Civil procedure


Anatomy of a subdivision: Developer’s role reversal forces profit payment from lender

A seasoned civil works contractor keen to develop a major Lockyer Valley subdivision enlisted the support of an enthusiastic private lender.

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Bad accountant? Tax advice wrong, offers own property for client investment

A court has ruled that an accountant who encouraged his client to buy his own vacant Broadbeach

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Insurers brawl over salvage value in fire sale of upmarket suits

A Brisbane retailer has won a $2 mil damages battle against the occupier of a nearby jewellery business whose burnt-out vacuum cleaner spread soot and smoke throughout the retailer’s premises.

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Insurer defeated on $18 mil warship fire payout

The old adage about insurance only being good if you never have to claim was felt in a big way by a defence materiel company in whose care a Royal Australian Navy $50 million patrolboat was destroyed by fire at a Brisbane drydock in August 2014.

welding accident destroys RAN patrol boat at Hemmant drydockThe company – DMS Maritime P/L – did not shirk from its responsibility to the Commonwealth to indemnify it for the vessel’s loss.

On the other hand its insurer, Royal & Sun Alliance had to be hauled before Queensland’s Supreme Court to be compelled to pay DMS any part of what was due under the ship repairer’s policy.

The vessel – HMAS Bundaberg – was one of a fleet of 14 Armidale Class Patrol Boats built by DMS for the RAN between 2004 and 2007.

The shipbuilding contract had attached to it 15 year “support phase” obligations to keep the vessels serviceable according to defined operational and performance parameters.

Naturally enough, the transaction documents made DMS liable for “any loss or damage” suffered by a vessel while it was undergoing maintenance.

The Bundaberg was in the Hemmant drydock for the performance of routine to scheduled repairs when a welder employed by a DMS subcontractor sparked a fire which engulfed the aluminum hulled ship.

The subcontractor had taken inadequate precautions by not having posted a fire sentry on the opposite side of a bulkhead to detect and extinguish any ignition of combustible material as a result of “blow through” of hot metal from a welding operation. That error led to the destruction of the boat in very quick time.

Royal & Sun Alliance – one of several insurers, agreed to indemnify as to 100% up to $10 million and 50% of the next $40 million of any loss.

By the date of the fire, construction of Armidale Class vessels had long since ceased. It would have been cost prohibitive to replace the ship with a one-off build.

DMS thus went to great lengths to investigate how it could recompense Navy the loss with efforts to source vessels suitable for conversion. It approached among others, the New Zealand Navy, Clarkson’s ship brokers in London and Damen Shipyards in Holland.

About 12 months after the ship’s destruction, Navy settled on a Cape Class boat – the competitive new build base price of which was $31.5 million – as a suitable replacement for the Armidale Class.

DMS agreed – after completing a process to justify its reasonableness and assessing various “gives and takes” – to the Commonwealth’s offer to accept the cost price of a new Cape Class boat  in full and final satisfaction for the Bundaberg’s loss. Navy’s previous demand had been for $51 million calculated by reference to the Bundaberg’s cost price, indexed for inflation.

Then came the argument with the insurer.

Its obligation to was to indemnify DMS “for all sums which [it] shall become liable to pay by reason of its legal liability as ship repairers……”.

It contended to the court that such indemnity only arose if the liability was established by a “judgement, arbitral award or reasonable compromise”.

The settlement between DMS and Navy– the insurer asserted – did not fit that description because it was a compromise of convenience that did not reflect “the actual amount DMS was in fact legally liable to pay to the Commonwealth”.

It demanded DMS prove to the court the precise dollar value of its liability to the Commonwealth – something that for an item that was half way through its service life, required modifications and whose value could not be determined for example by “recent sales”, was practically impossible.

Justice John Bond might have been persuaded by such argument had the insurer’s obligation to indemnify been limited to the “reasonable” sum its insured became liable to pay for the loss of the ship.

There being no such qualification as to the “reasonableness” of the amount at which DMS settled the commonwealth’s claim, he rejected the insurer’s argument. In his view, DMS established that the obligation to pay arose “by reason of” its legal liability to the Commonwealth and that was all DMS was required to establish.

The court noted that DMS had in any event adopted what appeared to be a very reasonable course of action.

Justice Bond ordered the insurer pay up to DMS $15.8 million – being its adjusted share of the $31.5 million loss – together with $2.03 million in interest.

