Plaintiff v Defendants

Plaintiff v Defendants - [2007] VSC 177 - VSC 2007 case summary — Zoe

1 The plaintiff is one of many people who claim to have lost money through the collapse of the Westpoint group of companies. In this proceeding, the plaintiff seeks damages as a result of what he says was poor advice given to him by the defendants in relation to his investment in some mezzanine notes issued by Market Street Mezzanine Limited, a Westpoint company.

2 The first defendant ("de Gabriele") is the person alleged to have given the relevant advice. The plaintiff alleges that, prior to September 2004, de Gabriele was acting as an authorised representative of a company called Strategic Project Marketing Ltd ("SPM"). SPM is now in liquidation. The plaintiff also alleges that, after September 2004, de Gabriele was acting as an employee, servant or agent of the second defendant ("Pyxus"), and an authorised representative of the third defendant ("Chimaera").

3 Pyxus and Chimaera have applied by summons dated 26 April 2007 to join SPM as a defendant to the proceeding. They allege that SPM was the employer or principal of de Gabriele at the time of the plaintiff's initial investment in the mezzanine notes. By their summons, they also seek leave to amend their defence to allege that they, de Gabriele and SPM are "concurrent wrongdoers" within the meaning of Part IVAA of the Wrongs Act 1958 (Vic) ("Wrongs Act") and equivalent federal legislation[1], thereby taking advantage of the apportionment of liability available under those Acts. In so far as the joinder of SPM would constitute the commencement of a proceeding against a company in liquidation, they also seek leave to do so under s471B of the Corporations Act 2001 (Cth) ("Corporations Act").

4 Although not formally a party to the summons, de Gabriele supports it and has given notice that he will seek leave to make similar amendments to his defence, if Pyxus and Chimaera are successful in their application.

5 The plaintiff opposes the joinder of SPM and the proposed amendments to the defence. In response to the defendants' summons, the plaintiff made an oral application for leave to deliver a further amended statement of claim ("the first draft claim"). Then, after the hearing of the defendants' summons and the plaintiff's oral application on 25 May 2007, and shortly before I was due to hand down my reserved decision, the plaintiff delivered another proposed further amended statement of claim ("the second draft claim"). At my request, the parties filed supplementary submissions addressing the impact, if any, which the second draft claim would have on the defendants' summons.

6 In so far as the second draft claim seeks to plead a case against de Gabriele in negligence (para 25A), the amendments are opposed by de Gabriele on grounds which will be discussed later in these reasons. Otherwise, the defendants do not oppose the plaintiff's application for leave to file and serve the second draft claim.

7 The proposed amendments in both the first and second draft claims have clearly been drafted in an attempt to defeat the joinder of SPM and preclude any apportionment of liability.

8 All of the relevant legislation depends on two main concepts or definitions, which are substantially, but not completely, identical. The first is the idea of an "apportionable claim"; the second is "concurrent wrongdoer". Generally speaking, the legislation operates to limit the liability of a concurrent wrongdoer in respect of an apportionable claim to a court-determined proportion of the relevant damage, having regard to the extent of that wrongdoer's responsibility.

9 In considering the application for leave to amend the defence, I have to consider whether it is at least arguable that SPM and the defendants are concurrent wrongdoers and the plaintiff's claims are apportionable claims.[2] If it is, then Pyxus and Chimaera should be granted leave to make the relevant amendments to their defence. It would then be necessary to consider whether SPM should be joined as a defendant (as sought by the defendants) or a third party (as suggested by the plaintiff), and whether that joinder requires the grant of leave under s471B of the Corporations Act.

The pleadings

10 In his original statement of claim, dated 20 December 2006, the plaintiff claimed as follows:

[14]

21 In opposition to the summons, the plaintiff has produced to the court a document which it obtained on discovery from de Gabriele, being an executed services agreement with SPM dated 1 September 2001. The plaintiff says I should reject Mr Risby's affidavit, because clause 3.1 of that agreement provides that the legal relationship between SPM and de Gabriele is that of independent contractor "and not that of agent, employer, employee, partnership or joint venturers".

22 The initial term of the services agreement was from 1 September 2001 to 31 August 2002, and SPM had an option to extend the agreement for a further period of 1 year. The earliest relevant conduct by de Gabriele pleaded in the second draft claim commences "from around September 2002", that is to say, after the expiry of the initial term. The plaintiff has adduced no evidence as to whether the agreement was extended after 31 August 2002 (assuming, for present purposes, that it governed the parties' entire relationship in the previous year), or whether there was some other (and, if so, what) agreement between SPM and de Gabriele.

23 No doubt the precise nature of the relationship between de Gabriele and SPM will need to be examined at trial, on all the evidence. If the defendants are unable to satisfy the trial judge that the relevant employment or agency relationship existed at the relevant times, that may well have significant costs consequences for them. But for the purposes of these applications, it cannot be said (as the plaintiff asserts) that there is no evidentiary basis for allowing Chimaera and Pyxus to plead that de Gabriele was employed by, or an agent of, SPM.

