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McLay, Geoff --- "Nervous Shock, Tort and Accident Compensation: Tort Regained?" [1999] VUWLawRw 34; (1999) 30(1) Victoria University of Wellington Law Review 197


NERVOUS SHOCK, TORT AND ACCIDENT COMPENSATION: TORT REGAINED?

Geoff McLay[*]

This case note examines the recent Court of Appeal decision in Palmer v Danes Shotover Rafts[1] dealing with the relationship between the common law and the Accident Compensation regime. The author acknowledges the practical importance of the Court's holding in Danes Shotover Rafts that plaintiffs who have not suffered physical injury can sue for nervous shock. The author contends that the case is, like the exemplary damages cases, yet another example of the complex interaction between common law and statutory compensation regimes. The author argues that the case may signal a judicial switch from a welfare or communitarian approach to the interpretation of the Accident Compensation scheme to a rights based approach and that gives primacy to common law rights rather than to the integrity of the Accident Compensation scheme. A wider view not based solely on the statutory provisions, or on the assumption that the common law or statutory compensation regimes "trump" one another, but one which views the interaction between the common law and statutory compensation schemes as dynamic, may lead to a greater understanding of the relationship between statutory tort reform and the common law.

I INTRODUCTION

Throughout the century tort law and tort reform have been perceived as enemies. The success of one is the demise of the other. In reform feted around the world in the 1970s, New Zealand confidently abolished the common law for all personal injury. No other country has since gone so far along the no-fault path. Indeed under the heading of "Community Responsibility", inspired by the 1967 Woodhouse Report, New Zealand may have left the tort path completely, and moved along the welfare road. At the other extreme, in the United States, not only have opponents of tort reform been remarkably politically successful in beating off tort reform, but State courts continue to strike down what to New Zealand eyes are mere minor tinkering with an over-burdened tort system on the grounds that the reforms are an interference with the constitutionally vested right to common law remedies of accident victims.[2]

But as a result of the Accident Insurance and Rehabilitation and Compensation Act 1992, and even more so under the Accident Insurance Act 1998, New Zealand has moved back into the tort reform mainstream, explicitly focusing on insurance, and the deterrent value of increased claims leading to increased premiums.[3] The shift in legislative philosophy will inevitably lead New Zealand courts to review the way in which the common law interacts with the scheme. The obvious point of interaction is the bar on compensatory damages.[4] The note examines Danes Shotover Rafts as a harbinger of a new, more sceptical approach to the relationship between the Accident Compensation regime and the common law.

This note focuses on one point of tension along the commonlaw-Accident Compensation divide, nervous shock. In Danes Shotover Rafts, the Court of Appeal held that a husband could sue for the nervous shock that resulted from having seen his wife swept to her death in a rafting accident. The Court resolved in essence that since that type of damage is non-compensatable under the statutory scheme, the husband must be allowed to pursue the common law avenue. This was put baldly by Thomas J as:[5]

Traditional principle, which enjoys fundamental constitutional status in our free and democratic society, that citizens are not to be denied access to the courts, save in a rare and appropriate circumstances, and then only subject to explicit statutory language.

While Thomas J's fundamental principle will not be as dramatic a thorn in the side of tort reform as the American vested rights theory has been, it does show a significant switch in a Court whose previous decisions had emphasised the communitarian philosophy of the Woodhouse Report in its interpretation of the successive Acts that gave the Report its legal force. Indeed in the High Court, Master Venning had reached an opposite result. He had seemingly to emphasise the communitarian nature of the scheme that had once sought to place all tort victims suffering injuries as a result of accidents under the same inability, that the scheme should not be undermined or got around by creative pleading.

This note further suggests that contrary to Thomas J's emphasis on the primacy of the common law it would be better not to understand the relationship between the common law and tort reform statutes as static, or as a matter of one trumping the other, but of intermingling. That process of intermingling contrasts with earlier predictions of the destruction of the common law or the "non-monetary" ombudsman role for tort advocated by the Lord Cooke as President of the Court of Appeal in 1990.[6]

II THE CASE - PALMER V DANES SHOTOVER RAFTS

Mr Palmer and his wife took, as thousands of tourists do each years, a rafting trip while on holiday in Queenstown. Unfortunately the trip ended in disaster and Mrs Palmer drowned allegedly as a result of the negligence of the rafting company and the local council who had failed to control the rafting. Mr Palmer could not recover for his wife's death in a rafting accident that was clearly barred by 1992 Act. Rather he alleged he could recover from the mental injury that he had suffered at the result of seeing his wife being thrown into the water and subsequently drowning. Such a claim is squarely within English precedent.[7] Palmer allegedly satisfied the three important criteria for that type of claim as established in the overseas case law - he was closely related, in the phrase of the cases, by ties of love and affection to his wife, he was involved in the incident which lead to his wife's death and he alleged quantifiable mental injury as a result of the accident. As a result of changes in 1992 Mr Palmer could not recover Accident Compensation for his mental distress since he, himself, had suffered no physical injury.

III "COVER" AND THE INEVITABLE TENSION IN INTERPRETING STATUTORY COMPENSATION REFORMS

The concept of cover was, under previous Accident Compensation Acts, and remains under the 1992 and 1998 Acts, in constant tension. The same concept is pushed first by those who cannot succeed, or might succeed only with extreme difficulty, under common law and who hence strain the definition of cover to include the injury which they have suffered so that they will be compensated under the statutory regime. This, for example was potentially the case with the claimant in E v ACC discussed below, or more commonly perhaps in the medical misadventure area where there was no negligent treatment but rather just an unfortunate consequence of treatment. On the other hand, the concept is pulled by plaintiffs sure of their potential common law claim who seek to escape cover believing they have a chance of receiving greater damages at common law than they would get in compensation under the compensation scheme. This is the case with Danes Shotover Rafts.

The New Zealand scheme appears to share this "push me–pull you" tension with statutory compensation schemes in other countries. The author, who had the pleasure of teaching Workers Compensation at the University of Iowa, College of Law, quickly found that once past the different terminology, exactly the same pressures existed and that solutions adopted were comparable to the New Zealand courts' solutions.[8] One favourable by-product of the reintroduction of the "in the course of employment" test in the 1998 Act is that New Zealand lawyers and academics will have to come to grips with overseas case law.[9] While the New Zealand scheme remains unique, the keeping of it in splendid isolation from its kindred schemes, has not, in the view of this author, helped in evaluating the worth (or not) of either the pre-1998 scheme or the way the judges interpreted it.

