Litigation Notes No. 6

Number 6
20 May 2001

Duty
of Care in Providing Advice or Information

The High Court by a 4 to 3 majority affirmed
the trial judge's finding that there was no duty
of care owed in the giving of a particular costs
estimate. The decision reaffirms the law of negligent
misstatement as it has developed over the last 35
years or more, but demonstrates how delicately balanced
the issues can be in applying these principles to
operations of an organ of government. It shows that
the High Court will carefully scrutinise the functions
and practices of a statutory authority giving advice
or information, the nature of the relationship between
the authority and the recipient of the advice or
information, and the extent of other professional
assistance being rendered to the recipient, before
determining whether a duty of care is owed in the
giving of that advice or information. In practical
terms, it highlights the care to be exercised in
the giving of cost estimates, and the need for them
to be accompanied by all relevant qualifications
and disclaimers.

Tepko Pty Ltd and Others
v Water Board

High Court of Australia, 5 April 2001
[2001] HCA 19; (2001) 178 ALR 634

Background

The three
plaintiffs (and appellants to this appeal) were Tepko
Pty Ltd ('Tepko'), another company and Mr Neal, who
was one of three shareholders in Tepko and owner of
the other company. The defendant, the Water Board ('the
Board'), was the continuation of what was at the times
material here, the Metropolitan Water, Sewerage and
Drainage Board under the Metropolitan Water, Sewerage
and Drainage Act 1924 (NSW).

In the early to middle 1980s the plaintiffs were involved in
a proposal to subdivide for residential development
dairy farmland owned either by Tepko or Mr Neal which
was located just beyond the outskirts of Sydney. At
all material times, the plaintiffs, in pursuing the
proposal, had the professional assistance of solicitors
and town planning consultants.

The plaintiffs
encountered repayment difficulties with a bank loan
taken out, among other things, to finance the proposed
subdivision. To help determine whether it would foreclose
on its securities supporting the loan, the lending
bank asked Mr Neal to obtain from the Board an estimate
of the costs of making certain water connections to
the proposed subdivision.

It was the practice of the Board to supply water to rural residential
areas only if the necessary works were funded by the
developer. This was not a statutory obligation. It
was capable of modification by the Board, subject to
the direction of the relevant Minister. The Board was
not required to help developers with information. Further,
it was the Board's policy not to provide such information.
Notwithstanding this, Mr Neal caused the Board to depart
from this policy here. However, in doing this, Mr Neal
did not fully disclose to the Board the perilous financial
situation facing the proposed subdivision, nor, more
particularly, the bank's interest in the estimate,
as lender.

The Board gave Mr Neal an estimate of 'in
the order of $2.5 million' for the cost of making the
necessary connections. (There were no express qualifications
or disclaimers upon the giving of this figure.) On
the strength of this pre-estimate, the bank foreclosed,
because it appeared that the cost was too great for
the plaintiffs to bear. However, only some three weeks
afterwards, the Board revised the estimate down to
$1.7 million.

The plaintiffs claimed that the foreclosure
could have been averted, with them being able to have
proceeded with the subdivision (other approvals for
the subdivision appearing likely to have been forthcoming).
The plaintiffs sought damages from the Board for the
loss which they claimed to have suffered in consequence
of the foreclosure, alleging negligent misstatement
in the giving of the original estimate.

High Court's Decision

In the Supreme Court of New South Wales,
the trial judge found that there was no duty of care
owed by the Board to the plaintiffs. He said that it
was 'wholly reasonable' for the Board to assume that
the professionals advising Mr Neal would realise that
the first figure supplied by the Board was no more
than an 'order of cost estimate' which might come down
after 'detailed investigation and design'. This decision
was affirmed by a 2 to 1 majority in the Court of Appeal.

A further appeal by the plaintiffs to
the High Court, sitting all seven of its members, was
dismissed by a majority of one (McHugh, Kirby and Callinan
JJ dissenting). In a joint judgment, Gleeson CJ, Gummow
and Hayne JJ relied upon Barwick CJ's statement of
principle in Mutual Life & Citizens' Assurance
Co Ltd v Evatt (1968) 122 CLR 556 about the circumstances
in which the law will import a duty of care 'in utterance
by way of information or advice'. Barwick CJ said (at
p. 571) that 'the speaker must realize or the circumstances
be such that he ought to have realized that the recipient
intends to act upon the information or advice in respect
of his property or of himself in connexion with some
matter of business or serious consequence'.

