Re Fai Insurances Limited v Milan Zoric and the Nominal Insurer [1991] FCA 40; 32 Insurance 99 ALR 305 28 FCR 250 (20 February 1991)

FEDERAL COURT OF AUSTRALIA

Re: FAI INSURANCES LIMITED
And: MILAN ZORIC and THE NOMINAL INSURER
No. ACT G6 of 1990
FED No. 32
Insurance
99 ALR 305
28 FCR 250

COURT

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Neaves(1), Spender(1) and von Doussa(1) JJ.

CATCHWORDS

Insurance - Workmen's compensation - Employer liable to pay workman compensation under workmen's compensation legislation and damages independently of that legislation - Policy of insurance covering both heads of liability - Judgment for damages by workman against employer partly unsatisfied - Workman claims against employer's insurer and in the alternative against Nominal Insurer - Whether workman entitled to recover unsatisfied balance of judgment directly against employer's insurer - Whether insurer relieved from liability to workman by reason of breach by employer of condition of policy disentitling employer to indemnity under policy - Meaning of provision in policy that insurer be directly liable to workman to pay "compensation" for which employer liable and indemnified and that insurer bound by and subject to any order, decision or award made against the employer.

Workmen's Compensation Act 1951 (A.C.T.), s.18 and Third Schedule.

HEARING

CANBERRA
20:2:1991

Counsel for the appellant: Mr J.L. Trew, QC

and Mr J.F. Kildea

Solicitors for the appellant: Colquhoun Murphy

Counsel for the first respondent: Mr R. Crowe

Solicitors for the first respondent: Gary Robb and Associates

Counsel for the second respondent: Mr J.J. Spigelman, QC
and Mr F.J. Purnell

Solicitors for the second respondent: Mallesons Stephen Jaques

ORDER

The judgment of the Supreme Court of the Australian Capital Territory given on 11 December 1989 be varied by substituting in Order 2 for the words and figures "one hundred and one thousand two hundred and twelve dollars ($101,212.00)" the amount of $65,163.44.

Otherwise the appeal be dismissed.

The appellant pay the costs of the first and second respondents of and incidental to the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

The primary question for determination in this appeal is whether the appellant, FAI Insurances Limited, is liable, at the suit of the first respondent, Milan Zoric, to satisfy a judgment for damages for personal injury obtained in the Supreme Court of the Australian Capital Territory by the first respondent against a company, Hans Schmidt and Partners (ACT) Pty Limited ("Schmidt Pty Limited"). If that question be answered in the negative, the further question arises whether the second respondent is liable at the suit of the first respondent to satisfy that judgment. The second respondent is the nominal insurer holding office under s.18B of the Workmen's Compensation Act 1951 (A.C.T.). That Act was formerly, that is to say, prior to 11 May 1989, cited as the Workmen's Compensation Ordinance 1951 (A.C.T.). As many of the relevant events occurred before 11 May 1989, it will be convenient to refer to that legislation as the Workmen's Compensation Ordinance notwithstanding its present mode of citation.

2. At the conclusion of the oral argument on the hearing of the appeal on 28 June 1990, the parties were given liberty to furnish written material on certain aspects of the matter. The whole of the written material which the parties wished to put before the Court was not received until 24 September 1990.

3. On 6 March 1985, the first respondent, who was then employed by Schmidt Pty Limited, suffered personal injury arising out of or in the course of his employment by his employer. In accordance with the provisions of s.7 of the Workmen's Compensation Ordinance, the first respondent was paid weekly amounts of compensation in respect of the period from 13 March 1985 to 2 January 1987. Those payments were made, in respect of the period from 13 March 1985 to 25 August 1985, by Schmidt Pty Limited and, in respect of the period from 26 August 1985 to 2 January 1987, by the appellant as the insurer under an employer's indemnity policy issued to Schmidt Pty Limited in accordance with the provisions of that Ordinance. The appellant, as such insurer, also made payments, in accordance with s.11 of the Ordinance, in respect of the cost of the first respondent's medical treatment, as defined, in relation to the injury. The amounts paid by Schmidt Pty Limited totalled $7,511.46: those paid by the appellant totalled $21,062.92, being $17,328.32 by way of weekly payments and $3,734.60 in respect of the cost of medical treatment.

4. The injury was suffered in circumstances which gave rise to a liability in Schmidt Pty Limited to pay damages to the first respondent independently of the Workmen's Compensation Ordinance. Proceedings (No. 1408 of 1986) were instituted in the Supreme Court of the Australian Capital Territory by the first respondent against Schmidt Pty Limited, which was then in liquidation, having been wound up by order of the Supreme Court made on 28 October 1985. Judgment in those proceedings was given on 11 March 1988 in favour of the first respondent against Schmidt Pty Limited in the sum of $80,168.00. Pursuant to sub-s.23(3) of the Workmen's Compensation Ordinance, the amounts received by the first respondent under the Ordinance in respect of the injury were to be deemed to have been paid by Schmidt Pty Limited, the employer, in or towards satisfaction of the damages. Except to that extent, the judgment remains unsatisfied.

