Moussa v Camden Council (No.3)

1. [1]

   The plaintiff, Mr Danny Moussa, has commenced a representative proceeding in this Court pursuant to Part 10 of the Civil Procedure Act 2005, claiming damages at common law, damages under s 236 of the Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law, costs and interest.

2. [2]

   The plaintiff and each other group member own or owned land within Spring Farm, a recently developed suburb in the Macarthur region of south-west Sydney. The plaintiff complains of loss and damage in the nature of property damage and economic loss resulting from unsound soil conditions upon which houses were developed which have affected various properties in the area.

3. [3]

   The first defendant, Camden Council (“the Council”), is the local government authority that formerly owned some of the land that has since been developed and sold to the plaintiff and other group members. The plaintiff alleges that the Council was the principal certifying authority for the subdivision of the lands which now comprises the suburb Spring Farm.

4. [4]

   The second defendant, Cornish Group Spring Farm Pty Ltd (“CGSF”), is a body corporate that owned and developed some, but not all, of the land in Spring Farm.

5. [5]

   The third defendant, SMEC Testing Services Pty Ltd (“Testing Services”), conducted a business providing geotechnical investigation and certification services. Testing Services is in liquidation, has not filed a notice of appearance, and has not appeared in these proceedings.

6. [6]

   The fourth defendant, SMECTS Holdings Pty Ltd (“Holdings”), was at all relevant times the owner of all issued share capital in Testing Services. In other words, Holdings was the parent or holding company of Testing Services which was its wholly owned subsidiary.

7. [7]

   Where it is not necessary to refer to Testing Services or Holdings individually, it will be convenient to describe them together as the SMEC parties.

Notice of Motion

1. [8]

   By Notice of Motion dated 24 November 2021, Holdings seeks an order pursuant to r 13.4 of the Uniform Civil Procedure Rules 2005 (“UCPR”) that the proceedings as against it be dismissed summarily on the basis that no reasonable cause of action is disclosed.

2. [9]

   The first and second defendants do not make any submissions about the orders sought. The plaintiff opposes the Motion.

3. [10]

   This judgment deals with that Motion.

Legal Principles – Summary Dismissal

1. [11]

   It is convenient to identify the relevant legal principles by repeating what I have written recently on the subject. In A v Dept of Communities and Justice [2021] NSWSC 937, I said at [19]-[22]:

2. [12]

   This is a sufficient summary of the legal principles which are applicable in the determination of this Notice of Motion.

Allegations Involving the SMEC Parties

1. [13]

   It is useful at this stage to outline some of the plaintiff’s key factual allegations against the SMEC parties. The Amended Statement of Claim filed 17 September 2021 (“ASC”) pleads that the directors of the third defendant, Testing Services (which it describes in the ASC as SMEC TS), and of the fourth defendant, Holdings, were at all material times the same people. Holdings admits that this was so at all times up to 30 September 2020.

2. [14]

   The ASC contains the following factual allegations:

3. [15]

   As against all defendants, the plaintiff pleads a risk of harm in these terms:

4. [16]

   After setting out the pleaded case against each of the Council and CGSF, the ASC pleads jointly the cases against each of Testing Services and Holdings. The plaintiff pleads a conventional common law duty owed by both Testing Services and Holdings arising from their knowledge of the risk of harm, the vulnerability of the plaintiff and Group Members, and their reliance on the SMEC position. A pleading of a further duty of care is in the following terms:

5. [17]

   It will be convenient to refer to this pleading as the “parent company duty”. It is to be noted that this duty is said to arise from the relationship between Holdings, as the parent company, and Testing Services, as its subsidiary.

