On 13 May 2015, the High Court of Australia handed down its decision in the appeal in Wealthsure Pty Ltd v Selig1. The Court’s unanimous decision will have a significant impact on the application of proportionate liability legislation to claims brought against professionals and directors in circumstances where plaintiffs’ claims can be brought based on contraventions of Commonwealth statutory provisions other than those based upon misleading or deceptive conduct.


Mr and Mrs Selig relied on financial advice provided by Mr Bertram, an authorised representative of Wealthsure Pty Ltd (Wealthsure) to invest $450,000 in Neovest Ltd (Neovest). When Neovest failed, the Seligs lost the entirety of their investment.

The Seligs brought proceedings against Wealthsure and Bertram together with other parties responsible for their loss being Neovest, Norton Capital Pty Ltd (which had promoted the investment) and two of the directors of Neovest. The Seligs claimed damages for the loss of their investment and consequential losses.

The Seligs’ claim alleged a number of breaches of the Corporations Act 2001 (Cth) (Corporations Act), the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), breach of contract and negligence.

The statutory claims included the allegation that Wealthsure engaged in misleading or deceptive conduct in relation to a financial product or a financial service in contravention of section 1041H of the Corporations Act. That claim was accompanied by allegations that Wealthsure had breached other sections of the Corporations Act including section 1041E which applies in respect of false or misleading statements to induce a person to apply for, acquire or dispose of financial products.

Similarly, it was alleged that Wealthsure’s conduct contravened section 12DA of the ASIC Act which is the misleading or deceptive provision in that Act. That claim was accompanied by allegations that Wealthsure had breached other sections of the ASIC Act including section 12DB of the ASIC Act for false representations in relation to the standard of financial services2.

First Instance

At first instance, Justice Lander of the Federal Court of Australia found against Wealthsure, Mr Bertram and two other respondents, ordering that they pay a sum of $1,760,512 to the Seligs.

His Honour held that the proportionate liability provisions only applied to the cause of action based on section 1041H. Wealthsure brought an appeal before the Full Court of the Federal Court of Australia.

Appeal to Full Federal Court

The Full Court allowed the appeal holding that, even though Wealthsure and Betram committed various contraventions in addition to the apportionable misleading and deceptive conduct provisions of the Corporations Act and ASIC Act, each of those causes of action, together with the cause of action under s1041H, constituted a single apportionable claim.

Justice Mansfield stated:

“Provided that there is a separate cause or other causes of action against the person or persons who have contravened section 1041H [of the Corporations Act 2001] if that other or those other causes of action have caused the same damage, the claim maintains its character as an apportionable claim.”

Shortly after the Full Court’s judgment, a differently constituted Full Court of Federal Court handed down a decision dealing with the same issues in ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65. In that decision, the Court unanimously held that the proportionate liability provisions  in the Corporations  Act only apply to contraventions of section 1041H of the Corporations Act and not to losses flowing from the other statutory causes of action pleaded.

High Court Decision

The Seligs appealed to the High Court.

The High Court unanimously allowed the Seligs’ appeal, holding that:

  1. the text of section 1041L(1) of the Corporations Act restricts an ‘apportionable claim’ to a   claim  under  section  1041I  for  damages  caused  by  conduct  done  in contravention of section 1041H.
  2. the effect of section 1041L(2) is not to expand the definition of “apportionable claim” under  section 1041L(1) but to explain that, regardless of the number of ways in which a plaintiff seeks to substantiate a claim for damages based on a contravention of section 1041H, as   long as  the  loss  or  damage  claimed  is  the  same, apportionment is to be made on the basis that there is a single claim.
  3. as such, the proportionate liability regime under Div 2A, Part 7.10 of the Corporations Act does not extend to causes of action arising from conduct of a different nature, such as conduct of the type giving rise to other statutory causes of action.

The Court held that this reasoning applied equally to the analogue provisions of the ASIC Act. While not directly considered by the Court, the reasoning would also apply to the analogue provisions of the Australian Consumer Law3.

