Campbell JJA concurred at [34] and [35] and Zisis v Knighton [2008] NSWCA 42 per McColl JA at [50] with whom Hodgson and Tobias JJA concurred make it clear that compliance with rules designed to ensure matters are ready for trial will be given greater emphasis than was the case in the past. In my view, it is very relevant that the defendant seeks on the fourth day of a four week hearing to withdraw an admission the consequence of which if allowed, will not permit all matters in issue between the parties to be finally determined at this hearing.

30 Mr Simpkins argued that had WK informed Deacons on 9 January 2009 (when it forwarded the Scott Schedule) that it did not accept that SGD$13.4 million had been incurred, Lloyds would then have had to prepare itself for such an argument and may not have been ready to deal with it in any event. I do not think this argument assists Ace. First it is not proven that Lloyds could not have readied itself, but it is not in dispute that it cannot now deal with these arguments. Secondly, the process of seeking clarification of Ace’s position began in October last year. Thirdly, and more importantly, the NSW Court of Appeal has now on several occasions reiterated the need for parties to make their positions clear and “not to keep their cards close to their chests”: see Nowlan v Marson Transport Pty Limited [2001] NSWCA 346; Glover v Australian Ultra Concrete Floors Pty Limited [2003] NSWCA 80.

31 This has particular application to commercial litigation in the Commercial List. The notion that in claims of SGD$13 million a defendant can think it sufficient to put the other party to proof without fully articulating why it does not accept particular heads of damage is one that I am reluctant to accept. There may be cases in which a defendant is entitled to say that it has never been favoured with sufficient information to formulate a position but, given the background to which I have referred, this is not such a case. I can understand Mr Carey’s reluctance to examine the 100 folders of documents that have now been provided as the Court Book, but someone must undertake that task if quantum is to be an issue, and arguments that involved extensive enquiry about expenditures that were, in the main, incurred six years ago are to be now advanced.

32 I had considered, as Mr Donaldson submitted I should do, simply shutting Ace out from any such arguments by refusing leave to withdraw the admission. However I accept that Mr Carey did not appreciate that all of the items which he admitted totalling SGD$13.4 million were, in fact, amounts paid to third parties. I think he should have appreciated that fact and examined or had examined the summary of claims in Mr Funge’s affidavit, but the letter from Deacons did not express in clear terms that there were significant amounts of direct allocated costs. The author of the letter may well have thought it was clear from Mr Funge’s affidavit that this was so and she was not to know that Mr Carey had not carefully read that affidavit and the exhibits to it, and in a sense there has been a degree of confusion which would have been avoided if WK had identified at an early stage, whether through its Commercial List Response or in correspondence, an issue they saw as arising.

33 With these factors in mind I am disposed to permit Ace to withdraw its admission, but only in a limited fashion, that is that it be permitted to withdraw its admission so as not to admit:

(1) that costs allocated by the JV for third party property damage repair related work for employees who were otherwise employed by the JV and for plant and equipment which were otherwise owned or leased by the JV are costs which were incurred by the JV in connection with the third party property damage and hence the subject of an obligation to indemnify under the Ace or Lloyds policy;

(2) that amounts for investigation, monitoring and preservation of property that were not the subject of payments to third parties are costs which were claimed as incurred by the JV in respect of the third party property damage and hence the subject of an obligation to indemnify under the Ace or Lloyds policy;

(3) that the costs of equipment purchased by the JV solely in connection with the repair to third party property damage and thereafter sold are the subject of an obligation to indemnify under the Ace or Lloyds policy save to the extent of the difference between purchase and sale price.

34 In arriving at this formulation I have taken into account the fact that Mr Carey did not understand that allocated direct costs were included in the SGD$13.4 million. He had, however, apparently no appreciation of the arguments now sought to be advanced that costs of monitoring or ground preparation, per se, were not claimable, or that equipment purchased should be the subject of an offset. Item (3), whilst in that latter category, involves a very limited inquiry and I have decided to permit it. I have set out Item (2) as a separate category to make clear the restricted ambit of the withdrawal but it is probably encompassed within Item (1).

35 I indicated that close attention will need to be given to whether any matters of principle can be answered before referral out and that future attention will be needed to be given by the Court more generally to narrowing the matters which need to be referred. If Lloyds is successful or partially successful in the balance of the claim, attention will need to be given as to how that portion of the claim is to be dealt with.

36 In my view Ace should pay any costs of Lloyds thrown away by reason of the partial withdrawal of the admission and the costs of the application to withdraw.

********