Multiplex Constructions Pty Limited v Irving & 2 Ors; Fugen Holdings Pty Limited v Irving & 2 Ors

LOWER COURT District Court JURISDICTION : LOWER COURT DC 3171/01 FILE NUMBER(S) : LOWER COURT Walmsley DCJ JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40669/03 CA 40732/03 DC 3171/01

SANTOW JA IPP JA PEARLMAN AJA

28 OCTOBER 2004 MULTIPLEX CONSTRUCTIONS PTY LIMITED v Stuart IRVING & ORS FUGEN HOLDINGS PTY LIMITED v Stuart IRVING & ORS

INSURANCE - statutory workers' compensation policy - extent of liability - liability for contractual claims - Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ Insurance Cases 61-235 followed - meaning of "becomes liable" in statutory policy - need to prove relevant loss for indemnity to operate.

FACTS Mr Irving injured his wrist whilst employed as a bricklayer by Fugen Holdings Pty Ltd. Fugen was a sub-contractor to Multiplex Constructions Pty Ltd. Multiplex was the occupier of the building site where Mr Irving was injured. Royal & Sun Alliance Insurance (Australia) Limited was Fugen's workers' compensation insurer at the time. Mr Irving claimed that Multiplex had negligently caused him to injure his wrist and suffer damages. Multiplex joined Fugen by way of a cross-claim. Multiplex claimed an indemnity from Fugen (under a contract between them) in respect of the full amount it, Multiplex, was required to pay Mr Irving. In the alternative, Multiplex claimed contribution or indemnity from Fugen under s5 of the Law Reform (Miscellaneous Provisions) Act 1946. The trial judge found that Multiplex, as occupier, had breached the common law duty of care it owed to Mr Irving and caused him to suffer damages which his Honour assessed at $504,003. The judge found that Fugen, as Mr Irving's employer, had breached its non-delegable duty of care in causing the fall leading to the injury. Each appellant was apportioned with 50% of the responsibility for Mr Irving's damages. By the contract between the Multiplex and Fugen, however, Fugen was obliged to indemnify Multiplex for the whole of Mr Irving's judgment against it. Fugen had brought a cross-claim against Royal, alleging that Royal was obliged to indemnify it (under the "common law extension"' to the workers' compensation policy Royal had issued) in respect of the amount that Fugen was obliged to pay Multiplex. The trial judge dismissed this cross-claim on the ground that the policy did not cover claims made under contractual indemnity: Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ Ins Cas 61-235. On Appeal: 1 Fugen (supported by Multiplex) sought to obtain indemnity from Royal under the workers' compensation policy for the remaining 50% it was obliged to pay Multiplex (Royal having paid Fugen 50% of that amount after the trial judge had delivered judgment); Fugen contended that Nigel Watts was incorrect. 2. Multiplex and Fugen both challenged the assessment of damages made by the trial judge.

HELD Per Ipp JA (Santow JA and Pearlman AJA agreeing)

1. Although the description of the cover provided by the policy extended to common law liability, it did not extend to liability for additional contractual obligations: Nigel Watts is correct and should be followed.
2. The 50% of the judgment amount now claimed by Fugen is not connected with any liability Fugen had to Mr Irving as a joint or several tortfeasor. Fugen had paid this 50% to Multiplex solely by reason of Multiplex's contractual claim against it. The 50% in question did not constitute any loss at common law by Fugen; hence, the policy issued by Royal does not cover that loss. Appeal on this issue dismissed.
3. The trial judge had erred in calculating Mr Irving's claim for loss of future earning capacity; the proper allowance for the loss of Mr Irving's future earning capacity is the sum of $260 per week (and not $350 per week as allowed for by the judge).
4. Within 21 days the parties to bring in an agreed draft minute of orders and, failing agreement, their respective proposed draft minutes together with written submissions supporting the draft minutes. Per Santow JA (Pearlman AJA agreeing) On the question of the extent of the indemnity in the statutory insurance policy, the same result dismissing the appeal can be reached by two alternative routes:
5. Liability in terms of the policy is equated to the loss indemnified so as to exclude any contingent liability to the worker for the adjudicated responsibility of a concurrent tortfeasor, where there was no reason to suppose it would not be satisfied, or
6. The terms of the policy include the whole accrued liability, whether actual, contingent or prospective, but the policy only indemnifies for the actual loss suffered.

ORDERS The parties having requested that no orders be made at this stage, the order of the Court is:

1. Within 21 days the parties to bring in an agreed draft minute of orders and, failing agreement, their respective proposed draft minutes together with written submissions supporting the draft minutes.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40669/03 CA 40732/03 DC 3171/01

