Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd

• Jurisdiction: Australia Federal only
• Court: High Court (Australia)
• Judge: French CJ,Hayne,Keane JJ,Bell,Gageler JJ
• Judgment Date: 03 April 2013
• Neutral Citation: [2013] HCA 10
• Docket Number: S270/2012 & S95/2012
• Date: 03 April 2013

[2013] HCA 10

HIGH COURT OF AUSTRALIA

French CJ, Hayne, Kiefel, Bell and Gageler JJ

S270/2012 & S95/2012

Hunt & Hunt Lawyers

Appellant/Applicant

and

Mitchell Morgan Nominees Pty Ltd & Ors

Respondents

Representation

D F Jackson QC with N Kabilafkas for the appellant/applicant (instructed by King & Wood Mallesons)

B A J Coles QC with S B Docker and L Walsh for the first and second respondents (instructed by Mills Oakley Lawyers))

Submitting appearance for the third and fourth respondents

Civil Liability Act 2002 (NSW), Pt 4, ss 5D(1), 5D(4), 34, 35(1), 36.

Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Lt

Proportionate liability — Loan and mortgage transaction — Fraudsters induced lender to advance monies on security of mortgage — Solicitors negligently drafted mortgage — Lender unable to recover monies advanced — Whether damage or loss the subject of lender's claim against solicitors caused or materially contributed to by fraudsters' conduct — Whether solicitors concurrent wrongdoer together with fraudsters within Pt 4 of Civil Liability Act 2002 (NSW).

Words and phrases — ‘apportionable claim’, ‘causation’, ‘caused or materially contributed to’, ‘concurrent wrongdoer’, ‘damage’, ‘damages’, ‘factual causation’, ‘proportionate liability’, ‘scope of liability’.

ORDER

Appeal allowed with costs.

Application for special leave dismissed with costs.

Set aside the orders of the Court of Appeal of the Supreme Court of New South Wales dated 15 March 2012 and, in lieu thereof, order that:

• (a) interest be allowed on the sum assessed by the Supreme Court of New South Wales to be payable by Hunt & Hunt Lawyers at the rates applied by the Court of Appeal in its orders of 15 March 2012;

• (b) the appeal by Mitchell Morgan Nominees Pty Ltd and Mitchell Morgan Nominees (No. 2) Pty Ltd (together ‘Mitchell Morgan’) from the orders made on the second cross-claim by the Supreme Court on 3 July 2009 otherwise be dismissed; and

• (c) Mitchell Morgan pay Hunt & Hunt Lawyers' costs in the Court of Appeal.

4. On or before 17 April 2013, Hunt & Hunt Lawyers and Mitchell Morgan file a joint minute stating what further consequential orders should now be made by this Court including an order substituting the amount for which judgment should have been entered by the Court of Appeal in favour of Mitchell Morgan. In default of agreement, each of Hunt & Hunt Lawyers and Mitchell Morgan, on or before 17 April 2013, is to file and serve its proposed minute of order together with written submissions not exceeding two pages in support of its proposed order.

French CJ, Hayne and Keane JJ. Mr Angelo Caradonna and Mr Alessio Vella entered into a business venture relating to a boxing event in late 2005 and opened a joint bank account for that purpose. On the same day, Mr Vella, in the company of Mr Caradonna, attended upon his solicitors and took possession of certificates of title to three properties. Subsequently, and unknown to Mr Vella, Mr Caradonna obtained possession of the certificates of title and used them fraudulently to obtain money for his own purposes.

2 The first and second respondents (referred to collectively as ‘Mitchell Morgan’) advanced $1,001,748.85 to the joint account of Messrs Caradonna and Vella in January 2006 on the security of a mortgage over one of the properties, the ‘Enmore property’. It was Mitchell Morgan's policy at that time to require a borrower's solicitor to certify that the solicitor had identified the borrower and to witness the borrower's signature on all loan and mortgage documents. Mr Caradonna's cousin, Mr Lorenzo Flammia, acted as his solicitor and dishonestly so certified. Mr Caradonna had forged Mr Vella's signature on the documentation. On the basis of the forged documents and the certification, a mortgage was registered over the Enmore property and the funds advanced. The mortgage secured the debt owed to Mitchell Morgan by reference to a loan agreement. Both the mortgage and the loan agreement were drawn by the appellant, Hunt & Hunt Lawyers (‘Hunt & Hunt’), a firm of solicitors which acted for Mitchell Morgan on the transaction. Mr Caradonna withdrew the loan money from the joint account by forging Mr Vella's signature on numerous cheques. By the time proceedings instituted by Mr Vella against Mitchell Morgan and others were heard in the Supreme Court of New South Wales 1, both Mr Caradonna and Mr Flammia (referred to together as ‘the fraudsters’) were bankrupt.

