SLE Worldwide Australia Pty Ltd v Wyatt Gallagher Bassett Pty Ltd

[2005] NSWSC 816

CITATION:	SLE Worldwide v WGB & Ors [2005] NSWSC 816
HEARING DATE(S):	09/08/05
JUDGMENT DATE :	12 August 2005
JUDGMENT OF:	White J
DECISION:	1. Plaintiff's notice of motion of 5 August, 2005 be dismissed; 2. plaintiff pay the second cross-claimant's (Gerling-Australia Insurance Pty Ltd) costs of the notice of motion; 3. exhibit may be returned.

CATCHWORDS:	PRACTICE AND PROCEDURE - Application to withdraw admission in pleadings - Where issues reasonably arguable if admissions withdrawn - Where party resisting amendment did not adduce specific evidence of evidence having become unavailable - Where party seeking amendment adduced no evidence of reasons for making admissions or why they were sought to be withdrawn - Withdrawal of admissions likely to lead to adjournment of hearing - Held that admissions made formally and deliberately by party legally advised should prima facie not be permitted to be withdrawn unless party seeking to withdraw them can point to an error when admissions were made or a relevant change of circumstance.
LEGISLATION CITED:	Trade Practices Act 1974 (Cth) Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules Queensland Uniform Civil Procedure Rules
CASES CITED:	State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 Cropper v Smith (1884) 26 Ch D 700 Gale v Superdrug Stores plc [1996] 1 WLR 1089 Hutton v Meston [2004] WASCA 178 Charlesworth v Relay Roads Ltd (in liq) [1999] 4 All ER 397 Sangora Holdings Pty Ltd v Dunstan (Supreme Court of Western Australia, Full Court, 13 April 1999, unreported; BC9901667) Drabsch v Switzerland General Insurance Co Ltd (16 October 1996, unreported; BC9604909) Jeans v Commonwealth Bank of Australia (2003) 204 ALR 327 Silver v Dome Resources NL [2005] NSWSC 265 Rigato Farms Pty Ltd v Ridolfi [2001] 2 Qd R 455
PARTIES:	SLE Worldwide Australia Pty Ltd v Wyatt Gallagher Bassett Pty Ltd & Ors
FILE NUMBER(S):	SC 50043/02
COUNSEL:	Plaintiff: P M Wood Defendant: F Kunc 2nd Cross-Claimant: S Finch SC
SOLICITORS:	Plaintiff: Corrs Chambers Westgarth Defendant: Toomey Pegg Drevikovsky 2nd Cross-Claimant: Clayton Utz

LOWER COURT JURISDICTION:

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

WHITE J

Friday, 12 August 2005

50043/02 SLE Worldwide Australia Pty Ltd v Wyatt Gallagher Bassett Pty Ltd & Ors

JUDGMENT

1 HIS HONOUR: This is an application by the plaintiff (“SLE”) to amend its defence to the second cross-claim, by withdrawing admissions that it is liable to indemnify the cross-claimant, Gerling-Australia Insurance Pty Ltd (“Gerling”), in respect of payments to the defendant (“WGB”).

2 Gerling is an authorised insurer. By an agreement made on 23 July 1996 called an Underwriting Management Agreement, it appointed SLE as its agent to issue contracts of insurance of a class known as Sport Leisure Entertainment Insurance, and to manage claims pursuant to such contracts.

3 Clause 8.6 of the Underwriting Management Agreement provided that a separately designated bank account would be opened and funded by Gerling. Claims and claims adjustment expenses as provided for in clauses 8.3 and 8.4 would be paid from that account. Clauses 8.3 and 8.4 provided:

“ 8.3 SLE shall be entitled to appoint loss adjusters, medical examiners, auditors and other experts as it deems necessary in respect of claims and the fees and expenses of such shall be borne by Insurer and SLE is authorised to pay for such services from the claims bank account to be funded by Insurer, as provided in 8.6.
8.4 SLE may, subject to the prior consent of Insurer, instruct lawyers in respect of any dispute with an insured arising under a claim and shall have authority to accept service of any proceedings on behalf of the Insurer. The fees and expenses of such lawyers shall be borne by Insurer and SLE is authorised to pay for such services from the claims payment bank account funded by Insurer, as provided in 8.6. ”

4 As compensation or reward for the claims handling service to be provided by SLE, Gerling was required to pay SLE a percentage of gross written premium.

5 Clause 9.2 provided:

“ 9.2 SLE shall indemnify and hold Insurer harmless against all expenses, losses, fines, penalties, disputes, claims and liabilities, whether legal or otherwise (including lawyers fees) arising as a result of SLE’s acts, errors or omissions except to the extent that such acts errors or omissions are in accordance with the provisions of this Agreement and/or except to the extent that the Insurer has caused or contributed to such acts, errors or omissions. ”

6 Clause 17 provided that SLE was not entitled to subcontract its rights or obligations under the agreement to any third party without the prior written consent of Gerling.

