15 July 2015
Making heads and tails of proportionate liability - the High Court provides important clarification
In the recent decision of Selig & Anor v Wealthsure Pty Limited & Ors  HCA 18, the High Court has provided important clarification with respect to the operation of proportionate liability regimes in Australia.
In a significant decision, which has resolved the uncertainty created by two conflicting Full Federal Court decisions, the High Court found that statutory apportionment regimes will not apply to any claim not covered by proportionate liability legislation even if the claim arises out of the same set of facts and is included in the same proceeding.
Proportionate liability regimes enable liability to be ‘apportioned’ between wrongdoers in line with their responsibility for the loss or damage caused. Before the introduction of such statutory regimes, plaintiffs were able to target the wrongdoer with the ‘deepest pockets’, which was often the insurer, and recover the whole of the judgment from that defendant.
In Selig, Mr and Mrs Selig had invested in Neovest Limited (Neovest) based on financial advice given to them by an authorised representative of Wealthsure Pty Limited. Unfortunately, the scheme which the Seligs invested in was a ‘Ponzi’ scheme. Neovest subsequently became insolvent and the appellants lost their investment, causing them considerable financial loss (approximately $1.75m).
The Seligs brought proceedings against Wealthsure and against several other parties (Respondent Group), making various claims under the Corporations Act 2001 (Cth) (Corporations Act), one of which was a claim under s 1041H (which related to misleading and deceptive conduct). The Seligs also made various claims under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).
Pursuant to Division 2A of Part 7.10 of the Corporations Act, a claim under s 1041H is an apportionable claim. Relevantly, Division 2A does not expressly apply to the other causes of action which were brought under the Corporations Act. Like the Corporations Act, the ASIC Act has a proportionate liability regime which expressly operates with respect to some of the provisions of that Act, but not all.
The Respondent Group claimed that any liability under the Corporations Act should be apportioned according its members' respective culpability, including for any breaches other than s 1041H, even if Division 2A did not expressly cover those claims. The same argument was made with respect to the alleged contraventions of the ASIC Act.
High Court’s Decision
Prior to the High Court's decision, two conflicting Full Federal Court authorities had found entirely different answers to the question.
Fortunately, the High Court made a clear and unanimous decision that the proportionate liability regime only applied to contraventions of s 1041H of the Corporations Act and the corresponding ASIC Act provision, and not to any other cause of action under those Acts.
What does the High Court’s Decision mean for you?
The High Court’s decision is particularly important for defendants and insurers as it has made it clear that in cases where multiple causes of action are brought, statutory apportionment will not apply to any cause of action that does not expressly provide for such apportionment.
It is likely that the High Court's reasoning will be applied to other legislation with proportionate liability regimes, meaning that this ruling is sure to have a far reaching impact.
Authors: David Creais and Hugo Prescott