Corporate Risk And Insurance Update - July 2006

Contents

• The High Court's Recent Application of Vicarious Liability

• High Courts application of Section 43 of the Personal Injuries Proceedings Act 2002 (Qld)

• The recognition of Psychiatric Injury in the workplace in light of the recent High Court case of Koehler v Cerebos (Australia) Ltd (2005) 214 ALR

• Is Oztag a "dangerous recreational activity" as prescribed by the Civil Liability Act 2002 (NSW)? An analysis of non-contact sport and the new legal landscape

THE HIGH COURT'S RECENT APPLICATION OF VICARIOUS LIABILITY

Sweeney V Boylan Nominees Pty Limited [2006] HCA 19

On 16 May 2006, the High Court handed down the decision in Sweeney v Boylan Nominees which considered an appeal to determine whether a principal refrigeration company was vicariously liable for the negligence of its contracted mechanic. The majority of the High Court, comprised of Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ, dismissed the appeal on the basis that the NSW Court of Appeal had correctly identified the mechanic as an independent contractor.

The majority did not depart from the established case law on vicarious liability identified as Scott v Davis, Hollis v Vabu Pty Ltd and New South Wales v Lepore. However, they admitted that there were some logical and doctrinal imperfections and difficulties relating to the current law on vicarious liability, the core being distinguishing between employees and independent contractors but accepted that it was too deeply ingrained in the legal system.

In an emotive dissent judgment by Kirby J he took a very practical, common sense approach to vicarious liability paying particular attention to the changing character of work in contemporary Australia. His Honour recognised that the economic activities of employment included a proliferation of quasi-employment situations. Kirby J looked to Dixon J's test in Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Ltd ('Colonial Mutual') for a simple and consistent test of vicarious liability to apply.

Dixon J in Colonial Mutual applied the test of whether a person when performing services for a company, was a representative agent of the company not whether they had acted independently. Kirby J noted that this test had never been overruled and was appropriate to apply to contemporary business relationships.

The decision indicates that this may not be the last word the High Court has on vicarious liability. We anticipate that Kirby's minority judgment will be used in future cases where the current views on vicarious liability produce an unsatisfactory result.

On 2 August 2000, the appellant, Mrs Maria Sweeney was injured when a refrigerator door in the shop of a service station fell off its hinge and hit her on the head. This occurred at about 4:00 pm.

Earlier in the day, the owners of the service station ('the Patels') noticed that the refrigerator door was not closing properly. The refrigerator was under a lease agreement which identified Boylan as responsible for servicing and maintaining the refrigerator "in a proper and workmanlike manner". The Patels contacted Boylan Nominees who were trading as Quirks Refrigeration.

At about 2:30 pm, mechanic Mr Nick Comninos was sent by Boylan to fix the refrigerator door. A worksheet or invoice of the mechanic said "Repaired door & tested left running well". This document was titled "Quirks Refrigeration". Under this title it said (in smaller font) "A Division of Boylan Nominees Pty Ltd".

Until Mrs Sweeney made her claim, she knew nothing about the repair to the refrigerator immediately before her accident, or of the arrangements for the repair or the refrigerator lease.

In the NSW District Court, Mrs Sweeney sued the Patels for having a hazardous refrigerator on their premises. She also sued Boylan for failing to maintain the refrigerator and for negligent repair of the defective door. When the trial commenced, Boylan claimed the mechanic was an independent contractor for the first time.

Boylan's vicarious liability for the mechanic was an important issue at trial. Neither the mechanic nor the company, through which he may have conducted his business, was a party to the proceedings.

The mechanic was not an employee of Boylan and did not have a formal contract with them. The evidence at trial revealed that he performed duties at the request of Boylan, when asked and then invoiced them for the hours he worked and spare parts. Boylan did not provide the mechanic with a uniform, no tools or equipment and no vehicle to transport tools and equipment. The mechanic's van was marked with a name derived from the name of a company of which he was a director.

Mr Comninos gave no evidence at trial. Evidence about the relationship between Boylan and Mr Comninos was given by Mr Wayne Duckworth, Boylan's former operations manager.

