Who pays contractual indemnities in Queensland?

WorkCover successful in legislating against contract indemnities – but fail to reverse full impact of Byrne

Background to amendments

On Tuesday 14 June 2016, the Workers’ Compensation and Rehabilitation (National Injury Insurance Scheme) Amendment Bill 2016 (Bill) was introduced into Parliament.

The Bill intended to introduce guidance principles for WorkCover Queensland to appropriately manage claims involving payments under the National Disability Insurance Scheme (NDIS). These proposed amendments were largely uncontentious and Legal Practitioners and Insurers alike were more interested in the amendments the Bill introduced to reverse the effect of the Supreme Court decision in Byrne v People Resourcing (Qld) Pty Ltd & Ors [2014] QSC 269 (Byrne).

In the Byrne decision, Carmody CJ held that where an enforceable contractual indemnity was present in a contract between an Employer and a Third Party, and a claim arises from or in connection with the services covered in the Agreement, then WorkCover has to stand in the shoes of the employer and pick up the additional contractual liability, in addition to covering the employer’s liability to the Injured Worker.

Pre the Byrne decision, any additional damages payable by an employer to cover a contractual indemnity would have remained the responsibility of the employer, and possibly its public liability insurer.

The Bill proposed amending the definition of ‘damages’ in section 10, by the insertion of a sub-section (4), which provided:

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.

The amendments as passed

The proposed amendment to section 10 did not survive the Second Reading in Parliament, due to the lack of consultation regarding the effect that a reversal of the Byrneindemnity and a lack of adequate insurance coverage might have on principal contractors and host employers. Hence, for the time being, Byrne remains good law.

However, the Bill had also proposed that a new section 236B be inserted, relating to contribution claims made by WorkCover Queensland pursuant to s278A of the Workers Compensation and Rehabilitation Act (as amended) (the Act). These claims arise where WorkCover issue a Notice to Contribute towards damages payable to an Injured Worker in a common law claim on a host employer or principal contractor, due to the host employer/contractor’s perceived negligence.

Section 236B provided:

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.

Unlike the Byrne amendments to section 10, section 236B received Royal Assent on 8 September 2016 and retrospectively applies to damages claims started before that date, should a ‘settlement for damages not have been agreed’ and ‘a court has not started hearing a proceeding for the claim’.

That means in respect to those claims where the amendments apply, WorkCover Queensland is permitted to make a contribution claim against a third party, even where an employer has agreed to contractually indemnify that third party. Further, the third party is prevented from relying on the terms of the contractual indemnity to secure an indemnity from the employer in relation to the contribution claim from WorkCover.

What does this mean for airlines and other host employers?

Despite the application of section 236B to a contractual indemnity, this section will only apply to a contribution claim that WorkCover Queensland makes against a third party pursuant to section 278A of the Act.

There is nothing in section 236B rendering a contractual indemnity void where the Injured Worker claims damages against the third party directly (such as arises in a claim made pursuant to Personal Injuries Proceedings Act 2002 (PIPA) or in the case of a Third Party Claim against the employer during the subsequent legal proceedings).

This means the third party can arguably still rely on the contractual indemnity and seek indemnity from the employer as anticipated in the original bargain with the employer; who can in turn seek indemnity from WorkCover, considering that Byrne remains, for the time being, good law.

This article was written by Simon Liddy, Partner, and Kelly Donaldson, Associate.