FEDERAL COURT OF AUSTRALIA

St George Bank Ltd v M J K Pty Ltd [1999] FCA 1752

PRACTICE AND PROCEDURE – cross-claim – application for leave to serve – cross-claimant seeks to claim damages against cross-respondent for tortious and misleading or deceptive conduct affecting the cross-claimant– right to seek contribution – delay in bringing application

Federal Court Rules O 5 r5(1), O 5 r 9(2), O 5 r 1(2)

Federal Court of Australia Act 1976 (Cth) ss 21 and 22

Trade Practices Act 1974 (Cth) ss 52, 53 and 82

Fair Trading Act 1987 (SA) s 56

Wrongs Act 1936 (SA) s 25

Law Reform (Miscellaneous Provisions) Act 1946 (NSW) ss 3 and 5

Supreme Court Act 1936 (SA) s 31

The Koursk [1923] P. 206 cited

MacMan v Stengold Pty Ltd (1991) ATPR 41//105 noted

Stander v G H Varley Pty Ltd (1956) 56 SR (NSW) 346 followed

Barclays Bank v Tom [1923] 1 KB 221 applied

Godfrey v the Nominal Defendant; Burgess (Third Party) [1963] 63 SR (NSW) 412 applied

Van Win Pty Ltd v Eleventh Mirontron Pty Ltd [1986] VR 484 followed

Wardley v State of Western Australia (1992) 175 CLR 514 followed

Bitumen & Oil Refineries (Australia) Ltd v Commissioner for Government Transport (1955) 92 CLR 200 not followed

Australia and New Zealand Banking Group Ltd v Turnbull & Partners Ltd (1991) 106 ALR 115 discussed

Mahoney v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 applied

J N Taylor Holdings Ltd (In Liquidation) v Bond (1993) 59 SASR 432 applied

ST GEORGE BANK LIMITED (ACN 055 513 070) v M J K PTY LTD & ANOR

NO SG 138 OF 1998

O’LOUGHLIN J

21 DECEMBER 1999

ADELAIDE (Heard in Darwin)

THE COURT ORDERS THAT:

1.         Further consideration of these proceedings be adjourned.

2.         Any party be at liberty to bring the matter back on for further consideration on seven days notice.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     This is a disputed application for leave to file and serve a cross-claim.  The applicant in the substantive proceedings is St George Bank Ltd (“St George” or “the Bank”) and the first respondent, M J K Pty Ltd is a valuer; the second respondent is the managing director of the first respondent.  During the course of these reasons, I will, at times, refer to the first respondent as “the valuer” and to the second respondent as Mr Klobas.  For the most part, however, it will be sufficient to refer to them jointly as “the respondents”.  The bank has claimed that it suffered heavy losses when its borrower, a Mrs Donka Gorcilov, (“Mrs Gorcilov” or “the borrower”) defaulted and its real estate security was found to be inadequate.  It has claimed that in making its loans to Mrs Gorcilov, it relied on the report and advice of the valuer.  The respondents filed a defence, on 15 March 1999, denying liability, but they now seek leave, by notice of motion filed eight months later on 9 November, to file and serve a cross-claim against the borrower’s accountant, Liubinskas Bowyer Pty Ltd (“the accountant”).  In the proposed cross-claim it is intended that the respondents will claim that the preparation of the valuer’s valuation report was materially influenced by incorrect information in and concerning certain financial statements (“the accounts”) that had allegedly been prepared by the accountant.

2                     It is not disputed that the respondents require the leave of the Court to institute their cross-claim.  The time for filing a pleading by way of cross-claim is within the time fixed for filing a defence or any extension thereof:  O 5 r 5(1) of the Rules of Court; but see also O 5 r 8(1) and O 5 r 9(2).  In the course of seeking that leave, it is also necessary to inquire whether the intended cross-claim would be within the jurisdiction of the Court.  In terms of O 5 r 1(2) of the Rules of Court, the relief sought in the cross-claim must be “related to or connected with the subject of the proceeding.”

The Statement of Claim

3                     The application and statement of claim in this matter were filed on 18 December 1998 and, as I have said, it was not until 15 March 1999 that the respondents filed their joint defence.  However, before the filing of that defence, the Bank filed an amended statement of claim (“the ASC”) on 1 March 1999;  it is a matter of some importance to note that the defence addressed the allegations in the ASC.

4                     In par 8 of the ASC it is alleged that, in November 1996, St George retained the valuer to prepare a valuation of the property known as “Dora’s Lodge Retirement Complex” (“Dora’s Lodge”).  That business is situated at 4 Gordon Terrace Morphettville in the State of South Australia.  In par 10 it is alleged that, a week or so later, St George also retained the valuer to advise on the value of the freehold of that property.  I take it therefore that the first retainer was directed to the business of the retirement complex that was conducted at that address.  In par 13 of the ASC, it is alleged that the valuer knew, or ought to have known, that St George would rely on its advice and valuation report in determining whether to advance funds to the borrower.

