Clutha v Millar [2002] NSWSC 703 | Case summary

4834/00 CLUTHA LTD (IN LIQ) V FREDERICK WILLIAM MILLAR & ORS (NO.4) JUDGMENT 1 HIS HONOUR: This is the fourth in a series of decisions arising out of an application by the first to seventh defendants for summary dismissal of the proceeding commenced against them in November 2000, on the ground that the proceeding is time barred under the Limitation Act 1969 (NSW). The cause of action asserted against the first to seventh defendants in the proceeding is that they were negligent, as directors, in permitting Clutha to trade whilst insolvent during the period from September 1994 to February 1995. In Clutha v Millar [2002] NSWSC 362 (6 May 2002) I held that Clutha's pleaded case in negligence, which is the subject of the present proceeding, was statute barred against the first to seventh defendants. This was essentially on the ground that the cause of action in negligence accrued when damage was first suffered, and according to the pleading damage was first suffered more than six years before the commencement of the proceeding. 2 Clutha applied to amend its statement of claim to confine the asserted negligence to the period from November 1994 to February 1995, so as to fit within the six-year limitation period. In Clutha v Millar (No 2) [2002] NSWSC 523 (12 June 2002) I held that Clutha's application to amend the statement of claim must be denied as against the first to seventh defendants on the grounds that there was no jurisdiction to grant leave to amend and that if there were, I would nevertheless decline the application in the exercise of my discretion. 3 Before I made any orders consequent upon these two decisions, counsel for Clutha applied for leave to re-open Clutha's case to make submissions on two New South Wales Court of Appeal decisions. One of them was decided after I delivered my judgment in Clutha No 2, and the other had been overlooked in earlier submissions. I granted leave as sought, and heard further argument. In Clutha v Millar (No 3) [2002] NSWSC 642 (24 July 2002) I decided that the two Court of Appeal judgments were not inconsistent with my reasoning in Clutha No 1, and that there was no ground for withdrawing or amending my earlier reasons for judgment. 4 Immediately after publishing my reasons for judgment in Clutha No 3 on the morning of 24 July 2002, I made an order (Order No 1) dismissing Clutha's notice of motion for amendment of the statement of claim, as against the first seven defendants, and an order (Order No 2) dismissing the whole of the proceeding as against the first seven defendants. 5 Apart from various applications with respect to costs, it appeared to me at that stage that the next matter to be dealt with in the present proceeding was whether the proceeding should also be dismissed against the 10th and 11th defendants. Clutha seeks to establish that they are vicariously liable for the negligence of their employees, who were, respectively, a director and an alternate director of Clutha. They had foreshadowed that if the first seven defendants were successful, they would make an application for equivalent orders, or for a stay of the proceeding. Indeed, they filed their application on the following day, 25 July 2002. Resolution of that application will require determination of at least one contested question of fact, namely the question whether the eighth defendant became a director of Clutha on 28 November 2000 or 30 November 2000. There may also be a contest as to whether Clutha incurred debts during that two day period. 6 However, another issue was raised later on 24 July 2002, when I heard an urgent application by the 10th and 11th defendants. Their counsel had become concerned, in light of James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53, that Order No 2 made by me on the morning of 24 July 2002 might, once entered, extinguish their right to claim contribution from the first seven defendants as joint tortfeasors, if the proceeding were to continue against them and the plaintiff were to be successful. I decided to receive submissions from the parties on the issue, and pending consideration of the issue, I vacated Order No 2. The order had not been entered. The present reasons for judgment relate to this issue. 7 Section 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) provides, relevantly, as follows: "(1) Where damage is suffered by any person as a result of a tort (whether a crime or not) - … (c) any tort-feasor liable in respect of that damage may recover contribution from any other tort-feasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by the person in respect of the liability in respect of which the contribution is sought. (2) In any proceedings for contribution under this section the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage; and the court shall have power to exempt any person from liability to make contributions; or to direct that the contribution to be recovered from any person shall amount to a complete indemnity." 8 The section reverses the position at common law, under which neither joint nor concurrent tortfeasors could recover contribution from one another: Seltsam at 75 per Kirby J. However, as the judgments in Seltsam record, the section has created many problems of interpretation, largely because it fails to explain the significance, to tortfeasors inter se, of defences that one of them may have against the plaintiff. These difficulties have led to reform of the section in many jurisdictions (as noted in Seltsam by Kirby J at 75 and Callinan J at 97-8). 