Reinhold v NSW Lotteries Corporation (No. 2) [2008] NSWSC 187
The NSW Supreme Court determined in this case that the proportionate liability regime has broad application to contractual actions where the damage or loss was factually due to a 'failure to take reasonable care' regardless of the basis of the cause of action.
Background
The plaintiff purchased from a newsagent a lottery ticket issued by NSW Lotteries. However, the ticket was only partly printed, so the newsagent issued a second ticket and, in accordance with standard procedure, rang Lotteries to cancel the first ticket. However, both Lotteries and the newsagent failed to properly follow the standard procedure for cancellation of a lottery ticket, involving verification of the ticket to be cancelled. This caused a mix-up, meaning the second ticket (and not the first ticket) was cancelled.
The plaintiff's elation at winning the $2 million lottery with the second ticket was quickly subdued when he was informed by Lotteries that his ticket had been cancelled and that it would not pay.
The plaintiff brought proceedings against both the newsagent and Lotteries in the Supreme Court of NSW in both negligence and contract. The plaintiff's action in negligence was that each of the newsagent and Lotteries had been negligent in the cancellation of the second lottery ticket. The plaintiff's action in contract was for breach of an express term that the ticket could only be cancelled upon presentation for cancelling, which had not occurred with the second ticket.
Justice Barrett held that both the newsagent and Lotteries were liable in both negligence and for breach of contract for the cancellation of the second ticket.
Operation of proportionate liability regime
The newsagent and Lotteries contended that their liabilities in both tort and contract were limited by the proportionate liability regime, in order that they might have separate limited liabilities rather than a joint solidary liability to the plaintiff. If they had a joint solidary liability, the plaintiff could enforce judgment against either the newsagent or Lotteries up to the full amount of the judgment of $2 million, whereas if they had separate limited liabilities the plaintiff could only enforce the separate judgments against each and would bear the risk in that either were unable to satisfy their separate judgments.
In order for the proportionate liability regime to apply, the plaintiff's action need to be an 'apportionable claim' defined under s34(1) Civil Liability Act 2002 (NSW) as 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'.
There have been competing views as to what type of contractual actions arise from 'a failure to take reasonable care' in order to be an apportionable claim under s34(1). It has been contended that the contractual action must be (in increasing scope of application):
- A claim pleaded as an alleged breach of an express or implied term of the contract to exercise reasonable care
- A claim which could be (but is not necessarily) pleaded as an alleged breach of an express or an implied term of the contract to exercise reasonable care or
- A claim for breach of contract which arises factually from a failure to take reasonable care.
The plaintiff contended that the contractual action needed to be for breach of an express or implied term to take reasonable care in order to be an apportionable claim, whereas the breach he alleged against the newsagent and Lotteries was of an express term relating to the circumstances entitling cancellation of the ticket.
Judgment
In interpreting s34(1), Justice Barrett considered that the language of the section required only that, factually, the claim arose from a failure to take reasonable care such that it did not matter whether the breach of contract was or could be pleaded as a failure to take reasonable care. His Honour stated:
'A claim may properly be regarded as one "arising from a failure to take reasonable care" if, "at the end of the trial" the evidence warrants a finding to that effect and regardless of the absence of "any plea of negligence or a failure to take reasonable care"...The nature of the claim... is to be judged in the light of findings made and is not determined by the words in which it is framed.'
His Honour contrasted s34(1) with the amendment made in 2000 to Part 3 Law Reform (Miscellaneous Provisions) Act 1965 (NSW) for contributory negligence defences in contract following the decision in Astley v Austrust Limited. Those amendments applied to a narrower form of contractual breach being a 'breach of a contractual duty of care that is concurrent and co-extensive with a duty of care in tort'. As s34(1)(a) was not so narrowly expressed, His Honour considered that it demonstrated a legislative intention to go beyond contractual duties existing "in parallel" with duties of care in tort.
As his Honour considered that the plaintiff's damage arose factually from a failure to take reasonable care, on the basis of his interpretation of s34(1), the plaintiff's claim was subject to the proportionate liability regime.
In undertaking the apportionment exercise under s35(1)(a) CLA, His Honour considered that it was appropriate to consider the same matters as with determining contribution between joint / several tortfeasors under s5 Law Reform (Miscellaneous Provisions) Act 1946 (NSW). That is, the relative culpability and causal responsibility of each tortfeasor or wrongdoer.
As Lotteries had been responsible for the introduction of the procedure for cancellation of tickets, and had failed to follow it own verification process, the Court held that it was 90% responsible for the plaintiff's damage and that the newsagent was 10% responsible. As such, the plaintiff obtained separate judgments (exclusive of interest) against Lotteries and the newsagent for $1.8 million and $200,000.00 respectively.
Further, as the proportionate liability regime applied, neither Lotteries nor the newsagent could be required to contribute or indemnify the other under s5 Law Reform (Miscellaneous Provision) Act 1946. Consequently, the cross-claims between Lotteries and the newsagent were dismissed.
Comment
This first instance judgment suggests that the proportionate liability regime will have the broadest possible application to contractual claims, and will not just be limited to claims which are, or could be, pleaded as breaches of express or implied terms to take reasonable care. Whilst it is pleasing to receive some judicial guidance on the operation of the proportionate liability regime, it remains to be seen whether the broad application to contractual actions achieves desirable outcomes against intended contractual allocations of risk and the apparent ability to contract out of the regime's application.
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.
