Background
In an earlier judgment, the Court found that Yuchen Chen, Jarrah Capital 2005 Loan Pty Ltd and Michael Hai Tao Pan had each engaged in misleading conduct contrary to s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth). Jianping Qiu and Jingjing Lin, the plaintiffs, suffered a combined loss of $1 million after each invested $500,000 in the Jarrah Capital Trust.
Chen made misleading oral statements that the investment was safe and secured and supplied the plaintiffs with Jarrah Capital’s misleading information memorandum. Jarrah Capital and Pan supplied that document to Chen for distribution to potential investors despite knowing that its description of the investment and its security was false. The earlier judgment also held Jarrah Capital liable for breaches of trust and trustee duties and Pan liable for knowingly assisting those breaches.
After the parties agreed on prejudgment interest, the total apportionable loss was $1,115,529.35. The remaining issues were how to allocate that loss among the defendants and whether their liability for the plaintiffs’ costs should be joint and several or apportioned.
The Court’s Holding
Nixon J held that responsibility could not be apportioned between Jarrah Capital and Pan. Jarrah Capital’s misleading conduct arose from Pan’s acts as its director and chief executive officer, including conduct by an employee acting at his direction. Under the authorities governing a company and its directing mind, Jarrah Capital and Pan were either not concurrent wrongdoers as between themselves or it was just not to divide responsibility between them.
The Court apportioned 20% of the loss to Chen and 80% jointly and severally to Jarrah Capital and Pan. Although Chen’s oral statements and delivery of the information memorandum contributed to the loss, he did not know the representations were false and was not reckless or careless about their truth. Jarrah Capital and Pan were substantially more culpable because Pan prepared the document, deliberately omitted references to a second-ranking mortgage, knew the document was false and outdated, and caused it to be supplied for circulation without an adequate warning or update. Their conduct also had greater causal potency because Qiu required investment documents and relied particularly on the memorandum before making both investments.
The Court entered judgment for the plaintiffs against Chen for $223,105.87 and against Jarrah Capital and Pan for $892,423.48. It also ordered all defendants to pay the plaintiffs’ costs jointly and severally, as agreed or assessed, because the claims arose from a common factual substratum and proving the case against each defendant required substantial overlapping evidence.
Key Takeaways
- Apportionment under s 12GR turns on each wrongdoer’s comparative blameworthiness and the causal potency of the conduct.
- A company and the director whose conduct is legally the company’s own may each bear full responsibility as between themselves rather than receive separate percentage allocations.
- Proportionate liability for damages does not require proportionate costs orders; joint and several costs may be appropriate where the defendants’ liability depends on common facts.
Why It Matters
The decision shows that courts will look beyond who communicated directly with investors and assess who created, controlled and knowingly circulated misleading investment material. An intermediary’s role may be causative while carrying substantially less responsibility than that of the people who knew the material was false.
It also underscores that apportionment of damages and allocation of litigation costs are distinct exercises. Defendants assigned different shares of the loss may still be jointly and severally responsible for all recoverable costs when the plaintiff had to prove an overlapping case against each of them.