Preston v Star City Pty Limited

Supreme Court of NSW|2003-04-22|Before: Hidden J, Williams J

CITATION : Preston v Star City Pty Limited [2003] NSWSC 321 HEARING DATE(S) : 04/02/02 JUDGMENT DATE : 22 April 2003 JURISDICTION: Common Law Division JUDGMENT OF : Hidden J at 1 DECISION : Appeal allowed.

CATCHWORDS : Appeal from Master: Amendment of statement of claim - issue of vicarious liability - whether amendment futile. Bazley v Curry (1999) 174 DLR (4th) 45 Deatons Pty Limited v Flew (1949) 79 CLR 370 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 128-9 CASES CITED : Gibson v Parkes District Hospital (1991) 26 NSWLR 9 Jacobi v Griffiths (1999) 174 DLR 71 Lister v Hesley Hall Ltd [2002] 1 AC 215 New South Wales v Lepore; Samin v Queensland; Rich v Queensland [2003] HCA 4 PARTIES : Alexander Preston - Appellant Star City Pty Limited - Respondent FILE NUMBER(S) : SC 20334/98 COUNSEL : T Hudson - Appellant M Condon - Respondent SOLICITORS : Gells - Appellant Coudert Brothers - Respondent

LOWER COURT Supreme Court (Master) JURISDICTION : LOWER COURT FILE NUMBER(S) : LOWER COURT Master Malpass JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20334/98 - Alexander PRESTON v STAR CITY PTY LIMITED

JUDGMENT 1 HIS HONOUR: This is an appeal from a decision of Master Malpass refusing the plaintiff leave to amend his third further amended statement of claim. That statement of claim pleads several causes of action, including an assault upon the plaintiff by an employee of the defendant. It is alleged that the employee, Mr Wes Elam, verbally threatened the plaintiff with imminent physical harm. 2 The statement of claim recites that the defendant operates the Sydney Harbour Casino, of which the plaintiff was a patron, and that Mr Elam was employed as its Chief Operating Officer. His duties are said to have included dealing with complaints from clients of the Casino and, generally, the protection and furtherance of the defendant's economic interests. The statement of claim goes on to recite that on a number of occasions the plaintiff, to the knowledge of Mr Elam, had provided information to the Casino Surveillance Department about illegal activity occurring at the defendant's Casino. The threats alleged to constitute the assault are said to have been made during an altercation between the plaintiff and Mr Elam about that matter. 3 Paragraph 32 of the statement of claim asserts that the assault was perpetrated by Mr Elam "in the course of his employment with the Defendant…". Paragraph 33 provides particulars of the assault, and paragraph 34 is in the following terms: The abovementioned actions which constituted Mr Elam's assault on the Plaintiff were performed within the scope of Mr Elam's authority and employment in that they were incidental to his role of (a) dealing with complaints by clients of the Casino and (b) furthering or protecting the economic interests of his employer, in that they were intended to prevent the plaintiff from engaging in further activities which either threatened the casino's licence under the Casino Control Act 1992 (NSW) and/or were contrary to the economic interests of the Casino. 4 The application before the Master was to amend the statement of claim by adding a further paragraph (34A). That paragraph is as follows: Further or alternatively the defendant is and was at all material times vicariously liable for the actions which constituted Mr Elam's assault on the Plaintiff in that they were so closely connected with his employment it would be fair and just to hold the defendant vicariously liable.

The paragraph is drawn in reliance upon the test for vicarious liability advanced by Lord Steyn in Lister v Hesley Hall Ltd [2002] 1 AC 215. 5 The Master refused to allow the amendment on the basis that it was futile because, whatever might have been the reasoning in Lister, the settled law in this country about the scope of vicarious liability was to be found in the decision of the High Court in Deatons Pty Limited v Flew (1949) 79 CLR 370. In that case the High Court applied the "Salmond test" as the basis of liability, derived from a passage in the 9th edition of Salmond on Torts and set out by Williams J at 384-5: It is clear that the master is responsible for acts actually authorized by him: for liability would exist in this case, even if the relation between the parties was merely one of agency, and not one of service at all. But a master, as opposed to the employer of an independent contractor, is liable even for acts which he has not authorized, provided they are so connected with acts that he has authorized that they may be regarded as modes - although improper modes - of doing them. In other words, a master is responsible not merely for what he authorizes his servant to do, but also for the way in which he does it. On the other hand, if the unauthorized and wrongful act of the servant is not so connected with the authorized act as to be a mode of doing it, but is an independent act, the master is not responsible: for in such a case the servant is not acting in the course of his employment, but has gone outside of it. 6 The question for the High Court was whether the appellant, a company which was the proprietor of a hotel, was vicariously liable for an assault upon the respondent by a barmaid whom it employed. The barmaid had thrown beer from a glass into the respondent's face and then thrown the glass at him, causing him to lose the sight of an eye. It was the respondent's case that her action was entirely unprovoked. Her evidence had been that the respondent, who was intoxicated, struck her and abused her and that she, in anger and resentment, threw the beer into his face and the glass accidentally slipped out of her hand. 7 The Court held that the appellant was not liable for the barmaid's actions, whatever view be taken of the facts. There was no evidence that what the barmaid did was for the purpose of keeping order in the bar and, in any event, that was not her responsibility. Latham CJ said (at 379): In my opinion the act of the barmaid was not expressly authorised, it was not so connected with any authorised act as to be a mode of doing it, but was an independent personal act which was not connected with or incidental in any manner to the work which the barmaid was employed to perform.

Dixon J said (at 381-2): The truth is that it was an act of passion and resentment done neither in furtherance of the master's interests nor under his express or implied authority nor as an incident to or in consequence of anything the barmaid was employed to do. 8 Presumably, it was in the light of these principles that paragraph 34 of the statement of claim in the present case was drawn. 9 In Lister v Hesley Hall the respondent company conducted a school with a boarding annex, and employed a warden to care for the pupils in the boarding house. The House of Lords was concerned with the liability of that company for sexual assaults perpetrated upon pupils by that warden while they were under his care. All the Lords concluded that the company was vicariously liable. 10 Lord Steyne (at par 20) observed that the Salmond test does not "cope ideally" with vicarious liability for intentional wrongdoing. However, his Lordship observed that it was at most "a broad test" which "did not attempt to enunciate precise propositions of law on vicarious liability", and continued: In reality it is simply a practical test serving as a dividing line between cases where it is or is not just to impose vicarious liability. 11 His Lordship favoured an approach which concentrated "on the relative closeness of the connection between the nature of the employment and the particular tort" (par 24). The evidence disclosed that the boarding house (Axeholme House) was intended as a home for the pupils, and the warden's duties included supervising them when they were not at school, ensuring they went to bed at night, getting them up and to school in the morning and other duties of a quasi parental nature. Lord Steyn concluded (at par 28): Employing the traditional methodology of English law, I am satisfied that in the case of the appeals under consideration the evidence showed that the employers entrusted the care of the children in Axeholme House to the warden. The question is whether the warden's torts were so closely connected with his employment that it would be fair and just to hold the employers vicariously liable. On the facts of the case the answer is yes. After all, the sexual abuse was inextricably interwoven with the carrying out by the warden of his duties in Axeholme House. Matters of degree arise. But the present cases clearly fall on the side of vicarious liability. 