FEDERAL COURT OF AUSTRALIA

North East Equity Pty Ltd v Proud Nominees Pty Ltd (No 3)

[2008] FCA 1430

NORTH EAST EQUITY PTY LIMITED (ACN 009 248 819) v PROUD NOMINEES PTY LIMITED (ACN 074 270 938) and DAVID LEWIS PROUD

WAD 58 of 2006

RARES J

2 SEPTEMBER 2008

SYDNEY (BY VIDEO LINK TO PERTH)

THE COURT ORDERS THAT:

1.                  The applicant’s claim be dismissed.

2.                  The first respondent’s cross-claim be dismissed.

3.                  The applicant pay the respondents’ costs of the proceedings.

4.                  The first respondent pay the applicant’s costs of the cross-claim which may be set off against the costs payable under order 3.

5.                  Pursuant to O 52 r 15(1)(a)(iii) I extend the time in which a notice of appeal may be filed and served until 21 days after the authenticated reasons for judgment given today are available to the parties.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1                     When I delivered my reasons in North East Equity Pty Ltd v Proud Nominees Pty Ltd (No 2) [2008] FCA 1189 I asked the parties to consider them and address the question of final orders which ought be made flowing from them.  There are now outstanding these two questions.  First, whether I should allow an amendment to the statement of claim so as to permit a further allegation of negligence to be added that Proud Machinery and Mr Proud negligently procured and installed a flume elevator system that was not fit for its purpose of transferring carrots from the brush washers to the diameter sizers.  Secondly, how costs should be awarded.

The Flume Elevators Amendment 

2                     North East Equity’s opening outline of submissions for trial specifically asserted, as one of the five substantial alleged problems with the new line, that the flume elevators between the brush washers and diameter sizers were too steep and problematic.  The submission continued by observing that, at a meeting on 18 November 2003, Mr Proud had agreed to fix the issue of the flume elevators but, in the result, did not do so.  During the course of the trial there was a substantial issue as to whether an agreement was made at the meeting on 18 November 2003 and thereafter performed.  I found that an essential element in the agreement reached at that meeting was that the flume elevator system was defective and in need of replacement.

3                     As I observed in North East Equity (No 2) [2008] FCA 1189 at [380], North East Equity had not appeared to make any separate claim for damages based on deficiencies in, and disruption caused by, the flume elevators.  North East Equity now accepts that that accurately described its pleaded position.  Today it has sought to make an amendment to its pleadings so as to bring them into line with what it said was the case run at trial.

4                     In Water Board v Moustakas (1988) 180 CLR 491 at 497-498, Mason CJ, Wilson, Brennan and Dawson JJ discussed the principles for granting an amendment of pleadings or particulars so as to bring them into line with the case that had actually been run at the trial.  They said that ordinarily the pleadings would be of assistance in determining whether a point had been raised at the trial and that no narrow or technical view should be taken.  They also said that the particulars may not be decisive if the evidence had been allowed to travel beyond them, but that when that happened and fresh issues were raised, the particulars should be amended to reflect the actual conduct of the proceedings.  A failure timeously to apply to amend is not necessarily fatal either at trial or on appeal.  Their Honours adopted what had been said by Stephen, Mason and Jacobs JJ in Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437 at 446;  50 ALJR 666 at 668 that there the pleadings should have been amended in order to make the facts alleged and the particulars of negligence precisely conform to the evidence.  In Moustakas 180 CLR at 497, their Honours went on to say:

“The failure to apply for the amendment in that case was held not to be fatal.  But in Maloney v Commissioner for Railways (NSW) ((1978) 52 ALJR 291, at p 294;  18 ALR 147, at pp 151-152), Jacobs J, with whom the other members of the Court agreed, pointed out that the conclusion in Leotta was reached only upon the presupposition that the new issue or new way of particularizing the existing issue had emerged at the trial and had been litigated.