This statement was endorsed by the High
Court subsequently in Shaddock & Associates
Pty Ltd v Parramatta City Council [No.1] (1981)
150 CLR 225 and San Sebastian Pty Ltd v The Minister (1986)
162 CLR 340. Gleeson CJ, Gummow and Hayne JJ said that
this statement 'emphasises the need for caution lest
a duty of care be imposed upon a party who has no appreciation
of, and could not be expected to appreciate, the implications
of making an error'.

Gleeson CJ,
Gummow and Hayne JJ endorsed the finding of the trial
judge on this score that Mr Neal had failed sufficiently
to inform the Board, prior to the giving of the original
estimate, of his relationship with the bank (including
the prospect of foreclosure) such that the Board did
not have an adequate appreciation of the implications
of making an error in the giving of an estimate.

Gleeson CJ, Gummow and Hayne JJ, in
addition, identified five factors which they saw as
militating against the importation of a duty:

  • the Board was entitled to adhere to what it regarded
    as the established principle that a developer should
    fund the provision of water services unless the Board
    was obliged to do work by direction of the relevant
    Minister under the Board's governing legislation
  • the Board was not obliged to give any estimate of
    costing
  • in contrast to the position in Shaddock v Parramatta
    City Council, it was not the practice of the
    Board to answer inquiries to which it was not required
    to respond
  • the Board had a statutory monopoly for the supply
    of water services
  • its governing legislation denied to the Board and
    developers 'a freedom of contract in significant respects'.

Gleeson CJ, Gummow and Hayne JJ referred
also to a second statement of Barwick CJ in MLC
v Evatt. This was that 'the circumstances must
be such that it is reasonable in all the circumstances
for the recipient to seek, or to accept, and to rely
upon the utterance of the speaker' (see also at p.
571). They said [para 49] that the circumstances here:

'were not such as to make it reasonable
for Mr Neal to rely upon the "ball-park" figure to
meet the Bank's demand for a costings estimate. The
identity and relative position of the parties were
such that the relationship between the Board and Mr
Neal was one in which the Board plainly was a reluctant
participant....In that difficult situation Mr Neal,
at all material times, had access to expert advice,
which he utilised. These circumstances and the provisional
nature of the estimate…made it unreasonable to posit
a duty upon the Board in respect of the use Mr Neal
made of the estimate in his dealings with the Bank.'

Gaudron J,
in a separate judgment, agreed. She indicated that
while the Board was in a position of advantage to determine
what work was required to provide water to the proposed
subdivision, it was not 'the sole repository of expertise
on costing'. The plaintiffs had their own experts and
could have relied on those experts' knowledge as to
likely cost, once the extent of the work was known.
In addition, it should have been clear to the plaintiffs
that the estimate was one which was subject to change.
Further, the plaintiffs could not have reasonably relied
on the estimate. She said [para 88]:

'The speculative nature of the venture
and the uncertainty of the political and administrative
processes which the appellants set in train serve to
emphasise the unreasonableness of any reliance they
may have placed on what was said or done by any participant
in those processes.'

The minority viewpoint of the Court
was contained in the joint judgment of Kirby and Callinan
JJ, with which McHugh J agreed. The minority justices
were influenced by the facts that the Board had a superior
capacity to provide reliable advice, the information
in question was of a business nature, and was of serious
concern to the plaintiffs. They disagreed with the
majority justices that precise knowledge of the parlous
financial circumstances of the plaintiffs was necessary
for any duty of care to exist. It was enough that the
Board knew the plaintiffs' anxiety about their financial
position, the importance of the proposed subdivision
and its costs, and the certainty that the plaintiffs
would use the Board's estimate for a business purpose.

They said that '[c]itizens are entitled
to hold expectations of [a public authority such as
the Board] of honesty, accuracy and care in the provision
of estimates of the type offered to the [plaintiffs]
for a serious business purpose.'

