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17 Sep 2015

Proportionate liability - managing disputes and risk in the wake of Selig

by Mark Waller, Chris Erfurt

Plaintiffs can now avoid the operation of the proportionate liability regime by also pleading and providing non-apportionable claims.

In May, the High Court's decision in Selig v Wealthsure [2015] HCA 18 clarified the reach of the proportionate liability regime.

In this follow-up we highlight some of the practical issues that clients should consider in the wake of that decision, including the potential applicability of the proportionate liability regime and its impact upon pleading claims, managing disputes, contractual risk allocation and insurance.

How far does the decision in Selig reach?

The decision in Selig focused upon the proportionate liability regime in Part 7.10 of the Corporations Act, which is concerned with misleading and deceptive conduct in relation to a financial product or financial service. The High Court said that if a plaintiff pleads (and proves) one or more "apportionable claims" as defined in the regime (ie. for misleading and deceptive conduct under section 1041H of the Corporations Act) and one or more other claims ("non-apportionable claims") for the same damage arising from the same set of facts, the regime does not apply to the non-apportionable claims. The result is that the plaintiff may recover 100% of their loss from a defendant, even if the wrongful conduct of others has contributed to that loss.

The decision resolves the issue in relation to the analogue provisions of the ASIC Act and the Australian Consumer Law (in this regard, see Williams v Pisano [2015] NSWCA 177), which both also concern claims for misleading and deceptive conduct.

Further, it is likely that the decision will have the practical effect that the same result will apply in respect of the State and Territory proportionate liability regimes (found in the Civil Liability Acts), which generally apply to claims for economic loss or property damage arising from a "breach of duty of care" (Queensland and South Australia) or a "failure to take reasonable care" (other States and Territories).

Pleading non-apportionable claims

One practical implication of the decision in Selig is that plaintiffs can avoid the operation of the proportionate liability regime by also pleading and providing non-apportionable claims.

For example, as was the case in Selig, section 1041E of the Corporations Act provides a potential alternative cause of action for false or misleading statements likely to induce persons to acquire a financial product. This is a non-apportionable claim and, if proven, will result in 100% recovery and no apportionment.

Although the courts have suggested that this outcome is appropriate as provisions such as section 1041E involve a higher degree of moral culpability than misleading and deceptive conduct under 1041H, in practice there may be a good deal of overlap in the potential application of provisions such as section 1041E to the facts of a case (see for example Casaclang v WealthSure [2015] FCA 761). While one element of a claim under section 1041E is that the person making the false statement acted recklessly, it will be sufficient to prove in the alternative that the person knew, or ought reasonably to have known, the statement was false or misleading. This is akin to liability for negligent misstatement, which would be an apportionable claim, and does not necessarily involve greater culpability than such a claim.

Similarly under the Australian Consumer Law, sections 29 and 30 provide potential alternative causes of action for false and misleading representations about goods and services, and land, respectively. Those claims are non-apportionable and, like section 1041E in Selig, would result in 100% recovery if pleaded and proven as alternatives to an apportionable claim.

In Queensland, there is case law (Hobbs Haulage v Zupps Southside [2013] QSC 319) to the effect that:

  • claims for damages for breach of implied conditions as to fitness for purpose and merchantable quality are not apportionable claims as they do not arise from a "breach of duty of care"; and
  • it is questionable whether a damages claim under section 74(1) of the former Trade Practices Act, which implied a warranty that services be rendered with due care and skill (see now section 60 of the Australian Consumer Law), is a claim arising from a "breach of duty of care" (noting this view was not part of the decision in the case).

The position may be different in the jurisdictions which employ the alternative language "failure to take reasonable care".

Strategic considerations in managing disputes

In the circumstances outlined above, it is likely that plaintiffs who want to avoid the operation of the proportionate liability regime (for example, because a concurrent wrongdoer is insolvent) will include alternative claims that are not apportionable.

Defendants need to be keenly aware of the way in which cases against them are pleaded and carefully consider whether they are exposed to 100% of the liability and need to claim contribution from other wrongdoers. Further, if non-apportionable claims are pleaded but are ill-founded, defendants should consider the potential strategic benefit of a strike-out application.

One unresolved issue is whether a defendant can plead that the proportionate liability regime applies, where the plaintiff has pleaded only non-apportionable claims. Obiter dictum from the Hobbs Haulage decision noted above suggests that the answer in Queensland may be "no", however the issue is not closed. Further, there may be costs consequences under the Civil Liability Act for plaintiffs who fail to join concurrent wrongdoers and defendants who fail to inform the plaintiff of other potential concurrent wrongdoers.

Contractual risk allocation

Contracting parties also need to be keenly aware of the implications of proportionate liability on risk allocation. Briefly:

  • in Queensland, unlike some States, proportionate liability cannot be contracted out of;
  • this means that contractual indemnities from a counterparty who agrees to indemnify you against 100% of your loss may not be enforceable in certain circumstances; and
  • the position is the same as between concurrent wrongdoers (see section 32(a) of the Civil Liability Act).

Contracting out

Contracting out of the proportionate liability regime is permitted in New South Wales, Western Australia and Tasmania. If appropriate, the parties could choose one of those jurisdictions as the law of the contract and include a clause contracting out of the proportionate liability regime. However, if parties seek to manufacture that result where that jurisdiction has no connection to the subject matter of the contract, the choice of law may be open to challenge.

Insurance policies and non-apportionable claims

Potential defendants will be keen to ensure that they have appropriate insurance in place covering 100% of their exposure if the plaintiff succeeds on a non-apportionable claim.

It is common for liability insurance policies and some professional indemnity insurance policies to exclude liability assumed under contract which would not otherwise arise at law, including liability assumed by an insured by contracting out of the proportionate liability legislation. Parties who:

  • agree to contractual obligations that do not arise from a "breach of duty or care" or "failure to take reasonable care" (as applicable); or
  • contract out of the operation of the proportionate liability regime and thus, arguably, assume greater exposure,

are exposed to the potential operation of such exclusions. In our experience it is possible to negotiate out or limit the operation of such exclusions and, particularly for large projects, we recommend that be pursued.

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Clayton Utz communications are intended to provide commentary and general information. They 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 communication. Persons listed may not be admitted in all States and Territories.