Australia: Proportionate Liability – Can You Avoid It?

Last Updated: 3 September 2009
Article by Andrew Barclay and Dianna Gu

What Is Proportionate Liability?

Proportionate liability is where more than one person has caused the loss suffered by another. The people causing the loss are called "concurrent wrongdoers". If there are concurrent wrongdoers and proportionate liability applies, the person who has suffered the loss can only recover from each wrongdoer that part of the loss which is a fair reflection of that wrongdoer's share of responsibility for the whole loss. In contrast, if proportionate liability does not apply the "victim" can recover all the loss from any one wrongdoer, who must then seek "contribution" from the others.

When Does Proportionate Liability Apply?

Proportionate liability was introduced to the building and construction industry in Victoria through section 131 of the Building Act 1993 and in New South Wales by section 109ZJ of the Environmental Planning and Assessment Act 1979. Those provisions were replaced with new proportionate liability laws with much wider application. There are now proportionate liability schemes in all States and Territories and the Commonwealth.

The new laws apply to many (but not all) claims for damages arising from a failure to take reasonable care including building and construction disputes.

Is There Anything Wrong With Proportionate Liability?

Although the previous proportionate liability schemes have been replaced, the new laws have not removed their tendency to complicate litigation. In the Victorian Supreme Court building case of Gunston –v– Lawley & Ors the judge said:

"The owners' fairly straightforward claims were transformed into a complex and doubtless expensive suite of proceedings, a phenomenon which is regrettably a not uncommon product of the proportionate liability regime now in force."

This complexity means that there will be many arguments about how court cases ought to be run when the proportionate liability legislation is invoked. It will be some time before the proportionate liability laws are fully "bedded down". This process has been made longer and more difficult because of variations from one proportionate liability scheme to another. The proportionate liability laws are different in every jurisdiction around Australia! For example, Victorian legislation prohibits courts from ordering apportionment of damages against any concurrent wrongdoer who is not made a party to the case. Elsewhere, the courts may apportion liability by having regard to the degree of responsibility of a person who is not a party. These differences mean that principles and practices developed in one Australian jurisdiction may not apply in any other.

Can You Avoid Proportionate Liability?

Due to this uncertainty and for other reasons, parties may wish to avoid proportionate liability applying to their dispute. Defendants are unlikely to want this because proportionate liability reduces their liability for damages. However, a plaintiff probably has the opposite view.

In some circumstances the plaintiff may be a person who has been able to exclude proportionate liability by the terms of contracts made with one or more of the parties who have become defendants. However, such "contracting out" is only permitted in some jurisdictions and even where it is allowed, you may not be able to get the other party to a contract to take on the risk of greater liability which would be the result of an agreement to opt out of proportionate liability.

Carefully Crafted Pleadings

Another possible way to limit the application of proportionate liability is by careful attention to the way in which a claim is made. This is because proportionate liability does not apply to claims that do not arise from a failure to take reasonable care. A claim for breach of a contractual warranty may fall into this category. In an article printed in the Building Disputes Practitioners' Society Newsletter of September 2006, David Byrne (the judge in Gunston –v– Lawley & Ors) said that, when preparing a case, a lawyer who does not want proportionate liability to apply "would do well to plead the claim so as to avoid any suggestion that it is for monetary compensation for work done without reasonable care."

But will such an approach work? The decisions in two recent cases suggest not. In the 2009 Victorian Supreme Court case of Solak –v– Bank of Western Australia Ltd the judge said that the purpose of proportionate liability was to make sure that each wrongdoer should only pay their fair share of the loss. The judge said "that task ought not to be frustrated by arid disputes about pleadings". The judge's suggestion that the pleadings are not important in this context, is supported by the earlier (2007) case of Dartberg Pty Ltd –v– Wealthcare Financial Planning Pty Ltd where another judge said:

Even though the claims in this proceeding themselves do not rely upon any plea of negligence or a failure to take reasonable care in a strict sense, a failure to take reasonable care may form part of the allegations or the evidence that is tendered in the proceedings. At the end of the trial after hearing all the evidence, it may be found that [the system of proportionate liability] applies.

Going by these cases it seems that at least in Victoria even carefully crafted pleadings may not help avoid the impact of proportionate liability on building cases. But because the proportionate liability law in each Australian jurisdiction is different, these Victorian cases may not apply elsewhere. In each case, a check of the relevant law will be required.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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