Water Authority liable for burst main

Insurance eBulletin - 11 November 2014

Summary

  • The decision of Quigley v Lower Murray Urban and Rural Water Corporation trading as Lower Murray Water sheds light on the applicability of the 'public authority' provisions of Part XII Wrongs Act 1958 (Vic) to statutory causes of action, such as that found in s 157 of the Water Act 1989 (Vic).
  • In this decision, a property insurer exercising its rights of subrogation has had some rare success in establishing a right to damages against a regional water authority under s 157 of the Water Act 1989 (Vic). The authority was found to have negligently caused a flow of water which damaged a residential property. The flow was the result of an ageing water main in the adjacent street bursting.
  • In this eBulletin, we summarise the decision of the Victorian Civil & Administrative Tribunal and consider its implications for insurers.

 

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Section 157 of the Water Act 1989 (Vic) (Water Act) provides a 'freestanding' cause of action for damages where an Authority has engaged in intentional or negligent conduct in the exercise of its functions, which causes 'a flow of water … onto any land' resulting in personal injury, damage to property, or economic loss.

If a claimant proves that the water flowed from the works of an Authority onto their land, it is presumed that it was caused by the Authority's intentional or negligent act unless the Authority proves otherwise.

 

Background

On the morning of 21 August 2009, the owners of a property in Swan Hill awoke to find their property had been inundated by water from a burst water main in the street.

The main was part of the water supply system managed, operated and maintained by the local water authority, Lower Murray Water. It was constructed of asbestos cement (AC) pipes laid in 1956, and was nearing the end of its estimated service life of 60 years. There were no records of its performance between 1956 and 1996, but there had been a number of 'burst' incidents from 1997 to 2008, some of which were described as 'major'. Repairs, rather than replacement of pipe were carried out in response. The pipe which burst in 2009 was removed and replaced, and just over 12 months later, the whole main in the street was replaced with PVC pipe.

The property owners, whose home had been rendered uninhabitable, were insured and their insurer, exercising its subrogation rights, commenced recovery proceedings in the Victorian Civil and Administrative Appeals Tribunal (VCAT) seeking damages from Lower Murray Water under s157 of the Water Act.

 

Lower Murray Water's defence

Lower Murray Water admitted that it was the relevant responsible authority under the Water Act, but denied that the flow of water was the result of any negligence on its part. It relied on the public authority provisions of Part XII of the Wrongs Act 1958 (Vic) (Wrongs Act), particularly sections 83 and 84.

Section 83

Section 83 provides that a court1 in determining whether a public authority owes or has breached a duty of care, must take note that an authority's functions are limited by the financial and other resources reasonably available to it and the fact that it determines its functions by reference to a broad range of activities. It also allows Authorities to rely on compliance with 'general procedures' and 'applicable standards' as evidence of proper exercise of its functions.

Section 84

Section 84 applies to breach of statutory duty claims in relation to special statutory powers of public authorities.2 Where the power concerned is one which has been conferred on the authority specifically in that capacity, there is a much higher standard, often referred to as 'Wednesbury unreasonableness', for determining whether this kind of special statutory power has been exercised negligently.3

Lower Murray Water argued that the main, which had not reached the end of either its estimated service life of 60 years, or that of others which had lasted as long as 80 years, had a 'good performance history' and, given its low frequency of faults compared to other assets, there was no need for it to have been prioritised for replacement prior to the incident. It claimed to have abided by guidelines established in 2000 by consulting engineers concerning the maintenance and replacement of assets.

Lower Murray Water argued that a program entailing replacement of water mains before the end of their expected life span so as to guard against the risk of failure was not financially feasible and was in fact 'wasteful'. It led evidence of its budgetary constraints and submitted that it was acting reasonably in its repair and replacement works regime.

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VCAT's decision

A 'freestanding' statutory cause of action

Taking the same approach as Justice Cavanough in South East Water Limited v Transpacific Cleanaway Pty Ltd4 concerning a very similar provision of the Water Industry Act 1994 (Vic),5 the Tribunal noted the following principles in relation to s 157 of the Water Act:

  • it is a 'freestanding' statutory cause of action;
  • any additional requirements or considerations concerning the existence of a duty of care in common law/Wrongs Act negligence are irrelevant to its application;
  • the onus of proof of negligence is reversed;
  • the same tests of causation and remoteness used in common law/Wrongs Act negligence should be applied; and
  • doctrines concerning what amounts to a breach of duty for common law/Wrongs Act negligence apply in addition to the factors enumerated in s 157(3)(b).

Applicability of Part XII Wrongs Act

The Tribunal ruled that s 83 Wrongs Act was relevant to the claim in relation to whether or not Lower Murray Water had been negligent.

Section 84, on the other hand, was held to be inapplicable since in the Tribunal's view, it is confined to claims based on the tort of breach of statutory duty. This is an implied civil remedy which exists in certain circumstances where a claimant's statutory rights have been breached. Since the Tribunal regarded s 157 of the Water Act as a stand-alone statutory cause of action, s 84 did not apply.

Section 84 was distinguished from s 43A of the Civil Liability Act 2002 (NSW) (CLA) which also includes a 'Wednesbury unreasonableness' test by which to judge whether a public authority has been negligent in the exercise of a special statutory power. Unlike s 84, s 43A does not expressly apply to claims for breach of statutory duty. Rather, it applies more broadly to proceedings to which the equivalent provisions of the CLA relating to public authorities6 apply.

The result of all this was that while Lower Murray Water could take advantage of the special considerations contained in s 83 for judging whether it had been negligent, it had to disprove negligence by reference to the normal standard of reasonableness, rather than the far more advantageous 'unreasonableness' standard contained in s 84.

Negligence of Lower Murray Water

The 2000 report of the consulting engineers provided a method for measuring and determining relative risk to Lower Murray Water's assets and was extensively analysed by the Tribunal.

The Tribunal emphasised that the report was merely the source of guidelines that Lower Murray Water had adopted for its maintenance and repair regime. These guidelines did not have any statutory force, but were something that the Tribunal could take into account under section 83(c) of the Wrongs Act as compliance by Lower Murray Water with 'general procedures' and 'applicable standards'.

The Tribunal found, however, that Lower Murray Water's implementation of the guidelines in relation to the subject water main did not represent 'a faithful application' of those guidelines.

While it was not reasonable for Lower Murray Water to routinely excavate and inspect ageing AC pipes, the series of failures of the subject section of pipe between 1997 and 2008 ought to have indicated that there was a real risk of an incident, such as occurred in 2009.

The Tribunal noted the evidence about the financial position of Lower Murray Water but commented that its resources proved sufficient to effect a full replacement of the problematic section of water main in 2010. It was suggested that Lower Murray Water could have increased charges to raise revenue and facilitate a more 'proactive approach' to its water mains than the 'run to failure' regime it adopted.

In the Tribunal's view, Lower Murray Water gave 'undue weight to a consideration of putting off replacement of ageing water main sections as late as possible without giving proper counterweight to the consequences of incidents such as the present.'

Based on all the relevant circumstances and considerations set out in both s 157 Water Act and s 83 Wrongs Act, the Tribunal concluded that Lower Murray Water had not discharged its onus of proving that it had not been negligent and therefore found in favour of the applicants.

 

Implications for insurers

This decision is a mixed bag for insurers.

Property insurers

Property insurers may be encouraged by the result as it demonstrates the advantages to an applicant of the reverse onus contained in s 157 of the Water Act, concerning whether a water flow was negligently or intentionally caused by an Authority. These claims will always be fact-specific and, in one sense, the recent history of failures of a very old AC main, gives the case a certain uniqueness.

Liability insurers

Not so encouraging a decision for liability insurers of public authorities. Again, a very fact-specific case, but the difficulty of taking advantage of the special provisions relating to public authorities contained in Part XII of the Wrongs Act are evident, particularly in the reverse onus regime of s 157 of the Water Act.

New South Wales public authorities, and hence their insurers, have tended to have greater success in defending claims for damages relating to an exercise of 'special statutory powers' by virtue of s 43A CLA, essentially because of the lower standard of 'reasonableness' required. That provision is much more broadly worded so that it applies to a much wider range of damages claims. Had such a provision existed in the Wrongs Act, it may well have swung the result in the liability insurer's way.

Authors
Alice Godfree, Paralegal
Kate Clark, Special Counsel

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Further information


1. [2014] VCAT 1325
2. VCAT accepted that it was a 'court' for the purposes of Part XII
3. Where the function concerned has been conferred on the public authority specifically in that capacity
4. This higher standard, contained in sub-section 84(2), is much more advantageous to public authorities. It provides that an act or omission in relation to a function conferred on a public authority specifically in that capacity, does not constitute a breach of statutory duty unless it was so unreasonable that no public authority having that same function could properly have considered it reasonable.
5. (2010) 27 VR 387
6. Section 74

All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.

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