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Erect Safe Scaffolding (Australia) Pty Limited v Sutton [2008] NSWCA
114 (6 June 2008)
Last Updated: 13 June 2008

NEW SOUTH WALES COURT OF APPEAL

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


FILE NUMBER(S):
40011/2007

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


JUDGMENT DATE:
6 June 2008

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

JUDGMENT OF:
Giles JA Basten JA McClellan CJ at CL

LOWER COURT JURISDICTION:
District Court

LOWER COURT FILE NUMBER(S):
4948/04

LOWER COURT JUDICIAL OFFICER:
Goldring DCJ

LOWER COURT DATE OF DECISION:
14 December 2006


COUNSEL:
G Laughton SC/N Cotman SC (Appellant)
P R Hennessey SC/M J Perry (1st Respondent)
B Toomey QC/J Stewart (2nd Respondent)
SOLICITORS:
McCulloch & Buggy (Appellant)
Taylor & Scott (1st Respondent)
Ebsworth & Ebsworth (2nd Respondent)

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

LEGISLATION CITED:
Workers Compensation Act 1987

CATEGORY:
Principal judgment

CASES CITED:
Allianz Australia Insurance Ltd v GFS Australia Pty Ltd [2005] HCA 26; 221 CLR 568
Andar Transport Pty Ltd v Brambles [2004] HCA 28; (2004) 217 CLR 424
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549
Australian Paper Plantations Pty Ltd v J & EM Venturoni [2000] VSCA 71
Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2006] NSWSC 223
Canberra Formwork Pty Ltd v Civil & Civic Limited (1982) 67 FLR 66
Celik v Commonwealth of Australia [2002] ACTSC 27
Cervellone v Besselink Bros Pty Ltd (1984) 55 ACTR 1
Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242
Coghlan v S H Lock (Australia) Ltd (1987) 8 NSWLR 88
Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500
Davis v The Commissioner for Main Roads [1968] HCA 10; (1967) 117 CLR 529
Dickinson v The Motor Vehicle Insurance Trust [1987] HCA 49; (1987) 163 CLR 500
Dover Navigation Co Ltd v Craig [1940] AC 190
F & D Normoyle Pty Ltd v Transfield Pty Ltd [2005] NSWCA 193; 63 NSWLR 502
Ferraloro v Preston Timber Pty Ltd (1982) 42 ALR 627; 56 ALJR 872
Government Insurance Office (NSW) v R J Green & Lloyd Pty Ltd [1966] HCA 6; (1965) 114 CLR 437
Grljak v Trivan Pty Ltd (1994) 35 NSWLR 82.
Johnson v The Australian War Memorial [2005] ACTSC 122
Jones v Bartlett [2000] HCA 56; (2000) 205 CLR 166
Kavanagh v The Commonwealth [1960] HCA 25; (1960) 103 CLR 547
Kondis v State Transport Authority [1984] HCA 61; (1984) 154 CLR 672
Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5
Leichhardt Municipal Council v Montgomery [2007] HCA 6; (2007) 230 CLR 22
Leighton Contractors Pty Ltd v Smith [2000] NSWCA 55
Libreri v Ironidol Pty Ltd (No 2) [2007] NSWCA 198
Lyons v Fondi Investments Pty Ltd (1998) 10 ANZ Insurance Cases 61-421
Murray v Favelle Mort Ltd [1974] 2 NSWLR 230
Nestle Australia Ltd v McDougall (Court of Appeal, 24 June 1998, unreported)
New South Wales v Lepore [2003] HCA 4; (2003) 212 CLR 511
Northern Sandblasting Pty Ltd v Harris [1997] HCA 39; (1997) 188 CLR 313
Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114
Roads and Traffic Authority of New South Wales v Palmer [2003] NSWCA 58
Smith v Australian Woollen Mills Ltd (1933) 50 CLR 511
Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASC 408; (2000) 23 WAR 291
State of New South Wales v Tempo Services Ltd [2004] NSWCA 4
Steele v Twin City Rigging Pty Limited (1992) 114 FLR 99
Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1; (1985-1986) 160 CLR 16
Texcrete Pty Limited v Khavin [2003] NSWCA 337

TEXTS CITED:


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



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40011/07

DC 4948/2004

GILES JA

BASTEN JA

McCLELLAN CJ at CL

WEDNESDAY, 4 JUNE 2008

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

                                                       Judgment


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

Apportionment


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


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


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

Clause 11


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


6 It is convenient to repeat cl 11 -

             “Clause 11:

             INDEMNITY

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


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


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


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


10 In Dickinson v Motor Vehicle Insurance Trust [1987] HCA 49; (1987) 163 CLR 500 it was held that injury
caused when a child left temporarily in a parked car played with matches arose out of the use of the car. The Court
said at 505 -

             “The test posited by the words "arising out of" is wider than that posited by the words
             "caused by" and the former, although it involves some causal or consequential relationship
             between the use of the vehicle and the injuries, does not require the direct or proximate
             relationship which would be necessary to conclude that the injuries were caused by the use
             of the vehicle: State Government Insurance Commission v Stevens Bros. Pty. Ltd [1984]
             HCA 32; [(1984) 154 CLR 552, at 555, 559].“


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


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


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


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

             “90 Further, in my view, while the phrase “arising as a result of”, in cl 12, is a particularly
             broad expression of the notion of causation, it is not open ended. The clause plainly does not
             connote “proximate cause” or “direct cause”, but it could not be construed so as to import
             an unlimited concept of causation. The clause does involve some causal or consequential
             relationship (cf Dickinson v Motor Vehicle Insurance Trust [1987] HCA 49; (1987) 163
             CLR 500 at 505). Remoteness must form an element of the meaning of “arising as a result
             of”; more is required than the mere existence of connecting links between an act, neglect or
             default of the sub-contractor and the liability incurred by the Joint Venture.

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


15 The present case is similar.


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


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


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

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

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

            12.1 Public Liability

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

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


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

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


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

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


24 Those principles were restated in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15;
(1987) 162 CLR 549 at 561, in the joint judgment of Mason ACJ, Wilson, Brennan and Dawson JJ:

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


25 In this respect, Andar Transport followed Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242 at 256
which, in the joint judgment of Mason CJ, Brennan, Deane and McHugh JJ, set out with approval the passage just
quoted from Ankar. The principles were applied in Chan so as to relieve a guarantor of the obligations of the lessee
under a lease in circumstances where the lease, though executed, was not registered and thus had no effect in law, as
opposed to giving rise to equitable rights flowing from the execution of the agreement.