5. On 25 October 1988, Milan Zoric as plaintiff commenced proceedings in the Supreme Court of the Australian Capital Territory against The Nominal Insurer as firstnamed defendant and FAI Insurances Limited as secondnamed defendant. Judgment in those proceedings was given on 11 December 1989, orders in the following terms being then made:

"1. In the proceeding between the plaintiff and the firstnamed
defendant, judgment be entered in favour of the firstnamed
defendant with costs.
2. In the proceeding between the plaintiff and the secondnamed
defendant, judgment be entered in favour of the plaintiff in
the sum of:
(a) One hundred and one thousand two hundred and twelve
dollars ($101,212.00); and
(b) an amount equal to the taxed costs of the plaintiff in
his action No.1408 of 1986 against Hans Schmidt and
Partners (ACT) Pty Limited;
together with costs.
3. The costs payable by the secondnamed defendant to the
plaintiff, pursuant to order 2, be taxed upon the basis that
they are to include the whole of the costs properly payable
by the plaintiff to the firstnamed defendant pursuant to
order 1."

It is from that judgment that the present appeal has been brought to this Court.

6. To support his claim to recover from the appellant the fruits of the judgment which he had obtained against Schmidt Pty Limited, the first respondent relied upon the provisions of the Workmen's Compensation Ordinance and the terms of the policy of insurance or indemnity issued by the appellant to Schmidt Pty Limited pursuant thereto and, in the alternative, on the provisions of ss.25 and 26 of the Law Reform (Miscellaneous Provisions) Ordinance 1955 (A.C.T.) - now cited as the Law Reform (Miscellaneous Provisions) Act 1955 (A.C.T.). It will be convenient to begin by considering the first of these alternatives.

7. At all material times, s.18 of the Workmen's Compensation Ordinance relevantly provided as follows:

"18. (1) Subject to this section, an employer shall obtain
from an insurer approved by the Minister for the purposes of this
Ordinance and shall at all times maintain in force with an insurer
so approved, a policy or policies of insurance or indemnity for
the full amount of his liability under this Ordinance to all
workmen employed by him and an amount not less than $200,000 in
respect of his liability independently of this Ordinance for any
injury to, or the death of, a workman employed by him.
...
(4) An insurer approved for the purposes of this Ordinance
shall not refuse to issue a policy of insurance or indemnity
required for the purposes of this Ordinance to an employer unless
the Minister has consented in writing to the refusal.
(5) Subject to this section, a policy of insurance or
indemnity for the purposes of this Ordinance shall be in
accordance with the form in the Third Schedule to this Ordinance.
(6) Subject to this section, an insurer shall not -
(a) issue to a person applying for a policy for the
purposes of this Ordinance a policy of insurance or
indemnity which is not in accordance with the form in
the Third Schedule to this Ordinance; or
(b) include in such a policy a provision not included in
that form.
(6A) Nothing in the last preceding sub-section
prohibits an insurer from including in a policy of insurance
or indemnity issued for the purposes of this Ordinance a
provision which relates to a liability of an employer other
than a liability referred to in sub-section (1) of this section.
(7) Where an insurer issues a policy in contravention of the
last preceding sub-section, that sub-section shall not operate so
as to annul the policy or diminish or in any way affect the
liability of the insurer under the policy.
(8) An employer applying to an insurer for the issue or
renewal of a policy of insurance or indemnity against liability
under this Ordinance shall supply to the insurer a full and
correct statement of all wages paid to workmen in his employment
during the period relevant to the determination of the premium
payable by him under the policy.

8. At all material times, the Third Schedule to the Ordinance was in the following terms:

9. On 4 August 1983, the appellant had received from Schmidt Pty Limited a proposal dated 1 August 1983 for an employer's indemnity policy to cover liability for workmen's compensation and unlimited common law liability in respect of all its employees for the period 1 August 1983 to 4 p.m. on 1 August 1984. The proposal was accepted and a policy issued. That policy was substantially in accordance with the form set out in the Third Schedule to the Workmen's Compensation Ordinance, any variations from that form being immaterial for present purposes. The policy was, in due course, renewed for the period 1 August 1984 to 4 p.m. on 1 August 1985 so that it was operative at the date on which the first respondent sustained his injuries. Subsequently, however, the appellant, in circumstances to which it is not necessary to refer at this stage, disclaimed liability to indemnify Schmidt Pty Limited under the policy or to make any further payment of weekly compensation to the first respondent.

10. By way of general background, the Workmen's Compensation Ordinance as promulgated in 1951 repealed the Workmen's Compensation Ordinance 1946 and the Workmen's Compensation Ordinance 1948. Under the Ordinance of 1951 the policy of insurance or indemnity which an employer was required to obtain did not extend beyond a policy for the full amount of his liability under the Ordinance to all workmen employed by him.