It is necessary to look to the actual conduct of the proceedings to see whether a point was or was not taken at trial, especially where a particular is equivocal.”

5                     The guiding principle in allowing an amendment to pleadings is, of course, elucidated in Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 at 154-155.  There Dawson, Gaudron and McHugh JJ held that where the proposed amendment raised a fairly arguable claim or defence it ought be allowed so long as any prejudice to the other party could be cured by an order for costs.

6                     Here, the trial took 14 days and involved a considerable degree of evidence.  One issue which arose on the cross claim by Proud Machinery and Mr Proud concerned what had been agreed at the meeting of 18 November 2003.  The basis of that pleading was that, first, those present at the meeting had agreed that the new line had achieved the production capacity of packed tonnes required by North East Equity, and secondly, four particular services should be supplied to it by Proud Nominees (being the fitting of invertors to conveyor belts, remedying the cause of two Gillenkirch packing stations tripping out, the provision of operating manuals for the Gillenkirch machinery and the installation of two new pumps in the flume elevators).

7                     However, I found that a different arrangement had been made.  That included a recognition that ultimately the problems with the flume elevators had to be fixed.  Although initially it had been proposed that the solution would be achieved by installing the new pumps (which was done), in the end that did not successfully resolve the problem.  This led to the need to design substitute equipment.  As I found in North East Equity (No 2) [2008] FCA 1189 at [373] those present at the meeting of 18 November, including Proud Machinery and Mr Proud, recognised that the flume elevators were not operating to the standard which they ought to have achieved.  That problem was never remedied.

8                     However, what North East Equity now seeks to do is to add a new plea that Proud Machinery and Mr Proud breached their previously pleaded duty of care by procuring and installing a flume elevator system that was not fit for its purpose of transferring carrots from the brush washes to the diameter sizers.  I found that the flume elevators were not so fit.

9                     But, the question which arises is whether North East Equity should be allowed to rely on a new plea that Proud Machinery and Mr Proud would exercise reasonable care and skill in the performance of their services, including the selection of goods or working materials, that were reasonably fit for the purposes for which North East Equity had (here by implication) indicated they were required:  North East Equity (No 2) [2008] FCA 1189 at [367].

10                  In my opinion, the circumstances in which this issue was litigated at the trial did not address the question of Proud Machinery or Mr Proud exercising reasonable care and skill in the performance of that service.  That failure was not the subject of a specific plea.  While it is true that there was a complaint about the way in which the flume elevators operated, the expert evidence did not deal with any particular impact on the operation of the new line as a whole or specifically caused by their deficiency.  And, the question of whether Proud Machinery and Mr Proud were negligent in 2002 when selecting or supplying the particular flume elevator equipment was not the subject of any specific plea litigated at the trial and was not itself the subject of specific attention.  Rather, the trial proceeded on the basis that it was accepted that, as installed, the flume elevators were not satisfactory, although some attempts were made, with some success, to remedy the performance of the cleats on them.  And it was accepted at the meeting of 18 November 2003 and thereafter, that they needed to be remedied and never were.  However, none of this bore on the issue as to what, if anything, Proud Machinery and Mr Proud did, or failed to do, at the time at which that equipment was selected or supplied in 2002 and early 2003.

11                  I am of opinion that if I were to allow this amendment at this stage, I would need to give Proud Machinery and Mr Proud the opportunity to re‑open.  I appreciate that Mr Proud gave general evidence that he relied on Bruynooghe, as the supplier of equipment, and that he may well have simply repeated such evidence were he recalled.  But it seems to me that this particular issue (of the circumstances in which the equipment came to be selected, or supplied, in the defective form it actually was) was not the subject of exploration at the trial. 

12                  North East Equity argued that because I found, on the basis of a clear concession to that effect, that the equipment did not perform to the standard it ought to have, this is a case of res ipsa loquitur.  But, in my opinion, that submission should be rejected.  There could be a number of explanations as to why the equipment chosen, or supplied, did not perform to the particular standard it ought to have.  I am not satisfied that it is so obvious that it goes without saying, that the negligence of Proud Machinery or Mr Proud in selecting or supplying the flume elevators was the cause of there being the actual defects in that equipment identified and accepted as present at the 18 November 2003 meeting.

