Australia: Distinguishing Between Independent Contractors, Employees and Deemed Workers:
Ralston v Bell

Collin Ross Ralston v Peter Bell & Warren Smith t/as Xentex Patch & Grout & Anors

Judgment date: 31 March 2010

Supreme Court of NSW, Common Law Division¹

In Brief

• In determining the nature of the relationship between a party who engages another party to perform work and whether the relationship can be characterised as one of employer/employee or principal/independent contractor the Court must consider the totality of the relationship between the parties.
• A principal can discharge its duty of care by engaging a competent independent contractor responsible for its own system of work and the principal will not be liable for damage caused merely by the negligent failure of an independent contractor. However, in some circumstances a duty will be owed by the principal to use reasonable care to ensure that a system of work for one or more independent contractors is safe.
• Where the owner of an unregistered vehicle is sued pursuant to the statutory agency provision contained in s 112 of the Motor Accidents Compensation Act 1999 (MACA) and when its liability only stems from the negligence of its statutory agent, the owner may pass on liability to the negligent agent in circumstances where the agent is also a party to the proceedings.

Background

The plaintiff, Collin Ralston, was injured at a construction site at Kincumber, NSW on 17 March 2004 when he was run over by an Elevated Work Platform (EWP) driven by Russell Wheeler.

The plaintiff brought proceedings against five defendants:

1. Williams River Steel (WRS), which was the principal contractor on site.
2. New Line Patching (NLP), which was contracted by WRS to carry out patch and grout work on site.
3. Xentex Patch and Grout (Xentex), which was subcontracted by New Line Patching to carry out patch and grout work on site.
4. Ace Hire Pty Limited (Ace), the company which was the owner of the EWP.
5. The Workers Compensation Nominal Insurer (Nominal Insurer), sued pursuant to Part 4 Division 6 of the Workers Compensation Act, 1987.

GIO, the public liability insurer of Xentex, was brought into the proceedings by way of a crossclaim filed by Xentex. GIO denied indemnity to Xentex in respect of the plaintiff's claim on the basis of the employer's liability exclusion clause contained in the policy, contending that the plaintiff was an employee of Xentex.

The issues before his Honour, Hislop J were numerous and involved the interplay of provisions of the MACA, the Civil Liability Act 2002 (CLA), the Workplace Injury Management and Workers Compensation Act 1998 (WIM) and the Workers Compensation Act 1987 (WCA).

Liability in relation to the EWP

The plaintiff was run over on site by an unregistered four wheel drive which had a retractable boom with a bucket at the end which could be used by people to safely work from heights. It was agreed that:

1. the vehicle was a motor vehicle as defined in s 3 of MACA.
2. the vehicle was unregistered.
3. the injury to the plaintiff was caused by a motor accident as defined in s 3 of MACA.
4. Ace was the owner of the vehicle under general law.
5. the vehicle was hired by WRS from 16 March 2004 to 27 March 2004 and then again from 27 March 2004 to 29 March 2004.

Ace submitted that it was not the owner of the vehicle as defined in s 4 of MACA as it was not on site and was not entitled to immediate position of the vehicle. Section 4 relevantly provides:

As the duration of the hire was for a period of not more than 3 months, his Honour held that Ace, as owner of the vehicle under the general law, remained the owner of the vehicle for the purposes of MACA.

The plaintiff alleged that the driver of the EWP, Mr Wheeler, was the agent of Ace pursuant to s 112 of MACA, which relevantly provides:

Ace submitted that s 112 only operates in circumstances where there is a third party policy of insurance in existence and that as there was no third party policy in relation to the unregistered EWP, Mr Wheeler was therefore not the deemed agent of Ace pursuant to s 112.

Ace further submitted that this construction of s 112 was consistent with the fact that MACA was never intended to create a liability in the owner of a piece of work equipment or machinery on a building site and that its application was limited to circumstances where the vehicle was the subject of a third party policy of insurance.

The plaintiff submitted that s 112(1) applied to two distinct situations:

1. any proceedings against the owner (irrespective of whether the vehicle was insured or not, as set out in s 112(1)(a)), and
2. for the purposes of the third party policy (if the vehicle concerned was an insured vehicle, as set out in s 112(1)(b))

The plaintiff argued that Ace's construction of s 112 reduced its application only to situations involving an insured motor vehicle.

