Cassegrain v Cassegrain

[2016] NSWCA 71

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Cassegrain, Felicity v Cassegrain, Denis [2016] NSWCA 71
Hearing dates:	29 February 2016
Decision date:	15 April 2016
Before:	Basten JA [1]; Sackville AJA [31]; Emmett AJA [36]
Decision:	(1)   Dismiss the appeal with costs.  (2)   Refuse the application for leave to extend the time for filing an application for leave to appeal with costs.
Catchwords:	EQUITY – equitable compensation for costs incurred in proceedings – enquiry as to amount of compensation referred by consent to Referee – order sought that report of Referee be adopted – trial judge ordered that report be adopted and that parties including the appellant jointly and severally pay compensation – whether trial judge erred in finding appellant jointly and severally liable – whether trial judge ought to have found that appellant’s liability did not extend to more than 10 per cent of the equitable compensation ordered – whether liability ought to have been limited to an amount that was proportionate to the appellant’s liability under the first limb of Barnes v Addy – whether extent of liability impermissible having regard to the Civil Liability Act 2002 (NSW), Pt 4 PROCEDURE – whether leave to appeal required
Legislation Cited:	Civil Liability Act 2005 (NSW), s 34 Civil Liability Act 2002 (NSW), ss 3, 4, 5, 34, 34A, 35; Pt 1A; Sch 1, Pt 3, cl 6; Pt 4, cl 13 Civil Liability Amendment (Personal Responsibility) Act 2002 (NSW), Sch 1 [5] Civil Procedure Act 2005 (NSW), s 98 Uniform Civil Procedure Rules 2005 (NSW), rr 20.14, 20.23, 20.24
Cases Cited:	Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Denis Cassegrain v Gerard Cassegrain & Co Pty Ltd [2012] NSWSC 403 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 George v Webb [2011] NSWSC 1608 Gerard Cassegrain & Co Pty Ltd (in liquidation) v Cassegrain [2013] NSWCA 455 Denis Cassegrain & Ors v Gerard Cassegrain & Co Pty Limited (in Liquidation) & Ors [2014] NSWSC 411 Grimaldi v Chameleon Mining (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 Kalls Enterprises Pty Ltd (In liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557 Reinhold v New South Wales Lotteries Corporation (No 2) (2008) 82 NSWLR 762; [2008] NSWSC 187 Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405 Suttor v Gundowda [1950] HCA 35; (1950) 81 CLR 418 Sze Tu v Lowe [2014] NSWCA 462; 89 NSWLR 317
Texts Cited:	B McDonald and JW Carter, “The Lottery of Contractual Risk Allocation and Proportionate Liability” (2009) 26 Journal of Contract Law 1
Category:	Principal judgment
Parties:	Felicity Cassegrain (Appellant) Denis Cassegrain (First Respondent) Catherine Dunn (Second Respondent) Patrick Cassegrain (Third Respondent) John Cassegrain (Fourth Respondent) Gerard Cassegrain & Co Pty Ltd (In liq) (Fifth Respondent) Christopher Mel Chamberlain in his capacity as liquidator of Gerard Cassegrain & Co Pty Ltd (Sixth Respondent) Claude Cassegrain’s Official Trustee in Bankruptcy (Seventh Respondent) Anthony Blake Sarks (Eighth Respondent)
Representation:	Counsel: D F Jackson QC/Ms L M Jackson (Appellant) M Ashhurst SC/G B Colyer (First to Sixth Respondents) Submitting Appearance (Seventh and Eighth Respondents)   Solicitors: Peter Condon & Associates (Appellant) McCabes Lawyers (First to Sixth Respondents) Clout & Associates (Seventh and Eighth Respondents)
File Number(s):	2015/219321, 2015/299594
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2015] NSWSC 851 Date of Decision: 05 August 2015 Before: Bergin CJ in Eq File Number(s): 2008/281625

JUDGMENT

1. BASTEN JA: On 30 June 2015, following an extensive series of judgments in the Equity Division and in this Court, Felicity Cassegrain (“the appellant”) was ordered to pay equitable compensation in an amount of approximately $2.6 million to a company, Gerard Cassegrain & Co Pty Ltd. [1] Her liability was held to be both joint and several with that of her husband, Claude Cassegrain and her father, Anthony Blake Sarks, each of whom was a director of the company. She brought an appeal to this Court on the basis that her liability ought not to have been joint and several for the full amount, but should have been limited to that proportion of the economic loss suffered by the company which properly reflected her responsibility for the loss, which she claimed was at worst equal to that of her co-defendants and, more properly, a proportion in the order of 10%.

   1. Denis Cassegrain v Gerard Cassegrain & Co Pty Ltd [2012] NSWSC 403 (Bergin CJ in Eq).

2. The basis for the appellant’s liability was that she was the knowing recipient of assets of the company (being shareholdings in two other companies) which had been transferred to her by the directors (her co-defendants) for a consideration which was far less than the true value of the assets.

3. Her claim that her liability was not a solidary liability for the whole of the loss, but only a proportionate liability in the sense described above, depended upon the operation of s 35 of the Civil Liability Act 2002 (NSW).

4. It was common ground between the parties that the pleadings had contained no reference to the Civil Liability Act or Pt 4 thereof (headed “Proportionate Liability”), although there was some dispute as to whether, and if so to what extent, the possibility of her being only partly liable for the loss had been litigated in the course of the trial. It was, however, beyond dispute that neither the trial judge, nor a referee to whom certain questions had been referred, addressed any issue of proportionate liability. Accordingly, there was a large dispute as to whether the appellant could now rely upon a limitation on her liability derived from the Civil Liability Act.

5. The appellant also sought leave to appeal against a lump sum costs order (in an amount of approximately $1.4 million). She accepted that if she did not succeed on her appeal, the challenge to the costs order fell away.

6. In my view the appellant failed to make good the substantive proposition that s 35 of the Civil Liability Act was engaged. The whole of the matter can be dealt with on that basis; the procedural issues may be put to one side.

Proportionate liability

7. Part 4 of the Civil Liability Act, dealing with proportionate liability, was introduced by Sch 1 [5] of the Civil Liability Amendment (Personal Responsibility) Act 2002 (NSW). The provisions introducing Pt 4 commenced on 1 December 2004. The transfer of shares, being the subject matter of the proceedings, took place in January 2005; the proceedings were therefore commenced after the date of commencement of Pt 4 and Pt 4 is, in principle, available. [2]

   2. Civil Liability Act, Sch 1, Pt 3, cl 6(1) and Pt 4, cl 13.

8. So far as relevant for present purposes, s 35 of the Civil Liability Act provides:

35   Proportionate liability for apportionable claims

(1)   In any proceedings involving an apportionable claim:

(a)   the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss, and

(b)   the court may give judgment against the defendant for not more than that amount.

