Registrar Workers' Compensation Commission (NSW) v National Employers' Mutual General Insurance Association Ltd

[1978] HCA 57

HIGH COURT OF AUSTRALIA

Gibbs A.C.J., Stephen, Jacobs, Murphy and Aickin JJ.

REGISTRAR, WORKERS' COMPENSATION COMMISSION (N.S.W.) v. NATIONAL EMPLOYERS' MUTUAL GENERAL INSURANCE ASSOCIATION LTD.

(1978) 141 CLR 462

19 December 1978

Workers' Compensation (N.S.W.)

Workers' Compensation (N.S.W.)—Policy of workers' compensation insurance—Scope of policy—Description employer's business—Policy to cover all workers employed by employer in business in respect of &hich policy obtained—Worker using equipment not usally found in described business—Whether description of business affected by equipment used—Proposal—Incorporated in policy—Description of business—Overriding effect of statutory provision—Workers' Compensation Act 1926-1972 (N.S.W.), ss. 18 (1), (2), (3) (a), (3A), 18C. Section 18 (3A) of the Workers' Compensation Act 1926-1972 (N.S.W.) provides: "Every policy of insurance or indemnity obtained by an employer on or after the day appointed pursuant to section 1 of the Workers' Compensation (Amendment) Act, 1967, in respect of workers in any business or occupation 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."

Decisions

Dec. 19.
The following written judgements were delivered: -
GIBBS A.C.J. The question to be decided on this appeal is whether a policy of insurance issued by the respondent company indemnified certain employers against their liability under the Workers' Compensation Act, 1926 (N.S.W.), as amended ("the Act"), to the dependant of a worker employed by them who died as a result of decompression illness contracted when diving for abalone in the course of his employment in 1972. The policy issued by the respondent to the employers, which insured them in respect of their liability under the Act, contained a proviso that "this policy shall not extend to any business or occupation other than that described herein". The only business or occupation described therein was "the business of Fishing - Vessel 'Nellie Ruth'". The policy stated that it was agreed that a written proposal and declaration made by the employers should be the basis of the contract and should be considered as incorporated therein. In that proposal the employers declared and warranted that the following statements, inter alia, were true:

"3. Nature of Business, Trade, Work or Occupation in respect of which indemnity is required. Fishing. . . . 8. Is any mechanical power used? If so, give full particulars. Usual to Fishing Trawler."

The Nellie Ruth was fitted with an air compressor and a motor to work it. Equipment of that kind was essential if the boat was to be used for fishing for abalone. However the evidence showed that of the fishing fleet based at Eden (out of which port the Nellie Ruth operated) only seven to ten out of forty-five to fifty boats were used for abalone fishing, and those not so used were not fitted with compressors. On the basis of this evidence it was held in the Workers' Compensation Commission that "the compressor carried on the Nellie Ruth was not 'usual to fishing trawler'". It was for this reason concluded that the operations which resulted in the death of the deceased were outside the risk covered by the policy. The decision of the Workers' Compensation Commission was affirmed in the Court of Appeal, by a majority. (at p466)

2. In order to decide whether the answer given to question 8 was correct, it was necessary to consider whether a motor of the kind used to give power to the compressor was usually found on fishing trawlers, rather than whether the compressor as a whole (including the motor) was a usual item of equipment. The finding made in the Workers' Compensation Commission, and acted on by the Court of Appeal, refers to the compressor, rather than to the motor. However, no attention appears to have been directed to this distinction, and before the Court of Appeal the present appellant did not seek to challenge the finding that a compressor was not usual to a fishing trawler and I shall assume, without deciding, that the finding was correct and sufficient. It was not disputed before us that "fishing" in the policy included diving for abalone. In these circumstances the short question for decision is whether the circumstance that the worker was employed on a trawler which used mechanical power other than that usual to a fishing trawler involved the consequence that the indemnity conferred by the policy on the employers did not extend to liability in respect of the worker or his dependants. (at p466)

3. This question is in my opinion answered by s. 18 (3A) of the Act, which provides as follows:

"Every policy of insurance or indemnity obtained by an employer on or after the day appointed pursuant to s. 1 of the Workers' Compensation (Amendment) Act, 1967, in respect of workers in any business or occupation shall, notwithstanding anything contained in that policy, apply to and have effect in respect of all workers employed by that employer in that business or occupation."

The policy in the present case was obtained after the appointed day mentioned in the section. The effect of s. 18 (3A) is that a policy in respect of workers in a particular business or occupation has an effective operation in respect of all workers employed by the employer in that business or occupation, notwithstanding that the provisions of the policy might otherwise have had the effect that it would not afford indemnity against liability to a particular worker employed in that business or occupation, or his dependants. In the present case, if the policy was in respect of workers in the business or occupation of fishing, it applied to and had effect in respect of the deceased worker, notwithstanding that under the policy itself the fact that he was employed on a trawler which used mechanical power not usual to a fishing trawler placed him outside the risk covered by the policy. (at p467)

4. However, in the present case the view taken by the majority of the Court of Appeal was that the deceased worker was not employed in the business or occupation to which the policy related. In their view, the answer to question 8 in the proposal must be taken to be descriptive of the business in respect of which the indemnity was given and to impose a qualification upon the generality of the answer to question 3. In other words, the two answers must be read together, and the product incorporated in the policy. Therefore, they concluded, the business in respect of which the employers were indemnified was the business of fishing from the Nellie Ruth using such mechanical power as is usual to a fishing trawler. If this conclusion was correct s. 18 (3A) did not apply. (at p467)

5. The learned members of the Court of Appeal who constituted the majority were much influenced by the decision of the Full Court of the Supreme Court of New South Wales in Licenses &Federal Insurance Co. Ltd. v. Air (1935) 52 WN (NSW) 142 . In that case the employer was a butcher. The proposal form, which was the basis of the policy issued under the Act, stated that no mechanical power was used. That was true at the time. Later, there was a change of method, and an employee of the butcher was required to operate a power-driven mincer. While so doing he was injured. It was held, to use the words of Jordan C.J. (1935) 52 WN (NSW) at pp 142-143 , that "the risk in question stood outside the risk insured", and the insurance company was not liable. At the time of that decision the Act did not contain s. 18 (3A). The result of the case is understandable - whether or not the policy of the Act as it then stood should have led to a different conclusion is a question which I need not decide. Unfortunately, however, the case contains dicta which were in my opinion erroneous. Jordan C.J. said (1935) 52 WN (NSW) at pp 142-143 : "Reading the policy and the proposal together, as we must, what was insured was either a business not using mechanical power, or, at most, a business to the extent to which mechanical power was not used." Halse Rogers J. said (1935) 52 WN (NSW) at p 143 that "the business described was a business not using mechanical power." With all respect, these statements cannot be right. A butcher is no less a butcher because he uses a power-driven mincer. The statement that mechanical power was not used may have been descriptive of the risk, but it was not descriptive of the business. In that case, however, since s. 18 (3A) was not in force, it was not necessary to distinguish between the two notions. (at p468)

6. In the present case the answer to question 8 did not form part of the description of the business or occupation in respect of which the policy operated. According to the policy itself, the business was that of "fishing" (if it matters, from the Nellie Ruth), and the answer to the relevant question in the proposal, question 3, also described the business, trade, work or occupation in respect of which indemnity was required as "fishing". Question 8 was not directed to the nature of the business or occupation in which the employees in respect of whom the policy was obtained were engaged. The business or occupation in which a person is engaged is not determined by the equipment which he uses to carry out his task. A fisherman does not change his occupation because he uses a hand-line instead of a net, or a spear-gun instead of a trap, or because the Trawler in which he happens to be working is equipped with a motor not usually found in fishing trawlers. The answer given to question 8 in the proposal was no doubt intended to affect the nature of the risk covered by the insurance, but it does not describe a business or occupation - the very words of the question show that it was not intended to do so. The dicta in Air's Case as to the effect of a similar question in a proposal have proved misleading. (at p468)

