CIVIL PROCEEDINGS - motor vehicle damages - contribution between co-sureties
Cases Cited: Albion Insurance Co Ltd v Government Insurance Office (NSW) [1969] HCA 55
Source
Original judgment source is linked above.
Catchwords
CIVIL PROCEEDINGS - motor vehicle damages - contribution between co-sureties
Cases Cited: Albion Insurance Co Ltd v Government Insurance Office (NSW) [1969] HCA 55
Judgment (2 paragraphs)
[1]
Judgment
The Hollard Insurance Company Pty Ltd (Hollard Insurance) is the insurer of Joseph Scaria who held a comprehensive motor vehicle insurance policy. Mr Scaria's motor vehicle was damaged on or about 17 September 2015. Mr Scaria arranged for his vehicle to be taken to a repairer and a quote for repairs was prepared. On 19 September 2015 Mr Scaria signed a document titled "Agreement of Authority, Indemnity and Subrogation" with Collision Accident Recovery Services Pty Ltd (CARS) to assist with the recovery of damages. A claim was then commenced by CARS acting under a right of subrogation against Hollard Insurance seeking to recover damages occasioned to Mr Scaria's motor vehicle.
The claim was settled on terms that Hollard Insurance paid an amount of $8,859.63 less $700 excess to Mr Scaria. Hollard Insurance paid the settlement amount to the repairer and has then commenced this cross claim against CARS seeking that CARS contribute towards the cost of repairs on the basis that it is a co-surety with Hollard Insurance for the loss.
The cross claim by Hollard Insurance is based on the doctrine of equitable contribution between co-sureties.
CARS disputes that it is obliged to contribute towards the damages paid by Hollard Insurance on behalf of Mr Scaria. Firstly, it submits that the nature of the agreement between itself and Mr Scaria was not one that created a coordinate liability on the part of CARS for the same loss covered by Hollard Insurance. Secondly, CARS alternatively submits that the agreement between itself and Mr Scaria was rescinded in November 2016 so that there could remain no coordinate liability for the loss.
For the reasons that follow I am satisfied that the arguments put forward by CARS must fail and Hollard Insurance is entitled to recover on a pro rata basis a contribution from CARS for loss paid to Mr Scaria.
Firstly, I am satisfied that the both the contract of insurance between Hollard Insurance and Mr Scaria and the agreement between CARS and Mr Scaria gave rise to co-ordinate liabilities.
The contract of insurance between Hollard Insurance and Mr Scaria relevantly provides as follows:
1. Comprehensive Cover
Where this cover option applies we will cover you, subject to any relevant excess(es) and the other terms and conditions of your policy for:
Accidental loss or damage (including theft) to your car which occurs during the period of insurance. This is the broadest cover we provide and includes cover for the events covered under the Fire, theft and Malicious Damage, Collision and Natural Events Covers as set out in Tailored Covers option….
We will at our option and subject to any relevant excess(es) and your policy terms and conditions:
Repair your car if it is economical to repair
Pay you the reasonable cost of repairing your car
Replace your car, or
Pay you up to the agreed or market value or other applicable limits as sown on your Certificate of Insurance.
There is no dispute that the policy of insurance responds to the claim for damages to Mr Scaria's motor vehicle arising from the incident of 17 September 2015.
The agreement between CARS and Mr Scaria relevantly provides as follows:
1. The claimant has incurred damages resulting from the relevant accident, hereinafter called 'damages'. The damages include, but are not limited to:
a. Cost of repair
b. Car hire
c. Expert report costs
d. Towing
e. Legal costs
f. Costs orders
2. The claimant is to be indemnified for the damages by CARS subject to the conditions 3-12. By indemnifying the claimant, CARS agrees to be liable in place of the claimant for any all costs of repairs, car hire charges, expert reports, towing charges, legal costs and costs orders.
3. CARS indemnifies the claimant for the damages in consideration of the claimant subrogating to CARS, his/her/its rights to recover the damages from the their insurer on (sic) another party's insurer.
