AIRS Re Pty Ltd v J B B Treatt & Ors trading as Haines Norton

Supreme Court of NSW|2007-10-05|Before: Hidden J

CITATION : AIRS Re Pty Ltd v J B B Treatt & Ors trading as Haines Norton [2007] NSWSC 1100

DECISION : Application by defendants for summary dismissal, stay of proceedings dismissed - leave granted to plaintiff to file amended statement of claim - leave granted to add additional plaintiff.

CATCHWORDS : COMMERCIAL LAW: Application by defendants for summary dismissal, stay of proceedings - application by plaintiff to file amended statement of claim and join additional plaintiff - assignment of causes of action in contract and tort - proceedings by assignee - whether assignment valid - whether assignee had genuine commercial interest - public policy considerations - joinder of assignor as plaintiff - whether potential for conflict.

Maintenance, Champerty and Barratry Abolition Act 1993 LEGISLATION CITED : Law Reform (Miscellaneous Provisions) Act 1946 Uniform Civil Procedure Rules

National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 Dey v Victorian Railways Commissioners (1948 - 49) 78 CLR 62 Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 Williams v Spautz (1992) 174 CLR 509 Trendtex Trading Corporation v Credit Suisse [1982] AC 679 Monk v ANZ Banking Group (1994) 34 NSWLR 148 Deloitte Touche Tohmatsu v Cridlands Pty Ltd (2003) 134 FCR 474 Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2004) 188 FLR 278 CASES CITED : Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 Poulton v The Commonwealth (1952 - 53) 89 CLR 540 Fostif Pty Ltd v Campbells Cash and Carry Pty Ltd (2005) 63 NSWLR 203 Whyked Pty Ltd v Yahoo Australia and New Zealand Pty Ltd [2006] NSWSC 650 Brownton Ltd v Edward Moore Ltd [1985] 3 All ER 499 Campbells Cash and Carry v Fostif Pty Ltd (2006) 80 ALJR 1441 Chapman v Luminis Pty Ltd (1998) 86 FCR 513 Burke v LFOT Pty Ltd (2002) 209 CLR 282 Wickstead v Browne (1992) 30 NSWLR 1 Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 97 FCR 175

PARTIES : AIRS Re Pty Ltd (Plaintiff) J B B Treatt & Ors t/as Haines Norton (Defendants)

COUNSEL : AJ Meagher SC with IR Pike & SE Gray (Plaintiff) N Cotman SC with T Faulkner (Defendants)

SOLICITORS : Mark Williams - Landers & Rogers (Plaintiff) Andrew Miers - Ebsworth & Ebsworth Lawyers (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20167/2006 AIRS Re Pty Ltd v JBB Treatt & Ors t/as Haines Norton

