Cape York Airlines Pty Ltd v QBE Insurance (Australia) Limited (No. 3) [2009] QSC 260

SUPREME COURT OF QUEENSLAND CITATION: Cape York Airlines Pty Ltd v QBE Insurance (Australia) Limited (No. 3) (2009) QSC 260 PARTIES: CAPE YORK AIRLINES PTY LTD (ACN 000 627 010) (plaintiff) v QBE INSURANCE (AUSTRALIA) LIMITED (ACN 003 191 035) (defendant) FILE NO/S: BS 1762 of 2005 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court of Queensland DELIVERED ON: 3 September 2009 DELIVERED AT: Brisbane HEARING DATE: 13 February 2009 JUDGE: Daubney J ORDER: 1. The defendant be allowed to adduce expert evidence at trial from Mr Gatz in relation to the matters identified in paragraph 31 of the affidavit of Mr Sainsbury sworn 10 February 2009. 2. The costs of this application be reserved. 3. I will hear from the parties as to further necessary directions. CATCHWORDS: PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – EVIDENCE – where defendant sought leave to adduce expert evidence at trial – where plaintiff objected to that evidence being obtained – where the parties subsequently expressly joined issue on those matters on the pleadings – where the plaintiff also objected on the basis that the making of an order would be an impermissible variation of a previous order – whether orders could be made to facilitate the adducing of expert evidence PROCEDURE – JUDGMENTS AND ORDERS – AMENDING VARYING AND SETTING ASIDE – VARIATION AND SETTING ASIDE OF CONSENT -- 1 of 13 -- 2 JUDGMENT– where defendant sought an extension or variation of an order to allow it to deliver an expert report – where defendant could not provide a cogent explanation for non-delivery of the report – whether an extension should be granted Uniform Civil Procedure Rules 1999 (Qld) Alford v Ebbage [2003] 1 Qd R 343 Fylas Pty Ltd v Vynal Pty Ltd [1992] 2 Qd R 593 COUNSEL: D R Cooper SC for the plaintiff S S W Couper QC for the defendant SOLICITORS: BCI Duells Lawyers (Town Agents for Nicholl & Co Lawyers) for the plaintiff Cooper Grace Ward for the defendant [1] The defendant seeks orders giving it leave to: (a) adduce expert evidence at trial from Mr Fred Gatz; and (b) disclose to the plaintiff any report or statement by Mr Michael Stowers. [2] It is necessary to say something about the background to this application. [3] On 8 February 2004, the plaintiff’s Cessna aircraft ditched in the sea off Green Island, and was totally and partially submerged in salt water for some 42 hours before being recovered. The defendant insurer accepted that this was an “accident” for the purposes of the aircraft’s insurance policy, and obtained a repair estimate dated 16 February 2004 from Mr Michael Stowers of Airport Structures International Corporation Inc (“ASIC”). On 26 February 2004, the defendant wrote to the plaintiff enclosing the ASIC repair estimate, stating that the repairs would be carried out in accordance with the Cessna Structural Repair Manual, and asked the plaintiff to “instruct ASIC to proceed with the repairs to the aircraft as per their estimate” for the amount stated, and also asking the plaintiff to pay for any other work to bring the aircraft to an airworthy condition. -- 2 of 13 -- 3 [4] The plaintiff, however, would not authorise the repairs proposed by ASIC because it was concerned that those repairs would neither produce an acceptable outcome nor provide an aircraft which was airworthy. The plaintiff contends that its stance in this regard was vindicated by an expert report dated 5 July 2004 obtained from Mr Bill Edwards of Multitech. This report flagged, inter alia, that the restoration of an aircraft after immersion must be carried out in accordance with “approved data”, and that Cessna did not have any such approved data but an Advisory Circular published by the FAA was approved data. The plaintiff obtained a copy of the relevant Advisory Circular. It appears that the defendant considered that this Advisory Circular endorsed the repairs proposed in the ASIC repair estimate. [5] A settlement conference between the parties in August 2004 failed to resolve the matter, and the present proceeding was commenced on 3 March 2005. [6] In respect of the case as then articulated on the pleadings between the parties, the plaintiff appointed Mr Dafydd Llewellyn and Mr Edwards as its experts with respect to repairing the aircraft, and the defendant appointed Mr Charles Whitney. [7] Mr Edwards produced a further report dated 15 March 2007, and Mr Llewellyn a report dated 19 March 2007. Both reports contain statements to the effect that the repairs proposed in the ASIC repair estimate did not accord with the Advisory Circular. [8] The parties exchanged their respective experts’ reports on 20 March 2007. [9] There was then correspondence entered into between the solicitors for the parties with a view to regularising the exchange of the reports (for the purpose of -- 3 of 13 -- 4 complying with the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”)). The parties had competing versions of the further directions which each sought to progress the matter, but this dispute was ultimately resolved by the defendant agreeing to the directions proposed by the plaintiff, albeit with an extended timeline. That agreed regime was then formalised by a consent order made by Byrne SJA on 13 December 2007, by which his Honour ordered: “1. Pursuant to Rule 423(d) of the Uniform Civil Procedure Rules: a) the plaintiff is entitled to adduce