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Allens Arthur Robinson

Focus: Construction – November 2007

Proportionate liability – who is a concurrent wrongdoer?

In brief: We recently reported on three decisions providing significant guidance on how the courts are likely to interpret the proportionate liability regimes in Australia. In a further decision, the Federal Court has confirmed that, although the proportionate liability regimes have effected significant change in the law in cases to which they apply, the regimes could not have been intended to create a cause of action where one did not previously exist. Partner Nick Rudge (view CV) and Senior Associate Alex Cuthbertson report.

How does it affect you?

  • The proportionate liability regimes apply where two or more defendants are legally liable to a plaintiff for the same loss.
  • A defendant or third party will not be liable for its portion of a loss if it is not legally liable to the plaintiff, even if, as a matter of fact, it caused or contributed to the plaintiff's loss.

The facts

Mr and Mrs Shrimp claimed for damages both at common law (in tort and contract), and under the misleading and deceptive conduct provisions in the Trade Practices Act 1974 (Cth) and the Consumer Affairs and Fair Trading Act 1990 (NT) relating to the supply to them by the defendant, Landmark, of grass seed (the primary claim).

Landmark issued a cross claim against Mr Gargan, the supplier of the grass seed. In response, Mr Gargan issued cross claims against five other parties, each of whom, it was alleged, was involved in the supply and/or testing of the grass seed. One of those other parties issued a further cross claim. Relevantly, there was no allegation that any of the seven cross respondents was directly liable to the Shrimps.

The Shrimps sought to have the primary claim tried separately from, and prior to, the various cross claims. A number of the cross respondents opposed the application, contending that it would undermine the operation of the relevant proportionate liability regimes that were said to apply.1

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Construction of the proportionate liability regimes

It was submitted on behalf of some of the cross respondents that 'concurrent wrongdoer', as defined in the proportionate liability regimes, included persons whose acts or omissions had factually caused the applicants' loss, even though those persons were not legally liable to the applicants for that loss. That is, it was contended that the court was able to apportion liability for the Shrimps' loss between Landmark, and each of the cross respondents, even though the Shrimps did not have a cause of action against the cross respondents.

Justice Besanko rejected this construction of the proportionate liability regimes, on the basis that such a construction would have had one of the following consequences:

  • as they did not have a cause of action against the cross respondents, the Shrimps would have been unable to recover the proportion of their loss and damage that the court apportioned to the cross respondents; or
  • the effect of the proportionate liability provisions was to give the Shrimps a right of recovery against the cross respondents even though they had no legally enforceable cause of action against them.

Justice Besanko held that the first outcome would have resulted in a significant erosion of the Shrimps' rights as they were before the introduction of the proportionate liability provisions. The second outcome involved a significant alteration of the substantive law. Justice Besanko commented:

In my opinion, however the argument is put it must be rejected because clear words would be required before one would accept a construction involving such a substantial erosion of a plaintiff's rights or a change in the substantive law as to the circumstances in which one party is liable to another. There are no such clear words in the provisions and there is no other indication that Parliament intended to change the law so radically or why it would be considered appropriate to do so.

Accordingly, Justice Besanko held that the word 'caused', as used in the definition of 'concurrent wrongdoer' in the proportionate liability regimes, should be read as meaning such as to give rise to a liability in the concurrent wrongdoer to the plaintiff or applicant.2

This decision is consistent with obiter comments made by the Victorian Court of Appeal in Commonwealth Bank of Australia v Witherow3 (Witherow), a case involving a claim by the bank under a guarantee and a cross claim by Mr Witherow against his accountant. In that case, the court (Justices Maxwell, Buchanan and Redlich) held that it was impossible to make an apportionment between, on the one hand, the defendant's liability to the bank under a guarantee and, on the other, the liability of the accountant to the defendant. Justice Maxwell commented:

Plainly Parliament did not have in mind when it enacted [the Victorian proportionate liability regime] that the Court could be asked to take into account in an action such as this, on a contract of guarantee, the fact that the guarantor has a claim in negligence against a third party on whose advice he relied in giving the guarantee.

A further matter raised in the Shrimps' case was whether it was necessary for a defendant to an action to which one or more of the proportionate liability provisions applied to plead the provisions, or whether, as was suggested by one of the cross claimants, those provisions went to the jurisdiction of the court and needed to be considered irrespective of whether they were pleaded. Justice Besanko did not specifically consider this point. However, the better view must be that, unless the provisions are pleaded, it is not open to the defendant to adduce evidence to establish that another party shares responsibility for the plaintiff's loss and that its own liability should, therefore, be limited in accordance with the regime.

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Conclusion

The decision in Shrimp v Landmark and the earlier Victorian Court of Appeal decision in Witherow confirm that the proportionate liability regimes will only apply where two or more defendants have committed a wrongful act or omission vis-à-vis the plaintiff, and the plaintiff has a legal cause of action against both wrongdoers in respect of the same loss. The regimes do not apply where a defendant brings a cross claim against a third party, unless that third party is also liable to the plaintiff.

This outcome is consistent with the policy behind the introduction of proportionate liability in Australia, which was to limit the liability of professional advisors – the so called 'deep pocket' syndrome – by ensuring that each wrongdoer is held responsible only to the extent that they caused or contributed to the plaintiff's loss.

Footnotes
  1. The relevant regimes were those found in Part VIA of the Trade Practices Act 1974 (Cth) in respect of the claim for misleading and deceptive conduct brought under s82 of the TPA, and the Proportionate Liability Act 2005 (NT) in respect of the claims in tort and contract and for misleading and deceptive conduct brought under the Consumer Affairs and Fair Trading Act 1990 (NT).
  2. Shrimp v Landmark Operations Limited [2007] FCA 1468
  3.  [2006] VSCA 45

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