BLAKE DAWSON WALDRON SOLICITORS LEGAL COSTS IN SOUTH AUSTRALIA'S WORKERS' COMPENSATION SCHEME February 1997
Workcover Corporation,. Library Worl(Cove _. i00,waymouth Street toz.v.,.;4.'rk:iilatil Adelaide South Australia 5000 Telephone: (08) 8233 2577 Contact:: Darren Olney Fraser Direct line: (03) 9679 3514 Blake Dawson Waldron 101 Collins Street Melbourne Victoria 3000 MM(Q)11445265 February 1997
Terms of reference WoF'kcover 'Corporation Library oriccover loo Weymouth Street LA:Una,- Adelaide South Australia 5000 " Telephone: (08) 8233 2577 Our Terms of reference for this Project are to: 1. Analyse the legal costs incurred in South Australia, and compare with other jurisdictions. 2. Identify areas where reductions in legal costs can occur - particularly by drawing on experience of other jurisdictions. 3. Provide advice on the way disbursements are treated in other jurisdictions and suggest an appropriate model for South Australia. BLAKE DAWSON WALDRON
Summary of recommendations ' In South Australia, workers are entitled to payment of their legal costs whether they 'win' or 'lose'. This is different to the legal cost rules of many other States' workers' compensation schemes, and the normal rules applying in other courts in South Australia, where a party's costs are paid only if the party's claim or defence is successful. We recommend that a party's legal costs (whether the party is a worker or employer) be paid only if that party's claim or defence is successful. The WorkCover Corporation pays for medical reports obtained by workers. We recommend that: - There should be a limit on the number of medical reports which a worker can obtain (or at least, approval should be required beyond a limit). - A worker should be obliged to provide a copy of medical reports paid for by WorkCover to WorkCover and his or her insurer/employer. We note that WorkCover is obliged to provide a copy of its medical reports to the relevant worker. We recommend that the following legal cost rules from other jurisdictions be adopted in South Australia: Parties to conciliation should bear their own costs. Costs should be paid by a worker if he or she rejects an offer of settlement which turns out to be greater than the court's award. Costs which a worker or employer must pay to a lawyer should be capped to a prescribed scale. A party should bear the cost of subsequent proceedings where that party has not reasonably participated in conciliation. Medical Panels could be reconsidered. In a less legalistic environment, Medical Panels have proven to be effective dispute resolution forums in other States. BLAKE DAWSON WALDRON 2
Background Legal input to help resolve workers' compensation disputes is a necessary and inevitable part of workers' compensation. Lawyers have an important role to play in the resolution of disputes. Lawyers are familiar with the processes of dispute resolution in the workers' compensation jurisdiction, which are complex because the volume of disputes is high, and they help make sure that workers and employers are aware of their rights. There are, however, a number of reasons why the involvement of lawyers should be minimised wherever possible: legal costs are a direct burden on employer premiums; an inefficient dispute resolution system can lead to both increased claims costs, and an increased duration in claims payments; there is a risk that the legal profession can become an industry of its own, seeking to maximise legal costs; medico-legal experts can contribute to higher disbursement costs payable by the WorkCover Corporation. Ideally, workers' compensation disputes should be resolved by employers and employees without the need for legal representation. This is desirable not only to reduce legal costs, but also to facilitate early return to work and to preserve the employer-employee relationship. A protracted legal dispute over a workers' compensation claim can adversely affect the prospect of an employee returning to work, because the dispute may fracture the relationship. The South Australian workers' compensation dispute resolution system seeks to provide a forum for employers and employees to resolve disputes, and hence avoid litigation. But some people query whether this system has been captured by the legal profession, and they point to increasing legal costs which employers and workers must pay. BLAKE DAWSON WALDRON 3
