Stratti v Stratti

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40776/99 DC 9260/97 MEAGHER JA BEAZLEY JA FITZGERALD JA

1 MEAGHER JA: I agree with Fitzgerald JA. 2 BEAZLEY JA: I agree with Fitzgerald JA. 3 FITZGERALD JA: The appellant and the respondent, who are husband and wife, are and were at all material times partners in a business known as SE and NL Stratti. 4 One of the partnership assets was a drilling rig. The drilling rig was a registered motor vehicle for the purposes of the Motor Traffic Act 1999 and the Motor Accidents Act 1988. The appellant was the person in whose name the drilling rig was registered, and hence the "owner" within the meaning of the Motor Accidents Act. 5 As a result of an accident involving the drilling rig on 5 November 1994, Mr John Revelos was injured. The appellant was operating the drilling rig at the time and Mr Revelos' injuries were caused or contributed to by the appellant's negligence. Mr Revelos sued the appellant and the respondent and others in the District Court for damages for negligence. The action was compromised on 15 September 1999. Pursuant to the compromise, the action against the respondent [1] was discontinued, and judgment was given for Mr Revelos against the appellant in the sum of $545,108.77, inclusive of costs. 6 The appellant cross-claimed against the respondent. Broadly stated, the cross-claim sought contribution from the respondent in respect of the appellant's liability to Mr Revelos. The trial judge dismissed the cross-claim. The appellant has appealed. 7 The trial judge's reasons for judgment refer to the parties' insurance, and this Court was informed that Mr Revelos' judgment against the appellant has been satisfied by two insurers. As the "owner" of the drilling rig within the meaning of the Motor Accidents Act, the appellant was insured by a third-party policy in accordance with that Act. The partnership also had public liability insurance [2]. One half of the amount of Mr Revelos' judgment against the appellant was paid by the third-party insurer and the other half was paid by the public liability insurer. Since this appeal is by way of rehearing, [3] the Court is entitled to receive that information concerning matters occurring after the trial [4] and to substitute its decision for the decision of the trial judge based on the facts and the law as they now stand [5]. 8 The payments to Mr Revelos which were made by the insurers were treated by the parties as payments by the appellant for which he has been indemnified by the insurers. The respondent did not dispute that the appellant's notional payments to Mr Revelos were made by him "in the ordinary and proper conduct of the business of the firm".[6] 9 Although the amount of the contribution which the appellant claims from the respondent was not clearly specified, it seems that it is one quarter of the amount of Mr Revelos' judgment. The appellant has paid Mr Revelos and has been fully indemnified, half by the third-party insurer and half by the public liability insurer. The appellant does not seek contribution from the respondent in respect of the half of Mr Revelos' judgment which was paid by the public liability insurer. The contribution sought from the respondent (as an equal partner) is half of the other half of Mr Revelos' judgment, which was paid by the third-party insurer. 10 A number of modern cases recognise the right of a partner who has paid a debt for which the partnership is primarily responsible to contribution from the other partner or partners [7]. The respondent submitted that, since their partnership is a going concern, if the appellant has a right to contribution from her it is only enforceable in an action for a general partnership account [8]. It will be necessary to consider that question only if the appellant is entitled to contribution from the respondent, which she disputes. 11 One possible source of the right of a partner who has paid a debt for which the partnership is primarily responsible to contribution from the other partner or partners has been identified as s 24(2) of the Partnership Act[9]. In both the District Court and this Court, the appellant expressly limited the basis of his claim to that subsection, perhaps in an attempt to circumvent the procedural objection raised by the respondent or because it was considered that a partner's entitlement to contribution from another partner is always dependant on an entitlement to indemnity from the partnership. In any event, the appellant's reliance only on s 24(2) of the Partnership Act was noted by the trial judge and is clear from the appellant's written submissions, which state that his claim against the respondent is for contribution "pursuant to the provisions of Section 24(2) of the Partnership Act, 1892 (NSW)." The same position was adopted in oral argument. Section 24(2) of the Partnership Act does not expressly relate to contribution between partners. It provides for a partner to be indemnified by the partnership in certain circumstances. The appellant did not argue that he is entitled to contribution from the respondent "pursuant to … Section 24(2) .." if he is not entitled to indemnity from the partnership under that section. 12 Presumably in response to the limited basis on which the appellant placed his claim, the respondent confined her argument to her procedural objection and a submission that the appellant has no entitlement to an indemnity from the partnership. She did not rely on the terms of their partnership agreement (which was not in evidence) or argue, for example, that:

