(Re Doughan) Amaca Pty Ltd v CSR Ltd [2006] NSWDDT 4

Dust Diseases Tribunal of New South Wales

CITATION : (Re Doughan) Amaca Pty Ltd v CSR Ltd [2006] NSWDDT 4

PARTIES : Amaca Pty Ltd CSR Ltd

MATTER NUMBER(S) : 81 of 2005/1

JUDGMENT OF: Curtis J at 1

CATCHWORDS: :- Cross Claim

Partnership Act 1892, ss 10 & 12 LEGISLATION CITED: Law Reform (Miscellaneous Provisions) Act 1946, s5(1)(c) Dust Diseases Tribunal Act 1989, s13(6)

Amaca Pty Ltd v CSR Ltd [2001] NSWSC 324; Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1; Bitumen and Oil Refineries (Australia) Limited v The Commissioner for Government Transport (1954-1955) 92 CLR 200 at 213 ; CASES CITED: Saccardo Constructions Pty Limited v Gammon (2) (1994) 63 SASR 333; Livingstone v Rawyards Coal Company (1880) 5 AC 25 ; Husher v Husher (1999) 197 CLR 138; GIO v Johnson (1981) 2 NSWLR 617

DATES OF HEARING: 22 & 23/02/2006 EX TEMPORE JUDGMENT DATE : 02/23/2006

FOR CROSS-CLAIMANT: Mr D J Russell SC instructed by Holman Webb LEGAL REPRESENTATIVES: FOR CROSS-DEFENDANT: Mr F C Corsaro SC instructed by Makinson & d'Apice

JUDGMENT:

CURTIS J 1. In 2004 a plaintiff, Mr Peter Roy Doughan, contracted mesothelioma as a result of exposure to asbestos contained within K-Lite blocks used by him to insulate oil and bitumen tankers in the course of his employment with Highgate Engineering Pty Ltd as an apprentice fitter between 1966 and 1970. He sued Highgate Engineering and Amaca Pty Ltd (Amaca), (formerly James Hardie and Coy Pty Ltd), as the manufacturer and supplier of the K-lite blocks. On 29 September 2005 judgment was by consent entered against Allianz Australia Ltd, an insurer substituted for Highgate Engineering, in the sum of $100,000 and against Amaca in the sum of $1,400,000, each judgment inclusive of costs. Amaca now seeks, from CSR Ltd (CSR), indemnity against or contribution to that judgment. 2. The claim proceeds on three alternative bases; first, pursuant to an indemnity contained within a partnership agreement between James Hardie & Coy Pty Limited (James Hardie) and CSR Ltd for the manufacture and distribution of K-Lite; secondly, pursuant to s10 and s12 of the Partnership Act 1892, and thirdly pursuant to s5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946. 3. In defence of the claim CSR asserts that the liability of Amaca to the plaintiff is a liability which arose after the dissolution of the partnership and neither the partnership deed nor the Partnership Act makes provision for such a liability; that Amaca has failed to prove that the plaintiff was exposed to K-Lite blocks manufactured and distributed by the partnership, and further, that the judgment sum of $1,400,000 constituted an unreasonable and improvident disposition by Amaca of the plaintiff's claim which was worth far less than that sum. The partnership 4. The partnership, between CSR, its wholly owned subsidiary, Bradford Insulation Industries Pty Limited, and James Hardie & Coy Pty Limited was entered on 24 September 1964. It provided that the partnership assets were to include the product K-Lite and that during the continuance of the agreement James Hardie, formerly the proprietor of the trade name K-Lite, would not continue in the business of manufacturing or selling that product independently of the partnership arrangement. The Deed appointed Bradford Insulation Industries Pty Limited as the sole selling and distributing agent for the products the subject of the agreement, including K-Lite. The plaintiff's exposure 5. Mr Doughan, in his affidavit and also in oral evidence before me, said that he was required to use asbestos blocks which were white in colour and about 6 inches by 2 inches in cross-section. He identified the material as corresponding to a photograph in a brochure prepared by James Hardie, depicting K-Lite blocks. Similar identification was made by Mr James Eastment, who was the factory manager of Highgate at the time. It is true that neither witness gave direct evidence that the material used by Mr Doughan was K-Lite because neither saw the material being removed from any branded packaging. There is, however, other evidence sufficient to establish that the material used by Mr Doughan was K-Lite. 6. Invoices tendered by Amaca establish that, during the period in which the plaintiff was employed by Highgate, Bradford Insulation Industries Pty Limited repeatedly delivered to Comalco Products Pty Limited at Nelson Road, Yennora, supplies of K-Lite blocks. Highgate was a wholly owned subsidiary of Comalco and conducted its operations from premises at Nelson Road, Yennora at which place the plaintiff worked. I reject as fanciful the submission by Mr Corsaro SC for the cross-defendant that Amaca has not negatived the possibility that the K-Lite blocks used by Highgate and the plaintiff between 1966 and 1970 were sourced from a store of material purchased by Comalco or Highgate directly from James Hardie prior to 1964 and find that the plaintiff's injuries resulted from his exposure to K-Lite blocks manufactured and distributed by the partnership. The indemnity clause 7. The partnership deed appointed James Hardie as the managing agent of the partnership and in clause 4 of Division 6 provided that: Subject to the covenant and warranty given by James Hardie in clause 5 of this division, the partners jointly hereby indemnify and agree to keep James Hardie indemnified from and against all actions, suits, proceedings, claims and demands whatsoever, made or brought against James Hardie by any third party in respect of or arising out of any act by James Hardie as managing agent. The Partnership Act 1892 8. The relevant provisions of this legislation are as follows: 10 Liability of firm for wrongs (1) Subject to subsection (2), where by any wrongful act or omission of any partner in a firm other than an incorporated limited partnership acting in the ordinary course of the business of the firm, or with the authority of the partner co-partners, loss or injury is caused to any person not being a partner of the firm, or any penalty is incurred, the firm is liable therefore to the same extent as the partner so acting or omitting to act. (2) . . . 12 Liability for wrongs joint and several (1) Every partner in a firm other than an incorporated limited partnership is liable jointly with the partners co-partners and also severally for everything for which the firm while the partner is a partner therein becomes liable under either of the two last preceding sections. 9. The terms of both the deed and the legislation appear quite clear. Each fixes upon "acts" which occur during the subsistence of the partnership. The point at which liability for those acts or omissions is fixed is irrelevant. The liability of Amaca to Mr Doughan was a liability arising out of wrongful acts or omissions by James Hardie acting in the ordinary course of the partnership business. That the liability in respect of these acts and omissions was inchoate at the time the partnership was dissolved is irrelevant (see Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1). 