Updates and background for this project (Digest)
I. INTRODUCTION
2.1 In the first part of this Chapter we examine the various ways in which an employee may become liable either directly or indirectly for an act or omission. Direct liability occurs where the employee is personally liable to a co-employee or other person who sustains injury or damage as a result of the employee's act or omission. Indirect liability describes those cases in which the injured person obtains compensation from the employer because the employer is responsible for the actions of the employee. The employee may then be liable to the employer for the whole or part of the amount which the employer has had to pay because of the employee's negligence. The final part of the Chapter describes the law of insurance as it relates to employees' liability.
II. HOW EMPLOYEES MAY BE LIABLE
A. Direct Liability
2.2 A person who sustains injury or damage as the result of the act or omission of an employee may sue the employee for damages. Most frequently the claim will be based on the negligence of the employee but other conduct may give rise to an action other than in negligence, eg assault and battery for an intentionally inflicted injury. The employee is treated no differently from any other defendant in corresponding circumstances nor does it matter whether the plaintiff is a co-employee or some other person.1 The liability of the employee is not affected by the existence of a contract of employment2 nor by the fact that the employer may be jointly or severally liable with the employee.3
2.3 It is not possible for the employee to escape liability on the grounds that he or she was acting solely on behalf of the employer or obeying the employer's orders.4 In Miller v Hawker5 it was held that a surveyor of a Highway Board could not plead in his defence that he was obeying the orders of the Board even though he was required by statute to obey the Board's orders.6
2.4 If injury is sustained by a co-employee who has received workers' compensation, the negligent employee is unable to plead those payments as a defence in diminution of the co-employee's claim. This is in contrast to the situation of an employer who is sued for damages by an injured employee who has already received workers' compensation. The employer can plead those payments as a defence in such an action to the extent of the amount of those payments.7
2.5 In some special circumstances, a person may be liable not only for physical injury to person or property but also for loss of a financial kind caused to one person as a result of injury to another. An example of liability of this kind arises where a person injures an employee and the employer suffers loss, such as the cost of a replacement for the injured employee. In such a case, the employer has a right to sue the negligent person to recover damages for the loss of services of the injured employee. This action for loss of services is known as the action per quod servitium amisit.8 In England the action has been restricted to domestic or menial employment,9 but no such limit has been imposed in Australia.10 For our purposes, the question is whether an employer can bring such an action against an employee who negligently injures a co-employee with the result that the injured employee's services are lost to the employer. Although we know of no decision precisely on the point, in principle the action would be available against the negligent employee.
B. Indirect Liability/Indemnity and Contribution
2.6 This section examines the ways in which an employee may be liable to make good damages or other compensation which the employer has been liable to pay to some third person as a result of the act or omission of the employee in the course of employment. The liability is vicarious, that is, the employer is liable because the act of the employee is attributed to the employer and not because the employer has been guilty of any negligent or other wrongful act or omission.11
2.7 Prior to the introduction of the Employee's Liability (Indemnification of Employer) Act 1982, the employer could seek to recover from the negligent employee the compensation which the employer was vicariously liable to pay on any of the three grounds described in para 1.3. Each of these grounds and their current status in the law of New South Wales will now be discussed.
1. Lister v Romford Ice and Cold Storage Co Ltd
2.8 In this case, decided in 1957,12 the appellant was employed by the respondent employer as a lorry driver. In the course of his duties, the employee accidentally struck down his father (who was assisting him) while reversing the lorry. The father claimed damages against the employer on the basis that the employer was responsible for the negligent driving of the employee. The father's claim succeeded and the employer then sought contribution or, in the alternative, an indemnity, from the son for breach of an implied term in the contract of employment that the son would exercise reasonable care in the driving of the lorry. The trial judge awarded the employer 100 per cent contribution and the decision was upheld by the Court of Appeal. The employee's appeal to the House of Lords was dismissed on the ground that an employer who is vicariously liable for the negligent act or omission of an employee is entitled to an indemnity from the employee for breach of contractual duty of care.
