GOEKE v NOMINAL DEFENDANT SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY, CLARKE and HANDLEY JJA 20 May 1991, 28 May 1991 [1991] NSWCA 124 QUANTUM — SELF EMPLOYED TRADESMAN PRE-INJURY EARNINGS — ERROR OF PRINCIPLE TO USE 4 YEAR AVERAGE TO DETERMINE QUANTUM OF DAMAGES — Self employed tradesman injured in motor vehicle accident — Trial judge bases finding of pre-injury earnings on average of 4 years prior to accident — A period of high inflation including recession. held Error of principle authorising reassessment. Appeal allowed and damages reassessed. MBP (SA) Pty Limited v Gogic (1990) 65 ALJR 203 Priestley JA For the reasons given by Handley JA, I think it necessary for thequantum of the appellant's damages to be reassessed. A reading of the materials in the appeal papers in the light of those factual findings of the trial judge with which this court should not interfere, leads me to think that the amounts arrived at by Handley JA for the various components of the appellant's damages are appropriate in the circumstances. I agree with the orders proposed by Handley JA. Clarke JA I agree with Handley JA. Handley JA This is an appeal by the plaintiff from the judgment of Newton DCJ in a motor vehicle accident case. The judge found a verdict for the plaintiff and assessed damages at $151,608.26. The plaintiff has appealed on quantum issues. The defendant has not cross-appealed on either liability or quantum. The accident happened as long ago as 20 June-1977. Apparently because of two changes of solicitors by the plaintiff and perhaps because of the delays which provoked those changes, the action did not come on for trial until 24 September 1986. The trial Judge gave judgment within a few days and the plaintiff appealed within time. However the appeal has apparently been delayed by problems with some of the exhibits. The index to the appeal papers was not settled until 22 May 1990 and after that the appeal books had to be printed. Prior to the accident the plaintiff was self-employed as a contract floor layer working with vinyl sheeting, floor tiles, parquetry, cork tiles etc. At the time of trial he was still engaged in that occupation. The trial judge assessed damages as follows: (a) Out of pocket expenses as agreed $ 3,358.26 (b) Economic loss from date of accident to date of 12,000.00 trial (c) Interest on economic loss from date of accident 7,000.00 to trial 2 UNREPORTED JUDGMENTS (d) General damages to cover pain and suffering 70,000.00 and loss of amenities of life and in particular to cover the aspect of having to work for longer hours each day of his working life to earn essentially the same money (e) Interest on $23,000 (past general damages) at 13,500.00 6.5% for 9.25 years, approximately $13,828 but rounded off at (f) Sum to compensate for economic loss at 12,750.00 $25.0C per week for 14 years until plaintiff turns(g) Further sum to compensate for general loss of 8,500.00 capacity until the plaintiff turns 60 (h) Amount to compensate for economic loss 22,500.00 between age of 60 and 65 (i) Amount to cover medicals and incidentals in 2,000.00 the future $ 151,608.26 The appellant has challenged the awards for past and future economic loss being items (b), (c), (f), (g) and (h) above. The plaintiff was aged 46 at the date of trial. He is generally left handed. For present purposes his significant permanent injury relates to his right elbow. He has been left with a disorganised right elbow joint with a 20 degree loss of flexion, 35 degree loss of extension, and a 50 to 60 degree loss of forearm pronation. The judge found that the elbow condition will certainly not improve and that the plaintiff's permanent disability is of the order of 35% to 40% loss of function in his right upper limb for every day use. In addition there has been some damage to the muscle in his right thigh and some loss of strength in that leg. The trial judge found that the plaintiff, as a result of these injuries experiences the following disabilities: "It usually takes him some hours more to do the work necessary for the performance of his job than it did before the accident... Throughout the last nine years and for the rest of his working life in his present job he will be required to work each day some hours longer to earn... the same amount of money. He will be required not only to work this additional time consistently for no reward but will over this very long period lose the hours of leisure and sport which he otherwise might have enjoyed... In effect I regard this as a lifetime sentence to the plaintiff to work longer hours, in circumstances of some discomfort, to be able to earn the same amount of money". The trial judge accepted the evidence of a Mr Groves the president of the Floor Coverings Association of New South Wales. He had known the plaintiff in his trade for a number of years before the accident and since. He said that prior to his accident the plaintiff "was probably the most experienced floor layer in and around Sydney, there was nothing that he could not tackle". Since the accident, because of the disability in his right arm, the plaintiff has been unable to handle counter topping work which involves laying vinyl sheeting on the tops of counters. This is highly skilled and profitable work. Prior to the accident and for some time afterwards the vinyl sheeting in general use in this trade was six feet wide. However prior to the trial the trade had largely changed over to the use of four metre wide sheeting which the plaintiff was unable, because of his disability, URJ GOEKE v NOMINAL DEFENDANT (Handley JA) 3 to handle. By the date of trial four metre sheeting accounted for 80% of the total market for domestic floor coverings. I understand that the market referred to by this witness did not include carpets. Although the trial judge accepted the evidence of Mr Groves he also noted that "there is nothing in it which would really permit me... to draw specific figures upon which I can rely". Moreover the plaintiff's own evidence did not establish with any