Plaintiff v Defendant Third Party Fourth Party

1 This proceeding is the s 138[1] recovery proceeding related to the case of Papadopoulos v MC Labour & Anor (No. 4) [2009] VSC 193 in which judgment was delivered today. In that proceeding ("the Papadopoulos proceeding), Mr Christopher Papadopoulos recovered damages from MC Labour Hire Services[2] and Concept Hire Limited. In this proceeding (the present proceeding), the Victorian WorkCover Authority sought an indemnity under s 138 of the Accident Compensation Act 1985 in respect of payments made by it in relation to Mr Papadopoulos' injuries. On 20 April 2009, Concept Hire Limited, the defendant, settled with the VWA and consented to judgment in the sum of $300,000 together with $35,000 agreed for costs. This proceeding then continued as a third party proceeding between Concept Hire and MC Labour, Concept Hire seeking damages from MC Labour based on the causes of action set out in Papadopoulos No. 4.[3]

2 On 12 May 2009, the third party sought leave to join the Victorian WorkCover Authority (it no longer being a party) as a fourth party. In summary, the third party contended that by commencing this proceeding in its own name, and failing to commence this proceeding in the name of the third party, the VWA breached terms of the policy of insurance between the third party and the VWA, breached statutory duties and breached a duty of care. Further, the third party claimed to be entitled, pursuant to the policy of insurance between it and the VWA, to an indemnity in respect of the defendant's claim against it. I gave the third party leave to join the VWA as a fourth party. For the reasons given below, the defendant's claim against the third party must fail.

3 While the dismissal of the third party proceeding might be thought to make hypothetical the question of whether the VWA was liable to indemnify MC Labour in respect of the third party claim, there remains the issue of a potential shortfall between MC Labour's party/party costs and solicitor/client costs which justifies the Court in resolving the dispute between MC Labour and the VWA as to the VWA's liability to indemnify.[4] For the reasons given below, MC Labour is entitled to be indemnified by the VWA in respect of the third party claim brought against it.

4 The facts upon which the various causes of action pleaded in this proceeding are based are set out in Papadopoulos No. 4. Similarly, the causes of action pleaded by the defendant against the third party are set out and dealt with in that judgment. In this proceeding, the defendant pleaded the same causes of action in contract and under the Trade Practices Act against the third party as it pleaded in Papadopoulos No. 4. For the reasons given in that judgment, the identical claims made in this proceeding must be dismissed. Strictly speaking, it is not necessary to deal with the other arguments raised by the third party. What I have said is sufficient to dispose of the third party proceeding. However, the third party made a submission which has the capacity to affect a large number of s 138 recovery proceedings (if not all of those currently on foot). In summary, the submission was the VWA was not the correct plaintiff. If a recovery proceeding was to be brought, then it was submitted that it should have been brought in the name of the third party (MC Labour). From this it was submitted that the settlement between the VWA and Concept Hire was not reasonable.[5] Additionally, it was contended that the VWA, in wrongly commencing this proceeding in its own name (and not the third party's name), breached terms and duties exposing the third party to the risk that it would be joined to this proceeding[6] and thereby suffer loss and damage.

Was this proceeding commenced by the wrong plaintiff?

5 The third party's arguments were all premised upon the proposition that it is the employer who is liable to pay compensation in respect of an injury arising out of or in the course of any employment on or after 4.00pm on 30 June 1993. So much can be accepted from the terms of s 125A of the Accident Compensation Act. However, a liability is also imposed upon the VWA. This liability is imposed because of the operation of ss 7 and 9 of the Accident Compensation (WorkCover Insurance) Act 1993 ("the WorkCover Insurance Act"). Section 7 of the WorkCover Insurance Act requires employers to obtain and keep in force a WorkCover insurance policy with the Authority (VWA). Section 9 of the WorkCover Insurance Act provides that a WorkCover insurance policy must provide that the VWA, as well as the employer, is directly liable to any worker or other person insured under the policy.

6 The relevant WorkCover insurance policy in this case, in compliance with s 9, imposed a direct liability on the VWA. It can be accepted for present purposes that the Accident Compensation Act, properly construed in its context, imposes the principal obligation (or liability) to pay compensation on the employer. However, that is not to deny the additional direct liability imposed upon the VWA.