2.9 The majority of their Lordships held that it was an implied term of a contract of employment that an employee would perform his or her duties with proper care and that breach of this duty by the employee founded an action for damages for breach of contract.13 The reason for this conclusion was expressed by Viscount Simonds as follows:
The common law demands that the servant should exercise his proper skill and care in the performance of his duty: the graver the consequences of any dereliction, the more important it is that the sanction which the law imposes should be maintained. That sanction is that he should be liable in damages to his master: other sanctions there may be, dismissal perhaps and loss of character and difficulty of getting fresh employment, but an action for damages, whether for tort or for breach of contract, has, even if rarely used, for centuries been available to the master, and now to grant the servant immunity from such an action would tend to create a feeling of irresponsibility in a class of persons from whom, perhaps more than any other constant vigilance is owed to the community.14
2.10 The decision has been the subject of much criticism. Lord Denning referred to it an "Unfortunate"15 and Professor Fleming states that the decision is “absolutely intolerable in the industrial context”.16 Writing shortly after the judgment was handed down, Professor Glanville Williams stated that the "consequences of this decision are likely to be far-reaching, and they hold possibilities of great hardship for employees”.17 Professor Atiyah observes that:
It is obvious that the whole foundation of vicarious liability as it operates today would be seriously affected if employers made a regular practice of suing their servants for indemnities when they had been rendered vicariously liable.18
2.11 Lister v Romford Ice has been followed in Australia, albeit with reluctance. For example, Fox J, in the course of giving an employer full indemnity from an employee in Marrapodi v Smith-Roberts19 stated:
It seems to me that the law which I have found it my duty to apply on this aspect of the case is in an unsatisfactory state. The result at which the course of judicial decision has arrived is, I fear, at variance with the understanding and reasonable expectations of employers and employees alike. Like other employees engaged in industrial activities, Smith-Roberts expected that his employer was insured against claims by third parties, such as the claim on which the plaintiff in the present case has succeeded. The expectation of the employee and of the employer in such cases is that the insurance company will pay any damages awarded. It is not, I believe in the contemplation of the parties to the employment contract that the insurer will, in the name of the employer, claim for its own benefit, an indemnity or even a contribution from the employee. True it is that, in the present case, it was the employee alone, who was at fault. But, in general, it is no longer the case that persons guilty of negligence expect or are expected to bear personally a resultant liability to pay damages.20
2.12 In Morris v Ford Motor Co Ltd21 the English Court of Appeal refused to apply Lister v Romford Ice indirectly to permit recovery against a negligent employee by a person liable to indemnify the employer. The plaintiff Morris was employed by a firm of contract cleaners. While working for his employer at a Ford car factory, he was injured as a result of the negligence of Roberts, one of Ford's employees. The plaintiff sued Ford which brought third party proceedings against the plaintiff's employer. In those proceedings Ford claimed an indemnity under the cleaning contract between Ford and the plaintiff's employer. The latter joined Roberts as a fourth party claiming a right as indemnifiers to subrogation of Ford's rights against Roberts. The majority of the Court of Appeal held that there was no such right to subrogation based on Lister v Romford Ice.
2.13 It was the rule in Lister v Romford Ice which the Employee's Liability (Indemnification of Employer) Act 1982, was designed to abolish. The Act, which commenced operation on 29 March 1982, consists of the following two sections:
2.14 It is clear from the language of s 2(3) that, at the very least, the effect of the Act is to do away with the employer's contractual right to indemnity established in Lister v Romford Ice. In the second reading speeches in both the Legislative Assembly22 and Legislative Council,23 the rule in Lister v Romford Ice was expressly referred to as the mischief which the Act was intended to remove. Since the Act came into force, there has been no suggestion that it has not effectively removed the contractual right to indemnity. However the word “indemnity”, if construed narrowly and literally, was not wide enough to cover other means by which the effect of a contractual indemnity could be achieved.
2. Law Reform (Miscellaneous Provisions) Act 1946, s 5
2.15 The second avenue open to an employer who wished to recover from an employee compensation paid to another person for injury or damage caused by the employee's act or omission was found in s 5 of the Law Reform (Miscellaneous Provisions) Act 1946, which provides:
5 (1) Where damage is suffered by any person as a result of a tort (whether a crime or not) -
(a) ...
(b) ...
(c) any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tortfeasor or otherwise, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability in respect of which the contribution is sought.
(2) In any proceedings for contribution under this section the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage; and the court shall have power to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity.
2.16 The section has been the subject of much criticism both because its wording has presented difficulties of interpretation24 and on the ground that its restriction to tortfeasors (that is persons liable in tort) arbitrarily excludes those liable in any other way, for example in contract.25 These criticisms have generated a separate reference to this Commission under which the Commission is reviewing the law governing contribution between persons liable for the same damage in general and the operation of this section in particular. For the purposes of this Report it is necessary only to describe the effect of the section, in its present form, on contribution and indemnity between employer and employee.
2.17 Where an employee has injured26 another person in the course of employment and the employer is vicariously liable, the employer and employee are described in such circumstances as “joint tortfeasors". They may also be “several concurrent tortfeasors”27 where their own independent acts have combined to cause the injury.28 Whether as joint or several concurrent tortfeasors, employer and employee are tortfeasors for the purposes of s 5 of the 1946 Act, and under s 5(2) contribution between the tortfeasors will be determined according to what is “just and equitable” having regard to the extent of each tortfeasor's responsibility for the injury.
