Procedure - Miscellaneous procedural matters - Other matters - Reservation of case or question for consideration of a Full Court - Application to stay an action pending arbitration - Issue of applicability of proportionate liability provisions of Civil Liability Act 2002 to defendant's proposed counterclaim - Relevant factors in exercise of discretion to reserve.

Supreme Court Civil Procedure Act 1932 (Tas), s17.

Collins v Black [1995] VICSC 7; [1995] 1 VR 372, considered.

Judgment Number: [2009] TASSC 15

1 These proceedings concern a contract between the plaintiff and defendant relating to the design and construction by the plaintiff of upgrading works to the defendant's waste water treatment plant at St Helens. The plaintiff alleges that by its conduct the defendant repudiated the contract, that the repudiation was accepted, and the contract terminated. The plaintiff seeks a declaration of valid termination, a return of a substantial amount of money held as security, together with damages for loss of profit.

2 The contract makes specific provision for dispute resolution, an aspect of which is arbitration. As a consequence, the defendant has applied for a stay of the proceedings pursuant to the Arbitration Act 1986, s53. For that reason the defendant has not served any pleadings in response to the statement of claim but has foreshadowed a counterclaim alleging a substantial breach of the contract, breach of conditions, and repudiation, and claiming damages for the costs of rectification of work done by the plaintiff. The defendant has now given a notice of dispute as required by the dispute resolution provisions.

3 After making the application to stay the proceedings, the defendant applied for that application to be referred for hearing before a Full Court. The Supreme Court Civil Procedure Act 1932, s17 enables a judge, at any time, to reserve any case, or point or question in a case, for the consideration of a Full Court. The plaintiff has joined with the defendant and supports the application for referral. It is that application which is before me[1]. I have had the benefit of written submissions which were filed in relation to the application for a stay, and of oral submissions in support of the referral.

4 As to the stay application, although it is a discretionary exercise with the ultimate onus being on the defendant, in practical terms if the defendant shows that there is an arbitration clause covering the subject-matter of the dispute and that the matter is not unsuitable for arbitration, a prima facie case for a stay is raised. The burden then lies on the plaintiff to show why the stay should not be granted; see Dorter and Widmer Arbitration (Commercial) Law and Practice, LBC 1979 at 47 - 49.

5 In this case the plaintiff says that the arbitration clause is ineffective. That clause provides for arbitration by a person nominated by the chairperson of the Chapter of the Institute of Arbitrators in Tasmania. There is no evidence about this but it is asserted that no Tasmanian Chapter of the Institute exists and it follows there is no relevant chairperson. The plaintiff also says that in any event there are no arbitrators properly accredited by the Institute of Arbitrators and Mediators Australia resident in Tasmania. Such members as are resident in Tasmania "do not include any arbitrator with qualifications appropriate for the conduct of the disputes raised by the plaintiff or foreshadowed by the defendant". The defendant maintains that the arbitration clause is effective and that the Court could, pursuant to the Commercial Arbitration Act, s10, fill the shoes of the non-existent chairperson, and appoint an appropriate arbitrator.

6 The second point relied on by the plaintiff in resisting the application to stay is that it wishes to rely on the proportionate liability provisions contained in Pt9A of the Civil Liability Act 2002 ("the Act"). The plaintiff says that the foreshadowed claims are apportionable claims within the meaning of s43A(1) of that Act. The plaintiff says that, at the least, there is no certainty that the proportionate liability provisions could be relied on in any arbitration. The defendant seems to accept the proposition that the provisions of the Act would not apply in the arbitration, but responds to the suggested difficulty by maintaining that it is illusory because the plaintiff would not be entitled to rely on the provisions in any event; that is, in the court proceedings.

7 The relevant provisions of the Act are as follows:

"PART 9A - Proportionate Liability

43A Application of Part 9A

(1) This Part applies to the following claims ('apportionable claims'):

(a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care (but not including any claim arising out of personal injury);

(b) a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 1990 for a contravention of section 14 of that Act.

