See also OBG Ltd v Allan at [32].
60 The broad framing of the putative tort or the implied contractual term masks the types of conduct the duty is aimed at. This sounds a note of caution about the duty itself. A duty to act in good faith is obviously wider than a duty not to act dishonestly or fraudulently. But it is obviously narrower than a duty of a fiduciary nature requiring the obligee to put the other party's interest above its own. It is also narrower in scope than the obligation of utmost good faith of those about to enter into an insurance contract to make full disclosure of facts relevant to the insurance risk. Even those American courts that have spoken in unison in recognising a tortious duty have been Babel-like in their differing findings about the conduct that does or does not fall within the duty (see John Lowry and Philip Rawlings, "Insurers, Claims and the Boundaries of Good Faith" (2005) 68 Modern Law Review 82 at p94). Judge Goldring's various summations of his findings as to breach also reveal questions and ambiguities as to the proper scope of the duty itself.
61 The High Court has recently issued stern warnings against intermediate courts of appeal stepping beyond long-established authority derived from English precedents or considered dicta of the High Court itself (Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 at [134]). I am unaware of any discussion in the High Court of the matter at hand apart from the remarks of Stephen J in Distillers Co Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 discussed below. But the present case lies well past that point on the plank where even bold judicial spirits might think to stand without firm external support or compelling analogy in the existing case law.
62 The worker argues in favour of a new tort, not just a new duty of care within the framework of the existing law of negligence. The tort is not an action for breach of a specific statutory duty, but to have a role to play it must of necessity find its place within the interstices of the statutory framework.
63 When pressed, senior counsel for the worker argued that the new tort was confined to the scheme of insurance for workplace injuries established by statute in New South Wales. Every stream must start somewhere, but this particular legislative scheme is an unpropitious source for a principle which, when declared, is to be regarded as part of the common law of Australia. If the task were not difficult enough already, the worker must also demonstrate that the tort lies within the interstices of the (statutory) contract.
64 Issues of coherence arise at several stages. The putative tort must not contradict the terms or policies of the statutory and contractual frameworks within which it would be placed. Similarly, the putative implied contractual term must cohere with the statutory framework, a fortiori in a situation where the contract itself (ie the Policy) is the creature of statute. As to the general importance of coherence, see Sullivan v Moody (2001) 207 CLR 562 at 581[54]-[55], Koehler v Cerebos (Australia) Ltd (2005) 222 CLR 44 at 56[31].
65 Reference to coherence prompts a further generalisation. It seems to me that it is wrong in principle to contemplate any role for tort unless and until the contractual ordering of a relationship is understood and respected. In ordinary cases of freely negotiated bargains, this deference reflects the parties' entitlement to frame the basis upon which they will interact. A contract regulating the delivery of a system of workers compensation and work-related damages is not of this nature. But the fact that the contract and the scheme it serves are both statutory and (in a sense) compulsory, reinforces the need to understand and respect the contract first, before venturing to the law of torts as a gap-filler. A fortiori, a gap filler that, according to the worker, delivers remedies such as exemplary damages and recompense for delayed payment that both the statute and contract law generally withhold.
66 Citing the remarks of Lord Rodger of Earlsferry in Sutherland v Hatton, Barber v Somerset County Council [2004] 1 WLR 1089 at 1101[35], the joint judgment of McHugh, Gummow, Hayne and Heydon JJ in Koehler said (at 55[24]):
[I]t is only when the contractual position between the parties (including the implied duty of trust and confidence between them) "is explored fully along with the relevant statutory framework" that it would be possible to give appropriate content to the duty of reasonable care upon which an employee claiming damages for negligent infliction of psychiatric injury at work would seek to rely.
These principles apply equally to the present context even though the tort is a different one.
67 It is not suggested that the relationships between a worker, an employer and a statutory insurer is fiduciary in the sense that it calls forth an overarching duty in one player to serve the interests of the other in the handling of a disputed claim.
68 United States and Canadian law has been receptive to an insurer's duty of good faith in some respects (see generally Lowry and Rawlings, op cit). But history shows the earliest stirrings to have been contractual, fanned by an acceptance in those countries of overarching contractual duties of good faith such as that recognised in The Restatement, Contracts (2d) s205 ("Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement"). The Canadian common law of insurance contracts has in recent years come to recognise a similar duty (Lowry and Rawlings, op cit, pp101-104).
69 As I demonstrate below, the Australian common law (like that in England) has yet to go that far as regards contracts generally and insurance contracts in particular. It is true that s13 of the Insurance Contracts Act 1984 (Cth) implies a similar duty for insurance contracts within its remit. But that was a statutory advance designed to remove doubt (see Australian Law Reform Commission, Insurance Contracts, Report No 20, Australian Government Publishing Service, Canberra, 1982, s328). There are several statutory exceptions (s9), including contracts entered into for the purpose of State laws relating to workers compensation (s9(1)(e)).
