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Australia – The “Hunt” For Clarity On Apportionment.

7 April, 2013

 

Summary

 

The High Court has for the first time considered the application of the proportionate liability provisions of the Civil Liability Act 2002 (NSW) (CLA) (Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10 (3 April 2013), which are mirrored in equivalent legislation in other Australian jurisdictions.  The court considered whether, in order for liability for "damage" to be apportioned to a concurrent wrongdoer, that damage must be "caused" by each concurrent wrongdoer and what analysis the court should undertake in making that assessment.

 

In a 3-2 decision, the majority of the High Court reinstated the first instance decision,  relevantly concluding that a wrongdoer's acts may be independent of those of another wrongdoer and yet be said to cause the same damage for the purposes of apportionment.

 

Background

 

In 2005 Mr Caradonna and Mr Vella entered into a business venture to arrange a boxing bout between Anthony Mundine and Danny Green. A joint account was opened, requiring both their signatures before a withdrawal could be made.

 

On the same day the joint account was established, Mr Vella took possession of the certificates of title to 3 properties. Unbeknownst to Mr Vella, Mr Caradonna took those certificates of title and used them as security to apply for a loan in the amount of AUD 1 million from Mitchell Morgan Nominees Pty Ltd and Mitchell Morgan Nominees (No.2) Pty Ltd (Mitchell Morgan).

 

Mr Caradonna also forged Mr Vella's signature on various loan documents and arranged for his solicitor, Mr Flammia (who also happened to be his cousin), to represent to Mitchell Morgan's solicitors (Hunt & Hunt) that he had witnessed Mr Vella's signature. The mortgage was registered and Mitchell Morgan paid AUD 1 million into the joint account. Those funds were immediately withdrawn by Mr Caradonna, who again forged Mr Vella's signature in the process.

 

Hunt & Hunt prepared the mortgage documents for Mitchell Morgan, but failed to ensure that they were drafted adequately. As a result, the mortgage was ineffectual as security.

 

On discovery of the fraud, Mr Vella commenced proceedings against, amongst others, Mitchell Morgan. Mitchell Morgan brought cross-claims against Hunt & Hunt, on the grounds it had negligently prepared the mortgage documents, and against Mr Caradonna and Mr Flammia on the basis of their fraudulent behaviour.

 

First instance decision

 

At first instance, Young CJ held that Hunt & Hunt was liable to Mitchell Morgan in negligence but also held that Mr Caradonna and Mr Flammia were concurrent wrongdoers for the purposes of Part 4 of the CLA.  On that basis, His Honour apportioned liability between the concurrent wrongdoers on the following basis:

 

  • Hunt & Hunt's – 12.5%
  • Mr Caradonna – 72.5%
  • Mr Caradonna's lawyer -15%

 

However Mr Caradonna and Mr Flammia had been declared bankrupt by the time the decision was handed down, leaving Mitchell Morgan unable to recover some 87.5% of its loss.

 

Mitchell Morgan appealed the first instance decision on the grounds that proportionate liability should not apply or, in the alternative, that Hunt & Hunt should bear a higher proportion of liability.

 

The New South Wales Court of Appeal decision

 

The New South Wales Court of Appeal overturned the first instance decision (Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390) on the grounds that Mr Caradonna and Mr Flammia had not caused the same "loss" or "damage" as Hunt & Hunt and were therefore not concurrent wrongdoers for the purposes of the CLA.

 

Section 34(2) of the CLA provides that a person is a concurrent wrongdoer if it 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.”

 

The Court of Appeal formed the view that:

 

  • the "damage or loss" caused to Mitchell Morgan by Mr Caradonna and Mr Flammia was causing it to advance loan funds which it would not otherwise have advanced; while
  • the "damage or loss" caused to Mitchell Morgan by Hunt & Hunt's negligence was depriving it of the benefit of security for the money it had loaned.

 

On that basis, the Court of Appeal held that while Mitchell Morgan's claim against Hunt & Hunt was an "apportionable claim" for the purposes of the CLA, Mr Caradonna and Mr Flammia were not "concurrent wrongdoers".

 

The Court of Appeal held that Hunt & Hunt was not entitled to limit its liability by operation of the proportionate liability regime and its liability was accordingly increased from 12.5% to 100%. Hunt & Hunt appealed to the High Court.

 

The High Court decision

 

Before the High Court Hunt & Hunt argued that a practical, rather than narrow, approach should be adopted by the courts when assessing whether there is a nexus between the "damage" or "loss" said to have been caused by alleged concurrent wrongdoers.

 

Hunt & Hunt asserted that the terms "damage" and "loss" contained in the CLA should be equated with the term "harm" and that the "harm" in this instance was Mitchell Morgan's inability to recoup the AUD 1 million it had advanced.  It argued that, in addition to Hunt & Hunt, Mr Caradonna or Mr Flammia could be said to have "..caused, independently of each other or jointly…" Mitchell Morgan's inability to recoup the loan advance.

 

Mitchell Morgan argued that in order for 2 or more persons to be considered concurrent wrongdoers under the CLA a "causal" nexus must be established between the acts allegedly committed, resulting in the damage in question. It argued such a nexus did not exist here.

 

The majority of the High Court agreed with Hunt & Hunt that the loss suffered by Mitchell Morgan was its inability to recover the money advanced pursuant to the loan.  While Hunt & Hunt's negligent drafting of the mortgage documents was a cause of that "damage", the High Court concluded that the fraudulent acts of Mr Caradonna and Mr Flammia were also a material cause of the "damage" which Mitchell Morgan suffered. 

 

Significantly, the majority stated that the NSW Court of Appeal had appeared:

 

".. to have assumed that there is some requirement that one wrongdoer contribute to the wrongful actions of the other wrongdoer in order that they cause the same damage. There is no such requirement in Pt 4 of the Civil Liability Act. To the contrary, Pt 4 acknowledges, as does the common law, that a wrongdoer's acts may be independent of those of another wrongdoer yet cause the same damage."

 

The High Court reinstated the primary judge's decision that the loss suffered by Mitchell Morgan should appropriately be apportioned between the 3 concurrent wrongdoers, thereby reducing Hunt & Hunt's liability to the original 12.5%.

 

Conclusion

 

The High Court's decision does not completely reject the reasoning employed by the NSW Court of Appeal, or the decision of the Victorian Court of Appeal in Quinerts (St George Bank Ltd v Quinerts Pty Ltd (2009) 25 VR 666), but makes it clear that:

 

  • a pragmatic approach must be adopted by the courts when determining whether "damage" or "loss" can be said to have been caused by concurrent wrongdoers; and
  • in assessing the link between "damage" caused by wrongdoers, it is critical to draw a distinction between the acts or omissions which may be causative of loss or damage and the loss or damage which is said to result from it. It is a commonality of the resulting "damage" or "loss" which is a prerequisite to the apportionment of liability.

 

The High Court's decision strengthens the ability of defendants to rely on the proportionate liability regimes to limit their liability and goes some way to resolving the confusion which has surrounded this area of the law over recent years.

 

However, the fact that the High Court was split 3:2 with a strong dissenting joint judgment from Bell and Gageler JJ suggests that this is unlikely to be the final word on this aspect of the operation of proportionate liability regimes in Australia.

 

 
For further information, please contact:
 
Jenni Priestley, Partner, Clyde & Co
jenni.priestley@clydeco.com
 
Simon Black, Clyde & Co
simon.black@clydeco.com
 

 

 

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