Victorian WorkCover Authority v Kenman Kandy Pty Ltd; Victorian WorkCover Authority v A V Jennings Ltd [2002] VSCA 190

Court of Appeal (Vic)|2002-11-29|Before: ORMISTON, BATT and VINCENT, JJ.A.

ACCIDENT COMPENSATION - Worker injured - Compensation paid by Authority - Authority's entitlement to indemnity by third party tortfeasor - Whether to be quantified by reference to formula in force when worker injured or when compensation paid - Whether in applying formula account to be taken of payment by tortfeasor in settlement of worker's common law action made after payment of compensation but before trial of Authority's action for indemnity - Accident Compensation Act 1985, s.138(1), (3) - Accident Compensation (WorkCover Insurance) Act 1993, s.102.

The interpretation and application of sections such as s.138 of the Accident Compensation Act 1985 is always fraught with difficulty and may from time to time produce seemingly anomalous results, but I am satisfied, for the reasons given by Batt and Vincent, JJ.A. in their judgment on these appeals, that the interpretation placed by them on the section seems best to reflect the intention of Parliament and that the appeals, and the cross-appeal in the second matter, should be dealt with by the Court as they propose.

At the relevant times for the purposes of both of the proceedings before the Court, s.138(1) of the Accident Compensation Act 1985 stated that:

"(1) Where an injury or a death for which compensation has been paid, or is or may be payable, by the Authority, an authorised insurer, a self-insurer or an employer was caused under circumstances creating a legal liability in a third party to pay damages in respect of the injury or death, the Authority, the authorised insurer, self-insurer or employer is entitled to be indemnified by the third party in accordance with this section."[1]

As at the respective dates on which each of the workers in respect of whom payments of compensation were made sustained the injury that gave rise to the liability to do so, s.138(3) read:

"(3) The amount which a third party is required to pay as indemnity under sub-section (1) is the lesser of - (a) the amount of compensation paid or payable under this Act in respect of the injury or death; and (b) the amount calculated in accordance with the formula -

Click here for Picture x Click here for Picture - (B + C) --

where - X is the extent, expressed as a percentage, whereby the third party's act, default or negligence caused or contributed to the injury or death; A is the amount of damages for pecuniary loss and non pecuniary loss which the third party is or would have been liable to pay in respect of the injury or death were it not for the provisions of this Act and the Transport Accident Act 1986; B is the amount recovered or recoverable by the Authority, the authorised insurer, the self-insurer or the employer under section 137 from the Transport Accident Commission (otherwise than under a settlement); C is the amount paid by the third party in respect of the injury or death to the worker or the dependants of the worker under any settlement of, or judgment in, an action by the worker or dependants of the worker against the third party."

Later, but in each case prior to the date of settlement of the worker's common law claim and before a claim for indemnity was made, the definition of A and the formula set out in (3)(b) were altered to [A - (B + C)] x Click here for Picture where

A is the amount of damages (disregarding the extent, if any, whereby any other person's act, default or negligence caused or contributed to the injury or death) for pecuniary loss and non pecuniary loss which the third party is or would have been liable to pay in respect of the injury or death were it not for the provisions of this Act and the Transport Accident Act 1986. B, C and X remained the same.[2]

It will be observed upon comparison of the two formulae that, in a situation in which there was no contributory negligence on the part of the injured worker, there could be no difference in the outcome as a consequence of this change. The extent of the liability of the tortfeasor to indemnify, whichever formula was applicable, would be calculated by deducting the amounts paid or payable under B and C (which would be actual amounts), from the notional[3] common law liability of the tortfeasor.

However, in a case where the injured worker was guilty of contributory negligence, the application of the changed formula would effectively increase the potential liability of the tortfeasor to indemnify, in that instead of securing full credit for the amounts actually paid, only a percentage would be taken into account. In other words, whilst the liability to indemnify under the amended formula would never be less than that under the earlier version, it could be greater.[4]

Against that background, questions have arisen as to the nature of the entitlement created by s.138, the time that entitlement can be seen to arise and the manner in which the formula (whichever version is applicable) operates.

