FAI Workers Compensation (NSW) Limited v MLC Insurance Limited; MLC Insurance Limited v FAI Traders Insurance Co. Limited

[1994] HCATrans 417

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S56 of 1994

B e t w e e n -

FAI WORKERS COMPENSATION (NSW)

LIMITED

Applicant

and

MLC INSURANCE LIMITED

Respondent

Office of the Registry

Sydney No S57 of 1994

B e t w e e n -

MLC INSURANCE LIMITED

FAI	1	8/8/94
MASON CJ GAUDRON J McHUGH J

Applicant

and

FAI TRADERS INSURANCE CO

LIMITED

Respondent

Applications for special leave

to appeal

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 8 AUGUST 1994, AT 9.32 AM

Copyright in the High Court of Australia

MR R.J. ELLICOTT, QC: If the Court pleases, I appear with

MR K.P. SMARK for FAI Workers Compensation.

(instructed by Moray & Agnew)

MR D.F. JACKSON. QC: If the Court pleases, I appear with my

learned friend, MR A.D.M. HEWITT, for the

respondent in the first matter called and for the

applicant in the second matter called.	(instructed
by Curwood & Partners)

MR D.M. BENNETT. QC:  May it please the Court, I appear with

my learned friend, MR D.G. NOCK, for the respondent

in the second matter, FAI Traders Insurance Co

Limited, which supports the respondent in the first

application. (instructed by Hunt & Hunt)

MR ELLICOTT:  Your Honours, our interest of course is only

in the first matter. Your Honours, it raises what

in our submission is a very important question of

worker's compensation law and therefore is a matter

of significant public importance. It raises the

question of the extent of the policy which an
employer has to take out and which insurers have to

accept under the Worker's Compensation Act both of

1926 and inferentially, because it is almost in

identical terms and certainly in substance

identical terms, the 1987 Act.

It also raises the question as to the validity

of the prescribed policy that is issued under the

Act in a very important respect. The view that we

contend for is aptly summarized in a judgment of

Mr Justice Aickin in the case of National Employers

Mutual in 141 CLR.

MASON CJ:  The trouble is, no one else agreed with that

view, did they?

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MR ELLICOTT:  I put it the other way Your Honour. Nobody

else disagreed with it, and I first want to just

take Your Honours to that proposition and then take

Your Honours, as one must in the long run and I

thought it might be helpful to read this at 490, so
that Your Honours will understand what our

submission is. At 490, His Honour said:

In my opinion the provisions of s.18 make the liability of the insurer to the employer match the liability of the employer to the worker

(or his dependents) and that is a fundamental

feature of the scheme. That scheme likewise

makes the liability of the insurer to the

worker match the liability of the employer to

the worker. It is clear that the liability of

the employer depends on the relationship of

employer and worker (as defined) and not on

the description of the business in respect of

which he is so insured. It is that liability

against which the Act requires the employer to
insure, and in respect of which the Act
requires the insurer to issue a policy of

insurance ..... save only where the Commission

relieves the insurer of that obligation. It

is that same liability which the insurer is

required to bear to the worker and in respect

of which the insurer is bound by a judgment in

favour of the worker against the employer.

McHUGH J: But is not the weakness in His Honour's

reasoning, with respect, that it overlooks the fact

that employer's frequently take out different

policies for different aspects of their business
with different insurers. Unless things have

changed since I was at the bar.

MR ELLICOTT:  Your Honour, that may well be so, but the law

is, we submit, different. The fact that insurance

companies find it opportune to be selective in

their insurance may well be contrary to the policy

of the Act and of the parliament.

MASON CJ:  But the critical question must be whether the

obligation on the employer is to ensure by one

policy rather than by a number?

MR ELLICOTT: Whether the Act contemplates that the employer

shall insure with a policy that covers the total

liability to that employer's workers. That is the

question. If an employer does in fact double

insure, that is a matter for the employer. The

employer will suffer the consequence of having to

pay additional premiums. On the other hand, will

have the comfort of knowing that his liability is

covered by different insurers. But, Your Honour,

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the important question always is what does the Act

say and section 18 - - -

McHUGH J: Yes, that may well be the question but on the

question of construction, particularly when you

have got a new Act, the premiums for years have

been set on the basis that NEMwas right. In fact,

NEM simply accorded with the general understanding of the legislation, as far as my recollection is.

MR ELLICOTT: Well, Your Honour, my understanding is that

down in the Worker's Compensation Commission they

tend to administer the Act on the basis of what

Mr Justice Aickin says because it is understandable

and it is comprehensible that that was how it was

intended. But I do want to take Your Honours in

of policy and recollection, which really is not the

the limited time I have got to the section because

unless I get Your Honours to look at the section,

real issue.

