Zanca v Tisher , ex parte LIV [1999] VSC 349

Supreme Court of Victoria|1999-09-21|Before: HEDIGAN, J.

Application by former plaintiff to intervene in third party proceedings - Whether permitted - Whether as intervenor or amicus curiae - Principles applicable - Permission to intervene refused.

The application made to me is by no means commonplace. This proceeding, third party proceedings between the defendant Zanca and the third parties, a Melbourne firm of solicitors whose accounts were audited by the defendant Zanca on the appointment of the Law Institute of Victoria, is a remnant of a proceeding between the Law Institute and the defendant Zanca, the third parties being joined as third parties in that proceeding. In the proceeding which was commenced in 1996 the plaintiff Law Institute of Victoria ("the Institute") sued the defendant auditor in respect of his auditing of the trust accounts of the third parties (hereinafter called "the firm") for the audit years 31 March 1989 to 31 March 1994 inclusive. By the provisions of the ("the Act") and the ("the Rules"), the report and certificate in respect of each audit conducted by the auditor was filed. The statement of claim against the auditor had alleged that he had attended various seminars for auditors of solicitors' trust accounts held over the years and had received advice as to how to go about the performance of his duty. In addition to this, it was claimed that the auditor owed statutory duties under the Act and the Rules to audit the whole of the trust accounts, trust investments and trust securities of the firm in accordance with the Rules and the Act and appropriate auditing standards and to make test examinations of bank accounts, mortgages, investments and the like. It was also alleged that the firm had a substantial conveyancing and mortgage practice and large amounts of invested client moneys held in trust bank accounts. It was specifically alleged that the auditor conducted the 1993 audit and made the 1994 surprise visit and submitted reports saying there was no evidence of any loss or deficiency, and that the accounts had been properly kept and written up and the records were appropriately maintained. In fact there had been substantial thefts and deficiencies in the trust accounts of the firm. The allegation is that the audits were not "qualified". Thefts and defalcations occurred from the firm's trust bank accounts totalling nearly $3m. It is alleged that the auditor was negligent and in breach of his statutory and common law duties and by acts and representations falling under the that he was guilty of deceptive and misleading conduct under s.11 of that Act. The claim was made that by reason of the breaches of duty referred to, the Fund obliged to be maintained by the Institute had to meet claims in excess of $3.2m. by clients of the firm, that the Institute suffered loss and damage. The defendant auditor denied most of these allegations and alleged that the Institute was itself guilty of negligence in failing to conduct proper investigations into the state of the trust accounts of the firm in 1992.

In March 1997 the auditor joined the firm as third parties alleging that the firm was negligent and in breach of duty in failing to conduct the accounts properly, failing to exercise reasonable care, skill and diligence in making representations to the Institute in issuing the certificate and had failed to detect or prevent the alleged thefts and defalcations and failed to inform the Institute about them. It was also alleged they failed to supervise or instruct their employees properly, and had poor controls in accounting systems. Reliance was placed on duties alleged to be owed by the firm to the auditor arising from Rules 19 and 20 of the Rules to notify the auditor of the true position of funds and any losses or deficiency. Allegations were made that they acted negligently and claims against them in respect of any damage the auditor was found liable to pay to the plaintiff were made.

This proceeding ultimately became admitted to the Major Torts List and on 14 May 1999 I made orders in relation to amendments of the statement of claim and defence and third party notices and defence. On 20 June 1999 I made consent orders for plaintiff and defendant. The plaintiff's proceeding against the defendant was settled and it was agreed to be dismissed there being no further proceedings between the plaintiff and the defendant. It was said also that it would be discontinued. But the proceeding between the defendant and the third parties remained on foot. On 1 July 1999 by summons the third party firm made application for the third party proceeding and the statement of claim on the third party notice be struck out or dismissed on the basis that the defendant owed no duty of care to the plaintiff. On 18 August the former plaintiff the Law Institute of Victoria issued a summons seeking leave to intervene in the proceeding between the defendant third party law firm on the basis that it was a person interested, alternatively it sought to be heard to make submissions to the Court, presumably as amicus curiae as to whether the defendant owed the plaintiff a duty of care. The basis of the third parties' summons to dismiss the defendant's proceeding against it was that it contended that the defendant owed no duty of care to the plaintiff and as a consequence the proceeding must be dismissed.

