Qantas Airways Limited & Anor v BMD Constructions Pty Limited  [2023] QSC 206

Andrew Orford |  Alex Hammerton | Aidan Kleynhans

Key takeout

Negligent damage to property generally gives rise to an immediate right to recover damages, but this case highlights that subsequent transactions involving the damaged property can have an impact on the quantification of damages.

It may also pave the way for future court decisions to establish whether related party transactions have the same impact as third party transactions.

In the meantime, this case is a reminder to plaintiffs to consider surrounding circumstances when pleading damages – not just quantify cost of repairs.

Facts

This decision concerned an application by BMD Constructions Pty Ltd (BMD) to strike out amendments Qantas Airways Ltd (Qantas) made to its Statement of Claim.

While working at Brisbane Airport, BMD stored a large plastic water tank at the site. In November 2016 a storm blew the tank across the airport and it collided with an aircraft, causing substantial damage. The damaged aircraft was being leased by Qantas from Boeing. Under that lease Qantas had legal responsibility for any repairs.

Independently the Qantas Group had been arranging an internal restructure, which took effect on 1 January 2017.  As part of the restructure a Qantas Group subsidiary, Eastern Australia Airlines (EAA), subleased the aircraft from Qantas and took on the responsibility of maintaining and repairing the aircraft. Under the sublease the aircraft was delivered ‘as is’ and Qantas did not accept any liability in relation to its condition.

Pleadings and damages claim – who should pay for repair costs?

Qantas initially claimed damages for the cost of repairing the aircraft and the inability to use the aircraft for 5 months while it was being repaired.

Qantas then joined EAA as a plaintiff and claimed that EAA (rather than Qantas) was responsible for repairs, in fact paid for the repairs, and was entitled to damages. BMD responded alleging that it did not owe any duty of care to EAA at the time of the incident and that it was not liable for EAA’s voluntarily decision to take on an interest in an already damaged aircraft.

Qantas then amended its Statement of Claim removing EAA as a party and the allegations that EAA was solely responsible for repairs. It argued that the common intention of Qantas and EAA was that Qantas would remain responsible for the repairs (which Qantas had already initiated and which were already underway by the time the sublease was entered into). Qantas also made broad claims that it suffered loss due to the aircraft being unable to generate revenue, without specifying which entity was actually entitled to use the aircraft. BMD sought to strike out the amendments. The primary source of contention was whether there were questions of law and fact that merited a trial and whether, as a result of the internal restructure, Qantas lost its entitlement to claim damages.

Direct loss – damages for cost of repair

The parties agreed that the usual measure of damages for negligent damage to property is the diminution of value, typically measured by the cost of repairing the property. BMD pointed out that this principle is not absolute and argued that Qantas was only entitled to be compensated for loss it actually suffered.

BMD relied on the case of UI International Pty Ltd v Interworks Architects Pty Ltd [2009] 2 Qd R 158 (UI International) where a developer claimed damages for the cost of rectifying building defects. The building had since been sold by the developer for full market value unaffected by the defects. Following the sale, the developer was not obligated and was not able to carry out the repairs. In these circumstances it was found that the damage suffered by the plaintiff could not reasonably be measured by the cost of repair and the developer had not suffered any diminution of value.

Qantas argued that the principles from UI International were not applicable to internal transactions such as its sublease with EAA, because:

• UI International stood to make a windfall gain from the damages claim, which could not be said of Qantas
• The price Qantas obtained under the sublease was a fixed book value rather than true market value.
• There would have been measurable diminution in the aircraft’s market value as a result of the damage, unlike in UI International where the defect did not cause a diminution in market value

The aircraft remained within the Qantas Group and responsibility for repairs remained to be completed within the Qantas Group.

Consequential Loss – damages for loss of use

BMD alleged that Qantas had failed to plead that it would have been entitled to use of the aircraft if it had not been for the damage. Therefore Qantas was allegedly unable to establish that it suffered loss from being deprived of the aircraft’s use. This was because Qantas had written its pleadings in more general terms, amending references to ‘its inability to use to aircraft’ to ‘the inability to use the aircraft’.   

Additionally, BMD alleged that starting from the time of the restructure Qantas was receiving fixed rental payments from EAA, so Qantas itself was no worse off when the aircraft was not operational.

Qantas argued that even if it did not have a formal right to possession:

• EAA was under Qantas’ effective control and in a general sense, the aircraft was part of a fleet of aircraft used in the business of the Qantas Group
• The inability of any subsidiary in the Qantas Group to use the aircraft was detrimental to Qantas as the holding company
• Any payment Qantas received from a subsidiary was a neutral transaction and inconsequential to the overall operation of the Qantas Group’s business.

Decision

The court dismissed the bulk of BMD’s application to strike out the amendments to Qantas’ pleadings.

Direct loss

The court considered that while Qantas’ case would have to overcome a number of difficulties, it was arguable that Qantas had suffered loss measured by the cost of repairs (notwithstanding the subsequent agreement with EAA). The court accepted that there is no absolute right for damages to be measured according to the cost of repairs and that subsequent events could affect the quantification of loss. The court declined to directly apply the UI International decision, acknowledging the distinguishing features which Qantas had raised.

While the merits of Qantas’ claim are yet to be fully tested at trial this decision leaves the door open to the possibility that intra-group transactions could be distinguished from the general principle that subsequent transactions can affect a right to damages.

Consequential loss

The court concluded that Qantas may still be said to have lost the use of the aircraft if it can show that the aircraft would have been utilised by or on behalf of Qantas. It considered that the way in which the Qantas Group operates its business would not be irrelevant in that assessment. However, in relation to the period following the restructure, Qantas failed to plead sufficient facts to support a basis on which it was deprived of use of the aircraft. That pleading was found to be deficient on the basis that it was vague and embarrassing, and the court ordered that it be struck out with liberty to replead.