CATCHWORDS
Practice and Procedure - claim for contribution - whether leave to file cross-claim should be granted.
Federal Court Rules, O.5
In Re La Rosa; Ex parte Norgard v Rodpat Nominees Pty. Ltd. (1991 31 FLR 83 - cons.
Australia and New Zealand Banking Group Limited v Turnbull & Partners Limited (1991) 33 FCR 265 - cons.
Trade Practices Commission v Manfal Pty. Ltd. (1991) 33 FCR 382 - cons.
ALLSTATE LIFE INSURANCE CO. & OTHERS v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED & OTHERS
No. G381/94
Beaumont J.
Sydney
14 February 1995
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. G381 of 1994
)
GENERAL DIVISION )
BETWEEN: ALLSTATE LIFE INSURANCE CO. & OTHERS
Applicant
AND AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED & OTHERS
Respondent
CORAM: Beaumont J.
DATE: 14 February 1994
MINUTES OF ORDER
THE COURT ORDERS:
1. Grant leave to file the cross-claim.
2. Reserve liberty to the cross-respondent to apply, if so advised, to vacate or vary the trial date fixed for the final hearing.
3. Make no order for the costs of the present application.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. G381 of 1994
)
GENERAL DIVISION )
BETWEEN: ALLSTATE LIFE INSURANCE CO. & OTHERS
Applicant
AND AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED & OTHERS
Respondent
CORAM: Beaumont J.
DATE: 14 February 1994
REASONS FOR JUDGMENT No. 6
(In relation to the cross-claim against Price Waterhouse)
INTRODUCTION
In order to understand the context in which the several interlocutory applications now before the Court arise, it will be necessary to refer to the relevant provisions of O.5, which deals with cross-claims and third party claims with a view to facilitating the policy set out in s.22 of the Federal Court of Australia Act 1976 that, so far as possible, all matters in controversy between the parties may be completely and finally determined and that multiplicity of proceedings be avoided.
By O.5 r.1(2), a respondent may cross-claim against any person, including a third party, for any relief which is related to or connected with the subject of the proceeding. By O.5 r.1(3), without prejudice to the generality of sub-rule (2), a respondent may cross-claim for contribution or indemnity. By O.5 r.5(1), a respondent may file a pleading by way of cross-claim within the time fixed for filing his defence or any extension thereof. By O.5 r.8(1), subject to sub-rules 9(1) and (2), a respondent may cross-claim against a person other than a party without the leave of the Court. By O.5 r.9(2), a respondent who has not previously obtained directions from the Court in relation to the matter under O.5 r.9(1), shall not cross-claim after the directions hearing without the leave of the Court.
(The principal moving parties in the present application are the first, fifth, sixth, seventh, eighth, ninth and eleventh respondents. Since it has been agreed between the parties that their position should be treated as typical for present purposes, it will not be necessary to refer to the cross-claims sought to be brought by other parties.)
Before going to the evidence in the present application, reference should be made to some aspects of the history of the litigation as follows.
Because of the apparent complexity of
the litigation and because of several applications to strike out parts of the
statement of claim, many directions hearings have been held with a view to
ascertaining and defining the real issues in
the principal proceedings. Because of
this, and because the proceedings were earlier stood over pending the
determination of a related matter by the Supreme Court of New South Wales, it
was not until 11 November 1994, that the respondents were directed to file
defences by 21 November. The present
respondents filed their defence on 24 November and then attempted to file their
cross-claim. The Registry rejected the
cross-claim as out of time. The
cross-claim, a copy of which was informally provided to the solicitors for
Price Waterhouse in December 1994, is in the nature of a claim for contribution
by statute (Part 3 of the Law Reform (Miscellaneous Provisions) Act 1946
(NSW)) and in equity. A copy is annexed
to these reasons for ease of reference.
Ordinarily, in the absence of any question of limitation of actions, a
period of three days would not be decisive for present purposes, at least in
non-complex litigation. However, where,
as happened here, there had already been several directions hearings, as Gummow
J. observed in National Mutual Holdings Pty Ltd v The Sentry
Corporation (1989) 22 FLR 209 (at 217-8), leave to file a cross-claim
should have been sought at a directions hearing, as O.5 r.9 contemplates (see
also Trade Practices Commission v Allied Mills Industries Pty Ltd
(1980) 55 FLR 108 per Sheppard J. at 110).
