Tsimpinos v Workcover/Allianz

4 On 10 February 1996 MMI Workers Compensation (SA) Limited as agent for the Corporation made an interim assessment of the worker's loss of future earning capacity as a capital loss pursuant to s 42A of the Act. The assessment was for the period 6 March 1996 to 4 March 1997. It recorded the worker's notional weekly earnings to be $573.00, that the worker was considered fit for carrier work for 10 hours per week and that in such employment the worker could earn $102.76 per week.

5 It appears that the worker had been medically cleared to perform such work for 10 hours per week and that he had in fact been doing this work for K and A Transport Pty Ltd, of which he was a director, for some months.

6 Negotiations between the parties' representatives ensued and soon led to the resolution of all issues by way of a redemption payment to the worker of $47000.00 pursuant to s 42 of the Act.

7 On 13 May 1996 the worker entered into an agreement pursuant to s 42 of the Act with MMI Workers Compensation Limited as agent for the Corporation. By that agreement the worker and the Corporation agreed inter alia that the latter's undischarged liability to make a capital payment for loss of future earning capacity in respect of the subject disability was to be redeemed by the payment of $46500.00 and that the Corporation's undischarged liability to pay compensation under s 32 of the Act was to be redeemed by the payment of $500.00. The agreement further recited that the amount in question had:-

"... been arrived at between the parties having regard to the reduced amount which would otherwise (but for the redemption of such liability) have been payable to the worker by virtue of the application of s 42A(2)(b) and 3(c)/(d) of the Act and the worker's retained capacity to earn in suitable employment which he has a reasonable prospect of obtaining."

8 In the agreement the worker further acknowledged that for the purpose of s 35(6B) (sic) of the Act he was taken to be receiving a continuing weekly payment of $287.77.

9 Annexed to the agreement was an annexure ("A") headed "Professional Advice on LOEC/Redemption". In it the worker acknowledged that he had received competent professional advice from Miles Crawley (an Adelaide solicitor) about the consequences of a redemption payment. He further acknowledged that he was aware of the application of s 35(6B) (sic) of the Act and "that I will be taken to be receiving a continuing weekly payment of $287.77 per week had it not been for this redemption". The annexure was signed by the worker and Mr Crawley on 13 May 1996.

10 Subsequently the worker returned to truck driving with K and A Transport Pty Ltd, only to suffer further injuries, in particular to his neck, left arm, shoulder, lumbar spine and leg while driving in the course of his employment on 21 January 1999.

11 The worker claimed compensation for those disabilities, the claim being accepted on 6 April 1999. The material parts of the determination accepting the claim are in the following terms:-

"... as a result of lower back injury, which was sustained on 21/1/99, you are entitled to income maintenance payments.

We have advised your employer of this and requested that income maintenance be paid to you at the rate of $512.23 gross per week.

Whilst your notional weekly earnings has been assessed at $800.00, we note that on 24/6/1996 you were paid a capital payment (lump sum) redeeming your entitlement to loss of earning capacity (LOEC) payments arising from a compensable disability sustained by you on 17/4/90. The said capital payment was accepted by you in redemption of your entitlement to continue receiving weekly payments at the rate of $287.77."

12 The real issue before the learned single Member was whether, given that the worker's notional weekly earnings were $800.00 per week on 21 January 1999, the agent was justified in deducting therefrom the sum of $287.77, this being the s 35(6B) (sic) figure nominated in the redemption agreement of 13 May 1996. Given the nature of the agreement made on 13 May 1996, it may have been more appropriate for it to have referred to a s 35(6a) figure. No point was taken about the Corporation's misdescription of the relevant provision in any event and before us the matter was argued as if the Corporation had nominated a s 35(6a) figure.

13 In addition to the material canvassed above, the learned single Member had before him certain other information which assumed some relevance to the arguments advanced in the proceedings. In particular he had before him two reports from Michael McClaren, chartered accountant, tendered on behalf of the worker, which were assessments of the actuarial value of the capital sum so paid. The first report dated 26 April 2000 concluded that the weekly value of $287.77 would have exhausted the capital sum of $46500.00 in three years and 17 weeks, that is on or about 9 September 1999. It was the worker's submission that at least after 9 September 1999 the claims agent was not entitled to deduct $287.77 per week from its calculation of notional weekly earnings.

