Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Mitchell Morgan Nominees Pty Ltd & Anor v Vella & Ors [2011] NSWCA 390
• Hearing dates: 8, 9, 10 November 2011
• Decision date: 15 December 2011
• Before: Bathurst CJ at [1], Giles JA at [5], Campbell JA at [94], Macfarlan JA at [101], Sackville AJA at [102]

Decision

The parties to provide agreed short minutes of orders no later than 30 January 2012, in default of agreement their respective short minutes and written submissions of no more than three pages in support thereof within the same time.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Courts computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: PROPORTIONATE LIABILITY - loan and mortgage transaction - fraudsters forged signatures of purported borrower/mortgagor - mortgage registered but lender's interest not indefeasible as security for loan amount - fraudsters liable to lender for fraud - lender's solicitors liable to lender for negligence in failing to word mortgage so as to be indefeasible as security for loan amount - whether solicitors concurrent wrongdoer together with fraudsters within Pt 4 of Civil Liability Act 2002 - whether fraudsters' acts or omissions caused the damage or loss the subject of lender's claim against solicitors - lender's claim a claim for economic loss - difference between damage and damages - identification of economic interest harmed - "mutual discharge test"- same loss not caused by respective wrongdoings- consideration of St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245; (2009) 25 VR 666 - solicitors not concurrent wrongdoer.
• Legislation Cited: Civil Liability Act 2002; Real Property Act 1900; Wrongs Act 1958 (Vic)
• Cases Cited: Alexander v Perpetual Trustees WA Ltd [2004] HCA 7; (2004) 216 CLR 109; Ashbrooke Institute Pty Ltd v Bartone Biomedical Pty Ltd [2010] VSC 579; Astley v Austrust Ltd [1999] HCA 6; (1999) 197 CLR 1; Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635; Bracks v Smyth-Kirk [2009] NSWCA 401; (2009) 263 ALR 522; Bryan v Maloney (1995) 182 CLR 609; Farah Constructions Pty Ltd v Say-dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89; Ghunaim v Bart [2004] NSWCA 28; Howkins & Harrison v Tyler (2001) Lloyd's Rep PN I; Hurstwood Developments Ltd v Motor and General & Andersley & Co Insurance Services Limited [2001] EWCA Civ 1785; Mahoney v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522; Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALJR 492; Royal Brompton Hotel NHS Trust v Hammond (2002) 1 WLR 1397; Small v Tomasetti [2001] NSWSC 1112; St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245; (2009) 25 VR 666; Tillman v Attorney-General for the State of New South Wales [2007] NSWCA 327; (2007) 70 NSWLR 448; Vinidex Tubemakers Pty Ltd v Thiess Contractors Pty Ltd [2000] NSWCA 67; Wallace v Litwiniuk [2001] ABCA 118; Wynbergen v Hoyts Corporation Pty Ltd (1997) 72 ALJR 65.
• Category: Principal judgment
• Parties: Mitchell Morgan Nominees Pty Ltd - First and Second Appellants; Hunt & Hunt Lawyers - Second Respondent
• Representation: B A Coles QC & S B Docker - Appellants Mitchell Morgan Nominees Pty Ltd; J Stevenson SC & N Kabilafkas - Second Respondent; Mills Oakley - Appellants; Mallesons Stephen Jaques - Second Respondent
• File Number(s): CA 2009/298381

Decision under appeal

• Citation: Vella v Mitchell Morgan Nominees Pty Ltd [2008] NSWCA 511; Vella v Australia and New Zealand Banking Group Ltd; Vella v Permanent Mortgages Pty Ltd; Mitchell Morgan Nominees Pty Ltd v Vella [2009] NSWSC 123; Vella v Australia & New Zealand Banking Group Ltd; Vella v Permanent Mortgages Pty Ltd; Vella v Mitchell Morgan Nominees Pty Ltd, 23 June 2009
• Before: Young CJ in Eq
• File Number(s): SC 3597/06, 4122/06, 4059/06

Judgment

1 BATHURST CJ: I agree with the orders proposed by Giles JA and subject to what I have written below, with his Honour's reasons.

2 As Giles JA with respect correctly points out, the question of the proportional limitation of Hunt & Hunt's liability does not arise as that firm was not a concurrent wrongdoer with Messrs Caradonna and Flammia for the purpose of s 35 of the Civil Liability Act 2002.

3 Whilst I agree with the conclusion of Giles JA that the words "comparative responsibility" in s 35(3)(b) permit comparison of the conduct of the concurrent wrongdoer to that of the defendant, I do not think it necessarily follows that the responsibility of the intentional wrongdoer will generally be likely to exceed that of the negligent wrongdoer. That, in my view, could depend on a number of factors; for example, the precise task the negligent wrongdoer is required to perform, the consideration he or she received for performing that task and the degree of departure from the requisite standard of care. Each case must, in those circumstances, depend on its own particular facts.

4 However, because s 35 had no application to the present case, it is not necessary to reach a conclusion as to whether or not the trial judge's apportionment of responsibility was correct.

5 GILES JA : In a wider set of appeals and cross-appeals, an order was made that the questions raised by grounds 4 to 8 in Mitchell Morgan's amended notice of appeal filed on 28 September 2009 be decided separately from any other questions in the proceedings. The order was made because Hunt & Hunt proposed to submit that this Court should not follow a decision of the Victorian Court of Appeal concerning the construction and application of legislation corresponding to Pt 4 (ss 34-39) of the Civil Liability Act 2002, and a Bench of five was constituted for that part of the proceedings. The subject-matter was limitation of Hunt & Hunt's liability as a concurrent wrongdoer.

Background

6 Mr Allessio Vella came to know Mr Angelo Caradonna in 2002. They shared an interest and involvement in boxing, in Mr Caradonna's case including as a boxing promoter.

7 In December 2005 Mr Vella and Mr Caradonna agreed to join in a venture of selling tickets for an Anthony Mundine vs Danny Green fight in April 2006 and a dinner the next night; Joe Frazier would be the host and star attraction at the dinner. On 21 December 2005 they opened a joint account with the ANZ Bank at Liverpool, both to sign ("the joint account"). It was intended to put the income from the venture into the joint account and pay expenses from it.

8 In late January 2006 Mr Vella and Mr Caradonna borrowed $300,000 from a friend, Mr Joseph Cartisano, to use for the venture. The money was repayable in a month's time, and the primary judge found that this money "was to be borrowed and put in a bank account to show persons with whom the joint venture was dealing, that they were solid citizens with cash in the bank" ( Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 at [127]). The money was deposited to the credit of the joint account on 3 February 2006.

9 Mr Caradonna also used the joint account in the wrongdoing next described.

10 According to Mr Vella, whose evidence was challenged at trial but was accepted by the primary judge as "basically reliable" (at [240]), he wanted to consolidate loans in respect of three properties he owned at Enmore, Leppington and Mangrove Mountain. He asked Mr Caradonna about potential lenders. On the same day as they opened the joint account, they attended together upon Mr Vella's solicitor and obtained the certificates of title which had been in his custody. After some initial inquiries, the loan consolidation did not proceed. But Mr Caradonna obtained possession of Mr Vella's certificates of title, and unknown to Mr Vella used them to borrow money for his own purposes.

