CGU Workers Compensation (NSW) Ltd v Garcia - [2007] NSWCA 193

Reported Decision: (2007) 14 ANZ Insurance Cases 61-746(2007) Aust Torts Reports 81-908

New South Wales

Court of Appeal

CITATION: CGU WORKERS COMPENSATION (NSW) LIMITED (ACN 003 181 002) v GARCIA [2007] NSWCA 193

HEARING DATE(S): 7 March 2007, 8 March 2007

JUDGMENT DATE:
10 August 2007

JUDGMENT OF: Mason P at 1; Hodgson JA at 159; Santow JA at 160

DECISION: Appeal allowed.

CATCHWORDS: CONTRACTS – General contractual principles – construction and interpretation of contracts – implied terms – other cases – implied term of good faith - TORTS – Miscellaneous torts – other cases – tort of good faith – whether there exists a tort of good faith – coherence with statute and statutory scheme of insurance – Workers Compensation Act 1987, Workplace Injury Management and Workers Compensation Act 1998 - WORKERS’ COMPENSATION – Assessment and amount of compensation – discontinuance of payments – generally – where a number of reports favourable to worker and two reports not favourable to worker – where insurer relies on unfavourable reports to cease payments – Workers Compensation Act 1987, Workplace Injury and Management Act 1998

LEGISLATION CITED: Accident Compensation Act 1985 (Vic)
Civil Liability Act 2002
Civil Procedure Act 2005
Insurance Contracts Act 1984 (Cth)
Workers Compensation (General) Regulation 1995
Workers Compensation Act 1987
Workplace Injury Management & Workers Compensation Act 1998

CASES CITED: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Anns v Merton London Borough Council [1978] AC 728
Bank of Nova Scotia v Hellenic Mutual War Risk Association (Bermuda) Ltd [1990] 1 QB 818
Banque Financiere de la Cite SA v Skandia (UK) Insurance Co Ltd; Westgate Insurance Co Ltd [1991] 2 AC 249
Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665
Bennett v Jones [1977] 2 NSWLR 355
Breen v Williams (1995) 186 CLR 71
Brodie v Singleton Shire Council (2001) 206 CLR 512
Burger King Corporation v Hungry Jacks Pty Ltd [2001] NSWCA 187
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
C E Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25
Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 61-175
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384
Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1
Distillers Co Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1
Edwards v Attorney General (2004) 60 NSWLR 667
Edwards v The Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-112
Employer’s Mutual Indemnity (Workers Compensation) Ltd v A Donald Pty Ltd (NSW Court of Appeal, Priestley, Cole, Stein JJA, 23 October 1997)
Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228
F & K Jabbour v Custodian of Israeli Absentee Property [1954] 1 WLR 139
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22
Gibson v Parkes District Hospital and Anor (1991) 26 NSWLR 9
Gimson v Victorian WorkCover Authority [1995] 1 VR 209
Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540
Grey v Motor Accident Commission (1998) 196 CLR 1
Hadley v Baxendale (1854) 9 Ex 341; (1854) 2 WR 302
Hannover Life Re of Australasia Ltd v Sayseng (2005) 13 ANZ Ins Cas 90-123, [2005] NSWCA 214
Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298
Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151
Hungerfords v Walker (1989) 171 CLR 125
Hunter Area Health Service v Presland (2005) 63 NSWLR 22
Ilievska-Dieva v SGIO Insurance Ltd [2000] WASCA 161
Koehler v Cerebos (Australia) Ltd (2005) 222 CLR 44
Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231
Lomsargis v National Mutual Life Association of Australasia Ltd [2005] 2 Qd R 295
Murfin v United Steel Companies Ltd [1957] 1 WLR
New South Wales v Godfrey (2004) Aust Torts Reports 81-741
New South Wales v Paige (2002) 60 NSWLR 371
New Zealand Insurance Co Ltd v Harris [1990] 1 NZLR 10
OBG Ltd v Allan [2007] UKHL 21
Overlook Management BV v Foxtel Management Pty Ltd (2002) ATPR(Digest) 46-219; [2002] NSWSC 17
Perre v Apand Pty Ltd (1999) 198 CLR 180
Re Zurich Australian Insurance Ltd [1999] 2 Qd R 203
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Sempra Metals Ltd v Her Majesty’s Commissioners of Inland Revenue [2007] UKHL 34
Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84
Sprung v Royal Insurance (UK) Ltd [1999] 1 Lloyd’s Rep 1 R 111
Sullivan v Moody (2001) 207 CLR 562
Sutherland v Hatton, Barber v Somerset County Council [2004] 1 WLR 1089
Tame v New South Wales (2002) 211 CLR 317
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Victorian WorkCover Authority v Brewster (2001) 3 VR 72, [2001] VSCA 30
Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15
Whiten v Pilot Insurance Co (2002) 209 DLR(4th) 257

PARTIES: CGU WORKERS COMPENSATION (NSW) LIMITED (ACN 003 181 002)
Carlos GARCIA

FILE NUMBER(S): CA 40437/06

COUNSEL: Appellant: B W Walker SC/ R P L Lancaster
Respondent: P E Blacket SC/ K M Connor/
W Walsh

SOLICITORS: Appellant: Tress Cox Lawyers
Respondent: Turner Freeman

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 693/01

LOWER COURT JUDICIAL OFFICER: Goldring DCJ

LOWER COURT DATE OF DECISION: 14 July 2006

CA 40437/2006
DC 693/2001 (W’gong)

MASON P
HODGSON JA
SANTOW JA
Friday 10 August 2007

CGU WORKERS COMPENSATION (NSW) LTD (ACN 003 181 002) v Carlos GARCIA

The respondent allegedly suffered an injury to his shoulder at work on 2 August 1999. The respondent returned to work on 3 August 1999 but the pain in his shoulder worsened and he left early. He returned to work on light duties on 12 August 1999 until 8 October 1999 when his employment was terminated.

The insurer commenced weekly payments of compensation on 21 September 1999 and compensation matters proceeded smoothly until January 2000. During this period the respondent was being treated by his general practitioner and two other specialists. The insurer had also arranged for the respondent to be assessed by an orthopaedic surgeon. All reports were generally favourable to the respondent’s entitlement to compensation.

Perhaps unknown to the respondent, the insurer was investigating the genuineness of the injury and the degree to which employment had contributed to it. The insurer commissioned an investigator and directed the respondent to attend another orthopaedic surgeon, Dr Hughes, for a medical assessment. The reports from the investigator and Dr Hughes were in substance negative of the respondent’s entitlement to compensation.

In reliance on the report of Dr Hughes, the insurer subsequently decided to discontinue the weekly payments of compensation on 21 January 2000.

The appellant subsequently became the statutory assignee of policies of insurance issued by the insurer.

The trial judge found that the taking and maintaining of the insurer’s position on the basis of the report by Dr Hughes amounted to a breach of the insurer’s tortious duty of good faith to the respondent. This duty arose independently of the legislative scheme. The trial judge found that the insurer’s actions in ceasing periodic payments and in refusing to pay for surgery aggravated the respondent’s depressive illness. Other injuries of a physical and psychiatric nature were found attributable to the insurer’s wrongful act. There were also findings as to economic loss and exemplary damages.

The judge indicated that because of the conclusion reached in relation to the tort claim, it was unnecessary to decide whether there was an implied contractual duty of good faith.

On appeal the appellant challenged the finding as to the existence and breach of a novel tort of good faith, not being a statutory duty of good faith. The respondent also argued that there existed an implied term of good faith in the performance of the insurance contract.

HELD:

Tort of good faith

(1) (Per Mason P, Santow JA and Hodgson JA agreeing) The authorities do not support the existence of a tortious duty of good faith. (at [57], [110])

Gibson v Parkes District Hospital (1991) 26 NSWLR 9; discussed and distinguished. Gimson v Victorian WorkCover Authority [1995] 1 VR 209; approved and applied. Lomsargis v National Mutual Life Association of Australasia Ltd [2005] 2 Qd R 295; discussed. Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665; Banque Financiere de la Cite SA v Skandia (UK) Insurance Co Ltd ; Bank of Nova Scotia v Hellenic Mutual War Risk Association (Bermuda) Ltd(“Good Luck”) [1990] 1 QB 818; Westgate Insurance Co Ltd [1991] 2 AC 249; Bank of Nova Scotia v Hellenic Mutual War Risk Association (Bermuda) Ltd [1990] 1 QB 818; Employer’s Mutual Indemnity (Workers Compensation) Ltd v A Donald Pty Ltd (NSW Court of Appeal, Priestley, Cole, Stein JJA, 23 October 1997); Ilievska-Dieva v SGIO Insurance Ltd [2000] WASCA 161; referred to.

(2) (Per Mason P, Hodgson JA agreeing) The tort is not an action for breach of a specific statutory duty. To have a role to play it must of necessity find its place within the interstices of the statutory framework. (at [62]) The putative tort must not contradict the terms or policies of the statutory and contractual frameworks within which it would be placed. (at [64])

Sullivan v Moody (2001) 207 CLR 562; Koehler v Cerebos (Australia) Ltd (2005) 222 CLR 44; referred to.

Obiter
(Per Santow JA, Hodgson JA agreeing) The test should be formulated in terms of judicial method and then in terms of coherence. While a lack of coherence would preclude the introduction of a novel tort, its presence may not suffice to justify it. (at [7]-[8]) The query is a multi-factorial or salient features analysis. (at [10])
Sullivan v Moody (2001) 207 CLR 562; Perre v Apand Pty Ltd (1999) 198 CLR 180; Hunter Area Health Services v Presland (2005) 63 NSWLR 22; applied.

(Per Mason P, Santow JA and Hodgson JA agreeing):

(3) It is wrong in principle to contemplate any role for tort unless and until the contractual ordering of a relationship is understood and respected. (at [65]) There are three reasons why the new tort should not be invoked to trump the inadequacies of contract. They are: exemplary damages, damages for delay and damages for disappointment. (at [72])

(4) Australian law has thus far not accepted exemplary damages for breach of contract.

Grey v Motor Accident Commission (1998) 196 CLR 1; Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; referred to.

(5) Statute and the common law already compensate for the impact of delay in meeting a contractual claim. (at [75]-[76])

F & K Jabbour v Custodian of Israeli Absentee Property [1954] 1 WLR 139; Hungerfords v Walker (1989) 171 CLR 125; The New Zealand Insurance Co Ltd v Harris [1990] 1 NZLR 10; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; Sprung v Royal Insurance (UK) Ltd [1999] 1 Lloyd’s Rep 1 R 111; referred to. Civil Procedure Act 2005 , s 101; Workers Compensation Act 1987 , s 151M and Workplace Injury and Management Act 1998 ss109-111; referred to.

(6) There is only qualified recognition of damages for disappointment, distress and injured feelings caused by non-performance of a contract under contract law. (at [77])

(7) In respect to issues of coherence as between the putative tort and the statutory scheme generally, there are policy reasons negating the need to find a tort of good faith or an implied contractual term of good faith. (at [79]-[80])

(8) There are also more particular points of practical and legal incompatibility with the legislative regime. (at [82])

(9) The scheme already prescribes in detail the substantive and procedural rights and obligations of all participants. (at [83]-[84]) A duty of good faith in the making or maintaining of a claim, breach of which sounds in damages, lies very uncomfortably with such a framework. (at [87])

Workers Compensation Act 1987 ; Workplace Injury Management and Workers Compensation Act 1998 ; referred to.

