QBE Workers Compensation (NSW) Ltd v Dolan

[2004] NSWCA 458

Reported Decision: 62 NSWLR 42

Court of Appeal

CITATION:	QBE WORKERS COMPENSATION (NSW) LIMITED v. DOLAN [2004] NSWCA 458
HEARING DATE(S):	25/08/2004
JUDGMENT DATE:	15 December 2004
JUDGMENT OF:	Mason P at 1; Beazley JA at 2; Tobias JA at 81
DECISION:	1. Appeal allowed.; 2. Set aside the orders and judgment of Gibb DCJ dated 26 September 2003.; 3. Verdict and judgment for the appellant.; 4. Direct parties to file short minutes of order in relation to the quantum of damages and indemnity.; 5. The respondent to pay the appellant's costs in this Court and in the court below.; 6. The respondent is to have a certificate under the Suitors' Fund Act 1951 (NSW) if so entitled.
CATCHWORDS:	ESTOPPEL - Consent judgment between employee and third party tortfeasor - Subsequent proceedings for indemnity brought by employer against third party tortfeasor - Whether employer a privy in interest to claim brought by employee against third party tortfeasor - Whether res judicata estoppel - Whether independent right. - STATUTORY CONSTRUCTION - Workers Compensation Act 1987 (NSW), s.151Z(1)(d) - Construction - Employer's indemnity for compensation paid to employee - Consent judgment - Whether third party tortfeasor was a person in whom a liability was created within the meaning of the section - Whether right to indemnity is an independent right.
LEGISLATION CITED:	Law Reform Miscellaneous Provisions Act 1946 Suitors' Fund Act 1951 (NSW) Workers Compensation Act 1987 (NSW)
CASES CITED:	Australian Securities Commission v. Marlborough Gold Mines Ltd (1993) 177 CLR 485 Baxter v. Obacelo Pty. Ltd. (2001) 205 CLR 635 Blair v Curran (1939) 62 CLR 464 Effem Foods Pty. Ltd v. Trawl Industries of Australia Pty. Ltd (1993) 43 FCR 510 GIO of New South Wales v. McDonald (1991) 25 NSWLR 492 Gleeson v J Wippell & Co Ltd [1977] 3 All ER 54 James Hardie & Co. Pty. Limited v. Seltsam Pty. Limited (1998) 196 CLR 53 Manners v. Transfield Pty. Limited (1992) 110 ALR 70 Ramsay v. Pigram (1968) 118 CLR 271 Tickle Industries Pty. Limited v. Hann (1974) 130 CLR 321 Tooth v Tillyer (1956) 95 CLR 605
PARTIES :	QBE WORKERS COMPENSATION (NSW) LIMITED (Appellant) FRANCIS DOLAN (Respondent)
FILE NUMBER(S):	CA 40881/03
COUNSEL:	G.M. Watson SC/N.E. Chen (Appellant) S. Gageler SC/R.C. Tonner (Respondent)
SOLICITORS:	Gillis Delaney Brown (Appellant) Moray & Agnew (Respondent)

LOWER COURTJURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 67/02
LOWER COURT JUDICIAL OFFICER :	Gibb DCJ

- 1 -

CA 40881/03
DC 67/02

MASON P
BEAZLEY JA
TOBIAS JA

15 December 2004

QBE WORKERS COMPENSATION (NSW) LIMITED v. DOLAN

Headnote

The appellant was the insurer of an employer whose employee was injured when a motor vehicle driven by the respondent collided with his vehicle. The employee commenced proceedings in the Compensation Court claiming workers compensation from the employer under the Workers Compensation Act 1987 (NSW) . The employee also brought proceedings in the District Court against the respondent claiming damages for the injuries he sustained which were settled by entry of judgment in favour of the respondent in exchange for the respondent paying the employee $4,000 in respect of his costs.

Since the employee had made a claim for workers compensation, the appellant contended that the provisions of s.151Z(1)(d) of the Workers Compensation Act applied so that it was entitled to recover from the respondent the sum it had paid to the employee by way of workers’ compensation.

HELD per Beazley JA (Mason P and Tobias JA agreeing):

(i) The policy of s.151Z(1) is to adjust the responsibilities between two liabilities in circumstances where an injured worker could pursue either or both of the available remedies in order to ensure that the employer does not bear the final burden of paying compensation to a worker when the worker has been injured in circumstances where there is liability in another person to pay damages.

(ii) The right, conferred by s.151Z(1)(d) upon the employer who has paid compensation to an injured worker, to seek indemnity from the third party tortfeasor rests on the existence, for however brief a time, of a true liability in the third party tortfeasor to pay damages for the relevant injury: GIO of New South Wales v McDonald (1991) 25 NSWLR 492 .

(iii) The right conferred by s.151Z(1)(d) upon the employer exists independently of the worker’s right to bring a claim for damages. There is no privity of interest or derivative cause of action as such: Tooth v Tillyer (1956) 95 CLR 605 and Tickle v Hann (1974) 130 CLR 321 ; Manners v Transfield (1992) 110 ALR 70 distinguished.

