Apportionment and the Wrongs Act: County Court affirms that courts are to decide whether a claim is apportionable, not parties by agreement

What Happened?

The Owner entered into a building contract (Building Contract) with the Builder for the expansion of his pub (Works). The Architect was nominated as the superintendent and its drawings were included as part of the Building Contract.

Shortly after the completion of the Works, water began leaking into the property.

The Owner subsequently sought to recover damages from the Architect and the Builder.

In 2021, the Owner and the Architect agreed to settle the dispute, however, the Builder refused to sign the settlement deed which would release the Architect from the proceedings because it wanted the Architect to ‘remain in the proceeding for the purposes of apportionment’.

Nonetheless, in early 2022, the Architect and Owner entered into a deed of release (Deed). Significantly, clause 3 of the Deed provided that:

1. the Owner’s claim against the Architect was an apportionable claim;
2. the Architect and the Builder were concurrent wrongdoers, with respect to the apportionable claim; and
3. consequently, the Architect could not be required to contribute to any damages ordered to be paid by the Builder to the Owner, in accordance with section 24AJ of the Wrongs Act.

In July 2022, the Builder filed the Notice against the Architect as part of the ongoing proceedings involving the Builder, Architect and Owner,¹ thereby informing the parties that the Builder intended to seek financial contribution from the Architect under Part IV of the Wrongs Act if the Builder was ordered to pay damages to the Owner.

In August 2022, the Architect sought orders from the County Court that the Notice be dismissed on the basis that it had no real prospect of success.

Section 24AJ of the Wrongs Act

Section 24AJ of the Wrongs Act formed the basis of the Architect’s defence.

This section provides that a ‘defendant against whom judgment is given under Part IVAA of the Act as a concurrent wrongdoer in relation to an apportionable claim’ ‘cannot be required to contribute to the damages recovered or recoverable from another concurrent wrongdoer in the same proceeding for the apportionable claim’.

An ‘apportionable claim’ is a claim either for economic loss or damage to property in an action for damages arising from a failure to take reasonable care, or a claim for damages for misleading and deceptive conduct under section 18 of the Australian Consumer Law.²

By way of example, if the Owner’s claim was apportionable and the Owner had claimed against the Architect and the Builder as concurrent wrongdoers, the Court would determine each parties’ liability under Part IVAA of the Wrongs Act. Accordingly, the Builder would only be liable to the extent of its responsibility for the Owner’s loss and the Owner would have to recover the balance of the loss from the Architect.

Conversely, if the claim was not apportionable, Part IVAA would not apply to the Owner’s claim and the Builder would be required under Part IV of the Wrongs Act to pay the amount the court finds to be ‘just and equitable’ having regard to the extent of its responsibility for the damage.³ The Builder would, in turn, be exposed to the difficulties of recovering contribution from the Architect.

The Architect’s Defence

The Architect submitted that, in accordance with clause 3 of the Deed:

1. the Owner’s claim was an apportionable claim on the grounds that it was a claim for economic loss arising from negligence; and
2. the Architect was a defendant against whom judgment was to be given under Part IVAA of the Wrongs Act as a concurrent wrongdoer in relation to the apportionable claim.

On this basis, the Architect reasoned that, in accordance with section 24AJ of the Wrongs Act, it could not be required to contribute (whether under Part IV of the Wrongs Act or otherwise) to any damages that the Builder was later ordered to pay the Owner, and the Notice should be summarily dismissed.

Issues

The section 24AJ defence adopted by the Architect led the Court to consider and determine two issues:

1. Did clause 3 of the Deed satisfy the section 24AJ requirement that there be a ‘judgment’ in relation to an apportionable claim? (Judgment Issue)
2. Were all the Owner’s claims against the Builder apportionable and therefore subject to section 24AJ? (Apportionable Issue)

Analysis

The Judgment Issue

The presiding judge, Burchell J, ruled that clause 3 of the Deed did not satisfy the section 24AJ requirement that there must be a ‘judgment’ in relation to an apportionable claim.

After considering existing case law detailing the importance of courts determining whether a claim is apportionable,⁴ her Honour held that a judgment’ in section 24AJ is a reference to an ‘adjudication by [a] court, not a consent judgment’ such as that contemplated under clause 3 of the Deed. The Court went on to note that until the ‘issue is determined at trial, Part IVAA does not apply and a claim for contribution under Part IV remains viable.’

The Apportionable Issue

In deciding this issue, the Court, as a preliminary matter, held that section 24AJ only applies to apportionable claims. Such an interpretation was deemed to be consistent with the intention of the section to prevent a concurrent wrongdoer from recovering contribution from another concurrent wrongdoer where the first party has ‘already benefited from a reduction based on its proportion of responsibility’ under section 24AI(1).’

This led her Honour to consider whether the claims made by the Owner against the Builder were not apportionable, and therefore not subject to section 24AJ. The Court ruled that some of the claims made by the Owner against the Builder were apportionable, while others were not. This division is permitted under section 24AI(2) of the Wrongs Act and endorsed by the Victorian Supreme Court of Appeal in Tanah Merah v Owners Corporation.⁵

Conclusion

Based on the above, the Court decided that it was open for the Builder to seek to recover contribution against the Architect in respect of those non-apportionable claims that did not fall within section 24AJ of the Wrongs Act. The Court interpreted the Notice to be an attempt to recover such non-apportionable claims and so ruled that it would not be dismissed. The Builder was therefore able to seek contribution from the Architect for the non-apportionable claims made by the Owner.

Key Takeaways

The County Court has strongly affirmed existing judicial opinion that parties cannot by agreement decide if a claim is apportionable under Part IVAA of the Wrongs Act, and thereby exclude the operation of Part IV of the Wrongs Act. This instead is a matter that can only be determined by the courts.

This article was written by Paul Graham, Partner, Kevin Lock, Special Counsel and Timothy White, Solicitor.

¹The Notice was issued under r 11.15(5) of the County Court Civil Procedure Rules 2018 (Vic).
²Wrongs Act 1958 (Vic) (‘Wrongs Act’) section 24AF(1).
³Ibid section 24(2).
⁴The Court considered: Godfrey Spowers (Victoria) Pty Ltd v Lincolne Scott Australia Pty Ltd & Ors (2008) 21 VR 84;
Reinhold v New South Wales Lotteries Corporation (No 2) (2008) 82 NSWLR 762; Extension Builders Australia Pty Ltd v Bowman [2020] VCAT 1311; and Gandel v Krongold Constructions Pty Ltd [2014] VCC 650.
⁵Tanah Merah Vic Pty Ltd (ACN 098 935 490) v Owners Corporation No 1 of PS613436T [2021] VSCA 72 at [105] and [135].