2217/08 JEREMY WHITE TYRRELL V TYRRELLS BUILDING CONSULTANCY PTY LTD & ANOR
JUDGMENT
1 HIS HONOUR: By an originating process filed on 7 April 2008, the plaintiff ("Mr Tyrrell") seeks orders to reinstate Tyrrells Building Consultancy Pty Ltd ("the Company"), which was in liquidation before it was deregistered, to appoint a new liquidator, and to grant leave to Mr Tyrrell under s 471B of the Corporations Act 2001 (Cth) to begin and proceed with cross-claims against the Company for apportionment and contribution in the District Court of New South Wales. ASIC has been notified of the application for reinstatement and does not oppose it, on the usual conditions.
2 Mr Tyrrell was the director of the Company, which undertook building consultancy work on a property he held in Strata title. The second defendant ("the Owners Corporation") was the owners corporation for that property. It has commenced proceedings in the District Court, No 1018 of 2003, naming the Company as first defendant and Mr Tyrrell as second defendant. The Owners Corporation claims damages for defective building work in relation to the balustrade and waterproofing.
3 The Owners Corporation claims that Mr Tyrrell was the "principal" of the Company and that he directly owed it a duty of care in respect of the work undertaken by the Company. Rein DCJ determined the question of Mr Tyrrell's liability as a separate question, rejecting his argument that the claim against him was wrong in law. Mr Tyrrell appealed, and Court of Appeal held that Judge Rein was wrong to seek to resolve the issue by using the separate question procedure, and accordingly the Court set aside his Honour's answer to the question (Tyrrell v The Owners Corporation Strata Scheme 40022 [2007] NSWCA 8). Therefore the question of Mr Tyrrell's liability remains in issue in the District Court proceedings.
4 The balustrade and waterproofing work was done by two contractors who were engaged, according to Mr Tyrrell, by the Owners Corporation. By his proposed first cross-claim and second cross-claims and amended defence in the District Court proceedings, Mr Tyrrell proposes to seek orders for the apportionment of liability against the Company and also the contractors for the relevant work, or alternatively contribution. It is only the apportionment in respect of the Company that is relevant to the present application. There appear to be no restrictions in respect of the cross-claims against the contractors.
5 The District Court proceedings were commenced on 10 March 2003. Subsequently the Company was wound up on the application of the Owners Corporation for non-payment of an interlocutory costs order made by the District Court. The winding up order was made by this Court on 21 July 2005. The Company was deregistered on 20 April 2007, after the filing of final accounts in the liquidation.
6 The Civil Liability Act 2002 (NSW) created a new regime for statutory apportionment of liability in this State. However, it applies only to proceedings commenced on and after 1 December 2004. Proportionate liability was available in respect of "building actions" prior to 1 December 2004 under the Environmental Planning & Assessment Act 1979 (NSW), s 109ZJ. Section 109ZJ continues to apply in proceedings for an award of damages in a building action commenced prior to 1 December 2004 (Civil Liability Act 2002 (NSW), Schedule 1, clause 8).
7 Section 109ZJ provides as follows:
"(1) After determining an award of damages in a building action or subdivision action, a Court must give judgment against each contributing party for such proportion of the total amount of damages as the Court considers to be just and equitable, having regard to the extent of that party's responsibility for the loss and damage in respect of which the award is made.
(2) Despite any Act or law to the contrary, the liability for damages of a contributing party is limited to the amount for which judgment is given against that party by the Court.
(3) A contributing party cannot be required:
(a) to contribute to damages apportioned to any other person in the same building action or subdivision action, or
(b) to indemnify any such other person in respect of those damages.
(4) In this section contributing party , in relation to a building action or subdivision action, means a defendant to the action found by the Court to be jointly and severally liable for the damages awarded, or to be awarded, in the action."
8 "Building" is defined in s 4 of the Environmental Planning & Assessment Act to include part of a building, and any structure or part of a structure. "Building action" is defined in s 109ZI to mean an action (including a counter-claim) for loss or damage arising out of or concerning defective building work. "Building work" is defined in s 4 as any physical activity involved in the erection of a building, and, in s 109ZI, to include the design, inspection and issuing of a Part 4A certificate or complying development certificate in respect of building work.
