SINANIAN v EKS CARPENTRY PTY LTD AND ANOR

Court of Appeal (NSW)|1997-04-11|Before: Mason P, Beazley JA

SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL COMPENSATION COURT

MASON P, BEAZLEY JA and GROVE AJA 11 April 1997, 5 September 1997 [1997] NSWCA 288

Workers Compensation - s277(1) offence - failure to insure - whether precludes recovery - illegality - public policy - proportionality

The issue in the case is whether the appellant's involvement in the failure to insure the company in breach of s277(1) of the Workers Compensation Act 1987 disentitled the appellant from claiming under the Uninsured Liability and Indemnity Scheme. The injury occurred before s277(1) was amended by the insertion of s4A which precludes recovery but only applies to injuries suffered after 1 January 1996.

1 There is a need to consider the proportionality between the forfeiture sought and the seriousness of the illegality involved. See Nelson v Nelson (1995) 184 CLR 538.

2 s277 embraces a vice range of relatively passive conduct which suggests that Parliament did not intend breach of s277 to give rise to catastrophic civil consequences.

3 Grove AJA dissenting - s144(3) vests the Compensation Court with discretion to make such orders as it thinks fit. The vesting of such a discretion provides an indication that the scope and purpose of the statute does not bar the appellant's claim absolutely. The failure to exercise the discretion means that the matter should be remitted.

Andrews v Nominal Defendant (No 2) (1965) 66 SR(NSW) 85, distinguished. Quinn v Boomerang Interstate Transport Pty Ltd, Compensation Court, No 1078/95, unreported 28 October 1988, not followed.

Mason P The appellant suffered a compensable injury under the Workers Compensation Act 1987. His employer was uninsured. But that employer was a "one man company" and he was its governing mind. At issue is whether this disentitles him from claiming under the Uninsured Liability and Indemnity Scheme.

The appellant might have sued the employer, although it was to all intents and purposes his alter ego, and presumably was without funds. For obvious reasons the appellant preferred to claim under the Scheme. He satisfied the conditions prescribed by s140 of the Act for making a claim under the Scheme. He was a worker who had suffered injury in the course of his employment. That injury had resulted in an incapacity for work that would give rise to a claim for compensation under the Act. And the employer was uninsured.

The WorkCover Authority refused to satisfy the claim, and advised the appellant accordingly (see s143(2), (3)). Thereupon the appellant applied to the Compensation Court for a determination of the claim (see s144). The Court's jurisdiction is to "hear and determine [the application] and... make such orders in relation to the application as the Compensation Court thinks fit. " That jurisdiction is, in my view, to be exercised in accordance with law. This follows from the law's preference for specificity over discretion (cf Bryan v Maloney

(1995) 182 CLR 609 at 653; Hill v Van Erp (1997) 142 ALR 687 at 717, 748) in the interests, inter alia, of consistent application of legal rules. Where, therefore, a power is conferred in terms such as s144 upon an existing Court that power should, in the absence of clear words (which are lacking here), be exercised on the basis of applying pre-existing rules in the ascertainment of legal rights: cf Thompson v Mastertouch TV Service Pty Ltd (1978) 19 ALR 547 at 559.

Duck CCJ found that public policy required the claim to be rejected. He held that the appellant's employer (EKS Carpentry Pty Ltd - "EKS") had committed an offence under s155(1) in that it had not obtained a policy of insurance in compliance with Pt7 Division 1. His Honour also found that the appellant was "taken to have contravened" the same provision, by force of s277(1), because the appellant was both a director of and concerned in the management of EKS. It was not suggested that the appellant qualified for exemption under any of the provisions in s277(1)(a), (b) or (c). S277 provides:

"(1) If a corporation contravenes, whether by act or omission, any provision of this Act or a regulation, each person who is a director of the corporation or who is concerned in the management of the corporation is taken to have contravened the same provision unless the person satisfies the court that:

(a) the corporation contravened the provision without the person's knowledge, or

(b) the person was not in a position to influence the conduct of the corporation in relation to its contravention of the provision, or

(2) A person may be proceeded against and convicted under a provision pursuant to subs(1) whether or not the corporation has been proceeded against or been convicted under that provision.

(3) Nothing in this section affects any liability imposed on a corporation for an offence committed by the corporation against this Act or the regulations.

It is relevant to observe that the appellant's putative offence arises from the direct application of s277(1). It was not found that the appellant aided or abetted EKS in its offence, within the meaning of the principles considered in Giorgianni v The Queen (1985) 156 CLR 473 at 487-8, 490-1, 506-7 and Yorke v Lucas (1985) 158 CLR 661 at 667-8, 676. The appellant knew of the need for insurance, and he was the moving force behind EKS. But it does not follow that EKS's uninsured state one month after it was acquired by the appellant for its intended purpose (of being the corporate vehicle through which the appellant would continue to perform carpentry work) was intentionally procured by the appellant with knowledge of all the essential facts which made what was done a crime by EKS. By contrast, the appellant's contravention of s277 arose simply because he was a director of or involved in the management of a corporation that contravened s155. The onus of satisfying the court that one or more of the exempting situations in para(a), para(b) or para(c) of s277(1) lay upon the appellant and was not satisfied.

If ancillary liability in EKS's offence under s155 may therefore be put aside, the issue becomes one of asking whether a person who is taken pursuant to s277 to have contravened s155 because of status as either or both of a director or a person concerned in the management of an uninsured company is, on that account, prohibited by public policy from enjoying the fruit of the statutory benefit conferred in terms upon that person under the Uninsured Liability and Indemnity Scheme.

URJ SINANIAN v EKS CARPENTRY PTY LTD AND ANOR (Mason P) 3

The learned trial judge noted that the severity of the appellant's injury meant that he was unable to give evidence in the proceedings. He found that the appellant was the principal behind EKS, the other director being his mother. EKS had been a shelf company. It was registered in its current name on 25 September 1995. Steps were taken to register the company as a group employer and to establish a bank account. The accident occurred on 26 October 1995.

Duck CCJ found that the need to obtain workers' compensation insurance for EKS had been well and truly brought to the appellant's attention by his accountant in late September. In fact a budget had been prepared which made provision for insurance premiums.

In his judgment Duck CCJ referred to the discussion of the legal principle ex turpi causa non oritur actio found in the judgment of Walsh J in Andrews v Nominal Defendant (No 2) (1965) 66 SR(NSW) 85. This, he held, meant that the Court had to decide:

"whether it is part of the purpose of the law against which the applicant has offended, by failing to take out his workers' compensation insurance, to deprive him of his civil remedy, that is of his claim for benefits under the Act."

Referring to the scheme of the legislation, his Honour noted that Pt4, Division 6 (s138-s148A) relating to the Scheme does not prohibit action being taken against the employer if the injured worker so chooses; and that proof of a common law right such as negligence is not a pre-requisite to entitlement. These two points were noted as distinguishing the present case from Andrews. After referring to a passage in the judgment of Walsh J in Andrews (at 91-2, set out later in this judgment) and to the decision of Coleman J in Quinn v Boomerang Interstate Transport Pty Ltd (Compensation Court, No 1078 of 1985, unreported, 28 October 1988) (a case seemingly on all fours with the present one) Duck CCJ said:

"Tt seems to me that not all public policy is to be found in Acts of Parliament because if all public policy was so reflected there would be no need to develop legal principles about public policy in addition.

It was further submitted that public policy would surely require that a person would not lose their entitlement to compensation unless they had done something heinous rather than be guilty of some mere inadvertence. Further, in developing that submission it was noted that this applicant is so badly hurt that he cannot come forward and explain himself in any way. Further, and related to that submission it was submitted that any fault of this applicant's is trivial by comparison with the disaster which has befallen him. I note the submissions.

I cannot see how a public scheme of fund raising by insurance to provide a fund for injured workers can function unless those who are involved in it contribute as they ought.

Ihave come to the conclusion that the defence raised should succeed and that the applicant is not entitled to succeed in his claim because to permit him to succeed would offend against public policy. I do so in the light of the decision of his Honour Coleman J and of my understanding such as it is of the principles expounded upon by Mr Justice Walsh in Andrews.

that will mean that the applicant will fail. That is the court's duty to the extent that the result will add to an already tragic circumstance, I am very sorry."

Duck CCJ correctly disregarded arguments for and against liability which turned upon s4A of the Act which directly addresses the problem at hand, but which applies only to injuries suffered after 1 January 1996.

It has been said that "No system of jurisprudence can with reason include amongst the rights which it enforces, rights directly resulting to the person asserting them from the crime of that person" (Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147 at 156 per Fry LJ). In Hilton v Allen, Dixon, Evatt and McTiernan JJ referred to "the principle that by committing a crime no man could obtain a lawful benefit to himself" ((1940) 63 CLR 691 at 710. See also Beresford v Royal Insurance Co Ltd [1938] AC 586 at 598-9; St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 at 292).

A particular example of this principle is the "forfeiture rule", where a person who has murdered another is prevented from claiming as the beneficiary or next of kin of the deceased. "A man shall not slay his benefactor and thereby take his bounty" (In the Estate of Nan [1914] P1 at 7 per Hamilton LJ). The forfeiture rule extends to rights deriving their existence from statute. It includes the right to distribution of an intestate estate (Re Sangal [1921] VLR 355) and the right to claim under the Family Provision Act 1982 (Troja v Troja (1994) 35 NSWLR 182). In R v Chief National Insurance Commissioner; Ex parte Connor [1981] 1 QB 758, the forfeiture rule led to the refusal of a claim for a widow's pension to a woman who had intentionally stabbed her husband to death.

Since the forfeiture rule related, initially, to unlawful homicide, the crime which triggered its application was of necessity a felony. There are many early statements of the forfeiture rule in terms of its application to a felony (see eg Cleaver at 156). But the forfeiture rule is not confined to homicides which bear the label of "felony". It applies in jurisdictions that have-abolished the felony/misdemeanour distinction (cf Re Keitley [1992] 1 VR 583). And it extends to crimes other than homicide, including crimes which are misdemeanours. Thus, in Haseldine v Hosken [1933] 1 KB 822 a solicitor was covered by a professional indemnity policy. During its currency he sustained loss through having entered into a champertous agreement which led to him being sued by a litigant whose own rights were affected by the champerty. Because the agreement was champertous, and therefore illegal, the solicitor's claim under the policy was held to be not maintainable. Similarly, an arsonist cannot recover under a fire insurance policy (Riggs v Palmer 115 NY 506 at 511-12 (1889)).

