Yeo v Freeman
[2018] VSC 448
•14 August 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2017 02304
IN THE MATTER of LGL Commodities Pty Ltd (in liquidation) (ACN 140 585 388)
BETWEEN
| ANDREW REGINALD YEO AS JOINT AND SEVERAL LIQUIDATOR OF LGL COMMODITIES PTY LTD (IN LIQUIDATION) ACN 140 585 388 AND OTHERS (ACCORDING TO THE SCHEDULE) | Plaintiffs |
| v | |
| SIMON FREEMAN AND OTHERS (ACCORDING TO THE SCHEDULE) | Defendants |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27 February 2018 |
DATE OF JUDGMENT: | 14 August 2018 |
CASE MAY BE CITED AS: | Yeo & ors v Freeman & ors |
MEDIUM NEUTRAL CITATION: | [2018] VSC 448 |
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CORPORATIONS – Whether Pt IVAA of the Wrongs Act 1958 (Vic) ‘picked up’ by s 79 of the Judiciary Act 1903 (Cth) – Corporations Act 2001 (Cth), ss 180, 1317S, 1318, 1317H – Wrongs Act 1958 (Vic), Pt IVAA – Judiciary Act 1903 (Cth), s 79 – Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 164 FCR 450 followed.
PRACTICE AND PROCEDURE – Joinder – Alleged concurrent wrongdoer – Application by defendant to join alleged concurrent wrongdoer as defendant – Claim under Corporations Act 2001 (Cth), s 180 – Whether arguable the claim is an apportionable claim – Whether arguable that the party sought to be joined is a concurrent wrongdoer – Wrongs Act 1958 (Vic) Pt IVAA, ss 24, 24AE, 24AF, 24AH, 24AI, 24AL – Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 9.06(b)(i).
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APPEARANCES: | Counsel | Solicitors |
| For the First to Third Plaintiffs | Mr R G Craig | Gadens |
| For the First Defendant | Mr S J Maiden QC with Ms F J Hudgson | Ashurst Australia |
| For the Second Defendant | Mr D Snyder | Colin Biggers & Paisley |
HIS HONOUR:
The first defendant, Mr Simon Freeman (‘Mr Freeman’), makes application by summons filed 14 November 2017 for an order pursuant to s 24AL of the Wrongs Act 1958 (Vic) (the ‘Wrongs Act’) that Ms Maree Warren be joined as a defendant to these proceedings and that the writ be amended accordingly.[1] The application is supported by an affidavit of Mr Freeman’s solicitor, Michael Sloan, sworn 14 November 2017.
[1]The summons also made application under r 9.06(b)(i) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘r 9.06(b)(i)’), however the application was primarily based on the Wrongs Act provision.
The defendants are each directors of the third plaintiff, LGL Commodities Pty Ltd (in liquidation) (‘LGL’). The second and third defendants, Mr Mark Long and Mr Michael Long, support this application. The fourth defendant, Mr Timothy Griffiths, is now a bankrupt.
By their amended statement of claim filed 11 January 2018, the plaintiffs allege that LGL has suffered loss and damage as a result of the defendants breaching their duties as directors of LGL. A claim is also made with respect to alleged insolvent trading under ss 588G and 588M of the Corporations Act 2001 (Cth) (‘the Corporations Act’).
The plaintiffs’ allegations in the proceeding turn on alleged failures by the defendants to properly manage LGL’s finances, principally by allowing it to trade while it was insolvent and in failing to identify serious errors in its financial statements. Ms Warren was LGL’s accountant and Mr Freeman contends she was directly responsible for the production of its accounts.
Mr Freeman seeks to join Ms Warren so that proportionate liability can be claimed against her in the event that the court makes adverse findings against the defendants at the trial of the proceeding.
The plaintiffs’ claim against Mr Freeman
In paragraph 34 of the amended statement of claim filed 11 January 2018, the plaintiffs allege that each of the defendants owed LGL duties imposed by ss 180, 181 and 182 of the Corporations Act, in equity and under the general law. The plaintiffs claim that Mr Freeman breached those duties by:
(a) failing, with his co‑directors, to identify errors in draft financial statements, to draw them to the attention of the other directors, and to make further inquiries: (paragraph 53);
(b) failing to obtain and consider the December 2013 and March 2014 financial statements and to make contact with the accountants and assist them in the preparation of accounts: (paragraph 54); and
(c) failing to prevent the other directors paying themselves bonuses: (paragraph 56).
The plaintiffs claim that if Mr Freeman had not breached such duties, LGL’s true financial position would have been disclosed, further debts would not have been incurred, and the director bonuses would not have been paid. They seek a declaration that Mr Freeman has breached his duties as a director of LGL and an award of damages and/or compensation in equity or pursuant to statute or otherwise.