In support of its contention that the amended formula is applicable to a claim for indemnity for payments made after the enactment of the amendment, although the injury was sustained or death occasioned at an earlier time, the appellant in the two proceedings before this Court has argued, that by reason of its nature, the statutory liability imposed on the tortfeasor cannot arise until there has been payment of compensation in respect of which the indemnity is claimed. Accordingly, it is said, a separate right to indemnity attaches to each individual payment. As the entitlement would arise at that time, albeit in the context of earlier events, the formula to be used for the necessary calculations would be that applicable at that date. No problem of retrospectivity would emerge in consequence[5] as there would be a new right under the provisions then in force rather than there being any interference with existing rights and liabilities.

It is not to the point, counsel contended, that in some situations there could be an effective increase in the tortfeasor's liability, as that can be seen to have been the intention of the legislature in changing the formula on which it would be calculated.

In response, the argument has been advanced that s.138(1) creates an entitlement or right which attaches to the liability of the tortfeasor and arises contemporaneously with the liability for wrongdoing. The liability of an employer to pay compensation to a worker for the consequences of a compensable injury or death has generally been regarded as arising upon the occurrence of the injury or death, which would ordinarily be the same time, and the rate of compensation fixed accordingly.[6] Obviously it may be much later that the full extent of loss and damage is calculable, but the liability to indemnify for that measure of damages is fixed from the outset.[7] Again, the quantum of recoverable compensation might be unknown at the time that an injury was sustained, but the basis upon which and the date from which it was to be calculated would be identified. The tortfeasor would have at that point both a statutorily imposed obligation to indemnify in accordance with the section but also a designated limit to that liability upon which the tortfeasor was entitled to rely. Accordingly, the argument proceeded, the legislation created both the obligation to indemnify and the extent of that obligation neither of which would, in the absence of a clear statutory directive to that effect, be affected by a subsequent alteration of the formula on which the calculation of the amount payable was made.

The entitlement to indemnity under s.138 - a substantive right - arises where there has been a death or injury sustained in circumstances where compensation "has been paid, or is or may be payable". The section creates a statutory right and corresponding co-extensive liability in respect of which, as Winneke, P. pointed out:

"[i]t must be steadily borne in mind what it is that s 138 seeks to achieve. In a statutory scheme calculated to benefit injured workers, and to spread the cost impact of doing so, the section confers upon the authority, insurers and employers a statutory entitlement, exercisable at times to suit themselves, to be indemnified by negligent third parties against compensation which has been paid or is payable to injured workers up to, but not exceeding, a limit which, if not agreed, is to be established by the courts."[8]

Three situations are encompassed by s.138(1); first, that an actual payment has been made; second, that there is a present obligation to make a payment of compensation; and third, that some or further compensation may become payable. There is a clear intendment by the inclusion of the words "is or may be payable" that the entitlement to the indemnity can arise prior to the making of any payment at all. The position is distinguishable on this basis from those considered by the Full Court in Borg Warner (Australia) Ltd v. Zupan[9], the New South Wales Court of Appeal in Howard Rotavator Pty. Ltd. v. Wilson[10] and in South Eastern Sydney Area Health Service v. Gadiry and Pelle[11] and cases there cited and the Court of Appeal in England in A.G. v. Arthur Ryan Automobiles Ltd.[12], to which our attention has been directed by the appellant.[13] Indeed it was emphasized in South Eastern Sydney Health Service[14] that the provision there relevant referred to the compensation "paid" to the worker, not "paid or payable".

The statutory right to indemnity considered by the courts in each of those cases was specifically expressed in the relevant provision to arise upon the relevant payment of compensation.[15] Accordingly they are of limited assistance in the resolution of the present issues. In this context, however, the observation should be made that s.138 not only differs in its terms from the provisions considered in any of them, but also represents, with respect to the circumstances in which an entitlement to an indemnity will arise, a significant departure from that set out in earlier related legislation in this State.

The entitlement under the Workers Compensation Act 1958, which remained in force until 1985, was created by s.62(b)[16] and encompassed only situations in which "compensation has been paid". The introduction of the Accident Compensation Act in 1985 resulted in a number of changes including a new indemnity provision which nevertheless maintained the same approach. [17] The words is or may be payable were added in 1993[18] and were obviously intended to have some effect. They were after all introduced by specific amendment to an existing section as opposed to a general re-writing of portion of the Act. If entitlement to indemnity was still to arise only after some payment of compensation had been made, the amendment made to s.138(1) in 1993 could have no consequence and the introduction of the extra words would be pointless. On the other hand, if it was not so intended, then the sub-section in its amended form became clumsily expressed. It is clear that in its pre-amendment form, s.138(1) operated where death or injury "was caused" in compensable circumstances and only after some subsequent payment of compensation "has been made". The provision was expressed in what could be appropriately described as fairly typical language, involving the application of a well recognized approach with respect to rights to indemnity under such legislation. The addition of the words "is or may be payable" can be seen to have altered in significant respects the right or entitlement to indemnity conferred by the sub-section. It no longer depended upon the fact of a payment of compensation having been made and could arise in an inchoate fashion before any amount became payable at all. As is regrettably too often the case with frequently amended legislation in this area, it seems clear that an amendment introducing new notions and consequences has been grafted onto an existing provision with little regard to resultant infelicity of language.

