McAuley, Stephen --- "Is the proportionate liability regime in need of reform?" [2017] PrecedentAULA 31; (2017) 140 Precedent 20

The different proportionate liability regimes throughout the states and territories of Australia, and in the federal jurisdiction, all require reform. Ambiguities and lack of both clarity and uniformity are widespread. The proportionate liability regimes are also unfair. While a system of joint and several liability has advantages for plaintiffs, proportionate liability systems are skewed in favour of defendants. The momentum for reform needs reinvigorating.

There are numerous differences in the various proportionate liability regimes throughout Australia. The table below summarises the main differences. The differences, as referred to in the first column of the table, relate to whether:

2 the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to proceedings;

3 the proportionate liability regime applies to persons who independently of each other or jointly caused the damage or loss; and

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	Corps Act	ASIC Act	NSW	QLD	VIC	SA	WA	TAS	NT	ACT
1. Contracting out allowed	Silent	Silent	Yes	No	Silent, arguably no	Silent	Yes	Yes	Silent	Silent
2. Comparative responsibility of non-party allowed to be considered	Yes ‘may’	Yes ‘may’	Yes ‘may’	Yes ‘may’	No	Yes ‘must’	Yes ‘must’	Yes ‘must’	Yes ‘may’	Yes ‘may’
3. Independent or joint cause of loss considered	Yes both	Yes both	Yes both	Only indep-endent	Yes both	Only indep-endent	Yes both	Yes both	Yes both	Yes both
4. Consumer claims included	Yes	Yes	Yes	No	Yes	Yes	Yes	Yes	Some	No

By way of illustration of the problems with the legislation, the NSW proportionate liability regime applies, inter alia, to claims ‘for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care...’^[1] (emphasis added).

There are two potential interpretations of this provision in circumstances where tort and contractual claims are available to a plaintiff.

The first interpretation is that the proportionate liability regime applies where there is negligence that gives rise to a breach of contract, and the plaintiff then has an apportionable claim for breach of contract. The second interpretation is that the proportionate liability regime applies where there is negligence that is an element of a tortious claim, contractual claim or statutory claim.

The problem with the first interpretation is that it greatly expands the scope of the proportionate liability regime by making every breach of contract into a negligence claim. The result is that defendants have the great advantage of the proportionate liability regime, whereas from the plaintiff’s perspective it would be better to allow normal common law contractual principles to apply.

There are also incongruities in the proportionate liability legislation. For example, s3A of the Civil Liability Act 2002 (NSW) specially provides that parties to a contract can make ‘express provision for their rights, obligations and liabilities under the contract’ and the proportionate liability regime ‘does not limit or otherwise affect the operation of any such express provision’.

Section 36, however, states that a concurrent wrongdoer ‘against who judgment is given...cannot be required to contribute to any damages or contribution recovered from another concurrent wrongdoer’. While on its face s36 does not alter s3A of the Civil Liability Act 2002 (NSW), in Reinhold v New South Wales Lotteries Corporation (No. 2) [2008] NSWSC 187, the Court held that s36 overrides s3A insofar as s3A allows parties to a contract to contract out.^[2]

The regimes do not expressly state whether they apply to disputes that are the subject of arbitration. In Curtin University of Technology v Woods Bagot Pty Ltd [2012] WASC 449, the Supreme Court of Western Australia held that the proportionate liability regime in Western Australia does not apply to disputes that are the subject of arbitration given, among other reasons, that the regime uses the words ‘court’, ‘action for damages’ and ‘judgment’.^[3]

Such a result is far from guaranteed in other jurisdictions. Unlike in Western Australia, the proportionate liability regimes in NSW, the Northern Territory, Tasmania and Victoria include in their respective definitions of ‘court’ the word ‘tribunal’.^[4] However, it is perhaps unlikely that a court would include the process of arbitration under the ambit of a tribunal process.

A vexed question arises in jurisdictions where parties cannot contract out of the proportionate liability regime, and where parties expressly contract that disputes are to be referred to arbitration.^[5] Arguably the proportionate liability regime might be avoided in such circumstances.

Under proportionate liability regimes throughout Australia, plaintiffs generally bear the risk that one or more of the concurrent wrongdoers will be impecunious and unable to satisfy any settlement or judgment in the plaintiff’s favour.

It must be remembered that the starting principle of the remedy of damages is to compensate the plaintiff for loss suffered by the defendant’s wrong.^[6] While tort and contract assess compensatory damages somewhat differently (tort awarding damages to put the plaintiff in the position it would have been but for the defendant’s tort,^[7] and contract awarding damages to place the plaintiff in the same position as if the contact had been performed^[8]), the starting principle is the same – to place the wronged plaintiff in the position they would have been but for the wrong.