A Nervous Shock and Accident Compensation

Claims for mental distress under the Accident Compensation regime or, now, for nervous shock at common law are another example of this inevitable tension. But the changes contained in the 1992 Act also made Danes Shotover Rafts a case involving the tensions between an old communitarian or welfare view of Accident Compensation and the newer more insurance-based model.

1 Position before the 1992 Act

If the 1982 Act had not been replaced by the 1992 Act, it would have been almost impossible for the court to hold that Mr Palmer could recover for "mental injury". The Accident Compensation Act 1982 provided not only that actions for damages arising from personal injury by accident could not be brought[10] but the definition of personal injury by accident in section 2 embraced the mental injury arising out of an accident.[11] A combination of these provisions, and judicial interpretation, meant that all actions for compensatory damages arising from personal injury by accident, including mental consequences suffered by third parties, were covered in the sense of being both compensatable under the Act and barred.

2 Judicial expansion of "injury" and "damage" under the 1982 Act

In 1972 the prospects of success for secondary victims who claimed damages for nervous shock at common law for seeing an accident to another were still slim. The vast majority of common law claims would have fallen foul of the traditional common law reluctance to recognise purely mental, as opposed to physical, injuries. Seemingly the New Zealand courts transformed the nature of injury under Accident Compensation[12] as their fellow judges overseas transformed the nature of injury recoverable at common law following McLoughlin v O'Brian.[13] The common law, however, was not the only point of reference for New Zealand judges as they expanded the ability to claim nervous shock compensation. Also important was the perceived difficulty, best expressed in medical misadventure cases, in differentiating between accidents compensatable under the Accident Compensation regime and medical conditions that were not.[14] The harshness of finding that someone was suffering from an uncompensatable illness sat uneasily with the over-arching social welfare nature of the Woodhouse Report itself.[15] The dual role of cover meant that common law actions for nervous shock were barred. On the other hand nervous shock type claims, including ones that perhaps might not have succeeded at common law, could be recovered under the Accident Compensation regime.

In ACC v Mitchell,[16] a case involving severe brain damage to an infant through his involuntary (if undiagnosed) cessation of breathing, the Court confirmed that the lack of identifiable external force as the cause of cessation of breathing did not prevent cover under the 1982 Act. Such a restriction was simply incompatible with the social welfare nature of the legislation. Richardson J, in a passage referred to by Thomas J in Danes Shotover Rafts, observed that:[17]

a generous unniggardly interpretation of personal injury by accident is in keeping with the policy underlying the Accident Compensation Act of providing comprehensive cover for all those suffering personal injury by accident in New Zealand wherever, whenever and however occurring, and to do so in place of common law remedies. Certainly if the expression is fairly capable of covering all accidental injuries whether or not precipitated by an external triggering incident, that interpretation would better reflect the philosophy underlying this major social legislation.

As part of this "unniggardly" (or communitarian or welfare) approach courts also recognised that, just as an external event was unnecessary if physical injury resulted, an external event that gave rise to non-physical but real consequences might also be covered. Although principally unstated, these cases showed a remarkable transformation of the concepts of "accident" and "injury".[18]

In ACC v F[19] Holland J rejected a claim by a man suffering from the mental consequences of being unable to have sexual intercourse with his wife as a result of medical misadventure that had left his wife unable to have intercourse. His Honour reasoned:[20]

One cannot help but have considerable sympathy for the respondent in his situation, but the indirect consequences on the mental health of many persons who merely were observers of accidents, or are otherwise associated with the victims of accidents, make it highly unlikely that Parliament intended such persons to be compensated. If the mental injury is suffered as a result of the actions of a wrongdoer it is possible that in some circumstances a right of action might exist at common law but compensation under the Accident Compensation Act is not available.

Just over a year later, the Court of Appeal reversed Holland J's sweeping rejection of those who suffered purely "mental" as opposed to physical injury. The Court, however, expressly left open the possibility that his Honour had been correct in not permitting the claim from someone who himself had not suffered directly from the accident. In ACC v E[21] the Court of Appeal rejected submissions that a claimant who had suffered severe stress from her attendance at an executive training course could not recover because she had not suffered a physical injury: [22]

There is no policy reason for complete exclusion of cover under the Act for purely mental consequences by restrictive interpretation though for practical reasons exclusion in certain circumstances may be appropriate ... This case is not involved with mere humiliation or distress but with serious mental disorder. Further, on the evidence, the assumption in the case stated that there was no physical injuries is unfounded. There was both medical and eyewitness evidence of physical symptoms...

Greig J extended ACC v E in Cochrane v ACC[23] so that a mother who had watched her son die in hospital after a brutal beating could claim compensation:[24]

Following the decisions made in Green v Matheson [1989] NZCA 195; [1989] 3 NZLR 564, Willis and ACC v E all in the Court of Appeal, I think I can extract the following general principles as applicable to this particular case. There is no need for the applicant under the Act to show physical injury. It is not necessary to add on mental consequences to some previous or pre-existing physical injury. A mental injury alone will be enough to constitute personal injury by accident. It is not necessary that there should be an accident in the sense of an identifiable event apart from the injury, whether physical or mental.

Given the dual role of cover, the ability to receive compensation for mental distress under the Act also prevented suits for mental shock damages at common law.[25] In Soest v Wilkinson[26] the plaintiffs claimed that they had suffered nervous shock as a result of relatives' death from of medical misadventure. Master Venning struck out the relatives' common law claims as an extension of the Cochrane reasoning.[27]

3 1992 Act and the change to the definition of cover

These court developments were particularly controversial. Some of the cases, in particular ACC v F and ACC v E, received widespread public attention and some political criticism. In 1992, the then new National Government as part of an economic reform package made a number of important and perhaps unexamined changes to the 1982 Act under the banner of "A Fairer Scheme". These reforms were designed to reduce what were perceived as the burgeoning costs of the Accident Compensation scheme as it had operated and even of how Courts had expanded and might be about to expand the definition of cover. Amongst those changes was the decision to limit the recovery of mental injury under what became the 1992 Act. That report argued: [28]

Stress claims are a major cause of escalating costs in those overseas workers' compensation schemes that compensate for stress. The present scheme does not include stress cover and the Working Party considered that this should not change... The Working Party also recommended that physical injury should be present before mental injury is covered. Although this may give an appearance of arbitrariness, this requirement was seen as necessary in order to avoid stress claims entering "through the back door". The Government supports this view....