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


27 It is also convenient to note at this stage the decision in Darlington Futures Ltd v Delco Australia Pty Ltd [1986]
HCA 82; (1986) 161 CLR 500. Darlington entered in to a contract with Delco whereby Darlington would act as a
broker for Delco in the commodity futures market. Clause 6 of the contract required Delco to acknowledge that the
broker “will not be responsible for any loss arising in any way out of any trading activity undertaken on behalf of the
client whether pursuant to this agreement or not”. Pursuant to cl 7(c) of the agreement any liability of Darlington “for
damages for or in respect of any claim arising out of or in connection with the relationship established by this
agreement or any conduct under it ... shall not in any event (and whether or not such liability results from or involves
negligence) exceed $100”.


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

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


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


30 Although, as will be noted below, there have been suggestions that Ankar and Chan, as followed in Andar
Transport, turned away from the principles stated in Darlington Futures, that seems unlikely to be correct. Not only
was no such suggestion to be found in any of the later cases, but the hearings in Darlington and in Ankar were within
a month of each other and the Court was constituted by the same members, three of whom were also in the majority
judgment in Chan and four of whom were in Dickinson v The Motor Vehicle Insurance Trust [1987] HCA 49; (1987)
163 CLR 500, to which reference will be made below.
Application of principles
31 Three factors should be taken into account in construing the scope of the indemnity and the insurance obligation.
First, it is clear that Erect Safe was to be an independent contractor. It follows that there can have been no
expectation that Australand would be liable vicariously for any negligence or other tortious conduct on the part of
Erect Safe, unless possibly it was conduct undertaken at the specific direction of Australand.


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


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


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


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


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


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


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


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


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


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


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


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


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

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


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

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


47 The joint judgment continued at 513:

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


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


49 In Dover Navigation Co Ltd v Craig [1940] AC 190 at 193, Viscount Maugham noted that the words “arising out
of”, “connote a certain degree of causal relation between the accident and the employment”: see generally Kavanagh
v The Commonwealth [1960] HCA 25; (1960) 103 CLR 547. In Murray v Favelle Mort Ltd [1974] 2 NSWLR 230,
again in the context of workers compensation legislation, Hutley JA stated at 230B-C:

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

In Murray, Moffitt P gave the language a somewhat narrower connotation at 226F, stating:

            “Despite the lenient causal link admitted by the words ‘arising out of the employment’: per
            Viscount Haldane in Thom v Sinclair [1917] AC 127 at 135, 136, these words postulate a
            more direct causal connection than the words ‘contributing factor’ which are apt to admit
            remoter causes.”


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


51 Thus, in Government Insurance Office (NSW) v R J Green & Lloyd Pty Ltd [1966] HCA 6; (1965) 114 CLR 437,
the Court considered whether a third party insurance policy for a motor vehicle covered an injury suffered by a
workman in seeking to load a building hoist onto the tray of a stationary table top truck. The Court unanimously held
that the injury was covered as a liability incurred “in respect of the death or bodily injury to any person caused by or
arising out of the use of the motor vehicle”. Barwick CJ (with whom McTiernan and Taylor JJ agreed) stated at
442-443:

            “The phrase ‘arising out of’ is not here found in the same collocation as it is in workers'
            compensation legislation, where it is in juxtaposition to a temporal expression. In that sphere
            the words ‘arising out of’ clearly point to a causal relationship. The words ‘arising out of’ in
            s 10 of the Act and in the indemnity clause of the policy are not merely, if at all, explicative
            of the words ‘caused by’; they are really used in contrast to them; and in the total expression
            are extensive in their import. Bearing in mind the general purpose of the Act I think the
            expression ‘arising out of’ must be taken to require a less proximate relationship of the
            injury to the relevant use of the vehicle than is required to satisfy the words ‘caused by’. It
            may be that an association of the injury with the use of the vehicle while it cannot be said
            that that use was causally related to the injury may yet be enough to satisfy the expression
            ‘arise out of’ as used in the Act and in the policy.”
52 Statements to similar effect appear in the judgments of Menzies J at 445 and Windeyer J at 446 and 447: each of
the latter considered that the relevant relationship had “some causal element in it” (Menzies J) or more than “a
merely casual concomitant, not considered to be, in a relevant causal sense, a contributing factor” (Windeyer J).


53 Further, as Barwick CJ noted at 444:

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


54 The last proposition was expressly affirmed in the later decision of Dickinson v Motor Vehicle Insurance Trust
[1987] HCA 49; (1987) 163 CLR 500 at 504 (Mason CJ, Wilson, Brennan, Dawson and Toohey JJ). The negligent
act of the father in Dickinson was in leaving two children in a vehicle, one with a box of matches, with which he
managed to start a fire in the car, leading to injury of his sister. As the Court pointed out, although the negligence of
the father may have had a merely coincidental relationship with the use of the motor car, the relationship of the injury
to the use of the car, which was the statutory test, fell into a different category. The judgment of the Court stated at
505:

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


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

Scope of “arising out of”: contractual indemnities
56 It is convenient to turn next to the authorities which have construed the relevant terminology in the context of
contractual indemnity clauses. The first authority in the line is Davis v The Commissioner for Main Roads [1968]
HCA 10; (1967) 117 CLR 529. The case involved a sub-contractor doing trucking work for the Commissioner for
Main Roads (the respondent). The sub-contractor in carrying out the relevant work, collided with a train, causing
damage to the train for which the Commissioner for Railways sued him. The sub-contractor sought to recover
contribution from the respondent, alleging that the accident had been due to the separate negligent conduct of the
respondent. The respondent relied upon an indemnity clause in the sub-contract which read as follows:

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

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

(i) damage to the property of the Contractor or any third party;

...

