Chapter 9
The case for change

Joint and Several and Proportionate Liability

9.1When assessing the case for change it is appropriate to weigh the relative merits of each option. In doing so, we need to look beyond our local jurisdiction and consider the way in which different liability models operate overseas. It is also important to consider whether harmonisation with Australia is desirable in this area. CER may provide an argument for change even if the options are otherwise finely balanced, because harmonisation can assist in achieving macro-economic advantages.

9.2The current system is geared toward protecting the plaintiff. The principal advantage of joint and several liability is that the party who has been injured does not bear the risk of absent or insolvent defendants. This protection rests on the idea that the parties who have actually caused the harm are each fully responsible for the loss, irrespective of their respective contribution to the total loss relative to each other. Because of this, each defendant should bear the risk of the absent or insolvent defendants, even if the result is that they become liable for the consequences of someone else’s actions as well as their own. The status quo therefore has an element of consumer protection, and is regarded in common law terms as “just”.

9.3This has been particularly evident in the leaky homes crisis. The claimants are making claims because they own a damaged home. Even where the claimant was the original owner when the house was built, they are unlikely to have had professional skills in contracting for building services. They were not therefore in the position to determine the relevant skills and capabilities of the numerous professional, trade and business providers that collectively go to build houses. It is the people who were contracted by the owner, plus any negligent regulator or inspector, who have individually or collectively caused the loss. Joint and several liability has provided the homeowner with the best opportunity to recover their loss.

9.4The contra argument is that contractors or regulators, who bear joint and several liability for losses that they have not themselves directly caused, may become risk averse. This can increase costs, or reduce the prospects of innovation. It has been argued that one of the reasons that New Zealand has high building costs is that large scale builders, especially from Australia, will not enter the market when faced with increased and unpredictable costs for builders stemming from the joint and several liability regime. It has also been suggested that joint and several liability gives territorial authorities strong incentives to be risk averse, and may contribute to higher than necessary housing costs.140

9.5Our overall conclusion at this stage is that there are not compelling efficiency grounds for proportionate liability. Joint and several liability and proportionate liability are equally efficient systems of allocating the total loss. It is certainly true that the two different systems lead to advantages for either the plaintiff or defendant and therefore significant differences in perceived fairness to one or the other. However, available economic analysis does not show that one system is superior to the other. Instead the choice between the two systems must be based on an overall assessment of who should bear the risks of absent or insolvent defendants.

9.6One qualification needs to be added to this analysis. This broad equivalency in economic effects presumes that the relevant system of joint and several liability allows liable defendants to seek contributions from other liable defendants. As we have discussed, that is generally the case in New Zealand but not in every case because neither contribution nor a contributory negligence defence are available in pure contract cases. Should joint and several liability eventually be retained in some or all circumstances, then perhaps it might be argued that it would be useful to consider bringing contract cases into line with other causes of action, by allowing contract defendants to seek contribution and plead contributory negligence where appropriate.

9.7In the case of joint and several liability, the risk lies with the defendants. The plaintiff has the theoretical certainty that they will be compensated for their loss, provided there is at least one defendant who can be brought to judgment and can cover the full cost. Such a defendant has to bear the loss caused by missing or insolvent defendants.

9.8In the case of proportionate liability, the risk lies with the plaintiff, since each defendant will only be liable for the proportion of loss allocated to them, according to their comparative responsibility. In the event of a missing or insolvent defendant, this loss will be borne by the plaintiff.

9.9Both systems lead to complex litigation, since this is a function of the number of parties who have potentially caused the loss. In joint and several liability, defendants have the incentive to join as many other defendants as possible in order to share the loss. In proportionate liability it is the plaintiff who has this incentive. They need to join as many defendants as possible in order to ensure as much of the loss as possible will be covered by the various defendants in the proportion they contributed to the loss.

140Housing Affordability Inquiry above n 80 at 161.