JUDGMENT 1 HIS HONOUR: The plaintiff in these proceedings, AIRS Re Pty Ltd, is a reinsurance broker. The defendants are the partners of an accountancy firm, Haines Norton. Before me are motions by the parties, the terms of which I shall set out shortly. It is convenient, firstly, to sketch the factual background upon which the plaintiff relies in this litigation. 2 That background is helpfully summarised in the plaintiff's written submissions, as follows: Australian Family Assurance Limited (" AFA ") carried on business, up until 28 June 2002, as a general insurer. AIRS was its reinsurance broker. Haines Norton, the defendant, was AFA's auditor. In late 2001 it was discovered that the reinsurance cover which had been arranged by AIRS for AFA was not as extensive as had been represented by AIRS to AFA in that, in the $60,000 x $40,000 risk layer, there were only five free reinstatements whereas AIRS had represented that there were unlimited reinstatements. Prior to this discovery, AFA had recorded in its accounts as recoverable, amounts in excess of the reinsurance available on the $60,000 x $40,000 layer ($360,000). As a result of the discovery, a write-down of $3.3 million was recorded in the accounts of AFA for the year ended 31 December 2001. As a result, AFA was unable to satisfy the prudential requirements imposed by the Australian Prudential Regulatory Authority on 1 July 2002 and, as a consequence, went into run-off on 28 June 2002. On 11 May 2000, Haines Norton, as auditor of AFA, issued an unqualified audit report for the financial statements of AFA for the year ended 31 December 1999. On 27 April 2001, Haines Norton issued an unqualified audit report for AFA's financial reports for the year ended 31 December 2000. In carrying out the 1999 and 2000 audits, it is contended that Haines Norton failed to detect that there were not unlimited reinstatements in the $60,000 x $40,000 layer. At the time of the conduct of the audits for both the 1999 and 2000 years, the incurred claims on the $60,000 x $40,000 layer for the 1999 underwriting year exceeded the cover available ($360,000) and as such AFA's accounts were not correct and the audit reports should have been qualified. On 3 April 2002, AFA made a claim on AIRS for alleged negligence, breach of retainer and breach of s52 of the Trade Practices Act in relation to the absence of unlimited reinstatements in the $60,000 x $40,000 layer. On 5 July 2002, AIRS settled the claim by agreeing to, and then paying, AFA the sum of $3 million. The terms of settlement were recorded in a Deed of Release dated 5 July 2002 (" Deed "). Pursuant to clause 3.4 of the Deed, AFA assigned to AIRS any rights which it had against the auditors of AFA, being Haines Norton. 3 The plaintiff's motion seeks leave to file an amended statement of claim in the form of a document marked for identification (MFI 1) at the hearing before me. Among other things, that statement of claim adds AFA as a second plaintiff. It pleads several causes of action: (a) AIRS alleges that the defendants failed to exercise reasonable care and skill in the conduct of the audits for the 1999 and 2000 years, in breach of the terms of their retainer and a common law duty of care which they owed to AFA. It pursues these causes of action as assignee under the Deed. (b) In the alternative to (a), and in the event that the Deed did not validly assign to AIRS AFA's rights against the defendants, AFA pursues the defendants in its own right for breaches of their retainer and their common law duty of care in relation to the same audits. (c) AIRS seeks equitable contribution from the defendants arising from its payment of $3 million to AFA in respect of its liability to that company. 4 The defendants' motion seeks orders that the proposed statement of claim be struck out and the proceedings be summarily dismissed or, alternatively, an order that the proceedings be stayed as an abuse of process. It was this motion which was the focus of the argument before me. To understand that argument, it is necessary to examine some relevant clauses of the Deed. 5 The document recites the background which I have set out. Clause 2.7 records that a firm of actuaries calculated "the shortfall of reinsurance recoveries" in the relevant layer because of the limited number of reinstatements at an amount between $2.7 million and $3.9 million. Clause 2.12 is as follows: AFA has claimed it has suffered damages between A$3.3 million and A$6 million as a result of the alleged breaches and alleged that if AIRS did not pay damages in that range to it by 28 June 2002, AFA would be forced to place its business into run-off and possibly into liquidation, in which case it would suffer damages amounting to between A$25 million and A$30 million. 6 Clause 3 sets out the agreement between the parties. In consideration of AIRS agreeing to pay $3 million to AFA within 14 days, AFA releases AIRS from any claims which it might have had against AIRS in respect of AIRS having arranged and placed the layer in each of the re-insurance programs, and agrees to indemnify AIRS against any claims which might be made by anyone on its behalf in relation to those reinsurance programs (cl 3.1). AFA covenants with AIRS not to bring any proceedings or to procure a third party to do so, or to provide financial or voluntary support for any proceedings, in respect of any matter the subject of the release in 3.1 (cl 3.2). To that clause there is an exception which is not relevant for present purposes. 7 Clause 3.4 provides: AFA hereby assigns any rights it has against any third party in respect of any matter the subject of the release under clause 3.1, …… Without limiting the generality of the foregoing, AFA assigns any rights it has against any auditor or other third party … as a result of it having allegedly suffered the loss and damage referred to in clause 2.12 …. 8 That clause also is subject to an exception which is not presently material. By cl 3.5, AFA agrees "to provide any reasonable assistance requested by AIRS" in relation to any claim brought by the latter against a third party "in respect of any matter the subject of the release …" 9 Of course, it is cl 3.4 upon which AIRS relies to pursue the causes of action as assignee from AFA. The scope of that assignment is to be found in cl 2.12, which envisages AFA having suffered damage on two bases. The first of those is the shortfall of re-insurance recoveries in the relevant layer, said to amount to a sum in the range of $3 million to $6 million. This is referred to in the proposed statement of claim as "the hole in the layer". The second is the allegation that failure to make good that hole would force AFA into runoff, giving rise to a total claim for damages in the order of $25 million - $30 million. 10 This is reflected in the proposed statement of claim. It begins by reciting the relevant background and, before dealing with the Deed, asserts in par [22]: AFA sought damages for the alleged hole in the layer, which it estimated at the time as being between $3.3 million and $6 million over the 3 years, and losses and damages that would be incurred as a consequence of it going into run-off on 1 July 2002. In total, AFA estimated its damages as being between $25 million and $30 million. 11 The statement of claim goes on to record that AFA retained the defendants to conduct its audits for the relevant years, and that they issued unqualified reports which did not disclose the hole in the layer. Separate claims are articulated in respect of the 1999 and 2000 audits, but they are to the same effect. It is sufficient to refer to paragraphs relating to the 1999 audit. 12 The assigned claims are brought in contract and in tort, each alleging a failure on the part of the defendants to "exercise reasonable skill, care and diligence in and about the performance" of the audits ([31] and [34]). The defendants are said to have been in breach of duties to AFA, implied in their contract of retainer and imposed by the general law, which included responsibilities to review the reinsurance policy documentation to ensure that the stated reinsurance recoveries in the accounts, financial statements and reports of AFA reflected the level of reinsurance available, and to inform AFA if those stated reinsurance recoveries exceeded the amounts recoverable under the reinsurance program in place ([31], [32], and [35]). 13 It is then alleged that, if the defendants had not been in breach of their duty, AFA would have taken various steps to deal with the hole in the layer, such as purchasing further reinsurance cover and adopting a pricing policy which would, as far as possible, absorb the cost of that further reinsurance. It is also said that AFA would have been able to satisfy the prudential requirements of APRA and would not have gone into runoff ([36]). The claim for loss and damage, articulated in [37], is the difference between AFA's position as a result of the defendants' conduct and the position it would have been in had the defendants not been in breach of their duty. As a result of their conduct, it is alleged, AFA "had to write off the sum of $3.3 million in its financial statements for the period ended 31 December 2001 and subsequently went into runoff on 28 June 2002". 14 The claim by AFA in its own right adopts the assigned claims ([46]). The defendants contend that the Deed was ineffective to assign AFA's causes of action to AIRS or, alternatively, that the pursuit of those assigned claims by AIRS would amount to an abuse of process. They oppose the joinder of AFA as a plaintiff because of the potential for conflict between that company and AIRS. The claim for equitable contribution raises different considerations, and I shall refer to it later. 15 I am indebted to senior and junior counsel on both sides for comprehensive submissions, written and oral. I shall deal with them as succinctly as I can and I trust that, by that approach, I do them no disservice. 16 The principles governing an application to strike out a pleading or to summarily dismiss a claim are familiar. They were summarised by Lindgren J in a case to which it will be necessary to refer shortly, National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 at 528 - 9. The power to strike out or to summarily dismiss should be exercised only in a plain and obvious case. A case does not fall into that category where there is a real issue to be tried, whether of fact or law: Dey v Victorian Railways Commissioners (1948 - 49) 78 CLR 62, per Dixon J at 91. Courts should approach such an application with caution where the relevant law is unclear or in a state of development: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, per Kirby J at 268. Finally, the standard of proof for establishing an abuse of process is a high one: Williams v Spautz (1992) 174 CLR 509.