DMS Maritime Pty Limited v Royal and Sun Alliance Insurance Plc [2018] QSC 303, Bond J, 14 December 2018


Furniture contamination sees owners tear down “toxic” home – sue removalists

In June 2004 Terry and Uta Larsen contracted Grace Removals to ship their household Building Demolitionfurniture from Black Mountain in rural New South Wales to their home in Stahringen, Germany. On arrival it appeared that the goods had been vandalised.

They found two of the boxes had a swastika drawn upon them, some goods inside boxes were disordered and some of the goods had been damaged.

Grace Removals apologised to for the offensive drawings and transit damage, for which an ex gratia payment was offered in 2005, but not accepted.

A “Welsh dresser” among the shipment was stored in a barn for four years whilst the house was being renovated.

When unwrapped in 2006 a “coal tar substance” appeared to have been poured across part of the top and a “grey jelly” like substance brushed on to a lower section.

Fearful for their health, they referred the substances to a toxicologist in 2008.

As a precaution, they demolished part of the home and rebuilt to ensure that the all contaminants from the consignment had been eliminated.

The Larsens sued Grace for damage to the goods in the New South Wales Supreme Court, claiming adverse effects on health and for their rebuild costs.

Expert toxicologists for both sides agreed from analysis of the furniture, air in the house, soil samples and clothing, the only contaminant was the tar-like substance.

Grace contended the most likely source of the foreign substances were building products spilt during the course of the Larsen‘s renovations.

Following a nine day hearing, Justice Monika Schmidt ordered Grace pay the couple amount of $10.5k for the damage to their goods but rejected the adverse health and house demolition cost claims.

She and the appeal judges ruled the Larsens hadn’t proved that the substances were harmful to their health or that they were deposited on the furniture whilst it was in transit as opposed to during the period it was stored in their barn.

Larsen v Grace Worldwide (Aust) Pty Limited (No 2) [2015] NSWSC 1224 Schmidt J, 28 August 2015  Read case


Solicitor sued on vendor finance deal 10 yrs past

Should a law firm that allegedly failed to advise its client about the risks of providing vendorfinance secured only by way of second mortgage be held responsible for the security proving worthless in the event of the buyer’s default?

financeThat question is before Queensland’s Supreme Court in relation to the $2 million sale of a Carbarlah (outside Toowoomba) development site to HCD Pty Ltd as long ago as 2006.

Seller Poltimix Pty Ltd alleges Toowoomba law firm Rees Law failed to warn of the financial risks associated with the provision of vendor finance of $975k and failed to recommend any investigations as to the asset backing of HCD’s directors to verify the worth of their personal guarantees.

Justice Jean Dalton last week ruled on the seller’s application to strike out limitation defences raised by the lawyers’ to its $815k negligence claim on grounds that they were “embarrassing”.

Poltimix Pty Ltd had novated the contract 12 months later with modified terms allowing the repayment of the vendor finance by instalments of $32.5k on the completion of the sale of each subdivided lot together with interest after 12 months.

For advice on Conveyancing, go to: Conveyancing

Settlement occurred in February 2008 with the seller’s mortgage registered to follow that of Westpac.

With the intervention of the GFC, by the time Westpac inevitably came to exercise its mortgagee rights due to HCD’s default, Poltimix had received just $260k from the sales and the security value of the land had been exhausted.

Pursuit of the guarantors proved fruitless leaving the seller to turn its attention to the law firm.

But because “it is not entirely clear what cause of action is being relied upon,” Justice Dalton declined to strike out any part of the defence at an interlocutory stage.

In her view the seller’s statement of claim and claim were themselves “embarrassing”.

“That the plaintiff first pleaded its loss on an unsustainable basis and there is an ambiguity in the pleading as to whether the claim is in contract or negligence,” she ruled “does not inspire confidence that the limitation point should be determined in advance of trial”.

Pomitix Pty Ltd v Rees Law [2016] QSC 100 Dalton J published 16/05/2016


Hamilton Island conglomerate injuncted on market power breach against yacht charter competitor

A luxury yacht charter operator has obtained an injunction to prevent the Hamilton Island resort engaging in potentially anti-competitive conduct by denying it the right to embark and dis-embark passengers at the harbour marina.

Ocean Dynamics has conducted business in the Whitsundays for nearly a decade in completion with several other operators including one owned by Hamilton Island Enterprises itself.

