Klesteel v Mantzouranis

LEGISLATION CITED : Local Courts Act 1982 (NSW) - ss 73 & 75 Suitors' Fund Act 1951 (NSW)

Allen v Kerr & Anor (1995) Aust Torts Reports 81-354 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Carr v Neill [1999] NSWSC 1263 Christmas v Nicol Bros Pty Ltd & Anor (1941) 41 SR (NSW) 317 Devries v Australian National Railways Commission (1993) 177 CLR 472 CASES CITED : Gordon v Tamworth Jockey Club Inc [2003] NSWCA 82 Hewitt v Bonvin [1940] 1 KB 188 NSW v Lepore (2003) 212 CLR 511 Phoenix Society Inc v Cavenagh & Anor (1996) 25 MVR 143 R L & D Investments Pty Ltd v Bisby [2002] 37 MVR 479; [2002] NSWSC 1082 Scott & Ors v Davis (2000) 204 CLR 333 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588

PARTIES : Klesteel Pty Ltd - Plaintiff Anestis Mantzouranis - Defendant

COUNSEL : Mr S B Marsh - Plaintiff Mr P D Doyle Gray - Defendant

SOLICITORS : Vardanega Roberts - Plaintiff Ligeti Partners - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

11296/2006 - KLESTEEL PTY LTD v ANESTIS MANTZOURANIS

JUDGMENT (Appeal decision of Local Court Magistrate - vicarious liability, employee driving while intoxicated) 1 Her Honour: By summons filed 21 March 2006 the plaintiff seeks an order that the decision of Her Honour Magistrate O'Shane made on 22 February 2006 be quashed and a verdict for the plaintiff be entered in its stead. 2 The plaintiff is Klesteel Pty Ltd (Klesteel). The defendant is Anestis Mantzouranis (Mantzouranis). As the plaintiff was the second defendant in the Local Court and the defendant was the plaintiff in the Local Court, for convenience I shall refer to the parties by name. The first defendant in the Local Court, Romulo Mercado (Mercado) played no role in either the Local Court proceedings or this appeal. 3 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 73 of the Local Courts Act 1982 (NSW) (the Act) permits a party who is dissatisfied with a judgment as being erroneous in point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor (1995) Aust Torts Reports 81-354; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156; Carr v Neill [1999] NSWSC 1263 and R L & D Investments Pty Ltd v Bisby [2002] 37 MVR 479; [2002] NSWSC 1082. It cannot be said that the judicial officer acted on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588. 4 Section 75 of the Act provides that the Court may determine an appeal either (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.

Grounds of appeal 5 At the hearing the appeal was refined to one ground. It is that Her Honour erred at law in finding that Klesteel was vicariously liable because it derived a financial or other benefit from Mercado driving its motor vehicle for private use and/or social or private purposes. 6 On 22 February 2006 the Magistrate entered judgment for the plaintiff in the sum of $28,991.93 against both defendants together with interest.