expert evidence at the trial of this action from Mr Dafydd Llewellyn and Mr William Edwards; b) the defendant is entitled to adduce expert evidence at the trial of this action from Mr Charles Whitney and Mr Michael Stowers; 2. The time limits prescribed under Rule 429(1) and (b) of the Uniform Civil Procedure Rules for the disclosure of the experts’ reports are extended to 20 March 2007; 3. Pursuant to Rule 429B of the Uniform Civil Procedure Rules, Mr Dafydd Llewellyn and Mr Charles Whitney shall meet on or before Monday, 24 December 2007 and identify matters of agreement and disagreement and attempt to resolve any disagreement as to whether the repair proposal submitted by Aircraft Structures International Corporation, dated 16 February 2004, would be sufficient to: a) comply with approved data; b) place the aircraft in a condition for safe operation; c) enable the aircraft to be duly certified and returned to RPT service out of Cairns, having regard to the likely stance of the Civil Aviation Authority; d) enable the aircraft to be sufficiently maintained in accordance with the procedures published in the Cessna Model 208 Maintenance Manual; e) maintain the aircraft’s pre-accident economic life expectancy; 4. At the conclusion of the experts’ meeting, the experts jointly prepare a report for the Court and a copy for the parties, -- 4 of 13 -- 5 which identifies the matters of agreement and/or disagreement resolved upon at the meeting and the reason for any disagreement, on or before Friday, 18 January 2008; 5. Any matters of disagreement recorded in the experts’ joint report be determined by the Court at trial; 6. The costs of this application be costs in the cause; 7. Such further or other order as the Court deems appropriate.” [10] As contemplated by this order, Mr Llewellyn and Mr Whitney met and produced a joint report dated 17 January 2008. [11] This report stated (in a passage strongly emphasised by the plaintiff in the present application) as follows: “(2) Since decontamination is a major repair for the purposes of FAR Part 43, then FAR 43.13(a) requires the process to be done in accordance with the methods, techniques and practices prescribed in the current manufacturer’s maintenance manual or Instructions for Continued Airworthiness prepared by its manufacturer, or other methods, techniques and practices acceptable to the FAA – i.e. in accordance with approved data. On the question of approved data, it is noted that there is no procedure for this in the Cessna SRM, or otherwise endorsed by Cessna (Cessna letter March 24, 2004, Steve Howard (Cessna) to Phil Stacey (QBE). The only known piece of approved data for decontamination after immersion, is that given in FAA AC 43.13-1B Chapter 6 Section 14, which calls for steam- cleaning. This is NOT the process described in the ASIC/QBE proposal estimate. The ASIC estimate of 16 Feb., 2004 does not address the issue of the approval of its decontamination process, which is clearly inferior to that specified in Ac.43.13-1B.This point is agreed.” However, it is also appropriate here to observe that the joint report also contained the following narrative by the experts (in which “DJL” is Mr Llewellyn, “CWW” is Mr Whitney, and “CYA” is the plaintiff): “In regard to the FAA AC.43.13 data, CWW also questions whether the AC.43.13 method is the only “known” method, i.e. nowhere else in the world there is not another technique. CWW would also point out that attempts were made very shortly after the 16 Feb estimate to -- 5 of 13 -- 6 answer CYA’s concerns including additional tasks and costs going to the repair process. It would appear to CWW that there was little willingness to negotiate on CYA’s side. It is also interesting to note that in discussion with CYA, Chad Brown of Cessna on 11 May, 2004, did not rule repair either in or out, this goes to advice being supplied by Cessna that is discussed below. Chad Brown did suggest that the opinion of another repairer be sought, this was done at QBE’s expense but it does not appear to have affected CYA’s attitude. Cessna would also be aware that many of their aircraft have been recovered from submersion but they have never moved to stop this process. DJL considers that the question as to whether there is not any alternative is irrelevant: DJL has already stated, in his report of 14 March 2007, that complete disassembly and stripping and replacing the protective finish on all components, would be an acceptable procedure, presuming the aeroplane could then be reassembled sufficiently accurately to conform to its Type Design in all respects. Annexure 2 of CWW’s report dated 26 January 2007 shows substantial jigging fixtures suitable for extensive disassembly of a Cessna 208 airframe. However, none of this was disclosed (and, in fact, may not have existed for all we know) at the time of the ASIC quotation of 16 Feb 2004, and there was no indication of any intention to disassemble to this degree in that quotation estimate.” [12] On 30 May 2008, and again on 18 June 2008 the plaintiff amended its statement of claim. The third amended statement of claim (3ASOC) filed on 18 June 2008 is its current pleading. [13] Not surprisingly, in view of the parts of the experts’ joint report on which it particularly relies, the plaintiff amended its pleading to make express allegations concerning the Advisory Circular as the “approved data” for the Cessna. Paragraph 10B of the 3ASOC pleads: “10B. At