Compensation for Personal Injury in New Zealand — Its Rise and Fall
Auckland University Press, $39.95,
ISBN 1 86940 150 6
Ian B Campbell is 80 years old and has written an absorbing book on the accident compensation scheme. The book is the culmination of many years of professional involvement with the issues from a number of perspectives.
For 22 years Campbell was the secretary and chief executive of the Workers’ Compensation Board, the regulatory body established in 1951 when private insurance companies had restored to them the ability to undertake workers compensation insurance, which had been taken away by a 1947 legislative change. From this unique vantage point Campbell was able to oversee the administration of the workers compensation scheme which had arrived in New Zealand in 1900. Although not a lawyer, he authored one of the standard texts on workers compensation law with Justice Neazor, as he now is, the Handbook to the Workers’ Compensation Act 1956 (Sweet & Maxwell, 1958).
Campbell was intimately involved in the policy relating to workers compensation over the years and saw first hand the weaknesses which led to the royal commission chaired by Sir Owen Woodhouse which reported in 1967 on reforming the entire system of accident law. From the establishment of the Accident Compensation Commission in 1973 until 1981 Campbell was director of safety with it. He then made a connection with the department of resource management at Massey University where he continued to teach, write and study accident compensation issues. This period culminated in his doctoral thesis which has fed into this book.
Campbell, then, is one of the few people who can claim to have a full understanding of the entire sweep of accident compensation policy and practice. No-one has a longer background in the subject than he and his book draws on all that experience. It is carefully researched. It is full of insights about the evolution of current policy, the weaknesses of it and directions in which it might be improved. The book moves with considerable ease and confidence across a number of disciplines.
I recall, when teaching torts at the University of Virginia in 1972, Ian Campbell visiting Charlottesville and lecturing my class on the virtues of reform, New Zealand style. Since that time the American tort system has become even more unmanageable but the prospect of abolishing tort for personal injury actions remains remote. Indeed, it was the candid abandonment of tort law as an instrument to address the personal injury problem that made the New Zealand reforms unique. Even now, more than 20 years later and after considerable amendment they remain unique.
The workers compensation scheme so familiar to Campbell was itself a great legal reform in its day. It swept away the vagaries of the nineteenth-century common law actions for damages upon which injured workers had to rely for recompense against their employers for injuries sustained “arising out of and in the course of the employment”.
The notorious trilogy of common law defences — contributory negligence, voluntary assumption of risk and common employment — meant that recoveries for injured workers were usually impossible. The result was that the cost of injuring and maiming workers was externalised from the cost of the products their labour produced. This was not social justice. It was social inequity with many serious human consequences.
Workers’ compensation in New Zealand gave certain benefits for injured workers without the need to prove fault on the part of the employer. Although it did not provide anything like the full recovery of common law damages for those few who could succeed, the scheme did not take away the right to sue for damages, with the result that injured workers could have workers compensation payments while pursuing a common law action in tort. This contrasts with schemes in the United States which took away the right to sue in return for the benefits of workers compensation.
Historically, there never was a compensation scheme directed at road accident victims. Instead New Zealand relied upon the tort system, backed in 1928 with a system of compulsory third-party insurance. This ensured that those who received judgments for negligence would actually get paid and the impecuniosity of the defendant would not prevent damages being available. One consequence of this was that the conduct of cases and the decisions relating to them were in the hands of the insurers, not the people whose behaviour was being judged. Workers’ compensation and the tort system in the employment arena were also supported by compulsory insurance.
After the introduction of comprehensive social security benefits people who were injured and had no other source of income replacement were eligible for sickness and invalidity benefits. This added another source of compensation to those provided by tort law and the workers compensation scheme. However, it had the effect of creating a system where the amount and likelihood of compensation would depend on where and how an injury was received.
It was this tripartite fragmented approach that the Woodhouse report addressed with such devastating analytical power in 1967. It addressed from first principles what the objectives of accident law should be. Accident prevention was first. Rehabilitation of the victims came next. Only then should the money answer in terms of compensation be addressed. Admirable as these targets were for public policy, they were never properly implemented at any stage and, as Campbell makes clear, a great deal more should be done about the first two. Nevertheless, the Woodhouse report was a sustained attack on the common law action for damages and the comprehensive nature of the scheme it recommended to replace the forensic lottery attracted great attention.