SANTOW JA IPP JA PEARLMAN AJA

28 OCTOBER 2004 MULTIPLEX CONSTRUCTIONS PTY LIMITED v Stuart IRVING & ORS FUGEN HOLDINGS PTY LIMITED v Stuart IRVING & ORS Judgment 1 SANTOW JA: I have had the advantage of reading the judgment of Ipp JA and adopt gratefully his statement of the relevant facts and issues. I agree with the result he reaches and, subject to the matters noted below, his reasons. Ipp JA concludes, as do I, that the statutory Workers' Compensation policy did not respond in the circumstances. That is to say, it did not respond for so much of the employer's liability to its head contractor in respect of liability for an injury to the former's employee as depended upon a contractual indemnity between head contractor and sub-contractor. 2 The employee Irving never sued his employer Fugen, but only proceeded against Multiplex the head contractor. The trial judge Walmsley DCJ apportioned responsibility at common law equally between Multiplex and Fugen in the contribution proceedings brought by way of cross-claim by Multiplex against Fugen. In addition, Multiplex was held entitled in contract to indemnity from Fugen for the totality of its common law liability. This was pursuant to the contractual indemnity in clause 7 of the sub-contract between them. The end result was that Multiplex was indemnified in contract for 100% of its liability to the employee Irving, notwithstanding that at common law its share of responsibility was equal to Fugen's. 3 The trial judge applied s5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) in determining the Multiplex common law contribution proceedings against Fugen. After reminding himself of the requirements of s151Z(2) of the Workers' Compensation Act 1987, the trial judge assessed the relative proportion or share of responsibility as between Multiplex and Fugen at 50% each; Judgment, 22 at Red, 39. They can be taken to be concurrent tortfeasors. 4 As the appellant points out in its supplementary submission, s151Z(2) of the Act makes express provision for when a worker, though entitled, has not sued his employer. That was the case here. Section 151Z then deals with the interaction of Division 3 of the Act which places caps on recovery against the employer, and the amount of contribution that may be recovered from the employer as a joint tortfeasor. No issue arises as to the application of those provisions here. 5 The orders gave effect to the verdict and judgment for Multiplex as First Cross-Claimant against Fugen as First Cross-Defendant in the sum of $504,003. The figure of $504,003 was arrived at "by taking 50% of the amount awarded against Fugen and 50% of the award against Multiplex and adding the two together"; Judgment and orders of 1 August 2003 at Red, 47. 6 Though the employee had an accrued cause of action against his employer Fugen as a concurrent tortfeasor, it ceased to be any kind of liability Fugen owed to the employee, once the employee's judgment against Multiplex was pressed to a successful conclusion and satisfied. In the case of concurrent tortfeasors, while a plaintiff is no longer defeated by entering judgment against one of them as co-defendant, this is unless and until that judgment is satisfied; Bryanston Finance Ltd v de Vries [1975] QB 703; Glanville Williams: "Joint Torts and Contributory Negligence" (1951) at 33. Once the judgment in favour of the employee was wholly satisfied by Multiplex there ceased to be any liability owed by the other concurrent tortfeasor Fugen to its employee, leaving only a liability on its part for contribution. In the meantime, while Fugen had an actual liability for the 50% responsibility apportioned to it, the remaining liability was contingent or prospective only; that is, contingent on Multiplex failing to satisfy the judgment against it. In those circumstances, it is wholly unreal to treat Fugen as being under any continuing liability of an employment character so as to qualify for insurance indemnity under the statutory policy, beyond Fugen's 50% liability for contribution as employer. That protean expression "liability", used in the Policy, would not in my judgment extend to encompass a contingent liability for Multiplex's 50% responsibility, more especially when it was never likely to come home. 7 After Walmsley DCJ had delivered judgment, the insurance company, Royal & Sun Alliance Insurance Australia Limited ("Royal") which was Fugen's compensation insurer, admitted liability to Fugen in respect of 50% of the amount that, by the Judgment, Fugen was required to pay Multiplex. It was common ground that this 50% represented Fugen's share of its common law liability to its employee, Irving. Royal thereby acknowledged that the policy was engaged, but to that extent, and that extent only. Royal therefore paid Fugen that 50% but denied liability for the balance (being the remaining 50% that Fugen was obliged to pay Multiplex in terms of the contractual indemnity Fugen had given Multiplex). 8 Thus the central issue in this appeal was Fugen's right to obtain from Royal indemnity under the Workers' Compensation policy for that remaining 50% liability, derived as it was from a contractual obligation to indemnify Multiplex, not from a continuing liability to its employee. That liability to indemnify Multiplex, as to 50%, was a consequence of Fugen's contractual obligation to indemnify Multiplex pursuant to their sub-contract. That is the critical difference between this case, compared to the two cases noted below, where a consequential liability to a third party was held to be recoverable under the version of the statutory insurance policy which there applied. In those other cases, consequential liability to a third party flowed directly from the liability of the employer in that capacity to the employee. There was never any intervening causal factor of contractual indemnity obliging payment to those third parties. Thus in Rheem Australia v Manufacturers Mutual Insurance Ltd (1984) 2 NSWLR 370 consequential liability flowed from the employer's negligence to its female employee. Her husband was in consequence held entitled to recover against the employer for loss of consortium of the female worker injured as a result of her employer's negligence. The employer was able to claim indemnity under the statutory policy for that consequential liability, because it retained an employment character. 9 Similarly in Manufacturers Mutual Insurance Ltd v Hooper (1988) 5 ANZ Ins Cas 60-849 the employer was held liable for the nervous shock suffered by the worker's widow upon hearing of her husband's death. That death had been occasioned by the negligence of the employer. The employer was also held liable at common law to a passer-by who was injured when he went to the aid of the worker. The employer was able to claim indemnity under the statutory policy for its liability in both instances. Again, there was a direct nexus between injury to the employee occasioned by the employer's negligence and consequential liability to others occasioned as a result. 10 In the present case the residual 50% liability incurred by the employer to Multiplex and for which indemnity is sought against Royal arises not as a direct consequence of the common law negligence of Fugen. Rather it is a consequence of a contractual obligation undertaken pursuant to the sub-contract between Multiplex and Fugen. That to my mind is the critical difference between the present case on the one hand and Rheem and Hooper on the other. That reasoning need not depend on the distinction between similar but not identical wording of the respective policies, though it strengthens that conclusion. Thus the policies in Rheem and Hooper employed the potentially wider expression "in respect of his liability independently of the Act for any injury to any such person", as compared to the arguably narrower phraseology applicable here, namely liability "for any injury to any such person"; see clause 3(b) of the present Policy wording. Moreover in the present case, when it comes to the statutory exclusion of liability to rescuers which follows immediately after, one there finds the wider expression "liability in respect of an injury". That suggests the earlier narrower reference to "for" was deliberate and designed to restrict the ambit of the liability covered by the policy; that is, to exclude those liabilities that were not of a broad employment character but rather of an interposed contractual kind. 11 I therefore agree that in context the expression "in respect of" may enlarge the scope of the insurance indemnity. In State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Limited (1969) 123 CLR 228, the policy gave indemnity for "all sums for which, in respect of injury to any worker employed by him, he may become legally liable by way of … damages arising under circumstances creating also, independently of this Act, a legal liability in the employer to pay damages in respect of that injury". Reference to "legal" liability connotes an adjudicated liability as distinct from one which has merely accrued without more (compare Post Office v Norwich Union Fire Insurance Society Limited (1967) 2 QB 363 and Cacciola v Fire & All Risks Insurance Company Limited [1971] 1 NSWLR 691). Hence combination of the words "legal liability" with the words "in respect of an injury", are of wider ambit, capable of encompassing a contractual liability, certainly where that liability has been legally adjudicated so as to constitute a "legal" liability. 12 In Brisbane Stevedoring that indeed was the result. The High Court concluded that the policy of insurance did cover the "legal liability" under contract requiring the employer to indemnify the crane hirer whose crane had capsized and injured an employee of that employer. Barwick CJ with whom Windeyer J agreed, observed that it did not strictly arise in that case whether any amount paid by employer to hirer under the contractual indemnity would be a sum falling within the terms of the statutory policy of insurance. Nevertheless, he expressed the view that the policy covered the situation regardless of whether the obligation to pay was derived from an order of the court (as where the indemnity is enforced before verdict) or from contract (as where the indemnified party merely pays and then enforces the contractual indemnity). Barwick CJ made it clear that his view was limited to the case where a verdict was found against both parties, here employer and crane hirer. Kitto, Owen and Walsh JJ came to similar conclusions. 13 I agree with Ipp JA that the legislation in the case of Brisbane Stevedoring with its reference to "legal liability" … "in respect of that injury" therefore differed materially from the legislation in the present case. It likewise differed from the similar legislation considered in Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ Ins Cas 61-235. I agree that Brisbane Stevedoring did not need to be cited in Nigel Watts, so that the failure to refer to it did not matter. 14 Turning to Nigel Watts, I agree with Ipp JA that there is no reason why this Court should depart from it. I respectfully consider that it was correctly decided. In that case, the employer's liability for which it was seeking indemnity ultimately depended upon whether the employer had breached the contract of lease. This was in circumstances where the landlord had been sued by an injured employee who was on the premises, leaving the landlord to join the employer in third party proceedings. 15 Concededly it could be said that but for the injuries suffered by the worker, the employer in Nigel Watts would not have been liable under the lease. But the Court of Appeal were not prepared to stretch consequential liability to encompass liability which fundamentally depended upon the contractual terms of a lease contract. Those terms rendered the employer qua lessee liable in contract to indemnify the lessor for "loss, damage or injury from any cause whatsoever to … any person caused or contributed to by the use of the demised premises …". As Kirby P concluded, the purpose of the statutory policy "is to provide indemnity to a worker for common law liability to a worker qua worker. It is not to provide indemnity to the employer in respect of every other way in which the employer might be liable to other persons" (at 75,642). 16 I return now to the effect of the trial judge's adjudication of the cross-claim upon the obligation of Royal under the statutory policy. It poses a question of its construction which can be simply stated. It is whether, in terms of the statutory policy, it could be properly said that the employer's contractual liability to indemnify Multiplex gave rise to "any other amount that the employer becomes liable to pay independently of the Act … for any injury to [any person who is a worker for the employer]". 17 The end result of the resolution of the cross-claim for contribution was that the only amount that the employer Fugen remained liable to pay to Multiplex, having been indemnified by Royal for the 50% attributable to its share of common law liability, was the amount Multiplex had to pay; and that was by reason of Fugen's contractual obligation to indemnify Multiplex. Fugen from the outset was subject to an accrued cause of action at the suit of its employee, though one that was never commenced. Adjudication of the employee's proceedings against Multiplex and of the cross-claim for contribution between Multiplex and Fugen then apportioned responsibility equally between the two concurrent tortfeasors. Any liability, so far as the employee was concerned, could be taken as satisfied solely by Multiplex. Until satisfaction, Fugen had a direct liability to the employee for 50% and a contingent liability for the remaining 50%; that is, contingent upon Multiplex defaulting. That latter was not a "liability" within the meaning of the policy, when there was no real prospect of it coming home. There was never any likelihood that Multiplex would not meet its liability once adjudicated. On the authority of Nigel Watts, the residual contractual liability imposed on Fugen for the remaining 50% was therefore not recoverable under the policy. I do not consider that the existence of a prior accrued cause of action on the employee's part against Fugen, never commenced, rendered Nigel Watts distinguishable. 18 If it were otherwise one consequence would be that the amount so recovered could exceed, depending on the terms of the contract, that which was permitted by the statutory caps applying under the Workers' Compensation legislation. Prima facie, that would be a surprising result. It would render statutory insurers hostage to whatever contract of indemnity were imposed by a contractor on any sub-contractor employer. 19 Orica Ltd v CGU Insurance Ltd (2003) 59 NSWLR 14 resolved that "liable" in the context of the then version of the statutory policy did include an accrued or completed cause of action, even though not adjudicated to a verdict or settlement. But that is the exception - most legal "liabilities" are either adjudicated or agreed. In the words of Mason P, "the liability for which the policy is concerned is not confined to liability 'found' in the sense of being 'established by agreement or order'" (Orica at [81]) [emphasis added]. Here however what began as an accrued cause of action against the employer Fugen was taken to a verdict, in proceedings between Multiplex and Fugen, the employee having sued only Multiplex. The employee's claim was then fully satisfied by Multiplex. Common law responsibility between the two concurrent tortfeasors was determined under the cross-claim as being equal as between Multiplex and Fugen. Liability was thereby fully resolved and after judgment satisfied, leaving only the contractual liability between Multiplex and Fugen for the former's 50% responsibility as head contractor. 20 Thus what began as a liability by way of an accrued cause of action, yet to be adjudicated against two concurrent tortfeasors, resolved itself into an adjudicated liability owed by Fugen to Multiplex. Half of that adjudicated liability still retained sufficient of its employment character for the Policy to answer. That was the half representing the liability for contribution between concurrent tortfeasors brought against the employer. It was correctly treated as retaining its employment character so as to permit recovery under the statutory policy. That was in conformity with Findlay v Westfield Development Corporation Ltd (1972) 1 NSWLR 422. But the other half always remained essentially contractual. It was never liability of an employment character for which the Workers' Compensation Policy answered, on its proper construction.