7 Section 138(1) of the Accident Compensation Act provides:

"Where an injury or a death for which compensation has been paid, or is or may be payable, by the Authority, a self-insurer or an employer was caused under circumstances creating a liability in a third party to pay damages or that would have created such a liability if the injury or death had been caused in Victoria or that would, but for section 134A, create such a liability in respect of the injury or death, the Authority, self-insurer or employer is entitled to be indemnified by the third party in accordance with this section."

8 The terms of s 138(1) are plain. Where compensation has been paid, or is or may be payable, by the Authority, the Authority is entitled to be indemnified by a third party (in this case Concept Hire) if the injury was caused under circumstances creating a legal liability in the third party to pay damages. There is nothing in the text of s 138(1) (or indeed the Accident Compensation Act) which limits the VWA's ability to recover indemnity only to those cases where the employer was not principally liable (or only to cases where the VWA has paid "directly" rather than by way of an indemnity to an employer). Neither the text of the sections relied upon by the third party[7] nor the purposes of the Act tell against a straightforward application of s 138(1) entitling the VWA to bring a recovery proceeding in its own name in respect of amounts it has paid "directly" or amounts it has paid as the insurer of the employer. To accept the third party's submission concerning the operation of s 138 would be to put a gloss on the statute for which there is no justification.

9 There are parallels between the third party's arguments and the unsuccessful arguments advanced by the defendant in Stingel v Clark.[8] In that case, the High Court rejected an argument that the operation of s 5(1A) of the Limitation of Actions Act 1958 was confined to insidious diseases. Section 5(1A) made no reference to the concept of "insidious" disease. Gleason CJ, Callinan, Heydon and Crennan JJ said:[9]

"The minority view, espoused by Warren CJ and Callaway JA, was that the words in question are unambiguous, and that while the expression 'insidious disease' might be apt to describe many of the circumstances to which those words apply, they are not limited to such cases, and that there is no reason why, in an appropriate case, the delayed consequence of a physical event might not attract the operation of the provision. That, it seems to us, is the better view."

10 Similarly, the words in s 138 are unambiguous. They do not limit the VWA's right to an indemnity to only those cases where the employer was not principally liable or the VWA has paid other than by indemnifying the employer.[10]

11 It follows from what I have said above that if it had been necessary to consider the third party's submission that the defendant must prove the reasonableness of the settlement, the third party's arguments concerning the issue of the correct plaintiff would not have had any bearing on this issue. For the sake of completeness, I should say that the defendant satisfied me that the settlement was reasonable. Had it not settled with the VWA, then (consistently with my judgment in Papadopoulos No. 4 and the jury's verdict) the defendant would have been liable to pay a sum greater than the settlement sum and still been liable in respect of future payments made under s 99 of the Accident Compensation Act. That is not to say that I have looked at the issue of reasonableness by reference to the jury's verdict and my judgment. The jury's verdict and my judgment demonstrate what would have been known to a reasonable party in the position of Concept Hire before the trial began: that is, the plaintiff was very likely to succeed and Factor A and Factor X were likely to be substantial and significant respectively so as to justify a settlement of the magnitude entered into between the VWA and Concept Hire.[11]

12 As for the third party's contention that the VWA breached terms and duties in commencing this proceeding in its own name, so as to expose the third party to the risk of joinder in this proceeding, I reject these contentions. If the VWA had commenced this proceeding in the name of the third party (MC Labour), it would still have been open to the defendant (Concept Hire) to plead and attempt to prove the causes of action it pleaded in Papadopoulos No. 4 and this proceeding. While no party took issue with the fact that concept hire pleaded the same causes of action in both proceedings, it would have been open to Concept Hire to confine its claims against MC Labour to the Papadopoulos proceeding; alternatively, it could simply have issued a separate proceeding against MC Labour. On the other hand, if the VWA had commenced this proceeding in the name of MC Labour, then it would have been open to Concept Hire to counterclaim against MC Labour for the identical relief it sought in the third party notice in this proceeding.

