Practice and procedure - Application for further discovery - Extension of time to strike out third party statement of claim - Strike out third party statement of claim

Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947, s 7(1)(c)

Application to strike out the third party statement of claim refused

Beecham Group Ltd v Bristol-Myers Co [1979] VicRp 27; [1979] VR 273

British Association of Glass Bottle Manufacturers v Nettlefold [1912] AC 709

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397

Hasleby v Dragicevich [2001] WASC 206

Maronis Holdings Ltd v Nippon Credit Australia Ltd [2000] NSWSC 520

McCabe v British American Tobacco [2002] VSC 73

Rockwell Machine Tool Co v EP Barrus (Commissioners) Ltd [1968] 2 All ER 98

Unioil International Pty Ltd v Deloitte Touche Tohmatsu (No 2) (1997) 18 WAR 190

1 The plaintiffs and third party by a minute of amended application filed on 15 April 2002 seek orders for discovery in terms of the minute. The orders sought were different from those sought in the original application. At the hearing on 23 July 2002, only two of the categories of documents originally sought remained in issue. Subsequent to that hearing, the plaintiffs and third party sought to reopen the question of discovery and, on 18 November 2002, a Minute of Proposed Orders for Discovery (the Minute) was filed seeking discovery of six different categories of documents which bore no resemblance to the original application.

2 The plaintiffs and third party sought to rely upon the affidavit of Mr Mark Alan Richard Blundell which indicates in the jurat that it was sworn on 14 March 2002. I have some doubts that it was sworn at all, given the circumstances in which it was said to be sworn proffered to me from the bar table. Objection is taken to parts of that affidavit, but as counsel for the defendants does not seek to strike the whole of the affidavit out, I will not deal with that issue other than to say the circumstances in which the affidavit is said to have been sworn has nothing to recommend it.

3 The original and the amended application virtually fall away as the defendants have now discovered the documents sought, albeit in a piecemeal fashion. In my view, much, if not all, of this information should have been supplied in a more timely manner by the defendants.

4 The argument on 19 November 2002 related in the main to the issues raised in the affidavits of Mark Alan Richard Blundell sworn on 31 July 2002 and 12 November 2002. This is virtually a fresh application. It essentially arises out an inspection by the solicitors for the plaintiffs and third party of some further documents after an invitation from the solicitors of the defendants in their letter dated 22 July 2002.

5 I am conscious of the fact that in order for the Court's discretion to open the plaintiffs and third party are required on affidavit evidence to offer substantial assistance in establishing whether the particular documents to which the application refers exist and relate to a matter in question determined by reference to the pleadings. On the evidence before me, I am fairly certain that documents exist which relate to a matter in question which have not been discovered, which, in my view, would fall within a category of documents referred to in the Minute.

6 Having said that, I am of the view that the Minute is couched in terms which are too broad. For example, there is no limit as to time in relation to the category of documents referred to in par 1.1. I accept that material prior to the investment, the subject of this action, may be relevant, but how far back should the defendants be obliged to go? The issue relates to par 8 of the plaintiffs' statement of claim and particular A refers to the fact that Mr Stokes was consulted as an investment adviser from about 1970. I agree with counsel for the plaintiffs and third party that any documents which came into existence since 1970 which contain information which may, either directly or indirectly, enable the plaintiffs or third party to advance its own case or damage the case of his adversary, either directly or indirectly, which related to the relationship of the plaintiffs and/or third party and the defendants as accountants and investment advisers may be relevant. However, O 26 r 7(3) of the Supreme Court Rules makes it clear that the Court is to have regard to O 1 r 4B.

7 In particular B of par 8 of the statement of claim, the plaintiffs plead that on 1 January 1984 Jasper, in his capacity as the director of the plaintiffs, as well as in his personal capacity, consulted with Martino as investment adviser. In particulars C and E, the plaintiffs particularises consultation with investment advisers to a period in 1997. In the circumstances, I consider it appropriate to confine the relevant period from January 1984 to 1997. With that limitation, I would make orders in terms of par 1.1of the Minute.