There is no dispute that the "relevant accident" refers to the incident involving Mr Scaria's motor vehicle on 17 September 2015. It is the same incident to which the policy of insurance issued by Hollard Insurance responds.
Submissions were made on the part of CARS that the nature of the agreement between Mr Scaria and CARS was not one of insurance and that the nature of the indemnification provided by CARS was different to that provided by Hollard Insurance. In particular, CARS submits that their agreement was for an identified loss already suffered rather than for coverage of a future risk of loss and that Mr Scaria was not required to pay a premium for the indemnification. Furthermore, the nature of the agreement was one of debt recovery rather than insurance. CARS is a licensed commercial agent which assists "not at fault" parties with the recovery of the cost of repairs and rental of replacement motor vehicles arising from an accident.
In response, Hollard Insurance submits that it is unnecessary for the Court to determine whether CARS is an insurer of the loss as the principles relating contribution apply more broadly than double insurance and extends to all circumstances where there are co-sureties in respect to the same liability.
In Albion Insurance Co Ltd v Government Insurance Office (NSW) [1969] HCA 55; (1969) 121 CLR 342 the High Court held that a loss covered by two insurance policies that were different in nature and purpose, one being a worker's compensation policy, the other being a motor vehicle third party policy, was subject to a claim of contribution between insurers.
In the majority judgment of Barwick CJ, McTiernan and Menzies JJ their Honours stated at 346:
However, as both insurers are liable, the doctrine of contribution between insurers has been evolved. It began in the second half of the eighteenth century with Lord Mansfield's decisions with respect to marine insurers and there is no doubt that it now applies generally to insurance which provides the insured with an indemnity. There is no reason why the doctrine should not apply to insurance against liability to third parties and there is every reason in principle that it should. The doctrine, however, only applies when each insurer insures against the same risk, although it is not necessary that the insurances should be identical.
Their Honours identified at 346 the test to determine whether the doctrine of contribution applies in the following way:
The matter can, we think, be decided simply enough by inquiring whether payment by one insurer of the policy holder's claim for indemnity would provide the other insurer with a defence to a like claim against it.
Kitto J in agreeing with the majority referred to the principle of contribution between insurers as being part of the broader doctrine of contribution at 350:
But what Lord Mansfield was doing (sitting in a court of law, not equity, be it noted) was simply bringing together two principles. The first, a principle applicable at law no less than in equity, is that persons who are under co-ordinate liabilities to make good the one loss (e.g. sureties liable to make good a failure to pay the one debt) must share the burden pro rata. The second is that since a policy of marine insurance is a contract of indemnity only, so that where several insurers have separately insured the one person against the one loss that person, though he may upon suffering the loss sue any or all of the insurers, may not recover more in total than a single reparation for the loss, the relation between the insurers in such a case is analogous to the relation between several sureties for a debt.
In Lavin v Toppi [2014] NSWCA 160 the Court of Appeal was dealing with a claim for contribution between co-sureties on a loan. Lemming JA with whom Macfarlan and Emmett JA agreed held at [45] that the doctrine of contribution was available whenever there existed "co-ordinate liabilities". The Court held that the broader term of "co-ordinate liabilities" in equity prevailed over the common law basis of contribution being "common obligation".
The question of what constitutes "co-ordinate liabilities" has, according to the authors of Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (at [10-030]), been the subject of limited judicial discussion.
In Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 187 ALR 612 the High Court provided guidance on what would constitute "co-ordinate liabilities". Gaudron ACJ and Hayne J said (footnotes omitted):
14. In general terms, the principle of equitable contribution requires that those who are jointly or severally liable in respect of the same loss or damage should contribute to the compensation payable in respect of that loss or damage, either equally where they are liable in the same amount or proportionately, where the amount of their liability differs. The principle has regularly been applied between co-sureties, co-insurers, partners, co-owners, where payment is made by one in discharge of a common liability, and co-trustees who are in pari delicto.
15. The doctrine of equitable contribution applies both at common law and in equity. It is usually expressed in terms requiring contribution between parties who share "co-ordinate liabilities" or a "common obligation" to "make good the one loss". More recently, in BP Petroleum Development Ltd v Esso Petroleum Co Ltd, the right to contribution was said to depend on whether the liability was "of the same nature and to the same extent".
16. The notion of "co-ordinate liability" is one that depends on common interest and common burden. …
In the same case McHugh J stated at [41]:
In addition to sureties, other relationships have traditionally been regarded as capable of giving rise to an order for contribution. They include co-insurers under contracts of indemnity insurance, co-contractors, parties liable to the holder of a bill of exchange, partners, joint tenants and tenants in common. More often than not, the relationships between the parties in those cases exhibit the characteristics commonly regarded as essential to establishing an entitlement to contribution, namely "a common interest and a common burthen". The nature of the relevant interest and burden is such that the discharge of the burden by one party constitutes a benefit to the other or others which, in fairness, the law cannot countenance them keeping. …
There is no doubt that the obligation owed by CARS in its agreement with Mr Scaria is the same as the obligation borne by Hollard Insurance under its policy of insurance. Each agreement expressly offered to indemnify Mr Scaria for any liability that he might incur in effecting repairs to his damaged motor vehicle.
While the agreements deal with the same subject matter and the same obligation CARS submit that the interest of CARS is different from that of Hollard Insurance. It is submitted that intention of Mr Scaria and CARS when entering into the Agreement of Authority, Indemnity and Subrogation was that CARS would not be called upon to indemnify Mr Scaria for the damages. CARS submits that the purpose of the agreement was to facilitate CARS taking on the debt recovery process and that the agreement was used in circumstances where the client did not want to be directly involved in the process and CARS then was able to step into the shoes of the client and manage the recovery process.
The Court accepts that it is necessary to consider the objective of an agreement to determine whether there are co-ordinate liabilities. However, in doing so it is necessary for the Court, whenever it is constructing an agreement, to have regard to the language of the agreement and the contextual background rather than the subjective intentions of the parties.
While the context of the CARS agreement does differ from that of Hollard Insurance there is nothing in the terms of the agreement between Mr Scaria and CARS that qualifies the nature of its interest. On the proper construction of the agreement it is clear that Mr Scaria could have arranged for his motor vehicle to be repaired and elected to seek indemnification for that cost from CARS. There is nothing within the agreement or otherwise which suggests that Mr Scaria would refrain from acting on the indemnification provided by CARS or that CARS could resist providing indemnification.
Both CARS and Hollard Insurance did bear a risk in Mr Scaria's claim. Whereas Hollard Insurance undertook the risk prospectively of the damage arising under the policy of insurance, CARS undertook the risk retrospectively of recovering the damage that had arisen under its agreement with Mr Scaria. While it is unnecessary for the Court to conclude that CARS placed itself in the position of insurer of Mr Scaria's loss, it is significant that the CARS agreement bears many of the characteristics ordinarily associated with contracts of insurance including the right of indemnity, the right of subrogation and the obligation on the part of the client to act in good faith towards CARS and to assist CARS in the recovery process. The Court is satisfied that the interests of both CARS and Hollard Insurance were the same. Both were dealing with the same risk of being potentially responsible for covering the damage to Mr Scaria's motor vehicle, CARS doing so on a fee for service basis and Hollard Insurance doing so for a premium. There was identity of interests and liability between CARS and Hollard Insurance. CARS benefitted from the payment made by Hollard Insurance in that it discharged the entirety of the liability that it might otherwise bear towards Mr Scaria. It satisfies the test referred to by the majority of the High Court in Albion Insurance. The Court concludes that there were co-ordinate liabilities and that Hollard Insurance is entitled to claim contribution against CARS.
The second limb of the defence is the question of whether CARS is able to otherwise avoid contribution on the grounds of having rescinded the agreement in November 2015 and therefore there could be no co-ordinate liability.
