Proportionate Liability - Civil Liability Act - July 2006
Timing:
Part 4 of the Civil Liability Act dealing with Proportionate Liability commenced on 1 December 2004
Part 4 applies to liability on and after 26 July 2004.
Part 4 was inserted to the Act by the Civil Liability Amendment (Personal Responsibility) Act 2002 (the 2002 Amending Act).
The 2002 Amending Act stipulated that the amendments extended to Civil Liability arising before the commencement of the amendments, but do not apply to or in respect of proceedings commenced in a court before that commencement . As the commencement date for insertion of Part 4 into the Act is 1 December 2004, it follows that the provisions of Part 4 apply to proceedings issued on and after 1 December 2004.
26 July 2004 was chosen as the date from which liability arises, to bring the Act into line with the amendments to the Trade Practices Act and the Australian Securities and Investment Commission Act 2001 , as inserted by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (CLERP) . The amendments to the Trade Practices Act brought in Proportionate Liability to apply to causes of action in contravention to Section 52 of the TPA (misleading or deceptive conduct) arising on or after 26 July 2004, the date the CLERP Act commenced.
Victoria:
Part IV AA - Proportionate Liability was inserted into the Wrongs Act 1958 to be effective from 1 January 2004. The Part applies to proceedings commenced on or after 1 January 2004; S.24AS.
To what claims does Proportionate Liability apply?
Part 4 (s.34(1)) applies to "apportionable claims" which are as follows:
(a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including any claim arising out of personal injury,
(b) a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 1987 for a contravention of Section 42 of that Act.
Section 42 concerns misleading or deceptive conduct.
Apportionable claims relate to a defendant who is a "concurrent wrongdoer". That is one of two or more persons whose acts or omissions caused, independently of each other or jointly, the damage or loss that is the subject of the claim; S.34 (2).
It does not matter that a concurrent wrongdoer is insolvent, being wound up, has ceased to exist, or is dead; S.34 (4).
Concurrent wrongdoers cannot take advantage of Part 4 if:
(a) They intended to cause the economic loss or property damage, or
(b) They fraudulently caused the economic loss or property damage, or
(c) Their liability was otherwise of a kind excluded by Section 3B (s.34A).
Section 3B of the Act refers to actions where the Act is not to apply including dust diseases, motor accident, and workers compensation. Most of these actions relate to personal injury.
Victoria:
The provisions include a claim under s9 of the Fair Trading Act 1999 relating to misleading or deceptive conduct.
The provisions do not apply to protect a defendant where the defendant is guilty of fraud; S.24AM
How does Proportionate Liability work?
The liability of a defendant who is a concurrent wrongdoer is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss; s.35(1)(a).
The court cannot give judgment against the defendant for more than that amount; S.35 (1)(b).
The plaintiff's contributory negligence is first deducted from the damages.
Liability for the net damages is then apportioned between the concurrent wrongdoers and the court may have regard to the comparative responsibility of a concurrent wrongdoer who is not a party to the proceedings; S.35 (3).
The apportionment applies whether or not all concurrent wrongdoers are parties to the proceedings; S.35 (4).
Victoria:
The provisions differ in that a court cannot apportion responsibility to a person who is not a party to the proceedings, unless the person is not a party to the proceedings because the person is dead or, if a corporation, it has been wound up; S.24AI(3).
Thus while a concurrent wrongdoer can be a corporation that is insolvent, as in NSW, such a party will not have liability apportioned to it unless it is a party to the proceedings or has been wound up.
NSW: may have regard to a non party:
What is the effect of the word "may" in S.35(3) of the Civil Liability Act ? In Western Australia, the court "is" to have regard to the responsibility of a non party.
Currently in NSW, in public liability personal injury matters where an employer of the plaintiff is also at fault, the defendant can have its liability reduced by the extent of the liability of a non party employer if it had been joined; S.151Z(2) Workers Compensation Act 1987 . This provision has now been in force for many years. The courts have become comfortable with reducing the liability of defendants by the liability of employers not sued. Typically in the case of a labour hire organisation being the employer, where the plaintiff worker is under the control of the defendant, the liability of the defendant can be reduced by about 15%. But the relevant words in S.151Z(2) state that the damages to be recovered from the defendant "are to be reduced" by the employer's contribution. Thus it is mandatory to make the deduction where there is fault by the non party employer.
In S.35(3)(b) of the Civil Liability Act , the wording does not make it mandatory for the court to have regard to non parties.
