NEGLIGENCE - personal injury - plaintiff injured by breakage and collapse of office chair - claim against manufacturer and importer - previous returns of chairs with broken bases - defendant on notice of risk of breakage - breach of duty established.

Supreme Court of the ACT|2013-08-29

Downie and Community Information & Referral Service ACT Inc. v Jantom Company Propriety Ltd, Ex-Government Furniture Propriety Ltd and GIO General Insurance Ltd [2013] ACTSC 171 (29 August 2013)

TERRY ANNE DOWNIE & ANOR v JANTOM COMPANY PTY LIMITED & ANOR

[2013] ACTSC 171 (29 August 2013)

DAMAGES - personal injury - collapse of office chair - low back injury - disc injury at

L4-5 - surgical fusion - severe permanent low back pain - depression and anxiety - substantial impairment of earning capacity.

CONTRACT - breach of contract - sale of office chair to employer - employer settling claim by injured employee - claim by employer against retailer of chair for settlement amount - rule in Hadley v Baxendale - loss too remote - not recoverable.

TRADE PRACTICES - claim under ss 74B and 74D of the former Trade Practices Act 1974 (Cth) - Breakage and collapse of office chair causing personal injury - such claim limited to goods for personal, domestic or household use - office chair not covered - claim fails.

INSURANCE - product liability - office chair - breakage and collapse causing personal injury - policy covering manufacturer and importer - exclusion clause excluding claims arising from design of product - excluding claims arising from warranty implied by law - whether claim excluded by exclusion clause.

Trade Practices Act 1974 (Cth), ss 71, 74A, 74B, 74D, Div 2A, Pt V

Australian Knitting Mills Ltd v Grant [1933] HCA 35; (1933) 50 CLR 387

Cullen v Trappell [1980] HCA 10; (1980) 146 CLR 1

Diethelm Manufacturing Pty Ltd v Commissioner of Taxation [1993] FCA 437; (1993) 44 FCR 450

Downie v Jantom Company Pty Ltd [2010] ACTSC 110

Downie v Jantom Company Pty Ltd [2011] ACTSC 135

Griffiths v Kerkemeyer [1977] HCA 45; (1977) 139 CLR 161

Hadley v Baxendale (1854) 9 Exch. 341

Manufacturers' Mutual Insurance Ltd v New World Fabrications Pty Ltd (1987) 4 ANZ Insurance Cas par 60-775

National Insurance Co of New Zealand Limited v Hill [1964] NSWR 597

Territory Insurance Office v Adlington [1992] NTSC 60; (1992) 84 NTR 7

AND: COMMUNITY INFORMATION & REFERRAL SERVICE ACT INCORPORATED (ACN 216 655 407)

AND: EX-GOVERNMENT FURNITURE PROPRIETRY LIMITED

judgment be entered for the first plaintiff against the first and third defendants in the sum of $933,030.00.

2. judgment be entered for the second plaintiff against the first and third defendants in the sum of $441,911.90.

1. This action is brought by the first plaintiff seeking damages for personal injury, and by the second plaintiff seeking recovery of amounts paid to the first plaintiff for her benefit under a policy of workers' compensation insurance. The claims arise from an incident on 11 October 2002, in which the first plaintiff was injured in the course of her employment with the second plaintiff. An office chair collapsed under her. The chair had been manufactured and imported from China by the first defendant, which had supplied it to the second defendant, an office furniture retailer, in kit form. The second defendant had assembled the chair before sale, and sold it to the second plaintiff.

2. Some of the history of the matter is set out in reasons for interlocutory decisions published prior to the trial of the action: Downie v Jantom Company Pty Ltd [2010] ACTSC 110; Downie v Jantom Company Pty Ltd [2011] ACTSC 135. In the latter of those two decisions I granted leave to the plaintiffs to add a third defendant, GIO General Limited, and to bring an action against that company under s 207 of the Civil Law (Wrongs) Act 2002. The third defendant was the insurer of the first defendant under a business policy. There is an issue as to whether the policy responds to the claims by the plaintiffs.

3. The workers' compensation insurer of the second plaintiff made payments of compensation to the first plaintiff, and paid treatment expenses on her behalf. The insurer also paid for rehabilitation services provided to her. On 30 September 2005 the insurer settled the workers' compensation claim, with a common law release, for a lump sum of $190,000.00 over and above the payments already made. The total amount paid by the insurer was $265,281.05. This included $651.20 which was deducted from periodical payments made to the first plaintiff and paid to the Australian Taxation Office.

4. The present action was commenced on 30 September 2005, the same day as payment of the settlement sum to the plaintiff. This was only a matter of days before expiry of the limitation period for the first plaintiff to commence proceedings for damages. The originating claim was accompanied by a statement of claim in which the first plaintiff claimed damages for negligence against the first defendant. The first plaintiff did not make any claim pursuant to the Trade Practices Act 1974 (Cth), nor did she make any claim against the second defendant.

5. The second plaintiff claimed the amount paid out by way of workers' compensation. A claim was also foreshadowed for loss of servitium, but this was later dropped. The claim by the second plaintiff against the first defendant was put in three counts: one in negligence, one under ss 74B and 74D of the Trade Practices Act, and one under s 183 of the Workers Compensation Act 1951 (ACT) for indemnity. The claim by the second plaintiff against the second defendant was for damages for breach of contract.

6. The defendants exchanged notices claiming contribution or indemnity, and filed defences to the claims by the plaintiffs. There is no issue as to the quantum of the claim by the second plaintiff.

7. In October 2009 the solicitors for the parties signed and filed a certificate of readiness, following which the action was listed for hearing in September 2010. On the date fixed for the hearing to commence, I was informed that the first defendant company Jantom had been deregistered in February 2008. The solicitors on the record for the first defendant, instructed by its insurer, were unaware of this. It emerged that the company had been deregistered on its own application. This is permitted by s 601AA of the Corporations Act 2001 (Cth), but only where the company is not a party to any legal proceedings. The company falsely informed the Australian Securities and Investments Commission (ASIC) that it was not a party to any legal proceedings, and it was duly deregistered. On deregistration, a company loses legal personality and ceases to exist: Corporations Act, s 601AD.

8. The solicitors for the plaintiff made an application for an order that ASIC reinstate the registration of Jantom. Section 601AH provides that ASIC may reinstate the registration of a company if it is satisfied that the company should not have been deregistered, and further provides that the court may make an order that ASIC reinstate the registration of a company on application by a person aggrieved by the deregistration, if the court is satisfied that it is just that the registration be reinstated. If a company is reinstated, it is taken to have continued in existence as if it had not been deregistered: s 601AH(5).

9. I was also informed on the first day set aside for the hearing of the action that the second defendant Ex-Government Furniture Pty Ltd had been wound up by court order in August 2010. Section 471B of the Corporations Act provides that on the making up of a winding up order, a person cannot proceed in a proceeding in a court against a company without the leave of the court. On being informed by counsel for the second defendant that his instructions came not from the company but from its insurer, I granted that leave.

10. Counsel for the plaintiffs applied for leave to amend the statement of claim at that time. Leave was sought to amend so as to add a claim on behalf of the first plaintiff against the second defendant in negligence, and to add counts by the second plaintiff against the second defendant in negligence and under Division 2A of Part V of the Trade Practices Act. For reasons which I published on 17 September 2010, I refused the application to amend: Downie v Jantom Company Pty Ltd [2010] ACTSC 110.

