Supreme Court New South Wales Medium Neutral Citation: Rian Lane v Dive Two Pty Ltd [2012] NSWSC 49 Hearing dates: 6 February 2012 - 7 February 2012 Decision date: 09 February 2012 Before: Adamson J Decision: (1) Dismiss the first cross-defendant's notice of motion filed in Court on 6 February 2012. (2) Order the first cross-defendant to pay the defendants' and the second cross-defendant's costs of the motion. Catchwords: PRACTICE AND PROCEDURE - pleadings - amendment - application to amend pleadings - whether issue sufficiently raised - whether issue raised too late in proceedings - exercise of discretion to grant amendment Cases Cited: - Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 - State Rail Authority of New South Wales v Heath Outdoor Pty Limited (1986) 7 NSWLR 170 - Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 - Western Export Services Inc v Jireh International Pty Limited (2011) 86 ALJR 1 Category: Interlocutory applications Parties: Rian Lane (Plaintiff) Dive Two Pty Ltd (First Defendant, First Cross-claimant) William Andrew Todd (Second Defendant, Second Cross-claimant) Horsell International Pty Ltd (First Cross-defendant) Liberty Mutual Insurance Company (Second Cross-defendant) Representation: D Campbell SC with T Meakes (Plaintiff) C V Birch SC with P Lowson (Defendants, Cross-claimants) A S Martin SC with G M Drew (First Cross-defendant) J Sexton SC with D Macfarlan (Second Cross-defendant) Beston Macken McManis (Plaintiff) Slater & Gordon (Defendants, Cross-claimant) McLachlan Chilton (First Cross-defendant) Riley Gray-Spencer (Second Cross-defendant) File Number(s): 2008/00289706 Judgment 1On the morning of the first day of the hearing of this matter, the first cross-defendant ( Horsell ) applied for leave to amend its defence to the defendants' cross-claim. The amendment sought to be made is as follows: "By no later that 31 October 2005 the Second Cross Defendant agreed to insure PADI Asia Pacific and individual members, dive centres and resorts (including the Cross Claimants) for public liability up to $10,000,000 any one event for the period 1 October 2005 to 30 September 2006 plus an endorsement 'watercraft inclusion for craft up to 12 meters'." 2By the time of the hearing, the defendants and the cross defendants accepted that the contract was comprised of at least the following two documents: the certificate of insurance issued by the second cross-defendant ( Liberty ) on 31 October 2005 and Master Policy 03.02. For present purposes the relevant clauses of the Master Policy are as follows. 3Clause 1 provides that: "Subject to the terms of this Policy, LIU will pay to or on behalf of the Insured all sums which the Insured shall become legally liable to pay by way of compensation as a result of a Claim(s) both first made against the Insured and notified to LIU during the period of Insurance for Injury and/or Damage in connection with the Insured's Business." 4Clause 4 provides that the Insured's business is as defined in the policy wording under "Scuba diving", which clause 2.6 defines as: "...principally incorporating class and water based learning activities and modules including first aid training and certification, including the determination of standards by the accrediting agency and all activities relating to training, instructing, observing and control of recreational scuba diving. This includes all activities relating to snorkelling, skin diving, swimming, recreational surface supplied air to a maximum depth of 10 meters, servicing hiring and repairing of equipment and sales of related products, tours of reefs by Glass bottom boats (under 12 meters), transportations of people from one Island to another, bird watching, guided tours of Island when not diving, jungle &/or bush walking, fishing, underwater photography/video, what watching, scuba doos, beach games." 5Clause 7 provides that the insured is not covered in respect of "liability directly or indirectly caused by, arising out of or in any way connect with... ownership, maintenance, operation, possession or use by or on behalf of the Insured of... any watercraft which exceeds twelve metres in length." 6Mr Martin, senior counsel for Horsell, submitted that the amendment ought be allowed since all it did was to identify an additional document which his client wished to argue formed part of the contract. The additional document ( the Quotation ) contained a letter from Liberty to Horsell in which the following endorsement was contained: "1. Professional Indemnity Exclusion write back coverage for Injury and Damage up to $5,000,000 each & every Claim made and in the aggregate. 2. Watercraft inclusion for craft up to 12 meters. 