Pham v Parissis Pty Ltd (t/as Bells Real Estate)
[2012] VCC 895
•5 July 2012
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted |
AT MELBOURNE
CIVIL DIVISION
DAMAGES AND COMPENSATION
GENERAL DIVISION
Case No. CI-10-01341
| NHI THI THUY PHAM | |
| PHONG TAN NGUYEN | |
| and | |
| HUE THI NGUYEN | Plaintiffs |
| v | |
| PARISSIS PTY LTD (ACN 006 330 721) (trading as BELLS REAL ESTATE) | Defendant |
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JUDGE: | HIS HONOUR JUDGE SACCARDO | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24, 26, 27, 30 April, 1 and 2 May 2012 | |
DATE OF JUDGMENT: | 5 July 2012 | |
CASE MAY BE CITED AS: | Pham & Ors v Parissis Pty Ltd (t/as Bells Real Estate) | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 895 | |
REASONS FOR JUDGMENT
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CATCHWORDS – DUTY OF CARE – Damage to tenanted residential property by fire – factors relevant to determination of duty of care – terms of management authority – causation – whether conduct of defendant a cause of claimed loss – factors relevant to determination of cause.
LEGISLATION CITED – Wrongs Act 1958
CASES CITED – Adeels Palace Pty Ltd v Moubarak & Ors (2009) 239 CLR 420; BPP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; Colliers Jardine (NSW) Pty Ltd v Balog Investments Pty Ltd & J Dan Pty Ltd [1996] ANZ ConvR 527; Chapman v Hearse (1961) 106 CLR 112; Roads and Traffic Authority v Royal (2008) 245 ALR 653; Industries Insurance company v Longmuire [1977 1 VR 125; Marche v E &M H Stramare Pty Ltd 1991)171CLR 506; Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968)120 CLR 516; Strong v Woolworths Ltd HCA 5 (7 March 2012) BC201200949.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M G R Gronow | Ligeti Partners |
| For the Defendant | Ms R Sofroniou | Monahan & Rowell |
TABLE OF CONTENTS
Introduction 2
Summary of facts 2
The Issues 5
The Evidence 6
The Evidence of Nhi Thi Thuy Pham 6
The Evidence of Marina Kovosic 9
The Evidence of Bhavin Zinziwadia 10
The Evidence of Pulenis Darshan Kumar Mandalia 11
The Evidence of Tom Kyriakou 12
The Evidence of Stella Kyriakou 16
The Evidence as to the Cause of the Fire 21
The Evidence of Sophie Edwina Lyon 21
The Evidence of Leah Dianne Calnan 25
Finding as to the Contrasting Position of the Experts 27
Analysis of the Duty of Care Issue 28
Was the Management Authority subject to an express term that the property was to be periodically inspected by the defendant? 32
Was the Management Authority subject to an implied term that the property was to be periodically inspected by the defendant? 37
Foreseeability 40
Causation as to the claim in Negligence 40
Analysis as to the consequences of period inspections of the property every twelve months 41
Causation as to the claim in Contract 46
Conclusion 47
HIS HONOUR:
Introduction
1 In this proceeding, the plaintiffs seek damages against the defendant by reason of the destruction by fire of a house owned by them at 216 Ballarat Road, Footscray (“the property”).
2 It is alleged that the plaintiffs are entitled to damages against the defendant in respect of the loss suffered by them as the result of the damage which the fire occasioned to the property. It is asserted by the plaintiffs that this entitlement arises by reason of:
(i)the failure by the defendant to carry out the duties required of it in managing the property by reason of the management authority;
(2)the breach by the defendant of the common law duty of care which it owed to the plaintiffs in managing the property.[1]
[1]It is not in issue that a duty of care was owed by the defendant to the plaintiffs in respect of the way in which it managed the property on their behalf.
Summary of Facts
3 A brief summary of the facts relevant to the issues which arise in the case is as follows:
(i) On 3 January 2008, a fire occurred at the property.
(ii) In the course of the fire, three occupants of the property died and the property was destroyed.
(iii) The plaintiffs were the owners of the property which, at the time of the fire, was the subject of a Lease executed between the plaintiffs and Bhavin Zinzuwadia (“the lease”).
(iv) At the time of the fire, the lease was being managed on behalf of the plaintiffs by the defendant which operates a business as a real estate agency.
(v) Mr Zinzuwadia (“the tenant”) had entered into a residential tenancy agreement with the plaintiffs in relation to the property on 31 October 2005.
(vi) Following the expiration of that agreement, a number of further residential agreements were entered into between the tenant and the plaintiffs, the agreement which was current at the time of the fire having been executed on 1 December 2007.
(vii) The property had been purchased by the plaintiffs as an investment property and was the first investment property the plaintiffs had owned.
(viii) In 2005, the plaintiffs had retained the firm of Ray White Real Estate (“White”) to secure a tenant for the property and to manage the tenancy of the property.
(v)On 8 September 2005, an Exclusive Leasing and Management Authority was executed between White and the plaintiffs in respect of which White was retained to undertake:
§the initial leasing of the property;
§the subsequent re-leasing of the property to the initial tenant or assignee;
§the subsequent leasing of the property to a new tenant; and
§the management of the property.
(vi)The management fee which was to be paid by the plaintiffs to White with respect to the management of the property was to be calculated at 4.4 per cent of the average annual rental of the property (excluding GST), and it was pursuant to this authority that White secured Mr Zinzuwadia as a tenant for the property.
(vii)One of the services offered by White to the plaintiffs with respect to the management of the property included periodic inspections of the property to be undertaken on a six-monthly basis.
(viii)The defendant conducts a real estate agency under the name Bells Real Estate (“Bells”). On 3 March 2006, an agreement was entered into between White and Bells by which Bells purchased from White its “rent roll” which included the management of the property. Upon the execution of this agreement, Bells took over the management of the property on behalf of the plaintiffs and although no new managing authority was executed between the plaintiffs and Bells, Bells continued to manage the property up until the date of the fire.
(ix) When Bells received the files from White of the properties the subject of the rent roll which had been acquired by Bells, each file contained only two pages of an eight-page standard form Exclusive Leasing and Management Authority.[2] The authority in its standard form allowed for the insertion of specific instructions as to the level of services which were to be provided by reason of the authority. Had such instructions been inserted, they would have been located within the six pages which were missing.
[2]See Exhibit C
(x) Between 3 March 2008 and the date of the fire, no inspections of the property were undertaken by Bells in the course of its management of the property.
(xi) At the time of the fire, the property was occupied by the tenant, his wife and his daughter, together with four other occupants, all students who were being accommodated in the front right-hand bedroom (“the bedroom”) of the property on a long-term rather than casual basis.
(xii)At the time of the fire, neither the plaintiffs nor Bells were aware that the bedroom was being occupied by four students. Had the plaintiffs been aware of that fact, they would not have consented to six adults living on the property.
(xii)As at the time of the fire, the four students occupying the bedroom had assembled within the bedroom:
§a double bed and three mattresses;
§clothing for four people and some items of luggage;
§a number of electrical devices which were connected to a six-port power board (“the power board”) and which included two microwave ovens; one desktop computer terminal of the old cathode style; one processor and one television signal booster unit which was not connected to a power source at the time of the fire. These various items were sitting on a low pallet-like table in the south-west corner of the bedroom.
(xiv)The cause of the fire was electrical in nature and was probably associated with the overheating and the failure of a computer monitor which was located in the right-hand corner of the bedroom and was connected to the power board.
The Issues
4 The issues which arise for my determination in the matter are as follows:
(i)Did the terms of the authority pursuant to which Bells managed the property include a term, either specific or implied, that Bells was required to undertake periodic inspections of the property?
(ii)Did the common law duty of care which was owed by Bells to the plaintiffs with respect to the property involve a duty to carry out periodic inspections of the property?
(iii)Had the fact that the students were residing at the property been discovered by the plaintiffs prior to the fire, would the plaintiffs have been in a position to require some or all of the students to vacate the property and, if yes, what would have occurred?
(iv)In the presence of a finding of either a contractual breach or negligence on the part of the defendant, was such a breach a cause of the fire and the resultant loss suffered by the plaintiffs?
5 It is agreed by the parties that I should make findings upon these issues and that thereafter, subject to those findings, the parties should be afforded an opportunity to seek to resolve any outstanding issues as to the quantification of damages.
