Watson v Newcastle City Council

[1962] HCA 6

High Court of Australia|1962-07-01|Before: Windeyer JJ, McTiernan J

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Source facts

Court

High Court of Australia

Decision date

1962-07-01

Before

Windeyer JJ, McTiernan J

Source

Original judgment source is linked above.

Judgment (32 paragraphs)

[1]

High Court of Australia McTiernan, Kitto, Taylor, Menzies and Windeyer JJ. Watson v Newcastle City Council [1962] HCA 6

[2]

ORDER Appeal allowed with costs. Order of the Supreme Court set aside. In lieu thereof order that judgment be entered for the defendant upon the demurrer.

[3]

This appeal raises a question concerning the operation of sub-s. (b) of s. 64 of the Workers' Compensation Act, 1926-1958 N.S.W.. The circumstances in relation to which s. 64 applies are stated in the introductory words of this section: "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". Sub-section (a) in its first paragraph provides that the worker may take proceedings both against the person other than the employer to recover damages and against the employer to recover compensation under the Act, but adds that the worker shall not be entitled to retain both damages and compensation. The second paragraph provides that if the worker "recovers firstly compensation and secondly such damages" he shall be liable to repay to his employer "out of such damages" the amount of compensation which the employer has paid in respect of the worker's injury under the Act and that the worker shall not be entitled to any further compensation. The third paragraph of sub-s. (a) provides that if the worker "firstly recovers such damages" he shall not be entitled to recover compensation under the Act. Sub-section (b) is in these terms: "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". Sub-section (c) must also be quoted: "if the worker subsequently obtains judgment for damages against the person who has paid under such indemnity, such payment under the indemnity shall be, to the extent of the amount of such payment, a satisfaction of the judgment for damages".

[5]

The statutory right of indemnity contained in sub-s. (b) of s. 64 was in the Act when the recovery of compensation and the recovery of damages were alternative remedies: that is to say, that the workman, having recovered compensation could not then recover damages. The right of indemnity then arose upon the recovery of compensation under the Act by the worker from the employer. The right was part of a legislative scheme under which the person liable to pay damages was not exposed to any other liability than to indemnify the employer for compensation recovered from him by the worker; when the worker recovered such compensation it was not open to him to obtain a judgment for damages against the alleged tortfeasor. Section 64 maintains that legislative scheme in so far as the provisions of sub-s. (a) guard against the worker retaining both damages and compensation and sub-s. (c) protects a tortfeasor who has to pay under the indemnity created by sub-s. (b) of s. 64 from satisfying in full a judgment for damages obtained by the worker against him pursuant to the right under sub-s. (a) to recover both damages and compensation, if the latter is first recovered. The policy which is evident on the face of s. 64 is that compensation should not, as a benefit for the worker, or a burden for the tortfeasor, be cumulative on damages, that damages should, if recovered by the worker, as far as they can, be the fund out of which compensation is paid, and that, as between the employer and the alleged tortfeasor, the burden of compensation recovered from the employer should be finally cast upon the tortfeasor, but should not be a burden ultra the damages for which the worker has obtained judgment against the tortfeasor. The provisions of s. 64 can work together and give effect to this policy if the order of events is, first, recovery of compensation under the Act by the worker from the employer; secondly, recovery by the employer from the tortfeasor of the amount of compensation under the indemnity given by sub-s. (b) of s. 64; thirdly, recovery by the worker against the tortfeasor of judgment for damages in respect of the injury; fourthly, the satisfaction by operation of sub-s. (c) of the judgment for damages to the extent of the payment made by the tortfeasor to the employer under the indemnity created by sub-s. (b) of s. 64. Sub-section (c) is appendant to sub-s. (b): the two provisions should be read together.

