Fairwater Pty Ltd v QBE Insurance (Australia) Ltd - [2012] WASCA 270

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: FAIRWATER PTY LTD -v- QBE INSURANCE (AUSTRALIA) LTD [2012] WASCA 270

CORAM: PULLIN JA
NEWNES JA
MURPHY JA

HEARD: 19 NOVEMBER 2012

DELIVERED : 18 DECEMBER 2012

FILE NO/S: CACV 66 of 2011

BETWEEN: FAIRWATER PTY LTD
Appellant
AND
QBE INSURANCE (AUSTRALIA) LTD
Respondent

ON APPEAL FROM:
Jurisdiction              :  DISTRICT COURT OF WESTERN AUSTRALIA
Coram  :WAGER DCJ
Citation  :BGC RESIDENTIAL PTY LTD -v- FAIRWATER PTY LTD [2011] WADC 76
File No  :CIV 1912 of 2007

Catchwords:

Contract - Breach of contract - Action pursuant to s 601AG Corporations Act 2001 (Cth) - Causation

Legislation:

Corporations Act 2001 (Cth)
Trade Practices Act 1974 (Cth)

Result:

Appeal allowed
Respondent's notice of contention dismissed

Category: B

Representation:

Counsel:

Appellant: Mr D J Pratt
Respondent: Mr H M O'Sullivan

Solicitors:

Appellant: Jackson McDonald
Respondent: SRB Legal

Case(s) referred to in judgment(s):

Almario v Allianz Australia Workers Compensation (NSW) Insurance Ltd [2005] NSWCA 19; (2005) 62 NSWLR 148
BGC Residential Pty Ltd v Fairwater Pty Ltd [2012] WASCA 268

PULLIN JA: This is an appeal against the judgment of Wager DCJ who dismissed an action by the appellant (Fairwater) against the respondent (QBE). The action was an action pursuant to s 601AG of the Corporations Act 2001 (Cth) to recover from QBE an amount payable to a deregistered company, Verdenius Enterprise Pty Ltd (VE), under an insurance contract.
Section 601AG reads:
A person may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if:
(a)the company had a liability to the person; and
(b)the insurance contract covered that liability immediately before deregistration.
Section 601AG creates a new cause of action against an insurer to recover an amount that was payable to the deregistered company under an insurance contract: Almario v Allianz Australia Workers Compensation (NSW) Insurance Ltd [2005] NSWCA 19; (2005) 62 NSWLR 148 [19].
The new cause of action does not arise until the company having the benefit of the insurance is deregistered. Any defences that the insurer may have had at that point to an action on the insurance contract may be pleaded by it in defence to the s 601AG claim and any defence the insured may have had to the claim against the insured may be advanced to show that the insured had no liability to the plaintiff.

