Slater & Gordon Ltd v Sellars

1. [1]

   HER HONOUR: This is an application to strike out portions of a cross-claim and defence pursuant to rule 14.28(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) as being an abuse of process or failing to disclose a reasonable cause of action. The plaintiff, Slater & Gordon Ltd, relied on an affidavit by its solicitor, Bridget Little, and an affidavit by Helen Vines, special counsel at Slater & Gordon.

Substantive proceedings

1. [2]

   The substantive claim is brought by Slater & Gordon against a former employee, Erin Sellars, a solicitor who was primarily engaged in police officers workers compensation claims, total and permanent disability and workplace injury and damages claims.

2. [3]

   It is said that Ms Sellars, in breach of her fiduciary duties and contractual obligations, undertook the following activities shortly before tendering her resignation:

3. [4]

   After tendering her resignation, Ms Sellars is said to have enticed an employee and a large number of the plaintiff’s clients to her new law firm. So far, Slater & Gordon has received 146 file transfer requests from clients whose files were managed by Ms Sellars. Slater & Gordon is suing Ms Sellars for damages and an account of profits.

4. [5]

   In her defence, Ms Sellars pleads inter alia that it was an implied term of her employment contract that Slater & Gordon was obliged to take reasonable care for her safety and to avoid foreseeable risks of injury, including by reason of workplace bullying. This term is said to have been breached, causing Ms Sellars to suffer personal injury, including emotional distress, anxiety, mental health injuries and consequential economic loss and damages. Further, paragraph 45 of the defence pleads:

5. [6]

   Ms Sellars’ contentions are expanded upon in a cross-claim. In particular, it is alleged that Slater & Gordon failed to comply with the requirements of the Work Health and Safety Act 2011 (NSW) and the Work Health and Safety Regulations 2011 (Cth). General damages for personal injury are sought, together with out-of-pocket medical expenses, loss of earnings and loss of earning capacity.

Principles

1. [7]

   The principles in respect of a strike-out are not in dispute. The power to dismiss claims at this stage of proceedings is only to be exercised where the claim is so clearly deficient that it would be inappropriate to allow the proceedings to continue, described by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129-130 as follows:

2. [8]

   In Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at 576, Gleeson CJ described the test as follows: (citations omitted)

3. [9]

   The parties were also agreed as to the law governing a claim for work injury damages. Ms Sellars’ claim meets the statutory definition of a claim for “workplace injury damages”. Section 4 of the Workplace Injury Management and Workers Compensation Act 1998 (NSW) (1998 Act) defines “work injury damages” as “has the same meaning as in Chapter 7 (New claims procedures)”. Section 250, contained in Chapter 7 of the 1998 Act, defines “work injury damages” as follows:

4. [10]

   Division 1 of Part 5 of the Workers Compensation Act 1987 (NSW) (1987 Act) governs the substantive law applying to a claim for work injury damages. Section 150A and 150B of the 1987 Act provides that the substantive law of a claim for work injury damages is the workers compensation scheme under which compensation is payable. Ms Sellars is bound by the New South Wales workers compensation scheme because, under section 4 of the 1987 Act, compensation is payable for a disease injury for which employment was the main contributing factor. Further, under section 9AA of the 1987 Act, the employment was connected with New South Wales by reason of Ms Sellars being employed in Slater & Gordon’s Penrith office.

5. [11]

   Division 3 of Part 5 of the 1987 Act significantly modified the common law in respect of quantum of work injury damages. Section 151H(1) provides: (emphasis added)

6. [12]

   Further, Part 2 of Chapter 7 of the 1998 Act set out the procedure governing the making of a claim for work injury damages. Section 254(1) provides: (emphasis added)

7. [13]

   Section 280A provides: (emphasis added)

8. [14]

   Part 6 of Chapter 7 of the 1998 Act sets out further procedures for making a work injury damages claim. Section 312 provides:

9. [15]

   Section 313 provides: (emphasis added)

10. [16]

    Section 315 states: (emphasis added)

11. [17]

    As the note to section 315 states, a plaintiff cannot serve a pre-filing statement if there is a dispute about the extent of whole person impairment. In the event of a dispute, the dispute must first be resolved using the procedure provided in Part 7 of Chapter 7 of the 1998 Act. Sections 316, 317 and 318 of the 1998 Act provide for a pre-filing response, the consequences of a defective pre-filing statement and limiting the evidence the parties may adduce in evidence without leave. Sections 318A to 318H of the 1998 Act provide for compulsory mediation of a work injury damages claim before the commencement of proceedings. Section 318A provides: (emphasis added)

12. [18]

    In this manner, the 1987 Act and 1998 Act prescribe the substantive law concerning the commencement and conduct of claims for workplace injury damages. It is not in dispute that Ms Sellars has not given Slater & Gordon a notice of injury pursuant to section 254(1) of the 1998 Act, notification of whole person impairment, notice of mediation pursuant to section 318A of the 1998 Act or a pre-filing statement pursuant to section 315(1) of the 1998 Act.

