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Focus: Is apportionment relevant to claims for compensation for misleading or deceptive conduct?

13 July 2011

In brief: A recent full Federal Court decision gives guidance on whether the apportionment regime applying to claims for damages for misleading or deceptive conduct under section 82 of the Trade Practices Act 1974 (Cth) is relevant to claims under s87 for compensation. Partner Brian Millar and Senior Associate Matthew Senescall report on the decision, and consider the implications for parties considering bringing or defending such claims under the TPA and the recently enacted Competition and Consumer Act 2010 (Cth) and Australian Consumer Law.

How does it affect you?

  • The decision1 supports the argument that the apportionment regime applying to claims for damages under section 82 of the Trade Practices Act 1974 (Cth) (TPA) and under section 236 of the Australian Consumer Law (ACL), for claims arising from misleading or deceptive conduct, should be considered when exercising the discretion to award compensation for such claims under s87 of the TPA and under ss 237 and 238 of the ACL.2
  • In particular, a plaintiff's conduct amounting to contributory negligence, and that of other parties culpably causing or contributing to the plaintiff's loss, is arguably relevant to exercising the decision to award compensation, and the extent of such compensation, under s87 of the TPA and under ss 237 and 238 of the ACL.
  • This may result in a lower amount of compensation being awarded under those sections for claims arising from misleading or deceptive conduct, as a result of the existence of contributing causes to a plaintiff's loss.

Overview

Monetary relief for claims arising from misleading or deceptive conduct engaged in before 1 January 2011 could be awarded under both ss 82 and 87 of the Competition and Consumer Act 2010 (Cth) (the CCA), and much has been written about these two sections' interrelationship. Before the Corporate Law and Economic Reform Program (Audit Reform and Corporate Disclose) Act (Cth) 2004 (the CLERP Amendment), the High Court determined3 that claims for damages under s82 could not be reduced or modified by relying on the court's discretion under s87.

As part of the CLERP Amendment, s82(1B) and a new Part VIA were introduced into the TPA. These amendments introduced principles of apportionment into claims for damages under s82, but not for claims for compensation under s87.

Under the ACL, damages for misleading or deceptive conduct may be awarded under s236, while compensatory orders can be made under ss 237 or 238. As was the case in relation to ss 82 and 87, the CCA specifically provides for an apportionment regime in relation to claims for damages under s236 of the ACL for misleading or deceptive conduct, but not in respect of compensatory orders under ss 237 or 238.

The problem

Since the CLERP Amendment, the dichotomy between these sections has led to debate about whether the impact of the apportionment regime could be circumvented by a claimant seeking relief solely under s87. The issue remains under the recent amendments introducing the CCA and ACL.

The decision

The Federal Court's decision sheds some light on what the courts' approach to this problem will be in the future.

It was made on an appeal challenging an order the trial judge made granting the respondents leave to amend their defence. In short, the appellants objected to a number of those amendments, the trial judge allowed them, and the full court did not consider the trial judge had acted on a wrong principle or made any appealable error.

The relevant facts can be summarised as follows:

  • The applicants alleged that one of the respondents made representations that were misleading or deceptive, or likely to mislead or deceive, in contravention of s52(1) of the TPA and s12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth), which caused the applicants' loss.
  • The applicants sought compensation under ss 87(1), 87(1A) and 87(2)(d), but not s82 of the TPA.
  • In the amendments to the defence that the applicants objected to, the respondents alleged that the applicants contributed to their own loss by failing to take reasonable care. The respondents also sought leave to plead facts directed to establishing that a third party was a concurrent wrongdoer in relation to the claims the applicants made.
  • The applicants opposed these amendments, arguing that, as s87 has been interpreted by the High Court, the amount of any compensation awarded under the section may not be reduced on the basis of, or having regard to, the contribution to the applicants' loss made by them or by a third party.4
  • The trial judge considered that it was arguably relevant, in exercising the discretion to award compensation under s87, to take into account the consideration that, had the applicants' claim for recovery of the full amount of their loss been made under s82, the amount they may recover would be reduced to take into account the applicants' share in the responsibility for that loss.

On appeal, the court made it clear that the trial judge was only required to decide whether the issues the proposed amendments raised were arguable. It also noted that the decisions the applicants relied on were concerned with the measure of damages under s82 as it existed before the CLERP Amendment (ie before the apportionment regime came into effect).

Implications

The interrelationship between these sections and, specifically, whether compensation awarded under s87/s237 for claims arising from misleading or deceptive conduct, should be limited by reference to the proportionate liability principles is very much an open question.

The High Court's decision in I&L Securities supports the view that the remedy available under s82 is an important consideration in determining the proper construction to be given to s87. There is a sound basis for arguing that a court ought not exercise its discretion to award compensation under s87/s237 to enable a claimant to achieve a better monetary remedy than it would be entitled to under s82/s236.

Given that the remedy available under s82/s236 incorporates principles of apportionment, there is also a sound basis for arguing that the exercise of the discretion under s87/s237 ought similarly to take into account contributory negligence by the claimant, and other culpable acts of the defendant or third parties, in assessing the amount of compensation to be awarded under s87/s237.

For claimants, there is a significant risk that they will not be able to effectively circumvent the effects of the apportionment regime, by simply seeking relief, under s87/s237 rather than s82/s236. Defendants faced with such claims should plead and prove any relevant facts establishing that the claimant's and other parties' acts or omissions caused or contributed to the loss claimed, so as to argue that the amount of any compensation awarded under s87/s237 ought to take these factors into account.

Footnotes
  1. Khoury v Sidhu [2011] FCAFC 71.
  2. The TPA has been renamed the Competition and Consumer Act (with effect 1 January 2011). The ACL is Schedule 2 to the CCA. The TPA references remain relevant for claims arising from conduct engaged in before 1 January 2011. For the purposes of claims for misleading or deceptive conduct, ss 18 and 236 of the ACL and s137B of the CCA now effectively replace ss 52 and 82 of the TPA. Similarly, ss 237, 238 and 243 of the ACL now effectively replace s87 of the TPA for the purposes of claims for misleading or deceptive conduct.
  3. In I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109.
  4. They relied on the High Court decisions' in Henville v Walker (2001) 206 CLR 459 and in I&L Securities.

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