13 The third party's complaint appears to presuppose an entitlement to compel Concept Hire to set off its claim for damages against MC Labour against the claim brought by the plaintiff (either in the name of the VWA or MC Labour) in this proceeding. In the context of this case, such a step would be unjustifiable. MC Labour appears in both of these proceeding (this proceeding and Papadopoulos No. 4) in different interests. There would be no basis in setting off liabilities of MC Labour that are either uninsured or covered by a different insurer against an entitlement the VWA has to recover an indemnity pursuant to a right of subrogation.[12] It follows that there was no breach of any relevant term or duty by the VWA commencing this proceeding in its own name: properly construed, s 138 permitted the VWA to bring this proceeding in its own name and, in so doing, the VWA did not expose the third party (MC Labour) to any liability which it was not already exposed to (on the assumption that Concept Hire could make out any of its pleaded claims).

"NOW THIS POLICY WITNESSES that in consideration of the payment of or the agreement to pay by the employer to the Authority the premium stated in the Notice if, during the policy period stated in the Notice, and thereafter to 4 pm on the last day of any subsequent period in respect of which this Policy is duly renewed and for which the premium is paid or agreed to be paid by the employer, the employer becomes liable to pay compensation under the Act to or in respect of any person who is or is deemed by the Act to be a worker of the employer (including any person to whom the employer is liable by force of section 10A of the Act to pay compensation) or becomes liable to pay by force of the Act any other amount in respect of the employer's liability at common law or otherwise for any injury to any such person arising out of or in the course of or due to the nature of employment with the employer;

THEN, in every case, the Authority will indemnify the employer against all such sums for which the employer shall be so liable, subject to any excess payable by the employer under section 125A of the Act. The Authority will also pay all costs and expenses incurred that were consented to by the Authority in connection with any claim under the Policy."

15 The WorkCover insurance policy requires the VWA to indemnify MC Labour in respect of any amount MC Labour "becomes liable to pay by force of the [Accident Compensation] Act ... in respect of [MC Labour's] ... liability at common law or otherwise for any injury to ... [Mr Papadopoulos] arising out of or in the course of or due to the nature of employment with [MC Labour]". The question that arises is whether the claims for damages for breaches of implied terms, breaches of implied warranties, breaches of ss 52, 53(aa) and 55A of the Trade Practices Act and breaches of the duty of care alleged by Concept Hire were (had they been proved) claims that were payable by force of the Accident Compensation Act in respect of MC Labour's liability at common law or otherwise. The resolution of this issue requires the Court to determine the meaning of the words "by force of the Act" and the meaning of the words "at common law or otherwise".

16 The use of the words "by force of the Act" after the words "becomes liable to pay" is curious. Indemnity is provided where the employer becomes liable to pay by force of the Act an amount in respect of the employer's liability at common law or otherwise for a workplace injury. Thus, the insuring clause envisages a liability to pay by force of the Act; but the amount which the employer is to be liable to pay "by force of the Act" is an amount in respect of the employer's liability at common law or otherwise. In other words, the insuring clause seems to envisage a liability arising independently of the Act - at common law or otherwise - but a liability of the employer to make a payment in respect of that liability "by force of the Act".

17 In that context, the phrase "by force of the Act" is somewhat unclear. A liability at common law or otherwise is not, by definition, a liability under the Act. It is a liability independent of the Act. The policy seems to envisage such a liability of an employer, but only provides indemnity where that liability gives rise to a liability to pay "by force of the Act". The difficulty may be solved by construing the words "liable to pay by force of the Act" as "liable to pay as provided for by the Act". Such a construction does have some sense. The Accident Compensation Act makes provision in respect of claims by employees at common law. Such claims might be considered to be claims at common law "by force of the Act".

18 Applying this reasoning, the claims for breach of contract[13] (including both the claims relating to implied terms and the claims relating to the warranties implied by s 74 of the Trade Practices Act) and the claims in negligence are covered by the insuring clause.[14] The claims under ss 52, 53(aa) and 55A are in a slightly different position. While those claims also arise "by force of the Act" in the sense in which I have construed those words, a payment in respect of them is not a payment in respect of the employer's liability at common law. The question is whether they are payments in respect of the employer's liability "otherwise".