all material times after the Ditching: a) the repair of the Aircraft following salt water immersion constituted a major repair within the provisions of the Federal Aviation Regulation USA (“the FAR”); b) the Aircraft had to be repaired so that it would be in a condition “at least equal to its original condition” as provided for in the FAR; -- 6 of 13 -- 7 c) the Aircraft had to be repaired in accordance with “approved data” within the provisions of the FAR and in accordance with “approved maintenance data” within the provisions of the CAR (“approved data”); d) CASA would not issue a Certificate of Airworthiness, or lift the suspension of the Certificate of Airworthiness, in respect of the Aircraft unless it was satisfied that:- i) the repair of the Aircraft was done in accordance with approved data; and ii) the Aircraft was in a condition for safe operation; and iii) there was in place an amended ongoing airworthiness maintenance and inspection program in respect of the Aircraft; e) CASA would not issue an AOC in respect of the Aircraft, or otherwise allow the Aircraft to be returned to service as a Class A aircraft for scheduled public transport activities and used for business or commercial operations, unless it was satisfied that:- i) the repair of the Aircraft was done in accordance with approved data; and ii) the Aircraft was in a condition for safe operation; and iii) there was in place an amended ongoing airworthiness maintenance and inspection program in respect of the Aircraft; f) the Aircraft could not be returned to service for scheduled public transport activities, and used for business or commercial operations as contemplated by the Policy, without the issue by CASA of a Certificate of Airworthiness and an AOC; g) the Maintenance Manual (“MM”) and the Structural Repair Manual (“SRM”) of the manufacturer of the Aircraft, Cessna Aircraft Company (“Cessna”), did not provide any specifications, instructions or guidance with respect to the disassembly, repair and return to service of an aircraft after salt water immersion; -- 7 of 13 -- 8 h) Cessna did not provide any ongoing airworthiness maintenance and inspection program for any aircraft that had been submerged in any kind of water; i) the continued airworthiness of the Aircraft, after repair, would necessitate maintenance and operation costs and further repairs beyond the level of the maintenance and operation costs and repairs which were ordinarily incurred through normal wear and tear during the business or commercial operations of the Aircraft as contemplated by the Policy prior to the Ditching; j) there existed FAA Advisory Circular AC 43-13-1B which contained section 14 Chapter 6 entitled “Handling and Care of Aircraft Recovered from Water Immersion” (“AC 43-13-1B”); k) AC 43-13-1B was approved data for the purposes of repair of the Aircraft following the Ditching.” [14] Paragraphs 15(f) and (g) of the 3ASOC were also new allegations (consistent with the plaintiff’s view of the experts’ joint report) that the repair works proposed by ASIC was not a proposal to repair the aircraft in accordance with “approved data”, and specified the respects in which it alleges that the proposed ASIC repair works do not comply with the Advisory Circular. [15] By its pleadings in response to the 3ASOC (the current being the seventh further amended defence), the defendant contends that: (a) ASIC did propose to repair the aircraft in accordance with “approved data”, and has further particularised this as: “data approved by an FAA designated engineering representative or alternatively data in accordance with the requirement of FAR Part 145-109(d)(7) recorded in an FAA Form 337” (see the defendant’s further and better particulars dated 5 August 2008); -- 8 of 13 -- 9 (b) the Advisory Circular was not exclusively the source of approved data pursuant to which the aircraft could be repaired following ditching. (This assertion was made for the first time in the fifth further amended defence filed 30 June 2008, which was the first pleading to respond to the 3ASOC.) Mr Stowers’ evidence [16] The defendant seeks an extension, or variation, of the order made by Byrne SJA to allow it now to deliver a report, or statement, by Mr Stowers. Any such expert report by him should have been delivered by 20 March 2007. [17] Counsel for the defendant frankly conceded before me that no explanation was proffered for the non-delivery of Mr Stowers’ report. Even if a variation or extension of the consent order made by Byrne SJA were possible, the very least one would expect to see from a party seeking the indulgence of a variation to accommodate non-compliance with such an order is a cogent explanation. [18] Even if I have the ability to make the variation sought, no good reason has been given as to why I ought exercise the discretion in favour of the defendant to allow delivery of an expert report by Mr Stowers. [19] My decision in this regard is limited to the extent that the defendant would otherwise have sought to call Mr Stowers as an expert (that being the capacity contemplated in the order of Byrne SJA). Whether the defendant seeks to call Mr Stowers as a witness of fact at trial is a matter for it. Whether the trial judge will permit the content of the ASIC repair estimate document, which of course speaks -- 9 of 13 -- 10 for itself, to be supplemented by oral evidence of Mr Stowers will undoubtedly be a matter for argument at trial if the defendant seeks to lead evidence from him solely for that purpose. The evidence of Mr Gatz [20] The proposed expert evidence of Mr Gatz is in a different category. The defendant’s solicitor has deposed to the following: “29. Mr Gatz is a structural consultant aircraft engineer and consultant structural designated engineering representative for Gatz Technical Engineering Consultants based in Yukon, Oklahoma, United States of America. 