Submissions

1. [19]

   Slater & Gordon submitted that the portions of the defence and cross-claim described at [5]-[6] contain a cause of action commenced contrary to law and are an abuse of process. Alternatively, as Ms Sellars has brought a claim for work injury damages without meeting the threshold of 15% whole person impairment or complying with the procedures which are an essential prerequisite for a claim for work injury damages, the pleading discloses no reasonable cause of action. It was submitted that the paragraphs of the defence and cross-claim should be struck out with costs.

2. [20]

   Ms Sellars submitted that the workers compensation legislation affected claims but not defences or “defensive cross-claims”. Ms Sellars had not commenced proceedings, but was defending proceedings brought against her by her former employer. Nothing in the workers compensation legislation denied a defence of equitable set-off in a breach of contract claim or precluded the bringing of a defensive cross-claim for the purpose of giving effect to that set-off. Reliance was placed on sections 21 and 22 of the Civil Procedure Act 2005 (NSW). It was submitted that the purpose of the workers compensation legislation was to regulate the management of workplace personal injury claims, not to deprive litigants of a defence in employment contract claims, including a defence of set-off: Explanatory Note to the Workers Compensation Legislation Amendment Bill 1998 (NSW), page 1. A court in equity should not deny a defendant employee the right to use breaches of both implied terms and negligence by the employer plaintiff in their defence and cross-claim. The cause of action was said not to be novel.

3. [21]

   Such a construction of the workers compensation legislation was said to be consonant with the objects of the statute, as described by Kirby P in Minister for Lands and Forests v McPherson (1991) 22 NSWLR 687 at 698-700:

4. [22]

   Ms Sellars submitted that a court in equity should not be restrained in considering her rights, despite the workers compensation legislation, to set-off work injury damages. It was said that to deny her this right would be unconscionable. Further, it was submitted that Ms Sellars has an equitable set-off, as it would be unjust or inequitable for the plaintiff to proceed with its claims without allowing her to assert a right of set­off: Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Limited (1997) 42 NSWLR 462 at 481.

5. [23]

   In reply, Slater & Gordon submitted that Ms Sellars does not have a ‘set off’ as the workers compensation legislation prevents her from initiating or maintaining the claim, whether in tort or in contract, for work injury damages unless and until she complies with the pre-conditions mandated by Parliament, including demonstrating that Ms Sellars meets the minimum threshold for the award of work injury damages of 15% whole person impairment. Further, it was doubted whether the term “defensive cross-claim” had any legal application but was a self-selected label which did not change the statutory prohibition of the claim advanced. If the character of the cross- claim and/or defence was to seek damages from an employer for personal injury for which the employer was liable in tort or contract, the cross-claimant/defendant is caught by the workers compensation legislation. It was the character of the remedy that determines whether the workers compensation legislation applies, not the identity of the claimant, be it a plaintiff, cross-claimant or defendant, nor the source of the liability, be it tort or contract. Ms Sellars’ right to seek a remedy from her employer for work injury was not denied but her claim must adhere to the procedure and thresholds provided by Parliament in the workers compensation legislation.

6. [24]

   Further, Ms Sellars’ claim for work injury damages was said not to meet the criteria of an equitable set-off. The liabilities were not closely connected. Ms Sellars’ claim was for compensation by her employer for work injury. Slater & Gordon’s claim was an equitable claim for declarations, an account of profits and equitable compensation. The two claims were not interdependent. Ms Sellars’ alleged breaches of contract in the disclosure and misuse of confidential information and the solicitation of clients and employees of Slater & Gordon could not reasonably be said to be interdependent with workplace mental health injuries alleged to have been suffered whilst an employee. This did not mean Ms Sellars could not seek compensation for work injury against Slater & Gordon in separate proceedings if she wished. However, it was not unconscionable to strike out the alleged set-off in the defence and cross-claim, as there was nothing preventing Ms Sellars from seeking compensation for work injury independently of these proceedings.

Consideration

1. [25]

   Ms Sellars has not complied with the procedures prescribed by the workers compensation legislation before filing the cross-claim seeking work injury damages. The workers compensation legislation is in mandatory terms which make clear that, before an employee can bring such a claim, various tasks must first be attended to.

