Responsible or not: Western Power’s outsourcing arrangements receive the attention of the WA Court of Appeal

In a dramatic reversal of fortune, Western Power (the Western Australian State Government owned electricity network supplier) received an adverse judgment from the Western Australia Court of Appeal, in a decision arising out of the 2014 Parkerville bushfire, following a first instance trial at which it had avoided liability. 

In Herridge Parties v Electricity Networks Corporation T/As Western Power[1], the Court of Appeal determined that Western Power owed a duty to inspect and maintain all equipment carrying its power infrastructure, including privately owned equipment, and retained responsibility for doing so even where it delegated responsibility for carrying out inspections of that equipment to a third party.

The judgment has implications for statutory bodies, public authorities, local government entities and others who are engaged in outsourcing to third parties. 

Clyde & Co Perth partners JP Wood and Tim Searle, along with Jade Macukat (Special Counsel) and Cherry Lee (Associate), consider the decision.  

Background

The claim arose from a bushfire in Parkerville, Western Australia.  On 12 January 2014, a pole supporting an electrical cable fell to the ground, resulting in a fire that caused significant personal injury and property damage.  The pole was made of jarrah wood and was affected by fungal decay and termite damage. The Plaintiffs claimed that Western Power was responsible for testing the pole and that it would have been simple to test the pole with a hammer, which would have identified the underlying damage, and Western Power would have replaced the pole before it collapsed.

As a result of the fire, four class actions were commenced against:

1. Western Power, the owner of the electrical apparatus that sat on top of the pole and operated the electrical distribution centre that supplied power to the property;
2. Thiess, the contractor, who was engaged by Western Power to monitor and maintain work on the network and who had carried out an inspection of the pole 6 months before the bushfire; and
3. the landowner who installed and owned the pole.

At trial, the owner and Thiess were found negligent.  The judge apportioned their responsibility on a 30/70 basis, respectively.  The trial judge dismissed the claim against Western Power, finding that it had not breached its duty of care.

Issues on Appeal

In relation to Western Power, the appeal focussed on two key issues:

1. Whether Western Power had a duty to carry out regular inspections and maintenance of connected assets, such as the pole, which were not owned by Western Power, to ensure they were safe and fit to carry Western Power’s apparatus, and to warn landowners of the risks associated with using old poles and of the requirement to carry out regular inspections (the Wider Duty); and
2. Whether Western Power had a non-delegable duty to ensure that any inspection of the pole was carried out in a safe and effective manner (the Narrow Duty).

The trial judge had found that Western Power had a duty to take reasonable care to inspect the pole and not to use to pole if it found that the pole was not in a safe condition (i.e. the Narrow Duty). He held that Western Power had responsibly discharged that duty by delegating the inspection to Thiess. His Honour rejected the submission that Western Power had a duty to supervise that work or provide training or instruction to line crews retained to conduct pole inspections. 

He also rejected the Wider Duty argument, on the basis that s25 of the Electricity Act 1945 (WA), properly construed, required Western Power to maintain only the apparatus that it owned and not privately-owned apparatus, such as the pole.

Parties’ Submissions on Appeal

The plaintiffs and the landowner submitted that Western Power had a duty to take reasonable care in delivering electricity to avoid causing fire on nearby properties. That duty was said to include taking reasonable care to ensure that the aerial cables used to deliver electricity were attached to structurally sound infrastructure (whoever owns them).

Western Power submitted (in line with the trial judge’s findings) that s25 of the Electricity Act informed the scope of Western Power’s duty of care at common law and was incompatible with the alleged Wider Duty, because (among other things):

1. S25(1)(a) expressly provided that the network operator was to maintain service apparatus “belonging to the network operator” in a safe and fit condition for supplying electricity – and the pole did not belong to Western Power; and
2. S25(1)(b) required the network operator to take all reasonable precautions to avoid the risk of fire or other damage “in the actual supply of electricity”, and did not extend to the maintenance of assets of the network operator or the consumer.  

Court of Appeal’s determination

The Court of Appeal acknowledged the need to determine the existence of a duty of care at common law so as to be coherent, consistent and compatible with the applicable statutory scheme, where the allegation is that the public authority has been negligent in the performance of its statutory powers and functions. 

The Court of Appeal rejected Western Power’s argument that the statutory purpose of the Electricity Act was to place the responsibility for privately owned power poles on the property owner, and not Western Power. The Court found that Western Power had a duty of care at common law to maintain all service apparatus belonging to the network operator on the premises of any consumer, in a safe and fit condition, for supplying electricity.  That required Western Power to keep the aerial cable safe to supply electricity to the landowner. That obligation could not be satisfied if the cable was attached to a defective pole.  Accordingly, Western Power had a duty to take steps to monitor the pole on a regular basis to ensure it was capable of safely supporting the cable. Such a duty was not inconsistent with the statutory scheme. 

The Court of Appeal then considered whether Western Power had breached that duty and whether the breach had caused the alleged loss and damage. The Court determined that Western Power should have responded to the risk of harm arising from the failure of wooden poles supporting its electrical apparatus, by establishing a system for undertaking the periodic inspection of those poles, regardless of who owned them. The Court determined that if Western Power had implemented a system for periodically inspecting wooden poles, it would probably have inspected the pole, identified the deterioration and replaced it before the collapse on 12 January 2014.

Those determinations resulted in a re-apportionment of liability as follows: Western Power 50%, Thiess 35%, landowner 15%.

Comment

The Court of Appeal judgment is significant for several reasons:

1. The decisions of the trial judge and the Court of Appeal highlight the potential difficulties in identifying the nature and scope of duties of care at common law against the background of a statutory scheme.
2. The decision highlights how different statutory interpretations can lead to significantly different outcomes: here, the Court of Appeal’s decision resulted in a significant shift in the apportionment of responsibility among the parties involved. 
3. The judgment identifies some potential issues and concerns for statutory bodies and others when assessing the effectiveness of their outsourcing arrangements. The Court of Appeal found that the necessary special relationship did not exist between Western Power and the plaintiffs so as to give rise to a duty at common law, or under s25 of the Electricity Act, to act personally in carrying out inspection work or to ensure that Thiess took reasonable care in its inspection work. 
4. Despite that, the Court of Appeal’s treatment of the Wider Duty issue, and the finding that Western Power had its own obligations to maintain a safe electricity distribution system, which they had not discharged despite their subcontracting arrangements, should cause statutory bodies and public authorities to review whether their outsourcing arrangements are effective in managing risk.  This may require carefully reviewing:

• the scope and terms of their outsourcing arrangements, including any contractual indemnities and limitations of liability;
• what responsibility the body may have, despite those arrangements, to take steps to avoid a foreseeable risk of harm to others; and
• what systems and controls are in place to assist in discharging those responsibilities.  

5. On its face, the Court of Appeal's decision will require Western Power to put in place an expensive inspection and maintenance program to cover 100,000 privately owned poles across Western Australia, giving rise to significant additional costs not previously anticipated. 
6. Given the far-reaching consequences of the Court of Appeal’s decision, Western Power could well seek leave to appeal to the High Court.