Options for allocating liability among multiple defendants
Joint and several liability fundamentals
2.4Currently in New Zealand the allocation of loss among multiple liable defendants is determined by the rule of joint and several liability, which is a common law rule, and the law governing contribution between wrongdoers, which is found in equitable rules and section 17 of the Law Reform Act 1936.
2.5The rules provide that when multiple defendants are held jointly and severally liable for one indivisible loss suffered by the plaintiff, they can each be obliged to pay up to the full amount of the damages awarded for the loss (although the injured party cannot recover more than the total loss assessed by the court). Contribution rules act to soften the harsh effects that joint and several liability can have on liable defendants. Each set of rules focuses on different responsibilities or relationships. Joint and several liability focuses squarely on each wrongdoer’s liability to the injured party, whereas contribution rules concentrate on each liable defendant’s responsibility to other wrongdoers, albeit in the context of each owing or being capable of owing concurrent liability to the plaintiff. It is only when all contribution awards against or in favour of each liable defendant are considered together that the relative liability or shares of responsibility between the wrongdoers becomes clear. Each jointly and severally liable wrongdoer is still liable to pay the plaintiff up to 100 per cent of the total damages, but can realistically hope to recover amounts they pay beyond their “share” from contributions owed to them by other wrongdoers. Unless there are any missing wrongdoers, the result will be proportionate to the apportionment of responsibility determined by the court. However, the individual wrongdoers have to do the work to pursue other wrongdoers to collect contributions and thereby minimise their total cost from being held liable.
Assessment of liability
2.6In proceedings with multiple defendants, the courts must determine whether each defendant should be held liable for the loss claimed by the plaintiff. This is not a matter of degree. The particular legal rules that the court must apply vary depending on the case and what the plaintiff alleges. But the defendant will either be liable or not liable, depending on whether or not they breached, for example, a contract or a legal duty, and in doing so caused some relevant loss or damage. The court also must decide whether the loss is single and indivisible, or whether different aspects of the loss should be attributed to different liable defendants. A single, indivisible loss contributed to or caused by several wrongdoers is a common but not inevitable finding. The following example illustrates how losses can fairly be divided, even if at first they appear indivisible.
The plaintiffs own a leaky home. An independent report identifies five major causes of the leaks:
- lack of eaves over the windows;
- failure of monolithic cladding;
- the use of untreated timber;
- improperly secured window flashings; and
- improperly laid waterproofing on an upstairs deck on the south side of the house.
The plaintiffs are suing the architect, the builder who decided to use untreated timber and who was responsible for installing window flashings, the subcontractor who installed the waterproofing on the upstairs deck, and the Council as building consent authority.
The court finds that architect, builder and Council negligently caused damage to the entire building but the subcontractor caused damage only to the deck and the area of the south wall below the deck. The total cost to fix all leaks is $250,000. Water ingress through windows on the south wall, combined with the damage from the deck, means the entire south wall will need to be replaced. The subcontractor is jointly and severally liable with the other parties for this divisible portion of the loss, with damages assessed as $75,000; while the other parties are jointly and severally liable for the entire cost of the rebuild ($250,000, including the $75,000 portion for the deck and south wall).
2.7As the above example demonstrates, wrongdoers will only be jointly and severally liable where they have each been found to have caused the same damage. The logic of the rule is that these wrongdoers have all caused the whole loss through their actions, and there is no sensible way of dividing their common obligation to the plaintiff between them. This reflects the completely orthodox view that if a defendant is proved to have wrongfully caused or contributed to a loss, compensation should be available from that defendant for all of that loss. The appropriate levels of contribution between each of the liable defendants is assessed separately.
Contribution between wrongdoersTop
2.8Section 17 of the Law Reform Act 1936 provides for contribution between multiple parties liable for the same damage. Alternatively, parties may rely on equitable contribution. Liable defendants can claim contributions from each other and these can be assessed in the main proceeding that determines liability to the plaintiff. Liable defendants can also claim contributions in a subsequent proceeding. In practice, contribution is generally assessed as part of the main proceeding. The plaintiff will claim against one or more defendants, each of whom may then join third parties or make cross-claims against other defendants, to bring their claims for contribution. The court will first determine whether each defendant is liable to the plaintiff. The court will then assess respective contributions of the liable defendants and those of third parties.
2.9The combined effect of joint and several liability and contribution means that each defendant found jointly and severally liable for the indivisible loss can be called upon by the plaintiff to pay in full, but can hope to receive sufficient contribution from other liable defendants to reduce their net exposure to their “share” of responsibility. For example:
A plaintiff sues two defendants D1 and D2. D2 joins D3 and D4. Each defendant cross-claims against the others. First the court finds that the four defendants are jointly and severally liable for the whole loss of $100,000. For contribution purposes the court then assesses the defendants’ relative fault: D1 – 40 per cent; D2 – 30 per cent; D3 – 20 per cent; D4 – 10 per cent.
The judgment will therefore contain an order to the following effect:
- D1 is to pay the plaintiffs $100,000 and is entitled to recover up to $30,000 from D2, up to $20,000 from D3, and up to $10,000 from D4 for amounts paid above $40,000.
- D2 is to pay the plaintiffs $100,000 and is entitled to recover up to $40,000 from D1, up to $20,000 from D3, and up to $10,000 from D4 for amounts paid above $30,000.
- D3 is to pay the plaintiffs $100,000 and is entitled to recover up to $40,000 from D1, up to $30,000 from D2, and up to $10,000 from D4 for amounts paid above $20,000.
- D4 is to pay the plaintiffs $100,000 and is entitled to recover up to $40,000 from D1, up to $30,000 from D2, and up to $20,000 from D3 for amounts paid above $10,000.
2.10The plaintiff is entitled to seek the full amount from any liable defendant and leave it to that defendant to recover from the others. This should not be problematic where the other parties are solvent and amenable to court orders, if required. However, this process can mean that any unrecoverable shares as a result of a missing or insolvent liable defendant will be borne by a single liable defendant. Even if two or more remaining liable defendants share the burden of paying the plaintiff an unpaid amount, it is unlikely that their additional payments will be proportionate to either the shares of responsibility of all the liable defendants, or the shares of responsibility of those who still remain available to pay.
2.11The combination of the joint and several liability rule and the contribution rules often produces a reasonably proportionate result for liable defendants. However, the primary focus remains on maximising the plaintiff’s or judgment creditor’s opportunities for being paid, and there is currently no mechanism for seeking to improve proportionality among remaining wrongdoers where it has been defeated by an unavailable wrongdoer’s uncollected share.