The assigned claims 17 Mr Cotman SC, who appeared with Mr Faulkner for the defendants, submitted that the purported assignment of AFA's rights of action to AIRS was void because it savoured of maintenance. He argued that what was sought to be assigned was a bare right to litigate and, in the circumstances of the present case, a right in which AIRS as assignee had no genuine commercial interest. Reference was made to the leading English authority on this subject, Trendtex Trading Corporation v Credit Suisse [1982] AC 679, per Lord Wilberforce at 694 - 5 and Lord Roskill at 701 - 4. That case bears upon the claims in contract in the present case, and is authority for the proposition that the assignment of a right to litigate will fall foul of the rule of policy against trafficking in litigation unless the assignee has a genuine commercial interest in taking the assignment and enforcing it for his own benefit. 18 The case was decided against a legislative background which has since been reproduced in New South Wales in the Maintenance, Champerty and Barratry Abolition Act 1993. That Act abolishes the crimes and torts of maintenance and champerty, but by s6 it preserves "any rule of law as to the cases in which a contract is to be treated as contrary to public policy or as otherwise illegal…" Mr Cotman argued that the assignment of the contract claims was contrary to public policy for the reasons identified in Trendtex. In respect of the claims in tort, he relied upon a different line of authority to which I shall refer later. 19 Mr Cotman noted that AIRS seeks not only the reimbursement of the $3 million it paid under the Deed but also damages claimed to be in the order of $25 - $30 million. Thus, he said, AIRS seeks to profit from the litigation, and on a grand scale at that. He argued that AIRS had no interest in AFA'S claim against the defendants prior to the assignment, which must be demonstrated to establish a genuine commercial interest: National Mutual v Citibank (supra) at 540. He relied on authority that a genuine commercial interest must go beyond a mere interest in profiting from the outcome of the proceedings: Monk v ANZ Banking Group (1994) 34 NSWLR 148 at 153, a decision of Cohen J. 20 Mr Cotman also referred to the statutory regime for contribution in s5 of the Law Reform (Miscellaneous Provisions) Act 1946, and argued that AIRS had no genuine commercial interest in an assignment whereby it could recover the whole of the $3 million it paid, without regard to a just apportionment in the light of its responsibility and that of the defendants: National Mutual v Citibank (also at 540). The right of AIRS to seek statutory contribution has become time barred and yet, it was pointed out, it seeks to recover up to $30 million through the assigned claims. 21 National Mutual v Citibank is one of three Australian cases referred to by Mr Cotman, all of which bear some similarity to the present case and in all of which it was found that an assignment was invalid because the assignee did not have a genuine commercial interest in the assignor's right to litigate. The other two cases are Deloitte Touche Tohmatsu v Cridlands Pty Ltd (2003) 134 FCR 474, a decision of Selway J, and Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2004) 188 FLR 278, a decision of McDougall J. 22 In Deloitte v Cridlands at [105], Selway J referred to an aspect of the public policy against trafficking in litigation which had been examined by the Full Federal Court in Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261. This was the danger that agreements involving maintenance "provided a strong temptation to suborn witnesses and pursue worthless claims": see the Full Court's judgment at 267. Selway J went on to cite a number of cases in which the need to protect the integrity of the processes of the Court was emphasised. His Honour continued at [107], "One of the specific risks to the integrity of the judicial process which is referred to in these cases is the risk of subornation of witnesses". 23 Mr Cotman argued that there is that risk in the present case. He distinguished between the claim based on the shortfall of reinsurance recoveries, described in the statement of claim as the hole in the layer, and the wider claim based upon the defendants' failure to detect and report the hole, which he described as the "failure to warn" claim. He pointed out that evidence from the directors of AFA would be necessary to establish that wider claim, and he referred to AFA's agreement in clause 3.5 of the Deed to provide any reasonable assistance requested by AIRS in its pursuit of the assigned claims. It was put that this agreement has a tendency to affect the judicial process by creating an obligation to assert a particular position which is controversial. 24 As to the claims in tort, Mr Cotman relied upon the joint judgment in Poulton v The Commonwealth (1952 - 53) 89 CLR 540 at 602, in which Williams, Webb and Kitto JJ referred to the "well established principle" that a right of action in tort was "incapable of assignment either at law or in equity …" In so doing, he acknowledged that what their Honours there said was obiter and that more recent authority has called into question the rationale of the rule, at least in relation to torts said to have been committed in a commercial context. 25 In the Rickard Constructions case at [43] - [53], McDougall J referred to a number of cases in which the Trendtex principle had been considered, in some of which the question was raised whether the distinction between causes of action in tort and contract in commercial cases should be maintained. At [53] his Honour said that, if it were necessary for him to reach a concluded view, he would feel at liberty to depart from the dicta in Poulton. However, Mr Cotman argued, consistently with the view taken in some of the cases referred to by McDougall J, that this Court should adhere to the clear statement of principle by members of the High Court. 