7. Section 18 (3A) is obviously a remedial provision and should not be given a restricted operation. Its apparent intention would be defeated if words in a proposal, which according to their natural meaning did no more than state whether or not mechanical power was used in a business, were regarded as descriptive of the business itself. In the present case, the business described in the policy was fishing, and once the misconception engendered by Air's Case is dispelled it is seen that there is no reason to describe the business as a fishing business which used only such mechanical power as is usual to a fishing trawler. (at p468)

8. Since the policy was in respect of workers in the business or occupation of fishing, s. 18 (3A) rendered it effective in respect of the deceased worker, since he was employed in that business or occupation, notwithstanding that, under the policy, the incorrect answer to question 8 may otherwise have had the result that the risk did not attach. (at p469)

9. The appeal should be allowed. (at p469)

STEPHEN J. I have read and agree with the reasons for judgment of Jacobs J. I would accordingly allow this appeal. (at p469)

JACOBS J. This is a dispute between the appellant, representing the interests of the Uninsured Liability Fund constituted under the Workers' Compensation Act, 1926 (N.S.W.) and the respondent who was the insurer under a workers' compensation policy issued to Sapphire Fisheries, a firm carried on by Richard Fantham and Colin James Corkery. An employee of that firm, James Wilson Babbington, suffered in the course of his employment injury which caused his death on 2nd March 1972, and his dependant Pauline Margaret Jones claimed workers' compensation. She made two applications one against the employer in which an award was made but not satisfied and then one against the Uninsured Liability Fund pursuant to s. 18c (2) of the Act. (at p469)

2. It having been established that she was entitled to compensation, the question arose - who was bound to pay the compensation? The employer had a workers' compensation policy with the respondent but did it cover this worker at the time of his injury and death? (at p469)

3. The firm Sapphire Fisheries carried on business on the south coast of New South Wales. It operated a fishing trawler, the Nellie Ruth, out of the port of Eden. The fishing trawler was equipped for abalone diving, that is to say, the recovery from the sea bed of the abalone molluscs attached thereto. The main equipment for the supply of air to the divers was a compressor and a motor to drive it. Mr. Babbington died from an attack of the bends after he had been diving for abalone from the Nellie Ruth. (at p469)

4. The workers' compensation policy of Sapphire Fisheries with the respondent was issued pursuant to a proposal for insurance which had been made by that firm on 16th September 1971. Questions were asked and answered as follows:

"1. Full Name of Employer. Sapphire Fisheries F/V Nellie Ruth

3. Nature of Business, Trade, Work or Occupation in respect of which in- demnity is required Fishing. 7. (a) Are any of your relations or members of your family or household employed by you under a definite contract of service? Yes. (b) If so, full particulars must be given in respect of any such relatives or members of your family or house- hold (...) Son. 8. Is any mechanical power used? If so, give full particulars Usual to Fishing Trawler".

(at p470)

5. A policy was issued dated 29th September 1971. It contained the following preamble:

"WHEREAS by virtue of the Workers' Compensation Act, 1926, as amended (hereinafter called the Act) it is provided that every employer shall obtain from an Insurer licensed under the Act to carry on business in the State a policy of insurance or indemnity for the full amount of his liability under the Act to all workers employed by him and for an amount of at least fifty thousand dollars in respect of his liability independently of the Act for any injury to any such worker and shall maintain such policy in force and WHEREAS Sapphire Fisheries, of C/- Snowy Fantham, Mitchell Street, EDEN. N.S.W. (hereinafter called the Employer) is carrying on the business of Fishing - Vessel "Nellie Ruth", and no other for the purpose of this indemnity at various locations, in the State of New South Wales, and has made to National Employers' Mutual General Insurance Association Limited an Insurer licensed under the Act (hereinafter called the Insurer) a written Proposal and Declaration, dated the 16th day of Sept., 1971, containing certain particulars and statements which it is hereby agreed shall be the basis of this contract and be considered as incorporated herein." (at p470)

6. It also contained the following proviso to the promise of indemnity:
"PROVIDED that this policy shall not extend to any business or occupation other than that described herein, unless and until particulars thereof shall have been supplied to and accepted by the Insurer and the acceptance of such extension endorsed hereon by the Insurer." (at p470)

7. The respondent disclaimed liability to indemnify the employer, claiming that abalone diving was not "fishing", and that the only workers insured under the policy were workers of the employer engaged in the business of fishing. It further claimed that a compressor and its motor were "mechanical power" but were not "usual to a fishing trawler". It was therefore submitted that abalone diving was outside the risk covered by the policy. Counsel for the respondent expressly disclaimed reliance upon the answer to question 8 in the proposal as a misrepresentation or non-disclosure rendering the policy voidable but contended that abalone diving, since it required the use of the air compressor and motor, not being mechanical power usual to a fishing trawler, fell outside the risk insured. It therefore claimed that it was not liable to indemnify the employer under the policy. (at p471)

8. It was held in the Workers' Compensation Commission that the Nellie Ruth was a fishing trawler, that the word "fishing" in the part of New South Wales where the proposal for insurance was made and in New South Wales generally was understood in the fishing industry to include and, further, in its ordinary commercial acceptation included, abalone diving. It was then held that mechanical power in the form of a compressor and its motor was not mechanical power usual to a fishing trawler because of a finding that not more than a quarter of the fishing trawlers in the Eden fishing fleet had such mechanical power. It was concluded that the operations which resulted in the death of the worker fell outside the risk insured, as counsel for the respondent had submitted. Reference was made to Licenses &Federal Insurance Co. Ltd. v. Air (1935) 52 WN (NSW) 142 ; Campbell v. Royal Exchange Assurance of London (1937) 11 WCR (NSW) 342 ; and Hagarty v. South British Insurance Co. Ltd. (1953) 27 WCR (NSW) 149 . (at p471)

9. Before the Commission reliance was then placed by the applicant upon s. 18 (3A) of the Act, which had been introduced in 1967. That subsection provides:
"Every policy of insurance or indemnity obtained by an employer on or after the day appointed pursuant to section 1 of the Workers' Compensation (Amendment) Act, 1967, in respect of workers in any business or occupation 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." (at p471)

10. The argument put to the Commission was that the business or occupation was fishing and that s. 18 (3A) "operated to nullify the limitation of that business or occupation by reference to the use of mechanical power that could not be classed as 'usual to fishing trawler'". (at p471)

11. It was held that s. 18 (3A) was not applicable to the case. Judge Campbell said:

"It seems to me that the section is not directed at a limitation of the description of the business by the policy and the incorporated proposal; but rather at the exclusion of workers by characteristics personal to them or, perhaps by reference to the way by which they come to be regarded as workers. . . .

