How common are multi-party disputes? How is liability apportioned between multiple defendants? Does your jurisdiction recognise net contribution clauses (which limit the liability of a defaulting party to a “fair and reasonable” proportion of the innocent party’s losses), and are these commonly used?
Construction (2nd edition)
Multi-party disputes are common. Liability for a breach of a duty to take care is apportioned under state and territory proportionate liability legislation. Some states allow parties to contract out of this legislation (Western Australia) while others expressly prohibit it (Queensland), or contain provisions exempting typical construction contracts from its application (New South Wales and Tasmania). Court rules allow for the joinder of parties to seek contributions, however this is not permissible in arbitration unless otherwise agreed to by the parties.
More often than not construction disputes involve several parties in the construction process (architect, contractor, client, etc.).
There are several ways of apportioning liability.
In the absence of a specific rule, contractual provision or custom providing joint and several liability, each defendant can only be held to pay for its own share of liability (the apportionement of which is often determined with the assistance of the court appointed expert).
However, if several parties jointly commit a fault causing the same damage, the judge can impose in solidum liability, meaning that the defendants can be held to pay the entirety of the damages (with the possibility for that defendant to recover with the others).
Multi-party disputes are very common in China’s legal practice. In case of multiple defendants, liabilities will be allocated among defendants to the extent each defendant bears its own due legal liabilities according to law.
“Fair and reasonable” clauses (or net contribution clauses) are not widely accepted in China’s business contracts, especially in construction contracts. Since owners in China are much more powerful, and the construction contracts are usually drafted by them, owners tend to ask contractors to be fully responsible for all liabilities relating to losses and even set out rather expensive liquidated damages. In the event that the liquidated damages are unreasonably higher than actual losses (exceeding the actual loss by 30% or above), the court may confer to reduce the liquidated damages based on the actual loss and in consideration of contract performance situation, degree of fault of the defaulting party, expectation loss and other relevant factors.
Multi-party disputes related to construction contracts appear in cases of a consortium on the contractor's side. Each member of a consortium is an independent party to a dispute, but they all appear either as claimants or as respondents. In accordance with the Croatian Civil Obligations Act, if their obligation can be shared, each member of the consortium should be liable for its part, if defined, and if the part of the liability of each member is not defined in the contract, their liability should be shared in equal proportions. In the event the nature of the obligation is such that the obligation cannot be divided between the members of the consortium, their liability towards the employer will be joint and several.
Disputes between several parties are common before the state courts. There is the legal institution of the so called „Streitverkündung“ (third-party notice). According to sec. 72 ZPO, any party believing that it will be able to assert a warranty claim or a claim to indemnification against a third party should the legal dispute’s outcome not be in its favour, or any party concerned that such a claim may be brought against it by a third party, may file third-party notice to that third party with the court until a final and binding judgment has been handed down in the legal dispute. There is no special division of liability in Germany. Liability is divided by discretion of the court according to the level of individual responsibility. Net contribution provisions are not common in Germany. However, contractual clauses to limit the responsibility of consequential damages do occur.
In commercial affairs in general and, particularly, in complicated construction projects, disputes in which multiple parties are engaged are common practice. In this respect, multi-party dispute resolution mechanisms are provided for in litigation (GCPC 74 et seq.), as well as in arbitration (867 et seq. GCPC) and mediation (Art. 171 para. 2 of Law 4512/2018).
Under Greek law, the parties to any commercial contract bear joint and several liability, only if such liability has been contractually stipulated or imposed by a mandatory law provision. Pursuant to Art. 480 of the GCC, unless provided otherwise, the parties are deemed to be severally liable in equal shares. Since such clause is soft law, the parties to a commercial contract are free to internally allocate their liability towards third parties as they deem proper. Significantly, in case of joint and several liability between multiple defendants, the party that fully compensated the claimant, may seek to recover a share of those damages from the other liable parties based on their internal allocation; in absence of such specific agreement, all defendants shall equally contribute to the paying party's loss (487 GCC). However, by way of derogation from the above, according to Art. 926 of the GCC, if two or more parties committed a tortious act, such parties are mandatorily held jointly and severally liable, whereas the court allocates the liability between the multiple offenders, according to each offender's share of fault; where such allocation of fault is not possible, the liability is considered equally shared (927 GCC). In this context, when it comes to contractual liability, net contribution clauses, though not widely used in practice, are recognised in the Greek jurisdiction.
