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[2002] NSWCA 161
appellant. Appeal allowed; respondents ordered to pay appellant's costs of the appeal (with Suitor's Fund Act certificate if entitled); order dismissing proceedings by Gamble ADCJ set aside; respondents'...
The Court of Appeal held that an employer's statutory right to be indemnified by a third party under s 151Z(1)(d) accrues only when the employer actually pays workers' compensation. Each separate payment gives rise to a fresh cause of action, and the limitation period runs from the date of each payment. The District Court's dismissal of the employer's claim as wholly time-barred was set aside and the matter remitted.
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This appeal concerns whether an employer's statutory indemnity claim against a third-party tortfeasor under s 151Z(1)(d) of the Workers Compensation Act 1987 accrues as a single cause of action on the first payment of compensation, or whether each actual payment of compensation gives rise to a fresh cause of action. The practical dispute was limitation: the employer, South Eastern Sydney Area Health Service, had paid ongoing workers' compensation to its employee, Jennifer Isherwood, after a motor vehicle accident on 15 November 1992. Payments began on 17 February 1993. The employer issued a statement of claim against the respondents (alleged tortfeasors) on 25 June 1999 seeking indemnity for compensation paid (Stein JA [5]-[6], [10]).
2 cited instruments linked from this judgment.
At first instance Christie DCJ refused a summary dismissal application on limitation grounds (without prejudice) but Gamble ADCJ subsequently dealt with limitation as a preliminary issue and dismissed the employer's proceedings as statute barred. On appeal the Court of Appeal (Stein JA, Giles JA and Pearlman AJA, with Stein JA delivering the lead reasons) allowed the appeal, set aside Gamble ADCJ's order and remitted the matter to the District Court (Stein JA [2]-[4], [49]-[50]).
The legal pivot is the construction of s 151Z(1)(d) read with Limitation Act 1969 s 14(1)(d). The Court held that the statutory indemnity is triggered by "compensation paid", meaning actual payment. Each payment produces a separate right of action; the limitation period runs from the date of each payment (Stein JA [37], [40]-[41], [48]).
The court's analysis follows a straightforward statutory-construction approach, informed by authority. Key reasons:
Textual construction: s 151Z(1)(d) uses the phrase "compensation paid", not "compensation paid or payable". Stein JA emphasised that the plain words point to actual payment as the triggering event for the indemnity: "Subsection (d) of 151Z(1) refers to the 'compensation paid' ... not to 'compensation paid or payable'" ([40]).
Practical reality of compensation: the court noted that workers' compensation obligations can vary over time, payments may begin, cease, increase or decrease depending on the worker's condition and insurer/employer decisions. This variability supports construing the indemnity as attaching to discrete payments rather than as a single continuing right arising at the time of the first payment ([40]).
Precedent: The court relied heavily on established authority. The English case Attorney-General v Arthur Ryan Automobiles Ltd [1938] 2 KB 16 (commonly called Ryan) held that "each payment gives rise to a separate right of action" (Stein JA summarised Ryan at [16]-[18] and endorsed it at [48]). NSW decisions addressing interest on indemnity recoveries, Howard Rotavator Pty Ltd v Wilson (1987) 8 NSWLR 498 and Kwanchi Pty Ltd v Kocsis (1996) 40 NSWLR 270, had treated the indemnity as arising on each payment; those decisions were applied and regarded as consistent with the present statutory language ([21]-[29]). The High Court's consideration in Victorian Workcover Authority v Esso Australia Ltd (2001) 75 ALJR 1513 was cited as endorsing the proposition that certain indemnity provisions confer distinct rights arising on each compensation payment ([32]-[34]).
Policy and limitation concerns considered but rejected as determinative: the respondents argued that a single cause of action accruing at first payment promoted fairness and convenience (including res judicata issues and concerns about delay prejudicing defendants). Stein JA acknowledged these concerns, including potential prejudice from delay ([38], citing Brisbane South Regional Health Authority v Taylor ([38])), but concluded they did not trump the textual and precedent-based construction. Any anomalies should be addressed by the legislature, not by judicial re-writing of the statute ([42]-[45]).
