Susan Buswell v TAL Life Limited

Plaintiff's contentions

1. The plaintiff's submission was straightforward. A damages award for personal injury is not income, but capital and therefore could not be said to be income for the purposes of the definition of Other Disability Income. Damages are awarded not for the loss of income as such, but for the loss of earning capacity in so far as that is productive of financial loss. Earning capacity is a capital asset. An award of damages is not taxable because it does not fall within the ordinary concept of income (Sydney Refractive Surgery Centre Pty Ltd v Commissioner of Taxation [2008] FCA 454; (2008) 247 ALR 313 at [44]-[45]; Graham v Baker (1961) 106 CLR 340 at 346-7; Atlas Tiles Ltd v Briers (1978) 144 CLR 202 at 223 (per Gibbs J); Cullen v Trappell (1980) 146 CLR 1 at 11, 39; Medlin v State Government Insurance Commission (1995) 182 CLR 1 at 16; CSR Limited v Eddy (2005) 226 CLR 1; [2005] HCA 64 at [30]). The same is true of a sum paid by way of compromise of a claim for damages for personal injury.
2. The plaintiff also submitted that the payment in satisfaction of the plaintiff's claim for damages was not a benefit under a workers' compensation scheme or under workers' compensation legislation. (See para (b) of the definition.) Although the WC Act modified the damages that can be awarded in respect of an injury caused by the negligence or other tort of a worker's employer and the WIM Act regulated the steps to be taken in bringing a claim for work injury damages, neither Act provides the source of the right to bring the claim for damages. The claim is brought under the common law as is recognised by the heading to Div 3 of Pt 5 of the WC Act, namely "Modified common law damages" (Grljak v Trivan Pty Ltd (in liq) (1994) 35 NSWLR 82 at 87-88 (per Mahoney JA, Kirby P and Priestley JA agreeing); Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364; [2006] HCA 32 at [23] (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ, [73] per Kirby J).
3. The WC Act distinguishes between payments of statutory compensation which are called "benefits" and common law damages. Section 151 of the WC Act preserves the common law remedy of damages, except to the extent the Act expressly otherwise provides. Part 5 of the WC Act modifies the damages available at common law, but the modified damages that may be recoverable are not "benefits" within the meaning of the WC Act.
4. Mr Cavanagh SC, who appeared with Mr Ower for the plaintiff, also submitted that because the definition of Other Disability Income operated as a qualification or exception to the scope of cover, it should not be given a liberal construction but should be construed narrowly.
5. I do not agree with the last submission. The decision which was said to support the proposition, McLennan v Insurance Australia Ltd [2014] NSWCA 300; 313 ALR 173 (and the decisions to which it refers) concerns the onus of proving the existence or non-existence of fact (at [7]), a matter which was not in issue in these proceedings.
6. But it does not follow that a liberal construction to the definition of Other Disability Income should be adopted either. It can be inferred, and I was invited to infer, that the policy was arrived at as a result of a negotiation between the insurer and FSS Trustee Corporation Pty Ltd acting in the interests of members of the First State Superannuation Scheme. I accept that no contra proferentem principle of construction should be adopted. It may be taken that both parties were substantial commercial organisations with access to legal advice and with knowledge of the basis upon which damages for personal injury are assessed at common law, the distinction drawn in the workers' compensation legislation between benefits payable under the legislation and work injury damages, and the fact that in the absence of special stipulation in relevant legislation concerning the calculation of damages, pensions and income insurance are to be enjoyed independently of and cumulative to the right to damages (National Insurance Co of New Zealand Ltd v Espagne (1961) 105 CLR 569 at 573 per Dixon CJ and at 588; Manser v Spry (1994) 181 CLR 428 at 436; New South Wales v Davies (1998) 43 NSWLR 182 at 193).

Defendant's contentions

1. TAL's response was largely one of confession and avoidance. It did not dispute that for the purposes of taxation the settlement sum would be treated as capital and not income. TAL did not dispute that common law damages were not "benefits" as that word was used in the WC Act. But it said that the definition used the word "income" in a wide sense and subparagraphs (a)-(d) informed the meaning to be given the word income in the chapeau to the definition to indicate that it extended to any benefits received by the Insured Person. Three components of the policy were relied upon.
2. First, TAL submitted that the definition of Other Disability Income in the chapeau was wide. The term was defined to mean not just "income", but "any income". The income did not need to be "earned". It was sufficient if it were "derived" by the Insured Person. It submitted that the clause admitted of the possibility that damages awarded to an injured worker who was an eligible member or a lump sum settlement obtained following a claim for workplace injury damages could fall within the meaning of the clause if they did not otherwise fall within the examples of income set out in paras (a)-(d) of the definition.