Corporations Act

24 An "apportionable claim" for the purposes of Division 2A of Part 7.10 of the Corporations Act is defined in s1041L(1) as a claim for damages made under s1041I for economic loss or damage to property, caused by conduct in contravention of s1041H.

25 Here, the plaintiff claims that the Westpoint promissory note representations and the Pyxus representations constituted conduct by de Gabriele in relation to a financial product, which was misleading or deceptive, or likely to mislead or deceive, contrary to s1041H.[3]

26 Section 1041I creates a right of recovery of loss or damage caused by, amongst other things, a contravention of s1041H. The prayer for relief in the second draft claim does not actually refer to s1041I, but there would be no point in pleading the breaches of s1041H unless a claim was being made under s1041I. In fact, the plaintiff's first submissions, dated 2 May 2007, expressly concede that there is an apportionable claim within the meaning of s1041L(1) of the Corporations Act.

27 The next question is whether Pyxus, Chimaera and SPM are concurrent wrongdoers in relation to the claim under s1041I. According to s1041L(3), that will be so if each is:

[24]

33 The meaning of s1041L(2) is not easy to extract. The defendants argue that the construction which seems most naturally to arise is that all of the claims in the proceeding that are in respect of the same loss are a single apportionable claim, regardless of whether they are individually apportionable claims. This reading flows from the fact that the words "(whether or not of the same or a different kind)" in relation to causes of action suggest that sub-s1041L(2) is not simply referring to other apportionable claims (in this context, claims under s1041I for a loss caused by contravention of s1041H) but to claims generally, so long as they are in respect of the same loss. After all, there is only one kind cause of action with which s1041L(1) is concerned, namely a claim under s1041I caused by a contravention of s1041H.

34 The defendants suggest that one way to resolve that tension is to regard s1041N(2) as directed to claims which are not for the same damage or loss as the apportionable claim.

35 If these submissions by the defendants are correct, then, as all claims in this proceeding are for the same loss or damage, there would be a single apportionable claim under the Corporations Act. In that case, s1041N(1) would apply and there would be no need to refer to the ASIC Act or the Wrongs Act. In addition, there would be no need to join SPM, because under s1041N(4) the court may have regard to the comparative responsibility of a concurrent wrongdoer who is not a party to the proceeding.

36 It is not necessary for me to determine at this stage whether liability in this case should be determined in accordance with sub-s(1) or (2) of s1041N. That is a matter which should be determined at trial, on the final pleadings and after hearing more detailed argument from all parties. For the purposes of their amendment application, Pyxus and Chimaera's draft defence adequately pleads the matters upon which they rely in support of their assertion that there should be apportionment under s1041N of the Corporations Act, and those amendments should be allowed.

37 Given that the plaintiff may fail in its claims under the Corporations Act, or withdraw those pleadings, or s1041L(2) may ultimately be held not to have the meaning for which the defendants contend, I will consider the remaining legislation.

ASIC Act

38 The relevant provisions are found in Subdivision GA of Division 2 of the ASIC Act. They are in the same terms as the corresponding provisions in the Corporations Act, save that an apportionable claim is defined in s12GP(1) as a claim for damages made under s12GF for economic loss or damage to property caused by conduct done in contravention of s12DA. Section 12DA is equivalent to s52 of the TPA, save that it only applies to conduct in relation to financial services.

39 The second draft claim alleges that the Pyxus representations contravene the following provisions of the ASIC Act (in substitution for the equivalent provisions in the TPA):

[30]

49 The plaintiff proposes to amend so as to delete his earlier claim that the very same conduct also constituted a breach of s9 of the FTA. However, the conduct which the plaintiff pleads as contravening ss12(e) and (n) would in fact also involve a contravention of s9 of the FTA, whether pleaded as such or not. As with the ASIC Act, the question is whether the plaintiff can escape that conclusion simply by framing his claim only under s12, and not under s9.

50 Part IVAA of the Wrongs Act was inserted by the Wrongs and Limitations of Actions Acts (Insurance Reform) Act 2003. The explanatory memorandum for the Bill for that Act makes clear in its commentary to clause 2 that the proportionate liability provisions are part of the national scheme discussed above. The second reading speech delivered by the Premier on 21 May 2003 said little specifically about proportionate liability, but in its introductory remarks makes it clear that the reforms contained in the Bill were a response to concerns about insurance, in particular professional indemnity and public liability insurance. It may thus be inferred that the objectives of the proportionate liability legislation enacted by Victoria are similar, if not the same, to those articulated in the explanatory memorandum to the federal legislation.

51 If this is accepted, then for the reasons articulated above, the defendants argue that a construction of s24AF(1)(b) which advances those objectives should be preferred. That construction would apply the definition of apportionable claim to all claims for damages under s159 of the FTA based on conduct that in fact contravened s9, whether or not the plaintiff expressly pleads that section. As with the earlier legislation, it is at least arguable for the purposes of these applications that the plaintiff's claims are apportionable.