Commentators have suggested that it may be beneficial to utilise the absence of a non party to make arguments for its contribution which cannot be refuted; Australian Insurance Law Bulletin March 2005 , Recent developments in proportionate liability, Michael Quinlan, Mark Lindfield and Stephen Sander Allens Arthur Robinson. However, our concern is that the word "may" may mean that the court "may not" have regard to the non party's liability. This will of course depend on the evidence presented case by case. But our suggestion is that defendants look very closely before relying on the S.35(3)(b) to justify not joining a further party (cross-defendant).
The use of the word "just" as against "just and equitable":
Why is this so? The contribution between tort feasors provisions of the Law Reform (Miscellaneous Provisions) Act 1946 refer to the contribution to be 'just and equitable'. Is there any significance in the failure to use the words "and equitable"?
Practically speaking, we do not consider that the difference is significant. Where a trial judge is determining the liability of concurrent wrongdoers as "just" we expect that he or she will be using the same criteria as with the words "just and equitable"; the degree of fault and the significance of the acts which caused the damage, along with other issues which may be relevant such as misleading or deceptive conduct. When looking at causation, the courts will most likely still look to the "material contribution" of a party's wrongdoing leading to the loss.
The difficulty on appeal:
Commentators have raised the prospect of appeals on apportionment decisions being very difficult to succeed; - Associate Professor Barbara McDonald, University of Sydney, Australian Bar Review January 2005 . Associate Professor McDonald referred to the case law in emphasising the importance of a judge's discretion when deciding what is a just apportionment. She referred to Podrebersek v. Australian Iron & Steel Pty Ltd where the High Court held in relation to a finding on a question of apportionment relating to contributory negligence:
"It involves an individual choice or discretion as to which there may well be differences of opinion by different minds…Such a finding, if made by a judge, is not lightly reviewed."
Example A: Plaintiff - Farm Owner
D1 - livestock consultant recommends a certain product to be fed to the Plaintiff's calves.
D1 recommends obtaining the product from supplier D2.
P purchases product from D2.
P overfeeds calves.
Calves die because of a combination of being overfed and a chemical imbalance in the feed product.
P farmer suffers economic loss as a result of the death of his calves.
P sues D1 and D2.
Evident that feed product not suitable for the type of calves owned by P and manufacturer improperly mixed feed product leading to chemical imbalance.
D1 liable for recommending feed product not suitable to the calves.
D2 liable for supplying a feed product not fit for purpose intended.
Manufacturer not joined because insolvent and no insurance at date of loss.
The claim is $100,000
Court finds 10% contributory negligence in P overfeeding calves.
Net $90,000
D1 30% responsible
D2 30% responsible
Manufacturer 40% responsible
Damages awarded: against D1: $27,000 (30% of $90,000)
D2: $27,000_____
P recovers $54,000
But for Part 4 P would recover $90,000 from the defendants and liability would be apportioned in accordance with cross claims: (joint and several liability).
Example B: Plaintiff - house owner
D1- owner of adjoining property
D2- developer/head contractor
D3- piling contractor
P claims damages for damage suffered to his house arising from the subsidence of his premises.
D1 and D2 were developing the adjoining lot.
D3 was the piling contractor
D1 had indemnity dispute with its insurer on the grounds of non-disclosure and a breach of a condition of the policy requiring supervision of building work. The insurer was joined by a cross-claim.
Building company and excavating company (both insolvent and without insurance) not sued.
Damage occurred in July/August 2001.
Proceedings commenced in 2002
Proportionate liability provisions under the CLA do not apply.
D3 amended its defence to plead s109 ZJ of Environmental Planning and Assessment Act 1979 (NSW) or in the alternative, s24 of CLA.
Assume P entitled to damages of $1m.
D1 25% responsible.
D2 10% responsible
D3 30% responsible
Builder 20% responsible
Excavator 15% responsible
If D1 unsuccessful in its claim for indemnity against insurer, D1 has no assets to pay for any damages.
P recovers from D2 $100 000.
P recovers from D3 $300 000.
But for the proportionate liability provisions, P would recover $1m from the defendants and liability would be apportioned in accordance with cross claims; (joint and several liability).
Example C: Plaintiff - Principal of the site
Defendant - Head contractor
Non party - sub contractor scaffolder.
Facts: sub-contractor erects scaffolding to allow brick wall to be constructed. Scaffolding collapses and pulls down part of wall of building causing damage and loss.
Principal seeks cover from its first party property insurer.
Five years later, property insurer brings a subrogated recovery action against head contractor.
By this time the scaffolder has gone out of business and is insolvent.
Scaffolder had public liability insurance at date of loss.
Head contractor does not join the scaffolding company because it is insolvent, has been wound up and has been deregistered.
There was a contractual indemnity in favour of the head contractor from the scaffolder, pursuant to the written sub contract.