By contrast to these situations, in the present case, as in the Licenses &Federal Case the limitation upon the risk is one directed to the extent of the business described in the policy."
He therefore held that the Fund and not the insurer was liable to pay the amount of the award. An appeal to the New South Wales Court of Appeal was by majority dismissed. (at p472)

12. It became quite clear during the argument of the appeal before us that the first, and essential, question to be decided was the proper construction of the policy. Were the workers of the employer, who were insured under the policy, workers engaged in the business of "fishing" or only workers engaged in the business of "fishing which, when done from a trawler equipped with mechanical power, was from a trawler whose mechanical power was usual to a fishing trawler"? The Commission accepted the latter construction and was upheld by a majority in the Court of Appeal (1977) 2 NSWLR 152 . Support for that conclusion can be obtained from some of the statements in Air's Case. Before going to the reasons given in that case, it is necessary to say something of what was accepted to be the applicable law governing workers' compensation insurance in New South Wales at the time that case was decided. The view was held, rightly or wrongly, that the general principles of insurance law were applicable to workers' compensation insurance so that, if it should appear that the risk was outside the risk insured against, the insurer would not be liable. Cf. Findlay v. Queensland Insurance Co. Ltd. (1939) 39 SR (NSW) 260 ; but see the later decision in Miller v. Law Union &Rock Insurance Co. Ltd. (1969) 71 SR (NSW) 201 . The extent of the insured risk would be determined not only from the description of the subject matter insured but also from any relevant answers in the proposal, at least if the proposal was made the basis of the policy and was incorporated therein: Farr v. Motor Traders Mutual Insurance Society Ltd. (1920) 3 KB 669 ; Provincial Insurance Co. v. Morgan (1933) AC 240 (cases referred to in the judgement of Jordan C.J. in Air's Case as ones expressing the applicable principle). (at p472)

13. Therefore Jordan C.J. could in Air's Case speak in general terms without making a precise distinction between the description of the business in the workers' compensation policy and the description of the risk insured against. He said (1935) 52 WN (NSW), at pp 142-143 :

"The substantial question is whether, upon the undisputed facts, the risk of the particular injury was covered by the policy. I think that the answers given to the questions were correct when they were given, and that what was insured against by Byers was risk of liability in respect of a business carried on at the premises No. 110, Hampden Road, in which mechanical power was not used. I think also that, when Air incurred the injury, he was engaged in a business in which mechanical power was used, and suffered his injury by reason of the use, for the purposes of the business, of such mechanical power. It follows, in my opinion, that the risk in question stood outside the risk insured, and that the company is not liable.

It may be that the alteration in Byers' methods did not wholly invalidate the policy, although it is not, I think, necessary to decide this. The alteration at least brought into existence certain risks which lay outside the protection afforded by the policy: Farr v. Motor Traders Mutual Insurance Society Ltd.; Provincial Insurance Co. v. Morgan. It is true that the policy insures the employer against liability to pay compensation under the Act to, or in respect of, any person who is, or is deemed by the Act to be, a worker of such employer, but there follows a proviso that the policy shall not extend to any business or occupation other than that described therein. Reading the policy and the proposal together, as we must, what was insured was either a business not using mechanical power, or, at most, a business to the extent to which mechanical power was not used. So construing the policy, I think that the claimant Air fails in his claim against the insurance company." (at p473)

14. Halse Rogers J. laid clearer emphasis on the description of the business when he said (1935) 52 WN (NSW), at p 143 :
"In effect, I think, reading the proposal with the policy, one must take it that the business described was a business not using mechanical power; that when the employer changed his business methods and did use mechanical power that was an alteration in the kind of business he was carrying on; and that the matter then falls within the proviso that the policy should not extend to any business or occupation other than that prescribed therein. I think that the business which was covered by the policy, when it was issued, altered, and that, as, at the time of the accident, the business being carried on was different from that in respect of which the insurance was issued, the policy, in respect of covering an employee when mechanical power was used, ceased to be effective." (at p473)

15. After s. 18 (3A) was inserted in 1967, the distinction between the business and the description of the risk became crucial. Since that time the choice is no longer simply between on the one hand a description of the risk and on the other hand a warranty which, if broken, would terminate the contract of insurance or a misrepresentation which would make the policy voidable. Because of the importance of defining the business as a result of s. 18 (3A) the choice is threefold - description of the business, description of the risk and warranty or misrepresentation. The suggestion of warranty or misrepresentation has throughout been disclaimed so that the choice is between the other two. If upon the proper construction of the policy, the answers to the questions in the proposal (other than question 3) were part of the description of the business insured, s. 18 (3A) has nothing to say on the question whether the worker was within the policy in the present case. That subsection deals only with workers employed by the employer in the business or occupation in respect of which the policy of insurance has been effected. (at p474)

16. However, if on the proper construction of the policy, the business insured was that stated in the answer to question 3 in the proposal, namely fishing, or that stated in the preamble to the policy, namely, "Fishing - Vessel Nellie Ruth", and if the answers to the other questions do no more than define or delineate the risk as between the respondent and the employer, s. 18 (3A) has the effect that, notwithstanding anything contained in the policy which limits the risk otherwise than by definition of the business, the policy shall apply to and have effect in respect of all workers employed by the employer provided they were employed in the business of fishing or "Fishing - Vessel Nellie Ruth". This worker was so employed and his dependant could recover against the insurer under the policy. (at p474)

17. When attention is focused upon the presently relevant distinction between a description of the business and a description of the risk, it becomes clear that all that is described in the proposal as the nature of the business is the business of "fishing". As a matter of construction the words "usual to fishing trawler" in answer to question 8 do not qualify the word "fishing" as a description of the business. It could only be by importing the concept of "risk" and by the loose equation of the words "business insured" with "risk insured" that in some way a construction could be given which qualified the word "fishing" by the answers to any of the ensuing questions in the proposal. Such a method of construction is not permissible. I agree with the statement of Mahoney J.A. in his dissenting judgment (1977) 2 NSWLR, at p 169 :

"The form asks for statements to be made concerning the business, e.g., the situation of the premises where it is carried on, whether relatives are employed, whether mechanical power is used, and whether acids, gases, chemicals or explosives will be used. Each of these statements is a statement about the business and, in that sense, describes the business. But, in my opinion, these are not descriptions of the business, in the sense of the proviso to which I have referred. The kind of description provided for by the policy is one whereby the employers' business or occupation is categorised, and it is by reference to that categorisation that liability is to be determined. The answer to the question 'Nature of business trade work or occupation in respect of which indemnity is required' is apt to achieve this purpose. Answers to the other questions may constitute warranties, or promissory statements or otherwise condition the policy or the extent of the risk: cf. Beauchamp v. National Mutual Indemnity Co. Ltd. (1937) 3 All ER 19 ; and they may be significant as going statistically to the likelihood of a claim but I do not think they go to the qualification of the description of the business or occupation in question."

It has been submitted that so to decide is to overrule Air's Case (1935) 52 WN (NSW) 142 when it has stood as an authority for many years and been acted on in the field of insurance. In my opinion, this is not correct. Because it was not considered necessary to make a presice distinction between the definition of the business and the description of the risk, I do not think that Air's Case can be regarded as an authority which established that the answers in a proposal for workers' compensation should be read into the description of the business in respect of which the insurance was effected. Air's Case, properly understood, ceased to be the law when s. 18 (3A) was inserted in the Act. (at p475)

18. I would allow the appeal with costs, set aside the orders of the New South Wales Court of Appeal and in lieu thereof order that the appeal to that court be allowed with costs and the matter referred back to the Workers' Compensation Commission. (at p475)

MURPHY J. I agree with Jacobs J.; the appeal should be allowed. (at p475)

2. The workers Compensation Commission considered question 8 in the proposal for insurance, "Is any mechanical power used? If so, give full particulars", and the answer, "Usual to fishing trawler". His Honour Judge Campbell interpreted the answer as meaning that the mechanical power in question (a compressor) was that used by more than half the fishing trawlers and, as compressors were used only by about twenty-five per cent of the fishing trawlers (those which, like the trawler in question, fished for abalone), found that the answer was incorrect. In my opinion, the meaning of "usual" in such a context is "not unusual", that is, not exceptional. The respondent conceded that the mechanical power was not unusual but contended that "usual" was not synonymous with "not unusual". It may not always be synonymous, but it is in this context. If the Commission's interpretation of "usual" were strictly applied to insurance proposals, it would often lead to absurd results and injustice. (at p476)

