Section 138 of the Accident Compensation Act: unwrapping the mystery: Part 2
This is the second part of an essay I wrote about section 138 of the Accident Compensation Act, the section in the ACA that permits WorkCover (or an employer or self-insurer) to seek recovery of compensation from negligent third parties.
In Part 2 of this essay, I look at what VWA (or an employer or self-insurer) is entitled to recover from a liable third party.
What is being recovered under section 138?
Payments of compensation
For any recovery action, there obviously needs to be compensation payments paid by WorkCover, an employer or self-insurer, to enliven recovery under section 138.
From time to time, disputes arise about the payment of compensation to an injured worker. Should compensation have been paid? Was too much paid? Should weekly payments have ceased at 130 weeks?
In years gone by, it might have been assumed that a third party ought not to be able to look behind the payments the VWA made in compensation to avoid liability. It was stuck with the payments of compensation paid, subject perhaps to an argument of fraud on the worker's part.
This seems no longer to be so.
In VWA v Jones Lang Lasalle (Vic) Pty Ltd [2012] VSC 412, Beach J considered whether the third party could look behind the payments of compensation made.
The third party argued VWA should not have paid compensation to the injured worker because the incident did not occur in the course of the injured worker's employment.
VWA argued that, once compensation had been paid to which section 138 applied, the third party could not go behind those payments as section 138 was engaged.
Albeit strictly speaking only said in obiter, Beach J, having held that the third party was not negligent, said VWA must be liable to pay the compensation to be entitled to recover it under section 138 [para 59].
Having said that, cases like VWA v Michaels [2009] VSCA 261 demonstrate how rare it would be that injury did not occur in the course of employment. In that case, a university lecturer was injured in a book store when poring over books in preparation for lecturing at university. The Court held that the injured person was injured in the course of his employment.
Does the third party's liability relate to the compensation paid?
The next issue that sometimes arises is whether the third party's liability relates to the payments of compensation.
It seems obvious enough that, if the third party has been negligent, but compensation has been paid for some other injury not related to the negligence, then there is no 'causation' to establish a claim under section 138.
VWA v The Australian Steel Company (Operations) Pty Ltd [2015] VSC 58 is an example where this issue arose.
The third party disputed whether the compensation payments related to an injury to the worker while the worker carried out work on the third party's premises. This was because the worker had suffered an aggravation injury doing work at a later date.
His Honour Kaye JA held that the compensation paid related to the incident at the third party's premises and was therefore claimable. His Honour did, however, adjust the amount recoverable under the formula in section 138(3)(b) to take into account the aggravation injuries for which injuries the third party had no liability.
In VWA v Clarke [2015] VCC 62, the worker suffered two injuries, the first with a host employer and the second with his ‘actual employer’. He put in two claim forms. He was paid separately under the two claims.
VWA sued the host employer relating to the first incident. But VWA faced a problem; the payments for the first incident were said to be statute barred. VWA therefore argued the injuries from the second incident were traceable to the first incident.
Judge Morrish disagreed. From paragraph 20, her Honour said:
"[Counsel for VWA] submits that the injuries sustained in both accidents gave rise to two Claim Forms, yet resulted in concurrent obligations in the VWA to pay the worker. In oral submission, he argued that the obligations “fused” or merged. No authority was cited for this doctrine of “fusion”.
In any event, Mr Griffin did not explain how a claim for damages can arise in respect of an action that is statute barred, even if there was “fusion” as postulated.
There is no evidence to support Mr Griffin’s submission that “the two accidents involve the same injury”. This assertion of fact is beyond the four corners of the agreed facts. In any event, with all due respect to Mr Griffin, it makes little sense to say that harm caused in separate accidents, in separate circumstances, on separate days, caused by different people can constitute “the same injury”. True, similar consequences may flow from each discrete accident, but that does not make them “the same injury” in my view. Accordingly, I will proceed on the basis that the first accident resulted in one compensable injury and the second accident resulted in another compensable injury."
While Judge Morrish raised an issue about the first claim being statute barred, this appears somewhat to be at odds with the limitation period running from the date of each payment of compensation, as discussed in VWA v Manildra Pty Limited & Ors [1999] VSC 220.
At any rate, on different facts, facts that draw a clear link between the two incidents, it seems this case may be distinguishable. Section 138 goes to the liability a defendant would have had at common law for the injuries the worker sustained for which compensation has been paid. The section itself does not state it must relate to a particular claim.
What's more, at common law:
“a negligent tortfeasor does not always avoid liability for the consequences of a plaintiff's subsequent injury, even if the subsequent injury is tortiously inflicted. It depends on whether or not the subsequent tort and its consequences are themselves properly to be regarded as foreseeable consequences of the first tortfeasor's negligence.[1]”
It therefore arguably follows that a third party could have a liability for compensation paid under a separate claim, if that injury links back to the first injury.
I am not aware of any other authority on this point, so it seems ripe for a Supreme Court trial on the point.
The lesser of compensation paid and the formula amount
Once liability in the third party is established, and once it is established VWA has paid compensation that relates to that liability, VWA is entitled to the lesser of the amount of compensation paid or payable and the amount calculated in accordance with a formula.
