Siegwerk Australia Pty Ltd (In Liquidation) v Nuplex Industries (Aust) Pty Ltd

[2014] HCATrans 180

[2014] HCATrans 180

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M11 of 2014

B e t w e e n -

SIEGWERK AUSTRALIA PTY LTD [ACN 007 114 338] (IN LIQUIDATION)

Applicant

and

NUPLEX INDUSTRIES (AUST) PTY LTD [ACN 000 045 572]

Respondent

Application for special leave to appeal

CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 15 AUGUST 2014, AT 1.46 PM

Copyright in the High Court of Australia

MR A.J. KELLY, QC:   May it please your Honours, I appear with MR C.O.H. PARKINSON, for the applicant.  (instructed by Wotton & Kearney)

MR S.R. DONALDSON, SC:   If it please the Court, I appear with my learned friend, MS S.L. ROSS, for the respondent.  (instructed by Sparke Helmore Lawyers)

CRENNAN J:   Thank you.  Yes, Mr Kelly.

MR KELLY:   Thank you, your Honours.  We propose to divide our submissions into two parts.  First is to demonstrate to the Court that the Full Court was in error to characterise the applicant as having ever agreed that the issue of reasonable settlement or expenditure incurred in mitigation were not to be determined at the trial at the proceeding.  Secondly, if the Court pleases, we propose to identify the correct test for the recovery of expenditure incurred in mitigation to demonstrate that the trial judge did not apply that test and why special leave ought be granted.

CRENNAN J:   Now, essentially you are seeking to appeal in relation to the exercise of two discretions, are you not, one in relation to an application to amend the grounds of appeal and the other to limit the scope of the retrial that was ordered?

MR KELLY:   Your Honour is quite right, and in both cases, your Honours, we rely upon subsection 33(4C) of the Federal Court of Australia Act, which relevantly provides, by paragraph (b)(ii) that those circumstances do not prevent the Court entertaining this application.  We fully accept what the Court says about the exercise of discretion.  That is so, and we must confront that.

CRENNAN J:   Yes.

MR KELLY:   To identify the error of which we complain can we ask your Honours please to turn to page 113 of the application book?  Your Honours will see just above line 20 a quote from the Full Court of Western Australia in Briggs v Lunt, the last two lines, which was that:

The [learned] trial judge erred in law in failing to deal with issues which were live –

Could I ask the Court then please to note below line 20, paragraph 100, Justice Robertson’s judgment with which the other members of the court agreed, where his Honour said:

As may be seen, the facts of that case, non‑abandonment, were quite different to the present case where counsel agreed that the point now sought to be raised was not in issue.

If the Court pleases, we directly contest the characterisation by his Honour that counsel for the applicant at trial ever agreed that the points being raised were not in issue.  We do not read, your Honour, but direct the Court’s attention on the following page, paragraph 102, at about line 30,where the same erroneous characterisation is given to counsel having agreed that these points were not in issue.  We submit that the Full Court erred fundamentally in characterising anything which the applicant’s counsel said or did at trial as constituting an agreement that subject claims in paragraphs 51A to J of the pleading were not to be determined as pleaded.

Can we next please turn, your Honours, to the pleading, which you will see at page 194?  Your Honours, we set out there in particular detail the circumstances giving rise to our claim for recovery of the amount paid by way of reasonable settlement and the same claim put as an alternative on page 197 as to recovery of a sum paid in mitigation.  If your Honours please, the circumstances, as you will know from our outline of argument, were that in August 2010 we settled the principal proceeding with Visy, then in those circumstances our pleading on those pages 194, 195, 196 and 197 set out in detail all of the material facts which were known to Siegwerk at the time that it reached the decision to compromise the claim, and the test, as we contend for, is to determine whether objectively it had been reasonable to settle on those materials at the time that it did so.

We would ask the Court to note that nowhere in that plea anywhere is there an allegation of causation.  The net result, your Honours, is that the only claim for recovery of damage post‑settlement was recovery of the amount paid to achieve settlement of the claim, that is, the amount paid in mitigation.  The net result, as your Honour Justice Crennan put in Clark v Macourt, really is, we could put cumulative alternative heads of damage, but in the circumstances we eradicated our primary loss and that was substituted by this consequential loss being the amount paid.

CRENNAN J:   There was some agreement before the trial judge, was there, that the quantum was correct?