On these grounds the Court concluded that each payment is a distinct transaction attracting the statutory indemnity and the limitation clock runs from each payment ([41], [48]).
Before this decision, there existed a cluster of authorities treating statutory indemnities in workers' compensation statutes as rights that arise on actual payments: the English Ryan decision, NSW authorities like Howard Rotavator and Kwanchi, and other appellate decisions. However, the specific issue of whether s 151Z(1)(d) created a single cause of action from the first payment or multiple causes of action had been contested; Gamble ADCJ had accepted the respondents' single-cause construction.
After South Eastern Sydney Area Health Service v Gadiry, the Court of Appeal expressly affirmed that for s 151Z(1)(d) a cause of action accrues on payment and that each payment gives rise to a fresh cause of action for indemnity. The decision aligns NSW law with Ryan, Howard Rotavator, Kwanchi and the High Court's endorsement in Esso, consolidating the view that statutory indemnity rights of this form are triggered by each payment of compensation. Practically, employers may bring repeated claims for indemnity for successive payments within limitation periods measured from each payment date.
"The payment of compensation is necessary to enliven the statutory right of indemnity. Until such payment occurs, the employer does not have a complete cause of action." (Stein JA [37])
"Subsection (d) of 151Z(1) refers to the 'compensation paid' to the worker, not to 'compensation paid or payable'." (Stein JA [40])
"Clearly time starts to run from the particular payment of compensation, but each payment is a separate transaction which attracts the statutory right of indemnity." (Stein JA [41])
"Ryan's case makes sense when read today, 64 years on. The reasoning of Slesser LJ is equally relevant to 2002 and the NSW legislation." (Stein JA [48])
This precedent applies where:
Within the judgment itself the Court of Appeal tracked and followed prior NSW decisions (Howard Rotavator, Kwanchi) and noted High Court endorsement in Esso as confirming the approach. The Court expressly applied and relied upon those authorities (Stein JA [20]-[29], [32]-[34], [48]). The decision consolidates a line of authority in NSW that statutory indemnities of this form accrue on payment and that each payment gives rise to a fresh cause of action. Subsequent courts dealing with s 151Z(1)(d) or materially similar provisions would be expected to follow Gadiry for accrual and limitation principles unless and until the legislature amends the statutory language.
Practically, Gadiry was applied to set aside a District Court dismissal and to require remittal; it reinforces the need for defendants to monitor compensation payments and for plaintiffs (employers/insurers) to bring claims for recent payments within the limitation period.
Interaction with res judicata and comprehensive determinations: If an employer sues for an early tranche of payments and obtains a determination of the indemnity limit (or amount of damages), what precise res judicata or issue estoppel consequences (if any) follow for later payments? Stein JA observed procedural/practical considerations (Port of Melbourne v Anshun was referenced) but did not create a rule closing off later claims ([36], [45]). The line between acceptable serial litigation and abuse or duplicative litigation remains fact-dependent.
Notice and prejudice: The respondents raised policy concerns about prejudice from delay and absence of required notice to tortfeasors. The Court accepted those concerns might be real in particular cases but concluded statutory wording prevailed and legislative reform is the avenue for remedy ([38], [43]-[45]). How courts will weigh prejudice in close cases (for example, when a defendant suffers severe evidentiary disadvantage from many years' delay) remains unsettled beyond the Limitation Act's operation and ordinary discretion about striking out or staying proceedings.
Aggregation and calculation of damages: Where payments continue and final damages at common law are later quantified, how should courts approach overlap between amounts recovered by employers under successive statutory indemnity claims and potential common law recoveries by workers? The Court referred to Grant v Royal Rehabilitation Centre Sydney ([30]) noting employers could claim under the indemnity up to the limit of damages, but the interplay between ongoing indemnity claims and a final common law damages determination may raise procedural and substantive issues in particular factual matrices.
Legislative options: Stein JA remarked that if the legislature is concerned about anomalies, the remedy is in its hands ([45]). Until the legislature speaks, courts will continue to apply the payment-accrual approach. Whether parliament will amend s 151Z(1)(d) (for example to refer to 'paid or payable' or otherwise aggregate indemnity claims) is an open policy question.