11 One borrowing was from Mitchell Morgan Nominees Pty Ltd and Mitchell Morgan Nominees (No 2) Pty Ltd (together, "Mitchell Morgan"). Mr Caradonna caused an application for finance to be made in Mr Vella's name through a mortgage broker. He forged Mr Vella's signatures to a loan agreement, a mortgage of the Enmore property and associated documents. He was assisted by a dishonest solicitor, his cousin Mr Lorenzo Flammia, who dealt with Mitchell Morgan's solicitors Hunt & Hunt and misrepresented to them that the documents had been signed before him by Mr Vella and that Mr Vella was the person in some identification documents. The mortgage was registered on 19 January 2006. Upon confirmation that it had been registered, Mitchell Morgan paid $1,001,748.85 to the credit of the joint account in accordance with a direction given by Mr Flammia purportedly as Mr Vella's solicitor.

12 The other borrowing was from Permanent Mortgages Pty Ltd ("Permanent Mortgages"). Mr Caradonna caused the same mortgage broker to make an application for finance in Mr Vella's name. He forged Mr Vella's signatures to acceptances of loan offers, mortgages of the Leppington and Mangrove Mountain properties and other documents, in this transaction with attestations of a justice of the peace, Mr Caradonna's sister Ms Maria Palumbo. Permanent Mortgages' solicitors were Mountfords Lawyers. The transaction was settled on 24 February 2006, and Mountfords Lawyers paid $1,111,124.10 to the credit of the joint account in accordance with a direction purportedly given by Mr Vella. The mortgages were in due course registered.

13 None of the Cartisano money, the Mitchell Morgan money or the Permanent Mortgages money stayed long in the joint account. Mr Caradonna forged Mr Vella's signature as his co-signatory on cheques drawn on the joint account. ANZ paid out on the cheques and debited the joint account. $1,000,000.00 went out on 19 January 2006, the day the Mitchell Morgan money went in. Small withdrawals reduced the joint account to $218.01 on 25 January 2006, but it was then replenished by the Cartisano money on 3 February 2006. A number of payments out to Mr Caradonna or third parties over the following fortnight reduced it to $222.65. It was then again replenished by the Permanent Mortgages money on 24 February 2006, but more went out over the next few days. On 27 February 2006 the joint account was cleared of the remaining funds by a forged "transit authority" and was closed.

14 Mr Vella found out about the mortgages and the drawings from the joint account in May 2006. A complex of legal proceedings ensued.

15 There were other parties and issues at trial, but for present purposes it is sufficient to summarise the substantive outcome as between Mr Vella, Mitchell Morgan and Hunt & Hunt. The primary judge held that -

(a) Mr Vella was not liable to Mitchell Morgan as borrower;

(b) although forged, the mortgage had gained indefeasibility under the provisions of the Real Property Act 1900; but because it was so worded as to secure money payable by Mr Vella to Mitchell Morgan, and no money was payable, it secured nothing and should be discharged; and

(c) Hunt & Hunt was liable to Mitchell Morgan in negligence; but Hunt & Hunt was a concurrent wrongdoer together with Mr Caradonna and Mr Flammia within Pt 4 of the Civil Liability Act 2002 and its liability should be limited pursuant to s 35 of that Act to 12.5 per cent of Mitchell Morgan's loss.

16 The holding that the mortgage secured nothing should be explained. A registered proprietor gains indefeasibility as to "the estate or interest in land recorded in a folio of the Register": Real Property Act , s 42(1). A series of cases has established that the extent of a registered mortgagee's interest depends on the money obligation secured. As Campbell J (as his Honour then was) said in Small v Tomasetti [2001] NSWSC 1112 at [9] "Notwithstanding that registration confers indefeasibility on a mortgagee, there is still a question 'indefeasability for what?'." The answer to the question lies in the terms of the mortgage. On the wording of the Mitchell Morgan mortgage, it secured money owing by Mr Vella to Mitchell Morgan: there had to be money owing. In the principal judgment the primary judge so held and, applying the cases abovementioned, held that because nothing was owing by Mr Vella to Mitchell Morgan the mortgage was indefeasible as to nothing: at [264]-[328].

17 The primary judge held that Hunt & Hunt had been negligent because, with a responsibility to protect its client from fraud and in the light of the principles in the relevant cases, it should not have used a form of mortgage securing money payable by Mr Vella to Mitchell Morgan; rather, it should have prepared a mortgage containing a covenant to pay a stated amount. His Honour found that the solicitor handling the matter regarded it as a more or less routine task and did not direct his mind to the possibility of fraud, and that although the solicitor had assurances from Mr Flammia his obligation was to protect the client from fraud and he should have turned his mind to the risk of fraud and prepared a mortgage for a fixed sum to which the indefeasibility would extend.

18 By the time of the trial, Mr Caradonna and Mr Flammia had gone bankrupt, and it appears that any recovery against other parties such as Ms Palumbo and some recipients of payments from the joint account was of little or no value.

Proportionate liability

19 Three parties were liable to Mitchell Morgan. It was common ground that Mr Caradonna and Mr Flammia were each liable to it for fraudulently causing it to pay out $1,001,748.85. Hunt & Hunt were liable to it for negligently failing to ensure that it had the security of the Enmore property for that sum.

20 Hunt & Hunt claimed that its liability should be limited under the proportionate liability provisions in Pt 4 of the Civil Liability Act .

21 By s 34(1) the Part applies to "apportionable claims", so far as relevant to these proceedings meaning (s 34(1)(a)) -

"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 not including any claim arising out of personal injury".

22 The reference to "a claim for economic loss or damage to property" is repeated in s 34(1)(b) in relation to statutory causes of action.

23 Section 35 relevantly provides -

" 35 Proportionate liability for apportionable claims

(1) 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.

(2) ...

(3) In apportioning responsibility between defendants in the proceedings:

(a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law, and

(b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings.

(4) ... ."

24 The definition of "concurrent wrongdoer" is found in s 34(2), relevantly being -

"In this Part, 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."

25 By s 34A, nothing in the Part operates to limit the liability of a concurrent wrongdoer in proceedings involving an apportionable claim if the economic loss or damage to property was caused intentionally or fraudulently or the civil liability of the concurrent wrongdoer is otherwise not within the Civil Liability Act . Such a concurrent wrongdoer is called an "excluded concurrent wrongdoer".

26 By s 34(4), it does not matter that a concurrent wrongdoer is insolvent, is being wound up or has ceased to exist or died.

27 It was common ground that Mitchell Morgan's claim against Hunt & Hunt was an apportionable claim. Mr Caradonna and Mr Flammia were excluded concurrent wrongdoers, and, by reason of s 34A, their liabilities could not be limited in the manner provided by s 35. The issues at trial were -

(a) whether Hunt & Hunt was a concurrent wrongdoer in relation to Mitchell Morgan's claim against it; and

(b) if Hunt & Hunt was a concurrent wrongdoer, to what amount its liability should be limited.

The primary judge's decision

28 The primary judge upheld Hunt & Hunt's submission that Messrs Caradonna and Flammia were persons whose acts or omissions caused "the damage or loss suffered by Mitchell Morgan" (at [576]). His Honour rejected Mitchell Morgan's submission that its loss was "the failure of Hunt & Hunt to perform their obligations under their retainer and draft a mortgage in terms that would fit the purpose" (at [582]): as I understand it, his Honour regarded the relevant damage or loss suffered by Mitchell Morgan as the loss constituted by paying out the $1,001,748.85. Thus he implicitly found that Hunt & Hunt was a concurrent wrongdoer in relation to Mitchell Morgan's claim against it.