The Evidence
The Evidence of Nhi Thi Thuy Pham
6 Ms Pham said that the plaintiffs had purchased the property in 2005 and that after undertaking some work to improve the facilities offered in the house, White was engaged, firstly, to let the property, and secondly, to manage the leasing of the property.
7 Ms Pham said that White was retained on the basis of an Exclusive Leasing and Managing Authority which was executed on 8 September 2005, pursuant to which White was engaged to manage:
(i) the initial leasing
(ii) the subsequent re‑leasing to the initial tenant or assignee
(iii) the subsequent leasing to a new tenant; and
(iv) the management
of the property.
8 Relevantly, as to the issue as to whether the authority contained a specific term that White would undertake periodic inspections of the property during its tenancy, Ms Pham said:
“Well, we have a little talk about what – I ask her how did she go about it and who would do the inspection and the rent and how is she going – you know – how would they take the money and (indistinct), how we pay and things like that.
Q:Do you recall those, what those discussions were about, those subjects?---
A:Yes. I just ask her, like we just talk about how she is going to get the money into my bank accounts. And I just get her the bank account detail and – and then I ask her that ‘how frequently do you inspect the house’.
Q:What did she say when you asked her that?---
A:She said ‘Six monthly, like, half-yearly’ and then I think that’s in one of the document as well, one of the – I can’t remember which one but there’s in one of the piece of paper that I remember that it was a tick of the box.”[3]
[3]T 33
9 Ms Pham said that she became aware that Bells had taken over the management of the property when she received a letter from Bells, which advised:
“We wish to advise that the office of Ray White - Sunshine has combined forces with Bells Real Estate - Sunshine.
Rebecca Fenech, your current property manager, has also joined our team at Bells Real Estate - Sunshine and will continue the management duties of your property.
We at Bells Real Estate are proud to have been selected by Ray White Sunshine to represent you in the management of your property. We pledge the best efforts of each member of staff to assure an efficient and effective management service. Should you require any assistance or wish to discuss any aspect of our procedures, please feel free to contact our office on 9300 9000 any time.”[4]
[4]Exhibit F
10 As to her expectation as to whether, in managing the property, Bells would undertake six-monthly inspections of the property, Ms Pham said:
“When I first signed with Marina she said six-monthly, so I expect that six months she would do it, but before six months they transferred to Bell, and then I received a letter from Bell to say they will keep up the managing – they will honour the contract that I signed with Ray White, so I assumed they would do it.”[5]
[5]T 48. The reference in this passage of evidence to Marina is a reference to Marina Kovosic, the person with whom Ms Pham negotiated the exclusive leasing and management authority which she entered with White
11 In relation to the issue as to whether Ms Pham would have agreed to four people living within the front right-hand bedroom of the property, Ms Pham:
· In a statement made 10 December 2008, said:
“If I’d been notified that Bhavin Zinzuwadia wanted to have tenants living in the house, perhaps I would have agreed to one or two but certainly not four. I would have asked for more rent depending on the number of boards, as there would have been more wear and tear on the house.”[6]
[6]T 64
· In the course of her viva voce evidence, said:
(i) that in her opinion the house would not have accommodated six people, having regard to the bathroom and kitchen of the house;[7]
(ii) that if one or two extra tenants were living at the house she would have passed that issue on to the managing agent.[8]
[7]T 58
[8]T 64
12 Further, Ms Pham gave evidence that:
· She had no previous experience in leasing a property, this being her first rental property;[9]
[9]T 46
· Having received the letter from Bells of 3 March 2006:
“I didn’t call them, but because I read the first – the second paragraph, when they say they’ll continue the management duties from Ray White, then I just leave it to them”;
· She did not chase up Bells with respect to the issue of periodic inspections:
“… because I did not know that I have to do that, but I thought they would do it, that’s my expectation”;[10]
[10]T 257
and further:
· She made no inspection of the property herself prior to the fire because:
“… that’s what I pay the agent for.”[11]
[11]T 58
The Evidence of Marina Kovosic
13 Ms Kovosic gave evidence that she had been employed as a property manager by White. As to the Management Authority executed between Ms Kovosic, on behalf of White, and Ms Pham, Ms Kovosic was asked:
Q:“Did you have discussions with her about the services you’d provide when managing the property?---
A:Yes, I’d done that with her when we filled in the authority form.
Q:What were the discussions?---
A:It was – it should have been – all the paperwork should have been there because it clearly states that we manage the property on her behalf – collect the rent. We pay the bank account – the money into her bank account details, which would have been on the form as well – one of those leaflets – and we just take responsibility of her property – take it out of her hands.
Q:What else do you do?---
A:We do six-monthly routine inspections, which is legally every six months by a real estate agent – we need to do that, but I never got around to doing that because our agency actually closed down, so never got – Bells then took over from there.”[12]
[12]T 113
14 It was put on behalf of the defendant that this passage of evidence was not a reference to a discussion between Ms Kovosic and Ms Pham, but rather referred to the belief by Ms Kovosic as to her legal obligation to perform six-monthly property inspections. That position does not however accord with my interpretation of the evidence and I am satisfied that Ms Kovosic, in her evidence,[13] was referring to the fact that the discussion between herself and Ms Pham was not generated by reason of a request made by Ms Pham.
[13]T 121, L23 – T 122, L8
The Evidence of Bhavin Zinziwadia
15 Bhavin Zinziwadia gave evidence that between 2005 and 2008, he was the tenant of the property and that during this period the property was occupied by both himself and his wife, together with the following additional persons:
(i) Between approximately March 2006 and June 2007, his brother-in-law, Ashish Patodia, together with his wife, Grishma Patodia;
(ii) Between March 2006 and January 2008, Darshan Madaliya;
(iii) Between October-November 2006 and January 2008, Deepak Prajapati and Jinesh Sadhu;
(iv) Between October-November 2006 and December 2007, Sabhar Thakar;
(v) Between March 2007 and January 2008, Sunil Patel.
16 Mr Zinzuwadia said that approximately four or five months before the fire, Mr Patel and Mr Sadhu had purchased a computer which included an older-style 15‑inch monitor at a swap-meet, and that they had set the computer up on the right side of the bedroom which they were occupying.
17 Mr Zinzuwadia said the various occupants of the house shared the rent, power and other costs between them, and agreed that:
“The real estate agent was not aware that other people were staying in the house other than myself, my wife and my daughter.”[14]
[14]See pages 2-3 of the statement of Mr Zinzuwadia at Exhibit U
18 Mr Zinzuwadia said that whilst he had originally made his application to rent the property through White, he had subsequently become aware that Bells had become the agent for the property upon receiving a letter from Bells.
19 Mr Zinzuwadia agreed that on Wednesday, 31 May 2006, an arrangement had been made by Bells to inspect the property, but said that he did not think that anyone from Bells had attended on that day, and that as far as he was aware, no one from Bells had ever inspected the property.[15]
[15]T 158
20 Mr Zinzuwadia said that the various occupants of the bedroom had each been introduced to him by friends of friends and that he did not really know any of them before he agreed to provide each of them with accommodation. He said that he had done so because it was hard for overseas students to find a place to stay in Melbourne.[16] He described the relationship between the various residents of the house as follows:
“There was no specific point of – say, place or anything that ‘you have to be using this room only’. Wherever anyone wants, it’s like a family itself, therefore, there was no restriction or nothing that ‘this is my house’ or ‘this is not your house’ or ‘are you paying anything’ or ‘you have to use this because you are paying for this room only’. There was nothing, no (indistinct) like that, and we used to live as a family.”[17]
[16]T 168-172
[17]T 172
21 Mr Zinzuwadia said there was no obligation upon him or his wife to provide the occupants of the bedroom with rooms, that everyone was happy to cook for themselves, and they would cook either separately or together, depending on the timing of the situation, including the obligation of some of the occupants to work night-shift.[18] He described all the occupants of the house as considering themselves to be housemates.[19]
[18]T 174
[19]T 175
The Evidence of Pulenis Darshan Kumar Mandalia
22 Mr Mandalia said that he was living at the house between March 2006 and January 2008 and that he had been introduced to Mr Zinzuwadia by a friend of a friend.