AICKIN J. This is an appeal from a decision of the Court of Appeal Division of the Supreme Court of New South Wales (Glass and Samuels JJ.A., Mahoney J.A. dissenting) (1977) 2 NSWLR 152 . That Court dismissed an appeal from a decision of Judge Campbell in the Workers' Compensation Commission in a claim made under the Uninsured Liability Scheme provided in s. 18c of the Workers' Compensation Act 1926-1972 (N.S.W.) ("the Act"). That claim was made by a dependant of a deceased worker who claimed that his employer had not obtained or had not maintained in force, a policy of insurance or indemnity as required by the Act. An issue then arose between the Commission and the respondent to this appeal ("the insurer") as to whether the employers, a partnership carrying on the business of fishing, were covered by a policy issued to them by the Insurer. In the Court of Appeal and in this Court the dispute was only between the insurer and the Commission which administers the Uninsured Liability Scheme. (at p476)

2. The facts out of which this dispute arose may be shortly stated. The deceased worker was employed to work on a fishing trawler to dive for abalone and to assist on other fishing operations for which the trawler was used. At the relevant time he was diving for abalone, an operation which required the supply of compressed air to divers at substantial depths. That supply was maintained from the fishing trawler by way of hoses from a compressor driven by a petrol engine, and all trawlers used for obtaining abalone used such equipment. Abalone is a mollusc which attaches itself to rocks at substantial depths below the surface and divers wrench them off the rocks by the use of an iron bar. On the particular occasion (1st March 1972) the deceased suffered an attack of the "bends" on returning to the surface, apparently because of "incorrect surfacing procedures". Despite going down to appropriate depths on several occasions during the journey back to port, and being transferred to another boat so that he could be taken to and placed in a compression chamber, he died as a result of the bends on 3rd March 1972. (at p476)

3. His employers had submitted a proposal for, and had obtained, a policy of insurance under the Act from the Insurer and it is on these documents and the provisions of the Act that the matter turned. (at p477)

4. The material provisions of the proposal were as follows:

WORKERS' COMPENSATION PROPOSAL.

AGENT Seine &Tuna Ins Brokers No. SN 48725

GENERAL (other than Private Householders) I/We, the undersigned, engaged in the business, trade, work or occupation described below, desire to effect an Insurance with and apply to become members of the Association in terms of the Policy to be issued by the Association and the Association's Memorandum and Articles of Association indemnifying me/us against my/our legal liability to pay to or in respect of any worker within the meaning of the Workers' Compensation Act of New South Wales (a) Compensation under the Workers' Compensation Act of New South Wales and/or (b) Damages independently of the said Act for any injury to any such worker provided always that the liability of the Association arising out of all claims made independently of the said Act by or in respect of any such worker shall be limited to an amount not exceeding $50,000 Period of Indemnity: - From 25/8/71 to Four o'clock in the afternoon of 25/8/72 19. . . . --------------------------------------------------------- 1. Full Name of Employer. Sapphire Fisheries F/V Nellie Ruth.

2. Full Postal Address. C/- Snowy Fantham Mitchell St. Eden, 2551 N.S.W.

3. Nature of Business, Trade, Work or Occupation in respect of which indemnity is required Fishing. 4. Situation of Works, Factory or Premises where Business, Trade, Work or Occupation is carried on . . . - 5. (a) Have you any employees engaged otherwise than in connection with the above? . . . - (b) If so, state - How and where engaged . . . - With which Office insured . . . - 6. State the total amount of wages paid, and value of keep etc., allowed by you to employees in your direct service during the preceding twelve months . . . Nil. 7. (a) Are any of your relatives or members of your family or household employed by you under a definite contract of service? Yes.

(b) If so, full particulars must be given in respect of any such relatives or members of your family or household (see Schedule 3 on back hereof) . . . Son. 8. Is any mechanical power used? If so, give full particulars . . . Usual to Fishing Trawler

9. Will any acids, gases, chemicals or explosives be used? (State which) . . . No. 10. Do you expect to let by any type of contract as described in Schedule 2, any part of the work of your trade or business? . . . If so, do you undertake to either (a) Satisfy yourself on every occasion that the Contractor is insured against his full liability under the 'Workers' Compensation Act 1926 as amended' in respect of any workers employed by him in connection with the contract? . . . or (b) Advise the Association immediately any contract is let? . . . - 11. (a) Do you require, at an additional premium, an extension of the $50,000 Common Law indemnity as provided in the policy? . . . Yes. $10,000. (b) If so, state amount to be increased to . . . $100,000. 12. Do you employ any salesmen, canvassers, collectors or persons paid wholly or partly by commission? If so, kindly give particulars. (The amount of any such commission must be furnished to the Association unless such commission is received by the salesman, canvasser, collector or other person for and in connection with work incidental to a trade or business regularly carried on by him or by a firm whereof he is a member) . . . No. 13. Has any Insurer ever declined to insure or refused to renew or imposed special conditions or demanded an increased premium in respect of insurance of your liability towards employees? If so, give full particulars . . . No. 14. Are you at present insured? If so, state name of Insurers . . . No. ......................................................... I/We hereby declare and warrant that all the above statements, together with particulars supplied in the Schedules on back hereof, which I/We have read over and checked, are true; that I/We have not suppressed, misrepresented or misstated any material fact; that I/We have fairly estimated my/our total expenditure for wages, salaries, and all other forms of remuneration during the period of indemnity proposed. . . . and I/We agree that this proposal and declaration shall, subject to the terms and conditions of the Policy, be the basis of the contract and be incorporated therein. All statements, replies and particulars must be made fully in writing. If this proposal in any particular is completed by any person other than the Employer, such person shall be deemed the Agent of the Employer and not of the Association."

The material provisions of the policy were as follows:

"WHEREAS by virtue of the Workers' Compensation Act, 1926, as amended (hereinafter called the Act) it is provided that every employer shall obtain from an Insurer licensed under the Act to carry on business in the State a policy of insurance or indemnity for the full amount of his liability under the Act to all workers employed by him and for an amount of at least fifty thousand dollars in respect of his liability independently of the Act for any injury to any such worker and shall maintain such policy in force and WHEREAS Sapphire Fisheries, of C/- Snowy Fantham Mitchell Street EDEN. N.S.W. (hereinafter called the Employer) is carrying on the business of Fishing - Vessel "Nellie Ruth", and no other for the purpose of this indemnity at various locations, in the State of New South Wales, and has made to National Employers' Mutual General Insurance Association Limited an Insurer licensed under the Act (hereinafter called the Insurer) a written Proposal and Declaration, dated the 16th day of Sept., 1971, containing certain particulars and statements which it is hereby agreed shall be the basis of this contract and be considered as incorporated herein. NOW THIS POLICY WITNESSETH that in consideration of the payment by the Employer to the Insurer of the abovementioned Premium (which Premium is subject to adjustment as hereinafter provided) IF, between the 25th day of August, 1971 and four o'clock in the afternoon of the 25th day of August, 1972 and thereafter to four o'clock in the afternoon of the last day of any subsequent period in respect of which the Premium shall have been paid to and accepted by the Insurer, the Employer shall be liable to pay compensation under the Act to or in respect of any person who is or is deemed by the Act to be a worker of such Employer, or to pay any other amount not exceeding fifty thousand dollars in respect of his liability independently of the Act for any injury to any such person, THEN, and in every such case the Insurer will indemnify the Employer against all such sums for which the Employer shall be so liable; the Insurer will also pay all costs and expenses incurred with the written consent of the Insurer in connection with the defence of any legal proceedings in which such liability is alleged. PROVIDED that this policy shall not extend to any business or occupation other than that described herein, unless and until particulars thereof shall have been supplied to and accepted by the Insurer and the acceptance of such extension endorsed hereon by the Insurer. . . . PROVIDED lastly that this Policy shall be subject to the Act and the Rules and Regulations made thereunder, all of which shall be deemed to be incorporated in and form part of this Policy. CONDITIONS .................................................. CANCELLATION OF POLICY 13. The Insurer may at any time, by giving written notice to the Employer, cancel this Policy. The notice of cancellation shall be posted to the Employer at the within-mentioned address, and the cancellation of the Policy shall be effective on the expiration of seven clear days from the date of posting the said notice. Notwithstanding the cancellation of the Policy as aforesaid, the Employer shall furnish a statement of wages showing the amount paid up to the time of cancellation, and the premium for the period of Insurance prior to cancellation shall be adjusted on a pro rata basis in the manner provided by Condition 11 of this Policy. Provided that the Policy may not be cancelled without the consent of the Workers' Compensation Commission first had and obtained. NO WAIVER OF CONDITIONS

