Joint And Several Liability In New Zealand Business Contracts

If you've ever signed a contract with a business partner, a co-founder, or a related company, there's a good chance you've seen the words "jointly and severally".

It can look like standard legal wording you can skim past. But in practice, it can be one of the most important lines in the whole agreement - because it affects who can be chased for the money (and how quickly).

In this guide, we'll break down what "jointly and severally" means in New Zealand business contracts, where it shows up, and the practical steps you can take to manage the risk before you sign.

What Does "Jointly And Severally" Mean?

When parties are liable jointly and severally, it means each party can be held responsible for:

• the whole obligation (not just their "share"), and
• the obligation together with the other parties.

In plain terms, it gives the other side (usually the creditor, landlord, customer, or supplier) flexibility to recover the full amount from any one of the parties, or all of them.

A Simple Example

Let's say you and your business partner sign a supply agreement. The agreement says you are "jointly and severally" liable to pay the supplier $50,000.

If the business can't pay, the supplier may be able to:

• demand the whole $50,000 from you alone, or
• demand the whole $50,000 from your business partner alone, or
• pursue both of you for portions (and switch focus if one person can't pay).

That doesn't automatically mean it's "unfair" - it's a common risk allocation tool. But it does mean you should treat the clause as a major commercial decision, not a formality.

Joint Liability Vs Several Liability (And Why "And" Matters)

• Joint liability: parties share the same obligation, and the creditor can generally pursue one or more of them for the whole obligation (but can't recover more than the total owed).
• Several liability: each party has a separate obligation, so they're responsible only for their own obligation/share.
• Jointly and severally: gives the other side the widest enforcement options - they can pursue one party for the entire amount.

That small word "and" is what expands the enforcement options against you.

Where "Jointly And Severally" Shows Up In Small Business Agreements

For small businesses, "jointly and severally" clauses tend to appear when the other party wants more certainty that someone will pay if things go wrong.

Here are some common places you'll see it.

1) Partnerships (Including Informal Ones)

If you operate as a partnership, be careful - you might assume you're only responsible for "your half" of a debt or mistake. In many real-world scenarios, that's not how it plays out.

Partnership liability is a big topic on its own, and it's a common reason people choose to restructure or put tighter agreements in place early. If you're weighing up whether you're in a partnership (or how your obligations work), it's worth reviewing how a Partnership is typically treated in business arrangements and the risks that can come with it.

You'll also want to understand the practical consequences of joint and several liability of partners, especially if one partner is more "hands on" or has control of finances.

2) Leases And Property Arrangements

Commercial landlords often require multiple tenants (or guarantors) to be jointly and severally liable for rent and other obligations. This is particularly common when:

• a new business doesn't yet have strong trading history,
• there are multiple entities involved (e.g. an operating company and a holding company), or
• two directors sign personally as guarantors.

This matters because if your co-tenant disappears or becomes insolvent, the landlord may focus their recovery on the party who is easiest to pursue.

3) Director Guarantees And "Backstopping" Company Debts

A lot of small business owners assume that using a company means their liability is always limited. Companies can provide a layer of separation - but that separation can be reduced (or removed) if you sign a personal guarantee or indemnity.

Documents like a General Security Agreement or a Deed of Guarantee and Indemnity can include wording that makes multiple guarantors jointly and severally liable.

That means if you and another director both guarantee a debt, the lender may choose to recover the full amount from the guarantor with assets - even if you privately agreed you'd each cover 50%.

4) Customer-Facing Contracts And Service Agreements

If you have two businesses collaborating (e.g. a marketing agency plus a web developer delivering a bundled project), the customer might insist both suppliers are jointly and severally liable for delivery and quality issues.

From the customer's perspective, it's simple: they don't want to be stuck in the middle of a supplier dispute while their project stalls.

From your perspective, it means you could be liable for problems caused mainly by the other party unless the contract is carefully drafted (and you have strong back-to-back arrangements between collaborators).

5) Shareholders And Founders Arrangements

In startups, multiple founders sometimes sign undertakings or repayment obligations in connection with investment or business set-up costs. A properly drafted Shareholders Agreement can help clarify who is responsible for what, and what happens if someone exits early or fails to contribute agreed funds.

While "jointly and severally" isn't always the headline issue in founder documents, it often becomes relevant whenever multiple people are on the hook for a single obligation.

Why "Jointly And Severally" Matters (Even If You Trust Your Business Partner)

Most jointly and severally problems don't start with bad intentions. They start with ordinary business realities:

• cashflow gets tight,
• one partner loses interest,
• there's a dispute about who caused the issue,
• someone leaves the country, or
• one party becomes insolvent.

When that happens, the other side will usually pursue the path that is fastest and most commercially sensible for them - and a jointly and severally clause gives them a lot of options.

You Could Pay 100% And Still Need To Chase Your Partner For Their Share

This is the key risk for small business owners: if you end up paying the full amount under joint and several liability, you may need to pursue your co-obligor separately to recover their portion.

That recovery process can be:

• slow (negotiations, mediation, or court processes),
• expensive (legal fees), and
• uncertain (they may not have assets or may be insolvent).

So while joint and several liability might be "fair" on paper, it can be financially brutal in practice if the other party can't pay.

It Can Apply Even If Your Roles Are Different

Sometimes, one party is doing most of the day-to-day work while another is "silent" or passive. A jointly and severally clause can cut across that division.