MR KELLY:   More than that, your Honour, that the settlement was reasonable in all respects as to quantum.  It was completely off the table.

KIEFEL J:   But would you not also have to establish that there was a liability to pay to Visy?

MR KELLY:   No, your Honour, absolutely not, and that is the point of principle in this case, and our outline of argument squarely identifies that it is sufficient in the circumstances that the question of liability, qua Visy, was arguable, and that is the point that was affirmatively established in Edwards ‑ we cite the Court of Appeal in New South Wales ‑ and likewise, the point is touched upon in Rocco Pezzano, and I should interpolate, your Honour, the very point which was assumed and not debated at all in CGU v AMP.  The question of legal liability, as a matter which must affirmatively be established, is simply not a matter that must be proved, it is sufficient that that question of liability is arguable.

CRENNAN J:   Well, why was the focus then on causation before the trial judge?

MR KELLY:   Because every other issue was swept aside and, your Honour, it is critical to the entertainment of this appeal in your Honours’ Court that you are persuaded affirmatively that everything else was left aside.  His Honour in an exercise, it was said, of case of management, wanted to reduce a three‑week trial to a three‑day trial, and in the space of 30 minutes ‑ ‑ ‑

KIEFEL J:   Sounds admirable really.

MR KELLY:   Well, it is, depending upon how it is achieved.  One might say, on mature reflection, your Honour, that one – in the 30 minutes that this issue was considered, from about 10.20 until 10.24 on day one, his Honour said, well, if everything else is gone let us be quite sure about that when we regroup on ‑ ‑ ‑

KIEFEL J:   But you do accept that causation was a live issue, the only issue, and that it was a real issue, as between ‑ ‑ ‑ 

MR KELLY:   Yes, I do, your Honour.

KIEFEL J:   So what was it relevant to?

MR KELLY:   It was relevant within the only claim which was before the court, which was whether the sum paid to settle was a reasonable settlement or whether it was a reasonable amount paid, whether it was not reasonable to mitigate by settling.  In other words, it was not a freestanding question of causation, it was one of the issues which existed within the question of recovery for reasonable settlement.  Can I divide it this way, your Honour?

KIEFEL J:   I just want to know, accepting that causation is relevant is to accept that to an extent liability to Visy must be established.  Is the area of debate that we are involved in today whether or not liability must merely be shown arguably or on balance of probabilities?  I mean, is that the area of debate for us?

MR KELLY:   The area of debate falls primarily, your Honour, we submit, in the realm of assessment of damages, where balance of probability proof of causation is simply not in issue.  On the learning ‑ ‑ ‑

KIEFEL J:   But it was in issue.

MR KELLY:   Well, your Honour, we accept – no, I need to take you to the transcript to demonstrate this.

CRENNAN J:   You see, the Full Court exercised the discretion in each case, both in relation to proposed amendments and in relation to the scope of the retrial on the basis that there had been an agreed limitation placed on the issues before the trial judge.  So the Full Court looked at what had taken place so far as agreed limitation of the issues was concerned and could see, as indeed we could see when we looked at the papers, that that causation seemed to be the main real issue on a chain of liability type of analysis.

MR KELLY:   Well, your Honour, two aspects to this.  The sequence of events of what happened must be examined, I must ask the Court to bear with me in relation to the transcript, we will go to it, because you have to see how it unfolded.  But in relation to this chain of liability point, you will be aware that at trial the respondent for the first time said, yes, unauthorised substitution, yes, breach of contract, and at that point, your Honour, at that moment, our cause of action in contract was complete.

We were then entitled to an assessment of damages, and an assessment does not proceed upon a balance of probabilities of causation.  It proceeds, we submit, in the way that we had settled, through the principles which Mr McGregor, QC, carefully articulates in Chapter 7 of the text which we have set out, where he demonstrates that to introduce causation is quite confusing and distracts attention from the fundamental question whether the settlement was reasonable.  Now, your Honour ‑ ‑ ‑

CRENNAN J:   But I am still having trouble grappling with the point, I must say, Mr Kelly, because Nuplex is not your insurer.

MR KELLY:   No.

CRENNAN J:   It is a true chain of liability case that we are talking about, is it not?

MR KELLY:   Yes.

CRENNAN J:   This point which you have got as the basis of your special leave questions does not seem to have surfaced until you get to the stage of wanting to amend the grounds of appeal before the Full Court.