[6]

Where the employer has enforced his right of indemnity against the tortfeasor, sub-s. (c) avoids the result that the tortfeasor has to bear the burden of compensation in addition to damages recovered against him. It is clearly not the intention of s. 64 to make the tortfeasor liable for any amount in addition to damages for which he is liable on a cause of action arising independently of the Act. If damages are recovered they are made a fund out of which the worker or his dependants must answer to the employer for compensation recovered against him, or if the tortfeasor has paid the employer under his indemnity and damages are recovered against the tortfeasor, the payment of the indemnity is pro tanto satisfaction of the damages. Sub-section (c) seems to be enacted upon the basis that proceedings by the employer to enforce his right of indemnity against the tortfeasor have terminated before judgment for damages is obtained by the worker or his dependants against the tortfeasor. It would be repugnant to the section to give it an interpretation resulting in the tortfeasor having to bear a financial burden outside his liability for damages arising independently of the Act. I think therefore it is necessary to read sub-s. (c) with sub-s. (b) and to hold that the latter is not intended to confer any right to an indemnity unless sub-s. (c) can operate in relief of the tortfeasor. This sub-section cannot operate in relief of the appellant in the present case because the respondent had not obtained payment under the indemnity created by sub-s. (b) before the proceedings for damages concluded. Unless an implication can be made which would entitle the appellant to the same sort of relief which sub-s. (b) would have given him if he had paid under the indemnity before the verdict for damages was recovered against him, I think that it should be held that the present action for an indemnity does not lie, having regard to the circumstances alleged in the plea. It seems to me to be impossible to supply such an implication by a proper interpretation of s. 64. Sub-section (a) makes the worker liable to repay compensation to the employer out of damages: but the section nowhere makes the worker liable to repay damages to the tortfeasor out of compensation. The only relief given by the section to the tortfeasor is that which he obtains from sub-s. (c). It would be a legislative amendment rather than an interpretation of s. 64 to imply in it a provision that the worker or his dependants, as the case may be, should be accountable to the tortfeasor in respect of damages equivalent to what he paid to the employer under the latter's indemnity, in a case in which sub-s. (c) could not operate in relief of the tortfeasor. In my view, it gives effect to the language of the section and the intention evident therefrom to hold that where the indemnity cannot be enforced without imposing a financial burden on the tortfeasor in excess of his liability for damages, an action for the indemnity does not lie. The circumstances in the pleas show that if the appellant paid under the indemnity he could not obtain any relief in respect of it under sub-s. (c). It follows that the present action is not maintainable consistently with the provisions of s. 64. I would overrule the demurrer to the plea and allow the appeal.

[21]

Prior to 1942 the section provided that where the injury for which compensation was payable under the Act was caused under circumstances creating a legal liability in some person other than the employer to pay damages in respect thereof, the worker might take proceedings both against that person to recover damages and against any person liable to pay compensation under the Act but should not be entitled to recover both damages and compensation. Pursuant to the Act the recovery of compensation by a worker produced two results. It divested him of any right of action for damages against a tortious third party and it invested the employer with a right of action for an indemnity against the third party. Likewise, the recovery of damages divested the worker of his right to claim compensation under the Act. Accordingly, no question could then have arisen as to whether an employer could successfully seek an indemnity from a tortfeasor who had already paid damages in satisfaction of his liability to the worker. The section in its present form, however, permits the worker to take proceedings to recover both damages and compensation. And, indeed, he may recover both damages and compensation but he is not entitled to retain both. In this situation the section seems designed to secure to the worker the benefit of the larger sum recovered by him. If he "recovers firstly compensation and secondly damages" he is "liable to repay to his employer out of such damages the amount of compensation which the employer has paid in respect of the worker's injury under this Act, and the worker shall not be entitled to any further compensation". However, when sub-s. (c) is examined it is obvious that this provision must be read subject to a qualification. Sub-section (c) provides that if the worker subsequently - and this means after recovering compensation - obtains judgment for damages against the person who has, by payment, discharged his obligation under sub-s. (b) to indemnify the employer who has paid compensation to the worker, such payment "shall be, to the extent of the amount of such payment, a satisfaction of the judgment for damages". It is apparent, therefore, that a worker may recover a net amount by way of damages, or partial damages, from a tortfeasor who has discharged his obligation to indemnify the employer. Conversely, he may recover to the full extent of his damages from the tortfeasor where the latter has not discharged his obligation to indemnify the employer. That being so, it is, I think, impossible to construe the second paragraph of sub-s. (a) as imposing upon a worker who has recovered damages an obligation, in every case, to repay the amount which he has previously received from his employer by way of compensation. To construe the section otherwise would, in a case where the worker has recovered only a net amount by way of damages from the tortfeasor, produce the anomalous result that the employer would be entitled to a double indemnity, in effect, out of the amount of the worker's judgment against the tortfeasor. But no such result is produced if we read the second paragraph of sub-s. (a) as applying only to cases where the worker has recovered from the tortfeasor what may, for the purposes of distinction, be called full damages. And, indeed, upon reading the section as a whole, this is what I think the relevant words in the paragraph in question mean. The paragraph operates where the worker "recovers firstly compensation and secondly such damages". What are "such damages"? They are the damages which the tortfeasor is liable to pay by reason of the circumstances in which the injury was caused. They are quantified by his judgment against the tortfeasor and this is the amount which the plaintiff is entitled to recover. But he recovers only part of "such damages" if the tortfeasor, having previously indemnified the employer, treats the amount paid to the employer as a satisfaction, pro tanto, of the judgment for damages. Accordingly, I am of the opinion that upon being indemnified by the tortfeasor the employer has no further right against the worker.