precision actual losses of earnings in the years between accident and trial. The defendant however tendered a report from an accountant, Mr Jagger, and called him as an expert witness. His report was based on the plaintiff's income tax returns for the fiscal years 1974 to 1977 inclusive. Since the accident occurred on 20 June 1977 the income tax return for that year would not have been significantly affected by the plaintiff's injuries, and if there was normally some delay in receiving payment for work in this trade, the plaintiff's earnings for that year may not have been affected at all. Mr Jagger also had access to the plaintiff's income tax returns for the years 1978 to 1985 inclusive. His report was dated 11 February 1986 and accordingly he did not have access at the time to the plaintiff's income tax return for the 1986 fiscal year. The trial judge accepted Mr Jagger's evidence, and it formed the basis of his awards of $12,000 for past economic loss, $12,750 for future economic loss, $8,500 for general loss of economic capacity to age 60 and $22,500 for substantially total loss of earnings in the period between age 60 and 65 when the judge found that the plaintiff would normally have retired. The starting point for all these awards was the figure for average pre-injury earnings derived by Mr. Jagger from the plaintiff's income tax returns. He adopted the figures for net earnings or profits after tax for the years 1974 to 1977 inclusive, obtained an average of $6,027 and treated this as the plaintiff's pre-injury earnings. However in my opinion the use of such an average during a period of high inflation, which included a recession, cannot be supported. The figures do not reveal a consistent trend, but there was nothing in the evidence to suggest that the 1977 fiscal year was affected by any abnormal factors. The plaintiff was a self-employed tradesman who did not employ staff or sub-contract work. In such a case the profits of his trade represent essentially his personal earnings. In these circumstances I can see no reason in this case for adhering to the practice, which is commonly followed when valuing a business, of adopting an average based on after tax profits for a number of years. In my opinion the trial judge erred in principle in relying on an average based on four years' figures and he should have taken the 1977 after tax earnings of $7,442 as the basis of his assessment. Mr Jagger arrived at the plaintiff's economic loss for the years 1978 to 1985 inclusive by deducting his pre-accident average earnings of $6,027 from the after tax earnings for each of those years. This showed losses for the 1978, 1979, 1981 and 1982 years totalling $5,167 which he then increased by 50% for inflation to give a total loss for those years of $7,750. The trial judge adopted this figure and made various adjustments before arriving at his award of $12,000 for past economic loss. Mr Jagger's oral evidence established that the rate of inflation between 1 July 1977 and 30 June 1986 was 8% in one year and otherwise 9% or above. Neither party attempted to prove the historical rates of inflation from official sources. The compound interest tables disclose that 8% compounded annually for six years gives 58.6%. The consumer price index however is compounded quarterly. This 4 UNREPORTED JUDGMENTS and the experience of at least 9% inflation for all but one of the years in question demonstrates that Mr Jagger was in error in using an uplift figure of only 50% and error by the trial judge in accepting this figure without adjustment. In my opinion therefore the award by the trial judge of $12,000 for past economic loss has been shown to be wholly erroneous and must be set aside. This Court must therefore reassess this component of the appellant's damages. Mr Hall QC for the appellant submitted that the appellant's pre-trial loss should be ascertained by deducting the plaintiff's actual after tax earnings for the years 1978 to 1986 from his after tax earnings for 1977 adjusted for inflation to give an estimate of the earnings the plaintiff would have made in those years but for his injuries. In my opinion this submission should be accepted. For this purpose the inferences to be drawn from the sketchy evidence of Mr Jagger as to the rates of inflation in those years must be those most favourable to the respondent. Accordingly the rate of 8% should be applied to 1978. There is no basis for allowing more than 9% in any particular later year and therefore that rate should be adopted for all those years. On this basis the figure for the appellant's past economic loss should be $51,087. The trial judge awarded sums of $12,750 and $8,500 for future economic loss to age 60 based on a loss at the time of trial which he assessed as $25 per week. The judge's finding that the plaintiff would be able to work to age 60 was based on the evidence of Dr Greaves which he accepted. Mr Hall QC attacked this finding and submitted that the trial judge should have accepted other medical evidence to the effect that the plaintiff would be forced to give up work some years before reaching 60. This submission however was without substance. Dr Greaves was called as a witness and his evidence on this issue was accepted by the trial judge in preference to other evidence, particularly that of Dr Searle, who was also a witness. The trial judge determined this issue against the party bearing the onus of proof and this Court cannot possibly substitute a different finding in favour of the party bearing the onus. The plaintiffs after tax pre-injury earnings adjusted for inflation to 30 June 1986 produced a figure of $17,606. If one deducts the plaintiffs actual after tax earnings for that year one obtains a net loss of earnings after tax of $6,409 per year or approximately $122 per week. This Court must therefore reassess this component of the plaintiff's loss. A net loss of $122 per week for the period of approximately 14 years to age 60 adopted by the trial judge on the 3% tables produces a figure of $72,956. An