Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10 (3 April 2013)

Introduction

For nearly a decade, proportionate liability regimes across Australia have operated to limit a claimant’s recovery from each wrongdoer to that proportion of the loss and damage that the Court considers just having regard to the relative culpability of other ‘concurrent wrongdoers’. In the High Court’s first decision substantively addressing the regime since the provisions were introduced, a 3 to 2 majority allowing an appeal of the New South Wales Court of Appeal decision of Mitchell Morgan Nominees Pty Ltd & Anor v Vella & Ors [2011] NSWCA 390 has provided greater certainty surrounding the application of the regime and advocated for a far less stringent test for the identification of ‘concurrent wrongdoers’.

The facts

Two fraudsters associated with the infamous motorcycle gang “the Rebels” forged signatures to procure a loan of more than $1 million, mortgaging the property of an unknowing third party. The lender, Mitchell Morgan Nominees Pty Ltd (Mitchell Morgan) retained Hunt & Hunt to prepare the loan documentation. When drafting the mortgage, Hunt & Hunt failed to incorporate protections for Mitchell Morgan in the event of fraud. When the fraud was ultimately discovered, the fraudsters were bankrupt. Mitchell Morgan filed proceedings in the Supreme Court of NSW seeking to recover its loss from Hunt & Hunt on the basis of negligence. Hunt & Hunt denied liability and sought to rely on the proportionate liability provisions in Part 4 of the Civil Liability Act 2002 (NSW) (CLA), alleging that the fraudsters were concurrent wrongdoers.

In the Supreme Court and Court of Appeal

At first instance, in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505, his Honour Justice Young concluded that Hunt & Hunt were negligent in failing to ensure that the mortgage included a covenant to protect Mitchell Morgan from fraud but at the same time accepted Hunt & Hunt’s submission that the fraudsters were ‘concurrent wrongdoers’. As a result, the Court held that Hunt & Hunt’s liability should be limited under Part 4 of the CLA to its ‘just’ proportion of the loss, that being 12.5% of the amount which Mitchell Morgan paid out in respect of the forged mortgage. Given the bankruptcy of the fraudsters, this left Mitchell Morgan with virtually nothing.

On appeal by Mitchell Morgan, the Court of Appeal overturned the first instance decision, distinguishing between the loss Mitchell Morgan claimed against Hunt & Hunt from the loss caused by the fraudsters.Giles JA reasoned in this regard, ‘the loss, or the harm to an economic interest, is in the one case paying out money when it would not otherwise have done so, and in the other case, not having the benefit of security for the money paid out’. Insofar as this characterisation gave rise to separate losses, the Court of Appeal held that the proportionate liability provisions were no longer satisfied and that Hunt & Hunt were liable for the entire damages. Hunt & Hunt sought and were granted special leave to appeal to the High Court.

High Court decision

The key issue for the High Court was whether Hunt & Hunt and the fraudsters satisfied the section 34(2) definition of a ‘concurrent wrongdoer’, that being ‘one or more persons whose act(s) or omissions(s) caused, independently of each other or jointly, the damage or loss that is the subject of the claim’. It was unanimously agreed, that the language of this provision required that the loss or damage caused by each wrongdoer must be the same.

However, the majority reasoned that the distinction between the two losses made by the Court of Appeal focused on the ‘immediate effects’ of each of the fraudsters’ and of Hunt & Hunt’s conduct, rather than identifying the nature of the loss itself. While the majority regarded these ‘circumstances’ as being relevant to issues of causation, they were not, in their view, relevant to the identification of the loss and damage within the meaning of section 34(2). Instead, the majority advocated for a two-stage framework for identifying a concurrent wrongdoer:

  1. identify the interest infringed by the negligent act - in this case Mitchell Morgan’s inability to recover the loan funds advanced; and
  2. enquire as to whether each wrongdoer contributed to that interest.

Relevant to the latter enquiry were policy considerations as to whether and why responsibility for the harm should be imposed on each party.

In applying this framework, the majority arrived at a view that while Hunt & Hunt were clearly to be held liable for Mitchell Morgan’s damage, the fraudsters’ conduct in inducing Mitchell Morgan to enter into the transaction must also be regarded as a material cause of the harm.

The High Court then went on to limit Mitchell Morgan’s recovery from Hunt & Hunt to the amount for which it was responsible.

Comment

The decision establishes a liberal framework for the characterisation of ‘concurrent wrongdoers’ which is guided by questions of fact and policy considerations.

The effect of the decision will obviously play out differently depending on whether your instructions lie with a defendant who now has a greater ability to drag in others or with a ‘concurrent wrongdoer’ who is now more easily dragged in. Clarifying the test for identifying a concurrent wrongdoer benefits both by providing a greater degree of productivity as to how the proportionate liability regime operates.