11. By the amendments made by the Workmen's Compensation Ordinance 1959 provision was made, for the first time, for the appointment by the Minister of a person to be the nominal insurer for the purposes of the Ordinance (see s.18B). Section 18C provided that, in certain circumstances, a person entitled to compensation in accordance with the Ordinance might make a claim against the nominal insurer for payment of the amounts of compensation payable and to become payable. Such a claim might be made where -

. a claim had been made against an employer that he was liable
to pay compensation in accordance with the Ordinance;
. the employer had agreed to pay compensation or his liability
to do so had been established in accordance with the Ordinance;
. the liability of the employer to pay the compensation was
not covered in full by a policy or policies of insurance or
indemnity obtained in accordance with the Ordinance; and
. the employer had defaulted in payment of any amount of the
compensation for a period exceeding one month.

12. It was not until 1 September 1969, when the Workmen's Compensation Ordinance (No.3) 1969 came into operation, that there was any requirement on an employer to obtain a policy of insurance or indemnity in respect of his liability independently of the Workmen's Compensation Ordinance for injury to, or the death of, a workman employed by him. The policy, in so far as it related to such liability, was to be for an amount not less than $50,000, that amount being increased to $200,000 by the Workmen's Compensation (Amendment) Ordinance 1983. The Principal Ordinance was also amended by the Ordinance of 1969 to enable a claim to be made against the nominal insurer in cases where a final judgment had been obtained against an employer in respect of his liability independently of the Ordinance for an injury to, or the death of, a workman employed by him (see s.18C(2)) and in cases where an employer had agreed to pay a sum of money in discharge of such a liability (see s.18C(3)). In a case where a final judgment had been obtained against the employer, a claim against the nominal insurer might be made where -

. execution of the judgment had not been stayed;
. the liability of the employer under the judgment was not
covered, or was not covered in full, by a policy or policies
of insurance or indemnity in accordance with the Ordinance;
and
. the judgment had, for a period of not less than one month,
remained unsatisfied in whole or in part.

A claim against the nominal insurer under s.18C(2) or s.18C(3) was not to exceed $50,000 (increased in 1983 to $200,000). The form of the policy prescribed in the Third Schedule to the Principal Ordinance was also amended in a way to which reference will be made later in these reasons. The Ordinance of 1969 also inserted in s.6(1) of the Principal Ordinance a definition of "compensation" in the following terms:

"'compensation' means an amount payable under this Ordinance
in respect of an injury to, or the death of, a person".

13. There is a threshold question whether a workman as defined in s.6(1) of the Ordinance has, in any circumstances, a right to maintain proceedings against his employer's insurer. Such a right, if it exists, must have its source in the provisions of the Workmen's Compensation Ordinance and the terms of the policy of insurance or indemnity issued pursuant thereto.

14. It has been held, in relation to the New South Wales legislation embodied in the Workers' Compensation Act, 1926, as amended, that a worker, as defined, having first established as against his employer a right to receive compensation under that Act, may, in default of satisfaction of that liability, proceed against the employer's insurer to recover the amount of the unsatisfied award. The authorities which establish that proposition are Devine v. Devine and Queensland Insurance Co. Ltd (1928) 28 SR (NSW) 503, Coleman v. The Mercantile Mutual Insurance Co. Ltd (1933) WCR 231 and Miller v. Law Union and Rock Insurance Co. Ltd (1969) 71 SR (NSW) 201: see also Registrar of Workers' Compensation Tribunal (N.S.W.) v. National Employers' Mutual General Insurance Association Ltd [1978] HCA 57; (1978) 141 CLR 462 per Aickin J. at pp 490-1. Proceedings may also be maintained by a worker against his employer's insurer to enforce a judgment obtained against the employer in respect of a liability arising independently of the workers' compensation legislation: see Spain v. Metropolitan Meat Industry Board (1971) 1 NSWLR 91 per Isaacs J. at pp 101-103.

15. The right in the worker to proceed against the employer's insurer was said to arise upon the proper construction of s.18(3) of the Workers' Compensation Act both in the form which it took prior to the amendments made by the Workers' Compensation Act, 1953 (N.S.W.) and in the form which it took as a result of those amendments. The Workers' Compensation Act, 1926 (N.S.W.) introduced the principle of compulsory insurance by an employer of his liability under the Act to his workers. Prior to the amendments made in 1953, s.18(3) provided:

"(3) 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.
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 dependants, to pay the 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."

16. The Act of 1953 made it compulsory for an employer to insure not only against liability to his workers for compensation in accordance with the Act but also against liability independently of the Act in an amount not less than a stated sum. Section 18(3) was repealed and re-enacted in the form of two separate lettered sub-paragraphs. Section 18(3)(a) then read:

"(3) (a) Every policy of insurance or indemnity shall,
in so far as it relates to any liability referred to in
subsection one of this section, contain only such provisions
as are prescribed, but may contain such other provisions
relating to any other liability at common law or under any
Act or Commonwealth Act 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 the policy.
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 dependants, to pay the compensation or other amount for
which the employer is liable, and that the insurer shall be
bound by and subject to any judgment, order, decision, or
award given or made against the employer of such worker in
respect of the injury for which such compensation or amount
is payable.
In this paragraph the expression 'other amount' means
an amount not exceeding the amount for which the employer
has obtained a policy of insurance or indemnity in respect
of his liability independently of this Act for any injury to
any such worker."