The Local Court proceedings 7 In the Local Court proceedings, Mantzouranis claimed from Klesteel and Mercado damages for repairs to his vehicle as a consequence of the accident in the sum of $28,335.35. 8 On 17 December 2003 at approximately 7.10pm, a vehicle owned by Klesteel, but then being driven by Romulo Mercado collided with a stationary vehicle owned by Anestis Mantzouranis. There was no real dispute that the accident occurred as a result of the negligence of Mercado. On the morning of the hearing, Mercado notified the Court that he was not contesting the matter. 9 Mercado was employed by Klesteel as a mechanic. His duties were to carry out maintenance, grease, maintain, service and repair plant machinery and trucks. The car Mercado was driving at the time of the accident was owned by Klesteel. Mr Barrett gave evidence on behalf of the employer as to Mercado's use of the motor vehicle. Mr Barrett stated that Mercado used the utility vehicle to travel back and forward to work, he used the vehicle to go to a site if he had to and he used the vehicle on the weekends to take his children to the beach. There were no restrictions placed on the time for travelling to and from work and there were no restrictions placed on him as far as travel time. Nor were there any conditions placed Mercado's use of the vehicle for private and domestic use. Mercado might be called out occasionally for work purposes. [t 29 - 30]. 10 Mr Barrett knew that Mercado used the vehicle to drive to and from work every day. There were demolition tools in the back of the vehicle. If Mercado was required to go somewhere in Sydney he would use the vehicle. Mr Barrett admitted that the company derived some benefits by Mercado using a motor vehicle supplied by his employer. Mantzouranis gave evidence that the utility had the name of the company written on the side of it, together with the name "Steve Barrett Demolitions or Construction or Excavations". Mercado may have been called out occasionally and if Mr Barrett needed to go somewhere in Sydney Mercado would used the company's motor vehicle. 11 As Mercado did not give evidence, there was no evidence as to what he did between 3.30pm and 7.10pm. Mercado worked on the day of the accident. When asked if he saw Mercado at 3.30pm Mr Barrett answered "Possibly not, but they start at 7 and they finish at 3.30 Monday to Friday". [t 28.16-17]. When Mr Barrett was asked whether Mercado could have been travelling to his home at 7.00pm on a Thursday evening just before Christmas Mr Barrett answered "Well, I suppose, once they drive out the gate they're their own mentor, I mean, I don't sort of say well, look you've got to be home by 4 o'clock, you've left here at 3.30. If they have to go and pick up their children from school on the way or they have to take - pick up their wife or do the groceries". [t 32.25-32]. 12 What is known is that following the accident, Mercado was charged with driving while there was present in his blood a concentration of alcohol falling within the high range. Mercado had not been seen to be consuming alcohol prior to finishing work at 3.30 pm. There was evidence from Mr Barrett that any consumption of alcohol by employees whilst they were working or travelling to or from work, regardless of how affected they were, was prohibited.

The Magistrate's decision dated 22 February 2006 13 While the plaintiff had pleaded that the employee was liable on the basis of principal/agent relationship, this was not the basis of Her Honour's decision nor does it form part of the appeal. The relationship in issue (as pleaded) was the employer/employee relationship. 14 The Magistrate stated that Klesteel was: "…a reasonably large company engaged in the business of supplying machinery and vehicles, and it was part of the first defendant's duties to carry out repairs and/or maintenance on such equipment located at different places around the greater metropolitan areas. Although it was apparently infrequent, he might be required on occasions to make such calls during out-of-work hours. In other words, the first defendant's custody of the vehicle was a matter of convenience for both the employer and the employee." [t 1.58-59] 15 The Magistrate continued: "Given 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 caused to the plaintiff. That is not the end of the matter. The next question to be considered is to what extent is the second defendant's liability mitigated by the plaintiffs? There is no question about that. The first defendant, having the high range PCA in his blood, simply should not have been on the roadway whatsoever…" [t 3.38-52] 16 In the last paragraph of the judgment reproduced above, the Magistrate was considering contributory negligence. 17 Klesteel submitted that it did not cavil with the Magistrate's isolation of the issue, at least so far as it was concerned, of vicarious liability. Klesteel says that it was apparent from the passages cited by the Magistrate in her reasons for judgment that Klesteel could only be considered to be vicariously liable for Mercado's negligence if he was, at the time of the accident, in the course of his employment. 18 Klesteel submitted that the Magistrate erred in finding that Mercado was, at the time of the accident, using the vehicle in the course of his employment with, or in the service of Klesteel. 19 It was further submitted by Klesteel that the Magistrate erred in concluding that whenever Mercado drove the vehicle, he should be adjudged as doing so in the interests of, or for the benefit of his employer (Klesteel). There was evidence to establish that the employee received a benefit from his employer. The Magistrate made a finding that Mercado's custody of the vehicle was a matter of convenience for both the employer and employee. Klesteel further submitted, given the accident occurred some 3½ hours after Mercado had ceased work and in circumstances when the level of alcohol in his blood placed in the prescribed "high range", that any nexus between Mercado's use of the vehicle and his employment had ceased to exist. 20 The parties referred to Scott & Ors v Davis (2000) 204 CLR 333, Christmas v Nicol Bros Pty Ltd & Anor (1941) 41 SR (NSW) 317, NSW v Lepore (2003) 212 CLR 511, Gordon v Tamworth Jockey Club Inc [2003] NSWCA 82 and Phoenix Society Inc v Cavenagh & Anor (1996) 25 MVR 143. 21 Counsel for Klesteel referred to a passage from Scott where McHugh J referred to the seminal motorcar case in modern law, Hewitt v Bonvin [1940] 1 KB 188. McHugh J in Scott stated: "However, Hewitt v Bonvin, the seminal motor car case in the modern law, made it clear that merely giving a person permission to use a car did not make the owner responsible for the conduct of the driver. In Hewitt, a son had used his father's car to drive two friends to their homes. On the way back to the son's home, the car crashed, killing another passenger. The deceased person's estate sued the driver's father, alleging that he was vicariously liable for his son's negligent driving. The Court of Appeal unanimously held that the father was not liable.

MacKinnon LJ said: "If A suffers damage by the wrongful act of B, and seeks to say that C is liable for that damage he must establish that in doing the act B acted as the agent or servant of C. If he says that he was C's agent he must further show that C authorized the act . If he can establish that B was the servant of C the question of authority need not arise." (emphasis added) It would seem that "the act" that must be authorised by C is "the wrongful act of B". That is, MacKinnon LJ apparently held the view that a principal must have directly authorised the tort committed by the agent for liability to be imposed. His Lordship asked only whether the son was the servant of his father and did not examine whether the son could be his father's agent. In his Lordship's view, in order to establish liability the plaintiff had to prove (1) that the son was employed to drive the car as his father's servant and (2) that, when the accident happened, the son was driving the car for his father, and not merely for his own benefit and for his own concerns. MacKinnon LJ held that the plaintiff failed to establish either (1) or (2)." 22 Both parties referred to Christmas at 319 where Jordon CJ stated: "If a person sustains physical injury to himself or his property through the negligent use of an article by another person, it is the user of the article who is liable in tort. Its owner is not liable as such; but he too incurs liability if, for example, it is established that the user was his employee, and that the use was in the course of his employment. If so, his ownership is of itself irrelevant to his liability, which is vicarious and arises out of the relationship of master and servant: Hewitt v Bonvin [1940] KB 188 at 192." 23 Counsel for Mantzouranis submitted that the approach in relation to unauthorised acts of employees has changed since Christmas and Scott. According to Mantzouranis the proper approach is that adopted in Lepore where Gleeson CJ at [40]-[42] stated: "An employer is vicariously liable for a tort committed by an employee in the course of his or her employment. The limiting or controlling concept, course of employment, is sometimes referred to as scope of employment. Its aspects are functional, as well as geographical and temporal. Not everything that an employee does at work, or during working hours, is sufficiently connected with the duties and responsibilities of the employee to be regarded as within the scope of the employment. And the fact that wrongdoing occurs away from the workplace, or outside normal working hours, is not conclusive against liability.

The antithesis of conduct in the course of employment is sometimes expressed by saying that the employee was "on a frolic of his own…."

