Earl Covington & Associates Pty Ltd v Bondley Pty Ltd [2004] QDC 303

DISTRICT COURT OF QUEENSLAND CITATION: Earl Covington & Associates Pty Ltd v Bondley Pty Ltd [2004] QDC 303 PARTIES: EARL COVINGTON & ASSOCIATES PTY LTD ACN 009 871 336 (Plaintiff) AND BONDLEY PTY LTD ACN 063 347 727 (Defendant) FILE NO/S: 49 of 1999 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: District Court DELIVERED ON: 10 September 2004 DELIVERED AT: Maroochydore HEARING DATE: 3 September 2004 JUDGE: Judge J.M. Robertson ORDER: [1] Application dismissed; [2] Defendant ordered to pay the plaintiff’s costs. CATCHWORDS: PRACTICE AND PROCEDURE – whether issue of pleading and disclosure already determined, application to strike out a pleading as bad in law. Cases cited: Earl Covington & Associates Pty Ltd v Bondley Ltd [2004] QDC 014 Commonwealth v Amann Aviation Pty Ltd (1991) 1974 CLR 64 Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365 Hadopiane Pty Ltd Edward Rushton Pty Ltd [1996] 1 QDR 156 Legislation: Rules 166, 171, 501 of the Uniform Civil Procedure Rules COUNSEL: M. Conrick (for the plaintiff) A. Collins (for the defendant) -- 1 of 8 -- 2 SOLICITORS: Praeger Batt Solicitor (for the plaintiff) Butler McDermott & Egan Solicitors (for the defendant) [3] The defendant’s application is another episode in this litigation which is assuming “Blue Hills” like proportions. At last count, in what from the plaintiff’s perspective is a modest claim for less than $100,000, the documents filed number over one hundred and mechanical means and other technologies are necessary in order to transport the massive file from Registry to Court for these frequent skirmishes. One might have been excused for thinking that the pre-trial skirmishes had been put to rest by the decisive nature of my colleague Judge Dodds’ rulings and directions on 28.05.2004. But nay, the defendant has returned still complaining about the plaintiff’s pleading in relation to loss of profits, and seeking an order that its pleading in this regard be struck out, alternatively that further (extensive) disclosure of documents be made by the plaintiff. [4] The plaintiff’s attitude is that this issue has been decided, and that the matter is in all respects ready for trial. [5] Before dealing with the defendant’s application, it is necessary to set out a brief history of the action. [6] The plaintiff’s claim is for damages for breach of contract. It alleges that in June 1994 it entered into a contract with the defendant to manage a subdivisioned project that the defendant was undertaking at Caloundra. The plaintiff alleges (inter alia) that in 1998, the defendant repudiated the contract which has resulted in loss. Paragraph 18 of the Amended Statement of Claim sets out particulars of its alleged loss, and it is to paragraph 18(b) that the present application is directed. Paragraph 18(b) (of the Amended Statement of Claim filed on 25.02.2004) is in these terms: The defendant has filed a defence, and a counterclaim in which it seeks (in a lengthy pleading) damages for breach of contract, restitution, “$400,000 or alternatively; $250,000” for negligent misrepresentation. There have been numerous applications to the Court about various issues, including the adequacy of the pleadings and disclosure. All of the hearings that I have been associated with indicate that there is little or no common ground between the parties and that the litigation will be carried forward with considerable vigour, and will not be settled. The plaintiff’s claim for loss of profits has been debated before this application. The defendant’s application (said erroneously to be by the plaintiff) filed 03.08.2004 seeks the following orders: “1. That pursuant to Rule 171 of the Uniform Civil Proceedings Act 1999 paragraph 18(b) of the plaintiff’s Further Amended Statement of Claim be struck out. -- 2 of 8 -- 3 2. Alternatively to (l), that the plaintiff provide further and better particulars of the matters of and relating to the claim for loss of profits as set out in paragraph 18(b) of the Further Amended Statement of Claim. 3. Further, that the plaintiff provide further disclosure of documents including: (a) all taxation returns for the financial years ended 30 June 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2002; (b) all profit and loss statements and balance sheets for the financial years ended 30 June 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2002; (c) all documents of and relating to alternative income derived by the plaintiff between 5 February 1998 and 30 June 2002; (d) all documents of and relating to expenses incurred by the plaintiff between 5 February 1998 and 30 June 2002; (e) all documents of and relating to income derived by the plaintiff during the period from 1 June 1994 to 5 February 1998; (f) all documents of and relating to expenses incurred by the plaintiff during the period from 1 June 1994 to 5 February 1998; (g) all other documents of and relating to the calculation of the net loss of profits occasioned to the plaintiff as a consequence of the alleged breach of contract by the defendant; (h) computerised accounting records in relation to the items referred to in paragraphs (a) to (g).” [7] With what can only