5.1 This Chapter is concerned with contribution and analogous rights between wrongdoers other than tortfeasors and deals with statutory rights of contribution, rights of indemnity and equitable rights of contribution.
RIGHTS OF CONTRIBUTION ARISING OUT OF STATUTORY LIABILITY TO PAY DAMAGES
5.2 A defendant may be required to pay damages to a plaintiff as a result of liability imposed by the operation of a statute. Liability imposed by operation of statue is wholly defined by the relevant statutory provision and is quite distinct from the operation of the common law. Liability arising out of the operation of Part 5 of the Trade Practices Act 1974 (Cth) and under Parts 5 and 6 of the Fair Trading Act 1987 (NSW) are examples.
5.3 Where a defendant is liable under statute to pay damages to a plaintiff, there are two separate issues concerning that defendant’s rights of contribution. The first is whether the statute itself makes any provision for rights of contribution between concurrent wrongdoers. The second issue is whether the liability of D1, which is imposed by operation of the statute, can be described as a “tort” for the purpose of s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). The second issue has been dealt with in the previous Chapter.1
Statutory provision for contribution
Workers Compensation Act 1987 (NSW)
5.4 The Workers Compensation Act 1987 (NSW) is an example of a statute which provides that a plaintiff may recover a significantly different quantum of damages than a plaintiff with a similar injury would recover using the tortious measure of damages. The Act specifically creates a right of contribution between D1 (the employer) who is liable under the terms of the Act, and D2, who is liable in tort. The right of contribution created by Part 5 of the Workers Compensation Act 1987 (NSW) makes specific provision for determining the amount that either D1 and D2 can claim in contribution, given the different extent of their primary liability to the plaintiff.
5.5 The method of calculating damages against an employer under Part 5 of the Workers Compensation Act 1987 (NSW) significantly reduces a plaintiff’s damages below the amount that would apply under ordinary common law principles. The overall effect of s 151Z(2) is that P’s damages are reduced by the amount by which the damages payable under the Act fall below that provided by common law. In this way, the employer is liable for the proportion of the damages which reflect the degree of the employer’s fault. D2, whose damages are calculated according to ordinary common law principles, is liable for the proportion of the total damages which reflect that defendant’s degree of fault. Finally, if the plaintiff first pursues D2, that defendant has a right to contribution against the employer for the amount of the employer’s liability.2
Statutes which do not provide for contribution
Trade practices legislation
5.6 The Fair Trading Act 1987 (NSW) does not make provision for rights of contribution between concurrent wrongdoers. The cause of action, and its associated remedies, created by this statute are different in many respects from existing causes of action in tort. The Commission does not consider these differences to be a sufficient reason for failing to make provision for any rights of contribution.
5.7 The Commission recognises that the rights arising under the Trade Practices Act 1974 (Cth) are similar to those arising under the Fair Trading Act 1987 (NSW). The provision of rights of contribution in the Fair Trading Act should ideally be mirrored by similar amendments to the Trade Practices Act. The Commission, therefore, urges that similar amendments be sought to the Trade Practices Act.
Motor Accidents Act 1988 (NSW)
5.8 The Motor Accident Act 1988 (NSW) provides that a person is entitled to compensation as the result of an injury caused by the fault of an owner or driver of a motor vehicle in the use or operation of the vehicle.3 The measure of damages is limited in ways which do not apply at common law, for example, by caps on the amount to be recovered. This Act contains no specific provisions allowing rights of contribution for wrongdoers. Such specific provisions would be important where the plaintiff’s injury was caused partly by the driver of a vehicle and partly by another defendant who is liable in negligence.
5.9 The Commission considers that the Motor Accidents Act 1988 (NSW) should include specific provisions dealing with rights of contribution between concurrent wrongdoers. The scheme of contribution rights should follow the principles embodied in the Workers Compensation Act 1987 (NSW).
RIGHTS OF INDEMNITY
5.10 Section 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) currently provides that “no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability in respect of which the contribution is sought”. The position in the United Kingdom is similar. The Civil Liability (Contribution) Act 1978 (Eng) s 7(3) states:
The right to recover contribution in accordance with section 1 above supersedes any right, other than any express contractual right, to recover contribution (as distinct from indemnity) otherwise than under this Act in corresponding circumstances; but nothing in this Act shall affect -
(a) any express or implied contractual or other right to indemnity; or
(b) any express contractual provision regulating or excluding contribution;
which would be enforceable apart from this Act (or render enforceable any agreement for indemnity or contribution which would not be enforceable apart from this Act).
The term “indemnity” in this context refers to the narrow meaning of that term:
[I]t refers to the case where two persons are liable for the same debt or damages, but the liability of one is primary and the liability of the other is secondary. Where the person primarily liable defaults in his obligation, and the person secondarily liable pays in his stead, as in the classic case of a guarantee, the payor may normally seek “indemnity” from the other; that is, in the absence of any contractual provision to the contrary, for example, the payor may recover full compensation from the person primarily liable. Unlike in the case of contribution, the determination of indemnity claims is based not on comparative fault or negligence, but on the nature of the relationship between the parties.4
This use of the term “indemnity” is to be distinguished from the broader use of the term in s 5(2) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) which states that “the court shall have power ... to direct that the contribution to be recovered from any person shall amount to a complete indemnity”. This refers only to the possibility of a court ordering that D1 recover 100% of his or her liability from D2.