The Court acknowledged the policy considerations, observed by the Full Court in the ABN Amro decision, that the contraventions of provisions referred to in section 1041I which were not chosen as being capable of being the subjects of an apportionable claim, involve a higher level of moral culpability than the conduct referred to in section 1041H. Unlike section 1041H, contravention of any of sections 1041E – 1041G constitutes an offence, an element of which is knowledge of recklessness. However, the Court based its decision on the clear language of Div 2A and did not consider it necessary to resort to legislative purpose to arrive at its decision.

Costs award against professional indemnity insurer

The High Court, in exercise of it discretionary powers in respect of costs, ordered that the costs of the appeals to each of the Federal Court and the High Court be paid by Wealthsure and Bertram’s professional indemnity insurer, which was not a party to the proceedings.

In reaching exercising its discretion, the Court had regard to the following factors:

  • Bertram was declared bankrupt shortly after the Notice of Appeal was filed in the Federal Court, his professional indemnity insurer conducted the appeal on his behalf pursuant to its entitlement under the policy;
  • The policy had a costs inclusive limit of indemnity of $3 million which could be expected to have been significantly eroded by the costs of the proceedings and the appeals such that it would be insufficient to meet the judgment sum and Selig’s costs of the appeals;
  • Wealthsure was unlikely to be able to pay the uninsured component of the judgment sum and Selig’s costs;
  • the insurer’s decision to appeal the judgment of the primary judge was taken in an attempt by the insurer to seek to better its own position. While that decision was not unreasonable, the circumstances in which a non-party costs order may be made by the court are not confined to where an insurer has acted unreasonably.
  • it was obvious to the insurer that, if it ultimately failed in the appeals, its own costs of the appeals would reduce the amount available under the policy to meet any costs order in favour of the Seligs.

What does this mean for insurers?

The High Court’s judgment brings resolution to an issue which has caused significant debate and uncertainty in the legal profession and the Courts.

For professionals, trustees, directors and their insurers, it means that the advantages of the proportionate liability regime will not be available in a range of circumstances where plaintiffs are able to frame their claims as contraventions of Commonwealth statutory provisions other than the generic ‘misleading and deceptive conduct’ provisions.

For example (without being exhaustive), proportionate liability will not be available in the case of contraventions of provisions relating to the following types of conduct:

  • unconscionable conduct under the Australian Consumer Law4;
  • false or misleading representations in relation to goods and services or land under the Australian Consumer Law5;
  • false or misleading statements in relation to financial products (involving knowledge or recklessness)6;
  • inducing    persons    to    deal    in    a    financial    product    (involving    knowledge    or recklessness)7;
  • dishonest conduct in the course of carrying on a financial service8;
  • misleading conduct in relation to the nature, characteristics or suitability of financial services9;
  • the  giving  of  a  takeover  document  or  an  expert  report  contained  in  a  takeover document which contains a misleading or deceptive statement10;
  • misleading or deceptive statements or omissions in disclosure documents in relation to the offer of securities11.

Having regard to the nature of the above Commonwealth statutory provisions, the decision is most likely to impact upon insurers of accountants, financial advisers, trustees, financial institutions and directors and officers. It might arguably also impact upon same, claims against real estate agents, business brokers, corporate and real property valuers and insurance brokers. In the case of financial planners and financial institutions, in particular, it is difficult to see circumstances in which proportionate liability will have any application at all.

The costs aspect of the case highlights a risk that insurers may expose themselves to potential direct costs orders with the result that their total exposure may exceed the limit of indemnity. That risk arises in circumstance where:

  • the insured(s) is impecunious; and
  • the costs of appeals may significantly erode the limit of indemnity available to cover the claimant’s costs (after payment of any judgment sum).

Where such circumstances exist, insurers should factor this risk into any cost benefit analysis in respect of any proposed appeal.

Click here for a link to the High Court judgment.