New South Wales Court of Appeal CITATION: Terry Hogan Prestige Cars Pty. Limited v. Opera Investments Pty. Limited [2006] NSWCA 139 HEARING DATE(S): 18 May 2006 JUDGMENT DATE: 2 June 2006 JUDGMENT OF: Hodgson JA at 1; Ipp JA at 36; Basten JA at 37 DECISION: 1. Appeal allowed. 2. Judgment below set aside, and in lieu thereof judgment for the appellant and order that the respondent pay the appellant's costs of the proceedings. 3. Respondent to pay the appellant's costs of the appeal, and to have a certificate under the Suitors' Fund Act if otherwise eligible. CATCHWORDS: BAILMENT - Duty of bailee to take reasonable care of goods - Standard of care - Onus of proof - Mercedes car stolen from premises with high degree of physical security, being damaged in the process - Keys kept out of sight, but not locked - Whether bailee established that the theft and damage was not due to its negligence. Hobbs v. Petersham Transport Co. Pty. Ltd. (1971) 124 CLR 220 CASES CITED: Jacap Low Loaders Pty. Limited v. Lindores Plant & Equipment Pty. Limited [2005] NSWCA 5 The Andrews Group Pty. Limited v. Tynan Motors Pty. Limited [2006] NSWCA 22 The State of New South Wales v. Zarafa [2005] NSWCA 187 PARTIES: Terry Hogan Prestige Cars Pty. Limited - appellant Opera Investments Pty. Limited - respondent FILE NUMBER(S): CA 40551/05 COUNSEL: Mr. J. Miller for the appellant Mr. J. Gracie for the respondent SOLICITORS: Swaab Attorneys, Sydney for appellant Gells Lawyers, Sydney for respondent LOWER COURT JURISDICTION: District Court LOWER COURT FILE NUMBER(S): DC 332/04 LOWER COURT JUDICIAL OFFICER: Dodd DCJ LOWER COURT DATE OF DECISION: 03/06/05 LOWER COURT MEDIUM NEUTRAL CITATION: Not applicable IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40551/05 DC 332/04 HODGSON JA IPP JA BASTEN JA Friday 2 June 2006 TERRY HOGAN PRESTIGE CARS PTY. LIMITED V. OPERA INVESTMENTS PTY. LIMITED Judgment 1 HODGSON JA: On 3 June 2005, Dodd DCJ gave judgment for the respondent Opera in the sum of $110,000.00 with costs, in proceedings in which Opera had sued the appellant Hogan for damages. The claim arose from damage caused to Opera's Mercedes motor vehicle by thieves who stole it from Hogan's showroom. 2 Hogan appeals from that judgment. Opera has put on a cross-appeal, claiming that the primary judge erred in failing to award interest on the sum of $110,000.00. CIRCUMSTANCES 3 The primary judge made the following findings as to the circumstances, which are not challenged on appeal: As a result of a Notice to Admit Facts and Authenticity of Documents administered by the plaintiff the following matters are not in dispute: 1. As at April and May 2003, and at all times material, the plaintiff was the registered owner of a 1998 Mercedes Benz E55 motor vehicle registered number ALZ 27K. 2. In or about April 2003 the plaintiff delivered the motor vehicle to the defendant, at the defendant's premises situated at 923 Bourke Street Waterloo, for the purposes of the defendant attempting to sell, during the course of its business, the motor vehicle, on the plaintiff's behalf. 3. It was a term of the agreement that the defendant would safely keep and take care of the motor vehicle whilst the motor vehicle was in its possession. 4. On or about 1 May 2003, whilst the motor vehicle was in possession of the defendant for the purposes of the agreement, it was stolen from the defendant's premises, by a person or persons unknown, and recovered in a damaged condition. From the evidence the events surrounding the theft appear to be as follows. A security guard from a nearby site saw and heard a Subaru vehicle arrive outside the defendant's showroom at the comer of Elizabeth and McEvoy Steets (sic) Waterloo at about 3.12am. Three men wearing balaclavas got out and using sledgehammers knocked down a small retaining wall outside the showroom directly in front of the plaintiff's vehicle which was inside the showroom, facing the glass wall. The security guard or one of his colleagues phoned police. A police vehicle was sent. One of the three who had got out of the Subaru returned to it and drove up and down the street. One of the other two continued to smash bricks from the low wall and clear them away. The other broke the glass wall of the showroom. He entered the showroom through the break. He went to the showroom office. A security videotape was activated and some of this was recorded. He took papers and keys from an unlocked and apparently unlockable cabinet, examining and discarding packages until keys and papers for the plaintiff's vehicle were found. He took the keys and papers and ran to the plaintiff's vehicle. He got in and started it. It was driven into the showroom glass wall, further smashing it, and causing it to collapse. The vehicle was reversed. Then it was driven through the opening in the glass wall created originally by the sledgehammers and later by the vehicle. However, remnants of the wall and metal bracing pillars which were placed at intervals to hold and support the glass panels of the wall were still obstructing the vehicle's exit and damage was caused to it as it went through the opening. The police arrived as the vehicle left the showroom, apparently with two men in it. The vehicle was driven onto the roadway and the police gave pursuit. The pursuit was abandoned when the plaintiff's vehicle accelerated at high speed. The plaintiff's vehicle was later found dumped in the Cooks River, abandoned and very damaged. 