The recent High Court appeal of Andar Transport Pty Ltd v Brambles Limited (unreported) saw the High Court review principles concerning the interpretation of indemnity clauses in contract law as well as the nature and scope of the common law duty of care owed by an employer to an employee. For those practising in the area of common law industrial accidents, the Court’s discussion of the nature and scope of the duty of care owed by an employer/subcontractor to its employee/director, and the applicability of Nicol v Allyacht Spars Pty Ltd (1987) 163 CLR 611 is illuminating.
The respondent ("Brambles") provided laundry services to a number of hospitals. Since 1990, it had been Brambles' practice to contract out its laundry delivery services to companies that employed drivers to load, deliver and unload linen as it directed.
Daryl Wail ("Wail") had previously been employed directly by Brambles, and duly complied with this new business practice and set up a company, Andar Transport Pty Ltd ("Andar") to service the Brambles contract. Wail was the nominated "driver" under the term of the contract and was also one of 2 directors of Andar and one of 2 shareholders of the company.
On 26 July 1993, Wail injured his back while conducting a delivery round for Brambles. His injury was sustained when he was attempting to remove a trolley filled with clean linen from the rear of the delivery truck. The trolley was jammed against another trolley and in attempting to pull it free, Wail felt a searing pain across his lower back.
At the time of Wail’s injury, the contract between Andar and Brambles which had been for a three year term, had expired.
County Court proceedings
Wail successfully sued Brambles in the County Court for damages for negligence. A jury awarded him damages of some $415,000.00 and this amount was then reduced to $200,000.00 after deducting an amount for repayment of compensation and 35% for contributory negligence.
By a third party notice, Brambles had joined Andar to the proceedings and sought contribution under the Wrongs Act 1958 (Vic) by reference to what it pleaded was Andar's own alleged negligence as the employer of Wail. Brambles also claimed that it should be indemnified by Andar for any negligence on its part relying on indemnity clauses that were contained in the service contract.
The issues arising out of the third party action were heard by Judge Kent who dismissed Brambles' claims against Andar. He found that Wail was solely responsible for the working operations of Andar, and Andar's negligence was therefore "co-extensive or co-terminous" with Wail's negligence. He further determined that Andar's liability had already been discharged by the reduction for Wail's contributory negligence.
Court of Appeal
Brambles appealed and the Court of Appeal allowed the appeal in respect of the third party proceeding. It did so chiefly because it found that the contractual agreement was in fact still in force between Brambles and Andar at the time of Wail’s injury, and it obliged Andar to indemnify Brambles against all sums payable by Brambles in the principal proceedings.
Having decided the appeal on the contract point, the Court went on to conclude however, that Brambles was entitled to contribution under the Wrongs Act. In finding that a claim for contribution was available to Brambles, the Court of Appeal determined that the duty of care owed by Andar as employer (to take reasonable steps to maintain and develop a safe system of work) was quite different from the duty which Wail owed in his capacity as a controller or director of Andar.
In doing so, the Court cited a passage of Dawson J in Nicol and stated that
"…The duty of the employer and employee cannot be regarded as co-extensive or co-terminous. The non-delegable nature of that duty precludes the imposition of the same burden upon an employee as is shouldered by the employer. The failure to take reasonable steps to provide a safe system of work was the failure of Andar, and was quite different from the duty which in his managerial capacity as director owed to the company. Furthermore, the assertion that Wail was solely responsible for the failure by Andar to provide a safe system of work ignores the fact that Andar’s responsibility was to be exercised by the board of the company. Wail was no doubt principally involved in conducting the affairs of Andar, but any other member of the board was just as responsible for ensuring that the company provided a safe system of work for its employees…"
The Court concluded that although Wail was the director solely responsible for the system of work that he himself had to undertake and which caused him injury, that there was some negligence on the part of Andar which was over and above Wail's own negligence,
As previously stated, the appeal to the High Court involved the two primary issues of whether the Court of Appeal erred in finding Andar was contractually obliged to indemnify Brambles for liability incurred as result of Wail's injury, and whether the Court of Appeal erred in concluding the claim for contribution by Brambles against Andar pursuant to the Wrongs Act was otherwise available.
By a majority judgment of 6:1 (Callinan J dissented) the High Court allowed the appeal with costs.
In relation to the contract issue, the Court concluded that the indemnity clauses could not be construed to oblige Andar to provide Brambles with an indemnity in respect of liability arising as a result of Wail's injury. It found that Clause 8 of the contract did not extend to Wail’s injury, as indemnity was limited to any vicarious liability Brambles may incur against third parties.
The Court went on to confirm that indemnity clauses are special provisions to which special rules of interpretation apply. To the extent that the clauses remained ambiguous, the Court found that they should be read down in favour of Andar who was the party providing the indemnity.
Turning to the contribution issue, the Court found that Brambles’ claim for contribution was not barred by Wail's dual responsibilities as a director and employee of Andar. The Court stated that Andar had breached its non-delegable duty as an employer to provide Wail with a safe system of work in relation to the loading and unloading of the truck with linen trolleys.
The Court said further, that it agreed with the approach taken by the Court of Appeal when it adopted what was said by Dawson J in Nicol, stating that,
"…Nicol demonstrated that an employer may be liable for breach of the duty notwithstanding that the system of work was devised, in part, by an employee who was subsequently injured as a result of carrying out the system".
This statement was made by the Court after it had examined the corporate structure of Andar and observed that the powers of such a company can only be exercised by natural persons. The Court found that as a matter of law, the common law duty owed by Andar as an employer was different to the duty owed by Wail in his personal capacity as a director or employee of the company.
"Just and equitable"
Having determined that contribution could otherwise be claimed by Brambles against Andar, the Court then stated that the apportionment of liability between Wail and Brambles should not determine the quantum of contribution, if any, to which Brambles was entitled against Andar.
The Court pointed to its earlier finding that the negligence of Wail and the negligence of Andar could not be equated and remitted the apportionment of liability exercise under the Wrongs Act to the Court of Appeal for further consideration.
Although the Court concluded that the jury’s finding of contributory negligence against Wail of 35% could not determine the quantum of contribution, if any, to which Brambles was entitled against Andar, it did say that the power conferred upon a court under s24(2) of the Wrongs Act is wide. With this in mind, it could be submitted to the Court of Appeal that factors such as Andar's "inheritance" of a defective system and the jury's verdict on contributory negligence are relevant in any consideration of what is "just and equitable".
The High Court’s decision in Andar can be seen as an attempt by the Court to clarify and confirm certain legal principles relating to contract law and negligence, rather than as a radical departure from the status quo.
The Court has re-iterated that indemnity provisions in contracts are to be interpreted differently to ordinary contractual clauses. Parties are forewarned to take great care in drafting indemnity clauses as they will be found to be ineffective where an ambiguity is identified.
In Andar, the High Court has also importantly determined that the duty of care owed by an employer to an employee cannot be co-extensive or co-terminous. In coming to this conclusion, the Court believes that it is "possible to distinguish between the common law duties owed by (an employer) and those owed by (an employee) in his/her personal capacity as director or employee"
Although the Court went on to say that such a distinction in duties would apply even in circumstances where a company is owned or directed by one person, it is doubtful that we will see the floodgates open with litigation involving sole directors suing their own employer/companies for damages. For even though an employer’s duty of care to an employee remains high and distinct, the prospect of a no negligence outcome or large finding of contributory negligence must indeed loom large for this class of plaintiff.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.