Erect Safe Scaffolding (Australia) Pty Ltd v Sutton - [2008] NSWCA 114

No judgment structure available for this case.

Reported Decision: 173 IR 412

New South Wales

Court of Appeal

CITATION: Erect Safe Scaffolding (Australia) Pty Limited v Sutton [2008] NSWCA 114

HEARING DATE(S): 27 February 2008; 3 March 2008

JUDGMENT DATE:
6 June 2008

JUDGMENT OF: Giles JA at 1; Basten JA at 17; McClellan CJ at CL at 100

DECISION: 1. Direct the parties to deliver to the Associate of Giles JA, within seven days, short minutes to give effect to these reasons
2. Liberty to apply in the event of disagreement in the first instance by approaching the Associate to Giles JA.

CATCHWORDS: TORT - negligence - workplace injury - large and complex construction site - coordination of subcontractors and work safety committee - failure to report defect - whether employer liable - non-delegable duty of employer - whether employer entitled to rely on work safety committee to ensure defect was rectified - CONTRACT - indemnity and insurance clauses - whether subcontractor required to indemnify head contractor - whether liability of head contractor arose out of performance of subcontract works - failure to obtain insurance in joint names - whether subcontractor required to obtain insurance for independent negligence of head contractor - DAMAGES - whether award excessive - calculation of non-economic loss and past and future economic loss - WORKERS COMPENSATION - s 151Z(2) Workers Compensation Act 1987 - calculation of award

LEGISLATION CITED: Workers Compensation Act 1987

CATEGORY: Principal judgment

CASES CITED: Allianz Australia Insurance Ltd v GFS Australia Pty Ltd [2005] HCA 26; 221 CLR 568
Andar Transport Pty Ltd v Brambles [2004] HCA 28; (2004) 217 CLR 424
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
Australian Paper Plantations Pty Ltd v J & EM Venturoni [2000] VSCA 71
Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2006] NSWSC 223
Canberra Formwork Pty Ltd v Civil & Civic Limited (1982) 67 FLR 66
Celik v Commonwealth of Australia [2002] ACTSC 27
Cervellone v Besselink Bros Pty Ltd (1984) 55 ACTR 1
Chan v Cresdon Pty Ltd (1989) 168 CLR 242
Coghlan v S H Lock (Australia) Ltd (1987) 8 NSWLR 88
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Davis v The Commissioner for Main Roads (1967) 117 CLR 529
Dickinson v The Motor Vehicle Insurance Trust (1987) 163 CLR 500
Dover Navigation Co Ltd v Craig [1940] AC 190
F & D Normoyle Pty Ltd v Transfield Pty Ltd [2005] NSWCA 193; 63 NSWLR 502
Ferraloro v Preston Timber Pty Ltd (1982) 42 ALR 627; 56 ALJR 872
Government Insurance Office (NSW) v R J Green & Lloyd Pty Ltd (1965) 114 CLR 437
Grljak v Trivan Pty Ltd (1994) 35 NSWLR 82.
Johnson v The Australian War Memorial [2005] ACTSC 122
Jones v Bartlett [2000] HCA 56; (2000) 205 CLR 166
Kavanagh v The Commonwealth (1960) 103 CLR 547
Kondis v State Transport Authority (1984) 154 CLR 672
Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5
Leichhardt Municipal Council v Montgomery [2007] HCA 6; (2007) 230 CLR 22
Leighton Contractors Pty Ltd v Smith [2000] NSWCA 55
Libreri v Ironidol Pty Ltd (No 2) [2007] NSWCA 198
Lyons v Fondi Investments Pty Ltd (1998) 10 ANZ Insurance Cases 61-421
Murray v Favelle Mort Ltd [1974] 2 NSWLR 230
Nestle Australia Ltd v McDougall (Court of Appeal, 24 June 1998, unreported)
New South Wales v Lepore [2003] HCA 4; (2003) 212 CLR 511
Northern Sandblasting Pty Ltd v Harris [1997] HCA 39; (1997) 188 CLR 313
Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114
Roads and Traffic Authority of New South Wales v Palmer [2003] NSWCA 58
Smith v Australian Woollen Mills Ltd (1933) 50 CLR 511
Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASC 408; (2000) 23 WAR 291
State of New South Wales v Tempo Services Ltd [2004] NSWCA 4
Steele v Twin City Rigging Pty Limited (1992) 114 FLR 99
Stevens v Brodribb Sawmilling Co Pty Ltd (1985-1986) 160 CLR 16
Texcrete Pty Limited v Khavin [2003] NSWCA 337

PARTIES: Erect Safe Scaffolding (Australia) Pty Limited (Appellant)
Ian Sutton (1st Respondent)
Australand Constructions Pty Limited (2nd Respondent)

FILE NUMBER(S): CA 40011/2007

COUNSEL: G Laughton SC/N Cotman SC (Appellant)
P R Hennessey SC/M J Perry (1st Respondent)
B Toomey QC/J Stewart (2nd Respondent)

SOLICITORS: McCulloch & Buggy (Appellant)
Taylor & Scott (1st Respondent)
Ebsworth & Ebsworth (2nd Respondent)

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): 4948/04

LOWER COURT JUDICIAL OFFICER: Goldring DCJ

LOWER COURT DATE OF DECISION: 14 December 2006

CA 40011/07
DC 4948/2004

GILES JA
BASTEN JA
McCLELLAN CJ at CL
WEDNESDAY, 4 JUNE 2008

ERECT SAFE SCAFFOLDING (AUSTRALIA) PTY LIMITED v SUTTON & ANOR

Judgment

1 GILES JA: I have had the benefit of reading the reasons of McClellan CJ at CL in draft. Save in two respects, I agree with them and am content to adopt them. The two respects are first, that I take a different view of the respective responsibilities for Mr Sutton’s loss, and secondly, I will state my own reasons in relation to cl 11 of the sub-contract.

Apportionment

2 Mr Woodward was a Dalma employee and its representative on the Work Safety Committee. He knew of the projecting ties and that they presented a danger. He must have known, and through him Dalma must have known, that the danger was not minuted, and that although Erect Safe may have been aware that it should rectify the problem, the “system” by which the minutes stood as directions to the relevant sub-contractors meant that Erect Safe might omit to do so because the problem was left out of the operation of the system. It was necessary that Dalma itself follow up to see that the danger to its employees was removed.

3 Erect Safe created the problem and failed to rectify it, and I agree that its responsibility for Mr Sutton’s loss was greater than that of Australand and Dalma. However, in my opinion Dalma’s responsibility was equal to that of Australand. Australand as head contractor with obligations to workers on the site failed to take reasonable care to see that the danger was dealt with within the system; Dalma with its obligation to its employees also failed in that respect. In my opinion, the apportionment should be 50 per cent to Erect Safe and 25 per cent each to Australand and Dalma.

4 This is a minority view, and does not affect the result.

Clause 11

5 The operation of any contractual indemnity must be found in the application to the facts of the words of the relevant clause, construed as part of the contract as a whole. Decisions on the operation of contractual indemnities in different words in different contracts are likely to be of limited assistance.

6 It is convenient to repeat cl 11 -

“ Clause 11:

INDEMNITY

The Subcontractor must indemnify Australand Constructions against all damage, expense (including lawyers’ fees and expenses on a solicitor/client basis), loss (including financial loss) or liability of any nature suffered or incurred by Australand Constructions arising out of the performance of the Subcontract Works and its other obligations under the Subcontract.”

7 Australand incurred liability to Mr Sutton. It was necessary that the liability meet the description of one “arising out of the performance of the Subcontract Works and its other obligations under the Subcontract”.

8 In the extended phrase “its” referred to Erect Safe. “Other” was important; to give it effect, the reference to performance of the Subcontract Works was to performance as an obligation of Erect Safe. “Subcontract Works” was relevantly defined in the subcontract to mean the design and work to be executed in accordance with the sub-contract, and there were indeed other obligations than simply performance of the Subcontract Works, such as avoidance of pollution (cl 10.3). That is, the phrase was to be understood as “arising out of the performance by Erect Safe of the Subcontract Works and of its other obligations under the Subcontract”.

9 Australand incurred liability because it owed to Mr Sutton a duty to take reasonable care to see that the site was safe, and breached that duty by failing to take reasonable care to see that the danger presented by the protruding ties – of which it was aware through the Work Safety Committee “walk around” - was minuted and attended to. Erect Safe created the problem, and failed to rectify it, in its performance of the Subcontract Works. Did Australand’s liability arise out of the performance by Erect Safe of the Subcontract Works?

10 In Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500 it was held that injury caused when a child left temporarily in a parked car played with matches arose out of the use of the car. The Court said at 505 -

State Government Insurance Commission v Stevens Bros. Pty. Ltd

.“

11 There is no easy test for the nature or extent of the causal or consequential relationship involved in the words “arising out of”, and a substituted form of words should not be devised to replace the words chosen by the parties to the subcontract The words are wide, but the relationship with Australand’s damage etcetera which they require is informed by their presence in an indemnity clause. So far as ambiguous, the clause should be construed in favour of Erect Safe (Andar Transport Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424 at [17]-[23] per Gleeson CJ and McHugh, Gummow, Hayne and Heydon JJ; F & D Normoyle Pty Ltd v Transfield Pty Ltd [2005] NSWCA 193; (2005) 63 NSWLR 502 at [47] per Ipp JA, McColl JA agreeing). The relationship should not be remote, but one of substance albeit less than that required by words such as “caused by” or “as a result of”; beyond that, it is a question of judgment on the particular facts.

12 The incurring of liability by Australand directs attention to why the liability was incurred, and particularly to whether an act or omission of Australand itself brought the liability upon it. Here it did. Although Erect Safe created the problem and failed to rectify it, the basis for Australand’s liability was breach of its own duty of care owed to Mr Sutton. The breach was by its own default and not because it was fixed with liability by reason of the default of Erect Safe. Australand’s own breach of its own duty of care brought the liability upon it, although Erect Safe’s performance of the Subcontract Works provided the occasion for it to incur liability. In my opinion, that is insufficient for the liability to have arisen out of the performance by Erect Safe of the Subcontract Works and of its other obligations, within cl 11.

13 I see no conflict in this with any of the decisions to which we were referred. The result is consistent with Steele v Twin City Rigging Pty Ltd (1992) 114 FLR 99, although that case did not turn on “arising out of”; the necessary relationship was expressed in the more readily satisfied words “arising out of or in the course of or caused by the execution of the works or in any way relating thereto”. The result in Leighton Contractors Pty Ltd v Smith [2000] NSWCA 55 was otherwise, but there the indemnity clause as a whole was very different and on the reasoning of Mason P and Fitzgerald JA it was irrelevant that the act or omission of the subcontractor was not the cause of the head contractor’s liability. Once the clause in Roads and Traffic Authority of New South Wales v Palmer [2003] NSWCA 58 was construed so that the damage or claim had to arise out of the contractor’s performance of the works, the effect given to “arising out of” was similar to that at which I have arrived in the present case.