29 His Honour's explanation of his conclusions, with respect, was not very revealing. He appears to have rejected Mitchell Morgan's analogy with the liabilities of the manufacturer of a defective bullet-proof vest and the person who shoots the wearer of the vest and its submission that "the shooting is immaterial as had the bullet proof vest worked properly, no injury would have been sustained" (at [583]). He does not seem to have done so because (as was submitted by Hunt & Hunt, see at [584]) in Astley v Austrust Ltd [1999] HCA 6; (1999) 197 CLR 1 the High Court had accepted that there could be apportionment for the plaintiff's contributory negligence notwithstanding that the defendant's negligence was in failing to protect the plaintiff from the loss in question. However, he said at [586] that "the High Court's approach in these sorts of case in Astley tells against accepting Mitchell Morgan's argument", and without elaboration proceeded to apportionment of responsibility.

30 In apportioning responsibility his Honour proceeded upon principles established in relation to contributory negligence in Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALJR 492 at 495, by which regard is had to relative blameworthiness and causal potency. His Honour's application of the principles, with respect, was rather elliptical. He referred to Mr Caradonna as "the most morally blameworthy [because he] orchestrated the fraud" and said that Mr Flammia "played a significant, but relatively minor part" (at [590]), and said that "the fact that Hunt & Hunt were retained to protect the client from what actually happened is a significant factor" (at [598]). He then expressed his conclusion -

"I consider Mr Caradonna has the major liability of about 70-75%, say 72.5%. Mr Flammia's contribution is I think a little more than that of the solicitors at about 15% and Hunt & Hunt at about 12.5%". (at [598])

The issues on appeal

31 There were also other parties and issues on appeal, and the appeals and cross-appeals beyond the questions for separate decision were heard by three members of the present Bench immediately following the hearing on the questions. All other matters were subsequently settled. There remained Mitchell Morgan's appeal as against Hunt & Hunt.

32 Mitchell Morgan contended that Hunt & Hunt was not a concurrent wrongdoer together with Mr Caradonna and Mr Flammia within Pt 4 of the Civil Liability Act and that its liability should not have been limited at all; alternatively, that the limitation to 12.5 per cent of its loss was erroneous and that Hunt & Hunt should have been liable for "the vast majority" of its loss.

The concurrent wrongdoer issue

33 As the provisions are framed, it should not be asked whether Messrs Caradonna and Flammia were concurrent wrongdoers in relation to the apportionable claim. For s 35(1) the question is whether Hunt & Hunt was a concurrent wrongdoer in relation to the apportionable claim. That is answered by whether Hunt & Hunt was one of two or more persons (Hunt & Hunt, Mr Caradonna and Mr Flammia) "whose acts or omissions ... caused, independently of each other or jointly, the damage or loss that is the subject of the claim". If the answer is yes, then Messrs Caradonna and Flammia were also concurrent wrongdoers but their liabilities could not be limited because they were excluded concurrent wrongdoers.

34 "The claim" in the phrase "the damage or loss that is the subject of the claim" is the claim against the person whose status as a concurrent wrongdoer is in question, being the person against whom a claim within the definition of apportionable claims is made: here, Hunt & Hunt. Mitchell Morgan claimed for economic loss, not for damage to property. The acts or omissions of the other person or persons must be those giving rise to their liabilities to the claimant. The question can be refined. Did the acts or omissions of Mr Caradonna and Mr Flammia giving rise to their liabilities to Mitchell Morgan cause, even if independently, the loss the subject of Mitchell Morgan's claim for economic loss against Hunt & Hunt?

35 While the submissions were more detailed, in brief -

• 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 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 Enmore 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; although it submitted that in any event their fraud caused the absence of mortgage security.

Hunt & Hunt was not a concurrent wrongdoer

36 The definition of apportionable claims uses the phrase "a claim for economic loss or damage to property ... ". It does not refer to a claim for compensation, but to the nature of the claim, as one of harm to an economic interest or harm to an interest in property. This reflects the two general categories in the law of negligence: for the former, reasonable foreseeability of harm is insufficient for a duty of care, and the categorisation of the claim can be significant (see for example Bryan v Maloney (1995) 182 CLR 609).

37 The remedy in an action for damages is judgment for a money sum, whether the claim be one of harm to a personal, proprietary or economic interest. The money sum is compensation for the wrong. But the money sum is not to be equated with the personal proprietary or economic interest for harm to which the damages are awarded. There is a well-recognised distinction between "damage" and "damages". In Mahoney v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 the employer and the doctor could both be liable in respect of "the same damage" for the purposes of contribution pursuant to s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 ("the 1946 Act"), the damage being the employee's disabilities, notwithstanding that the damages payable by the employer might be greater than the damages payable by the doctor. Conversely, even if the damages payable by both tortfeasors are in the same amount, it does not follow that they are liable in respect of the same damage.

38 The distinction between damage and damages, in the present context a distinction between the loss or damage the subject of an apportionable claim and the compensatory damages, can be seen in s 37 of the Civil Liability Act . By s 37(1) a plaintiff who has previously recovered judgment against a concurrent wrongdoer "for an apportionable part of any damage or loss" can bring another action against any other concurrent wrongdoer "for that damage or loss", but by s 37(2) in any other action -

" ... cannot recover an amount of damages that, having regard to any damages previously recovered by the plaintiff in respect of the damage or loss, would result in the plaintiff receiving compensation for damage or loss that is greater than the damage or loss actually sustained by the plaintiff."

39 In negligence, damage is "what the plaintiff suffers as the foreseeable consequence of the tortfeasor's act or omission": Mahoney v J Kruschich (Demolitions) Pty Ltd at 527; see also Bracks v Smyth-Kirk [2009] NSWCA 401; (2009) 263 ALR 522 at [113]. This was said in relation to personal injury, and taken up in Bracks v Smyth-Kirk in relation to injury to reputation. In the case of economic loss, the corresponding concept is that loss is what the plaintiff suffers as the foreseeable consequence of the tortfeasor's act or omission. However, that does not go far enough: what is the correct identification of what the plaintiff suffers?

40 Where the tortfeasor's act or omission causes personal injury, there is damage in the form of the injury (the broken leg) and damage in the form of the financial consequences. The damage is not simply a financial detriment, and the damages are distinct from the damage. Where the tortfeasor's act or omission causes damages to property, again the damage (the dent in the car) is distinct from the damages. Where the claim is for economic loss because the tortfeasor's act or omission caused harm to an economic interest, the loss is also not simply a financial detriment. Just as it is necessary to identify the plaintiff's injury in a case of personal injury, or the property and the harm to it if the claim were for damages for harm to an interest in property, it is necessary to identify the economic interest and the harm to it.

41 For s35, the economic interest should not be identified at the general level of not being financially worse off. That would merge loss or damage with damages, and would be at odds with corresponding identification of the loss or damage where there is harm to an interest in property. At the correct level of identification, in the present case there are 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.

42 This is given point by regard to the compensation recoverable from the fraudsters or the negligent solicitors.

43 The Enmore property was worth considerably more than the $1,001,748.85 paid out by Mitchell Morgan, and for present purposes I assume that in dollar terms the measure of Mitchell Morgan's compensation for the fraud of Messrs Caradonna and Flammia and for the negligence of Hunt & Hunt would in both cases be $1,001,748.85. But it will not always be so. When mortgage security is ineffective the loss in dollar terms may not be the same as the amount lent. The dollar amount will reflect the value of the security, which may be less than the amount lent. Loss is suffered not because the money was lent, but because it can not be recovered from the security.

44 On this analysis, in Mitchell Morgan's claim against Hunt & Hunt the harm to an economic interest was not having the benefit of security over the Enmore property. The acts or omissions of Messrs Caradonna and Flammia did not cause that harm, and did not cause the loss the subject of Mitchell Morgan's claim for economic loss against Hunt & Hunt. That conclusion is not overcome by adding "which could not be recouped out of the Enmore property" or "without mortgage security" to Mitchell Morgan's payment out of money; those words are not part of the loss caused by the acts or omissions of the fraudsters, who had nothing to do with the way the mortgage was worded.

Regard to authority

45 Although not by an analysis in these terms, authority is consistent with this result.

46 Part 4 of the Civil Liability Act is matched in legislation of the Commonwealth and other States and Territories. Its purpose is to alleviate what was seen as harsh operation of the principles by which one of several tortfeasors who caused the same loss was liable to the plaintiff for the whole of that loss, and was left to recovery from a co-tortfeasor under contribution legislation (s 5(1)(c) of the 1946 Act and its analogues in other jurisdictions).

47 The effect of Pt 4 is far-reaching. It shifts the burden of irrecoverability because a co-wrongdoer cannot be found or is insolvent from the defendant wrongdoer(s) to the plaintiff, and extends to liability beyond liability in tort. As part of the scheme, a defendant must inform the plaintiff of a potential concurrent wrongdoer so that the plaintiff can consider claiming against that person also (ss 35A, 38). The plaintiff can later proceed against another concurrent wrongdoer, but cannot be over-compensated (s 37). But s 35 applies whether or not all concurrent wrongdoers are parties to the proceedings (s 35(4)).

48 For consistency with contribution under s 5(1)(c), a defendant who is a concurrent wrongdoer cannot be required to contribute to damages recoverable from another concurrent wrongdoer (s 36). There is a necessary relationship between contribution recoverable by a tortfeasor from any other tortfeasor who is, or would if sued have been, liable "in respect of the same damage" under s 5(1)(c), and limitation of liability under s 35 of the Civil Liability Act where the acts or omissions of more than one person "caused ... the damage or loss the subject of the claim". The words are different, but conceptually they must correspond or the change worked to joint and several liability would not mesh with the contribution legislation.

49 In St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245; (2009) 25 VR 666 Nettle JA, with whom Mandie JA and Beach AJA agreed, explained the drafting of s 24AH in Pt IV AA of the Wrongs Act 1958 (Vic) in relation to s 23B of the Wrongs Act , corresponding to ss 35 and 5(1)(c). His Honour concluded (at [68]) that "the loss or damage that is the subject of the claim" in s 24AH has the same meaning as "the same damage" in s 23B. The language differs slightly between the States, but his Honour's conclusion is applicable to ss 35 and 5(1)(c) and I respectfully agree with it.

50 St George Bank Ltd v Quinerts Pty Ltd is the decision occasioning the constitution of a Bench of five. The Court in that case found assistance in the decisions of the House of Lords in Royal Brompton Hotel NHS Trust v Hammond (2002) 1 WLR 1397 and the Court of Appeal of Alberta in Wallace v Litwiniuk [2001] ABCA 118. I go first to those cases.

51 In Royal Brompton Hotel NHS Trust v Hammond the employer claimed damages from an architect for negligently issuing certificates extending the contractor's time for completion of the works. The architect claimed contribution from the contractor under an equivalent to s 5(1)(c) of the 1946 Act: it was not limited to tortfeasors, but it was still necessary that the contractor would be liable to the employer "in respect of the same damage" as the architect. It was held that the contractor and the architect would not be liable in respect of the same damage.

52 Lord Bingham of Cornhill, with whose reasons Lord Mackay of Clashfern agreed, said at [7] -

"The employer's claim against the contractor would be based on the contractor's delay in performing the contract and the disruption caused by the delay, and the employer's damage would be the increased cost it incurred, the sums it overpaid and the liquidated damages to which it was entitled. Its claim against the architect, based on negligent advice and certification, would not lead to the same damage because it could not be suggested that the architect's negligence had led to any delay in performing the contract."

53 Lord Steyn, who expressed agreement with Lord Bingham of Cornhill and with whose reasons Lord Mackay of Clashfern also agreed, characterised the employer's claim against the contractor as a claim for the late delivery of the building, and said at [22] that it was "notionally ... not damage for which the architect could be liable merely by reason of a negligent grant of an extension of time". His Lordship said at [23] that the essence of the case against the architect was the allegation that his breach of duty changed the employer's contractual position detrimentally as against the contractor, and so the employer lost the right under the contract to claim or deduct liquidated damages for delayed delivery of the building, and that the detrimental effect on the employer's contractual position took place when the extensions of time were negligently given. His Lordship regarded it as "inescapable that the claims are not for the same damage" (at [30]).

54 The subsequent consideration of earlier decisions by Lord Steyn included Hurstwood Developments Ltd v Motor and General & Andersley & Co Insurance Services Limited [2001] EWCA Civ 1785. It was held in that case that the claim by an employer against a contractor for negligent site investigation services and a claim by the employer against insurance brokers for failing to insure against the contingency were claims for "the same damage" entitling the insurance brokers to claim contribution against the contractor. Lord Steyn said that it was wrongly decided, because the insurance brokers "had no responsibility for the remedial work" (at [33]).

55 Lord Hope of Craighead and Lord Rodger of Earlsferry agreed with Lord Bingham of Cornhill and Lord Steyn. Lord Hope's additional observations included that, although the legal basis of liability did not matter -

"47. ... the mere fact that two or more wrongs lead to a common result does not of itself mean that the wrongdoers are liable in respect of the same damage. The facts must be examined more closely in order to determine whether or not the damage is the same. ...

48. In the present case, for the reasons explained by my noble and learned friend Lord Steyn, the contractor and the architect did not cause the same damage. The basis for a finding that this was so is entirely absent. The harm done by the contractor's breach of contract was the product of delay in the completion of the contract. The harm done by the architect's breach of contract was due to the certificates which the architect granted to the prejudice of the rights of the employer under the contract. I agree that the harm, or the damage, which was done in each case was different."

56 Royal Brompton Hotel NHS Trust v Hammond was referred to with apparent approval by Gleeson CJ and Gummow and Hayne JJ in Alexander v Perpetual Trustees WA Ltd [2004] HCA 7; (2004) 216 CLR 109 at [37]-[38]. Their Honours observed at [27] that the concept "in respect of the same damage" is narrower than that of liabilities arising out of, or by reason of the same transactions or related transactions. The Court was divided in the result, and the other members of the Bench did not refer to the case. In Bracks v Smyth-Kirk McColl JA, with whom Allsop P and Young JA relevantly agreed, took from their Honours' reference to Royal Brompton Hotel NHS Trust v Hammond endorsement of common liability to the plaintiff as the subject of contribution claims (at [119]).

57 In Wallace v Litwiniuk the plaintiff was injured in a motor vehicle accident,. Her lawyers failed to bring a claim against the other driver within the limitation period. She sued the lawyers, who cross-claimed against the driver for contribution. The lawyers argued that a liability to the driver was not necessary on the wording of the equivalent to s 5(1)(c) of the 1946 Act, and that plaintiff's damages claimed against them were the same damages which could have been claimed against the driver.

58 The former argument was not accepted, and as to the latter argument (which from the beginning suffered from equating damage with damages) it was held that -

"31. ... The respondents and appellant are not concurrent tortfeasors because their acts did not produce the same damage.

