Allens

Disputes & Investigations

Increase text sizeDecrease text sizeDefault text size

Focus: Draft model proportionate liability legislation to reform system

21 September 2011

In brief: Multiple defendants will find it easier to attract proportionate liability to claims made against them under draft model legislation to reform Australia's proportionate liability laws. Partner Paul Nicols (view CV) and Senior Associate Philip Hopley report on the proposals, which have been released for public consultation.

How does it affect you?

  • The model legislative proposals are intended to reform the current national system of proportionate liability to make it more consistent and workable.
  • In general terms, the effect of the proposals will make it easier for multiple defendants to attract proportionate liability to claims made against them.
  • Two of the most significant proposals are that:
    • contracting out of proportionate liability is to be prohibited except between parties to agreements that have a value of more than $5 million or, alternatively, $10 million (the applicable threshold is still to be determined); and
    • defendants will be able to offset any apportioned liability by enforcing existing contractual indemnities against other concurrent wrongdoers.
  • Submissions on the proposals are due by 7 October 2011. Following this, and subject to any further amendments, each jurisdiction will need to amend its current proportionate liability legislation laws to adopt the model laws.

Background

Proportionate liability legislation was introduced into each Australian jurisdiction between 2002 and 2004 for claims involving economic loss and property damage to replace the long-standing system of joint and several liability.

This legislation had the effect that multiple defendants would, in general terms, only be potentially liable to pay for the loss they were responsible for causing. So-called 'deep pocket' defendants, such as professional advisers, would no longer face the prospect of becoming liable to pay the whole of a plaintiff's claim where their conduct contributed little to the loss suffered.

It became clear within a few years of their enactment that the national proportionate liability laws lacked clarity and consistency, particularly for claims involving more than one jurisdiction. There has also been a continuing debate about whether parties should be permitted to contract out of the proportionate liability regime.

Following an extensive review of the current proportionate liability legislation by the Standing Committee of Attorneys-General (SCAG), which has been on foot since 2007, it released draft model proportionate liability legislative provisions for public consultation on 16 September 2011.

The model provisions are broadly in line with the drafting instructions that were published in October 2008, but there are some new and important differences. The main proposed changes are as follows.

Redefining what is an 'apportionable claim'

It is being proposed that the existing definition, which is based on an action for damages resulting from a failure to take reasonable care or from statutory misleading or deceptive conduct, will remain. It is to be expressly recognised for the first time that this may include a claim based on the breach of a strict contractual obligation, such as a warranty.1

There is continuing support for the view that a failure to take reasonable care is ultimately a matter for the court to determine, regardless of the parties' pleaded cases.

The drafting loophole by which certain types of misleading or deceptive conduct claims may be pleaded in such a way as to avoid being defined as apportionable claims, and so circumvent proportionate liability, is to be closed.

In addition, the current carve-out for consumer claims in Queensland, the ACT and Northern Territory is proposed to apply nationally.2

Redefining who is a 'concurrent wrongdoer'

Two new significant changes are being proposed. The first is that multiple defendants will no longer have to prove that their conduct caused the same loss or damage to the plaintiff in order to be deemed a concurrent wrongdoer.

This is an issue that, although consistent with the position under the law of joint and several liability for contribution claims, is regarded by SCAG as causing legalistic, technical disputes. It is being proposed instead that a concurrent wrongdoer will be defined as one of two of more defendants whose conduct causes, either independently or jointly, the same or 'substantially or materially similar' loss or damage. The requirement that each concurrent wrongdoer has to be legally liable to the plaintiff is to remain.3

Second, while almost all jurisdictions currently provide that a concurrent wrongdoer may be a person who has died or a company that is insolvent or has ceased to exist, this category is to be extended to include those whose liability has been extinguished. This will therefore include a concurrent wrongdoer whose liability to a plaintiff has been extinguished as a result of an earlier settlement or by the expiry of a limitation period.4

Changes to the way in which liability is apportioned

When apportioning liability between parties to proceedings, the model provisions are to uniformly provide that the liability of non-party concurrent wrongdoers may also be taken into account.5 This is currently prohibited in Victoria.

In addition, it is being proposed that any loss caused by the contributory negligence of the plaintiff is to be taken into account before the court apportions responsibility between the defendants. At present, the ability to use a defence of contributory negligence in this way can depend on the precise cause of action pleaded in those jurisdictions where it is available.6

Notification of other wrongdoers

As anticipated, the current expectation-based system of notifying other wrongdoers, which currently applies in New South Wales, is proposed to be moved to one that imposes a uniform express notification obligation.

Concurrent wrongdoers will be obliged to give a claimant information about the identity, location and culpability of others who they have reasonable grounds to believe may be a concurrent wrongdoer. This notification must be done within a reasonable time after either becoming aware of the information or becoming a party to the proceedings, whichever is later.7

A novel extension of the notification obligation is that a concurrent wrongdoer will also be expected to notify the suspected concurrent wrongdoer, if possible, as well as the court.