14 In F & D Normoyle Pty Ltd v Transfield Pty Ltd the Joint Venture was liable to the worker for breach of statutory duty in not providing safe access, a passageway being obstructed by stored pipes. The words in the indemnity clauses were “arising as a result of any act, neglect or default of the sub-contractor … relating to its execution of the works”. It was held by the majority that “act” did not extend to an act which was neither a neglect nor a default, and that neither of the sub-contractors had been in neglect or default. Ipp JA added, however -

Dickinson v Motor Vehicle Insurance Trust

91 In my opinion, the acts of Normoyle in bringing the pipes on to the ground level of the construction site and storing them in their proper place are so remote from the accident which caused Mr Vranjkovic’s injuries that the liability which the Joint Venture incurred in consequence of those injuries could not be said to arise as a result of those acts.”

15 The present case is similar.

16 I agree with the orders proposed by McClellan CJ at CL, but the short minutes will reflect the majority view of apportionment.

17 BASTEN JA: As explained by McClellan CJ at CL, this matter involved appeals by Australand Constructions Pty Ltd (“Australand”) and Erect Safe Scaffolding (Australia) Pty Ltd (“Erect Safe”) in relation to a judgment of Goldring DCJ in favour of the respondent, Mr Sutton. There is also a cross-appeal brought by Erect Safe against Australand in relation to the order of the trial judge that Erect Safe indemnify Australand in respect of the latter’s liability to Mr Sutton.

18 In relation to the appeals, I agree with the judgment of McClellan CJ at CL and with the orders which his Honour has foreshadowed. In particular, I note my agreement with the apportionment of liability as between Australand, Erect Safe and Mr Sutton’s employer, Dalma Formwork Pty Ltd.

19 In relation to the cross-appeal, I have come to a different conclusion. For the reasons set out below, I would dismiss the cross-appeal and uphold the order with respect to indemnification of Australand.

Cross-appeal: indemnification

20 In June 2002, Erect Safe tendered for the scaffolding work in respect of a building known as “The Nexus” being constructed at 13-19 Atchison Street, St Leonards in Sydney. The tender was successful and, by an agreement entered into on or about 9 September 2002, Australand sub-contracted the scaffolding work to Erect Safe. For the purposes of considering the claim for indemnification, it is sufficient to note three provisions of the agreement, namely those headed “Indemnity” (cl 11), “Insurance – Public Liability” (cl 12.1) and the definition of “Subcontract Works” in cl 19.1. These provisions were as follows:

“11 The Subcontractor must indemnify Australand Constructions against all damage, expense (including lawyers’ fees and expenses on a solicitor/client basis), loss (including financial loss) or liability of any nature suffered or incurred by Australand Constructions arising out of the performance of the Subcontract Works and its other obligations under the Subcontract.”

12.1 Public Liability

Before commencing work, the Subcontractor must effect and maintain during the currency of the Subcontract, Public Liability insurance in the joint names of Australand and the Subcontractor to cover them for their respective rights and interests against liability to third parties for loss of or damage to property and the death of or injury to any person.

‘Subcontract Works’ means the whole of the design and work to be executed in accordance with the Subcontract, including variations … .”

21 In addition, cl 12.2 required that the sub-contractor have workers compensation insurance for its employees. The provision continued:

“The insurance must be extended to indemnify Australand Constructions for their statutory liability to persons employed by the Subcontractor. The Subcontractor must ensure that every sub-subcontractor to the Subcontractor is similarly insured.”

22 The issue which arises in this context is whether the indemnity conferred by cl 11 extends to a liability of the head contractor which arises not merely from the activities of the sub-contractor in performance of the works, but also as a result of a breach of an independent duty owed by the head contractor to the injured third party.

Principles of construction

23 Before considering the proper construction of the indemnity clause, it is desirable to identify the principles governing the exercise. These were set out in the joint judgment in Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; 217 CLR 424 at [17]-[23] (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ). Their Honours affirmed the principle stated by Lord Oliver of Aylmerton in Coghlan v S H Lock (Australia) Ltd (1987) 8 NSWLR 88 at 92 in relation to “certain well-known principles of construction in relation to guarantees”:

“Such a document falls to be construed strictly; it is to be read contra proferentem; and, in case of ambiguity, it is to be construed in favour of the surety.”

24 Those principles were restated in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561, in the joint judgment of Mason ACJ, Wilson, Brennan and Dawson JJ:

“At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety.”

25 In this respect, Andar Transport followed Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 256 which, in the joint judgment of Mason CJ, Brennan, Deane and McHugh JJ, set out with approval the passage just quoted from Ankar. The principles were applied in Chan so as to relieve a guarantor of the obligations of the lessee under a lease in circumstances where the lease, though executed, was not registered and thus had no effect in law, as opposed to giving rise to equitable rights flowing from the execution of the agreement.

26 In Andar Transport, the application of the principles resulted in an indemnity clause being read down so as to limit the indemnity given by the appellant to “the indemnification of Brambles against any vicarious liability which Brambles might incur against third parties”: at [24]. That result was achieved primarily because of the contractual context which allowed that “a suit against Brambles premised upon vicarious liability was, in these circumstances, a distinct possibility”: at [25].

27 It is also convenient to note at this stage the decision in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500. Darlington entered in to a contract with Delco whereby Darlington would act as a broker for Delco in the commodity futures market. Clause 6 of the contract required Delco to acknowledge that the broker “will not be responsible for any loss arising in any way out of any trading activity undertaken on behalf of the client whether pursuant to this agreement or not”. Pursuant to cl 7(c) of the agreement any liability of Darlington “for damages for or in respect of any claim arising out of or in connection with the relationship established by this agreement or any conduct under it … shall not in any event (and whether or not such liability results from or involves negligence) exceed $100”.

28 In affirming the principles of construction which applied in relation to exclusion clauses, the Court (Mason, Wilson, Brennan, Deane and Dawson JJ) remarked that recent English authorities had been at pains to establish an approach which did not rely upon the doctrine of “fundamental breach” to impose a limit on such provisions. The Court noted that it had not adopted such an approach and had relied upon principles of interpretation of the contract. After referring to the relevant authorities, their Honours stated (at 510):

“These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.”

29 In applying those principles, the Court held that the exclusion of responsibility for loss achieved by clause 6 did not extend to unauthorised trading activity but concluded that the limit on liability contained in cl 7(c) did operate, in particular because it was broadly expressed to “comprehend claims arising out of or in connexion with the relationship established by the agreement”: p 511 (emphasis in original).

30 Although, as will be noted below, there have been suggestions that Ankar and Chan, as followed in Andar Transport, turned away from the principles stated in Darlington Futures, that seems unlikely to be correct. Not only was no such suggestion to be found in any of the later cases, but the hearings in Darlington and in Ankar were within a month of each other and the Court was constituted by the same members, three of whom were also in the majority judgment in Chan and four of whom were in Dickinson v The Motor Vehicle Insurance Trust (1987) 163 CLR 500, to which reference will be made below.

Application of principles

31 Three factors should be taken into account in construing the scope of the indemnity and the insurance obligation. First, it is clear that Erect Safe was to be an independent contractor. It follows that there can have been no expectation that Australand would be liable vicariously for any negligence or other tortious conduct on the part of Erect Safe, unless possibly it was conduct undertaken at the specific direction of Australand.

32 Secondly, it is clear both from their position adjacent to each other in the agreement and from the inter-relationship of their content, that the clauses relating to indemnity and the obligation to maintain insurance were inter-related. It should follow that Erect Safe’s obligation to take out public liability insurance, in so far as that insurance covered Australand, was intended, in the absence of any indication to the contrary, to be co-extensive with its obligation to indemnify Australand. It follows that the clauses should be read together and the construction of one may be influenced by the construction of the other.

33 Thirdly, the clauses should be construed in their broader contractual context which, as expressly recognised in various clauses of the agreement, involved the need for co-ordination of activities involving more than one sub-contractor operating on the site at one time and co-operation between the sub-contractors, for the purpose not only of the efficient administration of the contract, but also for ensuring safety of all persons on the site: see, eg, cl 2.2 and cl 16, dealing with occupational health and safety.

34 It is convenient to commence by considering the categories of liability of the head contractor, against which indemnity might be sought. These will, in any event, be limited to circumstances of liability arising out of “the performance of the Subcontract Works”. Assuming for present purposes that the relevant works were the erection of and dismantling of scaffolding, the first question is whether the relevant liability arose only out of performance by Erect Safe of the relevant works. Erect Safe contended that such a reading was required, consistent with the reference to “its other obligations under the Subcontract”, as appeared in the following phrase. The relevant activity involved the erection of scaffolding and there is no suggestion that it was carried out otherwise than by or on behalf of Erect Safe. Accordingly, the categories of liability may be limited to those arising out of the erection of scaffolding by Erect Safe.

35 In general terms, there are three ways in which Australand could become liable for an act carried out by Erect Safe. First, it could be vicariously liable in the sense that the law imposed upon Australand liability for the tortious conduct of Erect Safe. Secondly, it could be liable because the conduct of Erect Safe resulted in a contravention of a legal duty imposed on Australand. Thirdly, the act of Erect Safe might form the physical cause of an injury to a third party for which Australand was liable because of its failure to take appropriate steps to avoid the risk materialising.

36 Erect Safe in effect accepted that the indemnity would operate in the first two classes of case, but not in the third. The third case was distinguishable, it contended, because Australand was liable on the basis of its own act or omission, which constituted a breach of the duty which it, Australand, owed to the injured party. It would not be sensible, so it was contended, to read the indemnity as extending to conduct over which Erect Safe had no control.

37 The construction proposed by Erect Safe does not reflect the natural and ordinary meaning of the language of cl 11 and there are a number of factors which favour rejection of that construction.

38 First, the natural and ordinary meaning of the clause identifies an indemnity defined by reference to two elements; one is the performance of the works (by the sub-contractor), the other is a legal liability of the head contractor, relevantly to a third party. The performance of works is a reference to physical activities or a state of affairs. There is no third element, such as the liability of the sub-contractor. Nor is there any exclusion, as might arise if it required that the contractor’s liability be derived solely from that of the sub-contractor. The two identified elements are linked by a connecting phrase, “arising out of”, which connotes a weak causal relationship, rather than a direct one (as might the term “caused by”) or an exclusive one (as might “caused solely by”). In the ordinary sense of the connecting words, the physical activity or state of affairs must contribute in a material way to the legal liability.