9 One of the earliest problems identified after the enactment of the Law Reform (Married Women and Tortfeasors) Act 1935 (UK), upon which the New South Wales section was closely based, was whether the claimant tortfeasor's right of contribution would be extinguished if the target tortfeasor had a limitation defence to the tort victim's action. The effect of George Wimpey & Co Ltd v British Overseas Airways Corporation [1955] AC 169 and Harvey v R G O'Dell Ltd, Galway (Third Party) [1958] 2 QB 78 was explained by Gaudron and Gummow JJ in Seltsam (at 60) as follows: "If P sued D2 and was met by a good plea that the action against D2 was time barred, D1's claim for contribution against D2 would fail. However, if P sued D1 but not D2, D1 would have a good claim to contribution by D2 because at some time in the past P would have had a good cause of action against D2." 10 This anomaly was noted by the Law Commission of the United Kingdom, Law of Contract - Report on Contribution (Report 181, 15 December 1976), paragraph 60ff. The Law Commission's Report led to the enactment in the United Kingdom of the Civil Liability (Contribution) Act 1978 (UK). Under the new legislation, although a limitation Act might bar the plaintiff's remedy against the target tortfeasor, it does not extinguish the right of the claimant tortfeasor to recover contribution from the target tortfeasor: Nottingham Health Authority v Nottingham City Council [1988] 1 WLR 903. The reforms adopted in various Australian States and New Zealand operate to the same effect: see Seltsam per Callinan J at 97-8. 11 Thus the question of the effect of a limitation defence available to one tortfeasor upon another tortfeasor's right to claim contribution under the unreformed section is anything but a novel question. Because there has been no reform of s 5 (1) (c) in New South Wales, one would expect the position here to reflect the anomaly that led to reform elsewhere. In other words, one would expect the law of New South Wales to be, as established in the George Wimpey case in England, that if the plaintiff's action is brought to judgment and fails because the latter has a good limitation defence, the claimant tortfeasor's claim for contribution against the target tortfeasor must also fail. 12 The position is rendered somewhat unclear by the decision of the High Court in Brambles Constructions Pty Ltd v Helmers (1966) 114 CLR 213. In that case there are observations in the judgments of Barwick CJ (at 219) and Windeyer J (at 221) to the effect that the words "if sued" in s 5 (1) (c) can be read as meaning "if sued at any time" and therefore do not import any temporal element into the section. Consequently those words are satisfied if the plaintiff could have successfully brought an action against the target tortfeasor at any time before the liability of the claimant tortfeasor to the plaintiff was in fact ascertained. Taken literally and out of context, these observations might suggest, contrary to the George Wimpey decision, that the claimant tortfeasor can recover contribution from the target tortfeasor notwithstanding that the latter has established a good limitation defence against the plaintiff. Fortunately, however, the position has been clarified by the High Court in Seltsam's case. 13 In Seltsam's case the plaintiff sued three defendants as concurrent tortfeasors in the Dust Diseases Tribunal of New South Wales, for compensation in respect of pleural diseases alleged by him to have arisen from his inhalation of asbestos dust and fibre at work. The plaintiff claimed that for about 20 years he had worked with asbestos whilst employed by the Electricity Commission, the sole supplier of asbestos during that time being James Hardie; and that for 20 years before taking employment with the Electricity Commission, he had worked in the building industry, where the suppliers of asbestos products were James Hardie and Seltsam. James Hardie and Seltsam filed cross-claims against one another, seeking indemnity or contribution in the event that they respectively were found to be liable to the plaintiff. After the commencement of the final hearing, the plaintiff settled his claims against James Hardie and the Electricity Commission, and judgment was entered against each of those defendants for an agreed sum. Shortly afterwards the plaintiff concluded a separate settlement agreement with Seltsam, under which judgment was entered for Seltsam. 14 Before that Order was made, counsel for James Hardie informed the Tribunal that his client did not consent to judgment in favour of Seltsam against the plaintiff, and asserted that the judgment would not impair his client's statutory right to seek contribution from James Hardie, but he did not argue against the entry of judgment. Subsequently Seltsam moved in the Tribunal, successfully, for an order striking out James Hardie's cross-claim. An appeal by James Hardie against that order was dismissed by the Court of Appeal of New South Wales and by the High Court of Australia. 15 In the High Court the majority comprised Gaudron and Gummow JJ (who delivered a joint judgment) and Callinan J. Kirby J (with whom McHugh J agreed) delivered a dissenting judgment. Gaudron and Gummow JJ held (at 67) that s 5 (1) (c) establishes a right to recover compensation against: (i) those who have come under an obligation to pay money in respect of the same damage, and (ii) those who, not having been sued by the injured party, would, had they been sued, have been found to have caused or contributed to the same damage by a tortious act. 16 According to their Honours (at 67) "there is no third category which identifies a person from whom contribution may be recovered by reference to the circumstance that this person has been sued and has been held not liable". 