Abrook, R. & L. v Patterson, G.
[1995] FCA 516
•24 JULY 1995
CATCHWORDS
PLEADINGS - late application to amend defence to allege contributory negligence - substantial prejudice to be suffered by applicants if application allowed - respondents also to suffer substantial prejudice if application refused - other factors to be considered in determining whether leave to be granted - lateness of application factor tending against grant of leave.
Jurisdiction of Courts (Cross-Vesting) Act 1987 (S.A.) s 5
Friendly Societies Act 1913 (Qld)
Wrongs Act 1936 (SA) s 27a(3)
Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s 5
Daniels & Ors v AWA Ltd. (1995) 13 ACLC 614
Barisic v Devenport & Ors [1978] 2 NSWLR 111
Perrotta v Cavallo and Smith (1971) SASR 163
AWA Ltd v Daniels & Ors (1992) 7 ACSR 759
Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322
Krakowski & Anor v Eurolynx Properties Ltd & Anor (1995) 11 Leg Rep 2
No. SG 30 of 1995
ROBERT & LORNA ABROOK & ORS v GREG PATTERSON & ORS, WILLIAM JOHN EAST as Administrator of the Family Security Friendly Society & PATRICK FINAN & ORS
Branson J
Adelaide
24 July 1995
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY ) No. SG 30 of 1995
)
GENERAL DIVISION )
BETWEEN:
ROBERT & LORNA ABROOK & ORS
Applicants
- and -
GREG PATTERSON & ORS
First to Seventh Respondents
- and -
WILLIAM JOHN EAST as Administrator of the Family Security Friendly Society
Eighth Respondent
- and -
PATRICK FINAN & ORS
Cross-Respondents
MINUTES OF ORDER
CORAM: Branson J
PLACE: Adelaide
DATE: 24 July 1995
THE COURT ORDERS THAT:
The application be dismissed.
The first to seventh respondents pay the applicants' costs of the application.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY ) No. SG 30 of 1995
)
GENERAL DIVISION )
BETWEEN:
ROBERT & LORNA ABROOK & ORS
Applicants
- and -
GREG PATTERSON & ORS
First to Seventh Respondents
- and -
WILLIAM JOHN EAST as Administrator of the Family Security Friendly Society
Eighth Respondent
- and -
PATRICK FINAN & ORS
Cross-Respondents
REASONS FOR DECISION
CORAM: Branson J
PLACE: Adelaide
DATE: 24 July 1995
These proceedings were instituted on 17 November 1993 in the Supreme Court of South Australia ("the Supreme Court"). Pleadings closed whilst the proceedings remained in the Supreme Court. By an order dated 24 April 1995 Prior J of the Supreme Court transferred the action to this Court pursuant to s5 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (S.A.).
The applicants are a large number of individuals who were at relevant times members of the Family Security Friendly Society ("FSFS") and FSFS. FSFS was at all relevant times a registered friendly society under the Friendly Societies Act 1913 (Qld). The first to seventh respondents are alleged to be partners of Horwath & Horwath, a partnership carrying on business in the State of Queensland as accountants and auditors. They will hereafter together be referred to as "Horwaths". The eighth respondent is William John East as administrator of FSFS.
On 23 May 1995 O'Loughlin J ordered that there be an early hearing of this and certain other actions ("the actions") and that the hearing of the actions commence on 7 August 1995. That is, in two weeks from now. On 13 July 1995 when considering an application by Horwaths to issue a cross-claim in this matter, His Honour said:-
"... the applicants in these proceedings are in the main very elderly people, and on an occasion at a directions hearing I had been told from the bar table that no less than 10 of the applicants who had instituted these proceedings had died since the institution of these proceedings. I was, on the same occasion, told of the concern of other litigants at the prospect of delays in this matter, when it was transferred from the Supreme Court to the Federal Court.
They were factors which I had actual regard to in fixing the date of the trial to commence on 7 August ...".
By notice of motion dated 12 July 1995 Horwaths have moved the Court for leave to amend their defence by the insertion of an extra paragraph. The paragraph is substantial: it runs to eight pages. It pleads, and provides particulars of, alleged failures on the part of FSFS by its directors, trustees and other managers to exercise reasonable care for the protection of FSFS against the loss which is the subject matter of the applicants' claim for relief in this action. It further pleads that in the premises any damages recoverable by FSFS from Horwaths should be reduced to such extent as the Court thinks just and equitable having regard to FSFS's share in the responsibility for its loss.
In the circumstances it has been necessary for this matter to be dealt with promptly. These reasons have been prepared in a shorter time than ideally would have been desirable.