5                     In due course the valuer provided its valuations.  It is alleged that the valuer gave a current fair market value of Dora’s Lodge and the property for mortgage security purposes of $2m:  a fire sale value of $1.75m and a value, on the basis of vacant possession, of $1.5m.  In pars 15 and 16 of the ASC it is pleaded that St George lent the borrower sums totalling $1.2m for a period of twelve month and that she secured the repayment of those loans by the execution of a mortgage.  It is said that, in due course, she defaulted.

6                     St George alleges in par 22 of the ASC that it relied on the valuer’s report and advice in making the advances to Mrs Gorcilov.  It then pleads in par 23 that, in the discharge of its retainers, the valuer failed in ten nominated areas.  Most of these alleged failures have no connection with the accounts or with the accountant.  For example, it is alleged that the valuer failed to have regard to comparable sales and, in particular, failed to have regard to the fact that it knew, or ought to have known, that the property had been sold some eighteen months earlier, in May 1995, for only $1.16m.  Other alleged failures included allegations that the valuer failed to have regard to the fact that because of some unspecified default, the local licensing authority “was refusing to renew” the licence to operate the business at Dora’s Lodge.

7                     However, in subpar 23.6 of the ASC, there is an allegation that the valuer “incorrectly calculated the net rental income of the property …” by wrongly relying “upon the 1996 trading figures of the business …”; it is also alleged that it “wrongly and without sufficient basis” concluded that “the total potential income stream … equated to $582,400.00.”  Both respondents deny this allegation adding, in their defence, that “It was appropriate for the first and second respondents to rely on the most recent financial accounts prepared by Gorcilov’s accountants, Liubinskas Bowyer & Co Pty Ltd …”.  The respondents added that they were entitled to assume that the Bank would conduct its own investigations into the trading figures of the borrower’s business.

8                     Another allegation against the valuer in the ASC that might reflect back to the accountant is the claim that the valuer failed to take into account that the property was not capable of accommodating eighty beds (even though it was licensed to do so).  At this stage, it is pleaded that the valuer “knew or ought to have known that the property was capable of properly accommodating no more than forty-five to fifty beds”.  As to this, the respondents not only deny the allegation but specifically plead that Mr Klobas, attended the property and counted eighty beds.  But, nowhere in the ASC is there a reference to the accountant or to any role that it may have played in this matter.

9                     To complete the outline of the Bank’s case against the respondents, it is alleged that the valuer gave incorrect advice on the subject of values and that, as a result, it breached its retainer and its duty of care and that it engaged in conduct that was misleading or deceptive or likely to mislead or deceive.  It is the Bank’s claim that if the valuer had advised the Bank correctly, the Bank would not have made the loans and would not have suffered its losses.

10                  In due course the Bank moved on its security and it is alleged that the property was sold for $625,000; but much of that money is said to have gone in discharge of debts owing to a receiver.  To compound the Bank’s difficulties, it has been pleaded that its borrower is now bankrupt.

The proposed cross-claim

11                  Mr Bonig, the solicitor for the respondents, filed an affidavit, dated 9 November 1999, in support of his clients’ application for leave to file and serve their cross-claim against the accountant.  The proposed cross-claim was exhibited to Mr Bonig’s affidavit.  Since then however, various amendments have been made to it and the following observations are directed to the most recent version of this intended pleading, a copy of which was filed in Court on 16 November 1999.

12                  It is alleged in par 8 of the proposed cross-claim that Mr Klobas requested Mr John Gorcilov, the son of Mrs Gorcilov, to supply him with a copy of “the 1996 profit and loss statement and any current financial data for Dora’s Lodge” (“the accounts”).  Later, in par 14, it is alleged that the accountant faxed the valuer “a copy of the 1996 financial accounts for Dora’s Lodge”.  It is acknowledged in the proposed cross-claim that these accounts carried a disclaimer to the effect that the accounts represent information “for which management is responsible” but I do not consider that it would be appropriate on an interlocutory application such as this, to question whether that disclaimer would amount to an absolute answer to the respondents’ claim against the accountants:  see MacMan v Stengold Pty Ltd (1991) ATPR 41//105 at 52629.  The main contents of the proposed cross-claim are summarised later in these reasons, commencing at par 26.

The respondents’ delay

13                  In his affidavit, Mr Bonig has asserted that his clients seek to claim that the accountant was guilty of misleading or deceptive conduct, that it was negligent and that it is liable for any loss for which the respondents may be found liable.  In par 5 of that affidavit Mr Bonig states:

“The respondents were unable to apply to institute a cross-claim against Liubinskas Bowyer and Co Pty Ltd at the time of the first directions hearing on 1 February 1999 as contemplated by Order 5 Rule 9 as the applicant only inserted paragraph 23.6 in the Amended Statement of Claim on 1 March 1999.”

