Non-delegable duty of care - dangerous activities - whether liability arose out of insured´s business - professional advice exclusion : Transfield Services (Australia) v Hall; Hall v QBE Insurance (Australia) [2008] NSWCA 294

Originally Published 10^th November 2008

Beazley JA; Campbell JA and McClellan CJ at CL

In Brief

• The Court of Appeal was asked to consider whether or not an "extra-hazardous" or "dangerous activity" gives rise to a non-delegable duty of care.

• The Court rejected the notion that there exists a doctrine of "extra-hazardous" activities, and in doing so departed from the High Court's decision in Burnie Port Authority v General Jones Pty Ltd (1994) HCA 13 which expanded the categories of non-delegable duty to impose on a principal a liability for the negligent actions of an independent contractor in respect of extra-hazardous activities.

Background

• In 2002 the plaintiff was employed by the Royal Australian Navy and worked as a facilitator and maintainer at a physical fitness facility at HMAS Stirling in Western Australia. The facility consisted of a course of low and high ropes, on which a participant could carry out various physical activities.

• The course had been installed by Rope Tech Australia Pty Ltd in conjunction with Merrybrook Pty Ltd in 1993.

• On 29 January 2002 the plaintiff carried out an inspection of the course and was preparing to abseil down from it. As the plaintiff placed his weight on the abseiling rope the safety strop from which it was suspended broke and he fell about 10 metres to the ground suffering significant injuries.

• The plaintiff sued the following three defendants:

Supreme Court Decision

• After the plaintiff's injury the strop was inspected and the shrink wrap covering it was removed. It was found that the wire rope underneath the shrink wrap was badly corroded. Uncontested engineering evidence established that the corrosion underneath the shrink wrap was foreseeable in an open-air environment near the sea. The trial judge found that the shrink wrap should have been removed by ATS during the inspection and that the removal of the shrink wrap was easy, replacement of it was inexpensive and the corrosion was such that it would have been readily visible if the shrink wrap had been removed. On this basis ATS was held to be negligent.

• Even though ATS was an independent contractor, the trial judge found that Transfield owed a non-delegable duty of care to the users of the rope courses and was therefore liable for the negligence of ATS.

• The trial judge also found that QBE was not liable to indemnify ATS for its liability. The basis of this finding was that QBE's liability to indemnify arose under the policy only in relation to liability arising out of the insured's business, and the liability of ATS in the present case did not arise out of the insured's business.

• Against the possibility that she was wrong in that conclusion the trial judge also considered three other arguments that QBE put as to why the policy would not respond even if the loss had been one that arose out of the Insured's Business. Those arguments were:

• The trial judge rejected arguments (i) and (ii), but upheld argument (iii).

Court of Appeal Decision

Non-delegable duty

• Transfield appealed against the trial judge's finding that a non-delegable duty of care existed. It submitted that it owed no duty of care at all to the plaintiff, but in the alternative if it did owe a duty of care, that duty of care was not a non-delegable one.

• In Kondis v State Transport Authority [1984] HCA 61 Mason J referred to a non-delegable duty as being one "...of such a nature that its performance cannot be delegated to a contractor on the footing that delegation to a competent contractor is a sufficient compliance with the duty".

• Campbell JA held that a non-delegable duty differs from an ordinary duty of care in negligence, which only places on the defendant a duty to take reasonable care to avoid causing harm of a particular type to the plaintiff. A person subjected to a non-delegable duty cannot perform it by taking reasonable care to select an appropriate independent contractor to carry out the acts that eventually injure the plaintiff, however, it falls short of a duty of strict liability. Campbell JA found before a plaintiff can succeed in a case based on breach of such a non-delegable duty, the plaintiff must establish that someone has been negligent.

Was the activity an "inherently dangerous" one?

• On appeal the question of whether or not Transfield owed a non-delegable duty to the plaintiff was examined by considering whether the law recognised special rules governing liability for "inherently dangerous" activities.

