ala_tort_reform_submissions_nsw by niusheng11


									              AUSTRALIAN LAWYERS ALLIANCE



  (i)     Bring in a single system of compensation based on the Civil Liability
          Act 2002.
  (ii)    Revert to a 3% discount rate in all cases.
  (iii)   Require disclosure of insurer profits in each area of insurance.
  (iv)    Repeal s338 of the Legal Profession Act 2004 to restore equality of
          cost bargaining.
  (v)     Allow adequate cost recovery.
  (vi)    Review the Civil Liability Act 2002, Motor Accidents Compensation
          Act 1999 and Limitation Act 1969 to deal with obvious injustices and
  (vii)   There is clear evidence of excessive insurer profits permitting more
          adequate compensation for those with significant injuries.

An urgent review of these matters should have the above principles/proposals
in mind.


The current situation

The changes to tort law in recent years have left us with a disjointed system
with four major different compensation schemes in NSW:

a)     Public liability (eg. Occupiers liability, accidents i n public places) and
       Medical Negligence. These claims are governed by the Civil Liability
       Act 2002.
b)     Motor vehicle accidents. These claims are governed by the Motor
       Accidents Compensation Act 1999 (with some aspects of the Civil
       Liability Act 2002 also applying).
c)     Work accidents. These claims are governed by the Workers
       Compensation Act 1987, the Workplace Injury Management and
       Workers Compensation Act 1998, and in part also by the Civil Liability
       Act 2002 and Motor Accidents Compensation Act 1999.
d)     Intentional acts/assaults. These claims are specifically excluded from
       the operation of the Civil Liability Act and therefore common law still

For each of these types of claims there are different thresholds, different
methods of assessment of damages for pain and suffering, different heads of
damages available and different caps on the amount which can be awarded.
This is quite apart from schemes representing special deals, such as that for
coalminers and that for police. This is contrary to the recommendations of the
Ipp Committee in their Review of the Law of Negligence Report 1, which
recommended as follows:

        “Overarching recommendation

        Recommendation 2

        The Proposed Act should be expressed to apply (in the absence of
        express provision to the contrary) to any claim for damages for
        personal injury or death resulting from negligence regardless of
        whether the claim is brought in tort, contract, under a statute or any
        other cause of action.
        Paragraphs 2.2 – 2.3‖

It is also contrary to the unanimous recomme ndations of the Legislative
Council General Purpose Standing Committee of December 2005 2 as follows:

  Review of the Law of Negligence Report, 2 October 2002, available at au/content/review2.asp
  Available at: f/0/6DEB694C553E 0DB 8CA 25

          ―…the Committee believes that where individuals suffer permanent
          injury with no realistic prospect of recovery, they should have access to
          the same level of compensation, regardless of whether their injury
          occurred in the workplace, a motor vehicle accident or in a public

These differences cannot be logically justified. The same injury should get the
same compensation regardless of whether the injury occurred in the
workplace, a motor vehicle accident or in a public place. Money should not be
wasted litigating over whether a factory injury involving an unregistered forklift
is a motor accident or an employment injury or a case of occupiers liability,
with very difference consequences (in terms of the damages available) for the
injured party. These differences create unjust results, as noted by the Ipp
Committee in the Review of the Law of Negligence Report as follows:

          ―The differences between the la w applicable in the various jurisdictions
          also give rise to perceptions of injustice. There is no principled reason,
          for example, why a person should receive less damages for an injury
          sustained in a motor accident than for one suffered while on holiday at
          the beach. There is also no principled reason why there should be
          large differences in damages awards from one jurisdiction to another.‖ 4

The toughest thresholds are for employees, most of whom have effectively
lost the right to sue their employer if injured through negligence at work. A
person injured, through the negligence of their employer, must reach a
threshold of 15% whole person impairment before they are entitled to sue
their employer, regardless of how gross the negligence on the part of their
employer has been. Take for example, the recently publicised case involving
the nurse injured during the course of her employment at the decaying
Hornsby Hospital. If the nurse is not assessed at 15% whole person
impairment she cannot sue her employer in negligence.

