Proportionate liability legislation

Proportionate liability legislation replaced the long-standing common law system of joint and several liability, under which a plaintiff could recover its entire loss from any one party who contributed to the loss as each wrongdoer was regarded as ‘jointly and severally’ responsible for the plaintiff’s loss. The plaintiff could choose to enforce a judgment against only that party most likely to meet the judgment debt, usually that party was the one with the deepest pockets (ie those insured parties, like architects and engineers), provided that they were liable for at least 1% of the loss. The deep pocket defendants (and their insurers) then assumed the risk of trying to recover contribution from the other defendants who may not necessarily agree, or be able, to pay their share of the liability (ie a builder in liquidation).

The best way to illustrate these concepts is by way of an example. Say a developer sues the builder, architect and engineer for damages arising from defective building work. The court allocates 60% liability against the builder, 10% against the architect and 30% against the engineer. If the defendants were jointly and severally liable to the developer (as was the case in the past), then the developer could require the architect to pay the full 100% of the judgment. The architect, and its insurer, would then bear the risk of trying to recover 90% from the builder and the engineer. By contrast, under proportionate liability legislation, the architect would only be required to pay 10%. The plaintiff faced a shortfall in recovery if the builder could not pay its 60%.

As the legislation varies, despite there have been inquiries and recommendations to try to align proportionate liability legislation nationally, each state and territory varies in how it is applied and how its legislation is interpreted. However, some of the common key issues are as follows:

Application of proportionate liability legislation

Proportionate liability legislation applies to ‘apportionable claims’, being claims for property damage or economic loss (but not personal injury) either arising from a failure to take reasonable care or for misleading and deceptive conduct (except for in Queensland). Proportionate liability legislation does not apply in particular situations, such as fraud claims, vicarious liability, partnership disputes or where it has been excluded (see ‘Contracting out’ below). Each state and territory Act is different, so it is important to check the legislation which applies to each particular claim.

Claims arising from 'a failure to take reasonable care'

As you will be aware, these sorts of claims for a 'failure to take reasonable care' are commonly made against architects and proportionate liability legislation is a vital tool to be able to rely on and take advantage of with respect to any such alleged claim.

What is a 'just' apportionment?

The courts must apportion liability on the basis of what it considers 'just' having regard to the extent of the defendant's responsibility for the loss (Queensland courts must consider what is 'just and equitable').

Contracting out

The practice of ‘contracting out’ began in response to proportionate liability legislation and usually comes in the form of a specific clause within your consultancy agreements. Each of the various jurisdictions has differing legislation with regard to contracting out of proportionate liability legislation.

Queensland does not allow contracting out whilst Victoria, ACT, SA and the NT legislation are silent about contracting out. Significantly, NSW, WA and Tasmania permit parties to exclude proportionate liability legislation in their contracts. Without the protection of proportionate liability legislation, you may be held liable, under the principle of joint and several liability, for the full amount of damages suffered as a result of an error of yours even if other parties had also made errors which contributed to that damage. If, say, an architect agreed to exclude proportionate liability legislation under its consultancy agreement, then any increased liability (that is, any extra liability by reason of being jointly and severally liable for the plaintiff's loss) raises significant insurance issues and may result in losses which are not covered by the architect’s insurance policy.

Importantly, even if you have not expressly contracted out of proportionate liability legislation within the consultancy agreement, the Court may still consider that the parties chose to exclude proportionate liability legislation by contractually allocating risk and liability in a way which was not consistent with the operation of proportionate liability legislation, for example within the indemnity clause, agreeing to arbitration for disputes under the contract, or where proportionate liability does not appear to apply.

Take away points

• Carefully consider the applicable proportionate liability legislation in your state or territory.
• Review your consultancy agreement and:
  • Do not agree to ‘contract out’ of proportionate liability legislation.
  • Insert a clause within your consultancy agreements expressly stating that proportionate liability legislation applies (so there is no confusion of implied ‘contracting out’).
  • Carefully consider any indemnity clause to (amongst the other risks) make sure that it takes into account the Client’s contributory negligence and proportionate liability of other consultants, contractors etc.
• Remember that if you agree to contract out of this proportionate liability legislation, you may not be covered (wholly or partially) under your professional indemnity insurance. You should discuss this with your professional indemnity insurance advisers.

Relevant proportionate liability legislation

For further information please refer to the legislation below:

• Civil Liability Act 2002 (NSW), Part 4
• Wrongs Act 1958 (Vic), Part IVAA
• Civil Liability Act 2002 (WA), Part 1F
• Civil Liability Act 2003 (Qld), Part 2
• Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA), Part 3
• Civil Liability Act 2002 (Tas), Part 9A
• Proportionate Liability Act 2005 (NT)
• Civil Law (Wrongs) Act 2002 (ACT), Chapter 7A
• Competition and Consumer Act 2010 (Cth), Part VIA
• Australian Securities and Investments Commission Act 2001 (Cth) Part 2, Division2, Subdvision GA
• Corporations Act 2001 (Cth), Part 7.10, Division 2A