'concurrent wrongdoer' in relation to a claim, means a person who is one of two or more persons whose act or omission caused, independently of each other or jointly, the damage or loss that is the subject of the claim;

'excluded concurrent wrongdoer' means a concurrent wrongdoer referred to in subsection (5)(a) or (b).

(3) For the purpose of this Part, apportionable claims are limited to those claims specified in subsection (1).

(4) ...

(5) Nothing in this Part operates to limit the liability of a concurrent wrongdoer in proceedings involving an apportionable claim if -

(a) the concurrent wrongdoer intended to cause the economic loss or damage to property that is the subject of the claim; or

(b) the concurrent wrongdoer fraudulently caused the economic loss or damage to property that is the subject of the claim.

...

43B Proportionate liability for apportionable claims

(1) In any proceedings involving an apportionable claim -

(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just, having regard to the extent of the defendant's responsibility for the damage or loss; and

(b) the court is not to give judgment against the defendant for more than that amount.

8 The defendant's arguments as to the application of the proportionate liability provisions can be summarised as follows:

•

The definition of "apportionable claim" in s43A(1)(a) is unclear, but properly construed, the concept would not include the defendant's claims based in contract and where the contract sets out a comprehensive set of obligations in terms of warranties, conditions and terms relating to the way in which the work was to be carried out.

•

The plaintiff's submission that it is entitled to rely on the proportionate liability provisions, if correct, "will profoundly undermine the law of contract, both generally and in its application to the [particular] contract ...". The application of the proportionate liability provisions in favour of the plaintiff would have the effect of limiting its liability to pay damages for breach of contract to whatever proportion the Court considers just, having regard to the extent of the plaintiff's responsibility for that damage; s43D(1)(a). "This would effectively set aside the obligations and responsibilities which the plaintiff, voluntarily agreed to subject itself to by entering into the contract and by accepting the considerable benefits of it in its favour."

•

Accordingly, the proportionate liability provisions, properly construed, do not apply to the claims for damages which the defendant wishes to pursue against the plaintiff for breach of contract.

9 The particular reason for seeking the referral to the Full Court was that the application was said to raise a "profoundly important question on the drafting of the Civil Liability Act". The question was said to be one of national significance because the Act was in a form common to that adopted in other jurisdictions in the country. The issue was put by counsel for the defendant, Mr McElwaine, in terms of whether, in effect, the proportionate liability provisions "oust the law of contract". I was told that whichever party lost the stay application, there would inevitably be an appeal.

10 Mr McElwaine referred to the decision of Palmer J in Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463 and acknowledged that it was against the defendant's position. He said that were in not for that decision, the referral would not have been sought. In that case the plaintiff sued two defendants for damages arising from the repair of boat engines. The liability of the first defendant was found to exist on the basis of an implied term in a contract with the plaintiff that the work would be carried out with reasonable skill and diligence. All of the work was in fact done by the first defendant. The plaintiff submitted that the legislative scheme of proportionate liability did not operate to limit the contractual liability of a defendant who may have subcontracted its obligations to a third party whose negligence was the sole cause of the loss or damage. The "pivotal point" in the submission was that the first defendant was not a "concurrent wrongdoer" because the other defendant carried out the physical work on the engines, the liability of the first defendant resting only on contract, and it could not by its own acts or omissions have caused the loss.

11 Palmer J said that the first defendant had omitted a contractual duty which, if performed, would have prevented the loss. The breach of contractual duty to ensure that the work was properly done by others was an omission within the meaning of our s43A(2) such as to make the contract-breaker a concurrent wrongdoer. Accordingly the plaintiff's claim against the first defendant was an apportionable claim.