23 When asked why there were four people occupying the front room at the time of the fire, Mr Mandalia said:
“We were just living there. We didn’t have anything, life, we can live there or not or something, but we were just living there together, that’s all.”[20]
[20]T 181
24 Mr Mandalia agreed that within the bedroom:
§ there was a microwave that was sometimes used for heating up food
§ there were mattresses to sleep on
§ there were clothes and bags of the occupants contained within the room, and that –
“… like we were staying there together, so, yes, I didn’t have any problem with living together in the same room.”[21]
[21]T 182
25 Mr Mandalia said that the occupants shared the rent and the electricity bill “whatever it was we used to share. We used to divide it.”[22] He agreed that some of the occupants could have chosen to sleep in the left-hand bedroom, but they had not chosen to do so as at the time of the fire. He said that the bedroom contained a six-port power board, commenting:
“I mean, there was a six plugged – power points there and, yes, they used to use it, that’s all I know.”
[22]T 183
The Evidence of Tom Kyriakou
26 Mr Kyriakou is a real estate agent who has been employed by Bells for some twenty years. He said that he had negotiated the purchase of White’s rent roll (which included in it the management of the property) in the course of a discussion between himself and Joseph Fenech.[23]
[23]T 283-284. Mr Fenech was the owner of White.
27 As to whether, in taking over the management of the property, there was an obligation to undertake periodic inspections of the property, Mr Kyriakou said:
“When I negotiated the transaction, I asked specifically – I looked at every file, every authority and I asked them specifically, ‘are there any instructions relating to each property over and above the norm’?
Q: Were there any instructions applied to you at any time?---
A:There were none completed on the authority, which is the first place I would look at, and the second place I'd ask him and then we’ll know.”[24]
[24]T 288
and further:
Q:“So again whether you did this or it was done later, how did Bells ascertain in each case what it was obliged to do under the existing agreements in respect of each of these properties?---
A:What we’d consider the normal practice in regards to leasing a property, which included making sure that we have the correct owners’ details so we can collect rent on their behalf, our obligations are to make sure the maintenance was done since and – well, they’re the two essential areas, make sure the public has been - any maintenance issue is handled correctly and efficiently. We collect the rent on the owner’s behalf and make sure it was where they wanted it to be paid. If they wanted us to pay any additional expenses on their behalf we’d make sure that was done as well.
Q:Now did Bells Real Estate at that time, the balance of 2006 and into 2007, did it conduct periodic inspections for all of the properties it managed?---
A:No.
Q:Can you give a reason why not?---
A:Two main reasons would be the owners – it wasn’t part of the service that was negotiated. That’s the main reason, and a lot of properties – we work in an area where there is a high turnover so you’re literally seeing some properties – the tenants are moving in and out within a twelve-month period constantly, so you’re in the property on an ingoing inspection anyway or the outgoing, so you’re seeing it regardless.
Q:Now when you say it wasn’t what had been negotiated in certain instances, in the case here where Bells hadn’t been involved in the negotiations, was it necessary to inspect the properties in that instance? How did you know what had been negotiated?---
A:I asked the specific questions, are there any requirements that we’ve got to do if I take these on – that you’ve negotiated with the owners that we’ll have to handle? And that would have been one of those scenarios. General inspections, payments outside the norm, there is what I would specifically ask for.
Q:Who did you ask?---
A:The directors of Ray White or Mr Fenech at the time.
Q:When was this enquiry made?---
A:When I was buying in the negotiation process, because if there were anything that were cumbersome, any structure that were cumbersome, based on what he was telling me, I wouldn’t agree to purchase or negotiate a price accordingly.”[25]
[25]T 288-T 290
28 Mr Kyriakou said that when he received the rent roll files which Bells had acquired from White, each file contained only two pages of the standardised Exclusive Leasing and Managing Authority.[26]
[26]T 285
29 Mr Kyriakou agreed:
(i) that had an express agreement been negotiated between the plaintiffs and Marina Kovosic that the property was to be inspected every six months, he would not have been aware of that agreement unless Mr Fenech had communicated that to him.[27]
[27]T 294
(ii) that Bells offered the service of undertaking periodic inspections of the properties which it managed, explaining:
§ that whilst this service was probably not a standard service, it was one that was offered;[28]
[28]T 301-302
§ that at the present time, Bells periodically inspected the majority of the properties it managed;
§ that the activity of inspecting properties which were under management was more common now than it was during the period between 2006 and 2008.[29]
[29]T 302
30 When taken to the letter of 25 May 2006 sent by Bells to Mr Zinzuwadia,[30] which advised:
[30]Exhibit R
“One of the services that Bells Real Estate provides to its landlord clients is periodic inspections of their properties.
Accordingly, I would be calling around on Wednesday, 31 May 2006 between 9.30 and 12.00 for the purpose of conducting an inspection of the property”
Mr Kyriakou said that the letter referred to the fact that this service was offered by Bells and was provided if Bells was “pre-arranged, in which case it would be charged for accordingly”, explaining:
“When we are engaged to manage a property, a prospective landlord can go through a list of things that they want us to do, or things they don’t want us to do, and we’ll charge accordingly, based on where they are, who they are and what their needs [are] and we’ll charge them accordingly.”[31]
[31]T 303
31 Mr Kyriakou agreed that, as far as he knew, no one from Bells had ever inspected the property, and said:
“The purpose of any routine inspection is to view the property to ensure that the property has not been damaged, firstly and foremost, and that it’s in safe condition.”[32]
[32]T 308
32 As to whether it was relevant for an agent to know whether additional people were living at the property, Mr Kyriakou said that whilst this issue was not the primary part of the inspection:
Q: “What if you saw four people living the front bedroom?---
A:Four people well, if I physically saw four people standing there or lying in the bed, I will be asking a question, yes.[33]
[33]T 309
…
Q: Would you tell the landlord if you knew that?---
A:If I had proof that people were occupying the property yes, I would probably advise them.”[34]
and further:
Q:“So if you inspected the property and you observed that four people were living in the front room that you didn’t know about previously would you make enquiries or not?---
A:If I saw four physical persons sleeping in a bedroom I would be asking the tenant who are they and why are they here?”[35]
[34]T 310
[35]T 315
33 Mr Kyriakou said that in such circumstances, he would be moved to enquire of the tenant who the persons were and how long they intended to stay there, explaining:
“If they were staying for a period of time – for the same period as the tenant[36]– you may ask them to fill an application form.”[37]
[36]The use here by the witness of the word “landlord” was corrected by him at T 316
[37] T 315. In this respect, Mr Kyriakou was referring to the completion by the additional occupants of a tenancy
The Evidence of Stella Kyriakou
34 Ms Kyriakou is a director of Bells. She said that during the period 2006 to 2007, the files which were purchased from White were handed over to the property management division of Bells (which consisted of approximately two senior property managers and two assistants), and that the property division had decided to continue to employ the authorities executed by White and not to enter into new agreements.[38]
[38] T 331
35 Ms Kyriakou said that Rebecca Fenech, who Bells had been informed had been a member of the White property management team, had been given a position as part of the property management team of Bells at the time of the transfer of the White files, and that at that time a letter of the type dated 3 March 2006 which was sent to Ms Pham had been sent to every landlord whose file had been transferred from White to Bells.[39]
[39]T 331-332
36 Ms Kyriakou said that as at 2006-2007, a relationship existed between the inspection services provided pursuant to a property management contract and the level of commission that was charged for the provision of those services, namely:
“Basically the higher fees obtained periodic inspections as requested by the landlord and we explained that for that service we charge a slightly higher commission.”[40]
[40]T 341
37 Ms Kyriakou said that an extra fee of 1 or 2 per cent, depending on the size of the property, was charged if a periodic inspection was to be carried out.[41]
[41]T 342
38 Ms Kyriakou said that the commission fee of 4.4 per cent, which had been negotiated by White with respect to the management services to be provided to the property, was a fee which she did not “believe we have anything lower than that fee in our office”.[42] She said that, without anything more, she would not have been prepared to provide inspection services at that commission rate, but that had she been aware that an obligation existed to provide periodic inspections in respect of any of the properties the management of which Bells had taken over from White, she would have honoured that obligation.[43]
[42]T 343
[43]T 343
39 Ms Kyriakou said that the statement in the letter by Bells of 3 March 2006 to Ms Pham that “we wish to advise the office of White Sunshine has combined forces with Bells Real Estate Agent” was made because “it’s a nicer way than saying that we’ve bought them out and that they no longer are in business”.[44]
[44]T 348
40 She explained that in the same letter Bells had said that –
“Rebecca Fenech, your current property manager, has also joined our team at Bells Real Estate Sunshine and will continue the management duties of your property”
because:
“Well, we were advised by Mr Fenech that Rebecca Fenech was his property manager at Ray White and we had no reason to doubt that so we included that in our letter to the tenants to ease their mind that they would be familiar with their – you know that we’d be taking care of their property”.[45]
[45]T 348
41 Ms Kyriakou further explained the reference to Ms Fenech in the letter of 3 March 2006 as follows:
“I think it was to appease the tenants to let them know that there was a familiar person that was going to be part of this transfer and the fact that it was a name that they would remember and she was going to be taking care of the property management, the management duties. She was in the office answering the phone and assisting the property management team”[46]
[46]T 354
commenting:
Q:“If it’s the same property manager you would expect her to know what the arrangements were between the previous agents and the landlord, wouldn’t you?---
A:You would assume so, yes.
