Holman Webb acted for CGU Insurance Limited in what is considered to be the first successful subrogated recovery action against a water authority.  The case involved damage caused to an insured’s property when a water main substantially failed and the property became inundated with water. In the decision of Peter and Cheryle Quigley v Lower Murray Water (W119/2013) the VCAT considered for the first time a water authority’s defence of running an asset to failure and its defence of non-foreseeability.

The Quigley’s own and occupy a house at Stradbroke Avenue, Swann Hill, Victoria. In the early hours of 21 August 2013 they were awoke by the police knocking on their door advising them to quickly vacate their house as it was being inundated by water from a burst water main outside of their home. The water main was managed by the local water authority Lower Murray Water (LMW), which is classes as a water corporation for the purposes of the Water Act 1989 (Vic). The Quigley’s were indemnified by CGU for the damage to the property and thereafter CGU looked to recover those funds from LMW.

LMW refused to pay the claim citing in its defence that the burst was an unforseen event and that it had in place, at the time of the 2009 burst, a comprehensive water asset management system designed by leading engineers GHD Engineers.

By way of summary His Honour Judge Macnamara, Vice President of the VCAT found in favour of Mr and Mrs Quigley noting that:

Section 157 of the Water Act 1989 (Vic) is a statutory free standing cause of action deeming LMW’s conduct in the management of this water main negligent unless LMW proved, on the balance of probabilities, otherwise (“the reverse onus”).

Section 19 (9) of the Water Act 1989 (Vic) requires the VCAT, when considering the reverse onus in section 157, to apply the same “questions of causation and remoteness of damage……as a court would apply in an action based on negligence”. Section 19 (9) therefore entails considerations of foreseeability, vulnerability of the Quigley’s and the resources available to LMW so as to manage the risk of this water mains failure.

LMW’s defence was three fold:

(a)          The water main in question was aged 56 years at the time of the relevant failure in 2009, had an expected useful life of 80 years and had a very good performance history;

(b)          The 2009 failure was an unforseen event and could not have been predicted by LMW, there being “no reliable method of predicting when a water main is going to burst”; and

(c)          LMW had in place a comprehensive water main maintenance and replacement program in accordance with methodology prescribed by GHD Engineers.

The VCAT concluded that this AC water main was installed in 1956 and that there was “no clear evidence” as to what its performance history was in the period 1956 to 1996. In 1997 the water asset was recorded as having failed in Stradbroke Avenue, then it failed again in 2008 and again in 2009. All failures were in Stradbroke Avenue albeit up to approximately 100 metres away from each other. Following each failure there was a dig and repair of that section of the main. The entire length of water main in Stradbroke Avenue was eventually replaced in 2010, following the 2009 failure, at a cost of $105,000.

The water main in Stradbroke Avenue also experienced a number of “off the main” interruption problems because of “saddle bursts”. To rectify these saddle bursts also required the water main to be switched off to a number of customers. These “off the main” interruption problems were found by the VCAT to be relevant to the liability issue in dispute. The VCAT found these “saddle bursts” also satisfied the definition of “failures” and were to be included in the water mains history.

The stated life of this water main by LMW had been 80 years, however the experts agreed its life expectancy could be as low as 50 years and the 80 year life expectancy was not accurate in these circumstances. It was argued by the Applicants that the entire Stradbroke Avenue water main should have been replaced following the 2008 burst, not in 2010. It had not been checked or tested despite it having been dug up at least 6 occasions since 1996. Each dig and repair presented LMW with the opportunity to sample a piece of the broken AC piping and analyse its condition. It did not do so and this omission was a critical factor in the VCAT’s findings.

GHD Engineers drafted the methodology which has been implemented by all water authorities in Victoria, and was relied upon by LMW. The GHD methodology assessed each water asset, by inter alia, prescribing it with both a “condition rating” and a “critical rating” and in accordance with the overall rating prescribed where the water main should rank in LMW’s water main replacement program.

However as with all methodologies and procedure they are to be implemented accordingly. In this instance while the VCAT did not expressly criticise the GHD methodology it found on the facts that LMW did not properly apply that methodology when assessing the water main in Stradbroke Avenue. In particular the GHD methodology ought to have been applied not just by looking to the failure history of the water main but also by testing and sampling the water main following each failure.

Hence the VCAT considered the overall response by LMW in its management of the water main in Stradbroke Avenue was to give “undue weight of putting off replacement of an aging water main as long as possible” and “without giving proper counter weight to the consequence of each incident” hence causing LMW to run the asset to or beyond its working life to maximize its return and as such it did not discharge the section 157 reverse onus.

LMW may seek a judicial review of Judge Macnamara’s decision to the Supreme Court of Victoria. The judicial review needs to be filed and served within a period of 30 days following the date of the VCAT’s judgement. A judicial review may only consider whether Judge Macnamara erred in weighing up the facts of this case and applying the relevant law.