14 The second report of Mr McClaren dated 22 November 2000 was to the effect that if the capital sum of $46500.00 was to produce a weekly payment so that the capital and interest would be exhausted on the date of the worker's 65th birthday that weekly sum would be $90.59. It was an alternative submission of the worker that the claims agent was entitled to reduce the notional weekly earnings only by the sum of $90.59 per week.

15 The relevant provisions of the Act are in the following terms:-

"35. (1) Subject to this Act, where a worker suffers a compensable disability that results in incapacity for work, the worker is entitled to weekly payments in respect of that disability in accordance with the following principles:

(6) A worker is not entitled to receive for two or more disabilities weekly payments in excess of the worker's notional weekly earnings.

(6a) If a liability to make weekly payments is redeemed, the worker is taken, for the purposes of this section, to be receiving the weekly payments that would have been payable if there had been no redemption.

(6b) If a worker ceases to be entitled to weekly payments because the Corporation makes a capital payment for loss of earning capacity under Division 4B, the worker is presumed, for the purposes of this section, to be receiving the weekly payments the worker would have been receiving if there had been no such capital payment."

"42. (1) Any of the following liabilities may, by agreement between the worker and the Corporation, be redeemed by a capital payment to the worker -

(b) a liability to pay compensation under section 32;

(c) a liability to make a capital payment for loss of future earning capacity.

(2) An agreement for the redemption of a liability under this section cannot be made unless -

(a) the worker has received competent professional advice about the consequences of redemption; and

(b) the worker has received competent financial advice about the investment or use of money to be received on redemption; and

(c) the Corporation has consulted with the employer out of whose employment the disability arose and has considered any representations made by the employer; and

(d) a recognised medical expert has certified that the extent of the worker's incapacity resulting from the compensable disability can be determined with a reasonable degree of confidence.

(3) The amount of the redemption payment is to be fixed by the agreement.

"42A. (1) Where a worker suffers a compensable disability that results in incapacity for work for a period exceeding two years, the Corporation may assess the worker's loss of future earning capacity as a capital loss.

(2) In making the assessment, the following principles will be applied:

(a) the worker's notional weekly earnings (less an estimation of income tax) will be projected forward over the remainder of the worker's notional working life;

(b) in the case of partial incapacity, the amount the worker could earn in suitable employment that the worker has a reasonable prospect of obtaining by way of average weekly earnings (less an estimation of income tax) will be projected forward over the remainder of the worker's notional working life and subtracted from the amount projected under paragraph (a);

(c) the worker's capital loss will be taken to be 80 per cent of the present value of the loss indicated by the above projections (and in determining the present value of that loss a prescribed discount rate must be applied).

(c) the following factors must be considered (and given fair and reasonable weight) in assessing what employment is suitable for a partially incapacitated worker -

(i) the nature and extent of the worker's disability; and

(ii) the worker's age, level of education and skills; and

(iv) the worker's ability to adapt to new employment; and

(i) suitable employment is in act not available to a partially incapacitated worker when the assessment is made; and

(ii) the worker establishes that the worker is, in effect, unemployable because employment of the relevant kind is not commonly available for a person in the worker's circumstances irrespective of the state of the labour market,

the worker's partial incapacity for work will be treated as total incapacity, but otherwise an assessment of the weekly earnings the worker could earn in suitable employment must be made on the basis that employment of the relevant kind is available to the worker and will continue to be available to the worker for the whole, or - in the case of an interim assessment - the relevant portion, of the worker's notional working life.

(4) The Corporation may make one or more interim assessments of loss as to nominated portions of the worker's notional working life before making a final assessment of loss under this section.

(5) An amount assessed under this section becomes due and payable from the date of the assessment but may be paid, at the discretion of the Corporation, in a single lump sum or in instalments that are actuarially equivalent to the lump sum (and in determining actuarial equivalence any principles, and any discount, decrement or inflation rates, prescribed by the regulations must be applied).

16 Before us, counsel for the worker, Mr Kourakis QC, submitted that:-

* S 42 of the Act does not expressly or impliedly require the fixation by agreement of a s 35(6a) figure which would otherwise be determined by the Tribunal at the time of quantifying the quantum of income maintenance for a subsequent injury. He submitted that s 42 authorised no more than an agreement between an identified worker and the Corporation on redemption of payments of compensation for a compensable disability and the amount of the redemption sum.

