Review of Contractual Allocation of Risk
and Part IVAA of the Wrongs Act 1958
Discussion Paper
December 2005
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
© State of Victoria, Department of Justice 2005
This publication is copyright. No part may be reproduced by any process except in accordance
with the provisions of the Copyright Act 1986.
Disclaimer: This publication is circulated for the purposes of generating comments on a
proposal to review certain aspects of Part IVAA of the Wrongs Act 1958. The State of Victoria
and its employees do not guarantee that this publication is wholly without error. This publication
is circulated on the understanding that the State of Victoria and its employees are not
responsible for any action taken or any failure to take action on the basis of the material
contained in this publication. This publication should not be viewed as constituting legal advice
nor should it be relied on for the purposes of obtaining or providing legal advice in relation to
any matter.
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
TABLE OF CONTENTS
A. Background
4
B. Principle of Proportionate Liability and Operation of Part IVAA
6
C. Potential Implications for the Voluntary Allocation of Risk under
Contract
8
D. Options for Amending Part IVAA to Allow Voluntary Allocation of
Risk under Contract
12
E. Retrospective Effect of Part IVAA
16
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
A.
Background
History of Proportionate Liability as Part of the Tort Law Reforms
1. Part IVAA of the Wrongs Act 1958 (‘the Act’), as introduced by the Wrongs and
Limitation of Actions Act (Insurance Reform) Act 2003, came into effect on 1
January 2004.
2. The implementation of Part IVAA was part of a broader package of insurance
driven reforms designed to respond to the contraction in the insurance market in
2001-2002. This was the result of a number of factors, including the collapse of HIH
Insurance (which held 35% of the insurance market1); a general reduction in
competition between insurance providers; and the withdrawal of certain insurance
services as a result of substantial awards of damages being made by courts
(particularly in NSW) in relation to professional indemnity and public liability
litigation.
3. Commonwealth, State and Territory governments received submissions from the
insurance industry and various professional associations strongly recommending
that the current liability system be altered to assist in correcting severe market
failure in the provision of professional indemnity insurance (‘PII’). In response to
concerns over the withdrawal of PII by various insurance providers, the Standing
Committee of Attorneys-General and the Ministerial Council for Corporations
convened a joint working party to review and address options for introducing
proportionate liability (“PL”) reforms and professional standards legislation.
4. Although jurisdictions sought to achieve reforms that were consistent, agreement
could not be reached to achieve uniformity in relation to PL provisions as certain
jurisdictions had already introduced various forms of proportionate liability.2
Recent Review of Proportionate Liability
5. The Victorian Government is continuing to monitor the effects of the tort law
reforms and to take account of concerns raised or identified in relation to the
operation of the new provisions of the Act.
6. In monitoring these reforms one concern that has been raised with the Victorian
Government is the potential impact of the PL provisions in Part IVAA on existing
and future contractual arrangements to allocate risk.
1
Moodie, Grant, ‘Proportionate liability: damages for misleading or deceptive conduct’, CCH
Australia (15 September 2004)
2
At the time of the joint meeting of SCAG and MINCO in April 2003, during which the proposals
for PL and professional standards legislation were being finalised, NSW had already enacted
PL provisions in Part 4 of its Civil Liability Amendment (Personal Responsibility) Act 2002,
Western Australia had introduced a Civil Liability Amendment Bill 2003 similar to the NSW Act
and Queensland had introduced a Civil Liability Bill 2003 which differed in parts from the NSW
and WA Acts.
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
7. While at the time of publication of this paper, the PL provisions have not been
subject to determination by the Victorian Supreme Court, there is a strong view that
a significant degree of uncertainty surrounds the practical operation of the PL
provisions, which in turn creates uncertainty when establishing contractual
arrangements as part of the usual course of business.
8. In particular, it is not known how PL will affect risk allocation arrangements for
major commercial transactions in Victoria; and whether PL can be used by
contracting parties to avoid their contractually assumed liability. The key concerns
that arise presently for businesses in the absence of judicial consideration are:
•
the potentially significant financial consequences that may flow from an adverse
judicial ruling on the ability of parties to allocate risk pursuant to contract; and
•
the prolonged uncertainty for contractual position for risk allocation both in
existing and future commercial arrangements until the Victorian Supreme Court
provides a definitive interpretation of Part IVAA.
9. This position in turn has the potential to significantly increase the current risk
management costs of a project particularly associated with insurance, performance
bonds and contractual indemnities or guarantees from third parties.
10. As such, the Victorian Government considers that a targeted review is necessary
so as to ensure that the current law on PL is transparent, fair and will clarify any
legislative uncertainty which may have been created by the implementation of the
PL reforms in 2004, regarding the contractual allocation of risk.
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
B.
Principle of Proportionate Liability and the Operation of Part IVAA
11. Part IVAA implements a system of PL for claims for economic loss or damage to
property in an action for damages (whether in tort, in contract, under statute or
otherwise) arising from a failure to take reasonable care. Part IVAA also applies to
a claim for damages for a contravention of section 9 (‘misleading and deceptive
conduct’) of the Fair Trading Act 1999 (Vic) - see section 24AF(1) of the Act. A
copy of Part IVAA is in Attachment 1.
