Introduction

In each of the Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), proportionate liability provisions require that, in certain circumstances, where a plaintiff brings a claim against multiple defendants each in-part responsible for the plaintiff’s loss or damage, responsibility for that loss or damage is to be apportioned amongst the relevant defendants. Until recently, the reach of those provisions has been debated, namely as to the types of claims to which the provisions will apply.1

Following two conflicting decisions of the Full Court of the Federal Court of Australia, the High Court of Australia, with its decision in Selig v Wealthsure [2015] HCA 18, has clarified the operation of those provisions, holding that the proportionate liability schemes in each of the Corporations Act and the ASIC Act will only apply to a claim for misleading or deceptive conduct under those Acts.

This may significantly dampen the intended effect of the proportionate liability regime under the Corporations Act and the ASIC Act and, as well as under the Competition and Consumer Act 2010 (Cth) which contains substantially identical provisions.

The Court also made an order for costs against the insurer of the respondents (which was not a party to the proceeding) for the costs of the appeal to the Full Court of the Federal Court and to the High Court. This highlights the risks that insurers and litigation funders may face with respect to costs where they act as the true guiding mind behind the conduct of a party’s case.

Background

The plaintiffs in the case before the High Court, Mr and Mrs Selig, took out an investment in Neovest Pty Ltd on the advice of Mr Bertram, a financial advisor representing the financial advisory firm, Wealthsure Pty Ltd (Wealthsure). The investment failed shortly thereafter and Mr and Mrs Selig lost the value of their investment.

Mr and Mrs Selig commenced proceedings against, among others, Wealthsure and Mr Bertram to recover their investment losses and other consequential losses. That claim was brought on multiple bases, including a claim of breach of the prohibition against misleading or deceptive conduct under s1041H of the Corporations Act.

One of the issues in Mr and Mrs Selig’s claim was whether the proportionate liability provisions in the Corporations Act applied to all of Mr and Mrs Selig’s claims, or whether the apportionment provisions were limited to the claim under s1041H.

At first instance, a Judge of the Federal Court held that the proportionate liability provisions only applied to a claim under s1041H of the Corporations Act and, therefore, as Mr and Mrs Selig succeeded on claims on other bases, they were entitled to an order that each of the defendants be jointly and severally liable for 100% of their proven loss. That decision was overturned by the Full Court of the Federal Court, a decision which Mr and Mrs Selig subsequently appealed to the High Court.

The Proportionate Liability Provisions

The dispute arose out of s1041N and s1041L(2) of the Corporations Act.

Section 1041N provides that, where proceedings involve an “apportionable claim” (being a claim for economic loss or damage to property caused by conduct done in contravention of s1041H), a court must apportion liability amongst concurrent wrongdoers for loss and damage having regard to the extent of each concurrent wrongdoer’s responsibility for that loss and damage.

Section 1041L(2), however, provides that there is a “single apportionable claim in proceedings in respect of the same loss or damage even if the claim for loss or damage is based on more than one cause of action (whether or not of the same or a different kind)” (emphasis added).

The Full Court of the Federal Court held that these provisions had the effect that, where claims were brought on multiple legal bases but arising out of the same facts and relating to the same loss or damage, provided that a claim under s1041H is made out, all claims under the Corporations Act for the same loss or damage, regardless of the legal bases for those claims, will be apportionable amongst concurrent defendants.2

The High Court unanimously overturned that decision, holding that the proper approach to those provisions was that adopted by the Judge at first instance, meaning that the provisions only apply to claims brought under s1041H for misleading or deceptive conduct.

Their Honours also added that the same approach would apply equally to the largely similar provisions in the ASIC Act.

Implications of the Decision

The practical effect of the decision of the High Court in Selig is that, where a plaintiff can succeed in a claim against multiple defendants on any basis other than a claim under s1041H for misleading or deceptive conduct, the proportionate liability provisions of the Corporations Act will not apply and the plaintiff will be entitled to an order that all concurrent defendants be jointly and severally liable for 100% of the plaintiff’s loss or damage. The same analysis applies to the corresponding provisions in the ASIC Act.

The decision will, thereby, make it easier for a plaintiff to recover its full loss or damage in claims brought under those Acts against multiple defendants, and will shift the risk of one defendant being unable to pay any judgment sum awarded against it from the plaintiff onto the body of defendants.

A word on costs

As part of its decision, the High Court ordered that the costs of the appeal to the Full Court of the Federal Court, and then to the High Court, be paid by Wealthsure and Mr Bertram’s insurer (which was not a party to the proceeding).

Wealthsure held professional indemnity insurance with QBE Insurance (Australia) Ltd (QBE), which covered it and Mr Bertram up to the amount of $3 million with respect to “any one Claim inclusive of Costs & Expenses”. QBE had elected to exercise its right of subrogation and had conduct of the defence of the claim brought by Mr and Mrs Selig. QBE decided to appeal the first instance judgment to the Full Court. At around the time that the Notice of Appeal was filed, the legal costs and expenses incurred to that date were approximately $1.35 million, leaving only approximately $1.65 million to satisfy the judgment debt (plus costs and interest). Mr Bertram was declared bankrupt shortly after the Notice of Appeal was filed in the Federal Court. At that stage, it was also uncertain that Wealthsure would be able to meet the judgment debt owed to Mr and Mrs Selig.

The High Court held that, in appealing the first instance decision, QBE acted in its own interests by seeking to better its position by reducing the amount of the judgment debt payable to Mr and Mrs Selig and that QBE’s decision to proceed with the appeal meant that monies that it would otherwise would have been obliged to pay to Mr and Mrs Selig were diverted to meet its own legal costs. The Court held, given the circumstances, that QBE should be subject to an order to pay the costs of Mr and Mrs Selig.

This decision, whilst unusual on its face, highlights the risk to insurers (and similarly to litigation funders) who take a controlling role in litigation involving their insured, particularly where their insured is impecunious.