The proposed penalties for failure to comply with the proposed new notification regime are potentially harsh. In addition to paying for costs thrown away by the failure to comply, a court may order that a concurrent wrongdoer be held jointly and severally liable for any award of damages made.

Subsequent proceedings

At present, an issue of concern is that a claimant who obtains an award of damages against a non-party concurrent wrongdoer, and who then pursues that party in separate proceedings to recover that share of damages, may find that a second court apportions its liability at a different level.

Again, as anticipated, the new proposals are to apply stricter conditions to claimants who pursue non-party wrongdoers in subsequent proceedings. In addition to requiring leave from the court to commence further proceedings, the judgment in the first set of proceedings will now determine for any later proceeding:

  • the amount of the claimant's notional damages;
  • the minimum liability of each concurrent wrongdoer party to the first proceedings; and
  • the minimum contributory negligence of the claimant, if any.8

Significantly, there is to be a presumption that a claimant will not be entitled to recover its costs of bringing a subsequent proceeding unless it can satisfy the court that there were reasonable grounds for doing so.9

Contracting out and contractual indemnities

It is being proposed that contracting out of proportionate liability is to be prohibited across all jurisdictions, but that a carve-out will permit contracting out between parties to agreements with a total consideration of more than $5 million or, alternatively, $10 million (the applicable threshold is to be set following consultation).10 At present, contracting out is permitted without restriction in New South Wales, Western Australian and Tasmania.

This proposal appears to have been advanced by SCAG following discussions with government bodies. These suggested that a $5 million or $10 million cap would ensure that contracts above these levels would generally only involve large infrastructure projects, where the need to be able to allocate risk solely on a contractual basis is the greatest. The expectation, therefore, is that most professional service providers (and their insurers) will be protected by the proposed prohibition on contracting out.

The current uncertainty about whether a concurrent wrongdoer may legitimately reduce its share of apportioned liability by relying on an existing contractual agreement by which another concurrent wrongdoer agrees to contribute towards, or indemnify its loss, is proposed to be ended by expressly permitting such arrangements.11 If so, this will mean that the national laws will follow the current position in Western Australia, Tasmania and the Northern Territory.

Promoting early settlement

To encourage and facilitate the early settlement of disputes and to overcome some of the practical difficulties that have been experienced in jurisdictions such as Victoria, it is being proposed that any pre-trial settlements will not be taken into account by a court when apportioning liability among the remaining concurrent wrongdoers. The court is to approach and determine apportionment between all concurrent wrongdoers as if the claimant had not settled any part of its claim.12

This proposal will also help remove the current risk that a defendant who settles with a claimant may be brought back into the proceedings at a later date by a remaining defendant who makes a claim for contribution.

Agents and arbitrations

As anticipated, the model provisions propose that the exclusion from proportionate liability for claims involving the liability of agents to their principals is to extend beyond Queensland, Victoria and the ACT to all jurisdictions.13

In addition, proportionate liability is proposed to apply to arbitrations and other forms of alternative dispute resolution for the first time.14 While SCAG considers there are strong policy reasons for doing so, it recognises there will be a significant practical impediment to enforcement because of the fact that arbitrators generally cannot make a binding award against a concurrent wrongdoer who is not a party to the arbitration agreement. Accordingly, claimants in this position will need to consider commencing separate court proceedings against non-parties.

Comment

Stakeholders and others will wish to consider to what extent the draft model provisions, if enacted, will adversely affect their position under the current proportionate liability laws, and to monitor developments in this area.

It is likely that there will continue to be active debate, and possibly further legislative recommendations, on how contracting out should be addressed, and whether a blanket permission or a uniform or partial prohibition is the fairest and most effective solution to this issue.

Footnotes
  1. Clause 2(2).
  2. Clause 2(3)(b).
  3. Clause 3(1).
  4. Clause 3(2)(b).
  5. Clause 5(2)(b).
  6. Clause 5(2)(a).
  7. Clause 6.
  8. Clause 9(2), (3), (6).
  9. Clause 9(4), (5).
  10. Clause 11(2).
  11. Clause 11(3).
  12. Clause 5(2), 8.
  13. Clause 12(1)(b).
  14. Clause 1.

For further information, please contact:

Share or Save for later

What are these?

 

To save this publication on your smartphone or
tablet for off-line reading (eg on a plane flight),
we recommend Pocket.

 

 

You can leave a comment on this publication below. Please note, we are not able to provide specific legal advice in this forum. If you would like advice relating to this topic, contact one of the authors directly. Please do not include links to websites or your comment may not be published.

Comment Box is loading comments...