9 The explanatory note to the Environmental Planning & Assessment Amendment Bill 1997, which introduced s 109ZJ, explained the provision as follows at page 11:
"Apportionment of liability involves a Court, in making an award for damages arising from defective building work or subdivision work, determining the proportion of the damage for which each defendant to the action is liable. A defendant will not be required to pay any more than the proportion so determined, regardless of the failure of any other defendant to pay the proportion determined in respect of that other defendant. This differs from the general rule of law concerning liability in which all such defendants would be jointly and severally liable for the full amount of the damages awarded, under which each defendant underwrites the liability of each other defendant." [emphasis supplied]
10 Keith Woods v Rodney Mario De Gabriele [2007] VSC 177 was a decision concerning the proportionate liability provisions of the Corporations Act, Part 7.10, Division 2A, and other corresponding provisions. The plaintiff was an investor who claimed to have suffered loss as a result of poor advice given to him by the first defendant. For part of the relevant time, the first defendant was an authorised representative of a company that had subsequently gone into liquidation. The plaintiff made an application for leave to sue that company as a concurrent wrongdoer.
11 Hollingworth J of the Supreme Court of Victoria referred to the objectives of the proportionate liability legislation as follows (at [42]):
"The defendants referred me to the explanatory memorandum to the Corporations Law Economic Reform Program (Audit Reform and Corporate Disclosure) Bill 2003, which set out the objectives of the introduction of the proportionate liability regime as being to:
(a) Prevent the 'deep-pocket' syndrome, which is synonymous with professionals. This syndrome occurs when professionals are the targets of negligence actions not because of culpability but because they are insured and have the capacity to pay large damages awards;
(b) Allow insurers to more accurately price risk. Currently under joint and several liability insurers have to price for the negligent actions of third parties. Proportionate liability enables insurers to insure only against the negligent conduct of the insured;
(c) Assist professionals to obtain suitable cover at more reasonable premiums;
(d) Limit the liability of defendants for the loss suffered by a plaintiff to the extent to which each defendant is responsible for the plaintiff's loss".
12 In my opinion it is clear from the explanatory materials and the observations of Hollingworth J, with which I respectfully agree, that a purpose of apportionment legislation such as s 109ZJ is to protect a solvent wrongdoer ("A") from the consequences of insolvency of a concurrent wrongdoer ("B"). A is entitled to invoke the apportionment legislation notwithstanding that the effect of an apportionment order will be to protect A from liability to meet that part of the plaintiff's verdict that is apportioned to B, regardless of B's ability to pay that amount. If B fails to pay his apportioned part of the verdict, then that loss is borne by the plaintiff rather than by A.
13 Mr Tyrrell wishes to have the benefit of an apportionment of liability under s 109ZJ between himself and the Company, by cross-claims in the District Court proceedings. If he has the benefit of apportionment, then he will have no responsibility for the part of any verdict in favour of the Owners Corporation that is apportioned to the Company. That will be so, even though if, as appears likely, the Company will have no assets to meet its apportioned part of the verdict.
14 Mr Tyrrell's entitlement to invoke the apportionment provisions of s 109ZJ depends on the Company being a "contributing party" against whom the Court is permitted and required by the section to apportion liability. But the Company can be a "contributing party", according to the definition in subsection (4), only if it is a defendant or other party to the action found to be jointly and severally liable for the damages awarded. Since the Company is now deregistered, it has no legal personality and therefore cannot be a defendant or other party to the District Court proceedings, unless it is first reinstated.
15 Hence Mr Tyrrell seeks an order under s 601AH(2) of the Corporations Act directing ASIC to reinstate the Company. Since the Company was in insolvent liquidation before it was deregistered, the effect of its reinstatement will be to restore the liquidation, and so Mr Tyrrell seeks an order for the appointment of a liquidator, and tenders the consent of an insolvency practitioner for that purpose.
16 In order to obtain apportionment of liability between himself and the Company, Mr Tyrrell proposes to make cross-claims against the Company in the District Court proceedings. As the Company will be in insolvent liquidation if it is reinstated, s 471B of the Corporations Act applies. That section permits a person from beginning or proceeding with any proceeding in a court against such a company except with the leave of the Supreme or Federal Court. Therefore Mr Tyrrell seeks the leave of this Court to file and proceed with his cross-claims against the Company in the District Court.