12 Mr McElwaine said that he would be asking the judge hearing the stay application not to follow that decision, it being wrong in principle. One suggested flaw in the Yates' judgment was that there was no reference to the "contracting out provisions", as contained in the Act, s3A. This section reserves to contracting parties the right to make express provision in relation to any matter to which the Act applies. It was submitted that the difficulty the defendant faced in the stay application was that the judge was obliged to follow Yates' case unless persuaded that it was plainly wrong. I am prepared to accept the correctness of that proposition for the time being, although it might not strictly be accurate even given the existence of common form provisions adopted nationally; see Commercial Banking Co of Sydney Ltd v Commissioner of Taxation (1983) 70 FLR 433 at 443.

13 Counsel for the plaintiff, Mr Bailey SC, generally agreed as to the importance of the point but did say, although not wishing to be taken as arguing against his own position, that the issue may not be quite as "cut and dried" as Mr McElwaine had maintained by reference to Yates' case. Mr Bailey said that there were other cases (which he did not identify) which showed that whether a claim was within the relevant provisions was a matter of substance rather than pleading form. More particularly, he said that irrespective of a claim being pleaded as a breach of contractual warranty or similar, the court would look at the factual substance of the claim to determine whether it was an apportionable claim. This, he said, indicated that the "contract conundrum" was not quite the substantial issue suggested by the defendant. Mr Bailey nonetheless supported the application for referral, agreeing that whatever the outcome of the stay application, the matter would inevitably be taken to the Full Court by the unsuccessful party.

14 During the course of the argument, both counsel accepted that a number of steps would have to be taken by the parties before the point as to proportionate liability could be properly determined. This is so irrespective of whether the matter remains with a single judge or is referred to the Full Court. Those steps include the filing and service of a draft proposed defence and counterclaim, reply and defence to counterclaim, and any subsequent pleading necessary to properly define the issues. Additionally, the plaintiff raised the need for what was described as "partial" discovery, which was required to ascertain the identities of all those parties who may be concurrent wrongdoers. This is because the plaintiff is under a duty to inform the defendant, by virtue of the Act, s43D, of the identity of concurrent wrongdoers and the circumstances which may make them a current wrongdoer. At the conclusion of the arguments it had also become the plaintiff's position that the better course to adopt, were I minded to make a referral to the Full Court, was to only refer the proportionate liability question.

15 Factors relevant in the exercise of the discretion of reservation under the Victorian equivalent of the Supreme Court Civil Procedure Act, s17, were discussed in Collins v Black [1995] VICSC 7; [1995] 1 VR 372. At 410 Brooking J said:

"Not surprisingly, [ the section] does not attempt to show by reference to what criteria a proceeding or question in a proceeding should be regarded as fit to be reserved for the consideration of the Full Court or directed to be argued before it, and it would be wrong for this court to endeavour to lay down criteria. I think none the less that the time has come to dispel certain erroneous notions which seem to be gaining currency among members of the legal profession. These are the notions that it must be appropriate for a matter to be referred to the Full Court if the question is one of difficulty, or one of great importance to the parties, or one of public importance, or if there is some conflict of authority (of whatever kind) on the point, or if the parties assert that any decision that a single judge may give on the point will be but a staging post en route to the Full Court, or if they say that the point stands in urgent need of determination. All these features may be present in a given case without its necessarily being one which ought to be referred. To say this is to say nothing about what circumstance or combination of circumstances may be regarded as warranting reference to the Full Court in a given case: everything depends on the circumstances of the particular case. Those circumstances should be carefully considered by the judge asked to act under the subsection, and undue reliance should not be placed on the assurances and urgings of the litigants.

I wish only to combat the notion that the suggested presence of one or some of the characteristics I have mentioned should be regarded as a passport to the Full Court. There is in many cases no reason why a difficult and important question which requires urgent determination should not be decided by a single judge notwithstanding that the authorities conflict and both sides say they will if necessary appeal.

It must always be borne in mind that the Full Court is primarily a court of appeal and that to by-pass the primary judge is to deprive the Full Court of the benefit of his judgment ...".