52 Further issues arise in relation to the plaintiff's proposed claims against de Gabriele and Pyxus for damages for breach of contract and against de Gabriele for negligence. Section 24AF(1)(a) of the Wrongs Act defines an apportionable claim as:

[32]

53 The plaintiff's contractual claims involve breaches of an implied term of the relevant retainer that de Gabriele would exercise "due skill and diligence" when providing the advice which he was retained to provide. The implied term was previously pleaded as a duty to exercise "reasonable care, skill and diligence". In either formulation, the term was said to be implied "by reason of the need to give business efficacy to the Pyxus retainer".

54 There is implied by law in every contract for services a term that the party to provide those services will exercise reasonable care and skill in doing so.[5] That being so, I agree with the defendants that it is difficult to see why any implication in fact of a term requiring the exercise of "due skill and diligence" would or could be necessary.

55 However, even supposing that the alleged implied term did add something to the term already implied by law, it is not alleged that the obligation implied by law to exercise reasonable care and skill was thereby negatived. Thus, whether or not the plaintiff has pleaded it, the SPM and Pyxus retainers did contain the obligation of reasonable care and skill which the law implies in such contracts.

56 I also agree with the defendants that it is very difficult conceptually to distinguish the content of an obligation to exercise "reasonable care and skill" from that of an obligation to exercise "due skill and diligence". If "due" does not mean "reasonable", then it is difficult to know what, if anything, it means.

57 The facts alleged by the plaintiff in this proceeding are, in substance, that the implied terms of the SPM and Pyxus retainers were breached by failure to take reasonable care. It is instructive that the plaintiff, having deleted "reasonable care" from the body of the relevant paragraphs, has nevertheless left the particulars unaltered.

58 For the reasons already advanced in earlier contexts, it is at least arguable that a claim should be regarded as apportionable under s24AF(1)(a) of the Wrongs Act, if the facts on which the claim is based include allegations of a failure to take reasonable care, whether or not the plaintiff chooses to give it that name. In other words, it is arguable that an apportionable claim is a claim for economic loss or damage to property that arises, on the facts, from a failure to take reasonable care. The proposed amendments to this part of the defence should also be permitted.

59 The position would be even clearer if the plaintiff were permitted to amend so as to add the proposed paragraph 25A. This is the proposed pleading that de Gabriele gave the Westpoint promissory note advice and made the Westpoint promissory note representations as a result of his negligence in failing to exercise reasonable care, skill and diligence.

60 I agree with de Gabriele's submission that the proposed paragraph 25A should not be allowed in its current form, because it is embarrassing and liable to be struck out. The plaintiff has not pleaded any duty of care; the relevant facts and circumstances said to give rise to, or the scope and content of, the legal duty said to have been breached; or the acts or omissions said to constitute the breaches of duty. There is simply a bare assertion of negligence.

61 If such a claim in negligence were to be properly pleaded and particularised, there could be no doubt about the application of Part IVAA of the Wrongs Act to that claim, which would clearly be one "arising from a failure to take reasonable care."

Joinder of SPM

62 The necessity for joinder of SPM arises if the Wrongs Act is the relevant proportionate liability legislation governing the claims made by the plaintiff under state law. The necessity arises from s24AI(3) of the Wrongs Act, which provides that:

[34]

This may be contrasted with the federal legislation, which permits apportionment without requiring that all persons who are responsible for the loss be parties to the proceeding. Even though not required by the federal Acts, all of the proportionate liability regimes in fact confer power on the court to give leave to join a party such as SPM to the proceeding.

63 Although SPM is in liquidation, its winding up has not been completed, so it would have to be joined as a party by virtue of s24AI(3) of the Wrongs Act, if the other defendants wish to rely upon the apportionment regime.

64 Section 24AL of the Wrongs Act provides that the court may give leave for any persons who are concurrent wrongdoers in relation to an apportionable claim to be joined "as defendants" in a proceeding in relation to that claim. "Defendant" is defined in s24AE as including any person joined as a defendant or other party to the proceeding (except a plaintiff), whether joined under Part IVAA of the Wrongs Act, under rules of court or otherwise.

65 The plaintiff argues that, if SPM is to be joined at all, it should be joined as a third party. I agree with Pyxus and Chimaera that SPM should be joined as a defendant, not a third party, for the following reasons. The defendants make no claim against SPM which could be the subject of a third party notice. The Wrongs Act clearly envisages the possible joinder of such a person as a defendant, for the purpose of apportioning the defendants' respective liability to the plaintiff. In so far as the plaintiff's submissions seem to be driven by a concern as to who will pay the costs occasioned by SPM's joinder, the ultimate responsibility for those costs is a matter which can be determined at trial, and is not dependent on the capacity in which SPM is joined.

Joinder of a company in liquidation

66 A question arises as to whether there is a further requirement for leave under s471B of the Corporations Act, which relevantly provides that a person cannot "begin or proceed with a proceeding in a court against a company" which is being wound up, without the leave of the court. The question is whether adding SPM as a defendant in these circumstances amounts to beginning a proceeding or, put another way, will the result of adding SPM as a defendant be that there is in existence a proceeding against SPM?

67 Ordinarily, of course, there could be no doubt about that. But the Wrongs Act creates the unusual situation that, although:

(a) The defendants cannot bring a proceeding for contribution against SPM;

At a glance

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Legislation Cited (6)

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