9. The terms “apportionable claim” and “concurrent wrongdoer” are defined in s 34:

34   Application of Part

(1)   This Part applies to the following claims (apportionable claims):

(a)   a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including any claim arising out of personal injury,

(b)   a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 1987 for a contravention of section 42 of that Act (as in force before its repeal by the Fair Trading Amendment (Australian Consumer Law) Act 2010) or under the Australian Consumer Law (NSW) for a contravention of section 18 of that Law.

(1A)   For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind).

(2)   In this Part, a concurrent wrongdoer, in relation to a claim, is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.

(3)   For the purposes of this Part, apportionable claims are limited to those claims specified in subsection (1).

….

(4)   For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up or has ceased to exist or died.

10. There was no doubt that the claim against the appellant was one for economic loss and did not include any claim arising out of personal injury. It was, in substance, a claim for equitable compensation arising from the knowing receipt of property transferred by the company under the direction of two directors, acting in breach of fiduciary duties. The availability of equitable compensation, in lieu of an order for return of the property, where the basis of liability is a breach of a fiduciary duty owed by a director to the company was not in issue. [3]

    3. See Kalls Enterprises Pty Ltd (In liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557 at [157] (Giles JA); Farah Construction Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [113].

11. The term “damages” is defined in s 3 of the Civil Liability Act to include “any form of monetary compensation”; it was not suggested that the definition was not apt to cover equitable compensation for economic loss, contrary to the considered decision of Ward J in George v Webb [4] that it was. Nor was there any issue as to the harm or loss caused to the company by the separate acts of several tortfeasors, as in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd. [5] Rather, the application of s 34 turned solely upon whether the claim against the appellant was one “arising from a failure to take reasonable care”.

    4. [2011] NSWSC 1608 at [312]-[316].

    5. (2013) 247 CLR 613; [2013] HCA 10.

12. In order to place the definition of apportionable claims and that of concurrent wrongdoers in their statutory context, it is convenient to set out the terms of s 34A, excluding certain concurrent wrongdoers from the operation of s 35.

34A   Certain concurrent wrongdoers not to have benefit of apportionment

(1)   Nothing in this Part operates to limit the liability of a concurrent wrongdoer (an excluded concurrent wrongdoer) in proceedings involving an apportionable claim if:

(a)   the concurrent wrongdoer intended to cause the economic loss or damage to property that is the subject of the claim, or

(b)   the concurrent wrongdoer fraudulently caused the economic loss or damage to property that is the subject of the claim, or

(c) the civil liability of the concurrent wrongdoer was otherwise of a kind excluded from the operation of this Part by section 3B.

(2)   The liability of an excluded concurrent wrongdoer is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.

(3)   The liability of any other concurrent wrongdoer who is not an excluded concurrent wrongdoer is to be determined in accordance with the provisions of this Part.

13. The language in these provisions has given rise to three interrelated questions of construction.

14. First, there is a question whether the reference to “a claim” is a reference to the claim pleaded, or to those upon which liability was upheld. In Reinhold v New South Wales Lotteries Corporation (No 2) [6] Barrett J held that the reference to a “claim” in Pt 4 is a reference to a “claim as proved and established, not a claim as made or advanced.”[7] The reasoning leading to this conclusion, briefly stated, is that both the definition of “concurrent wrongdoer”, and the definition of “excluded concurrent wrongdoer”, as well as the consequence of a finding of liability, depend upon a determined claim and not simply an allegation.

    6. (2008) 82 NSWLR 762; [2008] NSWSC 187.

    7. Reinhold at [22].

15. With respect, that analysis is accurate, but it does not require the replacement of the term “claim” with a more limited concept. Thus a statement of claim may include factual allegations supporting more than one cause of action of which one may be rejected and another upheld. An apportionable claim which is dismissed ceases to be such because it ceases to be a claim. Only a claim which has been upheld gives rise to liability and hence engages s 35.

16. The words in parenthesis in s 34(1)(a) make it clear that the precise formulation of the cause of action is not significant; on the other hand, the proceedings must involve an action for damages (that is, for some form of monetary compensation). Thus, the relief claimed must include an order for payment of damages. The damages must involve compensation for economic loss (or damage to property), but must not include a claim arising out of personal injury.

17. The exclusion of “any claim arising out of personal injury” suggests that the structure of the first limb of the paragraph is in the form, “a claim for economic loss … arising from a failure to take reasonable care”. Thus, in language applicable to the present case, the question is whether the claim by the company for loss of its assets arose from “a failure to take reasonable care”. This formulation allows consideration of the second issue of construction.

18. The second issue of construction turns on whether the particular cause of action pleaded depends upon a failure to take reasonable care, as an essential element, or whether it is sufficient that the conduct the subject of any finding of liability in fact involves a failure to take reasonable care.

19. It is convenient to note that, although the submissions in the course of the appeal tended to focus on whether there was some omission on the part of the appellant which gave rise to liability, that is not a necessary element. While the definition in s 5 (in Pt 1A) of “negligence” does not apply to Pt 4 but only to Pt 1A, it involves a generic concept. Thus, the term “negligence” is defined in s 5 to mean “failure to exercise reasonable care and skill.” Like negligence, a failure to take reasonable care may involve either nonfeasance or malfeasance.

20. There is a strenuous debate in the literature as to whether authorities which apply Pt 4 (and equivalent provisions elsewhere) in the case of liability which is strict and does not require intention or negligence, have been correctly decided. The issue is whether it is correct to apply the proportionate liability provisions in respect of a cause of action which involves strict liability, in circumstances where there is in fact a failure to take reasonable care, even though liability would be established without such a finding. Thus, McDonald and Carter have hypothesized that in such cases, defendants will be driven to plead their own negligence, which is an anomalous result. [8]

    8.    B McDonald and JW Carter, “The Lottery of Contractual Risk Allocation and Proportionate Liability” (2009) 26 Journal of Contract Law 1 at 19.

21. It is possible to identify potential anomalies because the circumstances in which proportionate liability applies are limited. Whatever the strength or weakness of the critique, it has no application in the present case. The conduct of the appellant in the present case, as a knowing recipient of property transferred in breach of fiduciary duties, involved neither strict liability nor negligence, but a higher level of moral responsibility.

22. The third point of construction is whether there is, implicit in the phrase “failure to take reasonable care” an assumption as to the existence of a legal duty which has been breached. The formulation of the question may be thought to add unnecessary complexity to relatively straightforward language. However, the question is useful because the answer illustrates the distinction between strict liability, a failure to exercise reasonable care and intentional misconduct. In broad terms, strict liability does not depend upon advertence by the tortfeasor to the consequences of his or her action. An intentional tort, on the other hand, clearly does. One can articulate an intentional tort, such as trespass to the person, in terms of a duty to avoid certain conduct, but the “duty”, so formulated, is to avoid deliberately assaulting another person without his or her consent; it is not a duty to take reasonable care not to assault a person without consent. On the other hand, the tort of negligence is always expressed in terms of a duty to take reasonable care. It is wrong to describe an element of negligent driving as an obligation not to run down a pedestrian or an obligation to ensure that pedestrians are not run down; the correct formulation is a duty to take reasonable care to avoid running down a pedestrian.

