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Focus: New guidance on proportionate liability claims

11 November 2009

In brief: Partner Matthew Skinner (view CV) and Senior Associate Philip Hopley consider a recent Victorian Court of Appeal decision1 and its likely impact on claims involving proportionate liability.

How does it affect you?

  • For most Australian states and territories, the Victorian Court of Appeal has clarified when multiple defendants or potential defendants will be concurrent wrongdoers for the purposes of the proportionate liability regime.
  • From a practical perspective, plaintiffs will now be better placed to identify which of the potential wrongdoers that are notified to them by defendants are likely to be capable of being concurrent wrongdoers. Similarly, defendants and those that stand behind them, such as insurers, may need to reconsider their potential share of liability if this has been assessed to date on the basis that another concurrent wrongdoer is also liable.
  • The effect of this decision in South Australia, Queensland and at the federal level is less certain because of differences in the wording of the proportionate liability legislation there. It is possible that the courts in these jurisdictions may decide not to follow this decision.
  • Parties to disputes should remain alert to the significant differences in outcomes that can occur where claims are affected by the proportionate liability regimes of different jurisdictions.

Background

Quinerts Pty Ltd negligently overvalued a property in Melbourne, which, following the borrower's default and the sale of the property, resulted in St.George losing more than $100,000.

St.George sued Quinerts for damages in the Victorian County Court, and alleged that it would not have lent any money to the borrower had the property been competently valued.

Quinerts admitted that their valuation was negligent but argued that a proper valuation would have resulted in the bank lending a lower amount than it did. As a result, the bank's loss was the difference between the amount actually lent and the amount it would have lent had the property been valued correctly.

Significantly, Quinerts attempted to reduce its share of liability for the bank's losses by relying on the proportionate liability provisions in force in Victoria in the Wrongs Act 1958. It argued that the borrower should be regarded as a joint wrongdoer, and relied on a number of recent decisions to support this argument, including Vella v Permanent Mortgages Pty Ltd.2

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The County Court's decision

At first instance, the court decided that the bank would have lent the lower amount of money to the borrower but declined to apportion liability between Quinerts and the borrower. This was because the actions of Quinerts and the borrower caused different losses to the bank. As against the borrower, the bank's loss was the value of the money lent plus interest and charges. As against Quinerts, the bank's loss was the difference between the money actually lent and what should have been lent.

St George appealed this finding and Quinerts cross-appealed the court's refusal to apportion its liability to the bank.

The appeal decision

In dismissing both the appeal and cross-appeal, the Court of Appeal made a significant finding on the availability of proportionate liability to defendants.

In Justice Nettle's judgment (with which Justices Mandie and Beach agreed), the intent behind the proportionate liability legislation in Victoria is to achieve the same outcome as used to occur in a claim for contribution. Since it is clear that a claim for contribution could only succeed where two parties were responsible for the same damage or loss, that must also be the case for a proportionate liability claim.

Analysing the facts of this case, the court concluded that this was not an apportionable claim because Quinerts and the borrower were not responsible for the same loss. Nothing the borrower did or failed to do caused the bank to accept an inadequate security for the loan. Equally, nothing that Quinerts did caused the borrower to default on the loan. The finding that Quinerts and the borrower were not concurrent wrongdoers was further illustrated by the differences in the amount and timing of the losses that their actions caused the bank to suffer.

The court declined to follow the recent decision of the New South Wales Supreme Court in Vella v Permanent Mortgages. In that decision, the court determined that a solicitors' liability in negligence for failing to effect the registration of a mortgage that would have guaranteed indefeasibility of title should be apportioned to take into account the liability of the fraudster who forged the execution of a mortgage against which funds were lent. This finding rested on accepting the proposition that each wrongdoer was jointly responsible for the loss because it would not have occurred but for the acts or omissions of each of them.

The Court of Appeal made it clear that this approach is incorrect, and that it is necessary to analyse carefully the role of each potential wrongdoer in causing a plaintiff's loss to establish whether they are a concurrent wrongdoer for the purposes of the proportionate liability regime. With the Court of Appeal's approach, Vella would have been decided differently, with the negligent solicitors being liable for the whole of the loss caused by its failure to register the mortgage – as opposed to the 12.5 per cent share of the same loss that it was actually held to be responsible for when the fraudster's conduct was able to be taken into account in assessing the solicitors' liability.

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Analysis

This decision provides important clarification of the operation of the proportionate liability regime in Victoria, as well as in those states and territories that share the same definition of a 'concurrent wrongdoer', where the courts may follow this decision.

A plaintiff who receives, or who has already received, notification of other potential wrongdoers from a defendant will now be able to use the Court of Appeal's guidance to identify or reassess which wrongdoers are likely to be regarded as true concurrent wrongdoers. Similarly, defendants to apportionable claims and those that stand behind them, such as insurers, may need to reconsider their potential share of liability if this has already been assessed on the basis that another concurrent wrongdoer is also liable.

It is not immediately clear, and remains in doubt, whether the SA and Queensland state courts and the Federal Court, faced with applying differently worded proportionate liability legislation, are likely to take the same approach as the Court of Appeal. This lack of legislative uniformity means that parties to disputes should continue to be aware of the significant differences in outcome that can occur in resolving claims that are affected by the proportionate liability regimes of several jurisdictions.

Footnotes
  1. St.George Bank Limited v Quinerts Pty Ltd [2009] VSCA 245.
  2. [2008] NSWSC 505 at [583]-[589] (Young CJ in Eq).

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