Q:So there would be continuity?---
A:That’s what we were hoping for when we employed Rebecca.
Q:So in fact if the previous agent had agreed to inspect the property every six months, you would expect Rebecca Fenech, as the managing agent, to know about it, wouldn’t you?---
A:We would hope so. Rebecca was actually the one that prepared the files and handed them to us from Ray White so the photocopies that we had were taken by Rebecca and passed to us. So we hope that she had a good knowledge and that’s what we relied on when we employed her.”[47]
[47]T 354
42 Ms Kyriakou agreed that the property management authority, of which only two pages were contained on the file of the property, was part of a standard form document comprising eight pages which allowed for the insertion of specific instructions as to the level of service which was provided.[48] She agreed that if a direction of that type had been made it would have been found within the pages which were missing.
[48]T 352
43 Ms Kyriakou said that she had been in recent contact with Kelly Muscat[49] who was no longer employed by Bells. When asked to explain what Ms Muscat had meant by referring to periodic inspections to be undertaken upon the property, Ms Kyriakou said that the statement was an error and that perhaps the word “general” should have been substituted for the word “periodic”. She was asked:
[49]T 365
Q:“Are you saying that it’s a mistake or something else?---
A:I can’t answer for Kelly Muscat. I can only go by what I’m reading and what’s actually transpired, you know, in the course of events, hindsight. It’s easy to say what should have been but - - -
Q:But it wasn’t here. You do accept that the letter shouldn’t have said that you provided periodic inspections when it was headed up in relation to this property?---
A:We do provide them - - -.”[50]
[50]T 360
and further:
Q:“Is the first sentence of this letter a mistake?---
A:No, we do offer periodic inspections of properties.[51]
[51]T 361
Q:Do you offer them in relation to this property according to you?---
A:We were offering a general inspection to this property.
Q:That’s not what it says though, is it?---
A:We still offer periodic inspections to properties however.
Q:So you don’t accept that it’s misleading to put that sentence in a letter headed ‘216 Ballarat Road, Footscray’?---
A:No.
Q:Can I just ask you why is it that you say with respect to this property you were offering a general and not periodic inspection?---
A:I can’t answer that, Your Honour. I didn’t write the letter. I can only go by what I’m reading.[52]
…
Q:Do you think the reason why this letter was sent was because your firm did actually mean to provide periodic inspections of this particular property when the letter was sent on 25 May 2006?---
A:“No.”[53]
[52]T 362
[53]T 363
44 Ms Kyriakou agreed that at the present time Bells inspected the majority of properties which it managed, but that in 2006 “quite a large number of homes were not inspected”.[54]
[54]T 367
45 She said that the reason why Bells had sought to inspect the property by sending the letter of 25 May 2006 to Mr Zinzuwadia was
“We hadn’t seen the property so we wanted to see it … we wanted to make sure it was in good condition, it was in fair condition, liveable condition because, you know, when you’re taking a property from another agent every agent has different standards and we like our properties to be in good sound order so that the tenants are happy, the owner is happy and everything works accordingly. If the home was dilapidated or needed attention, we could have at least discussed with Fiona getting, you know, items attended to if required. So – and there – I mean there have been many a time an owner has come to us to manage their property and we’ve actually turned them away because the home is in poor condition and we don’t feel it’s, you know, it’s a home that we should be, you know, taking care of for them unless they’re doing the works.
Q:But you’d already agreed to manage this property, hadn’t you?---
A:Yes, yes, it’s a different circumstance. It’s not a new property that you go out to see so when you take – when you’re, you know, buying the rent roll it’s slightly different.”[55]
[55]T 367-368
46 It was put to Ms Kyriakou that, upon the inspection of a property, one of the things that would be observed was whether other people were living on the property. She said that whilst the purpose of inspections was primarily to make sure that the tenants were maintaining the property, if the presence of other residents came to the agent’s attention in the course of an inspection, a discussion would take place to ascertain how long those persons were staying, and this information would be provided to the landlord.[56]
[56]T 371-372
47 Ms Kyriakou said:
(i) That whilst four students living in one room was not uncommon, it would be something that an inspecting agent would raise with the landlord if the agent was aware of it;[57]
[57]T 374
(ii) That if additional occupants were found to be present on a property in the course of an inspection –
“I don’t know if I’d be concerned about the situation but I would want to bring it up to the landlord so that they knew about it and then we could go from there”;[58]
(iii) That between 2006 and 2008, she was not aware that six-point power boards were notorious for being able to be overloaded.[59]
[58]T 375
[59]T 375
The Evidence as to the Cause of the Fire
48 There is no issue in the proceeding:
(i) tat the cause of the fire was electrical in nature; and
(ii) tat the fire probably commenced by reason of the overheating and failing of a computer monitor which was located in the right-hand corner of the bedroom and the power supply to which was provided via a six-port power board.
49 As to the relevance of both the power board and the computer monitor in the outbreak of the fire, I accept the evidence of Mr Roderick East, a fire investigator employed by the Metropolitan Fire Brigade, whose expertise relates to the investigation of electrical fires:
(i) tat the outbreak of the fire was probably contributed to by the fact that the computer monitor was powered through its connection to a six-outlet power board; and
(ii) that the connection of the monitor, together with a number of other appliances to the power board, would have contributed to the monitor overheating given the inadequate electrical circuitry within the house.
The Evidence of Sophie Edwina Lyon
50 Ms Lyon was called on behalf of the plaintiffs to give expert evidence as to whether industry practice involved real estate agents undertaking regular inspections of residential properties being managed by them in the absence of a specific agreement that they do so.
51 It was Ms Lyon’s evidence that the good industry practice required Bells, in managing the property, to undertake periodic inspections of the property at least on an annual basis.[60]
[60]See Ms Lyon’s statement at the foot of page 1 of her report at PCB 250
52 In the course of her viva voce evidence, Ms Lyon opined that good industry practice would involve a managing agent inspecting a rental property of the kind in question on a six-monthly basis,[61] and that such an inspection would involve a visual walk through of the property, the purpose of which was:
“… so we can advise the owner if there were any maintenance items or damage or other areas of concern, or likewise if the tenants were maintaining the property brilliantly that’s something we can advise the owner of as well.”[62]
[61]T 74
[62]T 74
53 Ms Lyon was taken to the commission being charged by the defendant with respect to its management of the property, being 4.4 per cent of the annual rental, and was asked:
Q:“Now the defendants say that’s low and it means inspection wasn’t part of the service. Do you agree with that or not?---
A:No, I would not agree with that.”[63]
[63]T 76
54 And further, as to the issue of persons on the property whose presence was not disclosed by the lease:
Q:“So assume that Bells inspect this property, they go to the front bedroom, there are four mattresses on the floor, there are lots of clothes and personal items, there is a large amount of bedding and personal equipment and electronics and computer equipment and various other things, what, if any communication would you expect there to be between the agent and the landlord in that eventuality?---
A:There, at the very least would be a phone call to the owner and then it would be followed up in the documentation related to the inspection report.”[64]
[64]T 82
55 In response to a question directed to Ms Lyon by myself as to whether, in the absence of a management authority specifying an obligation to periodically inspect the property, such inspections should be undertaken, Ms Lyon responded:
“Good industry practice is that inspections form part of a management authority unless it’s specifically detailed that they do not.”[65]
[65]T 85
and further upon this issue in the course of cross-examination:
“ There are many agreements that actually do not go – they’re not that specific but they are nonetheless tasks that are undertaken by an agent on a day-to-day basis. That’s where my entire witness testimony has come from on the basis that, whilst it isn’t specific, there are a number of things that are never reported in a management agreement that an agent will still do and so that is why it is absolutely my view that carrying out routine inspections is perhaps a requirement is a better word than an expectation.”[66]
[66]T 97
56 It was put to Ms Lyon that the obligation to inspect would not be imposed unless specific in a management authority in respect of which management fees were fixed at 4 per cent of the rent, to which Ms Lyon responded:
“… There is a wide variance in what agents will agree to manage a property for and again, unless it is specific, I believe that the management arrangements for a 4 per cent plus GST really in most circumstances are no different to a 7 per cent or 8 per cent plus GST unless it is specific.”[67]
[67]T 98
and further:
“… The way that the market works, the way that the real estate market works, is that there are agents who are definitely willing and will offer to manage a property for a much lower fee that another agent will, but still offer quite comparable service. So I don’t know that the argument necessarily holds, necessarily holds. There are some agents who will say that they will do more for a higher fee of course, but I wouldn’t go so far as to say that that was the major differential, just because the commission was higher or lower, it meant that the owner was getting more or less for their money.”[68]
[68] T 99. This evidence was given in response to a position put to Ms Lyon that generally the greater the level of service required by an owner in managing a property, the greater the charge levied for the service by the real estate agent.