In his defence, Mr Freeman advances positive defences to the claims against him.[2] He pleads that in the event that those defences do not succeed, each breach of director’s duty claim is an apportionable claim to which the Wrongs Act applies and that Ms Warren is a concurrent wrongdoer within the meaning of s 24 of the Wrongs Act.[3] He identifies as concurrent wrongdoers the other existing defendants together with Ms Warren. The second and third defendants also plead that Ms Warren is a concurrent wrongdoer.
[2]Defence of the First Defendant dated 20 October 2017 (‘Mr Freeman’s defence’).
[3]The insolvent trading claim, not being cast in terms of failure to take reasonable care, is not amenable to a claim for proportionate liability (see Wrongs Act s 24AF(1)(a)).
Mr Freeman claims that if the plaintiffs’ claims concerning the inadequacy of LGL’s accounts are correct, Ms Warren breached the duty of care that she owed LGL as its accountant and that this breach caused or contributed to LGL’s loss.[4] Mr Freeman submits that, as the court cannot apportion loss by reference to Ms Warren’s liability unless she is a party to the proceeding,[5] she should be joined as a defendant. Finally, he contends that his liability should be limited by the exercise of the discretion under s 1317S, alternatively s 1318 of the of the Corporations Act.[6] Those provisions allow for relief from liability in certain prescribed circumstances.
[4]See Mr Freeman’s defence, paragraph 61(b)(iv).
[5]See Wrongs Act s 24AI(3).
[6]Mr Freeman’s defence, paragraphs 62(a) and 63(a).
It was contended on behalf of Mr Freeman that the interests of justice are best served by granting the application. If Ms Warren is not joined, Mr Freeman will not have the opportunity to seek to apportion liability against her even if the court were to find later that the allegations for breaches of s 180 are apportionable claims under s 24AI(3).
In opposing the application, the plaintiffs submit that State law may only apply to the court’s exercise of Federal jurisdiction if the State law is ‘picked up‘ by s 79 of the Judiciary Act 1903 (Cth) (‘Judiciary Act’), and that s 79 will only ‘pick up’ the Wrongs Act if the relevant Federal law, the Corporations Act, does not ‘otherwise provide.’ The plaintiffs say that the Corporations Act ‘otherwise provides’ such that Pt IVAA of the Wrongs Act cannot apply to apportion Mr Freeman’s liability and that there is accordingly no basis upon which Ms Warren can be joined as a party to the proceeding.
I accept Mr Maiden’s submissions as to the desirability from Mr Freeman’s position of allowing the joinder of Ms Warren in order to provide access to the proportionality provisions. However the matter which I am first required to resolve is essentially a question of statutory construction involving a consideration of whether the provisions of the Wrongs Act are ‘picked up’ by the Judiciary Act or, as the plaintiffs contend, the scheme of the Corporations Act provisions under consideration has ‘otherwise provided’ so as to prevent the apportionment provisions applying.
Mr Maiden contended that the apportionment claims are at least arguable, that Mr Freeman need only establish that the argument is ‘not hopeless’ and that, for the purposes of this application, he need not satisfy the court that the Wrongs Act can be called in aid in respect of the s 180 claims made against him. I consider however that the issue raised by the plaintiffs goes to the jurisdiction and power to make the orders sought by Mr Freeman and is an issue which should be determined before moving to a consideration of Mr Freeman’s application for the joinder of Ms Warren under s 24AL of the Wrongs Act. It is true that the question involves a complex question of law but I consider that it is appropriate to determine it at this juncture as it was the subject of comprehensive written and oral submissions.
Do the proportionate liability provisions of Part IVAA of the Wrongs Act apply to the claims made by the plaintiffs?
Part IVAA cannot operate of its own force to the determination by this court of the plaintiffs’ claims for relief under the Corporations Act;[7] the application of Pt IVAA of the Wrongs Act depends on the operation of s 79 of the Judiciary Act. That is, the Wrongs Act will only apply to a Court exercising Federal jurisdiction if it is ‘picked up’ by s 79 of the Judiciary Act.
[7]See Agtrack (NT) Pty Limited v Hatfield (2005) 223 CLR 251, 270 at [58].
Section 79 of the Judiciary Act provides, inter alia, that:
[t]he laws of each State or Territory, including the laws relating to procedure, evidence and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable (emphasis added).
In Rizeq v Western Australia,[8] Kiefel CJ stated that the purpose of s 79 of the Judiciary Act is to:[9]
…fill a gap in the laws which will regulate matters coming before [courts exercising federal jurisdiction] and to provide those courts with powers necessary for the hearing and determination of those matters.
[8](2017) 91 ALRJ 707 (‘Rizeq’).
