Edingbay Pty Ltd v Aroni Colman
[1999] VSC 216
•11 June 1999
SUPREME COURT OF VICTORIA
CAUSES JURISDICTION Not Restricted
No.2041 of 1998
| EDINGBAY PTY LTD & ORS | Plaintiffs |
| V | |
| ARONI COLMAN (A FIRM) V NATIONAL AUSTRALIA BANK LIMITED & ORS V HORWATH (VIC) PTY LTD & ORS | Defendant Third Parties Fourth Parties |
---
JUDGE: | Hansen J. | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 21 May 1999 | |
DATE OF JUDGMENT: | 11 June 1999 | |
CASE MAY BE CITED AS: | Edingbay Pty Ltd v Aroni Colman; National Australia Bank Ltd & Ors; Horwath (Vic) Pty Ltd & Ors. | |
MEDIA NEUTRAL CITATION: | [1999] VSC 216 | |
---
| Contribution claimed by third party against fourth parties – Claim based on Wrongs Act 1958, s.23B and in equity – Plaintiffs sue law firm, Aroni Colman, to recover funds lost after being paid to solicitors for investment purpose – Claim for contribution by Aroni Colman against bank – Claim for contribution by bank against fourth parties – Whether Wrongs Act, s.24(2) prevents s.23B claim from being made upon s.23B claim – Whether bank liable in respect of “same damage” – Whether bank can claim contribution in equity. |
---
APPEARANCES: | Counsel | Solicitors |
| For the applicants | Mr. P. N. Vickery Q.C. with Mr. N. Murdoch | Peter Black & Associates |
| For the respondent First Third Party. | Mr. J. H. Karkar Q.C. with Mr. S. R. Derham and Ms. W. A. Harris | Mallesons Stephen Jaques |
HIS HONOUR:
This application arises in one of the cases that together are known as the Aroni Colman proceedings. In this particular case 183 plaintiffs seek to recover funds which they respectively paid to a firm of solicitors, Aroni Colman, for investment in a leveraged leasing scheme. Max Paul Green, who was a partner in Aroni Colman, organised the scheme. Upon Green’s death in March 1998 it was found that the scheme was a sham and that Green had stolen almost all of the funds.
Aroni Colman is now the sole defendant. The Legal Practice Board and the National Australia Bank Ltd (“the bank”) were defendants but by the commencement of the trial on 3 May they had settled with the plaintiffs.
Aroni Colman joined the bank as a third party to the proceeding ‘no doubt pursuant to the procedure provided by s.23B of the Wrongs Act 1958’: National Australia Bank Ltd v Edingbay Pty Ltd & Ors (Supreme Court of Victoria, Court of Appeal, Winneke P and Batt JA, 19 February 1999) at 1. The bank then joined the present applicants as fourth parties claiming contribution from them pursuant to Part IV of the Wrongs Act 1958 or in equity. The applicants, Hershan Serebro Financial Services Pty Ltd, Coleman & Partners, Schoenfeld & Partners and Krampel Newman Partners Pty Ltd, are the fourth, eighth, ninth and tenth fourth parties respectively in the proceeding.
The applicants, by summons filed 18 May 1999, now seek orders dismissing the bank’s fourth party proceeding against them. Counsel for the applicants identified three grounds in support of the application. He submitted that the bank cannot claim contribution from the applicants pursuant to Part IV of the Wrongs Act 1958 because:
1.a person liable to make contribution pursuant to s. 23B of the Act cannot bring a claim for contribution against another person under the same section as that would be inconsistent with the proper application of s. 24(2) of the Act;
2.the applicants are not persons “liable in respect of the same damage” as the bank, and therefore the bank’s claim for contribution against them is not within s. 23B(1) of the Act.
Counsel for the applicants also submitted that the bank cannot claim contribution in equity from the applicants because:
3.none of the traditional heads of equitable contribution apply in the circumstances of this case.
A section 23B claim upon a section 23B claim
Counsel for the applicants stated that no authority had considered the first point, that is, whether a party subject to a claim for contribution made pursuant to s. 23B of the Act can bring a claim for contribution against another person under the same section, in other words, whether a s. 23B claim can be made upon a s. 23B claim. I was referred, by counsel for the bank, however, to State Electricity Commission of Victoria v Fooks [1994] 1 VR 259, in which the Appeal Division (constituted by Brooking, Tadgell and Smith JJ) assumed that third parties joined under s. 23B could in turn claim contribution from other parties. And at 266, Tadgell J observed that:
“…a person liable to pay compensation for actionable damage may recover contribution towards that liability from another person liable to pay compensation for the same actionable damage.”