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

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


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

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

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


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

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


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


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


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

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

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

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

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

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


62 As Malcolm CJ further explained at [9]:

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


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


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

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

                   67 The words ‘arising out of’ are well recognised as being of broad import.
                   Further, in the context of an insurance policy, there is no reason to construe
                   them narrowly. It is difficult to conceive of any situation where Hamersley
                   could incur a liability arising out of the performance by Speno of its contract ...
                   in circumstances different in principle to those in the present case. ....”
65 Wheeler J (with whom Ipp J generally agreed) dealt with an argument that the sort of case to which the clause was
intended to relate might be one not dissimilar to that which arises in the present case. Her Honour noted the
contention being put in favour of that approach in the following terms at [128]:

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

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

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


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


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

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


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

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

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


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

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


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

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


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


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

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


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

            “The concluding words ‘by the Contractor’ perform a function in the nature of the
            limitation. If cl 18 had ended with the words ‘arising out of the construction of the Works’,
            it may very well be that the differences between this case and Venturoni would lead to the
             conclusion that one would not add any further words. In those circumstances, it may have
             been the case that the proper construction would be to extend the indemnity to acts
             performed by the Principal. The addition of the words ‘by the Contractor’ were intended to
             limit the scope of the ‘claims or actions’ for which [the sub-contractor] agreed to indemnify
             the Council.”


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

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


76 His Honour further stated at [241]:

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


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

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


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


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


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

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


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


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


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

                   “90 Further, in my view, while the phrase ‘arising as a result of’, in cl 12, is a
                   particularly broad expression of the notion of causation, it is not open ended.
                   The clause plainly does not connote ‘proximate cause’ or ‘direct cause’, but it
                   could not be construed so as to import an unlimited concept of causation. The
                   clause does involve some causal or consequential relationship (cf Dickinson v
                   Motor Vehicle Insurance Trust [1987] HCA 49; (1987) 163 CLR 500 at 505).
                   Remoteness must form an element of the meaning of ‘arising as a result of’;
                   more is required than the mere existence of connecting links between an act,
                   neglect or default of the sub-contractor and the liability incurred by the Joint
                   Venture.

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


84 The last conclusion, at [91], appears to reflect no more than the absence of evidence that Normoyle was
responsible for the presence of the pipes on the upper level.
85 Bryson JA in dissent, was satisfied that the injury to the worker, who was an employee of Chadwick, had a close
and direct connection with an act of Chadwick, because his own act was an act of Chadwick and was thus an act
attracting the operation of the indemnity. His Honour held that the other sub-contractor, Normoyle, was not required
to indemnify the Joint Venture, because there was no evidence which established that Normoyle “had any part in
getting the railings to the area where [the worker] tripped, still less that Normoyle had anything to do with their being
strewn on the floor in [the worker’s] path”.


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

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


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


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


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


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


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


93 Identification of the correct approach does not, of course, dictate an outcome in any particular case. Nevertheless,
the application of principles, in accordance with the authorities discussed, is reflected in the outcome in this Court in
Leighton Contractors and in the Western Australian Court of Appeal in Speno. It also appears to be supported in
Normoyle, although the actual decision in that case turned upon a specific provision of the indemnity, held to require
default on the part of the sub-contractors, which was not satisfied.
94 Other cases appear to adopt a narrower approach. Venturoni may be understood in its own commercial and
contractual context as providing a more limited indemnity than the language of the clause, taken in isolation, would
have suggested. Palmer, however, is not readily distinguishable. It adopted an approach which was inconsistent with
the approach followed in Leighton Contractors and, significantly, with that adopted in Davis. Davis was referred to
in Palmer, but only as an example of an indemnity which extended to a liability caused by the negligence of the
indemnified party: see [2003] NSWCA 58 at [242]. In my view Davis stands for more than that and should be
followed by this Court, in the absence of material distinguishing factors.


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


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


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


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


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


100 McCLELLAN CJ at CL:

Preliminary matters and the findings of the trial judge


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


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


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


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


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


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


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


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


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

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


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

             INDEMNITY

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

             Clause 12

             INSURANCE

             Public liability

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

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

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


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

The appeal


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


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


114 Later, when an opportunity was available to reflect on the position, counsel sought leave to withdraw the
concession. An opportunity was provided to the parties to make submissions as to whether leave should be granted
and, if that happened, they were invited to make further submissions with respect to the resolution of the issues in the
appeal.


115 In my opinion both Erect Safe and Australand should have leave to withdraw the concession. As I explain below
the concession was wrongly made. Its withdrawal has an adverse financial consequence for Mr Sutton but it does not
occasion any prejudice to him in resisting the appeal.
116 The second issue which must be determined by this Court is the appropriate quantum of damages to be awarded
to Mr Sutton. Irrespective of the consequence, if any, of the application of s 151Z(2), both Erect Safe and Australand
submitted that the award of damages made by the trial judge was excessive.


117 The third issue is confined to the dispute between Erect Safe and Australand. As I have already indicated, Erect
Safe submitted that the trial judge was in error in finding that it was liable to indemnify Australand pursuant to clause
11 of the subcontract or was liable for a breach of clause 12.


118 Australand also filed a cross-appeal. It submitted that, even if Dalma was not liable, his Honour was in error in
finding that Australand was liable as to one-third of Mr Sutton’s loss. As it happens this issue will be resolved by the
resolution of the first issue in the appeal.

The liability of Dalma


119 The building which was being constructed by Australand at the time of Mr Sutton’s accident was large and
comprised of multiple levels. Australand was required to engage many subcontractors whose independent activities
had to be coordinated if there was to be a timely completion of the building. On such a project many safety issues will
arise, making it necessary to put in place a plan by which those issues can be effectively addressed. In the present
case that plan, as is common on complex building sites, provided for a Work Safety Committee. Comprised of
delegates of each of the subcontractors and chaired by a representative of the Head Contractor, the Committee
carried out regular inspections during which safety issues were identified and recorded. The minutes of the meeting of
the Work Safety Committee were circulated and the subcontractor responsible for a particular problem was required
to remedy the defect and report that any matter which was its responsibility had been remedied.


120 The trial judge found that the Work Safety Committee was an appropriate response to the safety issues on the
site. His Honour also found that Dalma had fulfilled its obligations to its employees by its participation in the
Committee. In particular, his Honour found that it was reasonable for Dalma to rely on the fact that its employee, Mr
Woodward, had informed the Committee on becoming aware that there was a problem with the scaffold in the
expectation that the Committee process would ensure that the appropriate subcontractor, in this case Erect Safe,
would rectify the problem.


