Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd  HCA 10
|Judgment date: 3 April 2013|
|Jurisdiction: High Court of Australia1|
- The High Court has, by majority, allowed an appeal regarding the principles of proportionate liability, overturning a decision of the Court of Appeal of New South Wales and criticising a previous decision of the Victorian Court of Appeal.
- The majority held that in circumstances where a loan was obtained by fraud and the mortgage that secured that loan was negligently drafted so as to render it ineffective, both the mortgage drafters and the fraudulent parties will have caused the same damage. The mortgage drafter will, therefore, be entitled to reduce its liability in line with proportionate liability.
- The majority also referenced other circumstances where proportionate liability may now be available, for example: where a valuer negligently overvalues a property and the borrower subsequently defaults; or where a thief steals money from a bank in circumstances where the bank's broker has negligently failed to obtain insurance against theft.
This judgment arises from an appeal against the New South Wales Court of Appeal decision of Mitchell Morgan Nominees Pty Ltd v Vella 2 , a more detailed analysis of which can be found in our case note of 23 December 2011 Damage v Damages: How to lose the protection of proportionate liability.
The key facts of this matter are that a Mr Vella and a Mr Caradonna formed a joint venture and opened a joint bank account for this purpose. Subsequently, Mr Caradonna obtained certificates of title to properties owned by Mr Vella without his knowledge. Mr Caradonna, with the assistance of his solicitor Mr Flammia, forged Mr Vella's signature on a loan agreement and a mortgage in order to obtain loans from Mitchell Morgan Nominees Pty Ltd and a related company (together Mitchell Morgan). Mr Caradonna then withdrew all the loaned money from the joint bank account, again by forging Mr Vella's signature. Prior to any litigation, both Mr Flammia and Mr Caradonna (together the Fraudsters) were bankrupt.
Hunt & Hunt Lawyers (Hunt & Hunt) drafted both the loan agreement and the mortgage. When the loan was defaulted on, Mitchell Morgan sought to enforce it against Mr Vella. The Supreme Court of New South Wales found that the loan agreement was void due to the forgery and Mr Vella was not liable to Mitchell Morgan under it. The mortgage had gained indefeasibility of title on registration but had been negligently drafted by Hunt & Hunt so that it only secured money owed by Mr Vella under the loan agreement, of which there was none. Hunt & Hunt ought to have drafted a mortgage that secured the money owed without reference to the other document.
The Court of Appeal found that Hunt & Hunt were liable to Mitchell Morgan for a different kind of damage to that for which the Fraudsters were liable. Therefore, Hunt & Hunt could not gain the advantage of having the judgment against it reduced in accordance with the principles of proportionate liability. Hunt & Hunt appealed this decision to the High Court.
The High Court also considered in detail the Victorian Court of Appeal decision of St George Bank Ltd v Quinerts 3 (Quinerts) which involved a bank loan secured by a mortgage where the valuer had negligently overvalued the property the subject of the security. The borrower subsequently defaulted and the property was sold for far less than the amount of the loan at sale. Quinerts was relied on in the Court of Appeal proceedings the subject of this High Court appeal and had equally come to the conclusion that the valuer and the borrower were not concurrent wrongdoers as the damage they had caused was not the same.
The majority of the High Court4 allowed the appeal and found that Hunt & Hunt was a "concurrent wrongdoer" with the Fraudsters and was entitled to have the quantum of damages against it reduced in accordance with the principles of proportionate liability.
The majority noted that in order for a person to be a "concurrent wrongdoer" two questions must be answered:
- What is the damage or loss that is the subject of the claim?
- Is there a person, other than the defendant, whose acts or omissions also caused that damage or loss?
In determining whether something is "the damage or loss that is the subject of the claim", the majority found that the question of whether the loss or damage caused is "the same damage" does not need to be assessed for proportionate liability in a consistent manner with the rules regarding contribution between joint tortfeasors. The majority accepted, though, that in some cases the acts or omissions of wrongdoers may result in different damage to the same plaintiff.
The damage or loss
The majority noted that identifying the damage or loss in a matter is not to be equated with identifying the same damages payable to a plaintiff for each aspect of the damage suffered by a plaintiff. In order to identify the damage one must identify the interest that has been infringed by the negligent act.
For the purposes of an economic loss, the interest that is infringed must be something that, if infringed, is compensable by a sum of money. One such case is a lender's interest in the recovery of money advanced.
Mitchell Morgan's interest was of this kind and this interest was infringed only when it was unable to recover the money advanced. This interest was infringed on by both Hunt & Hunt and the Fraudsters. At the time the money was paid by Mitchell Morgan, there was a serious risk that loss would accrue, but it had not yet; that only occurred when it was not able to recover that money.
The majority also considered Quinerts and held that in that case the proper characterisation of the harm done to the lender was, once again, its inability to recover money. In this way, both the negligent valuer and the defaulting borrower cause the same damage to a lender.
