No Equitable Contribution
HIH Claims Support Limited v Insurance Australia Limited [2011] HCA 31
On 22 August 2011, the High Court of Australia held that HIH Claims Support Limited (HCSL) was not entitled to equitable contribution from Insurance Australia Limited (IAL) and in a 5 nil decision dismissed HCSL’s appeal.
Briefly, Ronald Steele (Steele) was sub contracted to erect scaffolding for the 1998 Australian Grand Prix in Melbourne. Steele held a general liability insurance policy issued by a company in the HIH Group (the HIH Policy). The Australian Grand Prix Corporation and its contractors and sub contractors, including Steele, was also insured under an insurance policy (the SGIC Policy) issued by SGIC General Insurance Limited, a predecessor to IAL. Both the HIH Policy and the SGIC Policy responded to the claim made against Steele.
On 3 March 1998, a scaffold erected by Steele collapsed, causing damage to a large video screen, operated by Screenco Pty Limited (Screenco). Screenco successfully brought proceedings against Steele in the Supreme Court of New South Wales and judgment was entered against Steele. Before the collapse of the HIH Group in 2001, Steele made a claim under the HIH Policy for indemnity in respect of the damage to the screen and any liability established in the NSW proceedings. HIH accepted the claim. Prior to the trial in the NSW proceedings, the HIH Group collapsed. HIH was placed in provisional liquidation on 15 March 2001 and winding up orders were made in August 2001.
In July 2001, the Commonwealth Government established the HIH Claims Support Scheme (the Scheme) which provided financial assistance to policy holders and insureds under insurance policies issued by the HIH Group who had suffered loss as a consequence of the collapse of the HIH Group. HCSL was appointed as the trustee, administrator and manager of the Scheme.
Steele applied for assistance and was accepted. Pursuant to the Scheme, Steele assigned all of his rights against HIH, including the right to prove in the liquidation of HIH, to HCSL. HCSL paid 90% of the judgment sum awarded to Screenco in November 2002 together with 90% of the costs which Steele had been ordered to pay.
HCSL subsequently brought proceedings against IAL initially in the Supreme Court of Victoria seeking equitable contribution in the amount of one half of all the payments HCSL had made in relation to Steele. HCSL’s proceedings in the Supreme Court of Victoria and the Victorian Court of Appeal were dismissed. HCSL was granted special leave to appeal to the High Court of Australia.
The High Court, consisting of Gummow ACJ, Hayne, Heydon, Crennan and Kiefel JJ, dismissed HCSL’s appeal on the basis that the obligations of HCSL and IAL were not co ordinate liabilities. In the joint judgment of Gummow ACJ, Hayne, Crennan and Kiefel JJ, their Honours held the “obligations of the appellant [HCSL] to the insured Steele under the Scheme are not “of the same nature and to the same extent” as the obligation of the Respondent [IAL] in its capacity as co insurer of HIH in respect of the insured’s liability”.
The High Court found firstly there was no common interest or common burden between HCSL and IAL because if IAL had paid Steele under its insurance policy before HCSL formed the contract between it and Steele by making payment under the Scheme, Steele would not have been an eligible person and hence not entitled for assistance under the Scheme. It was noted that “Steele and the appellant would never have entered into contractual obligations with each other and the possibility of double indemnification in respect of Steele’s loss would not have arisen”. Secondly, it was found that since HCSL “undertook no enforceable obligations under the Scheme until a payment or the first in a series of payments was made”, IAL would never have had an opportunity to bring a claim for contribution against HCSL. Thirdly, the offer of assistance to Steele was conditional upon Steele’s assignment of his rights under the HIH Policy which meant that the risk undertaken by HCSL could not be described as the same risk undertaken by IAL. Their Honours stated “it could not be said that the appellant’s contract to indemnify Steele, made after the HIH Group’s insolvency, and coming into existence upon payment in respect of Steele, and the respondent’s contract of insurance covering Steele were, to use this Court’s expression in Commercial and General Insurance [1973] HCA 51, the ‘one insurance’”.
Accordingly, the parties did not share a common interest or burden because the Scheme prevented any contractual obligations between HCSL and Steele from arising if Steele had already been indemnified by IAL. By entering into the contract to indemnify Steele, HCSL did not undertake the “same risk” as IAL had undertaken in the SGIC Policy covering Steele.
For there to be equitable contribution or double insurance, there should be two policies of insurance, one insured and the same risk or co-ordinate liabilities.
Bruce Cussen
Partner
T:+61 2 9390 8423
E: bruce.cussen@holmanwebb.com.au