Sheehan v Watson
[2010] NZCA 454
•5 October 2010
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IN THE COURT OF APPEAL OF NEW ZEALAND
CA52/2010
[2010] NZCA 454BETWEENMICHAEL PATRICK SHEEHAN AND ROSEMARY AINSLEY PATERSON AND DAVID WILLIAM COLE AND JONATHON ROSE TOGETHER TRADING AS OTAHUHU JOINT VENTURE PARTNERSHIP
Appellants
ANDTREVOR WATSON
First RespondentANDKEITH ROBINSON
Second Respondent
Hearing:18 August 2010
Court:Stevens, Venning and Simon France JJ
Counsel:C R Langstone for Appellant
C J Hlavac and A L Shakespeare for Respondents
Judgment:5 October 2010 at 3.30pm
JUDGMENT OF THE COURT
A The appeal is dismissed.
BThe appellants must pay costs to the respondents on a band A basis plus usual disbursements. We certify for second counsel.
____________________________________________________________________
REASONS OF THE COURT
(Given by Venning J)
Introduction
[1] This is an appeal from a decision of Harrison J in which he determined that:[1]
(a)the provisions of the Property Law Act 2007 (the Act) prevent a lessor from bringing a claim against an employee of the lessee for damage to the leased premises caused by the employee’s negligence; and
(b)such employees do not owe the lessor an independent duty of care in tort.
[1] Sheehan v Watson [2010] 2 NZLR 419.
Factual basis
[2] The following facts are taken from the lessor’s statement of claim:
(a)The plaintiffs are trustees of two trusts which together, as the Otahuhu Joint Venture Partnership (OJVP), own industrial premises in Otahuhu, Auckland.
(b)By deed dated 1 May 2006 OJVP leased the premises to Penrose Commercial Centre Ltd which in turn assigned its interest to GTR Access Equipment Ltd (GTR) on 7 November 2007.
(c)The respondents are employed by GTR.
(d)On or about 14 March 2008 there was a fire in the workshop at the premises resulting in extensive damage.
(e)The fire was caused by the respondents’ negligence.
(f)OJVP seeks to recover the cost of repairing the damage of $122,874.00 from the respondents.
(g)OJVP had insured the premises with QBE Insurance (International) Ltd, which has indemnified the lessor for its loss.
The decision under appeal
[3] Harrison J identified the first issue as the construction of the relevant provisions of the Act, ss 268–270 in particular:
268 Application of sections 269 and 270
(1)Sections 269 and 270 apply if, on or after 1 January 2008, leased premises, or the whole or any part of the land on which the leased premises are situated, are destroyed or damaged by 1 or more of the following events:
(a)fire, flood, explosion, lightning, storm, earthquake, or volcanic activity:
(b)the occurrence of any other peril against the risk of which the lessor is insured or has covenanted with the lessee to be insured.
(2)Section 269 applies even though an event that gives rise to the destruction or damage is caused or contributed to by the negligence of the lessee or the lessee's agent.
(3)In this section and sections 269 and 270, lessee's agent means a person for whose acts or omissions the lessee is responsible.
269 Exoneration of lessee if lessor is insured
(1) If this section applies, the lessor must not require the lessee—
(a)to meet the cost of making good the destruction or damage; or
(b)to indemnify the lessor against the cost of making good the destruction or damage; or
(c)to pay damages in respect of the destruction or damage.
(2)If this section applies, the lessor must indemnify the lessee against the cost of carrying out any works to make good the destruction or damage if the lessee is obliged by the terms of any agreement to carry out those works.
(3)Subsection (1) does not excuse the lessee from any liability to which the lessee would otherwise be subject, and the lessor does not have to indemnify the lessee under subsection (2), if, and to the extent that,—
(a)the destruction or damage was intentionally done or caused by the lessee or the lessee's agent; or
(b)the destruction or damage was the result of an act or omission by the lessee or the lessee's agent that—
(i)occurred on or about the leased premises or on or about the whole or any part of the land on which the premises are situated; and
(ii)constitutes an indictable offence within the meaning of the Summary Proceedings Act 1957; or
(c)any insurance moneys that would otherwise have been payable to the lessor for the destruction or damage are irrecoverable because of an act or omission of the lessee or the lessee's agent.