17 On the facts before them, Seltsam had been sued to judgment and therefore it was not within category (ii), and it had not come under an obligation to pay money to the plaintiff because a consent judgment had been entered in its favour. A principal point of disagreement between the majority and the minority judgments related to whether the statutory wording defeated James Hardie's right of contribution where there had not been a determination in favour of Seltsam on the merits, but only by consent judgment (see Kirby J at 87). Gaudron and Gummow JJ held that, although the judgment was by consent, it determined conclusively as between the plaintiff and Seltsam that Seltsam was not liable, and consequently took James Hardie outside the statutory categories (at 62, quoting with approval from the judgment of Mason P in the Court of Appeal). 18 Their Honours expressly referred to several anomalies, including that created by the George Wimpey decision with respect to limitation defences, as identified by the Law Commission in its Report. They continued (at 60): "We mention these matters not to urge or criticise any of the stances taken by the Law Commission. Rather, they serve to emphasise the need for renovation of the New South Wales legislation, not by judicial grafting to it of tissue which it lacks, but upon a detailed reconsideration by the legislature. Judicial interpretive techniques may come close to leaching the existing statutory text and structure of their content and, while answering the apparently hard case then before the court, unwittingly lay the ground for other hard cases." 19 Those observations confirm that in their Honours' view, the position with respect to limitation defences established in the George Wimpey decision remains part of the law of New South Wales, pending legislative reform, however anomalous the outcome may be. 20 As to the Brambles decision, their Honours emphasised and applied the remarks of Barwick CJ (114 CLR at 219) to the effect that contribution is available only if the target tortfeasor has come under an obligation to pay money in respect of the same damage (their Honours' category (i)), or has not been sued by the tort victim but had he been sued, would have been found to have caused or contributed to the same damage by a tortious act (category (ii), expressed by Barwick CJ in a manner that makes it clear that this category does not apply where the target tortfeasor has been sued to judgment). Seen in this way, the Brambles decision generally requires the Court to consider whether the target tortfeasor would have been liable if sued at any time, but that inquiry is irrelevant if the target tortfeasor has been sued to judgment. Gaudron and Gummow JJ (at 68) referred to Hart v Hall & Pickles Ltd [1969] 1 QB 405 and explained that category (ii) applies in the manner described by Windeyer J in Brambles if the target tortfeasor is sued but the action is dismissed for want of prosecution. This was "because [in Hart v Hall & Pickles Ltd] the phrase "if sued" was rendered inapplicable only if the tortfeasor in question had been sued to judgment and the dismissal for want of prosecution was but an interlocutory order". 21 Callinan J delivered a separate judgment but, in my view, his decision supports the reasoning of Gaudron and Gummow JJ. He referred with approval to the George Wimpey case, and said (at 96): "Contrary to the submission of the appellant, the respondent here does not in my opinion fall into the latter category. The use of the words "if sued" leads to the conclusion that those who fall within that category must be tortfeasors who have not in fact been sued by the plaintiff. Nor can the respondent fall into the former category for it is not liable for the damage, that is, the damage to the plaintiff to which the subsection makes reference. Indeed it is the final judgment in this case that establishes that the respondent is not liable for the damage suffered by the plaintiff." 22 It follows, in my view, that the majority decision in Seltsam establishes the principle that if the Court has found the target tortfeasor to be not liable to the tort victim because of a limitation defence, and orders are made and entered accordingly, the claimant tortfeasor has no right of contribution against the target tortfeasor under s 5 (1) (c). In the present case, my judgments in Clutha (No 1) and Clutha (No 3) amount to a finding that the first seven defendants have a good limitation defence and are therefore not liable to Clutha. I have reached this conclusion in proceedings for summary dismissal, rather than as a result of a trial on the merits, but once I enter judgment for the first seven defendants, my determination will be as final and conclusive as the consent judgment in favour of Seltsam, or, indeed, as final and conclusive as a judgment after a full hearing on the merits. Consequently, the principle emerging from Seltsam is directly applicable to the present case. The outcome may be anomalous but the anomaly is a matter to be rectified by the legislature, rather than by a judicial interpretation that might "leach the existing statutory text" of its content. 23 In Seltsam, Gaudron and Gummow JJ pointed out that James Hardie did not take all the steps open to it to protect and advance its position (at 62). It had the right to be heard before the Tribunal and might have sought deferral of the entry of judgment, the negotiation of a release that would have protected its position, or (having been heard on the matter) an appeal against the entry of judgment. As I read their Honours' judgment, their observation that James Hardie might have sought deferral of the entry of judgment was related to their observation that options might have been explored by negotiation, such as release between the plaintiff and Seltsam without extinguishment of James Hardie's right to maintain its action for contribution. The idea that entry of judgment might be deferred was therefore, in my view, related to the consensual nature of the judgment. If the Tribunal had reached the view that Seltsam was not liable to the plaintiff, the proposition that there might have been a negotiation to preserve James Hardie's rights would have been inappropriate, because Seltsam would have been entitled to enter judgment against the plaintiff without any need to engage in negotiation. 