Australia: High Court resolves uncertainty on the operation of the proportionate liability regime

The High Court of Australia has resolved uncertainty on the operation of the proportionate liability regime that had been created by two conflicting Full Federal Court decisions handed down in 2014. In a decision that has wide reaching application, the High Court has confirmed that the proportionate liability regime prescribed by the Corporations Act 2001 (Cth) will not apply universally to all claims made under that Act.

PROPORTIONATE LIABILITY REGIME

The proportionate liability regimes prescribed by the Corporations Act and other similar legislation mandate the apportionment of liability between defendants by reference to their individual responsibility for the loss and damage that has been suffered. A primary motivation for the introduction of these regimes was to avoid 'deep pocket' defendants (typically major corporate and insurers) being targeted and found liable for all loss and damage because of a strict legal principle even though others had caused or contributed to the loss and damage.

THE SELIGS' CLAIM

Mr and Mrs Selig invested in what was in effect a 'Ponzi Scheme' proposed by Neovest Pty Ltd, on the advice of Wealthsure Pty Ltd and its representatives. The investment failed and the Seligs suffered consequential losses.

The Seligs sought damages in the Federal Court of Australia against the proponents of the scheme and their advisers based upon contraventions of a number of provisions of the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth).

One of the alleged contraventions was that those parties had engaged in misleading and deceptive conduct in relation to a financial product or service in contravention of s 1041H of the Corporations Act and the equivalent provision of the ASIC Act. A claim for loss or damage caused by a contravention of s 1041H is an "apportionable claim" under the proportionate liability regime prescribed by the Corporations Act - Div 2A. A number of the other alleged contraventions did not amount to 'apportionable claims' under Div 2A.

The respondents to the Seligs' claim argued that any liability they may have to the Seligs under the Corporations Act – including for contraventions of sections other than 1041H - should be apportioned according to the extent of their individual responsibility for the loss or damage suffered pursuant to Div 2A and the corresponding provisions of the ASIC Act.

The trial judge found for the Seligs and did not apportion liability on the basis argued by the respondents.

CONFLICTING FULL COURT DECISIONS

On appeal, the Full Court of the Federal Court overturned the trial judge's decision and held that the whole of the Seligs' claim against the respondents should be apportioned, notwithstanding that the Seligs had also succeeded in claims that were not "apportionable claims".

The majority held that the proportionate liability regime could be invoked where different causes of action caused the same loss or damage, even if not all causes of action were apportionable under the Corporations Act.

Shortly after the Full Court delivered its decision, a differently constituted Full Court of the Federal Court of Australia delivered a conflicting judgment in ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65. In that decision, the Full Court unanimously held that the proportionate liability regime under the Corporations Act applied only to conduct in contravention of s 1041H of the Corporations Act.

UNCERTAINTY

The conflicting Full Court authorities created uncertainty as to how claims under the Corporations Act and other similar legislation would be treated. That uncertainty was problematic for litigants in assessing prospects and risks, particularly where the application of proportionate liability principles had the potential to dramatically affect any award of damages to be made.

HIGH COURT DECISION

The High Court unanimously allowed the appeal and followed the reasoning in ABN AMRO Bank NV v Bathurst Regional Council. The High Court ruled that the terms of the provisions in Div 2A are clear. An apportionable claim is one based on a contravention of s 1041H only and does not extend to claims based upon conduct of a different kind.

The High Court confirmed that this reasoning also applied to the equivalent provisions in the ASIC Act.

EFFECT OF THE JUDGMENT

This decision resolves the controversy between the two conflicting Full Court decision and clarifies the operation of the proportionate liability regime under both the Corporations Act and ASIC Act.

Given the Court's comments that its decision applies equally to corresponding provisions in the ASIC Act, it is likely that the High Court's reasoning will be applied to proportionate liability regimes under the Competition and Consumer Act 2010 (Cth) and other similar legislation.

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