Concurrent wrongdoers: when is loss and damage the same?

Legal Directions

Mitchell Morgan Nominees Pty Ltd & Anor v Vella & Ors [2011] NSWCA 390

The NSW Court of Appeal has confirmed that concurrent wrongdoers must be liable to a claimant for the same loss and damage in order for the proportionate liability provisions of the Civil Liability Act (NSW) (‘CLA’) to apply.

The Court found that a lender’s loss caused by its solicitors’ negligent drawing of a mortgage was not the same as its loss caused by the fraudsters who had falsely procured the mortgage. Accordingly, the solicitors and the fraudsters were not concurrent wrongdoers. The solicitors could therefore not rely on Part 4 of the CLA. This is even though the amount of compensatory damages able to be sought against the solicitors and the fraudsters may have been the same.

Facts

Mr Caradonna and Mr Vella embarked on a joint venture in the course of which they opened a joint bank account.

Unknown to Mr Vella, Mr Caradonna obtained the certificates of title for a number of Mr Vella’s properties and used one of them to apply to Mitchell Morgan for mortgage finance in Mr Vella’s name.

Mr Flammia (a solicitor) assisted in the fraud and misrepresented to Mitchell Morgan’s solicitors, (‘the solicitors’) that Mr Vella had signed certain documents and appeared in some of the identification documents.

The mortgage was registered and Mitchell Morgan paid $1,001,748.85 to the joint account, which was later withdrawn and misappropriated by Mr Caradonna.

The trial judge found that the solicitors had negligently prepared the mortgage. Even though the mortgage gained indefeasibility on registration, it was worded so as to secure money owing by Mr Vella to Mitchell Morgan. As only Mr Caradonna and not Mr Vella owed money, the mortgage secured nothing.

Despite finding the solicitors liable to Mitchell Morgan, the trial judge decided it was a concurrent wrongdoer together with Mr Caradonna and Mr Flammia and its liability should be limited to 12.5% of Mitchell Morgan’s loss.

Mitchell Morgan appealed. It contended that the solicitors were not concurrent wrongdoers and their liability should not be limited at all, or alternatively, it should be liable for a greater portion of Mitchell Morgan’s loss.

Appeal

The NSW Court of Appeal, led by Giles JA, upheld the appeal on the basis that the solicitor’s negligence did not cause the same loss and damage as the fraudulent acts of Messrs Caradonna and Flammia. The solicitor’s liability was therefore not limited at all.

His Honour considered the definition of ‘concurrent wrongdoer’ under section 34(2) of the Civil Liability Act which required the solicitors to have been one of two or more persons whose acts or omissions ‘caused, independently of each other or jointly, the damage or loss that is the subject of the claim’.

In identifying ‘the damage or loss the subject of the claim’ against the solicitors, Giles JA emphasised that ‘damage’ was distinguishable from ‘damages’. The former referred to the harm to Mitchell Morgan’s economic interest and the latter referred the compensation required to remedy that harm.

In the case of Messrs Caradonna and Flammia, the harm to Mitchell Morgan’s economic interest was advancing money which it would not otherwise have done but for the fraud.

In the case of the solicitors, the harm to Mitchell Morgan’s economic interest was not having the benefit of security for the monies it had advanced, which it would otherwise have had but for the negligence.

The damage caused by the solicitors was therefore failing to secure mortgage security for Mitchell Morgan’s loan. This was different to the damage caused by Messrs Caradonna and Flammia, which was fraudulently inducing Mitchell Morgan to advance money to them.

In determining the nature of the damage, it was immaterial that the monetary amounts of damages recoverable may be the same.

Further, the fact that payment by Messrs Caradonna and Flammia could reduce the liability of the solicitors also did not mean both parties caused the same loss. In the event of a double recovery by Mitchell Morgan, the Court of Appeal considered that an equitable remedy could be obtained.

In coming to this finding, Giles JA referred to the following examples in previous contribution cases where loss and damage was not considered to be the same:

  • In Royal Brompton Hotel v Hammond, an employer’s loss caused by a contractor’s delay in performing a contract was not held to be the same as that caused by an architect’s negligent granting of an extension of time to that contractor
  • In Hurstwood Developments v Motor and General & Andersley, an employer’s loss caused by a contractor’s negligent site investigation was not held to be the same as that caused by its insurance brokers for failing to insure such an investigation
  • In Wallace v Litwiniuk, an injured plaintiff’s loss caused by a negligent driver was not held to be the same as that caused by her lawyers failing to bring a claim against that driver within the limitation period
  • In St George Bank v Quinerts, a bank’s loss caused by a valuer’s negligent valuation was not held to be the same as that caused by the borrower and guarantor defaulting on the loan for which the valuation was prepared.

Conclusion

The Court of Appeal has clarified when a tortfeasor will be regarded as a concurrent wrongdoer.

Concurrent wrongdoers must be liable to a claimant for the same loss and damage in order for the proportionate liability provisions of the Civil Liability Act (NSW) (‘CLA’) to apply.

The case illustrates the need to scrutinise even more closely losses claimed against prospective concurrent wrongdoers and take further care when pleading proportionate liability.

Authored by Liyan Leow, Senior Associate, Sydney.


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