Text of the decision is available through
Scaleplus at: http://scaleplus.law.gov.au/html/highcourt/0/2001/0/HC000200.htm

Contacts for further information:

Leanne Bowen
Deputy Government Solicitor

Tel: (02) 6253 7214
Fax: (02) 6253 7302
E-mail: leanne.bowen@ags.gov.au

Paul Sykes
Principal Solicitor

Tel: (02) 6253 7050
Fax: (02) 6253 7302
E-mail: paul.sykes@ags.gov.au

High
Court Constitutional Decisions in Brief

Durham
Holdings Pty Ltd v NSW
15/2/01,
[2001] HCA 7; (2000) 177 ALR 436

The High
Court upheld the validity of the Coal Acquisition
Act 1981 (NSW) which compulsorily acquired the
applicant's coal deposits in NSW without providing
full compensation. The Court affirmed that the States
can enact laws acquiring property without providing 'just
terms' compensation (contrast s.51(xxxi) of the Constitution
which restricts the Commonwealth to acquisitions on 'just
terms').

http://scaleplus.law.gov.au/html/highcourt/0/2001/0/HC000080.htm

Smith
v ANL Ltd
16/11/00, [2000] HCA 58; (2000) 176 ALR 449

The High Court decided that s.54 of
the Seafarers Rehabilitation and Compensation Act
1992 (Cth) is invalid in its application to causes
of action which accrued before the section commenced.
Section 54 abolishes common law actions for injuries
sustained by a seafarer in the course of employment
and substitutes a statutory rehabilitation and compensation
scheme. It is expressed to apply to injuries that occurred
before or after the section commenced but not to an
action instituted before then. Its operation was postponed
for 6 months from its commencement.

The High
Court concluded that s.54 acquired the appellant's
property without providing the 'just terms' compensation
required by s.51(xxxi) of the Constitution. The appellant
was prevented from exercising his common law rights,
and the employer received a corresponding benefit.
The legislation did not provide full compensation for
that acquisition. The Court did not regard its earlier
decision in Georgiadis v Australian and Overseas
Telecommunications Corporation (1994) 179 CLR 297
on the equivalent provision in the Safety, Rehabilitation
and Compensation Act 1988 (s.44) as distinguishable.
The judgment does not cast doubt on the validity of
s.54 in its prospective operation of barring rights
to bring an action for injuries which occurred after
the section commenced.

http://scaleplus.law.gov.au/html/highcourt/0/2000/0/HC000590.htm

Crampton
v The Queen
23/11/00, [2000] HCA 60; (2000) 176 ALR 369

The High
Court decided that in its appellate jurisdiction (conferred
by s.73 of the Constitution) it can determine an appeal
on a point of law which was not raised in the courts
below. However, the Court's power to decide an appeal
on a ground raised for the first time before it should
only be exercised in 'exceptional circumstances' or 'to
cure a substantial and grave injustice'. The ruling
does not cast doubt on the Court's decisions (Eastman
v The Queen (2000) 172 ALR 39, Mickelberg v
The Queen (1989) 167 CLR 259) that it cannot receive
fresh evidence on appeal.

http://scaleplus.law.gov.au/html/highcourt/0/2000/0/HC000610.htm

Residual
Assco Group Ltd v Spalvins
13/6/00,
[2000] HCA 33; (2000) 172 ALR 366

Re
Macks; Ex parte Saint
7/12/00, [2000] HCA 62; (2000) 176 ALR 545

In these cases the High Court has upheld
the validity of the key elements of the Federal
Courts (State Jurisdiction) Act 1999 enacted
by each State. The State Acts are important remedial
laws enacted as a result of the Court's decision in Re
Wakim (1999) 198 CLR 511. Re Wakim invalidated
that part of the Commonwealth/State cross-vesting schemes
which provided for federal courts to exercise jurisdiction
in State matters (see Litigation Notes No. 4,
28 October 1999). This meant that orders made by federal
courts in the exercise of State jurisdiction (including
many orders made under the corporations cross-vesting
scheme) could be challenged as having been made without
jurisdiction.

In Residual
Assco the High Court upheld the validity of that
part of the State Acts which provides for State matters
that have been commenced in but not yet decided by
a federal court to be in effect 'transferred' to
the relevant State Supreme Court, with steps taken
in the federal court treated as having been taken
in the State court.

http://scaleplus.law.gov.au/html/highcourt/0/2000/0/HC000340.htm

In Re
Macks the High Court upheld the validity of the
essential elements of the State Acts in their operation
on State matters that have already been decided by
a federal court. The State Acts seek to 'validate' retrospectively
decisions of federal courts made in the exercise
of State jurisdiction by providing that the rights
and liabilities of the parties are to be the same
as if the decisions had been valid decisions of the
State Supreme Court. The High Court ruled that the
State Acts validly created separate, enforceable
rights and liabilities the content of which was defined
by reference to the ineffective federal court decisions.
There remain some unresolved issues, including the
availability of rights to appeal against or seek
variation of federal court orders made in the exercise
of State jurisdiction.

