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Court rules employer can sue for employee's d -

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Damien Carrick: Now to another recent decision of the High Court of Australia: a big legal win for Nautronix. It’s a high-tech company founded in Fremantle that now has operations across the world. The company develops underwater acoustic systems that are used by the offshore oil and gas industry and also by navies to help them locate submarines. Nautronix sits on the technological cutting-edge, but last week it succeeded in court by relying, at least partially, on a medieval legal doctrine.

Back in 2003, Nautronix chartered a plane to carry out some tests on a new acoustic system. The plane crashed, killing two employees and seriously injuring three others. As you’d expect, the survivors and the families of the deceased sued those responsible for the accident, but unexpectedly, Nautronix, the employer of the five men, also sued those responsible for the crash. It sued for the economic cost of losing five very valuable employees. Professor Peter Handford is a leading expert in the law of torts. He’s based at The University of Western Australia. He says this case raises some fascinating issues around who should be able to sue in the event of catastrophic personal injury.

Peter Handford: This case began when they chartered an aircraft from a company called Fugro to do some of this work. They had the aircraft fitted out with some special equipment and it took off from Jandakot Airport here in Western Australia, but unfortunately it crashed very soon after takeoff and it had five of Nautronix’s key employees on board, and three of them were injured and two of them died in the crash.

Damien Carrick: So there were five passengers, two died, three very badly injured. After the accident there was a legal action by a number of different parties: the three surviving parties, the spouses of the deceased passengers, and also by Nautronix. Those three parties, who did they sue? What actually...who did they take action against?

Peter Handford: There are three defendants in the case: there’s Fugro, the company that chartered the plane, there’s a man called Barclay who is an engineer who designed the particular replacement part for one of the engines, and that part was faulty, and that was one of the causes of the crash, and then there was the pilot of the aeroplane, Mr Penberthy who was an employee of Fugro, and all three of those are sued. Now, in terms of the legal claims, essentially there are two, as far as Nautronix is concerned, but perhaps we ought first to say that the most straightforward claims are those on behalf of the injured men and the spouses of the two dead employees; they are claims for personal injury, and those claims succeed against all three defendants.

Damien Carrick: So the human tragedy, of course, the permanent injuries, the tragedies experienced by these real people and their families. Fortunately, those personal injury claims were successful, and I think they were settled at an earlier point, but what went to the High Court was this issue around economic loss of the company.

Peter Handford: Yes, there were two bases for the economic loss claim. There was a claim in the tort of negligence, and unlike, say, a personal injury matter when we’re talking about the duty of care in negligence in respect of economic loss, we’re really at the cutting-edge of the tort of negligence; claims are recognised only in certain circumstances, and it’s only over the last 40 or 50 years that courts have been prepared to entertain claims for economic loss in negligence at all. So that’s one of the claims, in negligence, and the other claim interestingly enough is a rather ancient cause of action that was recognised to lie in favour of an employer in respect of the loss of services of his employee, and that really comes to prominence in this High Court action, because it’s regarded as an alternative to negligence, and in the end Nautronix succeed on both of those bases.

Damien Carrick: So what exactly…what damage or harm or loss were Nautronix arguing for, and were found to have a legitimate claim for?

Peter Handford: It’s the economic losses they suffer consequent on the loss of these particular employees, who were all key employees and would’ve been hard to replace, but if you think about it, an employer who does suffer loss if an employee is injured, for example, you’ employers would continue to pay sick pay, they might suffer losses consequent on the delay in replacing or the difficulty in finding replacements.

Damien Carrick: And that’s because these workers were highly specialised people, not easy to replace, so the loss of their services would impact on the company?

Peter Handford: Yes, I think that’s right.

Damien Carrick: Now tell me, were they able to recover for both the workers who died and those who were injured?

Peter Handford: Now, there’s a difference in relation to the two workers who died, and here we come to another old rule, it’s known as the rule in Baker and Bolton—that’s a case decided in 1808 in England—in which it was said that in the civil court you can’t complain of the death of somebody else in an injury. Now, it caused some problems, particularly in the family context where a worker might die and the consequence of that rule would be that this family couldn’t make any claim, and at a fairly early point legislation was passed to reverse that position in the family context; it’s known as the Fatal Accidents Act, passed in England in 1846 and copied in all the Australian jurisdictions. So, in this case the spouses of the two dead workers would’ve recovered compensation under the Fatal Accidents Act, so as I say, in that family context, the position has been affected by statute, but the question is whether the rule still survives in other contexts, like this one, where we’re talking about the possible loss suffered by an employer as the result of the death of his employees, and the High Court holds that the rule still holds good in that context, and so the consequences as far as Nautronix is concerned, they don’t have any claim in respect of the loss of the two dead employees.

