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Unallocated funds are now fair go for negligence claims against councils

Defences to negligence claims against local councils: a shift in the application of section 42 of the Civil Liability Act (NSW) 2002.

Local councils, as a public authority, are able to call on a number of statutory defences against negligence claims. One defence allowing a council to avoid liability is contained in s42 of the Civil Liability Act (the Act) which allows a defence if there were budgetary and resourcing constraints.

This section provides that councils will not be liable for negligence where:

  • its functions are limited by the financial and other resources available to it and

  • there were insufficient funds allocated to the particular council activity to pay for the costs of taking the precautions which should have been taken to prevent the risk of injury.

The general allocation of resources by a council is not open to challenge in a claim of negligence. In other words, a plaintiff cannot contend that more resources should have been allocated to a particular activity to ensure sufficient funds were available to pay for the precautions that should have been taken. The cases have previously focused on whether allocated funds have been exhausted, overlooking any unallocated funds that might have been available.

In this article we look at a recent case where unallocated funds were called into question. The implications for councils include that they may now need to prove not only that the relevant financial allocation for a particular activity has been exhausted but also that there were no
unallocated funds available that could have been used to take precautions.

Councils will need to have evidence of their available financial and other resources and the general allocation of those resources, if relying on a defence under s42. Councils should be able to produce proof of:

  • their budgets and assets

  • budgetary allocations

  • expenditure in the relevant year

  • the predicted costs of taking the precautions that would have avoided the risk of harm.

Key will be their ability to show not only that there were insufficient funds in the relevant area but also that there were insufficient unallocated funds available to pay for the necessary precautions.

The case in question

The Court of Appeal recently examined s42 in Weber v Greater Hume Shire Council [2019] NSWCA 74. (Weber).

This case involved a class action by property owners against Greater Hume Shire Council for fire damage after a fire started in a council operated tip and spread to their properties.

By way of background, in December 2009, a fire ignited at a tip in the southern NSW town of Walla Walla. The fire quickly spread to the nearby town of Gerogery and destroyed a number of homes including a property owned by Susan Weber. In December 2015, Susan Weber brought proceedings against the Greater Hume Shire Council for damages suffered by her and other property owners as a result of the fire. The property owners claimed the Council failed to take reasonable steps to prevent the fire from spreading. The risk of harm identified was the risk of fire igniting in the waste site and escaping from it. They claimed the Council failed to:

  • have a fire management plan

  • create and maintain an effective fire break

  • consolidate deposited waste in appropriate areas

  • remove fuel to prevent dangerous build ups

  • have adequate firefighting equipment on hand.

The trial judge held the Council owed a duty of care to the property owners and that the Council had breached that duty by failing to take precautions to prevent the fire from spreading.

The Council raised a defence under s42 contending it had insufficient resources available to pay for the precautions. The defence failed on the basis the trial judge held there were reserve waste management funds, which could have been spent on precautions to prevent the spread of
the fire.

As it turned out, the property owners’ claim failed in any event as the property owners could not prove that the Council’s failure to take precautions actually caused the damage to their properties.

This case went on to be successfully appealed by the property owners in 2019. As part of the appeal, the Court of Appeal scrutinised the inter-relationship between the general negligence provisions in the Act and s42.

It looked at issues including how far the council should have gone in obtaining costs relating to fire risk, the link between the cause and the damage as well as the intention of s42.

The Court found that the Council should have taken reasonable steps to prevent unintended fires at the tip and to prevent any spread of fire. The Court also found that the Council should have implemented a fire management plan, created and maintained an effective fire break and consolidated the waste in appropriate areas. They decided that had these precautions been taken by the Council, it was likely that the fire at the tip would not have spread and caused the resulting property damage.

The Court was not persuaded by the Council’s s42 defence and looked at the availability of their unallocated funds. The Council’s financial statements indicated it had unallocated funds available at the relevant time in an amount sufficient to undertake the precautions which would have reduced the risk of the spread of fire from waste disposal sites.

Lessons learned

The challenges of 2020 including disastrous bushfires in NSW, COVID-19 and the financial crisis that follows such events are likely to result in a spike in negligence claims. In these difficult times, councils should consider the viability of s42 defences in light of the Weber decision. A
claim may not be defensible, even though the specific allocation of funds has been exhausted, where there are unallocated funds that could have been used.

Importantly, when estimating the costs of taking relevant precautions, councils cannot argue the Court should consider the costs of taking such precautions across all of their council owned or occupied land so as to establish it would be too expensive. In Weber, the Court said it is only necessary to consider the single risk of harm, which was the risk of a fire igniting in a Council owned waste disposal site (there were 11 such sites). Whilst there is always a risk of fire spreading from any property once ignited, the expert evidence established there was a particular risk of a fire igniting on a waste disposal site because of activities unique to these sites. Accordingly, it was only relevant to assess the costs of taking precautions at the 11 waste disposal sites owned by the Council.

The Weber decision also confirms that in claims of negligence, a direct link between the cause and the damage is not always necessary.

Looking ahead, councils should take steps to ensure their financial documentation is in order and is clear and unambiguous. The documents should be capable of showing unequivocally not only that there were insufficient funds allocated to an activity but also that there were insufficient unallocated funds available to be able to take the precautions.

If you have any questions regarding this article, please contact Lian Chami.

Author: Katherine Ruschen

Contributing partner: David Greenhalgh

Read further articles in Council Connect