Section 18(3)(b) is not material for present purposes.

17. In Devine v. Devine and Queensland Insurance Co. Ltd (supra), Ferguson J. delivered the judgment of the Supreme Court of New South Wales. His Honour, referring to s.18(3) in its unamended form, said at p 508:

"In an ordinary case such a term in a policy between
the insurer and the employer would be inoperative so far as
the worker was concerned, upon the principle that a contract
cannot be enforced by a person who is not a party to it,
even if it is made for his benefit and purports to give him
the right to sue upon it. But we cannot assume that the
Legislature intended to compel the insertion in the policy
of a nugatory provision. I think, therefore, that the
section must be interpreted as enacting, not only that the
policy should contain the provision in question, but that
the provision should be effective so as to confer upon the
worker a right to enforce the contract. In other words, the
effect is the same as if the policy contained a covenant by
the insurer not only with the employer, but with the worker
and his dependants, to pay the compensation for which the
employer is liable."

18. In Coleman v. The Mercantile Mutual Insurance Co. Ltd (supra), Halse Rogers J., also speaking of s.18(3) in its unamended form, said at pp 244-5:

"It 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 in
the first instance to claim against the company directly
(Devine v. Devine and the Queensland Insurance Co. Ltd, 28
SR 503). 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 in 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. It would be idle to
prescribe a form of policy including a promise on the part
of the insurer to be directly liable to the worker and a
promise to be bound by an award or order in favour of the
worker and at the same time to leave the worker entirely
unable to enforce those promises on his own motion. That
would leave his compensation at the mercy of his employer,
and it is apparent that the Legislature did not intend such
a position to arise."

19. A similar view was taken of the amended provision in Miller v. Law Union and Rock Insurance Co. Ltd (supra), see per Wallace P. at pp 209, 212, per Asprey J.A. at pp 219, 223-4 and per Holmes J.A. at p 225. In Registrar of Workers' Compensation Tribunal (N.S.W.) v. National Employers' Mutual General Insurance Association Ltd (supra), Aickin J., also speaking of s.18 in its amended form, said, at pp 489-490:

"The critical provisions of the statutory scheme are
ss.7(1), 18(1), (2) and (3). Section 7(1) places an
obligation upon an employer to pay compensation to a worker
who has received an injury and to the dependants of such a
worker. Section 18(1) places an obligation upon every
employer to obtain from a licensed insurer a policy of
insurance or indemnity conforming to the section for the
full amount of his liability under the Act to all workers
employed by him, and s.18(2) provides that no insurer shall,
except with the consent of the Commission, refuse to issue
such a policy of insurance or indemnity to any employer who
has complied with the prescribed conditions. Section 18(3)
provides that every policy shall contain only such
conditions as are prescribed and that '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 dependants, to pay the
compensation or other amount for which the employer is
liable, and that the insurer shall be bound by and subject
to any judgment, order, decision, or award given or made
against the employer of such work (sic) in respect of the
injury for which such compensation or amount is payable'.
Apart from sub-s.(3A) which was introduced in 1967 and to
which I refer below, s.18 has not been amended in any
material respect, but sub-s.(3) was repealed in 1953 and
replaced by another provision not materially different.
In my opinion the provisions of s.18 make the
liability of the insurer to the employer match the liability
of the employer to the worker (or his dependants) and that
is a fundamental feature of the scheme. That scheme
likewise makes the liability of the insurer to the worker
match the liability of the employer to the worker."

20. In Spain v. Metropolitan Meat Industry Board (supra), Isaacs J. said at p 102:

"When these amendments were made to sub-s.(3) of s.18 the
legislature is presumed, of course, to know the
interpretation which the Supreme Court in 1928 placed upon
the section prior to its amendment and there is nothing in
the amending Act to indicate any intention on the part of
the legislature to depart therefrom. Indeed the indications
are entirely to the contrary. ... In my view the same
reasoning and result applies to this extended common-law
form of liability created by statute, and so in the case of
such a policy taken out by an Employer under the Workers'
Compensation Act in respect of his common-law liability the
operation of s.18 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."

21. Although not put in the forefront of his argument, counsel for the appellant submitted that the Workmen's Compensation Ordinance should be held not to give rise to a comparable right in a workman to proceed against his employer's insurer. This was said to follow from the absence from the Ordinance, which must be acknowledged, of a provision in similar terms to s.18(3) of the legislation in force in New South Wales.

22. The presence in the statute in force in New South Wales of the critical part of s.18(3) and the absence of such a provision from the Workmen's Compensation Ordinance is clearly explicable when reference is made to the difference in the structure of the two pieces of legislation. In the New South Wales legislation, the form of the policy of insurance or indemnity which must be issued to an employer is not set out in terms in the statute but is to be prescribed by regulation. There is, therefore, a need to include in the statute a precise reference to any terms which the legislature requires to be included in the policy - hence s.18(3). On the other hand, in the legislation in force in the Australian Capital Territory, the form of the policy is set out in a schedule to the Ordinance so that it is necessary, but sufficient, to provide, as s.18(5) of the Ordinance does, that the policy be in accordance with the form in the Third Schedule. It is unnecessary to state separately in the Ordinance any terms that are to be included in the policy. Indeed, it would be otiose to do so.

