Hills Industries P/L v Forstaff Adelaide P/L - [2005] SADC 121

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
HILLS INDUSTRIES P/L v FORSTAFF ADELAIDE P/L
Judgment of His Honour Judge Clayton
6 September 2005
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
PROCEDURE - MISCELLANEOUS PROCEDURAL MATTERS - DECLARATIONS
Plaintiff claimed declaration that it was entitled to an indemnity pursuant to a written contract in respect of a claim by the WorkCover Corporation. Defendant disputed entitlement to indemnity as a matter of construction of the contract and also argued case not suitable for declaratory relief.
HELD:
(1) On construction of the contract, an indemnity was provided against claims by the WorkCover Corporation, including an indemnity in respect of claims which may arise as a consequence of the plaintiff's own negligence.
(2) Declaratory relief appropriate
Workers Rehabilitation and Compensation Act 1986 ss3 & 54; District Court Act 1991 s.37; District Court Rules r.63.01, referred to.
Canada Steamship Lines Ltd v The Queen (1952) AC 192 at 208, not followed.
Schenker & Co (Aust) Pty Ltd v Maplas Equipment & Services Pty Ltd & Anor (1990) VR 834; Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; Pendle Nominees Pty Ltd v Lednez Industries (Australia) Ltd (1996) 40 NSWLR 282; Valkonen & Valkonen v Jennings Constructions Ltd & Ors (1995) 184 LSJS 87; Glenmont Investments Pty Ltd v O'Loughlin & Ors (No 2) (1999) 79 SASR 185; Andar Transport Pty Ltd v Brambles Ltd (2004) ALR 387; Santos Ltd v American Home Insurance Co (1986) 127 LSJS 220; Swift Australian Co (Pty) Ltd v South British Insurance Co Ltd (1970) Vr 368, reasons of the Court at 369-25; Tannous & Anor v Mercantile Mutual Insurance Co Ltd & Ors (1978) 2 NSWLR 331; Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at 355-360; Ainsworth & Anor v Criminal Justice Commission (1991) 175 CLR 564; King's College v Allianz Insurance Australia Ltd [2004] 1 Qd.R 394 at 395-400; The Liability of Employers Glass, McHugh and Douglas, 2nd edition, page 82; Contract Law in Australia Carter and Harland, 4th edition, paragraph 763; Lunn: Civil Procedure paragraph 63.01.10, considered.

HILLS INDUSTRIES P/L v FORSTAFF ADELAIDE P/L
[2005] SADC 121

The plaintiff seeks a declaration that it is entitled to an indemnity from the defendant pursuant to a written contract.
The plaintiff is a manufacturer which engages labour to produce its goods. The defendant is described in the Statement of Claim as a Human Resources Consultant and provides services which include the supply of semi-skilled industrial staff. The plaintiff hired workers employed by the defendant pursuant to the terms of the written contract. Originally the contract was with Forepeople Pty Ltd trading as “Forstaff (SA)”, a predecessor of the defendant. The parties accept that the relevant contract is a novation of the original contract. The plaintiff alleges that it was a term of the contract that the defendant would provide an indemnity to the plaintiff such that in the event of an injury to any person hired by the defendant to the plaintiff “the plaintiff would not be liable in any circumstances”. The defendant denies that allegation.
Mr Memisoglou, a worker employed by the defendant and hired to the plaintiff, has suffered injury and the WorkCover Corporation has paid him compensation. The Corporation claims to be entitled to recover the amount of the compensation paid to Mr Memisoglou from the plaintiff and has issued proceedings pursuant to section 54 of the Workers Rehabilitation and Compensation Act 1986 as amended. Those proceedings have been stayed pending the outcome of the present application.
In the Statement of Claim in this action the plaintiff alleges that its employee, Fiona Rosman, advised Stephen Hall, on behalf of Forepeople Pty Ltd, that any contract hire agreement between the plaintiff and the defendant would be dependent upon Forepeople Pty Ltd providing an indemnity. The plaintiff alleges that a facsimile from Mr Hall to Ms Rosman, dated 14 August 1998, contained an amended proposal to provide labour which included an indemnity and that the plaintiff thereupon hired contract labour on terms which included the indemnity. Specifically the plaintiff alleges that the following were express clauses of the contract:
(1)‘Forstaff will pay the Workcover levy for our employees on your site and meet any claims for accidents or injuries to our employees.’