(iv) A consent judgment between an employee and a third party tortfeasor does not give rise to a res judicata estoppel in relation to the employer’s right to indemnity under s.151Z(1)(d).

(v) It follows that an employer is not bound by a consent judgment between an employee and third party tortfeasor that does not reflect a legal liability in the third party that had existed at some point in time.

(vi) Section 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) is not analogous to s.151Z(1)(b) so that the construction of the former is not a useful aid in the construction of the latter.

ORDERS

1. Appeal allowed.

2. Set aside the orders and judgment of Gibb DCJ dated 26 September 2003.

3. Verdict and judgment for the appellant.

4. Direct parties to file short minutes of order in relation to the quantum of damages and indemnity

5. The respondent to pay the appellant’s costs in this Court and in the court below.

6. The respondent is to have a certificate under the Suitors’ Fund Act 1951 (NSW) if so entitled.

CA 40881/03
DC 67/02

MASON P
BEAZLEY JA
TOBIAS JA

15 December 2004

QBE WORKERS COMPENSATION (NSW) LIMITED v. DOLAN

Judgment

1 MASON P: I agree with Beazley JA.

2 BEAZLEY JA: This appeal raises the question of an employer’s entitlement under s.151Z of the Workers Compensation Act 1987 (NSW) to recover, from a third party tortfeasor (the tortfeasor), workers compensation payments paid by the employer to an employee as a result of injury caused by the tortfeasor.

3 The recovery action in this case was brought against the tortfeasor (the respondent) on behalf of the employer by the employer’s insurer, QBE, the appellant herein. For convenience, however, I shall refer to the appellant as if it were the employer.

4 The appellant’s employee, had been injured in a motor vehicle accident on the way home from work when a motor vehicle driven by the respondent collided with the employee’s vehicle. The employee commenced proceedings in the Compensation Court claiming workers compensation from the employer under the Workers Compensation Act. Before the workers compensation proceedings were resolved, the employee brought proceedings in the District Court against the respondent claiming damages for the injuries he sustained in the accident.

5 As the employee had made a claim for workers compensation and had also brought proceedings against the tortfeasor, the appellant contended that the provisions of s.151Z(1)(d) of the Workers Compensation Act applied and that it was entitled to recover from the respondent the sum of $91,320.85 it had paid to its employee by way of workers’ compensation.

6 However, the employee’s District Court proceedings against the respondent were settled whereby a verdict was entered for the respondent and an agreement reached between the employee and the respondent that the respondent would pay to the employee the sum of $4,000.00 in respect of his costs.

7 The respondent then defended the employer’s recovery proceedings. In doing so he accepted that if the decision of this Court in GIO of New South Wales v. McDonald (1991) 25 NSWLR 492 applied then the appellant was entitled to recover the compensation payments. However, the respondent argued that McDonald had been impliedly overruled by the High Court’s decision in James Hardie & Co. Pty. Limited v. Seltsam Pty. Limited (1998) 196 CLR 53. The trial judge, Gibb DCJ, accepted this argument and entered a verdict for the respondent.

8 The appellant appeals against that verdict.

9 On appeal, the respondent no longer sought to support the verdict on the basis that McDonald was impliedly overruled by James Hardie v. Seltsam Rather, he sought to argue a point not argued below and that was not raised directly in McDonald. The appellant did not oppose the new point being argued.

10 The case which the respondent raised on the appeal was captured in the Notice of Contention filed in Court on 25 August 2004 as follows:

“1. The appellant was estopped from asserting that the respondent was liable to pay damages in respect of the injury of the worker by reason of being privy in interest to the consent judgment between the respondent and the worker.
2. Further or in the alternative, by reason of the consent judgment between the respondent and the worker, the respondent was not a person in whom a liability was created within the meaning of s.151Z(1) of the Workers Compensation Act 1987 (NSW).”


I will refer to these points as the estoppel issue and the construction issue respectively.

Section 151Z

11 The right of an employer to recover compensation payments made to an employee injured by the fault of a third party is conferred by s.151Z(1). The provision is a longstanding one in workers compensation legislation, and is found in various jurisdictions, although, as might be expected, with some difference in wording. The policy of the section is to adjust the responsibilities between two liabilities in circumstances where an injured worker could pursue either or both of the available remedies: see Tooth v Tillyer (1956) 95 CLR 605 at 612. As the employer’s entitlement appears in s.151Z, it is contained with other provisions directed at ensuring that the employer does not bear the final burden of paying compensation to a worker when the worker has been injured in circumstances where there is liability in another person to pay damages. The section provides as follows:

“ 151Z Recovery against both employer and stranger
(1) If the injury for which compensation is payable under this Act was caused under circumstances creating a liability in some person other than the worker’s employer to pay damages in respect of the injury, the following provisions have effect:

(a) the worker may take proceedings both against that person to recover damages and against any person liable to pay compensation under this Act for payment of that compensation, but is not entitled to retain both damages and compensation,

(b) if the worker recovers firstly compensation and secondly those damages, the worker is liable to repay out of those damages the amount of compensation which a person has paid in respect of the worker’s injury under this Act, and the worker is not entitled to any further compensation,
(c) if the worker firstly recovers those damages the worker is not entitled to recover compensation under this Act,
(d) if the worker has recovered compensation under this Act, the person by whom the compensation was paid is entitled to be indemnified by the person so liable to pay those damages (being an indemnity limited to the amount of those damages),
…”

GIO v. McDonald

12 The respondent acknowledged at the outset that McDonald’s case, on its face, directly applied to the facts of this case. He submitted however that the issues that he seeks to raise now were not in issue in McDonald. It is necessary therefore in the first instance to understand what McDonald decided.

