STATE RAIL AUTHORITY OF NSW v SUN ALLIANCE & ROYAL INSURANCE AUSTRALIA LIMITED

Court of Appeal (NSW)|2003-09-16|Before: Mason P, Sheller JA, Spigelman CJ

Reported Decision : 58 NSWLR 561 (2004) 13 ANZ Insurance Cases 61-588

CITATION : STATE RAIL AUTHORITY OF NSW v SUN ALLIANCE & ROYAL INSURANCE AUSTRALIA LIMITED [2003] NSWCA 288 HEARING DATE(S) : 16 September 2003 JUDGMENT DATE : 3 October 2003

JUDGMENT OF : Mason P at 1; Sheller JA at 27; Foster AJA at 28 DECISION : Appeal dismissed with costs.

LOWER COURT District Court JURISDICTION : LOWER COURT DC 8831/2001 FILE NUMBER(S) : LOWER COURT R A Rolfe DCJ JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40456 of 2002 DC 8831 of 2001

MASON P SHELLER JA FOSTER AJA

STATE RAIL AUTHORITY OF NSW v SUN ALLIANCE & ROYAL INSURANCE AUSTRALIA LIMITED An SRA employee was injured in the course of his employment due to the negligence of a fellow employee, who was driving a crane insured by the respondent (the insurer) under a motor vehicle third party policy. The insurance policy provided both SRA and the fellow employee with a statutory right of indemnity (s9 Motor Accidents Act 1988, now s10 Motor Accidents Compensation Act 1999).

SRA sued the insurer in the District Court seeking indemnity under the insurance policy in relation to money paid as workers compensation to the injured employee. Judge Rolfe held that the motor vehicle insurance policy did not cover such payments, and the proceedings were dismissed. Judge Rolfe also rejected an argument for indemnity based on s151Z(1)(d) of the Workers Compensation Act 1987. He held that this provision had no application because s3 of the Employees Liability Act 1991 had removed any liability of the negligent employee to pay damages to his employer in the circumstances. This appeal arises out of the rejection of the s151Z(1)(d) argument.

HELD, per Mason P (Sheller JA and Foster AJA agreeing), dismissing the appeal with costs:

Section 151Z(1)(d) confers no right of indemnity against the insurer because the insurer was itself never liable to pay damages to the injured employee. [13]-[14] (a) Nothing in the language or history of s151Z places liability on the insurer of the negligent "stranger". [20]-[22] (b) Section 151Z recognises the distinction between a liability to pay damages and a liability to indemnify: Zurich Australian Insurance Ltd v CSR Ltd (2001) 52 NSWLR 193 at 212 per Spigelman CJ. [23] (c) An indemnity under s151Z(1) can only be sought from the person with liability to pay damages in respect of the injury. That person is the negligent fellow employee (and SRA as his employer), not the insurer. [24] ***********

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40456 of 2002 DC 8831 of 2001