13                  Proud Machinery and Mr Proud also argued that I should reject the application to amend, on the basis that they would have given serious consideration to joining Bruynooghe as a party to the proceedings.  I accept that Proud Machinery and Mr Proud may well have wanted to explore, in evidence from lay witnesses and experts, the circumstances in which it could be said that they were negligent in selecting or supplying the equipment in 2002 and 2003, and how that negligence led to the flume elevators being defective.  However, I cannot accept that they would have joined or further considered joining Bruynooghe as a party to these proceedings, had this particular claim been raised.  By the time of the trial (and before) it was plain that a real issue had been raised in the proceedings concerning the responsibility of Bruynooghe in supplying many of the components of the line overall.  That included the allegations that length graders were defective and that there were problems with the chilling tank system.  Given that North East Equity’s claims in relation to these matters involved many millions of dollars, as pleaded or particularised, I cannot accept that what would have tipped the scales in any decision to join Bruynooghe by Proud Machinery and Mr Proud would have been this new claim about the cost of replacement of the flume elevators, worth only about €51,000.  I am not satisfied that, had I allowed the amendment, there would have been any prejudice to Proud Machinery or Mr Proud by reason of the loss of a possible opportunity for them to consider once again the joinder of Bruynoogh. 

14                  North East Equity argued that this particular amendment should be viewed as a stand alone claim for recovery of the €51,000 and $10,000 I found as damages for disruption, rather than as any component of a claim based on its claim of a “no transaction” method of assessment of its damages.  Again, it seems to me that if the claim had been put that way, it would have been one, on the findings I have made at least, that should have been brought in the Federal Magistrates Court.  It would have occupied much less time and resources than were devoted to the claim to recover several million dollars.

15                  However, for the reasons I have given, I am not satisfied that I should allow this amendment to be made.  In my opinion it raises a new issue which could have been addressed in evidence called at the trial.  And if I were to allow it to be raised now, it has the potential, substantially, to add to the costs of the litigation in a way that could not be remedied by an order for costs, having regard to the size of the sum involved and what has already been spent to date.

16                  For these reasons I reject the application to amend.  If I were wrong in that decision, I have given my assessment of the damages that would have been suffered.

Costs

17                  Each side argued for particular costs orders in its favour, albeit that North East Equity’s submissions reflected an acceptance of the ultimate result of the litigation.  It contended that in light of my findings, including in relation to the flume elevators, it should be ordered to pay only 50% of Proud Machinery’s and Mr Proud’s costs of the proceedings.  It argued that although its claim had, in substance, been unsuccessful, it had succeeded partially on the basis of the flume elevator issue.  North East Equity also directed attention to the deficiencies in the way in which Proud Machinery’s and Mr Proud’s pleadings and evidence were presented.  North East Equity pointed to a number of issues that had not been pursued at trial but had been raised in the defence, concerning the cost of fuel, transport and freight, changes in the cost of labour, the availability of water for the farms, wear and tear of equipment, changes in technology and interruptions in labour supply to the farms, the new line and transport.  In addition, it pointed to very considerable portions of the witness statements relied on by Proud Machinery and Mr Proud, which were plainly inadmissible.  North East Equity argued that by balancing those factors I should arrive at an overall assessment that it pay 50% of Proud Machinery’s and Mr Proud’s costs. 

