Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10

Following on from our article sent earlier this week ("Apportionment of loss following fraud on the lender") we write to report on the recent High Court decision in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd. This case provides some clarity to the question of when another person may be held to be a concurrent wrongdoer, an aspect of Australian proportionate liability regimes that causes practitioners a great deal of difficulty.

The decision in St George Bank Ltd v Quinerts Pty Ltd (2009) 25 VR 666 (Quinerts) had previously been a key case in the approach to be taken in determining whether another person was a concurrent wrongdoer, and the High Court has now revisited the issues grappled with in Quinerts

In this case, the High Court had to consider whether solicitors who had negligently prepared a mortgage should have their liability limited by the actions of two fraudsters.

By way of background, Mr Caradonna and Mr Vella entered into a business venture.  Mr Caradonna, unknown to Mr Vella, obtained possession of certificates of title to three properties owned by Mr Vella and used them fraudulently to obtain a loan. 

Mitchell Morgan Nominees Pty Ltd had lent money on the security of a mortgage over one of the properties.  Mr Caradonna’s cousin, Mr Flammia, acted as his solicitor and dishonestly certified that he had witnessed the borrower’s signature.  Mr Caradonna had forged Mr Vella’s signature on the loan documentation.  On the basis of the forged documents and certification, a mortgage was registered. 

The mortgage and loan documents were drawn by Hunt & Hunt.  The loan agreement was void by reason of the forgery and Mr Vella was not liable to Mitchell Morgan under it.  The mortgage, whilst also forged, had gained the benefit of indefeasibility of title, but because it purported to secure Mr Vella’s indebtedness by reference to the void loan agreement, it secured nothing and was liable to be discharged.  Hunt & Hunt was held to be negligent because it should have prepared a mortgage containing a covenant to repay a stated amount (a matter which was not in issue in the appeal). 

Part 4 of the Civil Liability Act 2002 (NSW) sets out New South Wales’ proportionate liability regime and its applicability to any proceedings involving an apportionable claim (being a claim for economic loss or damage to property in any action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including a claim arising from personal injury).  Section 35(1) provides:

  1. the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the defendant’s responsibility for the damage or loss, and
  2. the court may give a judgment against the defendant for not more than that amount.

Section 34(2) provides:

In this Part, a concurrent wrongdoer, in relation to a claim, is a person who is one of two or more persons whose act or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.

The primary judge held that Mitchell Morgan’s claim against Hunt & Hunt was an apportionable claim and that Hunt & Hunt’s liability should be limited to 12.5 per cent of the loss, with the remainder attributable to the fraudsters.  The New South Wales Court of Appeal allowed Mitchell Morgan’s appeal, holding that Hunt & Hunt was not a concurrent wrongdoer because the fraudsters’ acts did not cause the loss and damage which was claimed against Hunt & Hunt. 

French CJ, Hayne and Keifel JJ (Bell and Gageler JJ dissenting) held that the loss and damage the subject of the claim against Hunt & Hunt was the loss and damage caused by Mr Caradonna and Mr Flammia, as it was founded on Mitchell Morgan’s inability to recover the monies advanced and the acts or omissions of all of them contributed to the Respondents inability to recover that amount. 

The majority held that there were two questions for the court to consider when considering the operation of section 34(2): what is the damage or loss that is the subject of the claim?  Is there a person, other than the defendant, whose acts or omissions also caused that damage or loss?   The majority considered the analysis in Quinerts and discussed the care that must be taken in identifying the loss and damage relevant to the operation of the provision dealing with concurrent wrongdoers, in particular the need to ensure that, so far as concerns concurrent wrongdoers, the loss or damage they caused to a plaintiff must be the same loss or damage.  In the context of economic loss, loss or damage may be understood as the harm suffered to a person’s economic interests.  This should be differentiated from “damages”, which are claimed by way of compensation and ultimately assessed and awarded for each aspect of damage suffered by a plaintiff.  Damage, properly understood, is the injury and other foreseeable consequences suffered by a plaintiff (per French CJ, Hayne and Keifel JJ at [24]).

The majority then went on to discuss how the courts now accept that more than one act may cause or give rise to liability for the same damage.

When answering those two questions, it is useful to contrast the Court of Appeal’s view with that of the majority of the High Court.  In the reasons of Giles JA, with whom the four other members of the Court of Appeal agreed, it is said:

“The loss, or harm to an economic interest, is in the one case paying out money when it would not have otherwise have done so, and in the other case not having the benefit of security for the money paid out.  The losses the subject of the claims for economic loss by Messrs Caradonna and Flammia and the loss the subject of the claim for economic loss against Hunt & Hunt are different.” I

The majority of the High Court, on the other hand, held at [49]:

“Because Mitchell Morgan’s damage is its inability to recover monies, it is understandable that attention is focused upon the immediate consequence of Hunt & Hunt’s negligence, namely the mortgagee’s inefficacy as security against the property, as causative of the damage.  However, as Hunt & Hunt points out in its submissions, there were two conditions necessary for the mortgage to be completely ineffective: (a) that the loan agreement was void; and (b) that the mortgage document did not itself contain the debt covenant, but did so solely by reference to the loan agreement.  Hunt & Hunt was responsible for (b) but the fraudsters where responsible for (a).”

The dissenting minority, however, formulated the following test in analysing the definition of “concurrent wrongdoer”.  Agreeing with the propositions outlined above that the application of the definition starts with an identification of the damage or the loss that is the subject of the claim by A against B, and that the loss or damage that is the subject of the claim by A against B is distinct from “damages” that A claims from B, the minority went on to hold that once the damage or loss that A claims to have been caused by one or more wrongful acts or omissions is identified, the question is then whether C was also liable to A for the same harm?

In applying that test, the minority held that had the Appellant not breached its duty of care to the Respondents, the Appellant would have included a covenant to repay in the mortgage with the result that they would have had the security of the mortgage over the property.  Nothing done by the fraudsters caused that lack of security.  The fraudsters were not persons whose acts or omissions caused the economic loss – the lack of security – that was the subject of the claim. 

The question of whether a person is a concurrent wrongdoer is clearly not an easy one, made only more controversial given the minority judgment.  However, given the difference the inclusion or exclusion of a concurrent wrongdoer in a proceeding can make to the liability of a defendant or the pool of money available to satisfy any award of damages made in favour of a plaintiff, it is a question that all parties must get right.