Joint Liability, Several Liability, and Joint and Several Liability: what does it all mean?

Joint Liability, Several Liability, and Joint and Several Liability: what does it all mean?

Introduction

Any number of people or companies or other legal entities can enter into a contract; there is no limit. But where more than one person is responsible for complying with the same obligation (eg an obligation to pay something), it is important to understand how liability is shared between the parties responsible for complying, and what can be done if one party ends up covering another’s default.

Difference between joint, several, and joint and several liability

Joint Liability

Joint liability means that all parties are collectively responsible for a single obligation. For example, if you and a friend decide to start a business together and both sign a loan agreement with a bank for £30,000, the agreement may state that you are jointly liable for repaying the full amount. If the business is unsuccessful, or if monthly repayments are missed, the bank will pursue both of you for the full outstanding sum. If your business partner, however, is unable to pay their share, you will be liable for the shortfall. In practice, this could mean that one party ends up paying the whole £30,000, whilst the other party pays nothing.

Several Liability

However, if the loan agreement states that you and your business partner are each severally liable for a set share of the loan, such as 50% each, then each party is responsible only for their own agreed share.

Applying our example above, you would be responsible for repaying £15,000. If your business partner failed to repay their own £15,000 share, the bank would need to pursue your partner for that amount rather than requiring you to cover the shortfall.

Joint and Several Liability

A contract may instead include a joint and several liability clause. This, as the name suggests, combines parts of both joint liability and several liability. Put simply, the parties agree that they are responsible for the obligation together, but that they are also independently responsible for it. Using the loan example, this allows the bank to choose whether to pursue one party individually or whether to pursue both parties together.

The liability clause included in contracts can have a significant impact if one party fails to meet their obligations.

What happens if the other party does not meet their obligation?

What happens if another party fails to meet their obligation is dependent on the type of liability clause included in the contract.

Again, using our bank loan example above, if there is a several liability clause in place, and one party misses their payment, the bank should pursue the defaulting party for their payment. You would not usually be liable to cover the shortfall, assuming you have made your payment.

However, if the contract included a joint liability clause, and the other party fails to make their payment, the bank will pursue you both together and you are both wholly responsible for payment of the sum.

Joint and several liability is similar. If one party misses a payment, the bank may choose to pursue the person they believe most likely to pay, even if that person has not missed a payment.

Seeking a contribution from the other party

If you do end up paying more than your share, you may have a right to seek recovery from the other party who has failed to pay their share. This is usually a separate claim, which can involve additional time, and uncertainty.

If you have entered into a contract and have had to cover another party’s shortfall, seeking legal advice promptly can help you understand your options and minimise potential risks and liabilities.

If you require assistance in recovering sums paid on another party’s behalf, or wish to discuss contractual obligations and liabilities, please get in touch with the Litigation Team at Hughes Paddison.