In enacting that policy Parliament did not substantially change the way common law actions were barred. Section 27 of the Accident Compensation Act 1982 was essentially replicated by section 14 of the 1992 Act.[29] However, the Government altered the definition of accident and personal injury so as to exclude cases like Mitchell when there had been no external event causing the injury or ACC v E when there had been no "physical injury". The only mental or nervous shock expressly covered without physical injury was that suffered by victims of sexual offending.[30] These changes represented a significant narrowing of cover, and unsurprisingly these changes have been carried over into the 1998 legislation.[31] The possibility of removing cover leading to nervous shock common law claims was highlighted by the 1995 official's committee which recommended that nervous shock be covered, but not for lump sum payments which the committee accepted should not be reactivated.[32] That warning was not heeded.

The Government's desire to reduce the cost of the Accident Compensation scheme was also reflected in its removal of lump sum payments, the Government pointing to the expense and inefficiency of lump sum payments and indeed to the intention of the original Woodhouse Report that was at best ambiguous as to the wisdom of such payments. Opponents argued that the such a measure broke the "social contract" implicit in the original Accident Compensation regime and pointed to the gender bias of restricting monetary benefits to those in paid employment. [33] Thomas J's articulation in Danes Shotover Rafts of a fundamental principle that common law rights survive unless expressly revoked by plain language is perhaps judicial confirmation that if the social contract has been breached courts may need to adopt a different approach to cover.

4 Common Law Developments in Allowing Nervous Shock

For English, Australian or Canadian readers, news that another common law jurisdiction has recognised tort actions for nervous shock will come as no surprise, particularly when they read the plaintiff was a passenger on a raft from which his wife was swept and subsequently drowned. "Nervous shock" has been the tort flavour seemingly of the last few years. Law reports have recorded the transition of the cause of action for nervous shock from lurking in the wings to the full glare of the arc lamps. [34]

The cases, following the lead of Lord Wilberforce in McLoughlin v O'Brian, have left somewhat behind the automatic presumption that mental shock at observing an accident has to be endured as part of everyday life, and those who were abnormally affected by such shock were overly sensitive or lacking in "phlegm".[35] The cases go far beyond the mere recognition of the ability to claim for "nervous shock" or "mental injury" to an examination of what these terms mean and how they can be quantified. Nervous shock cases, however, remain subject to particular policy considerations that restrict their recovery to those with close ties of love or affection to the injured party and who were closely connected to the accident or its aftermath.

In England the high point of this recognition was the speech of Lord Lloyd in Page v Smith.[36] His Lordship disavowed what he saw as antiquated distinction between "physical" injury and mental injury in holding that the so-called egg–shell skull rule applied to conditions that are normally classified as "mental" illness as it does to those normally classified as physical illness.[37] Undoubtedly, though, Lord Wilberforce's judgment, and judicial notice of developments in medicine that cast doubt on the attempt to distinguish the physical from the mental, have resulted in a remarkable judicial advance on the pre-1982 position.

As examined above the expansion of the notion of injury covered by the Accident Compensation scheme prevented the development of tort claims for nervous shock in New Zealand. Others have written on the nature of nervous shock claims following the decisions discussed in this case note.[38] In Legge,[39] Master Venning held that the bar did not apply because the suicide, which was the alleged cause of the relatives' distress, was not covered by the 1992 Act. Master Venning held that so long as relatives could establish that they had suffered something beyond mere "passing shock and distress" they might be able to recover in tort.[40] In contract or breach of fiduciary duty cases where the bar could not apply, the New Zealand Court of Appeal held that damages might be recovered for stress, at least in non-commercial contexts.[41]

IV DANES SHOTOVER RAFTS

Danes Shotover Rafts was the first case to work its way through to the Court of Appeal where the Court had to consider whether nervous shock was covered by the 1992 Act.

A Mr Palmer's Argument

Mr Palmer argued that, as Parliament had clearly sought to exclude from cover those like him who had not suffered physical consequences as a result of the external application of force, he was not barred from the pursuant of his nervous shock claim at common law. There is some perversity, not in Palmer's claim in and of itself, but as a result of the 1992 reform's reduction of the levels of benefits that would be paid to those suffering physical injuries covered by the 1992 Act. To now allow those who suffered mental injuries but no physical injury to claim the lump sum payments under common law that were denied those who had suffered physical injury and were hence covered by the Accident Compensation seems peculiar public policy.

B The Courts' Reasoning in Danes Shotover Rafts

Each judge dealt with Mr Palmer's claim ostensibly as a matter of statutory interpretation of section 14 and the new definitions of "accident", "injury" and "cover". These provisions are as follows:

(1) No proceedings for damages arising directly or indirectly out of personal injury covered by this Act or personal injury by accident covered by... the 1972 or 1982 Acts... that is suffered by any person shall be brought in any Court in New Zealand independently of this Act, whether by that person or any other person, ...

"Accident" means--
(a) A specific event or series of events that involves the application of a force or resistance external to the human body and that results in personal injury... and the fact that a personal injury has occurred shall not of itself be construed as an indication or presumption that it was caused by any such event or series of events; or
....:

4 DEFINITION OF "PERSONAL INJURY"—
(1) For the purposes of this Act, "personal injury" means the death of, or physical injuries to, a person, and any mental injury suffered by that person which is an outcome of those physical injuries to that person...
...

8 COVER FOR PERSONAL INJURY OCCURRING IN NEW ZEALAND--
(1) This Act shall apply in respect of personal injury occurring in New Zealand on or after the 1st day of July 1992 in respect of which there is cover under this Act.

(2) Cover under this Act shall extend to personal injury which—
(a) Is caused by an accident to the person concerned;

C The High Court Decisions

Master Venning struck out Mr Palmer's claims as barred under section 14 of the 1992 Act[42] while Panckhurst J reinstated Mr Palmer's claims on review. Both High Court decisions acknowledged the common law developments flowing from McLoughlin v O'Brian and the difficulty created by the changes in the 1992 Act.