http://scaleplus.law.gov.au/html/highcourt/0/2000/0/HC000630.htm

Australian
Securities and Investments Commission v Edensor
Nominees Pty Ltd
8/2/01, [2001] HCA 1; (2001) 177 ALR 329

The High
Court upheld the jurisdiction and powers of federal
and State courts in proceedings brought by ASIC to
enforce the State Corporations Laws. The proceedings
involved the exercise of federal jurisdiction, including
because ASIC was a party.

http://scaleplus.law.gov.au/html/highcourt/0/2001/0/HC000020.htm

Cheng
v The Queen
5/10/00, [2000] HCA 53; (2000) 175 ALR 338

This decision upheld the constitutional
validity of a conviction and sentence for an offence
under ss 233B(1)(d) and 235(2) of the Customs Act
1901 concerning importation of narcotics. Section
233B creates the offences and s.235(2) prescribes ranges
of penalties which vary according to factual issues
such as the nature and quantity of narcotics imported.
In Kingswell v R (1985) 159 CLR 264, the High
Court said that the penalty imposed for an offence
under these provisions is to be decided by the trial
judge on the basis of the judge's determination of
the specified factual issues, and that this did not
contravene s.80 of the Constitution (which requires 'trial
by jury' for Commonwealth offences that are tried on
indictment). The Court held that s.80 does not restrict
Parliament's power to define the elements of an offence;
here, the aggravating circumstances relevant to penalty
were not made elements of the offence. As the jury
had determined whether an offence had been committed,
s.80 was satisfied.

However, in Kingswell and a later case of R v Meaton (1986)
160 CLR 359 the High Court also adopted a rule of practice
requiring that the circumstances of aggravation be
alleged in the indictment. In Cheng by a 6–1
majority (Kirby J dissenting) the Court accepted that
the conviction and sentence in that case met the requirements
of s.80. McHugh and Callinan JJ said that Kingswell was
correctly decided. In a joint judgment, Gleeson CJ,
Gummow and Hayne JJ took the view that as the practice
was followed and the applicant pleaded guilty without
putting any aggravating circumstances in dispute, there
was no occasion for a trial by jury and it was not
an appropriate occasion to reopen Kingswell.
Gaudron J disagreed with the majority in Kingswell as
to the meaning and operation of s.80 but held that
ss 233B and 235 were nevertheless valid.

http://scaleplus.law.gov.au/html/highcourt/0/2000/0/HC000540.htm

Contacts for further information:

David Bennett
Deputy Government Solicitor

Tel: (02) 6253 7063
Fax: (02) 6253 7303
E-mail: david.bennett@ags.gov.au

Landlords' Duty
of Care

At issue in this case was whether a landlord
of residential property has a statutory or common
law duty to inspect premises prior to leasing for
latent defects and if necessary to engage experts
for the task. The Court by majority (McHugh J dissenting)
found that they did not.

Jones vs Bartlett

High Court of Australia, 11 November 2000
[2000] HCA 56; (2000) 176 ALR 137

Background

In Northern Sandblasting v Harris (1997)
188 CLR 313 the High Court overruled the common law
position established by the House of Lords in Cavalier
v Pope [1906] AC 428 that a landlord had a limited
immunity from liability in negligence to their tenants.
However the seven judges of that Court failed to reach
a common ratio as to the content of the duty of care
owed by landlords to residential tenants and their
invitees. In Jones v Bartlett the High Court
addressed this issue.

The appellant was injured when he failed
to observe an interior glass door and attempted to
walk through it. The door was within residential premises
leased by his parents from the respondents. The door
had been constructed some time in the 1960s and being
of 4mm thickness, did comply with relevant Australian
Standards for glass at the time it was constructed.

However, by 1992 when the appellant's
parents took out the lease on the premises, relevant
Australian Standards for interior glass doors stipulated
glass thickness of not less than 10mm, unless laminated
or otherwise toughened. This standard, though, only
applied to replacement of glass panels. It was common
ground that prior to the accident the door was in a
state of good repair and there was nothing that would
alert the untrained eye as to the danger posed by the
glass. It was also common ground that it was not the
usual practice for experts to be engaged to inspect.