An affidavit in support of that application was sworn by Joseph Baravecchio on behalf of the Institute. That affidavit sets out the history to which I have referred, including the settlement between the plaintiff and the defendant after mediation and the filing by the plaintiff of a notice of discontinuance. The notice does not appear to have been filed. Essentially the argument to be advanced by the Institute is founded upon its alleged special interest in the subject matter of the remnant of the proceeding, that is between the auditor and the law firm. It contends that consideration of the legal principles of the duty of care issue, in particular with regard the introduction of the Legal Practice Act 1996, would affect the interests of the Institute in respect of future litigation. It is claimed that the Institute is particularly concerned that the question of the duty of care may be decided in the proceeding and that the Institute, as trustee of the Legal Practitioners Fidelity Fund and having a duty to preserve the Fund, ought to be heard. It is said that recovery is made by the Institute against negligent auditors or any other negligent third parties to augment the funds available to be utilized by the Institute to pay legitimate claims against the Fidelity Fund or in the course of the due administration of the obligations placed on the Institute pursuant to the provisions of the 1996 Act. It claims that the Institute would be "prejudiced" by not being permitted to make submissions directly to the Court, that it ought to be because it does not desire to rely upon the defendant to argue a point of such importance to the plaintiff. It claims that any decision made on this issue, without being heard, might have unfortunate effects and that future litigants may resist recovery of significant sums of money. The Institute acknowledged that whether by permitted intervention or as amicus curiae it would meet any additional costs incurred by the other parties.

When this issue was first ventilated before me, Mr. Kelly, then appearing for the auditor, opposed the introduction of the Institute as an intervenor or amicus curiae to advance argument, he contending that all appropriate arguments could be advanced by the defendant in respect of that issue. He also stated at that time that his client had no intention of appearing upon an application (this is, this application) by the Institute to be heard. Mr. Riordan for the firm opposed the present application.

Mr. Martin Q.C., who appeared for the applicant the Institute, referred to a number of well known authorities concerned with leave to intervene and/or make submissions to a tribunal. All such authorities proceed upon the basis that some special interest must be demonstrated as the threshold issue, this meaning something more than generally upholding a principle but involving the gaining of some advantage or seeking to avert some disadvantage. See Australian Conservation Foundation v. The Commonwealth (1980) 146 C.L.R. 493 at 527 (Gibbs, J.) at 537-538 (Stephen, J.) and Mason, J. at 547; Onus v. Alcoa Australia [1981] HCA 50; (1981) 149 C.L.R. 27 and, significantly the judgment of Brennan, C.J. in Levy v. Victoria (1997) 189 C.L.R. 579 at pp.601-602. In that judgment, the Chief Justice drew attention to, in the Federal sphere, the absence of an express grant of jurisdiction to allow non-party intervention other than s.78A of the Judiciary Act stating that:

"If there were jurisdiction, apart from s.78A, to allow non-party intervention it could only be as an incident of the jurisdiction to hear and determine the matters prescribed by the Constitution and statutory provisions conferring jurisdiction on the High Court of Australia."

"Since the jurisdiction of the court had to be exercised in accordance with the rules of natural justice a party whose interest would be directly affected by the decision, although not a party, must be entitled to intervene to protect the interest likely to be affected."

This affect included being affected "by the operation of precedent". In the case of the High Court of Australia its exercise of jurisdiction is unappealable or unreviewable so that its declaration of principle is bound to be far-reaching and usually enduring. The Chief Justice explained the distinction between hearing of an amicus curiae, entirely in the Court's discretion and the question whether to allow intervention. The amicus curiae footing is such that is not permitted unless it could be demonstrated that the assistance offered cannot be otherwise gained e.g. by existing parties being either unable or unwilling to assist the Court in arriving at the correct determination. He clearly stated that where the Court has parties before it who are willing and able to provide assistance to the Court it is inappropriate to grant the application. The Chief Justice stated, with respect to that:

"All that can be said is an amicus will be heard when the Court is of the opinion it will be significantly assisted thereby, provided that any cost to the party or any delay consequent on agreeing to hear the amicus is not disproportionate to the assistance that is expected."

See also as to the distinction between legal intervenor and amicus curiae_, U.S. Tobacco Co. v. Minister for Consumer Affairs_ [1988] FCA 213; (1988) 20 F.C.R. 520 at 534 and 535. The argument advanced was that the Institute had a special interest because of the disadvantage it might suffer by reason of any decision to the effect that auditors did not owe a duty of care to the Institute in auditing in accordance with the Legal Profession Practice Act. Mr. Martin argued that the defendant's interest as an auditor was to argue a narrow duty of care whereas the interest of the Law Institute of Victoria was to establish a wide duty of care. Thus, he contended, it could not with confidence be postulated that the auditor would adequately argue the duty of care point. In U.S. Tobacco Co. the Court stated (536) that

"The general principle is that the parties are entitled to carry on their litigation free from the interference of persons who are strangers to the litigation. But there is an overriding right of the court to see that justice is done. An amicus may be heard if good cause is shown for doing so and if the court thinks it proper. Nothing in these reasons should be understood to delimit or restrict the availability of or effectiveness of this valuable tool."

Mr. Martin also sought to place some reliance upon the decision of this Court in FCT v. Biga Nominees Pty. Ltd. [1988] VicRp 91; [1988] V.R. 1006. In that case the lessee of a forklift truck had sued the Commissioner for Taxation seeking a declaration that the truck was exempt from sales tax. The Commissioner of Taxation argued that the lessee had no standing to seek the declaration. The Full Court upheld the trial judge's decision, rejecting the Commissioner's argument, concluding the lessee had standing to sue because it might suffer special damage through pecuniary loss if the transaction was not treated as being exempt from sales tax. In my judgment, this case is concerned with the question of standing to sue, not with question of intervention or appearance by way of amicus curiae.

