Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd and Ors [2012] NSWCA 38

The High Court has finally considered the issue of proportionate liability and how the relatively untested mechanisms of this new regime imposed by the respective Civil Liability Acts of the States ought to be applied.

In the above decision lawyers who negligently prepared a mortgage document such that no security was offered to their client in circumstances where the mortgaged property had been disposed of by fraud and their client lender was unable to recover moneys advanced, had their liability limited to 12.5% of the lender’s loss under proportionate liability provisions mirroring those in Queensland. There could be no recovery against the fraudsters as they were bankrupt.

The High Court reiterated that “Part 4 of the Civil Liability Act represents a departure from the regime of liability for negligence at common law where liability may be joint or several but each wrongdoer can be treated as the effective clause and therefore bear the whole loss. Under that regime, a Plaintiff can certainly recover his or her loss from one wrongdoer, leaving that wrongdoer to seek contribution from the other wrongdoer. The risk that any of the wrongdoers will be insolvent or otherwise unable to meet a claim for contribution lies with the Defendant sued. By comparison, under a regime of proportionate liability, liability is apportioned to each wrongdoer according to the court’s assessment of the extent of their responsibility. It is therefore necessary that the plaintiff sue all of the wrongdoers in order to recover the total loss and, of course, the risk that one of them may be insolvent shifts to the plaintiff.”

The Law

In limiting the negligent solicitor’s liability to 12.5%, the High Court made the following observations about the operation of the proportionate liability regime:-

  1. Whilst the Lenders claim against the solicitors was based on a different cause of action from the claims it would have had against the fraudsters all the claims were founded on the Lender’s inability to recover the monies advanced and the acts or omissions of all of those parties materially contributed to the Lender’s inability to recover that amount.
  2. The purpose of Part 4 is achieved by the limitation on a defendant’s liability, effected by s35(1)(b) (s31(1)(b) in Qld) which requires that the court award a plaintiff only the sum which represents the defendant’s proportionate liability as determined by the court. For that purpose, it is not necessary that orders are able to be made against the other wrongdoers in the proceedings. Section 34(4) [s.30(2) in Qld] provides that it does not matter, for the purpose of Part 4 that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died. Thus under Part 4 of the risk of a failure to recover the whole of the claim is shifted to the plaintiff.
  3. Section 34(2) [or section 30(1) in Queensland] poses two questions for the court: what is the damage or loss that is the subject of the claim? Is there a person, other than the defendant, who acts or omissions also caused that damage or loss?

Logically, the identification of the “damage or loss that is the subject of the claim” is anterior to the question of causation. “Damage” is not a defined term, but damage to property and economic loss are included in the definition of “harm” in section 5.

