Why Westfield escaped liability and obtained an indemnity costs order from its independent contractor

Judgment date: 25 November 2011

Elphick v Westfield Shopping Centre Management Company Pty Limited [2011] NSWCA 356

New South Wales Court of Appeal¹

In Brief

• Careful consideration of the scope and content of the duty of care owed by an occupier to employees of an independent contractor is required when determining whether there has been a breach of duty.
• The terms of contractual relationships between parties are significant in determining the responsibilities and obligations of the respective parties.
• The general rule is that an insured and an insurer cannot have separate representation even if there are "insured" and "uninsured" elements to the claim unless the Court grants leave for each person/entity to have separate representation.

Background

The plaintiff, Mr Ross Lovell Elphick (Elphick), was employed by All Cleaning & Security Pty Limited (ACS) at the Westfield Shopping Centre at Tuggerah on the Central Coast. The shopping centre was owned and operated by Westfield Shopping Centre Management Co Pty Limited (Westfield) which contracted with ACS to provide cleaning services at the Centre.

Westfield and ACS entered into a written agreement on 1 June 2006 in which ACS was engaged as a contractor to provide cleaning services at the centre. The agreement required, amongst other things, that ACS would:

• furnish all labour, materials, supplies, equipment, services, machinery, tools and other facilities required for the prompt and efficient supply of the service;
• maintain all equipment in good, safe and working condition;
• ensure its employees did not undertake work activities detrimental to their health, safety or welfare;
• implement environmental, health and safety procedures for the instruction and training of its employees and provide supervision to ensure workplace safety;
• indemnify Westfield "from and against all claims, demands, writs, summons, actions, suits, proceedings, judgments, orders, decrees, costs, losses and expenses of any nature...in relation to any...personal injury...arising out of any act, omission or negligence of [ACS], or any of its employees,...including any breach of this agreement..." (clause 9); and
• indemnify Westfield against "all costs, losses, damages or penalties...as a result of a civil claim...arising out of or in connection with a breach by ACS of any of its obligations under (this) clause 14".

In 2008 the agreement was assigned to another company in the ACS group of companies, Atlantic Cleaning & Security Pty Limited (Atlantic). When the agreement was assigned Westfield purported to seek indemnities in relation to various matters from ACS and Atlantic. The correspondence requiring the indemnities was not forwarded to Atlantic.

Elphick commenced work as a cleaner with ACS in September 2004. His duties included cleaning the shopping centre and collecting scrap cardboard from shopkeepers to place in metal storage cages. The cage was then transported to a loading dock where the cardboard was transferred to a compactor for baling. The cage had three wheels and a door on one side to enable boxes to be retrieved from it. The cage was transported using a golf cart operated by an ACS employee. Once the cage was taken to the loading dock it was affixed to a bollard using baling twine. This was the only method employed to stabilise the cage. To unload the cage, ACS employees would often need to place one of their feet inside the cage.

On 21 July 2006 Elphick was unloading the cage when he placed his right foot inside the cage. Whilst he had his foot inside the cage it rolled slightly. As the cage rolled Elphick twisted his hip causing injury to his back. Elphick reported the incident to his supervisors. Elphick continued working on limited duties for a short period of time. Eventually the pain in Elphick's back deteriorated to such an extent that he was unable to continue working. At the time of the trial Elphick had not worked since 30 November 2006.

Westfield did not become aware of Elphick's injury until Westfield's Risk Management coordinator saw Elphick walking awkwardly. She enquired what had happened to him and he provided her with an explanation. Thereafter, Westfield arranged for a metal hook to be used by the cleaners to reach inside the cage. This eliminated the hazard posed to workers by stepping into the cage. Further steps were taken by Westfield to improve safety, including: installing a warning sign on the cage door advising that workers were not allowed to stand inside the cage; placing carpet on the cage floor; and, attaching a metal chain to the cage, replacing the baling twine which had formerly been used to secure the cage to the bollard. At a later time, two drop bolts were fitted to the front corners of the cage. Holes were drilled into the concrete floor to allow the bolts to be dropped in to them, thereby increasing the stability of the cage.

Two former employees of ACS gave evidence which corroborated Elphick's version of the system of work which was adopted for unloading the cardboard boxes from the cage. One of those employees, Mr Casinoro Chrul, gave evidence that he had told maintenance employees of Westfield on two occasions that the cage was not safe because it would tilt when you stepped inside the cage. It was clear at the hearing that the cause of Elphick's injury was not attributable to the tilting of the cage.