Summing up 21 Thus the present result can be reached in two ways, each to an extent supportive of the other. It can be reached by treating the judicial verdict as determining common law liability at 50% as between the two concurrent tortfeasors. Nothing suggested that liability would not be satisfied, so far as the employee was concerned, by Multiplex; that indeed occurred leaving no residual liability to the employee. Before that, there was merely a contingent liability on the part of Fugen to the employee, should Multiplex default on its 50% share of responsibility, and that was never in prospect. In those circumstances to treat the employer Fugen's "liability" for the purpose of the policy as still 100%, because it was a concurrent tortfeasor, would be wholly artificial and especially in the context of a policy of indemnity. Equally, as Ipp JA explains, the statutory policy being one of indemnity and only for liability qua employer, such a policy is only required to answer for the true loss suffered by Fugen as an employer, being 50% of the total liability. Fugen's liability that remained was essentially of a contractual character owed to Multiplex and was therefore not covered by the policy. 22 Both routes to this result concur in treating the policy as meeting only liabilities of an essentially employment character. The first route equates liability in terms of the policy to the loss indemnified, so as to exclude any contingent liability to the employee for Multiplex's 50% share of responsibility. The second route treats the whole accrued liability as included by the terms of the policy, whether actual, contingent or prospective, but then only has the policy indemnify for the actual loss suffered. Either way, the result is the same. 23 Finally, I agree with Ipp JA that liability of the Workers' Compensation insurer should not and does not depend on the adventitious fact of whether the worker elects to sue the employer, or some other joint or several tortfeasor. 24 As to damages, I agree with Ipp JA as to the adjustment required to make proper allowance for the loss of Mr Irving's future earning capacity. 25 IPP JA: The issues in the appeal 26 These two appeals concern proceedings brought in the District Court and determined by Walmsley DCJ. The proceedings arise out of an accident on a building site in Sydney on 9 September 1998. On that date, Mr Stuart Irving suffered a serious injury to his wrist when he fell while employed as a bricklayer by Fugen Holdings Pty Ltd ("Fugen"). Fugen was a sub-contractor to Multiplex Constructions Pty Limited ("Multiplex"). Multiplex was the occupier of the building site. Royal & Sun Alliance Insurance Australia Limited ("Royal") was Fugen's workers' compensation insurer. 27 Mr Irving sued Multiplex for the damages he sustained, alleging common law negligence on Multiplex's part. Multiplex joined Fugen in the proceedings by way of cross-claim. Relevantly, Multiplex relied on two causes of action. Firstly, it claimed an indemnity from Fugen in respect of the full amount it was required to pay Mr Irving. This claim was based on a contract which Multiplex had entered into with Fugen whereby Multiplex asserted Fugen was obliged to indemnify it as claimed. Alternatively, Multiplex asserted that Fugen had negligently caused Mr Irving's injury and claimed an indemnity or contribution from Fugen under s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946. 28 Fugen brought a cross-claim, the second cross-claim, against Royal. By that cross-claim Fugen alleged that Royal, as its workers' compensation insurer, was obliged to indemnify it under the "common law extension" to that policy against the claims brought against it by Multiplex. 29 In an ex tempore judgment marked by clarity of reasoning Walmsley DCJ made the following findings:

(a) Multiplex as occupier of the building site had breached the duty of care that it owed Mr Irving. Hence, Multiplex was liable in common law for the damages suffered by Mr Irving.

(b) Mr Irving's damages were assessed at $504,003; judgment and a verdict in this sum were ordered in favour of Mr Irving.

(c) Fugen, as Mr Irving's employer, owed him a non-delegable duty of care.

(d) Fugen, in breach of that duty, had caused or permitted a pallet of "blocks" to be left on a ramp and had thereby caused Mr Irving to fall and to be injured.

(e) Multiplex's share of responsibility for Mr Irving's damages was assessed at 50% and Fugen's share was assessed at 50%.

(f) By reason of the contract between Multiplex and Fugen, however, Fugen was obliged to indemnify Multiplex for the whole of Mr Irving's judgment against it.

(g) Royal insured Fugen for workers' compensation, with a common law extension, in accordance with the form of policy provided by the Workers Compensation (General) Regulation 1995.

(h) Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ Insurance Cases 61-235 bound his Honour to hold that the policy issued by Royal did not cover "a claim under a indemnity provided by a contract"; hence, the second cross-claim should be dismissed. 30 After Walmsley DCJ had delivered judgment, Royal admitted liability to Fugen in respect of 50% of the amount that, by the judgment, Fugen was required to pay Multiplex. It is common ground that this 50% represented Fugen's share of its common law liability to Mr Irving. In other words, Royal acknowledged that, to that extent, the policy was engaged. Royal paid Fugen that 50% but denied liability for the balance (being the remaining 50% that Fugen was obliged to pay Multiplex in terms of the contractual indemnity Fugen had given Multiplex). 31 By the time the appeal was heard, the parties had refined the remaining issues between them to two. The first was Fugen's right to obtain from Royal indemnity under the workers' compensation policy for the remaining 50%. The second involved a challenge by Multiplex and Fugen to the quantum of the damages awarded to Mr Irving.