(A summary of the Bank’s allegations that are to be found in subpar 23.6 is set out in par 7 of these reasons).

14                  Whilst accepting that what is stated is literally true, I do not accept that what Mr Bonig has asserted constitutes a legitimate excuse for the inordinate delay that has occurred in making this application.  The respondents were aware in March 1999, when they filed their defence, that part of the Bank’s attack upon them centred upon their use of the accounts; at that state the respondents believed that those accounts had been compiled and supplied by the accountant.  The respondents have failed to explain adequately why it has taken them so long to realise that they might have some recourse against the accountant.

15                  In par 6 of his affidavit, Mr Bonig asserted that it was not until 26 July that the respondents became aware that the accountant “had not produced and compiled the 1996 profit and loss figures as they had asserted in the documentation forwarded to the respondents prior to the preparation of his valuation”.  If that statement be accepted as accurate, it does not assist the respondents.  They knew in March 1999 the exact nature of the Bank’s case against them; they knew that part of that case would include an attack on the respondents’ use of the accounts; they would then have known (and if they did not, they should have known) whether and to what extent they had relied on information that had allegedly come from the accountant.  The only new information that the respondents acquired in July was the fact (if it be a fact as they have alleged) that the accountant did not prepare the accounts but (as I assume) had merely lent its name to accounts that had been prepared by the borrower or some other agent of the borrower.

The respondents’ professional indemnity insurance cover

16                  The attitude that the respondents have taken to the Bank’s attempts to have this matter set down for trial is disturbing.  At this stage, the Bank has allegedly quantified its losses at an amount in excess of $1m and, so it says, those losses are escalating because of lost interest at about $10,000.00 per calendar month.  Concerned that the respondents’ current application might cause a substantial delay in the hearing of the case, the Bank, through its solicitors, inquired about the extent of the respondents’ professional indemnity cover.

17                  Mr Roberts, the solicitor for St George, deposed in his affidavit dated 12 November 1999, in these terms:

“9.      I have ascertained from the witness statement of the second respondent dated 19 October 1999 that he asserts that on 30 April 1996 he provided a copy of a professional profile, in the form annexed hereto and marked ‘B’ (‘ the professional profile’) to the applicant.  On the final page of that document it provides that the respondents at that time maintained insurance cover of $1,000,000.00.

10.         I have performed searches of the real property owned by the first and second respondents.  I have been unable to ascertain any real property holdings owned by either of the respondents.

11.         I have performed a search of the title of the property where I understand that the second respondent resides.  I have ascertained from the title that the registered proprietor of that property is disclosed as Judith Robyn Klobas, who I understand to be the second respondent’s wife.”

18                  Mr Roberts said that he wrote the solicitors for the respondents requesting advice about the extent of their clients’ insurance cover.  The attitude of the respondents was quite unhelpful.  Mr Roberts wrote on 5 November.  The reply of 8 November was as follows:

“We refer you to paragraphs 53.6 and 54 of David Ballingall’s statement where he refers to a conversation in which he required Klobas to increase the level of his indemnity from $1,000,000 to $2,000,000 before Klobas Property Group could be appointed as a panel valuer for St George Bank.  We also draw your attention to your client’s discovered document number 6 in which it is noted that Klobas Group had indemnity cover of $2,000,000 as at April 1997.  We assume that your client satisfied itself of the level of our client’s cover prior to appointing it to its panel.”

Not surprisingly, Mr Roberts replied stating “… these matters do not establish that your clients have such insurance cover …”.  He asked for production of tangible information that would establish the extent of the respondents’ cover.  The next reply was even more evasive; the respondents’ solicitors were content to note that the court had given an intimation that a trial date might not be available until July or August 2000.  They concluded:

“Accordingly, our institution of proceedings against Liubinskas Bowyer and Co Pty Ltd does not, at this stage, result in any delay in the hearing of the matter.”

That letter was written on 9 November 1999.  Two days later, almost as an afterthought, the respondents’ solicitors wrote:

“We put you on notice that we object to any affidavit material being put before the court which contains any material at all identifying the level of our clients’ insurance cover, whether by way of direct evidence or correspondence between our respective firms.  The level of our clients’ insurance cover is not a matter that the court should be privy to.”

(The respondents did not, on the hearing of their application, make any further reference to this claimed issue of confidentiality).

19                  The express reference to cover of $2m in the letter of 8 November from the respondents’ solicitors suggested that the respondents had cover to that amount.  If that be the case, the urgency in the matter dissipates somewhat.  However, the refusal of the respondents to address this subject openly caused me concern.  I was left wondering whether, despite the information in the letter of 8 November, perhaps the respondents had not taken out the extra cover.