2.18 Where the employer is independently responsible for the injury, there is no right against the employee for contribution to the extent of that responsiblity.29 In other words, the employer's right to contribution only exists, if at all, with regard to the vicarious liability of the employer for acts of the employee committed in the course of employment. What is "just and equitable" under s 5(2) will therefore be limited by how much of the injury can be reasonably attributed to the employer's personal responsibility and how much to the personal responsibility of the employee for which the employer is vicariously liable.
2.19 To the extent that the employer was vicariously liable for the acts of the employee, prior to the 1982 Act, there was authority of the effect that the employer was entitled to contribution of 100 per cent in a claim against the employee.30 In Northern Assurance Co Ltd v Coal Mines Insurance Pty Ltd31 Hope J, while acknowledging this line of authority, expressed reservations about it "particularly where the relevant liability is one against which the employer is by law required to be insured.32 Such reservations are consistent with the dissatisfaction with the rule in Lister v Romford Ice which prompted the 1982 Act. But for some time after it came into force, the 1982 Act was held to have no effect on the employer's right to contribution under the 1946 Act.33
2.20 In the interpretation of the 1982 Act, most judges in the Supreme Court focused attention on the word "indemnify" in s 2(3)(b) of the Act. The absence of any reference to "contribution”, even if such contribution could amount to 100 per cent, was said to indicate that the Act was intended only to deprive the employer of the contractual right to indemnity permitted by Lister v Romford Ice but to leave untouched the employer's right to contribution under the 1946 Act.34 The view was taken that if the 1982 Act had been intended to affect contribution rights under the 1946 Act, that would have been done expressly.35 This view was reinforced by reference to the second reading speech of the then Attorney General, Mr Frank Walker QC when introducing the Bill into the Legislative Assembly:
The proposal will abolish the rule of law that an employer has a contractual right to be indemnified by an employee for any damages he has had to pay as a result of the negligence of the employee.36
2.21 Although this view prevailed in the short term, misgivings were expressed soon after the 1982 Act came into force. Master Sharpe in Waters v Dedini37 held that the 1982 Act did deprive the employer of the right to contribution from the employee under the 1946 Act. In a later case,38 Master Allen, was prepared to entertain arguments restricting the 1982 Act to the employer's contractual right to indemnity, but conceded that if such arguments prevailed, "the Act would be deprived almost wholly of practical significance".39 Mahoney JA in his dissent in Sinclair v Graham40 was of the same opinion:
I find it difficult to see why the Legislature should be seen as intending to bar the employer's recovery on the contractual basis but not on the tortfeasor basis. The 1982 Act was, I think, clearly directed to the protection of the employee. To remove only the employee's liability to the employer on the contractual basis would leave him liable to the employer on the tortfeasor basis. To do this would appear to give the employee no significant protection.41
2.22 In McGrath v The Council of the Municipality of Fairfield42 the High Court of Australia adopted the minority view and reversed the decision of the New South Wales Court of Appeal. In the passage quoted earlier (para 1.9) the High Court referred to the "perceived injustice" in the employer's right to recover an indemnity or its equivalent from the employee whether under contract or under s 5(1)(c) of the 1946 Act. Their Honours therefore read the 1982 Act as having abolished both means of indemnification. They distinguished the employer's personal responsibility,43 from liability arising simply by reason of the relationship of employer and employee, to which the 1982 Act was directed:
... the effect of the Act is to transfer the whole of the ultimate burden of a judgment to the employer; he was never entitled to claim any contribution from his employee under s 5(1)(c) of the NSW Law Reform Act (ie the 1946 Act) in respect of his (the employer's) personal responsibility for the damage and now, by force of the Act, he can claim nothing in respect of the employee's negligence for which he, the employer, is vicariously liable. To the extent to which the Act deprives the employer of a right to indemnity or contribution from the employee, it operates as a partial repeal of s 5(1)(c) of the NSW Law Reform Act.44
2. 23 As a result of the High Court decision, it is now clearly established that the 1982 Act effectively deprives the employer of the right to indemnity against the employee whether based on contract or a claim for contribution under the 1946 Act and it is highly unlikely that the right to indemnity could survive on any other ground not explicitly addressed by the High Court. For example, in view of the reasoning of the High Court in McGrath's case, there is little, if any, room left for an argument that the employer could still have a right to indemnity based on an action in negligence for breach of a duty of care by the employee. Even before the 1982 Act, the existence of such a right of action was doubtful. In Lister v Romford Ice counsel for the employer sought to rely on it as an alternative ground but the House of Lords declined to address the issue having decided that the employer was entitled to succeed on the contract ground.45 Only Viscount Simonds made oblique reference to its existence “for centuries”.46
2.24 The 1982 Act has therefore been relieved of the narrow construction which gave rise to this reference (paras 1.5-1.18). As a result of the High Court decision in McGrath's case the Commission was obliged to carefully reconsider the future of the reference. Our decision to proceed with this Report was prompted largely by two matters within the terms of reference not addressed, either expressly or by implication, in the 1982 Act and therefore unaffected by McGrath's case. The first of them involves another example of indirect liability, as that term is used in this Report, and is a product of the Workers' Compensation Act, 1926.