It has been suggested that the increased involvement of lawyers has occurred partly because of the new fee structure for Claims Agents. Legal costs are not part of the management cost of a claim, rather disbursements for legal costs are paid directly by the WorkCover Corporation additional to the Claims Agent management fee. There is a direct incentive for Claims Agents to use lawyers. Lawyers have increasingly become involved in the new conciliation and arbitration processes, possibly undermining their objectives. If Claims Agents increasingly use lawyers, then workers will rely on lawyers to protect their rights. There is a direct relationship between the frequency of use of insurer solicitors, and vice versa, which 'ratchets up' the stakes for workers and employers in dispute. The purpose of this Project is to analyse legal costs incurred in South Australia by the WorkCover Corporation, and compare this with legal costs structures in workers' compensation jurisdictions in other States. BLAKE DAWSON WALDRON 4
Legal costs incurred in South Australia compared with legal costs in other states South Australia The following provisions of the Workers' Rehabilitation Compensation Act 1986 (SA) (the "SA Act") and regulations are relevant to legal costs in South Australia. We have only briefly summarised these provisions, as the WorkCover Corporation is of course very familiar with its own Act.. Legal Costs Generally Section 95 of the SA Act is the substantive provision in the SA Workers' Compensation legislation dealing with legal costs. Under this provision a worker is entitled to the cost of representation by legal practitioner or an officer or employee of an industrial association, and other costs set out in the regulation. The amount of those costs must not exceed 85% of the amount allowable under the relevant Supreme Court scale. While section 88F of the SA Act states that "the cost of proceedings before the Tribunal are in the discretion of the Tribunal" we understand it is the practice of the Tribunal to award costs in favour of the worker. New regulations were passed by the South Australian Parliament on 3 June 1996 setting the level of legal fees payable under section 95(1) of the SA Act, called the Workers' Rehabilitation and Compensation (Dispute Resolution) Regulations No. 108 of 1996. Re-imbursement of Medico-Legal Reports Workers are entitled to be compensated for the cost of 'medical services', which includes: "(a) attendance, examination or treatment by a medical expert (including the obtaining from a medical expert a medical certificate or report); or (b) any diagnostic examination or test required for the purposes of treatment by a medical expert" (see sections (2)(a), 3(1) and 32(1), SA Act). BLAKE DAWSON WALDRON 5
This entitles a worker to reimbursement for any medical examination and report undertaken or obtained for the purposes for litigating a workers' compensation claim. The scale of charges which the WorkCover Corporation will pay for medical services is set by a notice pursuant to section 32(1) of the SA Act. Notices made pursuant to section 32 have been gazetted. A consolidated list of gazettals is included in the Workers' Rehabilitation and Compensation Manual issued by WorkCover Corporation. Redemptions: Payment for Financial Advice Under section 42(4) of the SA Act, workers are entitled to payment for legal advice about whether to agree to a redemption of weekly payments. The Workers Rehabilitation Compensation (General) Regulations No 232 of 1987 prescribes the amounts payable as follows: Limit obtaining professional advice about the $100.00 consequences of redemption obtaining financial advice about the $100.00 investment or use of money received on redemption Victoria In Victoria, there are two levels of dispute resolution: conciliation, and judicial dispute resolution before either of the Magistrates' Court or County Court. Different cost rules apply in each of these forums. Conciliation There are no costs payable to workers or employers for legal representation at conciliation. BLAKE DAWSON WALDRON 6
In fact, legal representation is not permitted at conciliation. Conciliation is intended to be a non-legal forum of dispute resolution, where it is hoped the employer and employee can resolve their dispute without the involvement of lawyers. In certain circumstances, with the agreement of the parties, lawyers can be present at conciliation Accident Compensation Act 1995 (the "Vic Act"), but even in these circumstances costs must be borne by each party. The cost rule at conciliation is stated simply in section 62 of the Accident Compensation Act 1995 (the "Vic Act"), as follows: "Each party to a dispute referred to conciliation bears the party's own cost". Before WorkCover was introduced in 1992, the WorkCare scheme provided for the payment of legal costs similar to the regime set out in the SA Act. One of the difficulties experienced with WorkCare was that claims duration increased in proportion to the involvement of lawyers at the early stages of dispute resolution. By requiring each party to bear his own costs, WorkCover has reduced the involvement of lawyers at the early stages of a dispute, and the claims duration has similarly decreased significantly. County Court/Magistrates' Court Under s 49 of the Vic Act, court proceedings are generally not permitted to be commenced unless a Conciliation Officer has issued a certificate stating that all action in respect of the conciliation has been taken or that 28 days has expired since the referral to conciliation. If a dispute is not conciliated, and a party wishes to have the matter adjudicated, proceedings need to be commenced in either the Magistrates' Court or County Court. The appropriate court of jurisdiction depends on the value of weekly benefits in dispute (the Magistrates' Court deals with disputes less than $40,000). BLAKE DAWSON WALDRON 7