20                  When I raised this matter with counsel during the course of submissions, I was informed from the Bar table that the respondents did, in fact, have professional indemnity cover of $2m.  I issued a direction that an affidavit be placed on the court file verifying that statement.  Such an affidavit was duly filed by Mr Bonig but it caused another eruption of correspondence between the solicitors for the parties.  Mr Bonig did not exhibit a copy of the relevant policy; he merely addressed its relevant terms.  The solicitors for St George responded by letter dated 18 November 1999, saying:

“To an extent, provided that the terms of the policy which you have recited are from the same policy as the schedule exhibited to Mr Bonig’s affidavit, our client’s concerns (as outlined in our earlier correspondence) have been addressed.”

21                  The solicitors for the Bank then shifted their ground, however, by questioning whether the insurers would cover the claims that had been made by the Bank.  Previously, their concerns had been limited to questioning the amount of the cover; now they wanted to know whether there was any reason why the cover would not be honoured.  In one sense, their concerns should have been assuaged by the Freudian slip in the reply from Messrs Fountain and Bonig dated 19 November 1999.  Confusing the correct identity of their client, they wrote:

“That we are still instructed to act for the respondents is confirmation that the policy is currently valid.  A grant or refusal of indemnity is a matter between our client and the respondents.”

22                  The clear inference to be drawn from this passage of their letter is that Messrs Fountain and Bonig are acting on behalf of the respondents, but on instructions from the professional indemnity insurers who, at this stage at least, have not refused cover.  I intend to assess the respondents’ application for leave to file and serve the proposed cross-claim upon the premise that the evidence that is presently before the Court suggests that they have sufficient professional indemnity cover to meet any judgment that may be awarded in the Bank’s favour.

The Federal Court of Australia Act 1976 (Cth)

23                  In considering an application such as this, it is necessary to have regard to the provisions of s 22 of the Federal Court of Australia Act 1976 (Cth) (“the FCA”).  Its preferred objective is to ensure that all matters of controversy between parties should, where possible, be completely and finally determined so that multiplicity of proceedings may be avoided.

24                  Normally, actions and cross-claims are heard together.  It is only in exceptional circumstances that separate trials will be ordered:  see Stander v G H Varley Pty Ltd (1956) 56 SR (NSW) 346 at 347 per Owen J (with whom Roper C J in Eq agreed).  In Barclays Bank v Tom [1923] 1 KB 221 Scrutton L J at 223-224 explained the object of the third party procedure in these words:

“Now I think it is important to keep clearly in mind what the third party procedure is.  A plaintiff has a claim against a defendant.  The defendant thinks if he is liable he has a claim over against a third party.  With that matter between the defendant and the third party the plaintiff has obviously nothing to do.  He is not concerned with the question whether the defendant has a remedy against somebody else.  His remedy is against the defendant.  But the defendant is much interested in getting the third party bound by the result of the trial between the plaintiff and himself, for otherwise he might be at a great disadvantage if, having fought the case against the plaintiff and lost, he had then to fight the case against the third party possibly on different materials, with the risk that a different result might be arrived at.  The object of the third party procedure is then in the first place to get the third party bound by the decision between the plaintiff and the defendant, so that the defendant may not be in the position of having to wait a considerable time before he establishes his right of indemnity against the third party while all the time the plaintiff is enforcing his judgment against the defendant.  And thirdly, it is directed to saving the extra expense which would be involved by two independent actions.  With these objects in view the third party order usually provides that the third party may appear at the trial between the plaintiff and the defendant.”

Quoting that passage with approval, the New South Wales Court of Appeal in Godfrey v the Nominal Defendant; Burgess (Third Party) [1963] 63 SR (NSW) 412 at 414 added:

“However there may be, in particular cases, countervailing considerations sufficiently compelling to outweigh the advantages of third party procedures to which Scrutton L J referred.”

25                  The objective of s 22 of the FCA must therefore be balanced by asking whether the prosecution of the cross-claim will cause injustice to St George out of proportion to the injustice that might be occasioned to the respondents if the application for leave to institute the cross-claim is denied.  The initial failure of the respondents to disclose particulars of their insurance cover did not permit me to make a proper evaluation of those competing issues but that was the fault of the respondents.  However, on the information that is now before the Court, and on the assumption that the respondents have a valid cross-claim against the accountant, it is my opinion that the prejudice that the respondents might suffer, if leave is not granted, must be assessed as the greater.  The disclosed size of the valuer’s insurance cover should go a long way towards reassuring St George.  I am therefore disposed to exercising my discretionary powers in favour of the respondents.