* The redemption agreement signed by the worker could have no legal effect insofar as it purported to determine in advance the deemed continuing payments pursuant to s 35(6a). He submitted that there is no statutory provision which provides for any such agreement and that such an agreement is enforceable and sensible without nominating a s 35(6a) figure.

* The agreement breaches s 119 of the Act insofar as it purports to modify the Act by excluding the Tribunal's determination of the correct quantum of income maintenance for a subsequent injury and excluding the review of any such determination that would otherwise be available.

* In the alternative, the agreement is unenforceable because it is unconscionable. The submission ran that WorkCover's demand that the worker agree the amount to be deemed the ongoing payment was unconscionable representing an attempt on the part of the Corporation to obtain an unnecessary collateral benefit at the expense of the worker at the time of the redemption. Moreover, the bargaining strengths of the parties were overwhelmingly disproportionate. It was submitted that the worker was in a position of special disadvantage in that the Corporation had an unfettered discretion to redeem or not to redeem.

* In this case the redemption sum represented a residual capacity much lower than $287.77 per week for life, or alternatively an incapacity for a fixed period. It was submitted that the worker had subsequently merely exercised that lower residual capacity and that the relevant determination in effect denied him compensation for the loss of his residual earning capacity.

17 In dealing with these matters the learned Single Member had this to say:-

"38 I hold that the matters about which an agreement can be reached does not have to be prescribed by s 42. The only matter that is essential is the amount of the agreement. That is prescribed by s 42(3). The fact is that the parties agree on a variety of matters eg the name, address of the worker, the date of injury - the description of the disability are also fixed by the agreement. Yet there is no statutory requirement to do this. It is difficult to see how the contract could be efficacious if they were not mentioned.

39 In short I am not persuaded by the fundamental plank of the argument of the submission advanced by Senior Counsel - which is that there is no mandate in s 42 for including the weekly figure.

40 True it is there is no express mandate. However there is an implied mandate by the use of the word `agreement'. And powerful support is given to that inference by the fact that s 42(2) proceeds to list certain safeguards that must be observed.

41 I reject the argument that the nomination of the weekly payments of compensation figure that is redeemed is contrary to s 119. The parties are entitled to make their bargain with reference to the figure that they agree on. Indeed the concept of a capital sum standing alone without any reference to such a weekly figure almost constitutes an intellectual contradiction. If there is no warrant for nominating and agreeing upon a weekly figure, there is equally no warrant for applying to it a figure based on an actuarial calculation of a term of years or translating the capital sum into a weekly payment for the balance of the working life. Such a calculation is precisely what has been written out of the Act.

42 I do not propose to deal with the carefully developed unconscionable conduct argument advanced by Senior Counsel except to say that the safeguards parliament thought necessary are contained in s 42(2). I would have though that those safeguards would have included advice as to the propriety of the proposed figure and the advice in s 42(2)(a) and s 42(2)(b) would have addressed the issue of whether what is being proposed represents a fair bargain."

18 The concept of redeeming a future entitlement to weekly payments or medical expenses has been a relatively common feature of workers compensation schemes in their various forms. It certainly has a long history in this State and was common place in the settlement of workers compensation disputes under the Workers Compensation Act 1971. In our view, the basic notion underpinning a redemption as provided for by s 42 is as described by Wilson J in Harrington v Harrington [1981] HCA 42; (1981) 155 CLR 317 at 332 where he said:-

"I think it is true to say, as a matter of history, that the fundamental idea implicit in the notion of redemption was always that of a conversion from one form to another of the liability of an employer to pay compensation to a worker. The concept of a fair exchange lay at the heart of it."

19 Under past regimes the relevant legislatures left it up to the courts or their equivalent to decide whether or not a redemption of a future liability was appropriate and, if it was, on what terms it should be made. They did not, for example, prescribe any principles or any formula by which the redemption was to be calculated. They left this for the adjudicators to determine.

20 Of course that did not mean that the determination of the lump sum was arbitrary and at the whim of the relevant adjudicator. As Starke J observed in Michaelis, Hallenstein and Company Proprietary Limited v Lewis [1944] HCA 3; (1944) 68 CLR 613 at 627:-

"The ascertainment of the lump sum demands on the part of the Board serious consideration of many variable factors and it should not be assessed by the exercise of a kindly and generous discretion at the expense of the employer or its insurer."