In late 2014, HIE notified the company that its marina facilities arrangement at Hamilton Island Harbour was to come to an end in March 2015.

The company relies upon the facilities to board and set down holidaymakers who in most cases arrive and depart from the island’s Great Barrier Reef Airport and who frequently spend time there before or after their charter.

It operates the Ocean Free– a 60 ft Maritimo – and cross hires other vessels – which command up to $5k/day in bare boat or skippered configuration.

The vessels sail from Hamilton Island itself as well as from Hayman Island, Daydream Island and Airlie Beach.

Ocean Dynamics argues that HIE’s barring of access to the marina is for the “purpose of eliminating or substantially damaging a competitor in the market for luxury yacht charters”.

The action alleges HIE has a substantial degree of power in several Whitsunday tourism markets – including the marina services market – and its misuse of that power in the luxury yacht charter market offends Competition and Consumer Act s 46.

Justice James Edelman sitting in the Federal Court of Australia at Brisbane ruled that a prima facie case had been established “for an injunction based on the claim that HIE has taken advantage of its power in the marina services market for the purpose of eliminating or substantially damaging Ocean Dynamics in the luxury charter market or deterring it from competitive conduct in that market.”

He also concluded there would be very significant prejudice to Ocean Dynamics given that if an injunction were not granted there was a “very real prospect the company might fail and ….its sole director could lose her livelihood ….five employees could lose their jobs and …..dozens of customers, including those staying at Hamilton Island, with existing bookings upon which they have based holidays could be disappointed”.

On that basis, his honour decided that the balance of convenience “significantly favours a grant of an injunction until trial”.

In also granting “liberty to apply” on short notice, Judge Edelman added as a footnote, there “is every indication that the parties will act in a dignified and proper commercial manner notwithstanding they are now locked in litigation.”

Ocean Dynamics Charter Pty Ltd v Hamilton Island Enterprises Limited [2015] FCA 460 Edelman J 14/05/2015


Irritating erection adverts leave potent legacy against pressure sales and exit obstacles

Nasal Delivery Technology” – as unconscionable in its marketing as it was irritating to the ear – has unexpectedly disgorged The AMI advert can be irritating an enduring and valuable gift for all Australians.

Taken to task for its aggressive sales practices from 2008 to 2010, Advanced Medical Institute Pty Ltd and its directors were comprehensively rolled in a Federal Court ruling that sees compensation payable to patients and injunctions against most concerned.

AMI treated 112,000 patients by phone and 50,000 at its clinics between 2008 and 2010. In 2007/08 its revenue was $49 mil climbing to $55 mil the following year.

The unproven “treatment” it offered for premature ejaculation, erectile dysfunction and ‘bedroom hell’ was all part of a ruthless sales machine that preyed upon vulnerable and unsuspecting targets paying fees upwards of $3,000.

Phone consultations – ostensibly with para-medical staff – were mostly with commission sales agents delivering a rehearsed sales script that inevitably led the prospects to signing up to a treatment plan for 12 or 18 months.

The only medications prescribed to those crying out for treatment for their sexual dysfunction were those of AMI. No consideration was ever given to referrals to specialists for treatment or diagnosis.

Should a prospect waver in their desire for the AMI cure, the sales script mandated they be warned their “penis may shrink” or “you may become impotent”.

Although refunds were said to be available under AMI’s “total satisfaction guarantee” the fine print required all treatment options – including painful injections into the base of the penis – be exhausted, before any refund for the unexpired contract period be considered.

Refunds were then only made subject to a 30 day waiting period and for a sum that was reduced by the cost of medication prescribed and a 15% administration fee.

Justice Anthony North ruled that AMI “unconscionably” manipulated patients’ underlying discomfort with the embarrassing and humiliating features of their disorders.

Singled out for special mention were Dr Jack Vaisman – AMI’s CEO with overall management responsibility – and Dr Brian Lonergan who failed to conduct physical examinations of many patients to whom he recommended its treatments. Dr Vaisman has lodged an appeal and contests the findings made against him.

But it was NRM Corporation – who purchased AMI from external administration in 2011 and continued the same sales model under the same CEO and with AMI as its business name – that has delivered the legacy likely to bear fruit for decades to come.

NRM had moved on from “Nasal Delivery” to saturate air waves and billboards with a slightly less annoying mantra of “Longer Lasting Sex” thru 2011 and 2012.