23. Notwithstanding this difference of approach by the draftsman, the effect is, in our opinion, the same. The considerations which led to the conclusion reached in the decisions to which we have referred that under the New South Wales legislation a worker may, in certain circumstances, proceed against his employer's insurer are, so it seems to us, equally applicable to the legislation here in question. It is of interest to compare the provisions of the Workmen's Compensation Ordinance 1946 with those of the Ordinance of 1951 by which the earlier provisions were repealed. The Ordinance of 1946 followed closely the structure of the New South Wales legislation - the form of policy was to be determined by the appropriate Minister and the Ordinance contained, in s.18(3), a provision similar in all relevant respects to that contained in the correspondingly numbered section of the statute then in force in New South Wales.

24. In our opinion, the Workmen's Compensation Ordinance 1951 is properly to be construed as conferring upon a workman a right to proceed against his employer's insurer in circumstances falling within the purview of the relevant provision in the prescribed form of policy. We should add that the conclusion we have reached on this aspect of the matter accords with that of Northrop J. in Gil v. T and G Fire and General Insurance Co. Ltd (1976) 10 ACTR 65 and with that reached by Wilcox J. in the present case.

25. It remains to consider in what circumstances a workman may proceed against his employer's insurer and, in particular, whether, in the circumstances of this case, the first respondent was entitled to proceed against the appellant to recover the fruits of the judgment obtained by him against Schmidt Pty Limited. That must depend upon the terms of the policy of which the text of the material parts has been set out above. For convenience, however, the relevant provision may again be stated. It provides:

"And it is hereby further agreed that the above indemnity is
made subject to the due and proper observance and fulfilment
by the Employer of the conditions hereunder. And the
Insurer shall be (a) directly liable to any workman, and in
the event of his death to his dependants, to pay the
compensation for which the Employer is liable and in respect
of which the Employer is indemnified under this Policy, and
(b) bound by and subject to any order, decision or award
made against the Employer of any such workman under the
provisions of the Ordinance or in respect of his liability
independently of the Ordinance and in respect of which the
Employer is indemnified under this policy."

26. Two submissions were put to the Court by counsel for the appellant. The first of these emphasised that par.(a) of the relevant provision limited the direct liability of the insurer to a workman to the payment of "the compensation for which the Employer is liable". The reference to "compensation" was a reference, so it was submitted, to the compensation payable under the Workmen's Compensation Ordinance and the expression was not apt to refer to any amount which the employer might be liable to pay to the workman independently of the Ordinance. Support for this submission was said to be found in the definition of the expression "compensation" in s.6(1) of the Ordinance, the expression being there defined to mean "an amount payable under this Ordinance in respect of an injury to, or the death of, a person". As the amount which the first respondent was seeking to recover was an amount which Schmidt Pty Limited was liable to pay independently of the Ordinance, par.(a) of the relevant provision was said not to impose any liability upon the appellant as the insurer of that company.

27. In considering this submission, some further reference should be made to the history of the relevant provisions.

28. The Ordinance of 1951 required an employer to obtain from, and at all times maintain in force with, an approved insurer a policy or policies of insurance or indemnity "for the full amount of his liability under this Ordinance to all workmen employed by him" (s.18(1)). The prescribed form of policy (see the Third Schedule to the Ordinance of 1951) contained the following provision:

"And the Insurer shall be (a) directly liable to any
workman, and in the event of his death to his dependants, to
pay the compensation for which the Employer is liable and in
respect of which the Employer is indemnified under this
Policy, and (b) bound by and subject to any order, decision
or award made against the Employer of any such workman under
the provisions of the Ordinance."

The Ordinance contemplated that a workman might have a right, independently of the Ordinance, to proceed against his employer for compensation in the form of damages. Thus, s.23 provided:

"23.-(1.) Except as provided by this section, a workman
shall not be entitled, in respect of personal injury by accident
arising out of or in the course of his employment, to receive
compensation or any payment by way of compensation from his
employer both independently of and also under this Ordinance.
(2.) Where personal injury is caused to a workman in
circumstances which appear to create a legal liability in his
employer to pay damages in respect thereof and the workman has
received compensation under this Ordinance, the workman shall not
be entitled to take proceedings against his employer to recover
damages unless he commences those proceedings within twelve months
after the date upon which he received payment, or the first
payment, of compensation under this Ordinance.
(3.) Where a workman is awarded damages against his employer
in respect of an injury independently of this Ordinance -
(a) amounts received by him under this
Ordinance in respect of that injury shall, to
the extent that they do not exceed the damages,
be deemed to have been paid by the employer in
or towards satisfaction of the damages; and
(b) he shall be entitled to recover under this
Ordinance so much (if any) of the amount which
but for this section, would be payable under
this Ordinance as does not exceed any
unsatisfied balance of the damages.
(4.) Any reference in this section to damages awarded
includes a reference to an amount agreed to be paid by an employer
in settlement of a claim for damages."

