The 2001 amendments
41 By 2001, significant difficulties were perceived with the operation of the legislation in the field of personal injuries in the workplace. These difficulties were related to the cost of claims - both statutory and common law which were being paid through the managed fund scheme.
42 The history of the introduction in 2001 of legislation amending the WC Act and the WIM Act was turbulent. The first step was taken in March. This first step and events up to June were described by the Minister in the Legislative Assembly on 19 June 2001 in the Second Reading Speech to the Bill that became the First 2001 Amending Act as follows:
"In March of this year the Government introduced the Workers Compensation Legislation Amendment Bill. The Government's primary objective in reforming the scheme is to prevent disputes arising and to provide a simpler, fairer, faster system for resolving disputes in the workers compensation system.
…
That said, the current scheme lets these stakeholders down . For employees there are too many disputes and too many delays in the system. Of all major claims, 45 per cent result in a dispute even though this is meant to be a no-fault system. As a consequence, injury management for workers is delayed, along with the payment of compensation. For employers, the high rate of disputes results in higher premiums. The Government is of the view that far too much of the premium collected is being spent resolving disputes.
When the Workers Compensation Legislation Amendment Bill was introduced the Government made clear its intention to consult with stakeholders, including the Workers Compensation and Workplace Occupational Health and Safety Council, and the Labor Council of New South Wales. I am pleased today to introduce the Workers Compensation Legislation Amendment Bill (No 2). The bill represents the outcome of that consultation process. It achieves the Government's objective of ensuring a simpler and fairer dispute resolution system that protects the rights and entitlements of injured workers. The revised bill includes significant changes that have come out of the consultation process with the New South Wales Labor Council and employer groups."
(emphasis added)
43 The Bill to which the Minister was speaking (which became the First 2001 Amending Act) no longer dealt (as the first Bill had) with Pt 5 of the WC Act.
44 In the Legislative Council, the Minister directly responsible for the portfolio, the Hon John Della Bosca, spoke of the "current scheme" in a way clearly directed to the post-1989 regime. He recognised that further legislation dealing with thresholds and the like may eventuate after the Sheahan Inquiry, that had been established on 6 June and publicly announced, had finished its work. On 26 June 2001, he said:
"Although the current system is meant to be objective, awards for similar injuries can vary widely. The guidelines, using scientific evidence, seek to ensure a greater degree of consistency in decision making. I do not propose to revisit the detail of the proposals; however, the following specific matters should be noted. First, the bill provides that WorkCover will be required to issue guides to assess the degree of permanent impairment, rather than simply relying on the AMA guides . The guides are currently being developed through a consultation process involving eminent medical practitioners, including a number nominated by the Labor Council. The work of these groups is overseen by a consistency group that also includes representatives of the Labor Council. The Government remains firmly committed to continuing this process, particularly the close involvement of the New South Wales Labor Council. The guidelines will also be subject to disallowance by Parliament and this will ensure appropriate scrutiny. The Government has also committed that any proposed changes to the guidelines in future will require scrutiny by the advisory council and medical representatives of the Labor Council.
Second, much has been said about whether it is appropriate to prescribe by regulation the compensation formulas under section 66 and the proposed thresholds under sections 65A and 67. The Government recognises that it would be preferable to include these matters in the principal legislation. In view of the long lead time for implementing this legislation, particularly in relation to the establishment of the commission, the Government needs to have the framework passed so that work can get under way to establish the system. Work on the guidelines will continue however if the legislation is passed. Once the formulas and thresholds have been determined, the Government will move in the following parliamentary session to amend the Workers Compensation Act 1987 to reinsert these matters into the principal legislation so that they cannot be altered by regulation in the future. Third, comment has been made that by proceeding with the bill at the current time the existing common law thresholds will be affected. This is incorrect. The current bill does not affect the so-called monetary or narrative gateway to access common law. This will remain in place until such time as legislation, if indeed any does arise, to implement recommendations of the Sheahan inquiry commences.
