Proposed reforms to create a consistent proportionate liability regime

In brief

In response to concerns about inconsistencies across various state-based jurisdictions, and following a public consultation process, the Standing Council on Law and Justice has released revised draft model legislation to reform Australia's proportionate liability laws. Partner Andrea Martignoni and Senior Associate Andrew Lazzaro report on the proposals. 

Background

Proportionate liability legislation was introduced into each Australian jurisdiction between 2002 and 2004 for claims involving economic loss or property damage arising from a failure to take reasonable care, as well as certain statutory misleading or deceptive conduct claims. In general terms, this legislation has the effect that concurrent wrongdoers are each only liable to compensate a claimant for the proportion of the loss they were responsible for causing. This means that the claimant must sue all concurrent wrongdoers in order to recover its entire loss, and that the claimant bears the risk of any concurrent wrongdoer being insolvent or absconding. Proportionate liability replaced the long-standing system of joint and several liability, under which a claimant could recover its entire loss from any one concurrent wrongdoer.

In response to concerns about inconsistencies between the different proportionate liability laws in each jurisdiction, and potential uncertainties in the operation of particular provisions, the Standing Council on Law and Justice (formerly the Standing Committee of Attorneys-General) has undertaken an extensive review of the current proportionate liability legislation. As part of this process, it released draft model legislation for public consultation in 2011. Following public consultation, the council released revised draft model legislation in late 2013, which the Ministers of each jurisdiction have agreed to consider introducing.

Key aspects of the new draft legislation are outlined below.

What is an apportionable claim?

Leaving aside statutory misleading or deceptive conduct claims, in order for a claim to be apportionable under the draft legislation, a failure to take reasonable care must be an element of the claimant's cause of action. It is not sufficient that the claim merely factually arises out of a failure to take reasonable care. This means that proportionate liability will not apply to claims based on the breach of strict or absolute contractual obligations.

Under the current laws in most jurisdictions, it is arguable (although this remains an area of uncertainty) that a claim based on a breach of a strict or absolute contractual obligation may be apportionable if that breach was also negligent. Therefore, in this respect the draft legislation potentially narrows the application of proportionate liability relative to the current laws.

Who is a concurrent wrongdoer?

The definition of 'concurrent wrongdoer' in the draft legislation has been broadened to expressly include multiple defendants whose conduct caused 'substantially or materially similar' loss or damage (in addition to those whose conduct caused the same loss or damage). The definition is otherwise relevantly similar to the current laws in most jurisdictions, including New South Wales, so the High Court's reasoning in Hunt & Hunt¹ will apply to it. The effect of this decision is that persons may be concurrent wrongdoers even in circumstances where they caused the relevant loss or damage in different ways or where one of them acted fraudulently.

The draft legislation also confirms that a person who has no legal liability to the claimant is not a concurrent wrongdoer, even if that person played a part in causing the loss. This will, for example, exclude many subcontractors who assume no liability directly to the principal.

Apportioning liability

When apportioning liability, the draft legislation provides that the court:

• must consider the comparative responsibility of any concurrent wrongdoer joined to the proceedings; and
• may consider the comparative responsibility of concurrent wrongdoers who are not joined.

The existing laws differ from jurisdiction to jurisdiction in this respect. For example, the legislation in Victoria prohibits the court taking into account the liability of a person who is not joined to the proceedings (unless that person has died or is a corporation that has been wound up).

The draft legislation will encourage defendants to ensure that they join any concurrent wrongdoers to the proceedings, to ensure that the liability of those wrongdoers is taken into account, rather than rely on the court's discretion.

Contracting out

The existing laws as to whether contracting out is permitted vary between jurisdictions. Currently, contracting out is expressly prohibited in Queensland and, yet, is expressly permitted in Western Australia, NSW and Tasmania. In the remaining jurisdictions, contracting out is neither expressly prohibited nor permitted.

The draft legislation prohibits contracting out. However, it contains an exception for agreements by a concurrent wrongdoer to contribute to the damages recoverable from, or to indemnify, another concurrent wrongdoer. This exception, together with the fact that proportionate liability does not apply to claims based on the breach of strict or absolute contractual obligations, preserves some scope for parties to contractually allocate risks on a different basis.

Arbitration

The draft legislation contains a provision, which individual jurisdictions may elect whether to adopt, to the effect that the proportionate liability regime does not apply to arbitrations.

In jurisdictions that adopt this provision, arbitration could therefore be used as a means to circumvent proportionate liability. The possibility for claims for contribution against concurrent wrongdoers will remain. However, claims for contribution only apply to 'joint tortfeasors', which is a narrower concept than 'concurrent wrongdoer'. For example, a person who breaches a contractual duty cannot seek contribution from a person whose liability is limited to a statutory liability for misleading and deceptive conduct. As such, the proposed arbitration exception can give rise to anomalies, compared with court proceedings.

On the other hand, applying proportionate liability to arbitrations would not be without difficulties. For example, there is a significant practical impediment to enforcement because an arbitrator generally cannot make a binding award against a concurrent wrongdoer who is not a party to the arbitration agreement. Claimants in this position would therefore need to consider commencing separate court proceedings against such non-parties.