Contrary Federal Court decisions create uncertainty

MEDIA RELEASE

Uncertainty and confusion now surround the important topic of proportionate liability in claims against financial advisers under the Corporations Act 2001, says Mark Halsey of Halsey Legal Services.  Within less than one month, the Full Court of the Federal Court has issued two separate and contradictory judgments.

In the first instance Selig v Wealthsure judgment, the AFS licensee and its representative were held to be fully liable for the clients’ entire losses despite the case involving 11 other defendants (including product issuers), in a “product failure” situation and the judge commenting that the AFS licensee was in his view only approximately 65% responsible.  The judge believed that the clients’ claims were not apportionable between the defendants.  The AFS licensee appealed arguing that it should only be liable for a proportion of the liability, rather than being jointly and severally liable for the whole loss. 

In the appeal, Wealthsure v Selig [2014] FCAFC 64, the Full Court held by a majority of 2-1 that the whole of the claim against an AFS licensee and its representative should be apportioned, despite the fact that the clients (Seligs) had succeeded in other causes of action (parts of the claim) which were non-apportionable. 

Halsey says, in the Wealthsure appeal, the court interpreted section 1041L(2) of the Corporations Act to mean that proportionate liability provisions of the statute are triggered in circumstances where different causes of action caused the same loss or damage.  The court’s view was that there was (in law) a single apportionable claim for the same loss and damage where at least one cause of action was itself apportionable.  It did not matter that the other causes of action in relation to the claim were not apportionable.  The key question was whether the various causes of action each lead to the same damage or loss.

However, in ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65, the Full Court of the Federal Court unanimously held that the proportionate liability provisions in the Corporations Act only apply in respect of conduct that contravenes section 1041H of the Corporations Act (section 1041H relates to misleading and deceptive conduct).  The Full Federal Court noted the earlier decision of the differently constituted Full Federal Court in the Wealthsure decision but came to a different decision.

In the ABN Amro Case, the Full Court focused on section 1041L(1) which provides that proportionate liability provisions apply if a claim is in contravention of section 1041H.

The Full Court noted that liability for misleading and deceptive conduct under section 1041H may arise where conduct was innocent, and there was no allegation that the defendant knew or ought to have known that the conduct engaged in was misleading or deceptive.  In contrast, section 1041E of the Corporations Act also relates to misleading and deceptive conduct, but requires actual or constructive knowledge, or recklessness, on the part of the defendant.  The Full Court held that the express reference to section 1041H in the context of proportionate liability appears to indicate Parliament’s intention to exclude defendants whose conduct was deliberate or reckless from the benefit of the reduction in liability that can come under the proportionate liability regime.

Halsey says that these two directly contradictory Full Federal Court judgments come at a bad time for the financial advice industry.  The industry has been subject to months of uncertainty and confusion relating to the ultimate form of the FOFA regime going forward as a result of the confused position in Parliament and the Senate.  It can certainly do without contradictory and confusing messages from the courts.  If ABN Amro is followed, it would appear to be “business as usual”.  However, if Wealthsure is followed it may tend to benefit financial advisers and their PI insurers because it is likely to limit their liability. 

 

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