The cost rules applicable in the Magistrates/County Court under section 50(1) of the Vic Act are as follows: "In proceedings before the County Court under this Act or the Workers Compensation Act 1958 being proceedings brought by a person other than the Authority, authorised insurer, employer or self-insurer, the Court - (a) must award cost, including costs directly relating to a referral to conciliation (other than the costs of the Authority, authorised insurer, employer or a self-insurer), against the party against whom a judgement or decision is made; and (b) may, if it considers it appropriate, include in an order under paragraph (a) an award of costs to the representative of a worker in whose favour a judgement or decision is made; and (c) must not otherwise make an award of costs." With respect to claims for maims and pain and suffering, costs must be paid by the worker where the order of the County Court is for a payment of compensation which is not greater than the amount of the insurer's final offer of settlement (section50(2a)(a), Vic Act). Similarly, the court will order costs to be paid by the insurer where the order for compensation is greater than the amount of the final offer of settlement (s50(2a)(b), Vic Act). Another cost-related provision is section 50(3) of the Vic Act, which provides that if proceedings brought in the County Court could have been brought in the Magistrates' Court then costs will be awarded according to the scale in operation in the Magistrates' Court. Re-imbursement of Medico-Legal Reports As in South Australia, the Vic Act entitles workers to compensation for the reasonable costs of 'medical and like services' (section 99, Vic Act). This includes the provision of any medical report, but only if the insurer or WorkCover Authority agrees to pay for the medical report, which they must do if it is 'reasonably necessary' (section 5(1)(e), Vic Act). BLAKE DAWSON WALDRON 8
Western Australia In Western Australia there are three levels of dispute resolution: conciliation, review and judicial dispute resolution before a compensation magistrate's court. Conciliation The Workers' Compensation and Rehabilitation Act 1981 (the 'WA Act') states that any party to a dispute may refer the matter to conciliation (section 84N, WA Act). Legal representation is not permitted under the WA Act at the conciliation stage (section 84Q, WA Act). However, legal representation is allowed where all parties and the conciliation officer agree. Parties are also required to bear their own costs at the conciliation stage (section 84X, WA Act) if it is agreed that legal practitioners can attend. Review Upon the request of any of the parties to the dispute, a conciliation officer must refer a dispute to review (section 84Y, WA Act). Legal representation is allowed provided that all parties agree or that the review officer believes that a question of law has been, or is likely to be, raised (section 84ZE, WA Act). Unless otherwise decided by the review officer, parties are required to bear their own legal costs at review (section 84ZL(1), WA Act). The cost of a legal practitioner is, however, not permitted to be greater than that provided under the Legal Practitioners Act 1893 (section 84ZL(2)(a), WA Act). Compensation Magistrate's Court Under section 84ZN of the WA Act, a party who is dissatisfied with a decision of a review officer may appeal to a compensation magistrate's court on a question of law. The compensation magistrate's court is established under Part 'VI of the WA Act. Legal representation is allowed at this more formal stage of the dispute resolution process. BLAKE DAWSON WALDRON 9
The court may make orders with respect to costs (section 84ZP(b), WA Act), in accordance with the normal costs rules of the Magistrate's Court. Where the Compensation Magistrate is asked to enforce an order made at conciliation or review, costs are only awarded for the services of a legal practitioner or other agent where the proceedings "have been frivolously or vexatiously instituted or defended". Re-imbursement of Medico-Legal Reports Section 84S of the WA Act, entitled "medical and other expenses", states that: "A conciliation officer may order an employer or insurer to pay to a worker any sum payable under clause 17 if the amount of the payment does not exceed 2% of the prescribed amount". Clause 17 of Schedule One of the WA