Klesteel Pty Ltd v Mantzouranis

Background 4 This is the second appeal to the Court arising out of the same proceedings in the Local Court. The appeal is brought under s 73 of the Local Courts Act 1982 which provides for an appeal as of right against a decision of the Local Court but only as being erroneous in point of law. 5 The defendant in the appeal (Mr Mantzouranis) was the plaintiff in the proceedings below. He sued both the mechanic (Mr Mercado) and the present plaintiff (Klesteel) as Mr Mercado's employer for the cost of repairs to his car, described by him as a show car, indeed, a "national champion". 6 The proceedings were heard on 27 January 2006 in the Local Court at the Downing Centre and decided on 22 February 2006. 7 Mr Mercado did not participate in the proceedings below. Judgment was entered against him in his absence. The principal issue in the proceedings was whether Klesteel was vicariously liable for his negligence. 8 Evidence was given at the hearing by Mr Bassett, a director of Klesteel. His uncontested evidence was that employees were prohibited from consuming alcohol whilst driving company vehicles. He confirmed that the vehicle involved in the accident was a utility truck owned by Klesteel and painted with signs that identified the business conducted by that company. He said that the truck was used by Mr Mercado to travel to and from work, to travel to sites if required during work hours and for private use outside work hours. He said that Mr Mercado's usual work hours were from 7am to 3.30pm and that he had finished work at 3.30pm on the day of the accident. 9 During cross-examination of Mr Bassett, the following exchange took place: "Q. Was he [Mr Mercado] expected to be called out to jobs other than that between those hours? A. No, no. Q. So, if machinery broke down late in the afternoon he wouldn't be called out to service it before the start of the next day? A. I've always found that it's cheaper to use the contractors right, when it comes to overtime than it is to use an employee to go and do a call-out." Q. But you have an employee that has experience, he has the use of a vehicle, that doesn't make much sense to use a contractor? A. The vehicle… Her Honour: Quit pursuing that line of inquiry Mr Quinn." 10 Mr Quinn returned to the topic later and asked: "Q. To be called out outside the hours of 7.00 to 3.30, he could be expect (sic) to be called out and work for the company as well? A. Very rare, I don't believe that I ever, ever did call him out". 11 In her first judgment, the Magistrate stated: "It was the evidence of [Klesteel] that [Mr Mercado] could use the vehicle for his own private and domestic purposes. Although not specifically argued in either evidence or in submissions, it appears that such use was incidental to the use of the vehicle for the purposes of carrying out his work as a mechanic". 12 Her Honour found that Mr Mercado's duties of employment included carrying out repairs and maintenance on machinery and vehicles located at different sites within the greater metropolitan area. Her Honour also found that, although it was apparently infrequent, Mr Mercado might be required on occasions to make such calls "during out-of-work hours". In other words, so her Honour found, Mr Mercado's custody of the vehicle was a matter of convenience for both the employer and the employee. 