Tuesday, 13 August 2013

Deep pockets to no longer cop it

Governments around Australia introduced proportionate liability legislation in the early 2000s to help cut the price of insurance.  They intended to prevent ‘deep pocket’ defendants being held entirely liable for losses to which others contributed.  Yet judges have since interpreted the legislation to allow maximum recovery to plaintiffs.

The High Court has recently handed down a decision that restores the original aims of the proportionate liability regime.  It is good news for a ‘deep pocket’ defendant like the government, as its liability (in a non-personal injury action) is likely to be limited to that for which it is actually responsible, as was always intended by the legislation. 

The decision is Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10

Facts


Mitchell Morgan was a lender. Hunt & Hunt were their lawyers. They had prepared a mortgage instrument for a loan from Mitchell Morgan to a Mr Vella and a Mr Caradonna.  The instrument was registered against property owned by Mr Vella alone. Unbeknownst to either the lender or the lawyers, Mr Caradonna had forged Mr Vella's signature on the loan documents and on the mortgage instrument.  Mr Caradonna spent the loaned money and then become bankrupt.

Mitchell Morgan therefore could not recover the money from Mr Caradonna.  Nor could it recover from Mr Vella, as the mortgage instrument was void because of the forgery.  So it turned to Hunt & Hunt…

Trial history


The NSW Supreme Court held that Hunt & Hunt had been negligent in preparing the mortgage instrument. Hunt & Hunt did not appeal this finding.  The issue for the High Court was whether the proportionate liability provisions applied, limiting Hunt & Hunt’s liability to a percentage of the total loss that reflected their culpability.

Justice Young of the Supreme Court had found they did and apportioned only 12.5% of the liability to Hunt & Hunt.  But the Court of Appeal found the provisions did not apply, as the loss caused by Mr Caradonna was different to the loss caused by Hunt & Hunt.  It found that Mitchell Morgan was therefore entitled to recover 100% of its damages from Hunt & Hunt.

High Court


A 3:2 majority of the High Court agreed with the trial judge, finding that the proportionate liability regime under Part 4 of the NSW Civil Liability Act 2002 (which is in all material respects identical to Part IVAA of the Victorian Wrongs Act 1958) applied. 

The Court found that the distinct wrongs committed by Mr Caradonna and by Hunt & Hunt had caused a single economic loss for Mitchell Morgan, being its inability to recover the money lent to Mr Caradonna.  Mr Caradonna and Hunt & Hunt were therefore concurrent wrongdoers, bringing the NSW proportionate liability provisions into play.

The Court clarified that ‘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’. 

In other words, it was enough that Mr Caradonna and Hunt & Hunt had both contributed to Mitchell Morgan’s loss, broadly described as its inability to recover the money that it had advanced.

Implications


This decision will be of significance to solicitors, insurance brokers, valuers, accountants and other professionals whose calling requires them to protect clients from the economic consequences of wrongs committed by others.  Proportionate liability will likely now reduce these professionals’ exposure in many cases.

However, it is important that any government body in negligence proceedings (other than personal injury) identify all possible concurrent wrongdoers. This now includes any person who materially contributed to the loss. It does not matter that each concurrent wrongdoer may have caused the loss in a different way or even that one of the wrongdoers acted fraudulently.

For example, this decision could apply in property damage or economic loss cases that name an emergency service provider as a defendant (assuming a duty of care was owed, which would depend on the circumstances). If a fire fighting authority negligently failed to stop a chemical leak caused by a third party, this decision suggests that the fire fighting authority and the third party would be concurrent wrongdoers.   This means that the fire fighting authority would only have to pay a portion of the total damages, rather than the full amount.  As such, this decision may prove to be good news for emergency service providers in certain classes of proceedings for damages. 

What do you think about this development? Will it achieve the goals of the proportionate liability regime?

For more information on this decision or for advice on your dispute resolution strategy, please contact:

Jon Bayly
Principal Solicitor
t  8684 0223 
jonathan.bayly@vgso.vic.gov.au

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