McDonald & Anor v Finlayson [2009] VSCA 76

1. His Honour erred in imposing a contractual obligation upon the first and second respondents limited to repairing the premises only when they fell out of repair.
2. His Honour should have concluded that the first and second respondents breached their contractual obligation to take reasonable steps to ensure that the external staircase was maintained in a safe state of repair.
3. His Honour applied the wrong principle in concluding that there were no matters that ought reasonably to have alerted the first and second respondents that there was some defect in the structure of the staircase, and should have considered whether there were matters that reasonably alerted the first and second respondents that a proper inspection of the structure of the staircase was required to prevent the risk of it being in a dangerous state of repair.
4. His Honour erred by failing to have regard to the knowledge of the third respondent as the disclosed agent of the first and second respondents in considering the negligence of the first and second respondents.
5. If, as is contested below, His Honour should have found that the third respondent was negligent he should also have found that the first and second respondents were vicariously liable for that negligence.
6. The finding that the first and second respondents were neither negligent nor in breach of their statutory duty was against the evidence and the weight of the evidence.

4 On 9 January 2004, the respondent was injured when she fell 8 to 10 feet from a staircase at her residence in Ocean Grove which she leased from the applicants, who were the registered proprietors of the property. The staircase collapsed because its bearers had rotted, although the rot was not visible to the naked eye.

5 The applicants purchased the property in January 2003 as an investment, intending to lease it. Neither applicant had any expertise in building construction or knowledge of the timber used in the rear deck and staircase, or the rate at which the timber would deteriorate when exposed to the elements.

6 The first applicant nevertheless inspected the premises on three occasions prior to purchase, and had walked on the timber deck and staircase, which he found to be 'solid as a rock'. The applicants retained a real estate agent (the third defendant below) to conduct six monthly inspections of the premises and provide written reports.

7 The trial judge found that the timber staircase and decking were constructed between 15 to 25 years before the incident. His Honour rejected the contention that there was any visual indication of decay prior to the staircase's collapse. He concluded that the timber bearers at the base of the staircase had been rotting for a significant period, but that was not obvious on a visual inspection. In order to detect the rot, it would have been necessary to remove the fascia boards covering the area or to drive a tool into the bearers. The staircase was constructed of oregon, a timber which was subject to deterioration over a 15 to 20 year period and was therefore no longer used for the purpose. Although some bearers on adjacent balconies also had rot, only an experienced expert would have detected it and would, perhaps, have suspected a like deterioration in the staircase bearers.

8 The trial judge found that the first applicant had not noticed any defect when he inspected the property and thought the staircase was in good condition. The agent saw nothing to indicate rot. He was, however, aware that timber could have a limited life and that a joint could rot without it appearing on visual inspection.

9 His Honour concluded that an expert inspection of the structure by probing with an instrument would have revealed the rot, but an inspection by a non-expert would not have done so.

10 His Honour considered in detail the applicable authorities, including Jones v Bartlett.[1] He concluded that landlords had no duty to engage experts capable of detecting latent defects not reasonably apparent to the untrained eye where the risk of dangerous defects was merely a possibility and there was no knowledge or warning that it was or might be unsafe.

In summary, and particularly noting the comments of the High Court in J_ones v Bartlett_, I am of the view that in the present case, the first and second defendants did owe the plaintiff a duty to take reasonable care in respect of the state of the premises to guard against the risk of foreseeable harm. In essence, the duty is the same whether applied under the principles of the statutory occupier's liability duty, or under the general principles of negligence. The nature and extent of that duty would not ordinarily require a landlord to arrange for the premises to be inspected by a person with sufficient expertise as to building and construction, unless there was some aspect of the premises sufficient to alert the landlord to some latent defect. There is, in my view, no obligation imposed upon landlords at the commencement of a tenant's tenancy to arrange for residential premises to be inspected to ensure structural integrity. To impose such a duty would place an onus upon landlords well above what they would reasonably be expected to do in the course of "ordinary reasonable human conduct". There is no evidence to suggest that such inspections are routine. To the contrary, in my view, such inspections would be rare indeed.[2]

12 His Honour also found no breach of contract by the applicants, because the obligation in the lease to maintain premises in good repair did not include an obligation to ensure that they were free from any latent structural defects. The relevant obligation was not 'a guarantee that the premises will be free from defect'.[3] Further, the evidence did not establish that the applicants failed to inspect the premises from time to time by their agent (albeit inspection would not have revealed the defect).

13 His Honour found that the applicants were not liable in tort or occupier's liability. The applicable principles did not require landlords to eliminate all risks in premises let for residential purposes. In relation to the mere possibility of a dangerous effect, the only steps required were those expected to be taken in the course of 'ordinary reasonable human conduct'.[4] The landlord's duty was not one of strict liability to ensure the absence of defects or guarantee that the premises were as safe as they could reasonably be made.

14 His Honour did not accept that there were any matters which would have alerted the landlord or agent to the risk of a latent defect. He stated:

I am of the view that none of these matters, taken either individually or combined, would be sufficient to prompt in the mind of the average landlord that there was some defect in the structure of the staircase. Nails regularly rust and small rust marks do not, in my view, indicate any significant defect. While the staircase was not in very good repair, nor was it in disrepair. To all who used it, it appeared solid. While there had been some work done on the rear deck, and some reinforcement of the structure, that would not indicate deterioration. The staircase was certainly not new. It would have been seen as reasonably old but the first defendant gave evidence that, in his view, it was in good condition. He said that he knew that wood generally rots eventually but that it also has longevity and lasts a considerable period. Further, he inspected it at the time of purchase and "it looked very good". At one point when he inspected it, there were a lot of people running up and down the staircase and onto the rear deck, and it looked to him to be well maintained.

He got under the staircase and looked around and it seemed to him "like normal construction". He made no enquiries as to the age of the decking, nor as to the type of timber used, and he did not arrange any expert report because he did not know of any defect.

In my view, none of these matters would indicate to the average landlord that an expert inspection was required, either at the time of purchase, or at the commencement of the lease in September 2003. Were it otherwise, a landlord at the commencement of a lease would be required to check the structural integrity of other aspects of premises, including the roof, stumps, walls and any other weight-bearing structure, which might collapse. I do not believe the law, as it stands, particularly in the light of the decision in Jones v Bartlett, imposes such a duty upon landlords.[5]

I am not satisfied, however, that that collapse could be said to be as a result of any breach of the contractual arrangement under the Residential Tenancies Agreement or otherwise between the plaintiff and the first and second defendants.

While the first and second defendants owed the plaintiff a duty to take reasonable care against the risk of foreseeable injury, that duty did not, in the circumstances of this case, extend to providing premises which were free from an unknown latent defect. Further, it did not extend to requiring the first and second defendants to arrange an expert inspection of the premises at the commencement of the lease, even although such an inspection would be likely to have uncovered the rot in the base of the staircase.

I am further not satisfied that the third defendant owed the plaintiff a duty which extended to the provision of premises which were free from the latent defect. Nor did the duty extend to either the agent himself, or an expert retained on his behalf in the nature of a structural inspection such as would have discovered the rot.

In these circumstances, the plaintiff's case must fail.[6]

16 In Maher & Anor v Commonwealth Bank of Australia & Anor,[7] I set out a summary of the applicable legal principles and authorities which for convenience I repeat as follows:

Rule 64.24(2) of the Supreme Court Rules provides:

The Court of Appeal may in special circumstances make an order that security be given for the costs of an appeal.

In Rowan v Australian Associated Motor Insurers Ltd,[8] Fullagar J (with whom Marks J concurred) stated:

I do not think that this court should or even could lay down in advance what does or does not constitute special circumstances, and I think that the scope of the rule is of the character indicated by Rich J in King v Commercial Bank of Aust [1920] HCA 62; (1920) 28 CLR 289 at 292, where his Honour said of s 35 of the High Court Procedure Act, "No rules can be formulated in advance by any judge as to how the discretion shall be exercised. It depends entirely on the circumstances of each particular case".

In Equity Access Ltd v Westpac Banking Corporation,[9] the following matters were identified as relevant to the exercise of the discretion:

1. the prospects of success of the appeal;
2. the quantum of risk that a costs order would not be satisfied;

1. whether the making of an order would be oppressive in that it would stifle a reasonably arguable claim;

1. whether any impecuniosity of the appellant arises out of the conduct complained of;
2. whether there are other aspects of public interest which weigh in the balance against such an order; and
3. whether there are any particular discretionary matters peculiar to the circumstances of the case.

The probable inability of an appellant to pay the respondent's costs should an appeal be unsuccessful has been held to constitute 'special circumstances' which will justify an order under Rule 64.24(2) that the appellant give security for the costs of the respondent.[10] In Mobilia v Voudiotis ('Mobilia'),[11] Batt JA (with whom Eames JA agreed) stated:

The Court's discretionary power to order that security for costs be given for the costs of an appeal is conditioned in r 64.24(2) upon there being "special circumstances". The probable inability of an appellant to meet an order for the respondent's costs of an appeal is a special circumstance: Scerri v Northam Holdings Pty Ltd. Such probability is amply established here ... The Court's discretion is therefore enlivened....

17 In Li v Herald and Weekly Times, Nettle JA, with whom Redlich JA agreed, stated:

Under r 64.24(2) of the Supreme Court (General Civil Procedure) Rules 2005, the Court may make an order that security be given for the costs of an appeal in special circumstances. There are then a number of authorities as to what may be regarded as constituting special circumstances. According to some, the ordinary rule in an appeal is that the poverty of the appellant is sufficient in itself to ground an order for security for costs of the appeal. Thus, for example, in Scerri v Northam Holdings Pty Ltd and Smail v Burton, it was said that it is the long and well established practice of the court that the inability of an appellant to pay a successful respondent's costs of an appeal constitutes special circumstances justifying an order that the appellant give security. Those authorities recognise, however, that the grant of security is an exercise in discretion, and so the general rule may yield to other considerations such as the likelihood of success in the appeal, whether the appeal raises an issue of general importance, whether the appellant's impecuniosity has been brought about by the respondent's conduct, and the nature of any property involved in the appeal. According to other authorities, the proper approach is to recognise that an appellant's impecuniosity is a significant consideration in favour of making an order for security for costs, but that it is not decisive of whether an order should be made, and thus that in each case it is necessary to weigh an appellant's impecuniosity in light of all of the considerations arising in the case. The matter has been dealt with in this Court in recent times, and most recently, perhaps, by my brother Redlich in Kenyon v Akeroyd.[12]

18 The applicants rely on the affidavit of Olivia Warwick, of their solicitors, who deposed, inter alia, that:

10. Subsequently the appellant served a notice of discontinuance against the third respondent and an amended notice of appeal. Now produced and shown to me and marked with the letters 'OW-7' is a true copy of the notice of discontinuance against the third respondent and the amended notice of appeal.

11. On or about 17 October 2008 a letter was forwarded to the appellant's solicitor by prepaid post enclosing a bill of costs totalling $40,807.24 and seeking payment within 14 days. To date I have received no response to that letter. ...

12. On or about 17 November 2008 a further letter was forwarded to the appellant's solicitor by facsimile transmission dated 14 November 2008 indicating that an application for security for costs would be made and detailing the respondents costs which will be incurred in defending the appeal.[13]

19 Ms Warwick deposed that the letter to the respondent dated 14 November 2008 sought security for costs in the sum of $43,985 and enclosed an estimate prepared on a party/party basis.

20 The respondent, by an affidavit sworn 5 March 2009, deposed that she is in receipt of a widow's pension of $301 per week, lives in rented premises, has no significant assets of any worth, and $241 in her savings account. As a result of her injury, she has been unable to perform gardening work by which she previously obtained $60 per week. Her four adult children collectively provided the filing fee of $2,922. Her brother, a solicitor, acts for her on a pro bono basis.

21 The respondent deposed that after receiving the letter of 14 November 2008 requesting security for costs, she applied for a bank loan of $15,000 and, in the expectation that it would be granted, on 2 December 2008 offered to provide security of $12,500. On 9 January 2009, she was, however, advised that her loan application was not approved.

22 The respondent, while conceding her impecunity, contended that the appeal has merit and good prospects of success, in that the trial judge failed to address the substantive question of the applicants' knowledge of the risk. Although the defect was not visually apparent, there was a known risk of rotting in the staircase. Counsel for the respondent contended, in essence, that the substantive case below (knowledge of risk) was not addressed and that his Honour's reasoning was circular.

23 Counsel submitted that the observations of Gummow and Hayne JJ in their joint judgment in Jones v Bartlett that 'however, in another case, a defect may not be unknown or unsuspected; the landlord may have sufficient knowledge or suspicion to make it unreasonable to fail to act. Such action may be called for even if it requires the attendance of experts'[14] left open the question of the circumstances which would constitute a sufficient knowledge or suspicion of a defect to found a duty to call in an expert. No identified case had determined that question, which was one of general public importance.

24 Counsel conceded that the implications of his advocated approach to the undetermined question would be that the landlords had a duty to retain such experts as were necessary to identify the timber in the bearers (and any other relevant structures in the premises) in order to ascertain whether it was such as to pose a risk and thereafter, to take any necessary action to ascertain the existence of a defect, including the removal of the fascia or the insertion of a sharp instrument into the bearers.

25 The ordering of security would, it was said, stultify the respondent's right of appeal. Further, the matters complained of by the respondent in the litigation had contributed to her impecuniosity, as she could no longer work. The respondent further submitted:

9.6 [sic] The content of the duty of care owed by a landlord to a residential tenant to make sure the premises are maintained in good condition has not been considered in either this court or the Supreme Court of Victoria since the sentinel [sic] High Court decision in Jones v Bartlett. A decision in this case would clarify upon whom, either the landlord or the tenant, the obligation to undertake preventative safety inspections lies, a matter of some general importance.

