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What is ‘contribution and indemnity’ in commercial cases?
‘Contribution and indemnity’ are concepts used to identify which defendant (or third party) is liable for a plaintiff’s loss, usually in a tort or contract case.
Contribution refers to the dividing up of a plaintiff’s damages between two, or multiple parties found liable.
Between defendants: Multiple defendants may seek contribution from each other where the defendants are jointly sued. Often they are sued in tort, but it is not limited to tort.
Third parties: Generally, a defendant is jointly and severally liable for a plaintiff’s loss. A defendant may join a third party where the defendant is entitled to contribution or indemnity from the third party.
That third party may or may not be directly liable to the plaintiff, but for whatever reason, the plaintiff has not named them as a defendant in the proceeding.
Indemnity occurs when a defendant is entitled to recover from another defendant or third party the total amount of damages it had to pay the plaintiff. The contribution to be recovered may amount to a complete indemnity. ‘Partial indemnity’ does not exist: either another party is responsible for the damages amount, or it is not.
Indemnity is usually only available if a certain type of relationship exists between the parties. For example, relationships that allow one person to collect indemnity from another include:
When the two parties have an express agreement that one will indemnify the other;
When a contract makes one party responsible for indemnifying another such as an insurance contract or guarantee;
Where there is a statutory right of indemnity, for example suppliers are indemnified by manufacturers under s 274 of the ACL; and
Where tort law creates a right of indemnity.
A right to contribution or an indemnity may derive from contract or another relationship, or another set of circumstances completely unconnected to the Wrongs Act.
However part IV of the Wrongs Act deals squarely with contribution. Section 23B governs the entitlement to contribution, whether in tort, breach of contract, breach of trust or otherwise. The Wrongs Act refers to two key concepts: ‘liable party’ and ‘same damage’.
A ‘liable party’ may seek contribution from another if the other party is ‘liable in respect of the same damage in question’, whether jointly with the first-named person or otherwise (s 23B). A ‘liable party’ is not contingent on a finding of liability at trial for a right of contribution to arise, although such a finding may create a right to seek contribution. A ‘liable party’ may include one who would have been liable on the plaintiff’s facts.
A defendant can settle with a plaintiff ‘in good faith’ and still pursue the third party for contribution, provided the settlement was not ‘excessive’ (s 24(2B)).
Same damage refers to the same “loss” suffered by the plaintiff. It’s not confined to the damage arising from the plaintiff’s cause of action. If a defendant is, or could be, liable to a plaintiff, it may seek contribution from another defendant or a third party.
If both defendants are liable to the plaintiff for its “loss” either defendant may seek contribution from the other for the “same damage” arising from the plaintiff’s “loss”. The same applies where there is a defendant and third party.
History of Part IVAA and relationship to proportionate liability
Part IVAA when it was introduced in 2003, made a fundamental change to the previous law of contribution. Previously, a plaintiff/applicant could sue and recover the whole of its loss from a single defendant/respondent who was an effective cause of that loss. It was for the defendant to seek contribution from other wrongdoers and to bear the risk of insolvency of those wrongdoers.
A plaintiff could choose to sue only one or some of several wrongdoers who caused the same loss and obtain judgment for the whole of that loss against that one wrongdoer or wrongdoers. In turn, that wrongdoer/s could claim contribution pursuant to ss 23B and 24 of the Act against other wrongdoers who caused the same loss. But, if other wrongdoers proved to be impecunious, the right of contribution was of no value. ‘Deep-pocketed’ defendants were left to bear the whole or a substantial part of the loss. As noted by the High Court in Hunt & Hunt, the background to the provisions was ‘the perceived crisis regarding the cost of liability insurance’ and the fear that such insurance would become unobtainable.
Hence, there are now two schemes available under the Wrongs Act. Under Part IV, a defendant/respondent liable in respect of any damage suffered by another person may still seek contribution from any person liable in respect of the same damage (subsection 23B(1) of the Wrongs Act). Alternatively, a defendant/respondent may seek toapportion its liability with another ‘concurrent wrongdoer’ under Part IVAA.
Where Part IVAA applies, it enables each concurrent wrongdoer to limit the wrongdoer’s liability to the proportion of the loss which the court considers ‘just’ according to the comparative responsibilities of all wrongdoers for the plaintiff’s loss.
The proportionate liability scheme applies if the action is ‘for damages’ and the claim arises from ‘a failure to take reasonable care’. The Act does not define these terms. If the two questions can be answered in the affirmative, then a defendant can limit its liability to its proportionate share. If the answer is in the negative, then a defendant may still be able to seek contribution in accordance with Part IV.
Maton Eg 240 Supreme Brougham
Bringing a contribution claim: practical tips
Rule 11.15 of the Supreme Court rules provides the procedure for seeking contribution from another defendant. The defendant needs to file a Form 11B Notice ‘Person liable in respect of damage claiming contribution against another.’
The notice is not indorsed with a statement of claim where there are multiple defendants who are already party to the proceeding. The party to whom it is directed does not plead to it. The defendant merely serves a notice, without leave, claiming contribution or indemnity, and the issues raised by it are decided at trial.
Where the plaintiff settles or discontinues against a co-defendant, the contribution proceeding between the co-defendants stays on foot.
Where defendants agree a plaintiff’s claim should be finalised because they can’t resolve the contribution claim, the first defendant may settle with the plaintiff and seek a form of agreement that the settlement is “reasonable” (ie not ‘excessive’ per s 24(2B) of the Wrongs Act). This leaves the contribution claim and / or third-party liability remaining to be settled.
It is preferable to only settle a plaintiff’s claim while a proceeding is on foot – not before one is issued. A court will usually determine a contribution claim at the same time as the plaintiff’s claim, or immediately afterwards.
