LTD v A DONALD PTY LTD

Cole JA This is an appeal by Employer's Mutual Indemnity (Workers Compensation) Ltd ("EMI"), from a decision of Mahoney DCJ in which his Honour entered a verdict in favour of the appellant in the sum of $13,859.82. The appellant had sued the respondent for a workers' compensation policy premium in respect of the financial year ended 30 June 1991 (the 1991 year) in the sum of $34,459.59. That sum had been calculated having regard to a "cost of claims" experience of $107,005 in respect of the 1991 year. The sum of $107,005 related to workers' compensation claims by two alleged workers of A Donald Pty Ltd ("Donald"), namely Mr Keist which was assessed at $89,505 and Mr Attard assessed at $17,500!. (The judgment refers to the Keist assessment as being $89,975, and I will do likewise). The proceedings to recover that workers' compensation premium were commenced in the District Court on 8 January 1992.

In defending that claim the essential issue raised by Donald, by way of defence, and by way of a cross-claim, was that the premium should not have been calculated having regard to an assessment of the Keist claim in the sum of $89,975. That was said to be so because, as early as October 1990, EMI was aware that there was doubt regarding whether Mr Keist was an employee of Donald and thus fell within the workers' compensation policy, and further whether, in truth, he had injured himself at work. Investigators employed by EMI reported to that company on 9 October 1990:

"In our opinion, the claimant probably did have a minor accident on Tuesday, 24 July 1990, when he bumped his back on a railing, but any injury appears to have cleared up within two or three days of that incident. We think it is likely that the claimant sustained a further injury over the weekend, 25-26 August 1990, that on the morning of Monday, 27 August 1990 he tried to track that injury into the incident of 24 July 1990 and that subsequently he invented the alleged accident at 3pm on that afternoon when he was admittedly performing heavy work."

Further, by the time the matter came on for hearing before Mahoney DCJ on 31 January and | February 1995, further events had occurred said to have diminished the realistic assessment of the Keist claim so as to render the

assessment by EMI in the sum of $89,975 for premium calculation purposes inappropriate. Those events comprised the filing of an application for determination by Mr Keist on about 15 February 1993, the subsequent failure of Mr Keist to attend medical conferences for examination, the striking out of Mr Keist's worker's compensation claim in the Compensation Court on 22 October 1993, and absent any further action by Mr Keist the closing by EMI of its file in April 1994. Those events, coupled with the events the subject of the investigator's report prior to the commencement of the litigation, were said to have meant that the Keist claim should have been assessed by EMI at zero, and accordingly the workers' compensation premium payable in respect of the 1991 year should have been less.

In substance, that contention was upheld by Mahoney DCJ. Whilst the precise calculation of figures is not clear, it seems that Mahoney DCJ upheld EMI's claim for the workers' compensation premium, but upheld and off-set a cross-claim by Donald for the amount of the additional premium included in EMI's claim as a result of taking into account in the calculation of that premium the sum of $89,975 for the Keist claim. Mahoney DCJ, basing himself upon the judgment of Giles J in AWA v Exicom Australia.? extracted a principle that "there is available an equitable set-off to a defendant where it would be unjust or inequitable to allow a plaintiff to pursue its claim without allowance being made for the defendant's complaints about how the plaintiff calculated its claim". His Honour said that:

"Tt would be unfair for EMI to proceed to the revised reserve figure of $89,975 for a variety of reasons. First the calculation of premium on that basis would amount to an unjust enrichment in the light of all of the matters and facts proved to my satisfaction in this case. Secondly it would not be in accordance with the spirit and intendment of the Act which is based upon the philosophy that premium income is to be reasonably related to claims exposure and claim's experience plus a reasonable profit margin and that windfall profits for licensed insurers are completely dehors the contemplation of the legislation. Thirdly it would not be consistent with the justice of the case for the insurer to be able to exploit the Act so as to thwart any obligations that it might have to act reasonably and at the same time use other parts of the Act and its regulations and orders which enable it to calculate a premium based upon the review of $89,975 which I regard as unreasonable. Fourthly I am satisfied for the purposes of evaluation of the applicability of the AWA principle to this case that the cross-claim of Donald not only arises out of the same contract as EMI's claim that it seeks to enforce in these proceedings, but it is so directly connected with it that it would be manifestly unjust to allow EMI to recover the full amount it seeks to recover without taking into account the various matters which were urged upon me as factual conclusions to which I should come on the evidence in the case."3

His Honour proceeded to state his findings of fact. As these have been challenged it is necessary to recite them. His Honour said:

"Tn the event that I may have inadvertently failed to express specifically my findings in the case that are relevant to this submission they are in short that the December review was carried out virtually on the threshold of the closure of the file, that the closure of the file caused EMI to revert its reserves from the $89,975 to zero, that the strength of the defence available to EMI to mount in the name

2. (1990) 19 NSWLR 70S.
3. Appeal Book, p404Q 405N.

UARIPLOYER'S MUTUAL INDEMNITY (WORKERS COMPENSATION) LTD v A DONALB PTY LTD (Cole JA)

of Donald against the Keist claim was on the known factual and medical evidence a strong defence and one which should have influenced the fixing of a reserve less than $89,000. Furthermore that with the imminence of the closure of the file and the consequent reversal of the reserves from $89,975 to zero it would have been fair and reasonable for EMI to have deferred reviewing the reserve or even if it felt under the guidelines that it had to carry out the review exercise at that stage, it would have been fair for EMI to have deferred premium assessment on the basis of that reviewed reserve until such time as it had closed its file. In short the 'ultimate question" as Mr Justice Giles would put it of whether it would be unjust or inequitable that EMI should be permitted to recover the full amount of its claim should be answered in favour of Donald."4

Having enunciated the "equitable set-off principle", his Honour left the calculation of the quantum to the parties and this resulted in a judgment for the plaintiff in the sum of $13,859.82.

By an amended notice of appeal, EMI has contended, in grounds | and 2, that the District Court had no jurisdiction to go behind the premium determined by EMI and said to be in accordance with premium determination required by the Workers Compensation Act 1987 and regulations thereunder, which determination was confirmed by WorkCover. The contention was that there was a statutory scheme for the determination of workers' compensation premium, and that the scheme gave a right of review to a dissatisfied employer to the WorkCover Authority. It was further contended that although, perhaps, the review by the WorkCover Authority might be further reviewed either in the Workers Compensation Court or by way of administrative proceedings in the Supreme Court pursuant to s69 of the Supreme Court Act (both being matters upon which I make no comment), the District Court did not have jurisdiction itself to redetermine the appropriate basis for the claim reserve or the consequential calculation of the workers' compensation premium. Accordingly whether the defence, or set-off, were based upon error in assessment of premium upon arguments analogous with error in valuation cases, breach of a duty of care said to be owed by EMI to Donald to take care in calculation of premium, breach of a supposed duty to act fairly imposed upon EMI towards Donald grounded on concepts discussed in Renard.Constructions (M E) Pty Ltd v The Minister for Public Works,> or upon equitable principles of set-off or unjust enrichment, the District Court was not permitted to determine a proper or fair worker's compensation premium in respect of the 1991 year between EMI and Donald in the litigation.

A worker who receives an injury is entitled to receive compensation from his employer in the circumstances described in the Workers Compensation Act 1987.6 To ensure that workers are able to receive payment of such compensation, employers are obliged to insure against such liability. That is the effect of Pt7 of the Act, and in particular s155(1). To ensure that an appropriate policy is available to the employer, s157 provides that a licensed insurer shall not, except with the consent of the Authority, refuse to issue a policy of insurance to an employer or to renew such a policy. The content of such a policy of worker's

4. Appeal Book, 405N-406H.
5. (1992) 26 NSWLR 234.
6. S9.

compensation insurance is provided for by s159, and regulations made under the Act. The terms of the workers' compensation policy are thus not a matter of general negotiation between the employer and the insurer, and nor is the amount of the premium. S168 permits the Governor, by an order made on the recommendation of the Authority and published in the Gazette, to fix the manner in which the premium payable by an employer for such a policy is to be calculated. Such a Governor's order is called "an insurance premiums order'. S169 provides that the premium payable for a policy of insurance to which an insurance premiums order applies is to be calculated in the manna fixed by the order. $169(2) renders it a breach of an insurance premiums order for an insurer to demand or receive an amount by way of premium different to that calculated in accordance with the insurance premiums order. Recognising that there could be dispute regarding the proper amount of premium payable under an insurance premiums order, the legislature has, by s170, provided that if an employer claims that an insurer has breached an insurance premiums order in demanding a particular premium, it may apply to the Authority for a determination as to the proper premium to be charged for the issue or renewal of the policy.