32. Peake's claim for damages against the respondents is not the same claim for damages which she could have made against Wallace. Assuming the facts in the pleadings are true, the negligent driving of Wallace gave Peake a right to claim compensation for the physical injuries she sustained. The negligent provision of legal services by the respondents, on the other hand, resulted in her losing her legal action. The compensation which she presently seeks from the respondents is not damages for her physical injuries, but damages for what she would have obtained had the original claim been brought. In both cases, she sought damages but that is not to say she sought the same damage . The damage is different. As stated in Sorenson at pp 611-612 -

' ... the "damage" allegedly caused by the appellant [solicitor] is mutually exclusive to the "damage" caused by [the negligent driver], since only by the extinction of the right to recover the latter did the former come into existence.

33. The pleadings in Peake's statement of claim against the respondents only superficially look as though she is claiming the same damages she would have claimed against the appellant. This seemingly similarity results from the usual method for calculating damages in a professional negligence claim where a lawyer failed to bring litigation which might otherwise have been pursued. Damages for the professional negligence are calculated by reference to the damages which would have been obtained in the original claim: Dugdale and Stanton, Professional Negligence (London): Butterworths, 1989) at pp 363-364.

34. The distinct nature of the original claim and the professional negligence claim is recognised by the need to estimate the value of the original claim, and then discount for the costs of pursuing the original litigation, and allow for any chance that the original claim might not have succeeded. Lord Evershed MR in the leading case, Kitchen v RAF Association [1958] 2 All ER 241 (CA), held that assuming the lawyer's negligence is established, the court must determine what the plaintiff has lost by that negligence. It is not presumed to be the same loss as the original claim and therefore, damages for the professional negligence are not automatically the full value of the original claim."

59 I go then to St George Bank Ltd v Quinerts Pty Ltd . The bank lent $640,000 on a negligent valuation. The borrower and his guarantor defaulted, the property realised less than the amount of the loan (and considerably less than the valuation), and the bank claimed damages from the valuer. One issue on appeal was whether the valuer's liability should be limited pursuant to Pt IVAA of the Wrongs Act because the borrower and guarantor were concurrent wrongdoers whose failure to repay the money was independently causative of the loss the subject of the claim against the valuer.

60 Nettle JA said at [59] that there was "no suggestion in Pt IVAA that it was intended to do more by way of apportionment than in theory could previously be achieved by contribution under s 23B of [ the Wrongs Act ]", and came to the conclusion as to equivalence between "the loss or damage that is the subject of the claim" and "the same damage" to which I have already referred.

61 After extended reference to Royal Brompton Hotel NHS Trust v Hammond , his Honour said -

"76. Consistently with the reasoning in Royal Brompton, I do not consider that the borrower or the guarantor in this case could be said to have caused or be liable for 'the same damage' as Quinerts. The loss or damage caused by the borrower and the guarantor was their failure to repay the loan. Nothing which Quinerts did or failed to do caused the borrower or the lender to fail to repay the loan. The damage caused by Quinerts was to cause the bank to accept inadequate security from which to recover the amount of the loan. Nothing which the borrower or the lender did or failed to do caused the bank to accept inadequate security for the loan. Furthermore, just as in Wallace v Litwiniuk , the distinct nature of the damage caused by Quinerts is demonstrated by the need to estimate the damage which the bank would have suffered if Quinerts had not acted negligently in the preparation of the valuation and then to calculate the difference between that and the damage which the bank has suffered by reason of the borrower's and guarantor's failure to repay the loan.

77. I conclude that the borrower and the guarantor were not persons whose acts or omissions caused the loss or damage the subject of the bank's claim against Quinerts and, therefore, that they were not concurrent wrongdoers in relation to that claim."

62 The primary judge's decision in the present case had been cited to the Court, and was then addressed by his Honour. Nettle JA accepted that the primary judge's conclusion was at odds with his conclusion, and did not agree with it. He did not find Astley v Austrust Ltd of assistance on whether the fraud of Messrs Caradonna and Flammia caused the loss the subject of Mitchell Morgan's claim against Hunt & Hunt, and considered that the bullet proof vest analogy was misplaced. Nettle JA said (in the following passage the references to Permanent Mortgages were a slip for Mitchell Morgan) -

"[82] A more appropriate analogy to the facts in Permanent Mortgages would be a case in which a thief steals money from a bank and, because of negligence on the part of the bank's insurance brokers, the bank finds that the risk of the theft is not covered by insurance. In such a case, the damage caused by the thief would be the loss of the bank's money. Nothing, however, which the insurance brokers did or failed to do in effecting appropriate insurance cover would have caused the theft of the bank's money. Contrastingly, the loss or damage caused by the insurance brokers would be the bank's inability to obtain indemnity from an insurance company for the loss suffered by reason of the theft. But nothing done by the thief would have caused the bank's insurance cover to be inadequate. It would follow that the thief would not be a concurrent wrongdoer in relation to any claim which the bank might make against its insurance brokers for failing to arrange appropriate insurance cover. [See and compare Lord Steyn's criticism of the decision in Hurstwood Developments Ltd v Motor and General & Andersley & Co Insurance Services Ltd [2001] EWCA Civ 178, in Royal Brompton NHS Trust v Hammond [2002] 1 WLR 1397 at 1413, [33].].

[83] Applying that analogy to the case, the fraudster by his acts and omissions induced Permanent Mortgages to believe that the mortgage was effective, and so to advance funds on the faith of the mortgage. The loss or damage caused by the fraudster was, therefore, the loss constituted of Permanent Mortgages parting with its money. Nothing done or omitted to be done by Permanent Mortgages' solicitors caused Permanent Mortgages to believe that the mortgage was genuine. Contrastingly, the loss or damage caused by the solicitors was the loss and damage occasioned by their failure to take reasonable care to ensure that the mortgage was so drawn that, despite the fraud, the mortgage was rendered effective upon registration. Nothing done or omitted to be done by the fraudster caused the solicitors to fail to draw the mortgage so that upon registration the mortgage was rendered effective despite the fraud. Further, just as in Wallace v Litwiniuk and Royal Brompton Hospital , the distinct nature of the damage caused by the solicitors was demonstrated by the need to estimate the damage which Permanent Mortgages would have suffered if the mortgage had been rendered effective by registration and then to calculate the difference between that amount and the damage suffered by Permanent Mortgages by paying away its money to a thief."

63 Nettle JA repeated, at [85], that "the distinct nature of the damage caused by Quinerts is demonstrated by the need to estimate the damage which the bank would have suffered if Quinerts had not been negligent in valuing the property and then to calculate the difference between that amount and the damage suffered by the bank by reason of the borrower's and guarantor's failure to repay the loan."

64 His Honour also said -

"[86] Finally, on this aspect of the matter, counsel for Quinerts referred to a decision of Bryson AJ, sitting as a judge of the Equity Division, in Chandra v Perpetual Trustees Victoria Ltd , in which a solicitor's negligent breach of duty resulted in a fraudster obtaining a new duplicate certificate of title and the lender advancing funds on the faith of a fraudulent mortgage. The fraudster was held to be a concurrent wrongdoer in relation to the lender's claim against the solicitor.

[87] In my view, there is nothing in Bryson AJ's reasoning or conclusion which is inconsistent with the conclusion to which I have come in this case. The facts in Chandra were that, but for the solicitor's negligence, the fraudster would not have got his hands on the duplicate certificate of title and so would not have been able to deceive the lender. But for that, there would not have been any loan. Consequently, the damage which the solicitor caused was the damage which resulted from the bank making a loan which it would not otherwise have made. Similarly, but for the fraud, the bank would not have made the loan. In the result, the damage caused by the fraudster was the same damage as resulted from the bank making a loan which it otherwise would not have made. It followed that the damage caused by the fraudster was the same damage as was the subject of the lender's claim against the solicitor and, therefore, the fraudster was a concurrent wrongdoer in relation to the lender's claim against the solicitor.

