Understanding Proportionate Liability

In 2002, following the collapse of HIH Insurance and other disasters such as the World Trade Centre incident in 2001, insurance premiums became more expensive. Insurers claimed that compensation payments relating to insurance policies were becoming unaffordable. Following the Ipp review, legislatures around Australia passed Civil Liability Acts which were similar in content.

The New South Wales Civil Liability Act 2002 and the West Australian Civil Liability Act 2002 both contain provisions about civil proportionate liability stating that in civil claims, other that personal injury claims, a defendant will only need to pay a plaintiff damages to the extent that that defendant is liable for loss. In the event that a plaintiff sues one liable person and not another, the plaintiff will only be able to recover to the extent that the defendant(s) in the action are found liable.

For Example:

Dean was involved in a car accident caused by two cars driven by Carl and Vince entering into an intersection on a red light. Both Carl and Vince were 50% liable for the accident.

Dean finds out that Carl is insured and owns three houses, while Vince is uninsured and has no cash or other assets.

Dean decides to sue for the property damage to his car. Prior to the proportionate liability laws coming into effect, Dean could sue Carl for the whole amount of his loss and would be successful in recovering the whole amount from Carl. After the proportionate liability laws were passed, if Dean only chose to sue Carl, he would only get 50% his loss. From a practical point of view, if he sued Vince, he would be successful in obtaining an order for the other 50% of his loss but could end up with a judgment that is difficult to enforce. It may be that the legal fees incurred in suing Vince are greater than the amount of money Dean is able to get from Vince.

In the recent High Court decision of Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10 the High Court considered a New South Wales case where:

  • Fraud was committed by two men (the fraudsters), who forged business partner Mr Alessia Vella’s signature so as to secure loans from the first and second respondents (Mitchell Morgan). The mortgage could not be voided.
  • Negligent drafting by Mitchell Morgan’s legal representatives at Hunt & Hunt Lawyers resulted in the mortgage being worded to secure money owed by Mr Vella to Mitchell Morgan. As Mr Vella was the victim of fraud, and was therefore not liable to pay Mitchell Morgan, the mortgage did not secure anything.
  • The issue at trial was whether Hunt & Hunt were concurrent wrongdoers and were therefore only liable to pay the proportion of Mitchell Morgan’s loss that reflected their responsibility.

The majority in this case found that Hunt & Hunt were only partially liable, while the minority found that Hunt & Hunt were fully liable. Hunt & Hunt only had to pay 12.5% of the loss. It should be noted that the decision was a narrow 3 to 2 decision of the High Court and it is therefore possible that future cases may not be decided in the same way.

The provisions of the New South Wales Civil Liability Act 2002 are similar to Part 1F of the West Australian Civil Liability Act 2002. Claimants considering bringing an action, other than a personal injury action, where more than one other person could be liable should investigate into the other parties involved at an early stage, and adjust their expectations accordingly. If you need a Compensation lawyer in Perth, Foyle Legal provides obligation free claim assessment.