Joint and Several Liability Final Report: What’s Happening in Other Jurisdictions

////Joint and Several Liability Final Report: What’s Happening in Other Jurisdictions
Joint and Several Liability Final Report: What’s Happening in Other Jurisdictions2017-03-03T18:33:23+00:00

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Discussions regarding joint and several liability are not unique to Ontario. Several other jurisdictions have taken steps to address this issue. Some examples are provided below.

 

Overall, the LCO’s research indicates that other jurisdictions are moving towards a system of proportionate liability, or otherwise away from joint and several liability.

 

However, trends in other jurisdictions toward proportionate liability, particularly the United States, do not provide a sufficient grounding for reform, particularly in light of the more litigious environment in the United States.

 
1. United States: A modified form of proportionate liability (proportionate capped liability) was adopted at the federal level in the U.S. with the passage of the Private Securities Litigation Reform Act of 1995. The Act retains joint and several liability for defendants who knowingly violate securities laws and in relation to claims made by small investors. A small investor is defined as a plaintiff whose net worth is $200,000 or less and whose share of the damage award is equal to at least 10% of his or her net worth. For all other claims, proportionate liability replaces joint and several liability.

 

 

2. United Kingdom: The UK Companies Act 2006 allows auditors to limit their liability by contract with their company clients, subject to shareholder approval (to address the tort liability) and subject to “such amount as is fair and reasonable in all the circumstances”. These reforms, however, were counterbalanced by the following provisions: (1) a new criminal offence introduced for an auditor who “knowingly or recklessly” includes any matter which is misleading, false or deceptive in the audit report or who omits information which results in the audit report being misleading, false or deceptive; (2) auditors may be required to disclose their terms of appointment – e.g. engagement letter; (3) the audit report must be signed by a named partner – the senior statutory auditor; (4) in the case where the auditor ceases to act for a named company, he or she must file a statement on the circumstances connected with his or her departure with the appropriate audit authority.

 

 

3. Australia: Australia introduced the Corporate Law Economic Reform Project (Audit Reform and Corporate Disclosure) Act 2004 (Cth) (CLERP 9), which expanded the duties imposed on auditors and thereby increased auditors’ potential exposure to greater claims of negligence by third parties. CLERP 9 became effective in July 2004. The Australian government introduced two measures in CLERP 9 to mitigate auditor liability: (1) proportionate liability for pure economic loss arising from misleading or deceptive conduct; and (2) a framework allowing for auditors to incorporate and thereby limit their liability through the corporate structure. The Government also legislated to allow for a national approach to a statutory cap for auditor liability through the Treasury Legislation Amendment (Professional Standards) Act 2004. The legislation limits losses between $1 million and $20 million AUD based on the fee for the service. The absolute maximum cap on liability is $75 million AUD.

 

 

4. European Union: On January 18, 2007, the European Commission launched a public consultation on the issue of auditor liability. The European Commission found that the preferred approach for the audit profession was to limit auditors’ liability by capping, whereas the respondents from other professions favoured the implementation of proportionate liability. Those respondents who preferred a hybrid approach considered that proportionate liability was an appropriate mechanism for avoiding plaintiffs using the audit firms as a way to compensate any financial deficiencies of the audited company, but, at the same time, believe that it is not enough to prevent an audit firm disappearing due to a possible catastrophic claim. It was thought that a cap would provide additional protection for audit firms in the case of such claims.