The amended s.138 was stated to apply to "compensation paid or payable" after the date that it came into force[19] and therefore was directed to death or injury sustained both before and after that date. Further, it is to be observed that there was no similar provision in the amending Act which introduced the changed formula. Whilst not by any means determinative of the matter, the absence of a transitional provision of this kind is suggestive of a legislative intention that the amended formula would apply only in respect of death or injury sustained after the amendment came into effect. More importantly, the terms of the application provision in the 1993 Act, s.102(2), support the inference that the legislature appreciated that the addition of the words "is or may be payable" could impact upon existing substantive rights and liabilities.

The situation presented by s.138 can be seen to be different from that considered by the Court in Shire of Corangamite v. TAC[20] of which Buchanan, J.A. said:

"In the present case the relevant liability was the liability of the shire to indemnify the commission, not the hypothetical liability of the shire to Mr. Orr. The shire's liability to the commission did not exist until s. 104 was enacted in 1994. Further, in my opinion the shire had no existing right within the meaning of s. 14(2)(e) of the Interpretation of Legislation Act before the amending Act to be free from an obligation to indemnify the commission against payments for loss of earning capacity. The fact that there existed a limited liability to indemnify the commission did not carry with it a right to be free in future from a more extensive liability to indemnify the commission. As the Full Court said in Robertson v. City of Nunawading [1973] VicRp 81; [1973] V.R. 819 at 825: There cannot, in any relevant sense, or perhaps in any sense, be a 'right' to exemption or immunity from legislative action. The taking of legislative action in a field where previously there was none cannot be treated as an impairment of a right for the purpose of the principle. The events that occurred before the 1994 Act was passed had not brought into existence any rights. The 1994 Act does not have a retrospective operation because it operates on those past events."

There is no need, in the present case, to address the question whether that case was correctly decided although it should be noted that the matter was not fully argued and the decision appears to have been regarded with some reservation in later judgments in TAC v. Lanson & Another[21]. Whatever may be the situation in that regard, the Court in Corangamite concluded that the passage of the Act in question did not affect any existing rights and liabilities. Ultimately the question is one of statutory construction and must be answered by reference to the terms and intent of the particular enactment under consideration. Section 138(1) confers an enforceable right, of definite and calculable extent, which arises upon the happening of the death or injury concerned, and determines the position for each of the affected parties. The right is one to be indemnified "in accordance with this section", which prima facie means the section as existing at the time the event happens. That provides the measure. The effect of a subsequent alteration of the formula upon that right can be assessed by applying with appropriate adaptation the test posed by Brooking, J. in J and P Lemming Holdings Pty. Ltd. v. O'Keefe and Anor[22]:

"Ask any judgment creditor or debtor whether his rights or liabilities are affected by changing the rate." Similarly, with reference to the Transport Accident Commission's entitlement to indemnity under s.104 of the Transport Accident Act 1986 (which required the Commission to have made payments of compensation), Phillips, J.A. in TAC v. Lanson[23] was of the view that a liability to indemnify may be sufficiently recognised as already in existence to warrant protection (in the absence of some indication of a contrary legislative intent) against subsequent legislative change increasing it, though it be still inchoate or contingent.[24]

An attempt was made to find support for the appellant's contentions in the decision of the High Court in VWA v. Esso Australia Ltd[25], where it was said:

"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." (Footnotes omitted.)

It is important to bear in mind that the Court did not address the specific questions before us. There is, in our view, nothing in the judgments in the case which casts doubts upon the construction adopted above. Setting to one side the possibility of securing a declaratory judgment, it would seem to be self-evident that an action to recover amounts whether paid or payable cannot, as a practical proposition, be instituted until at least the sums involved have been identified. Until then it may be accepted that the right is inchoate or contingent. An entitlement to be indemnified for a potential liability that has not arisen is under such a scheme enforceable by action as and when the amounts in respect of which recovery is sought have been paid or become payable. Only then can the pre-existing entitlement be vindicated by action. Conceptually there is no difficulty in accepting the existence of an entitlement to indemnity until a particular ceiling is reached which is enforceable by more than one action for the specific amounts covered by it as they fall due. This view does no violence to the terms of section 138 and is consistent with the statutory scheme as described by Winneke, P. in the passage set out earlier.