Kirby J noted the features of Mr Comninos' work which the primary judge found significant at paragraph 56:

• "he performed work for the respondent on a daily basis;

• he performed the same work as Boylan's employees, doing the same activities on its behalf as Boylan's work requirements necessitated;

• he proceeded to Boylan's jobs at the directions of Boylan's employees;

• he regularly attended at Boylan's premises to obtain from Boylan parts necessary to effect repairs, doing so in the same manner as employees;

• Boylan was fully aware of the regular course of work undertaken in this way by Mr Comninos on its behalf;

• Boylan provided Mr Comninos with a book of service reports bearing the title "Quirks Refrigeration" which reports Mr Comninos provided to Boylan's customers on behalf of Boylan;

• provision of service reports, for execution by the customer, was part of Boylan's intended relationship with its customers;

• the form authorised Mr Comninos to collect the "amount due" to Boylan from its client[68] and described him as "our mechanic"; and

• when Boylan reported Mrs Sweeney's injury to its public liability insurer, it represented Mr Comninos as being "our mechanic" and described his activities as part of Boylan's own acts in tightening the door screws of the defective refrigerator."

The District Court Judge rejected Mrs Sweeney's claim against the Patels. However, the Judge did conclude that Boylan was vicariously liable for the consequences of the mechanic's repairs on the basis that the mechanic was acting as a servant or agent of Boylan with the authority and approval of Boylan to undertake the work that he did.

The NSW Court of Appeal concluded that the mechanic was not an employee of Boylan on the basis that he was free to accept or decline work from Boylan. This led the Court of Appeal to consider Dixon J's comments in the Colonial Mutual decision about when a person would be considered to be a representative or agent. Ultimately, the Court relied on McHugh J's indicators of "representation" in Hollis and held that the mechanic was not a representative of Boylan.

Decision

The High Court upheld the decision of the Court of Appeal (6-1). They held the mechanic was an independent contractor and as a result Boylan was not vicariously liable for the mechanic's negligence.

The High Court identified the decisions of Scott, Hollis and Lepore as being central to this body of law. Firstly, on the basis that there is a distinction between employees (whose conduct the employer will generally be vicariously liable for) and independent contractors (whose conduct the person engaging the contractor will generally not be vicariously liable for). Secondly, the concept of "in the course of employment" was held to be important.

The High Court appeared to accept that there is no adequate and complete explanation of the modern law on vicarious liability. The High Court noted that the distinction between independent contractors and employees has been critical to the definition of the scope of vicarious liability. Despite there being no adequate and complete explanation of the law on vicarious liability and with its imperfections, the High Court said it would not reject these established concepts in favour of a wider principle.

Kirby J leaves the door open for future reliance on Colonial Mutual by stating that the decision has never been overruled and nor was it doubted by judges in Hollis. His Honour suggests that with the passage of time, the new "hybrid" forms of "employment" make the principle in Colonial Mutual one apt for the relationships of businesses in contemporary Australia. Kirby J identifies that for the principle in Colonial Mutual to be adopted, "the principal must arm the contractor with the means to hold himself or herself out "so that the very service to be performed [by the contractor] consists in standing in his [principal's] place and assuming to act in his [principal's] right and not in an independent capacity". Kirby J states that Mrs Sweeney did not seek a widening of the rule in Colonial Mutual simply its application.

Considerations for independent contractors and quasi-employees

Kirby J identifies that nowadays, wrong doers are commonly sued separately and most will have their own insurance. On the current view of the law, many persons under this category cannot rely on indemnity from their principal and need to consider having their own protection. Alternatively, seeking the status of "employee" may provide more certainty and security than the financial benefits that other relationships offer.

As an aside, Boylan's defence made no explicit or implied reference to the status of the mechanic. The defence was brief and denied all allegations. At trial, Boylan claimed that the mechanic was an independent contractor. Kirby J highlighted that the Court did not know the full details of how the independent contractor first came to be known to Mrs Sweeney and her representatives. His Honour did not condemn anyone but strongly noted that that this was not a proud moment in justice and suggested "only when judges exact a price, principally in costs, for "treasuring up" unpleasant evidentiary surprises will the practice and culture be changed."
By Holly Herrling, Brisbane

On 17 May 2006, the High Court delivered its judgments in Davison Ors v State of Queensland, which considered an appeal to determine whether leave should be granted to the appellants to commence proceedings pursuant to section 43 of the Personal Injuries Proceedings Act 2002 (Qld) ("the Act").

The majority of the High Court upheld the appeal. It found that the Queensland Court of Appeal ("COA") erred in concluding that it was necessary for the appellant to demonstrate a "reasonably arguable" case for the granting of an extension and that the appellants had not established an urgent need to commence proceedings within the meaning of section 43 of the Act.

It also held that the COA interfered with the exercise of the discretion of the judge at first instance, in circumstances where the exercise of the discretion was not unreasonable or unjust.

Section 43 of the Act states:

"43 Need for urgent proceeding

(1) The court, on application by a claimant, may give leave to the claimant to start a proceeding in the court for damages based on a liability for personal injury despite non-compliance with this part if the court is satisfied there is an urgent need to start the proceeding.

