18 Jul 2013

The High Court talks sense about proportionate liability

by Julie Granger, Alice Drury

The High Court's decision in the Hunt & Hunt case will mean a court is more likely to find that defendants are concurrent wrongdoers.

One of the original aims of the proportionate liability regime was to ensure that deep pocket defendants (including insurance companies) are not held entirely liable for loss to which others' conduct contributed. However, in recent years we have seen a number of cases where the courts have interpreted the relevant legislation in a way which ensured maximum recovery to plaintiffs (and arguably failed to achieve the original aims of the regime).

The majority's decision in the recent High Court case of Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10 is a refreshing look at proportionate liability.

The High Court has taken the regime back to its roots and the purpose for which it was created, clarifying when parties will be found to be concurrent wrongdoers for the purposes of apportioning liability under sections 34 and 35 of the Civil Liability Act 2002 (NSW) (and their equivalent provisions in other jurisdictions[1]) and specifically considering when one or more people will have caused the damage or loss the subject of the claim.

This is good news for potential deep pocket defendants to litigation.

Key points:

  • the regime requires one or more persons to cause the damage or loss that is the subject of the claim;
  • damage or loss should be seen as the harm to a plaintiff's economic interest rather than the underlying myriad of causes – ie. artificial distinctions between the damage or loss caused by one or more people should be avoided;
  • this practical approach to the interpretation of the Civil Liability Act in NSW means that a court is more likely to find that defendants are concurrent wrongdoers; thus assisting the regime to meet one of its initial aims of preventing deep pocket defendants from being held liable for the whole of the loss where others are also responsible.

Proportionate liability under Part 4 the Civil Liability Act 2002 (NSW)

Under Part 4 of the Civil Liability Act 2002 (NSW), courts apportion liability between concurrent wrongdoers in claims for economic loss or damage to property (not personal injury) arising out of actions for damages (such as for negligence or breach of contract). The liability of a concurrent wrongdoer is limited to an amount reflecting the proportion of the damage or loss that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss.

The term "concurrent wrongdoer" is defined in section 34(2), and may be broken down into the following elements:

  • a person who is one of two or more persons;
  • whose acts or omissions independently of each other or jointly;
  • caused the damage or loss that is the subject of the claim.

The last element is highlighted because that was the specific issue which the Court had to consider in Hunt & Hunt.

Summary of the facts and the issue put to the High Court

The matter arose out of fraud committed by a Mr Angelo Caradonna, who, with assistance from his cousin, solicitor Mr Lorenzo Flammia (the fraudsters), forged business partner Mr Alessia Vella's signature and used the certificates of title to a number of his properties to secure loans amounting to just over $1 million from the first and second respondents (Mitchell Morgan). In other words, the fraudsters induced Mitchell Morgan into a loan agreement to which it would not otherwise have agreed.

Despite being forged, the mortgage had gained indefeasibility and was effective upon registration under the Real Property Act 1900 (NSW). As a result of negligent drafting by Mitchell Morgan's legal representatives at Hunt & Hunt Lawyers, the mortgage was worded to secure money owed by Mr Vella to Mitchell Morgan. As Mr Vella was the victim of fraud and not liable to pay Mitchell Morgan, the mortgage effectively secured nothing.

The contentious issue on appeal was whether Hunt & Hunt were concurrent wrongdoers with the fraudsters, and were therefore liable only for the proportion of Mitchell Morgan's loss that reflected their responsibility. The resolution of this issue depended upon two legal questions:

  • how to characterise Mitchell Morgan's loss/damage; and
  • whether Hunt & Hunt and the fraudsters could both be said to have caused the loss or damage, concurrently.

The majority's pronouncement on proportionate liability: Definition of "loss or damage"

Under section 34(2), concurrent wrongdoers must each have caused the "damage or loss that is the subject of the claim". The majority, Chief Justice French and Justices Hayne and Kiefel, stated that "loss or damage", in the context of economic loss, was "the harm suffered to a plaintiff's economic interests", and characterised the loss or damage of Mitchell Morgan as its inability to recover the sum advanced.

This is to be distinguished from Justice Giles' characterisation of "loss or damage" (in the Court of Appeal). He found Mitchell Morgan had suffered two different "losses":

  • the loss caused by the fraudsters, which resulted from Mitchell Morgan paying out money it would not have otherwise done so; and
  • the loss caused by Hunt & Hunt, which was not having security for the money paid out.

The majority stated that Justice Giles had incorrectly equated the immediate effects of the fraudulent and negligent conduct, with the loss and damage suffered as a result. The Court considered that these immediate effects were important to showing how it was that each of the concurrent wrongdoers "caused" the loss or damage but they could not be equated with such loss and damage. Rather, the damage only manifested itself (and the cause of action only accrued) later, when recovery was said to be impossible.

The minority opinion

Justices Bell and Gageler in the minority took a different approach. They stated that identifying the loss claimed by the plaintiff involves comparing the position of the plaintiff had the act or omission of the defendant not occurred to the position of the plaintiff as it has come to exist. Applying this approach, the minority explained that had Hunt & Hunt not breached its duty to protect Mitchell Morgan from fraud, Mitchell Morgan would have had the security of the mortgage notwithstanding the fraud. The fact that the loan transaction would not have occurred at all were it not for the fraud was "not to the point".

Accordingly, the minority held that the NSW Court of Appeal was correct in holding that Hunt & Hunt was solely responsible for the lack of security, not a concurrent wrongdoer and the loss was not apportionable.

The minority took issue with the alteration of rights caused by the majority's judgment, saying that the majority's decision had the effect of transferring not only the insolvency/recoverability risk to the plaintiff, but also transferring some or all of the very risk which in this case the defendant (Hunt v Hunt) had an obligation to assist the plaintiff to avoid.

What does the decision mean for parties to potential litigation?

The majority's decision is practically significant because it gives effect to the intention of the proportionate liability regime, by transferring liability to the plaintiff for loss caused by the wrongful act or omission by another who is impecunious. The deep pocket defendant will only be held liable for that proportion of the loss that reflects its responsibility.

This practical approach to the interpretation of the Civil Liability Act in NSW means that a court is more likely to find that defendants are concurrent wrongdoers, thus assisting the regime to meet one of its initial aims of preventing deep pocket defendants from being held liable for the whole of the loss where others are also responsible. It's good news if you are a deep pocket defendant, particularly if you are in the business of providing assurances, as your liability is likely to be limited to that for which you are responsible.

Of course, as pointed out by the minority, the outcome is not such good news for parties entering business transactions where they are reliant upon the services of assurance-givers. Those parties arguably now bear the precise risk that they had retained a third party to give them assurance about. Such parties may want to consider contracting out of the proportionate liability regime (if permitted in the relevant jurisdiction).

[1] Note that the proportionate liability provisions in the relevant South Australia and Queensland legislation operate differently. Back to article

You might also be interested in...

Related Knowledge

Get in Touch

Get in touch information is loading


Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.