4 It is clear that there were no bollards outside the showroom glass wall, and that the keys of the car were not locked up inside the showroom. However, the primary judge said: The plaintiff's case was that the negligence of the defendant should be found in two aspects of security (or rather, lack of it) at the defendant's showroom. The first is the absence of bollards outside the showroom glass wall spaced at points in the middle of each glass panel and between the vertical support pillars that had caused some damage to the vehicle. The second is the failure to lock up the keys. Subject to those two matters it seems that the general security measures employed at the defendant's showroom were good and adequate. Although the theft seems to have been perpetrated by someone having knowledge of the vehicle and where its keys and papers might be found there is nothing to indicate that this knowledge was obtained as a result of a breakdown in the defendant's general security measures. Without going into a lot of detail there was a back to base alarm system. There was a closed circuit television system. Within the building (which has another tenant) access to the defendant's showroom is through a door which has a PIN code lock. The front wall of the showroom was plate glass supported by steel pillars. Beyond that was the low brick retaining wall. Normal vehicular entry to and exit from the showroom was via a roller door at the rear of the premises. This means of entry and exit was well secured at night. There were in fact substantial bollards across the opening of this roller door at the rear of the premises, and it seems also that to remove cars which were at the front of the showroom by means of this rear door would have required substantial manoeuvring of other vehicles inside the showroom. ISSUES BEFORE THE PRIMARY JUDGE 5 The primary judge noted that Opera's case was that the absence of bollards and the failure to lock up keys showed that Hogan had been negligent, and that the damage to the vehicle resulted from this negligence. 6 Each side called an expert to give evidence on this question. The primary judge said he took into account their views, but made up his own mind. DECISION OF PRIMARY JUDGE 7 The primary judge noted Opera's submission that the onus was on Hogan to disprove negligence, but said, on the view he took, the question of onus of proof was not determinative. 8 On the question of bollards, the primary judge said this: This theft was obviously well planned in some respects, although its ultimate execution resulted in a largely worthless vehicle. The duty to take reasonable care does not require dealers in the position of the defendant to eliminate all risks. It is only if the defendant has been unreasonable in the circumstances that a finding of negligence can be made. Subject to the question of key security I have come to the view that bearing in mind the general good security at the showroom in other respects it was not unreasonable for the defendant not to install bollards as contended by the plaintiff. 9 He then reviewed the evidence in relation to keys, and concluded his discussion as follows: No argument was put on the basis that locking keys up was expensive or difficult. Evidence was given that now the car keys are kept in what was called a "safe" which is locked at night. The only matter which makes me hesitate before concluding that the key arrangements were such as to indicate negligence on the part of the defendant is the state of general security at the premises. If that general security is good then in one sense the keys are locked up. I have indicated earlier in these reasons that in my view the general security of the showroom premises is good - subject to the question of key security. I think it is trite that determined thieves will find a way around almost anything put in their way. So far the general security of this showroom is concerned that was proved by this theft. The breaking of glass and other security barriers by sledgehammers by thieves has not been unusual in recent times. In my view not only did the failure to lock up the keys substantially contribute to the theft of and damage to the vehicle - that failure was negligent on the part of the defendant. The defendant should not have relied on the general good security of the premises to the exclusion of locking up the keys. ISSUES ON APPEAL 10 Hogan relies on the following grounds in its Amended Notice of Appeal: 1. The Trial Judge erred in law by considering the question of whether the Appellant had been negligent from an application of the wrong principles by considering that question from the perspective of the view of most people in the community. 2. The Trial Judge erred in finding that the Appellant was negligent. 3. The Trial Judge erred in finding, if his Honour did find, that the manner in which the Appellant stored a key to the vehicle was, in and of itself, negligent. 4. The Trial Judge erred in finding, if he did find, that the manner in which the vehicle was stolen was an event that the Appellant had a duty to prevent. 5. The Trial Judge erred in failing to consider properly, or at all, the causation issue. 6. The Trial Judge ought to have, in determining whether the Appellant had been negligent, considered that question from the position of a reasonable person in the position of the Appellant. 7. The Trial Judge should have found, in relation to negligence, that: (a) since the general security at the Appellant's showroom was good and adequate (which his Honour found); (b) since the evidence was that the theft of the vehicle was perpetrated by someone with knowledge of the Appellant's security procedures (which his Honour found); (c) since there was no evidence that the perpetrators gained knowledge of the Appellant's security procedures as a result of any breakdown of the Appellant's security procedures (which his Honour found); the Appellant had not been negligent. 8. The Trial Judge should have found that notwithstanding the manner in which a key to the vehicle was stored by the Appellant that the conduct of the Appellant was in all of the circumstances reasonable and not negligent. 9. The Trial Judge should have found that the manner in which the vehicle was stolen was so unlikely that the Appellant was under no duty to safeguard against it. 10. The Trial Judge should have found, in relation to the causation issue, that: (a) even if the manner in which the key was stored was negligent (which is not conceded); (b) (deleted) (c) since the evidence was that even with access to a key, because of the good security at the Appellant's showroom, it was not feasible to steal the vehicle; and (d) since the evidence was that other available means of storing keys could be defeated (within no greater time than was required to locate the keys supposedly used to start the vehicle) by persons with knowledge of where such keys were stored and armed with the means of accessing such other available means of storage; there was no basis, or no satisfactory basis, from which to conclude that the manner in which the Appellant stored a key to the vehicle was causative of the Respondent's loss. 11 Opera has put on a Notice of Contention, relying on the following grounds: 1. The Respondent contended at trial that the arrangement between the Appellant and the Respondent was a bailment for reward. 2. The Respondent established the bailment by tender of video recordings of the principal and an employee of the Appellant and further, by reference to matters admitted upon the pleadings. 3. The Appellant failed to discharge its onus of proof in the proceedings. 4. Specifically, the Appellant failed to show that its failure to take any reasonable steps to safeguard the specialised immobiliser ignition key of the relevant vehicle was not negligent or that the failure to safeguard the key was not a reasonable step available so as to prevent the loss. , 12 In its cross-appeal, Opera relies on the following grounds concerning its claim for interest: 1. The trial judge erred in failing to consider the Cross Appellant's claim for relief. 2. The trial judge erred in failing to give any reasons for a decision on this part of the Cross Appellant's claim for relief. 3. The trial judge erred in failing to exercise his discretion, and in so erring, failed to award interest upon the sum of the agreed verdict. 13 The Notice of Contention raises the issue of onus of proof. It is in fact well established that, where bailed goods are damaged, the bailee has the onus of proving that the damage did not occur in consequence of any failure by it to exercise reasonable skill and care: Hobbs v. Petersham Transport Co. Pty. Ltd. (1971) 124 CLR 220 at 233-4. 14 So the issues on the appeal are: (1) Did the primary judge err in finding negligence by Hogan, or in finding that it caused Opera's loss? (2) If so, does this Court find that Hogan discharged its onus to prove that the damage was not caused by its negligence? 15 The two issues are closely related, and I will consider them together. I will then consider the cross-appeal. SUBMISSIONS ON APPEAL 16 Mr. Miller for Hogan submitted that the primary judge erred in characterising what occurred as a theft or attempted theft, of a kind that was foreseeable and against which inadequate precautions had been taken; whereas in fact what had occurred could only be characterised as extraordinary steps taken, with a view to destroying the vehicle, by persons who had information sufficient for them to know where the keys would be. 17 Mr. Miller also submitted that the primary judge erred in holding that locking the keys away would have been the appropriate response to the relevant risk, without considering what mode of locking the keys was required; since merely to lock the keys in a cupboard or filing cabinet would not have prevented the damage to the car in this case (the perpetrators were on the premises for about 18 minutes, and would not have been deterred or held up by a mere locked cupboard), and the primary judge did not address the question whether the appropriate response was putting keys into a safe with adequate security procedures, despite the expense and inconvenience of this course, as distinct from merely locking the keys in a cupboard or filing cabinet. 18 Mr. Miller also submitted that the judge's conclusion was plainly wrong. He submitted that the Court of Appeal should hold that, because of the strong physical impediments to removing the cars, and the circumstance that the keys were put out of sight, Hogan had exercised reasonable skill and care in looking after the car; or alternatively, if the Court of Appeal considered that the keys should have been locked in a cupboard or filing cabinet, it should find that the damage would have occurred anyway if the keys had been locked in this fashion. 19 Mr. Gracie for Opera submitted that the low brick wall and the metal post was little protection from determined thieves. The primary judge found that the breaking of glass and other security barriers with sledge hammers by thieves was not unusual in recent times; and the evidence amply supported that finding: see Black 13-14, 20-21, 40. Even though the car was damaged in breaking out of the showroom, the extent of the damage at that time was not established; and in any event, the car could still be used for parts or for other criminal activity. It was able to outrun the police chase. The evidence showed that the Mercedes car could only be moved with the assistance of its key (it could not be hot-wired), so if the key had been kept secure, the car could not have been stolen. Even to have locked the key in a cupboard or filing cabinet would have been sufficient: on the evidence this would have delayed the thieves by one to two minutes, and as it was the police arrived just as the car was being driven out. As in The State of New South Wales v. Zarafa [2005] NSWCA 187 at [101], there was no evidence of undue expense, difficulty or inconvenience in securing the keys. 20 Accordingly, Mr. Gracie submitted, the primary judge was not wrong in his decision. In any event, the Court of Appeal should find that Hogan has not discharged its onus, requiring the negating of causation of damage by any negligence: cf. Jacap Low Loaders Pty. Limited v. Lindores Plant & Equipment Pty. Limited [2005] NSWCA 5 at [27]. Mr. Gracie also relied on The Andrews Group Pty. Limited v. Tynan Motors Pty. Limited [2006] NSWCA 22, where the bailee of two Mercedes cars was held liable because it had not locked the keys away. DECISION 21 The lastmentioned case was very different from this case. Two Mercedes cars were stolen from an open yard, and the keys were kept on a key board in the office. However, I do note that in the present case, as in that case, there was a bailment for the benefit of the bailee as well as the bailor, so that the standard of care is higher than for an involuntary or gratuitous bailment. 22 There was evidence from which it could be inferred that benefit to the thieves from the theft was not their motive. Not only was the car used as a battering ram to remove a substantial metal upright, but eventually it was dumped into a river by means of jamming the accelerator. The fact that this was done, rather than merely abandoning the car, could suggest that the purpose was to destroy the car rather than to benefit from it, even by joyriding or the use of spare parts. The degree of organisation and force used also points against joyriding. However, the primary judge did not find in terms that the purpose of the crime was the destruction of the vehicle, and I do not think this could be considered an appealable error. Criminal behaviour is sometimes unpredictable and, to others, seemingly irrational. The extent of the damage from getting the car out of the showroom may not have been anticipated, and the car may have been potentially valuable, at least as a source of parts; and it may have been abandoned because of the police pursuit and it may have been put into the river out of devilment. Accordingly, I do not think it is an appealable error for the judge to have considered the event as a theft, and in the general class of events to be guarded against; although the circumstances are certainly material to the more general question of negligence. 23 There is force in the appellant's submissions concerning locking the keys away. There is a real question whether, in the circumstances of this case, merely to have locked the keys in a cupboard or a filing cabinet would have made a difference; and there is an associated question, would so locking the keys have been something a reasonable person would have done in response to what might be considered a small risk that someone would, at great risk of damaging the car, attempt to remove it from the showroom. If the only way of getting the car out was to take extraordinary means, and if the only persons who could be expected to set about doing this were persons who knew where the keys were to be found, locking the keys in a cupboard or filing cabinet would not be seen by a reasonable person as making a great deal of difference. That consideration gives rise to the question whether the keys should have been locked in a safe, with appropriate security practices concerning access to the safe. 24 These issues should have been addressed by the primary judge, and were not. Taking into account the high degree of physical security of the cars and the relatively low risk of their removal, and the relatively small benefit of providing a lock to a cupboard or filing cabinet in which the keys could be put, I would not be satisfied, as a matter of reasonable foresight, that this is a step a reasonable person would have taken in response to the risk. Further, I would not be satisfied that this step would have prevented the damage in this case. It can be inferred that the thieves would have known the circumstances of the keys, and there was evidence that it would have taken one to two minutes for the thieves to deal with such locks. I am not satisfied that this would have deterred them from undertaking the enterprise. The police in fact arrived as the thieves were driving out, and one to two minutes might have meant that the police would have arrived before the thieves drove out; but it is unlikely that the thieves would have surrendered or departed on foot. It is more likely that they would have had the keys by the time the police arrived (perhaps 18 minutes after the first entry) and would still have used the car to attempt to escape from the premises and from the police. 25 This leads to the question whether provision of a safe would have been the reasonable response to the risk. Here, there is not the same problem with causation: if the keys had been locked in a safe in relation to which there were appropriate security practices, then this would have prevented the taking of the car. However, having regard to the smallness of the risk, I would not be satisfied that the purchase of a safe and the adoption of such security practices was required as a precaution which a reasonable person would have taken, at least prior to the occurrence of these events. 26 Accordingly, I think there were material errors affecting the primary judge's decision. Considering the matter for myself, I am not satisfied that negligence was established, if the onus of proof were on the respondent. 27 This leads to the question arising under the Notice of Contention: given that the onus lay on Hogan to prove that the damage was not caused by its negligence, does this Court consider that the onus was discharged? 28 This can be quite a different question from the question whether negligence is established, especially where it is unclear what the cause of the damage was. In such a case, the bailee has to prove that, whatever was the cause of the damage, it was not due to the bailee's negligence: see Jacap at [27]-[30]. Here, the cause of the damage is clear, in the sense that the damage was caused by the activities of the thieves. What is unclear is what factors contributed to the occurrence of those activities. Certainly, their access to the keys was one factor, but there could have been others, such as their access to information and their motivation to carry out such a violent, risky and apparently pointless exercise. 29 Apart from those factors, I am not aware of any other factors that could relevantly have contributed to the occurrences, nor have any been suggested. I do not think there is a substantial possibility that the negligence of Hogan contributed either to the thieves' access to information or to their motivation, and no submission to the contrary was made; so while these possibilities cannot be ignored altogether, it is the question of access to the keys that requires major attention in deciding whether Hogan has proved that the damage was not due to its negligence. 30 Having regard to the considerations discussed earlier, I am satisfied that Hogan was not negligent in relation to the access to the keys: to hold that provision of a safe with appropriate security procedures was required would in my opinion be to impose a standard substantially higher than the standard of the ordinary reasonable person. Further, I do not think the very small possibility of negligence in other respects (that is, in relation to the thieves' access to information or the thieves' motivation) is sufficient to preclude satisfaction that the damage was not due to Hogan's negligence in any respect. 31 For those reasons, in my opinion the appeal should be allowed and there should be a verdict for Hogan in the proceedings. CROSS-APPEAL 32 In those circumstances, the issues raised by the cross-appeal do not arise for the purposes of my own judgment. However, it is clear in my opinion that, if Opera is entitled to a verdict, it is also entitled to interest in addition to the sum of $110,000.00. 33 The primary judge said that "the parties agree that if the plaintiff succeeds there should be a verdict for $110,000.00". However, that did not exactly set out the agreement of the parties, which was announced in the following terms at the very beginning of the hearing: GRACIE: Your Honour, it is a claim which fortuitously has been the subject of agreement on damages, so I can announce to the Court this, that the parties have agreed on damages if there be a verdict in favour of the plaintiff in the sum of $110,000. So as to explain that, your Honour, that represents a value agreed at $130,000 less mitigated salvage value of $20,000. 34 Accordingly, the claim made for interest in the Statement of Claim had to be determined, and the primary judge was in error in not doing so. No reason has been suggested why the ordinary result as to interest should not follow, namely that there should be interest at Supreme Court rates from the day on which the insurance company paid Opera the sum of $110,000.00. CONCLUSION 35 For those reasons, in my opinion the following orders should be made: 1. Appeal allowed. 2. Judgment below set aside, and in lieu thereof judgment for the appellant and order that the respondent pay the appellant's costs of the proceedings. 3. Respondent to pay the appellant's costs of the appeal, and to have a certificate under the Suitors' Fund Act if otherwise eligible. 36 IPP JA: I agree with Hodgson JA. 37 BASTEN JA: I agree with Hodgson JA. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.