Master Venning was prepared to take an expansive interpretation of the bar in section 14 to include the mental shock injury suffered by secondary victims like Mr Palmer as actions arising from the accident. [43]

The Plaintiff pleads that on witnessing the death of his wife he sustained serious mental injuries and has suffered loss and damage. An essential part of the chain of causation leading to his claim is the fact that he witnessed the death of his wife. To that extent his claim for general and special damages arises indirectly out of personal injury (ie covered by the Act). The injury (ie death) was suffered by her and in my view s14 bars a claim by him as 'any other person' in these circumstances"

For Panckhurst J, in contrast, the phrase "that or any other person" was added to the section so that it was certain that personal representatives and the like were excluded from being able to bring actions on behalf of the injured person as opposed to preventing secondary victims from suing. [44]

While Panckhurst J is perhaps correct in light of the statutory intention to exclude nervous shock claims from cover and hence the bar, Master Venning's decision should not be judged as depending wholly upon statutory interpretation or parliamentary intent behind particular provisions. Rather Master Venning appeared to begin from the communitarian basis of accident compensation and the "we're in it, altogether" underpinnings of the bar. Some should not receive common law compensation through the back door of nervous shock, while others are subject to lesser statutory compensation. Master Venning emphasised the need to treat all accident victims similarly under the Accident Compensation scheme:[45]

Further, if claims for nervous shock by a party such as the Plaintiff were allowed that in itself may lead to strange or unjust results in that a claimant suffering nervous shock from witnessing an accident could potentially recover substantially more by way of a common law damages claim against a negligent driver that the person severely physically injured in the accident by the negligent driver would be entitled to as a result of being covered by the Act.

Under the 1972 and 1982 Acts the Plaintiff would have cover for the medical consequences to him of the accident, even without physical injury on his part: Cochrane .... Under both of those Acts the Plaintiff would have been barred from bringing an action at common law, but would have been entitled to compensation under the Acts. In 1992 Parliament chose to restrict claims for mental consequences and, except in limited circumstances, to require them to be related to physical injury. The wording of s 14 is substantially the same as the previous sections in the former legislation. Certainly there has been no material change which could be interpreted as allowing the bringing of personal claims in these circumstances. The question is one of interpretation. In my view the wording of s 14 is clear and able to be given effect to.

Panckhurst J focused less on the inconsistency between plaintiffs, and more on the Parliamentary changes to cover and the effect that they would have on what he saw as an established cause of action for nervous shock. As Thomas J would write in the Court of Appeal, denying a tort claim would mean that Mr Palmer would be completely remediless under both systems.

D Thomas J and the "Fundamental" Role of the Court

For Thomas J who delivered the judgment of the Court, the critical words in section 14(1) were not "that or any other person" which had been added:[46]

ex abundanti cautela "to ensure that other persons, such as an injured person's legal representatives, are also unable to bring an action". The abundance of the draftperson's caution is illustrated by reference to the final phrase, "whether under any rule of law or any enactment". It is difficult to see what those words add to the foregoing part of the subsection stipulating that no proceeding can be brought independently of the Act.

Similarly he was not impressed by the extension of the phrase "directly or indirectly" to import nervous shock into cover as injury arising indirectly from the accident to Mrs Palmer.

Rather his focus was "personal injury covered by this Act". Thomas J held that cover under the Act was coterminous with an action being barred. Since mental injury without physical injury could not be compensated under the statutory scheme, it could not be included in the section 14(1) bar.

But while expressed in the language of simple statutory interpretation, Thomas J's conclusion reflects a very different starting point from Master Venning, or the Court of Appeal in the 1982 Act cases like Mitchell and ACC v E. Rather than giving priority to the communitarian integrity of the Accident Compensation scheme, his traditional principle that courts should not deny a remedy available at common law, unless there is express statutory language, gives priority to what he sees as a common law right. The change in approach was mandated by the statutory changes in the 1992 Act:[47]

The design of restricting the right of access to the courts by, as it were, a sidewind; that is, by simply withdrawing or curtailing the scope of the cover under the Act without at the same time addressing the fundamental principle of access to the Courts, should not be imputed to Parliament. Indeed, the policy document accompanying the 1991 Budget, while stipulating that there would be no return to the right to sue, explained that because the boundaries of coverage would be more clearly drawn under the new legislation, "it may be possible that [in cases not covered by the scheme] there will be more court action than in the past". (See Rt Hon Sir Geoffrey Palmer, "New Zealand's Accident Compensation Scheme: Twenty Years On" (1994) 44 UTLJ 223, 240).

It follows from what has been said that the application of the Act and the corresponding scope for common law proceedings automatically adjust as and when the scope of the cover provided by the Act is extended or contracted. To the extent that the statutory cover is extended, the right to sue at common law is removed; to the extent that the cover is withdrawn or contracted, the right to sue at common law is revived. So it is in this case.

While Master Venning had focused on the injustice of allowing the common law claim by a secondary victim, but denying the same right to sue to the primary victim, Thomas J focused instead on the possible injustice of not allowing any claim for compensation for secondary victim who could not be compensated under the Accident Compensation scheme. The shift is however not just one of wording but one of philosophy, both parliamentary (to reclassify the accident compensation regime as "insurance") and judicial (in the interpreting the new scheme as insurance). The same more restrictive approach to the scope of the bar is present in the approach of Keith J in the later case of McGrory v Ansett.[48] Keith J considered whether an action for damages based on an airline-passenger contract which provided potentially for a lump sum payment in the event of an accident was prohibited by the section 14 bar and described, as relevant features of the bar:[49]

The first is the width of the bar. Proceedings "under any rule of law or any enactment" are forbidden. There is no specification of any particular statutory or other source of the now prohibited claims.

The second characteristic is that the barred damages proceeding is one which "arise directly or indirectly" out of the covered personal injury or death. (The 1972 wording was different.) The quoted words point in two directions. The requirement that the proceeding "arises" out of the injury might allow an argument that an action say, for a payment promised in a contract in the event of personal injury is not a proceeding which arises out of the injury. Rather it arises out of the contract. On the other hand, the word "indirectly" may suggest that the bar applies even when coverage is not available. As this Court has however very recently recognised there are several good reasons for confining the scope of such argument.

