Australia: Proportionate liability, solicitors and fraudsters - High Court grants special leave to appeal

In brief - Mitchell Morgan v Vella decision to be appealed

The High Court has granted lawyers Hunt and Hunt special leave to appeal the Court of Appeal's decision that the liability of solicitors for negligence could not be apportioned.

High Court hears application for special leave to appeal

On 7 September 2012, Gummow, Hayne and Bell JJ heard Hunt and Hunt's application for special leave to appeal the decision of the NSW Court of Appeal in Mitchell Morgan Nominees Pty Ltd & Anor v Vella & Ors [2011] NSWCA 390.

Fraudsters obtain loan on property and empty bank account

In brief, two fraudsters obtained a loan on a property by posing as its owners. They were partners in a joint venture to promote a boxing match and held a joint bank account for that purpose. The fraudsters represented to the solicitors preparing the loan that one of them had signed mortgage documents in the presence of the other.

Once the loan funds had been paid into the joint bank account, that account was emptied and the fraudsters wound up bankrupt. While the mortgage was held to be indefeasible (that is, it could not be annulled or forfeited) it was also held to "secure nothing". Because of this and the bankruptcy of the fraudsters, the lender looked instead to the solicitors for recovery of the loan funds.

Court of Appeal determines that solicitors not concurrent wrongdoers with fraudsters

The Court of Appeal considered whether loss suffered by the lender was apportionable as between lender's solicitors and the persons who had fraudulently obtained the loan.

It determined that the solicitors were not concurrent wrongdoers with the fraudsters and therefore that the solicitors' liability could not be apportioned. This decision was based on a finding that the losses the lender claimed against the fraudsters and the solicitors were in fact different. (For more information please see our earlier article Proportionate liability - solicitors found not to be concurrent wrongdoers with fraudsters.)

Applicant argues that loss or damage must be examined as a matter of substance

Argument during the High Court special leave hearing focused on questions about the identification, causation and sameness of the losses at issue. Particular attention was directed to paragraphs 40 and 41 of Giles JA's decision, which was endorsed by the remaining four judges of the Court of Appeal.

Mr Jackson QC, for the applicant, submitted that the Court of Appeal had erred by recognising the interrelationship of the two transactions in relation to being the loss of the same money, but in contradiction adopting a characterisation of the loss which really turns upon the steps leading to the loss of the money, as distinct from the actual loss itself.

Mr Jackson QC argued that one needs to look at the loss or damage as a matter of substance and not form. Accordingly, he submitted that the approach taken by the Court of Appeal failed to provide a principled basis for stating that there were two separate losses.

Applicant argues that loss or damage must be examined as a matter of substance

Mr Jackson QC drew the High Court's attention to section 34(2) of the Civil Liability Act 2002 (NSW), which states that a concurrent wrongdoer, in relation to a claim, 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.

Although he conceded that nothing that the fraudsters did brought about the negligence of the solicitors, he argued that that is not what the statutory tests involve. He concluded by saying: "the starting point is to identify the loss. ... Once one does that it then is a matter simply of applying the terms of the statute."

High Court to hear the appeal in November 2012

Special leave was granted to appeal for the first ground of appeal only. The other ground was remitted to the Full Court of the NSW Supreme Court for consideration. The High Court timetabled the matter to facilitate a November 2012 hearing date.

It looks like the November showdown is set to be a heavyweight bout worth having a ringside ticket to - perhaps in a manner not entirely dissimilar to the Anthony Mundine vs Danny Green fight that started it all.

Cathryn Prowse
and Frank Bibic

Professional indemnity
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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