(2)‘In the event that one of Forstaff’s employees is injured in the course of his or her work at Hills Industries Limited, Forstaff indemnify Hills Industries Limited against any claim made by any organisation for any loss it may incur.’
On the basis of the novated contract the plaintiff seeks an indemnity from the defendant in respect of any liability which it may have to the WorkCover Corporation for the compensation paid to Mr Memisoglou.
The defendant disputes that this is a proper case for the making of a declaration. The defendant says that until the plaintiff is found to be liable to the Corporation there is no basis for an indemnity. The defendant also denies that it is liable to indemnify the plaintiff against the claim of the Corporation pursuant to the terms of the contract. It bases its denial upon the interpretation of the written agreement. The defendant points to a provision in the contract which requires the plaintiff to provide a safe working environment. The defendant also says that the provisions relied upon by the plaintiff are so vague and uncertain as to be unenforceable and that they do not extend to a claim arising from a breach by the plaintiff of its own obligations under the contract.
I digress to make some observations which put the claim into perspective. If a worker employed by the plaintiff suffered a compensable disability the worker would be entitled to compensation pursuant to the Workers Rehabilitation and Compensation Act 1986. The plaintiff is obliged to pay the WorkCover levy in respect of its own employees, but has no liability to its own employees for common law damages. Any compensation to which the worker is entitled is paid by the WorkCover Corporation and the plaintiff has no liability to the Corporation either at common law or otherwise to repay the compensation paid by the Corporation. By hiring workers from an organisation such as the defendant, rather than employing the workers itself, the plaintiff may expose itself to a liability for damages at common law which it would not have if it employed the workers itself. In those circumstances an indemnity such as the one which is the subject of this action, if effective, would have the effect of putting the plaintiff in the same position, so far as its liability at common law is concerned, as it would have been in if it had employed the workers itself.
It is unnecessary for me to consider whether Mr Memisoglou was an employee of the plaintiff. It is not simply a question of who pays the wages of Mr Memisoglou. There are cases which suggest that where an unskilled or relatively unskilled individual is transferred for work in the premises of a third party, such as the plaintiff, and uses the plant or equipment of the third party the relationship of employer and employee exists between the worker and the third party. See Glass, McHugh and Douglas, The Liability of Employers, 2^nd edition page 82. There is the question of whether the worker remains the employee of his general employer whilst performing his duties for the third party or whether he becomes pro hac vice the employee of the organisation which has hired his services. The definition of “employer”, in section 3 of the Workers Rehabilitation and Compensation Act 1986, includes a person “for whom work is done by a worker under a contract of service”. If the plaintiff was an “employer” of Mr Memisoglou pursuant to section 3, it would have no liability to either Mr Memisoglou or the Corporation by reason of section 54(1) of the Workers Rehabilitation and Compensation Act 1986 and the claim of the Corporation against the plaintiff would fail. The defendant would argue that in such a situation the indemnity provided by the contract is unnecessary. The defendant therefore argues that it is premature to make a declaration before the liability of the plaintiff to the Corporation has been determined.
TERMS OF THE CONTRACT
Ms Rosman gave evidence for the plaintiff. The defendant had previously employed her for about eight months, but she moved from the defendant to the employ of the plaintiff and assumed the position of Corporate HR Officer in July 1998. Mr Hall, an employee of the defendant, contacted Ms Rosman by telephone and enquired whether the defendant could provide the plaintiff with contract labour. The plaintiff had engaged contract labour prior to Ms Rosman joining the company, but not from the defendant. On receiving the telephone call from Mr Hall a meeting was arranged. Ms Rosman was directed by her supervisor to ensure “that the agency (the defendant) was to indemnify Hills of any claim made against us, irrespective of who that was” (sic). On 14 August 1998 Mr Hall transmitted to Ms Rosman a message which referred to a discussion the previous day, confirmed revised rates for casual labour and stated:
As requested Forstaff will pay the workcover levy for our employees on your site and meet any claims for accidents or injuries to our employees.
In the event that one of Forstaff’s employees is injured in the course of his or her work at Hills Industries Limited Forstaff indemnify Hills Industries Limited against any claim made by any other organisation for any loss it may incur.
Ms Rosman thinks she checked the wording with her “leader” before proceeding. Although she could not recall specifically she thought she probably had a phone conversation in which she communicated to Mr Hall that the wording was satisfactory. In any event, the defendant produced a document described as “Forstaff Industrial Proposal” which is the written contract upon which the plaintiff now relies.