12. Previously, under the general law principle of ‘solidary’ or joint and several liability,
plaintiffs were able to retrieve 100% of their loss from a defendant that may have
only caused only 1% of that loss, while the party who contributed to 99% of the loss
may not have been sued by the plaintiff (for reasons such as lack of capacity to
meet the plaintiff’s loss). The burden then fell on the named defendant(s) to identify
and join other defendants to the proceedings.
13. Under the system of PL, as implemented by Part IVAA, liability for any economic
loss is to be apportioned according to the responsibility of each ‘concurrent
wrongdoer’ (i.e. where there is more than one person who has independently or
jointly caused the plaintiff’s loss – see section 24AH of the Act). In other words, in
any proceeding, a court must not give judgment against a defendant for more than
an amount that reflects the proportion of loss or damage the court considers ‘just’
having regard to that defendant’s responsibility (see section 24AI(1) of the Act).
14. The legislation was designed to ensure that Courts recognise that some parties
should not bear the responsibility of others merely because they have the capacity
to pay compensation. Instead, it reflects the fundamental moral maxim that
wrongful conduct should incur a sanction that is proportionate to the culpability of
that conduct (‘the proportionality principle’); which arguably was previously infringed
by the principle of joint and several liability.3
15. However, the Victorian legislation does not implement PL in the same manner it is
implemented in some other jurisdictions. Section 24AI(3) of the Act states that in
apportioning responsibility between defendants in the proceeding, the court must
not have regard to the comparative responsibility of any person who is not a party
to the proceeding (unless that non-party wrongdoer is either dead, or if a
corporation, has been wound up)4. In other words, in apportioning responsibility
between named defendants to a proceeding, a court cannot, in determining the
3
See Goudkamp, James, ‘The Spurious Relationship Between Moral Blameworthiness and
Liability for Negligence’, MULR [2004] 11
4
For example some other jurisdictions either direct or provide a discretion for a court to consider
the comparative responsibility of a concurrent wrongdoer who is not a party to the proceeding section 87CD Trade Practices Act 1974 (Cth); section 35(3), Civil Liability Act 2002 (NSW);
section 107F(2), Civil Law (Wrongs) Act 2002 (ACT); section 31(3), Civil Liability Act 2003
(QLD); section 8(2), Law Reform (Contributory Negligence and Apportionment of Liability) Act
2001 (SA); section 13(2), Proportionate Liability Act 2005 (NT); section 5AK(3), Civil Liability Act
2002 (WA). However, in certain jurisdictions the balance in favour of the defendant is offset, to a
certain degree, by provisions that allow a court to order a defendant to pay the plaintiff’s costs
on an indemnity basis. This occurs where the plaintiff unnecessarily incurs costs due to the
defendant’s failure to inform the plaintiff of another concurrent wrongdoer – see for example
s5AKA, Civil Liability Act 2002 (WA).
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
facts, have regard to any other non-party wrongdoer’s possible contribution (unless
that non-party is either dead or an insolvent company). Accordingly, a named
defendant must join any other wrongdoer who may be responsible for the plaintiff’s
loss or, effectively, that defendant will not be able to rely on any evidence or
argument seeking to apportion liability to a non-party.
16. The potential effect of section 24AI(3) is that named defendants are faced with the
possibility that a court could apportion up to 100% of liability between the named
defendants in circumstances where, had the court considered the comparative
responsibility of any non-party concurrent wrongdoers, the liability apportioned
between the named defendants would be less. The named defendants bear the risk
of a court apportioning any responsibility of a non-party concurrent wrongdoer to
the defendants, unless the concurrent wrongdoers are either joined to the
proceedings, or are dead, or are companies that have been wound up. Whether
this risk will materialise will depend on the facts, the evidence adduced in the
absence of any non-party concurrent wrongdoers and the way the case is put to a
court.
17. From a policy perspective, section 24AI(3) was implemented to reflect a fairer
balance in the PL system between plaintiffs and defendants in Victoria. Generally,
defendants are better placed than plaintiffs to identify relevant wrongdoers who
may have contributed to a plaintiff’s loss. For example, in a large commercial
transaction involving a number of parties (and potential wrongdoers) the plaintiff
may have a contractual relationship with only one of those parties and may not be
in a position to identify all parties who may have a role in that transaction. Further,
and more generally, placing the burden of identifying all parties on the defendant
will ensure that potential defendants to do not collude to avoid being identified by a
plaintiff.
18. While the PL provisions have been implemented in response to the insurance crisis
and as part of the tort law reforms, they take much of their content from the Davis
Inquiry6 of the early 1990s. The Davis Inquiry recommended a move from a system
of ‘solidary’ liability towards a system of PL on the basis that solidary liability
created an injustice for institutional or ‘deep-pocket’ defendants. The draft PL
legislation annexed to the Report of Stage Two allowed express contracting out of
the legislation’s effects. ‘Contracting out’ has been provided for in both the New
South Wales and Western Australian legislation (discussed further in Part D of this
paper).