121 His Honour expressed his conclusion in these terms:

            “For that argument to succeed, Australand would have to establish that it was the duty of
            each relevant subcontractor, on receipt of the safety committee document, to examine the
            whole of the site and to ensure that all safety concerns affecting its workers had been
            attended to. The evidence of Mr Woodward and Mr Lane was not to this effect. The system
            required that the subcontractor responsible for any potential hazard, on being notified of that
            hazard, had the obligation to rectify it. All other subcontractors were entitled to rely on the
            system, and so that once a hazard had been reported to the safety committee, the system
            would ensure that the subcontractor responsible for it would rectify it. Therefore trades and
            subcontractors, other than the trade or subcontractor responsible for the hazard, were not
            obliged to take responsibility for removal or remedying of hazards outside their own area,
            where other subcontractors had created those hazards. In this case it was the responsibility
            of Erect, as scaffolding sub contractor, to rectify any hazard created by scaffolding work. It
            was not the responsibility of Dalma. Even if Dalma, or the plaintiff personally, had read the
            safety committee document and was aware that there was a scaffolding hazard on 7th level
            (sic) it or he was entitled to assume that the scaffolding subcontractor had remedied the
            hazard. In other words, Dalma performed its duty by participating in the safety committee
            system, which, as all parties conceded, was, in theory, a satisfactory system. The failure of
            the system was due to the fault of either Erect or Australand, or both, and in not in way to
            the fault of Dalma.”


122 Mr Woodward gave evidence at the trial. He said that about a week or two before the plaintiff was injured he
became aware of the projecting ties on the scaffold. It was noticed during a Safety Committee “walk around”.
However, this defect was never noted in the minutes of any meeting of the Committee and as a consequence there is
no evidence of a direction to Erect Safe to remedy the problem. Without reference to it in any minute, unless a
member of the Safety Committee independently remembered the problem, there was little, if any, likelihood of the
Committee following up to ensure that it was remedied.


123 There are difficulties with the minutes of the Work Safety Committee. Minute numbered 11 is recorded as the
minute of a meeting held on 3 October 2002. It indicates that the next “walk around” was scheduled for 10 October
2002. No minute numbered 12 has been found. However, the minute numbered 13 is the record of a meeting
apparently held on 11 October 2002. The minutes of a number of other meetings were also in evidence at the trial.
They indicate that meetings were generally held at approximately weekly intervals. A meeting, minuted as meeting
No. 14, was held on 18 October 2002. Mr Sutton was injured on 21 October 2002.


124 The trial judge found that the records of the Work Safety Committee were not maintained “with a high degree of
accuracy” or “in any systematic way.” His Honour concluded that the minutes of one crucial meeting - I infer he
assumed there was a minute of a meeting numbered 12 – were missing. If it was necessary to resolve the issue and, in
my judgment it is not, a different conclusion would be appropriate. The pattern of meetings indicates that they
occurred at about weekly intervals. This suggests that a mistake occurred and that the minutes of the meeting held on
11 October 2002 should have been numbered 12 and not 13. However, whether or not the problem with the scaffold
was minuted, it is apparent from Mr Woodward’s evidence that the faulty scaffold was identified to the Committee.
The absence of any minute means that there is no record of the problem being reported by the Safety Committee to
Erect Safe for its attention. It should have been. However, whether or not a formal minute was made, his Honour
found that the hazard was not removed or rectified within a reasonable time.


125 The question which divides the parties in this case is whether Dalma could discharge its duty to its employees by
relying entirely on the Safety Committee to ensure that the defect was rectified. Senior counsel for Mr Sutton
submitted that it could and emphasised the statement by Santow JA in Texcrete Pty Limited v Khavin [2003]
NSWCA 337 where his Honour said that the duty to take reasonable care for employees is not a duty to keep them
free of all harm. In New South Wales v Lepore [2003] HCA 4; (2003) 212 CLR 511 Gleeson CJ confirmed that the
duty of an employer is not absolute. Although non-delegable it remains a duty to take reasonable care (at [22]).


126 In Kondis v State Transport Authority [1984] HCA 61; (1984) 154 CLR 672 the High Court considered the
nature of an employer’s duty for the safety of its employees. In that case an employee of the Head Contractor was
injured when a subcontractor who was extending the jib of a crane, deliberately dropped a part which hit the
employee. A majority of the High Court, Mason, Brennan, Deane and Murphy JJ, found the Head Contractor liable
on the ground that it owed a non-delegable duty to its employee to provide a safe system of work.


127 Deane J expressed the obligation of the employer in these terms:

            “The obligation of an employer to provide a safe system and conditions of work for an
            employee is not discharged by mere delegation to an independent contractor any more than
            it is discharged by mere delegation to an employee. It ‘is one of those’ cases in which a
            person ‘remains liable to third parties for the consequences of the negligence of an
            independent contractor, just as he would be if it were his own negligence or that of his
            servant’ (per Windeyer J in Voli v Inglewood Shire Council (1963) 110 CLR 74 at 95)” (at
            694).


128 Later Deane J said:

            “... the content of the employer’s duty to take reasonable care to provide a safe system and
            conditions of work for the employee is not discharged by delegation unless the delegate, be
            he employee or independent contractor, in fact provides the reasonable care which the
            employer was under an obligation to bring to bear” (at p 694).
129 In the present case Dalma did not have exclusive responsibility for the safety of the premises which were under
the control of the Head Contractor, Australand. However, as the trial judge recognised, it owed a duty to avoid
exposing Mr Sutton and its other employees to an unnecessary risk of injury (Ferraloro v Preston Timber Pty Ltd
(1982) 42 ALR 627; 56 ALJR 872 at 873). The question is whether that duty could be delegated to the Safety
Committee. In my opinion it could not be.


130 The rationale for the law imposing a non-delegable duty on employers was explained by Mason J in Kondis in
these terms:

            “The element in the relationship between the parties which generates a special responsibility
            or duty to see that care is taken may be found in one or more of several circumstances. The
            hospital undertakes the care, supervision and control of patients who are in special need of
            care. The school authority undertakes like special responsibilities in relation to the children
            whom it accepts into its care. If the invitor be subject to a special duty, it is because he
            assumes a particular responsibility in relation to the safety of his premises and the safety of
            his invitee by inviting him to enter them. And in Meyers v Easton the undertaking of the
            landlord to renew the roof of the house was seen as impliedly carrying with it an undertaking
            to exercise reasonable care to prevent damage to the tenant’s property. In these situations
            the special duty arises because the person on whom it is imposed has undertaken the care,
            supervision or control of the person or property of another or is so placed in relation to that
            person or his property as to assume a particular responsibility for his or its safety, in
            circumstances where the person affected might reasonably expect that due care will be
            exercised. As we have seen, the personal duty which has been recognised in the other cases
            which I have discussed, such as Dalton v Angus may rest on rather different foundations
            which have no relevant for the present.