11. In the course of submissions at that time, Mr Morris of senior counsel, instructed by the solicitors for the first defendant, informed the Court that the insurer from whom his instructions ultimately came had formed the view that the policy they had issued to Jantom did not respond to the claim.

12. On 26 November 2010 I ordered that ASIC reinstate the registration of Jantom, and heard an application by the plaintiffs to join what is now the third defendant, GIO General Limited, as a party. I also ordered that a fresh hearing date be fixed. The hearing was listed for October 2011.

13. In August 2011, for reasons which I published, I ordered that the third defendant be joined. I had assumed that the reinstatement order would be taken out for the solicitors for the plaintiff and served reasonably promptly on ASIC. This did not happen. It occurred to the solicitors that reinstatement might deprive the plaintiffs of their statutory entitlement to relief under s 601AG of the Corporations Act. That section provides as follows:

601AG Claims against insurers of deregistered company

A person may recover from an insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if:

(b) the insurance contract covered that liability immediately before deregistration.

14. The concern of the solicitors was that their claim might fail if Jantom was no longer deregistered by the time the plaintiff commenced proceedings against the insurer, now the third defendant. Hence they decided not to inform ASIC of the making of the order for reinstatement, and to ask the Court to stay the operation of the order until the application for joinder had been determined.

15. On 1 September 2011 the solicitors for the plaintiff filed an amended statement of claim, with the third defendant now included. The plaintiffs claimed against the third defendant under s 601AG of the Corporations Act, and also under ss 206 and 207 of the Civil Law (Wrongs) Act 2002 (ACT). The leave of the Court is required to make the latter claim. I granted that leave when granting leave to add the third defendant as a party. The relevant provisions of those sections are:

206 Amount of liability charge on insurance money payable against liability

(a) A person (the insured) has entered into a contract of insurance by which the insured is indemnified against liability to pay damages or compensation; and

(b) An event happens that gives rise to a claim against the insured for damages or compensation.

(2) On the happening of the event, the amount of the insured's liability in relation to the event becomes a charge on all insurance money that is or may become payable in relation to the liability.

(4) A charge under this section has priority over all other charges affecting the insurance money.

(1) A charge under s 206 is enforceable by an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured.

(2) The parties have, to the extent of the charge, the same rights and liabilities in relation to the action, and the judgment given in the action, as if the action were against the insured.

(3) The court has the same powers in the relation to the action, and the judgment given in the action, as if the action were against the insured.

16. The plaintiffs in the amended statement of claim further asserted that the third defendant was estopped from denying that its policy covered the liability of the first defendant to the plaintiffs. The estoppel arose from the fact that the third defendant had engaged solicitors to conduct the proceedings on behalf of the first defendant who had taken various specified steps in the matter, and had made a decision, which it attempted to notify to the first defendant, to indemnify the first defendant against the claim by the plaintiffs. It had initially instructed solicitors in October 2006. It had made and attempted to notify its decision about indemnity in November 2008. It was not until 2 September 2010 that it had informed the solicitors for the plaintiffs that it had changed its mind and decided not to indemnify.

17. On 21 September 2011 a defence was filed on behalf of the third defendant. The defence asserted that the first defendant company was no longer an incorporated company; denied that the chair in question had been manufactured by the first defendant or that the first defendant had been negligent; denied that the first defendant had any liability to the plaintiffs; and asserted that it was a term of the policy that the insurance was limited to an occurrence connected with the first defendant's business, being the business described in the schedule to the policy. The business so described had been "dry wall plasterboard contractor". The occurrence in respect of which the plaintiffs claimed was not connected with such a business.

18. The defence further said that the claim made by the second plaintiff was a claim for indemnity and not a claim for compensation for personal injury. Accordingly it was not covered by the policy.

19. The defence also relied on exclusion clauses in the policy, which did not cover damage due to a defect in or the harmful nature or unsuitability of the first defendant's products; the harmful nature, condition or quality of those products where it resulted from the application of any design, formula, specification, plan or pattern; any error, omission in design, plan or specification or failure to design; or the failure of the first defendant's products to meet the level of performance, quality, fitness or durability expressly warranted or represented by the first defendant or warranted by implication of law. The defence pleaded that to the extent that the first defendant was or would have been liable to either of the plaintiffs, that liability arose from the various aspects set out in the exemption clause.

20. As to the estoppel claim, the defence denied that either of the plaintiffs had relied on any representation made by the third defendant or its solicitors as to indemnity, or that either plaintiff had acted to its detriment in reliance on any such representation. The third defendant further said that any such representation could have constituted no more than a representation that the first defendant was insured by the third defendant subject to the terms and conditions of the policy of insurance.

21. On 30 September 2011 the registration of Jantom was reinstated by ASIC.

22. The first plaintiff's evidence was that she moved from Perth to Canberra early in 2001, and obtained employment with the second plaintiff, Community Information and Referral Service ACT Incorporated. This was a change of name for what had originally been the Canberra Citizens Advice Bureau. She worked for seventeen or eighteen hours a week in a job-sharing position. After a short time she was promoted to team leader, with longer working hours, and by the time of her injury she was working full time.

23. In June 2002 she went with the manager of the second plaintiff, Mr Elgar Starkis, to the premises of the second defendant, Ex-Government Furniture, at Fyshwick, to buy some office furniture, including a chair for her use. The premises of the employer were in the Griffin Centre in Canberra City, where some additional office space had become available on an upper floor. The first plaintiff and another employee were to move upstairs, and additional office furniture was needed. They were served by a male staff member. Her recollection was that the premises were a large warehouse with a lot of office furniture. She and her manager sat on a few chairs and looked at some desks. They wanted a new chair, not a second-hand one. They chose a chair, and bought it.

24. The first plaintiff was shown a chair in court, with a broken base, and identified it as the chair they had bought from Ex-Government Furniture that day. She could not recall whether they brought the chair back to their office, or whether it was delivered a day or two later, but shortly afterwards she began using it as her office chair every day.

25. On 11 October 2002 she was sitting on the chair at her desk, talking on the telephone, when the chair collapsed under her and she fell to the floor. She tried to get up but was unable to do so. She felt a sharp pain on the left side of her lower back. Mr Starkis was informed and came quickly to her office. A little later her husband arrived and took her home.

26. Although the first plaintiff was extensively cross-examined on matters going to quantum, there was no challenge to any of her evidence about the purchase of the chair or her fall and injury.

27. This evidence was confirmed by Ms Elizabeth Smith-Howarth, who worked with the first plaintiff and was sharing an office with her on the day of her injury. The first plaintiff was then senior to her but by the time of the hearing Ms Smith-Howarth was manager of the second plaintiff. She was in the room when the first plaintiff fell. She heard a loud crack and turned around to see that she had been flung from her chair to a corner of the room near the door, where she lay in an awkward position. Ms Smith-Howarth realised that the first plaintiff had been on the telephone, and picked up the receiver and terminated the call. She contacted Mr Starkis. He came upstairs to the office almost immediately. She identified the chair in court as the chair which had collapsed under the first plaintiff.