In their day the reforms were hot. Common law countries examined them with great interest. A United Kingdom royal commission travelled here. The Americans, the Canadians, the Australians and others have all shown a sustained interest in the scheme. European and Asian countries with non-common law systems were also interested. Abolition of the right to sue was seen as “an unparalleled event in our cultural history, the first casualty among the core legal institutions of the civilised world” (editorial note by John G Fleming, 21 American journal of Comparative Law, No 1, 1973). Yet no-one has duplicated the reforms.
There remains in New Zealand a strange sort of pioneering pride in reforms that are undertaken here first. Accident compensation was one area in which New Zealand did strike out on its own and did take a lot of credit for accomplishing what in larger societies may well have been impossible. In a society like the United States, whatever the strength of the case against the tort system, it seems quite impossible to dismantle it and enact a comprehensive alternative.
Indeed, the trend in the scholarly literature overseas now has been to suggest that the tort system itself is so dysfunctional and counterproductive that it would be better to abolish it and put nothing in its place rather than continue with it. Professor Patrick Atiyah who wrote the important book in 1971 entitled Accident Compensation and the Law, which has run through a number of subsequent editions, presented the case for reform of the tort system in personal injury in a highly persuasive fashion. But the case has never produced change even in the United Kingdom which has a moderate and mild-mannered tort system compared with the untamed beast in the United States.
In a recent piece Atiyah has reassessed his position. He now argues “that the action for damages for personal injury should largely be abolished, and its replacement left to the free market”. (P S Atiyah, “Personal Injuries in the Twenty First Century: Thinking the Unthinkable” in ed Peter Birks, Wrongs and Remedies in the Twenty-First Century (Clarendon Press, 1996)). After teaching torts in the United States on 10 occasions I made similar suggestion for that country in 1995:
The advocates of law and economics are infused on with a sort of messianic zeal to seek to justify the tort system of the grounds of efficiency. The vigour with which the idea has been pursued is out of all proportion to its explanatory power or its demonstrable economic advantages. It may well be that the most efficient solution of all is to abolish all the liability rules and let the losses lie where they fall. If one is serious about market solutions, this may be the route to take.
I venture the opinion that the solution to the United States tort problem is in fact to abolish tort as a means of dealing with personal injury and put no mandatory statutory substitute in its place. As far as I can see, no one has previously suggested this but as a package it could be made quite attractive in terms of savings of costs for business, the economy and judicial resources. No comparison with substitutes is necessary and the unfairness of the present forensic lottery disappears. Accepting that the nature of the replacement cannot be agreed upon now, it would be better to start again. If personal injury were treated like fire insurance, a number of good things may happen. People could insure or not insure. If the law afforded no prospect of relief, then a number of disparate and creative means of addressing the problem would be likely to spring up. The economic advantages of such a move may be substantial. No longer would money be poured into an unprincipled and grossly wasteful system.
If collective solutions were required to take up the slack the need for them would be much more obvious if the tort system were abolished. In its relative generosity for a few the tort system masks the injustice for many and the failure to respond to a widespread social problem created by injury. Sometimes reform must be radical to work. Americans seem to have forgotten how to reform, especially in social matters.
(Ninth Monsanto Lecture, “The Design of Compensation Systems: Tort Principles Rule, OK?” 29 Valparaiso University Law Review 1115 (1995).)
What must be understood clearly is that tort abolition alone is not a solution that should be considered for New Zealand. What is needed here is repair of the system we have. Looked at from the point of view of corrective justice there is no issue. The issue is one of distributive justice or fairness.
The principle that people who suffer personal injury from the culpable behaviour of another ought to have a remedy in the courts is not the law of New Zealand. The corrective-justice analysis that an individual whose autonomy has been invaded ought to have it restored and paid for by the person who caused its holds no sway. There is no community expectation that the restoration needs to be carried out by the person who inflicted the injury, or that anything is to be gained socially by compelling those who cause personal injury to provide redress in damages. No demands for its restoration have seriously been proposed although there have been some demands since the 1992 changes that the common law should return unless the accident compensation scheme was repaired. People from overseas tend to worry about corrective justice but not New Zealanders. Corrective justice may provide some arguments as to why tort law exists but not as to why it should be retained.
The New Zealand scheme has been grounded since its inception in ideas of distributive justice not corrective justice. The notion that there was a “community responsibility” to the statistically inevitable victims of injury was the collective principle on which the scheme was first founded. Indeed, Professor Ernest Weinrib has written: “Affirmation of the coherence of private law in terms of corrective justice is in no way inconsistent with the replacement of tort law by a comprehensive compensation scheme on the New Zealand model”. (Ernest J Weinrib, “The Insurance Justification and Private Law” (1985) 14 Journal of Legal Studies 681).
