MIDDLETON v TEH SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CLARKE and MEAGHER JJA 6 March 1995 [1995] NSWCA 292 ASSESSMENT OF DAMAGES — IMPAIRMENT OF FUTURE EARNING CAPACITY — APPROPRIATE RATE OF TAX — FUTURE ECONOMIC LOSS. Clarke JA Ex tempore There are before the court an appeal and cross-appeal in relation to an assessment of damages by his Honour Judge Viney QC in relation to two claims brought by the respondent, the plaintiff in the court below. He sought damages in respect of injuries he received on 2 December 1983 in a motor vehicle accident; and again on 22 September 1984 in another motor vehicle accident. The timing of the respondent's accidents somewhat complicated the assessment for new legislation came into operation which applied to the second but not the first accident. His Honour determined that the damages which he awarded, in effect in one sum, should be divided as to 80 per cent to the first accident and 20 per cent to the second accident and his Honour awarded the plaintiff, in all, the sum of $270,000. The appellant has raised two grounds of appeal in its challenge to the award. First of all, it has submitted that his Honour erred in adopting a tax rate of 18 per cent rather than 47 per cent in calculating an award for an impairment of future earning capacity. It was said that there were a number of errors which affected this approach. It is entirely clear that his Honour did adopt an approach whereby tax at a rate of 18 per cent was deducted from the sum upon which his Honour was operating. What he said was as follows: On the figures presented for the year ending March 1990, when the plaintiff ceased his Friday operating schedule, he earned approximately $58,000. I accept this as a fair representation of his earning capacity. I interpose the observation that there has been no challenge to that figure. His Honour went on: I accept the taxation component as calculated by his accountant Mr Fairall at 18 per cent, in the circumstances of the plaintiff. This converts to a nett weekly figure of $921 lost by the plaintiff. Then his Honour, using the 5 per cent tables only, calculated loss of earning capacity at $511,155. Mr Fairall gave evidence and he was asked the following leading question, "And I think that the nett income for the period that you have calculated was $47,911?" and he gave the answer, "Yes." He had previously been asked, almost in shorthand fashion, to describe his methodology and he initially said that because he was looking at a period which ended in March he split the income into respective years before he worked out the taxable income. For my part, I think there are two errors in his approach. One is fundamental and, as I indicated to counsel, would in normal circumstances have led me to wish to refer to the authorities and say more about it. However, as this is a special 2 UNREPORTED JUDGMENTS list in which there are, I am told, no cases of principle, I will deal with it in the spirit in which it was put before the court. Nonetheless the fundamental objection remains that in view of the fact the respondent's gross income after deduction of overheads must have been more than $35,000 per annum, the tax rate on any amount over and above that figure was 47 per cent. His claim was not for total loss of earning capacity but for loss of a capacity to work as a specialist, operating on Fridays. What he did was move as many of those operations as he could to his Wednesday operating list and he took Friday off. His Honour was compensating him for that partial loss of capacity. Upon that basis it seems to me clear that in assessing the net amount lost in a past year it is necessary to pay regard to the taxation scale and to disregard devices legitimate or illegitimate, for reducing regard to the taxation scale and to disregard devices legitimate or illegitimate, for reducing taxation. It is only in that way that an appropriate figure for impairment of earning capacity in the future can be calculated. In my opinion that figure should be the sum of $58,000 less tax calculated as though it was the top rate of tax. His Honour did not do that and for this reason alone his judgment cannot stand. There was, in my view, another error. The splitting of the income between the two tax years in order to ascertain a nett figure negated the validity of the exercise insofar as in the future one was looking tax for a at whole year. There simply was no basis for such a the future one was looking tax for a at whole year. There simply was no basis for such a splitting. Even if the approach adopted by Mr Fairall had been correct, his methodology was faulty. Accordingly, in my opinion, the award for impairment of future earning capacity cannot stand. The next ground of appeal was that his Honour erred in allowing future economic loss to the age of sixty-five rather than the age of sixty. The basis of this submission was evidence in the trial that in the public hospital system surgeons were required to cease operating at the age of sixty. The submission sounded good at first, but fell down on the facts