King & Wood Mallesons (KWM) has represented Hunt and Hunt on a landmark High Court ruling that found that the law firm was not accountable for all the losses incurred under a fraud that used a false mortgage to scam finance company Mitchell Morgan of more than $1m.
The case has a long and complex history entwined with the application of Proportionate Liability legislation in Australia.
At first instance, Hunt and Hunt was found to have breached its duties and was liable to Mitchell Morgan but under new legislation introduced in 2002, proportionate liability operated to reduce its liability as the fraudster and his solicitor were concurrent wrongdoers and Hunt and Hunt was assigned only 12.5 per cent of the loss.
Mitchell Morgan appealed the decision and a specially constituted five-member bench of the NSW Court of Appeal agreed and upheld the appeal. Hunt and Hunt was found liable for all of the loss suffered by Mitchell Morgan. The firm was ordered to pay Mitchell Morgan damages of $2.3m, calculated on the initial $1m loss and interest based on the high rates in the loan agreement.
Hunt and Hunt sought and obtained special leave to appeal to the High Court. The High Court held that the loss or damage suffered by Mitchell Morgan in both cases was the inability to recover the monies it had advanced. As the loss and damage suffered was the same, all parties were concurrent wrongdoers and the majority accepted the first instance apportionment of liability.
While the decision is of significant importance for the insurance industry, there are ramifications for all other sectors.
In reaching its decision, the majority provided important (and much needed) guidance on the correct approach to determining whether the same loss has been suffered due to the actions of two separate wrongdoers.
It found that the relevant NSW contributions legislation (Law Reform (Miscellaneous Provisions) Act 1946 (NSW)) was not relevant to construing the relevant proportionate liability provisions and the Court of Appeal erred in doing so.