Mr Nerezov states that the agreement was rescinded by CARS pursuant to clause 12 of the agreement. Clause 12 provides:
12. CARS reserves the right to rescind the agreement of indemnity and subrogation at any time for any reason without notice.
Clause 12 appears to provide an unfettered right to CARS to rescind a contract. However, such a broad power vested solely upon the discretion of CARS would be subject to the implied term to act in good faith (see Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 and in particular at [163]). The obligation to act in good faith requires there to be a bona fide reason for CARS to exercise this right to rescind.
The reason for the rescission by CARS appears to have been a unilateral mistake on the part of CARS.
Mr Nerezov, a director of CARS, gives evidence that he rescinded the agreement as it was clearly entered into in error. A file note by Mr Nerezov tendered under a notice to produce dated 29 November 2016 states:
Client has been provided with incorrect ATA, need to obtain a correct ATA, but client's matter has been finalised. For this reason, there is no utility is [sic] having the original authority executed.
Mr Nerezov states that CARS uses an alternative authority and that CARS did not use this form of authority due to the technical nature of the law of subrogation. Mr Nerezov does not elaborate on these technical difficulties. The Court can only speculate that CARS was responding to comments made by this Court in the recent decision of Nerezov v Insurance Australia Limited [2016] NSWLC 18 at [22] which raised the possibility of contribution under an identical arrangement.
The right to rescind a contract is a remedy that may available to a party to a contract in a number of circumstances, including where there is a misrepresentation that goes to the formation of the contract, a fundamental breach of the contract and either a common or unilateral mistake. However, it cannot be said that a right to rescission will automatically result in the contract being treated as void ab initio. In Solle v Butcher [1950] 1 KB 671 at 691 Denning LJ in dealing with the right to rescind for unilateral mistake said:
Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake.
In any event, as at November 2016 there had been performance under the contract. Hollard Insurance had made payment to a repairer in response to a claim initiated by CARS pursuant to the agreement. It would be impossible to treat the agreement as void ab initio and restore parties to their pre contractual position.
As the purported exercise of a right under clause 12 in November 2016 based on a unilateral mistake could not result in the contract being treated as a nullity, it follows that there were co-ordinate liabilities at the time that Hollard Insurance made payment of the loss in December 2015. Any attempt by CARS to subsequently rescind the contract could not affect their liability. The issue is addressed succinctly by Handley JA in AMP Worker's Compensation Services (NSW) Ltd v QBE Insurance Ltd [2001] NSWCA 267 at [15] when he stated:
The right of contribution cannot, therefore, depend on the state of affairs which exists after the payment has been made which brings that right into existence.
In any event, the Court is not satisfied that CARS did, in fact, rescind the contract in November 2015. Apart from Mr Nerezov's file note which simply refers to the error and lack of utility of obtaining a revised authority from Mr Scaria no steps were taken in terms of giving notice to Mr Scaria or taking steps consistent with electing to rescind the contract. In this case rescission appears to have been no more than a state of mind of Mr Nerezov.
The rescission of an agreement requires a clear election by a party to take that course. To constitute an election between the inconsistent rights of rescinding or affirming a contract a party must unequivocally do or say something consistent with the exercise of only one of those rights; (see, for example, Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 112 ALR 609 at 620). While CARS was not under a contractual obligation to inform Mr Scaria of the election to rescind the contract there must have been conduct consistent only with a rescission. The conduct of CARS was, however, inconsistent with having elected to rescind the agreement. CARS continued to instruct legal representatives in December 2016 to finalise the proceedings in the name of Mr Scaria and sought entry of judgment on 9 December 2016. It did not seek any separate authority from Mr Scaria to continue to act in his name.
There was no rescission of the contract and even if there were it would not have avoided CARS having at the material time a co-ordinate obligation. The second limb of the defence fails.
The Court will enter a Verdict and Judgment in favour of the cross claimant in accordance with the terms of the relief claimed.
Assessor Olischlager
Small Claims Division
[2]
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Decision last updated: 06 April 2017