The manner in which the Authority is to determine the premium to be charged, and the consequences of such determination are set forth in s170(2)-s170(6) inclusive. Those provisions are as follows:

(a) in the case of the issue of policy of insurance - within 1 month after the date of the demand for the premium as referred to in subs(1), or (b) in the case of the renewal of a policy of insurance - before or within 1 month after:

(i) the date of expiry of the period for which premiums have been paid in respect of the policy, or

(ii) the date of the demand for the premium as referred to in subs(1), whichever is the later,

or within such further period as the Authority may, in special circumstances approve in relation to that application.

(3) When any such application is made, the Authority:

(a) shall notify the insurer of the making of the application,

(b) shall consider the application and may have regard to such oral or written evidence or representations as it thinks fit,

(i) the policy is not a policy to which the insurance premiums orders applies, or

(ii) the Authority is of the opinion that the premium to which the application relates is payable by the employer in accordance with the insurance premiums order,

or shall, in any other case, determine in respect of the issue or renewal of the policy a premium which is payable by the employer in accordance with the insurance premiums order, and

(d) shall, in such manner as it thinks fit, inform the employer and the insurer of its dismissal of the application or its determination, as the case may require.

(b) the employer has already paid to the insurer the premium to which the application relates,

UARIPLOYER'S MUTUAL INDEMNITY (WORKERS COMPENSATION) LTD v A DONALB PTY LTD (Cole JA)

the employer may recover from the insurer, in a court of competent jurisdiction as a debt due to the employer, so much of the premium paid as exceeds the premium determined by the Authority.

(b) the insurer does not within | month after the date of the decision of

(i) in the case of the issue of a policy of insurance - issue to the employer

a policy of insurance having effect for such period (not exceeding 1

year) and from such date as the Authority determines, or

(ii) in the case of the renewal of a policy of insurance - effect the

renewal of the policy for such period (not exceeding | year) as the

Authority determines from the date of expiry referred to in subs(2)(b), at the premium determined by the Authority, and

(c) the employer does not otherwise agree or request, the insurer shall be deemed to have issued to the employer a policy of insurance at the premium so determined and having effect for the period and from the date referred to in para(b)(i) or para(b)(ii).

(6) The insurer shall forthwith supply to the employer a document setting out the provisions of a policy of insurance deemed by subs(5) to be issued to the employer.

As s170(4) makes clear, after the Authority's determination, if there has been an overpayment by the employer, it may recover the amount of overpayment beyond that determined as the proper premium by the Authority, from the insurer. Similarly, s172(1) and s172(4) make clear that the insurer can recover from the employer the amount of the premium determined in accordance with the insurance premiums order as contemplated by s169 and as claimed by the insurer, or where there has been a request by the employer for and determination by the authority pursuant to s170, where there has been a determination by the Authority. S173 and s174 provide for making of regulations requiring the supplying of information, the keeping of necessary records, and the conferring upon the Authority of the power to obtain information necessary for premium determination.

"The Authority may, on application by an insurer who has issued a policy of insurance to an employer (whether or not the policy is still in force), order the employer to pay to the insurer such amount as the Authority may, having regard to the information obtained under s174 or otherwise, find to be due and payable as a premium or balance of premium in respect of the policy of insurance or any renewal of that policy."

By subs5, a certificate executed by the Authority certifying the amount payable, is admissible in "any proceedings and is evidence of the matters specified in the certificate'.

For the financial year 1991 the insurance premiums order was published in Government Gazette No 78 on 15 June 1990. In respect of Category A employers, which Donald was, premium was calculated by applying the formula:

"E" is the experience premium, if any, for the employer determined with respect to the period of insurance in accordance with Schedule 5 to this Order". The formula in Schedule 5 for calculating the experience premium contains factors described as Cl, C2 and CO. Those "C" factors relate to 'the cost of claims for the employer" in respect of defined periods of insurance. Cl2 to Schedule 5 provides:

"In this Schedule "cost of claims" has the same meaning as in Pt3 of the Workers Compensation (Insurance Premiums) Regulation 1987.