8 As to category 1.2, there is no attempt to describe the category of documents said to fall within this category. I am not persuaded on the evidence before me that an order should be made in these terms. Further, I am not satisfied that an order should be made in terms of pars 1.3, 1.4 and 1.5 of the Minute.

9 I am satisfied on what is before me that the plaintiffs and third party are entitled to discovery of documents in relation to the Scomac liability and would make orders in terms of par 1.6 of the Minute, save and except the words "and further documentation pertaining to the first defendant's reference number 787025". I consider the remaining wording of that paragraph is sufficient to cover any document which is relevant.

Strike out of third party statement of claim

10 On 4 July 2002, the third party brought the following application:

"1. The time for bringing this application be extended to the date this application was filed and served.

2. The defendants' third party statement of claim dated 19 September 2001 be struck out and the defendants' claim against the third party be dismissed.

3. The defendants do pay the third party's costs of the third party proceedings to be taxed.

4. The defendants do pay the third party's costs of and incidental to this application on the basis that such costs are to include all costs, including reserved costs, except in so far as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the third party will be completely indemnified by the defendants for his costs, such costs to be taxed and paid forthwith."

11 One affidavit was filed on behalf of the third party in support of the application to extend time. It is apparent from this affidavit that the issues raised in the application are not straightforward and the parties have, over a period of time, exchanged correspondence in an endeavour to resolve the issues without a formal application. I think this is a sensible approach and have no hesitation in extending the time in which to bring this application, particularly as it is not opposed by the defendants.

12 The third party submits that the defendants' claim in the third party proceedings must fail, as the nature of the claim shows that an order for contribution or indemnity is not arguable. I accept the submission of the third party that a claim should not stand when it has no prospect of success and it is no impediment that extensive argument is necessary to show that the claim cannot succeed.

13 Counsel for the plaintiffs and third party submitted that the defendants' claim for contribution or indemnity is in law, in equity and pursuant to the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (the Act). With this the defendants agree. The cases express the right to contribution between the parties in various ways, such as "co-ordinate liability", "a common obligation", "to make good the one loss" or "of the same nature and to the same extent". This would include the notions of equal or comparable culpability and equal or comparable causal significance. Counsel for the plaintiffs and third party submitted that to succeed, there must be co-ordinate liability by the defendants and the third party as against the plaintiffs, and referred to what was said by Gaudron ACJ and Hayne J in Burke & Anor v LFOT Pty Ltd & Ors [2002] HCA 17 at par [19]:

"In the present case, if regard were to be had to culpability and causation, there would be much to be said for the view that the culpability of LFOT and Mr Tressider and the causal significance of their conduct to the loss suffered by Hanave was of such a different order from that of Mr Burke that they should not be entitled to contribution. Their misleading conduct was a positive inducement to Hanave to purchase, whereas Mr Burke's omission to advise further inquiries merely had the consequence that the respondents' misleading conduct remained undetected."

14 Counsel for the plaintiffs and third party submits that the situation is similar here, namely, a positive inducement on the one hand and an omission to do certain things on the other. It is said there are numerous positive acts on the part of the first defendant and the essence of their entire claim against the third party relate to his omission to do various things.

15 The respective pleadings are conveniently summarised at pages 7 to 9 of the affidavit of Mark Alan Richard Blundell sworn on 4 July 2002 as follows:

"The Respective Pleaded Claims In The Present Case

5. The essence of the plaintiffs' claim against the defendants is as follows.

5.1 The claims are based in breach of contract (duties of care etc arising out of the retainer), negligence and breach of fiduciary duty. (Notably, the third party statement of claim refers to only the first two of these; it makes no mention of the breach of fiduciary duty, nor claims a breach of fiduciary duty by the third party.)

5.2 The claims rest upon the defendants' status as chartered accountants, partners in the accounting firm, and company officers of the plaintiff companies, and the defendants' performance of services as accountants and investment advisers.

5.3 In respect of the Robowash investment, the claim is that one or more of the defendants:

5.3.1 negotiated the terms of the proposed investment in Robowash, conducting such negotiations with a director of Robowash;

5.3.2 knew of Robowash's financial problems and nevertheless advised the plaintiffs to invest in Robowash;

5.3.3 advised the plaintiffs to invest more moneys in Robowash and also to provide a $4 million loan facility to such end;

5.3.4 entered into an arrangement with Robowash whereby Deloittes would be Robowash's accountants in the event that Robowash acquired the necessary additional finance from the first plaintiff;

5.3.5 was paid fees for professional services by the plaintiffs to which the defendants were not entitled.