[9]Rizeq, 714 at [20].
The test for determining that issue was described by Gleeson CJ, Gummow and Hayne JJ in Austral Pacific Group Ltd (in liq) v Airservices Australia[10] at [17]:
[10](2000) 203 CLR 136 (‘Austral Pacific’).
… [t]he question is whether the operation of the Compensation Act would so reduce the ambit of the Contribution Act that the provisions of the Compensation Act are irreconcilable with the other law. If so, the Compensation Act “otherwise provides” within the meaning of section 79 of the Judiciary Act. GPAO shows that the question is not answered by application of the doctrine identified, in the decisions construing s 109 of the Constitution, with the phrase “covering the field”.
Their Honours held in that case that the Commonwealth law did not ‘otherwise provide’ within the meaning of s 79 of the Judiciary Act. At [28] they stated:
[h]owever, the Compensation Act is silent respecting the rights and obligations inter se of a Commonwealth authority or other party identified in s 44 and a third party where what is at stake is not the ultimate incidence of compensation payments, but the distribution between the tortfeasors of the burden of the common law liabilities in damages to the employee. This is consistent with a legislative intention to leave such matters for the operation of State or Territorial legislation “picked up” by s 79. Part IV does not “otherwise provide” in the sense required to render s 79 inapplicable.
The test has also been analysed by reference to whether the Commonwealth law has ‘left room’ for the operation of the State provisions.[11]
The Corporations Act provisions
[11]In Northern Territory of Australia v GPAO (1999) 196 CLR 553, Gleeson CJ and Gummow J considered whether the Federal legislation ‘left room’ for the operation of the state provisions in question: Commissioner of the Australian Federal Police v Ying (2016) 51 VR 80, [46]; Latteria Holdings Pty Ltd v Corcoran Parker Pty Ltd (2014) FCR 519, [47].
In this proceeding, the only basis on which the plaintiffs can seek compensation for the alleged breaches of s 180[12] of the Corporations Act is by resort to s 1317H(1) which provides:
[12]Section 180 is a civil penalty provision (see s 1317E Corporations Act).
Compensation orders – corporation/scheme civil penalty provisions
Compensation for damage suffered
A Court may order a person to compensate a corporation or registered scheme for damage suffered by the corporation or scheme if:
(a)the person has contravened a corporation/scheme civil penalty provision in relation to the corporation or scheme; and
(b)the damage resulted from the contravention.
The order must specify the amount of the compensation.
Section 1317S of the Corporations Act confers a discretion to reduce or modify an award of compensation made under s 1317H arising from a breach of s 180. It provides:
Relief from liability for contravention of civil penalty provision
(1) In this section:
eligible proceedings:
(a)means proceedings for a contravention of a civil penalty provision (including proceedings under section 588M, 588W, 961M, 1317GA, 1317H, 1317HA, 1317HB or 1317HC); and
(b)does not include proceedings for an offence (except so far as the proceedings relate to the question whether the court should make an order under section 588K, 1317H, 1317HA, 1317HB or 1317HC).
(2) If:
(a) eligible proceedings are brought against a person; and
(b)in the proceedings it appears to the court that the person has, or may have, contravened a civil penalty provision but that:
(i) the person has acted honestly; and
(ii)having regard to all the circumstances of the case (including, where applicable, those connected with the person’s appointment as an officer, or employment as an employee, of a corporation or of a Part 5.7 body), the person ought fairly to be excused for the contravention;
the court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention.
(3)In determining under subsection (2) whether a person ought fairly to be excused for a contravention of section 588G, the matters to which regard is to be had include, but are not limited to:
(a)any action the person took with a view to appointing an administrator of the company or Part 5.7 body; and
(b) when that action was taken; and
(c) the results of that action.
(4)If a person thinks that eligible proceedings will or may be begun against them, they may apply to the Court for relief.
(5)On an application under subsection (4), the Court may grant relief under subsection (2) as if the eligible proceedings had been begun in the Court.
(6)For the purposes of subsection (2) as applying for the purposes of a case tried by a judge with a jury:
(a)a reference in that subsection to the court is a reference to the judge; and
(b)the relief that may be granted includes withdrawing the case in whole or in part from the jury and directing judgment to be entered for the defendant on such terms as to costs as the judge thinks appropriate.
(7) Nothing in this section limits, or is limited by, section 1318.
It will be seen that s 1317S(1)(a) defines ‘eligible proceedings’ as including proceedings under s 1317H of the Corporations Act.
Section 1318 of the Act provides power to grant relief to persons (including an officer of a corporation) in civil proceedings involving, inter alia, breach of duty in the following terms:
1318 Power to grant relief
(1)If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person’s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.
