Corporate structures not enough to preclude duty of care1 May 2018 | Employer's Liability
This case discusses the implications surrounding the duty of care owed to a worker by an employing company and a secondary company operating in a close commercial relationship.
- Whether a duty of care could be precluded as a result of the corporate structure established between the employer and a secondary company.
Mr Hitchen (the plaintiff) was a backpacker undertaking casual work employed by RTS Holdings Pty Ltd (RTS). On 2 May 2011, the plaintiff was manoeuvring a timber beam from a shipping container at the Corrimal yard when the stack inside the container collapsed on him, causing severe injuries resulting in partial paraplegia. The cause of the incident was a failure to use “gluts” as spacers when the beams were stacked.
The plaintiff sued RTS, as his employer, and Strategic Formwork Pty Ltd (Strategic), a secondary company said to exercise control over RTS.
RTS admitted liability. Strategic denied liability on the basis that it did not owe the plaintiff a duty of care.
The Decision at Trial
The trial judge found that RTS had a close commercial relationship with Strategic, whereby Strategic had control over the operations and occupational health and safety of the Corrimal yard.
It was found that Graham Van Der Merwe, the managing director of Strategic at the time of the incident, was the general manager of RTS at the time it commenced in 2009. Mr Van Der Merwe’s wife was the sole director and shareholder of RTS. It was established that RTS had been formed to protect the financial interests of Strategic in the event of financial difficulty.
Wayne Gales, the yard manager of RTS, answered to Mr Van Der Merwe as one of his supervisors. Mr Van Der Merwe, as managing director of Strategic who had set up the system of work at RTS, had allowed RTS to operate without a system of safe practice. Accordingly, the trial judge considered Strategic could not have a minimal share of culpability.
Liability was apportioned as 60% against Strategic and 40% against RTS. Judgment was awarded to the plaintiff in the amount of $740,000 against RTS and $1.7million against Strategic.
The Issues on Appeal
On appeal, the issues before the Court were whether Strategic owed any duty of care to the plaintiff; the apportionment of liability for the incident; and the assessment of damages awarded to the plaintiff.
The Decision on Appeal
The New South Wales Court of Appeal dismissed the appeal by Strategic and the plaintiff.
The Court of Appeal held that the separate corporate structures of Strategic and RTS did not preclude Strategic from owing a duty of care to the plaintiff, particularly given the integrated business operations of RTS and Strategic. Accordingly, by failing to take precautions with respect to the safe stacking of the beams, Strategic breached its duty.
The apportionment of culpability was not disturbed on appeal.
In relation to Strategic’s challenge of the assessment of damages, the Court of Appeal ultimately reduced the damages awarded for economic loss. In its place judgment was given for the plaintiff against Strategic in the sum of $1,173,275.
Implications for you
This decision shows that having separate corporate structures will not preclude a secondary company from owing a duty of care.
It is a reminder to both employers and secondary companies that the risk of exposure remains real where there is an ongoing operational relationship between the two. A company cannot rely on being a separate corporate structure to escape culpability.