(2) The order giving leave to start the proceeding may be made on conditions the court considers necessary or appropriate having regard to the particular circumstances of the case.

(3) However, if leave is given, the proceeding started by leave is stayed until the claimant complies with this part or the proceeding is discontinued or otherwise ends.

(4) Despite subsection (3), the proceeding is not stayed if--

Facts

The respondent placed all of the appellants as children in the care of various foster parents. Each appellant alleged that they had been subjected to serious physical and psychological abuse while in foster care. The appellants alleged that the respondent was in breach of its duty of care in failing to ensure that the foster parents were appropriate, failed to respond to complaints of abuse, and failed to adequately care for the appellants during the course of their childhood. The limitation period for making a claim for damages for personal injury against the respondent had in each case expired some time ago.

On 18 June 2003, The Courier-Mail newspaper published an article describing years of alleged abuse of foster children by a particular foster family. Soon after the publication, the appellants approached the Bravehearts organisation for counselling and support, and thereafter contacted solicitors.

On 17 December 2003, an initial application was brought in the Supreme Court for leave to commence proceedings pursuant to section 43 of the Act. Under the Limitations of Actions Act 1974 (Qld) the Court has discretion to extend time if an appellant has discovered "a material fact of a decisive character and that there is evidence to establish the right of action" after the time has expired. This time could only be extended for 12 months from the discovery of the material fact of a decisive character. The appellants argued that The Courier-Mail article was such a material fact, and wished to commence proceedings as soon as possible. The primary judge dismissed the applications on the basis that the relevant urgency was not demonstrated. The appellants appealed to the COA which was heard on 10 May 2004. Judgment was reserved.

By June 2004 (12 months after the publication of The Courier-Mail article) the Court of Appeal had still not delivered its judgment. The appellants made a further application, on 16 June 2004, to the Supreme Court for leave to commence proceedings pursuant to section 43 of the Act. The appellants argued that the relevant urgency was now readily apparent given the pending expiry of any extended limitation period. Holmes J held that circumstances had changed from the previous occasion, and urgency was now demonstrated. She gave leave to commence the proceedings. In the meantime, the COA delivered its judgment in relation to the first application, dismissing the appeal.

The respondents appealed against the decision of Holmes J and judgment was delivered on 3 December 2004. The Court of Appeal, by majority, accepted that circumstances had changed, but considered that the required urgency could not be demonstrated. President McMurdo dissented.

Construction of s 43

The majority of the High Court accepted the appellants submission that for claimant's seeking leave under section 43, to initiate proceedings and where an extension of time may be sought under section 31(2) of the Limitations of Actions Act 1974 (Qld), before being granted an extension, do not have to show a reasonably arguable case. The High Court held:

(1) The Court of Appeal majority said that section 43 was not to be construed "restrictively" and that the section 43 discretion had an "unfettered" character. However, the requirement for a reasonably arguable case does restrict and "fetter" discretion.

(2) If a claimant under section 43 has to demonstrate a reasonably arguable case for an extension under section 31(2), it would seem to follow from that the claimant is obliged to demonstrate a reasonably arguable case on every issue relevant to the proceeding, which was considered improbable.

(3) The function of section 43 was to prevent litigants being deprived of the right to submit real and genuine controversies to the determination of the courts by the due procedure appropriate for the purpose.

Justice Kirby's application

His Honour considered the establishment of a reasonably arguable case was not a preferable construction of section 43 of the Act. He believed the language of section 43(1) of the Act did not spell out, in terms, a requirement that leave should not be granted unless the claimant demonstrates a reasonably arguable case for an extension under the Limitations Act.

He considered section 43 to be a remedial provision which was designed to permit a party to start a proceeding who was not otherwise entitled to do so. Its purpose is to protect the rights of the party seeking leave, so that such party will not lose possible rights by reason of any further delay in commencing the proceedings. He stated that it was normal for remedial provisions of legislation to be given a broad, and not a narrow or restricted, interpretation. This is especially so where it operates to vindicate claims to legal rights before those courts and to prevent such access from being lost by a pending limitation period.

He believed the settled approach expressed by the High Court, about the construction of legislation over many years was one that endeavours to give effect to the purpose of legislation, deriving that purpose from the language and structure of the legislation and any available supplementary sources. He stated in the present case,

He further believed his approach to s 43 of the Act was due to the highly complex nature of the law applicable to the provision of orders for extensions of a period of limitation under the Limitations Act. He noted the law in question has given rise to much litigation, uncertainty and complaint.