7 On 14 October 1997, SLE, with Gerling’s consent, entered into an agreement called a Claims Services Agreement with WGB to sub-contract its claims management responsibilities to WGB. Clause 1.3 of the Claims Services Agreement provided that WGB should be the sole and exclusive sub-contractor of SLE for the management and adjustment of Gerling Sports Leisure Entertainment claims. Clause 2.1 described the claims management services to be provided by WGB on behalf of SLE and Gerling. These included:

“ D. Gather data and conduct the investigation necessary to adjust the loss, including the appointment of independent loss adjusters, medical examiners, auditors, and other experts as it deems necessary in respect of claims. Provided that WGB’s fees and expenses are no more expensive than other independent loss adjusters, WGB shall be free to utilize WGB offices and agents throughout Australia when on site accident investigation is required. The fees and expenses of such shall be borne by Gerling Australia and WGB is authorised to pay for such services from the claims bank account to be funded by Gerling Australia as provided in Section 3.2. ”

8 Section 3.2 of the Claims Services Agreement provided that:

“ 3.2 SLE Australia shall arrange for Gerling Australia to fund a claims account for claims payment. All claims and allocated loss adjustment expenses will be paid from the account and fully documented in the respective file by WGB. ”

9 Clause 4.1 of the Claims Services Agreement provided that as compensation for the claims handling services provided by WGB, SLE should pay WGB a claims service fee as a percentage of gross written premium.

10 The proceedings were commenced by SLE against WGB on 8 May 2002.

11 SLE alleged that between 14 October 1997 and the date of filing the summons, WGB deducted from the Claims Bank Account funded by Gerling at least $1,296,484.86 purportedly in respect of loss adjustment services, but which accounts were in fact for claims handling services. It alleged that WGB was only entitled to be remunerated for claims handling services in accordance with clause 4.1 of the Claims Services Agreement. It alleged that WGB was only entitled to be remunerated for loss adjusting services in the manner provided for by clause 2.1D where the loss adjustment was required by on-site accident investigation and WGB’s fees and expenses were no more expensive than those of other independent loss adjusters.

12 The proceedings were listed for hearing for five days on 3 November 2003, but the hearing dates were vacated by consent on 17 October 2003.

13 On 24 October 2003, SLE filed an amended summons. In that document, and in a further amended summons filed on 8 March 2004, SLE alleged that it was liable to indemnify Gerling in respect of the amounts deducted from the Gerling Claims Bank Account purportedly in respect of loss adjustment services, but which, it alleged, were in fact for claims handling services. These amounts were defined in the Amended and Further Amended Summonses as the “Gerling Fees”. They were said to amount to at least $1,296,484.86.

14 In its defence, WGB contends, amongst other things, that it was entitled to make the deductions from the Gerling bank account. Although baldly expressed, WGB’s contention is that the payments in dispute were for loss adjustment services, not for claims handling services and did fall within clause 2.1D of the Claims Services Agreement. I am told that a number of witness statements served by SLE and WGB go to the issue of what are loss adjusting services, what are claims handling services, and into which category the disputed fees fall.

15 By paragraph 24 of the Defence to the Further Amended Summons, WGB says that, in any event, SLE on behalf of Gerling appointed it to provide the relevant services pursuant to clauses 8.3 and 8.4 of the Underwriting Management Agreement upon terms that WGB could charge an hourly rate for the services, in addition to the remuneration provided by clause 4 of the Claims Services Agreement. Its contention appears to be that the services for which the disputed fees were charged were incurred pursuant to an appointment by SLE under clause 8.3 or 8.4 of the Underwriting Management Agreement which is independent of its appointment under the Claims Services Agreement.

16 WGB also contends that SLE requested it to transfer its handling of public liability claims to a Division staffed by solicitors, chartered loss adjusters, loss adjusters, liability loss adjusters, and claims consultants. It contends that SLE agreed that WGB could charge for the services provided by professional staff at agreed hourly rates. WGB says that this was a new agreement, or a variation of the Claims Services Agreement, or that SLE is estopped from denying its right to charge on this basis. The claim is also put in other ways, including by recourse to ss 52 and 87 of the Trade Practices Act 1974 (Cth), but the substance of the allegation is that SLE agreed to its charging for the services in question at hourly rates applicable to professional staff. This is denied by SLE.

17 Gerling is involved because it provided the funds to what is called the Gerling Claims Bank Account. Except to the extent to which the funds were used in paying claims or claims adjustment expenses, SLE, as the holder of the account, would be required to account for the moneys in the account to it. Gerling may be the beneficial owner of the moneys in the account until they are applied in accordance with the Underwriting Management Agreement or the Claims Services Agreement.

18 Gerling was not joined as a party to the proceedings until 22 March 2004. It was joined as a cross-defendant by an amendment made by WGB to its cross-claim. The proceedings had been listed for hearing for a second time on 15 March 2004. That hearing date was vacated as a result of the late joinder of Gerling and another party to WGB’s cross-claim. In the latest version of that cross-claim WGB seeks declarations that SLE is not liable to indemnify Gerling in respect of the moneys in dispute and that it is not liable to indemnify Gerling. WGB pleads against Gerling each of the matters it has raised in its defence to SLE’s claim. Gerling denies these allegations. In its defence to WGB’s cross-claim, Gerling denies that it knew of the conduct which WGB alleges SLE engaged in, which WGB contends gives rise to the new or varied agreement or the estoppel concerning the basis upon which it was entitled to charge.

19 Having been joined to the proceedings as a cross-defendant, Gerling brought its own cross-claim (the second cross-claim) against SLE and WGB. Against SLE it made the following allegations, all of which SLE admitted:

“ 7. At some time between 14 October 1997 and 7 May 2002, WGB deducted the Gerling Fees from the Gerling Claims Management Account in respect of fees which the CSA did not authorise WGB to deduct from the said bank account, or otherwise charge to Gerling, being fees which were neither loss adjusting fees of the type referred to in clause 2.1D of the CSA nor claims services fees calculated in accordance with clause 4.1 of the CSA (“the Conduct”) .
As between Gerling and SLE
8. Pursuant to the CSA, WGB was entitled to charge Gerling certain expenses but was not entitled to charge to Gerling expenses which were not charged to Gerling by WGB in accordance with the CSA.
9. Gerling had not authorised WGB to pay itself amounts by way of remuneration or reimbursement of expenses beyond amounts authorised by the CSA.
10. As Gerling provided to WGB the funds for the Gerling Claims Bank Account, the Conduct amounted to the charging by WGB to Gerling for amounts which were not payable by SLE to WGB under the CSA and for which Gerling had no liability to pay to WGB, or to SLE under the UMA.
11. By its Further Amended Summons, SLE pleads against WGB that SLE is liable to indemnify Gerling pursuant to clause 9.2 of the UMA in respect to the Gerling Fees appropriated from the Gerling Claims Bank Account by WGB contrary to the terms of the CSA.
12. By the Further Amended Summons and by its conduct (including its conduct in these proceedings), SLE admits that it is liable to indemnify Gerling in respect to the Gerling Fees by SLE’s act, error or omissions pursuant to clause 9.2 of the UMA.
13. Further, or in the alternative, in the premises, SLE’s conduct was an act, error or omission for the purposes of clause 9.2 of the UMA.
Particulars

(a) by the Conduct;

(b) in entering into the CSA;

(c) in permitting the Conduct;

(d) in failing to prevent the Conduct.

…
18. In the premises, if SLE succeeds against WGB in respect of the matters pleaded in SLE’s Further Amended Summons, SLE is liable to Gerling:

(a) to indemnify Gerling in respect to:

(i) the Gerling fees;

…
37. In the alternative, if Gerling fails in its defence of paragraphs 32 to 41 (inclusive) of WGB’s Further Amended Cross Claim, SLE is liable to Gerling:

(a) to indemnify Gerling in respect to:

(i) the Gerling fees;

… ”

20 The admissions of these paragraphs are contained in a defence to the second cross-claim dated 12 August 2004. The expression “Gerling Fees” is described in Gerling’s cross-claim to mean amounts WGB charged and deducted from the Gerling Claims Bank Account between 14 October 1997 and 7 May 2002, including $1,067,711, in respect of fees which the Claims Services Agreement did not authorise WGB to deduct from the bank account or otherwise charge to Gerling, being fees which were neither loss adjusting fees of the type referred to in clause 2.1D of the Claims Services Agreement, nor claims services fees calculated in accordance with clause 4.1 of that agreement.

21 On 18 October 2004, Clayton Utz, who act for Gerling, wrote to the solicitors for SLE. Clayton Utz said that as they understood the pleadings, the effect of the admissions made by SLE was that:

“1. If SLE succeeds against WGB, SLE is liable to indemnify Gerling … in respect of the Gerling fees …;

2. If WGB succeeds against SLE, SLE is liable to indemnify Gerling ... in respect of the Gerling fees …;

3. If WGB succeeds against Gerling … in respect of the matters pleaded in the WGB cross-claim, SLE is liable to indemnify Gerling … in respect of the Gerling fees …; ”

The effect of the admissions made by WGB was said to be that:

“ 4. If WGB is held to have paid itself amounts by way of remuneration or reimbursement of expenses beyond amounts authorised by the CSA, or by Gerling, … then such conduct constitutes a breach by WGB of the fiduciary duty owed to … Gerling … ”

They said:

“ In our view, however one looks at the matter, Gerling will be entitled to recover the Gerling Fees in the proceedings from SLE or WGB.
In order to reduce the hearing time, and limit any evidence to be put on in the proceedings by Gerling, we request that you please confirm whether you agree with our understanding of the pleadings, and the effect of the admissions made by your client and by WGB. ”

22 There was no reply to this correspondence, but counsel for SLE accepts that Clayton Utz’s conclusions as to the effect of SLE’s admissions of its liability to Gerling were correct.

23 On 4 March 2005, SLE changed its solicitors. On 18 March 2005, the new solicitors for SLE, Corrs Chambers Westgarth, provided Clayton Utz with a draft Second Further Amended Summons. The draft Second Further Amended Summons did not include the previous allegation that SLE was liable to indemnify Gerling in respect of the deductions made by WGB from the account which was said not to be authorised by the Claims Services Agreement. Instead, SLE claimed that it held the legal title to the debt recognised by the credit balance to the Gerling’s Claims Bank Account and that WGB was required to pay by way of restitution into the Gerling Claims Bank Account sums equal to the allegedly unauthorised withdrawals from the account made by WGB.

24 On 24 March 2005, Clayton Utz wrote to Corrs Chambers Westgarth in relation to the proposed Second Further Amended Summons. They expressed their agreement in principle with what they described as the attempt to enable Gerling to remove itself from the proceedings by changing SLE’s claim to one for restitution of the Gerling account rather than pleading a liability to indemnify Gerling. Clayton Utz raised a number of issues concerning the amendment to the Summons, (to which it was not a party), including:

“ 1. It is presently uncertain how the funds returned to the Gerling account (i.e. after restitution) will be distributed. Our client is of the view that, as the return funds will represent amounts paid into the account by our client, it is entitled to the full balance of the Gerling account. …
…
3. The Amended Summons, assuming that the cross claims fall away, does not address the issue of your client’s potential liability to our client should it be established that your client authorised WGB to make the additional deductions from the Gerling account in relation to non-loss adjustment expenses.
Under the original Summons and your client’s defence to our client’s cross claim, your client admitted that it was required to indemnify our client in respect of the additional deductions by WGB in the unlikely event that your client’s action against WGB failed. Can your client confirm that, should it be unsuccessful in obtaining restitution from WGB, it will indemnify our client in respect of the additional deductions? ”

25 On 29 March 2005, Corrs Chambers Westgarth replied somewhat cryptically as follows:

“ 1. As the proposed pleading makes plain, our client is entitled to sue in respect of the moneys taken, wrongfully, from the Gerling account. The primary order which it seeks against WGB is restitution of those moneys into the Gerling account. Our client, if successful, does not seek to unjustly enrich itself but rather, will properly account to Gerling for all moneys to which Gerling is entitled, including interest.
…
3. Without admission, there will be no matter in issue in the proceedings which will require our client to plead the matters to which you have referred and neither can your client direct our client in that regard. The matters set out in paragraph 1 should be sufficient for your client’s purposes. ”

26 SLE did not apply at that stage to withdraw the admissions in its defence to Gerling’s cross-claim. The withdrawal of the assertions in the Summons that it was liable to indemnify Gerling were due to its propounding a claim against WGB on a different basis. SLE did not flag any intention to depart from its position that it was liable to indemnify Gerling. Rather, the statement that “there will be no matter in issue in the proceedings which would require our client to plead the matters to which you have referred”, was a confirmation of that position.

27 On 13 May 2005, the proceedings were fixed for hearing on 27 August 2005. Three weeks were allocated for the hearing. Gerling had not filed any evidence.

28 On 14 June 2005, the solicitors for WGB advised Clayton Utz that all of the parties except Gerling had agreed to a settlement of the litigation. WGB’s solicitors noted that at that stage Gerling had not identified any of the affidavits previously relied upon by SLE, but which were, they asserted, abandoned, upon which Gerling might wish to rely. On 23 June 2005, Corrs Chambers Westgarth advised Clayton Utz that SLE had determined to enter into a commercial settlement of the matter with, inter alia, WGB. They said that the terms upon which the settlement had been reached with WGB did not prejudice any rights or claims which Gerling had or might have against WGB.

29 It was not until 28 July 2005, less than a month before the hearing, that SLE gave notice of its intention to seek to amend its defence to Gerling’s cross-claim. A proposed new amended Defence was served under cover of a letter of that date from Corrs Chambers Westgarth who asserted, curiously, that the amendments were necessary to ensure that the Defence to Gerling’s cross-claim was not inconsistent with the matters pleaded in the Second Further Amended Summons. The proposed amended Defence seeks to withdraw the admissions of paragraphs 11, 12, 13, 18(a)(i), and 37(a)(i) of Part C of Gerling’s cross-claim. In the course of submissions, counsel for SLE also sought to withdraw the admission of the allegation in paragraph 10 that Gerling had no liability to SLE under the UMA. (T52). In its proposed amended Defence SLE seeks to plead in the alternative that:

“if WGB was entitled to deduct the Gerling Fees from the Gerling Claims Management Account by reason of the Additional Hourly Terms (which is denied), or by reason of the variation agreement, the collateral agreement, the appointment or the estoppel alleged by WGB in its Defence to Further Amended Summons (which is denied), then that entitlement arose pursuant to an appointment by SLE of WGB within clause 8.3 or alternatively 8.4, of the UMA and as a consequence of which the Gerling Fees were to be borne by Gerling in accordance with those clauses.”

30 The application for leave to amend the Defence to Gerling’s cross-claim was filed on 5 August 2005.

31 Counsel for SLE submitted that if WGB succeeded in its contention that the deductions from the bank account were for loss adjustment expenses authorised by clause 2.1D of the Claims Services Agreement, or if WGB was entitled to the moneys pursuant to an appointment under clauses 8.3 or 8.4 of the Underwriting Management Agreement, then it was at least reasonably arguable that SLE was not liable to indemnify Gerling. Having consented to the terms of the Claims Services Agreement, Gerling could not complain if WGB were entitled to deduct moneys in accordance with that agreement. If WGB were entitled to the moneys by reason of appointment under clauses 8.3 or 8.4 of the Underwriting Management Agreement, so that its the appointment took effect independently of the Claims Services Agreement and free from the provisions in that agreement governing WGB’s remuneration, then it is reasonably arguable that SLE is not liable to indemnify Gerling because it would have acted in accordance with the provisions of the Underwriting Management Agreement. The indemnity in clause 9.2 does not apply if SLE acted in accordance with the provisions of the agreement.

32 Counsel for SLE accepted that if WGB was wrong on its construction of the agreement, but succeeded in its contention that there was an agreement to vary the terms of the Claims Services Agreement, or a collateral agreement was entered into by WGB and SLE, or there was an estoppel binding SLE, which entitled WGB to keep the moneys deducted from the account, then SLE would be obliged to indemnify Gerling. However, a question would remain between SLE and Gerling whether the new or varied agreement for the payment of WGB was pursuant to an appointment under clause 8.3 of the Underwriting Management Agreement. (There could not be an appointment of WGB’s lawyers pursuant to clause 8.4 of that Agreement, without Gerling’s prior consent, and there is no suggestion that such consent was given.)

33 Counsel for SLE also submitted that it was reasonably arguable that if WGB failed on its defences against SLE, could not be liable on its indemnity to Gerling. In such a case, WGB would presumably be liable to reimburse the account or pay damages for the wrongful deductions, but it would not follow that SLE would be liable to indemnify Gerling. It was submitted that in such an event the deductions which WGB made from the account would not have been due to an act or omission of SLE which was not also an act or omission contributed to by Gerling.

34 Counsel for SLE submitted that it is reasonably arguable that SLE is not liable under the indemnity in clause 9.2, because Gerling stood in exactly the same position as SLE in relation to losses caused by Gerling replenishing the bank account in respect of amounts deducted by WGB which were allegedly unauthorised. SLE wishes to contend that Gerling had the same knowledge as SLE in relation to the rates charged by WGB and the services provided by it, and that Gerling caused or contributed to the act or omission of SLE from which the losses for which Gerling seeks indemnity arose. Counsel accepted that this would raise a new factual question as to whether Gerling had the same knowledge as SLE about the basis on which WBG was charging,and what it was charging for. Given this contention, it is not clear to me why SLE would necessarily accept that if WGB was wrong on its construction argument, but right on its allegation that there was a varied agreement or an estoppel, SLE would be liable to indemnify Gerling under clause 9.2.

35 This articulation of SLE’s position does not emerge from a reading of the proposed amended defence to Gerling’s cross-claim. The substitution of non-admissions for admissions, and the insertion of new paragraphs 5 to 7, do not clearly delineate SLE’s contentions, so as to indicate to Gerling what precisely would be in issue if the amendments were allowed. SLE says that this is because of the way the cross-claim is drafted. Whilst there may be some criticisms of the drafting of the cross-claim, it does not mean that SLE should be permitted to file an amended defence in the form proposed, even if it should otherwise be permitted to withdraw the admissions. One of the purposes of the forms of Summons, Defence and Cross-Claim prescribed by Practice Note 100 is to identify the issues the parties believe will arise and the legal grounds for opposition to the relief claimed. The proposed amended defence to cross-claim fails to do this.

36 However, Gerling raises a more fundamental objection. It contends that it would not be fair to allow the admissions of liability to be withdrawn. It has approached the hearing in the belief that whatever the outcome of the case it would be entitled to an indemnity from SLE in respect of the “Gerling Fees”. In reliance on those admissions, it has adopted a passive role in the litigation, co-operating with SLE to reduce costs. It has not investigated the conduct of SLE. It has given only limited consideration to WGB’s cross-claim against it, because, regardless of the outcome, SLE has admitted liability to indemnify it. The proceedings have been fixed for hearing three times. Twice, the hearing dates have been vacated. If SLE is permitted to amend its defence to withdraw the admissions, it is likely that Gerling will seek and be entitled to an adjournment of the hearing.

37 I am told that a good deal of evidence by way of witness statements has been exchanged on the question of whether the deductions from the account were in respect of loss adjustments services, as distinct from claims management services. If the amendment is allowed, Gerling will have to consider the sufficiency of the evidence filed on this topic. It may need to carry out its own investigations as to precisely what were the services provided. It will have to consider, as it has not yet done, the adequacy of discovery.

38 Whilst SLE has denied that the services in dispute were loss adjusting services, I am told that it has not sought to lead evidence on whether WGB’s charges were no more expensive than those of other independent loss adjusters. That would be a matter which Gerling would be entitled to investigate.

39 It is not clear from the pleadings whether SLE contends that all or some of the services for which the disputed deductions were made did not require on-site investigation. That is another matter Gerling would have to investigate.

40 Gerling would also have to investigate the conduct of SLE and WGB alleged to give rise to the new or varied agreement or an estoppel. It would need to do so at least in order to deal with the allegation that by that conduct, SLE appointed WGB as a loss adjuster under clause 8.3 of the Underwriting Management Agreement.

41 As mentioned previously, the proposed amendments would raise a new factual question as to whether Gerling had the same knowledge as SLE about the basis upon which WGB was charging and what it was charging for.

42 It is true, as SLE submitted, that the same issues are raised in Gerling’s defence to WGB’s cross-claim. But, unless it doubted SLE’s solvency, Gerling would have no need, on the present pleadings, to investigate the issues. Whatever the outcome of the case, it would be entitled to an indemnity from SLE in respect of the “Gerling Fees”. It made it plain to SLE that it would be preparing, or more accurately not preparing, the case on that basis.

43 SLE submits that there is no prejudice to Gerling which cannot be cured by an adjournment and an appropriate order for costs. It says that the matters which it wishes to raise are arguable. The parties to the litigation are substantial companies and there is nothing to indicate that the continuation of the litigation is causing strain or stress to individuals. It submits that all necessary amendments should be allowed for the purpose of determining the real questions in the proceedings. (Part 20 r 1(2)). The amendment should not be refused to punish SLE for its delay in making the application. The paramount consideration is doing justice between the parties. Considerations of efficient case management, whilst relevant, cannot prevail over the injustice of shutting it out from raising an arguable defence to Gerling’s cross-claim. (State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 at 153-154).

44 In State of Queensland v JL Holdings Pty Ltd the majority of the High Court applied a passage from the judgment of Bowen LJ in Cropper v Smith (1884) 26 Ch D 700 at 710 that:

“Now, I think it is a well established principle that the object of Courts is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights. Speaking for myself, and in conformity with what I have heard laid down by the other division of the Court of Appeal and by myself as a member of it, I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline, but for the sake of deciding matters in controversy, and I do not regard such amendment as a matter of favour or of grace.”

45 State of Queensland v JL Holdings Pty Ltd did not concern an application to amend by withdrawing an admission, let alone an admission made deliberately and not by error or mistake.

46 SLE adduced no evidence as to why the admissions were made, nor why they were adhered to after Gerling’s solicitors carefully explained in October 2004 what they saw as the consequences of the admissions for their client. It was not until 28 July 2005 that SLE gave notice of its intention to seek to withdraw the admissions, being less than a month before the matter was listed for hearing.

47 Gerling speculated that the reason for SLE’s change of tack is that SLE and WGB have apparently compromised their differences, although the proceedings between them remain on foot. In my view, there is no profit in speculating on the reason for SLE’s about-face. Its application has equal merit whether or not it is prompted by any settlement with WGB. The fact that SLE has apparently reached such a settlement demonstrates that Gerling may well have to take the running of the claim against WGB, if SLE is given leave to amend. But that is as far as it goes.

48 In Gale v Superdrug Stores plc [1996] 1 WLR 1089, Millett LJ said that the principles in Cropper v Smith in relation to amendments generally applied equally to amendments involving the withdrawal of admissions (at 1099). His Lordship said (at 1100):

“In my judgment leave should be normally be granted if the application is made in good faith, raises a triable issue with a reasonable prospect of success, and will not prejudice the plaintiff in a manner which cannot be adequately compensated.

…

It is not normally necessary for a party to justify his decision to amend his pleadings or withdraw an admission. It is enough that he wishes to do so. …”

49 Waite LJ, who, with Millett LJ, formed the majority of the Court, said that the test was whether it was just to permit a defendant to withdraw an admission, having regard to the interests of both sides and to the extent of which either side might be injured by the change in front, (at 106 citing Ralph Gibson LJ in Bird v Birds Eye Wall Ltd, The Times, 24 July 1987). His Lordship also said (at 1097-1098):

“Excuse (or lack of it) is not entitled, in my judgment, to any particular emphasis: it is just part of the overall picture and will carry no more weight than the particular circumstances require.

…

The judge had no evidence before him of any specific matter which rendered it more difficult for the plaintiff to prosecute a claim in liability than it would have been if the admission had never been made. No one pointed, for example, to any eye witness whose evidence would have been obtained if liability had been in issue but who cannot now be traced. …

… a party resisting the retraction of an admission must produce clear and cogent evidence of prejudice before the court can be persuaded to restrain the privilege which every litigant enjoys of freedom to change his mind.”

50 If these principles represented the law in this State, SLE would be on firm ground. In essence, they set out SLE’s position. It says that the admissions are of mixed questions of fact and law, which are reasonably arguable. Gerling has produced no cogent evidence of any specific prejudice. The absence of any explanation for SLE’s change from its initial stance, and the absence of any evidence that the admissions were the result of error, are not decisive matters. The decisive factor is that justice requires that a party be allowed to propound a defence which is reasonably arguable, if there is no specifically identified prejudice to the other side which cannot be compensated by costs.

51 However, in my view, this is not the correct approach in this State. The insistence that the party resisting the retraction of an admission produce clear and cogent evidence of prejudice, such as a lost witness or document, does not take account of the effect of delay on the quality of evidence, or the appreciation of what is relevant. As McHugh J said in Brisbane South Regional Health Authority v Taylor (at 551):

“The enactment of time limitations has been driven by the general perception that ‘[w]here there is delay the whole quality of justice deteriorates’ . Sometimes the deterioration in quality is palpable, as in the case where a crucial witness is dead or an important document has been destroyed. But sometimes, perhaps more often than we realise, the deterioration in quality is not recognisable even by the parties. Prejudice may exist without the parties or anybody else realising that it exists. As the United States Supreme Court pointed out in Barker v Wingo (1972) 407 US 514 at 532. ‘ what has been forgotten can rarely be shown ’. So, it must often happen that important, perhaps decisive, evidence has disappeared without anybody now ‘ knowing ’ that it ever existed. Similarly, it must often happen that time will diminish the significance of a known fact or circumstance because its relationship to the cause of action is no longer as apparent as it was when the cause of action arose.”

52 In Hutton v Meston [2004] WASCA 178, McLure J, with whom Murray and Templeman JJ agreed, said (at [22]):

“ … I am not persuaded that the general rules formulated and applied by the majority in Gale represent the law in Australia. ”

53 The views of Millett LJ in Gale have also not found universal favour in England. (Charlesworth v Relay Roads Ltd (in liq) [1999] 4 All ER 397 at 402-403).

54 In Sangora Holdings Pty Ltd v Dunstan (Supreme Court of Western Australia, Full Court, 13 April 1999, unreported; BC9901667) Steytler J with whom Scott J agreed said (at 7):

“It is a serious matter to make an admission in a pleading. From that point onwards the admitted fact or facts cease to be in issue and the action proceeds upon that assumption. It may often be the case that, absent the admission, the action would have proceeded upon a different basis. It has consequently been said on a number of occasions that, as a matter of principle, a party who has made an admission in a pleading should not be entitled to withdraw that admission without good cause (see, for example, Divcon (Australia) Pty Ltd v Devine Shipping Pty Ltd [1996] 2 VR 79 at 80). The withdrawal of an admission will often even less readily be allowed if it has stood for a long time (see Davey v Harrow Corporation [1958] 1 QB 60 at 69) or when the withdrawal will cause significant prejudice to the other party (see Hamilton v Australian Telecommunications Commission [1989] 2 Qd R 18 at 20 and Permanent Building Society v Wheeler , unreported; FCt SCt of WA; Library No 940115; 22 February 1994 and see, generally, Seaman: Civil Procedure Western Australia para20.14.2).”

