J-CORP PTY LTD -v- PANNELL KERR FOSTER (A FIRM) & ORS [2007] WASC 122 (11 June 2007)

4 PKF denied that it made the alleged representations and said, among other things, that the plaintiff made its own examination of the financial affairs of Edmonds. PKF denied that the plaintiff relied on anything said by PKF in making the decision to acquire the half interest in Edmonds and to advance the moneys to it.

5 The third defendant was the principal of an accounting practice and the second defendant was employed by him as a chartered accountant. The plaintiff pleads that the second defendant, on behalf of the third defendant, made certain express representations to the plaintiff as to the financial position of Edmonds. The representations are said to be contained in the final accounts for Edmonds for the year ended 30 June 1999, prepared by the second defendant in the course of her employment by the third defendant.

6 The plaintiff also alleges that certain oral representations were made by the second defendant, on behalf of the third defendant, to the plaintiff in relation to the financial position of Edmonds.

7 The plaintiff alleges that it acquired the interest in Edmonds, and advanced moneys to it, by reason of the representations, which representations were misleading and deceptive. It also alleges that the second and third defendants were in breach of their duty of care to the plaintiff in failing to exercise due skill and care in determining the financial position of Edmonds for the purposes of the final accounts.

8 The second and third defendants deny that they engaged in misleading or deceptive conduct or that they were negligent, and say that the plaintiff had acted solely on the basis of its own enquiries in relation to Edmonds' financial position.

9 In late 2004, a settlement was reached between the plaintiff and PKF. The settlement agreement was recorded in a deed of settlement dated July 2004 (the "deed"). I should say that although the deed is dated July 2004, it appears that the settlement was not in fact reached until September or October 2004.

10 In the deed, the plaintiff and PKF recited, among other things, that PKF expressly denied that it was liable to the plaintiff for the loss and damage alleged in the action or any other loss or damage. The deed further recited that the plaintiff and PKF had agreed to resolve the claim against PKF without any admission of liability on behalf of PKF, on the basis that PKF would pay to the plaintiff the sum of $65,000, to provide audit services to the value of $50,000, and to use all reasonable endeavours to have the partner of PKF who had acted in the matter provide a detailed statement to the plaintiff's solicitors to assist in the preparation of the plaintiff's case against the second and third defendants.

11 Under the terms of the deed, PKF and the plaintiff each released the other from any liability in respect of the claims made against PKF in the action and in respect of the facts giving rise to the claims or the loss alleged. The deed provided that, contemporaneously with its execution, the plaintiff and PKF would sign a minute of consent orders, in the form annexed to the deed, agreeing to the action against PKF being dismissed on the basis that there would be no order as to costs.

12 The action was commenced in 2001. It is evident that at the time of settlement the interlocutory steps in the action were quite advanced. The pleadings had closed and discovery had been given by all parties. Interrogatories had been administered by the plaintiff to PKF and answered by PKF. At the time the deed was entered into, it appears that issues of further discovery or particular discovery were being canvassed between the parties. At that stage, no contribution proceedings had been commenced by the second and third defendants against PKF.

13 It is clear from the correspondence in evidence that the second and third defendants' lawyers were aware, at least by August or September 2004, that the plaintiff and PKF were discussing a settlement of the claim against PKF and that a deed of settlement was being finalised, although it appears that the second and third defendants' lawyers were not aware of the specific terms of the deed nor were they aware of the proposed consent order. It appears from the correspondence that they were, however, aware on 12 October 2004 that the plaintiff and PKF had "substantively settled".

14 On 13 October 2004, an order dismissing the action was made by consent, pursuant to O 43 r 16. The terms of the order are as follows:

"1. The plaintiff's action against the first defendant be and is hereby dismissed.

1. There be no order as to costs of the plaintiff's action against the first defendant and any existing costs orders may, including any reserved costs, be and are hereby vacated."

15 The solicitors for the second and third defendants were not parties to the memorandum of consent. On 13 October 2004, they wrote to the plaintiff's solicitors asking for a copy of the consent order that they understood had been made that day. The plaintiff's solicitors forwarded a copy of the orders by facsimile on 14 October 2004.

16 It appears from the evidence before me that there that aspect of the matter rested until, in February 2006, the solicitors for the second and third defendants wrote to the plaintiff's solicitors requesting a copy of the deed. The plaintiff's solicitors declined to provide it and it was apparently not until 8 December 2006 that a copy of the deed was provided to the solicitors for the second and third defendants.

