State of New South Wales v Fahy

Civil Procedure Act 2005 LEGISLATION CITED: Legal Profession Act 2004 Supreme Court Act 1970 Workers Compensation Act 1987

Government Insurance Office of New South Wales v Healy [No 2] (1991) 22 NSWLR 380 Heydon v NRMA Ltd [2001] NSWCA 445; 53 NSWLR 600 CASES CITED: National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386 New South Wales v Fahy [2007] HCA 20; 81 ALJR 1021 State of New South Wales v Fahy [2006] NSWCA 65

PARTIES: State of New South Wales (Appellant) Gemma Fahy (Respondent)

COUNSEL: Mr S Woods (Appellant) Ms S Norton SC / Ms E Welsh (Respondent)

SOLICITORS: I V Knight, Crown Solicitor (Appellant) L J Sharpe & Co (Respondent)

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40132/05

Thursday 20 March 2008 STATE OF NEW SOUTH WALES v Gemma FAHY JUDGMENT 1 BELL JA: This is a claim for restitutionary interest. The State of New South Wales by amended notice of motion claims orders that Ms Fahy pay interest on monies received by her pursuant to the terms of a stay granted in this Court pending the determination of it's appeal. 2 Ms Fahy was a member of the New South Wales Police at all material times. She suffered psychiatric injury in the course of her employment. From the date of her injury she commenced receiving workers' compensation weekly payments. She had joined the Police in February 1996 and her entitlement to workers' compensation payments was subject to clause 9 of the Crown Employees (Police Officers - 2005) Award, which provided: " 9 Top-Up Supplementation of Workers' Compensation (i) This clause shall apply to officers who commenced employment with New South Wales Police on or after 1 April 1988 and who are in receipt of workers' compensation payments pursuant to the Workers Compensation Act 1987 with respect to any injury or illness arising out of or in the course of their employment as a police officer. (ii) New South Wales Police shall pay to any officer, as defined in sub-clause (i) above, the difference between the statutory amount of any workers' compensation payments received by the officer and the ordinary rate of pay of the officer. (iii) The officer's entitlement to sick leave shall not be affected by this clause. (iv) The provisions of this clause shall only apply whilst ever an officer remains an employee of New South Wales Police." 3 Ms Fahy brought proceedings in negligence against the State in the District Court seeking to recover damages arising out of her injury. The trial of her claim came before Graham DCJ sitting without a jury. 4 On 28 February 2005 Graham DCJ gave judgment for Ms Fahy in the sum of $469.893.00. On 7 March 2005 his Honour stayed the judgment on conditions which included that the State pay $200,000.00 to Ms Fahy within 14 days of the order and that it continue to pay to her workers' compensation weekly payments.

5 By 9 May 2005 the State had commenced proceedings in this Court. On that day Hodgson JA dealt with an application for an unconditional stay of the judgment. His Honour observed that the effect of the judgment in the District Court was to bring to an end Ms Fahy's rights to workers' compensation and, thus, that the condition imposed by Graham DCJ was to be understood as one which required that money be paid to Ms Fahy on account of the judgment at the same rate as workers' compensation payments. His Honour made an order in these terms (the order): "[9] The order I make is that the judgment is stayed until the hearing of the appeal on condition that the appellant expeditiously pursue the appeal, on condition that $100,000.00 is paid on account of the verdict within 14 days, and on condition that payments on account of the verdict are made at the rate of $500.00 per week starting today." 6 On 23 May 2005 the State paid Ms Fahy $100,00.00 in accordance with the order.

