Earley v Killinger
[2002] WASCA 174
•27 JUNE 2002
EARLEY & ANOR -v- KILLINGER & ORS [2002] WASCA 174
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2002] WASCA 174 | |
| THE FULL COURT (WA) | |||
| Case No: | FUL:18/2002 | 15 MARCH 2002 | |
| Coram: | MURRAY J SCOTT J | 27/06/02 | |
| 11 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed | ||
| A | |||
| PDF Version |
| Parties: | PHILLIP CHARLES EARLEY BRETTNEY THOMAS FOGARTY WILLIAM FREDERICK KILLINGER ROBERT JOHN WILDE JESSE KAVANAUGH TAYLOR NEVILLE THOMAS CLEARY |
Catchwords: | Practice and procedure Company sues directors and officers in negligence and breach of statutory duties Defendants issue third party notices Applications to strike out notices and dismiss third party proceedings on ground that notices disclose no reasonable cause of action Contention that if third parties were ultimately found to be negligent then that conduct would constitute a failure by the plaintiff company to mitigate its loss Alternative contention that conduct of third parties relied upon may be found to be reasonable Whether in either event contribution proceedings must fail |
Legislation: | Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA), s 7(1)(c) |
Case References: | Esso Petroleum Co v Mardon [1976] QB 801 Jones v Watney, Combe, Reed and Co Ltd (1912) 28 TLR 399 Mahoney v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 The World Beauty [1970] P 144 Thomas Borthwick & Sons (Australasia) Ltd v Samco Meats Pty Ltd [1995] 2 VR 474 AMP Fire & General Insurance Co Ltd v Dixon [1982] VR 833 Chapman v Hearse (1961) 106 CLR 112 Croston v Vaughan [1938] 1 KB 540 Daniels (formerly practising as Deloitte Haskins & Sells) & Ors v Anderson & Ors (1995) 37 NSWLR 438 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : EARLEY & ANOR -v- KILLINGER & ORS [2002] WASCA 174 CORAM : MURRAY J
- SCOTT J
- First Appellant
BRETTNEY THOMAS FOGARTY
Second Appellant
AND
WILLIAM FREDERICK KILLINGER
First Respondent
ROBERT JOHN WILDE
Second Respondent
JESSE KAVANAUGH TAYLOR
Third Respondent
NEVILLE THOMAS CLEARY
Fourth Respondent
(Page 2)
Catchwords:
Practice and procedure - Company sues directors and officers in negligence and breach of statutory duties - Defendants issue third party notices - Applications to strike out notices and dismiss third party proceedings on ground that notices disclose no reasonable cause of action - Contention that if third parties were ultimately found to be negligent then that conduct would constitute a failure by the plaintiff company to mitigate its loss - Alternative contention that conduct of third parties relied upon may be found to be reasonable - Whether in either event contribution proceedings must fail
Legislation:
Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA), s 7(1)(c)
Result:
Appeal dismissed
Category: A
Representation:
Counsel:
First Appellant : Mr P A Tottle
Second Appellant : Mr P A Tottle
First Respondent : Mr R L Le Miere QC & Mr A C Willinge
Second Respondent : Mr K J Martin QC & Ms S J Unwin
Third Respondent : Mr K J Martin QC & Ms S J Unwin
Fourth Respondent : Mr K J Martin QC & Ms S J Unwin
Solicitors:
First Appellant : Tottle Christensen
Second Appellant : Tottle Christensen
First Respondent : Blake Dawson Waldron
Second Respondent : Pullinger Readhead Stewart
Third Respondent : Pullinger Readhead Stewart
Fourth Respondent : Pullinger Readhead Stewart
(Page 3)
Case(s) referred to in judgment(s):
Esso Petroleum Co v Mardon [1976] QB 801
Jones v Watney, Combe, Reed and Co Ltd (1912) 28 TLR 399
Mahoney v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522
March v E & M H Stramare Pty Ltd (1991) 171 CLR 506
The World Beauty [1970] P 144
Thomas Borthwick & Sons (Australasia) Ltd v Samco Meats Pty Ltd [1995] 2 VR 474
Case(s) also cited:
AMP Fire & General Insurance Co Ltd v Dixon [1982] VR 833
Chapman v Hearse (1961) 106 CLR 112
Croston v Vaughan [1938] 1 KB 540
Daniels (formerly practising as Deloitte Haskins & Sells) & Ors v Anderson & Ors (1995) 37 NSWLR 438
(Page 4)
1 JUDGMENT OF THE COURT: This matter originally came before the Court in the form of applications by each of the appellants to set aside third party notices issued against them by the respondents on the ground that they disclosed no reasonable cause of action. Orders were therefore sought that the third party proceedings be dismissed. The applications were brought pursuant to the Rules of the Supreme Court (WA), O 19 r 6. It is rightly accepted by the parties that such an application may not succeed unless it is clearly demonstrated that the claims made by the third party notices must fail. For present purposes the facts are to be taken from the respondents' statements of claim they propose to file in the third party proceedings and the plaintiff's statement of claim.
