SONYA MOTORS PTY LTD v FARES SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY, MCHUGH and CLARKE JJA 8 December 1987, 4 March 1988 [1988] NSWCA 139 Workers Compensation — error of law — incapacity — s11(2) — failure to provide suitable employment — R J Brodie (Holdings) Pty Ltd v Pennel, 117 CLR 665, Electric Power Transmission Pty Ltd. vy D'Ursa, 124 CLR 338, and Westfield Shopping Centre Management Co Pty Ltd v Kassem, (1985) 4 NSWLR 344 applied whether knowledge of insurer equates knowledge of employer. ORDERS The appeal is upheld and the matter remitted to the Compensation Court for further consideration. The respondent should pay the appellant's costs and have a certificate under the Suitors Fund Act. Priestley JA I agree with Clarke JA. McHugh JA The reasons expounded by Clarke JA in his judgment demonstrate that an error of law occurred in the proceedings in the Compensation Court. The appeal, therefore, must be allowed and the matter remitted to that Court. The respondent must pay the costs of the appeal. But he is entitled to a certificate under the Suitors' Fund Act 1951. Clarke JA This appeal concerns an award made by Manser J in the Compensation Court of New South Wales on 30 October 1986 in which his Honour awarded the respondent weekly compensation from the 26 November 1984. It is apparent from the reasons for judgment that his Honour accepted that the respondent was partially incapacitated from that date and concluded that the appellant had failed to provide suitable employment for the respondent. Accordingly, he made an award in the respondent's favour upon the basis of notional total incapacity pursuant to the provisions of s11(2) of the Workers Compensation Act 1926 (as amended) (herein called "the Act"). The facts which founded the award were in a small compass. The respondent, who entered the employ of the appellant as a service station assistant in 1982, received injuries to his right shoulder, neck, wrist and both legs when he was robbed and assaulted at his service station at about closing time on 6 August 1982. He came under the care of Dr Medhat F Guirgis and initially was treated conservatively. However, his leg injuries continued to cause problems and in October and November 1982 he was admitted to Castlewood Hospital when identical operations were performed on each of his knees. In these operations the thickened subaponeurotic and subcutaneous repatellar bursae were excised. In addition the tibial tubical was shaved and the wounds closed in layers. Following those operations he received an intensive course of physiotherapy. His wrist injury took only a few weeks to settle down but his neck problems, although treated conservatively, continued and as at 7th May 1986 Dr Guirgis was of the opinion that he remained unfit to be involved in activities which required the application of stresses to his cervical spine. The respondent was paid compensation under the Workers Compensation Act 1926 until 26 November 1984. Prior to this date the Medical Board constituted under the Act had certified, on 12 September 1984, that the respondent had 2 UNREPORTED JUDGMENTS suffered a 5% loss of the efficient use of both legs. Upon compensation payments ceasing he received sickness benefits for a period and more latterly unemployment benefits. On 10 April 1986 he returned to his old work premises at Bexley and found that the appellant had sold the service station to three brothers named Mustafa. He did speak to someone at the premises and sought employment by the brothers Mustafa but was unsuccessful in his attempt. He had, in addition, sought employment at a number of other places and had registered at the Commonwealth Employment Service but had been unable to obtain any employment. Manser J accepted the respondent's medical evidence that he suffered from a continuing physical disability which, in his view, given the nature of the disability and the respondent's employment background, clearly imposed upon the respondent a small but significant restriction on his capacity to compete on the open labour market. My conclusion that his Honour decided that the respondent was partially incapacitated for work, within the meaning of s11(2) of the Act, is reinforced by a later statement in the reasons for judgment in which his Honour observed that there was medical evidence to the effect that the respondent was partially incapacitated for work at the relevant time. Having made the finding of partial incapacity his Honour applied the provisions of s11(2) of the Act and awarded compensation upon the basis of total incapacity. Such an award is appropriate under that subsection if, and only if, the appellant had failed to provide suitable employment for the respondent. Whilst there is no express finding to that effect it is tolerably clear that his Honour concluded that the appellant had failed to provide suitable employment for the respondent and that therefore an award upon the basis of deemed total incapacity was appropriate. The process of reasoning which led his Honour to conclude that there had been a relevant failure under s11(2) appears to have been as follows. The respondent had, in his application for determination which initiated the proceedings in the Compensation Court, sought compensation upon the basis of total incapacity but had also made specific reference to s9, s11(1) and s11(2) of the Workers Compensation Act 1926 in the particulars of compensation claimed. It followed that his application for determination could be construed as propounding alternative claims for total incapacity under s9, partial incapacity under s11(1) or deemed total incapacity under s11(2). This fact came to the attention of the appellant, through its insurer, upon the service of the application for determination. Therefore the appellant knew, through its insurer, at some unspecified time after the filing of the application for determination (19 October 1984) but before the filing of the answer (21 October 