7 Throughout the period between the making of the order and the date of the judgment in the High Court Ms Fahy was paid weekly payments which corresponded to the "topped-up" workers' compensation payments to which she would have been entitled under the Police Officers - 2005 Award. Between 6 May and 20 October 2005 she was paid approximately $1,619.99 fortnightly. From 21 October 2005 to 13 July 2006 she was paid approximately $1,782.03 fortnightly. From 14 July 2006 until 11 January 2007 she was paid approximately $1,813.37 fortnightly. From 12 January 2007 until 14 June 2007 she was paid approximately $1,847.64 fortnightly. Throughout this period Ms Fahy submitted to WorkCover certificates in which she named her treating doctor and consented to that doctor, the New South Wales Police, the insurer, other treating practitioners, rehabilitation providers, WorkCover appointed injury management consultants and WorkCover NSW exchanging information for the purposes of managing her injury and workers' compensation claim. 8 The $100,000.00 which was paid by the State on 23 May 2005 was received on Ms Fahy's behalf by her solicitor, Mr Sharpe, and was applied in payment of his fees and disbursements which included counsel's fees in connection with the proceedings in the District Court. Ms Fahy did not receive any of these monies herself. 9 On 4 April 2006 judgment was delivered on the appeal: State of New South Wales v Fahy [2006] NSWCA 64. The Court remitted the proceedings to the District Court for the determination of the allowance to be made for Ms Fahy's failure to mitigate. The State was ordered to pay three-quarters of Ms Fahy's costs of the appeal. 10 The State sought special leave to appeal to the High Court. On 1 September 2006 the High Court granted special leave on condition that the State not seek to disturb the costs orders made below and that it pay Ms Fahy's costs of the appeal before it. 11 On 22 May 2007 the High Court gave judgment upholding the appeal, setting aside the orders made in this Court and in the District Court and directing that judgment for the defendant be entered in the District Court. The State was ordered to pay Ms Fahy's costs of the appeal: New South Wales v Fahy [2007] HCA 20; 81 ALJR 1021. 12 On 5 December 2006 Mr Sharpe submitted his memoranda of fees in respect of all the work that had been performed on Ms Fahy's behalf in the proceedings to the Crown Solicitor's Office who were acting on behalf of the State. 13 On 8 June 2007 Ms Weremczuk, the solicitor with the conduct of the matter in the Crown Solicitor's Office, wrote to Mr Sharpe saying, inter alia: "As you will recall, on 9 May 2005, Justice Hodgson ordered that my client pay to your client the sum of $100,000.00 as a condition of the stay on the judgment of the District Court. That amount was paid to your client on 23 May 2005. Further, Justice Hodgson also ordered that your client be paid $500.00 per week on account of the verdict. In light of the High Court judgment and the orders made, the above amounts, together with interest, are now repayable to my client. I have requested formal instructions from my client to seek the repayment of those amounts. Once I have received instructions, I will be in further communication with you. It may be that my client would consider the possibility of offsetting the repayment of those amounts against the legal costs that are to be paid to your client. On receipt of instructions, these may be matters for discussion with you." 14 Mr Sharpe responded to this letter on 25 June 2007 in these terms: "We note the contents of your letter as to the amount of money paid to our client and that our client was to be paid $500.00 per week on account of the verdict. We note that as a result of the High Court's decision that the verdict has been set aside and that there be a verdict for the Defendant. In these circumstances the plaintiff will continue to be entitled to workers' compensation payments from the date of the incident to date and will continue to be so entitled. While the sum of $500.00 per week which is being paid to the plaintiff is repayable your client will owe our client workers' compensation payments in any event. In these circumstances there will obviously need to be an accounting of the monies paid to our client and the monies owed to her by way of Workers' Compensation payments. No doubt your client can attend to this. As to the sum of $100,000.00 we note that your client is to pay our client's costs of all the lower court proceedings and the High Court proceedings. This costs order will obviously exceed the $100,000.00 paid to our client in this regard we believe there should be a set-off. We note that we have previously forwarded a Memorandum of Costs and Disbursements to you. Apparently this is with your Costs Consultants. We note that we have forwarded the file for preparation of an assessment to our Costs Consultants. We hope to hear from them in the immediate future." 15 On 10 July 2007 Ms Weremczuk advised Mr Sharpe that the memoranda of costs that he had submitted were being considered by the Crown's costs consultants whose advice was expected shortly. She asked that Mr Sharpe not proceed with a formal costs assessment in the meantime. Mr Sharpe responded, noting that he had submitted his memoranda eight months earlier and advising that he had instructions to proceed to a formal assessment of costs. 16 On 14 August 2007 Ms Fahy accepted the State's offer of $230,000.00 in satisfaction of her claim for the costs of the District Court proceedings and the proceedings in this Court (Mr Sharpe's letter of 14 August 2007 refers to acceptance of the Crown's offer in relation to the District Court costs claimed - it is acknowledged this was an error). On 31 August 2007 the parties agreed that the State would pay Ms Fahy the sum of $136,800.00 in satisfaction of her claim for her costs of the proceedings in the High Court. In total, the State acknowledged its indebtedness to Ms Fahy in the sum of $366,800.00 for her costs that were the subject of the orders to which I have referred. 17 On 27 September 2007 the State paid $232,213.28 to Ms Fahy representing the sum of $366,800.00 less the $100,000.00 paid to her pursuant to the order and $18,421.02, being interest on the this sum calculated at the Schedule 5 rate. The amount of $16,165.70 was also deducted from the settlement monies. This deduction was characterised by Ms Weremczuk, in a covering letter dated 27 September 2007, in this way: "being the amount paid over and above the weekly statutory rate of Workers' Compensation payments and $500 per week from 9 May 2005 to 22 May 2007. (106 weeks)." It is not apparent how the sum of $16,165.70 was arrived at.