13 Her Honour then discussed some of the principles applicable to establishing vicarious liability and concluded: "Given those repeated recitations of the applicable law, together with the indisputable fact in this case as noted earlier that the first defendant's use of the motor vehicle for private and domestic use was incidental to the use of the vehicle for the purposes of carrying out his work as a mechanic, it is clear that the second defendant is vicariously liable for the damage to the plaintiff." The first appeal 14 Klesteel brought an appeal to this Court against that decision under s 73 of the Local Courts Act (the first appeal). The summons in the first appeal is not before me but the judgment states that the only ground argued was that the Magistrate erred at law in finding that Klesteel was vicariously liable because it derived a financial or other benefit from Mr Mercado driving its motor vehicle for private use and/or social or private purposes. The appeal was upheld. The Associate Justice was satisfied that the decision of the Magistrate entailed an error of law in that the Magistrate did not decide whether the consumption of alcohol was a mode of doing an authorised act, or an independent act. As noted above, that is the test stated by Gleeson CJ in Lepore for determining vicarious liability in respect of unauthorised acts. On 11 September 2006, the Associate Justice set aside the decision of the Magistrate and remitted the matter to the Local Court to be determined according to law. 15 In holding that the Magistrate's decision entailed an error of law, the Associate Justice stated: "The Magistrate held that Mercado's use of the motor vehicle for private and domestic use was incidental to the use of the vehicle for the purposes of carrying out his work as a mechanic. This finding was open to the Magistrate to make. This statement picks up what Sheller JA said in Gordon , but does not address whether consumption of alcohol was an unauthorised mode of doing an authorised act or alternatively an independent act." 16 The reference to "what Sheller JA said in Gordan" is a reference to the following passage from Gordon v Tamworth Jockey Club [2003] NSWCA 82 at [19] set out earlier in the reasons of the Associate Justice: "In the present case the respondent cannot be held vicariously liable for the assault by Mr Cook on the appellant. That assault was not within the scope of Mr Cook's authority nor could it be described as a mode of doing the cleaning work he was authorised to do. It was not an act he was employed actually to perform nor was it an act that was incidental to his employment." 17 That passage acknowledges the underlying principle, derived from the judgment of Latham CJ in Deatons Pty Ltd v Flew (1949) 79 CLR 370 at 378, that an employer will be liable for the act of its employee "only if the act is shown to come within the scope of the servant's authority either as being an act which he was employed actually to perform or as being an act that was incidental to his employment". 18 The characterisation of an act as being "incidental" to an employee's employment in the sense in which that term was used in those cases entails a determination of the scope of the employee's duties and the sufficiency of the connection between those duties and the act in question. However, the limiting or controlling concept for the establishment of vicarious liability is the course or scope of employment: Lepore at [40] per Gleeson CJ. The test from Salmond approved in Lepore at [42] that directs attention to the connection between unauthorised acts and authorised acts must be understood in that context. The primary question is whether the act that caused the damage was within the course of employment. 19 It is not clear whether the statement in the first judgment of the Magistrate that Mr Mercado's use of the vehicle for private purposes was "incidental" to the use of the vehicle for the purposes of carrying out his work as a mechanic was intended to amount to a decision that every time Mr Mercado drove the company vehicle for private purposes out of work hours, he was acting within the course of his employment. Nonetheless, it is clear from the reference to "what Sheller JA said in Tamworth" that that is the way in which the Court hearing the first appeal understood the Magistrate's decision. Further, the Court in the first appeal expressly stated that it was a finding that was "open to the Magistrate to make".

