I. INTRODUCTION

A. The Community Law Reform Program

1.1 This is the thirteenth report in the Community Law Reform Program. The Program was established by the then Attorney General, the Hon F J Walker, QC, MP, by letter dated 24 May 1982 addressed to the Chairman of the Commission. The letter contained the following statement:

This letter may therefore be taken as an authority to the Commission in its discretion to give preliminary consideration to proposals for law reform made to it by members of the legal profession and the community at large. The purpose of preliminary consideration will be to bring to my attention matters that warrant my making a reference to the Commission under s10 of the Law Reform Commission Act 1967.

The background and progress of the Community Law Reform Program are described in greater detail in the Commission's Annual Reports since 1982.

B. The Non-Feasance Rule

1.2 This reference is about the rule of law known as the nonfeasance rule which offers highway authorities an immunity from liability in negligence not available to any other public authority. The present law in New South Wales can be summarised in two propositions.

• Highway authorities owe no duty to road users to repair or keep in repair highways under their control and management.
• Highway authorities owe no duty to road users to take positive steps to ensure that highways are safe for normal use.

As a result, a person who suffers injury due to the dangerous state of disrepair of a highway will have no claim for damages against the highway authority responsible for that highway. This is true even in circumstances where it can be shown that the highway authority knew of the dangerous condition of the highway and that its failure to remedy the defect or take other precautions to safeguard road users was unreasonable.

C. Background to this Reference

1.3 The liability of highway authorities for nonfeasance was listed for preliminary consideration under the Community Law Reform Program in September 1983 in response to a letter received from a resident of Tenterfield who had suffered facial injuries when she tripped and fell on a footpath which had been raised by the root of a nearby tree. She was advised against suing the local council responsible for the maintenance of the footpath on the ground that her claim would be unsuccessful because of the nonfeasance rule. In her letter she suggested that the law should be reformed in order to expose the council to liability in such circumstances.

1.4 Due to the Commission's limited resources and its commitments in other areas, this matter remained on the waiting list until the middle of 1985. At that time, two factors coincided to suggest that it would be appropriate for the Commission to seek a reference. First, the Attorney General's Department was considering the implementation of certain reforms in the area of occupier's liability. In response to a request from the Department, the Commission prepared a memorandum on occupier's liability in which the problem of the liability of highway authorities was raised. The memorandum suggested that this matter would be better dealt with as a discrete topic. Secondly, the Attorney General had received independent representations from a member of the legal profession on the need for reform of the nonfeasance rule.

1.5 The Commission formally requested a reference on 23 August 1985. By letter dated 25 September 1985 the Attorney General made the following reference to the Commission:

To inquire into and report on the following matters:

1. whether the common law rule which denies recovery to a person injured as a result of a failure to repair the highway in an action against the authority in occupation of the highway should be modified or abolished;

2. any related matter.

II. CONSULTATION

A. The Consultative Paper

1.6 After detailed research, the Commission formed the view that there was no justification in principle for the nonfeasance rule. In September 1986 the Commission issued a consultative paper in which it expressed the view that the rule should be abolished. Copies of this paper were distributed widely and in particular to the public authorities responsible for the maintenance of highways. A list of people and organisations responding to this document appears in Appendix A In addition, articles putting the Commission's view were published in the Law Society Journal, the Bar News and the Local Government and Shires Associations' Bulletin.

1.7 In general, members of the legal profession and their professional associations supported the proposal for abolition. The Department of Main Roads supported the proposal in principle, but expressed the view that some statutory protection would be required to restrict the number of claims against highway authorities and to keep public expenditure within reasonable bounds. The Local Government and Shires Associations made a very full response on behalf of their members in which they strongly opposed abolition of the rule. Individual submissions were also received from 85 local councils. All opposed any change to the nonfeasance rule.

1.8 The principal reason given by local government for the rejection of the proposal to abolish the rule was the financial burden this would impose on highway authorities. That burden would be felt in increased maintenance costs, as well as in the costs involved in defending actions and meeting successful claims. Councils indicated that they would not be able to meet these commitments at a time when their income had been restricted by government policy relating to the collection of rates. They also suggested that the costs of insuring themselves against the increased public liability would be prohibitive and expressed doubt as to whether such insurance would be available to them.

B. The Commission's Response

1.9 The strong opposition expressed by local government bodies prompted the Commission to undertake a series of investigations aimed at assessing the likely financial impact of the abolition of the rule.

• Inquiries were made in relation to the effect of abolition in other jurisdictions.
• The matter was raised in discussions with several representatives of the insurance industry.
• Comments were received from two firms of management consultants with expertise in the area.
• Highway authorities were again contacted for details of their objections and for further information upon which the likely economic impact of abolition could be assessed.

1.10 These investigations allowed no real estimate to be made of the likely increase in councils' financial liability following abolition of the rule. They did confirm that local government was operating in a difficult financial climate. While recognising the force of the councils' arguments, the Commission believes that the arguments for abolition of the rule outweigh them, at least in respect to claims for personal injury and death. Accordingly it recommends in this Report that the nonfeasance rule should be abolished. The Commission believes that the package of reforms proposed in this Report will not place an intolerable financial burden on local government. The recommendations have been framed with the position of local councils well in mind. The Commission sees the major solution to the problems raised by councils as lying in its recommendation that actions against highway authorities be included within the Transcover scheme.

III. TRANSCOVER

1.11 Throughout its work on this reference, the Commission has been aware of Government plans to introduce a traffic accident compensation scheme. It was clear to the Commission that any proposals made in relation to the liability of highway authorities would need to be reconciled with that scheme. The Commission therefore determined that work on a final report should be delayed until details of the scheme became available. These details became available when the Transport Accidents Compensation Act 1987 was passed in May 1987. The Act, which came into operation on 1 July 1987, creates an accident compensation scheme referred to as "Transcover".

1.12 Transcover only applies to claims against owners and drivers of motor vehicles. Claims against highway authorities will continue to be made through court proceedings and damages will be assessed according to common law principles. This has left highway authorities in a vulnerable position as they are likely to become a target for claims by those seeking common law damages rather than the benefits payable under Transcover. For this and the other reasons set out in Chapter 5, the Commission recommends in this Report that the liability of highway authorities be brought within the Transcover scheme. As the scheme relies on common law negligence principles in order to determine eligibility for benefits, an express abolition of the nonfeasance rule will still be required. The effect of placing the liability of highway authorities within the scheme will be that the damages payable to successful claimants will be assessed within the scheme and not at common law. The Commission has discussed this proposal with the manager of the Transcover scheme, Mr Denis Mockler, and members of his legal staff. They stated that they could see no major practical difficulties in administering the scheme on this expanded basis.

IV. ACKNOWLEDGMENTS

1.13 The Commission expresses its thanks to Mr James Hirshman, Senior Legal Officer with the Commission, who had the carriage of most of the research and writing on this reference. Thanks are also due to Dr Chris Hall who provided advice on the economic implications of changes to the nonfeasance rule and to Dr Peter Handford, Research Director of the Law Reform Commission of Western Australia, who provided a copy of a very useful paper he had prepared on the nonfeasance rule. The Commission also records its appreciation to Mr Don Colagiuri of Parliamentary Counsel who prepared the draft legislation which appears in Appendix B.