GILLIES v NANNCARROW SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL HANDLEY, BEAZLEY and STEIN JJA 19 August 1997, 27 February 1998 [1998] NSWCA 92 DAMAGES — past economic loss — future economic loss — calculation of appellant's earnings — appellant's residual earning capacity The plaintiff appealed from the assessment of her damages arising out of injuries sustained in a motor vehicle accident on 18 February 1984. The amounts in dispute were those awarded for past economic loss after the appellant had been forced to sell her pharmacy due to her injuries and for future economic loss. HELD: Allowing the appeal in part: (1) That the trial Judge's estimate of the appellant's earning capacity from the pharmacy at $1,010 per week was too low. The error occurred due to the adoption of average profits over the years 1988-1992 when three of those years were affected by abnormal circumstances. Thus the correct figure for the earning capacity from the pharmacy was $1,313 per week. (2) Per Handley & Stein JJA: That the trial Judge's estimate of the appellant's residual earning capacity at $725 per week was correct. The Judge's finding that the appellant's income from bookkeeping in her husband's business would continue was, on the evidence, correct. Per Beazley JA (dissenting): The conclusion that the appellant would continue to work for her husband's business once she obtained full tune work as a pharmacist and increased her qualifications was unrealistic. The trial Judge's justification for the finding that the appellant would continue to work 55 hours per week in total (ie that she had done so in a single job) was not applicable to work in two jobs. The appellant's obligation to mitigate her damages did not require her to undertake work outside her chosen profession when she was willing and able to undertake work within that profession. No allowance should have been made for work in her husband's business. Handley JA This is an appeal by a plaintiff from the assessment of her damages by Studdert J arising out of injuries sustained in a motor vehicle accident on 18 February 1984. The Judge entered judgment for $684,336.15, but the only amounts in dispute on the appeal were those awarded for past economic loss between 1 July 1993 and the date of trial ($191,486), and for future economic loss ($150,000). The plaintiff was a registered pharmacist who, at the date of the accident, conducted a pharmacy in partnership with her husband at Batemans Bay, they having purchased it in 1981. She and her husband became estranged immediately after the accident and were later divorced. The plaintiff worked long hours in her pharmacy before the accident, particularly over the Christmas, New Year and Easter holiday periods. As a result of the accident, she was not able to work such long hours, and she became dependent on relieving pharmacists. She continued to work on average about 35 hours a week in the business until it was sold in 1993, but her working hours were spaced to allow for her difficulty in standing for long periods. The Judge found that the plaintiff sold her business because she could not operate it effectively, especially after 1992 when her regular relieving chemist ceased to be available. He was satisfied that she was prevented by her compensable disabilities from working the hours required and that her condition 2 UNREPORTED JUDGMENTS was permanent. He was also satisfied that, uninjured, she could earn more from her own business than she could as an employed pharmacist. The Judge's award for past economic loss between 1 July 1993, after the sale of the pharmacy, and the trial, was based on the difference between the sum of $1,010 a week which she would have earned, uninjured, from her pharmacy business and her actual earnings. The plaintiff had not attempted to fully exploit her residual earning capacity during this period, but the Judge held that she had acted reasonably. The only finding in relation to this period that was challenged was the Judge's assessment of the plaintiffs earnings from the pharmacy at $1,010 a week. The same figure entered into the Judge's award of $150,000 for future economic loss, but the appellant also challenged the Judge's assessment of the plaintiff's residual earning capacity in the future at $725 a week. The parties led expert evidence by report, and orally, as to the plaintiff's probable earnings from her pharmacy, if she had not been injured. The plaintiff's witness, Ms Bateman, relied on the sales figures which showed a steady increase since 1984 and based her projections on her 1993 profit figure. Mr Jugmans, the defendant's witness, took the actual profit figures for the 10 years, adding back the cost of relief pharmacists employed by the plaintiff because of her injuries, then adjusted the results for