19. It should be noted that PL does not apply to claims arising under various statutory
compensation schemes (as set out in section 24AG of the Act), such as the
Transport Accident Act 1986 (Vic) and the Workers Compensation Act 1958 (Vic);
nor does it apply to personal injury claims.
6
Davis, Jim, Inquiry Into the Law of Joint and Several Liability: Report of Stage One and Report
of Stage Two (Commonwealth of Australia, 1994, 1995)
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
C.
Potential Implications for the Voluntary Allocation of Risk under
Contract
20. A fundamental characteristic of contract and the risk allocation philosophy which
underpins it is that all project risk should be distributed in accordance with the
terms of the contract between the parties. It also reflects the generally recognised
position that the law of contract is a ‘higher’ law than of torts and that parties ought
to be able to vary or exclude rights or liabilities unless otherwise prohibited by law
or on public policy grounds.7
21. However, under section 24AI(1) of the Act there is the potential for courts to
construe the relevant provisions in such a way so as to override the contractual
allocation of risk between parties to a contract and instead simply determine
‘responsibility’ in the narrow sense of what actions or omissions were attributable to
each party that contributed in fact to the plaintiff’s loss.
22. Two simple examples can be used to illustrate the potential problems Part IVAA
may pose for parties seeking certainty when entering into commercial
arrangements. In the first scenario Party (P) enters into a contract with Party D1 to
build a new building. The contract between P and D1 states that D1 will fully
indemnify P (assume 100% liability for any loss incurred by P) in consequence of
that transaction. D1 then sub-contracts with D2 to undertake various aspects of the
construction of that building. Subsequently, the building collapses and on a factual
enquiry, D2’s negligence is held to be 80% responsible for P’s loss. Under solidary
liability, P would only need to sue D1 to attempt to recover 100% of the loss.
Currently, under Part IVAA, should P sue D1, and D1 were to join D2 to the
proceedings, P risks only recovering 20% of P’s loss from D1 - despite the
contractual indemnity which provides that D1 will assume 100% of P’s loss. See
Attachment 2.
23. In the second scenario, P enters into a contract with D1 to build a new building. D1
enters into a contract with D2 that might stipulate that in undertaking to construct
the building for D1, D2 has agreed to fully indemnify D1. D2 then sub-contracts with
D3 to supply the materials for the construction of that building. Together, D1, D2
and D3 negligently cause P’s economic losses. Under Part IVAA, P elects to sue
D1 and D1 joins D2 and D3 to the proceeding. There is a risk, however, that on a
factual enquiry the court could find D1 50% responsible for P’s loss, and therefore
hold D1 50% liable for P’s damages – despite D1’s contract with D2 which provides
that D2 will indemnify D1 for 100% of any loss arising out of the project. See
Attachment 3.
24. Currently, s24AJ of the Act stipulates that once judgment has been given against a
defendant in relation to an apportionable claim, that defendant cannot be required
to contribute to the ‘damages’ recovered or recoverable from another concurrent
wrongdoer in the same proceeding or cannot be required to indemnify any such
wrongdoer.
25. This is because the definition of ‘damages’ under s24AE of Part IVAA includes
‘any form of monetary compensation’ and that phrase arguably is sufficiently broad
7
Star L and Paine T, ‘Principles of Liability’, Australian Torts Reporter: Vol 2, (CCH Australia
Ltd, 1998)
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
enough to include any contractual entitlement to indemnity, where the entitlement
‘arises out of’ a failure to take reasonable care, as stipulated in s24AF(1)(a).
26. As a result, section 24AJ prevents a defendant from enforcing any contractual
indemnification provisions it has agreed to with another ‘concurrent wrongdoer’.
Accordingly, it is open to a concurrent wrongdoer to invoke this section to limit its
liability under the indemnity contract to ‘that proportion of the loss or damage
claimed that the court considers just having regard to the extent of [its] liability for
the loss or damage’.
27. This means that in Scenario 2 (see Attachment 3) if D2 and D3 were respectively
found 30% and 20% liable (against D1’s 50% liability) then under section 24AJ, D1
could not enforce its contract with D2 to indemnify it for that 50%. As a result, D2
has managed to reduce its contractual liability to D1 from 100 % to 0%, despite
contractually assuming 100% of D1’s liability.
28. From the above discussion it also follows that a party that has assumed contractual
liability for the actions of others might wish to be named as a defendant and to lead
evidence that it was negligent in some minor way, so as to invoke the operation of
Part IVAA and therefore to reduce the amount for which it would have otherwise
been held liable. For example, a party could become nominally involved in the
transaction such that if some deficiency did ensue, it would stand a chance of being
named as a defendant and being held liable for, as an example, only 5% of the
loss.
29. Conversely, there is a possibility that a plaintiff or a co-defendant in seeking to
impute as much responsibility to a particular party may seek to adduce evidence
that the defendant has not failed to exercise reasonable care (such that the PL
provisions are not invoked) and therefore that particular defendant’s strict liability
under contract can be enforced. Again, in the absence of judicial consideration,
these are examples of potential situations that could arise from the operation of the
current provisions.