High Court's Decision

All members of the Court rejected arguments
that liability could be imposed pursuant to implied
contract or breach of the provisions of the Residential
Tenancies Act 1987 (WA) or Occupiers' Liability
Act 1985 (WA) .

Section 42(1) of the Residential
Tenancies Act 1987 requires property owners leasing
premises to, inter alia:

  • provide and maintain premises in a reasonable state
    of repair having regard to their age, character and
    prospective life; and
  • comply with all building, health and safety laws
    in so far as they apply to the premises.

The Court found that there was no dangerous
defect with the door such as to attract a breach of
s.42 of the Act simply because it did not comply with
the present day Australian Standard for glass. That
standard only required safer glass upon replacement.
The door was not in need of repair so there was no
breach of the obligation to maintain a reasonable state
of repair.

The Court also found that a case could
not be brought against the landlord under sections
5 and/or 9 of the Occupiers' Liability Act 1985 (WA)
notwithstanding that the landlord, under the terms
of the lease, retained control of the premises for
the purpose of effecting repairs. All members of the
Court considered that a landlord could not be considered
an 'occupier' once a tenant had taken possession of
the property.

The major thrust of the appellant's
case was that there had been a breach of the common
law duty of care owed to him. The Court, by majority
(McHugh J dissenting) disagreed and dismissed his appeal.

Of the
Court members, the most lenient formulation of the
standard of care required of residential landlords
was that of Gleeson CJ and Gaudron J who were of the
view that, there being nothing to alert or which should
have alerted the landlord as to a latent danger, there
was no duty, in the circumstances of this case, to
replace glass which was not defective simply because
there were newer, safer materials available. The duty
extended only to put and keep premises in safe repair.
In their view it did not extend to making premises
as safe as reasonable care can make them.

The judgments
of Gummow and Hayne JJ and the separate judgment of
Kirby J resisted a call to impose a blanket liability
upon landlords to inspect for latent defects and engage
experts in this regard. Their Honours suggest that
the Courts should be slow to impose a standard of care
upon landlords greater than that presently fixed by
the various state and territory legislatures.

In rejecting
a strict liability approach to the steps required to
identify a dangerous defect, they expressed the view
that the standard of care will vary with the intended
use of the premises but is confined to risks which
a reasonable person in the position of a landlord knew
or ought to have known of. In this case the danger
was not readily detectable, the respondents had no
knowledge of it, and were unaware of the new Australian
Standard for glass and therefore 'ordinary reasonable
human conduct' did not require them to take steps with
a view to ascertaining the existence of the danger.

All members of the Court (save McHugh
J in dissent)expressed the view that there is no requirement
for a landlord of residential premises to routinely
engage experts in fields such as electrical wiring,
gas installation or glass fabrication where a risk
of a defect could only be seen as a possibility.

Text of the decision is available through
Scaleplus at: http://scaleplus.law.gov.au/html/highcourt/0/2000/0/HC000570.htm

Contacts for further information:

Paul Frost
Solicitor

Tel: (03) 9242 1289
Fax: (03) 9242 1149
E-Mail: paul.frost@ags.gov.au

Vicarious
Liability for Negligence

This case revisits the principles of
vicarious liability applying to the use of motor
vehicles and other craft. The High Court refused
to extend vicarious liability to the owner of a light
aircraft for the negligence of the aircraft's pilot
(not the owner's employee) in circumstances where
the owner did no more than give permission for the
aircraft to be used by the pilot to take the plaintiff
on a joy flight. The Court was concerned that a vicarious
liability finding here would approximate too closely
to strict liability.

Scott v Davis

High Court of Australia, 5 October 2000
[2000] HCA 52; (2000) 175 ALR 217

Background

The first plaintiff was at the time
of the accident in 1990 an 11 year old child who had
been accompanying his parents at a social gathering
at the country property of the owner of several light
aircraft which were kept at an airstrip on the property.
During the gathering, the father of the plaintiff and
the father of some other children in attendance inquired
of the owner whether their children could go for a
joy flight in one of the aircraft. The owner agreed
to this, and at his request, the owner's wife arranged
for a pilot who was present at the airstrip to fly
the joy flights. The pilot was not an employee of the
owner, but was a licensed pilot and aircraft enthusiast.
The pilot had been previously permitted by the owner
to fly the aircraft in question after the owner (himself
a licensed pilot) had flown with the pilot and assured
himself that the pilot was capable of flying the aircraft.

