Barclay v Penberthy [2012] HCA 40

Barclay v Penberthy [2012] HCA 40 - HCA 2012 case summary — Zoe

[24]

Fugro Spatial Solutions Pty Ltd ("Fugro") was the holder of an Air Operator's Certificate issued by the Civil Aviation Safety Authority ("CASA") pursuant to the Civil Aviation Act 1988 (Cth) ("the Act") in respect of a Cessna 404 Titan Twin Engine Aircraft with the registration number VH-ANV ("the Plane"). The certificate authorised the conduct of activities including aerial survey work. There has been no issue as to whether the flight in which the Plane crashed was authorised by that certificate.
Fugro was a member of an international corporate group and was ultimately owned by a company in the Netherlands. Fugro carried on the business of providing air charter services for commercial purposes, including the testing and development of technology, from premises it occupied at Jandakot Airport, near Perth. Mr Alec Penberthy was employed by Fugro as a commercial pilot.
Mr Aaron Barclay was an aeronautical engineer employed by Aeronautical Engineers Australia Pty Ltd ("AEA") and was an authorised person, within the meaning of the Civil Aviation Regulations 1988 made under the Act, to approve the design for a modification to or repair of an aircraft component. In July 2000, AEA was engaged to advise whether a sleeve bearing within an engine driven fuel pump in the Plane could be replaced locally. Mr Barclay advised that this could be done and he drafted the design drawing for the local manufacturer of the sleeve bearing, using an aluminium bronze alloy. The bearing was then manufactured and on 18 October 2000 was installed in the right engine of the Plane. The Plane then went back into service.
Nautronix (Holdings) Pty Ltd ("Nautronix Holdings") held the whole of the issued share capital of Nautronix Limited ("Nautronix")[4]. These companies have related corporations in the United States. By assignment from Nautronix made in July 2006, Nautronix Holdings sued in the Supreme Court upon relevant claims of Nautronix.
In 2003, Nautronix carried on the business of researching and developing marine technology, in particular, acoustic technology for subsea communications used in defence, oil and gas, and related industries. At its premises on Marine Terrace in Fremantle, Nautronix had about 100 employees. These included the Engineering Director, Mr Harry Protoolis; the Project Manager, Mr Steven Warriner; the software team leader, Mr Malcolm Cifuentes; the Project Manager, Mr Michael Knubley; and Mr Ozan Perincek, who was the Systems Engineer. Mr Protoolis was killed instantly in the crash and Mr Warriner died several months thereafter from his injuries. Messrs Cifuentes, Knubley and Perincek were on the flight and were injured but, with the pilot, Mr Penberthy, they survived.
Nautronix was testing equipment of its design which was intended to indicate from aircraft the position of submarines and to provide communications with them. This was being done with a view to Nautronix selling the equipment to the Royal Australian Navy and the United States Navy. The testing involved flying the Plane, as modified by Fugro to accommodate the equipment and its operation, to a destination in the Indian Ocean west of Rottnest Island where there was a naval support surface vessel. Nautronix understood that there also was a submarine on the flight path of the Plane.
On Thursday 7 August 2003, Mr Warriner as Project Manager for Nautronix sent an e-mail to two officers of Fugro confirming, "Following discussions this morning", what were "the following requirements":

[29]

In the Supreme Court, proceedings CIV 1312/08 were commenced by the two Nautronix companies, the three surviving passengers and the spouses of the passengers who had died. The claims of the spouses were brought under s 4(1) of the Fatal Accidents Act 1959 (WA), the descendant in Western Australia of Lord Campbell's Act[5]. At a trial before Murray J, which it should be emphasised was limited to issues of liability, all the plaintiffs, including Nautronix, succeeded in their claim for negligence against Mr Penberthy. Fugro was held to be vicariously liable for the negligence of Mr Penberthy. The claims against Mr Barclay of the other plaintiffs succeeded but that by Nautronix against Mr Barclay was dismissed**[6]**. The success of the claims in negligence by the employees against Mr Penberthy and against Mr Barclay is important in considering any action against them by Nautronix for loss of the services of its employees.
For its part, Fugro also sued Mr Barclay, in proceedings CIV 2279/09, among other things, for an indemnity for the loss suffered by the plaintiffs in CIV 1312/08. The issues of liability in this proceeding were tried together with those in the other action. Murray J ordered that Mr Barclay pay Fugro one-third of the damages to be assessed against Fugro in the action for pure economic loss against Fugro by Nautronix. Proceedings CIV 2279/09 also included a claim by Fugro against CASA in negligence, but that claim was not before Murray J and appears to have been stood over.
In dealing with the issues as to whether Nautronix should succeed against the designer and the pilot, Messrs Barclay and Penberthy respectively, Murray J emphasised that the replacement sleeve had been designed some three years before the date of the accident and that there was no evidence suggesting that Mr Barclay had known of the use by Nautronix of the Plane for its highly specialised work**[7]. In contrast, his Honour emphasised that Mr Penberthy knew of the purpose of the flight, that it was for a commercial purpose and that the passengers were Nautronix employees[8]**.

[33]

There are appeals by Mr Barclay and by Mr Penberthy and Fugro. The appeals are resisted by Nautronix, which also seeks special leave to cross-appeal on the issue concerning the rule in Baker v Bolton.
In this Court, Nautronix does not seek to support the reasoning of the Court of Appeal which founded its success against both Mr Penberthy and Mr Barclay on the claims of negligently inflicted economic loss upon the significance of the action per quod. Rather, as against Mr Penberthy, Nautronix seeks to base its case upon the reasoning of Murray J on the negligence claims, and also upon the action per quod in respect of the employees who had been passengers on the plane and had been killed or injured by the negligence of Mr Penberthy. As against Mr Barclay, Nautronix bases its case in this Court upon the action per quod alone. Nautronix challenges the holding in the Court of Appeal that the rule in Baker v Bolton denied any action in respect of the loss of services of the two deceased employees.
The issues argued before this Court fall under six heads as follows:
1. Does the rule in Baker v Bolton no longer form part of the common law of Australia so that it cannot prevent recovery by Nautronix in respect of the deaths of its two employees? This should be answered to the effect that the rule does form part of the common law of Australia.
2. Does the action per quod exist under the common law of Australia? This should be answered in the affirmative.
3. Irrespective of the reliance by the Court of Appeal on the action per quod, did Mr Penberthy owe Nautronix a duty of care at common law to avoid "pure economic loss" to Nautronix flowing from loss of services of its injured employees? This should be answered in the affirmative.
4. If "yes" to 2, having regard to the pleadings and the conduct of the litigation, is it open to Nautronix in this Court to rely upon an action per quod? This should be answered in the affirmative.
5. If "yes" to 4, were Mr Barclay and Mr Penberthy liable to Nautronix on such an action? This also should be answered "yes".
6. If "yes" to 5, what is the measure of damages in such an action? The measure of damages is that which compensates for the interference with the right to the services of the employee. The assessment of the quantum of damages in this case will depend upon the evidence received at the further conduct of the trial.