(a) the payment by the public liability insurer was sufficient to satisfy any obligation of the partnership or the respondent to the appellant;

(b) the partnership (or the respondent) is entitled to indemnity from the appellant because his negligence was the cause of his and the partnership's liability to Mr Revelos; [10]

(c) the third-party policy insured the appellant (the statutory "owner") as agent for the partnership (the real owner of the drilling rig) as undisclosed principal [11] or as trustee for the partnership [12] or that the partnership was entitled to enforce the third-party policy against the third-party insurer on any other basis; [13]

(d) even if he had not been paid, the appellant would not be entitled to enforce a claim for indemnity against the partnership, or his partner, the respondent, in respect of a liability for which he was insured;

(e) the appellant is obliged to account to the partnership for the proceeds of the insurance which he received from the third-party insurer; [14] or

(f) any provision of the Insurance Contracts Act 1984 (Cwth) is material [15] . 13 Apart from the respondent's procedural objection, the parties' dispute was confined in this Court to a single issue. The appellant had two rights of indemnity in respect of his liability to Mr Revelos, one from the third-party insurer under the third-party policy and one from his partnership with the respondent under s 24(2) of the Partnership Act[16]. He has been fully indemnified, in part by the third-party insurer [17]. His claim against the respondent is wholly founded on the premise that he has an enforceable right of indemnity against the partnership notwithstanding that he had been fully indemnified. Apart from her procedural objection, the respondent's sole answer was that the appellant no longer has a right to indemnity from the partnership because he has been fully indemnified and a person entitled to more than one indemnity cannot enforce a second indemnity after he or she has been indemnified. 14 The respondent relied on The Sydney Turf Club v Crowley, [18] a case involving double insurance [19]. Barwick CJ, with whom Walsh and Stephen JJ agreed, referred to "the well established principle that in a case where there are two promises of indemnity in respect of the same liability the promisee can only recover once and not twice". [20] McTiernan J said: [21] "The claim appears to have been based on the misconception that the doctrine of subrogation operated in this case, That doctrine operates when the insurer is subrogated to the right of the insured against a third party. The insured, the Sydney Turf Club, has here no right against the third party, the Australian Jockey Club. There is therefore no question of the doctrine being invoked." 15 In this Court, Jacobs JA, with whom Manning JA agreed, said: [22] "The Government Insurance Office, having paid the amount of the damages … seeks by subrogation to enforce the alleged claim of the Sydney Turf Club under its policy with the Australian Jockey Club. ….. it is claimed that, even if the Sydney Turf Club had a right to be indemnified by the Government Insurance Office under the public liability policy, nevertheless it is entitled to be subrogated to the rights of the insured under the employer's liability policy with the Australian Jockey Club and that the Sydney Turf Club is entitled, however it may have received the indemnity from the Government Insurance Office, to proceed against the Australian Jockey Club. It is necessary to pause now and to consider some of the principles relating to indemnity insurance. A public liability policy and employer's liability policy are essentially insurances of indemnity. That being so any insured can recover no more than the amount required to indemnify him. If he has recovered the whole of the loss from one insurer then it is a defence at law to another insurer so to allege. Bullen & Leake , 3rd ed., at p. 615; Morgan v Price (16); Bruce v Jones (17). The principle is clearly stated in MacGillivray , 5th ed., par. 1839 and in Ivamy on General Principles of Insurance Law , 2nd ed., at p. 437. See also Halsbury , 3rd ed., vol. 22, par. 527, at p. 266. Contribution in equity between insurers is a separate problem which is of no concern to us in the present case. The legal defence that the insured has already been indemnified is only available when the insured seeks to be indemnified in the strict sense twice over. The insured may sue at law any person who is liable to make good to him the damage which he has suffered and in respect of which he is insured whether that liability arises from tort or from contract. If