MR KELLY:   It does not emerge, your Honour, because of what happened at trial.  We say, with the greatest of respect, that what happened at trial was the antithesis of case management, and in truth the sequence of events is that his Honour put to the applicant’s counsel, I want to know what the real issues are, and that short‑circuits to, well, I apprehend that the respondent is about to say something which may abbreviate the trial.  At that point, your Honour, stopping at that point the applicant has given up nothing at all of its pleaded case, not a single thing.

What then occurs in sequence is that the respondent says, as I have described, agree to an authorised substitution, agree to breach of contract, therefore – and, your Honour, I seek to take the Court please to page 210 and 211 of the application book, and it is critical to this application, your Honour, to have considered what occurs on these pages because to this point we would ask your Honours to accept we have abandoned nothing, and we invite our learned friends to demonstrate where that did, in fact, occur.  You will see at line 10, your Honours, the concession of breach and contravention of the contract.  Dropping, critically, your Honour, to line 22, my learned friend says to the Court:

MR DONALDSON:   And it then raises what your Honour has, with respect, correctly identified as a causation issue.  Did we cause the liability that they settled?  There are issues tied up with that which reasonableness of settlement or suing to recover a reasonable settlement is an abbreviation that’s used to perhaps wrap a lot of things together, but the question is whether or not the amount that was paid by Siegwerk to Visy reflects damage in the sense of it being a reasonable and foreseeable amount to pay in discharge of a liability that we caused.  And that leads your Honour to examine the question that your Honour has identified as the principal issue in the case, did we cause these failures, or didn’t we?

His Honour then goes – we focus, if the Court please, above line 40:

HIS HONOUR:   But the reasonableness of the settlement is not difficult to establish, is it?  I mean ‑ ‑ ‑

Then we go through Mr Donaldson at about 50:

MR DONALDSON:   It’s really far more a question of, were they settling a claim that we imposed upon them?  And that’s the causation question, and did the ‑ ‑ ‑

HIS HONOUR:   Yes, it’s not the reasonableness of the settlement.

MR DONALDSON:   You could characterise it as the objective reason.

So the matter really concludes, we would say, at the top of 211:

MR DONALDSON:   No, no, no, certainly in terms of quantum it was a perfectly reasonable ‑ ‑ ‑

CRENNAN J:   Are you suggesting that a distinction between causing you to settle the claim and causing the damage, which was the basis of the claim ‑ ‑ ‑ 

MR KELLY:   No, your Honour, no.  On orthodox principles, we are to be treated as an innocent party where the contract breaker has caused us to be drawn into litigation at the suit of Visy and we must then, as they plead affirmatively against us, exercise our duty to mitigate.

CRENNAN J:   Were these issues ventilated before the Full Court?

MR KELLY:   Their Honours stopped short, their Honours simply said that what happened – I withdraw that.  We submitted that if leave to amend be given the relevant question was whether the test of causation, the test of recovery for mitigation, contained as an essential ingredient that we must prove causation.  In other words, whether proof of liability to Visy was an essential ‑ essential, your Honour ‑ requirement before we could get to recovery, and all the learning ‑ ‑ ‑

CRENNAN J:   So are you suggesting then that an adverse finding in relation to causation did not conclude the real issues between the parties?

MR KELLY:   Absolutely correct.  When your Honour stands back and thinks about the inherent contestability of liability in so many of these types of cases, choose any sort of common law case for that matter, the fact that the innocent party is drawn into litigation says, I am facing 7.7 million, I am facing interest, I am facing a call to bank offer, and I have got expert evidence now that our expert has exposed the substitution that says you are in real trouble.  The fact that the liability is arguable, the causation, the competing experts will never do more before trial than agree to disagree, we have to make an educated assessment, and it is a question of making an objective judgment based on the material at the time that we compromise whether we acted reasonably having regard to the duty we owed to our learned friend’s client, and the question, we say, with the greatest of respect, to impose an essential requirement for the right to recovery that we have made out liability is just contrary to the existing authority, contrary to all of the learning that Mr McGregor has written in over the 60 years that he has contributed to that text.

KIEFEL J:   Could I just take you to paragraph 4 of Justice Perram’s judgment at page 85?

MR KELLY:   Yes, your Honour.

