Can you contract out of proportionate liability in a commercial contract?

 

What is proportionate liability? 

Proportionate liability is a concept that legal responsibility for loss should be allocated to the defendant according to their contribution to the loss.

 

When was the proportionate liability scheme introduced in Australia? 

Following the 2002 Review of the Law of Negligence, the Ipp Report suggested various negligence reforms. This report was initiated following the rising costs of liability insurance from 1999 to 2002.(1)  One of the changes saw the introduction of proportionate liability legislative schemes.

While most Australian states will allow parties to contract out of proportionate liability in commercial contracts where loss results from a ‘failure to take care’, Queensland, under section 7(3) of the Civil Liability Act 2003 (Qld), is the only state which expressly prohibits this.

 

What is Queensland’s legislative approach to proportionate liability? 

In Queensland, a defendant cannot escape proportionate liability for a breach of contract that results in economic loss or property damage if the defendant owed a duty to take care to the plaintiff (usually an implied term of the contract).

It is important for parties in commercial contracts to be aware that they may still be liable for a plaintiff’s loss due to a breach of contract pursuant to the proportionate liability provisions in the Civil Liability Act 2003 (Qld). This may apply even if a party can rely on an indemnity clause and an exclusion of proportionate liability has been drafted into the agreement to relinquish responsibility.

 

Who can be held proportionately liable?

Under section 31 of the Civil Liability Act 2003 (Qld) a defendant who is a ‘concurrent wrongdoer’ must only be held proportionately liable for a plaintiff’s loss. This means that a plaintiff cannot sue and claim 100% of the damages from one individual party when numerous parties have been responsible for ‘multiple causes’ of the loss.

 

How did plaintiffs bring action prior to the Civil Liability Act

Prior to the commencement of the Civil Liability Act, it was commonplace for plaintiffs to bring actions against one of multiple wrongdoers, usually insurance companies or the party with the ‘deepest pockets’. It was then up to the defendant to sue the other parties who contributed to the loss.

The Civil Liability Act, however, changed this and instead placed an onus on plaintiffs under s32 to bring an action for economic loss or property damage against all ‘concurrent wrongdoers’ in the same action.  This was to reduce litigation and to avoid multiple proceedings in respect of the same loss.

 

What is a concurrent wrongdoer? 

A concurrent wrongdoer is defined in s 30 of the Civil Liability Act as:

a person who is 1 of 2 or more persons whose acts or omissions caused, independently of each other, the loss or damage that is the subject of the claim.

 

What if a concurrent wrongdoer is insolvent? 

The Civil Liability Act also provides that it does not matter that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died.

Concurrent wrongdoers and proportionate liability is discussed further in the 2013 High Court of Australia case of Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10.

 

S 7(3) of the Civil Liability Act 2003 (Qld)

While most states allow parties to contract out of the statutory proportionate liability regime, Queensland’s Civil Liability Act prohibits parties from making “express provision for their rights, obligations and liabilities under the contract” in relation to proportionate liability.

It has been suggested that it may still be possible to exclude proportionate liability in Queensland by drafting an exclusion clause whereby the parties agree that the person being indemnified owes no duty of care to the plaintiff in an attempt to circumvent s28 and 29, Chapter 2 of the Civil Liability Act which only applies when an action is brought that is concurrent and coextensive in contract and tort (negligence).

 

Have a question on interpreting contracts? 

Contact our client engagement team to make an appointment with one of our commercial litigation team today. Call (07) 3252 0011.

 

Helpful Links 

 

Footnotes

[1] Tort Law Reform, Law Council of Australia

When Can a Buyer Terminate an Off-the-plan Contract?

When a buyer enters into an off-the-plan contract to purchase a particular lot in a community title scheme, years may pass before the development is completed, title created and able to be transferred into the buyer’s name.  During this time, market conditions may change, building schedules may be extended, or it may become apparent that the finished product will be something quite different from what a buyer had originally contracted for.  Generally it has proven very difficult for buyers who have changed their mind to get out of these contracts.

However, there are limited grounds upon which a buyer may be able to terminate an off-the-plan contract namely:

    • Misleading and deceptive conduct;
    • Failure to disclose;
    • Changes / Variations to the disclosure statements; and
    • Developers failing to complete construction before the sunset date.

When a buyer desires to terminate an off-the-plan contract, they should promptly seek legal advice as to their options.

 

Misleading and Deceptive Conduct

A buyer may be able to rely on the Australian Consumer Law and terminate a contract if they were induced to enter the Contract as a result of misleading or deceptive conduct on the part of the Seller. The difficulty for buyers in alleging such behaviour is that the situation can often turn into a “he said, she said” argument.

