Part IVAA Wrongs Act 1958 (Vic) and joining corporate non-parties in liquidation

Part IVAA of the Wrongs Act 1958 (Vic) (Part IVAA) is a powerful tool for defendants being sued in negligence (or for a failure to take reasonable care in general) or for misleading or deceptive conduct when there may be other parties responsible for the loss being sued for. In such matters, the defendant can reduce its liability based on the comparative responsibility of other parties, provided the other parties are parties to the proceedings (unless they are dead or 'wound up'). When a defendant wants to join, as another defendant, a corporate non-party in liquidation, the authorities are unclear as to whether or not leave of the Supreme of Federal Court is required. This is an important consideration for matters issued in inferior jurisdictions, which do not have the power to give leave.

Part IVAA was implemented in order to avoid 'deep pocket syndrome'. This is the act of a plaintiff suing the wealthiest party (by reason of that party being insured or asset rich) irrespective of that party's responsibility for the loss or damage. A plaintiff usually sues the wealthiest party because of 'joint and several liability': the wealthiest party is still required to pay 100% of the loss or damage despite having less than 100% responsibility for the loss or damage caused.

Part IVAA applies to claims for economic loss or damage to property in an action for damages (whether in tort, contract, statute or otherwise) arising from a failure to take reasonable care (e.g. negligence, breach of term to take reasonable care, etc) or misleading or deceptive conduct under the Australian Consumer Law. Part IVAA gives a Court the ability to apportion damages between defendants who are 'concurrent wrongdoers' who are parties to such a proceeding. A 'concurrent wrongdoer' is defined in s24AH as 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.

So, for instance, if an owner of a building sues a builder and a subcontractor for defective workmanship as a result of their negligence, the defendants would rely on Part IVAA in order to avoid the court finding both parties 100% liable by reason of 'joint and several liability'. By relying on Part IVAA the Court can apportion the compensation for loss and damage between the builder and the subcontractor. An example of an apportionment is 60/40 between the builder and subcontractor.

A lot of the time a 'concurrent wrongdoer' is not a party to the proceeding. s24AI requires the 'concurrent wrongdoer' to be a party to the dispute in order for the court to apportion the damages between all 'concurrent wrongdoer' defendants. The exception to this is if the non-party is dead or, if the non-party is a corporation, it is wound up. Often a plaintiff will elect not to sue a particular party because there is no point in doing so - for instance, the party is dead, bankrupt or insolvent and therefore has little or no money. If a 'concurrent wrongdoer' is not a party, the defendant may apply to the Court, under s24AL, for leave to join that concurrent wrongdoer as a defendant.

In the above example, if the owner sues the subcontractor only, and the subcontractor thinks that the builder caused the loss and damage and is at least partly responsible, then the subcontractor would normally seek leave to join the builder to the proceeding and claim apportionment under Part IVAA. Assuming the builder bears some responsibility to the owner, this joinder should avoid the court finding the subcontractor 100% liable for the owner's loss and damage. If the builder is a de-registered company (i.e. it has been 'wound up'), then the de-registered builder doesn't have to be a party to the proceeding for the defendant subcontractor to seek to reduce its loss to the plaintiff on the basis of Part IVAA.

However, if a defendant wants to join a corporate non-party as a 'concurrent wrongdoer' and that non-party is in liquidation (that is, in the process of 'winding up' as opposed to having been 'wound up'), then an issue arises about whether leave is required to join that corporate non-party under s471B of the Corporations Act 2001 (Cth). By way of summary, s471B provides that a proceeding may only be begun or proceeded with against a company in liquidation with the leave of the Supreme or Federal Court. This issue is particularly important for joinder applications in proceedings that are not in the Supreme or Federal Court, but are in inferior Courts which cannot give leave under s471B. The need for a party in an inferior Court to obtain leave from the Supreme or Federal Court adds a substantial layer of costs to a proceeding that is likely to be costly in any event.

In Woods v De Gabriele & Ors [2007] VSC 177 (15 June 2007) Hollingworth J noted at [63] that if a corporation is in the process of winding up, it is not 'wound up' for the purposes of Part IVAA. Because of this, Hollingworth J considered that if a defendant wants to join a corporate non-party in liquidation as a 'concurrent wrongdoer' and seek apportionment under Part IVAA, that non-party must therefore be joined to the proceeding.

Hollingworth J then considered whether the joinder of a corporate non-party in liquidation requires the leave of the Court under s471B. At [67] and [68] Hollingworth J identified the unusual characteristics of joinder, including that the defendant is making, and has, no claim against the non-party and, by reason of that fact, would not be permitted to lodge a proof of debt against that company in its winding up. At [68] Hollingworth J noted that the purpose of requiring leave under s471B is to expedite the winding up process by ensuring a creditor's claim is dealt with by lodging a proof of debt with the liquidator, unless there is good reason to depart from this process. At [68] Hollingworth J considered that because of this unusual scenario, an application for joinder by a defendant under Part IVAA does not involve beginning a proceeding against a corporation. However Hollingworth J granted leave under s471B, presumably as a precaution, at [69]. This decision suggests (but does not confirm) that leave of the Supreme or Federal Court is not required for joinder of a corporate non-party in liquidation.

If such a proceeding  is issued in an inferior Court to the Supreme or Federal Courts, then the Court considering the application does not have the luxury of granting leave under s471B as a precaution (as Hollingworth J appeared to do at [69] in Woods). The inferior Court will therefore be faced with the prospect of making a decision about whether or not s471B is circumvented by Part IVAA.

I'm happy to discuss this matter.