2 It is pleaded that Minproc Ltd is a public company carrying on business in various parts of the world as construction engineers. It sues the respondents and one other, a Mr Cavill, as its directors and officers, for their conduct in causing Minproc to execute and deliver to Minera Yolanda SA, a company incorporated in Chile, a guarantee dated 25 August 1995. The respondents are sued for damages in negligence and for breach of statutory duties allegedly owed by them to the plaintiff company.
3 By reference to the plaintiff's statement of claim it appears that the matter is pleaded to have arisen in this way. Mr Cavill was Minproc's company secretary. The respondents were its board of directors. Mr Killinger was the managing director. Through a wholly owned subsidiary incorporated in the USA, Minproc entered into a partnership with a company called Mincorp Ltd. That company had entered into two agreements for the construction of a nitrate plant in Chile for Minera Yolanda SA. There were two contracts. One was an engineering and construction contract and the other was an equipment supply contract.
4 On 20 September 1994 at a board meeting of Minproc attended by the respondents and an additional director, a Mr Anderton, it was resolved that Minproc would offer a guarantee to the other party for the performance of the contracts which Mincorp was to make with Minera Yolanda SA. The guarantee was to be limited to an amount of US$4.3M. The giving of the guarantee would earn Minproc a fee of US$500,000. It is alleged that in passing that resolution, the members of the board acted negligently and in breach of their duties owed to the plaintiff. It is contended that they failed to obtain legal advice as to the maximum potential liability of Minproc under the guarantee, to verify that the prices and the terms of the two contracts were such as to enable each of them to be performed profitably for the contract amounts, to ensure that the design
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- of the proposed nitrate plant was sufficient to meet the requirements of the engineering contract and to satisfy themselves that Mincorp had the personnel to adequately perform the contracts and was financially able to meet its commitments under them.
5 It is pleaded that difficulties soon emerged. The project was delayed. Early in 1995 Mincorp was in such a financial position that it was necessary for the board of Minproc to allow Mincorp to pay the fee for the guarantee (not then provided) by five payments of US$100,000. Mr Killinger told other members of the board that it appeared to him that Mincorp's position was such that it would be difficult to recommend to the Minproc board that it should in fact give the guarantee. Mr Anderton repeated that advice at a board meeting held on 11 August 1995. He expressed serious concern at the significant risk involved to Minproc in providing the guarantee. Still, it is pleaded, the respondents negligently and in breach of their duties failed to obtain appropriate legal advice and make the appropriate inquiries which, had they been made, the plaintiff pleads would have revealed that the guarantee should not be given.
6 Nonetheless, it is said that on 25 August 1995 Messrs Killinger and Cavill executed the guarantee in favour of Minera Yolanda SA on behalf of Minproc and their action in so doing was ratified by the board on 16 October 1995, again, it is pleaded by the plaintiff, without obtaining the necessary advice and making the necessary inquiries to reveal the magnitude of the risk to which Minproc would be exposed by the guarantee.