9.5 [sic] The applicants' delay in making the application for security for costs, which could and should cost-effectively have been made in November 2008.

9.6 [sic] The quantum of the security for costs sought is excessive.[15]

26 In the present case, the respondent's impecuniosity is conceded. The costs order made against the respondent below (estimated at over $40,000) has not yet been satisfied. There are no realistic prospects that the respondent would be able to satisfy any order for costs of the appeal that may be made against her. The applicants are consequentially exposed to a significant potential loss should they obtain a costs order in their favour due to success on appeal or otherwise.

27 It is apparent that an order for security in the sum sought, or even of a more modest amount, could have the effect of stultifying the respondent's appeal. Although the respondent's loss of $60 per week in income due to injuries arising from the conduct complained of in the appeal has aggravated her financial circumstances, her impecuniosity is independent of, rather than caused by, the loss of income. Further, in my opinion, the respondent's prospects of success on appeal based on a favourable determination of the question said to be left open by the dicta of Gummow and Hayne JJ in Jones v Bartlett do not appear strong. The trial judge carefully determined the facts and analysed the relevant authorities and their application to the facts. There can be no confidence that an argument based on a failure to address the applicants' knowledge of the risk would succeed. Further, in so far as the Notice of Appeal alleges that his Honour's findings were against the weight of the evidence, the respondent faces a very significant hurdle.

28 In all the circumstances, the respondent's admitted impecuniosity (which was not caused by the conduct complained of) and the risk (or indeed high probability) that a costs order would not be met and that the applicants (although successful both at trial and on appeal) would be significantly out of pocket in my view outweigh the risk that the applicants' interest in exercising her right to appeal will be stultified, given that the prospects of success on appeal do not appear strong. Although, as his Honour the primary judge correctly observed, the respondent's plight in suffering injury through no fault on her part invites sympathy, justice requires that some security for costs be ordered.

29 While there was no expert evidence challenging the accuracy of the applicants' estimate of their costs of the appeal on a party and party basis, the respondent's solicitor, by a letter dated 2 December 2008, objected to the allocation of costs of $15,227 for senior counsel and asserted that only one day of preparation for junior counsel should be allowed (at $3,800) thus reducing that allocation by $4,200. Those objections are in my view valid and reduce the estimate of costs to $24,508. The respondent, due to her impecuniosity, nevertheless initially offered security in the sum of only $12,500 and, as her loan application was unsuccessful, ultimately did not offer any security.

30 Applying the relevant principles set out in Abbie Li v Herald & Weekly Times and Narain v Euroasia (Pacific) Pty Ltd[16], in my opinion, the respondent should be ordered to provide security for costs in a total sum of $20,000 in two tranches of $10,000, the first within one month from the date of the order, and the second the week before the appeal is set down for hearing.

[1] (2000) 205 CLR 166; [2000] HCA 56.

[2] Finlayson v McDonald & Ors [2008] VCC 907, [78].

[4] Ibid [78]. See Jones v Bartlett [2000] HCA 56; (2000) 205 CLR 166, 220 (Gummow and Hayne JJ).

[5] Ibid [95]-[97] (citations omitted).

[7] [2008] VSCA 122 [78]-[81] (citations in original).

[8] (Unreported, Supreme Court of Victoria, Full Court, Fullagar and Marks JJ, 16 December 1988).

[9] (1989) ATPR 40-972.

[10] See Challenge Charter Pty Ltd v Curtain Bros (Qld) Pty Ltd [2004] VSCA 66; [2004] 9 VR 382. The position is different in the High Court, the Federal Court and the New South Wales Supreme Court, where the Court places less emphasis on the impecuniosity of the appellant in considering whether to order security for the costs of the respondent (See Williams Civil Procedure, 164.24.80-162.4.85).

[11] [2002] VSCA 72; [2002] 4 VR 327.

[12] Abbie Li and Forever Young Pty Ltd v The Herald and Weekly Times Pty Ltd and Keith Moor (Unreported, Supreme Court of Victoria, Could of Appeal, Nettle and Redlich JJA, 25 July 2007), [3] (citations omitted).

[13] Affidavit of Olivia Warwick sworn 27 January 2009, [10]-[12].

[14] [2000] HCA 56; (2000) 205 CLR 166, 220.

[15] Appellant's (respondent to this application) outline of submissions filed 6 March 2009, [9.5]-[9.7].

[16] [2008] VSCA 195 (Maxwell P and Ashley JA).