HIH Claims Support Limited v Insurance Australia Limited [2010] VSCA 255

2 The appellant is the administrator of the HIH Claim Support Scheme. The Scheme was established by the Commonwealth government to alleviate the financial distress caused to individuals and small businesses by the collapse of the HIH group of insurance companies. The claim relates to an incident in March 1998, when a large and valuable video screen was damaged because the structure supporting it collapsed. Subsequently, the New South Wales Supreme Court found the scaffolder, Mr Ronald Steele, liable in respect of the damage to the screen and entered judgment against him in the sum of $1,461,045 plus costs.

3 Steele had a policy of insurance with a company in the HIH group (World Marine and General Insurances Pty Ltd) that, but for the collapse of HIH, would have responded to the claim made against him. At the same time, the Australian Grand Prix Corporation had a policy of insurance with State Government Insurance Corporation (SGIC) that, on its terms, responded to the claim against Steele.[1] Before the commencement of the proceeding below, the rights, liabilities and obligations of SGIC vested in the respondent.

4 Prior to its collapse, Steele made a claim on HIH.[2] After the collapse of HIH, the appellant paid the sum of $1,314,941 in part satisfaction of the judgment against Steele. Having paid that amount, the appellant sought contribution from the respondent in this proceeding. The claim was made on the basis that the appellant and the respondent were co-obligors who shared a coordinate liability to Steele.

5 The trial judge held that the liability of the appellant and the liability of the respondent were not coordinate liabilities, and therefore the appellant was not entitled to contribution. The question raised on this appeal, as formulated by the parties, is:

Did the learned primary judge err in law in finding that the indemnity obligations owed to Steele by each of [the appellant] and [the respondent] were not coordinate liabilities?

6 In order to answer that question, it is necessary to examine the relationship between Steele and the appellant.

The relationship between Steele and the appellant

7 The HIH Claims Support Scheme and Steele's participation in the scheme were described by the trial judge in the following terms:

1. The Commonwealth Government established the HIH Claims Support Scheme, to alleviate the financial distress caused to individuals and small businesses by the collapse of the HIH group. On 1 July 2001, the plaintiff in this proceeding, HIH Claims Support Limited ('HCSL'), was appointed as trustee and administrator of the support scheme. HCSL appointed functioning insurance companies to act as its agents in the investigation and payment of claims from a $640 million fund set up by the Government. QBE Management Services Pty Ltd ('QBE') was the relevant HCSL agent in respect of Steele.
2. On 10 July 2001, Steele applied for assistance from the support scheme, in respect of HIH's inability to honour his entitlement to indemnity and defence costs in the NSW proceeding.
3. In October 2001, Steele was informed that he was eligible for assistance under the support scheme, subject to confirmation of his entitlement to indemnity under the HIH policy, which confirmation was subsequently made.

8 Participation in the scheme was enabled by an HIH policyholder completing a document headed 'HIH Claims Support Scheme: Offer to Assign Your Policyholder Rights' ('the offer document'). Under the heading 'Conditions and Obligations', the following appears:

What is my current position?

If you have a valid claim under an insurance policy issued by a company in the HIH Group, you are currently an 'unsecured creditor' of the HIH Group.

As an unsecured creditor, you have a right to be paid out by HIH when it is liquidated. However, payments to unsecured creditors will only be made when all secured creditors and other preferred creditors have been paid out. The Liquidators have announced that the payout to unsecured creditors is likely to be less than 50 cents in the dollar and that the first payments will not be made until at least March 2003.

The Commonwealth Government has agreed that, in certain cases, and subject to the limitations of the HIH Claims Support Scheme, it will provide the benefit that would have been provided by HIH under an insurance policy.

What happens if I fill in this form?

By completing, signing and returning this form, you will be offering to assign to HCS Limited:

• your rights under your policy of insurance against the HIH Company which issued it; and
• any rights which you may have against other persons or organisations in connection with your claim under that policy.

You will also be undertaking to provide all reasonable assistance and co-operation to HCS Limited and other parties. This includes:

• filling out the HIH Company's claim form and lodging the claim under the original policy;
• co-operating with HCS Limited, the HIH Company and with any other insurance company which is managing the claim;
• fully complying with the terms of the policy;
• providing all reasonable assistance with legal action which HCS Limited may take against any other parties; and
• agreeing to continue to perform and observe all the obligations, conditions and provisions of your HIH policy, as though HCS Limited were the insurer which issued it.

You will also be undertaking to comply with the requirements of the Scheme as set out in the Notes for applicants.

If HCS Limited accepts your offer, this will mean that:

• HCS Limited will pay you at least 90% of the amount that would have been provided by the original HIH insurer under your insurance policy;
• you will no longer have a right to recover any funds from HIH when it is eventually liquidated;
• you will no longer have a right to pursue any rights which you may have against any other persons or organisations in connection with your claim under the policy.

