The Advisee Pursues a Claim for Misrepresentation Against the Contract-Partner

I now consider the allocation of liability where a person (the advisee) entered into a contract in reliance on incorrect information independently provided by both the contract-partner and an advisor who is not privy to the contract.

These circumstances cannot arise in New Zealand, since section 6 of the Con­tractual Remedies Act 1979 (NZ) provides that a contracting party who made a misrepresentation inducing the other party to enter into the contract is liable ‘in the same manner and to the same extent as if the representation were a term of the contract that has been broken', and is not liable in deceit or negligence. For this reason, this section considers only cases from Australia and the United Kingdom.

A. Allocation of Liability Under a Regime of Joint

and Several Liability

In the context of joint and several liability, I suggested earlier in this chapter that where the advisee claims damages for breach of contract from the contract-partner, payment of compensation by the advisor should entitle the advisor to claim reimbursement from the contract-partner (to the extent of the common liability), whereas payment of compensation by the contract-partner should not entitle him to claim either contribution or reimbursement from the advisor.

The same argument cannot be made where the advisee pursues a claim for misrepresentation against the contract-partner. Since the advisee does not claim damages for breach of contract, whether or not such a breach occurred, it cannot be said that the advisor is liable for exposing the advisee to such a breach. Nor can it be said that the advisor exposed the advisee to the consequences of a mis­representation by the contract-partner, because it could equally be said that the contract-partner exposed the advisee to the consequences of a misrepresentation by the advisor, it being assumed that each wrongdoer's misrepresentation was a factual cause of the advisee's entry into the contract. It is not a case where one wrongdoer should be primarily, and the other secondarily liable for the whole of the common obligation. A mutual right to contribution should therefore exist.

Nevertheless, the High Court of Australia rejected an equitable contribution claim by the contract-partner in Burke v LFOT Pty Ltd,^[1078] a case decided before proportionate liability statutes were enacted in Australia. A company purchased land in reliance on misrepresentations by the vendor. In breach of his duty of care towards the company, its solicitor, who was also one of its directors, failed to check the accuracy of the vendor's statements. The trial judge ordered the vendor to compensate the purchaser's reliance loss, and ordered the purchaser's solicitor to pay half that sum to the vendor as contribution.

A majority in the High Court of Australia overturned the order of contribution. Callinan J rejected contribution on the ground that there was no common liability between the vendor and the purchaser's solicitor.^[1079] McHugh J expressed the same view as Callinan J,^[1080] but based his rejection of contribution upon the argument that it would be inequitable if the purchaser's solicitor, who had gained nothing from the contract of sale, made contribution to the vendor, who would then retain part of his ill-gotten gain.^[1081] Gaudron ACJ and Hayne J based their rejection of contribu­tion upon the same notion of the vendor's unjust enrichment,^[1082] and added that contribution might also be unavailable because neither the culpability of the two defendants nor the causal significance of their conduct was equal or comparable.^[1083]

Kirby J, dissenting, upheld the trial judge's contribution order. In response to the argument that there was no common liability between the vendor and the pur­chaser's solicitor, he said that the allocation of liability between the two defend­ants should not depend upon whom the purchaser had chosen to sue.^[1084] Kirby J regarded as circular the argument that contribution by the purchaser's solicitor would lead to an unjust enrichment of the vendor; it could equally be said that the rejection of contribution would unjustly enrich the purchaser's solicitor.^[1085]

Kirby J's arguments are compelling. It is inappropriate to reject a contribution claim by the contract-partner in every case, irrespective of either party's culpabil­ity. Such rejection might be acceptable where, as in Burke v LFOT Pty Ltd, the advisor relied on the contract-partner's misrepresentation and—as between the two wrongdoers—was entitled to do so. It would then be a case of contribution shares being nil and 100 per cent respectively. But things are markedly different, for example, where the contract-partner relied on the advisor's misrepresentation and, as between the two wrongdoers, was entitled to do so.