270Rights of lessor if insurance for leased premises or land is affected by negligence of lessee or lessee's agent
(1)If this section applies and the destruction or damage is caused or contributed to by the negligence of the lessee or the lessee's agent, the lessor may—
(a)terminate the lease, on reasonable notice to the lessee, if the lessor's ability to obtain or retain insurance cover on reasonable terms for the leased premises or the land on which the premises are situated has been prejudiced by the destruction or damage; or
(b)recover from the lessee any increased insurance costs incurred by the lessor in relation to the leased premises or the land on which the premises are situated as a result of the destruction or damage (including, without limitation, any increases in the insurance premium that are, or become, payable by the lessor or, as the case may be, any insurance excess that the lessor may be required to pay in relation to any future claims for destruction or damage of that kind).
(2)This section overrides section 269.
[4] While accepting that the operative exonerating parts of s 269(1) and (2) referred only to the lessee, and did not expressly refer to the lessee’s agent, Harrison J held that, adopting a purposive approach, the lessee’s employees were to be identified with the lessee for the purposes of s 269. His Honour considered the words “or its employees” could be read into s 269(1) and (2) so that the lessor was prohibited from requiring the lessee or its employees to pay compensation for loss or damage caused to the premises where the circumstances outlined by s 268 applied. Harrison J concluded that the relevant provisions of the Act prevented the appellants from recovering damages from the employees for the loss caused by the fire at the premises.
[5] Harrison J then went on to consider whether, in the alternative, the respondents arguably owed OJVP a duty of care in tort. He considered it would not be fair, just or reasonable to impose a duty where the respondents’ employer had paid for cover against the risk and OJVP had been indemnified by its insurer for the loss it suffered as a result of the respondents’ negligence. He held that policy considerations militated against the recognition of a duty where the purpose of the duty was effectively to circumvent the statutory prohibition on bringing such a claim against the party which would normally bear the financial consequences of its employee’s negligence and, where by an indirect route, the result would disturb or negate the statutory and contractual structure. He concluded that the policy reasons negated a duty of care.
The appeal
[6] Mr Langstone for the appellant advanced the following submissions:
·The wording of the relevant sections of the Act are clear and unambiguous. They do not exonerate employees who are lessee’s agents from liability in the present circumstances;
·There is no justification for departing from the plain meaning of the words used by Parliament in the relevant sections because:
(i)there is no gap in the wording of the sections which needs to be filled; and
(ii)there has not been any unforeseeable social, legal or economic change or development since the Act was drafted that would require the Court to adopt a purposive approach to stretch the meaning of the word lessee in the Act or to interpret it to mean something other than what it clearly states.
·Applying the relevant sections of the Act in accordance with their natural and ordinary meaning does not lead to a result which is so unworkable as to be absurd.
·There is no valid policy reason to negate a duty of care owed by a lessee’s negligent employee to the lessor.
Decision
[7] The starting point is the statutory wording. The effect of s 269 is that, subject to a number of limited exceptions, in the event of the destruction of or damage to the leased premises the lessee is exonerated from the economic consequences of the loss.
[8] The limited exceptions to s 269 are identified in s 269(3):
(a)the destruction or damage was intentionally done or caused by the lessee or the lessee’s agent;
(b)the destruction or damage was the result of a criminal act committed on or about the leased premises by the lessee or lessee’s agent;
(c)an act of the lessee or lessee’s agent has made any insurance moneys otherwise payable for the destruction or damage irrecoverable (to the extent that the moneys are irrecoverable).
[9] If, as in this case, the exceptions do not apply, the lessee is exonerated from the economic consequences of the destruction of or damage to the leased premises caused by the events noted in s 268(1), even if the event was caused or contributed to by the lessee or the lessee’s agent: s 268(2). The exoneration applies in the event of the destruction of or damage to the premises by fire, flood, explosion, lightning, storm, earthquake or volcanic activity (whether or not the lessor carries insurance for the event): s 268(1)(a). It also applies if loss occurs by any other peril against which the lessor has insured or has covenanted to insure: s 268(1)(b).
[10] Mr Langstone’s primary submission was that the wording of the relevant sections was clear. While the lessee was exonerated, the lessee’s agents were not. The respondent employees were lessee’s agents and were not covered by the exoneration. There was no need for the Court to look any further into the matter.