assessment on this basis however, leaves no room for the further allowance of $8,500 made by the judge to compensate the plaintiff for a general loss of income earning capacity until age 60. The trial judge arrived at his award by applying a 15% discount factor for contingencies. This figure is high but has not been shown to be wrong. Applying the same discount rate results in an award of $62,012.60 for future economic loss to age 60 in lieu of the two awards made by the judge totalling $21,250. The other component of future economic loss challenged by the appellant concerned the award of $22,500 for the period from age 60, when on the judge's findings the appellant would probably retire from work, to age 65 when he would have retired but for his injuries. This award must also be reassessed. The starting figure is the plaintiffs pre-injury after tax earnings, inflation adjusted to the date of trial, of $17,606 or $338.58 per week. The present value to this plaintiff aged 46 at the date of trial of such a loss between age 60 and 65 is $51,474.32. The judge discounted his award for the same period by a little over URJ GOEKE v NOMINAL DEFENDANT (Handley JA) 5 15% for some retained capacity at age 60 and some residual capacity at age 65, and by a further 10% for the usual contingencies of life. The appellant has not established that the trial judge was wrong in adopting these discounts. Discounting by 15% and 10% produces a figure of $39,377.85 for this component of the award and I would substitute that figure for the sum awarded by the judge. The inflation adjustment of the plaintiffs after tax earnings for 1977 to arrive at the earnings he would have received thereafter but for his injuries could theoretically result in some distortion because of the notorious fact, which the Court may be taken to know, that the income tax scales were not fully adjusted for inflation over this period. Mr Jagger calculated the plaintiffs actual after tax earnings for the years before and after the accident. These figures therefore are based upon the income tax scales in force during those years. The parties did not provide the trial judge with any information on the effect of income tax on the plaintiff's notional earnings, adjusted for inflation, between the accident and the trial. Nevertheless the plaintiff's notional earnings for those years were relatively modest and at. this level the rates of income tax were not steeply progressive. In my opinion therefore this Court should ignore this complication and do the best it can with the evidentiary material provided by the parties. The reassessment of the appellant's past and future economic loss requires the Court to reassess the interest awarded on the appellant's pre-trial economic loss. The respondent did not cross-appeal or file a notice of contention in respect of the trial judge's award of general damages or his award of interest on its pre-trial component, Nevertheless in my opinion the Court having set aside the assessment by the trial judge and proceeded to reassess should correct any error that can now be discerned in any other parts of the overall award. The trial judge awarded general damages of $70,000. In the relevant passage of his reasons he said: "... the plaintiff has suffered quite substantially over the years in the carrying out of his work and it appears to be causing him discomfort at work and stiffness and discomfort thereafter and to require him to work... for additional hours." The judge awarded only modest sums for past and future economic loss to age 60 and as I have indicated in my opinion this Court should substantially increase those awards. The trial judge held that the appellant had substantially mitigated his economic losses to date of trial by working longer hours at the expense of his previous leisure time activities. However despite the longer hours the plaintiff has been working I have concluded that he was still suffering economic loss. Appropriate compensation for those losses will allow for the economic consequences of h..s injuries, but not for his loss of leisure and the activities he formerly pursued in his leisure hours. Accordingly in my opinion the increased awards for past and future economic loss will not result in any double counting or overlapping and thus do not require the award for general damages to be reassessed. The trial judge awarded interest on the pre-trial component of general damages of one third at a rate of 6.5% for the full period of nine and one quarter years before trial. This award should be reassessed in accordance with the principles established by the High Court in MBP (SA) Pty Limited v Gogic (1991) 65 ALJR 203. This gives an award of $4,255 in lieu of the $13,500 awarded by the trial judge. The award of pre-judgment interest on the damages for past economic loss must also be adjusted. The trial judge awarded interest at 6.5% for nine and a quarter years on the full amount of $12,000. Since, in my opinion, an award of 6 UNREPORTED JUDGMENTS $51,087 should be substituted interest on this figure at the same rate over the same period will result in an award of $30,716.06. In my opinion therefore the following orders should be made: 1. Appeal allowed with costs. 5 2. Judgment in favour of the plaintiff for $151,608.26 and costs entered by the trial judge set aside. 3. Substitute judgment for the plaintiff for $262,806.77 and costs to take effect from 2 October 1986. 4. Order that the respondent, if qualified, have a certificate under the Suitor's 10 Fund Act. 1. Appeal allowed with costs. 2. Judgment in favour of the plaintiff for $151,608.26 and costs entered by the trial judge set aside. 15 3. Substitute judgment for the plaintiff for $262,806.77 and costs to take effect from 2 October 1986. 4. Order that the respondent, if qualified, have a certificate under the Suitors Fund Act. 20 Counsel for Appellant: G B HALL QC and C HEAZLEWOOD Solicitors for Appellant: ROONEY and HEAZLEWOOD Counsel for Respondent: R C TONNER 25 Solicitors for Respondent: SOLICITOR FOR THE GIO