In a 3:2 decision, the High Court has provided some much needed clarity around the application of the proportionate liability provisions which have been in place in every Australian jurisdiction since the early 2000s.

These provisions (which are very similar in each jurisdiction) provide that the liability of the defendant who is a concurrent wrongdoer in relation to a claim for economic loss or property damage is limited to his or her degree of fault.  While this legislation is intended to define the limits which should be placed on personal responsibility, considerable uncertainty has arisen in practice, particularly in relation to the question of whether a defendant should properly be regarded as a concurrent wrongdoer.  The legislation provides that a concurrent wrongdoer…is a person who is one of two or more persons whose acts or omissions caused, independently of each other or jointly, the damage or loss that is the subject of the claim.

This case concerned a finance company which loaned $1M, secured by a loan agreement and a mortgage over a property.  The transaction was entered into on the strength of documents forged by two fraudsters who subsequently became bankrupt. The finance company engaged Hunt & Hunt Lawyers to draw the mortgage and the loan agreement. The loan agreement was void by reason of the forgery.  The mortgage only secured the debt by reference to the void loan agreement and was therefore worthless. It was not disputed that Hunt & Hunt negligently failed to include a covenant to repay the debt in the mortgage document itself.  If the mortgage had included a covenant to repay the debt it could have been enforced.  This was not disputed by Hunt & Hunt.

But Hunt & Hunt argued that it was a concurrent wrongdoer along with the fraudsters and that its liability should be limited to its degree of fault in accordance with the proportionate liability provisions.  This argument was successful at trial but on appeal all five judges of the New South Wales Court of Appeal unanimously found that Hunt & Hunt was not a concurrent wrongdoer and was therefore liable to the finance company for 100% of its losses.

The High Court majority reversed this decision by finding that the fraudsters and Hunt & Hunt were concurrent wrongdoers and that 87.5% liability should be apportioned against the bankrupt fraudsters, with Hunt & Hunt’s liability limited to only 12.5%.

The decision turned almost entirely on the question of whether Hunt & Hunt and the fraudsters had caused the same loss or damage. If so, they were concurrent wrongdoers. The majority judgment adopts a very broad categorisation of the loss or damage suffered as the finance company’s inability to recover the monies it advanced.  It followed that the fraudsters and Hunt & Hunt were concurrent wrongdoers because they had each materially contributed to the finance company’s inability to recover the monies it advanced.

By contrast the minority judgment categorised the loss or damage caused by Hunt & Hunt more narrowly, finding it was the lack of security the finance company had over the loan.  If Hunt & Hunt had included a covenant to repay the debt in the mortgage, the finance company would have had adequate security despite the fraud.  The minority did not consider that the fraudsters’ acts or omissions had caused this lack of security, and it followed that Hunt & Hunt was not a concurrent wrongdoer and so was 100% liable. In this regard, the minority agreed with the Victorian Court of Appeal decision St George Bank Ltd v Quinerts Pty Ltd.

Insurers will welcome the High Court’s decision as further undermining the ‘look for deep pockets’ approach traditionally adopted by plaintiffs’ lawyers. However, this decision may lead to some curious outcomes.  Consider the hypothetical example considered in this case: A thief steals money from a bank. Because of negligence on the part of its insurance brokers, the bank finds the risk of theft is not covered by its insurance.  The Victorian Court of Appeal in Quinerts considered that the loss or damage caused by the negligent broker was the bank having no cover for the loss, whereas the thief simply caused the bank to lose money. By contrast, the High Court majority’s approach would see the broker and the thief regarded as concurrent wrongdoers, because it would categorise the loss and damage suffered by the bank as its inability to recover the stolen money caused by both the broker and the thief.  The broker’s liability to the bank would be limited to a relatively small percentage. We query whether it was ever contemplated that the proportionate liability legislation would interfere with contractual rights to this extent.

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