Look to third parties who could be sued to make claims worthwhile pursuing and recoverability more realistic
The concept of being “involved in a contravention” is one that exists in many areas of Australian law, and can assist in the search for a well-heeled, or insured, defendant. This article, part two of our three-part “Who can I sue?” series, considers third parties who could be sued for breaches of the Corporations Act, Australian Consumer Law and Fair Work Act.
Liquidators and other potential claimants should consider whether third parties might be captured by accessorial liability provisions which expand the number of people liable for contraventions, and can improve a claimant’s prospects of recovery. In many instances the primary wrongdoer may have been assisted by, for example, a professional services firm (who is likely be insured). This can sometimes make a claim which was otherwise not commercially viable to pursue, worthwhile.
What is accessorial liability?
Accessorial liability can occur in common law and equity, and it is features in many statutes. In this article, we consider accessorial liability under the Corporations Act 2001 (Cth) (Corporations Act), Fair Work Act 2009 (Cth) (Fair Work Act), and Australian Consumer Law (ACL).
Accessorial liability is premised on the idea that third parties should share responsibility for wrongdoing where they were sufficiently connected to the primary wrongdoing.
Specifically, it is the liability of one person (the accessory) for the harm caused by another (the principal wrongdoer) to the claimant. The accessory will usually be liable where their actions somehow aided or abetted the principal wrongdoer’s actions.
Involvement of the accessory
Under the Corporations Act (section 79), Fair Work Act (section 550) and ACL (section 2), a person (including a company) will be “involved” in a breach of the respective statutes where that person has:
- aided, abetted, counselled or procured the contravention; or
- induced, whether by threats or promises or otherwise, the contravention; or
- been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or
- has conspired with others to effect the contravention.
Importantly, it is not a requirement that the claimant prove the contravention would not have occurred “but for” the act of the accessory.
How can a person be “involved” in a contravention?
Whether a person’s conduct will render them liable as an accessory will primarily depend on the nature of the wrongdoing. The following are examples of liability under each statute.
Importantly for liquidators (as well as other claimants), directors may be held liable for company breaches of the Corporations Act under the accessorial liability provisions. For example:
- In ASIC v Adler  NSWSC 171, three directors of the collapsed insurance company HIH Insurance Limited (HIH) were found to be “involved” in the contraventions of sections 206A (disqualified person not to manage corporations) and 208 (need for member approval for financial benefit) by HIH’s wholly owned subsidiary.
- In Gore v ASIC  FCAFC 13, the principal wrongdoer, Craig Gore, was a consultant to his wife’s company. Mrs Gore was found liable as a director of the company due to her involvement in a scheme to issue securities without proper disclosure documents in contravention of the CA.
Fair Work Act
Professionals who advise companies as to how they might avoid their statutory duties, for example, avoiding paying employee entitlements, can be found liable as accessories for breaches of the FWA.
For example, in EZY Accounting 123 Pty Ltd v Fair Work Ombudsman  FCAFC 134, an accounting firm was found liable as facilitating their client’s underpayment of staff – a breach of section 45 of the FWA. The accounting firm was characterised as “knowingly concerned” with their client’s actions, and thus “involved in” the contravention as per section 550 of the FWA.
It is often individuals within the company who are held liable as accessories under the FWA. For example:
- In Fair Work Ombudsman v NSW Motel Management Services Pty Ltd & Ors (No 2)  FCCA 1935, a company was found liable for a number of contraventions, including underpayment of employees. Both directors were found liable to some extent as accessories for these contraventions.
- In Fair Work Ombudsman v NSH North Pty Ltd T/A New Shanghai Charlestown  FCA 1301, a restaurant’s human resources manager and store manager were both held liable under the FWA’s accessorial liability provisions for certain contraventions by the company. That they might have followed their boss’s directions in breach of the FWA did not preclude liability.
Australian Consumer Law
In several cases, courts have held accessorial liability under the ACL applied to directors of companies. For example:
- In Australian Competition and Consumer Commission v Joystick Co Pty Ltd  FCA 397 the sole director of a company was “knowingly concerned” in the company’s breach of the ACL. The court found that he had the relevant knowledge that his company’s representations as to the health risks of its e-cigarette products were misleading.
- In ACCC v Safety Compliance Pty Ltd (in liq)  FCA 211 two directors were found to have “aided and abetted” in the contraventions of their company because they handled complaints that related to their company’s misrepresentations and failed to take action.
Silence can sometimes constitute “involvement” for the purposes of the ACL. For example, where an accessory has knowledge that comments are misleading and deceptive in breach of the ACL, and stays silent, they may be liable as an accessory.
In Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233, an accountant who had withheld important information from purchasers, and knowing representations by the vendor were false, was found liable as an accessory under the Trade Practice Act 1974 (Cth), predecessor of the ACL.
Knowledge does matter
Accessorial liability will only operate where a person was an intentional participant and had sufficient knowledge of the essential elements of the contravention.
In Yorke v Lucas  HCA 65, the High Court of Australia held that for accessorial liability to be made out under statute, the alleged accessory must:
- have “knowledge of the essential facts” constituting the contravention;
- be knowingly concerned in the contravention; and
- be an intentional participant in the contravention based on actual and not constructive knowledge, other than in the case of wilful blindness where constructive knowledge may be sufficient.
In Yorke v Lucas, the High Court overturned the decision of the Federal Court, for proceedings brought under section 75B of the Trade Practices Act. There, the Federal Court had held an agent liable for the misleading and deceptive conduct of a company that made false representations as to the average weekly turnover. This was overturned because the agent was found not to have had any relevant knowledge that the representation was false.
Importantly, there can be “gradations” in the knowledge of an accessory. The High Court of Australia in Farah Constructions Pty Ltd v Say-Dee Pty Ltd  HCA 22 confirmed there are four categories of sufficient knowledge for accessorial liability:
- actual knowledge;
- wilfully shutting one’s eyes to the obvious;
- wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make; and
- knowledge of circumstances which would indicate the facts to an honest and reasonable person.
- Be mindful that third parties involved in a contravention may also be liable for the harm. This could enhance chances of recoverability
- Suing a third party could provide access to a lucrative insurance policy
- Persons both within and outside of the company can be “involved” in its contraventions
- An accessory cannot be liable for a statutory contravention unless a principal wrongdoer is as well. All the elements of the principal wrongdoer’s contravention and all of the elements of involvement of the accessory must be proved
- It is not necessary to prove that the contravention would not have occurred “but for” the actions of the accessory
- It is necessary to prove the third party had the relevant knowledge of the contravention to make them an accessory
Blackwattle Legal has significant experience in identifying claims and all potential defendants. Contact us to find out how we can assist.
Blackwattle Legal’s communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication.