The appropriate liability system for multiple defendants
Analysis of proportionate liability
3.11The principal alternative system of liability is the proportionate system in which each co-defendant is only liable for the proportion of the damage that they are judged responsible for. As noted in our Issues Paper:
Proportionate liability therefore rejects the common law principle that once a defendant has been found to have wrongfully caused a plaintiff’s loss, that defendant is then liable to compensate the plaintiff for all the reasonably foreseeable losses – regardless of whether some other defendant has also caused or contributed to the loss occurring. Proportionate liability requires a court to examine and discover each defendant’s relative share of responsibility and order each defendant to pay only that share.
3.12Proportionate liability will disadvantage plaintiffs if liable defendants are absent or insolvent. In such a situation, the plaintiff will not be able to recover the loss that is attributed to these liable defendants. In essence the plaintiff will bear the absent or insolvent liable defendant’s proportion of loss. This is despite the fact that the plaintiff has not caused the loss and there are available and solvent defendants who have contributed to the loss and who could pay. Similarly to joint and several liability, the central feature of proportionate liability is seen by defendants as its great advantage and by plaintiffs as its crucial deficiency.
3.13While joint and several liability is still the normal rule for most countries, proportionate liability has made some headway. Proportionate liability has been adopted in whole or in part in most states in the United States and for some purposes in some Canadian provinces. Australia is the only country to adopt proportionate liability at state and federal levels, although not for personal injury cases and with some grey areas remaining in respect of other civil claims.
3.14The adoption of proportionate liability in the United States must be seen as part of a wider impetus for tort reform in North America over at least the last 20 years. The impetus for reform resulted from the disruption and costs to society and business from litigation processes and costs, which were perceived to be spiralling out of control. Joint and several liability was an important target for reform because of the impact of joint and several liability on defendants who had made, or saw themselves as having made, only a minor contribution to the loss. Concerns tended to focus on personal injury and product liability cases, and the need for general reform, not just of joint and several liability. However, the cost to liable defendants due to joint and several liability was seen as sufficiently onerous that it increased the cost of business, and potentially restricted economic innovation and activity. It was felt that the adverse economic effects from litigation costs, including the effect of joint and several liability, harmed overall efficiency within the wider economy and thus imposed costs on the whole of society.
3.15In Australia, the proportionate liability system was first introduced in the building industry in Victoria and New South Wales. In 2003 it the State and Commonwealth governments agreed that there would be a general shift from joint and several liability to proportionate liability for situations other than personal injury. The reasons for this shift have not been particularly well articulated. However, the failure of HIH Insurance in 2001, and the subsequent difficulty or feared difficulty in obtaining liability insurance was seen as a crucial factor in the adoption of proportionate liability. Thus shifting a proportion of the burden of loss onto plaintiffs was seen as a necessary response to ensure maintenance of economic activity at pre-crisis levels.
3.16The experience of the general shift to proportionate liability in Australia has been less successful than first envisaged. Levin observed that the proportionate system has caused “considerable increase in the complexity and cost of litigation and made settlement by way of an effective offer of compromise or negotiation and mediation more difficult”. This is because the proportionate system requires a full assessment of the relative liability of defendants at trial. The relative shares to be borne by each of the liable defendants is also an issue for plaintiffs. They must identify all possible defendants who have caused the loss in order to gain the maximum possible compensation. Plaintiffs may also need to devote energy and argument to convincing the court that defendants best able to pay also attract the greatest proportionate share of liability. At a more basic level, complexity continues because of the unsettled boundary between proportionate liability and joint and several liability, for different types of claims or fact situations, and because of differing state provisions on several important issues. The uncertainties created all add to the procedural issues litigants have to navigate.
3.17Jurisdictions that have shifted to proportionate liability, either in whole or in part, have determined that the plaintiff may reasonably be required to carry a proportion of the risk of absent or insolvent liable defendants. There are many examples in law and policy where this kind of assessment is made. It is often related to a statute-imposed cap on the extent of loss that can be claimed from a liable defendant or class of defendant, or the extent of insurance that may be offered. The extent of Accident Compensation Corporation (ACC) coverage is an example of limitations on payments. Other examples include the liability of carriers of people and cargo where the liability is limited by legislation or international convention to an amount per kilo, or per package, or per person. The reason for such limits is that if the limit was greater, carriers may not enter the market or may not be able to stay in the market.
3.18The appeal of proportionate liability can also be described in terms of supporting industry or commerce by relieving businesses of the threat of excessive liability. In the same manner that limiting liability for carriers and insurers could promote the transport and insurance markets, proportionate liability may promote economic activity, resulting in economic efficiency. Looking at the Australian example, the shift to proportionate liability first occurred in areas of the economy that are particularly susceptible to multiple parties contributing to activity. The building industry is notable for multiple contractors and parties contributing to the final product. In Australia the building and construction industry was the first beneficiary of the shift to proportionate liability, with a number of states introducing specific legislation for these industries. It had been considered unreasonable for the various parties in the building and construction industry to bear the risk that they would be responsible for the totality of the loss irrespective of their degree of fault. While the wider move to proportionate liability occurred only a decade later, it too had a “commercial” impetus, with the insurance crisis sparked by the collapse of the HIH Group.