17 In the meantime, on 18 July 2006 the second and third defendants made the current application for leave to issue a third party notice against PKF, claiming a contribution or indemnity for any amount for which the second and third defendants may be found liable to the plaintiff in the action. The second and third defendants contend that they are entitled to contribution or indemnity from PKF pursuant to s 7 of the Act.

18 The application is opposed by the plaintiff on the basis that no such claim lies against PKF, it being established by the consent order of 13 October 2004 that PKF is not a person "liable in respect of the ... damage" allegedly suffered by the plaintiff, within the meaning of s 7(1)(c) of the Act.

19 It was submitted on behalf of the plaintiff that James Hardie & Co Pty Ltd v Seltsam Pty Ltd [1998] HCA 78; (1998) 196 CLR 53 is authority for the proposition that if joint tortfeasors are sued in the one action, and a judgment by consent in favour of one of the joint tortfeasors dismissing the plaintiff's claim against that tortfeasor is made, no action can be brought by the remaining tortfeasors for contribution from that tortfeasor, the consent judgment establishing that that tortfeasor was not liable to the plaintiff for the damage in question.

20 It was submitted that there was no relevant distinction between the position in James Hardie and the present case.

21 In the present case, the person from whom there is an entitlement under s 7(1)(c) of the Act to recover an indemnity or contribution is a tortfeasor who is liable in respect of the same damage or who, not having been sued by the injured party, would, had they been sued, have been found liable to the plaintiff in respect of the same damage.

22 PKF was sued by the plaintiff but the consent judgment dismissing the plaintiff's claim against PKF establishes that PKF is not liable for the damage suffered by the plaintiff, within the meaning of s 7(1) of the Act.

The submissions of the second and third defendants

23 It was submitted on behalf of the second and third defendants that there were relevant distinctions between James Hardie and the present case.

24 First, in the present case, unlike in James Hardie, the consent orders had been obtained without the knowledge of the second and third defendants. Secondly, the consent order was inconsistent with the actual terms of settlement. The deed provided for the plaintiff to receive benefits totalling some $115,000 from PKF in consideration of the plaintiff consenting to its action against PKF being dismissed. Those payments clearly acknowledged liability on the part of PKF whereas the consent order purports to establish that there was no liability on the part of PKF to the plaintiff.

25 It was submitted that as by the deed PKF implicitly acknowledges a liability to the plaintiff, if the effect of the consent judgment were to deny the second and third defendants any right of contribution from PKF, that would clearly circumvent the policy considerations underlying the Act.

26 Counsel argued that where a plaintiff accepts an amount less than the full amount of its loss from one of two joint tortfeasors, the plaintiff cannot, by means of a consent order dismissing its claim against that tortfeasor, deny the other tortfeasor its right of indemnity from the tortfeasor against whom the action has been dismissed.

27 The clear inconsistency between the terms of the deed and the consent judgment leads to the inference that the consent judgment was simply a means by which the second and third defendants were to be denied their right of contribution against PKF.

Do the second and third defendants have a right of contribution?

28 Section 7(1)(c) of the Act provides, so far as relevant:

"where damage is suffered by any person as the result of a tort ... 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 ..."

29 The relevant provision of the legislation in question in James Hardie - s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) - was in the same terms as s 7(1)(c) of the Law Reform (Contributory Negligence and Tortfeasors Contribution) Act 1947 (WA).

30 In James Hardie, the plaintiff sued three defendants as concurrent tortfeasors in the Dust Diseases Tribunal of NSW. Two of the defendants cross-claimed against each other for contribution under s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act. After the commencement of the trial consent judgments were entered in favour of the plaintiff against two defendants and judgment was entered for the third defendant against the plaintiff with no order as to costs. Before the judgments were pronounced, counsel for one of the other defendants said that his client did not consent to judgment being entered for the third defendant, but that he could not be heard in relation to that and it would not affect his client's claim for contribution against the third defendant. The Judge agreed and the cross-claim was stood over for hearing at a later date. Before the cross-claim had been heard the third defendant applied to strike it out contending that the judgment in its favour meant that it was not liable to the other defendant.

31 In the High Court, it was held (Gummow, Gaudron and Callinan JJ, McHugh and Kirby JJ dissenting) that the effect of the judgment in favour of the third defendant was that the other defendant had no entitlement to contribution against it. The majority rejected the proposition that a party only ceased to be liable if they had been sued to judgment so that a consent order dismissing the claim was no bar to a claim for contribution by a joint tortfeasor. Gummow and Gaudron JJ said (at [40]):

"... the order dismissing the plaintiff's action against the respondent was a final order which brought that action to an end. It would be a distortion of the text and structure of para (c) of s 5(1) to hold in those circumstances that the respondent thereafter answered the description of one yet to be sued. The plaintiff's cause of action against the respondent merged in the judgment, thereby destroying its independent existence.

