- CATCHWORDS BANKRUPTCY - application for directions - entitlement of the applicant to claim priority for debt - whether debt was "compensation" or "damages" - meaning of word "compensation" in Act - compensation does not include common law damages - whether payment of debt would be payment to a fund by way of reimbursement of compensation. Bankruptcy Act 1966 58.82(2), 84(1)(£), 109(1)(f), 109(6), 116(2)(g), 133(7) and (8), 178 Workers Compensation Act (S.A.) 5.118 Acts Interpretation Act (Cth) 5.15AB Re 2 GLEN ROSS GORDON, MARGARET ANN GORDON, MICHAEL BOYTON and JANICE ANN BOYTON Bankrupts Ex Parte 5 HAROLD ARTHUR WEEDON Applicant AND KEVIN MICHAEL PIPKIN as trustee of the property of GLEN ROSS GORDON, MARGARET ANN GORDON, MICHAEL BROYTON and JANICE ANN BOYTON Respondent FISHER J. ADELAIDE 15 FEBRUARY 1985, oe . IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY No. 783 of 1982 GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA Re :GLEN ROSS GORDON MARGARET ANN GORDON MICHAEL BOYTON and JANICE ANN BOYTON Bankrupts Ex Parte :HAROLD ARTHUR WEEDON Applicant - and - KEVIN MICHAEL PIPKIN as Trustee of the property of GLEN ROSS GORDON, MARGARET ANN GORDON, MICHAEL BOYTON and JANICE ANN BOYTON Respondent ORDER JUDGE MAKING ORDER : FISHER J. WHERE MADE : ADELAIDE DATE OF ORDER : 15 FEBRUARY 1985 THE COURT ORDERS THAT: 1. The application be dismissed. Zs The applicant pay to the respondent the costs of this application. 3. The parties to have liberty to speak to the minutes of order. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISTON BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA CORAM: Fisher J. 15_ February, 1985 No. 783 of 1982 NN Re :GLEN ROSS GORDON MARGARET ANN GORDON MICHAEL BOVYTON and JANICE ANN BOYTON Bankrupts Ex Parte :HAROLD ARTHUR WEEDON Applicant - and - KEVIN MICHAEL PIPKIN as Trustee of the property of GLEN ROSS GORDON, MARGARET ANN GORDON, MICHAEL BOYTON and JANICE ANN BOYTON Respondent REASONS FOR JUDGMENT This is an application pursuant to 5.178 of the Bankruptcy Act 1966 ("the Act") seeking an order from this Court directing Kevin Michael Pipkin (' 'the trustee") as trustee of the 2. * estates of Ross Gordon, Margaret Ann Gordon, Michael Boyton and Janice Ann Boyton ("the bankrupts") to accept a proof from the applicant anda further direction that that proof of debt ba given priority of payment pursuant to s.109(1)(f) of the Act. The applicant was an employee of the bankrupts and during the course of his employment suffered an injury. Asa result of that injury he hecame entitled to receive compensation payments under the Workers' Compensation Act (5.A.) 1971-1979 (the "W.C.A."). He took action pursuant to that Act and on 23 March 1982 dJudge Stanley made an order requiring the bankrupts to pay $8,800 being the arrears of weekly payments up until that date, and further weekly payments of $200. It was common ground that these further weekly payments were subject to an upper Limit of $9,200. The applicant also made a claim for common law damages against the bankrupts. This action was heard in the Supreme Court by Millhouse J. and on 24 September 1982, his Honour ordered that the bankrupts pay to the applicant $180,000 which sum included the $18,000 paid or payable under the order of Judge Stanley. It is tobe noted that at that stage the amount outstanding under the order of Judge Stanley had been reduced to $12,500, a payment of $5,500 having been made. The bankrupts then appealed from the order of Millhouse J. Prior to the appeal being heard the sequestration orders were made against the estates of the bankrupts. This occurred on 29 November 1982. 3. . On 20 January 1983, consequent upon a claim by the applicant under s.118d(5) of the W.C.A. the applicant received a payment of $12,500 from the Statutory Reserve Fund ("the Fund"). This payment was made by the Treasurer from that Fund pursuant to s.118d(11). Under the provisions of s.118 the Treasurer is obliged to make a payment to a worker who has a claim under that Act when the employer of the worker is unable to make such a payment. On 3 October 1983 a consent order was made in the appeal to the Full Court of the Supreme Court varying the award of damages made by Millhouse J. and ordering that judgment be entered for the applicant against the bankrupts in the sum of $150,000 additional to payments of workers compensation already made to the applicant. Three days later, pursuant to a further claim by the applicant under 5.118d(5) of the W.C.A., the Treasurer paid to the applicant the sum of $150,000 being the amount due by the bankrupts to the applicant under the order of the Full Court. This matter concerns the entitlement of the applicant (and through him the Treasurer) to Claim priority under 5.109(1)(£) of the Act for the two sums of money due to him by the bankrupts. He claimed to prove and obtain priority for $12,500 being the balance of the amount due to him under the provisions of the W.C.A. in respect of the injury arising out of his employment. He also claimed priority for the amount of 4, * $150,000 being the damages adjudged due under his common law claim for the same injuries. This latter entitlement and the amount thereof can be appropriately termed his "common law" claim. Section 109(1)(f£) is in the following terms: "LO9(1) Subject to the Act and to sections 221P and 221VYU of the Income Tax Assessment Act 1936, the trustee shall, before applying the proceeds of the property of the bankrupt in making any other payments, apply those praceeds in the following order: (f) sixth, in payment of amounts in respect of compensation, being compensation the liability for which accrued before the date of the bankruptcy, under any law of the Commonwealth or of a State or Territory of the Commonwealth providing for compensation for personal injury arising out, of oar in the course, of employment;" If in fact the applicant establishes his entitlement under this section for either or both of the amounts claimed, a further question will arise for determination, namely whether 5.109(6) operates to deny such entitlement. Section 109(6) is as follows: "109(6) Where, under the law of the Commonwealth or of a State or Territory of the Commonwealth that provides for compensation for personal injury arising out of, or in the course of, employment, a bankrupt is liable to make payment toa body or fund by way of reimbursing the body or fund in respect of compensation paid or payable by the body or out of the fund under that law, paragraph 1(£) does not apply to the amount so payable by the bankrupt." This paragraph is of significance in this matter because in fact the applicant was paid the amount both of his common law and his workers compensation claims by the Treasurer of South 5. Australia in accordance with the provisions of Part XA of the South Australian W.C.A. That part entitled the applicant to make a claim against the Fund if the conditions of s.118d{1) are met, namely to the extent presently relevant: "Subject to this section, a person is entitled to make a claim against the fund - (a) sae (b) ain respect of workers compensation liabilities... (1) that are not covered by a policy of workers compensation insurance; and (2) that are, by reason of the insolvency of an employer or former employer, unsatisfied;" ryt pat) Section l]fa defined workers compensation liability as meaning "{a) a liahility of an employer arising under this Act; or (b) a common law liability of an employer in respect of injury to a worker of that employer." Common law liability is defined to mean: "a liability arising at common law and includes a liability arising under the Wrongs Act, 1936-1975." Workers compensation insurance means: "insurance under which an employer is insured against - (a) liabilities of an employer arising under this Act; (b) common law liabilities of the employer in respect of injury to workers of that employer." It is common ground that the bankrupts were not insured 6. against either of the aforesaid liabilities and that by reason of their insolvency each of these liabilities was in the first instance unsatisfied. They were eventually each paid to the applicant by the Treasurer in accordance with his obligation under s.118d(11), of the W.C.A. in consequence of which s.118d(12) grants him rights of subrogation, namely "(12) When the Treasurer makes a payment under sub-section (11), he shall be subrogated, to the extent of the payment- (a) to the rights of the claimant against the ... employer to whom the claim relates." Thus the Treasurer claimed in the name of the applicant in accordance with this right of subrogation against the bankrupts and the trustee of their estates. He contended that he was entitled to be paid in priority under 5.109(1)(f) on the ground that his claims are in respect of "compensation" under that section. It is significant that Part XA was only inserted into the South Australian W.C.A. by amendment in 1982. There have been a number of amendments to s.109 over the years and it was accepted by counsel that earlier provisions would not cover the common law claim. It is desirable to set out in chronological order these earlier provisions. Section 84(1)(f£) ef the Bankruptcy Act 1924~1950 prescribed that priority as follows: "(£) Fourthly, in payment of all amounts, not exceeding in any individual case Two hundred pounds, due in respect of compensation under any Act or State Act 7. + or law of a Territory relating to the payment of compensation where in any employment personal injury by accident arising out of, and in the course of, the employment, is caused to any workman, the liability wherefor accrued before the date of the order of sequestration. Provided that where the employer has entered into a contract with insurers in respect of any liability under any such Act or State Act or law of a Territory to any workman this paragraph shall not apply;" Section 109(1)(g) of the 1966 Act as originally enacted gave priority as follows: "(g) seventh, in payment of amounts, not exceeding in any individual case Two thousand dollars, in respect of compensation, being compensation the