Australian court decision provides much-needed clarity on claims
for misleading and deceptive conduct.
In the High Court of Australia, a professional indemnity insurer
has been ordered to pay the litigation costs of the successful
plaintiff, following an unsuccessful appeal conducted by the
insurer in the name of its insured.
The costs orders were made directly against the insurer in its
own right as an interested non-party to the proceedings and impose
an independent liability on the insurer to pay the costs, separate
to its obligations under the policy.
The decision extends the litigation risks faced by insurers
beyond the limits of the insurance policies they issue and
demonstrates that the courts are prepared to lift the mask of an
insurer influencing the conduct of litigation in the place of its
The decision also provides much-needed clarity on the
proportionate liability regime and claims for misleading and
deceptive conduct in financial services claims.
The Seligs invested, on the basis of Wealthsure's advice, in
what turned out to be a "Ponzi" scheme. They lost their
investment, but successfully sued Wealthsure for various breaches
of the Corporations Act, including for misleading and deceptive
The trial judge had to decide whether proportionate liability
would apply to all the claims for statutory breaches on the basis
that the claim for misleading and deceptive conduct under the
Corporations Act was apportionable and the facts underpinning all
the statutory breaches were the same.
The trial judge found that the proportionate liability regime
contained in the Corporations Act applied only to claims under s
1401H and the analogous provisions of the Australian Securities and
Investments Commission Act. Wealthsure successfully appealed that
decision to the Full Federal Court, but the Seligs then issued a
further appeal to the High Court, which confirmed the trial
judge's approach was the correct one. Wealthsure's
professional indemnity insurer had carriage of its defence
In awarding costs against Wealthsure's insurer, the High
Court held that the insurer had decided to appeal against the
primary judge's decision in an attempt to better its position.
The effect of the decision to appeal was to reduce the funds that
would otherwise be available to the Seligs as defence costs were
payable out of the overall limit of liability.
The proportionate liability regime removes joint and several
liability for, among other things, breach of contract, negligence
and claims for misleading and deceptive conduct, and has been in
force in Australia for ten years. This decision of the High Court
resolves earlier (2014) inconsistent appeal judgments regarding the
application of the proportionate liability regime.
Given the narrow approach taken by the High Court to the
application of the regime, it is possible that creative plaintiffs
will again target deep-pocket defendants through the use of causes
of action that escape the reach of proportionate liability. It may
also undermine law reforms aimed at positively impacting on
liability insurance by removing the burden faced by the defendants
with robust balance sheets, which are routinely targeted in
For insurers, however, the more immediate concern may be the
third-party costs order, as litigators and the courts may now focus
more carefully on the possibility of costs orders that may be made
against interested non-parties to litigation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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