Australia: " Vicarious Liability Of An Employer For An Intentional Tort By Its Employee - S 3B (1) CLA" : Zorom Enterprises Pty Ltd -V- Zabow & Ors [2007] NSWCA 106

Zorom Enterprises Pty Limited -v- Zabow & Ors
[2007] NSWCA 106

NSW Court of Appeal

McColl, Basten and Campbell JJA

• The exclusion of intentional torts from the operation of the Civil Liability Act 2002 extends to an employer's vicarious liability for the intentional torts of its employees.

• An employer will be vicariously liable for the unauthorised acts of its employees, if they are done for the pursuit of the employer's interest, the intended performance of the contract of employment or in exercise of the authority given to the employee by the employer.

• Exemplary damages are available against a vicariously liable defendant.

• Where a plaintiff's employer would have made superannuation contributions to an accumulation fund, the widely used method of assessing these contributions as an income stream discounted by the appropriate discount rate, is an appropriate means of estimating damages for future loss of superannuation benefits. However, this is not the only acceptable method of making this assessment.

• Although future economic loss may be assessed as a "buffer" when difficult to assess with precision, a judge need not assess future economic loss on this basis where there is an adequate evidentiary basis on which to make a mathematical assessment.

• The plaintiff was one of a group of friends attending a party at a hotel in Clovelly. Two of his friends were evicted by security personnel and the plaintiff joined them outside the hotel. One of the friends, an asthmatic, suffered an asthma attack. He returned to the hotel, seeking a puffer.

• Security personnel disbelieved the friend's asthma claim. The situation deteriorated and one of the security personnel assaulted some of the plaintiff's friends. When the plaintiff asked why the security guard was assaulting his friend, the guard struck him, causing him to strike his head on a pole or the back of a motor vehicle.

• The plaintiff had not been aggressive and the security guard's punch was unexpected and thrown without warning.

• The plaintiff sued the licensee and occupier of the hotel and two employers of the security personnel.

• The matter came on to trial in the District Court before Kelerman DCJ. His Honour found that the employers of the security guards were vicariously liable for the assault on the Plaintiff.

• The trial judge awarded aggravated and exemplary damages against the employers.

• He assessed future economic loss on the basis of the comparable earnings of an individual in similar employment. He assessed future loss of superannuation benefits on the basis of the Plaintiff's loss of compulsory employer contributions, discounted for contingencies and discounted on the 3% table to arrive at the present value.

• One of the employers of the security personnel ("the employer") appealed to the Court of Appeal. It argued that:

• Had the plaintiff's claim been subject to the Civil Liability Act 2002, aggravated and exemplary damages would not have been available: s 21.

• The employer acknowledged that the liability of the security guards themselves (who were not sued) would be excluded from the damages assessment regime of the Civil Liability Act 2002 by S 3B of that Act. It argued, however, that its vicarious liability to the Plaintiff was not excluded by s 3B as that section referred to "civil liability of a person in respect of an intentional act that is done by that person with intent to cause injury . . . ". The employer argued that it itself had not assaulted the Plaintiff, it was the security personnel who had the necessary intention to cause injury.

• Basten JA found that the employer's liability was derivative from, but not in substance different from, that of the security guard's. For this reason, the Civil Liability Act 2002 did not apply to the Plaintiff's claim and aggravated and exemplary damages were available.

• An employer is liable for unauthorised acts if they may be regarded as modes – although improper modes – of exercising authority: Deatons Pty Ltd v Flew (1949) 79 CLR 370; State of New South Wales v Lepore (2003) 212 CLR 511.

• An employer will be vicariously liable for the intentional tort of an employee where the conduct was done in the intended or ostensible pursuit of the employer's interest, or in the intended performance of the contract of employment, or the apparent execution of the authority which the employer held out the employee as having: State of New South Wales v Lepore (2003) 212 CLR 511.

• The security guard's role was to maintain order in the precincts of the hotel. Therefore, they were acting in their employer's interest and performing their duties under their contracts of employment. Therefore, it did not matter that the employer had not authorised the assaults. The assaults were improper modes of performing the employees' duties.

• Basten JA confirmed that exemplary damages are available against the party which is only vicariously liable for the contumelious act giving rise to the entitlement to exemplary damages: NSW v Bryant (2005) 64 NSWLR 281.

• The employer argued that, as it was in liquidation at the time of judgment, no deterrent effect would be served by an award of exemplary damages. However, Basten JA stated that the deterrent effect of exemplary damages went beyond a particular defendant to others who might draw a lesson from the award of exemplary damages: Lamb v Contogno (1987) 165 CLR 1.

• The trial judge assessed the plaintiff's future economic loss by reference to another (uninjured) individual in similar employment.

• The employers argued that, when future economic loss is difficult to determine, it is appropriate to award a "buffer", relying on Penrith City Council v Parks [2004] NSWCA 201.

• Basten JA noted that future economic loss is almost always difficult to determine. However, when there is sufficient evidence to assess future economic loss without resorting to the "buffer" method, the trial judge is to make as precise a calculation as is reasonable in the circumstances. There was therefore no error in the trial judge’s assessment of future economic loss by reference to the comparable employee.

• The trial judge had assessed the future loss of superannuation benefits on the basis of the value of compulsory employer contributions, discounted for contingencies and discounted to reflect present value (that is, by reference to the "discount table").

• The employer argued that there ought to have been a further discount, by reference to the "deferred table multiplier", representing the fact that, uninjured, the plaintiff would have received these moneys as a lump sum at the end of his working life.

• Basten JA stated that, while assessment of future loss of superannuation benefits involves many regulatory factors that might change in the future, there were particular rules of thumb that allowed assessment with approximate accuracy. One of these approaches (but not the sole reasonable approach) was the method employed by the trial judge. To discount the notional contributions because these contributions would have been made as an income stream into the future, and then to discount the resulting lump sum to reflect the plaintiff's notional receipt of the fruit of these contributions as a lump sum in the future, involved an element of double counting on the employer's part. There was therefore no error in the trial judge's approach.

• Campbell JA generally agreed with Basten JA, but made additional comments with respect to the future loss of superannuation issues. He also acknowledged the numerous variables attendant on superannuation that made an accurate assessment impossible. He acknowledged, given the number of uncertain variables, that there may well be numerous reasonable ways in which to attempt to estimate the plaintiff's future loss of superannuation benefits.

• He saw the essence of the trial judge's method of assessment to be to treat the employer contributions the plaintiff would have received as an income stream which the plaintiff was at liberty to invest. While this ignored the taxation benefits and likely rates of earnings on superannuation funds, it was necessary to put to one side these variables. It was therefore appropriate that the trial judge treat the plaintiff's loss of future superannuation benefits as a notional income stream, to be discounted once to present values.

• The Court of Appeal has somewhat strained the language of s 3B of the Civil Liability Act 2002 to allow an award of exemplary damages against a vicariously liable employer. The 2006 amendment to s 3B (applied retrospectively to this case) appears to have contemplated that a vicariously liable defendant ought to have the benefit of the Civil Liability Act 2002, notwithstanding that the primary liability arose from an intentional tort. This is not the interpretation the Court of Appeal has made of this provision.

• When future economic loss is difficult to assess, the "buffer" method should be the last resort, not the first resort.

• Given their role in general deterrence, exemplary damages can be awarded against a defendant, notwithstanding that it would have no deterrent effect on that particular defendant.

• Future loss of superannuation benefits are notoriously difficult to assess. In the case of a contribution fund, the widely used approach of treating the lost employer contributions as an income stream to be discounted to a present value has met with approval from the Court of Appeal.

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