Australia: General: Concurrent Wrongdoers: The Next Frontier
Insurance Update

Introduction

Recently the Victorian Court of Appeal was asked to consider the meaning of 'concurrent wrongdoer' in the context of transferred liability in Utility Services Corporation Limited v SPI Electricity Pty Ltd & Ors [2012] VSCA 158. It determined that prospective liabilities acquired by a third party could give rise to apportionable claims in the context of proportionate liability provisions of the Wrongs Act. The decision provides further clarity around the application of the provisions.

Background

The appeal arises as part of the Kilmore bushfires class action¹.

Utility Services Corporation Limited (USC) is a defendant to the plaintiff's claim for damages for personal injury, property damage and pure economic loss. The allegations made against USC relate to its alleged failure to exercise reasonable care in the performance of its technical inspection services of the electricity network maintained by SPI Electricity Pty Ltd (SPI) which is said to have resulted in a failure of a conductor causing the Kilmore East bushfire. The pleadings include defences of apportionment under Part IVAA of the Wrongs Act (Vic) 1958 (the Act).

USC sought leave to amend its defence and counterclaim to rely on the apportionment provisions as against SPI. SPI had acquired the electricity distribution network from the State Electricity Commission of Victoria (SEC) and the Electricity Services Victoria Limited (ESV) and by statute acquired prospective liabilities. Neither SEC nor ESV are parties to the proceedings, nor was it contemplated that they would be. Under the Electricity Industry Act 1993 (Vic), SEC was incorporated and then disaggregated, its assets and liabilities were sold to a number of companies including SPI.

Importantly, under the statutory framework the liabilities transferred to SPI in 1994 included liabilities that may mature from negligent acts and omissions of SEC and ESV employees. That transferred liability was not confined to liabilities existing at the time of the execution of the relevant instrument transferring liability to SPI, but extended to contingent and prospective liabilities and obligations.²

USC sought to maintain that to the extent the loss and damage caused to the plaintiff arose from alleged conduct of SEC and ESV which occurred prior to the privatisation of the Victoria electricity distribution network in 1994 that conduct ought to be brought into account and any resulting liability apportioned to SPI.

The key issue for determination was whether SPI could be a 'concurrent wrongdoer' by reason of the conduct of SEC and ESV.

Decision at first instance

The primary judge refused USC leave to make the proportionate liability amendments because he concluded that those amendments were futile. Forrest J considered that the natural meaning of section 24H required the acts or omissions leading to the damage to be caused by the alleged concurrent wrongdoer, i.e. direct causation.

The primary judge found support for this construction of the section by reference to other provisions of the Act, in particular by reference to the contribution provisions where recovery is permitted from any other person 'liable' for the damage. It was suggested that if the drafters of the legislation had intended for the causation to be anything other than direct, e.g. for transferred liability, then similar wording would have been used in the proportionate liability provisions as used in the contribution provisions.

Decision on Appeal

Dixon AJA delivered the primary judgment and considered that the proper construction of section 24AH(1) required focus on the phrase 'whose acts or omissions caused.'³ His Honour noted that the word 'directly' had not been used in drafting the section and that it was not necessary that it be read in.⁴

In considering the correct construction of the word 'caused', His Honour examined the concept of being liable. By reference to the whole of Part IVAA and its intended purpose, His Honour concluded that a concurrent wrongdoer is not someone other than a person liable in respect of the same damage.⁵

His Honour considered the earlier decision of St George Bank v Quinerts⁶. That decision examined the differences in the language of the contribution provisions which use the word "liable", and the proportionate liability provisions which use the word "caused" and sought to understand the legislative intent in using differing language.

Nettle JA then commented that:

... it appears to me that the drafter of s24AH chose 'cause' rather than 'liable' to accommodate the possibility that apportionment may be ordered in relation to a concurrent wrongdoer who is not presently liable but who was liable and, but for ceasing to exist, would still be liable.⁷

Dixon AJA agreed with the comments made by Nettle JA but noted that the reasoning did not address the precise circumstances in this instance as SEC and ESV had not ceased to exist but had rather ceased to be liable.⁸

His Honour found that the intention of the drafters of the section was to focus on the causal relationship between the conduct and the damage: The wrongdoer, as defined by s 24AH, must be liable to the plaintiff for the damage and responsible for the conduct it caused. While such a person is nearly always the actor, Part IVAA is not so limited in terms.⁹

His Honour then considered the concept of 'whose' and found that the concept would usually refer to the actor of the damage. However he considered that to imply the word 'directly' into the concept would restrict the natural meaning of the word 'whose' in a "manner that is inconsistent with the purposes and intention of the proportionate liability provisions."¹⁰

His Honour found that a concurrent wrongdoer with the meaning of section 24AH accommodates a defendant who is not presently liable provided it is shown that the conduct is as a matter of law conduct which belongs to that defendant.¹¹

His Honour concluded that USC's allegation that SPI is a concurrent wrongdoer by reason of the acts or omissions of SEC and ESV that caused the plaintiff's damage is not fanciful or futile and accordingly the allegations must be permitted to go to trial.

Conclusion

While the transfer mechanism in this instance was a statutory regime, the reasoning of the court is likely to be applied in circumstances of a private agreement. In particular, liabilities acquired by a deed of novation are capable of giving rise to apportionable liabilities. The decision has clear implications for purchasers of assets or businesses where liabilities may arise from past conduct but have not crystallised. Purchasers and their advisers should be mindful of the potential for liabilities and seek to ensure that they have adequate insurance protection in place to meet increased potential liabilities, they limit policy exclusions for liabilities assumed by agreement and they tighten any indemnity provisions in relevant agreements.

Footnotes

¹Matthews v SPI Electricity Pty Ltd & Ors

²See definition of 'liabilities' inthe Electricity Industry Act 1993 (Vic).

³UtilityServices Corporation Limited v SPI Electricity Pty Ltd & Ors [2012]VSCA 158 (USC v SPI) at [27].

⁴USCv SPI at [28].

⁵USCv SPI at [29].

⁶(2009) 25 VR 666 (Quinerts).

⁷Quinerts at 684.

⁸USCv SPI at [38].

⁹USCv SPI at [39].

¹⁰USCv SPI at [40].

¹¹USCv SPI at [42].

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