[36]

However, in 1916, in Admiralty Commissioners v SS Amerika[13], the House of Lords declined to disturb the rule in Baker v Bolton, however anomalous, as Lord Parker of Waddington put it, "it may appear to the scientific jurist"[14]. For his part, Lord Sumner emphasised that it was abundantly plain that the rule had received statutory recognition; the preamble to s 1 of Lord Campbell's Act, passed in 1846, was a response to a particular defect in the existing law, namely the disadvantageous position of widows and children, not to any legislatively perceived defects in the limited rights of masters and employees. Speaking of Osborn v Gillett, Lord Sumner referred to "Bramwell B's intrepid individualism"[15].
In these reasons reference has been made above**[16]** to the provenance in Lord Campbell's Act of the Western Australian legislation under which the claims of the spouses were brought in the present litigation. Lord Campbell's Act has been adopted in all other Australian jurisdictions**[17]**. However, in its other applications, particularly to the actions in negligence and per quod upon which Nautronix relies in respect of the deaths of Mr Protoolis and Mr Warriner, the rule in Baker v Bolton has remained unchanged. One qualification is found in s 58(1)(a) of the Civil Liability Act 2003 (Q), which appears to provide that damages (limited as provided in that section) may be awarded for loss of servitium if "the injured person died as a result of injuries suffered".
In Swan v Williams (Demolition) Pty Ltd[18] Samuels JA observed that the only continuing influence of the rule in Baker v Bolton in New South Wales was to exclude actions at the suit of an employer for damages for loss of services occasioned by the death of an employee. In New South Wales, the Law Reform (Marital Consortium) Act 1984 (NSW) had abolished liability in tort for loss or impairment of consortium, an action that, at common law in any event, had been denied for loss of consortium to a wife.
The pattern of Australian legislation is a pointer towards the continued existence of the rule in Baker v Bolton as a matter of common law**[19]. In Swan[20], the New South Wales Court of Appeal rejected submissions that the rule in Baker v Bolton should be discarded. Their Honours did say that the decision of this Court in Woolworths Ltd v Crotty[21]** was authority for the proposition that the rule in Baker v Bolton remained part of the common law in Australia. The better understanding is that the assumption made by both parties in Crotty was that the rule did apply unless the term "wrongful act" in Lord Campbell's Act, as was held to be the case, included contractual as well as tortious wrongs.
Any further contraction in the scope of the rule in Baker v Bolton is a matter for Australian legislatures.

[37]

The appellants submitted that the action per quod upon which Nautronix relies should be accepted no longer as part of the common law in Australia. It was said, (a) that the action should now be regarded as "absorbed into" and "subsumed by" the tort of negligence, which had so developed as to have "overtaken the subject matter which gave rise to the old cause of action", and (b) that there was no basis to rationalise the action per quod "in the setting of modern social and economic relations".
These submissions call for attention first to some general considerations respecting the action per quod.
As Professor Fridman has emphasised**[22]**, the "essential idea" behind this action is that to cause loss to the master of a servant by rendering his servant incapable of performing the services for which the servant was engaged or hired is an actionable wrong, as long as the defendant either intentionally or negligently acted in such a way as to bring about the deprivation of the services.
Professor Fridman and other writers also make the point that it no longer can be said that the master has any "property" in a servant, the master now having "only contractual rights"[23]. Thus it may be said that the development in England of this action marched with the progression of the master-servant relationship from a matter of status to one of modern contract. However, in Commissioner for Railways (NSW) v Scott[24], Windeyer J made three relevant observations. These were that times change and with them the meanings of words, that the Middle Ages were not a time when society or law were static, and that, as a consequence, it is necessary to exercise care "in leapfrogging through the centuries" when seeking to discover the remote antecedents of a rule of contemporary common law. Also in Scott, Dixon CJ remarked that to him it seemed far from the truth that the action per quod was to be condemned as being "out of keeping with modern social ideas and incongruous with the principles of our law as now understood"[25].
The relationship between the tort of negligence and the action per quod, as these appeals demonstrate, gives rise to particular conceptual difficulties. In a passage subsequently approved by Fullagar J in Attorney-General for NSW v Perpetual Trustee Co (Ltd)[26] as "very important and obviously very carefully considered", Rich J in The Commonwealth v Quince[27] said:

[46]

The injury to the servant must be wrongful. It may be wrongful because it was inflicted intentionally or because it was inflicted in breach of a duty of care that the wrongdoer owed the servant. What is presently important is that the injury is "wrongful" because it is a wrong done to the servant not because there was any breach of a duty of care owed to the master.
Once it is observed that the action per quod depends upon demonstration of a wrong having been done to the servant (as a result of which the master is deprived of the service of the servant) and that the wrongful injury to the servant may be either intentional or negligent, it is evident that the action per quod does not constitute any exception to or variation of the law of negligence. The action per quod will lie where the wrongdoer's conduct towards the servant was not negligent but was intentional. It does not depend on demonstrating any breach of a duty of care owed by the wrongdoer to the master.
From the appreciation that the action per quod is not directed to the consequences of breach of a duty of care owed by the wrongdoer to the master, four consequences follow for these appeals. The first is that McLure P erred in the passage set out above**[36]** when treating the existence of a claim against a defendant on the action per quod as indicative of an action for negligently inflicted economic loss against that defendant. In this Court Nautronix is correct not to rely upon that reasoning.
The second consequence is that it would be wrong to have this Court conclude, as the appellants propose, that the action per quod, like the special rules once concerning the duties of occupiers to categories of entrants**[37], is readily "absorbed" into the modern tort of negligence by removal of what is no more than an "exception" to principles of proximity and remoteness. The "absorption" would be the destruction of a distinct cause of action, an activity best left to legislatures. In that regard, it should be noted that legislative modifications have been made in several States[38]** although none were indicated in Western Australia.
The third consequence concerns the further arguments by the appellants that the action per quod is outmoded because rooted in notions of status and proprietary interest, from which the modern law of contract, including contracts of employment, has escaped. The doctrinal position is more complex, and to this we now turn.
Zhu v Treasurer of New South Wales[39] concerned the action for wrongful interference with a contract of which the defendant has knowledge, or has knowledge at least of the facts from which it arises, with particular reference to the alleged justification of a superior legal right. Detailed reference**[40]** was made in the joint reasons of Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ to what had been said by Kitto J in Perpetual with respect to the action for loss of services and to his use there**[41]** of the term "quasi-proprietary" to describe contractual rights against tortious interference by third parties, being rights of a different order to those between the contracting parties themselves. In Zhu[42], the Court referred to the reasons of Erle J in the landmark decision of Lumley v Gye[43] as significant support for what had been said by Kitto J in Perpetual. Erle J considered that the procurement of the violation of a right is a cause of action in all instances where the violation is an actionable wrong, "as in violations of a right to property, whether real or personal". This Court in Zhu remarked**[44]**:

[59]

Nautronix alleged interruptions and delays in the development and testing of its marine technology and testing system and the loss of intellectual property and corporate knowledge. But so far Nautronix has provided no more specific particulars of loss and damage sustained as a result of the injuries to Messrs Cifuentes (software team leader), Knubley (Project Manager) and Perincek (Systems Engineer).
The assessment of damages in the per quod action will fall for determination at the trial of remaining issues in the litigation. That assessment should be guided by the governing principles considered below.
The basic proposition is that stated in Attorney-General v Wilson and Horton Ltd[57]. After a full consideration of Quince, Perpetual and Scott, Richmond J said that "as the 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", and "should not be widened to include all consequences which follow merely from the fact that the servant was injured".
In the last edition of McGregor on Damages to deal with the matter**[58]** it was said that the basic measure of damages "should be the market value of the services, which will generally be calculated by the price of a substitute less the wages which the master is no longer required to pay to the injured servant" (emphasis added). In its written submissions, Nautronix challenges that statement, but, subject to what appears below, it should be accepted.
If the employer employs numerous staff which can take up the duties of the injured employee, the prima facie measure of the employer's loss may be any extra payments by way of overtime and the like which the employer has to make to secure the performance of these additional duties**[59]. Where a replacement employee has to be engaged, but this is achieved on terms more favourable to the employer, no loss will have been suffered. If it were possible to engage a substitute, at or as near as practicable to the level of skill of the injured employee, but this is not done by the employer, then the employer fails to mitigate the loss. The essential point is that like any plaintiff the employer is obliged to take reasonable steps to mitigate the loss occasioned by the defendant's interference with the provision of services by the injured employee[60]**.
If by statute, industrial award, or the terms of employment, the employer is required to pay to the injured employee sick pay or medical expenses, these outgoings should be ascribed to that anterior obligation of the employer. They are not consequences which flow merely from the injury to the servant and should not be ascribed to the tortfeasor. In Perpetual, Fullagar J considered that pensions constituted deferred payments for services already rendered**[61], and reserved the question whether the recovery of medical expenses paid by the employer was too remote[62]. Fullagar J went on to emphasise in Scott[63]**:

[83]

