Perpetual Trustee Company Ltd v CTC Group Pty Ltd

THE APPORTIONMENT LEGISLATION 6The apportionment legislation upon which CTC relies is contained in Part 4 of the Civil Liability Act 2002 of which the following provisions are relevant: "34 Application of Part (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 1987 for a contravention of section 42 of that Act (as in force before its repeal by the Fair Trading Amendment (Australian Consumer Law) Act 2010) or under the Australian Consumer Law (NSW) for a contravention of section 18 of that Law. ... (2) In this Part, a concurrent wrongdoer, in relation to a claim, is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim. ... 34A Certain concurrent wrongdoers not to have benefit of apportionment (1) Nothing in this Part operates to limit the liability of a concurrent wrongdoer (an excluded 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, or (c) the civil liability of the concurrent wrongdoer was otherwise of a kind excluded from the operation of this Part by section 3B. ... 35 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 may give judgment against the defendant for not more than that amount. (2) If the proceedings involve both an apportionable claim and a claim that is not an apportionable claim: (a) liability for the apportionable claim is to be determined in accordance with the provisions of this Part, and (b) liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant. (3) In apportioning responsibility between defendants in the proceedings: (a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law, and (b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings. (4) This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings. ..." 7Also relevant are the following provisions in Part 1 of the Act: "3 Definitions ... damages includes any form of monetary compensation but does not include: (a) any payment authorised or required to be made under a State industrial instrument, or (b) any payment authorised or required to be made under a superannuation scheme, or (c) any payment authorised or required to be made under an insurance policy in respect of the death of, injury to or damage suffered by the person insured under the policy. ... 3A Provisions relating to operation of Act ... (2) This Act (except Part 2) does not prevent the parties to a contract from making express provision for their rights, obligations and liabilities under the contract with respect to any matter to which this Act applies and does not limit or otherwise affect the operation of any such express provision. (3) Subsection (2) extends to any provision of this Act even if the provision applies to liability in contract."

ISSUES ON THE NOTICE OF CONTENTION 8Perpetual submitted that there were a number of reasons why CTC's liability was not limited by s 35(1). These reasons, and my conclusions concerning them, are as follows.