16 In a joint judgment, J D Phillips and Hansen JJ expressly agreed with those comments and went on to say:

"The effect of that delay (and the extra expense involved) when this court comes to consider the exercise of its discretionary power to decline a reference is one of the matters addressed by Brooking J.

But that apart, it seems to us of even more significance that, when a matter is referred under s 15(2), the Full Court is immediately deprived of all the advantages of having the case scrutinised at first instance. As Brooking J has observed, to bypass the primary judge is to deprive the appeal court of the benefit of his judgment on the question or questions arising for determination. We would add that it also deprives the appeal court of his analysis and articulation of the problem, the exposure (and, where appropriate, the remedying) of any procedural difficulties and his marshalling of the material in support of the one side and the other. These losses must inevitably flow from a reference under s 15(2), while such gains as one party or the other considers might flow from a successful invitation to the judge at first instance to refer the matter to the Full Court may well be only transient, or not so much real as imagined."

17 In Law Institute of Victoria v Felman, Supreme Court of Victoria, 6 May 1997, Beach J referred to the passage of Brooking J, in Collins v Black, which I have set out and said:

"I respectfully agree with his Honour's observations. The fact that issues may be of public importance is of itself no reason to bypass the primary judge. Much of the litigation in this Court involves matters of public importance. Is it to be suggested that all such litigation be referred directly to the Court of Appeal?"

His Honour's comments and rhetorical question are much to the point in this case.

18 Collins v Black was also referred to in Vatta v Aust Scan Pty Ltd, Supreme Court of Victoria Court of Appeal, 1 December 1995. Charles JA, (McDonald AJA agreeing) accepted that there were sufficiently compelling reasons for accepting the referral of four questions of law which had been made. His Honour said, "In particular, the parties are in agreement that no question of fact is raised. It is clear that matters of considerable importance are involved and the validity of a very large body of legislation is in question. It is clear that important legislation involving the liberty of a subject is affected".

19 Whilst the discretion to reserve is unfettered and its exercise must depend on the circumstances of each case, the statements made in the Victorian cases to which I have referred provide authoritative guidance as to the approach to be adopted. It is clear that a degree of caution needs to be exercised in relation to the urgings of the parties and to the matter of reservation generally.

20 The starting point of the considerations in this case is that I think it is clearly inappropriate to refer the entire stay application to a Full Court. In general terms, I do not think that broad matter is such that it ought to be dealt with by that Court. The issue of the validity of the arbitration clause involves questions of fact about which there is presently no evidence. Ultimately, factual matters relating to the existence or otherwise of the Institute and relevant persons may be of narrow compass and capable of agreement. However, there may be a need to consider the factual matrix in which the contract was concluded, in order to establish the parties' intentions as to how the clause should operate.

21 The effective severance from the stay application of that issue has the immediate effect of segmenting the application. It may be that the determination by a Full Court of the remaining question might resolve the stay application. Mr McElwaine conceded that the defendant would be hard pressed to put a case that the dispute should be arbitrated in the event that the argument as to the construction of the proportionate liability provisions does not succeed. This notwithstanding, that still means there is no formal disposition of the stay application immediately consequent upon the Full Court's determination, and there remains the real possibility that in any practical sense, the entire application is not determined. That in turn raises questions of further delay of the stay application and additional costs.

22 As to whether the proportionate liability issue is referred to a Full Court, I will leave to one side the need for the exchange of draft proposed pleadings and the discovery sought by the plaintiff. Those steps will have to be taken in any event. It is not part of my task to assess the merits of the proportionate liability question, but it is part of my task to assess the nature of the question in order to determine whether its reference to a Full Court is appropriate. Because of the present uncertainty as to precisely what the question is or questions are, I will have to speak in general terms. I am conscious that the parties have indicated a willingness to define the issues by the exchange of draft pleadings, but even then, as will be seen, some difficulties would remain.

