Minproc Ltd v Killinger
[2001] WASC 347
MINPROC LTD -v- KILLINGER & ORS [2001] WASC 347
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| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 347 | |
| Case No: | CIV:2279/1997 | 14 SEPTEMBER 2001 | |
| Coram: | WALLWORK J | 14/12/01 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| B | |||
| PDF Version |
| Parties: | MINPROC LTD (ACN 008 992 694) WILLIAM FREDERICK KILLINGER JOHN ROBERT CAVILL ROBERT JOHN WILDE JESSE KAVANAUGH TAYLOR NEVILLE THOMAS CLEARY PETER ANDERTON PHILLIP CHARLES EARLEY BRETTNEY THOMAS FOGARTY |
Catchwords: | Torts Third Party Notices Whether plaintiff would succeed against defendants if its directors (the third parties) acted negligently Whether the third parties could be held liable to defendants for contribution if the third parties acted negligently |
Legislation: | Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947, s 7(1)(c) Supreme Court Rules (WA), O 19 r 6 |
Case References: | Chapman v Hearse (1961) 106 CLR 112 Jones v Watney & Anor [1912] Vol XXVIII The Times LR 399 Mahony v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 Minproc v Killinger & Ors [2001] WASCA 213 Thomas Borthwick and Sons (Australasia) Ltd & Anor v Samco Meats Pty Ltd [1995] VLR 474 Barisic v Davenport & Ors [1978] 2 NSWLR 111 Daniels v AWA (1995) 37 NSWLR 439 Esso Petroleum Co v Mardon (1976) 2 All ER 5 General Steel Industries Inc v Commissioners for Railways (NSW) (1964) 112 CLR 125 March v Stramare (1991) 171 CLR 506 Medlin v SGIO (1994-1995) 182 CLR 1 Metelmann & Co v NBR (London) (1984) 1 Lloyd's Rep 614 The World Beauty [1970] P144 CA Unity Insurance Brokers Pty Ltd v Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603 Wilson v United Countries Bank [1920] AC 102 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
WILLIAM FREDERICK KILLINGER
First Defendant
JOHN ROBERT CAVILL
Second Defendant
ROBERT JOHN WILDE
Third Defendant
JESSE KAVANAUGH TAYLOR
Fourth Defendant
NEVILLE THOMAS CLEARY
Fifth Defendant
PETER ANDERTON
First Third Party
PHILLIP CHARLES EARLEY
Second Third Party
BRETTNEY THOMAS FOGARTY
Third Third Party
(Page 2)
Catchwords:
Torts - Third Party Notices - Whether plaintiff would succeed against defendants if its directors (the third parties) acted negligently - Whether the third parties could be held liable to defendants for contribution if the third parties acted negligently
Legislation:
Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947, s 7(1)(c)
Supreme Court Rules (WA), O 19 r 6
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr M L Bennett
First Defendant : Mr R L Le Miere QC
Second Defendant : Mr P D Robinson
Third Defendant : Mr J Gilmour QC
Fourth Defendant : Mr J Gilmour QC
Fifth Defendant : Mr J Gilmour QC
First Third Party : No appearance
Second Third Party : Mr P A Tottle
Third Third Party : Mr P A Tottle
Solicitors:
Plaintiff : Bennett & Co
First Defendant : Blake Dawson Waldron
Second Defendant : Williams & Hughes
Third Defendant : Pullinger Readhead Stewart
Fourth Defendant : Pullinger Readhead Stewart
(Page 3)
- Fifth Defendant : Pullinger Readhead Stewart
First Third Party : No appearance
Second Third Party : Tottle Christensen
Third Third Party : Tottle Christensen
Case(s) referred to in judgment(s):
Chapman v Hearse (1961) 106 CLR 112
Jones v Watney & Anor [1912] Vol XXVIII The Times LR 399
Mahony v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522
Minproc v Killinger & Ors [2001] WASCA 213
Thomas Borthwick and Sons (Australasia) Ltd & Anor v Samco Meats Pty Ltd [1995] VLR 474
Case(s) also cited:
Barisic v Davenport & Ors [1978] 2 NSWLR 111
Daniels v AWA (1995) 37 NSWLR 439
Esso Petroleum Co v Mardon (1976) 2 All ER 5
General Steel Industries Inc v Commissioners for Railways (NSW) (1964) 112 CLR 125
March v Stramare (1991) 171 CLR 506
Medlin v SGIO (1994-1995) 182 CLR 1
Metelmann & Co v NBR (London) (1984) 1 Lloyd's Rep 614
The World Beauty [1970] P144 CA
Unity Insurance Brokers Pty Ltd v Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603
Wilson v United Countries Bank [1920] AC 102
(Page 4)
1 WALLWORK J: These are reasons for judgment on an application by Messrs Earley and Fogarty who are respectively the second third party and the third third party ("the third parties") in third party proceedings commenced by the first defendant, the third defendant, the fourth defendant and fifth defendant. The second defendant and the first third party took no active part in the application.