• In Stevens v Brodribb Sawmilling Company Pty Ltd [1986] HCA the High Court was asked to consider whether a person who engaged an independent contractor to perform extra-hazardous operations owes a non-delegable duty of care to someone who it was foreseeable would be injured in the course of those operations. That argument had previously been rejected by Jordan CJ in Torette House v Berkman [1940] HCA 1. However, in Torette House no ratio decidendi had emerged from the High Court's decision. Mason J in Brodribb held while the doctrine of extra-hazardous activities may be treated as an "exception to the general rule that a principal is not liable for the negligence of his independent contractor, it is in truth an instance of strict liability for breach of a duty of care which the principal personally owes to the plaintiff. The principal's liability is therefore primary, rather than vicarious". Brodribb expressly rejected the proposition that a person owes a non-delegable duty to ensure that reasonable care is being undertaken by an independent contractor who is employed to engage in extra-hazardous activities. Campbell JA therefore held that even if the activity to be carried out by ATS was extra hazardous, that alone would not suffice to impose liability on Transfield.

• Campbell JA further held that the only thing that could be arguably said to be extra hazardous, or inherently dangerous, about the activity of inspecting the wire ropes is the fact that the person doing the inspection is working at a height. His Honour held that this was not a situation which could give rise to a "special danger to others".

• Campbell JA was referred to a latter decision of the High Court by counsel for the respondent of Burnie Port. The facts in this case were that the defendant was a building owner who retained an independent contractor to carry out work on the defendant's premises. Those premises contained some highly inflammable material that was ignited when welding activities carried out by the contractor caused sparks or molten metal to ignite the material. The plaintiff was an occupier of adjacent premises whose goods were ruined when the fire spread. The court held that the defendant was in breach of a non-delegable duty of care.

• Campbell JA considered Burnie Port replaced the strict liability for the spread of fire with a liability based on a non-delegable duty of care of the person in control of the premises. Campbell JA did not consider the ratio in Burnie Port applied in the present case as Transfield was not the occupier of any relevant premises nor did any dangerous activity carried out on its premises cause damage to someone outside the premises.
• After reviewing a number of supplementary decisions of the High Court including Northern Sandblasting Pty Limited v Harris (1997) HCA 39, State of New South Wales v Lepore (2003) HCA 4 and Leichhardt Municipal Council v Montgomery (2007) HCA 6 Campbell JA noted there is nothing in these decisions of the High Court providing reason to believe that the law has changed from that stated in Brodribb, to the effect that employing an independent contractor to carry out extra-hazardous activities is not sufficient to impose on the employer a non-delegable duty of care concerning the carrying out of those activities.

• Accordingly, the trial judge's finding that Transfield owed a non-delegable duty of care to the plaintiff was held to be erroneous and set aside.

Was Transfield vicariously liable for ATS?

• The plaintiff by way of Notice of Contention sought to support the trial judge's verdict on the basis that Transfield was vicariously liable for the negligence of ATS.

• The plaintiff argued that the removal of the shrink wrap was a task that was necessarily delegated by Transfield to ATS if the safety strop was to be visually inspected throughout its length. Referring to Jordan CJ in Torette House, the plaintiff submitted that someone who engages an independent contractor can be liable because "the very act or omission which caused the plaintiff's injury was necessarily involved in the performance of the contract with Transfield".

• Campbell JA held even if it were the case that Transfield had directed ATS to usually survey the extremities of the cable, it was the failure to remove the shrink wrap and not carrying out the task that had been directed that was a cause of the damage. As such Campbell JA held that the general test articulated by Jordon CJ in Torrette House for vicarious liability for the acts of an independent contractor is not satisfied in the present case, because the negligence of ATS was in applying the methods selected by the contractor for achieving the results contracted for. Furthermore it was held that even if the shrink wrap had been removed, this would not have caused any damage, but would have more likely prevented the damage that actually arose.

• In these circumstances the finding that Transfield was liable for the injuries of the plaintiff was set aside.

Arising "in and out of the insured's business"

• The other issue that the Court was asked to examine was the liability of QBE. The trial judge held that the liability of ATS to the plaintiff did not arise out of the insured's business, within the meaning of the policy. By cross appeal against QBE, the plaintiff sought to reverse that finding.

• One of the reasons that the trial judge concluded that the liability of ATS to the plaintiff did not arise out of the insured's business was because it was not ATS, but Rope Tech that had installed the course, and the expression "business" did not extend to conducting a maintenance inspection of courses that ATS had not installed.

• Counsel for the plaintiff submitted that the proposal made it clear that ATS was a continuation of the business Rope Tech Australia and that the expression of "business" should be construed as extending to carrying out maintenance inspections of rope courses that had been installed by Rope Tech Australia.

• Counsel for QBE submitted that the "business" for the purpose of the policy should be held to be that which is stated as being the "occupation" in the renewal certificate dated 2 January 2002. On appeal Campbell JA held that it was preferable construction that the term "business" in the policy should be construed as being the same as the occupation identified in the renewal certificate and that business still includes "sale, installation and training of ropes confidence courses".

