The High Court has clarified that proportionate liability under both the Corporations Act and the ASIC Act in respect of a financial product or service is limited to claims for misleading and deceptive conduct.
Under proportionate liability statutory regimes, each wrongdoer’s liability to a claim is apportioned to the extent the court assesses them culpable for the plaintiff’s loss. This means that a plaintiff must sue all of the wrongdoers in order to recover its total loss.
High Court position
In Selig v Wealthsure Pty Ltd  HCA 18 the High Court has clarified the position in relation to the proportionate liability regime of Div 2A of part 7.10 of the Corporations Act (Corporations Act). The High Court also confirmed that the same reasoning extends to corresponding provisions of the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act).
- Previous uncertainty
Prior to this decision, the operation of Div 2A of the Corporations Act was unclear. Wealthsure Pty Ltd v Selig  FCAFC 64 held that the Div 2A was not limited to claims arising out of misleading and deceptive conduct (s1041H) but rather extended to all claims that result in the same loss and damage. This would include claims that are based on other statutory and common law causes of action. Whereas ABN Amro Bank NV v Bathurst Regional Council  FCAFC 65 held that the operation of Div 2A was limited to claims arising out of misleading and deceptive conduct.
- Facts of High Court case
Acting on advice from an authorised representative of Wealthsure Pty Ltd, Mr and Mrs Selig invested in Neovest Ltd. The investment scheme was, in effect, a ‘Ponzi scheme’, Neovest became insolvent and Mr and Mrs Selig lost their investment.
The Seligs relied on various causes of action, including the following sections under the Corporations Act :
- s 1041H (misleading and deceptive conduct in relation to financial product/service);
- s 1041E (false or misleading statements in relation to financial product/service);
- together with a claim for breach of duty of care.
The High Court (French CJ, Kiefel, Bell, Gageler and Keane JJ) unanimously overturned the Full Federal Court’s decision and held:
- the application of the proportionate liability regime under Div 2A of the Corporations Act is limited to claims under s 1041H. It does not extend to conduct of a different kind even where the same damages are claimed.
- the reference to a single apportionable claim under s 1041L(2) of the Corporations Act is not a definition. Rather its purpose is to explain that, regardless of the various ways in which a plaintiff makes a claim for damages for contravention of s 1041H, so long as the damage claimed is the same, apportionment is to be made on the basis that there is a single claim.
this reasoning applies equally to the corresponding provisions of the ASIC Act. The High Court repeated the reasoning in the ABN Amro decision which stated, as an explanation for the difference in the treatment of various provisions of Div 2A , that the sections that are not caught by the proportionate liability regime involve a higher level of moral culpability and include an element of which is knowledge or recklessness.
What does this mean?
The decision will assist plaintiffs who plead multiple claims against financial service providers. Only those claims involving false or misleading statements in relation to financial services/products, will be caught by the proportionate liability regime of Div 2A of the Corporations Act, even in instances where the other claims have resulted in the same loss.