23 The question cannot involve as broad a principle as was suggested in argument, even accepting a degree of illustrative hyperbole. The Act, s43A(1)(a), explicitly states that an apportionable claim includes a claim for economic loss in an action for damages in contract. (In the Act, s3, "damages" is defined as monetary compensation, which expression it seems, includes a sum certain; Dartberg v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216; (2007) 164 FCR 450 at 456 [17].) The Act, s3A permits contracting parties to expressly regulate the operation of the legislation as between them. Ordinarily, the question of whether a claim is an "apportionable claim" in any particular case is, of course, to be determined by an analysis of the nature of the claim made to see whether it is one "for economic loss in an action for damages". Whether a party is a "concurrent wrongdoer" within the meaning of s34A(2) involves the resolution of several questions of fact and law.

24 The exercise which will arise in the stay application is to assess the extent to which the plaintiff may be disadvantaged by the inability to avail itself of the proportionate liability provisions. The defendant says there is no disadvantage because they do not apply. It follows from what I have said that the question must be whether those provisions apply to the particular claims to be made by the defendant, rather than one of general principle as to the application of Pt9A to contractual claims. It is conceivable that the question of whether Pt9A actually applies to the defendant's proposed claims is readily apparent from the terms of the proposed draft pleadings. However, it should be borne in mind that, in strict terms, in the stay application it may only be possible to determine the likelihood of whether it applies to the defendant's proposed claims, rather than conclusively decide its application. This is because, as the following discussion shows, issues of "apportionable claim" and "concurrent wrongdoer" are really only to be resolved after relevant findings have been made at trial.

25 That point has been made clear in a number of cases. In summary, the position is:

•

the provisions do not require that to be an apportionable claim, the claim must be in negligence or for breach of duty, only that it be one for economic loss and arising from a failure to take reasonable care;

•

even though the pleadings do not expressly raise a plea of failure to take reasonable care, such a failure may form part of the allegations or the evidence in the proceedings;

•

the nature of a "claim" for the purposes of the provisions is determined by what the court decides in the case, not by what is pleaded. The relevant "claim" is the one as proved or established, not the one as pleaded or advanced.

26 The relevant authorities are Dartberg v Wealthcare Financial Planning Pty Ltd (above), at 457 - 458 [28] - [31], Reinhold v New South Wales Lotteries (No 2) [2008] NSWSC 187 at [21] - [30] and Godfrey Spowers (Victoria) Pty Ltd v Lincolne Scott Australia Pty Ltd [2008] VSCA 208 per Ashley JA at [100] - [110]. In the latter case, Ashley JA (with whom Nettle and Neave JJA agreed) suggested at [102] that it was very doubtful whether "pleadings rather than judgments could ever render a matter an 'apportionable claim' and a defendant a 'concurrent wrongdoer'." His Honour later said at [105] that the equivalent of the Act, s43A(2) "..emphasises that whether a wrongdoer is a concurrent wrongdoer depends upon the person having been one of two or more persons whose acts or omissions caused the plaintiff loss and damage. At least absent highly unusual pleadings, determination of the critical circumstances will depend upon findings having been made". His Honour went on to express his agreement with to analysis of Barrett J in Reinhold's case.

27 I should point out that Reinhold v New South Wales Lotteries (No 2) was a case in which Yates v Mobile Marine Repairs Pty Ltd was referred to. In Reinhold, Barrett J dealt with the application of the Civil Liability Act (NSW) proportionate liability provisions to two defendants held liable both in contract and in tort for damages in respect of a claim for a lottery prize. The plaintiff's ticket had been wrongly cancelled. The question was whether each of the defendants (one the Lottery, the other a newsagent) was a concurrent wrongdoer which, his Honour said, raised "the threshold question" of whether there were "apportionable claims" within the meaning of s34(1)(a), (the equivalent section to the Act, s43A(1)(a)). His Honour said:

"25 ... It was submitted ... that the breach of contract claim is outside [the section] because the relevant contractual term was concerned with the fact of cancellation, however the cancellation may have arisen and regardless of questions of intention and questions of want of care. According to the submission made, a contract claim is within s 34(1)(a) only where the breach is a breach of an express or implied term requiring that reasonable care be taken. ... The decision of Palmer J in Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463, one of the very few cases in which there has been a direct application of Part 3 of the Civil Liability Act, was of this kind.