            The foreseeability of injury is not in itself enough to generate the special duty. Before the
            special duty arises there must exist in the relationship between the parties an element of the
            kind already discussed.

            That such an element exists in the relationship of employment is beyond serious challenge.
            The employer has the exclusive responsibility for the safety of the appliances, the premises
            and the system of work to which he subjects his employee and the employee has no choice
            but to accept and rely on the employer's provision and judgment in relation to these matters.
            The consequence is that in these relevant respects the employee's safety is in the hands of
            the employer; it is his responsibility. The employee can reasonably expect therefore that
            reasonable care and skill will be taken. In the case of the employer there is no unfairness in
            imposing on him a non-delegable duty; it is reasonable that he should bear liability for the
            negligence of his independent contractors in devising a safe system of work. If he requires
            his employee to work according to an unsafe system he should bear the consequences.
            Indeed, there is a stronger case for concluding that the employer's duty is non-delegable than
            there is for reaching the same conclusion in the case of the invitor. It is not immediately
            obvious that it is appropriate to impose liability on the occupier of a house for injury caused
            to an invitee by the negligence of an independent contractor, e.g., in making or repairing an
            electrical installation carelessly, when it is reasonable for the occupier to rely on the reputed
            competence of the contractor in a field in which the occupier has no expert knowledge. But
            this is by the way, for it is not an issue that needs to be decided in the present case” (at
            687-688).


131 In areas apart from employer/employee relationships eg: landlord and tenant (Northern Sandblasting Pty Ltd v
Harris [1997] HCA 39; (1997) 188 CLR 313, Jones v Bartlett [2000] HCA 56; (2000) 205 CLR 166); road authority
and users of the road (Leichhardt Municipal Council v Montgomery [2007] HCA 6; (2007) 230 CLR 22); school
authority and pupil (New South Wales v Lepore [2003] HCA 4; (2003) 212 CLR 511) where the High Court has been
required to identify the extent of the relevant duty, the general view has been against imposing a non-delegable duty
(Callinan J in Montgomery at [188]). The concern is that by imposing a non-delegable duty the court is, in effect,
imposing a form of strict liability (per Hayne J in Montgomery at [153]). On occasions the High Court has questioned
whether the law governing non-delegable duties of care is founded upon coherent principles (Lepore per Gummow
and Hayne JJ at [246]). Kirby J has accepted that the law is a “mess” comprising a random group of cases
(Montgomery at [31]). However, the non-delegable duty of an employer to its employees has not been qualified.


132 When an employer is engaged as a subcontractor on a large and complex construction site, its activities must
conform to the requirements for the overall management of that site. Efficiency of effort requires that safety issues
are managed by coordinating the efforts of all subcontractors through a body such as a Safety Committee. Because
each subcontractor has responsibility for its own tasks and cannot undertake the work of other subcontractors, they
are entitled to expect that the Head Contractor will put in place and effectively manage a system of safety
appropriate to the needs of the whole site, (see Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1;
(1985-1986) 160 CLR 16 at 31). However, this does not mean that when it becomes aware of a problem posing an
immediate threat to the safety of its own workers, a subcontractor may discharge its duty by leaving the matter in the
hands of the Safety Committee. It has a responsibility to ensure that the Safety Committee responds effectively and
rectifies the hazard, removing the danger before its employees are subjected to the identified risk. Until the danger is
rectified it has an obligation to ensure its workers are not subjected to it, if necessary, by refusing to allow them to
carry out tasks where they may encounter the danger.


133 In the present case the evidence confirmed that Dalma sought to discharge the duty it owed to its employees by
relying entirely upon the Safety Committee. It neither took steps to warn its own employees or exclude them from
working in the area of danger. In my judgment upon becoming aware of the problem, Dalma should itself have taken
either or both of these actions. It would have been a simple matter to have required the height of the dangerous
component of the scaffold to be raised before allowing its employees to continue working where a significant risk of
injury existed.


134 It was suggested in argument that Dalma also breached its duty of care by failing to ensure that the Safety
Committee both minuted the problem and took steps to ensure that it was rectified. Although the argument has
considerable force, the issue was not approached in that manner at the trial and appropriate factual findings were not
made. There may have been evidence which would be relevant to the resolution of this issue which, if the issue had
been raised, could have been tendered.


135 Although Dalma must accept some responsibility for Mr Sutton’s loss, I do not believe its contribution should be
as great as that of either Austaland or Erect Safe. In my opinion the greatest share of the loss must fall upon Erect
Safe. It was responsible for erecting and maintaining the scaffold which created the danger.


136 As I have indicated, there is no evidence that the problem with the scaffold was recorded in any minute of the
Safety Committee. The consequence is that there was no record of any direction to Erect Safe to rectify the problem.
This deprived the Safety Committee of any ability to monitor the position and ensure that the work was done. The
Safety Committee prepared minutes for at least two purposes. One purpose was to provide a written direction to the
relevant sub-contractor to attend to a problem falling within its area of responsibility. The other was so that the
members of the Safety Committee could ensure that identified problems had been documented, appropriate
instructions given and ultimately effective response made to that problem.


137 The responsibility for the Safety Committee and its effective operation lay with Australand which had
responsibility for the entire site. It should have ensured that reported problems were properly minuted and remedial
action taken. It failed to do so. Although, in my opinion, its responsibility is less than Erect Safe, it was greater than
Dalma. The appropriate apportionment of liablity is 60% to Erect Safe, 25% to Australand and 15% to Dalma.

