REPARATION SENTENCES CANNOT ‘TOP-UP’ ACC WEEKLY COMPENSATION – THE SUPREME COURT
REAFFIRMS THE WOODHOUSE PRINCIPLES
In the recent decision of Peter Miles Davies v New Zealand Police [2009] NZSC 47 (25 May 2009), the
Supreme Court has ruled that Criminal Courts are not able to make reparation sentences designed to
‘top-up’ the difference between a victim’s actual loss of earnings, and the compensation received from
ACC.
Legislative context
Under the Sentencing Act 2002, in addition to punishing offenders, the Criminal Courts must also
consider imposing a sentence of reparation. Reparation sentences are designed to compensate the
victim for, among other things, any loss/damage caused by emotional or physical harm, or damage to
property, which were due to the offender’s wrongdoing.
However, this entails a conflict with section 317 of the Injury Prevention, Rehabilitation and
Compensation Act 2001 (‘the IRPC Act’), which bars any proceedings for damages arising directly or
indirectly out of injuries covered by ACC. Parliament sought to address this conflict via section 32(5) of
the Sentencing Act, which states that the Courts must not order that reparation be made in relation to
losses for which a victim ‘has entitlements’ under the IRPC Act.
The Davies decision
Dr Davies was convicted in the District Court of operating a vehicle carelessly causing injury. As part of
his sentence, Dr Davies was ordered to pay an amount in reparation to the victim, which represented the
difference between her actual lost earnings and the earnings related compensation which she received
from ACC. This shortfall amounted to 20% of the victim’s pre-injury earnings, as weekly compensation is
paid at 80% of a person’s pre-injury earnings.
Dr Davies appealed this decision. He argued that such a top-up order was prohibited by section 32(5) of
the Sentencing Act, because the victim had an entitlement to weekly compensation from ACC arising
from the fact that she lost earnings as a result of his wrongdoing.
Dr Davies was unsuccessful at both High Court and Court of Appeal. It was held in those Courts that a
top-up order was not prohibited, because the victim’s entitlement to weekly compensation only
extended to 80% of her pre-injury earnings – i.e. she had no ‘entitlement’ to the remaining 20% which
was the subject of the reparation order.
Therefore, the legal issue for the Supreme Court was whether, under section 32(5):
a. reparation orders can be made in respect of losses which are not actually reimbursed by the ACC
(e.g. the 20% shortfall); or whether
b. reparation orders are completely excluded in relation to any type of loss for which the victim
receives some entitlement under the IRPC Act (e.g. loss of earnings) – notwithstanding that the
loss may not be fully compensated by the ACC.
Overturning the High Court and the Court of Appeal, the Supreme Court decided in Dr Davies’ favour,
ruling that section 32(5) prohibits reparation orders designed to top-up ACC weekly compensation
payments.
Consistency with basic principles of the accident compensation scheme
In coming to its decision, the Supreme Court held that to allow top-up orders would undermine the
integrity of New Zealand’s accident compensation scheme (‘the scheme’). In relation to the level of
benefits provided for by the scheme, the Court stated:
... the benefits under the system, for reasons of affordability and the public interest in providing incentives
to rehabilitation, were not set to be a complete indemnity. Claimants are to receive ‘during their
rehabilitation’, compensation for loss which is ‘fair’ rather than full. That is a central plank in the ‘social
contract’ implemented through the legislation and its predecessors.
The ‘social contract’ to which the Court referred relates to the relinquishing of the right to sue for
damages at common law, in exchange for the comprehensive ‘no-fault’ coverage that is provided by the
ACC scheme.
The appropriateness of such a trade-off was explained in the 1967 blueprint for the ACC scheme,
Compensation for Personal Injury in New Zealand: Report of the Royal Commission of Enquiry.1 This is
commonly referred to as ‘the Woodhouse Report’; named after the chair of the Royal Commission, Sir
Owen Woodhouse. The Woodhouse Report (the Report’) stated that in light of the generous levels of
compensation provided by the scheme2, previous methods of obtaining compensation (such as pursuing
common law claims) were no longer relevant. In other words, if a person’s injury is covered by the
scheme, the entitlements for that injury are limited to those provided by the scheme.
The Court was evidently concerned that top-up orders – which result in a more generous form of
compensation than that prescribed by the scheme – are inconsistent with the terms of the social
contract.
The Court was also concerned that top-up orders run counter to the principle which justifies the 80% cap
on weekly compensation payments under the scheme.
In this regard, the Court’s reasoning is again consistent with the Report, which discusses the principle that
a statutory compensation scheme should not seek to fully compensate an injure person’s losses. The
authors of the Report advised that this was a valid principle, for 3 reasons:
1. Once cover under the scheme is confirmed, it is certain that a level of compensation will follow.
2. If the level of compensation is suitably generous, it is fair to leave part of the loss with the
injured person.
3. Some margin of effort should be left to injured people, as an incentive to get well and back to
productive work.
This was ultimately listed in the Report as one of the ‘five essential principles which should be accepted
by any modern system of compensation’, and was summarised as follows:
The scheme should be deliberately organised to urge forward [injured persons’] physical and vocational
recovery while at the same time providing a real measure of money compensation for their losses.
After noting that opinions may differ as to the precise proportion of loss to be left with the injured
person, the authors of the Report put forward their opinion that the balance between real compensation
and an incentive to recovery would be achieved by an ‘automatic compensation equivalent to 80 percent
of lost income for periods of total incapacity’.
Conclusion
Prior to the issuing of the decision in Davies, sentences involving ‘top-up’ orders were far from
uncommon. However, in arriving at the conclusion that such sentences are excluded by the Sentencing
Act, the Supreme Court’s reasoning is consistent with the fundamental principles underpinning our
accident compensation scheme.
It should be noted that losses which are not covered by ACC – such as emotional harm – may still be the
subject of reparation orders.
1
Government Printer, Wellington, 1967
Prior to the Woodhouse Report, compensation paid out under the Workers’ Compensation Act 1965 was
capped at 60%, and could only be paid for a maximum of 6 years.
2