3 The reasoning of the primary judge, Young CJ in Eq, with respect to the claim brought by Mitchell Morgan against Hunt & Hunt in those proceedings is summarised in the reasons of Giles JA in the Court of Appeal 2. In essence, the loan agreement was void by reason of the forgery and Mr Vella was not liable to Mitchell Morgan under it. The mortgage over the Enmore property, also forged, had gained the benefit of indefeasibility of title 3, but because it purported to secure Mr Vella's indebtedness by reference to the void loan agreement, it secured nothing and was liable to be discharged. Young CJ in Eq held that Hunt & Hunt

breached its duty of care to Mitchell Morgan. It was negligent because it should have prepared a mortgage containing a covenant to repay a stated amount. These matters are not in issue on this appeal.

4 In the Civil Liability Act 2002 (NSW), s 35(1) in Pt provides that in any proceedings involving an ‘apportionable claim’:

• ‘(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss, and

• (b) the court may give judgment against the defendant for not more than that amount.’

5 Section 34(1)(a) provides that apportionable claims include:

‘a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care’

but do not include a claim arising from personal injury.

6 More important to the issues on this appeal is the definition of a ‘concurrent wrongdoer’ for the purposes of Pt 4, and s 35(1) in particular. Section 34(2) provides:

‘In this Part, a concurrent wrongdoer, in relation to a claim, 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.’

7 His Honour the primary judge held that Mitchell Morgan's claim against Hunt & Hunt was an apportionable claim 4. It is to be inferred, because it was not expressly stated, that his Honour accepted Hunt & Hunt's submission 5 that the fraudsters were, independently of each other or jointly, a cause of the loss or damage claimed by Mitchell Morgan. His Honour held that Hunt & Hunt's liability should be limited to 12.5 per cent of Mitchell Morgan's loss.

Mr Caradonna was taken to be primarily liable, to the extent of 72.5 per cent, and Mr Flammia held liable for 15 per cent 6.

8 The Court of Appeal (Bathurst CJ, Giles, Campbell and Macfarlan JJA and Sackville AJA) allowed Mitchell Morgan's appeal from that decision, holding that Hunt & Hunt was not a concurrent wrongdoer because the fraudsters' acts did not cause the loss or damage which Mitchell Morgan claimed against Hunt & Hunt 7. The principal issue on this appeal involves the proper identification of that loss or damage.

9 These reasons will show that Mitchell Morgan's claim against Hunt & Hunt was an apportionable claim. The loss or damage which Mitchell Morgan suffered was its inability to recover the monies it advanced. Mitchell Morgan's claim against Hunt & Hunt was based on a different cause of action from the claims it would have had against Mr Caradonna and Mr Flammia. But the claims against all of Hunt & Hunt, Mr Caradonna and Mr Flammia were founded on Mitchell Morgan's inability to recover the monies advanced and the acts or omissions of all of them materially contributed to Mitchell Morgan's inability to recover that amount.

Proportionate liability and Part 4

10 Part 4 of the Civil Liability Act represents a departure from the regime of liability for negligence at common law (solidary liability), where liability may be joint or several but each wrongdoer can be treated as the effective cause and therefore bear the whole loss. Under that regime, a plaintiff can sue and recover his or her loss from one wrongdoer, leaving that wrongdoer to seek contribution from other wrongdoers 8. The risk that any of the other wrongdoers will be insolvent or otherwise unable to meet a claim for contribution lies with the defendant sued. By comparison, under a regime of proportionate liability, liability is apportioned to each wrongdoer according to the court's assessment of the extent of their responsibility. It is therefore necessary that the plaintiff sue all of the wrongdoers in order to recover the total loss and, of course, the risk that one of them may be insolvent shifts to the plaintiff.

11 The final report of the inquiry into the law of joint and several liability completed by Professor Davis in 1995 9 (‘the Davis Report’) focused upon the liability of concurrent, but independent, wrongdoers 10. An example there given was of damage resulting to a house by three separate wrongful acts: the builder negligently constructing the house with inadequate foundations; the architect negligently failing to supervise that part of the construction; and the local authority negligently failing to notice the inadequacy of the foundations. Although these acts were independent of each other, the end result is that the house is defective and needs to be underpinned. The act or omission of each wrongdoer was a cause of that...