[88] That stands in contrast to the facts of this case, where the damage caused by the borrower and the guarantor by their failure to repay the loan was different to the damage caused by Quinerts' negligence in the valuation of the property. Here, the borrower and the guarantor are not liable in respect of the loss which is the subject of the bank's claim against Quinerts and so in my view are not concurrent wrongdoers." (citation omitted)

65 In Ashbrooke Institute Pty Ltd v Bartone Biomedical Pty Ltd [2010] VSC 579 solicitors negligently failed to advise that a guarantee should be obtained from directors of the company purchasing a business. The company failed to pay. With a footnoted reference to St George Bank Ltd v Quinerts Pty Ltd , Hargrave J held that the company was not a concurrent wrongdoer in relation to the claim against the solicitors, saying (at [126]) -

"The loss or damage caused by the purchaser was its failure to pay the balance of the purchase price due under the contract of sale. Nothing which Holding Redlich did or failed to do caused the purchaser to fail to pay that amount. The damage caused by Holding Redlich was to deprive the plaintiff of the opportunity to obtain security for the purchaser's obligations under the contract, by requesting a guarantee from Dr and Mrs Bartone. Nothing which the purchaser did or failed to do caused the plaintiff to accept inadequate security for the purchaser's obligation to pay the price."

66 Some of the cases are factually distinguishable. In Wallace v Litwiniuk , and it would seem also in Royal Brompton Hotel NHS Trust v Hammond , causation of one "damage" involved loss of the claim to the other "damage"; that is, the plaintiff's complaint was that the defendant's wrongdoing meant that there was no longer an enforceable claim against the other wrongdoer. That was not so in St George Bank Ltd v Quinerts Pty Ltd , nor had it been so in Hurstwood Developments Ltd v Motor and General & Andersley & Co Insurance Services Limited , and it did not inform the reasoning in Royal Brompton Hotel NHS Trust v Hammond. The decisions turned on identification of the damage, and the identification was by regard to the nature of the harm suffered in respect of which the claim was made. In St George Bank Ltd v Quinerts Pty Ltd the loss the subject of the bank's claims against the borrower and guarantor was their failure to repay the loan, the loss the subject of the bank's claim against the valuer was absence of adequate security, and they were different losses. The Court 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.

67 The definition of "concurrent wrongdoer" includes causation "independently of each other", and one wrongdoer's acts or omissions can independently cause the same damage or loss as another wrongdoer's acts or omissions; nor is it necessary that one wrongdoer's acts or omissions cause the other wrongdoer's acts or omissions to have effect or could have prevented them from having effect. The damage or loss, however, must first be identified, as was done in St George Bank Ltd v Quinerts Pty Ltd at [76] and in relation to the theft analogy and the present case at [82] and [83] respectively. Put in the language of economic interest which I have earlier used, in Royal Brompton Hotel NHS Trust v Hammond there were the different interests of timely completion and unchanged contractual rights; in Hurstwood Developments Ltd v Motor and General & Andersley & Co Insurance Services Limited the different interests of knowledge of the site and indemnity against risk of unexpected site conditions; and in St George Bank Ltd v Quinerts Pty Ltd the different interests of repayment by the borrower or guarantor and holding adequate security. In my opinion, St George Bank Ltd v Quinerts Pty Ltd and its reliance on the prior decisions supports the earlier analysis of the loss the subject of Mitchell Morgan's claim for economic loss against Hunt & Hunt.

68 Nettle JA also saw different arrival at damages as an indication of different damage, in St George Bank Ltd v Quinerts Pty Ltd at [76] and in relation to the present case at [83]. In the present case the different damage caused by Hunt & Hunt's negligence, or in the language of the definition of "concurrent wrongdoer" the damage or loss the subject of the claim against Hunt & Hunt, is indicated by the fact that the damages recoverable from Hunt & Hunt are the lost value of the mortgage of the Enmore property, not the amount paid out by Mitchell Morgan on the fraudulent loan transaction. As it happens the money amount may be the same, but if they are that is identity of damages rather than identity of damage.

Hunt & Hunt's submissions

69 Hunt & Hunt submitted that, while the decision in St George Bank Ltd v Quinerts Pty Ltd was correct, the Court's construction and application of the proportionate liability provisions was incorrect. The submissions were detailed, and I intend no disrespect in seeking to capture their substance.

70 Hunt & Hunt did not dissent from the conceptual equation of "the loss or damage the subject of the claim" with "the same damage". It submitted 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. It said that this led the Court into error in identifying the relevant loss and, in referring to the present case, in requiring that the acts or omissions of Messrs Caradonna and Flammia contributed to the defective drafting of the mortgage.

71 I do not agree that the Court misapprehended the task required under Pt IVAA of the Wrongs Act . Identification of the loss caused by the borrower and guarantor and by the valuer respectively, or the loss caused by the fraudsters and by the solicitors respectively, is an available way of determining whether the acts or omissions of the borrower and the guarantor caused the loss the subject of the claim against the valuer or the acts or omissions of the fraudsters caused the loss the subject of the claim against the solicitors. If the losses are not the same in the interest harmed (the compensation may be the same in amount), the definition of "concurrent wrongdoer" is not satisfied.

72 Hunt & Hunt also submitted that the Court in St George Bank Ltd v Quinerts Pty Ltd " wrongly described or defined loss by reference to breach or sometimes to a step in the chain of causation". This led, it was said, to the error that two persons could not be concurrent wrongdoers unless there was concurrence of breach or concurrence of the step in the chain of causation, and it was submitted that this error was revealed in the application of St George Bank Ltd v Quinerts Pty Ltd in Ashbrooke Institute Pty Ltd v Bartone Biomedical Pty Ltd.

73 I do not agree that the Court erred in this respect. The breaches of obligation and their consequences are part of identifying the loss the subject of the claim against the one wrongdoer and whether acts or omissions of the other wrongdoer(s) caused that loss. Reference to "the damage caused by Quinerts" (at [76], for example, was not in a vacuum but in the context of the bank's claim against the valuer for loss caused by its negligence. Nettle JA did not require concurrence of breach or concurrence in the causal step for that identification; with the identification of the respective losses, however, there was not the necessary co-causation. Similarly, when Hargrave J referred to "the damage caused by Holding Redlich" his Honour was not taking breach or causation as the identifier of the loss to the exclusion of regard to the claim made by the plaintiff.

74 Hunt & Hunt then invited attention to the mutual discharge test considered by Lord Steyn, with reference to Howkins & Harrison v Tyler (2001) Lloyd's Rep PN I, in Royal Brompton Hotel NHS Trust v Hammond . The facts in Howkins & Harrison v Tyler were similar to those in St George Bank Ltd v Quinerts Pty Ltd . The test there suggested postulated that A and B were both said to be liable to C, and was that they were liable in respect of the same damage only if payment by A to C would satisfy or reduce B's liability to C and vice versa. The thrust of Hunt & Hunt's submission was that it would be overcompensated if it could have judgment against both Messrs Caradonna and Flammia and Hunt & Hunt, that payment by one ought to satisfy or reduce the liability of the other, and so that Messrs Caradonna and Flammia caused the same damage as Hunt & Hunt.