It is plain that the basis of the New Zealand scheme allows many more people to claim for their injuries than ever tort law alone did. The uncompensated victim was the prime social problem caused by the common-law policy of dividing victims into those who deserved recompense and those who did not. Obviously in those countries where the common law remains the community can hardly ever bring itself to leave the uncompensated victim without help of any kind. The New Zealand response to that fact may be to ask, Why do the job twice when one system can do it all?
In essence the message to be derived from Campbell’s book amounts to a stinging indictment of the Accident Rehabilitation and Compensation Insurance Act 1992 with a lot of careful detailed analysis of where it all went wrong. That the act was, and is, a policy disaster of great magnitude cannot be doubted. Efforts have been made to ameliorate some of its more egregious features but unless further action is taken urgently the whole idea behind the Woodhouse report will be put in jeopardy.
It is this that makes Campbell’s book so timely. Set out in detail and with great care, we have an overview of everything that has happened. Campbell wants to “return accident compensation to a sound basis which will stand the test of time.” (p256) This is still possible but it will not be easy. There are so many muddy waters, differing views and lack of consensus now in this area, much of it the result of special pleading by vested interests. The December 1996 Coalition agreement undertakes to “rebuild public confidence in ACC by restoring it to a world-leading, 24-hour, comprehensive but affordable accident cover” scheme which remains in public ownership. There are some other helpful directions pointed to in the agreement, but in this field more than most, the devil lies in the detail.
In essence the best thing the new government could do to fix the problems would be to enact the recommendation of the 1988 report of the Law Commission, which was chaired at the time by Sir Owen Woodhouse himself. This is a solution that Campbell would support and he is very critical of the Labour government’s decision to sideline the report. But that was done in order to try and address the inequity in treatment between the victims of accidents who are treated generously in comparison to the victims of other forms of incapacity, notably sickness. And it was done with the enthusiastic support and help of the Law Commission.
Driving through a comprehensive and coherent revision of the accident compensation scheme will be a serious test of the policy abilities of the new minister in charge of the scheme, Jenny Shipley. She would do well to keep in mind Sir Kenneth Keith’s imprecation in the foreword: ask the right questions, take the facts seriously, seek, test and refine the principles and carefully assess competing views.
One of the expected effects of MMP was to soften harsh policies and make them more generally acceptable and palatable. The Coalition agreement says that is the policy for accident compensation. The challenge is how to get there from here. From the point of view of the welfare of the victims of accidents, an angle which Campbell says repeatedly has been ignored by government policy in recent years, fixing the botches of 1992 has been a long time in coming.
The policy debate in New Zealand has been hampered by the fact that many of the participants not only have a defective understanding of the purposes of the scheme and the deficiencies of what went before, but also have a vested interest in deflecting the costs of the scheme away from themselves, conveniently ignoring the fact the scheme is cheaper than less comprehensive schemes in other countries. It is certainly cheaper than any scheme that could be run by competitive private enterprise. That was one of the primary reasons the reform was undertaken in the first place — to stop money being wasted on the transaction costs of the system and direct it toward the accident victim.
The gradual degradation of both the quality of advice available to the executive government on accident compensation and the debate itself is one of the interesting points in the New Zealand experience. The failure to produce adequate statistics over a long period of time so that we could know what was actually happening has been a serious handicap to the development of rational policy. Efforts have recently been made in the corporation to rectify this.
I suspect some of the explanation for what has gone wrong lies in the structure of the government as it relates to accident compensation. The Accident Compensation Corporation is not a department of state. It has a board. But it also has a minister. It sits outside the mainstream of government, independent of it for many but not all purposes. Its own capacity to generate quality policy advice has not been highly developed. But other mainstream departments have not taken an interest in the scheme, although the Treasury has been closely involved in recent years. The Department of Labour has recently had returned to it the policy responsibilities it had at the inception of the scheme. The enormous loss of institutional memory about the scheme has been a great handicap. One of the signal virtues of Campbell’s book is that he provides that memory in a highly accessible and usable form.
Policy failure is never a happy phenomenon to observe. It is useful only if we learn from it. The necessary decisions in accident compensation cannot be put off much longer. Tinkering will not be enough.
Sir Geoffrey Palmer heads a public law firm. He was Deputy Prime Minister and Prime Minister and was assistant to the Woodhouse commission.