MASON CJ:  I think those remarks are directed to

Justice McHugh, rather than the other members,

Mr Ellicott.

MR ELLICOTT: Section 18(1) Your Honour, subject to (lA),

and that is important:

Every employer shall obtain from an insurer

licensed under this Act to carry on business
in the State, a policy of insurance or

indemnity, conforming to this section, for the

full amount of his liability under this Act to

all workers employed by him and for an

unlimited amount in respect of his liability

of this Act for any injury to any such

worker -

et cetera. Those are very positive words; full amount of h
liability to all workers employed by him.	One

cannot imagine wider words to cover the proposition

that we are advancing.

Subsection (lA) deals with positions where the

employer can self insure, so that is an exception.

We go to subsection (2):

No insurer shall, except with the consent of

the Board, given after due inquiry •.... refuse

to issue such a policy of insurance or

indemnity to any employer, or to effect the

renewal of such a policy ••... unless conditions

are prescribed -

Et cetera.

FAI 4 8/8/94

Provided -

now here is a proviso. Why do they have it? They

have it because it is an exception from a general

obligation to accept a policy of insurance that

covers all workers for the full amount:

Provided that an insurer who confines his operations to indemnifying one employer, or a

group of employers engaged in one

industry ..... shall not be required to issue a

policy in respect of the liability.

So that is consistent with what they are

submitting. There are provisions then about

trainees and their insurance. But again it is

accepted these exceptions would not be necessary

unless our construction, with respect, was correct.

Subsection (3)(a):

Every policy of insurance or indemnity shall,

in so far as it relates to any

liability ..... contain only such other

provisions relating to any other liability at

common law ..... as are appropriate .....

Any contravention ..... shall not annul

such policy or diminish or affect the

liability of the insurer to the person insured

under such policy.

Subject to paragraph (a2) -

and this is a very important provision:

shall provide that the insurer shall as well

as the employer be directly liable to any

worker insured under such policy and in the

event of his death, to his dependents, to pay

employer is liable, and that the insurer shall	the compensation or other amount for which the
be bound by and subject to any judgment, order
decision -

et cetera. Now just stopping there, Your Honours,

there is Miller's case decided in 1969 in which

the Court of Appeal, consisting of President

Wallace, Mr Justice Asprey and Mr Justice Holmes,

decided that subsection (3) imposed on the insurer,

no matter what the policy said and no matter what

provisions might allow the insurer to escape
liability to the employer, held that the insurer

was liable for the full amount to the worker or the

worker's dependents. Now that is a very

significant decision because it is built into

worker's compensation law and it means that the

FAI 8/8/94

liability to the worker of the insurer, the liability of the employer to the worker are identical, no matter what the policy says.

So that, in our submission, it would be very

strange, very odd indeed, if the result was that

the liability of the insurer to the insured, to the

employer, was to be less. In other words, that is

the triangle that Mr Justice Aickin was referring

to, and so the basic policy of the Act.

The section that concerned the High Court in

NEM's case, was subsection (3A):

Every policy ..... shall, notwithstanding

anything contained in that policy, apply to

and have effect in respect of all workers

employed by the employer in that business or

occupation.

Now, the emphasis in that section, when one goes to

the second reading speech, is that there were

problems about relatives and it was held that the

policy did not cover relatives and they wanted to

emphasize that it covered all workers. Now, in

NEM's case they were able to deal with the issue there because they said, well what is the business or occupation here - this is a majority of the

judges - what is the business or occupation here

and there was an argument about the construction of

the policy; the meaning of 'fishing' and they said well it is clearly 'fishing', notwithstanding that they use some gear that only 25 percent of the

fishing trawlers use.	So they said, well, yes, it
is the business or occupation of fishing.	And they

did not have to, they thought, to go on and deal

with the issue as Mr Justice Aickin dealt with it.

They are not inconsistent in - - -

McHUGH J: There were dicta in the judgments which is

contrary to - - -

MR ELLICOTT: There are dicta - I do not have time to argue

about them, Your Honour, but in the context of that case, Mr O'Keefe, when he put the case, put it very

narrowly and he put it based on subsection (3A).

It was Mr Justice Aickin who picked up the policy

of the Act and he said, well, there is a
fundamental question here and it was he who saw the

inconsistency of allowing Miller's case to stand

and be recognized and he thought it was correctly

decided and the Full Court did not depart from it

and yet at the same time come to the conclusion

that an insurer was not liable to the insured for

the full amount of the policy.

FAI 6 8/8/94

GAUDRON J: Your argument, however, Mr Ellicott means, does

it not, that the insurer will be liable for risks

about which it might never be informed.