Pt3 of the Workers Compensation (Insurance Premiums) Regulation 1987 is headed "Certification of Cost of Claims". C18 provides that in Pt3 "Cost of Claims" in relation to a period of insurance means:

"(a) Except as provided by para(b), the total calculated by an insurer, of the cost of each individual claim of which the insurer for the time being has notice, being a claim made against a particular employer with respect to an injury received...; or

(b) where the particular employer does not agree with the calculation made be the insurer and applies to the Authority for a calculation of that total (and the application is not withdrawn or, in the opinion of the Authority, abandoned), that total as calculated by the Authority."

Cl9 of the Regulation specifies the manna of determining the cost of an individual claim. C19(1)(a) determines that cost as being the totality of various payments, fees, expenses and legal costs there identified and:

"(v) The most accurate estimation for the time being by the insurer of the insurer's outstanding liability reasonably likely to arise out of the claim..."

Reg9(1)(b) address the position where there is dispute regarding the insurer's estimate of a claim and provides:

"(b) Where the employer does not agree with the calculation made by the insurer of the costs of the individual claim and applies to the Authority for a calculation of the sum (and the application is not withdrawn or, in the opinion of the Authority, abandoned), the sum of:

(i) the payments, fees, expenses and costs referred to in para(a)(i)-para(a)(iv); and

(ii) the most accurate estimation by the Authority of the insurer's liability reasonably likely to arise out of the claim,

Regl0 confers upon an employer a right to serve a notice on the insurer requiring the insurer to provide the employer with a certificate in the approved form specifying the particulars relating to "cost of claims". Where the insurer provides such a certificate to the employer, reg11 provides that:

"(a) Except as provided by para(b), the particulars relating to cost of claims specified in the last or only certificate so furnished; or

(b) where the employer... does not agree with any of those particulars and applies to the Authority for a variation of those particulars (and the application is not withdrawn or, in the opinion of the Authority, abandoned) - the particulars relating to costs of claims specified in the certificate as confirmed or varied by the Authority,

are binding on the employer and any insurer for the purpose of calculation at anytime of those costs of claims as at the commencement of that period of insurance."

UBRIPLOYER'S MUTUAL INDEMNITY (WORKERS COMPENSATION) LTD v A DONALD PTY LTD (Cole JA)

PtS of the regulation (reg13-reg16B), deal with the procedure before the Authority where applications are made to it concerning insurance premiums.

"The making of an application to the Authority for the purposes of this regulation or an insurance premiums order does not affect the entitlement of an insurer under the Act to recover the premium (or part of premium) concerned except to the extent that the Authority may otherwise direct in a particular case."

The provisions of the Act and regulations to which I have referred make plain, to my mind, that the legislature intended to and has established a regime whereby the quantum of an insurance premium is to be determined in the first instance by the insurer in accordance with an insurance premiums order pursuant to s169. If the employer is dissatisfied with the premium so calculated and sought by the insurer, the employer's rights are to apply pursuant to s170, and in accordance with the regulations, to the Authority to determine the correct premium. If the premium as determined by the insurer is not so queried or challenged, or if after challenge the premium is determined by the Authority, that is the premium which the employer must pay. It is that premium which is recoverable pursuant to s172 by the insurer, or if there be an overpayment resulting from a redetermination by the Authority, recoverable by the employer pursuant to s170(4). Whilst it may be possible, perhaps, to challenge by way of administrative review an asserted error of statutory application of the formula (a matter which it is unnecessary to decide), the legislature has, in my view, made clear that any factual determination in application of the statutory formula for premium determination is not a matter for review within the courts but is to be determined by the Authority.

Although the process by which this occurred is not clear, it seems that the contention of the employer that its premium for the 1991 year should have been assessed disregarding the "cost of claim" estimate in respect of Mr Keist of $89,975, was referred to the WorkCover Authority. By letter dated 23 June 1994 that Authority said:

"Tt is further determined that the estimated cost at 30 lune 1991 by Employer's Mutual Indemnity (Workers Compensation) Ltd for the claimant P. Keist, Claim No 900355, for the policy period from 30 June 1990 to 30 June 1991 was fair and reasonable."