In principle, especially where the substantive issues are complex,
consistent with the Court's policy and practice in managing its litigation, all
aspects of the making of any cross-claim should be supervised by the Court at
all stages of the
litigation. At the same time, it should
be noted, as French J. pointed out in Australian Securities Commission v
Dalleagles Pty Ltd (1992) 25 ALD 232 at 233 where, as here, the
directions hearing is continued with adjournments from time to time, it may be
that, strictly speaking, the cross-claimant does not require leave under O.5
r.9(2). But, this is not to say that the
Court should not supervise the process by giving appropriate directions once,
as here, the Court has undertaken, in a series of directions hearings, the
management of all aspects of the litigation.
THE EVIDENCE ON THE APPLICATION
In his affidavit sworn 9 February 1995 in the present application the solicitor for the present respondents says that, in summary, the cross-claimant relies on the following facts:
"(a)That, by the Further Amended Statement of Claim filed on 16 December 1994, the debentureholders make claims against the Cross Claimants on the basis of the following alleged conduct:
(i) involvement in misleading and deceptive conduct in contravention of Section 52 of the Trade Practices Act 1974, said to have been engaged in by Linter Textiles (paragraph 74);
(ii)aiding and abetting in conduct by Linter Textiles said to amount to the tort of fraud according to the law of New York or alternatively the tort of deceit according to the law of New South Wales (paragraphs 130 and 135 to 140);
(iii)suggesting, encouraging, prompting and/or directing Linter Textiles to breach certain of its contractual obligations to the debentureholders in such a way as to amount to the tort of intentional interference with contractual relations according to the law of New South Wales or alternatively the law of New York (paragraphs 148 to 153 and 159 to 164).
(b) That in or about July 1988, Linter Group Limited and Linter Textiles retained Price Waterhouse to act as independent accountants in connection with the proposed debenture issue and, in particular:
(i) to examine the combined financial statements of Linter Textiles which were to be included in the Prospectus (`the Accounts') and which had been prepared for the financial years ending 31 March 1986, 31 March 1987 and 31 March 1988 on the basis that the re-organisation of the Linter companies had occurred prior to the time covered by the Accounts;
(ii)to give an opinion to be included in the prospectus stating that the Accounts presented fairly the financial position of Linter Textiles as it would have been if the Re-organisation had already occurred for each of the periods to which they related in conformity with generally accepted accounting principles (`the Opinion'):
(iii) to carry out such tests of the accounting records and such other auditing procedures as were necessary in order to express the Opinion in accordance with auditing standards generally accepted in the United States;
(`the Price Waterhouse retainer').
...
(c) That
pursuant to the Price Waterhouse
retainer, Price Waterhouse:
(i) examined draft accounts of Linter Textiles for inclusion in the prospectus;
(ii)carried out investigative work for the purpose of enabling them to give the Opinion.
(iii)gave the Opinion on the basis specified in the notes to the Accounts.
(d) That Price Waterhouse gave an opinion in the prospectus that, the Accounts presented fairly and in conformity with accounting principles generally accepted in Australia, the financial position of Linter Textiles as it would have been if the Re-organisation of the Linter companies had occurred before the period covered by the Accounts.
Exhibited to me at the time of affirming this affidavit and marked Exhibit MLB1 is a copy of the prospectus which contains Price Waterhouse's opinion at pages F-2, F-8 and F-9.
[These pages are annexed to these reasons.]
(e) That in giving their opinion, Price Waterhouse owned a duty of care to the debentureholders.
(f) That Price Waterhouse acted negligently and in breach of their duty of care to the debentureholders.
(g) That, if the debentureholders have suffered loss or damage as alleged against the Cross Claimants, then that loss or damage has been suffered by reason of the conduct of Price Waterhouse."