The Danes Shotover Raft approach was more clearly adopted in the subsequent Brownlie v Good Health Wanganui[50] in which plaintiff claimed that they ought to be able to recover the nervous shock associated with learning that they had been misdiagnosed as not having cancer when in fact they did. The Court held that the alleged nervous shock arose out of the misdiagnosis and there fore was covered as the result of medical misadventure, even if there was no compensation under the Accident Compensation Scheme for those who had to claim under the 1992 Act. Henry J accepted that where there was nervous shock as a result of a personal injury the combined result was cover for the purposes of the section 14 bar but not in terms of compensation under the 1992 Act. He concluded:[51]

That however is a necessary consequence of the legislation. The 1992 Act, in contrast with both earlier Acts, has placed a strict limitation on the availability of cover for mental injury. In doing that, it has still retained the abolition of the common law claim for damages for another kinds of mental injury, providing that they arise directly or indirectly from the injury which is covered.

However, the Court reflected the same narrow construction that Thomas J had used in Danes Shotover Rafts in holding that the plaintiff could claim nervous shock for the "window" of time between the plaintiffs having learnt of their possible misdiagnosis and the confirmation of the diagnosis. Henry J writing for the Court held that as the same stress could have been suffered by those who in fact had been correctly diagnosed but feared a misdiagnosis it could not have been said to have arisen from medical misadventure. Shortly put, "the actual existence of physical injury is irrelevant".[52] In Chase v Attorney-General the Court of Appeal, despite acknowledging that the apprehension of harm was not necessarily barred, held that a claim based on apprehension of harm a split second before being shot fatally would be an abuse of process.[53] The Chase Court seemed to want to avoid common law actions based on the dividing up incidents into times when the plaintiff was injured and times when he or she was still to be injured. Compared to 1982 Act cases like Chase the distinction in Brownie seems remarkably fine. The distinction however artificial, clearly gives back to the plaintiffs what the effect of being covered but without compensation under the 1992 Act had deprived them of - the ability to seek common law damages. The Brownlie approach of course allows potential double dipping both into the Accident Compensation benefits and then into common law damages

E The Battle over Exemplary Damages

Even before Danes Shotover Rafts the "push me-pull you" tension between the statutory concept of cover and "common law rights" existed but was not couched in the quite the same language of cover. The best illustration of the tension was the battle over exemplary damages and the Court of Appeal's decision in Donselaar[54] that the bar did not prevent claims for exemplary damages.[55] A majority of the Court of Appeal decided in Daniels v Thompson[56] that claims for exemplary damages may not be brought when there has been a prior criminal proceeding, whether those proceedings have established guilt or innocence, and should be suspended during criminal investigations. The controversy following from that decision resulted in the express statutory reversal of the Daniels majority in section 396 of the 1998 Act added during the third reading.[57]

Both judges and academics have cited overseas exemplary (or punitive) damages decisions at length. What the debate perhaps lacked was a consideration how those countries, each with their own statutory non-fault regime, might have dealt with the desire of a plaintiff to prove that the defendant's wrongfulness went beyond the kind of wrongfulness intended to be dealt with under a statutory compensation regime.

There might be some value in comparing the New Zealand solution to that of some United States State courts which have dealt with the same issue under an "intentional" torts exception.[58] Donselaar rests on the rather fine distinction between the exemplary damages arising from the defendant's behaviour rather than the plaintiff's injury. Compare, for example, the Michigan Supreme Court's justification, for the intentional tort exception as being based on the underlying compact upon which Michigan's Worker's Compensation legislation is based:[59]

We conclude the actions for intentional torts are not barred. Before the workers' compensation act was enacted, employers were liable for intentional torts they committed against their employees. The worker's compensation act, as explained above, was a comprehensive restructuring of the mechanism for dealing with accidental injuries. The Legislature did not intend "that the exclusive remedy section of the act be construed to preclude a plaintiff's recovery for injuries suffered in an intentional tort".

The Beauchamp case itself, however, also shows the inevitable tension that follows from allowing such an exception. Plaintiffs will attempt to expand the definition of intention to include gross recklessness and steadily lower degrees of recklessness to enable them to bring common law claims. The plaintiff in Beauchamp alleged that the employer, a chemical company, had failed to provide a safe work environment and was substantially certain that their employees would be harmed by the chemicals but took no steps to prevent that harm and hence had committed an intentional tort. The Michigan Supreme Court had extended the implied intentional torts exception to include "substantial" certainty but exclude "a substantial likelihood" of harm. The Michigan legislature reacted by amending the workers compensation scheme to define intentional tort as requiring actual certainty.[60] The Michigan Court of Appeals in reviewing that amendment commented on the nature of the intentional torts example:[61]

"True intentional tort", for which both worker's compensation benefits and tort damages might be awarded...are generally those that do not implicate the hazards of the workplace, but rather involve other interests, such as those in their reputation (defamation), liberty (false imprisonment or malicious prosecution) or discrimination (race, gender or national origin)...In all such cases, proof of actual intent to perpetrate tortious injury is a prerequisite to liability...

Plaintiffs have made similar arguments in New Zealand to expand the New Zealand exemplary damages exception.[62]

What prevents an "intentional tort" exception in New Zealand is possibly not so much the language of the bar. In very similar language to that of the Michigan courts, New Zealand has excluded intentional torts, like false imprisonment[63] and assault (as opposed to battery)[64] and perhaps claims for damages under the New Zealand Bill of Rights Act.[65]

The failure to create an intentional tort exception perhaps comes from the dual role cover plays under the Act. The American intentional tort exception appears to allow both a remedy under the employer's workers insurance policy and also at common law against the employer. But if, for example, sexual abuse suits were allowed through an intentional torts exception under the New Zealand Act by a holding that they were not "covered", claimants would not be able to claim the compensation left them under the statutory regime. Indeed allowing such victims access to the statutory compensation provisions was the whole point on an expansive definition of "accident" given by judges to include rape and other deliberate criminal wrongdoing.[66]

