Insurance Alert - Farewell carte blanche amendments

Farewell carte blanche amendments

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

The earlier scope for amendments

In JL Holdings, the High Court had emphasised that, where a Court’s ultimate aim was to attain justice, case management should not supplant such an aim and that justice was to be the “paramount consideration” in determining whether to grant leave to a party to amend a pleading. Parties were not to be punished for mistakes and delay leading up to any such application [1]. The case was seen as giving a relatively wide scope for seeking to amend claims and defences irrespective of their timing during the proceedings, where prejudice to an opposing party could be cured by costs orders in its favour.

Since JL Holdings, most states and territories introduced provisions intended to emphasise the just and timely resolution of Court proceedings. For example, the Civil Procedure Act 2005 (NSW) emphasises that the overriding purpose of that Act and relevant Court rules are to facilitate the “just, quick and cheap resolution of the real issues in the proceedings”[2].

ANU’s proceedings

In November 2006, the hearing of a claim by the Australian National University (ANU) against its insurers and insurance broker, Aon Risk Services Australia Limited (AON), was scheduled to commence before the ACT Supreme Court.

ANU’s claim arose out of destruction of ANU buildings by the well-known January 2003 bushfires. ANU sought indemnity for property losses from the insurers and alleged that, under a certain contract, AON had failed to arrange renewal of insurance over property which insurers alleged fell outside policy coverage.

Following mediation at the commencement of the hearing, ANU settled its claim against the insurers. It then sought an adjournment of the hearing to amend its claim against AON. The proposed amendments were substantial, changing the nature of the claim against AON. ANU sought to allege that, under a different contract, AON was obliged to ascertain and declare correct values to insurers and provide certain insurance advice to ANU.

Importantly, Rule 21 of the Court Procedure Rules 2006 (ACT) provided that the overriding purpose of those rules was to facilitate the real issues in civil proceedings, with a minimum of delay and expense.

The hearing was adjourned and ANU’s application to amend its claim considered around two weeks later. The trial judge (Gray J) took almost 11 months to deliver a decision, relying on JL Holdings and permitting ANU’s amendments where he thought them not entirely inconsistent with its original claim (which had been widely pleaded). Whilst his Honour thought the explanations for delay in raising the amendments were not entirely satisfactory, he thought they raised arguable issues. ANU was ordered to pay AON’s costs.

By a majority of 2 to 1 (Higgins CJ and Penfold J, Lander J dissenting), the ACT Court of Appeal dismissed AON’s appeal against ANU’s amendments, save as to order that ANU should pay AON’s costs thrown away by the amendments on an indemnity basis. The Court of Appeal emphasised that, relying on JL Holdings, that the paramount consideration in determining whether to permit the amendments was “justice as between the parties”, observing that there were no case management issues requiring refusal of leave to amend the claim, and that AON’s additional work could be compensated adequately by costs awarded in its favour.

Before the High Court

The High Court unanimously allowed AON’s appeal, dismissing ANU’s application to amend the claim, with costs. In doing so, it placed emphasis on the Court rules for timely determination of real issues in the proceedings, over any perceived right to amendments so long as costs are awarded against the amending party.

The majority (Gummow, Hayne, Crennan, Kiefel and Bell JJ) made the following observations:

