summary Aon Risk Services Australia Limited v Australian National University [2009] HCA 27

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Aon Risk Services Australia Limited v Australian National University [2009] HCA 27

The Facts

Rule 21 of the Australian Capital Territory’s Court Procedures Rules, which applied to Ch 2 of those Rules, provided that:

“(1) The purpose of this chapter, and the other provisions of these rules in their application to civil proceedings, is to facilitate the just resolution of the real issues in civil proceedings with minimum delay and expense.
(2) Accordingly, these rules are to be applied by the courts in civil proceedings with the objective of achieving –
(a) the just resolution of the real issues in the proceedings; and
(b) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties.
(3) The parties to a civil proceeding must help the court to achieve the objectives.
(4) The court may impose appropriate sanctions if a party does not comply with these rules or an order of the court.”

In January 2003, the Australian National University (“ANU”) had its Mount Stromlo Complex damaged by fire. In December 2004, it sued three insurers, Chubb Insurance Company of Australia Limited, CGU Insurance Limited and ACE Insurance Limited, claiming an indemnity for losses caused by the fire the Australian Capital Territory Supreme Court. Later, it joined its insurance broker, Aon Risk Services Australia Limited (“Aon”) due to its failure to arrange the renewal of insurance over some of the property which the insurers claimed was not the subject of insurance.

In November 2006, at the commencement of a four week trial of an action against its insurers and Aon,  ANU settled with the insurers and consent orders were made to give effect to the settlements. ANU then applied for an adjournment of the trial to make substantial amendments to its statement of claim against Aon.

The proposed amendments alleged that Aon knew that ANU required renewal of insurance cover in 2003 and failed to obtain accurate valuations of the contents of the property, arrange insurance on declared values which were the true replacement values of the property or to obtain ANU’s instructions before placing the insurance in question. It was further alleged that Aon had breached provisions of the Australian Securities and Investments Commission Act 2001 (Cth) in the provision of its services, it had made representations as to future matters without reasonable grounds for doing so, and had been guilty of misleading and deceptive conduct.

At first instance, the adjournment was allowed by Gray J, who relied on the case of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 and granted leave for ANU to amend its statement of claim and pay Aon’s costs thrown away on the standard basis. When Aon appealed, Gray J’s decision was upheld by a majority of the Court of Appeal (Higgins CJ and Penfold J, Lander J dissenting) subject to a further order that ANU pay Aon’s costs occasioned by the amendment on an indemnity basis.

Aon appealed against this decision to the High Court, which unanimously allowed the appeal.

French CJ’s judgment

French CJ held that Gray J and the majority of the Court of Appeal had erred in failing to consider the prejudice arising from delays:

“Save for the dissenting judgment of Lander J in the Court of Appeal, the history of these proceedings reveals an unduly permissive approach at both trial and appellate level to an application which was made late in the day, was inadequately explained, necessitated the vacation or adjournment of the dates set down for trial, and raised new claims not previously agitated apparently because of a deliberate tactical decision not to do so. In such circumstances, the party making the application bears a heavy burden to show why, under a proper reading of the applicable Rules of Court, leave should be granted.

“In the proper exercise of the primary judge’s discretion, the applications for adjournment and amendment were not to be considered solely by reference to whether any prejudice to Aon could be compensated by costs. Both the primary judge and the Court of Appeal should have taken into account that, whatever costs are ordered, there is an irreparable element of unfair prejudice in unnecessarily delaying proceedings. Moreover, the time of the court is a publicly funded resource. Inefficiencies in the use of that resource, arising from the vacation or adjournment of trials, are to be taken into account. So too is the need to maintain public confidence in the judicial system. Given its nature, the circumstances in which it was sought, and the lack of a satisfactory explanation for seeking it, the amendment to ANU’s statement of claim should not have been allowed. The discretion of the primary judge miscarried.”