28. Mr Starkis had employed the first plaintiff. She was the successful applicant of more than one hundred applicants for her job. He recalled going with her in June 2002 to Ex-Government Furniture at Fyshwick. The company had bought a number of items of furniture there over the years. On this occasion they were served by a male salesman. They had sometimes bought second-hand furniture there but on this occasion they had decided to buy a new chair for the first plaintiff, who took ergonomics seriously. The salesman recommended a number of chairs for them to try. The first plaintiff sat on a few chairs. They selected one and bought it on behalf of the organisation. His recollection was that they took it back with them to the office, where it remained until the day of the accident.

29. On the day of the accident, Ms Howarth called him and he went straight upstairs to find the first plaintiff on the floor, obviously in pain and unable to move. They telephoned her husband who got her down to his car and took her home.

30. Mr Starkis identified the chair in court as looking very much like the one which had collapsed under the first plaintiff.

31. At some stage after the accident, Mr Starkis contacted Ex-Government Furniture and spoke to a male. He thought the first contact was by telephone and that there might have been some correspondence after that. He was concerned that the chair had been a brand new chair and should not have collapsed. The first plaintiff was not an unusually large person and had been using the chair normally when it collapsed. Mr Starkis said "So I wanted to find the information for possible future litigation, if you like". He remembered being given the name of the manufacturer. He was shown a document which he identified as the source of that information, which he passed on to the first plaintiff.

32. Mr Starkis remembered telephoning Ex-Government Furniture and speaking to the man who had sold them the chair. He told him about the first plaintiff's injury. He asked for information about the identity of the manufacturer. The salesman offered, as a goodwill gesture, a replacement chair, and subsequently supplied details of the manufacturer.

33. Mr Starkis gave a signed statement to an investigator acting on instructions from an insurer on 9 November 2002, within a month of the injury. He was asked some questions about this statement but it did not go into evidence.

34. Senior counsel for the plaintiffs tendered answers to interrogatories affirmed on 16 March 2009 by Sutao Zhai on behalf of Jantom, the first defendant. Ms Zhai stated that she was answering the interrogatories in her capacity as a director of the company. In fact by 2009 she was no longer a director and the company had been deregistered, so that at the time of her affirmation the company did not exist, although the effect of its subsequent reinstatement is that it is taken to have continued in existence as if it had not been deregistered.

35. A company search in evidence establishes that Ms Zhai was a director of Jantom from August 1998 to August 1999, from March 2000 to April 2001, and from February 2002 to July 2002. Thus it seems that she was a director at the time the chair was purchased from Ex-Government Furniture but not by the time of the first plaintiff's injury. Other persons held office as directors in subsequent years: from November 2005 until the date of deregistration, there was a sole director, Gui Qin Chen, resident in Victoria, in office. The application to ASIC for voluntary deregistration of Jantom was signed by Gui Qin Chen in November 2007.

36. Neither Gui Qin Chen nor Ms Zhai gave evidence. It seems clear that Ms Zhai held herself out, at least to the solicitors on the record for Jantom, as a director as late as March 2009. She seems to have acted as though she were a director. I admitted the answers to interrogatories into evidence over the objection of counsel for the third defendant on the basis that I was satisfied that Ms Zhai was in a position to make admissions on behalf of Jantom at the time she affirmed the affidavit. The interrogatories and answers were as follows:

1. At any time during the year 2002, did you have a place of business at 8 East Street, Granville NSW?

2. If yes, was that for the whole of 2002 or only part of it, specifying that part?

3. During any part of 2002 did you manufacture two types of office chairs, one slightly smaller than the other, being swivel chairs with a plastic base and five wheels?

4. If yes, what weight restrictions if any, did you impose or recommend to persons using the said chairs?

37. Senior counsel for the plaintiffs tendered, in the case against the second defendant Ex-Government Furniture only, answers to interrogatories sworn by Mr C Swinbank, a director of that company, in September 2008. The interrogatories had annexed two photographs of the damaged chair. Mr Swinbank said that he believed that chairs of the type shown in the photographs had been purchased by Ex-Government Furniture from Jantom. He was unable to determine what model the chair was. Chairs from Jantom had been delivered in knock-down form packed in boxes, and his company assembled them before sale. He had searched the computer records but could not find any record of a sale to the second plaintiff. Names of purchasers were not always recorded.

38. A colour brochure from Jantom was tendered in the plaintiffs' case. It had been provided by a former employee of Jantom to the solicitors for the third defendant (the insurer). The brochure is undated. It has illustrations of a large number of chairs offered for sale by Jantom. There is one which is similar, and perhaps identical, to the chair which collapsed. It is identified as model JT102.

39. Also tendered were computer printouts of Ex-Government Furniture records of sales of Jantom chairs, one for the period from 1 July 2001 to 30 June 2003, and the other for the two months from 1 September to 31 October 2002. The sales during the periods show a large number of JT103 and JT105 chairs but no JT102 chairs. The brochure shows a JT105 chair, which looks generally the same as a JT102 but without arms. There is no representation of, or reference to, a JT103 chair in the brochure. It may simply be that the brochure relates to a different period.

40. Senior counsel for the third defendant objected to the tender of a printed form of facsimile message on Ex-Government Furniture letterhead, completed in handwriting. The body of the document read as follows:

41. There was some other handwriting which it was agreed had been added later and was not part of the original message as sent or of the tender.

42. Mr Starkis was unable to remember or identify with any precision the document in his oral evidence. Mr Thomas did not give evidence and there was no explanation by any party about any attempts to locate him or serve him with a subpoena.

43. Senior counsel for the plaintiffs argued that the document was admissible as a business record of Ex-Government Furniture.

44. The document bore a single-line imprint at the top which establishes to my satisfaction that it was faxed from Ex-Government Furniture at Fyshwick on 24 October 2002. I am satisfied that it was faxed to, and received by, Mr Starkis at the office of the second plaintiff on that date.

45. Senior counsel for the third defendant submitted that the document was not a business record, and was inadmissible by reason of the hearsay rule, now found in s 59 of the Evidence Act 1995 (Cth), the applicable legislation at the time of the tender. For the purposes of that section, I accept that it can reasonably be supposed that in the document, Mr Thomas intended to assert a particular fact, namely that the chair which the second plaintiff had bought from Ex-Government Furniture in June 2002 had been a Jantom chair. Section 59(1) provides that evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation.

46. Section 69 provides an exception to the hearsay rule in respect of business records. The relevant subsections of s 69 are:

(i) is or forms part of a record belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business; or

(ii) at any time was or formed part of such a record; and

(b) contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business.

(2) The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made:

(a) by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact; or

(b) on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact.

(3) Subsection (2) does not apply if the representation:

(a) was prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with, an Australian or overseas proceeding; or

(5) For the purposes of this section, a person is taken to have had personal knowledge of a fact if the person's knowledge of the fact was or might reasonably be supposed to have been based on what the person saw, heard or otherwise perceived (other than a previous representation made by a person about the fact).

47. It seems to me that the document formed part of the records of both Ex-Government Furniture and the second plaintiff. I am satisfied that Mr Thomas was more probably than not the salesman Mr Starkis and the first plaintiff had dealt with when they bought the chair, and that it is reasonable to suppose that he had personal knowledge of the wholesale supplier of the chair to the company where he worked. The fax was sent within two weeks of the sale and purchase of the chair and for that reason is likely to be reliable.

