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The Limits Of The Proportionate Liability Regime Under The Corporations Act and ASIC Act.

In Australia, proportionate liability regimes exist under several different pieces of legislation.

These regimes allow the liability for one person’s loss to be apportioned between each wrongdoer that is reflective of their responsibility for the loss.  A court does this by working out the extent of each wrongdoer’s responsibility.  This means that if, for example, there were three wrongdoers and the court assessed that each of their responsibility was one third, then all that could be recovered from each wrongdoer is a third of the loss.

This differs from the doctrine of joint and several liability.

In joint and several liability, each wrongdoer is found jointly and severally liable for the loss.  That means that even if, in truth, each wrongdoer were only responsible for one third of the loss, each wrongdoer would be liable for the entire loss.  This can lead to situations where the wrongdoer with the deepest pockets bears the loss for the other, possibly insolvent, wrongdoers.  This is commonly the case with personal injury claims.

Proportionate liability regimes exist pursuant to the Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act)[1].

Recently, the High Court of Australia had cause to consider the proportionate liability regime pursuant to section 1041L(2) of the Corporations Act and section 12GP(2) of the ASIC Act

For these regimes to apply, there must be an ‘apportionable claim’, however, the question the High Court faced was how to apply the proportionate liability regime where a plaintiff’s claim is based on both ‘apportionable’ and ‘non-apportionable claims’ for the same loss and where the plaintiff succeeds on all claims.

The real question is how then is the loss treated?[2]

PROPORTIONATE LIABILITY

The High Court unanimously held that:

  • Proportionate liability under the Corporations Act is only available in respect of claims for misleading or deceptive conduct under s1041H of the Act.
  • Proportionate liability under the ASIC Act is only available in respect of claims for misleading or deceptive conduct under the provisions that mirror s1041H of the Corporations Act.
  • Claims under the other sections of the Corporations Act which can give rise to liability under s1041I (including s1041E) are not apportionable, even if those contraventions give rise to the same loss under section 1041H.

The effect of the decision is that proportionate liability will not apply to the extent a plaintiff succeeds on non-apportionable claims, even if the same conduct also gives rise to an apportionable claim.

This means that, where a plaintiff has non-apportionable claims against multiple defendants:

  • it is not necessary for it to sue all of those defendants in order to recover all of its losses.
  • if it is successful against multiple defendants, it can choose from which one, or more, of those defendants to recover its losses.

The decision highlights that the protection that is afforded to defendants under the proportionate liability regimes is limited to only those claims to which that regime applies.  Deep-pocketed or insured defendants continue to face the possibility of being solely liable where the plaintiff succeeds on a non-apportionable claim.

LIABILITY OF INSURERS FOR PLAINTIFFS’ COSTS

An additional but separate aspect of the High Court’s decision related to whether it was appropriate to award costs against the non-party insurer.

The Court noted that it had a discretionary power to make orders against non-parties and that previously, Mason CJ and Deane J in Knight v FP Special Assets Ltd had stated that “an order for costs should be made against the non-party if the interests of justice require that it be made”[3].

The Court held that:

  • At the time the decision to appeal the judgment of the primary judge was made, the insurer acted for itself in seeking to better its position.
  • The defendants were unlikely to have sufficient assets to meet the judgment and the adverse costs order.
  • The cover provided by the policy was costs-inclusive, so that the decision of the insurer to bring appeals effectively reduced the amount available to the plaintiffs.

In light of these factors, the Court considered that it was appropriate to order that the non-party insurer pay the appellants costs of the appeal to the High Court and the appeal to the Full Court of the Federal Court.

The consequence of this aspect of the judgment for an insurer is that, despite having acted entirely reasonably, the insurer may be ultimately responsible for an amount significantly higher than its limit of liability under the policy.

 


[1]  There are similar provisions under the Competition and Consumer Act 2010 (Cth) (s87CB(2)) and under some state regimes: see, for example, s34(2) of the Civil Liability Act 2002 (NSW), which is similar to s1041L(2). In contrast, s24AF(2) of the Wrongs Act 1958 (Vic) is worded differently, so that it was quite clear that the Victorian regime would not apply to non-apportionable claims.
[2] Last year, in the context of misleading or deceptive conduct under the Corporations Act, two Full Federal Court decisions (Wealthsure Pty Limited v Selig [2014] FCAFC 64 and ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65) reached opposite conclusions as to whether claims under s1041E were subject to proportionate liability.
[3]
 (1992) 174 CLR 178 at 193.

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