Chapter 1
Introduction to the review

Background to this review

1.7This issue has been the subject of discussion and reports over the last 20 years. It has been considered previously by this Commission, in a preliminary paper released in 19923 and a final report released in 1998.  4 At that stage, the Commission recommended that the rule of joint and several liability be retained.
1.8The rule has also been considered by other law reform bodies, including the Law Reform Commission of New South Wales in 1999; and in 2011 the Law Commission of Ontario5 .
1.9These other reports came to the same conclusion. The New South Wales Law Commission stated:6

While some arguments in favour of proportionate liability are based chiefly on the need to provide justice to solvent wrongdoers in situations where other wrongdoers are not amenable to judgment, at present a move from the system of solidary liability with contribution is not justified as there is no clear indication that the introduction of proportionate liability will achieve the desired results or even be generally beneficial.

1.10These reports did not settle the issue. One specific reason in New Zealand was the leaky building crisis.

1.11The leaky building crisis arises from failures of buildings due to leakage and rotting timber, especially in the structural framing timber. The majority of the buildings affected, both commercial and residential, were built in the decade 1994 to 2004, when building styles changed to monolithic clad buildings, with untreated timber framing, which became permitted under the Building Code after 1994. The problems became known as leaky building syndrome. The causes were various, including poor certification, design faults, construction deficiencies and material deficiencies, particularly relating to the monolithic cladding and the use of untreated timber framing. Thousands of leaky building cases have been investigated and/or litigated since 2004, with a substantial number of cases still in progress.7 By the nature of the subject matter and the issues, most involve multiple defendants.

1.12The continuing nature of the crisis and the exposure of typically small construction firms to multiple claims means that a significant number of defendants have become insolvent. Practices such as use of single development companies by developers or builders have further added to pressure on the solvent defendants that do remain – in particular local authorities responsible for building inspection and certification. This major crisis, with the significant potential for uncollectable shares to fall on solvent defendants, has inevitably raised again whether joint and several liability operates as the fairest, most efficient or workable liability rule.

1.13The other major source of potential loss and liability over the past decade is the financial crisis. This crisis was particularly concentrated in the finance company sector, with over 60 companies failing between 2006 and 2010. The losses have occurred to both bond and debenture holders and to holders of equity. The bond and debenture losses are estimated to be over $3 billion.

1.14Potential liability typically arises from the reliance by investors on statements and information not only from the managers or promoters of failed investments but also from any of the entity’s professional advisers. Potential solvent defendants include any external accountants, auditors, legal advisors, any trustee or statutory supervisor, plus any guarantors, insurers or underwriters that investors may rely on. There has been considerable interest in proportionate liability from such parties.

1.15The cost and availability of indemnity insurance has been a further factor in stimulating interest in proportionate liability as a means of providing greater certainty in assessing risk. In Australia issues arising from the uncertainty of indemnity insurance were a major factor in all states agreeing to shift from joint and several liability to proportionate liability for economic loss.

3Law Commission Apportionment of Civil Liability (NZLC PP19, 1992).
4Law Commission Apportionment of Civil Liability (NZLC R47, 1998).
5New South Wales Law Reform Commission Contribution between Parties Liable for the Same Damage (Report 89, 1999); Law Commission of Ontario Joint and Several Liability under the Ontario Business Corporations Act (2011).
6At [2.71].
7The Weathertight Homes Resolution Service, which services the specialist tribunal set up for such claims, recently reported that it had 1705 cases outstanding, at varying stages: www.dbh.govt.nz/ws-claims.