(2)Where a person to whom this section applies has reason to apprehend that any claim will or might be made against the person in respect of any negligence, default, breach of trust or breach of duty in a capacity as such a person, the person may apply to the Court for relief, and the Court has the same power to relieve the person as it would have had under subsection (1) if it had been a court before which proceedings against the person for negligence, default, breach of trust or breach of duty had been brought.
(3)Where a case to which subsection (1) applies is being tried by a judge with a jury, the judge after hearing the evidence may, if he or she is satisfied that the defendant ought pursuant to that subsection to be relieved either wholly or partly from the liability sought to be enforced against the person, withdraw the case in whole or in part from the jury and forthwith direct judgment to be entered for the defendant on such terms as to costs or otherwise as the judge thinks proper.
(4) This section applies to a person who is:
(a) an officer or employee of a corporation; or
(b)an auditor of a corporation, whether or not the person is an officer or employee of the corporation; or
(c) an expert in relation to a matter:
(i) relating to a corporation; and
(ii)in relation to which the civil proceeding has been taken or the claim will or might arise; or
(d)a receiver, receiver and manager, liquidator or other person appointed or directed by the Court to carry out any duty under this Act in relation to a corporation.
(5)This section does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation. …
Relevant provisions of Part IVAA of the Wrongs Act
Section 24AF of the Wrongs Act provides:
Application of Part
(1) This Part applies to—
(a)a claim for economic loss or damage to property in an action for damages (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care; and
(b)a claim for damages for a contravention of Section 18 of the Australian Consumer Law (Victoria).
Section 24AE provides that ‘apportionable claim’ means a claim to which Part IVAA applies.
Section 24AL provides:
Joining non-party concurrent wrongdoer in the action
(1)Subject to subsection (2), the court may give leave for any one or more persons who are concurrent wrongdoers in relation to an apportionable claim to be joined as defendants in a proceeding in relation to that claim.
(2)The Court is not to give leave for the joinder of any person who was a party to any previously concluded proceeding in relation to the apportionable claim.
Section 24AH provides:
Who is a concurrent wrongdoer?
(1)A concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is the subject of the claim.
(2)For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died.
Section 24AI(3) provides:
Proportionate liability for apportionable claims
…
(3)In apportioning responsibility between defendants in the proceeding the court must not have regard to the comparative responsibility of any person who is not a party to the proceeding unless the person is not a party to the proceeding because the person is dead or, if the person is a corporation, the corporation has been wound-up.
The question is whether the Corporations Act has, by the scheme constituted by sections 1317H, 1317S and 1318, ‘otherwise provided’ for the determination of liability to compensate persons who have suffered damage by reason of the breach by a director of the duty imposed by s 180, so as to prevent the application of the proportionate liability provisions of Pt IVAA of the Wrongs Act.
Mr Maiden stated that there is no binding authority on the question of whether the Corporations Act ‘otherwise provides’ for Wrongs Act‑type apportionment in respect of actions for breaches of s 180 of the Corporations Act. There are, however, authorities which consider the application of the proportionality provisions of the Wrongs Act in the context of provisions of the Corporations Act other than s 180.
I consider that the authority most akin to the circumstances under consideration here is Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd,[13] in which Middleton J considered the application of Pt IVAA of the Wrongs Act in the context of a claim involving, inter alia, ss 852 and 1022B of the Corporations Act.[14] His Honour observed that the purpose of those provisions of the Corporations Act was to:
(a) prescribe rules of conduct ascribed with consequences for breaches of those rules;[15] and
(b) entitle an applicant to recover the whole amount to which it is entitled under the Act.[16]
[13](2007) 164 FCR 450 (‘Dartberg’).
[14]Section 852 has since been repealed.
[15]Dartberg [12].
[16]Ibid [33].
In considering the question of whether the Corporations Act ‘otherwise provides’ in the circumstances under consideration, Middleton J said:[17]
However, even if Pt IVAA applies to these proceedings according to its own terms, I am of the view that Pt IVAA is not picked up by s 79 of the Judiciary Act because the Commonwealth Legislation “otherwise provides”. In my view, the operation of the Commonwealth Legislation would so reduce the ambit of Pt IVAA of the Wrongs Act that the provisions of the Commonwealth Legislation are irreconcilable with it
…
For the reasons I have enunciated above in relation to the express purpose of the Commonwealth Legislation, in my view the Commonwealth Legislation has otherwise provided for the determination of liability to compensate a person who has suffered loss or damage by conduct in contravention of the Commonwealth Legislation. The purpose of the Commonwealth Legislation is to impose a specific and comprehensive regime imposing liability according to its terms, and to give an entitlement to an applicant to recover the whole amount of which it is established under such enactments the applicant is entitled to recover.
