BAILMENT: DUTY OF CARE

Each time a business accepts a vehicle for repair, the business enters into a bailment relationship with the customer, under which the business is the bailee and the customer is the bailor

What does this mean for your business? One of the most important things to bear in mind is that as bailee, the business has a duty of care in relation to the vehicle.

What is the duty of care?
When the business enters into a bailment arrangement it has a duty of care to take care of the vehicle as is reasonable in the circumstances. For example, maintaining insurance to cover vehicles subject to a bailment arrangement.
The business is required to take reasonable care such as a person would take in respect of their own vehicle, not to take every possible precaution to protect the vehicle. Considerations include keeping the vehicle secure and taking reasonable care when moving the vehicle, for example when test driving or moving the vehicle inside the workshop.
If damage is sustained to the vehicle, the specific circumstances will be considered in deciding if the business did take reasonable steps to take care of the vehicle. Consider if the precautions taken by the business to take care of the vehicle are precautions that the business reasonably could and should take to prevent the loss or damage to the vehicle in the circumstances.
If there is damage to the vehicle, then it is the business that must prove that the business took reasonable care of the vehicle, and that the business was not negligent.

What types of bailment arrangements are there?
A bailment arrangement can exist for reward, but also without reward. A bailment arrangement for reward is where the bailee receives payment from the customer and the relationship is contractual in nature, for example, a customer pays the business to repair a vehicle. A gratuitous bailment arrangement is one where payment is not made to the bailee, for example, an item is lent to a person, or a person agrees to store an item without payment.
Using the example of the repair of a vehicle, a bailment arrangement will exist where a vehicle is delivered by the customer (bailee) to the business (bailor) and the business voluntarily takes possession of the vehicle. There are different ways in which possession can be established and it does not need to be immediate. Another, important factor is that there is an express or implied understanding that the vehicle will be dealt with in a particular way, for example the vehicle will be redelivered to the customer.

Sub-bailment
A sub-bailment arrangement may also exist where the business gives the vehicle to a third party to conduct work on the vehicle.
For a sub-bailment arrangement to exist, the third party business must voluntarily accept the vehicle from the business who is the bailee, knowing that the owner of the vehicle is the customer of the business who is bailee. For example, a vehicle is left with the business and requires some specialist work not performed by the business, where the business gives the vehicle to a third party business to conduct the work, then that third party business can become a sub-bailee.
If a sub-bailment arrangement with a third party business exists, the third party sub-bailee has the duty of care in respect of the vehicle owed by a bailee to a bailor, so that the customer, as bailor, may make a claim directly against the third party sub-bailee for any damage to the vehicle.

Can I charge storage fees?
A business does not have the right to charge storage fees on the basis that a bailment arrangement exists. If the terms and conditions used by the business include a clause that allow the business to charge storage fees, then reasonable storage fees can be charged in accordance with those terms (we recommend informing the customer in advance that such a clause is included in the terms and conditions).
What if a vehicle under a bailment arrangement is not collected?
There are instances where a vehicle is not collected by the customer. If this happens the business can take steps to dispose of the vehicle under the relevant disposal of uncollected goods legislative regime of the state or territory in which the business is located. Please contact Industry Legal Group for information regarding the disposal of uncollected vehicles as there are specific steps and notifications required that vary between the states and territories.

Takeaways
The key takeaways are:
• if a business accepts a vehicle from a customer, it has a duty to take care of the vehicle as bailee;
• a bailment arrangement does not allow the business to charge storage fees; and
• if the vehicle is not collected the uncollected goods regime for the state or territory in which the business is located should be followed to dispose of the vehicle.

This document is intended for general information purposes only and should not be regarded as legal advice. Please contact Industry Legal Group if you require legal advice.

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Industry Legal Group provides advice to members on commercial law matters.
If you have any questions relating to the above information, please contact
Industry Legal Group on 1300 369 703 or aaaa@industrylegalgroup.com.au