We all fall down
The NSW Court of Appeal has considered the respective liabilities of various parties arising out of the collapse of a balcony at a house, on the northern beaches of Sydney, at Collaroy.
The house was constructed in 1995. The landlords purchased it in 1999. It had an upper level balcony constructed from Oregon timber. Such timber is well‑known to be unsuitable for unprotected, external construction.
The house was leased to a tenant in 2005. Over the course of the next seven years, the tenant raised issues with the managing agent about the condition of the balcony (rotting timber) and the managing agent discussed those issues with the landlords.
In June 2012 the balcony collapsed and four people, including the tenant, were injured. All brought legal claims.
The Court decided that the landlords were liable. Although they delegated their duty of care to the managing agent, by 2010 at the latest they should have formed the view that the managing agent was not discharging its delegated duties competently. Further, they should have expressly instructed the managing agent to engage an expert to investigate the structural integrity of the balcony.
The Court also found the managing agent was in breach of its obligations under its contract with the landlords by failing to properly investigate, or recommend a proper investigation, of the tenant’s complaints. Interestingly, the agent was found to be liable on the basis that it breached a term implied by law into the management contract that it would exercise reasonable skill and care in the carrying out of its duties. Because it had breached the contract, the Court decided that the agent was liable to indemnify the landlords in respect of their liability to the injured people.
However, because legislation permits a defence of contributory negligence in circumstances where the same duty of care is owed both in contract and under the general law, the Court decided that the amount (the indemnity) payable by the managing agent to the landlords should be reduced by 30% on account of the landlords’ contributory negligence.
The Court went on to decide that the tenant was also liable to the three other injured people because she ought to have prevented access to the deck until its structural integrity had been properly investigated and rectified. She was ordered to make a 20% contribution.
Interestingly, the Court declined to interfere with the decision of the trial judge that there should be no finding of contributory negligence on the part of the tenant in respect of her own claim. The Court decided that it was not inconsistent to find her guilty of negligence in relation to the other three injured people, but not guilty of contributory negligence in relation to her own injuries.
Libra Collaroy Pty Ltd v Bhide
Landlords who receive personal injury claims relating to premises managed by an agent should consider their entitlement to a complete indemnity from the agent if it can be demonstrated that the agent was in breach of an express or implied term of the management contract.
The duty to take reasonable care to avoid causing injury to others attracts a different standard of care to the duty to take reasonable care for one’s own safety.
This article was written by Andrew Lyle, Partner.
Court of Appeal squashes grape finding in favour of Woolworths
Woolworths has successfully appealed a lower court’s finding that its employees were negligent in leaving a single grape on the floor after the store had opened.
At first instance
On 25 November 2012 Ms McQuillan (plaintiff) sustained injuries when she slipped and fell on a grape at Woolworths’ Leichardt store. The plaintiff subsequently commenced proceedings in the District Court of New South Wales against Woolworths, in its capacity as occupier and operator of the supermarket, seeking damages for her injuries.
His Honour Judge Maiden found that the presence of the grape on the floor arose from the activities of Woolworths’ staff in the produce area and that the staff simply ‘overlooked’ the grape ‘in the busy activity’ that occurred prior to the store opening.
The plaintiff succeeded against Woolworths and was awarded the sum of $151,000 plus costs and interest.
Court of Appeal
Woolworths’ appeal to the Court of Appeal was allowed and the plaintiff was ordered to pay Woolworths’ costs.
Woolworths challenged the primary judge’s findings of negligence on the basis of two errors in his Honour’s factual findings; firstly, that the grape was on the floor before the store opened; and secondly that no one from Woolworths was on duty in the produce section of the store between 10 am (store opening) and 10:06 am (when the plaintiff fell).
The majority held that His Honour’s implicit finding of negligence by Woolworths’ staff in the produce area before 10 am could not stand. Furthermore, even if the grape was on the floor before 10 am, the Court of Appeal were not persuaded that there was a causal act of negligence by Woolworths’ staff in failing to observe a single grape on the floor when passing by that area to attend to other duties.
