12 January 2007
Key Points:
There are five main ways proportionate liability affects government bodies.
Proportionate liability schemes have now been introduced in all States and Territories and in a number of Commonwealth statutes. Where proportionate liability provisions apply, a defendant’s liability is limited to its share of responsibility for the plaintiff’s loss. This is in contrast to the longstanding "joint and several liability" rule for which a plaintiff could recover 100 percent of its loss from only one defendant, notwithstanding that defendant’s lesser share of responsibility for the plaintiff’s loss. It was then up to that defendant to seek "contribution" from other parties at its own risk and cost.
Whether a plaintiff’s claim is subject to proportionate liability provisions will be determined by the nature of the claim. In general, proportionate liability provisions only apply to claims for property damage and pure economic loss in non-personal injury actions for damages that arise from a failure to take reasonable care or from misleading or deceptive conduct. In addition, causation of such loss or damage must not be intentional or fraudulent.
In this article we discuss five main implications of proportionate liability schemes for government bodies in litigation.
Deep pockets
Firstly, as defendants, government bodies’ liability for claims made against them may be reduced. Traditionally, government bodies have been targeted by plaintiffs because of their "deep pockets".
This was particularly so when other potential defendants who contributed to a plaintiff’s loss were uninsured, impecunious, or hard to find. Where proportionate liability provisions apply, this risk is now borne by plaintiffs. There should therefore be a reduction in the size of some damages awards against government bodies (many of which are borne by Comcover). Of course, the risk would be reversed should a government body be the plaintiff.
The following fact scenario illustrates this point. Company X seeks advice from a government body, an accountant and a lawyer, which results in loss to Company X. A court finds that the government body is liable for 5 percent of Company X’s loss, the accountant for 15 percent, and the lawyer for 80 percent. Under the old regime, Company X could enforce judgment against the government body for 100 percent of its loss, and the government body could then seek contribution from the accountant and lawyer. However, the government body would not be able to recover fully from the accountant and lawyer should they be uninsured and impecunious. In contrast, under the proportionate liability regime, Company X would have to enforce such judgment against the government body, accountant and lawyer for their respective shares of liability in order to fully recover its loss. The risk of incomplete recovery is therefore borne by Company X.
What State/Territory legislation applies?
Secondly, as a plaintiff, government bodies will need to consider the jurisdiction whose proportionate liability scheme will apply to a claim. This is because there are some significant differences in proportionate liability provisions between the jurisdictions. For example, the different proportionate liability schemes apply to causes of action which arise from different dates (eg. NSW provisions apply to causes of actions arising on or after 26 July 2004, Queensland provisions apply to causes of actions arising on or after 1 March 2005), and there are differences in the wording of the statutes (eg. the Victorian provisions apply to claims arising from "a failure to take reasonable care", while the South Australian provisions apply to certain claims arising from "a breach of a duty of care").
Drafting court documents
Thirdly, whether acting as plaintiff or defendant, the way in which government bodies draft court pleadings will be affected by proportionate liability schemes.
If the government body is acting as a plaintiff, it would generally be desirable to plead non-apportionable causes of action so that it can recover 100 percent of its loss from a solvent or insured defendant. For example, the government body may be less inclined to plead breach of section 52 of the Trade Practices Act 1974 (Cth) ("TPA") (apportionable) but more inclined to plead breach of section 53 of the TPA (non-apportionable) so that it may recover 100 percent of its loss from a solvent defendant notwithstanding that defendant’s lesser share of responsibility. The prospect of success in only pleading these non-apportionable grounds must be weighed against the risk of not being able to recover fully from wrongdoers if section 52 is not pleaded.
In contrast, if the government body is acting as a defendant and the plaintiff has pleaded apportionable and non-apportionable causes of action, the government body may choose to admit the apportionable grounds (eg. section 52 of the TPA) and deny the non-apportionable grounds (eg. fraud or intentional causation of loss or damage) in the hope that the plaintiff will abandon the non-apportionable claims. The government body will therefore only be liable for the portion of the plaintiff’s loss that is attributable to that government body.
Settlement
Fourthly, as a plaintiff, government bodies which settle claims should ensure that the terms of settlement make it clear that settlement is based on non-apportionable grounds and therefore that the defendants are liable for the whole of the government body’s loss or damage. Great care should be taken in drafting documents to reflect the parties’ agreement that proportionate liability legislation does not apply.
Notification of potential other defendants
Fifthly, proportionate liability legislation in all jurisdictions (except Victoria) impose an obligation on a defendant to, as soon as is practicable, notify the plaintiff of any other person whom the defendant has reasonable grounds to believe may be a concurrent wrongdoer. This is an unusual feature. In the ordinary course of litigation, there is no obligation on parties to inform each other of other potential parties. However, this obligation is not likely to have any significant impact because it would be in a defendant’s self interest to notify the plaintiff of other potential wrongdoers (or cross-claim against them itself) so as to reduce the proportion of liability it bears.
