Australia: Professional Indemnity Insurers Beware - Court of Appeal finds Managing Agent was occupier of Common Property - Laresu Pty Ltd v Clark [2010] NSWCA 180

Judgment date: 4 August 2010

New South Wales Court of Appeal¹

In Brief

• An owner of premises may delegate the performance of its duty of care by engaging a competent contractor such as a managing agent to be responsible for the safety of the premises.
• Depending on the terms of the agreement between the owner and their managing agent, a managing agent of premises may be found to be an occupier of the premises and owe a duty akin to that owed by the owner.
• The Court of Appeal has provided another timely reminder that s 5B of the Civil Liability Act 2002 (CLA) is the first port of call in determining breach of duty of care. Section 5B(1) identifies three preconditions, namely, the foreseeability of the risk, whether the risk was "not insignificant" and precautions that a reasonable person would have taken. These three preconditions must co-exist before there can be a finding that a person was negligent in failing to take precautions against a risk of harm. Section 5B(2) provides a non-exhaustive list of factors the court is required to take into account in deciding whether a reasonable person would have taken precautions against a risk of harm.
• Contractual indemnity clauses are to be construed strictly. In the case of ambiguity the clause must be construed in favour of the party providing the indemnity.

Background

On the night of 7 June 2004, Alan Clark (plaintiff) was injured when he slipped and fell on stairs in an unlit area of a retail and commercial building in Bankstown. The plaintiff was visiting a friend who rented a shop on the ground floor of the building. The plaintiff's friend gave him a key to enable him to use the toilet located in the common area of the property. The plaintiff was walking back from the toilet when he slipped and fell. The light in the area was operated by an automatic switch that had turned the light off some hours earlier. The light was operated by a timer and it was not possible for people using the common property to switch the light on manually after it had been turned off.

The plaintiff brought proceedings against the owner of the premises, Laresu Pty Ltd (owner) alleging that it had breached the duty of care owed by it as occupier of the common property. The plaintiff also brought proceedings against Mark Newey Pty Ltd, Larrill Pty Ltd and Carl Zaubzer Pty Ltd which traded under the name W T Newey & Co (Managing Agent). The plaintiff alleged the Managing Agent owed a duty of care to him by reason of its role in managing the premises.

The Managing Agent had managed the premises since the building opened in 1980. In that year, the owner gave instructions to the Managing Agent for the automatic light switch in the toilet area to be set so that the lights were only on between 8.00am and 6.30pm. It was alleged that following the plaintiff's accident, a representative of the owner instructed the Managing Agent to change the setting of the automatic light switch so that the lights would be on 24 hours each day. The owner denied providing this instruction, however irrespective of whether or not such an instruction was given, the change was made.

The Managing Agent kept a complaints book which did not record any complaint about the lighting in the relevant area.

On 24 July 1996, the owner entered into a written agreement with the Managing Agent (Management Agency Agreement). The Management Agency Agreement provided that the owner appointed the Managing Agent to "manage all or any of the premises in accordance with this agreement".

The other relevant clauses in the agreement provided as follows:

Clause 17 outlined various services including attendance as a witness in court, negotiation of rent variation and arranging/supervising repairs.

District Court Decision

Christie ADCJ found that the owner was negligent in having in place a lighting system which did not provide for any lighting after 6.30pm and which also denied a potential user of the toilet area an opportunity to correct this by being able to manually operate the light after the timer had gone off.

His Honour did not find any liability on the part of the Managing Agent and did not agree that the owner had delegated control of the premises to the Managing Agent. The Managing Agent submitted that it was only appointed to carry out specific tasks and that it did not owe a duty of care to the plaintiff as an occupier because it was not in a relationship with the plaintiff. It submitted that its duties did not extend beyond its obligations under the Management Agency Agreement and that it was the owner's responsibility to take reasonable care to keep the premises safe.

Judgment in favour of the plaintiff was entered against the owner. The trial judge assessed the damages to which the plaintiff was entitled from the owner at $160,000. On appeal it was agreed that there was an error in the trial judge's calculations and that the amount of any damages to which the plaintiff was entitled to ought to have been $120,064.12.

No finding was made by the trial judge in respect of contributory negligence on the basis that although this was pleaded on behalf of the defendants, it was not raised in submissions before the trial judge.

Court of Appeal

The owner appealed contending, inter alia, that it had delegated responsibility for the performance of its duties as occupier to the Managing Agent.

Macfarlan JA delivered the unanimous judgment (Tobias JA and Handley AJA agreeing).

His Honour held that the owner owed the plaintiff a duty to take reasonable care to avoid a foreseeable risk of injury: Australian Safeway Stores Pty Ltd v Zaluzna².

Macfarlan JA noted that in determining negligence the inquiry must begin by reference to s 5B(1) of the CLA which contains three preconditions that must be satisfied before there can be a finding of negligence: Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Ltd³. It is noteworthy that the trial judge did not make any reference to the CLA in his judgment, nor was there any reference to its provisions by parties in their submissions before the trial judge.

Macfarlan JA warned that it is important that a trial judge refers to the provisions of the CLA "to ensure that he or she adheres to it in his or her reasoning and that such adherence is apparent to an appellate court". However, his Honour did not consider that the absence to any reference to the CLA was sufficient on its own to establish that the decision was erroneous.