If you sign as jointly and severally liable, the external party generally doesn't need to care that your business partner was supposed to manage invoices, or that you weren't involved in a particular decision.

It Can Increase Personal Risk For Directors

If you're a director, it's worth remembering that risk isn't only about what the contract says. It's also about how your business is set up and operated.

Some owners are surprised to learn about situations where directors can face personal exposure, particularly when guarantees, misleading conduct, or governance issues come into play. If you're unsure where the line is, it can help to read up on personal liability as a company director and how personal risk can arise in real business scenarios.

How Do You Manage Joint And Several Liability Before You Sign?

The good news is you're not powerless here. In many cases, you can manage joint and several liability with a mix of negotiation, smart structuring, and the right supporting documents.

1) Check Who The Parties Are (And What Capacity You're Signing In)

Start with the basics:

• Are you signing as an individual, a company, or both?
• Are multiple companies in your group signing the same contract?
• Are you signing as a director, a guarantor, or a contractor?

It sounds obvious, but confusion around "who is actually contracting" is a common cause of unpleasant surprises later.

It's also why it helps to understand what makes a contract legally binding - because once it's binding, the signature block and party definitions matter a lot.

2) Limit Liability Where It Makes Commercial Sense

Sometimes a joint and several clause is non-negotiable (especially with landlords and lenders). But where there's room to negotiate, you can look at options like:

• several liability only (each party responsible for their share),
• liability caps (e.g. capped at fees paid in the last X months),
• excluded categories (e.g. no liability for indirect or consequential loss), and
• proportionate responsibility clauses (each party liable to the extent of their contribution to the loss).

These concepts typically sit under the umbrella of a Limitation of Liability approach, and the right structure depends on what you're providing, your margins, and how much risk you can realistically carry.

3) Use Back-To-Back Agreements With Your Collaborators

If you're working with another supplier (for example, you're the "lead contractor" and they're a subcontractor), and the customer insists you're jointly and severally liable, then you should think about whether you have a strong contract downstream.

For example, your subcontractor agreement may need:

• clear scope and deliverables,
• warranties that match what you promised your customer,
• indemnities for losses they cause, and
• timeframes and acceptance criteria (so you can enforce performance).

This is one of the most practical ways to stop joint and several liability from becoming "you carry everyone's risk".

4) Agree Internally How Costs Will Be Shared (And Put It In Writing)

Even if the external contract says you are jointly and severally liable, you can still have an internal agreement that says:

• who is responsible for what portion of the payment,
• what happens if one party has to pay more than their share, and
• how disputes will be resolved (including mediation steps).

This doesn't stop the supplier/landlord from chasing one party for the whole amount, but it can make it much easier to recover contributions later - and it can reduce the chances of a dispute escalating.

5) Don't Rely On "Handshake" Understandings

When money is tight, relationships get tested. If you don't have something written down, you might end up arguing about what was "agreed", rather than focusing on solving the commercial problem.

That's why it's worth having your key documents properly drafted (or at least reviewed) rather than relying on generic templates - especially where personal exposure is on the table.

Common Negotiation Points When The Other Side Wants Joint And Several Liability

If the other party insists on "jointly and severally", it usually means they're prioritising certainty and easy enforcement. The question becomes: what can you ask for in exchange?

1) Ask For A Cap Or Threshold

You might propose that joint and several liability applies only up to a certain amount (or only after a certain event). For example:

• joint and several liability applies only up to the value of the contract fees, or
• it applies only for specific obligations (like payment), not for all liabilities.

2) Narrow The Clause To Specific Obligations

Sometimes contracts make you jointly and severally liable for everything - payment, performance, warranties, indemnities, and even unrelated losses.

You can ask whether it can be limited to:

• payment obligations only (common in leases), or
• specific deliverables you're controlling directly.

3) Remove Joint And Several Liability For Other Parties? Acts

If you're collaborating with another supplier, you may push for wording that says you are not liable for the other supplier's acts/omissions, except to the extent you caused or contributed to the loss.

This is especially relevant where you don't control their staff, systems, or processes.

4) Clarify How Claims Are Made And Managed

If you can't avoid joint and several liability, at least try to ensure the contract sets out practical protections such as:

• notice requirements before a claim is made,
• time limits for claims, and
• rules about who controls the defence/settlement of claims (where multiple parties are involved).

These details can make a big difference to how stressful (and expensive) a dispute becomes.

Key Takeaways

• "Jointly and severally" means each party can be responsible for the entire obligation, not just their share.
• This wording is common in partnerships, leases, guarantees, supplier contracts, and multi-party service arrangements.
• The biggest practical risk is that the other side may pursue the party who can pay the fastest, leaving you to chase your partner later for their contribution.
• You can often manage the risk by negotiating narrower wording, adding liability limits, and putting strong back-to-back contracts in place with collaborators.
• Always double-check who is signing and in what capacity (company vs individual vs guarantor), because that can change your exposure dramatically.
• If you're unsure, getting a contract reviewed before you sign is usually far cheaper than dealing with a dispute after the fact.

If you'd like help reviewing a contract that includes a jointly and severally clause (or you want advice on how to structure the arrangement to protect your business), you can reach us at 0800 002 184 or team@sprintlaw.co.nz to chat.