Did the policy provide cover against liability for contractual claims? 32 The policy provided relevantly: " Part 2 Cover provided by Policy 3. What the Insurer is liable for The Insurer will indemnify the Employer against all of the following sums for which the Employer becomes liable during or in respect of the period of insurance: (a) compensation that the Employer becomes liable to pay under the Act to or in respect of any person who is a worker for the Employer (including any person to whom the Employer is liable under section 20 of the Act), (b) any other amount that the Employer becomes liable to pay independently of the Act (but not including a liability for compensation in the nature of workers compensation arising under any Act or other law of another State, a Territory or the Commonwealth or a liability arising under the law of another country) for any injury to any such person (not including liability in respect of an injury, suffered by a person other than such a worker, arising out of any rescue or attempted rescue), (c) costs and expenses incurred with the written consent of the Insurer in connection with the defence of any legal proceeding in which any such liability is alleged. 4. … 5. Insurer is directly liable to workers The Insurer (as well as the Employer) is directly liable to any worker and (if the worker dies) to the worker's dependants or other persons to pay the compensation under the Act or other amount independently of the Act for which the Employer is liable and indemnified under this Policy. This means that a claim can be made and action taken directly against the Insurer. 6. Insurer is bound by judgments etc against Employer The Insurer is bound by and subject to any judgment, order, decision or award given or made against the Employer, in respect of any liability for which the Insurer is liable to indemnify the Employer under this Policy." 33 Policies and terms that, for all practical purposes were identical to the wording contained in cl 3, were the subject of decisions by this Court in Rheem Australia Ltd v Manufacturers Mutual Insurance Ltd (1984) 2 NSWLR 370, Manufacturers Mutual Insurance Ltd v Hooper (1988) 5 ANZ Insurance Cases 60-849 and Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd. These three cases were the subject of full submissions by counsel. 34 The issue in Rheem was expressed by Glass JA at 371 to be as follows: "Does the liability of an employer in damages to the husband of a female worker injured as a result of its negligence fall within the words in the policy descriptive of the event upon which an indemnity arises." 35 In Hooper a worker died in an accident in the course of or arising out of his employment. One of the issues before the Court of Appeal concerned the liability of a workers' compensation insurer to indemnify an employer against its common law liability to a worker's widow (who suffered mental or nervous shock upon hearing of her husband's death) and a passer-by (who was injured when he went to the aid of the worker). 36 In Nigel Watts a worker was injured in the course of his employment and received workers' compensation benefits from his employer. He then sued the landlord of premises where he was injured for damages for negligence. The landlord joined the employer in third party proceedings. One of the issues in the third party proceedings was whether the employer had breached the contract of lease. Judgment in the third party proceedings was given against the employer upon the terms of the lease. The insurer refused to indemnify the employer in respect of the judgment. The employer sued for indemnity but was unsuccessful at first instance. On appeal, the employer was again unsuccessful. The ratio of the judgments of the Court of Appeal was that liability for breach of contract was not a liability "for" the injury suffered by the worker and therefore the policy did not provide indemnity to the extent claimed. 37 Kirby P said at 75,642: "This claim must be rejected. The phrase in the policy is of long standing. Its purpose is plain. It is to provide indemnity to an employer for common law liability to a worker qua worker. It is not to provide indemnity to the employer in respect of every other way in which the employer might be liable to other persons, as by a promise in a contract of lease. The judgment against the employer as third party rested entirely upon the employer's contractual liability under the lease. It was based on the exceptional provisions of that document. The workers' compensation policy issued by the insurer to the employer did not respond to such a liability."

Mahoney JA said at 75,648: "The term 'for' is, of course, one which has a wide operation: See Robert G Nall Limited v Federal Commissioner of Taxation (1937) 57 CLR 695 at 711. The extent of it in each case is to be determined by the context in which it is used. I do not think that the employer's liability in the present case, though arising because Mr Watts was injured, is a liability 'for' that injury. It is, in the relevant sense, a liability arising under the indemnity which, by the terms of the lease, was contracted to be given. I agree with the conclusion of Kirby P on this aspect of the matter."

Handley JA agreed with Kirby P and Mahoney JA. 38 In the present case, Multiplex and Fugen submitted that Nigel Watts was wrongly decided. Senior counsel for these parties pointed out that in Nigel Watts no reference had been made to Rheem and Hooper and submitted that these cases are inconsistent with Nigel Watts. 39 Rheem and Hooper were concerned with the question whether the indemnity under the policy extended to liability to some person other than the injured worker. They were not concerned with whether indemnity under the policy extended to liability for claims arising other than in respect of common law negligence or breach of statutory duty. Rheem and Hooper were not concerned with what was meant by the obligation to indemnify against liability "for" an injury. The issues, in these two cases, differed from the issues decided in Nigel Watts. 40 By reason of these differences, Rheem and Hooper are not inconsistent with Nigel Watts. That, as Mr Harrison SC, (with whom Mr Muston) appeared for Royal submitted, is the reason why no reference to these cases was made in Nigel Watts. They were simply not relevant to the decision. 41 Senior counsel for Multiplex and Fugen also submitted that Nigel Watts was contrary to State Government Insurance Office (Queensland) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228. The latter case concerned the meaning of employers' "liability to pay damages" within the meaning of the relevant Queensland legislation. That legislation differed materially from that considered in Nigel Watts. Hence, Brisbane Stevedoring was not relevant to the decision in Nigel Watts and there was no need for the court in Nigel Watts to refer to it. 42 Notionally, an employer might agree (for business or other reasons) to settle the common law claim of a worker by agreeing to pay an amount in excess of the caps on damages provided by the Workers Compensation Act 1987. On the argument advanced on behalf of Multiplex and Fugen, under the statutory policy a workers' compensation insurer would be obliged to indemnify the employer for the agreed amount. This result would be anomalous and suggests, strongly, that a construction so propounded was not intended by the legislature. 43 The decision in Nigel Watts has stood now for ten years. It has not previously been doubted. Its general acceptance is illustrated by the words of Mason P in Orica Ltd v CGU Insurance Ltd (2003) 59 NSWLR 14. His Honour first noted (at [64], 27) that the concept of a liability "independently of the act" (as this phrase is used in the statutory policy) "is commonly and loosely described as liability at common law" and went on to say (at [69], 27): "Two different circumstances appear on the face of the policy, namely liability for compensation and for damages. Within the latter category are included damages stemming from direct or vicarious liability on the employer's part and damages stemming from a common law tort or breach of statutory duty."

This description of the cover provided by the policy is in accord with Nigel Watts (and not with an argument that the cover under the policy extends to liability for contractual obligations). 44 I see no reason why this Court should depart from Nigel Watts. In my respectful view it was correctly decided. I would reject the argument advanced by Multiplex and Fugen in this respect.

The meaning of "becomes liable" 45 During the course of argument I suggested to counsel that, arguably, there was a basis on which the appeal should succeed on the indemnity issue even if the Court were to follow Nigel Watts. The suggested basis rested on the following propositions:

(a) By cl 3 Royal agreed to indemnify Fugen against "any other amount that the employer becomes liable to pay independently of the Act … for any injury to [Mr Irving]".

(b) Fugen became liable to pay Mr Irving, independently of the Act, the full amount of the verdict ordered against Multiplex (because Fugen was a joint or several concurrent tortfeasor in respect of the damages Multiplex was ordered to pay Mr Irving).

(c) Therefore, as Fugen became liable to Mr Irving for all of the damages awarded to him, Royal is obliged to indemnify Fugen against the full amount of the verdict.