6. [18]

   The ASC then sets out the reasonable precautions which it alleges the SMEC parties ought to have taken. All of these particulars relate to the undertaking of geotechnical investigations, supervising the relevant earthworks, undertaking proper geotechnical sampling and issuing accurate Site Classification Reports (“SCRs”). The pleading is in these terms:

7. [19]

   As earlier adverted to, in addition to the pleading of the common law duty of care, the plaintiff also alleges that the conduct of the SMEC parties gave rise to a number of breaches of the Australian Consumer Law (“the ACL”). These allegations are pleaded in the following terms:

Defence of Holdings

1. [20]

   Although considering the orders sought in the Notice of Motion requires concentration on the case being made by the plaintiffs, I note that Holdings pleaded in its Defence, which was filed on 5 November 2021, that:

2. [21]

   The Defence goes on to plead that:

3. [22]

   The Defence confronts the allegations about its activities in this way:

4. [23]

   This review of the pleadings against Holdings shows that the case made against it centres upon conduct undertaken by way of geotechnical investigations, supervision of earthworks, geotechnical testing on sites in the Cornish Masterplan area, and the issuing of SCRs.

5. [24]

   The plaintiff pleads that a duty and breach, at common law, and breaches of the ACL arise from that conduct, which the plaintiff alleges was carried out by either or both of the SMEC parties.

6. [25]

   A stand-alone parent company duty is pleaded against Holdings which is said to mirror that owed by Testing Services because Holdings knew of the activities of Testing Services which are pleaded in respect of the land in the Cornish Masterplan Area, and because Testing Services was acting as a “conduit” of Holdings.

Evidence on the Motion

1. [26]

   The only evidence put before the Court on the Motion was that adduced by Holdings in support of their Motion, being an affidavit of Lawrence Waldemar Ihnativ sworn on 24 November 2021. Mr Ihnativ’s evidence was not objected to or challenged in any way by the plaintiff; nor was Mr Ihnativ cross-examined by the plaintiff.

2. [27]

   Mr Ihnativ is a former director and company secretary of Holdings and, at all relevant times, was also the manager of Testing Services.

3. [28]

   Mr Ihnativ’s evidence is in summary:

   1. (1)

      In around mid-2002, over 10 years before the events relevant to the development of Spring Farm occurred, the SMEC geotechnical business was re‑structured so that Holdings became a holding company and a new entity, Testing Services, was incorporated to perform all the operational activities of the business. The purpose of the restructure was to separate the operational activities of the company from its assets.

   2. (2)

      From the date of the restructure, Testing Services employed all the staff in the geotechnical business and was the only entity contractually engaged to carry out any geotechnical work. Holdings had no employees. Its only role was to hold assets, including all of the shares in Testing Services.

   3. (3)

      Testing Services was accredited by the National Association of Testing Authorities to carry out testing and certify results in accordance with ISO/IEC 17025. Most councils required such accreditation before they would accept the results of geotechnical testing work. Holdings did not, at any time after 2002, hold any such NATA accreditation.

   4. (4)

      It was Testing Services that was engaged by CGSF to carry out geotechnical work and testing for the Spring Farm project between December 2012 and January 2015, not SMECTS Holdings. The contemporaneous documents of the engagement, including the SCRs, were issued by Testing Services. All invoices for work performed were issued by Testing Services to CGSF (generally care of the project manager).

   5. (5)

      Holdings did not have any commercial agreement or relationship with any parties to the proceedings, nor did it have any involvement with the geotechnical work in the Cornish Masterplan Area.

4. [29]

   Included within the documents exhibited to Mr Ihnativ’s affidavit were copies of the SCRs which had been issued with respect to individual lots within the Cornish Masterplan Area. These reports are in a standard format and contain varying details for each site.

5. [30]

   The SCRs are, on their face, issued by “SMEC Testing Services Pty Ltd”. The Australian Company Number for Testing Services is then set out. Testing Services is described as “Consulting Geotechnical Engineers”. It is also described as being a “NATA Registered Laboratory”. The client is described as “Cornish Group Pty Ltd c/- Minotaur Project Management”.

6. [31]

   Nowhere on any of the SCRs is Holdings mentioned or in any way acknowledged.

