Apportionment of civil liability

Background

1 THE COMMISSION’S PRELIMINARY PAPER 19, Apportionment of Civil Liability, published in March 1992, was concerned with the situation where one party (P) is entitled in respect of a single loss to recover from more than one defendant (D1, D2 and so on). The loss may have been contributed to by P’s own fault. The preliminary paper recommended (as had the Contracts and Commercial Law Reform Committee in a 1983 working paper) that there be a right to contribution among defendants whatever the basis of civil liability (a reform effected in England and Wales by the Civil Liability (Contribution) Act 1978 (UK)). The preliminary paper recommended that, where P had contributed to the loss, the hardship arising from a share that could not be collected from a defendant should be apportioned, at the court’s discretion, among all the parties including P. For example, where D1, D2 and D3 are all liable to P, and D1, having been successfully sued by P (who has contributed to P’s own loss) is unable to collect the contribution to P’s entitlement due from D2 because D2 is insolvent, the court may allocate D1’s loss arising from the inability to recover from D2 among D1, P and D3. The paper (in this respect also agreeing with a proposal made by the Contracts and Commercial Law Reform Committee in 1983) recommended that reduction of a plaintiff’s claim to take account of contributory fault should not be restricted to the situation where the claim is founded on the tort of negligence.¹ The paper included a draft Act dealing with these points and other more detailed matters.

2 The preliminary paper considered and rejected suggestions that the present basis of liability which is in solidum (that is, each defendant is liable for the whole of the plaintiff’s loss) should be replaced by a scheme of several liability with each defendant being liable only for that defendant’s share of the loss. Under such a scheme, if the share of one defendant cannot be recovered this loss is borne by the plaintiff rather than as now by the other defendant or defendants. It will be convenient to employ the terms solidary and proportionate for these two bases of liability. The Commission arrived independently at the view that solidary liability should be retained, but it did describe itself as being partly influenced by the reluctance of legislators or reformers elsewhere to favour its abandonment. It seemed for a time that there was a possibility of the adoption of proportionate liability in Australia when, following the establishment in February 1994 by the Australian Federal Attorney-General and the New South Wales Attorney-General of an inquiry into the law of joint and civil liability, a report was published by Professor JLR Davis of the Australian National University. It concluded that:

While there are arguments for the abolition of joint and several liability in some circumstances there is no clear view on which of the variants of proportionate liability is better. (1994, 29)

Davis recommended further consideration of “the nature and scope of possible further changes to the present law”. A substantive report making specific recommendations for reform was published in January 1995. It recommended that solidary liability be abolished and replaced by a scheme of proportionate liability in all actions founded on the tort of negligence in which the plaintiff’s claim was for property damage or purely economic loss (Davis, 1995, 34). Draft legislation to give effect to the Davis recommendations was published in July 1996.

3 It seemed to this Commission that these proposals called for careful consideration. The recommendations in our preliminary paper were founded at least in part on a general lack of enthusiasm in comparable jurisdictions for a retreat from solidary liability: it was obviously sensible to wait and see how matters eventuated across the Tasman. The Davis recommendations were supported in a joint submission made by the New Zealand Law Society and the Institute of Chartered Accountants of New Zealand who saw their members as “deep pockets” disadvantaged by the solidary approach. The Commission has had the benefit of conferring with representatives of those two bodies, as well as receiving the views of an Interprofessional Committee on Liability representing the New Zealand Institute of Architects, the Institution of Professional Engineers New Zealand, the New Zealand Institute of Surveyors, the New Zealand Institute of Valuers, and the Association of Consulting Engineers New Zealand and of conferring with Professor Davis. Although we are told that the Davis proposals have attracted some expressions of support in Australia, no legislation has resulted. A September 1997 discussion paper by the New South Wales Law Commission, Contribution Between Persons Liable for the Same Damage, reaffirms that Commission’s earlier rejection of proportionate liability. A consultation paper by the Common Law Team of the English Law Commission published in 1996, Feasibility Investigation of Joint and Several Liability, reached the same conclusion. In our view there is no reason to delay further our final report on this topic. Some of the reforms recommended were adopted in England in 1978 and first proposed in this jurisdiction as long ago as 1983. Even though the reforms we advocate do not go as far as the “deep pockets” have urged, they will provide some measure of relief and should not in our view be opposed simply on the basis that our recommendations might go further than those implemented in England.