Conclusion South Eastern Sydney Area Health Service v Gadiry confirms the longstanding line of authority that statutory indemnities of the s 151Z(1)(d) form arise only on actual payments, and that each payment gives rise to a separate cause of action for indemnity with limitation running from the date of that payment. The decision is grounded in statutory text, practical reality of workers' compensation payments, and consistent precedent from the English and Australian appellate courts. The ruling places on defendants an evidential and practical incentive to investigate compensation payments early and on legislatures the responsibility to alter the scheme if broader policy concerns require a different accrual point.
Background 5 The appeal arises in the following circumstances. The appellant employed Jennifer Isherwood, who suffered injury in a motor vehicle accident on 15 November 1992. 6 The appellant commenced paying workers' compensation payments to its employee on 17 February 1993. On 25 June 1999 the appellant issued a Statement of Claim in the District Court claiming indemnity from the respondents, Tamiem Gadiry and Isabella Pelle, who it maintained were negligent in causing Ms Isherwood's injuries in the motor vehicle accident. 7 The respondents unsuccessfully sought summary dismissal on the basis that the claim by the appellant was statute barred under s 14 of the Limitation Act 1969. Christie DCJ refused this motion on 30 March 2001 but without prejudice to the respondents raising the defence at the hearing if they so desired. Gamble ADCJ dealt with the defence as a preliminary issue. She disagreed with Judge Christie's conclusion and dismissed the proceedings.
The legislation 8 Section 151Z(1) of the Workers Compensation Act provides: If the injury for which compensation is payable under this Act was caused under circumstances creating a liability in some person other than the worker's employer to pay damages in respect of the injury, the following provisions have effect: … (d) if the worker has recovered compensation under this Act, the person by whom the compensation was paid is entitled to be indemnified by the person so liable to pay those damages (being an indemnity limited to the amount of those damages) … 9 Section 14(1)(d) of the Limitation Act provides: An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims: … (d) a cause of action to recover money recoverable by virtue of an enactment, other than a penalty or forfeiture or sum by way of penalty or forfeiture.
Facts 10 The appellant sued to recover the compensation it had paid to its employee totalling in excess of $65,000, which, together with interest, amounted to approximately $110,000. 11 The appellant acknowledged that the payments of compensation made between the first payment on 17 February 1993 and 25 June 1999, when the Statement of Claim was filed, were statute barred. This concession was made before Judge Christie.
Appellant's submission 12 On behalf of the appellant, Mr Bartlett QC submits that her Honour misconceived the nature of the cause of action which the appellant brought under s 151Z(1)(d). The liability of the tortfeasor with respect to a claim under the provision is a creature of statute. It is a statutory indemnity in respect of the compensation paid to the employee by the employer or insurer. It is not a claim for damages, see Westpac Banking Corporation v Tomassian (1993) 32 NSWLR 207 at 215. 13 The appellant submits that each payment of compensation gives rise to a fresh cause of action with respect to its statutory entitlement to indemnity. It follows, according to the submission, that the limitation period in s 14(1)(d) of the Limitation Act applies to each payment, being a separate cause of action.
Respondents' submission 14 The respondents take issue with the appellant and submit that s 151Z(1)(d) creates a single cause of action which arises at the time of the first payment of compensation. If the submission is correct, then the whole of the appellant's claim is statute barred. It is submitted that the right of statutory indemnity is enlivened if the worker has recovered compensation under the Act and this occurs upon receipt of the first payment of compensation. This is the time when it is claimed that the cause of action for indemnity accrues. The respondents maintain that this construction of s 151Z(1)(d) is consistent with policy and principle, as well as with the natural meaning of the words in the subsection.