26 For these reasons, he submitted that none of the assigned claims could be pursued because the purported assignment of them was ineffective. Alternatively, for the reasons of policy already articulated, he argued that the pursuit of those claims would amount to an abuse of process. That proceedings might be stayed on this basis is clearly recognised by authority: see, for example, the decision of the Court of Appeal in Fostif Pty Ltd v Campbells Cash and Carry Pty Ltd (2005) 63 NSWLR 203. From that decision there was an appeal to the High Court, to which I shall refer. In particular, drawing upon an observation by Mason P in that case at [118], it was put that the spoils which AIRS seeks from the assigned claims are so much out of proportion to the $3 million which it has paid that there is a heightened temptation for it to "stray from the path of rectitude" in the conduct of the litigation. 27 These are weighty arguments, but I am not persuaded that the assigned claims should be struck out or summarily dismissed for the reasons identified by Mr Meagher SC, who appeared with Mr Pike and Mr Gray for AIRS. As to the claims in contract, it cannot be said at this preliminary stage that the proposition that AIRS had no genuine commercial interest in the assignment is beyond argument. That is a matter for decision in the light of the evidence at a trial, not on a summary application such as this: cf the decision of Bergin J in Whyked Pty Ltd v Yahoo Australia and New Zealand Pty Ltd [2006] NSWSC 650 at [26]. 28 Mr Meagher referred to pars [6] - [8] of the statement of claim, which assert a close relationship between AIRS and AFA such that AIRS was, in effect, the claims department of AFA. He argued that, at the time of the assignment, AFA had potential claims against both AIRS and the defendants alleging the same loss and damage, including the consequences of the inadequate reinsurance cover. 29 He relied upon the decision of the English Court of Appeal in Brownton Ltd v Edward Moore Ltd [1985] 3 All ER 499, another case similar to the present in relevant respects, in which an assignment was upheld notwithstanding the fact that the assignee might have profited from the agreement: see the judgments of Sir John Megaw at 506 and Lloyd LJ at 509. Looking at the transaction in the present case as a whole, it was submitted, it does not appear that AIRS took the assignment solely for the purpose of making a profit. 30 No purpose would be served by an examination of each of the cases referred to to elicit features which identify them with the present case or distinguish them from it. It is sufficient to say that there appears to be a triable issue whether AIRS had a genuine commercial interest in the assignment. 31 Other aspects of the defendants' argument raise matters going more to issues of public policy apart from genuine commercial interest. In answer to the submission concerning the statutory regime for contribution, Mr Meagher pointed out that it would be open to the defendants to cross-claim against AIRS for contribution, as to both the assigned claims and AFA's claim in its own right. Such a claim by the defendants would not be statute barred. 32 As to the danger of subornation, Mr Meagher noted that Deloitte v Cridlands was concerned with a provision in a deed of release which required the assignor to give specific evidence. The provision in the Deed in the present case does no more than require AFA to provide any reasonable assistance requested by AIRS "including, but not limited to, the provision of information or documents …" It does not impose an obligation to give evidence to any particular effect, and could not be said to have a tendency to corrupt the processes of the Court. 33 As to a general rule against the assignment of causes of action in tort, I have already observed that the reference to that principle in the joint judgment in Poulton v The Commonwealth was obiter. What their Honours said was no more than a statement of the law as it then stood. At that time maintenance and champerty had not been abolished by statute, either in England or in New South Wales, and the Trendtex line of authority had not been developed. It is apparent from the examination of the issue by McDougall J in Rickard Constructions that the principle is ripe for reconsideration. It can fairly be said that this is a matter where the law is in a state of development, to adopt the expression of Kirby J in Australian Broadcasting Corporation v Lenah Game Meats (supra). 34 Indeed, it would appear from the decision of the High Court in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 80 ALJR 1441 that the law in this area generally is in a state of development. That was the decision of the High Court on appeal from the judgment of the Court of Appeal to which I have referred. It is not necessary to recite the facts of the case, or to examine in any detail the reasons of the members of the Court. 35 It is true that it was concerned with litigation funding, a context very different from the present case. Nevertheless, Gummow, Hayne and Crennan JJ sketched the history of maintenance and champerty, examined the principles developed in Trendtex, and queried the need for "an overarching rule of public policy" concerning the funding of litigation: see the joint judgment at [66] ff. Their Honours' observations cannot be confined to the particular issue under consideration in that case, and appear to call into question in a general way the considerations of public policy developed in the authorities about the assignment of rights of action, including agreements from which the assignee is to profit. 36 In these circumstances, it appears to me that the validity of the assignment in the present case is a triable issue and, on the limited material before me, I am not persuaded that proceedings on the assigned claims should be stayed as an abuse of process.