12 It is unnecessary for present purposes to summarise the reasoning of the other Lords, who concurred with Lord Steyn in the outcome of that appeal, except to observe that Lord Millett referred to the passage from the judgment of Dixon J in Deatons v Flew which I have quoted and, apparently, did not see it as inconsistent with his approach to the case at hand. As I have said, it was the reasoning of Lord Steyn which guided the drafting of the proposed paragraph 34A in the statement of claim with which I am concerned. 13 Since this matter was before Master Malpass - indeed, after I reserved judgment on the appeal - the Full Bench of the High Court has revisited the issue of vicarious liability in judgments in respect of three appeals delivered on the same day, 6 February, 2003: State of New South Wales v Lepore, Samin v State of Queensland and Rich v State of Queensland [2003] HCA 4. I am indebted to counsel in the present matter for bringing this decision to my attention and providing written submissions about it. 14 Each of those appeals raised the question of the liability of a school authority for sexual assaults upon a pupil by a teacher. It is unnecessary to recite the facts of those cases or the outcome of the appeals. Nor is it necessary to consider the way in which the Court dealt with an important issue which arose in those cases, that of non-delegable duty. It is sufficient for present purposes to note that all of the justices except McHugh J also considered the circumstances in which a school authority might be vicariously liable for conduct of that kind by a teacher. This involved an examination of Deatons v Flew and a number of later cases, including Lister v Hesley Hall and two important decisions of the Canadian Supreme Court (referred to in the House of Lords): Bazley v Curry (1999) 174 DLR (4th) 45 and Jacobi v Griffiths (1999) 174 DLR (4th) 71. 15 Gleeson CJ considered Deatons and explained that decision in this way (at par 51): Both in the Supreme Court of New South Wales, and in this Court, the outcome turned upon application of the Salmond test. The test serves well in many cases, but it has its limitations. As has frequently been observed, the answer to a question whether certain conduct is an improper mode of performing an authorised act may depend upon the level of generality at which the authorised act is identified. If, on the facts, it had been possible to treat maintaining order in the bar as one of the barmaid's responsibilities, and if, on the facts, it had been open to regard her conduct as an inappropriate response to disorder, then the jury could properly have held the employer liable in trespass. However, the barmaid's only responsibility was to serve drinks, and throwing a glass of beer at a customer could not be regarded as an improper method of doing that. 16 Later in his judgment the Chief Justice, after referring to Lister, concluded as follows (par 74): If there is sufficient connection between what a particular teacher is employed to do, and sexual misconduct, for such misconduct fairly to be regarded as in the course of the teacher's employment, it must be because the nature of the teacher's responsibilities, and of the relationship with pupils created by those responsibilities, justifies that conclusion. It is not enough to say that teaching involves care. So it does; but it is necessary to be more precise about the nature and extent of care in question. Teaching may simply involve care for the academic development and progress of a student. In these circumstances, it may be that … the school context provides a mere opportunity for the commission of an assault. However, where the teacher-student relationship is invested with a high degree of power and intimacy, the use of that power and intimacy to commit sexual abuse may provide a sufficient connection between the sexual assault and the employment to make it just to treat such contact as occurring in the course of employment. 17 Kirby J explained Deatons in much the same way as the Chief Justice and did not consider it necessary to overrule that decision. However, his Honour added (at par 324): But neither the statement of the basis for vicarious liability for an employee's conduct expressed in that case, nor the statement by Salmond in his text earlier, represents a rigid formula to be applied inflexibly to all later cases …