You will not be assigning any rights that you have to recover any excess payable by you under the policy, nor any rights you may have against your broker in relation to its role in placement of that policy for you.

What happens if I don't fill in this form, or if my offer is declined?

If you do not fill in this form you will not receive any benefits under the Commonwealth Government's HIH Claims Support Scheme. Your offer will be declined if you are not eligible for assistance under the Scheme. If you do not complete this form or your offer is declined, you will maintain your position as to unsecured creditor of the HIH Group and may receive a distribution from HIH when it is liquidated.

How will I know if HCS Limited has accepted my offer?

The only method which HCS Limited may use to accept your offer is payment of a benefit under the Scheme. Where the benefit consists of a series of payments relating to one claim, the first payment of the series constitutes acceptance by HCS Limited of this offer.

9 Under the headings 'Terms of offer' and 'Acknowledgement', the offer document provided:

Terms of the offer

The terms of this offer are that you offer to assign to HCS Limited:

1. all rights to receive or to demand the receipt of any benefit arising from any claim which you have made or make under your HIH policy, where the claim is the subject of the payment of a benefit under the Scheme; and
2. any rights, however arising, which you may have or obtain against any person or organisation other than the HIH Insurer, in connection with the matters which have given rise to your need to make a claim under the policy.

You also agree not to revoke this offer for a period of 12 months from the date it is received by HCS Limited.

Acknowledgement

I acknowledge that I have read and fully understood all of the terms, conditions and obligations of this offer and have had the opportunity of discussing and clarifying any areas of uncertainty or concern, with HCS Limited or its representatives.

In return for the payment of a benefit under the Scheme, I, (full name) for and on behalf of myself and all other persons entitled to the benefit of the policy designated below, hereby accept and agree to the performance of all of the matters and obligations stated above.

I also agree to do promptly whatever else may be reasonably necessary, including execution and delivery of additional documents, in order to give effect to the agreement arising upon acceptance of this offer.

10 As is apparent from the passages we have just set out, completion of the offer document by an HIH policyholder is the first step in the creation of a contract between the policyholder and the appellant. A contract is formed upon the appellant making a payment under the scheme. Until a payment is made under the scheme, there is no contract in existence and the appellant has no liability in respect of any claim.

11 The appellant's case was, in essence, that the appellant effectively stood in the shoes of HIH and this was a case where two policies of insurance responded and the appellant, as payer of the claim, was, on orthodox principles, entitled to contribution from the second insurer, the respondent. It was submitted on behalf of the appellant that it mattered not that it was the appellant that paid the amount for which HIH was liable to Steele.

12 Underlying the appellant's submissions were the following propositions:

(a) First, the list of coordinate liabilities attracting contribution is no more closed than the categories of negligence.[3]

(b) Secondly, the doctrine of contribution requires that if several persons have a common obligation, they should, as between themselves, contribute proportionately in satisfaction of that obligation, or, put another way, contribution exists to prevent unjust enrichment of the indemnifier not called on.

(c) Thirdly, the operation of this principle should not be defeated by too technical an approach: equity looks to substance, not form.[4]

(d) Fourthly, as at March 1998 (the date of damage), both the HIH and SGIC (IAL[5]) policies responded.[6]

13 In summary, the appellant submitted that not to permit it to recover contribution from the respondent would be to take too technical an approach and to allow form to triumph over substance. The appellant's case was that this was a conventional claim by a party that had paid the insurance benefit owing under a contract of insurance and who sought to recover contribution from another insurer on risk in respect of the same loss.

14 The trial judge dismissed the appellant's claim on two bases. First, her Honour determined that the appellant and the respondent did not have a common obligation at the time of the insuring clause event (March 1998). Her Honour so held because: first, the appellant did not exist until 2001; and secondly, the contract between the appellant and Steele only came into existence when the appellant made the first payment under the support scheme (again, well after March 1998).

15 Secondly, her Honour concluded that even if she was wrong on the first point, the appellant's indemnity obligation was a primary one - whereas the respondent's indemnity obligation was secondary. That finding having been made, the liabilities of the appellant and the respondent could not be coordinate.

16 As was said in Craythorne v Swinburne:[7]

... [T]he doctrine of contribution ... stands upon this; that all sureties are equally liable to the creditor; and it does not rest with him to determine, upon whom the burden shall be thrown exclusively; that equality is equity; and if he will not make them contribute equally, this Court will finally by arrangement secure that object.

