FEDERAL COURT OF AUSTRALIA Sherrin Hire Pty Ltd v Tidd Ross Todd Ltd (No 2) [2016] FCA 891 File number: NSD 379 of 2014 Judge: EDELMAN J Date of judgment: 9 August 2016 Catchwords: CONTRACT – consequential loss clauses – questions of construction – whether questions appropriately determined in a pleading dispute without contractual context, without proper submissions addressing relevant authorities, potentially involving issues of foreign law, and where the construction issue introduces no new factual dispute PRACTICE AND PROCEDURE – application to amend notice of cross-claim – allegation that notice of cross-claim doomed to fail – whether appropriate to determine substantive aspects of notice of cross-claim before trial Legislation: Evidence Act 1995 (Cth) s 175(1) Federal Court of Australia Act 1976 (Cth) s 37M(1) Trade Practices Act 1974 (Cth) s 52 Cases cited: Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 Australian Securities and Investments Commission v Cassimatis (No 7) [2016] FCA 624 Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; (2008) 19 VR 358 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 Luck v Chief Executive Officer of Centrelink [2015] FCAFC 75 Mayfair Property Holdings Pty Ltd v Southland Packers Pty Ltd (No 3) [2016] QSC 150 Media Ocean Limited v Optus Mobile Pty Limited (No 6) [2009] FCA 1319 Neilson v Overseas Projects Corporation of Victoria Ltd [2005] HCA 54; (2005) 223 CLR 331 Oceania Furniture Ltd v Debonaire Products Ltd [2009] NZHC 1139 Patersons Securities Ltd v Financial Ombudsman Service Ltd [2015] WASC 321 Regional Power Corporation v Pacific Hydro Group Two Pty Ltd (No 2) [2013] WASC 356; (2013) 46 WAR 281 Sherrin Hire Pty Ltd v Sherrin Rentals Pty Ltd [2015] FCA 1107 Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Limited (in liq) [2015] FCA 1098 Transocean Drilling (UK) Ltd v Providence Resources Plc [2016] EWCA Civ 372 United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 Date of hearing: 9 August 2016 Registry: New South Wales Division: General Division National Practice Area: Intellectual Property Sub-area: Trade Marks Category: Catchwords Number of paragraphs: 24 Counsel for the Applicant: The Applicant did not appear Counsel for the First and Second Respondents: Mr R D Wilson SC Solicitor for the First and Second Respondents: Coleman Greig Lawyers Counsel for the Third Respondent: The Third Respondent did not appear Counsel for the Fourth Respondent: The Fourth Respondent did not appear Counsel for the First and Second Cross-Claimants: Mr R D Wilson SC Solicitor for the First and Second Cross-Claimants: Coleman Greig Lawyers Counsel for the First Cross-Respondent: Ms E Collins SC with Mr L Shipway Solicitor for the First Cross-Respondent: Holding Redlich Counsel for the Second Cross-Respondent: The Second Cross-Respondent did not appear ORDERS NSD 379 of 2014 BETWEEN: SHERRIN HIRE PTY LTD ABN 45 007 741 942 Applicant AND: TIDD ROSS TODD LTD (and others named in the Schedule) First Respondent AND BETWEEN: TIDD ROSS TODD LTD (and another named in the Schedule) First Cross-Claimant AND: SHERRIN RENTALS PTY LTD (FORMERLY SHERRIN EQUIPMENT PTY LTD) ABN 52 074 173 756 (and another named in the Schedule) First Cross-Respondent JUDGE: EDELMAN J DATE OF ORDER: 9 AUGUST 2016 THE COURT ORDERS THAT: 1. The application be dismissed. 2. The cross-claimants pay the costs of the application of the first cross-respondent, to be taxed if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT EDELMAN J: Introduction 1 The unfortunate history of this action is set out in my reasons in Sherrin Hire Pty Ltd v Sherrin Rentals Pty Ltd [2015] FCA 1107. This proceeding involves three separate overlapping applications and sets of pleadings. Parties have multiplied since the inception of the first application in 2011. The matter has now been set down for trial for six weeks early next year. Forty-nine affidavits have been filed. There are six expert reports. But yet another interlocutory dispute has arisen. 2 The interlocutory dispute that has now arisen concerns whether the first and second respondents (respectively Tidd Ross Todd and TRT, and collectively the TRT parties) should have leave to amend their notice of cross-claim or, alternatively, leave to file a new notice of cross-claim. The second cross-respondent, Panalam Technologies, consented to the application in so far as the cross-claim was brought against it. But the first cross-respondent, Sherrin Rentals, opposed the application. The application was concerned only with the form and substance of the TRT parties' pleaded "indemnity" against loss from Sherrin Rentals. 