39 Secondly, if the indemnity were restricted to the first two categories noted above, it would have no obvious work to do, or perhaps none at all. Because Erect Safe was undoubtedly an independent contractor, Australand would generally not be liable vicariously for the tortious conduct of Erect Safe. Indeed, it is arguable that it would never be so liable, because the exceptions to the general principle of non-liability (such as work carried out at the specific direction of the head contractor) are in reality examples of a breach by the head contractor of a duty which it owed to the injured party. Accordingly, understood in its commercial and legal context, a construction which limited the indemnity to cases of vicarious liability would be largely if not entirely ineffective.

40 Thirdly, cl 11 did not refer to Australand’s liability “for” the performance of the sub-contract works, but referred rather to a liability “arising out of” such performance. That phrase is consistent with a broader causal relationship than that proposed by Erect Safe. Its scope will be considered further below.

41 Fourthly, the reference to liability “of any nature” suggests a more expansive reading than that proposed by Erect Safe. It could be limited to the description of the relief which follows from liability, but it could also refer to the basis of the liability, namely whether direct or vicarious, independent or consequential.

42 Fifthly, the language of the insurance obligation in cl 12.1 is consistent with a broader construction of cl 11. Thus the insurance must not only be taken out in the joint names of Australand and Erect Safe, but must cover both of them “for their respective rights and interests” against liability to third parties. Accepting that the obligation to ensure Australand’s rights and interests will not extend beyond those to which the indemnity applies, nevertheless, the description in cl 12 is in unqualified terms and is not limited to joint or derivative interests.

43 Sixthly, the obligation to hold workers compensation insurance, contained in cl 12.2 of the contract, expressly extends to the statutory liability of Australand under the Workers Compensation Act. Although it is possible that the particular insurance obligation extends beyond the scope of the indemnity, the wording of the indemnity was apt to extend to such a liability. As will be seen below, the cases dealing with the phrase “arising out of”, of long standing in the workers compensation legislation, are inconsistent with the interpretation proposed by Erect Safe.

44 Adopting this approach, it may be understood that the performance of the contract by Erect Safe gave rise to duties of care imposed by law on Australand. The duty to the injured worker, specifically, arose out of the performance of the sub-contract by Erect Safe. It was the unsafe condition of the scaffolding created by Erect Safe that gave rise to a contingent liability on the part of Australand, if it failed in its duty to take reasonable care for the safety of the worker. As will be seen below, the cases recognise different degrees of causal connection required by different language. Thus, a question may arise as to whether there is a sufficient causal connection between the performance of sub-contract works and the liability of a head contractor where the only causal link is the presence of the injured party on the construction site as a result of the performance of the sub-contract. There is no doubt that the causal link will be stronger in circumstances such as the present where the default of the sub-contractor both contributes to the injury to the worker and creates the pre-condition of the liability of the head contractor. It is convenient, therefore, to turn to the authorities dealing with the nature of the connection required by the phrase “arising out of”.

Scope of “arising out of”: statutory examples

45 The phrase “arising out of”, in the context of an insurance policy, was given extensive consideration by Einstein J in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2006] NSWSC 223, particularly at [990]-[1004].

46 The phrase is also commonly used in relation to claims for damages for injuries which are said to result from or arise out of the negligent conduct of the defendant. In such cases, it is sufficient that the negligence materially contribute to the injury. Similar language was used in Smith v Australian Woollen Mills Ltd (1933) 50 CLR 511, a case involving workers compensation legislation, which required a personal injury “arising out of and in the course of employment” to base a claim for compensation. A diabetic worker fainted on the job, purely as a result of his diabetic condition. At the time he was moving between wool-carding machines and fell injuring himself on the machinery. The Court (Gavan Duffy CJ, Rich, Dixon, Evatt and McTiernan JJ) stated at 511-512:

“The true question appears to us to be whether these conditions of the employment so materially contributed to the injury that it can be said to have arisen out of the employment.”

47 The joint judgment continued at 513:

“Many cases have occurred when the causal connection between the employment and the accident … consists in the presence of the workman at a particular place in the fulfilment of his duties. In such cases, of which the present is an example, it appears to have been felt that something more was required than the mere conjunction of the two circumstances, that at that place the physical object, moving or stationary, existed to work the injury, and to that place the workman came in the course of his duties.”

48 Their Honours concluded that if an additional element or consideration were needed (p 515), it was supplied by the fact that the workman’s fall brought him into contact with something which “like plant or machinery, is peculiar to the work or occupation, and is not common both to industrial and private life”. In that case, “the employment materially contributed to the injury, which accordingly arose out of it”: p 516.

49 In Dover Navigation Co Ltd v Craig [1940] AC 190 at 193, Viscount Maugham noted that the words “arising out of”, “connote a certain degree of causal relation between the accident and the employment”: see generally Kavanagh v The Commonwealth (1960) 103 CLR 547. In Murray v Favelle Mort Ltd [1974] 2 NSWLR 230, again in the context of workers compensation legislation, Hutley JA stated at 230B-C:

“’Arising out of employment’ and events ‘to which the employment was a contributing factor’ are synonymous or virtually so.”

Murray

Thom v Sinclair

50 As noted in Allianz Australia Insurance Ltd v GFS Australia Pty Ltd [2005] HCA 26; 221 CLR 568 at [84]-85], the phrase “arising out of” was common in statutes providing for third party motor vehicle insurance in New South Wales over many years, but has since been “banished from the legislation”. In that context, it was a phrase adopted to indicate the relevant relationship with use of a motor vehicle.

51 Thus, in Government Insurance Office (NSW) v R J Green & Lloyd Pty Ltd (1965) 114 CLR 437, the Court considered whether a third party insurance policy for a motor vehicle covered an injury suffered by a workman in seeking to load a building hoist onto the tray of a stationary table top truck. The Court unanimously held that the injury was covered as a liability incurred “in respect of the death or bodily injury to any person caused by or arising out of the use of the motor vehicle”. Barwick CJ (with whom McTiernan and Taylor JJ agreed) stated at 442-443:

“The phrase ‘arising out of’ is not here found in the same collocation as it is in workers' compensation legislation, where it is in juxtaposition to a temporal expression. In that sphere the words ‘arising out of’ clearly point to a causal relationship. The words ‘arising out of’ in s 10 of the Act and in the indemnity clause of the policy are not merely, if at all, explicative of the words ‘caused by’; they are really used in contrast to them; and in the total expression are extensive in their import. Bearing in mind the general purpose of the Act I think the expression ‘arising out of’ must be taken to require a less proximate relationship of the injury to the relevant use of the vehicle than is required to satisfy the words ‘caused by’. It may be that an association of the injury with the use of the vehicle while it cannot be said that that use was causally related to the injury may yet be enough to satisfy the expression ‘arise out of’ as used in the Act and in the policy.”

52 Statements to similar effect appear in the judgments of Menzies J at 445 and Windeyer J at 446 and 447: each of the latter considered that the relevant relationship had “some causal element in it” (Menzies J) or more than “a merely casual concomitant, not considered to be, in a relevant causal sense, a contributing factor” (Windeyer J).

53 Further, as Barwick CJ noted at 444:

“The Act does not evidence any intention to limit the injury against the liability for which the insured is to be indemnified to injury caused by or arising out of a negligent use of the motor vehicle. Of course, the liability of the owner to the injured person may require some tortious act, usually negligence for which the owner is responsible though many cases of liability will arise out of workmen's compensation legislation. But the necessity for some tortious or other basis of the liability of the owner does not require any qualification of the word ‘use’ in the statutory expression. It is the injury which must be caused or arise out of the use, not the liability for the injury.”

54 The last proposition was expressly affirmed in the later decision of Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500 at 504 (Mason CJ, Wilson, Brennan, Dawson and Toohey JJ). The negligent act of the father in Dickinson was in leaving two children in a vehicle, one with a box of matches, with which he managed to start a fire in the car, leading to injury of his sister. As the Court pointed out, although the negligence of the father may have had a merely coincidental relationship with the use of the motor car, the relationship of the injury to the use of the car, which was the statutory test, fell into a different category. The judgment of the Court stated at 505:

“Whether or not the appellant's injuries were actually caused by the use of the motor car, it is sufficient to say that they arose out of such use. The test posited by the words ‘arising out of’ is wider than that posited by the words ‘caused by’ and the former, although it involves some causal or consequential relationship between the use of the vehicle and the injuries, does not require the direct or proximate relationship which would be necessary to conclude that the injuries were caused by the use of the vehicle.”

55 Because the indemnity in the present case is wide enough to extend to the statutory liability of Australand for workers compensation, the authorities with respect to the use of statutory language have direct relevance. The language of both cl 11 and cl 12.2 suggests that the indemnity was intended to extend to liability for workers compensation payments. It may therefore be assumed that the indemnity, using similar language to that used in the Workers Compensation Act, was intended to cover the full extent of the liability which arose under that Act.

Scope of “arising out of”: contractual indemnities

56 It is convenient to turn next to the authorities which have construed the relevant terminology in the context of contractual indemnity clauses. The first authority in the line is Davis v The Commissioner for Main Roads (1967) 117 CLR 529. The case involved a sub-contractor doing trucking work for the Commissioner for Main Roads (the respondent). The sub-contractor in carrying out the relevant work, collided with a train, causing damage to the train for which the Commissioner for Railways sued him. The sub-contractor sought to recover contribution from the respondent, alleging that the accident had been due to the separate negligent conduct of the respondent. The respondent relied upon an indemnity clause in the sub-contract which read as follows:

“The Contractor shall undertake the whole risk of carrying out the contract, and without limiting the generality thereof, shall -

(a) hold the Commissioner indemnified against all claims arising out of -

whether such damage … is caused by the use of a motor vehicle or by goods falling or projecting therefrom or otherwise howsoever ….

The Contractor shall insure any motor vehicle used on the contract in the joint names of himself and the Commissioner under a policy unlimited in amount covering liability for damage to the property of third parties ….”

57 The Court held that the indemnity was engaged for the reasons given by Menzies J (Barwick CJ and McTiernan J agreeing). The matter came on by way of demurrer, the issue being explained by Menzies J in the following terms at p 536:

“The short question is, therefore, whether the contract between the contractor and the Commissioner [for Main Roads] does entitle the Commissioner to be indemnified by the contractor in respect of the liability in relation to which contribution is sought, viz. liability to the Commissioner for Railways for the damage done to his locomotive by reason of collision with the contractor's truck.