The head contractor pleads Part 4 of the NSW Civil Liability Act and gives notice to the plaintiff that the insolvent scaffolder is a concurrent wrongdoer.
The court is obliged to determine the liability of the defendant head contractor to the plaintiff's loss being a proportion of the loss which the court considers just having regard to the extent of the head contractor's responsibility.
The head contractor defendant will argue that the fault is entirely that of the scaffolder and in any event it had the benefit of a complete indemnity from the scaffolder by virtue of the sub contract.
But the court may decide that the indemnity is a matter between the head contractor and the scaffolder. The court may consider that the head contractor's supervision of the scaffolder was not sufficient and may consider that the head contractor's liability is 50%.
The court may have regard to the comparative responsibility of the non party concurrent wrongdoer: the scaffolder, and find the liability of the defendant to be 50% of the plaintiff's loss.
The advantage to the defendant is that its liability is restricted to 50% and not 100% by virtue of joint and several liability.
The risk to the defendant is the word "may" in Section 35(3)(b). It is not mandatory that the court have regard to the responsibilities of the non party.
The disadvantage to the defendant is that if it has not joined the sub contractor to the proceedings by virtue of the contractual indemnity, it cannot obtain a verdict on a cross-claim against the sub-contractor the defendant's 50% responsibility to the plaintiff.
The effect of this is that as with proceedings before the commencement of Part 4, the head contractor will still attempt to have the wound up sub contractor re registered for the proceedings, or attempt to join the sub contractor's insurer at the date of loss pursuant to s6 of the Law Reform (Miscellaneous Provisions) Act 1946 .
That may in itself raise difficulties if the insurer declines indemnity to the sub-contractor for reasons such as the sub contractor's contractual indemnity to the head contractor falling foul of a contractual liability exclusion in the sub contractor's liability policy.
The practical effect of all these issues is that in this example we can see a defendant taking steps, as it would have done before Part 4 to join the non party to the proceedings or to join its insurer to the proceedings.
The obligation on a defendant (concurrent wrongdoer) s.35A:
If a defendant has reasonable grounds to believe that another person may be a concurrent wrongdoer, and
The defendant fails to give the plaintiff as soon as practicable written notice of the information that the defendant has about:
(i) the identity of the other person, and
(ii) the circumstances that may make the other person a concurrent wrongdoer in relation to the claim and
the plaintiff unnecessarily incurs costs in the proceedings because the plaintiff was not aware that the other person may be a concurrent wrongdoer in relation to the claim,
the court hearing the proceedings may order that the defendant pay all or any of those costs of the Plaintiff.
The court may order that the costs be paid on an indemnity basis.
Note the emphasis on reasonable grounds to consider that another person may be a concurrent wrongdoer.
Returning to Example A:
The obligation is on the current defendants, being concurrent wrongdoers, to advise the plaintiff as soon as practicable of information concerning the manufacturer's responsibility.
Assume no information is given and the case proceeds to trial. The plaintiff ascertains during the course of the trial the potential fault of the manufacturer, and applies for the hearing to be vacated to give the plaintiff time to join the manufacturer (assuming manufacturer has insurance or is still solvent). The court could award costs, including indemnity costs, against the defendants. But the costs should be restricted to costs thrown away by the preparation for hearing and the hearing, being the unnecessary costs incurred because the plaintiff was unaware of a potential third defendant.
Recoveries and contribution claimed:
Multi defendant matters where all concurrent wrongdoers are joined:
The damages, net of contributory negligence, are divided amongst the concurrent wrongdoers having regard to their comparative responsibility; S.35.
Concurrent wrongdoers are not required to contribute to damages recovered from another concurrent wrongdoer; S.36 (a).
Where all concurrent wrongdoers not joined to the original action:
The concurrent wrongdoers in the original actions only pay their proportion; ss.35(1)(a) and 35(3)(b).
A plaintiff can, subject to the Limitation Act , bring a subsequent action against another concurrent wrongdoer; s.37(1).
This would be for the apportionable part of the claim not recovered in the original action. The plaintiff cannot recover damages exceeding his total loss (double recovery); s.37(2).
In the subsequent action the concurrent wrongdoer joined cannot join the previous defendant who has already paid its proportion. The original defendant cannot be required to indemnify the subsequent defendant (concurrent wrongdoer); s.36(b).
Returning to Example A:
Assuming the manufacturer is solvent P could issue subsequent proceedings against it for the outstanding 40% of damages. The original two concurrent wrongdoers, having paid their proportion, could not be joined to the subsequent proceedings. A court cannot give leave for the joinder of a person who was a party to previously concluded proceedings in respect of the apportionable claim; s.38 (2).