3 Last night, after a communication from my Associate which raised issues about the present cross-claim, the TRT parties sought to amend further their proposed pleading. One aspect of those amendments was to add a new cross-claim against Sherrin Rentals alleging breach of contract. During the hearing this evening, senior counsel for the TRT parties quite properly conceded that in numerous respects the pleading of breach of contract was defective. There were numerous pleaded facts which were superfluous. The meaning of those superfluous facts was sometimes unclear. There was also an absence of any particulars concerning alleged failure to take reasonable care. A number of other concerns were raised by Sherrin Rentals but it currently appears to me that the cross-claim might be sufficient to go to trial if it can plead clearly (i) the content of the contractual duties said to be owed by Sherrin Rentals, (ii) the manner in which those duties will have been breached by Sherrin Rentals based on a pleaded (albeit disputed) and particularised potential finding of breach by the TRT parties, and (iii) the manner in which that breach caused loss to the TRT parties. 4 The remaining matter in dispute concerns the form and substance of the TRT parties' pleaded "indemnity" against loss from Sherrin Rentals. For the reasons below, I am satisfied that this part of the pleading should go to trial but the pleading will need to be substantially redrafted. The context of the application for leave to amend 5 This proceeding (NSD 379 of 2014) will be heard together with two other related proceedings. All of them involve claims arising from 79 elevated work platforms or "cherry pickers" (EWPs) which Sherrin Hire alleges were defective. For present purposes it suffices to treat the three proceedings jointly and to summarise the core allegations involving Sherrin Rentals and the TRT parties. Sherrin Hire's current case against the TRT parties is that the TRT parties designed, manufactured and sold the EWPs to Sherrin Rentals (who are respondents together with a director and a related entity), who on-sold 69 of them to Sherrin Hire. A further 10 EWPs were on-sold by the related entity. 6 Sherrin Hire's pleadings include the following allegations: (1) the TRT parties breached a duty of care owed to Sherrin Hire in their design, manufacture and sale of the EWPs; and (2) Sherrin Rentals breached their contract with Sherrin Hire and contravened s 52 of the Trade Practices Act 1974 (Cth). 7 Sherrin Hire no longer contends that the Sherrin Rentals designed the EWPs. 8 The TRT parties were joined as parties to the primary proceedings (NSD 1981 of 2011) when Sherrin Rentals (and the associated parties, Mr Sherrin and Sherrin Equipment) filed a cross-claim against them on 9 December 2013 alleging negligence, breach of contract, and misleading or deceptive conduct in relation to the design, manufacture, and sale of the EWPs. 9 The TRT parties filed their notice of cross-claim against Sherrin Rentals and others on 15 February 2016. That cross-claim was filed after earlier versions, served in draft form, were conceded to be defective. The cross-claims arise from an agreement between the TRT parties and Sherrin Rentals (as it became known) dated 16 September 2005 (the Agreement). 10 The version of the cross-claim which was the subject of this filed application was the sixth attempt by the TRT parties. The changes in the previous versions have sometimes been very significant. A seventh version of the cross-claim was filed last night. The essence of that proposed cross-claim by the TRT parties against Sherrin Rentals was a claim for (i) breach of contract, and (ii) an indemnity or discharge of liability. I have already explained that it was properly accepted that the claim based on breach of contract was defective. The issue which remains is whether the claim based on "indemnity" can go to trial. Principles concerning the grant of leave to amend 11 It is well established that the Court has a broad power to grant leave to amend, consistently with the overarching purpose to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible: Federal Court of Australia Act 1976 (Cth) s 37M(1). In Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Limited (in liq) [2015] FCA 1098 [127], Gleeson J summarised the relevant factors to be considered in this Court, deriving from Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 and Luck v Chief