On the other hand, assuming that the grape came onto the floor after 10 am, Justice Gleeson (with whom Justices Basten and Payne agreed) stated that:
‘keeping a proper lookout in accordance with instructions to maintain vigilance for hazards on the floor, such as grapes, does not mean a perfect lookout’.
Ultimately, the Court of Appeal held that the Woolworths’ staff’s failure to observe the grape on the floor did not constitute a causal act of negligence.
Woolworths v McQuillan
|This decision may reflect a fortuitous swing of the pendulum regarding the duty of occupiers to keep a proper lookout for hazards. The Court of Appeal’s decision demonstrates that an element of slight error or oversight will not necessarily vitiate reasonable care.|
This article was written by David Short, Partner.
Polluting a sewer
An insured operated a BP service station (why do we still call self-serve petrol outlets ‘service’ stations?) in Sydney. Petrol leaked from the site into a nearby sewer, and eventually, there was an explosion of petrol vapour.
The insured arranged and paid for works to both rectify the sewer and to prevent further petrol leakage. It then went to its public liability insurer for reimbursement of the $1.2 million which it had spent, but indemnity was refused and litigation ensued.
A NSW Supreme Court judge decided that although the insured had spent the money before it had received a third party demand, its liability for damages had crystallised when the damage occurred.
Further, it made no difference that some leaking had occurred before the insurer came on risk because the relevant damage was caused by the explosion rather than by the leaking itself.
Although the insured had a statutory obligation to repair the sewer damage, it also had a liability for damage caused by its negligence or nuisance. The insured had discharged such liability by rectifying the damage. So the damage fell within the operative clause of the policy and the insured was entitled to indemnity in respect of the amount which it had spent on rectifying the damage.
However, the judge declined to allow the majority of the claim, which was for the cost of preventing further leakage because that was not part of the cost of rectifying the explosion damage.
Finally, the insurer attempted to rely on a policy limitation of ‘pollution liability’, which limited cover to pollution as the direct result of a sudden, specific and identifiable event. The judge found that the petrol leakage was the result of such an event because the major leakage occurred during a couple of months following the failure of a valve.
Amashaw Pty Ltd v Marketform Managing Agency
|Pollution liability claims can be problematic because the contamination often occurs over a prolonged period of undetermined duration. In this case, the task for the judge was made easier by the fact that the claim revolved around damage caused by an explosion of accumulated petrol vapours.|
This article was written by Andrew Lyle, Partner.
The makings of a rogue agent
The Queensland Supreme Court recently distinguished the High Court decision in Butcher v Lachlan Elder Realty Pty Ltd when considering the behaviour of a rogue real estate agent who made misrepresentations in the course of negotiating the purchase of a commercial property.
The case involved the purchase of a shopping centre on the Gold Coast. A property manager kept the financial records for the shopping centre owners. Reports prepared by the manager showed that at the time the property was marketed for sale, it was performing poorly and that its financial position had never been good. The second defendant was the real estate agent who acted for the owners.
The plaintiff made enquiries with the real estate agent, looking to purchase a commercial property with a rental yield of 8% to 10%. The agent informed the plaintiff about the shopping centre and suggested the property would produce the desired yield.
The agent later sent the plaintiff a written ‘information memorandum’ which included information relating to the rent and outgoings per annum previously provided by the owners from reports prepared by the property manager. The memorandum overstated the net rental for the tenancies and underestimated the outgoings. It did not include other information from the property manager’s reports which revealed the extent of the poor performance of the shopping centre.
The agent advised the plaintiff that the net revenue had risen substantially that year due to rent increases and would rise further after further reviews later in the year. The agent explained to the plaintiff that the word ‘net’ in the memorandum meant the rental figure after deducting all costs (except land tax), which in fact was not the case. The agent then calculated the yield for the plaintiff using the incorrect figures to demonstrate that the property was within the 8% to 10% range.
The Court concluded that if the agent had not made the misrepresentations, the plaintiff would not have agreed to purchase the shopping centre. Importantly, the Court concluded that the agent was not simply passing on information from the owners or the property manager to the purchaser. Even though the information regarding rent and outgoings had been provided via the owners and the property manager, the agent had effectively cherry-picked information from those documents to produce the memorandum, which bore the agent’s name on every page.