• It was held that if a person in the course of carrying out a business carries out a certain type of activity that is incidental to that business then those activities ought to be considered as part of carrying on the business as such.

Accordingly, it was held that the fact that carrying out inspection of and reporting on ropes training courses does not in itself fall within the terms "sale, installation and training of ropes confidence courses" is not enough to show that inspection and reporting is not an incident of the business of selling such courses.

Was the rope that failed a "product"?

• The trial judge held that the special indemnity wording of the public liability section of the policy prima facie applied because the rope system was a product as it had been serviced, repaired or handled by Adventure Training. QBE sought to dispute this finding by way of a Notice of Contention. On appeal the trial judge's finding that the ropes course was a product within the meaning of the policy was upheld.

Exclusion clause re "professional advice or service"

• The Court of Appeal was then asked to consider whether the exclusion clause regarding professional advice or service applied. The trial judge concluded that the work in the nature of routine maintenance, such as what ATS were providing in the present case, did not amount to providing professional advice or service.

• By way of a Notice of Contention, QBE sought to dispute that finding. It was noted in construing any exclusion, the language of which permits more than one interpretation, the Court must take into account both the contra proferentem principle (where an ambiguous term will be construed against the interests of the party that imposed its inclusion in the contract) and the principle that it would not give business efficacy to the policy if an exclusion clause applied and defeated the commercial purpose of the policy.

• On appeal it was held that the exclusion was comfortably within the language of the policy and would be interpreted in accordance with the contra proferentem principle.

Exclusion clause re liability clause "by or arising out of advice given for a fee"

• The Court was then asked to consider whether or not the exclusion clause regarding liability caused "by or arising out of advice given for a fee" applied. · The trial judge held that the exclusion clause was operative because she found the report of ATS in December 2001 counted as "advice given for a fee" and that the liability of ATS arose out of that advice.

• Campbell JA agreed with the trial judge's finding that it was only because ATS gave its advice that the course was put back in service, with the consequence that the plaintiff sustained injuries.

• McClellan CJ at CL and Beazley JA disagreed with Campbell JA's finding in respect of this issue and found that the task which ATS was required to carry out could not be described as "advice...given for a fee" as it was doing no more than a general maintenance check in the course of its ordinary business. Insofar as the certification of the course was "safe to use", McClellan CJ at CL held that to the extent the communication by ATS that the course was safe can be characterised as "advice" at all, it was advice so interwoven with and incidental to the insured business of ATS that to exclude it would strike fundamentally at the commercial purpose of the policy: Legal and General Insurance Australia Limited v Eather (1986) 6NSWLR390. Accordingly, it was held by McClellan CJ at CL that the work carried out by ATS at the request of Transfield fell within the normal business of ATS and was not excluded by the terms of its policy of insurance with QBE.

Negligence of Adventure Training

• By Notice of Contention, QBE, sought to dispute the trial judge's factual finding that ATS had breached its duty of care. QBE argued that ATS could not be held to be negligent for a task that it was not required to perform. QBE's challenge to the finding of negligence on the part of ATS failed on the basis the shrink wrap should have been removed by ATS as part of the inspection process which would have revealed the corrosion underneath.

Implications

• Retreating to the position adopted by the High Court in Brodribb and Stoneman v Lyons [1975] HCA 59, his Honour Campbell JA rejected the notion that employing an independent contractor to carry out extra-hazardous activities imposes on the principal a non-delegable duty of care. His Honour's rejection of the doctrine of extra-hazardous activities is at odds with the High Court's later decision in Burnie Port, where the categories of non-delegable duty were expanded to include the performance of a "dangerous" activity. 14 years since Burnie Port, the High Court has grappled with the concept of non-delegable duties, however with the utmost respect to his Honour Campbell JA, it is our view that there still exists a place for the doctrine of extra-hazardous activities in Australian Law.

• The word "advice" in an exclusion clause should be interpreted bearing in mind what was said by the High Court in Darlington Futures Limited v Delco Australia Pty Limited (1986) 161 CLR 500:

• It is difficult for a public liability insurer to deny indemnity under the professional indemnity exclusion where any advice given is merely ancillary or incidental to the normal business activity of the insured. It is equally difficult to assert that the activity falls outside the business description or occupation of the insured and hence outside the cover provided.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.