If a person has been injured during the course of their employment, but the
negligent party is not the employer (such as in a situation where their
employer is a labour hire company), then damages are assessed under the
Civil Liability Act 2002 against the negligent third party. Why should the rights
and compensation be greatly different between two factory workers who, side
by side, are doing the same job but one of whom is under a labour hire
arrangement and the other of whom is a direct emp loyee?

To get damages for pain and suffering in a motor accident, you must establish
more than 10% whole person impairment. This means that if you have
fractures of both legs and both arms, are off work for six months, require total
care for most of that period and have been in severe pain, because you make
a generally good recovery, you get nothing for pain and suffering. The

 NSW Legislative Council General Purpose Standing Committee No. 1, Personal injury
compens ation legislation, page x viii.
    Review of the Law of Negligence, above n1, at 13.13.

impairment is not permanent. If the prognosis is five years of severe
depression, because this is not permanent, you get nothing. If you have a
10% permanent physical impairment and a 10% permanent psychological
impairment, because the two cannot be aggregated together and neither
exceeds 10%, you get nothing for pain and suffering. If pain in an arm or a leg
is so severe that you cannot use it but you have not lost the physical and
theoretical capacity to use it, your permanent impairment is assessed at

In addition the method of assessing the level of whole person impairment is
different for motor accidents and work accidents. For motor accidents the
American Medical Association (AMA) Guides edition 4 is used where as
edition 5 is used for work accidents. In both cases, the guides states that they
are not suitable for the use to which they are put in NSW.

The proposal for reform

The ALA proposes that there should be a single system of compensation in
NSW and that system should be the one contained in the Civil Liability Act
NSW 2002. This would effectively involve amending the Motor Accidents and
Workers Compensation legislation to mirror the damage provisions contained
in the Civil Liability Act 2002. 5

Importantly, this would bring the threshold for entitlement to compensation for
pain and suffering to 15% of a most extreme case, regardless of how the
person was injured. This threshold was recommended by the Ipp Committee
which stated that ―a threshold based on 15 per cent of a most extreme case is
more likely to be adopted and effectively implemented in all jurisdictions than
one based either on a monetary amount or on a system of objective
assessment of impairment.‖6 It was also specifically recommended by the
NSW Legislative Council Standing Committee in 2005. In this regard, the
Committee, stated as follows:

           ―The Committee believes that the current 10% WPI thresholds for
           accessing non-economic loss damages under the Motor Accidents
           Compensation Act 1999 and the Workers Compensation Act 1987
           should be discontinued, in favour of the test used in the Civil Liability
           Act 2002, namely a threshold of 15% of ‗a most extreme case‘, coupled
           with a sliding scale of damages until the severity of the non-economic
           loss reaches 33% of ‗a most extreme case‘, as judicially assessed.
           Importantly, this measure encompasses an assessment of disability,
           not just impairment.‖7

  This would not affect Workers Compensation claims where there was no fault on behalf of
the employer. The Workers Compensation benefits that are available on a no-fault basis
would be excluded from the proposed changes.
    Ibid at 13.47

7 NSW Legislative Council General Purpose Standing Committee, above n3 at xxi.

It is the ALA’s submission that bringing all compensation entitlements to the
standards currently imposed by the Civil Liability Act 2002 would be fair and
affordable. In relation to the affordability of the proposed changes, the ALA
makes the following points:

a)        The proposed scheme would maintain the current situation whereby
          those with minor injuries would be excluded from receiving
          compensation from pain and suffering. It would still be necessary for an
          injured person to have injuries that constitute at least 15% of a most
          extreme case.

b)        There would be significant savings in administrative costs in having a
          scheme that does not require medical assessors to determine the issue
          of entitlement to compensation for pain and suffering. Currently in the
          motor accidents and workers compensation schemes there are
          administrative bodies (the Medical Assessment Service and the
          Workers Compensation Commission) that employ hundreds of medical
          assessors, and even more administrative staff, to assess and process
          disputes about entitlement of compensation to pain and suffering. The
          money that is spent on these assessments could be better spent
          providing compensation to those that have suffered significant injuries
          in accidents.

c)        The current schemes are more profitable than predicted and there are
          sufficient funds available to provide for the proposed changes. By way
          of example, the Legislative Council General Purpose Standing
          Committee noted:

          ―However, the evidence specifically on the profitability of CTP and
          public liability insurers does suggest that they have been making strong
          profits in recent years following the introduction of the Motor Accidents
          Compensation Act 1999 and Civil Liability Act 2002.‖8

