Ways of Allocating Liability Between Multiple Debtors

This section gives a brief overview of the different ways in which liability may be allocated between multiple wrongdoers, and the concepts involved. The relevant concepts are joint and several liability (or ‘solidary liability'), proportionate liability, contribution, reimbursement, subrogation to a subsisting right, and subrogation to an extinguished right.^[987] There is no limit to the number of debtors that could be involved, and it is not necessary that all debtors owe the same amount of money to the creditor.

The present interest lies particularly in the allocation of liability between two persons who, independently of each other, have committed wrongs against the same victim. In those circumstances, the first question to ask is whether the dam­age suffered by the victim is, by its nature, divisible or indivisible. If it is divisible, each wrongdoer will be liable only for that part of the damage that he has caused, and the concepts explained in this section have no relevance. If, on the other hand, the harm is indivisible, the question arises whether the victim is entitled to claim full compensation for the harm from either wrongdoer (subject to the rule that there can be no double recovery), or whether each wrongdoer is liable only for a fixed proportion of the harm. While the former is the case under a regime of joint and several liability, which applies to concurrent wrongdoers at common law, the latter is the rule applying under the proportionate liability regime prescribed by statute in Australia in most cases involving pure economic loss.^{[988] [989]}

Where two debtors are jointly and severally liable for the payment of a certain amount of money (for example, damages), the creditor can claim the whole sum from either of them, as long as there is no double recovery.

Common law and equity have recognised a right to contribution in a number of contexts, for example between co-sureties,7 joint contractors,^[990] and indemnity insurers insuring the same risk. ^[991] Indeed, it has been said that a right to contribution generally arises both at common law and in equity where one of a number of mul­tiple debtors who are jointly and severally liable pays more than his share of the debt.¹⁰ However, the High Court of Australia has required the debtors' liabilities to be ‘co-ordinate',¹¹ that is, ‘of the same nature and... extent',¹² although they may have different sources, such as contract and statute.¹³

Common law and equity do not recognise a right to contribution between con­current tortfeasors.¹⁴ However, legislation in all the jurisdictions under discussion provides for a right to contribution between tortfeasors liable in respect of ‘ the same damage'.¹⁵ The statutes of some jurisdictions apply also to certain wrongdo­ers other than tortfeasors,¹⁶ or indeed to all wrongdoers.¹⁷ Wrongdoers may be liable in respect of ‘ the same damage' for the purpose of a contribution statute even though they are not liable in the same amount.¹⁸

In the absence of an agreement to the contrary, contribution shares are equal at common law¹⁹ and, at least as a general rule, in equity.²⁰ The contribution statutes mentioned provide that the court is to apportion the contribution shares accord­ing to each wrongdoer's responsibility for the damage, and that the court has the power to exempt any wrongdoer from liability to make contribution and to order one wrongdoer to completely indemnify the others.

¹⁰ Albion Insurance (n 9) 342, 349-51 (Kitto J); Lumley v Robinson (n 8) [12] (Aldous LJ).

¹¹ Burke v LFOT Pty Ltd [2002] HCA 17, (2002) 209 CLR 282 [15]-[16]; Friend v Brooker [2009] HCA 21, (2009) 239 CLR 129 [40]; HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31, (2011) 244 CLR 72 [36]-[42].

¹² Burke v LFOT (n 11) [15]-[16], [38]; Friend v Brooker (n 11) [40]; HIH v Insurance Australia (n 11) [39].

¹³ Friend v Brooker (n 11) [42]; HIH v Insurance Australia (n 11) [39].

¹⁴ Merryweather v Nixan (1799) 8 Term Rep 186; 101 ER 1337; James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR53, 75; Burke v LFOT (n 11) [16]; Belan v Casey [2003] NSWSC 159, (2003) 57 NSWLR 670 [108]-[110].

¹⁵ Civil Liability (Contribution) Act 1978 (UK) s 1(1); Civil Law (Wrongs) Act 2002 (ACT) s 21(1); Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s 5(1)(c); Law Reform (Miscellaneous Provi­sions) Act (NT) s 12(4); Law Reform Act 1995 (Qld) s 6(c); Law Reform (ContributoryNegligence and Apportionment of Liability) Act 2001 (SA) s 6(1); Wrongs Act 1954 (Tas) s 3(1)(c); Wrongs Act 1958 (Vic) s 23B(1); Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA) s 7(1)(c);LawReformAct 1936 (NZ) s17(1)(c).

¹⁶ Civil Law (Wrongs) Act 2002 (ACT) s 19; Law Reform (Contributory Negligence and Apportion­ment of Liability) Act 2001 (SA) s 4(1); Wrongs Act 1954 (Tas) s 2. The wrongs to which those statutes apply are discussed by K Barnett and S Harder, Remedies in Australian Private Law (Port Melbourne, Cambridge University Press, 2014) 89.