7 The plaintiff pleads that by their negligence and breach of duty at these three points in the process of providing the guarantee, the respondents' actions caused loss to the plaintiff quantified as being not less than A$22.65M. That loss is pleaded to arise in the following way. By March 1996 it is said that Mincorp was technically insolvent and struggling to perform the contracts comprising the Minera Yolanda project. The likely exposure of Minproc under the guarantee is pleaded to have been established to be between US$1.57M and US$3.92M. It is pleaded that in order to mitigate its loss the respondents, as the board of Minproc, resolved on 14 March 1996 that Minproc should seek an assignment of the engineering and supply contracts comprising the project in question. Those assignments were made by Mincorp on 28 March 1996 and it is pleaded that the loss arose as a result of the contracts being taken over by Minproc.
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8 The contention therefore is that what was done in that regard by the board in an effort to mitigate Minproc's loss actually caused it to suffer a much greater loss, but the conduct of the board in taking over the contracts is not pleaded to be that which was negligently undertaken or undertaken in breach of the respondents' duties to Minproc, which allegations, as has been seen, are made in respect of the earlier decisions of the board to offer the guarantee, to execute it and to ratify its execution. The later events are pleaded as part of the process of causation of the loss suffered by Minproc for which it now claims damages.
9 The respondents' third party notices and proposed pleading by way of statements of claim in the third party proceedings involve allegations against the third parties in respect of the events from the point of the assignment. They plead that Minproc's board resolved on 14 March 1996 to take an assignment of the contracts and on 17 April caused Minproc to take that course. This was a period during which all of the respondents resigned their positions as directors of the plaintiff; Cleary on 31 March 1996; Killinger on 20 May 1996, Wilde on 14 June 1996 and Taylor on 28 June 1996. In the meantime, on 20 May 1996 the appellants, the second and third third parties, were appointed as directors with Anderton remaining, I think. Mr Fogarty was appointed as chairman of the board.
10 In the third party proceedings the respondents plead that by 2 August 1996 Minproc negotiated an increase in the total price payable to it under the contracts from US$46.25M to US$50.25M. Minproc assumed direct contractual responsibilities, severed its ties with Mincorp and commenced work to discharge its performance obligations under the contracts. By the end of November 1996 it was adjudged that the final cost of performing the contracts would be in the order of US$61.3M, just over US$11M above the adjusted prices agreed earlier in that year.
11 Between November 1996 and January 1997 Minproc endeavoured to negotiate a further price increase. Minera Yolanda SA made an offer which Minproc regarded as being unsatisfactory. Minproc suspended work on the contracts. Minera Yolanda SA took the view that Minproc thereby breached the contracts. Various proceedings were commenced and pursued in the early part of 1997. A final settlement of these contractual disputes was negotiated on 17 March 1997 and finally, as at 31 May 1997, Minproc "booked" a loss of A$22.5M, effectively the loss for which Minproc now sues the respondents.
12 The claim made by the respondents against the appellants in the third party proceedings is that it was they who were effectively responsible for
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- the course taken by Minproc after the board resolved that it should take over the contracts. It is alleged that they acted negligently and breached their statutory duties of care in relation to their negotiation of price increases, their failure to obtain a sufficient price increase, the arrangements they negotiated for contractual payments and their conduct which had the effect of allowing Minproc to be exposed to loss to a much greater degree than under the guarantee. Further, it is alleged that they were in breach of their duties in the way they handled the process of suspension of the works and in the proceedings which were then undertaken.
13 In short, the allegation is that by their negligent conduct they contributed substantially to the loss and damage which Minproc ultimately incurred. If therefore the respondents are found to be liable to Minproc, it is contended that the third parties are liable to contribute under the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA), s 7(1)(c).
14 The strike-out applications by the third parties were heard by Wallwork J. His Honour reviewed various authorities to which he had been referred and concluded that, as it was not demonstrated that the third party notices could not succeed, the applications before him should be dismissed. It is from that decision that the appellants now appeal, presenting in support of their appeal substantially the same arguments as those used to support their applications before Wallwork J. The respondents' arguments in opposition are again substantially those which found favour with Wallwork J.