and further:
“I would probably be insulting my industry if I said that in a lot of cases, taking on properties at very low management fees doesn’t make any sense and it doesn’t make any business sense, but we are an open market. People want to be competitive. So it is not unusual for agents to go out purely with a low fee in order to secure a management, and yet still offer the same of level of management that other agents are trying to charge a higher fee for. That’s one of the sore points in the industry unfortunately.”[69]
[69]T 100
57 In the course of her evidence, Ms Lyon:
· Agreed that the authority or management agreement formed the basis of the engagement of the agent;[70]
[70]T 216
· Said that her use of the term “good practice” was interchangeable with “acceptable industry practice”;[71]
[71]T 220
· Opined that if in the course of an inspection, a concern arose with respect to the number of people who were residing at the property, the inspecting agent would have to have a conversation with the owner about that issue;[72]
[72]T 229
·Said that in the circumstances of the present case, the presence of a microwave oven within the front bedroom of the property which also contained mattresses and furnishings indicating occupancy by more than one person, would, in itself, have been sufficient to generate a report to the owner;[73]
[73]T 235
·Opined that safety concerns would arise for her if she observed the presence of a power board within an older style house to which multiple appliances were connected, commenting :
A: “Having that number of things plugged into power boards, I think that would be a concern, but I mean I'm not an electrician so I can’t state that it was dangerous, it would just be more of a concern that you looked at something and went, ‘I don’t know that that’s quite right.
Q: Speaking as a real estate agent, not as an electrician, why would you consider it to be potentially dangerous and of concern?---
A: I would be concerned about overloading of the power boards. The power boards themselves can quite often be a bit of risk, so I would just have looked at that and thought it was something that shouldn’t be happening.”[74]
[74]T 252
and further, as to this issue in cross-examination:
Q: “You mentioned the notion of overloading a power board. In your opinion if you saw, say, a six point power board with six plugs occupying each one of the ports, would that itself indicate to you on inspection that the power board was overloaded?---
A: Okay. The comment about overloading, I'm not talking about from an electrical perspective, I'm purely looking at the number of appliances that would be plugged into a power board and then plugged into one power point. So those sorts of things, power board are quite notorious for overloading and starting fires et cetera, so that would just be something that we would alert the tenant to. I'm not talking about it from an electrical perspective. I'm not qualified to do that.”[75]
[75]T 253
58 Ms Lyon commented, however, that the presence of such a power board was not something which would necessarily give rise to a report by the real estate agent to the owner.[76]
[76]T 254
The Evidence of Leah Dianne Calnan
59 Ms Calnan gave expert evidence on behalf of Bells as to the obligation upon a real estate agent to undertake periodic inspections of a rental property which was being managed pursuant to a management authority.
60 Ms Calnan was asked:
Q:“Would you agree … it would be considered good industry practice as you understand it, to say that periodic inspections form part of the standard management agreement unless otherwise provided for? Do you agree with that?---
A:In some parts I do agree with that.
Q:Right, could you say which you agree with and which you don’t?---
A:I – the parts that I would agree with is, if the management fee was at a fair and reasonable percentage. If it was at a lower management rate then, no, I wouldn’t believe it would be assumed that it would form part of the service, or was good industry practice.”
61 Ms Calnan explained this statement in the following way:
“… With deregulation and with changes to management rate it then reduces – owners could choose to have a lower management rate and then have add on services that would form part of their service performed by the property manager or by the agent. So if the standard management fee was 7 per cent then, yes, I believe it would form good industry practice that those services may have been included, but anything less than that, no, I don’t believe that’s the case.”
62 In the course of her evidence, Ms Calnan said that:
· There had been no relevant changes between 2006 and the present date in respect of “the standards and things that a managing agent should do in relation to a residential rental property” which the agent was managing.[77]
[77]T 395
· That six-monthly inspections of rental properties were “on most occasions” usual.[78]
[78]T 395
· That subject to an appropriate fee being paid for the service, inspections should be undertaken automatically and without the need for an express arrangement.[79]
[79]T 395
· That she was the author of a statement in the form of an internet “blog” to the effect that:
“An example of a good property manager would be someone who regularly completes routine inspections of the property.”[80]
[80]T 397
·That often the value of a real estate agency was calculated upon the value of its rent roll.[81]
[81]T 400
·That the purpose of periodic inspections:
(i)Was not to determine how the tenant was living but rather to inspect the general presentation of the property;[82]
(ii)Was to assess whether there was anything which may require the attention of the owner;[83]
(iii)That if the high wattage appliances which were present in the right-hand corner of the bedroom had been observed by an agent in the course of an inspection, that would result in a telephone contact with the tenant and most probably a follow-up inspection, because:
A: “Well, it’s a duty of care, I believe, that I would have not only as property manager but as a director of the business that I'd need to make sure that the matter was attended to and rectified. It’s no different to, I suppose, cracked concrete in a driveway that was in a common area. Yes we have a responsibility to make sure it’s reported and follow it through.
Q:Because it could raise both public liability issues and tenant issues?---
A:That’s right, yes.”[84]
[82]T 403
[83]T 403. I understood Ms Calnan to be here be referring to immediate maintenance issues as well as forward planning maintenance issues.
[84]T 410
63 Ms Calnan also said that the presence of various electrical appliances, including two microwaves, computer equipment and a heater, all connected up to a six-point power board and much of the equipment located on a wooden pallet, would result in a “good agent” making a report back to the owner.[85]
[85]T 413
Finding as to the Contrasting Position of the Experts
64 In considering the contrasting positions of the two experts, I find the position put by Ms Calnan to be unconvincing.
65 Whilst Ms Calnan recognised the existence of a duty to undertake periodic inspections in the absence of any written or verbal agreement to do so, she fixed the genesis of that duty upon the size of the commission fee which has been agreed upon by the parties.
66 In my opinion, this position would be both unreasonable and unworkable if it was to be adopted within the relevant market place.
67 It is not in issue that the market for property management services is an unregulated market, and that agents are at large when fixing the rate which they will set for the services provided by them when managing their clients’ properties.
68 In these circumstances, property owners are not in a position to know whether the fee fixed by an agent to manage a property is one which both the agent and the profession consider sufficient to require property inspections to be undertaken or otherwise. Indeed, the authority between Ms Pham and White provides a good illustration of the point in issue.
69 If Ms Calnan’s position was to be adopted, the employment of such system, in circumstances in which owners are not aware in any given instance as to the commission rate which a particular agent regards as being sufficient to require it to inspect a property and one that does not, would, in my opinion, be fraught with the potential for misunderstanding, and would thus be unworkable.
70 For this reason, I prefer and accept the opinion expressed by Ms Lyon, that appropriate practice within the industry mandates regular inspections of properties which are under management unless there is an agreement to the contrary.
Analysis of the Duty of Care Issue
71 It is not in issue in this matter that the defendant owed to the plaintiffs a duty of care, nor is it contended that the duty of care is other than that described by the High Court in Adeels Palace Pty Ltd v Moubarak & Ors,[86] namely a duty to take reasonable care not to expose the plaintiffs to foreseeable risk of loss and damage.
