BURNELL AND HAILS (t/as BLINK BONNIE) v SMITH SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL MEAGHER, HANDLEY and COLE JJA 30 January 1996 [1996] NSWCA 80 Worker's Compensation Act 1987 — s 40 — Judge replacing evidence of earnings and deductions with his own impression — held impermissible. Cole JA. This appeal from the judgment of Judge Burke delivered 1 December 1992 in the Compensation Court of New South Wales raises two issues: 1. Whether there was evidence to support a finding by his Honour made in accordance with s 40(2)(a) Worker's Compensation Act 1987 that the "weekly amount which the worker would probably have been earning as a worker but for the injury and had the worker continued to be employed in the same or some comparable employment" was $450 per week; 2. whether his Honour correctly calculated the s 67 entitlement for pain and suffering having regard to his Honour's findings that the respondent's pain and suffering "is proportionate to that of a most extreme case in the ratio between | is to 4 and 2 is to 3"! FACTS The respondent, Michael Smith, was born on 23 December 1947. At the time he suffered the accident on 1 October 1991, and for some years prior, the respondent worked as a shearer on properties in the Walcha district. On 1 October 1991 he injured his right wrist whilst so engaged. As a result of the injury the trial judge found he was incapacitated and unable to continue in the shearing industry. The respondent tendered his tax returns for the years ended 30 June 1989, 1990 and 1991 as evidence of his uninjured earning capacity. During 1989 he apparently worked for a timber company, Taminda Timbers Pty Ltd, as well as working as a shearer.2 The evidence before the trial judge relating to his uninjured earning capacity was as follows: YEAR GROSS DEDUCTIONS NET AVE NETDAYS WORKED AS SHEARER 1989 21,662 4,515 17,147 329.75 76° 1990 23,998 18,154 349.16 170° 1991 24,569 17,816 342.61 5 Appeal Book at 116B. Appeal Book, at 57. Appeal Book, at 57 Appeal Book, at 82 Appeal Book, at 87 RYN 2 UNREPORTED JUDGMENTS The tax returns were prepared by an accountant or tax agent and were accepted by the Taxation Commissioner. The deductions shown in the table above were the "work related" deductions claimed by the respondent and were for car expenses travelling to and from shearing sheds, protective equipment, tools, union dues, laundry and maintenance of protective clothing, telephone calls, and an amount of $14.13 per day included in the gross earnings in respect of "not found rations" payable to a shearer under the Pastoral Employees (State) award. That deduction was apparently allowable in accordance with income tax ruling IT2327.° Such an allowance was claimed for 76 days for the tax year ended 30 June 1989 and 170 days for the year ended 30 June 1990. The number days in respect of which that allowance was claimed for 1991 does not appear from the tax records. In the Compensation Court proceedings the appellant employer filed a document entitled "Schedule of Earnings" in which they asserted that the "award pre- injury employment was $655.58 per week7. It is difficult to understand that assertion as shearers are paid on a piece work rate per sheep shorn. TRIAL JUDGE'S FINDINGS The trial judge, in determining the uninjured probable earnings, said: "The other angle of s 40 is the probable earnings. The two income tax returns are both very approximate actually, there is only few hundred gross, I think, difference between them, and the applicant was earning about $25,000 a year. I note he claims virtually in each year somewhere between $6,500 and $6,750 in respect of deductions. Unfortunately I could not find a schedule that ever itemised those deductions to find out how the devil he ever managed to calculate that. By and large there are patently outgoings to be incurred by an itinerant shearer in earning his income and I do not think the provision of accommodation or the provision of meals or something like that at a shed is any such deduction. If he was doing an ordinary town job he would still have a home to go to and he would still have to have a meal at night, I have never seen them as a income tax deduction in anybody else's tax return either, but they are, as I said, a necessary expenditure. By and large I would tend to think it is probably reflected by a sum something like 10% of the gross, which is perhaps a bit rough and ready but having heard a number of such cases over the past 10 years it seems to me to reflect the general trend and shearer's incomes that they can usually justify in this sense a deduction of about 10% for the necessary expenses incurred in earning it. The applicant earning roughly $500 a week gross I would think his earning after the necessary deduction was about $450, the probable earnings probably represent that. There might have been a better season this year or something or other but be that as it may it seems to be within the limits of error of that type of calculation. I therefore think his probable earnings are $450. His ability to earn certainly no more than $250."8 APPEAL FINDINGS There was no evidentiary basis for