Implied contractual duty of good faith

(1) Similarly to the tortious duty of good faith, the putative implied contractual term must cohere with the statutory framework, a fortiori in a situation where the contract itself (ie the Policy) is the creature of statute. (at [64])

(2) There is no authority to support the proposition that an implied term of good faith is to be inserted into every contract or even into every aspect of a particular contract. Australian law has not yet taken this step as regards an implied term of good faith and fair dealing in performance. (at [131]-[133])

Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84; Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228; applied. Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349; Burger King Corporation v Hungry Jacks Pty Ltd [2001] NSWCA 187]; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15; referred to.

(3) Such a duty may, however, be implied as a matter of law in specific classes of contracts or as a matter of fact to give business efficacy to a particular contract. The central criterion is one of “necessity”, a matter to be tested against any applicable statutory policy. (at [134], [136])

Byrne v Australian Airlines Ltd (1995) 185 CLR 410; Breen v Williams (1995) 186 CLR 71; Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151; Hannover Life Re of Australasia Ltd v Sayseng (2005) 13 ANZ Ins Cas ¶90-123, [2005] NSWCA 214; referred to. C E Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25; approved. Victorian WorkCover Authority v Brewster (2001) 3 VR 72, [2001] VSCA 30; distinguished. Edwardsv The Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas ¶61-112; Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas ¶61-175; discussed and distinguished.

(4) In this case the implication is not necessary to give efficacy to the statutory Policy and its working out would contradict the express terms of that Policy and its statutory framework. The reasons for rejecting the tortious duty are equally applicable in this context. (at [143])

Breach of duty

(1) It is strictly unnecessary to decide whether there was a breach of the duty however there are sufficient matters of concern in the judge's reasoning for an indication that his discussion on that topic should be set aside. (at [147])

(2) It is not accepted that the insurer acted contrary to all of the relevant evidence. (at [148])

(3) The insurer had not had any opportunity to test the credibility of the history upon which the medical reports favourable to the worker depended. Matters were far from clear-cut. (at [150])

(4) Section 9A of the Workers Compensation Act 1987 meant that the worker had to establish that his employment had been a substantial contributing factor to the injury. The assessor's report raised information that was yet to be tested which, if accepted, cast real doubt on this proposition. (at [151])

(5) There was no evidence supporting the conclusion that the insurer was already predisposed, if not totally prejudiced, against the plaintiff. (at 152])

(6) Nothing in the legislative scheme precludes an insurer from changing its mind in response to fresh data. (at [153])

(7) There was no obligation that the insurer had to call for further medical reports from the worker or itself to obtain material which would have indicated that the workers claim was justified. (at [154])

(8) Any examination of the bona fides of the insurer’s conduct on or after the conciliation conference must, or at least ought to, have involved analysis of the insurer’s conduct in the light of what passed at the conference. (at 155)

ORDERS: Appeal allowed.

CA 40437/2006
DC 693/2001 (W’gong)

MASON P
HODGSON JA
SANTOW JA
Friday 10 August 2007

CGU WORKERS COMPENSATION (NSW) LTD (ACN 003 181 002) v Carlos GARCIA

JUDGMENT

1 MASON P: The appellant is the statutory assignee of policies of insurance issued by HIH Workers Compensation (NSW) Pty Ltd (see Workers Compensation Act 1987 (WC Act), s185). It challenges a verdict in favour of the respondent (the worker) based on HIH’s breach of an admittedly novel tortious “duty to act in good faith”. The appellant disputes the duty, the finding of breach and the award of exemplary damages. The worker contends, if necessary, that an implied contractual duty to “deal fairly and in good faith” would sustain the verdict, at least as regards the award of compensatory damages.

2 The ensuing order for costs on an indemnity basis is also challenged. It stemmed from the rejection of settlement offers from the worker during the currency of the litigation in the District Court.

3 The tortious and contractual duties are each said to arise out of the scheme for addressing workplace injuries embodied in the WC Act and the Workplace Injury Management & Workers Compensation Act 1998 (WIM Act). Employers are required to insure against their statutory liability to pay compensation and their (modified) common law liability to pay damages to injured workers and others. At the time with which this case is concerned, the contractual cover was spelt out in a prescribed Policy of Insurance (WC Act, s159; Workers Compensation (General) Regulation 1995, cl 52 and Schedule 1, Form 4).

4 Section 159(2) of the WC Act requires the Policy to provide that the insurer, as well as the employer, is directly liable to any worker insured under the Policy to pay the compensation under the Act or any other amount independently of the Act for which the employer is liable. The insurer’s liability to a worker under the Policy is enforceable as if the worker were a party to the Policy (s159(5). See also Form 4, cl 5.) Clause 24 of Form 4 concludes with stipulations that the Policy is subject to the provisions of the Act and regulations under the Act and that those provisions are taken to form part of the Policy.

5 HIH (hereafter referred to as the insurer) was the insurer of the worker’s employer (Transfield Worley).

6 On 11 August 1999, the insurer was notified that the worker claimed compensation arising out of an injury said to have occurred on 2 August 1999. The worker and another fitter were tightening bolts in and around the flanges of pipes that they had been joining. The worker said he felt a pain in his left shoulder. The claim was that repetition of tightening 2 inch nuts was responsible for the injury. A medical certificate from the worker’s general practitioner was attached.

7 The attached Employer’s Report of Injury said, however, that the cause of injury was:

“unknown not recorded in the first aid register employer unaware of any injury”.

Circumstances surrounding this claim are of concern

- employee initially off sick with the flu

- no record of injury in the first aid register

- employer not informed until 9/8/99 at 5pm of the alleged injury

- backdated WorkCover Certificate.

Suggest that this claim be thoroughly investigated.

8 The worker attended work on 3 August 1999 but pain in his shoulder worsened and he left one hour early. He returned to work on light duties on 12 August 1999, remaining until 8 October 1999 when his employment was terminated.

9 Section 93 of the WIM Act effectively required weekly payments of compensation to commence no later than 21 September 1999. On that date the insurer notified the worker that it had insufficient information to enable a decision to be made regarding the claim and that, pending receipt of a report from the worker’s treating doctor, the status of the claim remained “pending”. The insurer said that it was “now required to commence payment of weekly benefits. Payment will be made from date of incapacity until such time that a decision is made on the status of your claim”. (The insurer referred to s102 of the WC Act, a provision that had by that time been repealed and replaced by s93 of the WIM Act. Nothing turns on this misnomer.)

10 On 8 October 1999 the insurer informed the worker that the claim for compensation in respect of injury to the shoulder had been accepted. The worker was to be entitled to his award rate per week. The insurer requested the employer to ensure that payment of any outstanding compensation be made as soon as practicable. The worker was asked to contact his employer with any queries regarding weekly benefit and to submit all medical accounts to be forwarded to the insurer through the employer.

11 Compensation matters proceeded smoothly, as far as the worker was concerned, until January 2000. Weekly compensation was paid and medical expenses attended to. During this period the worker was being treated by his general practitioner, Dr Avila, who referred him to Dr Manohar who in turn referred him to a neurologist, Dr Lethlean.

12 The insurer arranged for the worker to be assessed by Dr Bodel, orthopaedic surgeon. Dr Bodel first reported on 1 September 1999. The recorded history was that the worker began to develop weakness and later pain in the neck and left shoulder girdle region at work on 2 August 1999. He was working with a co-worker, tightening 1¼ in diameter bolts on large metal flanges. He completed the shift on the day that he first noted the symptoms but the following day he had to seek treatment from his doctor, Dr Avila. Dr Bodel observed that the patient was back at work on light duties with the assistance of the rehabilitation facility, IRS. The patient said that his condition initially worsened but had now stabilised.

13 Dr Bodel advised that the worker had probably suffered a disc injury in the cervical spine. The worker would require plain x-rays of the cervical spine and probably an MRI scan. Dr Bodel thought that it was too early to assess the long-term permanent impairment but he anticipated improvement with further conservative treatment.

14 Reports from Drs Avila and Manohar were forwarded to the insurer. They were generally favourable to the worker’s entitlement to compensation. So too was a follow-up report dated 29 September 1999 from Dr Bodel.

15 Perhaps unknown to the worker, the insurer was investigating the genuineness of the injury and the degree to which employment had contributed to it. Under s9A of the WC Act no compensation was payable in respect of an injury unless the employment concerned was a “substantial contributing factor to the injury”. As indicated, the employer had reported that it was unaware of any injury before 9 August and that it was concerned about the genuiness of the claim. The insurer commissioned Milne & Associates Pty Ltd to investigate the claim closely; and it directed the worker to attend Dr Lloyd Hughes, consultant orthopaedic surgeon, for medical assessment.

16 When the insurer subsequently decided to discontinue compensation it had, on the one hand, a detailed statement from the worker and a body of medical opinion from treating doctors and from Dr Bodel largely supportive of the worker’s position; and on the other hand a report from the insurance assessor, as well as a medical report from Dr Hughes dated 24 December 1999 that were in substance negative.

17 The report from the assessor is dated 17 September 1999. It refers to the worker having been treated by his general practitioner, Dr Avila. The report was based substantially upon information gleaned from interviews with the worker, his assistant Mr Rasmussen, his foreman Mr Collins and the employer’s safety officer, Mr Saggus. Only the worker was “formally interviewed”. The report concluded:

CONCLUSION

On or about 2nd August the Claimant was again apparently feeling the affects of a viral infection. He also describes feeling a discomfort in his left shoulder. While Wayne Rasmussen asserts that Garcia reported to him shoulder pain after using a spanner, we question that evidence.

Forearm [sic] Tony Collins insists that the Claimant twice told him that he was uncertain of the cause of the shoulder pain. He also says that when Garcia rang him to report off sick, he cited flu as the primary reason.

In our view, the suggestion that Garcia did not know the cause of the pain is supported by Dr Avila’s failure to issue a WorkCover Certificate when he initially treated him. Had Garcia mentioned that he had hurt the shoulder while using a spanner, then the doctor would have processed the report as work-related.

We suspect that it was not until the Claimant became aware of the apparent seriousness of the injury that he decided to allege that it was work-caused. There is no other plausible explanation for the Claimant’s delay in making his allegation.

However, in saying this, we also believe it likely that his long history working as a Fitter has possibly caused the condition. Rather than a specific incident, we opine the problem is the cumulative effect of repetitive use of his limbs over many years.

18 Dr Hughes examined the worker on 20 December 1999 and reported to the insurer on 24 December 1999. He records a history of “gradual onset of discomfort” in the left shoulder on 2 August 1999 while at work. Dr Hughes’ opinion was:

This man’s history suggests that he developed an acute cervical disc lesion in August this year as a result of a degenerative process in the disc involved. There is no history of any injury and the condition is not work related and his symptoms commenced coincidentally while he was working. As his symptoms have not resolved completely he is not yet fit to resume heavy physical work, but he is fit for light physical work and the only treatment he requires is a neck exercise program which will hasten the resolution of his symptoms.

He has not suffered any permanent impairment of his neck or upper limbs as a result of any accident in question, as there has been no accident.

19 Armed with this information, the insurer decided to discontinue compensation, including weekly payments. The taking and maintaining of this position was found by the trial judge to be contrary to all reasonable standards of commercial behaviour, malicious, not in good faith, not honest and done without proper regard for the worker’s interests. These were the breaches of the tortious duty that grounded the award of compensatory and punitive damages challenged in the appeal.

