August 10, 2017

Insurance | QLD

How not to get left carrying the can for someone else’s negligent act but still keep their work!

The expression used to go “you can’t contract out of negligence”. In more recent times the mantra was “you can only contract out of negligence by very clear words and in the absence of those words the court will presume that it is not the intent (this was colloquially known as the “Erect Safe Principle”.) 

However, the New South Wales Court of Appeal, the original architect of the “Erect Safe Principle” has recently retreated from that position - declaring that a broadly written indemnity clause will be allowed to “operate on its own terms”.

In CSR Limited v Adecco (Australia) Pty Ltd [2017] NSWCA 121 the court was considering a Adecco labour hire worker injured at CSR’s premises.  The worker was injured due to a defective seat supplied to him by CSR. Having been found negligent, CSR sought to transfer their tortious liability back to Adecco on the basis of an indemnity clause found in their Supply Agreement which read:-

23. Notwithstanding any provision of this Agreement, the Supplier indemnifies CSR against

23.2.1 any claim by Temporary Staff for personal injury and/or property damage arising out of or in connection with the performance of Assignment duties where …[1].

THE LAW

Having found that the contract survived formal expiration by virtue of the parties continuing to act as though the contract was on foot, the Court then held:-

The words “arising out of” are well recognised as being of broad import. They require some casual or consequential relationship between the subject and the object but do not require the direct or proximate relationship which would be necessary if the expression was “caused by”.

The Court noted a contract entered into in a commercial context should be given a commercial operation and its words not construed in a vacuum. The Court posed the question why would a party require an indemnity unless they wanted protection from liability for their own fault? 

As to “Erect Safe Principle” the Court simply said:-

Each case must clearly stand and fall on the terms of the relevant provision construed in the context of the contract as a whole...having regard to the width of the words in cl23.2…it was sufficient that the occasion for [the injured worker] being at the [CSR] plant was to carry out an Assignment as referred to in cl 23.2. …”

 RAMIFICATIONS

The Courts, particularly in New South Wales, seem to have resiled from a starting point or “principle” that one party does not intend to indemnify another for their own negligence.  If an indemnity is broadly written, it will now be given a broad interpretation unsullied by notions of a presumption against such intent.

If you do not wish to indemnify a party for its own negligence, you should ask that a proportionality clause appear in any indemnity or seek its removal. In any large commercial contract asking for the “fine print” to be reviewed by your lawyers can be a useful circuit breaker when dealing with someone who is insisting “this is our standard document and you should just sign it.”

 Remember that your insurance can be lost if you extend, by virtue of a contract, your exposure to a claim beyond what it would have been in negligence.  An uninsured loss would see you likely left carrying the can with immediate impact to the bottom line of your business. If you feel you don’t have the bargaining power to insist on changes or to seek legal advice, then you must contact your insurer or broker to ensure you will remain covered for any additional contractual liability you incur.

If you have any concerns about any pro-forma document which contains an indemnity provision or agreement to contact us for a free half an hour consultation to review your position.


[1]  The Court found that the word “where” in the provision was “surplusage” and not relevant to interpretation.