The Forstaff Personnel Proposal states on its cover that it was prepared by Mr Hall for Ms Rosman, Personnel Officer, Hills Industries Ltd, and is dated 13 August 1998. In the main the document contains promotional material for the defendant’s business with pages headed “Introduction to Forstaff”, “Quality of Service”, “The Profit Equation”, “Good Manufacturing Practices”, “Responsibilities”, “Rate Schedule”, “Permanent Placements”, and “Summary”. The final page of the document which is headed “Agreement” states:
This is an agreement, that the terms, conditions and rates stated in the Proposal dated this 21/9/98 are understood and agreed upon by Hills Industries Ltd and Forstaff (SA).
Any variations, subsequent to the agreed Proposal will be in writing.
That page contains the signatures of Ms Rosman and Mr Hall on behalf of their respective employers. The page headed “Responsibilities” contains the following:
Hills Industries Limited.
·      Provide accurate information relevant to assignment ie. job description/specification.
·      Provide a safe working environment in accordance with legislation current at any time.
·      Instruct, direct and supervise Forstaff employees relevant to their duties.
·      Inform Forstaff of any accident or problem involving its employees as soon as possible.
·      Comply with all legislation regarding the use and operation of machinery and motor vehicles: with particular relevance to licensing, registration and insurance.
·      To supply all and any safety wear and accessories that are required to perform their duties and to comply with site conditions.
·      Accept as pre-conditions, those contained on the rear of Forstaff timesheets.
·      Sign a completed timesheet for each Forstaff employee.
·      Invoices to be paid within seven (7) days from date of invoice.
Forstaff
·      Provide fast and efficient service.
·      Pay payroll tax, Workcover and superannuation for all temporary employees.
·      Liaise with client regarding the supply and performance of field employees.
·      Ensure employees are prepared to work overtime, if required.
·      Ensure employees are financial members of appropriate union, where applicable.
·      Make all deductions required by law, from the wages of employees.
·      Provide timesheets that enable accurate recording of hours worked by each employee.
·      Provide service co-ordination on all matters relating to the supply and administration of our employees.
It is not clear from the evidence of Ms Rosman whether at the time she had the discussions with her supervisor she had any understanding of what an indemnity was or the wording that was required to create an indemnity. She said “I’d certainly want to have a clear understanding I guess of the words that would need to be included” and that when she raised the issue of indemnity with Mr Hall:
I can certainly recall that he wasn’t himself familiar with having come across that before, but he was certainly very obliging and understood that that was something he needed to provide in order to do business and that he was going to go away and seek some advice from his manager to see if that could be possible.
It was suggested to Ms Rosman that she actually handed a proposed wording for the indemnity provision to Mr Hall, but she said she did not recall that. It must be remembered that she was giving evidence of events almost seven years earlier.
Mr Hall gave evidence for the defendant. He said that as at August 1998 he had no understanding at all in relation to an indemnity. Mr Hall said that after the defendant had been providing labour to the plaintiff for about one month Ms Rosman raised the issue of indemnity with him. He was surprised because the request came after the defendant had started supplying labour, but said Ms Rosman stated it was a condition of supply that the defendant had to fulfil. He said Ms Rosman actually specified the information that the plaintiff wanted to become part of the agreement between the parties. He discussed the proposed wording with his supervisor. He said the wording given to him by Ms Rosman was inserted into Forstaff’s standard proposal and subsequently signed off by both parties.
The page of the Forstaff Personnel Proposal which is headed “Rate Schedule” sets out the rates payable for different categories of employees and states:
Forstaff will pay the workcover levy for our employees on your site and meet any claims for accidents or injuries to our employees.
In the event that one of Forstaff’s employees is injured in the course of his or her work at Hills Industries Limited Forstaff indemnify Hills Industries Limited against any claim made by any other organisation for any loss it may incur.
Our all inclusive hourly rate eliminates the burden of additional payroll expenses such as Payroll Tax, Workcover and payroll administration such as Group Certificates. Also there is no Annual Leave Loading (17.5%), Sick Pay or Fringe Benefits (if applicable) to consider.
I find that the first two paragraphs, which repeated the clauses in the facsimile of 14 August 1998, were terms of the contract between the plaintiff and the defendant.
