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LAW REFORM (CONTRIBUTORY NEGLIGENCE AND APPORTIONMENT OF LIABILITY) BILL

Second reading.

The Hon. R.G. KERIN (Deputy Premier): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

law reform (contributory negligence and apportionment of liability) bill 2001 This bill will change the effect of the decision of the High Court in the case of Astley v Austrust concerning the interpretation of section 27A of the Wrongs Act 1936 of South Australia.

That decision provoked immediate criti­cism. All Australian States and Territories had a provision similar to section 27A. The matter was discussed by the Standing Committee of Attor­neys-General and model provisions for a bill were developed. Acts based on, but not identical with the model have been passed in Tasmania, Victoria, New South Wales and the Australian Capital Territory and, since this bill was introduced, in the Northern Territory. Western Australia and Queensland have not introduced bills yet. Al­though the South Australian bill draws on the model, it was decided following consultation, to introduce a slightly wider reform.

The core of section 27A is as follows:

“(3) Where any person suffers damage as a result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the respon­sibility for the damage:

The word “fault” is defined by section 27A(1) as:

“`fault' means negligence, breach of statutory duty or other act or omission which gives rise to a liabili­ty in tort or would, apart from this Act, give rise to the defence of contributory negli­gence.

Section 27A was enacted in 1951 to reform the common law of tort. It allows the courts to reduce the amount of damages payable to a plaintiff if it is found that the plain­tiff contri­buted by his or her own negligence to the loss in respect of which he or she is claiming damages. Where the plaintiff has been guilty of contribu­tory negli­gence, the court is required to assess the full amount of the plaintiff's damages and then reduce the damages by such amount as is just and equi­table having regard to the extent of the plaintiff's responsibility for the damage.

Although section 27A was enacted in South Australia in 1951, it was not conclusively settled whether or not the section was applicable in cases of breach of contract until the High Court's ruling in Astley v Austrust in 1999, re­ported in (1999) 197 CLR 1. The High Court by a majori­ty of 4:1 ruled that it did not—it applied only to claims for damages for tort. The majority said that “the history, text and purpose of the Wrongs Act make it clear that that Act was not intended to apply to claims for breach of con­tract.

Prior to Astley v Austrust, many legal practitioners had adopted the practice of treating section 27A as applicable to cases of breach of a contractual duty of care and many cases were settled or decided on that basis. There were some higher court decisions that supported that view as well as some that did not. Many thought that the weight of judicial authority supported the view that section 27A did apply, at least to cases in which the duty of care imposed by the common law and the duty of care under the contract were the same. The overwhelming response to the deci­sion in Astley v Austrust from legal practitioners, academ­ics and the insurance industry was that the statute should be changed.

The bill will do that. It will allow the courts to reduce the plaintiff's damages on account of his or her contribu­tory negli­gence in any case of breach of a contractual duty of care, subject only to any agreement between the parties or other legislative provision to the contrary.

In addition, the bill will make the contribution provi­sions that currently apply only between tortfeasors applic­able to claims for breach of contractual duty of care. These provi­sions were enacted in 1939 to allow a party who has paid, or who is liable to pay, damages to obtain contribu­tion from any other liable parties. Courts have found that Astley v Austrust has caused difficulty in some cases in applying the contribution provisions of the Wrongs Act. This was raised by the Supreme Court of South Australia in December last year in an appeal in Duke Group (in liqui­dation) v Pilmer & Ors (No2). This bill would re­move that problem in cases in which there has been a breach of a contractual duty of care.

As the new provision that would be enacted by this bill will apply not only to claims in tort, but also to some claims in con­tract, namely claims for damages for breach of a contractual duty of care, they would be removed from the Wrongs Act and placed in a separate Act. Enacting contribution and contributory negli­gence provisions in a separate Act is not novel: it is the way the legislation of most other jurisdictions has been enacted.

The opportunity has been taken to redraft all these provi­sions, which currently comprise Divisions 1 and 2 of Part 3 of the Wrongs Act, to modern drafting standards and to remove some obsolete provisions.

The bill will not have retrospective effect. However, if the facts that give rise to a claim occur partly before and partly after the Act comes into force, the Act will apply to that case.

Some historical background, explanation of Astley v Austrust and examples will assist in understanding this bill.

The common law of tort was that people who claimed damages for a breach of a duty of care could not recover any damages if they had contributed by their own negli­gence to their loss. The claims of these plaintiffs were completely defeated by their contri­butory negligence, no matter how minor that fault was. For exam­ple, in a road accident case, a plaintiff who failed to keep a proper look-out was not entitled to any damages even though the main cause of the collision was the gross negligence of another driver speeding through a red light. This was seen as unfair.