Senior counsel for Multiplex and Fugen adopted this argument and all parties filed written submissions in regard to it. 46 Royal, rightly, did not dispute that Fugen and Multiplex, by their separate and independent acts, caused one and the same damage to Mr Irving. They were, accordingly, joint or concurrent tortfeasors and, when Mr Irving sustained his injury, each became severally liable for the whole of the damage caused to him: Barisic v Devenport (1978) 2 NSWLR 111 (at 140). Had Mr Irving sued both Multiplex and Fugen he would have been entitled to a joint judgment against both for the full amount of his damages. Had he sued each in two separate actions he would have been entitled to separate judgments against each for the full amount of his damages. In those circumstances the rights of Multiplex and Fugen as between themselves would have had to be determined by verdicts against each other: Speirs v Caledonian Collieries (1957) 57 SR (NSW) 483 (at 511). 47 Royal submitted, however, that it was not obliged to indemnify Fugen against the full amount of Mr Irving's damages because the phrase "becomes liable" in cl 3(b) of the policy means becomes liable "when the liability of the insured is established in the sense of being crystallised by settlement, arbitration or verdict" (per Spigelman CJ in Orica Limited v CGU Insurance Limited at [14], 20) and the liability of Fugen was never crystallised in this way. 48 There is a line of authority with respect to policies of liability insurance, generally, that supports the submission so advanced on Royal's behalf. Spigelman CJ, in Orica, referred to this line at [14], 20. 49 Royal also drew attention to the Chief Justice's reference in Orica to the fact that the policy in that case contained the words "shall be liable to pay" and not "shall become liable" (the latter phrase being akin to the relevant words in the policy in the present case) when explaining why that line of authority did not govern the policy his Honour was construing. 50 Royal, in addition, sought support from AMP Workers' Compensation Services (NSW) Ltd v QBE Insurance Limited (2001) 53 NSWLR 35 (at 38,[9]), where Handley JA (with whom Mason P and Beazley JA agreed) said, obiter: "[With regard to a workers' compensation policy that the employer's] … rights of indemnity would not accrue until its liability to [the worker] had been crystallised by settlement or verdict: see Post Office v Norwich Union Fire Insurance Society Limited (1967) 2 QB 363 and Cacciola v Fire & All Risks Insurance Company Limited [1971] 1 NSWLR 691". 51 I am, however, unable, both on construction and policy grounds, to agree with his Honour's observation and with the argument so advanced. 52 In Orica Spigelman CJ said at [12], 20: "The words 'liable' and 'liability' are protean and the ascertainment of their meaning must depend on the context, broadly defined, in which they are used."

Mason P and Santow JA agreed. The meaning of the phrase "becomes liable" in cl 3(b) must therefore be sought in the context of the policy and the Workers Compensation Act. 53 In Orica Mason P observed (at 29, [78]): "Merely because liability to pay compensation accrues upon the suffering of an employment injury does not suggest any reason why a similar approach should be taken as regards tortious claims."

As a general rule I accept, with respect, that that is correct. But, as regards cl 3, there is compelling reason to infer that the approach to be taken to tortious claims (under cl 3(b)) is the same as that in regard to claims for compensation under cl 3(a). 54 The phrase "becomes liable" appears three times in cl 3 of the policy. Firstly, in the opening words: "The Insurer will indemnify the Employer against all of the following sums for which the Employer becomes liable during or in respect of the period of insurance". Secondly, in cl 3(a) where one of "sums for which the Employer becomes liable" is identified as "compensation that the Employer becomes liable to pay under the Act to or in respect of any person who is a worker for the Employer". Thirdly, in cl 3(b) (the critical clause) where another such sum is identified as "any other amount that the Employer becomes liable to pay independently of the Act … for any injury to [a worker] … ". 55 By reason of the opening words of cl 3 ("The Insurer will indemnify the Employer against all of the following sums for which the Employer becomes liable"), the phrase "becomes liable" governs cl 3(a) (which deals with compensation payable under the Act), cl 3(b) (which deals with any other amount that the employer becomes liable to pay independently of the Act) and 3(c) (which deals with costs and expenses incurred with the written consent of the Insurer in connection with the defence of any legal proceeding in which any such liability is alleged). 56 It is hardly likely that the legislature intended the phrase to have three different meanings in the same clause. It is reasonable to assume that wherever the phrase appears in the clause it bears the same meaning. 57 It is helpful, firstly, to examine the meaning of "becomes liable" in cl 3(a). 58 In Orica Spigelman CJ said (at 21, [21]): "The authorities establish that an employer's liability [to pay compensation] under the Act accrues when injury occurs, not when consequential incapacity arises and, accordingly, compensation falls to be paid. The statutory policy responds at the time of injury, even if incapacity arises later."

