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 insured.

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 conduct (s1041H).

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 throughout.

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 litigation.

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.

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