High Court Settles Controversy Over Proportionate Liability

Selig v Wealthsure Pty Ltd [2015] HCA 18

What You Need To Know

• The High Court of Australia has resolved the uncertainty caused by conflicting Full Federal Court of Australia decisions on the extent to which proportionate liability applies where multiple claims are brought for the same damage arising from the same facts.
• The Court unanimously held that proportionate liability applies only to apportionable claims, and that non-apportionable claims are not subject to proportionate liability defences – even if they are in respect of the same loss as an apportionable claim. This means plaintiffs are likely to run cases seeking to avoid their recovery being limited by apportionment defences by pleading non-apportionable claims, something which will impact the kinds of allegations which defendants face.

Proportionate Liability

Proportionate liability provides a defence when multiple persons are responsible for the one loss suffered by a plaintiff. The liability of each defendant is limited to its share of responsibility for the loss. The effect is that a plaintiff can only recover a proportion of its total loss from each defendant, and so must bring proceedings against all of them in order to recover 100% of that loss. The risk that one defendant may be insolvent is therefore borne by the plaintiff. The regime was introduced to avoid deep pocket defendants, such as auditors, being left with the whole of a loss for which they only had limited responsibility. This regime is to be contrasted with traditional joint and several liability, by which a plaintiff can sue a single defendant (ignoring other potential defendants who may not be able to pay damages) and recover 100% of its total loss, irrespective of that defendant's share of responsibility for the plaintiff's total loss.

Apportionable Claims

Proportionate liability only applies to "apportionable claims". Generally, claims for misleading or deceptive conduct and negligence are apportionable claims.

A significant controversy over the past year has been whether proportionate liability applies when a plaintiff brings several claims against a defendant in respect of the same loss arising from the same facts, and some of those claims are apportionable while others are not. For example, a plaintiff may suffer loss because of conduct that is actionable both as misleading or deceptive conduct under s 1041H of the Corporations Act 2001 (Cth) and as a false or misleading statement under s 1041E: a claim under the former is an apportionable claim, while the latter is not. This question has important practical implications, because if the s 1041E claim is not subject to an apportionment defence, then plaintiffs may be able to avoid having their claim reduced if they can establish a contravention of s 1041E. It is worth noting s 1041E is a criminal provision, whereas s 1041H is not.

Last year the Federal Court diverged at appeal level as to what should occur in such situations. The majority in Wealthsure Pty Ltd v Selig [2014] FCAFC 64 held that once there is one claim in respect of loss suffered which is apportionable, then all other claims in respect of that same loss are subject to proportionate liability – even if those claims are non-apportionable. However, a differently constituted Court in ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65 held the opposite: non-apportionable claims are not subject to proportionate liability, even if they are in respect of the same loss as an apportionable claim.

The Facts

Mr and Mrs Selig lost money in an investment they had made on the basis of financial advice given by Wealthsure Pty Ltd's representative. They claimed damages against a number of defendants, including Wealthsure and its representative. They relied on various causes of action, including claims for misleading or deceptive conduct contrary to s 1041H of the Corporations Act, and false or misleading statements contrary to s 1041E. The Seligs succeeded at trial on both claims and were awarded damages. Lander J held that proportionate liability applied only to the s 1041H claim. On appeal to the Full Federal Court, a 2:1 majority held that each defendant was liable only for their share of responsibility for all claims.

The Decision

The High Court overturned the Full Federal Court's decision, holding that proportionate liability applies only to apportionable claims, and that non-apportionable claims are not subject to proportionate liability – even if they are in respect of the same loss as an apportionable claim.

The plurality (French CJ, Kiefel, Bell and Keane JJ) said that as a matter of statutory construction only the claim based upon contravention of s 1041H is an apportionable claim. The term does not extend to claims based upon conduct of a different kind, such as contravention of s 1041E.

The key provisions of the Corporations Act were ss 1041L(1) and 1041L(2). Section 1041L(1) defines apportionable claims as claims in respect of conduct done in contravention of s 1041H. Section 1041L(2) states: "there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind)".

The plurality explained that reference in s 1041L(2) to claims "based on more than one cause of action" is not to claims that are different from those described in s 1041L(1) – namely, for contravention of s 1041H. Rather, the purpose of s 1041L(2) is to explain that, regardless of the different ways a plaintiff might claim damages for contravention of s 1041H, and provided that the loss claimed is the same, apportionment is to be made on the basis that there is a single claim. The limited operation of proportionate liability was further supported by s 1041N(2), which provides that liability for an apportionable claim is to be determined in accordance with proportionate liability and that liability for other claims is to be determined by reference to the legal rules relevant to them, and therefore not proportionate liability.

Implications

Although based on the provisions of the Corporations Act (and mirror provisions of the ASIC Act 2001 (Cth)), the decision is likely to be relevant to proportionate liability regimes existing under similar State legislation. It is likely plaintiffs will seek to rely more upon non-apportionable claims in order to avoid proportionate liability and benefit from the 100% liability of a defendant. Those claims, such as those for contravention of s 1041E, generally involve a higher degree of culpability, and are more difficult to establish than apportionable claims. They will however provide a means for plaintiffs to overcome proportionate liability defences. We expect to see more serious allegations being made as a result.