[11] However, as Tipping J confirmed in delivering the decision of the Supreme Court in Commerce Commission v Fonterra, even if the meaning of the text of a statute appears plain when read in isolation, the meaning should always be cross-checked against purpose:[2]
It is necessary to bear in mind that s 5 of the Interpretation Act 1999 makes text and purpose the key drivers of statutory interpretation. The meaning of an enactment must be ascertained from its text and in the light of its purpose. Even if the meaning of the text may appear plain in isolation of purpose, that meaning should always be cross-checked against purpose in order to observe the dual requirements of s 5. In determining purpose the Court must obviously have regard to both the immediate and the general legislative context. Of relevance too may be the social, commercial or other objective of the enactment. [3]
[2]Commerce Commission v Fonterra Co-operative Group Ltd [2007] NZSC 36, [2007] 3 NZLR 767 at [22].
[3]See generally Auckland City Council v Glucina[1997] 2 NZLR 1 (CA) at p 4 per Blanchard J for the Court, and Burrows, Statute Law in New Zealand (3rd ed, 2003), p 146 and following.
[12] The purpose of an Act may be contained in its long title or, in some instances, a specific section identifying the purpose.
[13] Section 3 confirms the purpose of the Act is to restate, reform and codify (in part) certain aspects of the law relating to real and personal property. Such a general statement does not directly assist the Court to ascertain the specific purpose of ss 268–270. It is necessary to consider the general legislative context and the objectives of the legislation. In that context it is permissible to have regard to external materials, such as Law Commission reports, explanatory notes and Hansard: 9 Cornwell Crescent London Ltd v Kensington and Chelsea Royal London Borough Council;[4] New Zealand Maori Council v Attorney-General;[5] R v Pora.[6]
[4]9 Cornwell Crescent London Ltd v Kensington and Chelsea Royal London Borough Council [2005] EWCA Civ 324; [2006] 1 WLR 1186 at [50] and [52].
[5] New Zealand Maori Council v Attorney-General [1987] 1 NZLR 641 (CA) at 658.
[6] R v Pora [2001] 2 NZLR 37 (CA) at [104].
[14] The proposals for change to the then Property Law Act 1952 were initially advanced by the Law Commission in a preliminary paper issued in July 1991.[7] In relation to the consequences of damage or destruction to the leased premises, the Commission noted the unsatisfactory state of the law and that:
... most tenants believe that they are protected under insurance cover arranged by their landlord. It does not usually cross their minds that, if their negligence is the cause of the destruction of the premises, they may be liable for it in an action brought by the landlord or the insurer of the landlord.
[7] Law Commission The Property Law Act 1952 (NZLC PP16, 1991).
[15] The Commission proposed to reform the law to avoid the problems arising out of the conflicting decisions of: Marlborough Properties Limited v Marlborough Fibreglass Limited;[8] Leisure Centre Ltd v Baby Town Ltd;[9] andPerimeter Investments Ltd v Ashton Scholastic Ltd.[10] Similar issues had also arisen overseas: Ross Southward Tire Ltd v Pyrotech Products Ltd;[11] Mark Rowlands Ltd v Berni Inns Ltd.[12]The Commission noted that rather than reflecting the apparent economic reality the decisions instead focused upon the provisions of individual lease contracts. The Commission noted that a number of the decisions turned on fine, probably unintended, nuances in the wording of such lease contracts. It proposed that the lessee be exonerated so that the lessor’s insurer would be prevented from being subrogated to the lessor’s position in order to sue the lessee.
[8] Marlborough Properties Limited v Marlborough Fibreglass Limited [1981] 1 NZLR 464 (CA).
[9] Leisure Centre Ltd v Babytown Ltd [1984] 1 NZLR 318 (CA).
[10] Perimeter Investments Ltd v Ashton Scholastic Ltd [1989] 2 NZLR 353 (HC).
[11]Pyrotech Products Ltd v Ross Southward Tire Ltd [1976] 2 SCR 35.
[12] Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211 (CA).
[16] After receiving submissions in response to the discussion paper, the Law Commission delivered its report in June 1994. The report contained draft legislation which formed the basis of the Act. The Commission noted the intention was:[13]
particularly to prevent an insurer of a lessor from exercising by subrogation, a right on the part of the lessor to claim against the lessee in circumstances in which the destruction or damage to premises arose from negligence on the part of the lessee. It therefore removes, or severely restricts, the lessor’s right so to claim.