20 Section 54 of the WC Act required the insurer to give two weeks notice and to provide particular information to the worker concerning its intention to discontinue weekly compensation and the worker’s rights in that event. These formalities were complied with on 7 January 2000.

21 The insurer was also required, by s74 of the WIM Act, to give notice and reasons in prescribed form in the event that it disputed liability to pay compensation. This formality was also complied with by a separate letter dated 7 January 2000. The letter denying liability relevantly stated (emphasis in the original):

Following investigations of your claim, we wish to advise that liability has been denied for the following reason.

In our opinion

recent medical evidence indicates that the current symptoms are related to a degenerative condition and any aggravation caused by the incident on 2/8/99 has now ceased.

Our opinion is based on

a medical report from Dr Hughes dated 24/12/99.

Please find attached a Notice of Discontinuance of Compensation Payments.

If you wish to dispute our decision to decline your claim, you may make an application to the Workers Compensation Resolution Service (WCRS) for conciliation. A form to request conciliation is attached. If you wish to have your claim conciliated, please complete this form and return it to the address on the back of the form.

You may also seek advice or assistance from your trade union or a solicitor. However, you are not permitted to commence proceedings in the Compensation Court until the dispute has been referred for conciliation.

If you would like further information about your claim you may contact [various persons and bodies].

22 The worker remonstrated by telephone to the insurer, but to no avail. On 14 January 2000 his solicitor, Turner Freeman, wrote to the insurer requesting reconsideration of the decision to deny liability. The letter advanced reasons supportive of the worker’s position and critical of the stance adopted by Dr Hughes.

23 The worker (through his solicitor) also referred the matter to the WCRS. A request for conciliation was filed on 18 January 2000 accompanied with medical and other material supportive of the worker’s case.

24 The insurer then retained its own solicitors, Moray & Agnew.

25 Weekly payments ceased on 21 January 2000. It is not clear whether the worker continued to forward claims for medical expenses, but if this occurred, those claims were declined. On 11 February 2000 he commenced receiving an unemployment pension at a rate significantly below the rate of weekly compensation previously paid.

26 The conciliation conference occurred on 9 March 2000. Its outcome was notified on the spot but formally certified some months later in the following terms:

At the Conciliation Conference on the 9 March 2000 the parties were unable to agree by reason the insurer’s medico-legal report of Dr Lloyd Hughes stated, among other things “… the condition is not work related and his symptoms commenced coincidentally while he was working.” The parties did discuss at length the opinion of Dr Hughes in light of the history related by the worker and medical evidence before the insurer from Dr Matheson, Dr Lethlean and Dr Manohar. While in this matter I decided not to make a direction pursuant to section 95 of the Act I recommended that the insurer review its decision. The duration of the conference was from 4.30pm to 5.45pm.

27 This evidence corroborates that the insurer’s concern was not that injury occurred. Rather, it was the issue of its causation.

28 On 5 May the worker’s solicitor filed an Application for Determination in the Compensation Court. The Application claimed weekly compensation from 22 January 2000, “Section 60 expenses” (ie compensation for the cost of medical or hospital treatment and rehabilitation) and interest. Issue would have been formally joined when the employer filed an Answer in June 2000.

29 The worker’s solicitors appear to have made no attempt to expedite the proceedings in the Compensation Court and it is no part of the worker’s case that the insurer breached its duty by the manner in which it and its representatives conducted themselves in the conciliation proceedings or the litigation that followed. The worker’s case focussed upon the decision-making associated with the denial of liability and discontinuance of weekly payments that occurred in January 2000. As seen below, the findings of breach were similarly confined.

30 Proceedings in the Compensation Court were eventually listed for hearing on 4 April 2001.

31 On that day the insurer indicated that the claim for compensation had been re-accepted. (Nothing turns on this, but by that stage the insurer had passed out of the control of the now insolvent HIH Group into the control of the NRMA Group of companies. The major companies in the HIH Insurance Group were placed into provisional liquidation on 15 March 2001.)

32 The proceedings in the District Court were instituted before the commencement of the Civil Liability Act 2002.

33 The findings of Judge Goldring as to damage and damages flowing from cessation of compensation (apart from the recoverability of exemplary damages) were not in dispute.

34 The learned judge held that the denial of compensation entitlements caused the worker to suffer a dramatic loss of income. The worker felt humiliated in having to attend CentreLink to apply for “handouts” and he became very anxious about the welfare of his wife and young family. He was depressed and embarrassed about what he considered a wholly unjustified situation. Depression increased as he became aware the he could not provide for his family. His behaviour at home became abusive and angry. Sexual relationship with his wife ceased. He became clinically depressed, with thoughts of suicide. He received counselling to help him deal with the daily pain he was suffering in his neck, shoulder and arm.

35 In May 2001 the worker received a lump sum payment of $20,430 after proceedings in the Compensation Court. There would have been no interest component, for reasons indicated below. The worker was financially worse off because his weekly payments had been cancelled and this loss was not compensated by his unemployment benefits.

36 By the time the weekly payments had recommenced all of the worker’s savings had been spent and he owed money to family and friends.

37 Judge Goldring found that the insurer’s actions in ceasing periodic payments and in refusing to pay for surgery to the worker’s spine at the time recommended by his doctor significantly aggravated the worker’s major depressive illness (J137). Other injuries of a physical and psychiatric nature were found attributable to the insurer’s wrongful act (J171-182). There were also findings as to economic loss (J183-193).

38 Damages under the following heads are not in dispute as regards causation and quantum:

Head of damages	Amount (in $)
General damages	$ 90,000.00
Economic loss
Loss of past earnings	$ 35,000.00
Loss of future earning capacity	$120,000.00
Future out-of-pocket expenses	$ 26,690.00
Past domestic care	$ 25,425.00
Future domestic care	$ 74,842.50

39 In addition, there was an award of $50,000 for “punitive and exemplary” damages bringing the total damages to $421,957.50. To this was added interest totalling $29,360.00 resulting in a verdict for the plaintiff for $451,317.50. The punitive component is disputed as to liability, but not quantum.

40 The worker testified, but principally as to damages. Apart from his testimony as to what had happened on the occasion he was examined by Dr Hughes, the evidence supporting the allegations of want of good faith was almost exclusively documentary.

41 The appropriate focus of attention was accordingly the information communicated to the insurer as distinct from the “objective” reality of what had happened to the worker on 2 August 1999.

42 The appellant did not call the insurer’s employees who had participated in the key decision-making (Ms Hutchison and Ms Abrahams). Their absence was unexplained.

43 The primary facts as found by Judge Goldring were not challenged in the appeal. The relevance of findings as to what had actually happened to the worker on 2 August 1999 (J19-20) and as to what actually happened in Dr Hughes’ surgery (J72) was, however, disputed. The appellant also disputed the conclusions as to bad faith that the primary judge drew from the primary facts.

44 The pleaded claim described the statutory Policy as “the indemnity agreement”. It averred an implied term of that agreement that the insurer would “deal fairly and in good faith with” the worker; and that the content of the insurer’s tortious duty was “a duty to act in good faith towards the plaintiff in relation to any claims made under the Act by the plaintiff”.

45 Both the implied term and the tortious obligation were said to arise out of the terms of the Policy and/or the statutory scheme.

46 It was not suggested at trial that the worker had a claim for breach of statutory duty in the sense of a right to damages stemming directly from breach of a particular statutory provision. No such claim was pleaded (cf Murfin v United Steel Companies Ltd [1957] 1 WLR 104b). A tortious duty is capable of arising directly from a statute in the sense that breach of a provision, without superadded fault, may sound in damages. The principles are well established, but were not engaged in the present case for several reasons including absence of any basis for the necessary statutory implication (see Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 at 58[157] per Gummow J; Brodie v Singleton Shire Council (2001) 206 CLR 512 at 633[325]-[326] per Hayne J). The worker placed no reliance on any particular provision as the source of the right he claims. Judge Goldring spoke of the duty as existing “independently of the details of the legislative scheme” (J162).

47 On appeal, the worker sought belated leave to file a Notice of Contention. Leave was granted as regards paragraphs restating claims as to the contractual duty and breach that had been agitated at trial. The Court reserved its decision on granting leave with regard to para 1 of the Notice. The appellant submitted that this went beyond the case pleaded and fought at trial, at least insofar as it hinted at a free-standing claim for damages for breach of statutory duty, especially a duty stemming from s74 of the WIM Act. I would refuse such leave. The point is raised far too late. It goes beyond the pleaded causes of action. It is also groundless (see para 139 of these reasons). The worker has been allowed to develop fully his defence of the trial judge’s decision as regards the tortious duty and its breach. No notice of contention is required for that purpose, because the submissions are directly responsive to the appellant’s case on appeal.

48 Judge Goldring described the worker as a beneficiary of the indemnity agreement in the Policy, citing Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107. In fact, the contractual relationship stems from the clear language of s159(5) of the WC Act. But nothing turns on this, because the matters at issue as regard contract are the terms of the contract and the remedies flowing from breach. The worker pleaded an implied term and his arguments in the District Court and this Court were to the effect that the term requiring fair dealing and good faith was implied in law.

49 Judge Goldring indicated that because of the conclusion he reached in relation to the tort claim it was unnecessary to decide the implied contract issue.

50 His Honour found that there was a tortious duty to act in good faith. The decision rested effectively upon the reasoning of Badgery-Parker J in Gibson v Parkes District Hospital (1991) 26 NSWLR 9 that Judge Goldring adopted. His Honour correctly recognised that Gibson involved an application to strike out a pleading. He nevertheless concluded that the reasoning was both directly on point and compelling. Judge Goldring discussed later decisions from other jurisdictions, concluding (in broad terms) that they were either distinguishable or not to be followed in so far as they had expressed reservations about the correctness of Gibson.

51 I shall return to the reasoning in detail, the appellant’s challenges to it, the worker’s defence of it and his alternative contract case.

52 His Honour found that the insurer had not acted improperly in seeking a medical opinion from Dr Hughes (J72). He recognised that there may have been some uncertainty as to the cause of the worker’s injury and of its nature in the early stages of the insurer’s handling of the claim (J167). The findings as to breach were expressed in the following terms (J167-169):

167. In this case the insurer, having indicated that it accepted the responsibility to pay periodic payments and medical expenses, ceased to do so, purportedly on the basis of the opinion of Dr Hughes. Undoubtedly if an insurer, having considered the issues fairly, considers that, for example, an injury was not inflicted in the course of employment, it is entitled to cease payments. In this case, there may have been some uncertainty in the early stages as to the cause of the plaintiff’s injury and of its nature, but in my view a reasonable insurer would have regarded this matter as concluded in the plaintiff’s favour at least by the time it received the report of Dr Bodel. HIH, by its actions and in its communications with the plaintiff and his solicitors, appeared to have reached that conclusion. All the evidence is, however, that the insurer (through its servants Ms Hutchison and Ms Abrahamse, at least) was already predisposed, if not totally prejudiced, against the plaintiff, and used the report of Dr Hughes, which was contrary to all other medical reports, as a pretext arbitrarily to cease paying the entitlements of the plaintiff. In my view, the actions of the insurer could be described as contrary to all reasonable standards of commercial behaviour and malicious.

