Carna Group Pty Ltd v The Griffin Coal Mining Company
[2019] FCA 1276
•15 August 2019
FEDERAL COURT OF AUSTRALIA
Carna Group Pty Ltd v The Griffin Coal Mining Company [2019] FCA 1276
File number: WAD 354 of 2018 Judge: MCKERRACHER J Date of judgment: 15 August 2019 Catchwords: PRACTICE AND PROCEDURE – application for summary judgment or, alternatively, orders striking out paragraphs of the cross-claim – principles applicable to applications for summary judgment and for strike out – s 31A of the Federal Court of Australia Act 1976 (Cth) – r 13.21 and r 26.01 of the Federal Court Rules 2011 (Cth)
EQUITY – equitable contribution – principles applicable to assessment of liability – doctrine of contribution – consideration of Burke v LFOT Pty Ltd (2002) 209 CLR 282
Legislation: Australian Consumer Law, Sch 2 to the Competition and Consumer Act 2010 (Cth) ss 18, 237
Corporations Act 2001 (Cth) ss 9, 180, 233, 236, 588G
Federal Court of Australia Act 1976 (Cth) s 31A(2)
Federal Court Rules 2011 (Cth) rr 15.01(b), 15.07, 16.21, 26.01(1)(a), Div 15.1
Cases cited: Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342
Australia & New Zealand Banking Group Ltd v Turnbull & Partners Ltd (1991) 33 FCR 265
Bialkower v Acohs Pty Ltd (1998) 83 FCR 1
BP Petroleum Development Ltd v Esso Petroleum Co Ltd [1987] SLT 345
Burke v LFOT Pty Ltd (2002) 209 CLR 282
Buurabalayji Thalanyji Aboriginal Corporation v Onslow Salt Pty Ltd (No 2) [2018] FCA 978
Caledonia North Sea Ltd v London Bridge Engineering Ltd [2000] SLT 1123
CSR Ltd v AMACA Pty Ltd [2016] VSCA 320
Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318
Friend v Brooker (2009) 239 CLR 129
HIH Claims Support Limited v Insurance Australia Limited (2011) 244 CLR 72
Re La Rosa; Norgard v Rodpart Nominees Pty Ltd (1991) 31 FCR 83
Mahoney v McManus (1981) 180 CLR 370
Ruabon Steamship Co Ltd v London Assurance [1900] AC 6
Smith v Australian Executor Trustees Limited; Creighton v Australian Executor Trustees Limited [2017] NSWSC 1406
Swiss Re International SE v Simpson (2018) 354 ALR 607
Date of hearing: 24 June 2019 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 55 Counsel for the Cross-Claimant: Ms K McNally Solicitor for the Cross-Claimant: McNally & Co Counsel for the Third Cross-Respondent: Mr M Bennett with Mr D Banda Solicitor for the Third Cross-Respondent: Bennett + Co ORDERS
WAD 354 of 2018 BETWEEN: CARNA GROUP PTY LTD ACN 063 629 630 (IN LIQUIDATION)
Applicant
AND: THE GRIFFIN COAL MINING COMPANY PTY LTD ACN 008 667 285
First Respondent
RAJ KUMAR ROY
Second Respondent
JAMES RIORDAN
Third Respondent
AND BETWEEN: THE GRIFFIN COAL MINING COMPANY PTY LTD ACN 008 667 285
Cross-claimant
AND: CARNA GROUP PTY LTD ACN 063 629 630 (IN LIQUIDATION)
First Cross-Respondent
HARRY CARNA
Second Cross-RespondentMICHAEL GREY
Third Cross-Respondent
JUDGE:
MCKERRACHER J
DATE OF ORDER:
15 AUGUST 2019
THE COURT ORDERS THAT:
1.Paragraphs 26 and 27, and prayers for relief 1 and 4(a) of the Statement of Cross-Claim, filed 30 October 2018, be struck out.
2.The cross-claimant have liberty to re-plead within 21 days.
3.The cross-claimant pay the third cross-respondent’s costs of this application.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MCKERRACHER J:
INTRODUCTION
On 28 May 2019, the third cross-respondent (Mr Michael Grey) filed an interlocutory application seeking summary judgment or, alternatively, orders striking out paragraphs and prayers for relief in the statement of cross-claim filed by the cross-claimant (The Griffin Coal Mining Company Pty Ltd) against Mr Grey. By its cross-claim Griffin argues, amongst other things, that any loss claimed by the applicant (Carna Group Pty Ltd (in liquidation)) was not caused by Griffin but rather by Mr Grey, who Griffin argues breached duties he owed ‘as a director’ to Carna. It is common ground that Mr Grey was employed by Carna, however denying he was a director of Carna, Mr Grey says that Griffin has not raised any basis on which he could owe any actionable duty to Griffin.
Mr Grey submits the application should be granted because:
(a)Griffin has no reasonable prospects of successfully prosecuting the cross-claim; and
(b)the cross-claim fails to disclose any reasonable cause of action and/or is likely to cause prejudice and embarrassment to the trial.
In summary, Griffin opposes the application on the basis that the legal issue raised in the pleading is still evolving under Australian law and that the determination of yet to be determined factual detail may help to throw light on the existence of a legal cause of action.
For the reasons which follow, I would allow the application in relation to the strike out orders sought by Mr Grey. In my view, there are deficiencies in the pleadings as they currently stand. However, I will allow Griffin to file an amended statement of cross-claim.
THE CROSS-CLAIM
In its cross-claim and statement of cross-claim (SOC), Griffin claims against Mr Grey for contribution to, or indemnity against, such amounts (if any) as may be ordered to be paid by Griffin to Carna in the principal proceeding.
Carna’s claim against Griffin in the principal proceeding is for compensation under s 237 of the Australian Consumer Law (ACL), being Sch 2 to the Competition and Consumer Act 2010 (Cth), for contravention of s 18 the ACL and damages for breach of a written mining services contract (the Substituted Contract).
