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Can you contract out of proportionate liability in a commercial contract?

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What is proportionate liability?  

Proportionate liability is a concept that legal responsibility for loss should be allocated to the defendant according to their contribution to the loss.  

When was the proportionate liability scheme introduced in Australia?  

Following the 2002 Review of the Law of Negligence, the Ipp Report suggested various negligence reforms. This report was initiated following the rising costs of liability insurance from 1999 to 2002.(1)  One of the changes saw the introduction of proportionate liability legislative schemes.  

While most Australian states will allow parties to contract out of proportionate liability in commercial contracts where loss results from a ‘failure to take care’, Queensland, under section 7(3) of the Civil Liability Act 2003 (Qld), is the only state which expressly prohibits this.  

What is Queensland’s legislative approach to proportionate liability?  

In Queensland, a defendant cannot escape proportionate liability for a breach of contract that results in economic loss or property damage if the defendant owed a duty to take care to the plaintiff (usually an implied term of the contract). 

It is important for parties in commercial contracts to be aware that they may still be liable for a plaintiff’s loss due to a breach of contract pursuant to the proportionate liability provisions in the Civil Liability Act 2003 (Qld). This may apply even if a party can rely on an indemnity clause and an exclusion of proportionate liability has been drafted into the agreement to relinquish responsibility. 

Who can be held proportionately liable? 

Under section 31 of the Civil Liability Act 2003 (Qld) a defendant who is a ‘concurrent wrongdoer’ must only be held proportionately liable for a plaintiff’s loss. This means that a plaintiff cannot sue and claim 100% of the damages from one individual party when numerous parties have been responsible for ‘multiple causes’ of the loss. 

How did plaintiffs bring action prior to the Civil Liability Act 

Prior to the commencement of the Civil Liability Act, it was commonplace for plaintiffs to bring actions against one of multiple wrongdoers, usually insurance companies or the party with the ‘deepest pockets’. It was then up to the defendant to sue the other parties who contributed to the loss. 

The Civil Liability Act, however, changed this and instead placed an onus on plaintiffs under s32 to bring an action for economic loss or property damage against all ‘concurrent wrongdoers’ in the same action.  This was to reduce litigation and to avoid multiple proceedings in respect of the same loss. 

What is a concurrent wrongdoer?  

A concurrent wrongdoer is defined in s 30 of the Civil Liability Act as:  

a person who is 1 of 2 or more persons whose acts or omissions caused, independently of each other, the loss or damage that is the subject of the claim.  

What if a concurrent wrongdoer is insolvent?  

The Civil Liability Act also provides that it does not matter that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died. 

Concurrent wrongdoers and proportionate liability is discussed further in the 2013 High Court of Australia case of Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10. 

S 7(3) of the Civil Liability Act 2003 (Qld) 

While most states allow parties to contract out of the statutory proportionate liability regime, Queensland’s Civil Liability Act prohibits parties from making “express provision for their rights, obligations and liabilities under the contract” in relation to proportionate liability. 

It has been suggested that it may still be possible to exclude proportionate liability in Queensland by drafting an exclusion clause whereby the parties agree that the person being indemnified owes no duty of care to the plaintiff in an attempt to circumvent s28 and 29, Chapter 2 of the Civil Liability Act which only applies when an action is brought that is concurrent and coextensive in contract and tort (negligence). 

Have a question on interpreting contracts?  

Contact our client engagement team to make an appointment with one of our commercial litigation team today. Call (07) 3252 0011.  

Helpful Links   

Footnotes  

[1] Tort Law Reform, Law Council of Australia