Australia: Proportionate liability: the courts weigh in

Following the Standing Committee of Attorneys-General's release of the Draft Model Proportionate Liability provisions in September 2011 (see our publication on the changes proposed by the Model Provisions, Are you paying your fair share?), there have been several judicial developments in the area.

Does the proportionate liability regime apply to consent judgments?

On 13 December 2012, the High Court handed down its decision in Newcrest Mining Limited v Michael Emery Thornton, examining whether the settlement of a claim against one "several concurrent tortfeasor"1 by a consent judgment would limit a subsequent claim brought against another "several concurrent tortfeasor" under the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA).

Section 7(1)(b) of the Law Reform Act states that a person bringing more than one action for damage suffered as the result of a tort cannot recover more than "the amount of the damages awarded by the judgment first given".

The claim involved an employee, Mr Thornton, who was injured at a mine site. Mr Thornton sued his employer, who settled by way of consent judgment with no admission of liability. Mr Thornton then sued the mine operator, Newcrest, for the same injuries as a several concurrent tortfeasor. He credited the amount of the settlement he received from his employer from the amount that he claimed from Newcrest. Newcrest argued that the consent judgment was a "judgment first given" under the Law Reform Act.

By a 3:2 majority, the High Court held that a consent judgment in proceedings filed solely to give effect to an agreement to settle the claim is not a "judgment first given" as it does not involve a judicial assessment.

Proportionate liability and fraud

On 12 December 2012, the High Court of Australia heard the appeal from the judgment of the NSW Court of Appeal in Mitchell Morgan Nominees Pty Ltd & Anor v Vella & Ors. The key issue in this case is defining a concurrent tortfeasor under the proportionate liability provisions in the Civil Liability Act 2002 (NSW) and equivalent provisions in other Australian jurisdictions.

The matter involved a joint venture between Mr Vella and Mr Caradonna. As a result of this relationship, Mr Caradonna obtained certificates of title to properties owned by Mr Vella and used them to fraudulently borrow money for his own purposes.

One mortgage obtained was from two Mitchell Morgan companies. Mr Caradonna, with the assistance of his solicitor, Mr Flammia, forged Mr Vella's signature and made misrepresentations to Mitchell Morgan's solicitors, Hunt & Hunt, to obtain the mortgage. Hunt & Hunt negligently drafted the mortgage so that it only secured money owed by Mr Vella, but not money owed by Mr Caradonna (who actually owed the money).

Mitchell Morgan sued Hunt & Hunt, Mr Caradonna and Mr Flammia. At first instance, Young CJ found Hunt & Hunt liable to Mitchell Morgan in negligence, but reduced their liability under the Civil Liability Act's proportionate liability provisions. Given Mr Caradonna and Mr Flammia s state of bankruptcy, Mitchell Morgan appealed.

The key issue before the Court of Appeal was whether Hunt & Hunt, Mr Caradonna and Mr Flammia could all be considered concurrent wrongdoers. The Court stated the test is whether the damage caused by a person is the same damage as that caused by another person. This is different from whether the same damages ought to be paid in compensation for both wrongs, but requires the reason for damages being paid to be the same.

The Court held that the damage caused by Hunt & Hunt was failing to secure the loan with an adequate mortgage, while the damage caused by Mr Caradonna and Mr Flammia was fraudulently inducing Mitchell Morgan to pay them money. As the damage was different, Hunt & Hunt was held liable for the total amount.

We are waiting for the High Court's decision to see whether it accepts Hunt & Hunt's argument for a broader "substance over form" interpretation to the provisions of the Civil Liability Act.

Does proportionate liability apply to arbitrations?

In Curtin University of Technology v Woods Bagot Pty Ltd, the WA Supreme Court considered whether the regime for proportionate liability in Part 1F of the Civil Liability Act 2002 (WA) applies to commercial arbitrations.

The matter arose out of an arbitration of various disputes under a construction contract. Woods Bagot sought to rely on WA's Civil Liability Act to limit its liability to its proportionate share of responsibility for Curtin's losses. Curtin denied that proportionate liability applied to the arbitration.

Importantly, the referral by the arbitrator of the issue to the Supreme Court was confined a question of "pure statutory construction". Therefore, the Court did not consider issues of contractual interpretation or implied terms.

In a decision that turned on the statutory construction of the word "court", Justice Beech held that the proportionate liability regime in Pt 1F of WA's Civil Liability Act doesn't apply to commercial arbitrations.

Implications for agencies

With the proposed Model Provisions and the impending High Court decision on such a fundamental concept, the proportionate liability landscape could face a radical change in the near future. We will continue to keep agencies informed of any developments in this area.


1Meaning the tortfeasors were independent tortfeasors whose acts combined to produce a single damage.

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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