The prevailing vision of the accident compensation scheme as an important social welfare measure requires that sexual abuse victims be covered. Indeed in what was otherwise a measure restricting mental injury from Accident Compensation cover, the 1992 Act expressly retained cover for mental injury resulting from sexual abuse. Of course, the statute might yet be changed. Those gaining compensation from the Accident Compensation Corporation and then from the courts on the basis on an intentional tort theory, might be subrogated to the Corporation at least to the value of the benefits that they had received from the Corporation.[67]

The exemplary damages saga, like the recent nervous shock cases, is not just the story of the justice or injustice of the Accident Compensation scheme, or the relationship between the "civil" law and the "criminal" law or the place of exemplary damages within the common law, but rather it is also part of an interesting story of how statutory compensation schemes adapt or are adapted to fit changed social expectations. The Woodhouse Report did not mention sexual abuse or other forms of criminal wrongdoing. One would not have expected a report in the late 1960s, coming from the perspective of the performance of workers compensation or non-fault automobile insurance, to have dealt with a problem that would not receive public prominence until the mid to late 1980s. Indeed one of the missing aspects of the Court of Appeal's (or the Privy Council's) decision in Daniels is why those accused of sexual abuse ought to be able to rely on the express social contract designed to deal with the problem of compensating accident victims in a complex, industrial society.

F The Wider Significance of Danes Shotover Rafts

It is submitted that Thomas J's approach reflects more accurately the "intention" of parliament to remove the possibility of mental distress compensation claims under the Accident Compensation scheme. More, though, is involved than Thomas J's fundamental principle. The Woodhouse Report or its advocates did not originally mean the bar on personal injury suits as a "sidewind". Instead, tort was simply seen to have failed.

While the bar is statutory, it also rests to some extent on our notions of what we take to be meant by "personal injury" in the first place, which in turn is shaped by both the draftperson's pen and our own conceptions of what ought to be recoverable at common law

The Court in Danes Shotover Rafts was not merely recognising a common law right which had always existed, but rather one which had developed elsewhere over twenty five years. Such a development had been suspended in New Zealand's common law by the statutory bar. More perhaps ought to have been said about the relationship between our conception of what might be recovered at common law compared to our conception of what ought to be recovered under a statutory compensation scheme. Between 1998 the passage of the first Accident Compensation Act in 1972 a revolution had transformed the way that common lawyers think about nervous shock cases. Indeed the depth of that revolution can be seen simply through the absence in Thomas J's judgment of either overseas common law nervous shock decisions or indeed reference to the Court of Appeal's consideration of nervous shock or stress damages in contract cases, a subject on which the same judge has written.[68] But the 1982 Act cases also influenced the Court's readiness in Danes Shotover Rafts to recognise the existence of the common law action. The 1982 Act cases created a judicial expectation that nervous shock would be compensated by the Act. When the 1992 Act removed that compensation, it seemed only natural for the Courts to say that plaintiffs had a fundamental right to be compensated at common law.

Thomas J's "fundamental principle" and his use of common law "rights language" not only masks that revolution in nervous shock cases but it risks elevating personal injury claims beyond mere "common law" that can be changed easily by welfare or reformist orientated legislatures to that of rights which are extremely difficult to alter. It is to be hoped that the same effect that such language has had on the viability of tort reform in the United States does not occur here. Courts after all do not passively receive the common law, but rather define the kinds of damages, which they will compensate through the common law. That process is evident in the development of nervous shock doctrine in last 20 years.

The same judicial creativity evident in the way the courts interpreted the various Accident Compensation Acts to create entitlements that Sir owen Woodhouse may not have intended in 1967. Behind the interpretation of those Acts lay preconceptions of the overarching communitarian policy of the Woodhouse reforms. Just as the common law entitlements developed case by case, so too did the nature of the statutory entitlements. Rather than being a static relationship between a static common law and a static compensation system, the relationship is a dynamic one between a dynamic common law system and a dynamic and developing statutory compensation scheme.

V CONCLUSION

Danes Shotover Rafts is an important decision worthy of study. It raises questions for every New Zealander about the extent to which they now need insurance to cover potential nervous shock they may cause those who see their accidents. Danes Shotover Rafts is also part of a complex interaction between common law, the judge's interpretation of the welfare (or now insurance) aim of the Accident Compensation (or now Insurance) regime, and the statutory scheme that gives it effect.

The confident predictions of the destruction of the common law, or the early 1990s prediction of an ombudsman role for tort, have proved misplaced. Rather what is now apparent is that the common law fills an essential backdrop to the way lawyers will argue, judges will decide and academics will debate the notions of what ought to be compensated under the Accident Compensation regime (under whatever name). The common law backdrop to Accident Compensation and the rejection of the common law in the Woodhouse report was absent in the debate during the 1998 reform process. Similarly absent was a consideration of how the common law had developed in other jurisdictions since 1972. Discussion of what the options for reform really were was substantially narrowed. Our project perhaps should be to open up that debate again.


[*] Senior Lecturer in Law, Victoria University of Wellington. The author would like to thank Bill Atkin, Andrew Butler and Bruce Pardy for reading and commenting on the note.

[1] Queenstown Lakes District Council v Palmer [1998] NZCA 190; [1999] 1 NZLR 549 [Danes Shotover Rafts] judgment of the court given by Thomas J.

[2] See for instance, Best v Taylor Mach Works (1997) 689 NE 1057 (Ill). The American resistance to comprehensive tort reform is analysed in Geoffrey Palmer "The design of compensation systems: tort principles rule, O.K.?" 29 (1995) Valparaiso University L Rev 1115-69.

[3] The titles of the successive Accident Compensation Acts present an interesting study in and of themselves in the changing public policy philosophy behind from being essentially social welfare type legislation as originally conceived by the original 1967 Woodhouse Report Compensation for Personal Injury in New Zealand Report of the Commission of Inquiry (December 1967, Wellington Government Printer and a more insurance type approach adopted in 1990s). Those titles have gone - the Accident Compensation Act 1972 and 1982 [the 1982 Act], the Rehabilitation and Incapacity Bill 1990 introduced by the Labour Government and which lapsed on their 1990 defeat, the Accident Rehabilitation, Compensation and Insurance Act 1992 [the 1992 Act] and the Accident Insurance Act 1998 [the 1998] Act.

[4] There are also others, mostly notably the difficulty in defining which accidents occur in the course of employment and are therefore to be paid by the employers' private insurers as opposed to the State run Accident Compensation Corporation

[5] Danes Shotover Rafts, 555.