During the joy flight in question, in
which the first plaintiff was the pilot's only passenger,
negligence by the pilot in effecting a turn caused
the aircraft to crash killing the pilot and seriously
injuring the first plaintiff. The second and third
plaintiffs were the father and mother of the first
plaintiff. The first plaintiff sued the owner for damages
for personal injury. The second and third plaintiffs
sued him for nervous shock damages, having seen their
son dragged from the crashed aircraft. All claimed
that the owner was vicariously liable for the pilot's
negligence.

High Court's Decision

Argument in the High Court centred on
its decision in Soblusky v Egan (1960) 103 CLR
215. In that case, the High Court held that a person
who was the bailee of a motor vehicle was vicariously
liable for the negligence of a person who he had allowed
to drive the vehicle while he himself remained a passenger
in it, being asleep when the driver's negligence caused
an accident resulting, among other things, in injury
to another passenger.

The plaintiffs in the present case relied
upon this decision in support of their argument that,
even if the pilot was not under the owner's control
at the time of the negligence, he was using the aircraft
at the owner's request and for the owner's purposes.
Therefore, the owner should bear vicarious liability.
Gleeson CJ said of this argument [at para 18]:

'I am unable to accept that there
is a principle of such width. There are several objections
to it. First, ... it has no adequate foundation in
authority. Secondly, it is impossible to reconcile
with the general rule that a person is not vicariously
liable for the negligence of an independent contractor.
An independent contractor may be using an article at
another's request and for the other's purposes, but
the other is not ordinarily responsible for the contractor's
negligence. Thirdly, the criterion of application of
the principle is ill-defined and likely to be capricious
in its operation. There are many circumstances, in
which the owner or bailee of a chattel may request
or permit another person to use or operate it, which
do not yield readily to classification according to
whether a purpose of the owner or bailee is being served.'

Gummow, Hayne
and Callinan JJ, in separate judgments, went further,
each suggesting that the plaintiffs' claim was tantamount
to imposing strict liability upon the owner. Also,
Gummow J endorsed (see para [252]) the comment of the
majority judges in the South Australian Full Court
who had said that, because the flying of aircraft,
in contrast to the driving of motor vehicles, was not
something able to be done by the greater community
with relatively little training, there was not the
same pressing need to extend vicarious liability as
there was in the case of motor vehicles. Hayne J said
(see para [310]) that, as the setting in which cases
like the present would arise were social and not commercial,
there was unlikely to be any insurance cover – in contrast
to the position of motor vehicles – protecting the
person in the position of the owner here against any
vicarious liability.

Gummow, Hayne and Callinan JJ, held
that Soblusky v Egan should be confined to the
vicarious liability of the owner of a motor vehicle.
Gleeson CJ saw the facts in Soblusky v Egan as
simply not assisting the plaintiffs because of several
distinguishing circumstances from the present case.
He said (see para [16]) that, at the time of the negligence
in question, the owner was not in a position to assert
a power of control over the manner in which the pilot
was flying the aircraft. The other majority judges
also agreed with this (see Gummow J, at para [258];
Hayne J, at para [311]; and Callinan J, at paras [357]
and [358]).

McHugh J, on the other hand, in dissent,
was not inhibited by any comparison with strict liability.
He said (see para [120]) that the cases dealing with
vicarious liability in the driving of motor vehicles
(including Soblusky v Egan) did not depart from
the basic principles of vicarious liability in holding
an owner liable where negligent driving has occurred
in the course of performing a task or duty which the
owner has asked the driver to perform as the owner's
representative or delegate. He said (see para [121])
once it was accepted that the owner of a motor vehicle
may be liable for the negligent conduct of a driver
who is not an employee and whose conduct was neither
authorised, instigated nor ratified, that principle
must also apply to boats and aircraft.

Text of the decision is available through
Scaleplus at: http://scaleplus.law.gov.au/html/highcourt/0/2000/0/HC000530.htm

Contacts for further information:

Leanne Bowen
Deputy Government Solicitor

Tel: (02) 6253 7214
Fax (02) 6253 7302
E-Mail: leanne.bowen@ags.gov.au

Paul Sykes
Principal Solicitor

Tel: (02) 6253 7050
Fax (02) 6253 7302
E-Mail: paul.sykes@ags.gov.au

The
Trade Practices Act and the Commonwealth

The Federal Court has decided that the
Commonwealth is not subject to the Trade Practices
Act 1974 in contracting out the running of detention
centres.

