Stop Loss. Practitioners will be aware that the Workers RISK MANAGEMENT FOR LAWYERS FOLLOWING CHANGES TO WORKERS COMPENSATION IN NSW - UPDATE

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1 Stop Loss September 2012 LawCover Pty Ltd ABN LawCover Insurance Pty Ltd ABN Level 12, 580 George Street Sydney NSW 2000 Australia DX Sydney Downtown Telephone (02) Facsimile (02) RISK MANAGEMENT FOR LAWYERS FOLLOWING CHANGES TO WORKERS COMPENSATION IN NSW - UPDATE Practitioners will be aware that the Workers Compensation Legislation Amendment Bill 2012 was passed by both houses of parliament on Friday 22 June The Bill received Assent on 27 June 2012 and at the date of writing the Act is yet to be proclaimed.* The amending legislation effects significant changes to the workers compensation scheme in NSW. In particular: 1. The system for payment of weekly payments of compensation has been completely revised, and bears little resemblance to the old system. Many workers will have a maximum entitlement to weekly payments for 2.5 years only, and unless an injured worker is assessed as having permanent impairment greater than 20%, all payments of weekly compensation will cease at the end of five years. 2. Compensation for permanent impairment will no longer be available where the level of impairment is 10% or less, and only one claim can be made resulting from an injury. 3. Compensation for pain and suffering has been abolished. 4. Payment of medical and related expenses is significantly curtailed in many cases. Payment of medical and related expenses will cease 12 months after the worker ceases to be entitled to payments of weekly compensation, unless a worker is classified as seriously injured which is defined as suffering more than 30% whole person impairment. 5. There are changes to the impairment assessment and costs regimes. In relation to impairment assessments, only one assessment can be made and only one medical assessment certificate issued in respect of an injury, for all purposes. In relation to costs, a late amendment to the legislation was to make each party pay their own costs of pursuing a claim for compensation, including proceedings in the Workers Compensation Commission, except in proceedings already commenced. Where proceedings have been commenced before the date of proclamation, employers will remain liable in most cases to pay the worker s costs. 6. The Act contains a restricted new dispute regime which applies to work capacity disputes, the extended operation of work capacity assessments at the behest of the insurer and an end to the jurisdiction of the Workers Compensation Commission to deal with these types of disputes. In this edition... The changes generally will apply retrospectively, although not affecting benefits already received or due to workers. The list above is not exhaustive and the amending legislation has also introduced other changes to the scheme. It is important to note that the date of injury generally is not relevant to whether the new regime applies. Simone Herbert-Lowe, LawCover Senior Claims Solicitor Suggested risk management measures It is essential that lawyers who continue to practise in this area review the new provisions and consider how these will impact on legal advice and legal services for injured worker clients. Where the solicitor s retainer may be continuing, and where advice has been provided concerning a worker s rights and options (for example, that the worker should remain on workers compensation benefits instead of pursuing a claim for damages), it may be prudent to revisit the advice as in many if not most cases, the value of future workers compensation rights will diminish. For claims governed by the regime, only one claim can now be made for permanent impairment that results from an injury, and only one medical assessment certificate can be issued for that injury. For this reason it is important that lawyers advise their clients before making a claim for lump sum compensation that they will not be able to bring any further claim for that injury. Further, lawyers should give careful consideration and advice before recommending that clients be assessed for permanent impairment under Part 7 of the Workplace Injury Management Act. The risk for lawyers here is that where a client s injuries could deteriorate, or indeed when some consequences of an injury have not yet manifested, the client will not be able to bring a later claim for any further permanent impairment, Changes to Workers Compensation in NSW 1 Your Compulsory Policy Explained 2 Changes to Requirements for Witnessing Statutory Declarations and Affidavits 3 Tax on Property Transactions 4 New CEO Appointment 5

2 RISK MANAGEMENT FOR LAWYERS FOLLOWING CHANGES TO WORKERS COMPENSATION IN NSW - UPDATE (CONT.) where a claim has been made already. And if the client has been assessed under Part 7 at a level below 15%, the opportunity to later pursue a work injury damages claim or commutation could be lost. In those circumstances, the client could seek to bring a claim against the lawyer unless the practitioner can prove that the claimant received full and proper advice before the claim was made or the assessment proceeded. Therefore, it is important that clients understand they may be losing valuable rights to compensation by bringing a claim or proceeding to assessment too early. LawCover recommends that all lawyers who act for workers clearly explain the implications of commencing a claim or undergoing assessment for permanent impairment, and document that advice. Ideally, clients should be asked to sign an acknowledgement that such advice has been given in advance of the filing of any claim or proceeding to assessment. In the past, workers have been able to file further claims upon the deterioration of an injury and it is important that practitioners take note of the changes to impairment assessments, as these present a significant change to the way in which workers compensation claims traditionally have been managed. A final point to note is that for proceedings commenced in the Commission after the Act is proclaimed, workers will be