Consideration 15 A similar issue arose in Attorney-General v Arthur Ryan Automobiles Ltd [1938] 2 KB 16. This involved liability to pay indemnity under s 30(2) of the Worker's Compensation Act 1925 (Eng), the precursor of the 1926 NSW Act (s 64(1)(b)) and substantially similar to s 151Z(1) of the 1987 NSW Act. 16 Slesser LJ said: The language of the section makes it quite clear to my mind that the condition on which the indemnity arises is primarily that the workman has been paid. That payment must be in respect of compensation under the Act, and the injury must be caused in circumstances creating a liability in some person other than the employer. But the actual claim arises only when the payment is made in fact; and each payment gives rise to a separate right of action, which will succeed or will not succeed according to whether the conditions laid down in the section are or are not satisfied. 17 His Lordship added that: Apart from the natural conclusion which arises from a consideration of the words, any other view would create a most extraordinary position. Under the Workmen's Compensation Act a workman's right to compensation depends upon a number of circumstances. The amount of it may vary from time to time according to the extent of the workman's disability. It may well be that, after the accident has occurred, he will temporarily recover. Owing to causes which I need not enter into here, changes of circumstances of various sorts may arise which may vary the liability. In any event, it is quite impossible for an employer paying compensation to predict and to assess what sum will be required under the Act from him in future. If Mr. Egdedale's argument be correct, once an employer has been paid indemnity for the sum actually paid by him, he can never recover any more money at all - albeit he has to pay more to the workman. It would seem, if that argument be right, that a wise employer would wait until the man was dead before he started any proceedings at all, or at any rate until he was so certainly recovered that there could never be a recrudescence of his injury, which in the present state of medica science will often be a difficult period to predict. The more reasonable, and I think proper, view as I say is that each time there is a payment, there arises a liability to pay indemnity, if the conditions are satisfied. 18 Scott LJ gave judgment to similar effect. Farwell J wished to only add two words but contributed seven lines. His conclusion was that no cause of action arose until a payment was made. From this he said that it followed that 'on each payment being made a fresh cause of action arises'. 19 On behalf of the respondents, Mr Hislop QC submits that there are differences between the present provision in s 151Z(1)(d) and the section under consideration in Ryan. It differed in a material respect, particularly having regard to the words in parenthesis in subpara (d) of s 151Z(1). 20 The appellant places reliance on the court's decision in Howard Rotavator Pty Ltd v Wilson (1987) 8 NSWLR 498. The respondents, however, say that the case is distinguishable since the issue to be determined was the entitlement to interest and the relevant provision (s 64(1)(b) of the Workers Compensation Act, 1926) is different from the current provision in s 151Z(1)(d). 21 Hope JA, with whom Samuels and Priestley JJA agreed, delivered the leading judgment in Howard Rotavator. The issue before the court was whether payments recovered under the indemnity in s 64(1)(b) attracted interest from the date when each payment was made. 22 Hope JA noted that the tortfeasor's liability was a statutory one. It was a statutory indemnity in respect of the compensation which the employer paid. His Honour set out the ordinary rule with respect to common law indemnities from Halsbury's Laws of England, 4th Ed, vol 20 par 315 at 173 as follows: In law an action on a contract of indemnity does not normally lie until the promisee has paid the third person's claim. Where he has paid, the amount so paid constitutes a debt due to him from the promisor which, save in certain exceptional circumstances, he may recover with interest in an action … 23 Hope JA saw no reason why the rule should not be applied to the liability which arises under s 64(1)(b). He said: … The employer, assuming that the circumstances described in the paragraph are satisfied, has a right of action in respect of each payment that he makes. The right of indemnity arises when he makes this payment and, prima facie, his right to interest is a right to interest from that time, that is, the time of payment. 