2 The application was by summons to set aside the third party notices on the ground that they disclosed no reasonable cause of action and for an order that the third party proceedings be dismissed. No summonses for directions in respect of the third party proceedings have yet been issued. The application is brought pursuant to O 19 r 6 of the Supreme Court Rules (WA) which enables the third party notices to be set aside at any time.
3 It was accepted by the third parties that the application should succeed only if the third parties could demonstrate that the defendants' claims advanced against them are so untenable that they cannot succeed. It was also accepted by the third parties that for the purposes of the application, the facts alleged in the respective statements of claim must be taken to be true.
4 It was submitted for the third parties that the plaintiff had in effect alleged in its claim that the conduct of the third parties constituted reasonable steps in mitigation of loss whereas the defendants alleged that the same conduct was conduct which amounted to a failure to take reasonable care.
Background
5 The following facts are taken from the judgment of the Full Court in Minproc v Killinger & Ors [2001] WASCA 213 delivered on the 25 July 2001.
6 Minproc Ltd ("Minproc") was a publicly listed company from 1994 carrying on the business of a consulting engineer. The first defendant, Mr Killinger, was its managing director and the second defendant, Mr Cavill, was its company secretary. Mr Wilde, Mr Taylor and Mr Cleary were non-executive directors of Minproc.
7 In 1994 Minproc incorporated a subsidiary, MEL Investments Inc. This company acquired a 25 per cent interest in a limited partnership operated by a company Mincorp Ltd ("Mincorp") in the United States of America.
(Page 5)
8 Minproc has pleaded in its statement of claim that in September 1994 at a meeting of its directors it considered whether or not it should provide a guarantee limited to an amount of US$4.3M in respect of Mincorp's performance of two contracts. This guarantee, if given, would be given in return for a fee of US$500,000 in respect of an engineering and construction agreement ("the engineering contract") and an equipment supply agreement ("the supply contract") then proposed to be entered into by Mincorp relating to the construction of a nitrate plant in Chile. The plant was to be constructed on behalf of a company incorporated in Chile and known as Minera Yolanda SA. The supply contract was one for US$30,250,000 and the engineering contract was for US$16M. Each contract was to be substantially performed in Chile or at the office of Mincorp in the United States.
9 The board of Minproc resolved to give the guarantee. Minproc alleges that in so doing it acted negligently. It alleges that the board failed to obtain legal advice or to verify the accuracy of the materials and costs estimates, and pricing and contingency allowances, made by Mincorp in respect of the two contracts and that it failed to confirm that the contract prices contained sufficient allowances for contingencies to enable each contract to be performed. It also alleges that the board failed to verify that the technical design for the construction of the plant was adequate and, that Mincorp was financially able to carry out the project; also that Mincorp had personnel with the requisite expertise. Delays struck the nitrate plant project and the financial position of Mincorp deteriorated.