          The Annual Reports of the Motor Accidents Authority 9 have been
          analysed by Cumpston Sarjeant consulting actuaries. A copy of their
          report, accepted by the Legislative Council General Purpose Standing
          Committee is attached. An update report on the Motor Accidents
          Compensation Scheme is attached to these submissions as well. One
          of the findings made by Cumpston Sarjeant is that the claims costs
          contained in the prospective premium filings were significantly higher
          than were actually experienced. In turn, the lower than expected claims
          costs provided significantly higher profits to insurers than were allowed
          for in the prospective filings.‖

    NSW Legislative Council General Purpose Standing Committee, above n3 at xix.
    Available at :

The ALA urges the NSW government and opposition to adopt as a principle
the need for a single system of compensation in NSW.


The current situation

The State Government has imposed a 5% discount rate for future losses. That
assumes that a lump sum can be securely invested to return 5% after tax and
inflation. We know from historical material and from good actuarial evidence
that that is impossible.

The Motor Accidents Authority itself assumes a 2% return on its own
investments after tax and inflation. The rate in England is 2½% and there is
pressure to reduce it, not increase it.

The consequence of having a discount rate that is too high is that those with
long-term care needs, such as quadriplegics and severe brain-damaged
infants, will get between 25 and 30% less than they need to survive. Their
money will run out decades early. For some with high level care needs, this is
an effective death sentence. Those with the greatest needs suffer the greatest
discrimination. This is a disgrace. Because many of the inadequately
compensated victims become a burden on the taxpayer, what is really
occurring is an exercise in cost shifting between State and Commonwealth.
The public still has to pay.

The proposal for reform

The Ipp Report and the Legislative Council Report unanimously
recommended a 3% discount rate. In this regard the Ipp Committee states:

          ―…in the Panel‘s opinion, using a discount rate higher than can
          reasonably be justified by reference to the appropriate criteria would be
          an unfair and entirely arbitrary way of reducing the total damages bill.
          Furthermore, we have seen that the group that would be most
          disadvantaged by doing so would be those who are most in need —
          namely the most seriously injured. It would be inconsistent with the
          principles that have guided our thinking in this area to reduce the
          compensation recoverable by the most seriously injured by increasing
          the discount rate, simply because damages awards in serious cases
          could thereby be significantly reduced. In this context, it should be
          noted that although an increase in the discount rate can yield large
          reductions in awards in serious cases, such cases represent only a
          relatively small proportion of the total compensation bill.‖10

The Legislative Council Report relevantly stated:

     Review of the Law of Negligence, above n1 at 13.105.

          ―On a separate issue, the Committee also notes that all areas of
          personal injury law in New South Wales apply a discount rate of 5% to
          future economic loss damages paid as a lump sum. This discount rate
          is intended to acknowledge that a plaintiff awarded a lump sum gains
          control of that money straight a way, allowing the plaintiff to invest the
          money and gain interest. However, the Committee is concerned that
          the 5% discount rate is simply too high, meaning that many
          permanently injured people who receive a lump-sum will not have
          sufficient income on which to live in the future, and believes that a 3%
          discount rate would be more appropriate, in line with the
          recommendation of the Review of the Law of Negligence Report.
          Importantly, while other Government reforms to personal injury
          compensation law, notably the use of the thresholds, have sought to
          limit the amount of damages payable to the less seriously injured, the
          5% discount rate affects the most seriously and catastrophically
          injured, who are most in need of assistance. 11

The ALA submits that the discount rate in NSW should be reduced from 5% to


The current situation

The Legislative Council Committee unanimously recommended that insurers
be required to disclose their level of profit in individual areas of insurance, as
they have to do in the ACT. 12 This reform was not implemented.

This has resulted in a situation where the public has to “take the insurer’s
word” for their levels of profitability without the insurers having to provide any
useful information. The only area where we do have some real figures is in
respect of motor accident third party/personal injury insurers, and as noted
above, the CTP insurers are making a greater than predicted profit, and this
has consistently been the position since the current legislation commenced in

The proposal for reform

The ALA submits that insurers should be required to disclose their profits in
different areas so that the public can see whether we are getting value for
money and whether excess profits can be diverted to compensate the
seriously injured.

