Proportionate liability: how it came about Proportionate liability: how it came about

Proportionate liability: how it came about

29 September 2017 | Professional Indemnity & Financial Lines

The courts identify a problem with the system of joint and several liability

[A] well insured defendant, who may perhaps be responsible for only a minor fault in comparison with the fault of other persons, may nonetheless be made liable, at least in the first instance, for the entirety of the damage suffered by the plaintiff. The defendant may indeed seek contribution from other persons responsible for the damage. [But] why should the whole of the burden of possibly insolvent wrongdoers fall entirely on a well insured, or deep pocket defendant?[1]

In 1992, the Chief Justice of the Supreme Court of New South Wales pointed out that the system of joint and several liability that the courts used to decide tort cases was unfair to insurers and other wealthy defendants.

In the quote above, the Chief Justice was referring to the situation where two or more defendants were both liable to a common plaintiff for the same damage. Under a system of joint and several liability, a plaintiff could elect to sue only the wealthier or insured defendant in a bid to recover the whole of its loss even if that defendant was, from a practical perspective, only partially responsible for the loss.

Although, in these kinds of cases, the defendant had a right of contribution against another wrongdoer, this did not help it in cases where the other wrongdoer was insolvent or uninsured.

In short, under the system of joint and several liability, the well-heeled defendant bore the risk when it came to litigation.

An inquiry into the law of joint and several liability

In February 1994, the Commonwealth Attorney General and his NSW counterpart established a general inquiry into the law of joint and several liability led by Professor JLR Davis.[2]

The report made a number of broad recommendations. One of those recommendations was that joint and several liability be abolished and replaced by a scheme of proportionate liability in all actions based on the tort of negligence where a plaintiff’s claim was for property damage or for pure economic loss.[3]

Professor Davis’s recommendations were partly based on the reality that the cost of liability insurance was becoming prohibitive for both professionals and local authorities.

Interestingly, Professor Davis’s recommendations were largely ignored until 2001 when Australia’s largest insurance group, HIH Insurance, collapsed, leading to a country-wide insurance crisis. During the crisis, the cost of insurance premiums increased dramatically, and the consequent unavailability of insurance coverage posed real difficulties for professionals seeking to insure themselves against liability claims.[4]

The Ipp Report

In September 2002, the Review of the Law of Negligence Final Report (chaired by Justice Ipp) was released. The report noted that, under a system of joint and several liability, deep pocketing forced insurers to set premiums on the basis that their insureds would be completely liable for a plaintiff's loss, even though the insured's actual responsibility for the loss may be relatively minor.

The introduction of proportionate liability legislation

In the mid-2000s, following the Ipp recommendations, the various Australian states and territories, as well as the Commonwealth Government, introduced proportionate liability legislation covering a range of situations.[5]

From a practical perspective, the reforms were vital for professionals and their insurers, as they:

  • protected professionals who are only marginally at fault for a claimant’s loss and damage;
  • limited a professional’s liability to a claimant by taking the contributing conduct of others into account;
  • transferred the risk of litigation from the negligent professional to the aggrieved claimant;
  • allowed insurers to reduce premiums with the knowledge that in many instances their insured’s liability will be limited; and
  • ensured that professional indemnity insurance was more attainable and affordable.

[1] AWA Ltd v Daniels t/as Deloitte, Haskins & Sells (1992) 10 ACLC 933 [1022].
[2] Inquiry into the Law of Joint and Several Liability, Attorney General’s Department, Commonwealth of Australia (1994).
[3] JLR Davis, Inquiry into the Law of Joint and Several Liability Report of Stage 2, Attorney General’s Department, Commonwealth of Australia (1995).
[4] See, generally, Nicholson J, Reflections on the Practical Operation of the (not very) Uniform Proportionate Liability Regimes in Australia, Australian Insurance Law Association, Geoff Masel Lecture Series 2014.
[5] Civil Liability Act 2002 (NSW), Part IV; Wrongs Act 1958 (Vic), Part IVAA; Civil Liability Act 2002 (WA), Part 1F; Civil Liability Act 2003 (Qld), Part 2; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA); Proportionate Liability Act 2005 (NT); Civil Liability Act 2002 (Tas), Part 9A; Competition and Consumer Act 2010 (Cth), Part VIA (formerly the Trade Practices Act 1974 (Cth)); ASIC Act 2001 (Cth), Part 2 Division 2; and Corporations Act 2001 (Cth), Part 7.10.

Bill Conor

Bill Conor

Special Counsel