3. Scuba Diving Definition as expiring plus as additional definition to confirm that we only insure recreational diving." [Emphasis added] 7Mr Birch, senior counsel for the defendants, did not oppose the amendment but submitted that if it were allowed, he would apply to amend his cross-claim against Liberty in order to incorporate the allegation made by Horsell. He emphasised that his application was essentially defensive and designed to ensure that the defendants did not "fall between the cracks" if Horsell's application were granted. He also submitted that if the price of allowing the amendment were that the matter would need to be adjourned, then he would oppose the application. He submitted that there would be serious prejudice to the defendants were the matter to be adjourned and that the costs of preparing for another hearing would be considerable. However, Mr Birch supported Mr Martin's submission that the adducing of further evidence by Liberty would not be onerous and could be done within a relatively short time. 8Mr Sexton, senior counsel for Liberty, foreshadowed that any such application to amend would be opposed on the basis that it would lead to an application for an adjournment, to which Liberty would be entitled, and that it was inconsistent with the principles in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 ( Aon ) that an amendment be allowed at this stage of the proceedings. 9Ultimately, the defendants prepared an application for leave to amend the cross-claim which I am told mirrored that made by Horsell in respect of the defence to the amended cross-claim. Although Mr Martin submitted that his application to amend ought be dealt with separately, I rejected the submission on the basis that it was highly undesirable that the matter proceed, potentially, on the basis of two version of the contract and that the preferable course was that Horsell's application for leave to amend the defence to the amended cross-claim be dealt with together with the defendants' proposed application for leave to amend the cross-claim. However, Horsell was the principal moving party and this is ultimately reflected in the order for costs. 10Mr Martin submitted that the proposed amendment would permit Horsell to argue that there was a contract of insurance which was concluded prior to the issuing of the wording of the Master Policy of Insurance ( the Master Policy ) which, when read together with the Master Policy, had the effect that the defendants were covered for any claim arising from the use, operation or maintenance of a boat with a hull of a length up to 12 metres. He submitted that this construction was open, and indeed to be preferred, because of the terms of the endorsement in the Quotation. He submitted that the endorsement was not to be read as being qualified by insuring clause 1. In other words, he argued that the requirements "in connection with the insured's business" would not apply. 11Mr Martin submitted that the amendment simply raised a matter of construction of the contract, that no further evidence would need to be adduced and that the Quotation was, in any event, already part of the evidence to be relied upon by Liberty. 12At this juncture, I permitted both Mr Birch and Mr Martin to open their cases or defences, as the case may be, in order that I may have a better appreciation of the issues in the case before determining Horsell's application for amendment. 13Mr Sexton was not in a position to respond on the first day of the hearing to the foreshadowed application for leave to amend by the defendants. Accordingly he sought, and I granted, time for him to obtain instructions on the application, including the question whether Liberty proposed to adduce further evidence, and the nature of such evidence. At the time of granting the adjournment I suggested that an affidavit from his instructing solicitor would assist me if it could be prepared in time. 14In the course of the first day, the plaintiff's claim against the defendant was resolved and stood down to the second day in order that the terms could be finalised. 15At 10.00 am on the second day of the hearing, Mr Campbell for the plaintiff, handed up terms of settlement, as a result of which judgment was given in favour of the plaintiff. The plaintiff had an interest in the application for amendment since it appears to be common ground that the defendants' assets will be insufficient to satisfy the plaintiff's judgment, and therefore recourse, if any, will have to be had to the cross-defendants if such judgment is to be satisfied. Mr Campbell's attitude in the amendment application was equivocal in that he did not oppose the foreshadowed amendments, and indeed supported them, if they had the effect of improving the defendants' case against Liberty. However, if they would have the tendency to delay the final determination of the proceedings, then he would oppose them. The basis on which Liberty opposed the amendment application 16Mr Sexton opposed the defendants' foreshadowed application for leave to amend, and contended that both applications ought be refused. He relied on the affidavit of Belinda Patricia Speirs sworn 7 February 2012, which was filed in Court on the same morning. 17The principal grounds on which Liberty relies are set out below, together with any response by Horsell or the defendants. My reasons in relation to each ground are set out in turn. The form of the amendment did not sufficiently raise the issue for which Horsell and the defendants contended 18First, Mr Sexton submitted that the draft amendment did not squarely raise the issue for which Horsell contended. He admitted that this was a matter of form, and therefore could be cured, but that it was significant that the amendment was made late and was not properly formulated. 