7. [32]

   The documents exhibited to Mr Ihnativ’s affidavit also include the Tax Invoices addressed to CGSF for the supervision of the earthworks and geotechnical testing. Each of those invoices were issued by Testing Services. It contained the same identification details as the SCRs. In addition, it nominated an Australian Business Number which was allocated to Testing Services. Again, Holdings is not mentioned or in any way adverted to. The bank account nominated to receive the funds is that of Testing Services and is not that of Holdings.

Parties’ Submissions

1. [33]

   Holdings seeks an order that the proceedings as against it be dismissed summarily on the basis that no reasonable cause of action is disclosed. Holdings submits that the plaintiff has not identified any legal or factual basis for his claim against it.

2. [34]

   Holdings submits that the plaintiff’s case against it, subject to one possible exception dealt with below, rises or falls on the allegations contained in paragraphs 21 and 25 of the Amended Statement of Claim, namely that it was:

3. [35]

   Holdings says those allegations are factually incorrect insofar as they allege any involvement by Holdings in the Spring Farm project or in issuing the SCRs. Holdings points to its own pleaded denials of those allegations and to CGSF’s pleaded denials that it engaged Holdings and says that there were no SCRs created or issued by Holdings.

4. [36]

   Holdings says all of the evidence, including contemporaneous documentary evidence and Mr Ihnativ’s affidavit, points only to the relevant works being performed solely by Testing Services. Holdings says further that all relevant records have already been produced by it and that the only other active party that may have any relevant documentation is CGSF, which has denied that it had any dealings or involvement with Holdings. In those circumstances, it submits that there is no issue of fact standing in the way of a summary dismissal order.

5. [37]

   Holdings further submits that the duty of care as pleaded in paragraphs 61 to 63 of the ASC is premised upon it “issuing the SCRs” and performing the “geotechnical investigation works”, with the risk of harm to the plaintiff and group members following on from a failure by it to take sufficient care in performing those tasks. Similarly, Holdings submits, the misleading conduct allegations depend upon it being the entity that issued the SCRs containing the alleged misrepresentations.

6. [38]

   In relation to the “parent company duty of care” pleaded in paragraph 64 of the ASC, Holdings submits that the law is absolutely clear that a holding company will not be liable for the conduct of its wholly owned subsidiary simply because the two entities share common directors.

7. [39]

   Holdings refers to the following passage of Leeming JA’s judgment in Burrows v Macpherson & Kelly Lawyers (Sydney) Pty Ltd [2021] NSWCA 148 at [124]‑[126], which it is useful to set out in full:

8. [40]

   Holdings also draws attention to Briggs v James Hardie & Co Pty Ltd (1987) 16 NSWLR 549, in which Rogers A-JA said at 577:

9. [41]

   Holdings notes that there has been no suggestion that any of the narrow exceptions to the doctrine of separate legal personality apply to the present case. In particular, it submits that there is no suggestion that the corporate arrangements were some sort of façade concealing the true corporate activity.

10. [42]

    Finally, Holdings submits that it is difficult to understand what the allegations against it mean because the “SMEC Reasonable Precautions” are all things which only Testing Services, and not it, could have done.

11. [43]

    In response, the plaintiff submits that Mr Ihnativ’s evidence needs to be assessed in the context of the current status of the proceedings and the possibility of additional evidence or material becoming available. The plaintiff says that pleaded denials by Holdings and CGSF are not conclusive of the factual question of whether Holdings participated in the provision of any of the relevant services, and that the plaintiff should have the benefit of discovery before an order to summarily dismiss the proceedings is made.

12. [44]

    The plaintiff further submits that the issue of whether Holdings owed the plaintiff a duty of care is similarly a factual issue and that, therefore, the plaintiff should be allowed the benefit of discovery before summary dismissal of the proceedings.

13. [45]

    Finally, the plaintiff says that, in circumstances where he has an apparently viable case against one defendant and seeks to allege liability against another defendant, it is not appropriate to entertain a summary dismissal application by the latter defendant, even when there is no clear case against it: Wickstead v Browne (1992) 30 NSWLR 1; [1992] NSWCA 272.