The ACCC joined it to the proceedings it had started in December 2010 against AMI, but for NRM its case was for breaches of the brand new and as yet, untested, unfair terms provisions of the Australian Consumer Law that had so unobtrusively come into force from the previous July.

In the very first authoritative determination of what constitutes an “unfair term”, Judge North ruled that because the 15% administration fee went beyond what was reasonable to protect AMIs legitimate interests, it was “unfair” within the meaning of ACL sections 24 and 250.

Likewise the contract provision “your contract with us for the period decided in the first consultation with the AMI doctor” – in the context of a 30 day wait period for contract cancellations – was unfair because cancellation might arise from ineffective treatment.

And charging for medication when a contract was cancelled was unnecessary to protect NRM’s legitimate interests – and therefore unfair – by operation of ACL s 23.

The court next had to consider whether the NRM contract was “a standard form contract”.

“The evidence positively established that NRM had a dominant bargaining position obtained by using high-pressure selling techniques”, wrote Justice North in his 264 page judgment that concluded the company had not rebutted the presumption its contract was a standard form contract. “The pressure applied to the patients denied them the power to resist entering into the agreement”.

“The terms were set by the parameters of the business model of NRM and were in the same form irrespective of the individual circumstances of the patient”.

The two ingredients having been established – that the term was unfair and that the contract was “standard form” – the refund provisions with all its restrictions was declared void.

Thus AMI’s ill wind has nevertheless done some good in the guidance its prosecution has set in identifying an unfair term.

Injunctions as to business practices were granted against NRM and Dr Vaisman was effectively excluded from the conduct of its business for the rest of his working life “to protect the public from his actions”.

NRM has also lodged an appeal against the findings and has pointed out its current business model is entirely different to how it was conducted in 2012.

Australian Competition and Consumer Commission v ACN 117 372 915 Pty Limited (in liq) (formerly Advanced Medical Institute Pty Limited) [2015] FCA 368 North J 22 April 2015


Adaptation: Project builder claims copyright breach on home construction “similarities”

A Sunshine Coast builder provided a prospect – attracted by the aesthetics of its display home – with three similar design plan options to suit its potential customer’s Gympie homesite.

Coastlife Homes undertook “various investigations and preparations” and quoted $256k the finished product. The prospects did not, in the end, proceed.

Sometime later Coastlife learned that Bradley and Sharnell Sweeney had engaged another design & build team to produce a residence it contended was “substantially similar” to its own “original artistic” blueprints.

In defence to the ensuing lawsuit, the Sweeneys asserted they had no reasonable grounds to suspect they might be infringing any copyright and that in any event, Coastlife had extended to them an “implied licence” to use the plans they had received.

The contest came before the District Court at Maroochydore on an interim basis to determine whether a mediation should be ordered, before the parties were put to the expense of a trial.

Coastlife oppose the mediation on the basis of its expense – the mediator alone was to charge close to $10k – and because it wanted to obtain a court ruling that such conduct did indeed amount to an illegal infringement.

Judge Gary Long ruled in the Sweeneys’ favour that ordering that the parties “participate in and act reasonably and genuinely” in a mediation at the Queensland Law Society mediation rooms.

Coastlife was ordered to pay the legal costs of the argument. The substantial issues – whether a copyright infringement occurred; and if so what damages should be paid – will come before the court in the latter part of 2015 but only if it is not resolved at the mediation.

Look Design and Development Pty Ltd v Sweeney & Anor [2015] QDC 036 Long SC DCJ 25/02/2015

The parties did in fact settle after the ensuing mediation with the Sweeneys paying substantial damages to Coastlife and agreeing that it was indeed the “owner of the copyright subsisting in the project home known as the Bells 220”. Coastlife was authorised to publish the outcome although the quantum of damages remains confidential.


Fire service liability case goes to appeal

The blaze at the Narangba chemical plant in August 2005 was the biggest and fiercest most of the fire officers had seen.   It destroyed the factory and several warehouse buildings.

Twelve fire crews attended streaming massive quantities of water into the inferno.

Fire service liability

The water combined with the chemicals to precipitate an environmental catastrophe not only on the site itself but also on neighbouring land.

Not only having to contend with the destruction of its building, production line & stock, the business owner Hamcor Pty Ltd was issued with Environment Protection Authority notices to remediate the contamination at a cost more than $9 million, “many times the value of the land before the fire”.

Unless the contamination is removed, the land cannot be put to any use whatsoever.

