High Court Resolves Proportionate Liability Uncertainty
On 13 May, the High Court handed down its long-anticipated decision in Wealthsure Pty Ltd v Selig  HCA 18 (Wealthsure).
The High Court’s decision resolves the uncertainty arising out of two conflicting Federal Court decisions regarding the application of the proportionate liability provisions of the Corporations Act 2001 (Cth) (Act), where multiple causes of action – some apportionable, others not – are pursued in respect of the same loss and damage.
The relevant provision under consideration is section 1041L of the Act which provides as follows:
“(1) This Division applies to a claim (an apportionable claim) if the claim is a claim for damages made under section 1041I for:
a) economic loss; or
b) damage to property;
caused by conduct that was done in contravention of section 1041H.
(2) For the purpose of this Division, 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).”
The issue for determination was whether the legislature intended the proportionate liability provisions of the Act to apply in circumstances where multiple causes of action are identified as having caused the same loss and damage, but only one arises under section 1041H.
The case involved a claim by a husband and wife, the Seligs, in respect of advice to enter into an investment that later failed. The advice was given by Mr Bertram, a financial adviser who was an authorised representative of Wealthsure. The Seligs’ primary claim was brought against Wealthsure and Mr Bertram. However, they also pursued claims against the issuer of the financial product, its directors and promoters who were alleged to have made various representations in respect of the failed investment.
The Seligs relied on several statutory and common law causes of action including, relevantly, the prohibition on misleading and deceptive conduct under section 1041H of the Act and section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). The claims for misleading and deceptive conduct were apportionable. However, there were several other causes of action, including breaches of other sections of the Act, which were not.
At first instance, the Seligs were awarded damages against two of the defendants for breach of contract, misrepresentation and negligence at common law, and contraventions of the Act and the ASIC Act – including the claims for misleading and deceptive conduct.
The trial judge held that the proportionate liability provisions applied only in respect of the claims under s1041H of the Act and s12DA of the ASIC Act.
FEDERAL COURT DECISION
By a 3-2 majority, the Full Court held that the entirety of the Seligs’ successful claim should be apportioned. Essentially, Mansfield and Besanko JJ were of the view that, having regard to the wording of s1041L(2) of the Act and s12GP of the ASIC Act, the determinative issue was the nature of the loss and damage claimed, not the cause of action itself.
Shortly after the Mansfield and Besanko JJ’s decision in Wealthsure, the full Federal Court (Jacobson, Gilmour and Gordon JJ) in ABN AMRO Bank NV v Bathurst Regional Council  FCAFC 65 (Bathurst) dealt with the same question in respect of two provisions under the Corporations Act – s1041H (misleading and deceptive conduct) and s1041E, a similar provision with the added requirement of intent or recklessness.
The Court unanimously held that damages from contravention of s1041E were not apportionable and expressly declined to follow the prior decision in Wealthsure. In this respect, the Court was of the view that the proportionate liability provisions had been framed to exclude apportionment for misleading conduct that had been engaged in intentionally.
HIGH COURT DECISION AND IMPLICATIONS
In a unanimous judgment, the High Court determined that any claim which was not confined to an allegation of misleading and deceptive conduct under s1041H could not be apportioned.
The High Court decision expressly approves the decision in Bathurst and in doing so has adopted a narrow interpretation of s1041L.
Importantly, in a financial services context, this is likely to limit the effectiveness of the proportionate liability provisions of the Act in defending litigation based on financial advice.
Claimants routinely plead breaches of numerous provisions of the Act in disputes regarding the adequacy or appropriateness of financial advice. In these instances, a defendant will not be able to rely upon a plea of misleading and deceptive conduct as a means of arguing for apportionment in respect of the entirety of a claim.
It follows that financial services providers will need to resort to the “old” third party mechanisms for seeking contribution and indemnity where actions in addition to misleading and deceptive conduct are pursued.
On a broader scale, the implications for this decision are not limited to its application to claims under s1041H of the Act and s12DA of the ASIC Act. Analogous provisions in the Australian Consumer Law are likely to be interpreted in the same way.
Further, the interpretation may also extend to the proportionate liability regimes in each State and Territory where the same or similar language is used (such as New South Wales and Queensland).
This publication is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this publication. Persons listed may not be admitted in all states and territories.