KIEFEL J:   At the top of the page:

As a result of some interventions by the trial judge the parties had agreed that the sole question for determination was whether the resin supplied by Nuplex had caused the internal corrosion . . . Once the parties had agreed, as they unquestionably did, that there was only one issue – causation – all of the other issues in the case ceased to exist as matters between them.

As stated, is that incorrect or are we talking about what is meant by the issue of causation?

MR KELLY:   Precisely, your Honour, and can I assist your Honour with that?

KIEFEL J:   You say that causation is not a matter which is relevant to liability?

MR KELLY:   No, your Honour, I would ask your Honours to move the linear analysis across the page a little.

KIEFEL J:   Well, what was causation?  If the parties had ‑ ‑ ‑

MR KELLY:   Causation was, I think ‑ ‑ ‑

KIEFEL J:   If the parties had agreed, as his Honour says, the issue of causation was the only one left, what was the primary judge to be determining and for what purpose, on your submissions?

MR KELLY:   On our thesis, on our thesis, he was to determine whether we had settled reasonably or whether we had incurred expenditure reasonably in the exercise of our duty to mitigate, and your Honour will recall ‑ ‑ ‑

KIEFEL J:   But, that is not what “causation” means.

MR KELLY:   No, but, your Honour, I accept that, but if you think – put yourselves in the position of either party and say what are the contestable issues that may go into the assessment of the reasonableness of the settlements and say I think causation is an arguable issue, but I think quantum is very, very clear, what are your prospects in this, are they better or worse than balance of probability, what is an appropriate sum to negotiate as a result of that or, in the exercise of mitigation, your Honour, if - can I give your Honour this analogy, well, the first primary principle is, it is accepted that if I increase the amount of our damage by an act of mitigation that increased amount is itself an item of damage, consequential loss, which is recoverable.

So what I am asking your Honour to recognise, with respect, is in the way that our learned friends chose to run their defence at trial, far from us abandoning anything, what, in truth, occurred was having put the hands up on breach, on substitution, complete cause of action, the only place, the stake in the ground where he wanted to challenge our claims about reasonable settlement or mitigation, the only issue he wanted to bring into the debate was causation and the answer, your Honour, the reason the learned trial judge completely missed the point is because having said there is only one issue he treated it quite erroneously as determinative of whether or not liability ‑ ‑ ‑

KIEFEL J:   But quantum was not in issue.

MR KELLY:   No, your Honour, but the reasonableness of the settlement was potentially an issue and it was otherwise given up.  Of all the issues that our learned friend could have put forward as to why it was not reasonable the only integer that he wanted - so we have a debatable point about this and we say that that was the wrong test.

KIEFEL J:   But the reasonableness of settlement is to do with the quantum of it, not causation.

MR KELLY:   Correct, that is right.  Your Honour, I am asking your Honour to recognise that when one writes an opinion about whether or not it is sensible for an innocent party to compromise a claim upstream one of the matters that has to be evaluated is what is our position on liability. It is inherently debatable and because of that there is no certainty until after judgment, but the policy of promoting settlement - 90 per cent of the litigation in this country, your Honour, is compromised because parties make that assessment.  We do not and cannot wait until judgment, and in those circumstances ‑ ‑ ‑

CRENNAN J:   I think your time is up.

MR KELLY:   Apparently it is, your Honour.  If the Court pleases.

CRENNAN J:   Yes.  Would you be able to give us a brief answer to the argument that has been put by Mr Kelly?

MR DONALDSON:   Yes, a very brief answer, your Honours, and, with great respect to my learned friend, I think it is he who has to move the analysis along the linear plane to an anterior point in time.  The causation question that existed in this case was a question as to what had caused the can failures that led Visy to sue my learned friend’s client.  There were three factors in play.  One was that we, that is Nuplex, had used a base resin in the toll manufacture of this further resin which did not conform with the requirements of the contract but which Nuplex regarded as being in all relevant respects identical and of no causative impact.  There were changes that Siegwerk had made to the way in which it manufactured the resin, including the pigment that was used, the viscosity requirements, and we said the provision of out‑of‑date raw materials which they provided to us.

CRENNAN J:   Well, we understand all of that. We understand why the trial judge reached the conclusions he did, but Mr Kelly seems to be suggesting that there were still live issues, notwithstanding that determination.  What do you say about that?