• unless legislation or Court rules otherwise provide, a party does not have anything approaching a right to an amendment - the permissibility of an amendment is discretionary [3];
• an application for leave to amend should not be approached on the basis that a party is entitled to raise an arguable claim, subject to the payment of costs by way of compensation – there is no such entitlement and all matters relevant to the exercise of discretion should be weighed – any substantial delay, wasted costs and case management are important – limits will be placed on parties’ abilities to change pleadings, particularly where the proceedings are advanced and there has been a sufficient opportunity to identify relevant issues [4];
• Rule 21 was clearly intended to guide the exercise of discretion in whether to permit amendments of claims or defences - the need for just resolution of proceedings remains paramount, but this must be understood in light of stated purposes and objectives – speed and efficiency are essential to just resolution, and limits must be placed on amendments when delay and cost are considered [5];
• Rule 21 does not mean every amendment application should be refused because of inevitable delay and waste of costs – the nature and importance of the party’s proposed amendment to them cannot be overlooked – the grant of an amendment must be weighted against prejudice, delay and costs – much may depend on the timing of the amendment application and an explanation for the delay is generally necessary [6];
• it was not apparent that the trial judge gave much weight to issues of timeliness and cost, and erred in failing to recognise the extent of the new claims and their effect on AON; [7] and
• an order for indemnity costs may not always undo prejudice caused by a late amendment – it was difficult to see how such an order was sufficient compensation to AON where it was required to defend a claim effectively commenced afresh [8].

In a separate judgment, French CJ was critical of the “unduly permissive” approach to ANU’s amendment application, made “late in the day”, inadequately explained, necessitated adjournment of the hearing and raised new claims not previously agitated, apparently because of a deliberate tactical decision not to do so[9]. He also pointed out that JL Holdings was factually a very different case, where an application for amendment was made because a material fact had only recently been discovered, the application was made before a hearing date was fixed and once it was fixed, the 6 months between application and hearing date meant the hearing date was not imperilled. The point sought to be raised was apparent on documents and could not be avoided at hearing [10].

In another separate judgment, Heydon J thought that, in jurisdictions with similar provisions to Rule 21, (i.e. all states and territories bar Tasmania), JL Holdings had ceased to be of authority, criticising the culture and mentality it created [11]. He was also critical of the trial judge’s delay in delivering judgment without a good explanation [12].

Implications

AON v ANU marks a clear shift aware from any real or perceived more ‘carte blanche’ approach to amendments of claims or defences, where it is thought costs can cure any prejudice, towards a more holistic approach involving greater weight being given to the overriding purpose of appropriate resolution of proceedings (including justice, efficiency and cost), together with the nature of proposed amendments, explanation for any delay and inherent prejudice.

The shift away JL Holdings is not an unexpected development in light of the legislature’s and judiciary’s increasing emphasis on the efficient administration of justice and case management. Courts are generally adopting a more ‘interventionalist’ approach towards case management, attempting to reduce unnecessary cost and delay whilst still attempting to ensure justice between the parties.

Clearly, AON v ANU does necessarily spell the death-knell applications to amend claims or defences, even at a late stage. A stronger case to permit amendments will likely exist where:

• they are based on issues which only recently came to light;
• there is a reasonable explanation why they did not emerge earlier;
• they do not fundamentally change the nature of the case; and / or
• they can be met relatively easily by the opposing party without substantial delay (particularly adjournment of any hearing) or excessive cost.

Costs orders against the party seeking the amendment are almost inevitable.

In light of legislative and judicial developments, the emphasis must be on identifying and articulating, as early as possible, the likely arguments to be relied on at hearing, bearing in mind that ‘tactical’ decisions not to explore or raise certain issues may not be able to be undone at a later stage. Such an approach is likely to satisfy those parties seeking a more efficient and timely resolution of Court proceedings.

Footnotes

1. Queensland v J L Holdings (1997) 189 CLR 146 per Dawson, Gaudron and McHugh JJ at 154 – 155
2. Section 56, Civil Procedure Act 2005 (NSW) – see also Rule 1.14, Supreme Court (General Civil Procedure) Rules 2005 (Vic); Rule 5, Uniform Civil Procedure Rules 1999 (Qld); Rule 3, Supreme Court Rules 2006 (SA); Order 1, rule 4A, Rules of the Supreme Court 1971 (WA); Rule 21, Court Procedure Rules 2006 (ACT) and Rule 1.10, Supreme Court Rules (NT)
3. At [96]
4. At [111] – [112]
5. At [72], [98]
6. At [102]
7. At [61], [105] 
8.  At [99]
9. At [4]
10. At [28]
11. At [133] – [134]
12. At [152]