Traps and Pitfalls that Reduce 151Z Recoveries By Michael Lamproglou | January 2009 Area of Expertise | 151Z Recoveries
Summary The recovery of workers compensation is not precluded simply because a worker does not recover the same type of damages.
Who Does This Impact? Employers, insurers and scheme agents seeking to recover workers compensation payments.
What Action Should Be Taken? Actively pursue recoveries at an early stage rather than waiting for a worker’s claim for damages to be finalised to avoid the pitfalls which may reduce any eventual recovery.
In Tamerji v Rhee [2008] NSWCA 314, the NSW Court of Appeal considered how to calculate the amount of compensation payments able to be recovered by an employer and the interplay of s151Z(4) and s10(2) of the Law Reform (Miscellaneous Provisions) Act 1965.
The Legislative Framework Where an injured worker receives compensation from his employer and later recovers damages from someone (other than the employer) who caused the worker’s injury, the worker is obliged to repay the compensation.1 If the worker fails to repay the compensation, then the employer, insurer or agent may then take action to recover the compensation directly from the worker. The question raised on appeal in Tamerji was whether compensation of a particular type is only repayable from the damages awarded in connection with that type of loss, for example, whether compensation paid by way of weekly benefits should only be repayable from damages awarded for past economic loss, lump sum compensation from damages awarded for non-economic loss and so on.
Background Mohmoud Tamerji (‘the worker’) was a taxi driver who suffered injuries as the result of a motor vehicle accident in October 2000. The worker claimed compensation from his employer, who made payments as follows: Weekly benefits Medical expenses Lump sum compensation TOTAL
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$ 109,752.90 $ 33,050.29 $ 50,000.00 $192,803.19
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Traps and Pitfalls that Reduce 151Z Recoveries by Michael Lamproglou
The worker also brought a claim for damages against the driver of the vehicle responsible for the accident (‘the driver’). That claim was heard by Judge Goldring in the District Court. His Honour gave judgment on 11 May 2007 in which he assessed the damages payable to the worker in accordance with the Motor Accidents Compensation Act 1999 as follows: Non-economic loss Past economic loss Future economic loss Past medical expenses Future medical expenses Future surgery Past domestic assistance Future domestic assistance TOTAL
Nil $ 35,700 $ 92,628 $ 54,271 $ 57,644 $ 15,000 $ 10,584 Nil $265,827
His Honour determined that there was contributory negligence on the part of the worker which he assessed at 5% and reduced the damages to $252,536 accordingly. The driver’s solicitors subsequently sent the worker’s solicitors a cheque for $256,747.16 being comprised of the verdict less statutory deductions such as Medicare and Centrelink plus $28,000 for the net amount of the worker’s costs as agreed between the parties. The worker’s employer requested that he repay the full amount of the compensation ($192,803.19), however, the worker failed to do so and the employer commenced recovery proceedings against him pursuant to s151Z(1)(b). The worker’s solicitors then paid $104,942.77 into court representing the difference between the sum paid by the driver to the worker ($256,747.16) and the total costs owed by the worker to his solicitors ($151,804.39). Remarkably, the employer conceded that the sum paid into Court represented the full extent of what it could recover. Clearly, as the employer had already commenced s151Z(1)(b) recovery proceedings, the full extent of what it could have recovered should have been $256,747.16, not $104,942.77. The employer then sought an order for payment of $100,555 together with interest and costs comprised as follows: Past economic loss Past medical expenses Past domestic assistance TOTAL
$ 35,700 $ 54,271 $ 10,584 $100,555
The reduced sum of $100,555 was arrived at because the employer conceded that s151Z(4) precluded it from recovering any part of the damages for the future i.e. future economic loss ($92,628) and future expenses ($57,644 plus $15,000). The application was heard by Acting Judge McGrowdie who held that the employer was entitled to the sum claimed plus interest and costs.