18 Mr Sharpe protested the deduction of the interest and the $16,165.70 sum. There followed an exchange of correspondence between the parties on this topic. On 25 October 2007 Ms Fahy commenced proceedings in the District Court to recover the sum of $34,586.72. Her cause of action is pleaded in contract and, in the alternative, for money had and received. 19 Following the commencement of the District Court proceedings the State brought the present motion. The motion was filed on 22 November 2007. The following orders were claimed: "1. The respondent to repay to the appellant the amount of $100,000.00; 2. The respondent to pay to the appellant interest on the amount of $100,000.00 referred to in Order 1 calculated at the rates prescribed by Schedule 5 to the Uniform Civil Procedure Rules 2005 from 23 May 2005 until to the date of notional repayment of the said amount, being 27 September 2007; 3. The respondent to repay to the appellant the amount of $53,000.00, (being the total of the weekly payments paid by the State of New South Wales to Ms Gemma Fahy); 4. The respondent to pay to the appellant interest on each payment of $500 (being the weekly amounts referred to in Order 3) calculated at the rates prescribed by Schedule 5 to the Uniform Civil Procedure Rules 2005 from the date of each payment until the date of notional repayment, being 27 September 2007." 20 When the motion came on for hearing the State moved on an amended motion which claims orders in the same terms as those set out, save that in prayer 3 the sum claimed is $52,500.00. (It is acknowledged that the period from 9 May 2005 to 22 May 2007 is of 105 weeks). The period in which interest is claimed on the weekly payments of $500.00 has been confined to the period between the date of each payment and 22 May 2007, being the date on which the High Court delivered judgment. 21 The State does not press a claim for the repayment of $52,500.00. It acknowledges that this sum has been set-off against Ms Fahy's entitlement to workers' compensation payments. (Ms Weremzcuk's affidavit sworn on 28 February 2008.) The sum claimed in prayer 1 has been deducted from the amount paid to Ms Fahy by the State on account of her costs and this deduction is not the subject of dispute. At issue are the State's claim to interest which are the subject of prayers 2 and 4.