Hamcor’s owners Terry Armstrong and Don Hayward sued the Queensland Fire Service alleging that it was negligent to attempt to extinguish a chemical fire with water rather than to allow it simply burnout.

The company also sued its insurance broker on the basis that it had failed to allocate proper insurance cover and note the respective risks as between the business on the one hand and its related company that owned the site, on the other.

It was the unanimous view of the experts for both the plaintiff and the state, that there was no point in applying water to extinguish the fire.

That was because of the extremely high temperature at which chemical fires burn. In the words of one of the experts: “No amount of water would have put that fire out. No amount of water whatsoever”.

Justice Jean Dalton was required – by reason of there being no prior Australian authority on the issue of fire brigade negligence per se – to conduct an exhaustive examination of related case authorities on the liability of statutory authorities and fire service liability.

She ruled that the fire service did owe a duty to take reasonable care not to damage to property when acting to combat a fire and that the resulting damage was, in this instance, foreseeable.

But the plaintiff had further hurdles to clear.

Civil Liability Act s 36 required the plaintiff to prove that the actions of the service were – in addition to being negligent – were “so unreasonable that no other fire authority could consider them reasonable”.

She ruled that s 36 applies only to claims of breach of statutory duty – not common law breach claims the subject of the proceedings – but went on to consider what would have ben the consequences for the plaintiff had the section been applicable.

If s 36 did in fact apply, in Her Honour’s view, the “unreasonableness” that the plaintiff had to prove was at a far higher level than mere negligence. “In my view these words require the kind of unreasonableness which invalidates, or makes improper, the act or omission as an exercise of statutory power.”

No particular evidence addressed this issue but her Honour was satisfied that the presence of several senior and many other experienced officers who did not intervene to stop the application of water, was suggestive that such strategy was not so unreasonable.

“Had the breaches complained been of the magnitude required by section 36, it is inconceivable that no officer would have averted to them and stopped them”.

Her Honour noted the s 36 provision makes it “extraordinarily difficult for a plaintiff to prove breach”.

Fatally for the property owner, she ruled s129 of the Fire and Rescue Service Act meant that the fire officers have immunity when their actions are “pursuant to the Act” as was the case at Narangba. The immunity arose under the first limb of the section because the application of water to extinguish fire was an act directly authorised by the statute. On the other hand no immunity would extend to them under the second limb which, to apply, requires such acts to be done “without negligence”.

The insurance broker was also sued. That claim was premised on the basis he had failed to put in place effective cover for the related landowner entity that would have responded to the estimated costs of remediation of the contamination.

But the evidence suggested Armstrong – who died before judgment was delivered – was less than effusive in his instructions to broker Stuart Munro –  a member of Austbrokers group – who took over the factory operator’s insurance when he purchased its former broker’s business.

He asked to review the property insurance in October 2004 but Armstrong didn’t respond. He also offered to investigate public liability insurance for the factory operator but the documents he requested be furnished to him for this task were only provided “piecemeal” and some were incorrect.

The claim against Munro during the fire service liability case was dismissed on the basis that the plaintiffs had placed no reliance on him to conduct a wide-ranging review that rather had limited his instructions to effecting damage insurance for the improvements only.

“I am unable to conclude that the plaintiffs would have acted in accordance with the advice or would have acted as a diligent and responsible director had he been offered the advice. The evidence as to Mr Armstrong’s attitude to insurance tends to suggest the contrary”.

“There were risks which Mr Armstrong and Mr Hayward were prepared to take. The steps taken to make the site more attractive to a potential purchaser” show that they were comfortable with assuming quite significant risk in their commercial enterprises”.

They had also had experience with insurance claims concerning a fire at their West Australian plant from which the court found it “very difficult to believe that he did not come to appreciate that there was an inadequacy” in the insurance arrangements for the entities and the Queensland business and land.

After a 15 day trial all the plaintiffs’ claims were dismissed and they were ordered to pay costs. The plaintiffs had conducted earlier proceedings which went all the way to the Court of Appeal but which also did not go they way that they had hoped.

An appeal against Justice Dalton’s rulings was filed today.

Hamcor Pty Ltd & Anor v State of Queensland & Ors [2014] QSC 224 Dalton J 01/10/2014

P.S. Hamcor’s appeal against the above decision in favour of the State of Queensland was dismissed in October 2015 when three appeal judges endorsed the reasoning of the trial judge on all points.



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