In 1951 South Australia reformed this common law rule by enacting section 27a of the Wrongs Act. Section 27a was based on an English provision. It abolished the common law rule and substituted a provision that said the court is to assess the plaintiff's full damages and then may reduce those damages by such amount as is it thinks just and equitable having regard to the plaintiff's share in the responsibility for the damage.

The common law of contract operates differently. If the de­fendant is in breach of a duty to perform his or her obligations under the contract with reasonable care or due diligence, the plaintiff is entitled to recover full damages as assessed according to the law of contract without reduc­tion on account of his or her own contribution for the loss suffered. The case of Astley v Austrust put beyond doubt the fact that this was not altered by the 1951 amendments to the Wrongs Act.

In breach of contract cases courts can sometimes use other means of ensuring that the end result is fair. For example, the amount of damages awarded to the plaintiff for a breach of con­tract could be affected by the rules relating to causation of dam­age, failure to mitigate damage (including failure before the breach) and remoteness of damage in contract. However, the courts' ability to do this in profes­sional negligence cases is limited.

Contractual Duty of Care

Many contractual relationships include a contractual duty of care. This duty may be an express duty set out in a formal contract, or it may be a duty that is implied by the common or statute law into the contract. Contracts to provide services frequently include an implied duty to take reasonable care. For example, there is a contract between the taxi driver and the passenger under which the taxi driver agrees to carry the passenger and the passenger agrees to pay the fare and it is an implied contractual duty that the taxi driver will exercise reasonable care in per­forming his or her contractual duty to carry.

Parties to written contracts sometimes agree that a party is to observe a level of care that is higher or lower than reasonable care or agree to change the normal incidents of its breach, eg by limit­ing or excluding damages, providing a method of calculation of damages or providing for con­sequences other than damages. Often one party pays a substantial consideration for the other party undertaking to exercise a particular level of skill and care or for assuming certain risks. The Wrongs Act does not impinge upon this: it gives primacy to the contract over any claim in tort.

Common Law (Tortious) Duty of Care

Many contractual relationships nowadays also give rise to a separate common law duty to perform the contract with reasonable care and skill: for example, professional advis­ers to their clients; employers to their employees; building companies to their princi­pals, taxi and bus drivers to pas­sengers in their vehicles. Breach of this duty is a tort.

The duty of care imposed by the common law on pro­fes­sional advisers is the same as the duty of care implied into the contract. The extent to which professional advisers may vary their duties of care by contract may be limited by rules or ethics of the profession or legislation.

Statutory Duty of Care

In some cases, a further layer of duty is imposed by stat­ute. For example, section 74 of the Trade Practices Act 1974 (Cth) implies into certain contracts for services a term that the services will be rendered with due care and skill. The Occupational Health, Safety and Welfare Act (SA) imposes on the employer and the employee a statu­tory duty of care. Breaches of these statutory obligations give rise to civil liability to pay damages for injury or other harm occasioned by the breach. Sometimes the statute prohibits the parties from contracting out of the statutory duty.

Multiple Duties

When the plaintiff believes that the defendant has breached two or more duties owed to the plaintiff, then the plaintiff can sue on any one or more of them and elect to take judgment in whichever cause of action gives the remedy most beneficial to the plaintiff.

Astley v Austrust is an example of this. Austrust Limited, a trustee company, proposed to become the trus­tee of a commercial venture. Mr Astley, a legal practition­er, had a general retainer to advise Austrust about transac­tions into which it proposed to enter. Austrust failed to make any enquiries about the commercial soundness of the venture, but positively assured Astley that the venture was com­mercially viable. Astley did not advise Austrust about the desirability of including in the trust deed a clause ex­clud­ing or limiting Austrust's liability to beneficiaries of the trust. Austrust entered into the venture, which soon failed. Austrust became liable for losses that exceeded the assets of the trust. Austrust sued Astley for damages alleg­ing (a) that Astley had breached his implied contractual duty of care under his retainer to advise Austrust and so was liable for damages for breach of contract, and (b) that he breached his common law duty of care to Austrust arising from the relationship of solicitor and client and so was liable to pay damages for his negligence.

The High Court's decision was as follows:

(1)There was an implied term in the retainer that Astley would perform his work with reasonable care and skill. (Contracts for services generally carry an implied term to this effect.)

(2)As a professional adviser, Astley had a concur­rent common law duty to Austrust to exercise reasonable care and skill.

(3)A plaintiff is entitled to sue with respect to the same inci­dent for both breach of contract and the tort of negligence.

(4)Astley was negligent and also had breached his contractual duty of care in not warning Austrust about its potential for liability. However, Austrust failed to take reasonable care to look after its own interests and was 50% responsible for the loss it suffered.

(5)Section 27a of the Wrongs Act applies only to wrongs (torts). It does not apply to breaches of contractual duty of care.

