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Does a subrogated claim give rise to a general res judicata if an insured’s loss is partly insured and partly uninsured?

September 5th, 2016 · No Comments

In De Armas v Peters [2015] NSWSC 1050, the Supreme Court of NSW declined to grant leave to appeal from a decision of the Local Court.  The Local Court had allowed a man to sue for the cost of repairs to his car, even though he had previously sued her for car hire costs he incurred while those repairs were being undertaken.  And even though, in that first case, the Local Court had found him to be the negligent driver, not the woman.  Impossible?  There was of course a twist.  The first suit was brought with the involvement of a car hire company from whom the man had hired the car he used while his car was being repaired. No doubt they had told him that the car would be at no cost to him and the cost of the hire would be recovered by the car hire company’s solicitors from the negligent driver.  The second suit was brought by his insurer, having stepped into his shoes through the law of subrogation.  The man’s losses were partly insured and partly uninsured, hence his deal with the car hire company to which he was probably referred by his repairer.  And the woman’s insurer had not taken any defence of abuse of process in either proceeding before she obtained judgment in the first.  You can watch a discussion between AAMI’s solicitor and barrister about the decision on the excellent BenchTV here.

A male driver was involved in a car crash with a car being driven by a woman.  This was in NSW.  He was insured by NRMA.  He sued the woman for negligence in the Local Court, claiming only damages for loss of the use of the car while it was being repaired.  Those damages are quantified by the cost of hiring a car.  To complicate things, he seems to have claimed only the uninsured part of those damages, since his policy with NRMA had a limited courtesy car cover.  He did not tell NRMA that he was bringing these proceedings. Though it is not apparent from the judgment (but is apparent from the video), this suit was very likely brought on the man’s behalf by the company from which he hired his car, as part of a deal the man did when he hired it at no up-front cost to himself.  Then NRMA brought a second set of proceedings in the man’s name, ignorant of the other proceedings, seeking compensation for the damage to the car (quantified by the cost of repairs), towing charges, and the insured hire car charges.

What is odd is that, even though she was insured by AAMI who knew about both proceedings, the woman defended both claims without pointing out to NRMA that there were two claims on foot for different heads of damage on the same cause of action and without pleading abuse of process on the basis that there were two concurrent proceedings on the same cause of action, giving rise to the possibility of what is sometimes described as ‘the scandal of conflicting judgments’.  She even counterclaimed in the first proceeding without bothering to do so in the other.  Indeed, she won her counterclaim and the man lost his claim; the Magistrate found the man to be the negligent driver.

Then AAMI told NRMA that it was all over: there was a res judicata flowing from the determination of the first proceeding which determined the outcome of the second proceeding, namely ‘your bloke, not our woman was the negligent driver’.  ‘What first proceeding?’ NRMA said.  Messy.

AAMI applied for summary judgment for the woman in the second proceeding, and then amended her defence so as, belatedly, to plead that the second proceeding was an abuse of process.  The Magistrate dismissed the summary judgment application, finding that the man acting through the credit hire company  he’d done his deal with, and NRMA stepping into the man’s shoes through the doctrine of subrogation, were different persons for the purpose of res judicata.

That might sound kinda novel, but the law is creative when faced with this kind of problem where doctrine gets in the way of commerce.  In Linsley v Petrie [1998] 1 VR 427, the Court of Appeal allowed a woman to sue a man for injuries she sustained in a car crash even though her insurer had previously stepped into her shoes and sued the negligent male driver for compensation for property damage her car had sustained in the crash.  Justice of Appeal Hayne and Acting Justice of Appeal Smith held that there were, in a sense, two causes of action, since the contents of the single duty of care to avoid personal injury and property damage were different.  Justice of Appeal Calloway confirmed the inferior courts’ toleration of the second suit on a different basis: that it would be unconscientious to allow the man to take advantage of the woman having done her duty under the doctrine of subrogation and allowed her insurer to step into her shoes.  That was a view that Smith AJA sympathised with.

Calloway JA managed to wax quite lyrical about this little smash n bash:

‘The luminous judgment of my brother Hayne shows how limited are the techniques of the common law. They usually produce justice, but it is sometimes rough justice and, even where it is not, the artisans’ tools are blunt. His Honour’s analysis shows that there are plaintiffs whom the common law would be powerless to protect from the supposed consequences of obeying the dictates of equity. Subrogation is an equitable doctrine. Let us see first how it relates to issue estoppel and whether equity prevents the interaction of the two principles from causing injustice. It might otherwise be thought that the Judicature Act did not so much open a sluicegate, so that two streams might flow in the same channel, as it unloaded a mixed cargo of uncut gems and rubble into the pellucid waters of the Chancellor’s piscary.’

The Victorian Court of Appeal’s thinking was taken up by the Supreme Court of NSW.  The Court declined to grant leave to appeal from the Magistrates’ dismissal of AAMI’s summary judgment application, without deciding whether the Magistrate was right or wrong.  Partly that was because the costs of the appeal would be disproportionate to the amounts in issue.  So the man got to sue the woman all over again, and in the second trial, the Court could find that the woman was the negligent driver, or that they were both partly at fault, in direct contradiction of the outcome of the first case.  We never got to experience the deliciousness of such a scandal, however: the second case was resolved out of court.

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Tags: Abuse of process · Civil Procedure Act 2010 (Vic) · Insurance · Legal writing · Litigation estoppels · Negligence