[13] Law Commission A New Property Law Act (NZLC R29, 1994) at [666].
[17] Of interest is that the report noted that submitters had suggested the proposed reform should go so far as to impose upon the lessor the risk of destruction or damage caused by events even when the lessor had no insurance cover, so that, even in those circumstances, the lessor would be unable to sue the lessee.
[18] The Commission adopted those submissions in its report. The draft legislation provided that, other than where the intentional destruction or damage was caused by the lessee or someone for whom the lessee was responsible, the lessor was to bear the risk if the leased premises were damaged or destroyed by certain events. The events identified were fire, flood, explosion, lightning, storm, earthquake or volcanic activity (whether or not the lessor was insured) and any other event against the risk of which the lessor may have insured or covenanted to insure.
[19] As a counterbalance to the extension of the lessor’s risk the Commission proposed to permit the lessor and lessee to agree in writing that the lessor had no insurance cover or was only covered in respect of particular risks to a limited extent. However, that contracting out proposal was not adopted in the legislation as passed.
[20] The Commission acknowledged that the proposed changes would nullify the insurer’s right of subrogation. The Insurance Council made submissions on that point and argued against the proposed reform. But the Commission rejected the Insurance Council’s submissions, noting that “the law is, as we see it, out of kilter with the expectation of lay tenants ...”. The clear intent of the reform was to put the risk of loss on the lessor and to take away the right of the insurer to be subrogated to the position of the lessor and thus be able to sue the lessee.
[21] When the Bill was introduced to Parliament on 14 November 2006 it was noted that the Law Commission had addressed the concern that lessees could be liable under a lease covenant for repairing premises damaged through their negligence, even though the lessor was protected by insurance that was directly or indirectly paid for by the lessee.[14] No further reference was made to the relevant provisions.
[14] (14 November 2006) 635 NZPD 6461.
[22] In the course of the Bill’s second reading on 11 September 2007 it was noted that lessees were released from liability for damage to leased premises where the damage resulted from events such as fire or flood or from any danger for which the lessor was insured and it was also noted that the select committee had recommended a provision to ensure that lessees who caused damage through committing a serious criminal offence were not released from liability.[15]
[15] (11 September 2007) 642 NZPD 11763.
[23] The background materials show that s 268(1)(a) follows the draft in the report which the Commission noted extended the lessor’s liability to situations where the lessor was not insured. That is despite the heading of both the draft and enacted section. It seems from both the structure of the section and the Commission’s report that the lessor is to bear the risk of loss in the events noted in s 268(1)(a) whether or not it insured or has convenanted to insure against such risks.
[24] In any event, in the present case the lessor is insured. The common theme that emerges from a review of the Commission’s preliminary paper in 1991, the report in 1994, and the Act, is that where the lessor is insured (or has covenanted to insure) the economic reality is that the lessee has paid for the cost of that insurance, either directly by an express clause in the lease or otherwise in the level of rental, so that it would be unreasonable to require the lessee to have to pay again for its own insurance (for the same risk) or to face a claim by the lessor or its insurers. The reform sought to confirm the lessor was to bear the risk, not the lessee.
[25] The Commission report and draft recommendation was, understandably, confined to a discussion of the lessee’s obligations and the relationship of lessor and lessee, because that was the source of the problems in the law at the time. In the event of damage to or destruction of the premises caused by the lessee (which, apart from a sole trader would inevitably have been caused by the lessee’s employees) the lessor (or, if insured, its insurer) looked to the lessee for recovery. The Commission’s proposals for reform sought to address the issues arising out of that. The prospect of the lessors (or their insurers through subrogation) suing the lessee’s agents (which includes its employees) was simply not considered.
[26] In summary, the purpose of the proposed reforms in this area was to address the unsatisfactory state of the case law and its economic unreality by:
(a)imposing the risk of damage or destruction of the premises on the lessor, even in the absence of insurance; and
(b)preventing the insurer, (where the lessor had insurance), from exercising by subrogation, a right to claim against the lessee.
[27] Those objectives and the purpose of the reform would not be met if the lessor (or its insurer by subrogation), while prevented from suing the lessee, could still sue the lessee’s agents.