The basis for the relief sought in the cross-claim against Mr Grey is pleaded in para 3, 26 and 27 of the SOC:
3.Griffin refers to and repeats paragraph 3 of the Defence with respect to [Mr Grey].
…
Contribution and Indemnity
26. Griffin relies on and repeats paragraph 34 of the Defence.
27.Any loss or damage alleged to be suffered by Carna was a result of, alternatively was partly a result of:
a.the breach by Mr Carna of his duties at common law and under s. 180 of the CorporationsAct;
b.breach by Mr Grey of his duties at common law and under s. 180 of the Corporations Act.
Particulars
Griffin will provide further particulars prior to trial.
(Emphasis added.)
No particulars have so far been provided.
Paragraph 34 of Griffin’s Defence in the principal proceeding, filed 30 October 2018, relevantly pleads that Mr Grey caused or contributed to a loss incurred by Carna by breaching his common law duties and, alternatively, his duties pursuant to s 180 of the Corporations Act 2001 (Cth). Specifically, para 34 relevantly pleads:
34. As to paragraph 34 of the ASOC, Griffin:
a. denies paragraph 34;
b.says further that Carna entered into the Substituted Contract in reliance solely on:
i.its own enquiries, calculations, and planning;
ii.its knowledge of the Mine, Mine 2, the Processing Plant and Griffin’s plant and equipment having been given access to the Mine, Mine 2, the Processing Plant and Griffin’s plant and equipment from at least November 2013;
iii.its agreement with the Schedules to the Substituted Contract and Griffin’s mine plan and its agreement that they formed part of the Contract; and
iv.terms and conditions of the Substituted Contract (including the agreed Schedules and mine plan) which contained clause 21.1 and clause 2.2.
c. says that at all materials times, Carna knew that:
i.Griffin had faced difficulties with the operation of the Mine and Mine 2, its plant and equipment and its cashflows;
Particulars
…
ii.Griffin was dependent upon Carna fulfilling its obligations under the Substituted Contract to, amongst other things, generate surplus cash flows.
iii. Carna knew or ought reasonably to have known that:
A.Carna’s financiers were unwilling to provide financial support for the undertaking of the Substituted Contract;
Particulars
…
B,Carna had limited alternative sources of cash flow generating a surplus sufficient to provide working capital for the undertaking of the obligations under the Substituted Contract;
Particulars
…
C.Carna did not then have, nor upon the transfer of employees from Griffin would it have, sufficient personnel and technical expertise to undertake the scope of works, and perform the obligations, required by the Substituted Contract in a manner which was profitable;
Particulars
…
D.Carna did not have, or would not be able to procure or employ, within a reasonable time plant and equipment necessary to undertake the scope of works, and perform the obligations, required by the Substituted Contract in a manner which was profitable;
Particulars
iv.Griffin will provide further particulars after discovery and the return of subpoenas.
d.Says further or in the alternative that if, which is denied, Carna entered into the Substituted Contract in reliance upon the accuracy of each or any of the statements pleaded in the ASOC as to the Warranty, Cash Support Representation and Reaffirmed Warranty then, in the premises pleaded in paragraph 34 of this Defence, each of which matters was known by each of Carna, Mr Carna and Mr Grey:
i. Carna caused or contributed to its own loss;
ii. Mr Carna caused or contributed to the loss incurred by Carna;
Particulars
A,Mr Carna agreed to Carna entering into the Substituted Contract, or failed to prevent Carna from entering into the Substituted Contract when he knew or ought reasonably to have known that:
B.Carna was exposed to significant cash flow risks because until the end of the first year of the substituted contract the amounts payable under that contract were based upon the amount of coal delivered to Griffin and its customers, but it’s costs were dependent upon the amount of material mined, and the operating conditions within the Mine and Mine 2;
C.Carna apprehended, and represented to Griffin, that it expected that the amount of materials to be mined, in the first 3 to 6 months of the contract might be greater than anticipated in the mine plan, and the costs of mining those materials might exceed revenues;
D.Carna did not have other material sources of revenue, nor working capital, to support operations under the Substituted Contract;
E.Mr Carna thereby failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were an officer of Carna, having the responsibilities pleaded in paragraph 2.c in Carna’s circumstances pleaded in this paragraph 34;
F.Griffin will provide further particulars after discovery and the return of subpoenas.
And thereby breached his duty to Carna:
1.at common law; and
2.alternatively pursuant to section 180 of the [Corporations Act].
iii.Mr Grey caused or contributed to a loss incurred by Carna.
Particulars
A.Griffin repeats the particulars to the preceding sub-paragraph, mutatis mutandis with respect to the duties of Mr Grey pleaded in paragraph 3.c.
B.Griffin will provide further particulars after discovery and the return of subpoenas.
(Emphasis added.)
Paragraph 3 of the Defence, referred to above in para 34, states:
3. As to paragraph 3 of the ASOC, Griffin:
a. admits paragraph 3;
b.says further, that Mr Grey was the principal employee of Carna responsible for the investigation and development of new business opportunities including the evaluation and recommendation of business proposals and the negotiation of contracts with respect to those business proposals;
c. says further, that at all material times Mr Grey was a person:
i.who made, or participated in making, decisions affecting the whole or a substantial part of the business of Carna; or
ii.who had the capacity to affect significantly the financial standing of Carna;
and was therefore an officer (as defined in the Corporations Act) of Carna;
d. says further that Mr Grey owed to Carna a duty under s 180 of the Corporations Act and at general law to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were an officer of Carna, having those responsibilities, in Carna’s circumstances.
(Emphasis added).