Mason P agreed (see at 29, [76]), noting that the Chief Justice had pointed out that: "… [A] long line of cases establish that the statutory policy responds (qua compensation) at the time of injury, even if future events have to occur before the worker's enjoyment of various statutory entitlements that are compendiously described as compensation 'fructify'". 59 Once it is accepted, and in my view it must be, that the statutory policy responds to claims for compensation at the time of injury to the worker, the phrase "becomes liable" in cl 3(a) must mean liable when injury to the worker occurs, that being when liability of the employer to the worker accrues. 60 Thus, in my view, as the policy responds to a claim for compensation when injury occurs (that being when an employer's liability under the Act accrues), there is no reason to construe the phrase "becomes liable" in cl 3(a) in any way other than meaning "when the employer's liability at common law accrues" (and that is when the cause of action arises). 61 Clause 3(c) is also relevant to this exercise as it is governed by the phrase "becomes liable" in the opening words of cl 3. The element of the insurer's consent in cl 3(c) assumes that the insurer has rights under the policy before judgment is given in the worker's claim against the employer. Moreover, the inference is that the insurer will indemnify the employer against such costs and expenses even if the employer succeeds in defending the worker's claim - and no judgment is ever given against the employer crystallising its liability. Thus, the insurer becomes liable to the employer for such costs and expenses as and when they are incurred; the general approach being similar to that in cl 3 (a). 62 Once the phrase "becomes liable", as it applies to cl 3(a) and cl 3(c), does not bear the meaning of liability crystallised by settlement or judgment, it cannot properly be construed as bearing that meaning in cl 3(b). 63 The reasoning expressed above is consistent with Dillingham Engineering Pty Limited v National Employers' Mutual General Insurance Association Ltd` (1971) 1 NSWLR 578 where Moffitt JA (with whom Holmes JA agreed and Asprey JA substantially agreed) said (at 586 to 587): "… The obligation of the insurer to indemnify the employer, attaches as soon as a compensable injury occurs … It follows that liability of the employer for workers' compensation under the Act, being that in respect of which the obligation to indemnify then arises under the policy, attaches in respect of any injury which falls within s 7(1A), as it does with an injury which falls within s 7(1), at the time the injury occurs. It is at this point of time that the operation of the policy in respect of common law liability must be considered. Liability of a negligent employer arises upon the happening of the injury. At that time the words 'worker' and 'injury' are applicable to the circumstances. Hence these words of the police serve to extend the indemnity to this liability at common law and not to exclude it. Any question of receiving workers' compensation payments can of necessity only arise after the injury is received. Liability for workers' compensation and at common law attach, if at all, when the injury occurs. At that time the right to be indemnified arises. It would be difficult to see how the time limits of the indemnity cover could operate if it were otherwise. There is no ground in principle or by reason of the terms of s 7(1A) to infer that the liability of the employer under the Act or at common law in a case within the initial part of s 7(1A) or the indemnity in respect of either is suspended until it is determined whether the worker will choose to receive workers' compensation elsewhere in terms of s 7(1A)(a). The consequence of provisions such as 7(1A)(a), in common with other provisions such as s 53 or the last provision in 64(1)(a) in the case of workers' compensation payments and in common with provisions such as s 63(3) in the case of damages at common law, is that they or the lapse of time serve to vary or even extinguish or render unenforceable the particular liability. They do not retrospectively nullify the liability which formerly existed, and they do not extinguish an obligation to indemnify which has arisen under an insurance policy." 64 In Orica Mason P said of these remarks (at 30, [81]): "This passage confirms that the liability with which the policy is concerned is not confined to liability 'found', in the sense of being established by agreement or order." 65 Clause 5, which provides that the insurer is directly liable to workers, is also relevant to this issue. Plainly the object of cl 5 is to protect the worker in the event of the employer becoming sequestrated or wound-up. The prospect that the worker could first be required to have his or her proof of debt admitted, or even to obtain a judgment against a bankrupt's trustee or the liquidator of a company in winding-up, before suing the insurer under cl 5 is inimical to Royal's argument on this issue. 66 As a matter of policy there are two further points that support construing "becomes liable" in cl 3(b) to mean "becomes liable when the cause of action arises". The first was articulated by Mason P in Orica (at 27, [67]) as follows: "That most protean of words, 'liable', must be construed in its particular context. Usually the choice is between 'actually liable' and 'found to be liable' ( Cacciola v Fire & Risks All Insurance Company Limited (1971) 1 NSWLR 691 at 693, per Jacobs JA). I agree with my colleagues that the latter meaning must be rejected in the present situation. It would effectively rob the indemnity of content, because it would relegate the employer's cover to the vagaries and delays of the litigation process and would not even address the situation where the employer's legal responsibility was too plain to require the worker to sue. The reasoning in Dillingham Engineering Pty Limited v National Employers' Mutual General Insurance Association Limited [1971] 1 NSWLR 578 … supports this conclusion." 67 The second concerns Mr Irving's entitlement to sue Fugen instead of Multiplex or to sue Multiplex and Fugen jointly. On Royal's argument, upon judgment against Fugen the policy would have responded to cover Fugen's loss, but not otherwise. But, the liability of the workers compensation insurer to the employer should not depend on the whim of the worker, that is, as to whether his or her claim should be made against the employer or against some other joint or several tortfeasor. The more or less arbitrary decision by a worker not to sue his or her employer, but rather another joint or concurrent tortfeasor, should not be permitted to impose the whole burden on that other tortfeasor to the exoneration of the employer and its workers compensation insurer: cf AMP Workers' Compensation Services (NSW) Ltd v QBE Insurance Limited (at [12], 38 and [25], 40. 68 Accordingly, I would not uphold Royal's argument as to the meaning of "becomes liable" in cl 3(a).

No loss; therefore, no indemnity 69 Despite my view as to the meaning of "becomes liable" in cl 3(a), I have come to the conclusion that the argument advanced by Royal on the indemnity issue must be upheld. On reflection, there is a fallacy in the argument to the contrary that I suggested in the course of the appeal. 70 The fallacy lies in the omission to have proper regard to the rule that an indemnity, in the context of insurance, is a promise by one party to keep the other harmless against loss, or a promise to make good the loss suffered by another: Yeoman Credit Limited v Latter (1961) 1 WLR 828 at 831. That is to say, for an insured to be entitled to require the insurer to implement an indemnity, the insured must be susceptible to a relevant loss. 71 In accordance with Nigel Watts, cl 3 does not provide cover in respect of liability for breach of contract. It does provide cover in respect of liability for common law negligence. The relevant loss under the policy is a loss arising out of a common law claim. 72 Fugen, as a joint or concurrent tortfeasor, was liable to Mr Irving for 100% of his damages. It was this fact that provoked the suggested argument. But several additional matters need to be noticed. · Mr Irving obtained judgment against Multiplex for the full amount of his damages and Multiplex has discharged that judgment debt (hence, its claim for indemnity from Fugen). · Multiplex was held entitled to be indemnified by Fugen in respect of the full judgment sum by reason of the contract between it and Fugen (and not on any common law ground). · Royal has indemnified Fugen in respect of 50% of the amount in respect of which Fugen is required to indemnify Multiplex. · Royal did so as that 50% represented the full amount for which Fugen was liable to Mr Irving at common law as a joint or concurrent tortfeasor. · The remaining 50% claimed by Fugen from Royal is not in respect of Fugen's liability at common law but in respect of its liability under the contract between it and Multiplex. 73 Significantly, Fugen is no longer liable to Mr Irving for any amount owing in respect of its common law negligence. When Mr Irving's claim was paid by Multiplex, the only common law liability on the part of Fugen that remained alive in connection with Mr Irving's loss was the 50% of Mr Irving's verdict which Fugen, as a joint or concurrent tortfeasor, was obliged to contribute to Multiplex. But, Royal has indemnified Fugen in respect of that 50%; that amount has been paid and is no longer in issue. 74 The 50% in respect of which Fugen now claims indemnity from Royal is therefore the remaining 50% of the 100% of the verdict that Fugen paid Multiplex in discharge of its contractual obligations. I emphasise that that remaining 50% has no connection with any liability that Fugen had to Mr Irving as a joint or several concurrent tortfeasor. 75 It follows that the 50% for which Fugen claims indemnity from Royal is solely Fugen's loss arising from its contractual obligation to Multiplex. It is not a relevant common law loss covered by the policy. Nigel Watts precludes Fugen from recovering this remaining 50%. 76 I would therefore not uphold the appeal against the dismissal of Fugen's claim for further indemnity in respect of the remaining 50%.