[28] On the appellant’s argument, the lessee, who would otherwise be liable by reason of vicarious liability for the actions of its employees, would have no liability but its employees would. As Harrison J noted, a company, or for that matter a partnership, can only act through the agency of its employees. Taking the appellant’s argument to its logical conclusion the Act would not prevent or limit litigation as to liability for damage to leased premises even though it is expressed to apply where the damage is caused by the lessee or the lessee’s agent. The examples the Judge gave highlight the point. A lessee trading in his own name, who incorporates during the course of the lease and takes an assignment of the lease, would be immune from suit before incorporation but, from the moment of incorporation and the consequential change of legal status from principal to employee, would be personally liable for the loss or damage caused by him.
[29] At the other end of the scale are large corporations. Harrison J suggested the example of Fonterra. A further example to the same effect would be Telecom. Such a company would always be exposed whenever the lessor or its insurer by subrogation sued the employee for damage to leased premises. Inevitably the employees would not be in a position to respond to such a claim in any worthwhile or practical sense. As Harrison J observed, a responsible employer would indemnify the employee, thereby negating the employer company’s statutory protection and the purposes of ss 268 and 269. A prudent lessee would arrange separate cover for such risk, which would be different and additional (at the very least in terms of additional premiums) to the public liability policy which might otherwise apply in relation to work conducted off-site. The purpose of the reform would, in large part, be frustrated by such an outcome.
[30] There would be little point in preventing the lessor from suing the lessee (to avoid the need for the lessee to insure separately against that risk) if the lessor was able to sue the lessee’s employees and, to cover that position, the lessee was forced to insure against that risk as well as paying the lessor’s premiums.
[31] We conclude that neither the Commission nor Parliament directed their mind to the position regarding the lessee’s agents being sued for loss. The issue had not arisen in the cases considered by the Commission because the focus of the lessor’s claims was against the lessee. In the one case where the lessee’s employees were sued as well, Perimeter Investments, the focus of the judgment was on the lessor’s claim against the lessee. The Court did not consider it necessary to consider separately the position of the employee. The lessee was vicariously liable for its employee and if the lessee was not exonerated, nor could the employee be exonerated.
[32] To apply the express wording of the Act, as Mr Langstone submits we should, would not achieve the purpose of the legislation. It would lead to an impractical situation which would frustrate the purpose of the reform. The issue then is whether the court may read words into the section to avoid that outcome.
[33] In Frucor Beverages Ltd v Rio Beverages Ltd this Court noted that once satisfied as to the intention of Parliament the Court should strive to arrive at a meaning which gives effect to that intention: [16]
The principles of interpretation which assist the Courts in that exercise are well established. They reflect commonsense propositions and should, therefore, be applied sensibly. Thus, it would be less than sensible to presume that Parliament intended to legislate in a manner which is absurd. Indeed, it would be uncharitable, if not presumptuous, for the Courts to approach the task of interpreting Parliament’s legislation on any other basis. Thus, the Courts have come to give the concept of “absurdity” a wide meaning, using it to include virtually any result which is unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate counter-mischief. See Bennion, Statutory Interpretation 3rd ed at p 751; see also Laws NZ, Statutes para 181, at p 177.
And later:[17]
... The Court will strive for an interpretation which will make the Act work in the manner that the Court presumes Parliament must have intended. See Commerce Commission v Telecom Corporation of New Zealand Ltd [1994] 2 NZLR 421, per Cooke P at pp 424 – 425; Capital Coast Health Ltd v New Zealand Medical Laboratory Workers Union Inc [1996] NZLR 7, per Hardie Boys J at p 18; and McDonald v Australian Guarantee Corporation (NZ) Ltd [1990] 1 NZLR 227 at p 237.
[16] Frucor Beverages Ltd v Rio Beverages Ltd [2001] 2 NZLR 604 at [28].
[17] At [29].
[34] If the interpretation is restricted to its statutory wording in the present case it would frustrate the objective of the legislation, which was to remove the ability of a lessor or its insurer by subrogation to pursue the lessee for the loss or damage. The Courts will strive to avoid an interpretation that would leave the legislation in the position where it does not achieve its objective: Delaney v Staples;[18] Longman v Viscount Chelsea;[19] Re Loftus (deceased), Green & Others v Gaul & Others.[20]Parliament must be taken not to intend that the carrying out of its enactments will be unworkable or impracticable.