70 The contractual jurisprudence of the American jurisdictions is marked by a plethora of statutory overlays and dramatic variations regarding what constitutes want of good faith (Lowry and Rawlings, op cit, pp92-7). Litigants and bolder courts have tended to reach for tort in order to sidestep limitations attending a contractual frame of reference (id, pp97-101) and this has been controversial on many fronts, not just matters of taxonomy within the law of civil obligations.
71 "Discovering" a new tort is fraught with difficulties and paradoxes. Those emboldened to try might be well advised to heed the cautionary warnings offered by Anita Bernstein, "How to Make a New Tort: Three Paradoxes" (1997) 75 Texas Law Review 1539. The learned author points out that where American courts have allowed a claim against an insurer for bad-faith refusal to provide benefits under an insurance policy they have invoked "[c]ontract traditions . . . [to] lend old-fashioned respectability to a partially revealed new tort" (at p 1551). She states that "[e]ven when judges believe that the contracts label would keep damages too low to compensate plaintiffs for the harms of bad faith, they find the contract label reassuring, a device to keep entitlements less visible" (at pp 1550-1). See also Gerald H L Fridman "The Evolution of New Torts" in Mullany & Linden (eds), Torts Tomorrow: A Tribute to John Fleming North Ryde, Law Book Company 1998 especially at pp286-8.
72 Three problems at once present themselves, demonstrating powerful arguments why the new tort should not be granted easy passage if invoked to trump the "inadequacies" (from a plaintiff's point of view) of contract. They concern: exemplary damages, damages for delay and damages for disappointment.
73 Australian law has thus far not accepted exemplary damages for breach of contract (see Grey v Motor Accident Commission (1998) 196 CLR 1 at 6, Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at 307[28], 333[181], 361[294]). This embargo and the policies it reflects, many of them clustering around the label of "efficient breach", offer strong arguments against creation of a novel tort that would overstep this outcome in an area where a contract - and a statutory one at that - occupies centre stage. I do not feel justified in entering the field of exemplary damages by the back door.
74 The second broad barrier relates to the approach taken by the common law to compensating for the impact of delay in meeting a contractual claim.
75 The normal framework within which a plaintiff's entitlement to timely indemnity under an insurance contract is addressed is by way of an award of interest, almost invariably resting upon provisions such as s100 of the Civil Procedure Act 2005. The common law regards a claim for indemnity under an insurance contract as an action for damages, not debt (see F & K Jabbour v Custodian of Israeli Absentee Property [1954] 1 WLR 139). A contractual or tortious duty of good faith that offers compensatory damages with reference to all losses stemming from an unjustified delay in meeting a just insurance claim cuts directly across this framework of reference. And when one moves to the particular field of claims under the WC Act and the WIM Act the matter becomes more acute given that each Act closely confines interest awards (see WC Act, s151M (interest on damages), WIM Act, ss109-111 (interest on compensation awards)).
76 Damages for unjustified delay in meeting an insurance claim may be recoverable, subject to the principles in Hadley v Baxendale (1854) 9 Ex 341; (1854) 2 WR 302 (see generally Hungerfords v Walker (1989) 171 CLR 125; The New Zealand Insurance Co Ltd v Harris [1990] 1 NZLR 10; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 411; Sprung v Royal Insurance (UK) Ltd [1999] 1 Lloyd's Rep 1 R 111; Sempra Metals Ltd v Her Majesty's Commissioners of Inland Revenue [2007] UKHL 34). The award in the present case was not based upon application of the rules in Hadley v Baxendale. The tortious duty simply sidestepped them.
77 A third field of concern stems from the law's very tentative recognition of damages for disappointment, distress and injured feelings caused by non-performance of a contract (see generally JW Carter Carter on Contract Vol 2, Ch 42, s42-100). In the present case the psychiatric injuries suffered by the worker stem from the combination of his work injury and the insurer's unjustified delay in meeting what was eventually found to be a just claim. If, however, there is a common law duty sounding in damages for mental distress caused by an insurer's prevarication, then one could envisage claims (unlike the present one) in which psychiatric injury was not parasitic upon physical injury generating a just claim for compensation under the WC Act. In the upshot, the novel tort would offer remedies withheld by the law of contract and also (unless severely qualified) generate non-statutory compensation entitlements unless severely qualified.
78 My point is that compensatory and punitive awards of damages against insurers that play 'hard ball' too hard must grapple with these problems. If certain compensatory and punitive awards are precluded under a contractual analysis and if they would contradict aspects of the statutory scheme, then tort law should generally respect those limits. I cannot envisage any circumstances in the present context where tort law could ignore them.
