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Proportionate Liability An update on recent developments Hunt & Hunt v Mitchell Morgan Nominees Tony Rodbard-Bean David Forbes Barristers.

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Presentation on theme: "Proportionate Liability An update on recent developments Hunt & Hunt v Mitchell Morgan Nominees Tony Rodbard-Bean David Forbes Barristers."— Presentation transcript:

1 Proportionate Liability An update on recent developments Hunt & Hunt v Mitchell Morgan Nominees Tony Rodbard-Bean David Forbes Barristers

2 Areas to be addressed David Forbes – Background to introduction of Proportionate Liability; – Outline of Legislation; – St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245; (2009) 25 VR 666. Tony Rodbard Bean – Mitchell Morgan Nominees Pty Ltd & Anor v Vella & Ors [2011] NSWCA 390 and appeal to High Court.

3 What is proportionate liability? Proportionate liability means instead of being jointly and severally liable for a plaintiff’s loss, defendants are only liable for their proportion of loss or damage when there are two or more contributors to that loss or damage. Proportionate liability shifts the risk of defendant impecuniosity from other concurrent wrongdoers to the plaintiff.

4 What wrongs does proportionate liability apply to? Negligence, excluding personal injuries. Misleading and deceptive conduct and related wrongs under the Corporations Act 2001.

5 Why was proportionate liability introduced? In 1990’s professional indemnity insurance was becoming prohibitively expensive. February Commonwealth and NSW Attorney Generals established inquiry by Professor Jim Davis into law of joint and several liability.

6 Davis Report Professor Jim Davis of ANU Law Faculty reported in Key recommendation: “That the present joint and several liability of defendants in actions for negligence causing property damage or pure economic loss be replaced by liability which is proportionate to each defendant’s degree of fault”.

7 Events following Davis Report New South Wales Law Reform Commission - Report 89 (1999) - Contribution Between Persons Liable for the Same Damage collapse of HIH Insurance Limited (2 nd largest general insurer in Australia). Report of HIH Royal Commission Civil Liability Amendment Act 2003 (NSW). Treasury Legislation Amendment (Professional Standards) Bill Wrongs and Limitation of Actions Acts (Insurance Reform) Bill 2003.

8 Treasury Legislation Amendment (Professional Standards) Bill 2003 Explanatory Memorandum – – “Professionals in every jurisdiction in Australia are currently facing difficulty in obtaining affordable professional indemnity insurance. It is essential that professionals be able to access this insurance to ensure that consumers can obtain damages in the event of negligently provided professional services”.

9 Commonwealth Legislation CORPORATE LAW ECONOMIC REFORM PROGRAM (AUDIT REFORM AND CORPORATE DISCLOSURE) ACT 2004 NO. 103, 2004 added proportionate liability provisions to: – Australian Securities and Investments Commission Act 2001; – Corporations Act 2001; – Trade Practices Act 1974 (Now Competition and Consumer Act 2010).

10 Victorian Legislation Wrongs and Limitation of Actions Acts (Insurance Reform) Act – Introduced Part IVAA into Wrongs Act – Part IVAA contains proportionate liability provisions comparable to Commonwealth Act.

11 Application of Victorian Legislation S. 24A Wrongs Act 1958: – Applies Part IVAA to – (a) “a claim for economic loss or damage to property in an action for damages (whether in tort, in contract under statute or otherwise) arising from a failure to take reasonable care”; and; – (b) a claim for damages for a contravention of section 18 of the Australian Consumer Law (Victoria). – But note s. 24AG - Part IVAA does not apply to claims arising out of an injury.

12 Commonwealth Legislation For misleading and deceptive conduct relating to: – Financial services – ASIC Act S. 12 DA; – Financial products or services – Corporations Act Ss 1041E, 1041H; – Also dishonest conduct and inducement relating to financial products or services, ss F and 1041 G; – Otherwise – Australian Consumer Law s. 18.

13 Commonwealth Legislation (cont’d) All these Acts now have similar divisions adding proportionate liability provisions. Key elements are: – Restrictions to “apportionable claims” in the above areas of misleading and deceptive conduct and similar wrongs; – Proportionate liability applies to “concurrent wrongdoers”; – Definition of concurrent wrongdoers.

14 Commonwealth Legislation (Cont’d) Key elements (cont’d) – Exclusions for intentional or fraudulent wrongdoing; – In the Commonwealth Acts defendant is to notify plaintiff of concurrent wrongdoer as soon as practicable with the identity and circumstances that make the other person a concurrent wrongdoer, otherwise costs penalties apply. – Under the Commonwealth Acts and other state Acts, there is no requirement that a party be joined to the proceeding in determining proportionate liability.