be described as “tongue in cheek”, it was proposed by the defendant that the application be determined without an oral hearing. How the defendant’s solicitor and counsel ever expected that the plaintiff would agree to such a course, given the history of acrimony between the parties set out in the files defies understanding. [8] Given the plaintiff’s attitude, I think the first point to determine is whether or not the issues now raised have previously been decided by Judge Dodds in his ruling dated 28.05.2004. [9] On 30.01.2004 I heard a number of applications by the parties, and I delivered judgment on 06.02.2004 (Earl Covington & Associates Pty Ltd v Bondley Ltd [2004] QDC 014). One of the orders I made was to direct the parties to provide to the Court within 21 days submissions as to the directions required to ready the matter for trial and have it set down. The parties could not agree on all directions, and the matter was brought back on (presumably because I had granted liberty to apply on 06.02.2004) for a directions hearing. Mr Conrick appeared by telephone. I have read the transcript of what occurred on that day before Judge Dodds. As Mr Collins says, the very issue at the centre of this application was argued before Judge Dodds. Indeed, the principal affidavit relied upon by the defendant in its -- 3 of 8 -- 4 application now before me was an affidavit by the defendant’s solicitor Mr Barrr filed on 27.05.2004. This document, including its extensive book of exhibits, was before Judge Dodds and he considered it in reaching his decision. The affidavit of Mr Barr goes to the issue of further disclosure as canvassed in paragraphs 2 and 3 set out above, and is directly relevant to the pleading point the subject of paragraph 1. [10] After considering that affidavit, and hearing lengthy submissions by Counsel, His Honour gave some rulings. There is no doubt that Mr Collins for the defendant sought an order for further disclosure on the same lines as is sought in the application now before me, although it was done orally and Mr Conrick was caught a little off guard. [11] Judge Dodds said this in his judgement: “I have listened to what both parties have had to say about the assertion this morning that disclosure by the plaintiff with respect to its claim for loss of profits, is incomplete. The claim for loss of profits is based upon the agreement which was terminated, which provided for the plaintiff to be paid a certain percentage of gross sale proceeds. The claim for loss of profits is particularised as an amount resulting from gross sales after the termination, the management fees that would have flowed from those gross sales, less estimated costs from termination to completion of the sales. Detail of the estimated costs or the actual costs, has also been provided. I do not think there is a need for any further disclosure relating to this aspect of the claim. To the extent that there is an application this morning for further disclosure, it is denied.” [12] That is why, the plaintiff now submits that this application is no more than an attempt to appeal, impermissibly, against His Honour’s ruling. [13] It is arguably clear from the transcript that Mr Collins did reserve (if that is the correct terminology) his client’s right to apply to the Court to strike out paragraph 18(b). I am satisfied that it was to this that His Honour was referring when he said this in his order: “Can I just leave it on this basis: that I am quite happy for it to be done by way of written submissions, if you each agree that that is acceptable. However, Mr Collins, I want to make it clear, that if there is to be such an application, it should be brought promptly. Mr Collins: Yes. You suggested seven days a little earlier on; I will not put a time limit on it, but it needs to be done promptly. Mr Collins: Yes, your Honour.” [14] In my view, the issue of disclosure before me on this application was finally determined by Judge Dodds on 28.05.2004, and the defendant should not be permitted to re-open and re-litigate the issue now. The defendant had rights of appeal that it could have legitimately exercised, and it did not. -- 4 of 8 -- 5 [15] In relation to the strikeout point, it cannot be said, by any stretch of the imagination that the application has been brought promptly. Mr Collins brushed over this in his oral submission, but the history of what has occurred since then is testament, in my view, to a failure by his client on this issue, to comply with rule 5. [16] In the proceedings before Judge Dodds, there was no suggestion by Mr Collins that the defendant would further amend its pleading, but that is what occurred, and Mr Collins relies on this amended pleading as now raising new issues, not ventilated before Judge Dodds, and thus obliging me to re-hear the issues. [17] The defendant’s pleading was purportedly amended pursuant to rule 375 on 22.07.2004. The amendment was not sanctioned by the Court, and appears to have been done by the defendant pursuant to rule 378 which permits a party to amend, as often as necessary before a request for trial date is filed “for which leave from the Court is not required under the rules”. It is true that Judge Dodds did not dispense with the