168. There are other reasons why I find there was a breach of the duty of good faith:

(a) The insurer was, at all relevant times, in possession of reports of the treating general practitioner, of the independent treating specialist, Dr Manohar, and in addition, several reports from the first expert it had qualified, Dr Bodel. All these reports unanimously attributed the plaintiff’s physical injury to his work. It did not seek reports from other medical specialists who, it was clearly aware, had either examined or treated the plaintiff, ie Dr Lethlean and Dr Matheson. The insurer was undoubtedly entitled to seek a further opinion, and it sought an opinion from Dr Hughes. The plaintiff’s evidence, which was not in any way challenged in cross-examination or by calling Dr Hughes, was that Dr Hughes saw him for less than two minutes and did not make a complete physical examination. Nevertheless, the insurer then decided to terminate the plaintiff’s compensation payments. It indicated that it had done so on the basis of the content of Dr Hughes’ report. Further, despite a statutory obligation to do so, and several requests from the plaintiff’s solicitor, it refused to disclose the contents of Dr Hughes’ report to the plaintiff or his legal representatives for almost one year after it received the report. The insurer also had the plaintiff examined by Dr Polgar, but apparently did not rely on anything contained in his reports. In any event no report from Dr Polgar was ever provided to the plaintiff. In acting in these ways, the insurer flew in the face of the overwhelming weight of medical evidence. I infer that it do so simply because it was looking for a pretext not to pay the plaintiff’s claim.

(b) In the letter in which it denied liability, HIH admits that an incident occurred to the plaintiff on 2 August 1999 while the plaintiff was at work, though it asserts that the plaintiff’s current condition was not related to that incident. Dr Hughes was the only medical expert who took this view. Every other medical expert, including those retained by HIH took a contrary view.

(c) The most obvious example of this relates to the use by HIH of the opinion of Dr Hughes. The consultation between Dr Hughes and the plaintiff on 20 December 1999 was, at best, superficial. Dr Hughes is a medico legal expert. Dr Hughes’ opinion was in direct conflict with Dr Bodel’s opinion, as well as the opinions of the treating doctors. HIH had no reasonable basis to prefer Dr Hughes’ opinion, when the dominant medical view was that the plaintiff’s injury was consistent with what happened to him at work, and if it had acted fairly and honestly, that is, in good faith, it would not have done so. No other doctor considered that the plaintiff’s condition was due to degeneration.

(d) When HIH ultimately received all the reports of Dr Manohar and those of Dr Lethlean and Dr Matheson, it took no action to review its decision to reverse its action.

(e) It is clear from the way in which officers or employees of HIH dealt with the plaintiff’s claim from 7 January 2000 to 7 April 2001, that it had pre-judged the merits of the claim and was not prepared to receive or act on evidence which was contrary to its prejudiced view. The refusal of the insurer to consider the medical opinions is part of this pattern, as was its decision to contest the claim in the mediation proceedings before the conciliator and in the Compensation Court, when, on any reasonable view of the evidence, such resistance was bound to fail. That is also evidence of bad faith.

(f) The plaintiff says that the insurer’s obligation could only be discharged if the insurer sought reports from the plaintiff’s treating doctors, specifically, Dr Manohar, Dr Lethlean, and possibly Dr Matheson. The 1998 Act requires the insurer to liaise with the plaintiff’s treating doctors prior to deciding to deny liability. It is not necessary for me to decide whether I accept the plaintiff’s contention as to the construction of the Act, but I am satisfied that it was the insurer’s obligation, if it was acting in good faith, to seek reports from all treating specialists who it knew had examined or treated the plaintiff, before it denied the plaintiff’s claim. No reports were requested by HIH from Dr Manohar or Dr Lethlean, or from Dr Matheson, before it denied the claim. Regardless of any statutory obligation, this omission was also in bad faith, as such reports should have been requested as soon as HIH knew these doctors had seen the plaintiff.

(g) NRMA Workers Compensation purchased HIH’s Workers Compensation business on or about 23 March 2001. Less than two weeks after this date (ie 4 April 2001), NRMA Workers Compensation agreed to recommence the plaintiff’s weekly payments as well as to pay for any medical treatment he may need. The fact that, with a change of management, the plaintiff’s entitlements were reinstated virtually immediately after an objective manager took over the business is further evidence that the behaviour of HIH was unreasonable, if not malicious and dishonest.

(h) The plaintiff submits that the actions of HIH in arranging to have the claim investigated by an investigator after it had received medical reports, including reports from its own expert, Dr Bodel, attributing the plaintiff’s injury to an incident at work, was done in bad faith. If no other evidence of bad faith were available, this might be so regarded, but in the circumstances, it is unnecessary for me to decide whether not it is.

169. In this case, I conclude that the insurer did not act in good faith. It certainly had no obligation to subordinate its legitimate interests to that of the plaintiff, as some of the plaintiff’s submissions seem to suggest, but it appeared to act contrary to all the relevant evidence, and to fail to obtain material which would have indicated that the plaintiff’s claim was justified. In so doing it did not act honestly or regard properly the plaintiff’s legitimate interests.

53 Later, when explaining the award of exemplary damages, his Honour said (J199):

I have already determined that the insurer’s action in stopping the periodic payments to the plaintiff was done in bad faith. It was malicious, reprehensible and done in total disregard of the plaintiff’s rights and of his health. It fell, in my opinion, squarely within the type of case contemplated by the High Court, that is, a case where the defendant has acted recklessly without regard to the plaintiff’s rights, and it is appropriate that an award of exemplary or punitive damages be made. HIH’s conduct was high handed and deliberate. It had no regard for the plaintiff or his family, in that it knew that (a) the plaintiff was a worker who had received an injury at work; (b) the plaintiff was supporting both a wife and child; (c) the plaintiff was in a vulnerable position, because he was unable to support himself and his family without the weekly payments because he had no other form of income and (d) because of the injury (for which he was compensated under the workers compensation legislation) he was suffering chronic pain. Yet it determined to cease weekly payments and to continue to deny the claim after being provided with various reports. The plaintiff’s feelings and dignity were affected by the cancellation of weekly payments. He was made to feel as if he was a malingerer. He felt stigmatised socially. He was made to feel embarrassed and ashamed.

54 In my view, the findings as to breach can be summarised in the following propositions:

(i) The insurer should have regarded the matter as concluded in the worker’s favour by the time it received Dr Bodel’s report.

(ii) “All the evidence” showed that the insurer was already predisposed, if not totally prejudiced, against the worker even before it got the Hughes report.

(iii) Dr Hughes’ report was contrary to all other medical reports. No other doctor considered that the worker’s condition was due to degeneration.

(iv) The Hughes report was based upon a “superficial” examination. (This was found to be the fact, although not found to have been known to the insurer when it first made its decision.)

(v) There was no other evidence justifying the insurer’s stance.
(vi) The insurer’s failure to seek reports from the treating specialists or to review its stance when asked to do so strengthened the inference of bad faith.

(vii) The insurer’s subsequent conduct in refusing to disclose the contents of Dr Hughes’ report for almost a year and its failure to disclose any report from Dr Polgar, who also examined the worker at its request, supported the inference that the insurer was “looking for a pretext” not to pay.

Was there a tortious duty?

55 Judge Goldring acknowledged that the tort was a novel one in Australian law. He recognised that the cause of action did not arise under the principles of negligence (J146, 148).

56 His Honour confined himself to the situation as between an insurer and a worker and in relation to the statutory Policy regulated by the WC Act and the WIM Act. He nevertheless held that a tortious duty requiring the insurer to act in good faith exists “independently of the details of the legislative scheme” (J162). The duty was said to be mutual as between insurer and worker (J148, 162). As regards the insurer, it included “the duty to receive and process bona fide claims by workers without bias or prejudice” (J148). It was “a general responsibility, in appropriate cases, to provide compensation and to deal honestly and fairly, that is, ‘in good faith’ with the worker” (J162). The judge cited with approval Badgery-Parker J’s description of the content of the duty as a duty not to “in bad faith reject, underestimate or delay payment of a worker’s claim for workers’ compensation” (Gibson at 25).

57 The appellant submitted that the statute did not require, let alone call forth, this novel tort. I agree. The judge’s formulations of the duty revealed a cause of action that cut across the legislative and contractual framework, in some respects shattering the coherence of the scheme. The weight of the authorities do not support the duty.

58 I respectfully adopt the remarks of Lord Hoffmann in OBG Ltd v Allan [2007] UKHL 21 where he said (at [57]) that "it is not for the courts to create a cause of action out of a regulatory or criminal statute which Parliament did not intend to be actionable in private law". See also Baroness Hale of Richmond at [305]. Where substantive and procedural obligations are spelt out in detail with their enforcement remitted (in the main) to a court, then the silence of the legislature as regards a duty of fair dealing that sounds in damages is pregnant with the rejection of any such duty (see also Brodie at 634[327] per Hayne J).

59 The worker's claim invokes a broad principle at a high level of generality. I would agree with Professor Peter Cane "Mens Rea in Tort Law" (2000) 20 Oxford Journal of Legal Studies 533 at 552 that:

The search for “general principles of liability” based on types of conduct is at best a waste of time and at worst a potential source of serious confusion; and the broader the principle, the more is this so. Tort law is a complex interaction between protected interests, sanctioned conduct, and sanctions; and although there

are

what might be called "principles of tort liability", by and large, they are not very 'general'. More importantly, they cannot be stated solely in terms of the sorts of conduct which will attract tort liability. Each principle must refer, as well, to some interest protected by tort law and some sanction provided by tort law.

OBG Ltd v Allan

60 The broad framing of the putative tort or the implied contractual term masks the types of conduct the duty is aimed at. This sounds a note of caution about the duty itself. A duty to act in good faith is obviously wider than a duty not to act dishonestly or fraudulently. But it is obviously narrower than a duty of a fiduciary nature requiring the obligee to put the other party’s interest above its own. It is also narrower in scope than the obligation of utmost good faith of those about to enter into an insurance contract to make full disclosure of facts relevant to the insurance risk. Even those American courts that have spoken in unison in recognising a tortious duty have been Babel-like in their differing findings about the conduct that does or does not fall within the duty (see John Lowry and Philip Rawlings, “Insurers, Claims and the Boundaries of Good Faith” (2005) 68 Modern Law Review 82 at p94). Judge Goldring’s various summations of his findings as to breach also reveal questions and ambiguities as to the proper scope of the duty itself.

61 The High Court has recently issued stern warnings against intermediate courts of appeal stepping beyond long-established authority derived from English precedents or considered dicta of the High Court itself (Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 at [134]). I am unaware of any discussion in the High Court of the matter at hand apart from the remarks of Stephen J in Distillers Co Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 discussed below. But the present case lies well past that point on the plank where even bold judicial spirits might think to stand without firm external support or compelling analogy in the existing case law.

62 The worker argues in favour of a new tort, not just a new duty of care within the framework of the existing law of negligence. The tort is not an action for breach of a specific statutory duty, but to have a role to play it must of necessity find its place within the interstices of the statutory framework.

63 When pressed, senior counsel for the worker argued that the new tort was confined to the scheme of insurance for workplace injuries established by statute in New South Wales. Every stream must start somewhere, but this particular legislative scheme is an unpropitious source for a principle which, when declared, is to be regarded as part of the common law of Australia. If the task were not difficult enough already, the worker must also demonstrate that the tort lies within the interstices of the (statutory) contract.

64 Issues of coherence arise at several stages. The putative tort must not contradict the terms or policies of the statutory and contractual frameworks within which it would be placed. Similarly, the putative implied contractual term must cohere with the statutory framework, a fortiori in a situation where the contract itself (ie the Policy) is the creature of statute. As to the general importance of coherence, see Sullivan v Moody (2001) 207 CLR 562 at 581[54]-[55], Koehler v Cerebos (Australia) Ltd (2005) 222 CLR 44 at 56[31].

