FEDERAL COURT OF AUSTRALIA

Sitzler Pty Ltd v GPT RE Limited as Responsible Entity of the General Property Trust [2018] FCA 1496

ORDERS

THE COURT ORDERS THAT:

1.    The Second Cross-Respondent’s Interlocutory Application seeking the striking out of paragraphs in the Amended Statement of Claim on the cross-claim is dismissed.

2.    If the Cross-Claimants intend to pursue the allegations in (b) and (c) of paragraphs 65 to 68 (inclusive) and 71 to 75 (inclusive), they are to file and serve a further amended statement of cross-claim (to be entitled “GPT’s Third Statement of Cross-Claim”) providing proper particulars of those pleadings.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

WHITE J:

1    This judgment concerns an interlocutory application by the Second Cross-Respondent in the action, CIMC Modular Development (Australia) Pty Ltd (CIMC), seeking the striking out of the Amended Statement of Claim (the ASC) on the Cross-Claim.

2    The Applicant in the proceedings is Sitzler Pty Ltd (Sitzler). Its claim arises from the construction of a multi-storey modular building in Darwin. The Respondents to Sitzler’s action are the Responsible Entities for two trusts which engaged Sitzler to assemble the modular building at Casuarina. I will refer to the Respondents to the primary action as (collectively) “GPT”.

3    Sitzler alleges that GPT contracted with CIMC to design, manufacture and deliver a modular building and cladding system (the CIMC Contract) and that GPT contracted with it, separately, to assemble the building (the Sitzler Contract). It alleges that it incurred losses and additional costs by reason of breaches by GPT of the Sitzler Contract affecting the quality of the modules and cladding systems to be used in the construction, as well as delays in their provision. That is a very generalised summary of Sitzler’s claims.

4    GPT denies liability to Sitzler. It commenced cross-claims against Sitzler and CIMC. Following a critique by CIMC of the adequacy of the original Statement of Claim on the Cross-Claim, GPT filed the ASC on 24 August 2018.

5    By an interlocutory application filed on 6 July 2018, CIMC seeks the striking out of the ASC. CIMC’s first application is that the whole of the ASC be struck out. It was not easy to understand why that should be so, given that a substantial part of the ASC is directed to GPT’s cross-claim against Sitzler, and Sitzler has not complained about the adequacy of the pleading. Ultimately, CIMC confined its strike out application to 15 paragraphs in the ASC containing parts of GPT’s claim against it.

6    CIMC seeks the striking out pursuant to r 16.21 of the Federal Court Rules 2011 (Cth). That rule provides (relevantly):

16.21    Application to strike out pleadings

(1)    A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading:

(a)    contains scandalous material; or

(b)    contains frivolous or vexatious material; or

(c)    is evasive or ambiguous; or

(d)    is likely to cause prejudice, embarrassment or delay in the proceeding; or

(e)    fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or

(f)    is otherwise an abuse of the process of the Court.

…

CIMC invokes subparas (c), (d) and (e) on the present application.

7    The principles guiding the approach of the Court on applications of the present kind are well-established and it is not necessary to refer to the authorities in detail.

8    The fundamental purpose of pleadings is to provide a structural framework for the litigation. Pleadings achieve this purpose by performing two basic functions. First, by defining the issues between the parties, thereby providing the basis for the determination of questions as to discovery before trial and the admissibility of evidence at trial and of questions as to what the litigation has decided for the purpose of the rules as to res judicata and issue estoppel. Secondly, by providing fair notice to opponents of the case to be made against them at trial, thereby minimising the risk of injustice resulting from surprise: Williams v Australian Telecommunications Commission (1988) 52 SASR 215 at 216 (King CJ); Banque Commerciale S.A. En Liquidation v Akhil Holdings Ltd [1990] HCA 11, (1990) 169 CLR 279 at 286 (Mason CJ and Gaudron J).

