Farrow Morgtage Services Pty Ltd v Moir Harding Metzroth Pty Ltd & John Haskins & Staff Pty Ltd [1997] QSC 11

301o~ s 'I / IN THE SUPREME COURT OF QUEENSLAND No. 55 of 1993 Brisbane BETWEEN: FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) Plaintiff MOIR HARDING METZROTH PTY LTD First Defendant JOHN HASKINS & STAFF PTY LTD Second Defendant REASONS FOR JUDGMENT - MOYNIHAN J. Judgment delivered 7 February 1997 CATCHWORDS: Striking out statement of claim Counsel: Mr Freeburn for the Plaintiff Mr G. C. Newton for the Defendant Solicitors: Carter Newell for the Plaintiff Deacons Graham & James for the Defendant Hearing Date: 13 September 1996 .. e of researoh and private study This judgment IS to be copied fordthf·e purpPUOb~ication In any other way Without only. It is not to be resold or use o~ re, . permission. -- 1 of 7 -- IN THE SUPREME COURT OF QUEENSLAND No. 55 of 1993 Brisbane BETWEEN: FARROW MORTGAGE SERVICES PTY LTD (IN LIOUIDA TION) Plaintiff MOIR HARDING METZROTH PTY LTD First Defendant JOHN HASKINS & STAFF PTY LTD Second Defendant REASONS FOR JUDGMENT - MOYNIHAN J. Judgment delivered 7 Februarv 1997 The plaintiff seeks leave to deliver an amended statement of claim. The second defendant contends that the proposed pleading fails to disclose a cause of action and seeks to have the action struck out. The plaintiff is the mortgagee of a staged development conveniently identified as the Park wood estate. The mortgage was to secure its financing of the developer of the estate, conveniently referred to as Witham. The arrangements are more complex than this suggests but it is sufficient for present purposes. The first defendant is a consulting engineer. The second is a civil engineering and construction contractor. The first defendant contracted with Witham to design a trunk sewer associated with the development of the Park wood estate and to supervise the second defendant's construction of it. The second defendant contracted with Witham for the construction of works, including the trunk sewer, in respect of the development of the estate. The plaintiff engaged a quantity survey to value the works from time to time and to -- 2 of 7 -- 2 value the cost of completion of the works at that time. This was for the purpose of the plaintiff advancing funds to Witham to pay the second defendant for the work which had been done. The sewer was constructed and the plaintiff from time to time advanced money to Witham to pay the second defendant. The work was defective and the local authority required it be rectified. The plaintiff alleges the first defendant failed to exercise reasonable care in supervision of the second. It alleges the second failed to exercise reasonable care in constructing the sewer. Witham defaulted under the mortgage and ultimately the plaintiff, in the exercise of its rights as mortgagee, entered into possession of the Parkwood estate and continued its development. It met the costs of rectification work on the trunk sewer in order to continue the development of the estate. Witham is insolvent and the plaintiff will not recover the cost of the rectification work from it. It therefore sues the defendants. The applicant says that the amendments sought are relatively minor, no new cause of action is pleaded, no new facts are asserted and the amendments merely involve a remodelling of the existing pleading. To say this rather begs the question as to the necessity or justification for the amendment. There have been seven previous editions of the statement of claim and a number 'of requests for particulars of various editions. The following is a brief summary of the recent history of the statement of claim. 6 February 1996 15 February 1996 11 April 1996 Part of edition· 3 of the statement of claim is struck out, particulars are ordered leave to re-plead given. Edition 4 is delivered, but the second defendant asserts it is still defective, The second·defendant is directed to write to the plaintiff identifying the defects in the statement of claim within seven days. -- 3 of 7 -- 18 April 1996 30 May 1996 14 June 1996 24 July 1996 16 August 1996 19 August 1996 20 August 1996 29 August 1996 3 The second defendant sets out the defects In a letter to the plaintiff. The matter comes up before the court: (i) the plaintiff says it wants to re-plead; (ii) the plaintiff is directed to give a draft to the second defendant, and unless the second defendant consents to its delivery, the plaintiff must apply for leave to deliver statement of claim. The plaintiff provides edition 5 to the second defendant. The second defendant asserts it is still bad. The plaintiff makes application for leave to deliver edition 5 returnable on Monday 19 August. (Friday) The plaintiff provides the second defendant with edition 6 of the proposed statement of claim. (Morning of Application) The plaintiff provides the second defendant with edition 7 at court after the callover.. The judge dismisses the plaintiff's application for leave to deliver edition 7 (ultimately with costs). The plaintiff issues a summons for leave to deliver edition 8 returnable on 29 August. The plaintiff is not ready to proceed with its application as it has not provided the second defendant with the pleading the