Settlement can release a third party principal from liability

22 November 2023

A defendant who contracted out site supervision work was deemed to be a principal pursuant to s 29 of the Workers Rehabilitation and Compensation Act 1988 (Tas), and thus was released from liability (as an employer within the meaning of s 132) by the worker’s release of the employer (as per s 138AD). However, given the action related to a claim for trespass and fell within the scope of s 138AA(5), s 138AD did not apply as a defence.

In issue

There were two questions to be determined by Chief Justice Blow –

  1. Whether section 138AD of the Workers’ Rehabilitation and Compensation Act 1988 (Tas) (‘the Act’) applied to the defendant as a ‘principal’ within the meaning of section 29 of the Act and therefore extinguished any claims against it by the plaintiff; and
  2. If the answer to the first question was yes, whether the exception outlined in section 138AA(5) applied, meaning that section 138AD did not provide a defence to the action.

The background

On 29 May 2018 the plaintiff was working with a road construction crew at Ellendale, Tasmania, when a truck driven by a worker employed by the defendant collided with him and injured him. The plaintiff was employed by a different company, which had entered into a contract with the defendant for the provision of the plaintiff’s services as a site supervisor for road stabilization works. The plaintiff sued the defendant for damages in respect of the injuries.

On 19 April 2021 the plaintiff executed a deed to which his employer, was a party, and which purported to ‘fully discharge… the employer… from all liability under the Act in respect of the injury’.

The defendant contended that it was not liable to pay damages because the plaintiff had entered into a settlement in accordance with section 132A of the Act, preventing the plaintiff from pursuing damages against the defendant as a ‘principal’ within the meaning of section 29.

An initial application by the defendant for summary judgment was rejected by Chief Justice Blow, who directed that certain questions relating to liability be determined before the determination of the other issues in the action.

The decision at trial

Chief Justice Blow determined that the defendant, by virtue of sections 132 and 29 of the Act, had the same liabilities as an employer of the plaintiff for the purposes of Division 2 of Part X of the Act. This meant the settlement entered into by the plaintiff on 19 April 2021 with his employer, effectively extinguished any claims he had against the defendant.

First, the Chief Justice found, based on the principles outlined in Skates v Jones & Co [1910] 2 KB 906, Moir v Schrader (1936) 56 CLR 310 and Frauenfelder v Reid (1963) 109 CLR 42, that the defendant was liable as a ‘principal’ to pay the plaintiff compensation in respect of the injuries suffered on 29 May 2018. Since the defendant had contracted out work to the plaintiff in the course of its business which it would ordinarily have undertaken itself, namely supervision of site stabilizing works, it fell within the definition of a ‘principal’ with respect to those works.

Further to this, Chief Justice Blow found that the section 132 definition of ‘employer’, which included any person liable under section 29 to pay compensation, applied to section 138AD. He rejected the plaintiff’s contention that the proper interpretation of section 138AA(1)(b) required reading the additional words ‘by that employer’ into the sentence ‘compensation has been paid or is payable’.

Chief Justice Blow also determined that section 138AA(5) applied to the plaintiff’s action, meaning section 138AD did not provide a defence. He found that the wording of section 138AA(5), in particular the specific reference to the tort of trespass, suggested that the subsection related to all actions by workers for trespass, regardless of whether the employer was vicariously liable or not.

The Chief Justice rejected the defendant’s argument that an interpretation of section 138AA(5) covering all actions for trespass would mean a worker could always circumvent the whole of Division 2 of Part X by simply pleading trespass in addition to any other cause of action. He highlighted several scenarios where an action for trespass may not be brought, including in respect of negligent omissions and where injuries result from a cause other than physical contact, such as a fall.

Implications for you

This decision clarifies the operation of several important provisions of the Act and, in particular, identifies that a ‘deemed’ employer or principal pursuant to section 29 can be protected from liability by a worker releasing their employer from liability through the terms of a settlement.

It outlines the relevant factors to consider when assessing whether a defendant who contracts out work is a principal for the purposes of section 29, including the requirement that works undertaken by the contractor are works ‘ordinarily undertaken by’ the defendant.

All in all, Chief Justice Blow’s findings suggest the definitions of ‘principal’ and ‘employer’ are broader than you think. At least for the purposes of Part X of the Act, the definition of ‘employer’ includes section 29 principals.

Following this decision, employers or workers compensation insurers facing a claim by a worker may no longer have a section 134 claim against section 29 principals, given section 134 specifies indemnity may only be recovered in circumstances which create a liability ‘in some person other than the employer’.

Finally, the decision highlights that the restrictions on the award of damages outlined in Division 2 of Part X, including where a section 132A settlement has been entered into, will not apply to an action for damages for trespass. This may encourage plaintiffs to elect to include actions for trespass more often in pleadings to overcome difficulties relating to prior settlements.

Clark v AWC Pty Ltd (No 2) [2023] TASSC 38

Ask us how we can help

Receive our latest news, insights and events
Barry Nilsson acknowledges the traditional owners of the land on which we conduct our business, and pays respect to their Elders past, present and emerging.
Liability limited by a scheme approved under Professional Standards Legislation