[18] Delaney v Staples [1992] 1 AC 687 (HL) at 696.
[19] Longman v Viscount Chelsea [1989] 2 EGLR 242 at 246.
[20]Re Loftus (deceased), Green v Gaul [2005] EWHC 406, [2005] 1 WLR 1890 (Ch).
[35] The authors of Burrows and Carter Statute Law in New Zealand make the same point:[21]
... where it is necessary to avoid absurdity or unworkability, or the frustration of Parliament’s purpose, the courts will sometimes go a considerable distance in reading qualifications into the words of the statute.
[21]JF Burrows and RI Carter Statute Law in New Zealand (4th ed, LexisNexis, Wellington, 2009) at 308.
[36] Reference can be made to the passage of Lord Diplock’s judgment in Jones v Wrotham Park Settled Estates Ltd as to the circumstances that may exceptionally justify the reading in of such qualifications or words:[22]
First, it [must be] possible to determine from a consideration of the provisions of the Act read as a whole precisely what the mischief was that it was the purpose of the Act to remedy; secondly it [must be] ... apparent that the draftsmen and Parliament had by inadvertence overlooked, and so omitted to deal with, an eventuality that required to be dealt with if the purpose of the Act was to be achieved, and thirdly, it [must be] ... possible to state with certainty what were the additional words that would have been inserted by the draftsmen and approved by Parliament had their attention been drawn to the omission before the Bill passed into law.
[22] Jones v Wrotham Park Settled Estates Ltd [1980] AC 74 (HL) at 105.
[37] To similar effect, in Air New Zealand Ltd v McAlister, Tipping J accepted the proposition from Burrows and Carter State Law in New Zealand that the Court can correct a drafting error by addition, omission or substitution of words if three conditions are satisfied:[23]
(i) the Court must be sure that there is a drafting error;
(ii) the Court must be sure what Parliament was trying to say; and
(iii)the necessary correction must not involve too great a re-writing of the defective language.
[23] Air New Zealand Ltd v McAlister [2009] NZSC 78, [2010] 1 NZLR 153 at [96]–[97].
Tipping J noted that such a formulation was supported by the speech of Lord Nicholls in Inco Europe Ltd v First Choice Distribution.[24]
[24] Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586 at 592.
[38] A final example of the significance accorded to the purpose of the legislation is: R v Wall.[25] As Cooke J said in that case,[26] quoting from Lord Scarman in Stock v Frank Jones (Tipton) Ltd:[27]
Not to understand the legislative words as subject to an implicit qualification would be to “destroy the remedy established by Parliament to deal with the mischief which the Act is designed to combat”. It would be to hold Parliament to a verbal error "which in its context defeats the intention of the Act”.
[25] R v Wall [1983] NZLR 238 (CA).
[26] At 240.
[27] Stock v Frank Jones (Tipton) Ltd [1978] 1 All ER 948 (HL) at 955.
[39] We are satisfied that the principles discussed in the above authorities are applicable to the present case. If the situation that has occurred in this case had been drawn to its attention, in our judgment, Parliament would have redrawn the relevant provisions so as to extend the benefit of the statutory protection to the lessee’s agents, to give effect to the clear purpose that those for whom the lessee is responsible at law are exonerated as well as the lessee who can only act through them.
[40] Mr Langstone sought to make something out of the fact the relevant sections referred to the actions of the lessees’ agents but the drafters had deliberately chosen not to use that phrase in the exoneration provisions. But the reference to the lessee’s agents is to confirm the exoneration is to apply even if the damage or destruction is caused by the lessee or the lessee’s agents. As noted, the lessee will normally act through its agents.
[41] Although decided on a different point the Canadian Supreme Court’s discussion about the identification of interest between employers and employees in London Drugs Ltd v Kuehne & Nagel International Ltd is of interest.[28] The employees of a warehouse company which was storing the appellant’s goods negligently damaged the goods in the course of moving them within the warehouse. The contract between the appellant and the company included a limitation of liability clause, limiting the company’s liability on any one package to $40. The appellant sued the warehouse company and the employees for damages for breach of contract and negligence.
[28] London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299.
