Case Notes: Some Significant Decisions of the High Court of Australia

BROOKFIELD MULTIPLEX LTD v OWNERS CORPORATION STRATA PLAN 61288 & ANOR  [2014] HCA 36

On 8 October 2014, in allowing an appeal from the NSW Court of Appeal, the High Court held that the builder of a strata-titled apartment complex, did not owe a duty of care to the Owners Corporation to avoid pure economic loss arising from latent defects in the common property. The Owners Corporation came into existence upon registration of the strata plan.  It was not, of course, a party to the building contract.  The Owners Corporation had vested in it the common property and it was designated as agent for the separate owners of the apartments, which were to be used as serviced apartments.

The contract between the builder and the developer contained detailed provisions as to the quality of work to be performed and compelled the builder to remedy defects or omissions in the work in the defects liability period.  The contract of sale between the developer and the separate purchasers of the serviced apartments, annexed to the design and construct contract, gave to each purchaser express contractual rights in relation to defects in the property, including the common property.

The Owners Corporation sued the builder for damages which included the cost of repairing latent defects in the common property, alleging liability in negligence for breach of duty to take reasonable care to avoid economic loss to the Owners Corporation, being the cost of making good the consequences of latent defects caused by defective design and/or construction by the builder.  At first instance it was held that the builder did not owe the duty alleged.  The Court of Appeal held that the builder did owe a duty of care, limited to a duty in relation to defects which were structural or dangerous or which tendered the apartments uninhabitable.

French CJ considered that the nature and content of the contractual relationship (including liability provisions dealing with and limiting liability for defects), the sophistication of the parties and the relationship of the developer to the Owners Corporation all militated against the existence of a duty of care by the builder to either the developer or the Owners Corporation.

The Chief Justice was able to distinguish Bryan v Maloney principally on the question of vulnerability.

Hayne and Kiefel JJ in their joint judgment, whilst observing that it was not necessary or desirable to try to define what constitutes vulnerability for this purpose, found that the making of the detailed contracts dealing with the question of defects demonstrated that the Owners Corporation could protect itself and meant that it was not vulnerable in the relevant sense.

Crennan, Bell and Keane JJ noted that the question of the property being commercial rather than residential was not asserted by the parties to be a proper basis to distinguish Bryan v Maloney.  That distinction found no favour with any of the members of the court.  Rather, their Honours identified the material distinctions as lying in the detailed prescriptions in the contracts in the present case.

Gagler J, in a separate judgment, was of the view that the authority of Bryan v Maloney should be confined to dwelling houses where the subsequent owner is shown by evidence to come within a class of persons incapable of protecting themselves against a builder’s want of care.  Outside of that category of case, his Honour thought that it should now be acknowledged that a builder had no tortious duty to a subsequent owner in regard of the cost of repairing latent defects.

MAXWELL v HIGHWAY HAULIERS PTY LTD [2014] HCA 33

The High Court has recently clarified the application of section 54 of the Insurance Contracts Act 1984. On 10 September 2014 it handed down its decision on appeals from the WA Court of Appeal.

The respondent had vehicles that were involved in two separate accidents. In both cases, the drivers had not undertaken a PAQS test or an equivalent. The insurers denied liability for the claims, asserting that they fell outside the policy coverage.

The policy provided:

No indemnity is provided under this policy of Insurance when Your Vehicle/s are being operated by drivers of B Doubles … unless the driver:

• Is at least 28 years of age and has a minimum of 3 years proven continuous recent experience in B Double[s] … and,
• Has a PAQS driver profile score of at least 36, or an equivalent program approved by Us and,
• Does not have diabetes … and,
• Has been approved in writing by Us to drive Your Vehicle.

Section 54 of the Insurance Contracts Act 1984 relevantly provides:

1. Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer’s liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act.”
2. Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.

Concessions made by the insurers at trial meant that subsection (2) had no application. The insurers also conceded that they had not suffered prejudice by reason of the drivers having been untested in the relevant sense. Thus, if section 54(1) applied, the insurers were not entitled to refuse to pay the claims by reason of the drivers being untested.

The insurers argued that section 54(1) was not engaged because the claim was outside the cover provided by the policy. The policy did not provide cover where drivers were untested. In doing so, the insurers relied upon the reasoning of the Queensland Court of Appeal in Johnson v Triple C Furniture & Electrical Pty Ltd.

In that case, there was an occurrence based policy under which the insured was indemnified for amounts for which it became liable in respect of accidental injuries to passengers whilst on board an aircraft subject to a temporal exclusion that:

this policy does NOT apply whilst the aircraft … is operated in breach of [air safety regulations].

The Court of Appeal had held that s 54(1) was not engaged in circumstances where the insurer, relying on the temporal exclusion, refused to pay a claim in fact made by the insured by reason of the operation of the aircraft in breach of air safety regulations.

