Plaintiff v Defendants

1 The plaintiff and defendants are former directors of Nomad Telecommunications Ltd ("Nomad"), a company now in liquidation. In this proceeding, the plaintiff claims damages against the defendants, based in part on alleged misrepresentations, which are said to constitute misleading and deceptive conduct contrary to s 9 of the Fair Trading Act 1999 ("FTA").

2 In their amended defence dated 5 September 2008, the defendants allege that two senior officers of Nomad are concurrent wrongdoers, because they also made misrepresentations, contrary to s 9 of the FTA, which caused the plaintiff loss. One of those senior officers, Stephen Warrener, the former chief financial officer of Nomad, is dead. The other, Carlton Taya, was the chief executive officer and a director of Nomad. Mr Taya is now an undischarged bankrupt.

3 The defendants apply for an order that Mr Taya be joined as the third defendant to the plaintiff's claim. The defendants also say it is not necessary for them to deliver any pleading against Mr Taya.

4 The plaintiff does not resist the joinder of Mr Taya as a necessary party under r 9.06(b) of the Supreme Court (General Civil Procedure) Rules 2005, but says that he should be joined as a defendant to the counterclaim, not as a defendant. The plaintiff says the defendants should be required to amend their counterclaim, so as to seek a declaration that Mr Taya and Mr Warrener are concurrent wrongdoers.

5 Part IVAA of the Wrongs Act 1958 governs the apportionment of liability as between concurrent wrongdoers. The effect of s 24AI(3) of the Wrongs Act is that a court must not have regard to the comparative responsibility of any person who is not a party to the proceeding, unless the person is dead (or, if a corporation, has been wound up).

6 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 s 24AE as including "any person joined as a defendant or other party in the proceeding (except as a plaintiff), whether joined under [Part IVAA of the Wrongs Act], under rules of court or otherwise".

7 There have been several first instance decisions concerning the joinder of parties under these provisions, since Part IVAA was inserted by the Wrongs and Limitations of Actions Acts (Insurance Reform) Act 2003. The defendants rely on the first and last of those decisions, the plaintiff on the second one.

8 In Woods, the plaintiff claimed damages against the defendants, arising from investment advice about a company in the failed Westpoint group of companies. The first defendant, de Gabriele, was the person alleged to have given the relevant advice. The plaintiff alleged that de Gabriele was acting on behalf of Strategic Project Marketing Ltd ("SPM") prior to September 2004, and on behalf of the second and third defendants after September 2004. However, as SPM was in liquidation, the plaintiff had no interest in pleading any wrongdoing by it, or joining it as a party.

9 The second and third defendants sought leave to amend their defence to allege that SPM was a concurrent wrongdoer within the meaning of Part IVAA of the Wrongs Act and equivalent federal legislation. They also applied to have SPM joined as a defendant to the proceeding. The plaintiff opposed both the proposed amendments and the joinder of SPM. In the alternative, the plaintiff said that if SPM was to be joined, it should be joined as a third party, not a defendant.

10 In response to the defendants' summons, the plaintiff made two oral applications for leave to amend his statement of claim. I found that the proposed amendments had clearly been drawn for the purpose of trying to defeat the joinder of SPM and to preclude any apportionment of liability.[2]

11 Against that background, I ordered that SPM be joined as a defendant, not a third party.[3] I noted that the defendants made no claim against SPM which could be the subject of a third party notice. I also noted that the plaintiff's concerns seemed to be driven at least in part by a concern as to who would pay the costs occasioned by SPM's joinder, a matter which could ultimately be resolved at trial.

12 Atkins was another case arising out of the Westpoint collapse. The plaintiff sued the defendants in respect of investment advice given by them. The defendants wanted to join two companies in the Westpoint group, and the directors of those and other Westpoint companies, as concurrent wrongdoers. The defendants wanted to join them as third parties and seek certain declarations against them. Unlike the present case, the defendants did not try to compel the plaintiff to join them as defendants.

13 The plaintiff did not oppose the joinder of some of the Westpoint entities, but argued that the proposed claims against some others should fail, as they did not raise an arguable case. Hargrave J was primarily concerned with considering the adequacy of the proposed pleading against the additional parties.

14 His Honour decided that it would be best for the defendants to seek declarations in the counterclaim, not by way of third party notice. Accordingly, he gave leave to join the additional parties as defendants to counterclaim.