Whether leave to file the Cross-Claim should be granted as a matter of law

26                  I turn now to a consideration of the contents of the proposed cross-claim.

Misleading or deceptive conduct

27                  In pars 27-31 of the proposed statement of claim on the cross-claim, the respondents plead a case of misleading and deceptive conduct against the accountant in breach of s 52 of the Trade Practices Act 1974 (Cth) (“the TPA”) and s 56 of the Fair Trading Act 1987 (SA) (“the FTA”).  In brief, it is alleged that, by presenting the accounts to the valuer, the accountant represented that it had prepared the accounts, whereas, so it is claimed “the accounts were not its own documents but were supplied by Gorcilov.”  (see sub-par 29.1).  The respondents plead reliance and conclude by claiming:

“31     In the event that MJK and/or Klobas are found liable to the applicant, MJK and Klobas hereby allege that such loss was caused by Liubinskas Bowyer by reason of its breach of the TPA and FTA as alleged in paragraphs 27 to 29 hereof.”

28                  It is intended to argue that the challenged conduct was the representation by the accountant that it had prepared the accounts and the further representation that they were true and accurate.  The alleged falsity of those representations is based on the allegations that the accountant:

§         had not in fact prepared the accounts;

§         had failed to advise the respondents of that fact; and

§         knew or ought to have known (by virtue of its close association with the business) that the accounts were inaccurate.

Negligence

29                  In pars 32-36, the respondents plead as a third cause of action negligence.  They claim that the accountant owed them a duty of care to prepare the accounts properly and that, by its conduct in forwarding a copy of the accounts that had been prepared by its client, it breached its duty.  The respondents also plead that the accountant, by virtue of its association with the retirement complex, knew, or ought to have known, that the information contained in the accounts was significantly higher than in previous years and should have been verified.  The respondents then plead:

“36     In the event that MJK and/or Klobas are found liable to the applicant for the loss and damage sustained, MJK and Klobas allege that such loss was caused by reason of the negligence of Liubinskas Bowyer as set out in paragraph 35 hereof.”

30                  Putting to one side, the provisions of the Wrongs Act 1936 (SA) (“the Wrongs Act”), the Bank, in submitting that leave to institute the cross-claim should be refused, has argued that the proposed pleading is bad in law because, as to all three intended causes of action, it does not disclose that the respondents have suffered any damage –and, so it is said, the existence of damage is essential to each of the causes of action.  This submission is based upon the decision of the Victorian Full Court in Van Win Pty Ltd v Eleventh Mirontron Pty Ltd [1986] VR 484.  The facts of that case were quite involved but, for present purposes, it is sufficient to say that a building owner, Van Win, a defendant in the original proceedings, sued the City of Kew (“the Council”) claiming damages for negligence in issuing a building permit.  The Council, in turn, issued a third party notice against the engineer, Ramchen, claiming damages for the engineer’s failure to exercise skill and diligence in certifying to the Council that the proposed building would be structurally adequate; the Council alleged that, in consequence of the engineer’s negligence, it “has or may suffer loss and damage”.  The principal judgment of the Court was delivered by Kaye J with whom Gray and Phillips JJ agreed.  In coming to the conclusion that the third party notice should be set aside his Honour said at pp 489-490:

“Thus the damage alleged being in futuro, the pleading does not disclose any material injury suffered or harm occasioned to the City of Kew’s interests.  At its highest, the claim made by the City of Kew is for inchoate damage which might subsequently be suffered by it.  Consequently, damage being the gist of an action in tort to recover damages, the City of Kew’s cause of action against Ramchen has not yet arisen.  Indeed, in the event of Van Win failing in its counterclaim for damages against the City of Kew or discontinuing those proceedings, the City of Kew would not suffer damage.  Consequently, its cause of action against Ramchen may never crystallize. If it were to commence, by separate action, a claim for damages against Ramchen and proceed to litigate its claim before Van Win’s counterclaim were determined, the City of Kew’s action would fail.”

31                  This line of reasoning in Van Win’s casealso leads to the conclusion that the respondents in these present proceedings do not yet have a cause of action for misleading or deceptive conduct – they have not suffered loss or damage for the purposes of s 82 of the TPA until there is an actual or certain liability: Wardley v State of Western Australia (1992) 175 CLR 514 at 525.  I am satisfied that the respondents’ intended claims against the accountant under the TPA and the FTA and the intended claim in negligence cannot be maintained at this stage.

Contribution

32                  The section in the intended cross-claim comprising pars 37-43 is preceded by the heading “Contribution and Indemnity”.  It commences with a plea that St George had requested the accountant to supply it with a copy of the accounts.  It is alleged that the accountant did so supply the Bank on 18 November – it having been earlier pleaded in par 14 that the valuer was not given a copy until the following day, 19 November.  This is followed by a plea in the proposed cross-claim that St George relied on the accounts for the purpose of making its loans to Mrs Gorcilov.