14. No condition or provision of this Policy shall be waived or altered unless the consent of the Insurer be previously obtained and signified by endorsement hereon, nor shall notice to any agent, nor shall knowledge possessed by any agent, or by any person be held to effect a waiver or alteration in this contract or any part of it." (at p480)

5. The trial judge found that in Eden the word "fishing" included abalone diving and that the common understanding of the word "fishing" as applied to commercial operations included abalone diving. He also found that "not more than one quarter of the vessels which could be described as fishing trawlers in the Eden fishing fleet were fitted with compressors". On that basis he concluded that the compressor unit carried on the vessel was not "usual to fishing trawler" in the words of the proposal. He concluded that the operations which resulted in the death of the deceased were outside the risk covered by the policy. (at p480)

6. There is no doubt that if this were an "ordinary insurance policy" such as has been in common use in fire, accident, indemnity and other policies in England and in Australia for many years, the conclusion that the employer was not covered would be inevitable, but for reasons other than those given in the courts below. This proposal contains what has come to be called a "basis clause", i.e. the clause which provides "I agree that this proposal and declaration shall, subject to the terms and conditions of the Policy, be the basis of the contract and be incorporated therein." The policy itself refers to the proposal "containing certain particulars and statements which it is hereby agreed shall be the basis of this contract and be considered as incorporated herein". It has long been settled that the effect of such clauses is to make the truth of the answers a condition precedent to liability, though the language must be clear and amount to a warranty of the correctness of the answers - see Provincial Insurance Co. Ltd. v. Morgan (1933) AC 240 ; Guardian Assurance Co. Ltd. v. Condogianis (1919) 26 CLR 231 , approved on appeal by the Privy Council (1921) 29 CLR 341; (1921) 2 AC 125 . In such cases it is not relevant to consider whether the fact inaccurately stated is material or not - Guardian Assurance Co. Ltd. v. Condogianis; Macdonald v. Law Union Fire and Life Insurance Co. (1874) LR 9 QB 328 ; Thomson v. Weems (1884) 9 AC 671 ; and see Newcastle Fire Insurance Co. v. Macmorran &Co., per Lord Eldon (1815) 3 Dow 255, at p 262 (3 ER 1057, at p 1060 (HL)) . Farr v. Motor Traders Mutual Insurance Society Ltd. (1920) 3 KB 669 was a case where the answer was correct at the time, but became incorrect by reason of a temporary change in the mode of operating the vehicle covered by the policy. It was there held that the vehicle was not covered while operating in the changed manner, but it was said that it would again be covered if the original mode of operation were resumed. (at p481)

7. However this is not an "ordinary insurance policy"; it is one which forms part of a statutory scheme of workers' compensation and is the subject of special statutory provisions. The employer is obliged to pay compensation in respect of death or injury and is obliged to obtain insurance against such liability. The relevant sections of the Act are as follows:

"7. (1) (a) A worker who has received an injury whether at or away from his place of employment (and in the case of the death of the worker, his dependants) shall receive compensation from his employer in accordance with this Act. . . . 18. (1) Subject to subsection (1A), 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 amount of at least fifty thousand dollars in respect of his liability independently of this Act for any injury to any such worker, and shall be guilty of an offence against this Act if - (a) he has not so obtained such a policy; or (b) no such policy so obtained by him is for the time being in force. . . . (2) No insurer shall, except with the consent of the Commission, given after due inquiry into the circumstances, refuse to issue such a policy of insurance or indemnity to any employer who has complied with the prescribed conditions: . . . (3) (a) Every policy of insurance or indemnity shall, in so far as it relates to any liability referred to in subsection (1), contain only such provisions as are prescribed, but may contain such other provisions relating to any other liability at common law or under any Act or Commonwealth Act as are appropriate to any particular case. Any contravention of this provision shall not annul such policy or diminish or affect liability of the insurer to the person insured under such policy. Every such policy 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 dependants, to pay the compensation or other amount for which the employer is liable, and that the insurer shall be bound by and subject to any judgment, order, decision, or award given or made against the employer of such worker in respect of the injury for which such compensation or amount is payable. . . .

(3A) Every policy of insurance of indemnity obtained by an employer on or after the day appointed pursuant to section 1 of the Workers' Compensation (Amendment) Act, 1967, in respect of workers in any business or occupation 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." (at p482)

8. The form of policy is prescribed by regulations made under the Act and the policy issued by the Insurer was in accordance with the form prescribed. (at p482)

9. The Act has since 1942 made provision for cases where the employer has not obtained or not maintained in force a policy under the Act by providing the Uninsured Liability Scheme. Thus s. 18c provides so far as material as follows:

"(1) There shall be constituted a Scheme called the Uninsured Liability Scheme, which shall be administered by the Commission. (2) A claim may be made under the Uninsured Liability Scheme, hereinafter referred to as 'the Scheme,' by any person who has obtained or obtains or has applied for or applies for an award of compensation from the Commission against an employer and - (a) the employer had not obtained, or was not maintaining in force, a policy of insurance or indemnity under this Act for the full amount of his liability to the injured worker at the time of the happening of the worker's injury or the employer having been a self-insurer at the time of the happening of the worker's injury has ceased to undertake liability to pay compensation to his own workers and has withdrawn in accordance with the provisions of this Act the deposit lodged by him with the Colonial treasurer; and (b) * * * * * * Such claim may be in respect of so much of the compensation and costs of the application therefor as has been awarded and has not been paid or as may be awarded and not be paid, as the case may require, and in respect of the costs of the claim. (3) From the fund constituted in pursuance of section 41 the Commission may pay such amounts as it deems reasonable in or towards satisfaction of claims made under the Uninsured Liability Scheme: Provided that - (a) * * * * * (b), (c) * * * * (d) the Commission may make such order as it thinks fit in regard to the application of any amount paid under the Scheme; (e) the Commission shall have jurisdiction and power to - (i) satisfy any claim made under the Scheme at any time in such manner as in the circumstances of the case it may, in the exercise of its discretion deem reasonable; (ii) increase, decrease, suspend, or terminate any allowance or lump sum payable, or order or award made under or connected with, the Scheme. . . . (5) (a) Where a claim is made under the Scheme by a worker at the same time as he applies for an award of the compensation to which the claim relates, or whose application for such award is then pending, the Commission may hear and determine the claim either concurrently with or after the hearing and determination of such application. . . . (6) Any employer who is a party to an award upon which a claim under the Scheme is based shall be liable - (a) to reimburse the Commission such amount as it has paid out in respect of the claim under subsection (3) and any costs incurred in connection therewith;