I do not accept that Pt IVAA of the Wrongs Act is complementary to the operation of the Commonwealth Legislation. This would be inconsistent with the whole purpose of the Commonwealth Legislation, for to allow Pt IVAA of the Wrongs Act to apply would be to detract from the operation and effect of the Commonwealth Legislation, as the applicant would not necessarily be entitled to full compensation from a wrongdoer as is contemplated.
In support of the contention of the respondents that the provisions of Pt IVAA of the Wrongs Act should be seen as complementary, reliance was placed upon s 5E(1) and (4) of the Corporations Act. Even if otherwise applicable to the Commonwealth Legislation, s 5E(1) and (4) themselves cannot be of any assistance to the respondents in this regard. They deal with not excluding or limiting the concurrent operation of any State law provided there is no direct inconsistency. For the same reasons as indicated in Gordon v Tolcher (2006) 81 ALJR 507 at [30], s 5E can have no impact in the present proceeding. Of its own force, the Wrongs Act can have no application in this proceeding without the aid of s 79 of the Judiciary Act.
Therefore Pt IVAA of the Wrongs Act cannot be relied upon by the respondents in this proceeding (emphasis added).
[17]Ibid [32]–[36] (citations omitted).
In Dartberg, Middleton J observed that prior to the amendment of the Corporations Act by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth) (‘the CLERP Act’), the Corporations Act contained no proportionate liability provisions.[18] The CLERPAct introduced such provisions into Division 2A of Pt 7.10 but these applied only to conduct done in contravention of s 1041H, which prohibited misleading or deceptive conduct in relation to a financial product or financial service. Those proportionate liability provisions did not apply to the provisions which were the subject of the proceeding in Dartberg, ss 852 and 1022B, and the respondents in Dartberg had to therefore rely on the proportionate liability provisions in the Wrongs Act if available to them by operation of s 79.
[18]Ibid [18].
Middleton J held that the provisions of the Corporations Act under consideration ‘otherwise provided’ so that Pt IVAA of the Wrongs Act was not picked up by s 79 as the operation of the provisions of the Corporations Act under consideration would so reduce the ambit of Pt IVAA that the provisions of the Commonwealth legislation were irreconcilable with it. He considered that the express purpose of the provisions of the Corporations Act under consideration otherwise provided for the determination of liability to compensate a person who has suffered loss or damage by conduct in contravention of the Commonwealth legislation.[19] In his view, the purpose of the provisions of the Corporations Act under consideration was to ‘impose a specific and comprehensive regime imposing liability according to its terms’ and ‘to give an entitlement to an applicant to recover the whole amount’[20] of which it is established under such enactments the applicant is entitled to recover and which, by inference, is not to be subject to potential reduction by apportionment.
[19]Ibid [33].
[20]Ibid.
Mr Maiden contended that the analysis of Middleton J in Dartberg, while concerned with the Wrongs Act, is not directly relevant in the present context. It may be so that Dartberg is not directly applicable insofar as Middleton J’s analysis was concerned with other provisions in the Corporations Act, but I am undertaking a very similar exercise in statutory construction with respect to the provisions under consideration here. In support of this contention, he submitted that the compensation provisions considered by Middleton J in Dartberg, as they then applied, were found by his Honour at [10]-[11] to be materially indistinguishable from s 82 of the Trade Practices Act 1974 (Cth), which was considered by the High Court in I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd[21] to be unapportionable, and, at paragraph [12], to have a purpose of regulating corporate and individual behaviour by stipulating consequences for breach of the prescribed rules of conduct. Mr Maiden contended that this is in marked contrast to the discretionary nature of relief under s 1317H of the Corporations Act, and that the conduct proscribed by s 180 of the Corporations Act encodes an equitable obligation on directors to act with care and diligence, in respect of which the relief available clearly ought to be discretionary and therefore apportionable.
[21](2002) 210 CLR 109.
In Resource Equities v Carr Resource Equities v Garrett,[22] the Supreme Court of New South Wales was concerned with claims against directors, including claims under s 180 of the Corporations Act. The defendants sought to claim access to proportionate liability under similar provisions to those contained in Pt IVAA of the Wrongs Act, namely s 35 of the Civil Liability Act 2002 (NSW). The plaintiff argued that the New South Wales Act had no application. In this regard, it relied on Dartberg and Rod Investments (Vic) Pty Ltd v Abeyratne & Ors (No 2)[23] (which concerned misleading and deceptive conduct provisions under the Corporations Act). In Resource Equities, the defendants submitted that those decisions were wrong, but not ‘plainly or obviously wrong,’ and accepted that the trial judge would follow them, which McDougall J did.[24] Mr Maiden submitted that Resource Equities concerned a different although closely analogous statutory regime to that at hand but that McDougall J did not have the benefit of fully formed argument on the question of whether the proportionate liability regime was ‘picked up’ by the Judiciary Act. Because of the defendants acceptance that Dartberg was not plainly or obviously wrong, McDougall J did not engage in detailed analysis of the issue under consideration here and for that reason Resource Equities is of limited assistance in resolving the present question.