His Honour found that as the three preconditions set out in s 5B(1) of the CLA were satisfied and the almost identical requirements identified in Wyong Shire Council v Shirt⁴ were similarly satisfied, the plaintiff had established a breach of duty of care on the part of the owner.

His Honour then went on to consider whether the owner delegated the performance of its duty to the Managing Agent. On appeal there was no dispute that it was open to the owner to perform its duty of care by engaging a competent contractor to fulfil its duty: Jones v Bartlett⁵. The only issue was whether such a delegation had in fact occurred.

Macfarlan JA found that the owner had delegated its duty to the Managing Agent by reason of clause 2 of the Management Agency Agreement which provided that the owner appointed the Managing Agent to manage the premises in accordance with the said agreement.

In finding that the owner had delegated its duty to the Managing Agent, his Honour held that the onus of establishing that the delegation occurred rested with the owner. His Honour found that the owner discharged this onus by tendering the Management Agency Agreement and through the evidence that the Managing Agent had considerable experience in managing properties.

His Honour qualified the owner's delegation of the duty to the Managing Agent subject to the express instruction which the owner gave to the Managing Agent in 1980 in relation to how the automatic light switch was to be set. His Honour found that even though the owner had delegated the management of the premises to the managing agent, the setting of the light which was in place at the time of the plaintiff's accident was because of the owner's instruction and that therefore the owner itself had some responsibility. Accordingly his Honour found that the general delegation to the Managing Agent to take reasonable care to keep the premises safe was qualified by the owner's express instruction some 24 years earlier.

His Honour further held that the scope of the appointment was emphasised by clause 16 which referred "all ongoing usual property management services in respect of the premises" to the Managing Agent.

His Honour was of the view that the concept of "management" of the premises extended to recommending that the owner take reasonable steps to have the premises fit for the purpose for which they were used. His Honour held they would not be fit for that use if they were not safe for the use. The setting of the automatic light switch in an appropriate way fell within the concept of "maintenance" because it would have made an aspect of the common property "good and sound" by improving the safety of the premises, without altering its purpose.

His Honour found that the Managing Agent owed the plaintiff a similar duty to that which was owed by the owner. In this regard his Honour held that the Managing Agent had a sufficient degree of control over the premises to warrant its classification as an occupier. In order to discharge its duty the Managing Agent should have made appropriate recommendations to the owner concerning steps that should have been taken by the owner in connection with the safety of the premises. This obligation extended to taking reasonable steps to provide, or recommend the provision of, adequate lighting in the area in which the plaintiff fell and in and about other parts of the premises. His Honour found that no relevant recommendations were made in this case.

His Honour held that a reasonable person in the Managing Agent's position would have been entitled to regard the 1980 instruction as one which was appropriate but by the time of the plaintiff's accident the instruction had become a very old one. Although there were no reports of any accidents occurring, it was held that the Managing Agent should have recognised that there was a significant risk of someone suffering serious injuries by falling on the stairs after 6.30pm. It was held that the Managing Agent should have responded to that risk by recommending to the owner that the light be kept on until much later in the evening or be kept on for 24 hours per day.

In light of the simple change that was made to the timer after the plaintiff's accident, it was more probable than not that had the potentially dangerous situation been brought to the attention of the owner before the accident, the change to the automatic switch could have been made and the plaintiff's accident would have been avoided. Liability between the owner and the managing agent was apportioned at 60% in respect of the managing agent and 40% in respect of the owner.

The Managing Agent relied on clause 15 of the Management Agency Agreement to argue that it was entitled to a complete indemnity from the owner in respect of any liability it might have to the plaintiff. Macfarlan JA held that the clause was not applicable because the Managing Agent's breach of duty constituted a failure to perform, not a performance of, its duties under the Management Agency Agreement.

The Owner and Managing Agent also contended that there should have been a finding of contributory negligence, however on appeal it was held that the finding of the trial judge should not be disturbed on the basis that the issue of contributory negligence was not raised in submissions before the trial judge.

Implications

This decision will have significant ramifications on property managers and their professional indemnity insurers by virtue of the finding that a property manager can, depending on the terms of its engagement, be found to be the occupier of the premises which it manages.

An owner of premises can delegate its responsibility (duty of care) for the state of the premises to their managing agent in the same way a principal can delegate its duty of care to a competent contractor.

Depending on the terms of the agreement with an owner, a managing agent owes a duty to take reasonable care to ensure that premises it manages are safe for use. This duty may include recommending that the owner take reasonable steps to have the premises fit for the purpose for which they are used.

Although there was no finding of contributory negligence on the part of the plaintiff, the facts of this case can be contrasted to the Court of Appeal's decision in Stojan v Kenway (No 9) Pty Ltd⁶ wherein the Court made a finding of 50% contributory negligence in circumstances where the plaintiff fell whilst ascending stairs in the dark without retaining a hold of the handrail.

1. Tobias JA, Macfarlan JA and Handley AJA

2. [1987] HCA 7

3. [2009] NSWCA 263

4. [1980] HCA 12

5. [2000] HCA 56

6. [2009] NSWCA 364

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