Australia: Proportionate Liability under the microscope - when both parties are in the wrong
Insurance Update March 2012

Mitchell Morgan Nominees Pty Limited Pty Ltd v Vella [2011] NSWCA 390

Introduction

On 15 December 2011, the New South Wales Court of Appeal handed down its decision in Mitchell Morgan Nominees Pty Limited Pty Ltd v Vella [2011] NSWCA 390 (Vella). In doing so, the Court clarified how proportionate liability operates in New South Wales pursuant to Part 4 of the Civil Liability Act 2002 (CLA). In short, it is now more difficult to successfully reduce a defendant's liability due to the requirement that, for the proportionate liability provisions to apply, any alleged wrongdoers must have each caused the plaintiff to suffer the same loss or damage. The New South Wales situation is now confirmed as similar to that in Victoria.

Facts of the case

Messrs Vella and Caradonna formed a joint venture in 2005 for the purpose of selling tickets to a boxing match between Anthony Mundine and Danny Green. The income from the joint venture was to be put into a joint account opened with the ANZ bank.

During this time, Mr Vella decided to consolidate all his loans. To that end, he attended his solicitor's office to collect his property title certificates. Mr Caradonna also attended this meeting. While the loan consolidation did not proceed, at some stage Mr Caradonna came into the possession of Mr Vella's certificates of title.

Without the knowledge of Mr Vella, Mr Caradonna forged Mr Vella's signature on mortgage documents and used the certificates of title to borrow money from Mitchell Morgan Nominees Pty Ltd and Mitchell Morgan Nominees (No 2) Pty Ltd (together, Mitchell Morgan). Mr Caradonna's solicitor cousin, Mr Flammia, misrepresented to Hunt & Hunt, solicitors for Mitchell Morgan, that Mr Vella had signed the mortgage documents before him. The forged mortgage was registered and Mitchell Morgan paid $1,001,748.85 into the joint ANZ account. Mr Caradonna subsequently forged Mr Vella's signature again and withdrew these funds.

The Court of Appeal overturned the earlier decision in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 in which the Supreme Court held that Mr Vella was not liable to Mitchell Morgan. While the forged mortgage had gained indefeasibility of title upon registration, as it was worded to secure money payable by Mr Vella to Mitchell Morgan, and no such money existed, the mortgage was to be discharged. Hunt & Hunt, and Messrs Flammia and Caradonna, were found to be concurrent wrongdoers in negligence and fraud respectively.

By virtue of the operation of s 35 of the CLA, Hunt & Hunt's liability was reduced to 12.5 per cent. However, as Messrs Flammia and Caradonna had since become bankrupt, an appeal was commenced to increase the proportion for which Hunt & Hunt was liable. The Court of Appeal increased Hunt & Hunt's liability to 100 per cent.

Discussion

The key issue for the Court of Appeal was whether Hunt & Hunt and Messrs Flammia and Caradonna were concurrent wrongdoers under section 34(2)A of the CLA. Section 34(2)A provides that a concurrent wrongdoer 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." Thus, the question was whether the acts of Messrs Flammia and Caradonna caused the loss which was the subject of Mitchell Morgan's claim against Hunt & Hunt.

The Court of Appeal found that, in the claim against Hunt & Hunt, Mitchell Morgan's loss arose because its money could not be recovered from the security, and not because it was lent in the first place. Therefore, Hunt & Hunt were not concurrent wrongdoers with Messrs Flammia and Caradonna.

In finding that they were not concurrent wrongdoers for the purposes of an apportionable claim, the Court of Appeal approved the Victorian case of St George Bank v Quinerts [2009] VSCA 245 (Quinerts). By way of background, Quinerts established that it is necessary to analyse the part played by each potential wrongdoer in causing the plaintiff's loss. Only then can the Court establish, for the purposes of the proportionate liability regime, whether they are a concurrent wrongdoer.

The Court found assistance in the case of Hurstwood Developments Ltd v Motor and General & Andersley & Co Insurance Services Limited [2001] EWCA Civ 1785, in which Lord Hope of Craighead stated, "the mere fact that two or more wrongs lead to a common result does not of itself mean that the wrongdoers are liable in respect of the same damage. The facts must be examined more closely in order to determine whether or not the damage is the same."

In light of this, Giles JA made the important distinction between damage and damages. Giles JA noted that "damage" was the actual injury suffered, while "damages" were the compensation paid as a result.

This distinction helps in determining whether parties are concurrent wrongdoers. Two or more parties will not be found to be concurrent wrongdoers merely because they are liable to pay the same amount of damages in compensation. They must instead be liable for the same loss or damage. In this way, it is the underlying reason why the damages are being paid that is paramount.

In Vella, the Court of Appeal found that the damage, or loss, caused by Hunt & Hunt on the one hand, and Messrs Flammia and Caradonna on the other, did not match. Hunt & Hunt was liable for negligently failing to secure Mitchell Morgan's loan with a valid mortgage. Messrs Flammia and Caradonna were liable for inducing Mitchell Morgan to pay the money through fraud. For this reason, the parties were not concurrent wrongdoers and liability could not be apportioned.

In finding Hunt & Hunt liable for the entirety of damages, the Court of Appeal established that a person who negligently acts and protects another person from fraudulent behaviour by a third party cannot reduce their liability by pointing towards the wrongdoer and arguing for the loss to be apportioned.

It is important to note that where the loss is not the same and there can be no proportionate liability, one party compensating the victim does not lessen the liability of the other wrongdoer. An equitable remedy can be sought should the victim receive double recovery.

Conclusion

The Court of Appeal decision in Vella provides clarification as to the operation of the proportionate liability regime in New South Wales. The implication is that legal practitioners must pay close attention when advising insurers and pleading proportionate liability. Practitioners and insurers alike may need to reassess their potential share of liability if it was previously assessed taking into account another liable concurrent wrongdoer. This is because proportionate liability can now only be used to reduce a party's liability where they have caused the same loss or damage as the other party. As has been seen, professionals must be alert to the fact that a party may now be liable for the entire loss even where another party is involved. Concurrent wrongdoer defences will need to be considered carefully in light of this case.

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.