10. I am of the opinion that the terms of the indemnity entitle Amaca to recover from CSR one half of its liability to the plaintiff for the judgment sum and one half of its liability to his solicitors in respect of legal costs incurred in resisting the plaintiff's claim. This construction is consistent with the observations made by Bergin J in Amaca Pty Ltd v CSR Ltd [2001] NSWSC 324 at paragraphs 90, 91, and 96. 11. Similarly, I am of the opinion that the terms of s10 and s12 of the Partnership Act apply to the liability of Amaca to the plaintiff. A question may arise as to whether the costs incurred by Amaca in resisting the plaintiff's claim were incurred in the ordinary course of business if they were incurred without the authority, expressed or implied, of CSR. In the light of my earlier finding as to the operation of the indemnity contained within the deed it is unnecessary to decide. Claim pursuant to s5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 12. CSR concedes that it owed a duty to the plaintiff and, if the plaintiff was exposed to K-Lite product sourced from the partnership, it was in breach of that duty and liable if sued by him. In partial defence to the claim it relies upon a passage contained within the judgment of the High Court in Bitumen and Oil Refineries (Australia) Limited v The Commissioner for Government Transport (1954-1955) 92 CLR 200 at 213 where their Honours say this: A decision that the liability imposed by the previous judgment is a liability which paragraph (c) of subs (1) contemplated, does not necessarily mean that the Tribunal which discharges the responsibility of fixing the amount of contribution under s 5(2) cannot consider whether owing to the fault of the now plaintiff it stands at an excessive figure. No doubt the Court under subs (2) must accept the assessment as conclusive as to the existence and the amount of the liability of the plaintiff claiming contribution. The Court, however, is required to find what is just and equitable as to an amount of contribution having regard to the extent of the responsibility for the damage of the tortfeasor against whom the claim is made. There does not seem to be any valid reason why that tortfeasor may not say to the tortfeasor making the claim, if he has improvidently agreed to pay too large an amount or by unreasonable or negligent conduct in litigation has incurred or submitted to an excessive verdict, that the excess is due to his fault and not to that of the tortfeasor resisting the claim. It would be a matter for the Court to consider under the heading of 'just and equitable ' 13. In Saccardo Constructions Pty Limited v Gammon (2) (1994) 63 SASR 333, the South Australian Court of Appeal held that it was upon the defendant seeking contribution to establish the reasonableness of the settlement rather than for the cross-defendant challenging the quantum of that settlement to establish the contrary. King CJ at 336 said this: Certain propositions as to the law applicable where a defendant seeks to recover contribution towards its liability on a consent judgment to which a third party did not consent, may be deduced from [the] authorities: (1) The test as to whether the defendant can recover on the basis of the full amount of the consent judgment is the reasonableness of the settlement. (2) There is no presumption of law that the settlement was reasonable and the onus is on the defendant seeking contribution to prove in the proceedings against the third party the reasonableness of the settlement. (3) The fact of the settlement is some evidence of its reasonableness and the defendant is not in all circumstances required to call witnesses to establish that the amount paid was reasonable. (4) The circumstances in which the settlement was arrived at and any proper inferences therefrom may be evidence of the reasonableness of the same. 14. It is not necessary that this Tribunal conduct a full hearing and determine precisely the amount of damages to which the plaintiff may have been entitled had he proceeded to judgment in the course of a contested hearing. 15. In the present case, prior to the hearing the plaintiff's solicitors had communicated an offer of settlement to Amaca constituted as follows: General damages $220,000 Interest on past general damages $220,000 Damages for expectation of life $25,000 Past out of pocket expenses NIL Future out of pocket expenses $30,000 Past and future care and services $99,000 Loss of earning capacity, market value $950,257 Loss of profits $201,758 Total $1,528,215 16. The plaintiff's solicitors estimated their costs and disbursements at $150,000 and offered to settle the claim in the amount of $1,500,000 plus costs. 