because the doctor was not claiming any inability to continue his operating in public hospitals but rather an inability to continue his operating in a private hospital where there was no such impediment to his continuing after the age of sixty. There may have been a good point to the effect that if he could no longer operate in public hospitals he may have been able to work longer times in private hospitals, but that is a fairly complicated point and is not taken, so I need spend no time on it. The result is that the verdict cannot stand. Before considering what orders should be made, I should turn to the cross-appeal for that revealed at least one additional error. The first ground of the cross-appeal was that his Honour allowed an inadequate amount for general damages. I must say that I think that the sum awarded was small, but I regard the trial judge as having been in a definite position of advantage over this court and I can see no indication that he misused his advantage in assessing general damages. Bearing in mind the discretionary nature of this award I would not be disposed to interfere with it. The next ground of cross-appeal is that his Honour erred in deducting 50 per cent from the award for future economic loss on the ground of vicissitudes. 50 per cent is, indeed, a very high deduction particularly as his Honour was dealing with a working life of fifteen years. His Honour gave three reasons for the high URJ MIDDLETON v TEH (Clarke JA) 3 reduction. First, he said the plaintiff was fifty years of age - speaking for myself I would think that is a reason for a lower deduction. Second, he said: lower deduction. Second, he said: There is an acknowledged pre-existing condition attributable to the childhood incident which may or may not accelerate degenerative changes. I do not think that the defendant should bear the burden of that risk. I do not pause to consider whether that may not involve a reversal of the onus for the fact is that there had been no symptoms suffered as a result of the childhood incident and an allowance within the normal range would, in my opinion, have been quite adequate to deal with that contingency. The third ground was: The intensity of the plaintiffs professional vocation and his own wholehearted approach to it enlarges the risk of early burn-out, perhaps more so than the average highly skilled and motivated specialist surgeon. Moreover I am satisfied the extremely heavy operating schedule has had a part to play in aggravating his neck problem over the years. According to Dr Seaton this is likely to have caused part of his problem, whether he had trauma in his neck or not. We have been taken to Dr Seaton's evidence and I am afraid that I have to say that it does not support the last statement made by his Honour. All that doctor said was that neck conditions such as the respondent suffered from could, independent of trauma, possibly have caused him symptoms in the ensuing fifteen years. The position was, as I see it, very little different from the position which inflicts most fifty-year old men in the community. I think his Honour's misunderstanding of Dr Seaton's evidence, together with the very high figure adopted, vitiates his award and there is no reason, in the circumstances of this case, why the normally accepted vicissitudes is no reason, in the circumstances of this case, why the normally accepted vicissitudes discount for should not apply. Accordingly I would be disposed to set aside the discount of 50 per cent and in lieu impose a discount of 15 per cent. There was another ground of cross-appeal which cannot be said to reflect any error on the part of his Honour. The ground was that his Honour used the 5 per cent discount tables for the calculation of economic loss resulting from the first accident when, on any view, the 3 per cent tables were those which should have been applied. His Honour adopted the 5 per cent tables because of an express concession by counsel for the respondent at the trial. That expressed concession would lead me, if there had been no other error in the assessment, to decline to interfere with the award, but as there have been other errors demonstrated and as the court is now required to embark on a reassessment of other errors demonstrated and as the court is now required to embark on a reassessment of the damages, albeit in reasonably mechanical respects, I think it appropriate to adopt the correct figure for use in that reassessment. Accordingly I would be disposed to allow the appeal and cross-appeal and to invite counsel to present the court short minutes reflecting their agreement of the award which should be produced as a result of these reasons. Meagher JA I entirely agree. Clarke JA I make no order as to costs. The court makes orders in accordance with the minutes of order which are initialled and placed with the papers. Appeal dismissed UNREPORTED JUDGMENTS Counsel for the appellant: R C Tonner Counsel for the respondent: A J Bartley with R Ingram Solicitor for the appellant: Solicitors for the GIO Solicitor for the respondent: Tony Garlo & Co