After reviewing the history of the power of amendment and the introduction of civil pleadings, French CJ noted that:

“The Judicature Acts and associated Rules of Court are reflected in rr 501 and 502 of the ACT Rules. The ACT Rules, like their precursors, confer the discretion to give leave to amend and impose the duty to make amendments for the purpose of deciding the real issues in, and avoiding multiplicity of, proceedings. The discretion is exercised in the context of the common law adversarial system as qualified by changing practice. But that is not a system which today permits disregard of undue delay. Undue delay can undermine confidence in the rule of law. To that extent its avoidance, based upon a proper regard for the interests of the parties, transcends those interests. Another factor which relates to the interests of the parties but transcends them is the waste of public resources and the inefficiency occasioned by the need to revisit interlocutory processes, vacate trial dates, or adjourn trials either because of non-compliance with court timetables or, as in this case, because of a late and deliberate tactical change by one party in the direction of its conduct of the litigation. These are matters which, even under the Australian versions of the Judicature Act system, unaffected by the sequelae of the civil procedure reforms of 1998 in the United Kingdom, are to be regarded as both relevant and mandatory considerations in the exercise of the discretion conferred by rules such as r 502.”

French CJ wrote about the deleterious impacts of unwarranted delays in litigation on the public interest and the importance of this factor when deciding whether to prolong a proceeding:

“The observations made in the two joint judgments in Sali were linked to the particular knowledge that a judge or court, called upon to exercise a discretion to adjourn, would have of the state of that court’s lists. However, the mischief engendered by unwarranted adjournments and consequent delays in the resolution of civil proceedings goes beyond their particular effects on the court in which those delays occur. In that connection, there have been a number of cases after Sali in which it has been accepted, in the context of Judicature Act Rules, that the public interest in the efficient use of court resources is a relevant consideration in the exercise of discretions to amend or adjourn.”

As was said by French CJ in Aon:

“The requirement to make amendments for the purpose of deciding “the real issues in the proceeding” does not impose some unqualified duty to permit the late addition of any new claim. The real issues in the proceeding were to be determined in this case by reference to the limited way in which ANU had deliberately chosen to frame its original claim against Aon”

French CJ quoted the majority in Walton v Gardiner (1993) 177 CLR 378; [1993] HCA 77 and then wrote about the risks of bringing the administration of justice into disrepute:

“proceedings before a court should be stayed as an abuse of process if, notwithstanding that the circumstances do not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of by earlier proceedings.” (footnote omitted)”

“The majority also endorsed the observation in Hunter v Chief Constable of West Midland Police that courts have an inherent power to prevent misuse of their procedures in a way which, although not inconsistent with the literal application of the Rules, would nevertheless be unfair to a party to the litigation “or would otherwise bring the administration of justice into disrepute among right-thinking people”.”

Majority’s judgment

The majority constituted by Gummow, Hayne, Crennan, Kiefel and Bell JJ observed that:

“An important aspect of the approach taken by the plurality in J L Holdings was that it proceeded upon an assumption that a party should be permitted to amend to raise an arguable issue subject to the payment of costs occasioned by the amendment. So stated it suggests that a party has something approaching a right to an amendment. That is not the case. The “right” spoken of in Cropper v Smith needs to be understood in the context of that case and the Rule, which required amendment to permit the determination of a matter already in issue. It is more accurate to say that parties have the right to invoke the jurisdiction and the powers of the court in order to seek a resolution of their dispute165. Subject to any rights to amend without leave given to the parties by the rules of court, the question of further amendment of a party’s claim is dependent upon the exercise of the court’s discretionary power.”

The majority also said at [92]-[93] that:

“The purposes stated in r 21 reflect principles of case management by the courts. Such management is now an accepted aspect of the system of civil justice administered by courts in Australia. It was recognised some time ago, by courts here and elsewhere in the common law world, that a different approach was required to tackle the problems of delay and cost in the litigation process. In its report in 2000, Managing Justice: A review of the federal civil justice system, the Australian Law Reform Commission noted that: “Over the last ten years Australian courts have become more active in monitoring and managing the conduct and progress of cases before them, from the time a matter is lodged to finalisation”
Rule 21(2)(b) indicates that the rules concerning civil litigation no longer are to be considered as directed only to the resolution of the dispute between the parties to a proceeding. The achievement of a just but timely and cost-effective resolution of a dispute has an effect upon the court and upon other litigants.”