subject of its application. The summons is adjourned and the plaintiff is ordered to pay the costs thrown away. The matter was reviewed and the following. orders made: (i) the plaintiff serve the second defendant with any proposed further amendment statement of claim by 4 p.m. Tuesday 3 September 1996; (ii) the adjourned summons for leave to deliver the pleading in (i) be listed for hearing on a date to be agreed but no later than Friday 13 September 1996; (iii) adjourned for consideration on the hearing of the summons whether, if the plaintiff is not given leave to deliver edition 8, the action ought stand dismissed with costs. -- 4 of 7 -- 3 September 1996 13 September 4· The plaintiff provides the. second defendant with edition 8 and re-lists its summons for leave to deliver an amended statement of claim. The application as heard. It is true that the proposed amendments involve a degree of restructuring and reordering of the pleading. In fact they are another attempt to bolster the statement of claim in the face of criticisms by the second defendant of the previous edition. The plaintiff submits that the essence of its claim remains the same. This is that the defendants either knew that it was the financier of the estate or knew of the presence of the quantity surveyor the plaintiff engaged on the site and the purpose of that presence and that the retention of quality surveyors to pay financiers was common. The second defendant submits that even accepting that it ~as known the property was mortgaged, it does not follow the economic loss by a mortgagee as a consequence of poor workmanship (or defective supervision) could reasonably have been foreseen. Absent special circumstances (and none are pleaded), there was no reason for it to know: (a) there was a risk that the mortgagor was likely to default; (b) the mortgagee had managed its affairs so that the amount of the loan would exceed the value of the security (as was the case here). (c) there was a risk that the mortgagor could not meet its obligation. In submitting that the pleading does not establish a basis to found a conclusion that a relationship of proximity exists between the parties, the defendant points to the absence of anything comparable to the assumption of responsibility on the part of the defendant and likely reliance upon the part of the plaintiff which founded the duty of care in Bryan v. Molani. Moreover the pleading does not provide a basis for concluding that the risk of (1994-1995) 182 C.L.R. 609 at 627 -- 5 of 7 -- 5 injury by the plaintiff was foreseeable; see the Council of the Shire of Wyong v. Shift & Ors2. In so submitting the defendant points to para.28 of the proposed pleading which, assuming the second defendant was negligent, pleads that it was reasonably foreseeable that its poor workmanship would cause an economic loss because: (a) the plaintiff was a mortgagee; (b) it advanced money to develop the estate; (c) poor workmanship "would effect the value of the security"; (d) the defendant knew of these matters when it did the work. It submits that the allegation that the defendant's negligence "would effect the value of the security" was meaningless unless it was intended to mean "might suffer damage" and if that is what it means there are no facts to support the conclusion. Each criticism seems to me to be well founded as does the defendant's proposition that it doesn't follow that because the value of the property over which it has a security might be diminished, loss by a mortgagee is reasonably foreseeable. It is, I think true to say, that the pleading is deficient in pleading facts capable of founding a conclusion that economic loss by the plaintiff is foreseeable as a consequence of the defendant's defective workmanship. In my view the defendant's submission that the pleading does not plead facts capable of establishing the necessary proximity is well taken and the pleading is deficient in other respects, some of which have been referred to above. The defendant is in any event critical of aspects of the pleading. For example it- i s pleaded that the second defendant's negligence "would effect the value of the security" but no facts are pleaded to support the conclusion nor does it follow that loss by a mortgagee 2 (1979-1980) 146 C.L.R. 40 -- 6 of 7 -- 6 because the value of a security might be diminished by poor workmanship is reasonably foreseeable. In this context it should be borne in mind that an earlier edition of the statement of claim suggested that Witham's debt to the plaintiff did not relate SOlely to money advanced for the Parkwood project and that Witham is alleged to have misappropriated money advanced by the plaintiff. The allegations were withdrawn when the defendant pressed for particulars. Paragraph 43 of the proposed pleading alleges breach of Haskins' obligations to Witham in terms of para.32 of the statement of claim but para.37 and 38 alleged that the poor workmanship was rectified. Having regard to the history of the plaintiff's endeavours to deliver a proper statement of claim, leave to deliver statement of claim in the fonn of ex. 1 should be refused. Consideration as to the dismissal of the action stands adjourned to a date to be fixed. -- 7 of 7 --