The simplest way to test the matter is to disregard any negligence on the part of the contractor, and to assume that the Commissioner for Railways sued the Commissioner [for Main Roads] alleging that the damage caused to the locomotive in collision with the truck was caused by the negligence of the Commissioner [for Main Roads] and, then, to ask whether cl 7 of the contract would, in the circumstances afford the Commissioner an indemnity against the contractor for any damages awarded to the Commissioner for Railways against the Commissioner.”

58 Menzies J considered an argument that the clause could not be understood as conferring an indemnity upon the Commissioner against liability for its own negligence. The contention was dismissed on the basis that no claim could be maintained against the Commissioner in the absence of fault on its part. His Honour concluded (p 537):

“Accordingly the only purpose, or at least the principal purpose, for taking such an indemnity, would be to protect the Commissioner against liability for its own fault. Furthermore, once it appears that the indemnity does extend to the Commissioner's fault, including negligence, there is no sound ground for limiting the indemnity to particular breaches of the duty of care. The indemnity should be allowed to operate in accordance with its terms which throw upon the contractor the whole risk of carrying out the contract.”

59 In dissent, Kitto J (with whom Windeyer J agreed) in turn agreeing with Sugerman J in the Supreme Court, noted the argument that “the clause upon its true construction extends only to claims asserting a vicarious responsibility on the part of the respondent for acts or omissions on the part of the appellant (or his servants) in the performance of the contract, whereas the claim which the appellant alleges that the Commissioner for Railways might have maintained against the respondent was one asserting a responsibility of the respondent for his own acts or omissions or those of his own servants.” That limited construction found favour only with the minority. The minority view, which finds its echo in later judgments, fails to explain satisfactorily how and in what circumstances a head contractor could be liable vicariously for the negligence of a sub-contractor, so as to make out a plausible purpose for an indemnity, so limited.

60 More recently, there has been a series of cases dealing with contractual indemnities, particularly in relation to sub-contractors working on construction sites. In two decisions in 2000, this Court and the Western Australian Court of Appeal separately concluded that similar indemnities given by sub-contractors applied in relation to liabilities of head contractors to which the performance of the contract works by the sub-contractor had been a contributing factor.

61 The decision of the Full Court of the Supreme Court of Western Australia in Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASC 408; (2000) 23 WAR 291, concerned an agreement by which Speno had contracted with Hamersley to carry out rail grinding work for Hamersley on the latter’s railway. A worker employer by Speno was injured whilst travelling on the railway in the course of his work, as a result of the negligence of employees of Hamersley: see [1]-[2] (Malcolm CJ). He was travelling in a car known as an HIRail, which ran on the rail tracks, when the points were carelessly changed against him, causing the vehicle to be derailed, as a result of which he was injured. Hamersley had insurance with Zurich Australian Insurance Ltd in which both Speno and Hamersley were named as insureds, Hamersley being identified as the principal in respect of a contract between it and Speno. Malcolm CJ noted that:

“The claim for an indemnity against Speno was based upon cl 37 of the contract between Hamersley and Speno which provided that:

‘The contractor [Speno] shall be solely liable for, and shall be deemed to indemnify and hold harmless the company [Hamersley] against any and all liabilities, losses, damages ... of every name or nature whatsoever arising whether:

(a) under any statute or at common law in respect of personal injury ... or death of

(i) any and all persons employed by it in the execution of the Work/Services ...

resulting either directly or as a consequence of the performance of the Work/Services under the Contract.’”

62 As Malcolm CJ further explained at [9]:

“It was accepted by Zurich that Hamersley was an insured under the policy, but only in respect of any liability of Hamersley ‘arising out of the performance by [Speno] of any contract … for the performance of work for [Hamersley]’. It follows that the policy distinguished between the interests of Speno and Hamersley as insureds. Whilst Speno was fully insured in the conventional manner, Hamersley’s cover was limited to its capacity ‘as the principal’ and to ‘liability arising out of the performance’ by Speno of the work the subject of the rail grinding contract with Hamersley. It was in this context that the learned trial judge concluded that the accident would not have happened if Speno had not been performing rail grinding works or services under the contract, with the consequence that the liability of Hamersley to [the worker] arose out of the performance of the contract by Speno.”

63 Malcolm CJ rejected an argument that the injury was caused by the negligent operation by Hamersley employees of the points at a siding and that “the performance of the contract by Speno formed no element of [the worker’s] cause of action against Hamersley”: at [10]. His Honour relied upon the passage from Dickinson at 505, set out above.

64 Ipp J dealt with the argument that the accident was not “causally or consequentially related to” Speno’s performance of the contract and therefore that Hamersley’s liability to the worker did not arise out of the performance of the contract: at [64]-[65]. His Honour then stated:

“66 It is true that the negligent act that gave rise to liability was the operation of the switches while the HIRail was travelling on the rail track, and not some aspect of Speno's performance of [the contract]. But the incident giving rise to liability occurred in the course of Speno's performance of the contract. That is to say, the HIRail was on the track and [the worker] was in the HIRail only because Speno required them to be in those places so as to enable it to perform the contract. There is undoubtedly a causal link between Hamersley's liability and the performance by Speno of the contract, namely, the presence of the HIRail (with [the worker] in it) on the tracks at the very moment the switches were negligently operated.

67 The words ‘arising out of’ are well recognised as being of broad import. Further, in the context of an insurance policy, there is no reason to construe them narrowly. It is difficult to conceive of any situation where Hamersley could incur a liability arising out of the performance by Speno of its contract … in circumstances different in principle to those in the present case. ….”

65 Wheeler J (with whom Ipp J generally agreed) dealt with an argument that the sort of case to which the clause was intended to relate might be one not dissimilar to that which arises in the present case. Her Honour noted the contention being put in favour of that approach in the following terms at [128]:

“128 … If in performing its contract Speno had unloaded from the HIRail some equipment and placed it into a pathway commonly used by people on Hamersley's site, and had been seen by a Hamersley supervisor who was aware that the area was a pathway but who failed to remove the goods, then if some person had walked through the pathway at night and tripped over the goods, Hamersley, as occupier of the site, would have a liability which arose out of Speno's performance of the contract by reason of the fact that Speno had brought the goods to the site and placed them there.

129 However, if one adopts the strict analysis contended for by Zurich in this case, and asks the question of what is the relevant negligent act or omission on the part of Hamersley, then the answer appears to be that it would be a failure to take reasonable care to remove from the site materials which it should have known were there and should have foreseen to be a hazard to visitors. On that strict analysis, the negligent act or omission does not arise out of Speno's performance of its contract; rather, the presence of the goods has ‘merely given occasion for the operation of’ Hamersley's negligence.

130 In my view, the reason that one might readily accept that Hamersley's liability arose out of Speno's performance of its contract in the example given, is that the presence of the hypothetical goods, forming part of Speno's performance of its contract, give rise to the duty of care which is owed to visitors to ensure that this type of hazard does not remain on the site.”

66 Her Honour’s reasoning was, in substance, that because Hamersley’s duty of care arose from the performance by Speno of its contract, so it followed that Hamersley’s liability arose from that performance. The same reasoning applied in the present case would engage the operation of the indemnity clause, even if Speno were not followed in other respects.

67 In Leighton Contractors Pty Ltd v Smith [2000] NSWCA 55, this Court (Mason P, Meagher JA and Fitzgerald JA) considered the operation of an indemnity clause in the following terms:

“The subcontractor shall indemnify and keep indemnified the company against all loss or damage including but not limited to all physical loss or damage to property (other than property for which the subcontractor is responsible under clause 16) and all loss or damage resulting from death or personal injury arising out of or resulting from any act, error, or omission or neglect of the subcontractor.”

68 The injured worker was an employee of the company (Leighton Contractors) but was working for a sub-contractor securing roof trusses on a building site, when one of the trusses collapsed and the worker suffered serious injuries. Both Leighton and the sub-contractor were found liable to the worker and the Court unanimously held that the natural and ordinary meaning of the indemnity clause required the sub-contractor to indemnify Leighton Contractors for its liability. Their Honours specifically relied upon the statement of principle in Darlington Futures requiring the Court to give the words in the contract their natural and ordinary meaning.

Inconsistent authorities

69 It was partly on the basis that the High Court had subsequently departed from that approach in Andar Transport that this Court in F & D Normoyle Pty Ltd v Transfield Pty Ltd [2005] NSWCA 193; 63 NSWLR 502 (“Normoyle”) sought to distinguish Leighton Contractors. As noted above, it is far from clear that Darlington Futures is no longer good law. However, prior to Normoyle, both this Court and the Victorian Court of Appeal had reached conclusions at variance with those which might have resulted from the application of Speno and Leighton Contractors. The earlier of the two decisions was Australian Paper Plantations Pty Ltd v J & EM Venturoni [2000] VSCA 71 (“Venturoni”). A worker was struck by a falling tree, whilst working for a sub-contractor in a forest on land owned by APP. The liability of APP was said to have depended upon the land being “unsafe” and APP failing to provide “a safe system for felling trees”. The contract between APP and the sub-contractor included the following indemnity:

“The [sub-contractors] hereby indemnify and agrees [sic] to keep the Company indemnified against all costs, damages, fines, expenses, claims, actions and suits whatsoever arising out of or in respect of the carrying out of the agreement.”

70 The argument against the operation of the indemnity was that the only connection between the claim and the performance of the contract was that the sub-contractors had brought the worker onto the land for the purpose of carrying out the tree felling. Buchanan JA (with whom Ormiston JA agreed) noted that the contract was almost entirely devoted to setting out the obligations of the sub-contractors and concluded that the words “costs, damages, fines and expenses” produced absurd results if the clause applied to the performance of the contract by both parties: at [11]. His Honour also noted that APP had agreed to obtain insurance at its own expense in favour of the sub-contractors. The prescribed form of insurance “provided indemnity against the liability of the insured to pay compensation under the Act and to pay damages at common law in respect of injuries sustained by a worker”, leading his Honour to conclude at [13]:

“In my view it would be incongruous if the appellant agreed to provide insurance for the respondents against claims by their workers and at the same time was able to visit upon the respondents liability for injuries sustained by workers engaged by the respondents pursuant to [the indemnity clause].”

71 After referring to authorities requiring that the clause be given its natural and ordinary meaning, his Honour noted that the construction adopted by the trial judge, in favour of the sub-contractors, was not strained. His Honour held at [18]:

“Rather, the trial judge interpreted the clause in the manner conceded by the appellant to be appropriate, that is, by requiring that the carrying out of the contract be more than the occasion of the liability in question and held that that requirement was not met in the present case.”

