Recovery of compensation payments December 11, 2017
The question to be determined by the Court was whether Parkes Shire Council was able to recover payments of workers’ compensation from South West under s 151Z of the Workers Compensation Act 1987 (NSW).
The claim under s 151Z was pursued successfully at trial, despite the fact that the trial judge had found Parkes Shire Council was itself liable in negligence for the deaths of its two employees. That finding was challenged on appeal, but for reasons outlined below, that challenge should be rejected. Accordingly, the Shire Council’s claim for indemnity with respect to compensation payments will be addressed on the basis that negligence was established on the part of each of the Council and South West or Essential Energy. (The discussion below rejects liability on the part of Essential Energy, but that is not relevant for present purposes.)
- Although the two sets of proceedings brought by Parkes Shire Council were solely concerned with recoupment of the payments of compensation, the entitlement of the Council was not addressed in the first judgment. It was, however, addressed in the second judgment, the trial judge upholding the claim by Parkes Shire Council despite the fact that it had been held to be liable in negligence to the employees. 
- There are two provisions in the Workers Compensation Act which were potentially relevant to recovery by Parkes Shire Council. They must be considered separately. The first is s 151Z(1)(d) which, in its statutory context, reads as follows:
151Z Recovery against both employer and stranger
(1) If 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:
(a) the worker may take proceedings both against that person to recover damages and against any person liable to pay compensation under this Act for payment of that compensation, but is not entitled to retain both damages and compensation,
(d) if the worker has recovered compensation under this Act, the person by whom the compensation was paid is entitled to be indemnified by the person so liable to pay those damages (being an indemnity limited to the amount of those damages),
- The claim could not succeed under this provision as the equivalent of this provision in the Workers Compensation Act 1926 (NSW), namely s 64(1)(b), has long since been held by the High Court not to confer a right of indemnity in circumstances where the employer is a tortfeasor, but only in circumstances where the third party is the only relevant tortfeasor. 
- However, the trial judge did not apply this established reading of s 151Z(1)(d) for two reasons. First, he referred to a sentence in a judgment of Campbell JA in J Blackwood & Son Ltd v Skilled Engineering Ltd  where it was said:
“Further, that prima facie right of the employer under section 151Z(1)(d) is one that the employer has whether or not the employer is itself a tortfeasor who has caused the injury to the worker with respect to which the compensation has been paid.”
- With respect, that statement was wrong. It was not a necessary part of the reasoning of Campbell JA and was not found in the judgment of Giles JA, with whom Beazley JA agreed. That sentence in isolation, even if it were part of the reasoning, could not be adopted in the face of unanimous High Court authority to the contrary. Nor did it matter that it had been followed by another judge in the Common Law Division.  Finally, although the trial judge referred to CSR Timber Products Pty Ltd v Weathertex Pty Ltd,  he dismissed the statement of law contained in the judgment of Meagher JA (with whom Bathurst CJ and Hoeben JA agreed) as obiter. Meagher JA stated at :
“It is critical to an understanding of the scheme of s 151Z to appreciate that if s 151Z(1) is considered alone, it does not apply where the employer is liable to the worker for damages at common law. That is because its application depends on the injury for which compensation is payable being caused under circumstances creating liability in ‘some person other than the worker’s employer’ to pay damages in respect of that injury….”.
That conclusion was also accepted by this Court in Endeavour Energy v Precision Helicopters Pty Ltd (No 2). 
- The second reason why the trial judge considered that the constraint in s 151Z(1) did not apply was that an employer which was itself a tortfeasor was now able to recover compensation payments under s 151Z(1)(d) pursuant to s 151Z(2)(e). That conclusion was correct; however, the entitlement arose under, and only under the terms of the latter provision; it was wrong to treat the later provision as amending the earlier provision. Accordingly, if the Shire Council were to recover its compensation payments, on the assumption that it was a tortfeasor, it had to bring its claim within the terms of s 151Z(2)(e). The precise requirements of that provision were not addressed.
- Section 151Z(2)(e), in its statutory context, provides as follows:
151Z Recovery against both employer and stranger
(2) If, in respect of an injury to a worker for which compensation is payable under this Act:
(a) the worker takes or is entitled to take proceedings independently of this Act to recover damages from a person other than the worker’s employer, and
(b) the worker also takes or is entitled to take proceedings independently of this Act to recover damages from that employer,
(e) if the worker does not take proceedings against that employer or does not accept satisfaction of the judgment against that employer, subsection (1) applies as if the worker had not been entitled to recover damages from that employer, except that:
(i) if the compensation paid by that employer exceeds the amount of the contribution that could be recovered from that employer as a joint tortfeasor or otherwise—the indemnity referred to in subsection (1) (d) is for the amount of the excess only, and
(ii) if the compensation paid by that employer does not exceed the amount of that contribution—subsection (1) (d) does not apply and the employer has, to the extent of the compensation so paid, a defence to an action for such a contribution.
- In order to identify the operation of these provisions regarding the current claims in respect of deceased workers, two further provisions should be noted. First, s 151Z(3) provides:
151Z Recovery against both employer and stranger
(3) This section applies to proceedings taken independently of this Act by a person to whom compensation is payable under this Act in respect of the death of a worker as a result of an injury.
Further, s 3(1A) provides:
(1A) A reference to a worker who has been injured includes, if the worker is dead, a reference to the worker’s legal personal representative or the worker’s dependants, or any other person to whom or for whose benefit compensation is payable.