33                  In par 39 of the proposed cross-claim, the respondents have pleaded the alleged duty of care that the accountant owed to the Bank.  That paragraph is set out below:

“39     By reason of the matters set out in paragraphs 37 to 38 hereof, Liubinskas Bowyer owed a duty of care to the applicant:

39.1          to prepare and/or compile the accounts from source documents such as the books and records of Dora’s Lodge;

39.2          to verify the accuracy of the accounts provided from the books and records of Dora’s Lodge;

39.3          to ensure it had sufficient source documents from Dora’s Lodge to be satisfied that the accounts provided were accurate;

39.4          to consider and analyse the source documents of Dora’s Lodge to satisfy itself that the accounts provided were accurate in particular having regard to the increase of income for 1996 in comparison with the previous two years;

39.5          to inform the applicant as to any qualification or reservation it had as to the accuracy of the information contained in the accounts;

39.6          to inform the applicant if it could not provide accurate information from the books and records of Dora’s Lodge;

39.7          to verify that the increase in income indicated in 1996 in comparison with the two previous years could be appropriately verified through the source documents.”

34                  In pars 41 and 42 of the proposed cross-claim the respondents then plead that the accountant knew or ought to have known that the Bank would rely on the accounts for the purpose of deciding to make the loans to Mrs Gorcilov and that the accountant had breached its duty of care to the Bank for various reasons.  Of the several reasons that are stated in par 42, it is sufficient to refer to two of them; in the first place it is pleaded that the accountant had not prepared the accounts and had failed to verify their accuracy.  In the second place there are allegations that, because of its long association with the business, the accountant knew the number of beds that Dora’s Lodge was capable of accommodating, that it knew of the number of beds “which would be required to be occupied in order to produce the income stream indicated in the accounts” and that it knew that the business could not have produced “an income stream in the year of 1996 of $541,000 having regard to the number of beds and/or the rate of occupancy of such beds.”

35                  This section of the intended cross-claim concludes with par 43:

“MJK and Klobas therefore allege that if they are found liable for loss and damage sustained to the applicant as a result of the matters referred to in paragraph 22A hereof, Liubinskas Bowyer is also a tort feasor and liable in respect of the whole or part of that same damage to the applicant”.

(Paragraph 22A is the paragraph in which the respondents state that the Bank has alleged that the valuer breached the duty of care that was owed to the Bank).

36                  At common law, if an applicant, such as St George, recovered the full amount of a judgment from a tortfeasor, that tortfeasor could not, in the majority of cases, recover contributions from any other tortfeasor.  The basis for that rule was embodied in the maxim ex turpi causa non oritur actio – no right of action arises on base cause.  However, legislation relating to both joint and concurrent tortfeasors has since been introduced throughout Australia to ameliorate that rule.  By force of statute, the position that now exists allows the respondents in the present case to claim contribution if, in fact, they can establish their right to such contribution.

37                  Subsection 25(1) of the Wrongs Act states that where damage is suffered by any person (eg St George) as a result of a tort:

“(c)     any tort feasor (eg the respondents) liable in respect of that damage may recover contribution from any other tort-feasor who is, or would at any time have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise …”.

38                  At one stage there were doubts about the application of the words “any tortfeasor liable.”  How was liability to be determined?  For example, in Bitumen & Oil Refineries (Australia) Ltd v Commissioner for Government Transport (1955) 92 CLR 200, the High Court in a joint judgment said:

“It is, however, unnecessary for us to say definitely that the ascertainment of the liability must be by judgment to the exclusion, for example, of arbitral award or of agreement itself amounting to accord and satisfaction or of an agreement amounting to accord executory followed by satisfaction.”(p 212)

39                  But that issue - whether a tortfeasor who has not been held liable by a court can claim contribution - was covered in South Australia in 1959 by the insertion of par 25(1)(ca) of the Wrongs Act.  That provision, so far as it is relevant to these proceedings, provides as follows:

“A tortfeasor who, … becomes liable in respect of that damage may recover contribution from a third party… notwithstanding –

(i)      that judgment in an action founded on the tort has not been given determining the tort-feasor’s liability in respect of that damage; …”

40                  These provisions of the Wrongs Act only provide, however, for contribution between parties who are liable to the applicant in tort.  They do not extend to permitting a tortfeasor to recover contribution from a party who might be liable under the provisions of s 52 of the TPA or s 56 of the FTA.

41                  The right to contribution under s 25 of the Wrongs Act is not concerned with an independent cause of action that the respondents have – or may have – against the accountant.  Section 25 is concerned with a case where the accountant, although not sued by the Bank, might or could have been; it is the accountant’s alleged breach of its duty to the Bank – not to the respondents – that is addressed by the section.  In other words, the section allows a party who is in the position of these respondents, to claim contribution from another person, such as the accountant, when that other person is liable to the applicant for the same damage.

