Charafeddine v Morgan - Issue Estoppel, Property Damage Claims, and impact on Personal Injury Claims

On 21 March 2014, the NSW Court of Appeal, in Charafeddine v Morgan [2014] NSWCA 74, delivered a decision which makes it clear that the determination of a property damage claim in one Court (in this case, the Small Claims Division of the Local Court) can give rise to an estoppel and prevent a claimant from bringing a subsequent personal injury claim.

Background

It is a basic premise of litigation that a claimant is required to bring all of their claims against a defendant at the one time and that a claimant cannot relitigate a matter against a defendant that has already been determined by a court. Due to modern insurance arrangements; claimants, insurers and solicitors need to be wary of any other possible claims that may exist. A common scenario is a motor vehicle collision where:

• a comprehensive motor vehicle insurer may have a subrogated claim for property damage in the Local Court;
• the claimant, may have a personal injury claim in the District or Supreme Court; and
• there may be other claimants, such as a credit hire car providers, that may seek to bring a claim.

In Charafeddine v Morgan, the appellant was a defendant in proceedings in the Small Claims Division of the Local Court of NSW. The plaintiff had claimed damages to property arising from a motor vehicle collision. Liability was denied; however, at the hearing of the matter, the appellant was found liable. It appears that there was no cross claim brought in the proceedings.¹ 

Nine months following the Local Court proceedings, the appellant instituted proceedings in the District Court seeking damages for personal injury. The Defendant (the Respondent in the Appeal) in the District Court proceedings sought summary judgment as a result of the Local Court proceedings. Her Honour, Gibson DCJ:² 

•  found that an issue estoppel arose as a result of the Local Court proceedings; and
•  struck out and dismissed the statement of Claim.

The grounds of appeal

The Appellant’s ground of appeal was very narrow and amounted to the submission that due to the nature of the proceedings in the Small Claims Division, specifically the restricted practice and procedure in the Small Claims Division constituted a special circumstance in which an issue estoppel ought not have been applied.³ The existence of an issue estoppel was not disputed.⁴

Court finding and impact

The Court, in dismissing the appeal, found that no special circumstances had been disclosed.5 Importantly, the Court pointed out that rather than litigating the Local Court proceedings, there were two avenues available to the Appellant to protect her position:⁶

Points to take away

Whilst there was no insurer involved in these proceedings and the Court did not examine the issue, based on the decision in Tiufino v Warland,⁷ it is likely that subrogated proceedings litigated by an insurer in the Small Claims Division will create an issue estoppel and may also prevent an insured from brining a personal injury claim in later proceedings (the situation is somewhat different in Victoria as a result of the decision in Linsley v Petrie).⁸ This raises important questions of the duty of utmost good faith between the insurer and their insured, as well as significant issues for solicitors instructed by those insurers, especially as the solicitor owes the same fiduciary duties to the insurer and the insured. 

Insurers and solicitors ought to conduct sufficient checks prior to the institution of legal proceedings, especially lower jurisdictions such as the Local Court, to ensure that they are not prejudicing their client’s rights.