Hotchin v NZGT: own goals for litigator and litigation?

Contribution is available to a defendant from another liable for the same damage alone, without any requirement that liability arises from some obligation had in common with the defendant.

Background: judgments below require ‘coordinate liability’

In Hotchin v The New Zealand Guardian Trust Company Limited [2016] NZSC 24, Mr Hotchin had sought NZGT’s contribution to any liability he may have under compensation claims brought by the FMA against him as a director of the Hanover Group. Section 17(1)(c) of the Law Reform Act 1936 permits one tortfeasor to obtain a contribution to its liability from another “liable in respect of the same damage”.

The Court of Appeal upheld the High Court’s decision s 17(1)(c) of the Law Reform Act 1936 required ‘coordinate liability’ between tortfeasors, if they were to be liable jointly to pay compensation for inflicting the same harm. The Court of Appeal held, under the statute or in equity, there must be “a common or shared obligation giving rise to common liabilities where the nature of the harm resulting is the same or indivisible” ([68]). The nature and extent of Mr Hotchin’s prospective liability was different from that contended against NZGT.

NZSC result: ‘same damage’ is sufficient

A majority of the Supreme Court, in separate judgments, has allowed Mr Hotchin’s further appeal – essentially on the basis contribution is available to a defendant from another liable for the same damage alone, without any requirement the liability arise from some obligation had in common with the defendant.

That is all the statute requires ([73] per Glazebrook J; [137] per Elias CJ; [184] per William Young J). As a matter of policy, a chosen defendant should not have to bear the burden of common liability with another for the same damage pursued by the plaintiff: any other result would be unjust ([71] per Glazebrook J; [140] per Elias CJ).

To William Young J fell the heroic task of analysing preceding cases ([182]-[216]), to arrive at a “simple and principled” test (as Glazebrook J lauded it ([71])) for determining the existence of ‘same damage’:

  • defendant’s and third party’s shared liability to plaintiff ([219]);
  • third party’s liability only to extent of responsibility if sued directly by plaintiff ([220]); and
  • damage not ‘same’ if distinct ([222]), or mutually exclusive ([224]);
  • characterised by either tortfeasor’s payment to the plaintiff directly reducing the other’s liability ([232]).

The minority (Arnold and O’Regan JJ) favoured the approach adopted by the House of Lords in Royal Brompton Hospital ([318]), which they comprehended made “common liability… a touchstone of the same damage requirement” ([287]). But William Young J considered all references to ‘common liability’ in Royal Brompton Hospital are “consistent with shared liability for the same damage being sufficient” ([185]).

Moreover, the minority found inconsistency between the majority’s position here, and that taken by the majority in Altimarloch (in which equitable contribution required coordinate liability) ([343]). That is acknowledged, but accommodated, by the majority ([94] per Glazebrook J; [150]-[151] per Elias CJ; [221] per William Young J).

An own goal for Hotchin?

In the meantime, Mr Hotchin settled the FMA’s claim against him, without any admission of liability – indeed, with strenuous assertions he was blameless. Paradoxically, his claim against NZGT is contingent on him establishing he is ‘responsible in law’ for the losses to Hanover investors – a claim, in the particular circumstances of the directors’ strident protestations of innocence, Glazebrook J considered would be “hypocritical”, and “a misuse of court processes” to which the courts should not be party ([106]); the Chief Justice saw as “artificial” and “incongruous” ([128]-[129]); and the merits of which William Young J was “sceptical” ([233]).

An own goal for efficient dispute resolution?

As noted previously on this blog, the broader entitlement to contribution will complicate case management and trial.

The majority acknowledges the greater scope for contribution claims, reduced opportunity for interlocutory strike out on the ‘just and equitable’ ground, and the prospect of more third parties at trial, with detrimental impact on plaintiffs’ prosecution of their previously straightforward claims. But that, says Glazebrook J, “may just be the price necessary to secure conceptual simplicity and a just result” ([72]).

The minority doubts ‘a just result’ will follow: plaintiffs confronted with contribution claims may be forced to progress to trial, losing opportunity for settlement, and making the proceeding “more complex, expensive and lengthy”. The majority’s ‘conceptual simplicity’ is “inherently uncertain and unpredictable” and “a high price to pay”. ([317])

 

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