17 Under s 601AH(2), the Court is empowered to make an order for reinstatement if (relevantly) an application is made to it by a person aggrieved by the deregistration and the Court is satisfied that it is just that the company's registration be reinstated. Mr Tyrrell is a person aggrieved by the deregistration because, having regard to the terms of s 109ZJ, the deregistration has prevented him from seeking apportionment of any liability he may be found to have in the District Court proceedings (see Re Proserpine Pty Ltd and the Companies Act (1980) 5 ACLR 603; Australian Competition & Consumer Commission v Australian Securities & Investments Commission (2000) 34 ACSR 232; Krstevska v ACN 010 505 102 Pty Ltd (2001) 20 ACLC 292; Donmastry Pty Ltd v Albarran (2004) 49 ACSR 745). The remaining question is whether it is just that the company be reinstated.
18 I have been referred to several cases that set out the approach to be taken to this question. In AMP Insurance Ltd v Victorian WorkCover Authority [2006] VSCA 236, Maxwell P. and Neave JA addressed the meaning of the word "just", where it is used in s 601AH(2), in observations subsequently adopted in this Court by Barrett J (Westbury Holdings Kiama Pty Ltd v ASIC [2007] NSWSC 115):
"In our view, the decision to order reinstatement is properly characterised as a discretionary decision of the kind described in Norbis v Norbis [(1986) 161 CLR 513]. The decision has all of the features there referred to. The decision depends on the application of a very general standard - what is 'just'. The standard is so general, indeed, that it might be thought to do no more than make explicit the duty implicitly imposed on every decision-maker - to consider and weigh, fairly and rationally, all the relevant considerations. What is 'just' is a value judgment, and there is room for reasonable differences of opinion, no particular opinion being uniquely right."
19 Counsel for both parties referred me to the Australian Competition & Consumer Commission case, cited above, where I made observations to similar effect, which have subsequently been approved by other Courts (e.g. WorkCover Authority of New South Wales v Picton Truck & Trailer Repairs Pty Ltd (De-registered) (2004) 51 ACSR 102):
"[27] The wording of the section is very broad, and the cases confirm that it gives the Court a wide discretion. The Court takes into account the circumstances in which the company came to be dissolved; whether, if the order were made, good use could be made of it; and whether any person is likely to be prejudiced by the reinstatement: Re Kilkenny Engineering Pty Ltd (in liq) (1973) 13 SASR 258; 1 ACLR 285; Drysdale v Australian Securities Commission (1992) 10 ACLC 1427; Steelmaster Pty Ltd (in liq) v McCann (1992) 6 ACSR 494.
[28] These matters are only factors to be weighed in the exercise of the Court's discretion. They are not limits on the Court's power. Here, the reinstatement is likely to lead to the company being joined in proceedings in which the ACCC will seek orders for pecuniary penalties against it. The company may therefore be prejudiced. The Court may nevertheless conclude that it is just that the company's registration be reinstated, having regard (for example) to the strong public interest which is involved. It is appropriate for the Court to take into account questions of public interest in exercising its discretion under s 601AH: Re Immunosearch Pty Ltd (1990) 2 ACSR 455."
20 Other cases were cited in argument, but in my opinion they do not bear closely on the present case. Applying the principles and discretionary factors set out in the passages cited above, I have decided that a reinstatement order should be made.
21 Here the reinstatement of the Company will permit Mr Tyrrell to exercise the statutory rights with respect to apportionment that he would have if the Company had not been deregistered. In the absence of a reinstatement order he will not be able to do so. That would be unjust to him, in my opinion. The Company will be formally prejudiced in the sense that it will be exposed to the making of an apportionment order against it but if that occurs, it will be through the operation of the apportionment legislation and for the purpose of giving effect to the underlying legislative policy. The Owners Corporation should not be permitted to rely on the deregistration of the company so as to achieve the collateral outcome of protecting itself against the apportionment of liability in a building claim that s 109ZJ ordains. The reinstatement is likely to initiate a chain of events that will probably include Mr Tyrrell's cross-claims against the Company, and possibly a decision by the District Court apportioning liability between Mr Tyrrell and the Company. If those events occur, in all probability the Owners Corporation will be unable to recover that part of the judgment that is apportioned to the Company (there is no evidence as to whether the Company will be able to have recourse to any insurance). But in my opinion that outcome is not relevantly unjust to the Owners Corporation so as to dissuade the Court from ordering reinstatement. It is the consequence of the application of legislative policy as to apportionment of liability.