[22]

These observations furnish a clue to the critical question in the case, which is the meaning of sub-s. (b). In terms that sub-section provides that "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" and it is a reasonable assumption that it is not intended to make the tortfeasor liable to pay full damages to the worker and, in addition, to indemnify the employer in respect of the compensation paid by him. But, according to the appellant, the construction for which the respondent contends would, in the circumstances of this case, have the effect of imposing such a double burden. It is true, it is said, that where a judgment for damages is obtained by the worker against a tortfeasor "who has paid under such indemnity" the latter may treat the payment, pro tanto, as in satisfaction of the judgment. But a perusal of the sub-section clearly shows that it has no application, for instance, to the case of an alleged tortfeasor who denies both his liability to the worker and his liability to the employer who has paid compensation. In such a case, if the worker obtains judgment before the employer's right to an indemnity is determined or, indeed, before discharge by payment of the obligation to indemnify, the tortfeasor is not a "person who has paid under such indemnity" within the meaning of the sub-section. Accordingly, in the hypothetical circumstances, it would follow that the tortfeasor would be liable both to pay full damages to the worker and to reimburse the employer the amount of compensation paid by him. That being so, the worker, having recovered compensation, would also recover full damages and, contrary to the expressed intention of the section, would be entitled to retain both, for the employer having been indemnified by the tortfeasor would have no further right against the worker pursuant to the second paragraph of sub-s. (a). This possibility was adverted to in the Full Court, Owen J. observing: "It was said, however, that unless some such limited interpretation is placed upon par. (b) the tortfeasor might have to make a double payment, firstly a payment of damages to the worker or his dependants and thereafter a payment to the employer of the amount of compensation paid by the latter to the worker or to his dependants before the recovery of those damages. But that submission seems to me to be unsound. If the tortfeasor fulfils his obligation to indemnify the employer and pays the latter the amount of compensation earlier paid by him to the worker or to his dependants, he will be entitled to enforce against the worker or his dependants whatever rights against him or them are given to the employer by par. (a). The doctrine of subrogation will operate" [1] . Ferguson J. was also of the opinion that, in the circumstances of this case, the appellant will, after payment to the respondent by way of indemnity, be subrogated to the latter's right against the so-called worker. But if the principles of subrogation apply in such circumstances then I can see no reason why it should not also apply where the worker has made a repayment to his employer out of damages recovered by him from the tortfeasor. Is the worker then to be subrogated to the employer's right to recover an indemnity from the tortfeasor? It is, however, unnecessary to pursue this inquiry, for in my view there is no room for the application of the principle of subrogation in either case. As already appears, the employer's right to a repayment pursuant to the second paragraph of sub-s. (a) ceases to exist when he receives payment by way of indemnity pursuant to sub-s. (b) and, if this be so there is no room whatever for the application of the principle.

[23]

Turning to the language of sub-s. (b) it is of some importance to observe that the right to an indemnity is given against "the person so liable to pay damages as aforesaid". Prima facie, at least, this phrase is indicative of a person presently liable to pay damages and not of a person who is no longer liable. Ferguson J. adverted to this phrase but he was inclined to discount the prima facie view which I have expressed thinking that it "might well be construed as being descriptive only of the person liable to indemnify, that is to say the tortfeasor referred to in the opening words of the section" [2] . No doubt the phrase does require a reference back to the earlier words of the section but consideration of the phrase in the light of the opening words of the section does not result in any weakening of the view that it is indicative of a person presently liable. Indeed the opening words of the section contemplate the existence of a person presently liable to pay damages and the prima facie view which I have expressed is, I think, strengthened rather than weakened by such a reference back. To my mind this is the true meaning of the words in question and upon the proper construction of sub-s. (b) it affords a right of indemnity to an employer only when the tortfeasor is one from whom damages have not already been recovered by the worker and who is, therefore, "so liable to pay damages as aforesaid". Further, this construction is more in keeping with the general framework of the section than that which was given to it by the Full Court. The employer may seek his indemnity from the tortfeasor if the latter has not already paid damages. If he recovers by way of indemnity from the tortfeasor the latter may, in respect of any subsequent judgment for damages obtained against him by the worker, treat the payment made to the employer as in satisfaction, pro tanto, of the judgment. The employer in those circumstances will have no right of recourse against the worker under the second paragraph of sub-s. (a). But if the worker pursues his cause of action and recovers judgment against the tortfeasor before the employer seeks and obtains an indemnity from the latter, the tortfeasor will be bound to pay full damages and, in that event, the employer's right to be reimbursed will be against the worker. The rights of the employer against the tortfeasor and the worker, as I see them, are complementary and not alternative; in one event his right is against the tortfeasor, whilst in the other it is against the worker. That being so, I am of the opinion that the appeal should be allowed, the order of the Full Court set aside and that judgment should be entered for the appellant on the demurrer.

[26]

It is, I think, obvious that in the interpretation of s. 64 some implications have to be made. For instance, compensation which has been paid by an employer who has been indemnified by a tortfeasor pursuant to s. 64 (b) and which, in accordance with s. 64 (c), has been treated as pro tanto satisfaction of a claim for damages in favour of the worker against the tortfeasor is beyond question not repayable by the worker under s. 64 (a). Furthermore, it seems to me that an employer who has paid a worker compensation cannot recover what he has paid both under s. 64 (a) and s. 64 (b). Recovery under one does, I think, preclude recovery under the other. The compelling necessity in interpreting the section for making some implications of a substantial character to reconcile the parts with the whole did incline me to think that s. 64 (b) should be limited to cases where there has been no judgment for damages to give effect to what, according to my first impression, was an overriding intention that where a worker who has recovered compensation recovers damages, the repayment or satisfaction of the compensation paid should be from the damages in one of the ways provided by s. 64 (a) and (c) and that ultimately all that a tortfeasor had to pay when there was a judgment for damages was the amount of the judgment whether it be paid in full to the worker or paid partly to the employer in advance as a reimbursement of compensation pursuant to s. 64 (b) and partly to the worker as damages in accordance with s. 64 (c). Further consideration, however, has convinced me that my first impression of the general intention of the section neglected to take into account all the combinations of circumstances that could arise. In particular, it overlooked the case where an employer has paid compensation and the worker has obtained judgment for damages in a sum smaller than what has been paid by way of compensation. To exclude from s. 64 (b) every case where a judgment for damages has been obtained would, in the particular instance I have given, leave the employer to carry the burden of so much of the compensation paid as could not be repaid pursuant to s. 64 (a) out of the smaller sum of damages. For this reason I reject the simple implication that s. 64 (b) does not apply in any case where judgment for damages has been obtained. I have considered whether a narrower limitation should be implied protecting a tortfeasor against double liability yet taking care of the case where the compensation paid exceeds the damages obtained. A limitation doing this could be to the effect that s. 64 (b) did not apply in a case where the worker has obtained judgment against the tortfeasor in a sum exceeding the compensation paid by the employer with or without the addition that if the worker had obtained judgment for damages in a sum less than the compensation paid, s. 64 (c) would apply only to the difference between the compensation and the damages. I have reached the conclusion, however, that to imply a limitation of this sort would be to go beyond interpreting the section and amount to rewriting it. I have therefore reached the conclusion that the broad and simple limitation would not give effect to the general intention of the section and that the more elaborate implication cannot be justified. It was no doubt intended that in general a tortfeasor should be able to secure himself against double payment, but it would be going much further to imply a term to the effect that in no circumstances can a tortfeasor be called upon to pay more than the damages or the compensation, whichever be the greater. The intention that is apparent is effectuated not by giving a limited application to s. 64 (b); it follows from s. 64 (c).