required to pay their own costs of a claim against the employer. Some lawyers may not be prepared to continue acting in those circumstances. In such cases, it is important that the retainer is clearly brought to an end. Professional negligence claims against solicitors often arise where there is a misunderstanding between the client and the lawyer as to whether the lawyer is continuing to act. Where a practitioner decides that he or she will no longer act for the client, that decision should be clearly communicated to the client in writing, with a recommendation that legal advice be sought elsewhere if the client wishes to further pursue the claim. By Bruce Yeldham and Simone Herbert-Lowe. The authors wish to thank Steve O Halloran, Tim Concannon, John Andriano and Nick Maley for their valuable contributions. * Please note that some provisions of the amended legislation operate from the date of assent, whereas others take effect from the date of proclamation. ** Please note that on 13/9/2012 a Bill to restore the existing scheme for costs was introduced into Parliament. YOUR COMPULSORY PII POLICY EXPLAINED LawCover strives to provide you with cover that is not only broad and affordable but also clear and predictable. Some aspects of the policy feature more frequently than others in discussions with insured solicitors. The purpose of this article is to highlight those policy aspects, not to provide a comprehensive overview of the policy as a whole. Law practices will have received copies of the 2012/2013 Compulsory Professional Indemnity Insurance Policy during July. A sample copy of the 2012/2013 policy is also available on the LawCover website at Who is insured? Current and former principals and employees of the insured law practice are covered under the policy. LawCover also provides free run-off cover up to the compulsory limit of indemnity, relieving retired practitioners of the need to purchase individual run-off cover annually. The free run-off cover is available for all practitioners who were previously insured with LawCover and have ceased practice, and where there is no cover available under the policy of a successor law practice. What is insured? The policy provides cover against civil liability arising from the provision of legal services by the insured law practice. Cover extends to costs claimed by the plaintiff or claimant and the costs, disbursements and related expenses incurred in defending the claim, but does not include reimbursement for any time an insured spends in relation to the claim. practice has paid its excess. The law practice as constituted at the time of inception of the policy is responsible to LawCover for the payment of the excess, although principals of law practices are free to make their own arrangements as to contribution amongst themselves. Conduct of the claim The insured must notify LawCover in writing as soon as practicable of any claim made against them, even if the claim is for less than the excess. Peter Driessen, LawCover Chief Claims Solicitor If the quantum of a claim is within the excess, the law practice may assume the conduct of, and settle, the claim with LawCover s consent and must assume conduct within 14 days of receiving written notice requiring it to do so. Prior and successor practices The policy sets out the rules with regard to whether a law practice is the successor to a prior practice. If so, then the claims history of the prior practice will be used in determining the premium of the successor practice and the successor practice s policy will respond to any new claims against the prior practice. This ensures that a law practice with a poor claims history cannot shed that claims history for premium rating purposes by reconstituting itself through merger, acquisition, change of name, etc. Limit of indemnity The current limit of compulsory cover is $2,000,000 inclusive of both claimant s costs and defence costs and applies after the law Settlement of the claim LawCover will seek the insured s consent before proceeding to hearing or settling a claim or deciding whether to pursue an appeal.

3 YOUR COMPULSORY PII POLICY EXPLAINED (CONT.) If the insured does not consent, there is provision for a binding opinion to be obtained from an independent lawyer. Exclusions Clause 31 lists the areas in which a claim will not be indemnified under the policy. Certain activities or components of some claims are excluded because they fall outside the insuring clause and the definition of legal services, or because there is other more appropriate insurance available (for example, cover for loss of or damage to property), or the activity is not insurable (such as war), is open to abuse, or is not reasonably affordable within the current costs of the insurance scheme. Indemnity is not available for agreements that extend the solicitor s duty beyond exercising the standard of care and skill reasonably expected of a lawyer in the circumstances, or that increases the liability for compensation or damages beyond the amount payable in tort or under any applicable statute. Practitioners should take care if a large commercial client seeks to extend the solicitor s duty in return for the promise of significant ongoing legal work. Claims for a refund of a fee or disbursement charged to a client, damages or compensation calculated by reference to such a fee, or costs incurred in a dispute about fees or disbursements charged a client are excluded under the policy, which also excludes claims for payment of a fine, a civil penalty, punitive or exemplary damages, or a trading debt. Claims by a principal or employee of the law practice, or by a corporation controlled by a person in the law practice, in connection with the provision of legal services by the law practice to that person or corporation and that person handled or supervised any part of the provision of those legal services are excluded under the policy (the insured v insured exclusion). However, legal services provided to a member of the law practice by another member is not excluded, provided the claimant has not handled or supervised any part of the legal work. No