65 Reference to coherence prompts a further generalisation. It seems to me that it is wrong in principle to contemplate any role for tort unless and until the contractual ordering of a relationship is understood and respected. In ordinary cases of freely negotiated bargains, this deference reflects the parties’ entitlement to frame the basis upon which they will interact. A contract regulating the delivery of a system of workers compensation and work-related damages is not of this nature. But the fact that the contract and the scheme it serves are both statutory and (in a sense) compulsory, reinforces the need to understand and respect the contract first, before venturing to the law of torts as a gap-filler. A fortiori, a gap filler that, according to the worker, delivers remedies such as exemplary damages and recompense for delayed payment that both the statute and contract law generally withhold.

66 Citing the remarks of Lord Rodger of Earlsferry in Sutherland v Hatton, Barber v Somerset County Council [2004] 1 WLR 1089 at 1101[35], the joint judgment of McHugh, Gummow, Hayne and Heydon JJ in Koehler said (at 55[24]):

[I]t is only when the contractual position between the parties (including the implied duty of trust and confidence between them) “is explored fully along with the relevant statutory framework” that it would be possible to give appropriate content to the duty of reasonable care upon which an employee claiming damages for negligent infliction of psychiatric injury at work would seek to rely.

67 It is not suggested that the relationships between a worker, an employer and a statutory insurer is fiduciary in the sense that it calls forth an overarching duty in one player to serve the interests of the other in the handling of a disputed claim.

68 United States and Canadian law has been receptive to an insurer’s duty of good faith in some respects (see generally Lowry and Rawlings, op cit). But history shows the earliest stirrings to have been contractual, fanned by an acceptance in those countries of overarching contractual duties of good faith such as that recognised in The Restatement, Contracts (2d) §205 (“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement”). The Canadian common law of insurance contracts has in recent years come to recognise a similar duty (Lowry and Rawlings, op cit, pp101-104).

69 As I demonstrate below, the Australian common law (like that in England) has yet to go that far as regards contracts generally and insurance contracts in particular. It is true that s13 of the Insurance Contracts Act 1984 (Cth) implies a similar duty for insurance contracts within its remit. But that was a statutory advance designed to remove doubt (see Australian Law Reform Commission, Insurance Contracts, Report No 20, Australian Government Publishing Service, Canberra, 1982, §328). There are several statutory exceptions (s9), including contracts entered into for the purpose of State laws relating to workers compensation (s9(1)(e)).

70 The contractual jurisprudence of the American jurisdictions is marked by a plethora of statutory overlays and dramatic variations regarding what constitutes want of good faith (Lowry and Rawlings, op cit, pp92-7). Litigants and bolder courts have tended to reach for tort in order to sidestep limitations attending a contractual frame of reference (id, pp97-101) and this has been controversial on many fronts, not just matters of taxonomy within the law of civil obligations.

71 “Discovering” a new tort is fraught with difficulties and paradoxes. Those emboldened to try might be well advised to heed the cautionary warnings offered by Anita Bernstein, "How to Make a New Tort: Three Paradoxes" (1997) 75 Texas Law Review 1539. The learned author points out that where American courts have allowed a claim against an insurer for bad-faith refusal to provide benefits under an insurance policy they have invoked "[c]ontract traditions . . . [to] lend old-fashioned respectability to a partially revealed new tort" (at p 1551). She states that "[e]ven when judges believe that the contracts label would keep damages too low to compensate plaintiffs for the harms of bad faith, they find the contract label reassuring, a device to keep entitlements less visible" (at pp 1550-1). See also Gerald H L Fridman “The Evolution of New Torts” in Mullany & Linden (eds), Torts Tomorrow: A Tribute to John Fleming North Ryde, Law Book Company 1998 especially at pp286-8.

72 Three problems at once present themselves, demonstrating powerful arguments why the new tort should not be granted easy passage if invoked to trump the “inadequacies” (from a plaintiff’s point of view) of contract. They concern: exemplary damages, damages for delay and damages for disappointment.

73 Australian law has thus far not accepted exemplary damages for breach of contract (see Grey v Motor Accident Commission (1998) 196 CLR 1 at 6, Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at 307[28], 333[181], 361[294]). This embargo and the policies it reflects, many of them clustering around the label of “efficient breach”, offer strong arguments against creation of a novel tort that would overstep this outcome in an area where a contract - and a statutory one at that - occupies centre stage. I do not feel justified in entering the field of exemplary damages by the back door.

74 The second broad barrier relates to the approach taken by the common law to compensating for the impact of delay in meeting a contractual claim.

75 The normal framework within which a plaintiff’s entitlement to timely indemnity under an insurance contract is addressed is by way of an award of interest, almost invariably resting upon provisions such as s100 of the Civil Procedure Act 2005. The common law regards a claim for indemnity under an insurance contract as an action for damages, not debt (see F & K Jabbour v Custodian of Israeli Absentee Property [1954] 1 WLR 139). A contractual or tortious duty of good faith that offers compensatory damages with reference to all losses stemming from an unjustified delay in meeting a just insurance claim cuts directly across this framework of reference. And when one moves to the particular field of claims under the WC Act and the WIM Act the matter becomes more acute given that each Act closely confines interest awards (see WC Act, s151M (interest on damages), WIM Act, ss109-111 (interest on compensation awards)).

76 Damages for unjustified delay in meeting an insurance claim may be recoverable, subject to the principles in Hadley v Baxendale (1854) 9 Ex 341; (1854) 2 WR 302 (see generally Hungerfords v Walker (1989) 171 CLR 125; The New Zealand Insurance Co Ltd v Harris [1990] 1 NZLR 10; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 411; Sprung v Royal Insurance (UK) Ltd [1999] 1 Lloyd’s Rep 1 R 111; Sempra Metals Ltd v Her Majesty’s Commissioners of Inland Revenue [2007] UKHL 34). The award in the present case was not based upon application of the rules in Hadley v Baxendale. The tortious duty simply sidestepped them.

77 A third field of concern stems from the law’s very tentative recognition of damages for disappointment, distress and injured feelings caused by non-performance of a contract (see generally JW Carter Carter on Contract Vol 2, Ch 42, §42-100). In the present case the psychiatric injuries suffered by the worker stem from the combination of his work injury and the insurer’s unjustified delay in meeting what was eventually found to be a just claim. If, however, there is a common law duty sounding in damages for mental distress caused by an insurer’s prevarication, then one could envisage claims (unlike the present one) in which psychiatric injury was not parasitic upon physical injury generating a just claim for compensation under the WC Act. In the upshot, the novel tort would offer remedies withheld by the law of contract and also (unless severely qualified) generate non-statutory compensation entitlements unless severely qualified.

78 My point is that compensatory and punitive awards of damages against insurers that play ‘hard ball’ too hard must grapple with these problems. If certain compensatory and punitive awards are precluded under a contractual analysis and if they would contradict aspects of the statutory scheme, then tort law should generally respect those limits. I cannot envisage any circumstances in the present context where tort law could ignore them.

79 I now turn to the issues of coherence as between the putative tort and the statutory scheme generally. The appellant submits that the duty identified by the primary judge is inconsistent with the proper discharge of the statutory obligations of a workers compensation insurer. It further submits that the posited duty and the remedies said to flow from it contradict the detailed statutory regime at several points.

80 At the highest level of generality, the novel tort and/or implied term would add significant unbudgeted cost to the statutory scheme. The new duty would introduce significant risks to the enterprise of insuring against workplace injuries. If, as Judge Goldring contemplated, the duty was mutual, it would add new risks to the enterprise of being a worker who makes a tendentious claim. If a particular cause of action exists then some will pursue it, for a range of motives. Their opponent’s exposure has cost implications.

81 Insurers are not charitable institutions, but neither are they mints. The insolvency of an insurer can be catastrophic. A parliament that creates a scheme of compulsory insurance needs to find insurers, unless it is prepared to allow the State to become the insurer of last resort. The unheralded introduction of new types of liability will necessarily disadvantage those upon whom it falls and lead in the longer term to higher premiums. When there are voluntary participants in a scheme, such as insurers, a judicially manufactured liability may impact upon their capacity to meet “ordinary” claims as well as deter others from entering the scheme as insurers.

82 Aside from the policy implications, the worker’s arguments founder on more particular points of practical and legal incompatibility with the legislative regime.

83 First, the duty contended for (and found to have been breached in this case) intersects sharply across the statutory mechanisms and the adversary context in which the whole scheme is embedded.

84 The scheme prescribes in detail the substantive and procedural rights and obligations of all participants. The types of injury for which compensation and/or damages may be recovered, the grounds of liability and the levels of compensation or damages available are spelt out in minute detail. Specific rules about interest (see above) and costs (see WIM Act, s112) exist. It is true that the existing corpus of tort and contract law forms the basis around which the rights of injured workers are to be addressed. But the scheme closely regulates and limits procedural and substantive rights, both as regards “common law” claims for damages in tort and statutory claims for compensation.

85 Within this framework, parties are permitted to pursue their rights with vigour and self-interest. Naturally, fraud and perjury are proscribed and there is much required to be disclosed in the several notices and notifications that attend a claim for compensation or damages, especially one that is contested. The worker may effectively be compelled to submit to medical examination. Attendance for mediation is now compellable. Once a claim goes to Court there is curial supervision of the parties and their lawyers. All of these matters reduce the need for an overarching duty of good faith (although not entirely).

86 Within this adversary and curial framework, participants are permitted to be self-regarding. No party (worker, employer or insurer) is “fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary” (to adopt the language of Barrett J in Overlook Management BV v Foxtel Management Pty Ltd (2002) ATPR(Digest) 46-219; [2002] NSWSC 17 at [67]). Workers, employers and insurers are generally permitted to have regard to their self interest and to keep their cards close to their chest. There are zones of confidentiality and legal professional privilege.

87 The scheme operates on the basis that, if a claim is not accepted or compromised, it is able to be sent to conciliation with the dispute ultimately determined by a specialist Compensation Court on the basis of the evidence presented at a trial. In the final analysis the legislature has adopted an adversary paradigm as the appropriate method to test the truth of claims and to supervise the defence of claims. A duty of good faith in the making or maintaining of a claim, breach of which sounds in damages, lies very uncomfortably with such a framework.

88 Statutory recognition of alternative dispute resolution was a late arrival but it armed conciliators with powers to give directions that compensation be paid (WIM Act, s95(2)). Alternative dispute mechanisms also funnelled unresolved disputes into the court system after minimal delay. A worker frustrated by prevarication on the insurer’s part has many remedies, including rights to notification of grounds of rejection of claims, rights to a detailed Answer if a claim is denied, the right to seek discovery, the right to an expedited hearing, the right to apply for an interim award (WIM Act, s108) and rights to special costs orders against parties that unreasonably fail to participate in conciliation if it appears to the Court that the failure has resulted in unnecessary litigation or has affected the rehabilitation of an injured worker (WIM Act, s112(6)).

89 At one stage, Judge Goldring referred to a “duty to receive and process bona fide claims by workers without bias or prejudice” (J148). Implicitly, this suggested that an insurer faced with a bogus claim might not be under such a duty. In reality, the proposition points to an inherent difficulty with the putative tort, not to mention the difficulty of deciding its boundaries. Sometimes an insurer may have grounds for suspicion. (I strongly incline to the view that this insurer did, having regard to the report from its assessor.) Why should an insurer be at risk of a claim for further damages if it decides to test the claim by rejecting it? (see also Bennett v Jones [1977] 2 NSWLR 355 at 370 per Moffitt P) The worker could at the time bring proceedings in the Compensation Court and obtain an order for an expedited hearing.