The High Court held that to that extent the Court of Appeal erred, in that the operation of the aircraft in breach of air safety regulations was an “act” which occurred after the contract was entered into, within the meaning of section 54(1).1 

The High Court emphasised that the drafting of the policy to seek to exclude cover where there are certain acts or omissions occurring after the policy was entered into will not escape the operation of section 54(1):

The Insured having made claims seeking indemnity under the Policy in relation to accidents which occurred during the Period of Insurance, it is sufficient to engage s.54(1) that the effect of the Policy is that the Insurers may refuse to pay those claims by reason only of acts which occurred after the contract was entered into. Precisely how the Policy produced that effect is not to the point…

COMMONWEALTH BANK OF AUSTRALIA v BARKER [2014] HCA 32

The High Court has held, in a decision handed down on 10 September 2014, that a term of mutual trust and confidence should not be implied by law in employment contracts in Australia.

In Malik,2 the House of Lords had recognized that there was implied a term to the effect that an employer will not, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.

The facts were unusual. The respondent had been made redundant from his position with the bank. He was told 2 March 2009 that this was to take effect some 4 weeks later. He was require to vacate the premises immediately. Access to his bank email address was cut off. On 20 March 2009, a human resources manager sent an email to the respondent’s bank email address urging him to take steps to participate in the bank’s redeployment program, but that if he did not, his effective termination date would be 30 March 2009. Because access to his bank email address had been cut off, he did not see it until 23 March 2009. On 26 March 2009 he received an email from another bank officer advising him of another position. On 7 April 2009, the bank extended the termination date to 9 April 2009 to allow the respondent to participate in the redeployment process. On 9 April 2009, his employment was terminated.

The respondent succeeded at first instance in the Federal Court in establishing that the bank had breached a term of mutual trust and confidence implied into the contract of employment. That was upheld by the majority in a Full Court of the Federal Court.

Out the outset, the plurality judgment of French CJ, Bell and Keane JJ, sounded a cautionary note about the use of UK jurisprudence in relation to employment contracts:

The regulatory history of the employment relationship and of industrial relations generally in Australia differs from that of the United Kingdom. Levels of statutory protection for employees and employers have ebbed and flowed. The statutory framework from time to time is not uniform across Australia because it comprises not only Commonwealth laws but also diverse State and Territory laws. Judicial decisions about employment contracts in other common law jurisdictions, including the United Kingdom, attract the cautionary observation that Australian judges must “subject [foreign rules] to inspection at the border to determine their adaptability to native soil”. That is not an injunction to legal protectionism. It is simply a statement about the sensible use of comparative law.

[footnotes omitted]

Similar caution had been expressed in Byrne v Australian Airlines:3 

The appellants sought support for their submissions as to Australian law from developments in labour law in the United Kingdom. But these reflect the particular industrial relations system of that country. It hardly needs to be stated that social conditions, the history of labour relations, and the relevant legislative schemes differ significantly.

The plurality noted that there had been approving references in decisions of courts in Australia to an implied term of mutual trust and confidence.4 Their Honours also noted the discussion of the implied term in South Australia v McDonald5 and “passing reference” in two High Court cases.6  

Some of the leading texts in the area had also assumed or accepted the existence of an implied term in Australia.7 

The plurality judgment and the separate judgment of Kiefel J emphasized that the requirement of necessity before a term is held to be implied by law was well established and fundamental. Their Honours held that the implied term contended for went beyond what was necessary for the purpose of implication.

Their Honours also expressly left open the question of whether there ought be implied into contracts generally an obligation of good faith.

Finally, the plurality and Gageler J each noted that the question of whether such a term should be implied into employment contracts was one for the legislature rather than the courts.

Adrian Duffy 14 October 2014

Footnotes

1. It should be noted that special leave to appeal against the Court of Appeal’s decision in Triple C was refused on the grounds that there were insufficient prospects of success: [2011] HCATrans 125. However, it appears that the refusal was based upon the difficulty faced by the applicant there as to the application of s.54(2), rather than her prospects on her s.54(1) argument
2. Malik v Bank of Credit & Commerce International SA (in liq) [1998] AC 20
3. (1995) 185 CLR 410, 437 per McHugh and Gummow JJ
4. citing as examples Burazin v Blacktown City Guardian Pty Ltd (1996) 142 ALR 144; Perkins v Grace Worldwide (Aust) Pty Ltd (1997) 72 IR 186; Irving v Kleinman [2005] NSWCA 116; Delooze v Healey [2007] WASCA 157; Shaw v New South Wales (2012) 219 IR 87
5. (2009) 104 SASR 344
6. Concut Pty Ltd v Worrell (2000) 75 ALJR 312 at 322 [51] per Kirby J; 176 ALR 693 at 706; Koehler v Cerebos (Australia) Ltd (2005) 222 CLR 44 at 55 [24] per McHugh, Gummow, Hayne and Heydon JJ
7. Neil, I and Chin, D, The Modern Contract of Employment (2012), para [7.50]; Irving, M, The Contract of Employment (2012), para 8.13; cf Creighton, B and Stewart, A, Labour Law, 5th ed. (2010), para [14.43]