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Fifth, it has been suggested to the Government that the transitional provisions contained in the bill will allow regulations to be made that can retrospectively change benefits for lump sum compensation. The bill is retrospective as to process but not in relation to benefit levels. Benefits for permanent loss or impairment will be calculated according to the law in force at the date of injury. This is made clear by clause 3 (1) at page 27 of the bill. It is not the intent of the legislation to confer a regulation-making power on government that could be used retrospectively to apply changes to benefit structures."
(emphasis added)
45 In July 2001, the Parliament enacted the First 2001 Amending Act. A description of its purpose was given on 28 November 2001 by the relevant Minister in the Second Reading Speech to the Bill that became the Second 2001 Amending Act. He said:
"In July this year Parliament enacted the [First 2001 Amending Act]. Its primary objective was to put in place measures to prevent disputes arising and to provide a simpler, fairer and faster system for resolving disputes in the workers compensation system. This legislation was a vital stage of the Government's overall reform program for workers compensation in New South Wales which was announced in June 2000. The Government's July 2001 legislation addressed issues with dispute resolution in relation to claims under the statutory scheme. It did not significantly address claims by injured workers for damages at common law and concerns in relation to both the increasing numbers and costs of such claims.
As honourable members would be aware, measures to amend common law arrangements were included in the Government's March 2001 bill but were subsequently removed from the successor to that bill, the [First 2001 Amending Act]. In May this year the Government agreed with the Labour Council and the Workers Compensation and Workplace Occupational Health and Safety Council - referred to as the council - that there would be further consultation in relation to those areas of particular concern in the March bill, namely benefit entitlements for permanent loss, common law entitlements and the proposed claims assessment service."
(emphasis added)
46 As the Minister stated, after the changes to common law recovery were removed from the first Bill in 2001, a consultation process was undertaken and the Sheahan Inquiry was established. This was described in the Second Reading Speech to the above November 2001 Bill as follows:
"A extensive consultative process involving many meetings between the Government, WorkCover and the Labor Council resulted in agreement being reached on most points, with the previously proposed claims assessment service being replaced by a Workers Compensation Commission. The [First 2001 Amending Act] subsequently established the commission as well as introducing the use of permanent impairment assessment guidelines. All parties to the consultation process agreed that the amendments relating to common law should be deferred whilst an independent inquiry was carried out. The Government appointed the Hon. Justice Terry Sheahan of the Land and Environment Court to conduct the inquiry into the common law issues."
(emphasis added)
47 The Sheahan Inquiry was commissioned under Letters Patent dated 6 June 2001, the terms of reference being expressed as follows:
"1. to recommend the appropriate threshold for 'serious and permanent injury' necessary to recover damages at common law in the WorkCover scheme, consistent with the available measures of impairment in the statutory workers compensation scheme, and maintaining access to common law claims under the [WC Act] and [WIM Act] for seriously injured workers; and
2. to examine more efficient ways to process common law claims under the [WC Act] and [WIM Act]; and
3. to identify ways to reduce unnecessary costs and inefficiencies in the processing of common law claims under the [WC Act] and the [WIM Act] ; and
4. to identify ways to reduce the incentive for pursuing common law claims under the [WC Act] and the [WIM Act]."
(emphasis added)
48 It is to be noted that the subjects of the inquiry were the various aspects of the "common law claims under the [WC Act] and the [WIM Act]", their cost and inefficiencies. This was, in terms, a reference to common law claims in respect of injuries received after 4 pm on 30 June 1987. The terms of reference, identifying as they do the parameters of the mischief, were not directed at all to the subject of causes of action for injuries received before the above time and date.
49 The financial and political reality behind the desire for change and a reduction in cost of common law claims under the WC Act and the WIM Act was described in the Sheahan Report, the Second Reading Speeches for the Bill that became the Second 2001 Amending Act, and the Second Reading Speeches for the Bill that became the First 2001 Amending Act.
