By Nieva Connell, Partner, and Emily McDougall, Law Graduate

Owners Corporation 1 PS631823J v South East Water Corporation (Building and Property) [2023] VCAT 751

Factual Background

The claim was brought the by two owners corporations (the Owners) who respectively own areas of common property in a mixed commercial and residential development situated at 670 Chapel Street, South Yarra (The Vogue Building) for damages caused by an unreasonable flow of water.

The respondent water authority, South East Water Corporation (SEW), is an Authority under the Water Act 1989 (Vic) (Water Act) and has the function of providing, managing, operating and protecting water supply systems in the area of the Vogue Building.

SEW owns, operates and manages a water main in Chapel Street which burst on 26 March 2014 due to corrosion of the main, and caused a substantial volume of water to run down Chapel Street into all three levels of the car park in the Vogue Building. Substantial damage was caused to the electrical system, the car park lighting, the escalators and the lifts. The main did not have a history of failures.
The quantum of the claim was agreed by the parties at $910,335.13. Liability was the only issue to be determined.

Legal Issue

The Owners brought their claim against SEW under s157 of the Water Act. Section 157 has the effect that if a claimant proves that a flow of water has occurred from the works of an Authority onto any land causing injury, damage or economic loss to any other person, the Authority is liable to pay damages to the other person unless the Authority proves on the balance of probabilities that the flow did not occur as a result of its “intentional or negligent conduct”. This is known as the reverse onus of proof.

The reverse onus of proof is only considered where the claimant can establish that:

1. a flow of water actually occurred;
2. the flow water emanated from the works of the Authority;
3. the flow of water continued on to the claimant’s land; and
4. the flow of water caused injury, damage to property or economic loss to the claimant.

Elements a, b and c were conceded by SEW. The Tribunal ruled that there were no issues about causation, and it was readily established.

The reverse onus of proof was enlivened meaning SEW had to establish its conduct was not intentional or negligent.

Under s.157(2) there is a presumption that the flow occurred as a result of intentional or negligent conduct on the part of the Authority unless the Authority proves on the balance of probabilities that it did not so occur. It was not suggested by the Owners that SEW had intentionally caused the flow of water.

Accordingly, the relevant enquiry was whether there was negligent conduct on the part of SEW.

Under s157(3)(b) of the Water Act, in determining whether or not a flow of water occurred as a result of negligent conduct on the part of an Authority, account must be taken of all the circumstances including any omission or failure in the planning, design, construction, maintenance or operation of the works, to provide reasonable standards of capacity or efficiency or exercise reasonable care or skill having regard to:

1. the state of scientific knowledge and knowledge of local conditions at any relevant time;
2. the nature and situation of the Main;
3. the service to be provided by the Main; and
4. the circumstances and cost of the maintenance and operation of the Main and the works which it would have been necessary to construct to avoid the occurrence of the burst that resulted in loss to the Owners.

Defences are available to Authorities, including under s.94 of the Water Act (which provides an ‘efficiency and commercial practice defence’), which SEW relied upon. SEW also raised a defence akin to a ‘resources defence’ under s.83 of the Wrongs Act.

Decision

The Tribunal held that, dispute there never having been a failure of the main previously, SEW had not discharged the burden of demonstrating that it had not been negligent in the management of the water main because:

1. It was possible for SEW to take practical steps to determine the state of corrosion the main well before it burst.
2. SEW failed to implement a properly funded condition monitoring program of the main.
3. SEW failed, when distribution mains were opened up for other work, to have in place a policy for testing on the spot or even for a sample to be retained for later laboratory testing off site.
4. SEW did not put itself in the position where it was in possession of all the information about the condition of the main that could have been cheaply and reasonably obtained.
5. Individuals from SEW with responsibility for making a risk assessment of the main appear not to have adequately taken into account the fact that the main ran under a part of Chapel Street that was a busy commercial precinct.

The Tribunal also held that the defence raised by SEW under s.94 of the Water Act, and the resources-style defence failed. Owners were granted an award of damages in the agreed sum of $910,335.13.