(b) to pay to the claimant under the Scheme any outstanding balance remaining due under the award, after crediting the payments made to him under subsection (3) and any costs incurred in connection therewith." (at p484)

10. The trial judge said that it was not argued before him that carrying on fishing activities involving the use of the compressor unit constituted a breach of warranty, but simply that it fell outside the area of risk on the basis of such cases as Licenses &Federal Insurance Co. Ltd. v. Air (1935) 52 WN (NSW) 142 and Kodak (Australasia) Pty. Ltd. v. Retail Traders Mutual Indemnity Insurance Association (1942) 59 WN (NSW) 197 . That was also the argument presented before the Court of Appeal and this Court for the respondent. It is necessary, however, to consider the fundamental question of the nature of the relationship between the employer, the worker and the insurer as established under the Act in order to arrive at a decision whether in the present circumstances the worker or his dependant has a claim direct against the insurer. (at p484)

11. The form of the proposal is not prescribed under the Act, but under this statutory scheme it cannot, in my opinion, have the same significance as it has in the field of general insurance. There its most important functions are to define the risk, either alone or in conjunction with the policy, and to provide information to the underwriter to assist him in deciding whether to accept the risk and in fixing the premium. Under the Act the insurer is precluded by s. 18 (2) from refusing to issue a policy, save in the exceptional circumstances there set out. The extent of the risk is defined by the Act and incorporated in the prescribed form of policy. As to premiums s. 30A sets up a premiums committee and provides for that committee to prepare a scheme for the fixing of premiums and their adjustment from time to time. That scheme provides for a "maximum rate", which cannot be exceeded by the underwriters, though they may charge less if they wish. The rates are published in the Government Gazette and the pages possibly relevant to the present proceeding were put in evidence. (at p484)

12. The Gazette sets out a description, called a "classification", of various businesses or activities to each of which a "maximum insurance premium rate" is attributed. The possibly relevant ones for present purposes are "Divers (see Marine Salvors)" with no rate attributed to that heading. "Marine Salvors (a) within Port Jackson and other inland waters" with a rate of 1.40 per cent specified and "(b) Others" with a rate of 15 per cent specified. It also sets out "Fishing Industry - (a) Vessel risk (see Vessels); (b) Penning and land work risk" at a rate of 2.2 per cent, and in addition "Fishing Vessels - not Whaling" with a rate of 3.05 per cent and "Trawlers - not Whaling" with a rate of 3.5 per cent. In fact the rate used in the calculation of the premium in the present case was 3.05 per cent with some additions, apparently of a further 22.5 per cent of the figure calculated, and a further addition over and above that, none of which were explained, but in the end this does not appear to matter. (at p485)

13. It is somewhat curious in these circumstances to find that the regulations should prescribe a form of policy and the insurers should use a form of proposal which are copied from the field of general insurance. It seems at least doubtful whether liability under the statutory form of policy could be avoided by reliance upon an incorrect statement in the proposal, whether material or not. The point has not been dealt with in any decided case and it was not relied on by the insurer in the present case. Notwithstanding that, it is in my opinion, necessary to consider that question, which involves also reconsideration of the decision in Air's Case. The issue argued related to a derivative point, namely, the extent of definition of the risk and the use to which the proposal may be put for that purpose under the statutory scheme. The trial judge proceeded, by using the findings to which I have referred above, to say that the risk covered did not include the use of the fishing trawler when using a compressor and associated engine (a unit referred to in the evidence and in the Commission, somewhat inadequately, as simply a "compressor") because such equipment was not "usual to (a) fishing trawler" on the unexpressed basis that it constituted a use of "mechanical power". (at p485)

14. The first question which arises is whether this conclusion was correct on the evidence before the trial judge. The inquiry was limited to the fishing fleet at Eden, though the policy did not require operation from that port, but in the end that does not appear to be decisive. The evidence showed that all trawlers based on Eden which were used for abalone diving were equipped with compressor units but also showed that only some of the trawlers based on Eden were used for abalone diving. Several different modes of fishing were used by trawlers. The vessel in question was equipped to trawl for prawns as well as for diving for abalone. Other modes of fishing used by trawlers based on Eden were drop-lining, trap-fishing, shoaling, crayfishing, seine-netting, fishing for scallops, shark and salmon, and each of these kinds required the use of different methods and equipment. The vessel in question was equipped with a winch, gallows, boards and a net, as well as a compressor unit, but it did not appear whether or not the winch was power-operated, or whether power-operated winches were common or usual. (at p485)

15. It is clear that each fishing trawler was fitted with whatever equipment was appropriate to the type of fishing which it carried on and the type of fish which it set out to catch. It is clear that some might use mechanical power to operate winches or generators and others might use such power to operate compressors, each using such power as was usual for the kind of operation being conducted at the particular time. (at p486)

16. Each trawler doing any of these activities is engaged in fishing and the extent of the use of mechanical power will depend upon the nature and object of the fishing operation and may be expected to be that which is usual for that particular kind of operation. The trial judge appears to me to have fallen into error in seeking to find something which was "usual" in fishing trawlers generally. The mere fact that the vessel was a trawler would demonstrate that some mechanical power was used because it would at least have an engine. That no doubt could be described as usual in one sense, but equally an engine-driven compressor would be usual in the same sense for trawlers engaged in some kinds of fishing. No evidence was given as to the extent to which auxiliary engines of one kind or another, whether petrol or diesel were carried on the trawlers, and yet that was the critical question, not the question whether there was a compressor properly so-called, because the mechanical power was supplied by the petrol engine. If it had been the fact that it was customary for every trawler to have an auxiliary engine of some kind, whether it was used to power a dingy or a generator or a refrigerator would not matter. It is, it seems to me, unfortunate that attention was not directed to this point. It seems to have come about as a result of the use of the word "compressor", rather than referring to the engine which supplied the "mechanical power". (at p486)

17. The basis upon which the trial judge, and the majority of the Court of Appeal, concluded that the policy did not cover the accident which had occurred was that the description of the business was that of fishing without the use of any mechanical power other than that which was "usual for a fishing trawler" and that the use of an "air compressor" was not usual for fishing trawlers, in the sense that not more than 25 per cent of the trawlers based on Eden fished for abalone and therefore had compressor units. This view treats the answer to question 8 in the proposal form as forming part of the description or definition of the business. For this basis reliance was placed upon the decision of the Full Court of the Supreme Court in Air's Case (1935) 52 WN (NSW) 142 . In that case the worker who claimed compensation was injured whilst in the employment of one Byers who was a butcher. At the date of the taking out of the policy Byers had an arrangement with a neighbouring butcher (one Musgrave) that Musgrave would mince any meat which Byers required to have minced and would do so by means of a power-driven mincing machine at his shop. It was part of the claimant's duty at that time to take the meat to Musgrave's shop to be minced by Musgrave or his employees, but on the relevant occasion the claimant himself operated the mincer. The proposal form answered the question "State if mechanical power is used, nature thereof and machines driven", by saying "No". Jordan C.J. said (1935) 52 WN (NSW), at pp 142-143 :

"I think that the answers given to the questions were correct when they were given, and that what was insured against by Byers was risk of liability in respect of a business carried on at the premises No. 110, Hampden Road, in which mechanical power was not used. I think also that, when Air incurred the injury, he was engaged in a business in which mechanical power was used, and suffered his injury by reason of the use, for the purposes of the business, of such mechanical power. It follows, in my opinion, that the risk in question stood outside the risk insured, and that the company is not liable. It may be that the alteration in Byers' methods did not wholly invalidate the policy, although it is not, I think, necessary to decide this. The alteration at least brought into existence certain risks which lay outside the protection afforded by the policy: Farr v. Motor Traders Mutual Insurance Society Ltd. (1920) 3 KB 669 ; Provincial Insurance Co. v. Morgan (1933) AC 240 It is true that the policy insures the employer against liability to pay compensation under the Act to, or in respect of, any person who is, or is deemed by the Act to be, a worker of such employer, but there follows a proviso that the policy shall not extend to any business or occupation other than that described therein. Reading the policy and the proposal together, as we must, what was insured was either a business not using mechanical power, or, at most, a business to the extent to which mechanical power was not used."