Joinder of AFA 37 Included with its application for leave to file the proposed amended statement of claim, AIRS seeks the joinder of AFA as a plaintiff under r6.19 of the Uniform Civil Procedure Rules. Rule 6.25 requires AFA's consent to being joined. At the hearing Mr Meagher undertook to provide such a consent in writing. 38 As I have said, the direct claim by AFA would be pursued only if it were found that its rights of action had not validly been assigned to AIRS. That course finds support in the judgment of von Doussa J in Chapman v Luminis Pty Ltd (1998) 86 FCR 513. It is common ground that where there are multiple plaintiffs in the same proceeding, all should be represented by the same solicitors and counsel. It is for this reason that the potential for conflict between co-plaintiffs must be considered. In Chapman v Luminis, von Doussa J noted (at 518) that certain steps had been taken to address that issue. In Deloitte v Cridlands, Selway J (at [4]) declined to allow an assignee and assignor common representation because of the potential for conflict. 39 It is for the same reason that the defendants contended that AFA should not be joined in the present proceedings. Two bases were advanced for that contention. Firstly, it is said that there could be conflict between AIRS and AFA about the construction of cl 3.4 of the Deed. It was put that it would be in the interest of AIRS to advance a construction which effectively assigned to it all claims which AFA might have against the defendants, while it would be in the interest of AFA to contend that the assignment is ineffective, so that it remains entitled to pursue those claims itself. Further, it was put that there might be an argument about the scope of the assignment, that is, whether cl 3.4 by its terms assigned only the claim for the hole in the layer or extended to the wider "failure to warn" claim. 40 To this, Mr Meagher responded that there is in fact no issue between AIRS and AFA that cl 3.4 is an effective assignment of the whole of AFA's claim. Certainly, it appears to me that the effect of the terms of the clause is to assign the whole of the claim, having regard to its reference not only to the release in cl 3.1 but also to the loss and damage claimed or foreshadowed in cl 2.12. I do not accept that there is the potential for conflict between the two companies in this respect. 41 The second basis for the contention of possible conflict relates to the firm of actuaries to whom I referred earlier. It was they who had assessed the possible shortfall from the hole in the layer after it was detected. I also referred earlier to the fact that cl 3.2, AFA's covenant not to bring any proceedings arising from any matter the subject of the release, and cl 3.4 itself were each subject to an exception. That exception related to any claim AFA might have against the actuaries in respect of their assessment. For the defendants it was submitted that the Deed, read as a whole, conveys that the actuaries may have underestimated the shortfall. That being so, it was put, the defendants might seek contribution from the actuaries towards any liability they might have to AFA and the actuaries, in turn, might seek contribution from AIRS. 42 Mr Meagher's response to this argument I also find persuasive. The suggestion that there might have been negligence on the part of the actuaries, based upon their assessment of the shortfall disclosed in point 2.7 of the Deed and the amount of the shortfall asserted in cl 2.12, is, at best, speculative. In any event, any claim against the actuaries would be by AFA and would relate to the basis upon which it settled its claim against AIRS. That would be a claim entirely different from the claim which AFA brought against AIRS, and which is now pursued against the defendants, which arises from events well before the initiation and settlement of AFA's claim. I see no potential for conflict on this basis either. 43 Accordingly, it is appropriate that AFA be joined as a plaintiff, subject to the production of its written consent.