Clause 11 of the subcontract


138 Australand owed a duty of care to Mr Sutton which it breached. His Honour described it as a duty “not to erect
or permit to be erected on its site, scaffolding in a way that people walking along planking laid on the scaffolding
would strike their heads on protruding ties”. The question which must be resolved is whether, within the meaning of
clause 11 of the Subcontract, the liability of Australand “arises out of the performance of the Subcontract Works” by
Erect Safe.
139 Erect Safe argued that clause 11 did not impose a liability on it in respect of a breach of duty by Australand. It
was submitted that the clause should be read with “a silent ‘its’ [the Subcontractor’s] before the words “performance
of the Subcontract Works.” It was submitted that the clause should be understood so that the “performance” was
confined to that of the Subcontractor and Erect Safe was only liable for damage occasioned by any act or omission
which it committed. It was further submitted that by finding Erect Safe liable to indemnify Australand for the breach
by Australand of its duty to Mr Sutton, his Honour effectively turned Erect Safe into the insurer of Australand for
Australand’s own acts or omissions as Head Contractor.


140 Similar problems have arisen in contracts considered by this and other courts. In Steele v Twin City Rigging Pty
Ltd (1992) 114 FLR 99 Higgins J considered a contract where the project manager, Tekmat, contracted with another
company, Senlos, to erect the steel structure for a major building. The plaintiff was a director and employee of a
subcontractor to Senlos and was injured when a rope he was using failed. The contract between Tekmat and Senlos
provided for Senlos to indemnify Tekmat in various circumstances together with an obligation to obtain insurance.
The relevant clauses were as follows:

            "Indemnity

            29. The Contractor shall be liable for and shall indemnify the Project Manager against any
            legal liability loss or claim or proceeding in respect of --

(a) Any loss or damage whatsoever to any property real or personal insofar as such loss or damage arising out of or in
the course of or by reason of the execution of the Works or in any way relating thereto, and

(b) Any liability loss claim or proceeding whatsoever arising under any Statute or at Common Law in respect of
personal injury to or death of any person whomsoever arising out of or in the course of or caused by the execution of
the Works or in any way relating thereto, to the extent that the same is due to any act negligence omission or default
of the Contractor his servants or agents or of any sub-contractor his servants or agents.

            Insurance

30.1 (a) The Contractor shall be solely liable for and shall indemnify the Project Manager and employees in respect
of and shall insure for a sum not less than that stated in the Fourth Schedule against any liability loss claim or
proceeding whatsoever arising under any statute or at common law or assumed under this clause in respect of
personal injury to or death of any person or injury or damage to any property real or personal occurring in respect of
the Works or arising out of or in the course of or caused by the execution of the Works.

            (b) The Contractor shall effect insurance for --

(i) Workers' Compensation or Employers' Liability insurance extended to include the name of the Project Manager
for an amount not less than stated in the Fourth Schedule against any liability loss claim or proceeding whatsoever
whether arising by virtue of any statute relating to Workers' Compensation or Employers' Liability or at common law
in respect of any person employed by him or who shall be deemed to be or have been his worker or employed by him
in or about the execution of the Works for the purpose of any such statute AND shall ensure that every
sub-contractor from him (nominated or otherwise) is insured in like manner.

(ii) Public Liability Insurance to cover injury to persons and property extended to include name of the Project
Manager and the owner of the site of the project and for an amount not less than stated in the Fourth Schedule."


141 Higgins J construed cl 29 to impose an obligation on Senlos to indemnify Tekmat against legal liability in respect
of personal injury to any person. However, his Honour held that the words “to the extent that the same is due to any
act of negligence omission or default” operated to confine the liability of Senlos to the consequences of its own
negligence. His Honour followed the decision of Blackburn CJ in Canberra Formwork Pty Ltd v Civil and Civic Ltd
(1982) 67 FLR 66 and held that Senlos had not, by cl 29, “contracted the cost of Tekmat’s negligence” (at 112-114).
His Honour construed clause 30 so that the obligation to insure was confined to the extent of the liability arising
under cl 29.


142 In Leighton Contractors Pty Ltd v Smith [2000] NSWCA 55 this Court considered a contract which included the
following term:
             “The subcontractor (ie B&B) shall indemnify and keep indemnified the company (Leighton)
             against all loss or damage including but not limited to all physical loss or damage to property
             (other than property for which the subcontractor is responsible under clause 16) and all loss
             or damage resulting from death or personal injury arising out of or resulting from any act,
             error, or omission or neglect of the subcontractor.”


143 The plaintiff was employed by Leighton, but on the day he was injured, he was working for the subcontractor,
B&B, securing roof trusses. One of the trusses collapsed and the plaintiff was injured. Although Leighton owed a
duty to the plaintiff as his employer, the “cause” of the plaintiff’s injuries was the faulty erection of the roof truss by
B&B.


144 The Court, comprised of Mason P and Meagher and Fitzgerald JJA, reversed the decision of the trial judge and
held that the proper construction of the clause meant that B&B was obliged to indemnify Leighton in full for the
verdict against it. Informed by the decision of the High Court in Darlington Futures Limited v Delco Australia Pty
Limited [1986] HCA 82; (1986) 161 CLR 500, where the court said that the words in a contract must be given their
natural and ordinary meaning, Meagher JA held that Leighton was entitled to a complete indemnity. His Honour
expressed the view that the trial judge “either added an implication that the ‘act, error, omission or neglect’ had to be
solely that of the subcontractor, or he adopted some purposive construction” of the clause.


145 Mason P and Fitzgerald JA delivered joint reasons. Their Honours concluded that the clause was not concerned
with the cause of Leighton’s loss or damage, being the cause of its liability to Smith, but rather with the cause of
Smith’s personal injury. Their Honours concluded that it was irrelevant to the operation of the clause whether B&B’s
“act, error or omission or neglect” was the cause of Leighton’s liability. It was a cause of Smith’s personal injury.
Their Honours said:

             “First, the present clause is not directed to the cause of Leighton’s ‘loss or damage’, ie its
             liability to Smith, but to the cause of Smith’s personal injury. It is irrelevant to the operation
             of the clause that B&B’s ‘act, error or omission or neglect’ was not the cause of Leighton’s
             liability. It was a cause of Smith’s personal injury.

             Second, no implied limitation on Leighton’s right to an indemnity can readily be identified.
             One suggestion made by B&B was that the word ‘solely’ might be inserted after the words
             ‘personal injury’, but there is no reason to suppose that it was not intended that Leighton
             should have an indemnity from B&B if both B&B and some third party caused a personal
             injury which resulted in loss or damage to Leighton” (at [7]-[8]).


