Preparing for the punch of proportionate liability

Over the past three years, the legislatures across Australia have changed how the courts allocate responsibility among defendants for the same wrong. However, it is almost impossible to predict the impact of the new proportionate liability legislation on the litigation process. Its consequences may be far-reaching but the legislation is not as simple to apply as it first appears. At this stage, when and how the legislation will be invoked and how it will play out in litigation remains clouded in theoretical possibility.

In theory, the introduction of a system of proportionate liability appears to be inherently fair because each wrongdoer will only be liable for the damage that is actually caused by its actions.

To prepare for proportionate liability, this article is intended to answer the following three questions:

• what is proportionate liability
• when will a claim be caught by the schemes?; and
• what will be the potential practical impact of the schemes?

What is proportionate liability?

Proportionate liability is a principle governing how courts allocate responsibility between defendants for a wrong. Traditionally, each joint or several wrongdoer who was collectively responsible for causing the same loss may be liable for the whole of that damage, even though their respective "contributions" to the loss may have been very different ("solidary liability").

The concept of proportionate liability involves attributing liability to a wrongdoer only to the extent that he or she actually contributed to the plaintiff's loss. This approach was recommended by an expert panel chaired by Justice Ipp in its Review of the Law of Negligence.

Is your claim subject to proportionate liability?

Only certain claims fall within the proportionate liability schemes and these schemes potentially differ across the various Australian jurisdictions (see the end of this article for a list of the different Acts). It is important to note that all other claims will be decided according to the traditional rule of solidary liability.

To identify the legislation which is relevant to a claim, the Australian courts apply the substantive law of the place of the wrong or the proper law of the contract and the procedural law of the forum. However, the principles which determine the proper law are not always clear, especially where a claim involves an interstate element. Difficulties may also arise where a plaintiff seeks to litigate a number of apportionable claims which are subject to different proportionate liability schemes. One can already imagine a kind of multi-level chess game.

Application of the legislation

Once the proper law is determined, a claim must then fall within the operative provisions of the relevant scheme. The schemes came into effect at different points in time. For example, the scheme applies:

• in Victoria to proceedings commenced on or after 1 January 2004;
• in New South Wales to causes of actions which arose after 26 July 2004 in which proceedings commenced on or after 1 December 2004; and
• federally under the Trade Practices Act to causes of action accrued on or after 26 July 2004.

Types of claims

The schemes only apply to "apportionable claims" (which is a defined term). Generally, this requires that the claim is for damages:

• for economic loss or damage to property;
• not for personal injury; and
• arising from a "failure to take reasonable care" (or in Queensland, "a breach of a duty of care") or for misleading and deceptive conduct (under section 52 of the Trade Practices Act or its Corporations Act, ASIC Act or state and territory equivalents).

However, the claim may be specifically excluded under the schemes. Depending upon the jurisdiction, excluded claims include claims involving intention or fraud, claims for consumer transactions and claims based on contracts which have expressly excluded the legislation. Therefore, parties to litigation need to be alive as to whether or not their dispute involves a "failure to take reasonable care". Moreover, when drafting a contract which contains consequences for a "failure to take reasonable care", it will be important to consider whether you can and should attempt to contract out of the consequences of the proportionate liability scheme. The drafting of these contractual provisions will require some care.

Types of wrongdoers

All schemes only apply to defendants who are "concurrent wrongdoers". This is generally defined as one of two or more persons whose acts or omissions (or act or omission) caused, independently or jointly, the damage or loss that is the subject of the claim.

Under the legislation, it appears that a plaintiff need not have a cause of action against each concurrent wrongdoer to join them to an apportionable claim.

How is the proportionate liability scheme pleaded?

It is unclear how, and by whom, the elements of proportionate liability must be pleaded. The schemes are silent on this issue. In most jurisdictions, an "apportionable claim" must involve a failure to take reasonable care but not an intention on the part of the defendant that the plaintiff suffers damage. This may not be clear on the plaintiff's pleading of its claim. Therefore, defendants should carefully assess whether their obligations under the legislation have been triggered in respect of each claim.

If so, how could proportionate liability affect your claim?

If your claim falls within the proportionate liability legislation, the liability of defendants who are concurrent wrongdoers is limited to an amount:

• reflecting that proportion of the damage or loss claimed;
• that the court considers "just" (or, in Queensland, "just and equitable"); and
• having regard to the extent of the defendant's responsibility for the damage or loss.