[42] The majority of the Court held the employees owed a duty of care to the appellant when handling the goods but also held the employees were entitled to the benefit of the limitation of liability clause contained in the contract between the employer and the appellant. The Court noted the employees were effectively third party beneficiaries to the limitation of liability clause and could benefit from it. There was an identity of interest between the employer and its employees as far as
the performance of the employer’s contractual obligations was concerned and an employee should be entitled to a benefit from the limitation of liability clause if:(a)the clause either expressly or impliedly extended its benefits to the employee; and
(b)the employee seeking the benefit of the clause was acting in the course of the employment and performing the very services provided for in the contract when the loss occurred.
[43] The same reasoning is applicable in New Zealand under s 4 of the Contracts (Privity) Act 1982. By analogy, the lessee’s agents should be entitled to the same protection the lessee is when that is consistent with the purposes of the legislation.
[44] For those reasons we are satisfied that the reference in the operative exonerating parts of s 269(1) and (2) to the lessee must include the lessee’s agents so that the lessee’s agents are exonerated as well. We prefer to apply the extension to the lessee’s agents, rather than lessee’s employees, as the Judge did, because that is a term used in the section itself. It is limited to those persons for whom the lessee is responsible. An employee for whom the employer is vicariously liable falls into that class: NZ Guardian Trust Co v Brooks.[29]
[29] NZ Guardian Trust Co v Brooks [1994] 1 WLR 96 (PC).
[45] Mr Langstone referred to the issue of independent contractors and suggested they showed the problem with such an interpretation. But independent contractors do not come within the definition of lessee’s agents because a lessee would not be responsible for the actions of an independent contractor [30]
Duty of care
[30] Honeywill & Stein Ltd v Larkin Bros Ltd [1934] 1 KB 191 (CA).
[46] We turn now to the second issue: whether in the circumstances of this case the lessee’s agents owe the lessor an independent duty of care. Given our conclusion on the first issue, there is no need to consider the second issue. Absent s 269, the appellants can only have had a claim against the respondents in negligence. If s 269 applies to the respondents, as we have held it does, there can be no such claim. A duty of care cannot exist when Parliament has legislated to abolish any existing duty. Accordingly, the topic needs addressing only if we are wrong in our assessment that the legislation can be read to include the lessee’s agent in the absence of express words.
[47] The issue was argued before us and we propose to deal with it briefly.
[48] For a duty of care to exist there must first be a sufficient degree of proximity or relationship between the wrongdoer and the person who has suffered the harm. If there is such proximity, the next issue is whether there are policy considerations which tend to negative or restrict (or strengthen) a duty.[31]
[31]South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282 (CA).
[49] As the Judge found, and Mr Hlavac conceded, there is a sufficient degree of proximity between the appellants and the respondents so that the first stage of the test is satisfied in this case. The real issue is whether there are policy considerations that negate the existence of a duty.
[50] Mr Langstone submitted that there was no policy reason to exclude the duty of care in that Parliament must have been aware that a lessee could be vicariously liable for the actions of its employees and agents but nevertheless chose not to exclude such actions. Further, vicarious liability would not attach where the employee went off on a frolic of their own.
[51] For the reasons given above, we do not accept that Parliament has deliberately excluded the lessee’s agents from cover under the section. The focus was on exonerating the lessee who has paid the cost of the insurance of the premises, although the cover is held by the lessor. The same principle and policy supports the exoneration of the lessee’s agents. The courts have refused to extend a duty of care where to do so would undermine the statutory scheme of relevant legislation,[32] as would be the case here.
[32]South Pacific at 297–298.
[52] Although the issue does not arise in this case, if the employee or other agent went off on a “frolic of their own”, then arguably the lessee would not be responsible for them. However, we do not need to determine that issue as it is accepted the respondents were acting in the course of their employment in this case.
[53] Next, while we consider that the Judge was wrong to state that, once indemnified, the lessor did not suffer any loss and the insurer could be in no better position, as that would defeat the purpose of subrogation, it is apparent from the Commission Report that the intention was to restrict the right of subrogation. Any increased risk created by the lack of opportunity to recover against a lessee’s employees (which from a practical economic point of view must be limited) could be reflected by the level at which the insurers would fix the insurance premium (which the lessee would pay).
[54] For those reasons we conclude that public policy considerations would exclude a duty of care in the circumstances of this case.
Result
[55] The appeal is dismissed. The respondents are to have costs.
Solicitors:
Jones Fee, Auckland for Appellants
Young Hunter, Christchurch for Respondents
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