Background
Kandos Development Corporation Pty Ltd (in liquidation) brought proceedings against Cement Australia Holdings Pty Ltd and its former solicitors seeking indemnity under cl 24.4(b) of a Share Sale and Subscription Agreement (SSSA) dated 15 December 2014. The indemnity claim arose from a third-party claim commenced on 14 January 2025, which was resolved by a consent judgment against Kandos for $1.2 million. Kandos also alleged that if Cement Australia was not liable to indemnify it, Cement Australia had breached an implied covenant of good faith and fair dealing. Separate claims were also maintained against Kandos’s former solicitors as second respondents.
The key contractual complication was cl 3.1 of a Deed of Release dated 16 April 2024, which provided that from 16 April 2025 the SSSA was “determined” and Kandos released Cement Australia from its obligations under the SSSA, including the cl 24 indemnities. The dispute therefore turned on whether that release extinguished Cement Australia’s indemnity obligation with respect to costs incurred and the judgment sum arising from the third-party claim.
At a case management hearing on 6 June 2026, Cement Australia foreshadowed its interlocutory application (filed 9 June 2026) seeking to have the construction question under cl 3.1 of the Deed of Release heard separately and before all other issues. The parties had agreed at that hearing that the full trial on all issues would take only one or two days.
The Court’s Holding
Jackman J dismissed Cement Australia’s application for a separate question order. His Honour found that the proposed separate question was more complex than Cement Australia envisaged: Kandos indicated it would rely on the principle from Grant v John Grant & Sons Pty Ltd [1954] HCA 23; (1954) 91 CLR 112 that general words in a release are limited to what was specifically in the contemplation of the parties at the time it was given, as well as cognate equitable and subjective-intention principles recently examined by the Full Federal Court in Redbubble Ltd v Hells Angels Motorcycle Corporation (Australia) Pty Ltd [2024] FCAFC 15; (2024) 303 FCR 100 and by the New South Wales Court of Appeal in Reid v Commonwealth Bank of Australia [2022] NSWCA 134; (2022) 109 NSWLR 149. The question was therefore unlikely to be resolved on purely objective construction principles.
His Honour also rejected the claimed efficiency benefits. Where the entire trial on all issues was expected to last only one or two days, there was no real saving of time, cost, or energy in fragmenting the proceedings into separate hearings of comparable length. Moreover, the principles on which Kandos intended to rely meant there could be evidentiary overlap between the separate question and the remaining claims, further undermining the case for separation. The risk of a leave-to-appeal application from any answer to the separate question was an additional factor weighing against the order.
Cement Australia was ordered to pay Kandos’s costs of the interlocutory application.
Key Takeaways
- A court will not order a separate question where the purported construction question is actually more complex than the applicant contends — particularly where the opposing party signals reliance on principles going beyond objective construction, such as the Grant v Grant contemplation principle and equitable limitations on the operation of general release language.
- Where the parties agree the full trial will take only one or two days, there is no meaningful saving in time, cost, or energy from bifurcating the proceedings, and the application will be dismissed.
- The prospect of an interlocutory appeal from the answer to a separate question is a legitimate factor counselling against a separation order where a single consolidated trial is practicable.
- A respondent seeking a separate question order bears a real burden to demonstrate concrete efficiency gains; a theoretical advantage if the question is decided in its favour is insufficient where the opposing party would derive no corresponding benefit and actively opposes the order.
Why It Matters
This decision is a useful reminder that separate question applications in commercial litigation require a genuine, demonstrable efficiency dividend — not merely a theoretically favourable outcome for the moving party. Jackman J’s reasoning underscores that where a case is already short, fragmentation of issues can generate more costs and complexity (including potential appellate detours) than it saves, and courts will resist attempts to use the separate question procedure as a tactical device to isolate and resolve one element of a multi-faceted dispute.
The judgment also highlights the unsettled and fact-sensitive nature of general release construction in Australian law. The interplay between objective construction, the Grant v Grant contemplation principle, equitable limitations, and the relevance of subjective intentions continues to generate litigation, as reflected in the recent Full Federal Court and New South Wales Court of Appeal decisions cited by his Honour. Practitioners drafting releases — particularly those intended to cut off future indemnity obligations — should ensure the scope of the release is expressed with precision to reduce the risk of costly construction disputes.