17. These figures, to my mind, were well within the reasonable expectation of the plaintiff had the matter proceeded to hearing. He was at the time 59 years of age and facing dreadful torment of mind and of body as the disease of mesothelioma slowly killed him. An allowance of $220,000 for general damages is within the reasonable range. Similarly an allowance of $25,000 for loss of expectation of life where the plaintiff was in good health and on the tables may have expected another 22 years was reasonable. The out of pocket expenses related to a painting quotation for the painting of the plaintiff's house and I can see no basis upon which the Tribunal may not have allowed that sum. 18. The plaintiff had served upon the defendant an assessment of the cost of domestic care and services prepared by an occupational therapist, Ms Anna Castle-Burton, in which she estimated the cost of the necessary services at $101,000. The defendant had qualified a Mr Ian Walker, another occupational therapist, who was of the opinion that the cost of necessary services for past and future would be no greater than about $33,000. Upon reading their reports, bearing in mind that the plaintiff was well enough to attend court yesterday, whereas Mr Walker prepared his figures upon the basis that he would be dead by now, I think that the plaintiff's figures were at the time of settlement more probably acceptable. It should be borne in mind that had the matter proceeded to hearing the Tribunal would have had the benefit of seeing and hearing Mr Doughan and forming a view as to his likely prognosis. This was obviously better than the defendant's expert assumed to be the case. 19. The most contentious aspect of the present dispute is the plaintiff's claim in respect of a loss of earning capacity. 20. Mr Doughan, prior to the onset of his disease, conducted a business which sold and installed awnings, patios and opening apertures in roofs. This business he commenced in November 1986, and operated through a corporation known as Patioland Parramatta Pty Limited. Although Mr Doughan had assigned some shares in the business to his children he was effectively the sole owner with the capacity to regain those shares if he desired. 21. The business under the guiding hand of Mr Doughan proved to be outstandingly successful. In the financial year 2003/2004 the net business profit was $319,307 on a turnover of $1,091,040. In addition to that profit the plaintiff paid himself wages of $40,598. The business employed 15 tradesmen and also business assets to the value of $500,000. In order to determine the return of the business to the plaintiff it is necessary to deduct from the total income the cost of utilising those assets in the business rather than employing the equivalent capital sum profitably elsewhere. After a deduction of a market rate return of 5.4 per cent per annum on those assets, the income generated by the plaintiff's efforts in running his business in that year was $332,905. 22. The plaintiff in putting his offer took the market value of an employee performing the functions of a manager of a business of comparable size and capitalised that income until the age of 75, giving rise to the figure of $950,257. Evidence available from the plaintiff's accountant justified the plaintiff's estimate of market value. To this sum the plaintiff's solicitors added an amount to reflect loss of profits, which would have been generated in the business had the plaintiff remained uninjured. This figure they took as 30 per cent of the expected future profits of the company until the plaintiff's retirement had he remained in good health. I believe that this approach was entirely reasonable. 23. The issue between the present parties is whether the plaintiff was, at trial, to be confined to the replacement cost of his services or whether he may have recovered a further amount in relation to lost business profits which he would have generated had he not been injured. 24. The fundamental principle which governs the whole of the law of damages is the principle of compensation. As Professor Luntz says "This means that the damages to be recovered are in money terms no more and no less than the plaintiff's actual loss". In Livingstone v Rawyards Coal Co (1880) 5 AC 25 House of Lords, Lord Blackburn said at 39 that: Where any injury is to be compensated by damages, in settling the sum of money to be given for . . . damages he should as nearly as possible get that sum of money which will put the party that has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation. 25. In Husher v Husher (1999) 197 CLR 138, the High Court, Gleeson CJ, Gummow, Kirby, Hayne AJ, said: It is necessary to identify both what capacity has been lost and what economic consequences will probably flow from that loss. Only then will it be possible to assess what sum will put the plaintiff in the same position as he or she would have been if injury had not been sustained. 26. In GIO v Johnson (1981) 2 NSWLR 617 at 627 Hutley JA said: Loss of earning capacity is the capital asset consisting of the personal capacity to earn money from the use of personal skills. This is not the same as earnings when the person concerned has capital. If a millionaire rentier is killed, under circumstances giving rise to an action for damages, his loss of earning capacity is not the value of the interest he collects. Examples can be indefinitely multiplied. Where a person has capital employed in a business, it is necessary to split his earning capacity from his income. 27. The reasons for this observation by Hutley JA are obvious. In the example he offers the injury has not deprived the plaintiff of the income from his capital. It may be more difficult to determine the extent to which an injury may deprive a plaintiff of income where that income is generated partly by the exercise of labour, and partly by the profitable application of capital assets. A utility truck and a bobcat are not in the same class of assets as an apartment block. The disabled plaintiff may be left with a valuable asset which he can no longer utilise. In such a case that sum necessary to put the plaintiff back in the same position as if he or she had never been injured is the capital value of the lost income less a deduction in respect of the cost of employing the capital asset in the business rather than having it or its realisable value generate income elsewhere 28. In Husher v Husher the Court said: The financial loss occasioned by impairment of earning capacity is the loss of what (if there had been no accident) the injured plaintiff would (as opposed to could) have expected to have had under his or her control and at his or her disposal by exercising that capacity. We refer to 'control' and 'disposal' because what the plaintiff has lost are the financial rewards from work that are rewards the plaintiff would have been able to direct to whatever purpose or destination he or she chose. 