50 In a section entitled "The subject matter of the Inquiry", the Sheahan Report stated at pp 2-3:
"In recent years the availability of 'common law' rights, remedies, and damages against one's employer, albeit subject to statutory limitations, has been targeted as a major and unjustifiable source of economic pressure on the relevant 'insurance' scheme, and the so-called 'deficit' of the NSW scheme , foreshadowed first by actuarial assessments of the scheme in 1993 and 1994, has become a major issue of contention in the public arena."
(emphasis added)
51 The Second Reading Speeches dealt with the same issues. In the Legislative Assembly in November, the Minister said:
" The inquiry was asked to consider and make recommendations on an appropriate threshold for recovery of common law work injury damages, to develop incentives to reduce the number of common law claims made and to recommend ways to make the processing of common law matters more efficient. The inquiry was conducted in a highly consultative manner and this is specifically recognised in the report. This included an expert reference group made up of employer, employee and government representatives. The inquiry was conducted against the background of the scheme's significant and growing deficit, which was $2.18 billion as at December 2000 and which has since further deteriorated to just over $2.75 billion as at June 2001."
(emphasis added)
52 What is important to appreciate is that the growing costs of the common law claims related to both the level of verdicts and the costs of litigation which were affecting the funding of the managed scheme. The Minister then went on to explain that the Bill (which became the Second 2001 Amending Act) was directed in two principal ways to reducing the costs of common law claims: (1) raising the thresholds for common law claims and at the same time improving statutory benefits; and (2) improving processes for the making of common law claims to reduce their costs.
53 The Second Reading Speech in November referred to the costs pressure on the current system and these two principal aims of the changes by the Bill that became the Second 2001 Amending Act:
"It is worth putting the impact of common law claims and their high transaction costs in perspective. Each year in New South Wales of the approximately 160,000 workers who lodge claims for workers compensation, the great majority - 140,000 - recover fully and do not suffer any permanent physical or mental loss as a result of their injury. Approximately 80,000 claims are for medical expenses only, that is, the worker does not take any time off work. A further 30,000 claims are for periods of less than five days away from work, and in a further 30,000 claims, the worker is absent for more than five days, but does not suffer permanent impairment. Of the 20,000 workers suffering a permanent impairment and qualifying for common law or non-economic loss benefits, the majority have less serious losses. The report of the inquiry notes at page 4:
If the common law component of the scheme continues to expand, the funds available for the statutory benefits required by the overwhelming majority of injured workers must reduce, thus putting more pressure on those workers to seek a common law option, or a commutation of life-long statutory benefits.
To address this imbalance, the inquiry recommended a single threshold of the 20 per cent permanent impairment. The report of the inquiry explicitly rejects the proposition that only the workers with most serious and permanent injury - often referred to as catastrophic injury - should be entitled to recover damages. Rather, the inquiry took the view on the evidence presented that a threshold of 20 per cent would allow a broader class of workers to have access to a common law remedy. However, after consultation with the Labor Council the Government has accepted the view that with the abolition of the second gateway, a lower threshold of 15 per cent is appropriate. The bill gives effect to this commitment. When there is a dispute as to the degree of permanent impairment of an injured worker, the dispute must be referred to an approved medical specialist [AMS], who will issue a conclusive medical certificate. The decision of the AMS will be appellable to an appeal panel consisting of two AMSs and an arbitrator.
As also recommended by the inquiry, schedule 1.1 to the bill provides that the recovery of common law damages will be restricted to damages for past economic loss due to loss of earnings and damages for future economic loss due to the deprivation or impairment of earning capacity. As to damages for non-economic loss, the report of the inquiry recommends that all such claims should be available only through the statutory scheme. Schedule 1.1, therefore, provides for the abolition of the existing entitlement to recover common law damages for non-economic loss such as pain and suffering. As a consequence of damages for lost earnings only being recoverable at common law, and as recommended by the inquiry, schedule 1.1 also repeals the current requirement to choose or elect between statutory non-economic loss compensation under sections 66 and 67 of the 1987 Act or common law damages.
