CSR Limited v Adecco (Australia) Pty Limited  NSWCA 121
An indemnity is a promise made by one party under a contract to cover loss or damage suffered by another party. They are often a hot point of contention in contract negotiation and a common cause of dispute.
As seen in the recent NSW Court of Appeal decision, CSR Limited v Adecco (Australia) Pty Limited  NSWCA 121, if poorly drafted, an indemnity can have significant consequences.
The NSW Court of Appeal, in a unanimous decision, allowed an appeal against a NSW Supreme Court decision and held that the respondent, Adecco (Australia) Pty Limited (Adecco Australia), was liable to indemnify the first and second appellants, CSR Limited and Holcim (Australia) Pty Limited (collectively referred to as CSR), in respect of their liability in damages arising from a personal injury claim brought by the plaintiff, Mr David Frewin.
Facts of the case
Mr Frewin, a truck driver employed by Adecco Australia, suffered personal injury caused by driving a defective truck at a CSR concrete plant.
The original labour hire services Agreement between Adecco Australia and CSR, which expired on 31 March 2002 and was extended by agreement until 31 July 2002, contained the following indemnity clause, Clause 23.2, which provided in part:
23.2. Any loss or damage to property of CSR, real or personal caused or contributed to by the Supplier or its employees, agents, sub-contractors or Temporary Staff.
Notwithstanding any other provision of this Agreement, the Supplier indemnifies CSR against:
23.2.1. any claim by Temporary Staff for personal injury and/or property damage arising out of or in connection with the performance of Assignment duties where; and
23.2.2. any liability to any person (including the Supplier and any workers compensation insurer claiming in the name of the Supplier) in respect of or in connection with such personal injury and/or property damage.”
'Temporary Staff' was defined as “an individual employed by [Adecco Australia] to work in an Assignment for CSR.”
'Assignment' meant the task(s) “to be undertaken…by Temporary Staff…as specified in the Order.”
From 31 July 2002 until May 2004, while Adecco Australia and CSR unsuccessfully negotiated the terms of a new agreement, Adecco Australia continued to supply labour to CSR, and CSR continued to pay for it.
At trial, CSR alleged that despite the expiry of the formal agreement, an implied contract on the same terms and conditions – including Clause 23.3 – remained on foot until at least the end of March 2003, when Mr Frewin ceased to drive the defective truck.
Was there an implied contract?
At first instance, the Supreme Court held that there was no implied contract in place and, even if there was, Clause 23.2 did not apply because Mr Frewin was not “Temporary Staff” within the meaning of the Agreement.
Despite that finding, the Supreme Court considered the application of the indemnity clause and rejected Adecco Australia’s submission, finding that if Clause 23.2 did apply, it covered all claims, including those caused or contributed to by CSR’s own fault, and that CSR’s liability to Mr Frewin otherwise fell within the terms of the indemnity provision.
The key issues on appeal were:
- was there a valid contract in place until at least March 2003 (implied by the parties conduct) and was Clause 23.2 part of that continuing legal relationship?
- if Clause 23.2 was in force, was Mr Frewin “Temporary Staff” within the meaning of that clause (thus triggering the indemnity)?
- did Clause 23.2 extend to claims ‘contributed to or caused’ by CSR’s fault?
Whether an implied contract remains on foot following the expiration of an express fixed term contract is a question of fact that is to be determined by applying a reasonable person test. In this case, the Court of Appeal held that a reasonable person would infer from the conduct of the parties (including their silence) that they intended the Agreement to continue to operate according to its terms and conditions (except for the duration and term), as they continued to act in the same manner as though the Agreement still bound them after the term expired. This ongoing contract was a ‘contract at will’ which could be terminated by either party at any time with reasonable notice (one month).
The fact the parties were “sophisticated entities” and continued to perform the agreement for a lengthy period of time and for a substantial sum, were relevant to the objective assessment.
Construction of the indemnity provision
a) Was Mr Frewin 'Temporary Staff' within the meaning of Clause 23.2?
The remaining appeal points centred on the construction of the indemnity in Clause 23.2. The Court of Appeal, applying principles of contract interpretation, held the clause was to be read ‘fairly and broadly.’
Taking into account the commercial purpose of the Agreement, and applying an objective person test (i.e. a reasonable person of the same commercial standing as the parties), the words 'employed by' in the definition of 'Temporary Staff' were interpreted broadly, to mean 'used by' in referring to the employment relationship. Mr Frewin was therefore 'Temporary Staff' within the meaning of the clause.
The Court also applied the principle of strictissimi juris which, in relation to contractual indemnities, means that an ambiguous contractual provision is to be construed strictly in favour of the party providing the indemnity.
On the whole though, it was held that the indemnity was intended to oblige Adecco Australia to make good loss suffered by CSR in relation to any claim by an individual employed by (in the sense of 'used by') Adecco Australia to work in an Assignment for CSR.
b) Did Clause 23.2 extend to claims ‘contributed to or caused’ by CSR’s fault?
The question the Court had to consider was whether Clause 23.2 provided an indemnity to CSR for claims caused or contributed to by its fault, and whether CSR’s liability to Mr Frewin was one “arising out of or in connection with the performance of Assignment duties”.
Adecco Australia submitted that the breadth of Clause 23.2, and the grammatical errors (i.e. the stray 'where'), raised doubt as to its meaning such that it was ambiguous and should be construed strictly against CSR.
On this point the Court of Appeal agreed with the trial judge’s conclusion that ‘where’ should be treated as ‘surplusage’ and the excess word should be treated as a product of clumsy draftmanship.
The Court also considered the difference between ‘arising out of’, ‘caused by’, ‘connected with’, and ‘in connection with’. It was found that ‘arising out of’ and ‘connected with’ are broad, and only require some causal or consequential relationship between the subject and the object, whilst “caused by” requires a direct or proximate relationship.
The Court of Appeal held that, in the context of the whole Agreement, it was apparent that Adecco Australia was legally responsible for the Temporary Staff it supplied pursuant to the Agreement. On this point, weight was given to Adecco Australia’s obligations under the Agreement to ensure all staff complied with WHS Laws, and effecting at its cost, insurance in connection with the performance of its obligations under the Agreement, including Public Liability Insurance and Workers Compensation Insurance.
The Court of Appeal concluded that Clause 23.2 was sufficiently clear to indicate an objective intention to cover all claims, whether contributed to or caused by CSR’s own fault, and Adecco Australia were liable to pay CSR for costs.
Take out messages
Indemnities are complex, have far-reaching consequences that are not always properly understood, and are subject to special rules of interpretation.
- If an express term contract expires, and the parties (especially sophisticated commercial entities) continue to act in the same manner as if the contract was still on foot, an implied contract is likely to arise on the same terms and conditions (except for the duration and term).
- Plain English drafting of indemnity clauses is paramount to avoiding disputes.
- If you want to achieve a wide indemnity clause then you should use ‘arising out of’ and ‘in connection with’ and avoid ‘caused to’ or ‘contributed by’.
Authors: Scott Alden & Victoria Gordon
Scott Alden, Partner
T: +61 2 8083 0419
Stephen Natoli, Partner
T: +61 3 9321 9796
Suzy Cairney, Partner
T: +61 7 3135 0684
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