It is not always easy to keep clearly in mind what issues are raised by the parties' appeals, applications for special leave to cross-appeal, notices of contention and failures to support aspects of the Court of Appeal's reasoning.
The factual position so far as is relevant to these appeals is simple. A plane took off. It had been chartered by Nautronix from Fugro. The purpose of the flight was that Nautronix personnel should test technology and systems which Nautronix hoped to develop commercially. The plane crashed. Two Nautronix personnel were killed. Three were badly injured.
Two possible causes of action remain alive in this Court. Nautronix sues the pilot, Mr Penberthy (and hence his employer, Fugro), on two causes of action. It sues the designer of an engine part, Mr Barclay, on one of those causes of action.
The first cause of action seeks to recover for negligently caused "pure economic loss" to Nautronix's business suffered in consequence of the deaths and injuries. In relation to this cause of action Mr Penberthy seeks to raise two bars to recovery. One bar is that the action so far as the two deceased personnel are concerned is forestalled by the rule in Baker v Bolton[78]. That rule holds that in a civil court the death of a human being cannot be complained of as an injury. Nautronix's riposte is that that rule should be abolished by this Court. The second bar to Nautronix's recovery which Mr Penberthy seeks to raise is non-compliance with the rules for recovery of negligently caused pure economic loss, particularly the requirement that Nautronix be "vulnerable".
The second cause of action is the actio per quod servitium amisit. Nautronix alleges that the negligence of Mr Penberthy and Mr Barclay towards personnel said to be its employees has caused it to lose the services those employees would have rendered under their contracts of employment. To this cause of action Mr Penberthy and Mr Barclay seek to raise five bars to recovery. The first bar is that the actio per quod servitium amisit was not pleaded and that it is not open to Nautronix to raise it belatedly in this Court. The second bar is that the actio per quod servitium amisit should be abolished by this Court. The third bar is that even if the actio per quod servitium amisit is not abolished and is available in this Court, Mr Penberthy and Mr Barclay are not liable under it. The fourth bar is that even if Mr Penberthy and Mr Barclay are liable in relation to the injured employees, they are not liable in relation to the deceased employees because of the rule in Baker v Bolton. The fifth bar is a partial bar only, relating to the quantum of damages.
It is convenient to deal first with the two issues in relation to the "pure economic loss" claim, and then to deal with the five issues in relation to the actio per quod servitium amisit.

[85]

Some consider that Baker v Bolton[79] should be overruled on the ground that Lord Ellenborough's statement of the rule in that case was not a correct statement of the law at the time the case was decided. Others think that changed conditions justify its overruling. Nautronix's preferred course was the latter one. To take either step would effect a significant change to the law of tort. It would be an act in the nature of legislation. Changes to the common law in the nature of legislation should not be made by the courts, only by the legislature**[80]. Earl Loreburn said that to disturb the rule in Baker v Bolton "would be legislation pure and simple"[81]. He said that when the House of Lords, consisting of himself, Lord Parker of Waddington and Lord Sumner, unanimously and emphatically approved Baker v Bolton in Admiralty Commissioners v S S Amerika[82]. That case was decided after and in the face of W S Holdsworth's trenchant attack on the reasoning in Baker v Bolton[83]. Although, in accordance with the customs of the time, the report does not point to that attack as having been referred to in oral argument or in the speeches, Lord Sumner alluded to it and quoted it, albeit inaccurately[84]. As Lord Sumner added: "[A]n established rule does not become questionable merely because different conjectural justifications of it have been offered, or because none is forthcoming that is not fanciful."[85]** Both Lord Parker of Waddington and Lord Sumner referred to a considerable amount of English, Canadian and United States authority in support of the rule in Baker v Bolton[86].
The correctness of Baker v Bolton has been assumed in the House of Lords subsequently**[87]. There are statutes resting on an assumption that the rule in Baker v Bolton exists[88]**.
Further, it would be a serious step to overrule Baker v Bolton in view of this Court's decision in Woolworths Ltd v Crotty[89]. It is true that in that case the parties were not at issue about whether Baker v Bolton was good law. That in itself is not without some significance given that the appellant was represented by R G Menzies KC and the respondent by G E J Barwick KC. More significantly, Latham CJ and McTiernan J, making up a majority of the Court, were plainly of the undoubted view that the rule in Baker v Bolton existed. It is not necessary to consider whether that view was part of the ratio decidendi. Latham CJ uttered what is at least a strong dictum to the effect that the rule "must now be taken to be thoroughly established"[90]. And McTiernan J uttered what is at least another strong dictum in stating the rule without casting any doubt on it**[91]**.
In these circumstances, there is no point in analysing the criticisms of Baker v Bolton or the defences which have been made of it as a decision which correctly reflected the contemporary common law**[92]**. It would not be right to hold either that Baker v Bolton was incorrectly decided at the time or that, though correctly decided originally, it has been superseded by changing conditions.
It follows that even if Mr Penberthy is liable for negligently causing pure economic loss, his liability does not extend to loss flowing from the loss of the two deceased employees' services.

[87]

It is true that some of the criteria to be satisfied for Nautronix to recover from Mr Penberthy for negligently caused pure economic loss were satisfied**[93]**.
The pleadings contain admissions that Mr Penberthy knew or ought to have known that the flight had a commercial purpose; that the passengers were Nautronix employees; that Nautronix equipment was to be on board; that Nautronix's purpose in engaging Fugro to provide the plane was to enable it, by its employees, to undertake surveillance, survey and aerial work operations west of Rottnest Island in order to test, research and develop marine technology and communications systems for the purpose of commercial exploitation and/or sale to users of such technology in the defence, and oil and gas industries, and related enterprises; that failure to exercise reasonable care in flying the plane was likely to result in injury, perhaps fatal injury, to those employees; and that an employee's death or injury would cause Nautronix economic loss. The trial judge found that Mr Penberthy knew of Nautronix's purpose in broad terms. The flight involved the use of sonar buoys. It also involved liaison with a naval support surface vessel and a submarine. For that reason, Mr Penberthy had to receive a security clearance. To that end, he signed a security undertaking. At the request of Nautronix, the plane was modified to accommodate special Nautronix equipment to be used during the flight. Thus Mr Penberthy's potential liability was not indeterminate. Imposition of a duty on Mr Penberthy to avoid economic loss to Nautronix would not have impaired Mr Penberthy in the legitimate pursuit of his interests unreasonably**[94]** since he already owed a duty of care to the individual passengers.
However, this is a case in which it was necessary for Nautronix to prove that it was "vulnerable" - unable to protect itself from the consequences of the defendants' want of reasonable care, either entirely or in a way which would cast the consequences of loss on the defendants**[95]. The sole submission of Mr Penberthy was that Nautronix had failed to establish "what could have been negotiated in terms of a distribution of risk as between Nautronix and Fugro in undertaking the air charter." 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. The correct question was: was there evidence that it could not have negotiated a warranty? On that question the evidence was silent. Fugro had standard terms excluding liability. But there was no evidence about whether they were open to change after negotiation. The case resembles Woolcock Street Investments Pty Ltd v CDG Pty Ltd[96]** in its paucity of factual material.
The consequence is that Mr Penberthy is not liable for the tort of negligently causing pure economic loss to Nautronix.

