The NSW Supreme Court of Appeal finds that injuries to a labour-hire apprentice butcher did not trigger a “labour only services” exclusion under a liability policy
In Issue
- Whether the labour-hire contract between the worker’s employer and the insured was a contract for “labour only” services
- Whether the exclusion under the liability policy did not apply because the injured worker was not a party to the labour-hire contract between the worker’s employer and the insured
The background
On 10 October 2012, Mr Paul sustained injuries while working as an apprentice butcher at Ashcroft Supa IGA Orange Pty Ltd (IGA).
Mr Paul was employed by Skillset Ltd (Skillset), who supplied his services to IGA under a labour-hire contract. At the time of the incident IGA held a liability policy with Marketform Managing Agency Ltd.
IGA sought indemnity under the policy which was denied by Marketform. The basis of the denial was an Employer’s Liability exclusion which provided that the policy did not cover “liability for injury to any person under a contract of employment, service or apprenticeship with or for the provision of labour only services to the Insured where such injury arises out of the execution of such contract”.
The decision at first instance
IGA argued that the exclusion clause was not triggered because the labour-hire contract between it and Skillset was not a contract for “labour only services” (labour only services issue). The labour-hire contract required IGA to pay Skillset a service fee of $50 a week to provide a recruitment process, OHS advice, a supervision plan, and payroll service for supplied workers, and arrange workers compensation insurance. These additional services, IGA argued, meant the contract was not for “labour only services”.
The primary judge disagreed with IGA and held that, at a practical level, the contract was for the provision of labour only services. The primary judge held that ancillary services would ordinarily be included as part of any contract for “labour only” services, rather than simply sending the worker to the host employer’s place of business.
IGA also argued that the words “under a contract” in the exclusion clause required Mr Paul to be in a contractual relationship with IGA (the contractual relationship issue). Because the labour-hire contract was between IGA and Skillset, IGA argued that Mr Paul was not injured “under a contract…for the provision of labour only services” and the exclusion clause was not engaged.
The primary judge agreed with IGA and held that Marketform could not rely on the exclusion clause, so the policy responded to cover IGA.
Marketform appealed the decision.
The Decision on appeal
On appeal, the first instance decision in relation to the two issues on the operation of the exclusion clause was reversed, albeit with the same result.
The court dealt with the contractual relationship issue first. It held that the primary judge was wrong in finding that Mr Paul needed to be in a contractual relationship with IGA for the exclusion clause to be triggered. From a commercial point of view, the court held that it would be very rare that parties would ever enter into a labour-hire contract with a single person and so to be given practical effect, the exclusion clause had to be read to reflect this reality.
The context and purpose of the clause is to exclude liability for injury to an employee (which would ordinarily be excluded from a liability policy) or someone who is providing similar services to the insured.
As a result, the court held that the lack of contractual relationship between Mr Paul and IGA did not disqualify the exclusion clause from applying.
The labour only services issue
The court also disagreed with the primary judge that the labour-hire contract between Skillset and IGA was “for the provision of labour only services” within the meaning of the exclusion clause.
The court found that the terms in the labour-hire contract made plain that Skillset would provide a range of services other than the provision of labour. The court agreed with IGA’s argument that the recruitment, vocational training management, payroll and administration services in the labour-hire contract were clearly in addition to the provision of labour. Although the term “labour only services” was not defined in the policy, the words suggested a narrower class of contractual arrangements that did not include the additional services provided by Skillset.
As a result, while adopting different reasoning to the primary judge, the court agreed that the exclusion clause was not triggered and dismissed Marketform’s appeal.
Implications for you
The case is a demonstration of the court looking at the overall commercial purpose of a policy and adopting a business-like interpretation. It is also a reminder that exclusion clauses will be interpreted narrowly by the court.
Where there are words in an exclusion clause which appear to narrow the scope of a particular term, the court will give effect to those words – in this case, the word “only” in “labour only services”.
