Contents

Chapter 4
Partial reform options

Different reform options

Proportionate liability for wrongdoers below a certain threshold

4.2Many submitters focused on the difficult position of a wrongdoer whose allocated share is relatively low compared to other wrongdoers. While the principles of causation imply that all jointly and severally liable parties will have contributed to the loss, this does not suggest that they are all equally to blame. Differences in relative blameworthiness may be reflected in comparative level of liability as assessed through contribution proceedings.

4.3Many jurisdictions within the United States have adopted a hybrid in which joint and several liability applies only to wrongdoers above a certain threshold, while the liability of wrongdoers below that threshold will be limited to their proportionate share. Different jurisdictions have explored a range of thresholds for separating principal wrongdoers from lesser wrongdoers,57 usually through establishing a percentage beyond which joint and several liability will apply (such as 20 or 30 per cent). However, such percentage thresholds have their problems. Determining the appropriate threshold is likely to be arbitrary, and defendants have incentives to make extensive arguments in efforts to demonstrate that their liability does not meet the threshold. This could lead to more complicated litigation, and the court’s determination will also be to some extent arbitrary.58 The plaintiff will become concerned with the level of liability allocated to each defendant, as they stand to lose if liable defendants with “deep pockets” fall below the relevant threshold.

4.4As with any model that includes elements of proportionate liability, the result could be the plaintiff failing to recover fully. If the only available liable defendant is below the threshold for joint and several liability the plaintiff will be unable to recover more than the amount allocated to that liable defendant. While we appreciate the potential harshness of joint and several liability for parties who have a relatively low share of responsibility, this particular response raises questions about the degree of risk that can fairly be shifted to the plaintiff. As with full proportionate liability, there is no accepted basis for establishing how much risk can fairly be transferred in this way.

Proportionate liability for contributory negligenceTop

4.5Under the current law, if the liable defendants can successfully demonstrate contributory negligence on the part of the plaintiff, the court will reduce the damages recoverable by the amount of the plaintiff’s contribution to their own loss. However, the liable defendants still remain jointly and severally liable for the balance. A range of jurisdictions have adopted the partial reform of switching to proportionate liability in cases where the plaintiff’s negligence is found to be a partial cause of the loss. This option was considered in the Law Commission’s earlier review,59 but was not recommended.

4.6There are several reasons not to favour this option. Failure to adequately protect one’s own position is different from carelessness that causes loss to another. Between the negligent plaintiff and the negligent defendant, the negligent defendant will generally be considered the more culpable party. Importantly, the plaintiff has not breached a legal duty to the defendant(s) – unlike the defendant(s) to the plaintiff. The plaintiff’s “share” of the loss will already have been considered by the court in assessing the total damages, ensuring that no defendant will be liable for damage attributable to the plaintiff. In contrast, allowing proportionate liability in this situation involves a significant double discount. The plaintiff must give up any proportion of the damages attributed to their own fault. In addition, the plaintiff is at risk for the whole of any uncollected share. There is no principled basis for such a risk allocation. The plaintiff cannot be conceptualised as just another defendant – the interest of plaintiff and defendant are fundamentally opposed. In any case, the plaintiff is not treated like other defendants. The plaintiff would become the only “defendant” responsible for meeting uncollected shares.

4.7This reform would also impose very high stakes for the finding that a plaintiff is contributorily negligent, which could influence litigation and settlement behaviour and may have unforeseen or perverse effects, such as unjustifiable pressure on plaintiffs to settle, to avoid what may be only a remote risk of being held negligent.

Proportionate caps on liabilityTop

4.8Some hybrid models impose an upper limit on the liability of a party held jointly and severally liable. Two main forms of capped joint and several liability are used in a number of jurisdictions within the United States, both of which are discussed below.

4.9A cap can be used to modify proportionate liability so that the plaintiff will always receive at least a particular percentage of the total damage, generally set at around 50 per cent. Wrongdoers who are allocated more than 50 per cent would be liable only for their proportionate share, while wrongdoers allocated less than this could be required to pay up to half the total loss if the plaintiff could not otherwise recover. The plaintiff would bear the remaining risk of other wrongdoers being unable to pay. The obvious critique of this option is that a party with a smaller allocated share may have to pay more than their allocated share, while a party with a much larger allocated share will not.

4.10Alternatively, a cap could be based on a multiplier of the liability allocated. This could provide that no party will be liable for more than double their allocated share (or triple their allocated share under a model that is more generous to plaintiffs). This option can provide some relief for liable defendants, without placing the whole burden of the uncollectable share on plaintiffs. For example, if the only remaining solvent wrongdoer was allocated 20 per cent liability, a multiplier of two would require that wrongdoer to pay 40 per cent, leaving the plaintiff to bear 60 per cent. This option is clearly a compromise between joint and several liability and proportionate liability, and as such can be seen as a pragmatic response to the issue, rather than resting on firm legal principle.

