Owen Smith, law graduate at Mills Oakley and casual sessional academic at UTS discusses recent development in apportionment of damages in claims under the Building Act 2004 (ACT).
Introduction
In a novel proceeding decided on 11 July 2022, the ACT Supreme Court in Coombes v Capital Certifiers Pty Ltd [2022] ACTSC 165 (Coombes) dismissed a contested joinder application brought by a defendant-certifier for leave under s 500(2) of the Corporations Act 2001 (Cth) (Corporations Act) to join a builder in liquidation as a second defendant to the proceeding. The application was required by virtue of the Court’s earlier decision in Dunn v Hanson Australasia Pty Ltd (2017) 12 ACTLR 138; [2017] ACTSC 169 (Dunn) in which Mossop J held that apportionment for a claim under s 141 of the Building Act 2004 (ACT) was only permissible between ‘defendants’—a third party notice is not sufficient.
The decision
Elkaim J dismissed the application on a number of grounds, but most relevantly, citing the plaintiffs’ contention that they could not be forced to pursue a claim against a defendant against their will. Evidence in the application revealed that if judgment were entered against the insolvent builder no dividend could be paid to satisfy it. Hence the plaintiffs’ omission of the builder (in liquidation) as defendant to the proceeding was intentional—it would have been fruitless.
In accepting the plaintiffs’ submission, Elkaim J cited (at [23]) a passage from Dunn in which Mossop J stated (at [37]):
‘… Thus, the operation of the section will be determined by a plaintiff who makes the decision as to who is joined as a defendant in the proceedings…’
Elkaim J also had regard to the definition of ‘defendant’ as provided in the Court Procedures Rules 2006 (ACT) (Court Rules) at r 20, noting it implied that relief would be sought against the relevant party:
- For a proceeding (other than an application in the proceeding or a proceeding on a counterclaim or third-party notice)—
(a) a reference in these rules to the plaintiff is a reference to the party claiming relief; and
(b) a reference in these rules to the defendant is a reference to the party against whom relief is sought or who otherwise responds to the originating process.
Ordinarily, where a claim against a defendant is apportionable with a non-party, a defendant may lodge a ‘third-party notice’ under Pt 2.5 of the Court Rules, which joins that non-party for the purpose of deciding an indemnity or contribution. However, in relation to a ‘building action’ under the Building Act 2004 (ACT) (Building Act) (s 140) that route is not available given the decisions of the ACT Supreme Court in two cases.
Mossop J in Dunn was required to consider whether apportionment was available under s 141 between active and inactive defendants. In Dunn, before commencement of the trial, the proceedings had been settled as between the claimant and the certifier (the then fourth defendant); leaving the last remaining parties against whom a building action was brought the builder and its sole director[i].
Mossop J, applying the ordinary words of the statute, determined that apportionment was only permitted between ‘defendants’, contrasting the position under the Civil Law (Wrongs) Act 2002 (ACT) (CLWA), and Trade Practices Act 1974 (Cth) (TPA) (now, the Competition and Consumer Act 2010 (Cth), see in particular Part VIA.
The CLWA, Mossop J noted, provides a broad definition of ‘defendant’ for the purposes of proportionate liability, ‘… includ[ing] anyone joined as a defendant or other party in the proceeding (other than as a claimant), whether joined under this chapter, under rules of court or otherwise’ (s 107A).
The TPA was similar, providing that the enabling apportionment provision ‘… applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings.’ (s 87CD(4)).
Premised on a finding that a building claim under the Building Act was not an ‘apportionable claim’ to which the CLWA applied, Mossop J therefore held that a claim under s 141 of the Building Act was apportionable only against ‘defendants’.
In a later decision, Hyblewski v Bellerive Homes Pty Ltd [2019] ACTSC 44 (Hyblewski), the parties were confronted with a nearly identical circumstance, and made no challenge to his Honour’s decision in Dunn, so confirmed the earlier authority’s approach (at [121]). In Hyblewski, the plaintiff brought proceedings against a builder (first defendant) and certifier (second defendant) under the Building Act. On the first day of the trial, the plaintiff settled with the first defendant, removing it from the active proceedings. The certifier being the only remaining ‘defendant’—and having been found liable under the Building Act—was unable to benefit from apportionment of the claim.
The certifier’s application in Coombes was further complicated by the builder having gone into voluntary liquidation prior to the proceedings commencing. Under the Corporations Act, proceedings cannot be ‘proceeded with or commenced against’ a company in liquidation without the Court’s leave (s 500(2)). On the basis that the plaintiffs did not wish to make a claim against the insolvent builder, Elkaim J considered it unnecessary to consider whether leave should be given (at [28]). Having considered Mossop J’s judgment in Dunn (at [23]), his Honour was satisfied that it ought be followed and the certifier’s joinder application dismissed.
Final Thoughts
Coombes has put to rest a novel approach to circumvent the Court’s decision in Dunn and Hyblewski—whether the alleged concurrent wrong-doer is insolvent or not. While the Court spent little time on the issues arising from s 500 of the Corporations Act, Coombes stands for a broader proposition that an application to drag a third-party into proceedings in which the plaintiff makes no claim against that party may be a dead duck. Whether or not the Court Rules (or the inherent power of the Court to regulate its own processes—an issue not consider in Coombes) permits such an application to be made, the practical realities weigh heavily against such an order being made. As Elkaim J put it succinctly in Coombes (at [26]):
‘It seems quite clear therefore that as long as the plaintiff has no wish to take action against [the third-party], or seek any form of relief against it, [the third-party] could not qualify as a defendant.’
The decision in Coombes, following Dunn and Hyblewksi, appears to support and vindicate the consumer-protection sentiment with respect to building disputes in the ACT. Whatever future amendments governments may bring, the dominant view in the ACT with respect to s 141 pervades: apportionment can only be between ‘defendants’.
*The author is grateful for the helpful contributions of Bernice Ellis, Rohan Reddy, and Nick Ahern; all errors are my own.
Owen Smith is a law graduate in Mills Oakley’s commercial litigation team, and currently teaches Contract Law at the University of Technology Sydney. Previously a judicial associate at the District Court of New South Wales, Owen works now under Mills Oakley partner, Bernice Ellis in Canberra practicing primarily in insolvency, construction disputes, and debt collection matters. Contact Owen at osmith@millsoakley.com.au or 02 6196 5200.
[i] For completeness, the plaintiff had also made a claim against the previous owner of the relevant property (the third defendant) for breach of contract, however, this had no effect on the apportionment of the building action’: Dunn, [41].
