Let’s say you are a contractor responsible for putting concrete piers in as the footings for a new building. You arrange for a subcontractor to install the piers in accordance with design specifications from the contract, but do not check any of the details. As it turns out, the piers are not located correctly and the work needs to be done again.
Who is liable for the losses that will result? The original designer? The principal who gave you the drawings? You for failing to check the details? The subcontractor?
Similar situations happen all the time in the construction industry. Things go wrong and end up in a seemingly endless game of finger pointing. In practice it can be hard (if not factually inaccurate) to lay the blame on just one set of shoulders.
Enter: negligence, and the proportionate liability scheme. Negligence can provide a party (say, the contractor in our example) the opportunity to pursue a party with whom it has no contract. The proportionate liability scheme helps us disentangle the mess of who’s responsible for what. This article will focus on the negligence aspects, and we’ll deal with proportionate liability in more detail in a later article.
If you think you may be dealing with a negligence claim, be it against you or from you, this article is for you.
Elements of a Negligence Claim
To be successful in a negligence claim, a party must satisfy four elements:
- the existence of a duty of care;
- a breach of that duty;
- loss; and
- proof that the loss was suffered as a result of the breach.
You can bring an action in negligence up to six years after all of the above elements are established, including the existence of the loss. This can result in being “on the hook” for much longer than you might expect when you think about negligence causing latent defects, where the defect only emerges years down the line.
Duty of care
A duty of care refers to the obligation one party may owe another. Whether a duty of care is owed will depend on the relationship of the parties. A couple of well-established duties include the duty a lawyer owes their client or a manufacturer of goods owes to its consumer.
The normal way a duty of care is phrased is that you must take reasonable care to avoid foreseeable loss to the person or party you owe it to. But what does “reasonable care” mean? This is where the “standard” of care comes into play, which will depend on the circumstances. Some people will be held to a higher standard than others.
One of the main things that will affect your standard of care is whether you hold yourself out as a professional or expert in a particular area. If you do, there is a good chance you will be held to a higher standard (which is may be a good discussion to have with your marketing team).
Breach of Duty of Care
Having a duty is one thing, but if you live up to the duty there’s no real problem.
A party who owes a duty of care will have breached their duty if they fail to take the reasonable level of care expected of them. Relevant to this question is whether the risk of loss occurring was:
- foreseeable;
- not insignificant; and
- a reasonable person in the circumstances would have taken precautions to avoid the risk.
Note that a “reasonable person” won’t necessarily mean a person off the street but a reasonable person of a like nature – don’t expect to be able to rely on the fact that your average-joe doesn’t know the ins and outs of structural engineering. If you’re holding yourself out as a professional, you will be judged against your peers.
Loss Suffered
It sounds obvious, but to have a claim in negligence something must have happened to cause loss. Otherwise, there isn’t much use in alleging the negligence, is there?
The loss might be the reduction in value because what you delivered wasn’t what your client expected , it might be the damage rendered to someone’s property, or it might be the damage occasioned to a person – all of this is loss so far as negligence is concerned.
The breach caused the loss
This is perhaps the most hotly debated feature of a negligence claim. It is not enough that a duty of care was breached, and that there was loss of some kind, but the breach in question must have caused or contributed to that loss.
While it has been put in various different ways, the fundamental question to establish causation is this: did the alleged breach cause or materially contribute to the loss?
This is simple to ask and often hard to answer. “Causation” on construction projects is rarely as straightforward as one person doing one thing, leading to another person’s loss.
In complicated construction projects with many different parties all collectively working towards a common goal, what happens when each has contributed to the loss in their own way?
Proportionate Liability Schemes
Around Australia, various proportionate liability schemes tend to govern the way in which the Courts attempt to balance the contributions when a number of different people have arguably caused a single point of loss.
The proportionate liability schemes work slightly differently depending on what state or territory you are in. Ultimately, they all seek to apportion liability for loss based on how responsible you were for that loss. For example, under the proportionate liability schemes if you were 50% responsible for something that caused $100,000 of loss, your maximum liability would be $50,000, irrespective of whether the other 50% could be paid by another party.
Of course, much like causation generally this simple example comes with a lot of questions and complexities (such as whether you can or cannot contract out of the proportionate liability schemes), but we’ll leave a detailed analysis of the proportionate liability scheme for another day.
So what does this all mean for me?
There are few substitutes for a properly negotiated and drafted contract.
While it is important to be alive to the possibility of negligence claims, and what they might look like, preparing your contracts well provides clarity as to what kind of liability you might be open to. With that question answered, you can look at insuring against residual risk.
Putting the shoe on the other foot, a well drafted contract as the contracting party can help you avoid having to even think about negligence, because it is already clear who is responsible and to what extent.
If you think you might have a negligence claim, or would like to explore ways of mitigating against the risk of one, get in touch with us.