In short, relevantly to this application and as Mr Grey submits, the gravamen of the ‘contribution and the indemnity’ cross-claim against him is that any loss or damage allegedly suffered by Carna was a result of or, alternatively, partly as a result of, a breach by Mr Grey of his duties as an officer of Carna, at common law or under s 180 of the Corporations Act.
RELEVANT PRINCIPLES
Cross-claims
The rules in respect of the making of a cross-claim are found in Div 15.1 of the Federal Court Rules 2011 (Cth). Rule 15.01(b) provides that a respondent may make a cross-claim in a proceeding against any other respondent or person for relief, including for contribution or indemnity, that is related to the subject of the proceeding.
This rule is procedural and does not confer substantive rights. The right to claim contribution or indemnity must be found at general law or in statutory provisions: see Australia & New Zealand Banking Group Ltd v Turnbull & Partners Ltd (1991) 33 FCR 265.
Rule 15.07 of the Rules provides that a notice of cross-claim must state the relief claimed and, if the relief claimed is under provision of an Act, the Act and the provision under which the relief is claimed. The relief claimed is the remedy that is sought by the cross-claimant.
A cross-claim is a separate and distinct proceeding within the principal proceeding. Rule 15.11 of the Rules provides that a cross-claim may proceed even if the principal proceeding or any other cross-claim has been stayed, dismissed or discontinued. That means, if the principal proceeding is resolved or otherwise finalised, the cross-claim must be able to stand on its own and continue irrespective of the fate of the principal proceeding.
A cross-claimant must establish the basis upon which it asserts substantive rights to claim relief against a cross-respondent in order to maintain a cross-claim against that cross-respondent: Turnbull (at 276-278). That means, the cross-claimant must have a cause of action arising under statute, common law or equity against the cross-claimant.
Summary judgment
The legal principles relating to summary judgment are well settled. The relevant test to be met under both s 31A(2) of the Federal Court of Australia Act 1976 (Cth) and r 26.01(1)(a) of the Rules requires Mr Grey to satisfy the Court that Griffin ‘has no reasonable prospect of successfully prosecuting ... part of the proceeding’. It is unnecessary to refer extensively to the relevant cases. The principles have been considered in detail: see, for example, Buurabalayji Thalanyji Aboriginal Corporation v Onslow Salt Pty Ltd (No 2) [2018] FCA 978 (at [3]):
Without reference to all the well-known authorities, the parties agree that it is well established that the Court may give judgment for a defending party in relation to the whole or any part of a proceeding where the Court is satisfied that the prosecuting party has no reasonable prospects of successfully prosecuting the proceeding or a part of the proceeding. Further:
•the claim need not be hopeless or bound to fail for it to have no reasonable prospects of success: s 31A of the Federal Court Act;
•a reasonable prospect of success is one which is real, not fanciful or merely arguable: Rogers v Assets Loan Co Pty Ltd (2008) 250 ALR 82 per Logan J (at [41]);
•there will be no prospect of success in circumstances where there is a defect in the pleadings which cannot be cured: Ship “Sam Hawk” v Reiter Petroleum Ltd (2016) 246 FCR 337 per Kenny and Besanko JJ (at [269]);
•s 31A is amenable to resolving straightforward questions of law: Luck v University of Southern Queensland [2008] FCA 1582 per Logan J (at [16]). However, summary judgment may still be appropriate if a question raised is of some complexity: SK Foods LP v SK Foods Australia (in liq) (No 3) (2013) 214 FCR 543 per Flick J (at [115]);
•if a prima facie case in support of summary judgment is established, the onus shifts to the opposing party to point to some factual or evidentiary issues making a trial necessary: Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 per Gordon J (at [127]);
•it is clear that the legislature’s intention in enacting s 31A was to lower the bar for obtaining summary judgment, including summary dismissal, below that fixed by previous authorities: Spencer v Commonwealthof Australia (2010) 241 CLR 118 per Hayne, Crennan, Kiefel and Bell JJ; Jefferson Ford per Gordon J (at [127]);
•s 31A permits dismissal of a proceeding where an inquiry into the merits of the issues of law demonstrates the arguments are insufficiently strong to warrant the matter going to trial: McAleer v University of Western Australia (No 3) (2008) 171 FCR 499 per Siopis J (at [39] and the cases therein cited);
•summary dismissal will not apply to ‘a real question of law that is serious, important or difficult, involves conflicting authority, or is apparently arguable yet novel’: Nichol v Discovery Africa Ltd (2016) 343 ALR 594 per Greenwood, McKerracher and Moshinsky JJ (at [134]);
•the moving party bears the onus of persuading the Court the application has no reasonable prospects of success. The assessment of whether a proceeding has no reasonable prospects of success necessitates the making of a value judgement in the absence of a full and complete factual matrix and argument, with a result that the provision vests a discretion in the Court. That discretion includes whether to deal with the motion at once or at some later stage in the proceedings, when the legal and factual issues have been more clearly defined: Kimber v The Owners of Strata Plan No 48216 [2017] FCAFC 226 per Logan, Kerr and Farrell JJ (at [62]) quoting with approval Eliezer v University of Sydney (2015) 239 FCR 381 per Perry J (at [37]);
•despite the threshold for summary dismissal having been lowered, it must still be exercised with caution. The power is not to be exercised lightly: Spencer v Commonwealth per Hayne, Crennan, Kiefel and Bell JJ (at [60]);
•the Court does not, in such an application, conduct a ‘mini trial based upon incomplete evidence to decide whether the proceedings are likely to succeed or fail at trial’. Rather, it ‘requires a critical examination of the available materials to determine whether there is a real question of law or fact that should be decided at trial’: Australian Securities and Investments Commission v Cassimatis (2013) 220 FCR 256 per Reeves J (at [46]); and
•each application for summary judgment or summary dismissal has to be determined according to its particular circumstances. What is required is a practical judgment of the case at hand. The relevant facts and circumstances will partly depend upon the stage which the proceedings have reached. Among other things, this will affect materials available to the Court for considering the application, for example, where the pleadings have been exchanged, or discovery of documents has occurred: Cassimatis per Reeves J (at [46]).