15 Key elements of proportional liability provisions The liability of a defendant who is a concurrent wrongdoer is limited to an amount reflecting that proportion of the loss or damage that the court considers just having regard to the extent of the defendant's responsibility; however Under Wrongs Act s 24AI (3), in apportioning responsibility the court must not have regard to the comparative responsibility of any person who is not a party to the proceeding unless the person is not a party to the proceeding because the person is dead or, if the person is a corporation, the corporation has been wound-up. Under Commonwealth Legislation the opposite applies, e.g. CCA s. 87CD.

16 Who is a concurrent wrongdoer? This is the lynchpin of the legislation. A concurrent wrongdoer is a person who is one of 2 or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is subject of the claim: see s. 87CB(3) of the Competition and Consumer Act, s24AH of the Wrongs Act.

17 Examples of concurrent wrongdoers in Victoria? Landowner of broken irrigation pipe and local shire – no; Chartered accountants and non-executive director of their client (which had produced false profit reports) – yes; Bridge manufacturer and sub-contractor who applied coating compounds to bridge tresses - yes; Solicitor and bankrupt guarantors – yes.

18 St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245; (2009) 25 VR 666 St George lent too much on a negligent valuation. The valuer pleaded that the borrower and the guarantor of the loan where concurrent wrongdoers. Nettle JA (with whom Mandie JA and Beach AJA agreed) held the borrower and the guarantor of the loan had not caused and where not liable for the same loss and damage as the valuer. The loss caused by the borrower and the guarantor was the failure to repay the loan. Nothing which the valuer did caused the failure to repay the loan. The damage caused by the valuer was to cause the bank to accept inadequate security from which to recover the amount of the loan.

19 Vella v Permanent Mortgages [2008] NSWSC 505

20 Mr Alex Vella, the Plaintiff, was described by the trial judge, Young CJ, as a property investor with an interest in motor bikes and boxing and the “national president of a group of motor bike enthusiasts known as the Rebels”. Mr Caradonna was an entrepreneur involved in the sport of boxing. In late 2005, Messrs Vella and Caradonna entered into a business venture related to a boxing event between Anthony Mundine and Danny Green in autumn The venture involved selling tickets to the fight and to a dinner to be hosted on the night after the fight with one Joe Frazier, the ex-international heavyweight boxing champion as the guest of honour. Caradonna and his cousin, Mr Flammia, a solicitor, forged the signatures of Vella on several mortgages after obtaining certificates of title to Mr Vella’s properties and obtained some $2M as a result. The loan monies were not repaid. The fraudulent mortgages were registered but it was alleged the lenders’ interests (Mitchell Morgan and Perpetual) were not indefeasible as security for the loan amounts.

21 It was further alleged that Mitchell Morgan’s solicitors (Hunt & Hunt) were thus negligent in the drawing of an “all monies” mortgage as distinct from a mortgage for a fixed sum on the face of the mortgage. One of the issues at trial was whether the solicitors were concurrent wrongdoers together with fraudsters within the meaning of the NSW proportionate liability legislation. Mitchell Morgan submitted that the loss the subject of its claim against Hunt & Hunt was the absence of mortgage security for the money purportedly lent to Mr Vella, and that the fraud of Messrs Caradonna and Flammia did not cause that loss. Hunt & Hunt submitted that Messrs Caradonna and Flammia were “concurrent wrongdoers” within the meaning of Civil Liability Act as they are persons whose acts or omissions caused, independently of each other or jointly, the damage or loss suffered by Mitchell Morgan. Hunt & Hunt submitted that the loss the subject of Mitchell Morgan's claim against it was the money Mitchell Morgan paid out which could not be recouped out of the mortgaged property, alternatively Mitchell Morgan's paying out the money without enforceable mortgage security, and that the fraud of Messrs Caradonna and Flammia also caused that loss.

22 Young CJ held Hunt & Hunt were negligent as, whilst they employed a form of mortgage commonly used throughout Australia and NSW, that type of mortgage was unsuitable to protect their clients from the possibility of fraud and the loss of a secured title. Having found negligence, his Honour also held Messrs Caradonna and Flammia were also the cause of the loss suffered by Mitchell Morgan. Young CJ thus concluded that Hunt & Hunt were concurrent wrongdoers with Caradonna and Flammia and apportioned Hunt & Hunt’s liability at 12.5% of the loss suffered by Mitchell Morgan.