[6] See Geoff McLay "The Chase Case: in search of a future for tort?" (1990) 20 VUWLR 255.

[7] See McLoughlin v O'Brian [1982] UKHL 3; [1983] 1 AC 410.

[8] See Richard Epstein Cases and Materials on Torts (6 ed, Little Brown, Boston, 1995) "The No-Fault Systems" 1013-1079. The author taught a summer semester course at the University of Iowa, College of Law pursuant to an exchange between the Victoria University of Wellington, Law Faculty and the College of Law.

[9] The 1998 Act enables employers to insure privately for personal injury suffered by their employees while those injuries are in the terms of s 32 "work related personal injury". There will be some incentive for employers or their insurers to claim that particular injuries do not fall within the definition of section 32 and hence that they are not responsible for either the necessary compensation or rehabilitation expenses.

[10] Section 27 of the Accident Compensation Act 1982

(1) Subject to this section, where any person suffers personal injury by accident in New Zealand or dies as a result of personal injury so suffered, or where any person suffers outside New Zealand personal injury by accident in respect of which he has cover under this Act or dies as a result of personal injury so suffered, no proceedings for damages arising directly or indirectly out of the injury or death shall be brought in any Court in New Zealand independently of this Act, whether by that person or any other person, and whether under any rule of law or any enactment.

[11] "Personal injury by accident"--

(a) Includes--

(i) The physical and mental consequences of any such injury or of the accident:

(ii) Medical, surgical, dental, or first aid misadventure:

(iii) Incapacity resulting from an occupational disease or industrial deafness to the extent that cover extends in respect of the disease or industrial deafness under sections 28 and 29 of this Act:

(iv) Actual bodily harm (including pregnancy and mental or nervous shock) arising by any act or omission of any other person which is within the description of any of the offences specified in sections 128, 132, and 201 of the Crimes Act 1961, irrespective of whether or not any person is charged with the offence and notwithstanding that the offender was legally incapable of forming a criminal intent.

[12] The process is more fully described by Geoffrey Palmer in "New Zealand's Accident Compensation Scheme ; Twenty Years On" (1994) 44 U Toronto LJ 223 and "The design of compensation systems: tort principles rule, O.K.?" 29 (1995) Valparaiso University L Rev 1115-69.

[13] McLoughlin v O'Brian [1982] UKHL 3; [1983] 1 AC 410.

[14] See ACC v Auckland Hospital Board [1980] 2 NZLR 748; MacDonald v ACC [1985] NZHC 400; (1985) 5 NZAR 276; Bridgeman v ACC [1992] NZHC 698; [1993] NZAR 199.

[15] In its last year the Fourth Labour Government introduced the Rehabilitation and Incapacity Bill 1990 which lapsed with the that Government's defeat which would have done away with what the Government perceived as an arbitrary distinction. An analysis of how far judges went to ameliorate the failure of that measure is beyond the scope of this note. Also beyond this note is the speculation that while Bill represented the far leftward swing of the Woodhouse vision, the 1998 Act represents the far right swing of that same vision. That thesis, as well its opposite - that the motor vehicle injury compensation scheme will also be privatised - will only be proved by the results of the 1999 election.

[16] ACC v Mitchell [1991] NZCA 162; [1992] 2 NZLR 436, 438.

[17] Mitchell at 438.

[18] Early examples were nervous shock claim based on the proximity to an accident, Cogan v ACC [1990] NZACAA 56; [1990] NZAR 145 (ACC); smoke phobia based on being present at a fire, King v ACC [1991] NZACAA 260; [1992] NZAR 65 (ACC); and nervous shock based on being the victim of an armed robbery see Kennedy v ACC [1991] NZACAA 259; [1992] NZAR 107 (ACC).

[19] ACC v F [1991] 1 NZLR 234.

[20] ACC v F at 240.

[21] ACC v E [1991] NZCA 167; [1992] 2 NZLR 426.

[22] ACC v E at 434.

[23] Cochrane v ACC [1993] NZHC 406; [1994] NZAR 6.

[24] Cochrane 8-9.

[25] See the decision of the BH Blackwood in Thomas v ACC [1994] NZAR 322 (ACC) which based the criteria to be applied in nervous shock Accident Compensation on criteria similar to the those in McLoughlin v O'Brian [1982] UKHL 3; [1983] AC 410 (HL).

[26] Soest v Wilkinson (22 December 1997) unreported Christchurch, CP 180/96, Master Venning.

[27] See also Kingi v Partridge (2 August 1993) unreported, High Court Rotorua, CP 16/93.

[28] Rt Hon WF Birch, Minister of Labour Accident Compensation : A Fairer Scheme (Wellington, 1991) 32.

[29] Section 14 APPLICATION OF ACT EXCLUDES OTHER RIGHTS—

(1) No proceedings for damages arising directly or indirectly out of personal injury covered by this Act or personal injury by accident covered by the Accident Compensation Act 1972 or the Accident Compensation Act 1982 that is suffered by any person shall be brought in any Court in New Zealand independently of this Act, whether by that person or any other person, and whether under any rule of law or any enactment.
[30] See s 8(3) of the 1992 Act.

[31] Section 29 of the 1998 Act defining personal injury is in the same terms as s 4 of the 1992 Act, while s 37 of the 1998 Act is in the same terms as s 8 of the 1992 Act.

[32] Accident Compensation 1995, an official's committee report to Hon B Cliff.

[33] See Louise Delany "Accident Rehabilitation and Compensation Bill: A feminist assessment" (1992) 22 VUWLR 79.

[34] See Des Butler "Identifying the Compensatable Damage in Nervous Shock Cases" (1997) 5 TLJ 67 McLoughlin v O'Brian [1982] UKHL 3; [1983] 1 AC 410; Alcock v Chief Constable of South Yorkshire [1991] UKHL 5; [1992] 1 AC 310; Page v Smith [1995] UKHL 7; [1996] AC 155; Jaensch v Coffey [1984] HCA 52; (1984) 155 CLR 549; but note the entrenchment in Frost v Chief Constable of South Yorkshire [1998] UKHL 45; [1998] 3 WLR 1509 (HL).

[35] Hay (or Bourhill) v Young [1942] UKHL 5; [1943] AC 92 (HL) per Lord Reid.

