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Scope of Bailee's duty regarding insurance: All Covers and Accessories Pty Ltd v. Sidawi.

Mr Sidawi was the owner of a recreational boat and trailer which he took to All Covers and Accessories Pty Ltd ('All Covers') to have a canopy and storm cover made and installed on the boat. While Mr Sidawi's boat and trailer were at All Covers' workshop, a fire destroyed the factory premises and everything in it including Mr Sidawi's boat and trailer. All Covers had no insurance to cover the loss. Mr Sidawi brought proceedings against All Covers in the Magistrates' Court alleging a breach of a duty by All Covers as bailee to take care of the goods as was reasonable in the circumstances. He claimed from All Covers a sum stated to have been the market value of the boat and trailer.

All Covers' defence was that the boat was stored at its premises to enable the installation of a canopy and storm cover, but that Mr Sidawi allowed All Covers to store his boat at his own risk; the fire was caused by matters outside All Covers' control; All Covers was not negligent in causing the fire and was not responsible for any damage which occurred to goods stored by Mr Sidawi at All Covers' yard; and All Covers was not liable to Mr Sidawi in the sum claimed or in any sum.

At trial Mr Sidawi conceded that the fire and the loss of the boat were not attributable to All Covers' negligence. However, he stated that he did not think, and was not told, that the boat would be left at All Covers' premises 'at his own risk', and that he was not told until after the fire that there was no insurance. As there were no contractual terms governing the bailment, the question became whether there was in the circumstances a duty on All Covers to inform Mr Sidawi that there was no insurance to cover the boat.

The magistrate held, applying a Canadian case, (2) that All Covers was under a legal duty to warn the customer that its business did not have insurance and, moreover, that such a duty was imposed by law where the goods were of an 'unusually high value' which he regarded the boat and trailer to have been. Had Mr Sidawi been told that there was no insurance, he would then have been able to exercise a choice whether or not to leave the boat there in the first place.

All Covers appealed, arguing that the magistrate made a legal determination which lacked an authoritative or principled basis and imposed upon a bailee a duty which was unjust, commercially unreal and unknown under Australian law. The issue was whether, or in what circumstances, a bailee for reward was under a duty to warn the customer of an absence of insurance.

All Covers submitted that under the common law it was established that a bailee was not an insurer of goods and was not under a duty to insure. Therefore there could not have been a duty to warn about the absence of insurance. It also submitted that that there was no place in the categorically distinct law of bailment for an application of the duty to warn, such as exists, for example, in personal injury cases.

Mr Sidawi submitted that the bailee's duty to take reasonable care of the goods under the law of bailment should not have been confined to custodial or physical care of the goods, but should have extended generally to taking care of the goods by warning of the absence of insurance. He submitted that the court must have looked into the elements of reasonableness when it came to assessing the existence and reasonable extent of a warning to have been given. If there was a duty to warn about such things as the inadequacy of the premises or something else that might pose a risk to the safe keeping of the goods then, by extension, that should have included a duty to warn about the absence of insurance. This was especially so as the customer could not have been expected to have known about insurance and it was hardly a burden to have imposed such a duty on a bailee.

The notion of reasonable care for the bailed goods, Mr Sidawi argued, went beyond the physical care and protection of the goods, especially where the goods were of an unusually high value. The notion of reasonable care could, it was submitted, have extended to steps necessary generally to looking after the bailor's interests.

Held: Appeal allowed.

Per Mukhtar AsJ:

There was no authoritative support for the magistrate's conclusion that in an ordinary domestic case where goods were left with a repairer or fitter there was a duty to warn about an absence of insurance where goods were of an 'unusually high value'. The single Canadian authority to which the magistrate directed himself was not binding in Australia even though it came from a common law legal system and deserved attention according to its persuasive qualities. His Honour erred in applying the Canadian case because on close examination, that Canadian case did not establish such a broad proposition as aforementioned and was confined to its own facts in which the taking out of insurance by the bailee was part of the dealing. Moreover, the Canadian decision disregarded earlier Court of Appeal authority in Canada which reached a contrary view as a matter of principle. (3)

The duty to warn in a bailment case could have arisen only where, depending on the particular facts of a case, the bailee knew or could have foreseen risks or hazards to the goods, or had some other apprehension concerning the safe keeping and preservation of the bailed goods. Then the question was whether at common law a duty arose on the bailee to warn that there was no insurance over the goods for negligent loss or accidental loss. In this case there were no unusual risks or hazards to the goods whilst they were in All Covers' safekeeping that could have possibly aroused a tortious duty to warn. All Covers was accepted to be blameless for the fire. The law of bailment called for the dismissal of the claim.

When it came to consideration of whether a bailee was under a duty to warn about insurance cover, then absent any authority on the question, it could have attracted analogically or deductively the principles governing duty to warn in tort cases, that is, where there was an alleged failure to warn (or an inadequate warning) about a foreseeable or unreasonable risk to person or property. It may well have been that if a bailee was aware of some unusual risk or danger that might imperil the bailed goods such that the reasonable person of ordinary prudence would tell the bailor about the desirability of obtaining insurance or about the insurance situation generally, then a duty to warn might have arisen. It would have depended on the facts of the dealing. Where the unusual danger might have been of a kind where goods could be destroyed despite the exercise of reasonable care by the bailee, it might have been a case where a bailor should have been warned that it was in his interest to take out insurance for accidental loss.

All Covers' submission that the relationship between the parties was governed by nothing more than the content of the law of bailment and that it was established that a bailee was not an insurer, and, was under no duty to insure was rejected. Although the common law liabilities of a bailee could have been both independent of, or different from, those that applied under the general law of tort, and although there were distinctions between bailment and tort relating both to the creation of particular duties and to the machinery of their enforcement, it may have been possible for the laws of negligence concerning the necessity to warn to have applied depending on the facts of any particular case.

However Mr Sidawi 's submission that there was a duty to warn about the absence of insurance was far too broad an extension to countenance. Even accepting that circumstances may have arisen arousing a duty to warn in a bailment case under the general laws of negligence, then consistently with the duties of bailee, it would have been a duty to warn about hazards to the goods, for to go beyond that and require the bailee to warn about matters affecting the bailor's interests in the goods imposed an assumption of responsibility by the bailee for something more than the goods as bailed. That could only have been regarded as reasonable when insurance was a feature of the bailment dealing.

The burden of requiring a warning was not undemanding. Unless insurance was a feature of the dealing it would be commercially inconvenient and problematic in trade or commerce for businesses to administer a warning in practice. It opened up all sorts of inquisition and uncertainty in an everyday dealing. Furthermore there were inherent problems with a measure of liability which depended on a test of goods being of an 'unusually high value'. That may have been obvious in some cases but otherwise there may have been value or normative judgments to have been made.

The law did not work an injustice on the facts of this case. The bailee took custody of the goods and was required to take reasonable care of them. That was the assumption of responsibility as custodian. Through no carelessness of the bailee the goods were destroyed by fire. The bailee could not have been liable for breach of bailment. Insurance was a measure taken by someone who wished to be indemnified against exposure to a liability. To say there was duty to warn about insurance was to resemble a duty to advise a bailor as to what might be in the bailor's interests in the event that loss of the goods was due to an accident. That introduced an assumption of responsibility or something resembling a duty to advise that went beyond the essential nature of the bailment relationship.

Before: Mukhtar AsJ

(1) [2012] VSC 48, Supreme Court of Victoria, Judicial Review and Appeals List.

(2) Punch v Savoy s Jewellers Limited (1986) 26 DLR (4th) 546

(3) Mason v. Morrow's Moving and Storage Limited 87 D.L.R. (3d) 234

Katharine Mason, Independent Legal Analyst, B.A. (Hons), LLB. B., University of Sydney
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Author:Mason, Katharine
Publication:Art Antiquity & Law
Date:Dec 1, 2014
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