The liability of VE to Fairwater

Section 601AG(a), read in relation to this case, meant that Fairwater had to show that VE had a liability to Fairwater. The background to this claim is set out in the reasons for decision in BGC Residential Pty Ltd v Fairwater Pty Ltd [2012] WASCA 268.
In summary, Fairwater entered into an agreement with BGC Residential Pty Ltd (BGC) to supply security services on the site of a display village at the Corondale Estate which was a proposed housing development. The contract between BGC and Fairwater obliged Fairwater to provide static security on site at the builder's display village in the Corondale Estate between 6 pm and 6 am each day. See BGC v Fairwater.
Fairwater was not a security company. It entered into a contract with VE, which was a security company. The agreement between Fairwater and VE differed from the contract between BGC and Fairwater in one respect. It was that static security was to be provided not only at the site of the display village, but also over the rest of the Corondale Estate.
The trial judge referred to the service to be provided by VE and said:
The service offered and ultimately accepted included (amongst other services) a security presence at the display homes and a procedure to be employed in the event of any suspected criminal activity on-site. Both Mr Verdenius and Mr Butchart were clear that part of the security officer's duties was to check on the display homes, despite the display homes having a 24-hour emergency number system and each display home being installed with a flashing blue light referable to another security company.
Consistent with the varying directions in relation to times and type of security required the facsimile dated 31 January 2005 (exhibit 1.56) from Mr Whelpdale confirmed to Mr Verdenius the requirement for static security between 6.00 pm to 6.00 am daily and clarified that VE was to ensure adequate coverage of display homes and also to ensure that reticulation damage and theft was not happening while VE was on-site [167] ‑ [168].
The trial judge recorded a concession made by QBE at trial that it was 'an implied term of the contract that VE performed its duty with due care and skill and that VE also owed a general duty of care in tort to Fairwater to render its services with due care and skill'.
The security guard who actually performed the duties on the relevant day, 17 July 2005, was Mr Butchart. His work constituted performance by VE in relation to the contract between VE and Fairwater and constituted performance by Fairwater in relation to the contract between Fairwater and BGC although it must be added, in view of the decision in BGC v Fairwater, that when he drove around the Corondale Estate away from the display village, Fairwater was not performing its contract for BGC. However, this is not relevant in view of the evidence about the deterrent effect of the security guard on site at either the display village or the Corondale Estate. Mr Butchart spent most of his time located in a motor vehicle in the car park at the display village.
Under the VE/Fairwater contract and the BGC/Fairwater contract, Mr Butchart was supposed to be present on the Corondale Estate or at the display village between 6 pm and 6 am. On 17 July 2005, Mr Butchart went home at about 5.30 am. That meant that Fairwater breached its contract with BGC and that VE breached its contract with Fairwater and breached its general duty of care to Fairwater. The trial judge held:
Given that Mr Butchart left the estate prior to 6.00 am on 17 July 2005 and made no arrangements for another guard to take his place in order to complete the shift VE failed to render its services with due care and skill [171].
That finding is not under challenge in this appeal. The only question which then remained was whether the breach of the implied contractual term or breach of the tort duty caused Fairwater any loss.
In the period between the time when Mr Butchart went home and 6 am, persons unknown set fire to one of the display houses which was owned by BGC. The fire caused BGC a loss of $400,000. BGC claimed that sum from Fairwater in proceedings in the District Court.
The trial judge found that Fairwater had breached its contract with BGC, but found that the breach had not caused the damage suffered by BGC. As a result, only nominal damages of $200 were awarded to BGC. The trial judge then dismissed Fairwater's claim against QBE. No reasons were given about the issue of causation in relation to the Fairwater/VE contract.
BGC appealed against the judgment awarding only nominal damages against Fairwater. The appeal was upheld. This court held that the trial judge erred because the breach of contract by Fairwater did cause BGC its loss and damage. In lieu of the award of nominal damages of $200, BGC was awarded $400,000 by way of damages against Fairwater.
In this appeal, Fairwater seeks to set aside the dismissal of its claim against QBE. The issue to be considered is whether VE's breach of its general law duty and implied term of the contract caused Fairwater to come under liability to pay damages to BGC. Fairwater did not expressly allege in its grounds of appeal that the trial judge erred by failing to deal with the question of whether VE's breach of contractual and general law duty caused Fairwater loss. But it is implicit in ground 3 which alleges that the trial judge erred in dismissing Fairwater's claims against QBE. The issue was expressly raised by QBE in a notice of contention. QBE contended that the breach by VE did not cause Fairwater to come under its liability to BGC.
QBE submitted that because VE had to carry out patrols over the whole of the Corondale Estate and was not obliged, as Fairwater was, to provide security services only in relation to the display village, Fairwater had not proved that had Mr Butchart been present on the Corondale estate at the relevant time he could have 'prevented the fire from occurring'.
QBE submitted that the presence of security in the estate had not diminished the damage occurring to the estate and delinquent behaviour on the estate and that the problems were widespread and ongoing. This submission was made by referring to the trial judge's reasons for decision particularly where the trial judge said:
Mr Butchart's evidence of incidences reported by him when on duty at the estate confirms that he observed at least 11 incidences in respect of motor vehicles that aroused his suspicion but that did not extend to the commission of any offence. Mr Butchart also refers to an incident on 20 May 2005 when the driver of a motor vehicle, once confronted, left the estate but later returned and brought his vehicle to Mr Butchart's attention 'presumably to play again'. Further, on 27 June 2007 the driver of a vehicle that had done burnouts stared Mr Butchart down. Mr Butchart concluded that the driver realised that Mr Butchart was not going to chase the vehicle.
Mr Verdenius notes that on occasion at other estates VE was the victim of crime and not a deterrent. The presence of security at the estate had not been sufficient to deter antisocial or criminal behaviour. While VE was on the estate, offences including the stealing of a spa, the lighting of a fire and the responsibility for doing burnouts had occurred [135] ‑ [136] .
This point was a point ventilated in BGC's appeal. In the BGC v Fairwater reasons [18] the following appears:
After the commencement of the time when security was provided by VE, the only damage to the homes in the builders' display village or the sales office was one instance of graffiti to the sales office and adjacent display home in November 2004: ts 64, exhibit 1.9. The evidence was that this damage probably occurred on Tuesday 9 November 2004. At that time, it happened that there were not static security guards, but merely random patrols at the estate from time to time: exhibit 1.28, exhibit 1.52, exhibit 1.122 and ts 242 ‑ 246. That being so, the display homes in the builders' display village were never damaged in the period when the security guard was on duty driving around or parked near the sales office.
As a result, this court found that on the balance of probabilities Fairwater's breach of contract caused BGC's loss. The finding that the evidence revealed that the builders' display village was never damaged in the period when the security guard was on duty driving around or parked near the sales office supported the conclusion reached by this court in the other proceedings that on the balance of probabilities had Mr Butchart

been in attendance doing what he normally did the arson attack would not have been carried out. That finding applies with equal force in this appeal. If the issue had been considered by the trial judge, the correct conclusion would have been to find that VE's breach of the implied term and the general law duty of care caused Fairwater to come under a liability to BGC.

As a result, the respondent's notice of contention should be dismissed and the appeal upheld.

The insurance contract

QBE acknowledged that if s 601AG(a) could be satisfied, then the insurance contract did cover VE's liability to Fairwater immediately before deregistration and that s 601AG(b) was therefore satisfied.

Other issues

There were some other issues raised by Fairwater about whether the contract between Fairwater and VE contained other implied terms, one being pursuant to s 74 of the Trade Practices Act 1974 (Cth). It is unnecessary to consider whether or not such a term was implied given the admission by VE that it did owe a general law duty of care to Fairwater, given the admission that VE's contract with Fairwater did contain an implied term that the services would be provided with due care and skill, given the lack of any challenge to the conclusion that VE breached the tort duty and the implied term and given the finding that VE's breach of that duty and that implied term caused Fairwater loss.

Result

Fairwater's appeal should be upheld. Fairwater is entitled to judgment against QBE in the sum which corresponds to its liability to BGC.
NEWNES JA: I agree with Pullin JA.
MURPHY JA: I agree with Pullin JA.