1985) that the respondent was invoking the provisions of s11(2) of the Act. Notwithstanding this knowledge the appellant made no offer of employment and therefore, as I understand the reasons for judgment, 'failed' to offer suitable employment. Senior counsel for the appellant submitted that there were two distinct errors which vitiated the award. In the first place the finding that the appellant knew that the respondent was propounding a claim under s11(2) was tainted with legal error insofar as Manser J equated knowledge in the appellant's insurer with knowledge in the appellant itself. In the second place senior counsel submitted that there was no evidence before the Commission which could properly ground a finding of notional total incapacity under s11(2) of the Act. URJ SONYA MOTORS PTY LTD v FARES (Clarke JA) 3 The first ground focuses upon a passage in the reasons for judgment which reads: "Tt seems to me in those circumstances, that the respondent through its insurer knew at that time (ie at the time of receipt of the application for determination) that the worker was claiming to be, at least as an alternative to a claim that he was totally incapacitated, partially incapacitated and therefore the respondent, through its insurer, was on notice that it was having invoked against it the provisions of s11(2) of the Act." It was said, quite correctly, that in this passage Manser J was treating the insurer's knowledge as that of the employer which was the entity which was held to have failed to have provided suitable employment. In my opinion this submission should be upheld. The distinction between the employer and the insurer in workers compensation legislation has always been maintained. Their relationship is simply that of parties to a contract of indemnity or insurance. There is no provision in the Act, or the regulations thereunder, constituting the insurer the agent of the employer so that the knowledge of the former becomes that of the latter. In Devine v Devine & Queensland Insurance Co Ltd, 28 SR (NSW) 503, it was held that before an insurer could be held liable under s18(3) of the Act it is necessary to obtain an award for compensation against the employer. In the course of delivering the judgment of the court Ferguson J said, at 507: "The Act provides that a workman who receives personal injury, shall, subject to the conditions specified in the Act, receive compensation from his employer. There is thus a direct statutory liability imposed upon the employer to pay compensation. By way of security for this payment, the Act requires the employer to obtain from a licensed insurer a policy of insurance or indemnity for the full amount of his liability under the Act.... The intention of the Legislature is clear that the policy, like the ordinary policy of insurance, shall be a contract of indemnity between the insurer and the employer.... I have come to the conclusion... that the original proceedings for the establishment of liability must be between the worker or his dependents on the one side and the employer on the other. Looking at the Act as a whole, I see nothing to suggest any intention that the insurer should be a party. PtVII, for example, which regulates the proceedings for the recovery of compensation, contains various provisions which seem to be inconsistent with any such intention. The fact that the employer has now the duty of compulsory insurance imposed upon him would not of itself make the insurer a party to the proceedings, or give him the right or impose on him the liability to become a party." Devine's case has been followed consistently from that time onwards (see Spain v Metropolitan Meat Board, [1971] 1 NSWLR 91; McNellee v Cooperative Insurance Co of Australia Ltd, 64 SR 95.) This being the correct view of the operation of the Act and there being no recent amendments which would have the effect of constituting the insurer the agent of the employer to the intent that notice to it could be treated as knowledge in the employer it must follow that there is no legal basis upon which the employer could be fixed with knowledge upon the basis that notice had been given to the insurer. Counsel for the respondent sought to meet this difficulty by reference to the answer filed in the application by the employer, and not the insurer, which specified the same address as the address nominated in the application for determination as appropriate for the employer. He argued that the answer 4 UNREPORTED JUDGMENTS constituted an admission by the employer that it had received the application for determination. It followed, according to the argument, that it was open to his Honour to follow the approach appearing in his reasons. There is a difficulty with this submission insofar as the Compensation Court Rules provide for service on the insurer as well as the employer, and, more particularly, because of the insurer's right under condition 4 of the statutory form of insurance policy to defend proceedings in the name of the employer. It is perfectly consistent that the application for determination may have been served only upon the insurer who thereupon filed an answer in the name of the employer. But quite apart from that difficulty there is, it seems to me, an insurmountable objection to the submission. That is that Manser J expressly proceeded upon the basis that notice to the insurer constituted knowledge in the employer. He did not concern himself with the question whether the employer had actual knowledge or whether there was, and this is probably the correct question, evidence upon which he could conclude that the employer had actual knowledge. The consequence is that legal error has been demonstrated in the reasoning process which is not answered by reference to the answer filed in the proceedings. There is then the question what consequences flow from this conclusion. However as that question is, to a degree, bound up with the resolution of the question raised by the appellant's second