II. OVERVIEW OF LIABILITY SCHEMES2017-03-03T18:33:22+00:00

A.        Joint and Several Liability


The definition of “joint and several liability” being used by the LCO is:

[involving] two or more wrongdoers acting independently so as to cause the same damage to a plaintiff. Where two or more persons, acting independently of each other, have by their separate wrongful acts brought about a single and specific injury to another person, the law holds them jointly and severally liable for the pure loss. The law treats each wrongdoer as the effective cause of the plaintiff’s entire loss and therefore allows the plaintiff to seek full compensation from any of the defendants found liable.

 

Where a plaintiff’s loss is found to have been caused by the negligence of three different defendants, joint and several liability holds each defendant 100% liable to the plaintiff.  That is, the plaintiff is entitled to seek full payment from any one of the defendants.  A defendant who satisfies a judgment fully has a right of contribution from the other parties who are liable based on the extent of their responsibility for the loss.  Among the defendants, responsibility may be apportioned by the court, for example, 40% to Defendant 1 (D1), 35% to Defendant 2 (D2) and 25% to Defendant 3 (D3). If a plaintiff has chosen to recover the full amount of a judgement from D1, then D1 can then seek contribution from D2 and D3 for their share of the loss. However, if D2 and/or D3 are insolvent, unable to pay the full amount they owe to D1 or otherwise unavailable, D1 must bear that loss.

 

B.        Proportionate Liability
 

1.            Full Proportionate Liability

 

Under a system of proportionate liability, the liability of each co-defendant is limited to the proportion of the loss or damage for which he or she is found to be actually responsible.  While joint and several liability makes each defendant the effective cause of the entire loss suffered by a plaintiff and therefore allows a plaintiff to recover full damages from any one of the defendants, proportionate liability apportions causal effectiveness according to the degree of responsibility or fault of each defendant found to be liable.  As a result, a defendant will be required to pay only his or her share of the liability as determined by the court. 

 

The following example illustrates how full proportionate liability operates.  A plaintiff is awarded $100,000 in damages and there are three defendants whose liability is determined as: 40% to D1, 35% to D2 and 25% to D3.  D2 and D3 are insolvent, unable to pay or unavailable.  The Plaintiff will be able to recover $40,000 for D1 (i.e. D1’s portion of the judgment).  D1 will not be responsible for paying D2’s and D3’s uncollected share.

 

The significant difference between joint and several liability and proportionate liability is that the former puts the risk of an insolvent, financially limited or unavailable co-defendant on the other co-defendants, while the latter transfers the risk to the plaintiff.  Thus, the debate in respect of joint and several liability, as will be discussed in more detail below, centres on who will bear the burden of an insolvent, financially limited or unavailable defendant – the plaintiff or the remaining co-defendants.

 

2.            Modified Proportionate Liability

 

There are a number of modified forms of proportionate liability. These are: (1) proportionate liability where a plaintiff is contributorily negligent; (2) proportionate liability where a defendant is a “peripheral wrongdoer” – a defendant whose fault is limited or secondary when compared to that of other defendants; and (3) the proportionate reallocation of some or all of the uncollected share of a damages award attributed to an insolvent, financially limited or unavailable defendant.

 

3.            Proportionate Liability where Plaintiff is Contributorily Negligent

 

This variation of proportionate liability would retain joint and several liability in relation to a blameless plaintiff, but would abolish or modify the rule where the plaintiff contributed to his or her own loss. For example, the Plaintiff (P) suffers a loss of $100,000 with the liability apportioned as follows: P 25%, D1 35% and D2 40%. D2 is insolvent, financially limited or otherwise unavailable. Under a regime of proportionate liability with no secondary allocation of the insolvent, financially limited or unavailable defendant’s shares, P is entitled to $35,000 from D1. P is responsible for $25,000 and will bear the $40,000 shortfall.

