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PROPORTIONATE LIABILITY ACT - Model Provisions

In general terms the Society is in favour of the introduction of a uniform proportionate liability regime. The Society?s primary concerns about the Model Provisions relate to the contracting out and application to arbitration provisions.

Preferred Model

The Society supports harmonisation of proportionate liability legislation which expressly prohibits parties from contracting out.

To that end the Society considers that Option 3[1]; that is uniform legislation which broadly defines ?apportionable claim? and prohibits contacting out is the preferred option.

The Society is of the view that Option 3 represents the model which best addresses the overall objectives[2] and problems[3] identified in the Regulatory Impact Statement (RIS).

Issues for Consideration

General

At its core the Society considers that the implementation of model provisions, which are consistent across all jurisdictions, is likely to benefit all stakeholders. It is probable that many of the stakeholders involved in issues of proportionate liability, such as law firms, accountants, valuers, auditors, insurers and government operate across a number of jurisdictions. The implementation of consistent provisions will allow businesses and individuals to operate in multiple jurisdictions without having to vary their operations, re-assess risks or increase costs to take into account the vagaries that may apply in each individual jurisdiction.

Contracting Out

The Society considers that contracting out of proportionate liability should be prohibited without qualification. It is the Society?s position that this view is in line with the principles that underlie the proportionate liability scheme. That is, the apportionment of damages to a party in accordance with that party?s level of culpability. To allow parties to contract out of the legislative regime directly contradicts that principle and undermines the very purpose of the legislation.

Further, allowing parties to contract out of proportionate liability will inevitably and generally be to the disadvantage of professional service providers, including lawyers, architects, etc., who are required by law to hold professional indemnity insurance.

The arguments in favour of contracting out were made most strongly by large industry and government bodies. These are likely to be the entities having stronger bargaining power and able to take full advantage of the provisions to the detriment of the smaller, less powerful entities for which the proportionate liability scheme is most likely to benefit. It is the Society?s position that it is more important for the legislation to provide a measure of protection and benefit to those who are in the weaker position, than those who are in a strongest bargaining position. By disallowing parties to contract out of proportionate liability, a more level and measured playing field is ensured.

Arbitration

Similar considerations apply to the application of proportionate liability to arbitrations. It is noted that the issue of including arbitration schemes has a number of practical issues.[4] However, these issues do not appear to support the conclusion that the proportionate liability provisions should not apply to arbitrations in making a determination. It is the Society?s position that permitting arbitrations to operate outside of the proportionate liability scheme would undermine the objectives of the proportionate liability legislation.

The Society is concerned that if arbitration is exempt from proportionate liability contracting parties may simply agree that all disputes will be resolved through arbitration. This would then operate as a de facto means of contracting out and defeat the purpose of those provisions.

This would again create an imbalance to the detriment of smaller, weaker parties to disputes. Subservient parties in contract negotiations will be vulnerable to having arbitration clauses imposed upon them, with the result that the application of proportionate liability will be avoided to the detriment of those weaker parties.

Accordingly, the Society seeks the removal of section 3 of the Model Provisions. It is noted that the drafting note to s.3 of the Model Provisions makes the inclusion of this provision discretionary. This is a key provision and will impact significantly on the concept of uniformity. The Society also considers that the grandfathering clause in section 12 (3) of the Model Provisions should be removed.

Definition of apportionable claim[5]

The Society notes that s.4 of the Proportionate Liability Act applies proportionate liability to a wide ambit of claims on a state by state comparison. The Society recommends that the definition of ?apportionable claim? is ensured to apply and be limited to actions in damages arising from a breach of tortious duty of care (which is currently the position in the Northern Territory). This maintains the original intent of the proportionate liability legislation.

Conclusion

It is the Society?s position that if there is no realistic prospect of uniform legislation being implemented, then the status quo should remain in order to provide certainty and consistency within the Northern Territory and to retain the level of fairness that the current system provides.


[1] Option 3 ? Standing Council of Law and Justice RIS ? October 2013

[2] Refer to RIS at page 9

[3] Refer to RIS at page 7

[4] Pages 43-44 RIS

[5] Model Provisions

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