right to avoid or cancel the policy LawCover will not cancel or avoid the policy even if an insured breaches a policy condition. However, if an insured s breach substantially prejudices the conduct or settlement of a claim, the insured will indemnify LawCover to the extent its interests are prejudiced by the breach. An example is where an insured delays and only notifies a claim once default judgment is entered against the insured, leading to costs being incurred in having the judgment set aside and restricting LawCover s ability subsequently to negotiate an appropriate compromise. However, the indemnity does not operate by way of set-off; in the example given, LawCover would first meet the claim and then subsequently seek reimbursement from the insured. Further Information If you have any questions regarding your 2012/2013 policy wording, please contact one of our Claims Solicitors CHANGES TO REQUIREMENTS FOR WITNESSING STATUTORY DECLARATIONS AND AFFIDAVITS - UPDATE Following our Alert to the profession of 10 May 2012, in which we outlined the recently-implemented requirements for a person in New South Wales taking or receiving a statutory declaration or affidavit to confirm the identity of the deponent, we have received a large volume of enquiries from practitioners as to whether certain identification documents are suitable for the purposes of meeting these requirements. List of suitable identification documents As set out in our earlier , in order for a suitably authorisedperson 1 (authorised witness) to take and receive a statutory declaration or affidavit, he or she must see the face of the deponent (unless the deponent has a legitimate medical reason for not removing a face covering) and either have known the deponent for at least 12 months or have confirmed the deponent s identity by reference to and reliance upon an original or certified copy of an identification document. Our earlier alert included a non-exhaustive list of identification documents. An exhaustive list of what falls to be considered an identification document is found in Regulation 3 of the Oaths Regulation 2011 (NSW), which can be found by searching for Oaths Regulation 2011 at: The first two paragraphs of this list, under which fall most identification documents an authorised witness is likely to see, themselves refer to definitions found in the Real Property Regulation 2008 (NSW), namely primary non-photographic identification document and primary photographic identification document. Regulation 3 of the Real Property Regulation 2008 can be found by searching for Real Property Regulation 2008 at: Amendment to Prescribed Certificate Since drafting our Alert of 10 May 2012, there have been amendments to both Regulation 7 of the Oaths Regulation 2011 and the suggested version of the certificate required to be placed on a statutory declaration or affidavit by the authorised witness pursuant to section 34(1)(c) of the Oaths Act 1900 (NSW). Previously, to take and receive a statutory declaration or affidavit, an authorized witness must either have known the deponent for at least 12 months or, if he or she has not known the deponent for 12 months, confirm the deponent s identity by reference to an identification document. It is no longer a pre-requisite to an authorised witness s ability to require and rely upon an original or certified copy of identification document to have not known the deponent for 12 months. It is likely that the lack of a definition of know or known in the

4 CHANGES TO REQUIREMENTS FOR WITNESSING STATUTORY DECLARATIONS AND AFFIDAVITS - UPDATE (CONT.) Oaths Regulation 2011 or any consistent judicial assistance on such a definition have caused this change. Now, any authorised witness can rely upon an identification document whether or not they know the deponent. This change has led to an amendment in the suggested version of the certification to be attached to a statutory declaration or affidavit. The full text of the amended suggested version of the certificate is: 2 Certificate under section 34(1)(c) of Oaths Act 1900 * Please cross out any text that does not apply [insert name of authorised witness], a [insert qualification to be authorised witness], certify the following matters concerning the making of this *statutory declaration/affidavit by the person who made it: a. *I saw the fact of the person or *I did not see the fact of the person because the person was wearing a face covering, but I am satisfied that the person had a special justification for not removing the covering. b. *I have known the person for at least 12 months or *I have confirmed the person s identity using an identification document and the document I relied on was [describe identification documents relied on]. [insert signature of authorised witness] Date: Federal and Family Court Documents There have been many enquiries and discussions about whether or not this legislation applies to Federal and Family Court documents. There are strong and compelling views that it does not. However, until there are definitive directions from either the Court or legislature it may be wise to err on the side of abundant caution and apply the rules to all affidavits as the Act states that it applies to all affidavits in all courts. 