In his affidavit sworn in this application on 7 February 1995, the solicitor for Price Waterhouse referred to aspects of the history of the litigation and to comments made in correspondence between the solicitors of an argumentative character, some of which were restated in the submissions being, in essence, that leave to file the cross-claim should be refused, or if leave were not required, that the cross-claim should be dismissed as disclosing no reasonable cause of action.
THE AUTHORITIES IN THIS AREA
As has been noted, the claims made in the principal proceedings raise several complex issues. Of itself, this would ordinarily mean that a claim for contribution in such proceedings would also raise complex questions and, on the material presently available, that appears to be the case. Indeed the cross-claim seems to raise difficult questions of the jurisdiction or powers of the Court, namely whether in the case of a claim under the Trade Practices Act there is an entitlement to contribution at law or in equity, an issue which has been discussed in a number of cases.
For instance, in Re La Rosa; Ex parte Norgard v Rodpat Nominees Pty. Ltd. (1991) 31 FLR 83 French J. allowed a cross-claim to be filed on the basis that it disclosed "an arguable case" (at 92), the "restitutionary" claims resting in participation in and benefiting from breaches of duty by the cross-respondents arguably gave rise to a "co-ordinate liability" which can be the subject of contribution proceedings (at 91).
In Australia and New Zealand Banking Group Limited v Turnbull & Partners Limited (1991) 33 FCR 265, on an application to strike out a cross-claim sought to be brought by a respondent sued for misleading conduct contrary to s.52 of the Trade Practices Act, Sheppard J. expressed the opinion (at 276), with which I respectfully agree, that since O.5 was procedural only and did not confer any substantive right to contribution, that right had to be found elsewhere, either in a statute or under the general law. His Honour expressed the opinion (at 277) that s.5 of the Law Reform Act did not provide such a right, where as is the case here in respect of some of the claims brought against the cross-claimant, the respondent is sued for a breach of s.52. However, Sheppard J. went on to say (at 277-8):
"Ought
this lead me to strike out so much of the cross-claim as claims
contribution? In ordinary circumstances
I would take this course, but two matters, operating together, have persuaded
me that I should not do so. First, so
far as I am aware, this is the first case in which the possible application of
s 5 of the Law Reform Act (and similar provisions contained in other State
Acts) has arisen for consideration; no
authority on the point was referred to by counsel. There have been cases in which orders for
contribution have been made, but, so far as I am aware, in none of these cases
has there been argument about the basis for the making of the order. A case in point is Dennison v Ace
Shohin (Australia) Pty Ltd [1987] ATPR 48,656 at 48,662. The point is thus one of general
importance. Secondly, striking out the
claim for contribution would not achieve much in the overall management of the
case. The major, and really more
important, part of the cross-claim will be left. If the claim for contribution were the only
matter, I would have had a different view.
The case would be clearcut and my decision could be tested quite quickly
on appeal. But in a case with as many
issues as this has, I think the better
course is to leave the claim in and dispose of it along with all other issues
at the conclusion of the case."
In Trade Practices Commission v Manfal Pty. Ltd. (1991) 33 FCR 382, in an application for leave to discontinue certain proceedings against some, but not all, respondents, Lee J. said (at 385):
"The Act does not provide directly that the court may apportion between the several persons who engaged in the conduct, or were involved in the contravention constituted by that conduct, degrees of culpability in respect of the occasioning of the loss or damage suffered by another, but that is not to say that a court could not entertain proceedings seeking orders of contribution based upon rights at law or in equity arising out of a co-ordinate liability imposed upon the parties by the Act. (See Re Law Rosa; Ex parte Norgard v Rodpat Nominees Pty Ltd (1991) 31 FCR 83 at 87-89, 90-92.)
The categories of rights of contribution are not closed. The foundation for such a right appears to be unjust enrichment (see F Goff and G Jones, The Law of Restitution (3rd ed, 1986), p.272) or simply a matter of justice. (See Albion Insurance Co. Ltd. v Government Insurance Office (NSW) ... at 350, per Kitto J.)
Where there is a community of interest between parties in respect of a matter of liability and the delivery of a benefit to one of those parties by the enforcement of the burden of that liability against the others, a right of contribution may arise. (See Bonner v Tottenham & Edmonton Permanent Investment Building Society ... at 174, per Vaughan Williams LJ.)
