- The applicability of proportionate liability to commercial arbitrations is not yet settled although it seems unlikely that it applies of its own force.
- In those jurisdictions which allow contracting out of proportionate liability, the parties to a contract may effectively avoid the operation of the relevant scheme by either express provision or by implication.
- Where proportionate liability is in issue, a court may be reluctant to stay concurrent legal proceedings where not all parties are also subject to the arbitration.
- Exclusions in insurance policies could be triggered if an insured, by agreeing to arbitrate disputes instead of litigate, finds themselves assuming a liability to which they would not have been subject pursuant to court order.
Proportionate liability replaced joint and several liability in many claims for damages arising from a failure to take reasonable care and certain statutory claims for misleading and deceptive conduct.
Prior to its introduction, a plaintiff was entitled to recover the whole of its loss from only one of several wrongdoers whose actions contributed to the loss, meaning that a defendant bore the risk of other wrongdoers being insolvent and therefore unable to contribute their share of the plaintiff's loss.
Proportionate liability means that concurrent wrongdoers are only liable to a plaintiff for their apportioned share of responsibility for the loss. The risk of a wrongdoer being insolvent is transferred to the plaintiff who must pursue each wrongdoer who has contributed to the loss in order to obtain full recovery.
With a developing trend towards alternative forms of dispute resolution, the issue of whether proportionate liability legislation applies in such forums is particularly important and needs to be carefully considered by parties entering into an agreement containing an alternative dispute resolution clause.
Application to commercial arbitrations
The applicability of the various Australian proportionate liability schemes to commercial arbitrations is not yet a settled issue. The following propositions do however seem to have emerged:
- In those jurisdictions which allow contracting out of proportionate liability,1 the parties to a contract may effectively avoid the operation of the relevant scheme by either express provision in their contract or impliedly if the contract, on its proper construction, means that joint and several liability applie. This is so whether the dispute is to be resolved by arbitration or court process.
- Where proportionate liability may be in issue in court proceedings, a court may be reluctant to grant a stay of the proceedings pursuant to commercial arbitration legislation in circumstances where not all parties to the court proceedings are also subject to the arbitration.
- While not yet judicially determined, it seems unlikely that proportionate liability legislation applies of its own force to arbitrations.
These propositions emerge from two recent cases which have considered the relevance of proportionate liability in the context of commercial arbitrations.
Aquagenics Pty Ltd v Break O'Day Council
The dispute in this case arose from a contract for the design and construction by Aquagenics of upgrade works to a Council waste water treatment plant. In 2008, Aquagenics commenced proceedings in the Supreme Court of Tasmania, claiming that the Council had repudiated the contract by improperly purporting to take the works out of Aquagenics' hands.
The Council issued a notice of dispute under the contract, foreshadowing claims for defective work, and later applied for a stay of the court proceedings under the Commercial Arbitration Act 1986 (Tas) (Commercial Arbitration Act) so that the dispute could instead be resolved in an alternative dispute resolution forum in accordance with a clause in the contract.
Section 53(1) of the Commercial Arbitration Act provides that a party may apply for a stay of court proceedings where, inter alia, there is no sufficient reason why the matter should not be referred to arbitration in accordance with the contract.
Aquagenics claimed that a number of concurrent wrongdoers (consultants and other contractors engaged by the Council) contributed to the Council's economic loss. It argued that the difficult and novel legal questions likely to arise regarding the proportionate liability provisions in Part 9A of the Civil Liability Act 2002 (Tas) (CLA (Tas)) provided sufficient reason not to refer the dispute to arbitration.
The trial judge accepted that Part 9A could apply to the arbitration because, subject to any provision to the contrary, a contract containing a provision for the resolution of disputes by arbitration ordinarily contains an implied term that the arbitrator has power to grant the same relief that would be available in a court of law with jurisdiction over the subject matter of the dispute.2 His Honour found however that the complexities of the proportionate liability legislation did not constitute sufficient reason why the matter should not be referred to arbitration and granted the Council's application for a stay.
The trial judge's decision to grant a stay was upheld on appeal by the Full Court of the Supreme Court of Tasmania, although on different grounds.3
The Full Court found that proportionate liability was not relevant to the parties' dispute at all because the terms of their contract meant that they had effectively contracted out of proportionate liability pursuant to s.3A(3) CLA (Tas) which expressly preserves the entitlement of parties to a contract to make provision for their rights, obligations and liabilities, including in relation to apportionable claims.
Dicta of the Full Court suggests that had it been necessary to decide whether proportionate liability applied at all to arbitrations, it would have decided that it did not. The main reasons being the terminology used in the legislation, such as "court" and "proceeding", and the power given to a "court" to join another concurrent wrongdoer to the "proceeding", the latter being inconsistent with the proposition that commercial arbitration is a voluntary process to which a non-party cannot be compelled to submit.
Murrumbidgee Irrigation Limited v Goodwood Services Pty Ltd
Murrumbidgee contracted with Goodwood for the manufacture and supply by Goodwood of steelwork for the replacement of five irrigation gates. The contract included an arbitration clause for the resolution of disputes.
