On 3 April 2013 the High Court delivered its much anticipated
decision in the matter of Hunt & Hunt Lawyers v Mitchell
Morgan Nominees Pty Ltd  HCA 10.
By a majority of 3-2, the High Court overturned the New South
Wales Court of Appeal decision and held that proportionate
liability provisions of Part 4 of the Civil Liability Act
2002 (NSW) operated to substantially reduce the liability of a
negligent solicitor for the loss suffered by a lender on a loan
procured by fraud.
Hunt & Hunt Lawyers (Hunt &
Hunt) were the lawyers for Mitchell Morgan Nominees
Pty Limited (Mitchell Morgan), a company
engaged in the business of providing finance. Mitchell Morgan
suffered loss as a result of a $1 million loan it provided to two
individuals, Mr Cardonna and Mr Vella. It was revealed in the trial
that Mr Caradonna had forged Mr Vella's signature on the loan
documents and absconded with the funds. The funds were never
recovered and Mr Caradonna became bankrupt.
As security for the obligations of Mr Vella, Mitchell Morgan had
obtained a mortgage over one of Mr Vella's properties. The
signature of Mr Vella on the mortgage document was also forged, but
Mitchell Morgan's interest as mortgagee became indefeasible
upon registration of the mortgage.
Hunt & Hunt prepared the mortgage document. As is common
practice, the mortgage was expressed to secure all amounts owing by
the mortgagor (Mr Vella) to the mortgagee (Mitchell Morgan). As a
result of that wording, the mortgage despite its indefeasibility,
was rendered unenforceable. As Mr Vella's signature on the loan
agreement was forged, the Court found that Mr Vella owed nothing to
Mitchell Morgan and the mortgage therefore secured nothing.
Mitchell Morgan joined Hunt & Hunt to the proceedings
claiming that it was negligent in drafting the mortgage. Justice
Young, the trial judge, agreed stating that the mortgage would have
been enforceable if, rather than an all monies clause, the mortgage
contained a covenant to repay a specified amount.
Although Hunt & Hunt were found to have been negligent,
Justice Young also found that the fraudsters (being Mr Caradonna
and his solicitor, Mr Flammia) were concurrent wrongdoers within
the provisions in Part 4 of the Civil Liability Act and that the
claim was apportionable. Justice Young found that Hunt & Hunt
was only 12.5% responsible for the loss incurred by Mitchell
Morgan, with the fraudsters bearing 87.5% of the responsibility.
The amount payable by Hunt & Hunt was accordingly reduced to
12.5% of the total loss.
Mitchell Morgan appealed the decision.
The New South Wales Court of Appeal (which, in a rare step, was
constituted by 5 judges) unanimously overturned Justice Young's
judgment. Citing the decision of the Supreme Court of Victoria in
St George Bank Ltd v Quinerts Pty Ltd (2009) 25 VR 666,
the Court of Appeal held that the fraudsters and Hunt & Hunt
were not concurrent wrongdoers as the damage they caused was
different. The damage caused by the fraudsters was the failure to
recover the loan amount whereas the damage caused by Hunt &
Hunt was the taking of ineffective security. The liability of Hunt
& Hunt was changed to 100% of the loss suffered by Mitchell
Hunt & Hunt appealed the Court of Appeal decision to the
The High Court Decision
By a narrow majority, the High Court found there was no
difference in the nature of the damage caused by the fraudsters and
that caused by Hunt & Hunt and allowed the appeal. Mitchell
Morgan was found to have suffered only one type of damage – a
failure to recover the monies advanced. Both the fraudsters and
Hunt & Hunt were responsible for that damage and the liability
was therefore apportionable. The High Court reinstated Justice
Young's decision and Hunt & Hunt's liability was
reduced to 12.5% of the total loss suffered by Mitchell Morgan.
The decision has significant ramifications for lenders involved
in professional negligence litigation, particularly claims against
valuers. If a valuer can establish that there has been
"wrongdoing" on the part of the borrower in the
transaction, the liability of that valuer for providing a negligent
valuation is likely to be substantially reduced.
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.
Kemp Strang has received acknowledgements for the quality of
our work in the most recent editions of Chambers & Partners,
Best Lawyers and IFLR1000.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).