the insured has already been indemnified by his insurer then the insurer is subrogated to the insured's right against the party primarily liable in contract or in tort for the amount of the damage. There is, however, no subrogation in the strict sense when there is double insurance. At the most there is in equity contribution. … If there are in fact two insurers, and the plaintiff has already been indemnified by one of them, then the other insurance company may, as it has done, plead the indemnity and the action fails at law. The real action should be between the insurance companies in equity for contribution. … … there are two policies which cover the same claim. The right therefore lies not by way of common law action in the name of the Sydney Turf Club but by action for contribution between the two insurers. … What has been relied upon is the submission to which I have earlier referred, namely, that even in the case of double insurance the plaintiff insured is entitled to recover twice over but is not entitled to retain the double benefit. It has been submitted that if he obtains double benefit by action in that manner he must hold the benefit as trustee but nevertheless the action for the double benefit is not defeated by the fact that the indemnity has already been received. For the reasons …. I am of the opinion that the authorities are against this submission." 16 The third member of the Court, Mason JA, said: [23] "In truth there was no relevant right in the appellant to which the Government Insurance Office could become subrogated. Once the insured was paid in full by that insurer, the insured had no cause of action which he could enforce against the Jockey Club on its policy either for his own benefit or for the benefit of the other insurer. The Government Insurance Office could, in an action in its name, recover a pro rata contribution from the Jockey Club as an insurer against the same risk under the doctrine of contribution ( Albion Insurance Co. Ltd v Government Insurance Office of N.S.W. (25)), but that is not the present proceeding. The present action has its origin in a failure to distinguish between the doctrine of subrogation and that of contribution. As it is put in Preston and Colinvaux, the Law of Insurance , 2nd ed., at p. 135 "Subrogation ensures that the assured shall receive no more than an indemnity; contribution ensures that the insurers shall not directly suffer injustice inter se because of that rule." 17 The doctrine of contribution is not confined to double insurance but applies in a variety of contexts, [24] including co-sureties [25]. In Mahoney v McManus [26], Gibbs CJ with whom Aickin J (and on this point Wilson J) agreed, said: [27] "A surety is entitled to contribution from his co-sureties so that the common burden is born equally and so that no surety is required, as between himself and his co-sureties are bound jointly, jointly and severally, or severally, and whether by the same or different instruments, and whether or not the sureties knew of each other's existence, provided that they are liable in respect of the same debt. The right to contribution arises when a surety has paid or provided more than his proper share of the principal debt … The amount of contribution recoverable depends on the number of sureties who are solvent at the time when contribution is sought and on the proportion for which each is liable." ….. …. The doctrine of contribution is based on the principle of natural justice that if several persons have a common obligation they should as between themselves contribute proportionately in satisfaction of that obligation. The operation of such a principle should not be defeated by too technical an approach.. ." 18 In Mahoney v McManus, [28] Gibbs CJ referred to the "common burden [29] of co-sureties and said that the doctrine of contribution applies to "several persons [who] have a common obligation." [30] In Ellesmere Brewery Co v Cooper, [31] Lord Russell CJ explained the application of the doctrine to co-sureties by reference to their "common interest" and "common burden". It is frequently said that the doctrine applies to persons with "co-ordinate liabilities," and almost as often the difficulty in defining which liabilities meet that description is noted. In James Hardie & Coy Pty Ltd v Wyong Shire Council, [32] Giles JA, with whom Heydon JA agreed, said that "what underlies the notion [of co-ordinate liability] is not a common liability to be sued but a common risk the burden of which should, if it falls unequally, be adjusted."