In support of the application for leave to amend the defence Mr O'Donnell QC, who appeared with Mr Jarvis for Horwaths, drew my attention to the fact that the terms of the proposed amendment were provided to the solicitors for the applicant on 5 July 1995. He submitted that the proposed amendment did not raise fresh factual issues, or did so only to a limited extent. Mr O'Donnell stated that the decision to seek to amend the defence to plead issues of contributory negligence was precipitated by the decision of the New South Wales Court of Appeal in Daniels & Ors v AWA Ltd. (1995) 13 ACLC 614 ("the AWA Case"), a decision handed down on 15 May 1995. On the issue of prejudice to the applicants arising from the lateness of the proposed amendment, Mr O'Donnell submitted that O'Loughlin J would be in a position to ameliorate any such prejudice by his management of the trial.
Mr Gray QC, who appeared with Mr Blue for the applicants, submitted that his clients would suffer irremedial prejudice should Horwaths be given leave to amend their defence in the manner proposed. Mr Gray addressed this prejudice under two heads. First, he challenged the contention that the proposed amendments did not raise significant new factual issues. He drew attention to the limited time remaining before trial within which the applicants' legal advisers would be required to address new issues. Secondly, Mr Gray submitted that should the proposed amendment to the defence be allowed, the position of the applicants could only properly be protected by their seeking to join as defendants to the proceedings the former directors, trustees and other managers of FSFS. The joinder of such additional parties and the closure of pleadings consequent upon their joinder could not, Mr Gray submitted, be completed by 7 August 1995.
Neither party has suggested that it would be appropriate in the circumstances for the hearing of this matter to be delayed. In my view it is of overriding importance that the hearing date of 7 August 1995 fixed by O'Loughlin J be maintained.
As to the position of Horwaths, I accept that, if they are denied the right to amend their defence to allege contributory negligence against FSFS, they may, if unsuccessful on the issue of liability at trial, be ordered to pay to the applicants damages in an amount substantially larger than that which they would have been ordered to pay had contributory negligence been pleaded and established. This may amount to substantial prejudice.
As to the first head of prejudice which it is contended that the applicants will suffer should this application be granted, the statement of claim does, as Mr O'Donnell points out, plead breaches of statutory duty and of the rules of FSFS. However, the conduct relied upon by the applicants is principally that of Maxwell Leonard Cook. His conduct is, at least in part, alleged to have been fraudulent. The proposed amendment to the defence, by contrast, is drawn to put in issue the conduct, at material times, of all former directors and trustees of FSFS and also the conduct of former managers of FSFS. I accept the submission of Mr Gray that, if made, this amendment would compel the applicants to embark on a much wider consideration of the conduct of former directors, trustees and managers of FSFS than has been necessary to date.
To understand the second head of prejudice which it is contended that the applicants will suffer should Horwaths be granted leave to amend their defence, it is necessary to consider the interrelationship between apportionment of liability between parties where contributory negligence is established and issues of contribution between defendants pursuant to joint tortfeasor legislation.
There was some debate before me as to the mechanism for apportioning liability where:-
(a)contributory negligence is established on behalf of an applicant;
(b)such contributory negligence arises as a consequence of the conduct of persons whose actions either are those of a corporation or association or are actions for which the corporation or association must accept vicarious responsibility; and
(c)such persons are defendants to the proceedings or parties from whom contribution is sought by a defendant or both.
On behalf of both the applicants and Horwaths it was apparently accepted during argument that the principles laid down in Barisic v Devenport & Ors [1978] 2 NSWLR 111 are non-contentious and are applicable in this case. Those principles are as follows:-
apportionment pursuant to the relevant statutory provision (i.e. in South Australia s27a(3) of the Wrongs Act 1936 (SA)) should be completed before the court embarks upon a consideration of contribution claims by defendants, whether against each other or third parties;
the apportionment legislation does not affect the common law rule that judgments are to be "in solidum" (i.e. for the same amount); and
where there is more than one defendant, in making the deduction for contributory negligence, the court compares the plaintiff's fault with the combined default of the defendants.
It was by reason of the third principle, Mr Gray submitted, that the applicants in this case would be disadvantaged if they go to trial facing a plea of contributory negligence without having instituted proceedings against the former
directors, trustees and managers of FSFS as defendants.
Mr O'Donnell did not accept that the applicants would suffer such a disadvantage. By a subsequent written submission which was filed on behalf of Horwaths by leave, it may be that Mr O'Donnell sought to qualify his acceptance of principle 3 above. It is argued on behalf of Horwaths that there is no authority which supports the view that a plaintiff can shift vicarious liability by suing the individual or individuals for whom the plaintiff is vicariously responsible. Mr O'Donnell contended by his supplementary written submissions that the decision of Bray CJ in Perrotta v Cavallo and Smith (1971) SASR 163 is authority to the contrary. In that case the Chief Justice, on a widow's claim for damages following the death of her husband in a car accident, ordered as to the driver of one vehicle that the damages payable by him should be reduced because of contributory negligence imputed to the deceased, but as to the other driver that he pay the full amount of the damages established. His Honour made no reference to the common law rule that judgments are to be "in solidum" although he expressly recognised that the result at which he arrived was unusual.
