Proportionate liability legislation was introduced in Australia nationally between 2002 and 2004 for claims involving economic loss or property damage arising from a failure to take reasonable care as well as certain misleading or deceptive conduct claims under section 18 of the Australian Consumer Law 2010 (Cth) (excepting Queensland). Under proportionate liability legislation, each party to the claim is only liable to compensate a claimant for the proportion of loss they were responsible for. Relevantly, this is to the benefit of consultants compared with the old common law system of joint and several liability which provided claimants with the ability to recover their entire loss from any wrongdoer as each wrongdoer was regarded as “jointly and severally” liable for the claimant’s loss. Under the old scheme, the claimant could enforce a judgment against the only party likely to meet the judgment debt, usually that party with the deepest pockets (the insured parties).

The legislation governing proportionate liability differs significantly amongst the various states. Queensland does not allow for parties to contract out whilst Victoria, ACT, South Australia and the Northern Territory are silent about contracting out. The law in NSW, WA and Tasmania allows parties to exclude proportionate liability in their contracts. Importantly, in these states, consultancy agreements are often drafted to include provisions for ‘contracting out’ of proportionate liability so that parties can continue to claim from parties with the deepest pockets. These clauses pose considerable insurance risks for consultants. For example, any additional liability (agreeing exclude proportionate liability) might not be covered under your insurance because most professional indemnity policies exclude cover for liability and risks exclusively assumed in contract.

Clauses in consultancy agreements which seek to ‘contract out’ vary considerably in length and complexity. Furthermore, the decisions of Perpetual Trustee Company v CTC Group Pty Ltd (No 2) [2013] NSWCA 58 and Aquagenics Pty Ltd v Break O’Day Council (No. 2) [2009] TASSC 89 imply that even if the parties have not expressly contracted out of proportionate liability legislation, the Court may still consider that it was the intention of the parties to exclude proportionate liability legislation by contractually allocating risk and liability in a way which was not consistent with the operation of proportionate liability legislation, for example within the indemnities.

Our recent webinar, presented by Katherine Allsop, Senior Associate of Yeldham Price O’Brien Lusk, considered these issues in more detail, focusing on how proportionate liability has impacted construction litigation and contracting arrangements.  The webinar recording will soon be available for purchase on our online CPD platform.

Kathryn Budd
Risk Manager