23. In this sense, the phrase “failure to take reasonable care” does envisage a duty expressed in negative terms but, more importantly, in terms which are inapt with respect to an intentional tort. Similar reasoning applies to the liability based on receipt of property transferred in breach of a fiduciary duty. The duty of a person dealing with fiduciaries is not to take reasonable steps to avoid becoming party to their breach of duty, but rather not knowingly to receive the property of the company with knowledge of circumstances which would allow an honest and reasonable person to recognise that an impropriety had been committed. [9]

    9. Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 398 (Gibbs J), 413 (Stephen J, Barwick CJ agreeing).

24. On the approach accepted by the trial judge, it is not sufficient that the recipient of the property is obtained with knowledge of circumstances which would put a reasonable and honest person on inquiry. [10] There was no error in adopting that language. The state of mind sufficient to impose liability on the recipient of trust property or other property conveyed in breach of a fiduciary obligation was addressed by the Full Court of the Federal Court in Grimaldi v Chameleon Mining (No 2):[11]

“[268]   The High Court in Farah Constructions did not settle the knowledge/notice requirement in relation to recipient liability. Nonetheless, from at least the 1990’s and in the wake of the Baden classification, judges had begun in recipient liability cases to generalise from what had been said both by Gibbs J (at 398) and by Stephen J (at 412) with whom Barwick CJ agreed, about the insufficiency of traditional, or category (v), constructive notice – though not of category (iv) notice – as a basis for personal liability. … In [Kalls Enterprises] [12] – a decision which post-dates Farah Constructions – the New South Wales Court of Appeal applied Baden’s categories (i)-(iv), but not category (v) to a knowing receipt claim. Kalls Enterprise[s] in turn has been applied subsequently: see eg Horsman v M G Kailis Pty Ltd [13] ; Fodare Pty Ltd v Shearn [14] .

[269]   There is, in other words, an established line of judicial decision and opinion both at first instance and in intermediate courts of appeal spanning at least 20 years adhering to the view taken in the above cited cases. We do not consider that that view is plainly wrong and should be rejected. On the contrary!”

10. Cassegrain [2012] NSWSC 403 at [243]; Farah at [170]-[178].

11. (2012) 200 FCR 296; [2012] FCAFC 6 (Finn, Stone and Perram JJ).

12.    Above, fn (3).

13. [2009] WASC 166.

14. (2011) 29 ACLC 11-036.

25. To the line of subsequent authority noted in Grimaldi at [268] it is now appropriate to add a reference to Simmons v New South Wales Trustee and Guardian,[15] which adopted the same approach in respect of knowing receipt. [16]

    15. [2014] NSWCA 405 (Gleeson JA, Beazley P and Barrett JA agreeing).

    16.    Simmons at [88]-[92].

26. It follows that the basis of the appellant’s liability was not a failure to take reasonable care; it was receipt of property with knowledge of the circumstances in which it was conveyed and which told of impropriety. A failure to inquire was not only not an element of the appellant’s liability, it was insufficient to ground liability. The equitable liability depends on the subjective state of mind of the recipient, not an objective test of a reasonable person.

27. Although it is not necessary to decide the point, there is a further reason why the appellant’s submissions should be rejected. Even if a failure to inquire as to the circumstances of a transaction were sufficient to ground liability, and accepting that it would involve an objective element, it is not readily characterised as a failure to exercise reasonable care.

28. Express findings as to the appellant’s knowledge were made by the trial judge and were not challenged. [17] It follows that, on the unchallenged findings of fact, s 35 of the Civil Liability Act was not engaged.

    17. Cassegrain [2012] NSWSC 403 at [253]-[254].

29. In reaching this conclusion, I do not intend to dismiss as immaterial or insubstantial the significant procedural obstacles which were faced by the appellant in belatedly raising the issue. It is sufficient to say that her appeal must fail because s 35 was not engaged.

30. It being conceded that, if the appeal were to fail, the application for leave to appeal with respect to the costs order must fail, the appeal should be dismissed and leave to appeal refused in respect of the costs order. The appellant must pay the respondents’ costs in this Court.

31. SACKVILLE AJA: I agree with the orders proposed by Emmett AJA and generally with his Honour’s reasons. I add the following observation.

32. As Emmett AJA has pointed out, on 10 April 2014 the primary Judge gave leave to the Plaintiffs in the proceedings to add a claim for equitable compensation against Felicity. Had Felicity then contended, whether by way of an amendment to the pleadings or otherwise, that the claim against her was an “apportionable claim” within s 34(1) of the Civil Liability Act 2002 (NSW) (CL Act), a number of issues would have arisen for determination.

33. One issue that is very likely to have arisen is whether Felicity was precluded by s 34A of the CL Act from relying on Part 4 of the Act to limit her liability. Section 34A relevantly provides as follows:

“(1)   Nothing in this Part operates to limit the liability of a concurrent wrongdoer (an "excluded concurrent wrongdoer") in proceedings involving an apportionable claim if:

(a)   the concurrent wrongdoer intended to cause the economic loss or damage to property that is the subject of the claim, or

(b)    the concurrent wrongdoer fraudulently caused the economic loss or damage to property that is the subject of the claim, or

…

(2)    The liability of an excluded concurrent wrongdoer is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.”

34. The Plaintiffs possibly may have been content to rely on the findings made by the primary Judge in the judgment delivered on 27 April 2012,[18] in order to bring the case within s 34A(1) of the CL Act. However, the Plaintiffs may well have sought to adduce further evidence directed specifically to satisfying the language of subparas (1) and (b) of s 34A(1). They would have been able to take that course since the directions made by the primary Judge on 8 July 2014 contemplated that the parties could serve and rely on further evidence at the inquiry.

    18. [2012] NSWSC 403.

35. A party seeking to advance for the first time on appeal an argument not put at the trial will not be permitted to do so if the new ground could possibly have been met by calling evidence at the hearing, or if the other party might have conducted its case differently at trial. [19] This principle precludes Felicity seeking to rely on Part 4 of the CL At for the first time on appeal.

    19. Suttor v Gundowda [1950] HCA 35; 81 CLR 418 at 438 per curiam; Coulton v Holcombe [1986] HCA 33; 162 CLR 1 at 7-8 (Gibbs CJ, Wilson, Brennan and Dawson JJ); Sze Tu v Lowe [2014] NSWCA 462; 89 NSWLR 317 at [136]-[139] (Gleeson JA, Meagher and Barrett JJA agreeing).