Section 23B(1) provides that “a person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage”. Pursuant to s. 23A(1):
“…a person is liable in respect of any damage if the person who suffered that damage, or anyone representing the estate or dependants of that person, is entitled to recover compensation from the first-mentioned person in respect of that damage whatever the legal basis of liability, whether tort, breach of contract, breach of trust or otherwise.”
Section 24 identifies the manner in which the court shall determine the amount of contribution recoverable from a person. Section 24(2), insofar as relevant, states that:
“…in any proceedings for contribution under section 23B the amount of the contribution recoverable from any person shall be such as may be found …by the court … to be just and equitable having regard to the extent of that person’s responsibility for the damage…”
The applicants submit that in identifying the amount of the contribution recoverable from a person, the court must consider “the whole of the matrix of the case…including the conduct of the parties not before the court” in order to confine and isolate the degree of responsibility of that person for the damage as required by s. 24(2). In that exercise the role of the applicants is to be taken into account. In the result the person will be liable to contribute an amount representing the extent of his or her responsibility for the damage and nothing more. There is accordingly no ‘excess’ which that person can pass on to another such as the applicants in this case. This, counsel for the applicants submitted, is to be contrasted with the position of a defendant who, even if found liable for only one percent of the harm suffered by a plaintiff, will be required to pay 100 per cent of the damage. When applied to the present proceeding, the applicants’ interpretation of s. 24(2) means that the bank would be unable to claim contribution from any other person, including the applicants, as the bank would be seeking to pass on damage for which it alone has been adjudged liable.
Counsel for the applicants cited Podrebersek v Australian Iron and Steel Pty Ltd 59 ALR 529 to support their interpretation of the way in which the court determines, pursuant to s. 24(2), the amount of contribution recoverable from a person. In Podrebersek the question of apportionment of responsibility for damage arose between the defendant and plaintiff rather than between third and fourth parties. Counsel for the applicants, however, sought to apply the High Court’s observations in Podrebersek to the present case. In Podrebersek, Gibbs CJ, Mason, Wilson, Brennan and Deane JJ observed at 532 that:
“A finding on a question of apportionment is a finding upon a “question, not of principle or of positive findings of fact or law, but of proportion, of balance and relative emphasis, and of weighing different considerations. It involves an individual choice or discretion, as to which there may well be differences of opinion by different minds”: British Fame (Owners) v Macgregor (Owners) [1943] AC 197 at 201.”
Counsel for the applicants further submitted that their interpretation of s. 24(2) is consistent with the purpose of Part IV of the Wrongs Act, namely to ‘alter the common law rules so that “when two persons each contribute to the same damage suffered by a third the one who pays more than his share should be entitled to recover contribution from the other” ’: per Kirby J in James Hardie & Coy Pty Ltd v Seltsam Pty Ltd 159 ALR 268, at 284 quoting from the Report of the English Law Revision Committee, Third Interim Report (1934), para. 7.
In reply, counsel for the bank submitted that the contribution provisions of Part IV of the Wrongs Act should be applied broadly given their remedial purpose. In support of their submission, counsel for the bank cited an observation of Beaumont, Hill and Sundberg JJ in their judgment in Bialkower v Acohs Pty Ltd (1998) 154 ALR 534 at 545. In the passage relied upon their Honours stated that the provisions of s23B of the Wrongs Act “are of a remedial nature, designed to expand the circumstances in which contribution is available...”. Further, in Edwards v Edwards [1913] VLR 30, Hodges J interpreted a rule relating to third party procedure broadly rather than narrowly observing at 32 that:
“If one looks at the reason for the legislation and the rules on this subject, it will be found that the object of the legislation and the rules is twofold. In the first place, it is to prevent the multiplication or multiplicity of legal proceedings. But there is a much more important matter – a much more important mischief – which the Legislature aimed at; which is this – to prevent the same issue being twice tried (once between the plaintiff and the defendant, and at another time between the defendant and the third party), and the possibility of such issue being differently found by the two tribunals which try it; that not only defeats justice, but also is calculated to bring the administration of justice into disrepute.”
This passage was referred to with approval by McGarvie J in USP Needham Australia Pty Ltd v The Victorian Arts Centre Building Committee[1983] VR 79 at 84.