3. Workers' Compensation Act 1926, s 64A
2.25 Where an employer becomes liable to pay compensation to an employee under the Workers' Compensation Act, by reason of an injury resulting from the negligence of another employee, a statutory entitlement to recover that compensation from the negligent employee may exist. Such a right depends on s 564 and 64A or the Act. Section 64(1) provides:
(1) Where the injury for which compensation is payable under this Act was caused under circumstances creating a legal liability in some person other than the employer to pay damages in respect thereof -
(a) the worker may take proceedings both against that person to recover damages and against any person liable to pay compensation under this Act for such compensation, but shall not be entitled to retain both damages and compensation.
If the worker recovers firstly compensation and secondly such damages he shall be liable to repay to his employer out of such damages the amount of compensation which the employer has paid in respect of the worker's injury under this Act, and the worker shall not be entitled to any further compensation.
If the worker firstly recovers such damages he shall not be entitled to recover compensation under this Act;
(b) if the worker has recovered compensation under this Act, the person by whom the compensation was paid shall be entitled to be indemnified by the person so liable to pay damages as aforesaid;
(c) where any payment is made under the indemnity and, at the time of the payment, the worker has not obtained judgment for damages against the person paying under the indemnity, the payment shall, to the extent of its amount, be a defence to proceedings by the worker against that person for damages;
2.26 In Public Transport Commission of New South Wales v J Murray-More (NSW) Pty Ltd,47 the High Court of Australia held that an employer's right to an indemnity under s 64(1)(b) was available only to an employer whose sole liability to the injured worker was the statutory liability to pay workers' compensation. Section 64(1)(b) did not allow an employer whose own negligence had contributed to the injury, to recover workers' compensation payments.48 In its interpretation of s 64(1)(b) the High Court had to consider the opening paragraph of the subsection which applies to both paragraphs (1)(a) and (1)(b), and had to choose between different constructions of the phrase “some person other than the employer". The question was whether that phrase was intended to be read as referring only to cases in which the "other person" was liable to the exclusion of the employer or also to cases in which that person was liable as well as the employer. The High Court preferred the former construction, following the judgment of Buckley LJ in the English Court of Appeal decision in Cory & Son Ltd v French, Fenwick & Co Ltd.49
2.27 The decision in Murray-More's case was considered by the New South Wales Court of Appeal in D'Angolo v Rio Pioneer Gravel Co Pty Ltd.50 Although not necessary to the decision in that case,51 Reynolds JA referred to a problem created by the “preferred interpretation" of s 64 when considered in conjunction with s 63. Under s 63 payment made by way of compensation under the Act is, to the amount of such payment, a defence in an action against the employer for damages independently of the Act. But, according to the "preferred interpretation”, the obligation on the employee to repay under s 64(1)(a) does not apply if both the employer and the third party are liable to pay damages at common law. It followed that an employee, having received workers' compensation in such a case, could sue the third party for the full amount of the damages and retain the workers' compensation. This result, according to Reynolds JA, was "destructive of one aspect of the legislative scheme" and demanded "the urgent intervention of the legislature”.52
2.28 Legislative intervention was forthcoming in s 64A of the Workers' Compensation Act 1926 which commenced operation on 29 August 1980. The section provides
(2) Where, in respect of an injury to which this section applies, a worker is entitled to recover damages independently of this Act both from his employer and from another person and
(a) he recovers damages against the other person but does not seek to recover damages from, or does not proceed to judgment against, the employer; or
(b) judgment in an action by the worker for damages is given against both the employer and a person other than the employer but the worker refuses to accept satisfaction of the judgment against the employer,
s 64 applies to the case as if the worker had not been entitled to recover the damages from the employer, except that -
(c) where the compensation paid by the employer exceeds the amount of the contribution that could be recovered from him as a concurrent tortfeasor - the indemnity referred to in s 64(1)(b) is for the amount of the excess only;
(d) when the compensation paid by the employer is equal to the amount of that contribution - s 64(1)(b) does not apply; and
(e) where the compensation paid by the employer is less than the amount of the contribution that, but for this paragraph, could be recovered from him as a concurrent tortfeasor, s 64(1)(b) does not apply and the employer has, to the extent of the amount of the compensation so paid, a defence to an action for such a contribution.
2.29 The section does overcome the problem identified by Reynolds JA in D'Angola v Rio Pioneer Gravel Co Pty Ltd, but, in doing so, it extends one avenue of recovery by an employer against a negligent employee. The right of recovery conferred by s 64(1)(b), as extended by s 64A, is available against any person, other than the employer, who is legally liable to the injured employee. Such other person may be a co-employee of the injured party. Prior to the enactment of s 64A, no such right would have existed against the employee because s 64(1)(b) had been interpreted as applying only where the employer was not liable for damages either personally or vicariously.53 But with the extension introduced by s 64A, no such limitation applies and the employer would now seem to have a right of recovery against the negligent co-employee.
2.30 The operation of s 64A in this regard would appear to be unaffected by the 1982 Act. In Waters v Dedini54 an application was made to strike out a cross-claim in which an indemnity was claimed from an allegedly negligent employee in respect of workers' compensation payments made to a co-employee. However, the question whether the right to such an indemnity was affected by the 1982 Act was not addressed directly. Because no arguments were advanced as to why the 1982 Act did not relieve an employee of liability based on ss 64 and 64A of the Workers' Compensation Act, the cross-claim was struck out.55 The argument which could have been advanced, and we suggest successfully, is found in the language of the 1982 Act which refers only to proceedings for damages against the employer for which the employee way be liable to provide an indemnity. The expression "proceedings for damages" does not include statutory compensation paid pursuant to the Workers' Compensation Act and therefore the terms of the 1982 Act are not wide enough to deny the employer a right to be indemnified for workers' compensation payments.
2.31 Two situations have now been identified in which the ultimate burden of workers’ compensation may fall on the co-employee whose negligence caused the injury:
- where the negligent co-employee cannot plead workers' compensation payments made by the employer by way of defence in an action by the injured employee against the co-employee for damages (para 2.4). The injured employee is required to repay workers' compensation to the employer if such damages are recovered from the co-employee (Workers’ Compensation Act 1926, s 64(1)(a).
- the situation resulting from the combined effect of ss 64 and 64A of the Workers’ Compensation Act which exposes the negligent co-employee to an action under s 64(1)(b) for recovery of workers' compensation payments wade by the employer (pars 2.29).
While both situations are mutually consistent, the question to be considered is whether either can be justified when measured against the broader purposes of workers' compensation legislation and the general policy of shifting the burden of course of employment accidents from employee to employer (pars 1.4).
III. THE EMPLOYEE’S RIGHTS AGAINST THE EMPLOYER
2.32 The second matter within the terms of reference which still requires attention (para 2.24) is the question whether the employee should have a right of indemnity against the employer where the employee is solely responsible for the injury. As the law now stands, in the absence of an express term to the contrary in the contract of employment, the employee has no right to an indemnity from the employer for liability resulting from the acts or omissions of the employee in the course of employment for which the employer would be vicariously liable. Even if the employer has undertaken to indemnify the employee, such an undertaking may not be enforceable against the employer if the employee knew or ought to have known of the tortious nature of the conduct.56 Generally, the employee is not entitled to the benefit of any insurance taken out by the employer in the absence of express words in the policy to that effect.57 This rule applies to compulsory insurance such as that required to be taken out by an employer under workers' compensation legislation.58 If however, the injury is the result of a motor vehicle accident caused by the employee's negligent driving of a vehicle owned by the employer, the employee is covered by compulsory third party insurance.59
2.33 Prior to the 1981 Act, a right to contribution against the employer was not available to the extent of the employee's own responsibility for the injury. Because of the employer's right to indemnity by virtue of the rule in Lister v Romford Ice,60 the employee against whom such a right to indemnity existed had no right to contribution if sued by the injured party. Under s 5(1)(c) of the 1946 Act, a person was not entitled to recover contribution “from any other person entitled to be indemnified by him in respect of the liability in respect of which the contribution is sought”. Although this part of s 5(1)(c) has been rendered irrelevant for present purposes by the 1982 Act, which has abolished the employer's right to indemnity, this change in the law has not created a right to contribution or indemnity against the employer who is vicariously liable.61
2.34 The changes brought about by the 1982 Act have also left intact the rules applied to contribution between employer and employee where both are independently responsible for the injury.62 If, in such circumstances, the employee is sued by the injured party, the employee is entitled to recover from the employer, by way of contribution, that amount considered just and equitable having regard to the extent of the employer's independent responsibility for the injury.63
IV. INSURANCE
2.35 In most circumstances in which a person sustains injury or damage as the result of the negligent act or omission of an employee, questions of insurance arise. Where a co-employee is the injured person, the employer's liability, both for workers' compensation and damages at common law, is covered by insurance which the employer is under a statutory obligation to obtain in accordance with s 18(1) of the Workers' Compensation Act 1926.64 If the injury or damage is sustained in a motor vehicle accident, in which the employee was driving the employer's vehicle, both the employer as owner of the vehicle and the employee as driver are covered by compulsory third party motor vehicle insurance.65 In some cases, an employee may have voluntarily insured against liability. It is possible, therefore, that in a given case liability for loss or damage may be covered by more than one insurer. Such a possibility raises questions of contribution between insurers, a matter to which we return below (paras 2.42-2.44). But before taking up that matter, it is necessary to discuss two other aspects of insurance namely subrogation and assignment.
A. Subrogation
2.36 Subrogation has been defined as:
the right of an insurer to enforce for his own benefit any right or remedies which his insured possesses against third parties.66
The right accrues only when payment has been made under the policy of insurance (although this requirement may be varied by an express contractual provision between the insurer and the insured) and is limited to the amount paid under the policy.67
2.37 Where an employer has been held vicariously liable for the act or omission of an employee, the employer's insurer may, having paid the whole or part of the claim against the employer in satisfaction of obligations under the policy of insurance with the employer, sue the employee in the employer's name for the amount paid under the policy to the extent of the employer's right of indemnity or contribution against the employee. This is what happened in Lister v Romford Ice. In that case, it appears that the proceedings were commenced without the approval of the employer.68 Such approval is not required by law. In fact the employer cannot refuse the use of his or her name in such an action.69 Thus the ultimate burden of paying damages may be at the whim of the insurer, at least in those limited situations where the employer still has a right of indemnity against the employee.
2.38 To the extent that the Employee's Liability (Indemnification of Employer) Act 1928, effectively prevents an action by the employer for indemnity against a negligent employee the prospect of subrogation becomes irrelevant. However, in other circumstances, for example where a right to indemnity way arise under s 64A of the Workers' Compensation Act (paras 2.25-2.31) the employer's rights would still be subrogated to those of the insurer.
2.39 The Australian Law Reform Commission gave consideration to the doctrine of subrogation in its report on Insurance Contracts, and concluded, with respect to an insurer's right against employees, that "the exercise, in this context, of an insurer's rights of subrogation is inconsistent with sound practice in the field of industrial relations".70 The Commission recommended that the question should be settled by national legislation.71 The Insurance Contracts Act 1984 (Cth) is based on the recommendations of the Commission. Section 66 of the Act provides as follows:
Where -
(a) the rights of an insured under a contract of general insurance in respect of a loss are exercisable against a person who is his employee; and
(b) the conduct of the employee that gave rise to the loss occurred in the course of or arose out of the employment and was not serious or wilful misconduct,
the insurer does not have the right to be subrogated to the rights of the insured against the employee.
The Insurance Contracts Act 1984 (Cth) came into operation on 1 January 1986. Thus, an insurer will no longer be entitled to be subrogated to the right of the employer against the employee, even in those cases where such a right still existed at common law.
B. Assignment
2.40 Apart from the doctrine of subrogation, an insured may assign his or her rights against a third party wrongdoer to the insurer by a legal assignment.
While, where the insurer exercises his right of subrogation, he cannot sue the third party in his own name, out only in the name of the assured, in the case of a legal assignment, where he has indemnified the assured under the policy, he may sue the third party in his own name to enforce the right of action.72
Although there appears to be no case precisely in point which applies the principle of legal assignment to an employer-employee relationship, it may be that an insured employer can assign rights against a negligent employee to the insurer. The insurer may then bring proceedings against the negligent employee with the result that the burden of financing the damages paid to the plaintiff by the insurer ultimately falls on the employee, as with subrogation.
2.41 In England, it has been held that an insured may assign his or her rights against a third party wrongdoer to the insurer relying on s 126 of the Law of Property Act 1925 (Eng).73 The equivalent provision in New South Wales is s 12 of the Conveyancing Act 1919, which permits legal assignment of debts and choses in action.74 Policies of insurance are “legal things [choses]”,75 and assignment is possible because
the enforcement of a bare right to sue is not involved, but rather the prosecution of a cause of action, legitimately supported by the interest of the underwriter or insurer in recouping himself to the extent of the amount of the loss incurred by way of payment under the policy.76
It would therefore seem that, provided the requirements of s 12 of the Conveyancing Act are satisfied, an insured employer may assign his or her rights against an employee to the insurer. As with subrogation, the employer can only assign those rights which the employer could enforce against the employee. For present purposes, this would be restricted to the right of indemnity under s 64A of the Workers' Compensation Act.