36. EMMETT AJA: There are two sets of proceedings before the Court. Both are concerned with the extent to which Felicity Cassegrain (Felicity) should be held responsible for losses occasioned to Gerard Cassegrain & Co Pty Limited (the Company) as a consequence of the transfer to Felicity of shares in Cassegrain Tea Tree Pty Limited (CaTTO) and Oceania Agriculture Limited (OAL). The shares in CaTTO and OAL (together the Shares) were owned by the Company and were transferred to Felicity at a significant undervalue. They were transferred at the behest of Mr Claude Cassegrain (Claude) and Mr Anthony Sarks (Mr Sarks) in breach of fiduciary and statutory duties that they owed to the Company as directors of the Company. Claude is Felicity’s husband and Mr Sarks is her father.

37. Certain of the shareholders of the Company, being Mr Denis Cassegrain, Ms Catherine Dunn, Mr Patrick Cassegrain and Mr John Cassegrain (the Plaintiffs), who are siblings of Claude, commenced derivative proceedings in the Equity Division against Claude, Felicity and Mr Sarks (the Derivative Proceedings), in which they impugned the transfers of the Shares to Felicity (the Transfers). On 24 July 2012, a judge of the Equity Division (the primary judge) held that Claude and Mr Sarks had committed breaches of fiduciary duties and that Felicity was involved in those breaches. The primary judge directed an inquiry as to the equitable compensation that should be paid to the Company by Claude, Felicity and Mr Sarks[20] . Her Honour ordered that Claude and Mr Sarks pay the Plaintiffs’ costs of the Derivative Proceedings.

    20. See Denis Cassegrain & Ors v Gerard Cassegrain & Co Pty Ltd & Ors [2012] NSWSC 403; Denis Cassegrain & Ors v Gerard Cassegrain & Co Pty Ltd & Ors (Final Orders) [2012] NSWSC 834.

38. Felicity appealed to this Court on the basis that in the pleadings, the only relief sought against her was the setting aside of the Transfers or an order for the re-transfer of the Shares. The appeal was allowed and this Court set aside the order for an inquiry in so far as it related to Felicity, and remitted the matter to the primary judge for further consideration, including any application by the Plaintiffs for leave to amend the pleadings by filing a proposed third further amended statement of claim[21] . On 10 April 2014, following the remitter, the primary judge allowed amendment of the pleadings to claim equitable compensation from Felicity[22] .

    21. See Gerard Cassegrain & Co Pty Ltd (in liquidation) v Cassegrain [2013] NSWCA 455.

    22. See Denis Cassegrain & Ors v Gerard Cassegrain & Co Pty Limited (in Liquidation) & Ors [2014] NSWSC 411.

39. On 15 May 2014, the primary judge ordered Felicity to pay the Plaintiffs’ costs of the Derivative Proceedings and, on 5 December 2014, her Honour directed judgment in the sum of $1,399,870.71 for the Plaintiffs’ costs pursuant to s 98(4)(c) of the Civil Procedure Act2005 (NSW) (the Costs Orders). In the orders of 5 December 2014, her Honour noted the concession made by the Plaintiffs that the liability of Felicity created by that order was joint and several with the liability of Claude and Mr Sarks created by the orders made on 24 July 2012.

40. In the meantime, on 16 May 2014, the primary judge ordered that the inquiry originally ordered on 24 July 2012 include the question of the extent of Felicity’s liability to pay equitable compensation to the Company as a result of her participation in the breaches of fiduciary duty by Claude and Mr Sarks. On 8 July 2014, her Honour referred to Mr Richard Macready (the Referee), under r 20.14 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), the question of the existence and quantum of any loss suffered by the Company by reason of the transfer of the Shares to Felicity. On 30 January 2015, pursuant to UCPR r 20.23, the Referee provided a report to her Honour (the Report).

41. In the Report, the Referee said that he was satisfied that the value of the Company’s share in CaTTO, at the time of its transfer to Felicity on 19 January 2005, was $845,356 and that the value of the Company’s shares in OAL, at the time they were transferred to Felicity on 20 January 2005, was $1,882,566. The Referee determined that the amount of equitable compensation payable by Claude, Mr Sarks and Felicity, jointly and severally, was $2,596,039 plus interest.

42. The Company is now in liquidation. On 13 February 2015, the liquidator of the Company (the Liquidator) applied to the primary judge, by Notice of Motion, for an order that the Report be adopted pursuant to UCPR r 20.24 and that orders be made that Claude, Mr Sarks and Felicity jointly and severally pay equitable compensation to the Company. The Liquidator also sought an order that Claude, Mr Sarks and Felicity jointly and severally pay the Company interest on the relevant sums up to the time of judgment. Felicity opposed the adoption of the Report.

43. On 30 June 2015, for reasons published on that day[23] , the primary judge ordered that the Report be adopted and that Felicity, jointly and severally with Claude and Mr Sarks, pay equitable compensation to the Company in the sum of $2,596,039 (the Compensation Orders). On 5 August 2015, her Honour ordered Claude, Felicity and Mr Sarks jointly and severally to pay interest to the Company in the amount of $2,302,302.40. Her Honour also ordered Claude, Felicity and Mr Sarks, jointly and severally, to pay the Company’s costs of and associated with the reference, including the costs of the adoption of the Report.

    23. See Denis Cassegrain & Ors v Gerard Cassegrain & Co Pty Ltd (in liquidation) & Ors [2015] NSWSC 851.

44. In the first of the two proceedings presently before this Court (the Substantive Appeal), Felicity appeals, as of right, from so much of the Compensation Orders as held that Felicity was jointly and severally liable with Claude and Mr Sarks to pay equitable compensation with interest to the Company. She also appeals from so much of the orders made by the primary judge on 4 August 2015 as held that she was jointly and severally liable with Claude and Mr Sarks for interest on the amount of the compensation and costs.

45. In the second proceedings (the Costs Appeal), Felicity seeks an order that the time for seeking leave to appeal against the Costs Orders be extended. She also seeks leave to appeal from the Costs Orders and an order that the application for an extension and for leave to appeal be heard concurrently with the Substantive Appeal. Directions have been given that the application for extension of time, the application for leave, if time is extended, and the appeal, if leave is granted, be heard concurrently. The Substantive Appeal and the Costs Appeal have been heard together.

46. The respondents in the Substantive Appeal are the Plaintiffs, the Company, the Liquidator and Claude and Mr Sarks. The respondents to the Costs Appeal are the same. The Liquidator, and the Company through the Liquidator, complain that they should not be parties to the Costs Appeal. In effect, no relief is sought against the Company or the Liquidator, since the issues that will be raised in the Costs Appeal are concerned only with the costs of the Plaintiffs in the Derivative Proceedings.