In effect, the formula amount either limits the third party's liability to less than compensation paid or, in most cases, creates a ceiling of the third party's liability on future potential payments.
To use an example, let us say compensation payments are $100,000.
If the formula amount comes out at $80,000, then $80,000 is the Defendant's total liability.
If the formula amount comes out at $120,000, then the Defendant is liable to pay VWA $100,000 and to indemnify VWA up to a ceiling of $20,000 on future payable amounts. Once the ceiling is reached, the third party will have discharged its obligations.
In most cases, VWA and the third party will seek to resolve the ceiling amount out of Court so that insurers are not left leaving their books open seemingly ad infinitum.
In most cases, the third party looks to the formula in an effort to limit its liability. Equally, in most cases, the formula provides little to no comfort to the third party.
The Formula
The formula provides that:
- the Court must first calculate the worker's notional common law assessment of damages under Factor A;
- the Court must then take from the notional assessment any amount the Defendant has paid the injured worker in the injured worker's claim under Factor C; and
- the Court must then divide Factor A, less Factor C, by the extent to which the third party would be liable at common law under Factor X.
In other words, any payments by the third party to the worker (Factor C) and any liability of the employer, other third party or contributory negligence (Factor X) must be stripped away to determine the third party's contribution.
In this way, if the Factor A notional assessment of damages was $500,000, the third party had paid the injured worker $100,000 under Factor C and its contribution was 70%, the formula amount would be $280,000 ($500,000 - $100,000 = $400,000 x 70/100).
Let us know turn to each of the 'Factors' in more detail.
Factor A
Factor A is the notional common law assessment of a worker's damages.
It explicitly excludes any damages provisions in the ACA or Wrongs Act. Also, it does not include Fox v Wood claims because they only relate to a worker's damages claim.
Because the amount is a common law assessment, the discount rate on notional future damages is 3% (Todorovic v Waller (1981) 150 CLR 402).
It also follows that the notional assessment includes claims for general damages and Griffiths v Kerkemeyer damages for gratuitous care without the caps that apply under the Wrongs Act.
Factor C
As noted, Factor C is the amount that the liable third party has already paid the worker, if anything.
There is County Court authority to the effect that it is not the amount that all defendants to a section 138 action paid the worker. The formula is applied separately to each defendant to the suit: VWA v Bruck Textiles & Anor [2010] VCC 463.
Is material relating to Factor C discoverable by the liable third party?
Often VWA wants to understand the basis on which the third party paid any damages to the injured worker, in part because it is relevant to the formula, but perhaps too because it may be related to the third party's liability to the worker.
According to Judge O'Neill of the County Court in VWA v National Foods & Ors [2009] VCC 0305, material relating to the settlement with a worker is discoverable.
In that case, VWA sought a copy of the release in the worker's settled proceeding and documents relating to what each defendant in the worker's proceeding paid the worker. The Defendants refused to provide such documents because they claimed the documents were confidential.
His Honour held that, as the documents were relevant to the proceeding, to the formula amount and to considerations of settlement, documents relating to the amount paid by the defendants and their respective contributions were discoverable.
When should the Court be told about Factor C?
In VWA v Lindsay Australia Ltd (Ruling No 1) [2016] VSC 195, in which I appeared for VWA, the Defendant argued Factor C should not be disclosed to the Court until after the Court had determined all other issues. The Defendant argued that it was not relevant as it was not an issue in dispute.
I submitted that (a) Factor C was relevant to the issues in dispute and needed to be calculated (b) the trial was not a two-part trial, with the formula needing to be calculated by the judge to dispose of the dispute and (c) there was nothing privileged in the Factor C amount.
Justice Bongiorno accepted my submissions on behalf of VWA that it should be disclosed before the other factors are determined and the Defendant was ordered to disclose the amount of Factor C at the end of the evidence.
In my experience, the Court is usually informed of Factor C at the close of the evidence, enabling the Court to calculate the formula amount. This accords with paragraph 17 of v National Foods & Ors [2009] VCC 0305 referred to above.
What if Factor C has not yet been paid?
In VWA v Direxa Engineering Australia Pty Ltd (Ruling) [2013] VCC 1959, the third party argued that it may have to pay an amount to the injured worker if such worker brought a claim against it.
The third party therefore argued that the Court should make a conditional order that, should the Defendant have to make a payment to the injured worker, the formula amount should be re-calculated.
The VWA argued the appropriate order would be 'liberty to apply'.
Judge O'Neill accepted VWA's submissions and said that the formula calculation could be reviewed under 'liberty to apply' should it become necessary.
Factor X
As noted, Factor X strips away any other parties' liability, including contributory negligence, and limits the third party's liability to the percentage of its own contribution.
How is Factor X to be determined?
Under section 24 of the Wrongs Act, the Court is required to determine contribution on the basis of what is "just and equitable having regard to the extent of that person's responsibility for the damage".
President Winneke in Esso Australia Ltd v VWA & Anor and Ashley JA in VWA v Carrier Air Conditioning Pty Ltd [2006] VSCA 63 at para 59 have held that contribution and contributory negligence for the purposes of Factor X ought to be determined in the same fashion as contribution and contributory negligence is determined under the Wrongs Act.
Who bears the burden of proof?
The section itself simply says the third party is liable to pay an amount calculated by the formula, including the amount of its liability to the extent it contributed to the worker's injuries.
This could suggest VWA bore the burden of proof in establishing the degree of the third party's liability.
I have not been able to find any authority on who bears the burden of proof for Factor X. This is particular relevant when it comes to the calling of evidence about the liabilities of potential other parties, including the employer.
However, it is usually the third party who seeks to limit its liability under the formula and pleads in its defence that its liability ought to be limited by the contribution of others. Also, contribution under the Wrongs Act is a fight between defendants.
It would also be an unusual course for the Court to apportion the third party's liability to other potential contributors not identified by the third party in its defence.
Is a determination of Factor X easily appealable?
It has been held that the determination of Factor X is a discretionary determination of the judge: Hazeldene's Chicken Farm Pty Ltd v VWA [2005] VSCA 185.
The authority of House v R (1936) 55 CLR 499 makes it plain that, where a judge is exercising a discretionary power, even if it is exercised inadequately, it may only be reviewed if the decision is "unreasonable or plainly unjust".
Consequently, it may well be difficult to upset a trial judge's determination on Factor X in an appellate court.
Should the Court be told of the contribution in the settlement of a worker's proceeding / is such evidence admissible in the section 138 trial?
This issue came up in VWA v BlueScope Steel [2013] VSC 562.
VWA sought to adduce evidence that the Defendant had paid a particular contribution to the worker's proceeding which settled out of Court, presumably because the contribution in the worker's settlement was significant. VWA argued it was relevant to an admission of liability and contribution in a similar way to Ansett Australia Ltd v Taylor [2006] VSCA 171.
Justice Kaye said it was of little to no probative value because there are any number of reasons a party may seek to settle a worker's proceeding and further held it would be an undue waste of the Court's time to hear evidence about the reasons the third party settled the worker's proceeding on that basis. He therefore disallowed any evidence of contribution from the worker's proceeding.
Is contribution as determined by a Court in the worker's proceeding binding in VWA's proceeding?
There is ‘loose’ authority for the proposition that the Court's determination of contribution in a worker's proceeding cannot be disturbed in the later related section 138 action: Bourke v Hassett & Ors; Bourke v VWA & Anor [1998] VSCA 24 at paragraphs 49 and 50.
This is consistent with the principle that courts should not be determining the same dispute twice, either as an issue estoppel or as an abuse of the court’s processes.
Interestingly, however, in VWA & Ors v Latrobe Shire Council [1998], Judge Strong ruled that VWA could rely neither on the jury’s verdict against the defendant in the worker’s matter, nor on contribution. This was on the basis that VWA was not a party to the worker’s proceeding. It appears that case settled, but it otherwise would have led to the absurd result of a judge having to determine what a jury had already determined in the worker’s matter. Such a result cannot be right, it seems to me.
Looking at the issue a little deeper, there are three elements to an issue estoppel as follows:
- that the same question has been decided;
- that the judicial decision which is said to create the estoppel was final;
- that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies[1].
Usually, 1. and 2. would be satisfied in a related-section 138 proceeding, except where Part X of the Wrongs Act would warrant a different result in the section 138 recovery action in a relevant case, as discussed above.
Factor X might also need adjusting if the worker did not sue all parties who might be liable for the purposes of Factor X.
If there are new issues to be added to the dispute, then it makes sense that those issues should be determined.
But the sticking point is 3, as VWA was not a party to the proceeding.
To get around that problem, I moot the following arguments:
- the ‘estoppel’ VWA would seek to rely on is one between worker and third party – both parties to the worker’s proceeding;
- VWA was privy to the worker’s proceeding where it was the insurer of the employer.
The fall-back argument would be that it would be an abuse of process for a party to ask the Court to determine the same dispute all over again. This might also have Civil Procedure Act 2010 implications.
The High Court recently looked at the authorities on issue estoppel and abuse of process and said this at paragraph 40:
“…it has been recognised that making a claim or raising an issue which was made or raised and determined in an earlier proceeding, or which ought reasonably to have been made or raised for determination in that earlier proceeding, can constitute an abuse of process even where the earlier proceeding might not have given rise to an estoppel. Similarly, it has been recognised that making such a claim or raising such an issue can constitute an abuse of process where the party seeking to make the claim or to raise the issue in the later proceeding was neither a party to that earlier proceeding, nor the privy of a party to that earlier proceeding, and therefore could not be precluded by an estoppel.”
This is yet another area in a section 138 recovery action that is ripe for determination by a superior court.
Watch this space.
* The writer has a particular interest in section 138 recovery actions and has been involved in a number of trials in this area, as a barrister and formerly as a solicitor.
[1] Carl Zeiss Stiftung v Rayner & Keeler Ltd [No 2]
[1] Mahony v J Kruschich (Demolitions) Pty Ltd [1985] HCA 37; (1985) 156 CLR 522.
[2] Carl Zeiss Stiftung v Rayner & Keeler Ltd [No 2]