90 Secondly, claims of consequential loss that would arise under a duty of good faith lie uneasily with the detailed limits of claims under the WC Act and the WIM Act’s focus upon management of workplace injuries.

91 Part 2 of the WC Act spells out the basis on which liability for compensation may be determined. These include s9A’s restriction upon the payment of compensation in respect of an injury unless employment was a substantial contributing factor to the injury. At the relevant time, the Compensation Court had exclusive jurisdiction to examine, hear and determine all matter referable to compensation arising under the legislation (see WIM Act, s105). This would not have deprived the District Court of jurisdiction in the present claim, at least on the analogy of an action for damages against a solicitor whose negligence may have caused a worker to lose the right to bring a particular compensation claim. Nevertheless, a court of general jurisdiction deciding a claim based on the putative good faith tort would need to determine questions of liability on the basis of the proper application of the WC Act to the particular claim. The court would not necessarily have, as the District Court had in this case, the benefit of a res judicata on that matter stemming from the award made by consent in the worker’s favour on 4 April 2001.

92 Part 3 of the WC Act provides for compensation in respect of the death or injury of a worker. Where total or partial incapacity for work results from an injury, the compensation includes a weekly payment during the incapacity (s33). The amounts payable are fixed and in many cases do not bear interest (see above). Division 2 of Pt 3 (ss33-58) sets out detailed provisions regulating the circumstances in which liability to make weekly payments attaches or does not attach. In particular, s54 requires notice to be given before termination or reduction of payment of weekly compensation in many circumstances. Failure to give the notice is an offence. Section 55 provides for the review of weekly payments by the Compensation Court at the request of the employer or the worker or the WorkCover Authority.

93 The WIM Act introduced a strong focus on the management of workplace injuries, adding detailed provisions (in Chapter 3) seeking “to achieve optimum results in terms of the timely, safe and durable return to work for workers following workplace injuries” (s41(1)).

94 Chapter 4 of the WIM Act (ss60-142) prescribes the procedures surrounding the making and determination of claims arising out of workplace injuries. Of relevance to this appeal are the provisions requiring notices to be given as to the making and disputing of claims. It becomes harder to advance false claims or to reject meritorious claims in a context where detailed disclosure is the order of the day at every stage of the process.

95 The then s 67 of the WIM Act created an offence of making a statement knowing that it is false or misleading in a material particular in a claim for compensation made by the person or in a notice given under the Division of the Act (see now s235C). Such an offence obviously intrudes upon portion of the common that the putative tort would occupy.

96 Thirdly, the insurer’s statutory duties are closely monitored through a system of licensing and criminal penalties.

97 Chapter 4, Pt 2, Div 2 of the WIM Act (ss70-75) addresses in detail the conduct of insurers in the administration of claims for compensation or damages. Various duties are imposed, including duties on the insurer’s part to provide copies of reports to the worker (s73. See also s81) and to give notice and reasons when liability is disputed (s74). Breaches could also have adverse consequences with regard to the insurer’s licence (WC Act, s183).

98 Section 75 permits a Registrar or member of Commission to make a report to the Authority on various matters including (a) delays by insurers in dealing with claims under the Act, and (b) cases of the unreasonable cessation of weekly payments of compensation to injured workers by insurers. The Authority may take such action as it considers appropriate on the basis of any such report (s75(2)). Persistent or repeated failure of an insurer to comply with requirements imposed under Chapter 3 may lead to the cancellation or suspension of the insurer’s licence, a pecuniary penalty, an amendment to the terms and conditions of the insurer’s licence or a letter of censure (WIM Act, s55(2)).

99 The powers of conciliators extend to making recommendations, requiring information and giving directions (WIM Act, ss79-80). It is a criminal offence to fail without reasonable excuse to comply with directions under s80.

100 As indicated, s93 of the WIM Act requires the commencement of weekly payments of compensation within specified timeframes. Section 94 creates offences of failing to commence payments within the time required. It is also an offence to refer a matter to conciliation which the person concerned knows is not a genuine dispute, if this is done for the purpose of delaying, without good cause, the commencement of weekly payments of compensation.

101 Conciliation of disputes concerning claims for weekly payments of compensation or the continuation of weekly payments of compensation became a feature of the scheme after the commencement of the WIM Act. Section 95(2) empowers a conciliator to direct the payment of compensation if satisfied that there was no genuine dispute with respect to liability. Failure to comply with such a direction is an offence (s98). (The parties in the present matter went to conciliation on 9 March 2000. There was lengthy discussion in relation to Dr Hughes’ opinion upon which the insurer was continuing to rely. The conciliator decided not to make a direction pursuant to s95 although he recommended that the insurer review its decision. Presumably this took place.)

Gibson’s Case

102 Gibson stands as authority, resting upon the reasoning of a respected judge of the Supreme Court of New South Wales, that the claim in question is arguable in the sense that a pleading that avers it ought not to be struck out. (A search of the Supreme Court file discloses that the proceedings were subsequently resolved by consent.) But there are difficulties with Gibson, even within the four corners of its own reasoning. Furthermore, Gibson is not binding on this Court.

103 Badgery-Parker J correctly recognised that the putative tort was not a species of negligence (see at 16-17). Nevertheless, significant unexplained reliance was placed on decisions such as Anns v Merton London Borough Council [1978] AC 728 and decisions in England and Australia discussing that precedent. His Honour asked himself whether the tort now in question involved “elements of inequality and dependence apt to call for the recognition not only of a duty of care but of a duty of good faith” (at 25). Passages in the reasons (at 25, 33) reveal his Honour to have been of the view that similar jurisprudential considerations would determine whether a duty of care exists as relate to the issue of a duty to act in good faith. He did not explain why this is so and I am not persuaded that it is.

104 Judge Goldring’s reasoning in the present case also betrays some elision of the circumstances capable of giving rise to a duty of care and those said to generate the novel tort of good faith (see J159). He observed that it was “most important in deciding whether a tort based on a duty of good faith should apply” that the worker was in a vulnerable position (J163). Speaking of the instant case, he held that the insurer was aware:

a. of the extent of the plaintiff’s injury;

b. of the cause of the plaintiff’s injury (in the opinion of the medical experts save Dr Hughes);

c. that the plaintiff was not working and was financially dependent on the weekly payments to support himself and his family;

d. that the plaintiff was likely to need surgery;

e. that, if the insurer denied liability and treatment ceased the plaintiff’s condition was likely to get worse; and

f. that the plaintiff could not afford to pay for medical treatment.

105 The appellant is, in my view, justifiably critical of this portion of the reasoning for descending to such factual particularity as the basis for establishing a novel and wide-ranging tort.

106 Reference to the worker’s vulnerability also lies uneasily with the trial judge’s conclusion that the new tortious duty was mutual as between insurer and insured (J148, 162). Some claims of injury are made and maintained by workers in circumstances that could attract the criticisms directed by the trial judge at the insurer in the present case. It has never been suggested, to my knowledge, that they might entail a breach of the worker’s (tortious or contractual) duties of good faith.

107 Badgery-Parker J referred to developments in contract law. He pointed (at 21-3) to instances where a duty of good faith has been implied into a particular contract or class of contract.

108 There is, in my view, no analogy between the situation that exists between insurer and insured prior to the formation of an insurance contract and the present situation. And while there are situations where an implied duty of good faith in contractual performance has been recognised (see below), it is a much bigger step to find such a duty as regards claims recognition in insurance contracts generally. And, as already indicated, there are additional problems with arguing from contract to tort.

109 Judge Goldring also considered the search for the tort was assisted by recognising that certain duties of good faith were owed mutually by insurer and insured (J148, 162). He was at pains to emphasise the mutuality of the obligation. With respect, this reasoning is unhelpful and, at least to a degree, erroneous. Proof of a concurrent contractual duty of good faith suggests the need for real caution before reaching for a tortious backup, a fortiori if the resort to tort is part of an attempt to recover exemplary damages that would be unavailable in the contractual context. In any event, there is no universal common law duty of good faith in the performance of a contract of insurance (see further below).

110 The caselaw subsequent to Gibson has been hostile to reception of the tort.

111 In Gimson v Victorian WorkCover Authority [1995] 1 VR 209, McDonald J refused to permit an amendment alleging a tortious duty to deal fairly and in good faith in a case where an injured worker was seeking to recover damages for psychiatric injury stemming from the process of administration and investigation of his claim for compensation. McDonald J declined to follow Gibson, holding that there was no basis in law which could justify the alleged duty. He also found that the provisions of the Accident Compensation Act 1985 (Vic) did not give rise to such a duty in the particular circumstances of the case.

149 Judge Goldring had earlier held that it was not, nor could it be, suggested that HIH was not entitled to seek a medical opinion from Dr Hughes (J72). To the (uncertain) extent that the judge paid regard to the worker's evidence about his perception of Dr Hughes' examination being perfunctory, this should not have occurred. There was nothing to suggest that the insurer was aware of any such possibility at the time it made the critical decision to withhold benefits. The matter was raised when the worker’s solicitor wrote on 14 January 2000 requesting that the insurer reconsider its decision, asserting that “Mr Garcia states that Dr Hughes barely examined him”. It is possible that this matter was further ventilated at the conciliation conference on 9 March 2000. I do not see why this unverified assertion required the insurer to reverse its earlier decision upon pain of a finding of bad faith.

150 Second, the insurer had not had any opportunity to test the credibility of the history upon which the medical reports favourable to the worker depended, being a history from the mouth of the worker and no one else. The primary issue was the causation of the disabling shoulder condition, as distinct from the existence of the injury itself. The information disclosed in the assessor's report about the delay in reporting the injury and the information suggestive of alternative contributing factors demonstrates to me that matters were far from being clear-cut.

151 This leads to a third and related matter which ought to have been given weight. Section 9A of the WC Act meant that the worker had to establish that his employment had been a substantial contributing factor to the injury. The assessor's report raised information that was yet to be tested which, if accepted, cast real doubt on this proposition. Dr Hughes’ report added some credibility to that doubt. The liability issue was of course resolved in the worker’s favour by the award he obtained in 2001. But, bearing in mind that the critical question is whether bad faith (as distinct from liability) was established, this statutory threshold ought to have been taken into account in the fact-finding as to breach.

152 Fourth, the adverse finding proceeded (in part) from a finding that the insurer "was already predisposed, if not totally prejudiced, against the plaintiff" (J167). I am unaware of any evidence supporting this conclusion and none has been identified in the judgment under appeal. It is possible that the judge drew this conclusion from the fact that the insurer did not accept Dr Bodel's opinion as concluding the matter in the worker's favour, because there is a reference to that opinion earlier in the relevant paragraph of the judgment. But if this is the case, Dr Bodel's opinion ought not, in my view, to have been regarded as a knockout blow, given that it rested upon acceptance of the history provided by the worker and given that the insurer later obtained a contrary opinion from Dr Hughes.

153 Fifth, the judge was critical of the insurer for having decided to discontinue paying compensation after having earlier accepted the workers claim (see J167). Given that the insurer commenced compensation when its inquiries were incomplete this aspect of the reasoning is unsatisfactory. Nothing in the legislative scheme precludes an insurer from changing its mind in response to fresh data.