Consideration

1. [46]

   In this case, there is no evidence or basis for any factual finding of any relationship between the plaintiff or the Group Members, and Holdings. The only evidence is that Testing Services conducted the relevant work: Testing Services was engaged so to do by CGSF and it was Testing Services which issued the relevant SCRs, and the relevant Tax Invoices.

2. [47]

   Additionally, I reject the submission that discovery is likely to materially assist the plaintiff in this case because the plaintiff has not pleaded any other facts which, if proved, could establish that Holdings owed a duty of care to the plaintiff, nor is there any suggestion that there are any other documents or categories of documents in existence which may cast light on the pleaded issues.

3. [48]

   Outside of the factual contentions about who did the geotechnical work, the central feature of the plaintiff’s case is that Holdings owned all the shares in Testing Services and that the two entities shared common directors. It seems to be said that thereby the acts of Testing Services are those of the holding company. As the cases referred to by Holdings establish, Holdings cannot owe a duty of care to the plaintiff merely on this basis.

4. [49]

   To the contrary, the evidence before the Court proves that Holdings owed no duty of care to the plaintiff. Mr Ihnativ’s evidence is that the two entities were restructured specifically for the purpose of separating the business operations from the asset holding company. There is no suggestion that such an arrangement was a sham or a fraud, nor that it occurred for other than legitimate commercial reasons. It occurred approximately 10 years before the relevant work was conducted in connection with the Spring Farm project.

5. [50]

   Holdings had no employees and was not relevantly accredited to undertake the geotechnical work. It could not have entered into the relevant arrangements with CGSF for itself.

6. [51]

   The plaintiff did not challenge Mr Ihnativ’s evidence or seek to cross-examine him. In those circumstances, it is notable that the plaintiff conceded in their written submissions that if Mr Ihnativ’s evidence was all to be accepted, the plaintiff’s allegation that Holdings was responsible for the works “may be difficult to establish”. I accept Mr Ihnativ’s evidence. That makes it, in my assessment, not just difficult for the plaintiff to establish liability but, rather, impossible.

7. [52]

   The plaintiff rightly pointed out that there have been cases of parent companies owing a duty of care to individuals harmed by the negligent acts of their subsidiaries, but in those cases the circumstances are that the parent company has exercised substantial control over the actions of the subsidiary. The plaintiff does not suggest that this is such a case. The evidence does not establish that Holdings exercised any control over Testing Services in respect of the geotechnical work which it did in the investigation for the Spring Farm area. Notwithstanding its theoretical capacity to control Testing Services, there is no suggestion that Holdings intervened in, supervised, or advised the management of the operations of Testing Services in any way at all, including in respect to the work done in the Spring Farm area.

8. [53]

   Finally, the plaintiff relies upon the principle articulated in Wickstead v Browne (1992) 30 NSWLR 1 (“the Wickstead principle”) as standing in the way of the application for summary dismissal of the proceedings against Holdings. The plaintiff submitted that in these proceedings, which involve a number of different defendants, it was inappropriate to order summary dismissal where not all of the defendants sought that order.

9. [54]

   The plaintiff submitted that it was possible that evidence could emerge, either through discovery or other interlocutory processes, from another of the defendants, or else which may emerge at trial called by the other defendants, which entitled it to succeed on its claims.

10. [55]

    The plaintiff submitted that, in the circumstances of this case, the Wickstead principle was an absolute bar to summary dismissal.

11. [56]

    However, as it seems to me, the Wickstead principle is not an absolute one. It arises by an analogy with the position at common law, at the close of a plaintiff’s case against a number of concurrent tortfeasors who are defendants. If, at the close of a plaintiff’s case, there is no evidence against one of the defendants, that defendant was held not to be entitled to judgment at that stage if any other defendant intended to go into evidence: see Menzies v Australian Iron and Steel Ltd (1952) 52 SR (NSW) 62. Menzies was a jury trial where two defendants were sued as being liable for the same personal injuries to a plaintiff in a motor accident at a workplace. The defendants were sued under the Law Reform (Miscellaneous Provisions) Act 1946 and it was alleged that they were concurrent tortfeasors. The Court held in Menzies, relying on the 1951 text of Glanville Williams, Joint Torts and Contributory Negligence, which propounded a rule as being that at the end of a plaintiff’s case against concurrent tortfeasors “… if the plaintiff shows that prima facie one if not both of the defendants was negligent …” a Judge should not enter a non-suit against one of those defendants.