5.4 With respect to the Scomac investment, one or more of the defendants:

5.4.1 approached the plaintiffs to suggest the investment in Scomac;

5.4.2 advised the plaintiffs to lend $1.5 million to Scomac;

5.4.3 advised the plaintiffs to give a release to Scomac of security held by the first plaintiff;

5.4.4 advised that it was in order for the first plaintiff to lend Scomac another $0.5 million;

5.4.5 was paid professional fees by the first plaintiff to which the defendants were not entitled.

6. By contrast, the essence of the third party claim by your clients against Mr Jasper comprises the following allegations:

6.1 Mr Jasper acted as sole executive director, sole beneficial shareholder and company secretary of the plaintiff companies.

6.2 By virtue of the above, Mr Jasper owed duties to the plaintiff companies to:

6.2.1 obtain proper advice with respect to investments by the plaintiffs;

6.2.2 instruct the defendants or others to conduct due diligence enquiries pertaining to such investments;

6.2.3 obtain such due diligence in writing or otherwise in proper form;

6.2.4 hold directors meetings with regard to proposed investments;

6.2.5 implement proper principles and procedures for investment by the plaintiff companies.

6.3 Mr Jasper took steps to invest in Robowash and Scomac and to obtain a loan facility in that regard.

6.4 Mr Jasper altered Robowash's business plan.

6.5 Mr Jasper alienated the other Robowash directors, Messrs Bolto and Goddard.

6.6 With respect to the Scomac investment specifically, it is alleged that:

6.6.1 Mr Jasper owed duties akin to those outlined above with respect to the Robowash investments;

6.6.2 Mr Jasper briefed Clay Gordon but failed to accept his advice;

6.6.3 Mr Jasper gave a release of secured assets without seeking professional advice beforehand."

16 The question remains: Do the respective obligations of the defendants and the third party fall into circumstances in which a court would order contribution? Counsel for the defendants submitted that there are a number of issues in the statement of claim and the third party statement of claim which are common. It was pointed out that Messrs Martino and Langford are officers of the plaintiffs in the same way that Mr Jasper is.

17 McHugh J, in Burke & Anor v LFOT Pty Ltd & Ors (supra), said, at par 43:

"In order to establish a right of contribution, it is often said that the claimant must prove that its own liability is 'co-ordinate' with that of the party against whom it claims contribution. But as Fitzgerald JA observed in Stratti v Stratti, the difficulty in defining which liabilities meet that description is noted almost as often as the term is used. Previous cases provide some guidance, however, as to liabilities that do not meet that description."

"The approach of Foster AJ in Cockburn illustrates the practical difficulty that arises from using the term 'co-ordinate liabilities' to determine rights of contribution. Rather than focussing on the community of interest between parties - which makes it equitable that they share in the discharge of any burden - the phrase 'co-ordinate liabilities' directs attention to the burden itself. Meagher, Gummow and Lehane in their great work on equity seem to advocate this approach, an approach that is arguably broader than has been countenanced to date. They suggest that contribution may be recovered:

'where the liabilities of the co-obligors to the principal claimant are such that enforcement by him against either co-obligor would diminish that obligor in his material substance to the value of the liability.'"

19 Counsel for the defendants submits that the notion of common obligation, or a common liability, does not mean that they must derive from the same cause of action. It is submitted that each transaction complained of here has one common element, in that they are all about decisions made by the plaintiffs. The defendants are giving professional advice and acting as officers in that decision-making and the third party is acting as an officer and a decision-maker.

20 Counsel for the plaintiffs and third party argues that, in this matter over and above any loss the plaintiffs sustained and which the defendants must answer, there are two additional matters: (1) the first defendant billed the plaintiffs accounting fees for their services and if the plaintiffs succeed, they will need to pay this back. (2) the first defendant obtained an engagement from one of the companies invested in and if the plaintiffs succeed, the first defendant will have to account for the profits gained.