[22][2009] NSWSC 1385 (‘Resource Equities‘).
[23][2009] VSC 278 (‘Rod Investments’).
[24]Resource Equities [331].
In Rod Investments, Hansen J conducted a trial of preliminary questions that concerned, inter alia, the application of Pt IVAA of the Wrongs Act to claims made under Federal legislation including Div 2A of Pt 7.10 of the Corporations Act. However, Hansen J’s reasons reveal that the party seeking the joinder accepted that, on an application of Dartberg, the Wrongs Act could not apply to the Federal claims.[25] Because of that concession, Rod Investments is also of quite limited assistance in resolving the present application.
[25]Rod Investments [49].
Mr Maiden submitted that a full and considered argument reveals that the interaction between the Wrongs Act Pt IVAA and s 180 of the Corporations Act should result in a different outcome to that of the differing provisions considered by Dartberg and Rod Investments. In support of this contention, Mr Maiden submitted that the availability of a discretion as to the amount of compensation which can be awarded is a key factor in deciding whether a statutory provision evinces an intention that compensation can be apportioned.[26]
[26]Counsel cited Dartberg at [6], [10], and [12] to support this point.
In Solar Shop Australia Pty Ltd (Receivers & Managers Appointed) (in liq) v Steele, in the matter of Solar Shop Australia Pty Ltd (Receivers & Managers Appointed) (in liq)[27] the plaintiff was a company in liquidation and the defendants were its directors. Claims were brought by the plaintiff for breach of duty at common law, under ss 180 and 181 of the Corporations Act, and under other provisions of the Corporations Act. One of the directors sought contribution against a third party in equity and under the South Australian equivalent of Pt IVAA of the Wrongs Act, the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA).
[27][2017] FCA 1219 (‘Solar Shop’).
The third party made an application for summary judgment against the defendants, and in the alternative, that parts of the cross claim be struck out. The application for joinder was resisted partly on the basis that the relevant provisions of the South Australian legislation were inconsistent with the relevant provisions of the Corporations Act and were inoperative to the extent of the inconsistency. The basis for the application for joinder were claims pursuant to ss 256D, 259F and 260D in Ch 2K, combined with Ch 9 Pts 9.4B,[28] 9.5 and 9.6 of the Corporations Act.[29]
[28]Sections 1317E, 1317G, 1317H and 1317S are contained in Ch 9 Pt 9.4B
[29]The provisions in question were ss 259F(2), 259F(2), 256B(1), 256D, 260A, 260D(2). Those provisions appear in ch 2J of the Corporations Act and create civil penalty provisions.
As the claims in respect of which joinder was sought constituted civil penalty provisions, s 1317G provided for the making of pecuniary penalty orders in relation to those contraventions. Section 1317H gave the court power to compensate a corporation for damage suffered in respect of the breach of the civil penalty provisions, and s 1317S provided for a power to relieve a person wholly or partly of a liability to which they would be subject. This Court is given those same powers under ss 1317H and 1317S in the present case. In Solar Shop, the party to be joined resisted the joinder and argued that the relevant provisions of the Corporations Act as mentioned above cover the field and that there was no room for operation of the South Australian proportionate liability legislation.
After considering the issue of the alleged inconsistency between the provisions of the Corporations Act and the South Australian proportionate liability legislation, Besanko J posed the question to be decided in Solar Shop as being whether the operation of the Corporations Act, and Pt 9.4B in particular, so reduces the operation of the proportionate liability provisions of the South Australian legislation that the provisions of the Corporations Act are rendered irreconcilable with the South Australian legislation. His Honour considered, in the context of a summary judgment application that it was reasonably arguable that the answer to that question was no and that this was sufficient to deal with this aspect of the application. He stated:[30]
I could decide the point, but I am not disposed to do so because the point is a complex one and there are other points of law involved in the application such as whether the [South Australian proportionate liability legislation] applies to Mr Ferraretto’s cross-claim.
[30]Solar Shop [50].
Mr Maiden contended that the plaintiffs’ submission involves a complex question of law which is best determined at trial. In this regard, he referred to the decision of Croft J in Main Road Property Group Pty Ltd & Ors v Pelligra & Sons Pty Ltd & Ors[31] in which his Honour observed: [32]
[i]n my view the final determination of the issue at an earlier stage of proceedings carries a significant risk of injustice when the result is to preclude the reduction of proportionate liability of a defendant or defendants as a result.