liability for which accrued before the date of the bankruptcy, under any Act or State Act or Ordinance of a Territory of the Commonwealth providing for compensation for personal injury arising out of, ar in the course of, employment;" I have underlined certain significant words in each of the two preceding provisions to which reference will later be made. Section 109(2) of the 1966 Act provided; "Paragraph (g) of the last preceding sub-section does not apply to the extent to which the bankrupt is indemnified under a contract of insurance against the liability referred to in that paragraph." Section 15AB of the Acts Interpretation Act having been relied upon by counsel for the respondent, it is relevant to note the comments made by the committee (The Clyne Committee) which reviewed in 1962 the Bankruptcy Law of the Commonwealth. In paragraph 129 of the Report of that committee the following statement is made: "129. The seventh priority should be the payment of amounts due in respect of what may be conveniently described as workers' compensation claims, but the Maximum amount should be increased from € 200 as under present section 84(1)(f) to £1,000. The Committee points out that this priority only becomes relevant where the employer is not insured against liability for workers' compensation and consequently is not of very great general significance." Section 109 was amended in 1970, but sub-section (1)(g) remained unaltered. The section was repealed in 1980 and a new section substituted. Sub-section (1){g) became (1)(f) in the substituted section, and was as follows: "{£) Sixth, in payment of amounts in respect of compensation, being compensation the liability for which accrued before the date of bankruptcy, under any law of the Commonwealth or of a State or Territory of the Commonwealth providing for compensation for personal injury arising out of, or in the course of, employment;" Significance was attached to the fact that by this amendment the limit of $2,000 was removed and that the expression "law of the Commonwealth or of a State or Territory" was substituted for "Act or State Act or Ordinance of a Territory". Sub-section (6) in its present form was also included for the first time in 5.109. Sub-section (5) was included with "Paragraph (1)(f)" substituted for "Paragraph 1 (g)". Counsel for the applicant conceded that priority could not be claimed in respect of the $150,000 common law damages unless such damages were covered by the word "compensation" in 9. * s.109(1)(£). Very properly he acknowledged that the meaning of the word must be ascertained from the Act and that definitions of the word found elsewhere were of limited value. He contended that common law damages were included in the word "compensation" and attached significance to the substitution of the word "law" for "Act" in the present section. This substitution, he argued, supported his contention as to the meaning of the word "compensation". There is no doubt that in many instances the word "compensation" is employed ina broader sense tao include both common law damages as well as compensation prescribed under an Act. In Joyce v Australian Limited Steam Navigation Co. Ltd. (1939) 62 C.L.R. 160 the High Court held that the word "compensation" in the Seamen's Compensation Act 1911 included damages recoverable at common law. At page 166 Latham C.J. said: "The word is wide enough in its ordinary significance to include compensation by way of damages for the injury suffered by the seaman, whether or not some default by the employer is part of the seaman's cause of action." Rich J. said at page 168 "The question of construction is whether the word "compensation" covers an ordinary common law liability for damages. In my opinion it does. Damages for personal injury in tort are awarded by way of reparation or compensation. There is nothing in the natural meaning of the word to exclude damages for personal injury by negligence or breach of duty..." In the present matter, until the 1980 amendment, the only tortious damages which could on any reading be entitled to 10. + be paid in priority were those "the liability for which accrued... under any Act or State Act or Ordinance". In other words the former common law liability must have been codified, and those common law causes of action the liability for which remained at common law were excluded. This particular difficulty was perhaps removed by the 1980 amendment in that the liability Was stated as having accrued "under any law of the Commonwealth or of a State or Territory". Thus it could be argued that the necessity for the liability 'to be found in an enactment was removed. To approach the matter in this manner is doubtless to view the contention at its most persuasive. It is however my view that when the legislature used the word "compensation" in the Act, it had in mind only compensation under State Workers Compensation legislation and corresponding legislation in the Commonwealth field. There are a number of Matters which in my opinion point reasonably conclusively in this direction. Iowould