The Federal Court of Australia has in two recent judgments restated the principles regarding proportionate liability in the context of class actions, in the process providing guidance on the proper construction of Subdivision GA of Division 2, Part 2 of the Australian Securities and Investments Commission Act 2001(Cth) (ASIC Act).

Abuse of process allegation

In the decision of City of Swan v McGraw-Hill Companies Inc,1 Justice Rares confirmed that the apportionment legislation does not necessarily give a concurrent wrongdoer who is named but not a defendant in “proceedings involving an apportionable claim”, any protection from being sued by a plaintiff or by a defendant in subsequent proceedings, or from obtaining a different decision on apportionment, provided the plaintiff has not actually recovered the totality of their loss from the defendant in the earlier proceeding.

In this case, the City of Swan and Moree Plains Shire Council (Councils) were granted leave to serve an originating application and statement of claim on McGraw-Hill Companies Inc, Standard & Poor’s Financial Services LLC and Standard & Poor’s International LLC (S&P). The application made by the Councils was a representative action under Pt IVA of the Federal Court of Australia 1976 (Cth) representing a group of approximately 90 councils. The Councils alleged that S&P had made misleading, deceptive or negligent representations in relation to their credit ratings for 8 financial products known as synthetic collaterised debt obligations (SCDOs).

S&P sought to have the decision granting leave set aside, arguing that the proceedings against it should be dismissed on the basis that, inter alia, they were an abuse of process of the Court insofar as S&P had already been named in a judgment involving Swan and a substantially similar, but not identical, class of councils, in which it was held that S&P was not a concurrent wrongdoer (Wingecarribee).2 These were successful proceedings brought against Grange Securities Ltd in 2007 (Grange, Lehman Brothers’ Australian arm, which subsequently went into liquidation). Although Grange appealed Wingecarribee, the appeal was settled prior to being heard, with one aspect of the compromise being that Grange would only be liable for part of the loss.

While S&P was not joined by the Councils as a defendant to those proceedings, it had been named by Grange as an alleged “concurrent wrongdoer.” S&P argued that, by commencing the new proceedings, the Councils were seeking to re-litigate a claim against S&P that should have been raised against it directly in those earlier proceedings.

Justice Rares determined that there was no abuse of process and dismissed S&P’s application. His Honour found that the effect of the proportionate liability statutory scheme, and in particular s12GU of theASIC Act,3 does not prevent a plaintiff who has succeeded against one concurrent wrongdoer from suing another concurrent wrongdoer for a shortfall in recovery of a previously apportioned part of their loss, provided that there was no double recovery.

Although a number of the plaintiffs in the new proceedings had, in Wingecarribee, already received judgment in respect of their loss against Grange, Justice Rares noted that s.12GU reflected the general law and followed the line of authority of the High Court in Baxter v Obacelo Pty Ltd,which stated that, where a plaintiff has a complete judgment against one tortfeasor, issues of double recovery against another tortfeasor do not arise until the first tortfeasor has satisfied that judgment, or until the plaintiff has settled against that tortfeasor on terms that ought to be regarded as a recoupment of the whole of the plaintiff’s loss or damage. In the present case, therefore, the plaintiffs were entitled to recover claims for damages they had against S&P but only to the extent they were not able to recover those claims against Grange in Wingecarribee because they had settled for only part of their loss.

Further, his Honour held that the findings in Wingecarribee that S&P was not a concurrent wrongdoer with Grange were arrived at on different facts and issues from those that the Councils sought to raise in the new proceedings and also held that, because of the very late pleading of the proportionate liability defence by Grange, as well as delays in the filing of expert evidence, it was not unreasonable for the councils inWingecarribee to have proceeded in those circumstances without joining S&P.

His Honour also determined that the new proceedings were not an attempt to re-litigate any substantive issue determined in Wingecarribee in a way that created any estoppel or abuse of process. In particular, he noted that there was no contention in the earlier proceeding that the ratings for the SCDOs were other than accurate and appropriate (the claim against Grange being that it used the ratings in a misleading way), whilst in the new proceedings their accuracy and appropriateness was challenged.

On appeal

In June this year S&P sought leave to appeal from the decision of Justice Rares.5 This application for leave was dismissed by Justice Jacobson who held that Justice Rares’ analysis of the different factual basis and issues determined in Wingecarribee made it clear that there was no basis for the contention that the issues which arose in the new proceedings were previously determined in Wingecarribee. Justice Jacobson did not find it necessary to re-consider the apportionment legislation noting his Honour’s finding that there was no abuse of process.

Implications

These decisions appear to indicate that persons who are not joined as parties but who have had findings made for or against them in one set of proceedings can have a new set of proceedings commenced against them based on similar factual circumstances, provided that:

  1. it was “not unreasonable” that they were not joined as parties by the plaintiff in the original proceedings;
  2. the substantive issues in contention are not the same; and
  3. the plaintiff does not receive in total an amount more than the amount of damage or loss actually sustained (i.e. the plaintiff has not recovered all of their loss).