To succeed in his application for summary judgment, Mr Grey needs to demonstrate that Griffin has no reasonable prospect of prosecuting is cross-claim against him.
Griffin relies upon the observations in Smith v Australian Executor Trustees Limited; Creighton v Australian Executor Trustees Limited [2017] NSWSC 1406, where Ward CJ stated (at [68]-[69]):
68The threshold to be met before a claim will be summarily dismissed is recognised to be a high one (see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; [1964] HCA 69 (Barwick CJ)), the power to dispose of proceedings summarily being one which calls for the exercise of “exceptional caution”. The power cannot be exercised once it appears that there is a real question to be determined, whether of fact or law, and that the rights of the parties depend upon it (Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 (Dixon J, as his Honour then was).
69Thus it has been said that the power to dismiss proceedings summarily is only to be exercised “when the action is clearly without foundation and … to allow it to proceed would impose a hardship upon the defendants which may be avoided without risk of injustice to the plaintiff” (Cox v Journeaux (No. 2) (1935) 52 CLR 713 at 720 (Dixon J)); and that a “high degree of certainty” that the plaintiff’s case will fail if it goes to trial is required (Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 at [57] (Gaudron, McHugh, Gummow and Hayne JJ)). More recently, it has been said that the fatal defects in a plaintiff’s case must be very clear before the Court will intervene to strike out a pleading (Shaw v State of New South Wales [2012] NSWCA 102 at [30]ff, Barrett JA (Beazley JA as her Honour then was, McColl and Macfarlan JJA and McClellan CJ at CL agreeing). Caution is especially required where factual details may help to throw light on the existence of a legal cause of action (see Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 at [137]-[138]).
To the extent Smith is relied upon by Griffin for the proposition that this Court ought not to summarily dismiss pleadings too readily. I agree with the submission. However, to the extent that Griffin relies further upon Smith in respect of the approach this Court should take in relation to a summary judgment application, it is relevant that Smith was a decision made pursuant to the rules prescribed by Uniform Civil Procedure Rules 2005 (NSW) and the principles developed to inform that regime rather than s 31A of the Act.
Strike out
In respect of Mr Grey’s application to strike out paragraphs of the SOC, he relies on r 16.21 of the Rules, which provides:
16.21 Application to strike out pleadings
(1)A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading:
(a)contains scandalous material; or
(b)contains frivolous or vexatious material; or
(c)is evasive or ambiguous; or
(d)is likely to cause prejudice, embarrassment or delay in the proceeding; or
(e)fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or
(f)is otherwise an abuse of the process of the Court.
...
The terms of r 16.21 are clear and were not the subject of dispute between the parties.
MR GREY’S CONTENTIONS
Mr Grey as an ‘officer’ of Carna
Mr Grey deposes to the fact that he was not ‘an officer’ of Carna, rather he was employed as a Business Development Manager. He was not a director or company secretary of Carna and did not have a written employment agreement. There is no evidence as to the full scope of his authority as an employee of Carna.
The term ‘officer’ is defined in s 9 of the Corporations Act. It provides:
…
officer of a corporation means:
(a) a director or secretary of the corporation; or
(b) a person:
(i)who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(ii)who has the capacity to affect significantly the corporation’s financial standing; or
(iii)in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation); or
(c)a receiver, or receiver and manager, of the property of the corporation; or
(d)an administrator of the corporation; or
(e)an administrator of a deed of company arrangement executed by the corporation; or
(f)a liquidator of the corporation; or
(g)a trustee or other person administering a compromise or arrangement made between the corporation and someone else.
Note:Section 201B contains rules about who is a director of a corporation.
…
In an affidavit sworn 28 May 2019, Mr Grey deposes to the following facts in support of his contention that he was never an officer of Carna:
Employment with Carna
6I was employed by [Carna] from on or about 12 August 2013, as its Business Development Manager.
7I remained employed by Carna until it was placed into voluntary administration on or about 24 February 2015.
8 I did not have a written employment contract with Carna.
9 I am not and have never been a director or secretary of Carna.
10 In my role as Business Development Manager at Carna at all material times:
10.1I reported to the second cross-respondent (Mr Carna) who was a director of Carna and who was responsible for making decisions on behalf of Carna;
10.2I gave advice and recommendations to Mr Carna in his capacity as a director of Carna but I did not make decisions on behalf of Carna;
10.3I did not report to Mr Carna’s wife, Teresa Carna (Mrs Carna), who was the other director of Carna;
10.4I did not make, nor participate in making, decisions that affected the whole, or a substantial part, of the business of Carna;
10.5I did not believe that I had the capacity to affect Carna’s financial standing significantly;
10.6 To my knowledge, Mr Carna and Mrs Carna did not, as a matter of course or custom, act on my wishes or instructions.
Not an officer of Griffin
11 I have never been a director, officer or employee of Griffin.
Self-evidently, Mr Grey never held the roles of receiver, administrator, deed administrator, liquidator or trustee of Carna. There are no facts pleaded by or evidence given by Griffin to support a conclusion that Mr Grey was an officer of Carna within the meaning of that term under the Corporations Act or as a matter of common law.
On this basis alone, Mr Grey argues the cross-claim against him has no basis and judgment ought to be entered in his favour.
Clearly, some factual determination of significance will be required if the facts asserted are to be in dispute. While Mr Grey’s argument may well be correct, it is unnecessary to determine this application on this basis alone.