While all material for the gates was supplied by Goodwood, one was welded by Applied Packing and Machinery (APM) pursuant to a sub-contract between it and Goodwood. The remaining four gates were welded by APM pursuant to a separate contract between it and Murrumbidgee. This contract did not contain an arbitration provision.
Cracks and other deformities appeared in the gates shortly after installation which prevented them operating effectively and Murrumbidgee commenced proceedings in the New South Wales Supreme Court against Goodwood and APM. APM pleaded in its defence that the claim against it was apportionable pursuant to s.35 Civil Liability Act 2002 (NSW) (CLA (NSW)).
Goodwood invoked the arbitration clause in its contract with Murrumbidgee and applied for a stay of the court proceedings under the Commercial Arbitration Act 1984 (NSW). Murrumbidgee resisted the application on the grounds that APM was not a party to the arbitration agreement and it would incur additional costs if it had to proceed by way of arbitration against Goodwood and litigation against APM.
The Court refused to stay the proceeding on the basis that there was a real chance that allowing the dispute between Murrumbidgee and Goodwood to be resolved by an arbitrator would "give rise to separate litigation 'involving much the same issues with parties present before the particular forum seeking to blame parties who may not be present'”.4 It considered that there was a risk of inconsistent findings in the arbitration and court proceedings and increased legal costs. The potential relevance of s.35 CLA (NSW) was cited by the Court as a further reason to avoid separate proceedings.
Avoiding the operation of proportionate liability
In New South Wales, Western Australia and Tasmania, parties to a contract are expressly permitted to contract out of the applicable proportionate liability legislation of those jurisdictions.5
The Full Court's decision in Aquagenics suggests that it is not necessary to make specific reference in a contract to proportionate liability legislation in order to effectively contract out of it. It is sufficient if it can be inferred from the terms of the contract that the party in question was intended to be jointly and severally liable for their wrongdoing.
The Commonwealth, Victorian, South Australian, ACT and Northern Territory proportionate liability legislation is silent on the issue, although provisions of at least the Victorian legislation which allow contracting out of other sections of the Act,6 would suggest that it is not possible to do so when it comes to proportionate liability.
Queensland specifically prohibits contracting out of its legislation.7
Alternative Dispute Resolution
It has been suggested that parties to a contract can also avoid proportionate liability by referring their disputes to arbitration (or another form of alternative dispute resolution) on the basis that the legislation in all jurisdictions only refers to a "court" being required to apportion liability in proceedings involving concurrent wrongdoers.
Section 24AE of the Wrongs Act 1958 (Vic), defines "court" as including any tribunal before which the claim falls to be determined. On one view, this definition is wide enough to include an arbitral tribunal and therefore an arbitrator is bound to apportion the liability of a concurrent wrongdoer in the same way a court would. The contrary view is that it is unlikely that this was Parliament's intention and the dicta of the Tasmanian Full Court in Aquagenics seems to support this.
The Standing Committee of Attorneys-General has been considering the need for amendment of Australian proportionate liability legislation with a view to clarifying aspects of its operation and ensuring uniformity across jurisdictions. It has proposed that the legislation in all jurisdictions be amended to clarify that proportionate liability applies to arbitrations and external dispute resolution schemes although no jurisdiction has yet implemented this recommendation.8
It remains to be seen whether the dicta of the Tasmanian Full Court will be adopted in subsequent cases or in other jurisdictions although it seems likely that proportionate liability will be found not to apply of its own force to arbitration proceedings.
Insurers may wish to enquire of insureds whether they have entered into any alternative dispute resolution agreements which may have the effect of denying them the benefit of proportionate liability. If so, this has the potential to trigger contractually assumed liability exclusions in policies.
While an insured may find themselves subject to joint and several liability as a result of an arbitration to which other wrongdoers are not a party, they still have rights of contribution against other wrongdoers. These rights may however provide cold comfort to their insurer in a subrogation claim where the other wrongdoer is insolvent and/or uninsured.
Kate Clark | Special Counsel
+61 3 9269 9315
Eliana Katsavos | Lawyer
+61 3 9269 9445
 s.3A(2) Civil Liability Act 2002 (NSW), s.4A Civil Liability Act 2002 (WA); s.3A(3) Civil Liability Act 2002 (Tas).
 Aquagenics Pty Ltd v Break O'Day Council (No 2)  TASSC 89 at ; Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160
 Aquagenics Pty Ltd v Break O'Day Council  TASFC 3
 At ; Abigroup Contractors Pty Ltd v Transfield Pty Ltd  VSC 103 per Gillard J at 
 s.3A(2) Civil Liability Act 2002 (NSW), s.4A Civil Liability Act 2002 (WA); s.3A(3) Civil Liability Act 2002 (Tas).
 See for example ss.46 and 70 Wrongs Act 1958 (Vic).
 Section 7(3) Civil Liability Act 2003 (Qld).
 SCAG, 'Drafting Instructions for Uniform Proportionate Liability Provisions: Drafting instructions for Consultation October 2008'.