Court dismisses claim by “consumer” for damage caused by fire to yacht

Tregidga v Pasma Holdings Pty Limited [2021] FCA 721

The Federal Court of Australia has recently considered and dismissed a claim against contractors carrying out electrical repairs on a yacht for fire damage.  The legal basis for the decision and the reasoning employed by the court is of relevance to both material damage and liability insurers alike.

The Court ruled that the owners of a yacht, who did not engage the contractors to carry out the work, could nonetheless recover for damage to the yacht because they were  “consumers” for the purposes of the Australian Consumer Laws (ACL), Schedule 2 to the Competition and Consumer Act 2010.  This statute is similar to New Zealand’s Consumer Guarantees Act and imposes a duty to exercise care on the supplier of services.  As such, the plaintiffs, as consumers of services were entitled to seek damages from Pasma under the ACL and in tort for any proven breach of the duty of care owed to them. 

Crucially, the Court was not persuaded that the contractors did anything to cause or prevent the fire.  The plaintiffs could not rely on the doctrine of res ipsa loquitur to establish the fire was caused by the contractor.   

Background

A company called Allure Cruises Pty Limited  (Allure), of which the plaintiffs were the sole directors and shareholders, purchased the yacht Miss Angel from a vendor in Turkey, intending to start a business sailing tourists from Cairns to the Great Barrier Reef.  Due to a complication with Turkish law, ownership of the vessel was  transferred into the plaintiffs’ names.

Works were required to be done on Miss Angel for her to meet the Australian commercial survey standard.  Pasma undertook the electrical works.   

A fire started on the vessel in the evening after Pasma had been working on her and Miss Angel suffered extensive damage.  The plaintiffs subsequently brought a claim against Pasma.

The decision

“Consumer” under the ACL

One of the issues that the Court had to decide was whether Pasma’s contract was with Allure or with the plaintiffs.  The Court concluded that on an objective assessment, the contract was between Pasma and Allure, despite the plaintiffs having been her owners.  It followed that the plaintiffs could not advance a claim for breach of contract. Further, Pasma’s terms and conditions of trade were never incorporated as terms of the contract so as to bind the plaintiffs. Pasma had not provided the plaintiffs with a copy of the terms and conditions, nor was there any mention of them in discussions between the parties when they concluded the contract.  Therefore Allure could not rely on these terms and conditions to avoid any liability that may arise.

The plaintiffs claimed, however, that as “consumers” under the ACL, they were entitled to rely on the guarantee in section 60 of the ACL that services supplied by a person in trade or commerce would be rendered with due care and skill,.

The Court found that the plaintiffs met the definition of “consumer”, which requires that a person will be consumer where it acquires services as a consumer which are of a kind ordinarily acquired for personal, domestic or household use.  In connection with services, “acquire” is defined as meaning to accept those services.

Section 60 of the ACL provides that services must be rendered with due care and skill.  The Court held that, as a statutorily imposed obligation not a contractual one, the fact that the plaintiffs were not the contracting parties was not determinative of whether or not the consumer guarantee provisions applied.

Given that the plaintiffs were the beneficiaries of the work carried out by Pasma on Miss Angel pursuant to Pasma’s contract with Allure, the Court held that they were consumers of those services for the purposes of the ACL and were therefore entitled to seek damages under the ACL for any proven breach of the section 60 guarantee.  This was supported by the inclusive definition of “acquire” and the even broader ordinary meaning of “accept” in that definition. 

Pre-existing defect:  any liability in tort?

The evidence suggested that one possible cause of the fire was a pre-existing defect in the electrical system of the yacht.  The Court considered whether Pasma owed a duty to prevent a fire from such a pre-existing defect in the course of carrying out its work.  It concluded that while Pasma owed a duty to the plaintiffs, as owners of Miss Angel, to exercise care to avoid damage to the vessel in carrying out its contracted  works, there was no duty to  prevent the yacht from being damaged by the pre-existing defects in her electrical system.   

The Court considered there to be a reasonably foreseeable risk that the poor condition of the vessel’s electrical system could result in damage to it, but did not consider it to be a significant risk or a high probability.  Further, as the risk of injury or harm was pre-existing, Pasma would only be required to take action to prevent the injury or harm caused to the vessel if there were features of the relationship between Pasma and the plaintiffs that gave rise to this obligation.

The Court concluded that there was no such obligation on Pasma’s part.  The plaintiffs had not sought advice from Pasma with respect to any particular defects or safety concerns about Miss Angel’s electrical system so as to place reliance on Pasma’s skills as a licenced electrician.  Neither did Pasma observe anything during inspections of Miss Angel that caused it to believe there were any defects that were likely to cause a fire.  Except to the extent that it was incidental to the upgrade works, Pasma’s agreement with the plaintiffs also did not require it to attend to any particular defects or safety concerns.  Neither did it have control over the relevant parts of the electrical system.  Finally, nothing that Pasma did altered the existing fire hazard risk.  

Therefore, the Court determined that the scope of Pasma’s duty of care did not extend to requiring it to take action to prevent Miss Angel sustaining injury or harm.

Breach and causation

The Court also found that the plaintiffs failed to establish, on the balance of probabilities, that Pasma breached its duty of care, as there was no evidence that Pasma did or omitted to do anything that resulted in an increase of the fire risk.  While expert evidence found that the probable cause was an electrical fault, it also found four other possible sources of the fire such that the plaintiffs could not draw a reasonable and definite inference that Pasma’s acts or omissions caused the fire.

Therefore, even if a duty was breached, the Court found that neither the breach of duty nor breach of the section 60 guarantee under the ACL caused the fire. Further, the Court found that the plaintiffs could not rely on the principle of res ipsa loquitur – a principle of law which allows the ‘facts to speak for themselves’. The range of possible sources of the fire arising from electrical faults demonstrated that the fire could well have occurred without negligence and that Pasma did not have control of the instrument or agency that caused the injury or harm, namely the relevant parts of the electrical system.

Comment (Pauline Davies)

The Consumer Guarantees Act 1993, is very similar to the ACL.  Both statutes prescribe guarantees in relation to goods or services supplied to the statutorily defined “consumer” and hence the discussion about the duty of care will be directly relevant to New Zealand cases.      

It is also worth noting that Pasma was held not to be entitled to rely on its terms and conditions of trade, as those had not been incorporated into the contract with Allure.  Hence there was no basis for arguing that they might be binding on the plaintiffs. 

Given the number of possible causes of the fire, a finding that Pasma was liable either for starting the fire or not preventing it was a distinct possibility.  That being the case Pasma was fortunate that its failure to follow proper process in making its terms and conditions part of the contract did not cost it dearly.

Pauline Davies is a Partner at Fee Langstone