3. This submission did not address the fact that according to ordinary concepts the receipt of damages for personal injury, or a settlement sum in compromise of a claim for damages for personal injury, is capital and not income. The reason that income tax is not payable on the settlement sum is not because of any special provision peculiar to taxation law, but because it is not income according to ordinary concepts (Income Tax Assessment Act 1997 (Cth), s 6-5(1)).
4. The word "income" in the chapeau to the definition is to be given its ordinary meaning. That meaning may be extended or clarified by the subparagraphs (a)-(d) of the definition. That is the typically intended effect of a definition that says that a word or phrase means X and includes Y (Transport Accident Commission v Hogan [2013] VSCA 335 at [47]; Hagipantelis v Legal Services Commission of New South Wales (2010) 78 NSWLR 82, 88; [2010] NSWCA 79 at [20]; Pearce and Geddes, Statutory Interpretation in Australia (8th ed, 2014) at [6.64]).
5. I do not accept that paragraphs (a)-(d) have the effect of allowing the word "income" where it is used in the chapeau to the definition to be read as "benefit" or "monetary benefit", whether capital or income.
6. In oral submissions Dr Bell SC, who appeared with Mr Mehigan for TAL, submitted that having regard to the whole of the definition of Other Disability Income the word "income" should be understood as referring to any benefits whether or not those benefits would be classified as income for the purposes of income tax law. But, the authorities on the treatment of awards of damages for personal injury that treat the moneys received as capital and not income are not based upon any special definition in income tax legislation or on any special meaning applied only for the purposes of assessing liability to income tax. Rather, they depend upon the ordinary conception of what is income and what is not income. It may be taken that in a policy of income protection insurance negotiated between the insurer and the trustee of the First State Superannuation Scheme that those responsible for negotiating the terms of the policy of insurance would be well aware of long-established principles that determined that an award of damages for personal injury was considered compensation for a loss of a capital asset and not as income.
7. Secondly, TAL relied upon sub-paragraph (b) of the definition simpliciter because the ability to obtain modified common law damages was a "benefit" under the NSW workers' compensation regime. That benefit only exists where a worker can bring him or herself within s 151H(1) of the WC Act which provides that: "No damages may be awarded unless the injury results in the death of the worker or a degree of permanent impairment of the injured worker that is at least 15 per cent."
8. TAL submitted that the settlement sum could fairly be seen as income derived as a result of a benefit under the workers' compensation scheme because that scheme was the source of the right to sue for modified common law damages which was released under the Deed (written submissions, para 38).
9. That submission is inconsistent with Grljak v Trivan Pty Ltd (in liq) and Berowra Holdings Pty Ltd v Gordon referred to at [14] above that have been consistently applied.
10. In his oral submissions, Dr Bell submitted that the settlement sum fell within para (b) of the definition because the receipt of the settlement sum was undoubtedly a benefit and because, so he submitted, the benefit was "under any workers' compensation legislation". Unlike definition (a), (c), and (d) there was no reference to the word "payable", "paid", or "payment" to qualify the benefit in (b) which it was submitted, suggested breadth. Dr Bell acknowledged that an award of damages or the settlement of a claim for damages did not have its source in any workers' compensation legislation, but under the common law. He submitted that the word "under" included, but was not confined to, the source of the entitlement to damages or a settlement in compromise of a claim for damages. In support of this submission Dr Bell referred to R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett v Opitz (1945) 70 CLR 141 at 154 where Latham CJ said that: "... A matter may properly be said to arise under a federal law if the right or duty in question in the matter owes its existence to federal law or depends upon federal law for its enforcement, whether or not the determination of the controversy involves the interpretation (or validity of the law)." (Emphasis added.)
11. In LNC Industries Ltd v BMW (Aust) Limited (1983) 151 CLR 575 the High Court observed that this passage had frequently been cited with approval.
12. R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett v Opitz and LNC Industries Ltd v BMW (Aust) Limited concerned the meaning of s 76(ii) of the Constitution and s 39 of the Judiciary Act 1903 (Cth) as to the meaning of the expression "matters arising under any laws made by the Parliament". Section 76(ii) of the Constitution provides that the Parliament may make laws conferring original jurisdiction on the High Court in any matter arising under any laws made by the Parliament. Section 39 of the Judiciary Act confers jurisdiction on State Courts with federal jurisdiction in all matters in which the High Court has original jurisdiction or in which original jurisdiction can be conferred upon it (subject to presently irrelevant exceptions).