55 The relevant principles were described by Santow J (as his Honour then was) in Drabsch v Switzerland General Insurance Co Ltd (16 October 1996, unreported; BC9604909) (at 7-8) as follows:

“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; Coopers Brewery Ltd v Panfida Foods Ltd (1992) 26 NSWLR 738 per Rogers CJ Comm D, followed in IOL Petroleum Ltd v O’Neill per Young J (Young J, 17 November 1995, unreported) and Apex Pallett Hire Pty Ltd v Brambles Holdings Ltd (full Supreme Court of Victoria, 8 April 1988, unreported), and in that respect not following H Clark (Doncaster) Ltd v Wilkinson [1965] Ch 694 at 703. 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; IOL Petroleum Ltd v O’Neill (supra), in the context of withdrawing a concession made before the Registrar. 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; Coopers Brewery Ltd v Panfida Foods Ltd (supra) at 745 and 748. Thus 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; compare Devae Prufcoat Pty Ltd v Altex Industrial Paints Ltd (Cole J, 15 March 1989, unreported). 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; H Clark (Doncaster) Ltd v Wilkinson (supra), in that respect not doubted. 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.”

56 This remains a correct statement of the relevant principles after Queensland v JL Holdings Pty Ltd. (Jeans v Commonwealth Bank of Australia (2003) 204 ALR 327 at 330-331; Silver v Dome Resources NL [2005] NSWSC 265 at [8]-[9]). In Jeans v Commonwealth Bank of Australia, the Full Court of the Federal Court said that there was no principle that admissions might or might not be withdrawn, but that the court had a broad discretion to weigh up all matters, with the overall question being to ensure there was a fair trial. (At 330 [18]). Nonetheless, I approach the task of assessing what fairness to the parties requires, guided by the principles expounded by Santow J in Drabsch. It is legitimate and it may be necessary to consider whether the party making the admission did so deliberately, or whether he did so in error, whether the significance of the admission has changed since it was made, for example by reason of other amendments, (Silver v Dome Resources NL at [12]), or whether new evidence has come to light. In this case there is no suggestion that the admission was made in error. There has been no change to the pleadings which has altered the significance of the admissions. It is not suggested that new evidence has come to light which justifies their withdrawal. Where a party, who is legally advised and does not suffer any disability, deliberately and without mistake, admits liability in whole or in part, and there are no relevant changes of circumstance, prima facie, justice or fairness to both parties does not require that it be allowed to change its mind. That is why admissions made with deliberateness and formality are not ordinarily permitted to be withdrawn.

57 I therefore start from the position that the admissions deliberately and formally made should not be permitted to be withdrawn, unless sufficient cause is shown why they should be. I accept that on some of the grounds upon which the case between SLE and WGB might be decided, or the cross-claim between WGB and Gerling might be decided, it is reasonably arguable, considering only the terms of the two agreements and the pleadings, that SLE might not be liable to indemnify Gerling in respect of the disputed deductions. I do not consider that to be a sufficient reason for permitting SLE to withdraw the admissions. The prejudice to Gerling cannot only be measured in terms of the additional cost which it will incur in the litigation, or the costs thrown away by reason of the amendments. The prolongation of the litigation, which has already been prolonged for too long, with the inevitable expenditure of executives’ time, is part of the prejudice which Gerling will suffer if the amendments are allowed.

58 I do not accept that on an application of this kind, a party opposing the withdrawal of admissions must necessarily adduce specific evidence of particular prejudice, such as the unavailability of a named witness or loss of identified documents. The conduct to be investigated goes back eight years. Although there was no specific proof that evidence may be unavailable to Gerling because witnesses memories have dimmed, or witnesses or records are no longer available, I can assume that there is a serious risk that that will be so. (Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551). On the other hand, it is likely that any evidence that is now unavailable would also have been unavailable to Gerling had its right to an indemnity been put in issue by SLE when it filed its defence to Gerling’s cross-claim one year ago. However, I do not consider that that is the relevant comparison. There are three parties with an interest in WGB’s right to make the deductions: WGB, SLE and Gerling. If, when it instituted proceedings in 2002, SLE had contended that it was not liable to indemnify Gerling in respect of the disputed moneys withdrawn by WGB, then Gerling would have been a proper party to the Summons. If SLE had not joined it, Gerling would have been entitled to apply for an order that it be added as a party to the proceedings, and that application is likely to have been successful. However, on the basis on which SLE maintained its claim, Gerling had no occasion to make such an application. I do not consider that the question of prejudice to Gerling from the late raising of the issue can be assessed only by reference to the time between SLE filing its defence to Gerling’s cross-claim, and its applying for leave to amend the defence.

59 Nor am I satisfied that Gerling could be put in the same position in relation to preparing the case for hearing as it would have been in had SLE put its liability to indemnify Gerling in issue, either from the time the proceedings were commenced, or from the time it filed its defence to Gerling’s cross-claim. This is not just because of the passage of time and the effect that may have had on witnesses’ memories or the appreciation of the relevance of lines of inquiry. Many of the witnesses with whom Gerling would wish to consult and may wish to call will be in SLE’s camp. As SLE and WGB have apparently settled their differences, Gerling may not have the same access to witnesses as would otherwise have been the case.