MR DONALDSON:   Your Honours, Mr Kelly’s argument seems to be that there is no abandonment of issues associated with standing up before his Honour on the first day of the trial and agreeing that the case will be decided according to the answer to the question of whether or not the conduct Nuplex complained of caused the liability or caused the can failures.

CRENNAN J:   So do you say at the determination of that issue there was no need to go on and consider further the reasonable - the expenditure in what is described as mitigation of the loss?

MR DONALDSON:   Precisely, your Honour.  That was the nature of our concession.  We said if you can prove that then we will agree that this was a reasonable settlement and there is no other issue.  If the applicant had wished to run some other nuanced cause of entitlement to recover the amount of the settlement notwithstanding that it had not established that our defaults had put it in the position of having a liability to Visy then it could have done so, and it could have done so potentially on reliance on the matters which had still, say, stood before the court on the pleadings.

But by saying we are content that there is one issue in the case and this is the issue in the case, they have quite clearly, in our respectful submission, abandoned any other nuanced case to the effect –and we are not

able to still identify precisely what that case would be, but if they wanted to argue on some alternative basis that we may still be liable notwithstanding that we did not cause the can failures, then that required them to rely on those paragraphs of the pleading to call the evidence to prove those matters that are the subject of those paragraphs of the pleading, and the case would have taken an entirely different course.

So, in those circumstances, what the Full Court did, in our respectful submission, was quite correct.  They identified that this was a clear case of abandonment through saying there is only one issue in the cause, it is implicit that you do not have the issues raised by these other paragraphs.  Secondly, they accepted that while it is difficult to identify precisely what could have happened, the very undemanding test of the fact that the trial would have taken a different course and could have resulted in different evidence being adduced means that it cannot be raised for the first time there may be a departure from that assumed state of affairs before the Full Court.  So that is our short answer to that aspect.

CRENNAN J:   In a nutshell.  Yes.  Anything, Mr Kelly?

MR KELLY:   Yes, thank you, your Honours, there is.  Could I ask the Court, please, to go to page 211 of the application book?  Your Honours will see at about line 15 the terminal point of the discussion between his Honour, Justice Gray, and my learned friend:

And if we caused it, we will be in trouble.

We say on a proper characterisation of what happened at this first 15 minutes of the trial was that all of the architecture that had gone into setting up a claim for reasonable settlement and mitigation was conceded.  The only issue that our learned friend wished to put in issue by way of any defence to the only claim we brought to court was the question of the impact of causation in that claim for recovery. 

Your Honour understands the parties are at completely divergent positions about what is the proper test.  We point to no shortage of authority which is all our way that the liability need not be determined.  It is sufficient that it is arguable.  What is essential is that objectively at the time we settled we acted on material that made our settlement reasonable. 

Now, if one of the very, very many questions that is sought to be agitated was, well, we think causation means that perhaps, for example, your Honour, you paid too much, you paid 2.5, but 1.8 was adequate.  There was no alternative case.  It is not an “all or nothing” position.  This Court has nothing by way of affirmative case from our learned friends beyond a bare, non‑admission and a “you had a duty to mitigate”. 

Now, in all of those circumstances your Honours should understand that what happened at trial was not applicant lives or dies on causation.  That is just wrong.  My learned friend cannot point to anything where either he through the court, or the court directly said, now let us be quite clear, do you give up everything else?  That did not happen.  Nothing like that happened.  What did occur, with respect, your Honours, is that when we pursue all of the material items to establish our settlement we are told unambiguously the only question of all the material facts that you want to bring into the mix, none of them are in issue, not a single one of them. 

The error by the learned trial judge was he seemed to think, quite wrongly, that causation was this absolute trump in the assessment of recovery.  It was not.  On no basis does causation have this trump card role in the right of recovery for mitigation or reasonable settlement.  If your Honours please.

CRENNAN J:   Thank you. 

The proposed appeal seeks to challenge the exercise by the Full Court of the Federal Court of Australia of two discretions.  The exercise of each discretion was informed by the conduct of the trial below which included an agreed limitation of the issues to be determined by the trial judge.  We are not persuaded that any error was made by the Full Court in the exercise of either discretion.  Special leave is refused.  Should it be refused with costs?

MR DONALDSON:   Yes, in our submission, your Honour.

CRENNAN J:   Special leave is refused with costs.

AT 2.17 PM THE MATTER WAS CONCLUDED