In mid-2004 proportionate liability reform became effective in Australia, removing joint and several liability for certain causes of action. Under the old system, the insolvency risk  associated with other wrongdoers fell on the defendant against whom the plaintiff successfully sued and elected to recover judgment, which unfairly meant a single defendant could  bear 100% of a loss notwithstanding that the acts of another wrongdoer caused the same damage.

It was hoped by many that reform would address the crisis of high claim costs associated with liability insurance, by removing the burden faced by “deep  pocket” defendants routinely targeted in litigation, despite others also causing the same loss and  damage which was the subject of a claim. This article explores the impact of the reforms on claims  against financial services professionals.

2004: Changes to the law become effective

The key reforms (which remain in force) were  implemented in NSW in 2004, making claims for  economic loss or damage to property arising from a failure to take reasonable care in contract,  tort or otherwise,1 or in an action for damages for misleading and deceptive conduct under consumer  protection laws2, apportionable claims whereby liability is apportioned to each wrongdoer according  to the Court’s assessment of the extent of their responsibility.3

At the Commonwealth level, amendments were also   made to the Australian Securities and Investments  Commission Act 1974 (Cth) (ASIC Act), the Corporations Act 2001 (Cth) (Corporations Act) and the  Trade Practices Act 1974 (Cth) (TPA) (which has since been replaced by the Competition and Consumer  Act 2010 (Cth) (Australian Consumer Law)) to introduce proportionate liability in relation to  claims for misleading and deceptive conduct. Where the reforms apply, the plaintiff is now obliged to join all alleged concurrent wrongdoers to an action, rather than leaving it to the defendants to  bring in others by way of cross-claims for indemnity and/or contribution.

What is an apportionable claim?

The relevant statutory provisions in all Australian jurisdictions are in similar terms in  identifying what is a single apportionable claim. The loss or damage caused by the various  wrongdoers must be the same, even if “the claim for that loss or damage is based on more than one cause of action (whether or not of the  same or a different kind)”.4

Those words were subject to intense judicial scrutiny in May 2014 and early June 2014, when two  conflicting judgments were delivered by two differently constituted benches of the Full Federal Court  considering whether certain claims were apportionable, in Wealthsure Pty Limited v Selig [2014]  FCAFC 64 (Wealthsure) and ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65 (ABN AMRO).

In Wealthsure, a majority held that in proceedings which involve both an apportionable claim under  the Corporations Act (being a claim for damages for a contravention of the misleading and deceptive  conduct provision of that Act in relation to a financial product or  a financial service ) and a claim that  is not apportionable, and the same loss and damage has resulted from both causes of action, the  claim maintains its character as an apportionable claim in its entirety.

White J dissented, holding that the relevant statutory provision which stipulates that “there is a single apportionable claim in 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)” refers only to  causes  of  action   themselves  which  are  apportionable claims and does not extend to statutory provisions which were  deliberately omitted by the legislature as falling within  the  regime.

That dissenting position gained unanimous support in the second decision delivered by the Full  Federal Court in ABN AMRO a week later.

The decisions in Wealthsure and ABN AMRO were made against the backdrop of the High Court of  Australia’s leading decision on proportionate liability delivered a year ago in Hunt & Hunt Lawyers  v Mitchell Morgan Nominees Pty Ltd and Others (2013) 247 CLR 613 (Hunt & Hunt). In that case (which  has wider application than just misleading and deceptive conduct) the court considered whether, in order for liability for “damage” to be apportioned to a concurrent wrongdoer, that damage must  be “caused” by each concurrent wrongdoer and what analysis the court should undertake in making  that assessment. In a split 3-2 decision, the majority of the High Court concluded that a  wrongdoer’s acts may be independent of those of another wrongdoer and yet be said to cause the same  damage for the purposes of apportionment.

Key messages

It may be some time before there is clarity on the contradicting decisions of Wealthsure and ABN  AMRO in respect of misleading and deceptive conduct claims involving financial services and financial products. Despite widespread anticipation that the  decisions would be appealed and even possibly heard together by the High Court, there was no appeal  from either decision. The absence of any High Court authority resolving the conflict means that  alleged wrongdoers (and by implication, insurers of those alleged wrongdoers) will continue to face  uncertainty in terms of how far the proportionate liability regime extends in financial services  cases.

It is clear that ten years into the regime, the law of proportionate liability in Australia is  still very much in the development phase. It has been largely successful in simplifying the often  unfair burden created by allocation of loss under the joint and several liability system. However,  part of the mischief the regime was also designed to remedy was the complexity of litigation resulting from the net being cast so  widely with too many unnecessary parties being joined to litigation. It is harder to draw the line  on joinder given the conflicting authority that has resulted from Wealthsure and ABN AMRO and the confusion which follows. As a result it appears that Australia may well be in for a few more  years of confusion before clarity (likely in the form of further High Court authority) on proportionate liability can prevail.