22 Counsel for the Owners Corporation submitted that there was potentially further prejudice to his client as follows:
(a) the costs incurred by the Owners Corporation in winding up the Company, which may not have been incurred if Mr Tyrrell had promptly raised the apportionment claim;
(b) costs incurred by potentially having to adduce further evidence to deal with the apportionment claim in the District Court proceedings, which may not be recoverable in so far as the Company is liable for them; and
(c) the possibility of evidence relevant to the apportionment claim no longer being available by reason of the delay by Mr Tyrrell in bringing the reinstatement application and the apportionment claim.
23 As to (a), it is far from obvious that the Owners Corporation would have suspended the winding up proceedings had the apportionment claim been raised before the winding up. A litigant in the position of the Owners Corporation may well have perceived a forensic advantage in pressing for winding up against one of its opponents. There is no evidence before me on this question.
24 As to (b), it does not seem to me to be a matter of prejudice for the plaintiff in a building claim to address the question of apportionment, in circumstances where legislation requires the Court to deal with that question.
25 As to (c), there has been delay on the part of Mr Tyrrell in bringing proceedings for reinstatement, given that the company was deregistered on 20 April 2007 and the present proceedings were filed on 7 April 2008. Substantial and unexplained delay causing prejudice to another party may be sufficient to dissuade the Court from exercising its discretion to make an order under s 601AH(2). Here the asserted prejudice is the possibility that evidence relevant to the apportionment claim may no longer be available by reason of Mr Tyrrell's delay. But there is no evidence before me of any such difficulty.
26 Counsel for the Owners Corporation relied on the judgment of White J in Herbert v Nozala Pty Ltd [2006] NSWSC 1437, in which a reinstatement order was refused partly on the grounds of the applicant's delay. The facts of that case were very different from the present case. The applicant for reinstatement was a shareholder who wished to pursue the company's right to complain of breach of the directors' duty of care in respect of events that occurred in 2000. The company was deregistered in November 2000 and the shareholder made an application to ASIC for reinstatement in May 2002, which ASIC declined in July 2002, by letter advising him that he might seek court reinstatement. The shareholder did not apply to the Court for reinstatement until June 2006. By that time any claim against the directors was, prima facie, either barred by the Limitation Act 1969 (NSW) or by the principle that equity would apply the Limitation Act by analogy. White J regarded the proposed claim as speculative at best (at [46]) and decided for other reasons that the applicant was not a person aggrieved for the purposes of s 601AH.
27 On the question of delay, he noted that some company records had been destroyed and continued:
"[50] Moreover, even if a claim by the company against the directors would not be barred on the principle of the application of the Limitations Act by analogy, the passage of time since May 2000 is likely to have affected, adversely, the ability for there to be as fair a trial of any action against the directors as could have been available if any such claim had been brought promptly. As McHugh J said in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551:
'… The enactment of time limitations has been driven by the general perception that '[w]here there is delay the whole quality of justice deteriorates'. Sometimes the deterioration in quality is palpable, as in the case where a crucial witness is dead or an important document has been destroyed. But sometimes, perhaps more often than we realise, the deterioration in quality is not recognizable even by the parties. Prejudice may exist without the parties or anybody else realising that it exists. As the United States Supreme Court pointed out in Barker v Wingo , 'what has been forgotten can rarely be shown'. So, it must often happen that important, perhaps decisive, evidence has disappeared without anybody now 'knowing' that it ever existed.'
[51] In my view, after the long period of delay which this present application exhibits, it would not be just that the company's registration be reinstated in order for there to be the inquiries or claims brought which have been foreshadowed."
28 Measured from the time of deregistration to the time of application for reinstatement, the delay here is just under a year whereas the delay considered by White J was about six years. (The full period of delay should, perhaps, also take into account failure of the applicant to oppose deregistration when it was proposed.) More importantly, however, the issue for White J was whether to reinstate the company so that proceedings could be commenced to complain about events that had occurred over six years ago, whereas in the present case reinstatement will permit an apportionment against the Company in proceedings that have been on foot in the District Court since 2003 and in which the company had been a party until its deregistration.
29 The Owners Corporation also complained that Mr Tyrrell had been guilty of delay in making the apportionment claim, since the legislation permitting such a claim was introduced in 1997 and he might have brought the claim at any time from 25 November 2004, when he filed a defence to the First Amended Statement of Claim in the District Court. It seems to me, however, that the question whether leave should be granted to Mr Tyrrell, at this stage, to file cross-claims to make his apportionment claim, having regard to his delay, is a matter for the District Court, with which I should not interfere. My decision is only that it is just that the Company be reinstated so as to give Mr Tyrrell the opportunity to make such cross-claims against it as may be permissible in the District Court proceedings.