1 A Solicitor, Barrister, Justice of the Peace or Notary Public in NSW, an Australian Consular Officer or British Consular Officer if outside NSW 2 Schedule 1 of the Oaths Regulation 2011 LawCover acknowledges the assistance of Alex Haslam of Gilchrist Connell in preparing this article. TAX ON PROPERTY TRANSACTIONS: TIME TO CALL AN EXPERT Property lawyers don t have to be tax experts but property transactions often involve tax or GST implications which many lawyers do not fully understand. Property lawyers who offer advice about the GST or tax implications of a property transaction could be placing themselves at risk of future negligence claims. Take the purchase of a block of residential units as an example. If the block isn t new, the sale will not be subject to GST (it is input taxed). This is relatively straightforward. If the block is new, the parties have several options in relation to the GST treatment, as follows: The property is sold as subject to GST (taxable) under the ordinary rules (i.e. GST is calculated as 1/11th of the sale price). Since the purchaser will receive residential rent from the property after settlement (which is input taxed), it is not entitled to claim back this GST even if the purchase is part of a business. Accordingly, the GST is a real cost to the purchaser. The property is sold as taxable under the margin scheme. This means the vendor calculates GST on the difference between the sale price and the purchase price of the property, rather than on the entire sale price (although we note that in specified circumstances the margin is calculated in other ways). For the margin scheme to apply, first you would need to find out whether the vendor was eligible to apply the margin scheme. The purchaser is not able to claim a GST credit where the margin scheme applies. However, since the GST on the sale of the property is a real cost to the purchaser in any event, the margin scheme often provides a better GST outcome for the purchaser. The property is sold as a going concern and is GST-free. This approach might be appealing to the purchaser on the basis that if there is no GST, then there is no GST cost (in contrast to the previous two options). However, in certain circumstances, a purchaser who buys residential property as a going concern has to pay the Tax Office an increasing adjustment equal to 10% of the purchase price (under Section of the A New Tax System (Goods & Services Tax) Act 1999 (Act)). As the purchaser must pay an amount equivalent to GST, it is very rare for clients to purchase residential property as a going concern, although it may be beneficial in very specific circumstances (for example, the stamp duty savings of not having to pay the GST on the sale outweigh the GST benefit of applying the margin scheme). These increasing adjustment provisions are little known and even less understood. An increasing adjustment does not generally arise where a tenanted commercial property is sold as a going concern, since the commercial rent received by the purchaser after settlement is taxable (i.e. the adjustment generally only arises where the purchaser makes input taxed supplies in relation to the property). With some exceptions, untenanted completed property is generally not able to be sold as a going concern and hence the issue does not normally arise in these circumstances. As you can see, even in a very simple scenario, your client has various options about how it buys the units and needs specific advice about each one. In practice, most property transactions are

5 TAX ON PROPERTY TRANSACTIONS: TIME TO CALL AN EXPERT (CONT.) not this simple and your client might need further advice about the GST or tax implications. If you aren t convinced by now that your client needs to be referred off to a tax expert, consider the following example. A company purchases a block of residential units for $10 million. The block was constructed by the vendor and none of the units have been sold since construction was completed. The units are all leased to a third party, which sub-lets them to tenants. As the lease arrangement is already in place, the vendor and purchaser agree that the property can be sold as a going concern. The purchaser is very happy because the purchase is GST-free. However, unbeknown to the purchaser, this purchase falls within Section of the Act which means that the GST-free transaction attracts a 10% GST imposition of $1 million (via the increasing adjustment). The client did not receive specialist tax advice, so knows nothing about the liability until they get the tax demand from the Tax Office, with an interest bill and a penalty notice. And there is every chance that tax demand will be followed by a demand to the lawyers. To make things even more complicated, the GST law regularly changes and you need to be aware of the impact of these changes on your clients. For example, the Government has announced that the going concern exemption will be removed and replaced with a new, optional reverse charge mechanism. The Government hasn t announced exactly when this will start, but it is likely to be in Given the complexity of the tax laws, property lawyers should play it safe and routinely refer clients to tax experts before they commit to property transactions. LawCover acknowledges the assistance of Jonathan Ackerman, special counsel, DLA Piper in preparing this article. NEW CEO APPOINTMENT - MICHAEL HALLIDAY Michael joined LawCover in September Previously, Michael was Chief Operating Officer of MDA National, an Australiawide medical professional indemnity provider. In this position he was instrumental in expanding MDA WA from a Perth based entity of some 3,000 members to a national organization, with approximately 35,000 members and insureds. With over 25 years experience in the insurance industry, in both Australia and the United Kingdom, Michael has consulted to medical and other professional indemnity/insurance organisations providing expertise on both strategy and operational management, with extensive experience in supporting the medico-legal interests of the medical profession. Michael is an ambassador for the Think Pink Foundation, an independent, volunteer based charity whose focus is to raise funds to provide financial and emotional support to breast cancer patients. Michael Halliday, LawCover Chief Executive Officer PROTECT YOUR PRACTICE FROM COMPLAINT OR CLAIM Attend LawCover s Risk Management Education Program (RMEP) Go to to register [Disclaimer] StopLoss is prepared for the general information of clients and staff of LawCover. The material presented is not intended to provide legal, insurance or risk management advice. Readers should seek professional advice before relying or acting upon the information conveyed in StopLoss. If you do not want us to send you any information about our services and products, you can opt out by writing to us or telephoning us and advising us that you do not wish to receive any future communications of this type from LawCover.