Update
MCW | In-Focus
Financial Risk
MAY 2014
Proportionate Liability for Insurance Brokers
- Construction Risk Allocation and Liability
Insurance
By • Ingrid Lehmann • T 07 3231 0693 • E ilehmann@mcw.com.au
In our last edition of In-Focus | Financial Risk, we addressed the emerging apportionment issues, but left for
another alert the ability of contracting parties to contract out of proportionate liability provisions. This edition of InFocus | Financial Risk will look at the current state of affairs.
There remains considerable uncertainty as to the application of the proportionate liability provisions in the various
jurisdictions in Australia when it comes to contractual terms that make express provision for the parties’ rights,
obligations and liabilities. Such terms are commonly found in commercial contracts, such as construction contracts.
This is particularly the case given the discrepancies that exist between the legislative provisions in each of the
jurisdictions, and the limited case law on the matter. Unfortunately, this uncertainty will remain until the courts
resolve the issues or amendments are made to the Acts in each jurisdiction.
Insurers and insurance brokers need to be alert to these issues to avoid claims against themselves.
Contribution and indemnity
All jurisdictions (other than South Australia) have a section the same as section 87CF of the Competition and
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Consumer Act 2010 (Cth) (Contribution Section) in their proportionate liability provisions. That section provides:
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 any damages or contribution recovered from another concurrent
wrongdoer in respect of the apportionable claim (whether or not the damages or contribution are
recovered in the same proceedings in which judgment is given against the defendant); and
(b)
cannot be required to indemnify any such wrongdoer.
A literal reading of the Contribution Section would suggest that contractual indemnities or allocation of risk have
ceased to be effective, subject to the ability of parties to contract out of the proportionate liability provisions
discussed further below. This appears to have been the position taken by Barrett J in the New South Wales
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Supreme Court decision of Reinhold v New South Wales Lotteries Corp (No 2).
1
See Australian Securities and Investments Act 2001 (Cth), section 12GT; Corporations Act 2001 (Cth), section 1041P; Civil Liability Act 2003 (Qld), section 32A; Civil
Liability Act 2002 (NSW, section 36; Wrongs Act 1958 (Vic), section 24AJ; Civil Liability Act 2002 (WA), section 5AL(1); Civil Liability Act 2002 (Tas), section 43C(1); Civil
Law (Wrongs) Act 2002 (ACT), section 107H; Proportionate Liability Act 2005 (NT), section 15(1). See also Law Reform (Contributory Negligence and Apportionment of
Liability Act 2001 (SA), section 9.
2
[2008] NSWSC 187, [85]. No reference is made by his Honour to section 3A of the Civil Liability Act 2003 (NSW), which allows contracting out as discussed further below.
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Proportionate Liability for Insurance Brokers Construction Risk Allocation and Liability
Insurance (cont.)
However, in regard to the proportionate liability provisions in the Wrongs Act 1958 (Vic), Nettle JA said in St
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George Bank Ltd v Quinerts Pty Ltd:
In particular, there is no suggestion in Pt IVAA that it was intended to do more by way of apportionment
than in theory could previously be achieved by contribution under s 23B of the Act.
This would suggest that the Contribution Section does not invalidate contractual indemnities. This was certainly the
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position taken by Professor McDonald when she said:
There is no obvious reason of policy or justice which would prevent a defendant from enforcing a
voluntarily entered, pre-existing contractual arrangement against another.
However, if this was the intention of the Contribution Section, why did Western Australia, Tasmania and the
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Northern Territory feel the need to add a second subparagraph to the Contribution Section, which provides:
Subsection (1) does not affect an agreement by a defendant to contribute to the damages recoverable from
or to indemnify another concurrent wrongdoer in relation to an apportionable claim.
Contracting out
Is contracting out permitted?
Even if the Contribution Section does not apply to contractual indemnities, those indemnities may still be ineffective
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if contracting out is prohibited. It has been said that:
Whether or not a party can contract out of proportionate liability depends on the relevant jurisdiction. The
generally accepted view is that it is not possible for parties to limit or exclude their liability for breach of
statutory prohibitions on misleading or deceptive conduct. As to common law liability, there is an important
and regrettable variation between the legislation of the various states on this issue.
The need to revert to the “generally accepted view” in regard to the Commonwealth proportionate liability
provisions in the Competition and Consumer Act 2010 (Cth), the Australian Securities and Investment Commission
Act 2001 (Cth) and the Corporations Act 2001 (Cth), is because these Acts remain silent on the ability to contract
out of those provisions. Because of this view, it is likely that the courts will find that a contractual indemnity is
ineffective as concerns those Commonwealth provisions.
However, section 3A(2) of the Civil Liability Act 2002 (NSW) relevantly provides:
This Act … 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.
Therefore, contracting out of the proportionate liability provisions in the Civil Liability Act 2002 (NSW) is expressly
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permitted by this subsection. Similar provisions are also found in Tasmania and Western Australia.
3
(2009) 25 VR 666, [59]. Section 23B of the Wrongs Act 1958 (Vic) deals with contribution between tortfeasors.