That determination is the review contemplated by the Act and regulations and referred to with reference to recovery proceedings pursuant to s172. S172(4) makes clear to my mind that the insurer is entitled to recover the insurance premium claimed to be accordance with the statutory formula if not challenged or as reviewed by the WorkCover Authority if challenged. This case, as Counsel for the respondent acknowledged, is different from and distinguishable from the decision in Builder's Licensing Board v Inglis.7 Here there are clear indicia beyond the use of the expression "recoverable as a debt" that make clear the legislative intention that subject to the possibility of judicial review by way of prerogative writ (a matter upon which I express no view), the decision of the WorkCover Authority reviewing insurance premiums is the final determination of the sum payable. Those indicia include Reg13 to reg16B and s169, s170(4), s174 and s175(5). It follows, in my view, that the District Court did not have jurisdiction to determine what was the proper premium payable in respect of the policy for which EMI sued.

I do not think it is necessary to discuss question of estoppel raised in submissions.

The remaining grounds of appeal challenged the trial judge's findings concerning the inappropriateness of EMI (or presumably the Authority) having regard to the assessment of the Keist claim in the sum of $89,975 in calculating the premium. In light of the views I have expressed regarding grounds | and 2 it is unnecessary to consider these matters. However, it is to be noted that premiums are payable, generally speaking, within one month after demand for premium by the insurer.8 That necessarily involves the insurer making a determination of the premium, and thus the "cost of claims" factor, within a comparatively short time of the closure of the period. The decision to increase the reserve in respect of the Keist claim from $12,900 to $89,975 was made on 4 December 19909 at a time when there was an extant dispute between Mr Keist and the employer, and thus the insurer, regarding liability. On 9 August 1991, shortly after the close of the 1991 year period, that higher figure was used in the assessment of the premium for the 1991 year. The question of the reasonableness of any such assessment is to be determined at that time, not in the light of events which occurred in the following years. The fact that some years later the claim may have been dismissed does not mean that it was "unfair" or "unreasonable" for the insurer to use a reservation made in December 1990 in premium calculations in August 1991. Had it been necessary to do so, I would have upheld the remaining grounds of appeal.

The respondent has filed an amended notice of contention contending that there was no proper estimate of "future payments" as a result of the claim and thus no liability for premium, that there was a "tortious liability to the employer to act in good faith", and breach of that duty, and that there should have been found an implied term in the contract of insurance to act in good faith, which term was breached.

The relationships between the insurer and the employer are those provided by the Workers Compensation Act, and regulations thereunder. That statutory relationship does not, in my view, lend itself to the implication of a tortious or contractual obligation to act in good faith, other than that which is implied in all contracts of insurance. Calculation of premium in accordance with a statutory formula does not involve notions of good faith.

Minds may differ concerning the scope of concepts discussed in Renard Constructions (M E) Pty Ltd v The Minister for Public Works,!° but those concepts do not in my view extend to impose duties in relation to calculation of insurance premiums in accordance with a statutory formula.

I would propose that the appeal be upheld, the verdict and judgment set aside, and in lieu thereof there be entered judgment in the sum of $36,459.59 together with interest pursuant to s172 Workers Compensation Act 1987 from 9 September 1991 to 24 July 1995. This judgment should take effect from 24 July 1995, the date of the making of Mahoney DCJ's judgment and thereafter interest in accordance with s83A

8. S170.
9. Appeal Book, p180.
10. (1992) 26 NSWLR 234.

URIPLOYER'S MUTUAL INDEMNITY (WORKERS COMPENSATION) LTD v A DONALD PTY LTD (Stein JA)

District Court Act 1970. The respondent should pay the appellant's costs of the trial and the appeal but should have in respect of the appeal, if qualified, a certificate under the Suitors Fund Act.

Ahe appeal to be upheld, the verdict and judgment set aside, and in lieu thereof judgment entered in the sum of $36,459.59 together with interest pursuant to s172 Workers Compensation Act 1987 from 9 September 1991 to 24 July 1995. This judgment to take effect from 24 July 1995, the date of the making of Mahoney DCJ's judgment and thereafter interest in accordance with s83A District Court Act 1970. The respondent is to pay the appellant's costs of the trial and the appeal but should have in respect of the appeal, if qualified, a certificate under the Suitors Fund Act.

Counsel for the appellant: R C McDougall QC/D Pritchard Solicitor for the appellant: P W Turk & Assoc Counsel for the respondent: D Bernie

Solicitor for the respondent: Bernard D Brassil & Co