The court cannot give judgment against the defendant for more than this amount.

At this stage, it is unclear precisely what a court will consider to be a "just" apportionment of liability. Case law dealing with claims for contribution among tortfeasors, which must be "just and equitable" in the eyes of the court, suggests that causal responsibility and culpability may bear upon this decision.[1]

Absent defendants: Victorian scheme differs from every other scheme

Whether or not the court can consider the responsibility of absent concurrent wrongdoers when apportioning liability for the loss or damage depends upon which legislative scheme applies to the claim.

In all Australian jurisdictions other than Victoria, the court can take into account the comparative responsibility of all concurrent wrongdoers, whether or not they are parties to the proceeding, when making an award of damages against a defendant. This approach is reversed if the Victorian scheme applies, unless that wrongdoer is not a party because they are dead or a wound up company (section 24AI(3) of the Wrongs Act 1958).

Joinder of defendants

The treatment of absent defendants under the schemes means that, in all jurisdictions except Victoria, plaintiffs bear the risk that a potential defendant is absent from court. Therefore, plaintiffs in those jurisdictions should seek to join all potential concurrent wrongdoers to recover 100% of its claim.

Although the Victorian scheme provides defendants with an incentive to ensure that all potential concurrent wrongdoers are before the court, there is no corresponding obligation on the plaintiff to sue all potential wrongdoers. Parties to litigation may encounter problems where a defendant wishes to see a party before the court, but the plaintiff insists that he or she has no interest in suing that party.

Defendants' obligations

There are very limited obligations imposed on any party to locate and identify potential concurrent wrongdoers. Under most schemes, defendants are only obliged to give a plaintiff written notice of the identity of, and circumstances evidencing a reasonable belief that a party is, a potential concurrent wrongdoer. Except for Queensland, the sanctions which may be imposed for failure to meet these obligations are limited primarily to a costs order against a defendant.

Costs

Due to the fact that more defendants are likely to be sued in proceedings to which the proportionate liability scheme applies, costs are likely to increase under the schemes and, therefore, become a more pertinent consideration for parties to litigation. It is unclear under the legislation how costs will be decided for joining and investigating concurrent wrongdoers.

Settlement and subsequent proceedings

The schemes have a major impact on the dynamics of, and certainty in, settlement for parties to litigation. Under the schemes, defendants cannot extricate themselves from contribution or indemnification proceedings until judgment is entered against them. Settlement now requires parties to take this additional step.

In addition, a plaintiff who has already obtained judgment against a concurrent wrongdoer can bring later proceedings against other concurrent wrongdoers to recover the balance of his or her loss, provided that the plaintiff does not recover "compensation greater than the loss or damage actually suffered by the plaintiff". This creates potential difficulties because nothing in the schemes suggests that the second court is bound by the first court's assessment of the plaintiff's loss.[2]

Conclusion

The proportionate liability schemes attempt to achieve a just outcome for defendants who might otherwise bear the burden of the plaintiff's whole loss for which they are only peripherally responsible.

The schemes only apply to certain types of claims defined as "apportionable claims", which primarily involve economic loss or damage to property arising from a failure to take reasonable care or misleading and deceptive conduct. There are numerous exceptions which parties to litigation may tactically choose to rely upon or ignore to their own advantage, particularly while the courts work through the initial teething problems.

If the schemes do apply, their impact on litigation is largely uncertain. Therefore, it is imperative that parties to disputes remain abreast of this area of law as it develops and are acutely aware that:

• The risk of insolvent defendants now rests with the plaintiff.
• Defendants have obligations to investigate and notify the plaintiff of other concurrent wrongdoers.
• The tactics of litigation will change as defendants or plaintiffs seek to join other concurrent wrongdoers to protect their interests.
• There will be more parties to litigation, increasing the cost and duration of litigation.
• The dynamics of settlement and mediations will change.

State legislation

Civil Liability Act 2003 (NSW)

Civil Law (Wrongs) Act 2002 (ACT)

Proportionate Liability Act 2005

Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001

Civil Liability Act 2002 (Tas)

Civil Liability Act 2002 (WA)

[2] Except in South Australia: section 11 of the Reform (Contributory Negligence and Apportionment of Liability) Act 2001.