Things can quickly become complicated when a contract contains provisions that involve third parties. If you are drafting or reviewing a contract, it is worth noting how liability impacts you. To do so, it is important to distinguish between“joint”, “several” and “joint and several” liability.
If your contract contains the words:
Joint: For example, X and Y must pay $200 to Z.
Ultimately, this term means both parties are liable for the entire $200. However, if X pays, the sum of what Y owes is reduced. Thus, both parties are sued together.
Several: For example, X must pay $100 to Z and Y must pay $100 to Z.
In this scenario, each party is liable for their part of the agreement only. If X pays, Y still must pay their part. Therefore, you are only sued for your stake in the agreement.
Joint and Several: For example, X and Y must pay $200 to Z and X promises to pay $200 to Z and Y promises to pay $200 to Z.
Like the first scenario, both parties are liable for the payment. Therefore, if one party pays a contribution to the total amount, the other does not have to pay as much. Typically, parties are sued separately.
Generally, it is easier to sue a single party who is jointly and severally liable. On the other hand, where parties are jointly liable, the Court prefers everyone liable under the contract to be joined as a defendant.
The most useful ‘first-step’ in interpreting your contractual obligation is to check the “interpretation” section. Often, there will be a boilerplate clause addressing liability. If there is still ambiguity or uncertainty with regards to the allocation of liability, you may need to seek legal assistance.
If you would like to discuss anything further with our experts at Freedman & Gopalan Solicitors, call us on 02 8917 8700.