15 In essence, and hopefully without doing violence to the argument, the propositions advanced by the appellants are these. They point out that the plaintiff sues for economic loss caused by the negligence and breach of duty of the respondents in causing it to give the guarantee, including the ratification of the act of executing the guarantee on behalf of Minproc by Killinger and Cavill. The process of causation is pleaded to involve the respondents' resolution that Minproc should take over by assignment the performance of the contracts, in the course of which performance the losses were incurred. It will be remembered that that is a process pleaded by Minproc to have been undertaken in order that the plaintiff should mitigate its loss, but it is pleaded that in fact the process resulted in the loss being greater than it would otherwise have been.
16 If that process of causation is to be sheeted back to the negligence and breach of duty alleged against the respondents, it will be, so the
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- appellants argue, because their activities were, as pleaded by Minproc, those of the company because they acted reasonably as the directing mind and will of the plaintiff. In that event, it is argued, the claim made by the respondents in the contribution proceedings must fail because they will not be held to be joint tortfeasors either by reason of negligence or any breach of duty owed to Minproc.
17 On the other hand it is submitted that if, as the respondents allege in the third party proceedings, the loss for which the appellant sues was caused as a result of negligent acts by the third parties or acts done by them in breach of their duty to the plaintiff, then the plaintiff's claim against the respondents will fail and the contribution proceedings will fall away because, in effect, there will be a break in the chain of causation between the respondents' negligence and the economic loss ultimately suffered by the plaintiff for which it sues. It is suggested that the respondents by their third party notices are actually seeking to raise as a claim for contribution under s 7(1)(c) of the Act, what is in truth a claim of contributory negligence of the plaintiff pursuant to the Act, s 4(1) and it would be open to the respondents to seek to amend their defences to raise such an issue against the plaintiff.
18 In any event it is submitted that in the main action the question of causation of loss will be in issue and, because of the way it is pleaded that the loss was incurred, will inevitably raise questions whether the full extent of the loss was attributable to the respondents' negligence although incurred in an attempt to mitigate the damage because the conduct of those (the third parties) then in charge of the plaintiff was reasonable and therefore attributable to the plaintiff rather than unreasonable, negligent or in breach of their statutory duties owed to the plaintiff so that the loss would not be caused by the negligence of the respondents.
19 The gravamen of the contrary view taken by Wallwork J is to be found in his conclusion that:
"It is neither necessary nor possible to determine at this stage of the action whether any and, if so, what aspects of the plaintiff's damage ought to be regarded as the foreseeable consequence of both the defendants' negligence, if that negligence be proved, and the third parties' negligence if that negligence be proved. Those matters can only be determined at trial. If when the action comes to trial it is proved that an aspect of the plaintiff's damage is properly to be regarded as a foreseeable consequence of both the defendants' negligence and the third parties'
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- negligence, the defendants could be entitled to contribution from the third parties."
20 That view is supported in argument by the respondents. In addition to the matters relied upon by Wallwork J they were given leave to rely upon notices of contention putting the additional propositions that if Minproc should succeed against the respondents, the matters raised in the third party proceedings would not require any inconsistent findings on the part of the trial Judge since the conduct of the plaintiff which it pleads as a reasonable step in mitigation is the resolution of 14 March 1996 to seek the assignment of the contracts to it and that action is not impugned in the third party proceedings. They rely upon later acts by the third parties as directors of Minproc and we have already referred to these matters. Those matters, the respondents say, constitute arguably negligent conduct of the third parties as directors of the plaintiff. The third parties can therefore properly be viewed as potential joint tortfeasors against the plaintiff in respect of the damage claimed by Minproc against the respondents and a contribution may result.