22 The motion came before me as a single judge exercising the powers of the Court of Appeal under s 46 of the Supreme Court Act 1970 (the SCA). In Government Insurance Office of New South Wales v Healy [No 2] (1991) 22 NSWLR 380 Kirby P sitting as a single judge dealt with a motion claiming relief of this description. His Honour approached the application on the basis that it did not involve the determination of the appeal (since that had already occurred) and that the issue was incidental to the primary function of the Court of Appeal in the appeal and, thus, within s 46(2)(b) (at 382G). His Honour observed (at 384-385): "There is no reason why the claimants should be put to the inconvenience and further delay of brining proceedings in another court for the recovery of the over-payment. It was faintly suggested that the judgment in the Court of Appeal had already taken effect and that in some way that might prevent an order being made on the present motion. The Court was informed that the judgment had not yet been entered. But it was said that the judgment of the Court of Appeal had been given in Court and was thus effective as of the date on which it was given pursuant to Pt 40, r 3(1)(a) of the Supreme Court Rules . In my opinion, this is beside the point. Although the Court determining the appeal might have added to its orders (had it been alerted to the possibility of a problem such as the present) a further order that the amount of excess payment should be refunded, there is no reason why I cannot now so order. There is nothing in the orders of the Court disposing of the appeal which would be inconsistent with such an order. On the contrary, such an order made by me would not only be consistent with the orders of the Court. It would assist the attainment of the purpose of those orders. I am authorised to provide the relief by the terms of s 46(2)(b). The order for repayment is one in the appeal, being incidental to the judgment which the Court has pronounced." 23 Neither of the parties submitted that the application should be referred to the Court as constituted on the hearing of the appeal or otherwise. There was no occasion to claim an order for restitution at the time this Court delivered judgment. It does not appear that an order for restitution with interest was sought on the hearing of the appeal in the High Court. Mr Woods, who appeared on behalf of the State, submitted that it would not be appropriate to trouble the High Court with the matter. Ms Norton SC, who with Ms Welsh appeared on behalf of Ms Fahy, acknowledged that this was so. I consider that I have the power to make the orders that are sought. 24 In Mr Woods' submission, the State has an entitlement to an order for interest on the capital sum and on each weekly payment: Heydon v NRMA Ltd [2001] NSWCA 445; (2001) 53 NSWLR 600 per Mason P (with whom Beazley JA and Ipp JA agreed) at 604, [14]: "In brief, restitution is available regardless of the means whereby the judgment is discharged; and restitution with interest is the right of the ultimately successful party (see esp Rodger v Comptoir d'Escompte de Paris (1871) LR 3 PC 465; Commonwealth v McCormack (1984) 155 CLR 273; TCN Channel Nine Pty Ltd v Antoniadis (No 2) (1999) 48 NSWLR 381."

25 Ms Norton submitted that the foundation for the award of restitution with interest is the concept of unjust enrichment (Mason P in Heydon at 603, [14]) and in this case there is none. 26 Dealing firstly with the claim for interest on the capital sum, Ms Norton submitted that Ms Fahy had the benefit of costs orders in her favour throughout the period 23 May 2005 to 27 September 2007. She had led evidence to establish that the $100,000.00 payment was applied in partial payment of her costs of the District Court proceedings. This sum that was received on account of the judgment was less than that to which she was entitled on account of her costs pursuant to the orders. 27 In Mr Woods' submission the circumstance that the monies had been applied in payment of Ms Fahy's legal costs was not to the point. The $100,000.00 was Ms Fahy's to deal with as she chose. The State had been deprived of the use of the money throughout the period. It had not received a costs assessment certificate in respect of Ms Fahy's costs of the proceedings: The State only become liable to Ms Fahy for a specified sum on account of her costs when the parties made the agreement on or about 31 August 2007. 28 Mr Woods drew attention to the correspondence between the parties' solicitors, submitting that Ms Weremzcuk had made clear that the State was seeking to recoup (i) the $100,000.00, (ii) the weekly payments and (iii) interest, and that Mr Sharpe did not demur. 29 In his letter of 25 June 2007 Mr Sharpe proposed that the $100,000.00 be set-off against Ms Fahy's costs, which he observed obviously exceeded this amount. He did not refer to the question of interest either on the $100,000.00 or on the costs paid by Ms Fahy which were the subject of her claim against the State.