60 I also take into account as a relevant factor, although not a paramount factor, that these proceedings are in the Commercial List, that the hearing dates which have been fixed are the third hearing dates, that three weeks have been set aside for the hearing, that if the amendments are allowed it is likely that Gerling will apply for, and be entitled to, an adjournment, and that this would cause prejudice to other litigants whose cases, in due course, would be delayed to accommodate a fourth hearing date for these proceedings.

61 In my view, to allow the amendment would not facilitate the just, quick and cheap resolution of the real issues in the proceedings. (Part 1 Rule 3(2)). I have to exercise the power under Pt 20 r 1(2), in relation to amendments, in a way which seeks to give effect to that overriding purpose of the rules. (Pt 1 r 3(2)). To allow the amendment would result in the incurring of much greater costs. It would delay the resolution of the proceedings for an indefinite, but substantial time. For the reasons previously given, it is not something required in the interests of justice. It is not just to Gerling to force it belatedly to assume the burden of the conduct of litigation which, up to now, it has been induced by SLE’s admissions to assume it would not have to bear, or to expose it to a risk of loss which, up to now, it was entitled to assume it would not face. Whilst justice requires that SLE have the opportunity to ventilate the issues it seeks to raise, it is not unjust to compel it to adhere to its position when it deliberately passed up that opportunity. SLE has at all times been under a duty to assist the Court to further the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings. (Pt 1 r 3(3)). Being under that duty, I do not think it can complain that it is held to the position which it deliberately adopted.

62 Counsel for SLE submitted that unless the amendment were allowed the “real issues” between it and Gerling would not be determined. On the other hand, Gerling submitted that the fact that the admissions were deliberately made and that there is no explanation for their being withdrawn, shows that there is no “real”, in the sense of genuine, issue about SLE’s liability to indemnify it.

63 In Rigato Farms Pty Ltd v Ridolfi [2001] 2 Qd R 455, the Queensland Court of Appeal considered an application to withdraw a deemed admission arising from the failure to dispute a notice to admit facts. Rule 5(1) of the Queensland Uniform Civil Procedure Rules said that the purpose of the Rules was “to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense”. De Jersey CJ said (at 459, [21]-[22]):

“…Fulfilling procedural requirements will often contribute significantly to securing an ultimate result which may be considered just. Allowing the appellant to withdraw these deemed admissions would substantially erode the beneficial worth of a very important procedural mechanism directed, through expediting cases and reducing costs, to promoting the interests of justice.

[22] Parties do not have an inalienable right to a hearing of all issues on the merits. …”

64 McPherson JA emphasised that before permitting an admission to be withdrawn the Court should be satisfied that there was a genuine dispute, and that would ordinarily require an explanation of how the admission came to be made and why it should be withdrawn. His Honour said (at 459-460, [27]):

“ Before permitting the admission to be withdrawn, the first step to be determined here was whether there was a genuine dispute about the defendant's liability in this action. … it is not enough for that purpose simply to assert that a dispute exists: … Some proper basis must be laid for that assertion, which would ordinarily include an explanation of how the earlier admission came to be made and why it should now be permitted to be withdrawn. That is not shown by a (sic) saying simply that there has been a change of solicitors, or that it is possible to see that, before the admission was made, the issue of liability was an open question. Here the defendant has not condescended to swear to the circumstances in which the admission came to be made, or to show that it occurred by inadvertence, mistake or in some other way that might now justify its withdrawal. ”

65 To show that the amendment is necessary for the “real issues” to be determined, it is not enough to show that SLE’s liability to indemnify Gerling is reasonably arguable or, as McPherson JA put it, an open question before the admission was made. An explanation on oath was required as to why the admissions were made, and why it is now sought to withdraw them.

66 It was submitted for Gerling that in dealing with the present application, I should take into account that on 15 August 2005, the Civil Procedure Act 2005 and the Uniform Civil Procedure Rules will commence. It was submitted that if the application to amend were dealt with under s 58 of the Civil Procedure Act, it would be likely to fail having regard to the obligation of the court to have regard not only to the overriding purpose expressed in s 56, (which has its counterpart in Pt 1 r 3 of the existing rules), but also to the obligation to have regard to the objects of case management in accordance with s 57. It was pointed out that the degree of injustice which would be suffered by the respective parties as a consequence of an order granting or refusing leave to amend, would be only one of the matters to which regard could be had, but need not be had, pursuant to s 58(2)(b). Although the Act had not commenced when the application was made, was heard, and is being determined, that is an accident of timing. If the application were heard next week, the Civil Procedure Act 2005 would apply. Gerling submitted that the Act formed “part of the landscape” against which the application should be assessed.

67 I do not consider that the application can be determined on this basis. Until the Act comes into force, it would be wrong to determine the present application by reference to it.

68 For the reasons I have given, I do not consider that to allow the amendments would be conducive to a fair trial. I refuse to grant leave to the plaintiff to file and serve the proposed amended defence to the second cross-claim. I order that the plaintiff’s notice of motion of 5 August, 2005 be dismissed and the plaintiff pay the second cross-claimant’s (Gerling-Australia Insurance Pty Ltd’s) costs of the notice of motion. The exhibit may be returned.

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