15 In coming to that conclusion, Hargrave J distinguished the facts from those in Woods. His Honour noted that in the case before him, the defendants did in fact seek declarations against the proposed additional parties, whereas the plaintiff had made it clear that she did not wish to make any claim against them. He decided that the most appropriate procedure would be for the defendants to be given leave to join the additional parties as defendants to the counterclaim, rather than as third parties. That would enable the plaintiff to plead its answer to those allegations in a reply and defence to counterclaim, as well as allowing the additional parties to defend the counterclaim, in the unlikely event that they wanted to do so.

P & V Industries Pty Ltd v Secombs**[5]**

16 The plaintiff sued its former solicitors, the defendant firm, for professional negligence in respect of what was known as the Porto proceeding. The solicitors sought to add as defendants the barristers who had formerly acted for the plaintiffs in the Porto proceeding. It was common ground that a third party proceeding was not appropriate, because the solicitors made no claim for relief against the barristers. Unlike the present case, the plaintiff did not oppose the joinder of the barristers as defendants. A master made orders adding the two barristers as defendants, and requiring the filing and service of an amended writ.

17 It appears that the only contested issue before the master, and on the subsequent appeal to Judd J, was whether the solicitors ought to have been required to deliver a pleading to the barristers, at the time of joinder, setting out the material facts upon which they contended that the barristers were concurrent wrongdoers.

18 The solicitors accepted that it was necessary for them to plead, by way of a defence against the plaintiff, the material facts upon which they relied to contend for an apportionment of liability. But they argued that they were not required to plead any case against the barristers, because they made no claim against them and did not need to make such a claim.

19 The plaintiff argued unless the solicitors were required to plead a case against the barristers, then case management problems would arise, because the issues would not be sufficiently defined for the purposes of discovery, subpoenas and the like.

20 Judd J noted that there are no rules of court expressly dealing with the way a matter is to proceed once a concurrent wrongdoer has been joined under Part IVAA. He said that whatever procedure was adopted, it would have to allow for the possibility that the added party may wish to participate in the proceeding.[6]

21 Unlike the decision in Atkins, his Honour did not consider that the mere existence of a claim for a declaration was a material factor in deciding whether the solicitors should be required to formulate and deliver to the barristers, in appropriate form at the appropriate time, a document containing the material facts alleged in respect of them. Rather, he said that a counterclaim was only one of the possible processes or procedures which could be adopted.[7]

22 His Honour concluded that it was not necessary for the solicitors to deliver a pleading to the barristers at the time of ordering their joinder. A decision as to whether the solicitors should deliver a pleading to the barristers could be made later, once it was clear whether the plaintiff would change its mind and make a claim against the barristers, and whether the barristers wished to participate in the proceeding.

23 The question of whether a defendant may add another party as a defendant, against the wishes of the plaintiff, has also been considered in the context of the Building Act 1993. Division 2 of Part 9 of the Building Act introduced the concept of proportionate liability, so that each defendant's liability for damages would be confined to the amount which reflected its responsibility for the plaintiff's loss. As with Part IVAA of the Wrongs Act, that was done to avoid the problem of a plaintiff only suing a "deep pocket" defendant, being one with substantial assets, leaving that defendant without any real prospect of obtaining contribution from other relevant parties because of their impecuniosity or lack of insurance cover.

24 Apportionment under s 131(1) of the Building Act is only available as between "defendants". Unlike in the Wrongs Act, "defendant" is not a defined term in the Building Act.

25 In Boral Resources (Vic) Pty Ltd v Robak Engineering & Construction Pty Ltd[8], Chernov JA, with whom Tadgell and Batt JJ agreed, held that "defendant" should be given its ordinary and natural meaning in s 131(1), and did not include somebody joined only as a third party.[9] However, the Court of Appeal went on to allow the defendants to add persons who were currently third parties as additional defendants, under r 9.06(b). Whilst recognising that, ordinarily, a plaintiff has a right to choose who to sue, and not to have a defendant forced upon it, the Court of Appeal said that the weight to be given to that factor may vary, depending on the circumstances.[10] In the context of apportionment legislation, the policy behind such legislation might be completely frustrated if the plaintiff's wishes were determinative.[11]