¹⁷ Civil Liability (Contribution) Act 1978 (UK) s 6(1); Wrongs Act 1958 (Vic) s 23A(1).

¹⁸ Nationwide Building Society v Dunlop Haywards (DHL) Ltd [2009] EWHC254 (Comm), [2010] 1 WLR 258; Bank of Ireland v Faithful & Gould Ltd [2014] EWHC2217 (TCC), [2014] PNLR 664 [236].

¹⁹ Lowe & Sons v Dixon & Sons (1885) 16 QBD 455 (QB) 458; Albion Insurance (n 9) 349-50 (Kitto J); BP Petroleum Development Ltd v Esso Petroleum Co Ltd 1987 SLT 345 (CSOH) 348 49.

²⁰ Albion Insurance (n 9) 349-50 (Kitto J); Commercial and General Insurance Co Ltd v Government Insurance Ojfice of NSW (1973) 129 CLR 374, 380; Scholefield Goodman and Sons Ltd v Zyngier [1986] AC 562 (PC) 575; Hampton vMinns (n 7); Burke vLFOT (n 11) [38] (McHugh J); Edwards vProprius Holdings Ltd (n 7) [22].

²¹ Civil Liability (Contribution) Act 1978 (UK) s 2(1); Civil Law (Wrongs) Act 2002 (ACT) s 21(2), (3)(b) and (c);LawReform (MiscellaneousProvisions)Act 1946 (NSW) s5(2);LawReform (Miscellaneous Provisions) Act (NT) s 13; Law Reform Act 1995 (Qld) s 7; Law Reform (ContributoryNegligence and Apportionment of Liability) Act 2001 (SA) s 6(5)-(7); Wrongs Act 1954 (Tas) s 3(2); Wrongs Act 1958 the contribution shares of the solvent wrongdoers increase proportionally both in equity²² and under statute.²³

Reimbursement²⁴ occurs where, as between the two debtors,²⁵ one of them is supposed ultimately to bear liability, because of an agreement between the parties to that effect or, as exemplified in Section III, because of the nature and rationale of each debtor's liability. If that debtor pays the creditor, the other debtor need not contribute anything to that payment. If the debtor whose liability is only secondary (as between the debtors) pays the creditor, that debtor can claim full reimburse­ment from the debtor whose liability is primary. For example, in the absence of an agreement to the contrary, a guarantor who pays the creditor can claim reimburse­ment from the principal debtor,²⁶ but a principal debtor who pays the creditor has no claim against the guarantor.²⁷ In Duncan, Fox & Co v North and South Wales Bank, Lord Selbourne said that reimbursement can be claimed whenever

there is a primary and a secondary liability of two persons for one and the same debt, the debt being, as between the two, that of one of those persons only, and not equally of both, so that the other, if he should be compelled to pay it, would be entitled to reimbursement from the person by whom (as between the two) it ought to have been paid.²⁸

It might be thought that reimbursement is exactly the same thing as an entitle­ment to contribution in the amount of 100 per cent. Such an understanding of reimbursement might indeed have little impact upon the outcome in some cases.

A right to contribution exists only where it is in principle possible that each debtor bears part of the common liability, even if one debtor's part is much larger (Vic) s 24(2); Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA) s 7(2); LawReformAct 1936 (NZ) s 17(2).

²² See, eg, Lowe v Dixon (n 19); Mahoney v McManus (n 7) 376 (Gibbs CJ); De Sousa v Cooper (1992) 106 FLR 79 (NTSC) 81; Edwards v Proprius Holdings Ltd (n 7) [22].

²³ Fisher v CHT Ltd (No 2) [1966] 2 QB 475 (CA) 480-81; Optus Networks Pty Ltd v Leighton ContractorsPtyLtd [2002] NSWSC 327 [95].

²⁴ The term ‘indemnity' is better avoided in the present context since it has a different meaning in other contexts: C Mitchell, The Law of Contribution and Reimbursement (Oxford, Oxford University Press, 2003) paras 1.15-1.17.

²⁵ A debtor who is only secondarily liable as against the other debtor may be primarily liable as against the creditor: BerghoffTrading Ltd v Swinbrook Developments Ltd [2009] EWCA Civ 413, [2009] 2 Lloyd's Rep 233 [25]; SJ Whittaker, ‘Suretyship' in HG Beale (ed), Chitty on Contracts, 31st edn, vol 2 (London, Sweet & Maxwell, 2012) para 44.003.

²⁶ Ford v Stobridge (1633) Nels 24; 21 ER 780; Anson v Anson [1953] 1 QB 636 (QB).