[92]

In its closing written submissions to the trial judge, Nautronix submitted that "one or more of the defendants ... are liable, by reason of negligence, breach of contract or breach of implied statutory warranties, to compensate [Nautronix]". Nautronix did not say that any defendant was liable in the actio per quod servitium amisit. Indeed, those submissions said that it was "not necessary ... to resolve the arguments raised by the defendants, namely that ... part of [the Nautronix] damages claim would be defeated by the common law principles relating to the action 'per quod servitium amisit'." The next paragraph of the written submissions said: "Nevertheless, out of an abundance of caution, these submissions will address those questions." Under the heading "'Per Quod Servitium Amisit'" the written submissions purported to deal with par 44 of Mr Barclay's defence. In fact they dealt with the rule in Baker v Bolton in its application to the negligently caused pure economic loss claim. They said: "the defendants breached their duty of care to Nautronix" (emphasis added). The actio per quod servitium amisit does not depend on a breach by the defendant of a duty of care to the plaintiff, but on breach by the defendant of a duty to the plaintiff's employees.
The trial judge did not deal with the actio per quod servitium amisit. It may be inferred that it had not been run at the trial. The trial judge's discussion of par 44 of Mr Barclay's defence centred on the rule in Baker v Bolton in relation to the negligently caused pure economic loss claim against Mr Barclay (which he rejected).
Nautronix did not agitate any claim based on the actio per quod servitium amisit in the Court of Appeal, whether by way of notice of contention, cross-appeal or argument.
Counsel for Nautronix in this Court accepted that neither at the trial nor in the Court of Appeal was the case run as a claim based on the actio per quod servitium amisit. She also accepted that the trial judge did not understand the case as being so put.
The case involved numerous parties, complicated causes of action and potentially large sums of damages. In those circumstances, there was a need for some clarity in the pleadings if they were to be viewed as raising particular causes of action.
This messy background supports the contention that the application of the actio per quod servitium amisit was distinctly raised for the first time only in this Court. Can it be raised legitimately in this Court? That depends on whether "evidence could have been given [at the trial] which by any possibility could have prevented" the actio per quod servitium amisit from succeeding there**[97]. Counsel for Mr Barclay pointed to a fragment of evidence given by Mr Cifuentes in answer to the third question in chief, a leading question, that he was "working on a subcontract basis". This was strictly irrelevant, since Mr Barclay and Mr Penberthy had each admitted on the pleadings that Mr Cifuentes and the other Nautronix personnel were employees. Counsel suggested that the actio per quod servitium amisit might not apply in relation to subcontracting. The authorities discuss it in terms of master and servant and contracts of service, not principal and independent contractor or subcontractor. Indeed, Fullagar J expressly denied that the actio per quod servitium amisit applied in relation to independent contractors[98]**. The courts might well be disinclined to widen the tort to extend to independent contractors or subcontractors. It would be desirable that any attempt to widen it should take place against the background of a full examination of what sort of subcontract basis applied to Mr Cifuentes and his colleagues.
Counsel for Mr Barclay submitted that had Nautronix distinctly indicated in the pleadings that it was relying on the actio per quod servitium amisit, it would have been open to Mr Barclay to apply for leave to withdraw the admission of employment, examine what precisely the relationship was between Nautronix personnel and Nautronix, and perhaps defeat the actio per quod servitium amisit in that way. Counsel for Mr Penberthy allied himself with that submission. There is force in counsel's submission. Evidence could have been given at the trial which could possibly have prevented the actio per quod servitium amisit from succeeding there. Nautronix is thus debarred from relying on the actio per quod servitium amisit in this Court.

[96]

But Mr Barclay argued that the actio per quod servitium amisit was "the product of an earlier age" and "should no longer stand apart from, but rather be absorbed into and form part of, the general law of negligence." Mr Barclay said that for this Court the "appropriate response is for the action to [be] absorbed back into the general law of negligence." Mr Penberthy put it somewhat differently. He pointed out that this Court had affirmed the actio per quod servitium amisit in Commissioner for Railways (NSW) v Scott in 1959**[100]**. He submitted that since then there had been a widening of recovery for pure economic loss. The widening had been accompanied by the devising of control mechanisms against unduly extensive recovery. He submitted that that widening was "inconsistent" with the actio per quod servitium amisit. It should therefore be "extinguished". Mr Penberthy accepted that this argument left standing the actio per quod servitium amisit so far as non-negligent torts committed against employees of the plaintiff were concerned. But he submitted that that "remnant of an historical remnant" should go as well.
These arguments should not be accepted, for reasons similar but not identical to those which apply to the rule in Baker v Bolton. To speak of the actio per quod servitium amisit being "absorbed back" into negligence is a malapropism. It did not come from the much younger tort of negligence; it cannot go "back" into it. Further, "absorption" is a euphemism for abolition. In this respect, Mr Penberthy's arguments were franker than Mr Barclay's. To abolish this cause of action would be a significant change to the law of tort. If the actio per quod servitium amisit is "anomalous"[101] or "inappropriate to present-day conditions"[102] or "plainly offensive in today's society"[103] or "antique"[104], any problems caused by these qualities are problems to be remedied by the legislature. They are not problems to be remedied by the courts. The submission that the actio per quod servitium amisit should be absorbed into the tort of negligence is based on the desire to remove what Lord Sumner called rules which are "insensible", "arbitrary" and "highly technical"[105]. He said correctly that it does not follow in common law legal systems "that a principle can be said to be truly a part of the law merely because it would be a more perfect expression of imperfect rules, which, though imperfect, are well established and well defined"[106]. There is, incidentally, reason to doubt the view that the actio per quod servitium amisit is "inappropriate". As Dixon CJ pointed out in Commissioner for Railways (NSW) v Scott[107], it is common for employers to be liable to keep paying their employees even though they cannot work, thus necessitating the engagement of new substitute employees or getting existing employees to work overtime, in each case at additional cost. That state of affairs has become even more common since 1959.
To abolish the actio per quod servitium amisit would involve overruling a decision of this Court, Commissioner for Railways (NSW) v Scott[108]. The correctness of that decision has been assumed in this Court, both as a matter of application**[109]** and as a matter of dictum**[110]. The appellants contended that the Court could conduct, in Brennan J's words, "a review of doctrines which were the product of and suited to an earlier age but which work injustice or inconvenience in contemporary conditions."[111]** Shortly after the passage just quoted, Brennan J said**[112]**:

[99]

It is true that the decision of this Court in Commissioner for Railways (NSW) v Scott to retain the actio per quod servitium amisit was arrived at by bare majority. But that does not affect its status as an authority. Its status as an authority is supported by the decision a few years earlier of the then ultimate court of appeal, the Privy Council, in Attorney-General for New South Wales v Perpetual Trustee Co (Ltd)[114]. In that decision it was assumed that the actio per quod servitium amisit existed. Nothing in Cook v Cook[115] undercuts the present status as authorities in Australian courts of Privy Council decisions before 1986, until they are overruled by this Court.
Further, it is necessary to reject submissions advanced by Mr Penberthy that the action is "little litigated", "is very, very rare", and "is in virtual disuse." The actio per quod servitium amisit has in fact been employed recently in many intermediate appellate and trial courts**[116]**. As a matter of precedent, this is of little moment in view of how the authorities in this Court stand. But it does reveal that the actio per quod servitium amisit is not drifting into desuetude. It retains utility for plaintiffs in a variety of practical circumstances.
Some legislatures have abolished**[117]** or significantly limited**[118]** the actio per quod servitium amisit. This legislation reveals an assumption that the actio per quod servitium amisit exists at common law. Other legislatures have assumed its existence while modifying its application without abolishing it**[119]**. Thus legislatures habitually amend the actio per quod servitium amisit while permitting it to survive to a larger or smaller extent. The actio per quod servitium amisit is a common law cause of action. The intervention of statute has caused it to operate in different ways in different jurisdictions. These phenomena make it difficult for courts administering the common law of Australia to abolish the common law actio per quod servitium amisit.
There are two further arguments against abolishing the actio per quod servitium amisit in these proceedings. One is that it is not open to Nautronix to rely on it**[120], and hence to discuss its abolition is to deal with a hypothetical question. The other is that even if it were open to Nautronix to rely upon it, no evidence on damage has been called. It is difficult to deal in detail with Mr Penberthy's arguments that there are inconsistencies between it and the action for negligently caused pure economic loss without it having been decided, in concrete circumstances, what the measure of damages in the actio per quod servitium amisit is[121]**.