72 The reasoning also turned in part upon the proposition that the indemnity should not have been read to extend to carrying out the contractual obligations of APP, as opposed to those of the sub-contractor. However, it was the action of the sub-contractor in bringing the worker onto the land to engage in tree felling that was a step in the chain of events leading to the injury. That, it appears, was conceded to be insufficient to engage the indemnity. The submission of the appellant that there need only be a “discernable and rational link” between the liability or claim and the carrying out of the contract was not expressly rejected, but the possibility of absurd results, combined with the acceptance by APP that it would take out insurance for those working on its land, appear to have resulted in the adequacy of the connection being rejected as no more than temporal.

73 Venturoni was distinguished by Giles and Hodgson JJA in State of New South Wales v Tempo Services Ltd [2004] NSWCA 4 at [20] and disapproved by Meagher JA at [8]. It was referred to by Spigelman CJ in Roads and Traffic Authority of NSW v Palmer [2003] NSWCA 58, as an authority relied upon by the primary judge Wood CJ at CL, in Palmer at first instance, but without expressly applying it. In Palmer, the indemnity was identified by Giles JA at [237] in the following terms:

“The immediately relevant words are those in cl 18, ‘… against any claim or action brought by any person against the Principal … in respect of personal injury … of any person … arising out of the construction of the Works by the Contractor’, although the indemnity also deals with damage to the Principal’s property and claims against the Principal in respect of damage to property.”

74 Spigelman CJ (with whom Handley JA agreed) held at [213], after expressions of doubt as to the correct result:

Venturoni

75 Giles JA (with whom Handley JA also agreed) identified the alternative constructions in the following terms at [238]:

“Specifically, is ‘by the Contractor’ only descriptive of the activity of construction of the Works out of which the damage or claim must arise (‘the first approach’), or do those closing words mean that the damage or claim must arise out of the Contractor’s performance of that activity (‘the second approach’)?”

76 His Honour further stated at [241]:

“Clauses 18-21 deal with risk allocation and protection against risk. On the first approach, the risk allocation worked by cl 18 would be unbalanced. The Contractor is obliged to indemnify the Principal against damage to the Principal’s property caused by the Principal or by third parties, over whom the Contractor has no control, and whether negligently or wilfully caused; and also against claims against the Principal for wrongs committed by the Principal over which the Contractor has no control, again whether negligently or wilfully committed. The only constraint is that the damage or claim arises out of the activity of construction of the Works.”

77 His Honour then considered that such a risk allocation was “not unknown” (at [242]) and considered the operation of the insurance clauses in that context. His Honour indicated that although two constructions were open, the provision for insurance “can be seen as favouring the second approach, with the insurance intended to cover the Principal with respect to its own negligent acts and omissions”: at [244]. Finally, his Honour held at [249]:

“Perhaps if the only basis for the Council’s liability to the Plaintiff lay in the acts and omissions of Pioneer, without fault of the Council, cl 18 would apply. But that is not so. The Council has one liability only. That liability arises out of the construction of the Works, but it does not arise out of the construction of the Works by Pioneer because one of its bases is the acts and omissions of the Council, the so-called direct breach of the Council’s duty of care. The ‘dual breaches of duty’ takes the Council’s liability outside cl 18 construed according to the second approach.”

78 The highly qualified first alternative, where the “only” basis for the Council’s liability lay in the acts or omissions of the sub-contractor, is presumably expressed tentatively because, as noted in Speno, it is difficult to understand how such a liability could arise. The second alternative is inconsistent with an approach that seeks an element of causation which may be a material contributing factor. But not the sole factor. Why such an approach is inadequate or inappropriate was not explained.

79 On the facts the dangerous condition of the road was the consequence of Pioneer spreading gravel on the surface in the performance of its contract. The negligence of the Council was its failure to erect proper warning signs with appropriate speed restrictions. Because the act of Pioneer gave rise to the obligation of the Council, the case is authority for the conclusion that an essential contributory factor will not engage such an indemnity, where the liability of the party indemnified is attributable to breach of its own separate duty. This approach was not consistent with Leighton Contractors (to which the Court in Palmer was not referred) or Speno, even on the restricted reasoning of Wheeler J referred to above.

80 The next case in the series is Normoyle, decided by this Court in 2005. It concerned an injury to a worker involved in the construction of a railway station at Sydney Airport. The worker was employed by Chadwick Buildings Systems Pty Ltd (“Chadwick”), which was installing gyprock ceilings under sub-contract to the head contractors, referred to as “the Joint Venture”. A second sub-contractor, Normoyle, had brought pipes onto the site and stored them on the ground level. In circumstances not revealed in the evidence, the pipes were removed to an upper level where they were a hazard. In the course of his work for Chadwick, the worker tripped on the pipes and suffered injury. The terms of the indemnity given by the sub-contractors, as set out in cl 12 of the contract, were noted by Ipp JA at [43]:

“The sub-contractor shall indemnify and keep indemnified [the Joint Venture] and their respective officers, employees and agents against all claims, demands, proceedings, liabilities, costs, charges and expenses arising as a result of any act, neglect or default of the sub-contractor, its employees or agents relating to its execution of the Works.”

81 The majority (Ipp JA, McColl JA agreeing) distinguished Leighton Contractors, but the reasoning in Palmer was not adopted (nor was the case referred to the Court). Rather, the majority rejected the operation of the indemnity clause in relation to the two sub-contractors on the basis that neither had been in breach of its duty under the common law, under contract, nor its statutory duty: at [73]-[75] and [89]. The operation of the indemnity turned upon the meaning of the phrase “any act, neglect or default of the sub-contractor”. The majority held that these words, read together, demonstrated the need for a breach of duty on the part of the sub-contractor. Thus the indemnity only operated if the worker’s injuries “were caused by an act or omission by [the sub-contractor] that amounted to negligence or breach of contract or breach of statutory duty”: at [68]. This was a point of distinction between the indemnity in Leighton Contractors and that in Normoyle: at [62] and [65].

82 Ipp JA relied upon two further factors in distinguishing Leighton Contractors. One was his Honour’s view that by reason of the decision of the High Court in Andar Transport, the natural and ordinary meaning approach in Darlington Futures “can no longer be relied upon in regard to indemnity clauses”: at [64]. For reasons already noted, it seems unlikely that the relevant High Court authorities, including Andar Transport, should be read as inconsistent with Darlington Futures, in a sense to which no reference was made in the later cases. As Bryson JA noted in Normoyle at [141]-[142], there is no necessary discordance between a rule that ambiguous provisions in an indemnity should be construed in favour of the surety and the rule that ambiguity may properly be detected if it is a reading to which the contractual language “is fairly susceptible without placing a strained construction on it, thereby giving it” its natural and ordinary meaning. The contra proferentem rule is designed to resolve ambiguities, not to create them.

83 Finally, in Normoyle Ipp JA noted as another point of distinction of that case from Leighton Contractors that “the argument in the present case is not that the indemnity applies to liabilities solely arising as a result of any act, neglect, or default of the sub-contractor”. That statement suggested no departure from the usual approach to questions of causation, which will take account of material contributing factors. His Honour referred to this question at [90] in concluding his remarks on the operation of the indemnity provision.

Dickinson v Motor Vehicle Insurance Trust

91 In my opinion, the acts of Normoyle in bringing the pipes on to the ground level of the construction site and storing them in their proper place are so remote from the accident which caused [the worker’s] injuries that the liability which the Joint Venture incurred in consequence of those injuries could not be said to arise as a result of those acts.”

84 The last conclusion, at [91], appears to reflect no more than the absence of evidence that Normoyle was responsible for the presence of the pipes on the upper level.

85 Bryson JA in dissent, was satisfied that the injury to the worker, who was an employee of Chadwick, had a close and direct connection with an act of Chadwick, because his own act was an act of Chadwick and was thus an act attracting the operation of the indemnity. His Honour held that the other sub-contractor, Normoyle, was not required to indemnify the Joint Venture, because there was no evidence which established that Normoyle “had any part in getting the railings to the area where [the worker] tripped, still less that Normoyle had anything to do with their being strewn on the floor in [the worker’s] path”.

86 The other authorities which bear on the subject are a series of decisions of single judges in the ACT Supreme Court which can be traced to the judgment of Blackburn CJ in Canberra Formwork Pty Ltd v Civil & Civic Limited (1982) 67 FLR 66 at 85-87. As explained by Bryson JA in Normoyle at [144], if the appropriate Leighton Contractors is correct, those authorities adopted an inconsistent approach and should not be followed.

Resolving the inconsistencies of approach

87 The authorities stating the principles to be applied in construing an indemnity require that ambiguity be resolved in favour of the surety, but do not require that ambiguity be detected where the natural and ordinary meaning of the language, taken in its contractual context, requires no such conclusion.

88 A court construing a commercial contract, absent statutory authority, has no mandate to rewrite a provision to avoid what it retrospectively perceives as commercial unfairness or lack of “balance”: see Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 at [69] (McColl JA) and Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 at [26]-[32]. Particularly is that so where the parties have expressly allocated risks of particular kinds between themselves. The overriding commercial imperative in such a case is to give effect to the ordinary meaning of language used (absent use of technical expressions or terms of art) so as to provide certainty as to where responsibility may lie, against which insurance may be obtained. This contract expressly required the sub-contractor to take out insurance; the fact that it was not taken out should not affect the construction of the indemnity.

89 In seeking to identify the proper construction of a contractual provision the Court is not bound by the outcome in another case involving a similar but not identical contract. The Court is, however, bound to apply principles established in such cases. In terms of principle, the point of departure is between those cases in which it has been held that an activity of the sub-contractor which materially contributes to the liability of the head contractor is sufficient to engage the indemnity and the cases where the indemnity has been restricted to the existence of a liability in the head contractor which is derivative from a liability of the sub-contractor and involves no independent breach of duty by the head contractor.

90 If both categories were equally available on the language of clause, the Court should prefer that which gives effect to such an indemnity, rather than that which deprives the indemnity of practical operation. The latter construction, dependent upon the existence of a vicarious liability (however identified) is apt to deprive the clause of any practical operation and should, in principle, be rejected.

91 In this respect, principle is supported by the decision of the High Court in Davis, specifically in the passage set out at [58] above.

92 In addition, High Court authority dealing with the scope of workers’ compensation legislation also supports the broader construction. Because the indemnity in the present case was intended to cover liability of the party indemnified under the Workers Compensation Act, the indemnity should be given a construction consistent with the scope of that liability.

93 Identification of the correct approach does not, of course, dictate an outcome in any particular case. Nevertheless, the application of principles, in accordance with the authorities discussed, is reflected in the outcome in this Court in Leighton Contractors and in the Western Australian Court of Appeal in Speno. It also appears to be supported in Normoyle, although the actual decision in that case turned upon a specific provision of the indemnity, held to require default on the part of the sub-contractors, which was not satisfied.

