HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31

GUMMOW ACJ, HAYNE, CRENNAN AND KIEFEL JJ:

The principles of equitable contribution

36. In Albion, Kitto J said the basic concept of contribution was longstanding and was “accepted by both law and equity as one of natural justice”, expressed by ensuring equality between persons obliged in respect of a common obligation; although his Honour recognised that “the doctrine of equality operated more effectually in a court of equity”. He described the basic principle thus: “persons who are under co-ordinate liabilities to make good the one loss … must share the burden pro rata.”

37. The rationale for equitable contribution was explained by Eyre LCB in Dering v Earl of Winchelsea. Obligors (such as co-sureties) severally bound by different instruments in respect of the same liability, who may not even know of each other, have “a common interest, and a common burthen”. It is because the charging of one surety in respect of the common obligation discharges the other that “each therefore ought to contribute to the onus.”  The equity of contribution does not apply between obligors where one of them is, in fact, a surety for a surety rather than a co-surety. The nature or quality of the obligations is critical although the quantum of liability between co-obligors may vary.

38. Co-ordinate liabilities are not limited to circumstances involving co-sureties, or to double insurance where two insurers each have a secondary liability in respect of the same risk; in the latter case “the two policies of insurance are treated as one insurance”.

39. Given that natural justice, exemplified by equality, underpins the duty to contribute in respect of co-ordinate liabilities, the search for a common obligation “should not be defeated by too technical an approach”. It is possible to have a common obligation where the obligation of each of two obligors has a different source, such as statute and contract, as occurred in BP Petroleum Development Ltd v Esso Petroleum Co Ltd (“BP Petroleum“), provided the obligations can be characterised as “of the same nature and to the same extent”.

40. By way of contrast, the obligation of an indemnifier under a contract of services, and the obligation of an insurer which may cover the same event, have been held not to be obligations “of the same nature and to the same extent” because, as explained in Caledonia, liabilities incurred in tort, delict or contract are generally primary whereas the liability of an indemnity insurer to an injured party is generally secondary.

41. In the Inner House decision upheld by the House of Lords in Caledonia, Lord Sutherland explained the rationale:

“Contribution …. is a two way exercise. You cannot have contribution from one without contribution from the other.”

42. As the requirement of co-ordinate liabilities is essential for the operation of the doctrine of equitable contribution between obligors, the duty to contribute is not based on “some general principle of justice, that a man ought not to get an advantage unless he pays for it.”

43. In Burke v LFOT Pty Ltd, a purchaser of retail premises suffered loss arising out of misrepresentations made by the vendor which were actionable under the Trade Practices Act 1974 (Cth), and also loss arising from the negligence of one of the directors of the purchaser who acted as the solicitor in relation to the purchase. The vendor and one of its directors failed to obtain contribution from the solicitor because the liabilities were not, as in BP Petroleum, “of the same nature and to the same extent”. Accordingly, they were not co-ordinate liabilities in respect of a common obligation. The repayment to the purchaser by the vendor and its director of the difference between the price received and the true value of the premises did not command equity’s intervention.

44. The equitable doctrine that a duty to contribute applies where obligors are under a common burden or common obligation was restated by this Court in the plurality judgment in Friend v Brooker:

“With a claim to contribution, as is the position generally with the intervention of equity to apply its doctrines or to afford its remedies, the plaintiff must show the presence of ‘an equity’ founding the case for that intervention. The ‘natural justice’ in the provision of a remedy for contribution is the concern that the common exposure of the obligors (or ‘debtors’) to the obligee (or ‘creditor’) and the equality of burden should not be disturbed or be defeated by the accident or chance that the creditor has selected or may select one or some rather than all for recovery. …
The equity to seek contribution arises because the exercise of the rights of the obligee or creditor ought not to disadvantage some of those bearing a common burden; the equity does not arise merely because all the obligors derive a benefit from a payment by one or more of them. As explained in United States authority, contribution is an attempt by equity to distribute equally, among those having a common obligation, the burden of performing it, so that without that common obligation there can be no claim for contribution.” (footnotes omitted)

45. The plurality went on to prefer the wider term “co-ordinate liabilities” said to subsume the expression “common obligation”, and confirmed that “the doctrine is not enlivened merely because the claimant’s payment operates to the financial benefit or relief of the other party.”

46. In that case, the first respondent, a director of a company, had claimed equitable contribution from a co-director in respect of loans he had made to the company, on the basis that the directors were parties to a common design to achieve a common end. The appellant successfully resisted the claim on the basis that the doctrine of equitable contribution should not be extended to “a common design” which would have the effect of “outflank[ing] the consequences of the selection by the parties of the corporate structure” for their business, which “brought with it the attendant legal doctrines of corporate personality and limited personal liability.” The result confirms that equity will not intervene in the absence of a common legal burden or co-ordinate liabilities.

47. The authorities show that no court has departed from the requirement that the equity to contribute depends on obligors bearing a common burden, the basis for co-ordinate liabilities in respect of the one loss. A proposition upon which the appellant wishes to rely – namely, that equity looks to substance rather than form – has never been invoked successfully to achieve a departure from, or modification of, that requirement.

48. In terms of the abovementioned authorities, it was argued for the appellant that the facts of this case justified a “controlled departure” from Lord Sutherland’s conception that contribution “is a two way exercise”, since the plurality in Friend v Brooker concentrated upon equity addressing the “disadvantage” an obligee might cause to an obligor. However, as the passages quoted above show, the reference to “disadvantage” in Friend v Brooker is predicated on obligors bearing a common burden.

 

(End notes omitted)

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