On 13 May 2015 the High Court of Australia delivered judgment in the decision of Selig v Wealthsure. The decision of the High Court Selig v Wealthsure clarifies the position under the Corporations Act 2001 (Cth) (Act) with respect to the proportionate liability regime in Div 2A of Part 7.10 of the Act.
On the advice of Wealthsure Pty Ltd (Wealthsure) and Mr David Bertram (Bertram), a representative of Wealthsure, Mr Selig and Mrs Selig (Seligs) invested in a company called Neovest Pty Ltd (Neovest).
Neovest was ultimately deemed to be a form of Ponzi scheme. Neovest was eventually placed into liquidation and the significant investment made by the Seligs was lost.
As a result of the liquidation of Neovest the Seligs commenced proceedings in the Federal Court of Australia against Wealthsure and Bertram (among others) claiming damages for:
As part of the proceedings the directors of Neovest were joined to the proceedings.
At first instance, judgment was entered against Wealthsure, Bertram and two other respondents in the sum of $1,760,512.
Full Federal Court decision
On 30 May 2014, the Full Court of the Federal Court delivered judgment in Wealthsure v Selig (Wealthsure having appealed the original decision of Lander J in the Federal Court).
A key question arising on appeal was whether the proportionate liability provisions in the Act applied to the liability of the respondents, so that each respondent was only liable for a proportion of the Seligs’ damages calculated with reference to the extent of their responsibility for the loss or damage.
Currently claims for damages resulting from breaches of section 1041H are apportionable between defendants on the basis of the court’s view of each defendant’s responsibility for the plaintiff’s loss. No such regime expressly applies to breaches of sections 1041E, 1041F or 1041G. Specifically, section 1041E requires deliberate, negligent or reckless conduct, whereas section 1041H imposes liability without any requirement of “fault”.
The majority concluded that, whilst damages arising from a contravention of section 1041E of the Act were not ordinarily apportionable, because the claim arose from the same facts as contraventions of section 1041H (which were apportionable), damages should be apportioned between the respondents in respect of both of those sections.
As a result the Full Court apportioned liability between Wealthsure, Neovest and other respondents.
High Court decision
The High Court held that apportionable claims for the purposes of Div 2A is limited to those claims which are based upon a contravention of section 1041H of the Act. The High Court stated that the term does not extend to claims based on other grounds even where the same loss and/or conduct is alleged.
Accordingly, claims based on section 1041E of the Act or common law claims (or the loss associated with them), are not apportionable claims under section 1041L.
As a result of the resolution on the apportionable issues claim by the High Court, the solvent defendants (Wealthsure’s insurer) bore 100% of the losses suffered by the investors, notwithstanding that the Court held that:
Lavan Legal comment
The effect of the decision of the High Court is that: