High Court Clarifies, Limits Applicability of Corporations Act Proportionate Liability Regime


High Court Clarifies, Limits Applicability of Corporations Act Proportionate Liability Regime

In our May 2015 E-alert entitled “Proportionate Liability Update – High Court Clarification Pending“, we considered the submissions made on behalf of the Selig’s and Wealthsure Pty Ltd to the High Court.

The Selig’s had appealed the majority decision of the Full Federal Court that the legislative intent of Division 2A of the Corporations Act 2001 (Cth) (“the Act”) was that the proportionate liability provisions are enlivened, so long as one successful cause of action is apportionable notwithstanding the balance are not. The only pre-requisite is that the loss and damage for each cause of action be the same. It was also found to be irrelevant that the apportionable claim for the purpose of section 1041L fell outside section 1041H.

We noted that the Respondent’s submissions to the High Court as to the intended regime of Division 2A were far reaching and, if accepted, would significantly widen the scope currently afforded. Specifically, if the Respondent’s submissions were accepted by the High Court, the position was likely to be that so long as a plaintiff commenced proceedings seeking damages under or by reference to section 1041I of the Act, then any claim in that proceeding made under a counterpart State or Territory statute and any common law claim (for example in negligence or for breach of contract), may be deemed to be a “single apportionable claim”, and subject to the operation of Division 2A if the claims have resulted in the same economic loss or damage to property. The Applicant’s contended that the language of section 1041L was clear and only a claim for economic loss or damage to property caused by conduct by the defendant in contravention of section1041H was apportionable.

Today the High Court constituted by French CJ, Kiefel, Bell, Gageler and Keane JJ handed down its decision. The High Court allowed the Selig’s appeal and determined:

  1. That the application of Division 2A of Pt 7.10 of the Act is limited to claims for contravention of section 1041H of the Act. In doing so the High Court found that contrary to the submissions of the Respondent, it is not necessary to resort to legislative purpose to explain the selection of only s 1041H.  The High Court accepted that the terms of the relevant provisions of Div 2A are clear.  An “apportionable claim” for the purposes of Div 2A is, relevantly, a claim based upon a contravention of s 1041H. The term does not extend to claims based upon conduct of a different kind.
  2. That s1041L(1B), which provides for the reduction of an award for damages by reason of the claimant’s contributory negligence, also applies only in respect of a claim brought in relation to conduct done in contravention of s1041H.
  3. Neither section 1041I(1B) or Division 2A operate to reduce civil liability imposed for contravention of s1041I(1) for contravention of s1041E,s1041F or s1041G.

What this means in practice is that a Respondent is only able to take advantage of the proportionate liability or contributory negligence provisions of the Act for a claim made by an Applicant under or by reference to section 1041I for loss or damage arising from a for a breach of s1041H of the Act.

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