The Court of Appeal for England and Wales recognised a mutual right to contribution in the present context in Downs v Chappell.^[1087] Mr and Mrs Downs purchased a bookshop business from Mr Chappell after inflated figures as to the bookshop's recent turnover and profit had been provided to them by Mr Chappel and confirmed by his accountants. The business proved a failure, and Mr and Mrs Downs claimed compensation of their reliance loss from both Mr Chappell and his accountants. Mr Chappell was held liable in deceit, and his accountants were held liable in negligence, the amount of liability being the same. Liability was apportioned in equal shares between Mr Chappell and his accountants pursuant to the Civil Liability (Contribution) Act 1978 (UK). The Court of Appeal said that Mr Chappell's higher degree of culpability was counterbalanced by the fact that Mr and Mrs Downs had placed greater reliance on the accountants' statement.^[1088] The Court was unimpressed by the accountants' argument that Mr Chappell ought to bear a larger share of the liability because he had benefited from his contract with the purchasers.^[1089]

The High Court of Northern Ireland followed suit in Young v Hamilton.^[1090] Before purchasing certain property, the plaintiffs asked the vendors whether they knew of any person ‘claiming or having adverse rights' over that property, and whether litigation was ‘threatened or pending or anticipated' in relation to the property. The vendors gave a negative answer to both questions, even though they knew that the neighbours claimed to own part of the property and had consulted a solicitor. After purchasing the property, the plaintiffs became aware of the neigh­bours' claim. They successfully sued the vendors for misrepresentation.

B. Allocation of Liability Under a Proportionate

Liability Regime

An exposition of the way in which liability is and should be allocated in the present context under Australian proportionate liability provisions requires an examina­tion of the decision of the High Court of Australia in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd,^[1092] even though this case did not involve exactly the circumstances presently discussed.

C and V entered into a business venture and opened a joint bank account for that purpose. Unknown to V, C approached Mitchell Morgan Nominees Pty Ltd (MM) for a loan to the joint account on the security of a mortgage over a property owned by V. C had obtained possession of the certificate of title for that property, forged V's signature on the loan document and the mortgage document, and had his cousin, a solicitor, dishonestly certify to MM that he had identified V and witnessed V's signatures on the documents. A mortgage was registered over the property and a loan of approximately $1m advanced. C withdrew the money from the joint bank account by forging V's signature.

V discovered the fraud, and a dispute arose between V and MM in respect of the validity of the mortgage. The loan agreement was void by virtue of the forgery, and V was not liable to MM under it. The mortgage enjoyed the benefit of indefea­sibility of title,^[1093] but because the only debt stated to be secured by the mortgage was V's indebtedness under the loan agreement (which was void), the mortgage secured nothing and was liable to be discharged.

A majority in the High Court of Australia agreed with that argument. French CJ, Hayne and Kiefel JJ held that the fraudsters and H&H were concurrent wrongdoers liable for the same damage. They disagreed with the following identification by the New South Wales Court of Appeal of two separate losses suffered by MM: ‘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'.^[1094] French CJ, Hayne and Kiefel JJ argued that the New South Wales Court of Appeal had pointed to the immediate effects of the fraudsters' conduct and of H&H's negligence, but that those effects could not be equated with MM's loss or damage.^[1095] That loss or damage, they said, was MM's inability to recover the moneys advanced.^[1096] They observed:

[T]here were two conditions necessary for the mortgage to be completely ineffective: (a) that the loan agreement was void; and (b) that the mortgage document did not itself contain the debt covenant, but did so solely by reference to the loan agreement. Hunt & Hunt was responsible for (b), but the fraudsters were responsible for (a).^[1097]

The minority in the High Court (Bell and Gageler JJ) took the view that the fraudsters and H&H were not liable for the same damage because the duty of care breached by H&H aimed to protect MM from the fraud which occurred:

Where the wrongful act or omission of B is to breach a duty of care that B has to protect A from the consequences of a possible wrongful act or omission on the part of C, the harm to A that is caused by that act or omission on the part of B lies in the absence of protection in the event that the wrongful act or omission on the part of C occurs. The consequences of the wrongful act or omission on the part of C are not themselves part of that harm.^[1098] Bell and Gageler JJ argued that the application of proportionate liability legisla­tion in those circumstances ‘would be transferring to A some or all of the very risk against which it was the duty of B to protect A’.^[1099] French CJ, Hayne and Kiefel JJ took a different view of H&H’s duty towards MM:

It may be doubtful that Hunt & Hunt’s duty is properly described in these terms. It was certainly to protect MitcheU Morgan’s economic interests and as such would require any security drawn to be effective, but this is so regardless of the reasons why moneys advanced might not be recovered.^[1100]

Both the majority and the minority illustrated their arguments by reference to a hypothetical case that had been put forward by the Victorian Court of Appeal in Quinerts. a case considered earlier in this chapter. A thief steals money from a bank. Because of negligence on the part of its insurance brokers, the bank finds that its insurance does not cover the risk of theft. The Victorian Court of Appeal in Q uinerts argued that the thief is not a concurrent wrongdoer in relation to the bank’s claim against its insurance brokers.^[1101] Bell and Gageler JJ in Hunt & Hunt Lawyers agreed,^[1102] but French CJ, Hayne and Kiefel JJ disagreed:

In that analogy, it is correct to describe the damage or loss suffered by the bank as its inability to recover the moneys stolen. One source of recovery could have been its insurer, hence the brokers were a cause of its loss. The other possible source of recovery is the thief. The harm to the bank’s economic interests, at a certain point, is the inability to recover from either source.^[1103]

I now consider how the applicability of proportionate liability legislation in cir­cumstances such as those present in Hunt & Hunt Lawyers should be approached on principle. As argued earlier in this chapter, proportionate liability legislation ought to apply only where a mutual right to contribution would otherwise exist. Bell and Gageler JJ took this view,^[1104] but French CJ, Hayne and Kiefel JJ left that issue open.^[1105] Thus, the first question to ask is whether, in the absence of propor­tionate liability legislation, a mutual right to contribution would exist between the fraudsters and H&H,^[1106] or whether it is a case where one wrongdoer is pri­marily, and the other secondarily liable for the whole of the common obligation. As argued earlier in this chapter, that question must be answered by reference to the nature and rationale of each wrongdoer’s liability. Again, Bell and Gageler JJ did so by referring to the purpose of the duty of care breached by H&H. Thus, they used the correct methodology. It does not follow that their ultimate solution is unchallengeable. The majority's view on the purpose of the duty of care breached by H&H cannot be rejected as unarguable. It is not necessary here to reach a conclusive view on that issue.

What is necessary is to consider the impact that the High Court's decision in Hunt & Hunt Lawyers may have in the circumstances presently discussed, where the advisee has a claim against the advisor and has (and pursues) a claim against the contract-partner for misrepresentation. Even though Hunt & Hunt Lawyers did not involve those circumstances, the High Court's approach is likely to prompt courts to limit the advisor's liability by virtue of proportionate liability legislation in the present context too.^[1107] I argued earlier that proportionate liability legislation ought to apply only where a mutual right to contribution would otherwise exist. On that view, the High Court's decision in Hunt & Hunt Lawyers, which favoured proportionate liability, is at odds with the High Court's decision in Burke v LFOT Pty Ltd mentioned before, which denied the contract-partner a right to contribu­tion from the advisor. However, since the majority in the High Court in Hunt & Hunt Lawyers rejected a necessary link between the availability of contribution under joint and several liability and the applicability of proportionate liability leg­islation, the two decisions do not strictly conflict.

If, as argued earlier in this chapter, a mutual right to contribution under joint and several liability is recognised in the present context, the advisor and the contract-partner ought to be regarded as ‘concurrent wrongdoers' for the purpose of proportionate liability legislation. The advisor's liability should thus be limited to a proportion of the advisee's loss, as should be the contract-partner's liability if his misrepresentation falls within the scope of the proportionate liability statute. The High Court's decision in Hunt & Hunt Lawyers leads to the correct outcome in the present context.

V.