WHETHER CONTRACT INCONSISTENT WITH APPORTIONMENT LEGISLATION 9One of the bases upon which Perpetual claimed damages from CTC was that CTC was liable to indemnify Perpetual under Clause 14.3 of the Mortgage Origination Deed ("MOD") to which they were both parties. This was relevantly in the following terms: "14.3 Originator's indemnity The Originator [CTC] indemnifies the Trustee [Perpetual] and the Manager [Resimac] against any liability or loss arising from and any costs, charges and expenses incurred in connection with: ... (d) any breach by the Originator of any of its warranties or obligations under or arising from this deed or failure to perform any obligation under this deed, including, without limitation, liability, loss, costs, charges or expenses on account of funds borrowed, contracted for or used to fund any amount payable or expense incurred under this deed and including in each case, without limitation, legal costs and expenses on a full indemnity basis or solicitor and own client basis, whichever is the higher". 10The provisions of the MOD that CTC allegedly breached included, but were not limited to, warranties to the effect that CTC would exercise reasonable care to identify proposed borrowers and to ensure that they had authorised the making of applications submitted by CTC to Resimac as agent for Perpetual (see MOD clauses 2.4, 2.5, 3.11). It is unnecessary for the purpose of resolving the apportionment issue currently under consideration, and was unnecessary for the purpose of resolving the issues in the Principal Judgment (see [4] of that Judgment), to refer to other bases of Perpetual's claim. 11Clause 14.3 renders CTC liable for the full amount of Perpetual's loss resulting from a breach by CTC of a warranty or other obligation under the MOD. It makes express provision for the rights and liabilities of Perpetual and CTC respectively under the contract that is inconsistent with the application of the apportionment provision in Part 4 of the Civil Liability Act. If Part 4 applied in the manner for which CTC contends, it would limit CTC's liability to Perpetual to only a proportion of the loss suffered by Perpetual as a result of CTC's breaches. If CTC's liability were so limited, Perpetual would be deprived of its contractual right to full indemnity for its loss. Accordingly, s 3A(2) of the Act applies, as the parties to the MOD have made express provision with respect to a matter covered by Part 4. It follows that Part 4 is inapplicable to Perpetual's contractual claim for indemnity and CTC's assertion that its liability to Perpetual is limited by Part 4 must be rejected. 12This conclusion is consistent with the decision of the Tasmanian Full Court in Aquagenics Pty Ltd v Break O'Day Council [2010] TASFC 3 in which the Court observed that the "plain purpose" of s 3A(3) was "to ensure the primacy of express provisions of a contract as to the parties' rights, obligations and liabilities under the contract, over any provision in relation to the same matter in the Act" (at [16]). CTC submitted that this decision is distinguishable from the present case, however it is unnecessary to deal with that submission as I have reached my conclusion without reliance upon the decision. My conclusion also accords with Professor McDonald's valuable discussion of the issue in "Indemnities and the Civil Liability Legislation" (2011) 27 Journal of Contract Law 56 at 62-63. 13CTC offered various reasons why the Court should conclude that the parties to the MOD did not intend to "contract out" of the apportionment provisions, including the fact that the MOD was entered into before the apportionment provisions came into force. 14However, these submissions should be rejected as they concern an irrelevant issue. The question to which s 3A(2) gives rise is whether a contract makes express provision for the parties' rights, obligations and liabilities which differs from that provided by the Act. It is not relevant to consider whether the parties adverted to the existence of the apportionment provisions of the Act and decided to contract out of them. Section 3A "does not require the parties to use any particular form of wording to effect a contracting out" (Aquagenics at [71]). No reference needs to be made to the Act. All that matters is that the contractual indemnity is inconsistent with the provisions of Part 4. 15CTC also submitted that Perpetual was precluded from relying upon s 3A(2) because Perpetual had not contended at first instance that Part 4 was inapplicable and that, if it had, CTC would have claimed contribution, by way of cross-claim, from some or all of the alleged concurrent wrongdoers. This submission should be rejected as Perpetual did contend at first instance that the apportionment provisions were inapplicable (see for example Written Submissions dated 23 March 2010 [212] - [215]). In my view, CTC was on notice that the Court, at the instance of Perpetual, might hold that the apportionment provisions were inapplicable, with the result that the occasion for CTC to seek contribution from the other alleged wrongdoers might arise. CTC could have, but did not, issue cross-claims to guard against this possibility. 16For these reasons, CTC's Notice of Contention fails. However, for completeness, I will discuss the other bases upon which Perpetual resisted CTC's claim for apportionment.

WHETHER AN ACTION FOR DAMAGES 17Perpetual submitted that its claim for indemnity under the MOD was not "an action for damages (whether in contract, tort or otherwise)" as referred to in s 34(1) of the Act. Perpetual relied upon the Victorian Court of Appeal decision in Commonwealth Bank of Australia v Witherow [2006] VSCA 45 which held that an action on a guarantee of a bank overdraft facility was not "an action for damages" for the purposes of the Victorian apportionment legislation. However, as noted by Middleton J in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216 at [17], that decision did not refer to the definition of "damages" contained in the Victorian legislation which is relevantly in the same terms as that in the New South Wales legislation (see [7] above). 18That definition provides that damages include "any form of monetary compensation" (s 24AE of the Wrongs Act 1958 (Vic)). These are broad words which, in my view, are apt to cover a claim, as here, for contractual indemnity for loss suffered as a result of a breach of contract. Perpetual offered no good reason for reading the expression down to exclude such a claim.

WHETHER PERPETUAL'S ACTION ARISES FROM A FAILURE TO TAKE REASONABLE CARE 19Perpetual also submitted that its action was not one "arising from a failure to take reasonable care", as referred to in the definition of "apportionable claim" in s 34(1) of the Act. 20Whilst accepting that its claim was partially based upon CTC's failure to take reasonable care, Perpetual submitted that other bases of its claim were not so founded and that it was entitled to rely on the bases of claim that were most favourable to it (see Perpetual Trustee Co Ltd v Milanex (in liq) Pty Ltd [2011] NSWCA 367 at [86]). In particular, Perpetual submitted that its claim for indemnity under the MOD for CTC's breach of the following warranty was not founded upon any alleged failure to take reasonable care:

• That CTC was not aware of any circumstances in respect of the proposed loan "which could reasonably be expected to ... cause a prudent lender to ... regard the Loan or the Mortgage as an unacceptable investment" (Clause 3.11(d)). 21Perpetual submitted that the effect of the Court's findings in the Principal Judgment was that CTC breached this and other warranties by not informing Perpetual that it had neither checked the purported loan applicant against his passport photograph nor met with him in person in relation to the loan application (see [23] - [32] of the Principal Judgment). As Perpetual has succeeded on other grounds and argument on the point has been limited, it is unnecessary and inappropriate to determine whether this submission is correct. It is sufficient to proceed, for the purposes of the following discussion, on the assumption that it is correct and that Perpetual was therefore entitled to judgment on at least one cause of action that did not require it to prove that CTC failed to exercise reasonable care. In referring to apportionable claims, Part 4 is undoubtedly referring to those that are entitled to, and do, succeed. Otherwise, there is no liability of the defendant to apportion. 22For a successful action for damages to have arisen from a failure to take reasonable care, it is in my view necessary that the absence of reasonable care was an element of the, or a, cause of action upon which the plaintiff succeeded. As observed by Professors McDonald and Carter in "The Lottery of Contractual Risk Allocation and Proportionate Liability" (2009) 26 Journal of Contract Law 1 at 18, the contrary view would produce the absurd result that a party to a contract who failed to perform a strict contractual obligation would benefit from being found to have acted negligently rather than "innocently". If claims could be apportioned where negligence is not an element of the successful cause of action, but merely arises from the facts, a plaintiff could lose his or her contractual right to full damages from a party whose breach of a contractual provision of strict liability happened to stem from a failure to take reasonable care. 23My view accords with that which I reached in relation to the similarly worded, and in my view relevantly indistinguishable, provision in s 5A of the Act which renders Part 1A applicable only to a "claim for damages for harm resulting from negligence (Perpetual Trustee v Milanex at [87]; see also Monaghan Surveyors Pty Ltd v Stratford Glen-Avon Pty Ltd [2012] NSWCA 94 at [76] and [77]). It appears to differ from that expressed by Barrett J (as his Honour then was) in Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 at [20] - [30] and in other first instance decisions to which his Honour referred. Unless his Honour was simply saying that it is necessary to examine the court's findings to identify the cause, or causes, of action upon which the plaintiff succeeded, I cannot, with respect, agree with his Honour that the "nature of the claim, for the purposes of Pt 4, is to be judged in the light of the findings made and is not determined by the words in which it is framed" (at [30]). In my view the application of Part 4 turns not on the facts that happen to be found but on the essential character of the plaintiff's successful cause of action. Subject to cases that are conducted without regard to the pleadings, if negligence is an essential element of that cause of action, it will have been pleaded in the Statement of Claim. If it is not, it will not have been pleaded. It would be curious indeed if, to attract Part 4 of the Act, the defendant pleaded and proved his or her own negligence when that was not alleged by the plaintiff. The text of s 34(1) does not, in my view, contemplate that occurring. The natural meaning of the words used indicates that a failure to take reasonable care must be part of, and therefore an element of, the plaintiff's successful cause of action.

WHETHER THE CONCURRENT WRONGDOERS CAUSED THE SAME LOSS 24For a person to be a concurrent wrongdoer it is necessary that he or she be one of two or more persons who caused the damage or loss the subject of the plaintiff's claim (s 34(2)). Thus, for the apportionment provisions to apply in the present case, it must be concluded that CTC and the alleged concurrent wrongdoers caused the same loss as that for which Perpetual claimed damages against CTC. In essence, that loss was constituted by Perpetual's advance (irrecoverable, as it transpired) pursuant to the loan application purporting to be, but not, made by Mr David El-Bayeh. 25The present case is distinguishable from Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390; 16 BPR 30,189 where fraudsters induced an advance by a financier and solicitors negligently failed to draft a mortgage security in such a way as to secure the advance. The loss caused by the fraudsters was held to be that flowing from the making of the advance and that caused by the solicitors was that resulting from the financier "not having the benefit of security for the money paid out" (at [41]). The Court considered these to be different losses for the purposes of the apportionment provisions. 26To the extent that CTC and the alleged concurrent wrongdoers caused loss to Perpetual in the present case, it was of the former kind and was, in respect of each person or entity, the same loss. 27Perpetual submitted in this context that the differing nature of the losses was indicated by the existence in CTC, upon it indemnifying Perpetual, of a right to be subrogated to Perpetual's rights, if any, against the alleged concurrent wrongdoers. However, the existence of such a right is irrelevant to the application of s 34(2) as that subsection simply demands an inquiry into whether the relevant persons have caused the same loss. It is not concerned with the effect that payment by the defendant to the plaintiff may have on the plaintiff's rights against alleged concurrent wrongdoers or with the defendant's ability to proceed against those wrongdoers in the plaintiff's name.