2. [26]

   The language of the legislation does not permit a construction that its procedures may be ignored where a worker brings their claim for injury by way of cross-claim and defence, rather than being the principal plaintiff. The definition of “work injury damages”, set out at [9], refers to a worker and employer in generic terms rather than their status as a plaintiff or defendant, cross-claimant or cross-defendant, applicant or respondent. Rather, the definition focuses on the remedy sought, being a tortious claim for damages “whether the damages are recoverable in an action for tort or breach of contract or in any other action”. In any event, once a cross-claim is commenced in the Court, a cross-claimant is effectively the plaintiff on that cross-claim. Rule 9.1(3) of the Uniform Civil Procedure Rules 2005 (NSW) provides that the rules apply to cross-claims in the same way as they apply to statements of claim.

3. [27]

   As to Ms Sellars’ right to bring a cross-claim, section 22(1) of the Civil Procedure Act 2005 (NSW) provides: (emphasis added)

4. [28]

   The section is procedural only and the substantive right to claim the relief sought must exist independently: Dillingham Constructions Pty Limited v Steel Mains Pty Limited (1975) 132 CLR 323. The question, therefore, is whether the Court may grant Ms Sellars the relief sought in the cross-claim as commenced, in circumstances where she has not complied with the requirements of the workers compensation legislation before commencing that claim. As matters presently stand, given the clear language of the legislation as already canvassed, the answer must be no.

5. [29]

   That, of course, does not prevent Ms Sellars, after complying with the relevant procedures, from bringing a claim for work injury damages. Whilst such a claim would ordinarily be brought in the Workers Compensation Commission or the District Court of New South Wales, it may be convenient to bring her claim for work injury damages in this Court so that all issues between the parties can be resolved in one proceeding. That will be for another judge to decide in due course.

6. [30]

   Turning then to set-off, section 21 of the Civil Procedure Act 2005 (NSW) provides:

7. [31]

   As the learned authors of Taylor P, E Elms E, Justice G Bellew and M Meek, Ritchie's Uniform Civil Procedure NSW (Looseleaf, LexisNexis) note at [s 21.5], the statutory right of set off is restricted to “mutual” debts involving liquidated claims that are due and payable when the defence is filed. Because of these restrictions, section 21(4) of the Civil Procedure Act is expressed not to affect any other rights of set off and does not affect any equitable rights of set off. Ms Sellar’s cross-claim cannot be said to be a liquidated claim, and thus section 21(4) is the relevant sub-section here.

8. [32]

   The right of set-off in equity depends on the proposition that the contrary liabilities are sufficiently closely connected that it would be inequitable for the plaintiff to be permitted to proceed with its claim without making allowance for the defendant's claim against it. It was explained in Roadshow Entertainment by Gleeson CJ, Handley JA and Brownie A-JA at 481:

9. [33]

   The defence is also available where the two claims are interdependent, such as where one party’s default contributed to the other party’s liability: Grant v NZMC Ltd [1989] 1 NZLR 8 at 12-13, where Somers J delivered judgment for the Court of Appeal:

10. [34]

    The circumstances to be taken into account in respect of equitable set-off are the nature of the claims, the nature of the connection between them and the conduct of the parties: Sydmar Pty Ltd v Statewise Developments Pty Limited (1987) 11 ACLR 616; (1987) 73 ALR 289 per Smart J.

11. [35]

    As to whether there is an equitable set off here, Ms Sellars’ cross-claim is for tortious damages. Ms Sellars is not presently entitled to bring the cross-claim without first complying with the workers compensation legislation. In circumstances where the Parliament has seen fit to prescribe a detailed legislative scheme, equity follows the law and does not recognise a set-off which at present, cannot be maintained. Whether any obligation on Ms Sellars’ to account for profits might be considered to be sufficiently connected with any liability by Slater & Gordon for work injury damages such that it would be inequitable for Slater & Gordon to proceed with its claim without making allowance for Ms Sellars’ claim will be for another judge to decide in due course. But at the moment, Ms Sellars is not presently entitled to bring such a claim at all.

12. [36]

    The portions of the defence and the cross-claim identified by Slater & Gordon cannot presently stand and should be struck out.

13. [37]

    For these reasons, I make the following directions and orders:

    1. (1)

       Pursuant to rule 14.2 of the Uniform Civil Procedure Rules 2005 (NSW), strike out:

    2. (2)

       Order the first defendant to pay the plaintiff’s costs of its motion filed on 2 November 2020.

    3. (3)

       Direct the plaintiff to file and serve a defence to the Cross Claim by 4.00 pm on 22 December 2020.

    4. (4)

       In respect of the plaintiff’s motion filed on 2 December 2020: