Section 151Z – A right to indemnity or a right in doubt?

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The New South Wales Court of Appeal recently delivered a decision casting doubt over the circumstances in which an employer may seek an indemnity pursuant to section 151Z (1)(d) of the Workers Compensation Act 1987 (NSW) (WCA).

Facts

JK was employed by ISS Facilities Services (NSW) Pty Ltd (ISS) as a cleaner. He was placed to work in that capacity at a school which was occupied and controlled by the State of New South Wales (State).  Whilst performing his duties at the school, he was struck by a falling roller door, sustaining injury.

The proceedings

JK sued both ISS and the State in the District Court of NSW, alleging that the injuries he sustained were caused by the negligence of the employer and occupier. ISS and the State exchanged joint tortfeasor cross claims, with each seeking contribution from the other in relation to any liability found in them. Relevantly, the cross claim filed by ISS against the State also sought an indemnity in relation to workers compensation payments it had made to for and on behalf of JK, pursuant to section 151Z (1)(d) of the WCA.

At first instance, JK was successful against both ISS and the State. Apportionment of liability was determined at 25% and 75% against ISS and the State respectively.

ISS was also successful in its claim for indemnity under section 1515Z (1)(d) of the WCA against the State; however the primary judge declined to make an award for interest on the indemnity awarded.

The appeal

All parties appealed the primary judgment.

The appeal lodged by the State sought to challenge, amongst other things, the primary judge’s construction of section 151Z (1)(d) in circumstances where ISS had also been found liable to JK. The State contended that in circumstances where an employer is found to have a liability to an injured worker (irrespective of the degree of liability), it could not then rely on section 151Z(1)(d) of the WCA to seek a recovery of the workers compensation payments it has made from a third party. In fact, the State argued that, in such circumstances, a proper construction of section 151Z (1)(d) obviated that entitlement.

The Court of Appeal expressed the view that there was “considerable substance in the contentions advanced by the State” (at [56]). However, as the proceedings were ultimately remitted back to the District Court of NSW for re-hearing of a number of liability issues, no findings were made with respect to that particular appeal point. Nevertheless, the Court of Appeal noted that its “failure to address those questions should not be taken as an endorsement of the conclusions reached by the primary judge“. At [56].

A right to indemnity

The introduction of the Workers Compensation Act 1926 (NSW) (1926 Act) conferred upon employers the obligation to meet compensation payments to injured workers, so long as the injury was work-related. Employer negligence was (and remains) an irrelevant consideration to that obligation.

By virtue of section 64 of the 1926 Act, an employer was entitled to seek an indemnity of the workers compensation payments it had made to, for, and on behalf of, an injured worker, in circumstances where the worker’s injury was caused by a third party’s negligence.

In 1975, the High Court of Australia in Public Transport Commission (NSW) v J Murray-More (NSW) Pty Ltd [1975] HCA 28; (1975) 132 CLR 336 considered the application of section 64 and the circumstances in which an employer was entitled to seek a recovery from a third party tortfeasor. In that case, a worker sustained injury by reason of the negligent acts of both his employer and a third party, the Commissioner for Railways. The worker made a claim for workers compensation, which was met by the employer. Subsequently, the employer sought an indemnity of the compensation it had paid the worker from the Commissioner of Railways in accordance with section 64 of the 1926 Act.  Unanimously, the High Court concluded that:

“… the proper construction of s. 64 (1) would preclude the respondent, as an employer whose negligence has contributed to the occurrence out of which the right of compensation arose, from recovering an indemnity under par. (b) of the sub-section. The right to an indemnity under s. 64 (1) (b) is only given to an employer who has no other liability to the worker in relation to the compensable injury than the statutory liability to pay workers’ compensation.” [at 9].

Thereafter, the position in NSW was that an employer’s right to indemnity from a third party pursuant to section 64 of the 1926 Act, was confined to circumstances where that employer was not also a tortfeasor. That interpretation remained in place despite the repeal of the 1926 Act and the introduction of the Workers Compensation Act 1987 (NSW) (1987 Act). That said, section 150 of the 1987 Act mirrored the wording of its predecessor, section 64 of the 1926 Act.

On 1 February 1996, the WorkCover Legislation Amendment Act 1995 (NSW) (1996 Amendment) came into force. Relevantly, it sought to amend section 151Z, which had superseded section 150 of the 1987 Act, with the intention of enlarging the employer’s right to indemnity from a liable tortfeasor and freeing it from the limitations imposed by the High Court in Murray-More. In fact, the explanatory note accompanying the WorkCover Legislation Amendment Bill 1995 provides:

“It is made clear that, under section 151Z, the entitlement of a workers compensation insurer (who has paid compensation to an injured worker) to be indemnified by a negligent third party responsible for the injury extends to cases where the  worker ‘s employer was partly responsible for the negligence.”

Subsequent to this amending Act, courts have interpreted an employers right to indemnity from a third party tortfeasor much more broadly, permitting a recovery in circumstances where the relevant employer was also a tortfeasor (see, for example: I&J Foods Pty Ltd v Bergzam Pty Ltd [1997] NSWSC 118; J Blackwood and Son v Skilled Engineering [2008] NSWCA 142; Milich v Council of the City of Canterbury (No 2) [2012] NSWSC 450). In those circumstances, the courts have looked to section 151Z(2)(e) of the 1987 Act so as to appropriately account for the employer’s apportionment of liability.

A right in doubt?

Since the introduction of the 1996 Amendment, and over the last 20 years, the position in NSW with respect to an employer’s right to indemnity has remained relatively settled. Put simply, an employer has a right to an indemnity from a third party even in circumstances where it is found to have a liability for the injury sustained by the worker.

Despite recent attempts, third party tortfeasors have failed in bids to  apply the Murray-More interpretation of an employer’s rights under  section 151Z of the 1987 Act (see:Stephenson v Parkes Shire Council [2015] NSWSC 719 and Endeavour Energy v Precision Helicopters Pty Ltd (No 2) [2015] NSWCA 357). What has prevailed is the broader application of section 151Z as envisaged by the 1996 Amendment.

In the present case the Court of Appeal appears to have left the door ajar for third party tortfeasors by providing tacit approval of a narrow construction of section 151Z(1)(d).

Whether the court’s obiter views are able to withstand what appears to be a clear legislative intent to preserve a broad statutory indemnity remains to be seen. In the meantime, employers and workers compensation insurers should continue to prosecute their recovery rights, even in cases where a finding of employer negligence is possible.

This article was written by Joanna Apostolopoulos, Partner and Natalie Bountros, Senior Associate.