146 A similar question arose in Roads & Traffic Authority of NSW v Palmer [2003] NSWCA 58 which appears to
have been determined without reference to Leighton. In that case an indemnity was provided in the contract between
the Council and Pioneer, under which the latter agreed to reconstruct part of a road within the Shire of Evans. The
plaintiff was injured when her car skidded on a gravel section of the road which was under construction. The court
found both the local council (the Principal) and Pioneer (the Contractor) liable for breaches of the duty which they
owed to users of the road. The question was whether Pioneer was required to indemnify the Council for the Council’s
own breaches of its duty of care. That breach consisted essentially of a failure to provide an appropriate speed limit
on the section of the road under construction. The relevant clauses were numbered 18 and 19 and were in the
following terms:

             “18. Property Damage and Public Risk

             The Contractor shall indemnify the Principal against all loss of or damage to the property of
             the Principal (other than the Works but including existing property on which the Works are
             being carried out) and against any claim or action brought by any person against the
             Principal or his agents in respect of personal injury or death of any person or loss of or
             damage to any property, arising out of the construction of the Works by the Contractor.

             19. Public Liability Insurance

             Before commencing work under the Contract the Contractor shall at his cost effect a Public
            Liability Policy of insurance, for an amount not less than the sum stated in the Annexure
            hereto and with an Insurer approved by the Principal, in the joint names of the Principal, the
            Contractor and all sub-contractors employed from time to time in relation to the Works for
            their respective rights and interests to cover their liabilities to third parties including the
            liabilities set out in Clause 18.”


147 This Court determined that clause 18 should be construed so that the liability of Pioneer was confined to acts
which it performed and did not extend to acts of negligence by the Council. Although with apparent hesitation, the
Chief Justice preferred the view that the concluding words of the clause “by the contractor” were words of limitation
and not merely included to indicate that the “construction of the works” was as a matter of contract to be undertaken
“by the contractor.” [213]


148 Spigelman CJ referred to the decision of the Victorian Court of Appeal in Australian Paper Plantations Pty Ltd v
J & E M Venturoni [2000] VSCA 71 where a similar conclusion was reached although in that case, because of the
wording of the relevant clause, the court found it necessary to construe it by including the words “by the tenderer”.


149 Giles JA in a separate judgment on this issue said:

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

            Such a risk allocation is not unknown. An indemnity can extend to a liability caused by the
            negligence of the indemnified party, see for example Davis v The Commissioner for Main
            Roads [1968] HCA 10; (1966) 117 CLR 529; Valkonen v Jennings Constructions Ltd
            (SAFC, 29 November 1995, unreported). But the unbalanced allocation of risk, particularly
            in that the Principal would have no reason to be responsible for itself or towards others in
            what it did or failed to do in relation to the construction of the Works, gives some point to
            further significance in “by the Contractor”.

            It is plain enough that an equivalent imbalance in the allocation of risk was not intended in
            the case of personal injury of workers engaged in the Works. Absent the specific provision
            in cl 20, cl 18 would cover a claim brought by an injured worker against the Principal,
            because the injured worker would be within “any person” and the injury would arise out of
            the construction of the Works. Clause 20 excludes indemnity where the injury results from
            the Principal’s breach of contract or negligent act. It would be strange if the wider risk of
            third party claims against the Principal for wrongs committed by the Principal were left with
            the Contractor. The Council submitted that, when there is the express exception in cl 20 and
            no such exception in cl 18, it follows that the indemnity in cl 18 is relevantly unconstrained.
            That does not follow. Clause 20 has the words “during the execution of the Works”
            followed by the exception; cl 18 has the words “arising out of the construction of the
            Works” followed by the words “by the Contractor”. It is a sensible reading that the two
            combinations should be read so as to bring about a similar result, the words “by the
            Contractor” doing similar work to the express exception.

            Risk allocation can be affected by insurance. The public liability insurance effected pursuant
            to cl 19 would in theory alleviate the Contractor’s burden, in that indemnity to the Principal
            under the insurance would mean that the Contractor would not be called upon to indemnify
            the Principal. But theory and reality may be different, depending on the terms of the
            insurance and the solvency of the insurer. On the first approach the Contractor would still be
            exposed to an ample indemnity. The provision for insurance can be seen as favouring the
            second approach, with the insurance intended to cover the Principal with respect to its own
            negligent acts and omissions. That is the scheme in relation to insurance of employees. The
            cl 21 insurance covers the Principal’s liability at common law, being a liability outside the
            indemnity in cl 20. The part played by the cl 19 insurance, it might be thought, is the same.

            Each of the approaches to cl 18 is fairly arguable. On the foregoing analysis, however,
            which I do not think departs from anything said by the Chief Justice, the second approach
            better accommodates the language of cl 18 and its operation in the contract as a whole, and
            is to be preferred.

            ...

            The Council’s liability for breach of a non-delegable duty of care is a liability for breach of
            its own duty of care, but the breach of its duty of care is made out by failure of Pioneer to
            take reasonable care. It can therefore be said that so far as the Council is liable to the
            Plaintiff for what could be called vicarious breach of its duty of care, its liability arises out
            of the construction of the Works by Pioneer within the second approach earlier identified.
            (The language of direct or vicarious breach of duty is not satisfactory, and is sometimes used
            in a different way, see especially Swanton, “Non-delegable Duties: Liability for the
            Negligence of Independent Contractors” (1991) 4 JCL 183; (1992) 5 JCL 26. It sufficiently
            reflects the presently relevant distinction.)

            But I do not think that avails the Council. Perhaps if the only basis for the Council’s liability
            to the Plaintiff lay in the acts and omissions of Pioneer, without fault of the Council, cl 18
            would apply. But that is not so. The Council has one liability only. That liability arises out of
            the construction of the Works, but it does not arise out of the construction of the Works by
            Pioneer because one of its bases is the acts and omissions of the Council, the so-called direct
            breach of the Council’s duty of care. The “dual breaches of duty” takes the Council’s
            liability outside cl 18 construed according to the second approach” (at [241]-[249]).


150 The issue was again considered by this Court in F & D Normoyle Pty Ltd v Transfield Pty Ltd [2005] NSWCA
193; (2005) 63 NSWLR 502 where the contract contained a clause in the following terms:

            “The sub-contractor shall indemnify and keep indemnified [the Joint Venture] and their
            respective officers, employees and agents against all claims, demands, proceedings,
            liabilities, costs, charges and expenses arising as a result of any act, neglect or default of the
            sub-contractor, its employees or agents relating to its execution of the Works” (at [43]).