submission, I will defer consideration of it for the moment. It will be recalled that in his second submission counsel argued that there was no evidence upon which Manser J could conclude that the employer had failed to provide suitable employment which was a necessary pre-condition to a finding of notional total incapacity under s11(2) of the Act. The specific submission was that the totality of the evidence in the light of the failure, if I can call it that, of the respondent specifically to request suitable employment, did not support a conclusion that the employer had failed to provide appropriate employment. The respondent did return to his old place of employment on about 10 April 1986 in order to request employment but found on his arrival there that the appellant had sold the business and there were new proprietors in occupation. The evidence went no further than that. However, the appellant's counsel argued that even if the fact that the employer had not made a specific offer of suitable employment after this date might have supported an award under s11(2) that award could have operated only from after 10 April 1986. In other words the events at that time could not have supported an award which ran from 26 November 1984. Unfortunately the reasons for judgment are expressed with great economy of language and it is somewhat difficult to glean the reasons upon which Manser J supported the award. This court has said more than once that unnecessary difficulties are created for an appellate court which is called upon to decide whether an error of law has occurred if the steps in the reasoning process at first instance are not clearly exposed. This subject was discussed at length in Soulemezis v Dudley (Holdings) Pty Ltd (NSW Court of Appeal, 4 September 1987, unreported) and by Mahoney JA in Housing Commission of NSW v Tatmar Pastoral Co Pty Ltd, [1983] 3 NSWLR 378, at 386, and I need not pause to discuss it further except to observe that the very economy of the language used has led to a degree of obscurity. I should therefore elaborate upon my understanding of his Honour's approach. He found, for reasons which are shortly but sufficiently revealed, that the evidence supported the conclusion that the respondent was partially URJ SONYA MOTORS PTY LTD v FARES (Clarke JA) 5 incapacitated. He then adverted to those features of the application for determination to which I have referred and observed that, accordingly, the appellant was on notice that it was having invoked against it the provisions of s11(2) of the Act. Without further ado, except insofar as he referred once again to the subject of partial incapacity, he made an award under s11(2). It would seem to me that he reasoned that the absence of an offer of suitable employment by the appellant after it was seised of knowledge of the invocation by the respondent of the provisions of s11(2) constituted the failure upon which the power to make an award of notional total incapacity was conditioned. However, he did not say that in express terms nor did he explain how the award could appropriately commence before a date when the appellant was aware of the respondent's intention to invoke the provisions of s11(2) of the Act. I say this because there is no evidence when the application for determination was served and all that can be inferred is that it was served on the insurer or employer some time prior to the filing of the answer in October 1985. The learned judge made specific reference to the respondent's visit to his old place of employment but it is impossible to tell from a reading of the reasons for judgment whether he regarded that as a relevant factor for consideration in concluding that an award upon the basis of notional total incapacity was appropriate. Perhaps one can assume from the date from which the obligation to pay total compensation ran that his Honour regarded that visit as irrelevant. I appreciate that the appellant has raised a "no evidence" point and that, in this context, the reasons for judgment are not determinative. I have, however, referred to them in some detail in order to demonstrate that they provide, with respect, little guidance on this question. Having said that let me turn to the authorities for assistance in considering whether it was open to the trial judge to hold that the sparse evidence in the case satisfied the requirements which enabled the making of an award under s11(2). During the 1960's there was a line of authority in New South Wales to the effect that it was incumbent upon a worker to establish that he had made a request for employment before it could be said that the employer had failed to provide it. (Cavallin v Paget, [1964-5] NSWR 1044; Nauseda v Punchbowl Brick & Tile Company, 57 SR 297; Asciak & Australian Glass Manufacturers Pty Ltd, 64 SR 344). It was also said in these cases that the word "failure" connotes something in the nature of default on the part of the employer (Nauseda; Asciak). However, in 1968 the High Court in R J Brodie (Holdings) Pty Ltd v Pennell, 117 CLR 665, adopted a different approach which emphasised the importance of mutuality. The passage in which the majority dealt with mutuality is of sufficient importance to set out in full: "\.. for the 'provision' of suitable employment involves an element of mutuality. Employment is not a commodity which can be provided merely by an offer; it can in strictness be provided only by the employer and employee entering into and performing their obligation under a contract of service and this involves the cooperation of both employer and employee. There can, of course, be no 'failure' on the part of an employer to provide suitable employment if the employee refuses, and continues to refuse, to enter his employment, or, if the facts show that the employee's conduct is inconsistent with the necessary degree of cooperation on his part.... there cannot be a continuing failure where the 6 UNREPORTED JUDGMENTS circumstances are such that it can be seen that throughout any relevant period the employee is not ready, willing or able to enter the employ of the pre-injury employer." Having said that the majority concluded: "Whether or not there has been any such failure in relation to any period during the continuance of the partial incapacity is, of course, a question of fact to be determined in the light of all the circumstances including the situation of the worker."