Principal (deemed employer) immune from recovery claim

Occupiers and principals often engage contractors to carry out work.  If a worker is injured when carrying out that work the contractor’s workers’ compensation insurer will usually pay the workers’ compensation claim and explore recovery options.  If the worker commences proceedings then usually the workers’ compensation payments will be a first charge on any award of common law damages.  But what happens if the accident was caused by the owner or principal’s negligence but the worker does not commence proceedings?

Exactly that happened in Delron Cleaning Pty Ltd v Public Transport Authority [2007] WADC 34.  Delron’s workers’ compensation insurer paid $215,000 in workers’ compensation payments to Delron’s employee and sought to recover that sum from the negligent principal, the PTA.  Delron had a statutory right of recovery under s93 of the Workers’ Compensation & Injury Management Act.  That section creates a right of recovery if the worker’s injury was ‘caused under circumstances creating a legal liability in some person other than the employer to pay damages’.  In defending the proceedings the PTA admitted negligence, but argued that because it was a ‘deemed employer’ it did not have a legal liability to pay damages in respect of the worker’s injuries.  The issue was tried in the District Court before Sweeney DCJ.  Judgment was handed down on 30 March 2007.

Her Honour first considered whether the PTA was a ‘deemed employer’ as defined in the Act.  After a comprehensive analysis Her Honour concluded that the PTA were a deemed employer because the worker’s services as a train passenger attendant on the Avon Link Train Service was work which Delron had contracted to undertake for the PTA.  It was irrelevant that the PTA operated the train service and that no other employees of Delron were on the train at the time of the accident.
Her Honour then noted that because the worker’s accident occurred before 14 November 2005 the PTA, as a deemed employer, was entitled to the benefit of the protection provided by the common law thresholds.  To successfully sue the PTA for common law damages the worker needed to satisfy either the 16% or 30% degree of disability thresholds.  The worker had not satisfied either threshold and could not do so because she had finalised, by way of redemption, her worker’s compensation claim.   

Her Honour held that because the worker had not satisfied the common law thresholds as against the PTA, the PTA, as a deemed employer, did not have a legal liability to pay damages for the worker’s injuries.  The worker’s failure to satisfy the common law thresholds meant that the PTA had a complete defence to Delron’s recovery claim. 

In case she was wrong in that conclusion Her Honour went on to consider whether Delron were nonetheless prevented from succeeding because Delron had agreed to contractually indemnify the PTA ‘against any claims… arising from any injury to any employee of Delron caused by, contributed or arising from any act or omission of Delron…’.

Because the accident was in part due to the Delron’s negligence Her Honour held that the indemnity clause operated as a complete defence to Delron’s recovery claim. 

The decision is a favourable one for deemed employers and their public liability insurers.   For pre-14 November 2005 accidents employers wishing to exercise recovery rights against negligent deemed employers are placed in the invidious position of having to encourage the worker to satisfy the degree of disability thresholds.  That carries obvious risks for the employer, which is then more likely to face a common law claim from the injured worker.

For accidents after 14 November 2005 and because of amendments to the Act, employers and their workers’ compensation insurers face no such impediment.  For accidents after that date deemed employers can no longer claim the benefit of the protection offered by the common law thresholds.  Occupiers and principals are attractive claim targets.  The decision highlights the need for occupiers and principals to ensure that any contractual indemnity and hold harmless clauses are very clearly worded.

Lavan Legal represented the PTA.

For further information please contact Michael Bruce, Partner 08 9288 6865.