4 We record for the sake of completeness the research provided to the Commission by Emeritus Professor Conrad Blyth and Associate Professor Basil Sharp, both of the Department of Economics of the University of Auckland, the substance of which was published as “The Rules of Liability and the Economics of Care” (1996) 26 VUWLR 91. The research considered which of proportionate liability on the one hand and solidary liability with contribution on the other offered the greater incentive to achieving an efficient level of care; it concluded that the inherent tendency of each was the same. The Commission accepts the authors’ conclusion (104) that the imposition of liability upon “deeper pockets” creates economic inefficiencies because they then adopt excessive levels of care (eg, in the building industry, local authorities could insist on more regulations and controls than would otherwise be the case). We are not, however, persuaded by the further conclusion that, where there is a “deep pocket”, the adoption of a proportionate liability rule would be economically beneficial because it would have the effect of increasing the care undertaken by the claimant (105). We think this is an unproven assumption. Can it really be suggested that a result of proportionate liability would be a second-guessing of auditors by creditors or shareholders present or potential of a company? Or that owners or potential owners of residences would hover around breathing down the necks of builders to ensure that the building’s foundations were properly laid?

The format of this report

5 The Commission’s preliminary paper on this topic is a fully argued and carefully researched paper which has already been considered of assistance by other law reform agencies grappling with the same problem. In this report we do not propose to repeat the contents of the preliminary paper. We commence by re-examining the argument as to the competing solutions of solidary and of proportionate liability and the possibility of some sort of tertium quid falling between the wholehearted acceptance of one or other of these approaches. We next revisit the discussion paper’s proposals as to uncollectable shares. We then move on to consider certain matters of detail where we are persuaded that the recommendations in the preliminary paper can be improved. We conclude with some observations on the difficulties of “deep pockets” and ways in which they might be addressed. We do not discuss the other recommendations contained in our preliminary paper and referred to in para 1 of this report as they have provoked no controversy.

Solidary or proportionate

6 On the basis that a defendant’s liability is for the whole of the loss caused by the defendant’s wrongdoing, then that liability is unaffected by the fact that the behaviour of some other party has caused the same loss. Loss may be caused to a building owner by the manner in which the builder carries out the works and by a failure in supervision by the owner’s architect. Both builder and architect are liable for the full amount of the loss. As between P and D1, it is simply irrelevant that P also has a claim against D2, or that D1 may be entitled to claim contribution from D2. The essential basis of the attack on solidary liability, while it can be (and in the literature and in the various submissions on the Commission’s working paper is) expressed in differing ways really boils down to the contention that it is unjust that a defendant’s liability should exceed that defendant’s share of responsibility for the loss. The rejoinder to this proposition can be stated equally roundly. The fallacy of the contention that it is unfair to D1 that D1 should be liable to compensate P for more than D1’s proportion of the loss is that such an argument introduces into an examination of D1’s liability to P the logically irrelevant issue of D2’s liability to P. Fairness among defendants requires a consideration of degrees of responsibility, but any such consideration is irrelevant to the question of what as against the plaintiff is required to ensure fairness to defendants. Even if, as between D1 and D2, D1 may be only five percent to blame, as between P and D1, D1 is 100 percent to blame.

7 There is a complaint that the solidary rule imposes liability in excess of responsibility. But the whole basis of the law of civil liability is that quantification is determined not by the degree of the defendant’s fault but by the extent of the injury to the plaintiff. Trifling negligence, a momentary inattention for example, can cause horrific damage. Gross negligence can result in minor or no damage. As between plaintiff and defendant it is not the fault but the loss that is measured, and there is no reason why this principle should cease to apply simply because there is more than one wrongdoer. If there is injustice in substantial sums being recoverable from a professional firm whose error is very small when measured against the heinousness of the conduct of a now insolvent wrongdoer who has also caused the loss, the remedy for such injustice must lie either in an examination of the duty imposed by the law on the professional firm or in the rules of causation applied. Either way such injustice is neither consequent on nor reason for changes to the rules as to contribution.

