In a landmark decision which will have far reaching ramifications and be warmly received by plaintiff lawyers, the High Court has curtailed the reach of the proportionate liability regime.
Mr & Mrs Selig invested $450,000 on the financial advice of an authorised representative of Wealthsure Pty Ltd (Wealthsure). Unfortunately the investment was actually part of a Ponzi scheme which failed and Mr & Mrs Selig lost their investment and suffered consequential losses. They sued several parties, including Wealthsure and its agent.
Mr & Mrs Selig claimed that Wealthsure and Mr Bertram had contravened a number of provisions of the Corporations Act 2001. One section of that Act prohibits conduct, in relation to a financial product or service, that is misleading or deceptive. The Act defines an "apportionable claim" as a claim for loss or damage caused by conduct that was done in contravention of that section. The Seligs also based their claim on contraventions of the Australian Securities and Investment Commission (ASIC) Act, which makes no reference to proportionate liability.
The Full Federal Court held that all of the causes of action should be decided on a proportionate basis, because the deciding factor for proportionate liability provisions is whether the claims are in respect of the same loss or damage, as opposed to the nature of the claim itself. Even though the defendants were liable under several provisions of the Corporations Actas well as under the ASIC Act, the claim was apportionable because the conduct giving rise to that loss or damage was conduct in contravention of section 1041H.
This decision left Mr & Mrs Selig in the position of having to recover 40% of their losses from impecunious fraudsters.
Fortunately for them the High Court overturned the decision of the Full Federal Court. It held that the proportionate liability regime in the Corporations Act is specifically limited to misleading or deceptive conduct claims and does not apply to other statutory or common law causes of action. The Court held that this reasoning applied equally to the corresponding provisions of the ASIC Act. Therefore, Mr & Mrs Selig were entitled to recover all their losses pursuant to the non-apportionable causes of action from Wealthsure.
The High Court further held that the circumstances justified an award of costs against a non-party to the proceedings, Wealthsure’s professional indemnity insurer. The insurer had the conduct of the defence at trial and made the decision to appeal to the Full Federal Court. As Wealthsure’s liability had reached the limit of liability, the decision to appeal meant that some of the insurance proceeds which would otherwise have been available to pay Mr & Mrs Selig would have to be diverted to meet the insurer's legal costs. The Court held that as the insurer was seeking to better its own position by bringing the appeal, there was no reason why it should be regarded as immune from a costs order.
The decision will be seen as favourable to plaintiffs as it preserves the position that proportionate liability can only be pleaded where the relevant provision (whether in theCorporations Act, the Trade Practices Act 1974/Competition and Consumer Act 2010) is subject to apportionment. If the Commonwealth provision does not require the apportioning of liability for the cause of action, apportionment of the relevant damages will be on a joint and several basis.
The third party costs order against Wealthsure’s insurer is a clear indication of how Courts will approach similar situations in future. It was not the defendant, but its insurer, which had the real interest in the appeal and so the insurer itself had to pay the costs.
Selig v Wealthsure.
The decision modifies the earlier High Court reasoning in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd that the focus should be upon the “nature of the loss and damage…rather than upon the nature of the…causes of action”. The position now is that the liability of defendants is not to be apportioned if one of the legal bases for it is not subject to an apportionment regime. So for example, a legal right created by Commonwealth legislation is not subject to apportionment under a State’s apportionment legislation, because Commonwealth law takes precedence over State law