(6)Austrust was entitled to elect to take its judgment on the basis of Astley's breach of his contractual duty of care, rather than on the basis of his tort.

(7)Therefore Austrust could recover from Astley its full loss of $1.5 million. If it had been liable only in the tort of negli­gence, it would have recovered $750 000.

As mentioned earlier, this decision provoked immediate calls for law reform.

Some criticised the High Court's distinction between the duty of care imposed by the common law and an im­plied contractual duty of care as unrealistic in the context of the many minor oral contracts entered into with little thought by the parties about the terms. It is said that there is really no practical difference between the law imposing a common law duty of care and the law implying a term into certain contracts, and so the results of breach should be the same. Examples given include contracts of carriage be­tween passenger and taxi driver, contracts for services entered into between doctor and patient or between handy man or woman and household­er.

Some have criticised the assumption implicit in the High Court decision that parties are free to determine for them­selves the terms of their contracts as unrealistic in the above type of case and as obviously wrong in those cases in which a statute imposes a contrac­tual duty and forbids contracting out of the duty.

Some submissions received in response to the invitation to comment on the model bill prepared by the Standing Committee of Attorneys-General urged more far reaching reform than that which would have been achieved by the model bill or by this bill. It was suggested that the statu­tory provisions relating to contribu­tory negligence should apply in all cases, whatever the cause of action. Also, it has been suggested that the contribution provisions should apply to all cases. At first glance this may appear to be a simple matter, but it is not. Other Australian jurisdictions have not changed their law to the extent suggested, al­though it is believed that they received similar submis­sions. There are obvious advanta­ges in consistency be­tween laws of Australian jurisdictions on these topics. Because of the complexity of the issues, a proper consider­ation of the wider reforms that some would wish this Parliament to make would require considerably more time. If the law is to be reasonably consistent across Australia, and it is obvi­ously desirable that it should be, then the process would take even more time. In the meantime, this Parliament can achieve the moderate reform proposed by this bill.

The model provisions for a bill prepared on instruc­tions from the Standing Committee of Attorneys-General were sent to several people and organisations, including the Insurance Council of Australia, the Law Society of South Australia, the South Australian Bar Association, the Deans of the Law Schools of Flinders University and the University of Adelaide, the Chief Justice, Chief Judge of the District Court and Chief Magistrate. The comments received were taken into account in further devel­oping the policy for this bill and in the drafting of the bill.

The subject matter of this bill is legally complex and in some ways technical. It will affect many people who are involved in litigation in which damages are claimed in a wide variety of circumstances. The bill, as introduced into the Legislative Council, was sent to approximately 90 people and organisations with an invitation to make a submission or comment on the bill. Responses were re­ceived from 12 organisations and individuals. As a result of comments on the possible interpretation of the bill, some technical amendments to the bill were intro­duced and passed in the Legislative Council.

I commend this bill to the House.

Explanation of Clauses

Clause 1: Short title

This clause is formal.

Clause 2: Commencement

This measure will be brought into operation by proclamation.

Clause 3: Interpretation

This clause sets out defined terms for the purposes of the measure.

Clause 4: Application of this Act

The measure will apply to—

(a)a liability in damages under the law of torts;

(b)a liability in damages for breach of a contrac­tual duty of care;

(c)a liability in damages that arises under statute.

The measure will have no bearing on criminal proceed­ings and does not render enforce­able agreements for in­demnity that would otherwise be unenforceable.

Clause 5: Judgment does not bar an action against person who is also liable for the same harm

A judgment for damages against one person does not bar a further action against another person who is also liable for the same harm. However, the general rule is that multi­ple actions should not lead to greater rights of recov­ery or claims for costs. A court will have a discretion to provide differently if there are reasonable grounds for bringing separate actions.

Clause 6: Right to contribution

This clause sets out rules relating to rights and actions for contri­bution. A right to contribution arises if the other party is also liable in damages for the same harm. The contribution is assessed according to what is fair and equitable having regard to the extent of each contributory's responsibility for harm. It is possible to affect or limit a right of contribution through the giving of an indemnity or by contract. An employer cannot claim contribution from an employee except in a case amounting to serious and wilful miscon­duct.

Clause 7: Apportionment of liability in cases where the person who suffers primary harm is at fault

This clause confirms that contributory negligence does not defeat a claim, and sets out the process for dealing with cases of contri­butory negligence.

Clause 8: Transitional provision

The measure will apply to a cause of action that arises from an act or omission that occurs on or after its com­mencement. The Act will also apply to a cause of action that arises in part from an act or omission that occurred before its commencement and in part from an act or omis­sion that occurs on or after its commencement.

Clause 9: Consequential amendments

Consequential amendments must be made to the Wrongs Act 1936 and the Survival of Causes of Action Act 1940.

Mr De LAINE secured the adjournment of the debate.