These recent decisions raise questions about how apportionable claims should be assessed, which may impact future disputes involving breaches of contractual warranties.

The 2021 Victorian Court of Appeal's decision in Tanah Merah Vic Pty Ltd v Owners Corp No 1 of PS613436 [2021] VSCA 72 (a.k.a. the Lacrosse case) set a significant legal precedent by clarifying what constitutes an apportionable claim. 

The Court of Appeal in Lacrosse concluded that determining whether a claim arises from a failure to take reasonable care requires an assessment of how the claim is framed. It further found that "a claim which does not itself arise from a failure to take reasonable care [is not] transformed into an apportionable claim by a defendant establishing that the circumstances upon which the plaintiff relies arose out of a failure to take reasonable care" (at [124]). 

However, the 2024 decisions of Gerrard Toltz and Team Building suggests a broader approach that is not necessarily limited to assessing how the claim is framed.

Gerrard Toltz Pty Ltd v City Garden Australia Pty Ltd (in liq) (No 2) [2024] NSWCA 232

A key issue considered on appeal in Gerrard Toltz, was whether the claim could be considered apportionable under Part 4 of the Civil Liability Act 2002 (NSW) (CLA) ─ specifically whether a failure to take reasonable care was an element of the cause of action. 

In 2017, City Garden Australia Pty Ltd (City Garden) entered into a loan agreement with Gemi Investments Pty Ltd (Gemi). The loan was later refinanced into a second and third loan, totalling $21,870,688.55 by December 2023. Gerrard Toltz Pty Ltd (Toltz) acted for both City Garden and Gemi, preparing loan documents for the initial loan agreement. City Garden sued Toltz for breach of fiduciary duty, claiming that Toltz had a conflict of interest by acting for both parties in the initial loan transaction. 

One issue raised before the Court of Appeal was whether the primary judge erred in concluding that the claim against Toltz was not apportionable under s 34 CLA, and in failing to reduce Toltz's liability accordingly. Stern JA did not reach a concluded view on this matter, leaving the issue unresolved. However, Basten AJA, while agreeing that the appeal should be upheld on other grounds, noted that the issue raised an independent question of principle. 

Both the comments of Stern JA and Basten AJA below, while significant, must be understood as obiter dicta, as they were not essential to the final determination of the case.

Stern JA opted not to reach a concluded view on this issue and expressed doubt about adopting a narrow interpretation of s 34(1)(a) CLA as seen in cases like Rahme v Benjamin & Khoury Pty Ltd [2019] NSWCA 211. Instead, her Honour favoured the broader approach of Barrett JA in Perpetual Trustee Co Ltd v CTC Group Pty Ltd (No 2) [20113] NSWCA 58 [42], that:

"it is a combination of the terms in which the claim is framed (or pleaded) and relevant findings of the court in relation to it that must be assessed in order to decide whether it is a claim ’in an action for damages… arising from a failure to take reasonable care" and has the other attributes of an "apportionable claim" under s 34(1)(a).

Stern JA suggested that this broader approach in Perpetual Trustee better aligns with the statutory language and intent of s 34(1)(a) CLA.

Similarly Basten AJA found that a claim, regardless of how it is framed in the pleadings, will be apportionable under s 34(1)(a) CLA if it is upheld on the basis of a failure to take reasonable care. His Honour's conclusion aligned with the reasoning in Reinhold v NSW Lotteries Corporation (No 2) [2008] NSWSC 187, where Barrett JA emphasised that both the pleadings and the court’s findings should be considered when assessing whether the claim arises from a failure to take reasonable care.

Basten AJA identified two approaches for determining whether a claim is apportionable:

1. Court Findings Approach: Apportionable claims are determined by reference to the court’s findings at trial (at [203]), assessing whether the claim arises from a failure to take reasonable care on the basis of the findings made by the court.
2. Cause of Action Approach: Apportionable claims depend on whether the cause of action upheld includes an essential element of failure to take reasonable care (at [203]).

