Alternatives to joint and several liability
3.4The most commonly raised alternative to joint and several liability is often called “proportionate liability”.
3.5Under proportionate liability each co-defendant who is held liable for causing the plaintiff’s loss is made liable only for their proportionate share of that loss, based on their level of fault or causal contribution compared to other defendants. Each defendant must pay the proportion or percentage of the damages that a Court determines equates to that defendant’s just and equitable share of responsibility for the loss.
3.6Proportionate liability therefore rejects the common law principle that once a defendant has been found to have wrongfully caused a plaintiff’s loss, that defendant is then liable to compensate the plaintiff for all the reasonably foreseeable losses – regardless of whether some other defendant has also caused or contributed to the loss occurring. Proportionate liability requires a Court to examine and discover each defendant’s relative share of responsibility and order each defendant to pay only that share.
Example 1: Simple proportionate liability
- In a dispute over a faulty retaining wall the Court finds for the plaintiff and awards her $100,000 damages, the full cost of removing and replacing the faulty wall. There are three defendants and the Court holds them all to have caused or contributed to the faulty wall being built but to differing degrees. The Court holds the Builder D1 50% liable, the Engineer/designer D2 30% liable and the District Council D3 that certified the work 20% liable.
- P can collect $50,000 from D1, $30,000 from D2 and $20,000 from D3.
3.7The justification most commonly advanced for proportionate liability is that defendants will still be held liable, to the extent of their fault, but will not be made to pay for other defendants who may have had far greater responsibility for the plaintiff’s loss. It is argued that this system avoids unfairness to defendants.
3.8As Example 1 shows, under proportionate liability plaintiffs can still be awarded damages for the full amount of the loss they have suffered. The difference is that to achieve full recovery of their loss plaintiffs must collect the shares from each of the defendants. The plaintiff cannot rely, as under joint and several liability, on any one defendant having to make good the total loss.
3.9There will be situations where the plaintiff cannot recover fully, in practice. If one or more of the defendants cannot or will not pay, the plaintiff will be faced with an “uncollectable share”.
Example 2: Absent or insolvent defendants
- P has been paid $20,000 by D3 but has had no luck with D1 or D2. The Builder has had trouble with other jobs and falling business, and has been declared bankrupt. The Engineer has left for a new job in Belarus and cannot be contacted.
- P’s recovery will most likely be limited to the $20,000 already paid by D3, plus anything she may eventually get from D1’s bankrupt estate.
3.10Proportionate liability will mean that plaintiffs will need to investigate carefully and include all possible defendants who may be liable for some substantial part of their losses. In terms of fairness, a Court would not be able to award damages against a potential defendant if they were not a party to the action. However, the Court can still reduce the share of liability of defendants who are before the Court to take into account the share of responsibility of a wrongdoer who is not a party.
Example 3: Judgment for less than 100%
- In the original action over the faulty retaining wall, P did not sue the Engineer because he was a family friend and she assumed that he had done a good job. However, at trial D1 argues successfully that he should not be liable for what should be the Engineer’s share in the damage because the engineer provided plans that were unclear and did not properly check the work being done.
- P is awarded damages against D1 and D3 but not the Engineer because he is not a defendant. Her maximum recovery will be $70,000 unless she is able to bring a further action against the Engineer.
Proportionate liability in practice
3.11Proportionate liability has been adopted in a number of jurisdictions, either in a “pure” form such as we have just described or with some modifications or restrictions. There are jurisdictions where proportionate liability is or is becoming the standard rule for allocation of negligence liability, as has become the case in most Australian states.
In other places a proportionate liability rule has been used for a particular industry or class of defendants.
3.12Proportionate liability has also been used in combination with other measures limiting the liability of usually a particular category of defendants. For example, in some jurisdictions auditors have been permitted to incorporate with some form of limited liability, or a statutory capping of liability has been allowed alongside proportionate liability.
3.13Proportionate liability has also been considered but not implemented for either general or specific application, several times. The Law Commission recommended against it, in 1998. Most recently, a report to the Department of Building and Housing prepared by Buddle Findlay and the Sapere Research Group (Sapere Report) recommended against moving to proportionate liability for the building and construction industry. The Sapere Report concluded that even if proportionate liability were to be adopted (which the Report did not recommend, for other reasons) it would be “essential” to have a system of compulsory home warranty insurance to deal with what would otherwise be unacceptable unfairness to consumer homeowners. And in Canada the Law Commission of Ontario has recently recommended against moving to proportionate liability for Ontario-registered business corporations, despite proportionate liability already applying in some circumstances, under particular Ontario or federal statutes.