75 The assistance to Hunt & Hunt is somewhat muted by Lord Steyn's observations that the test might make questions of contribution unnecessarily complex, and that it was best regarded as a practical test the usefulness of which varied according to the circumstances of the case and "Ultimately, the safest course is to apply the statutory test" (at [28]).

76 In Howkins & Harrison v Tyler it was held that the defaulting borrower and the negligent valuer were not liable for the same damage; that is, it was held that the mutual discharge test was not satisfied. The borrower was liable to repay the loan in full, and Sir Richard Scott VC (as Lord Scott of Foscote then was) said at [18] that the damages payable by the valuer would not reduce the debt payable by the borrower, although "[t]he quantification of the damages payable by [the valuer] ought to have taken into account the amount of the debt recoverable by [the lender] from [the borrower]". His Lordship said at [20] that any excess, if the lender subsequently recovered from the borrower, would be held on trust for the valuer, observing that -

" ... [the valuer] would have been shown to have paid more than they should have paid. The ... damages would have been shown to have been calculated on an incorrect premise as to the amount of the debt recoverable from [the borrower]."

77 Nettle JA noted the mutual discharge test and Lord Steyn's observations (at [73]), and took the test no further. Whatever assistance it might provide in the application of the statutory test for a concurrent wrongdoer in other cases, it is not of assistance in the present case. Messrs Caradonna and Flammia are liable in damages in the amount paid out as a result of their fraud, $1,001,748.85. That liability remains whatever judgment may be obtained against Hunt & Hunt; it is equivalent to the borrower's liability. Otherwise they would benefit from their own fraud in the form of the forged mortgage. Even if it does not involve departure from the statutory language, the test is not satisfied.

78 If there is or would be double recovery by Mitchell Morgan, it may be that an equitable remedy could be obtained notwithstanding that different losses were caused, see Howkins & Harrison v Tyler at [20] and Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 at [57]-[61] (Gummow and Hayne JJ), [89] (Kirby J). This was but touched on in argument, and it is not necessary to decide.

79 As I have earlier indicated, Hunt & Hunt also submitted that the fraud of Messrs Caradonna and Flammia caused the absence of mortgage security. In a little more detail, it was submitted that a necessary element in the absence of mortgage security was the ineffective loan agreement, which was due to the forgery of Mr Vella's signature as part of the overall fraud, and that the fraudsters' acts or omissions therefore caused in a "but for" or material contribution sense the loss from Hunt & Hunt's negligent wording of the mortgage. Alternatively, it was submitted that the absence of mortgage security led nowhere unless it was necessary to recoup the money paid out from the Enmore property, that actual loss was only suffered when it became clear that the money paid out would not be recovered, and so there was not loss by the payment out but only upon failure of recoupment; thus, it was said, loss described as the absence of mortgage security and loss described as the payment of money out were "two sides of the same coin ... in so far as the security could and would have recouped the advance and interest".

80 There was loss immediately Mitchell Morgan paid out money which it would not have paid out but for the fraud. Mitchell Morgan could immediately have sued Mr Caradonna and Mr Flammia. Had the mortgage been drawn with a covenant to pay a stated amount, it would have been effective to enable Mitchell Morgan to recover its money from the Enmore property despite the forgery of Mr Vella's signatures. The negligence lay in failing to take an appropriate step against the fraud which occurred. The harm to Mitchell Morgan's economic interest from absence of mortgage security came from the inappropriately worded mortgage (the damage); the forged loan agreement was part of the occasion for that loss to sound in a money amount (the damages). It is distinct from the harm from payment out as a consequence of the fraud. They are not two sides of the same coin, as is evident from the potential difference in damages.

81 It is not necessary to address whether, because of its different facts or otherwise, St George Bank Ltd v Quinerts Pty Ltd is outside the comity, or perhaps more, of following the decision of another intermediate Court of Appeal unless persuaded that it is plainly wrong: Farah Constructions Pty Ltd v Say-dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [135]; Tillman v Attorney-General for the State of New South Wales [2007] NSWCA 327; (2007) 70 NSWLR 448 at [88], [96]-[110]. If there were occasion to consider whether their Honours' construction and application of the equivalent to Pt 4 of the Civil Liability Act was plainly wrong, it will be evident that I would not be persuaded that it is. In my opinion it provides strong guidance to the conclusion to which I have come in the present case.

The proportional limitation

82 This does not arise, since Hunt & Hunt's liability should not be limited. However, on the assumption that the fraud of Messrs Caradonna and Flammia caused the loss the subject of Mitchell Morgan's claim for economic loss against Hunt & Hunt, I would not disturb the primary judge's limitation of Hunt & Hunt's liability.

83 The terms of s 35(1)(a), "that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss", reflect the terms of s 5(2) of the 1946 Act, "as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage". The accepted application of the latter terms "involves a comparison both of culpability, ie of the degree of departure from the standard of care of the reasonable man ... and of the relative importance of the acts of the parties in causing the damage ... ", and there must be a comparative examination of "the whole conduct of each negligent party in relation to the circumstances of the accident": Podrebersek v Australian Iron & Steel Pty Ltd at 494 (citations omitted); see also (for example) Wynbergen v Hoyts Corporation Pty Ltd (1997) 72 ALJR 65 and Vinidex Tubemakers Pty Ltd v Thiess Contractors Pty Ltd [2000] NSWCA 67.

84 The approach to s 5(2) of the 1946 Act may need to be modified for s 35 of the Civil Liability Act , first because of s 35(3) and secondly because there may not be occasion for comparison of culpability in the sense of departure from the standard of care of the reasonable man - as in the present case, where Messrs Caradonna and Flammia were fraudulent rather than negligent. Comparison of culpability in the sense of negligence is not meaningful. Comparison of culpability in the sense of moral delinquency invites a non-legal standard, but the statutory standard of "responsibility" permits regard to the nature of the relevant conduct. Once one goes beyond comparative negligence the field is greatly widened and the circumstances can be very varied, but where there is an intentional wrong the responsibility of the wrongdoer for the damage or loss deliberately brought about will be likely to exceed that of the negligent wrongdoer.

85 Messrs Caradonna and Flammia intended that Mitchell Morgan pay out the $1,001,748.85 on forged documentation. There is no reason to attribute to them knowledge of indefeasibility under the Real Property Act , and they should not be taken to have intended that the mortgage to Mitchell Morgan would be effective as security although forged, and to have had their intention frustrated by Hunt & Hunt's negligence. That negligence was negligence in protecting Mitchell Morgan from an element of the very fraud practiced by Messrs Caradonna and Flammia, but it lay in the solicitors' use of a standard form of mortgage, as a routine task, and failure to direct his mind to the possibility of fraud.

86 On the assumption on which I am proceeding the causative contributions were similar, since Mitchell Morgan would not have paid out the $1,001,7348.85 but for the fraud and (on the further assumption as to sufficiency in value of the Enmore property) would have got it back out of the Enmore property but for the negligence. Their intentional wrongdoing weighs heavily against the fraudsters. In my opinion the 12.5 per cent was well open to his Honour and, as a finding "not lightly reviewed" ( Podrebersek v Australian Iron & Steel Pty Ltd at 494; see also Ghunaim v Bart [2004] NSWCA 28) I would not interfere with it.

Answering the questions

87 The relevant grounds in Mitchell Morgan's amended notice of appeal need not be set out. Ground 4 was not pressed. Ground 8, concerned with the proportional limitation, does not arise. The other grounds suffice to carry the decision that Mitchell Morgan's appeal as against Hunt & Hunt should be allowed, the judgment for Mitchell Morgan against Hunt & Hunt for $165,209.66 should be set aside, and in lieu thereof there should be judgment in favour of Mitchell Morgan against Hunt & Hunt for a sum calculated as next described.