47. The Plaintiffs complain that they should not be parties to the Substantive Appeal, since the Compensation Orders are wholly for the benefit of the Company. While the Plaintiffs commenced and prosecuted the Derivative Proceedings, they did so in a representative capacity as shareholders of the Company, in circumstances where Claude and Mr Sarks, as directors of the Company, declined to bring proceedings against themselves and Felicity.

48. The Plaintiffs oppose the extension of time and the grant of leave to appeal in the Costs Appeal. They say that the delay on the part of Felicity is inordinate and that Felicity has not provided any explanation that is capable of demonstrating that strict compliance with the relevant time limits would work an injustice on her. In any event, they say, strict compliance would not work an injustice because the Costs Orders are inherently just. Further, they contend that Felicity has not established that she has a fairly arguable case for the grant of leave and, by reason of what has occurred in the intervening period since the making of orders on 5 December 2014, which were not opposed by Felicity, the Plaintiffs would be prejudiced if time were to be extended. In essence, the same question is raised in both proceedings, and Felicity accepts that success in the Costs Appeal is dependent upon success in the Substantive Appeal.

49. The essential question is whether the primary judge erred in failing to apportion in some way, between Felicity, on the one hand, and Claude and Mr Sarks on the other, responsibility for the loss suffered by the Company as a consequence of the transfer of the Shares at an undervalue. She contends that, notwithstanding the fact that neither the primary judge nor the Referee was asked to make such an apportionment, the primary judge erred in adopting the Report without making such apportionment herself. That contention depends upon the applicability of Part 4 of the Civil Liability Act 2002 (NSW) (the Civil Liability Act) to the circumstances in question. The Company and the Liquidator respond that it is not open to Felicity to rely on Part 4 at this late stage in the litigation. It is necessary to say something about Part 4 before dealing with the questions raised by the Substantive Appeal.

50. Under s 34(1)(a) of the Civil Liability Act, a claim for economic loss in an action for damages arising from a failure to take reasonable care, whether founded in contract, tort or otherwise, is an “apportionable claim”. Under s 3, the term “damages” includes “any form of monetary compensation”. Under s 34(1A), there may be a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind). Under s 34(2), a “concurrent wrongdoer”, in relation to a claim, is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.

51. Section 35(1) relevantly provides that in any proceedings involving an apportionable claim, the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just, having regard to the extent of the defendant’s responsibility for the damage or loss. The court may not give judgment against the defendant for more than that amount. However, under s 34A, that provision does not operate to limit the liability of an excluded concurrent wrongdoer in proceedings involving an apportionable claim. An “excluded concurrent wrongdoer” is a concurrent wrongdoer who intended to cause or fraudulently caused the economic loss that is the subject of the claim.

The Grounds of Appeal

52. The grounds in the Further Amended Notice of Appeal filed by Felicity in the Substantive Appeal on 18 November 2015 are that the primary judge erred:

1. in deciding that Felicity’s liability to the Company, for the full compensation and interest, and the costs of and associated with the reference to the referee, including the costs of the adoption of the Report, was joint and several with Claude and Mr Sarks.

2. in failing to hold that Felicity’s liability to pay equitable compensation to the Company:

1. did not extend beyond an amount that was proportionate with her liability as an accessory under the first limb of Barnes v Addy, or alternatively, did not extend to more than 10% of the equitable compensation so ordered, and

2. was not joint and several with Claude and Mr Sarks.

3. in failing to apply Part 4 of the Civil Liability Act to the liability of Felicity in relation to such compensation, so that Felicity’s liability for such compensation, as a concurrent wrongdoer, was several and did not exceed 10% of such compensation.

53. Felicity filed an Amended Summons in the Costs Appeal on 25 October 2015. The grounds stated in the draft notice of appeal filed in the Costs Appeal are that the primary judge erred:

1. in ordering on 15 May 2015 that Felicity pay the costs of the Derivative Proceedings because:

1. earlier orders were made on 24 July 2012 that Felicity, Claude and Mr Sarks pay those costs;

2. as against Felicity, those orders were set aside by the Court of Appeal;

3. Claude and Mr Sarks therefore remained liable to pay the costs of the Derivative Proceedings; and

4. the orders of 15 May 2014 erroneously made Felicity liable for the whole of the costs of the Derivative Proceedings.

2. in ordering on 5 December 2014 that Felicity pay the costs of the Plaintiffs in the Derivative Proceedings in the sum of $1,399,870.91 on the basis of joint and several liability with the liability of Claude and Mr Sarks that was created by the orders made on 24 July 2012.

3. in failing to hold that Felicity’s liability with respect to the costs of the Derivative Proceedings:

1. was to be proportionate to the extent of her ultimate liability to pay equitable compensation to the Company, or alternatively, did not extend to more than 10% of the costs so ordered, and

2. was not joint and several with Claude and Mr Sarks;

4. in failing to take the following relevant considerations into account:

1. The orders made on 24 July 2012 were set aside, as against Felicity, by the Court of Appeal;

2. The costs certificate in the sum of $1,373,062.34 was unenforceable, or a nullity, as against Felicity.

54. Felicity contended that errors were made by the primary judge in making the Costs Orders by reason of the following:

1. The primary judge failed to recognise that the claim made by the Plaintiffs on behalf of the Company was apportionable pursuant to Part 4 of the Civil Liability Act;

2. The orders of 5 December 2014 were entered without the primary judge giving due consideration to whether Felicity’s liability for the costs of the Derivative Proceedings should be several and in proportion to the extent of her ultimate liability to pay equitable compensation to the Company, which at the time of the orders had not been finally determined; and

3. The primary judge should not have made any orders as to Felicity’s liability with respect to the costs of the Derivative Proceedings until the quantum and extent of her liability to pay equitable compensation was decided.

The Substantive Appeal

Grounds 1 and 2

55. Felicity contended before the Referee that no compensation, or no substantial compensation, should be recoverable from her, because she was a mere transferee of the Shares and her liability was limited by what she in fact did. She said that, since her culpability was substantially less than that of Claude and Mr Sarks, it would, as a matter of discretion, be unconscientious and inequitable to make her accountable for the whole of the loss suffered by the Company. She also contended that the extent of her knowledge of an improper purpose in receiving the Shares was limited, that there were no findings that she knew of any particular factual matters establishing the value of the Shares or that they were being sold at an undervalue, and that she had not conspired with Claude and Mr Sarks to effect the Transfers to her at an undervalue. Thus, she said, her only connection with the loss was as a transferee, which put her in a very different position from Claude and Mr Sarks. The Referee held that, because the findings of the primary judge put beyond argument the participation of Felicity in the breaches of fiduciary duty by Claude and Mr Sarks, there was no question that the extent of Felicity’s liability to pay equitable compensation to the Company might be anything other than joint and several with Claude and Mr Sarks.