  1. It is difficult to see that, as between concurrent wrongdoers, the damage they have caused can be other than the same for the purposes of s34(2), [s31 in Qld], since it is identified in each case as that which is the subject of the plaintiff’s claim.
  2. In identification of the damage or loss that is the subject of the claim, it is necessary to bear in mind that damage is not to be equated with what is ultimately awarded by the court, which is to say the “damages” which are claimed by way of compensation and which are assessed and awarded for each aspect of the damage suffered by a plaintiff. Damage, properly understood is the injury and other foreseeable consequences suffered by a plaintiff. In the context of economic loss, loss or damage may be understood as the harm suffered to a plaintiff’s economic interest.
  3. In this case although the Lender’s pleading did not expressly state the loss it claimed to have suffered given it claimed the loss and damage was continuing and that it had lost the sum advanced together with interest and other expenses, the High Court inferred this suggested that the Lender claimed to be unable to recover the moneys lent.
  4. As to whether the loss was the same and whether the timing of loss of relevant, the High Court said “At the time the monies were paid there was a serious risk that loss would accrue. But when the agreement and the mortgage were entered into and the payment made, it could not be said that the [Lender’s] rights of recovery against the fraudsters, one of whom was a solicitor, were valueless”.
  5. In testing damage by reference to causation the High Court said that the New South Wales Court of Appeal had erred in assuming that there is some requirement that one wrongdoer contribute to the wrongful actions of the other wrongdoer in order that they cause the same damage. There is no such requirement in Part 4 of the Civil Liability Acts. The contrary, Part 4 acknowledges, as does the common law, that a wrongdoer’s acts may be independent of those of another wrongdoer yet cause the same damage.
  6. The proper identification of damage should usually point the way to the acts or omissions which were its cause. Causation is largely a question of fact, to be approached by applying common sense to the facts of the particular case…the courts are no longer as constrained as they once were to find a single cause for a consequence and to adopt an “effective cause” formula. Courts today usually recognise that there may be wrongdoers whose acts or omissions occur successively, rather than simultaneously and who may be liable for the same damage, even though one may be liable for only part of the damage for which the other side is liable.
  7. The law’s recognition that concurrent and successive tortious acts may be a cause of a plaintiff’s loss or damage is reflected in the proposition that a plaintiff must establish that his or her loss or damage is “caused or materially contributed to” by a defendant’s wrongful conduct. It is enough for liability that a wrongdoer’s conduct be one cause. The relevant enquiry is whether the particular contravention was a cause, in the sense that it materially contributed to the loss. Material contribution has been said to require only that the act or omission of a wrongdoer play some part in contributing to the loss.
  8. As Hunt & Hunt pointed out in the submissions, there were two conditions necessary for the mortgage to be completely ineffective (a) that the loan agreement was void; (b) that the mortgage did not itself contain the debt covenant, but did so solely by reference to the loan agreement. Hunt & Hunt were responsible for (b) but the fraudsters were responsible for (a).
  9. The High Court said that on any view the fraudsters conduct in inducing the Lender to enter into the transaction and pay the moneys must be regarded as a material cause of the harm which resulted. It is not requirement of proportionate liability that the actions of one independent concurrent wrongdoer contribute to the negligence of another. The question is whether each of them, separately, materially contributed to the loss or damage suffered.
  10. As to the argument that it was Hunt & Hunt’s very duty to protect the Lender from fraud the High Court said it was doubtful that the scope of that duty was so extensive but in their duty was certainly to protect the Lender’s economic interest and as such would require any security drawn to be effective. However the court said that Hunt & Hunt could not have foreseen that the documentation, certified as correct by another solicitor, was forged.
  11. The High Court said at paragraph 54 “in determining the extent of Hunt & Hunt’s duty, care must be taken not to deprive the fraudster’s wrongdoing of any content”.
  12. If a finding of causation is made with respect to other wrongdoers so that a defendant is a concurrent wrongdoer within the meaning of Civil Liability Act, the relevant section [s31 in Queensland] then requires the court to determine the extent of the defendant’s responsibility. The High Court said “the value judgments involved in that exercise differ from, and are more extensive than, those which inform the question of causation.”
  13. Ultimately, then the High Court found that so far as concerns Hunt & Hunt, it is clearly appropriate that its negligence be adjudged a cause and that it be held liable for [Lender’s] damage. However, it is not consistent with the policy of Part 4 that Hunt & Hunt be held wholly responsible for the damage, when regard is had to the part played by the fraudsters’ conduct. Consistent with that policy, Mitchell Morgan should not recover from Hunt & Hunt any more than that for which Hunt & Hunt is responsible, as found by the primary judge.

Hunt & Hunt’s exposure therefore was limited to 12.5%.

Implications

The High Court has given a clear endorsement to the provisions of the Civil Liability Act with respect to proportionate liability. To be a concurrent wrongdoer there only has to be a material contribution by another party to the same damage and that expression will be given a broad context. The result of this case is a stark reminder that government intervention as a result of the so called insurance crisis now ensures that the risk of having an insolvent or unlocateable potential defendant is not borne by the remaining defendants but by the plaintiff who suffers damage. Time will perhaps tell with results such as these as to whether or not society and or the legislature remain of the view that this is a just outcome.