10 Minproc alleges that in February 1995 its directors (other than Mr Cavill) resolved to allow Mincorp to pay the guarantee fee in progressive payments; also that in March 1995 Mr Killinger advised the board that Mincorp was in dire financial difficulties. It alleges that in April 1995 Mr Killinger wrote to the board members advising that it would be very difficult for him to recommend that the company should sign the guarantee, and that at a board meeting held in August 1995, Mr Peter Anderton (the first third party) Minproc's other executive director, advised the board of Minproc that in the light of his examination of Mincorp and its personnel, he had severe concerns as to that company's ability to meet its obligations in respect of the nitrate plant project. He is alleged to have said that he estimated that there was a significant risk involved in providing the guarantee. Minproc alleges that the board then resolved to review the position of Mincorp and to consider whether or not to provide the guarantee after its review of the project position was finalised.
(Page 6)
11 Minproc alleges that on the 25 August 1995 Mr Killinger and Mr Cavill without any further consideration by the board, executed the guarantee in favour of Minera Yolanda SA, thereby guaranteeing performance of the supply contract by Mincorp and of the engineering contract by Mincorp's Chilean subsidiary, Mincorp Chile Limitada ("Mincorp Chile"). Minera Yolanda SA then entered into the supply contract with Mincorp and the engineering contract with Mincorp Chile.
12 Minproc alleges that the execution of the guarantee by Messrs Killinger and Cavill was unauthorised and in breach of their statutory and common law duties to exercise reasonable care and skill. It also alleges that Minproc's board including the first defendant, the third defendant, the fourth defendant and the fifth defendant but not Mr Cavill (the second defendant), held a meeting on 16 October 1995 at which it ratified the application of Minproc's seal to the executed Minera Yolanda SA guarantee. It alleges that this ratification was in breach of their duties to exercise reasonable care and skill.
13 Minproc next alleges that as a consequence of the breaches of duty by the defendants, other than Mr Cavill, it has suffered loss and damage. It pleads in this respect, that by March 1996 it had become apparent that Mincorp was "technically insolvent" and that Minproc's likely exposure under its guarantee was between US$1.75M and US$3.92M. It also says that it was then apparent that Mincorp was in breach or likely to be in breach of a clause of the supply contract and that Mincorp Chile was in breach or likely to be in breach of a clause in the engineering contract.
14 Next it pleads that in order to mitigate Minproc's anticipated loss, the first defendant, the third defendant, the fourth defendant, the fifth defendant and Mr Anderton resolved that Minproc should seek an assignment of the engineering contract from Mincorp Chile and of the supply contract from Mincorp. These assignments were effected on the 28 March 1996. However, Minproc pleads that various events occurred which had the consequence that these assignments proved to be disastrous for it and it ended up suffering losses totalling AUS$22,650,000.
15 So far as Mr Cavill is concerned, Minproc pleads that that the execution by him of the guarantee was in breach of duties owed by him to Minproc including those already mentioned and a duty to disclose relevant information known to him. It pleads that his breaches of duty resulted in the same loss and damage as that which has been referred to above.
(Page 7)
16 The first defendant, the third defendant, the fourth defendant, the fifth defendant and Mr Cavill deny much of what has been pleaded by Minproc. While they admit that the guarantee was entered into on the 25 August 1995 they deny that Minproc has suffered any loss and damage at all.
17 Messrs Earley and Fogarty joined Minproc's board on 20 May 1996 after the guarantee had been executed and after the resolution had been passed that Minproc should seek assignments of the two contracts referred to above.
18 The first defendant, the third defendant, the fourth defendant and the fifth defendant allege that Messrs Earley and Fogarty and Mr Anderton acted negligently and in breach of their duty of care as directors of Minproc in the course of making decisions relating to the nitrate plant project, after the above events had occurred. They allege that this negligence caused Minproc to suffer loss and damage.
19 The third defendant, the fourth defendant and the fifth defendant plead in their statement of claim against Messrs Earley and Fogarty that if, which is denied, their (the defendants) alleged breaches of duty caused or contributed to the loss and damage claimed by Minproc, then the breaches of duty on the part of Messrs Earley, Fogarty and Anderton (against whom there is a separate statement of claim), "also caused or substantially contributed to that same loss and damage". A similar plea is made by Mr Killinger in his statement of claim against Messrs Earley and Fogarty.
20 The third parties on the other hand contend that s 7(I)(c) of the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 ("the Act") has no application in this case because it is not possible for the third parties to be liable for the same damage as that for which the defendants are liable. It is contended that the plaintiff alleges that it incurred the loss and damage it claims against the defendants in its attempt to mitigate the damage. Further, that if mitigating steps are reasonably taken and additional loss or damage results notwithstanding the reasonable decision to take those steps, then that additional loss or damage will be recoverable. However if a plaintiff acts unreasonably in taking steps to mitigate then it cannot recover any additional resulting loss from the defendants. Thus the plaintiff's claim will fail in this respect.
21 It was submitted for the third parties that if the plaintiff acted reasonably in taking steps to mitigate its damage, the plaintiff's claim against the defendants will succeed. In that circumstance, it was said that
(Page 8)
- the defendants cannot succeed against the third parties. Further that conduct by the third parties in their capacities as the directing mind and will of the plaintiff cannot be both reasonable in the context of mitigation and constitute negligence in the context of the third party claims; that those concepts are mutually exclusive.
22 It was contended that the third party proceedings call for inconsistent findings in the main action and in the third party proceedings and that it is no answer to say that the causes of the plaintiff's loss cannot be determined until the evidence is heard and assessed. The true issue is, did the third parties in their capacities as directors of the plaintiff, act reasonably - if they did, the plaintiff must succeed. In that case it is contended the defendants cannot succeed against them in the third party proceedings.
23 It was submitted that the dismissal of the third party proceedings would not result in any injustice being suffered by the defendants. It would be open to them to apply to amend their defences to raise the issues agitated in the third party proceedings. That would have the capacity to either defeat the plaintiff's claim or secure reduction in the plaintiff's damages.
24 It was submitted that it is clear from the pleadings that the conduct which the defendants rely upon in their claim against the third parties is the same conduct which the plaintiff relies upon for its claim against the defendants and that the conduct of the third parties, which the defendants are attacking, was the conduct of the third parties acting in the capacity as the directing mind and will of the plaintiff; that there are no alternative causes of the plaintiff's loss alleged by the defendants and that this distinguishes the present case from earlier decisions such as Mahony v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 and Chapman v Hearse (1961) 106 CLR 112. It was contended for the third parties that the abovementioned decisions concerned situations where different conduct had caused the relevant loss, whereas in this case, both the plaintiff and the defendants were relying on the same conduct. It was said that if the third parties were negligent in the way claimed, the plaintiff could not succeed against the defendants arising from that conduct. Whereas if the third parties were not negligent, the plaintiff would succeed but the defendants could not possibly succeed against the third parties.
25 The third parties relied on the decision in Jones v Watney & Anor [1912] Vol XXVIII The Times LR 399 at 399 where it was held that, "a
(Page 9)
- plaintiff need not act with perfect knowledge and ideal wisdom but he cannot claim damages for such injuries as are really due to wanton, needless, or careless conduct on his own part. If however what he does reasonably and carefully augments the injuries, that may be regarded as a natural consequence of the accident."
26 It was submitted that the same conduct could not be both reasonable steps in mitigation which would enable the plaintiff to succeed and negligence on the part of the third parties; that if the third parties had been doing their best to mitigate and acted reasonably, they should not be held liable for what they did. The third parties' conduct could not properly be characterised as negligence and at the same time as reasonable steps in mitigation.
27 On the other hand, the defendants contended they can recover contribution from the third parties if the third parties were tortfeasors who, if they had been sued by the plaintiff, would have been liable in respect of the same damage. The real question was whether the third parties could have been sued by the plaintiff in respect of the same damage. They relied on the decision in Mahony (supra) where an employer of an injured person had sought contributions from a doctor and alleged that the doctor's negligence had caused or contributed to the continuing injuries alleged by the plaintiff for which the plaintiff had sued the employer. The employer alleged that the doctor's negligent treatment had caused or contributed to the continuing injuries and incapacities for which the worker had sued the employer.