There was, however, no requirement that the employer insure against any liability independently of the Ordinance. It followed that the word "compensation" in par.(a) of the provision in the policy set out above could not be read as referring to any amount that was not properly described as compensation for which the employer was liable in accordance with the Ordinance.

29. The Workmen's Compensation Ordinance (No.3) 1969 required for the first time that an employer insure not only for the full amount of his liability under the Workmen's Compensation Ordinance to all workmen employed by him but also for an amount not less than $50,000 "in respect of his liability independently of this Ordinance for any injury to, or the death of, a workman employed by him". The Ordinance of 1969 amended the form of policy set out in the Third Schedule to the Ordinance in the following respects:

"(a) by inserting after the words 'the full amount of
his liability under the Ordinance to all workmen
employed by him' the words 'and for an amount of
dollars in respect of his liability
independently of the Ordinance for any injury to
any such workman';
(b) by inserting after the words 'who is or is
deemed by the Ordinance to be a workman of such
Employer' the words 'or to pay any other amount
not exceeding dollars in respect of his
liability independently of the Ordinance for any
injury to any such person'; and
(c) by inserting after the words 'against the
employer of any such workman under the
provisions of the Ordinance' the words 'or in
respect of his liability independently of the
Ordinance and in respect of which the Employer
is indemnified under this policy'."

Thus, although par.(b) of what we have referred to as the relevant provision of the policy was amended to make it plain that its operation was to extend to the employer's liability independently of the Ordinance, up to the amount stated in the policy, no such words of extension were inserted in par.(a). In this respect the provisions of the amending Ordinance may be contrasted with the amendments to s.18(3) of the statute in force in New South Wales that were made when that statute was amended in 1953 to require an employer to insure against his liability to his workers arising independently of the statute. As amended, s.18(3) required the policy to provide that the insurer be directly liable to the worker, and in the event of his death to his dependants, to pay the compensation or other amount for which the employer was liable, and that he was to be bound by and subject to any judgment, order, decision or award given or made against the employer of such worker in respect of the injury for which such compensation or amount was payable, the expression "other amount" meaning an amount not exceeding the amount for which the employer had obtained a policy of insurance or indemnity in respect of his liability independently of the statute for any injury to any such worker. It may also be noted that the Ordinance of 1969 did not provide for the word "judgment" to be inserted in par.(b) of the relevant provision of the policy. That Ordinance did, however, introduce into the general definition section, s.6, the definition of "compensation" to which we have referred. That definition was to apply unless the contrary intention appeared.

30. In Gil v. T and G Fire and General Insurance Co. Ltd (supra), Northrop J. held that the expression "compensation" appearing in par.(a) of the relevant provision in the policy was not limited by the definition in s.6(1) since the contrary intention appeared in the policy and that the expression was apt to include an amount payable in respect of a liability independently of the Ordinance for injury to, or the death of, a workman. Referring to the submission that the direct liability imposed upon the insured in favour of the workman was limited to a liability to pay compensation under the Ordinance and did not extend to liability to pay any amount not being compensation under the Ordinance, his Honour said, at p 73:

"I reject this submission. If it was correct, the
words inserted in par (b) by the 1969 amendments would have
no meaning or effect. As with the words originally in (b),
the inserted words are directed to preventing an insurer
from reopening a matter already the subject of an order,
decision or award. Their insertion into the policy must
have been intended to have some effect.
The definition of 'compensation' is to apply, unless a
contrary intention appears. The word 'compensation' in its
normal meaning is sufficiently wide to include an amount of
money payable in satisfaction of a liability under the
Ordinance as well as a liability independently of the
Ordinance. In the policy itself the word 'compensation' is
used in a sense wider than the definition sense. The
indemnity in favour of the employer includes an indemnity
with respect to a liability 'to pay compensation under the
Ordinance'. If the word 'compensation' was given its
statutory meaning the words 'under the Ordinance' in the
phrase quoted would be otiose. Further, when the indemnity
in favour of the employer was extended by the words
introduced by the 1969 Ordinance, the words were 'or to pay
any other amount not exceeding 100,000 dollars in respect of
his liability independently of the Ordinance for any injury
to such person'. The phrase 'any other amount' is to be
read as 'any other amount of compensation', but in this case
the compensation is not 'under the Ordinance', but the
amount of the indemnity is limited by the insertion of the
upper limit of the amount inserted, in this case, 100,000
dollars. In my opinion a contrary intention appears and the
word 'compensation' appearing in the policy is not limited
by the definition contained in s.6 of the Ordinance but has
the meaning of an amount payable under the Ordinance or in
respect of a liability independently of the Ordinance."

31. In the present case, Wilcox J. while agreeing with the conclusion which Northrop J. had reached, did so by a different process of reasoning. His Honour preferred to treat the definition of "compensation" in s.6(1) as being applicable to par.(a) of the relevant provision in the policy but regarded an amount of damages payable to a workman by the employer as being "an amount payable under this Ordinance in respect of an injury to, or the death of, a person" within the meaning of that definition.