20 Accordingly, the matter was remitted to the Magistrate after the first appeal to be determined in accordance with two propositions that do not sit easily together. On the one hand, it was said to have been open to the Magistrate to make a finding that was interpreted by the Associate Justice in terms amounting to a legal conclusion that the mechanic's act of driving for private purposes was an act in the course of his employment. On the other hand, the Magistrate was directed that her decision entailed an error of law in that she failed to consider "whether consumption of alcohol was an unauthorised mode of doing an authorised act or alternatively an independent act." The tension between those two propositions is that, if the act of driving was in the course of employment, it was not an independent act. The relevant choice to be made was between acts in the course of employment and independent acts. The effect of the decision of the Associate Justice was to hold that the Magistrate had erred in not considering one of the ways in which an act can properly be regarded as being in the course of employment but, confusingly, that an alternative finding which amounts to the same thing was open. The Magistrate's second judgment 21 In those circumstances, the Magistrate concluded for a second time that Klesteel was vicariously liable for the damage. The second decision of the Magistrate records that counsel for Mr Mantzouranis submitted that her Honour had already found that when the mechanic was driving home on the relevant occasion he was in fact acting under the scope of his employment and that that finding had been "upheld" by the Supreme Court. Her Honour accepted that submission. It is plain from the terms of the second judgment that her Honour proceeded, in accordance with the reasons for decision of the Associate Justice in the first appeal, on the premise that her original finding that Mr Mercado's private use of the vehicle was "incidental" to his use of the vehicle for work purposes amounted to a finding that every time Mr Mercado drove the company vehicle for private purposes out of work hours, he was acting within the course of his employment. Her Honour held: "So having regard to the facts in this case as I have found them on previous occasion (sic), having regard to her Honour's comments on appeal and in particular having regard to the fact that she upheld my finding as to scope of employment and having regard to the principles regarding vicarious liability as considered in the cases cited and canvassed, I accept the submission of the plaintiff that the driving by Mr Mercado on the night was in the course of his employment albeit that he is driving under the influence of alcohol was an unauthorised mode of carrying out his unauthorised duty (sic)". 22 For the second time, Klesteel appeals under s 73 of the Local Courts Act 1982. 23 The grounds of appeal are: "1. Her Honour erred in law in failing to decide whether the unauthorised act of the First Defendant in driving the vehicle whilst under the influence of alcohol was sufficiently connected with his authorised act that it could properly be considered a mode of doing it. 2. Her Honour erred in law in finding that the First Defendant had performed an authorised act through an unauthorised mode having primarily found that the First Defendant's use of the vehicle for private and domestic use was incidental to the use of the vehicle for the purposes of carrying out his employment duties, but not having found that he was acting within the scope of his employment duties at the time of the accident. 3. Her Honour erred in law in failing to consider whether in driving the vehicle the First Defendant was acting within the scope of his duties as an employee of the Second Defendant or whether doing so merely with the authority of the Second Defendant, as an incident of his employment. 4. Her Honour erred in law in failing to provide any sufficient or proper reasons for finding the First Defendant, in the course of his employment, had performed an unauthorised act through an unauthorised mode." Argument and consideration 24 Mr Gollan, who appeared for Klesteel, argued that the primary question is whether the act on the occasion of the accident was within the course of employment. He said that the fact that the vehicle was at the disposal of an employee does not answer that question. He relied on the judgment of Kirby J in Lapore where his Honour stated at [326] at 621.2 that, for the imposition of vicarious liability, the employment must represent more than the occasion for the performance of the wrongful act. 25 Mr Gow, who appeared for Mr Mantzouranis, relied on the finding of the Magistrate that the mechanic's use of the work vehicle for private purposes was incidental to his use of that vehicle for the purposes of his employment. Mr Gow submitted that, on the strength of that finding, it was established as a fact that is not liable to be disturbed in these proceedings that every time the mechanic was driving the utility truck owned by Klesteel, he was acting in the course of his duty. Mr Gow sought to sustain that submission by reference to evidence in the first hearing before Magistrate O'Shane which he submitted established that her Honour had held, in effect, that the mechanic was always "on call". That is not what the Magistrate found, and it is not a finding that was reasonably open on the evidence before her Honour at the first hearing. Her Honour found only that the employee's custody of the truck was a matter of convenience for the employer because, although it was apparently infrequent, the employee "might be required on occasions to make [maintenance or repair] calls outside work hours". That falls short of a finding that he was always "on call". Her Honour made no finding that his duties included responding to calls outside normal work hours or keeping himself ready and available for that contingency. 26 For the reasons set out above, it is not clear whether the statement made by the Magistrate in her first judgment should be understood as a finding that, on every occasion on which he used the truck for private purposes, Mr Mercado was driving in the course of his employment, or even a finding that, on the occasion of the accident, he was driving in the course of his employment. That is not what the words set out in paragraph 11 above say. In her discussion in the first judgment of the relevant principles, her Honour did not articulate the test for vicarious liability in terms that included the word "incidental". 27 With great respect to the Associate Justice who determined the first appeal, I do not agree that the finding, as understood by the Associate Justice, was open to the Magistrate. In my view, if the learned Magistrate is to be understood as having held that Mr Mercado was acting within the course of his employment every time he drove the company truck for private purposes outside work hours, such as when he drove his children to the beach on the weekend, that holding must have entailed the application of the wrong test. 28 The overriding principle is that an employer is vicariously liable for a tort committed by an employee in the course of his or her employment. As noted by Spigelman CJ in Nationwide News Pty Ltd v Naidu [2007] NSWCA 337 at [88], a number of different formulations appear in the judgments of the High Court in Lepore in elaboration of the traditional formulation of the "course of employment" from Salmond referred to by Gleeson CJ. In Naidu, Spigelman CJ considered the conduct complained of against the following formulations from Lepore:

(a) whether the conduct was so closely connected with the employee's responsibilities as to be in the course of his employment ([85] per Gleeson CJ).

(b) whether the conduct was the "doing of an authorised act in an unauthorised way" and vicarious liability can be justified "on the basis of ostensible authority", a species of estoppel (at [108] per Gaudron J and see at [130]). (c) whether there is "a close connection between what was done and what that person was engaged to do" (at [131] per Gaudron J). (d) whether "the identification of what the employee was actually employed to do and held out as being employed to do" encompassed the conduct complained of (at [232] per Gummow and Hayne JJ).

(e) whether the conduct complained of was done in the ostensible pursuit of the employer's business or the apparent execution of the authority which the employer held out the employee as having (at [239] per Gummow and Hayne JJ). Although not necessary to be considered in Naidu , that passage in the judgment of Gummow and Hayne JJ also refers to the need to consider whether the conduct complained of was done in the intended pursuit of the employer's interests or in the intended performance of the contract of employment.

(f) whether there was a sufficiently close connection between the conduct which was not authorised and the acts which were authorised (at [315] per Kirby J). 29 Those formulations assume as a first step the identification of what the employee was actually employed to do or is held out as being employed to do. That is central to the inquiry: Lepore at [232] per Gummow and Hayne JJ. The focus of the inquiry, however formulated, is on the connection between the duties so identified and the conduct complained of. 30 In the proceedings below, the Magistrate's findings as to the duties of the employee were that Mr Mercado was employed as a mechanic whose duties included carrying out repairs and maintenance on machinery and vehicles located at Klesteel's premises and sometimes at different construction sites around the greater metropolitan areas. Her Honour also found that, although it was apparently infrequent, the mechanic might be required on occasions to make such calls during out of work hours and accordingly his custody of the vehicle was a matter of convenience for both him and the employer. The evidence in support of that last finding was equivocal but it is a finding that her Honour made. 31 There was no evidence before the Magistrate that Mr Mercado was in fact making a maintenance call at the time of the accident and her Honour made no finding to that effect. The relevant connection to be considered was between the act of driving for private purposes after consuming alcohol and the acts of repairing and maintaining vehicles at different sites that Mr Mercado was employed to do as a mechanic. In my opinion, there is no connection between those activities. On the facts as found by the Magistrate, the conduct of Mr Mercado at the time of the accident is not capable of satisfying any of the formulations from Lepore set out above. 32 Mr Gow referred to the decision of the Court of Appeal in Starks v RSM Security Pty Ltd [2004] NSWCA 351 cited by the Magistrate in her judgment. He drew my attention to [29] to [30] in Starks per Beazley JA where her Honour discussed the "representational" aspect of the relationship between the person injured and the person whose conduct caused the injury, considered relevant to the liability of a principal by the majority in Hollis v Vabu Pty Ltd (2001) 207 CLR 21. In Vabu, a company was held vicariously liable for the negligent act of a bicycle courier. The accident occurred while the courier was making a delivery. A relevant but not decisive matter was the fact that the courier was wearing the uniform of the company. Mr Gow submitted that there was a similar representational aspect in this case in that the utility truck was "emblazoned" with signs advertising the business conducted by Klesteel. In my view, that would not have been a sufficient basis for a finding that Mr Mercado was representing Klesteel whenever he drove its truck, which is the principle underpinning the decision in Vabu. In any event, the decision of the Magistrate was not based on the representational aspect. Her Honour referred to Starks for a different proposition. 33 In my view the second decision of the Magistrate was erroneous in point of law in that her Honour failed to apply the correct test. For the reasons explained above, her Honour approached the matter upon remittal on the basis that she had already decided that Mr Mercado's driving for private purposes was within the course of employment. That approach was consistent with a statement made in the reasons of the Associate Justice but it was the wrong approach. Her Honour should have applied the test whether the act of driving on the occasion of the accident was so closely connected with Mr Mercado's duties of employment as to be in the course of employment or whether it was done in the intended or ostensible performance of his employment contract.