13 In McDonald an employee had been injured when, whilst in the course of his employment, he was struck by a motor vehicle insured by the appellant. The employee brought proceedings against the driver of the motor vehicle, claiming damages. Those proceedings were settled during the course of the hearing on the basis of a “without admissions” verdict for the driver and an agreement that the driver would pay the employee’s costs agreed in the sum of $15,000.00.

14 The injured worker’s employer then claimed indemnity from the driver’s insurer, the GIO, under s.64(1)(b) of the Workers Compensation Act 1926 for the compensation it had paid to the worker. Section 64(1)(b) was the statutory predecessor of s.151Z and was, relevantly, in the same terms as s.151Z(1)(d).

15 The GIO argued that although at one time it had been liable to pay damages under s.64(1)(b), it ceased to be so liable when judgment was entered in the driver’s favour in the District Court. The GIO argued that the verdict in favour of the driver conclusively determined that the driver was not liable to the worker and was thus a complete bar to proceedings brought by the employer seeking indemnity for compensation paid to the worker.

16 The employer argued that its rights under s.64 could not be affected by the verdict and that it was entitled to be indemnified by a tortfeasor who had originally been liable to the worker even if it was no longer under such liability.

17 The employer’s argument succeeded.

18 The Court held that the consent judgment in the District Court was no answer to the claim for indemnity brought by the employer under s.64(1)(b). Handley JA (with whom Priestley JA in a separate judgment at 493 and Hope AJA agreed) applied the decision of the High Court in Tooth & Co. Limited v. Tillyer. There, the Court in the joint judgment said at 611-612 in relation to the provision which was then s.64(b):

“… the right which is given to the employer who has paid compensation rests on the existence for however brief a time of a true liability to pay damages to some person … in respect of the injury for which compensation was payable and has been paid … It is the existence of a liability which s.64(b) postulates, … not … the continuance or persistence of the liability.”

19 Priestley JA in his separate comment said at 493:

“… the opening words of s.64(1) make the position quite clear. The liability there spoken of is undoubtedly the same liability as that referred to in par. (b), and as the opening words show, that liability is one created by the circumstances causing the worker’s injury. As soon as the circumstances occur, the liability exists, subject to the condition precedent to the operation of par. (b) being fulfilled. What happens afterwards to the liability created by the circumstances causing the injury can not affect the indemnity referred to in par. (b). If the necessary circumstances occurred, then the conditional entitlement to indemnity came into being at the same time.”

20 The respondent did not argue that McDonald was wrongly decided on the argument put to the court in that case. However, he submitted that if the two issues now raised had been argued in McDonald, it would have been held that the employer was not entitled to the statutory indemnity.

The estoppel issue

21 The respondent’s argument on the estoppel issue was based upon the premise that the appellant was a privy in interest to the claim brought by the employee. It was submitted that was so because the right given to the employer to claim indemnity under s.151Z(1)(c) was derivative: Tooth v. Tillyer at 612. The effect of the claim being derivative was that the employer was a privy in interest to the claim brought by a worker against a third party tortfeasor: Manners v. Transfield Pty. Limited (1992) 110 ALR 70.

22 In this case, the action between the employee and the respondent was settled by entry of judgment in favour of the respondent. It was submitted that that judgment created, as between them, a res judicata estoppel and the appellant, being a privy in interest to that claim, was likewise bound by the res judicata estoppel. The effect of the res judicata estoppel was that the cause of action merged in the judgment and thereafter had no separate existence. The appellant was thus precluded from proving that any liability ever arose in the respondent, as must be proved for the purposes of s.151Z(1)(d). As the employer’s claim had to be determined at the time it was brought, it did not matter, on the respondent’s argument, that prior to the entry of judgment in the negligence claim brought by the employee against him, the appellant would have been able to prove at some point of time, the existence of a liability in him to pay damages: see s.151Z(1)(d); Tooth v. Tillyer at 611-612; McDonald at 496-497.

23 It was submitted that the decision of the Full Court of the Supreme Court of Western Australia in Manners v. Transfield Pty. Limited supported the respondent’s argument.