24 In Cockatoo Dockyard Pty Ltd v Commonwealth [2001] NSWCA 468, the Court of Appeal of New South Wales held that the entry of a judgment by consent in the Dust Diseases Tribunal should have been deferred, not because of the possibility of a negotiated outcome that would preserve the right of contribution, but because it was reasonable for the claimant tortfeasor to ask for more time to gather evidence to support the contribution claim, which would be extinguished by the entry of judgment. As in the Seltsam case, there was no issue in the Cockatoo Dockyard case as to the application of any limitation period. 25 In the Cockatoo Dockyard case Grove J (with whom Meagher JA and Ipp AJA agreed) observed at paragraph 23 that "it is the entry of judgment .. which can extinguish a cross claimant's successful pursuit of any remedy". In the present case the 10th and 11th defendants submit that I should defer the entry of judgment in favour of the first seven defendants until their application for summary dismissal or a stay of proceeding has been heard. However, the present case is distinguishable from Seltsam and Cockatoo Dockyard in that here, I have already delivered judgments expressing the considered conclusion, on the application of the first seven defendants for summary dismissal, that the plaintiff's claim against them is statute barred. This is not a case where the entry of judgment in favour of the first seven defendants would be the result of agreement or consent. There is no point in deferring the entry of judgment so that negotiations can take place, or so that the claimant tortfeasor's evidentiary case for contribution (as opposed to its evidentiary case for its own application for summary dismissal) can be more fully prepared. 26 In my opinion the submission by the 10th and 11th defendants is based on a false premise. The assumption seems to be that if I were to defer the entry of judgment until the outcome of their application for summary dismissal was known, the right of the 10th and 11th defendants to claim contribution might be improved. In my opinion that cannot be so. If I were to defer the entry of judgment and hear their application, and decide that they did not have a limitation defence, they would have no basis to resist the entry of judgment in favour of the first seven defendants. Their proper recourse would be to appeal against my determination. If I were to defer the entry of judgment and then decide that they had a limitation defence, the question of contribution would not arise (in the absence of a successful appeal by Clutha). 27 The 10th and 11th defendants have, by contesting the entry of judgment in favour of the first seven defendants, preserved such right as they may have to appeal against my determination. In its submissions Clutha has urged the Court to resolve the matter by entry of judgment, so that certainty is achieved and Clutha's right of appeal is crystallised. By entering judgment in favour of the first seven defendants I shall deliver certainty not only to Clutha but also to the 10th and 11th defendants, with respect to any appeal they may wish to make in order to preserve or restore their right of contribution. I shall endeavour to arrange for the 10th and 11th defendants' application for summary dismissal or stay to be heard expeditiously, but there is no basis for deferring entry of judgment in favour of the first seven defendants until determination of the application. 28 Therefore, subject to a matter to which I shall refer, my view is that, when I enter summary judgment in favour of the first seven defendants on the limitation ground, the 10th and 11th defendants will not be entitled to seek contribution from the first seven defendants under s 5 (1) (c), and there is no good reason for deferring the outcome. 29 The final matter which may qualify this conclusion relates to an anomaly not discussed by the High Court in Seltsam. The anomaly is, according to the submission by the 10th and 11th defendants, that s 26 the Limitation Act of New South Wales (the legislation which is the foundation of the first seven defendants' defence) proceeds on the basis that the contribution claim is not barred. Section 26 (1) provides that: "An action on a cause of action for contribution under s 5 (1) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) is not maintainable if brought after the first to expire of (a) the limitation period of two years running from the date on which the cause of action for contribution first accrues to the plaintiff or to a person through whom he claims; and (b) a limitation period of four years running from the date of the expiration of the limitation period for the principal cause of action." 30 The 10th and 11th defendants submit that it ought not to be correct that s 14 of the Limitation Act would provide a statutory defence to the first seven defendants when s 26 has the effect that the limitation period for contribution claims has not expired against those same persons. In their contention, the more specific provision of s 26 ought to prevail, with the result that, notwithstanding the Seltsam decision, their right of contribution against the first seven defendants will not be extinguished by the entry of summary judgment for the first seven defendants against Clutha. 