21 In undertaking the task of determining what the appropriate lump sum should be, a discount rate was frequently applied. Kitto J made mention of this in Perry Engineering Company Limited v Mermingis [1964] HCA 67; (1964) 112 CLR 468 at 477 where he said:-

"The arbitrator would normally discount [the]...amount to take account of the fact that the workman was receiving a present payment instead of payments spread over a period, and to take account of contingencies such as the death of the workman."

22 In respect of contemporary South Australian legislation it seems that the practice in determining the relevant lump sum was to apply discount rates based upon an assumed return on the investment of a lump sum for the duration of the period for which weekly payments were being redeemed. The rate varied depending upon the prevailing interest rates and the approach in determining the appropriate rate. In Chrysler Australia Limited v Tsiakiridis (1974) 41 SAIR 1103, for example, Judge O'Loughlin, in commenting upon a potential redemption under the Workers Compensation Act 1971, suggested that the then Australian Life Tables was an appropriate source of reference and he made reference in that case to a return on investment of nine and a half per cent.

23 At about this time there were many debates in the common law courts as to what was an appropriate rate of discount in determining damages for future losses of income. Some suggested that zero or even a negative discount rate might be appropriate to counteract the effect of taxation on returns from investments: see, for example; Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1981] HCA 3; (1981) 145 CLR 625 at 664 - 5 per Stephen J. Other judges applied discount rates of varying amounts: see Luntz Assessment of Damages for Personal Injury and Death (3rd edition) at 316 footnote 10.

24 Ultimately, the High Court in Todorovic and Another v Waller [1981] HCA 72; (1981) 150 CLR 402 declared that a three per cent discount rate should be applied in common law personal injury cases. From this time, that figure has generally been regarded as the appropriate discount rate in converting a future liability to a presently paid lump sum and has sometimes been used in legislation dealing with this issue.

26 In its original form the Act provided a worker with a very limited capacity to convert a weekly payment to a lump sum. At that time, the process was described as "commutation", although, as the Workers Compensation Appeal Tribunal noted in WorkCover v Steer A2/1995, for all practical purposes the process was the same as a redemption.

27 A commutation was available as of right, but only in certain prescribed circumstances. Moreover, the process was open to an independent review.

28 In its original form the Act did not stipulate what, if any, discount rate had to be applied in respect of commutations made under s 42, although it did so in connection with commutations concerning weekly payments payable to the dependents of a deceased worker under the then s 44(14). In any event, in practice, the same discount rate, being three percent, was applied: see, for example; Workers Rehabilitation and Compensation Corporation v Quee (Full Supreme Court of SA, unreported S 4621, delivered 23 June 1994).

29 In 1994 the Act was amended to remove the right of the worker to seek a commutation. Following this amendment the decision to commute was a matter entirely for the Corporation; s 42(3) of the Act as it then was. The Act stipulated that the capital payment had to be "actuarially equivalent to the weekly payments", and it further stipulated that in calculating the actuarial equivalent of weekly payments "the principles (and any discount, decrement or inflation rate) prescribed by regulation must be applied": s 42(5). The then regulation prescribed a discount rate of three per cent and the principles made provision for the then current inflation rate to be factored into the assessment: Reg 8(a) of the Workers Rehabilitation and Compensation (General Regulations) 1987.

30 This provision was repealed in 1995 and replaced with a provision enabling redemption by agreement, which is in the same form as the existing s 42 except that whereas redemption was initially limited to a liability to pay weekly payments or to pay compensation for medical expenses, it is now permissible to redeem a liability to make a capital payment for loss of future earning capacity: s 42(1)(c).

31 An examination of existing provisions reveals that Parliament has moved from a highly regulated environment fixing the limit of and the basis of the calculation of the lump sum to one that is largely devoid of regulation, no longer sets a limit as to the amount of the lump sum, no longer requires it to be the actuarial equivalent of the recurring liability, and provides no prescription as to the discount rate that must be applied. Instead, it now leaves it for the parties themselves to decide what is fair, with the caveat that the worker must receive competent professional and financial advice about the matters prescribed as well as advice from a recognised medical expert about the extent of his or her incapacity.

32 There is therefore no substance in the submission that the Tribunal should review the redemption agreement and determine whether it reflects an actuarially based exchange between the liability that is being redeemed and the lump sum being paid. Competent financial advice about the investment or use of the lump sum being paid will no doubt inform the worker of the size of the return on investment of the lump sum required to generate the weekly payment being redeemed and as to whether that return is available and if so at what risk. Having received that advice, as well as competent professional advice about the consequences of the redemption and certification from a medical expert that his/her incapacity resulting from the compensable disability can be determined with a reasonable degree of confidence, the worker can decide whether to agree to the proposal. Having done so, it is not for the Tribunal to question that decision.

33 As to the suggestion that the worker is unfairly disadvantaged, it is notable that Parliament has put in place the safeguards about which we have just spoken. Moreover, the decision to redeem is not unilateral. A worker is under no obligation to accept a proposed redemption offer

34 We turn now to consider the other arguments that were put to us.

35 In our view, the expression " taken ... to be receiving the weekly payments that would have been payable if there had been no redemption" must mean the weekly payments that are being converted to the lump sum. After all, that is the liability that is being converted. Of course, that figure can be agreed. The Act is all about compromise, as was explained by the majority in South Australia Police Dept v Barber [2001] SAWCT 100 at par 56. But it begs the question as to how that agreement can be recorded.

36 The Corporation would have it that it is sufficient to simply record the agreed figure in the redemption agreement. Redemption agreements aside, the Act requires all other liabilities, agreed or otherwise, to have some official imprimatur. Parties cannot simply agree s 43 entitlements, the quantum of average weekly earning, the duration of incapacity, or the entitlement to weekly payments following a review under s 38, by private agreement. The Act requires a determination, a redetermination under s 53 (7a)(a), a variation to a disputed determination following a reconsideration under s 91(3) or an order of the Tribunal to record the agreement.

37 Just because Parliament has allowed parties to make a redemption agreement without some official imprimatur does not mean that it also intended that the liability being redeemed would be immune from that requirement.

38 To the contrary, given that Parliament has seen fit to remove any independent review of the proposed redemption and not to impose any principles upon which the redemption must be calculated, and given that a decision whether or not to redeem a future entitlement under the Act is one of the more important decisions that a worker may be required to make in connection with his/her compensation claim, and may have significant implications for the future, there is every reason to think that there should be not the slightest doubt as to what liability it is that is being redeemed. That is best achieved by one or other of the formal processes referred to in par 36.

39 Thus, in our opinion, whilst we would expect a redemption agreement to identify the weekly payment that is being redeemed, we do not think that the agreement can of itself, without more, create the liability that is being redeemed. In our respectful opinion, in reaching the contrary conclusion the learned Deputy President erred.

40 In this case it appears that at the time of the making of the redemption agreement the worker was in receipt of a capital payment for loss of future earning capacity under s 42A. By virtue of s 35 (6b) he is presumed to have then been receiving the weekly payments that he would have been receiving had there been no such capital payment. What that figure is, is a question of fact. Having received supplementary written submissions from the parties, we now know that it is not the figure referred to in the redemption agreement. If the parties had agreed that there had been a change in circumstances that meant some other figure more appropriately reflected the worker's loss of earning capacity pursuant to s42A, and had wished to redeem that liability, they should have used one of the means available to formally create that liability. Having failed to do that, they have created an agreement that purports to redeem a liability that is different to the actual liability that existed at the time of its making.

41 If there was no legal liability underpinning the weekly payment that was purportedly being converted to a lump sum, then arguably there was a common mistake that went to the very heart of the redemption agreement that renders the agreement void. It might also be arguable that in those circumstances the worker did not receive competent professional or financial advice as required by s 42. This case does not present at this time the occasion for us to decide whether there is any form of estoppel or other legal impediment to the worker mounting these arguments.

42 In our view, the appropriate course is to allow the appeal and to remit the matter back to the learned Deputy President to reconsider the matter in light of these reasons. In view of the conclusions that we have reached the worker should not be limited to agitating the arguments put at first instance, but should be at liberty to raise other relevant matters. That may in turn require further trial orders. That will be a matter for the parties and the learned Deputy President.