48. Senior counsel for the third defendant raised a secondary objection to the tender, that the exception in subs 69(3) applied in that the document had been prepared or obtained in contemplation of litigation. Certainly the evidence of Mr Starkis was that this was in his mind, on behalf of the first plaintiff rather than the employer. But the document was prepared by Mr Thomas, and there is no suggestion that he had any awareness that the document might have anything to do with litigation.

49. The commentary on s 69 contained in Uniform Evidence Law, Odgers, Thomson Reuters, makes it clear that the mischief to which the section is directed is the possibility that self-serving statements may be brought into being for use in evidence in expected litigation. The litigation must be likely or reasonably probable. There is no suggestion that there was anything self-serving about the document, in the mind of either Mr Thomas or Mr Starkis. I take the view that the representation contained in the document was not prepared or obtained for the purposes of, or in contemplation of, litigation.

50. I postponed dealing with the tender at the time and said that I would deal with it in my reasons for judgment. For the reasons I have expressed, the document, presently MFI 2, will be admitted into evidence and will become Exhibit U.

51. Senior counsel for the third defendant GIO General called a former employee of Jantom, Mr K L Jones, who lives in Sydney, to give evidence. Mr Jones was employed by Jantom from about July 2001 to July 2007 when he retired. He was sales manager for New South Wales and the Australian Capital Territory, and one of Jantom's retailers was Ex-Government Furniture. His evidence was that Jantom did not have many customers when he joined the company. They did not have a high volume of sales. His task was to rectify this. He became familiar with the chairs they sold.

52. Prior to trial he was shown photographs of the damaged chair in evidence. He saw the chair physically for the first time on the day he gave evidence. He said that he had not seen that particular style of chair in the Jantom range. He was asked whether it was or was not a Jantom chair. He said that he could not say for certain, but it was not familiar to him as far as some of its components were concerned, and he did not recognise it as a Jantom chair. The grip on the height adjustment lever was a different shape, to his recollection, from the levers used by Jantom. The plastic base did not seem to him to have the finish he remembered on Jantom bases, which had a powdery or dusty look about them. He was not 100% certain that Jantom had used the fabric colour of the seat and back of the chair. He said that the base plate did not look like a Jantom base plate, and in fact looked stronger than the bases used by Jantom.

53. He said that there had been no sticker or label or marking on Jantom chairs to identify them as Jantom chairs. There was a similar chair in the Jantom range, which he recalled as the JT102. His recollection was that the JT103 and JT105 were different.

54. His evidence was that by 2006, when he made a trip to China for Jantom, they had a factory in China where they assembled chairs, but they never manufactured the bases.

55. In cross-examination, Mr Jones said that he first became aware during 2006 that someone had been injured when a chair failed, although he had been aware in earlier years that some Jantom chairs had suffered broken bases. He was aware that there had been some complaints from Ex-Government Furniture and that they had returned some Jantom chairs for replacement. He could not remember which model chair had created this problem. He had a vague recollection that at some point the JT101 or JT102 was changed in some way. He did not see the returned chairs or deal with the documentation about them. His role was confined to sales and distribution. He agreed that Jantom had supplied the chairs to retailers in flat pack form, for assembly by the staff of the retailer.

56. The plaintiffs rely on two expert reports, one obtained by their solicitors and the other by the solicitors for Ex-Government Furniture. The first report was prepared by Dr Lance Green, a senior lecturer in industrial design at the University of New South Wales. Dr Green has a degree in mechanical engineering, and both a master's degree and a doctorate of philosophy in industrial design. He inspected the chair and prepared his report in December 2005. I am satisfied that he has extensive experience in relation to the design of commercial seating, including office chairs. He described the chair in question as of a rigid steel and plastic construction in three sections, being a base consisting of a single plastic moulding incorporating five feet or spokes with castors at their extremities; a central section including a pneumatic height-adjusting steel cylinder; and an upper section which included the seat and backrest.

57. He said that the base of the chair was a single injection moulding in a plastic material, acrylonitrile-butadiene-styrene (ABS). The plastic moulding had failed in a catastrophic manner. Two feet had broken away from the central boss. Dr Green said that base sections with five feet for office chairs were manufactured in steel, aluminium or plastic. The base section was subject to significant loads resulting from the downward weight of the occupant, and the forces associated with the occupant leaning against the backrest. The nature of the loads was complex, with overall bending of the structure acting down the central column, and applying torsion to the base. The base in question was hollow underneath with stiffening ribs incorporated to increase its strength and stiffness.

58. He said that ABS is a medium-cost tough and rigid plastic which was excellent for general purpose applications and had good impact strength. Its effectiveness as a material for a swivel-chair base depended on quality control of the injection moulding process, including the quality of drying of the plastic resin prior to moulding, temperature control, moulding parameters and consistent cooling. In addition, design factors such as reinforcement and avoidance of sharp corners was very important.

59. The central column was of metal with a tapered section at the lower end at an angle of about 2.5 degrees. The plastic hub had a corresponding taper and the components mated together. If both components were metal the fit would be self-locking. Because the base was made from ABS the components would not lock. The design of the chair in question incorporated an aluminium circlip which engaged into a groove at the bore of the hub, locking the column to the base. Dr Green said that this method of locking the column introduced considerable stresses to the plastic at the groove. The design seemed to him to be an afterthought, the circlip being incorporated when the taper connection failed to lock. This aspect of the design might have been a contributing factor to its failure.

60. If the occupant of the chair leant back against the backrest with some force, this would impose an additional load on the base. If the base was aligned so that two of the feet bore a combination of the downward and rearward loads, increased stress would be applied to the region where the base failed. Dr Green noted sharp corners between various sections of the central hub which he said would act as stress concentrators, amplifying the normal stress in the corners by a factor ranging between one and three. This had the potential to produce cracks and thus failure.

61. He said that when a base moulding is ejected from an injection mould die, it is normal for there to be differential temperatures in regions of the central hub. These differing temperatures were part of the process, caused by the proximity of cooling channels in the steel die to the respective sections of plastic and also due to the effect of different plastic thicknesses. The thin sections would cool more quickly, and the thick sections much more slowly. Differential shrinkage could occur, with various regions of the moulding pulling against each other, resulting in high localised residual stresses. It was possible that cracks could develop as a result of such shrinkage mechanisms at some time in the future, long after cooling had concluded.

62. When plastic was injected into the metal die, it could flow simultaneously in a number of directions at the same time. It could meet resistance, hesitate and then flow in another direction. This hesitation effect he described as disastrous in that it could lead to high residual stresses in critical sections of the moulding, causing regions of weakness referred to as weld faces or weld lines. These could exhibit dramatically reduced strength, particularly if air became trapped in the plastic between the weld faces.

63. A further point was that ABS is hygroscopic, that is, absorbing of water. It must be "dried" prior to injection moulding. If the drying process was not carried out efficiently this could have a major effect on impact strength.

64. For all of those reasons, ABS could at times perform poorly in relation to its theoretical strength. In those circumstances it could exhibit brittle behaviour.

65. There were other factors which might affect the strength of the plastic, associated with the injection moulding process. Stress could occur randomly due to changes in the parameters of the manufacturing process. In theory a moulding could be produced early in a manufacturing batch, during the "warm-up" period where optimum processing conditions had not yet been achieved.