A joint and several liability regime is consistent with this principle. Proportionate liability regimes, however, alter the fundamental starting point. They radically shift the system in favour of defendants.

Under proportionate liability regimes, plaintiffs must essentially join all alleged wrongdoers. Often plaintiffs must do so even when they are not really in a position to assess their prospects of success against one or more wrongdoers. By way of illustration, a plaintiff may have limited documents or a pending limitation period, and may have little choice but to sue all potential wrongdoers in the absence of any real certainty that their prospects of successfully prosecuting an action are good.

Such a system has little regard for the notion that the plaintiff may genuinely be the innocent party and it is unjust to alleviate one or more defendants of risk. To illustrate further, if one defendant is substantially responsible (say 90 per cent) in tort and contract for the plaintiff’s losses, to burden the plaintiff with the obligation to join another potential wrongdoer is unfair.

Of course, should a plaintiff not succeed against a wrongdoer who was thought to be only partially responsible (say, no more than 10 per cent), the plaintiff would almost certainly be liable for the successful defendant’s legal costs which could very substantially erode whatever monies are recoverable from the substantially-at-fault defendant. This is inherently unfair. It should be the substantially-at-fault defendant who should have to weigh up whether it is worthwhile to cross-claim against the arguably less-at-fault defendant.

Proportionate liability regimes have added to the costs and complexity of litigation. Under the old system of joint and several liability, litigation was more likely to be between one plaintiff and one defendant. Proportionate liability makes it more likely that litigation will be between, say, one plaintiff and multiple defendants. Multiple defendants may plead different defences, which the plaintiff has the burden of responding to.

Given multiple defendants, any settlement of a litigated claim becomes more problematic. Not only do settlement negotiations need to take place between the plaintiff and multiple defendants, but further settlement discussions must also ensue among the defendants to determine what each will contribute towards any settlement sum to be paid to the plaintiff.

Defendants favour a proportionate liability regime. Admittedly, there are ‘fairness’ arguments in favour of such a regime.^[9] The first argument typically advanced in favour of a proportionate liability regime is that a joint and several liability regime unfairly penalises well-insured defendants who are responsible for merely a minor fault.^[10] This is sometimes referred to as a ‘deep pocket syndrome’.^[11] The suggestion is that joint and several liability encourages underinsurance and a lack of responsibility.

Such an argument does not take due account of the option open to defendants to cross-claim against at-fault third parties. Instead, proponents of proportionate liability shift the onus to the plaintiff to join all responsible parties. Assuming the plaintiff has a provable cause of action, it is unfair to leave plaintiffs to sue, and bear the cost of suing, all parties.

Another deficiency in the ‘fairness’ argument is that proportionate liability can deter wrongdoers from taking responsibility.^[12] Defendants benefit despite the fact that they have broken the law. Assuming liability is established, the plaintiff is the innocent party.

Professional defendants who take advantage of proportionate liability in circumstances where they have insurance, and plaintiffs do not, are not the rightful beneficiaries of a ‘fairness argument’.^[13] It must be remembered that by imposing on plaintiffs a proportionate liability regime, not all plaintiffs will be compensated for the loss and damage suffered by the defendant’s wrong or breach. This can represent a significant injustice.

The imposition of a ‘broad brush’ proportionate liability regime across all cases of economic loss and property damage is unsubstantiated. A ‘middle ground’ approach of only applying such a regime to, say, the building industry, has not been actively considered.^[14] Inevitably a proportionate liability regime does not take account of the vagaries of different cases. The concession by the legislature that proportionate liability would not be appropriate for personal injury cases would surely be an acknowledgement that there is a lack of justice in proportionate liability regimes generally.^[15] One can cynically surmise that professional and insurance lobby groups have had a vested interest in sidelining the common law joint and several liability system.

Another difficulty with the proportionate liability regime is the arbitrariness of apportioning responsibility among defendants. A largely unrecognised degree of discretion applies when apportioning liability. No regard is given to the financial ability of defendants to meet a judgment debt. This inevitably means that some plaintiffs will be left to ‘hold the can’ in pursuing impecunious defendants.

A further line of argument favouring proportionate liability is that there are economic advantages to such a system.^[16] One such advantage is said to be that proportionate liability causes insurance premiums to ‘level out’ among wrongdoers.^[17] In Boral Resources v Robak, Chernov JA commented that it was ‘mischief’ for a ‘deep pocket’ defendant with insurance to have to ‘bear the whole of the damages that were awarded to the plaintiff in building cases’.^[18] But Chernov JA went further in espousing the virtues of proportionate liability by stating that such ‘deep pocket’ defendants face, as a consequence of joint and several liability, ‘very high premiums’ which ‘increased significantly the overhead of such building practitioners and made it difficult for them to compete with those who were not subjected to such disadvantage’.^[19]

By extension, according to Chernov JA, proportionate liability encourages ‘insurers to provide indemnity to all building practitioners and to reduce and level out, premiums...’^[20]

Putting aside the fact that no statistical or other evidence is readily proffered to support such assertions, the main difficulty with such reasoning is that it focuses exclusively on the interests of the wrongdoer(s), without any reference to justice being done for the plaintiff. It also ignores the reality that if wrongdoer(s) did not engage in conduct giving rise to a liability, they would not face rising insurance premiums and adverse judgments. It ignores the possibility that there may be economic advantages in making wrongdoers less profitable, as well as the potentially devastating economic consequences to plaintiffs when liability is apportioned to a defendant who is impecunious.