17 There was a dispute between the parties as to the issue of primary and secondary liabilities. The respondent contended that the application of conventional principles would see its liability characterised as secondary and the appellant's liability characterised as primary; and in every such case (where there was a secondary liability and a primary liability) there could be no contribution. Reference was made to authorities such as Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd[8] and Caledonia North Sea Limited v British Telecommunications PLC.[9]

18 On the other hand, in an attractive argument, Dr Pannam QC contended: first, that there was no basis for holding the appellant's liability to be primary; and secondly, even if the appellant's liability was primary, the authorities did not mandate a conclusion in every case that there could be no contribution between parties liable for a loss where the liabilities were of different degree. Each case, it was submitted, depended on a proper understanding of the underlying facts.

19 Whilst there was force in the appellant's submissions, it is not necessary for the purposes of this appeal to resolve this issue. In our view, there are two more fundamental reasons why the liabilities of the parties in this case are not coordinate - and thus, why the appellant is not entitled to contribution.

20 First, the liabilities are different because the respondent's liability was to indemnify Steele in respect of his liability for the loss that occurred as a result of the screen being damaged in March 1998. Whilst this was the same loss covered by the HIH policy, the liability of the appellant created by the acceptance of the offer document was subject to a condition enabling the appellant to prove in the winding up of HIH. According to the offer document, the payout to unsecured creditors was 'likely to be less than 50 cents in the dollar and that the first payment will not be made until at least March 2003'.[10]

21 Recognising this difficulty, Senior Counsel for the appellant submitted that an order for contribution should be made, subject to half of any dividend paid to the appellant on the winding up of HIH being paid to the respondent. However, in our view, this concession merely recognises that the liabilities of the appellant and the respondent were not coordinate.

22 Secondly, as was submitted by the appellant, underlying the doctrine of contribution are notions of fairness, equity, the prevention of unjust enrichment and natural justice. As has been said, the doctrine has an equal foundation in morals 'since no-one ought to profit by another man's loss where he himself has incurred a like responsibility.'[11]

23 Further, an underlying assumption of the doctrine of contribution is that the creditor has equal or substantially equal recourse to each party who is liable. That is not the case here. In the present case, if Steele had been paid under the SGIC/IAL policy, there would have been no occasion for him to make a claim on the scheme - and thus no contract would have come into existence between Steele and the appellant, and the appellant would never have had any liability to Steele. Even if Steele had completed the offer document, no contract could have come into existence because the appellant would never have made a payment - payment already having been made by the respondent. So if, instead of the appellant paying Steele's claim, the respondent had paid Steele's claim, there would have been no entitlement in the respondent to claim contribution from the appellant. For this reason also, the liabilities of the appellant and the respondent are not coordinate.

24 Finally, for a liability to be a coordinate liability, the liability must be 'of the same nature and the same extent'.[12] Another way of looking at the question is whether there is a 'common interest'[13] or 'common burden'[14] or 'common risk'.[15] For the reasons we have already given, that is not the case here.

[1] The SGIC policy covered not only the Australian Grand Prix Corporation, but also its contractors and sub-contractors - one of which was Steele.

[2] Or more particularly the HIH company that was his insurer, World Marine and General Insurances Pty Ltd (but whom we will refer to as HIH hereafter for the sake of convenience).

[3] Accident Compensation Commission v Baltica General Insurance [1993] VicRp 33; [1993] 1 VR 467, 482.

[4] Mahoney v McManus [1981] HCA 54; (1981) 180 CLR 370, 378.

[6] Insurance Australia Limited v HIH Casualty & General Insurance Limited [2007] VSCA 223; (2007) 18 VR 528, 560 [181] (per Ashley JA).

[7] [1807] EngR 343; (1807) 14 Ves Jun 160, 171; [1807] EngR 343; 33 ER 482, 486 (Lord Eldon).

[8] [2000] WASCA 408; (2000) 23 WAR 291.

[10] The offer document was originally completed on 10 July 2001.

[11] See Joseph Story, Commentaries on Equity Jurisprudence, (3rd ed) (England); Meagher, Gummow & Lehane's Equity Doctrines & Remedies (4th ed), [10-020].

[12] Caledonian Railway Co v Colt (1860) 3 Macq 833, 844 (Lord Chelmsford); BP Petroleum Development Limited v Esso Petroleum Co Limited [1987] SLT 345, 347 (Lord Ross) and Street v Retravision (NSW) Ltd [1995] FCA 1197; (1995) 56 FCR 588, 597 (Gummow J).

[13] Burke v LFOT Pty Limited [2002] HCA 17; (2002) 209 CLR 282, 293 [16] (Gaudron ACJ and Hayne J).

[15] James Hardie & Coy Pty Ltd v Wyong Shire Council [2000] NSWCA 107; (2000) 48 NSWLR 679, 687 [37].