EQUITABLE RIGHTS OF CONTRIBUTION
5.11 In contrast to the position at common law in relation to contribution between joint tortfeasors, equity recognises rights of contribution in certain circumstances. In Albion Insurance Co Ltd v Government Insurance Office of NSW,5 Justice Kitto stated that “persons who are under co-ordinate liabilities to make good the one loss (eg sureties liable to make good a failure to pay the one debt) must share the burden pro rata”.6 The rationale supporting equitable rights of contribution may be expressed in the following terms:
The claim certainly has its foundation in the clearest principles of natural justice; for, as all are equally bound and are equally relieved, it seems but just that in such a case all should contribute in proportion towards a benefit obtained by all ... And 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. Any other rule would put it in the power of the creditor to select his own victim; and, upon motives of mere caprice or favouritism, to make a common burden a most gross personal oppression.7
5.12 The central requirement to claim contribution in equity for breach of contract is that the liability incurred by both defendants must be a co-ordinate liability to make good the one loss. Examples of co-ordinate liability are claims between co-sureties and co-insurers.8 Similarly, rights of contribution between co-trustees arise because each of the trustees is liable for the same loss that is defined as a co-ordinate liability.9 This principle would seem to apply generally to breaches of fiduciary duties.
5.13 While there is some uncertainty about the precise definition of a co-ordinate liability, it is clear that there is no equitable right to contribution where the plaintiff suffers one loss as a result of independent breaches of contracts by two defendants. For example, where a plaintiff incurs a loss as a result of a breach of contract by an auditor and separately by breach of contract by an employee, neither defendant has an equitable right of contribution from the other.10
5.14 Despite these limitations, which closely define the coverage of rights of contribution between contract breakers, there are a number of advantages for defendants in using equitable rights of contribution. The procedures for claiming rights of contribution in equity are more effective than those at common law. In Tucker v Bennett,11 Justice Orde put forward the following proposition:
A Court of Equity was peculiarly adapted to deal with the rights of sureties inter se because all might be joined as parties and it was immaterial who were the plaintiffs and who defendants. A complete account could be taken of the amounts paid by each, whether to the creditor or by way of partial contribution as among themselves, and the amounts still to be contributed by those who had paid less than their due proportion and to whom such contribution should be made could all be dealt with in one decree.
5.15 Given the range of advantages for defendants in relying on equitable rights of contribution where they are available, it is perhaps not surprising that there has been little interest in reforming the rules for contribution between co-sureties. The general approach of law reform agencies has been to accept that the law in this area is not in need of reform. Representative of this approach is the conclusion of the Ontario Law Reform Commission:
While it is difficult to justify in principle an assertion that there is some fundamental distinction between apportioning, as between themselves, the liability of wrongdoers and debtors, two practical considerations support this limitation. First, there appears to be no significant dissatisfaction with the present law respecting the existing rights to contribution among those who owe debts to another. Although cases on guarantees appear quite regularly in the law reports, the contentious issues do not seem to relate to questions of contribution or indemnification. Secondly, the omission of contribution among concurrent debtors avoids overburdening proposals for law reform in an area that already contains a fair share of complexity.12
The Commission concurs with this view, and does not consider that there is a need to reform the law relating to equitable rights of contribution.
QUESTIONS ARISING IN CHAPTER 5
5.1 Should the Fair Trading Act 1987 (NSW) be amended to provide for rights of contribution between concurrent wrongdoers?
5.2 Should the Motor Accidents Act 1988 (NSW) be amended to provide for rights of contribution between concurrent wrongdoers?
5.3 Should the amendments to the Motor Accidents Act 1988 (NSW) follow the principles set out in the Workers Compensation Act 1987 (NSW)?
5.4 Is there a need to reform the law relating to equitable rights of contribution?
FOOTNOTES
1. At paras 4.18-4.19.
2. See Leonard v Smith (1992) 27 NSWLR 5. This solution to the problem is similar to that proposed by Williams (1951) at paras 32-33.
3. Motor Accidents Act 1988 (NSW) s 69.
4. Ontario Law Reform Commission, Contribution Among Wrongdoers and Contributory Negligence (1988) at 5.
5. (1969) 121 CLR 342.
6. Albion Insurance Co Ltd v Government Insurance Office of NSW (1969) 121 CLR 342 at 350.
7. J Story, Commentaries on Equity Jurisprudence (3rd ed (Eng), Sweet & Maxwell, London, 1920) at para 493.
8. R P Meagher, W M C Gummow and J R F Lehane, Equity: Doctrines and Remedies (3rd ed, Butterworths Sydney, 1992) at 290. An example of the application of the co-ordinate liability requirement may be found in Spika Trading Pty Ltd v Harrison (1990) 19 NSWLR 211. In this case the liability of directors under s 556 of the Companies Code 1981 (NSW) was found to give rise to a common obligation to meet a co-ordinate liability.
9. K S Jacobs, Jacobs’ Law of Trusts in Australia (6th ed, Butterworths, Sydney, 1997) at para 2118.
10. See eg, AWA Ltd v Daniels (1992) 7 ACSR 759 (affirmed in part as Daniels v Anderson (1995) 37 NSWLR 438). In this case AWA Ltd sustained a loss as a result of the breach of contract by both the managing director (contract of employment) and the auditor. The only right of contribution in this case was that available to the auditor as tortfeasor.
11. [1927] 2 DLR 42 at 47; Meagher, Gummow and Lehane (1992) at 287.
12. Ontario Law Reform Commission, Report on Contribution Among Wrongdoers and Contributory Negligence (1988) at 74; see also New Zealand Law Commission, Apportionment of Civil Liability: A Discussion Paper (PP 19, 1992) at para 104.