Joint and several liability has the advantage of placing more of the burden and responsibility of legal proceedings on defendants who tend, as a general proposition, to be better positioned to deal with such proceedings.^[21] Defendants who are insured often instruct experienced litigators. Plaintiffs often instruct solicitors on a no win-no fee basis which makes ‘trench warfare’ litigation problematic. Accordingly, defendants are generally better suited to assessing their liability position in a joint and several liability regime – as opposed to plaintiffs who are not.

Another economic argument that is sometimes made in favour of proportionate liability is that joint and several liability does not encourage risk minimisation by plaintiffs.^[22] This argument assumes that many economic loss and property damage claims arise in circumstances where a plaintiff is effectively contributorily negligent. There is no evidence for this assertion. In any event, the plaintiff’s damages can be reduced by reason of contributory negligence without having to resort to a proportionate liability regime. It does not follow that a joint and several liability regime creates a climate of risk-taking.

Furthermore, proportionate liability might be said to reduce the incentive for risk minimisation among wrongdoers. In circumstances where there are multiple parties and potential wrongdoers, the consequences of wrongdoing is reduced in a proportionate liability regime. Having said that, the degree to which defendants, or for that matter, plaintiffs consciously weigh up the risks of proportionate liability versus joint liability systems may be overstated.

More fundamentally, there are economic advantages to properly compensating plaintiffs. Adequate compensation systems enable parties to take appropriate risks that generate economic activity. Profitable businesses that create employment, which are the subject of wrongdoing, should not have to suffer the consequences of a regime favouring wrongdoers. A joint and several liability regime forces wrongdoers to take responsibility for their actions.

There are very few votes to be won by politicians changing the law relating to proportionate liability. However, the sad reality is that the underlying purpose of the remedy of compensatory damages has been forgotten. Interest groups have ruled the day.

Fundamental reform is required. The concerning aspect of the reforms made in the early to mid-2000s was the speed with which they were made, without there being a logical underpinning to the changes, and without an emphasis on ensuring that the fundamental principles of justice are maintained.

Stephen McAuley is a Solicitor Director at McAuley Hawach Lawyers in Sydney. EMAIL stevemcauley@mcauleyhawach.com.au.

^[3] Curtin University of Technology v Woods Bagot Pty Ltd [2012] WASC 449 at para 96.

^[5] Kenneth Eagle, Katrina Leach, Ella Howard and Christopher Behrens, Commercial Notes: Proportionate Liability (23 September 2013) at p6.

^[6] See, for example, Mahony v J Kruschich (Demolitions) Pty Ltd [1985] HCA 37; (1985) 156 CLR 522 at 527 per Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ; Cassell & Co Ltd v Broome [1972] UKHL 3; [1972] AC 1027 at 1070; Jabbour v Custodian of Absentee’s Property of State of Israel [1954] 1 All ER 145 at 150 per Pearson J.

^[7] See, for example, Livingstone v Rawyards Coal Co (1880) 5 App Case 25 at 39.

^[9] See A Rogers, ‘Fairness or joint and several liability’, Torts Law Journal (2000) 8 TLJ No. 1.

^[11] Second reading speech of the Hon R R MacLennan for the Building Act 1993, Victorian Parliament.

^[12] See M Tilbury, ‘Fairness indeed?: A reply to Andrew Rogers’, Torts Law Journal (2000) 8 TLJ 113.

^[13] See Ontario Law Reform Commission, Report on Contribution Among Wrongdoers and Contributory Negligence, 1988, p37.

^[17] Boral Resources Pty Ltd v Robak Engineering & Construction Pty Ltd & Anor; FCH Consulting Pty Ltd v Wimmera-Mallee Rural Water Authority & Anor [1999] VSCA 66 (20 May 1999) at para 71.

^[21] Swanton, J and McDonald, B, Reforms to the law of Joint and Several liability (1997) 5TIJ 109 at 114-15.

Precedent (Australian Lawyers Alliance)

McAuley, Stephen --- "Is the proportionate liability regime in need of reform?" [2017] PrecedentAULA 31; (2017) 140 Precedent 20