As regards the limitation of a defaulting party's liability, please refer to Question 18 above.
Multi-party dispute are common when works are performed by several contractors and the origin of a defect/damage may not be determined with certainty. This is even more often when each contractor is insured with a different insurance company. Contracts may exclude joint liability, thus triggering a comparable result as “net contribution clauses”.
Multi-party disputes are common in the United States. For example, it is not uncommon for an owner asserting a claim for defective work to sue both the contractor and the designer for the same scope of damages. Likewise, claims can be asserted against multiple parties for delay damages were there are multiple concurrent delay events resulting in the assessment of liquidated damages or delays to substantial and final completion.
While multi-party disputes are common in the United States, the use of net contribution clauses is not. In fact, depending upon the nature of the claim the methodology for apportioning liability will depend upon the state where the dispute proceeds. For example, in the tort arena every state has adopted a different methodology for apportionment of liability. Some states, such as Maryland and Virginia are pure joint and several liability states. That means that plaintiffs prevailing against multiple parties on tort claims can recover the full amount of their damages from any one of the parties. Other states, such as Georgia and Kansas, have adopted pure several liability meaning that each party is responsible to pay for only its portion of the awarded damages. As with most other issues in the United States, the answer as to how liability will be apportioned will be dictated based on the location of the dispute.
In the context of breach of contract actions, most courts hold that a party is responsible for all the damages resulting from its breach. Moreover, most courts reject comparative fault in a breach of contract claim. As a result, a party who breaches its contract will be responsible for all of the damages sustained regardless whether there are multiple concurrent breaches by other parties. Some states have ameliorated this sometimes harsh result by adopting legal standards, such as the substantial factor test, that look for the most culpable party who caused the damages. Such rules are, however, the minority view in the United States.
The Austrian Code of Civil Procedure contains provisions governing multi-party proceedings. Multiple tort feasors will, as a general rule, be liable pro rata in proportion to their share of culpability. Where causality and percentage of fault cannot be ascertained, their liability is per capita. Net contribution clauses are not customary.
When there is a problem in a project resulting in loss, it may be the fault of more than one party. In such a case, multi-party disputes are common in Cyprus jurisdiction and liability is normally apportioned on a fair and reasonable basis.
It is becoming increasingly common for consultants to request limits on liability, such as net contribution clauses, within their professional capacity. This is partly due to the increasing pressure from insurers to do so. Cyprus jurisdiction recognises these clauses.
Multi-party disputes are common in Brazil, especially within the state courts. Multi-party arbitrations, however, tend to be viewed with more parsimony, as it usually depends on a jurisdiction examination regarding the extension of the arbitral clauses.
As per the liability between multiple parties, it tends to vary from a case to another, as the cases have their own particularities. Judges and Arbitrators tend assign liability to the Parties at the proportion of their faults.
According to Brazilian legislation, there is no prohibition in setting out limitation of liability clauses. It is in fact very common to verify this sort of provision in construction contracts. Additionally, the Civil Code states that judges and arbitrators must be equitable in their decisions, especially when part of the main obligations have been fulfilled by the defaulting party.
Multi-party disputes are common in the construction industry given the number of different parties engaged on a project. The Civil Liability Act 1961 provides that where two or more defendants are concurrent wrongdoers, they are fully liable for the damage suffered by the plaintiff. This means that in the event that one of the defendants is unable to meet the judgment against it for its portion of the damages caused, the other defendants, i.e. those that are marks for damages, will be liable for the full amount and not just their own respective portion.
Net contribution clauses are commonly requested by designers in their professional appointments and collateral warranties in order to overcome the provisions of the Civil Liability Act 1961, set out above. The effectiveness of net contribution clauses has not been specifically tested before the Irish courts.
Multi-parties disputes are not very common. However, in the case of government contracts, where there is a joint and several clauses, the liability is applied according to the civil law provisions and decisions of the court.
Many disputes involve multiple parties, given the preponderance of complex contractual frameworks, overlaps in design responsibility and difficulties establishing causation (for example, a defect might be caused by poor design or workmanship).
The English courts have wide case management powers to join parties and consolidate disputes. However, the costs of multi-party litigation can be prohibitive.