Corrections Corporation of Australia Pty Ltd v Commonwealth of Australia

Federal Court of Australia, 14 September 2000
[2000] FCA 1280; (2000) ATPR 41–787

Background

The litigation arose out of a tender
process in 1997 by the Department of Immigration and
Ethnic Affairs ('DIMA') on behalf of the Commonwealth
of Australia to contract out services provided at detention
centres. The services had previously been provided
by the Australian Protective Service ('APS'). The contract
was awarded to Australasian Correctional Services Pty
Ltd. The applicant, Corrections Corporation of Australia
Pty Ltd ('CCA') was an unsuccessful tenderer and challenged
the way in which the tender process was conducted.
It alleged that there was a 'process contract' to follow
the rules of the tender and that this contract was
breached by the Commonwealth. CCA also raised section
52(1) of the Trade Practices Act 1974 ('TPA')
(relating to misleading or deceptive conduct) and alleged
that the Commonwealth was subject to the TPA.

Section 2A of the TPA provides that
the Commonwealth is bound by the Act insofar as the
Commonwealth 'carries on a business'. CCA alleged that
the Commonwealth carried on a business in two ways,
firstly that through DIMA or APS, it carried on the
business of providing immigration detention services.
Secondly, that in calling for a tender, it carried
on the business of conducting a tender.

The Commonwealth moved successfully
to strike out the TPA claim on the ground that it disclosed
no reasonable cause of action.

Federal Court's Decision

The matter was heard before Finkelstein
J. The Judge considered the meaning of the word 'business'.
He considered that it must be understood in the context
in which it is used. The context was the TPA which
relates to the conduct of trading corporations and
financial corporations that compete in markets for
the provision of goods and services. He considered
that it was clear that the carrying on of a business
will bring the Commonwealth within the TPA where the
activities in question are a commercial enterprise
or a 'going concern.' He added that the commercial
enterprise need not be conducted for a profit (because
of the definition of 'business' in section 4(1) of
the TPA).

The Judge held that operating a detention
centre is not a trading or commercial activity. He
found that it is 'no different from a Government maintaining
and operating a prison for convicted felons.'

As to the calling of tenders, the Judge
found that it is difficult to see how the process of
selecting a person to provide services to the Commonwealth
can be seen as relating to a business.

Although not strictly speaking relevant
to the decision, the Judge also made comments regarding
circumstances where Departments provide 'services' to
each other. He noted that the language of business
is often used when this is done and profit and loss
statements and the like produced. However, he added
it would be a mistake to see such work as the production
of services in anything other than a loose sense. The
Judge held that this has in effect been recognised
by section 2C(1)(c)(i) of the TPA which provides that
where there is a transaction involving persons who
are acting for the Crown in the same right, it does
not amount to the carrying on of a business. Different
considerations of course apply where the service is
provided by a statutory authority to a Department.

Implications of the Decision

The Court has provided useful guidance
on the meaning of the word 'business'. The Commonwealth
will be seen to be carrying on a business where it
is involved in a commercial enterprise or a 'going
concern'. In other words, merely providing goods or
services for which a charge is made may not be enough.

Again, the Court has made it clear that
where the Commonwealth is carrying on a purely government
function, it may not be carrying on a business. Many
other examples of this can be found in government procurement
or contracting out programs. It is also relevant that
the Judge has noted that services provided between
core government departments of the Commonwealth does
not amount to the carrying on of a business.

It is important to remember that there
remain many areas where the Commonwealth will be found
by the Courts to be carrying on a business – an obvious
situation arising where the Commonwealth is providing
goods or services to the public for a fee as part of
an enterprise.

Text of the decision is available through
Scaleplus at: http://scaleplus.law.gov.au/html/feddec/0/20003/0/FD003310.htm

Contact for further information:

Stephen Lucas
Senior Government Solicitor

Tel: (03) 9242 1200
Fax: (03) 9242 1483
E-Mail: stephen.lucas@ags.gov.au

Claims
for Contribution and Indemnity under State Legislation

This decision resolves, in the negative,
the question whether a third party notice is maintainable
against the Commonwealth, a Commonwealth authority,
a licensed corporation within the meaning of the Safety,
Rehabilitation and Compensation Act 1988 (Cth)
('SRC Act') or a Commonwealth employee that seeks
indemnity or contribution in respect of injury or
damage suffered by an employee in the course of employment
with the Commonwealth, the authority or licensed
corporation. In the context of determining the exposure
of the Commonwealth, and any of these other classes
of person, to State or Territory tortfeasors contribution
legislation, the decision also contains some important
observations on the operation of ss 64 and 79 of
the Judiciary Act 1903.

