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Traps and Pitfalls in 151Z Recoveries – Part 2 By Michael Lamproglou & John Hick | March 2009 Area of Expertise | 151Z Recoveries

Summary The amount of compensation required to be repaid out of the damages recovered by an injured worker from a negligent third party will be reduced to the extent of the worker’s contributory negligence even where the damages claim is settled rather than being determined by a court.

Who Does This Impact? Employers, scheme agents and self insurers who are seeking to recover workers compensation payments.

What Action Should Be Taken? Recovery actions against negligent third parties should be commenced as early as possible rather than awaiting the outcome of a worker’s damages claim before seeking a recovery.

On 12 March 2009, the High Court handed down its decision in Hickson v Goodman Fielder Limited [2009] HCA 11. The Court held that the amount of the workers compensation required to be repaid out of the damages recovered by the worker, following a settlement of his claim against the negligent third party, should be reduced in the same proportion as the damages would have been reduced on account of the worker’s contributory negligence. This was despite the fact that the degree of contributory negligence had not been determined.

Background On 12 March 2003, the worker (Mr Hickson) was injured as the result of a collision between his push bike and a motor vehicle driven by Mr Ala. The accident occurred whilst the worker was riding home from work. Therefore, it was a journey to which s 10 of the Workers Compensation Act 1987 (‘the WC Act’) applied and compensation was paid to, for and on behalf of the worker totalling $607,315.43. The worker brought proceedings against Mr Ala claiming damages that were eventually settled for $2.8 million dollars plus costs. Mr Ala pleaded contributory negligence as part of the defence to the claim and this was considered to have been a ‘live issue’ in the proceedings. The day after the worker’s damages claim settled, Goodman Fielder (the worker’s employer) commenced recovery proceedings against the worker pursuant to s 151Z(1)(b) of the WC Act.

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Traps and Pitfalls in 151Z Recoveries – Part 2 by Michael Lamproglou & John Hick

The Issue Section 9(1)(b) of the Law Reform (Miscellaneous Provisions) Act 1965 (‘the LR Act’) states: the damages recoverable in respect of the wrong are to be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage.

As a consequence, any damages payable to an injured worker will be reduced to the extent to which the worker’s contributory negligence is found to have been responsible for the accident. Section 10(2) of the LR Act provides: If the claimant is liable to repay compensation to his or her employer under … s 151Z of the Workers Compensation Act 1987 1987, the amount of compensation so repayable is to be reduced to the same extent as the damages recoverable by the claimant are reduced under section 9.

The question then raised was whether the workers compensation payback should be reduced on account of the worker’s contributory negligence where the worker’s contributory negligence was not determined by a court.

District Court The recovery claim was listed for hearing before Judge Kearns who held that there should be a reduction of the workers compensation payback on account of the worker’s contributory negligence notwithstanding that the worker had settled his claim for damages and the worker’s contributory negligence was not determined by a court.

Court of Appeal The employer appealed to the NSW Court of Appeal who overturned the decision of Judge Kearns on the basis that there should be no reduction of the workers compensation payback amount unless the degree of contributory negligence was the subject of a finding by the court.

High Court The worker then appealed to the High Court which was unanimous in setting aside the orders of the Court of Appeal and finding that a reduction of the payback will follow a settlement of the worker’s damages claim and does not require a judicial determination as to the degree of contributory negligence on the part of the worker, despite the wording of s 9(1)(b) and s 10 of the LR Act. The leading judgment was handed down by Justice Bell who referred to the definition of damages contained in s 149(1) of the WC Act which includes ‘… any amount paid under a compromise or settlement of a claim for damages’.

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Traps and Pitfalls in 151Z Recoveries – Part 2 by Michael Lamproglou & John Hick

Her Honour noted that s 151Z(5) specifically states that the section applies to the recovery of compensation or damages whether or not the compensation or damages were paid under an award or judgment. For example, compensation or damages may be paid under an agreement. The Court determined that the damages ‘to which s 151Z speaks’ includes any amount paid under the settlement of the tortfeasor action. While the closing words of s 10(2) of the LR Act describe the reduction as being to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage, this may then necessitate a ‘trial within a trial’ as part of the recovery proceedings. This approach may produce the curious situation where a worker who settles his or her claim for damages may then benefit by exaggerating the extent of their contributory negligence in any subsequent recovery proceedings brought against them by the employer pursuant to s 151Z(1)(b). The Court also confirmed that the reduction of the payback will be proportionate to the reduction of the damages as distinct from being reduced by the same amount (as argued by the worker).

The Moral of the Story The amount of the workers compensation payback may potentially be reduced in those cases where recovery proceedings are brought after the worker has already recovered damages, if there was any contributory negligence on the part of the worker. The reduction on account of contributory negligence arguably only applies to recovery claims brought against workers pursuant to s 151Z(1)(b) and not to recovery claims brought directly against negligent third parties under s 151Z(1)(d). The trap then lies in adopting a ‘wait and see’ approach where workers are left to bring their own claims for damages rather than employers actively pursuing recovery actions against third parties. The decision by the High Court will undoubtedly increase the number of requests from worker’s solicitors to reduce the payback on account of contributory negligence prior to settling their client’s damages claims. If agreement cannot be reached in relation to the degree of contributory negligence, then recovery proceedings will need to be commenced under s 151Z(1)(b) in order to conduct a ‘trial within a trial’ by which to determine the issue. Curiously, the worker will stand to benefit by giving evidence that may have been directly contrary to the evidence that they would have given at the hearing of their damages claim. In order to maximise recoveries and limit the likelihood of there being a reduction of the payback, employers should actively pursue recoveries under s 151Z(1)(d) against negligent third parties.

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Traps and Pitfalls in 151Z Recoveries – Part 2 by Michael Lamproglou & John Hick

For more information, please contact:

Michael Lamproglou Senior Associate T: 02 8257 5723 michael.lamproglou@turkslegal.com.au

John Hick Partner T: 02 8257 5720 john.hick@turkslegal.com.au

Sydney | Level 29, Angel Place, 123 Pitt Street, Sydney, NSW 2000 | T: 02 8257 5700 | F: 02 9239 0922 Melbourne | Level 10 (North Tower) 459 Collins Street , Melbourne, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099 Insurance & Financial Services | Commercial Disputes | Workers Compensation | Business & Property

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Traps and Pitfalls in 151Z Recoveries – Part 2  

The amount of compensation required to be repaid out of the damages recovered by an injured worker from a negligent third party will be redu...

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