MCRI No. 15

Military Compensation Scheme

Safety, Rehabilitation and Compensation Act 1988 (the SRC Act)

THE EFFECT ON PAST AND FUTURE COMPENSATION ENTITLEMENTS OF A PAYMENT OF “DAMAGES” AT COMMON LAW

1. Purpose
   1. The purpose of the MCRI is to advise Delegates of the effect on claimants' entitlement to compensation benefits under the SRC Act of a payment of damages at Common Law for the same injury.

2. Background
   1. Section 48 of the SRC Act deals with the effect of a payment of damages after 1 December 1988.  However, the transitional provisions of the SRC Act require that Delegates be able to apply the relevant provisions of the Commonwealth Employees' Compensation Act 1930 (the 1930 Act) and the Compensation (Commonwealth Government Employees) Act 1971 (the 1971 Act) where the action for damages was commenced before 1 December 1988.
   2. The 1930 Act applied to employees of the Commonwealth from the date of its proclamation on 10 November 1930 until 31 August 1971.  However, members of the Australian Defence Force were not covered by the provisions of that Act until 3 January 1949.  Cadets were not covered by the provisions of the 1930 Act at all - any claims for “compensation” by or on behalf of Cadets at that time were considered on an Act-of-Grace basis.
   3. The 1971 Act applied from 1 September 1971 until 30 November 1988 to all Commonwealth employees (as well as full-time and part-time members of the ADF and Cadets).  The SRC Act has applied similarly since 1 December 1988.
   4. The important thing to recognise in cases involving common law damages payments is that the date an action for damages is commenced is the determining factor as to which of the Commonwealth's workers' compensation Acts should apply.
   5. It is not necessary here to state the law which applies in such cases.  This MCRI seeks to provide Delegates with general advice and a “Quick Reference Guide” to make it easier to understand the practical effect of damages payments:

1.   by the Commonwealth, and
2.   by a Third Party,

having regard to the relevant provisions of the 1930 Act, the 1971 Act and the SRC Act.

3. Quick Reference Guide
   1. The attached table headed “Quick Reference Guide” sets out the effect of payment of damages awards in common law actions.  It shows whether compensation payments made prior to the date of payment of the damages award are recoverable by the Commonwealth and also shows whether the person who receives the damages award can have any possible further entitlement to compensation benefits under the SRC Act and, if so, under what circumstances.
   2. Delegates should note that since both the 1930 and 1971 Acts have been repealed, possible entitlements will be determined in accordance with the transitional provisions of the SRC Act in relation to claims for which there was, or would have been, liability to pay compensation under those Acts where the entitlement arose before 1 December 1988.  Any entitlements which arise after 30 November 1988 would of course be determined in accordance with the relevant provisions of the SRC Act.

4. “Offsetting” damages awards – general principle
   1. If either the 1930 Act or the 1971 Act applied at the time the action for damages was instituted, special action was required if the damages award was paid:

•     by a Third Party in 1930 Act cases, or
•     either by the Commonwealth or by a Third Party in 1971 Act cases.

2. This is because of the “offsetting” arrangements which applied in such circumstances.  Basically, in all such cases, the employee  would be entitled to a resumption of compensation benefits once:

•     the compensation which had been paid prior to the award of damages, plus
•     the total amounts of compensation which would have been payable to the employee after the date of payment of damages and but for that award of damages (i.e., the “otherwise” compensation entitlements)

exceeded the total amount of the damages awarded.

5. “Straight” damages
   1. The offsetting arrangements applying in many cases involving a common law damages award can be demonstrated by the following example.

The amount of $210,000 (the “nett” damages award) would have to be “offset” by further entitlements to compensation benefits before there could be any liability actually to pay further compensation.  Please see the “Notes regarding the effect of legal costs” at point 7 below.

2. There is a standard letter in Defcare Standard Letters (Military Compensation/Legal/Solicitors Third Party Offset) which covers this situation.  The letter places the onus on the employee to maintain records (e.g., medical certificates of incapacity for work and/or medical/pharmaceutical receipts) of the amounts of compensation which would otherwise have been payable but for the award of damages.  It can be assumed that the requirement for the employee to keep records will have been pointed out at the time the damages award was paid. 
3. To reiterate some of the advice which is contained in the standard letter mentioned above, Delegates should note that it is only the matter in relation to which a damages award was paid that is affected by the damages offsetting arrangements.  In other words, if the employee has accepted claims other than that for which the damages award was paid, any entitlements arising from those other claims are unaffected by the damages offsetting arrangements.
4. If an injured employee requests a reinstatement of entitlement to compensation benefits after it is claimed that necessary offsetting is complete, the MCRS will be required to ensure that all applicable damages have in fact been offset.  Past entitlement to compensation for which there is documentary evidence (e.g., medical certificates and/or receipts) should, where necessary, be calculated having regard to the transitional provisions of the SRC Act and the relevant payment provisions and rates of the previous Act(s) (1930 or 1971). 
5. If it is established that the damages award has been offset by compensation entitlements the employee would otherwise have had, any further entitlements should be determined, where appropriate having regard to the transitional provisions of the SRC Act.  For example, if on 30 November 1988 (the day before the SRC Act commenced) a member of the ADF had ceased to be “employed by the Commonwealth” for the purposes of section 5 of the SRC Act, and if he/she was actually receiving weekly compensation benefits for incapacity for work on that day, he/she is a “former employee” for the purposes of the SRC Act and his/her weekly compensation entitlements for incapacity for work will be calculated in accordance with the special provisions of the SRC Act relating to former employees.
6. Delegates should pay close attention to establishing the necessary connection between the condition which was accepted as compensable (and for which the award of damages was paid) and any incapacity for work, permanent impairment or medical expenses etc the employee wishes to have offset against the award of damages.  This is because it would be an easy matter for the employee to seek to have the damages award offset more quickly than it should be by attributing unrelated incapacity/medical expenses etc to the condition for which the damages award was paid.

6. Damages awards involving contributory negligence on the part of the employee
   1. Special arrangements applied in cases where it was found by a Court in awarding damages that there had been contributory negligence on the part of the claimant for damages.  In such cases, it is common for a Court to reduce the amount of the damages award which would otherwise have been payable in proportion to the degree of negligence attributed to the employee's contribution to the cause of the accident.
   2. For example, a Court may have found that an employee should be awarded a total of $250,000 in damages for the effects of an accident and consequent injury to the employee.  However, the Court may also have found that the employee was forty per cent negligent (i.e., 40 per cent responsible for the accident) and that the amount of damages payable to the employee should accordingly be reduced to $150,000 ($250,000 minus 40 per cent).
   3. Assuming that an amount of say $20,000 had been paid in compensation benefits prior to the date of payment of the damages, the Commonwealth would, in such a situation, be entitled to be repaid $12,000 (60 per cent of $20,000) and the employee would be entitled to retain $8,000 (40 per cent of the compensation paid prior to that date).  Please see the “Notes regarding the effect of legal costs” at point 7 below.
   4. Similarly, any compensation entitlements which the employee may have after the date of payment of the damages award would be reduced by 60 per cent (i.e., the employee is entitled to receive 40 per cent of the amount of compensation payable) until the nett amount of the damages award received by the claimant is offset.  When the amounts which were/are actually paid or payable to the employee (60 per cent of the total amount of compensation otherwise payable) reaches the amount of damages actually received (60 per cent of the total or $150,000 in the example at 6.2 above), then he/she is entitled to receive the full amount of any further compensation benefits which may thereafter be payable.
   5. All of the above (point 6) can be illustrated as follows:

7. Notes regarding the effect of legal costs
   1. Delegates should note that any legal costs which are or were payable by the employee in relation to the action for damages should be deducted from the total amount of damages awarded prior to any offsetting taking place.  In the example at point 5 above, legal costs of say $30,000 may have been payable by the employee in obtaining the damages award of $250,000.  In that example, the total amount to be offset in (past or) future compensation entitlements before further compensation could actually be paid to the employee would be $180,000 (i.e., $250,000 minus $30,000 costs minus $40,000 compensation recovered by the Commonwealth).
   2. Similarly, in the example at point 6 above, the employee in that case may also have incurred legal costs of say $30,000 in obtaining the damages award of $150,000 ($250,000 minus the amount deducted because of the employee's contributory negligence).  In such a situation, it would be necessary for the employee to have offset a total of $108,000 ($150,000 minus $30,000 costs minus $12,000 compensation recovered by the Commonwealth) at 60 per cent of the total compensation “expense” before he/she would again be entitled to full payment of compensation benefits.
   3. It is important to note that full details of the damages award or settlement must be obtained in any cases in which compensation offsetting is relevant.  The details required to be able to determine compensation claims correctly include:

•     the gross amount of damages awarded (exclusive of any added interest),
•     the date of payment of the damages to the employee/claimant or for his/her benefit (i.e., payment to the employee's or claimant's solicitors)
•     whether the total amount of the damages award included costs (i.e., not just costs awarded by the Court but also solicitor/client costs) and, if so, the amount of costs included,
•     the amount of compensation recovered or which is proposed to be recovered by the Commonwealth,
•     advice as to whether there was a finding of contributory negligence on the part of the employee, and
•     if so, full details of that finding.

8. Operation of sub-sections 48(8) and 125(1) of the SRC Act

1. Sub-section 125(1) of the SRC Act basically provides that any payment of compensation made under any of the earlier Commonwealth workers' compensation Acts (1912, 1930 or 1971) is, in effect, deemed to have been a payment under the SRC Act.
2. Sub-section 48(8) of the SRC Act provides that if the damages award relates to a claim for damages made before 1 December 1988 (for an injury sustained before that date, whether or not proceedings for damages were actually commenced before 1 December 1988 or not), but the damages award was not paid until after that date, then the provisions of section 99 of the 1971 Act continue to apply.  In other words, any amounts of compensation paid prior to the date of the award of damages are recoverable by the Commonwealth and the offsetting arrangements provided for in section 99 of the 1971 Act (described at points 5 and 6 above) also apply.

9. Certain damages payments which cannot be recovered or offset - Sub-section 99(11) of the 1971 Act and sub-section 48(7) of the SRC Act
   1. Delegates should note that if the MCRS (Comcare) is satisfied that a part of a damages award can be identified as having been awarded for a loss for which there was, or is, no equivalent provision for payment under the 1971 Act or under the SRC Act, that part of the damages award is not recoverable by the Commonwealth, nor can it be offset against future compensation entitlements in 1971 Act cases. 
   2. For example, if in a 1971 Act damages case, a Court awarded an employee an amount of damages which included a payment for pain and suffering, it would not be appropriate for the Commonwealth to seek to recover that amount.  Nor would it be appropriate to seek to offset that amount against the claimant's possible future compensation entitlements.  This is because the 1971 Act made no provision for payment of compensation for non-economic losses such as for pain and suffering, loss of enjoyment of life etc.

10. Enquiries
    1. Finally, because cases of this type tend to be complicated, any enquiries concerning specific cases for which there is no clear answer in this MCRI or in the attached Quick Reference Guide should be discussed with the local MCRS Manager who should, where necessary, send an e-mail to Mr John M Vidler at john.vidler@dva.gov.au with full relevant details.  John will investigate and get back to the Manager as soon as possible.

Mark Travers

Director

Policy and Procedures

    July 2002