The High Court has delivered its first judgement on proportionate liability. The judgment is generally good news for insurers as it takes a broad view of when defendants will be “concurrent wrongdoers” who have caused the same loss to a plaintiff.

Proportionate liability has been introduced into the law of all states and territories in a variety of different forms. There remain many questions about the operation and interaction of these different pieces of legislation.

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

Mr Angelo Caradonna (Caradonna) and Mr Alessio Vella (Vella) were business partners. Without Vella’s knowledge, Caradonna gained possession of the certificates of title to three properties owned by Vella.

By forging Vella’s name and using one of the properties as security, Caradonna obtained a loan from the first and second respondents (Mitchell Morgan). The loan agreement was drawn up by the appellant solicitors (Hunt & Hunt). Upon discovery of the fraud, it was found that Caradonna and his accomplice (Flammia) had entered bankruptcy. Mitchell Morgan then joined Hunt & Hunt to the proceedings alleging that they had been negligent in the drafting of the mortgage contract.

At first instance, the Supreme Court of NSW found that Hunt & Hunt were negligent in drafting the mortgage. Additionally, the Court held that the conduct of Caradonna and Flammia was a major cause of the loss suffered. As a result, the Court, applying s35(1) of the Civil Liability Act 2002 (NSW) apportioned the loss between the three wrongdoers, with Hunt & Hunt’s negligence responsible for 12.5% only of the total loss.

The Supreme Court decision was overturned by the Court of Appeal on the basis that the loss suffered by Mitchell Morgan due to Hunt & Hunt’s negligence was not associated with the loss caused by Caradonna and Flammia. The Court of Appeal’s view was that Hunt & Hunt were not liable for the same damage and, consequently, was not a “concurrent wrongdoer” with Caradonna and Flammia. Consequently, Mitchell Morgan could recover its entire loss from Hunt & Hunt.

On appeal to the High Court, the majority joint judgement, in a split decision (3:2), held that the loss suffered by Mitchell Morgan was the result of its inability to recover the money advanced, pursuant to the mortgage documentation. Although Hunt & Hunt’s negligent drafting of the documentation was the cause of that loss, Mitchell Morgan had first been induced to enter into the transaction by Caradonna and Flammia.

Although Mitchell Morgan’s claims against Caradonna and Flammia were different, they were nevertheless founded on the same basis (i.e. their inability to recover the monies advanced) and the acts and omissions of all of the wrongdoers materially contributed to that same loss.

The majority considered that the Court of Appeal’s analysis had concentrated on the immediate effects of Caradonna and Flammia’s conduct (i.e paying out money) and the negligence of Hunt & Hunt (i.e. not having the benefit of the security) without identifying the actual harm to the lender’s economic interest (i.e. the inability to recover the monies advanced). The majority also stated that:

“in general terms, in a case involving a loan of monies, damage will be sustained and the cause of action will accrue only when recovery can be said with some certainty, to be impossible”.

The High Court reinstated the trial judge’s decision on apportionment, concluding that Hunt & Hunt’s negligence was responsible for 12.5% of the loss.  

Conclusion

On the one hand, the majority’s judgment is an endorsement of a wider interpretation of the proportionate liability provisions than has generally been adopted previously. This is good news for insured defendants. The High Court has taken a broad view of when defendants will be “concurrent wrongdoers” who have caused the same loss to a plaintiff. This is welcome after the artificial and difficult distinction made by the Court of Appeal between loss caused by fraud and loss caused by negligence. On the other hand, the High Court’s 3:2 split in this case illustrates the difficulties and uncertainties involved in proportionate liability issues.