Calculation of discounts clarified
Regular readers of this newsletter will recall that we have previously examined the NSW Court of Appeal’s decision in this motor vehicle injury matter. Now, the High Court has ruled on two aspects of the case which are of considerable importance to insurers.
o recap, Mr Zhang had been injured in a motor vehicle accident, and had won substantial damages at trial. He however appealed (successfully) to the Court of Appeal against the trial judge's calculation of damages. The trial judge had included out-of-pocket payments made by a third-party insurer, reduced the total amount of damages by 30% for contributory negligence, and then further reduced the total by the amount paid under the Motor Accidents Act 1988 NSW. The Court of Appeal however held that the amount paid under the Act should have been deducted from the total damages before the reduction in the balance by 30% for contributory negligence. This method of calculation gave Mr Zhang considerably more in damages.
The Court of Appeal also ordered that life expectancy was to be recalculated using "projected" or "prospective" life expectancy tables, rather than the "historical" tables that have traditionally been used in calculating damages. The defendant appealed to the High Court against those rulings.
By a 3-2 majority, a five-member bench of the High Court allowed the appeal on the question of the deduction of payments under the Act; but dismissed the argument based on the life expectancy tables.
The majority (Justices Gummow, Callinan and Crennan) found that the effect of Mr Zhang’s submissions on the deduction issue was that the payments under the Motor Accidents Act were "immunised" from the effects of his contributory negligence. This meant that the insurer would have had credit for only 70% of the payments it made under the Act, an apparently unjust result for the insurer and a windfall to Mr Zhang, which would be at odds with the spirit of the Act’s contributory negligence provisions. It would have also led to differential treatment of other advance payments made by persons not caught by the Act.
Accordingly, his arguments were rejected and the trial judge’s approach to the deduction of the payments was restored. This is of considerable importance, not only to payments made under the NSW Motor Accidents Act, but generally to all advance payments made by insurers to claimants who are later found to have contributed to their injuries.
On the life expectancy tables issue, the Court found that to prefer the prospective rather than the historical life expectancy tables was justified by the "best evidence rule". Despite some criticism of that rule, it had not fallen completely into disuse. Accordingly, despite the "traditional" approach, the trial judge had correctly used the prospective as opposed to the historical tables.
For insurers, this finding will invariably mean that calculations of future losses based on life expectancy will increase.
Golden Eagle International Trading Pty Ltd v Zhang [2007] HCA 15
School Bullying Revisisted
In what appears to be a first for Australia, the NSW Supreme Court has found a school liable for a student’s psychological condition caused by bullying from another student.
The plaintiff, Benjamin Cox, was 6 and 7 years old when he was bullied by another child at a public school in NSW. The bullying was reported to staff, who said they would "keep an eye" on him, but the harassment continued until Cox left the school. He received some psychological assessment and treatment at the time. He suffered from anxiety symptoms through his later childhood and teenage years, and was eventually diagnosed with Depression and Anxiety Disorder, Separation Anxiety Disorder, and Post-Traumatic Stress Disorder. These conditions were said to be unlikely to resolve and resulted in him receiving a disability pension.
That the school owed Cox a duty of care was uncontroversial, and the trial judge, Justice Simpson, defined the duty in accordance with the accepted principles enunciated by the High Court in Geyer v Downs as follows:
"The duty of care owed by [the teacher] required only that he take such measures as in all the circumstances were reasonable to prevent physical injury to [the pupil]. This duty not being one to ensure against injury, but to take reasonable care to prevent it, required no more than the taking of reasonable steps to protect the plaintiff against risks of injury which ex-hypothesi [the teacher] should reasonably have foreseen."
Of course, the fact that the case involved one student bullying another presented the school with a "difficult task", as it owed a duty not only to Cox, but also to the other student involved. The crucial factor in Justice Simpson’s opinion however was the fact that "the defendant made no attempt to explain the conduct of the school authorities or to show that they acted reasonably in all of the circumstances". As a result, the school authority’s response to the bullying was found to be inadequate, and the authority was in breach of its duty.
Much of the judgment was concerned with the issue of causation. While there was no doubt that the bullying had caused some "trauma" or "anxiety", the authority argued that Cox would have recovered from it, were it not for his family history and his "over-enmeshed" relationship with his mother. The evidence suggested that Cox’s mother (and indeed, other relatives) suffered from depression; and that she had inadvertently perpetuated Cox’s anxiety symptoms.
Justice Simpson found that while Cox’s relationship with his mother was certainly a factor in his current conditions, the bullying was also a cause of his problems. As the legal test for causation was encapsulated in s.5D of the NSW Civil Liability Act, Cox had to establish that the negligence was "necessary" to the "particular harm" he suffered.
On that point, Justice Simpson found that the "particular harm" was the diagnosed conditions of Separation Anxiety Disorder, Post-Traumatic Stress Disorder, and Depression. As the evidence established that, even during a period of partial respite, Cox nevertheless continued to manifest symptoms of anxiety related to the bullying, the authority’s negligence was a "necessary" condition of that harm. It was not essential, for the purposes of s5D, that Cox prove that the negligence was the sole cause of the "particular harm".
As a result, Cox succeeded in his claim, and damages to be assessed were awarded.
Cox v State of New South Wales [2007] NSWSC 471
Step Carefully
Falls on stairs constitute a significant number of public liability claims every year, and many of them revolve around the issue of whether handrails should have been installed. A recent decision of the NSW Court of Appeal provides some guidance on when handrails might (or might not) be required.
The claim was brought on behalf of Tyler Hume by his mother, Donna. Shortly before the accident, Donna had been visiting a friend at premises the friend was renting from the Department of Housing. When she left, she was carrying Tyler (who was born with Down’s Syndrome). When she was walking down the stairs, which were 4 steps high, her knee suddenly gave way due to a pre-existing condition. She began to "free fall" and Tyler fell onto the ground, sustaining a serious head injury. The stairs had no handrail, but one was installed shortly after the accident.
At first instance, the trial judge held that the Department had been negligent in not installing a handrail, and was liable for Tyler’s injury. The Department appealed.
By a 2-1 majority, the Court of Appeal allowed the appeal and overturned the judgment in favour of Tyler. Although the Department had conceded that it owed Tyler a duty of care, the majority found that it had not breached that duty. The stairs in question were no more than one metre high. There was no statutory requirement for them to have a handrail, and the fact that there was none in place at the time of the accident did not make them dangerous. While the addition of a handrail (which was done after the accident) could have made them safer, that did not mean that they were necessarily unsafe at the time of the accident.
New South Wales Department of Housing v Hume bhnf Donna Hume & Anor [2007] NSWCA 6
Design and duty reconciled
The issue of just when a design is "defective" and when a duty is "professional" has been addressed – to some extent – by the WA Court of Appeal.
Mr Fitzpatrick had his left leg amputated after his foot was trapped in a wood processing machine. Mr Fitzpatrick had operated the machine for four months. His business had bought the machine from V & D Ridolfo. Ridolfo had in turn bought the machine from Jobs Engineering. The machine had been custom-made by Jobs Engineering for Ridolfo and it was manufactured without a cabin. Mr Job instructed Ridolfo’s staff in its safe use; and it was then taken to Western Australia where the cabin was custom made by a local fabricator. Critically however, there was no barrier between the cabin and an opening in the splitter box through which logs were fed.
Mr Fitzpatrick sued both Jobs Engineering and Ridolfo. Jobs Engineering was insured against product liability by GIO which argued that it was not obliged to indemnify Jobs Engineering because any liability it had fell within one of two exclusion clauses in the policy; one relating to claims "arising out of a breach of duty owed in a professional capacity" and the other relating to "defective design".
The argument on the "professional duty" clause was that, in failing to properly explain to Ridolfo how the cabin should be constructed and in particular, the need for a barrier over the splitter box, Jobs Engineering had breached a duty it owed in a professional capacity. The Court held that, while the meaning of "professional" in an exclusion clause to a products liability policy might not be the same as it meant in the indemnity clause of a professional indemnity policy, it could not mean that every breach of duty in connection with the goods other than their actual manufacture was a "professional" breach.
In any event, the Court found that the exclusion clause was confined to breaches of duty owed by Jobs Engineering to persons who have retained it to perform work or services in the course of its business. In this case, that meant that the clause would not apply to the claim by Mr Fitzpatrick, a third party with whom Jobs Engineering had no business relationship.
So far as the "defective design" exclusion was concerned, GIO’s argument foundered on the fact that Jobs Engineering had not constructed the cabin. The cause of the injury was the failure to install a barrier between the cabin and the splitter box. However, Jobs Engineering had been engaged to construct the processing machine without a cabin. The subsequent failure by Ridolfo to ensure a barrier was fitted when the cabin was installed in WA could not be attributed to Jobs Engineering. Accordingly, GIO’s arguments were dismissed.
The final issue in the appeal was whether the costs extension clause applied to oblige GIO to pay the defence costs. The question arose because Jobs Engineering successfully defended the claim by Mr Fitzpatrick. The relevant clause in the policy obliged GIO to pay "legal costs, charges and expenses incurred as a result of your entitlement to indemnity under [the policy] and incurred with our written consent".
GIO argued that since there was no "entitlement to indemnity" because there was no legal liability to Mr Fitzpatrick, there was no obligation to pay the defence costs. The Court however considered that such a construction was not "reasonable and businesslike" and that it should be given a meaning consistent with its apparent purpose, namely to cover defence costs for claims made against Jobs Engineering which, if established, would require GIO to indemnify it.
Fitzpatrick v Job & Anor t/a Jobs Engineering [2007] WASCA 63
