In Godfrey Spowers (Victoria) Pty Ltd v Lincolne Scott Australia Pty Ltd [2008] VSCA 208 (22 October 2008), the Victorian Court of Appeal allowed an appeal by Godfrey Spowers (Victoria) Pty Ltd (Spowers) against orders which struck out its third party claim for contribution to a settled claim. Spowers, an architectural company, was sued for failing to take reasonable care in undertaking construction work in breach of contract and in tort. The Court of Appeal unanimously decided that Spowers could pursue third parties for contribution to the money it paid in settlement.

The decision is important because it clarifies the interaction between Part IV (Contribution) and Part IVAA (Proportionate Liability) of the Wrongs Act 1958 (Vic) (Act). The decision means that, provided certain steps are taken, a defendant to a claim to which the Proportionate Liability regime may apply is able to settle the entire claim without giving up its right to seek contribution to the settlement sum from third parties. This means that while judgment against a concurrent wrongdoer under Part IVAA puts to an end that party’s exposure to a claim for contribution by (and its ability to claim contribution from) other concurrent wrongdoers, settlement does not.

Facts

Spowers was engaged by Surrowee Pty Ltd and Green Projects Pty Ltd (the Principal) in relation to the construction of premises in Carlton. The Principal alleged that it suffered loss and damage as a result of the construction works and it sued Spowers for failure to take reasonable care in breach of contract and tort (negligence). The Principal claimed losses of approximately $10 million.

In its defence Spowers denied all the claims, or in the alternative, stated that if it was liable for any of the claims then those claims were apportionable claims within the meaning of Part IVAA of the Act. Spowers then commenced third party proceedings against those it alleged were “concurrent wrongdoers” (the Respondents) who Spowers had previously engaged on behalf of the Principal in relation to the construction works.

Spowers and the Principal then agreed that Spowers would pay $3.9 million to settle the $10 million claim. Importantly, in settling, Spowers also secured the right to call on the Principal to release the Respondents from further action by the Principal and made it plain in the settlement agreement that the settlement was for the entire claim (not just Spowers’ proportionate liability).

Background to Parts IV and IVAA of the Wrongs Act

In order to better understand this decision a brief explanation of the purpose of Parts IV and IVAA of the Act is required.

In relation to the purpose of Part IV of the Act, which deals with contribution, the High Court stated in Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109:

“… the statutory creation of rights of contribution between the wrongdoers seeks to address the injustice that may result in some cases if the victim, by his or her selection of defendants, could throw the burden of liability on to one or some of the wrongdoers, to the exclusion of the others.”

Part IVAA, the Proportionate liability regime, was only recently inserted, in 2003. The proportionate liability regime is complex. Its goal is to prevent:

“…a plaintiff being able to recover 100% of his damages from any one of several wrongdoers when that wrongdoer’s “fault”, when compared with the other wrongdoers, was less or far less than that. In other words, the amendment [which put in place the proportionate liability regime] was directed to what were considered to be the undesirable consequences of the joint and several liability rule.” (Shrimp v Landmark Operations Ltd (2007) 163 FCR 510)

Operation of the proportionate and concurrent liability regimes

The proportionate liability regime applies to an “apportionable claim”, as defined in s 24AE. That is a claim for economic loss or damage in an action for damages (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care or for contravention of s 9 of the Fair Trading Act 1999.

A “concurrent wrongdoer” is defined in s 24AH as:

“A concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is the subject of the claim.”

The key to the operation of the proportionate liability regime is section 24AI which provides, among other things, that a concurrent wrongdoer defendant is liable only for an amount considered by the court to be just having regard to the extent of that person’s responsibility for the loss and damage, and in apportioning responsibility between defendants the court cannot have regard to the responsibility of others not a party to the proceeding, unless they are dead or wound up.

Ashley JA, in delivering the leading judgment in the Court of Appeal, stated in relation to s 24AI that:

“The consequence of s 24AI(3) is that, if a defendant wishes to have the distinct advantage of the proportionate liability regime, and if the plaintiff has not named as defendants all of those persons which it considers might be held to be concurrent wrongdoers, then it is the defendant which must bring them into the proceeding…”[55]

“The further consequence of s 24AI(3) is this: if a defendant brings in putative concurrent wrongdoers, and if the plaintiff does not make them defendants to its proceeding, and if they are found to be concurrent wrongdoers, then the plaintiff will only recover - by operation of s 24AI(1) - such proportion of its damages as are attributable to the proportionate liability of the defendant (or defendants) to its proceeding.” [56]

This means that plaintiffs must ensure that any concurrent wrongdoer brought in to the proceedings (by a defendant) by way of third party claim is also added as a defendant to the main claim, otherwise the plaintiff will not get the benefit of that party’s proportionate liability.

The Court also noted that ss 24AL(2) and 24AJ operate to ensure that a party against whom judgment is given under Part IVAA is freed from further attack whether by the plaintiff or by a concurrent wrongdoer, including in relation to proceedings by way of contribution under Part IV. That is to say, where Part IVAA (Proportionate Liability) applies and judgment is entered against a defendant, there is no room for Part IV (Contribution) to operate.

The appeal

The key question for the Court of Appeal was stated by Nettle JA:

“The principal question in this appeal is whether s 24AI prohibits a concurrent wrongdoer who settles an apportionable claim, and thus against whom no judgment is given under Part IVAA, from claiming contribution under Part IV in relation to the settlement sum.” [5] [Emphasis added]

The Respondents argued that Spowers was a “concurrent wrongdoer” and its claim was an “apportionable claim”. Therefore, according to the Respondents, the settlement sum paid by Spowers could only relate to its proportionate liability and hence Spowers was not entitled to any contribution. The Respondents’ position was primarily based on Spowers’ pleading.

However, the Court of Appeal rejected these submissions and found that Spowers was not a concurrent wrongdoer and that Part IVAA did not apply. In relation to this Ashley JA stated:

“The key to the operation of the Part [IVAA] is the finding of relevant facts and the entry of judgment. The determination that a defendant is a concurrent wrongdoer in an apportionable claim triggers the limitation upon the amount of the judgment which can be entered against that defendant, and in turn protects the defendant against claims for contribution or indemnity by other concurrent wrongdoers.” [98]

Put another way, the Court of Appeal found that Part IVAA operates to the exclusion of Part IV only after judgment. In settling a claim to which Part IVAA may have applied, the door to contribution remains open (provided the settlement is in relation to the entire claim).

Conclusion and comment

The decision means that a putative concurrent wrongdoer is able to settle a claim brought against them without compromising their rights against other defendants who also may be potentially liable to the plaintiff for the same loss. However, importantly, any concurrent wrongdoer intent on settling a claim will need to ensure that it obtains releases from the plaintiff for the other concurrent wrongdoers in order to preserve its right to seek contribution and will need to make it plain in its settlement agreement with the plaintiff that the money paid in settlement is to settle the whole of the plaintiff’s claim and not only a proportionate amount.