District Court Decision

Elphick brought proceedings in the District Court of New South Wales alleging Westfield and ACS were negligent.

The trial judge, Hungerford ADCJ, found that Elphick was an honest and credible witness. He accepted that Elphick had attempted to return to work however as a result of his physical injuries and previous training he had been unable to find gainful employment. The trial judge found that Elphick's capacity to earn on the open labour market was less than one third of his pre-injury capacity.

In addressing the scope and content of the duty of care owed by Westfield, the trial judge relied on the following passage of the judgment of Brennan J in Stevens v Brodribb Sawmilling Co Pty Ltd² at 47-48:

The trial judge referred to the judgment of Basten JA in Sydney Water Corporation v Abramovic³ in which he held that a principal may owe a duty to a worker who is an employee of an independent contractor if one of the following criteria apply:

1. the principal directs the manner of the performance of the work;
2. the work requires the co-ordination of the activities of different contractors;
3. the principal has or ought to have knowledge of the risk and the employer does not and cannot reasonably be expected to have such knowledge;
4. the principal has the means to alleviate the risk and the employer cannot reasonably be expected to do so;
5. although the employer has or should have the relevant knowledge and can be expected reasonably to take steps to alleviate the risk, it does not, to the knowledge of the principal, do so.

The trial judge found that ACS was responsible for the system of work that was adopted at the shopping centre. He also found that the cage that was provided by Westfield was not unsuitable or unsafe, rather the system for unloading the cage was unsafe. This process did not involve Westfield. Hungerford ADCJ did not find that any of the criteria formulated by Basten JA in Abramovic were engaged. Accordingly, he found that Westfield owed no relevant duty of care to Elphick.

The trial judge found that ACS adopted an unsafe system of work and that there was a foreseeable risk of injury in the system of work which was implemented at the shopping centre.

Westfield sought indemnity from ACS and Atlantic in respect of any damages and costs it was ordered to pay Elphick. Westfield also sought indemnity for the costs it had incurred in defending Elphick's claim and pursuing the Cross-Claim. Hungerford ADCJ held that the indemnity provisions contained in the agreement were sufficiently broad to require ACS to indemnify Westfield for the costs it had incurred in the action arising from ACS's negligence. The trial judge found that Westfield's Cross-Claim against Atlantic failed because the indemnity obligation had not been properly assigned to Atlantic.

ACS sought indemnity from its workers compensation insurer, Employers Mutual (NSW) Limited (EML). EML admitted it was liable to indemnify ACS for any damages payable to Elphick pursuant to the Workers Compensation Act 1987 (WCA), plus costs.

The trial judge assessed damages pursuant to the Civil Liability Act 2002 (CLA) in the sum of $822,569. The damages allowed pursuant to s 151G of the WCA totalled $525,658. Accordingly, Elphick was awarded $525,658 plus costs.

Court of Appeal

Elphick appealed the findings of the trial judge in respect of whether Westfield had a liability to him. Westfield filed a Cross-Appeal in relation to its Cross-Claim against ACS. Westfield argued that if it were found liable to Elphick then it was entitled to indemnity from ACS. Westfield also argued it was entitled to indemnity from ACS for its costs of defending the appeal.

ACS also filed a Cross-Appeal appealing the trial judge's findings in relation to the construction of the indemnity clauses contained in the agreement and in relation to the costs orders made by the trial judge.

On appeal, Elphick argued that both ACS and Westfield were responsible for the system of work implemented at the shopping centre. Elphick also argued that as Westfield owned the cage it was responsible for the manner in which it was used. It was also submitted that the Occupational Health & Safety Act 2000 (OHS Act) provided content to the scope of Westfield's duty of care as an occupier. Finally, Elphick had argued that the duty of Westfield was akin to the duty of an employer to his employee.

Elphick argued that the steps taken by Westfield in respect of the cage and the system of work following Elphick's accident were determinative of its negligence. Counsel for Westfield relied on s 5C(c) of the CLA which provides that subsequent actions of a defendant do not constitute an admission of liability.

