Chapter 6
The Australian experience and Closer Economic Relations

Shifting to proportionate liability

6.1The issue of allocation of liability was the subject of extensive debate in Australia through the 1980s and 1990s. This resulted in the introduction of proportionate liability for the construction sector in some states. Subsequently, a perceived insurance crisis emerged, generally traced back to the collapse in 2001 of HIH Insurance, a major general, professional indemnity and public liability insurer.84

6.2By 2003 it was agreed that State Governments and the Federal Government would enact legislation to shift from joint and several liability to proportionate liability for economic loss claims founded on lack of reasonable care. Each of the states enacted legislation to bring about this shift in the liability regime. However, there were differences between each state’s legislation.

6.3In 2009 it was agreed that the differing proportionate regimes would be harmonised, so that identical regimes would prevail throughout Australia.

This effort is continuing, but recent indications are that significant differences remain between states and interested stakeholders about the extent and even the effectiveness of proportionate liability regimes.85

6.4This chapter will examine why and how Australia has made the shift from joint and several liability to proportionate liability. It will also examine whether or not CER makes it desirable that New Zealand should also make such a shift. This requires determining the extent to which there are trans-Tasman markets for the sectors that have incurred large scale losses and whether the two different liability regimes lead to inefficiencies or inhibit trans-Tasman trade and market integration.

6.5Calls for Australia to shift from joint and several liability to proportionate liability began in the 1980s, but it was not until the 1990s that state laws began to change. In 1993, the state of Victoria mandated by statute that the building industry would be governed by a proportionate liability regime, rather than joint and several liability.86  This was followed by New South Wales in 1997.87 Similar regimes were also introduced in South Australia and Northern Territory. These moves addressed concerns of perceived unfairness to defendants, especially those who were or considered themselves to be only minimally at fault. Increased unfairness to plaintiffs was addressed through existing or updated builders’ warranty insurance requirements, in each State.88
6.6In 1995 New South Wales considered a report produced by Professor Davis recommending that proportionate liability become the rule for all economic loss arising from negligence.89  The prime reason for the recommendation was the concern among professional groups, notably accountants and auditors, that joint and several liability had the effect of increasing the cost of liability insurance. It remains an open question however whether the operation of joint and several liability was actually to blame; or if it was other factors such as corporate collapses, worsening claims records and higher costs due to external factors such as terrorism and natural disaster that drove up insurance costs.
6.7This shift in the liability regime was not universally endorsed. In March 1999, the New South Wales Law Reform Commission recommended against proportionate liability. They considered that problems with joint and several liability only occur in a “very limited range of situations … which must involve a finding of liability against a deep pocket or insured defendant in circumstances where there are other defendants and at least some of who are not amenable to recovery by the plaintiff”.90

6.8The movement in favour of proportionate liability was ultimately successful, and in 2003 the Commonwealth and State Attorneys-General agreed that they would implement legislation effecting this change. Proportionate liability would apply where there was economic loss, in cases akin to negligence. For most states, this meant extending or replacing the proportionate liability regime that had already been established for the building industry to other circumstances where there was economic loss (though not all economic loss was necessarily included). The Commonwealth and State laws were implemented in 2002 and 2003.

6.9Personal injury was specifically excluded because of the greater importance of plaintiff protection in these cases. The review panel chaired by Justice Ipp noted that under proportionate liability, since the plaintiffs bear the risk of one defendant’s insolvency, a person who is mentally or physically harmed by two people may be worse off than a person who is harmed by one.91  These arguments were not seen as relevant in cases of economic loss. Instead questions of indemnity insurance cover and the role of professional lobby groups were seen as influential in promoting the shift to proportionate liability.92
6.10Though there was a general intent that the law would be uniform as between different states, this has not yet been achieved. In 2009, Professor Davis provided further advice on the best way to achieve national uniformity.93  There were four key changes recommended. The first was that courts be required to take into account all those liable, whether or not the parties to litigation, as provided for in Queensland’s legislation. The second is that agreements between defendants to contribute should be recognised, as per Northern Territory, Tasmania and Western Australia. Third, that parties should not be allowed to contract out, and fourth, that proportionate liability would also apply to disputes before arbitration, as well as those in the courts. Professor Davis’s recommendations have not been universally accepted. Debate continues over contracting out and applicability to arbitration as well as other significant issues.
84See generally Hon Justice Owen The Failure of HIH Insurance: Vol 1A Corporate Collapse and its Lessons (HIH Royal Commission, Sydney 2003).
85Standing Committee on Law and Justice “Tort Law – Proportionate Liability” (Officer’s Paper, Canberra 2012) at 2 and 3. Major issues remaining include whether proportionate liability should be broadly defined to include all wrongs resulting from a lack of reasonable care, or more narrowly to include only claims in negligence or closely akin to negligence; whether contracting parties should be permitted to contract out; and whether to return to joint and several liability in “consumer” cases as is currently the case in Queensland and Australia Capital Territories. The paper notes that Australia is the only common law jurisdiction to attempt to move so far to proportionate liability and there is therefore no legislative or practical experience to draw on. The paper also notes that it is unclear whether proportionate liability actually helps to keep professional indemnity insurance costs down, as it was intended to do. Applicability of proportionate liability to arbitrations is also problematic.
86Building Act 1993 (VIC) ss131, 132.
87Environmental Planning and Assessment Act 1979 (NSW), s 109ZJ. 
88Builder’s warranty insurance schemes remain problematic, however. Insurers progressively withdrew from the market after the insurance crisis and State governments have had to replace or underwrite market-provided insurance – egg New South Wales in 2009 and Victoria in 2010. And whether current “last resort” schemes provide adequate or appropriate cover remains hotly contested. See Legislative Council: Standing Committee on Finance and Public Administration, Parliament of Victoria “Inquiry into Builders Warranty Insurance: Final Report” (2010) Ch 2 - 4.
89JLR Davis Inquiry into the Law of Joint and Several Liability: Report of Stage Two (Commonwealth and New South Wales Attorney-Generals, 1995).
90New South Wales Law Reform Commission Contribution between Parties Liable for the Same Damage (Report 89, 1999) at 45.
91D A Ipp and others Final Report of the Review of the Law of Negligence (Commonwealth of Australia, 2002) at [12.18].
92B McDonald, Proportionate Liability in Australia, the devil in the detail, (University of Sydney Law School Legal Studies Research Paper 06/25, 2006) at 4.
93JLR Davis, Proportionate Liability: Proposals to Achieve National Uniformity. (Unpublished paper, 2009). Professor Davis’s paper was an analysis of the Report of Anthony Horan from 2007, A Horan Proportionate Liability: Toward National Consistency (Report for National Justice CEOs, 2007).