To point to a vivid example of conduct by an employee that is not in the course of employment is a useful method of elucidating the concept, but it may be of limited assistance in resolving difficult borderline cases. It is clear that if the wrongful act of an employee has been authorised by the employer, the employer will be liable. The difficulty relates to unauthorised acts. The best known formulation of the test to be applied is that in Salmond, Law of Torts in the first edition in 1907, and in later editions: an employer is liable even for unauthorised acts if they are so connected with authorised acts that they may be regarded as modes - although improper modes - of doing them, but the employer is not responsible if the unauthorised and wrongful act is not so connected with the authorised act as to be a mode of doing it, but is an independent act. 24 Counsel for Klesteel argued that the evidence led by Klesteel as to the prohibition on the consumption of alcohol whilst driving company vehicles supported the proposition that when Mercado drove the company utility whilst drunk, he was not authorised to do so. According to Klesteel this would in turn support the proposition that the employee's driving that led to Klesteel suffering damage is "not so connected with the authorised act as to be a mode of doing it, but is an independent act". 25 This approach in Lepore was applied by the New South Wales Court of Appeal in Gordon. In Gordon, Ms Gordon was assaulted on the premises of the Jockey Club by its employee, Mr Cook. Just before the assault occurred, Mr Cook threw a stubby at a possum which then smashed near Ms Gordon. Mr Cook was drunk. An executive member of the Jockey Club walked by and told Mr Cook that he was drunk and an idiot. He gave no instruction to Mr Cook nor did he tell him to leave. The executive member himself left the area before the assault. 26 At [19] Sheller JA stated: "In the present case the respondent [Tamworth Jockey Club] 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." 27 A similar factual situation to this case currently on appeal arose in Phoenix where Debelle J stated at 145-145: "That test was adopted and explained in Lloyd v Grace Smith . It was followed in Bugge v Brown and has been consistently applied since: see, for example, Morris v C W Martin and Sons Pty Ltd . Ms Walla was employed by the society to drive one of its buses. She was driving it as part of her employment when this accident occurred. The fact that she was driving with such a high blood alcohol count and contrary to instructions does not alter the fact that she was doing what she had been employed to do, namely, drive the bus on this occasion. The instructions given to Ms Walla did not limit the sphere of her employment but regulated her conduct within that sphere: cf Fleming, op cit 378. The position would be otherwise if she were driving the bus on some occasion quite unrelated to her employment. To adopt the words of Diplock LJ in Morris v C W Martin and Sons Pty Ltd (at 737), the mere fact that her employment by the society gave Ms Walla the opportunity to drive with this high blood alcohol content is not sufficient to take the act of driving out of the course of her employment." 28 Phoenix was decided before Lepore and Gordon. In Phoenix Ms Walla was doing what she was employed to do. She was driving a bus, albeit with a high blood alcohol level. 29 However, this case currently on appeal is a difficult borderline one. Had Mercado been carrying out the tasks of a mechanic, such as repairing a truck when an accident occurred, the decision would have been clearer. The fact that the wrongdoing occurred outside normal working hours is not conclusive against liability. Mercado was driving the motor vehicle, an act he was authorised to do by his employer. He was authorised to drive out of hours. The unauthorised and wrongful act was driving the motor vehicle after consuming alcohol. Is the partaking of alcohol so connected with the authorised act of driving the motor vehicle as to be considered an unauthorised mode of doing it (the authorised act) or is it an independent act? If it is the former, it falls within the course of employment and the employer is vicariously liable. If it is the latter, the employer is not liable. 30 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. The Magistrate did not decide whether the consumption of alcohol was a mode of doing an authorised act, or an independent act. The effect of the consumption of alcohol was considered in the context of the assessment of contributory negligence. 31 It is my view that there is an error of law. The decision of Her Honour Magistrate O'Shane made on 22 February 2006 is set aside. The matter is remitted to the Local Court to be determined according to law. 32 Although not strictly relevant it is interesting to note the 'public policy' argument was raised in Phoenix on this issue (although it was not raised here). The argument before Debelle J was framed as follows; the blood alcohol content of Ms Walla (the bus driver) was so high that Ms Walla was acting quite beyond the scope of her employment. There are policy reasons for holding that her actions were outside the scope or course of her employment. Those policy reasons included the need to discourage persons from driving while affected by alcohol and the undesirability of employers being held to be liable for the actions of their employees who drive while affected by liquor. 33 Debelle J stated at 145: "But there are countervailing policy considerations. This is not a case which I think will be resolved by reference to policy reasons of the kind he (Counsel for the society) mentioned. Nor do I think the fact that Ms Walla's conduct constituted serious and wilful misconduct within the meaning of s 27C(3) of the Wrongs Act alters the conclusion I have expressed. Section 27C is addressed to those issues as between the employer and an employee which would entitle the employer to recover from the employee. It does not affect the liability of the employer to third parties." 34 Costs are discretionary. Costs usually follow the event. The second defendant is to pay the plaintiff's costs of the appeal. The Local Court costs are to abide the result of the rehearing in the Local Court. The defendant is to have a certificate under the Suitors' Fund Act 1951 (NSW). The decision of Her Honour Magistrate O'Shane made on 22 February 2006 is set aside. The matter is remitted to the Local Court to be determined according to law.

(1) The decision of Her Honour Magistrate O'Shane made on 22 February 2006 is set aside.

(2) The matter is remitted to the Local Court to be determined according to law.

(3) The defendant is to pay the plaintiff's costs of the appeal. The Local Court costs are to abide the result of the rehearing in the Local Court. The defendant is to have a certificate under the Suitors' Fund Act 1951 (NSW). **********

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