19 In an appropriate context, Courts construe the phrase "or otherwise" ejusdem generis: in other words, as being qualified by and restricted to the category of liabilities which precede the words "or otherwise". However, the ejusdem generis rule can only be applied once a genus is able to be identified. That is, to cut down the generality of the expression "otherwise", that word must be preceded by a list of two or more expressions having more specific meanings and sharing some common characteristics from which it is possible to recognise them as being species belonging to a single genus.[15]

20 In the present case, the question whether this construction should be adopted does not supply a useful answer to the meaning of the words "or otherwise". It is clear that the words envisage a genus of liability different from a liability at common law. Such a different genus of liability would have to be a liability created by or under statute. For these reasons, the claims under the Trade Practices Act are for amounts for which the employer might become liable by force of the Act in respect of the employer's liability at common law or otherwise within the meaning of the insuring clause in the WorkCover insurance policy. Similarly, if the claims for breach of contract did not give rise to a liability at common law, they would fall within the words "or otherwise".

21 What I have said is sufficient to dispose of paragraph 19(b) of the fourth party's defence[16] It remains to deal with the fourth party's assertion that MC Labour is not entitled to be indemnified in respect of the third party proceeding as "the third party did not comply with the terms of the WorkCover insurance policy, in that it failed to:

(i) comply with occupational health and safety laws; and

(ii) forward or process a claim for compensation made by the worker."[17]

22 The fourth party did not identify which particular clause of the policy entitled it to deny indemnity for failing to comply with occupational health and safety laws or failing to forward or process a claim for compensation. However, clause 14 (under the heading "Precautions") provides:

"The employer shall comply at all times with the provisions of the Occupational Health and Safety Act 1985 and the Dangerous Goods Act 1985."

23 While breaches of the Manual Handling Regulations in respect of this claim have been identified and while breaches of the Accident Compensation Act have been identified in respect of the plaintiff's prior injury, no breach of the Occupational Health and Safety Act 1985 or the Dangerous Goods Act 1985 have been identified during the course of this trial. One supposes the fourth party intends to rely upon s 21(1) of the Occupational Health and Safety Act 1985. Section 21(1) provided:

"An employer shall provide and maintain so far as is practicable for employees a working environment that is safe and without risks to health."

24 However, it is almost inevitable that when an employee succeeds in a claim in negligence against his or her employer, s 21(1) (when it was in force) will have been breached. In my view, clause 14 falls to be construed in a similar manner to conditions in public liability policies which require the insured to take "reasonable precautions" to prevent the happening of an insured event. Those clauses are construed as operating where the insured has been guilty of reckless conduct, and specifically where the insured, with actual recognition of the danger, has not cared whether the danger has been averted or not.[18] Having considered carefully the evidence of Mr Berry and Mr Lunedei, I am not satisfied that there was any recognition of the danger or the extent of the danger of bodily injury to the plaintiff in 2000 and 2001 when MC Labour breached its obligations to Mr Papadopoulos. Indeed, I am satisfied that there was no recognition of any such danger.[19]

25 It follows from what I have said above that the VWA is not entitled to deny indemnity upon the basis of any alleged breach of clause 14 of the policy. It remains to consider clause 2 of the policy. Clause 2 of the policy requires particulars of injuries and claim forms to be forwarded by the employer to the VWA within certain specified times. It can be accepted for present purposes that MC Labour was in breach of this clause in respect of the September 2000 incident. It can also be accepted that this breach might have entitled the VWA to deny liability in respect of a claim arising out of that injury - provided that the VWA complied with clause 23 of the policy.[20] However, such breaches of clause 2 do not entitle the VWA to deny indemnity in respect of claims arising out of separate incidents (in this case, the 10 May 2001 incident). A failure to provide a document in respect of an earlier injury or claim cannot be the basis for a denial of indemnity in respect of subsequent injuries or claims.

26 It follows that the third party is entitled to an indemnity in respect of the third party proceeding.

27 For the reasons given above (which incorporate the reasons given in the Papadopoulos proceeding):

(a) Concept Hire's claims against MC Labour must be dismissed.

(b) MC Labour is entitled to a declaration that pursuant to the terms of the WorkCover insurance policy, the VWA is liable to indemnify it in respect of the third party proceeding.

28 I will hear the parties on the appropriate forms of order and the question of costs.

[1] Accident Compensation Act 1985.

[2] Named in this proceeding as MC Labour Services Pty Ltd.