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The second group of measures , as contained in schedule 1.2, gives effect to the common law inquiry recommendations relating to improved processes for common law claims. The report of the inquiry observed from evidence presented that common law claims were more than twice as expensive to process compared to statutory benefit claims. The report also noted and accepted that the financial position of the scheme required that savings be made, and in Justice Sheahan's view, 'savings must and can be found among the transaction costs associated with the common law component of the scheme …'. Accordingly, the bill adopts the inquiry recommendation that a pre-litigation process be introduced for common law work injury damages claims. The pre-litigation process proposed by the bill requires the parties to exchange information early, respond promptly to offers of settlement and, where possible, settle matters without the necessity of filing proceedings in the court.
The Government is adopting all of the recommendations made by the common law inquiry in relation to the processing of common law claims, with only one minor addition, that is, to provide for a worker to give an early indication to the insurer of allegations of negligence. This will enable the insurer to be in a position to respond to the claim within 28 days. The Government proposes, in view of the current extreme escalation of claim numbers for common law claims and the urgent need to curb costs, that no further claims under the current system be permitted other than those claims that have been filed at the date of the introduction of the bill into Parliament. This step has been taken in order to prevent a further strain being placed on the scheme's financial position. Claims are currently being filed at the rate of 500 per month."
(emphasis added)
54 One important aspect of the procedural changes discussed in these last two paragraphs of the Second Reading Speech directed to the "second group of measures" was the aim to cut off common law claims "under the current system" by reference to filing at the date of the introduction of the Bill into Parliament (28 November 2001, being the very day of the Second Reading Speech). That reference point, the commencement of filing of the common law proceedings, assumes some importance in the language of the Second 2001 Amending Act and in the argument in this Court. It is sufficient to notice, at this point, that the terms of reference of the Sheahan Inquiry, the terms of the Sheahan Report and the terms of the Second Reading Speech to the Bill that became the Second 2001 Amending Act, were all directed to common law claims under the WC Act and the WIM Act or to the "current scheme", being that established in the WC Act by the 1989 Amending Act, the operation of which was amended from 1998 by the WIM Act.
55 No part of the perceived or identified mischief was the cost or burden of common law claims that had been excluded in the clearest express terms from the operation of that scheme by s 151U of, and Pt 14 of Sch 6 to, the WC Act.
56 No part of any available secondary material reveals any mischief or problem necessary to be solved by reference to claims for injuries received before 4 pm on 30 June 1987.
57 No part of any available secondary material reveals any need or desire or purpose to abolish the clear distinction made in the 1989 Amending Act between injuries received before and after 4 pm on 30 June 1987 or to alter, in any way, the rights of persons who received injuries before that time and date. Their common law claims or their rights could not be said to be "under" the WC Act or the WIM Act (as referred to in the terms of reference of the Sheahan Inquiry) or to be "under the current system" (as referred to in the Second Reading Speech to the Bills that became the First and Second 2001 Amending Acts).
58 The above is not undermined in any way by a recognition that the cost of pre-30 June 1987 injury common law claims may have also fallen on the fund. By 2001, they can be taken to have been few in number. They were not part of the expressed mischief.
59 Before turning to the terms of the First and Second 2001 Amending Acts, it is necessary to deal with one complicating factor concerning this secondary material.
60 The 2001 legislation was enacted in two tranches. Important parts of it were enacted in July 2001 in the First 2001 Amending Act. Most importantly in this respect, Ch 7 of the WIM Act, including the definition of the phrase "work injury damages" in s 250 was enacted in the First 2001 Amending Act. However, much of the relevant operation of the First 2001 Amending Act did not come into force until 1 January 2002 by proclamation made on 19 December 2001 (published in Gazette No 195A of 21 December 2001 p 10175). An earlier proclamation dated 3 October 2001 (published in Gazette No 152 of 5 October 2001 p 8487) appointed 5 October 2001 as the day of commencement of some provisions of the First 2001 Amending Act.
61 No provision relevant to the resolution of the construction issues in this appeal commenced before 1 January 2002. The only provisions of the First 2001 Amending Act that commenced on 5 October 2001 were those that inserted the heading to Ch 7 and Pt 10 of Ch 7 dealing with administration.