[86](2009) 239 CLR 420
72 Section 58 of the Wrongs Act 1958 imposes the standard by which the allegation of negligence which is made against the defendant is to be determined, namely:
“In a case involving an allegation of negligence against a person (the defendant) who holds himself or herself out as possessing a particular skill, the standard to be applied by a Court in determining whether the defendant acted with due care is, subject to this division, to be determined by reference to –
(a)what could reasonably be expected of a person possessing that skill; and
(b)the relevant circumstances as at the date of the alleged negligence and not a later date.”
73 The question which arises in this instance is whether the obligation to undertake periodic inspections of the property fell within the scope of the duty of care which the defendant owed to the plaintiffs in circumstances in which the authority executed between the plaintiffs and the defendant which governed the management of the property was silent as to that obligation.
74 I accept the position put on behalf of the defendant that in determining whether the scope and content of the duty of care owed by the defendant to the plaintiffs was such that it included a duty to perform periodic inspections of the property, the terms of the contract entered between the parties is relevant. I am equally satisfied however that I should take into account all of the salient features of the relationship between the plaintiffs and the defendant in considering that issue, including:
(i) The fact that the only management authority executed by the plaintiffs with respect to the property contained, at the very least, an oral term accepted by both parties to the authority that the property would be the subject of periodic inspections;[87]
[87]There is no evidence as to whether the term of the arrangement entered into between Ms Pham and Ms Kovosic was incorporated into the management agreement.
(ii) That the plaintiffs were not aware that the commission rate fixed by White was such that it might raise an issue as to whether the property would be the subject of periodic inspections and White made no attempt to acquaint the plaintiffs of that fact;
(iii) That Bells was aware that it had access only to an incomplete copy of the authority which defined its obligations in managing the property and that the missing pages may have contained information which defined the extent of those obligations, including whether they involved a duty to inspect the property;
(iv) That periodic inspections were recommended by Bells to its clients as an appropriate management activity and that it was the plaintiffs’ belief that Bells would carry out periodic inspections of the property having regard to the authority which had been executed with White;
(v) That Bells would have honoured any obligation to undertake periodic inspections of the property which arose by reason of the management authority executed between the plaintiffs and White if had it been aware that such an obligation had been the subject of the authority;
(vi) That the importance of periodic inspection was recognised by each member of the real estate profession who gave evidence in the trial, in that they were:
·recommended by Bells, who were seeking to educate their clients as to the benefits associated with the same
·implemented by White without exception and considered as a mandatory component of property management
·considered by Ms Lyon as a mandatory component of property management
·recognised by Ms Calnan as an activity which should be performed by an agent in the absence of the need for specific instruction to do so, subject to the existence of an appropriate managing fee.
(vii)That market forces may encourage agents to lower the commission rate charged by a particular agent for the purpose of establishing a business or building a rent roll which, in my view, is likely to give rise to agents acting as White did, namely discounting their fees in order to secure clients, but not discounting the services associated with those fees.
(ix)That Ms Pham, as a first time residential landlord, considered regular inspection of the property as fundamental to the management duties to be undertaken by her property manager. Whilst Ms Pham’s position in this regard may not necessarily be influential in determining whether the content of the defendant’s duty of care involved a duty of periodic inspection, I am of the opinion that Ms Pham’s position is likely to be indicative of the position of a significant section of the relevant community (namely landlords of residential houses) given the value of the asset involved when considered in the context of:
· The vulnerability of property owners to sustaining damage to their property at the hands of irresponsible tenants and the potential for significant costs to be incurred in rectifying damage sustained to the property, its fixtures and fittings;
· The need for property owners to be informed as to defects which are present in their property which, if not rectified, might expose them to additional expense of other liability;
and the expertise of the property manager in the identification of each of these issues.
75 In my opinion, when these factors are considered in conjunction with my finding that industry practice involved an obligation to undertake periodic inspections, a compelling case is made for the position that the content of the duty of care owed by the defendant to the plaintiffs did included a duty to undertake periodic inspections of the property.
76 Independently of the above, it is clear in the present case that Bells assumed an obligation to undertake at least one inspection of the property having regard to the steps taken by them to secure the tenants’ acquiescence to an inspection at those times. The reason for the failure by Bells to carry out an inspection, notwithstanding this intention, was not appropriately explained and I consider that failure alone in the circumstances of the present case to give rise to a breach of the duty of care which was owed by Bells to the tenant.
77 As to the frequency with which Bells was required to undertake inspections, there was some inconsistency between the statement made by Ms Lyons in her expert report (in which she nominated a period of inspections at an interval of twelve months), and her viva voce evidence (in which she nominated an interval of six months). In my opinion, when fixing the relevant duty both at common law, it is appropriate to adopt the more conservative position espoused by Ms Lyon, namely a requirement to inspect every twelve months.
Was the Management Authority subject to an express term that the property was to be periodically inspected by the defendant?
78 It is clear that Ms Pham believed that whilst Bells was managing the property they would undertake periodic inspections of the property and that this belief arose by reason of the authority executed between Ms Pham and White on 8 September 2005.
79 Although it is not in issue, Bells did not represent to Ms Pham that, in the course of its management of the property, periodic inspections of the property would be undertaken, I accept that Ms Pham, having received the letter of 3 March 2006[88] from Ms Kyriakou which informed her that –
[88]Exhibit F
“… the office of Ray White – Sunshine has combined forces with Bells Real Estate – Sunshine.
Rebecca Fenech, your current property manager, has also joined our team at Bells Real Estate – Sunshine and will continue the management duties of your property”
was entitled to, and did, form the belief that the arrangement which she had entered into with White would be honoured by Bells and that the latter would undertake periodic inspections of the property.
80 It is contended on behalf of the plaintiffs that the only reasonable interpretation of the statements made by Ms Muscat,[89] in her letter to Mr Zinzuwadia of 25 May 2006, namely:
[89]The defendant’s property manager
“One of the services that Bells Real Estate provides to its landlord clients is periodic inspections of their properties.
Accordingly I will be calling around on Wednesday, 31 May 2006, between 9.30 and 12.30 for the purpose of conducting an inspection of the property”[90]
is that the proposed inspection to be undertaken on 31 May 2006 was a periodic inspection being undertaken in accordance with the service being provided by Bells to its landlord.
[90]Exhibit R
81 In the absence of persuasive evidence to the contrary, I accept this argument as having considerable force.
82 As to this issue, the plaintiffs point to the unexplained failure by the defendant to adduce evidence from Ms Muscat, and submit that an O’Donnell v Reichard[91] inference should be drawn by reason of her failure to give evidence.
[91][1975] VR 916
83 Given the evidence by Ms Kyriacou at as to her recent contact with Ms Muscat,[92] notwithstanding the fact that Ms Muscat is no longer employed by Bells, I am satisfied that I should draw the appropriate inference by reason of the failure by the defendant to call her as a witness. Indeed, a similar but less persuasive inference in my opinion applies to the unexplained failure by the defendant to adduce evidence from Ms Fenech. Ms Kyriacou said that Ms Fenech had been employed because it was assumed that she possessed a good knowledge of the arrangement entered into between White and its landlords as to the properties being managed.[93]
[92]T 356
[93]T 354
84 Given the evidence of Ms Kovasevic, which suggested that the obligation to undertake periodic inspections of the properties which it managed was regarded by White as being a standard obligation, it seems unlikely that the plaintiffs’ property was the only property, the management of which was transferred by White to Bells, in respect of which such an obligation existed, and, whilst there is no evidence as to this one way or the other, it seems equally unlikely that this issue would not have arisen at some point if any debriefing had taken place between Ms Muscat and Ms Fenech as to those properties.
85 In its response to the plaintiffs’ position as to the import of the statements made by Ms Muscat in her letter of 25 May 2006, the defendant adduced evidence from Stella Kyriakou, a director of Bells, and Tom Kyriakou, the employee of Bells, who had negotiated the purchase of the rent roll from White.
86 I accept the evidence of Ms Kyriakou and Mr Kyriakou that it was not, at the time at which the rent roll was purchased from White, the standard practice within the property management division of Bells to assume a contractual obligation to undertake periodic inspections of property under its management in the absence of a specific agreement being negotiated with a landlord to that effect.
87 It is clear in the present case however, that neither of the witnesses called on behalf of the defendant had any real knowledge of the obligations which Bells had assumed in managing the property or any of the properties which were transferred by White.
88 The fact that Bells, when negotiating specific management authorities as to new properties, adopted a particular course as to its obligation to undertake periodic inspections, does not, in my opinion, mean that such a course was adopted with respect to a property which Bells was managing under the authority entered into with White in respect of which there was an undertaking by White that periodic inspections of the property would be undertaken.