32. We are, with respect, unable to accept the view adopted by Wilcox J. In our opinion, an amount of damages payable by reason of a liability arising independently of the Ordinance does not answer the description of an amount falling within the statutory definition of "compensation" in s.6(1). We are, however, satisfied that the reasons advanced by Northrop J. support the conclusion at which he arrived. Notwithstanding the textual difficulties to which we have referred, we are unable to accept that, in making the amendments set out in the Ordinance of 1969, requiring as they did that the insurer indemnify the employer against liability, for an amount not less than the prescribed amount, arising independently of the Ordinance, the legislature intended to deprive the workman of any recourse to the insurer in the event of default on the part of the employer in paying any damages awarded against him. As Northrop J. pointed out, the amendment made to par.(b) of the relevant provision of the policy is inconsistent with any such intention.

33. The conclusion that the provisions of the policy confer upon a workman a right to proceed against his employer's insurer in respect of an amount of damages payable independently of the Ordinance in a case where the amount of damages is the subject of an order, decision or award made against the employer and there has been default on the part of the employer in paying such amount may also be reached by relying directly on par.(b) of the relevant provision. That provides that the insurer is to be "bound by and subject to" any order, decision or award made against the employer in respect of his liability to the workman independently of the Ordinance. To make the insurer "subject to" such order, decision or award is, in our opinion, sufficient to confer a right on the workman to proceed against the insurer in the circumstances mentioned.

34. We turn, then, to the second of the submissions put by counsel for the appellant, a submission put in relation to both par.(a) and par.(b) of the relevant provision of the policy. The submission directed attention to the words "in respect of which the Employer is indemnified under this policy" appearing in both paragraphs. It is to be noted that the words "in respect of which the Employer is indemnified under this Policy" where they appear in par.(a) qualify the expression "the compensation for which the Employer is liable" whereas, in par.(b), they appear to qualify the reference to the liability of the employer independently of the Ordinance. The submission also directed attention to the earlier provision in the policy that the indemnity provided to the employer was to be "subject to the due and proper observance and fulfilment by the Employer of the conditions" set out in the 14 numbered paragraphs of the policy. It was submitted that, if the employer had breached a condition of the policy that entitled the insurer to deny liability to indemnify the employer, there would be no amount of compensation for which the employer was liable, and no liability of the employer independently of the Ordinance, in respect of which the employer was indemnified and, in consequence, nothing in respect of which the insurer could be directly liable to the workman.

35. A similar argument in relation to a policy issued under the legislation in force in New South Wales was considered and rejected in Miller v. Law Union and Rock Insurance Co. Ltd (supra). Reference has already been made to the circumstance that the form of policy then in use in New South Wales was prescribed in regulations made under the statute and not in the statute itself, the statute providing in s.18(3) that the policy should contain certain provisions. The relevant part of s.18(3)(a), the text of which is set out above, did not contain the words "in respect of which the Employer is indemnified under this Policy" but those words did appear in the prescribed form of policy and in the policy which had been issued to Miller's employer by the Law Union and Rock Insurance Co. Ltd. The Court unanimously held that the presence of those words in the policy did not make relevant to the issue whether the insurer was liable to Miller an examination of the question whether the insurer was entitled to disclaim liability to Miller's employer under the policy. It must be acknowledged, however, that one of the matters to which the Court had regard was whether to adopt the construction of the relevant words for which the insurer contended would have resulted in the invalidity, to that extent, of the policy by reason of disconformity between it and the terms of s.18(3)(a) of the statute. No such question of disconformity can arise in the present case because of the different structure of the provisions, a matter to which we have already drawn attention.

36. Notwithstanding what was said by Dixon C.J. in Nelungaloo Pty Ltd v. The Commonwealth (No.4) [1953] HCA 87; (1953) 88 CLR 529 at p 541 that interpretation is one process in which all the relevant considerations, including invalidity, are to be taken into account, Wallace P expressed a view as to the proper construction to be placed on the relevant provisions of the policy on the basis that the question of validity was put to one side. His Honour said at pp 209-210:

"On the contrary, once it is accepted that the principles
enunciated in the Devine case (1928) 28 SR (NSW) 503;
45 WN 140) are correct, and that the worker has been given
by s.18 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. ... For I think Parliament has indicated that
its intention is that the insurer is to be liable direct to
the worker to pay the amount of an award which has been made
in the worker's favour, and that there is no room for
implying that if a policy is in existence in the sense that
current premiums have been paid the insurer may escape
liability to the worker merely because the employer has
breached a condition of the policy, whether it be a
condition precedent or otherwise. If Parliament did mean to
impose such a curtailment of the worker's rights, it would,
I think, have said so in direct language and not obliquely."

