Chapter 21 Contracting out of proportionate liability

The proportionate liability legislation in New South Wales, Tasmania and Western Australia expressly permit parties to contract out of the proportionate liability regime. Queensland expressly bars contracting out. Every other jurisdiction is silent on the issue.

In jurisdictions that expressly permit parties to contract out, parties successfully contract out of the proportionate liability legislation if their rights and obligations in contract differ from those provided in the proportionate liability legislation, even if they do not expressly contract out.

The courts have yet to determine whether parties can contract out of the proportionate liability regimes in states with legislation silent on the issue. In these jurisdictions, the case of Aquatec-Maxcon Pty Ltd v Barwon Region Water Authority (No 2) [2006] VSC 117 suggests that where a multi-party contractual structure exists, which is based on guarantees granted by direct sub-parties, there will be no further duty of care, and the proportionate liability regime may be inapplicable.

However, the South Australian Supreme Court in Walker v City of Adelaide (2004) 88 SASR 225 indicated (in obiter) that, where two sub-parties contributed to the relevant loss or damage, even if one of the sub-parties is liable for the actions of the other on the basis that it owes a ‘non-delegable’ duty to the party who suffered the loss, it would not be ‘just and equitable’ for that party to be liable for more than its contribution to the loss. This indicates South Australia’s approach to the issue of contracting out may preference the legislative provisions above any contractual arrangements made between the parties as to the allocation of liability.

CASE STUDY

Perpetual Trustee Co Ltd v CTC Group Pty Ltd (No 2) [2013] NSWCA 58

Facts
  • CTC, a mortgage originator, submitted an application to Perpetual’s manager for a secured loan under the name of Mr David El-Bayeh.
  • The loan was approved, however, the application, the loan agreement and the mortgage had been forged by Mr El-Bayeh’s brother, Youseff, and fraudulently witnessed by two Justices of the Peace.
  • The borrower defaulted on the loan, and Perpetual was unable to rely on the security because of the fraud of Youssef. Perpetual sought to recover the whole amount from CTC. CTC argued that Youssef, the Justices of the Peace and Perpetual’s manager were concurrent wrongdoers.
  • The mortgage origination deed contained an indemnity which provided that:           

           [CTC] indemnifies [Perpetual] and the Manager … against any liability or loss arising from and any  costs, charges and expenses incurred in connection with:
…
(d) any breach by [CTC] of any of its warranties or obligations under or arising from this deed or failure to perform any obligation under this deed,

including, without limitation, liability, loss, costs, charges or expenses on account of funds borrowed,  contracted for or used to fund any amount payable or expense incurred under this deed and 

including in each case, without limitation, legal costs and expenses on a full indemnity basis or solicitor and own client basis, whichever is the higher.

Result
  • Because of the indemnity clause, the parties had contracted out of the proportionate liability provisions of Part IV of the Civil Liability Act 2002 (NSW) .
  • The parties contract out of the Act if ‘a contract makes express provision for the parties’ rights, obligations and liabilities which differs from that provided by the Act.’
  • It was not relevant to consider whether the parties adverted to the existence of the apportionment provisions of the Act and decided to contract out of them. No reference needs to be made to the Act to contract out. All that matters is that the contractual indemnity is inconsistent with the provisions of the Act.

CASE STUDY

Aquagenics Pty Ltd v Break O’Day Council (No 2) [2009] TASSC 89

Facts
  • Aquagenics contracted with the Council to upgrade and commission its waste water treatment plant.
  • Prior to completion of the works, the Council took the work out of Aquagenics’ hands and gave it to a third party subcontractor, alleging that Aquagenics had committed a substantial breach.
  • Aquagenics sued for damages on the basis of repudiation. The Council sought a stay of proceedings so that the matter could be referred to arbitration.
  • Aquagenics argued that a stay should not be granted due to the complex questions likely to arise regarding proportionate liability.
  • The Council argued that the Civil Liability Act 2002 (NSW) (Act) did not apply as the parties had contracted out if it.
Result
  • The court granted the stay of proceedings on the basis that the parties had contracted out of the proportionate liability provisions despite there being no express reference to the Act in the contract. It was clear on the terms of the contract that the Council could pursue Aquagenics alone in relation to contractual claims. The decision was appealed, but the appeal was rejected.
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