Act contains a detailed list of "medical and other expenses" to be paid as compensation. It does not, however, appear to include the preparation of medical reports obtained for the purposes of litigating a worker's compensation claim. New South Wales There are two primary levels of dispute resolution in New South Wales: conciliation and judicial dispute resolution in the Compensation Court. Conciliation Under section 97(1) of the Workers Compensation Act 1987 (the "NSW Act"), any party to a workers' compensation dispute may refer it to conciliation. In addition, any dispute regarding the continuation of weekly compensation payments must be referred to conciliation within 21 days after the dispute has arisen (section 103A(1), NSW Act). As in Victoria and Western Australia, no legal representation is permitted at the conciliation stage unless agreed upon by all the parties and the conciliation officer (100A (2) and (3), NSW Act). BLAKE DAWSON WALDRON 10
There is one exception to the non-allowance of legal representation at conciliation. Under section 98A(2) of the NSW Act a conciliation officer may only direct a party to a dispute to produce certain documents or supply specific information if the officer is satisfied that the person will be legally represented at the conciliation conference. The officer must also satisfy him or herself of this before issuing a summons to a worker requiring attendance at a conciliation conference (section 98B(2), NSW Act). A conciliation officer must consider any written submission prepared by a legal practitioner who is acting for a party to a dispute (section 100A(3B), NSW Act). Compensation Court The NSW Compensation Court has the jurisdiction to hear all matters arising under the NSW Act (section 107). There is no provision limiting or preventing the input of legal representatives at this stage of the dispute resolution process. The awarding of costs is at the discretion of the Court (section 116(2)(a), NSW Act). It is not, however, permitted to order costs against a worker unless the claim for compensation is found to be "frivolous or vexatious, fraudulent or made without proper justification" (section 116(3), NSW Act). If a worker wishes to appeal from a decision of a commissioner of the Compensation Court to a judge, he or she risks bearing their own and the other party's costs if unsuccessful (section 116(5), NSW Act). Furthermore, under section 116(6) of the NSW Act, the Court may award costs against any party who has unreasonably failed to participate in conciliation where this has resulted in unnecessary litigation or adversely affected the worker's rehabilitation. The NSW Act attempts to limit the amount of legal and medico-legal costs incurred by the parties under regulations fixing maximum costs (sub sections 117(1) and 118(1), NSW Act). Furthermore, parties must bear their own costs if they are found to be "unreasonably incurred" (s119(1),nsw Act). BLAKE DAWSON WALDRON 11
As a direct disincentive to insurers, the WorkCover Authority may reduce the management expenses payable to the insurer where the Court has found that the insurer has been responsible for costs "unreasonably incurred" (section 94(2)(b), NSW Act). Finally, the NSW Act appears to have introduced a disincentive to "no winno fee" arrangements, possibly in an effort to reduce litigation. Under section 122(1) of the NSW Act, a legal representative of a worker is not entitled to claim any costs against the worker associated with the claim unless those costs are awarded by the Compensation Court. BLAKE DAWSON WALDRON 12
Suggested areas where reductions in legal costs can occur in South Australia An analysis of the workers' compensation systems in South Australia, Victoria, Western Australia and New South Wales indicates that savings in legal costs can primarily be achieved by reducing the involvement of legal practitioners at the initial dispute resolution stages. Conciliation and Arbitration The conciliation and arbitration process recently introduced in South Australia should have clear benefits for South Australia's workers' compensation scheme. It is arguable, however, that an effective conciliation and arbitration process is not possible without strict limitations being placed on the use of lawyers. Parties will be less inclined to settle at conciliation if the conciliation environment is adversarial and it directly encourages litigation. South Australia could adopt the Victorian and Western Australian approach of disallowing lawyers at conciliation unless agreed upon by all the parties. The allowance of written submissions by legal practitioners to a conciliation officer may be appropriate, as currently provided for in the NSW Act (section 100A(3B)). This section allows a role for legal practitioners without the associated costs of their attendance. Parties should bear their own costs at Conciliation and Arbitration The introduction of a requirement that parties bear their own costs at conciliation may aid in discouraging the involvement of lawyers at that stage. Parties are less likely to agree to legal representation at conciliation if they are conscious that they must bear their own costs. Who should pay? Currently, South Australian workers are able to recover legal costs regardless of the outcome. Even though a claim may be denied by the Tribunal, their legal costs must nevertheless be paid. BLAKE DAWSON WALDRON 13