The hypothetical scenario
In Quinerts the following hypothetical scenario was relied on to support the Court's decision. A thief steals money from a bank. Due to the negligence on the part of its insurance brokers, the bank finds out that the risk of theft is not covered by its insurance. The question was whether both the thief and the broker caused the same damage.
In assessing this hypothetical the majority stated:
"In that analogy, it is correct to describe the damage or loss suffered by the bank as its inability to recover the monies stolen. One source of recovery could have been its insurer, hence the brokers were a cause of its loss. The other possible source of recovery is the thief. The harm to the bank's economic interests, at a certain point, is the inability to recover from either source."
The majority did not see this analogy as reason for finding that the damage caused by Hunt & Hunt and the Fraudsters was different; rather, it seems to reaffirm the position they took. The majority stated that under proportionate liability it is accepted that a wrongdoer's acts may be independent of another wrongdoer yet cause the same damage.
In determining the second question regarding a concurrent wrongdoer, the majority noted that concurrent and successive tortious acts may each be a cause of a plaintiff's loss, the relevant enquiry being whether the particular contravention materially contributed to the loss.
Mitchell Morgan's damage was its inability to recover the money loaned and the majority accepted that, with regards to the damage caused by Hunt & Hunt, there were two conditions necessary for the mortgage to be causative of the damage: that the loan agreement was void; and that the mortgage document did not contain a debt covenant but simply referred to the loan agreement for this purpose. The Fraudsters were responsible for the former condition and Hunt & Hunt were responsible for the latter.
Therefore, the majority found that Hunt & Hunt was liable to Mitchell Morgan for its damage, but it was inconsistent with the policy of the proportionate liability provisions to find it wholly responsible for the damage giving regard to the role played by the Fraudsters. As such, Hunt & Hunt was only held liable for 12.5% of the loss suffered, as had been held by the primary judge.
The minority of the High Court5 came to an entirely different conclusion to that of the majority and would have dismissed the appeal. The reasons upon which the minority rely are interesting, though, for the perspective it gives on the issues surrounding proportionate liability.
Critically, the minority reasoned that the definition of a "concurrent wrongdoer" must be interpreted in the context of the "constant theme" that underpins the law regarding contribution. The minority stated that the necessary steps of identifying a "concurrent wrongdoer" involve:
- identifying the damage or loss suffered by the plaintiff at the hands of the defendant;
- establishing causation that results in legal liability on the part of a third party to the plaintiff; and
- showing whether the liability that the third party has to the plaintiff is for the same harm as that caused by the defendant.
Importantly, the minority argued that where the wrongful act by person B is to breach the duty of care it has to person A to protect person A from the consequences of a wrongful act or omission by person C, the harm that is caused by person B is the absence of such protection should such a wrongful act occur. The consequences of the wrongful act or omission of person C are not part of the harm.
The minority said that to argue otherwise would mean that proportionate liability does not just transfer to a plaintiff the risk of a potential defendant becoming insolvent or impecunious, it also transfers to the plaintiff the very risk against which another person had a duty to protect the plaintiff against. The minority said that this is the point illustrated by the analogy that was used in Quinerts.
Therefore, for the present case, the minority would have found that the harm caused by Hunt & Hunt was to negligently fail to protect Morgan Mitchell against potential fraud. The fact that the loaning of money would not have occurred at all but for the fraud of the Fraudsters was not to the point, and nothing done by the Fraudsters caused the lack of security which resulted from Hunt & Hunt's negligence; the acts of the Fraudsters merely crystallised the loss, it did not cause the lack of security. As such, the minority would have held Hunt & Hunt liable for the full quantum of Mitchell Morgan's claim.
The High Court's decision means that defendants will now, in certain circumstances, have broader protection under the proportionate liability regime than they would have if they instead tried to recover any damages paid through contribution.
However, the High Court also discussed some other examples of where multiple parties caused one person to lose the same quantum of damages would not attract the protection of proportionate liability:
- Where a hospital sued its architects for negligently issuing certificates of extension to builders. The majority held that here the damage caused by the architects and the builders would not be the same: the loss caused by the builders was the delay in completing building works, while the loss caused by the architects was impairing the hospital's ability to proceed against the builders.
- Where a person suffered personal injury due to another's negligent driving then engaged solicitors who failed to institute proceedings in time. The majority held that here, too, the damage would be different: the physical injuries the plaintiff suffered were distinct from the harm to the plaintiff's economic interest in being able to recover compensation for the injuries.
This is a significant decision, having in effect overturned decisions of the Courts of Appeal of both New South Wales and Victoria. It will be particularly significant for professions involved in protecting others against risk, such as mortgage drafters, valuers and insurance brokers. For these professions, failing to protect another party against the risk they were meant to be protected against may no longer result in a complete liability to the wronged party.
1 French CJ, Hayne, Kiefel, Bell and Gageler JJ
2  NSWCA 390
3 [(2009) 25 VR 666
4 French CJ, Hayne and Kiefel JJ
5 Bell and Gageler JJ
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