Contrary to the submission of the appellant, it does not follow from the fact that the statutory cause of action arises when each amount of compensation is paid or payable that the substantive law then in existence is the law to be applied to identify and evaluate the right of indemnity. Here, as already stated, an element in that cause of action is the formula in existence at the date of injury.

The two appeals before the court can now be considered in the light of the foregoing interpretation of s.138. In the appeal in which A.V. Jennings Pty. Ltd. ("Jennings") is respondent an additional issue of some general application arises. It is convenient, therefore, to take first the appeal in which Kenman Kandy Pty. Ltd. ("Kenman") is respondent.

On 19 January 1995 one Ronald O'Neill ("the worker") was working in the course of his employment with T&J Labour Hire Pty. Ltd. ("the employer") at premises of which Kenman was the occupier. While the worker was walking across the roof of a workshop the roof collapsed and he fell and sustained injury.

The appellant made various payments of compensation to or in respect of the worker pursuant to the Accident Compensation Act in respect of the injury sustained by him in the fall. The payments totalled $137,008.20 and were made up as follows:

(a) From 19 January 1995 to 16 December 1996 (the day before the amendments to s.138(3) commenced) - $40,698.20.

(b) From 17 December 1996 to 11 February 2000 (the date of payment of the settlement sum mentioned below) - $64,299.60.

(a) From 19 January 1995 to 16 December 1996 - $9,726.65.

(b) From 17 December 1996 to 11 February 2000 - $7,701.35.

Section 98 payment

Between 17 December 1996 and 11 February 2000 the worker was paid compensation for maims in the sum of $14,497.20.

Proceedings at common law were instituted by the worker against both Kenman and the employer in respect of the injury sustained by him on 19 January 1995. Those proceedings were settled for the amount of $130,000 inclusive of legal costs, together with retention of weekly payments and the s.98 payments to the date of settlement, amounting in all to $119,495. It was agreed for the purposes of the appeal that the amount of the legal costs included within the sum of $130,000 was $15,000. The worker signed a release on 21 January 2000. Kenman's contribution to or under the settlement was $84,481 and it paid this sum shortly after 21 January, apparently on 11 February.

On 11 January 2000 the appellant commenced proceedings in the County Court against Kenman seeking an indemnity pursuant to s.138 in respect of the compensation it had paid the worker, alleging that the worker's injury was caused by reason of Kenman's negligence or breach of its duty under the Wrongs Act 1958, so that the injury was caused in circumstances creating a legal liability in Kenman to pay damages in respect of the injury. After a trial commencing on 28 November 2000 and lasting six days, a judge of the County Court gave judgment on 13 December 2000. He held that the amount in respect of which the appellant was entitled to be indemnified was to be quantified by reference to s.138 as in force on the date of injury, 19 January 1995. He found that the worker sustained injury on that date as a consequence of the negligence of Kenman and the employer and that as between the employer and Kenman the injury was caused or contributed to by reason of the act, default or negligence on the part of Kenman to the extent of 80 per cent. He found that the worker himself was contributorily negligent to the extent of 20 per cent. Largely on the basis of the settlement sum and an agreement of the parties, his Honour found that the worker's entitlement to damages for pecuniary loss and non-pecuniary loss but for the operation of the Accident Compensation Act was a total of $257,000. His Honour held that the definition of Factor A in force at the date of injury required contributory negligence to be brought to account in arriving at Factor A. (The appellant had contended that there should be no deduction for contributory negligence and that if there was a deduction it should be made through Factor X.) He therefore reduced the sum of $257,000 by 20 per cent, making $205,600. In view of his Honour's apportionment as between Kenman and the employer, Factor X was 80 per cent. Factor B was inapplicable. Factor C was agreed at $84,481. Accordingly, substituting the foregoing values in the formula which his Honour held applicable the second of the "caps" or "ceilings" on the amount of the respondent's liability to indemnify the appellant was:

Since this figure was less than the total compensation paid of $137,008, the indemnity payable was $79,999, and his Honour gave judgment for the appellant for that sum accordingly.