9    This Court’s Rules should be understood with reference to these purposes.

10    The adequacy or otherwise of a pleading in satisfying these purposes is highly contextual. Thus, in Young Investments Group Pty Ltd v Mann [2012] FCAFC 107; (2012) 293 ALR 537 the Full Court (Emmett, Bennett and McKerracher JJ), said:

[7]    A statement of claim must allege a cause of action with sufficient particularity and not simply make allegations in general terms. The adequacy of a statement of claim is to be assessed by reference to whether the cause of action is pleaded at a level of particularity that is sufficient to define the issues and inform the other party of the case that it has to meet, in the context of the particular allegations. A respondent or defendant is entitled to know the factual foundation for the case that is being alleged, so that the respondent or defendant can prepare to meet that case at trial. In order to disclose a reasonable cause of action, a statement of claim must contain an allegation of all of the relevant facts necessary to support any allegation made in it. …

(Emphasis added)

11    The approach of the Court to the resolution of disputes about the adequacy of a pleading is informed by the overarching purpose contained in s 37M of the Federal Court of Australia Act 1976 (Cth). It is also influenced by the case management and evidence preparation techniques typically applied by the Court. In this respect, I respectfully agree with the views of Martin CJ in Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82:

[5]    In my view, the contemporary role of pleadings has to be viewed in the context of contemporary case management techniques and pre-trial directions. …

[6]    Those processes leave very little opportunity for surprise or ambush at trial and, it is my view, that pleadings today can be approached in that context and therefore in a rather more robust manner, than was historically the case; confident in the knowledge that other systems of pre-trial case management will exist and be implemented to aid in defining the issues and apprising the parties to the proceedings of the case that has to be met.

[7]    In my view, it follows that provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action or defence, as the case may be, and apprising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleadings rules that evolved in and derive from a very different case management environment.

[8]    Most pleadings in complex cases, and this is a complex case, can be criticised from the perspective of technical pleading rules that evolved in a very different case management environment. In my view, the advent of contemporary case management techniques and the pre-trial directions, to which I have referred, should result in the court adopting an approach to pleading disputes to the effect that only where the criticisms of a pleading significantly impact upon the proper preparation of the case and its presentation at trial should those criticisms be seriously entertained.

12    The application of this approach is reflected in a number of decisions of this Court, including Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15 at [13]; Wainter Pty Ltd v Freehills (A Firm) [2008] FCA 562 at [3]; Sherrin Hire Pty Ltd v Sherrin Rentals Pty Ltd [2015] FCA 1107 at [44]; Granite Transformations Pty Ltd v Apex Distributions Pty Ltd [2018] FCA 725 at [5]; Whittenbury v Vocation Ltd [2017] FCA 1185 at [7]; Oswal v Apache Corporation (No 3) [2014] FCA 835 at [8]; and Christou v Stantons International Pty Ltd (No 3) [2011] FCA 655 at [7].

13    These observations are particularly pertinent in the present case given that it is apparent that CIMC already has a level of knowledge of the alleged shortcomings in the building. This is to be expected having regard to the correspondence, discussions and site inspections in which it has engaged.

14    GPT pleads three causes of action in the ASC: breach of contract; breach of common law duty of care; and misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL) (which is Sch 2 to the Competition and Consumer Act 2010 (Cth)). The breach of contract claim involves claims for amounts said to be due under the contract as well as damages for breach.

Paragraphs 62, 63 and 64

15    Paragraphs [62]-[64] of the ASC contain the pleading of the duty of care alleged by GPT. They follow the pleading of the contractual duties alleged to be owed by CIMC, in [60]-[61]. Multiple contractual duties are pleaded.

16    In [62], the ASC pleads CIMC’s status as a company providing professional services in respect of the design, manufacture and supply of modular building systems (subpara (a)). It then pleads knowledge by CIMC of three matters, namely:

(a)    that, if the work under the CIMC Contract was performed inadequately or without due skill, care and diligence, it may contain defects or be completed late ([62(b)]);

(b)    that GPT was vulnerable to loss in the event that CIMC’s work was defective or completed late ([62(c)]); and

(c)    that GPT relied on CIMC in the performance of CIMC’s work ([62(d)]).

17    Paragraph [62] also pleads that GPT was vulnerable to loss in the event that CIMC’s work was defective or completed late and that CIMC had assumed responsibility for the work knowing of the reliance GPT had on it.