79 I now turn to the issues of coherence as between the putative tort and the statutory scheme generally. The appellant submits that the duty identified by the primary judge is inconsistent with the proper discharge of the statutory obligations of a workers compensation insurer. It further submits that the posited duty and the remedies said to flow from it contradict the detailed statutory regime at several points.
80 At the highest level of generality, the novel tort and/or implied term would add significant unbudgeted cost to the statutory scheme. The new duty would introduce significant risks to the enterprise of insuring against workplace injuries. If, as Judge Goldring contemplated, the duty was mutual, it would add new risks to the enterprise of being a worker who makes a tendentious claim. If a particular cause of action exists then some will pursue it, for a range of motives. Their opponent's exposure has cost implications.
81 Insurers are not charitable institutions, but neither are they mints. The insolvency of an insurer can be catastrophic. A parliament that creates a scheme of compulsory insurance needs to find insurers, unless it is prepared to allow the State to become the insurer of last resort. The unheralded introduction of new types of liability will necessarily disadvantage those upon whom it falls and lead in the longer term to higher premiums. When there are voluntary participants in a scheme, such as insurers, a judicially manufactured liability may impact upon their capacity to meet "ordinary" claims as well as deter others from entering the scheme as insurers.
82 Aside from the policy implications, the worker's arguments founder on more particular points of practical and legal incompatibility with the legislative regime.
83 First, the duty contended for (and found to have been breached in this case) intersects sharply across the statutory mechanisms and the adversary context in which the whole scheme is embedded.
84 The scheme prescribes in detail the substantive and procedural rights and obligations of all participants. The types of injury for which compensation and/or damages may be recovered, the grounds of liability and the levels of compensation or damages available are spelt out in minute detail. Specific rules about interest (see above) and costs (see WIM Act, s112) exist. It is true that the existing corpus of tort and contract law forms the basis around which the rights of injured workers are to be addressed. But the scheme closely regulates and limits procedural and substantive rights, both as regards "common law" claims for damages in tort and statutory claims for compensation.
85 Within this framework, parties are permitted to pursue their rights with vigour and self-interest. Naturally, fraud and perjury are proscribed and there is much required to be disclosed in the several notices and notifications that attend a claim for compensation or damages, especially one that is contested. The worker may effectively be compelled to submit to medical examination. Attendance for mediation is now compellable. Once a claim goes to Court there is curial supervision of the parties and their lawyers. All of these matters reduce the need for an overarching duty of good faith (although not entirely).
86 Within this adversary and curial framework, participants are permitted to be self-regarding. No party (worker, employer or insurer) is "fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary" (to adopt the language of Barrett J in Overlook Management BV v Foxtel Management Pty Ltd (2002) ATPR(Digest) 46-219; [2002] NSWSC 17 at [67]). Workers, employers and insurers are generally permitted to have regard to their self interest and to keep their cards close to their chest. There are zones of confidentiality and legal professional privilege.
87 The scheme operates on the basis that, if a claim is not accepted or compromised, it is able to be sent to conciliation with the dispute ultimately determined by a specialist Compensation Court on the basis of the evidence presented at a trial. In the final analysis the legislature has adopted an adversary paradigm as the appropriate method to test the truth of claims and to supervise the defence of claims. A duty of good faith in the making or maintaining of a claim, breach of which sounds in damages, lies very uncomfortably with such a framework.
88 Statutory recognition of alternative dispute resolution was a late arrival but it armed conciliators with powers to give directions that compensation be paid (WIM Act, s95(2)). Alternative dispute mechanisms also funnelled unresolved disputes into the court system after minimal delay. A worker frustrated by prevarication on the insurer's part has many remedies, including rights to notification of grounds of rejection of claims, rights to a detailed Answer if a claim is denied, the right to seek discovery, the right to an expedited hearing, the right to apply for an interim award (WIM Act, s108) and rights to special costs orders against parties that unreasonably fail to participate in conciliation if it appears to the Court that the failure has resulted in unnecessary litigation or has affected the rehabilitation of an injured worker (WIM Act, s112(6)).
89 At one stage, Judge Goldring referred to a "duty to receive and process bona fide claims by workers without bias or prejudice" (J148). Implicitly, this suggested that an insurer faced with a bogus claim might not be under such a duty. In reality, the proposition points to an inherent difficulty with the putative tort, not to mention the difficulty of deciding its boundaries. Sometimes an insurer may have grounds for suspicion. (I strongly incline to the view that this insurer did, having regard to the report from its assessor.) Why should an insurer be at risk of a claim for further damages if it decides to test the claim by rejecting it? (see also Bennett v Jones [1977] 2 NSWLR 355 at 370 per Moffitt P) The worker could at the time bring proceedings in the Compensation Court and obtain an order for an expedited hearing.
