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Shaw v Director of Housing

SHAW V DIRECTOR OF HOUSING [2000] TASSC 115

Supreme Court of Tasmania – 22 August 2000

FACTS

Shaw bought land and proposed to construct a shopping centre on that land near the public housing suburb of Rocherlea. The land was on the only access road to the suburb. However the Director of Housing planned to develop a nearby site as a shopping centre for Rocherlea and decided that it would be inappropriate to have two shopping centres.

An officer from the Director’s office told Shaw’s parents that the Director intended to double the size of Rocherlea within 3 to 5 years and that the best site for the shopping centre would be on land owned by the Director as that site would be in the centre of the expanded suburb. The parents were also told that Director’s site was on a road which would be extended to become another access road to the suburb.

Shaw relied on the representations made by the officer and sold his land and purchased the Director’s land instead. Shaw was also contractually obliged to develop a shopping centre on the site.

However the Director later decided not to expand Rocherlea and the second access road was not built. Shaw developed the shopping centre but sold the land at a loss. Shaw sued the Director of Housing for Negligence.

ISSUES

Did the Director owe a duty of care to Shaw to avoid providing negligent advice?

Had the Director breached any duty of care owed to Shaw and had the breach caused Shaw to suffer any loss?

FINDINGS

The Director knew that Shaw would rely on the advice given about the future of Rocherlea and it was reasonably foreseeable that Shaw would rely on the advice and would suffer loss if the advice was incorrect. Therefore the Director owed a duty of care to Shaw.

The Director carelessly provided advice to Shaw without making sure it was correct. Shaw relied upon the advice and purchased the Director’s land and was forced to build the shopping centre at a loss.

QUOTE

Underwood J said:

“Clearly there was a breach of the duty of care. Mr L was a senior planning officer of the defendant. There is no evidence that he made any enquiry prior to speaking to Mr and Mr Shaw with respect to the defendant’s then current plans for the future development of Rocherlea.

Has appropriate enquiry been made before the representations were uttered, it would have become apparent that the defendant did not have the intentions attributed to it, nor did any other authority have an intention to construct a link road to Ravenswood.”

IMPACT

Government officials should be careful about providing advice to the public if there is a chance that the advice would be relied upon and that the person receiving the advice will suffer loss if the advice is incorrect.

If advice is provided to the public that advice should be recorded in writing to ensure that the contents of the advice can be recalled if necessary.

Rouleston Clarke v FAI General Insurance Company

ROULESTON CLARKE PTY LTD (IN LIQ) V. FAI GENERAL INSURANCE COMPANY

Supreme Court of Tasmania – 22 December 1999

FACTS

Rouleston traded as a financial planning and investment advisement business. Badger was employed by Rouleston as a financial adviser and was responsible for receiving cheques from clients for investment in various funds.

Badger dishonestly converted some of these cheques for his own use and was eventually charged and convicted of theft charges. The clients who were defrauded made claims against Rouleston alleging fraud and negligence. Rouleston was insured by FAI and the relevant professional indemnity policy provided that Rouleston was covered for claims made by clients. The policy included optional extensions for dishonesty and fidelity. The claim limit on the insurance was $1,000,000.00 but the limit on fidelity claims was $250,000.00.

Rouleston made a claim under the insurance policy for indemnity for claims exceeding $685,000.00. FAI claimed that only the fidelity extension covered these claims and that its liability was limited to $250,000.00.

ISSUES

Was the claim by Rouleston a claim for indemnity for dishonest conduct or a claim for indemnity under the fidelity extension?

FINDING

The dishonest conduct by Badger was covered by the fidelity extension and not by the dishonesty extension as the dishonesty extension did not cover the dishonest use of negotiable instruments by employees.

QUOTE

Evans J said

“In construing the proviso [dishonesty provision], it is to be borne in mind that it relates to claims for damages for the loss of specified items.

Claims for damages are only made where a financially measurable loss has been suffered. Whilst the physical loss of some of the specified items, such as bank or currency notes, will cause a financial loss, that is not always the case with some of the other items such as negotiable instruments.

When a negotiable instrument is physically lost, for example, destroyed or mislaid, it may readily be replaced without financial loss. It is when the negotiable instrument is converted to the use of another that financial loss is suffered. This suggests that loss means more than physical loss. Whilst physical loss of the items referred to can arise from conduct of this description, the sort of loss which is more readily linked to this sort of conduct is a detriment or disadvantage arising from the appropriation of the specified item to the use of an employee.”

IMPACT

Contract Managers should note that insurance policies may include limits on liability which may reduce the anticipated protection provided by insurance. If a contractor is to be covered by professional indemnity insurance the limits on indemnity should be noted.