18    In [63], GPT pleads that, on the basis of the matters set out in [62], CIMC owed it “a duty to exercise reasonable care in undertaking the work under the CIMC Contract … to ensure that GPT did not suffer economic loss”.

19    In [64], GPT pleads that CIMC foresaw, or ought to have foreseen, that if it did not comply with its duty of care, there was a risk of harm to GPT.

The pleading of the duty of care

20    CIMC’s first complaint is that [62]-[64] do not plead “the metes and bounds” of the duty of care alleged. It submitted that GPT should have pleaded, at the least, “that the requisite care was to be adjudged by reference to what one would expect of a reasonably prudent and competent designer, manufacturer and supplier of module and cladding systems, in CIMC’s position”. Absent a pleading of that kind, CIMC submits that it does not know the “yardstick” by which its conduct is to be measured, nor how the reasonableness or unreasonableness of the care it did actually exercise is to be assessed. In effect, CIMC seeks to have particularised in the pleaded duty of care what that duty required it to do.

21    I reject this complaint. GPT has pleaded the duty of care it alleges in [63] in an appropriate manner. It need not plead that duty more particularly. It is necessary to avoid confusing issues concerning the duty of care, on the one hand, and the matters concerning the breach of the duty, on the other. The standard of care required to discharge a duty of care is a matter going to breach of duty, not to the duty itself.

22    In Jones v Bartlett [2000] HCA 56; (2000) 205 CLR 166, Gleeson CJ drew attention to the effect which the formulation of the duty of care in terms of the matters required for its discharge may have in pre-empting a court’s later decision as to the reasonableness (or unreasonableness) of the defendant’s conduct:

[57]    There is no ground in principle for imposing upon the respondents an obligation greater than an obligation to take reasonable care to avoid foreseeable risk of injury to their prospective tenants and members of their household. The critical question is as to what is reasonable. The judgment of the Full Court, with which I agree, to the effect that there was no failure to take reasonable care, was a judgment of fact. It cannot be circumvented by an attempt to formulate the legal duty with greater particularity, in a manner which seeks to pre-empt the decision as to reasonableness.

23    In Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422, McHugh J counselled against a sub-division of the ordinary duty of care into specific factual categories, at [25]-[29]. Having referred to the duty of care being a duty “to conform to the legal standard of reasonable conduct in the light of the apparent risk”, McHugh J said:

[26]    As a result, the duty owed by motorists to other users of the highway, for example, is expressed in terms of the duty to take reasonable care for the safety of other users of the highway having regard to all the circumstances of the case. The duty is not subdivided into categories such as a duty to keep a proper lookout or sound a warning or to keep a safe distance away from the car in front. In the particular circumstances of the case, failure to do one or more of these things may constitute a breach of the duty to take reasonable care. But they are not themselves legal duties for the purpose of the law of negligence. …

…

[29]    [A]t times during the present appeal …, the argument for various parties did not keep the issues of duty and breach distinct. The arguments were often clouded by reference to phrases such as "the scope and content of duty" and "duty to warn". Judges and lawyers often use such phrases. When they are understood as commensurate with the standard of care required to discharge the defendant's duty of reasonable care, they cause no harm. But often enough they are used as if they themselves define or were the duty, or part of it. Using them creates the risk that they will be treated as stating legal propositions and convert what is a question of fact into a question of law. Hence, their use invites error in analysis, particularly the analysis of judicial precedents.

See also Graham Barclay Oysters Pty Ltd v Great Lakes Council [2002] HCA 54, (2002) 211 CLR 540 at [106] (McHugh J); Neindorf v Junkovic [2005] HCA 75, (2005) 222 ALR 631 at [52] (Kirby J); Ibrahim v Davis [2013] VSCA 238 at [32]-[35]; Tasmanian Sandstone Quarries Pty Ltd v Legalcom Pty Ltd [2010] SASCFC 6 at [45]-[47]; BJ (Contracting) Pty Ltd v University of Adelaide [2008] NSWCA 210 at [110]; and Amaca Pty Ltd v AB & P Contractors Pty Ltd [2007] NSWCA 220 at [47].

