Proportionate liability in climate cases

Whose responsibility for economic loss and damage? 

Australia’s proportionate liability regimes radically changed the common law’s approach of solidary liability. 

Under the common law, defendants were liable for the entirety of the plaintiff’s loss, irrespective of whether other wrongdoers had contributed to that loss. It therefore fell to defendants to join or separately sue other wrongdoers to recover their contribution to the plaintiff’s loss. 

Australia’s proportionate liability regulatory regimes shifted this burden. 

Under proportionate liability provisions, a defendant’s liability is limited to its share or proportion of its responsibility for the loss. It therefore falls to plaintiffs to join or separately sue other wrongdoers to recover their full loss. 

But what about the climate context?

Proportionate liability arguments might be raised in future climate change cases in Australia. 

For example, future claims in negligence for economic loss could be brought against corporations, local councils and national governments for failing to act on climate change. These claims could include, for example, developments granted planning permission despite being vulnerable to climate change related impacts like sea level rise or flooding or bushfire risk. Defendant corporations, local councils and national governments could potentially invoke arguments that they are only partially responsible for the loss suffered, in light of the cumulative impact of greenhouse gas emissions.

In addition, claims could be brought by commercial parties for economic loss and damage pursuant to breaches of contract, negligence or for misleading and deceptive conduct. These cases could include, for example, contracts for the sale of coal devalued due to the transition to a net zero economy. Proportionate liability arguments could be raised by commercial defendants, arguing that government policy has been responsible for the shift away from fossil fuels. 

Extending proportionate liability to arbitration proceedings

Historically, proportionate liability provisions have been restricted to court proceedings. However, a new case in the South Australian Court of Appeal and now headed to the High Court of Australia could extend proportionate liability provisions from litigation to arbitration proceedings: Tesseract International Pty v Pascale Construction Pty Ltd [2002] SASCA 107.

In the case, Tesseract and Pascale entered into a contract for Tesseract to provide engineering consulting services to Pascale for construction of a warehouse. Pascale argued that defective designs from Tesseract had caused it to suffer loss and damage. Pascale claimed for breach of contract, negligence and misleading and deceptive conduct contrary to s 18 of the Australian Consumer Law (ACL). It sought both common law damages and damages pursuant to s 236 of the ACL. 

One of Tesseract’s claims was that any damages payable should be reduced because of the proportionate liability of Mr Penhall, a concurrent wrongdoer engaged by Pascale to prepare the warehouse tender documents. Tesseract raised the proportionate liability provisions under Part 3 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 1010 (SA) (Law Reform Act) (in relation to the contract or tort claims), and Part VIA of the Competition and Consumer Act 2010 (Cth) (CCA) (in relation to the misleading or deceptive conduct claims).

The Court determined that proportionate liability regimes under the Law Reform Act and the CCA do not apply in arbitration proceedings. 

As the Court noted: “From the perspective of the third party wrongdoer(s), it is one thing to bind it to the outcome of public court proceedings in which it had the opportunity to participate by being joined (upon the application of the plaintiff, or indeed upon their own application). It is quite another thing to […] bind it to the outcome of essentially private arbitration proceedings to which it was not a party, and indeed of which it might not even have been aware”. 

It remains to be seen what position the High Court of Australia will adopt in this regard.

Conclusion

Proportionate liability raises interesting questions as to the contribution of different defendants to the impacts of climate change. Further consideration could be given to the different scenarios under which these sorts of arguments might be raised in the future, with a view to ensuring that these sorts of cases contribute to rapid and effective climate change action.