55. Felicity contends that her liability should be limited to a proportion of the compensation commensurate with her responsibility for the total compensation. She says that the amount of compensation should reflect the extent to which she brought about the loss. That appears to be a contention that the Referee and the primary judge reached an erroneous conclusion concerning the causal connection between Felicity’s involvement and the loss suffered by the Company.

56. In her reasons of 30 June 2015, the primary judge recorded that the principal argument raised by Felicity was that she should not be held liable for the loss suffered by the Company because her conduct did not cause the Company’s loss. Her Honour observed that the Referee found that the Transfers could not have gone ahead without Felicity’s complicity and that the Referee was clearly satisfied, on a common sense view of causation, that Felicity’s conduct caused loss to the Company. Her Honour held that Felicity was in knowing receipt of the Shares and that, without her participation, there would have been no loss caused to the Company.

57. The primary judge was not satisfied that the Referee’s approach to the causation of loss to the Company was a basis for rejecting the Report. Her Honour observed that Felicity had always claimed that she was far less culpable than Claude and Mr Sarks in the transfer of the Shares and that that contention had been rejected both at the trial before her Honour and by the Referee. Her Honour considered that Felicity was a pivotal part of the process and that her knowledge of the improper purpose was taken into account by the Referee, and previously by her Honour, in making her earlier determination. There was no error on her Honour’s part in that regard. Grounds 1 and 2 therefore be rejected.

Ground 3

59. Felicity now contends before this Court that the claim made by the Plaintiffs in the Derivative Proceedings for loss suffered by the Company was an “apportionable claim” that enlivened the relevant provisions of Part 4 of the Civil Liability Act. She says that, under the Civil Liability Act, liability must be apportioned according to the Court’s assessment of the extent of her responsibility and may award only the sum that represents the proportion of her liability as determined by the Court, the nature of her fault being the critical issue.

60. Felicity accepts that Part 4 of the Civil Liability Act was not raised before the Referee or the primary judge. Nonetheless, she claims that once the Derivative Proceedings are characterised as proceedings in which she became potentially liable to pay compensation, as distinct from re-transferring the Shares to the Company, the issue of apportionment was raised as a substantive issue. She says that the question of the application of Part 4 of the Civil Liability Act is a question of law and that no prejudice has been occasioned by the failure to raise Part 4 earlier.

61. The Company and the Liquidator say that it is still necessary for Felicity to identify error in the exercise of the discretion by the primary judge to adopt the Report, but no such error has been identified. In particular, they say, the failure to have regard to the provisions of the Civil Liability Act could not be characterised as error in circumstances where the Civil Liability Act was never pleaded or cited during the reference or the motion to adopt the Report. In any event, they argue, it is too late to raise Part 4 of the Civil Liability Act for the first time on the appeal. That contention requires a careful examination of the procedural history of the dispute.

The Procedural History

62. On 24 July 2012, the primary judge made declarations that by authorising the sale and transfer of the Shares, each of Claude and Mr Sarks breached the fiduciary duties that he owed to the Company and that Felicity acquired the Shares from the Company with knowledge of those breaches of duty. By Order 10 made on that day, her Honour declared that Claude, Mr Sarks and Felicity were jointly and severally liable to compensate the Company for any loss to the Company arising from the transfer of the Shares to her. By Order 16, her Honour ordered Claude, Mr Sarks and Felicity to pay the Plaintiffs’ costs of the Derivative Proceedings on the party/party basis. Finally, as presently relevant, by Order 17, her Honour directed that an inquiry be held as to the existence and quantum of any loss to the Company by reason of the transfer of the Shares to Felicity, for the purpose of making orders for equitable compensation to be paid to the Company by Claude, Mr Sarks and Felicity.

63. On 20 December 2013, this Court allowed Felicity’s appeal and ordered that Order 17 made on 24 July 2012 be set aside in relation to Felicity and that the matter be remitted to the primary judge for the purpose of considering any application on behalf of the Plaintiffs for leave to amend their then current Statement of Claim in terms of the draft identified by this Court. The order of 20 December 2013 was varied by consent on 13 May 2014 to provide that Orders 10 and 16 also be set aside.

64. On 10 April 2014, the primary judge granted leave to the Plaintiffs to amend their pleading by the inclusion, in a proposed third further amended statement of claim, which was before her Honour, of a further prayer for relief consisting of paragraph 11A. While the formal order granting leave appears not to have been entered, the parties have apparently proceeded on the basis that the order granting leave was duly made. Notwithstanding that that leave was granted, it appears that no amended pleading was filed in consequence of the leave, and no defence was filed to the proposed third further amended statement of claim. Thus, the final form of statement of claim filed on behalf of the Plaintiffs is the second further amended statement of claim filed on 20 June 2011. Felicity filed a Defence to that pleading on 2 August 2011.

65. The allegations made against Felicity in the second further amended statement of claim, and the proposed third further amended statement of claim, may be summarised as follows (the references being to the paragraph numbers in the relevant pleadings):

127.   By 19 January 2005, Felicity was aware that an objection by the Company to an amended tax assessment for the 1994 and 1996 years of income had been dismissed.

128.   On 19 January 2005, Felicity executed a share transfer, as transferee, for one share in CaTTO.

129.   On 20 January 2005 Felicity executed another share transfer, as transferee, for 100,000 shares in AOL.

130.   At the time of the transactions referred to in 128 and 129, Felicity:

1. had a loan with the Company in the amount of $194,249.19 that was not due to be fully paid until 20 December 2005 and was secured by a charge over the assets of the Company,

2. made no enquiries as to whether the minority shareholders had been notified of those transactions or had consented to those transactions,

3. was not advised that the minority shareholders had consented to those transactions,

4. made no enquiry as to how the price paid for the Shares had been determined, and

5. made no enquiry as to whether the price paid for the Shares had been determined by independent valuation.

131.   Alternatively, Felicity appointed Claude to advise her on the appropriate purchase price for the Shares.

132.   In the circumstances, Felicity had the imputed knowledge of the true value of the Shares that her agent, Claude, had.

133.   At all relevant times Felicity was aware that the consideration for the Transfers underestimated the value of the shares.

135. The transfer of the Shares constituted an alienation of property with the intent to defraud creditors within the meaning of s 37A of the Conveyancing Act 1919 (NSW).

137 and 144.

When Claude and Mr Sarks caused the Company to dispose of the Shares to Felicity, each was aware that the sales were occurring at significant undervalue.

138 and 145.

Each of Claude and Mr Sarks placed himself in a position of conflict between his duty to the Company and the interests of Felicity by causing the Company to dispose of the Shares to Felicity without obtaining the fully informed consent of all the shareholders of the Company.

139 and 146.

The decision of Claude and Mr Sarks to cause the Company to sell the Shares to Felicity was not made in the interests of the Company but instead made for the improper purpose of removing valuable assets from the Company and transferring them to Felicity; thereby placing assets beyond the reach of the creditors of the Company.