inflation and adopted the average. The Judge did not accept either approach. The sales figures for the business (232) had certainly increased from 1983, the first full year of ownership, until 1993 with the sole exception of 1984, when the plaintiff suffered her accident. The overall increase was substantial, from $378,946 in 1983 to $884,144 in 1992, her last full year of ownership. However, the rising sales figures were not reflected in increasing profits. Mr Jugmans' adjusted figures, other than 1993, were as follows (397): 1984 73,780 1985 49,028 1986 43,913 1987 51,514 1988 33,253 1989 35,584 1990 49,164 1991 41,438 1992 68,274 Both accountants. adopted profit figures for 1993 based on extrapolating the sales during the 35 weeks the plaintiff owned the business over the rest of the financial year. Actual monthly or weekly figures during the 35 weeks were not available. However these extrapolations ignored the plaintiff's evidence that the best trading periods were during the Christmas, New Year and Easter holidays, and the Judge rejected them for that reason. Being satisfied that, but for the sale, the 1993 results would have been similar to those of 1992, he adopted the same figure. The Judge rejected Ms Bateman's analysis based on projecting the 1993 figure, and based himself on an average of the inflation-adjusted profits for the last 5 years, and not the last 10, as proposed by Mr Jugmans. URJ GILLIES v NANCARROW (Handley JA) 3 The appellant challenged the adoption of the 5 year average because, in Mr McEwen's submission, this overlooked the steadily rising sales figures. However these had not translated into steadily rising profits which varied considerably, the best year being 1984, the year of the accident. The amount apportioned to goodwill in the contract of sale did not provide reliable guidance. There was no evidence of what motivated the purchaser to pay that price for goodwill, there was no evidence of any general practice in the pharmacy profession as to the valuation of goodwill, and the experts disagreed as to the appropriate capitalisation rate. Mr Bateman thought it should be 20%, and Mr Jugmans 35%. The evidence revealed a number of reasons for the fluctuation in the profit figures, but these did not include the increased cost of hiring relief pharmacists due to the accident, because this expense had already been added back by Mr Jugmans in arriving at his figures (131). The reasons included the opening of additional pharmacies in the town in 1985 and 1986 (56, 61), the plaintiffs mental problems until 1990, particularly during 1985 and 1986 (52, 53, 56), her three months' break in 1985 after her father died (53), her ill health due to complications which followed the removal of three wisdom teeth in 1985 (63), the upgrading of her shop in 1987 (68), and the increase in that year in her trading hours (88). She attended a 3 year post graduate course at the Australian National University from 1987 to 1989 (59). This affected the results for 4 years, 1987 (last 6 months), 1988-9 (the whole year in each case), and 1990 (first 6 months), because the cost of additional relief to enable the plaintiff to attend the course was taken into account, and not treated as a result of the accident (394). The dispensary was computerised in 1986 (123). Computerisation of the stock records in relation to the rest of the pharmacy was undertaken during 1991 (91), and the cost of this programme depressed the 1991 figures, but the benefits were received in 1992 (91). The Judge adopted an average of the years 1989-1993 to arrive at his figure of $1,010 per week as the nett earnings from the pharmacy. However the evidence summarised above, which was not finally brought to this Court's attention, and may not have been brought to the Judge's attention either, shows that the 1989 figure was affected for 12 months by the plaintiff's attendance at the ANU, and the 1990 figure was affected for 6 months, while the 1991 figure was affected by the costs incurred in computerising the stock records for the pharmacy. Appropriate underlying figures could have been obtained for this purpose (the calculation of future economic loss), by adding back the increased cost of employing relief staff while the plaintiff attended the ANU (which was properly deducted to calculate past economic loss), and the cost of computerising the stock control records, but this exercise was not attempted. In the result I have been persuaded by Beazley JA, and the evidence referred to above, that the trial Judge fell into error in adopting an average over 5 years when 3 of those years were affected by abnormal circumstances and did not reflect the ongoing benefits of the computerised system of stock control introduced in 1991. The Judge awarded damages for future economic loss for a period of 25 years based on the plaintiffs nett earnings from the pharmacy, if uninjured, of $1,010 per week. The 1992 profits, which the Judge accepted as a fair basis for 1993 as well, were $1,313 per week, and in my opinion this figure should be substituted for the figure of $1,010 per week adopted by the Judge. 