Niru Battery Manufacturing Company & Anor v Milestone Trading Ltd. & Ors

A claimant who has satisfied a judgment may obtain equitable subrogation where that payment has relieved another defendant of a restitutionary liability and it would be unjust for that benefit to remain with the other defendant. The claimant need not establish that the other defendant was primarily liable, and the person whose rights are preserved need not be a party to the proceedings.

Different underlying liabilities remain important. A tortfeasor is not automatically barred from equitable relief merely because its own negligence caused the loss. Relief may be denied on public-policy grounds where the claimant must rely on criminal or immoral conduct. Restitutionary liability is not liability for the same damage as tortious liability for the purposes of section 1 of the Civil Liability (Contribution) Act 1978. Recoupment requires discharge of a liability resting primarily on the defendant.

The proceedings were Part 20 claims by SGS United Kingdom Ltd against Crédit Agricole Indosuez for contribution, indemnity, subrogation and recoupment. In the main action, SGS had been held liable in negligence for issuing a false inspection certificate, while CAI had been held liable in restitution after receiving money paid under a mistake and failing to establish change of position.

SGS paid the judgment in full. The court therefore had to determine whether SGS could recover from CAI the amount paid in respect of the claim and costs, and whether the parties’ liabilities were sufficiently connected for statutory contribution, common-law contribution, recoupment or equitable subrogation.

1. Statutory contribution. The claims against SGS and CAI did not concern the same damage within sections 1(1) and 6(1) of the Civil Liability (Contribution) Act 1978. SGS was liable in tort, whereas CAI’s liability was restitutionary and arose from receipt of a benefit. The reasoning in Friends’ Provident Life Office v Hillier Parker May & Rowden [1997] Q.B. 85 could not be relied on in view of the disapproval in Royal Brompton Hospital NHS Trust v Hammond [2002] UKHL 14, [2002] 1 W.L.R. 1397.
2. Equitable subrogation. The governing questions, derived from Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 A.C. 221, were whether CAI would be enriched at SGS’s expense, whether the enrichment would be unjust, and whether policy nevertheless required denial of relief. Subrogation is a flexible restitutionary remedy which regulates the parties’ legal relationship; it is not confined to recognised historical categories or cases involving primary and secondary liability.
3. The absence of Niru from the proceedings did not defeat the claim. Niru’s rights against CAI had merged in the judgment, and satisfaction by SGS barred Niru from pursuing CAI further. Equity could preserve the benefit of those rights in favour of SGS. The fact that the judgment was under appeal did not alter the parties’ existing legal position unless and until the judgment was set aside or varied.
4. SGS’s negligence did not, without more, prevent relief. The former common-law rule against contribution between tortfeasors had lost its significance after the Law Reform (Married Women and Tortfeasors) Act 1935. Public policy could still deny relief where reliance on criminal or immoral conduct was necessary, but SGS’s negligence was not such conduct.
5. CAI’s disposal of the money did not remove the enrichment on which its liability was based. CAI remained liable to restore the benefit until the judgment was satisfied, and SGS’s payment relieved CAI of that liability at SGS’s expense. SGS was therefore entitled to equitable subrogation for the whole sum paid in satisfaction of the substantive judgment, excluding costs.
6. Recoupment and costs. Recoupment was unavailable because SGS had discharged its own tortious liability, not a liability resting primarily on CAI. Contribution was nevertheless available in respect of costs, since the costs liability arose from the conduct and outcome of the proceedings rather than the underlying causes of action. CAI was ordered to pay SGS half the costs paid, without prejudice to any later claim involving Mr Mahdavi.

The judgment states that the main action had been decided by the same court on 11 July 2002 in [2002] EWHC 1425 (Comm), reported at [2002] All E.R. (Comm) 705. The present Part 20 proceedings were adjourned for further argument after the decision of the House of Lords in Royal Brompton Hospital NHS Trust v Hammond [2002] UKHL 14. The judgment does not state the result of any appeal from the main action.