C. Contribution between Insurers
2.42 The doctrine of contribution between insurers has evolved to meet the situation where an insured is covered by two (or more) insurers against the risk which gives rise to the claim. In such a case, for example where the insured has both workers' compensation and motor vehicle policies, the insured may recover from either or both insurers provided that the insured recovers no more than the actual loss. Both insurers will be liable for the loss and entitled to contribution from each other on equitable principles.77 The Law Reform (Miscellaneous Provisions) Act 1946 has no application to contribution between insurers since it applies only to “tortfeasors”.78
2.43 The equitable principles will apply where an employee is injured in the course of employment as a result of the negligent use of a vehicle owned by the employer and insured under the Motor Vehicles (Third Party Insurance) Act 1942. In such a case the employee may claim from the employer both workers' compensation and common law damages. Where the employer is a self-insurer under the Workers' Compensation Act 1926,79 the employer is entitled to recover the full amount of common law liability from the motor vehicle third party insurer under the Motor Vehicles Third Party Insurance Act, 194280 (now always the Government Insurance Office which is the named defendant under s 14).81 Where the employer is not a self-insurer both the workers' compensation insurer and the motor vehicle third party insurer must make contribution.82 Workers' Compensation payments, which are usually made in advance, are regarded as part satisfaction of common law liability for the purpose of determining Contribution between insurers.83
2.44 Similar principles apply where the employee is injured in an accident which casts liability on both the employer and a stranger, who as owner or driver of a motor vehicle is covered by third party motor vehicle insurance. The employer will be a self-insurer or covered by workers' compensation insurance and, it the employer's vehicle is involved, the Government Insurance Office, as the motor vehicle third party insurer, will be liable to indemnify the self insured employer or to contribute if a workers' compensation insurer is involved (para 2.43). As a consequence of subrogation, the workers' compensation insurer would in turn be entitled to rely on s 5 of the Law Reform (Miscellaneous Provisions) Act 1946, in order to recover contribution from the Government Insurance Office as third party insurer of the stranger's vehicle.
FOOTNOTES
1. See eg Lees v Dunkerley Brothers [1911] AC 5.
2. Sands v Child (1694) 3 Lev 351; 83 ER 725.
3. Para 2.6.
4. Perkins v Smith (1752) Sayer 40; 96 ER 796. See also Cullen v Thomson (1862) 6 LT 870.
5. (1875) LR 10 Ex 92.
6. Atiyah refers to this case as an "extreme illustration" of the principle that "obedience to superior orders is not in itself a defence to an action in tort": P S Atiyah, Vicarious Liability in the Law of Torts (1967) at 398.
7. Workers' Compensation Act 1926 s 63(5).
8. J G Fleming The Law of Torts (6th ed 1983) at 65.
9. Inland Revenue Commissioners v Hambrook [1956] 2 QB 641.
10. Commissioner for Railways (NSW) v Scott (1959) 102 CLR 392
11. See H H Glass, M H McHugh and F M Douglas The Liability of Employers in Damages for Personal Injury (2nd ed 1979) Ch 6; also Atiyah, note 6 above, generally, and Fleming note 8 above Ch 18.
12. [1957] AC 555.
13. Id at 573 per Viscount Simonds; at 580 per Lord Morton; at 592 per Lord Tucker; at 598 per Lord Somerwell.
14. Id at 579.
15. Morris v Ford Motor Co Ltd [1973] 1 QB 792 at 801.
16. Note 8 at 239.
17. G Williams, ''Vicarious Liability and the Masters Indemnity'' (1957) 20 Modern Law Review 220 at 220.
18. Atiyah note 6 above at 239.
19. 6 June 1968, Supreme Court of the Australian Capital Territory, Fox J.
20. Quoted in editorial note, "An Anomalous Indemnity" (1970) 44 Australian Law Journal 3 at 4.
21. Note 15 above.
22. New South Wales Parliamentary Debates, Legislative Assembly, 10 February 1982 at 1704-1704 (Hon F J Walker QC Attorney General).
23. Id Legislative Council 17 March 1982 at 2691 (Hon D P Landa QC).
24. It has been described by the High Court as "a piece of law reform which seems itself to call somewhat urgently for reform'': Bitumen and Oil Refineries (Australia) Ltd v Commissioner for Government Transport (1955) 92 CLR 200 at 211 per Dixon CJ, McTiernan, Webb, Fullagar and Taylor JJ.
25. Fleming note 8 above at 234.
26. The word “damage” in s 5 includes personal injury.
27. This terminology is adopted and explained by Professor Glanville Williams in Joint Torts and Contributory Negligence (1951) at 6-9.
28. For example, where the employer supplies a defective vehicle to an employee which combined with the employee's negligent driving causes a motor vehicle accident.
29. McGrath v Fairfield Municipal Council (1985) 59 ALR 18 at 23 per Mason, Wilson, Brennan, Deane and Dawson JJ.
30. Semtex Ltd v Gladstone [1954] 2 All ER 206; Harvey v R G O'Dell Ltd [1958] 2 QB 78.
31. [1970] 2 NSWR 223.
32. Id at 228.
33. Civic v Glastonbury Steel Fabrications Pty Ltd (Unreported) 24 February 1983, Supreme Court of New South Wales, Yeldham J; Fairfield Municipal Council v McGrath [1984] 2 NSWLR 247; Sinclair v Graham [1984] 2 NSWLR 253.
34. Ibid.
35. [1984] NSWLR 247 at 250-251 per Glass JA.
36. Quoted ibid.
37. (unreported) 17 September 1982 Supreme Court of New South Wales.
38. Petrovic v Dowler (Unreported) 24 March 1983 Supreme Court of New South Wales.
39. Id transcript of judgment at 5.
40. Note 33 above.
41 1984] 2 NSWLR 253 at 256.
42. (1985) 59 ALR 18; 59 ALJR 655.
43. Discussed in para 2.18 above.
44. (1985) 59 ALR 18 at 23.
45. [1957] AC 555 at 585-586, where Lord Morton referred to it as an "interesting point which way some day fall for decision by this house”.
46. Id at 579.
47. (1975) 132 CLR 336.
48. Some confusion arises from the fact that two of the judges in Public Transport Commission of New South Wales v J Murray-More (NSW) Pty Ltd (1975) 132 CLR 336 stated that s 64(1)(b) precluded an employer whose own negligence contributed to the injury from seeking an indemnity: Barwick CJ, at 341; Gibbs J at 351. Such a statement might suggest that an employer who is only vicariously liable is able to seek an indemnity. However, the prevailing view is that an employer who is liable in any sense apart from the statutory liability to pay workers' compensation, cannot seek an indemnity. See Cory & Son Ltd v France, Fenwick & Co Ltd [1911] 1 KB 114 at 136 per Kennedy LJ; Foster v A T Brime & Sons Pty Ltd [1972] WAR 157.
49. [1911] 1 KB 114 at 125.
50. [1979] 1 NSWLR 495.
51. In that case the injured employee sought to enforce judgment against a person other than the employer. Since judgment against the employer had already been satisfied in full, the employee was held to have exhausted his rights.
52. [1979] 1 NSWLR 495 at 499.
53. See note 48 above.
54. Note 37 above.
55. Id transcript of judgment at 3.
56. Shackell v Rosier (1836) 2 Bing NC 634; 132 ER 245; W H Smith & Son v Clinton & Harris (1908) 25 TLR 34.
57. Lister v Romford Ice [1957] AC 555.
58. Workers' Compensation Act 1926 s 18 See para 2.35 below.
59. Motor Vehicles (Third Party Insurance) Act 1942 s 10.
60. Paras 2.8-2.9 above.
61 McGrath v Fairfield Municipal Council note 41 above at 23-24.
62. Para 2.18 above.
63. Law Reform, (Miscellaneous Provisions) Act 1946 s 5(2) reproduced in para 2.17 above.
64. The employer may be a “self-insurer”: Workers' Compensation Act 1916 s 18(1A).
65. Motor Vehicles (Third Party Insurance) Act 1942. Since 1 July 1984 actions arising out of injuries sustained in motor vehicle accidents are brought against the Government Insurance Office as insurer: Motor Vehicles (Third Party Insurance) Act 1942 s 14 inserted by Motor Vehicles (Third Party Insurance) Amendment Act 1984.
66. M C Britts Third Party Insurance in Australia (1973) at 144.
67. R Colinvaux The Law of Insurance (4th ed 1979) at 136-139.
68. [1957] AC 555 at 600 per Lord Somerwell.
69. See Colinvaux note 67 above at 140.
70. Australian Law Reform Commission Insurance Contracts (Report No 20 1982) para 306.
71. Ibid.
72. Colinvaux note 67 above at 140.
73. Compania Colombiana de Sequros v Pacific Steam Navigation [1965] 1 QB 101; see also King v Victoria Insurance Co Ltd [1896] AC 250.
74. This section provides:
Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: provided always that if the debtor, trustee, or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or anyone claiming under him, or of any other opposing or conflicting claims to such debt or chose in action, he shall be entitled, if he thinks fit, to call upon the several persons making claim thereto to interplead concerning the same, or he may, if he thinks fit, pay the same into court under and in conformity with the provisions of the Acts for the relief of trustees.
75 Colinvaux note 67 above at 166.
76.J C Starke, Assignments of Choses in Action in Australia (1972) para 87. The author states that this is “narrow exception" to the principle that a bare right of litigation is not assignable.
77. Albion Insurance Co Ltd v Government Insurance Office of New South Wales (1969) 121 CLR 342.
78. Commercial and General Insurance Co Ltd v Government Insurance Office at New South Wales (1973) 129 CLR 374 at 380 per Menzies, Walsh and Mason JJ.
79. Section 18(1A).
80. Australian Iron & Steel Pty Ltd v Government Insurance Office of New South Wales [1977] 2 NSWLR 446.
81. See note 65 above.
82. Commercial and General Insurance Co Ltd v Government Insurance Office of New South Wales note 78 above.
83. Australian & Steel Pty Ltd v Government Insurance Office of New South Wales [1978] 2 NSWLR 446.