By notice filed 10 January 2001 the appellant appealed, raising essentially two points. The first was that the trial judge erred in failing to determine the respondent's liability to indemnify in respect of each amount of compensation paid or payable by reference to the formula from time to time applicable as at the date each amount of compensation was paid or became payable or alternatively by reference to the formula as at the date of judgment. The second was that the judge erred when assessing Factor A by reducing the sum of $257,000 by a percentage for contributory negligence. That point was abandoned on 10 September 2002. During the hearing the appellant was given leave to file an amended notice of appeal specifying the sum for which judgment was sought in place of the judgment given by his Honour. Ultimately that was specified as $110,412.16. But the grounds of appeal were confined to contending that the amount of the indemnity should have been calculated by reference to the formula from time to time applicable as at the date each amount of compensation was paid or became payable.

In accordance with the exposition of s.138 in the initial part of these reasons, that ground must fail and the appeal must be dismissed.

On 14 July 1994 James Tracey ("the worker") was working in the course of his employment with Goulburn Valley Roof Tiling Pty. Ltd. ("the employer") at a site where a house was under construction. Jennings was the builder of the house and the head contractor. While attempting to descend a ladder from the first floor of the site to ground level the worker fell and sustained injury.

The appellant made various payments of compensation to or in respect of the worker pursuant to the Accident Compensation Act in respect of the injury, namely:

(a) From 14 July 1994 to 16 December 1996 - $69,569.

(b) From 17 December 1996 to 27 January 1998 (the day before payment of the settlement sum mentioned below) - $32,476.80.

(a) From 14 July 1994 to 16 December 1996 - $37,480.

(b) From 17 December 1996 to 27 January 1998 - $3,115.96.

Proceedings at common law were instituted by the worker against both Jennings and the employer in relation to the injury sustained by him on 14 July 1994. Those proceedings were settled on 1 December 1997 for the sum of $350,000 together with the retention of weekly payments of compensation paid to the worker to the date of the settlement, which amounted to $102,045.80.[26] On 28 January 1998 Jennings paid its contribution to or under the settlement, being $175,000.

On 24 May 1999 the appellant commenced proceedings in the County Court at Melbourne seeking an indemnity from Jennings pursuant to s.138 in respect of various payments of compensation made by it to the worker, alleging that the injury was caused to him by reason of Jennings' negligence and/or breach of duty under the Wrongs Act 1958, so that the injury occurred in circumstances creating a legal liability in Jennings to pay damages in respect of the injury. The action came on for trial on 8 May 2000 and in a reserved judgment delivered on 18 May 2000 the trial judge (who was not the trial judge in the appellant's proceeding against Kenman) found that the injury sustained by the worker on 14 July 1994 was caused or contributed to by reason of the negligence of -

(a) the employer, to the extent of 25 per cent;

(b) Jennings to the extent of 25 per cent;

(c) the worker, to the extent of 50 per cent.

His Honour also found that the worker's entitlement to pecuniary loss damages and non-pecuniary loss damages but for the operation of the Accident Compensation Act was $360,000. (The judge stated in his reasons mentioned below that the lesser assessment of damages by him was derived partly from the fact that the worker had returned to substantial employment by the time of his Honour's assessment, when that had not been anticipated at the time when settlement took place.) The proceeding was then adjourned to a date to be fixed in the expectation that his Honour's findings would enable the parties to make appropriate calculations to arrive at the appellant's entitlement under s.138. This did not eventuate and the proceedings were listed for further hearing and argument, which occurred on 4 May 2001 with the benefit of written submissions. On 17 May 2001 his Honour published his reasons and pronounced judgment for the appellant in the sum of $2,500 together with costs to be taxed on the Magistrates' Court Scale "B" up to and including 6 March 2000 and an order that the appellant pay the respondent's costs from that date on County Court Scale "D".

It appears that before the judge the respondent accepted that on the authorities that existed the right to indemnity arose each time a payment of compensation was made and that s.138 as in force at the time of the respective payments applied to determine the quantification of the indemnity in respect of those payments. The judge proceeded on that basis, expressing the view that in any event it was correct. His Honour therefore made two computations of indemnity, the first in respect of compensation paid up to and including 16 December 1996 and the second in respect of compensation paid thereafter.