The majority also said at [97]-[98] that:

“The objectives of case management are now expressly stated in r 21 of the Court Procedures Rules. It cannot be overlooked that later rules, such as r 21, are likely to have been written with the decision in J L Holdings in mind166. The purposes stated in r 21 cannot be ignored. The Court Procedures Rules make plain that the Rules are to be applied having regard to the stated objectives of the timely disposal of the proceedings at an affordable cost. There can be no doubt about the importance of those matters in litigation in the courts of the Australian Capital Territory.”

“Of course, a just resolution of proceedings remains the paramount purpose of r 21; but what is a “just resolution” is to be understood in light of the purposes and objectives stated. Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and cost are taken into account. The Rule’s reference to the need to minimise costs implies that an order for costs may not always provide sufficient compensation and therefore achieve a just resolution. It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs.”

The majority also held at [105], [106], [110] & [112] that the error at first instance was the failure to consider the unjust impacts of delayed resolution of the proceedings:

“The primary judge was in error in failing to recognise the extent of the new claims and the effect that amendment would have upon Aon. His Honour was in error in failing to recognise the extent to which the objectives of r 21 would not be met if the amendments were allowed. The known ill-effects of delayed determination, which informed the purposes and objectives of the Rule, were present. Rule 502(1) read with r 21 did not provide an unfettered discretion to grant leave to amend. The objectives of r 21 were to be pursued in the exercise of the power conferred by r 502(1). The fact that ANU’s new claims were arguable was not itself sufficient to permit amendment and could not prevail over the objectives of r 21. A “just” resolution of the proceedings between ANU and Aon required those objectives to be taken into account.”

“Given the requirements of the Rule and the effects associated with delay, it was incumbent upon ANU to tender an explanation as to why the matter had been allowed to proceed to trial in its existing form. It needed to explain why it was seeking leave to amend at the time of the trial, when the two insurer’s defences had identified the issue central to the claim it sought to bring against Aon more than 12 months earlier. None was given…
“The primary judge was mistaken as to the extent of the new claims and what would be required of Aon if they were permitted and the matter effectively re-litigated. His Honour incorrectly elevated the fact that the claim was arguable to a level of importance it did not have. His Honour failed to recognise the importance of the objective stated in r 21, of the timely disposal of the proceedings. The exercise of the power conferred by r 502(1) miscarried. The application should have been refused.”…

“A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate.”

The majority observed that:

“In the past it has been left largely to the parties to prepare for trial and to seek the court’s assistance as required. Those times are long gone. The allocation of power, between litigants and the courts arises from tradition and from principle and policy. It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings.”

It was said by the majority:

“Rule 21 of the Court Procedures Rules recognises the purposes of case management by the courts. It recognises that delay and costs are undesirable and that delay has deleterious effects, not only upon the party to the proceedings in question, but to other litigants. The Rule’s objectives, as to the timely disposal of cases and the limitation of cost, were to be applied in considering ANU’s application for amendment. It was significant that the effect of its delay in applying would be that a trial was lost and litigation substantially recommenced. It would impact upon other litigants seeking a resolution of their cases. What was a “just resolution” of ANU’s claim required serious consideration of these matters, and not merely whether it had an arguable claim to put forward. A just resolution of its claim necessarily had to have regard to the position of Aon in defending it. An assumption that costs will always be a sufficient compensation for the prejudice caused by amendment is not reflected in r 21. Critically, the matters relevant to a just resolution of ANU’s claim required ANU to provide some explanation for its delay in seeking the amendment if the discretion under r 502(1) was to be exercised in its favour and to the disadvantage of Aon. None was provided.”

