Australia: Is actio per quod still available in Australia?
Litigation Update

INTRODUCTION

If you think actio per quod is a spell taught at Hogwarts, you better read on.

A couple of the issues before the High Court in Barclay v Penberthy [2012] HCA 40 (delivered 2 October 2012) have kept very few litigators awake at night in recent decades, but were of critical importance to the parties:

• Is the 1808 English case of Baker v Bolton¹good law in Australia? Yes.
• Is actio per quod servitium amisit (per quod)still available in Australia? Yes.

Two other critical issues in the case were:

• Whether a party was "vulnerable" in the sense that it could bring a claim for pure economic loss. Yes, with a strong dissent from Heydon J.
• Whether a party could argue a cause of action, per quod, which had not been pleaded or argued properly, or at all, in the courts below. Yes, with a strong (and again, with respect, compelling) dissent from Heydon J.

BACKGROUND

On 11 August 2003, a twin-engine aircraft crashed near Jandakot Airport in Western Australia due to the failure of its right engine on take-off. Two passengers were killed. The remaining three passengers and the pilot survived. All passengers were employees of Nautronix Limited (Nautronix), a marine communications technology company, which had chartered the aircraft from Fugro Spatial Solutions Pty Ltd (Fugro). The aircraft had been especially modified for the purpose of conducting testing of Nautronix's technology and for carrying the Nautronix employees directly involved in the testing.

The pilot, Mr Penberthy, was employed by Fugro. He was found negligent at first instance for the decisions he made in flight after the engine failed, which contributed to the accident. Another contributing factor was a faulty replacement bearing in the right engine. The bearing had been designed locally by Mr Barclay, an approved aeronautical engineer, and installed approximately three years before the accident. Its specifications were different to the original bearing installed by the aircraft manufacturer. At first instance, Mr Barclay was also found to be negligent for the design specification of the faulty bearing.

There were three issues examined on appeal to the High Court:

• First, Nautronix brought actions for damages against Fugro and its pilot, Mr Penberthy, in negligence and in contract. The damage claimed was in the nature of pure economic loss. The issue was whether Mr Penberthy (and Fugro vicariously) owed a duty of care to avoid the pure economic loss flowing from the loss of services of the three injured employees.
• Second, Nautronix brought a claim in negligence for pure economic loss flowing from the loss of the two deceased employees. The issue was whether the rule in Baker v Bolton, which would preclude an action where the tort resulted in death, should be overruled.
• Finally, Nautronix brought an action in per quod against Fugro, Mr Penberthy and Mr Barclay for the loss of its employees' services. The issue was whether the principle of per quod continued to remain part of the common law, and if so, what the measure of damages was.

HIGH COURT DECLINES TO ABOLISH PER QUOD

The court unanimously held that the action per quod still forms part of the common law of Australia and that, if it was permissible for Nautronix to argue the cause of action, the defendants would be liable. The majority held that the action was available. Heydon J considered it impermissible to allow the action per quod to be pleaded, given the way the proceedings ran.

The principle of per quod can be traced to medieval times. It allowed a master to claim for the loss of his servant, in which it was said he had a quasiproprietary interest, so long as the tortfeasor acted negligently or intentionally towards the servant. The appellants submitted that per quod should be absorbed into the law of negligence and should now not constitute a distinct cause of action.

In negligence generally, no liability arises for breach of a duty of care unless damage is suffered by the person to whom the duty was owed. The appellant argued that an action per quod is an exception to this general rule because the tortfeasor does not owe a duty to the person trying to recover. With the developments of the law of negligence, it was argued this exception should not constitute a separate cause of action and should instead be subsumed by the law of negligence.

The court disagreed that an action per quod is an exception to the general rule of negligence. It is wholly distinct from negligence because a duty of care is owed to the employee and not the employer. A breach of the duty to the employee is the foundation of a claim in negligence. But if the employer is to recover, he must pursue a separate cause of action that is not grounded in principles of proximity of damage resulting from breach of duty of care.

An action per quod provides a remedy where there is a wrongful invasion of the employer's quasiproprietary right held concerning the services his servant is obliged to provide to him. An infringement of that right entitles the master to recover damages.

For these reasons, the majority declined to subsume the principle of per quod into the general law of negligence.

Heydon J added further support to the majority's refusal to abolish an action per quod. His Honour considered that per quod had not been pleaded at trial and that, therefore, it could not be argued on appeal. However, His Honour stated that the action per quod could not be "absorbed back" into general principles of negligence because it was older than the tort of negligence and did not derive from it. If it is antiquated and anomalous in today's society, His Honour stated that this is for the legislature to resolve.

Heydon J finally considered that it would be inappropriate to abolish per quod as a cause of action on the present appeal because it had never been pleaded at trial. To do so would be to deal with a hypothetical question.

