Federal Government stitches up defendants' deep pockets in section 52 claims

By Mark Waller.

Key Points:
Claims for damages for breaches of section 52 of the TPA can now be reduced because the claimant carelessly relied upon a misrepresentation or other-wise contributed to the loss, with the exception of personal injury or death claims.

Those who carelessly rely upon misrepresentations will now see their damages reduced accordingly, and will lose the benefit of deep pocket defendants, following the Federal Government's introduction of proportionate liability and contributory negligence in claims under section 52 of the Trade Practices Act.

The new provisions complement the reforms made by State Governments and are contained in a Schedule to the CLERP 9 Act. They apply to claims arising on or after 26 July 2004.

What types of claims are covered

The new laws apply to claims for damages made under section 82 of the Trade Practices Act arising from breach of section 52 - and their equivalents in the ASIC Act and Corporation Act - for economic loss or damage to property.

Excluded from the new laws are:

• cases in which the defendant intentionally or fraudulently caused the economic loss or property damage;
• claims under section 52 where there is personal injury or death (see below); and
• product liability claims under the Trade Practices Act, which are already subject to proportionate liability and contributory negligence rules.

Paying for your own carelessness

In a series of cases the High Court has held that claims for damages for breaches of section 52 cannot be reduced because the claimant carelessly relied upon a misrepresentation or otherwise contributed to the loss.

This has now been reversed: damages for economic loss or property damage are to be reduced to the extent to which the court thinks just and equitable, having regard to the claimant's share in the responsibility for the loss or damage.

How proportionate liability will work

The proportionate liability provisions apply to an apportionable claim for damages made under section 82 for a breach of section 52 where there are concurrent wrongdoers. A concurrent wrongdoer is a person who is one of two or more persons whose acts or omissions caused, independently of each other or jointly, the damage or loss that is the subject of the claim.

Furthermore, there can be a single apportionable claim in proceedings 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). Where there is an apportionable claim and one that isn't in the same proceedings, liability for the apportionable claim is governed by the new laws, and liability for the other by whatever laws are relevant to that claim.

The liability of a defendant who is a concurrent wrongdoer is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss. The court cannot give judgment against the defendant for more than that amount.

In apportioning responsibility between defendants, the court:

• must exclude that proportion of the damage or loss in relation to which the claimant is contributorily negligent under any relevant law; and
• may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings.

It doesn't matter if a concurrent wrong-doer is insolvent, is being wound up or has ceased to exist or died, which means that the solvent or living defendant won't be required to pay for all the loss (and that the claimant loses out), or if all concurrent wrongdoers are parties to the proceedings.

When a claim is made and damages are awarded

Defendants must alert the claimant if there are other possible concurrent wrongdoers to a claim. If a defendant doesn't do this as soon as practicable, and a claimant unnecessarily incurs costs because the claimant didn't know about the other possible concurrent wrongdoer, the court may order that the defendant pay all or any of those costs. The court can also join other persons as defendants, unless that person was a party to any previously concluded proceedings in respect of the apportionable claim.

Once liability has been determined, the defendant:

• cannot be required to contribute to any damages or contribution recovered from another concurrent wrongdoer in respect of the apportionable claim (whether or not the damages or contribution are recovered in the same proceedings in which judgment is given against the defendant); and
• cannot be required to indemnify another concurrent wrongdoer.

The successful claimant can still bring another action against any other concurrent wrongdoer for that damage or loss. Damages in those subsequent actions will be limited with regard to any damages previously recovered so that the claimant cannot be compensated for damage or loss that is greater than the damage or loss actually sustained.

Partners and employers still liable

The reforms do not:

• prevent a person being held vicariously liable for a proportion of an apportionable claim for which another person is liable; or
• prevent a partner from being held severally liable with another partner for that proportion of an apportionable claim for which the other partner is liable; or
• affect the operation of any other Act to the extent that it imposes several liability on any person in respect of what would otherwise be an apportionable claim.

How does this work with the State reforms?

As it is common for civil actions to include claims for misleading and deceptive conduct as well as claims of negligence and breach of contract, it will be important to consider the interaction between these Federal reforms and the specific State reforms dealing with proportionate liability and contributory negligence.

For further information, please contact Mark Waller.