24    For these reasons, it is not necessary for GPT to plead the “metes and bounds” of the duty it alleges. CIMC’s own submission anticipates the standard of care the law requires of providers of professional services, namely, that of the ordinarily careful and competent member of the class to which the respondent belongs.

A right of action in negligence

25    CIMC’s second complaint is that it is “highly doubtful” that GPT has any right of action against it in negligence.

26    CIMC referred to authorities indicating that, when the asserted duty of care depends on an obligation or duty which has been expressly defined by contract, a claim in tort does not arise. These authorities included Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49; Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36, (2014) 254 CLR 185 at [144]-[145] (Crennan, Bell and Keane JJ). There is accordingly some basis for CIMC’s challenge.

27    However, it is to be noted that in Brookfield, four members of the Court indicated that their conclusion that the builder in question did not owe a duty of care did not turn on notions that the owner’s remedy should be found in contract. Hayne and Kiefel JJ, with whose reasons on this point French CJ agreed, said:

[59]    … The conclusion does not depend, however, upon making any a priori assumption about the proper provinces of the law of contract and the law of tort. As McHugh J pointed out in Woolcock Street, “[t]he decisions in Hedley Byrne [& Co Ltd v Heller & Partners], Donoghue [v Stevenson], White [v Jones] and Hill [v Van Erp] … make it difficult to argue that claims in negligence for pure economic loss should be excluded merely because such claims may outflank or undermine fundamental doctrines of the law of contract”. And as McHugh J also observed, this Court rejected in Bryan v Maloney “the notion that in Australia contract and tort were so neatly compartmentalised that it would be an error to give a remedy in tort for economic loss” …

(Citations omitted)

28    Similarly, Gageler J said:

[175]     It has long been accepted that a common law duty of care can coexist with a duty in contract and that a duty of care can be to avoid economic loss. That being so, legal taxonomy alone cannot assign such common law liability as a builder may have to a subsequent owner of a building to the province of contract to the exclusion of the province of tort. …

29    Further, in relation to the provision of professional services, the law recognises the existence of concurrent contractual and tortious duties of care: Bryan v Maloney [1995] HCA 17, (1995) 182 CLR 609 at 619-621; Astley v Austrust [1999] HCA 6, (1999) 197 CLR 1 at [47]. This is pertinent presently because one of the matters on which GPT relies, as pleaded in [62(a)], is CIMC’s status as a provider of professional services.

30    Further, and in event, it is apparent that GPT does not rely only upon the scope and content of the contractual duties for the duty of care it alleges – see the matters pleaded in [62] of the ASC.

31    A pleading should be struck out as failing to disclose a reasonable cause of action or a defence only when it is clear that there is no real question to be tried: Takemoto v Moody’s Investors Service Pty Ltd [2014] FCA 1081 at [19] and see the authorities cited therein. The present is not such a case. The fact that the position is not entirely certain was recognised by CIMC itself when it submitted only that it was “highly doubtful” that GPT had a right of action.

Vulnerability

32    Next, CIMC contends that, although GPT alleges that CIMC ought to have known that it was vulnerable, it does not assert, as a fact, that it was vulnerable. That submission cannot be sustained. GPT does make that express allegation in [62(c)].

Particulars of vulnerability

33    CIMC is correct in emphasising the importance which the law attaches to the vulnerability of an applicant in considering whether a duty of care to avoid the infliction of pure economic loss is owed: Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16, (2004) 216 CLR 515 at [23]; Perre v Apand [1999] HCA 36, (1999) 198 CLR 180 at [118]. It may be noted however, that in Apache Energy Ltd v Alcoa of Australia Ltd (No 2) [2013] WASCA 213, (2013) 45 WAR 379 at [20], McLure P (with whom Newnes JA agreed) said that “[t]here is no binding authority that vulnerability is a necessary condition of a duty to avoid pure economic loss”.