MR ELLICOTT: That is the insurer's responsibility. If the

insurer knows what the Act is saying, the insurer

will make sure that the insurer is so informed and

there are provisions - - -

GAUDRON J: But the insurer cannot refuse to issue the

policy?

MR ELLICOTT:  It cannot refuse but at the time time the

employer is required to keep books about all his

employees and all the details of the trade and

occupation under subsection (8) of section 18 and
the insurance company has the right to inspect

those books and then, under the Act, to go the

Board, if need be in the ultimate, to fix a premium

that is appropriate based on the particular

employees and their particular activities.

McHUGH J: That is what I was saying about premiums earlier.

I am just using my recollections, which may be

defective, but I thought the premiums were

calculated in accordance with different classes of

business.

MR ELLICOTT: 

They may be, but if an employer has several

businesses, they will be calculated accordingly and
appropriately, but one can see as a matter of
policy that the legislature would not want

particular areas of insurance to be neglected by

insurers and so the object of the Act was, we say,

to cover the whole of that.  Now, it is important

to note - - -

McHUGH J: But your argument leads to this conclusion, that

if an insurer insures a finance company and decides

to take on manufacturing during the course of the

policy, then it is liable for the employees that

are injured in the course of manufacturing.

MR ELLICOTT: Yes, I cannot say otherwise. But when you go

to the fund provision, and by the way, it is an

offence not to do these things, but when you go to

the fund provision which is 18C, it says:

A claim may be made under the Scheme by any

person who considers he or she has a claim for

compensation under this Act against an

employer ..... where the employer-

(a) had not obtained, or was not maintaining

in force, a policy of insurance or indemnity

under this Act for the full amount of the

FAI	8/8/94 employer's liability to the injured worker at
the relevant time.

Now that is read distributably there to the injured

worker, but it fits in with our argument that it is

conceiving a policy for the full amount for all

workers.

The form of policy is important because it is

prescribed and it is prescribed pursuant to

subsection (3)(a). In the policy as prescribed,

and it is clearly invalid in any event because of

Miller's case, but they still use it, it says:

It is hereby further agreed that the above

indemnity is made subject to the due and proper observance and fulfillment by the

employer of the conditions hereunder and the

insurer shall be:

(a) Directly liable to any worker and in the

event of the worker's death to the worker's

dependents to pay the compensation or other

amount for which the employer is liable -

and these are the critical words which we say are

clearly wrong anyhow -

in respect of which the employer is

indemnified under this policy.

Now that cannot be right if Miller's case is right.

Those words just cannot stand because it does not

matter what the extent of the indemnity is as

construed under the policy, and it also says, it

follows the Act:

provided that this policy shall not extend to

any business or occupation other than that

described herein unless and until particulars

therefore shall have been supplied to and

accepted by the insurer and acceptance of such

extension hereon by the insurer.

Now that proviso, we say, would not invalidate the policy. That would be invalid and inoperative.

GAUDRON J: Could I take you back to subsection (3A) of

section 18. What meaning and affect do you give to

the last words of that subsection?

MR ELLICOTT: Now, (3A) - - -?

GAUDRON J:  Of section 18 of the 1926 Act.

MR ELLICOTT: Yes, Your Honour. That is (3A)? I am sorry.

FAI 8 8/8/94

GAUDRON J: Yes.

MR ELLICOTT:  In respect of all worker's employed by
the employer in that business or
occupation.

It contemplates that the employer is engaged in a

business or occupation or it may be other

businesses or occupations.

GAUDRON J: 

It does seem to suggest that you could insure

business by business which Justice McHugh is
suggesting to you is the practice.

MR ELLICOTT: 

The whole assumption of the Act is that

employers are engaged in businesses and occupations

and the emphasis in 18(3A), in our submission is,

and if one looks at the second reading speech, the

emphasis is on all workers. It is not on business

and occupation. And when it speaks of business and

occupation, that is a reference to the actual
business and occupation, not the one limited by the

policy. That is our submission in relation to

that. And that is the effect that we submit should

be given to the words.

Subsection (9) is the provision for offenses

in relation to subsection (2), that is the

insurer's offence and subsection (1) itself, I think, contains the offence in relation to the

employer for not taking out the policy.

So in our submission, Your Honours, this is a

clear case where there is an obligation to take out

policy in terms of the Act. At least the matter is

clearly arguable. It is an important policy

matter. It is a matter that arises out of a very

carefully considered judgment of Mr Justice Aickin

who was very experienced in insurance law and it is

one which that judgment, which fits together, holds	together in the light of Miller's case and we would	submit in the circumstances that Your Honours would
see this as an appropriate case in which to grant
special leave.