31 They say that such an anomaly was not intended by the legislature, and to support this argument they refer to the First Report on the Limitation of Actions (October 1967) by the Law Reform Commission of New South Wales, which led to the introduction of the Limitation Act 1969 (NSW). They rely on part of paragraph 160 of the Report, where the Commissioners say: "From the point of view of the person against whom the claim for contribution is made, the possible period of 10 years which may run before the claim against him is statute barred is indeed a long period, but the situation is one in which, we think, the ultimate security of such a person ought to be delayed by reason of the inherent complexities attending the liability of the tortfeasor for contribution." 32 The focus of the Commissioners' attention was to articulate a limitation period in substitution for the six-year limitation period for actions upon the case, which in the case of an action for contribution would commence to run in favour of the target tortfeasor only when the liability of the claimant tortfeasor was ascertained (paragraph 155). They considered whether to adopt the approach taken in the Limitation Act 1963 (UK), which sets a limitation period of two years running from the date upon which the liability of the claimant tortfeasor is ascertained. 33 One of the concerns of the Commissioners was that the UK limitation provision (like the general six-year limitation period for actions on the case) might be unfair to the target tortfeasor. This is because the limitation period in the target tortfeasor's favour does not commence to run until the happening of an event (namely the ascertainment of the claimant tortfeasor's liability) which may not happen for an indeterminate time after the happening of the facts making him liable as a tortfeasor, and is an event outside his control and possibly outside his knowledge (paragraph 158). 34 The solution to this problem, advocated by the Report, was to fix an independent limitation period expiring four years after the expiration of the limitation period for the tort victim's cause of action against the claimant tortfeasor. This would give the target tortfeasor the assurance of knowing that a claim for contribution against him would be statute barred no later than ten years after the events giving rise to tort liability, and earlier if the claimant tortfeasor's liability was ascertained more than two years before the expiration of that ten year period. 35 The Report seems to assume that an action will be available against the target tortfeasor at all relevant times, regardless of the application of any limitation period to the tort victim's claim against the target tortfeasor. For example, in paragraph 159 the following illustration is given of the operation of the four-year period: "Thus, if A sues B in tort for damages, and B wishes to claim contribution from C, B will either have a defence against A's action based on expiry of the limitation period or he will have at least four years in which to decide whether to claim contribution against C." 36 The passage from paragraph 160 quoted and relied upon by the 10th and 11th defendants in their submission (and set out above) makes the same assumption. 37 It may be that the Commissioners made this assumption because of their interpretation of the High Court's decision in the Brambles case. In paragraph 154 they note the controversy on the question whether the words "if sued" have a temporal connotation, and they say that the controversy was set to rest by the High Court's decision in Brambles, the position being that the words "if sued" have no temporal connotation. That might have led the Commissioners to take the view that the application of a limitation period to the target tortfeasor's liability to the tort victim would have no consequences for the claimant tortfeasor, because the target tortfeasor would be a person who "if sued" at any time before the expiration of that limitation period would be liable, and so within the second limb of s 5 (1) (c). The majority judgments in Seltsam have established that this interpretation of the Brambles case is erroneous. It may therefore be that s 26 of the Limitation Act was enacted on an erroneous view of the operation of s 5 (1) (c) of the Law Reform (Miscellaneous Provisions) Act. 38 In my view, s 26 does not impliedly amend s 5 (1) (c). Section 26 sets a limitation period for actions for contribution under s 5 (1), but it does not in terms vary the content of s 5 (1) (c) so as to enable an action for contribution to be brought in wider circumstances than are there specified. It does not state that an action brought within the period which it sets is maintainable, but only that an action brought outside that period is not maintainable. The joint judgment of Gaudron and Gummow JJ in Seltsam expressly contemplates (at 60) that the claimant tortfeasor's claim for compensation against the target tortfeasor fails if the tort victim is met by a good plea from the target tortfeasor that the action against it is time barred. Although the significance of s 26 does not appear to have been drawn to their Honours' attention, in my view s 26 cannot be used to qualify the clear statement of the law that emerges from the joint judgment. 39 The law is in a most unfortunate state. The High Court has made it emphatically clear that s 5 of the Law Reform (Miscellaneous Provisions) Act of New South Wales is in desperate need of reform, and there is no need for me to add my voice to their Honours' forceful observations. 40 I shall make an order for the summary dismissal of the proceeding against the first to seventh defendants. I shall hear the submissions of the parties with respect to costs, and make some orders for the case management of the application by the 10th and 11th defendants for the summary dismissal or a stay of the proceeding against them.

Clutha v Millar

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