Chapter 8
Economic arguments

Introduction

8.1Much of the discussion and debate over the relative merits of joint and several versus proportionate liability is phrased in terms of “fairness”. It is often asserted that proportionate liability should be adopted because it would be fairer to multiple defendants in that they would each only face their proportionate share of the plaintiff’s loss. By contrast, in its 1992 and 1998 Reports the Law Commission rejected proportionate liability because of its unjust effect on plaintiffs, in that it would frequently lead to their being unable to recover all of their loss. The various hybrid possibilities, for instance a rule that allows proportionate liability for the so-called peripheral wrongdoer, can be seen as attempts to achieve some balance between the interests of defendants and plaintiff, to achieve a result that is relatively fair.

8.2There is an alternative approach to analysing the merits of the two liability rules. This alternative concentrates on discovering not which rule would be “fairest” but rather which rule is likely to produce economic efficiency; that is, an optimal allocation of economic resources in society. This approach applies an economics or law and economics framework and insights to compare the likely effects or incentives that each rule would produce. The efficient rule in the context of civil liability of multiple defendants for negligence will be one which produces due care at the lowest overall cost. An efficient rule does this by providing the necessary incentives to encourage defendants and plaintiffs to act in their own best interests and in ways that will achieve optimal (lowest) costs. The economics approach assumes that participants in a system are rational and will be strongly influenced by whatever incentives the system supplies as they pursue their own best interests.

8.3This Chapter summarises how the economic analysis of the liability rule alternatives has developed over the past twenty or so years. There have been relevant contributions from Australia and the United States as well as New Zealand. The analysis suggests that in the current state of knowledge neither joint and several liability nor proportionate liability is so demonstrably preferable that it should be preferred purely on the grounds that it would achieve better or more efficient results overall. But the analysis is useful to help examine how either rule may encourage different behaviours and therefore whether any undesirable behaviours should be controlled for.