LIABILITY OF THE ALLEGED CONCURRENT WRONGDOERS TO PERPETUAL 28Subject to reserving its right to raise the issue on further appeal, CTC accepted at the hearing in this Court that to establish that a person is a "concurrent wrongdoer" as defined in s 34(2), it is necessary to demonstrate that he or she is, or at least was, liable to the plaintiff in respect of the claimed loss (see Perpetual Trustee v Milanex at [94] and also Mitchell Morgan v Vella at [34]). It did not resile from this concession at the hearing of its Notice of Motion. 29Mr Youssef El-Bayeh's liability to Perpetual was established by the entry of judgment against him at first instance. However the primary judge did not consider, either in the context of the apportionment issue or otherwise, the liability to Perpetual of the two Justices of the Peace and Resimac. In its written (as distinct from oral) submissions on the appeal, CTC contended that it was not required to establish the liability of the alleged concurrent wrongdoers to Perpetual and that it was sufficient to show that they caused Perpetual's loss (Written Submissions filed on 29 May 2012 [33]). CTC then dealt in those written submissions with the question of what apportionment should be made, on the basis that the relevant question was how to apportion "blame", and did not attempt to demonstrate that the Justices of the Peace and Resimac were liable to Perpetual (ibid [36] - [41]). Furthermore, in oral submissions, whilst accepting that it needed to show liability to Perpetual, CTC did not address in any detail the bases upon which those persons were liable to Perpetual. 30The result is that, although CTC's Notice of Contention contained assertions that those persons were liable to Perpetual for breaches of duties of care and CTC's oral (but not written) submissions were to the same effect, the Court was not provided by CTC with any adequate assistance to enable it to assess the merits of those assertions. The difficult situation in which this placed the Court was compounded by the absence of any findings by the primary judge on this, or any other, issue arising on the Notice of Contention. As CTC's Notice of Contention fails on other grounds, it is inappropriate in these circumstances to determine whether the Justices of the Peace and Resimac were liable to Perpetual. 31As the Notice of Contention fails for other reasons and the primary judge did not deal with the issue, it is similarly inappropriate to determine what would have been a just apportionment of responsibility between CTC and Mr Youssef El-Bayeh (or the alleged concurrent wrongdoers).

ORDERS 32CTC's Notice of Motion has succeeded to the extent that I have concluded that the Court should consider its Notice of Contention. However, in my view CTC bears sufficient responsibility for the misunderstanding that occurred at the principal hearing of the appeal to warrant it paying the costs of the Notice of Motion. These comprised the costs of written submissions concerning the appeal hearing. In particular, CTC should have been aware at the hearing that Perpetual refrained from making its oral submissions on the Notice of Contention because of the Court's perception that CTC had made concessions fatal to its success on that Notice. An indication by CTC that those concessions were not intended to be made would have rendered the subsequent Notice of Motion unnecessary. 33The appeal hearing that followed the filing of CTC's Notice of Motion was occupied almost wholly by Perpetual's oral submissions on the Notice of Contention and CTC's reply. As the Notice of Contention has been unsuccessful, it is appropriate that CTC pay the costs of the further hearing. These are covered by the order made in the Principal Judgment that CTC pay Perpetual's costs of the appeal. 34For these reasons, I propose the following orders: (1) The Court notes that it is appropriate for it to deal with CTC's Notice of Contention. (2) CTC's Notice of Contention is dismissed. (3) CTC is to pay Perpetual's costs of CTC's Notice of Motion filed on 24 August 2012. (4) The orders made on 13 August 2012 are confirmed. 35MEAGHER JA: I agree that the substantive orders proposed by Macfarlan JA should be made for the reasons that his Honour gives at [1] to [16]. By cl 14.3 of the Mortgage Origination Deed (MOD), the parties made express provision for their rights and liabilities in a way which is inconsistent with the application of the apportionment provisions in Part 4 of the Civil Liability Act 2002. For that reason, s 3A(2) applied with the result that those provisions were not applicable to Perpetual's claim against CTC. I also agree with the costs order that his Honour proposes for the reasons given at [32] and [33]. 36There were five other reasons put forward by Perpetual for rejecting CTC's argument that it was entitled to limit its liability under s 35 of the Act. With one exception, I agree with Macfarlan JA's reasons for rejecting or not determining each of those arguments. The exception is Perpetual's argument that its claim is not an apportionable claim because it does not answer the description in s 34(1)(a) of the Act as one made "in an action for damages ... arising from a failure to take reasonable care". It must be remembered that the "claim" referred to is one that has been determined or decided and established as a source of liability: Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 at [18]. Here, the only basis upon which this Court held that CTC was liable to Perpetual was that CTC failed to exercise reasonable care in identifying the proposed borrower and confirming his authority to submit the loan application: Perpetual Trustee Company Ltd v CTC Group Pty Ltd [2012] NSWCA 252 at [4], [5], [23], [33], [34]. I agree with Macfarlan JA that it is unnecessary and inappropriate to determine whether Perpetual was entitled to judgment on some other basis in order to deal with this argument of Perpetual as to why its claim is not an apportionable one. In these circumstances, I prefer not to express any view as to the matters which Macfarlan JA goes on to discuss. 37BARRETT JA: Whether a particular "claim" is an "apportionable claim" within s 34(1)(a) of the Civil Liability Act 2002 depends on whether the "claim" is 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. 38The point made in Reinhold v NSW Lotteries Corporation (No 2) [2008] NSWSC 187 at [19] - [30] is that the nature or quality of a "claim" for these purposes cannot be determined without taking into account the court's decision on the claim. First and foremost, of course, regard will be had to the words in which the claim is framed but, as Ashley JA said (with the concurrence of Nettle and Neave JJA) in Godfrey Spowers (Victoria) Pty Ltd v Lincoln Scott Australia Pty Ltd [2008] VSCA 208; (2008) 21 VR 84 at [105], the equivalent Victorian statutory provisions: " . . do not mean that, once something that looks like an apportionable claim is pleaded, a defendant forthwith becomes a 'concurrent wrongdoer'." 39His Honour continued: "Section 24AH(1) [NSW s 34(1)] emphasises that whether a wrongdoer is of that character depends upon the person having been one of two or more persons whose acts or omissions caused the plaintiff's loss and damage. At least absent highly unusual pleadings, determination of the critical circumstances will depend upon findings having been made. Section 24AI(1) [NSW s 35(1)] is consistent with such an analysis. It limits the liability of a concurrent wrongdoer to an amount reflecting the proportion of the plaintiff's loss or damage claimed which the Court considers just in all the circumstances, the Court being obliged to take into account the responsibility of other concurrent wrongdoers who are parties to the proceeding, but ordinarily not others. The importance of the Court's adjudication is emphasised by this provision, as it is by s 24AJ [NSW s 36], which naturally flows from it. The same may be said of s 24AK(1) [NSW s 37], which takes as its starting point judgment against a concurrent wrongdoer." 40After noting that this analysis corresponded with that in Reinhold v NSW Lotteries Corporation (No 2) and setting out paragraphs [19] - [22], [30] and [32] of the judgment in that case, Ashley JA said (at [108]: "Those observations emphasised the importance of trial to the determination of the application of the relevant legislation." 41At [109], Ashley JA expressed agreement with the analysis in the quoted paragraphs of the judgment in Reinhold v NSW Lotteries Corporation (No 2). 42It cannot be suggested (nor do I think it has been suggested in any decided case) that the nature or quality of a "claim" is, for relevant purposes, to be determined solely by looking at the court's decision in relation to it. Nor is the nature or quality of a "claim" to be determined solely by looking at the terms in which it is framed. Rather, it is a combination of the terms in which the claim is framed (or pleaded) and relevant findings of the court in relation to it that must be assessed in order to decide whether it is a claim "in an action for damages . . . arising from a failure to take reasonable care" and has the other attributes of an "apportionable claim" under s 34(1)(a). 43I agree with the conclusions reached by Macfarlan JA and, subject to the foregoing, with his Honour's reasons. I also agree that the orders proposed by Macfarlan JA should be made.

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