66. It was Dr Green's opinion that it was conceivable that the chair in question failed when its occupant leant to the rear while sitting on the chair, causing flexure of the base at a time when two of the five feet were bearing the stress of the weight, causing a significant level of stress in the plastic. Cracks could have been generated at some time much earlier in the history of use of the chair. Use over time might have produced microscopic cracks in critical regions of the plastic. The proprietor of the business could not have foreseen this event. Periodic inspection of the base to identify cracks might not have helped, as the cracks would probably not have been visible to the eye and might have occurred in regions where visual access was problematic.

67. The base of the chair, being subject to considerable loads, should be considered a structural component of the chair. In Dr Green's opinion it should have been manufactured from steel or aluminium. Steel had twelve times the tensile strength and one hundred and fifty times the stiffness of ABS. Even aluminium had three times the tensile strength and fifty times the stiffness. A base designed in plastic should have been much deeper in section, and an engineering plastic should have been specified, for example nylon or polycarbonate resin, reinforced with glass fibres. These would have increased the strength and stiffness of the plastic considerably, and were usually incorporated into plastics where they replaced metals.

68. The second expert report in evidence was prepared by Ms Phillippa Carnemolla, an industrial designer, in September 2009. She had a master's degree in design and lectured in that subject at the University of New South Wales. She had earlier worked as a designer in a range of industries including commercial furniture, sheet metal fabrication, interior fitout and recreational products. She also inspected the chair.

69. I found her report less helpful than that of Dr Green. She assumed that the base had been made of nylon filled with glass fibre. I prefer Dr Green's opinion about its material. She thought that a metal ring should have been inserted in the centre of the base. She could see no faults in the moulding process, such as poor wall thickness or inconsistent density of material, and concluded that the problem was one of design or cost-cutting rather than quality control during manufacture. She agreed that there would have been nothing visible to indicate to sales staff that the base was likely to fail.

70. She went to Ex-Government Furniture where she spoke to an employee, Mr de Veau, who told her that he was familiar with Jantom chairs supplied during 2002 and had assembled them for delivery. He told her that in later years Jantom had included a metal ring insert in the star bases, probably in 2003 or 2004. He supplied her with some company records which showed that between September 2001 and July 2002 twenty-two Jantom chairs had been returned for repair or replacement. Eight of these had been for broken bases.

71. Senior counsel for the third defendant objected to what Mr de Veau said being taken as evidence of its truth. I limited its use to treating it as part of the assumptions made by the expert, so that it is not to be evidence of its truth. However, the records of returns for repair or replacement are in a different category, being business records, and I accept those as part of the evidence.

72. On the underside of the chair seat the date 04 02 had been hand etched. Mr de Veau said that this represented the month of assembly of the chair by Ex-Government Furniture, being April 2002. I do not regard what he said as part of the evidence in the case, but it seems a reasonable inference that the explanation is correct, having regard to the date of sale to the second plaintiff.

73. Ms Carnemolla was supplied by Ex-Government Furniture (presumably Mr de Veau) with a Jantom brochure, a copy of which is attached to her report. This is a photocopy of a single page, and the chair numbers are different from the other brochure in evidence. Again the document is undated. It shows a different address for Jantom, at Belfield, New South Wales. The chair is identified as an MB2 model chair. Again it seems that Jantom changed from time to time its descriptors for these chairs. Certainly the MB2 in the brochure looks the same, as far as I can detect, as the chair in evidence.

74. The Court did not have the benefit of any oral evidence from anyone from Jantom or the insurer GIO General Limited, but a number of documents had been produced by the insurer which were tendered without objection. It emerges from the documents that Jantom lodged an insurance proposal with GIO in May 1997, giving its business as dry wall plasterboard contractors (gyprockers), having been in that business for a year. They were then operating from an address at Bexley in Sydney. A premium was set and insurance cover put in place.

75. A premium calculation sheet, which I take to be an internal GIO document, prepared in June or July 2000, showed a change of address and business description. By then the address was at Granville, the business description was furniture warehouse and the code description for policy purposes was hardware-warehouse/shop. An insurance proposal form completed in June 2000 and lodged in July 2000 listed the persons or companies to be insured as Jantom Company Pty Limited, Wen Jun Lu and Sutao Zhai. The type of business was described as furniture warehouse, office chair, furniture.

76. A property assessment report was prepared in April 2001, following an inspection by someone on behalf of GIO General of Jantom's premises in March 2001. The business was described in the report as office furniture warehouse. The inspection was evidently regarded as satisfactory, and continued risk acceptance was recommended.

77. A document prepared in November 2001, the purpose and status of which is unclear to me, showed the insured as Jantom Company Pty Limited and the business as dry wall plasterboard contractor, with its business address being the Granville address. It seems unlikely that the business of the company had reverted to plasterboard contracting. A more likely explanation is that whoever prepared the document at GIO General went back to the first proposal on the file in 1997 and entered the business description from that document without checking for any subsequent changes.

78. A further document is headed as "policy schedule as at 4 May 2002" but states that it was issued on 2 September 2010. Again, its purpose and status is not clear. This document is addressed to W J Lu and S Zhai at a Chatswood address, and shows Lu and Zhai as the insured, with, again, the business activity as dry wall plasterboard contractor. There is no documentation to suggest that there was any request by Jantom or its officers for any change in the insured or the nature of the business.

79. On 7 June 2002 a request was lodged with GIO General by Jantom for some alteration in cover, and an extra premium notice was generated on 25 June 2002 in response to this, addressed to Jantom Company Pty Limited at the Granville address. Elsewhere in this documentation the business was again described as dry wall plasterboard contractor which again I have no doubt was a mistake based on the original business of Jantom when insurance commenced in 1997.

80. There can be no doubt that at the time of the sale of the chair by Ex-Government Furniture to the second plaintiff in June 2002, and at the time of the first plaintiff's injury, there was a business insurance policy in place issued by GIO General in favour of Jantom Company in respect of its business as a dealer in office furniture.

81. There is also in evidence a copy of a trade insurance policy issued by GIO General. It is common ground that this was the policy wording in force at the relevant time.

82. The policy covered a number of risks. The relevant one for present purposes was described as public and products liability, dealt with in section 7 of the policy. This provided that the insurer covered the insured, subject to the terms of the policy, for any amount it might become legally liable to pay as compensation for personal injury happening during the period of insurance and caused by an occurrence connected with its business. "Business" was defined as the business or businesses shown on the schedule. Personal injury was defined to cover the plaintiff's claim against Jantom. Compensation was defined as money payable because of a judgment awarded against the insured by a court, or any settlement of a claim negotiated by or agreed to by the insurer.

83. The policy provided for certain exclusions. The exclusion relied on by GIO General was as follows:

The policy section does not insure liability arising directly or indirectly out of or in connection with, or for:

(b) the harmful nature, condition or quality of your products when that harmful nature, condition or quality has resulted from the application of any design, formula specification, plan or pattern;

(d) any error, omission in design, plan or specification or failure in design; or

(e) the failure of your products to meet the level of performance, quality, fitness or durability expressly warranted or represented by you or warranted by implication of law.

84. A definition of products clearly includes the chair which collapsed, if it was a Jantom chair.

85. It is the submission of senior counsel for the third defendant, GIO General, that it follows from the evidence, in particular that of Dr Green, that the chair which collapsed under the plaintiff failed because of a design fault, and further, that the collapse of the chair amounted to a failure to meet the level of fitness or durability warranted by implication of law.