The quantum of damages argument 77 The challenge in regard to quantum of damages concerns the amount awarded to Mr Irving in respect of loss of future earning capacity. 78 Prior to the injury to his wrist, Mr Irving had been employed as a bricklayer. He had been a bricklayer all his working life, having concluded his apprenticeship in 1988. As a result of his injury he became permanently unfit for work as a bricklayer. 79 Apart from the injury to his wrist, Mr Irving was a "very fit" man. He conceded that he could work as a courier. He was a qualified forklift operator. He accepted that he could learn to weld, could be a crane driver or work in some other related job. 80 In fact, with the encouragement of Royal, in its capacity as Fugen's workers' compensation insurer, he retrained as a storeman. He moved to Perth to be with his family where he obtained employment as a storeman. Mr Irving's income, at the time of the trial, from his work as a storeman was $449 per week. 81 Walmsley DCJ found that, but for his wrist injury, Mr Irving would have worked as a bricklayer, "at least to age 60". At the time of the trial Mr Irving was aged 36. There was, therefore, "a 24 year loss". 82 Walmsley DCJ accepted Mr Irving's evidence that, at the time of the trial, had he been a bricklayer he would have earned $896 a week (and not the $449 per week which he was earning as a storeman). There was therefore a differential of about $447 per week. 83 Mr Irving claimed the sum of $112,459 for past economic loss. Walmsley DCJ accepted that Mr Irving's arithmetical calculation of this amount was correct, but held that "by reason of the fact that even when working as a bricklayer he was not always employed, it is reasonable that for the past I allow the sum of $100,000". His Honour therefore deducted between 10% and 11% from the $112,459 to allow for the difficulties that Mr Irving would have had in obtaining continuous employment in the building industry. This was not because of any lack of ability or energy on Mr Irving's part. It was merely a consequence of the inherent nature of the building industry. 84 The judge then turned to loss of future earning capacity and said: "I propose to allow for the loss of capacity, not the sum claimed of $447, but rather the sum of $350 per week. That I think properly reflects the capacity which I find he has, and will, in his working life have, and the extent to which his capacity, but for the accident, he would have had, and would have exploited." 85 In this appeal Multiplex and Fugen first contend that, in deducting $97 from the claim of $447, his Honour under-estimated Mr Irving's potential for obtaining work in higher paid occupations. I reiterate that the $447 per week represents the difference between what Mr Irving would have earned as a bricklayer ($896 per week) and what he was earning as a storeman ($449 per week). 86 It is apparent from his Honour's reasoning that he took all relevant matters into account in deducting the $97. In my view, the findings in this regard were open to the judge and error in this respect has not been demonstrated. 87 Multiplex and Fugen then pointed out that, while the judge had deducted between 10% and 11% from Mr Irving's claim in respect of past loss of economic capacity (by reason of the vagaries of the building industry), he had made no such deduction in respect of future loss of earning capacity. 88 Mr Bozic SC, who together with Mr Fletcher appeared for Mr Irving, submitted that it should be inferred that Walmsley DCJ took into account such a deduction in reducing the $447 per week claimed to $350. 89 I am unable to accept this submission. The deduction in respect of the swings and roundabouts of the building industry has to be made from the sum of $896 per week, that being the weekly wage Mr Irving would have earned had he worked without interruption as a bricklayer. Ten per cent of $896 is $89. The difference between $447 and $350 is $97. If the judge took into account the vagaries of the building industry in arriving at the figure of $350, it would mean that he allowed only $8 per week for the prospect that, in the future, Mr Irving might obtain employment at a materially higher wage than $449 per week. The amount of $8 per week is so low as to give rise to the inference that Walmsley DCJ did not make any deduction from the sum of $896 in calculating loss of future earning capacity. His Honour merely allowed $97 for the possibility that Mr Irving might obtain higher paid employment in the future. 90 In my opinion, his Honour erred in this respect. Once it was necessary for him to make an allowance, in respect of past loss of economic capacity, for cyclical changes in employment opportunities in the building industry, then it was incumbent on his Honour to make a similar allowance when calculating loss of future earning capacity. As I have indicated, the inference is that his Honour did not do so. 91 In my view, an amount of $90 (being between 10% and 11% of $896) should be deducted from the sum of $350 per week (being the sum that his Honour determined reflected Mr Irving's loss of future earning capacity. In other words, I consider that the proper allowance for the loss of Mr Irving's future earning capacity is the sum of $260 per week.

No orders to be made at this stage 92 The parties requested the Court not to make any orders at this stage. They indicated that they would bring in draft minutes of orders after the findings of the Court had been considered. 93 With this in mind, I propose that an order merely be made that, within 21 days, the parties bring in an agreed draft minute of orders and, failing agreement, their respective proposed draft minutes, together with written submissions supporting the draft minutes. 94 PEARLMAN AJA: I have had the advantage of reading in draft the judgments of both Santow and Ipp JJA. I agree with the reasoning of both their Honours. In particular, however, I agree with the reasoning of Santow JA that the present result can be reached in two ways, but the result is the same whichever route is followed. **********

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