Key Points
- Contract claims can be apportionable claims (despite an apportionable claim being one which arises "from a failure to take reasonable care").
- Relative culpability will not always determine liability – considerations about which defendant stands to benefit from the failure to take reasonable care, if any, will be critical.
Although the proportionate liability regime has been in force in NSW since 2004 and exists in some form at Commonwealth level as well as in every state and territory of Australia , there is a dearth of case law applying the regime. This means there are many uncertainties about the operation of proportionate liability which, in turn, produce commercial uncertainty about the allocation of risk.
The recent decision of the NSW Supreme Court in Reinhold v New South Wales Lotteries Corporation [2008] NSWSC 187 sheds some light on some of the key issues and questions about the regime which have been vexing the profession, including when the regime will apply. More importantly and perhaps surprisingly, however, Reinhold suggests that when apportioning liability between defendants, their relative culpability will not always be the defining consideration.
The lucky lottery ticket
- Mr Reinhold purchased a ticket in an Oz Lotto draw (Ticket A) which had been printed incorrectly. A new replacement ticket (Ticket B) was issued to Mr Reinhold.
- Ticket B was mistakenly cancelled (rather than Ticket A). It was cancelled without satisfying the Oz Lotto Rules which allow for a ticket to be cancelled only if it was returned to the place of purchase the day the ticket was purchased at the request of the purchaser.
- Ticket B won $2,000,000 in the Oz Lotto draw.
- Mr Reinhold successfully sued the Newsagents and Lotteries for negligence and breach of contract (see Reinhold v New South Wales Lotteries Corporation (No 1) [2008] NSWSC 5).
Matters for consideration by the Court in Reinhold
The relevant question which arose in Reinhold was the way in which liability for damages should be allocated between the two defendants under the proportionate liability regime (in this case found in Part 4 of the Civil Liability Act 2003 (NSW).
The Court considered:
- Whether this was a case to which proportionate liability applied; and
- If so, how liability should be apportioned.
When does a court decide what is a "concurrent wrongdoer" and an "apportionable claim"?
Proportionate liability applies only to "apportionable claims", a term defined in the Act, in respect of which there are two or more "concurrent wrongdoers", also defined in the Act.
There are several elements which must be satisfied in order for a claim to be an apportionable claim. In Mr Reinhold's case there were unquestionably claims "for economic loss" in "an action for damages".
The first important point decided by the Court was that the reference to "claims" (as opposed to liability) means decided or determined claims, not what may be pleaded in an initiating process or points of claim,. A "claim" must be a claim for which the findings loss or damage and causation have already been determined and so it must be a litigated claim, not a pending or foreshadowed claim.
For this reason, the Court held that a person will only be a "concurrent wrongdoer" where the court has made findings about the existence of "loss or damage" and determined that a persons' acts or omissions "caused" the loss of damage. Only then is it possible to identify each person whose acts and omissions caused the loss or damage as found and identify a person as a concurrent wrongdoer.
This would appear to preclude a court from determining whether the proportionate liability regime applies as an interlocutory matter (such as was the case in Shrimp v Landmark Operations Limited [2007] FCA 1468 and Woods v de Gabrielle [2007] VSC 177). It can hardly assist the early resolution of litigation.
Contract claims can be apportionable claims despite the words "arising from a failure to take reasonable care"
It follows from what is said above that the Court held that the categorisation of a claim as an "apportionable claim" is determined on the basis of the Court's findings and not what is pleaded.
In order for a claim in contract or negligence to be an apportionable claim it must "arise from a failure to take reasonable care". The meaning of those words is clear in the context of negligence, but not so clear in contract.
Mr Reinhold's claim for breach of contract was found involve a failure to take reasonable care on the part of the defendants.
Mr Reinhold had argued that a contract claim is only within section 34(1)(a) where there is breach of an expressed or implied term requiring that reasonable care be taken. The Court held however that a breach of contract may involve a failure to take reasonable care. This is a logical consequence of the Court's finding that it is findings of fact and not allegations which determine whether a claim is "apportionable".
The apportionment process
Section 35 of the Act specifies that the liability of each defendant should be restricted to what is "just", having regard to the respective responsibility of the wrongdoers. In circumstances where there is no contributory negligence, the Court held that the amounts separately determined must equal the plaintiff's established entitlements.
It was determined, as a matter of principle, that the approach to be taken by the Court when applying section 35 of the Act should follow the approach taken by appellate courts to contribution amongst tortfeasors, namely that apportionment of liability should be undertaken by reference to:
- the degree of departure form the standard of care of a reasonable man; and
- the relative importance of these acts in causing the economic loss suffered by Mr Reinhold while comparing the conduct as a whole in relation to the circumstances in which the loss was sustained.
Based on the above principles and the facts of the case, it might be expected that the Newsagents, which cancelled the wrong ticket (in breach of Lotteries' policy), would have a significantly greater degree of culpability than Lotteries. However, the Court found that there was a significantly greater degree of culpability of the Lotteries and a more significant causative force in the Lotteries conduct. Therefore the Court apportioned the loss as 90 percent Lotteries and 10 percent Newsagents.
In doing so, the Court relied upon English authority that it was relevant to take into account whether one wrongdoer has profited to a greater extent from the wrongdoing. Clearly the fact that Lotteries would, but for the error, have had to pay the $2,000,000 to Mr Reinhold weighed heavily.
With respect to the Court, this introduces a new concept into the Australian law of contribution. It also however illustrates well that in contract cases involving a failure to take reasonable care the considerations may well by different from those which typically apply in negligence cases.
Conclusion
While Reinhold has shone some light on the proportionate liability regime, it has also raised some concerns about the way the courts will apportion liability between defendants. What is clear is that a defendant cannot be assured that they will be safe from bearing the burden of any finding of liability even when their conduct was not the immediate or primary cause of the loss or damage.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.