The main issue in contention before his Honour was the manner in which and, in particular, the time at which Factor C was to be taken into account in the application of the relevant formula. The appellant contended that the sum of $175,000 paid to the worker on 28 January 1998 could not be taken into account in ascertaining the value of Factor C for the purpose of a claim for indemnity in respect of any compensation paid before that date. The respondent contended that Factors A, B, C, and X were all to be determined at the date of trial. His Honour held that since the entitlement to indemnity must be determined at the date of trial the identification of Factor C must also be determined at that date.

His Honour's application of the first formula to payments of compensation made before 17 December 1996 resulted in there being no pecuniary entitlement in the appellant.[27]

His application of the second formula in respect of payments made on or after that date resulted in an indemnity in favour of the appellant in the sum of $2,500.[28]

The appellant filed a notice of appeal dated 30 May 2001 on a number of grounds which, in essence, come down to a contention that his Honour erred in failing to determine that the value of Factor C was zero when each payment made before 28 January 1998 was made. There is also a ground relating to the computation of Factors A and X under the later formula, but, as will appear, that question does not arise. The notice of appeal seeks the substitution of a judgment for the appellant in the sum of $90,000 plus costs to be taxed on County Court Scale "D".

The respondent filed a notice of contention on 11 September 2002 contending, in substance, that the judge had erred in not applying to the whole claim for indemnity the formula enacted by the Accident Compensation (Amendment) Act 1994 (No.50 of 1994). Then, recognising that what was required was a notice of cross-appeal, the respondent on the appeal coming on for hearing applied for, and was granted, leave to file a notice of cross-appeal out of time raising this point. The notice so filed seeks the substitution, in place of the judgment pronounced below, of judgment for the respondent defendant together with costs to be taxed on County Court Scale "D".

Consistently with the view expressed in the initial part of these reasons, the ground taken in the cross-appeal must succeed, but whether that results in judgment for the respondent defendant may depend on the value to be attributed to Factor C. To that we now turn.

To adapt slightly the submission of counsel for the respondent, although the calculation of Factor C is made at the date of trial in the absence of any compromise of the claim for indemnity, the short point is whether Factor C is calculated as at the date of trial or as at the date that each payment of compensation was made by the appellant.

Counsel for the appellant said that theoretically the value of Factor C will always be less than the value of Factor A, the notional common law damages, because the damages recoverable, by judgment or settlement, in an action by a worker or a worker's dependants are subject to thresholds and maxima, to certain exclusions and to reductions as exemplified in sub-ss.(7), (9), (10) and (11) of s.135A.[29] Here, he said, Factor C only exceeded the amount otherwise to be paid because of an error in the assessment made at the time of settlement of the common law claim, as subsequently shown by the judge's quantification of damages (and, it may be, apportionment of liability and contributory negligence).

Building on the passage in VWA v. Esso Australia Ltd. set out earlier in these reasons, counsel for the appellant submitted that it must be possible to determine the amount produced by the formula at the time the cause of action for indemnity arises. Since the relevant payments of compensation had occurred before the respondent made the payment in settlement of the common law action on 28 January 1998, Factor C had no value. It was submitted that the appellant's right to indemnity became absolute upon payment of compensation and that what was said to be the retrospective introduction of a value for Factor C which it did not have at the time of the payments of compensation had the effect of denying the appellant its right of indemnity. It was submitted on a number of grounds that the judge's view was unjust and inequitable in its results. Thus, it was submitted that to allow Factor C a value of $175,000 before the date on which that sum was in fact paid would prevent the appellant from recovering any equitable contribution from Jennings in respect of compensation payments made by the appellant to the worker which had been utilised by operation of s.135A(11)[30] to reduce the quantum of Jennings' common law liability to the worker.