19I consider there to be some force in Mr Sexton's first submission. Effectively, what emerges from Horsell's submissions in support of its application, is that there is an entirely separate head of cover which applies even if the claim falls outside insuring clause 1. He contended that I should read the Quotation as providing public liability insurance for any claim arising from the use, operation or maintenance of a boat with a hull of a length up to 12 metres. If this was to be the effect of the inclusion of the Quotation in the contract documents, then I consider that it needed to be expressly pleaded, in order that the other parties, particularly Liberty, would not be taken by surprise. However, had I been otherwise disposed to allow the amendment I would have permitted the amendment to be reformulated to express its effect. The stage of the proceedings at which the amendment application was made ought lead to its refusal 20Secondly, Mr Sexton submitted that it was necessary to have regard not only to the time at which the application was made, but also the course of proceedings up until the date of the application. He summarised the relevant course of the proceedings as follows. 21The proceedings were commenced by statement of claim on 11 December 2008. The defendants filed a cross-claim against Horsell and Liberty on 15 December 2009, which contained the following paragraphs: "11. At all material times Horsell was the Insurer. 12. In the alternative, at all material times a. Liberty was the Insurer, and b. Horsell was the agent of Liberty 13. Horsell offered the insurance to the Company. The offer of insurance was accepted by the Company when the Company paid the insurance Premium of $2,450.00 by direct transfer. 14. The terms of conditions of the insurance are found in a. 2005/2006 PADI Asia Pacific Watertight Liability Insurance Programme - Information for PADI Asia Pacific Resort and Retailers Associations; and b. Certificate of Insurance issued 31 October 2005, policy number #453. ("the insurance contract") 15. The insurance contract covered the period from 1 October 2005 to 30 September 2006. 16. The insurance contract included public liability insurance for watercraft up to 12 metres in length. The insurance covered all activities of vessels up to 12 metres in length." 22Horsell filed a defence to the cross-claim on 14 May 2010 in which it pleaded to paragraph 16 in the following terms: "6. The Cross-Defendant denies the facts pleaded in paragraph 16 in that the insurance did not cover all activities and vessels. The insurance only covered activities in connection with the business." 23Liberty filed a defence to the cross-claim on 8 September 2010 in which it relevantly pleaded as follows: "6. Liberty denies paragraphs 13,14, 15 and 16 of the SCC but admits that at all material times Liberty was the insurer of the First Cross Claimant pursuant to the Policy (as referred to below in paragraph 13). ... 14. It is an express term of the Policy that, subject to the terms of the Policy, Liberty will pay to or on behalf of the First Cross Claimant all sums which it shall become legally liable to pay by way of compensation as a result of a claim made against the First Cross Claimant for injury or damage in connection with the First Cross Claimant's business. 15. The claim made by the Plaintiff against the cross claimants is not a claim for injury or damage in connection with the First Cross Claimant's business within the meaning of the Policy." 24By this time the matter had been set down for hearing commencing on 1 November 2010. In October 2010, the defendants applied to vacate the hearing date on the basis that they wished to adduce expert evidence. The application to vacate the hearing date was set down for hearing on 1 November 2010. Ultimately it was dealt with by consent. At a subsequent date, directions were made for the defendants to serve their proposed amended cross-claim. A document entitled "First Amended Statement of Cross-claim" was filed by the defendants on 25 February 2011. In so far as a document on the Court file bears the stamp 25 February 2010, I am told, and I accept, that this is an error. The defendants no longer made an allegation to the effect of that contained in paragraph 16 of the original cross-claim. 25Accordingly, as Mr Sexton submits, the defendants can be taken to have abandoned their earlier allegation that they were insured in respect of public liability claims made by reason of the use, operation or maintenance of their boat, which is accepted to have a length less than 12 metres. 26Mr Martin contended, in reply, that this chronology is irrelevant and that the earlier pleadings do not bear on the current application. 27Mr Sexton also referred to various breaches of directions by the first cross-defendant and said that, in light of its past conduct which had the effect of delaying the proceedings, it ought not be permitted an indulgence at this late stage. I do not consider this last matter to be particularly material to the exercise of my discretion whether to allow the amendment. 28However, I consider that the above chronology of the amendments to the pleadings provides a powerful reason why leave ought be refused. The affidavit of Mr Scales, to which the Master Policy and the Quotation are annexed, is dated 11 October 2010. It can reasonably be inferred that it was served shortly after that. The defendants already had the Certificate of Insurance in their possession. Accordingly, they had the documentary material necessary to make the forensic decision to abandon the allegation that they were insured even if the claim did not arise in connection with their business. Once they had made that decision and incorporated it in the amended cross-claim, Liberty was entitled to prepare the case on the basis that the Quotation did not affect the terms of the Master Policy and the Certificate of Insurance. Furthermore when Horsell did not raise the allegation in its defence to the amended cross-claim, Liberty was entitled to prepare the case on the basis that the broker did not contend otherwise. 