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Editors --- "Statutory interpretation: compensation payment; meaning of 'settle' and 'settlement'; whether acceptance of assessment of damages falls within section 17(3)(a)" [2009] SocSecRpr 50; (2009) 11(4) Social Security Reporter, Article 13

Statutory interpretation: compensation payment; meaning of ‘settle’ and ‘settlement’; whether acceptance of assessment of damages falls within section 17(3)(a)

KEZCHEK v SECRETARY TO THE DFHCSIA

(Federal Court of Australia)

Decided: 11th August 2009 by Jagot J.

Statutory interpretation: compensation payment; meaning of ‘settle’ and ‘settlement’; whether acceptance of assessment of damages falls within section 17(3)(a)

Background

Kezchek was injured in a motor vehicle accident in the course of his employment. He claimed compensation pursuant to theMotor Accidents Compensation Act 1999 (NSW). In accordance with the provisions of that Act:

(i) the relevant insurer accepted liability for Kezchek’s injury;

(ii) the New South Wales Motor Accident Authority’s Claims Assessment and Resolution Service (CARS) assessed the amount of damages for that liability;

(iii)Kezchek accepted the CARS assessment; and

(iv) the insurer paid to Kezchek the amount of damages specified in the certificate of assessment.

Pursuant to the provisions of the Social Security Act 1991 (Cth) (the Act), the Secretary determined that a compensation preclusion period would apply. In calculating the preclusion period, the Secretary determined that the ‘compensation part’ of the lump sump compensation payment received by Kezchek was to be determined under s.17(3)(b) of the Act. That is, the ‘compensation part’ was so much of the payment as was, in the Secretary’s opinion, in respect of lost earnings or lost capacity to earn, or both.

Kezchek contended that the 50% rule in s.17(3)(a) should apply in his circumstances, on the basis that the lump sum payment was made in settlement of his claim.

The AAT affirmed the Secretary’s decision and Kezchek appealed to the Federal Court.

The issues

The main question of law arising in this appeal was the proper construction of section 17(3) of the Act and, in particular, the meaning of the words ‘settle’ and ‘settlement of claim’.

Section 17(3) of the Act provides formula for determining the ‘compensation part of a lump sum compensation payment’. It provides:

...the compensation part of a lump sum compensation payment is:

(a) 50% of the payment if the following circumstances apply;

(i) the payment is made...in settlement of a claim that is, in whole or in part, related to a disease, injury or condition; and

(ii) the claim was settled, either by consent judgement being entered in respect of the setlement or otherwise; or...

(b) if those circumstances do not apply - so much of the payments as in, in the Secretary’s opinion, in respect of lost earnings or lost capacity to earn, or both.

Discussion

The Court reviewed the provisions of the Motor Accidents Compensation Act 1999 (NSW) for the purposes of understanding the process by which Kezchek’s claim had been resolved. The Court noted the obligations on the insurer under that Act to resolve claims, by settlement or otherwise, as justly and expeditiously as possible (s.80(1)). The Court also noted the various processes under that Act aimed at resolving claims (eg, settlement conferences (s.89A(4)) and obligations to exchange settlement offers (s.89C).

The Court noted that where a claim has not been settled at or following a settlement conference, the parties can refer the claim to the Motor Accidents Authority of New South Wales (s.90), for an assessment by a claims assessor  (s.94).  The claims assessor is to make an assessment of liability and the amount of damages for that liability (being the amount of damages that a court would be likely to award)  (s.94(1)).  The assessment is to be made having regard to such information that is conveniently available to the claims assessor  (s.94(2)). 

The claims assessor is to issue a certificate as to the assessment to the insurer and the claimant, together with a brief statement setting out the reasons for the assessment  (s.94(4) -(5)). Relevantly, the assessment of damages is binding on the insurer, and the insurer must pay the damages as assessed to the claimant if the claimant accepts the assessment  (s.94(2)).  If the amount of damages is not accepted by the claimant, s.151 makes provision with respect to liability for legal costs incurred after the certificate of assessment was issued.

Kezchek submitted that the resolution of his claim by the acceptance of the assessment of damages made under  s.94  of theMotor Accidents Compensation Act 1999 (NSW) was a settlement of the claim for the purposes of s.17(3)(a) of the Act. He submitted that the terms ‘settle’ and ‘in settlement’ are broad and intended to apply to any claim resolved other than by means of final judicial determination or similar determination. Kezchek submitted that the characterization of a claimant’s acceptance of an amount of damages in s.95(2) as involving the settlement of a claim under the Motor Accidents Compensation Act 1999 (NSW) is sufficient to bring the circumstances within s.17(3)(a) of the Act.

The Secretary submitted that a claim is settled and a payment made in settlement of a claim within the meaning of s.17(3)(a) of the Act where the claim has been resolved by agreement, whatever the form in which the agreement is recorded, embodied or brought into effect. It was submitted that a claimant’s acceptance of an assessment of an amount of damages under s.95(2) of the Motor Accidents Compensation Act 1999 (NSW) does not involve a resolution of the claim by agreement. Section 95 involves a resolution by the claimant accepting an assessment which, by force of that acceptance, becomes binding on the insurer.

The Secretary observed that the purpose of s.17(3) is best fulfilled by the requirement for agreement. Firstly it was submitted that there must be some distinction between s.17(3)(a) and the default provision in s.17(3)(b) - otherwise, s.17(3)(b) would have no work to do. Secondly, agreements between the parties are capable of the type of manipulation which led to the enactment of the predecessor to s.17(3). It was submitted that statutory assessments by an independent third party, for which reasons must be given, are not capable of such manipulation. Thirdly, it was submitted that caution is required in placing too much weight on the use of the phrase ‘in settlement of the claim’ in s.95(2) of the Motor Accidents Compensation Act 1999 (NSW) when construing the terms of s.17(3) of the Act.

The Court agreed that it was not appropriate to consider the use of similar words in theMotor Accident Compensation Act 1999 (NSW) when determining the meaning of the words ‘settle’ and ‘settlement’ as used in s.17(3) of the Act.

The Court noted that the words ‘settle’ and ‘settlement’ in s.17(3) of the Act are not used in the broadest sense of the ordinary meaning of those words. The Court agreed that if those words meant simply a resolution of a claim (irrespective of the means) then there would be no work for s.17(3)(b) to do. Hence the Court found that to ‘settle’ a claim within the meaning of s.17(3)(a) cannot be merely to resolve a claim. A narrower meaning must be found. The Court found that such a meaning is immediately apparent, being to resolve a claim by agreement.

The Court found that this meaning, involving the essential requirement of a resolution by agreement, accords with the purpose of s.17(3). Section 17(3) was intended to prevent the manipulation or masking of the economic loss component of damages awards. The Court noted that a resolution by agreement need not identify any component for economic loss or, if it does so, the sum nominated may bear no true relationship to that component. This is because parties to an agreement about compensation are generally interested only in the ultimate net position and not the components which contribute to that position.

The Court found that, by contrast, an assessment under  s.94  of the Motor Accidents Compensation Act 1999 (NSW) is prepared by a person independent of the parties to the claim and the assessor must give reasons for the assessment. The amount assessed is incapable of manipulation by the parties. Further the Court observed that an assessment under  s.94  exists only by force of the statute itself.

Formal decision

The Court dismissed the appeal with costs.

[S.O.]