Relief sought 34 Section 75 of the Local Courts Act 1982 provides that the Supreme Court may determine an appeal made under s 73: "(a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal." 35 Klesteel seeks an order that the decision of the Magistrate be quashed and a verdict for Klesteel entered instead. Mr Gow submitted that, in the circumstances of this case, it is not possible for the Court to substitute its own decision since that would entail the Court's making its own findings of fact. He submitted that the entire appeal is premised on the footing that the Magistrate failed to decide certain issues and that those issues are required to be determined by the Local Court. Mr Gow relied on the decision of the Court of Appeal in Loudoun-Shand v Jadasi Investments Pty Ltd [2007] NSWCA 316, particularly at [51] per Basten JA where his Honour noted that an appellate Court exercising powers pursuant to a right of appeal limited to errors of law is generally not entitled to embark on its own fact-finding exercise. Mr Gow submitted that, in the present case, there is an unchallenged finding of fact that the mechanic's use of the vehicle for private purposes was incidental to his use of the vehicle for work purposes. That is the finding referred to by the Magistrate as having been "upheld" by this Court in the first appeal. Mr Gow submitted that, in the face of that finding, it would not be appropriate to enter a verdict in favour of Klesteel. 36 In my view, the proposition that this Court upheld a finding of fact in the first appeal is misconceived. In the first instance, it is no part of the Court's function in an appeal under s 73 of the Local Courts Act to uphold findings of fact. The task for this Court in an appeal under s 73 is to decide whether or not the decision was erroneous in law. In doing so, the Court neither disturbs nor upholds findings of fact. The result of the first appeal was that the judgment appealed from was set aside. The matter was remitted to be decided again, on the facts as found. 37 In any event, in my view, the finding in question was not a finding of fact. It was a decision as to whether an act was in the course of employment. It involved a number of findings of fact, such as the content of the duties of the employee, but it also involved the application of the law to the facts as found. 38 In Hawk Australia Pty Ltd v George Ambrose Commercial Pty Ltd [2007] NSWSC 1150, Bell J proceeded on the basis that the Court has power under s 75 to order judgment in favour of a successful appellant, but the point was not argued. Her Honour relied on Citibank Ltd v Department of Public Works and Services [2001] NSWSC 1066, where the Court proceeded on that basis in respect of the power conferred under s 69(4) of the Local Courts (Civil Claims) Act 1970, which was in the same terms as s 75 of the Local Courts Act. However the point was not argued in that case either. Bell J stated that there was no occasion to remit the matter since there was no issue as to the facts on which the point of law turned. 39 Section 75 offers a choice between, on the one hand, setting aside the judgment (s 75(b)) and, on the other hand, setting aside the judgment and remitting the matter to the Local Court (s 75(c)). 40 Mr Gollan submitted that s 75(b) read with s 75(c) clearly contemplates that a successful appeal may bring the matter to an end without the need for it to be remitted. He relied on the statement of Spigelman CJ in Thaina Town (On Goulburn) Pty Ltd v City of Sydney [2007] NSWCA 300 at [103] where his Honour said: "This Court must be concerned that the course of administration of justice in this State does not impose unnecessary cost burdens on parties by adopting a narrow interpretation of statutory powers conferred upon the Court to ensure the just and efficient administration of justice. Where no new findings of primary fact are required to be made, this Court should exercise a power conferred upon it in wide terms so as to ensure that the costs of legal disputation is minimised and thereby apply the guiding principle in s 56 of the Civil Procedure Act 2005 to the exercise of powers conferred by an Act other than that Act or by Rules of Court, so as to facilitate the just, quick and cheap resolution of the issues in dispute in civil proceedings." 41 As noted by Mr Gow, that decision concerned an appeal by way of rehearing. Nonetheless, the statement made by the Chief Justice was expressed as one of general application to statutory powers conferred on the Court. The power conferred by s 75(b) of the Local Courts Act would be of no utility if it did not extend to entering a verdict in favour of a successful appellant instead of the judgment or order set aside. 42 In Loudan-Shand, Basten JA appears to have assumed that s 75 confers power to enter a verdict in favour of a successful appellant in circumstances where a particular result is the only one reasonably open: at [52]; cf Tobias JA at [44]. However, the point does not appear to have been argued, and did not arise for decision, since the Court held that the Associate Justice should have dismissed the appeal under s 73. 43 Having regard to the language of the section as a whole and the remarks of Basten JA in Loudan-Shand at [52], I am of the view that s 75(b) confers power to correct an error of law by entering a verdict in favour of a successful appellant in circumstances where, on the facts as found by the Magistrate, that is the only result reasonably open. 44 The facts found by the Magistrate so far as they are relevant to the issue of vicarious liability were as follows: (a) the vehicle that caused the damage was owned by Klesteel; (b) the driver of the vehicle was employed as a mechanic by Klesteel; (c) the driver was driving under the influence of alcohol at the time of the accident; (d) the vehicle was "part of his package" as an employee but that did not in any way affect the relationship between the employee and the employer; (e) the driver was permitted to use the vehicle for his own private and domestic purposes; (f) Klesteel was a reasonably large company engaged in the business of supplying machinery and vehicles; (g) the driver was employed as a mechanic whose duties were to carry out repairs or maintenance on such equipment located at different places around the greater metropolitan areas; (h) although it was apparently infrequent, he might be required on occasions to make such calls during out of work hours and accordingly his custody of the vehicle was a matter of convenience for both him and the employer.

45 There was no finding that he was making a maintenance call at the time of the accident. There was no connection between his driving on the relevant occasion and his duties of employment. He was not driving in the intended performance of his duties. 46 In my view, the only result reasonably open on the strength of her Honour's findings of fact is that, on the occasion of the accident, Mr Mercado was not acting in the course of his employment. Contrary to the submission of Mr Gow, in my view there is no issue as to the facts that remains to be determined in respect of that question. Accordingly, I am satisfied that it is appropriate for me to enter a verdict in favour of Klesteel. 47 Orders:

1. The appeal is allowed. I set aside the judgment given in the Local Court on 10 July 2007 and substitute therefore judgment for the plaintiff in these proceedings.

2. I order the defendant to pay the plaintiff's costs in this Court.

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