This is different to the normal cost rules applying in the civil jurisdiction, and different to many other States' workers' compensation cost rules. These cost rules are a direct incentive to workers to proceed with a claim beyond the conciliation and arbitration process. Section 50(1) of the Vic Act provides a direct incentive to the worker to seek a settlement of the dispute at the conciliation stage. Under this provision, if a worker is dissatisfied with the conciliation process and decides to appeal to the County Court, he or she risks bearing the other party's costs in the event that his or her claim is unsuccessful. There seems no reason why the usual civil cost rules should not apply in the workers' compensation jurisdiction. Settlement Offers South Australian could extend its provisions relating to lump sums under sections 93A and 94C(2)(c) of the SA Act to all determinations of compensation made by the Tribunal. If such a change is made, workers' would not be entitled to costs where the Tribunal's order for compensation is less than 10% above, the insurer's final offer at conciliation. The introduction of such provisions would make conciliation offers a more critical part of the costs process, not just a consideration in determining costs (section 92(4)(b) of the SA Act). BLAKE DAWSON WALDRON 14
Medico-legal disbursements Medico-legal reports It appears that, under the current workers' compensation scheme in South Australia, workers can gain unlimited compensation for the cost of medicolegal reports. This is unusual in comparison to other jurisdictions. It should be noted that a worker is not obliged to make a copy of medicolegal reports available to the WorkCover Corporation, or his/her employer' and insurer, even though they are paid for by the employer (except in accordance with the rules of court). On the other hand, the WorkCover Corporation must make its medico-legal reports available to workers (section 109, SA Act). The introduction of limitations on medical reports would grant the WorkCover Corporation some control over the number of medico-legal reports that a worker obtains at WorkCover's expense. A requirement that workers disclose their medico-legal reports where they seek re-imbursement from the WorkCover Corporation should be introduced. We note that, in Western Australia, the cost of medico-legal reports is not considered a "medical" expense and is therefore not compensable. Medico-Legal Disputes Prior to June 3 1996, the SA Act provided for Medical Advisory Panels to resolve medical disputes that arose during the dispute resolution process. These Panels were removed in June 1996, primarily because of lack of use. Their lack of use may have been a direct consequence of lawyers having captured the dispute resolution process, so it may be that in South Australia the value of Medical Panels has not been realisable. Now any conflict in medical opinions is dealt with at conciliation or arbitration, or the Workers' Compensation Tribunal. Victoria, Western Australia and New South Wales enable medical disputes to be referred to Medical Panels at each stage in the dispute resolution BLAKE DAWSON WALDRON 15
process. NSW also enables the worker and employer to expressly agree to refer a medical dispute to an independent medical practitioner. Western Australia appears to be the only state that expressly disallows legal representation at these Panels. The aim of the Panel approach appears to be to facilitate a well-informed and non-legalistic resolution of medical issues outside the adversarial environment of the dispute resolution process. It is possible that the current South Australian procedure of resolving medical disputes at conciliation, arbitration or at the Tribunal results in higher medico-legal disbursements than would be incurred by a Medical Panel. An attempt to deal with a medical dispute at conciliation, arbitration or the Tribunal may increase the adversarial nature of the process and diminish opportunities for a resolution of the compensation claim (as observed in the Industry Commission's 1994 report). The 1994 Report of the Industry Commission suggests that adjudicators be required to choose one of the parties' positions regarding the medical issue. This arguably encourages parties to form reasonable medical opinions in the face of an "all or nothing" situation. BLAKE DAWSON WALDRON 16