29Ms Speirs deposed in her affidavit filed in opposition to the leave application that her instructions from Mr Scales were that: "No separate endorsement wording was prepared in terms of the proposal dated 24 August 2005 as in Mr Scales' view this was found in Clause 17.18.2 of the printed copy of the Policy, located at tab 6 of his affidavit dated 11 October 2010..." 30It follows that once the defendants abandoned the allegation contained in paragraph 16 of their original cross-claim, Liberty no longer had to concern itself with the argument that the Master Policy did not govern its legal relationship with the defendants. No explanation for the delay in making the amendment application 31Horsell read, in support of its amendment application, the affidavit of Luke Torrisi sworn 6 February 2012. The affidavit does not contain any explanation for the delay. When I invited Mr Martin to give an explanation for the delay, he said, as follows: "... the only thing that I can say on that is on a more mature reflection of the documents and a proper analysis of the authorities, it became clear to us that the correct approach was to determine what were the contractual documents and when was the contract of insurance concluded. That was a matter that only arose during the preparation of this case." 32As appears from the chronology set out above, these proceedings have been on foot for some years and they were allocated a hearing date in 2010, which had to be vacated. There has been ample time for the case to be prepared. One can accept that matters arise on the eve of the hearing which have not been properly considered, but this phenomenon cannot be allowed to disrupt the orderly conduct of proceedings, particularly where, as here, there have been several amendments to the pleadings and numerous directions hearings, which have been designed to focus the minds of the parties and their advisers on the true issues in the case. The admissibility of evidence on the matters to which the amendment, if allowed, would raise 33Mr Sexton submitted that if the proposed amendment were to be allowed, there would be admissible evidence germane to the issue which Liberty might wish to adduce and it ought be given the opportunity to do so. He identified three topics on which evidence might be adduced: (1)What documents comprise the contract; (2)If there is an ambiguity, how to resolve it by reference to the surrounding circumstances and other extrinsic evidence; and (3)Expert evidence as to business usage. 34In reply, Mr Martin reiterated what he had earlier said about the matter not being susceptible of admissible evidence. He said that the evidence of Ms Speirs fell short of establishing the existence of any evidence that could assist Liberty and that in those circumstances I should allow the amendment. 35In respect of the first matter, Mr Sexton relied on State Rail Authority of New South Wales v Heath Outdoor Pty Limited (1986) 7 NSWLR 170, at 191-192 per McHugh JA (as his Honour then was) in support of the proposition that evidence of oral communications may be adduced in the determination of the question whether the contract was wholly in writing (in which case the parol evidence rule would apply) or partly in writing and partly oral. Where, as here, a party contends that an endorsement fundamentally enlarges the scope of the insuring clause in that it is not subject to an express qualification in the insuring clause, it can reasonably be expected that there might be conversations about the endorsement which, if the Quotation in which the endorsement is contained is included in the contract documents, might lead to evidence being adduced as to the effect of the endorsement and the reason why it is not contained in the Master Policy. 36In respect of the second matter, Mr Sexton contended that there would be an ambiguity in the contract if the Quotation were found to form part of the documents that comprise the contract. I agree. There are at least two possible constructions. Either the endorsement in the Quotation adds nothing to the Master Policy since it merely clarifies that there is no exclusion in respect of boats which measure less than 12 metres in length (as Liberty contends) or the endorsement in the Quotation provides separate public liability cover which is not constrained by the qualification in the insuring clause that it must arise in connection with the defendants' business (as Horsell contends). 