THE CONTRA PROFERENTEM ARGUMENT
The defendant contended that, insofar as there is any ambiguity or uncertainty in the contract, the clauses should be construed against Hills Industries Ltd and in favour of Forstaff.
In this case the evidence does establish that the indemnity was requested by the plaintiff. The evidence as to who drafted the clause is not clear, although the clause was clearly for the benefit of the plaintiff. The evidence of Ms Rosman is vague. Mr Hall suggested that the wording was provided by Ms Rosman. I find on the probabilities that the evidence of Mr Hall is correct and that the plaintiff did provide the wording to the defendant for inclusion in the contract. It was certainly not part of the defendant’s standard form. However, no ambiguity was identified. In my opinion the clauses are straightforward and in the context of the arrangement between the parties, easy to understand. I find that there is no ambiguity or uncertainty about the clauses. There is no reason to invoke the contra proferentem rule.
INDEMNITY IN RESPECT OF THE PLAINTIFF’S OWN NEGLIGENCE
Given the background to which I have referred above, one can assume that the purpose of the indemnity was to enable the plaintiff to avoid liability for common law damages and to place itself in the position that it would have been in had it employed the workers itself. The defendant agreed to pay the WorkCover levy. The defendant’s protection was to charge an hourly rate which took into account the cost of the WorkCover levy and the cost of obtaining insurance in respect of other obligations such as the indemnity. The plaintiff might therefore be expected to pay a higher hourly rate which included a component to cover the WorkCover levy and other items of overhead such as insurance.
In the circumstances which existed, an indemnity provision which placed the plaintiff in the same position that it would have been in if it employed the workers itself, was neither unusual nor unreasonable; however, the plaintiff’s claim must ultimately be determined by reference to the wording which the parties agreed to.
The defendant argues that the indemnity does not apply where a claim arises by virtue of the acts or omissions of the plaintiff in the provision of a safe working environment. The defendant refers to the “Responsibilities” listed in the contract and argues that it would be nonsensical if the defendant was required to indemnify the plaintiff in respect of claims resulting from the plaintiff’s negligence or arising from the acts or omissions of the plaintiff in breach of the stated “Responsibilities”. Counsel submitted that the indemnity clause did have work to do where Hills Industries Ltd was not negligent itself, but was vicariously liable for the negligence of another.
Counsel for the defendant submitted that there is no direct evidence that Hills Industries Ltd wanted an indemnity to cover the particular circumstances which have arisen. It is true that there is no evidence of any express requirement which linked the indemnity to the plaintiff’s common law liability, but given the fact that section 54 would relieve the plaintiff from common law liability if it employed the workers itself, there is a clear inference that the plaintiff’s reason for requesting the indemnity was to preserve the immunity from common law liability that it would have enjoyed if it was the employer.
Whether the clause does provide Hills Industries Ltd with an indemnity in respect of the consequences of its own negligence or breach of duty is a question of construction. See Contract Law in Australia, Carter and Harland, 4^th edition, paragraph 763. In the context of the arrangement between the plaintiff and defendant the only relevant liability that the plaintiff is likely to incur is a liability to employees of the defendant as a result of its negligence or breach of duty. Carter and Harland say in respect of exclusion clauses at paragraph 763:
In cases where there is no express reference to negligence the issue is whether an intention to exclude liability should be imputed to the parties on the basis of the words used. An important consideration is whether the defendant can be held liable in the absence of negligence. If negligence is the only basis for liability that will usually be a sufficient reason for saying that the clause must apply to cases of negligence.

Although the situation with an indemnity is the converse, in that while an exclusion clause exempts a party from its own negligence, the indemnity clause extends the entitlement to indemnity to cases involving the party’s own negligence, the same principle applies. In the present case, it is significant that the plaintiff would have had no liability to workers at common law if it employed them and paid the WorkCover levy itself.
Although it did not make an express submission to that effect, the defendant’s submission in reality depends upon an acceptance of what are known as the Canada Steamship rules. In Canada Steamship Lines Ltd v the Queen[1] the Privy Council provided guidelines which were summarised in Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd & Anor[2] by McGarvie J at 845 as follows:
1.If the clause expressly provides indemnity for the person in whose favour it is made for the consequence of negligence of that person’s own employees effect must be given to it.
2.If there is no express reference to negligence the court must consider whether the words used are wide enough to cover negligence of the person’s employees: if there is any doubt, it must be resolved against the person.