request in the orders he made on 28.05.2004, but the directions he gave, many of which were by consent, included paragraph 4 that the matter be placed on the September 2004 call-over. I agree with Mr Conrich, that it is at least arguable, that the defendant needed leave to amend, but he makes no point of it, and indeed his client has not made any application under rule 379. I will proceed therefore on the basis that the amendment is validly made. [18] Paragraph 6 of the Defence now reads: “As to paragraph 18(b), 18(c) and 19 of the Plaint, the defendant:- (a) says the plaintiff performed engineering works at the request of plaintiff; (b) objects to the matter pleaded in paragraph 18(b) by reason that the particulars to the material facts do not properly particularise the relevant matters for a claim for loss of profits and by reason thereof the pleading is embarrassing or otherwise has a tendency to prejudice or delay the fair trial of the proceeding and should otherwise be struck out; (ba) In reservation of the objection aforesaid, denies that the plaintiff has suffered any loss of profits and believes the allegation to be untrue by reason that: (i) the matters pleaded therein do not properly particularise the correct method for the calculation of a claim for loss of profits where a claim is made for loss occasioned as a consequence of a breach of contract; (ii) the correct method for the calculation of a claim for loss of profits is to claim the net loss suffered by the plaintiff as consequence of the breach of contract; (bb) Says in any event that the plaintiff as a trustee company was conducting its entire operations at a loss or alternatively at a nominal profit and by reason thereof: -- 5 of 8 -- 6 (i) the termination of the contract with the defendant in or about February 1998 prevented or otherwise restricted the further losses that otherwise would have been sustained if the contract had been performed in its entirety; and/or (ii) the plaintiff would still have conducted its operations at a loss or nominal profit if the contract had been performed in its entirety; (bc) Says further or alternatively that if the contract had been performed in its entirety the plaintiff would have incurred additional costs and expenses in completing the contract including rental costs, administration expenses, wages and superannuation, depreciation of assets, insurance costs, travel expenses and borrowing costs and by reason thereof would not have derived any profit at all or otherwise the profit so derived would have been nominal. (bd) Says further that in particularising the loss of profits the plaintiff company has not accounted for any additional income that was derived or expenses that were saved by reason that subsequent to the termination of the contract with the defendant, the plaintiff no longer continued to employ and incur the expense of Mr Gino Bortolotto and further the principal employee or agent of the defendant Mr Earl Covington and other employees by reason of the termination of the contract with the defendant were able to apply their income generating services to other projects. PARTICULARS The plaintiff cannot further particularise the loss of profit or the financial position of the company until after proper disclosure has been completed including the provision of all relevant financial statements of the company for the financial years ending the 30 th June 1998 to 30th June 2000. (be) Says otherwise that the plaintiff has failed to properly particularise the claim for loss of profits as a consequence of the termination of the contract by the defendant and the defendant cannot plead further until property particulars are provided; (c) says that the defendant cannot please further to the claim for loss of profits until after further and better particulars have been provided; (d) does not admit and cannot plead to the alleged sum of $32,958.00 as being the reasonable sum of the work done by the plaintiff until after further and better particulars are provided; (e) otherwise does not admit the allegations therein because after due enquiry remain uncertain as to the truth or falsity thereof.” [19] Mr Collins acknowledges that (b) and (ba) are pleadings of law. He says they set the legal framework for the balance of the pleading which he says, now requires the plaintiff to make further disclosure. -- 6 of 8 -- 7 [20] Tempted as I am to dismiss these applications for the reasons stated, I have nevertheless concluded that a considered decision on paragraph 1, the pleading point is required at this stage. I will also make a further ruling on the disclosure point; in case it is found that I am wrong in concluding that the issue has already been determined by Judge Dodds. [21] The Strike Out Application Mr Collins commences by submitting that the plaintiff has an obligation to plead its case properly against the defendant, so that the defendant knows and is able to respond to the case against it. I agree, although I cannot see that rule 166 of the Uniform Civil Procedure Rules is the basis for such a proposition. Although, he does not identify the rule upon which he relies in his application to strike out paragraph 18(b), I assume it is rule 171(1)(b). It cannot