SANDERS v NADOW TRAINING PROGRAM LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY, CLARKE and HANDLEY JJA 10 April 1995, 25 May 1995 [1995] NSWCA 413 WORKERS COMPENSATION ACT APPEAL — STATUTORY CONSTRUCTION — s151Z(1)(c) FACTS The appellant was injured in a motor vehicle accident on 9 January 1992. On 21 January 1992, she lodged a claim form pursuant to the provisions of the Motor Accidents Act 1988 with the third party insurer of the driver of the other vehicle involved in the accident — QBE. On 6 February 1992 QBE admitted liability on behalf of its insured and thereafter, it made a number of payments both on behalf of the appellant to the providers of services, such as doctors and physiotherapists as well to the appellant. In January 1993 the appellant filed an application for determination seeking compensation under the Workers' Compensation Act 1987 in respect of injuries suffered in the accident from her employer, the respondent. ISSUE Whether the payments made by QBE constituted "recovered damages within the meaning of s151Z(1)(c)" of the Workers' Compensation Act? Held (per Clarke JA; Priestley and Handley JJA concurring) The appellant has received only a small amount by way of reimbursement of net loss of income and payments have been made to service providers on her behalf. Those payments do not constitute the damages which the third party is liable to pay, although they may represent a part of those damages. As such they do not constitute the damages referred to in the introductory paragraph ons 151Z and hence do not constitute "those damages" in s151Z(1)(c). (per Priestley JA) The amounts paid by QBE were a payment of money on account of what (as was thought at the time) would subsequently become a legal liability of the insured to pay damages which liability QBE was bound to indemnify. Such payments may in colloquial terms be loosely thought of as part payment of damages, but in my opinion they are not in any legal sense, at the time of payment, damages recovered, as contemplated by s151Z(1)(c) of the Workers' Compensation Act 1987. ORDERS (1) The appeal is allowed; (2) The award of O'Toole J of 16 December 1993 is set aside and the proceedings remitted to the Compensation Court of New South Wales for determination in accordance with these reasons; (3) The respondent should pay the appellant's costs of the appeal and, if otherwise qualified, is to have a certificate under the Suitors' Fund Act. Priestley JA The circumstances of this appeal are set out in Clarke JA's reasons which I have had the benefit of reading in draft. T agree generally with Clarke JA, but also think the appeal should succeed on a wider ground. QBE's obligation under s45(2) of the MAA was, once liability had been admitted, to make payments to or on behalf of the claimant in respect of specified expenses. QBE did this, after admitting liability on behalf of its insured driver. S45(4) said the payments "are taken to form part of any damages payable to the 2 UNREPORTED JUDGMENTS claimant'. Without the deeming subsection I do not think it would be arguable that payments by an insurer, on behalf of its insured, to a person claiming damages from the insured, before any binding settlement had been entered into between the claimant and the insured, or judgment had been entered against the insured, were damages or part of damages claimed by the claimant from the insured as the legal entitlement flowing from the cause of action on which the claimant was relying against the insured. In my opinion the amounts paid by QBE were a payment of money on account of what (as was thought at the time) would subsequently become a legal liability of the insured to pay damages which liability QBE was bound to indemnify. Such payments may in colloquial terms be loosely thought of as part payment of damages, but in my opinion they are not in any legal sense, at the time of payment, damages recovered, as contemplated by s151Z(1)(c) of the Workers Compensation Act 1987. S45(4) of the MAA seems to me to recognise this. It does not in my opinion convert what are not damages into damages, but says that payments under the section are, once damages in the legal sense have been ascertained (so that a claim for damages has been converted into an enforceable obligation (by settlement agreement or judgment) to pay a known sum) to be taken as having been paid on account of that figure. This seems to me to have been the position when QBE made the payments pursuant to the admission of liability on behalf of its insured. Once that admission was withdrawn the position in my opinion became clearer still. The payments at that stage could only be classified as either gratuitous or mistaken. The insured was now saying he was not liable to damages. The payments could then have no flavour of damages at all. Presumably, if the claimant obtained judgment against the insured the amounts paid would be taken into account in fixing the amount of the judgment, but this would not affect the nature of the payment at the time of payment or at the time the admission of liability was withdrawn. Nor does the definition of damages in s149(1) of the Workers Compensation Act take the matter any further for the employer. For reasons similar to those I have given in relation to the word damages, the payments were not in my opinion monetary compensation; they were payments by QBE on behalf of its insured on account of an as yet uncrystallised legal obligation of its insured to pay damages. For most practical purposes, the distinction may not be of much importance; but in law it seems to me to be