89 As to the evidence given by Mr Kyriakou and Ms Kyriakou with respect to their interpretation of the meaning of the words employed by Ms Muscat in her letter of 25 May:
(i) Mr Kyriakou did not work within the property management division of Bells. He said that having negotiated the purchase of the rent roll and having taken possession of the files, he transferred the files to his wife, who was a director of Bells, and had no further involvement with either the property or its management. He said that Bells had a large rental department and that his involvement in the department was essentially to be called in to manage problems when they arose;”[94]
(ii) Ms Kyriakou described her role as being an overseer, making sure that all the relevant departments of Bells were running properly and as providing assistance to the property division as and when required.[95] She said that when the White files came into the office they had been passed over to the property management division “to take care of everything as they should have”.[96] Whilst Ms Kyriakou assumed that a decision had been made by the property management division of Bells not to execute a new management authority with respect to the property, she could provide no explanation as to why that decision was taken.[97]
[94]T 324
[95]T 328
[96]T 329
[97]T 330
90 Given the evidence to which I have referred, I am satisfied that neither Ms Kyriakou nor Mr Kyriakou:
(i) were involved in the day-to-day operation of the property management division of Bells
(ii) possessed specific knowledge as to any decision which had been made by the property management division of Bells as to how the property was to be managed
(iii) were in a position to provide firsthand insight as to whether the statements by Ms Muscat on 25 May 2006 should be interpreted in a way other than that which is clearly their literal meaning; namely that Bells, as part of the service offered to the landlord of the property, had undertaken to conduct periodic inspections of the property.
91 For these reasons, I do not find the evidence given by Ms Kyriakou[98] or Mr Kyriakou as to their interpretation of the words employed by Ms Muscat in her letter of 25 May 2006[99] to be persuasive.
[98]I have referred to this evidence at paragraph 43 of my Reasons for Judgment,
[99]
92 Further, the absence of any knowledge on the part of Mr Kyriakou or Ms Kyriakou as to the obligations which the property division of Bells accepted as arising by reason of the authority entered into between the plaintiffs and White, highlights the relevance of the evidence which might have been given either by Ms Fenech, but more particularly, Ms Muscat, as to those obligations.
93 In the circumstances, given:
· The representation made by Ms Kyriakou to Ms Pham in her letter of 3 March 2006 that the management duties of the property assumed by White would be continued by Bells, which I assume reflected the position of Ms Muscat;
· The plain meaning of the words employed by Ms Muscat in her letter of 31 May 2006;
· The unexplained failure by the defendant to call Ms Muscat, who I am satisfied was available to give evidence;
· The acceptance by Ms Kyriakou that had she been aware that White had undertaken to carry out periodic inspections of the property, she would have honoured that obligation, which, in my opinion, suggests that Ms Muscat would have taken a similar course
I see no reason why I should not accept at face value the statement made by Ms Muscat that the inspection proposed for 31 May 2006 was a periodic inspection undertaken pursuant to the service which Bells was providing to the plaintiffs as persuasive evidence of the fact that Bells had assumed an obligation under the management authority to undertake periodic inspections of the property.
94 For these reasons, I am satisfied on the balance of probabilities that Ms Muscat, Bells senior property manager, had accepted an obligation on behalf of Bells pursuant to the management authority relevant to the property, to undertake periodic inspections of the property and that Bells failed to do so.
Was the Management Authority subject to an implied term that the property was to be periodically inspected by the defendant?
95 Given the findings which I have made, there is no necessity for me to make findings as to whether the management authority pursuant to which Bells managed the property on behalf of the plaintiffs was subject to an implied term that the property was to be periodically inspected by the defendant. As this matter was raised by the parties for my determination however, I consider it appropriate that I make findings as to this issue.
96 The statement of principle as to this issue was laid down in the majority opinion of the Privy Council in BPP Refinery (Westernport) Pty Ltd v Hastings Shire Council,[100] namely:
“… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”
[100](1977) 180 CLR 266
97 In my opinion, it is unarguable that each of the conditions (1), (4) and (5) apply in the present case. Accordingly, if I am satisfied that a term that the property be the subject of periodic inspections was so obvious that it went without saying and that is was necessary to give business efficacy to the contract such that the contract was not effective without it, a finding that the contract was the subject of the relevant implied term should be made.
98 That the term goes without saying follows from my analysis of the evidence in that this was clearly the position of Ms Kovosic, Ms Calnan and Ms Lyon if one divorces from her evidence, in accordance with my earlier finding, the relevance of the level of remuneration fixed by the contract.
99 The meaning of the term “business efficacy” contemplates a term which is required “in order to make the agreement work, or, conversely, in order to avoid an unworkable situation”.[101] The issue which arises involves a consideration of what would make the contract workable in a business sense. It is clear that a term may be commercially necessary, notwithstanding that the contract can work without it.[102]
[101]BPP Refinery (Westernport) Pty Ltd v Hastings Shire Council (supra) at 292
[102]Colliers Jardine (NSW) Pty Ltd v Balog Investments Pty Ltd & J Dan Pty Ltd [1996] ANZ ConvR 527, 96
100 The evidence satisfies me that the role of periodic inspections of tenanted premises is to allow an assessment to take place as to the condition of the property and as to whether the tenant is taking appropriate care of the property. It is beyond argument, in my opinion, that the owners of tenanted property would have an interest in detecting at the earliest possible time the fact that the value of their asset was being compromised by inappropriate activity on the part of a tenant and that periodic inspections of the property by a managing agent fulfil that purpose.
101 It is the evidence of both Stella Kyriakou and Tom Kyriakou however, that at the relevant time it was their experience that some landlords of property managed by Bells were reluctant to instruct Bells to undertake periodic inspections of their property if doing so increased the cost to them of the management of the property.
102 In circumstances in which it is clear that a proportion of property owners accepted that their property management agreement should operate in the absence of the agent undertaking periodic inspections of the property the subject of the agreement, I am not satisfied that it can be said that the relevant term should be implied in property management agreements in order to give such agreements “business efficacy.”
103 In all the circumstances, I am not therefore satisfied that it is appropriate to imply a term into requiring the defendant to undertake periodic inspections of the property.
Foreseeability
104 Given that one of the purposes of regular inspections of property under management is to detect activity upon the property which may damage the property,[103] I am satisfied that it was foreseeable to the defendant that a breach of its duty to inspect the property may expose plaintiffs to the risk that the property may be damaged by reason of such an occurrence.
[103]T 308
105 In these circumstances, I am satisfied that the injury and loss suffered by the plaintiffs was one which was foreseeable and related to the risk created by the failure of the defendant to undertake appropriate inspections.[104]
[104]Chapman v Hearse (1961) 106 CLR 112, 121
Causation as to the claim in Negligence
106 Section 51 of the Wrongs Act 1958 provides as follows:
“General principles
51. General principles
(1) A determination that negligence caused particular harm comprises the following elements-
(a)that the negligence was a necessary condition of the occurrence of the harm (factual causation); and
(b)that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused (scope of liability).
(2)In determining in an appropriate case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be taken to establish factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.
(3) If it is relevant to the determination of factual causation to determine what the person who suffered harm (the injured person) would have done if the negligent person had not been negligent, the matter is to be determined subjectively in the light of all relevant circumstances.
(4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.
107 It is clear that:
(i) the issue of factual causation is to be determined by the application of the “but for” test[105] and
(ii) in considering the issue of causation, the fact that the damage sustained by the plaintiff was eminently foreseeable in that it was the “very kind of thing” which the relevant duty required the defendant to take reasonable steps to prevent, whilst relevant to “scope of liability” issues, does not provide an answer to factual causation.[106]
[105]Adeels Palace v Moubarak (2009) 239 CLR 420
[106]Adeels Palace v Moubarak at [51]
108 It is also clear that in meeting its obligation to establish factual causation, the plaintiff must do more to identify a change in circumstances which would have occurred had the defendant not breached its duty of care and which might have prevented the occurrence of the event which gave rise to the plaintiffs’ loss, but that it is incumbent upon the plaintiffs to prove with the requisite degree of certainty that this change in circumstance would have prevented the loss.[107]
[107]Adeels Palace v Moubarak at [51]
109 Adopting these principles, I turn to my analysis of the consequences which I am satisfied would have been associated with the implementation by the defendant of an appropriate regime of routine inspections of the property.
