There’s nothing more Australian than getting together with family and friends to enjoy a BBQ on the timber deck out the back of the family home. Unfortunately, all too frequently, those wooden decks just don’t last in the harsh Australian conditions. Personal injury resulting from collapsing balconies is a frequent source of litigation, especially in the context of rented residential premises.

Libra Collaroy Pty Ltd v Bhide [2017] NSWCA 196

This recent New South Wales Court of Appeal decision concerned a dispute between the landlord, tenant and managing agent as to the relative responsibilities, and consequential liability, in respect of bodily injury suffered by four people who were injured in the collapse of a balcony residential property in Collaroy.

The decision is important as it provides a comprehensive overview of the current law relating to such claims, considers the interaction between the common of law, the Civil Liability Act 2002 (NSW) and a typical managing agency agreement, including an indemnity passing from the agent to the landlord. It has immediate implications for the form of real estate agents’ management agreements.

Facts

Mr and Mrs Bhide (the Landlords) retained a real estate agent, Elders Collaroy[1] (the Agent) to manage their residential property in Collaroy by way of Management Agreement executed in 2005. The property was leased to Ms Gillies (the Tenant).

Issues arose concerning the state of repair of the property’s upper balcony including as to the condition of the decking surface and structural adequacy. The Agent periodically obtained quotes for repairs which indicated that repairs short of replacing the balcony would be temporary measures. The Agent provided those quotes to the Landlords. Repairs were carried out in 2005 including some repairs to (but not replacement of) structural elements. Decking boards were replaced by a carpenter in 2008. No structural inspection or repairs were carried out at that time.

In 2010, and again in February 2012, the Tenant raised further concerns with the Agent as to structural adequacy of the supporting elements of the balcony. Further quotes were obtained but no works were completed.

On 15 June 2012, the balcony collapsed injuring the four people, including the Tenant’s daughter, who were on the balcony (the Plaintiffs).

The Plaintiffs commenced proceedings against the Agent and the Landlords. The Tenant also brought an action against the Agent and the Landlords alleging that she suffered psychological injury as a result of the incident.

The Landlords and the Agent issued cross-claims against each other and the Tenant.

Decision at First Instance

The primary judge held the Agent 100% liable for the Plaintiffs’ injuries on the basis that the Agent:

  • had accepted the delegation and authority to arrange repairs and maintenance and failed to exercise reasonable care in maintaining the premises.
  • was not entitled to a contractual indemnity against the Landlords, under the Management Agreement, because such indemnity was only available in respect of liability arising out of the proper performance of the Agent’s duties.

The Landlords were held to have discharged their duty to the Plaintiffs by engaging a competent contractor to fulfil that duty. They were not liable to make contribution to the Agent. The Landlords were liable to the Tenant for breach of their contractual obligation under the lease to maintain the premises in a reasonable state of repair. However, they were entitled to a full contractual indemnity from the Agent.

The Tenant was held to have discharged her duty of care to the Plaintiffs, as occupier, by complaining about the condition of the balcony and seeking that the Agent intervene. She was not liable to make contribution to the Agent.

Court of Appeal

On appeal, the Agent did not challenge the findings that it was negligent and could not rely upon the indemnity provision in the Management Agreement. However, it argued that the primary judge should have held that the Landlords and the Tenant were also liable to the Plaintiffs and that the Landlords should not have been granted a contractual indemnity in respect of their liability.

The Court of Appeal held:

In relation to the Landlords:

  • the Landlords were liable to the Plaintiffs. While the Landlords initially delegated their duty of care to the Agent, they ought to have formed the view, at least by 2010, that the Agent was not discharging its delegated duties competently. A reasonable person in their position should have instructed the Agent to:
  • engage an expert to investigate the structural integrity of the balcony and, if necessary, taken steps to replace it;
  • take steps to prevent access to the balcony pending remedial work.
  • The Landlords were entitled to a contractual indemnity from the Agent in respect of their liability to the Plaintiffs because the Agent breached its implied duty to take reasonable care in carrying out its duties under the Management Agreement. That entitlement arose notwithstanding the Landlords’ own breach of duty. Where a principal and an agent have both been found liable in negligence, the law provides (unless otherwise agreed) that the principal is entitled to a contractual indemnity for the whole of the principal’s loss[2].
  • Because the Landlords’ entitlement to indemnity arose from the Agent’s breach of contractual duty of care (being concurrent or co-extensive with the Agent’s duty of care in tort), the amount of the contractual indemnity was reduced to reflect the contributory negligence of the Landlords[3]. The Landlords’ contributory negligence was assessed at 30%.
  • The Agent’s claim for contribution against the Landlords failed because an action for contribution under section 5 of the the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) does not operate in circumstances where the person against whom indemnity is sought is entitled to a contractual indemnity from the person seeking contribution in respect of that liability[4].

In relation to the Tenant:

  • The Tenant breached her duty of care to the plaintiffs because a reasonable person in her position, having expressed concerns about the precarious nature of the balcony, ought to have refused access to the balcony until its structural integrity had been properly investigated. The Tenant’s liablity to make contribution to the Agent was assessed at 20%.

Implications

Ordinarily, a landlord may discharge its duty of care to in respect of property maintenance by engaging a competent managing agent to fulfil that duty. However, where a landlord is (or ought to be) aware of a risk of harm, and that the agent is not discharging its delegated duties competently, the landlord has a duty to takes reasonable steps to ensure that the agent addresses the risk.

Similarly, a tenant will not be considered to have discharged its duty of care to visitors simply by voicing concerns to the managing agent about a potentially harmful situation at the rental premises.

The fact that the Agent was held not to be entitled to contribution from the Landlords but the Landlords’ cross-claim for indemnity against the Agent was subject to reduction for contributory negligence, creates an anomaly by which the relative liability of the Agent will be greater if the Plaintiffs seek to enforce their judgments directly against the Agent (rather than the Landlords). That is an unsatisfactory outcome for the Agent.

To avoid this, agents should seek to include in their management agreements an express contractual indemnity in favour of the landlord (in the case of breach by the agent) which is limited so as not to apply to the extent that the landlord’s loss is caused, or contributed to, by the landlord’s own negligence. In the absence of such a clause, the agent will be liable to fully indemnify the landlord for the whole of its loss which will prevent it from obtaining contribution from the landlord.