30 In my view the granting of leave under s 471B to permit Mr Tyrrell to make and pursue his cross-claims in the District Court flows from the Court's decision to reinstate the Company. The purpose of the reinstatement is to permit Mr Tyrrell to make the apportionment claim. This is not a case where a plaintiff elects to bring proceedings against a company in liquidation instead of lodging a proof of debt in the normal way (cf Ogilvie-Grant v East (1983) 7 ACLR 669 at 672 per McPherson J), for here the entitlement to apportionment depends upon the District Court's determination and is not amenable to proof of debt until that determination is made. To the extent that Mr Tyrrell's claim against the Company is a claim for indemnity or contribution (these being alternatives in the draft cross-claims) they would probably be amenable to proof of debt but the primary claim is the apportionment claim. Section 471B is not restricted to cases where the applicant for leave may also prove in the winding up; indeed, the fact that there is an obstacle to lodging a proof of debt, if it be so, is (or is part of) a ground for granting leave.
31 There is no risk of prejudice to the creditors of the Company because the winding up was fully administered before the Company was the registered. Its reinstatement will not put it in a position to incur the new debts because the Company will be in liquidation and under the control of the liquidator, and will continue to exist only for the purposes of the District Court proceedings.
32 In Keith Woods v Rodney Mario De Gabriele, cited above, Hollingworth J raised (but did not find it necessary to resolve) the question whether an application to join a company in liquidation as a party in proceedings in which questions of apportionment would arise requires leave under s 471B (see at [68]). Here, however, the Company is already a party to the District Court proceedings and the issue is whether Mr Tyrrell should be allowed to make cross-claims against it for apportionment. The filing of a cross-claim, which names a company in liquidation as a cross-defendant, seems to me to amount to bringing proceedings against the company, for the purposes of s 471B, and consequently leave is required.
33 Counsel for the Owners Corporation referred me to a substantial number of authorities on s 471B, but in my view they are of assistance only as a general level. True it is that good cause for the grant of leave must be shown on the merits (see, for example, Ibbco Trading Pty Ltd v HIH Casualty & General Insurance Ltd (in prov liq) [2001] NSWSC 346; Re Sydney Formworks Pty Ltd (in liq) [1965] NSWR 646). In my view, however, good cause has been clearly established in the present case.
34 Counsel for the Owners Corporation also submitted that Mr Tyrrell had failed to adduce sufficient evidence to enable the Court to give proper consideration to the likely complexity of his claim against the Company, or how much time and cost the Company might incur in defending the claim, as compared with the liquidator dealing with the claim upon lodgement of a proof of debt (citing Nu Life Air Conditioning Pty Ltd v Reef Building Contractors Pty Ltd [2006] NSWSC 1245). I disagree with this submission. In my opinion the degree of complexity of the apportionment claim is sufficiently clear, for present purposes, from the evidence before me, which includes the statement of claim and draft cross-claims. The time taken up by the liquidator and the costs incurred by the Company in dealing with the cross-claims are likely to be minimal.
35 I have therefore decided to grant leave to Mr Tyrrell under s 471B to bring and proceed with cross-claims against the company seeking apportionment of liability under s 109ZJ, and indemnity or contribution in the alternative, substantially in the form of the draft cross-claims exhibited to the affidavit of Mr Stroud made on 3 April 2008.
36 The Court's order for reinstatement will have the effect of reviving the claim by the Owners Corporation against the Company in the District Court. Counsel for the Owners Corporation submitted that the Court would not grant his client leave under s 471B to proceed with its claim against the Company because the claim would be capable of being dealt with by proof of debt in the winding up (citing Re Gordon Grant and Grant Pty Ltd (1982) 1 ACLC 196). In my opinion, if it were correct that the Court would not grant leave to the Owners Corporation, that would not of itself lead the Court to decline to grant leave in favour of Mr Tyrrell. But it is far from clear to me that if an application were made by the Owners Corporation in the special circumstances of this case, leave would be refused. Since, however, there is no such application, I say no more about the issue.
37 Mr Tyrrell's application was opposed by the Owners Corporation, unsuccessfully. I shall hear brief submissions on the question of costs, though I am disposed to order the Owners Corporation to pay Mr Tyrrell's costs of these proceedings, on the basis that costs should follow the event.
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