²⁷ Caledonia North Sea Ltd v London Bridge Engineering Ltd 2000 SLT 1123 (CSIH) 1142. Similarly, a surety cannot claim contribution from a co-surety who undertook liability at the request of the former: Turner v Davies (1796) 2 Esp 478; 170 ER 425; Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38NSWLR 116 (SC).

²⁸ Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1 (HL) 11. See also Moule v Garrett (1872) LR 7 Ex 101, 104; Brook s Wharf and Bull Wharf Ltd v Goodman Brothers [1937] 1 KB 534 (CA) 543-44; Re Downer Enterprises Ltd [1974] 1WLR 1460 (Ch) 1468; Becton Dickinson UK Ltd v Zwebner [1989] 1 QB 208 (QB) 215-18; Electricity Supply Nominees Ltd v Thorn EMI Retail Ltd (1992) 63 P & CR 143 (CA) 148 49; Niru Battery Manufacturing Co v Milestone Trading Ltd (No 2) [2004] EWCA Civ 487, [2004] 2 All ER (Comm) 289 [68]; BerghoffTradingv Swinbrook (n 25) [24]-[26].

By contrast, a right to reimbursement exists where, irrespective of the precise circumstances of the individual case, the nature and rationale of each debtor's obli­gation invariably render one debtor primarily (or ultimately^[992]) liable (as between the debtors) for the whole of the common liability. That debtor can never have a claim against the other debtor, and a claim for full reimbursement invariably lies where the debtor who is secondarily liable pays the creditor. For example, in the absence of an agreement to the contrary, a guarantor can always claim reimburse­ment from the principal debtor, and a principal debtor never has a claim against the guarantor.

A case of the second type may fall within the scope of a contribution statute if the debtors are considered liable in respect of ‘the same damage' for the purpose of the statute. However, the share borne by the debtor who is secondarily liable must always be nil,^[993] and the share borne by the debtor who is primarily liable must always be 100 per cent.^[994] It might foster clarity if the contribution statutes were to be interpreted as applying only where it is in principle possible that each debtor bears part of the common liability.

Where multiple wrongdoers are liable for the same indivisible harm, propor­tionate liability (in its simplest form) means that each wrongdoer is liable towards the victim for only part of the damage, reflecting the extent of that wrongdoer's own responsibility for the damage. The share of an insolvent wrongdoer is not redistributed to the other wrongdoers, but must be borne by the plaintiff.^[995] Thus, the plaintiff will obtain full compensation only if she pursues all wrongdoers and all are able to pay.

Where all wrongdoers are solvent^[996] and, in the absence of proportionate liabil­ity, the case would fall within the scope of a contribution statute, the wrongdoers' shares under the proportionate liability regime are the same as their shares under the contribution statute, since both regimes apportion liability according to each wrongdoer's comparative responsibility for the damage.^[997] Where, in the absence of proportionate liability, a right to contribution would exist in equity but not under statute, this congruence of shares will exist only if there is equitable jurisdiction to allocate shares according to comparative responsibility for the damage, as opposed to equal shares. It is not settled whether such jurisdiction exists.^[998] Congruence of shares cannot be achieved where, in the absence of proportionate liability, a reim­bursement claim would lie. The approach under a proportionate liability regime contradicts the allocation of liability under reimbursement principles. It will be argued below that proportionate liability is inappropriate in the last category of case.

There remain the two forms of subrogation. In the context of joint and sev­eral liability of two debtors, subrogation to an extinguished right occurs where, even though payment by one debtor to the creditor extinguished both debtors' obligations towards the creditor, the debtors are treated as if the creditor's claim against the non-paying debtor had been transferred to the paying debtor.^[999] This enables the paying creditor to realise securities for that claim. In the present con­text, subrogation to an extinguished right supplements a claim for contribution^[1000] or reimbursement,^[1001] and cannot occur unless such a claim exists.^[1002] It has little relevance to the issues discussed in this chapter.

Subrogation to a subsisting right occurs where payment by one debtor to the creditor did not extinguish the creditor's claim against the other debtor and the paying debtor is entitled to enforce that subsisting claim. It thus achieves the same practical outcome as a claim for reimbursement coupled with subrogation to an extinguished right. At common law, subrogation to a subsisting right is recognised only where the victim of a wrong had taken out indemnity insurance for the loss in question.^[1003] After paying the insured, the insurer can enforce the insured's claim against the wrongdoer.^[1004] Legislation provides for subrogation to a subsisting right in certain analogous circumstances.^[1005] Since subrogation to a subsisting right is not recognised in the types of case considered in this chapter, there is no reason to discuss it further.

III.