Executive Officer of Centrelink [2015] FCAFC 75. The principles were approved by the Full Court in Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2016] FCAFC 2 [125] (the Court). It is unnecessary to repeat them because it became common ground between the parties that this application would rise or fall based upon whether the pleading in relation to the "indemnity" was doomed to fail. 12 Sherrin Rentals had four grounds of objection to the claim based on the "indemnity" in clause 22.3 of the Agreement. Three of the four grounds were concerned with matters of form. Each of these grounds asserted, for different reasons, that the facts had not been pleaded properly. The dispute about those matters fell away this evening as a result of a proper concession by senior counsel for the TRT parties that the factual matters pleaded were only background matters. The TRT parties' cross-claim was intended to, and is capable of being read as, raising only one short legal issue which is whether the pleaded loss of Sherrin Hire, if proved, falls within the terms of clause 22.3. The "indemnity" cross-claim based on clause 22.3 of the Agreement 13 Sherrin Rentals submits that the proposed cross-claim in relation to clause 22.3 of the Agreement is "doomed to fail". The essence of the claim is: If (which is denied) [the TRT parties] are liable to [Sherrin Hire] in damages arising from the alleged defects in the EWPs, they are entitled to a complete indemnity or a discharge of liability from [Sherrin Rentals] pursuant to clause 22.3 of the 2005 Agreement. 14 Clause 22.3 provides: TRT will under no circumstances be liable under the law of tort, contract or otherwise for any loss of profits or savings or for any indirect or consequential loss or damage, however caused, arising out of or in connection with the performance or non-performance of this Agreement. 15 On first appearances it is very difficult to see how a clause which excludes liability for "loss of profits" or "savings" or "any indirect or consequential loss or damage" provides a complete indemnity as pleaded. The proposed pleading purports to rewrite the clause using different language. 16 Despite this oddity of pleading it appears that the proposed cross-claim is really one for exclusion of liability based on the submission that "the cost of repairs to the EWPs is a 'consequential loss' within the meaning of clause 22.3" ([14(b)(i)]). There may be real difficulties for the TRT parties to demonstrate that the normal damage suffered by the purchaser of defective goods, which is the difference between the price paid and the real value of the goods acquired at the date of acquisition, is a consequential loss (although the current pleading by Sherrin Hire focuses on actual, subsequent losses): HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640, 656-657 [34]-[35] (the Court). However, it is unnecessary to consider this issue in detail. I do not consider that this issue should be resolved in the context of a pleading dispute for four reasons. 17 First, submissions on this issue will add very little time to the trial. It introduces no new factual dispute. And the question of construction is a short question: see Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82, 83-84 [4]-[8]. 18 Secondly, clause 22.3 falls to be construed by reference to New Zealand law. There may be doubt whether the New Zealand approach to construction of exclusion clauses is the same as the Australian approach: but see Oceania Furniture Ltd v Debonaire Products Ltd [2009] NZHC 1139 [115]-[121] (Clifford J). Senior counsel for Sherrin Rentals submitted that it is "presumed" to be the same as Australian law in the absence of evidence to the contrary: see Neilson v Overseas Projects Corporation of Victoria Ltd [2005] HCA 54; (2005) 223 CLR 331, 372 [125] (Gummow and Hayne JJ). However, in the absence of expert evidence (which has not been led in this case) the TRT parties might rely upon s 175(1) of the Evidence Act 1995 (Cth). See also United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSWLR 766, 801 (McLelland J). 