Contrary to the assertions of the opponents of joint and several liability, a defendant’s individual full responsibility for an injury that was an actual and proximate result of her tortious behaviour does not become “partial” or “minimal” simply because other defendants’ tortious behaviour was much worse, individually or in the aggregate. Otherwise, plaintiffs would be subject to a perverse “tortfest,” in which the more defendants there were, or the worse they behaved, the less individual responsibility each defendant would bear for the injury, even though her tortious behaviour remained constant and was an actual and proximate cause of the entire injury. (Wright, 1992, 59)

8 Such considerations should remind us that, in addition to the issues of principle discussed in paras 6–7, there are procedural disadvantages in abandoning solidary liability. If there are 100 persons polluting a river, must P to recover damages join them all as defendants, and if P does not and chooses to join only D1 and D2 how does the judge determine apportionment among them and the absent 98? How binding is such an apportionment on the absent defendants? (See Ontario Law Reform Commission, Report 89, 186.)

9 The Commission is of the firm view that no sufficiently compelling case for departure from the solidary rule has been made.

A middle way?

10 In this Commission’s discussions with representatives of the legal and accountancy professions some thought was given to a compromise scheme somewhere between solidary and proportionate liability, in those discussions styled “reducible liability”. Under this scheme, courts would be empowered to reduce the amount of the defendant’s liability in such manner and for such reasons as they considered just. Invoked in support of this proposal were statutory provisions granting relief against liability to peccant trustees and company directors. The Commission does not recommend any change to the law along these lines. As expressed, such a change would constitute a blatant example of the process once described by Sir Alexander Turner as “throwing everything into the lap of the judge”.² Even if a more precise proposal could be formulated it would produce a change in the law more fundamental than can be justified by the desire to placate a particular interest group.³

Allocation of irrecoverable shares

11 This Commission in its preliminary paper (paras 180–187) proposed, as a compromise between solidary and proportionate liability, a solution under which, where the plaintiff has contributed to the loss, responsibility for uncollectable shares would be apportioned among solvent defendants and the plaintiff. In other words, if P obtains a judgment against D1 for an amount reduced by P’s contributory fault, and that judgment is satisfied by D1 but D2 is unable to contribute his or her share, the loss should be apportioned among D1, any other defendants, and P. Such a proposal, it can be argued, runs completely contrary to the reasons we have advanced in support of solidary liability. If the correct view is that D1 is liable to P for all of P’s loss, and questions of contribution among defendants are irrelevant to that liability, why should P’s net entitlement be diminished because D1 cannot collect the share of P’s entitlement that should be contributed by another defendant? It originates in Professor Glanville Williams’s monograph Joint Torts and Contributory Negligence (paras 102–104). His recommended legislation was adopted by the Irish Civil Liability Act 1961 and were supported by British Columbia’s Law Reform Commission in its 1986 Report on Shared Liability. Professor JG Fleming favours an essentially similar stance (1976, 250–256; 1979, 1482–1485, and 1491–1494) as does Professor RW Wright (after he earlier advocated the contrary view; compare 1988, 191–193 with 1992, 77–78). The opposing view is taken by the Ontario Commission in its 1988 report (para 186) and by the English Commission’s Common Law Team in its 1996 report (paras 4.2–4.15).

