What are the obligations of a service provider in a bailment relationship?
Bailment law disputes - February 2024
Bailment law disputes - February 2024
When assessing whether a service provider may be liable for damage to their customer’s goods caused by a disaster, the next step is determining the level of care owed by a service provider in the circumstances.
A court may consider the precautions normally taken by service providers in similar situations when deciding whether a service provider’s actions were reasonable or not. Disaster events do not change the service provider’s duties, however, disaster events may affect what level of care is expected of a service provider in the circumstances.
This resource includes information and scenarios relating to:
The central duty in a relationship between a consumer and a service provider is that the service provider has a duty to take reasonable care of the consumer’s goods. Determining what is ‘reasonable’ depends on the specific context under consideration, but generally the parties can expect the service provider to meet the standard of care that a careful and vigilant person in similar circumstances would apply if safeguarding their own goods.
In exercising their duty to take reasonable care, the service provider is obliged to keep goods in a safe place and safeguard against foreseeable risk. Once the service provider accepts possession of the goods, they have a duty to take immediate steps to place and hold the goods in a position of safety. Ultimately, what defines a safe place will depend on the circumstances and the character of the goods being held, but it could involve:
Having adequate security measures;
Handling the goods with care; and
Storing or preserving the goods according to specific conditions (e.g. temperature, moisture, or exposure to sunlight).
The facts:
A consumer’s motor vehicle was left with a mechanic (the service provider) for some warranty and service work to be carried out. The service provider completed the work and parked the car on their premises, ready for the consumer to collect. The service provider stored the keys in a safe, which required an electronic swipe card for access. However, a spare key for the car was stored in the car’s console. As the consumer was on their way to collect the car, it was stolen by a third party.
The Court heard evidence that the carpark where the car was held was shared by 3 business units of the service provider – new car sales, second hand car sales, and service. This meant that numerous people were able to enter and exit the area in which the car was stored. In addition, the gates to the premises were left open during business hours without any form of security at the gate or in the area where the car was stored.
Court’s finding:
It was uncontentious that the parties were in a bailment relationship. The service provider had possession of the car and the parties had agreed the service provider was to repair the car. The issue in dispute was whether the service provider had discharged their duty of care to take reasonable precautions for the safety of the consumer’s car.
Ultimately, the Court found that the service provider had failed to take reasonable precautions to ensure the safety of the car. The service provider provided no real evidence about any other security measures it had in place to prevent the car being driven away, and it was insufficient that the service provider had only taken steps to protect the key to the car, but not the actual car.
The obligation to take reasonable care includes the duty to take all reasonable precautions to prevent risks, as well as to take all proper measures for the protection of goods when risks are imminent or have actually occurred. This does not require a service provider to take every conceivable precaution against potential loss or damage; rather, a service provider will generally be expected to safeguard against any foreseeable damage. A service provider’s failure to take reasonable care in this context is also known as “negligence”.
While the term in a bailment relationship is not precisely the same as it is (more commonly) used when referring to the “tort of negligence”, we use negligence in this resource to mean that the service provider did not take reasonable care of the goods they were supposed to be looking after.
In the context of a natural disaster event, a service provider’s duty may reasonably involve preventing damage to goods in their possession. The scope of that duty will depend on the circumstances – such as:
the immediacy and predictability of the disaster;
the time available for the service provider to respond;
the nature of the goods;
the volume of the goods held; and
the history of natural disasters in the location where the goods are held.
For instance, where a service provider is grappling with a declared ‘state of emergency’, it may not be reasonable for them to exercise the same standard of care as they ordinarily would absent that disaster. A person compelled to act in a sudden crisis, without the luxury of calm reflection, is unlikely to be considered negligent for making an error of judgement in a state of emergency, and the courts have in the past accepted a lower standard of care when a party is acting in the ‘agony of the moment’.
The facts:
A service provider, a livery stable keeper, received a horse carriage and stored it in a shed in return for payment. Subsequently, a high wind blew down the shed where they stored the carriage, resulting in damage to the carriage.
Court’s finding:
The key legal issue was whether the service provider had discharged their duty of reasonable care. The Court held that the service provider was bound to take “reasonable care”, being ordinary care of the consumer’s goods and care as an ordinary man would use in employing the builder of the shed. In this instance, the service provider had taken reasonable care in assessing whether the building was fit for purpose. The service provider was not responsible for the negligence of the builder who had built a shed which was not fit for purpose.
By way of example, consider a scenario where a service provider had one hour to respond to an evacuation notice compared to another where they were given four days’ notice. In the first case, it may be unreasonable to expect a service provider to move a bailed good to safety in the circumstances, making it challenging for a consumer to hold them legally accountable for any resulting damage. Conversely, if the service provider had four days to comply, the immediacy of the situation would be reduced and the standard of care would, therefore, remain largely unaffected by the disaster event.
