Proportionate Liability and its Impact upon Building Disputes

By
Wednesday, March 30th, 2016
liked this article
Embed
Karabiner – 300 x 250 (expire August 31 2017)
advertisement
Proportionate Liability
FavoriteLoadingsave article

Proportionate liability is a legal apportionment doctrine that was introduced in Australia in the early 1990s. By the 21st century, the doctrine had spread well beyond the gamut of building legislation.

To understand the metamorphosis of the doctrine of proportionate liability one needs to understand the doctrine that it replaced – joint and several liability.

Joint and several liability was the prevalent legal apportionment doctrine in Australia for many years. It operated along the following lines: in a multi-defendant legal proceeding, plaintiffs would join those responsible for construction failure in a building claim. If the matter progressed to hearing and determination, the judge determined which parties were liable and judgment was entered against same.

If, however, one or more of the defendants were bankrupted or in the case of a company, wound up, during the legal proceedings clearly the defunct parties bereft of funds had no ability to pay the damages attributable to them. The JSL doctrine would then bite, and it operated like this: assuming some of the defendants were solvent (i.e. financially sound) then those solvent  defendants assumed the liability to pay the damages that were attributable to their impecunious co defendants.

It was a bit like the bloke in the pub who for some reason is required to always pick up the shout. That’s how JSL operated; those with the deep pocket paid for those with the hole in the pocket, they always picked up the other bloke’s shout simply because they had money and the other guy didn’t.

Joint and several liability came to be known as the deep pocket syndrome, as the application of the doctrine ensured that financially robust concerns had to assume the liability of others, third parties, impecunious co-defendants or men of straw as they are commonly called.

Insurers bore the brunt of these claims along with another type of defendant that came to be known as an “insurer of last resort.” An insurer of last resort was typically a government body, a local council or statutory body. Plaintiffs loved to have a crack at the council building department, particularly if the council building surveyors had issued the building permit. There was a great deal of comfort and reassurance in knowing that if one could net a council or an insured defendant along with the usual suspects such as builders, then the council and – touch wood – another insured defendant would pick up the tab.

Why did JSL disappear and why was it replaced with proportionate liability?

In short, insurers and local government found it increasingly difficult to underwrite the liabilities of impecunious co-defendants. Imagine, if you will, a multi-million dollar adverse finding against a group of co-defendants, the primary liability attaching to a uninsured commercial builder who, instead of facing the music, winds the company up. Even though the builder orchestrated the lion’s share of the building debacle, if an insured defendant was found to be implicated, even peripherally, then the insured defendant assumed the liability of the man of straw.

The doctrine was considered in certain quarters to be unfair, inequitable and illogical, and insurers said “we can’t provide insurance cover if we are underwriting strangers i.e. those that are not our insured, not our clients.”

So in the early 1990s, joint and several liability started to disappear. At first, it was the Building Acts that removed the doctrine by way of the legislative introduction of proportionate liability, and by the third millennium the introduction of proportional liability gained momentum.

How does proportionate liability operate?

Take the above scenario where one has muliti-defendant legal proceedings, which is the usual profile for a building dispute. The builder, architect, engineer and architect are joined, and if the matter proceeds to hearing and then judgment, there will as was the case with JSL be a determination that apportions liability between the co-defendants.

Unlike JSL, however, proportionate liability determines that no defendant is liable to pay for the liability of any other defendant. You look after your own shout, no one picks up your shout, you pay your own damages and not a cent of another’s. The buck stops with the person who caused the defect or the economic loss and is “siloed” or corralled as it were with the responsible party.

The pitfalls and things you need to consider

There are no free kicks with proportionate liability, no deep pocket syndrome or insurers of last resort. You’ve got to make sure you get the right defendants into the building action because if you don’t, assuming victory is the end game. Unless all relevant and solvent parties have been joined, there is every chance that only a percentage of the damages will be recovered.

And the risk to the plaintiff is much greater in NSW than Victoria, because in Victoria, regardless of whether you are a fan of the system, it’s a fact that the full cast of practitioners have to be be insured by law. That includes the engineers, architects, building surveyors, building inspectors, residential builders, quantity surveyors and draftspersons. But get this: in NSW, only building surveyors and building inspectors (accredited certifiers) and residential builders have to be insured.

So, if you have a judgment against the residential builder, the engineer, the certifier and the architect but the judge finds that the certifier and the builder have an aggregated liability of 40 per cent of the damages, then you as the plaintiff may well be “whistling Dixie” if the other defendants are uninsured and unable to pay their liabilities on account of insolvency or bankruptcy. That gives rise to a pretty demoralising outcome; the battle is won but the war is lost because of the huge short fall in recovery of damages.

So you have got to know your stuff.

It follows that, regardless of the jurisdiction, proportionate liability must be comprehensively understood if one issues legal proceedings. One needs a seasoned litigator in one’s dispute resolution arsenal to ensure that there are no surprises.

Embed
FavoriteLoadingsave article

Comments

 characters available
*Please refer to our comment policy before submitting
Discussions