Halse Rogers J. said (1935) 52 WN (NSW), at p 143 : "In effect, I think, reading the proposal with the policy, one must take it that the business described was a business not using mechanical power; that when the employer changed his business methods and did use mechanical power that was an alteration in the kind of business he was carrying on; and that the matter then falls within the proviso that the policy should not extend to any business or occupation other than that prescribed therein. I think that the business which was covered by the policy, when it was issued, altered, and that, as, at the time of the accident, the business being carried on was different from that in respect of which the insurance was issued, the policy, in respect of covering an employee when mechanical power was used, ceased to be effective." (at p488)

18. That decision was followed in a number of other decisions in the Supreme Court and in the Workers' Compensation Commission - see e.g. Campbell v. Royal Exchange Assurance of London (1937) 11 WCR 342 where the employer answered the question whether any relatives were employed in the business by saying "No". In fact he employed his son-in-law. It was held that he was not covered by the policy in respect of injury to the son-in-law, though it is not altogether clear whether the basis of the decision was that the incorrect answer entitles the insurer to avoid the policy or whether the answer produces the result that the risk insured was the relevant business conducted without employing relatives. See also Hagarty v. South British Insurance Co. Ltd. (1953) 27 WCR 149 to the same effect. In Air's Case as well as in the present case, the worker who suffered injury was working directly, or indirectly with, or by use of, the mechanical power. It seems, however, that, on the reasons of the Court, this fact would be irrelevant and another worker in the business doing work having no connexion with the mechanical power would equally be denied a remedy because he would not be within the risk insured, i.e. he would be working in a business not as described in the policy and the proposal. The same would be true of workers who were not relatives in the other cases. I am bound to say that this seems a very odd result from a statutory scheme for the protection of workers and one which requires re-examination of the reasoning which produced such a conclusion. (at p488)

19. It is of some importance to note that in s. 18 (1), (2) and (3) the insurance required is expressed to be simply in relation to "all workers employed by him (i.e. the employer)" and not by reference to employment in a particular business. It is only in sub-s. (3A) and in the policy scheduled to the regulations that reference is made to the business or occupation of the employer. No doubt it is a matter about which an insurer may properly require to be informed in order that he can ascertain the premium in accordance with the schedules of "maximum rates" as fixed under s. 30A. It is, however, a very different matter to say that the business or occupation of the employer as stated in the proposal defines the risk. It is, in my opinion, very difficult to treat an answer to a question such as question 8 in the context of questions 6 to 14 as having that operation. Those questions appear to have little, if anything, to do with defining the risk assumed by the insurer. With due respect to those who have decided otherwise, the notion that a business described as being "butcher not using mechanical power" can be a different business from "butcher using mechanical power" seems extremely odd. Again it seems odd that a business in which relatives are employed should be regarded as a different business from one in which relatives are not employed. Such expressions would not readily be recognized as being descriptions of different businesses. The history of the cases shows, however, that at least since the decision in Air's Case in 1935 this view has been taken. (at p489)

20. Whatever doubts one may have as to whether such a view can be taken as to what constitutes a description of a business, and by what criteria one business may be distinguished from another, there is a more fundamental reason for regarding the decision in Air's Case as incorrect and that is that it is contrary to the provisions and general scheme of the Act. I have considered whether that case may be distinguished on the basis set out in the dissenting judgment of Mahoney J.A., but find myself unable to see any material distinction. However, I agree with him in thinking that the case requires reconsideration in the light of Miller v. Law Union and Rock Insurance Co. Ltd. (1969) 71 SR (NSW) 201 . (at p489)

21. The critical provisions of the statutory scheme are ss. 7 (1), 18 (1), (2) and (3). Section 7 (1) places an obligation upon an employer to pay compensation to a worker who has received an injury and to the dependants of such a worker. Section 18 (1) places an obligation upon every employer to obtain from a licensed insurer a policy of insurance or indemnity conforming to the section for the full amount of his liability under the Act to all workers employed by him, and s. 18 (2) provides that no insurer shall, except with the consent of the Commission refuse to issue such a policy of insurance or indemnity to any employer who has complied with the prescribed conditions. Section 18 (3) provides that every policy shall contain only such conditions as are prescribed and that "every such policy 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 dependants, to pay the compensation or other amount for which the employer is liable, and that the insurer shall be bound by and subject to any judgment, order, decision, or award given or made against the employer of such work in respect of the injury for which such compensation or amount is payable". Apart from sub-s. (3A) which was introduced in 1967 and to which I refer below, s. 18 has not been amended in any material respect, but sub-s. (3) was repealed in 1953 and replaced by another provision not materially different. (at p490)

22. 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 dependants) 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 or indemnity, 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. Such a view of the Act must lead to a conclusion contrary to that of the Full Court in Air's Case (1935) 52 WN (NSW) 142 because there, as in this case, there is no doubt of the liability of the employer to pay compensation. Yet that decision was that, notwithstanding the provision for direct liability of the insurer "to pay the compensation or other amount for which the employer is liable", the insurer was nonetheless not liable to the worker or his dependants. The provision in s. 18 (3) (a) that the insurer is to be bound by any judgment obtained against the employer also points to and reinforces that conclusion. How it came about that this provision was not referred to in Air's Case is only a matter of speculation, but I can see no escape from the conclusion that it imposes an overriding requirement that the insurer shall be liable wherever the insured employer is liable. If that is the proper construction of s. 18 (3) (a) then any provision to the contrary in the policy, which is prescribed under the regulations, or in the proposal used by any individual insurance company, would be inconsistent with the Act itself and would have no operation. It is abundantly clear that regulations under the Act and forms prescribed in such regulations cannot validly operate in conflict with the Act itself. (at p490)

23. It remains to consider the effect of sub-s. (3A) which was not in force at the time of Air's Case, but has operated only since 1967. The section is cast in terms appropriate to an extension of, rather than as a restriction upon, such liability. It appears to contemplate that there may be provisions contained in the prescribed form of policy, or imported therein by cross reference to a proposal, which would limit the extent of the insurer's liability to the employer, and its direct corresponding liability to the worker. It was suggested in argument that it was a belated statutory rejection of the decision in Campbell v. Royal Exchange Assurance of London (1937) 11 WCR 342 to which I have referred above. It was then sought to limit the operation of sub-s. (3A) to cases relating to that particular question in the proposal. I do not myself regard that explanation as correct because the new subsection speaks of "all workers employed by the employer in that business or occupation". The basis of Air's Case was that the worker in question was not employed "in that business or occupation" because of the importation into the description of the business or occupation of the answers to the questions in the proposal form. If Air's Case and Campbell's Case were right sub-s. (3A) could not possibly cure the defect or affect the result in either case. In Campbell's Case the reasons are less clear, though the trial judge did rely on Air's Case. However, it is clear that this subsection could not of itself operate to alter the description of the business of the employer. It may be that the draftsman was endeavouring to overcome the decision in Campbell's Case but if so, I do not think he succeeded in that task. It does not appear to matter for present purposes, because it is, in my opinion, clear that sub-s. (3A) does not restrict the operation of sub-s. (3) as I have outlined it above. (at p491)