His honour believed the better construction of section 43 was that adopted by the primary judge and McMurdo P in the COA. However, he stated that by the time disputed questions of statutory construction reach the High Court, the point is not unarguable and he acknowledged that there were persuasive contentions for and against the competing approaches. His Honour concluded that once it was accepted the majority of the COA applied an incorrect test for the grant or refusal of leave under s 43 of the Act, and imposed an inapplicable precondition that the appellants must prove a "reasonably arguable case for the granting of an extension" under s 31(2) of the Limitations Act, the judgment of the Court of Appeal could not stand.

Considerations for Insurers

The High Court has adopted a broad and unrestricted application of section 43. The High Court noted that some defendant's had reservations and feared that injustice may arise from too free a grant of leave under s 43. The High Court believed that this risk was reduced by the capacity of the court under s 43(2) to impose conditions which are necessary or appropriate in the particular circumstances, by the stay of the proceeding which has been started by leave until either the claimant complies with Ch 2, Pt 1 or the proceeding ends.
By James Chrara , Brisbane

Arguably one of the most significant decisions in relation to workplace psychiatric injury was the recent case of Koehler v Cerebos (Australia) Ltd (2005) ("Koehler"). This decision gives an insight into the High Court of Australia's ("HCA") attitude to psychiatric injury and the content of the duty of care to be imposed on an employer. The case reviewed the definition of reasonable foreseeability in light of recent Australian and English authority. The approach taken by the HCA in Koehler has significant implications for both an employee and employer when considering psychiatric injury.

Cerebos (Australia) Ltd, ("Cerebos") a food manufacturer and retailer, employed Mrs Koehler as a sales representative in approximately November 1994. In 1996, Cerebos was forced to reduce its workforce. Mrs Koehler was offered a part time position of employment, however, she argued, her duties remained the same.

Mrs Koehler later asserted that she immediately raised her concerns regarding her ability to perform her work within the time frame. However, she did not complain regarding the affect of the completion of such allegedly onerous duties on her health.

McHugh, Gummow, Hayne and Heydon JJ. delivered the primary judgement in the HCA. Callinan J. delivered a separate, supporting judgment. The HCA agreed with the Full Court that Mrs Koehler's appeal should be dismissed.

After considering the content of the duty of care, the HCA determined there were two primary concerns in determining whether there had been a breach.

First that Mrs Koehler had initially agreed to perform the duties that she later claimed were the cause of her psychiatric injury. Second, Mrs Koehler's undertaking of the work demonstrated that she was willing to try to do the work and her acceptance was inconsistent with the suggestion that she harboured or expressed fears as to her health.

The joint judgment ascribed 'limited significance' to the first issue and in relation to the second found that it was not reasonable for an employer in the position of Cerebos, to foresee that Mrs Koehler was at risk of psychiatric injury. The HCA dismissed the appeal.

An Employee must recognise a psychiatric injury

The case of Koehler has restricted the circumstances in which an employer will be found liable for psychiatric injury resulting from an employee's stress in the work place. A plaintiff must be aware of suffering a psychiatric injury and be able to communicate this to an employer.

An Employee must communicate such injury to their employer

An employee who has suffered stress or a form of psychiatric illness not only requires a diagnoses and a nexus to employment, there must be evidence of the illness observable by or known to an employer. An employee must make it known to an employer that they are suffering a psychiatric illness. Furthermore, it appears from Koehler's case that not only complaints of illness are required to be made but there must be specific complaints of psychiatric illness.

The judgment in the HCA considered that an agreement by a plaintiff to perform work will be taken as an indication the employee can perform such work. Their Honours stated that 'an employer may not be liable for psychiatric injury to an employee, brought about by the employee's performance of the duties originally stipulated in the contract of employment... insistence upon performance of a contract cannot be in breach of a duty of care'.

The joint judgement in Koehler went further and considered whether this strict approach could be modified by any qualification. Their Honours ultimately found however that if an employee agrees to undertake work in excess of an industry standard, then such an employee is entitled to do so. The common law of negligence will not provide a remedy for an injury that such an employee sustains, the employee having voluntarily contracted to undertake such work. So to impose a duty of care in negligence would subvert the employment contract.
By Caitlin Dwyer, Melbourne

IS OZTAG A "DANGEROUS RECREATIONAL ACTIVITY" AS PRESCRIBED BY THE CIVIL LIABILITY ACT 2002 (NSW)? AN ANALYSIS OF NON-CONTACT SPORT AND THE NEW LEGAL LANDSCAPE

On 18 January 2000, Mr Thomas Falvo was playing Oztag football (a form of non-contact touch football) (Oztag) on a suburban Sydney field occupied and maintained by Warringah Council (the Council). Australian Oztag Sports Association Incorporated (the Oztag Association) organised the game. The field had a grass-surface, however, there were bare patches, devoid of grass and irregularities in the field surface had been "topped up" with sand.