12. [57]

    The joint judgment of Handley and Cripps JJA in Wickstead at p.12 accepted that this practice with respect to non-suits was reflected in Pt 34 r 7(6) and r 8(5) of the Supreme Court Rules 1970, which refer to the position at trial. So much can be conceded. The UCPR contains similar provisions to those in the Supreme Court Rules. The joint judgment extended the common law principle enunciated in Menzies to the circumstances of an application by a defendant for summary dismissal. No authority was cited for this extension of the doctrine.

13. [58]

    Whilst there is room for doubt as to whether the Wickstead principle is a coherent one having regard to the role which case management has in present day litigation, and having regard to the terms of s 56 of the Civil Procedure Act, for the purposes of this judgment where parties did not challenge its correctness or validity, I remain bound to apply it, which I do.

14. [59]

    The logic of the decision is that any gaps in the evidence for the plaintiff may be filled by the evidence to be called by the other defendant. Of course, when Menzies was decided, the defendant did not have to reveal by service of statements of witnesses or provision of lists of documents what evidence, if any, it proposed to call in the case – whether before a Judge or before a Judge and jury. As well, the procedures pre-dated the modern form of pleadings first introduced by the Supreme Court Act 1970 and governed by the Civil Procedure Act and the UCPR.

15. [60]

    The principle in Wickstead, however, has been subsequently discussed and, as it appears to me, if not questioned, certainly qualified by a series of further judgments. In Breheny v Cairncross [2002] NSWCA 69, Hodgson JA remarked that there may be circumstances where one of a number of defendants could be discharged from a case before a hearing.

16. [61]

    Hoeben J held that the Wickstead principle was a qualified one in PAO v Trustees of the Roman Catholic Church for the Diocese of Sydney [2011] NSWSC 1216 at [106] where he said that the principle would not apply to preclude one of a number of defendants applying for summary dismissal in circumstances where the applicants not only identified a deficiency in evidence in the plaintiff’s case, but established that evidence to fill such deficiency or gap was “unlikely to be forthcoming”.

17. [62]

    Beech-Jones J in Dickson v Chaffey [2012] NSWSC 336 at [28] noted that various phrases had been used which were the equivalent of Hoeben J’s expression “unlikely to be forthcoming” such as “absolute assurance” and “no possibility”.

18. [63]

    In Sanders-Pattinson v Brown [2012] NSWSC 443 at [28], S G Campbell J said:

19. [64]

    In considering the application of the Wickstead principle here, the question becomes whether it is unlikely that the other defendants will produce evidence which touches upon the factual issues upon which the summary dismissal application is substantially based. That question must be answered in light of the pleadings and the evidence on the Motion, which establishes that Holdings was not contracted to, and did not, undertake any geotechnical work of any kind at Spring Farm, and did not issue the SCRs which are the factual foundation for the negligence claims and the claims of misleading or deceptive conduct.

20. [65]

    In so considering that question, only the two active defendants are relevant to be considered. So far as CGSF is concerned, any evidence that Holdings undertook the relevant geotechnical work would be entirely contrary to its pleaded case. CGSF has pleaded, as referred to above, that Testing Services was the entity with whom it contracted to undertake the relevant work. CGSF has no interest in addressing evidence demonstrating that Holdings, as opposed to Testing Services, was contracted to, and did, carry out the relevant geotechnical work. As well, it would not be readily permitted by a court to adduce evidence which was contrary to its pleadings.

