Plaintiff v Defendant

2 In this proceeding the plaintiff claims repayment of a number of loans relating to the defendant's investments in Timbercorp managed investment schemes. The defendant has brought a third party claim against his financial advisor, Lonsdale Financial Group Ltd.

3 By his defence, the defendant admitted the terms of the loan agreements, default and failure to repay, but set up what he described as 'offsetting claims'. The first part of his 'offsetting claims' allegations rely on misleading or deceptive conduct by Timbercorp Securities, based upon omissions in a product disclosure statement. The defendant claims to have suffered loss and damage, which he seeks to recover against the plaintiff, and set-off against his liability, if any.

4 In the second part of his 'offsetting claims' allegations, the defendant alleges a breach of s 610FC(1)(c) of the Corporations Act by Timbercorp Securities as responsible authority, by the charging of management fees, resulting in consequential loss and damage. The defendant alleges that the plaintiff was involved in the contraventions, and seeks to set off compensation claimed under s 1325(2) of the Corporations Act.

5 The defences in relation to the other loans are different. In substance, the defendant denies the loans were made, alleging that repayments were made under a mistaken belief that he was obliged to do so.

6 By his third party notice, the defendant alleges inappropriate advice, contrary to s 945A(1) of the Corporations Act, and misleading or deceptive conduct in breach of s 12DA of the ASIC Act. The conduct involved representations made about such matters as yield, and the nature of the investment. There is also an alleged breach of duty of care in providing financial advice. The breach was constituted by making the representations, and failing to disclose information concerning risks. The defendant alleges that, had he been properly advised, he would not have invested and borrowed funds from the plaintiff, nor would he have incurred loan fees, management costs, rent and other liabilities. He claims a declaration that he is entitled to be indemnified by Lonsdale against any judgment, including costs; alternatively, a declaration that he is entitled to contribution from Lonsdale in such proportion as to the court seemed just and equitable.

7 By its defence to the third party notice, Lonsdale alleges contributory negligence and proportionate liability of Timbercorp Securities and the plaintiff. The basis of the claim is the alleged misleading or deceptive conduct, and breaches of s 601FC(1)(c) relied upon by the defendant in his defence. The claim in respect of the plaintiff is based upon the same allegations.

8 Lonsdale contends that the defendant's claims against it are apportionable claims to which Part IVAA of the Wrongs Act apply. It contends that both the plaintiff and Timbercorp Securities were 'concurrent wrongdoers' for the purposes of the proceeding in that their conduct caused or contributed to the defendant's loss. It further contends that by reason of s 24AI(3) of the Wrongs Act, it is necessary for the plaintiff and Timbercorp Securities to be made 'a party to the proceeding'. The relevant proceeding, according to Lonsdale, is its third party claim. The plaintiff and Timbercorp Securities oppose the application.

9 Section 24AI of the Wrongs Act provides:

(1) In any proceeding 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 loss or damage claimed that the court considers just having regard to the extent of the defendant's responsibility for the loss or damage; and

(b) judgment must not be given against the defendant for more than that amount in relation to that claim.

(2) If the proceeding involves 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 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 proceeding the court must not have regard to the comparative responsibility of any person who is not a party to the proceeding unless the person is not a party to the proceeding because the person is dead or, if the person is a corporation, the corporation has been wound-up.

10 The loss and damage said to have been occasioned by the misleading or deceptive conduct, is any amount the plaintiff establishes by its claim under the first loan agreement. The claim for compensation, as a consequence of the alleged breach of s 610FC(1)(c) of the Corporations Act, seems confined to the repayment of the application money of $70,000. The defendant's claim against Lonsdale was for every payment made and liability incurred as a consequence of participating in the particular scheme. That being so, there would appear, at least on the pleadings, to be apportionable claims as between Lonsdale, the plaintiff and Timbercorp Securities, as concurrent wrongdoers.

11 The plaintiff contended there is no relevant apportionable claim, because the defendant did not opt out of the group proceeding brought by Mr WoodcroftBrown in this court under Part IVA of the Supreme Court Act 1986.[1]

12 Section 24AL(2) of the Wrongs Act provides:

The court is not to give leave for the joinder of any person who was a party to any previously concluded proceeding in relation to the apportionable claim.[2]

13 The plaintiff submitted that it was a party to the group proceeding, as was Timbercorp Securities. The defendant was a group member. The plaintiff pointed to the overlap between Lonsdale's formulation of its 'apportionment claims' and the subject matter of the group proceeding, which it characterised as a 'proceeding in relation to the apportionable claim'.