Manners v. Transfield

24 In Manners v. Transfield the respondent’s employee was injured in a motor vehicle accident. The employee sued the driver, Manners, for damages. That claim resulted in a verdict for Manners because the worker had not been able to establish that he suffered injury as a result of the collision. Notwithstanding that verdict, Transfield, as employer, sued Manners claiming indemnity for the payments of compensation it had made to the worker. The employer called the worker to prove injury and medical evidence to prove the quantum of damages to which the worker would have been entitled. The trial judge upheld the employer’s claim and ordered the driver to indemnify Transfield.

25 The driver’s appeal to the Full Court of the Supreme Court of Western Australia was upheld by Rowland and Murray JJ who held that there was sufficient privity of interest between the employer and employee in relation to the third party tortfeasor’s legal liability to pay damages, to create an “issue estoppel ”. Rowland J said at 88:

“… the effect of the judgment is that Manners was found by a court of competent jurisdiction not liable to pay damages to [the worker] in respect of his negligence because [the worker] was found not to have sustained compensable injury as a result of Manners’ negligence.
That, … is the end of the matter. The issue has been resolved by a court of competent jurisdiction.”

26 In reaching this conclusion Rowland J relied upon Tickle Industries Pty. Limited v. Hann (1974) 130 CLR 321. In that case, the employer had brought an action against a tortfeasor after the statutory time limit for the worker taking action had expired and after the worker’s representatives (the worker having died as a result of the accident) had given to the tortfeasor a discharge from any liability. Barwick CJ said of similar legislation, at 334:

“The compensating employer must establish against the tortfeasor the condition of his right of indemnity. He must establish that the defendant was the tortfeasor: that the injury he caused was a compensable injury: that the amount paid and claimed in the action was properly payable under the [compensation legislation]: and the amount of damages properly assessable in respect of injury caused by the tortfeasor. … Having established these matters, the employer will be entitled to judgment for the amount of compensation paid, if the damages equal or exceed that amount. If not, he will have judgment for the amount of the damages.”

Barwick CJ concluded:

“In the instant case, neither the failure of the deceased’s dependants to sue nor the release by them of the respondent is relevant to the determination of the appellant’s cause of action against the respondents for indemnity.”

27 Rowland J considered that what flowed from Tickle’s case, relevantly for the matter in issue before the Court in Manners, was that Transfield had to establish a legal liability in Manners to pay damages. His Honour further observed at 91:

“What also flows from Tickle’s case is that Transfield has a separate statutory cause of action and that cannot be affected in any way by the worker’s later compromise of his right to damages, if that was the case, or giving the tortfeasor a discharge, if that was the case.”

In Manners, the plaintiff had neither entered into a compromise of his rights nor given a discharge to the tortfeasor. Rather, a court of competent jurisdiction had determined that no legal responsibility arose because there was no compensable injury. As Tickle’s case had decided that “ that legal liability arises at the time of the injury ” the problem faced by the employer was that there was no such “legal liability” so that the employer could not recover.

28 Rowland J explained at 91:

“The legal basis for this rule, apart from the matter of construction of the section, can be found in issue estoppel in that the employer has a ‘privity of interest’ with the employee in so far as that particular issue is concerned .”(emphasis added)

29 His Honour reiterated his point at 91-92:

‘The authorities… would indicate that the employer is given a separate statutory right to sue in his own name. In the result, however, I believe that he is bound by the decision on that issue whether it has been resolved in an action at common law by the worker or the employer.” (emphasis added)

In reaching that decision his Honour relied upon Ramsay v. Pigram (1968) 118 CLR 271 at 279; Gleeson v J Wippell & Co Ltd [1977] 3 All ER 54 at 59-60 in relation to privity of interest and Blair v Curran (1939) 62 CLR 464 at 531-2 in relation to issue estoppel and res judicata.

30 In Ramsay v Pigram, Barwick CJ at 279 described the “basic requirement” of a privy in interest as being that “the privy must claim under or through the person of whom he is said to be a privy”.

31 In Gleeson Megarry V-C said at 60:

“… having due regard to the subject-matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase ‘privity of interest’.”

32 In Blair v Curran Dixon J said at 532:

“The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.”

33 Rowland J then concluded at 92:

“The first condition which must be ascertained to condition both the employee’s and employer’s rights are identical. There is, in my view, a sufficient privity of interest between the employer and employee in relation to the appellant’s legal liability to pay damages …to establish the necessary privity of interest to create issue estoppel.” (emphasis added)

34 Murray J agreed. His Honour likewise concluded at 93 that the employee and the employer were privies in respect of the issue of causation of any disability suffered by the worker. His Honour then said at 95:

“… the view to which I have come in this case is … that the respondent in its claim for an indemnity under [the section] was in a relevant sense claiming under or through the worker … and his right to recover damages from the appellant in respect of the particular disability. Because it was necessary, if the claim to an indemnity was to be made out, that the respondent should establish against the appellant a legal liability to pay damages to [the worker], as an essential element in its cause of action, it becomes appropriate, in my view, to say that it derived its relevant interest through [the worker] to that extent .” (emphasis added)

35 Malcolm CJ (dissenting) held that the employer was not a privy of the worker so as to entitle the driver of the other vehicle to plead issue estoppel against it in the employer’s indemnity action. His Honour held that the employer could still seek to establish in separate proceedings that there was a legal liability in the driver to pay damages. Accordingly, he would have dismissed the appeal.