21. [66]

    So far as the Council is concerned, the defence of the case brought against it has nothing directly to do with whether it was Holdings or Testing Services which carried out the geotechnical work. It is not said that it had any dealings with either of the SMEC parties, nor that it had any role to play in the actual carrying out of the earthworks. In those circumstances, in my view, it is highly unlikely that the Council would have any evidence which it could lead which would touch upon the factual questions identified in this application by Holdings.

22. [67]

    Finally, neither of the two active defendants are in any position to adduce any evidence about the relationship and workings of Testing Services and Holdings which may touch upon the parent company duty.

23. [68]

    In my view, in the circumstances of this case, the Wickstead principle does not stand in the way of summary dismissal. Rather, the Court needs to consider that question by reference to the authorities and principles which I have set out at [11] above.

24. [69]

    As the judgment earlier notes, there is no evidence that Holdings in fact undertook any of the relevant geotechnical work. The evidence is positively to the contrary, namely, as described at [46], Testing Services was contracted to, and did, carry out all of the relevant work. The evidence also is that Holdings had no employees and was not relevant accredited to undertake the work.

25. [70]

    As I have just indicated, there is no possibility that any evidence will emerge from any other active party to contradict that position. The plaintiff has not pointed to any category of documents or other source of documents which may elicit through discovery any material upon which it could rely in evidence to support its claim against Holdings.

26. [71]

    As the case against Holdings depends upon the factual assertions which I have identified at [23]-[24] above, I am satisfied that there is no real question of fact to be tried. The plaintiff’s claim against Holdings cannot succeed.

27. [72]

    The second part of the plaintiff’s claim relies upon the parent company duty. To the extent that that duty arises because it depends upon the commonality of directors, and the fact that Testing Services was a wholly owned subsidiary of Holdings, and in the absence of any evidence of the factual conduct involving Holdings and Testing Services jointly participating in the geotechnical work (which I have noted cannot succeed), there is simply no basis in law for Holdings to be liable as the parent company of Testing Services for work which Testing Services undertook as part of its ordinary business and undertakings.

28. [73]

    Each of these matters brings me to the conclusion that the plaintiff’s claim against the fourth defendant cannot possibly succeed and is doomed to fail.

29. [74]

    Nevertheless, I note the caution expressed by Kirby P in Wickstead at pp.5-7, that there may be merit where a claim is to proceed in allowing a plaintiff to proceed with the entirety of the claim including putting various alternative cases. His Honour noted that there may, in some cases, only be marginal utility in preventing a plaintiff putting alternative causes of action compared with the costs of a trial.

30. [75]

    However, these are representative proceedings. It is complex litigation which is costly to all parties engaged in it. Summary dismissal is sought in respect of all causes of action pleaded against Holdings. Its success in the summary dismissal application means that it is entirely removed as a party.

31. [76]

    It is therefore not exposed to any further costs nor is it “vexed” with being a continuing party in the complex litigation. In that way, this case is to be distinguished from the approach which commended itself to Kirby P in Wickstead and which may be involved in cases where summary dismissal is sought of only part of an action.

Conclusion

1. [77]

   For the foregoing reasons, I conclude that this is an appropriate case in which to order summary dismissal of the whole of the proceedings against Holdings.

Costs

1. [78]

   There is no reason why costs should not follow the event, and on the usual basis. I will provide an opportunity for any party to make any application for a different costs order.

Orders

1. [79]

   For those reasons, I make the following orders:

   1. (1)

      Order, pursuant to r 13.4(1) of the Uniform Civil Procedure Rules 2005 (NSW), that the proceedings be dismissed as against the fourth defendant.

   2. (2)

      Order that the plaintiff pay the fourth defendant’s costs of the proceedings.

   3. (3)

      Each other party is to pay its own costs of the fourth defendant’s Notice of Motion filed 24 November 2021.

   4. (4)

      If any party wishes to make application for a different order for costs, then within 21 days of the judgment, that party is to file and serve on all parties:

   5. (5)

      Any party wishing to resist such application should, within 21 days thereafter, file and serve:

   6. (6)

      The Court will determine any such application on the papers.

   7. (7)

      Liberty to apply.