His Honour concluded that s 112(1)(a) applies for the purposes of any proceedings whether the vehicle involved is insured or not. Finding that s 112 was thus operative, his Honour concluded that Mr Wheeler was the agent of Ace.

The Relationship of the Plaintiff to Xentex

The primary issue before his Honour was the nature of the relationship between the plaintiff and Xentex and whether it was one of employer/employee or principal/independent contractor.

His Honour also had to consider whether the plaintiff was a deemed worker of Xentex pursuant to cl 2 of Sch 1 of WIM. The characterisation of the relationship between the plaintiff and Xentex would determine the respective liabilities of the defendants and GIO. Page 4 of 8

His Honour held that the distinction between employer/employee and principal/independent contractor is to be determined by having regard to the totality of the relationship between the parties and by reference to the indicia of the relationship, as set out in Stevens v Brodribb Sawmilling Co Pty Limited².

In applying Stevens v Brodribb Sawmilling Co Pty Limited³, his Honour noted that consideration must be given to the terminology of the contract which existed between the parties. The contract between Xentex and the plaintiff was not in writing, however the principals of Xentex gave evidence that the agreement was for the plaintiff's engagement as an independent contractor. His Honour found that there was no reason to believe that the agreement was a sham and that the intention of the parties was that the relationship was to be one of principal/independent contractor.

Other indicia supporting the fact that the plaintiff was an independent contractor included:

1. the plaintiff was not paid for the days that he did not work and he was able to refuse work;
2. there was no evidence that he was paid superannuation, holiday pay or sick leave;
3. the plaintiff's remuneration was paid to him without deduction for income tax;
4. no statutory workers compensation insurance was obtained by Xentex; and
5. the plaintiff also made himself available in the local community to perform patch and grout work.

His Honour concluded that having regard to the totality of the relationship, the relationship between the plaintiff and Xentex was that of a principal/independent contractor and not of an employer/employee.

His Honour then had to consider whether or not the plaintiff was a deemed worker pursuant to cl 2 of Sch 1 of the WIM Act.

That clause relevantly provides:

His Honour found that the plaintiff was working as an independent contractor for Xentex performing patching and grouting work and was ready, willing and able to perform this type of work for others on the same basis. His Honour further found that the plaintiff held himself out as being prepared to carry out this type of work for others. Accordingly, the plaintiff was not a deemed worker within the meaning of cl 2 Sch 1 of WIM.

His Honour found that the circumstances of the engagement between Mr Wheeler and Xentex were not materially different from those relating to the plaintiff's engagement. As such, his Honour concluded that Mr Wheeler was similarly engaged by Xentex as an independent contractor and not an employee.

Liability of Xente

The plaintiff submitted that Xentex was negligent in failing to warn the plaintiff of the dangers which existed on site in relation to moving plant and equipment, failing to erect barricades and not having somebody on site to provide supervision or to oversee the work carried out by Mr Wheeler.

His Honour found that Xentex was responsible for organising the activity of patching and grouting on the construction site on 16 and 17 March 2004 and that this activity involved a risk of injury. As such, Xentex was subject to a duty to take reasonable care to avoid the unnecessary risk of injury. His Honour held that this gave rise to a duty to retain control of the working system unless it was reasonable to engage the services of independent contractors who were themselves competent to control their system of work without supervision by the principal: Leighton Contractors Pty Limited v Fox⁴.

His Honour held that there was no evidence to establish that Mr Wheeler was competent to control the system of work. Therefore, Xentex remained subject to the duty of care it owed to the plaintiff. Xentex was found to have taken no steps to fulfil that duty as neither principal of Xentex attended the site on the day of the plaintiff's accident nor were any adequate warnings or instruction provided to the plaintiff. Xentex was thus found to be in breach of its duty of care to provide a safe system of work to the plaintiff and that this failure caused, or materially contributed to the plaintiff's injury.

Accordingly, verdict and judgment for the plaintiff was entered against Xentex.

Since Mr Wheeler was found to be an independent contractor of Xentex, pursuant to the accepted principle that a principal will not be liable for a casual act of negligence on the part of its agent, no vicarious liability attached to Xentex for Mr Wheeler's casual act of negligence in colliding with the plaintiff: Sweeney v Boylan Nominees⁵

Liability of WRS

The plaintiff submitted that WRS was negligent on the basis that as hirer of the EWP and the principal contractor on site, it took no precautions to ensure the operation of the machines on site on the day of the accident.