both important and clear. I agree with the orders proposed by Clarke JA. Clarke JA The appellant was injured in two motor vehicle accidents, one on 27 May 1991 and the other 9 January 1992. At both times she was in the employment of the respondent. The first accident occurred while she was in the course of that employment and the second occurred while she was driving home from work. Although she made claims in respect of the first accident both against her employer and the driver of the other vehicle involved in the accident she has not pursued those claims and this accident has no relevance to the questions which arise in the present appeal. I will accordingly disregard it and will refer to the incident of 9 January 1992 as "the accident". On 21 January 1992 she lodged a claim form pursuant to the provisions of the Motor Accidents Act 1988 ("the MAA") with the third party insurer of the driver of the other vehicle involved in the accident - that is the QBE Insurance Limited ("QBE"). On 6 February 1992 QBE admitted liability on behalf of its insured. URJ SANDERS v NADOW TRAINING PROGRAM LTD (Clarke JA) 3 Thereafter it made a number of payments on behalf of the appellant to doctors and the providers of other services, such as physiotherapists. In addition, it paid the appellant $1,000 describing the payment as an 'ex gratia' one and advising that that amount would be "deducted from settlement". Later QBE paid a further sum of $299.66 to the appellant which, together with the credit resulting from the ex gratia payment, met claims by the appellant for reimbursement of expenses and in reimbursement of net loss of income. Further payments were made in reimbursement of net loss of income and expenses, and in all QBE paid $17,183.65 to or on behalf of the appellant. In January 1993 the appellant filed an application for determination seeking compensation under the Workers' Compensation Act 1987 ("the Act") in respect of injuries suffered in the accident from her employer, the respondent. About the same time she also filed a statement of claim in the Supreme Court seeking damages in respect of the accident against the driver of the other vehicle and her insurer QBE. (We were advised that QBE was joined as a precautionary measure in case the appellant was unable to effect service on the driver of the other vehicle.) Consistently with the advice QBE forwarded to the appellant in a letter of 13 January 1993, the defendant in the common law proceedings (for whom QBE was the insurer) denied that the appellant's injuries occurred as a result of the accident. In short QBE denied the existence of a causal nexus between the accident and the injuries and disabilities of which the appellant was complaining. The respondent in the workers' compensation proceedings raised as its first defence the contention that the appellant was precluded from bringing the Workers' Compensation claim because she had "recovered damages within the meaning of s151Z(1)(c)" (of the Act). This defence raised a point which the parties elected to have determined as a preliminary issue. The hearing of the preliminary question was conducted by Judge O'Toole who, in her judgment, referred to the definition of damages in s149(1) of Pt5 of the Act and concluded that the appellant had already been paid and had received monies of a character readily identifiable as damages in terms of the legislation. For that reason she held that the Court had no jurisdiction to hear the application for compensation. The appellant has submitted that her Honour was in error in concluding that she had recovered damages. In her submissions nothing which had occurred prevented her from maintaining and prosecuting her application for workers' compensation benefits. The short question which arises depends upon the proper construction of s151Z(1)(c) of the Act. That reads: "Tf the injury for which compensation is payable under this Act was caused under circumstances creating a liability in some person other than the worker's employer to pay damages in respect of the injury, the following provisions have effect: (c) if the worker firstly recovers those damages the worker is not entitled to recover compensation under this Act;" There is a statutory definition of damages for the purposes of Pt5, in which s151Z is to be found. That appears in s149(1) which relevantly reads: "° damages' includes: (a) any form of monetary compensation; and (b) without limiting para(a), any amount paid under a compromise or settlement of a claim for damages (whether or not legal proceedings have been instituted)," 4 UNREPORTED JUDGMENTS Her Honour, as I have pointed out, concluded that the payments made to and on behalf of the appellant were properly characterised as monetary compensation and therefore constituted damages under s151Z(1)(c). Before turning to the question of statutory construction I should note that QBE paid the sums of money to which reference has earlier been made pursuant to its obligation under s45 of the MAA. That section imposes an obligation upon an insurer who has admitted liability to make payments to or on behalf of the claimant in respect of hospital/medical and pharmaceutical expenses and, as well, rehabilitation expenses. S45(4) provides: "Payments made under this section are taken to form part of any damages payable to the claimant." There is, therefore, a statutory obligation upon an insurer who has admitted liability to make payments to or on behalf of a claimant, to the extent and subject to the conditions expressed in s45, and where it does make those payments they are deemed to form