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Proportionate Liability and Construction

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When working on a project with several people, it can be frustrating to have to take responsibility for someone else’s mistakes. In the construction world, the concept of proportionate liability exists to ensure that each party involved compensates the principal for the loss they specifically caused. This article will explain proportionate liability, outlining its relevance to the construction world.

Proportionate Liability and the CLA

In New South Wales (NSW), the Civil Liability Act 2002 (CLA) was introduced to regulate liability between people who are:

  • suffering economic loss or property damage (the plaintiff); and
  • responsible for the loss or damage (the defendant).

Before the CLA, a plaintiff could claim the cost of the loss they suffered from any of the defendants responsible. Often, this meant that the plaintiff would pursue the defendant who had the:

  • most money; or
  • best insurance.

This defendant would then try to find other defendants to contribute to the compensation. If they were unable to trace the other defendants, they would solely bear the cost of the loss.

With the introduction of the CLA, potential plaintiffs:

  • have the responsibility of pursuing all defendants involved at the same time; and
  • bear responsibility for any of their actions that may have caused or contributed to the loss or damage.

How Does This Apply to the Construction World?

In the field of construction, proportionate liability means that all parties involved in a project are responsible for exercising reasonable care in their work.

For example, if a principal engages both a designer and builder for a project, both parties must use reasonable care in carrying out their roles. They must do this even if ‘exercising reasonable care’ is not a requirement stated in their contracts.

If the designer produces a defective design and the builder, knowing that it is defective, uses the design to construct the project, then both parties have breached their duty. Here, the plaintiff will recover their loss from both the designer and builder. The amount that each defendant pays will be relative to the portion of loss they caused.

Are Sub-Contractors Liable?

Often, a principal may engage a head-contractor to oversee an entire project. The head-contractor may then hire subcontractors to carry out specific parts of the project. If the subcontractor’s work results in loss or damage, the principal will likely want compensation for the loss. 

Although the principal does not have a direct contractual relationship with the subcontractor, the CLA requires that the principal pursue both the subcontractor and head-contractor for their respective portions of the loss.

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Can You Contract Out of This?

The CLA allows parties to contract out of its provisions. In other words, parties can agree to modify, restrict or exclude the CLA. There are many ways in which parties may choose to do this, including by:

  1. the principal seeking indemnities from the head-contractor, builder and designer;
  2. the contract containing specific provisions stating that the head-contractor is liable for the acts of subcontractors;
  3. stating that all parties to a contract are both jointly and severally liable; or
  4. expressly stating that they wish to exclude the CLA.

Including one or more of the above provisions may exclude the operation of the CLA, even if this was not intended. Therefore, if you want to ensure that the CLA applies to your contract, you need to include an express provision stating this.

Key Takeaways

The CLA benefits builders, head-contractors, and subcontractors. They now have comfort knowing that if something goes wrong, they will not be solely liable. Rather, the cost of rectifying the loss or damage will be proportionally distributed between all parties.

Because you can contract out of the CLA, principals may seek to exclude the operation of the CLA by including specific terms in the contract. It is vital to ensure that the CLA is not excluded, ensuring that you are only liable for your portion of the loss. If you have any questions, contact LegalVision’s construction lawyers on 1300 544 755 or fill out the form on this page.

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Tuhina Mukhraiya

Tuhina Mukhraiya

Practice Leader

Tuhina is a Practice Leader at LegalVision with a particular expertise in leasing and property. She assists clients in a variety of different industries and businesses, having a strong focus on understanding each client’s unique business and needs in order to provide both legally precise and pragmatic advice.

Qualifications: Bachelor of Laws, Bachelor of Economics, Western Sydney University.

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About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

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