As French J pointed out in La Rosa ..., the question whether any principle of public policy should be applied to deny contribution between persons involved in a contravention of the Act by a corporation and between such persons and the corporation as joint wrongdoers should be decided upon arguments submitted after trial of the action. Having regard to the right of defaulting trustees in breach of trust ... and of defaulting directors in breach of their duties to a corporation and its shareholders to pursue cross-claims seeking a right of contribution from co-trustees and co-directors in default, there may be room for an argument that a corporation which has contravened the Act, and persons involved in that contravention, may have rights of contribution."
In a recent article ("Contribution, Contributory Negligence and Section 52 of the Trade Practices Act" (1993) 67 ALJ 87), Mr. J.C. Campbell Q.C. suggests that three possible causes of action may be available to a person sued for breach of s.52: (1) a respondent's original action for breach of s.52 (at 90-1); (2) equitable contribution, as considered by French J. and Lee J. (at 92); and (3) a further basis, as between tort feasors within the meaning of s.5 of the Law Reform Act.
THE SUBMISSIONS OF THE PARTIES
On behalf of Price Waterhouse, it is
submitted that the cross-claim is a claim for contribution only and that it is
not suggested that Price Waterhouse misled the cross-claimant. It is pointed out that Price Waterhouse, who
were entitled "independent accountants", were not sought to be sued
as auditors; and that it is not
suggested that Price Waterhouse knew about the undertakings from the Linter
Group and Linter Textiles contained in the letters to each initial participant
bank dated 11 October 1988 to give the releases pleaded in para.33 of the
statement of claim. It is then said that
there is no substantive basis for the proposed cross-claim. It is pointed out that s.5(1)(c) of the Law
Reform Act
requires that there be the same damage before contribution may be ordered; and that, under s.5(2), only such
contribution may be ordered as is "just and equitable"; and that, in order for there to be an
entitlement to equitable contribution, there must be co-ordinate
liabilities. Yet, it is said, none of
these ingredients existed here. It is
contended, in particular, that the respective measures of damages should be
quite different, not only in degree but in character.
Counsel for the cross-claimant referred to the allegations in paras. 56, 31, 20, 32, 47 and 49 of the further amended statement of claim (filed 16 December 1994) which may be summarised as follows:
. The cross-claimant failed to warn persons contemplating the purchase of debentures of matters within their knowledge and in particular of the following:
. Prior to 12 October 1988 the initial participant banks had entered into an agreement with Linter Group and the subsidiaries to guarantee repayment to each bank of amounts actually or contingently due to that bank by Linter Group ("the guarantees").
. Prior to 21 September 1988 Linter Group
proposed to the initial participant banks that prior to the issue of the
debentures they should release the
guarantees on condition that (a) prior to such release Linter Group and Linter
Textiles would give to the initial participant banks a conformed copy of the
Underwriting agreement between Linter Textiles and the underwriter; Linter Textiles would irrevocably undertake
to pay the net proceeds of the issue to Linter Group; and Linter Group would undertake to keep the
net proceeds on deposit until condition (b), below, was satisfied; and (b) after the issue of the debentures,
Linter Textiles would guarantee Linter Group's liabilities to the initial
participant banks and the subsidiaries would guarantee the liabilities of
Linter Textiles to the initial participant banks including the liabilities
under the firstmentioned guarantees ("the release and reinstatement
proposal).
. On 12 October 1988, in accordance with the release and reinstatement proposal, the initial participant banks released the subsidiaries from their obligations pursuant to the guarantees ("the releases").
. Linter Textiles had at all relevant times a substantial contingent liability to meet the debts of Linter Group which liability constituted Senior Indebtedness as defined by the Indenture.
. At all relevant times the subsidiaries had a substantial contingent liability to meet the debts of Linter Group, which liability constituted Senior Indebtedness a defined by the Indenture.
That is to say, the cross-claimant contends, the case against it is that there was always, in truth, a substantial contingent liability yet, as para.17(e) of the cross-claim alleges, even if the Guarantees and Undertakings were unknown to Price Waterhouse, nonetheless Price Waterhouse failed to make proper enquiries in carrying out its investigative work prior to giving its opinion in the prospectus; and the firm should have ascertained whether or not any liabilities in the nature of the Guarantees and Undertakings existed. That is to say, it is no answer for Price Waterhouse to say that it was not aware of them.
In this way, the argument for the cross-claimant runs, it may be said that for the purposes of the statutory claim for contribution, that the damage suffered is "the same" and that it is "just and equitable" that Price Waterhouse contribute; and that, in equity, there are "co-ordinate" liabilities.
CONCLUSIONS ON THE APPLICATION
As has been said, in the present
circumstances, even if, strictly speaking, leave is not required, directions on
the matter by the Court are essential, given the complexity of the principal
proceedings, and the fact that the entire management of the litigation has been
supervised through a series of directions hearings. Proper management of this kind of litigation
calls for scrutiny of each substantial step taken in its conduct and there is
no reason why the joinder of a third party should stand outside that
regime. On the contrary, there are
obvious reasons why any such joinder should be supervised by the Court.
The merits of the application raise a different question. Whilst, as has been noted, s.22 of the Federal Court of Australia Act gives a statutory force to the need to avoid unnecessary multiplicity of actions, it must be implicit in its provisions that it is speaking only of actions that have a reasonable prospect of success; in other words, that the claim to be joined in the proceedings is not a frivolous or vexatious one and accordingly an abuse of the process of the Court. That is to say the present question is whether it can be said that the claim for contribution has no arguable prospect of success.
In my opinion, it cannot be said that
the cross-claim has no arguable prospects of success. For one thing, it is obvious the questions of
law that arise are difficult; on no view
could it be claimed that the course of authority in this area should now be
regarded as settled. A further
complication is that, so far as the legal tests to be applied depend upon a
characterisation of the damages, clearly unliquidated, which may be awarded
against the cross-claimant, experience and authority in analogous areas
indicates that the preferred course, perhaps the only course, is not to embark
upon the relevant legal inquiry until after the facts have been found (see Magman
International Pty. Ltd. v Westpac Banking Corporation (1991) 32 FCR
1; Wardley Australia Ltd. v Western
Australia (1992) 175 CLR 514 at 533).
Where, as here, it appears, on the material presently available, that
the facts alleged in the cross-claim are likely to be highly contentious, at
least at the secondary level, and where no sensible adjudication of the
questions of law can be embarked upon until those facts are found, it must
follow that it would not be appropriate now to dismiss the cross-claim
summarily.
In the result, I propose to permit the cross-claim to be filed. As indicated during argument, if practicable, I would have sympathetically considered the setting apart of a separate question, for final determination, whether there is a power in the Court to order contribution here, provided that all the relevant facts are agreed, or may be found by the Court within a relatively short compass. Whilst this is apparently not now feasible, circumstances may change, in which event such a course may become appropriate.
Another aspect to be considered at an
early date is
the time to be permitted to the cross-respondent to prepare for a trial now
fixed to commence in July. It may be
that the cross-respondent should be given more time for this purpose, but any
application to vacate or vary the trial date should be made soon.
On the question of costs, I propose to make no order for costs since some form of Court supervision or direction of this aspect of the litigation was inevitable and necessary; and I have dealt with the matter only upon the footing of what was arguable, without deciding any substantive question adversely to either party.
ORDERS
I propose to grant leave to file the cross-claim, but to reserve liberty to the cross-respondent to apply, if so advised, to vacate or vary the trial date for the final hearing. I propose to make no order as to costs of the present application.
I certify that this and the preceding fifteen (15) pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Beaumont.
Associate
Dated: 14 February 1995
Counsel and Solicitors Mr. M. Pembroke instructed by
for first, fifth, sixth, Allen Allen & Hemsley
seventh, eighth, ninth and
eleventh Respondents:
Counsel and Solicitors for Mr. J.J. Spigelman Q.C.
Price Waterhouse: instructed by Richard White
Date of hearing: 10 February 1995
Date Judgment delivered: 14 February 1995