24. I should add a reference to Devine v. Devine and Queensland Insurance Co. Ltd. (1928) 28 SR (NSW) 503 in which it was held by the Full Court of the Supreme Court that the terms of s. 18 (3) (a) and of a policy embodying its requirements do not give a right to an injured worker to proceed directly against the insurer, and that the means of recovery was, first to obtain an award from the Commission against the employer, and then to proceed in the Commission to enforce that award against the insurer. This, however, is a matter of procedure only, and not one of substantive rights: see per Halse Rogers J. in Coleman v. Mercantile Mutual Insurance Ltd. (1933) 7 WCR 231, at pp 244-245 . (at p491)

25. In the result I am satisfied that Air's Case was wrongly decided and that it involves a view which is contrary to the terms of the Act. It is another question whether it should be overruled after forty years without having been subject to direct criticism. Moreover it is proper that one should pause and consider very carefully before overruling a decision of Jordan C.J. Notwithstanding that hesitation, I have come firmly to the view that the decision cannot be allowed to stand. No doubt its adverse effect on workers in a manner which I respectfully regard as contrary to the terms of the Act is now mitigated by the operation of the Uninsured Liability Scheme introduced in 1942 by the insertion of s. 18c. That provision, however, deals with other situations as well as that in Air's Case, for example, cases where an employer has effected no insurance or has allowed a policy to lapse. I do not regard its presence as providing any sound reason for not overruling Air's Case once satisfied that it was wrong. (at p492)

26. A further reason for not treating Air's Case as having stood for so long that it should not now be overruled is that, although it has not been directly challenged, there are two New South Wales decisions, one before and the other after it, which appear to me to adopt a somewhat different view. The first is Coleman v. Mercantile Mutual Insurance Co. Ltd. (1933) 7 WCR 231 in which a worker was injured and obtained from the Commission an award against her employer, but was unable to obtain payment. She applied to the Commission for an order enforcing the award against the insurer. The insurer denied liability on the ground that the employer had committed breaches of the policy in that he had failed to give due notice of injury to the insurer and to forward to the insurer a copy of the worker's application, and had failed to allow the insurer to inspect the wages book. The Commission held that the Act gave the worker a statutory right to enforce the policy against the insurer and that right could not be impaired by the conduct of the employer. The decision was upheld by a majority of the Full Court of the Supreme Court (Harvey A.C.J. and Halse Rogers J.). Harvey A.C.J. said (1933) 7 WCR, at pp 241-242 :

"In my opinion the decision of the Commission was right. The section in question says the policy must contain a provision that the insurer is directly liable to the employee to pay the compensation for which the employer is liable. Any provision in the policy which is inconsistent with this Statutory requirement must in my opinion be void. On the occurrence of the accident the employer becomes liable to pay compensation to the worker in an amount to be ascertained. If there is a provision in the policy which provides that the insurer shall cease to be liable to pay that compensation that provision so far as the worker is concerned is contrary to the section and void; in other words, if the policy is in force when the accident occurs then no effect can be given to any provisions that by any subsequent event the liability to pay the compensation shall cease; on the contrary there must be a provision that so far as the employee is concerned it shall continue in force. ... But in any event I think the main purpose of section 18 which was to secure payment by the insurance company of compensation if awarded against the employer should be given effect to. Under the circumstances of this case I am of opinion that the worker can enforce the award against the insurer following the case of Devine v. Queensland Insurance Co. (1928) 28 SR (NSW) 503 ."

Halse Rogers J. said (1933) 7 WCR, at pp 244-245 :

"The primary object of the insurance provisions of the Act is to make it certain that the injured worker shall receive compensation whatever may be the financial position of the employer. Section 18 provides that every employer shall obtain and maintain in force a policy for the full amount of his liability under the Act (subsection (1)), and that no insurer shall refuse to issue a policy to an employer who has complied with the prescribed conditions (sub-section (2)). The form of policy is provided for - it is to be in the prescribed form - and 'every such policy shall provide that the insurer shall, as well as the employer, be liable to any worker insured under such policy, and in the event of death of his dependants to pay the compansation for which an employer is liable, and that the insurer shall be bound by and subject to any order, decision, or award made against the employer of such worker under the provisions of this Act.'

It will be noted that the statute does not provide for privity of contract between the insurer and the worker; it does not make the worker a party to the policy; it provides merely that the insurer shall by its policy contract with the employer to be directly liable in certain events to the worker. So that the worker is not entitled in the first instance to claim against the company directly (Devine v. Devine and The Queensland Insurance Co. Ltd. (1928) 28 SR (NSW) 503 . But the Legislature has provided protection for the worker by making it obligatory for the insurer to undertake in the policy to 'be bound by and subject to any order, decision or award' made by the Commission affecting the employer. The matter would have been more simple if the statute had provided in so many words that in certain cases the worker should be entitled to enforce an order or award directly against the insurer, but the necessary intendment of the section is to that effect. It would be idle to prescribe a form of policy including a promise on the part of the insurer to be directly liable to the worker and a promise to be bound by an award or order in favour of the worker and at the same time to leave the worker entirely unable to enforce those promises on his own motion." (at p494)

27. In Miller v. Law Union and Rock Insurance Co. Ltd. (1969) 71 SR (NSW) 201 , the Court of Appeal dealt with a case where the policy contained a provision that the employer should take all reasonable steps to prevent injury to his workers. A worker was injured when working a power-driven machine which was not properly enclosed in accordance with statutory requirements. The Commission made an award in favour of the worker against the employer who, however, did not pay the award in full. The worker then claimed against the insurer for the balance. The claim was rejected by the insurer and by the Commission. It was, however, held by the Court of Appeal that the provisions of the policy created a direct liability to the worker, and were independent provisions not related to or qualified by the provisions which required due performance of the conditions by the employer - and, alternatively, if on their true construction those provisions of the policy operated in respect of the worker, the regulations prescribing the form of policy were ultra vires and the policy took effect as if they were not included. See per Wallace P. who said (1969) 71 SR (NSW), at pp 209-210 :

"... I think Parliament has indicated that its intention is that the insurer is to be liable direct to the worker to pay the amount of an award which has been made in the worker's favour, and that there is no room for implying that if a policy is in existence in the sense that current premiums have been paid the insurer may escape liability to the worker merely because the employer has breached a condition of the policy, whether it be a condition precedent or otherwise."

See also per Asprey J.A. (1969) 71 SR (NSW), at p 218 and per Holmes J.A. (1969) 71 SR (NSW), at p 225 . No reference was made to Air's Case (1935) 52 WN (NSW) 142 , but I find the reasoning difficult to reconcile with that in Air's Case. (at p494)

28. For those reasons, I am of opinion that Air's Case was wrongly decided and should be overruled. Accordingly, I am of opinion that this appeal should be allowed and the decision of the Commission should be reversed. (at p494)

Orders

Appeal allowed with costs.

Order of the Court of Appeal of the Supreme Court of New South Wales set aside and in lieu thereof order that the appeal to that Court be allowed with costs and that the matter be remitted to the Workers' Compensation Commission to be determined in accordance with the decision of this Court.