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8 Sep 16
Amendments to the WCRA to introduce the National Injury Insurance Scheme pass WITHOUT changing the definition of damages, leaving uncertainty about principals’ entitlements to claim indemnity under contracts with employers

WHO SHOULD READ THIS

  • Employers, labour hire providers, host employers, principals and other contractors.

THINGS YOU NEED TO KNOW

  • Amendments to the WCRA to introduce the National Injury Insurance Scheme pass without changing the definition of damages leaving uncertainty about principals’ entitlements to claim indemnity under contracts with employers.

WHAT YOU NEED TO DO

  • Contact us for advice on how proposed changes may impact your business.

On 31 August 2016, the LNP and Katter’s Australian Party combined forces to defeat the amendments in Workers' Compensation and Rehabilitation (National Injury Insurance Scheme) Amendment Bill 2016 (Bill) designed to reverse the decision in Byrne v People Resourcing (Qld) Pty Ltd [2014] 2 QdR 397 (Byrne).

Clause 5 of the Bill proposing to amend the section 10 definition of damages in the Workers’ Compensation & Rehabilitation Act 2003 (Qld) (WCRA) was overturned.  However, clauses 6 to 53 (or the balance of the Bill) passed without amendment, including the introduction of new section 236B and section 725.  The potential impact of these sections in the absence of any change to the definition of damages is discussed below. 

The pre Byrne position
Section 8 of the WCRA provides that WorkCover Queensland is required to indemnify an employer ‘against all amounts for which the employer may become legally liable, for injury sustained by a worker employed by the employer for damages’.

Prior to the decision in Byrne, WorkCover Queensland adopted the position that, pursuant to section 8 of the WCRA, it was only obliged to indemnify an employer for liability to pay damages for injury to workers arising from the employer’s negligence.  WorkCover Queensland declined to indemnify employers for contractual liability assumed by employers to third parties, for example, principal contractors.  This was on the basis that claims for contractual indemnity were not claims ‘for damages’. Example A illustrates this position.

Example A
Principal Construction ( PC ) contracted Concreter Employer ( CE ) to perform concreting ( Construction Work ).  The contract between them contained an indemnity clause in favour of PC from and against all claims arising from the performance of the Construction Work. CE employed various workers to perform the Construction Work.  One of CE’s workers suffered an injury ( Injured Worker ) whilst performing the Construction Work.  The incident occasioning injury to the Injured Worker occurred through the negligence of both PC and CE.  At common law, liability would be apportioned 50% against each of PC and CE.

The Injured Worker brings a claim for damages for personal injury against CE pursuant to the WCRA and against PC pursuant to the Personal Injuries Proceedings Act 2002  (Qld) ( PIPA ).  In reliance on the contractual indemnity, PC claims a complete contractual indemnity from CE.  Pre Byrne , WorkCover indemnified CE for liability to the Injured Worker in negligence (as a claim ‘for damages’) but declined indemnity to the extent of the requirement to contractually indemnify PC (i.e. the other 50%).

Subject to the availability of any insurance covering the contractual liability, CE is personally liable under the contract to pay PC’s 50% apportionment of damages payable to the Injured Worker.


The decision in Byrne
On 29 October 2014, former Chief Justice Carmody of the Queensland Supreme Court handed down his decision in Byrne.

In that case, a labour hire employer contractually indemnified a head contractor in relation to claims for damages for personal injuries by workers injured during the course of a construction project. The parties to the claim did not contest the validity of the contractual indemnity – it was conceded that the indemnity was effective.  Instead, the litigation revolved around whether WorkCover Queensland, as the workers’ compensation insurer of the labour hire employer, was obliged to cover the purely contractual claim by the head contractor against its insured.

Carmody CJ considered section 8 and section 10 of the WCRA and held that WorkCover Queensland was liable to indemnify the labour hire employer in respect of its in solidum (joint and several) legal liability to pay damages to the worker, including any indemnity due to the head contractor. Justice Carmody held that that joint and several liability extended to damages for which the labour hire employer was liable to pay the worker under the WCRA.

The effect of the decision in Byrne was that WorkCover Queensland was from that time obliged to indemnify employers for contractual liability to third parties to the extent of the employer’s joint and several liability to the worker under the WCRA. The indemnity did not extend to damages and costs for which the employer was not liable under the WCRA (such as gratuitous care and claimant’s costs). Therefore, whilst the contractual indemnity may still have been effective in requiring the employer to indemnify the head contractor for ‘non WCRA’ damages and costs, WorkCover was not obliged to indemnify the employer for these amounts. Example B illustrates this position.

Example B 
As with Example A above, the Injured Worker claims against PC and CE for damages for personal injury.  PC relies on the contractual indemnity against CE and pursuant to the decision in Byrne , WorkCover Queensland is liable to indemnify CE for PC’s 50% apportionment (at least in relation to damages payable under the WCRA but not the gratuitous care and costs payable by PC to the Injured Worker pursuant to PIPA).

Under Example B, CE is largely covered by WorkCover Queensland for its contractual liability to PC, although CE still remains liable for a component of general damages, gratuitous care and PIPA costs not payable to the Injured Worker under the WCRA.


The Bill’s defeated amendment to the definition of damages
The Bill was intended to amend the WCRA and largely concerns the introduction of the National Injury Insurance Scheme (NIIS) to workplace injuries suffered from 1 July 2016.  The Bill also contained a number of provisions intended to reverse the impact of the decision in Byrne. As a number of stakeholders observed, the ‘Byrne amendments’ were not entirely congruent with the primary purpose of the Bill in introducing the NIIS.