30. Section 24AJ does not, however, prevent a defendant from enforcing any indemnity
arrangements it may have with other parties such as insurers, guarantors or
performance bond issuers who are not actually involved in the relevant project in
any practical capacity, such that they could have factually contributed to the
plaintiff’s loss, and who are not and cannot, therefore, named by the plaintiff as
‘concurrent wrongdoers’. Accordingly, any contractual indemnity arrangements in
place between those parties will not be affected by the operation of Part IVAA.
31. Whilst from a policy perspective permitting contractual rights of contribution (as
between defendants) generally will either defeat or significantly undermine the
purpose of implementing a system of PL7; in the context of voluntary contractual
arrangements (and particularly those involving larger scale or sophisticated
commercial transactions) section 24AJ, on its current form does not enable parties
to contractually arrange the risks of those transactions as between themselves in a
way that is likely to be enforced by the Victorian Courts.
7
As noted by Professor Davis as a general rule there can be no right of contribution between
various defendants as they will not be liable to the plaintiff for any more than their proper share
of responsibility – Inquiry Into the Law of Joint and Several Liability: Report of Stage Two
(Commonwealth of Australia, 1994, 1995), p.9
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
32. This effect, as noted in a paper recently delivered by the Commercial Bar
Association, runs counter to the policy intent of implementing PL to alleviate the
pressure on insurance premiums:
“One of the ways in which commercial parties arrange their affairs is to require parties
contracting with them to provide a full indemnity and to carry insurance for any loss.
Why would the legislation cut across that arrangement, thereby increasing the risk of
creating an uninsured defendant?” 8
33. While the above examples are merely hypothetical scenarios of how PL might
operate in practice (in the absence of any court’s judgment), they illustrate the
potential of Part IVAA to undermine the commercial value of contractual allocation
of risk in major contracts.
34. It should be noted that at this stage, it is difficult to quantify to what extent the
operation of the current PL provisions do negatively impact on the general business
environment in Victoria – particularly as to whether or not these provisions have
imposed added costs or burdens on Victorian businesses. The Victorian
Government is keen to obtain organisational and industry views on the actual or
perceived costs of the inability of parties to manage the commercial allocation of
risk as a result of the implementation of Part IVAA. Further, the Victorian
Government is keen to obtain stakeholder views as to whether any amendment to
the legislation to allow the enforcement of contractually assumed risk will provide
greater benefits or impose further costs from a stakeholder perspective.
8
Uren A.G. and Aghion D., ‘Proportionate Liability: An Analysis Of The Victorian And
Commonwealth Legislative Schemes’, Commercial Bar Association Paper for CLE Seminar
dated 18 August 2005
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
Question 1:
Should the Act be amended to enable contractually assumed
allocations of risk to be enforceable despite the operation of
Part IVAA?
Question 2:
Would an amendment that enables the enforcement of
contractually assumed allocations of risk despite the operation of
Part IVAA provide greater benefits for or add greater costs to
conducting business in Victoria?
Question 3:
Aside from the potential problems with enforcing contractually
assumed risk under Part IVAA are there any other problems that
can be identified with Part IVAA in relation to managing the
contractual allocation of risk?
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
D.
Options for Amending Part IVAA to Enable Voluntary Allocation of Risk
under Contract
35. In light of the above discussion, certain options for amending Part IVAA have been
raised for consideration. The primary options currently being considered by the
Victorian Government are:
•
Option 1 - Insert a provision into the Act which allows contracting parties to
‘contract out’ of the application of Part IVAA (similar to the Western Australian
or NSW legislation); or
•
Option 2 - Insert in section 24AI of the Act a provision to the effect that a Court
must have regard to any contractually assumed responsibility for the purposes
of determining the extent of a defendant’s ‘responsibility’ for loss or damage.
Option 1:
Allow parties to contract out of Part IVAA
36. Section 4A of the Civil Liability Act 2002 (WA) (‘the WA Act’) provides that a written
agreement signed by the parties to it may contain an express provision by which a
provision of various Parts of the WA Act, including Part 1F (proportionate liability)
can be excluded, modified or restricted, and the WA Act does not limit or otherwise
affect the operation of that express provision.
37. Accordingly, in Western Australia, parties can ‘contract out’ of the proportionate
liability provisions, and include in their contracts a clause which states for the
purpose of a court determining ‘responsibility’ for liability under Part 1F of the WA
Act, any agreement to allocate liability between the parties is to be given
preference.
38. NSW has a similar exemption in its Civil Liability Act 2002 (‘the NSW Act’). Section
3A(2) provides that ‘[t]his Act (except Part 2) does not prevent the parties to a
contract from making express provision for their rights, obligations and liabilities
under the contract with respect to any matter to which this Act applies and does not
limit or otherwise affect the operation of any such express provision’. As with the
WA Act, this provision indicates that parties are able to stipulate in contracts
allocating liability for loss that parties are only bound by all or part of Part 4
(Proportionate Liability) to the extent that it is consistent with their assumption of
liability under the contract.