151 Ipp JA, with whom McColl JA agreed, guided by the High Court’s decision in Ankar Pty Ltd v National
Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549 to the effect that “a doubt as to the status
of a provision in a guarantee should therefore be resolved in favour of the surety” (at 561) construed the clause
favourably to the subcontractor. In so doing his Honour distinguished Leighton saying, inter alia, that the approach in
Darlington was no longer appropriate following the decision of the High Court in Andar Transport Pty Ltd v
Brambles [2004] HCA 28; (2004) 217 CLR 424 which adopted the principles in Ankar and Chan v Cresdon Pty Ltd
[1989] HCA 63; (1989) 168 CLR 242.


152 The issue in Transfield related to whether the “act” referred to in the clause should be understood as meaning an
act involving a breach of a legal duty and construed ejusdem generis with “neglect” or “default of the
subcontractor”. Ipp JA concluded that it should. Bryson JA, who dissented, took a different view. Finding no
ambiguity in the clause, his Honour found no reason to apply the principles of construction in Ankar and Andar.


153 It was submitted by Erect Safe that the construction of the contract favoured by the Court of Appeal in Palmer
was appropriate in the present matter. Although Australand originally submitted that Palmer was wrongly decided
and sought leave to argue that issue, that submission was later withdrawn. It was ultimately submitted that Palmer
was distinguishable by reason of the inclusion of the words “by the Contractor” at the end of the relevant clause.
Erect Safe submitted that the words “and its other obligations under the Subcontract” had the same affect as the
words “by the Contractor” in Palmer. However, Australand submitted that those words were intended as a reference
to obligations other than those arising in respect of the Subcontract Works and did not operate to limit the liability of
Erect Safe for damages in its performance of the Subcontract Works.
154 The resolution of any disagreement about a particular clause in a contract must be approached by considering the
terms of the relevant document. Although the resolution of disputes in other cases may provide guidance, each
dispute must be resolved by the application of the accepted principles of construction to the particular contract.


155 The question in the present dispute is whether clause 11 confines the liability of Erect Safe to indemnify
Australand for liabilities arising from Erect Safe’s performance of the Subcontract Works or whether it extends to a
liability of Australand which arises in relation to those Works. To my mind the indemnity is confined. Although the
appropriate meaning may have been more obvious if the word “its” had been included before the words
“performance of the Subcontract Works” I do not believe the clause lacks clarity. However, if the clause is
ambiguous, it would have to be construed in favour of the surety, Erect Safe (see Ankar).


156 Clause 11 provides for Erect Safe to indemnify Australand against all “damage etc”. Although the indemnity is
initially described in broad terms, it is confined by the word “arising”. The clause provides that the relevant obligation
can arise in two situations being: “out of the performance of the Subcontract Works” and “its (Erect Safe’s) other
obligations under the Subcontract.”


157 In the present case the liability of Australand does not “arise” out of the performance by Erect Safe of any of its
contractual obligations. Although it is true that the occasion for the liability of Australand was the erection by Erect
Safe of the faulty scaffold, the liability of Australand arises from its own independent act of negligence in failing to
maintain an appropriate safety regime for the site.


158 Apart from the decision in Leighton, there is no decision which would suggest that a contrary construction should
be adopted. As I have indicated, the majority of this Court in Transfield adopted a different approach to that adopted
in Leighton, inter alia, for the reason that the approach in Darlington Futures applied by the court in Leighton was
no longer appropriate.


159 In any event, in my opinion, the decision in Leighton is not inconsistent with the construction that I prefer in the
present case. The words in issue in Leighton were “loss etc resulting from death or personal injury arising out of or
resulting from any act, error, or omission or neglect (of the subcontractor).” This Court determined that the clause
was not concerned with the cause of Leighton’s loss or damage “but to the cause of (the plaintiff’s) personal injury”.
The court found that the indemnity extended to loss or damage from personal injury to the plaintiff caused by the
subcontractor irrespective of whether the act, error, omission or neglect was the cause of Leighton’s liability. Critical
to the decision in Leighton was the fact that it was the act of the subcontractor erecting the scaffold which alone
caused the plaintiff’s injury. Leighton was liable only because the plaintiff was Leighton’s employee to whom it owed
a non-delegable duty. The plaintiff’s injury was caused entirely by the subcontractor’s act in breach of its duty.


160 In the present case the cause of the plaintiff’s injury was, in part, the negligence of Erect Safe but was also in
part caused by the independent act of negligence of Australand. The liability of Australand was as a result of its own
negligent act rather than arising out of the performance of the Subcontract Works by Erect Safe.

Clause 12 of the subcontract


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


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


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


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


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


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


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

Damages


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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

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


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


186 Section 151Z is in the following terms:

                   “(1) If the injury for which compensation is payable under this Act was caused
                   under circumstances creating a liability in some person other than the worker’s
                   employer to pay damages in respect of the injury, the following provisions have
                   effect:

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

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

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

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

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

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

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

                   (2) If, in respect of an injury to a worker for which compensation is payable
                   under this Act:

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

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

             the following provisions have effect:

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

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

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

(i) if the compensation paid by that employer exceeds the amount of the contribution that could be recovered from
that employer as a joint tortfeasor or otherwise—the indemnity referred to in subsection (1) (d) is for the amount of
the excess only, and

(ii) if the compensation paid by that employer does not exceed the amount of that contribution—subsection (1) (d)
does not apply and the employer has, to the extent of the compensation so paid, a defence to an action for such a
contribution.

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

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

                   (5) For the avoidance of doubt, this section applies and is taken always to have
                   applied to the recovery of compensation or damages, whether or not the
                   compensation or damages were paid under an award or judgment. For example,
                   compensation or damages may be paid under an agreement.”


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


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


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


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


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


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


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


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


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


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


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

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

Costs


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


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


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


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

Orders


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

             1. Direct the parties to deliver to the Associate to Giles JA, within seven days, short minutes
             to give effect to these reasons.

             2. Liberty to apply in the event of disagreement in the first instance by approaching the
             Associate to Giles JA.


**********




LAST UPDATED:
13 June 2008

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