MASON CJ: Thank you, Mr Ellicott. The Court need not

trouble you, Mr Jackson.

In the view of the Court, the proposed appeal

does not enjoy sufficient prospects of success to

warrant the grant of special leave to appeal. The

application is therefore refused.

MR JACKSON:  Your Honour, I ask for costs of the

application. Your Honour, may.I also say one other

thing. That has the consequence, of course, that

our application for special leave against my

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learned friend, Mr Bennett's, client is now

rendered otiose. On the assumption that perhaps he

might ask for costs, we would ask for an order that
the costs to be paid to us by my learned friend,

Mr Ellicott's, side would include the costs thrown

away.

Your Honour, it was necessary - perhaps I had

better deal with that now or later, but it may not

be opposed.

MASON CJ:  Mr Jackson, we would, of course, order Mr

Ellicott to pay your costs but if you are seeking

that Mr Ellicott should pay the extra costs

occasioned by the failure of your application, then

I think you need to present an argument to that

effect.

MR JACKSON:  Yes, Your Honour. Your Honour, my learned

friend wants to say something.

MASON CJ: Yes, Mr Bennett. You wanted to say something?

MR BENNETT:  It is probably easier if I address Your Honours

first, because of the facts. We would seek an

order for costs against Mr Jackson in relation to

the second application.

MASON CJ: And that would be the order ordinarily made.

MR BENNETT: Yes. We also seek that either those costs

ordered against Mr Ellicott. It is probably easier if they are put you in one basket rather than separated out. The reason for that is this, that

include the costs we have expended in resisting

like a third party in ordinary litigation who is

entitled to be heard on whether the plaintiff

succeeds against the defendant and is entitled to

resist the plaintiff's claim, we were in a position

where we needed to be in a position to resist Mr

Ellicott's claim. And that is a normal part of the

costs incurred by someone who is, in effect, a

third party in litigation.

The order for our costs against Mr Jackson should therefore include our costs of helping him

against Mr Ellicott and we would ask for those

costs.

Of course, if Your Honours simply make what is

colloquially known in New South Wales as a bullock
order, that has the necessary effect in achieving

the result.

MASON CJ:  Now, Mr Jackson, do you wish to say anything?

FAI	10	8/8/94
MR JACKSON:	Yes, Your Honour.	In our submission, what was

said by my learned friend is correct. The nature

of the proceedings may be seen at page 56 of the

record and what Your Honours will see from that is

that the employer - and this is line 21 - the

employer can claim the contribution from four third

parties including us and the other two parties

presently represented.

Your Honours will also see at about line 34

that there were claims for contribution made
against us by my both my learned friends' sides and
then we, of course, claimed contribution from FAI

Traders.

Now, Your Honours, the position in the Full

Court of the Federal Court was that because the
claim that was made by my learned friend

Mr Ellicott's side failed, it was not then

necessary, there was not any liability for us to

pursue against the other side, and so the issue was

not really dealt with by more than one member of

the Full Court.

Because my learned friend's case was brought

to this Court, it made it necessary for us then to

seek special leave in order that if he succeeded

and if the appeal ultimately succeeded, we could

have the matter dealt with by this Court or perhaps

by the Full Court of the Federal Court.

McHUGH J: But it does not follow that you would have

succeeded in your special leave application.	I
must say, speaking for myself, I thought

Mr Ellicott had a much stronger case than your case

for getting special leave.

MR JACKSON: 

Well, Your Honour, special leave for ..... , if I

may say so with respect, if it were - could I say
the case was one, Your Honour, where the issue we

were concerned with was not dealt with in the Full

Court except by Mr Justice Olney.

McHUGH J: Yes.

MR JACKSON:  So that the one judge in the Full Court who had

dealt with it was on our side, if I could put it

that way, and our complaint was really that the

Court had not dealt with it, if my learned friend

was right, So the appropriate course, in our

submission, would have been either for this Court

itself to deal with it, or for the Court to take

the view that special leave should be granted,

setting aside that part of the decision and remit

it to the Full Court of the Federal Court to be

decided.

FAI 11 8/8/94

Your Honour, I cannot take it beyond that, and I do not want to argue now, on costs, the substance

of the matter, but the judgment of

Mr Justice Olney, Your Honour, whilst it may be

that the issue, if one were looking at it as a

separate special leave case, was not perhaps as strong as that of my learned friend, it was one

where, in terms of the prospects of success, it was

better.

MASON CJ:  The order the Court will make is that in each

case, the application for special leave to appeal

will be refused and in each case the applicant will

pay the respondent's costs.

AT 9.57 AM THE MATTER WAS ADJOURNED SINE DIE

FAI 12 8/8/94