Joint and several liability

This project reviews the joint and several liability rule, and considers alternatives. The Commission carries out a broad review of the effects of the rule across all sectors.

The joint and several liability rule determines the liability of multiple parties in civil proceedings where a person has suffered loss, and how responsibilities for the loss are allocated where there are several liable defendants. The application of the rule in New Zealand is in focus in the building and construction sector as a result of the leaky buildings crisis.

The most commonly proposed alternative is a system of proportionate liability. Other alternatives combine some elements of joint and several liability with elements of proportionate liability, or involve introducing caps on total liability in some circumstances or for some defendants

Where two or more parties are liable for the same loss or damage to another party, because of separate wrongful acts, the joint and several liability rule holds both or all of the wrongdoers 100% liable for the loss caused. The party who suffered the loss can claim against one wrongdoer to recover the whole of the loss. That defendant can then seek contribution from any other wrongdoers.

The Law Commission will consider whether the rule should be retained, replaced or amended, either generally, or in relation to particular professions or industries, including the building and construction industry, auditors and accountants.

The Commission will consider the key advantages and disadvantages of different forms of liability, including:

• joint and several liability;
• proportionate liability;
• liability capped by statute; and
• contractual limitations on liability

Review of Joint and Several Liability (NZLC IP32, 2012)

The Commission's Issues Paper, Review of Joint and Several Liability (NZLC IP32, 2012) describes how the rule of joint and several liability works, and identifies its key strengths and weaknesses. Its purpose is to raise issues and encourage submissions based on an informed view of the current law and the alternatives.

The paper describes the leading options for the apportionment of liability, and examines the advantages and disadvantages with each option. At this stage, the Commission has no preference for any particular option (including the status quo).

The Commission previously reviewed this area of law in the 1990s. This paper summarises the previous reports, as well as examining the commentary on liability options in light of more recent developments such as the leaky buildings crises and financial collapse. The paper compares the New Zealand approach to that in Australia, the United States, Canada and the United Kingdom. In particular, it examines how proportionate liability operates in Australia and the implications of CER for this review. Finally, the economic literature is summarised to provide an analysis of which options may produce more economically efficient outcomes.

Liability of Multiple Defendants (NZLC R132, 2014)

The Commission's Report, Liability of Multiple Defendants (NZLC R132, 2014) recommends that joint and several liability remain the normal rule to govern the liability of multiple defendants for the same damage, but with several modifications to achieve better fairness in more extreme or unusual circumstances or for some classes of defendants.
 
The modifications propose:

• Courts should have power to grant relief to a truly minor defendant, who bears only a small responsibility or share of fault for the plaintiff’s loss, but who would otherwise be required to pay all or nearly all of the damages because they are the only remaining solvent defendant. Relief would be discretionary but subject to clearly defined criteria, including that if some relief is granted, the plaintiff will still receive an effective remedy.
• A Court may order supplementary contribution, so that the cost of paying an uncollected share caused by an absent defendant is distributed among all remaining solvent defendants, according to their shares of responsibility.
• Caps on liability (including a maximum liability of $300,000 in respect of any freestanding dwelling) should apply to local authority building consent authorities’ liability (for liability arising from future acts or omissions by an authority), to limit the effects from building consent authorities’ structural exposure to excessive or deep pocket liability.
• A scheme or schemes to cap the liability of auditors who undertake the largest and most complex audits, to introduce similar conditions for New Zealand auditors and firms to those available to Australian audit firms, who also participate in the New Zealand market.

In its response to R132, Liability of Multiple Defendants, the Government accepted the Law Commission’s principal recommendation, that the rule of joint and several liability remain the applicable rule where two or more defendants are liable to a plaintiff for the same, indivisible damage.

The Government requested the Ministry of Justice and the Ministry of Business, Innovation and Employment (MBIE) consider and carry out further work on the Law Commission’s recommendations on the following matters:

• relief for minor defendants
• the proposed introduction of supplementary contribution
• recommendations affecting the building sector, and
• the proposed caps on auditors’ and audit firms' liabilities when carrying out large or complex audits.