Australia: Workers Compensation Paybacks To Be Reduced To Reflect Contributory Negligence

Readers will recall Hickson v Goodman Fielder [2008], discussed in the December 2008 Deacons Insurance Update. As foreshadowed, the High Court has now considered the issue of whether a worker who is injured by a third party, who receives compensation but also recovers damages from the third party, is entitled to reduce his/her compensation payback to reflect his/her contributory negligence. The High Court has held in Hickson that where contributory negligence was involved, a worker's payback is reduced proportionately in accordance with his/her contributory negligence in causing the accident, including in circumstances where the worker reaches an out of court settlement with the third party.

Prior to enactment of the Law Reform (Miscellaneous Provisions) Act 1946 (LRA) in New South Wales, a worker's claim in tort against a third party was liable to defeat upon proof of contributory negligence. No apportionment was possible under the common law. Readers will recall that the effect of the decision of the Court of Appeal in Hickson (discussed in the December 2008 Deacons Insurance Update) is that s10(2) of the LRA does not affect the amount of compensation repayable by the worker where contributory negligence was in issue in a settled action, but a Court did not deliver judgment making such an apportionment. The central issue upon which the Court of Appeal had focused was whether a claimant (who is liable to repay compensation to his employer under s151Z of the Workers Compensation Act 1987 (the 1987 Act)), was entitled to reduce the amount of the payback to the same extent as the damages would be reduced under s9 of the LRA, which provides that the damages recoverable by a worker against a third party at common law are to be reduced by an amount the Court considers to be "just and equitable". The Court of Appeal had also held that the worker's concern that a repayment action would be dramatically different to a tort action where in a tort action the worker will deny or minimise any contributory negligence, while in a repayment action the worker will attempt to admit or maximise same. However, in dissent, Hodgson JA held that in a later hearing in respect of the repayment action, the Court may come to its own view as to what a Court hearing the case between the claimant and the tortfeasor would reasonably have thought to be a just and equitable reduction.

Before the High Court, Goodman Fielder (the employer) submitted that s10(2) of the LRA, which provides for apportionment of workers compensation claims in respect of contributory negligence, when read with s151Z of the 1987 Act, operates to reduce the amount of the repayment by the worker to the employer only in circumstances where the damages recovered by the worker from the tortfeasor, as reduced under s9 of the LRA, are less than the amount of the worker's compensation that is otherwise repayable. The High Court rejected this submission and held that there is no incongruity under a statutory no fault compensation scheme in treating the injured worker differently from the tortfeasor.

Before recovering in his common law action, the worker had received compensation payments from his employer. That situation was governed by s151Z(1)(b). Section 10(2) of the LRA is linked directly to s151Z(1)(b). The employer submitted that the closing words of section 10(2) could apply to the circumstances of the present case, because the amount paid under a settlement of Mr Hickson's claim against the tortfeasor for damages was not "reduced under section 9" by a Court. However, in the High Court, Bell J held that the closing words of s10(2) did not necessitate an apportionment by a Court delivering a judgment, but rather described the measure of the reduction, which is to such extent as the Court thinks just and equitable having regard to the claimant's share in the responsibility for the damage.

With respect to the issue of a possible "trial within a trial" as discussed by the Court of Appeal, Bell J held that the circumstance that in a repayment action the Court may be required to determine the damages recoverable by the worker and the extent of reduction under s9 are a reflection of the fact that the parties in a repayment action under s151Z are not the same as in a common law action and may very well involve a "trial within a trial". Bell J held that the desirability of the finality of litigation does not justify reading s10(2) as applying only to those cases in which the tortfeasor action proceeds to judgment with a finding of contributory negligence by the Court (as opposed to applying also to those cases in which contributory negligence is in issue which are settled between the parties)..

The High Court finally considered the meaning of the words "to the same extent" in s10(2) of the LRA. The worker submitted that his liability to repay the compensation was reduced by the amount by which the total damages that would have been recoverable are reduced on account of the worker's own contributory negligence. This, it was submitted, ensured that to the extent the worker is under-compensated by the tortfeasor because it is his or her own fault, he or she would not lose the benefit of his or her no-fault statutory compensation.

The Court considered the following example:

A worker was 25% responsible for his injury. At the date of resolution of the common law claim, the worker has received $800,000 in worker's compensation. The worker's undiscounted damages were assessed at $4 million. Following reduction for contributory negligence, the worker is entitled to an award of common law damages of $3 million.

On the interpretation of s10(2), favoured by the worker, there would be no liability to repay any of the compensation received, because it was less than the amount by which the damages were reduced on account of contributory negligence. The employer submitted that the worker's liability to repay the compensation should simply be reduced by 25%, being the proportion by which the damages were reduced. In this example, the worker would be required to repay the compensation less 25% being an amount of $600,000, and as a result, the worker would retain a total of $2.4 million in common law damages. Bell J accepted the employer's submissions on this issue.

This case provides a useful outline of the effects of the contributory negligence provisions under s10(2) of the LRA upon workers compensation payments. The case also confirms that where contributory negligence is an issue, a worker may adduce evidence on the issue in order to reduce the payback, even where there is no judgment of a Court on the issue.

Hickson v Goodman Fielder Limited [2009] HCA 11

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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