What happens in the case of a contractual indemnity?
Section 36(b) provides that a concurrent wrongdoer cannot be required to indemnify another concurrent wrongdoer in respect of the apportionable claim.
However, section 3A(2) of the Act provides:
This Act (except Part 2) does not prevent the parties to a contract from making express provision for their rights, obligations and liabilities under the contract with respect to any matter to which this Act applies and does not limit or otherwise affect the operation of any such express provision.
Part 2 of the Act concerns the assessment of personal injury damages.
The Act therefore allows parties to contract out but for Part 2.
Returning to example A:
Assume D1 consultant was the agent of D2 supplier.
Assume it was part of the Agency Agreement that D1 indemnify D2 if the damage or loss was caused party or wholly by the wrongful advice of D1.
It would follow from the contractual obligation that D1 should indemnify D2 to the extent of D2's liability to the plaintiff (ie. 30% - $27,000).
This contractual liability between defendants is left open by s.3A(2).
Of course, such a contractual liability may not be covered by the Broadform Indemnity Policy with D1's insurer.
Assume the concurrent wrongdoers are defendants in the same action and that there is a claim for a contractual indemnity passing from one defendant to another. The liability for the "apportionable claim" is determined in accordance with Part 4; s.35(2)(a). The liability for the contractual indemnity claim is determined in accordance with the legal rules relevant apart from Part 4; s.35(2)(b).
Liability apportioned between D1 and D2, 30% each.
Law with respect to contractual indemnity clauses; eg. Leighton Contractors Pty Ltd v. Smith, [2002] NSWCA 55 is applied to make D1 liable in contract to D2 for its proportion.
Other matters
Liability arising from 26 July 2004 :
It is not clear why the Government chose to exclude a civil liability "if the liability arose before 26 July 2004" instead of using the same words as in the Federal legislation; applying to the causes of action that arise on or after 26 July 2004.
It is arguable that liability does not arise until a defendant is found liable ; ie the date of judgment. A cause of action is the act or omission which gives rise to the loss.
Example A :
Assume advice from consultant D1 1 January 2004 and assume supply by D2 1 February 2004.
The plaintiff commences his action on 1 January 2006.
Part 4 applies as action commenced after 1 December 2004.
But did liability arise before 26 July 2004?
It is consistent with the CLERP Act that the liability arises from when the act or omission occurs; the cause of action. As the advice from the consultant was given on 1 January 2004 and the supplier on 1 February 2004, Part 4 will not apply. On this construction of the transitional provision to Part 4, the Part will not apply unless the cause of action arose on or after 26 July 2004.
The alternative construction is that liability arises when the judgment is delivered . As long as the apportionable claim is commenced on or after 1 December 2004 the action is maintainable notwithstanding that the act or omission causing the loss arose before 26 July 2004.
How will the courts resolve this dilemma?
Given that the 26 July 2004 date was chosen to make the operation of Part 4 consistent with the CLERP reforms, and given that the CLERP amendments relate to causes of action arising on or after 26 July 2004, we feel that the courts will interpret the word "liability" to mean "causes of action" arising from 26 July 2004.
Trade Practices Act :
The causes of action to which the CLERP Act applies are restricted to economic loss or property damage claims relating to actions in breach of section 52; misleading or deceptive conduct.
Otherwise, the proportionate liability in the new Part VIA is in the same terms as Part 4 of the Civil Liability Act .
Part 4 has a much wider application than Part VIA of the TPA . It applies to actions for damages whether in contract, tort or otherwise, arising from a failure to take reasonable care , as well as misleading or deceptive conduct under section 42 of the Fair Trading Act, 1987, NSW .
Conclusion
The aim of Part 4 is to limit liability to defendants, who are joined in economic loss and property damage matters, to their proportion of liability. As these actions have a longer limitation period in NSW than personal injury actions; 6 years as against 3 years, the prospect of potential defendants being insolvent at the time of the proceedings is greater than in personal injury actions (but for actions relating to minors).
Part 4 is an attempt to make contribution claims more simple and less costly. However, it will not prevent cross claims which fall outside the scope of the claims covered by Part 4; ie claims for contractual indemnities between defendants. Furthermore the non mandatory wording of Part 4 with respect to findings against non parties will encourage defendants to join cross defendants, as before.
It is difficult to see Part 4 having any benefit to plaintiffs as the concept of joint and several liability is taken away in economic loss and property damage claims. But there is a provision for cost penalties against defendants who do not advise plaintiffs of concurrent wrongdoers.
Patrick Thompson
13 July 2006
