Paul Baxter, Partner DLA Piper, presented the following address in regard to Marine Insurance Disputes on behalf of MLAANZ at the AIMS Conference in Hobart.

"Good morning. My topic today is marine insurance disputes and the marine surveyor. I have chosen a series of cases and some recent decisions involving marine surveyor liability that indicates one of the most critical risk management weapons in your arsenal, limitation or refinement of your retainer or scope of works.  

The reality is, that you work in a competitive business environment where rolls royce standards or car must find a balance with VW prices. You are quite capable of providing an excellent and thorough and far reaching product or service if the client will pay the appropriate price, but when the client has a budget then what they can purchase from you is more limited. The trick is to make sure expectations match reality and that is best done through the contract of service. I am not talking about standard terms and conditions, although these are important. What I am talking about is agreeing precisely what you will and won't do and for what purpose and documenting this for evidentiary purposes.

Let us first look at some case history to lay down some basic principles.

The first principle is privity of contract. That is that 2 parties are free to contract with each other on whatever terms they chose and provided there is agreement and consideration passing then those 2 parties and those 2 parties alone can enforce the terms of the agreement against each other.

Often however a situation arises where an outsider to the contract (a third party) seeks to enforce a right based on the contractual dealings. My apologies that the initial cases have very little marine surveying flavour to them, but the basic principles apply across all service industries.

Bryan v Maloney a 1995 decision of the High Court threw a cat among the pigeons when it held a builder of house that had since been lived in and sold to a new owner, was liable to the new owner for cracks that began to appear in the walls and floor. There was no contract between the 2 parties but the new owner sued in negligence for poor construction of the foundations on the basis that harm to the subsequent owner was clearly foreseeable and sufficiently proximate to give rise to a duty of care.

Hill v Van Erp in 1997 extended the principle when a solicitor drew up a new will for a client and had it executed before witnesses. One of the witnesses was an intended beneficiary and under the relevant estate law was therefore precluded from receiving bequests in her favour. Naturally she was quite peeved and sued the solicitor who she had no contractual relationship with. Once again the Court found she was sufficiently proximate to the work at hand and vulnerable to negligence of the solicitor to be owed a duty of care which was breached.

The tide has been turned back a little by the cases of Woolcock Street Investments 2004 and Brookfield Multiplex 2014.  In each of these cases construction defects that have manifested to subsequent owners were not actionable. This was as a result of careful examination of the scope of the initial contractual engagements and the fact that the subsequent purchasers were in each case relatively sophisticated business entities capable of protecting themselves against the loss by performing their own enquiries and searches such that caveat emptor or buyer beware should be left in place.

So where does this leave the humble marine surveyor, who inspects and certifies a vessel as sound for one owner or its insurer and then some years later gets slapped with a lawsuit by a subsequent purchaser when defects appear?  In hot water and frantically scrambling back through documentation to see exactly what you were instructed to do and what advice you gave.

Two fairly recent cases offer some good insights into this type of situation.

Wicks v New Westcoaster Pty Ltd and Ors [2005] QSC 076

So good news for the surveyor there but after a long Court battle.  A little more clarity as to what was and was not part of the scope might have helped.

Marine & Civil Construction Company Pty Ltd v SGS Australia Pty Ltd [2013] FCAFC 46