30 Throughout the period that is the subject of the present claim the State was subject to the order that it pay Ms Fahy's costs of the District Court proceedings. In the period 6 April to 6 September 2006 its obligation extended to the payment of three-quarters of her costs in this Court and from 6 September 2006 its obligation extended to payment of her costs in the High Court. It is true that the amount of the costs was not known until December 2006 at the earliest when Mr Sharpe submitted his memoranda of costs and at no time prior to the parties' agreement was the State served with a costs assessment certificate under the provisions of the Legal Profession Act 2004 (NSW). Nonetheless, during the whole of the period from 23 May 2005 until 27 September 2007 the State was under a legal obligation to pay Ms Fahy's fair and reasonable costs of the proceedings in the District Court. Ms Fahy led evidence of the payment of the $100,000.00 in satisfaction of her costs of the District Court proceedings. The significance of the evidence to my mind is that from the date of the payment the State was at risk of an order that it pay interest on the costs: s 101(5)(a) of the Civil Procedure Act 2005.

31 In Heydon at 606, [17] Mason P set out a passage from the judgment of Brooking J in National Australia Bank Ltd v Bond Brewing Holdings ([1991] 1 VR 386 at 597), which expresses the principle in this way: "This survey shows that the principle on which the courts have for centuries acted is that when an erroneous judgment or order is overturned, whether by means of appeal or by any other procedure, the court will achieve a just result by requiring anything that has been taken from him by the other party by virtue of the wrong decision to be restored."

The amount received by Ms Fahy on account of the erroneous judgment was throughout the period when it was in her hands not greater than the amount that it is acknowledged the State was bound to pay her on account of her costs of the proceedings. I accept Ms Norton's submission that in the circumstances of this case the Court is not required to order the payment of interest on the restitutionary sum in order to achieve a just result.

32 Section 151A(1) of the Workers Compensation Act 1987 (NSW), provides that if a person recovers damages in respect of an injury from the employer liable to pay compensation under the Act she ceases to be entitled to any further compensation under the Act. Throughout the period from 9 May 2005 to 22 May 2007 Ms Fahy received weekly payments corresponding to the amount of weekly compensation payments to which, as a police officer, she was entitled under the award. In this period there was a judgment in Ms Fahy's favour awarding her damages for her injury, which was stayed. On 22 May 2007 the judgment was set aside. The State's claim for interest on the weekly payments arises because in the period after it paid $100,000.00 to Ms Fahy as a condition of the stay and before the judgment was set aside by order of the High Court, the source of its obligation to pay $500.00 of the amount of the weekly payments that it made to Ms Fahy was the order. This is because she had recovered damages in respect of her injury with the consequence that her entitlement to workers' compensation had ceased. The source of any obligation to pay the balance of the amount that was paid to Ms Fahy throughout the period was not explained. 33 Ms Norton did not accept that the payments made to Ms Fahy were properly characterised as periodic payments made pursuant to the order. Throughout the period the State paid an entirely different amount to Ms Fahy, being the amount of her entitlement under the award to workers compensation payments. In Ms Norton's submission, the receipt of $100,000.00, on which the stay of the judgment of the District Court was conditioned, did not amount to the recovery of damages within the meaning of s 151A(1). 34 Whether the State's legal obligation to pay weekly workers' compensation payments to Ms Fahy ceased on 23 May 2005 when she received the $100,000.00 payment is not determinative of the application. The State acted throughout the period when the judgment of the District Court was stayed on the basis that Ms Fahy was entitled to receive weekly compensation payments in accordance with the provisions of the award. Following the delivery of judgment in the High Court, the State accepts that Ms Fahy is entitled to receipt of workers' compensation payments in the amount actually received throughout the period. This is reflected in the set-off of the payments against that entitlement. An order that Ms Fahy pay interest on the component of $500.00 of each weekly payment received in the period would confer a windfall on the State.

ORDERS 1. Dismiss the amended notice of motion. 2. The appellant is to pay the respondent's costs. **********

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