24 His Honour also noted the fact that the liability of the tortfeasor was limited to the amount of the damages, referring to what was said by Barwick CJ in Tickle Industries Pty Ltd v Hann & Richardson (1974) 130 CLR 321 at 331. That circumstance did not limit the right of the employer to recover interest if he was otherwise entitled to it. 25 In his concluding remarks Hope JA added: As I have indicated, the right to the indemnity and the obligation of the tortfeasor arise upon the making of each payment of compensation by the employer to the worker. As from that time the employer has been out of pocket in respect of money which he is entitled to recover from the tortfeasor. I see no reason why, in the circumstances of the present case, the interest should not have been made to run as is contended for by the employer, that is from the time of the making of the respective payments of compensation to the worker. 26 Howard Rotavator was applied by the court in Kwanchi Pty Ltd v Kocsis (1996) 40 NSWLR 270, a case on s 151Z(1)(d). At issue was whether the employer, who was entitled to recover compensation payments made to a worker under the statutory indemnity, was also entitled to interest pursuant to the District Court Act on those payments for the periods between payment and recoupment. 27 The respondents also seek to distinguish Kwanchi on the basis that it was concerned with the payment of interest and not with the issue presently before the court. 28 Clarke JA noted that the employer had a statutory right of indemnity against the tortfeasor from the date upon which the employer pays compensation. His Honour expressly agreed with the analysis of Hope JA in Howard Rotavator. The employer was entitled to claim interest under s 83A of the District Court Act. Priestley JA agreed with Clarke JA. Handley JA also agreed but added additional reasons of his own. 29 After noting the lineage of s 151Z and referring to the judgment of Hope JA in Howard Rotavator, Handley JA said: The employer's right to indemnity under s 151Z(1)(d) accrues as and when each payment of compensation is made: see Attorney-General v Arthur Ryan Automobiles Ltd [1938] 2 KB 16. Prima facie therefore the employer being entitled under the statute to recover sums so paid as from the dates of payment is entitled to recover them with interest under s 83A. With respect I agree with the reasoning and conclusions of Hope JA in Howard Rotavator Pty Ltd v Wilson . 30 While Grant v Royal Rehabilitation Centre Sydney (1999) 47 NSWLR 263 is not directly relevant to the subject issue, Cole AJA made the point that if the amount claimed by way of indemnity is less than the amount of damages determined against the tortfeasor, an employer who is making continuing payments of compensation 'can further claim under the indemnity at a later point in time up to the limit of the sum determined as the amount of damages which the injured worker would have recovered at common law' [8]. 31 The court applied Howard Rotavator and Kwanchi in State of NSW (Government Cleaning Service) v Cooper (2000) 49 NSWLR 221. See, in particular, my judgment at [14] - [19] and [22], with which Meagher and Powell JJA agreed. 32 The most recent authority is Victorian Workcover Authority v Esso Australia Ltd (2001) 75 ALJR 1513, an appeal to the High Court from the Court of Appeal in Victoria. It concerned s 138 of the Accident Compensation Act 1985 (Vic), a provision similar to s 151Z. Again, the issue was the entitlement to interest. 33 In considering the nature of the indemnity in s 138, and in many workers' compensation statutes, the majority (Gleeson CJ, Gummow, Hayne and Callinan JJ) said: [18] Some of the indemnity provisions in worker's compensation statutes have been interpreted as conferring distinct rights of action against the tortfeasor which arise when each compensation payment is made by the employer or insurer and which will succeed if the other conditions laid down in the provision are satisfied. It may be taken, for present purposes, that s 138 is such a provision. 34 The authority for the proposition referred to in the quoted paragraph is Attorney-General v Arthur Ryan Automobiles Ltd. 35 Mr Hislop submits that the reference to 'an indemnity' in the words in parenthesis in subpara (d) of 151Z(1) supports his contention as to the proper construction to be given to the provision. That is, that when the first payment of compensation is made, the cause of action of indemnity first accrues. Mr Hislop submits that Grant and Esso both contemplate a procedure to deal with future payments of compensation and no res judicata arises. 36 The respondents also rely on arguments of fairness and public policy to assist in the construction which they urge. It is submitted that general principle and convenience dictates a single right of indemnity enlivened on receipt of the first compensation payment. That is, that there should be but one cause of action. The general principle is that all causes of action and rights said to arise from one set of facts should be dealt with on the one claim, Port of Melbourne Authority v Anshun (1981) 147 CLR 589. 37 However, the difficulty I have with this argument is that payment of compensation is necessary to enliven the statutory right of indemnity. Until that occurs, the employer does not have a complete cause of action. 