The status of the Tribunal as a court of record was such that the circumstance that the judgment in favour of the respondent was entered by consent renders it no less effective to absolve the respondent from liability to the plaintiff. It was for the appellant to have taken the necessary steps to oppose that entry of judgment and to have put itself in the procedural position whereby it was competent to appeal against that entry. In the meantime, whilst that judgment remained on the record of the Tribunal, the respondent did not answer either of the statutory descriptions necessary to confer entitlement upon the appellant to proceed against it for contribution.

With respect to the first limb, the respondent had not been adjudged liable to the plaintiff. Rather, it had succeeded in establishing the opposite. With respect to the second limb, the presence of the judgment in the respondent's favour denied it the character of a party still awaiting a final determination of a suit in respect of the damage sustained by the plaintiff."

32 In my view, the decision in James Hardie is determinative of the issue in this case. The legislation considered in that case was, so far as relevant, in the same terms as s 7(1)(c) of the Act. There is, in my opinion, no basis upon which the decision can be distinguished.

33 It is true that in James Hardie, in contrast to this case, the party seeking to make the contribution claim had been aware of the consent order when it was made, but I do not consider that that is a material distinction. In my view, it is irrelevant that the second and third defendants were not aware of the consent order until after it had been made. The effect of the consent order remains the same.

34 There is no question in this case of whether different considerations might arise where the parties to the consent order had obtained the order in circumstances which would offend good conscience. There is nothing to suggest that such circumstances exist here. There is no suggestion, for instance, that the second and third defendants were misled in any way, or that the consent order was obtained surreptitiously in a deliberate endeavour to deny to the second and third defendants rights of contribution which they had asserted, or it was to be expected they would seek to assert.

35 On the material before me, although the interlocutory stages of the action were reasonably well advanced, no contribution claim by the second and third defendants had at that stage been foreshadowed. Moreover, the solicitors then acting for the second and third defendants (who, I should mention, are not their current solicitors) were aware by August 2004 that settlement discussions were taking place between the plaintiff and PKF. The fact of those discussions had been disclosed, at the latest, by 7 August 2004, when a copy of a letter from the plaintiff's solicitors to the Court referring to the discussions was sent to the solicitors for the second and third defendants.

36 It is also apparent from the correspondence that by 12 October 2004 the second and third defendants' solicitors were aware that the plaintiff and PKF had "substantively settled".

37 It was therefore reasonably to be expected that orders in some form would have to be made to bring an end to the proceedings between PKF and the plaintiff and it was conceivable that such orders might involve a dismissal of the claim against PKF.

38 At no stage, however, did the second and third defendants' solicitors make any enquiry as to how the settlement was to be effected. In particular, they did not seek to prevent the dismissal of the claim against PKF, nor did they subsequently seek to overturn the consent order, although they were provided with a copy of it on the day it was made. It would appear that at the time the second and third defendants' solicitors simply did not appreciate the effect of a dismissal of the claim.

39 I do not accept the contention on behalf of the second and third defendants that the payments to be made to the plaintiff by PKF under the deed, and the consent orders dismissing the claim, are inconsistent. In particular, I do not accept the submission that the payments reflect an acknowledgement of liability on the part of PKF; that is, as I understood the import of the submission, that the dismissal of the claim against PKF by the consent order was a sham.

40 The amount payable by PKF under the deed must be seen in its proper context. The plaintiff's loss and damage, as pleaded in the action, is in the sum of some $1.8 million, plus interest from 1999 and costs. As at October 2004 it was not unreasonable to assume that if the plaintiff were wholly successful at trial it would be entitled to recover a total amount (including interest and costs) in the order of $2.5 million. The claim concerned allegations of misleading and deceptive conduct and professional negligence against PKF, a firm of accountants. At the time of settlement the action had been running for more than three years and it was still not in a position to be entered for trial. The future costs of the action to the end of the trial were likely to be substantial.

41 The total amount payable by PKF under the deed was $115,000, of which $50,000 was in the value of audit services to be provided by PKF. In the circumstances, it was a relatively modest sum and not one that, of itself, could reasonably be regarded as inconsistent with the express denial of liability in the deed or as carrying with it an implicit acknowledgement of liability.

42 I do not, therefore, consider that on the material before me there is any basis to infer that the denial of liability in the deed, and the dismissal of the action, were a sham.

43 In my view, it is not now open to the second and third defendants to bring proceedings under the Act for contribution or indemnity from PKF and the application must therefore be dismissed.