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Australia – Full Federal Court At Odds On Proportionate Liability.

7 July, 2014

 

Legal News & Analysis – Asia Pacific – Australia – Dispute Resolution

 

Wealthsure Pty Ltd v Selig [2014] FCAFC 64 (30 May 2014)

 
ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65 (6 June 2014)

 
What You Need To Know

 

  • A recent decision of the Full Court of the Federal Court suggests that, in certain circumstances, liability for damages under claims which, on their face, are not subject to the proportionate liability provisions of the Corporations Act and the ASIC Act may, in fact, be subject to apportionment. 
  • However, another recent Full Court decision comes to the opposite conclusion: there are now conflicting authorities on the extent to which the proportionate liability regime applies where multiple claims are brought for essentially the same damages arising from essentially the same set of facts. 
  • Given that it directly affects the extent of defendants’ liability for damages, the High Court is likely to take up the first opportunity to resolve this conflict. 


Proportionate Liability

 
Where proportionate liability applies, the various defendants to a claim are only liable to pay damages to the extent that the Court considers they contributed to the harm in question. For example, if there are multiple defendants who are “concurrent wrongdoersand the Court considers that the first defendant’s responsibility was only 50%, that defendant is only liable to pay 50% of the total amount of damages. Otherwise, the plaintiff would obtain judgment against each and every defendant for 100% of the total amount of damages — allowing it to choose which defendant to recover from. This can be important, for example, in circumstances where one defendant has become insolvent.

 
The application of proportionate liability is governed by legislation. Claims for damages at common law (for example, for breach of contract, misrepresentation or negligence) “arising from a failure to take reasonable care” are subject to State proportionate liability legislation. By contrast, claims under the Corporations Act and the ASIC Act are subject to proportionate liability provisions in those Acts, which employ a different criterion of operation. For that reason, cases on the State proportionate liability legislation are of limited assistance in determining when the proportionate liability provisions in the Corporations Act and the ASIC Act will apply.

 
Why Is It Important?

 
Claims for essentially the same damages arising from essentially the same set of facts at both common law and under the Corporations Act and/or the ASIC Act are often brought against multiple defendants in the one proceeding — by the plaintiff or because a defendant seeks to shift liability to another. If one of those claims is not “apportionable“, the plaintiff may seek to recover 100% of the total amount of damages from a particular defendant.

 
In those circumstances, the question is whether proportionate liability will apply to all of the claims (because they are for essentially the same damage and arise from essentially the same set of facts) or only some of them (because they are of a particular type). The extent of a defendant’s liability for damages will depend upon the answer. However, in two recent decisions, the Full Court of the Federal Court has given conflicting answers.

 

Wealthsure Pty Ltd v Selig [2014] FCAFC 64

 
At trial, the plaintiffs were awarded damages against two of the defendants for breach of contract, misrepresentation and negligence at common law and contraventions of various provisions of the Corporations Act and the ASIC Act — all of which arose out of essentially the same set of facts. Among the provisions of the Corporations Act and the ASIC Act found to have been contravened were s 1041H and s 12DA respectively — the general prohibitions of misleading or deceptive conduct.

 
The proportionate liability provisions of the Corporations Act and the ASIC Act apply only to conduct that was done in contravention of” s 1041H and s 12DA respectively. Two of the three members of the Full Court (Mansfield and Besanko JJ) overturned the trial judge’s finding that the damages for the various claims other than those under s 1041H and s 12DA were not apportionable — in large part because of the view they took of the meaning of s 1041L(2) of the Corporations Act and s 12GP(2) of the ASIC Act, which provide that “there is a single apportionable claim in 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)“. In essence, they focused on the loss or damage claimed, rather than the nature of the cause of action, with the result that once there is one claim in respect of the loss or damage suffered which is apportionable covered by the legislation, all other claims in respect of that same loss or damage would be subject to apportionment, even if not of themselves apportionable claims. It seems this would extend to fraud and breach of contract claims which are for the same loss or damage caused by the misleading or deceptive conduct. Thus, this approach would limit recovery in a much wider range of cases.

 
ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65

 
At trial, a group of local councils who had lost money on structured financial products known as “CPDOs” were awarded damages for contravention of both s 1041E and s 1041H of the Corporations Act. Section 1041E prohibits the making of an intentionally or recklessly false or misleading statement in relation to a financial product: that is, essentially the same conduct as that which is prohibited by s 1041H, but with the addition of the mental element of intention or recklessness. The trial judge held that each of three defendants was liable for one-third of the total amount of damages.

 
On appeal, the Full Court unanimously held that the councils’ damages for contravention of s 1041E were not apportionable. As a result, the councils can elect to enforce judgment for the total amount of damages — on the basis of the successful claim for damages for contravention of s 1041E — against any one or more of the three defendants (who are then left to recover contribution from one another).

 
The Full Court (Jacobson, Gilmour and Gordon JJ) expressly declined to follow the decision of the majority in Wealthsure and indicated its preference for the reasoning of White J, who dissented on this issue in Wealthsure. Though the Full Court in ABN AMRO Bank did not discuss the meaning of s 1041L(2) of the Corporations Act and s 12GP(2) of the ASIC Act, White J in Wealthsure held that it “refers only to causes of action which are themselves apportionable claims [as opposed to] causes of action more generally”.

 
The Way Forward

 
The question is one of considerable significance. The proportionate liability regime was introduced to avoid deep pocket defendants being liable for the whole of a loss for which they were only responsible to a limited degree. The outcome on this issue could cause plaintiffs to advance more claims which are not apportionable to try to overcome proportionate liability, even where this involves having to prove intentional conduct (as with s 1041E) rather than mere innocent misrepresentation (as with general misleading or deceptive conduct provisions). The High Court will likely take up the opportunity to resolve this conflict of authorities and bring some certainty to an area of law which even the courts have acknowledged is beset with difficulty.

 

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For further information, please contact:

 

Andrew Carter, Partner, Ashurst
andrew.carter@ashurst.com 


Wen-Ts’ai Lim, Partner, Ashurst
wentsai.lim@ashurst.com


Michael Tandora, Ashurst
michael.tandora@ashurst.com

 

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