- Mrs Stephenson was entitled to take proceedings against South West. One may put aside for present purposes the fact that her proceedings against South West were brought out of time and therefore failed; each limb of subs (2)(a) and (b) is formulated in the continuing present tense. It operates regardless of limitation periods. Mrs Stephenson was also entitled to (and did) bring proceedings against Parkes Shire Council. Paragraphs (a) and (b) of subs (2) were therefore satisfied and the following paragraphs had effect.
- In order for Parkes Shire Council, as a tortfeasor, to obtain the indemnity provided under subs (1)(d), the preconditions to the operation of par (2)(e) must be satisfied. As Mrs Stephenson did take proceedings against the Council, the first limb was not satisfied; as she has also obtained satisfaction of the judgment against the Council, the second limb was not satisfied. Accordingly, Parkes Shire Council is not entitled to recover payments of compensation from another tortfeasor.
- According to Parkes Shire Council, that conclusion stultifies the purpose of subs (2)(e). That purpose, it was submitted, was to allow an employer tortfeasor to recover compensation as if it were not a tortfeasor, but limited to the excess over any contribution which could be recovered from it by the third party tortfeasor. Thus, the purpose was to allow a limited recovery, taking into account its own liability as tortfeasor to the other tortfeasor.
- If that were the purpose, it would have been satisfied simply by making provision in accordance with sub-pars (i) and (ii) of par (e). But that was not what the drafter did; rather, two additional (alternative) preconditions were imposed in par (e). That is, there were negative preconditions additional to those identified in pars (a) and (b).
- The Shire Council sought to avoid the consequences of the additional requirements by alleging an entitlement which was said to have arisen prior to the worker obtaining a judgment. Once the worker commences proceedings, the first alternative is not satisfied; the second precondition to the operation of the provision appears to assume a judgment (which may arguably involve a settlement, as recognised by subs (5)) which is then not accepted. Where proceedings are brought and a judgment is obtained and satisfied, paragraph (e) is not engaged. That is in fact what happened in the present case. In effect the Shire Council seeks to recover on the basis that the proceedings were brought at a time when neither negative condition was satisfied, but the second condition might be satisfied in the future.
- Whilst acknowledging the possibility of such a construction, it is singularly unattractive. It depends upon the chance that proceedings between the employer and the third party tortfeasor will be completed before the worker’s claim against the employer. Such an approach is not consistent with the statement of the conditions in pars (a), (b) and (e) in what appears in each case to be a continuous present tense. Furthermore, once the first alternative in par (e) is not satisfied (because the worker has commenced proceedings) there is no reason to assume that the second alternative (the occasion for which has not yet arisen) will be satisfied so as to then engage par (e).
- The Shire Council was not able to articulate any policy which would justify its approach. However, the purpose is not obscure; it is that an employer which is also a tortfeasor is not able to recover compensation from another tortfeasor where it has made a payment of damages to the worker. Where the worker does not take proceedings or does not accept satisfaction of a judgment obtained in such proceedings, no payment will have been made. Where the worker sues his or her employer, the proceedings will either succeed or fail. If they fail, that will be because the employer is not liable and s 151Z(1)(d) will apply. If they succeed, the worker will be awarded damages. The reason why the drafter may have thought it appropriate to exclude recovery from the third party tortfeasor in such circumstances is that the employer which is liable to pay damages will deduct the amount of compensation already paid from the award of damages, pursuant to s 151A. In fact, as the orders in the present case demonstrate, that is precisely what happened. Further, the worker who recovers damages will cease to be entitled to any further compensation, again pursuant to s 151A.
- Thus, Mrs Stephenson obtained a judgment against both Parkes Shire Council and South West in an amount of $389,191. Of that amount, $237,024.80 was said to be satisfied by a payment to Parkes Shire Council by South West, pursuant to the judgment Parkes Shire Council obtained against South West under s 151Z(1)(d). In other words, the damages payable by South West to the plaintiffs were reduced by the repayment of compensation to the employer. Of the balance, a further sum of $77,838.20 was satisfied by the retention by Parkes Shire Council of that amount, said to be pursuant to s 151Z(1)(a) of the Workers Compensation Act. To the extent that the retained money was part of the damages payable by Parkes Shire Council, it was probably better seen as made pursuant to s 151A; to the extent that it was retained from the damages payable by South West, it was arguable that that took place pursuant to s 151Z(1)(a). In the event, the amount paid to Mrs Stephenson by Parkes Shire Council was $74,328.
- No doubt the same result could have been achieved, on the basis that both Parkes Shire Council and South West were liable in damages to Mrs Stephenson, by the Council retaining the full amount of compensation paid, in satisfaction of Mrs Stephenson’s repayment obligation, and by claiming a contribution to the damages from South West. It was therefore not necessary for Parkes Shire Council to seek to recover the compensation from South West, pursuant to s 151Z(1)(d) and (2)(e). That result is consistent with the expectation of the drafter of subs (2)(e), namely that the provision was not required in circumstances where the employer was liable to make a payment in damages to the worker. No contorted construction of that provision is required. Accordingly the Parkes Shire Council proceedings against South West with respect to compensation paid in respect of the death of Mr Stephenson should have been dismissed.
- It appears that the circumstances with respect to Mr Buerckner were different. Mr Buerckner’s widow commenced proceedings against Parkes Shire Council, but those proceedings were settled. The first precondition in subs (2)(e) was not satisfied; the question is whether the alternative was satisfied. Although the notice of appeal sought to challenge the order made with respect to compensation paid to Mrs Buerckner, that aspect of the appeal was not pressed and the judgment in those proceedings must stand, assuming South West was otherwise liable in damages to Mrs Buerckner.