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Publications

Law Commission sticks with joint and several liability

25 June 2014

The Law Commission is strongly of the view that New Zealand should retain joint and several liability but has suggested some changes to make the system fairer for both sides.

The options

The big question for the Law Commission was whether to retain joint and several liability or recommend that New Zealand move to a system of proportionate liability.

Joint and several liability

…works from the principle that all parties who contributed to a loss are each liable for the full amount of the damages awarded.  The effect of this is that, if one party is insolvent or for any other reason unavailable to pay, the others may have to front up with the difference in order that the plaintiff can recover in full. 

Proportionate liability

…is used in a number of jurisdictions, including Australia.  Under this rule, each liable defendant is apportioned a share of the total liability based on the court’s assessment of their share of the responsibility or fault.  No-one can be made to pay more than their share, meaning that the plaintiff carries the risk that there may be a missing liable party.

Recommendations

The Commission found that joint and several liability was “clearly the preferable system” but has recommended a number of adjustments to deliver fairer outcomes.  Key among these are:

  • giving the courts power to make orders that would mitigate the full application of joint and several liability where this would create a “clear injustice” to defendants who have only a minor responsibility.  In such situations, the court would be expected to ensure that the plaintiff still receives an “effective remedy”
  • changing the rules of contribution so that the costs of an uncollected share can be spread proportionately among the remaining solvent and liable defendants (currently a defendant which has been required to pay losses in excess of its share can chase up the others but they cannot be required to pay more than their allocated contribution)
  • introducing liability caps for building consent authorities for new liabilities after the leaky home claims have been dealt with, and
  • introducing to New Zealand a version of the capped liability schemes for auditors applying in almost all of the Australian States.  It is anticipated that the capped scheme would apply only where a very large audit firm was exposed to a catastrophic loss.

Where now?

The Government has undertaken to respond to the recommendations early next year.

Contacts