Equitable contribution 44 In pars [47] - [53] of the proposed statement of claim, AIRS seeks equitable contribution from the defendants in respect of its liability to AFA. The defendants contend that this claim is untenable because the requirement of co-ordinate liability which is basal to any claim of equitable contribution is absent: Burke v LFOT Pty Ltd (2002) 209 CLR 282. Mr Cotman argued that the liability of AIRS is confined to the creation of the hole in the layer, whereas the defendants are said to be responsible for the failure to warn of the hole and the much larger measure of loss and damage said to have resulted from that failure. Mr Meagher submitted that it was arguable that the liability of AIRS and the defendants is of the same nature and to the same extent, and that the claim for equitable contribution is not doomed to fail and should be determined at a trial. 45 This issue was dealt with briefly in written submissions but more expansively, with reference to relevant authority, in oral argument. I find it unnecessary to decide it. The claim for equitable contribution involves consideration of the same facts and issues of law raised by the assigned claims and, if they should be pursued, the direct claims of AFA. As I have decided that they should proceed to trial, there would be no utility in striking out or dismissing this last claim: cf Wickstead v Browne (1992) 30 NSWLR 1, per Kirby P at 5 - 6. As Merkel J put it in Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 97 FCR 175 at 177, a court "should be very reluctant to terminate summarily part of an action based on an alternative cause of action when the trial of the other cause of action, which is based on substantially overlapping facts, will be proceeding".

Orders 46 Accordingly, the defendants' motion is dismissed. AIRS should have leave file their proposed amended statement of claim, and AFA should be joined as a plaintiff upon production of its written consent. However, the defendants' written submissions, which were prepared before the production of the proposed amended statement of claim, also assert a number of pleading defects in an earlier form of the statement of claim. It may be that some of those defects are said to have been perpetuated in the current document. There was no oral argument about this matter. The defendants should have the opportunity to consider whether an argument of that kind is to be pursued before any formal order is made about the filing of that document. 47 Generally, I invite the parties to formulate the orders which should be made and, if necessary, I shall hear argument on costs. **********

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Judgment (16 paragraphs)

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Cases Cited (14)

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