Contractual Risk: Filling the Gap

Australia exists as one of the most regulated economies in the world. As new technology and access to information sweeps through our lives, society’s expectations of what businesses should deliver is constantly rising. That expectation shift means increased risk for businesses, as our society becomes increasingly litigious.

In all skilled trades and professions this increasingly complex world demands that businesses must get specifically skilled teams to do specific jobs. Industry has long dealt with meeting specialist needs by “subcontracting”.

What many often overlook is the risk posed to them by “proportionate liability” and by the further subcontracting of modern day responsibilities to multiple subcontractors down the line. Having multiple contributors to an outcome can leave a gap between the contractual commitment which a “head contractor” makes with its client and the capacity of the head contractor to recover compensation from its subcontractors.

Where multiple subcontractors have failed to take reasonable care or have breached the Australian Consumer Law causing economic loss or damage to the client then each “concurrent wrongdoer” who contributed to that loss will only be found liable for the proportion of the loss that they caused. Therefore, if the head contractor is going to be able to recover 100% of the loss inflicted on the client, then every party who contributed to the loss must be identified and pursued for their share.

First published in B2B Magazine.

By Mark Love, Legal Director, Business Law.