During a game of Oztag, and while running towards the try line on the grassed area, Mr Falvo placed his foot on a bare patch. When he did so, his knee "gave way" and he sustained, amongst other things, a cruciate ligament injury.

Mr Falvo commenced a proceeding in the District Court of New South Wales in which he alleged that the Council and Oztag Association were negligent and that the Oztag Association was in breach of contract. The particulars of negligence against Oztag included allegations that the field was not in a fit condition for Oztag and that the Oztag Association had failed to take proper care to ensure participants were not injured.

The proceeding was conducted in a manner that gave rise to two principle questions (for the Court's determination): namely, causation; and whether Oztag was a "dangerous recreational activity" within the meaning of sections 5K and 5L of the Civil Liability Act 2002 (NSW) (the CLA).

At trial, Mr Falvo gave evidence that his foot sank into the sand and this is what caused his knee to give way. Mr Falvo's evidence was corroborated by a team mate who gave evidence that when running over the areas topped with sand, there was a slight loss of balance and sinking sensation.

When considering the issue of causation, the Court accepted the medical opinion of the plaintiff's own treating medical practitioner that his knee gave way when he was side stepping, which involved him twisting his leg and pivoting the knee. The medical practitioner considered that it was the change of direction and pace that caused the plaintiff's knee to buckle and not him sinking in to the sandy area.

The decision

Trial level

At first instance, the Court found that causation was not established. The Court also found that, although the field had slight depressions, the condition of the field met appropriate standards. Furthermore, the Court found that Oztag was a "dangerous recreational activity" within the meaning of sections 5K and 5L of the CLA.

Section 5K defines a "dangerous recreational activity" as a recreational activity that involves a significant risk of physical harm. Section 5L provides, in summary, that a defendant is not liable for harm suffered as a result of the materialisation of an obvious risk, whether or not the plaintiff was aware of such risk.

Court of Appeal

The Supreme Court of New South Wales, Court of Appeal constituted by Ipp JA, Hunt AJA and Adams J rejected Mr Falvo's submission that the field was not in a condition fit for Oztag and dismissed Mr Falvo's appeal. Justice Ipp said:

"While there are risks involved in playing sport on surfaces of the kind in this matter, the standard of the surface is one that the community accepts. To require otherwise would be impractical, costly and ordinary people would be deprived of opportunities of playing on fields such as these."

The Court also agreed that slightly differing levels and sandy patches on sports grounds are part of the practical realities of everyday living.

Interestingly, Jutsice Ipp held that the trial judge had erred in finding that Oztag was "a dangerous recreational activity". In determining whether Oztag was a "dangerous recreational activity", his Honour Justice Ipp said:

"… in my opinion, the expression should not be construed, for example, as capable of applying to an activity involving a significant risk of sustaining insignificant harm (such as, say, a sprained ankle or a minor scratch to the leg). It is difficult to see how a recreational activity could fairly be regarded as dangerous where there is no more than a significant risk of an insignificant injury."

His Honour also said:

The Court also rejected Mr Falvo's argument concerning causation. The Court noted that Mr Falvo did not tender evidence to refute the opinion expressed by his treating practitioner, despite being on notice that the defendants intended to rely on that evidence. The Court was not persuaded by the testimony of Mr Falvo's team mate, finding that Mr Falvo would have collapsed before his team mate could have seen any sideways movement.

Implications

While Mr Falvo's appeal was unsuccessful, the most interesting aspect of this judgment arises from the point of contention that was successful, namely that the game of Oztag is not a dangerous recreational activity within the meaning of s 5K of the CLA.

It is evident that in order for a recreational activity to be a "dangerous recreational activity" within the meaning of Section 5K of the CLA., the risk and harm must be considered in concert and inform each other. In Obiter Ipp J makes it clear that in order for a "dangerous recreational activity" to come within the meaning of Section 5K of the CLA, the activity must involve both a significant risk of physical harm and a risk of significant physical harm. As to whether the provision will be satisfied if the activity involves a less than significant risk of significant physical harm, will be a matter of judgement having regard to all the circumstances.
By Wendy Blacker, Sydney

In the above matter gadens lawyers acted on behalf of Australian Oztag Sports Association Incorporated in the trial and appeal proceedings.

This publication is provided to clients and correspondents for their information on a complimentary basis. It represents a brief summary of the law applicable as at the date of publication and should not be relied on as a definitive or complete statement of the relevant laws.