3.If the words are wide enough to cover the negligence of the person’s employees, the court must consider whether the words also comprehend some other liability against which the person may have desired indemnity: if there is such a liability, the words are to be confined to it and not extended to negligence.
[1] (1952) AC 192 at 208
[2] (1990) VR 834
In Schenker the Supreme Court of Victoria was required to construe an indemnity clause. The reasons of McGarvie J contain observations which are relevant to the present case. At page 837, line 10 His Honour said:
A contract is to be construed in the light of the surrounding circumstances existing and known to the parties when the contract was made: Butt v. Long (1953) C.L.R. 476, at pp. 486-7 and 490. This includes the genesis of the transaction, the objective framework of facts within which the contract came into existence and the commercial purpose of the parties, in the objective sense of what reasonable persons would have in mind in their situation: Codelfa (1982) 149 C.L.R. 337, at pp. 347-53. In a passage quoted by the learned primary judge, Donaldson J. said: ‘... a contract is not made in a vacuum, but against a background of present and past facts and future expectations and ... its terms, and indeed the consensus itself are to be gathered not only from expressed words, but also from conduct viewed against that background’: S.I.A.T di del Ferro v. Tradax Overseas S.A. [1978] 2 Lloyd’s Rep. 470, at p. 490. See also, Moreland Timber Co. Pty. Ltd. v. Reid [1946] V.L.R. 237, at p. 248.
At page 840 his Honour said:
In its construction of cl. 3 the court is seeking to ascertain what reasonable business people in the positions of Maplas and Schenker, if they had applied their minds to it at the time of contracting, would have regarded the clause as meaning. The approach suggested by Shaw L.J. in Nea Agrex S.A. v. Baltic Shipping Co. Ltd. [1976] Q.B. 933, at p. 954 is a useful one to apply to this case. First, ask what in the circumstances a person in the position of Maplas would have supposed Schenker meant by the clause, then ask what a person in the position of Schenker would have supposed Maplas understood the clause to mean. This approach emphasises that the essential question is what would reasonable business people in the position of the parties have taken the clause to mean.
McGarvie J observed that a carrier liable for breach of contractual or tortious liability in performing a contract “will naturally include a component in the price to make provision for the risk of paying damages or for insurance premiums to cover that risk”. His Honour referred to Darlington Futures Ltd v Delco Australia Pty Ltd[3] where the High Court of Australia said:
‘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. Notwithstanding the comments of Lord Fraser in Ailsa Craig [1983] 1 W.L.R., at p. 970; [1983] 1 All.E.R. at p. 105, the same principle applies to the construction of limitation clauses. As King C.J. noted in his judgment in the Supreme Court, a limitation clause may be so severe in its operation as to make its effect virtually indistinguishable from that of an exclusion clause. And the principle, in the form in which we have expressed it, does no more than express the general approach to the interpretation of contracts and it is of sufficient generality to accommodate the different considerations that may arise in the interpretation of a wide variety of exclusion and limitation clauses in formal commercial contracts between business people where no question of the reasonableness or fairness of the clause arises.’
[3] (1986) 161 CLR 500
McGarvie J held that the approach taken by the Privy Council in the Canada Steamship case was inconsistent with Australian cases which culminated in Darlington Futures and said at page 848:
To construe commercial contracts as they would be understood by business people serves primary aims of both the law and commerce. The law serves the community best if citizens understand it and are able to resolve their dispute themselves by reference to it, without resorting to lawyers or courts. Business depends essentially on an ability to understand obligations created by commercial contracts, assess the inherent risk and make decisions as to the most economical way of providing for them: cf. Photo Production Ltd. v. Securicor Ltd. [1980] A.C. 827, at p. 851. The interests of commerce are best served if business people, including those providing insurance, are able to base their decisions on a legally correct understanding of the contracts with which they are concerned and the rights and obligations which the contracts create.
Pendle Nominees Pty Ltd v Lednez Industries (Australia) Ltd[4] is another case involving an indemnity clause where Darlington Futures was followed and the approach in Canada Steamship rejected.
[4] (1996) 40 NSWLR 282
In Valkonen & Valkonen v Jennings Constructions Ltd & Others[5] the Full Court was required to consider an indemnity clause in a building contract. Cox J, with whom Matheson and Perry JJ agreed, considered Australian cases including Schenker and Darlington Futures. The court followed the decision in Schenker and held that the guidelines stated in Canada Steamship were inconsistent with the principles stated in Australian cases culminating in Darlington Futures. Cox J said that commercial contracts should be interpreted as they would be understood by business people and not given a strained interpretation. Dealing with the third rule in Canada Steamship Cox J said:
The solicitude for the indemnifying party which explains the rule’s creation will often be inappropriate in modern commercial conditions.
There may be good practical reasons for providing that one party to a contract shall be indemnified by the other against any liability the former might incur to a third party, even if it is caused by his own fault, and where, as commonly happens, the obligation to indemnify is to be secured by insurance (as in the case of this contract) there is no sound policy reason for expecting the contract term to conform with an arbitrary judge-made textual requirement before its provisions will be given their natural operation. Indeed, a narrow interpretation of such a term is likely in any given case to benefit only the insurance company which writes the obligatory policy in prudently liberal terms and charges appropriately for it.
[5] (1995) 184 LSJS 87
As to the clause under consideration Cox J said:
The paragraph is not ambiguous. Giving its words their plain and natural meaning, and having regard to the context in which they appear, they are wide enough to include a liability caused by the negligence of Jennings’ own servants, and I see no reason to suppose that to interpret the paragraph in this way would not accord with the intention of the parties.
I am guided by the words of Cox J. I find that the words in the two clauses under consideration in this case are wide enough to include a liability caused by the negligence of the plaintiff. I also find that there were good practical reasons for a clause which indemnified the plaintiff against its own negligence. Counsel for the defendant submitted that the purpose of the indemnity clause was to protect the plaintiff from claims by third parties. No example of a claim other than one by the Corporation was provided and it is difficult to imagine what claims a third party may have against the plaintiff in respect of the hiring of the defendant’s employees. I do not accept the submission of the defendant that the clause had work to do where the plaintiff was vicariously liable for the negligence of another. I am not satisfied that the words comprehend some other liability against which the plaintiff desired indemnity in the way described in the third rule in Canada Steamship.
More recently, Schenker and Valkonen were considered by the Full Court in Glenmont Investments Pty Ltd v O’Loughlin & Ors(No 2)[6] where the court held that the reasoning in Valkonen is clear and appropriate to all cases where exclusion clauses are being interpreted to determine whether they exclude negligence liability. The court said that an indemnity clause should be construed according to its natural and ordinary meaning viewed in the context of the contract as a whole.
[6] (1999) 79 SASR 185
Counsel for Forstaff drew attention to the fact that neither of the clauses expressly provides indemnity to Hills Industries Ltd for the consequence of its negligence. He points out that the notion of negligence was not raised in the negotiations between the parties. He also points to the “Responsibilities” clause and submits that the contract does not contemplate an indemnity in those circumstances because when looking at the contract as a whole Hills Industries Ltd had taken a contractual responsibility to provide a safe working environment.
In my opinion, the obligation to provide a safe working environment and the other obligations placed on the plaintiff by the “Responsibilities” clauses are not sufficiently explicit or extensive to indicate that the indemnity clauses did not apply to claims arising from the negligence of the plaintiff. The “Responsibilities” set out in the contract do not extend the obligations of the plaintiff beyond those which already existed at common law. On the other hand, the two clauses relied upon by the plaintiff are quite explicit.
In my opinion, the claim of the Corporation is a claim for an accident or injury to a Forstaff employee and accordingly falls within the first clause in the Rate Schedule. Omitting irrelevant words, the clause provides “Forstaff will ... meet any claims for accidents or injuries to our (Forstaff) employees”.
In my opinion, the second clause also applies because the condition of that paragraph is met, namely one of Forstaff’s employees was injured in the course of his work at Hills Industries Ltd. In those circumstances the second clause requires Forstaff to “indemnify Hills Industries Ltd against any claim made by any other organisation (the Corporation) for any loss it (the Corporation) may incur”. A claim has been made by another organisation, namely, the WorkCover Corporation for a loss which it has incurred namely, the compensation paid or payable to Mr Memisoglou.
Although the actual claim has not been made by Mr Memisoglou, the first paragraph does not specify the person by who the claim must be made but simply refers to “any claims for accidents or injury to our employees”. The claim by the Corporation pursuant to section 54 is, in my opinion, a claim for an injury to an employee of Forstaff within the meaning of the clause. I reject the defendant’s submission that the claim which is based on the statutory power of recovery cannot be characterised as a claim for an accident or injury to an employee of Forstaff.