[31][2010] VSC 5 (‘Main Road’).
[32]Ibid [10].
In Main Road, ‘the issue’ with which Croft J was concerned was whether in the circumstances of that case Pt IVAA could apply according to its own terms.[33] His Honour was not, in my opinion, concerned with the subsequent reasoning of Middleton J regarding the application of s 79, which is discussed in detail above. In Main Road it appears that the submission that the plaintiffs make in this application concerning s 79 was not made or, if it was, was not pressed. His Honour’s mention of the Corporations Act claims as being ‘arguably apportionable’[34] was, on my reading of the judgment, made in the context of whether the claim was apportionable under the terms of the Wrongs Act. I consider that Croft J was concerned with whether the applicants for joinder had established to the requisite degree that the party who the applicant sought to join was a concurrent wrongdoer in respect of apportionable claims and that his Honour’s remarks set out above are made in that context.
[33]See Main Road [8]-[9].
[34]Main Road [26].
In opposing the application, Mr Craig, counsel for the plaintiffs, contended that the Corporations Act provides for a proportionate liability regime but that that regime is confined to claims for misleading or deceptive conduct, more particularly to claims for conduct contravening s 1041H. He submitted that, in the context of the present application, it does not extend to claims for compensation arising from a breach of directors’ duties. As such, this is not a case where the Corporations Act is silent as to the apportionment of liability for contraventions of the Act. He made reference to the provisions which introduced the proportionate liability provisions in the CLERP Act and contended that if Parliament had intended to extend the application of the proportionate liability to Pt 9.4B it could have done so through this legislation. However, the very restrictive nature of the proportionate liability provisions evidenced a legislative intention to limit the availability of apportionable claims under the Corporations Act and it did not extend proportionate liability principles to any breaches of civil penalty provisions. Rather than adopt the proportionate liability regime, the Corporations Act has effected a legislative mechanism for relief from liability (either wholly or partly) from the consequences of a breach of civil penalty provisions such as ss 188, 181 and 182 by operation of s 1317S and s 1318 of the Corporations Act.
Mr Craig also referred to the decision of ASIC v Adler (No 5),[35] wherein Santow J held that an award of compensation under s 1317H operates by analogy to the principles of joint and several liability.[36] His Honour found in that case that the statutory requirement to specify the sum of compensation to be awarded precluded an award of compensation that differentiated the amount to be paid, by reference to percentages, as between defendants.[37]
[35][2002] NSWSC 483.
[36]Ibid [118].
[37]Ibid [118]–[119].
Mr Craig submitted in this case that the operation of Pt 9.4B of the Corporations Act would so reduce the operation of Pt IVAA of the Wrongs Act that the provisions of the Corporations Act are irreconcilable. The Corporations Act has not ‘left room’ to apportion liability for claims other than those based on misleading or deceptive conduct.
In my view, the Commonwealth legislation has enacted a scheme which entitles the plaintiffs to recover the damages they are entitled to recover under s 1317H, subject to relief from all or part of that liability under ss 1317S and 1318. I consider that, as with the provisions under consideration in Dartberg, the provisions of Pt IVAA are not picked up by s 79 because the provisions of the Corporations Act under consideration ‘otherwise provide.’ The Wrongs Act provisions are not complementary but rather are inconsistent with the scheme of the Corporations Act under which the plaintiffs make their claim. Moreover, I cannot conceive of how the proportionate liability provisions could operate alongside s 1317S (and s 1318) which by their terms provide for the grounds on which a defendant to a claim under s 1317H can obtain full or partial relief from liability, a process somewhat akin to apportionment of liability.
For completeness, in the event that I am not correct in my determination as to the applicability of the Wrongs Act provisions, I will consider the question of whether it is appropriate to order the joinder of Ms Warren as a concurrent wrongdoer.
The court’s power to join Ms Warren as a defendant arises under the s 24AL of the Wrongs Act.[38] The discretion granted to the court to join a concurrent wrongdoer as defendant under s 24AL(1) is broad and unfettered; it must be exercised judicially.[39] The power under r 9.06(b)(i) arises where there is a person ’whose presence before the court is necessary to ensure that all questions in the proceeding are effectually and completely determined and adjudicated.’ This test is met where a defendant is precluded by s 24AI(3) of the Wrongs Act from raising an apportionment claim in relation to a person who is not a party to the proceeding as the inability of the defendant to raise apportionment where the concurrent wrongdoer is not a party compromises the just determination of the proceeding.[40]
[38]In addition to r 9.06(b)(i) of the Supreme Court (General Civil Procedure) Rules: see Fabfloor (Vic) Pty Ltd & Ors v BNY Trust Company of Australia Limited & Ors [2016] VSC 99 (‘Fabfloor’) [30]–[32].