19 Thirdly, as senior counsel for the TRT parties submitted, at this level of pleading dispute the submissions on this question of construction have not yet addressed many of the leading cases. The issues concerning construction of consequential loss clauses and other related limitation of liability clauses have given rise to differences in approach in a number of authorities. These differences have occurred within Australia as well as between Australian and English authorities. None of the submissions addressed, in any real detail, the authorities concerning the contextual, background meaning of "consequential loss". That background can sometimes be concerned with the meaning which an ordinary, reasonable business person would attribute to a clause. In Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; (2008) 19 VR 358, 389 [93], Nettle JA (Ashley and Dodds-Streeton JJA agreeing) said that "ordinary reasonable business persons would naturally conceive of 'consequential loss' in contract as everything beyond the normal measure of damages, such as profits lost or expenses incurred through breach". 20 Fourthly, although particular contractual contexts might not often illuminate the meaning of words such as "consequential loss", the appropriate starting point might be the particular contractual context because the same words can mean different things in different contexts. These are matters best determined after trial. Australian cases have emphasised that construction of consequential loss clauses should not occur in a vacuum: Patersons Securities Ltd v Financial Ombudsman Service Ltd [2015] WASC 321; Regional Power Corporation v Pacific Hydro Group Two Pty Ltd (No 2) [2013] WASC 356; (2013) 46 WAR 281. 21 Even the English approach to these clauses which has not always given considerable emphasis to context was modified in Transocean Drilling (UK) Ltd v Providence Resources Plc [2016] EWCA Civ 372. The question in that case was whether various overheads as a result of a delay (wasted costs of personnel, equipment, and third party services) were "consequential losses" within a clause which excluded liability by two limbs. The first limb was for "any indirect or consequential loss or damages under English law". One of the undisputed leaders of the English bar, acting for the appellant in Transocean, did not seek to argue that the first limb applied. However this may have been because the breadth of the second limb which applied to instances involving "…loss of use (including, without limitation, loss of use or the cost of use of property, equipment, materials and services including without limitation, those provided by contractors or subcontractors of every tier or by third parties), loss of business and business interruption". 22 In the Court of Appeal's decision, Moore-Bick LJ (with whom McFarlane and Briggs LJJ agreed) observed that some of the English decisions concerning "consequential loss" clauses might be decided differently today because (at [15]) "courts are more willing to recognise that words take their meaning from their particular context and that the same word or phrase may mean different things in different documents". Again, these questions of context are properly matters for trial. Conclusion 23 The aspect of the TRT parties' cross-claim against Sherrin Rentals concerning the plea of exclusion of liability for consequential loss can go to trial but the defects concerning the plea of breach of contract are such that the proposed cross-claim should be re-pleaded. The appropriate order is to dismiss the application for leave and to require a fresh pleading and application. With a cooperative approach it can be hoped that further delay and cost can be avoided. This is especially so in circumstances in which, as senior counsel for the TRT parties submitted tonight, the TRT parties' cross-claim does not, and will not, raise any new factual issue. 24 The TRT parties should pay the costs of Sherrin Rentals for this application. Although the TRT parties were, partly, successful, the usual order where opposition to an application to amend is not unreasonable is that the party who applies to amend must pay the costs of the application for leave to amend and the costs occasioned by and thrown away as a consequence of the amendment: see Media Ocean Limited v Optus Mobile Pty Limited (No 6) [2009] FCA 1319 [34] (Jagot J); Mayfair Property Holdings Pty Ltd v Southland Packers Pty Ltd (No 3) [2016] QSC 150 [6] (Bond J) and my decision in Australian Securities and Investments Commission v Cassimatis (No 7) [2016] FCA 624 [4]. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edelman. Associate: Dated: 9 August 2016 SCHEDULE OF PARTIES NSD 379 of 2014 Respondents Second Respondent: TRT (AUST) PTY LTD Third Respondent: PANALAM TECHNOLOGIES LIMITED Fourth Respondent: AROTAHI TRADING LIMITED Cross-Claimants Second Cross-Claimant TRT (AUST) PTY LTD Cross-Respondents Second Cross-Respondent PANALAM TECHNOLOGIES LIMITED