GIO GENERAL LIMITED v MALATHOUNIS [1997] NSWCA 124

GIO GENERAL LIMITED v MALATHOUNIS

SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

PRIESTLEY and STEIN JJA, and BROWNIE AJA 22 May 1997, 30 September 1997

[1997] NSWCA 124

Workers Compensation — relationship between Workers' Compensation Act 1926 and Law Reform (Miscellaneous Provisions) Act 1946; addition of insurer as a defendant without leave.

The respondent sued a number of employers for negligence resulting in his contraction of silicosis. The statement of claim was served on the appellant, the insurer of the first defendant. The trial judge ordered that the appellant be joined as a defendant and an award of damages was made against the defendant.

On appeal:

(1) S6 Law Reform (Miscellaneous Provisions) Act 1946 does not apply to policies of workers compensation insurance.

(2) The appellant should not have been added as a defendant without leave.

Held: Appellants arguments accepted.

Spain v Metropolitan Meat Industry Board [1971]1 NSWLR 91 National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400 applied.

Priestley JA Brownie AJA sets out in his reasons the four points which were argued in this appeal.

I agree with the reasons given by Brownie AJA for holding against the appellant on the first point.

As to the second point, I do not think the court should grant leave in the present case for National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400 to be reconsidered. It has stood for sixteen years. Toohey J's remarks about it in Emanuele v Australian Securities Commission (1997) 71 ALR 717 at 725 were not made until after the present appeal had been argued, and were not expressed as being definitive. The question whether this court should consider the correctness of National Mutual or leave it to the High Court to do so should be left until a more appropriate occasion arises before this court.

I agree with what Brownie AJA says about the remaining two points.

In my opinion the appeal should be upheld and orders made as proposed by Brownie AJA.

Stein JA I agree with Brownie AJA and with the orders he proposes.

Brownie AJA The respondent, Mr Malathounis, is suffering from silicosis. He sued a number of defendants in the Dust Diseases Tribunal, claiming that each of them had been his employer, and that each was liable to pay him damages, for negligence and breach of statutory duty. Mr and Mrs Pappas, who were jointly named as "the first defendant", were insured with the appellant. The respondent did not serve the Statement of Claim upon them, but filed a notice of motion seeking, among other orders, an order for leave to bring an action against the appellant pursuant to the provisions of s6 of the Law Reform (Miscellaneous

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Provisions) Act 1946, and an order adding the appellant as a defendant in the action that was pending. Curtis CCJ made those orders.

The appellant attacks those orders upon four bases:

1 S6 of the Law Reform (Miscellaneous Provisions) Act 1946 has no application in the circumstances of this case, because the policy issued by the appellant was a policy of workers' compensation insurance: Spain v Metropolitan Meat Industry Board [1971] 1 NSWLR 91.

2 In any event, it was wrong to make an order adding the appellant as a defendant in the pending proceedings - it was necessary to obtain leave before commencing any action: National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400.

3 The appellant was not the insurer of Mr and Mrs Pappas at the deemed date of injury.

4 His Honour's discretion miscarried on the facts.

The first question: the relationship between the two legislative schemes

S6 of the law Reform (Miscellaneous Provisions) Act 1946 provided:

"(1) If any person (hereinafter in this Part referred to as the insured) has... entered into a contract of insurance by which he is indemnified against liability to pay damages or compensation, the amount of his liability shall on the happening of any event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability...

(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured, and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:

[With an irrelevant exception], no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim have been taken...

(8) Nothing in this section shall affect the operation of any of the provisions of the Workers' Compensation Act 1926-1945, or the Motor Vehicles (Third Party Insurance) Act 1942."

S18 of the Workers' Compensation Act 1926 required employers to obtain an insurance policy from a licensed insurer in respect of their liability to pay compensation under the Act. Subs(3) provided:

"Every policy of insurance or indemnity indemnifying an employer against his liability under this Act shall contain only such provisions relating thereto as are prescribed, but may contain such other provisions relating to liability under any other Act or Commonwealth Act or at common law as are appropriate to any particular case.

Any contravention of this provision shall not annul such policy or diminish or affect the liability of the insurer to the person insured under such policy.

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Every such policy shall provide that the insurer shall as well as the employer be directly liable to any worker insured under such policy and in the event of his death, to his dependents, to pay compensation for which an employer is liable, and that the insurer shall be bound by and subject to any order, decision, or award made against the employer of such worker under the provisions of this Act."

The question depends upon the relationship between the third paragraph of s18(3) of the Workers' Compensation Act 1926, and s6 of the Law Reform (Miscellaneous Provisions) Act 1946. Curtis CCJ said:

"That the liability of the insurer to the worker attached as soon as a compensable injury occurs was made clear by the decision in Coleman v The Mercantile Mutual Insurance Company Ltd [1933] WCR 232; see also Miller v Law Union and Rock Insurance Co Ltd (1969) 71 SR (NSW) 201. This liability was independent of any right of the insurer to avoid the policy because of ant subsequent conduct of the insured."