94 Other cases appear to adopt a narrower approach. Venturoni may be understood in its own commercial and contractual context as providing a more limited indemnity than the language of the clause, taken in isolation, would have suggested. Palmer, however, is not readily distinguishable. It adopted an approach which was inconsistent with the approach followed in Leighton Contractors and, significantly, with that adopted in Davis. Davis was referred to in Palmer, but only as an example of an indemnity which extended to a liability caused by the negligence of the indemnified party: see [2003] NSWCA 58 at [242]. In my view Davis stands for more than that and should be followed by this Court, in the absence of material distinguishing factors.

95 As already noted, Palmer did not seek to overrule Leighton Contractors. Nor has Palmer been followed on this point by any other appellate court. In Normoyle, Leighton Contractors was distinguished but the only suggestion that it might be wrong arose from the suggestion that the approach in Darlington Futures should not be applied in relation to indemnity clauses. For reasons given above, the case-law with respect to the construction of indemnity clauses does not cast doubt on the approach adopted in Darlington Futures (or the correctness of Leighton Contractors).

96 In these circumstances, where there appears to be one decision in this Court, inconsistent with an earlier decision of the Court and not referred to in a later decision, the proper course is for this Court to adopt that authority which is consistent with authority in the High Court and, where available, the preponderance of authority in other intermediate courts of appeal. On that basis, the approach adopted in Leighton Contractors should be followed.

97 Adopting the approach in Davis and Leighton Contractors, the two identified elements conditioning the operation of the indemnity being linked by the connecting phrase “arising out of”, that phrase connotes a weak causal relationship which will be satisfied when the activity of the sub-contractor in the performance of the contract contributes in a material way to the breach of duty by the contractor. It is not necessary to adopt the full extent of the reasoning in Speno in order to conclude that the negligent erection of scaffolding in the present case materially contributed to the liability imposed on Australand.

98 An implied limitation that required the liability of the contractor to be entirely derivative from that of the sub-contractor would deprive the indemnity of any obvious operation and should be rejected.

99 It follows that the indemnity operated in the present case and the cross-appeal by Erect Safe against the judgment on the cross-claim should be dismissed. Erect Safe should pay Australand’s costs of the cross-appeal.

100 McCLELLAN CJ at CL:

Preliminary matters and the findings of the trial judge

101 Ian Sutton, the first respondent, was injured at work on 21 October 2002. He was employed as a sub-foreman and leading hand by Dalma Formwork Pty Limited (“Dalma”). At the time he was injured he was working on the construction of a large multi-storey residential and commercial building.

102 The Head Contractor on the site was Australand Constructions Pty Limited (“Australand”), the second respondent. Dalma is a formwork company and was a subcontractor to Australand. It is not a party to these proceedings. Erect Safe Scaffolding (Australia) Pty Limited (“Erect Safe”), the appellant, provided scaffolding services to Australand pursuant to a contract dated 9 September 2002. It was responsible for erecting and maintaining the scaffolding on the site.

103 Mr Sutton was injured when he was constructing formwork to enable concrete to be poured for the external wall of level 9 of the building. He was working with a formwork carpenter. They obtained access to the area where the concrete was to be poured by a scaffold erected on the outside of the building. The scaffold was attached to the building by “ties”, which were metal pipes placed through the previously constructed concrete wall and attached to the vertical members of the external scaffolding. The scaffold was used to position an external formwork wall or “perishutter”. A perishutter is a steel sheet which rested on three steel brackets, fixed to the concrete floor and the internal formwork. When it was required to be moved to a higher level, the formworkers removed the fastenings and it was lifted by a crane. The formworkers then removed the steel brackets from the level below and passed them to the level above where the brackets were fixed in place. The perishutter was then lowered onto the brackets.

104 Mr Sutton and another man prepared the perishutter to be raised from the 8th to the 9th level. They first removed the nuts and the steel bolts. The perishutter was then raised to a position slightly above the concrete floor on the 9th level. Mr Sutton and his fellow worker then climbed downstairs on the external scaffold to access the brackets on level 8. They walked along the planking flooring on the scaffold until they reached a corner. At the corner Mr Sutton was careful to observe the planking because some of it overlapped and could be a trip hazard. About 60 cm to 1 metre around the corner, crossbar ties supporting the scaffolding extended across the walkway at about head height. Mr Sutton did not see a crossbar and struck his head on it. His head was forced back and he fell backwards.

105 Mr Sutton was able to keep working. He removed the brackets and then manually moved them to the level above and fastened them to the floor. The crane then lowered the perishutter onto the brackets and Mr Sutton and his fellow worker bolted them into position. Mr Sutton finished work at about 6 pm and drove home.

106 To ensure that the site was operated safely, Australand had previously formed a Safety Committee. Dalma was represented on the Safety Committee by Mr Mark Woodward, one of its employees. He was elected to that position by the Dalma employees on the site. The Safety Committee included a representative of each subcontractor and some representatives of Australand, including Mr Darrin Lane, the site manager who was employed by Australand.

107 The trial judge found that both Erect Safe and Australand breached their duty of care to the plaintiff. However, his Honour found that Dalma was not responsible as the employer of Mr Sutton. Instead he found that Dalma was entitled to rely on the Safety Committee to ensure that Erect Safe had remedied the hazard. His Honour said of the Safety Committee system that “as all parties conceded (it) was, in theory, a satisfactory system. The failure of the system was due to the fault of either Erect Safe or Australand, or both, and not in any way to the fault of Dalma.”

108 His Honour apportioned responsibility for creating the hazard and in failing to remove it to Erect Safe as to two-thirds and Australand, as principal contractor and supervisor of the site, as to one-third.

109 The trial judge awarded damages to the plaintiff in the following amounts:

Non economic loss	162,500.00
Past Loss of earnings	194,103.60
Past loss of superannuation	17,469.32
Loss of future earning capacity	198,175.29
Loss of future superannuation	17,835.78
Past out of pocket expenses	17,783.23
GP	3,955.38
Pain specialist	7,910.77
Chance of surgery	4,500.00
Handyman/gardener	30,852.00
Future out of pocket expenses	47,218.15
Fox v Wood	8,284.60
Total	663,369.97

110 The subcontract between Erect Safe and Australand imposed obligations of indemnity and insurance on Erect Safe. Clause 11 required Erect Safe to provide the indemnity to Australand and clause 12 required Erect Safe to obtain insurance in the joint names of Australand and Erect Safe. The clauses are as follows:

“Clause 11:

The Subcontractor must indemnify Australand Constructions against all damage, expense (including lawyers’ fees and expenses on a solicitor/client basis), loss (including financial loss) or liability of any nature suffered or incurred by Australand Constructions arising out of the performance of the Subcontract Works and its other obligations under the Subcontract.

Clause 12

Before commencing work, the Subcontractor must effect and maintain during the currency of the Subcontract, Public Liability insurance in the joint names of Australand and the Subcontractor to cover them for their respective rights and interests against liability to third parties for loss of or damage to property and the death of or injury to any person.

The policy must include a cross-liability clause in which the insurer agrees to waive all rights of subrogation or action against any of the persons comprising the insured and for the purpose of which the insurer accepts the term “insured” as applying to each of the persons compromising the insured as if a separate policy of insurance had been issued to each of them (subject always to the overall sum insured not being increased thereby).

The policy must be for an amount not less than that stated in the Details and the insurer and terms of the policy must be subject to Australand Constructions’ approval.”

111 The trial judge found that in the present circumstances clause 11 of the contract between Erect Safe and Australand was engaged with the consequence that Erect Safe was required to indemnify Australand in respect of the verdict which the plaintiff obtained against it. His Honour also found that, in breach of clause 12, Erect Safe had failed to maintain a policy of public liability insurance and accordingly Australand was entitled to damages for the breach of that obligation.

The appeal

112 Both Erect Safe and Australand have appealed his Honour’s decision. There are three issues which this Court must resolve. Firstly, Erect Safe submitted that his Honour should have found that Dalma was in part liable for Mr Sutton’s injuries. It was originally submitted that its contribution should have been assessed at 40% and that, having regard to s 151Z(2) of the Workers Compensation Act 1987, an appropriate reduction should be made in the damages to be awarded. Australand joined in the submission.

113 During the hearing of the appeal, counsel for both Erect Safe and Australand conceded that, in the circumstances of the present case, a finding of negligence against Dalma would not alter the damages to be awarded to Mr Sutton. Not surprisingly counsel for Mr Sutton readily accepted the concession.

Clause 12 of the subcontract

161 Erect Safe concedes that no insurance policy existed. The trial judge found that Australand was entitled to damages flowing from Erect Safe’s breach of its obligation to obtain insurance. That finding is challenged on two bases. Firstly, it is submitted that by allowing Erect Safe to commence work on the site without requiring evidence of the existence of the contract of insurance, Australand waived its right to insist on compliance with clause 12.1. Secondly, it was submitted that clause 12.1 only required insurance to secure any liability in Australand arising from the negligence of Erect Safe and did not extend to secure any liability of Australand arising from its own negligence.

162 Although in Australand’s written submissions waiver was argued, that submission was not agitated at the trial. It was not pleaded and as a consequence no factual findings were made in relation to it. The success of the submission may have depended on an understanding of the relevant facts. The evidence is silent in respect of these matters. The submission must fail.

163 The obligation imposed on Erect Safe by clause 12.1 was to obtain insurance to cover both Australand and Erect Safe “for their respective rights and interests against liability to third parties for loss of or damage to property and the death of or injury to any person”.

164 Clause 12, of course, follows clause 11 and I have already concluded that the liability of Erect Safe under clause 11 is confined. It would be surprising if, notwithstanding that limitation, the parties intended Erect Safe to obtain insurance for any liability of Australand, even that arising from its own negligence.

165 As I have previously discussed, in Steele v Twin City Rigging Pty Limited (1992) 114 FLR 99 Higgins J in the Supreme Court of the Australian Capital Territory concluded that the indemnity in clause 29 of the contract in that case did not extend to the liability of the project manager for its own negligence. His Honour further concluded that the insurance clause was intended to require the subcontractor to obtain insurance to support the indemnity but did not require it to obtain insurance in respect of any liability in the project manager arising from its own negligence. His Honour was urged to follow the decision of Kelly J in Cervellone v Besselink Bros Pty Ltd (1984) 55 ACTR 1 where it was held that the insurance clause was intended to support a complete indemnity. However, the relevant clause in Cervellone provided for a complete indemnity by the subcontractor. The obligation under the insurance clause was construed as requiring insurance to secure that indemnity.