4 UNREPORTED JUDGMENTS The other challenge was to the finding that at the date of trial the plaintiff had a residual earning capacity of $725 nett per week. She was then working as a part time pharmacist for the South Coast Health Service 2 days a week for 15 hours, and was also doing 20 hours' bookkeeping for her husband in connection with his business. She was a Grade | Pharmacist, but hoped to obtain a full time position and progress to Grade 2. The Judge accepted her evidence that she was capable of working full time as a hospital pharmacist. To progress to Grade 2, she had to meet four competency criteria, which included obtaining a post-graduate diploma which she could take by correspondence. She thought it would take her 3 years to progress to this level, but progression to Grade 3 was highly unlikely unless she moved to a larger centre such as Canberra. At the date of trial, the plaintiff was earning $556 nett a week for her work in the hospital and as a part time bookkeeper (230). The Judge was confident that she would meet the competency criteria for Grade 2 over the next few years and considered that she would obtain full time work with the Health Service. In making his finding that she had a residual earning capacity of $725 a week, he also took into account her ability to assist her husband with his books. Mr McEwen submitted that this finding was not supported by the relevant industrial award, and it ignored the period of 3 years or more which must elapse before the plaintiff qualified for Grade 2, and the contingencies in obtaining a full time Grade | position and being promoted to Grade 2. It also assumed that the plaintiff would put in long hours of bookkeeping in addition to her full time job in the hospital. After some confusion the appropriate award in force after 1 July 1996 was identified (345). The award rates for a Grade 2 Pharmacist in the public hospital system were first year $874, second year $912, third year $950 and fourth year $988. On the 1996-7 tax tables, the latter salary, after tax, was $687.58 a week. On the Judge's findings the plaintiff could not be expected to reach this salary for 7 years at the earliest, but if and when she did, her nett earnings from bookkeeping would only need to amount to $37.42 a week to reach the Judge's figure. If she continued to work 20 hours a week on her husband's books, at the same gross wage as at the date of trial, her combined nett income would then be $860.71 a week. Beazley JA would set aside the Judge's finding that the plaintiff had a residual earning capacity of $725 nett per week and substitute the figure of $556 nett per week she was earning at the date of trial for the next three years. Thereafter she would assess her earning capacity on the basis of her Grade 2 award salaries after tax without any allowance for earnings as a bookkeeper in her husband's business. The trial Judge arrived at his figure of $725 "mindful of the plaintiff's ability to assist her husband with the books". Beazley JA considers that "it is unrealistic to expect the plaintiff to continue" working on her husband's books once she is in full time employment. In my opinion her conclusion and the reasons which support it do not properly reflect the plaintiff's evidence of her involvement in her husband's business and her future intentions. In 1994 the plaintiff purchased a factory in her own name and her husband's business moved in as a rent-paying tenant (71). She said, "we did renovations to the factory", and "we moved the business to that factory" (71). URJ GILLIES v NANCARROW (Handley JA) 5 She added, "I can run my husband's business, that is not in debt, very successfully" (73), and that after she sold her pharmacy she "assisted him in re-arranging his business" (121). It is clear that the plaintiff has taken an active interest in the conduct of her husband's business and her role was that of a business manager and finance controller rather than a bookkeeping clerk. One would reasonably expect her to wish to continue in that role in the future. Her own evidence reflected this when she said, "Now that I am pursuing a hospital pharmacy career he (her husband) realises that my time as a bookkeeper may diminish as my hospital commitments increase, and he is happy with that" (122) (emphasis supplied). The plaintiff contemplated that her bookkeeping activities may not diminish at all as her hospital commitments increased, and what is more she never said that her bookkeeping work would or might