[36] Page v Smith [1995] UKHL 7; [1996] AC 155, 188.

[37] See however the criticisms of Lord Goff in Frost v Chief Constable of South Yorkshire [1998] UKHL 45; [1998] 3 WLR 1509, 1523-1528.

[38] See Stephen Todd "Primary and Secondary Victims of Psychiatric Injury" (1999) unpublished paper presented to the 1999 New Zealand Law Conference in Rotorua.

[39] Legge v Attorney-General (19 December 1997) unreported, Christchurch, M290/96, Master Venning.

[40] The result in Legge still appears to stand, but as discussed in this article the Court of Appeal's holding in Danes Shotover Rafts removes the need to show that the underlying event was not covered under the 1992 Act or now 1998 Act.

[41] See Mouat v Clark Boyce (No2) [1992] 2 NZLR 559 but see for the restriction to contract cases Bloxham v Robinson (1996) 7 TCLR 122 and DW McLauchlan "Mental Distress Damages for Breach of Commercial Contracts" (1997) 3 NZBLQ 130.

[42] Palmer v Danes Shotover Rafts Ltd (3 December 1997) unreported, Invercargill Registry, Master Venning, CP 10/97.

[43] Danes Shotover Raft, Master Venning 6-7.

[44] Palmer v Danes Shotover Rafts Ltd (18 March 1998) unreported, Panckhurst J, CP 10/97, 10-11.

[45] Danes Shotover Raft, Master Venning, 9.

[46] Danes Shotover Rafts 553.

[47] Danes Shotover Rafts 555-556 .

[48] McGrory v Ansett New Zealand Ltd (18 November 1998) unreported, Court of Appeal, CA 2/98 judgment of the court given by Keith J.

[49] McGrory 4-5.

[50] Brownlie v Good Health Wanganui Ltd (10 December 1998) unreported, Court of Appeal, CA 64/97, judgment of the court given by Henry J.

[51] Brownlie 6-7.

[52] Brownlie 7.

[53] Re Chase [1988] NZCA 181; [1989] 1 NZLR 325, see Geoff McLay "The Chase Case: In search of a future for tort" (1990) 20 VUWLR 255.

[54] Donselaar v Donselaar [1982] NZCA 13; [1982] NZLR 97 (CA).

[55] For pre-Daniels v Thompson debate see John Smillie "Exemplary Damages for Personal Injury" [1997] NZ L Rev 140 and Joanna Manning "Professor Smillie's 'Exemplary Damages for Personal Injuries': A Comment" [1997] NZ L Rev 176. Daniels v Thompson was the spur to yet more academic writing see Joanne Manning "Daniels v Thompson: Double Punishment or Double Trouble?" [1998] NZ L Rev 721 and Bruce Feldthusan "Punitive Damages: Hard Choices and High Stakes" [1998] NZ L Rev 721 and Stephen Todd "Exemplary Damages" (1998) 18 NZULR 145.

[56] Daniels v Thompson [1998] NZCA 3; [1998] 3 NZLR 22 upheld by the Privy Council in W v W and J v Bell (19 January 1999) PC 47 and 52/1998.

[57] Section 396 reads

396 EXEMPLARY DAMAGES—
(1) Nothing in this Act, and no rule of law, prevents any person from bringing proceedings in any court in New Zealand for exemplary damages for conduct by the defendant that has resulted in—
(a) Personal injury covered by this Act; or
(b) Personal injury covered by the former Acts.

(2) The court may make an award of exemplary damages for conduct of the kind described in subsection (1) even though—
(a) The defendant has been charged with, and acquitted or convicted of, an offence involving the conduct concerned in the claim for exemplary damages; or
(b) The defendant has been charged with such an offence, and has been discharged without conviction under section 19 of the Criminal Justice Act 1985 or convicted and discharged under section 20 of that Act; or
(c) The defendant has been charged with such an offence and, at the time at which the court is making its decision on the claim for exemplary damages, the charge has not been dealt with; or
(d) The defendant has not, at the time at which the court is making its decision on the claim for exemplary damages, been charged with such an offence; or
(e) The limitation period for bringing a charge for such an offence has expired.

(3) In determining whether to award exemplary damages and, if they are to be awarded, the amount of them, the court may have regard to—
(a) Whether a penalty has been imposed on the defendant for an offence involving the conduct concerned in the claim for exemplary damages; and
(b) If so, the nature of the penalty
...

[58] Some states expressly provide that intentional torts are an exception to the normal exclusivity of the Workers compensation insurance scheme. In other states, courts read an exception into the Act, see for example Beauchamp v Dow Chemicals Co 398 NW 2d 882 (Mich 1986); Cavalier Manufacturing Company v Employers Insurance of Wassau (1995) 535 NW 2d 583 (Mich App).

[59] Beauhcamp at 886-887.

[60] See MCL § 418.131(1); MSA §17.237 (131)(1).

[61] Cavalier Manufacturing Co v Employers Insurance of Wasau (1995) 535 MW 2d 583, 588 (Mich App).

[62] See McLaren v Somerville [1996] 2 NZLR 424 and Geoff McLay "Negligence, Accident Compensation and Exemplary Damages"[1996] NZLJ 425, but also the warnings of the Court of Appeal in Ellison v L [1998] 1 NZLR 416.

[63] See Danderoff v Rogozinoff [1988] NZHC 325; [1988] 2 NZLR 588.

[64] See Laurette Barnard "The Relationship between Compensation in Tort and the Accident Compensation System" [1990] New Zealand Recent L Rev 162 and Auckland City Council v Blundell [1986] NZCA 86; [1986] 1 NZLR 732, Willis v Attorney -General [1989] 3 NZLR 574.

[65] See Innes v Wong [1996] NZHC 187; [1996] 3 NZLR 238.

[66] See G v Auckland Hospital Board [1976] 1 NZLR 638 per Henry J.

[67] As happens under s 15 of the 1992 Act or s 398 of the 1998 Act, when the Corporation or a private insurer has paid out on a claim for an injury for which the payee ultimately receives a court judgment. Section 398 also enables the Corporation or a private insurer to compel action.

[68] Rowlands v Callow [1992] 1 NLR 178; Mouat v Clark Boyce (No2) [1992] 2 NZLR .


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