86. I postponed dealing with a tender, with the agreement of senior counsel for the plaintiffs who tendered the document, and senior counsel for the third defendant who objected to the tender. The tender was of a letter from the third defendant in relation to the claim under the insurance policy by Jantom, following earlier letters not the subject of objection. The first of the earlier letters, of 11 October 2006, was addressed to Wen Jun Lu and Sutao Zhai, care of a Sydney firm of solicitors who I assume were acting for Jantom direct at that time. The letter was headed:

Your reference: Jantom Terry - ACT Supreme Court proceedings

87. The letter informed the recipients that the third defendant would handle their claim in accordance with the General Insurance Code of Practice. The letter went on to say that the insurer had not yet had the opportunity to investigate the claim fully and could not confirm whether indemnity would be granted. It was obtaining an investigation report and copies of relevant documents, and would communicate with the recipient again. The insured would be kept updated every three months. The insurer had appointed solicitors to represent its own interests and those of the insured pending a decision about indemnity. The appointment was without prejudice to the insurer's rights under the policy and the law, and to the insurer's right to decline indemnity.

88. It is apparent that the investigations took longer than anticipated. Similar letters were written, again making it clear that no final decision had been made about indemnity, to the same addressees in December 2006, March 2007 and May 2007.

89. The letter which is the subject of the objection was dated 7 November 2008. This letter was addressed to Jantom Companies, attention Rebecca Zhai at the Granville postal address of Jantom. I infer that Rebecca Zhai is the same person as Sutao Zhai. The letter was headed:

90. The letter opened by referring to the last letter of 11 May 2007 and stated that the investigations required to enable a decision on indemnity had now been completed. The letter went on:

We have decided that your Business Insurance covers this claim. Therefore, we grant indemnity to you in respect of the above claim under the policy covering the period 16 January 2002 to 16 January 2003. Indemnity is granted pursuant to the terms and conditions of the policy and on the basis of facts and circumstances known to us to date.

91. The letter noted that previous letters sent to keep the insured informed of progress had been returned. It is not clear whether this was a reference to the letters sent care of the Sydney solicitors, or to other letters sent to the Granville postal address. The letter informed the recipient that Moray & Agnew had been appointed to take over the legal proceedings and would be in contact. The letter contained no reservations about the grant of indemnity, or suggestion that indemnity might subsequently be withdrawn.

92. By the date of the letter, Jantom had been deregistered. Senior counsel for the third party tendered on the voir dire the original letter with its envelope, which had been endorsed "return to sender - left address/unknown". The envelope had been returned on 10 November 2008 and received by the insurer on 12 November 2008. I am accordingly satisfied that the letter was not seen by Ms Zhai or anyone at Jantom, and did not succeed in its purpose of communicating its contents to the insured.

93. One thing that is apparent is that the insurer, notwithstanding the return of the letter, continued to instruct solicitors to act for Jantom as a party to the action. It seems likely that neither the solicitors nor the insurer realised that Jantom had been deregistered until served with an application by the solicitors for the plaintiffs asking for an order for reinstatement of its registration shortly before the hearing date in September 2010. It was not until shortly after that the insurer communicated its decision to withdraw indemnity. It seems to me that the letter the subject of objection is admissible against the third defendant as evidence of its decision to grant indemnity to Jantom without any stated reservations, notwithstanding that Jantom did not receive the letter. The letter, presently marked Exhibit VD1, will become Exhibit V.

94. Senior counsel for the plaintiff submits that the letter, and the conduct of the litigation generally by the insurer on behalf of Jantom, gives rise to an estoppel such that the insurer should not be permitted to rely on a defence that it is not obliged to indemnify Jantom.

95. There is an issue of substance as to whether the chair which failed was a Jantom chair or not. There are conflicts of evidence about this. Mr Jones casts doubt on whether it was a Jantom chair. I take account, however, of the fact that he was not told about the plaintiff's injury until some four years after the event, and that by the time he gave evidence he had been retired for some four years. He was, I have no doubt, doing his best to remember accurately the identifying features of Jantom chairs. It was not clear from his evidence that he had much experience of the chairs supplied by other manufacturers to retailers like Ex-Government Furniture. His evidence was supportive of a conclusion that the chair might not have been a Jantom chair, but I was not persuaded by it.

96. I am more influenced by the fax sent by Mr Thomas within a couple of weeks of the plaintiff's fall, in which he said, I am sure from his recollection at the time, that the chair he had sold to Ex-Government Furniture had been a Jantom chair.

97. Whilst the evidence is far from clear about it, I have come to the view that it is, if only slightly, more likely than not that the chair which Mr Starkis and the first plaintiff bought and took back to their office in June 2002 was a Jantom chair. I cannot be sure what model it was but it is not necessary for me to make a specific finding about this.

98. I generally accept the evidence contained in Dr Green's expert report as to the cause of the fracture of the base of the chair. It seems to me more likely than not that Jantom had purchased the base from a manufacturer in China, and sold it on as part of a Jantom chair to Ex-Government Furniture. I accept Dr Green's opinion that if the base had been of steel or aluminium it would have been very unlikely to have fractured during normal use. I am satisfied that the circumstances in which it did fracture could reasonably be described as normal use of the chair. It would have been much less likely to fracture if the material for the base had been of nylon combined with glass fibre. I think it likely that there were undetectable flaws in the base, due in part to the plastic material not being ideal for the purpose, and in part to the temperature differentials which probably occurred in the moulding process. There may well have been, and probably were, microscopic cracks in critical regions of the plastic base which could not have been detected on visual inspection, whether by a responsible retailer or employer.

99. There is an element of speculation about this, but I think it most likely that the failure of the chair base was due to a combination of less than ideal materials being used, and a less than ideal moulding process being adopted. There is no evidence that Jantom in China were or should have been aware of these defects when they purchased the base, no doubt along with a large number of other bases, from the manufacturer in China. Still less is there any basis for criticising Ex-Government Furniture for failing to detect any weakness when assembling the chair. I am satisfied that there was no reason for the second plaintiff, as employer of the first plaintiff, to suspect that there was any problem with the chair which might have caused its collapse, to the extent that that question may be raised.

100. This brings me to the exclusion clause in the insurance policy. Clearly there was a "harmful nature, condition or quality" of the chair. I am not satisfied that the harmful nature, condition or quality resulted from the application of any design, formula specification, plan or pattern. There is no evidence that there was anything wrong with the design of the base. On the contrary, the base seems to have been generally of the same appearance and kind of the bases of office chairs generally on the market and in use.

101. This leaves open the submission on behalf of the insurer that Jantom's liability arose from the failure of its product to meet the level of fitness or durability warranted by implication of law.

102. I have previously said that the claim by the first plaintiff has been brought against the first defendant Jantom only, and that the only cause of action pleaded is in negligence. Since the amended statement of claim of 1 September 2011, there has been no change as between the first plaintiff and the first defendant, but the first plaintiff now also claims against the third defendant under ss 206 and 207 of the Civil Law (Wrongs) Act, and s 601AG of the Corporations Act. The claims by the first plaintiff against the third defendant are derivative claims and depend upon her succeeding against the first defendant in negligence.

103. Section 42 of the Civil Law (Wrongs) Act provides that the standard of care required of a defendant in negligence is that of a reasonable person in the defendant's position who was in possession of all the information that the defendant either had or ought reasonably to have had at the time of the incident. Section 43 provides that the defendant is not negligent in failing to take precautions against a risk of harm unless the risk was foreseeable and not insignificant; and in the circumstances, a reasonable person in the defendant's position would have taken those precautions.