Moreover, since the most common method of dispute resolution in the industry is adjudication, most formal disputes are between two parties. This is because of the short time frames involved, which leave little scope for consolidation or joinder. It is possible to have two adjudications, one between the subcontractor and main contractor, and one between employer and main contractor, held at the same time as and before the same adjudicator.
Where two parties are liable for the same damage, they are held to be jointly and severally liable to the claimant, and one claim a contribution from the other under the Civil Liability (Contribution) Act 1978.
Net contribution clauses are sometimes adopted in collateral warranties from consultants, and where used they are upheld by the courts.
The normal proceedure is that when a claim is filed by a community of owners for defects or defects in the building, the developer, the construction company, construction management and construction execution management are jointly sued.
It will be at the trial where the type of constructive defect and its imputation to the guilty building agent should be clarified. If the defect is a project, it will be on the architect who designed the project. If the defect is the execution of the work, it will be on the construction company and the architect, the construction manager or the technical architect.
Regarding the possibility of limiting the responsibility of a building agent, the Law of Building Regulation does not contemplate it.
Multi-party disputes are very common in Turkish construction sector, as the scopes of multiple contractors and subcontractors intersect with each other and as a result, difficult causation issues typically arise. Apportionment of liability between defendants is typically determined through involvement of experts appointed by the courts or arbitration tribunals based on the ratio of negligence. Net contribution clauses essentially aim at limiting liability and therefore would be valid only to the extent defaulting party’s level of negligence is not higher than slight negligence.
Multi-party disputes are uncommon in a construction arbitration context mindful that there is no basis to consolidate arbitral proceedings outside of the parties' express agreement. They are more common in a litigation setting. The courts have confirmed that there is no apportionment of damages in a contractual context. A ‘net contribution clause’ is enforceable and may be used to avoid damages not fairly or reasonably attributable to a defaulting party. These clauses have become common in consultancy agreements on construction projects.
Multi-party disputes are very common, especially in the construction sector considering the number of parties involved.
Liability will be allocated by the Courts between the responsible parties. To do so, the Courts will generally appoint a technical expert, who will give a technical opinion as to the allocation of liability between the parties.
Net contribution clauses are not common under French law.
In some cases, a joint liability can also be applied by the Courts, according to which the innocent party can request an indemnification for its entire damage against one of the defaulting parties, who will thereafter have a claim against the other defaulting to request the reimbursement of their own share of the damage. Such joint liability can be provided for in the contractor agreement if such agreement is granted to two or more contractors.
Multi-party construction disputes are relatively uncommon. When multiple defendants are liable, they are, as main rule, jointly and severally liable to the claimant.
Multi-party disputes are very common in Denmark, as arbitration agreements are part of all of the AB Standards (except for AB-Consumers), and the AB Standards allow for defendants to have their other contracting parties (sub-consultants, sub-contractors and suppliers) joined as parties to the arbitration proceedings.
An employer can also decide to take legal action against more than one party under the same arbitration proceedings, e.g. if it is unclear whether a defect is caused by design work, construction work or both.
If two or more parties are found liable for a loss, they will be jointly and severally liable to the claim holder, unless otherwise agreed. Under ABR 18, the consultant’s liability for losses in some situations is limited to the proportion of the loss that has been caused by the consultant (pro rata liability).
The apportionment of liability between two or more liable parties is for the arbitrators to decide. Arbitration tribunals in Denmark are known for being pragmatic, and the liability will typically be apportioned based on the degree of negligence and other specific circumstances.
- Multi-party disputes are not uncommon in the Korean construction and engineering industry, considering the often complicated relationships involved in construction projects. For example, where a structure is defective, an employer may sue the construction contractor and the architect, who may be found to be jointly and severally liable towards the employer under contract.
- Joint and several judgment debtors may apply to the court for a decision on their contribution ratio. While this will not affect their joint and several liability toward the judgment creditor, a judgment debtor who pays in excess of his or her contribution ratio may claim such excess from the other judgment debtors, up to the amount corresponding to each debtor’s contribution ratio.
- As clauses limiting the liability of a particular party, net contribution clauses would, in principle, be enforceable under Korean law. However, there is no specific legal authority on the validity of net contribution clauses. The authors have not seen the use of net contribution clauses in contracts governed by Korean law.