I. INTRODUCTION

1.1 This is the [*] report of the Community Law Reform Program. The Program was established by the then Attorney General, the Hon F J Walker, QC, MP, by letter dated 24 May 1982 addressed to the Chairman of the Commission. The letter included the following statement:

This letter may therefore be taken as an authority to the Commission in its discretion to give preliminary consideration to proposals for law reform made to it by members of the legal profession and the community at large. The purpose of preliminary consideration will be to bring to my attention matters that warrant my making a reference to the Commission under s 10 of the Law Reform Commission Act, 1967.

II. THE LAW GOVERNING EMPLOYEES' LIABILITY

1.2 The present law in New South Wales governing the liability of employees for loss or damage suffered by a co-employee or other person as a result of the negligent act or omission of the employee, is described in detail in Chapter 2. In summary, a negligent employee may be liable:

· directly at common law to a co-employee or third person for loss or damage suffered by that person; or

· indirectly to his or her employer, who because of the negligence of the employee, is liable to pay compensation at common law, or by way of workers compensation, to another employee or third person.

· obtain an indemnity from the employee in accordance with the rule in Lister v Romford Ice and Cold Storage Co Ltd¹;

· recover contribution from the negligent employee pursuant to s 5 of the Law Reform (Miscellaneous Provisions) Act, 1946;

· seek an indemnity under ss 64 and 64A of the Workers' Compensation Act, 1926.

III. BACKGROUND TO REFERENCE

1.5 In June and July 1983, the Commission gave preliminary consideration to the subject of employees' liability as part of its research on its reference relating to accident compensation. The Commission was concerned about the effect of judicial interpretation of the Employee's Liability (Indemnification of Employer) Act 1982. This Act was passed in order to abolish the rule in Lister v Romford Ice, under which a negligent employee was liable in contract to indemnify his or her employer for the consequences of the employee's negligence.

1.6 The intended effect of the legislation had been frustrated when employers were allowed to recover contribution (which could amount to an indemnity) from negligent employees under the Law Reform (Miscellaneous Provisions) Act 1946.² It was held by the New South Wales Supreme Court that the 1982 Act did not prevent such claims by an employer.³

1.7 When moving that the Bill for the 1982 Act be read for the second time in the Legislative Council on 17 March 1982, the late Hon D P Landa QC, then Minister for Energy and subsequently Attorney General, stated that it was generally accepted that occasional lapses of care by members of the workforce were part of the employer's business risk, a concept which the Minister described as "enterprise liability". On 28 July 1983, the Commission wrote to Mr Landa, by then the Attorney General, suggesting that the interpretation of the Act was inconsistent with the concept of enterprise liability as described in the second reading speech. The Commission suggested that if the Attorney General considered it appropriate, a report on the law relating to employees' liability could be delivered either in the course of the accident compensation reference or under the Community Law Reform Program.

1.8 By letter dated 9 April 1984, the Attorney General made the following reference to the Commission, under the Community Law Reform Program.

Pursuant to s10 of the Law Reform Commission Act, 1967, I refer the following matters to the Law Reform Commission for inquiry and report to me.

(1) (a) whether contribution or indemnity by an employee to an employer in respect of the liability of the employer, pursuant to common law, the Workers' Compensation Act 1926 or otherwise, for loss or damage suffered by a third person as a result of the act or omission of the employee, should be limited or denied.


(b) the circumstances, if any, in which an employer should be liable to indemnify an employee in respect of liability incurred by the employee for loss or damage suffered by a third party.

(2) Any related matter.

In making its Report the Commission should pay particular attention to the provisions of the Employee's Liability (Indemnification of Employer) Act 1982.

1.9 In May 1985, when a draft of this Report was at an advanced stage, the High Court delivered its decision in McGrath v Fairfield Municipal Council.⁴ The High Court reversed the decision of the New South Wales Court of Appeal which had interpreted the 1982 Act in a manner that permitted the circumvention of the Act by means of a claim for contribution under s 5(1)(c) of the 1946 Act (para 1.6). According to the High Court, the 1982 Act

... sprang from a deeply rooted and general concern with the substance of the problem as it was thought to exist under the law as expounded in Lister v Romford Ice, namely, the perceived injustice in the employer's entitlement to recoupment whether under s 5(1)(c) or under the contract from an employee whose fault resulted in the employer becoming liable to the plaintiff. That perceived injustice arose from the conviction that the employer should shoulder the responsibility for damages for which be becomes liable in consequence of the ''fault'' of his employee occurring as an incident of the latter's employment when in most instances the employer insures himself against that liability Plainly enough this was the mischief which the Act sought to remedy...⁵

• rights of contribution and indemnity under the Workers' Compensation Act 1926;

• liability of the employer to indemnify the employee.

1. [1957] AC 555.

2. The Commission has since received a reference to review that legislation.

3. Fairfield Municipal Council v McGrath [1984] 2 NSWLR 247.

4. (1985) 59 ALR 18; 59 ALJR 655 (Mason, Wilson, Brennan, Deane and Dawson JJ).

5. Id at 20.