     NSW Legislative Council General Purpose Standing Committee, above n3 at xxii.
     NSW Legislative Council General Purpose Standing Committee, above n3 at 104.

4.        LEGAL COSTS

The current situation

Governments have reduced the liability on the part of negligent parties to pay
costs as a means of discouraging the injured from suing for proper
compensation. Ordinarily, with competent and fair-charging solicitors, an
injured person will recover no more than about 65% of their reasonable costs
to run their case, and the balance has to come out of their own damages. This
is unjust.

However, the situation has been made even more unjust by the introduction of
legislation which provides that in a claim for compensation up to $100,000,
the injured person can recover no more than $20,000 in costs. 13 This is
regardless of the number of hearings or the amount of work involved. An
insurer might require an injured person to go through a mediation, an
arbitration, a lengthy hearing in the District Court, an application for leave to
appeal, an appeal in the Court of Appeal and potentially a re-hearing in the
District Court, and the cap on recoverable damages from the insurer remains
at $20,000. Obviously, this makes it uneconomic to sue if the insurer wants to
make life as difficult as possible for the injured person. But the converse is not
true in respect of insurers. They can recover the usual 65% of their costs. In
the example just provided, if the injured person ultimately lost their case they
might be liable for $300,000 for the insurer’s costs, whereas the insurer could
only be liable for $20,000 in costs if the injured person was successful. This
is manifestly unjust, particularly considering that insurers have almost
unlimited financial resources and most injured persons have none. Since
there is almost no civil legal aid, the absence of adequate cost recovery
leaves some injured people without effective legal representation. The ban on
personal injury advertising (but not property damage from the same accident)
means that many people will not even be aware of the very limited rights.

If a worker sues his/her employer in negligence they are required to attend
compulsory mediation. Each party is required to have their best offers
certified on the Mediation Certificate. If the worker’s best offer is rejected by
the insurer and the worker has to issue court proceedings and proceeds to a
judgment, the worker is only awarded payment of legal fees of the
proceedings if the award is at least equal to their offer made at mediation. 14 If
they do not achieve an award higher than the offer made at mediation by the
insurer then not only do they not receive payment of their own legal fees but
they are ordered to pay the insurer’s cost of the legal proceedings also. 15 This
can include the cost of an appeal and re -hearing. If the award is between the
two offers then the worker pays his/her own costs of the legal proceedings.

     Legal Profession Act 2004, s338.

14 Workers Compensation Regulation 2003, Reg 89

15 Workers Compensation Regulation 2003, Reg 90 and 91

The proposal for reform

a)    The ALA submits that s338 of the Legal Profession Act should be

b)    The same law on advertising should apply to personal injury cases as
      to any others.

c)    There should be appropriate cost recovery for successful parties as in

d)    Regs 89 to 94 of the Workers Compensation Regulation 2003 should
      be revised to allow an order that the worker’s costs are payable by the
      insurer if the worker is successful with their claim.


The current situation

There are a large number of obvious injustices and drafting errors (which
coincidently all seem to favour insurers) in these three pieces of legislation.
Some examples are:

a)    The denial of compensation for nervous shock to police rescuers at the
      Waterfall disaster because they did not witness the crash. CLA, ss30
      and 32. Sheehan v SRA [2009] NSWCA 261.

b)    Section 43(2) of the CLA introduces a concept of administrative law
      including the Wednesbury test. It constitutes a serious barrier for
      plaintiffs who wish to prove liability on the part of an authority and goes
      much further than the recommendations of the Ipp Royal Commission.
      It should be restricted to decisions based substantially on financial,
      political or social factors as recommended by the Ipp Royal

      As it stands, public authorities such as schools and other institutions
      may not be liable for the failure to supervise because of the provisions
      under Part 5 of the CLA. This special treatment creates a substantial

c)    The decision that a road authority did not know of a dangerous road
      even though an employee knew but did not pass it on to the decision-
      maker, so that the road authority was deemed immune from being
      sued. Civil Liability Act, s45. North Sydney Council v Roman [2007]
      NSWCA 27.

d)    The decision that a tracked vehicle being driven on a road is not a
      motor vehicle requiring registration and insurance. MACA, s3. Doumit
      v Jabbs Excavations Pty Ltd [2009] NSWCA 360.