cease altogether. This is not surprising in view of her other evidence that working for her husband was "easy work" for her leg (70), that she would be happy to work a full week (70), and that her hospital work was "something I was physically able to do" (75). In my opinion this evidence amply supported the Judge's finding that he should take into account the plaintiff's probable earnings from her husband's business in assessing her long term residual earning capacity. It follows that the Judge's finding of a residual earning capacity of $725 a week was well within the range available to him for the years after the qualifying period had elapsed. This award had to compensate the plaintiff for a period of 25 years. The real question is whether the Judge should have dealt separately with the 3 years or so she would take to qualify as a Grade 2 Pharmacist. Her nett earnings from both sources at the date of trial were $556 a week, $169 less than the figure of $725. She had been working as a part time Grade 1 Pharmacist for 18 months and if she had a full time position, her award wage would have been $798 gross, or $583.58 nett. The Judge said that it would take the plaintiff "the next few years" to meet the competency criteria for Grade 2. She had no chance of progressing beyond Grade 2 while she continued to live at Batemans Bay. While the Judge's finding evidently treats the plaintiff's progress to Grade 2 as a virtual certainty, he could not have allowed her anything for the chance of progressing to Grade 3. The balancing factor justifying his finding of $725 can only have come from the plaintiff's earnings as a bookkeeper in her husband's business. Although there were limits to her capacity to work long hours as a bookkeeper while holding down a full time job at the hospital, the Judge found that before her accident she worked 55 hours a week for most of the year, and 70 hours a week during December, January and Easter. The Judge's assessment of her future economic loss was based on her earnings she would have made from the pharmacy if she had not been injured. Given that her work as a hospital pharmacist and bookkeeper did not require her to stand for long hours, it would not have been unreasonable for the Judge to have treated her as capable of working up to 66 hours a week or more, 35 or more in the hospital, and the balance as a bookkeeper. On this basis the plaintiff could continue to work as a bookkeeper for perhaps up to 20 hours a week after she had been appointed to a full time position as a Grade | Pharmacist, and after she had progressed to Grade 2. If she continued to do 20 hours a week on the books, her combined nett income as a second year 6 UNREPORTED JUDGMENTS Grade 1 Pharmacist would have been $744, and as a third year employee $763.50. The amount would again increase on her promotion to Grade 2 and as she acquired seniority in this grade. The Judge did not fully expose his reasons for declining to make a separate award for the interim period before the plaintiff became a Grade 2 Pharmacist. However he did refer to her continuing capacity to assist her husband with his books. The appellant must establish error and the Judge's primary findings support an ultimate finding that her combined income from both sources after she obtained a full time Grade 1 position could well have been more than $725 nett a week, and after she obtained a Grade 2 appointment, substantially; more. In these circumstances the $725 figure was available to his Honour for the whole period, and sufficiently allowed for any delay in obtaining a full time position. The appellant has established that the Judge's award for future economic loss was affected by appellable error in that the plaintiff's probable nett earnings uninjured should have been assessed at $1,313 a week instead of $1,010, a difference of $303 per week. The appellant was entitled to an award for future economic loss for a period of 25 years. The Judge decided that there were special circumstances in this case which justified increasing the usual allowance for vicissitudes to 20%, and this was not challenged. The plaintiff's nett loss of $588 per week over 25 years on the 3% tables, discounted by 20%, produces a figure of $433,708, an increase of $283,708. I would therefore propose the following orders: (1) Appeal allowed with costs. (2) Judgment of the Common Law Division set aside except as to costs. (3) Substitute judgment for the plaintiff for $968,044.15 with effect from 13 December 1996. (4) Respondent to have a certificate under the Suitors' Fund Act. Beazley JA I have had the benefit of reading the draft judgment of Handley JA, who has set out the relevant facts in this matter. The trial judge based his assessment of future economic loss on the difference between $1,010 net per week, being