But there are telling considerations pointing the other way. Whilst considerations of fairness and rationality may be important in the interpretation even of legislation such as the present Act, experience shows that they are not always apparent and, when apparent, do not always point in the one direction. Thus, with regard to the appellant's reliance on s.135A(11), it must be remembered that that provision also has the effect of reducing the value of Factor C, a factor going in diminution of the cap or ceiling on the amount of the indemnity. Again, it may be accepted that the principal purpose of s.138 is to give the Authority and the other entities mentioned in sub-s.(1) the benefit of an indemnity in relation to compensation paid or payable by them. But, historically, one of the principles governing that indemnity is that it is an indemnity up to the amount of the third party's common law liability, with credit being given to the third party for any payment to the worker or the worker's dependants in discharge or reduction of that liability. The formula recognises that. In our view, it is a significant consideration that according a zero value to Factor C because the payment by way of settlement, although made before trial, was made after the relevant payments of compensation frustrates the above principle governing the statutory indemnity. Where settlement is effected of a worker's common law action in which damages were claimed for both pecuniary loss and pain and suffering, the appellant and the other entities mentioned are by virtue of s.135A(18) released from liability to make further weekly payments or to pay lump sum benefits under the Act. Not only was the appellant's liability to the worker in these respects terminated by Jennings' payment in this case, leaving the appellant only liable to pay compensation for medical and like services under s.99, but, if the appellant is correct, Jennings is left to obtain the benefit of its payment to the worker of $175,000 by setting it off against any claims by the appellant hereafter for indemnity in respect of payments yet to be made of compensation for medical and like services. Usually, if not invariably (as the respondent submitted), the bulk of the amounts which the appellant seeks to recover by indemnity relate to payments other than s.99 payments. So, it may well be that, if the appellant is correct, Jennings would never obtain credit as against the appellant for the sum of $175,000 paid to the worker.

There are other considerations in the formula and its practical application that point against the appellant's contention. Section 138(3)(b) does not either in terms or by implication establish any temporal relationship between the date of payment of compensation and the application of the formula. The past participle "paid" in the definition of Factor C simply requires the amount to have been paid by the date as at which the calculation is being made. It does not assist in determining what that date is. It would have been easy to insert immediately after it some such expression as "as at the date on which the amount of compensation was paid or became payable" if the provision was intended to mean what the appellant contends it does. Further, Factor A, being damages for personal injury, is to be calculated as at the date of trial (or, more accurately, date of judgment) as explained in Johnson v. Perez[31]. Moreover, the natural approach of a court asked to apply the formula would be, it might be suggested, to ascertain the values of the factors as at the date of trial. In any case, Factor C is analogous to a defence, for it is in the third party tortfeasor's interest to make it out to the full and a defendant has always been permitted to plead a payment after action brought.[32]

It is apparent, then, that the arguments in favour of the view that Factor C is to be calculated as at the date of trial (or, strictly, judgment) far outweigh those advanced for the appellant's contention. Accordingly, Factor C has the value of $175,000. Since Click here for Picture , from which C is to be subtracted, yields $90,000, the applicable formula produces a negative figure, so that Jennings was required to pay no sum by way of indemnity.

It may of course happen that a worker's common law action is not settled until after judgment in the action for indemnity or is settled before that time but part of the settlement sum is not paid until after that time. A question might arise in such a case whether the determination of the value of Factor C by judgment in the action for indemnity gave rise to an issue estoppel or whether, on the other hand, the action for an indemnity, arising as each payment is made or quantified, is analogous to a rating appeal, which does not give rise to an estoppel in respect of a subsequent year's rates. It might also be necessary to consider a statement by Winneke, P. in Esso Australia Ltd. v. VWA[33] that had the approval by Gleeson, C.J., Gummow, Hayne and Callinan, JJ. in VWA v. Esso Australia Ltd.[34]. The President said:

"Construed in this way, it is said, the court can identify, once and for all, an entitlement to indemnity against a negligent third party which will not exceed that party's proportionate responsibility for the worker's notional damages at common law for pecuniary and non-pecuniary loss." (Emphasis added.)

Although the President said that he had some difficulty in construing the section in that manner, but for the reasons he gave was content to adopt the construction, the joint judgment in the High Court does not refer to his Honour's difficulty, but rather states, "This construction of s.138 should be accepted." A question might arise whether the President's statement, and in particular the italicised words in it, as approved by four justices of the High Court, would preclude reliance by the third party tortfeasor on the later payment in any subsequent claim for indemnity, when, as seems likely, the problem now being discussed was not present to their Honours' minds. It is unnecessary to attempt to answer any of these questions here.

For the foregoing reasons, the appeal must be dismissed, the cross-appeal allowed and, in lieu of the judgment pronounced on 17 May 2001 in the County Court, judgment entered for the respondent defendant with costs to be taxed on County Court Scale "D".

[1] Section 138 as initially enacted in Act No. 10191 of 1985 was in a significantly different form. A new s.138 was introduced by the Accident Compensation (Amendment) Act 1994, Act No. 50 of 1994, with effect from 1 December 1992. Minor amendments to sub-s.(1) were made by Acts passed in 1997 and 1998, but they are presently immaterial.