30. Mr Gatz is a Federal Aviation Administration approved Designated Engineering Representative, responsible for approving aircraft modifications and repairs or installations on a variety of aircraft types including Cessna aircraft. Exhibited to this affidavit and marked “MES-8” is a copy of Mr Gatz’s resume. 31. The defendant proposed to have Mr Gatz prepare a report on the process of approving the repairs (and the data upon which the repairs are effected) ASIC would have performed on VH-CYC had the aircraft been released by the Plaintiff. The report will address the acceptability of the repair process, such that the repair process could properly be adopted and signed off by a Designated Engineering Representative as approved data. 32. Expert evidence on the approval process for repairs conducted under the United States FAA Regulations cannot be adequately given by the parties’ current experts who are based in Australia.” [21] The plaintiff objects to this evidence being obtained, asserting that the question whether any “approved data” other than the Advisory Circular existed is a false issue because the ASIC repairs estimate did not propose that repairs be carried out in accordance with other approved data. It is said that the defendant is really trying to “rewrite” the ASIC repairs estimate so that it is to be read as including things -- 10 of 13 -- 11 which were not initially put to the plaintiff for its approval, and proposing to raise a completely new case. It was suggested that the defendant is, in effect, shopping around to find a new expert to give evidence in respect of a false issue. [22] It is certainly the case that the issues to which the defendant would have Mr Gatz direct his evidence were not in issue on the pleadings at the time of the consent order made by Byrne SJA. But that does not mean that, as events have unfolded, those matters do not now need to be addressed. Indeed, as would be apparent from the matters I have set out above: (a) in the joint experts’ report, whilst apparently confirming that the ASIC repair estimate did not conform to the Advisory Circular, Mr Whitney expressly questioned whether the Advisory Circular was the only known method or technique; (b) after the order of Byrne SJA was made, both the plaintiff’s and the defendant’s pleadings were amended so as to put in issue: (i) whether the Advisory Circular was the only “approved data” for this aircraft, and (ii) whether the ASIC repair estimate would have complied with such “approved data” other than the Advisory Circular. [23] Those are the very matters on which it is sought to obtain evidence from Mr Gatz. As these matters were not in issue when Byrne SJA made his orders, and as the parties subsequently expressly joined issue on those matters on the pleadings, it would be quite unjust, in my view, for the defendant to be denied the opportunity to adduce this expert evidence from Mr Gatz. -- 11 of 13 -- 12 [24] The plaintiff also objected on the basis that the making of an order now would be an impermissible variation of the order made by Byrne SJA because: “the court has no power to discharge or vary the consent order made by Justice Byrne on 13 December 2007 which provides a court sanctioned regime for the identification of matters in dispute which are to be determined at trial”. I was referred in particular to Fylas Pty Ltd v Vynal Pty Ltd,1 in which McPherson SPJ (as he then was) held that an order (interlocutory or final) which is made in consequence of an agreement between the parties or as an element in such an agreement is capable of being set aside or varied only on grounds or for reasons such as mistake or misrepresentation as would enable the contract to be invalidated or varied. 2 I do not apprehend this principle to have been abrogated by the judgment of the Court of Appeal in Alford v Ebbage, 3 but it is not necessary for me to express a final view on that point because I regard this case as lying outside the circumstances to which the principle applies. The subject matter of the agreement before Byrne SJA, i.e. the proceedings as then constituted and the issues as then articulated, is quite different from that which emerges from the pleadings exchanged between the parties in mid-2008. What is now sought is not so much a variation of the order made by Byrne SJA with respect to the dispute then before him and which was the subject of the then agreement between the parties, but new orders to facilitate the adducing of expert evidence in the case as it has since been reformulated by the parties. [25] In those circumstances, I would make orders allowing the defendant to adduce expert evidence at trial from Mr Gatz in relation to the matters identified in paragraph 31 of the affidavit of Mr Sainsbury sworn 10 February 2009. 1 [1992] 2 Qd R 593. -- 12 of 13 -- 13 [26] The costs of this application will be reserved. [27] I will hear from the parties as to further necessary directions. 2 [1992] 2 Qd R 593 at 599. 3 [2003] 1 Qd R 343. -- 13 of 13 --