42                  Sheppard J discussed the equivalent New South Wales provision – s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) - in Australia and New Zealand Banking Group Ltd v Turnbull & Partners Ltd (1991) 106 ALR 115.  In that case, a group of applicants sued a company, John Fairfax Group Pty Ltd, (“Fairfax”), two other companies associated with it, the Australia and New Zealand Banking Group Ltd (“the ANZ”) and Citibank Ltd for damages for breach of the TPA.  The primary allegation was that Fairfax engaged in conduct that was misleading or deceptive or likely to mislead or deceive in the dissemination of information upon which the applicants relied to their detriment.  As to the ANZ, it was pleaded, not only that it had aided and abetted Fairfax, but also that it had independently engaged in conduct that was misleading or deceptive or likely to mislead or deceive.

43                  The ANZ filed a cross-claim against two companies and an individual who was associated with those companies.  In an action by those cross-respondents to have the cross-claim struck out, his Honour explained the limited operation of the legislation in these words at p 126:

“There are four conditions which must be fulfilled before s 5 can apply in a case such as this.  They are:

          (1)       Damage must have been suffered by a person (the applicant) as the result of a tort.

          (2)       The cross-claimant must be, or must be alleged to be, a tort-feasor.

          (3)       The cross-respondent must be a person who, if sued (ie by the applicant), would have been liable to the applicant.

          (4)       The cross-respondent must be alleged to be a tort-feasor who is liable in respect of the same damage as that for which the cross-claimant is sued.

What needs to be understood about this provision is that it is not concerned, as s 3 is, with an independent cause of action which the cross-claimant has against the cross-respondent; it is concerned with cases where the cross-respondent, although not sued by the applicant, might or could have been.  So the cause of action which is in question must be a cause of action which the applicant has (although he has not prosecuted it) against the cross-respondent.  It is the cross-respondent’s breach of duty or obligation owed to the applicant, not the cross-claimant, which is in question.  Section 5, assuming it to be picked up by s 79 of the Judiciary Act is a provision which enables a cross-claimant, sued in the circumstances for which the section provides, to claim contribution from another person liable to the applicant for the same damage.”

In that particular case, Sheppard J pointed out that the claim for contribution that had been made by the ANZ Bank could not succeed so long as it was based on s 5 – the damage which the ANZ Bank was alleged to have suffered was not said to have been caused by tortious conduct, but by misleading and deceptive conduct.

44                  The case that the respondents wish to advance is, as it seems to me, to this effect:  that the accountant’s alleged tort was independent of the respondents’ alleged tort but that it was the totality or combination of those torts that caused the Bank’s losses.  And if, when the action comes to trial, it is proved that an aspect of the Bank’s damages is properly to be regarded as a foreseeable consequence of both the respondents’ negligence and the accountant’s negligence, the respondents will be entitled to seek contribution from the accountant in respect of so much of the damages awarded against them as relates to that aspect: c.f. Mahoney v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 at 530.  In that case a workman sued his employer for damages for personal injuries suffered by him in the course of his employment; he alleged that his injuries had been caused by the employer’s negligence.  It was held by the High Court that the employer was entitled to claim contribution from the employee’s doctor, based on the allegation that the doctor’s negligent treatment had contributed to the employee’s injuries.  If the respondents succeed in proving these allegations, the respondents and the accountant would properly be described as concurrent tort feasors who are severally liable.

45                  It was submitted on behalf of St George that the overlap between the principal claim and the cross-claim is minimal.  I do not agree.  It is true to say that neither the alleged negligence of the valuer nor that of the accountant arise from the alleged negligence of the other.  If the accountant was negligent in its involvement (whatever it may have been) in the preparation and presentation of the accounts to St George, that act of negligence was separate and apart from the claimed acts of negligence of the valuer.  In the case of the valuer, its alleged negligent conduct can be appropriately classified as a failure to have regard to ten items of relevant material – only one, or perhaps two, of which touched upon the accounts.  And, even then, the allegation against the valuer is not directed to the preparation and presentation of the accounts, but to the alleged failure to use the accounts correctly and to the alleged failure to compare the contents of the accounts with the contents of the like accounts for earlier years.  In other words, the pleadings reveal two separate and independent courses of conduct which, if proved at trial, would constitute two separate and independent acts of negligence.  For these reasons it could not be said that the valuer and the accountant are joint tort feasors of the same tort; they are separate tort feasors of two different torts: The Koursk [1923] P. 206.  What is pleaded by the Bank against the valuer is that it used the information in the accounts in an incorrect manner:  what the valuer says of the tortious conduct of the accountant to the Bank is that the accountant knew that the accounts were incorrect.  However, the investigation of both allegations will necessitate a detailed examination of the business that was conducted at Dora’s Lodge and a detailed examination of the contents of the accounts.  There will be a divergence on other aspects of the case but the two features that I have identified are, I would expect, likely to be of sufficient magnitude to assert that not only will there be an overlap, but that the extent of the overlap will be sufficiently significant to favour the respondents’ application.  This is a difficult area because no evidence has been led on the subject.  It necessitates therefore, a degree of speculation and intuitive reasoning at this stage.  However, on the information that is presently before me, I am satisfied, in terms of O5 r 1(2), that this relief would, if pursued in the cross-claim, be “related to or connected with the subject of the proceeding.”