Court-supervised reallocationTop

4.11This possible reform is one of the more cohesive partial reform options, but also one of the more complex. It has been suggested by two different law reform commissions in Canada,60 but was not adopted in either case. Under this option, the court would determine the relative share of each liable defendant in the same proceedings as determining the plaintiff’s claim. Each liable defendant would initially be liable to pay their allocated share. If the plaintiff was unable to collect from each liable defendant after a certain period of time, the court would “reallocate” the uncollected share among available liable defendants. In this way, the plaintiff would receive full recovery eventually, but would not be able to demand full payment from a single liable defendant at the outset.

4.12The disadvantages of this option include that the plaintiff’s ability to recover damages promptly may be defeated; it also may require the plaintiff to be involved in a second set of court proceedings. Full payment to the plaintiff would be further delayed, and the plaintiff may incur additional costs in going back to court that they cannot recover from liable defendants. Conversely, it could be argued that plaintiffs already face significant difficulties enforcing judgment, and this option is likely to simplify matters through providing greater clarity about the balance of liability between defendants.

4.13The chief difficulty with this option is that it is unclear how it would work in practice, as it has not been tested in other jurisdictions. While it would be a minor change to the rule of joint and several liability and is not a form of proportionate liability, it would be a reasonably significant change to the rules of civil procedure and the enforcement of judgments. There may also be consequential impacts on the law of contribution.

Proportionate liability for some sectors onlyTop

4.14Some submitters from the building sector suggested that the prevalence of leaky building litigation justifies a move to proportionate liability in that sector, regardless of changes in other sectors. This reflects the reform trend in Australia, where the building sector switched to proportionate liability before other sectors did.

4.15In our Issues Paper, we suggested that a move to proportionate liability for construction claims would not be viable in the absence of a comprehensive warranty scheme. We remain of this view. We also reject in principle the suggestion that proportionate liability is justified by virtue of the leaky building crisis. There is no convincing argument that proportionate liability would encourage better building standards sufficient to justify the clearly detrimental effect its introduction would have on owners of leaky homes. We also note that this review does not provide an opportunity for retrospective changes that would prejudice parties who have already suffered loss.

Liability caps for some sectors onlyTop

4.16A similar option is to adopt liability caps in some sectors only. For example, some professionals argue that their industries are well regulated and the risk of professional negligence claims drives up costs without promoting responsible activity. This option allows a more targeted response to perceived problems. In particular, it may be appropriate for sectors or classes of defendants where insurance is not readily available because of the high risk of liability. Potential defendants are more likely to be able to obtain insurance cover if a cap confirms the maximum potential liability for a particular class of claim. We explore the merits of caps for two groups, building consent authorities and auditors, in Chapters 7 and 8.

Proportionate liability for some types of damage onlyTop

4.17Some jurisdictions have adopted proportionate liability for some types of damage but not others. In the United States it is particularly common for joint and several liability to be limited to “objectively quantifiable” loss, but not matters such as emotional distress. Conversely, in Australia joint and several liability is retained for personal injury cases but not for cases of property damage or economic loss. Proportionate liability may also not apply there to some causes of action, such as a simple breach of contract, not involving negligence.

4.18In a New Zealand context this reform option is less pertinent, as personal injury is addressed by the comprehensive and no-fault accident compensation scheme. The potential reach of civil liability is already much narrower, and there is no obvious category of damage that is clearly different to others, such that it might require only proportionate liability.

Proportionate liability for some causes of actionTop

4.19A similar reform is to adopt proportionate liability for some causes of action only, such as tortious claims in negligence but not claims for breach of fiduciary or statutory duty. In practice, this is a very common feature of systems that have shifted to proportionate liability. New Zealand is in a different situation, with causes of action, like types of damage, already circumscribed by ACC.

4.20The net result is that civil claims in New Zealand are already generally limited to property, or economic or financial loss claims. This helps to explain why calls for “tort law reform” have never gained prominence here compared, for example, to Australia. Significant benefits are unlikely to be gained from attempting to re-categorise how some causes of action may be brought, or what damages may be awarded. These are in any case issues that relate to primary liability rules (such as when should a person be liable for negligence) rather than secondary rules as to how multiple liable parties will be treated, if found liable.

57Also called “minor”, “secondary” or “peripheral” wrongdoers.
58Courts will struggle to make fine distinctions as to whether particular defendants are 19.5 per cent, 20.5 per cent or 21 per cent liable – if
‚Äč20 per cent is the threshold percentage.
59Law Commission Apportionment of Civil Liability (NZLC R47, 1998).
60Ontario Law Reform Commission and Ontario Ministry of the Attorney General Report on contribution among wrongdoers and contributory negligence (Vancouver, Ontario Ministry of the Attorney General, Toronto, 1988); Law Reform Commission of British Columbia “Report on Shared Liability” (LRC88, 1986).