His Honour had started by examining the provisions of the Workmen's Compensation Act 1910; and he then painstakingly analysed the multitude of legislative changes, distinguishing between the relative positions of workers and employers, employers and insurers, and workers and insurers. He looked at the position where a worker received an "injury" in the conventional sense, and when a worker suffered from silicosis, or some other disease of gradual onset; he distinguished between the right of an injured worker to compensation, either under the Workers' Compensation Act 1926 or other legislation, from a right to damages, in these various circumstances; and he examined the obligation of an employer to insure against liability in all these cases.

He concluded that since an injured worker had an existing right to compensation or damages, as against his employer, nothing in any of the legislative changes took away that right; and that s6 of the Law Reform (Miscellaneous Provisions) Act 1946 should therefore apply, in favour of the respondent. In his Honour's view, that was the position when that Act was enacted in 1946, and it had not changed since.

The appellant submits that this decision cannot stand consistently with the decision of Isaacs J in Spain v Metropolitan Meat Industry Board [1971] 1 NSWLR 91; and this is plainly correct. However, the respondent now submits that Spain was incorrectly decided; and we must decide whether that is so.

In my respectful view, Curtis CCJ was in error at his starting point, quoted above: although in one sense the liability of an insurer to a worker attaches as soon as a compensable injury occurs, that liability is at that stage only a conditional liability; and this is made clear by a series of cases. In Devine v Devine and Queensland Insurance Co Ltd (1928) 28 SR (NSW) 503 at 508-509, Ferguson J, delivering the judgment of the Full Court, said of s18(3) of the Workers' Compensation Act 1926:

"The discussion before us has turned chiefly on the interpretation to be put on the words 'the compensation for which an employer is liable'. There are two senses in which the expression might be used. The moment the worker meets with an injury under the conditions specified in s7, the employer is liable to him for compensation, but the amount of compensation is still a matter for assessment and award under the Act. When the amount has been assessed and awarded, the employer's liability is converted into a liability to pay that amount. The question is which of these two forms of liability is contemplated by the section when it says that the insurer as well as the employer shall be liable. Does it mean that the

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insurer shall be liable to have the compensation in the first place assessed as against him, or does it mean that when it is assessed and awarded he, as well as the employer, shall be liable to pay it?

I have come to the conclusion that the second is the sense in which the Legislature used the words in question, and that the original proceedings for the establishment of liability must be between the worker or his dependents on the one side and the employer on the other..."

Nothing in Coleman or in Miller cuts down on this. To the contrary, in Coleman, Harvey ACJ said at 242, referring to Devine:

"But in any event I think the main purpose of s18 which was to secure payment by the insurance company of compensation if awarded against the employer should be given effect to."

Similarly, Halse Rogers J said, at 244-245 and 246-247:

"Tt will be noted that the statute does not provide for privity of contract between the insurer and the worker; it does not make the worker a party to the policy, it provides merely that the insurer shall by its policy contract with the employer to be directly liable in certain events to the worker. So that the worker is not entitled to claim against the company directly (Devine...). But the Legislature has provided protection for the worker by making it obligatory for the insurer to undertake in the policy to 'be bound by and subject to any order, decision or award' made by the Commission affecting the employer. The matter would have been more simple if the statute had provided is so many words that in certain cases the worker should be entitled to enforce an order or award directly against the insurer, but the necessary intendment of the section is to that effect...

The position is that at the time of the accident there was an effective policy in force. On the happening of the accident the insurer became liable to indemnify the employer against any compensation which might be awarded. The employer might lose this right to indemnity by breach of condition. But at the time of the happening of the accident the insurer was under a binding promise that he was 'directly liable to the worker to pay compensation for which the employer is liable and in respect of which the employer is indemnified under this policy.' At the time of the accident the employer was liable for such compensation as the Commission might award, and he was indemnified under the policy in respect of that. At that moment the rights of the worker crystallised, and at that moment the promise of the insurer as to direct liability became in a sense operative. It may be that the employer could not enforce the promise as to direct liability on behalf of the worker after the disclaimer by the company, but nothing that the employer could do after the accident could alter the fact that the worker had immediately a claim for compensation against the employer and that the insurer, by virtue of the promise in the policy, was directly liable to him."

In Miller, Wallace P said, at 209 and at 212:

"...once it is accepted chat the principles enunciated in Devine 's case are correct, and that the worker has been given by s18 the right to claim directly against the insurer providing he has first obtained an award against his employer, then, as a matter of construction and putting aside any question of invalidity, there seems to me little room for qualifying the rights given in such clear terms by the section...