(p 669) This approach was accepted and confirmed in Electric Power Transmission Pty Ltd v D'Urso, 124 CLR 338. However, there is a passage in the judgment of the court in this case upon which counsel for the respondent has fastened which reads: "Tt (s11(2)) does not require as a condition of its operation that the worker should ask for work and it does not afford the employer any excuse for failing to provide such work. It operates if, but only if, the employer fails to provide suitable employment." This is of course literally true. But it does not mean that a request for employment is irrelevant or unimportant as the later references in the judgment to the element of mutuality make plain. In my opinion the relevance, and importance, of a request for employment was correctly stated by Moffitt JA in the Court of Appeal in D'Urso, 72 SR 325, at 336, when he said: "Tt (ie s11(2)) does not provide that he shall make an application to the employer as a condition of obtaining the benefits under the subsection. In a factual situation, however, in order to establish a failure to provide suitable employment, a worker normally will have to show a request for work and a refusal to provide the same. This, however, is the factual rather than the legal requirement and, no doubt, there are cases where a worker could prove his case otherwise - for example, by showing that he was, to the knowledge of his employer, partially incapacitated, fit for suitable work but unemployed and that his employer had - put it beyond its power to provide work..." What these cases establish is that the question is one of fact to be determined in the light of all the circumstances involving a determination whether, bearing in mind the element of mutuality there has been a 'failure' on the employer's part to provide suitable employment. Furthermore as McHugh JA pointed out in Westfield Shopping Centre Management Co Pty Ltd v Kassem, (1985) 4 NSWLR 344, at 356, they require that the question should be determined objectively upon the proven facts. This flows from the fact that an employer will not be held to have 'failed' if the worker is unwilling or unable to accept an offer of employment even if the employer is unaware of the unwillingness or inability. In this case there was evidence to support the conclusion that as at the date when notional total incapacity was first found (ie 26 November 1984) the respondent was partially incapacitated but there was no evidence which bore on the failure of the appellant to provide suitable employment to the respondent. There was no evidence that the respondent was willing and able to work at that time nor that the appellant was aware of the partial incapacity of the respondent. The learned trial judge fastened on the service of the notice of application as evidence which justified a finding that the appellant had failed to provide the employment. This particular finding was, as I have pointed out, affected by legal error and in any event that evidence could not justify an award dating from October 1984. URJ SONYA MOTORS PTY LTD v FARES (Clarke JA) 7 In my opinion there was no evidence that in October 1984 the appellant failed to provide suitable employment for the respondent. In other words the evidence actually adduced was insufficient to support the conclusion that the appellant had failed to provide work for a ready and willing respondent. I do not mean to convey that there was an onus on the respondent expressly to state that he was ready and able at that time. Rather I am seeking to emphasise that the evidence went no further than showing that as at November 1984 the respondent was partially incapacitated. Indeed it may be that the proper conclusion is that the respondent was not willing, or able, to work at that time. He said in evidence that he started looking for light work after his doctor gave him a light duty certificate which was in May 1985 which would suggest an assertion that he was unfit for light work earlier. I conclude therefore that the appellant's submission should be upheld to the extent that an award dated from November 1984 can't be sustained. It now becomes necessary to consider the consequences of this conclusion. The appellant has said that the court should make an order which would have the effect of an award in its favour. That is undoubtedly appropriate in some cases. However, I do not believe that it is in the present case. I have found that there is no evidence to support the actual award made but because of the erroneous approach of the learned judge the proper question has never been considered by him. More particularly, his Honour did not apply the correct test to the facts at the different times. For instance, it may well have been open to conclude that the totality of the evidence supported a finding in the respondent's favour in April 1986. There is evidence that at that time he was willing and able to undertake light work with the appellant whose sale of the service station business had, prima facie at least, put it out of its power to employ him. Those facts, if accepted, when considered together with the other evidence in the case may justify an order in his favour. Accordingly, I am of opinion that the matter should be remitted to the Compensation Court to enable due consideration of his claim. In these circumstances I would propose that the appeal be upheld and that the matter be remitted to the Compensation Court for further consideration. The respondent should pay the appellant's costs and have a certificate under the Suitors Fund Act.