The Law Commission has recently released its Report on how to allocate liability where multiple parties cause the same, indivisible loss or damage to another.
The Report firmly favours retention of joint and several liability, rather than a move to proportionate liability or a hybrid system. But the Report also suggests some modifications of the current regime to avoid grossly unfair outcomes for defendants. In particular, the Report recognises that the professional services and residential construction sectors have been (or have potential to be) hit hard as “deep pockets” defendants.
Differences between joint and several & proportionate liability
Under joint and several liability, each party who contributes to a loss suffered by another is liable for the full amount of damages ordered by a court. This liability regime favours plaintiffs. That is because any defendant pursued by the plaintiff can be required to pay the full loss or a disproportionate amount of the loss. The defendant(s) first sued must then sue other solvent or available parties who have contributed to the plaintiff’s loss if they wish to reduce their share of liability.
Under pure proportionate liability regimes, defendants are liable only for the proportion of loss or damage that a court determines is just with respect to their level of fault or comparative responsibility. Such regimes are fairer to defendants. That is because they give greater certainty about the allocation of risk and do not require any defendant (invariably the one with the deepest pockets) to bear the entire risk. If a defendant is unavailable or insolvent, the plaintiff bears that risk. Consequently, the plaintiff may not recover the full amount of their loss. Proportionate liability regimes are used in Australia and various other countries.
Law Commission’s conclusions
The Law Commission’s Report concludes that:
- it has not found any empirical evidence to show convincingly that a shift to proportionate liability would better support industry or commerce by being more commercially efficient; and
- joint and several liability is “clearly the preferable system” for ensuring that plaintiffs have an “effective remedy”.
But, acknowledging wider fairness and policy considerations, the Law Commission’s Report recommends modifying the current regime in certain areas. These include:
- giving courts discretion to grant relief to truly minor defendants who bear only a small level of fault for the plaintiff’s loss, but who would otherwise suffer an “unduly harsh and unjust” outcome from being required to pay all or nearly all of the damages because they are the only remaining solvent defendant;
- extending the current contribution rules so that courts can order supplementary contributions proportionate to the shares of responsibility of each solvent party, including the plaintiff. (In contrast to the present regime where a defendant can chase other defendants only for losses up to the amount of their allocated contribution, this extension would see an absent defendant’s share distributed proportionately among all remaining defendants);
- caps on building consent authorities’ liability (including an indexed $300,000 maximum for a freestanding dwelling) for future liability relating to building consents and related work. (The aim of this change is to limit the impact of building consent authorities’ exposure to excessive or deep pocket liability); and
- a new capped liability scheme for auditors who undertake the largest and most complex audits, so that New Zealand market conditions are better aligned with conditions in Australia.
The Government will respond to the Law Commission’s Report next year.
To access the full Law Commission Report, click here: www.lawcom.govt.nz