His Honour expressed his view of the proper approach to vicarious liability in this way (at par 320): To determine whether conduct is within the scope of vicarious liability I would favour the broader "connection" analysis adopted in England and Canada … This Court should now give guidance on the general question of when, in all the circumstances, it is reasonable to impose liability on a party … I do not overlook the fact that determination of the "connection", necessary to establish legal liability, will itself involve value judgments and policy choices. Ultimately, these oblige the decision maker to answer the question whether, in the particular circumstances, it is just and reasonable to impose on the enterprise in question legal liability for the particular civil wrong done by its employee. Try as verbal formulae and specific rules might, they cannot ultimately escape the necessity to answer this basal question. 18 Gaudron J analysed vicarious liability in terms of the law of agency, including the notion of ostensible authority. After considering the authorities, her Honour said (at pars 128-131): … to hold an employer liable for the authorised acts of an employee or acts done in the course of his or her employment, is simply to apply the ordinary law of agency. … where the issues concern the doing of an authorised act in an unauthorised way, it will ordinarily be the case that vicarious liability results from the ostensible authority of the person whose acts caused injury to the plaintiff. The difficulties that have arisen in relation to vicarious liability concern the absence of any real test for determining whether an act occurred in the course of or within the scope of employment. That difficulty is exacerbated in the case of deliberate criminal acts which, save, perhaps, for some temporal connection, cannot ordinarily be described as acts done in the course of or within the scope of employment. The only principled basis upon which vicarious liability can be imposed for the deliberate criminal acts of another, in my view, is that the person against whom liability is asserted is estopped from asserting that the person whose acts are in question was not acting as his or her servant, agent or representative when the acts occurred … Ordinarily, a person will not be estopped from denying that a person was acting as his or her servant, agent or representative unless there is a close connection between what was done and what that person was engaged to do. … 19 Gummow and Hayne JJ saw no need to reformulate the statements of principle in Deatons. After referring to the judgment of Dixon J in that case, and the fact that it was concerned with vicarious liability for an intentional tort, their Honours said (at par 231): … there are two elements revealed by what his Honour said that are important for present purposes. First, vicarious liability may exist if the wrongful act is done in intended pursuit of the employer's interests or in intended performance of the contract of employment. Secondly, vicarious liability may be imposed where the wrongful act is done in ostensible pursuit of the employer's business or in the apparent execution of authority which the employer holds out the employee as having. 20 Their Honours concluded (at par 239): For present purposes, it is enough to conclude that when an employer is alleged to be vicariously liable for the intentional tort of an employee, recovery against the employer on that basis should not be extended beyond the two kinds of case identified by Dixon J in Deatons ; first, where the conduct of which complaint is made was done in the intended pursuit of the employer's interests or in the intended performance of the contract of employment or, secondly, where the conduct of which complaint is made 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. 21 Callinan J did not consider Deatons, but firmly rejected the test propounded in Lister. His Honour said (at par 345): In practice there would be few situations in which a "connexion" between the duties and the conduct would not be able to be demonstrated. Distinguishing between "opportunity" which would almost always be available to any teacher, and a "connexion" of the kind referred to by their Lordships would be very difficult. Cases would, as a practical matter, be decided according to whether the judge or jury thought it "fair and just" to hold the employer liable. Perceptions of fairness vary greatly. The law in consequence would be thrown into a state of uncertainty. I would not therefore be prepared to adopt their Lordships' or any like test. In my opinion, deliberate criminal conduct is not properly to be regarded as connected with an employee's employment: it is the antithesis of a proper performance of the duties of an employee. Furthermore, it cannot and should not be regarded as being "interwoven" with proper and dutiful conduct, let alone inextricably so. 22 It will be seen that their Honours do not speak with one voice about how the test for vicarious liability should now be expressed. Deatons has not been overruled, and Gummow and Hayne JJ saw no need to venture outside the statements of principle to be found in it. On the other hand, Gleeson CJ's formulation appears consonant with that of Lord Steyn in Lister. Kirby J's certainly is. Gaudron J used the language of estoppel, without reference to the question whether it would be "fair and just" to hold an employer liable, but her Honour saw the closeness of the connection between the employee's conduct and the nature of his or her duties as a relevant matter. 23 In the light of this recent development, it is clear that the decision of Master Malpass must be revisited and that I should myself determine whether the amendment should be permitted. 24 In Gibson v Parkes District Hospital (1991) 26 NSWLR 9, in the context of a proposed amendment to a statement of claim, Badgery-Parker J referred to the familiar principles enunciated by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 128-9. Guided by those principles, his Honour said (at 15): Upon an application to amend, it is well-established that leave to amend will not be granted if the amendment is so obviously futile that it would be struck out if it had appeared in the original pleading … The principles applicable are the same in whichever form the matter comes before the court. The amendment will be refused if the defendant or intended defendant can demonstrate, as he must on an application to strike out an original statement of claim, that the case is hopeless. It is not the case … that the application to amend should be refused unless the plaintiff can satisfy the court that the cause of action pleaded therein discloses a viable cause of action.

His Honour added (at 17) that the fact that a "proposed cause of action is novel does not compel a decision adverse to the plaintiff". 25 Applying that test in the present case, it does not appear to me that the basis of liability propounded in proposed paragraph 34A is "hopeless", so as to render the amendment "obviously futile." The paragraph is cast in terms for which support is to be found in modern authority, including a very recent decision of the High Court. In so saying, I am mindful of the obvious factual distinction between this case and those considered by the House of Lords and the High Court; in particular, in the relationship between the employee and the plaintiff and the nature of the connection between the employee's alleged misconduct and the duties he was engaged to perform. 26 I am aware that the statement of claim has already been extensively amended but, in all the circumstances, I am satisfied that a further amendment should be allowed. The point is properly taken by counsel for the defendant that the proposed paragraph is devoid of particulars, but the plaintiff should have a reasonable opportunity to supplement it by supplying them. 27 The appeal is allowed. I shall consult the parties about directions concerning the filing of the further amended statement of claim and, if necessary, I shall hear argument on costs.

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