21 It was submitted that it is settled law that there is no right of contribution where there is an account of profits. In this regard, counsel for the plaintiffs and third party referred to Alexander (trading as Minter Ellison) v Perpetual Trustees WA Ltd [2001] NSWCA 240 at par [138], where Davies AJA said:

"However, merely to state the proposition discloses its fallacy. Perpetual WA and Perpetual, on the one hand, and the solicitors, on the other, were not under co-ordinate liabilities in respect of the damages awarded. The damages which the solicitors were ordered to pay to Perpetual WA and Perpetual, were awarded because they flowed from the solicitors' breach of their duty to those parties. One party who has been ordered to pay monies to another party, by way of compensation for breach of trust, may not rely upon principles of contribution to recover back some of the damages which it has been ordered to pay. Negligence on the part of a beneficiary may not be relied upon by way of a claim for contribution or a claim of contributory negligence."

22 Counsel for the defendants accepts, for the purpose of the argument, that one cannot obtain a contribution for an account of profits or a disgorge of fees received if they were received in breach of a fiduciary duty. But it is argued that is not what the third party statement of claim seeks to do. It is said it seeks to recover damages. I think this argument is at least open.

23 Further, the defendants submit that there is a clear distinction between the broad position in equity and the position pursuant to the Act. Section 7(1)(c) of the Act reads:

"7(1)(a) ...

(c) any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is or would if sued have been liable in respect of the same damage whether as a joint tortfeasor or otherwise but so that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability for which contribution is sought."

24 Counsel for the defendants argue that the doctrine of actual contribution applies both at common law and in equity. It is usually expressed in terms requiring contribution between parties who share co-ordinate liability or common obligations to make good the one loss, or more recently in the right to contribution was said to depend upon whether the liability was of the same nature and to the same extent.

25 It is submitted that that is not the test under the Act. It is said that under the Act, having established that damage was suffered as a result of a tort, the tortfeasor, in this case the third party, is liable in respect of the same damage. It is said that is different in nature from requiring the liability be of the same nature and to the same extent. It was submitted that, it is the terms of the Act itself, which determines the contribution.

26 Whilst the arguments of counsel for the plaintiffs and third party are persuasive, I accept the observations of McHugh J in Burke & Anor v LFOT Pty Ltd & Ors at par 49:

"However, the circumstances in which a court will order contribution are not closed. In recent years, courts have held that a difference in the causes of action pursuant to which two parties are liable will not of itself preclude an order for contribution between them provided the liability of each 'is of the same nature and to the same extent'. In BP Petroleum Development Ltd v Esso Petroleum Co Ltd, BP was liable under a contract with the Shetland Islands Council for the cost of damage to the Council's jetty. Esso was similarly obliged to pay for that damage, pursuant to statute. The Outer House held that the obligations of the two parties were 'substantially the same'. In those circumstances, Lord Ross held that they could properly be regarded as being under a common obligation, or liable for the same debt, even though their respective obligations had different sources:

'[T]he origins of the obligation placed on the pursuers and the defenders are separate and distinct, but the obligation is a common one because each has to perform substantially the same obligation.' (emphasis added)"

27 Having considered the issues, I find myself in agreement with Madgwick J in Elliot & Tuthill (Mortgages) Pty Ltd v Farrell & Anderson Pty Ltd [2002] FCA 965, where he said, at par 24:

"The law is clear that before a party will be shut out before the final hearing from presenting a cause of action, the intended cause of action should, in effect, be hopeless: General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125. In my opinion, that cannot be said here. The law relating to contribution appears to be in the process of development or restatement. Further, the full facts are not known as to the relevant conduct of the proposed cross-respondents and controversial questions may be involved in the curial ascertainment of those facts. The precise factual context may affect the real content of the proposed cross-respondents' duties, both as directors and as solicitors. Where there appears to be scope for further development, elaboration or clearer restatement of the law, it seems to me inappropriate to shut the cross-claimants out before that precise factual context is known."

28 On what is before me, I am not persuaded that the causes of action pleaded by the defendants are hopeless and, thus, I would not strike out the third party's statement of claim.