Griffin not conferred with any substantive rights over Mr Grey
As noted, Carna’s claim against Griffin is for compensation under s 237 of the ACL and damages for breach of contract in connection with the Substituted Contract between Carna and Griffin. Griffin seeks relief against Mr Grey for contribution to, or indemnity against, such amounts if any as may be ordered to be paid by Griffin to Carna. Griffin can only be entitled to seek a contribution from a party with whom it had or shared common obligations: see Re La Rosa; Norgard v Rodpart Nominees Pty Ltd (1991) 31 FCR 83.
Mr Grey argues Griffin does not identify or plead in the cross-claim any:
(a)provision of the ACL or Corporations Act or any statute pursuant to which Griffin is entitled to claim a right of contribution or indemnity against Mr Grey;
(b)doctrine, either under common law or equity, in the cross-claim pursuant to which it is entitled to a right of contribution or indemnity against Mr Grey;
(c)substantiative right of contribution or indemnity against Mr Grey; or
(d)common obligation between Griffin and Mr Grey to contribute in relation to a claim made against Griffin either for compensation for breaching s 18 of the ACL or damages for breach of contract.
Mr Grey relies on the observations of the Full Court (Beaumont, Hill and Sundberg JJ) in Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 (at 12) where it was stated that:
The general law doctrine of contribution requires that the parties between whom it takes place to be under co-ordinate liabilities to make good the one loss … which stem from a common obligation.
In the absence of any pleaded facts capable of establishing common obligations between Griffin and Mr Grey, Mr Grey contends it is not open for Griffin to seek a contribution from him in relation to the compensation and/or damages claimed against Griffin for breaches of the ACL and for breach of contract.
On this basis too, Mr Grey submits the cross-claim against him is misconceived and judgment ought to be entered in his favour.
Griffin has ‘no genuine claim against Mr Grey’
Further, even assuming Mr Grey were an officer of Carna (which is denied), Mr Grey submits that Griffin has no genuine or viable claim against him.
Griffin pleads that because of the conduct set out in para 34 of Griffin’s Defence, Mr Grey breached his duties at common law and under s 180 of the Corporations Act. However, what is not identified or pleaded is:
(a)the alleged common law duties owed by Mr Grey;
(b)to whom Mr Grey owed those alleged common law duties; and
(c)to whom the alleged statutory duty arising under s 180 of the Corporations Act was owed.
These are said to be critical gaps in the formulation of the claim against Mr Grey. Mr Grey questions how he can be liable to Griffin when it does not plead that he had a duty to Griffin.
Mr Grey observes that the duties of directors or officers of a company (whether those duties arise under statute or common law) are owed to the company (that is the members as a whole) and not to individual members or other corporate stakeholders. There are also specific duties imposed on directors or officers by statute, for example, such as s 588G of the Corporations Act.
Mr Grey also says it is trite that the enforcement of those duties lies with the company unless a shareholder brings a derivative action under s 236 of the Corporations Act or obtains an order for oppression under s 233 of the Corporations Act. It is the company that has the power to enforce compliance with duties owed to it, subject to ASIC’s standing to enforce some duties arsing under the Corporations Act.
Mr Grey was not an employee of Griffin. Griffin was not a shareholder of Carna. Mr Grey says there are no facts currently pleaded which are capable of establishing the existence of a duty owed by Mr Grey to Griffin. Although there may be a dispute about whether and to what extent Mr Grey owed any duties as an officer of Carna, any alleged breaches of duties by Mr Grey as an officer of Carna (which is denied), can only be enforced by Carna. Griffin has no standing to complain about Mr Grey’s conduct as an officer of Carna.
Further, Griffin does not plead that Mr Grey, in his own right, engaged in misleading or deceptive conduct, alternatively was an accessory to, or knowingly involved in, misleading or deceptive conduct causing loss and damage to Griffin. Misleading or deceptive conduct is a serious matter which requires specificity: see Swiss Re International SE v Simpson (2018) 354 ALR 607.
In summary, Mr Grey contends judgment should be entered in his favour or, alternatively, the cross-claim should be struck out in its entirety because:
(a)Mr Grey was not an officer of Carna;
(b)Mr Grey did not owe any duties to Griffin;
(c)Mr Grey and Griffin did not have any common obligations which would have given rise to coordinate liabilities in relation to Griffin’s dealings with Carna;
(d)If Mr Grey is an officer of Carna (which is denied) any duties he owed to Carna are only enforceable by Carna and not by Griffin being the counterparty to the mining services contract; and
(e)Griffin has not pleaded facts which confer on Griffin an independent right of action or contribution against Mr Grey.
It is argued to be highly prejudicial to require Mr Grey to be put through the stress and expense of defending Griffin’s cross-claim against him and for him to be involved in an extensive trial in circumstances where no reasonable cause of action is disclosed against him.
GRIFFIN’S CONTENTIONS
The pleadings
Carna alleges that it entered into the Substituted Contract in reliance upon the accuracy of three statements by Griffin. One statement, the Cash Support Representation, is alleged to have taken place in the period 26 February 2014 to 14 March 2014. The particulars to the Cash Support Representation plea are said to be comprised in four emails to/from Mr Grey.
In its Defence, Griffin:
(a)denies this allegation;
(b)says Carna undertook its own enquiries and knew certain matters (which are pleaded) including that Griffin had faced difficulties with its cash flows;
(c)says, further or in the alternative, if Carna did enter into the Substituted Contract based on the alleged statements (which is denied), Carna, Mr Carna and Mr Grey caused or contributed to the loss.
Griffin points to para 3 and para 34(d)(iii) of the Defence as answering Mr Grey’s complaint that Griffin did not identify or plead to whom Mr Grey owed alleged duties. Griffin says the duties were owed to Carna.
Whilst Griffin acknowledges that particulars cannot cure a pleading defect, it notes that the particulars to para 34(d)(iii) provide that Griffin will provide further and better particulars after discovery and the return of subpoenas. Discovery has not been completed by the parties and Griffin has not yet provided further and better particulars.