38 As to fairness and public policy, the respondents submit that since the employer is not required to give any notice to the tortfeasor, delay may be oppressive to a defendant because of lost evidence and memory. Reliance is placed on the factors mentioned by McHugh J in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 552 - 553. 39 It is maintained that the construction urged by the appellant robs the limitation provisions of their raison d'etre. 40 I find myself unable to accept the construction contended for by the respondents. Subsection (d) of 151Z(1) refers to the 'compensation paid' to the worker, not to 'compensation paid or payable'. Common sense dictates that compensation payments may begin, cease, change in amount etc, depending on the course of the worker's injuries and treatment, and on decisions made by the insurer or employer. Payments may continue for many years. The nature of an indemnity is that the right to indemnification does not arise until a payment is actually made. This is inconsistent with the respondents' submission that at the moment of the first payment of compensation, the cause of action for that and all future payments of compensation accrues and time starts to run for the single cause of action. 41 Clearly time starts to run from the particular payment of compensation, but each payment is a separate transaction which attracts the statutory right of indemnity. I do not see that the reference to 'an indemnity' in the words in parenthesis makes any difference. 42 Further, I do not accept that the appellant's construction is contrary to general principle, fairness or public policy. The situation arises out of the nature of the indemnity and, while a common law indemnity is not identical to the statutory indemnity under s 151Z, it bears most of the same characteristics, see Hope JA in Howard Rotavator. 43 I can appreciate that in some circumstance a gross delay by the employer in taking action may cause prejudice to the tortfeasor. But the Limitation Act still applies and a tortfeasor would be wise to make inquiries when an employee entitled to workers' compensation is injured as a result of his negligence. 44 In any event, there may be inconvenience and unfairness arising from the respondents' construction of s 151Z, bearing in mind the nature of continuing workers' compensation payments. 45 As I said in Cooper at [22], if the legislature is concerned to overcome any anomalies in the system which it has created by statute, the remedy is in its hands. 46 It seems to me to be a matter of construction of the provision, which on its face is not consistent with there being a single cause of action only, which accrues from the first payment of compensation. 47 The weight of authority is also very much against the respondents' argument. In my view, the cases cannot be easily distinguished. True it is that none of the authorities concern the very issue arising in this appeal, the construction of s 151Z(1)(d) and the Limitation Act. Nonetheless, they involve almost identical legislation and an analysis of the underlying nature of the statutory indemnity. 48 Ryan's case makes sense when read today, 64 years on. The reasoning of Slesser LJ is equally relevant to 2002 and the NSW legislation. It has recently been endorsed by the High Court in Esso in relation to a substantially similar Victorian provision. That is, that a distinct right of action against the tortfeasor arises when each compensation payment is made by the employer. This is completely consistent with the analysis by Hope JA in Howard Rotavator, which has been applied by this Court in Kwanchi and Cooper. In particular, Kwanchi is directly relevant since it concerned the same provision with which we are concerned. The remarks of Handley JA, referred to earlier in these reasons, are pertinent. See also Cole AJA in Grant at [8]. 49 In my opinion, the appellant's contention should be upheld and the appeal allowed. The order of Gamble ADCJ dismissing the proceedings should be set aside and the matter remitted to the District Court.
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South Eastern Sydney Area Health Service
Gadiry and Anor
CITATION : South Eastern Sydney Area Health Service v Gadiry and Anor [2002] NSWCA 161 FILE NUMBER(S) : CA 40744/01 HEARING DATE(S) : 20 May 2002 JUDGMENT DATE : 31 May 2002
(2002) 54 NSWLR 495
(1996) 186 CLR 541
(1999) 47 NSWLR 263
(1987) 8 NSWLR 498
(1996) 40 NSWLR 270
(1981) 147 CLR 589
(2000) 49 NSWLR 221
(1974) 130 CLR 321
(2001) 75 ALJR 1513
(1993) 32 NSWLR 207
Appeal allowed; respondents ordered to pay appellant's costs of the appeal (with Suitor's Fund Act certificate if entitled); order dismissing proceedings by Gamble ADCJ set aside; respondents' Notice of Motion in District Court dismissed with costs; proceedings remitted to the District Court to be dealt with according to law (Stein JA [50]).