[33] The ultimate question is whether the circumstances are such that reason and justice require that the burden of the common obligation be shared equally. [34] 19 In a broad sense, the doctrine of contribution is complementary to the doctrine of subrogation. [35] Under the doctrine of subrogation, a person who is obliged to indemnify another is generally entitled to enforce the other's rights against a third-party in his or her name. However, the material part of the doctrine of subrogation is limited to the enforcement of rights which the indemnified person is entitled to enforce.[36] The doctrine of subrogation therefore does not permit the enforcement of a right of indemnity which is not otherwise enforceable. Since the enforcement of a second indemnity would be unjust irrespective of whether it was enforced by the person entitled to the indemnities on his or her own behalf or on behalf of another person who was liable to provide an indemnity, a person who is entitled to two or more indemnities is not permitted to enforce more than one of them. That is the "well established principle" referred to by Barwick CJ in The Sydney Turf Club v Crowley. [37] When a person is entitled to more than one indemnity, the rights and obligations of the persons who are obliged to provide indemnity are adjusted directly between them, without the need or right for either to use the name of the person indemnified against the other. 20 The Court is not presently concerned with a claim for contribution (or recoupment on some other basis) between the parties which were obliged to indemnify the appellant, the third-party insurer and the partnership, or between the parties which did indemnify him, the third-party insurer and the public liability insurer. The issue for determination is whether the appellant remains entitled to indemnity from his partnership with the respondent under s 24(2) of the Partnership Act notwithstanding that he has been fully indemnified. It is immaterial to the determination of that issue that it is the third-party insurer which stands to benefit if the issue is resolved in favour of the appellant. 21 In The Sydney Turf Club v Crowley, [38] Jacobs JA limited the material principle to indemnities "in the strict sense". [39] That limitation was appropriate to exclude rights which are treated as entitlements to indemnity such as the right of one tortfeasor to recover damages for breach of contract from another tortfeasor in the full amount of the former's liability to a plaintiff. [40] The appellant's argument did not demonstrate, [41] and I cannot discern, any reason why a partner's right to an indemnity under s 24(2) of the Partnership Act is not properly characterised as an indemnity "in the strict sense" or any other reason why the "well established principle" referred to by Barwick CJ in the present Sydney Turf Club v Crowley [42] should not apply in the present circumstances. 22 As noted earlier, the appellant seeks contribution from the respondent, not indemnity from the partnership. However, as also noted, the appellant did not argue that he is entitled to enforce a right to contribution from the respondent if he is not entitled to indemnity from the partnership. The appellant's claim is wholly founded on his asserted entitlement to an indemnity from the partnership under s 24(2)(a) of the Partnership Act, which is no longer enforceable. 23 Since the appellant does not have an enforceable right to an indemnity from the partnership under s 24(2)(a) of the Partnership Act because he has been fully indemnified and he did not seek to maintain his claim on any other basis, the trial judge correctly dismissed his cross-claim against the respondent. 24 The appeal should be dismissed, with costs. ********** END NOTES 1 The partnership's liability to Mr Revelos under s 10 of the Partnership Act 1892 was not pursued. (See also s 12 of the Act). 2 It is unknown whether the public liability policy, which is not in evidence, only extended to liabilities of the partnership or included liabilities of individual partners and therefore the appellant's liability to Mr Revelos. Neither party submitted that this information might be material. 3 Supreme Court Act 1970, s 75A(5). 4 Supreme Court Act 1970, s 75A(9). 5 Allesch v Maunz 2000 HCA 40. 6 See s 24(2)(a) of the Partnership Act. 7 Bartels v Behm (1990) 19 NSWLR 257, 260; Cummings v Lewis (1993) 113 ALR 285, 318; Gye v Davies (1995) 131 ALR 723, 729. 8 Gye v Davies 131 ALR 723, 729. However, see Lindley & Banks on Partnership, 17th ed. pp 689 (foot) - 690 (para 23-195) and footnote 45, especially (i). See also Bartels v Behm 19 NSWLR 257, 260. 9 Cummings v Lewis 113 ALR 285, 318. (The reference there to s 24(3) seems to be a clerical error). 