14 While the words, 'in relation to' may be an expression of broad import,[3] as the plaintiff submitted, the 'apportionable claim' is raised by a party who was not a group member, or otherwise interested in the group proceeding. Moreover, in Timbercorp Finance Pty Ltd v Collins,[4] Robson J held that defendants to recovery proceedings were not precluded from raising any defences, notwithstanding their participation as group members in the group proceeding.

15 In those circumstances, it would be unjust to inhibit Lonsdale's ability to rely on pt IVAA of the Wrongs Act, if the defendant is entitled to defend the plaintiff's claim on any basis he chooses. If the defendant's ability to make the claim he now makes was not resolved in the group proceeding, that proceeding did not conclude any rights Lonsdale may have to allege an apportionable claim if sued by the defendant. Accordingly, I am not persuaded s 24AL(2) of itself operates to deny Lonsdale an opportunity to join the parties as concurrent wrongdoers.

16 Lonsdale characterised 'the proceeding' for the purpose of s 24AI(3) of the Wrongs Act as the third party proceeding. It argued that, because the plaintiff was the initiator of the proceeding it did not fall easily within the definition of 'defendant' in s 24AE of the Wrongs Act. In my opinion, the claim made by the defendant against the plaintiff, to support its set-off, is sufficient to characterise the plaintiff, for the purpose of s 24AI(3) of the Wrongs Act as a defendant in the proceeding. It is to be treated as a respondent to the defendant's claim along with the third party, and thus need not be joined.

17 If Lonsdale intends to rely upon Timbercorp Securities as a concurrent wrongdoer it must be joined as a party to the proceeding - relevantly, as a defendant to the third party claim, subject to the exception under s 24AI(3) of the Wrongs Act.

18 Two issues arise concerning the liquidation of the plaintiff and Timbercorp Securities. First, whether, under s 24AI(3) of the Wrongs Act Lonsdale need not make the plaintiff or Timbercorp Securities a party to the proceeding, because 'the corporation has been wound up'. Second, the requirement for leave to proceed against a corporation in liquidation.

19 The plaintiff adopted the submissions of Timbercorp Securities on the question whether it had 'been wound up'. Timbercorp Securities submitted that as soon as a resolution to wind up or a corresponding order is made by the court, the company may be described as 'wound up'.

20 Section 24AH(2) of the Wrongs Act provides:

For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died.

21 While that provision is common to the Commonwealth schemes and across other States, s 24AI(3) is unique to Victoria. There is no corresponding requirement and exception in other parts of Australia. For example, in New South Wales it is unnecessary for a concurrent wrongdoer to be joined as a party, although the defendant, who wishes to rely upon the liability of another, is under an express duty to inform the plaintiff of the identity of the concurrent wrongdoer.

22 The purpose of s 24AI(3) is to bring about the formal identification of the concurrent wrongdoer in the proceeding, thereby avoiding the need to commence another proceeding against that person, should the plaintiff elect to prosecute a claim and join the concurrent wrongdoer as a 'defendant'. The purpose of the exception is to identify those it is unnecessary to join for that purpose.

23 Context and purpose require the words 'wound up' to be construed as describing a company which has in all relevant respects ceased to exist. Parliament might have adopted the phrase, 'is being wound up', used in s 24AH(2) or 'in liquidation', but chose a more terminal description, which corresponds with the words 'ceased to exist or has died', although a comparison between the terminology in s 24AH(2) and s 24AI(3) is unhelpful, because the provisions serve quite different purposes. Section 24AH(2) is an inclusive provision, enabling reliance on a concurrent wrongdoer even when they have ceased to exist. On the other hand, s 24AI(3) is concerned with formal identification, by adding a party who is not a defendant.

24 In my opinion, the exception to the requirement that a concurrent wrongdoer, who is not a defendant, be made a party, is confined to those who cannot practically be joined because they no longer exist. They are either dead or wound up. A company in liquidation exists, and may be made a party to a proceeding.

25 Unless the winding up process has been completed, the liquidation is continuing. Once completed, when the liquidator has realised all of the property of the company, he or she would ordinarily apply to the court to be released, and request that ASIC deregister the company. Completion of the liquidation is the earliest point at which a company may be said to have been 'wound up', even if not deregistered. That is not the position in respect of either the plaintiff or Timbercorp Securities. They do not fall within the exception in s 24AI(3) of the Wrongs Act.