21 We think this argument to be sound. On the basis that the respondents and the third parties, including the appellants, may be found to be guilty of negligent acts or omissions or to be in breach of their statutory duties owed to the plaintiff, each tortfeasor may be held liable for the damage by way of economic loss which is a reasonably foreseeable consequence of his tortious acts or omissions, in other words, for loss or damage which is not too remote, if such loss or damage is caused or contributed to by that tortfeasor's tortious acts or omissions. The respondents and the appellants may in those circumstances both be liable for the damage caused to the plaintiff and the third parties may be required to make their proportionate contribution.
22 In our opinion, the crucial question for present purposes is that of causation in fact and we see no reason to suppose that it may not be the case as a matter of law that the conduct of the respondents in giving the guarantee might be held to be causally related to the final loss suffered by the plaintiff although a contribution to that loss was made when the assignment of the contracts occurred and was followed by negligence or breaches of duty on the part of the appellants in the performance of those contracts and their efforts to extricate the plaintiff from the mire of the contractual relationship with Minera Yolanda SA.
23 In Mahoney v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522, a worker sued his employer for damages for personal injuries
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- suffered in the course of the employment. The employer sought contribution from the doctor who treated the worker, whose negligence the employer alleged caused or contributed to the physical injuries and incapacities ultimately suffered by the worker for which he sought damages from his employer. It was held that if the employer was found to be liable, a contribution might be obtained under the New South Wales equivalent of our Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act.
24 As the High Court pointed out, there is an important distinction between "damage", or loss, and "damages". There may be questions of remoteness in respect of damages claimed, but as to the question of causation of damage, the Court said at 528:
"A negligent tortfeasor does not always avoid liability for the consequences of a plaintiff's subsequent injury, even if the subsequent injury is tortiously inflicted. It depends on whether or not the subsequent tort and its consequences are themselves properly to be regarded as foreseeable consequences of the first tortfeasor's negligence. A line marking the boundary of the damage for which a tortfeasor is liable in negligence may be drawn either because the relevant injury is not reasonably foreseeable or because the chain of causation is broken by a novus actus interveniens. But it must be possible to draw such a line clearly before a liability for damage that would not have occurred but for the wrongful act or omission of a tortfeasor and that is reasonably foreseeable by him is treated as the result of a second tortfeasor's negligence alone. Whether such a line can and should be drawn is very much a matter of fact and degree."
25 In that case it was held that it was reasonably foreseeable that the plaintiff would seek medical treatment for the injuries initially suffered and that might, of course, be negligently administered. In that event, the decision to seek the treatment was not to be regarded as a novus actus interveniens. In this case the question would be whether a point was arrived at where the court of trial would be required to conclude that the chain of causation from the respondents' negligence or breach of duty, if such it be found to be, to the loss ultimately suffered was broken as a matter of fact by the conduct of the third parties, whether negligent or in breach of their duty or not.
26 The proof of causation is, of course, a matter of fact and the question will be considered by the court of trial in a common sense and robust
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- manner in the ordinary way in the law of torts: March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 and the numerous cases following and refining the principles there stated. It may be the case that the court of trial would find that although the final loss flowed ultimately from the initial tortious conduct of the respondents, it was properly attributable only to the later conduct of the appellants. That might be the case if the court concluded that their conduct was so unreasonable or outrageous that the earlier tortious behaviour of the respondents should not be held to be causally related to the loss that occurred, but it is a question of fact and it is a question of degree. It need not necessarily be the case that the chain of causation would be broken by the conclusion that the loss was contributed to by unreasonable and negligent decisions taken on behalf of Minproc by the appellants.
27 Mahoney was applied in Thomas Borthwick & Sons (Australasia) Ltd v Samco Meats Pty Ltd [1995] 2 VR 474 by Hayne JA (as his Honour then was), with whom Brooking and Charles JJA agreed. It seems to us that such cases as Jones v Watney, Combe, Reed and Co Ltd (1912) 28 TLR 399, The World Beauty [1970] P 144 and Esso Petroleum Co v Mardon [1976] QB 801, upon which the appellants rely, are really merely examples of cases where the chain of causation was not broken because the conduct in question was held to be reasonable. In our view, this appeal must be dismissed.
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