Damien Carrick: Only of the three...

Peter Handford: That claim is restricted to the three injured ones.

Damien Carrick: It’s a strange state of affairs; I’ve seen a quote that this rule means it is cheaper to kill than to maim.

Peter Handford: That, yes, indeed, that has been said.

Damien Carrick: Now, there was also…I think there was also another argument put forward by Nautronix, and that was around a very old doctrine a per quod servitium amisit. I’m not sure if I’ve got the pronunciation right. What’s that about?

Peter Handford: Well, in English it’s an action for loss of services. The action for loss of services is an action by an employer for the loss of services of a servant, and there was another very closely related rule which was an action by a husband for the loss of the services of his wife, and these rules are very, very old; medieval in origin, they go back to the idea of the husband as the head of the household, and his family is rather like little bits of property. So, very old, medieval in origin, and in England, for example, this action for loss of services that lay on behalf of an employer was long ago held to be limited to domestic servants, and since then it’s been abolished by statute.

Damien Carrick: Amazing, so this very, very high-tech, cutting-edge company has relied on what sounds like a medieval doctrine.

Peter Handford: That is quite right, yes. Australian law generally is more ready to recognise claims for economic loss than say English law is; there are many differences in that respect.

Damien Carrick: Can we talk more about this concept of pure economic loss? It’s very interesting, one of the...Cardozo—he’s a famous New York judge—described recovery for pure economic loss as ‘liability of an indeterminate amount for an indeterminate time to an indeterminate class.’ He didn’t think it was a good idea. What other kinds of cases have there been of pure economic loss?

Peter Handford: Justice Cardozo was talking in the context of a case involving an accountant who had negligently misstated figures in the annual report, and in Australia there are cases on solicitors who’ve been negligent in relation to the execution of wills, with the result that beneficiaries don’t get the beneficial interest they’re supposed to receive, and solicitors have been held to be under a duty of care, and perhaps most closely related to this case there have been cases where people have suffered economic loss because of their relationship to the property of somebody else, which has been damaged. For example, the leading case before this, the Perre and Apand case, involves potato growers, and there was disease on a particular property, and under the regulations all farms within a 20 kilometre radius of that were prohibited from exporting their potatoes from South Australia to Western Australia, because of their proximity to the farm where the disease had been identified. So those potato growers suffered economic loss because of their relationship with somebody else’s property. What’s interesting about this case is that, for the first time as far as I know, the High Court is saying that in certain circumstances a duty of care can be owed in relation to economic loss suffered by somebody because of their relationship with people who are injured, not property that is damaged, but people who are injured, and I find that very interesting.

Damien Carrick: Really interesting, because some jurisdictions have embraced pure economic loss, some haven’t. The Canadians have, and there are some very interesting cases, one of them described in the judgment is the Genereux and Peterson, Howell & Heather, which was a very interesting case about a solicitor and his wife who was a law clerk who he didn’t pay for her services, but then she was run over in an accident and he then sued the person responsible for the accident for the cost of employing somebody to replace her.

Peter Handford: Yes, that is interesting, because in effect he’s suing as her employer, I suppose, but she also happens to be his wife. It’s certainly true that if you look around the common law jurisdictions, as I say, England has very much held back from extending the law of negligence into the area of pure economic loss. Australia has been much more ready to do so.

Damien Carrick: And do you have a view about what road we should be travelling down?

Peter Handford: I might’ve started off with the idea that the employer’s claim was a rather anomalous survival of an old principle. I’m perhaps now less convinced of that. Having read the judgments in this case I can see that employers do suffer losses in this context, which they might not be able to claim for unless they’re able to invoke this particular principle. So perhaps my view is less firmly settled now after reading this case than it was before.

Damien Carrick: Professor Peter Handford, a leading expert in the law of torts who’s based at The University of Western Australia. That’s it for the Law Report for this week, I’m Damien Carrick, thanks to producer James Pattison and also to audio engineer Matthew Crawford. Do visit our website at and from there follow the links to the Law Report page. Talk to you next week with more law.