34    CIMC is also correct in submitting that GPT has not pleaded material facts supporting the pleaded conclusion concerning its vulnerability. Despite that, I do not consider that the pleading should be struck out on this basis. In my view, in the circumstances of this case, CIMC is able to defend the allegation of vulnerability without having pleaded particulars of this kind. It has knowledge of the status and resources of GPT as the developer of a substantial commercial building and of the ability which GPT had, by reason of its status and its resources, to protect itself from harm. In fact, in [12] of its Defence to the Cross-Claim, CIMC has pleaded a number of matters in answer to GPT’s claim concerning its vulnerability. In these circumstances, I do not consider that a further pleading is required in order that CIMC can defend this claim.

Reliance

35    CIMC’s last complaint about [62]-[64] is that GPT has not pleaded that it had relied on CIMC to exercise reasonable care. In my view, this is an unduly restrictive view of GPT’s pleading because GPT does plead that CIMC knew, or ought to have known, that it relied on CIMC in the performance of CIMC’s work, and that CIMC had assumed responsibility for the work on that basis.

36    For these reasons, the application for the striking out [62]-[64] is refused.

Paragraph 65

37    Paragraph [65] contains GPT’s pleading of contractual and tortious breaches by CIMC with respect to a pleaded defect in the façade of the building, which has the consequence that water pools in the sarking behind aluminium composite panels located on the horizontal and vertical bands joining the modules, described in the ASC as “the sarking defect”. That defect is pleaded in [21]-[22] of the ASC.

Paragraph 65(a)

38    In [65(a)], GPT alleges that CIMC breached eight separate obligations and warranties under the CIMC Contract. However, it particularises that allegation by pleading:

CIMC supplied inappropriate sarking materials and insofar as it installed the sarking materials, did so improperly as described in paragraphs 21 to 22 above.

39    CIMC seeks to impugn these paragraphs by a close analysis of the pleading of the contractual obligations. In particular, it complains that the pleading does not set out the ways in which those contractual obligations had been breached.

40    In my opinion, this complaint overlooks that GPT’s complaint about the breach of these contractual obligations is quite confined. As indicated, GPT pleads only that inappropriate sarking materials were supplied and that, to the extent that CIMC installed the sarking materials, it did so improperly. With respect to the former, GPT pleads in [22] the respects in which the supplied sarking material is said to have been inappropriate. With respect to the latter, GPT pleads, also in [22], the respects in which the installation of the sarking materials is said to have been done improperly. CIMC does not complain about the adequacy of those pleadings. Accordingly, whatever may have been the scope of the pleaded contractual duties, GPT has confined narrowly the bases on which it alleges they were breached and in a manner which informs CIMC of the case which it has to meet.

41    GPT also pleads that further particulars will be provided by way of evidence, including expert evidence. Of course, the requirement for proper particularity is not satisfied by the provision of evidence. However, as the passage of Martin CJ in Barclay Mowlem indicates, account may be taken of the regime for the provision of evidence in advance of the trial. It is to be expected that CIMC will receive further information concerning the nature of the sarking defects and of the alleged shortcomings in its installation in the evidence which GPT will provide in advance of the trial. Having regard to all these matters, I reject this complaint of CIMC.

Paragraphs 65(b) and (c)

42    In [65(b)], GPT alleges that, insofar as CIMC failed to rectify the sarking defect, it breached obligations arising under cll 29.3 and 35.1 of the CIMC Contract. The former provided that, upon GPT’s representative becoming aware of work done or materials provided by CIMC which did not comply with the CIMC Contract, he or she could give CIMC written details and, in the event that CIMC did not rectify the defect or reach a satisfactory compromise with GPT concerning it, the representative could then direct CIMC to engage in various forms of work, being in the nature of removal, demolition, reconstruction, replacement or correction. The latter clause concerned the rectification of defects after the date of practical completion, and again involved the giving by GPT’s representative of a direction to CIMC for rectification.

43    GPT has not pleaded that any directions were given under the relevant clauses of the contract. Counsel for GPT submitted that particulars had been given in [90] of the ASC. That submission cannot be sustained. Paragraph [90] is in a section of the ASC containing the relief sought against CIMC in respect of the breaches earlier pleaded. It cannot reasonably be regarded as providing particulars supporting the breaches themselves. In my view, the ASC is deficient in that respect.