Counsel submitted that there is no direct evidence that Hills Industries Ltd wanted an indemnity to cover this particular circumstance. Factually that is true. As I have mentioned, I doubt whether either Ms Rosman or Mr Hall understood the full implications of the indemnity clause that they discussed. Whether the superiors from whom they obtained instructions did is another thing. In my opinion, the fact that Ms Rosman’s superior at Hills Industries Ltd expressly requested an indemnity clause indicates specific insight into the consequences of hiring labour so far as liability at common law is concerned. Counsel for the plaintiff argued that the reality of the situation was that, whilst it was a term of the contract that the defendant pay the worker’s compensation levy, it could be safely inferred that the levy was built into the hourly rate so that effectively it was paid by the plaintiff. Accordingly, in the absence of the indemnity, the plaintiff would in effect be paying the WorkCover levy but not having the benefit of the immunity under section 54. It was said that it could be inferred that the sole purpose of the indemnity clause was to avoid the situation in which the plaintiff effectively had to pay twice. Although the discussions between Mr Rosman and Mr Hall did not address the topic, the situation would have been obvious to any person with a rudimentary knowledge of the scheme of the WorkCover legislation. In my opinion, the inference contended for by the plaintiff can be drawn. However, the resolution of the case does not depend upon the inference, but upon an interpretation of the clear words of the contract.
In the absence of any ambiguity I think the words of the clauses should be given their plain and ordinary meaning. I do not think that the “Responsibilities” clause negates the express words of the two indemnity clauses. As I have already said, there is no ambiguity or uncertainty which requires either clause to be construed contra proferentem.
I find that the defendant is liable to indemnify the plaintiff in respect of the claim by the WorkCover Corporation. I make that finding because of my interpretation of the express words of the two clauses in the agreement. My interpretation is reinforced by a commercial consideration, namely, that the indemnity clause removed a liability which the plaintiff had only incurred because of the labour hire contract and would not have had if the workers were its own employees. The two clauses were inserted into the defendant’s standard form which contained the “Responsibilities” clause. The indemnity clauses do not contain a specific reference to negligence, but for reasons which I have explained, that is inconsequential because the Canada Steamship rules do not apply in Australia.
I was referred to Andar Transport Pty Ltd v Brambles Ltd[7] where the majority of the High Court of Australia held that an indemnity clause in a contract did not oblige the appellant to indemnify the respondent. The decision in Andar turns upon the particular clauses which the court was required to construe.
[7] (2004) ALR 387
In my opinion, requiring the defendant to indemnify the plaintiff against its own negligence does not produce an absurd result as was submitted on behalf of the defendant, but achieves the commercial consequence that the parties had intended. As McGarvie J pointed out in Schenker, if the effect of the indemnity was to increase the risk to the defendant, its commercial solution was to insure and include the cost of insurance in its rates in the same way that it recovered the WorkCover levy.
SHOULD A DECLARATORY ORDER BE MADE?
Counsel for the defendant has pointed to the defence of Hills Industries Ltd in the recovery proceedings brought by the Corporation where it has denied that the worker suffered an injury at all, denied that he suffered an injury in the way alleged and denied negligence for breach of duty. It was submitted that, until those issues have been determined, the Corporation has no right of recovery against Hills Industries Ltd and that the plaintiff is not entitled to declaratory relief.
Section 37 of the District Court Act 1991 gives the court power to make declarations. Additionally, rule 63.01 gives any person claiming to be interested under a written document the right to apply for the determination of any question arising under the document and for a declaration of rights. It is accepted that there must be a real and not merely a theoretical question. Santos Ltd v American Home Assurance Co[8].
[8] (1986) 127 LSJS 220
It is true that the liability of the plaintiff depends upon the outcome of the claim against the plaintiff by the Corporation. However, the Corporation has made a claim and the plaintiff has sought an indemnity in respect of that actual claim. There is a real question to be determined. Costs have been and will continue to be incurred by the plaintiff in defending the claim of the Corporation. Even if the plaintiff is successful in defending the claim of the Corporation, there will still be a claim for indemnity in respect of its costs of defending the action.