Nevertheless, it is not impossible for a buyer to be successful in terminating a contract on such grounds as seen in the case of Nifsan Developments Pty Ltd v Buskey.[1] The Buyers in this case had communicated to the developer’s agent that they were seeking to purchase a Gold Coast apartment with unrestricted views. The Buyers subsequently entered into a contract to purchase a penthouse apartment from the developer after its agent confirmed that the views from the penthouse would be uninterrupted. However, the Buyers later found out that the developer had sought approval to develop a separate building in close proximity to their apartment which would limit the Buyer’s view. Relying on s 52 and 53A of the Trade Practices Act 1974 (Cth) (since superseded by the Competition and Consumer Act 2010 (Cth)), the Buyers were successful in having the contract declared void and obtaining a refund of their deposit.

The court formed the view that the misleading representations made by the sales agent induced the Buyers to enter into a contract with they otherwise would not have entered. It is worth noting that this case seemed to turn on the issue of credibility, with the judge viewing the buyer’s recollections as “generally reliable” as opposed to those of the sales agent whose evidence was viewed as “not convincing”.

 

Failure to Disclose

A buyer has the right to terminate an off-the-plan contract prior to settlement (within certain prescribed time limits), if the seller has not provided the buyer with a disclosure statement in the prescribed form.

If a substantially complete disclosure statement is provided, a buyer may still be able to terminate the contract prior to Settlement if it is later revealed that the statement contains inaccuracies. In such circumstances the Body Corporate and Community Management Act 1997 (Qld) allows a buyer to terminate if they would be “materially prejudiced if compelled to complete the contract, given the extent to which the disclosure statement was, or has become, inaccurate”. Additionally, any buyer purporting to terminate must do so in writing, within the requisite time period.

When considering whether a “material prejudice” exists, the courts will consider the buyer’s specific circumstances from an objective point of view. In Gough v South Sky Investments Pty Ltd,[2] a group of buyers had each contracted to purchase a luxury Gold Coast apartment in a ‘residential tower’ called ‘The Oracle’. The contracts were entered into in 2005-2006, after which the value of luxury apartments in the area began to decline. In 2010, SSI advised the buyers that the ‘residential tower’ in which lots had been purchased would in fact function as a hotel/resort, and would be branded as ‘Peppers Broadbeach’. As a result, some buyers claimed that they would suffer material prejudice if they were forced to complete their contracts for a myriad of reasons, including:

    • That their lots would decrease in value because of the Peppers branding and the operation of a hotel/resort by Peppers;
    • That it would be more difficult for them to rent their lots, or appoint an off-site letting agent because of the hotel/resort being operated;
    • That the operation of a hotel/resort that focused upon short-stay tenants was likely to accelerate the deterioration of common property.

Ultimately, the court found that the buyers did not provide evidence to prove that the branding of the tower as ‘Peppers Broadbeach’ had an adverse effect upon the value of their apartments.  As a result, they were unable to prove that they would be materially prejudiced if forced to complete the Contract.

 

Sunset Dates

The sunset date in an off-the-plan contract is a date in the future (usually between 12 and 36 months from the date of contract) within which the Developer must complete the construction of the property and have the Community Titles Scheme established (and title to the lot to be purchased created).

Section 217B of the Body Corporate and Community Management Act 1997 (Qld) also provides buyer’s with a right to terminate an off the plan contract if the Seller does not settle the contract by the statutory sunset date. When a contract does not specify a sunset date, the seller must settle the contract within 3.5 years after the day the contract was entered into by the buyer (unless otherwise agreed by the parties). Importantly, a buyer will only be able to terminate after the expiry of the sunset period if they are not in default under the Contract. This means for example, that where a vendor is ready, willing and able to provide a registrable instrument of transfer, a buyer cannot simply refuse to attend at settlement, wait for the sunset period to expire, and then terminate their contract without consequence.

 

Contact us

If you have any questions relating to off-the-plan contracts, contact our Client Engagement Team and they will book you an appointment with one of our property lawyers. Call us today on (07) 3252 0011.

 


 

[1] [2011] QSC 314.

[2] Gough v South Sky Investments Pty Ltd (recs and mgrs apptd) (in liq) [2011] QSC 361

 

Other related articles

https://corneyandlind.com.au/resource-centre/failing-to-settle-off-the-plan-contracts/

https://corneyandlind.com.au/resource-centre/buying-and-selling-units-off-the-plan/

https://corneyandlind.com.au/resource-centre/off-the-plan-contracts/