BAKER V BOLTON RULE

Nautronix claimed damages for pure economic loss for the loss of the services of the three injured employees. This is a significant part of the quantum of what is sought to be recovered in the litigation. It further sought to claim for losses suffered as a result of the two deceased employees. To do so, it argued that Baker v Bolton should be overruled.

The rule in Baker v Bolton states that "the death of a person cannot constitute a cause of action giving rise to a claim for damages". The plaintiff argued that the rule made it "cheaper to kill than to maim" and that it was an inappropriate principle considering changing societal conditions.

The court decided that there was considerable authority, both in Australia and overseas, that endorsed the rule in Baker v Bolton. It would be a significant step to overrule it, especially in view of the High Court's decision in Woolworths Ltd v Crotty ² , which affirmed the rule. The court considered that it is for the legislature to alter the scope of the rule.

PLEADING POINT RE PER QUOD

An interesting procedural point arose in the case. Of all the issues per quod took up a significant amount of the High Court's deliberation. This cause of action is not mentioned in Murray J's judgment (the trial judge), and is opaquely referred to in the Court of Appeal's judgment. Why? Because it wasn't pleaded or argued in the courts below.

As Heydon J commented: "…actio per quod servitium amisit was distinctly raised for the first time only in (the High) Court."³

All High Court judges agreed that a cause of action can be legitimately raised for the first time in an appeal, provided there is no specific injustice to the other parties. The plurality found that there was no such injustice here. Heydon J, dissenting, found that evidence concerning the relationship between Nautronix and its personnel could have been given at trial, which may have defeated the per quod claim.

This case is strong authority for the proposition that where it is not injustice to the parties, a new or expanded pleading can be introduced at the appeal stage.

LIABILITY UNDER PER QUOD

As discussed above, the court found that an action per quod still exists in Australia. The plurality further found that Nautronix was entitled to rely on the action in this litigation. Mr Barclay and Mr Penberthy were found to be liable to Nautronix in the action per quod. The tort was established for the loss of services of the employees of Nautronix who were injured in the plane crash. This did not constitute a finding of negligence against Mr Barclay and Mr Penberthy as far as Nautronix is concerned. Per quod is a tort but does not form a part of the law of negligence. The court also very narrowly reduced the scope of the entitlement to recover damages for loss of services.

PURE ECONOMIC LOSS

At first instance, Nautronix claimed damages for pure economic loss as against Mr Barclay and Mr Penberthy, such loss arising from the injuries to its key personnel in the accident. To succeed, Nautronix needed to establish that either or both Mr Barclay and Mr Penberthy owed it a duty of care and further that it was "vulnerable" in that it could not protect itself from the foreseeable harm of their negligence.

The trial judge, Murray J ⁴ , found that Mr Barclay did not owe Nautronix a duty of care, because Mr Barclay could not have foreseen Nautronix's losses. As designer of the specifications of the defective part, Mr Barclay's duty of care was limited to the passengers on the plane and the owners of the plane.

Murray J found that Mr Penberthy did owe a duty of care and that Nautronix was vulnerable. The finding against Mr Penberthy was undisturbed by the Court of Appeal and the High Court. Heydon J dissented. Heydon J found that in the absence of evidence that Nautronix could not have negotiated a warranty, it had not proved that it was vulnerable. His Honour said: "The sole answer of Nautronix was that there was no evidence that it could have negotiated for itself 'a watertight contractual warranty' from Fugro. But that impermissibly reverses the burden of proof" ⁵.

The Court of Appeal overturned the finding in favour of Mr Barclay and found him liable for Nautronix's pure economic loss. Interestingly, even though the Court of Appeal found unanimously against Mr Barclay on this point, it was considered so weak that it was abandoned by Nautronix by the time of the High Court appeal so that Barclay succeeded in being found to have no liability to Nautronix for the significant pure economic loss claim.

COMMENTARY

The damages available for the cause of action have been severely limited by the decision in Barclay v Penberthy. The court held that damages for an action per quod extend only to the cost of replacing the employee less the wages that would have been paid to the injured employee. This is a limited right to recover for loss of services.

The court quoted the principle set out in the New Zealand decision Attorney-General v Wilson and Horton Ltd ⁶ [1973] NZLR 238 which stated that, because "a wrong done to the master is an interference with his right to the services of his servant, the damages recoverable should be measured exclusively by the consequences which follow from that interference." The damages should "not be widened to include all consequences which follow merely from the fact that the servant was injured." The court further examined the case law in this area and concluded that lost profits resulting from an employee's injuries cannot be recovered in an action per quod.

Thus, employers should bear this limited utility in mind when considering damages claims for loss of the services of their employees.

CONCLUSION

As a result of this decision we would not be surprised to see the occasional action per quod pursued where legislation has not abolished the right to do so. With the additional limitation on the right to recover damages for this tort, there should be no fear of floodgates.

We think that allowing the per quod claim to be argued in the High Court without it being ventilated in the courts below could potentially lead to more cases being decided on appeal on issues that may fall outside the pleadings – provided there is no prejudice to the other parties.

Footnotes

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