In support of the submission that the power to make declarations should not be directed to answering hypothetical questions, counsel for the defendant relied upon Swift Australian Co (Pty) Ltd v South British Insurance Co Ltd[9] where the Full Court of the Supreme Court of Victoria said that courts will not advise parties to actions upon their rights under a hypothetical state of fact, or give them advisory opinions, or give hypothetical decisions the effectiveness of which depends on facts which remain to be determined. The question in that case was whether the defendant was obliged to indemnify the plaintiff under an insurance policy against a claim by one of its workers for injuries sustained in the course of his employment. The court held that whether the defendant was liable to the plaintiff depended upon alternative states of facts which may or may not be found by the tribunal hearing the worker’s claim. The court said to answer the question in those circumstances would be opposed to the principle that the court will not advise parties under a hypothetical state of facts. In my opinion, such an uncertainty does not arise in the present case. The present case is not one where liability vis-a-vis plaintiff and defendant depends upon the findings by the Worker’s Compensation Tribunal in the Corporation’s action against the plaintiff. The basis for the claim is known and at least to the extent that the plaintiff has incurred a liability for the costs of defending the worker’s claim it has an existing claim for an indemnity which is independent of the outcome of the proceedings in the Worker’s Compensation Tribunal.
[9] (1970) VR 368, reasons of the Court at 369-25
Counsel for the defendant also referred to Tannous & Anor v Mercantile Mutual Insurance Co Ltd & Ors[10] where the New South Wales Court of Appeal said that a declaration should be self-contained and intelligible. In my opinion, the declaration which is sought in this case does not fall foul of that requirement. I was also referred to Bass v Permanent Trustee Co Ltd[11]. In my opinion, the observations of the High Court in that case do not provide any reason for not granting declaratory relief in the present case.
[10] (1978) 2 NSWLR 331
[11] (1999) 198 CLR 334 at 355-360
Counsel for the defendant referred to Ainsworth & Anor v Criminal Justice Commission[12] where Mason CJ, Dawson, Toohey and Gaudron JJ said:
It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which ‘(i)t is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise’. However, it is confined by the considerations which mark out the boundaries of judicial power. Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have ‘a real interest’ and relief will not be granted if the question ‘is purely hypothetical’, if relief is ‘claimed in relation to circumstances that [have] not occurred and might never happen’ or if ‘the Court’s declaration will produce no foreseeable consequences for the parties’.
[12] (1991) 175 CLR 564

I was also referred to the remarks of Brennan J as he then was at 596 where His Honour said:
The circumstances that call for the making of a declaration are not present if there be no real controversy to be determined. The characteristics of a controversy fit for determination by judicial declaration were stated by Viscount Dunedin in Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd. [1921] 2 A.C. 438, at p. 448:
‘The question must be a real and not a theoretical question; the person raising it must have a real interest to raise it; he must be able to secure a proper contradictor, that is to say, some one presently existing who has a true interest to oppose the declaration sought’.
In my opinion the present application satisfies those requirements.
Finally on this topic, I was referred to King’s College v Allianz Insurance Australia Ltd[13]. Holmes J said that ultimately the question is one of utility and to make declarations in abstract is not useful. For the reasons which I have stated, the present application does not require a declaration in abstract. The plaintiff seeks an indemnity in respect of a claim which has actually been made by the Corporation.
[13] [2004] 1 Qd.R 394 at 395-400
The inappropriateness of the claim for a declaration was argued before Master Rice under the guise of an application for a stay pending determination of the worker’s compensation proceedings. To the extent that the defendant seeks to defer the decision until after the decision in the recovery action, it is in effect raising the same issues. Master Rice refused to grant a stay. The learned Master’s reasons for that refusal are relevant to my decision to make a declaration.
The court is not faced with a hypothetical situation. A claim has been made against the plaintiff and whether it is entitled to be indemnified by the defendant is a real issue. The court will sometimes refuse to make a declaration where the rights of the parties are subject to some future contingencies. Lunn: Civil Procedure, paragraph 63.01.10. I think there is a difference between contingencies which may affect the rights of the parties as between themselves and a contingency which is concerned with the position vis-a-vis the plaintiff and a third party such as the Corporation.
In the light of my findings as to the meaning of the contract there is no reason for me to discuss the estoppel argument which the plaintiff made in the alternative.
In the circumstances, I find that the plaintiff is entitled to the relief which is sought in the Statement of Claim.
I will hear counsel as to the precise terms of the declaration which should be made.