[105]

Since Nautronix is precluded from relying on the actio per quod servitium amisit in this Court, this issue does not arise. If it did, even in the light of the majority conclusions, it should not be dealt with.
The Nautronix case, so far, has been put very vaguely on this issue. By some means, the formal basis of which is not clear, the trial was conducted on separated issues. One of the issues which the learned trial judge did not have to decide was the amount of any economic loss which Nautronix may have suffered. That amount relates to the measure of damages in both Nautronix's claim against Mr Penberthy for pure economic loss as a result of negligence, and Nautronix's reliance on the actio per quod servitium amisit. The evidence on the issue of economic loss may therefore be very far from complete. Nautronix's substituted statement of claim alleged that "the ... injury of its personnel would cause loss of intellectual property and corporate knowledge concerning the marine technology and communications systems being developed and tested, and cause loss and damage to Nautronix ... in the conduct of its business." The particulars alleged that each of the injured personnel "was integral to, and had particular expertise in respect of, [Nautronix's] development of technology and services, in particular in projects known as the Nautronix Acoustic Sub-sea Positioning and Navigation System ... and the Acoustic Measurement Range". The particulars then alleged the position and responsibility of each of the injured personnel.
This matter only came under close attention late in the hearing. Counsel for Mr Barclay referred in a footnote of his written submissions to a New Zealand case about damages**[123]**. But no specific submission about damages was put in the initial written submissions, and little was said in oral argument. Further written submissions were filed after the close of oral argument.
Those further written submissions invite the Court to offer an opinion about the measure of damages in an appeal arising out of proceedings that did not concern the measure of damages. The opinion is requested with a view to assisting the parties in the conduct of future proceedings in which, for the first time, the measure of damages will be considered. That is a very unusual invitation. It is an invitation to deliver an advisory opinion. It should not be accepted on general grounds. Further, the invitation is particularly unattractive in view of the lack of detail in Nautronix's damages case and the lack of any evidence specifically directed to that case which has been called so far. Why should it be decided, for example, that Nautronix's claim to damages be limited to the actual value of the services lost without its having had a chance to establish what greater losses it may have suffered?
The measure of damages question raises, potentially, significant questions of principle. In general controversial questions of legal principle are resolved only in the context of concrete factual circumstances. That is why decisions on strike out applications, on demurrer, on agreed facts and on separate questions often produce unsatisfactory consequences. So far as the existing authorities are binding on the judge who is to conduct the balance of the trial, they are to be followed. So far as they are not binding, they need not be followed, but will have the force that the reasoning underpinning them intrinsically possesses. Those authorities were decided as a means of resolving actual controversies in the light of evidence which had been tendered and received. It is undesirable to fetter the judge at this stage with additional opinions about what should be done in the light of evidence before it has even been tendered.
The course of having a separate trial on some issues is often a dangerous one. It may have already caused difficulties in this litigation. To deal with one of these issues on appeal before any trial judge has spoken seems even more dangerous than usual. Further, there is no advantage in terms of saving trial time in giving preliminary advice on the measure of damages in relation to the actio per quod servitium amisit. Nautronix will be entitled to call evidence on economic loss arising from Mr Penberthy's negligence. That evidence may go further on that issue than it legitimately can in relation to the actio per quod servitium amisit. What the correct limits of the measure of damages for the latter cause of action are is better determined after the evidence is received, not before.

[108]

Proceedings were brought in the Supreme Court of Western Australia by the three surviving passengers, the spouses of the deceased passengers, Nautronix (Holdings) Pty Ltd and Nautronix Limited. Nautronix (Holdings) Pty Ltd was the assignee of Nautronix Limited's right of action. In these reasons, I will refer to the Nautronix companies collectively as "Nautronix". The proceedings were brought against Fugro, Mr Penberthy and Mr Aaron Barclay, an aeronautical engineer who was responsible for the design of a replacement sleeve bearing in the fuel pump of the aircraft.
Nautronix' action was pleaded in both tort and contract and the loss claimed was in the nature of pure economic loss, "pure" because it did not follow upon any claim by Nautronix for damages to person or property. It was pleaded generally that Fugro and Mr Penberthy were aware, or should have been aware, that Nautronix would suffer economic loss as a result of the death of or injury to its employees who were passengers on the aircraft. Further detail of Fugro's alleged knowledge of Nautronix' project was provided in the claim for damages for breach of the aircraft charter agreement. Fugro and Mr Penberthy were said to have known that Nautronix would suffer interruption and delays in the development and testing of its systems and the commercial exploitation of them if its employees were killed or injured. The claim in negligence against Mr Barclay was framed somewhat differently, but it is not necessary presently to refer to it.
The cause of the failure of the right-hand fuel pump and resultant shut down of the right-hand engine, which was the direct cause of the crash, was the fracture of a drive pin in the sleeve bearing of the fuel pump. Murray J found that this had been caused or contributed to by Mr Barclay's negligent specification of an unsuitable alloy for the sleeve bearing**[124]** and his negligent failure to specify a particular finish to the internal surface of the sleeve bearing**[125]. His Honour found Mr Penberthy to have been negligent in the manner in which he dealt with the emergency that arose when the engine failed almost immediately after the aircraft became airborne[126]**.
Murray J took Fugro and Mr Penberthy to admit the existence of a duty of care towards Nautronix**[127]**. They had admitted knowledge of the potential economic loss which would be caused to Nautronix in the event of the death of or injury to its employees, and Mr Penberthy had admitted owing a duty to use reasonable care and skill in the piloting of the aircraft. Fugro was vicariously liable for Mr Penberthy's actions.
His Honour found that Nautronix was vulnerable in the sense that it was unable to protect itself from foreseeable harm of an economic nature caused by Mr Penberthy's negligence**[128], although his Honour appears also to have accepted a submission by Mr Barclay that Nautronix had the capacity to protect itself by the terms of its contract with Fugro[129]**.
His Honour did not consider that Mr Barclay could be said to have owed a duty of care to Nautronix. The "crucial difficulty" in this regard, his Honour held, was that the class of persons at risk of foreseeable harm from Mr Barclay's actions was an "essentially indeterminate" class of persons: any user of the aircraft who might suffer loss of a purely financial kind if the aircraft crashed**[130]. Moreover, his Honour found that there was no evidence that Mr Barclay had known of the use to which the aircraft was to be put by Nautronix[131]**.
Murray J accepted that it was an implied term of the charter agreement that Fugro exercise reasonable care in the performance of the agreement, but did not consider that the evidence established that Fugro had breached that term**[132]**. This may seem an odd result, given the finding of negligence against Mr Penberthy. In any event, the claim in contract has not been pursued on appeal to this Court.
His Honour considered that an issue was joined by Mr Barclay in his defence as to whether an action per quod servitium amisit was available to Nautronix**[133]. Such an action provides a remedy to an employer by way of compensation for the loss of services of an employee who is injured as a result of another's negligence. His Honour did not reach a conclusion as to the issue of liability under this head, seemingly because he took the view that the claim made by Nautronix went further and extended to all damage to its financial interests[134]**.
Only the question of liability was determined in the proceedings before Murray J. Liability was apportioned on the basis that Fugro was liable for two-thirds of Nautronix' damages and Mr Barclay one-third**[135]**.
In the Court of Appeal, McLure P, with whom Martin CJ and Mazza J agreed, held that both Mr Barclay and Mr Penberthy owed a duty of care to Nautronix to take reasonable care to avoid pure economic loss by injuring its employees**[136]. Her Honour observed that the common law continues to recognise the action per quod servitium amisit. Her Honour considered that that action was relevant to the enquiry whether a duty of care was owed to Nautronix. Whilst the action per quod servitium amisit remained part of the common law of Australia, it would be difficult to avoid the conclusion that a duty of care existed, because "[c]onsistency between closely related common law actions is a legitimate expectation"[137], her Honour held. Her Honour said that, had the common law action for loss of services not survived, she would not have concluded that Nautronix could succeed in its claim. No duty of care could have been said to have been owed to Nautronix by either defendant[138]. In her Honour's view[139], Nautronix was not vulnerable in the sense referred to in Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad"[140]** and Perre v Apand Pty Ltd[141]. Mr Penberthy's knowledge of the commercial purpose of the flight and that his passengers were Nautronix employees was not sufficient to found a duty. Further, Nautronix was at no greater risk of harm from a crash than any other potential charterer of the aircraft**[142]**.
McLure P confirmed that neither action, for breach of duty or per quod servitium amisit, was available in relation to the services lost by reason of the death of the two employees. This followed the rule, so-called, in Baker v Bolton[143] that "[i]n a civil Court, the death of a human being could not be complained of as an injury"[144].