[39]Fabfloor [30].
[40]Ibid [37], [38].
In Atkins v Interprac and Crole (No 2),[41] Hargrave J, as he then was, observed that a defendant making an application for joinder under s 24AL of the Wrongs Act must establish two matters (to the standard described above), namely:[42]
(a) there is an ‘apportionable claim;’ and
(b) that the proposed defendant is a ‘concurrent wrongdoer’ in relation to that claim.
[41][2008] VSC 99 (‘Interprac’).
[42]Ibid [4].
As such, in this application, Mr Freeman is only required to establish that the pleadings contain factual allegations which, if established at trial, arguably support both the contention that the claim is an apportionable claim and that the party to be joined is a concurrent wrongdoer.[43] An applicant such as Mr Freeman need only plead a case which is ‘not hopeless.’[44] It is not the task of the court in this application to determine whether the proposed causes of action are likely to succeed.[45] The court must determine whether the proposed causes of action are arguable in the sense that the party or parties relying on them might succeed once all evidence has been led at trial.[46]
[43]Ibid [6].
[44]Ibid.
[45]Ibid [39].
[46]Ibid.
In Fabfloor, John Dixon J observed at [74]–[75]:
The primary judge erred in holding that where a defendant applies to add other persons on the basis that they are concurrent wrongdoers with the defendant under Part IVAA of the Wrongs Act so as to limit their liability to the plaintiffs, there is a positive requirement to lead some evidence showing that there is substance to the claims proposed to be raised and that the claims are not hopeless. There is no such requirement.
It is sufficient for a defendant to establish that the proposed pleadings contain facts or allegations which, if established at trial, could arguably found one or more of the causes of action alleged and that if the Court is satisfied such an arguable case has been put forward, joinder should be allowed.
In his defence,[47] Mr Freeman pleads that:
[47]At s 61(b)(iv).
(a) Ms Warren was LGL’s accountant;
(b) under her retainer with LGL, Ms Warren was obliged to use reasonable skill, care and diligence in her preparation of accounts which accurately recorded the financial position of the company; and
(c) if the plaintiffs’ allegations are correct, then Ms Warren failed in those duties, causing loss and damage to LGL.
I agree with the submission of Mr Maiden, senior counsel for Mr Freeman, that the plaintiffs’ claim of failure to exercise the degree of care and diligence required by s 180 is one based on a failure to exercise reasonable care.[48] The terms of s 180 impose a duty on a director ‘to exercise powers and discharge …duties with a degree of care and diligence that a reasonable person would exercise….’ For present purposes, I consider that the plaintiffs’ claim is, on an application of the relevant test, arguably an apportionable claim for the purposes of Part IVAA of the Wrongs Act as it is a ‘claim for economic loss or damage to property in an action for damages (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care.’[49]
[48]In support of this proposition, reference was made to Trilogy Funds Management Limited v Sullivan (No 2) (2015) 331 ALR 185 [200] (Wigney J) and Vines v ASIC (2007) 73 NSWLR 451 [142], [151] (Spigelman CJ, Ipp, Santow JJA agreeing).
[49]See Dartberg [30], [31].
I also agree with the submission of Mr Maiden that if the matters pleaded in the defence are established, Ms Warren is ‘one of two or more persons whose acts or omissions caused the loss or damage’ the subject of LGL’s allegations against Mr Freeman and is therefore, for present purposes, arguably, on an application of the relevant test, a concurrent wrongdoer within the meaning of s 24AH(1)of the Wrongs Act.
Accordingly, if I am not correct in my analysis as to whether the Wrongs Act is picked up by operation of s 79 of the Judiciary Act, I consider that Mr Freeman should be granted leave to join Ms Warren.
I will order that the first defendant’s summons filed 14 November 2017 be dismissed.
SCHEDULE OF PARTIES
S CI 2017 02304 BETWEEN: ANDREW REGINALD YEO (as joint and several liquidator of LGL COMMODITIES PTY LTD (In Liquidation) (ACN 140 585 388) Firstnamed Plaintiff GESS MICHAEL RAMBALDI (as joint and several liquidator of LGL COMMODITIES PTY LTD) (In Liquidation) (ACN 140 585 388) Secondnamed Plaintiff LGL COMMODITIES PTY LTD (In Liquidation)
(ACN 140 585 388)Thirdnamed Plaintiff - and - SIMON FREEMAN Firstnamed Defendant MARK ANTHONY LONG Secondnamed Defendant MICHAEL JOHN LONG Thirdnamed Defendant TIMOTHY GRIFFTHS Fourthnamed Defendant
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