Mr O'Donnell concedes, as I understand him, that the conduct of the former directors, trustees and managers of the FSFS upon which Horwaths wish to rely as constituting contributory negligence would at least in part, be conduct which, if established would support claims in negligence by FSFS against such directors, trustees and managers.
In the AWA Case the Court of Appeal was required to consider the issue of possible contribution from the Chief Executive Officer of AWA, a Mr Hooke, to the damages assessed against the defendants ("DHS"). The acts and omissions of Mr Hooke had been taken into account against AWA on the issue of its contributory negligence. That is, the total damages awarded in favour of AWA had been reduced by reason of acts and omissions of Mr Hooke. Mr Hooke was not a defendant in the proceedings but he was a person from whom DHS had sought contribution in the event, which occurred, that they were found to be liable to AWA. In the circumstances the Court of Appeal held that it would not be "just and equitable" within the meaning of s5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) to order contribution from Mr Hooke to DHS as DHS had already had the benefit of a reduction in liability to AWA by reason of Mr Hooke's conduct. In this regard the Court of Appeal at p722 adopted an approach advocated by Dr Glanville Williams in Joint Torts and Contributory Negligence at p466. It was not suggested before me that the joint tortfeasor legislation which would be applicable in this case (presumably that of South Australia) was in any material respect different from that considered in the AWA Case.
The Court of Appeal in the AWA Case, after considering the issue of contribution from Mr Hooke to the defendants, said at p722:-
"We are also aware that it is possible to conjure up complex fact situations in which Dr William's solution may not provide the answer. For instance, if AWA had sued DHS and Hooke, and if each had cross-claimed against the other, there would be obvious difficulties which may not be capable of resolution by recourse to the approach advocated by Dr Williams."
It is the "complex fact" situation so envisaged by the Court of Appeal that is required to be considered here. Nothing in the majority judgment of the Court of Appeal, in my view, expressly indicates support for the approach adopted by Bray CJ in Perrotta v Cavallo and Smith. I am aware of no authority other than Perrotta v Cavallo and Smith directly relevant to the point here in issue.
On the present state of the authorities, at least the following, in my view, can be said. Having regard to the approach taken by the Court of Appeal in the AWA Case, the applicants in this case run a risk of being prejudiced as to damages should they succeed against Horwaths on the issue of liability in circumstances in which contributory negligence has been pleaded against FSFS but the former directors, trustees and managers of FSFS whose conduct is relied upon to constitute contributory negligence have not been joined as defendants to the proceedings.
There are a number of difficulties in the way of the applicants now joining such former directors, trustees and managers as defendants in these proceedings. The principle difficulty is, of course, time. This difficulty is the more acute by reason of the fact that the relative general pleading sufficient to found a claim in contributory negligence against FSFS will not be sufficient to found claims in negligence against individual former directors, trustees and managers. The point was put by the Court of Appeal in the context of the AWA Case as follows:-
"A positive finding of contributory negligence did not, however, convey that each of the persons whose conduct had played a part in that finding had been in breach of the duty of care to the company. On the contrary it conveyed nothing more than that those persons, individually or collectively, had failed to exercise reasonable care in the protection of the company's interests.
In contradistinction a finding that Hooke, for instance, was liable to contribute under the joint tortfeasor legislation did involve a positive finding that Hooke had breached his duty to AWA. Legally there is a fundamental distinction between the two and while it may be that in many cases the facts will support a conclusion that A's conduct contributed to a finding of contributory negligence on the part of the plaintiff and also constituted a relevant breach of duty that will not necessarily be the position. More importantly a finding that A's conduct was a factor in the finding of contributory negligence will not, as a matter of law, lead to the consequence that A should be found liable to pay contribution on the basis that he or she breached a duty he or she owed to B. .... The legal issues which arise in each case are different." (see p717)
See also Krakowski & Anor v Eurolynx Properties Ltd & Anor (1995) 11 Leg Rep 2.
Having regard to the matters discussed above, I accept that substantial prejudice may be suffered by the applicants should Horwaths be granted leave to amend their defence.
In the circumstance that I am satisfied that Horwaths may suffer substantial prejudice should their application for leave to amend their proceedings be refused, and I am further satisfied that the applicants may suffer substantial prejudice should the application be granted, it is necessary for me to consider other factors which may tend in favour of or against the grant of leave.