[115]

The availability of a writ in trespass (later in case) to a master for the loss of the services of a servant caused by the negligence of a defendant can be traced to medieval times**[145]. It was connected to the idea of the status of a servant, which originated in laws relating to the status of a villein[146]. It was based upon the master having an interest which has been described as quasi-proprietary. This might suggest an analogy with the property a master formerly had in a slave[147]. However, it has been pointed out[148]** that both Sir William Holdsworth and Sir William Blackstone refer, not to the master having a proprietary interest in the servant, but rather in his or her services. It was the loss of services for which a remedy was provided by way of the action. The loss of the employee's services was regarded as the gist of the action**[149]**.
The action per quod servitium amisit was not based upon a wrong having been committed. It was the consequence of the employee's injury for the employer, the loss of services, for which an action in trespass lay**[150]. For the purposes of the action it did not matter how the injury was caused, whether by assault, battery, negligence, or otherwise[151]. Nor did it depend on the breach of any contract of service; the action was not analysed in contractual terms[152]. The action extended to both unintentional and intentional acts of negligence. There was no limitation on the class of services for which an employer could sue. All that was required was that the relation of master and servant exist[153]**.
The interest of the master of the household, which the action protected, extended to the services of members of his family, apprentices and servants**[154]. Analogous writs lay in trespass for taking away or injuring a wife, child or servant where the result was that their services were denied to the master[155]**.
The remedy provided by the action was clearly of some social importance at the time it was first made available. It has been observed**[156]** that, since that time, there may have been particular periods where the employer's loss could be regarded as real, actionable loss. In Commissioner for Railways (NSW) v Scott[157], decided in 1959, Dixon CJ and Windeyer J considered that the obligations then cast upon employers by statute meant that the action had once again assumed some economic importance. Many employers were required to make payments to injured workers and to pay for any medical expenses associated with their injuries, without receiving the benefit of their services.
Although the action per quod servitium amisit continued to be recognised by courts, questions arose as to the extent of its application. This Court considered whether the action lay at the suit of the Crown, where a member of the Royal Australian Air Force had been injured by another's negligent driving, in The Commonwealth v Quince[158], and held that it did not. That decision was applied in Attorney-General for NSW v Perpetual Trustee Co (Ltd)[159] where it was held that the Crown could not recover for the loss of the services of a member of the police force.
At around the same time, the courts in England were concerned to limit the action even further, in line with its origins. Viscount Simonds, giving the advice of the Privy Council on the dismissal of the appeal in Attorney-General for New South Wales v Perpetual Trustee Company (Ltd), said, "this form of action should not be extended beyond the limits to which it has been carried by binding authority or at least by authority long recognized as stating the law."[160] Those limits were to be found in the fact that the action originated at a time when service was a status. That status lay "in the realm of domestic relations" and the action was to be limited accordingly**[161]. The following year, in Inland Revenue Commissioners v Hambrook[162]**, the Court of Appeal held that the action lay only where a servant could be said to be a member of the master's domestic household.
Commissioner for Railways (NSW) v Scott[163] was decided by this Court three years later. A majority (Kitto, Taylor, Menzies and Windeyer JJ; Dixon CJ, McTiernan and Fullagar JJ dissenting) declined to follow Inland Revenue Commissioners v Hambrook. But the decision in Attorney-General for New South Wales v Perpetual Trustee Company (Ltd) was a decision of the Privy Council, which then bound this Court. Dixon CJ considered himself to be bound to accept that the action per quod servitium amisit did not extend beyond domestic servants, although his Honour's preferred position was to allow the Commissioner, as employer, to recover damages, "appropriately measured", with respect to the loss of services of the injured employee**[164]. Other members of the Court were inclined to think that the words "domestic relations", which had been used by Viscount Simonds in Attorney-General for New South Wales v Perpetual Trustee Company (Ltd), were not so limited in their meaning as Inland Revenue Commissioners v Hambrook had held them to be[165]**, and distinguished the decision of the Privy Council on that basis.
Other actions analogous to that of per quod servitium amisit continued to be recognised at this time. McTiernan J, in Attorney-General for NSW v Perpetual Trustee Co (Ltd), considered that the action for the loss of services of a daughter as a result of her seduction had utility**[166]. The action for the loss of the services of a wife (per quod consortium amisit), through the negligent infliction of injury upon her, remained available to her husband[167]. No similar action was available to a wife[168]. However, by the time of the decision in CSR Ltd v Eddy[169], the observation could be made that the action per quod consortium amisit had been abolished[170]** or radically limited**[171]** in most jurisdictions. The torts of seduction, enticement and harbouring had been abolished in South Australia, the Australian Capital Territory and England**[172]**, and had not been relied upon for decades elsewhere.
The action per quod servitium amisit has been abolished in England**[173]** and in large measure in Victoria**[174]** and the Northern Territory**[175]. Despite Fullagar J calling for its abolition in Attorney-General for NSW v Perpetual Trustee Co (Ltd)[176]** and in Commissioner for Railways (NSW) v Scott[177] and references to the action as being "anomalous or anachronistic"[178] and antique**[179]**, its existence and continued application have not otherwise been questioned.

[117]