Against a third party
A defendant may join a third party where there is a claim for any relief or remedy that is related to, or connected with, the original subject matter of the proceeding, and is substantially the same relief claimed by the plaintiff: Tremain v Jones 1968 VR 658. Third parties are joined using the procedure under Order 11 (see my post on third party proceedings here).
Where the issue between the defendant and third party can be properly determined with the plaintiff’s action, joining a third party is usually desirable.
Where a contribution claim is made against a third party under rule 11.01, the notice must be indorsed with a statement of claim. Where a defendant’s claim against a third party relies on facts in addition to the plaintiff’s claim, the defendant should file a third-party notice setting out the particulars of the claim against the third party, and a statement of claim. It is standard for a defence to be filed so there are formal pleadings on foot between the defendant and third party.
A third party can’t be joined until the defendant has filed and served its defence (Rule 11.05(1)). A third-party notice should be filed within 30 days of the defence. However it can be filed out of time: see my post here.
It is permissible to claim an indemnity from a third party even though the defendant’s liability to the plaintiff is not established: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 595-596. A defendant in this situation should seek contribution before any liability to the plaintiff is found. Then any contribution claim against the third party can run concurrently with the plaintiff’s case, meaning this separate but related proceeding can be determined together, saving time and resources.
The third party only has rights directly against the defendant, it is not a defendant against the plaintiff.
A third party may join a fourth party under rule 11.16. Further parties can be joined successively, so long as the claim against the added party satisfies the requirements of a third party claim.
The Wrongs Act bars extensions of time for bringing third party proceedings: s 24(4).
A defendant can seek contribution from another party at any time:
Within the time the plaintiff could have brought the claim against the third party; or
Within 12 months after the plaintiff brought the claim against the defendant;
whichever is the later: Wrongs Act s 24(4).
In supplier / manufacturer claims, ss 273 of the ACL limits actions against manufacturers to 3 years. Under s 274(4) a supplier may seek an indemnity from the manufacturer within 3 years.
Application to commercial cases
Contribution and indemnity are frequently applicable in personal injury cases where more than one person may be liable for a plaintiff’s injuries. A good example of a personal injury context is Montgomery v Shire of Campaspe  VSCA 240at  to . However contribution proceedings are not limited to claims in tort.
The classic case is Port of Melbourne Authority v Anshun Pty Ltd(1981) 147 CLR 589. The parties served contribution notices on each other. The Authority was found liable for 90% of the plaintiff’s claim, Anshun 10%. Later, the Authority relied on a contractual indemnity to recover damages paid to the plaintiff. The High Court ruled that the Authority was obliged to raise its contractual indemnity claim at the same time as its contribution claim under the Wrongs Act. It was therefore estopped from bringing this second claim later dealing with the same subject matter: thus, an “Anshun estoppel”.
Maton Eg 240 Supreme Court Case
Manufacturers and suppliers
A defendant is liable to a plaintiff in contract for supplying defective goods. A third party (eg manufacturer) is usually not not privy to the supply contract. But the third party manufacturer may be liable to the plaintiff for breach of statutory duties under the Australian Consumer Law (s 272). The plaintiff may only sue the supplier. But both supplier and manufacturer can be liable to the plaintiff. The defendant may seek contribution from the manufacturer by issuing a third-party claim.
In such a third-party claim, the supplier would usually seek a complete indemnity from the manufacturer for any liability it may owe to the plaintiff (s 274 of the ACL). The supplier would seek contribution in the alternative. Claims for contractual indemnity and alternatively contribution should be brought together.
Maton Eg 240 Supreme Court
In Edingbay Pty Ltd v Horwath (Vic) Pty Ltd & Ors  VSC 397, Hansen J permitted a statement of claim to be amended [at 134] to allow for a “direct claim” by the defendant Horvath (accountants / advisers) against their lawyers (Arnold Bloch Leibler) for loss and damage it had suffered in respect of Horvath’s liability to the plaintiffs. Horvath already has a third party claim on foot pursuant to the Wrongs Act seeking contribution and indemnity from ABL. It was pleaded that ABL owed Horvath a duty to exercise reasonable care and skill in acting for and advising Horvath and its clients (the plaintiffs). While most of the decision concerns pleading amendments, there is a useful discussion of contribution and indemnity principles from  to .
Building and construction
In building and construction cases, different trades or contractors often seek to blame others for loss or damage suffered by a plaintiff, for example a building owner.
The contribution head is open where defendants are jointly sued in tort. Apportionment legislation allows the apportionment of liability between joint tortfeasors. ‘Proportionate liability’ between ‘concurrent wrong-doers’ from apportionable claims is usually pleaded from a failure to take reasonable care or claims for damages under s 18 of the ACL. A good discussion of these principles is in Owners Corporation No 1 v LU Simon Builders Pty Ltd (building and property)  VCAT 286at  to . Contribution and indemnity do not arise from failure to take reasonable care.
In an employment context, an employee may follow instructions from an employer. If found liable for an accident resulting in loss and damage during the course of employment, the employee could seek indemnity from the employer: s 24AAA of the Wrongs Act.
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From the initial selection and grading of rough sawn timber to the careful levelling and polishing of the frets, every step of the guitar making process is overseen by our luthiers in Melbourne Australia. It is their attention to detail that ensures that every guitar we produce deserves to bear the name Maton.
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Maton Eg240 Supreme
Maton specialises in creating superbly crafted guitars from Australian timbers such as Blackwood, bunya, Queensland Maple, Queensland Walnut and now Satin Box. Bill May pioneered the use of many Australian wood species in guitar construction and is regarded by many Australian luthiers as the founding father of their industry. The Maton team are constantly investigating new materials and techniques in the pursuit of creating the world's finest guitars.