4
B McDonald, “Indemnities and the Civil Liability Legislation” (2011) 27 Journal of Contract Law 56, 62. See also B McDonald & JW Carter, “The Lottery of Contractual Risk
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Civil Liability Act 2002 (WA), section 5AL(2). See also Civil Liability Act 2002 (Tas), section 43C(2) and Proportionate Liability Act 2005 (NT), section 15(2).
6
B McDonald, “Indemnities and the Civil Liability Legislation” (2011) 27 Journal of Contract Law 56, 63.
Allocation and Proportionate Liability” (2009) 26 Journal of Contract Law 1, 20-1
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Proportionate Liability for Insurance Brokers Construction Risk Allocation and Liability
Insurance (cont.)
Similarly, in the Northern Territory, although the Proportionate Liability Act 2005 (NT) does not contain a provision
similar to section 3A of the Civil Liability Act 2002 (NSW), it is arguable that such a provision is not required as it
contains the second subsection to the Contribution Section referred to above, which has the same effect.
At the other end of the spectrum, Queensland expressly excludes the ability to contract out of its proportionate
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liability provisions.
In Victoria the Wrongs Act 1958 (Vic) contains a number of provisions which provide that certain parts can be
expressly excluded by contract. As no such provision is included in regard to the part dealing with proportionate
liability, based on the expressio unius est exclusion rule, it is arguable that the parties to a contract cannot contract
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out of the Wrongs Act 1958 (Vic) proportionate liability provisions.
Similarly, as concerns the remaining States and Territories where their regimes also remain silent on contracting
out, without that express contracting out provision, it is arguable that the parties to a contract will not be able to
contract out of the proportionate liability provisions of those jurisdictions.
What will amount to a contracting out of the proportionate liability provisions?
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There have been only two decisions, one each in New South Wales and Tasmania, which have determined what
will amount to a contracting out of the proportionate liability provisions in those jurisdictions as parties are entitled
to do.
Macfarlan JA held in Perpetual Trustee Company Ltd v CTC Group Pty Ltd (No 2):
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… The question to which s 3A(2) gives rise is whether a contract makes express provision for the parties’
rights, obligations and liabilities which differs from that provided by the Act. It is not relevant to consider
whether the parties adverted to the existence of the apportionment provisions of the Act and decided to
contract out of them. Section 3A “does not require the parties to use any particular form of wording to effect
a contracting out” (Aquagenic at [71]). No reference needs to be made to the Act. All that matters is that the
contractual indemnity is inconsistent with the provisions of Part 4.
In that case, the subject clause was found to be inconsistent with the application of the proportionate liability
provisions in Part 4 and, thereby, effected a contracting out of those provisions. That clause relevantly provided:
14.3
Originator’s indemnity
The Originator [CTC] indemnifies the Trustee [Perpetual] and the Manager [Resimac] against any liability
or loss arising from and any costs, charges and expenses incurred in connection with:
…
(d)
any breach by the Originator of any of its warranties or obligations under or arising from this deed
or failure to perform any obligation under this deed,
including, without limitation, liability, loss, costs, charges or expenses on account of funds borrowed,
contracted or used to fund any amount payable or expense incurred under this deed and including in each
case, without limitation, legal costs and expenses on a full indemnity basis or solicitor and own client basis,
whichever is the higher.
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Civil Liability Act 2002 (Tas), section 3A(2) and Civil Liability Act 2002 (WA), section 4A.
8
Civil Liability Act 2003 (Qld), section 7(3).
9
O Hayford, “Proportionate Liability – Its Impact on Contractual Risk Allocation” (2010) 26 BCL 11, 25.
10
Perpetual Trustee Company Ltd v CTC Group Pty Ltd (No 2) [2013] NSWCA 58 and Aquagenics Pty Ltd v Break O’Day Council [2010] TASFC 3.
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[2013] NSWCA 58, [14].
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Proportionate Liability for Insurance Brokers Construction Risk Allocation and Liability
Insurance (cont.)
In Queensland, and potentially those jurisdictions that remain silent on the issue, any contractual indemnity similar
to this clause could be found to be an attempt to contract out of the proportionate liability provisions and could,
therefore, be ineffective.
What this means
For the reasons set out above, contracting parties need to be wary of any contractual indemnities included in their
contract, particularly in jurisdictions other than New South Wales, Tasmania, Western Australia and the Northern
Territory. This is because they may be found to be ineffective when the party with the benefit of the indemnity
seeks to rely on it in regard to an apportionable claim.
However, if a contractual indemnity is found to be effective to contract out of the proportionate liability provisions,
the party providing the indemnity could potentially be risking cover under their liability insurance. This is because
that type of insurance usually includes a clause that excludes cover for assumed liability which the insured would
not have otherwise had at law, such as in circumstances where the proportionate liability provisions apply to a
claim made.
Therefore, an insured who is considering signing a contract that includes an indemnity should speak with their
insurer or their insurance broker to determine whether it would be willing to extend cover beyond the standard
terms to include such a liability. Insurer and their brokers need to be alert to these issues or face liability
themselves or face liability for negligent failure to melt their obligation as insurance brokers and underwriters to
their insured clients.
For further information please contact:
Ingrid Lehmann
Solicitor
Mylton Burns
Principal
07 3231 0693
07 3231 0625
ilehmann@mcw.com.au
mburns@mcw.com.au
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