44    The same conclusion applies with respect to the breach of the contractual obligation contained in [65(c)] of the CIMC Contract.

45    However, I decline to strike out those paragraphs. The shortcomings should be able to be addressed readily by the provision of proper particulars. If no directions were given under the relevant clauses, GPT should provide particulars of the respects in which it contends that the clauses were breached by reference to the obligations they imposed. Accordingly, I will direct that, if GPT wishes to maintain these claims in [65(b)-(c)] of the ASC, it is to provide proper particulars of them. If GPT is unable to provide proper particulars, it should consider whether it is able to sustain these claims.

Paragraphs 66-68, 71-75

46    It is convenient to consider these paragraphs together. They are in the nature of counterparts to the pleading in [65] but with respect to other defects pleaded earlier in the ASC.

47    CIMC’s submissions with respect to these pleadings replicated, in substance, the critique it had made in respect of [65]. That makes it unnecessary to consider each separately. I am satisfied, for the reasons given in relation to [65], that none of these pleadings should be struck out. GPT should, however, if it intends pursuing the claims contained in subpara (b) and (c) in each of these pleadings, provide proper particulars of them.

48    Part of CIMC’s complaint concerning [66] is that some matters should have been pleaded as material facts rather than as particulars. For the reasons given at the commencement of this judgment, technicality of this kind in challenges to pleadings is to be eschewed.

Paragraph 77

49    Paragraph 77 is one of a suite of paragraphs in which GPT pleads its misleading or deceptive conduct cause of action. It does so in large part by “piggy-backing” on the pleading by Sitzler of its misleading or deceptive cause of action. In particular, it alleges that if matters pleaded by Sitzler are established, then CIMC made the same three representations (the Cladding Representations) alleged by Sitzler, that these representations had been made in trade or commerce, and that they were misleading or deceptive. GPT then pleads that, if it is liable to Sitzler by reason of misleading or deceptive conduct, it will suffer loss because of the conduct of CIMC done in contravention of s 18 of the ACL.

50    CIMC submits that, although GPT’s claim is predicated on Sitzler having relied on the alleged misrepresentations, it suffer from an omission in Sitzler’s pleading, namely, that Sitzler has not pleaded detrimental reliance. It referred to well-known authority establishing that a causal link must be identified between the loss alleged and the alleged contravening conduct: Marks v GIO Australia Holdings Ltd [1998] HCA 69, (1998) 196 CLR 494 at [46]-[55]; Wardley Australia Ltd v State of Western Australia [1992] HCA 55, (1992) 175 CLR 514 at 525.

51    In my opinion, this complaint faces two difficulties: it is based on an unduly narrow view of Sitzler’s pleading and it overlooks what is obviously implicit in it. Sitzler does plead that it prepared its tender “on the basis” of the matters said to give rise to the Cladding Representations (in [69]), and does plead that, “by reason” of the matters which include the Cladding Representations, it suffered loss or damage. These pleadings make it very apparent that Sitzler does allege detrimental reliance.

52    In these circumstances, CIMC’s complaint is more about form than substance. Pleading challenges of this kind are to be eschewed.

53    This complaint of CIMC fails.

Paragraphs 88 and 89

54    Paragraphs 88 and 89 contain GPT’s claims of loss by reason of CIMC’s contractual and tortious duties. CIMC submitted that they are “predicated upon and poisoned by the pleadings that come before them”. It recognised that the fate of its challenge to [88] and [89] turned on the fate of its challenge to the earlier pleadings. Given that these challenges fail, so also must the challenge to [88] and [89].

Summary

55    For the reasons given above, CIMC’s application seeking the striking out of paragraphs of the ASC is refused. GPT is however to file and serve a further amended statement of cross-claim (to be entitled “GPT’s Third Statement of Cross-Claim”) providing proper particulars of the allegations in (b) and (c) of paragraphs 65 to 68 inclusive and 71 to 75 inclusive, or removing those claims if they cannot be particularised.

56    I will hear the parties as to the costs of CIMC’s interlocutory application and with respect to the further conduct of the matter.

Associate:

Dated:    4 October 2018

SCHEDULE OF PARTIES