166 Instead of following the decision in Cervellone, Higgins J followed the decision of Blackburn CJ in Canberra Formwork Pty Ltd v Civil & Civic Ltd (1982) 67 FLR 66 (and see also Lyons v Fondi Investments Pty Ltd (1998) 10 ANZ Insurance Cases 61-421; Celik v Commonwealth of Australia [2002] ACTSC 27 and Johnson v The Australian War Memorial [2005] ACTSC 122). The approach taken in each of these decisions is that, in the absence of express words, the obligation under an insurance clause in a contract which is provided to support an indemnity clause will not require the subcontractor to maintain insurance against loss occasioned by the Head Contractor’s negligence.

167 In my opinion it is appropriate to adopt the same approach to the construction of clause 12.1 in the present case. The obligation was to obtain insurance to cover Australand and Erect Safe “to cover them for their respective rights and interests against liability to third parties …”. Australand’s “rights and interests” referred to are those provided by the indemnity provided in clause 11. There being no right in Australand to recover from Erect Safe in respect of damages occasioned by its own negligence, there was no obligation in Erect Safe to obtain insurance to support Australand’s direct liability to another caused by the negligent act of Australand.

Damages

168 There was little dispute at the trial as to the injuries which Mr Sutton suffered. Although he was able to continue working, he suffered immediate neck pain which has increased in intensity. He did not see his general practitioner until 5 weeks after suffering the injury when the initial diagnosis was “a whiplash injury” to the cervical spine. He was initially treated by a physiotherapist but this was not successful.

169 Mr Sutton has been left with constant pain radiating down his arms, particularly the left arm and a loss of sensation in a finger of his left hand. At the trial he gave evidence of an increased loss of sensation in the palm of both hands. The trial judge accepted his account of his disabilities.

170 Mr Sutton continued to work until about 12 months after the injury was suffered. At that time he reported that he could not stand the pain any more. The only skill he had was as a formwork carpenter and he has not worked since. He did not seek light duties believing that they were not available in the construction industry. The trial judge accepted that Mr Sutton’s belief that he would not be able to find other employment was reasonable. At that time he was 60 years of age.

171 Mr Sutton has been examined and treated by a number of specialist doctors. He saw a rehabilitation expert and has been treated with physiotherapy. He has also been treated by a pain management specialist and undertook a course of acupuncture. None of these treatments has been able to relieve his symptoms. About 2 years after the accident he developed pain in his left shoulder which continues to trouble him. It is likely that this pain has developed in response to his posture since the accident as he habitually rests his head on his left arm to relieve the neck pain. An MRI scan revealed Mr Sutton has suffered a disc prolapse at C2/3 level with some impingement on the nerves. There is also a musco-skeletal injury at the C1/2 level. The doctors have discussed whether a fusion of the spine may be necessary but Mr Sutton is very reluctant to have this procedure.

172 The trial judge found that Mr Sutton’s life has been significantly affected by his injury. He was a model worker. He loved his job and believed in working hard. Being unable to work has led to intense disappointment and some depression. Before he was injured Mr Sutton enjoyed playing golf, beach fishing, swimming, playing with his grandchildren and gardening. He is no longer able to do these activities. He is now confined to mowing the lawn with a self-propelled lawn mower, but even this causes him pain. Mr Sutton gave evidence that before his injury his relationship with his wife was extremely good. However, in recent years, although able to have an erection, the pain in his neck causes him to lose it and his sex life is significantly impeded. As a result the trial judge found that his overall relationship with his wife has suffered.

173 The trial judge accepted Mr Sutton’s evidence when he said that before his injury he intended to work until aged 68 years. The trial judge also accepted that, but for the injury, Mr Sutton would have been able to work up to his intended retirement date.

174 The trial judge assessed Mr Sutton’s non-economic loss at 38% of a most extreme case. His Honour understood the parties had agreed that Mr Sutton’s past economic loss was $194,103.60.

175 In relation to his future earning capacity, as I have indicated, his Honour accepted that Mr Sutton would have worked until age 68, being a further four years from the date of the trial. When calculating the appropriate award for cost earning capacity, he made a deduction of 15% for the ordinary vicissitudes of life.

176 The trial judge also allowed for regular visits to a pain management specialist and a general practitioner and allowed a sum against the possibility that Mr Sutton may require surgery on his spine. His Honour also allowed 1.5 hours per week for assistance in the garden.

177 Both the appellant and the second respondent submitted that the award of damages was excessive. It was submitted that his Honour erred in assessing the non-economic loss as 38% of a most extreme case. It was submitted that Mr Sutton’s reported symptoms, together with the fact that he continued to work for 12 months after the injury, did not justify this finding. It was submitted that although an award of between 25% and 30% was reasonable, an award of 38% was excessive for a man of the first respondent’s age. At the trial Mr Sutton argued that his Honour should assess his non-economic loss as 45% of a most extreme case. Although his Honour did not accept Mr Sutton’s submission, he found that, because of his injury, the first respondent’s life has been significantly affected and he now suffers constant pain. Although in my opinion assessment of Mr Sutton’s non-economic loss at 38% of a most extreme case was at the higher end of the available range, it was within his Honour’s discretion. I would not disturb that finding.

178 The parties apparently agreed the amount of Mr Sutton’s past economic loss. On appeal, it was submitted that his Honour had misunderstood the terms of that agreement and that, although an arithmetical calculation had been agreed, his Honour was still required to assess an appropriate figure having regard to the first respondent’s retained earning capacity and making allowances for vicissitudes. It was also submitted that his Honour failed to give adequate reasons for finding that the first respondent was totally incapacitated for work from the time he ceased his employment. A reading of the transcript confirms that the parties had agreed that, subject to any reduction required by the application of appropriate legal principles, the amount to be awarded for past economic loss was in the sum of $194,103.60.

179 His Honour did not expressly find that from the time Mr Sutton ceased work he was totally incapacitated but it is clear that the findings which he did make lead inevitably to this conclusion. His Honour found that, although Mr Sutton did not make any effort to seek other employment, his action in the circumstances was reasonable. This was not an unexpected finding. Mr Sutton was aged in excess of 60 years at the time of the accident, was skilled as a formwork carpenter, but in no other trade, and was now suffering constant pain. There was no likelihood of him being able to obtain other employment.

180 Although his Honour found that Mr Sutton had not sought other employment, Mr Sutton in fact gave evidence that he had been to employment agencies and been told that there were no jobs available for persons of his age for limited hours each day. This evidence was not challenged.

181 There is no fixed rule as to whether a reduction should be made in an award for past loss of earnings for vicissitudes. Each case depends upon its particular facts (Nestle Australia Ltd v McDougall (Court of Appeal, 24 June 1998, unreported) per Beazley JA at 9-10). The trial judge found that Mr Sutton would have worked through to the age of 68 if not for his injury. His Honour made this finding notwithstanding evidence of an injury to his left shoulder, and minor incidents which the first respondent had suffered during his working life. The injury to the left shoulder is manifested by the presence of some pain in and restriction of Mr Sutton’s left shoulder abduction. Whether the shoulder was previously injured or has deteriorated as a result of Mr Sutton’s injuries due to the accident is unknown. It is possible that if he had not suffered the accident and the shoulder had nevertheless deteriorated he may have had some difficulty with overhead work. In my opinion, findings which his Honour made were open and justified the conclusion that there should be no reduction for vicissitudes with respect to past loss of earnings. Mr Sutton’s previous medical incidents were minor and although on occasions he required time off work, his response to them confirms his capacity and his determination to continue his employment.

182 With respect to the claim for future economic loss it was submitted that his Honour erred by discounting the award by only 15% for vicissitudes. It was submitted that there was considerable uncertainty as to whether Mr Sutton could have worked through to age 68. It was suggested that having regard to his age and the suggestion of a previous injury to his shoulder, a 30% discount would have been appropriate.

183 Although aware of the issues raised by the appellant, his Honour found that Mr Sutton had a high level of fitness, considerable pride in his physical abilities and loved his work. Even if his capacity had been slightly restricted, there was nothing in the evidence which indicated that there was a risk, beyond the risks normally associated with his employment, that he would not have been able to work to his intended retirement age. In my opinion a discount of 15% for vicissitudes was within the range of his Honour’s discretion.

184 In my judgment each ground of attack upon the award of damages fails.

Section 151Z(2) of the Workers Compensation Act 1987

185 Because, in my opinion, Dalma is liable for a portion of the damages, it is necessary to redetermine the appropriate award by reference to s 151Z(2) of the Workers Compensation Act.

186 Section 151Z is in the following terms:

(a) the worker may take proceedings both against that person to recover damages and against any person liable to pay compensation under this Act for payment of that compensation, but is not entitled to retain both damages and compensation,

(b) if the worker recovers firstly compensation and secondly those damages, the worker is liable to repay out of those damages the amount of compensation which a person has paid in respect of the worker’s injury under this Act, and the worker is not entitled to any further compensation,

(c) if the worker firstly recovers those damages the worker is not entitled to recover compensation under this Act,

(d) if the worker has recovered compensation under this Act, the person by whom the compensation was paid is entitled to be indemnified by the person so liable to pay those damages (being an indemnity limited to the amount of those damages),

(e) if any payment is made under the indemnity and, at the time of the payment, the worker has not obtained judgment for damages against the person paying under the indemnity, the payment is, to the extent of its amount, a defence to proceedings by the worker against that person for damages,

(e1) if any payment is made under the indemnity and, at the time of the payment, the worker has obtained judgment for damages against the person paying under the indemnity (but judgment has not been satisfied), the payment, to the extent of its amount, satisfies the judgment,

(f) all questions relating to matters arising under this section are, in default of agreement, to be settled by action or, with the consent of the parties, by the Commission.

(a) the worker takes or is entitled to take proceedings independently of this Act to recover damages from a person other than the worker’s employer, and

(b) the worker also takes or is entitled to take proceedings independently of this Act to recover damages from that employer,

(c) the damages that may be recovered from the person by the worker in proceedings referred to in paragraph (a) are to be reduced by the amount by which the contribution which the person would (but for this Part) be entitled to recover from the employer as a joint tortfeasor or otherwise exceeds the amount of the contribution recoverable,

(d) the amount of the contribution that the person is entitled to recover from the employer as a joint tortfeasor or otherwise is to be determined as if the whole of the damages were assessed in accordance with provisions of Division 3 as to the award of damages,

(e) if the worker does not take proceedings against that employer or does not accept satisfaction of the judgment against that employer, subsection (1) applies as if the worker had not been entitled to recover damages from that employer, except that:

(3) This section applies to proceedings taken independently of this Act by a person to whom compensation is payable under this Act in respect of the death of a worker as a result of an injury.