26 In the present case, there would have been a breach of the relevant contractual term had Lotteries or the Newsagents intentionally and knowingly cancelled Ticket B without Mr Reinhold's consent. ... On the findings actually made, however, there was a breach of the contractual term because of actions entailing want of care rather than intention to breach or knowing breach. No one held any positive or conscious intention that Ticket B - the ticket with which Mr Reinhold left the shop - should be cancelled. Its cancellation was the product of the conduct of Lotteries and the Newsagents which entailed breach by each of a duty of care in negligence. The breaches of contract to which the cancellation of Ticket B gave rise were of the same character as the negligence. Each had as its central element failure to take reasonable care.

27 The case was thus one in which each relevant 'claim', as determined by the court and according to the findings actually made, was a claim in an action for damages 'arising from' the failure to take reasonable care that was also at the centre of the tortious claim in negligence. This is so of both the claims in tort and the claims in contract. That, in my view, is sufficient to bring the contract claims, as well as the tort claims, within s 34(1)(a) and it makes no difference that the breaches of contract, as alleged, were not framed in terms of failure to take reasonable care." (My emphasis.)

28 These cases may have been some of the ones to which Mr Bailey SC was referring in noting that the application of proportionate liability claims to contract might not in reality assume the dimensions as contended for on behalf of the defendant. I have mentioned all of this for the purposes of examining the state of the relevant law, the nature of the matter to be referred, (that is, the application of the proportionate liability provisions to the claims to be made by the defendant), and the exercise upon which a Full Court will have to embark.

29 The essential question is whether the proportionate liability issue is a suitable matter for determination by a Full Court. In all of the circumstances I take the view that it is not. First, this is not a case in which there has been a decision of an appellate court in another State, directly on the point. In such a case there is no doubt a single judge in this State should follow that decision unless convinced it is plainly wrong; Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2000) 230 CLR 89 at 151 - 152 [135]. Of course I cannot, and do not, pre-empt any decision nor seek to deny the right of the defendant to raise such arguments as it chooses, but on the basis of what I have set out, I am not persuaded that the state of the law is presently such that there is a need for a Full Court to consider the issue of proportionate liability as between the parties, in the context of the stay application.

30 Secondly, in my view, that context in which a Full Court's determination will take place militates against granting the application. Given my attitude to the referral of the entire stay application, a Full Court will be required to make a determination as part of a process in which a discretion is ultimately to be exercised by a single judge, the Full Court's determination being a factor in that exercise, albeit a significant one. As I have already noted, this fragmentation suggests unnecessary delays and cost.

31 Thirdly, I am also mindful that difficulties may be encountered in formulating precisely what question or issues are to be ultimately determined by a Full Court, and whilst that problem may also confront a single judge hearing the application, it is perhaps best confronted by a single judge in the usual setting of a primary hearing. Were the matter to be later taken on appeal, that would give rise to the real and weighty advantages to the Full Court which are identified in the passages of the judgment of J D Phillips and Hansen JJ in Collins v Black, which I have set out above.

32 For those reasons the application is refused. Subject to hearing from counsel, I propose directing that the matter be listed for a directions hearing before the Associate Judge as soon as practicable for the purpose of setting a timetable in relation to the delivery of the draft proposed pleadings and the discovery required by the plaintiff.

[1] On 5 March 2009, I refused the application and said that I would later publish reasons for doing so. These are my reasons.