28 At p 527 of Mahony, Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ said:
"But concurrent tortfeasors whose negligent acts or omissions occur successively rather than simultaneously may both be liable for the same damage, being a foreseeable consequence of both torts, although one is liable for some only of the damage for which the other is liable and an award of damages against the one would necessarily be less than an award of damages against the other."
29 At p 528 their Honours said:
"A negligent tortfeasor does not always avoid liability for the consequences of a plaintiff's subsequent injury, even if the subsequent injury is tortuously inflicted. It depends on whether or not the subsequent tort and its consequences are themselves
(Page 10)
- 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."
30 At p 530 their Honours continued:
"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 present condition ought to be regarded as the foreseeable consequence of both Kruschich's [the employer's] negligence if that negligence be proved and Dr Mahony's negligence if that negligence be proved. At this stage of the action the plaintiff's condition and the negligence of both Kruschich and Dr Mahony are matters of allegation only. There are no facts admitted or proved by which to determine those issues. If when the action comes to trial it is proved that any aspect of the plaintiff's condition is properly to be regarded as a foreseeable consequence of both Kruschich's negligence and Dr Mahony's negligence, Kruschich will be entitled to seek contribution under s 5(I)(c) from Dr Mahony in respect of so much of the damages awarded against it as relates to that aspect."
31 In that case, the learned Justices ruled that the cross-claim should not be struck out. At p 531 their Honours said:
"If Kruschich be held liable in damages to the plaintiff, Kruschich may be able to prove in the cross-action that if Dr Mahony had been sued by the plaintiff, he would have been liable for some of the damages recovered by the plaintiff and, in that event, Kruschich will be entitled to an order for contribution under s 5(I)(c)."
32 It was submitted by Mr Gilmour QC, for the third, fourth and fifth defendants, that a necessary fact in their case against the third parties is
(Page 11)
- that the damage flowing from the commission of their alleged tort was foreseeable. Likewise that the damage flowing from any tort committed by the defendants was also foreseeable. They were questions which simply could not be answered from the Bar table at this stage. For that reason alone the applications should fail.
33 In my opinion, the reasoning in Mahony (supra) applies directly to this case. 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' negligence, the defendants could be entitled to contribution from the third parties.
34 In Thomas Borthwick and Sons (Australasia) Ltd & Anor v Samco Meats Pty Ltd [1995] VLR 474 it was said by Hayne JA with whom Brooking JA and Charles JA agreed, that when an employee makes a personal injury claim against successive employers, an earlier employer can maintain a contribution claim against a later employer, unless a line can clearly be drawn between the damage alleged as a result of the earlier employer's negligence and the damage alleged as a result of the later employer's negligence. That line may be drawn if the latter's damage was not a reasonably foreseeable consequence of the earlier damage, or because the chain of causation is broken. In that case, a notice of contribution had been struck out.
35 At p 476 Hayne JA said:
"It seems clear that the matter proceeded below on the basis that the defendant seeking the order striking out the notices sought to demonstrate that the claims made in the notices were untenable. On appeal it was accepted that the learned primary judge should not have made any orders striking out the notices of contribution unless it was clearly demonstrated that they could not succeed (see for example Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91; General Steel Industries Inc v Commissioners for Railways (NSW) (1964) 112 CLR 125 at 129)."
(Page 12)
36 In this case, as stated earlier in these reasons, counsel for the third parties accepted that the third party notices should not be struck out unless it was clearly demonstrated that they could not succeed.
37 Applying the reasoning which has been referred to above from the Justices of the High Court in Mahony and the Victorian Court of Appeal in Thomas Borthwick, it is my view that the submissions of the counsel for the defendants should be accepted. It has not been demonstrated that the relevant third party notices could not succeed. Therefore this application should not succeed. It will therefore be dismissed.
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