The Bill proposed to amend the section 10 definition of damages to include subsection 4 as follows:

Further, a reference in subsection (1) to the liability of an employer does not include a liability to pay damages, for injury sustained by a worker, arising from an indemnity granted by the employer to another person for the other person’s legal liability to pay damages to the worker for the injury.

If this amendment to the section 10 definition had passed, the effect would have been that WorkCover Queensland would not have been obliged to indemnify employers for contractual indemnities extended to other parties.  The situation would have reverted to that given in Example A.  However, the proposed amendment to the section 10 definition of damages was defeated.  The rest of the Bill passed without amendment and is awaiting assent.

The Bill’s passed amendments affecting WorkCover’s Queensland’s ability to claim contribution from other parties contractually indemnified by the employer
The Bill as passed contains a new section 236B, a provision which relates to contribution claims by WorkCover Queensland. The section provides as follows:

Liability of contributors

  1. This section applies to an agreement between an employer and another person under which the employer indemnifies the other person for any legal liability of the person to pay damages for injury sustained by a worker.
  2. The agreement does not prevent the insurer from adding the other person as a contributor under section 278A in relation to the employer’s liability or the insurer’s liability for the worker’s injury.
  3. The agreement is void to the extent it provides for the employer, or has the effect of requiring the employer, to indemnify the other person for any contribution claim made by the insurer against the other person.
  4. In this section -
    damages includes damages under a legal liability existing independently of this Act, whether or not within the meaning of section 10.

This proposed section preserves the right of WorkCover Queensland to bring a contribution claim against a party that an employer has contractually indemnified. It prevents that other party from relying on the contractual indemnity to claim indemnity from the employer in relation to WorkCover’s Queensland’s contribution claim against it.

The contractual indemnity may not be voided in the event a claim is made directly by a worker against the other party pursuant to PIPA and the other party claims indemnity in respect of that PIPA claim from the employer. 

Section 725 makes the operation of section 236B retrospective in claims where settlement has not been agreed and/or trial has not commenced.  Therefore, current claims are affected, and WorkCover Queensland may now seek contribution from other parties who are entitled to a contractual indemnity from the employer. The contractual indemnity is void to the extent of WorkCover Queensland’s contribution claim. Example C illustrates the new position.

Example C
The Injured Worker brings a claim against both PC and CE.  Pursuant to section 236B, WorkCover Queensland as insurer for CE is entitled to bring a contribution claim against PC pursuant to section 278A of the WCRA (Contribution Claim).  In turn, PC cannot claim indemnity from CE under the contract because the contractual indemnity is void to the extent that it requires PC to indemnify CE for the Contribution Claim.

However, section 236B does not deal with the scenario where the Injured Worker brings a PIPA claim (PIPA Claim) against PC and PC claims a contractual indemnity from CE in relation to that claim.  As section 236B only deals with Contribution Claims under section 278A of the WCRA, arguably PC will still be able to claim indemnity from CE under the contract.

As the definition of damages remains unchanged and Byrne is authority for the proposition that WorkCover Queensland must indemnify CE for its contractual liability to PC, WorkCover Queensland may still end up in the situation of bearing PC’s liability to the Injured Worker (at least to the extent that WorkCover Queensland is liable to pay damages under the WCRA).  CE, the employer, will again be liable for the gap or ‘non WCRA’ damages and costs.


Note: The decision in Bonser v Melnacis [2000] QCA 013 is still in play.  According to that decision, if the Injured Worker decides not to pursue CE for damages pursuant to the WCRA, PC remains unable to pursue a claim for contribution for damages in negligence against CE.  However, section 236B would not prevent PC from pursuing a claim for contractual indemnity against CE.  In that case, there would be no in solidum damages of CE to the Injured Worker and, subject to CE having insurance coverage in place for contractual liabilities, CE may be directly liable to PC for damages payable to the Injured Worker and WorkCover Queensland would have no obligation under section 8 of the WCRA to indemnify CE for that liability.

Commentary
The enactment of section 236B in the absence of the proposed changes to the definition of damages in section 10 creates an anomaly as described in Example C above in that, if there is a contribution claim by the employer against a principal contractor only, WorkCover Queensland may avoid a contractual indemnity however if there is a PIPA claim against the principal contractor, it may not.

Another issue to consider is the effect, if any, of section 236B given section 6(c) of the Law Reform Act 1995 (Qld), which states that ‘no person shall be entitled to recover contribution from any person entitled to be indemnified by the person in respect of the liability in respect of which contribution is sought’. Whilst section 236B refers to WorkCover Queensland’s entitlement to recover contribution as opposed to the employer’s, due to the principles of subrogation WorkCover Queensland sits in the place of the employer and defends and pursues claims in its name.  At the very least, there is incongruity between section 236B of the WCRA and section 6(c) of the Law Reform Act 1995 (Qld).

This area of the law was already contentious and unless and until the legislature correct this anomaly, litigation over the effect of section 236B and where that leaves contractors, employers and WorkCover Queensland in terms of their exposure to damages for claims by injured workers will very likely ensue.

It will also be interesting, given the defeat of the Byrne amendments, to see whether WorkCover Queensland still proceeds with considering expanding the WorkCover scheme to extend insurance cover beyond just insuring employers to principal contractors host employers and other employers in accordance with the Parliamentary Committee Review Report.

We will keep you updated as developments occur.  In the meantime, if you think your business may be impacted by these changes, please contact us for advice specific to your business needs.

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