26 The purpose of s 500(2) is to protect the limited assets of the company in liquidation so that no person will get an unfair advantage, and enable the court to effectively supervise all claims brought against the company in liquidation.[5]

27 In my view, the defendant requires leave to proceed with his claimed set off against the plaintiff. The defendant claims to be entitled to recover an amount of loss and damage (para 16H) and compensation pursuant to s 1325(2) (para 16S) and set off the whole off those amounts against his debt. Thus, the defendant would, if successful, reduce the amount of his indebtedness to the plaintiff by the full amount of compensation and damages whether or not he was entitled to set those amounts off in the liquidation. His apparent intention is to take advantage of the whole of his claim for damages and compensation in reduction of his debt. There is no application by the defendant, presently before the court, for leave to proceed against the plaintiff in support of his set off.

28 While the plaintiff is already a party to the proceeding, and 'defendant' to the defendant's counterclaim to support a set-off, there is no application by the defendant to make claims against Timbercorp Securities. Thus, the question before the court is whether Lonsdale requires leave to add Timbercorp Securities only for the purpose of limiting its liability, if any, to the defendant.

29 Lonsdale contended that even if leave is not strictly required, it ought to be granted if there remains a doubt that leave may be required.[6] It contended that its reliance upon the plaintiff and Timbercorp Securities as concurrent wrongdoers did not undermine the purpose for which s 500(2) was enacted. In the absence of a claim by the defendant against Timbercorp Securities, the company in liquidation is not exposed to a claim on its assets by reason only that it is made a party for the purpose of limiting Lonsdale's liability. I think the better view is that Lonsdale does not require leave to join Timbercorp Securities. for the limited purpose of reducing its liability if any, to the defendant.

30 Finally, the plaintiff and Timbercorp Securities resisted the application for joinder on the ground that Lonsdale had not disclosed an arguable case. The 'case' to which the plaintiff and Timbercorp Securities refer must be the allegation of liability for concurrent wrongdoing. That is to say, the liability of the plaintiff to the defendant.

31 Applications to join parties as concurrent wrongdoers have been refused because they appear to the court unarguable.[7] In the present case the allegations made by Lonsdale against the concurrent wrongdoers are lifted from the defendant's defence. Presumably, they will be advanced by the defendant at trial. The plaintiff has not made application to strike out those claims, or have them dismissed under pt 4.4 of the Civil Procedure Act. It is surprising that the plaintiff and Timbercorp Securities challenge the same claims made by Lonsdale, but have not challenged the same claims made by the defendant. In such circumstances, there is a lack of utility in requiring Lonsdale to establish an arguable case where the viability of the allegations made by the defendant appear to be accepted.

32 It is unnecessary to join the plaintiff as a defendant to the third party claim. The plaintiff is already a party and a 'defendant' to the defendant's counter claim. Timbercorp Securities, on the other hand, should be joined as a defendant to the third party claim under s 24AI(3) of the Wrongs Act. I am not persuaded that leave is required under s 500(2) of the Corporations Act for Lonsdale to allege that Timbercorp Securities is a concurrent wrongdoer. There is no claim by the defendant against Timbercorp Securities. The defendant has not sought and obtained leave to proceed against the plaintiff and must do so if he wishes to maintain his claim for damages and compensation to support his set-off defence.

[1] [2011] VSC 526; [2013] VSCA 284 application for special leave refused.

[3] O'Grady v Northern Queensland Co Ltd [1990] HCA 16; (1990) 169 CLR 356.

[5] Re David Lloyd & Co (1877) 6 Ch D 339, 344; Leonard (JJ) Properties Pty Ltd v Leonard (WA) Pty Ltd (in liquidation) (1986) 11 ACLR 224, 226; Re Sydney Formworks Pty Ltd (in liquidation) (1965) NSWR 646, 649-50; Ogilvy-Grant v East (1983) 7 ACLR 669, 672; Re Addstone Pty Ltd (in liquidation); Ex Parte Macks (1998) 30 ACSR 162.

[6] Woods v D Gabriele [2007] VSC 177; Edwards v Kyriackou [2009] VSC 492.

[7] Atkins v Interprac Financial Planning Pty Ltd [2008] VSC 99; Main Road Property Group Pty Ltd v Pelligra & Sons Pty Ltd [2010] VSC 5.