part of damages payable to the claimant. The section says nothing, however, about reimbursement for loss of income. S151Z(1) is structured to provide for a number of alternative situations in paragraphs introduced by a statement of the preliminary condition that "the injury for which compensation is payable was caused under circumstances creating a legal liability for damages in a person other than the employer". (I will call that person 'a third party'.) I should say at the outset that I am in complete agreement with the statement made by Windeyer J in Watson v Newcastle Corp v The Council of the City of Newcastle (1961-1962) 106 CLR 426, 445, that these words "refer to a liability arising out of circumstances giving a cause of action" against a third party. Once it is found that a person sustained an injury for which compensation was payable in circumstances creating a liability in a third party to pay damages one or more of the provisions in the various paragraphs of the section take effect. The important point to make about the introductory paragraph for present purposes is that it identifies the relevant damages as those which a third party is liable to pay to the worker. In CL(c) reference is made not simply to damages, but to "those damages". That is the damages referred to in the introductory part of the section. Where, therefore, the worker recovers the damages which a third party has become liable to pay s151Z(1)(c) applies and he or she is not entitled to recover compensation under the Act. The consequence of this construction of s151Z(1)(c) is that a worker will not lose his or her entitlement to maintain a claim for compensation under the Act unless he or she has recovered those damages which the third party has become liable to pay. It is not suggested in this case that the appellant has received all the damages, including general damages and compensation for loss of earning capacity, which QBE's insured has become liable to pay. On the contrary the appellant has received only a small amount by way of reimbursement of net loss of income and payments have been made to service providers on her behalf. Those payments do not constitute the damages which the third party is liable to pay, although they may represent a part of those damages. As such they do not constitute the damages referred to in the introductory paragraph of s151Z and hence do not constitute "those damages" in s151Z(1)(c). What I am seeking to convey can best be demonstrated by substituting for the word "those" in s151Z(1)(c) the words "the damages a third party is liable to pay". The subsection would then read "If the worker firstly recovers the damages a third party is liable to pay". URJ SANDERS v NADOW TRAINING PROGRAM LTD (Handley JA) 5 While it may be accepted that a worker may recover damages whether or not he or she secures a judgment in common law proceedings (Watson, at 445) the subsection applies only when the worker has received the damages whether as a result of a judgment or a settlement of his/her common law claim. The respondent's counsel sought to avoid this conclusion by focussing on the wide definition of 'damages' in s149(1). Its counsel contended that the appellant had received monetary compensation which equated damages. Consequently s151Z(1)(c) applied and the respondent could not maintain a claim for compensation. What this submission overlooks is that, while s149 provides a definition of "damages for use, insofar as the context admits, in the interpretation of the sections contained in Pt5, s151Z is concerned with a particular category of damages, that is, those damages which a third party has become liable to pay to the worker as a result of the latter sustaining injury in the circumstances referred to in the section. There are a number of considerations which support the construction that I prefer. First, it is, broadly, in conformity with the policy of the legislation against double compensation - that is, that a worker should not be entitled to retain both compensation payable under the Act and damages, whether awarded in common law proceedings or received consequent upon a settlement. Secondly, the other sub- sections of s151Z(1) all point to that construction. For instance, sub-paragraph (d) makes provision for the recovery of compensation paid from the person "liable to pay those damages". That recovery, however, is limited to the amount of those damages. In this paragraph it is clear that where the expression "those damages" is used attention is being directed to the totality of the damages for which the other person is liable and beyond which it is not liable to indemnify the person who paid the compensation. The appeal should be allowed, the award of O'Toole J of 16 December 1993 set aside and the proceedings remitted to the Compensation Court of New South Wales for determination in accordance with these reasons. The respondent should pay the appellant's costs of the appeal and, if otherwise qualified, is to have a certificate under the Suitors' Fund Act. Handley JA I agree with Clarke JA. (1) The appeal is allowed; (2) The award of O'Toole J of 16 December 1993 is set aside and the proceedings remitted to the Compensation Court of New South Wales for determination in accordance with these reasons; (3) The respondent should pay the appellant's costs of the appeal and, if otherwise qualified, is to have a certificate under the Suitors' Fund Act. Counsel for the appellant: T KELLY Solicitors for the appellant: TD KELLY AND CO Counsel for the respondent: M ELKAIM Solicitors for the respondent: PW TURK AND ASSOCIATES