e)    The decision that to be a motor accident injury must occur at the time
      of negligence, so that skidding on spilled fuel later and injury from the
      resultant subsequent accident leaves the original negligent driver
      without third party insurance cover. MACA, s3. Zotti v Australian
      Associated Motor Insurers Ltd [2009] NSWCA 323.

f)    The requirement to reduce damages by at least 25% for contributory
      negligence if alcohol contributed to the accident even if it occurred in a
      pub through the publican’s negligence when the supply of alcohol was
      for the pub’s commercial gain and when the contribution of alcohol to
      the occurrence of the accident was minor. CLA, s50.

g)    The requirement that injuries to those using public and private ferries
      and on railways be deemed motor accidents and the provisions of the
      Motor Accidents Compensation Act apply even though the stated
      purpose of the Act is to control third party premiums and those
      operating ferries and railways do not contribute to the third party
      premium pool. MACA, s5 and Transport Administration Act 1988,
      s121. Landon v Ferguson (2005) NSWCA 395. Inconsistently, the
      NSW government has waived these provisions in relation to two
      railway disasters but not other events.

h)    Traditionally, an infant’s limitation period expired three years after the
      infant reached his/her majority (18). See s52, Limitation Act 1969. By
      amendment in 2002, infants are given the limitation period of their
      parents. A child crippled at birth by negligence must sue within three
      years (before the child can read or write) or lose its rights. It is
      dependent upon parents who may be ignorant or illiterate, or unable to
      speak adequate English, or who are simply negligent. The parent may
      lack any understanding of our legal system.                The result is
      fundamentally unjust. The traditional s52 position should be restored.
      See s50F(2)(a), Limitation Act 1969.

The proposal for reform

a)    The ALA submits that a thorough-going and urgent review of the
      relevant legislation should be undertaken immediately to deal with
      injustices, inconsistencies and drafting errors.

b)    The above specific injustices should be immediately remedied.


The current situation

1.    The threshold (s151H 1987 Act)

      A worker must be assessed as at least 15% whole person impairment
      before they are entitled to sue their employer in negligence.
      Assessments for psychological injuries and physical injuries cannot be
      combined to exceed the threshold. A person who has undergone a
      lumbar discectomy would not reach this threshold.

2.    Restricted Damages (s151G 1987 Act)

      If a worker is entitled to sue their employer then all they are entitled to
      claim is compensation for past and future wage loss and
      superannuation. They are not entitled to claim any compensation for
      medical expenses or domestic assistance, attendant care services or
      home modifications.

3.    Termination of workers compensation entitlements (s151Z(1)(b) and (c)
      1987 Act)

      Rights to ongoing workers compensation benefits are terminated by the
      resolution of the negligence claim. This means that a person
      catastrophically injured, by the negligence of their employer, who
      requires significant ongoing care, treatment and rehabilitation
      expenses could not be advised to sue their employer as they would
      have no recourse to payment of much needed treatment and care
      services. This leaves them with no option but to remain under the no-
      fault workers compensation schemes where the maximum they can
      receive for economic loss for total incapacity after 26 weeks is capped
      at a statutory rate currently of $396.10 gross per week for a single rate
      person with no dependants, or $575.10 gross per week for a person
      with a dependant spouse and one child. In a great number of
      circumstances this rate is impossible to live on. Workers essentially
      have to elect whether they wish to recover their economic loss or
      whether they wish to have medical expenses paid and care provided.

4.    Repayment to workers compensation insurer (s151Z(b) 1987 Act)

      Where a worker is injured through the negligence of both their
      employer and a third party (such as a head contractor on a worksite)
      then an apportionment of liability is made between the two negligent
      parties. Damages against the third party are assessed under the Civil
      Liability Act but the worker can only recover the restricted damages set
      out above against his employer. Despite not being able to be awarded
      compensation for medical expenses and care against the employer the

      worker has deducted from any settlement or award the full amounts
      paid by the workers compensation insurer, leaving them significantly
      disadvantaged particularly where the employer is the most culpable.

The Proposal for Reform

1.    Apply the Civil Liability Act 2002 thresholds and assessment of

2.    Amend the Workers Compensation Act 1987 accordingly (and s151Z in

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