154 Sixth, the reasoning is affected by reliance upon the idea that the insurer had some obligation to call for further medical reports from the worker or itself to obtain material which would have indicated that the workers claim was justified (see J169). There was no such obligation.

155 Seventh, there is a degree of ambiguity as to the date or dates of the breach found established. Judge Goldring had regard to the insurer’s conduct after January 2000 in assessing its motivation and liability in damages certainly stemmed from the maintenance of the insurer’s position until April 2001. Any examination of the bona fides of the insurer’s conduct on or after 9 March 2000 must, or at least ought to, have involved analysis of the insurer’s conduct in the light of what passed at the conciliation conference. The conciliator does not appear to have formed the view that the insurer’s disputation of liability was feigned, although this in itself is inconclusive.

156 In listing these matters I do not go so far as to suggest that there was no evidence that might have grounded a finding of breach of the putative duty. Senior counsel for the worker advanced clearly arguable submissions by way of supporting and/or reinforcing the primary judge’s conclusions. And the worker is entitled to have the customary inference drawn in his favour from the appellant's failure to call Ms Hutchinson or Ms Abrahamse.

157 The award of costs on an indemnity basis turned on Calderbank issues. The appeal against it falls away in light of the conclusion that there was no relevant duty either in tort or contract.

158 For these reasons the following orders should be made:

1. The appeal should be allowed.

2. The judgment and orders in the District Court should be set aside.

3. A verdict and judgment should be entered in favour of the defendant with costs.

159 HODGSON JA: I agree with Mason P and Santow JA.

160 SANTOW JA:

to act in good faith

161 As Mason P explains, to find such a duty in the present statutory context and to derive from it tortious or contractual liability would be novel. Such a result would not be consonant with English authority, though it finds some support from authority in the United States. In Australia such a proposition depends for support on the decision of a distinguished single judge of this court, Badgery-Parker J in Gibson v Parkes District Hospital and Anor (1991) 26 NSWLR 9. However, insofar as that case stands as authority, closely reasoned as it was, it decided no more than that a claim so based was arguable, in the sense that a pleading that averred it ought not to be struck out.

162 Since that time, as Mason P explains, no Australian authority has followed it, the point being specifically considered in Gimson v Victorian WorkCover Authority [1995] 1 VR 209 where McDonald J declined to follow Gibson holding that there was no basis in law which could justify the alleged duty. The authorities are fully considered by Mason P and I respectfully concur with his treatment of them.

163 The observations I wish to make concern the approach that should be taken when a novel issue arises with respect to the existence or scope of a novel tort, both generally and in the present case.

164 At [62] Mason P observes:

“62. The worker argues in favour of a new tort, not just a new duty of care within the framework of the existing law of negligence. The tort is not an action for breach of a specific statutory duty, but to have a role to play it must of necessity find its place within the interstices of the statutory framework.”

165 Mason P repeats that the putative new tort must, to be found, “lie within the interstices of the (statutory) contract, being a new tort confined to the scheme of insurance for workplace injuries established by statute in New South Wales as submitted by the respondent.”

166 I would myself formulate the test first in terms of judicial method and then in terms of coherence, that is to say coherence between the putative tort and the legislative scheme.

167 To start with a fundamental aspect of judicial method, it must be recognised that while lack of such coherence would preclude the introduction of a novel tort its presence may not suffice to justify it. The common law moves incrementally and in principled fashion, not by sudden leaps as Sir Owen Dixon recognised in this well-known passage:

”By deduction, a new application is given to an existing principle; many single instances having been thus produced, in course of time a new or developed principle is discerned in them and expounded. By this process of imperfect induction, the secondary principle is established as part of the doctrine of the common law, and plays its part in turn in the production of still more doctrine. The process is so gradual that, although the literature of our law is very old and very full, the exact steps are never easy to trace.”

Jesting Pilot

168 Thus while the duty to act in good faith may be implied in certain contractual contexts, such as employment, there is as yet, as the law currently stands, no general contractual term, implied in law, requiring the exercise of good faith in contractual performance; see “Carter on Contract” at 11-170 for a useful elaboration on the evolving case law. That strongly points to restraint in making so significant accretion to the common law by recognising tortious liability in similar terms, either generally or in this particular context. Thus we are not here considering by way of a more conventional principled increment to the common law, whether to recognise a new duty of care within the framework of the existing law of negligence as Mason P explains at [62].

169 Turning to the threshold question of coherence, any such tortious liability would be precluded if inconsistent with some aspect of the relevant legislative scheme or, if not directly inconsistent, not rendered otherwise inappropriate by reason of the scope and purpose of the legislation; see Perre v Apand Pty Ltd (1999) 198 CLR 180 (at 253 [197]); Sullivan v Moody (2001) 207 CLR 562 (at 576 [42], 579 [50], 580 [53]–[55]); Tame v New South Wales (2002) 211 CLR 317 (at 335 [28], 342 [58], 361 [123], 425 [323]); Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 (at 574 [78]); New South Wales v Paige (2002) 60 NSWLR 371 at 390 [93]–[95]; New South Wales v Godfrey (2004) Aust Torts Reports ¶81-741 (65,654) at 65,665 [71]–[80]; Edwards v Attorney General (2004) 60 NSWLR 667 at 671 [6]–[9]; Hunter Area Health Service v Presland (2005) 63 NSWLR 22 at [20]-[21].

170 In Hunter Area Health Service (supra) Spigelman CJ explains that inconsistency may be shown where imposition, there of a duty of care, if not directly inconsistent with the statutory scheme may be otherwise inappropriate by reason of the scope and purpose of the legislation, illustrating this:

· liability in tort may “distort [the] focus” of the statutory decision-making process; (Crimmins (at 101 [292]))

· the decision may be made in a “detrimentally defensive frame of mind”; (Hill v Chief Constable of West Yorkshire [1989] 1 AC 53 at 63D)

· a common law duty should not be imposed if it “would … have a tendency to discourage the due performance of … statutory duties”; (X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at 739D)

· the imposition of a duty of care may “undermine the effectiveness of the duties imposed by the statute”; (Graham Barclay Oysters Pty Ltd (at 574 [78]))

· “a common law duty could distort the performance of the functions of the statutory body”. (Crimmins (at 77 [216]))

171 The question of coherence in that broader sense underlies the multi-factorial (or “salient features”) analysis referred to in Sullivan v Moody (supra) at [50]-[51] and earlier in Perre v Apand (supra) at [27], [201], [333] and [406].

172 As Spigelman CJ explains in Hunter Area Health Service, that approach is exemplified in the joint judgment of Gummow J and Hayne J in Graham Barclay Oysters Pty Ltd at [146] and [149] which I quote below:

“[146] The existence or otherwise of a common law duty of care allegedly owed by statutory authority turns on a close examination of the terms, scope and purpose of the relevant statutory regime. The question is whether that regime erects or facilitates a relationship between the authority and a class of persons that, in all the circumstances, displays sufficient characteristics answering the criteria for intervention by the tort of negligence.

[147] Where the question posed above is answered in the affirmative, the common law imposes a duty in tort which operates alongside the rights, duties and liabilities created by statute.

…

[149] An evaluation of whether a relationship between a statutory authority and a class of persons imports a common law duty of care is necessarily a multi-faceted inquiry. Each of the salient features of the relationship must be considered. The focus of analysis is the relevant legislation and the positions occupied by the parties on the facts as found at trial. It ordinarily will be necessary to consider the degree and nature of control exercised by the authority over the risk of harm that eventuated; the degree of vulnerability of those who depend on the proper exercise by the authority of its powers; and the consistency or otherwise of the asserted duty of care with the terms, scope and purpose of the relevant statute. …” (footnotes omitted)

173 Though the question in that case concerned novelty with respect to the existence or scope of a duty of care, I consider that the same approach should be adopted in determining whether a novel tort should be recognised and, if so, what scope should be attributed to it. Here the context is a statutory scheme imposing a statutory duty upon an insurer in respect of the statutory policy by force of s159(2) of the Workers Compensation Act, doing so in these terms:

“(2) A policy of insurance shall provide that:

(a) the insurer as well as the employer is directly liable to any worker insured under the policy and, in the event of the worker’s death, to the dependants or other persons to pay the compensation under this Act or other amount independently of this Act for which the employer is liable, and

(b) the insurer is bound by and subject to any judgment, order, decision or award given or made against the employer of any such worker in respect of the injury for which the compensation or amount is payable.”

174 The statutory scheme embodies other statutory incidents applicable to an insurer under the WC Act and the associated legislation contained in the Workplace Injury Management and Workers Compensation Act 1998 (WIM Act) to which I refer below. As was put by Gummow J and Hayne J in the earlier cited passage from Graham Barclay Oysters Pty Ltd the question is whether that statutory regime “erects or facilitates a relationship between the authority [the statutory insurer here”] and a class of persons that, in all the circumstances, displays sufficient characteristics answering the criteria for intervention by the tort of negligence” or here, by the intervention of a novel tort.

175 In turning to the multi-factorial or salient features analysis brought to bear to answer that question, Gummow and Hayne JJ were careful to avoid being exhaustive when identifying those factors said to be typically relevant (reading “authority” as referring here to the statutory insurer) and employer:

(b) the degree of vulnerability of those who depend on the proper exercise by the authority of its powers; and

(c) the consistency or otherwise of the asserted duty of care with the terms, scope and purpose of the relevant statute.
Such an evaluation while relying on objective criteria, has a normative aspect.

176 Section 2A of the WC Act makes clear that it is to be construed with and as if it formed part of the WIM Act and so that in the event of an inconsistency between the two acts the WIM Act prevails to the extent of the inconsistency.

177 The WC Act contains no express statement of purpose but the WIM Act states its purpose under s3, which I quote below:

“3 System objectives

The purpose of this Act is to establish a workplace injury management and workers compensation system with the following objectives:

(a) to assist in securing the health, safety and welfare of workers and in particular preventing work-related injury,

(b) to provide:

• prompt treatment of injuries, and

• effective and proactive management of injuries, and

• necessary medical and vocational rehabilitation following injuries,

in order to assist injured workers and to promote their return to work as soon as possible,

(c) to provide injured workers and their dependants with income support during incapacity, payment for permanent impairment or death, and payment for reasonable treatment and other related expenses,

(d) to be fair, affordable, and financially viable,

(e) to ensure contributions by employers are commensurate with the risks faced, taking into account strategies and performance in injury prevention, injury management, and return to work,

(f) to deliver the above objectives efficiently and effectively.”

178 That statement of objectives is wholly consistent with the purpose attributed to the predecessor of the current WC Act, namely the Workers Compensation Act 1926. That purpose was stated most clearly by Jordan CJ in Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231 at 232-3. Jordan CJ was considering an earlier version of the compulsory insurance scheme, where he was dealing with a statutory scheme that contained the then equivalent of s159, namely s18(3):

“… it is convenient to refer in the first instance to the purpose which the Act appears to be designed to effect and the means which the Legislature has used for effecting it.

In New South Wales, as in the rest of Australia, the great bulk of the community consists of workers whose livelihood and that of their families depends upon work being available to them and upon their being able and willing to do it. It is obviously in the public interest that if a worker becomes incapacitated for work by injury he and his family should not be left destitute, but some provision should be made for tiding them over the period of his incapacity. At common law, a worker who becomes incapacitated by injury can obtain compensation for any consequent loss of earning capacity if the injury has been caused by wilful or negligent wrongdoing, in which case he can recover it from the wrongdoer; but the common law makes no other provision. The Workers’ Compensation Act is designed to provide some remedy for this defect in the social system by requiring employers to pay what is described as compensation to workers who receive incapacitating injuries arising out of and in the course of their employment, notwithstanding that the injuries are not attributable to any default on the part of the employers.