 

4.            Proportionate Liability where Plaintiff is Contributorily Negligent with a Proportionate Reallocation of an Insolvent, Financially Limited or Unavailable Defendant’s Share 

 

This variation of proportionate liability provides for reallocating the liability of an insolvent, financially limited or otherwise unavailable defendant among all remaining parities, including a contributorily negligent plaintiff, in proportion to their respective degrees of fault. Thus the plaintiff and the remaining defendants all bear the risk of a defendant’s insolvency, financial limitations or unavailability.

 

For example, P suffers a loss of $100,000. Liability is apportioned as follows: P 10%, D1 40% and D2 50%. D2 is insolvent or otherwise unavailable. D1 pays $40,000 to P. D1 and P will share the risk of D2’s insolvency or unavailability. P will be responsible for one-fifth of D2’s share ($10,000) and D1 will be responsible for four-fifths of D2’s share (an additional $40,000).

 

5.            Proportionate Liability with a Peripheral Wrongdoer

 

Under this approach, a defendant will be proportionately liable if his or her share of the fault falls below a specified percentage, say 30%; above that percentage, liability would be joint and several. This regime favours defendants whose degree of fault is relatively small when compared to that of other defendants. There is, however, some arbitrariness associated with establishing the threshold between proportionate and joint and several liability.

 

6.            Proportionate Liability with a Reallocation of Some or All of an Insolvent or Unavailable Defendant’s Share 

 

This variant provides for reallocating the liability of an insolvent or otherwise unavailable defendant among the remaining defendants in proportion to their respective degrees of fault. Under this approach, the plaintiff may or may not be contributorily negligent and joint and several liability would continue to apply in cases of fraud and where laws had been knowingly violated. Reallocating some of an insolvent or unavailable defendant’s share among solvent defendants attempts to strike a balance between the goal of compensating the plaintiff and that of relieving the solvent defendants of the total liability burden.

 

7.            Court Discretion 

 

One modified approach to proportionate liability may be to give the courts the discretion to apply joint and several or proportionate liability depending upon the facts and circumstances of a particular case. The court, in certain cases, may well agree that one defendant’s fault was comparatively minor and that his or her share of the liability should be apportioned proportionately.

 

C.        Capped Liability
 

Another method for addressing the liability concerns for professionals would be to introduce a cap on the amount of damages available for claims for economic loss in connection with certain types of work. There are a number of ways to cap liability, including: (1) a single monetary amount could be established as a limit; (2) the limit could be based on a percentage of the fee charged by the professional; (3) the limit could be based on a percentage of damages awarded; or (4) some other established amount. The advantages and disadvantages of the capped liability scheme is discussed in greater detail under Options for Reform, below.

 

D.        Hybrids
 

There are a number of jurisdictions that provide a hybrid system of apportioning or limiting damage awards, primarily by using caps or limits on the amount that any one co-defendant will be liable in the case that other defendants are insolvent or unavailable. For example, one hybrid form of liability provides that, where a defendant is insolvent or unavailable and a plaintiff is unable to collect the defendant’s share, each remaining defendant is further liable for the uncollected shares provided that the additional liability is not more than 50% of the remaining defendant’s proportionate share. 

 

E.        Contracted Liability
 

Limiting liability by contractual means allows the parties involved in a contract to accept limitations on liability. One type of contractual limitation on liability may have the parties agree that, in the case of loss, proportionate liability rather than joint and several liability would apply. However, legislation governing certain professions or professional conduct rules may prohibit some professionals from limiting their liability in certain circumstances. For example, the CBCA provides that directors and officers cannot contract out of their statutory duties, including the duty to exercise care. 

 

Private ordering would suggest that audit firms, for example, and their clients are free to negotiate their own contractual liability regimes. In effect, corporations would be negotiating on behalf of their investors who use and rely on the financial audit function. Do auditors who limit their liability through contractual negotiations charge lower fees for their services? Under such circumstances, would investors place less reliance on the audit services provided by these firms? The extent to which liability is being contractually limited by audit firms and other professionals and its impact may also inform what liability model is best for Ontario.

What are the implications of each of the liability model for corporations, investors, and other stakeholders? 

What are the implications of each of the liability models on

·         professionals who are potential defendants?

·         the pricing of professional services?

·         the entry of qualified candidates into the professions?

·         liability premiums?

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