18                  For their part, Proud Machinery and Mr Proud argued that I should order that North East Equity pay their costs on an indemnity basis and that I should assess them in a gross sum.  They argued this was because, first, I had made a number of unfavourable findings of fact about North East Equity’s case.  In addition, they contended that North East Equity had instructed Mr Harris, its equipment expert, not to undertake an actual test of the capacity of the new line.  Secondly, they contended that Mr Tana had been obfuscatory and unreasonable about where the measurement should be taken for the 18% rejects.  Thirdly, they argued that Mr Langridge, the forensic accounting expert called by North East Equity, had prepared a hypothetical report which was unrelated to actual performance of the business, and was based on assumptions calculated to inflate the claim, most of which were without foundation.  In other words Proud Machinery and Mr Proud contended that Mr Langridge had been instructed to assume matters which inflated or exaggerated the claim for economic loss.  They also argued that North East Equity had concealed or denied matters bearing on the assessment of its loss, including matters relating to the shortcomings and quality of the carrots harvested from both the farms at Guilderton and Lancelin and the market difficulties to which I referred in my earlier reasons.

19                  During the course of argument I suggested to counsel that there were difficulties that might be occasioned, were I to make orders for costs on particular issues to be calculated in particular ways.  I am of opinion that the claim for economic loss had no proper basis for the reasons that I gave in my earlier judgment.  I would have been minded to order indemnity costs on that issue because, as I found, the assumptions given to Mr Langridge were without foundation and the claim for nearly $5 million before interest was made based on those assumptions:  North East Equity (No 2) [2008] FCA 1189 at [230].

20                  On the other hand, I am of opinion that there is considerable force in the criticisms made of the witness statements, particularly of Mr Proud, which were filed by him and Proud Machinery.  These were voluminous, unfocussed and in many instances obviously technically inadmissible.  They reflected in part a stream of consciousness and commentary on matters including allegations in paragraphs of the statement of claim.  During the course of the hearing I made some observations about the patent inadmissibility of this material.  This led to counsel for the parties adopting the sensible course of agreeing that Proud Machinery and Mr Proud would not read very considerable portions of these statements.  The statements were so clearly inadmissible that they should never have been served in the form they were.  I have no doubt that considerable time and expense were unnecessarily incurred by both parties in relation to them and that those costs ought not be borne by North East Equity, notwithstanding its lack of overall success.

21                  It may be possible for a taxing officer to divide off those inadmissible and unread portions of the witness statements and tax or assess the costs incurred by reason of their inclusion, so as to delete them from Proud Machinery and Mr Proud’s entitlement to costs and to then add components to North East Equity’s entitlement to costs, if I were to make an award in its favour for that issue.  However, the taxing officer would also need to dissect and attribute costs in favour of Proud Machinery and Mr Proud on the separate issue of indemnity costs in respect of the claim for economic loss.

22                  The discretion to order costs under s 43 of the Federal Court of Australia Act 1976 (Cth) is unconfined.  There is no automatic rule that costs follow the event and there is no absolute rule that, in the absence of disentitling conduct, a successful party is to be compensated by the unsuccessful party.  Where there has been some delinquency on the part of the unsuccessful party, the court has power to order the costs against that party and sometimes on a scale greater than party/party costs.  However, costs are not intended to be a comprehensive compensation for any loss suffered by a litigant:  Probiotec Ltd v University of Melbourne (2008) 166 FCR 30 at 42-44 [45]-[52] per myself (Finn and Besanko JJ agreed).

23                  It would be onerous and unproductive for a taxing officer and each of the parties to go to the expense of seeking to dissect and separately deal with each of the elements of particular orders concerning paragraphs in witness statements or the question of economic loss, separately or seriatim.  It is likely that if such a course were imposed on the parties by my making discrete orders based on issues, the overall time in which a taxation would be required and the cost of undertaking it for both of the parties and the taxing officer would be unduly protracted for what is likely to be little net gain one way or another. 

24                  Doing the best I can, I am of opinion justice will best be done in this case by ordering that North East Equity pay Proud Machinery’s and Mr Proud’s costs of the proceedings on a party/party basis, that Proud Machinery pay North East Equity’s costs of the cross‑claim on a party/party basis and that those costs may be set off.

Associate:

Dated:         18 September 2008