Consideration was given to the fact that the construction site in question was small. His Honour held that it was reasonable for WRS to engage the services of NLP. WRS was unaware that the patching and grouting work had been subcontracted by NLP to Xentex. In the circumstances there was no duty on WRS to retain control of working systems and it was not liable for the negligent failure of the independent contractor to adopt or follow a safe system of work: Leighton Contractors Pty Limited v Fox⁶.

His Honour entered a verdict and judgment for WRS against the plaintiff.

Liability of NLP

The plaintiff submitted that NLP was negligent in that it did not check who would be using the EWP and in what circumstances. NLP was not aware that the work had been subcontracted by Xentex to the plaintiff and others. His Honour found that it was reasonable for NLP to engage the services of Xentex, the principals of which were competent to control their system of work without supervision from NLP.

Thus, his Honour found that liability on the part of NLP had not been established and a verdict and judgment for NLP was entered against the plaintiff.

Liability of the Nominal Insurer

The liability of the Nominal Insurer was dependent upon a finding that the plaintiff was an employee of Xentex or a deemed worker of Xentex pursuant to cl 2 of Sch 1 of WIM. As his Honour found that the plaintiff was not an employee or a deemed worker of Xentex, the claim against the Nominal Insurer failed.

Accordingly, a verdict and judgment was entered for the Nominal Insurer.

Liability of GIO

Xentex had a policy of insurance with GIO. The policy of insurance contained the following exclusion:

GIO declined liability in reliance on the above exclusion clause. As his Honour found that the plaintiff was an independent contractor of Xentex and neither an employee nor a deemed worker, the above exclusion had no application and his Honour therefore found that Xentex was entitled to indemnity under the policy issued by GIO.

Accordingly, a verdict and judgment for Xentex was entered against GIO in respect of Xentex's liability. His Honour also ordered GIO to pay Xentex's legal costs pursuant to the additional benefits clause in the policy.

Contributory Negligence

Various counts of contributory negligence were alleged against the plaintiff including the allegation that he failed to heed the approach of the vehicle and that he failed to inform Mr Wheeler of his presence. His Honour was not satisfied that the defendants had discharged their onus of proving contributory negligence and no finding of contributory negligence was made.

Apportionment

Ace submitted that it had no personal responsibility for the injury to the plaintiff as its liability stemmed solely from the negligence of its statutory agent, Mr Wheeler. It submitted that since it lacked any culpability in respect of the plaintiff's accident, the whole of its liability should be passed onto the other liable party which breached its duty to the plaintiff and which should therefore indemnify Ace.

Ace relied upon the principle that in circumstances where a defendant is a joint tortfeasor solely by reason of being vicariously liable for the acts of another defendant, in the absence of countervailing legislative provision, that defendant is entitled to a complete indemnity from their agent. His Honour accepted the correctness of the principle, but as the agent in this case, Mr Wheeler, was not a party to the proceedings, the principle had no application.

Xentex contended that the principal cause of injury was the driving of the vehicle by Ace's statutory agent.

His Honour held that it was necessary to determine apportionment having regard to the question of justice and equity in circumstances where Ace's liability arose from the culpable actions of its statutory agent. His Honour assessed the apportionment of liability between Xentex and Ace at 75% to Xentex and 25% to Ace.

Implications

• The construction industry is an industry where it is very common for a principal to engage subcontractors, rather than its own employees, to carry out the performance of work. An engagement of this kind gives rise to practical advantages for the principal, as it avoids obligations it would normally owe under the law as an employer, such as the requirement to pay superannuation and to take out workers compensation insurance. Although a principal does not owe a non-delegable duty of care to its subcontractor, a duty is still owed by the principal to take reasonable care to ensure that a safe system of work is followed. The High Court decision in Stevens v Brodribb Sawmilling Pty Limited⁷ remains the leading authority in respect of this issue.
• The distinction between an employer/employee and principal/independent contractor must be determined on the facts of each case and consideration must be given to the totality of the relationship between the parties.
• The statutory agency provision contained in s 112 of MACA applies in circumstances involving unregistered vehicles. Where the owner's liability only arises by virtue of it being vicariously liable for the negligent acts of its agent, the owner may pass on liability to its negligent agent in circumstances where the agent is also a party to the proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

¹ Hislop J
² [1986] HCA 1
³ [1986] HCA 1
⁴ [2009] HCA 35
⁵ (2006) 226 CLR 161
⁶ [2009] HCA 35
⁷ [1986] HCA 1