Godfrey Spowers (Victoria) Pty Limited v Lincolne Scott Australia Pty Limited [2008] VSCA 208
Introduction
Separate Parts of the Wrongs Act 1958 (Vic) set out provisions allowing for defendants to claim contribution from each other (Part IV) and requiring liability to be apportioned in certain claims (Part IVAA).
The interplay between these two Parts in the context of a settlement has been dealt with in a recent Victorian Supreme Court (Court of Appeal) decision. The Court examined the following question: Where it is contended that a claim is apportionable under Part IVAA, and a defending party pays the claimant money to settle that claim prior to judgment, can the defending party pursue a claim for contribution against another defending party in respect of the apportionable claim, in order to recoup the settlement money?
The Court concluded that at least until a determination had been made that the principal claim was apportionable, the claim for contribution could continue.
Background
The proceeding arose out of alleged defects in a building. The plaintiffs were principals in relation to the building project. The first defendant was the building contractor. The second defendant was the architect, which was sued for breach of contract and in negligence. It joined the consulting engineer and the building surveyors as third parties.
The architect pleaded, in both its defence and its statement of claim against the third parties, that the plaintiffs' claims were apportionable under Part IVAA. It then settled with the plaintiffs by paying $3.9 million. As part of the settlement agreement, the plaintiffs agreed to release the third parties, if called upon to do so by the architect.
Following the settlement, the architect amended its third party claims (i) to plead the fact of the settlement, (ii) to delete all references to the claims being apportionable, and (iii) to limit the claims against the third parties to claims for contribution under Part IV.
The third parties applied for summary judgment in respect of the contribution claim on the basis that no cause of action was disclosed.
Third parties' submissions at first instance
The third parties submitted that because the architect had joined the third parties pursuant to and in reliance upon Part IVAA, the proportionate liability provisions contained in that Part applied, the amount for which the architect had settled with the plaintiffs must therefore relate only to the architect's potential proportionate liability, and it was therefore not open to it to make a claim for contribution.
Decision at first instance
Sitting at first instance, Mandie J upheld the third parties' summary judgment application. His Honour's reasoning was based on the assumptions that the plaintiffs' claims were apportionable claims, and that the settlement money must therefore reflect the architect's proportionate liability. If the architect's proportionate liability had been determined by the Court, his Honour reasoned, then the architect would not have been entitled to contribution. The fact that its proportionate liability was effectively determined by settlement should not make any difference and, his Honour concluded, its claim for contribution must therefore fail:
I do not think that a defendant who makes a bona fide settlement with the plaintiff can be in any better position than a defendant against whom judgment has been given. It seems to me to be a necessary corollary, where judgment is entered against a defendant, that other defendants and third parties cannot seek contribution against that defendant. ... [I]t would seem to necessarily follow that a defendant who settles with a plaintiff cannot be the subject of a claim for contribution by another defendant against whom the plaintiff proceeds to judgment...
Appeal
The architect's appeal against the decision of Mandie J was unanimously allowed by the Court of Appeal.
The Court of Appeal's findings may be summarised as follows:
- The mere fact that the architect had pleaded that the plaintiffs' claims were apportionable, and that its counsel had conceded during submissions at first instance that the claims were apportionable, was not enough to conclude that the claims were, in fact, apportionable claims. The Court looked at the facts of the case and concluded that the apportionment pleadings were merely part of its defence strategy in the face of the plaintiffs' claims, and had been pleaded in the alternative to a claim for contribution. Part IVAA says nothing about its provisions applying to settlements, and a claim cannot be regarded as an apportionable claim under that Part until the court decides it is apportionable (following the decision of the Supreme Court of New South Wales in Reinhold v NSW Lottery Corporation (No. 2) [2008] NSWSC 187, where Barrett J was considering the NSW equivalent to Part IVAA). That issue would need to be determined at trial
- Not only was there no reason in principle to conclude that the architect's settlement with the plaintiff was intended to reflect its proportion of liability, there was no reason in fact to draw that conclusion either. In that regard, the settlement agreement required the plaintiffs giving a release in favour of the third parties if called upon to do so by the architect. The settlement sum might therefore be regarded as paying not only for the architect's proportion of liability, but for the third parties' proportion of liability too
- Flowing on from these conclusions, it could not be said at this stage that the architect's payment of $3.9 million to settle the plaintiffs' claim necessarily represented the liability that would be apportioned to it
- It was therefore open to the architect to pursue its claim for contribution against the third parties under Part IV (although the Court was not concerned with determining whether the claim for contribution would succeed or how much contribution the architect might be entitled to)
- Passages in the decision suggest that a party who pays money to settle an apportionable claim brought against it can only claim contribution from other concurrent wrongdoers for such amount as it has paid in excess of its proportion of liability.
Although the lead decision was that of Ashley JA, the limited observations made by Nettle JA provide both a helpful summary of the main points, and some useful examples of when a party might be entitled to contribution in an apportionable claim. His Honour said:
There is nothing in s 24AI or elsewhere in Part IVAA which prohibits a concurrent wrongdoer from settling an apportionable claim for a settlement sum which is greater than the proportion of the claim that the court would have determined to be just if the claim had gone to judgment.
Consequently, if a concurrent wrongdoer settles an apportionable claim for more than that amount, there is nothing in s 24AI or elsewhere in Part IVAA which prohibits the concurrent wrongdoer from claiming contribution in relation to the settlement sum.
...whether a settlement sum exceeds...the wrongdoer's 'proportionate liability'...depends not only on the amount of the apportionable claim and the number and degrees of responsibility of concurrent wrongdoers, but also upon the terms and effect of the settlement.
Conclusion
A party who is defending an apportionable claim might pay the claimant to settle that claim and then pursue a claim for contribution against the other concurrent wrongdoers. Whether it will ultimately be entitled to contribution will turn on the terms and effect of the settlement and whether the settlement amount exceeds its determined proportion of liability. However the mere pleading of a proportionate liability defence will not prevent claims for contribution proceeding.
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