Declaratory Relief

46                  The respondents also seek a declaration under s 21 of the FCA that the accountant contravened s 52 of the TPA.  Subsection 21(1) of the FCA Act provides:

“(1)       The Court may, in relation to a matter in which it has original jurisdiction, make binding declarations of right whether or not any consequential relief is or could be claimed.”

47                  A recent example of a circumstance where it was considered appropriate to permit a party to seek a declaratory order appears in the decision of the Full Court of the Supreme Court of State of South Australia in J N Taylor Holdings Ltd (In Liquidation) v Bond (1993) 59 SASR 432.  In that case the plaintiff companies, both in liquidation, sued three of their former directors.  Each of the directors held policies of insurance indemnifying them in respect of any wrongful act committed by them in their capacity as directors.  Of the three directors, one was bankrupt and two had left the country.  In response to an inquiry the insurer denied all liability.  The plaintiffs thereupon sought and ultimately obtained leave to join the insurer on the ground that they were entitled to seek, by way of a declaration, an order that the insurer was obliged to indemnify the directors.  The source of the Court’s jurisdiction to grant the declaratory relief was s 31 of the Supreme Court Act 1936 (SA):

“No action or proceeding shall be open to objection on the ground that a merely declaratory judgment or order is sought thereby, and the court shall have power to make binding declarations of right whether any consequential relief is or could be claimed or not.”

48                  The latter part of this provision is substantially in the same terms as subs 21(1) of the FCA.  I see no reason why the respondents should be prevented from seeking a declaration under s 21 of the FCA  that the accountant had engaged in misleading and deceptive conduct.  The existence of that application for a declaration will give this Court the jurisdiction that it needs so that it can address the issue of the claimed tortious conduct of the accountant through its accrued jurisdiction.  Although the obtaining of such a declaration would not proceed to a calculation of damages, that does not make the issue relevant.  If the respondents are successful in their cross-claim on the tortious issue that will lead to a quantification of all relevant damages and an apportionment; it is hardly likely that the respondents could hope to achieve any more under either the TPA or the FTA.

Conclusion

49                  The Bank submitted that, if the Court were minded to grant the respondents leave to file and serve their proposed cross-claim, any such leave should be subject to two conditions:  first, that the respondents should be ordered to pay the Bank’s costs that have been thrown away on an indemnity basis and secondly, that the cross-claim should not delay the prosecution of the trial of the principal proceedings.  I am satisfied that the respondents should meet some of the applicant’s costs but I do not see why those costs should be fixed upon an indemnity basis.  Admittedly there was delay on the part of the respondents, and their failure to disclose details of their professional indemnity insurance exacerbated a quite volatile situation.  On the other hand, the Bank, at the end of the day, was not so successful in its opposition as to prevent leave being granted to file and serve the cross-claim.  My tentative view is that a fair solution would be to grant the applicant a substantial percentage of its normal costs on a party and party basis.  Because of the existence of the $2m insurance cover, I do not now think it necessary to impose the second of the conditions that was sought by the Bank.

50                  I have come to the conclusion that there is sufficient information before the Court to grant leave to the respondents to file and serve a cross-claim against the accountant seeking contribution pursuant to the provisions of the Wrongs Act.  That cross-claim cannot, however, include in it claims by the respondents against the accountant for damages for negligence or for misleading or deceptive conduct; those claims, for the reason that I have identified, would be premature.

51                  It will be necessary for the respondents to redraft their proposed cross-claim so as to excise any reference to their claims against the accountant for tortious conduct and misleading or deceptive conduct.  If they intend to proceed with a cross-claim, they should file and serve a fresh draft within twenty-eight days of this date and apply for leave to serve the engrossment of that draft.  I reserve to the Bank all and any rights of objection that it may have.  Further consideration of the respondents’ application for leave to file and serve a cross-claim against the accountant is therefore adjourned with liberty to any party to bring the matter back on for further consideration on seven days notice.  I will deal with the question of costs on the resumed hearing.

Associate:

Dated: