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Focus: High Court broadens the reach of proportionate liability defences

5 April 2013

In brief: In its first decision addressing proportionate liability in detail, the High Court has suggested a relatively broad approach to identifying 'concurrent wrongdoers'. This will be welcomed by professional advisers and their liability insurers. Partner Andrea Martignoni (view CV), Senior Associate Andrew Byrne and Lawyer Sally Keenan report. 

How does it affect you?

  • Proportionate liability regimes across Australia reduce a defendant's exposure to damages by reference to the relative liability of other 'concurrent wrongdoers'. In this case1, the High Court held that any persons who materially contributed to the plaintiff's loss will qualify as concurrent wrongdoers.
  • Applying the decision, Australian courts should now take a broad approach to the identification of concurrent wrongdoers – even where there may be arguments around causation or the different nature of relevant causes of action.
  • Perhaps the greatest practical implication is that in cases where fraud of one party causes loss, any party whose negligence also contributed to that loss will be able to reduce its liability significantly having regard to the greater culpability of the fraudulent wrongdoer.

Background

Using forged signatures, fraudsters entered into a loan agreement and mortgage, offering the property of an unknowing third party as security. Once the agreement and mortgage had been executed, the lender advanced $1 million to the fraudsters. The lender's solicitors, Hunt & Hunt, prepared the documentation. In so doing, they failed properly to draft the mortgage to prevent against fraud of this kind. In particular, the mortgage only provided recourse against amounts owing under the loan agreement, but that agreement was void because of the fraud. The fraud was ultimately discovered, by which time the fraudsters were bankrupt. 

The lender sued Hunt & Hunt for negligence, in the NSW Supreme Court. At first instance, the court held that Hunt & Hunt was negligent in preparing the loan agreement and mortgage, but also accepted Hunt & Hunt's submission that the fraudsters were 'concurrent wrongdoers' for the purposes of the proportionate liability regime in the Civil Liability Act 2002 (NSW). On that basis, taking into account the conduct of the fraudsters, the court apportioned Hunt & Hunt's liability at 12.5 per cent, such that they were only liable for that portion of the damages amount. 

On appeal, the Court of Appeal held that, while the fraudsters' conduct had caused loss to the lender, it was different from the loss claimed against Hunt & Hunt and that the fraudsters were therefore not concurrent wrongdoers with Hunt & Hunt. On this basis, the Court of Appeal found that Hunt & Hunt was liable for 100 per cent of the damages amount. Hunt & Hunt sought, and were granted, special leave to appeal to the High Court.

Key findings

The principal issue for determination by the High Court was whether the fraudsters and Hunt & Hunt were concurrent wrongdoers for the purposes of the relevant NSW proportionate liability regime (substantially similar to other such regimes across Australia). The relevant legislation defines concurrent wrongdoer, in relation to a claim, as '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.'

Two judgments were handed down, with Chief Justice French and Justices Hayne and Kiefel forming the majority, and Justices Bell and Gageler in dissent. 

In overturning the Court of Appeal's decision, the majority's decision (which is binding) turned on whether the lender's loss was, for the purposes of the proportionate liability regime, its inability to recover the funds it had advanced to the fraudsters (a broad approach to characterising the loss), or, alternatively, its inability to call on the property as security under the mortgage (a narrower approach). The majority took the former approach, holding that, in assessing whether the fraudsters were concurrent wrongdoers, it was simply necessary to determine, on a factual enquiry, whether they had materially contributed to the lender's inability to recover the funds advanced to the fraudsters. 

By contrast, the minority gave greater consideration to the relevant causes of action, and determined that the loss caused to the lender by Hunt & Hunt's failure to prepare appropriate documents was different from that caused by the fraudsters' conduct. On this basis, the minority held that the fraudsters could not properly be characterised as concurrent wrongdoers with Hunt & Hunt under the legislation. 

Comment

Over the course of the introduction and amendment of proportionate liability regimes across Australia in the past decade, pleadings and submissions related to the various concepts employed in the regimes have been fraught with difficulty. While many of those difficulties remain, this decision provides greater certainty around the approach that should be taken so far as identifying concurrent wrongdoers is concerned.

For a defendant, it is desirable that all possible concurrent wrongdoers are identified. The effect of the High Court decision is that this will include any person who materially contributed to the loss, in the sense that the act or omission of that person played some part in contributing to the loss. It does not matter that the loss may have been caused in a different way by each concurrent wrongdoer, or even that one of the concurrent wrongdoers may have acted fraudulently.

 

Footnotes
  1. Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10.

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