(4) If a worker is liable under subsection (1) (b) to repay any money out of damages recovered by the worker, the worker is not liable to repay the money out of any damages payable after the date of recovery by way of periodic or other payments for loss of future earnings or earning capacity or for future expenses.

187 This section has been the subject of consideration in a number of decisions of this Court. It was criticised for its lack of clarity by Meagher JA in Leighton (at [29]).

188 The practical effect of the section was first considered by Allan J in Leonard v Smith (1992) 27 NSWLR 5 and applied in Grljak v Trivan Pty Ltd (1994) 35 NSWLR 82. The principles were recently affirmed by this Court in Libreri v Ironidol Pty Ltd (No 2) [2007] NSWCA 198 per Mason P and Beazley JA at [19].The section operates so that an injured worker who successfully sues a third party, but who could also have recovered against their employer, will generally receive a reduced award of damages compared with the award they would be entitled to at common law. The employer’s contribution is confined to the amount provided by Part 5 of the Act rather than the amount for which it would have been liable at common law and the total damages will be reduced accordingly.

189 The section operates so that if the third party can recover 50% of the damages from the employer, the total damages awarded to an injured employee will be confined to 50% of the damages at common law plus 50% of the damages calculated in accordance with the statute. The purpose is to preclude an employee from recovering 100% of their common law entitlement to damages from a third party who, because of the statute, would only be able to recover a reduced amount (ie less than 50% of the common law entitlement) from the employer.

190 In the present case I have concluded that the damages determined by the trial judge were appropriate and the challenge to them must fail. However, I have also concluded that the trial judge should have found Erect Safe, Australand and Dalma liable in the proportions 60%, 25% and 15%.

191 The trial judge found that Mr Sutton’s injuries resulted in his being 38% of most extreme case. This is sufficient to support a finding that Mr Sutton was impaired so as to be entitled to recover damages under the Workers Compensation Act (s 151H).

192 Damages under the Act are confined to damages for past economic loss due to loss of earnings together with damages for future economic loss due to the deprivation or impairment of Mr Sutton’s earning capacity (s 151G(1)).

193 In order to calculate any award of past and future loss of earnings, the Act requires the court to disregard the amount by which the injured party’s net weekly earnings would, but for the injury, have exceeded the amount, that is, the maximum amount of weekly payments of compensation under s 35 of the Act (s 151I(1)). The maximum amount of weekly payments of compensation under s 35 for a future period is to be an amount which the court considers is likely to be the amount for that period, having regard to the operation of Div 6 of Pt 3 which provides for the indexation of amounts of benefit (s 151I(2)). The maximum weekly payment of compensation for any period of total or partial incapacity for work shall not in any case exceed $1,000 although that amount is indexed. As it happens the indexed amount exceeds the amount agreed between the parties at the trial and so the agreed amount applies to the relevant calculation.

194 In these circumstances it seems to me that the appropriate calculation of the award to which Mr Sutton is entitled is as I have provided below. However, before judgment is entered the parties should have the opportunity of considering whether my arithmetic is appropriate. Mr Sutton ceased work on 9 October 2003 and has not worked since. The award of damages for past economic loss was $194,103.60, which I am satisfied is an appropriate sum.

195 With respect to future economic loss, Mr Sutton was born on 25 January 1943 and at the time he ceased work was aged 60 years and 9 months. At the date of the trial he was aged 63 years and 10 months. However at the date of judgment he was aged 63 years and 11 months. Section 151IA of the Act provides that when awarding damages for future economic loss the court must disregard any earning capacity of the injured worker after age 65. The multiplier for one year and 1 month is 54.9 on the 5% tables. Accordingly future economic loss attracts a discount rate of 5%. Using the rate agreed by the parties of $1,227 per week with a multiplier of 54.9 the total is $67,362.30. From this amount it is appropriate to deduct 15% for vicissitudes which provides a total of $57,257.96.

196 Accordingly the award of damages under the Worker’ Compensation Act would be a total of $251,361.56.

197 The calculation required by s 151Z(2) of the Act is as follows:

Total damages under the Civil Liability Act	$663,369.77
Total damages under the Workers Compensation Act	$251,361.56
Applying a percentage contribution of Dalma of 15% of the Civil Liability Act damages	$99,505.47
15% of the Workers Compensation Act damages	$37,704.23
Deduct 15% of the Workers’ Compensation Act damages of $37,704.23 from Civil Liability Act damages gives a total of	$61,801.24
The amount of $61,801.24 must then be deducted from total damages under the Civil Liability Act	$601,568.53

Costs

198 This is a case in which the appellants have raised a number of discrete issues, each having succeeded on some issues, but not others. It is appropriate in the exercise of the court’s discretion for costs to be allocated by reference to the event in respect of the separate issues. Both Erect Safe and Australand have succeeded in their claim that their awards should be reduced pursuant to s 151Z of the Workers’ Compensation Act. Accordingly, they would be entitled to an award of costs to a limited extent. However, they have both failed in their challenge to the quantum of damages awarded by the trial judge.

199 Erect Safe has succeeded in its challenge to the trial judge’s finding that it was liable to Australand pursuant to clauses 11 and/or 12 of the subcontract.

200 In my opinion Erect Safe should have the benefit of an order for costs in its appeal against Australand but otherwise each party should pay their own costs of the appeal and cross-appeal.

201 I would not disturb the order for costs of the trial in favour of Mr Sutton.

Orders

202 In these circumstances, short minutes should be prepared which will enable orders to be made in chambers. I propose the following orders:

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Citations

Erect Safe Scaffolding (Australia) Pty Ltd v Sutton [2008] NSWCA 114

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Statutory Material Cited

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Government Insurance Office of NSW v R J Green & Lloyd Pty Ltd [1966] HCA 6

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CITATION:	Erect Safe Scaffolding (Australia) Pty Limited v Sutton [2008] NSWCA 114
HEARING DATE(S):	27 February 2008; 3 March 2008
JUDGMENT DATE:	6 June 2008
JUDGMENT OF:	Giles JA at 1; Basten JA at 17; McClellan CJ at CL at 100
DECISION:	1. Direct the parties to deliver to the Associate of Giles JA, within seven days, short minutes to give effect to these reasons 2. Liberty to apply in the event of disagreement in the first instance by approaching the Associate to Giles JA.
CATCHWORDS:	TORT - negligence - workplace injury - large and complex construction site - coordination of subcontractors and work safety committee - failure to report defect - whether employer liable - non-delegable duty of employer - whether employer entitled to rely on work safety committee to ensure defect was rectified - CONTRACT - indemnity and insurance clauses - whether subcontractor required to indemnify head contractor - whether liability of head contractor arose out of performance of subcontract works - failure to obtain insurance in joint names - whether subcontractor required to obtain insurance for independent negligence of head contractor - DAMAGES - whether award excessive - calculation of non-economic loss and past and future economic loss - WORKERS COMPENSATION - s 151Z(2) Workers Compensation Act 1987 - calculation of award
LEGISLATION CITED:	Workers Compensation Act 1987
CATEGORY:	Principal judgment
CASES CITED:	Allianz Australia Insurance Ltd v GFS Australia Pty Ltd [2005] HCA 26; 221 CLR 568 Andar Transport Pty Ltd v Brambles [2004] HCA 28; (2004) 217 CLR 424 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Australian Paper Plantations Pty Ltd v J & EM Venturoni [2000] VSCA 71 Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2006] NSWSC 223 Canberra Formwork Pty Ltd v Civil & Civic Limited (1982) 67 FLR 66 Celik v Commonwealth of Australia [2002] ACTSC 27 Cervellone v Besselink Bros Pty Ltd (1984) 55 ACTR 1 Chan v Cresdon Pty Ltd (1989) 168 CLR 242 Coghlan v S H Lock (Australia) Ltd (1987) 8 NSWLR 88 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 Davis v The Commissioner for Main Roads (1967) 117 CLR 529 Dickinson v The Motor Vehicle Insurance Trust (1987) 163 CLR 500 Dover Navigation Co Ltd v Craig [1940] AC 190 F & D Normoyle Pty Ltd v Transfield Pty Ltd [2005] NSWCA 193; 63 NSWLR 502 Ferraloro v Preston Timber Pty Ltd (1982) 42 ALR 627; 56 ALJR 872 Government Insurance Office (NSW) v R J Green & Lloyd Pty Ltd (1965) 114 CLR 437 Grljak v Trivan Pty Ltd (1994) 35 NSWLR 82. Johnson v The Australian War Memorial [2005] ACTSC 122 Jones v Bartlett [2000] HCA 56; (2000) 205 CLR 166 Kavanagh v The Commonwealth (1960) 103 CLR 547 Kondis v State Transport Authority (1984) 154 CLR 672 Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 Leichhardt Municipal Council v Montgomery [2007] HCA 6; (2007) 230 CLR 22 Leighton Contractors Pty Ltd v Smith [2000] NSWCA 55 Libreri v Ironidol Pty Ltd (No 2) [2007] NSWCA 198 Lyons v Fondi Investments Pty Ltd (1998) 10 ANZ Insurance Cases 61-421 Murray v Favelle Mort Ltd [1974] 2 NSWLR 230 Nestle Australia Ltd v McDougall (Court of Appeal, 24 June 1998, unreported) New South Wales v Lepore [2003] HCA 4; (2003) 212 CLR 511 Northern Sandblasting Pty Ltd v Harris [1997] HCA 39; (1997) 188 CLR 313 Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 Roads and Traffic Authority of New South Wales v Palmer [2003] NSWCA 58 Smith v Australian Woollen Mills Ltd (1933) 50 CLR 511 Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASC 408; (2000) 23 WAR 291 State of New South Wales v Tempo Services Ltd [2004] NSWCA 4 Steele v Twin City Rigging Pty Limited (1992) 114 FLR 99 Stevens v Brodribb Sawmilling Co Pty Ltd (1985-1986) 160 CLR 16 Texcrete Pty Limited v Khavin [2003] NSWCA 337
PARTIES:	Erect Safe Scaffolding (Australia) Pty Limited (Appellant) Ian Sutton (1st Respondent) Australand Constructions Pty Limited (2nd Respondent)
FILE NUMBER(S):	CA 40011/2007
COUNSEL:	G Laughton SC/N Cotman SC (Appellant) P R Hennessey SC/M J Perry (1st Respondent) B Toomey QC/J Stewart (2nd Respondent)
SOLICITORS:	McCulloch & Buggy (Appellant) Taylor & Scott (1st Respondent) Ebsworth & Ebsworth (2nd Respondent)
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	4948/04
LOWER COURT JUDICIAL OFFICER:	Goldring DCJ
LOWER COURT DATE OF DECISION:	14 December 2006