construe the word as excluding common law damages. The legislature has at all times qualified the word "compensation". It indicated that it was referring to liability for which accrued before the date of bankruptcy. In particular it also restricted the liability to liability arising either under a Commonwealth or State Act or, subsequently, under a law of the Commonwealth or State. If it was intended that the word be used in its wider sense to cover common law damages, it was until 11. the recent amendment limiting the damages to those the liability for which was to be found in a Statute or Ordinance. Other damages would be excluded. It would be strange that such a limitation would be contemplated. If compensation means damages generally, the words in the present section which require that the liability must accrue under a law of the Commonwealth or State are redundant. There is no apparent reason for their inclusion if "compensation" is to be construed as covering common law damages as well as workers or other statutory compensation. A perusal of the provisions of the Act confirms my view that when the legislature was dealing with common law damages it specifically used the word "damages". I yvefer to sub.s.82(2), namely "Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy." An even stronger indication that the word "compensation" does not include damages is to be found in s.116(2)(g) which deals with property not divisible amongst creditors. "(g) any right of the bankrupt to recover damages or compensation- (i) for personal injury or wrong done to the bankrupt, the spouse of the bankrupt or a member of the family of the bankrupt; or (ii) in respect of the death of the spouse of the bankrupt or a member of the family of the bankrupt, 12. " and any damages or compensation recovered..." Likewise the words "damages or compensation" are used in sub.s.116(3)(11) and (4)(b)(ii). The word "damages" is also to be found in s.133(7) and (8) when referring to common law damages. The use of the word "compensation" in contrast "damages" in this way accords with the view of Lord Esher M.R. in Dixon v Calcraft £18921 1 9.B. 458 at page 463 where he said: "The expression "compensation" is not ordinarily used as an equivalent for "damages". It is used in such Acts as these in relation to a lawful act which has caused injury. Therefore the word would not, I think, include damages at large." The fact that earlier sections dealing with the matter of priorities imposed restrictions on the amount which was entitled to be paid in priority also reinforces the view that the sections were referring to workers compensation. The amount is small and inappropriate as reparation for a common law claim. These sections also adopt the terminology of workers compensation legislation in referring to "personal injury arising out of, and in the course of, employment" and subsequently such injury "arising out of, or in the course of, employment". The fact that in each provision the word "compensation" is used in reference to a liability arising under an Act or law 13. of the State or Commonwealth is explicable on the ground that compensation proper is usually an entitlement made available by statute to a person who has been injured by a lawful act e.g. Workers Compensation, compensation for compulsory acquisition of land etc, whereas damages are the relief awarded to a person injured by unlawful conduct. This view receives support from the words of Lord Esher supra. In my opinion the claim of the applicant for $150,000 is not entitled to be paid under s.109(1)(f£) in priority because it is not a claim for compensation. It is otherwise in respect of the sum of $12,500 which is an amount payable under the W.C.A. and is compensation and not common law damages. The question which then arises is whether this priority is excluded by s.109(6). In my opinion it is as, in the words of the section, the bankrupts are "liable to make payment to a... fund by way of reimbursing the ... fund in respect of compensation paid ... out of the fund under that law...", namely the W.C.A. This liability on the part of the bankrupts is to be found in s.118d.(12) which provision subrogates the Treasurer to the rights of the claimant. I have already set out the provisions of that section. The consequence is that the bankrupts, the employers, are liable to make payment to the Treasurer of, in particular, the amount of $12,500 which he paid to the applicant. This is an 14. obligation to reimburse the fund, as any reimbursement is to be paid into the fund in accordance with s.118c(2), which is, to the extent relevant, namely "(2) The following moneys shall be paid into the fund: (£) any moneys recovered by the Treasurer in respect of rights to which he is subrogated under section 118d(12);" It follows that the application must he dismissed with costs. There will be liberty to speak to the minutes of order. I certify that this and the /3 preceding pages are a true copy of the Reasons for Judgment of Mr. Justice Fisher. va Associate Dated: 1S" ebro (78S.