[29]

Section 64 of the New South Wales Workers' Compensation Act, 1926-1958 consists of four separate articles or paragraphs enumerated as (a), (b), (c) and (d). As the first, (a), itself contains several paragraphs, it is convenient to call these articles sub-sections. Sub-section (b) is a provision that has long had a place in workers' compensation law. Indeed, an enactment in the same - or almost the same - words was in the English Workmen's Compensation Act of 1897. When a worker had elected to receive compensation under the Act from his employer instead of seeking damages from a third party, the employer, having paid such compensation, might seek re-imbursement from the third party. Under the New South Wales Act the worker does not now have to elect between compensation or damages. He may pursue proceedings for both, and obtain both an award of compensation and a judgment for damages; but he cannot retain the fruits of both, his rights in respect of them being adjusted in the manner set out in sub-s. (a) of s. 64. But Doctor Louat was, I consider, correct in his submission that this change in the law, which was made in 1942, did not affect substantially the operation of sub-s. (b). Its words, as well as its history, show that it has no application where a judgment has been recovered against the third party by the injured worker. This is the result, I think, of the construction of s. 64. No implications are needed to support it. The introductory words "where the injury was caused under circumstances creating a legal liability in some person other than the employer to pay damages" refer to a liability arising out of circumstances giving a cause of action. They are scarcely apt words to describe a judgment debt. Sub-section (b) provides for an indemnity by the person "liable to pay damages as aforesaid". These words are not applicable to a person who has discharged his liability by payment: nor, when read in the context of sub-s. (c), are they really apt to describe a judgment debtor.

[32]

One further matter should be noticed. The plea does not state when the judgment in the action under Lord Campbell's Act, which it sets up in answer to this action, was in fact obtained. Therefore by virtue of s. 77 of the Common Law Procedure Act it is to be deemed to be a plea of matter arising before action; and it is on that basis that the demurrer to it must be determined. In reality the facts are otherwise. The action under Lord Campbell's Act was commenced on 9th November 1956: the declaration was filed on 13th March 1957; but the plea, which presumably should have been, and could have been, filed within fourteen days as required by the Rules - it was merely a plea of the general issue - was not in fact filed until 2nd August 1957: and according to the demurrer book, unless it be misprinted, issue was not joined in the action until 12th August 1959, the issues for trial of that action being, as an annexure, made part of the plea in this. Yet in the body of the plea it is alleged that a verdict in that action was returned on 17th March 1959. A plea making such inconsistent allegations of fact should have been struck out. The present action was commenced, we were told, on 6th March 1959. So that, whatever be the correct date of the judgment in the former action, it was after the present respondent had commenced this action. It thus had a good cause of action under s. 64 (b) when the writ was issued. But the appellant, the defendant in the action, did not plead to the declaration, which was filed on 22nd June 1959, until 14th June 1960. In the meantime judgment had been obtained in the other action, and this supplied a defence. It should, being a defence arising after the commencement of the action, have been pleaded "according to the fact" as s. 77 of the Common Law Procedure Act requires. That was not done. But if it had been the result would not have been different, except perhaps in respect of some costs in the Supreme Court. Why in one action the defendant took six months to plead, and twelve months in the other, and why the respective plaintiffs tolerated this delay does not appear. Perhaps all the parties were engaged in some battle of tactics without being certain of their weapons. We are only called upon to decide whether the plea in question was demurrable. If the embarrassing inconsistencies in it be ignored it was not demurrable and the appeal should be allowed.