On 12 June 2009 the Australian Bureau of Statistics released a report containing the results of a Forms Of Employment Survey (FOES) carried out in November 2008. One of the focus areas of the survey was to identify the proportion of the Australian Workforce engaged as independent contractors. The end result was that (taking into account people with second jobs) more than 10% of all persons in work in Australia were engaged as independent contractors. That is a sizeable figure, and one which is likely to grow in the short term. It is also an important figure for insurers who underwrite businesses with an exposure to workplace claims. The increase in independent contractors has seen a shift in the coverage of workplace risks from the statutory insurance sector to the corporate sector. Whilst that provides business opportunities, it is imperative that underwriters and claims departments are familiar with workplace risks and trends and how to best defend claims, and offload liability where the opportunity arises.
Wednesday's decision of the High Court is welcome news to insurers. It lightens what is a heavy legal load on the shoulders of principal contractors undertaking construction work. Our case report follows.
Leighton Contractors Pty Ltd v Fox & Ors
Calliden Insurance Limited v Fox & Ors  HCA 35
(2 September 2009)
Liability Of Principal Contractor – Whether Principal Contractor Obliged To Provide Induction Training To Independent Subcontractors.
On 7 March 2003 major building works were being carried out on the Hilton Hotel in Sydney. Leighton Contractors Pty Ltd was the principal contractor. Access to the site was from level 4 (just below street level). On 7 March concrete was being poured from level 4 to level 12. Leighton contracted with Downview Pty Ltd to carry out the concreting. Downview subcontracted the concrete pumping to Mr Still and Mr Cook, who in turn subcontracted Mr Fox and Mr Stewart to carry out the concrete pour. Mr Stewart was the driver and Mr Fox his offsider. Both men were independent contractors. On 7 March two truckloads of cement were pumped from level 4 to level 12. When the job was done a polyurethane ball was blown through the pipes with compressed air to remove excess concrete. A decision was made to then fill a bag with Dacron and blow it through the pipe to give the lines a better clean. The bag was too big for the pipe. Much higher air pressure was needed to move it through. Mr Stewart told Mr Fox to move away from the end of the pipe which was unsecured in circumstances where safe practice required it to be secured. Notwithstanding that he was 30 feet from where the pipe was hanging, Mr Fox was struck in the head by the pipe when it whiplashed after the Dacron filled bag was finally forced through.
No one from Leighton or Downview gave any direction in relation to the concrete pumping operation or the cleaning of the lines.
A clause in the contract between Leighton and Downview required all persons engaged on site to attend induction training. A further clause required Downview to provide Leighton with details of all secondary subcontractors engaged to work on site. Leighton was not advised that Mr Fox and Mr Stewart had been engaged and neither was provided with induction training. Leighton and Downview were also subject to the Occupational Health & Safety Act 2000 (NSW) ("the OHS Act") and its Regulations. Regulation 213(1) provided that a principal contractor must not direct or allow another person to carry out construction work on a project unless the principal contractor is satisfied that the person has undergone OHS induction training. There was also a general duty under that legislation to ensure that all systems of work were safe. Breach of the obligations was attended by criminal sanctions. The OHS Act provides that nothing in it is to be construed as conferring a right of action in civil proceedings.
Mr Fox issued proceedings out the New South Wales District Court joining Leighton, Downview and Warren Stewart Pty Ltd (the employer of Mr Stewart) as defendants. The claims against Leighton and Downview were dismissed. Judgment was entered for $472,561.95 against Warren Stewart Pty Ltd. That company was deregistered after judgment (and appears to have been uninsured). Mr Fox appealed against the findings exonerating Leighton and Downview.
Mr Fox's case was pleaded against Leightons as a failure (through its supervisor) to ensure that safe work practices were adopted, which was particularised in part as a breach of a general law duty to take reasonable steps to ensure the persons working on site were properly trained. The relevant breach was said to be the failure to ensure that Mr Stewart and Mr Fox undertook relevant induction training.
The New South Wales Court of Appeal held that the obligation of a principal contractor to provide a reasonable level of safety for subcontractors was now well recognised, and that such an obligation extended to ensuring that induction training was provided to subcontractors and others coming on to a construction site within the principal contractor's control. The Court held that Leighton owed a duty of care to Mr Fox to provide him with induction training and was in breach of that duty. The Court also made a finding against Downview holding it to be the primary tortfeasor and liable to pay 80% of the damages, with the remainder to be paid by Leighton.
