Why do you need to know what ‘joint and several’ liability means?

The law of contract is complex and no matter what agreement is signed, there will be risks to the parties. The issue for the contracting parties is whether they understand the risk in advance, or are caught out later in time. 

Generally, most contract disputes would not occur if the parties prior to signing the contract understood the legal obligations that are imposed once they have signed that agreement. 

In the simplest contractual arrangement there are only two parties. Each party having rights against the other under the agreement. This creating liability if the contract is not performed. 

Contracts become more complicated when there are multiple parties involved. Certain clauses in a contract may involve obligations on a single party, or multiple parties separately or collectively. The law classifies multiple obligations and rights in three ways; purely, joint, purely several, or joint and several. 

An example of a purely joint contract is one that arises where Party A and Party B together undertake to pay Party C $350,000. Both Party A and Party B’s responsibility is to pay the $350,000 jointly or collectively to Party C.

Another example that demonstrates joint obligations is an enduring power of attorney. If there are three appointed attorneys to act for the principal, they must act jointly on all matters and not separately. In other words the three attorneys need to agree as one with the obligations imposed under the enduring power.  

Where a contract has purely several obligations, this will impose obligations on one party only. As example, if there is one contract and the terms are that Party A has to pay Party B $130,000 and Party C is to pay Party B $50,000, and if Party A and Party C do not pay Party B, Party B will have to sue Party A and Party C separately. 

In the example of the enduring power of attorney, if there are three attorneys, and the attorney’s obligations are purely several, this means each attorney acts independent to the other. 

If the contract uses the term joint and several with obligations of the parties, this means as example, if Party A and Party B are required to pay Party C $180,000, and payment is not made, Party C may sue Party A or Party B separately or jointly as one. 

Again in the example of the enduring power of attorney, where the obligations on the three attorneys is both joint and several, the attorney’s may act as a group or independent to each other.

In the court case of Re Brooms [1989], the court explained the difference between joint and several obligations with contracting parties: 

“A joint promise by two or more persons creates a single obligation incumbent upon both and all. A joint and several obligation creates both a joint on all and a number of several obligations respectively incumbent on each of the parties. The several obligations are not cumulative so that performance by one is performance by all.”

Where commercial contracts involve the terms joint and several and a number of parties are signing the contract, careful consideration of the contractual clauses should be given before the agreement is signed. This is because the contract may create significant risk and liability to all parties were one party acts alone under the contractual obligations. 

Using the example of the enduring power of attorney, if one of the three attorney’s relocates the principal under the enduring power to a new aged care facility that costs $150,000 per year without informing the other two attorneys, all three attorneys will be bound by the act of the one attorney. 

Where multiple parties are liable under a contract for damages or performance of an obligation, such as breach of contract, the contractual clauses of joint and several liability is important. This is because the terms joint and several will determine the liability of the parties under the contract, which may mean and innocent party under the contract is jointly liable for the acts of a party who acted separately. However, where such case occurs the courts will consider proportionate liability in respect to where fault lay. 

There are various legal terms used to explain when a party is liable under a joint and several contract, such as joint tortfeasors, joint wrongdoers, several concurrent tortfeasors, several concurrent wrongdoers.

The main point with all contracts are the legal obligations of the parties. Then when there are multiple parties to a joint and several liability contract, careful consideration is required to determine the real risks of each party who is legally obligated by the agreement. 

Contracts may look simple, but make no mistake, risks are present. A prudent party before signing a contract, will get that legal advice to protect their legal rights and interests. 

The comments in the aforementioned do not constitute legal advice and are general in nature, and if legal advice is required please contact: John Melis at Legal AU Pty Ltd (03) 9999 7799 www.legalau.com 

Legal AU Pty Ltd Lawyers are “Liability limited by a Scheme approved under Professional Standards Legislation.”