It is perhaps not surprising that the progression of the statutory defence of proportionate liability – which essentially allows a defendant to limit its liability and transfer a recovery burden to the plaintiff – has been slow and uncertain. The confusion surrounding the scope and application of the defence has resulted in insurers facing significant challenges during settlement negotiations and, in some cases, has culminated in costly and ineffective defence litigation. This can be particularly frustrating where the defence appears, on its face, to apply, but nuances and artificial distinctions allow the defence to unravel for technical reasons, rather than standing or falling on the evidence at trial.
The prospects of success of any defence is an important consideration for an insurer, particularly where raising the defence may involve significant additional costs and risks, including the risk of paying the legal costs of additional parties.
Although proportionate liability legislation differs from state to state, in each state the legislation outlines the key requirements necessary to invoke the defence. In some jurisdictions, this might involve simply placing the plaintiff on notice, or taking steps such as the joinder of parties, or positive pleadings, or both. The legislation may be complicated, but it is navigable. Predicting the treatment that the legislation will be afforded by a court has been a much more difficult proposition.
Arguably the most significant challenge faced by insurers wishing to obtain the benefit of the proportionate liability legislation has been the interpretation of certain preconditions22 including the existence of an “apportionable claim”, which has its foundations in the nature of the plaintiff’s claim; and the presence of a “concurrent wrongdoer”, which in part has its foundations in the characterisation of the plaintiff’s loss.
The nature of the plaintiff’s claim is critical to the application of the defence of proportionate liability. Naturally, after the introduction of the proportionate liability scheme, insurers almost immediately faced challenges by plaintiffs endeavouring to plead out of the defence. This issue was dealt with squarely in Reinhold23. In that case, the relevant legislation prescribed an apportionable claim to be a claim arising from a failure to take reasonable care. The plaintiff contended that the claim was not an apportionable claim because the claim was made in contract, and therefore was not a claim arising out of afailure to take reasonable care. That contention was met with a judgment in Reinhold which emphasised the policy reasons for the introduction of the proportionate liability scheme – it was held that “[t]he nature of the claim…is to be judged in the light of the findings made and is not determined by the words in which it is framed”. In short, it was held that the nature of the relevant claim required an examination of the findings of fact at judgment to determine whether the claim did, in fact, arise from a failure to take reasonable care. The purpose of the legislation would, of course, be defeated if a plaintiff were able to evade its application through careful prosecution or pleading strategy.
Following Reinhold, more significant uncertainties arose relating to the proper characterisation of “loss”. This aspect of the defence was sometimes interpreted narrowly, and arguably did not enable the underlying policy of the proportionate liability scheme to prevail. Prior to Hunt & Hunt24, loss was sometimes considered to be dependent upon how the loss arose, or tested by reference to how the loss was caused, which resulted in very limited circumstances where another party could be considered to have also been responsible for that loss. In general terms, the narrower the characterisation of loss, the more difficult it is to establish that another party’s acts or omissions were also responsible for that loss.
The case of Hunt & Hunt involved two fraudsters who were advanced funds by the plaintiff under security documents. The security documents, which were drafted by Hunt & Hunt, were defective and thus unenforceable. The High Court was faced with the question: “what is the [plaintiff’s] damage or loss that is the subject of the claim?”
The High Court held25 that a principled analysis of actual damage or loss was necessary and, in economic loss claims, the “loss or damage may be understood as the harm suffered to a plaintiff’s economic interests”. In rejecting the argument that the loss or damage should be characterised as paying money out to the fraudsters on the one hand, and not having the benefit of the security document drafted by Hunt & Hunt on the other, the Court found that the loss or harm suffered by the plaintiff in Hunt & Hunt was properly characterised as its inability to recover the sums advanced from either source. Accordingly, the fraudsters were considered to be concurrent wrongdoers and the defence was successfully invoked to limit Hunt & Hunt’s liability.
Following Hunt & Hunt, some of the uncertainty facing insurers has been alleviated. Hunt & Hunt also highlighted two things. Firstly, the High Court placed weight on the role of policy considerations when applying the defence. Secondly, the judgment highlighted just how significant the risks to a plaintiff can be – the percentage of liability apportioned to the fraudsters in Hunt & Hunt was 87.5%, which represented a significant shortfall to the plaintiff’s recovery. In appropriate cases where the defence is raised (especially in cases involving fraud), it is possible that insurers may experience an immediate and practical effect of the decision in Hunt & Hunt during settlement negotiations.
While there is still a significant amount of room for technical manoeuvring by plaintiffs following Hunt & Hunt, some comfort can be taken from the High Court’s approach to the issues in that case. Given the judicial clarification the defence of proportionate liability continues to gain ground as an effective vehicle to limit a defendant’s exposure in appropriate cases.