A recent High Court decision has provided some clarity in relation to the issue of the application of proportionate liability in cases where more than one party is liable for damages.
The concept of proportionate liability is outlined in Part 4 of the relevant Civil Liability Act and provides that a defendant should be liable for economic loss or property damage only to the extent of their responsibility for that loss. This is distinguished from liability for common law negligence where a wronged party can recover the entirety of their loss from one of the liable parties and it is then up to that liable party to sue the other wrongdoers, with the risk of those wrongdoers being insolvent resting with the defendant sued.
Essentially this allows the wronged party to take action against the party most likely to be able to pay any and all damages.
The recent 2013 case of Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd confirmed that proportionate liability is the correct regime to apply to circumstances where more than one party is liable for loss to another party.
The facts of the case were that a Mr Caradonna obtained the certificate of title to the property of a business partner (Vella) and used that certificate fraudulently to obtain a loan by way of mortgage from Mitchell Morgan Nominees. At the time, Mitchell Morgan had a policy in place that required a borrower’s solicitor to certify the identity of the borrower. Unfortunately, Caradonna’s cousin was a solicitor, who dishonestly certified a forged signature. The mortgage secured the debt owed to Mitchell Morgan by reference to a loan agreement, drawn up by Hunt & Hunt (the solicitors acting for Mitchell Morgan) who also drafted the mortgage.
On the basis of the forged documentation, a mortgage was registered over Vella’s property as security for the loan and more than $1 million was advanced and fraudulently withdrawn by Caradonna. Once proceedings were commenced in relation to the fraud, Caradonna and his cousin were already bankrupt.
Mitchell Morgan then brought proceedings against Hunt & Hunt for negligence as the loan agreement with Vella was void due to the forgery and therefore the mortgage essentially secured nothing.
Initial Finding of the Court
It was held in the abovementioned proceedings, that Mitchell Morgan’s claim against Hunt & Hunt was an apportionable claim. The primary judge held that Caradonna was primarily liable for 72.5% of Mitchell Morgan’s loss. His cousin was held liable for 15% and Hunt & Hunt liable for only 12.5% of the loss.
Decision of the Court of Appeal
On appeal it was then held that Hunt & Hunt was not a concurrent wrongdoer as the fraudsters’ acts did not cause the loss claimed against Hunt & Hunt. The court concluded that the economic loss caused by the fraudsters was “paying out money when it would not otherwise have done so”, while the economic loss caused by Hunt & Hunt was “not having the benefit of security for the money paid out”. Consequently Hunt & Hunt was held liable for the whole of the loss.
High Court Decision
It was then up to the High Court to determine whether the concept of proportionate liability should apply. In doing so it was necessary to determine whether the loss or damage caused by the fraudsters and Hunt & Hunt was the same. As stated by Justice’s French, Hayne and Kiefel:
“it is not a requirement of proportionate liability that the actions of one independent concurrent wrongdoer contribute to the negligence of another. The question is whether each of them, separately, materially contributed to the loss or damage suffered.”
The court came to the decision that while the cause of action by Mitchell Morgan against Hunt & Hunt was different from the cause of action against the fraudsters, the concept of proportionate liability did apply because the loss or damage suffered by Mitchell Morgan was its “inability to recover the monies it advanced” and the acts or omissions of all parties contributed jointly to that damage.
The decision in this case confirms that the concept of proportionate liability is appropriate to apply to such circumstances. This effectively protects those who are not entirely to blame for economic loss or property damage, by preventing them from being liable for the whole of the loss. Consequently this protects individuals and insurers from being liable for more than their contribution to the loss suffered by another party.
The downside to this is that the wronged party must bear the risk that not every liable party will be solvent when recovery is sought.