Finally, Griffin notes that on 11 June 2019, it notified Mr Grey of an intention to amend the cross-claim to plead that Mr Grey was involved in Carna’s breaches of the ACL.
CONSIDERATION
The law on contribution
In response to Mr Grey’s reliance on La Rosa to assert Griffin can only seek a contribution from a party with whom it had or shared common obligations, Griffin contends the law on this issue is unsettled. Griffin relies on Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 and CSR Ltd v AMACA Pty Ltd [2016] VSCA 320 (in particular at 288-299).
Griffin contends the law in Australia in relation to contribution and indemnity is unclear and that a summary dismissal would have the effect of stifling the development (or clarification) of the law in Australia.
In Bialkower, the Full Court considered La Rosa. The Court did not need to decide whether there was a general right of apportionment, but noted (at 12-13):
However, despite the observation of Davies J in Jones at 422; 565 that he could see no reason why equity “should not aid ... the ascertainment of what would be a just contribution”, we doubt whether the general law of contribution authorises an apportionment such as that made by the primary judge. Contribution is “founded on equality”: Albion at 351, though it is true that “equality” in the maxim “equity is equality” is not literal equality, but proportionate equality: Re Steel [1979] Ch 218 at 225‑226. Equality was the basis of the doctrine of contribution between trustees liable to make good a breach of trust: RP Meagher and MC Gummow, Jacobs’ Law of Trusts in Australia (6th ed, 1997), p 644. If one paid more than his share he could claim contribution from the others. In exceptional cases the rule of equal contribution was replaced by a right on the part of one trustee to obtain an indemnity from the others. But, according to Snell, until the intervention of statute (Civil Liability (Contribution) Act 1978 (UK), ss 1(1), 6(1) and 7(3) [)] there was no intermediate position between these two extremes: Snell’s Equity (29th ed, 1990), p 296. And see Jacobs , p 644. The matter was not argued before us, and since the apportionment can be supported by s 23B of the Wrongs Act, we need not decide the issue, which will be a live one in jurisdictions such as New South Wales which do not have a provision such as s 23B [of the Wrongs Act 1958 (Vic)].
(Emphasis added.)
See also the discussion of contribution by Hayne J (at [14]-[23]) in Burke v LFOT Pty Ltd (2002) 209 CLR 282, against the view of McHugh J (at [44]-[45]).
The issue was also discussed but not decided in Smith to which I have already referred and on which Griffin principally relies. By way of background, the Australian Executor Trustee (AET) was trustee for debenture holders. AET dealt with, on behalf of the debenture holders, debentures in Provident Capital Limited. Provident was subsequently placed into receivership. The debenture holders claimed damages against AET on the basis of alleged breaches of statutory duties under the Corporations Act and/or fiduciary duties owed to the debenture holders. AET filed a cross-claim against, inter alia, the auditors of Provident (PricewaterhouseCoopers, or PwC) in relation to financial reports issued by PwC as auditors of Provident for certain financial years. AET’s claims against PwC included ones for statutory or equitable contribution in respect of any liability AET was found to have to the debenture holders: Smith at [13]. Like Mr Grey, PwC, sought orders that the claim be summarily dismissed or struck out. The Court in Smith struck out the pleading (but allowed AET to re-plead). Summary judgment was not ordered. Ward CJ said (at [180]) that her Honour was ‘not persuaded that that the pleading deficiency cannot be cured’. Her Honour made the following observations regarding contribution without deciding the matter (at [45], [47]-[48], [60], [62], [70], [168], [172] and [176]):
45The second basis for the statutory contribution claim is that PwC engaged in misleading conduct in contravention of the statutory prohibitions pleaded earlier (at [25] and [32]) which has caused the plaintiff and group members loss, that being the same loss in respect of which the plaintiff and group members seek to recover damages in this proceeding from AET. It is asserted that, if AET is liable as alleged in the statement of claim, then that liability could have been established in tort (see [41]-[43]). (How that tortious liability could arise is not articulated in the pleading.)
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47The claim for statutory contribution is made pursuant to s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the 1946 Act), s 23B of the Wrongs Act 1958 (Vic) and “such other corresponding provision of the contribution legislation of the other States and Territories as may be applicable to each group member’s claim against AET” (see, for example, [44]).
48The alternative claim for contribution is made pursuant to the doctrine of equitable contribution on the basis that if AET is liable to the plaintiff or group members as alleged in the statement of claim then its liabilities are coordinate with those of PwC ([45]-[46]). For the purpose of the equitable contribution claim, the focus is on the statutory claims: the alleged breach by PwC of the statutory prohibitions on misleading and deceptive conduct and the alleged breach by AET of its statutory duties.
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60Second, AET argues that PwC’s applications raise two likely High Court points: first, the question as to whether the auditor of a corporation that issues debentures under Ch 2L of the Corporations Act owes a duty of care to the trustee for debenture holders and the debenture holders themselves; and, second, the question as to whether s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 can extend to statutory wrongs.
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62As to the second, AET points to a divergence of views in the authorities and in academic writing (referring to Jonstan Pty Limited v Nicholson (2003) 58 NSWLR 223; [2003] NSWSC 500 at [97] (Hulme J); Dorrough v Bank of Melbourne Limited [1995] FCA 1573 at [73]; and the argument in favour of characterising the action for breach of s 52 as a tort advanced by Campbell J, as his Honour then was, writing extra judicially in “Contribution, Contributory Negligence and Section 52 of the Trade Practices Act” (1993) 67 ALJ 87, 177) on the one hand (cf ANZ Banking Group Ltd v Turnbull (1991) 33 FCR 265 at 277 (Shepherd J); Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 at 11 (Full Federal Court)); and Burke v LFOT Pty Ltd (2000) 178 ALR 161; [2000] FCA 1155 at [131] (Lehane J), dicta in ACQ Pty Ltd v Cook (2008) 72 NSWLR 318; [2008] NSWCA 161 at [174] (Campbell JA, with whom Beazley JA, as her Honour then was, and Giles JA agreed) and dicta in Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 (Bell and Gageler JJ) on the other hand.