37In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 ( Codelfa ), at 352, Mason J said: "The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed. It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible." 38The correctness of this passage in Codelfa has recently been reaffirmed by the High Court whe it refused an application for special leave: Western Export Services Inc v Jireh International Pty Limited (2011) 86 ALJR 1, at [3]-[5] per Gummow, Heydon and Bell JJ. 39Because there are two possible meanings to be given to the effect of the endorsement, there is an ambiguity and extrinsic evidence as to the surrounding circumstances is admissible. Liberty has not had to explore this matter in any detail previously having regard to the way in which the matter was earlier pleaded. I do not consider it to be just that it be required to perform such investigations overnight, or to identify to me on the hearing of this application what further evidence it would adduce if the amendment were to be allowed with any greater degree of specificity than it has already done in the course of the hearing of this application. In my view, it is sufficient that it has indicated that this is an area where evidence would be admissible, having regard to the pleading. 40In respect of the third matter, Ms Speirs deposed that: "it might well become necessary to obtain expert evidence to support the proposition that it would not be usual industry practice for an endorsement to have a stand-alone insuring clause." 41Given the construction for which Mr Martin contends, the issue of usual industry practice arises and expert evidence of this would be admissible on Codelfa principles. Liberty ought not be required to adduce such further evidence on the run and an adjournment would be required if the amendment were allowed 42Ms Speirs deposed that a conference would need to be conducted with Mr Veale who used to be employed by Horsell and was the person to whom the Quotation (including the endorsement) was emailed. Although Mr Veale has been located, he has requested that Liberty's files be available before any such conference is conducted. 43Ms Speirs also deposes that some of Liberty's files are in Sydney but others are in storage in Melbourne and have not yet been located. Mr Scales, the relevant employee of Liberty for the purposes of the policy, lives in Queensland. 44Mr Sexton submitted that if I were to allow the amendment, he would have to apply for an adjournment so that the investigations referred to in summary form above could be undertaken. He submitted that the adjournment would be longer than a few days and that accordingly, if granted, the hearing of this matter would be deferred for some time. 45I accept Mr Sexton's submission that were I to allow the amendment, I ought grant an adjournment. The strength of the case sought to be made by the amendment 46I have not heard argument, except in passing, about the strength of the argument which the amendment, if granted, would permit to be put by Horsell and the defendants. Accordingly I can make no final assessment of it. However, it does appear to me on a preliminary basis that there is much to be said for the argument that the endorsement was required only until the Master Policy was issued, since the Master Policy expressly provided that there was an exclusion for boats in excess of 12 metres in length. 47I am not attracted to Mr Martin's argument that the somewhat sparse wording of the endorsement provided public liability cover for boats up to 12 metres without any of the qualifications in insuring clause 1. Although he contended that this was implicit in the Quotation and the limited exclusion, it seems to me that he is requiring the words of the quotation to do more work than they were designed for. The application of the principles set out in Aon mean that the amendment application ought be refused 48Mr Sexton relied on Aon , and in particular the following passages at 213-215: "[98]... It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs. ... [102]... Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates... Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment. [103]... Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objective of the Rules." 49I consider that the correct application of these principles requires me to refuse the amendment since I have come to the view that if I allow the amendment then I ought, as a matter of natural justice, accede to Liberty's application for an adjournment of the proceedings. The effect of such an adjournment would be that there would be an inevitable delay in the determination of the proceedings and that the court's timetable for the hearing of cases will have been disrupted again. Although I have considered Mr Sexton's several grounds of opposition separately above, it is, in some respects, artificial to do so since the discretion requires me to weigh these matters together in the balance. The most salient factors which lead me to refuse the amendment application are that the point was obviously expressly considered by the defendants and Horsell over a year ago and rejected and that the hearing could not be concluded within the allocated time, if the amendments were allowed. 50As to the question of costs, I consider that the costs of the application ought be borne by Horsell. Even though the defendants foreshadowed a similar application, their attitude to the amendment and the submissions they made indicated that their position was, as Mr Birch put it, merely defensive. 51Accordingly the orders I made on 7 February 2012, the reasons for which are set out above are: (1) Dismiss the first cross-defendant's notice of motion filed in Court on 6 February 2012. (2) Order the first cross-defendant to pay the defendants' and the second cross-defendant's costs of the motion. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 February 2012