Hotchin v The New Zealand Guardian Trust Co Ltd

The Supreme Court has considered the boundaries of claims for contribution between defendants, including revisiting equitable contribution first considered in Altimarloch.

Section 17(1)(c) Law Reform Act 1936 requires a non-technical, broad approach to claims for contribution.

Contribution is available where tortfeasors are liable to the plaintiff for the same damage, with no additional requirements.

The same approach applies to claims for equitable contribution.

Mark Hotchin, a director of Hanover Finance Ltd and other collapsed finance companies (referred to collectively as Hanover), faced proceedings by the Financial Markets Authority (FMA). The FMA alleged that the Hanover directors, including Hotchin, distributed offer documents containing untrue statements on which investors relied when purchasing securities or rolling over their investments.

The New Zealand Guardian Trust Co Ltd (NZGT) was Hanover’s trustee. Hotchin joined NZGT to the FMA proceedings, claiming it is liable to contribute to his liability to the FMA under s17(1)(c) Law Reform Act 1936 (LRA) and in equity, based on the approach to equitable contribution taken in the Supreme Court’s decision in Altimarloch.¹

NZGT applied to strike-out Hotchin’s claims against it. The High Court and Court of Appeal did so on the basis that the damage caused by the breach of his duties to make accurate statements in the offer documents was not of the same nature and extent as the damage caused by NZGT’s breach of its duties to protect investors against the harm arising from breaches of Hanover’s obligations under the trust deed. Hotchin and NZGT had no common or shared obligations and their liabilities were independent.²

Hotchin appealed to the Supreme Court. The majority, Elias CJ and Glazebrook and William Young JJ, upheld Hotchin’s appeal, accepting that his claims for contribution against NZGT are tenable.³ The majority decision represents a significant simplification of the test for contribution under s17(1)(c) LRA and in equity.

The majority (in three separate judgments) construed the text of s 17(1)(c) LRA in accordance with its statutory purpose to provide a broad basis for contribution.
William Young J noted that the LRA was intended to avoid arbitrary outcomes due to the plaintiffs’ choice of who to sue. The majority were more concerned to preserve (in principle) NZGT’s right to claim contribution from Hotchin as the primary wrongdoer. Contribution rights between tortfeasors are reciprocal, not one-way.

The majority said that to determine whether there is the “same damage” it is sufficient that each tortfeasor’s breaches result in the same harm. The Court does not need to perform a legal analysis of the causes of action against each tortfeasor or consider whether they have a common or co-ordinate liability. It is not necessary for the nature of the liabilities or the underlying duties of each tortfeasor to be the same.

Elias CJ said the question whether the tortfeasors are responsible for the same damage is “one of fact and degree: whether the harm for which the claim is made is in substance the same”.⁴

Simplifying the test for “same damage” may well result in less contribution claims being capable of strike out and additional burdens on all parties where ultimately unmeritorious contribution claims are taken to trial. However, the majority considered this a reasonable price to pay to achieve justice.

Each of the majority considered it tenable on the facts that the parties were responsible for the same damage. The harm caused by Hotchin’s negligent misstatements and by NZGT’s negligent monitoring was the (total or partial) diminution in value of the investors’ Hanover securities.⁵ Hotchin and NZGT had caused a single harm to the investors, albeit they had contributed to that harm in different ways.⁶

The minority (Arnold and O’Regan JJ) followed the House of Lords’ approach in Royal Brompton Hospital NHS Trust v Hammond.⁷ They considered s 17(1)(c) LRA requires a legal analysis of the claims against each tortfeasor to determine whether there is a common liability.⁸ Further, that the harm investors suffered as a result of Hotchin and NZGT’s breaches was not the same damage.

NZGT’s negligent monitoring of Hanover led to a lower level of return from the liquidation but did not cause the investors to acquire debt securities at a lower value than if the statements in the offer documents were true. The minority said this was not a common liability. At most NZGT provided the opportunity for Hotchin to negligently mislead investors.

A party may seek equitable contribution where another party has caused damage by a separate wrong.⁹ Equitable contribution is relevant because it remains to be determined whether Hotchin’s liability to the FMA is tortious.¹⁰
As a consequence of the Supreme Court’s decision in Altimarloch there has been uncertainty regarding the test for equitable contribution in New Zealand. The majority in Hotchin took the opportunity to resolve this by finding that the test for equitable contribution should be the same as that under s17(1)(c) LRA. Elias CJ said for equitable contribution it is “sufficient … if parties are liable to another person in respect of the same damage.¹¹ It does not turn on how the wrongs are classified, the measurement of damages, or the similarity of the parties’ liabilities.¹² They considered Hotchin’s equitable contribution claim against NZGT also tenable.

The minority disagreed. They said that the majority would “effect change in the law from that articulated by the majority in Altimarloch in circumstances where no counsel asked for that decision to be reviewed”.¹³ It applied the test of co-ordinate liability, and found that the liabilities of Hotchin and NZGT were not of the same nature and extent, based on their reasoning for Hotchin’s claim under s17(1)(c) LRA.¹⁴ They would dismiss the claim in equitable contribution.

Hotchin settled with the FMA before the Supreme Court hearing. The Supreme Court noted that his settlement created some difficulties as it had been reached with no admission of liability. To succeed in his claims against NZGT Hotchin will have to establish that he is liable to investors in tort. Glazebrook J considered Hotchin hypocritical at best in settling on this basis and making public statements asserting he has no liability to investors. She suspected Hotchin’s contribution claim to be a cynical attempt to force settlement with NZGT.¹⁵ William Young J considered Hotchin’s position “diametrically opposed” to his litigation against NZGT,¹⁶ and was also sceptical.
Hotchin would also face other obstacles at trial as, although the majority considered his claims tenable, they expressed concerns about the merits. Hotchin, as primary wrongdoer, was essentially asking the Court to find that NZGT owed investors a duty to prevent him from continuing his wrongdoing. The differing roles and duties of Hotchin and NZGT mean that it may well be established at trial that NZGT and Hotchin are not responsible for the same damage.

The simplified (and consistent) approach to contribution claims under s17(1)(c) LRA and in equity should be welcomed, but it may see more claims made and proceeding to trial than would otherwise have been the case. Although this means that potentially unmeritorious claims such as Hotchin’s may proceed to trial, the likely outcome is that liability is ultimately shared between wrongdoers on a just and equitable basis.

1. 1. Marlborough District Council v Altimarloch Joint Venture Ltd [2012] 2 NZLR 726 (SC)
   2. Financial Markets Authority v Hotchin [2013] NZHC 1661, [2014] 3 NZLR 655 (HC) and Hotchin v The New Zealand Guardian Trust Company Ltd [2014] NZCA 400, [2014] 3 NZLR 685 (CA)
   3. Hotchin v The New Zealand Guardian Trust Company Ltd [2016] NZSC 24
   4. [139]
   5. [88] per Glazebrook; [143 to 145] per Elias CJ; and [231 to 232] per William Young J
   6. [89]
   7. [2002] UKHL 14, [2002] 1 WLR 1397
   8. [260] and [263]
   9. See Altimarloch, [57-58] per Elias CJ, [75] per Blanchard J, from
   10. [124] per Tipping J, and from [212] per McGrath J
   11. [146]; the minority is critical of this need: [343]
   12. [153]
   13. [152]
   14. [343]
   15. [344]
   16. [106]
   17. [233(a)]

For any further information regarding this please contact Andrea Challis, Peter Hunt or Kiri Harkess