29. If an injured plaintiff was the sole proprietor of a company and exercised his earning capacity through the medium of that company, that which he has lost, if the company cannot continue without his services, is the value of the future income which he would otherwise have generated as company profits, less a deduction in respect of the reasonable return on the assets used in the business. It is this income which he would have had to dispose of as he pleased. 30. If the company can continue in the absence of the plaintiff an inquiry will be necessary as to what difference, if any, there is between the probable profits if the plaintiff were uninjured and those which may be generated for him in his absence but which still remain subject to his direction, again after the deduction of the value of the return on the assets utilised in the business. One measure of the reduction in profits, and the plaintiff's loss, is the cost to the company of a replacement manager, but this is not the only measure. 31. There may be circumstances where the plaintiff contributed to the business entrepreneurial skills and flair, which cannot be replaced by a salaried employee. In such cases the plaintiff will not be placed in the same position as if he or she had never been injured if his damages do not include compensation for the full loss which he has suffered, if this loss is capable of calculation. 32. That the business profits by utilising the labour of others is irrelevant after the appropriate deduction has been made for the wages paid in respect of that labour. A plaintiff who exercises his earning capacity by the operation of a body hire business is entitled to be compensated for his loss of income if after his injury either the business cannot continue at all, or if it continues less profitably under a new manager with the loss of valuable contacts peculiar to the plaintiff. Similarly the personal ability of a proprietor to generate loyalty and enthusiasm in his workers, reducing turnover of staff and increasing productivity, may be reflected in the loss of profits that do not otherwise flow if the proprietor is unable himself to work in the business. 33. In the present case the plaintiff has shown himself to be a man of extraordinary talent and skill. After falling ill he has passed the management of the company to his sons, wife and daughter. His eldest son, Adam, completed an apprenticeship in panelbeating before working in the business. His second son, Jason, completed an apprenticeship as a builder and remains employed in the business. His daughter, Katie, now aged 21 has worked as a secretary prior to joining the business after her father's illness to help in the office. His youngest son, Michael, is apprenticed as a carpenter. The business was turning over in excess of one million dollars and still growing when the plaintiff fell ill. The plaintiff' said in evidence that he expected it to grow further. He also said that several competitors had failed. I do not believe it probable that, given their limited education, the children of the plaintiff will operate the business with the same flair as the plaintiff. 34. This is just such a case as was contemplated in Husher v Husher, where the plaintiff by his control of the enterprise had at his personal disposal control of the income from that enterprise to dispose of as he wished. That income was generated by his unique business and entrepreneurial skills. I do not believe that such skills can be wholly replaced by a salaried employee drawn from the market for such managers. One may wonder why a person with equivalent skill and flair would work as a salaried employee rather than establishing his own business. 35. I am confident that if the plaintiff were to have gone to trial he would have been awarded damages, which damages would have included an allowance for the loss of business profits which would probably have flowed from his peculiar skills had he not been injured. 36. In short, I find that the settlement which Amaca reached with the plaintiff was reasonable. In that circumstance CSR accepts that a just and equitable division of the damages is 50 per cent. 37. Amaca remains liable to reimburse the Dust Diseases Board of New South Wales in respect of medical expenses incurred by the plaintiff and the Dust Diseases pension, which the Board pays to Mr Doughan. It seeks a declaration that CSR is liable to pay Amaca 50 per cent of any amounts which Amaca becomes liable to pay to the Dust Diseases Board. I do not see that I have power to make that order. However, I grant liberty to apply in respect of any such claim as and when payments are made to the Board. Section 13(6) of the Dust Diseases Tribunal Act 1989 gives me power to amend the decision which I make today. 38. The interest on $700,000, being half the judgment monies from the date of judgment to date, is $20,539.72. 39. I enter verdict and judgment for Amaca against CSR in the sum of $720,539.72. 40. I order CSR to pay 50 per cent of Amaca's costs of resisting the plaintiff's action, such costs to be on an indemnity basis. 41. I order that CSR Ltd pay the costs of the cross-claim on an indemnity basis from the date of an offer put by Amaca Pty Ltd on 6 October 2005. Mr D J Russell SC instructed by Holman Webb appeared for the cross-claimant Mr F C Corsaro SC instructed by Makinson and d'Apice appeared for the cross-defendant