In Synergy Scaffolding Services Pty Ltd v Alelaimat (No 2) [2024] NSWCA 11, the Court of Appeal addressed complexities within the Workers Compensation Act 1987, particularly regarding section 151Z(1)'s application to indemnity entitlements and the treatment of medical expenses in damages awards. The ruling offers insights into navigating legal uncertainties within the framework of workers' compensation and personal injury claims.

Our September 2023 article discussed the case of Synergy Scaffolding Services Pty Ltd v Alelaimat [2023] NSWCA 213, in which Mr Alelaimat was injured whilst working for DJ's Scaffolding Services Pty Ltd (DJs) under the control of Synergy Scaffolding (Synergy) in 2012.

Proceedings were commenced in the Supreme Court of New South Wales against Synergy and Workers Compensation Nominal Insurer (WCNI), as the insurer of DJs (deregistered).

The primary judge found that DJs did not have control over the specific work Mr Alelaimat was performing, namely scaffolding, and could therefore not direct or supervise his activities. Mr Alelaimat's claim against DJs was dismissed because it was not proven that DJs breached their duty of care.

However, Mr Alelaimat's claim against Synergy succeeded on the basis that the primary judge found Synergy negligently responsible for Mr Alelaimat's injuries, resulting in a substantial award for damages.

The Court of Appeal found:

1. Synergy was liable to Mr Alelaimat for damages, a finding that was uncontested.

2. Contrary to the primary judge's decision, DJs (and consequently WCNI) was liable to Mr Alelaimat for damages  amounting to $917,686.

3. Synergy failed to prove its claim against WCNI for contribution or indemnity under section 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946, resulting in the dismissal of Synergy's cross-claim against WCNI.

4. WCNI did not establish grounds for an order under section 151Z(1)(d) of the Workers Compensation Act 1987 (1987 Act) requiring Synergy to indemnify it for the compensation paid to Mr Alelaimat, leading to the dismissal of WCNI's cross-claim against Synergy.

Finding number four, listed above, created a question for the Court of Appeal as to whether section 151Z(1) applies such that WCNI is entitled to indemnity from Synergy for the payments it had already made to Mr Alelaimat. The Court of Appeal invited the parties to make further submissions. The issue for the Court of Appeal was whether section 151Z(1) of the 1987 Act specifically applies to the obligation of Mr Alelaimat to repay compensation to WCNI and the indemnity of WCNI by Synergy.

If section 151Z(1) applies, WCNI would be entitled to indemnity for its payments, and Mr Alelaimat would be required to repay (out of the damages he recovers) the compensation he has received. If section 151Z(1) does not apply, the Court may deduct, from the judgment sum, amounts referable to the compensation paid. That would be to provide Synergy a benefit (by reduction in the damages payable) at the expense of WCNI.

In order to answer this question, the Court of Appeal undertook yet another examination of the operation of section 151Z of the 1987 Act.

The Court of Appeal observed that section 151Z(1)(a), (b) and (c) are directed to ensuring that a plaintiff, who is entitled to compensation from his or her employer under the 1989 Act and to damages from a third party tortfeasor, is not entitled to retain both, and is required to repay, out of the damages awarded, any compensation.

In the circumstances, section 151Z(1) applies to preclude double recovery by Mr Alelaimat, and to entitle WCNI to indemnity from Synergy Scaffolding, if either:

(a)    Mr Alelaimat "does not take proceedings" against DJs (WCNI); or

(b)    Mr Alelaimat "does not accept satisfaction of the judgment" against WCNI.

As to (a), the Court of Appeal observed that this precondition cannot be met as Mr Alelaimat did, in fact, take proceedings against DJs (WCNI).

As to (b), the Court of Appeal found this precondition to be more enigmatic. The Court of Appeal held that pre-condition (b) was not yet fulfilled, but there was a possibility it might be satisfied in the future. 

In this case it was probable that (b) will be fulfilled because Mr Alelaimat’s potential judgment against WCNI was lower than the potential judgment enforceable against Synergy. It is more likely that Mr Alelaimat will choose to enforce the judgment against Synergy and not the judgment against WCNI.