It is obvious that the efficacy of the scheme, limited though it is in its scope, depends primarily on the ability of the individual employers to shoulder the burden which the Act casts upon them. The Legislature has sought to give some security to workers by compelling an employer to obtain from a licensed insurer a policy in a prescribed form for the full amount of his liability under the Act to all workers employed by him, and to maintain such policy in force. This, however, still leaves the worker unprotected if an insolvent employer omits to insure at all; and, apart from special provision, would also leave him unprotected if an insolvent employer, having insured, committed a breach of a condition of the policy which prevented liability from being incurred by the insurer, or discharged the insurer from liability which he had incurred. …

In the present case, however, we are not concerned with the position as between the worker and the insurance company, but only with the right of the employer to be indemnified by the company. In considering this question, I think that it would be dangerous to attempt to find any relevant policy in the machinery of an Act which, so far as its machinery is concerned, appears to be based on a willingness on the part of the State to be benevolent so long as it can be done vicariously.

The Act is one to benefit workers, not employers; and I can find nothing in it to suggest any intention on the part of the Legislature that the form of policy to be prescribed should contain provisions specially favourable to employers, or should exclude terms merely because they might be unfavourable to them, or that a forced construction should be placed upon the terms actually used in order to give effect to some supposed policy of the Legislature to favour employers as against insurance companies

.” [emphasis added]

179 It is of course to be recognised that the workers’ compensation scheme has over time been the subject of legislative amendments which have capped or otherwise diminished the compensation available to employees. But that, to my mind, does not render the legislation as somehow changed in its purpose so as to favour employers over employees or insurers over employees.

180 Accepting then that the contemporary statutory scheme remains one primarily to benefit workers, it could not be said that a duty to act in good faith imposed upon the insurer was somehow antithetical to such a purpose. This is more particularly given the degree of vulnerability of a worker should the insurer, or for that matter the employer, act other than in good faith in assessing the worker’s claim. Even were the duty reciprocal, as was concluded by the primary judge, Goldring DCJ, it does not follow that a duty so framed would not accord with that broadly stated legislative purpose. But that said, it still remains to be considered whether the detailed terms of the contemporary legislative scheme are themselves inconsistent or such as to lack coherence with the putative tort, or equivalent implied contractual terms.

181 It is here that the President does find lack of consistency or coherence. It may be accepted that the statutorily prescribed policy of insurance contains nothing which in terms would preclude such a duty to act in good faith; see WC Act s159(1) and Workers Compensation (General) Regulation 1995, Cl 52 and Schedule 1, form 4. Section 159(1) permits, subject to the regulations, the statutory policy to “contain such other provisions relating to any liability at common law … as are appropriate to any particular case”. However, clause 52(1) of that Regulation in subclause (1) stipulates that while the policy must contain the provisions specified in form 4, it “may contain any other provisions, but only if those provisions have been agreed on by the insurer and employer concerned and approved by the authority”. One is entitled to doubt whether the insurer and employer concerned would ever have agreed on a duty, imposed at least on the employer, “to act in good faith”. As I explain below, the WCA and WIM do not have features which call for the statutory insurance contract to be construed in that way in order to give it business efficacy. Nor does it suggest any room for necessary implication.

182 Turning to the putative tort, there are, as the President demonstrates discordances between the detailed provisions of the statutory scheme on the one hand and the recognition of the putative tortious duty to act in good faith on the other.

183 I agree with the President that a common law duty sounding in damages for mental distress caused by an insurer’s prevarication or otherwise in respect of some psychiatric injury not parasitic upon a physical injury would be inconsistent with the legislative scheme. Likewise that scheme now caps and otherwise regulates claims for damages in a way that would make recognitive of exemplary damages entirely incongruous.

184 Moreover, s9A as the President points out, restricts the payment of compensation in respect of an injury unless employment was a substantial contributing factor to the injury. That test might be satisfied if delay actuated by a lack of good faith might have led, for example, to physical injury being exacerbated from the workplace injury suffered. An example would be delay of a needed operation unable otherwise to be funded than from compensation monies, this delay having an injurious physical outcome. All of that points to a narrow scope based upon recovery for physical injury, were the tort to be permitted at all.

185 There are however other signs of incoherence between recognition of such a tort, even narrowly constrained, with the statutory scheme. The WC Act itself provides for interest to be paid, thus covering the direct cost of delay, though not the kind of consequential distress that here is alleged.

186 There are moreover provisions as the President points out which call to account at a supervisory level failure on the part of an insurer. Moreover, within an overall adversarial framework there is provision for mediation and other intervention as might be brought to bear against an insurer acting in bad faith; see s95(2) of the WIM Act and the further remedies contemplated by s108 of the WIM Act to apply for an interim award.

187 I have referred to the scope under the statutory scheme for regulating the insurer’s statutory duties. This is addressed in Chapter 4 Part 82, Div 2 of the WIM Act. The relevant provisions of ss70 to 75 and are sufficiently set out in the President’s judgment as are provisions dealing with duty on the insurer’s part and the sanctions in terms of the insurer’s licence.

188 All of these features of the legislation address to a degree the vulnerability of a worker, should his or her claim be dealt with by the employer in an injurious and unfair fashion. It is for the legislature to determine whether the avenues for dealing with that kind of treatment go far enough.

189 I respectfully agree with the President’s treatment of Gibson’s case and the subsequent case law both in the United Kingdom and in Australia in the case of Gimson v Victorian WorkCover Authority (supra).

190 Finally, I agree with the President’s observations on the difficulties which a reciprocal duty to act in good faith imposed upon the employee would create. The risk that satellite litigation would be launched based upon that imputed duty is at odds with the objectives stated in s3 of the WIM Act, in particular “to deliver the above objectives efficiently and effectively”.

191 I agree with the President that no tortious liability or indeed contractual liability based on the duty to act in good faith as formulated by the respondent and as articulated by the trial judge should be recognised. I consider that to do so would create such a discordance with the legislative scheme as to amount to the kind of inconsistency or incoherence which precludes recognition of a novel tort of that kind.

192 Accordingly I agree with the orders proposed by the President.

**********

CITATION:	CGU WORKERS COMPENSATION (NSW) LIMITED (ACN 003 181 002) v GARCIA [2007] NSWCA 193
HEARING DATE(S):	7 March 2007, 8 March 2007
JUDGMENT DATE:	10 August 2007
JUDGMENT OF:	Mason P at 1; Hodgson JA at 159; Santow JA at 160
DECISION:	Appeal allowed.
CATCHWORDS:	CONTRACTS – General contractual principles – construction and interpretation of contracts – implied terms – other cases – implied term of good faith - TORTS – Miscellaneous torts – other cases – tort of good faith – whether there exists a tort of good faith – coherence with statute and statutory scheme of insurance – Workers Compensation Act 1987, Workplace Injury Management and Workers Compensation Act 1998 - WORKERS’ COMPENSATION – Assessment and amount of compensation – discontinuance of payments – generally – where a number of reports favourable to worker and two reports not favourable to worker – where insurer relies on unfavourable reports to cease payments – Workers Compensation Act 1987, Workplace Injury and Management Act 1998
LEGISLATION CITED:	Accident Compensation Act 1985 (Vic) Civil Liability Act 2002 Civil Procedure Act 2005 Insurance Contracts Act 1984 (Cth) Workers Compensation (General) Regulation 1995 Workers Compensation Act 1987 Workplace Injury Management & Workers Compensation Act 1998
CASES CITED:	Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Anns v Merton London Borough Council [1978] AC 728 Bank of Nova Scotia v Hellenic Mutual War Risk Association (Bermuda) Ltd [1990] 1 QB 818 Banque Financiere de la Cite SA v Skandia (UK) Insurance Co Ltd; Westgate Insurance Co Ltd [1991] 2 AC 249 Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665 Bennett v Jones [1977] 2 NSWLR 355 Breen v Williams (1995) 186 CLR 71 Brodie v Singleton Shire Council (2001) 206 CLR 512 Burger King Corporation v Hungry Jacks Pty Ltd [2001] NSWCA 187 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 C E Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25 Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 61-175 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 Distillers Co Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 Edwards v Attorney General (2004) 60 NSWLR 667 Edwards v The Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-112 Employer’s Mutual Indemnity (Workers Compensation) Ltd v A Donald Pty Ltd (NSW Court of Appeal, Priestley, Cole, Stein JJA, 23 October 1997) Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 F & K Jabbour v Custodian of Israeli Absentee Property [1954] 1 WLR 139 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 Gibson v Parkes District Hospital and Anor (1991) 26 NSWLR 9 Gimson v Victorian WorkCover Authority [1995] 1 VR 209 Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 Grey v Motor Accident Commission (1998) 196 CLR 1 Hadley v Baxendale (1854) 9 Ex 341; (1854) 2 WR 302 Hannover Life Re of Australasia Ltd v Sayseng (2005) 13 ANZ Ins Cas 90-123, [2005] NSWCA 214 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 Hungerfords v Walker (1989) 171 CLR 125 Hunter Area Health Service v Presland (2005) 63 NSWLR 22 Ilievska-Dieva v SGIO Insurance Ltd [2000] WASCA 161 Koehler v Cerebos (Australia) Ltd (2005) 222 CLR 44 Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231 Lomsargis v National Mutual Life Association of Australasia Ltd [2005] 2 Qd R 295 Murfin v United Steel Companies Ltd [1957] 1 WLR New South Wales v Godfrey (2004) Aust Torts Reports 81-741 New South Wales v Paige (2002) 60 NSWLR 371 New Zealand Insurance Co Ltd v Harris [1990] 1 NZLR 10 OBG Ltd v Allan [2007] UKHL 21 Overlook Management BV v Foxtel Management Pty Ltd (2002) ATPR(Digest) 46-219; [2002] NSWSC 17 Perre v Apand Pty Ltd (1999) 198 CLR 180 Re Zurich Australian Insurance Ltd [1999] 2 Qd R 203 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Sempra Metals Ltd v Her Majesty’s Commissioners of Inland Revenue [2007] UKHL 34 Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 Sprung v Royal Insurance (UK) Ltd [1999] 1 Lloyd’s Rep 1 R 111 Sullivan v Moody (2001) 207 CLR 562 Sutherland v Hatton, Barber v Somerset County Council [2004] 1 WLR 1089 Tame v New South Wales (2002) 211 CLR 317 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 Victorian WorkCover Authority v Brewster (2001) 3 VR 72, [2001] VSCA 30 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 Whiten v Pilot Insurance Co (2002) 209 DLR(4th) 257
PARTIES:	CGU WORKERS COMPENSATION (NSW) LIMITED (ACN 003 181 002) Carlos GARCIA
FILE NUMBER(S):	CA 40437/06
COUNSEL:	Appellant: B W Walker SC/ R P L Lancaster Respondent: P E Blacket SC/ K M Connor/ W Walsh
SOLICITORS:	Appellant: Tress Cox Lawyers Respondent: Turner Freeman
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 693/01
LOWER COURT JUDICIAL OFFICER:	Goldring DCJ
LOWER COURT DATE OF DECISION:	14 July 2006