21 Dec 2007

Proportionate liability - some guidance on concurrent wrongdoers

by Owen Hayford, Vanessa McBride

A recent case says that a person can only fall within the definition of "concurrent wrongdoer" if the plaintiff has a cause of action against that person.

Proportionate liability legislation has been in effect in New South Wales since December 2004 [1], but some areas of the legislation remain shrouded in uncertainty because of a lack of case law and policy guidance or unclear judicial decisions. One such area has been whether or not a person who has contributed to a plaintiff’s loss, but has no legal liability to the plaintiff, can be a "concurrent wrongdoer" as described in the legislation. Some clarity has been provided by the recent Federal Court decision of Justice Besanko handed down in September 2007, Shrimp v Landmark Operations Limited [2007] FCA 1468.

What is a concurrent wrongdoer?

A "concurrent wrongdoer" is defined in the New South Wales and Commonwealth legislation as "a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim" [2]

Concurrent wrongdoer

There is no requirement in that definition for a person to have any legal liability to the plaintiff in order to be a concurrent wrongdoer. On a literal interpretation of the definition, it would be possible for a person or entity to have acted in such a way as to cause damage or loss and thus be a concurrent wrongdoer, even if the plaintiff has no cause of action against them.

This is particularly relevant in the construction industry in relation to defective building work caused by subcontractors. An owner may have a claim against a head contractor for defective building work arising from the act of a subcontractor. The owner will typically, however, have no direct contractual relationship with the subcontractor and, therefore, no contractual claim against the subcontractor. Further, as the subcontractor will usually not owe a duty of care to the owner to avoid the pure economic loss which the owner will suffer as a result of defective work by the subcontractor, the owner will usually not have a claim in negligence against the subcontractor. Despite this, the subcontractor would seem to fall within the definition of a concurrent wrongdoer.

Accordingly, a court could give leave for the subcontractor to be joined as a defendant in the proceedings and then apportion liability to it.

Under the common law as it existed prior to the proportionate liability legislation taking effect, this would not be any obstacle to the plaintiff, as the plaintiff could sue one wrongdoer (eg. the head contractor) for the full amount of the damage, and that wrongdoer may be able to recover a proportion of that loss from other concurrent wrongdoers (the head contractor could sue the subcontractor for a proportion of the loss under contract or negligence). Proportionate liability, however, revolves around the concept that a court cannot make an order that requires one concurrent wrongdoer to be held liable for any more than its proportion of the damage.

The big question

Since the commencement of the proportionate liability legislation, a question has remained as to whether:

  • the plaintiff will not be able to recover the entirety of its loss if there is
    a concurrent wrongdoer for whom the plaintiff does not have a cause
    of action;
  • the legislation will be interpreted so as to provide the plaintiff with a cause of action against a concurrent wrongdoer where it previously would not have had one; or
  • the legislation will be interpreted such that a person can only fall within the definition of "concurrent wrongdoer" if the plaintiff has a cause of action against that person.

The Federal Court provides an answer

The Federal Court of Australia has recently provided an answer to that question, preferring the third possibility. In Shrimp v Landmark, the applicants alleged, inter alia, that Landmark had engaged in misleading and deceptive conduct under the Trade Practices Act 1974 (Cth) ("TPA"). In July 2004, the proportionate liability provisions inserted into the TPA came into effect. Landmark cross-claimed against Mr Gargan who then cross-claimed against a number of other parties.

The applicants to this case contended that a concurrent wrongdoer can only be a person who is liable to the claimant for the relevant loss or damage. The cross-respondents argued that liability was unnecessary and that any person who has caused the damage or loss the subject of the claim is a concurrent wrongdoer.

Justice Besanko gave a clear judgment in favour of the applicants on this issue. He held that the amendment was directed to what were considered to be the undesirable consequences of the joint and several liability rule: "there is no suggestion that the mischief the amendments were designed to remedy was any wider than that. The definition of concurrent wrongdoer seems to be the critical subsection and, in my opinion, the word "caused" in section 87CB(3) should be read as meaning such as to give rise to a liability in the concurrent wrongdoer to the plaintiff or applicant." Justice Besanko stated that the Proportionate Liability Act 1990 (NT) should be interpreted in the same way.

In relation to the TPA, Justice Besanko says:

"There is no doubt that Part VIA effects a significant change in the law in those cases to which it applies. A claimant can no longer recover all of his damages from one of a number of wrongdoers who were previously jointly and severally liable to the plaintiff. The claimant can recover from each wrongdoer only that proportion of the loss and damage claimed that the court considers just having regard to the particular wrongdoer’s responsibility for the damage or loss.

In my opinion, the Part was not intended to go any further than this and the construction of the proportionate liability provisions advanced by Selected Seeds [a cross-respondent] must be rejected. As initially put and applying it to the circumstances of this case, it was submitted that providing it could be said that one or more of the cross-respondents had caused the loss or damage claimed by the applicants within s 87CB(3), and providing they were liable to another party, albeit not the applicants, then their responsibility for the loss and damage was to be taken into account in assessing the extent of Landmark’s responsibility for the damage or loss. Without more, such a construction of the proportionate liability provisions of the TPA would result in a very significant erosion of a plaintiff’s rights as they were before the introduction of the provisions.

As the submissions were developed it became clear that Selected Seeds was contending that although the cross-respondents or one or more of them could be concurrent wrongdoers under s 87CB(3) even though they were not liable to the applicants under the substantive law, the effect of the proportionate liability provisions was that the applicants were given a right of recovery against such cross-respondents as fell within s 87CB(3). That construction would involve a significant alteration of the substantive law. In my opinion, however the argument is put it must be rejected because clear words would be required before one would accept a construction involving such a substantial erosion of a plaintiff’s rights or a change in the substantive law as to the circumstances in which one party is liable to another. There are no such clear words in the provisions and there is no other indication that Parliament intended to change the law so radically or why it would be considered appropriate to do so."

This provides powerful authority for the notion that the New South Wales and other Commonwealth legislation dealing with concurrent wrongdoers under an identical definition should also be interpreted to require a concurrent wrongdoer to have legal liability to the plaintiff.

Shrimp v Landmark supports and extends the position of the Victorian Supreme Court and Victorian Court of Appeal which have recently indicated a preference for an interpretation of the legislation which only permits a court to apportion liability to a defendant against whom the plaintiff has an independent cause of action. For example, in Fletcher Insulation (Vic) Pty Ltd v Renold Australia Pty Ltd [2006] VSC 269, Justice Byrne stated that the contention that the second-named plaintiff, Laminex, was a concurrent wrongdoer under the Wrongs Act 1958 (Vic) in an action for negligence must rely on Laminex having a duty of care to the plaintiff. Justice Byrne concluded "I am not persuaded that … Laminex owed to Fletcher a duty of care so as to lead to a conclusion that it was guilty of any relevant wrongdoing."

In light of this State and Federal case law, the New South Wales judicature would have to move against a strong tide of persuasive authority to interpret the Civil Liability Act 2002 (NSW) in a different manner.

[1] Civil Liability Act 2002 (NSW), Part 4.Back to article

[2] Civil Liability Act 2002 (NSW) section 34(2); Australian Securities and Investments Commission 2001 (Cth), section 12GP(3); Corporations Act 2001 (Cth), section 1041L(3); Trade Practices Act 1974 (Cth), section 87CB. Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.