MASON P SHELLER JA FOSTER AJA

STATE RAIL AUTHORITY OF NSW v SUN ALLIANCE & ROYAL INSURANCE AUSTRALIA LIMITED JUDGMENT

1 MASON P: Mr Harbour was employed by the appellant (SRA) on 10 February 1991 when he was injured in the course of employment. He was helping remove trees on the eastern side of the railway line near Turramurra railway station. The injury occurred, according to SRA's allegation in the pleadings, due to the negligence of a fellow employee, Mr Robinson. Mr Robinson was driving a mobile crane that belonged to SRA. The crane was insured under a motor vehicle third party policy issued by the respondent (the insurer) under the Motor Accidents Act 1988. That policy provided both SRA and Mr Robinson with a statutory right of indemnity (see s9 of that Act, now s10 of the Motor Accidents Compensation Act 1999). 2 Mr Harbour commenced District Court proceedings for damages against Mr Robinson in 1994, but discontinued them in 1996. 3 SRA was a self-insurer for workers compensation purposes. It commenced paying compensation to Mr Harbour pursuant to an award. On 24 September 1999 the Compensation Court approved the commutation of Mr Harbour's entitlements. SRA has paid Mr Harbour compensation totalling $138,850.48 plus costs of $8,025.92. 4 In 2000 (in District Court proceedings 6892/2000) SRA sued the insurer seeking indemnity under the policy in relation to the money paid to Mr Harbour under the orders of the Compensation Court. Alternatively, SRA sought contribution based upon the principles of double insurance and the allegation that SRA and the insurer had each effectively covered Mr Harbour in respect of the same loss. 5 The insurer obtained the summary dismissal of the 2000 proceedings. Judge Rolfe held that the principles of double insurance did not apply in the circumstances. (This part of this decision is no longer in dispute: see Zurich Australian Insurance Ltd v CSR Ltd (2001) 52 NSWLR 193.) The learned judge further held that the policy did not in terms cover the workers compensation payments made by SRA to Mr Harbour. He also rejected an argument based upon s151Z(1)(d) of the Workers Compensation Act 1987, holding that that provision had no application because s3 of the Employees Liability Act 1991 had removed any liability of Mr Robinson to pay damages to his employer in the circumstances. 6 In 2001 SRA commenced the current proceedings against the insurer (District Court proceedings 8831/2001). It pleaded the motor vehicle insurance policy; the accident in the course of employment; the negligence of Mr Robinson as the cause of Mr Harbour's injuries; and the payments to Mr Harbour pursuant to the orders of the Compensation Court. SRA claimed contribution and/or indemnity from the insurer. 7 Once again the insurer sought and obtained an order for summary dismissal. Judge Woods QC held that the 2000 and 2001 proceedings were substantially the same. He also agreed with the reasoning of Rolfe DCJ. 8 This appeal is brought by leave from the orders of Woods DCJ, but it is in substance a challenge to the reasons of Rolfe DCJ when he dismissed the 2000 proceedings. 9 The respondent accepts that the orders made by Rolfe DCJ were not final orders, but it would contend if necessary that the second proceedings were an abuse of process. SRA points to differences in the details of the pleadings, and it raises legal arguments that were not put to Rolfe DCJ. The question of abuse of process does not arise if SRA's claim is doomed in any event. 10 SRA no longer presses an argument based upon the principles of double insurance. Nor does it suggest that the motor vehicle policy responds directly to SRA's liabilities incurred under the Workers Compensation Act. 11 The sole remaining claim is said to arise under s 151Z (1) (d). 12 It is appropriate to set out the entire section: 151Z. Recovery against both employer and stranger

(1) 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: (a) the worker may take proceedings both against that person to recover damages and against any person liable to pay compensation under this Act for payment of that compensation, but is not entitled to retain both damages and compensation, (b) if the worker recovers firstly compensation and secondly those damages, the worker is liable to repay out of those damages the amount of compensation which a person has paid in respect of the worker's injury under this Act, and the worker is not entitled to any further compensation, (c) if the worker firstly recovers those damages the worker is not entitled to recover compensation under this Act, (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), (e) if any payment is made under the indemnity and, at the time of the payment, the worker has not obtained judgment for damages against the person paying under the indemnity, the payment is, to the extent of its amount, a defence to proceedings by the worker against that person for damages, (e1) if any payment is made under the indemnity and, at the time of the payment, the worker has obtained judgment for damages against the person paying under the indemnity (but judgment has not been satisfied), the payment, to the extent of its amount, satisfies the judgment, (f) all questions relating to matters arising under this section are, in default of agreement, to be settled by action or, with the consent of the parties, by the Commission. (2) If, in respect of an injury to a worker for which compensation is payable under this Act: (a) the worker takes or is entitled to take proceedings independently of this Act to recover damages from a person other than the worker's employer, and (b) the worker also takes or is entitled to take proceedings independently of this Act to recover damages from that employer, the following provisions have effect: (c) the damages that may be recovered from the person by the worker in proceedings referred to in paragraph (a) are to be reduced by the amount by which the contribution which the person would (but for this Part) be entitled to recover from the employer as a joint tortfeasor or otherwise exceeds the amount of the contribution recoverable, (d) the amount of the contribution that the person is entitled to recover from the employer as a joint tortfeasor or otherwise is to be determined as if the whole of the damages were assessed in accordance with provisions of Division 3 as to the award of damages, (e) if the worker does not take proceedings against that employer or does not accept satisfaction of the judgment against that employer, subsection (1) applies as if the worker had not been entitled to recover damages from that employer, except that: (i) if the compensation paid by that employer exceeds the amount of the contribution that could be recovered from that employer as a joint tortfeasor or otherwise---the indemnity referred to in subsection (1) (d) is for the amount of the excess only, and (ii) if the compensation paid by that employer does not exceed the amount of that contribution---subsection (1) (d) does not apply and the employer has, to the extent of the compensation so paid, a defence to an action for such a contribution. (3) This section applies to proceedings taken independently of this Act by a person to whom compensation is payable under this Act in respect of the death of a worker as a result of an injury. (4) If a worker is liable under subsection (1) (b) to repay any money out of damages recovered by the worker, the worker is not liable to repay the money out of any damages payable after the date of recovery by way of periodic or other payments for loss of future earnings or earning capacity or for future expenses. (5) For the avoidance of doubt, this section applies and is taken always to have applied to the recovery of compensation or damages, whether or not the compensation or damages were paid under an award or judgment. For example, compensation or damages may be paid under an agreement.

