Contractual indemnity held to apply despite lapse of fixed term labour supply agreement and given a commercial as opposed to strict interpretation.

In Issue

  • Whether a contractual indemnity in an expired fixed term labour supply contract applied
  • Proper construction of a contractual indemnity

The Background

Mr Frewin was a truck driver, employed by Adecco Industrial Pty Ltd – a member of the Adecco group of companies. He suffered personal injuries as a consequence of driving a defective truck at a CSR Limited (CSR) concrete plant between September 2002 and March 2003. Mr Frewin’s services were supplied to CSR pursuant to a labour hire agreement (the agreement) between Adecco Australia Pty Limited (Adecco) and CSR.

The agreement was for a 2 year fixed term ending in April 2000. Clause 23.2 required Adecco to indemnify CSR against “..any claim by Temporary Staff for personal injury …arising out of or in connection with the performance of Assignment duties” and “any liability to any person, ..in respect of or in connection with such personal injury.” The agreement was extended to July 2002. Between then and May 2004, CSR and Adecco tried and failed to renegotiate the terms of the agreement. Despite this, Adecco continued to supply labour to CSR and CSR continued to pay for it.

After Mr Frewin commenced proceedings to recover damages for his back injury, CSR sought to rely upon the indemnity clause contained in the agreement. Mr Frewin’s claim was settled, however the issue of the contractual indemnity between CSR and Adecco remained to be determined.

The Decision at Trial

The trial judge found that the contractual indemnity did not form part of the contract between the parties in circumstances where the agreement had expired, despite the parties having an ongoing relationship. In the event this conclusion was wrong, the trial judge held that the contractual indemnity did not apply because Mr Frewin was not “Temporary Staff” since he was not “employed by Adecco nor working “in an Assignment to CSR”.

The Issues on Appeal

The Court of Appeal had to consider whether the agreement continued on the same terms as the original agreement .The remaining issues were: whether Mr Frewin was considered “Temporary Staff”; whether the production of an “Order” was necessary and; whether the indemnity was sufficiently clear to cover all claims.

The Decision on Appeal

The Court of Appeal accepted that it should be inferred from the conduct of Adecco and CSR that the agreement continued on the same terms as the original agreement, at least until March 2003 when Mr Frewin stopped driving the faulty truck.

The indemnity provision was construed such that it only extended to claims brought by “Temporary Staff”, which was defined to mean an individual “employed by the Supplier”. Adecco argued that Mr Frewin did not satisfy this definition, as he was employed by Adecco Industrial Pty Ltd, not Adecco Australia (the “Supplier” under the agreement).

The Court of Appeal rejected this argument, and applied a commercial construction of the clause, finding that “employed by” in the definition of “Temporary Staff”, referred to any person used by Adecco, and made available to CSR. Accordingly, Mr Frewin fell within the definition of “Temporary Staff”.

Having lost on this point, Adecco sought to argue that Mr Frewin failed to meet the definition of “Temporary Staff” because CSR could not adduce evidence of an “Order”, which was required to request staff pursuant to the agreement. The Court of Appeal held that the evidence of Mr Frewin’s attendance on site, and payment from CSR to Adecco for his services, supported an inference that an “Order” had been issued.

Lastly, the Court of Appeal rejected Adecco’s argument that the wording of the contractual indemnity was ambiguous, and should be construed strictly against CSR. The Court of Appeal referred to the agreement as a whole, finding that its purpose was to ensure that Adecco was legally responsible for the workers it supplied to CSR, and the indemnity was intended to cover all claims, whether caused or contributed to by CSR.

Adecco was therefore ordered to indemnify CSR for Mr Frewin’s claim.

Implications for you

This case is a timely reminder that courts will usually adopt a commercial interpretation to agreements and contractual indemnities. This will entail both a consideration of the entire agreement along with the circumstances surrounding the contractual relationship.

CSR Limited v Adecco (Australia) Pty Limited [2017] NSWCA 121