90 Secondly, claims of consequential loss that would arise under a duty of good faith lie uneasily with the detailed limits of claims under the WC Act and the WIM Act's focus upon management of workplace injuries.
91 Part 2 of the WC Act spells out the basis on which liability for compensation may be determined. These include s9A's restriction upon the payment of compensation in respect of an injury unless employment was a substantial contributing factor to the injury. At the relevant time, the Compensation Court had exclusive jurisdiction to examine, hear and determine all matter referable to compensation arising under the legislation (see WIM Act, s105). This would not have deprived the District Court of jurisdiction in the present claim, at least on the analogy of an action for damages against a solicitor whose negligence may have caused a worker to lose the right to bring a particular compensation claim. Nevertheless, a court of general jurisdiction deciding a claim based on the putative good faith tort would need to determine questions of liability on the basis of the proper application of the WC Act to the particular claim. The court would not necessarily have, as the District Court had in this case, the benefit of a res judicata on that matter stemming from the award made by consent in the worker's favour on 4 April 2001.
92 Part 3 of the WC Act provides for compensation in respect of the death or injury of a worker. Where total or partial incapacity for work results from an injury, the compensation includes a weekly payment during the incapacity (s33). The amounts payable are fixed and in many cases do not bear interest (see above). Division 2 of Pt 3 (ss33-58) sets out detailed provisions regulating the circumstances in which liability to make weekly payments attaches or does not attach. In particular, s54 requires notice to be given before termination or reduction of payment of weekly compensation in many circumstances. Failure to give the notice is an offence. Section 55 provides for the review of weekly payments by the Compensation Court at the request of the employer or the worker or the WorkCover Authority.
93 The WIM Act introduced a strong focus on the management of workplace injuries, adding detailed provisions (in Chapter 3) seeking "to achieve optimum results in terms of the timely, safe and durable return to work for workers following workplace injuries" (s41(1)).
94 Chapter 4 of the WIM Act (ss60-142) prescribes the procedures surrounding the making and determination of claims arising out of workplace injuries. Of relevance to this appeal are the provisions requiring notices to be given as to the making and disputing of claims. It becomes harder to advance false claims or to reject meritorious claims in a context where detailed disclosure is the order of the day at every stage of the process.
95 The then s 67 of the WIM Act created an offence of making a statement knowing that it is false or misleading in a material particular in a claim for compensation made by the person or in a notice given under the Division of the Act (see now s235C). Such an offence obviously intrudes upon portion of the common that the putative tort would occupy.
96 Thirdly, the insurer's statutory duties are closely monitored through a system of licensing and criminal penalties.
97 Chapter 4, Pt 2, Div 2 of the WIM Act (ss70-75) addresses in detail the conduct of insurers in the administration of claims for compensation or damages. Various duties are imposed, including duties on the insurer's part to provide copies of reports to the worker (s73. See also s81) and to give notice and reasons when liability is disputed (s74). Breaches could also have adverse consequences with regard to the insurer's licence (WC Act, s183).
98 Section 75 permits a Registrar or member of Commission to make a report to the Authority on various matters including (a) delays by insurers in dealing with claims under the Act, and (b) cases of the unreasonable cessation of weekly payments of compensation to injured workers by insurers. The Authority may take such action as it considers appropriate on the basis of any such report (s75(2)). Persistent or repeated failure of an insurer to comply with requirements imposed under Chapter 3 may lead to the cancellation or suspension of the insurer's licence, a pecuniary penalty, an amendment to the terms and conditions of the insurer's licence or a letter of censure (WIM Act, s55(2)).
99 The powers of conciliators extend to making recommendations, requiring information and giving directions (WIM Act, ss79-80). It is a criminal offence to fail without reasonable excuse to comply with directions under s80.
100 As indicated, s93 of the WIM Act requires the commencement of weekly payments of compensation within specified timeframes. Section 94 creates offences of failing to commence payments within the time required. It is also an offence to refer a matter to conciliation which the person concerned knows is not a genuine dispute, if this is done for the purpose of delaying, without good cause, the commencement of weekly payments of compensation.
101 Conciliation of disputes concerning claims for weekly payments of compensation or the continuation of weekly payments of compensation became a feature of the scheme after the commencement of the WIM Act. Section 95(2) empowers a conciliator to direct the payment of compensation if satisfied that there was no genuine dispute with respect to liability. Failure to comply with such a direction is an offence (s98). (The parties in the present matter went to conciliation on 9 March 2000. There was lengthy discussion in relation to Dr Hughes' opinion upon which the insurer was continuing to rely. The conciliator decided not to make a direction pursuant to s95 although he recommended that the insurer review its decision. Presumably this took place.)