Austral Pacific Group Ltd (in liq) v Airservices Australia

High Court of Australia, 3 August 2000
[2000] HCA 39; (2000) 173 ALR 619

Background

An employee of the Civil Aviation Authority,
an authority of the Commonwealth for the purposes of
theSRC Act, suffered injury in 1994 when, in the course
of his employment at Cairns Airport, he slipped from
a step fitted to a fire truck. The employee sued the
appellant, the supplier of the step appliance to the
Authority, for damages in respect of the injury, alleging
negligence in the defective state of the step appliance.
(The liabilities of the Authority were later transferred
to Airservices Australia ('AA')) The appellant issued
a third party notice against AA seeking indemnity or
contribution from it. AA claimed that, because s.44
of the SRC Act precluded any action against it by the
employee, it was not within the meaning of the Queensland
tortfeasors contribution legislation, the Law Reform
Act 1995, a tortfeasor 'who is, or would if sued
have been, liable in respect of the same damage'.

This claim failed at first instance,
but was upheld by the Queensland Court of Appeal (see
(1998) 157 ALR 125). The appellant was granted special
leave to appeal to the High Court. The High Court,
sitting with a bench of five justices, unanimously
dismissed the appeal.

High Court's Decision

In summary, Gleeson CJ, Gummow and Hayne
JJ, in a joint judgment, held that s.44 of the SRC
Act operated to deny from the outset the existence
of a cause of action in respect of an injury suffered
by an employee in the course of his or her employment.
Notwithstanding the limited right to damages in the
circumstances covered by s.45, the effect of s.44 was not merely procedural, but substantive (see Georgiadis v Australian
and Overseas Telecommunications Corporation (1994) 179 CLR 297). This
meant that at no time was AA a tortfeasor who would, if sued by the plaintiff
(ie. the employee), have been liable as a joint tortfeasor in respect of
the same damage as the appellant. Therefore, a third party notice did not
lie against AA. McHugh J and Callinan J, in separate judgments, decided to
like effect.

The position taken by the High Court
(and the Queensland Court of Appeal beneath) was in
line with that which had been taken in similar fact
situations by the New South Wales Court of Appeal in Commonwealth
v Flaviano (1996) 40 NSWLR 199 and the South Australian
Full Court in Coomblas v Gee (1998) 72 SASR
247.

All the judgments observed that State
or Territory tortfeasors contribution legislation was
made a 'surrogate Commonwealth law' by s.79 of the Judiciary
Act 1903 (neither the SRC Act nor any other Commonwealth
Act 'otherwise providing' within the meaning of that
section). Though it was not necessary to determine
here, assuming that AA equated to the Commonwealth
for the purposes of s.64 of the Judiciary Act (as did
the Commonwealth Trading Bank in Maguire v Simpson (1977)
139 CLR 362), s.64 would apply the State or Territory
tortfeasors contribution legislation to make AA liable
to give an indemnity or make contribution where the
requirements of that legislation were satisfied (which
in the present case they were not).

McHugh J made some enlightening observations
on the operation of s.64 of the Judiciary Act (see
paragraph [56] in particular).

Text of the decision is available through
Scaleplus at: http://scaleplus.law.gov.au/html/highcourt/0/2000/0/HC000400.htm

Contact for further information:

Paul Sykes
Principal Solicitor

Tel: (02) 6253 7050
Fax: (02) 6253 7302
E-Mail: paul.sykes@ags.gov.au

ISSN 1329-458X (Print)
ISSN 2204-6542 (Online)

For assistance with supply of copies, change of address
details etc Tel: (02) 6253 7052, Fax: (02) 6253 7313,
E-mail: ags@ags.gov.au.

The material in these notes is provided
for general information only and should not be relied
upon for the purpose of a particular matter. Please
contact AGS before any action or decision is taken
on the basis of any of the material in these notes.

Back to Litigation
Notes Index