The High Court of Australia has handed down today its decision in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10 (3 April 2013) http://www.austlii.edu.au/au/cases/cth/HCA/2013/10.html which considers the above question. It is also the first time that the HCA has had occasion to consider issues arising under the "proportionate liability" provisions of the Australian Civil Liability Acts which were introduced around 2004.

For those who are fortunate enough never to have read them, these provisions are seen broadly as part of the "tort reform" process though not actually stemming from the Ipp Committee (they go back to reports prepared by list member Jim Davis from the ANU in the 1990's, as the Court notes here). They apply only to economic loss and property damage. They over-turn the traditional rules of "solidary liability", which hold that where there are 2 or more joint tortfeasors, the plaintiff can sue any one of them for the whole loss, and the defendant then has to find other solvent and accessible tortfeasors to recover a contribution. Instead, under a proportionate liability regime (PL), the plaintiff can only recover the precise proportion that each tortfeasor is adjudged to be responsible for. In other words, under PL the plaintiff bears the risk that one or more defendants will be insolvent or have disappeared.

In these proceedings Mitchell Morgan advanced money on the strength of a mortgage which had been forged by a couple of rogues. Their solicitors, Hunt and Hunt, drafted the mortgage documents, but did so negligently (the trial judge held), so that in the end the mortgage was worthless. (The mortgage documents referred to liability secured by a deed, but since the deed was forged it was void and the mortgage secured nothing. If the documents had been drafted to refer to a specific sum of money, and then registered to receive Torrens system indefeasibility, the loan would have been secured.)

Hunt and Hunt, when sued, argued that the PL provisions applied, and hence the fraudsters were "concurrent wrongdoers" whose actions had materially contributed to the damage. This meant that they should only be liable for their proportion of the loss, which the trial judge set at 12%.

Without reciting the whole judgment, the issue came down to this: were the solicitors by their negligence, and the fraudsters by their fraud, responsible for the "same damage"? The NSWCA said not, identifying the harm caused by the solicitors as a failure to create adequate security, which was different to the harm caused by the fraudsters. The majority decision in the High Court disagreed. French CJ, Hayne and Kiefel JJ said that the bottom line was that the harm that MM had suffered was "inability to recover the monies it had advanced" (see [9]). This harm was caused by both the actions of the fraudsters and the actions of the solicitors. (There is a brief and uncontroversial review of matters relating to causation, noting that a wrongdoers conduct simply has to be "a" cause, not a "sole" cause. See [45].) Hence the PL provisions applied. In the course of the decision not only the CA decision in these proceedings was over-turned, but also the Victorian decision of St George Bank Ltd v Quinerts Pty Ltd (2009) 25 VR 666.

The dissent by Bell and Gageler JJ agreed with the NSWCA. They point to what they say is an unexpected expansion of the operation of the PL provisions if it applies to a situation where one defendant has failed to take reasonable care to protect the plaintiff from a fraud committed by another defendant - see [95]. Nevertheless, I think in the end the majority is more convincing- the ultimate harm that someone like MM are complaining of is the whole sequence of events which led to them losing money. The wording of the legislation does indeed seem to lead to the outcome reached by the majority. 

This may, of course, mean that the legislation needs to be rethought to avoid this outcome- for it will mean that an innocent plaintiff whose economic loss has been caused by the combination of fraud and someone failing to protect them from fraud, will usually recover only a small proportion of their loss now.

Regards

Neil