The lateness of the application, in my view, is a strong factor tending against the grant of leave. It is true that the applicants' legal advisers were informed of the terms of the proposed amendment on 5 July 1995. No doubt they have since that time been giving consideration to its significance. Nonetheless in circumstances in which leave has not been obtained to make the amendment, it would be surprising if significant effort, and costs, had to date been expended in preparing to meet it. Only two weeks now remain until the hearing commences.
I accept that the AWA Case provides the explanation for the late application to amend the defence. The affidavit of Steven John Gareth Thomas filed in support of the application evidences that the legal advisers to Horwaths became aware of the decision in the AWA Case from the financial press shortly after the decision was handed down. That is, shortly after 15 May 1995. No explanation has been placed before the Court as to the approximately seven weeks delay between that time and the first notification to the legal advisers to the applicants of the proposed amendment. This delay is the more surprising when viewed in the light of Mr O'Donnell's submission that the proposed amendment does not raise fresh issues, or does so only to a limited extent.
It was on 23 May 1995 that this matter was listed for hearing on 7 August 1995. It seems likely on the evidence before me that the legal advisers to Horwaths were aware of the AWA Case on that day. It appears that no mention of its apparent significance, or of any possible application to amend the defence, was made before O'Loughlin J.
To accommodate the wishes of the parties His Honour made complicated, and to an extent novel, orders as to the hearing of the actions. In my view I should not lightly add to the complexity of the case management tasks which His Honour will have to undertake. If the applications are not able in the time remaining before 7 August 1995 properly to prepare to meet the claim of contributory negligence, the complexities of the management of the trial will be increased. If the applicants should seek consequential leave to join the former directors, trustees and managers of FSFS as defendants to this action, such complexities would be further increased. In my view this would be so even should Mr O'Donnell's prediction that such former directors, trustees and managers of FSFS would not file appearances prove to be correct.
Mr Gray has suggested that the authorities as they existed prior to the AWA Case were sufficient to support a plea of contributory negligence against FSFS in the circumstances of this case. On this basis, he argued, as I understand him, that the decision in the AWA Case is an insufficient explanation for the late application to amend the defence in this case. Certainly Rogers CJ in AWA Ltd v Daniels & Ors (1992) 7 ACSR 759 had found AWA to be guilty of contributory negligence in the context of an action by it against its auditors. There was, however, at that time considerable support in the authorities for the views of Moffitt P as expressed in Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322 at 329-330. His Honour there said:-
"Where the action for professional negligence is against an auditor, it is difficult to see how a finding of contributory negligence, according to usual concepts, could be made. If, as where the audit is of a public company, the audit contract or the undertaking of an audit is found to impose a duty to be exercised so as to safeguard the interests of shareholders; it is difficult to see how the conduct of any servant or director could constitute the relevant negligence, so as to defeat the claim against the auditor, whose duty is to check the conduct of such persons and, where appropriate, report it to the shareholders."
As the Court of Appeal in the AWA Case made clear, the above statement did not amount to a statement of legal principle that contributory negligence could not be found in an auditor's favour. Nonetheless I accept that its general acceptance has been a factor tending to discourage the pleading of contributory negligence in professional negligence suits against auditors. No doubt there was for pleaders
between July 1992 (the date of the decision of Rogers CJ in AWA v Daniels & Ors) and May 1995 a question of judgment as to whether or not it would be appropriate to plead contributory negligence in professional negligence cases against auditors. Whatever may have been the position before the decision of Rogers CJ in AWA Ltd v Daniels & Ors, it seems to me that a plea of contributory negligence, supported by appropriate particulars, would have been unlikely to have been struck out following the decision in that case. In view of the sums of money involved in this case and the allegations made with respect to the conduct of the former directors, trustees and managers it is perhaps surprising that no decision was taken earlier than the delivery of judgment in the AWA Case to plead contributory negligence. Nonetheless, this is not a factor which I am prepared to take into account in the exercise of my discretion in this matter.
The decision which I am required to make is not an easy one. Were the surrounding circumstances otherwise it would be tempting to allow the amendment and delay the hearing of the action. However, I have said above, I do not regard delaying the hearing of this action as an available option. It is Horwaths who seek the indulgence of the Court to amend their pleadings at a late stage. In all of the circumstances, and particularly having regard to the fact that the hearing of the action is to commence in two weeks, I do not consider that it would be appropriate to allow them that indulgence.
The application will be dismissed with costs.
I certify that this and the preceding pages are a true copy of the Reasons for Decision of Justice Branson.
Associate:
Dated:
Counsel for the Applicants : Mr T Gray QC
with him Mr M Blue
Solicitors for the Applicants : Fisher Jeffries
Counsel for the Respondents : Mr B O'Donnell QC
with him Mr J Jarvis
Solicitors for the Respondents : Clayton Utz
Hearing Date : 19 July 1995
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