Since 2009, the scope of proportionate liability legislation across all Australian jurisdictions has been severely constrained by the imposition of a very high hurdle by the Victorian Court of Appeal in St George Bank v Quinerts (2009) 25 VR 666. Unless tortfeasor A could show that the acts of tortfeasor B contributed to tortfeasor A’s wrongful actions, proportionate liability provisions were not enlivened. Quinerts has since been followed by a five member bench of the NSW Court of Appeal in Mitchell Morgan v Vella (2011) 16 BPR 30,189.

Yesterday, the High Court delivered a significant decision (Hunt & Hunt v Mitchell Morgan [2013] HCA 10) which overturned the decision in Vella and dismissed much of the reasoning in Quinerts. In doing so, the High Court has confirmed that proportionate liability legislation will have a significant role to play in many disputes where the actions of more than one party were involved in the losses claimed.

Whilst the decision is of significant importance for the insurance industry, there are also ramifications for all other sectors. Notably, as demonstrated by this case, the ability of lenders to pursue their advisors for all losses flowing from a transaction could be curtailed and where fraud is involved, lenders might only be able to recover a small component of the monies advanced.

The advent of Proportionate Liability legislation

Partly in response to the failure if HIH in 2002, and subsequent difficulties in the insurance market (increases in premiums and unavailability of certain cover), legislation was enacted across all Australian jurisdictions which dramatically changed the existing solidary liability regime.

Proportionate liability represented a major change in the law. Previously a person was jointly and severally liable for damage caused and a plaintiff would pursue the defendant with the deepest pockets. It was up to that defendant to seek contributions from other parties. Following the advent of proportionate liability, a plaintiff bears the risk of failing to pursue all parties who contributed to the damage. Should a plaintiff fail to do so, then they will only recover that loss to which the pursued defendants contributed with the courts being empowered to apportion liability against parties not joined as defendants.

The operation of the legislation

In general terms, proportionate liability operates in cases where two or more people have contributed to loss and damage (referred to as ‘concurrent wrongdoers’). In such cases, the liability of the concurrent wrongdoers is limited to an amount reflective of their responsibility for such loss. Proportionate liability only applies to ‘apportionable claims’ which include tortious claims and breaches of fair trading provisions.

Critical to the operation of the provisions is a determination of whether the acts or omissions of the alleged wrongdoers “caused, independently of each other or jointly, the damage or loss that is the subject of the claim”. This issue was central to the High Court’s decision.

Background

The case concerned a number of fraudulent property transactions. A business associate (C) of Vella had, without Vella’s knowledge, obtained three certificates of title of properties owned by Vella. C forged Vella’s signatures on a number of documents and those signatures had been ‘witnessed’ by a solicitor (F). The mortgage provider (MM) advanced monies secured by mortgage and loan agreement but subsequently was unable to recover the monies advanced from Vella.

The mortgage had, by virtue of its registration, gained indefeasibility of title but it purported to secure the debt by reference to a loan agreement. The loan agreement was void due to the forgeries and hence the mortgage secured nothing and was liable to discharge.

MM claimed against its solicitors (H&H) essentially for failing to properly secure the loan. The solicitors raised proportionate liability as one of their defences.

First instance decision

At first instance Young CJ (in eq) found that H&H had breached their duties and was liable to MM. H&H however argued that proportionate liability operated to reduce their liability to MM. H&H alleged that the fraudster (C) and his solicitor (F) were concurrent wrongdoers and His Honour agreed.

Liability was apportioned between the three concurrent wrongdoers as follows:-

  • C – 72.5%
  • F – 15.0%
  • H&H – 12.5%

Court of Appeal decision

MM appealed.

Prior to the hearing of the appeal, the Quinerts decision was delivered. That decision criticised the reasoning of Young CJ (in eq) with Nettle JA expressing the view that C, F and H&H had not caused the same loss.

A specially constituted five member bench of the NSW Court of Appeal agreed with the approach taken by Nettle JA in Quinerts and upheld MM’s appeal. H&H was found liable for all of the loss suffered by MM. The Court of Appeal found that H&H was not a concurrent wrongdoer because the fraudsters' acts did not cause the same loss or damage which Mitchell Morgan claimed against H&H. The acts or omissions of the wrongdoers that caused MM’s loss were different and hence the wrongdoers were not liable for the same loss.

This approach introduced “causation” as part of the test for determining whether or not there were concurrent wrongdoers.

High Court decision

H&H sought and obtained special leave to appeal to the High Court.

The principal issue on the appeal was the proper identification of the loss or damage flowing from the acts or omissions of H&H, C and F. Was the loss or damage suffered by MM as a result of C’s fraud, the same as that suffered as a result of H&H’s breach of duty? A majority comprising French CJ, Hayne and Kiefel JJ found that the loss or damage suffered by MM in both cases was the inability to recover the monies it had advanced. As the loss and damage suffered was the same, C, F and H&H were concurrent wrongdoers and the majority accepted the first instance apportionment of liability.

In reaching their decision, the majority provided important (and much needed) guidance on the correct approach to determining whether the same loss has been suffered due to the actions of two separate wrongdoers. They found that the relevant NSW contributions legislation (Law Reform (Miscellaneous Provisions) Act 1946 (NSW)) was not relevant to construing the relevant proportionate liability provisions and the Court of Appeal erred in doing so.

The Court of Appeal also erred in characterising the loss or damage suffered by MM by reference to acts of H&H and the fraudsters who caused the loss. In other words, it was wrong for the Court of Appeal to introduce a causation test and look at what acts or omissions caused the loss – the language of the statute did not call for such a test. Rather, the test required a court to look at the harm resulting from the acts or omissions. Rather than the fraudsters causing MM to disburse the monies and H&H causing MM to have ineffective security, the proper categorisation of the resultant harm was found, in both cases, to be the inability of MM to recover the monies advanced.

The majority was also critical of the Court of Appeal’s approach that “assumed 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.” It was expressly held that there was no such legislative requirement – rather the legislation acknowledges “that a wrongdoer's acts may be independent of those of another wrongdoer yet cause the same damage.”

Importance of the decision

This decision is a most significant decision not only for proportionate liability in NSW but across the country where similar provisions operate in all jurisdictions. The decision breathes life back into laws that were severely constrained after the Courts of Appeal in Victoria and New South Wales had limited the practical operation of those laws.

From the point of view of defendants and their insurers, the impact of the High Court decision is to significantly limit exposure on claims to which the legislation applies.

Professional advisors (be they accountants, valuers, lawyers or other professionals) should also welcome this decision. This decision restricts the liability of professionals to an amount reflective of their contribution to the loss suffered rather than their bearing the entirety of the loss notwithstanding their contribution to events was minimal.