his Honour's finding that a deduction of 10% for necessary expenses incurred in earning a gross income, assumed at $500 per week, was appropriate. The material tendered by the respondent showed that the deductions claimed and allowed as work related deductions constituted 20.8%, 24.3% and 27.5% of gross income for the years 1989, 1990 and 1991 6. Appeal Book, at 57R 7. Appeal Book, at 21 8. Appeal Book, at 113S-114J URJ BURNELL AND HAILS (t/as BLINK BONNIE) v SMITH (Handley JA) 3 respectively. There was no justification for his Honour substituting, without evidence, his own impression of an appropriate deduction for that established by the respondent in evidence. On the evidence the trial judge should have found a net average weekly earning uninjured of approximately $350 per week. The appellant has, in submissions, accepted a figure of $360 per week and that may be adopted. It follows in my opinion that in this respect the appeal must be upheld. The trial judge found that the respondent had a post accident earning ability of "about $250 per week". The trial judge obviously deducted that figure from the $450 per week net earnings which he found to award a weekly payment pursuant to s 40 of $200 per week. As the uninjured probable earnings should have been $360 per week rather than $450 per week the weekly payment awarded should be reduced from $200 per week to $ 110 per week. Regarding the second issue on appeal, it is not clear what his Honour meant by his finding that the respondent's pain and suffering was proportionate to that of a most extreme case "in the ratio between | to 4 and 1 to 3". The appellant contends that expression means between 20% and 25%. The respondent contends it means between 25% and 33.3%. If it be the former, his Honour's allowance of $14,000 pursuant to s 67 is in error as the sum of $14,000 represents 28.34% of the most extreme case. It follows that if the respondent's contention is correct that the expression relates to a range between 25 and 33.3%, then the calculation is unchallengeable on appeal. On balance, in my opinion his Honour intended by the expression he used to indicate a range between 25% and 33.3% as indicated by the calculation of $14,000. In the result the appeal must be upheld. The following are the appropriate orders: 1. Appeal upheld. 2. O 1 of Burke J made 1 December 1992 set aside and in lieu thereof there be substituted: "That the respondent pay the applicant, on the basis of the partial incapacity, weekly compensation at the rate of $110 from 25 February 1992, such weekly payment to continue in accordance with the provisions of the act." Otherwise O 2 to O 6 inclusive confirmed. 4. The respondent is to pay the appellant's costs of the appeal but is to have, if qualified, a certificate under the Suitor's Fund Act. » Meagher JA. I agree with my brother Cole JA. Handley JA. I also agree. The trial Judge in approaching the s 40 issue, and in particular the issue of the worker's probable earnings if uninjured, said "The two income tax returns are both very approximate...". Unfortunately there were three income tax returns in evidence and the contents of two were not approximate at all. His Honour also noted that the worker claimed in each year somewhere between $6,500 and $6,750 in respect of deductions but his Honour apparently could not find a schedule where those deductions were itemised, and could not work out how the worker had been able to calculate those deductions. However two of the income tax returns in evidence contain an itemised schedule of deductions, being the returns for the 1989 and 1990 years. Because his Honour had been unable to find an itemised list of the work deductions of the worker for the years prior to his injury he felt driven to draw upon his experience as a member of this specialist court to take notice of general 4 UNREPORTED JUDGMENTS trends in shearers' expenses. He said that in general shearers could usually justify a deduction of 10% for work expenses. In my opinion his Honour was not free to reject the evidence in the income tax returns tendered on behalf of the worker and substitute a figure however accurate in general, which did not reflect this worker's known pre-accident earnings and work expenses. I therefore agree with the orders proposed by Cole JA and, subject to the observations above, with his Honour's reasons. Meagher JA: The orders of the Court therefore will be the orders proposed by Cole JA. 1. Appeal upheld. 2. O 1 of Burke J made 1 December 1992 set aside and in lieu thereof there be substituted: That the respondent pay the applicant, on the basis of the partial incapacity, weekly compensation at the rate of $110 from 25 February 1992, such weekly payment to continue in accordance with the provisions of the act. w Otherwise O 2 to O 6 inclusive confirmed. 4. The respondent is to pay the appellant's costs of the appeal but is to have, if qualified, a certificate under the Suitor's Fund Act. Counsel for the appellant: P J Deakin QC Counsel for the respondent: R J Harrington Solicitors for the appellant: Bruce and Stewart Turton Solicitors for the respondent: Carroll and O'Dea