The appellants' submission that the action per quod servitium amisit should be regarded as "absorbed" into the mainstream law of tort, relevant to recovery of economic loss, invites comparison between tort law and the character of the action.
Kitto J in Attorney-General for NSW v Perpetual Trustee Co (Ltd)[180] referred to the action per quod servitium amisit as an exception to the common law rule which operates such that "where A is prevented from fulfilling his obligations to B by reason of an injury wrongfully inflicted upon him by C, B has no right of action against C in respect of his loss". His Honour went on to explain**[181]** that the principle upon which the exception rested was that it provided a remedy for the wrongful invasion of a quasi-proprietary right which a master, or employer, is considered to possess in respect of an employee's services. The nature of the right has been discussed earlier in these reasons. It is the infringement of that right which entitles the employer to recover damages.
The action per quod servitium amisit has nothing in common with an action for breach of duty of care in tort, save that an act of negligence may be involved. The tort of interfering with contractual rights**[182]** may be thought to provide a closer analogy; however, that action may owe more to the old action for wrongful procurement of the services of a servant, which was considered to be based in contract. The action per quod servitium amisit was not subjected to contractual analysis**[183]. What these actions do have in common is that they developed by reference to proprietary, or quasi-proprietary, rights: the attribution of a quasi-proprietary right to the service due to the employer, in the action per quod servitium amisit; and in the treatment of contractual rights as analogous to property rights, in the action for wrongful interference with contractual rights[184]**.
Another distinction between the action per quod servitium amisit and that for breach of duty of care is in the damages which may be recovered. Further attention will be directed to the question of the measure of those damages later in these reasons. For present purposes it may be observed that the conceptual principle underlying the action is liability for the employer's loss of services, not the employer's economic loss as such**[185]**. This follows from the action being based on a proprietary interest, or something analogous to it, in the victim's services.
The view that the action is for the invasion of an employer's right to services may also account for a defendant's inability to rely upon the employee's contributory negligence**[186]**. This inability serves to further distinguish the action from that for breach of duty of care.
The above discussion permits a conclusion that the action per quod servitium amisit has no affinity with an action for breach of duty of care. The historical origins of the action per quod servitium amisit, though adapted somewhat to modern conceptions of the relationship of employer and employee, set it apart from actions in tort. It follows that the Court of Appeal was wrong to suggest that this action could inform the question of whether a duty of care arose. It also follows that the action for breach of duty of care cannot "absorb" the action per quod servitium amisit, contrary to what was submitted by the appellants in each of the proceedings presently at hand.
This is not to say that an action for breach of duty of care against Fugro and Mr Penberthy is not open to Nautronix. As these reasons will show, the trial judge was correct to conclude that they are liable in damages on that account. The circumstances relating to these parties, and the knowledge that Fugro and Mr Penberthy had concerning Nautronix' project, permit such a conclusion. The position of Nautronix in this case vis-à-vis those parties cannot, however, be taken as descriptive of the position in which other employers will find themselves. It therefore does not follow that employers' claims for the loss of an employee's services should be left to be dealt with exclusively in an action for breach of a duty of care. Many employers would not be able to establish that a duty of care was owed to them by a tortfeasor. Unless and until the principles respecting recovery of economic loss in tort are further extended, the action per quod servitium amisit may be the only avenue for the recovery of damages for the loss of services for some employers.
The abolition of the action per quod servitium amisit in England followed upon a recommendation by the Law Reform Committee**[187]** that employers instead be given a right to recover from a tortfeasor wages paid to the employee, and medical and other expenses incurred by the employer on behalf of the injured employee, by way of subrogation**[188]. A similar right of subrogation is available in some European countries, in aid of the recovery of wages paid to an injured employee[189]**.
The provision of such a right may be thought to recognise that employers should be afforded an avenue for compensation, which the action per quod servitium amisit would otherwise provide. It also brings into focus rights given under workers' compensation legislation in Australia**[190]** and the observation of Windeyer J in Commissioner for Railways (NSW) v Scott[191] that the Commissioner could have recovered in any event, had the engine driver concerned brought proceedings under the Workers' Compensation Act 1926-1954 (NSW) rather than the Government Railways Act 1912-1955 (NSW). The operation of the relevant workers' compensation legislation did not receive attention in Commissioner for Railways (NSW) v Scott, save for the abovementioned reference by Windeyer J. In that case, an engine driver in the employ of the Commissioner suffered a breakdown after a level crossing accident and was unable to work. The circumstances would appear to have come within the ambit of the Workers' Compensation Act 1926-1954 (NSW).
Under that legislation an employer was entitled to be indemnified, for the compensation paid to an injured employee, by a third party who was liable to pay damages to a worker in proceedings brought for the recovery of such damages**[192]. This has the effect of vesting a statutory cause of action in the employer[193]. A provision in the Workers' Compensation and Injury Management Act 1981 (WA)[194]** expressly entitles an employer to bring proceedings in the name of the worker against a third party defendant.
Under workers' compensation legislation, the liability of an employer to pay compensation is generally limited to injury arising out of or in the course of a worker's employment**[195]**. But the obligation to continue to pay an injured worker might also arise pursuant to an industrial award or an agreement with the employee, which may not provide for reimbursement to an employer of monies paid or the means to achieve such reimbursement. The action per quod servitium amisit continues to have relevance to such situations.
The fact that the action per quod servitium amisit continues to have some utility to some employers answers in large part the more direct contention of the appellants that the action should no longer be permitted to continue.
It was submitted by the appellants that the action per quod servitium amisit is a product of another age, an historically based rule which can no longer be supported as an exception to the principles which have developed concerning recovery of economic loss. The submission brings to mind the criticism by Fullagar J of the action's continued recognition.
In Attorney-General for NSW v Perpetual Trustee Co (Ltd)[196] Fullagar J suggested that the action should be abolished as an "illogical and unreasonable" exception to the general rule that a person is liable for damage caused by his or her negligence only if he or she is found to owe a duty of care**[197]. His Honour thought the action antiquated and attributable to perceptions which had no place in a modern society[198]. Kitto J, however, said that although conceptions of status had not survived, the notion of a right of a master to the benefit of his or her servant's services had not been abandoned[199]. Dixon J clearly considered the action to have utility and observed that "[t]he remedy has followed the relation of master and servant unaffected by the changes that have taken place in the social and economic purposes for which the relation has been used."[200]** His Honour did not consider that the essential character of the action had been altered by the extent to which employment was by then the result of free agreement.
In PGA v The Queen[201], it was pointed out that common law courts can decide to no longer maintain a rule of law which has become no more than a legal fiction because the reason or foundation for it no longer exists**[202]. There, Australian statute law concerning marriage had removed any basis for accepting Hale's proposition that the immunity of a husband from a charge of rape formed part of the common law[203]. However, the courts will not readily depart from a settled rule of law[204]**. So far as concerns the action per quod servitium amisit, it is a remedy which has been adapted, for the most part, in a manner consistent with its origins. It cannot be said of it that the present basis for it, the compensation of employers who have suffered loss but who may not have a right of recovery against the person who injured their employee, has been removed or that it no longer has any utility.
The action per quod servitium amisit has been referred to in numerous decisions of this Court**[205]** and has readily been applied in the sphere of employer and employee. In Zhu v Treasurer of New South Wales[206], Kitto J's analysis in Attorney-General for NSW v Perpetual Trustee Co (Ltd)[207] of an employer's rights in the services of a servant as quasi-proprietary was said to have "significant support". Most recently, in CSR Ltd v Eddy[208], the action was recognised as one of a very few limited, direct avenues of recovery available to those who have lost the benefit of an injured person's services. In consequence of this Court's continued acceptance of the existence of the action, the courts of the States and Territories have continued to award damages in such an action**[209]**. There is no basis shown for a refusal to continue to recognise it.

[118]

It is the loss of an employee's services which is the gist of the action per quod servitium amisit**[210]. It is that loss for which the remedy is provided and which is the employer's cause of action[211]. In Attorney-General for NSW v Perpetual Trustee Co (Ltd), Fullagar J[212]** said that damages are "strictly limited to pecuniary loss actually sustained through the loss of the services of the servant and ... expenditure necessarily incurred in consequence of the injury to the servant." Dixon CJ**[213]** and Taylor J**[214], in Commissioner for Railways (NSW) v Scott, agreed with what his Honour had said on the subject of damages. As the wrong done to the employer is the interference with the right to the employee's services, it follows that the damages recoverable are to be measured by reference to the consequences of that interference. They do not extend to all consequences which flow from the fact that the employee has been injured[215]**.
The point of Fullagar J's reference to the measure of damages was to correct an assumption that wages paid to an employee during the employee's incapacity represented the loss suffered. His Honour said that this was not strictly correct, since an obligation to continue to pay might arise by reason of an antecedent obligation and not because of the injury to the employee**[216]. Elsewhere it has been explained that the market value of the services lost will generally be calculated by reference to the price of substitute labour[217]**.
Questions such as this do not arise in the present case. I do not understand Nautronix to have as yet formulated a claim based upon recovery of the cost of replacement labour. Its claim is much broader than the value of the services lost and extends, so far as may presently be seen by reference to the pleadings, to claims arising from delay, which may encompass profits lost.
Nautronix claims that an employer is entitled to recover all damage which is a direct consequence of the loss of an employee's services. It relies in particular upon references in Mercantile Mutual Insurance Co Ltd v Argent Pty Ltd[218] to lost profits being a "consequence" and a "result" of the loss of services of a managing director of three companies**[219], and upon the decision of the Court of Appeal of the Supreme Court of New South Wales in Marinovski v Zutti Pty Ltd[220]**.
Reliance was also placed upon the approach taken to the recovery of damages in an action based upon the tort of inducing a breach of contract**[221], which Nautronix described as closely related to the approach taken in an action per quod servitium amisit because both actions involve quasi-proprietary rights of an employer with respect to the services of an employee[222]**. It is the loss resulting from invasion of the right which falls to be assessed. The quasi-proprietary nature of the right provides no warrant for economic loss of every kind being recoverable.
In Mercantile Mutual Insurance Co Ltd v Argent Pty Ltd[223], the trial judge awarded damages to family companies arising from injuries to the family member who managed the companies. The damages allowed were for profits lost by reason of the sale of the companies at an earlier time than would have been the case had the manager not been incapacitated by his injuries. The issue before this Court was whether the awards were excessive. No attention was directed to the nature of the action per quod servitium amisit and whether it necessitated a restriction upon the measure of any damage. The decision cannot, therefore, be regarded as pronouncing upon the questions which arise in this case.
Mercantile Mutual Insurance Co Ltd v Argent Pty Ltd was followed in Marinovski v Zutti Pty Ltd[224], where damages were awarded for the loss of the service of the managing director of a company, the interests of which had been so seriously harmed by his absence due to injuries that, by the time of the appeal, a receiver had been appointed to it. Hutley JA said**[225]** that there is no single test for the measure of damages recoverable by an employer in an action per quod servitium amisit. In the case of an ordinary employee the measure would be the cost of replacing the employee, plus any expenses properly incurred in mitigation of the loss such as medical, hospital and other expenses. But in that case, the special feature was that the employee had unique skills necessary for the survival of the company.
Legal systems respond differently to claims of economic loss of this kind. French law permits recovery for all loss an enterprise suffers because a key employee is hurt**[226]. In a well-known decision[227], a football club was held entitled to damages for economic loss consequent upon the death of one of its leading players. Such damages would not be recoverable in Germany[228]. And it has been pointed out in Canada that if a servant is particularly specialised, the damages may be regarded as too remote[229]**.
Consistency with the purpose and scope of the action per quod servitium amisit requires that damages be limited to the cost of substitute labour. In Cattanach v Melchior[230], it was observed that the employer suffers damage only when it is forced to pay a salary or wages to its injured employee when it is, at the same time, deprived of the employee's services. To permit recovery on any wider basis, including for profits lost, would be to transform an exceptional remedy for a particular type of loss into a substantial exception to the general principles which have developed concerning recovery of economic loss in tort. In terms of the coherence of the law, that would be undesirable.