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70Where what is pleaded is a novel claim, it has been said that the court does not apply strike out procedures in a way that might stultify the development of the law (see Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564; [2000] FCA 1572 at [50]; X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at 740-741).
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168PwC submits that the fact that the damage may be the same does not establish that the liabilities are co-ordinate. It says that AET’s statutory obligations under s 283DA cannot reasonably be characterised as co-ordinate with alleged misleading and deceptive conduct by PwC (referring to Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17, where McHugh J said that:
“although the conduct of both parties may ultimately have been responsible for the loss, their respective responsibility arose from the breach of substantially different obligations”; at [56]).
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172As a further practical matter, PwC says that the nature of AET’s contribution claim, as now put forward in the proposed amendments, would mean that the hearing of the main proceedings will determine whether AET is liable to the plaintiffs; and AET would seek to press a contribution claim in respect of that liability in circumstances where it expressly does not have grounds for that contribution claim in respect of the plaintiffs because AET cannot plead that PwC owed any duty to the plaintiffs. PwC says that it follows from this that AET’s contribution claim could not be resolved at the hearing in July 2018, because that claim cannot arise in respect of the plaintiffs’ claims, and cannot be the subject of any common question because no facts will be before the court by which any such common question could be determined. PwC further says that as a result the determination of AET’s contribution claim against PwC in respect of Group Members (other than the Plaintiffs) would be, at any initial trial, entirely hypothetical. Reference is made in this regard to what was said in Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334; [1999] HCA 9 at [49].
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176I am not persuaded that it is appropriate at this stage, in advance of the final hearing, to make a determination (or comment) on the dispute as to the various matters raised in relation to the contribution claims, other than to note that to the extent that the pleading of the contribution claims alleges audit wrongdoing and causation of loss, it suffers from the same deficiencies earlier identified, and that AET should articulate which contribution regime is said to apply to what causes of action and why. PwC should not be left to speculate as to those matters.
The doctrine of contribution has been considered by the High Court and there is no question it applies in Australia: Burke and Albion. Although the plurality of the High Court in Burke comprising Gaudron ACJ, McHugh, Hayne and Callinan JJ found that there was no case for equitable contribution on the facts of that case, their Honour’s accepted the application of the doctrine of contribution in Australia. It is the High Court’s decision in Burke upon which both parties principally rely. In Burke:
(1)Gaudron ACJ and Hayne J stated (at [14]-[17]):
Equitable contribution
14In general terms, the principle of equitable contribution requires that those who are jointly or severally liable in respect of the same loss or damage should contribute to the compensation payable in respect of that loss or damage, either equally where they are liable in the same amount or proportionately, where the amount of their liability differs. The principle has regularly been applied between co-sureties, co-insurers, partners, co-owners, where payment is made by one in discharge of a common liability, and co-trustees who are in pari delicto.
15The doctrine of equitable contribution applies both at common law and in equity. It is usually expressed in terms requiring contribution between parties who share “co-ordinate liabilities” or a “common obligation” to “make good the one loss”. More recently, in BP Petroleum Development Ltd v Esso Petroleum Co Ltd, the right to contribution was said to depend on whether the liability was “of the same nature and to the same extent”.
16The notion of “co-ordinate liability” is one that depends on common interest and common burden. Perhaps because, at common law, there was no general right of contribution between tort-feasors, the notion of “co-ordinate liability” has not traditionally been expressed in terms requiring equal or comparable culpability or a requirement that the acts or omissions of the persons in question be of equal or comparable causal significance to the loss in respect of which contribution is sought. However, the requirement that liability be “of the same nature and to the same extent”, as stated in BP Petroleum, is apt to include notions of equal or comparable culpability and equal or comparable causal significance.
17Culpability, as a factor bearing on the right to equitable contribution, clearly explains the requirement that for there to be contribution between co-trustees, the co-trustees must be in pari delicto. So, too, it explains the rule that a person who has been guilty of fraud, illegality, wilful misconduct or gross negligence is not entitled to contribution from his partners.
(Citations omitted.)
(2)McHugh J stated (at [38]):
Principles of contribution
Both common law and equity give a person the right to obtain contribution to a payment made by that person in discharging “a common obligation” that is owed by that person and others. In determining whether there is “a common obligation”, the traditional test is whether the liability of each party “is of the same nature and to the same extent”. Early cases suggested that the common law right arose as a result of an implied contract between the parties. But whether that be right or not — and if it is, in many cases, it must be the result of a contract imputed to the parties — the equitable principles now cover the field. Those principles are based on the equitable doctrine of equality. When a person pays more than his or her share of a common monetary obligation, the payment pro tanto discharges the obligation of all who owe the common obligation. In accordance with the maxim that equality is equity, equity requires the common burden to be shared equally so that none of those owing the common obligation will pay more than his or her share of the burden. An order of contribution prevents the injustice that would otherwise flow to the plaintiff by the defendant being enriched at the plaintiff’s expense in circumstances where they have a common obligation to meet the liability which the plaintiff has met or will have to meet.
(Citations omitted.)
(3)McHugh J (at [41]) adopted Kitto J’s description of the general doctrine of contribution in Albion (at 352):
What attracts the right of contribution between insurers … is not any similarity between the relevant insurance contracts as regards their general nature or purpose or the extent of the rights and obligations they create, but is simply the fact that each contract is a contract of indemnity and covers the identical loss that the identical insured has sustained.
(Emphasis in original.)
