Related companies, interrelated obligations? Strategic Formwork Pty Limited v Hitchen [2018] NSWCA 54

Daniel Hitchen (plaintiff) was a backpacker employed on a short term contract by RTS Holdings Pty Limited (RTS). He suffered severe injuries, including incomplete quadriplegia, while moving a stack of timber beams on RTS' premises which collapsed on him. The cause of the accident was the failure to use timber spacers called "gluts" when the timber beams were stacked.

The plaintiff sued his employer, RTS, and also sued Strategic Formwork Pty Limited (Strategic) which he alleged controlled the operations of RTS at the premises.

The principal of Strategic, Mr Van Der Merwe, was the sole director and secretary of Strategic and its major shareholder, the other shareholder being his wife, who was the sole director and shareholder of RTS. Mr Van Der Merwe had been the general manager of RTS until January 2011, approximately four months before the accident. RTS had been incorporated first and Strategic subsequently incorporated. The reason for incorporating Strategic was to split the company into two parts in order to protect the assets of Strategic.

The yard manager of RTS was Wayne Gales, who was an employee of RTS. He was answerable to Luke Day, who was the general manager of Strategic. RTS occupied the premises, however, there were signs and instructions at the premises in the name of Strategic, hi-vis shirts were branded "Strategic" and the yard was commonly known as the "Strategic Yard". The email address of the yard was "yard@strategicformwork.com".

A large volume of emails showed instructions from Mr Day to the Strategic office, which implied that Strategic was playing an active role in the operation at the premises. On 16 March 2011, about six weeks prior to the accident, Mr Van Der Merwe sent an email to Mr Day and Mr Gales attaching a photograph of timber beams at a building site, stacked without gluts. Mr van Der Merwe gave evidence that he spoke to Luke Day to inform "all the Strategic site guys that this is a hazard".

RTS admitted liability. Strategic denied that it owed the plaintiff a duty of care and denied that it had breached that duty.

At first instance [2] judgment was entered for the plaintiff against both defendants. Damages were assessed under the Workers Compensation Act 1987 (WCA) at $725,000 against RTS and under the Civil Liability Act 2002 at approximately $1.7 million against Strategic. The trial judge apportioned liability 60% against Strategic and 40% against RTS. After the application of Section 151Z of the WCA, judgment was entered against Strategic for approximately $1.3 million.

On appeal by Strategic, Basten JA gave the leading judgment, noting that the major issue was the circumstances said to give rise to a duty of care by Strategic.

His Honour noted that it was arguable that Mr Van Der Merwe may have been a shadow managing director of RTS at the time, however, that was not a possibility in respect of Dr Day. There was no doubt that, insofar as his work involved control of operations at RTS, it was undertaken as general manager of Strategic.

The conclusion was that there was a single integrated business operation of which Mr Van Der Merwe and his wife were the principals. It followed that the conclusion of the trial judge that Strategic exercised control over the operations of RTS was correct. The remaining question was whether that exercise of control extended to the supervision of occupational health and safety. His Honour noted express evidence to support that conclusion.

It followed that both Strategic and RTS owed a duty of care to employees of either company working at the premises, and probably elsewhere. The main two features described in Caltex Refineries (Qld) Pty Ltd v Stavar [3] were that Strategic had day to day control of the system of work at the yard and that Strategic assumed responsibility for the system of work. Both had breached their duty.

In respect of apportionment, Basten JA noted that the test is of what is just and equitable. The two primary considerations were, firstly, that the plaintiff was injured while working for his employer, on his employer's premises and as a result of conditions created by the employer. On the other hand, ultimate control of the conditions of work lay with Strategic, which had set up the system of work and had the knowledge, experience and authority to establish safe working practices, but did not do so.

His Honour found that the trial judge was entitled to apportion more than half the responsibility to Strategic and that the apportionment of 60% was within a reasonable range and not one with which the Court of Appeal should interfere.

On the other hand, Simpson JA, who was in dissent on this issue as Sackville AJA agreed with Basten JA, would have apportioned 75% liability to Strategic on the basis that culpability was "overwhelmingly against Strategic".

The situation of two related companies running an integrated business operation is not uncommon. While each case depends on its own facts, Case Managers should be aware that an argument that each company is an independent legal entity exercising control only over its part of the business may not be successful, and that each of the two companies may owe duties of care to employees of the other.

At an underwriting level, it is appropriate to enquire whether the insured is engaged in any integrated business operation with any other entity and, if so, to seek disclosure of that business operation.