Certainly there is nothing in Part IV of the Wrongs Act which expressly denies a party, subject to a claim for contribution under s. 23B, the right to seek relief by way of contribution from another person under the same section. A broad interpretation of Part IV, rather than the narrow construction applied by the applicants, is therefore not inconsistent with the words of the statute. A broad interpretation is in fact more consistent with the underlying objectives of the third party procedure which Hodges J identified in Edwards.
In support of a broad interpretation of Part IV of the Wrongs Act I was referred, by counsel for the bank, to Order 11 of the Rules of the Supreme Court concerning third party procedure. Rule 11.01(a) sets out the means by which a defendant may join a third party for the purpose of obtaining contribution or indemnity. It provides that:
“Where a defendant claims as against a person not already a party to the proceeding (in this Order called “the third party”) –
(a)any contribution or indemnity;
…
the defendant may join the third party as a party to the proceeding and make the claim against him by filing and serving a third party notice.”
Rule 11.16(1) extends the operation of Order 11 to third parties. It provides that “[w]here a third party has filed an appearance this Order shall, with any necessary modification, apply as if the third party were a defendant”. Rule 11.16(1) thus enables a third party to claim contribution or indemnity pursuant to r11.01 as if the third party were a defendant. Rule 11.16(2) further extends the operation of Order 11 to persons joined by third parties, and to other persons so joined, stating that:
“Where a person joined as a party (in this Order called a “fourth party”) by a third party under this Order has filed an appearance, this Order as applied by this Rule shall have effect as regards such further person and any other further person or persons so joined and so on successively.”
Rule 11.16(3) qualifies the rights of third parties, fourth parties and successive parties to join other persons by requiring that they obtain the leave of the court before making “a claim against another person whether that person is a party to the proceeding or not by notice under this Order”.
A wide construction of Part IV of the Wrongs Act, allowing parties subject to a claim for contribution under s. 23B to seek contribution from another person under the same section, is clearly consistent with Order 11.
As I noted earlier counsel for the bank referred me to Fooks in which the Appeal Division assumed that third parties joined under s. 23B could in turn bring contribution proceedings against other parties. In Fooks, the National Safety Council of Australia (Victorian Division) (the “NSCA”) and its liquidator sued several defendants, including the NSCA’s former auditors. The auditors joined the State Electricity Commission of Victoria (the “SEC”) and four of its officers as third parties alleging that the SEC and its officers had breached their duties owed to the NSCA contributing to the loss and damage suffered by the NSCA. The auditors claimed indemnity or contribution from the SEC and its officers in respect of any amount for which the auditors themselves were found liable to the plaintiffs. The SEC and its officers in turn joined a number of fourth parties claiming contribution or indemnity if the SEC and its officers were found liable to contribute to loss or damage claimed by the plaintiffs against the auditors. In their fourth party proceedings, the SEC and its officers alleged that the fourth parties were liable for the same damage because of breaches of duty owed by the fourth parties to the NSCA and were consequently liable to make contribution to the SEC and its officers. The issue before their Honours was whether the fourth party proceedings issued by the SEC and its officers were time-barred. Their Honours concluded that the SEC and its officers had not issued their fourth party proceedings out of time. In recognizing the validity of the fourth party proceedings brought by the SEC and its officers, their Honours acted on the assumption that a s. 23B claim could be made upon a s. 23B claim.
The narrow application of s. 24(2) of the Wrongs Act favoured by the applicants in this case is inconsistent with the underlying objectives of the contribution legislation identified by Hodges J in Edwards. Neither does it accord with the operation of Order 11, nor the implicit assumptions on which the decision in Fooks is based. Accordingly, the applicants’ submission on the proper interpretation of s. 24(2) must be rejected.
The “same damage”: s.23B
The second argument on which the applicants relied concerns the interpretation of the words “same damage” in s. 23B(1) of the Act. The applicants submitted that the bank cannot recover contribution from them under s. 23B(1) because the applicants are not persons “liable in respect of the same damage” as the bank. Counsel for the applicants founded the submission on the proposition that the bank is potentially liable to Aroni Colman for loss or damage suffered by Aroni Colman while the applicants are potentially liable to the plaintiffs for loss or damage suffered by them. As the damage, for which the bank and the applicants are potentially liable, was sustained by different persons it is not the “same damage”. Counsel abandoned an alternative basis for the submission which was contained in their written outline.
