Contribution & Recoupment
Overview
Contribution and recoupment are restitutionary in nature. Recoupment may arise where the claimant pays the respondent’s debt or obligations. Some element of compulsion is required.
The principle of contribution applies generally where persons have liability in common. This may include co-owners, partners or other joint owners. The Civil Liability Act provides for a right of contribution between wrongdoers and who commit torts or who are liable for breach of contract. See generally the sections on contribution under the Civil Liability Act.
The court may determine the level of contribution as it considers just and equitable. The relevant parties against whom contribution is sought must be party to the proceedings. They may be joined for the purpose of establishing the obligation to contribute.
Recoupment and contribution proceedings may be taken, notwithstanding that the primary claim against the respondent is subject to the statute of limitations, provided that it was not statute barred when the claimant for contribution either paid or was sued for the liability concerned.
Contribution
Where debtors are concurrently liable, payment by any of more than his fair share gives that person a right of contribution. The same principle applies to guarantors of co-debtors relative to the other debtors. This is subject to any contract to the contrary.
The same principle applies as between co-guarantors. If one pays more or a greater proportion than the others, he may recover proportionately from his fellow sureties. This is so regardless of whether he knows of the other guarantors when he guarantees the debt.
It is presumed that the parties should pay equally in the absence of an agreement. Where the liability of one or more is limited, their maximum caps the amounts for which they are liable. Where one is insolvent, he drops out and the proportions of the others increase correspondingly so that presumptively the solvent guarantors should pay equally. Where there is a limitation, apportionment appears to be in accordance within the overall maximum limits.
Recoupment Requirements
Recoupment requires that the respondent’s obligation or debt is discharged or discharged in part by the claimant. Indirect benefit is not enough. Where the claimant’s obligation to pay the third-party exists independently, recoupment is not available.
The voluntary unrequested payment to the third-party for the respondent’s debt is not sufficient. If however, the payment is later ratified by the debtor/respondent or where the third-party/creditor could have sued the claimant or otherwise enforced the liability, the right of recoupment remains. Accordingly, where the claimant has paid a sum to protect his own assets against actual or prospective litigation, voluntary discharge creates a right of recoupment.
Generally, payments to a third-party who has been wronged by another’s breach of contract or tort even if designated to compensate for his losses, do not reduce or discharge the obligations of the person who has committed the tort or breach of contract. Where, however the person whose obligation has been paid, is held liable for sums paid by the claimant, then the claimant’s payment to the person who has suffered the breach of contract or tort, will discharge it.
Settlement of Claim by Joint Wrongdoer
The claimant must not have paid the third-party voluntarily. He must be compelled or be prospectively compelled to do so. If he is not so liable, even if he compromises a claim in good faith, he has no right of recourse.
There is a statutory exception in a case of joint wrongdoers under the Civil Liability Act. In this context, wrongdoers refer to persons who have committed tort/civil wrongs, persons who have breached the contract. In any proceeding for contribution, the contributor shall not be entitled to resist the claim on the ground that the claimant who has paid the injured person was not liable to such person.
Subject to this provision and to the general law of estoppel, he may resist the claim on the ground that he himself is not liable to such person. For this purpose, he may dispute any question of law or fact even though that question arises also on the liability of the claimant to the injured person. The contributor may in the same way dispute the amount of the damage suffered by the injured person.
Sufficient Compulsion
If there is a technical flaw which could be easily rectified in order to make the compulsion legally effective, then it will nonetheless constitute compulsion for this purpose of recoupment. The compulsion must not arise from a new contract or obligation entered independently of the relationship with the respondent.
Accordingly, entering a deed or a contract to pay another’s debt is not sufficient compulsion for this purpose. Likewise, a new guarantee entered without compulsion for an existing debt, which is paid off may not be sufficient compulsion. It is likely to be different if the respondent has requested the guarantee. However, the mere fact that it is done voluntarily and without a prior request, may not be enough to deny restitution.
It seems to be enough that the claimant undertakes the liability for the respondent’s debt for good commercial reasons, for the protection his property and assets or for other good reason not merely involving a mere gratuitous intention to provide gratuitous benefit.
A person may be compelled, notwithstanding that there is no legal right of action against him A person whose assets are wrongfully taken by way of enforcement by a third-party, who discharges the respondent’s liability to the third-party in order to free his assets, is likely to have sufficient compulsion. Similarly, where the property is subject to invalid security for another’s debts, their payment in order to discharge the property is sufficient compulsion.
Guarantor
Where a surety or guarantor pays the principal debt, he has a right of recoupment against the principal debtor once the creditor has been paid. He may recover no more than what he has actually paid.
The respondent must be the one who has primary liability, relative to the claimant. A debtor will not be permitted to recoup from his guarantor, where he discharges the debtor’s primary liability to the creditor. This is subject to any agreements or contract between the parties to the contrary, which commonly preclude any recoupment until the creditor is paid in full.
The guarantor who has paid the principal obligor’s liability may also be subrogated to any security held by the creditor. This is so regardless of whether he had prior knowledge of it. See the sections on subrogation. It allows the redeeming guarantor to stand in the shoes of the creditor/ mortgagee.
Subrogation and Salvage
Where a person who has an interest pays off a sum or burden on property, which has the effect of discharging or saving the property for the benefit of all those interested, then he is entitled to recoupment or subrogation. The payment must be made by a person with an interest of the property for his own purpose and not pursuant to a duty. This is justified in the salvage context on the basis of necessity.
Where a number of persons are co-liable on a debt which is secured, common law allows any co-owner to redeem the debt, thereby creating a presumptive right of subrogation for the amount paid, as against his co-liable co-owners. The principle applies to any person with an interest in the equity redemption and not only co-owners. It may apply, for example, to second mortgagees, life tenants and remaindermae.
The principle appears to be limited to charges over land and is limited to payment made by those interested in the equity redemption, in order to preserve their own interest. The payment creates a presumptive, prima facie right of subrogation.
The Irish courts have accepted that the doctrine of salvage may have wider application than applies in other common law jurisdictions. Salvage gives a proprietary remedy by way of a lien, in addition to a personal right, which may operate to in the absince of a pre-exisitng security held by the creditor who has been discharged.