139A and 146A.

Each of the above matters constituted a separate breach of fiduciary duties owed to the Company by Claude and Mr Sarks.

151.   At all relevant times Felicity received the benefits of the breach of fiduciary duty described in 139A and 146A, with the imputed knowledge of her agent, Claude, as to the true value of the Shares.

152.   At all relevant times Felicity received the benefit of the breach of fiduciary duty with actual knowledge of those breaches.

153.   Alternatively, Felicity received the benefit of the breaches of the fiduciary duties described above with knowledge of circumstances that would indicate to an honest and reasonable person that each of Claude and Mr Sarks had breached the duty that he owed to the Company.

154.   Alternatively, Felicity received the benefit of the breaches of fiduciary duty described above where she demonstrated a wilful shutting of her eyes to the obvious.

155. Alternatively, Felicity was a person who was knowingly involved in the breaches of statutory duty described above within the meaning of s 79(c) of the Corporations Act2001 (Cth) (the Corporations Act).

66. The second further amended statement of claim claimed some nine declarations concerning the transfer of the Shares, including declarations concerning Felicity’s participation in and benefiting from the Transfers. It claimed an order that the Company do all things necessary to avoid the disposition of the Shares to Felicity and an order requiring Felicity, upon just terms, to do all things necessary to transfer the Shares back to the Company. It also claimed an order that, upon the avoidance of the transactions or upon the retransfer of the Shares, Claude or Felicity acquire the shares of the Plaintiffs in the Company at a price to be determined by the Court.

67. In the alternative, the second further amended statement of claim, relevantly, claimed declarations that Felicity had received the Shares with knowledge of the breaches of fiduciary duty and that she held the Shares on trust absolutely for the Company. Part of the alternative relief was a claim for an order for an inquiry to determine the amount of compensation payable by Claude and Mr Sarks to the Company as a consequence of the contraventions of the Corporations Act and an order that Claude and Mr Sarks compensate the Company for damages suffered as a consequence of the contraventions of the Corporations Act.

68. Significantly, there was no claim in the second further amended statement of claim for equitable compensation from Felicity. That was the basis on which this Court allowed Felicity’s earlier appeal. The amendment for which leave was given by the primary judge on 10 April 2014 was to include an additional prayer in the following terms:

11A.   Order that [Claude], [Mr Sarks] and [Felicity] jointly pay [the Company] such equitable compensation as the Court determines appropriate.

69. On 16 May 2014, the primary judge ordered that the inquiry referred to in Order 17 made on 24 July 2012 include the question of “the extent” of Felicity’s liability to pay equitable compensation to the Company, as a result of her participation in the breaches of fiduciary duty by Claude and Mr Sarks in transferring the Shares to her. That was Order 1 made on that day. Short minutes of proposed orders to be made on 16 May 2014 had been prepared, which were initialled by the primary judge on that day. However, in the draft short minutes the order concerning the inquiry was shown as Order 5. Order 1 in the draft short minutes was an order granting leave to the Plaintiffs to amend their pleading by the inclusion of paragraph 11A. In circumstances that have not been explained, Order 1 was deleted, together with proposed Orders 2, 3 and 4. Thus, what was Order 5 became Order 1. The relevance of that will become apparent below.

70. On 8 July 2014 the primary judge made orders to the effect, relevantly, of the following:

●   Claude and Mr Sarks serve all evidence that they propose to rely upon at the inquiry on or before 22 August 2014.

●   Felicity serve all evidence that she proposes to rely upon at the inquiry on or before 5 September 2014.

●   The Plaintiffs serve any evidence in reply by 19 September 2014.

●   The Plaintiffs file and serve points of claim on or before 15 October 2015.

● Pursuant to UCPR r 20.14, refer to the Referee for inquiry and report the matter in the Schedule.

71. The Schedule was as follows:

The “Inquiry” ordered pursuant to Order 17 made on 24 July 2012 as varied by Order 5 made on 16 May 2014 such orders set out below in full:

Order 17, 24 July 2012

An Inquiry be held as to the existence and quantum of any loss to [the Company] by reason of the transfer of [the Shares] to Felicity…for the purpose of making orders for equitable compensation to be paid to the Company by [Claude], [Mr Sarks] and [Felicity]…

Order 5, 16 May 2014

Order that the Inquiry referred to in Order 17 made on 24 July 2012 include the question of extent of [Felicity’s] liability to pay equitable compensation to [the Company], as a result of her participation in the breaches of fiduciary duty by [Claude] and [Mr Sarks] in transferring the shares to [Felicity].

72. Clearly, the reference to “Order 5 made on 16 May 2014” is erroneous and should have been a reference to Order 1 made on that day. On 21 October 2014, further orders made by the primary judge were entered, relevantly, to the following effect:

●   On or before 29 October 2014, Claude, Felicity and Mr Sarks file and serve a defence to the points of claim.

●   Evidence in the Derivative Proceedings be evidence in the Inquiry.

73. On 15 October 2014, points of claim were filed on behalf of the Plaintiffs. After reciting the history of the transfer of the Shares, paragraph 12 of the points of claim asserted that, as a result of those matters, the Company suffered loss and damage. On 31 October 2014, Felicity filed amended points of defence, in which she said in answer to the whole of the points of claim that, if it is found and held that the Company is entitled to recover any equitable compensation in consequence of the transfer of the Shares to her, the Company is not and should be held not to be entitled to recover any equitable compensation from Felicity by reason of the following:

●   Claude and Mr Sarks caused and procured the Company to transfer the Shares to Felicity.

●   Felicity did not cause, procure or participate in the transfer of the Shares except to sign Transfers as transferee.

●   The Company did not suffer any loss or damage arising from or caused by any participation by Felicity in any breach of fiduciary duty and there was no causal connection between the Company’s loss and the transfer of the Shares.

74. Felicity asserted in her points of defence that the Court, in its discretion, should decline to make any orders that she pay any (or any substantial) compensation. On 19 November 2014, the Plaintiffs filed a reply to the points of defence, in which they asserted that, to the extent that the points of defence contained a challenge to the Company’s entitlement to recover equitable compensation from Felicity by reason of the transfer of the Shares, as opposed to challenging the quantum of that entitlement, Felicity is precluded from challenging the Company’s entitlement to recover equitable compensation from her by reason of the fact that the Company’s entitlement against her had passed into judgment.

Felicity’s Entitlement to Raise Apportionment

75. I do not consider that it is open to Felicity, at this stage in the litigation, to raise apportionment under Part 4 of the Civil Liability Act as an answer to the order that she pay equitable compensation to the Company. Of course, on the basis of the prayers for relief in the second further amended statement of claim, it was not strictly necessary for that question to be raised at the time of the trial before the primary judge. Ultimately, her Honour granted leave to the Plaintiffs to amend their pleading to make a claim for equitable compensation against Felicity. In fact, as I have said, the amended pleading was not actually filed, although the parties appear to have proceeded on the basis that one had been filed and that the defence to the previous pleading would stand as a defence to the amended pleading.