23 The Appeal Mitchell Morgan v Vella [2011] NSWCA 390 A 5 member bench [Bathurst CJ, Giles JA, Campbell JA, Macfarlan JA and Sackville AJA] was assembled to hear that part of the various appeals that ensued, dealing only with Hunt & Hunt’s liability as a concurrent wrongdoer. The question before the Court of Appeal turned on identification of the damage suffered by Mitchell Morgan with regard to the nature of the harm suffered in respect of which the claim was made. The NSWCA noted that in St George Bank Ltd v Quinerts Pty Ltd it was the held that the loss the subject of the bank's claims against the borrower and guarantor was their failure to repay the loan, and that the loss the subject of the bank's claim against the valuer was the absence of adequate security, and thus it was said, these were different losses. The NSWCA also noted that the Victorian Court of Appeal considered Vella at first instance and regarded the loss the subject of Mitchell Morgan's claims against the fraudsters as parting with its money and the loss the subject of its claim against the solicitors as not having an effective mortgage.

24 Giles JA held that, at the correct level of identification, the losses suffered by Mitchell Morgan from the conduct of the fraudsters and the negligent solicitors were different interests. “Mitchell Morgan could be fraudulently induced to pay out money. It could protect itself and avoid losing the money if it obtained adequate and enforceable security. The loss, or the harm to an economic interest, is in the one case paying out money when it would not otherwise have done so, and in the other case not having the benefit of security for the money paid out”. “The losses the subject of the claims for economic loss against Messrs Caradonna and Flammia and the loss the subject of the claim for economic loss against Hunt & Hunt are different”. “The acts or omissions of Messrs Caradonna and Flammia... did not cause the loss the subject of Mitchell Morgan's claim for economic loss against Hunt & Hunt... the acts or omissions of the fraudsters, who had nothing to do with the way the mortgage was worded.”

25 The High Court – Special Leave Hunt & Hunt Lawyers v Mitchell Morgan Nominees [2012] HCATrans 216. The special leave application heard on 7 September 2012 before Gummow, Hayne and Bell JJ. The Appellant argued: – that it was immaterial that the causes of action bringing about the loss suffered by the mortgagee were different. One, the loss caused by the failure to recover money lent to the fraudsters and the other loss the inability to recover the money from the use of the mortgage. – each of the two acts “caused”, in a material sense, the loss suffered by Mitchell Morgan. – the NSWCA failed to provide a principled basis to distinguish the loss caused. Hayne J observed in argument: “Each [act of the wrongdoers was] a material contribution to the ultimate consequence, that the loan was not repaid. Leave to appeal was granted

26 The High Court Appeal Hunt & Hunt Lawyers v Mitchell Morgan Nominees [2012] HCATrans 344 Appeal heard December 2012 before French CJ, Hayne, Kiefel, Bell and Gageler JJ Hunt & Hunt argued that the Court in St George Bank Ltd v Quinerts Pty Ltd wrongly proceeded by characterising the loss flowing from the putative concurrent wrongdoer's conduct, comparing it with the loss which flowed from the defendant's conduct, and determining whether the putative wrongdoer's conduct also caused that loss. This led the Court into error in identifying the relevant loss by requiring the acts or omissions of Messrs Caradonna and Flammia to have contributed to the defective drafting of the mortgage.

27 Argued that given the definition of a “concurrent wrongdoer” the relevant concurrence is the relevant concurrence for the loss suffered and what is not required is that there be a concurrence in the acts or omissions constituting the breaches of duty or the steps in the chain of causation Argued that the relevant test is whether one party has made a material contribution to the loss and damage suffered Argued that the harm suffered is inability to recover the money from the borrower or the mortgaged property. Hayne J again observed in argument : “the loss or damage may be identified as the inability to recover.”

28 Argued that the approach of Nettle JA in Quinerts added a non-statutory element to the true test and gave insufficient weight to the legislation which speaks of several wrongdoers, independently of each other or jointly, not joint wrongdoers. NB : In Quinerts Nettle JA stated “The loss caused by the borrower and the guarantor was the failure to repay the loan. Nothing which the valuer did caused the failure to repay the loan. The damage caused by the valuer was to cause the bank to accept inadequately security from which to recover the amount of the loan”. Argued the task of the Court is to identify the loss or damage that was subject of the claim and then whether the acts or omissions of the alleged concurrent wrongdoer caused that damage or loss.

29 Members of the Court made the following observations to Counsel for the Respondents during submissions: French CJ: “Do you accept that if they were a sine qua non [“essential ingredient”] of the loss then they fall within the scope of concurrent wrongdoers ‑ ‑ ‑ Hayne J: “Now, why is this not the same loss? The case against you is that the loss is the inability to recover whether by repayment or realisation. What is the answer?” Kiefel J: – “But they do not have to be the same cause of the loss, they have to be a cause of the loss for the purpose of the statute, is that not the point?... – “But I do not think you quite understood what I was just putting to you. The statute surely does not require that they be the same cause as Hunt & Hunt for the loss. It only requires that to be a concurrent wrongdoer under section 34(2) that they are a cause”.

30 Predictions?


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