39. The advantage of this option is that it allows Part IVAA to remain intact, and simply
ensures that parties who wish to retain their right to contractually allocate risk as
between themselves can do so with certainty. Accordingly, parties retain the
freedom to determine the extent to which Part IVAA will not apply, which is
arguably beneficial since it may be the case that in some situations parties do not
wish to ‘contract out’ of the Part in its entirety or in every regard.
40. For example, parties might wish to provide in a contract that a determination as to
their liability under Part IVAA does not prevent them from enforcing any contractual
indemnity arrangements or allocations of risk as between them. If this were the
case with regards to Scenario 2 (see Attachment 3), then whilst D1, D2 and D3
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
might be found liable by a court to the same extent as their factual/causal liability,
they would subsequently be able to overcome the problems associated with s24J
and recover a contribution from each other according to the terms of their
contractual allocation of risk. However it would not necessarily prevent a court from
finding the relevant defendants liable to a plaintiff in the first instance.
41. In order to achieve this option, a provision could be inserted into Part IVAA (for
example after section 24AI(3) that is similar to s4A of the WA Act; or s3A(2) of the
NSW Act. This option should, in effect, represent a return to the pre-Part IVAA
general law position restoring solidary liability in cases of negligence, where parties
have contractually provided for it. However, it should be noted that by making
express provision in the Act for parties to contract out of Part IVAA, the legislative
position in Victoria will diverge from the legislative position in most other
jurisdictions.9
42. It should also be noted that Option 1 may not necessarily remedy a situation (such
as in Scenario 2) from a plaintiff’s perspective where P’s contract with D1 does not
contain a contracting out clause for the purposes of Part IVAA. In such a case, Part
IVAA would continue to apply to P’s claim but would not apply to D1 and D2 due to
the contract indemnifying D1 for any liability. While D1 may be 50% responsible on
a factual basis and D2 only 30%, with ‘contracting out’ D2 is assuming legal
responsibility for D1 and, in effect, total responsibility of 80%.
43. Where D2 is either a ‘shell company’ established by D1 for such a purpose, or is a
small sub-contractor with little capacity to meet such liability, then P is at risk of
recovering little or no compensation for its losses. This situation would not ordinarily
occur where the parties are sophisticated transactors and the plaintiff has obtained
legal advice on the proposed transaction or undertaken the necessary due
diligence. However, where the plaintiff is a smaller business or is an individual who
may not have the level of commercial sophistication or resources to investigate
D1’s commercial arrangements prior to entering into the transaction, there is a risk
that the plaintiff will not be protected by Option 1 in the event of economic loss. The
outcome for the plaintiff will depend on the nature of the transaction and on other
applicable laws governing the conduct or formation of that transaction – for
example a requirement that parties to that type of transaction hold some form of
public liability or professional indemnity insurance.
44. A variation on adopting a ‘blanket’ contracting out approach out may involve an
express contracting out provision in combination with a ‘threshold’. This variation is
intended to limit the class of contractual arrangements to which an express
contracting out provision would apply. For example, if it is demonstrated that only
commercial transactions of a certain type or sophistication (eg major projects
involving a number of parties) are likely to be undermined by the current PL
provisions, it may be appropriate to insert a suitable provision that allows
contracting out but only if the value of the contract is, as an example, above a
certain monetary threshold. A threshold would, in-principle, represent a more
limited departure from the general application of Part IVAA in Victoria.
9
The Trade Practices Act 1974 (Cth) and the relevant legislation in Queensland, South Australia,
Tasmania, the Australian Capital Territory and the Northern Territory do not expressly provide for the
contracting out of proportionate liability.
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
Option 2:
State that a court must have regard to any contractual
arrangements between concurrent wrongdoers when applying Part
IVAA
45. This option would ensure that in allocating a proportion of damages to a concurrent
wrongdoer, any contractual assumption of risk must be considered and potentially
factored into the court’s determination of that concurrent wrongdoer’s extent of
‘responsibility’. This means that if a court finds that in fact, a concurrent
wrongdoer’s causal liability contributed only 5 per cent towards the plaintiff’s loss
that 5 per cent may be increased or reduced to reflect the extent of responsibility
the relevant contract states the concurrent wrongdoer will assume if a plaintiff
suffers loss.
46. This option therefore clarifies the meaning of ‘responsibility’ so that when courts
apportion responsibility between wrongdoers, ‘causal liability’ is considered
alongside contractually allocated liability. Further, this option would signal a
legislative intention to ‘single out’ or ‘highlight’ contractual arrangements for special
consideration by a court when applying Part IVAA, although it falls short of an
explicit statutory exemption.
47. The advantage of this option is that it is conceivable that in some cases a
concurrent wrongdoer should be found liable to a greater or lesser extent than
precisely what their contract stipulates. Arguably, the court should have the
discretion to override contractual liability (to some extent) or at least to apply a
flexible approach to cases where there is a manifest discord between the
contractual allocation of risk and a defendant’s ‘moral responsibility’ for causing a
loss.