Heydon J’s scathing assessment

Heydon J held at [119] that determination of the case was a matter of construction of those particular rules of court, not by reference to authorities decided on other rules of court. In relation to Queensland v J L Holdings Pty Ltd, Heydon J held at [133] that, at least in jurisdictions having rules similar to rr 21 and 502, that case has ceased to be of authority and it is necessary to apply the Rules without any preconceptions derived from what was said in that case.

Heydon J at [137]-[138] opined that commercial litigation is an area of law where speedy resolution is particularly desirable:

“While in general it is now seen as desirable that most types of litigation be dealt with expeditiously, it is commonly seen as especially desirable for commercial litigation. Its claims to expedition may be less than those of proceedings involving, for example, extraordinary prejudice to children; or the abduction of children; or a risk that a party will lose livelihood, business or home, or otherwise suffer irreparable loss or extraordinary hardship, unless there is a speedy trial. But commercial litigation does have significant claims to expedition. Those claims rest on the idea that a failure to resolve commercial disputes speedily is injurious to commerce, and hence injurious to the public interest…

“Commercial life depends on the timely and just payment of money. Prosperity depends on the velocity of its circulation. Those who claim to be entitled to money should know, as soon as possible, whether they will be paid. Those against whom the entitlement is asserted should know, as soon as possible, whether they will have to pay. In each case that is because it is important that both the claimants and those resisting claims are able to order their affairs. How they order their affairs affects how their creditors, their debtors, their suppliers, their customers, their employees, and, in the case of companies, their actual and potential shareholders, order their affairs. The courts are thus an important aspect of the institutional framework of commerce. The efficiency or inefficiency of the courts has a bearing on the health or sickness of commerce.

“In the present proceedings, it was vital for ANU to know how much of its loss would be recovered. It was vital for ANU to know how soon it would be recovered. It was vital because the question of how fully its pre-fire activities could be resumed turned on those points. It was vital for the insurers to know how much of their net worth would have to be paid to ANU. It was vital because the question would have affected the setting of premiums, the making of investment decisions, the reputation of the insurers for credit worthiness, and, at least potentially, their survival. Similar but not identical considerations doubtless arose for Aon once it was joined as fourth defendant.”

Of the Court’s procedural directions which ensured the trial could not take place and the resolution of the matter would be further delayed, Heydon J at [154] observed that:

“It is also true to say that all the procedural directions made on 15 November 2006 and 27 November 2006 were alien to the axioms underlying modern litigation. Contrary to the precepts of r 21, those directions did not “facilitate the just resolution of the real issues in civil proceedings with minimum delay and expense”. Nor did they achieve “the timely disposal of the proceedings”. And they did not achieve “the timely disposal of … all other proceedings in the court”. That is because the failure of the primary judge to resolve the applications described on 15 November 2006 speedily meant that the dates for trial of the ANU-Aon proceedings were lost, that those proceedings would have to be heard at a future date, and that any future hearing would prevent some other set or sets of proceedings in the court being heard at the time at which they should have been heard. Further, it cannot be said that ANU complied with its obligation under r 21(3) to “help the court to achieve the objectives” set out in r 21(2).”

Heydon J discussed the history of the matter, and agreeing with Aon’s submissions that the case deserved its place in the history books, at [156] made the following scathing conclusion:

“The presentation and adjudication of the case in the courts below do cause it to merit a place in the precedent books. The reasons for placing it there turn on the numerous examples it affords of how litigation should not be conducted or dealt with. The proceedings reveal a strange alliance. A party which has a duty to assist the court in achieving certain objectives fails to do so. A court which has a duty to achieve those objectives does not achieve them. The torpid languor of one hand washes the drowsy procrastination of the other. Are these phenomena indications of something chronic in the modern state of litigation? Or are they merely acute and atypical breakdowns in an otherwise functional system? Are they signs of a trend, or do they reveal only an anomaly? One hopes for one set of answers. One fears that, in reality, there must be another.”

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