His Honour rejected the "cause-of-action" approach and criticised the Victorian Court of Appeal's approach in Lacrosse which suggested that "the terms in which the claim is framed is an essential determinant of whether a claim can be said to arise from a failure to take reasonable care". Basten AJA found the phrase "essential determinant" to be ambiguous (at [234]) and alternatively put forward that the correct approach is to permit and give weight to both the pleading of the claim and the findings made by the trial court in determining the issue (at [235]).

Basten AJA dismissed the anomalous outcomes that may arise by treating the nature of a claim as an irrelevant factor in one's assessment, including that a party strictly liable in contract may plead its own negligence as a partial defence. His Honour concluded that s 34(1)(a) CLA should apply when a claim is upheld based on a failure to take reasonable care, regardless of how the cause of action is framed.

Basten AJA also rejected the notion that a plaintiff could withdraw a negligence claim after a favourable judgment to avoid apportionment, further clarifying that the statutory framework does not allow such manipulation.

Owners Corporation 1 PS721535N v Team Building (Vic) Pty Ltd & Ors [2024] VCC 1633

One prominent issue raised in Team Building was whether apportionable claims are to be determined solely by the plaintiff’s pleading or whether it is a factual question to be decided after the trial, based on the evidence presented.

The Owners Corporation (OC) sued Team Building for breaches of statutory warranties following the failure of a car stacker in an apartment building. Team Building previously joined Hercules, the manufacturer and installer, and Armsby, the architect, for the purpose of an apportionment defence. 

Team Building sought leave to file and serve a further amended defence based on the misleading and deceptive conduct of Hercules and to make a direct claim for contribution against Armsby. The OC opposed the application and the matter was to be determined on the papers. 

For the reasons below, Kirton J granted Team Building leave to file and serve the proposed amended defence.

Kirton J found that the issue of apportionment required further consideration, observing an apparent divergence between earlier decisions (e.g. Dartberg, Reinhold, Perpetual Trustee, Godfrey Spowers) and more recent rulings (e.g. Shangri-La Construction, Lacrosse).  Her Honour highlighted the apparent uncertainty in the case law, particularly regarding competing views  on whether apportionable claims should be defined solely by the pleadings or determined based on the factual findings at trial. At [72], her Honour stated:

"There is enough uncertainty in the authorities, and lack of binding ratio decidendi, that the question of whether only the pleadings may define if a claim is apportionable, or whether that is a question to be determined after hearing all the evidence, is open and arguable. It is a matter to be determined at trial. It is not appropriate to finally determine this question on an interlocutory application".

Kirton J reinforced her position by endorsing Croft J’s view in Main Road Property Group Pty Ltd v Pelligra & Sons Pty Ltd [2010] VSC 5, which cautioned against determining apportionability at an interlocutory stage, as it could unjustly prevent the defendant from raising a proportionate liability defence (at [73]).

Ultimately, her Honour ruled that the issue of whether a claim is apportionable should not be determined on an interlocutory application. As a result, Kirton J granted Team Building leave to file and serve a further amended defence, confirming that apportionability is an issue for final hearing, after the parties have had the opportunity to provide detailed submissions. 

The decisions of Gerrard Toltz and Team Building create uncertainty about an area of law that appeared settled after Lacrosse. 

These decisions may now encourage litigants to argue that a fact-specific approach is required in determining whether a claim is apportionable, which entails an analysis of the surrounding circumstances giving rise to the claim beyond the factual allegations set out the pleadings. Adopting such an approach may have significant implications for claims involving breaches of contractual warranties. 

In short, these decisions would appear to open up a range of defences to purely contractual claims that did not seem viable after the Lacrosse decision. In practical terms, this in turn will open up wider possibilities of joinder of parties and may make early resolution of claims more challenging. 

These uncertainties are unlikely to be resolved without guidance from appellate courts on these specific issues (noting that the recent decision of Pafburn Pty Limited v (ACN 003 485 505) & Anor v The Owners - Strata Plan No 84674 [2024] HCA 49 was more narrowly focussed on delegable duties).