The New South Wales Court of Appeal recognised that earlier cases had not imposed a general law obligation on principals to provide training in matters of safety to subcontractors. The Court however effectively said that times had changed, and that the "need for induction training is now a recognised part of major construction works".
Both Leighton and Downview were successful in obtaining special leave to appeal to the High Court.
The High Court Appeal
Leighton asserted that the New South Wales Court of Appeal had imposed upon it a duty such as to require it to train every worker coming onto the site across all trades and professions which was "an unthinkable burden for the common law to impose on a principal who has contracted to construct a large building". Mr Fox submitted that such a duty was merely consistent with by Leighton's statutory OHS obligations, and required no more of Leighton than to take steps to ensure that each person on site had provided evidence of having undertaken induction training.
The High Court observed that Courts needed to exercise caution in translating the obligations imposed on employers, principal contractors and others under health and safety legislation into a duty of care at common law.
The High Court held:-
"If Leighton owed a duty to Mr Fox and Mr Stewart to provide induction training to them in a safe method of line cleaning, it owed a duty to provide training in a safe method of carrying on every trade and conducting every specialised activity carried out on the site to every worker on the site. There is no reason in principle to impose a duty having this scope on a principal contractor. The latter is unlikely to possess detailed knowledge of safe work methods across the spectrum of trades involved in construction work. And a duty to provide training in the safe method of carrying out the contractors specialised task is inconsistent with maintenance of the distinction that the common law draws between the obligations of employers to their employees and of principals to independent contractors.
The High Court recognised that in some circumstances a principal will come under a duty to use reasonable care to ensure that a system of work for an independent contractor is safe, for example where an activity is inherently risky the principal has a duty to organise and coordinate the activity in a way so as to reduce the risk. That rule does not however impose a duty on a principal to retain control of working systems if it is reasonable to engage the services of independent contractors who are competent. Once the activity has been organised and its operation is in the hands of the independent contractor, then liability for negligence within the area of the contractors' responsibility is not borne vicariously by the principal. The Court took a very practical approach in recognising that it is common in the construction industry for principal contractors to effect works through subcontractors rather than through an employed labour force. There are numerous advantages, one of which is that the principal does not incur the obligations that the law imposes on employers.
Mr Fox also ran an alternative and much narrower case before the High Court, ie. that an alternative duty on Leighton was to ensure that each person working on site provided it with satisfactory evidence of having completed induction training (rather than an obligation to train). The High Court was not prepared to make such a finding in this case, although did not specifically rule out the existence of such a common law duty. The issue was left open. The evidence that was led simply did not support Mr Fox's alternative case even if he was able to establish such a duty on the part of the principal contractor.
For reasons similar to those set out in the Leighton case, the High Court held the Downview was not obliged to provide induction training to its contractors or their subcontractors and whilst it may have been open to criticism for the haphazard way in which it arranged for the concrete pumping to be done, that criticism did not support a case that Downview had engaged or allowed to be engaged the services of incompetent contractors.
The past twenty years has seen some significant demographic shifts in the Australian workplace. We have for example seen trade union membership decline from 46% of employees to just 19%, with only 10% of employees aged between 15 and 24 being members of a union. There has over the same period been a significant increase in the number of independent contractors, a trend which is likely to continue. The change in demographics has some significant implications for insurers. It creates opportunities for underwriters in selling insurance (particularly liability insurance) to independent contractors, but also risks if workplace claims which are shifted onto the corporate insurance market aren't properly priced.
Given the very high standard of care that the law demands of people acting, interacting and otherwise dealing in the workplace, it is often the case that contractors injured in the workplace will be injured as a consequence of the fault of others. Insurance companies not only need to be well versed in the types of risks they are writing with a workplace exposure, but also how to defend claims made against their insureds and how to offload liability where such an opportunity presents.
Tort law reform (in Queensland anyway) has no application to workplace claims. The Civil Liability Act 2003 (Qld) does not apply, and therefore insurers lose the benefit of caps and other reductions in damages making these types of claims more expensive than other civil claims.
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.