13. The issues addressed in these cases were remote from the present question. The context and subject matter, being the construction of s 76(ii) of the Constitution and s 39 of the Judiciary Act, have no connection with the construction of a definition in a contract of income protection insurance that limits the extent of benefits available to the insured. Statutory provisions and constitutional provisions conferring jurisdiction are to be liberally construed (Knight v F.P. Special Assets Ltd (1992) 174 CLR 178, 205; Al Oshlack v Richmond River Council (1998) 193 CLR 72, 81). Moreover, the language to be construed, that is "matter arising under any laws", is different from the language of the policy (benefit under). In The R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett v Opitz Latham CJ observed at 150 that the argument in that case was based upon the words "arising under any law" rather than upon the word "matter", and his Honour's statement as to the width of the expression "arising under a law" did not depend upon a wide conception of what is a "matter". Nonetheless, the context and subject matter is so different from the construction of the term Other Disability Income in the insurance policy in the present case that it does not provide assistance in the construction of the definition.
14. Dr Bell relied on Rinehart v Welker (2012) 95 NSWLR 221; [2012] NSWCA 95. There, the issue concerned the construction of a settlement deed that resolved a dispute over a family trust. The deed provided for the parties to resolve "any dispute under this deed" by way of mediation and arbitration. The issue was whether the submission to arbitration applied to a dispute in which three beneficiaries of the family trust sought the removal of the trustee alleging misconduct. The issue was whether the application for removal of the trustee was a "dispute under this deed". The Court of Appeal (Bathurst CJ, McColl and Young JJA agreeing, but providing additional reasons) held that it was not.
15. Bathurst CJ was of a similar view to the view I have expressed at [30] above that the expressions "under this Constitution" or "under any laws made by the Parliament" do not provide a useful or accurate analogue (at [129]).
16. But Bathurst CJ (at [125]) approved what was said by Warren J (as her Honour then was) in BTR Engineering (Aust) Ltd v Dana Corp [2000] VSC 246 at [24] that the word "under" can be interpreted to mean "governed, controlled or bound by; in accordance with". Bathurst CJ said that: "... if the outcome of the dispute was governed or controlled by the Settlement Deed, then there would be a dispute under the Settlement Deed, irrespective of whether the claimant was invoking or enforcing some right created by the Settlement Deed."
17. Dr Bell submitted that although the right to damages for personal injuries did not have its source in the WC Act or the WIM Act, but at common law, the pursuit of the claim was nonetheless governed or controlled by the WC Act (which determined what damages were recoverable) and by the WIM Act (which controlled the procedures necessary to be invoked to recover damages to the extent that was allowed by the WC Act). By analogy with Rinehart v Welker Dr Bell submitted that the plaintiff's receipt of damages was a benefit "under" the workers' compensation legislation because its quantum and receipt was governed and controlled by that legislation.
18. Again, context is important. Bathurst CJ said (at [115]) that the approach to be adopted in relation to the construction of a submission to arbitration clause was no different from the construction of any other contractual provision, and the meaning of the clause was to be determined by what a reasonable person would have understood the words used to mean, having regard to text and surrounding circumstances known to the parties and the purpose and object of the transaction. Nonetheless, the nature of a submission to arbitration clause is such that the clause should not be construed narrowly, but to give effect to the perceived commercial purpose, so that to the extent possible consistent with the ordinary meaning of the words used, the clause should be construed liberally (at [117]-[120]).
19. The construction contended for by TAL requires reading the words of sub-paragraph (b) as referring to "any benefit under any workers compensation ... legislation". It also requires reading the words "any benefit" on their own so as to include a benefit in the nature of an award of damages or sum received in settlement of a claim for damages, and then separately construing the word "under" in the wide way contended for.
20. The better construction is that sub-paragraph (b) refers to "any benefit under any workers compensation ... scheme". Workers' compensation schemes have a long history and are based in statute. They provide benefits, sourced in statute, for injured workers.
21. When the clause is read as a whole the word "benefit" is not capable of bearing the construction contended for, but refers instead to statutory benefits provided by legislation identified in the paragraph.
22. TAL submitted that so to construe the clause created an anomaly. It said that as workers' compensation benefits were to be deducted from monthly income payments under the policy, and as an injured worker who received an award of common law damages ceased to be entitled to workers' compensation benefits (WC Act, s 151A(1)(a)), it would be arbitrary and perverse for the policy to operate so as to prevent double compensation in respect of workers' compensation payments, but not compensation by way of common law damages. It submitted that the nature and purpose of workers' compensation payments is indistinguishable from the nature of "compensation payments for economic loss under the common law". That is not so for the reasons given by the plaintiff summarised at [13]-[15] above.
23. It would be anomalous if an award of damages for loss of earning capacity were treated as if it were Other Disability Income received in the form of a lump sum. The amount of weekly payments of compensation already paid in respect of the injury is to be deducted from the damages awarded or otherwise paid as a lump sum and is to be paid to the person who paid the compensation (WC Act, s 151A(1)(b)). But the amount of those compensation benefits would have been deducted from the monthly benefits under the policy. The policy makes no provision for them to be reinstated.
