The concept of joint and several liability entitles a successful plaintiff to recover its entire loss from any defendant regardless of that defendant’s share of responsibility. Before the introduction of proportionate liability legislation this approach resulted in professional service providers with “deep pockets” being targeted in negligence proceedings.
In 2001 the HIH Group collapsed and Australian Insurers and professional services firms lobbied government for legislative change. The political and economic climate was right for change and Australian governments enacted tort reform legislation across every jurisdiction, including apportionment legislation. That was 10 years ago. We have had numerous decisions in State and Federal Courts seeking to clarify the application of the statutory apportionment provisions. The High Court of Australia has been asked to clarify the law on several occasions.
Claims at common law for damages “arising from a failure to take reasonable care” (for example breach of contract, misrepresentation, or negligence claims) and claims under the Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) for essentially the same damage arising from essentially the same facts are often brought against multiple defendants in the one proceeding.
The question therefore is when is joint and several liability ousted by the proportionate liability regime – will proportionate liability apply to all claims, or will it apply to only some?
Two Full Court of the Federal Court decisions within the space of a week have thrown the answer to this question wide open, creating considerable confusion in an area of great debate.
Wealthsure v Selig5
At first instance, the plaintiffs claimed against the defendants at common law for breach of contract, misrepresentation, and negligence, and for misleading or deceptive conduct under the Corporations Act and theASIC Act. Both the common law and statutory claims arose out of essentially the same set of facts.
The majority of the Full Court (2:1, Mansfield and Besanko JJ) held that all of the claims were apportionable and the proportionate liability regime applied. The reasoning for this approach was due in a large part to consideration given to s 1041L (2) of the Corporations Act and s 12GP (2) of the ASIC Act which states that there is a “single apportionable claim in the 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)”.
In dissent, White J concluded that the expression in s 1041L that “the claim for the loss and damage is based on more than one cause of action (whether or not of the same or a different kind)” refers only to causes of action which are themselves apportionable claims.
The majority Full Court’s focus was on the type of loss or damage, as opposed to the nature of the cause of action, importing a wide application to the regime. Following this reasoning, it was held that once there is one apportionable claim for loss or damage (for example a claim for misleading or deceptive conduct under s 1041H of the Corporations Act), then all other claims in respect of that same loss or damage will become apportionable claims, even if they would not be apportionable standing alone, the result being that the defendants would be liable only for the proportion of the loss for which they are responsible.
ABN Amro v Bathurst Regional Council6
Despite the decision in Wealthsure v Selig coming just a week before the ABN Amro v Bathurst Regional Council decision, a differently constituted majority of the Full Court of the Federal Court came to the opposite construction, preferring the reasoning of White J.
The Full Court was asked to determine whether a claim by the councils under s 1041E (false or misleading statements) of the Corporations Act should be apportioned. Claims under s 1041E are not apportionable, however, such a claim arose from the same facts and gave rise to the same loss as the claim brought in the proceedings under s 1041H (misleading or deceptive conduct) of the Corporations Act (which is apportionable).
At first instance the trial judge concluded that the various claims pursuant to s 1041E of the Corporations Actwere not apportionable but that they were apportionable under s 1041L of the Corporations Act because they arose out of the same facts as the claim under s 1041H.
However important for the Full Court’s resolution of the issue, there were additional pleaded facts which were required to be proved, to establish contravention of s1041E, namely the mental elements.
In upholding the Council’s appeal, the unanimous Full Court (Jacobson, Gilmour and Gordon JJ) found that the primary judge was in error and should have found that the appellant was liable to the Council for the whole of the loss and damage caused by ABN Amro’s misleading or deceptive conduct in contravention of s 1041E of the Corporations Act.
The Full Court considered that the legislature’s intention was to confine apportionable claims to those causes of action which did not have a necessary element of intention or unconscionabilty and it had deliberately excluded defendants whose conduct contravenes s1041E from having the benefit of apportionment provided for in s 1041N. For the same reasons the legislature also excluded contraventions of ss 1041F and 1041G.
The resulting damages caused by contraventions of ss 1041E or 1041H and s 12DA of the ASIC Act were determined to be the same. The Court ruled that where damages, in those circumstances, proceed from an apportionable claim (s 1041H) or alternatively a non-apportionable claim (s 1041E) then the remedies, to that extent, available to the Council are mutually inconsistent. The Council has a right of election. The Full Court accepted that by bringing its cross-appeal the Council elected the remedy of judgment for damages without apportionment proceeding from the cause of action founded on the contraventions of s 1041E.
This decision limits the application of the proportionate liability regime to claims under s 1041H of theCorporations Act and s 12DA of the ASIC Act (the traditional misleading or deceptive conduct claims). The approach in the Wealthsure v Selig applied the proportionate liability regime broadly to all claims, provided a claim under s1041H and/or 12DA is made, and the claims result in the same loss or damage.
The Full Court did not refer to s 1041L (2) of the Corporations Act and s 12GP (2) of the ASIC Act, which was an influential consideration in Wealthsure v Selig, and expressly declined to follow the reasoning of the majority, with preference given to White J’s dissenting judgment. White J stated that s 1041L (2) of the Corporations Actand s 12GP (2) of the ASIC Act referred only to causes of action which are themselves apportionable, as opposed to causes of action more generally.
This reasoning suggests the proportionate liability regime has a considerably narrower operation than that suggested in Wealthsure v Selig, leaving the door open for joint and several liability.
A trip to the High Court?
The introduction of the proportionate liability regime was intended to avoid deep pocket defendants being liable for an entire award of damages arising from a want of reasonable care or misleading or deceptive conduct. As a result of these two decisions, there is confusion as to which regime applies. At the moment eight Federal Court justices have considered the provisions with a 5:3 majority finding apportionment is confined to s 1041H claims.
In practical terms this is likely to mean that claimants will not simply rely on s 1041H if there is a prospect that they can establish some deliberate or reckless misleading conduct by a defendant. For financial services professionals and their underwriters, they will likely find that statutory liability may bring with it joint and several liability and the protection once perceived to be afforded by the proportionate liability regime has been watered down. That will also have a follow on effect for pricing.
Given the confusion created by the Federal Court in the course of one week, it seems likely that the High Court will be asked to weigh in to resolve this conflict, and provide certainty. When it comes to statutory interpretation, the High Court is likely to adopt the “majority view” prevailing in the Federal Court.