This Court’s position in relation to Manners v . Transfield

36 Although the result in Manners v Transfield is inconsistent with the result in this Court’s decision in GIO v. McDonald, senior counsel for the respondent submitted that it is not necessary to consider whether GIO v McDonald was wrongly decided for the simple reason that the question of privity of interest was not argued. cf Spencer Bower, Turner & Handley. The Doctrine of Res Judicata, 3rd ed, at 231.

37 Mannersv.Transfield is, of course, not binding on this Court, although, being a decision of a court of comparable jurisdiction, it ought to be followed unless the Court is of the opinion that it is clearly wrong: see Australian Securities Commission v. Marlborough Gold Mines Ltd (1993) 177 CLR 485. In this regard, senior counsel for the respondent pointed out that Mannersv.Transfield has been referred to as a decision on privity by the Full Court of the Federal Court in Effem Foods Pty. Ltd v. Trawl Industries of Australia Pty. Ltd (1993) 43 FCR 510 at 540 per Burchett J, although it must be said, without any analysis of the judgment in Mannersv.Transfield and in a different context.

38 It must also be remembered when considering whether Mannersv.Transfield has any application to this case, that the respondent seeks to derive from it the principle that the employer and employee are privies in interest and to use that as a step in the ultimate argument that the appellant is here bound by res judicata estoppel. Two questions arise in determining whether to apply the principle. The first is whether Manners v. Transfield is sufficiently on point. The second is whether, notwithstanding senior counsel’s submission, it is inconsistent with the decision of this Court in McDonald. There is, of course, some interrelationship between these two questions. However, it is preferable to consider the second question at the outset so as to understand the underlying principle in the two cases. That involves a consideration of the principal authorities to which each court turned in coming to its respective conclusion.

39 Both cases drew on the High Court’s decisions in Tooth v Tillyer and Tickle v Hann. The essential departure between the two cases was the reliance by the majority in Manners on the description in Tooth v Tillyer of the employer’s right to indemnity as being derivative. From that description, the majority in Manners found that the employer was a privy in interest of the employee. As explained earlier, this was not adverted to in GIO v McDonald.

Tooth v. Tillyer

40 The first of these authorities, in point of time, is Tooth v. Tillyer. In that case, Mrs. Tillyer was injured due to the negligence of her husband. At the time, she was employed by Tooth & Co and was paid workers compensation. As the law then stood, s.16 of the Married Women’s Property Act 1901 (NSW) provided an immunity from suit to spouses so that the husband was not liable to Mrs Tillyer for the injuries he had caused her. Notwithstanding that, the employer sued the husband under s.64(b) to recover the compensation it had paid to Mrs. Tillyer, on the basis that it was only Mrs. Tillyer’s right to a remedy against her husband that was barred, not the cause of action arising from the husband’s negligence. Mr. Tillyer contended however that as Mrs. Tillyer’s injury “was not caused under circumstances creating a legal liability in some person other than the employer to pay damages”, he had no liability under s.64 to the employer in respect of the compensation payments it had paid.

41 In the joint judgment, Dixon CJ, Williams, Webb and Fullagar JJ noted at 609 that the right of the employer to claim indemnity from Mr. Tillyer depended partly on the wording of s.64 and partly upon the theory that in those cases where a married woman could not sue or be sued by her husband, it was the remedy that was barred and not the cause of action. Their Honours observed that in the English authorities comparable legislation was held to operate so as to permit an employer to claim indemnity in circumstances where the worker had died as a result of a tortious injury and there was no other person entitled to bring a claim against the wrongdoer. Their Honours also noted the distinction drawn in the American authorities between causes of action said to be inherited or transmitted from a deceased person and those where the cause of action was not derivative or transmitted but newly created by statute, notwithstanding that the cause of action took as an element the wrongful or tortious character of the act whereby the deceased died.

42 Their Honours then said at 611-612:

“Whatever may be said of the soundness or usefulness of the foregoing distinction, it seems impossible to treat s.64(b) as not depending for its application on the incurring by a person other than the employer of an actual legal liability in respect of the injury. The introductory words of s.64 do not define or describe the person who has the right corresponding to the liability of which they speak. That no doubt is because it may be a right vested in an injured worker or in the executor or the relatives of a deceased worker under Lord Campbell’s Act … But the right which is given to the employer who has paid compensation rests on the existence for however brief a time of a true liability to pay damages to some person or persons in respect of the injury for which compensation was payable and has been paid. In that sense it is derivative .” (emphasis added)

43 The derivative nature of an employer’s right to indemnity described by their Honours arose because of the dependence of the right upon the existence of a legal liability in a person as a result of the commission of a tortious act against an employee. Legal liability, for the purposes of negligence, includes proof of damage, damage being the gist of the action. Importantly, for the operation of the indemnity their Honours stressed at 612 that:

“… it is the existence of a liability which s.64(b) postulates, not a remedy, nor as already has appeared, the continuance or persistence of the liability .” (emphasis added)

44 The Court concluded that there was no legal liability in the husband as required by the words of s.64(b), so that the employer had no entitlement to an indemnity for the compensation it had paid. In reaching this conclusion, their Honours in the joint judgment considered that it was artificial to think that the drafters of s.64 had in mind any metaphysical concepts of notional liability that had underscored some of the English and American writings on the immunity of spouses from suit in respect of tortious wrongs. As their Honours pointed out at 618, s. 64 was dealing with the “severely practical liabilities as may and do sound in money.”

Tickle Industries v. Hann

45 The next decision is Tickle Industries Pty. Limited v. Hann. Reference has already been made to this case in the discussion of Manners v. Transfield. However, it is necessary to give further attention to it. An employee of Tickle Industries Pty Ltd died as a result of a motor car collision that occurred in the course of his employment. Tickle Industries paid $6,300 workers’ compensation to his widow and child. The company then sought to recover this sum from the driver. By this time however, the right of the employee’s dependants to bring an action against the owner and driver under the Compensation (Fatal Injuries) Ordinance 1938 (NT) had expired. After the close of pleadings in the employer’s action, the parties agreed to state a case for the opinion of the Supreme Court of the Northern Territory on two questions. First, whether the expiry of the right of action of the dependants affected the right of the employer to recover the compensation paid. Secondly, whether the discontinuance by the estate of the claim and the release given to the driver afforded a defence to the employee’s claims.

46 The High Court held that the employer was entitled to an indemnity notwithstanding that at the date of the claim for indemnity the employee's dependants had no right of action under the Compensation (Fatal Injuries) Ordinance 1938 (NT).

47 Tickle involved the operation of s.2 of the Compensation Ordinance of the Northern Territory. That section was in different terms from s.151Z in that it provided for indemnity in the circumstance where the worker had not received damages or had received less than the full amount of damages to which he or she was entitled. However, the difference does not affect the consideration whether there is a res judicata estoppel arising from a privity of interest with which I am presently concerned. Barwick CJ traced the history of comparable English decisions noting at 327 that under the English legislation the right of the employer is an independent right against the wrongdoer, which is available regardless of “the action or inaction of the employee”.

48 The consequence of the employer having an independent cause of action, in his Honour’s view, was that the employer was still entitled to an indemnity notwithstanding that the worker may choose not to sue or may compromise with a tortfeasor for less than ought to have been received in respect of the compensable injury. Barwick CJ observed that such a compromise could be effected at any time – before proceedings, during action or even after judgment. However, relevantly for present purposes, his Honour stressed that a tortfeasor’s liability to pay indemnity under the section was not affected by the compromise of a claim between the worker and the tortfeasor for less than full value. This was because the employer’s right was independent of the worker’s action such that, if there had been a compromise for a lesser sum then “an assessment of damages must be made, clearly not in an action by the workman but in an action by the employer”.

49 Barwick CJ then, at 333, referred to Tooth v. Tillyer:

“As this Court pointed out in Tooth v. Tillyer … the section does not require the continuance or persistence of the liability. Granted initial responsibility at the time of the receipt of the injury or death, the section provides its own remedy to the employer by the creation of a right of indemnity by the person responsible for the injury or death ”. (emphasis added)

50 Tooth v. Tillyer and Tickle v. Hann establish that the employer’s indemnity is available under the legislation even though the injured worker may not sue or may compromise a claim or where the claim is statute barred as between the worker and the tortfeasor, (subject to any limitation question bearing upon the indemnity claim). It is also apparent from the statement of Barwick CJ in Tickle at 329 that it does not matter that, in the case of a compromise, the compromise occurs during the course of proceedings.

Re privity: Should this Court follow the reasoning in Manners v. Transfield

51 It is against this background of High Court authority that this Court must decide whether it should follow the reasoning in Manners v Transfield that the employer and employee are privies for the purposes of s.151Z(1).

52 The following matters are relevant to that consideration. First, the factual circumstances in this case fall directly within the principles stated in both Tooth v Tillyer and Tickle v Hann. Secondly, neither Tooth v. Tillyer nor Tickle v. Hann held that the right of the employer to claim indemnity was such as to constitute the employer a privy in interest. Rather the focus in both decisions was upon the separate nature of the right, the policy of the legislation and the need to find the existence of a legal liability at some point in time, notwithstanding that at some other point the right corresponding to the legal liability may have been lost or foregone in some way. Thirdly, the factual circumstance here is the same as was determined in GIO v McDonald, which applied Tooth v. Tillyer and the argument raised was, in effect, the same.

53 The further matter of particular significance in determining whether this Court should apply the “privity principle” held to exist in the circumstances in Manners v Transfield is that the facts there were different from those under consideration here and the finding of the majority was a finding based on issue estoppel, not res judicata estoppel.

54 It is also of interest to note that when attempting to grapple with the nature of the right and the interrelationship between the worker’s action and the employer’s entitlement to indemnity, there is no clear statement in these cases that the parties are privies. Rather, there appears to be a resort to these concepts as a point of reference or explanation. Hence the reference in Tooth v Tillyer to the right being “in that sense… derivative”. Likewise, in Manners v Transfield, neither Rowland J nor Murray J found that the employer and employees were privies as such. Rather they were privies in a more limited sense. Certainly, there was no finding that there was sufficient identity of interest to create a res judicata binding on the employer. In my opinion, such a notion is inconsistent with the separate nature of the cause of action given to the employer by the statute.

55 It follows from the foregoing that Manners v Transfield is not directly on point here. Given the existence of authority which is directly on point and the different issue under consideration in Manners v Transfield, I am of the opinion that the result of this case should be governed by GIO v McDonald.

56 Before departing from this issue, I should deal with one further matter that was raised in support of the respondent’s position. Senior counsel for the respondent submitted that if the appellant was correct in its assertion that it could recover in the circumstances here, the consequence would be that it was open to an employer to sue the third party tortfeasor a second time if it was not satisfied with the damages awarded in an action brought by the worker.

57 If the majority is correct in Manners v Transfield that after adjudication by a court of competent jurisdiction there is sufficient privity to create an issue estoppel, then that is an answer to the respondent’s contention. It is certainly the answer that commends itself as a matter of common sense, and what one expects was intended by the legislature. However the boundaries of issue estoppel, consent judgments and privies has not been authoritatively determined: see Spencer Bower, Turner & Handley. The Doctrine of Res Judicata, 3rd ed at [38].

58 Further, in Baxter v. Obacelo Pty. Ltd. (2001) 205 CLR 635 Gummow and Hayne JJ at 662 (albeit in a different context) considered that the possibility that the quantum of damages awarded as part of a compromise verdict might be challenged in other proceedings as not representing the full value of the claim, was an open question.

59 It is not necessary however for this Court to decide whether an employer could, in a claim for indemnity under s.151Z(1)(d) challenge the quantum of damages awarded in a fully litigated action between an employee and third party tortfeasor.

The construction issue

60 The respondent advanced an alternative argument in the second ground raised in the Notice of Contention. Although the issue as framed arises because there was in this case a consent judgment, the underlying argument relates to the construction of the section.

61 Senior counsel for the respondent submitted that the intention of s.151Z was to avoid a multiplicity of proceedings. Accordingly, an employer was required to accept the liability to damages and the quantum of those damages as may be determined in an action between the worker and the third party or, in default of judgment between those parties, in an action between the employer and the third party. It was submitted that this intention was apparent from the provisions of the section, to which it is necessary to return.

62 Section 151Z only operates where there is both an employer liable to pay compensation under the Workers Compensation Act and a third party who is liable to pay damages to the worker in respect of the same occurrence and injury. In that circumstance the section authorises proceedings against both but restricts the monies the worker is entitled to retain to one or the other: subs(1)(a). The section also governs the entitlement to future compensation: subss(1)(a) and (c) to which further reference is made below. It is also apparent from the section that, if the worker chooses to take proceedings for both compensation and damages, it is the third party tortfeasor who must bear the monetary burden that the employer otherwise would have had to pay in compensation. The section does this by setting out a sequential scheme that deals with a number of possible circumstances.

63 The first is where the worker recovers first compensation and then damages. In that case, the worker is liable to repay out of damages the amount of compensation and is not entitled to further compensation: subs(1)(b). The respondent submitted that the damages referred to in this paragraph are the same damages as are referred to in the introductory words to the section. The purport of this submission was that if there is no liability to pay damages for whatever reason, then there is no obligation to repay under this provision.

64 It was submitted that there was then a similar use of language in para.(d) so that the same damages must be referred to, i.e the damages for which a third party is liable within the opening words of the section.

65 Next, subs.(1)(f) provided that, in default of agreement, questions arising under the section are to be settled by action, or with the consent of the parties, by the Compensation Court.

66 It was submitted that the section made provision in relation to one set of damages, namely those referred to in the opening words of the section, which were to be determined once only within the construct of the section. If the worker took proceedings against the third party tortfeasor, then paras (b) and (c) operated, depending upon which claim was made first by the worker. Paragraph (d) only operated where the worker had not taken proceedings for damages. In that case, the employer was entitled to take proceedings against the third party.

67 It followed on this construction that in a case such as the present, where the worker having sued for damages failed to recover damages, there was nothing for para. (d) to operate upon. It did not matter on this argument that the failure to recover damages arose out of a consent judgment. It was submitted that this construction was consistent with the construction given to s.5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 in James Hardie & Company Pty. Limited v. Seltsam.

68 James Hardie v. Seltsam related to a claim for contribution under s.5(1)(c). That section, which governs contribution between joint and several tortfeasors, provides:

“5 (1) Where damage is suffered by any person as a result of a tort …
(c) any tort-feasor liable in respect of that damage may recover contribution from any other tort-feasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise, so, however that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by that person in respect of the liability in respect of which the contribution is sought.”