76. It may have been open, at the stage of remitter, for Felicity to object to the amendment on the basis that, if a claim for compensation was made against her, she wished to rely on an entitlement to apportionment, either under the Civil Liability Act or under the general law. Alternatively, once leave to amend had been granted, it would have been open to Felicity to file a defence to the amended pleading, raising apportionment as a partial answer to the claim. Had she done so, it may have been necessary for the primary judge to embark on a further hearing as to factual matters that may or may not be relevant to the question of apportionment. Alternatively, her Honour may have directed that the inquiry by the Referee also extend to the question of apportionment of any liability to pay compensation to the Company among concurrent wrongdoers, assuming that a determination was made that Claude, Mr Sarks and Felicity were concurrent wrongdoers for the purposes of Part 4 of the Civil Liability Act.

77. In order to attract Part 4 of the Civil Liability Act, it would be necessary to establish that the claim for equitable compensation against Felicity is a claim for economic loss in an action for damages arising from a failure to take reasonable care. It could also be necessary to consider whether Felicity intended to cause the economic loss suffered by the Company within the meaning of s 34A(1)(a) of the Civil Liability Act. There has simply been no occasion to explore those questions. The possibility that the Plaintiffs or the Company, through the Liquidator, may have adduced further evidence, if apportionment had been raised by way of defence, cannot be ruled out.

78. As indicated above, Felicity sought to raise before the Referee a basis upon which her liability to pay compensation should be limited. That is to say, she contended before the Referee, that as a matter of discretion, the Referee should mould the relief to be granted to meet the particular circumstances of the case. She made no reference to Part 4. In those circumstances, whether or not it would have been open to Felicity to rely on Part 4 by way of answer to the amended pleading of the Plaintiffs, it is not open to her to raise Part 4 in this Court.

Applicability of Part 4 of the Civil Liability Act

79. Felicity contends that the Plaintiffs’ claim for equitable compensation on behalf of the Company was a claim for a type of monetary compensation that falls within the definition of “damages” in s 3 of the Civil Liability Act. Hence, she says, having regard to the definition of damages, the phrase “in an action for damages” in s 34(1)(a) encompasses a claim for equitable compensation. She says that the claim for equitable compensation made by the Plaintiffs on behalf of the Company was for economic loss determined on inquiry, which was required to ascertain a specific sum of monetary compensation to be paid to the Company. She then contends that, in circumstances where her participation in the acts and omissions of Claude and Mr Sarks, together with her own acts and omissions, were causes of the Company’s loss, it should be concluded that the loss suffered by the Company arose from a relevant failure to take reasonable care.

79. Next, Felicity contends that there were clearly two or more persons who caused the loss to the Company, who may be characterised as “concurrent wrongdoers”, being herself, on the one hand, and Claude and Mr Sarks, on the other. She says that there was no finding as against her that she either intentionally or fraudulently intended to cause economic loss to the Company, and accordingly, she would not be an excluded concurrent wrongdoer. She says that it does not matter whether the loss was caused independently or jointly with Claude and Mr Sarks and there is no requirement that any of them have a causative role in the contravening conduct of the other.

80. Accordingly, Felicity contends, since the operation of the Civil Liability Act is compulsory in respect of any proceedings involving an apportionable claim, her liability should be limited to an amount that reflects the apportionment of the loss that the Court considers just, having regard to the extent of her responsibility for the loss to the Company. She says that the primary judge held that she was no more responsible than Claude and Mr Sarks and, accordingly, her proportionate liability should be no higher than one third. Further, she says, a figure of 10% is more appropriate in the circumstances.

81. Felicity contends that the acts and omissions of Claude and Mr Sarks, as directors of the Company, carried greater culpability than her participation in accepting the Transfers, because:

●   Claude and Mr Sarks caused the Shares to be transferred to her for an undervalue;

●   Claude and Mr Sarks were responsible for not obtaining an independent valuation before the Transfers took place;

●   Claude and Mr Sarks knowingly transferred the Shares to Felicity for an illegitimate purpose;

● Claude and Mr Sarks acted in breach of the provisions of ss 180, 181 and 182 of the Corporations Act.

83. Having regard to the conclusion reached above, it is not necessary to deal with the possible application of Part 4 of the Civil Liability Act. However, it is difficult to see how it would have application in the present circumstances. Assuming that the claim made by the Plaintiffs against Felicity in the Derivative Proceedings can be characterised as a claim for economic loss, within the meaning of s 34 and that the Derivative Proceedings can be characterised as an action for damages, a critical question is whether it could be said that the Company’s claim for economic loss against Felicity arose from a failure to take reasonable care.

84. Felicity’s liability arose because she accepted the transfer of the Shares from the Company, knowing that the transfer was effected by Claude and Mr Sarks in breach of the fiduciary duties owed by them to the Company as directors. Her liability does not arise because she failed to take care. The liability arose because she participated in transactions that she knew constituted breaches of fiduciary duty by directors of the Company. It did not arise from a want of care or negligence on her part.

85. Whether or not it could be said that Felicity intended to cause the relevant loss to the Company has not been the subject of any inquiry. In circumstances where Felicity was aware of an improper purpose on the part of the directors of the Company and was unaware as to whether the Shares were being transferred at a fair or market value, it may well have been open to conclude that she intended to cause the relevant loss. It is clear that she intended to receive the Shares and that the loss was the consequence of the transfer of the Shares to her. In those circumstances, it may well have been open to conclude that she intended to cause the relevant loss. However, in the circumstances, it is not necessary to decide the question.

The Costs Appeal

86. Having regard to the conclusion reached above, and the concession made on behalf of Felicity, there would be no utility in granting leave to appeal. However, I would have been disposed to extend the time for making an application for leave to appeal and would have granted leave. While a significant period of time elapsed between making the costs orders and the commencement of proceedings by way of challenging those orders, it would have been an anomalous result if Felicity had been held to be liable for only a proportion of the compensation payable to the Company but was nevertheless held liable for all of the costs ordered to be paid to the Plaintiffs in the Derivative Proceedings. In the circumstances, I would have been disposed to vary the costs orders if an order had been made apportioning the equitable compensation between Felicity, on the one hand, and Claude and Mr Sarks, on the other.

Conclusion

87. The Appeal should be dismissed with costs. The application for leave to extend the time for filing an application for leave to appeal should be refused with costs.

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Endnotes

Amendments

02 February 2017 - corrected representation in coversheet

18 April 2016 - typographical error

Decision last updated: 02 February 2017