The agent then sought to rely on a disclaimer in the information memorandum. The Court considered that the location of the disclaimer as an annexure at the end of the document and the wording of the disclaimer distinguished it from the disclaimer in Butcher. In that High Court case, the disclaimer appeared on each page of a two-page leaflet. The Court concluded the disclaimer, in this case, would not alert a reasonable person in the purchaser’s position that the information in the document was simply being passed on from the owners, particularly as the document very prominently stated it was prepared by the agent.
Makings Pty Ltd & Anor v CBRE (C) Pty Ltd & Ors
|This decision demonstrates that if a disclaimer is to be successfully relied upon, attention must be paid to where the disclaimer appears in the document, the wording of the disclaimer, the appearance of the document as a whole, and the effect of representations made beyond the scope of the document containing the disclaimer.|
This article was written by Emma Baker, Senior Associate
Wrongful professional activities
The insured company (Aquagenics) entered into a contract with a municipal council in Tasmania for the design and construction of a wastewater treatment plant. The contract contemplated that once a certain phase of the project had been completed, then the council would provide a ‘seed sludge’ which would enable the insured to complete the project.
The parties fell into a dispute about whether the relevant phase of the project had in fact been completed: the insured demanded that the council provide the seed sludge and the council refused. Eventually, the council stepped in and took over the site.
The insured instituted arbitration against the council and claimed re-entry to the site and damages. The insured lost, and instead damages were awarded to the council for the insured’s failure to complete the project and for rectification of the work which it had completed, but which had design flaws.
Things got worse for the insured when it was placed into liquidation. The liquidator sued the insured’s professional indemnity underwriter after a claim under the insured’s architects and engineers’ policy was declined.
The policy covered liability arising out of any ‘wrongful act’ committed by the insured in the course of its ‘professional activities’. The underwriter’s essential argument was that the policy did not cover what was really just a contractual dispute about an incomplete project.
The Federal Court judge who heard the case decided:
…the subject matter of the claim was the failure to complete pre-commissioning in accordance with the contractual requirements. As it turned out, not only had Aquagenics failed to undertake some of the work forming part of pre-commissioning, there were some major defects in the design work it had done, which would have impacted on Aquagenics’ ability to achieve pre-commissioning. The fact that the Council did not know about the design defects at the time does not mean that the later damages award in respect of the design defects was the result of a new and unrelated claim for compensation not made during the period of insurance. The liability attaching to the company for the defective design work arose from the same set of facts and circumstances entitling the Council to remove the remaining works from the hands of Aquagenics… The damages awarded in respect of the cost of rectification was part of the loss suffered by the Council by reason of Aquagenics’ breach of contract… albeit at the time the Council was unaware of the design defects and those defects only emerged later…
He ordered that the underwriter should indemnify the insured.
Aquagenics Pty Ltd v Certain Underwriters at Lloyd’s
|The decision demonstrates the breadth of the terms ‘wrongful act’ and ‘professional activities’ as typically defined in a professional indemnity policy. What started off as a dispute about the insured’s right to go back on site to complete a project ended up being a liability to pay damages which was covered by the policy.|
This article was written by Andrew Lyle, Partner.
To heave, or not to heave – a dirty business
On 25 December 2011, a storm resulted in an inundation of hail and rain which led to pooling under the concrete slab of Ms Guastalegname’s home. As a result of the pooling, there was a heave of the clay soil causing it to expand and raise the concrete slab, subsequently lifting the walls and roof frame of the building, leading to cracking and other damage to the home.
Ms Guastalegname claimed indemnity under her ‘Home Building Insurance’ policy with AAMI for the cost of repairing the damage to her home. AAMI admitted that the storm was an insured event and had caused the inundation which resulted in the heave and the damage of the home. However, indemnity was denied on the grounds that a general exclusion clause in respect of loss or damage “arising from or involving soil movement or settlement” applied. Therefore, the sole issue for the Court to determine was whether the term ‘heave’ fell within the ordinary meaning of ‘soil movement’, and thus, whether the general exclusion clause had application.