The facts:
A jewellery repair shop accepts a valuable necklace from a customer for intricate repair work. The shop has a well-established protocol for handling and storing such items securely, including a state-of-the-art safe and a security system that monitors the premises 24/7. Despite these precautions, an unprecedented natural disaster occurs – an earthquake of a magnitude not recorded in the area for over a century. The earthquake causes significant structural damage to the building, and in the chaos, the safe containing the necklace is breached, resulting in the necklace being damaged.
The likely outcome:
In our view, the service provider would not be liable for the damage to the consumer’s necklace because the earthquake represents an “act of God” – an unforeseeable, extraordinary event beyond human control. The service provider took all reasonable precautions to protect the property, adhering to the reasonable standards of care expected under normal circumstances. The extraordinary nature of the earthquake, being an unforeseeable and unavoidable event, would absolve the service provider of liability for damage caused to the necklace.
Another relevant consideration is that of the history of a service provider’s place of business with disaster events. For example, if a service provider’s place of business has a history of flooding, they might reasonably be expected to be aware of the relevant risks and take precautions accordingly. The extent of the protective measures a service provider might be expected to implement would likely depend on the frequency and severity of the floods. Conversely, if the business location has no such history, it might be considered beyond a service provider’s duty to safeguard against the risk of damage by flooding.
While there is no legal authority requiring service providers to warn consumers about potential damage to goods by way of a disaster event, a duty may arise if the service provider is aware of an unusual risk. For instance, if the service provider’s business is prone to seasonal flooding, that service provider would be expected to warn consumers considering leaving their goods during that risk period.
The facts:
Let’s consider a situation in which Priya, the customer, has entered into an informal agreement with James, the service provider, to store her large ride-on mower in a shipping container on his rural property in NSW. James has agreed to charge Priya a weekly fee of $20 for the storage of the mower. The shipping container is spacious, well-sealed and cleared of vegetation, showcasing James’ efforts to safeguard the stored items.
Subsequently, the region experiences an exceptionally hot and dry summer. James takes several proactive measures in response to the hot and dry summer, including clearing flammable materials, sealing the containers external doors, and placing sprinklers strategically around the container. Regrettably, a bushfire erupts, and the fire engulfs the container, destroying its contents and other parts of James’ property. When James learns of the fire, he is also ordered to evacuate the property immediately by the local fire brigade and is, therefore, unable to prevent the fire from spreading himself or to take any further steps to move the mower.
The likely outcome:
In our view, this situation gives rise to a bailment relationship between Priya and James. The elements of delivery, acceptance, and consideration are evident, with Priya delivering the mower, James accepting it for storage, and the agreed-upon fee serving as consideration.
In terms of liability:
James is obliged to exercise reasonable care over the mower, including to move it to safety when required. He has attempted to ensure the safety of the mower by storing it in a secure place and taking precautions against possible risks.
However, while James has conscientiously sought to protect the stored goods, the fire itself was arguably foreseeable, given the climate in rural NSW and the location of James’ property. Priya might argue that James could and should have taken additional precautions to avert the damage to the goods.
While discussing the duty to warn, we also note that the consumer has the duty to warn the service provider of any dangers associated with the relevant goods. For instance, if the goods being delivered to the service provider have any particular safety features or instructions for proper use, these should be disclosed to the service provider by the consumer. If these dangers are not disclosed, and the goods are damaged as a result, the consumer may not be able to seek compensation from the service provider.
The facts:
Rex, a mechanic who has a workshop in an industrial precent in NSW that backs onto a creek, accepts a customer’s car for a standard service. During periods of high rainfall, some of the other businesses in the industrial precinct have put in measures to prevent any unnecessary damage due to flooding. Despite speaking to some of the surrounding business owners about the creek flooding, Rex decides that since cars in his workshop are generally elevated off the ground, he does not require any additional protection from flooding.
Rebecca takes her car in for a service with Rex. One day after a particularly bad rainfall, the creek bank bursts and the industrial precent is flooded. The surrounding businesses suffer only minimal damage due to the safety measures they have in place, but Rex’s workshop is badly flooded. As a result, Rebecca’s care suffers damage caused by the flooding.
The likely outcome:
In our view, there is a bailment relationship where Rex is obligated to reasonably safeguard Rebecca’s car from reasonable risks, including natural disasters, by keeping the car secure and informing her of potential dangers. Rex failed to take reasonable precautions to protect the car, despite being aware of the risk of creek bank flooding that was acknowledged by nearby businesses. Rex would be held responsible for the cost of repairing the car to its pre-damaged state, the expense of providing a hire car during repairs, and any legal fees Rebecca might incur in pursuing compensation.
Once you have established the level of care owed by the service provider in the circumstances and established that the service provider did not discharge their obligations to the consumer according to that level of care, it must be shown that there is a clear connection between what the service provider did (or did not do) and the harm to the goods.
We discuss establishing liability for damage further in the next resource, here:
This resource was last updated on 14 February 2024. This is legal information only and does not constitute legal advice. You should always contact a lawyer for advice specific to your situation. You can read our full disclaimer here: Disclaimer and copyright for our Disaster Legal Support Resource Hub – Justice Connect.