Nonetheless, Simpson AJA noted: 

The legislation does not contemplate a predictive finding that, on the probabilities, Mr Alelaimat will not enforce the putative judgment against WCNI.

Ultimately, unless (or until) Mr Alelaimat decides not to enforce a judgment against WCNI, the rules regarding double recovery outlined in section 151Z(1) are not triggered. This also means the indemnity provisions, specifically mentioned in paragraph (d) of section 151Z(1), do not apply between the defendants. 

Thus, until it can be established that Mr Alelaimat chooses not to enforce a judgment against WCNI, WCNI does not have any legal recourse against Synergy under section 151Z(1)(d).

Additionally, the Court of Appeal considered section 151Z(2)(e) of the 1989 Act, which stipulates circumstances where section 151Z(1) may apply even when both the employer and the third party are liable for damages. However, none of these circumstances were met and a finding was not delivered.

Further, as referenced in our article from September 2023, in the Principal Judgment the court applied the observation in South West Helicopters Pty Ltd v Stephenson (2017) NSWCA 312, to decide that where Mr Alelaimat was not otherwise obliged to repay the WCNI in respect to medical expenses paid on his behalf then the amount of medical expense should be deducted from the award of damages. However, this order was reversed in the present case. The Court of Appeal considered that:

"[t]he amount paid on behalf of Mr Alelaimat as medical expenses falls to be considered together with the other payments made under the Workers Compensation Act, and should be included in the damages award – and be subject to any repayment required if one of the s151Z(2)(e) preconditions is satisfied and s151Z(1) comes into effect."

In other words, the Court of Appeal suggests that despite the fact that Mr Alelaimat received workers compensation benefits for his medical expenses, those same expenses should properly form part of the damages award against Synergy and WCNI also subject to repayment should section 151Z(1) be triggered.

The Court of Appeal concluded that section 151Z(1) did not presently apply, as Mr Alelaimat had not yet declined to enforce judgment against WCNI. Thus, orders were not made to reduce damages payable to Mr Alelaimat or grant WCNI indemnity. However, potential future enforcement actions could trigger section 151Z(1) obligations.

In summation, the following Court of Appeal orders were made:

1. Appeal allowed in part;

2. Order 2 made in the Supreme Court on 18 May 2022 (being judgment for the second respondent (WCNI) against the first respondent (Mr Alelaimat)) set aside;

3. In lieu thereof, judgment for Mr Alelaimat against WCNI in the sum of $917,686.00;

4. Order 6 made in the Supreme Court on 18 May 2022 (that Synergy Scaffolding pay WCNI’s costs of the cross-claims) set aside.

On the first cross-claim (Synergy Scaffolding v WCNI)

5. The first cross-claim (Synergy Scaffolding v WCNI) dismissed;

On the second cross-claim (WCNI v Synergy Scaffolding)

6. Orders 4 and 5 made in the Supreme Court on 18 May 2023 set aside.

7. The second cross-claim (WCNI v Synergy Scaffolding) dismissed.

The Principal Judgment was set aside and re-determined to include the medical expenses paid by WCNI in the award of damages and will be subject to repayment if one of the section 151Z(2)(e) preconditions is satisfied and section 151Z(1) comes into effect.

The case is yet another attempt at clarifying the uncertainties within section 151Z(1) of the 1987 Act, which were otherwise dormant for years prior to the Court of Appeal's decision in the South West Helicopters Case. This ruling may potentially make resolving claims involving employers and non-employer tortfeasors more challenging given that the operation of section 151Z, whether to benefit employer or non-employer, might not be determined until sometime after judgment is entered against the employer and the judgment is enforced. 

In terms of the Court of Appeal's decision to include medical expenses in the damages award, the case provides insight into the interplay between workers' compensation matters and personal injury matters and the ability for those who have received benefits for medical expenses from workers' compensation to pursue further benefits for medical expenses in personal injury damages while avoiding duplication of benefits.