Expert evidence was provided to determine the technical definition of the term ‘heave’, being the upward movement of the earth supporting a building because of the expansion of clay soil. It was determined that the technical definition of ‘heave’ would fall within the literal meaning of ‘soil movement’.
The Court acknowledged that the correct way to interpret an exclusion clause was to construe it by reference to its natural and ordinary meaning, affirming the approach taken in Darlington Futures Ltd v Delco Australia Pty. Justice Hargrave stated that consideration must be given to the context and purpose of the policy and the parties’ knowledge of surrounding circumstances.
Ms Guastalegname contended that ‘heave’ would not fall within the natural and ordinary meaning of ‘soil movement’ as the succeeding words in the exclusion clause – ‘or settlement’ – act to limit the exclusion to physical movement of a mass of soil to a different location, or alternatively, settlement of soil.
Justice Hargrave relied upon numerous principles of contractual interpretation when looking at the context of the policy and general exclusion clause to confer the natural and ordinary meaning of the soil movement clause. In reading the policy as a whole, Justice Hargrave determined that AAMI’s intention to exclude indemnity for damage caused by any kind of soil movement was clear.
Justice Hargrave confirmed that the technical definition of ‘heave’ falls within the natural and ordinary meaning of ‘soil movement’, therefore concluding that the damage caused to the building as a result of the storm and subsequent heave is excluded.
Nunzia Guastalegname v Australian Associated Motor Insurers Ptd (trading as AAMI)
|This decision highlights that when considering exclusion clauses in a contract of insurance, the natural and ordinary meaning of the words and their context are the prime considerations.|
This article was written by Anooshka Niles, Lawyer.
Worker fatigue: liability for the journey home
The accepted position has always been that an employer’s common law duty of care ended after working hours. However, the Supreme Court of Queensland has awarded $1.25 million to Harold Kerle, who was seriously injured after he fell asleep at the wheel of his car on his way home from work. The critical issue was whether the labour hire employer, the host contractor and/or the mine operator owed a duty to manage the plaintiff’s fatigue and if so, whether they did enough to discharge that duty.
The plaintiff was employed at a Central Queensland mine. After completing four consecutive night shifts, the plaintiff commenced a five hour drive to his home. The plaintiff’s vehicle ran off the road during the journey. The plaintiff had no independent recollection of events because of his head injuries, so the cause of the accident was unknown.
The defendants denied liability on the basis that the incident occurred after the plaintiff had left the workplace. They argued that they were not in a position to control the inherent risks from travelling home on the highway and that the worker was ultimately responsible for deciding whether he was fit to drive or needed to rest.
The Court disagreed, finding that each defendant owed a duty to take reasonable steps to protect the plaintiff even after his work had ended:
- the labour hire employer and the host contractor created the risk by setting consecutive 12 hour night shifts which were likely to cause fatigue
- expert studies showed that a fatigued worker’s judgment may be affected in a way similar to alcohol, so that a worker thinks they are fine when they are not
- a long distance commute was inevitable given the remoteness of the mine. The defendants knew that at least half of mine workers (including the plaintiff) travelled more than three hours between their homes and the mine, and
- the only practicable way of minimising the risk of fatigue was by intervention to stop workers driving whilst they were affected by fatigue. The defendants were each in a position to take steps to intervene, such as controlling shift lengths or consecutive shifts, providing a place to rest after the shift and before allowing the worker to go home, reminding workers of the risk of fatigue before driving home, or providing a bus service.
The labour hire employer and the host contractor had direct control over the worker and therefore bore the majority of the blame, sharing 90% liability between them. The mine operator was liable even though it had a comprehensive fatigue management programme because the operator had not ensured the programme was followed by the labour hire employer and host contractor. The mine operator was also criticised for allowing the consecutive nightshifts which caused the fatigue.
The Court did not blame the plaintiff for the accident as the plaintiff was unable to appreciate the extent of his fatigue.
Kerle v BM Alliance Coal Operations Pty Limited & Ors
|The duty of care owed to workers is an onerous one for all involved in their supervision. It can reach beyond the factory gate to the consequences of excessive demands placed upon them during working hours.|
This article was written by Hannah Gassman, Senior Associate.