the amount found by his Honour to represent the appellant's average earnings as a pharmacist but for the injury and $725 net per week, being the amount she could earn post-accident. Each figure requires examination. Earnings Uninjured At the time of the accident, the appellant was a self employed pharmacist. Handley JA referred to the evidence adduced by both parties in respect of the appellant's probable earnings from her pharmacy and to the trial judge's determination of that issue. Handley JA has held that the trial judge was entitled to take the approach he did in determining the appellant's probable earnings. In doing so he said that the appellant had not, for example, explained the low profit for the 1989 year. This is not accurate. There was a considerable body of evidence as to 1989 and the immediately preceding years which was relevant to determining the correct approach to take to this question. In the first place, the appellant's medical condition was relevant. The appellant said that her "mental condition was very poor right up until... it started to amend (sic) around 1990 and I found that the mental strain of working... combined with the physical strain, I don t consider that I was really physically as good as I could have been until about 1990". URJ GILLIES v NANCARROW (Beazley JA) 7 Two other factors were relevant at this time. The appellant undertook a university course between 1987 and 1989 because she thought her prospects of remaining in retail pharmacy to be very limited. She engaged extra staff at this time, causing an increase in her wages bill. In addition, in 1985 and in December 1986, two more pharmacies had opened in close proximity to the appellant's, subjecting her business to competition. In 1987, she received professional advice to upgrade her business which she did in order to counter the competition. She was required to borrow money to do so. These borrowings, the increased wages bill and the increased competition all occurred at about the same time. It is not surprising that there was an effect on profits in 1988 and 1989. The trial judge did not take those matters into account. In my opinion, they seriously impinge upon the validity of taking a 5 year period as the basis upon which to assess the probable earnings from the pharmacy. There is further factor which is relevant to a proper assessment of the probable earnings from the pharmacy and that is its sale price. On Mr Jugmans' (the respondent's expert) evidence, the purchase price of the pharmacy reflected gross annual earnings of approximately $140,000 or $1,600 per week net. This figure does not appear excessive when assessed against Mr Jugmans' figure for 1992 of probable net earnings of $1313 and of $1323 assessed by Ms Bateman, the appellant's expert. That figure also bears a reasonable relationship with each expert's projection of the 1993 probable net earnings. The trial judge rejected the experts' figures for the 1993 year as each failed to make an appropriate adjustment for the busier Christmas and Easter trading. He considered that the 1992 figure should be used for the 1993 year. His Honour's criticism in this regard was valid and should be accepted. That does not, however, affect the relativity between their assessments in respect of those two years and the sale price. It is also significant that the figure determined by his Honour by adopting a 5 year period is lower than that of either of the two experts. Iam of the opinion, therefore, that his Honour's approach in adopting a 5 year period failed to take account of significant matters which affected trading and profitability in the earlier part of that year. Nor is there any basis for accepting the 10 year approach of Mr Jugmans. That approach was rejected by his Honour and Mr Jugmans himself conceded that the hypothetical prudent purchaser would not estimate probable future earnings over that period. The question is, therefore, whether the correct approach is some adaptation of the trial judge's approach, by excluding the 1989 year, or adapting the approach of Ms Bateman to take account of his Honour's criticism of the 1993 year. With respect to the trial judge, and subject to the qualification in respect of that year, there was no compelling reason to reject Ms Bateman's approach. The five year period adopted by the trial judge does not take account of Ms Bateman's evidence that there "had been changes made [in the business] to cause the profit to increase". Those changes included the installation of a computer system which had apparently been very successful and the completion of renovations. In addition, Ms Bateman said that having completed her university course, the appellant had fresh ideas as to the running of the business. She said that given the combination of those factors, and as the proper assessment to make was in respect of maintainable earnings, and profits having increased significantly in the latter years, there was no reason to take more than the two year period. Further, Ms Bateman's assessment bore a relationship to market reality, which, in my opinion, the Court should be slow to reject. 