10 See, generally, Lindley and Banks on Partnership, 17th ed., paras. 20-02, 20-08, 20-10. Cf Lister v Romford Ice and Cold Storage Ltd (1957) AC 555. See also McGrath v Fairfield Municipal Council (1985) 156 CLR 672. 11 Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199, 207-208 12 cf Trident General Insurance Co. Limited v McNiece Bros Proprietary Limited (1988) 156 CLR 107. 13 See, for example, A Tomlinson (Hauliers) Ltd v Hepburn (1966) AC 451 (bailee); Petrofina (UK) Ltd v Magnaload Ltd (1984) 1 QB 127, 139B-C (subcontractor engaged on contract works may insure the entire contract works in addition to his own property). Compare The Albazero (1977) AC 774, (844 C-E, 845 A-C, H-846G, 847 C-F. (consignor's claim against shipowner to recover the value of lost goods belonging to the consignee). 14 In a number of circumstances, an insured must hold the proceeds of insurance on behalf of, and account for them to, another. For example, an insured who is a bailee (A Tomlinson (Hauliers) Ltd v Hepburn (1966) AC 451, 467, 481), an agent for an undisclosed principal or a trustee: The Transcontinental Underwriting Agency SRL v Grand Union Insurance Co Ltd and P.T. Reasuransi Umum Indonesia (1987) 2 Lloyd's Law Reports 409, 413 (2nd col. foot) - 415. 15 For example, s 76. 16 It is unknown whether the appellant was also entitled to be indemnified by the public liability insurer. 17 The parties' common assumption for the purpose of their dispute was that the appellant has not received any material payment from the partnership or the respondent. 18 (1972) 126 CLR 420; affirming (1971) 1 NSWLR 724. 19 See also Commercial & General Insurance Co Ltd v Government Insurance Office (NSW) (1973) 129 CLR 374, 380 ff. 20 125 CLR 420, 423-424. See also GRE Insurance Ltd v QBE Insurance Ltd (1985) VR 83, 95, 99-100, 103. 21 (1972) 126 CLR 420, 427-428. 22 (1971) 1 NSWLR 729, 729-734. 23 (1971) NSWLR 724, 734-735. 24 It has been held that the doctrine is not limited to contractual obligations but extends to statutory obligations: See Armstrong v Commissioner of Stamp Duties (1967) 69 SR (NSW) 38; Spika Trading Pty Ltd v Harrison (1990) 19 NSWLR 211. 25 It is unnecessary for present purposes to consider the position between co-sureties when the creditor has a "judgment speciality or other security .. in respect of [the] debt or duty." See Part 2 (s3) of the Law Reform (Miscellaneous Provisions) Act 1965; Duncan Fox & Co v The North and South Wales Bank (1880) 6 App Cas 1, 19; D&J Fowler (Aust). Ltd v Bank of New South Wales (1982) 2 NSWLR 879, 884 ff. 26 (1981) 36 ALR 545. 27 36 ALR 545, 549 - 550. See also p 557 per Wilson J and p 559 per Brennan J. 28 (1981) 36 ALR 545. 29 36 ALR 545, 549. 30 36 ALR 545, 551. 31 (1896) 1 QB 75, 79. See also Bonner v Tottenham & Edmonton Permanent Investment Building Society (1899) 1 QB 161, 174; Hong Kong Bank of Australia Ltd v Larobi (1991) 23 NSWLR 593, 597. 32 (2000) 48 NSWLR 679. 33 (2000) 48 NSWLR 679, 687-688. 34 See Albion Insurance Co Ltd v Government Insurance Office (NSW); (1969) 121 CLR 342, 349-352. See also, for example, Gye v Davies 131 ALR 723, 729; James Hardie & Coy Pty Ltd v Wyong Shire Council (2000) 48 NSWLR 679, 686-688. 35 It is unnecessary for present purposes to consider whether the doctrines of subrogation and contribution are together materially exhaustive or which, if either, is applicable in various common situations; for example when an insured person also has a promise of indemnity under a contract of sale or analogous transaction or a building contract or is a trustee entitled to indemnity from the beneficiaries or an agent entitled to indemnity from his or her principal. 36 See Fair Trading Administration Corporation v Sleigh unreported [2000] NSWCA 73 (6 April 2000); New Zealand Society of Accountants v ANZ Banking Group (NZ) Ltd (1996) NZLR 283, 288-289. and, generally, Sutton Insurance Law in Australia; 3rd ed., paras. 16.33 to 16.36. State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228, 240, 242-243, 251, 256 and Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335, 348-350 each clearly illustrates the point. 37 (1972) 126 CLR 420, 423-424. 38 (1971) 1 NSWLR 729. 39 (1971) 1 NSWLR 729, 730B-C. 40 See Redken Laboratories (Australia) Pty Ltd v Docker [2000] NSWCA 100 [66]. 41 In particular, the appellant did not submit that it is significant that the partnership's obligation to indemnify the appellant was not contractual but statutory: cf Armstrong v Commissioner of Stamp Duties (1967) 69 SR (NSW) 38; Spika Trading Pty Ltd v Harrison (1990) 19 NSWLR 211. 42 (1972) 126 CLR 420, 423-424.

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