... Once it is accepted that Devine 's case correctly construed the legislative intendment in s18 in holding that the worker could thereunder directly claim against the insurer (and without recourse to s36C of the Conveyancing Act 1919,

URJ GIO GENERAL LIMITED v MALATHOUNIS (Brownie AJA) 5

as amended) after an award had been made in his favour..." Similarly, Asprey JA at 219 and at 223 - 224 quoted from the Ferguson J in Devine, and said that the legislative changes effected in 1953, making it compulsory for an employer to insure against liability to pay damages, as well as liability to pay compensation under the Act, had made no change: the direct liability of the insurer to the worker only arose after award, or judgment. His Honour said:

"In these circumstances, although the Act itself and s18 has received the attention of the legislature on various occasions, the form of the paragraph, as construed by the Full Court in Devine 's case, has not been altered."

At 225, Holmes JA said that it was established by Devine that the worker must first establish the liability of the employer to compensate him; and he referred to Coleman in the same context.

I should refer briefly to two other decisions, before coming to Spain. In Brakespeare v The Northern Assurance Co Ltd (1959) 101 CLR 661 the High Court was concerned with a policy of insurance issued under the Workers' Compensation Act of Western Australia. However, at 665, the court cited Devine and Coleman with apparent approval; and in McNellee v Co-Operative Insurance Co of Australia Ltd (1964) 64 SR (NSW) 295 at 299 Herron CJ treated Brakespeare as further authority for the proposition established by Devine and Coleman, that the direct liability of an insurer to a worker only arises when the worker has first established the liability of the employer; and both Maguire and Nagle JJ accepted Devine and Coleman as correct.

In Spain, Isaacs J had to consider two questions: whether s6 of the Law Reform (Miscellaneous Provisions) Act 1946 applied to a claim for contribution between tortfeasors, as distinct from a claim for damages or compensation; and whether it applied to a claim arising under a policy of worker's compensation insurance. Only the second of these questions is relevant now.

As to this, Isaacs J noted the history of s18 of the Workers ' Compensation Act 1926, and the cases construing it; noted the provisions of s6(8) of the Law Reform (Miscellaneous Provisions) Act 1946; and noted the fact that in 1953, the amending legislation required employers to insure against liability to pay damages, as well as compensation. At 102, he observed that the legislature was presumed to have known of the interpretation placed upon s18; and he continued:

"Tn my view the same reasoning applies to this extended common-law form of liability created by the statute, and so in the case of a policy taken out by an employer under the Workers' Compensation Act in respect of his common-law liability the operation of s18 of the Workers' Compensation Act makes such a policy and its indemnity one operating under that Act and restricts the enforceability of the claim against the insurance company and restricts the liability of the insurance company to pay to a situation where there has first been a recovery by verdict and judgment against the employer for such damages. But for subs(8) of s6 of the Law Reform (Miscellaneous Provisions) Act there would be, after the passing of the latter Act, a diametrically opposite situation created by the Law Reform Miscellaneous Provisions) Act in favour of the worker injured by an employer's negligence to that contained in s18 of the Workers ' Compensation Act as interpreted judicially in Devine 's case, because the latter section only gives rise to recourse to the insurance moneys against the insurance company after liability has been established by judgment against the employer, whereas s6 gives the right to bring the action under subs(4), with the leave of the court, notwithstanding that the amount of the liability may not have been determined..."

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After quoting from the judgments in McNellee, his Honour continued at 104:

"Shortly put, the Workers' Compensation Act provides its own code as to the rights of a worker to resort to insurance moneys in respect of liabilities for which the employer is liable or may become liable to his employee at common law and for which he has become insured.

It is because of the inconsistency which would otherwise arise between s6 of the Law Reform (Miscellaneous Provisions) Act and s18(3) of the Workers' Compensation Act that subs(8) was inserted. It cannot be right that the injured plaintiff should have direct recourse under s6 to the insurance moneys by action under subs(4) before the employer's liability has been established in respect of his common-law liability and at the same time be prevented by judicial interpretation and operation of s18(3) from having recourse to the same insurance moneys under the Workers' Compensation Act until after the determination of the same liability. So that the practical effect of subs(8) is of great significance in the present case, because the insurance moneys in the instant case are those provided for by a policy issued pursuant to s18 of the Workers' Compensation Act, and is a policy in respect of, inter alia, the plaintiffs employer's liability at common law to the plaintiff (sic). No other reason exists, so far as I am able to ascertain, for the inclusion of subs(8) in s6 but good reasons exist for its inclusion."

In my respectful judgment, this was a correct view of the law; and it is of no moment that, since then, s6(8) of the Law Reform (Miscellaneous Provisions) Act has been amended, so that it now reads:

"Nothing in this section shall affect the operation of any of the provisions of the Workers Compensation Act 1987 or the Motor Vehicles (Third Party Insurance)Act 1942."