69 In James Hardie, the injured party (the plaintiff) sued both the appellant and the respondent. The plaintiff settled the action against the respondent on the basis that there be a verdict in favour of the respondent. The plaintiff also settled its actions against the appellant and against another defendant in the action whereby he obtained a verdict in his favour from each and each was ordered to pay a specified award of damages to the plaintiff. James Hardie was one of the parties that consented to a verdict against it and to an order for the payment of damages. It then sought contribution against the respondent in whose favour a verdict had been entered.

70 In the Court of Appeal ((1997) 15 NSWCCR 247) Mason P (Beazley and Stein JJA agreeing) rejected an argument that a consent judgment declaring non-liability was different from a judgment to the same effect entered by judgment at trial. His Honour found that upon its proper construction, s.5(1)(c) did not apply to the respondent for the reason that as a result of the consent judgment entered in its favour, the respondent no longer fell within either limb of the section.

71 The Court of Appeal’s decision was upheld by the High Court. As Gaudron and Gummow JJ pointed out at [40], the order dismissing the plaintiff’s action against the respondent was a final order which brought that action to an end. The respondent therefore was not caught by either of the two categories identified in s.5(1)(c).

72 Senior counsel for the respondent submitted that by analogous reasoning, that position applied here. The question of liability of the respondent third party tortfeasor having been determined by consent as between the worker and the tortfeasor, the tortfeasor was not a person liable to pay damages within the meaning of the opening paragraph of s. 151Z(1). Accordingly, the appellant was not entitled to an indemnity from the respondent. In other words, the statute did not apply.

73 Senior counsel for the appellant submitted that the respondent’s argument on the construction issue is directly in conflict with what was said about the operation of s.151Z in Tickle v Hann and in particular Barwick CJ’s observation at 330 that:

“It is clear that the workman’s failure to recover damages cannot defeat the compensating employer’s right to an indemnity … I have indicated that, in my opinion, the paragraph is not intended to provide only for the case in which the workman has an unsatisfied judgment for damages. It covers as well the case where no action for damages has been brought …
Further, par. (d) covers the case where less than the full amount of damages properly payable for the injury was received. It is clear that the workman, by accepting less than the full amount of such damages, cannot foreclose the employer’s right to indemnity from the tortfeasor.”

74 Further, it was submitted that the provisions of s.5 ought not to be applied as a method of construction for the purposes of s.151Z. This was particularly so as it had been pointed out by the High Court in James Hardie v. Seltsam that s.5 was itself a section that called for reform. Further, in the judgment of the Court of Appeal in James Hardie v. Seltsam, Mason P considered that McDonald gave no guidance to the construction of s.5. It was submitted that the reverse equally applied.

75 In my opinion, for both of these reasons, the Court ought to accede to the construction for which the appellant contends. In particular, this Court ought not to depart from a particular construction given to the section by the High Court, by reference to a construction given to different legislation.

76 The appellant also contended that the submission, that the intended scheme of s.151Z was that there be but one action against the third party tortfeasor, failed to have regard to the clear statements of the High Court in both Tooth v. Tillyer and Tickle v. Hann that the employer, under similar statutory provisions, had an independent cause of action. This submission is really a restatement of that referred to above and does not need further comment.

77 Finally, it was submitted that the factual situation in James Hardie v. Seltsam was distinguishable as in that case James Hardie had been a party to the proceedings and could have requested the court not to enter the consent verdicts until such time as its contribution action had been heard. Again, I consider this to be a supporting argument only. The real point is made and answered above at [75]. It is perhaps more relevant to observe that in James Hardie there was no suggestion that the parties to the consent judgment had reached agreement for reasons that were extraneous, in whole or part, to the litigation between the parties.

78 In this case, the consent judgment in favour of the respondent, accompanied by the agreement that the respondent pay the employee’s costs, appears to be a resolution of the matter in a way which does not reflect the respondent’s legal liability to the employee. There could have been a variety of reasons why the employee and Dolan reached the agreement they did. That is not a matter that concerns this Court. However, it is a point of significant difference between the two cases. And, as I have already mentioned, if the question of the quantum of damages awarded in a consent judgment may, arguably, be challenged: see Baxter at 662, presumably a consent verdict for a defendant might, in proceedings in which legal liability is in issue, be challenged. If that is the case, that provides another reason why there is unlikely to be either an issue estoppel or res judicata estoppel operating in a case such as this.

79 It follows, in my opinion, that neither the provisions of s.5, nor the reasoning in James Hardie v. Seltsam assists in the construction of s.151Z.

Conclusion

80 Accordingly, I would propose the following orders.

1. Appeal allowed.

2. Set aside the orders and judgment of Gibb DCJ dated 26 September 2003.

3. Verdict and judgment for the appellant.

4. Direct parties to file short minutes of order in relation to the quantum of damages and indemnity.

5. The respondent to pay the appellant’s costs in this Court and in the court below.

6. The respondent is to have a certificate under the Suitors’ Fund Act 1951 (NSW) if so entitled.

81 TOBIAS JA: I agree with Beazley JA.

**********

Last Modified: 12/15/2004