48. From a policy perspective, this option would remain more consistent (than Option
1) with the underlying principles of PL (as discussed in Part B) in that a court would
be required to consider both contractually assumed liability and causal liability. The
allocation of liability by a court under this option would then reflect what is ‘just’ in
the particular circumstances of individual cases.
49. However, this option would not provide statutory certainty as to whether or not a
court’s final determination would place greater weight on the causal liability of a
concurrent wrongdoer or the contractually assumed liability of that concurrent
wrongdoer for the purposes of assessing damages. This is because the words
‘must have regard to’ simply mean that a court is bound to consider the relevant
terms of a contract, but not necessarily strictly enforce those terms. In contrast to
Option 1, the determination of ‘responsibility’ is at the court’s discretion and this
arguably may encourage parties to seek to litigate disputes in order to reduce their
contractual liability.
50. Moreover, this option should be considered in light of the need to clarify the current
legislative uncertainty over parties’ freedom to contract (in relation to risk allocation)
and in light of other existing remedies that serve to protect ‘weaker’ parties against
the inequalities in bargaining power (for example, the application of general
equitable doctrines such as unjust enrichment, unconscionability, undue influence
etc).
51. It should also be noted that this Option may not overcome the problems associated
with section 24AJ, insofar as concurrent wrongdoers still would not be able to seek
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
a contribution from each other once judgment has been given as to their respective
liability to the plaintiff. It simply indicates that when determining the amount of
damages for which concurrent wrongdoers are liable, that amount would be
adjusted to some extent in the light of any contract as to liability. Therefore,
indemnities would remain unenforceable where inconsistent with the court’s
apportionment of factual liability.
52. A variation on Option 2 could be the insertion of a provision that states the court
must apply the terms of a contract (as opposed to ‘have regard to’) when
determining responsibility under Part IVAA. This method seeks to remove the
discretion available to a court under Option 2 when examining the responsibility of
the defendant. From a policy perspective, this variation signals a more complete
departure from the application of the PL principles.
53. While this variation is a different mechanism from an express contracting out
provision (as considered in Option 1) the variation, in effect, seeks to achieve a
similar outcome to Option 1. The intention of the legislation would be to preclude a
court from considering causal liability of a concurrent wrongdoer to the extent that
the relevant contractual term provides otherwise.
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
Question 4:
Does Option 2 provide an appropriate balance between the
proportionality principle and the need to protect the contractual
assumption of risk?
Should this option be varied so that a court must apply the terms
of the relevant contract when apportioning liability under Part
IVAA?
Question 5:
Which of Options 1 and 2 would provide the most appropriate
solution to address concerns over the interaction of Part IVAA and
contractual arrangements to allocate risk?
Question 6:
Are there any other options which provide a more appropriate
balance between the intended general operation of Part IVAA and
protecting contractual arrangements to allocate risk? Will those
other options provide sufficient statutory certainty to contracting
parties?
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Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
E.
Current Retrospective Effect of Part IVAA
54. Currently, section 24AS of the Act provides that Part IVAA applies to proceedings
that are commenced in a court on or after the commencement of section 3 of the
Wrongs and Limitation of Actions (Insurance Reform) Act 2003. As a result,
relevant proceedings brought on or after 1 January 2004 are subject to the PL
provisions. However, section 24AS, as currently framed, allows Part IVAA to have
general retrospective effect to a cause of action (whether in tort, contract or under
statute) that has accrued prior to 1 January 2004.
55. This gives rise to a situation whereby any pre-existing contractual arrangements
allocating liability risk between parties (i.e. contracts entered into prior to 1 January
2004) may be overridden by Part IVAA if proceedings relating to those contractual
arrangements are commenced after 1 January 2004. The Victorian Government is
aware that this provision potentially adds uncertainty to those commercial
transactions with contractual arrangements purporting to allocate risk which were
entered into prior to Part IVAA taking effect.
56. Accordingly, to maintain consistency with any decision taken to protect the
voluntary allocation of risk pursuant to contract, consideration will also be given as
to whether or not an appropriate amending provision ought to be inserted to limit
the application of Part IVAA to contracts entered into after the commencement of
Part IVAA.
57. As the purpose of this review relates solely to the clarification and protection of
contractual arrangements allocating liability risk, it is not envisaged that the review
of section 24AS include claims for economic loss arising purely in tort or under
statute.
Question 7:
Should an appropriate savings provision also be drafted to
provide that Part IVAA only applies to contracts entered into after
the commencement of Part IVAA?
17
Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
ATTACHMENT 1
WRONGS ACT 1958
s. 24AE
24AF
S. 24AE
inserted by
No. 60/2003
s. 3 (as
amended by
No. 102/2003
s. 36).
PART IVAA—PROPORTIONATE LIABILITY
24AE. Definitions
In this Part—
"apportionable claim" means a claim to which this Part applies;
"court" includes tribunal and, in relation to a claim for damages, means
any court or tribunal by or before which the claim falls to be
determined;
"damages" includes any form of monetary compensation;
"defendant" includes any person joined as a defendant or other party in
the proceeding (except as a plaintiff) whether joined under this Part,
under rules of court or otherwise;
"injury" means personal or bodily injury and includes—
(a) pre-natal injury; and
(b) psychological or psychiatric injury; and
(c) disease; and
(d) aggravation, acceleration or recurrence of an injury or disease.
S. 24AF
inserted by
No. 60/2003
s. 3 (as
amended by
No. 102/2003
s. 37).
24AF. Application of Part
(1) This Part applies to—
(a) a claim for economic loss or damage to property in an action for
damages (whether in tort, in contract, under statute or otherwise)
arising from a failure to take reasonable care; and
(b) a claim for damages for a contravention of section 9 of the Fair
Trading Act 1999.
(2) If a proceeding involves 2 or more apportionable claims arising out of
different causes of action, liability for the apportionable claims is to be
determined in accordance with this Part as if the claims were a single
claim.
(3) A provision of this Part that gives protection from civil liability does not
limit or otherwise affect any protection from liability given by any other
provision of this Act or by another Act or law.
18
Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
24AG. What claims are excluded from this Part?
(1) This Part does not apply to claims arising out of an injury.
(2) Without limiting sub-section (1), this Part does not apply to the
following—
S. 24AG
inserted by
No. 60/2003
s. 3.
s. 24AH
24AI
(a) a claim to which Part 3, 6 or 10 of the Transport Accident Act
1986 applies;
(b) a claim to which Part IV of the Accident Compensation Act 1985
applies;
(c) a claim in respect of an injury which entitles, or may entitle, a
worker, or a dependant of a worker, within the meaning of the
Workers Compensation Act 1958 to compensation under that Act;
(d) a claim for compensation under Part V of the Country Fire
Authority Act 1958 or a claim for compensation under a
compensation scheme established under the regulations made under
that Act;
(e) an application for compensation under Part 4 of the Victoria State
Emergency Service Act 2005;
(f) a claim for compensation under Part 6 of the Emergency
Management Act 1986;
S. 24AG(2)(e)
substituted by
No. 51/2005
s. 58(10).
(g) an application for compensation under the Police Assistance
Compensation Act 1968;
(h) an application for assistance under the Victims of Crime Assistance
Act 1996;
(i) a complaint under the Equal Opportunity Act 1995;
(j) a claim for compensation under Part 8 of the Juries Act 2000 or
Part VII of the Juries Act 1967;
(k) a claim for compensation under Division 6 of Part II of the
Education Act 1958.
(3) This Part does not apply to claims in proceedings of a class that is
excluded by the regulations from the operation of this Part.
24AH. Who is a concurrent wrongdoer?
(1) A concurrent wrongdoer, in relation to a claim, is a person who is one of
2 or more persons whose acts or omissions caused, independently of each
other or jointly, the loss or damage that is the subject of the claim.
S. 24AH
inserted by
No. 60/2003
s. 3.
(2) For the purposes of this Part it does not matter that a concurrent
wrongdoer is insolvent, is being wound up, has ceased to exist or has
died.
24AI. Proportionate liability for apportionable claims
(1) In any proceeding involving an apportionable claim—
(a) the liability of a defendant who is a concurrent wrongdoer in relation
to that claim is limited to an amount reflecting that proportion of the
19
S. 24AI
inserted by
No. 60/2003
s. 3.
Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
loss or damage claimed that the court considers just having regard to
the extent of the defendant's responsibility for the loss or damage;
and
s. 24AK
(b) judgment must not be given against the defendant for more than
that amount in relation to that claim.
(2) If the proceeding involves both an apportionable claim and a claim that is
not an apportionable claim—
(a) liability for the apportionable claim is to be determined in
accordance with this Part; and
(b) liability for the other claim is to be determined in accordance with
the legal rules, if any, that (apart from this Part) are relevant.
(3) In apportioning responsibility between defendants in the proceeding the
court must not have regard to the comparative responsibility of any
person who is not a party to the proceeding unless the person is not a
party to the proceeding because the person is dead or, if the person is a
corporation, the corporation has been wound-up.
S. 24AJ
inserted by
No. 60/2003
s. 3.
24AJ. Contribution not recoverable from defendant
Despite anything to the contrary in Part IV, a defendant against whom
judgment is given under this Part as a concurrent wrongdoer in relation
to an apportionable claim—
(a) cannot be required to contribute to the damages recovered or
recoverable from another concurrent wrongdoer in the same
proceeding for the apportionable claim; and
(b) cannot be required to indemnify any such wrongdoer.
S. 24AK
inserted by
No. 60/2003
s. 3.
24AK. Subsequent actions
(1) In relation to an apportionable claim, nothing in this Part or any other law
prevents a plaintiff who has previously recovered judgment against a
concurrent wrongdoer for an apportionable part of any loss or damage
from bringing another action against any other concurrent wrongdoer for
that loss or damage.
(2) However, in any proceeding in respect of any such action the plaintiff
cannot recover an amount of damages that, having regard to any damages
previously recovered by the plaintiff in respect of the loss or damage,
would result in the plaintiff receiving compensation for loss or damage
that is greater than the loss or damage actually suffered by the plaintiff.
S. 24AL
inserted by
No. 60/2003
s. 3.
24AL. Joining non-party concurrent wrongdoer in the action
(1) Subject to sub-section (2), the court may give leave for any one or more
persons who are concurrent wrongdoers in relation to an apportionable
claim to be joined as defendants in a proceeding in relation to that claim.
(2) The court is not to give leave for the joinder of any person who was a
party to any previously concluded proceeding in relation to the
apportionable claim.
20
Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
24AM. What if a defendant is fraudulent?
Despite sections 24AI and 24AJ, a defendant in a proceeding in relation to an
apportionable claim who is found liable for damages and against whom a
finding of fraud is made is jointly and severally liable for the damages awarded
against any other defendant in the proceeding.
24AN. Liability for contributory negligence not affected
Nothing in this Part affects the operation of Part V or Division 7 of Part X.
24AO. Effect of Part IV
Except as provided in section 24AJ, nothing in this Part affects the operation of
Part IV.
S. 24AM
inserted by
No. 60/2003
s. 3.
s. 24AQ
24AM
S. 24AN
inserted by
No. 60/2003
s. 3 (as
amended by
No. 102/2003
s. 38).
S. 24AO
inserted by
No. 60/2003
s. 3.
S. 24AP
inserted by
No. 60/2003
s. 3.
24AP. Part not to affect other liability
Nothing in this Part—
(a) prevents a person from being held vicariously liable for a proportion
of any apportionable claim for which another person is liable; or
(b) prevents a person from being held jointly and severally liable for the
damages awarded against another person as agent of the person; or
(c) prevents a partner from being held jointly and severally liable with
another partner for that proportion of an apportionable claim for
which the other partner is liable; or
(d) prevents a court from awarding exemplary or punitive damages
against a defendant in a proceeding; or
(e) affects the operation of any other Act to the extent that it imposes
several liability on any person in respect of what would otherwise be
an apportionable claim.
24AQ. Supreme Court—limitation of jurisdiction
It is the intention of sections 24AI and 24AL to alter or vary section 85
of the Constitution Act 1975.
24AR. Regulations
(1) The Governor in Council may make regulations generally prescribing any
matter or thing required or permitted by this Part to be prescribed or
necessary to be prescribed to give effect to this Part.
(2) The regulations—
(a) may leave any matter to be determined by the Minister; and
(b) may apply, adopt or incorporate, wholly or partially or as amended
by the regulations, any matter contained in any document as existing
or in force—
(i) from time to time; or
(ii) at a particular time.
21
S. 24AQ
inserted by
No. 60/2003
s. 3.
S. 24AR
inserted by
No. 60/2003
s. 3.
Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
S. 24AS
inserted by
No. 60/2003
s. 3.
24AS. Transitional
This Part applies to proceedings that are commenced in a court on or after
the commencement of section 3 of the Wrongs and Limitation of
Actions Acts (Insurance Reform) Act 2003.
_______________
22
Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
ATTACHMENT 2
HYPOTHETICAL CONTRACTUAL ARRANGEMENTS FOR SALE OF LIGHTHOUSE
SCENARIO 1 – INDEMNITY CONTRACT BETWEEN PLAINTIFF AND A DEFENDANT
P contracts with D1 to build light house. Contract
between P and D1 provides that D1 will indemnify P
for 100% of any loss incurred.
D1 sub-contracts with D2 to install structural supports
for the lighthouse.
The lighthouse collapses after P takes possession of
the lighthouse.
P sues D1 for economic loss or damage to property.
D1 joins D2 to the action.
On factual enquiry, a court might find D1 was
20% responsible and D2 was 80% responsible for
P’s loss.
Actual / Causal Liability
Liability outcome under
Part IVAA
Liability outcome prior
to PL and under
Option 1
D1 – 20 %
D1 – 20 %
D1 – 100%
D2 – 80 %
D2 – 80 %
23
Review of Contractual Allocation of Risk and Part IVAA of the Wrongs Act 1958
ATTACHMENT 3
HYPOTHETICAL CONTRACTUAL ARRANGEMENTS FOR SALE OF LIGHTHOUSE
SCENARIO 2 – INDEMNITY CONTRACT BETWEEN DEFENDANTS
P contracts with D1 to build a light house.
D1 sub-contracts with D2 to construct the light house.
D2 agrees to indemnify D1 for 100% of any loss
incurred by D1.
D2 contracts with D3 to supply materials.
The lighthouse collapses after P takes possession of
the lighthouse.
P sues D1 for economic loss or damage to property.
D1 joins D2 and D3 to the action.
On factual enquiry, a court might find D1 was
50% responsible for P’s loss, D2 was 30%
responsible and D3 was 20% responsible.
Under s24AJ D1 cannot subsequently seek
contribution from D2.
Actual / Causal Liability
Liability outcome under
Part IVAA
Liability outcome prior
to PL and under
Option 1
D3 – 20 %
D3 – 20 %
D3 – 20 %
D2 – 30 %
D2 – 30 %
D2 – 80%
D1 – 50 %
D1 – 50 %
24