The third parties argued to the contrary of the application for leave to intervene or otherwise appear. The argument was advanced that the applicant was not a person whose interests were directly affected because it was only applicants who would be bound by the determination who are entitled to be heard in accordance with the rules of natural justice. More fundamentally, the argument was that there was no question that could cogently be raised as to the want of capacity or enthusiasm on the part of the represented defendant properly to argue the case that the statement of claim should not be struck out and that there was no reason as to suppose that the submissions of the applicant would add any dimension to the argument expected to be advanced. Accordingly, it was said that the efficient and effective operation of the Court required the application for leave to be denied rather than to open up the risk of wasteful duplication. Reference was made to ARU v. Victorian Railways Commissioners [1930] HCA 52; (1930) 44 C.L.R. 319 at 330-331. It was also argued that the auditors' claim for contribution required that it established that there was a disclosed cause of action against it and that therefore had an identical interest, expected to be argued for, to that represented or sought to be presented on behalf of the Institute. Reliance was placed upon the observations of Heerey, J. in Commissioner of Taxation v. Coombes, F.C.A., unreported, 4th December 1998. In that case, Solicitor's RPA sought to intervene in the proceeding brought by the Commissioner of Taxation against the solicitor arising out of a dispute concering a notice given under the Income Tax Assessment Act about the furnishing of information and the names of clients to whom advice had been given. Heerey, J. stated, in the relevant context:

"It was not explained to me how the RPA, if admitted as an intervenor, would put the case in any significantly different way from that which would be advanced by Mr. Coombes. It may be that RPA has different arguments but there is no suggests in the present application that they would be in any way inconsistent with arguments put on behalf of Mr. Coombes. To the extent that the RPA wished to assist Mr. Coombes, there would, of course, be no impediment to them providing such advice and assisting him with the conduct of his case."

His Honour went on to say he had no reason to doubt that the case on behalf of Coombes would be put by competent practitioners.

I should also bear in mind that this is not a final hearing but an application to dismiss on the pleadings. The result of that, apart from the questions of legal principle which will be argued, will depend upon the issue of facts pleaded to disclose a duty of care, that is, to establish the relevant proximity. That must, at least at this stage, be dependent upon analysis of the particular pleading. As such, the embarkation upon a point of principle or final principle is less likely than in a hearing, although until the arguments were advanced it is not easy for me to determine the extent of that application.

There are some other aspects which I regard as being relevant. The first is that the Institute had control of this proceeding and, for reasons which seemed good to it, settled the dispute with the auditor. Thus, since the third parties were third parties only and not defendants, the Institute must have consciously and deliberately elected not to be a direct player on the issue of the duty of care. Nor, I would apprehend, do the terms of settlement (not disclosed to me) contain any term concerning Zanca's continuation of the proceeding against the third parties, or how it might be advanced. If Zanca abandoned the proceeding against the third party, or settled it, there would be nothing that the Institute could do about the matter. Second, as I understand the position in the Federal sphere, there are now in place Rules that permit intervention, which do not exist in this State. This seemed to be accepted by Mr. Martin and that the power to order intervention would only arise from the inherent jurisdiction of the Court, apparently based on similar principles to those pronounced by Brennan, C.J. in Levy although those principles themselves must be to some extent affected by the fact that the High Court is the final court of appeal in this country. I do not doubt that the point of principle is a important one, notwithstanding the limited context in which it is here to be litigated. That is, the Institute has an indirect but significant interest in the result of the litigation (if not this application) because of its role to recover from defaulting or negligent persons sums of money in order to protect the Fund and thereby the victims of fraud and defalcation.

Mr. Martin argued that I should not conclude that the case will be argued by the defendant that a duty of care was owed because the argument would be being put by an auditor's insurer who would only argue to the extent necessitous for him to succeed. Its interest would be thereby be satisfied by arguing for a very narrow ambit of the scope of the duty of care. This seems to me to be guesswork and I do not anticipate there is anything to be gained by the auditor or the auditor's insurer in doing anything but argue all possible points to maintain the action against the firm. As far as I can determine, there is no reported case in Victoria of leave to intervene ever having been granted.

The Institute appears to me to be interested in arguing the scope of the duty of care, on a much wider basis than it anticipates the defendant will seek to argue it. I am not sure that I understand the submission as put but the issue in this remnant of the proceeding for the present purpose is the existence of a duty of care. I am not necessarily concerned to map out the arguable scope of it in order either to aid, or limit the disadvantage to, the Institute in its battle to maintain appropriate augmentation of the Fund.

I do not think it can be denied that the Institute has a legitimate interest but I have not been convinced that the arguments appropriate for the present proceeding will not be fully advanced by the legal representatives of the defendant. Accordingly the application is refused.

At a glance

Court

Decision date

Before

Source

Judgment (23 paragraphs)

Parties