8 UNREPORTED JUDGMENTS Accordingly, I am of the opinion that the correct figure for the appellant's probable earnings as a pharmacist in her own business was $1,323 per week. The trial judge assessed the appellant as having a residual earing capacity of $725 net per week. Handley JA has examined the apparent reasoning behind that assessment and has concluded that there was no appealable error. However, I do not agree with Handley JA that it is reasonable to include in the appellant's residual earning capacity, the income earned as a part time bookkeeper in her husband's business. The appellant presently works 20 hours a week in that capacity. In my opinion, it is unrealistic to expect her to continue to do so once she is in full time employment. Not only would the appellant be working in full time professional employment, which it cannot be assumed would only involve 35 hours per week, there must be taken into account travel time and the disruption that that entails. It is not realistic to find that because the appellant worked 55 hours in her own pharmacy without the disruption of travelling during these hours, that those hours can be replicated by working two jobs. Nor does the inclusion of income from that work take any account of the greater responsibility that would be involved if the appellant did achieve Grade II level as a hospital pharmacist. The evidence to which Handley JA refers does not alter my view on this issue. The evidence must be read as a whole. The appellant's involvement in her husband's business came about because she was not working. As she said she "didn't want to be sitting at home doing nothing". She does not intend to be a bookkeeper. Significantly, she did not become a partner in her husband's business, and this at a time when she was assisting him rearrange his business. Further, the work for which she was remunerated was work as a book keeper and not as a business manager or finance controller. I do not consider that her obligation to mitigate her damages requires her to undertake work outside her chosen profession in circumstances where she is able and willing to undertake work in that profession and is prepared to undertake any necessary training to do so. Handley JA has set out the appellant's income as Grade II pharmacist. It seems likely that the appellant will at least commence to obtain her qualifications whilst she is working part time. In my opinion she should be treated as earning $556 net a week, being her present salary for a period of 3 years. Thereafter, she should be assessed as progressing through the Grade II salaries until she reaches the maximum salary in that range. I do not consider that any allowance should be made for her working as a bookkeeper in her husband's business, from the time she is assessed as likely to be working as a Grade II hospital pharmacist. It follows that in my opinion the appeal should be allowed with costs. Had my view represented the majority decision of the Court, I would have directed the parties to bring in short minutes of order as to the damages to which the appellant would be entitled to on these reasons. Stein JA I have had the benefit of reading the draft judgments of Handley JA and Beazley JA. The trial judge had assessed the plaintiff's earnings from her pharmacy business, if uninjured, at $1,010 per week. I agree with Handley JA and Beazley JA that he was in error in so finding. The proper figure for her probable earnings was $1,313 per week. The second challenge to the findings of the trial judge was his assessment of the plaintiff's residual earning capacity at $725 per week. This figure was arrived at by Studdert J taking account of the plaintiff's ability and willingness to assist her husband with his bookkeeping. In my opinion, the finding was open on the URJ GILLIES v NANCARROW (Stein JA) 9 evidence (eg AB 46W - 47G, AB 70D, AB 75L) and within the available range. In this regard, I agree with the reasons expressed by Handley JA. In the result, the appeal should be allowed and the orders proposed by Handley JA be made. (1) Appeal allowed with costs. (2) Judgment of the Common Law Division set aside except as to costs. (3) Substitute judgment for the plaintiff for $968,044.15 with effect from 13 December 1996. (4) Respondent to have a certificate under the Suitors' Fund Act. Counsel for the appellant: P J McEwen Solicitors for the appellant: McCabe Brown Counsel for the respondent: R R Bartlett SC Solicitors for the respondent: Abbott Tout