Westfield argued that ACS was responsible for devising, implementing and supervising the system of work of placing the cardboard into the compactor. Secondly, Westfield argued that there was no requirement that the cage supplied by it must be used by ACS. Westfield also submitted that the agreement required ACS to provide its own equipment and to determine how the cage should be incorporated into the system of work. Finally, Westfield argued that the cage itself was not inherently unsuitable.

In the Court of Appeal, Whealy JA delivered the unanimous judgment of the Court.

Whealy JA concurred with the findings of the trial judge that the agreement between Westfield and ACA demonstrated that ACS was responsible for, amongst other things, maintaining the safety of its system of work and the safety of its employees. ACS was also required to provide all relevant materials and equipment, and maintain equipment in good and safe working conditions. The duty of care owed by Westfield was only to take reasonable care for Elphick's safety as an entrant upon the premises. In the circumstances there was nothing which gave rise to a breach of Westfield's duty of care to Elphick. Whealy JA was satisfied that the trial judge had not erred in relation to his findings concerning the liability of Westfield.

Whealy JA found, contrary to Elphick's submissions relating to an alleged breach of the OHS Act, that the statutory or regulatory duties (which apply regardless of fault) are not simply transposed into the duty to exercise reasonable care: Leighton Contractors Pty Ltd v Fox⁴.

Westfield submitted that pursuant to clauses 9 and 14 of the agreement it was entitled to an order that it be indemnified for the costs it incurred in defending the claim commenced by Elphick and that such an order should extend to the costs incurred in defending the appeal.

Ultimately, Whealy JA found that clause 14 of the agreement required ACS to indemnify Westfield for its costs (or losses). The effect of the agreement, together with a limited concession made by ACS's Counsel in the District Court and the execution of Short Minutes of Order agreeing to such an outcome in the District Court were further factors which were considered by Whealy JA in finding that Westfield was entitled to an order for costs in its favour.

Whealy JA found there had been no error on the part of the trial judge. Accordingly, Westfield was found to have no liability to Elphick. Elphick was ordered to pay Westfield's costs of the appeal. ACS was ordered to pay Westfield's costs of the appeal on an indemnity basis less any amounts Elphick had to pay Westfield. ACS was also ordered to pay Westfield's costs of the respective cross-appeals.

In obiter, Young JA noted, quite importantly, that ACS was represented by different solicitors in the Appeal and Cross-Appeal (there were also two sets of representation in the District Court). One set of representatives was retained to appear for ACS on behalf of the workers compensation insurer, EML, and one set were retained to act in relation to the contractual liabilities of ACS. Young JA noted that there are no specific rules permitting or forbidding separate representation however a Court must grant leave for separate representation to occur. The general rule is that an insured and insurer cannot have separate representation⁵. Separate representation should only occur in unusual circumstances and he noted that the notion that there is a right to have separate representation is a "myth [that] should be exploded".

Implications

The case demonstrates that merely being an occupier is not sufficient to give rise to a duty of care. The scope and content of the duty must be considered in determining liability.

A principal may owe a duty of care to an employee of an independent contractor. However certain criteria must be met before a Court will find that there is a relevant duty of care. The principles applied by the High Court in Stevens v Brodribb Sawmilling Co Pty Ltd which were confirmed in Leighton Contractors v Fox relating to the scope and content of the duty of care owed by a principal to an independent contractor or employee of an independent contractor, remain good law.

The case also demonstrates that the obligations and duties contained in contractual agreements are relevant to determining the scope and content of a party's duty of care.

While obligations under the OHS Act have relevance to determining the existence and scope of a duty they do not impose a more stringent or onerous burden. Whatever their scope, all duties of care are to be discharged by the exercise of reasonable care as explained by Gummow J in Roads and Traffic Authority (NSW) v Dederer⁶.

The Court of Appeal, in obiter, has reminded those who work in the insurance industry that separate representation for an insurer and insured or in relation to insured and uninsured losses should only be granted by Courts in exceptional circumstances.

Footnotes

¹ Young JA, Whealy JA and Sackville AJA

² [1986] HCA 1

³ [2007] NSWCA 248 at paragraph 98

⁴ [2009] HCA 35

⁵ Carter v Marine Helicopters Ltd (1995) 9 ANZ Ins Case 61-299 at 76-347 (New Zealand High Court) applied by Einstein J in Sydney Airport Corporation Pty Limited v Baulderstone Hornibrook Engineering Pty Ltd [2006] NSWSC 1106.

⁶ [2007] HCA 42

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