13 The insurer submits that s151Z(1)(d) confers no right of indemnity against it, because it was never liable to Mr Harbour to pay damages in respect of his injury. The only person who could ex hypothesi have incurred such a liability was Mr Robinson. There is no suggestion that Mr Robinson is dead or unable to be served (cf Motor Accidents Act 1988, s54 which gives a person who is entitled to bring proceedings arising out of a motor vehicle accident a right to proceed directly against the insurer in such limited circumstances). 14 These submissions should be accepted. 15 SRA agrees that s151Z focuses upon the rights and obligations of the primary parties involved in an event giving rise to an injury generating concurrent liabilities to pay damages and compensation. However, it submits that the section goes further, extending (as regards subsection (1)(d) at least) to a person liable to indemnify the non-employer with respect to the latter's liability to pay damages in respect of the worker's injury. 16 This elides the right of indemnity conferred by s151Z(1)(d) with the separate right of indemnity stemming from s9 of the Motor Accidents Act 1988. 17 Nothing in s151Z gives any support to this argument. 18 The section confers rights and imposes liabilities upon "the worker". Obviously these are rights and liabilities involving the worker personally, and the proceedings that the worker is entitled to bring are proceedings in the worker's own name that arise out of a wrong done to the worker. 19 The section also imposes liabilities upon and recognizes that proceedings may be brought against "the employer" of the worker. Once again, there is no doubt about the identification of that party. 20 The heading refers to recovery against "both employer and stranger". The latter is the party referred to throughout as the "person other than the worker's employer". The opening part of subsection (1) recognizes that the "stranger" may incur "liability… to pay damages in respect of the injury". Rights and obligations are conferred upon that same person in various circumstances (see s151Z(1)(a), (d), (e)). That same person is viewed as the potential object of proceedings by the worker for damages (see s151Z(1)(e), (2)(a)) or proceedings for contribution as a joint tortfeasor with the employer (see 151Z(2)(c), (d)). Again, there could be no doubt about the identity of such person, being the person upon whom a tortious or statutory obligation is primarily laid having regard to that person's involvement in the relevant accident. That person may, of course, be someone vicariously liable for the fault of another (cf also Kornjaca v Steel Mains Pty Ltd [1974] 1 NSWLR 343 at 347, Gumley v Commissioner for Government Transport (1964) 65 SR(NSW) 403 at 407, Franklins Self Serve Pty Ltd v Wyber (1999) 48 NSWLR 249). But nothing in the language or history of the section points to that person's insurer. 21 None of these provisions are capable of referring to the insurer who may be standing behind a person in whom any of those rights or obligations are vested. 22 The exception to this symmetry is the claimant under s151Z(1)(d). The words "the person by whom the compensation was paid" include any insurer that pays compensation as well as the employer on whose behalf and at whose request compensation is paid (cf Cockatoo Docks & Engineering Co Pty Ltd v Dalgety & Co Ltd (1939) 39 SR(NSW) 295 at 303-4). This exception is justified by the language used, the long history of compulsory workers compensation insurance and the practice of insurers paying injured workers directly. Nothing in the language of the provision or its history suggests any similar insurance consideration applies as regards the party potentially liable under the provision. Often that party may be uninsured. 23 The law distinguishes between the primary obligation of a person, arising under a tortious, statutory or contractual obligation directly owed to another, and the secondary obligation of a guarantor or insurer who may be bound to indemnify the person primarily liable and whose indemnity is quantified by reference to the primary obligation (see, eg Zurich Australian Insurance Ltd at 212 [97] per Spigelman CJ). Section 151Z itself recognizes the distinction between a liability to pay damages and a liability to indemnify. It has been held that a claim for indemnity under s151Z(1)(d) (in relation to a motor accident) is not a claim for damages under the Motor Accidents Act 1988. 24 The only trigger for the right conferred by s151Z(1)(d) is a liability to pay damages in respect of an injury which also happens to be compensable under the Act. The only person with such potential liability is Mr Robinson (and his employer, SRA). 25 Had Mr Robinson been sued by Mr Harbour, then he (Mr Robinson) could have sought indemnity under the policy, but that would not be an indemnity right conferred by s151Z. Had Mr Robinson's employer (ie SRA) been sued for damages by Mr Harbour in respect of its vicarious liability, then SRA could not have sought indemnity from Mr Robinson, because of s3(1)(a) of the Employees Liability Act 1991. But this too goes nowhere as regards the claim presently at issue. 26 The appeal should be dismissed with costs. 27 SHELLER JA: I agree with Mason P. 28 FOSTER AJA: I agree with Mason P. **********

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