Australia: Selig v Wealthsure Pty Ltd - High Court clarifies the scope of the proportionate liability regime in the Corporations Act

Insurance Update
Last Updated: 28 July 2015
Article by Jodie Odell

On 13 May 2015, the High Court handed down a landmark decision unanimously overturning the May 2014 decision by the Full Court of the Federal Court in Wealthsure Pty Ltd3 v Selig4 . The High Court found that the proportionate liability regime in the Corporations Act is limited to a claim based upon misleading or deceptive conduct in relation to a financial product or services, and does not extend to alternative causes of action arising out of the same circumstances.

The defendant's professional indemnity insurer was also ordered to pay the costs of the High Court appeal, resulting in its total liability exceeding the limit of indemnity under the policy.

The proportionate liability regime

The proportionate liability regimes in Australia generally apply where:

  1. a defendant is found to have engaged in negligent, misleading or deceptive conduct; and
  2. the loss suffered by the plaintiff was also caused by another 'wrongdoer'.

The effect of the regimes is to limit a defendant's liability to the amount a Court considers just, having regard to the extent of the defendant's responsibility for the loss. This means that the doctrine of joint and several liability, where a (usually 'deep pocketed') defendant is liable for the whole loss and forced to seek contribution from other wrongdoers, is avoided. Consequently, the proportionate liability regime shifts the risk of recovery away from a defendant and onto the plaintiff.

The proportionate liability regime applies to 'apportionable claims', typically claims for economic loss in negligence or for misleading and deceptive conduct.

Facts of the case

Mr and Mrs Selig invested in Neovest Limited (Neovest) in reliance on financial advice provided by Mr Bertram, an authorised representative of Wealthsure Pty Ltd (Wealthsure). Neovest became insolvent by virtue of it being a "Ponzi scheme" and the Seligs lost their investment and suffered consequential loses.

Mr and Mrs Selig relied on a number of causes of action, including the following sections of the Corporations Act:

  1. s1041H (misleading and deceptive conduct in relation to financial product/service); and
  2. s1041E (false or misleading statements in relation to financial product/service).

The defendants argued that their liability should be limited to the proportion of the loss and damage each of them caused, relying on Division 2A of Part 7.10 Corporations Act and the corresponding provisions of the ASIC Act.


The High Court held that the proportionate liability regime under the Corporations Act applies only to claims of misleading or deceptive conduct based on a contravention of s1041H of the Act. Claims made under other sections of the Act that can give rise to liability under s1041I (including section 1041E) are not apportionable even if those claims are based on the same underlying conduct and give rise to the same loss. The Court held that this reasoning applied equally to the analogous provisions of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

The decision preserves the position that proportionate liability can only be successfully pleaded where the relevant legislation expressly imposes this form of limited liability.

Practical implications

Plaintiffs often base their claims on multiple causes of action for example, combining claims for negligence or breach of contract with claims for statutory or deceptive conduct under s1041H Corporations Act, in an attempt to "cover all bases".

The High Court's decision is good news for plaintiffs who plead multiple claims against financial service providers. Only those claims involving false or misleading statements in relation to financial services/products, will be caught by the proportionate liability regime of Div 2A of the Corporations Act, even in instances where the other causes of action have resulted in the same loss.

The decision means that in some cases plaintiffs will be able to avoid the proportionate liability regimes and target 'deep pocketed' or insured defendants if they can succeed on causes of action to which the regimes do not apply. Defendants to proceedings will need to carefully consider whether the claim against them includes apportionable claims and/or other claims which are not subject to the proportionate liability regime in order to assess what liability they are exposed to.

Liability of insurers for plaintiffs' costs

A separate aspect of the High Court's decision which is of particular relevance to insurers is that the Court found that the circumstances justified an award of costs against Wealthsure's professional indemnity insurer; a non-party to the proceedings.

The insurer had the conduct of the defence at trial and made the decision to appeal from the judgment of the primary judge. As Wealthsure's cover under its policy was capped and costs eroded the policy limit, the decision to appeal meant that monies which would otherwise have been available to pay the appellants were diverted to meet the insurer's legal costs of the appeal. The High Court held that as the insurer was acting for itself in seeking to better its position by bringing the appeal, there was no reason for it to be immune from a costs order.

The Court applied a very broad "interests of justice" test in making this award and considered the following two factors in coming to its decision:

  1. the defendants were unlikely to have sufficient assets to meet the judgment and an adverse costs order; and
  2. the cover provided by the policy was costs inclusive so the decision to bring the appeal effectively reduced the amount potentially available to the plaintiffs.

Although it is possible that, in making its decision, the Court was influenced by the specific circumstances of the case, it nonetheless serves as a warning to insurers, particularly professional indemnity insurers, to carefully assess an appeals' reasonableness before proceeding. Even if the insurer is a non-party to the proceedings, the High Court has shown that it may not be immune to an adverse costs order even if the costs inclusive policy limit has been eroded. Insurers should therefore consider their exposure to non-party costs orders when defending claims against impecunious insureds and account for that in setting reserves.

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