Analysis as to the consequences of period inspections of the property every twelve months
110 Mr Zinzuwadia entered into the initial tenancy agreement on 31 October 2005. In May 2006, the defendant was seeking to inspect the property. I am satisfied that the application of reasonable practice required the defendant to inspect the property at that time and that there was no good excuse for the defendant’s failure to do so.
111 It follows, in my opinion, that the first inspection of the property by the defendant should have been undertaken in approximately May 2006 and that the property should thereafter have been inspected some twelve months later.
112 It was my clear impression of Mr Zinzuwadia, as he gave his evidence, that he did not appreciate that in allowing a number of occupants to share the front bedroom, he was acting either inappropriately, against the wish of his landlord, or in breach of the terms of his lease. There is no suggestion that Mr Zinzuwadia would have taken any steps to attempt to prevent the presence of the occupants of the bedroom being discovered in the course of an inspection of the property and my strong impression of Mr Zinzuwadia as he gave evidence was:
(i) that he would not have done so; and further
(ii) that he would not have sought to circumvent the wish of his landlord that the number of people living in the house be restricted in the manner described by Ms Pham in the course of her evidence.
113 For these reasons, I am satisfied that it is probable that an inspection of the property in the second half of 2007 would have alerted the defendant as to the fact that a number of people were sleeping in the front bedroom, and that it is likely that in these circumstances:
(i) In the course of the inspection, or at some time soon thereafter, a conversation would have taken place between the defendant and Mr Zinzuwadia which would have revealed the use to which the bedroom was being put and the number of its occupants;
(ii) The defendant would have reported that position to Ms Pham;
(iii) Ms Pham would have required the number of people occupying the bedroom to be reduced to no more than two.
114 Notwithstanding the absence of any evidence as to when the power board was installed, or the specific use to which it was put after its installation, it is put on behalf of the plaintiffs that it is probable that periodic inspections would have revealed not only the presence of the four occupants of the bedroom but also the presence of “high wattage items connected to a six-point power board in a dangerous manner.”[108] In making this submission, counsel for the plaintiffs relied upon the analysis as to causation which was applied by the High Court in Strong v Woolworths Ltd (t/as Big W).[109] In my opinion however, the fulcrum for the analysis adopted by the Court in that case centred upon the regimented system of inspection every twenty minutes which was in place for the removal of slipping hazards which has little relevance to the much less precise situation involved in the present case as to:
[108]See the closing address of Mr Gronow at T 542
[109]HCA 5 (7 March 2012) BC201200949
(i) the timing of inspections; and
(ii) the set up and content of the bedroom;
each of which factors being so critical to a finding as to what an inspection would have revealed.
115 For this reason, I do not accept that a consideration of the probabilities leads to a conclusion on balance, that periodic inspections of the property would have led to the detection by the inspecting agent of either the six-point power board or high-wattage appliances connected to it, and, accordingly, I am not satisfied that this aspect of the plaintiffs’ case has been made out.
116 Although this issue was never raised in the course of the evidence, having regard to the fact:
(i) that Mr Zinzuwadia did not positively seek out people to cohabitate in the property with him so as to defray the expense associated with his rent;
(ii) that the occupants of the front bedroom were not, before they were introduced to Mr Zinzuwadia, personal friends or acquaintances with whom he had a relationship or to whom he owed any obligation;
I am satisfied that had an ultimatum been issued to Mr Zinzuwadia that two of the occupants of the bedroom were required to vacate the bedroom, Mr Zinzuwadia would have complied with that ultimatum. Whilst is possible that had Mr Zinzuwadia chosen to ignore such an ultimatum, his lease would have been terminated, a finding to that effect is, in my opinion, in the realm of speculation.
117 In the circumstances, I am satisfied that had periodic inspections of the property been undertaken, it is likely that by January 2008, the front bedroom would have been occupied by no more than two people in accordance with the wish of the landlord.
118 In considering whether factual causation is made out in this case, the question to be posed is whether the defendant’s negligence was a “necessary condition” of the overloading of an electrical circuit within the property by reason of the connection of a number of electrical appliances, including, specifically an older-style cathode computer monitor, to a multi-port power board.
119 When the issue of factual causation is expressed in this way, the difficulty of the task imposed upon the plaintiffs in establishing factual causation is highlighted.
120 In the circumstances of the present case, I am of the opinion that factual causation cannot be made out by the plaintiffs unless the evidence establishes with the requisite degree of certainty that the reduction in the number of occupants of the bedroom from four to two would have altered the use of the bedroom in such a way that the outbreak of the fire would be likely to have been prevented.
121 Given the state of the evidence it is, in my opinion, a matter of speculation as to whether the occupation of the bedroom by only two occupants would have resulted in a relevant alteration in the activity which was responsible for the fire.
122 I express the above view for the following reasons:
(i) Whilst it is likely that the presence of four people within the room increased the probability that all the ports of a six-port power board would be made use of, in the absence of any evidence as to which two of the four residents of the bedroom at the time of the fire would have vacated the premises but for the defendant’s negligence, or the particular habit of the two tenants who would have continued to reside in the bedroom, vis-à-vis, the use of electrical items, the question as to whether a reduction in the number of tenants would have made a material difference to the tendency of the occupants of the bedroom to overload the electrical circuitry of the house, remains a matter of conjecture.
(ii) There is no evidence as to:
· which of the tenants would have vacated the premises; and/or
· whether purchase of the computer monitor was related to or dependant upon the occupation of the bedroom by four tenants and not by two; and/or
· whether the purchase of the computer would not have occurred if the bedroom was occupied by only two people.
123 In the absence of evidence which establishes any of these matters on the balance of probabilities, I am of the opinion that it cannot be said that “but for the defendant’s failure to inspect the property”, the outbreak of the fire would have been avoided.
124 It follows that the plaintiffs have failed to establish factual causation under s.51(1)(a) of the Wrongs Act.
125 As to the scope of liability limb of causation, I am not satisfied that any aspect of this case raises issues which would justify a finding under s.51(2) of the Act.
Causation as to the Claim in Contract
126 In order to establish their entitlement to damages by reason of the breach by the defendant of its contractual obligation to undertake periodic inspections of the property, the plaintiffs must establish that the defendant’s breach was a cause of their loss. The analysis of this issue is to be approached on the basis of the principles enunciated in Marche v E &M H Stramare Pty Ltd[110] and the line of authority following which direct attention to the following matters in considering whether causation is made out:
[110] (1991) 171CLR 506; see also Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968)120 CLR 516
(i) The defendant’s act or omission which materially contributed to the plaintiffs’ damage need not be the sole cause of the damage. It is sufficient if it is a cause;[111]
[111] Roads and Traffic Authority v Royal (2008) 245 ALR 653
(ii) Causation is a question of fact which must be decided by an examination of the entirety of the evidence and the application of commonsense. In this respect, the process adopted by the Court is broader than, and is not confined by, the stricture of a scientific approach and involves the Court standing back from the evidence and making an informed, considered, qualitative appreciation of the whole.[112]
(iii) The “but for” test is an important negative criterion but does not enjoy universal application. In applying the “but for” test in making a finding as to causation, a two-stage process is involved: The first stage involves the application of which is an assessment of the factual situation; the second involves a legal question as to whether, and if so, to what extent, the defendant should be responsible for the consequences of his or her breach in law.[113]
[112]Industries Insurance company v Longmuire [1977] 1 VR 125
[113] See also Roads and Traffic Authority v Royal (supra)
127 In my opinion, by reason of the analysis previously set out in these reasons, the end result of an examination of the evidence as to causation in this matter, whether undertaken pursuant to the provisions of the Wrongs Act or the Common law, leads to the conclusion that it remains within the province of speculation whether a regime of periodic inspection of the property by the defendant would have resulted in the number of occupants of the bedroom being altered in such a manner to have altered the activity which was responsible for the fire so as to prevent its outbreak.
Conclusion
It follows from my findings, that the plaintiffs have failed to establish that the fire, and accordingly the loss, claimed by the plaintiffs in this proceeding were caused in the requisite sense by either:
(i) the breach by the defendant of the contractual duty which it owed to the plaintiffs to undertake periodic inspections of the property;
(ii) the breach by the defendant of the common law duty of care which it owed to the plaintiffs to undertake periodic inspections of the property;
128 I will hear the parties as to the orders which should be made having regard to my findings.
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