The reasoning that leads to the conclusion that s6(8) of the Law Reform (Miscellaneous Provisions) Act 1946 did not affect the operation of policies issued pursuant to the provisions of the Workers' Compensation Act 1926 are at least as apt in the case of policies issued under the Workers ' Compensation Act 1987. Indeed, the position might well be regarded as stronger, in that the legislature chose to use the same form of words here, whilst generally redrawing the workers compensation legislation, and making a consequential amendment to the Law Reform (Miscellaneous Provisions) Act 1946, and whilst knowing how the Workers' Compensation Act 1926 had been construed by the courts.

The respondent also submitted that the position changed, after the decision in Spain, when the Workers' Compensation Act 1926 was amended in 1964 by inserting s49A, which was in these terms:

"(1) The Commission may on application by a worker and if satisfied as to the matters so declared, declare that an employer has entered into a contract with an insurer, named in the declaration, in respect of any liability under this Act to that worker and that the employer -

(a) being a natural person, has died, or is permanently resident outside the Commonwealth of Australia and its Territories, or cannot after due inquiry and search be found; or

(b) being a corporation (other than a company which has commenced to be wound up) has ceased to exist (other than a company which has commenced to be wound up); or

(c) being a company, corporation, society, association or other body (other than a company which has commenced to be wound up) was at the time when it commences to employ the worker incorporated outside the Commonwealth of Australia or its Territories and registered as a

URJ GIO GENERAL LIMITED v MALATHOUNIS (Brownie AJA) 7

foreign company under the laws of any State or Territory of the Commonwealth of Australia and is not at the time of the declaration so registered under any such law.

On the Commission making such a declaration, the rights the employer has or would, had the employer not died or being a corporation ceased to exist, have had against the insurer as respects that liability shall be transferred to and vested in the worker.

(2) Where by operation of this section the rights of an employer against an insurer are transferred to and vest in a worker, and the liability of the insurer to the worker is less than the liability of the employer to the worker, then the worker may, if the employer -

(a) has not died or, being a corporation, ceased to exist, proceed for the balance against the employer;

(b) has died, proceed for the balance against the employer's personal representative."

In my judgment, the enactment of s49A by the legislature, knowing how the Workers' Compensation Act 1926 had previously been construed, does nothing to lead to the conclusion that, by inference or implication, the decision in Spain was thereby overruled. To the contrary, the new section appears to have assumed the correctness of that decision, and of cases such as Devine, Coleman and McNellee, and to have added a further gloss on the established rule, that a worker cannot proceed directly against an insurer, but must first obtain some decision against the employer. Now, when the employer answered one of the descriptions contained in s49A, the worker might proceed by a different route, but only in those limited circumstances.

The second question: is it necessary to obtain leave to sue in separate proceedings?

In National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400 this Court held unanimously that it was. It is true that the correctness of this decision had not been universally accepted: see Dixon v Royal insurance Australia Ltd (1991) 105 FLR 129, Ciric v CE Heath Underwriting and insurance (Australia) Pty Ltd (1993) 91 NTR 26, on appeal 99 NTR 1, and Emanuele v Australian Securities Commission (1995) 141 ALR 506; but it was plainly a decision binding upon Curtis CJ, and he should have applied it: see, for example, Proctor v Jetway Aviation Pty Ltd [1984] 1 NSWLR 166 at 176-180.

Since the hearing of this appeal the High Court has delivered judgment on the appeal from the decision in Emanuele (5 June, not yet reported). I consider that if National Mutual is to be re-argued, it should be done by reference to what the High Court said in Emanuele. Since a decision on the point would not make any difference to the outcome of this case, I propose that leave to re-argue National Mutual be refused.

Conclusions

It is therefore unnecessary to deal with the third and fourth questions, but I should add that both questions are plainly arguable.

I record that no point was taken concerning the misnomer of the appellant at one stage.

I propose the following orders:

1 Appeal allowed.

2 Set aside the orders made by Curtis CCJ on 28 August 1996, and remit the case to the Dust Diseases Tribunal.

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3 Order the respondent to pay the appellant's costs of the appeal, but grant to the respondent a certificate under the Suitors' Fund Act 1951.

Appeal allowed. Set aside orders made by Curtis CCJ on 28 August 1996, and

5 remit the case to the Dust Diseases Tribunal. Order the respondent to pay the

appellant's costs of the appeal, but grant to the respondent a certificate under the Suitors' Fund Act 1951.

Counsel for the appellant: I Hislop QC and G Rundle

10 Solicitors for the appellant: P J Forbes-Smith

Counsel for the respondent: M Joseph QC

Solicitors for the respondent: TS Menounos & Associates