(4)At [142], Callinan J summarised the different expressions of the conditions for the application of the doctrine of contribution arising from Kitto J’s discussion of the authorities in Albion as follows:
(a)there must be a mutuality of rights and obligations between the parties;
(b)the burden must be and seen to be a common burden;
(c)if several persons owe the same obligations they should satisfy them equally;
(d)if in reason, justice and law there should be equality of liability;
(e)if it can be shown that one person has paid more than his or her proper share;
(f)if the general principles of justice require contribution.
The High Court has revisited contribution since Burke. The principles which govern the question of whether Griffin is entitled to equitable contribution are those expressed by the High Court (Gummow ACJ, Hayne, Crennan and Kiefel JJ) in HIH Claims Support Limited v Insurance Australia Limited (2011) 244 CLR 72 (at [36]-[48]). Importantly, their Honours identified the following key principles:
(1)The basic concept of contribution was of longstanding and is accepted by both law and equity as one of natural justice: (at [36]), citing Albion per Kitto J (at 350).
(2)The basis of the equitable principle is that ‘persons who are under co-ordinate liabilities to make good the one loss … must share the burden pro rata’: (at [36]), quoting Albion per Kitto J (at 350).
(3)The rationale for equitable contribution is obligors severally bound by different instruments in respect of the same liability, who may not even know of each other, have ‘a common interest, and a common burthen’. It is because the charging of one surety in respect of the common obligation discharges the other that ‘each therefore ought to contribute to the onus’: (at [37]), quoting Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318 per Eyre LCB (at 322-323).
(4)The nature or quality of the obligations is critical although the quantum of liability between co-obligors may vary: (at [37]), citing Albion (at 345-346).
(5)Given that natural justice, exemplified by equality, underpins the duty to contribute in respect of co-ordinate liabilities, the search for a common obligation ‘should not be defeated by too technical an approach’: (at [39]), quoting Mahoney v McManus (1981) 180 CLR 370 (at 378).
(6)It is possible to have a common obligation where the obligation of each of two obligors has a different source, such as statute and contract, provided the obligations can be characterised as ‘of the same nature and to the same extent’: (at [39]), referring to BP Petroleum Development Ltd v Esso Petroleum Co Ltd [1987] SLT 345 per Lord Ross (at 348).
(7)‘Contribution … is a two way exercise. You cannot have contribution from one without contribution from the other’: (at [41]), quoting Caledonia North Sea Ltd v London Bridge Engineering Ltd [2000] SLT 1123 per Lord Sutherland (at 1182).
(8)As the requirement of co-ordinate liabilities is essential for the operation of the doctrine of equitable contribution between obligors, the duty to contribute is not based on ‘some general principle of justice, that a man ought not to get an advantage unless he pays for it’: (at [42]), quoting Ruabon Steamship Co Ltd v London Assurance [1900] AC 6 per Earl of Halsbury LC (at 12).
(9)The equitable duty to contribute applies where obligors are under a common burden or common obligation (at [44]), as was observed by the plurality (French CJ, Gummow, Hayne and Bell JJ) in Friend v Brooker (2009) 239 CLR 129 (at [38]-[39]):
With a claim to contribution, as is the position generally with the intervention of equity to apply its doctrines or to afford its remedies, the plaintiff must show the presence of ‘an equity’ founding the case for that intervention. The ‘natural justice’ in the provision of a remedy for contribution is the concern that the common exposure of the obligors (or ‘debtors’) to the obligee (or ‘creditor’) and the equality of burden should not be disturbed or be defeated by the accident or chance that the creditor has selected or may select one or some rather than all for recovery …
The equity to seek contribution arises because the exercise of the rights of the obligee or creditor ought not to disadvantage some of those bearing a common burden; the equity does not arise merely because all the obligors derive a benefit from a payment by one or more of them. As explained in United States authority, contribution is an attempt by equity to distribute equally, among those having a common obligation, the burden of performing it, so that without that common obligation there can be no claim for contribution.
(Citations omitted.)
(10)The requirement is that the equity to contribute depends on obligors bearing a common burden, the basis for co-ordinate liabilities in respect of the one loss. The proposition that equity looks to substance rather than form has never been invoked successfully to achieve a departure from, or modification of, that requirement: (at [47]).
In light of these principles, in my view, Griffin’s cross-claim against Mr Grey fails to plead with sufficient precision so as to inform Mr Grey how his alleged director breaches were capable of giving rise to a claim for contribution against Mr Grey in equity or common law. This is because:
(a)there are no common obligations or common burdens asserted between Griffin and Mr Grey to Carna;
(b)there was a statutory proscription under the ACL for Griffin not to engage in misleading or deceptive conduct causing damage to Carna, whereas Mr Grey (if he was an officer of Carna) may have had common law or statutory duties to Carna;
(c)it is not asserted that Griffin and Mr Grey shared any other identified common burdens with respect to Carna;
(d)Griffin and Mr Grey’s respective obligations have not been characterised as being the same in nature and to the same broad extent (that is, they are factually independent of each other and have different legal sources);
(e)the sources of any respective obligations are entirely different in a qualitative and quantitative sense;
(f)while it might be obvious, there is no pleaded injustice or inequity which might flow if Mr Grey is not made liable to contribute to Carna’s loss; and
(g)it is not pleaded or apparent that Griffin has been asked to pay more than its fair share of a common monetary obligation.
I accept that the circumstances in which a right to contribution may expand as the law develops. Nonetheless Griffin must identify with sufficient precision to enable Mr Grey to understand the case he has to meet. Griffin must articulate the elements giving rise to the claim against Mr Grey having regard to the factors identified in the previous paragraph, or if there is some other basis for a claim, the key elements underlying that claim.
CONCLUSION
In my view, there are deficiencies in Griffin’s pleadings. However, I am not presently satisfied that they cannot be cured. As such I propose to strike out the relevant paragraphs of Griffin’s cross-claim, but to provide Griffin with liberty to re-plead. Costs will be awarded in Mr Grey’s favour.
I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher. Associate:
Dated: 15 August 2019
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