[3] With the exception that Concept Hire did not pursue the claim in negligence added on the last day of hearing in the Papadopoulos proceeding.

[4] The costs of the VWA in the fourth party proceeding probably also justify the resolution of this issue.

[5] Cf Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 193 CLR 603 - and in particular per Hayne J at 653 [129].

[6] See paragraph 17 of the statement of claim by third party against fourth party.

[7] During the course of argument I was referred to Part IV Division 1, Part IV Division 2, ss 93, 93A to 93F, 96 to 97, 98, 98A, 98C, 98D, 98E, 99, 102, 103, 104, 104B, 106, 108, 114D, Part IV Division 3A, Part IV Division 3C, Part IV Division 4, s 125, s 125A and s 126.

[8] [2006] HCA 37; (2006) 226 CLR 442.

[10] In arriving at this construction, it has not been necessary to have regard to the authorities concerning the interpretation of remedial or beneficial provisions. An application of the unambiguous words of s 138 permits the VWA to bring the present proceeding in its own name. Indeed, this is the premise upon which a vast number of s 138 recovery proceedings have been brought in respect of injuries arising out of or in the course of employment on or after 4.00pm on 30 June 1993 (see for example Alcoa Portland Aluminium v VWA [2007] VSCA 210; (2007) 18 VR 146, DSG Pty Ltd v VWA [2008] VSCA 42 and VWA v Kenman Kandy Pty Ltd [2002] VSCA 190; (2002) 6 VR 666).

[11] See generally s 138 of the Accident Compensation Act, the formula contained in s 138(3)(b) and the definitions of Factor A and Factor X.

[12] See generally Moffatt v Pinewood Resources Limited (unreported Tadgell J delivered 7 April 1989) in which his Honour considered the operation of r 13.14 and concluded that it should not be construed in a way that would "abrogate or interfere with substantive rights". Specifically, his Honour said:

"It would seem to me that by parity of reasoning r 13.14 should not be construed to interfere with other kinds of well established rights vouched safe by legal arrangements, for example, to a beneficiary under a trust. Suppose a beneficiary is entitled to claim as such against his trustee in that capacity, and the trustee has a claim against the beneficiary for damages for injuries suffered in a motor car accident. Can it be supposed that r 13.14 would allow the trustee to set off his claim for damages for personal injury as a defence to a claim against him made by the beneficiary? I would have great difficulty in construing r 13.14 to provide for that."

[13] Common law encompassing both tort and contract, a breach of contract gives rise to a liability at common law.

[14] See generally State Government Insurance Office (Queensland) v Brisbane Stevedoring Pty Ltd [1969] HCA 59; (1969) 123 CLR 228. But cf Multiplex Constructions Pty Ltd v Irving [2004] NSWCA 346 in relation to a different insuring clause under the then existing statutory workers compensation policy in New South Wales.

[15] Quazi v Quazi [1980] AC 744 per Lord Diplock at 807 - 808 and Deputy Commissioner of Taxation v Clark [2003] NSWCA 91 at paragraph [126].

[16] Paragraph 19(b) provides that MC Labour is not entitled to be indemnified in respect of the third party proceeding as "any liability of the third party to the defendant in the third party proceeding:

(i) does not arise by force of the Accident Compensation Act and

(ii) arises out of breaches by the third party of its statutory duties or contractual obligations to the defendant and

(iii) is not liability of a type which it is obliged to indemnify the third party

(iv) is not to a worker or person insured, or the dependent of a worker who has died, as specified by the WorkCover Insurance Act."

[17] Paragraph 19(a) of the fourth party's defence.

[18] See for example Body Corporate Strata Plan No. 4303 v Albion Insurance Company Limited [1983] VicRp 94; [1983] 2 VR 339, Fraser v BN Furnam (Productions) Limited (1967) 1 WLR 898, WJ Lane v Spratt (1970) 2 QB 480, Kodak (Australia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231, Legal and General Insurance Australia Limited v Eather (1986) 6 NSWLR 390 and CGU Insurance Limited v Lawless [2008] VSCA 38.

[19] Cf CGU Insurance Limited v Lawless, supra at paragraph [17].

[20] Clause 23 requires the VWA to give a notice in writing in order that it may deny indemnity.