[119]

Policy choices have featured strongly in the disinclination of the common law to allow recovery for pure economic loss in tort for breach of duty. As Gibbs J observed in Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad"[231], to allow such claims might expose a defendant guilty of an act of careless inadvertence to claims "unlimited in number and crippling in amount." Other legal systems have made similar decisions about where the line is to be drawn. As was observed in Perre v Apand Pty Ltd[232], in this area German law displays an ideological affinity with the common law. In Germany it is said that the rule against recovery of economic loss is a guarantee of freedom in the market**[233]. A similar imperative, encouraging competitive conduct, underlies the policy of the common law[234]**.
One difference between these systems lies in how control is effected upon claims for economic loss. In the common law, an abstract concept of duty of care is employed. The German Civil Code**[235]** ("the BGB") specifies which legal interests are to be the subject of protection. In German law, only the enumerated legal interests of life, body, health, freedom, property and "other right[s]" are protected**[236]. Economic loss can be recovered only if one of these interests is interfered with[237]**. A person's estate or a company's business undertaking is not an "other right".
Other, apparently liberal, systems such as France, Belgium, Greece, Italy and Spain, do not screen out economic loss**[238]. Liability under the French Civil Code[239]** is stated as being for all damage caused. However, it has been said**[240]** that the courts in these systems have a policy of restraining recovery for economic loss and of achieving such restraint by other means, such as requiring that the harm be certain, immediate and direct, or refusing to qualify the defendant's conduct as "faute", that is, conduct a reasonable person would not engage in**[241]. The style of judgments of the courts in these countries and the limited reasoning provided can make it difficult to discern the true grounds on which claims are accepted or rejected[242]**.
The German legal system, like the common law, has for a long time been under pressure to enlarge the areas where recovery for economic loss is available**[243]. The response of its courts has been to accept a "right to an established and operative business" as coming within the term "other right" in BGB s823(1). The courts allow recovery for economic loss where that right is invaded, but recovery requires that the defendant's conduct be directed at the business as such[244], rather than merely affecting interests separable from the business. Analogous to the present case, a company would have no claim for loss arising from delay in performance of a contract because one of its staff was hospitalised with injuries caused by a defendant's bad driving[245]**.
The other avenue for relief in German law is contract law, which, together with tort, is regarded as a species of the law of obligations. Where a solution cannot be found in tort, German lawyers and the courts often cross over into contract**[246]. For example, claims for negligent misstatement are dealt with in contract law[247], under which contracts do not require consideration. A party to a contract is considered to be under a general duty, not only to perform a contract in a proper fashion, but also not to cause injury to persons or harm to property[248]. The courts in Germany extend that protection to a third party plaintiff if the promisee had a clear interest in bringing them within the ambit of the contractual protections and the defendant, the promisor, had some knowledge of the likelihood of harm to the plaintiff. Duty under a contract arises where there is a close relationship between the plaintiff and the promisee and the promisor could foresee that the plaintiff might suffer damage[249]. In the latter respect, this approach bears some similarity to the approach taken by the common law to identifying a duty of care. It has been pointed out, in the context of negligent misstatement, that German and English law both raise questions as to the identity of the plaintiff and how definite that identity was when the defendant prepared the statement[250]**.
In Astley v Austrust Ltd[251], this Court held that a contract for services contains an implied promise to exercise reasonable care and skill in the performance of those services. Liability is regarded as concurrent in contract and in tort**[252]** so that a plaintiff may select the most advantageous action. Where there is a direct relationship established between the parties, by reason of their agreement, it may not be necessary to resort to tort law in order to recover economic loss. It is difficult to conceive of a liability in tort, arising from the negligent provision of services, which would not also follow upon breach of the implied term. Moreover, the knowledge which may be attributed to a contracting party may permit recovery of losses in contract similar in extent to those recoverable in tort.
So far as concerns a person who is not a party to a contract, but who suffers loss as a result of its negligent performance, Australian law seeks a solution in tort law to the problem of recoverability**[253]. This may be contrasted with the approach of the German law. That said, there is something of a connection between the two areas of contract and tort. By way of example, the terms of a contract between an original owner of a building and a builder who builds it negligently may be relevant to the duty owed by the builder to a subsequent owner[254]. The duty owed to a third party may be "equivalent to contract"[255]**.
Nautronix pleaded an alternative claim in contract based upon breach of an implied term such as that described. However, it chose not to pursue liability on that basis on appeal. Consideration of the liability of Mr Penberthy and Fugro is limited to the action in tort. Nevertheless, the contractual relationship between Fugro and Nautronix and the terms of the charter agreement, express and implied, are clearly relevant to the question whether a duty of care was owed to Nautronix.

[120]

In Perre v Apand Pty Ltd[256], the defendant's knowledge of the risk associated with its activities and of the consequences for an individual, or a class of persons, was identified as being of importance to the question of whether a duty of care could be said to arise. In Woolcock Street Investments Pty Ltd v CDG Pty Ltd[257], reference was made to one of the "salient features" identified by Stephen J in Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad"[258], namely, the defendant's knowledge that to damage the pipeline was inherently likely to produce economic loss. It was this feature which constituted the close relationship between plaintiff and defendant, sufficient to give rise to a duty of care in that case.
A tortfeasor may know that a person is reliant upon them. Such is usually the case in the giving of advice. As Gleeson CJ observed in Perre v Apand Pty Ltd[259], reliance and actual foresight are closely related. Knowledge of an individual who is reliant, and therefore vulnerable, is a significant factor in establishing a duty of care, although vulnerability can arise otherwise than by reliance**[260]. In Perre v Apand Pty Ltd, the defendant's internal communications showed that it had actual foresight of harm and knowledge of a class of people who were vulnerable to the threat of harm[261]**.
Vulnerability was said in Woolcock Street Investments Pty Ltd v CDG Pty Ltd[262] to have become an important requirement in cases where a duty of care has been found to have been owed. Vulnerability is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken, but rather as referring to the plaintiff's inability to protect itself from the consequence of a defendant's want of reasonable care, either entirely or at least in a way which would cast the burden of the loss upon the defendant.
In the present case, whilst Mr Barclay could not be said to have had knowledge of Nautronix and its interests, Fugro and Mr Penberthy clearly did. The contractual relationship between Fugro and Nautronix, and the part Mr Penberthy had in piloting the specially adapted charter flights, provided Fugro with knowledge of Nautronix' project, its commercial purposes and the importance of the employees to the achievement of those purposes. As Murray J observed**[263]**, Fugro and Mr Penberthy largely admitted that any failure on their part to exercise reasonable care and skill in the piloting of the plane was likely to result in economic loss to Nautronix, consequent upon injury to its employees. Even without that admission, a duty to take care is evident not the least because the law would imply a term to that effect in the performance of the charter agreement.
On the view of the Court of Appeal, Nautronix could have gone further and negotiated terms with Fugro to protect itself from the effects of economic loss, and Nautronix could not, therefore, be said to be vulnerable**[264]**. Presumably the Court of Appeal had in mind Fugro accepting liability for such loss in the event of negligence. A conclusion that Fugro would have agreed to such a term is not open. In any event, Nautronix had the protection of the implied term to take reasonable care, which, combined with Fugro's knowledge, was sufficient to give rise to a duty of care.

At a glance

Court

Decision date

Before

Source

Judgment (358 paragraphs)

Barclay v Penberthy [2012] HCA 40 (2 October 2012)

Parties

Legislation Cited (2)

Cases Cited (43)