26 Whilst recognising that there may be case management implications of allowing one defendant to add another defendant over the plaintiff's objections, the Court of Appeal said that such matters would need to be worked out by the court, so as to accommodate the requirements of particular cases.[12]

27 Such case management considerations were discussed by Byrne J in Wimmera-Mallee Rural Water Authority v FCH Consulting Pty Ltd[13], another case concerning s 131 of the Building Act. His Honour noted some of the problems which can arise when a defendant is permitted to impose another defendant on an unwilling plaintiff, including the potential for abuse if a defendant introduces a large number of co-defendants so as to make the trial unmanageable. However, Byrne J was encouraged by Chernov JA's confidence in the Boral Resources case, that such case management issues can be resolved.[14]

28 Although he refused the joinder application on the particular facts of that case, Byrne J made a number of general observations about procedural matters affecting joinder applications of this kind. He noted that the joinder of a defendant requires that a question may exist between the existing and proposed defendants, being a question as to their respective liabilities to the plaintiff. In that case, there would be a claim between the two defendants "which probably falls within r 11.15. Whether it does or not, the proper management of the question between these defendants requires that pleadings pass between them as would be required under that rule."[15]

29 If an application for joinder were successful, Byrne J said that directions could thereafter be given as to pleadings, discovery and generally, once the time for appearance by the added party had expired.[16]

30 The Building Act cases are not binding here, because "defendant" does not have an extended definition in that Act, so there is no possibility of apportionment between a defendant and a third party (something which could occur under the Wrongs Act). But, they are nevertheless helpful in several respects. First, they confirm that the policy behind apportionment legislation means that a plaintiff's wishes as to whether somebody should be joined as a defendant may not be determinative. Secondly, they confirm that the court can and should manage the novel case management issues which are raised by the joinder of additional defendants by existing defendants. A notice under r 11.15 may be one way in which an existing defendant might plead its case as between it and the additional defendant.

31 Part IVAA of the Wrongs Act clearly allows a defendant to raise concurrent liability defensively as against the plaintiff, without serving a notice of contribution on the alleged concurrent wrongdoer. However, unless the concurrent wrongdoer is dead or wound up, it must be joined as a party.

32 The purpose of these provisions is to avoid "deep pocket syndrome", in which a plaintiff seeks to pursue only the defendant(s) with assets.[17]

33 Where, as in Atkins, the defendant wishes to seek declaratory or other relief against the additional party, that can be done by adding the party as a defendant to counterclaim. Such a procedure has the advantage of requiring the plaintiff, as well as the additional defendant to counterclaim (if it chooses to participate in the proceeding), to specifically plead to the allegations said to give rise to concurrent liability.

34 But if, as is the case here, the defendant does not wish to seek declaratory or other relief against the additional party, it should not be forced to bring a counterclaim simply in order to bring the additional party before the court. It can seek the joinder of the additional party as a necessary defendant under r 9.06(b), notwithstanding that the plaintiff opposes that course.

35 I agree with Judd J that it is not necessary for an existing defendant to deliver a pleading to the additional defendant at the time of ordering joinder, although it may be necessary to do so subsequently. What procedure should be followed after joinder will depend on the facts of each case. For example, whether or not the plaintiff will wish to bring a claim against the concurrent wrongdoer, once it has been joined as a defendant, will vary from case to case. Whether and how the concurrent wrongdoer may wish to participate in the proceeding will vary from case to case. Case management issues, including further pleadings and discovery, can be resolved by appropriate directions, once such decisions and steps have been taken. That is particularly so in a judge-managed list such as the Commercial List.

36 For these reasons, I propose to order that Carlton Taya be added as the third defendant in this proceeding. I will not require the defendants to serve a pleading on Mr Taya at this stage. I will consider the question of further pleadings once the time for appearance by Mr Taya has expired, and the plaintiff has had an opportunity to consider whether he wishes to make a claim against Mr Taya.

[1] [2007] VSC 177.

[4] [2007] VSC 445.

[5] [2008] VSC 209.

[8] [1999] VSCA 66; [1999] 2 VR 507.

[13] [2000] VSC 102.

[17] Woods at [42], approved in Tyrrell v Tyrrells Building Consultancy Pty Ltd [2008] NSWSC 416 at [11]- [12] per Austin J.