In its fourth party notice and statement of claim dated 12 April 1999, the bank alleges that the applicants owed various duties to those of the plaintiffs by whom they were retained to provide investment, accounting and taxation advice. It is alleged that the applicants acted in breach of these duties. It is also alleged that they acted in breach of s. 52 of the Trade Practices Act and s. 11 of the Fair Trading Act by engaging in conduct that was misleading or deceptive, or likely to mislead or deceive. The applicants’ breaches and misrepresentations caused or contributed to any loss suffered by the plaintiffs to whom they provided advice. The bank accordingly claims contribution or indemnity in equity or pursuant to Part IV of the Wrongs Act 1958 from the applicants in respect of any loss sustained by the plaintiffs to whom they provided advice and for which Aroni Colman and the bank are liable.
In its third party notice and statement of claim filed in September 1998, Aroni Colman alleges that the bank knew Max Green was operating the Max Green & Associates Trust Account illegally and in breach of trust and is accordingly liable to the plaintiffs and Aroni Colman for breaches of trust that Green committed against them. Aroni Colman further alleges that the bank breached its duty of care owed to Aroni Colman and Aroni Colman’s partners and engaged in conduct that was misleading and deceptive or likely to mislead or deceive contrary to s. 52 of the Trade Practices Act. It alleges that the bank’s breaches and misrepresentations caused the loss and damage suffered by the plaintiffs and the partners of Aroni Colman. Accordingly, Aroni Colman alleges that it and its partners “are entitled to complete indemnity from the Bank in respect of the claims of the plaintiffs in this proceeding and Aroni Colman are entitled to recover damages and equitable compensation from the Bank.”
It is evident from the statements of claim of both Aroni Colman and the bank, that to an extent the bank and the applicants are potentially liable for the “same damage”. The damage for which both the bank and the applicants may be liable is the loss of funds suffered by those plaintiffs that retained the applicants to provide investment, taxation and accounting advice. The bank can therefore claim contribution from the applicants to the extent of its liability for that damage. This is still the “same damage” even though the bank may be liable to contribute to Aroni Colman if Aroni Colman is held liable for the damage suffered to those plaintiffs, and the applicants may be liable to contribute to the bank if both Aroni Colman and the bank are held liable for the damage suffered to those plaintiffs. Section 23B(1) does not expressly state that two persons are only liable for the “same damage” if they are made directly liable by judgment to the same person. Accordingly, in the present proceeding, to the extent that the bank and the applicants are both found liable for damage suffered by the particular plaintiffs, they are liable for the “same damage” within the meaning of those words in s. 23B(1).
The availability of contribution in equity
Finally, Counsel for the applicants submitted that the bank cannot claim contribution in equity from the applicants because none of the traditional heads of equitable contribution, such as co-sureties, apply in this case.
Counsel for the bank, however, observed that while joint tortfeasors have not traditionally been recognised as being the subject of co-ordinate liability, “the list of co-ordinate liabilities attracting contribution is no more closed than the categories of negligence”: see Meagher Gummow and Lehane, Equity: Doctrines and Remedies (3rd ed 1992) at para 1006, and see generally paras 1001-1006.
I was also referred, by counsel for the bank, to several Australian cases in which contribution has been awarded by the courts in the context of relationships not traditionally recognised as giving rise to a right to contribution in equity. These included Jones v Mortgage Acceptance Nominees Ltd 142 ALR 561 in which Davies J of the Federal Court held that contribution was available in equity between parties liable for one or more of breach of fiduciary duty, breach of duty of care, negligence and misleading and deceptive conduct in breach of s. 42 of the Fair Trading Act (NSW). His Honour observed at 565 that:
“Now that the principle [that relief by way of contribution should not be granted to wrongdoers] has been abrogated by statute, and the justice of an order for contribution has been recognised, there should remain no bar to the application of the general law of contribution to a case such as the present…[T]here is no cogent reason why equity should not aid the identification of the tortfeasors who ought to contribute and the ascertainment of what would be a just contribution.”
His Honour’s remarks on contribution were later cited with approval in Bialkower v Acohs Pty Ltd at 543.
In concluding that the bank’s claim for contribution against the applicants falls within the operation of Part IV of the Wrongs Act, it becomes unnecessary for me to decide whether the bank may claim contribution in equity. I merely observe, however, that the Federal Court decisions referred to above provide support for the bank’s claim notwithstanding that the bank and the applicants are wrongdoers and accordingly do not fall within a category traditionally recognized as giving rise to a right to claim contribution in equity.
Orders:
For the above reasons, the applicants’ summons will be dismissed.
1
0