There are many cases where an insured person has been barred from recovery under a policy, despite falling within its terms, where that person's criminal wrongdoing directly contributed to the event giving rise to the claim: see generally Gardner v Moore [1984] AC 548 at 558-9. These are examples of the wider principle that a person may not "stand to gain an advantage arising from the consequences of his own iniquity" (Gardner at 558 per Lord Hailsham LC). Its pervasiveness and antiquity are illustrated by the statement of Eyre CB in Dering v Earle of Winchelsea (1787) 1 Cox 318 at 320; 29 ER 1184 and 1185 that a person may not bore a hole in a ship and then claim general average contribution.

However, with the advent of the motor car and compulsory insurance, courts came to question the rigid application of the forfeiture rule. It was seen to be unjust for insurers to be able to renege on liability to indemnify drivers guilty of motor manslaughter when the whole purpose of the cover was to provide cover against negligence (Hardy v Motor Insurers' Bureau [1964] 2 QB 745; Gardner v Moore. Cf also Jackson v Harrison (1978) 138 CLR 438). And a number of cases questioned the application of the rule to slayings which, though felonious, were due to diminished responsibility (see Public Trustee v Evans (1985) 2

URJ SINANIAN v EKS CARPENTRY PTY LTD AND ANOR (Mason P) 5

NSWLR 188; Public Trustee v Fraser (1987) 9 NSWLR 433; Re Keitley [1992] 1 VR 583). The flexibility and discretionary aspect of these lastmentioned

decisions led to them being questioned in the Court of Appeal in Troja v Troja (1994) 33 NSWLR 269.

Meagher JA (at 299) considered that there was "something a trifle comic in the spectacle of Equity judges sorting felonious killings into conscionable and unconscionable piles".

The maxim that a person shall not take advantage of his or her own wrong also underpins the application of public policy to cases where a party who enters into a contract in breach of a statutory prohibition is prohibited from enforcing that contract, even though the statute is silent about the civil consequence of illegality of contract. The purpose and justification for the rule of law expressed in the maxim is to discourage breaking the law. The leading case is Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410. See esp at 427-8 per Mason J and 432-3 per Jacobs J. As Yango illustrates, the courts have regard primarily to the scope and purpose of the statutory provision infringed, when considering whether the legislative intention will be fulfilled without the courts regarding the contract as void and unenforceable. This involves identifying the purpose of the legislation; the class of persons for whose benefit it was enacted; and the proportionality of the statutory penalty and the consequences of illegality. The form and principal focus of the specific enactment is relevant: Yango at 428-9.

'Yango demonstrates that the courts place the onus upon the party pleading illegality to demonstrate that the statutory purpose calls for contractual unenforceability to be added to the penalties expressly provided in the statute: see also St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267; Nelson v Nelson (1995) 184 CLR 538; Fitzgerald v FJ Leonhardt Pty Ltd (1997) 143 ALR 569. The same persuasive onus rests upon a party who invokes illegality as the basis for denial of the right to pursue a cause of action available at common law or under statute: see Henwood v Municipal Tramways Trust (1938) 60 CLR 438 at 461; Andrews at 89, 93. Caution is required where judges have entered the "shadowy world" (Nelson at 595 per Toohey J) of public policy in an area where ex hypothesi Parliament has not made its intention explicit as to the civil consequences of contravention of punishable breaches.

Yango also illustrates that it is highly relevant to identify the full consequences of the illegality argument in its application to the provision at hand. "Regard must be had to the consequence of applying the law of illegality to the particular case: the absurdities thereby produced; the far reaching results and particularly any illogical or inconvenient results which would follow" (Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 at 412 per Kirby P). These principles were developed and applied in Nelson. For example, Deane and Gummow JJ (at 566) and McHugh J (at 613) referred with apparent approval to the decision of the Court of Appeal for the Ninth Circuit in In re Torrez (1987) 827 F 2d 1299 at 1301 where the following factors were held relevant to the determination of whether a resulting trust was enforceable despite illegality of purpose:

"These factors include the completed nature of the transaction, such that the public can no longer be protected by invocation of the rule that illegal agreements are not to be enforced; the absence of serious moral turpitude on the part of the pare' against whom the defense is asserted; the likelihood that invocation of the

tule will permit the party asserting the illegality to be unjustly enriched at the expense of the other party; and disproportionality of forfeiture as weighed against the nature of the illegality."

The need to keep one's eye upon the proportionality between the forfeiture sought by the defendant and the seriousness of the illegality involved is emphasised elsewhere in the judgments in Nelson. See also Fitzgerald at 595 per Kirby J. While deterrence of law breaking is the concern of legal policy, so too is the consideration of preventing injustice in the form of the unjust enrichment of one party at the expense of the other: see Nelson at 597 (Toohey J), 612-3 (McHugh J). In assessing the seriousness of the illegality, care needs to be taken to judge this by reference to the statute whose terms or policy is contravened, "otherwise the courts would embark on an assessment of moral turpitude independently of and potentially in conflict with the assessment made by the legislature " (per McHugh J at 613).

I do not read these references to proportionality of sanction vis-a-vis the seriousness of the offence as permitting the court to engage in a process of individualized justice (cf The Hon AM Gleeson AC, "Individualised Justice - The Holy Grail" (1995) 69 ALJ 421). Were it otherwise, the impact of s277 on a person in the appellant's position would vary depending upon the extent of the compensable injury suffered, or the size of the premium unpaid in consequence of the injured worker's "culpability", or the period of the default. The difficulty in drawing a line in this hard case cannot be avoided by the case by case judicial assessment of a notional victim impact statement. It is Parliament's policy that is to be discerned where it is visible according to accepted principles of application of the ex turpi causa maxim. For this reason, I see no basis for distinguishing between different categories of persons who are taken to have breached s155 through the operation of s277.

In the area of contractual illegality it is not enough to identify a legislative policy that supports the application of the principle ex turpi causa non oritur actio. There must also be a direct connection between the unlawful conduct and the transaction sought to be impugned: see Hurst at 412, 442. In Troja (at 297) Mahoney JA said that the question to be decided is:

"one of relationship: what is the relationship between the wrong and what it does qua the property claimed which will, or will not, prevent the wrongdoer benefiting from what she has done. The principle does not operate in the manner of deodands or the like. It is necessary to show a sufficiently direct relationship between the wrong and 'profit' which the wrongdoer seeks to recover from it. The matter may be illustrated by an example. Assume the wrong to be that the claimant, in breach of the law, conducted a gaming house. She would not be permitted to sue another for, for example, an account of the profits derived from the conduct of it: the relationship between the wrong done or the profits claimed would be direct. But the principle would not prevent her suing a third party defendant for injures suffered by her in driving to the premises. "

The courts require a level of direct relationship between the heinous event and the cause of action which is blocked by reference to the forfeiture rule: see Troja at 297-8. As Street J put it, the forfeiture principle "does not cross the line and take from [the killer] rights or interests which are not consequential upon" the wrongful act (Rasmanis v Jurewitsch (1968) 88 WN(NSW) (Pt1) 59 at 63). The need for a relevant causal relationship between the identified wrong and the cause of action invoked is also emphasised in cases not involving homicide as the wrong: see eg Andrews at 94-5.

URJ SINANIAN v EKS CARPENTRY PTY LTD AND ANOR (Mason P) 7

The forfeiture of a right because its enjoyment would be the direct consequence of a crime does not require that the wrongdoer acted in order to obtain the benefit: see Amicable Society for a Perpetual Life Assurance Office v Bolland (1830) 4 Bli NS 194; 5 ER 70; Cleaver; Troda. But, where Parliament has been silent on the matter, there remains the need to show a sufficiently direct link between the wrong done and the benefit claimed that it would "grievously affront the community sense of what is right" (Troja at 297 per Mahoney JA). Kirby P spoke in Troja of denying persons from gaining benefits "from their own morally culpable conduct". This too emphasises the need to show a sufficiently direct relationship between the conduct and the benefit acquired thereby.

The following matters point (discrepantly) to the outcome in this case:

The Uninsured Liability and Indemnity Scheme is a scheme which permits an eligible claimant to have access to a fund so that benefits might be paid if an employer is not insured. The Act does not prohibit action being taken against the employer if the injured worker or (in the case of death) the worker's dependents so choose.

That being the case, the very trigger that enlivened the Authority's asserted liability under the Scheme in the present case was the absence of a current policy of insurance. Wilful or not, this on the evidence was the consequence of the knowing neglect of the worker in his capacity as the directing mind of EKS. It was he who brought EKS into life and (despite the advice of the accountant Mr Bruce) refrained from taking out insurance while causing the company to engage him as its employee. That position might have continued indefinitely. True it is that the compensable accident is also an essential part of the trigger, but proof of that in itself was not sufficient to establish a claim under the Scheme. The appellant's rights against EKS remain unaffected.

In Andrews, the legislative scheme of the Motor Vehicles (Third Party Insurance) Act 1942 as it stood at the time precluded action being brought against an uninsured owner or driver. S30(1) required the Nominal Defendant to be sued, albeit that the relevant liability which arose from the negligence of the driver of the vehicle was to be determined in accordance with the general law. Walsh J observed (at 91) that it was significant that s30(1) did not give an additional remedy leaving existing remedies unimpaired. It took away an existing remedy (ie of suing the tortfeasor). It is clear that his Honour was of the view that, had the tortfeasor been the party to be sued it would not have been a defence for that tortfeasor to have pleaded that the injured person was in breach of a section (s7(1)) which penalised the use of an uninsured vehicle upon a public street. Walsh J continued (at 91-2):

"The question then arises as to whether the substituted remedy should be regarded as subject to a limitation upon it, to which the previous remedy was not subject (if the views expressed above are correct), namely, the limitation that it is not available to a person who has committed a breach of s7(1) of the Act. If the provision had given an alternative right to claim against the Nominal Defendant subject to such conditions as to notice as are contained in s30(1), there would perhaps be good reason for concluding that the special benefit thus conferred should not be available to a person who had himself broken a provision designed to eliminate as far as possible the use on public streets of uninsured vehicles. But I think it is much more difficult to give the penal provision an

operation which not only precludes a resort to the Nominal Defendant to the special fund, but precludes a person who is in breach and who is injured by the wrongful act of another from obtaining any redress at all. "

It was this passage which Duck CCJ cited in support of his conclusion adverse to the appellant.

The beneficial nature of the Act confers statutory rights upon the injured worker against his or her employer. Those rights are not in issue in the present case. But those rights are valueless if the employer is without funds as I assume EKS is in the present case. The Act endeavours to ensure that the rights are valuable by imposing upon employers and (in the case of corporate employers) their directors, penal obligations to take out and maintain insurance. If enough insured stop paying their premiums, then presumably the rate of premiums will be increased. Where the employer has breached its duty to insure the injured worker is given the alternative remedy of making a claim under the Uninsured Liability and Indemnity Scheme.

In the present case the appellant's resort to that alternative remedy involves proof of and reliance upon the very situation brought about by the appellant through his own neglect, being a neglect which is punishable through s277. That is a direct enough relationship to trigger the general principle I have endeavoured to summarise. The second sentence in the passage from Andrews at 91-2 that I have quoted is on point, albeit that Walsh J spoke tentatively.

To recognise that the appellant was directly involved in the contravention which is the basis of the trigger for liability (ie the uninsured status of EKS) strongly supports the respondent. But there are factors to be weighed in the balance the other way. (I am not suggesting a judicial discretion.)

The very sentence in Andrews to which mention has just been made emphasises the direct and personal responsibility of the would be claimant in the breach of the relevant law (which prohibited driving an uninsured vehicle on a public street). Here the relevant offence is that of being a director of or concerned in the management of a contravening corporation. As I have already indicated, the appellant's putative criminal liability does not consist of him being a common law accessory to the company's offence. It is therefore relevant to recall Mason J's insistence in Yango (at 428-9) upon keeping in mind the form of the particular legislation contravened as a factor in weighing considerations of public policy. See also Nelson at 613 per McHugh J.

The maximum penalty is 200 penalty units (s278(2)), ie $20,000. While minds may differ as to the level of seriousness with which Parliament may be taken to have viewed the relevant offence, the very existence of such a substantial penalty ensures the capacity of the Court to provide specific and general deterrence to those tempted to take a free ride. The availability of such a penalty is a partial answer to Duck CCJ's statement that he could not see how a public scheme of fund raising by insurance to provide a fund for injured workers could function unless those who are involved in it contribute as they ought. If the penalty is an insufficient deterrent, Parliament can increase it or (as it has done in the recently introduced s4A) stipulate expressly that a civil penalty extends to persons placed in the appellant's situation.

Obviously, not every "deemed offence" under s277 of the Act would demonstrate a direct or "culpable" link between the offence and the asserted claim under the Scheme. In my view, this is very significant to the assessment of the seriousness with which Parliament views the relevant contravention, and to

URJ SINANIAN v EKS CARPENTRY PTY LTD AND ANOR (Grove AJA) 9

the issue of proportionality. Early in this judgment I drew attention to the significance of recalling that the appellant's putative "wrong" is breach of s277, not an ancillary offence directly related to s155. The significance lies in the consequences that breach of s277 extends to any person who is a director of or concerned in the management of the corporation, subject to displacement if the officer satisfies the court that one of para(a), para(b) or para(c) in s277(1) applies. This is a fairly low threshold of criminal liability. The fact that it would embrace a wide range of relatively passive (and not necessarily morally culpable) conduct tends strongly to rebut the argument that Parliament intended s277 to carry the potentially catastrophic civil consequences which the respondent claims. (It is no answer to this point that manslaughter may cover a multitude of sins, some only of which may lead to forfeiture, because the application of the forfeiture rule in that context is purely a matter of common law, whereas the ultimate issue in the present case is one of statutory construction.) I explain above (p13) why, in my view, it is not proper to distinguish between different categories of persons who are taken to have breached s155 through the operation of s277.

It would be self-delusion to suggest that one outcome rather than the other is dictated by processes of inexorable logic. Nor is the Court permitted to retreat to a stance suggestive of a judicial discretion. In my view, what I have termed the matters favouring the appellant's position are ultimately compelling, especially the point addressed in the preceding paragraph. I would allow the appeal and remit the matter to the Compensation Court, solely as to the issue of quantum.

3 Matters returned to the Compensation Court for determination as to quantum.

4 The second respondent is to pay the appellant's costs of the proceedings in the court below (to date) and the first respondent's costs as a submitting party in the appeal.

Grove AJA On 26 October 1995 the appellant was driving a motor vehicle in the course of his work when it was involved in a collision and he suffered catastrophic injuries, the consequences of which included gross brain damage. The trial judge (Duck CCJ) found that he was unable to attend court to give evidence. The appellant brought proceedings in the Compensation Court pursuant to the Workers Compensation Act 1987 against WJ & LM Crossley Building and Maintenance Pty Ltd (Crossley) and EKS Carpentry Pty Ltd (EKS) inviting findings that either of those entities was the relevant employer. The WorkCover Authority of New South Wales (WorkCover) was joined in the hearing as it was common ground that EKS was uninsured. No appeal is brought against an award in favour of Crossley which was found not to have been the appellant's employer when the accident occurred. The solicitor for EKS informed the Court that he had filed an appearance on its behalf as first respondent to the appeal but he intended to make no submissions as his client was "an uninsured employer". The contest of the appeal was undertaken by WorkCover representing the fund into which premiums for insurance under the Act are required to be paid and out of which fund any liability to a worker employed by an uninsured

employer may be required to be made. Duck CCJ held that the appellant's claim against the Uninsured Liability and Indemnity Scheme set up under Pt5 Division 6 of the Act failed.

The challenge by the appellant needs to be examined in the context of the following facts and circumstances. The appellant worked for Crossley as an apprentice carpenter and in due course acquired his trade qualification. He was on good terms with his employer the principal of which (Mr Crossley) encouraged him to "go into business for himself". The intention was that the appellant could work independently although it was anticipated that he would be offered substantial work as a contractor to Crossley. Relevant discussion took place about mid September 1990 and on or about 22 September Mr Crossley took the appellant to a meeting with his accountant, a Mr Bruce, with a view to the appellant setting himself up in business under a company structure. On 25 September pursuant to arrangements made at the meeting a shelf company was registered a; EKS and Mr Bruce undertook the necessary steps on the appellant's behalf to get the business underway. EKS applied for and acquired a tax file number and status as a group employer. The appellant and his mother were appointed directors and, so far as the evidence shows, the appellant was the only employee of EKS of which he was clearly the effective principal.

The final payment to the appellant as an employee of Crossley was made on 14 September 1995. Thereafter EKS engaged in work as a contractor for Crossley which work was, of course, performed by the appellant. Payment for this work was made by Crossley to EKS and these payments were clearly distinguishable from the wages formerly paid directly to the appellant. The vehicle being driven by the appellant at the time of the accident was registered in the name of Crossley and had been loaned to him. It was the same vehicle as used by the appellant when employed by Crossley but the latter no longer provided the fuel used by it. No issue was raised about the necessary nexus between the appellant's employment (found to be with EKS) and the journey being undertaken when he was injured.

The learned trial judge accepted evidence that Mr Bruce advised the appellant of the need to take out worker's compensation insurance and he incorporated a cost estimate for this in a budget which he prepared; evidence that Mr Crossley recommended his own insurer to the appellant for this purpose and further evidence that the appellant's father remarked to him about the need for insurance. The finding that the need to obtain insurance had been well and truly brought to the appellant's attention must be invulnerable.

The appellant's condition forecloses any opportunity to receive his explanation as to why an appropriate policy was not obtained by EKS. Given that the "paperwork" was assembled following the conference with Mr Bruce on 22 September and the occurrence of the accident was five weeks later, it appears a fair inference that the appellant had simply not got around to that particular task on behalf of the company. The trial judge referred to the matter in listing findings concerning the identity of the employer u hen he related that in cross examination the appellant's father said that "he (the appellant) was intending to take out insurance but did not have enough time".

The appellant's claim failed on the ground stated by Duck CCJ that "to permit him to succeed would offend against public policy".

URJ SINANIAN v EKS CARPENTRY PTY LTD AND ANOR (Grove AJA) 11

The argument in support of the appeal was presented on two broad fronts. First, the correctness of that ground and second the failure to address a discretion vested in the Compensation Court by s144(3). It is convenient to approach the matter along those lines.

EKS was required under threat of fine to maintain prescribed insurance in force (s155(1)). It did not. The appellant is "taken to have contravened" the same provision if he was a director or concerned in the management of EKS (s277(1)). He was both. It was not suggested that the appellant qualified for exemption under any of the provisos in s277(1)(a), (b) or (c).

Duck CCJ approached the issue on the basis that the appellant's deemed offence and his personal fault barred him from recovery. After referring to the judgment of Walsh J in Andrews v The Nominal Defendant (No 2) 1965 NSWR 1614, he observed:

"The question for the court is whether it is part of the purpose of the law against which the applicant has offended, by failing to take out his workers' compensation insurance, to deprive him of his civil remedy, that is of his claim for benefits under the Act."

He later referred to the judgment of Coleman CCJ in Quinn v Boomerang Interstate Transport & Ors, unreported 28 October 1988 and quoted therefrom:

".. that generally speaking, common to all of the cases (to which he had referred), was the principle that a man should not profit from his own wrongdoing. For the applicant to succeed in a claim against the scheme he had first to show that his employer, Bactwell Pty Ltd, was uninsured. But the fact that that company was uninsured was entirely due to the applicant's own fault. If the applicant is entitled to succeed here, it might be asked why any one man company in the future would incur the expense of insurance if compensation is recoverable irrespective of whether it does or not. The financial as opposed to legal necessity to cover employees against risk of injury would be obviated but an unfair burden would thereby be imposed on other law abiding companies and this surely must be against the public interest. It offends ordinary sensibilities and is contrary to one's sense of propriety."

After his conclusion that permitting the appellant to succeed would offend against public policy Duck CCJ noted that he did so in the light of the decision in Quinn and his understanding of the principles expounded in Andrews. In the latter case Walsh J had said (@ 1620):

".. there is no general rule that a person suing upon a statutory cause of action is disqualified by his own breach of it, even where there is a direct causal connexion between the act constituting the breach and the injury. It all depends upon what is taken to have been intended by the statute..."

The Workers Compensation Act 1987 is patently beneficial legislation from which the beneficiary is to be the worker (in this case, the appellant) who is entitled to receive benefits for the consequences of his injury from his employer (in this case EKS). The absence of insurance does not affect the rights and obligations flowing between them. The question arises therefore whether the Uninsured Liability and Indemnity Scheme structured by Pt4 Division 6 inheres a public policy barring access to the fund on the part of a worker entitled to compensation from his employer if the worker is deemed (s277) to have contravened the requirement to obtain insurance which is imposed upon the employer (pursuant to s155).

"140. (1) Aclaim may be made under the Scheme by any person who considers he or she has a claim for compensation under this Act against an employer in respect of an injury to a worker, if the employer:

(a) had not obtained, or was not maintaining in force, a policy of insurance for the full amount of the employer's liability under this Act in respect of the injured worker at the relevant time;

(1) From the WorkCover Authority Fund the Authority may, in respect of

(a) pay compensation in accordance with this Act, with or without admission of liability; or

(2) The Authority may refuse to satisfy a claim under the Scheme.

(3) If the Authority does not, wholly or in part, satisfy a claim under the Scheme, it shall, within 14 days of making the relevant decision, advise the claimant of its decision and the reasons for its decision.

(4) A dispute between the Authority and a claimant max be assigned under this Act to a conciliation officer for conciliation, but the Authority is not bound by any decision of the conciliation officer."

The respondent (WorkCover) contended that in the present circumstances the appellant must be denied relief by reason of his own wrongdoing and submitted in summary that, whether the case is treated as one of public policy, or one to which the maxim ex turpi causa non oritur actio is applicable or as it ultimately must be, a question of the interpretation of s140(1) and s143, the appellant being "criminally" liable for failure to maintain the required insurance is not entitled to payment out of the fund established by the Scheme.

There is no issue concerning the qualification of the appellant in terms of injury, nexus with employment and non insurance of EKS. No guidance appears in the express provisions of the statute as to the basis upon which WorkCover may refuse to satisfy a claim. If the provisions are to be interpreted as incorporating denial of a claim by a person in the situation of the appellant, that interpretation must derive from the general law notions to which reference was made.

I consider that wrongdoing on the part of a claimant must be capable of depriving him of remedy but that is not to say that any or every wrongdoing of any quality will inevitably achieve that effect. Nor do I consider therefore that penal sanction for wrongdoing infers an absolute bar.

In Beresford v Royal Insurance Company 1937 2 KB @ 219 Lord Wright MR giving the judgment of the Court of Appeal in a claim by the estate of a deceased upon a life insurance policy where the assured had committed (the crime of) suicide made this comment about ex turpi causa non oritur actio:

"The maxim itself, notwithstanding the dignity of a learned language, is, like most maxims, lacking in precise definition. In these days there are many statutory offences which are the subject of the criminal law, and in that sense are crimes, but which would, it seems, afford no moral justification for a Court to apply the maxim. There are likewise some crimes of inadvertence which, it is true, involve mens rea in the legal sense but are not deliberate or, as people would say, intentional."

I would apply his Lordship's remarks to the penal provisions of the Workers Compensation Act. As against those general remarks I note that public policy was held to forbid the payment of a widow's pension allowance to a woman convicted

URJ SINANIAN v EKS CARPENTRY PTY LTD AND ANOR (Grove AJA) 13

of her husband's manslaughter but I note that her act was described as "deliberate, conscious and intentional". Lord Lane CJ (with whom Griffiths and Webster JJ agreed) remarked:

".,.. in each case it is not the label which the law applies to the crime which has been committed but the nature of the crime itself which in the end will dictate whether public policy demands the court to drive the applicant from the seat of justice. Where that line is to be drawn may be a difficult matter to decide, but what this court has to determine is whether in the present case what this applicant did was sufficient to disentitle her to her remedy": Regina v Chief National Insurance Commissioner Ex Parte Connor 1981 1 QB 758 (@ 765.

In the High Court of Australia it has been made clear that criminal offence by a claimant will not always operate as a bar to remedy. In Smith v Jenkins (1969) 119 CLR 397 a claim by a passenger against a car driver failed where they were jointly engaged at the time of accident in using the car without the permission of the owner, a misdemeanour contrary to s81(2) of the Crimes Act 1958 (Vict). But in Jackson v Harrison (1977) 138 CLR 438 a passenger was not denied recovery of damages where he was aware that the driver was disqualified and driving in breach of s91(5) of the Motor Vehicles Act 1959 (SA) which carried a prescribed penalty of six months imprisonment and in the commission of which offence the claimant was a joint participant. Likewise in Progress and Properties Ltd v Craft (1976) 135 CLR 651 the breach of safety regulations (for which penal sanction was provided) by both the plaintiff/employee and defendant/employer did not extinguish the cause of action. In Gala v Preston (1991) 172 CLR 243 recovery was barred in circumstances very similar to those in Smith v Jenkins where the car had been stolen and was at the time being unlawfully used contrary to s408A of the Criminal Code (Q). It is noteworthy that it was remarked in the joint judgment (Mason CJ, Deane, Gaudron and McHugh JJ) with apparent approval of the statement by Jacobs J in Jackson (@ p460) that if the accident in Smith v Jenkins had occurred days, weeks, or months after the taking of the vehicle, that may have ceased to have any effect upon the manner in which it was being used subsequently and the decision therefore might have been different: Gala @ 252.

I am conscious that the group of authorities last under reference involve a considerable focus upon the ability of courts to establish the standard of care in circumstances of joint criminal enterprise. That is not directly in point in the present case but there is as I have noted, a clear demonstration that participation or liability for penal offence will not, of itself operate as a bar to civil remedy in every circumstance.

The finding of a 'policy of law" operating in the absence of direct legislative prohibition involves consideration of the scope and purpose of the particular statute: Nelson v Nelson 1995 184 CLR 538.

I conclude that, absent any manifestation of contrary intention in the statute, the question of whether the particular circumstances of the present case, namely the default of the applicant as director and principal for the period between EKS taking him into employment and the accident, to arrange the required insurance requires findings as to degree of culpability which must then be weighed in determining the outcome.

I find no manifestation of specific intention to create an absolute bar in the statute. The jurisdiction of the Court below is defined thus:

"144(1) A claimant under the Scheme who is dissatisfied with a decision of the Authority in respect of the claim may apply to the Compensation Court for a determination of the claim.

(3) The Compensation Court may hear and determine any such application and may make such orders in relation to the application as the Compensation Court thinks fit."

Both parties made submissions about legislative activity operative after the events with which this litigation is concerned. I note that by amendment to the principal Act there was inserted s4A:

"Directors of uninsured employer not entitled to compensation

4A If an employer that is a corporation had not obtained, or was not maintaining in force, at the relevant time a policy of insurance for the full amount of the employer's liability under this Act in respect of an injured worker and the injured worker was at the relevant time a director of the corporation, the injured worker is not entitled to any compensation under this Act in respect of that liability."

That provision has application only to injuries suffered after 1 January 1996.

The appellant contended that the legislative act (accompanied by further provision to empower WorkCover to obtain reimbursement of compensation paid from the directors of liable corporations) is a powerful pointer that the previous law (as laid down by the statute when unamended) would not disentitle worker/directors from payment of benefit from the fund. The absence of a commonly used formula that the amendment was intended to restate the law or to remove some doubt was drawn to attention. For WorkCover it was contended that, although s4A made the position clear for the future it was unnecessary in the present case. It was also pointed out that s4A extends further than denying remedy to a director at fault and extends the denial to any worker/director suffering injury whilst the corporation is uninsured.

I do not find that the amendment to the statute offers a conclusion that the appellant's claim must have been valid under the pre-existing statutory regime.

The approach of the learned trial judge to the difficult problem which confronted him is demonstrated by these remarks which I extract from those appearing towards the end of his judgment:

I cannot see how a public scheme of fund raising by insurance to provide a fund for injured workers can function unless those who are involved in it contribute as they ought."

I consider that the appellant's challenge is made good in these respects. His Honour regarded the fault of the appellant worker/director as a bar to recovery because contribution was not made to the fund. He referred to the obligation to insure but made no specific finding nor expressed any view about the significance of the appellant's punishable offence. It was EKS which ought to have contributed to the fund and insofar as the appellant was responsible for the default, his Honour should have made an assessment of his culpability along the

URJ SINANIAN v EKS CARPENTRY PTY LTD AND ANOR (Grove AJA) 15

lines which I have indicated in harmony with the approach to determination of tort claims by claimants involved in joint illegal enterprise. To "note the submissions" is not to decide any question of degree of culpability. I recognize that the view is open that as the default of the appellant was a sine qua non to claim against the fund and could be seen as disabling. There has been no intervening causative act by another as in the tort cases. Nevertheless, I consider that the claim should have been determined in the context of an appropriate assessment of the appellant's culpability.

My conclusion is fortified by the issue raised in the second aspect of the appellant's argument.

The Compensation Court was vested with discretion in the terms of s144(3) - "to make such orders as (it) thinks fit.' The matters noted by his Honour were capable of provoking the exercise of discretion but he did not proceed to finding. The relevant passages from his reasons which I have recited reveal a rejection rather than an exercise of discretion.

Once it is accepted that there is scope for discretion the degree of culpability requires assessment. The vesting of such a discretion provides an indication that the scope and purpose of the statute (prior to the insertion of s4A) was not to bar absolutely a claimant in the position of the appellant from access to the fund. Whether the appellant's culpability is weighed in the context of the extent of the operation of "public policy" or the exercise of particular discretion to grant or withhold remedy is not of consequence but as that has not been undertaken I consider the appellant is entitled to orders requiring it to be done.

The appeal should be allowed and the award of the Compensation Court quashed and the matter returned to that court for determination in accordance with the judgment of this Court. The second respondent should pay the appellant's costs of the appeal and, if qualified, have a certificate under the Suitors Fund Act. The costs of trial should be dealt with by the Compensation Court.

3 Matter returned to the Compensation Court for determination as to quantum.

4 The second respondent to pay the appellant's costs of the proceedings in the court below (to date) and the first respondent's costs as a submitting party in the appeal.

Counsel for the Appellant: P Menzies QC/B McManamey Solicitors for the Appellant: Stacks - The Law Firm

Counsel for the Second Respondent: D F Jackson QC/I Khan Solicitors for the First Respondent: Boyd House & Partners

At a glance

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Judgment (134 paragraphs)

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Legislation Cited (1)

Cases Cited (19)

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