104. There is evidence that between September 2001 and July 2002 eight Jantom chairs had been returned by Ex-Government Furniture for repair or replacement of broken bases: see [70] above. These returns were information which Jantom had at the time of the sale of the chair. This satisfies me that there was a foreseeable risk of the failure of the base of a Jantom office chair. A base was clearly far more likely to fail while someone was sitting on the chair than while it was not in use. Harm in the form of personal injury was accordingly likely and potentially serious. In these circumstances it was not enough for Jantom to stand ready to replace a chair in the event of breakage of a base. There is no evidence that an earlier base failure had caused personal injury but such a risk was clearly foreseeable. It is hardly a counsel of perfection to conclude that a reasonable person in the position of Jantom would have done something about the risk of future base failures, rather than simply continuing to sell the chairs in knockdown form and hoping for the best. Jantom as wholesaler of the chairs owed a duty of care to users of the chairs following sale, such as the first plaintiff.

105. Section 43 of the Civil Law (Wrongs) Act requires me to give consideration to the burden of taking precautions to avoid the risk of harm. Following a number of base breakages and returns, it seems to me that a reasonable person in the position of Jantom would have taken professional advice, for example from an expert like Dr Green, and taken steps, in the light of such advice, to substitute for the bases they were using, bases with a greatly reduced likelihood of fracture.

106. I have accordingly come to the view that Jantom committed a breach of its duty of care to the first plaintiff, causing her damage in the form of personal injury. The first plaintiff is entitled to succeed against Jantom in negligence under the general law as modified by Chapter 4 of the Civil Law (Wrongs) Act.

107. Jantom is of course no longer trading. Success for the first plaintiff against Jantom will be a pyrrhic victory unless she can also succeed against the third defendant GIO General.

108. For the reasons I have already given, I am persuaded that Jantom was insured under the policy issued by GIO General, subject to the exclusion clause.

109. I have also explained my reasons for finding against the insurer on the design exclusion. This leaves to be dealt with the argument that cover is excluded by the warranty by implication of law exclusion. GIO General argues that the injury to the first plaintiff arose out of the failure of the chair to meet the level of performance, quality, fitness or durability warranted by implication of law. There is no evidence of any express warranty or representation by Jantom about those matters.

110. Senior counsel for the third defendant, GIO General, acknowledged that the exclusion in paragraph (e) of clause 9 would arise only in relation to a claim against the insured based upon breach of a warranty which had arisen by implication of law. The claim by the first plaintiff against the first defendant was framed in negligence only. No statutory relief was sought. There might have been an argument available that the first plaintiff had a claim against the first defendant for breach of implied warranty as to merchantable quality under s 71 of the Trade Practices Act. However, no such claim was pleaded or notified by the solicitors for the plaintiffs by way of particulars. The plaintiffs did not rely in their claim against the first defendant on the breach of any warranty implied by law. Hence I need not consider the exclusion which arises under paragraph (e) of clause 9 of the policy.

111. In those circumstances, I do not strictly need to consider the submission made by senior counsel for the plaintiffs as to representational estoppel. It was argued on behalf of the plaintiffs that even if the insurer had been entitled to refuse indemnity, it should be estopped from doing so because of its decision, evidenced by its letter to Jantom of 7 November 2008, to grant indemnity, combined with its conduct of the proceedings on behalf of Jantom from that date until September 2010.

112. There is authority for the proposition that estoppel may prevail regardless of the true facts: see for example National Insurance Co of New Zealand Limited v Hill [1964] NSWR 597 at 599 per Herron CJ, Ferguson and Nagle JJ, where an insurer was held liable notwithstanding that on the true facts the policy was void or did not cover the risk.

113. In Manufacturers' Mutual Insurance Limited v New World Fabrications Pty Ltd (1987) 4 ANZ Insurances Cases 60-775, MW Campbell J held an insurer estopped from refusing to indemnify a defendant where the plaintiff had been injured a day before the policy commenced, but where the insurer had conducted the litigation on behalf of the defendant in a manner which his Honour found was to the plaintiff's detriment.

114. This decision was doubted and not followed by the Court of Appeal of the Supreme Court of the Northern Territory (Asche CJ, Martin and Mildren JJ) in Territory Insurance Office v Adlington [1992] NTSC 60; (1992) 84 NTR 7, specifically on the issue of detriment. The Court of Appeal held that the detriment must be real and material, although not necessarily causative of pecuniary loss. In Adlington, the evidence did not establish any real detriment. The time for considering whether there had been detriment was the time when the insurer communicated its decision not to continue to extend indemnity.

115. I am satisfied that the detriment referred to may be to the insured or to someone else, for example the present first plaintiff. In the present case, it was in practical terms only the first plaintiff who was likely to be affected by the decision of the insurer not to indemnify. The question is whether, during the time when Jantom was represented by the insurer, or its representation was arranged by the insurer, the first plaintiff suffered detriment by comparison with the position which would have obtained if indemnity had been declined in November 2008. Despite the attraction of Campbell J's view in New World Fabrications, I am bound to follow a decision of the Court of Appeal of another Territory, and find myself unable to distinguish Adlington on the facts. I would therefore not have been persuaded that the insurer was estopped from relying on its defence that the policy did not respond.

116. The second plaintiff claims against the first defendant damages for negligence, damages under ss 74B and 74D of the Trade Practices Act, and indemnity under s 183 of the Workers Compensation Act. The second plaintiff claims against the second defendant damages for breach of contract only. The second plaintiff also claims against the third defendant under ss 206 and 207 of the Civil Law (Wrongs) Act and

117. The relevant portions of s 183 of the Workers Compensation Act are as follows:

183 Remedies against employer and stranger

(1) If any injury in relation to which compensation is payable under this Act is caused under circumstances that appear to create a legal liability in a person other than the employer to pay damages in relation to the injury -

(a) the worker may take a proceeding against the person to recover damages and may also make a claim against the employer under this Act; and

(b) if the worker receives both amounts under this Act and damages from the other person - the worker must repay to the employer so much of the amounts as does not exceed the amount of the damages received from the person; and

(c) on notice to the other person, the employer has a first charge on money payable by the person on the worker to the extent of any amounts that the employer has paid to the worker under this Act; and

(d) if the worker has received amounts under this Act, but no damages or less than the full amount of the damages to which the worker is entitled - the person liable to pay the damages must indemnify the employer against so much of the amounts paid to the worker as does not exceed the damages for which that person is liable; and

(e) payment of money by the other person to the employer under paragraph (c) or (d) is, to the extent of the amount paid, a satisfaction of the liability of that person to the worker.

(2) If an amount of compensation is paid in relation to a lump sum claim, this section applies as if a reference to amounts paid under this Act by an employer to a worker included a reference to any legal costs as between party and party that the employer is liable to pay in relation to the claim.

118. I am satisfied that the injury to the first plaintiff was caused under circumstances which created a legal liability in the first defendant to pay damages in relation to the injury.

119. Accordingly the provisions of s 183 of the Workers Compensation Act gave the second plaintiff, as employer of the first plaintiff, a first charge on money payable by Jantom to the first plaintiff to the extent of the amounts paid by the employer under the Workers Compensation Act. The second plaintiff is therefore entitled to succeed against Jantom for the amount claimed.