[2] These amendments were introduced by s.22 of the Accident Compensation (Further Amendment) Act 1996, with effect from 17 December 1996.

[3] It is provided by s.138(2) that for the purposes of sub-s. (1) Division 9 of Part IV of the Act, which places limitations on both the quantum of damages recoverable at common law and the circumstances under which an action can be commenced, is not to be taken into account.

[4] A simple example will serve to illustrate the difference in possible result:

[5] It is clear that legislation will not be regarded as having retrospective operation simply because it takes account of "antecedent facts and circumstances as a basis for what it prescribes for the future" - see Robertson v. City of Nunawading [1973] VicRp 81; [1973] V.R. 819 at 824.

[6] Accident Compensation Commission v. C.E. Heath Underwriting & Insurance (Australia) Pty. Ltd. (Re. Matasic); (Re. Yerolemou); (Re. Tassoula); (Re. Franco) (1992) VACR 82,101. See also Marks, J. in Accident Compensation Commission v. State Insurance Office [1992] VicRp 84; [1992] 2 V.R. 522 at 526. A similar view was expressed by Phillips, J.A. in TAC v. Lanson & Anor. [2001] VSCA 84; (2001) 3 V.R. 250 at 267.

[7] See Ruby v. Marsh [1975] HCA 32; (1975) 132 C.L.R. 642 per Barwick, C.J. at 650. Jacobs, J., who dissented for other reasons, expressed a similar view at 668.

[8] Esso Australia Ltd v. Victorian WorkCover Authority & Anor [2000] VSCA 74; (2000) 1 V.R. 246 at 256.

[13] In Borg Warner the relevant provision was s.64(1) of the New South Wales Compensation Act 1926 (as amended) which provided:

"(1) Where the injury for which compensation is payable under this Act was caused under circumstances creating a legal liability in some person other than the employer to pay damages in respect thereof -

(b) if the worker has recovered compensation under this Act, the person by whom the compensation was paid shall be entitled to be indemnified by the person so liable to pay damages as aforesaid; ...."

The Court in Howard Rotavator was concerned with the same section. The provision considered in A.G. v. Arthur Ryan Automobiles Ltd. was equally clear [Section 30(2) of the Worker's Compensation Act 1925 (Eng)]:

"(2) If the workman has recovered compensation under this Act or such scheme, the person by whom the compensation was paid, and any person who has been called on to pay an indemnity under section six of this Act relating to liability in case of workmen employed by contractors, shall be entitled to be indemnified by the person so liable to pay damages as aforesaid, ...."

[15] It may be accepted that in the normal contract of indemnity there is no right of action sounding in money until the party to be indemnified has paid, as discussed, for instance, in South Eastern Sydney Health Service at paragraphs [22], [23] and [42].

[16]. "(b) if the worker has recovered compensation under this Act or under any scheme the person by whom the compensation was paid and any person who has been called on to pay an indemnity under the section of this Act relating to sub-contracting shall be entitled to be indemnified by the person so liable to pay damages as aforesaid, and all questions as to the right to and amount of any such indemnity shall in default of agreement be settled by action or if the parties consent by the Board."

[18] Accident Compensation (WorkCover Insurance) Act 1993, s.102(1)(b). The second reading speeches do not mention this amendment and it appears that, unusually, an Explanatory Memorandum was not prepared for the Bill for this Act.

[19] Section 102(2). The date was 1 June 1993.

[24] Compare Crimmins v. Stevedoring Industry Finance Committee [1999] HCA 59; (1999) 200 C.L.R. 1 at 13-14, 15 and 52-56 and Free Lanka Insurance Co. Ltd. v. Ramasinghe [1964] A.C. 541 at 552.

[26] On one view the settlement was for $452,045.80. For s.135A(11) has at all material times provided that if a settlement is made its amount must be reduced, to the extent it is in respect of pecuniary loss, by (in effect) weekly payments of compensation made and, to the extent it is for non-pecuniary loss, by (in effect) lump sum compensation paid for maims or pain and suffering.

[27] His Honour did not set out his calculation, but by inference it was:

[29] The wording of some of the sub-sections mentioned varied between the date of injury and the judgment of 17 May 2001, but not in any material way.

[32] Rule 13.08 in both the County Court and the Supreme Court now enables subsequent facts to be pleaded more widely.

At a glance

Court

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Before

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Judgment (106 paragraphs)

Legislation Cited (1)