be (a) as the cause of action is breach of contract which is uncontroversial. The submission is really that the plaintiff’s claim as pleaded is not in accordance with the proper principles as identified in the authorities for a claim based on loss of profits. The fundamental thrust of Mr Collins’ submission is that paragraph 18(b) is a plea based on gross and not nett profits and is therefore impermissible as a matter of law. One might surmise, as to why as a matter of tactics he wants to identify such an alleged fundamental flaw in the plaintiff’s claim at this stage, rather than at trial. The reason is probably that Mr Conrick for the plaintiff, who settled the pleading, agrees that as a matter of law it is the nett profits lost that can be recovered, and in his submission, this is the effect of paragraph 18(b). The basic principle at common law is set out succinctly in Commonwealth v Amann Aviation Pty Ltd (1991) 1974 CLR 64: “The general rule at common law, as stated by Parke B in Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365, is: “that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.” This statement of principle has been accepted and applied in Australia.” [22] Although not directly on point, that statement of principle is undoubtedly correct in this State: for example see Hadopiane Pty Ltd Edward Rushton Pty Ltd [1996] 1 QDR 156 per Pincus JA at 158-159 when His Honour said (by reference to some statements in McGregor on Damages (15 th ed, 1988 at page 677): “…. to justify what McGregor treats as general principle, one need look no further than the authority …. Commonwealth v Amann Aviation Pty Ltd (1991) 1974 CLR 64 … (where) it is clear enough that the High Court accepted that the prima facie measure of damages was nett profit rather than gross income …” [23] Mr Collins submits that in the context of this dispute, the application of these principles requires the plaintiff to disclose, in effect, the entirety of its financial activity, not just its documents relating to the performance of the contract the subject of its claim. He refers as well to general statements in Cheshire & Fifoot at page 976 paragraph 23.6, dealing with the trite proposition that in a claim for damages the plaintiff is entitled to be placed in the same position as if the contract had been performed i.e. not breached and terminated; and that the plaintiff is not entitled to be placed in a better position. None of that can be disputed, but it is -- 7 of 8 -- 8 difficult, in my opinion, to read the pleading in paragraph 18(b) as other than a claim for a nett loss to the plaintiff which it alleges to have followed as a consequence of the defendant’s breach. This is what the pleader Mr Conrick says it means, and try as I might, I simply cannot read it otherwise. The nub of Mr Collins argument is that his client is entitled to see all the other financial information from the plaintiff as particularised in paragraphs 2 and 3 of the application because, in some way, that information will provide guidance to the plaintiff’s actual anticipated expenditure in performing the contract to its full. [24] It seems to me that the way in which Mr Conrick has pleaded paragraph 18(b) accords with the examples given by Williams J (as His Honour then was) in his dissenting judgment in Hadopiane at page 169, lines 10-35. I raised another example with Mr Collins in oral argument which I don’t think he was able to answer. If a large multinational company with thousands of contracts with consultants on foot, sued one of its contractors for breach of its individual contract and included a claim for loss of profits, would the defendant be entitled to access all of the multinationals financial records not relating to the questionable contract, to be properly apprised of the case it had to meet? I think not. The profitability or otherwise of the multinational company in relation to these other unrelated contracts would be irrelevant in my opinion. Interestingly enough, when the transcript of the discussion before Judge Dodds was reviewed by me after the hearing (the transcript was not available at the time), Mr Conrick made exactly this same point by referring to Watpac as an example at page 11 of that transcript. [25] In my opinion, there is no basis to strike out paragraph 18(b), and there is no need to order any further disclosure by the plaintiff. The point made before Judge Dodds and again by me, is that the onus will rest upon the plaintiff on this issue as with other issues, and if its case is ultimately weakened by an absence of disclosed financial records, then that is a risk it takes. There is nothing in the amended defence and counterclaim which causes me to alter my position, apart from saying that it is regrettable that Mr Collins did not flag the possibility of amendment with Judge Dodds. It seems obvious that he thought about it later, and although he is not to be criticised for taking every point for his client, it does have the appearance of mere device designed to re-open an issue i.e. disclosure of financial records, that had been finally decided by Judge Dodds. [26] The defendant having failed entirely on its application, it should pay the plaintiff’s costs. -- 8 of 8 --