24. Moreover, policy benefits are only payable for a maximum period of seven years. The assessment of the extent to which lost earning capacity is productive of financial loss will typically be based upon an assessment of the net earnings the injured worker would otherwise be expected to have received but for the injury, for the estimated working life of the injured worker (discounted for vicissitudes and discounted in accordance with the five per cent discount table). In other words, as in this case, the amount of the lump sum said to be income within the meaning of the clause or a benefit under workers' compensation legislation, would have been calculated by reference to the injured worker's loss of income for periods that exceed the period for which benefits are payable.
25. Thirdly, TAL relied upon the last two sentences of the definition of "Other Disability Income". In particular, the penultimate sentence contemplates that Other Disability Income may be in the form of a lump sum whether or not it is the result of a commutation. But if the lump sum represents compensation for pain and suffering or the loss of use of a body part, it would not be taken into account as Other Disability Income. That indicates that if the lump sum does not represent compensation for pain and suffering or the loss of use of a body part, it is, so it was submitted, within the definition of Other Disability Income. TAL submitted that the most obvious way in which an injured worker would obtain a lump sum payment is through an award of damages in court proceedings for modified common law damages or the settlement of such a claim.
26. I do not accept that submission. The last two sentences of the definition of Other Disability Income refer only to a lump sum that is Other Disability Income. To be Other Disability Income a receipt must be either income or fall within one of paras (a)-(d) of the definition. Income can be received in the form of a lump sum irrespective of whether it is a commutation of, for example, weekly workers' compensation benefits. Income is often periodical or recurring, but not always (Federal Commissioner of Taxation v Montgomery (1999) 198 CLR 639 at 663, [67]-[68]).
27. TAL submitted: "47 The Policy treats this element of the compensation paid to the plaintiff for past and future economic loss as income in the context of her work injury damages claim. It is not to the point that the juridical basis for the award may be for impairment of earning capacity and that such an award is not taxable as income, [Atlas Tiles Ltd v Briers (1978) 144 CLR 202 at 223] nor is it to the point that, in assessing damages at common law for loss of earning capacity, some but not all financial benefits received by an injured worker may be taken into account. [Redding v Lee (1983) 151 CLR 117 at 134] 48 In the context of this policy, all benefits referable to the injury are to be taken into account and offset. The Policy makes it as plain as words can that: (i) income may include a lump sum payment; (ii) income need not be earned nor is it synonymous with a wage; (iii) it extends to 'any benefit' paid or payable; (iv) income to be offset need not be taxable."
28. In Redding v Lee (1983) 151 CLR 117 in the passage referred to in TAL's submissions Mason and Dawson JJ observed that: "... since Bradburn v Great Western Railway Co (1874) LR 10 Ex 1, the courts have declined to measure the injured plaintiff's loss by crediting him with all the financial benefits which he may receive following upon his injury - for the most part benefits in the nature of accident insurance, pensions and superannuations have not been brought to account in reduction of the plaintiff's damages."
29. There was no issue that in the calculation of damages that might be awarded for the alleged negligence causing psychological injury, the benefits payable under the income protection policy would not be taken into account in reduction of damages. It would be assumed that the plaintiff was entitled to both benefits. The definition of Other Disability Income only results in a reduction of the benefits payable under the policy if the insured receives or derives income (within the ordinary meaning of that term) or what is taken to be included as income if the amount falls within any of paras (a)-(d) of the definition. The settlement sum was not income within the ordinary meaning of that term. Unless if falls within any of paras (a)-(d) (and only (b) is relevant) then it is not Other Disability Income. The mere fact that the sum in settlement of the claim for damages was received in a lump sum does not mean that it is Other Disability Income.
30. I conclude that the sum received in settlement of the plaintiff's claim for work injury damages was not income. Nor was it a benefit under workers' compensation legislation. Nor was it any other income payment. It therefore did not fall within the definition of Other Disability Income. The declaration and orders sought by the plaintiff should be made.
31. No submissions were made as to the dates from which interest should be payable (Insurance Contracts Act 1984 (Cth), s 57(2)). It was unreasonable for TAL to have withheld payment. Interest at the prescribed rate or rates should run from the time each instalment of monthly benefit was due.
32. Accordingly, I make the following declaration and orders: 1. Declare that the amount of $300,000 paid to the plaintiff by her employer or its insurer in settlement of her damages claim does not fall under the definition of "Other Disability Income" in the Salary Continuance Insurance Policy (No GR 860-SC) ("the Policy") underwritten by the defendant. 2. Order that the defendant reinstate the plaintiff's monthly benefits under the policy. 3. Order that the defendant pay all arrears under the policy plus interest at the rate or rates prescribed for the purposes of s 57(3) of the Insurance Contracts Act 1984 (Cth) from the dates instalments of arrears were payable. 4. Order that the defendant pay the plaintiff's costs.

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