Judgment date: 15 December 2011
Mitchell Morgan Nominees Pty Ltd v Vella  NSWCA 390
New South Wales Court of Appeal1
- A person's liability will only be reduced by proportionate liability in circumstances where they have caused the same loss or damage as another person.
- The loss or damage suffered by a party is different from the compensatory damages that they can seek, and so sometimes a party may become liable for the entirety of a loss even where another party has caused a loss that would be compensable by the same damages.
- Apportionment in cases of proportionate liability may be complicated where there are both negligent and intentional wrongdoers, but appellate courts will not overturn decisions on apportionment lightly.
- Where a person such as a solicitor, valuer or certifier negligently undertakes a task that will protect another person from tortious or fraudulent behaviour by a third party, they will not be able to reduce their liability on a proportionate basis should such fraudulent or tortious behaviour occur by pointing to the wrongdoer.
This decision forms part of a wider range of appeals and cross-appeals concerned with a complex series of events. Of relevance in this matter, in 2005 Mr Allessio Vella and Mr Angelo Caradonna agreed to join in a venture and opened a joint account for these purposes. On the same day Mr Vella collected his certificates of title to 3 properties with a view to consolidate his loans. In the course of events Mr Caradonna obtained the certificates of title and used them to fraudulently borrow money for his own purposes.
One such borrowing was in the form of a mortgage from Mitchell Morgan Nominees Pty Ltd and Mitchell Morgan Nominees (No 2) Pty Ltd (together Mitchell Morgan). Mr Caradonna, with the assistance of his cousin Mr Lorenzo Flammia, a dishonest solicitor, forged Mr Vella's signature and obtained a mortgage in the sum of $1,001,748.85 which was credited to the joint account and then withdrawn by Mr Caradonna.
Mitchell Morgan's solicitors, Hunt & Hunt, drafted the mortgage negligently so that even though the mortgage gained indefeasibility on registration it only served to secure money owed to Mitchell Morgan by Mr Vella. As Mr Vella owed Mitchell Morgan no money and only Mr Caradonna owed them money, the mortgage had no impact.
Mitchell Morgan claimed against Hunt & Hunt in negligence and against Mr Caradonna and Mr Flammia for their fraudulent behaviour. At first instance Young CJ in Eq found Hunt & Hunt liable to Mitchell Morgan in negligence, but proportionate liability provisions applied and so their liability was reduced to 12.5%, with Mr Caradonna being liable for 72.5% and Mr Flammia liable for 15%. As Mr Caradonna and Mr Flammia had subsequently gone bankrupt, appeals were instituted against the finding that proportionate liability applied or alternatively to increase the proportion for which Hunt & Hunt were liable.
Proportionate liability and identifying the "loss or damage"
Giles JA, with whom the other judges agreed, noted that the key issue in this appeal was whether or not Hunt & Hunt, Mr Caradonna and Mr Flammia could all be considered concurrent wrongdoers for the purposes of proportionate liability under Part 4 of the Civil Liability Act 2002 (NSW) (the Act). Section 34(2) of the Act provides that a person is a concurrent wrongdoer if it "is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim."
Mitchell Morgan argued that the loss that Hunt & Hunt had caused was the loss of mortgage security for the money they had lent and that this was a different loss than that which Mr Caradonna and Mr Flammia had caused, being the fraudulent obtaining of money.
Hunt & Hunt argued that the loss which they had caused was Mitchell Morgan's payment of money which they could not recoup from the mortgaged property, or their payment of money without an enforceable mortgage, both of which were losses that Mr Caradonna and Mr Flammia had also caused.
Giles JA stated that there is a distinction between damage and damages, with the former being the injury suffered and the latter being the compensation that is paid in response to the injury. For cases of economic loss it is necessary to identify the economic interest that the plaintiff has and the harm that is done to it in order to discover the damage.
Once the damage caused by a person is identified then one must show that that is the same damage as that caused by another person in order to establish that the two are concurrent wrongdoers. It is not sufficient that the same damages ought to be paid in compensation for both wrongs, but the underlying reason for damages being paid needs to match.
Giles JA found that in the present case the damage caused by Hunt & Hunt was failing to secure Mitchell Morgan's loan with an adequate mortgage. The damage caused by Mr Caradonna and Mr Flammia was fraudulently inducing Mitchell Morgan to pay them money. These 2 damages are different, and as such Hunt & Hunt were liable for the total amount in damages.
Giles JA, with Campbell JA emphatically supporting him, stated that the test for whether 2 losses are the same does not equate to testing whether one party compensating the victim will reduce the liability of the other wrongdoer. Should a victim receive double recovery an equitable remedy would be the solution rather than a limitation of liability through proportionate liability.
Other cases where proportionate liability will not apply
Giles JA looked to previous case law from other jurisdictions relating to contribution and noted that there are various circumstances where economic loss is claimed from several persons for the same damages but where each party caused a different damage. In approving these, Giles JA has drawn attention to areas where proportionate liability will not protect wrongdoers.
Firstly, negligent handling of a claim for damages by solicitors does not cause the same damage as the original wrongful action that gave rise to the claim.
In other circumstances, a person negligently issuing certificates extending a contractor's time for completion of work caused a different loss from a contractor who actually delayed the performance of the contract.
It is also held that a contractor negligently performing site inspection services caused a different loss to an insurance broker who failed to insure against the events that the contractor caused.
Finally, in circumstances where a bank lent money based on a negligent valuation it is noted that the valuer causes a different loss from that caused by the borrower and guarantor who default.
Determining the proportion of liability
Even though Giles JA found that Hunt & Hunt's liability could not be limited based on proportionate liability, the degree of liability that Hunt & Hunt were found to have in the initial proceedings was discussed in obiter.
Giles JA stated that a finding of apportionment by another judge is a finding "not lightly reviewed" by an appellate court, and so an appellate court will need significant reason to overturn a primary judge's determination.
Giles JA also noted that the accepted process for apportionment is usually to compare the degree of departure from the standard duty of care by each party as well as the relative importance of each person's acts in causing the damage. However, for proportionate liability there may be further issues that will need to be looked at, as a court may need to determine the comparative responsibility of negligent persons and intentional wrongdoers. Giles JA stated that it is likely that an intentional wrongdoer's responsibility will exceed that of a negligent wrongdoer, but Bathurst CJ challenged this point, noting that each case needs to be looked at on its own grounds without any generalisations affecting the distribution of responsibility.
This decision shows that there are areas where persons may think that their liability will be limited by proportionate liability but the reality is that they may not be able to rely on that defence.
In particular, where a person negligently undertakes a task that will protect another person from tortious or fraudulent behaviour by a third party they will not be able to reduce their liability on a proportionate basis should such fraudulent or tortious behaviour occur by pointing to the wrongdoer.
This decision will need to be considered carefully by professionals in these fields as they may become exposed to the total amount of damages for simply failing to protect their client.
1 Bathurst CJ, Giles, Campbell, Macfarlan JJA and Sackville AJA.
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