88 Mitchell Morgan submitted that it should have judgment for $1,001,748.85 and interest at the mortgage rates from 20 January 2006. The rates were high: 4.5 per cent per month until the due date of 19 March 2006 and 6.5 per cent per month thereafter, both compounding daily. Hunt & Hunt submitted that the damages should be the sum Mitchell Morgan would have received had it sold the Enmore property when it first had the opportunity to do so, and interest thereafter at Court rates.

89 The primary judge referred to a mortgagee auction "cancelled because of these proceedings" (at [682], although not identifying a date), and found that the property "would have fetched more than was needed to clear the loan" (at [684]. His Honour said, "Thus the damages are equal to the lost principal plus interest" (at [684]) and went on to consider interest. His Honour said that he saw no reason to allow interest at the mortgage rates and rejected a claim for interest as damages. He said that interest should be at Court rates but "I can see no reason why that interest should not run from the date of payment out of the monies" (at [698]).

90 None of Mitchell Morgan's grounds of appeal took issue with the primary judge's decision as to interest, which presumably was carried into effect in arriving at the $165,209.66 for which judgment was given. Nor did Hunt & Hunt cross-appeal in relation to the decision as to interest. However, Mitchell Morgan and Hunt & Hunt exchanged the submissions abovementioned without protest. There was no material elaboration of the submissions.

91 With respect, the primary judge appears to have partly erred in his dealing with interest. Assuming no recovery from the fraudsters, Mitchell Morgan's damages are the amount it would have obtained from a sale of the Enmore property, in the absence of other information at the time of the cancelled auction, and interest thereafter. The amount it would have obtained depends on the non-negligent wording of the mortgage. No finding was made other than in terms of a fixed or specific amount; presumably a non-negligent solicitor would have drawn the mortgage with a covenant to pay $1,001,748.85 and interest on that sum at the mortgage rates. If so, the amount Mitchell Morgan would have obtained is not just the amount of the principal but also interest at the mortgage rates until the date of realisation of its security. The amount of principal plus interest depends on the date of the cancelled auction; it is possible that the Enmore property would not have sold for a price sufficient to meet the interest as well as the principal, and in that event the net sale amount will be a cap. In the exercise of the discretion under s 100 of the Civil Procedure Act 2005, the interest thereafter should not be at the exorbitant mortgage rates but at Court rates, and it should run from when the money would have been obtained and not from 19 January 2006.

92 With the settlement of all other matters, the decision of the questions can immediately be translated into orders in Mitchell Morgan's appeal. It will be necessary for the parties to agree upon the substituted judgment sum; if it is contended that the settlement means that Mitchell Morgan's damages recoverable from Hunt & Hunt are less, no doubt that will be taken into account and either agreed or dealt with in the written submissions mentioned below. Nothing was said about the trial costs, and the orders made at trial are not clear; it will also be necessary for the parties to agree on any variation to the costs orders in conformity with Mitchell Morgan's success on appeal. Hunt & Hunt should pay Mitchell Morgan's costs of the appeal as between it and Mitchell Morgan, including the decision of the questions.

93 I propose the direction that the parties provide agreed short minutes of orders no later than 30 January 2012, in default of agreement their respective short minutes and written submissions of no more than three pages in support thereof within the same time.

94 CAMPBELL JA : I agree with the orders proposed by Giles JA, and with his Honour's reasons. I add the following remarks.

95 In my view, the "mutual discharge test" put forward in Howkins & Harrison v Tyler and Powell is inadequate, unnecessary, and could sometimes lead to error. The way that Sir Richard Scott VC put the matter, at [17], was:

"But it seems to me that a simple test should be applied to identify a claim capable of being one to which the 1978 Act can apply. That test is this: Suppose that A and B are the two parties who are said each to be liable to C in respect of 'the same damage' that has been suffered by C. So C must have a right of action of some sort against A and a right of action of some sort against B. There are two questions that should then be asked. If A pays C a sum of money in satisfaction, or on account, of A's liability to C, will that sum operate to reduce or extinguish, depending upon the amount, B's liability to C? Secondly, if B pays C a sum of money in satisfaction or on account of B's liability to C, would that operate to reduce or extinguish A's liability to C? It seems to me that unless both of those questions can be given an affirmative answer, the case is not one to which the 1978 Act can be applied. If the payment by A or B to C does not pro tanto relieve the other of his obligations to C, there cannot, it seems to me, possibly be a case for contending that the non-paying party, whose liability to C remains un-reduced, will also have an obligation under section 1(1) to contribute to the payment made by the paying party."

96 The way that Sir Richard Scott VC put it is that the mutual discharge test is a necessary condition for two liabilities to be in respect of "the same damage" . However, his Lordship did not suggest that the mutual discharge test is a sufficient test. Even if it were a necessary condition, it would be analytically superfluous to the task required by the statute.

97 Suppose that his Lordship were right in saying that every time that two torts cause the same damage, payment of the damages for one will reduce the damages payable to the other. Deciding whether two legal wrongs have caused "the same damage" would still require more than satisfaction of the mutual discharge test. Further, it is possible to identify whether two torts have caused " the same damage" without pausing to enquire whether the mutual discharge test is satisfied. That is precisely the way that Giles JA has reasoned in the present case.

98 The factual scenario in Howkins & Harrison was that valuers had negligently overvalued property which a lender took as security for a loan. The lender had advanced money on the basis of its security over the property. The borrower subsequently defaulted, and the lender sold the mortgaged property. The issue was whether the valuers and borrowers were liable for "the same damage" . Sir Richard Scott VC assumed for the purpose of the argument (and perhaps controversially) that an obligation to pay a debt could be "damage" within the meaning of the contribution statute. Nevertheless, the Vice Chancellor held that the valuers and borrowers were not liable for "the same damage" . Applying his mutual discharge test, his Lordship noted that if damages were recovered from the valuers for their negligent valuation, the amount recovered would not reduce the debt owing by the borrower.

99 However, in very many situations where there is a live issue about whether there can be contribution between two tortfeasors, the torts will be ones concerning which damages are the gist of the action. Concerning such torts, payment of damages by one tortfeasor will frequently reduce the amount of damages payable by the other tortfeasor, and vice versa. That arises from the fundamental purpose of damages in tort being compensatory. In consequence, once damages have actually been recovered from one tortfeasor the appropriate compensation for the damage that the other tortfeasor has caused can be correspondingly reduced. That is the situation in the present case. If it had transpired that the fraudsters had come into some money, were sued by the plaintiff, and paid the entirety of the verdict, and only then was action against Hunt & Hunt contemplated, that action would be futile. This is because, by that stage, the plaintiffs would not have suffered any damage in consequence of the negligence of Hunt & Hunt.

100 Nevertheless, this consideration of how the damages payable for one tort would be affected by payment of damages for the other tort ignores the question on which the statute depends. Section 34(2) concerns whether tortfeasors have "caused, independently of each other or jointly, the damage or loss that is the subject of the claim." Because the mutual discharge test distracts attention from identification of the damage caused by each tort, and invites attention to the damages recoverable for each tort, it has the potential to mislead.

101 MACFARLAN JA : I agree with Giles JA.

102 SACKVILLE AJA : I agree with Giles JA.

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Decision last updated: 15 December 2011