120. The second plaintiff also relied on ss 74B and 74D of the Trade Practices Act in its claim against Jantom. The difficulty with these statutory counts is that they are limited to claims arising out of the supply of goods of a kind ordinarily acquired for personal, domestic or household use or consumption: s 74A(2)(a). I said in my reasons in Downie v Jantom Company Pty Ltd [2010] ACTSC 110 at [31] and following that the chair in question was an office chair purchased from a retailer of office equipment by a business. I said that I was prepared to take judicial notice that one might find such a chair in a study or home office in residential premises, but that I did not see it as an item of a kind ordinarily acquired for personal, domestic or household use or consumption.

121. The Federal Court came to a similar conclusion in a different context in Diethelm Manufacturing Pty Ltd v Commissioner of Taxation [1993] FCA 437; (1993) 44 FCR 450. The question was whether office furniture was liable to sales tax at the usual rate, or at a lower rate applicable to furniture of a kind ordinarily used for household purposes. The Court (French, Hill and Whitlam JJ) held that whilst the chairs might sometimes be used for household purposes, they were not of a kind ordinarily so used, and had been correctly taxed as office furniture rather than given the benefit of the exception in respect of household purposes. Accordingly the statutory claims under ss 74B and 74D of the Trade Practices Act are not available to the second plaintiff.

122. The second plaintiff also claimed against Jantom in negligence under the general law. It is strictly unnecessary for me to consider this count. If it had been the only count available, I would have had considerable reservations about concluding that it was appropriate for the scope of Jantom's liability to extend to the harm in respect of which the second plaintiff claimed. This would have been a necessary element for me to find against the second defendant in negligence: Civil Law Wrongs Act, s 45(1)(b), (3).

123. The claim by the second plaintiff (the employer) against Jantom is a claim under s 83 of the Workers Compensation Act for recovery of workers' compensation amounts paid to the first plaintiff and on her behalf. It is a claim which would not be available in the absence of that section. Neither Jantom nor its insurer would have any liability to the second plaintiff (other than for loss of servitium, which is not pursed) under the general law.

124. The policy provides that GIO General will insure Jantom "for any amount you become legally liable to pay as compensation for personal injury . . . happening during the period of insurance and caused by an occurrence connected with your business". "Personal injury" is defined to mean, relevantly, death, bodily injury, illness, sickness, disease, disability, mental injury, nervous shock. "Compensation" is defined as money payable because of a judgment awarded against the insured by a court of law or because of any settlement of a claim negotiated by or agreed to by the insurer. The question is whether the amount recoverable by the second plaintiff against Jantom comes within the expression "compensation for personal injury". Senior counsel for the third defendant submits that it does not, and that the claim by the second plaintiff is not a claim for compensation for personal injury, but a claim brought pursuant to a statutory entitlement by an employer to recover workers' compensation amounts paid from a tortfeasor. Senior counsel for the plaintiff submits that, whilst the claim by the second plaintiff against Jantom is not strictly speaking a claim for damages for personal injury, it is in practical terms such a claim, and the policy was intended to cover it.

125. In theory the first plaintiff might have decided to rely on her workers' compensation benefits, and not to pursue an action for damages. If this had happened, I can assume that the workers' compensation insurer would have brought an action in the name of the employer against Jantom. The amount at issue would have been precisely the amount the first plaintiff would have been required to repay to the workers' compensation insurer if she had recovered damages.

126. I take account of the fact that the policy was prepared by GIO General and is to be construed contra proferentem.

127. It seems to me that the policy should be read in such a way that the claim by the second plaintiff against Jantom is covered by it. The second plaintiff is thus entitled to succeed against the third defendant.

128. The claim by the second plaintiff against the second defendant Ex-Government Furniture is a claim limited to damages for breach of contract. I am satisfied that under the general law there was an implied term in the contract for sale of the chair by Ex-Government Furniture to the second plaintiff that it would be of merchantable quality and reasonably fit for its intended purpose as an office chair. Additionally, such a condition was implied by s 71 of the Trade Practices Act.

129. Senior counsel for the second defendant submitted that there might also have been such an implied warranty by virtue of the Sale Of Goods Act 1954 (ACT). Section 19 of that Act deals with the question. There is no evidence that the second plaintiff as buyer of the chair relied on the skill or judgment of Ex-Government Furniture in purchasing the chair, and it does not seem to me that any implied warranty or condition arises under that Act.

130. Nevertheless, under the general law of contract, I am satisfied that the second defendant sold the chair to the second plaintiff with an implied condition of that sale being that the chair would be reasonably fit for its purpose as an office chair. In the event it proved not to be, despite the fact that it was used in precisely the manner one would expect an office chair to be used. This amounted to a breach of contract by the second defendant. This leaves open the question as to the measure of damages for breach of contract, and whether these can now be seen to extend to the amount paid out by the purchaser to its employee in satisfaction of her entitlements under the Workers Compensation Act.

131. The usual remedy for breach of contract is an award of damages calculated by reference to the loss caused by the breach. But not all loss which can be causally linked to the breach is compensable. Loss will not be the subject of an award of damages if it is too remote. What is often referred to as the rule in Hadley v Baxendale (1854) 9 Exch 341 at 354 is that a loss caused by a breach of contract will not be too remote if it:

. . . may be fairly and reasonably considered either [as] arising naturally, that is, accordingly to the usual course of things, from such breach of contact itself or . . . may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.

132. The rule has been restated, in C Czarnikow Ltd v Koufos [1969] 1 AC 350 at 385, as requiring that:

. . . on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.

This passage has been adopted in a number of decisions of the High Court of Australia, including Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454 at 471-2 per Gibbs J.

133. There is no doubt that damages may be recoverable for personal injury caused by breach of contract - see for example Australian Knitting Mills Ltd v Grant [1933] HCA 35; (1933) 50 CLR 387; Cullen v Trappell [1980] HCA 10; (1980) 146 CLR 1; Chappel v Hart (1998) 195 CLR 232. However, in all of the cases I have been able to identify, the personal injury for which damages were awarded was injury suffered by a party to the contract. Here the purchaser of the chair seeks to recover an amount it has had to pay to one of its employees under workers' compensation legislation. I have not been taken to any authority where such a claim for damages for breach of contract has been successfully brought. It seems to me too far a stretch to hold that a loss of this kind should have been within the contemplation of either contracting party at the time of the sale of the chair, or even to hold that a reasonable person in the position of the second defendant would have realised that such a loss was likely to occur as a usual consequence of such a breach. It seems to me that the loss for which the second plaintiff claims is too remote, and that the second plaintiff is not entitled to recover the amount claimed by way of damages for breach of contract. As this is the only amount claimed by the second plaintiff against the second defendant, and breach of contract is the only cause of action, the second plaintiff's claim against the second defendant must fail.

Downie and Community Information & Referral Service ACT Inc. v Jantom Company Propriety Ltd, Ex-Government Furniture Propriety Ltd and GIO General Insurance Ltd [2013] ACTSC 171

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Court

Decision date

Source

Judgment (298 paragraphs)

Downie and Community Information & Referral Service ACT Inc. v Jantom Company Propriety Ltd, Ex-Government Furniture Propriety Ltd and GIO General Insurance Ltd [2013] ACTSC 171 (29 August 2013)

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Legislation Cited (8)

Cases Cited (7)