Asprey J.A. said at p 218:

"To the extent that the policy correctly repeats in sub-cll.(a)
and (b) of the combined second and third provisos
the substance of the third paragraph of sub-s.(3)(a) there
is no conflict between the statute's command and the
policy's provisions. However, added after the words 'for
which the employer is liable' are the words 'and in respect
of which the employer is indemnified under this policy'.
These words are not to be found in the third paragraph of
sub-s.(3)(a). What is their effect when contained in the
policy? Can they operate, in the event that the insurer
becomes free from liability to the employer, to relieve the
insurer from its direct liability to the worker, or, on the
other hand, are they words of limitation to ensure that,
although the terms of the policy may make the employer (sic)
liable for sums greater in amount than are provided for by
the Workers' Compensation Act (as to which see the first
paragraph of sub-s.(3)(a)), the limit of the insurer's
direct liability to the worker is to be measured in turn by
the amount in which the insurer may become liable to the
employer by virtue of the indemnity? I prefer the second of
these constructions, for otherwise, in the form in which the
liability of the insurer to the worker is expressed, that
liability could be greater than his liability to the
employer under the indemnity. On the other hand, if they
were to be read as eliminating the liability of the insurer
to the worker when by virtue, for example, of some breach of
the policy's conditions the insurer ceased to be liable to
the employer, these words appearing in the policy would, in
my opinion, be beyond power in light of the wording of the
third paragraph of sub-s.(3)(a). Where a regulation is
reasonably open to two constructions, one within power and
the other without, that construction should be adopted so as
to make it valid and not defeat it..."

37. In our opinion, the introduction into par.(b) of the relevant provision of the policy set out in the Third Schedule to the Workmen's Compensation Ordinance of the words "in respect of which the Employer is indemnified under this policy" had no other purpose than to limit the extent of the insurer's liability to the workman to the amount specified in the policy as the amount of the employer's liability for which the employer was indemnified under the policy. Although under the Ordinance the policy was to cover the full amount of the employer's liability under the Ordinance, the requirement in relation to the employer's liability independently of the Ordinance was only that the indemnity cover an amount not less than the stated amount. Clearly, in any particular case, the employer's liability independently of the Ordinance may exceed the amount specified in the policy and, in the absence of the words to which reference has been made, the insurer would be exposed to a liability in excess of the amount of the indemnity to the employer.

38. A further consideration supporting the view to which we have come is that the words in question have appeared in the prescribed form of policy since 1951 - at a time when there was no obligation upon an employer to insure his liability independently of the Ordinance and before there were in place provisions conferring upon a workman a right, in certain circumstances, to claim against the nominal insurer. To adopt the argument advanced on behalf of the appellant would mean that, prior to the coming into operation in 1959 of the provisions for the appointment of the nominal insurer, a breach by the employer of a condition disentitling him to claim indemnity under the policy would have resulted in the workman being unable to recover from the insurer any amounts by way of compensation under the Ordinance. We are unable to accept that to have adopted such a construction of the provisions then in force would have accorded with the intention of the legislature.

39. For the reasons set out above, we have reached the conclusion that, in the circumstances of this case, the first respondent was entitled to recover against the appellant the fruits of the judgment obtained by him against Schmidt Pty Limited. In the light of that conclusion it is unnecessary to consider whether the circumstances disclosed by the evidence are such that the appellant was justified in its assertion that it was under no liability to indemnify Schmidt Pty Limited in respect of any damages which that company became liable to pay to the first respondent in respect of the injuries suffered by him on 6 March 1985. It is also unnecessary to consider the related onus question and the alternative argument advanced on behalf of the first respondent based upon the provisions of the Law Reform (Miscellaneous Provisions) Ordinance 1955.

40. It remains, however, to consider the amount for which the first respondent is entitled to have judgment as against the appellant. Wilcox J. ordered that judgment be entered in the sum of $101,212.00 and an amount equal to the taxed costs of the first respondent in his action No.1408 of 1986 against Schmidt Pty Limited, costs which had not then been taxed or agreed. The amount of $101,212.00 comprised $80,168.00, being the amount of the judgment entered in favour of the first respondent in the action against Schmidt Pty Limited together with $21,044 calculated as being the interest on that sum at the rate of 15 per centum per annum from 11 March 1988 (the date of the judgment against Schmidt Pty Limited) to 11 December 1989 (the date on which Wilcox J. delivered judgment).

41. Although it is correct to say that judgment was entered in favour of the first respondent against Schmidt Pty Limited in the sum of $80,168.00, s.23(3)(a) of the Workmen's Compensation Ordinance required that the amounts received by the first respondent under the Ordinance in respect of the injury were, to the extent that they did not exceed the damages, to be deemed to have been paid by Schmidt Pty Limited in or towards satisfaction of the damages. As appears earlier in these reasons, the amounts received by the first respondent under the Ordinance in respect of the injury totalled $28,574.38. It follows that, in the proceedings by the first respondent against the appellant, the first respondent was not entitled to receive $80,168.00 but that sum less $28,574.38, being an amount of $51,593.62. That amount would carry interest at the rate of 15 per centum per annum from 11 March 1988 to the date of judgment, namely 11 December 1989, being an amount of $13,569.82. The judgment appealed from should be varied accordingly.

42. We, therefore, order that the judgment of the Supreme Court be varied by substituting in Order 2 for the words and figures "one hundred and one thousand two hundred and twelve dollars ($101,212.00)" the amount of $65,163.44. Otherwise the appeal is dismissed. The appellant must pay the costs of the first and second respondents of and incidental to the appeal.