The proportionate liability regime was first introduced in most Australian States in 2002.

It was introduced following public policy concerns that professional indemnity insurance premiums had become too expensive. 

Premiums were rising because a plaintiff could recover its entire loss against any defendant, despite the loss being the result of wrongdoing by more than one defendant.

An example of an apportionable claim is a lender who sues a valuer for negligence or misleading or deceptive conduct.

A controversial issue in recent years has been whether a lender can avoid its claim being considered an apportionable claim by pleading a cause of action other than in negligence and breach of s 52 of the Trade Practices Act (now section 18 of the Australian Consumer Law).

For example:

  • Section 53A of the Trade Practices Act (now section 30 of the Australian Consumer Law).  This section applies to false or misleading representations about the sale of land as opposed to misleading and deceptive conduct generally.  
  • Section 154 of the National Credit Code.  This section applies to false or misleading representations in relation to a matter that is material to the entry by a party into a regulated credit contract.  

Claims under s 53A of the Trade Practices Act (now s 30 of the Australian Consumer Law) and s 154 of the National Credit Code are not apportionable.

Whilst alternative causes of action will not be available in many instances, the High Court has recently provided some encouragement to lenders who can demonstrate an alternative cause of action.

In Selig v Wealthsure Pty Ltd, Mr and Mrs Selig made an investment on the advice of an authorized representative, Wealthsure.

The scheme invested in was, in effect, a "Ponzi scheme" and Mr and Mrs Selig lost their initial investment and suffered consequential losses.

Wealthsure submitted that Div 2A of the Corporations Act applied to limit its liability to a proportion of the appellants' loss and damage, having regard to the comparative responsibility of a number of other parties, including the company Mr and Mrs Selig invested in and its directors.

The High Court effectively found that proportionate liability will not apply to the extent a plaintiff succeeds on non-apportionable claims, even if the same conduct also gives rise to an apportionable claim.  For more information see the article by Gadens Partner Louise Massey here.

This is good news for lenders, especially those who are able to identify an alternative cause of action to negligence / misleading and deceptive conduct.