12 In reaching its conclusion, the Common Law Team placed substantial emphasis on the decision of the House of Lords in Fitzgerald v Lane [1989] AC 328. In this case the suggestion that the contributory fault of P should be assessed separately as against each defendant (so as to make possible a different percentage apportionment as between P and D1 and as between P and D2) was rejected. Instead, the court used the approach that, because what was being measured was P’s departure from appropriate standards, all the defendants were treated as a unit. Fitzgerald v Lane was discussed in our preliminary paper (paras 125 and 195) and the paper’s draft statute was shaped on the basis that the Fitzgerald v Lane decision was accepted. It now seems to us that, once it is accepted that any reduction in P’s claim is to be calculated by treating the concurrent wrongdoers as a group, then any rationale for allocating part of an uncollected share to P evaporates. The Commission’s view now, therefore, is that no part of an uncollectable contribution should be allocated to P. Section 16 of our draft Act in this report has been amended accordingly.

Defining rights of contribution

13 The New South Wales discussion paper, Contribution Between Persons Liable for the Same Damage, suggests that s 4 of the draft statute contained in our preliminary paper is less clear than the English section (para 6.40). We agree with this criticism, and the draft Act in this report is in a different form.

Reliance by a promisee on the promisee’s contract

14 Professor Coote has urged the importance of not interfering with P’s entitlement to rely on D’s promise where it is claimed that D’s responsibility to P for breach of contract should be reduced by P’s contribution to P’s loss (1992, 313). He suggests that the use of the word “justified” without definition in the expression “justified reliance” in our proposed section 7(3) may blur this entitlement. We agree, and have inserted in the section a provision to the effect that reliance by P does not cease to be justified by reason only of the failure by P, before P knows of a breach by D, to take any precaution against such breach.

The plight of the “deep pockets”

15 We wish, in concluding, to return to the position of the “deep pockets”. It is their plight that triggered a retreat from solidary liability in various jurisdictions in the United States of America. It must of course be kept in mind that in those jurisdictions, unlike in New Zealand, liability for personal injury survives and that there is a greater use of juries in civil cases. Further, at least until very recently, there was an absence of the will or power by judges to intervene when juries, in making damages awards, ran amok. There are various ways of addressing the problems of “deep pockets” without interfering with the law of contribution:

Professional firms could be permitted to incorporate with limited liability. (An entitlement to incorporate would be useful for other reasons.) It needs to be kept in mind that the bans on such incorporation were not imposed from the outside but have their origin in the genteel distaste for limiting liability that marked the early years of joint stock companies. The fear that such incorporation would not protect individuals will be largely set at rest if the Court of Appeal decision in Trevor Ivory Ltd v Anderson [1991] 3 NZLR 690 survives.
As to auditors, it is remarkable how rare it has been, even in the buccaneering period preceding the stockmarket crash of 1987, for audit firms to show clients the door. To the extent that they have not, they are the authors of many of their own misfortunes; the Commission notes a growing recognition of this by auditors themselves (see, for example, “Big Six Accountancy Firms Sack their Dodgy Clients”, The Independent, 24 October 1997, 39).
It would be possible to legislate for a cap on liability. A possible model is the New South Wales Professional Standards Act 1994 (see Whalley, 1997).
It is unclear whether New Zealand courts will retreat from the broad basis of auditor liability to strangers expressed in Scott Group Ltd v McFarlane [1978] 1 NZLR 553 to the more circumscribed approach favoured by the Australian High Court in Esanda Finance Corporation Limited v Peat Marwick Hungerford (1997) 71 ALJR 448. There is, for this reason, a strong case for a statutory reformulation of auditor liability.
As to the territorial local authorities, it is uncontroversial to observe that their liability for the civil consequences of negligent supervision of building and like activities is entirely the result of conscious judicial social engineering. Some would contend that such judicial activism is insupportable and that in any event the relevant facts on which policy decisions might be based were not adequately placed before the courts. A statutory revisiting of this topic would, on such a view, be appropriate.

It is not the Commission’s purpose in this report to offer a concluded view on any of these five issues. We refer to them simply to draw attention to the existence of these possibilities in support of our firm view that the substantive issues discussed in this report must be determined in a principled way, and not warped or skewed solely to answer “deep pocket” concerns.

16 The Commission recommends the enactment of the draft Act contained in this report.

NZLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.nzlii.org/nz/other/nzlc/report/R47/R47-Apportio.html