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Appeal The worker appealed from Judge McGrowdie’s decision arguing that s151Z(1)(b) should be applied so that compensation could only be recovered if it was a referable to a particular head of damage of the same type. For example, if the worker did not recover damages for non-economic loss then he was not obliged to repay $50,000 that he had received as lump sum compensation pursuant to sections 66 & 67. The decision to pursue an appeal seems remarkable for the fact that the worker had already received some benefit in that: 1. The employer had allowed a lien claimed by the worker’s solicitors over their costs to reduce the funds available out of which it could recover. 2. The employer had applied s151Z(4) in such a way that further reduced the potential recovery.
The Decision Mr Justice Campbell delivered the leading decision in the Court of Appeal with whom Justices Beazley and Ipp both agreed. The Court determined that the expression ‘those damages’ as contained in s151Z refers to the total damages payable to the worker regardless of how the amount of those damages is made up. The damages then represent the fund out of which the worker is liable to repay the total compensation received in respect of the injury. However, His Honour went on to observe that the only place in s151Z where particular heads of damage are mentioned is in s151Z(4) and that: In those cases where an award of damages has been made that includes a lump sum, or other provision for making payments, to cover loss of future earnings or earning capacity for future expenses, those payments intended to make provision for the future of the worker are excluded from the amount of damages from which the worker must repay compensation.
The Court appears to have adopted the employer’s restrictive interpretation of s151Z(4) as being correct, possibly because the point was conceded by the employer and not disputed. The Court also considered how a finding of contributory negligence in a damages action can affect the employer’s right of recovery under s151Z. Although neither party made submissions as to the effect of Judge Goldring’s finding of 5% contributory negligence, s10(2) of the Law Reform (Miscellaneous Provisions) Act provides: If the claimant is liable to repay compensation to his or her employer under... section 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.
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Section 10(2) therefore operates to reduce a s151Z(1)(b) recovery by the same percentage as the contributory negligence reduces the damages recoverable by the worker.
The Moral of the Story Although the employer ultimately obtained a recovery, the concessions made and the delay in pursuing the recovery significantly compromised the amount that was ultimately recovered. By awaiting the outcome of the worker’s own proceedings and then commencing a s151Z(1)(b) recovery against the worker, the employer was disadvantaged to the extent that: 1. The pool of damages out of which the employer was able to recover was reduced from $252,536 to $104,942.77 because the worker’s solicitors claimed a lien over the costs payable to them by the worker. 2. The interpretation of the operation of s151Z(4) further reduced the amount of the recovery to $100,555. 3. The employer was exposed to the application of section 10(2) of the Law Reform (Miscellaneous Provisions) Act 1965 which further reduced the recovery by the finding of contributory negligence (5%). This case highlights the importance of actively pursuing recovery claims at an early stage rather than awaiting the outcome of a worker’s damages claim to produce a recovery. It is only by taking the initiative and commencing proceedings under s151Z(1)(d) against the third party responsible for the worker’s injuries that the above restrictions on a recovery can be avoided.
Practical Implications Any suggestion that compensation of a particular type is not recoverable because a worker did not receive anything under a corresponding head of damage is incorrect. The amount of the damages should be treated as a single fund out of which the worker is liable to repay the total compensation that he or she has received. Be wary of any requests by worker’s solicitors to reduce the recoverable amount by virtue of the operation of s151Z(4). The comments made by the court in this respect were not critical to the decision as it was not in issue and should therefore not be applied as a matter of course. In our view, the language of s151Z(4) clearly indicates that the section is only intended to apply to structured settlements where there is provision for periodic payments of a damages award to be made to a worker in the future (as distinct from a one off payment of a judgment sum). It is also critical that employers do not concede that there should be any reduction of the pool of damages (out of which you obtain a recovery) on account of the worker’s own costs.
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Endnotes 1 s151Z(1)(b) of the Workers Compensation Act 1987
For more information, please contact:
Michael Lamproglou Senior Associate T: 02 8257 5723 michael.lamproglou@turkslegal.com.au
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