The question of how liability should be allocated in civil matters, when two or more parties are held liable for damage caused to another party or plaintiff, remains controversial. It is clear that if two or more liable defendants have caused the same loss, then those liable defendants must compensate the plaintiff. The more difficult question is how to allocate liability among the liable defendants. There are two main answers, and continuing disagreement as to which answer is best.
Many countries, including New Zealand, use a long-established rule called “joint and several liability”. Joint and several liability is primarily concerned with protecting the injured plaintiff. As the name suggests, the rule relies on the idea that all the parties who caused the plaintiff’s loss are each liable for the full amount of the damages awarded. But the plaintiff can only recover the total amount of the damages. This rule protects the plaintiff. If one liable party is insolvent, has died or has disappeared, the others may have to pay more than their share of responsibility alone would indicate, to make sure the plaintiff recovers in full.
The other main rule is “proportionate liability”. This rule is used to deal with multiple liable defendants in some countries, including Australia. Under proportionate liability, each liable defendant is allocated or apportioned a share of the total liability, based on the court’s judgment of each liable defendant’s share of responsibility or fault. If one party does not pay their share for any reason, the plaintiff cannot recover that uncollected share from another defendant. Liable parties are protected from paying more than their “proportion”, which means the plaintiff must bear the risk that there may be a missing liable party.
Many people, including people who made submissions to this review, think proportionate liability should be the rule in New Zealand. Each liable party would be required to pay their court-determined share of responsibility for the damage suffered by the plaintiff. All the shares would add up to 100 per cent, and as long as the liable parties all pay their shares, the plaintiff can still be made whole. Many others argue for joint and several liability, and say that liable defendants should only ever be liable for losses that they have caused or contributed to.
Not surprisingly, views on which rule is better, fairer or more efficient tend to divide neatly according to whether a person is more likely to be a plaintiff or a defendant. The views of either side are often strongly entrenched, and there is no consensus on which system is fairer. Given these strongly divergent views, and the large numbers of multiple defendant cases that have come from the leaky homes crisis, the Law Commission was asked to examine the issues again, to consider whether one rule is clearly preferable.
The Commission is of the view that joint and several liability is clearly the preferable system. We recommend it remain the general rule. However, we have also identified adjustments that can be made, to improve fairness for both sides, and for particular sectors where defendants may face unusual circumstances or truly excessive liability.
Overall, we consider that retention of joint and several liability, but with the adjustments we recommend, will provide an appropriate balance of protection for plaintiffs, and fairness to other parties.
Sir Grant Hammond