In brief

The recent case of Wealthsure Pty Ltd v Selig [2014] FCAFC 64 (Wealthsure v Selig) confirmed that a claim can be apportionable under the Corporations Act 2001 (Cth) even where a breach of the misleading and deceptive conduct provision (s1041H) is only one of the contributing factors to the plaintiff’s loss. This position has previously been adopted by some single judges but not by the full court of the Federal Court.

Often deep pocketed defendants are targeted by plaintiffs. This decision is important because it limits the capacity for such approaches to be successful in the future.

Introduction

The proportionate liability regime under the Corporations Act 2001 (Cth) limits the liability of defendants for the loss suffered by a plaintiff to the extent to which each defendant is responsible for the plaintiff’s loss. The purpose of the regime is twofold:1

  1. to prevent the targeting of ‘deep-pocketed defendants’ in litigation, and
  2. to allow insurers to more accurately price risk by insuring only against the misleading conduct of the insured (and not third parties who may be jointly and severally liable).

The regime means the plaintiff, and not the defendants, bear the risk of one or more of the defendants being unable to satisfy a judgment debt. The provisions apply principally to loss suffered as a result of contravention of s1041H. However, the Court’s conclusions in Wealthsure v Selig confirm that liability may be apportioned where the loss suffered is caused by a number of contraventions, as long as one of these contraventions is of s1041H and the loss suffered with respect to all contraventions is the same.

Facts and background

Mr and Mrs Selig acted on the financial advice of the second appellant, Mr Bertram, and invested $450,000 in Neovest Ltd. Their investment failed. At the time the advice was given, Mr Bertram was an 'authorised representative' of the first appellant, Wealthsure Pty Ltd.

The Seligs claimed damages for the loss of their investment and consequential losses against several persons including Wealthsure and Mr Bertram. At first instance, judgment was entered against Wealthsure, Mr Bertram and two other respondents in the sum of $1,760,512.2

A key question arising on appeal was whether the proportionate liability provisions in the Corporations Act 2001 (Cth) applied to the liability of the respondents to Mr and Mrs Selig, so that each respondent is only liable for a proportion of the Selig’s damages calculated with reference to the extent of their responsibility for the loss or damage. Those provisions are ordinarily applicable to a cause of action founded on s1041H.

At first instance, the judge held that proportionate liability provisions applied in respect those causes of action based on s1041H, but not to those that did not rely on s1041H, despite the common ground between the parties that the losses flowing from all causes of action were the same.

Legislative confusion

The full Federal Court focused on interpreting the relevant statutory framework.

Section 1041N (1) provides that in any proceedings involving an apportionable claim (claims for loss caused by conduct in contravention of s1041H), the liability of a defendant who is a concurrent wrongdoer in relation to that claim is to be apportioned.

Section 1041N(2) provides that if the proceedings involve both an apportionable claim and a claim that is not an apportionable claim: (a) liability for the apportionable claim is to be determined in accordance with the 'proportionate liability regime', and (b) liability for the other claim is to be determined 'in the ordinary way'.

Sections 1041L(2) and (3) are also significant. In summary, they provide that:

(2) 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).

(3) a concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions caused the damage or loss that is the subject of the claim.

Specifically, what the full Federal Court had to determine was whether the phrase ‘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 or, alternatively, to causes of action more generally.3

The decision of the full Federal Court in Wealthsure Pty Ltd v Selig

Mansfield and Besanko JJ held that the claims should be apportioned with respect to all causes of action against the respondents. Mansfield J said that the primary focus of proportionate liability provisions is whether the claims are in respect of the same loss and damage, and not the nature of the claim itself. Even though Wealthsure and Mr Betram committed contraventions other than the contravention of s1041H, the claim was an apportionable claim because the conduct giving rise to that loss or damage was conduct in contravention of s 1041H(1).4

Besanko J said that while it might be ‘surprising’ that the proportionate liability provisions applied to causes of action removed from the proscribed application to misleading and deceptive conduct, it is common for one set of facts to give rise to a number of causes of action. Accordingly, it would be ‘artificial’ if the application of proportionate liability provisions could be avoided by pleading one cause of action and not another.5

Implications

The decision of the full Federal Court means that plaintiffs will find it more difficult to recover the entirety of their loss where they claim contravention of s1041H and one or more defendants is impecunious. A plaintiff will not be able to rely on the existence of other claims to avoid the operation of the proportionate liability provisions where a s1041H cause of action would apply on the facts.

On the other hand, the decision makes the apportionment of liability a more viable mechanism to assist deep pocketed or well insured defendants to guard against the possibility of absorbing the entire judgment debt. The proportionate liability provisions can be relied upon as long as one of the plaintiffs’ claims is for contravention of s1041H, and the loss suffered is the same with respect to all claims. This will also assist deep pocketed defendants to properly insure against litigation risks.

Daniella Spencer-Laitt