Court of Appeal Supreme Court New South Wales Medium Neutral Citation: McDonnell v McAliece [2012] NSWCA 346 Hearing dates: 15 October 2012 Decision date: 15 October 2012 Before: Allsop P at [1] Tobias AJA at [19] Decision: 1. Appeal allowed. 2. Judgment in the District Court as to damages and costs be set aside and in lieu thereof order that: (a) judgment be entered for the plaintiff in the sum of $483,854; (b) the plaintiff's costs be payable in accordance with the Workers Compensation Regulation 2010; and (c) such costs be paid by CGU Workers Compensation (NSW) Limited - Agent for the NSW Workcover Scheme. 3. The appellant's costs of the appeal be payable in accordance with Reg 104 of the Workers Compensation Regulation 2010. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: WORKERS COMPENSATION - damages for past and future economic loss - history of intermittent employment of appellant - history and future plans of appellant to engage in small business - balance of demonstrated earning capacity with future vicissitudes of small business Legislation Cited: Workers Compensation Act 1987 (NSW), s 151G Workplace Injury Management and Workers Compensation Act 1998 (NSW), Pt 6 Cases Cited: Husher v Husher [1999] HCA 47; 197 CLR 138 Kallouf v Middis [2008] NSWCA 61 Category: Principal judgment Parties: Patricia McDonnell (Appellant) Ashley McAliece and Carol King trading as Peninsula Cakes & Pies (Respondent) Representation: D W Elliott (Appellant) G J Parker SC (Respondent) Gerard Malouf & Partners (Appellant) Turks Legal (Respondent) File Number(s): 2012/30892 Decision under appeal Date of Decision: 2011-10-31 00:00:00 Before: Blanch CJDC File Number(s): 2011/213173 Judgment 1ALLSOP P: On 18 June 2007 the appellant, Ms McDonnell, slipped on a recently mopped floor at her place of work, a cake shop run by the respondents at Tanilba Bay near Port Stephens. She fell and injured herself quite badly. The respondent employer was found by the primary judge to have breached its duty of care, from which finding there is no appeal. 2The only issue on appeal is quantum. The primary judge ordered that there be a judgment in the appellant's favour for $354,052. The issue on appeal is whether the primary judge erred in assessing the foundation for that award of damages for past and future economic loss. The matter was one for the recovery of work injury damages pursuant to the Workers Compensation Act 1987, s 151G, and the Workplace Injury Management and Workers Compensation Act 1998, Pt 6. Thus damages were limited to past and future economic loss. 3There was no issue on appeal about the appellant's complete incapacity for future work. The relevant issue on appeal was the appropriate foundation for the calculation of economic loss prior to the hearing and in the future. The evidence recounted by the primary judge was that the plaintiff had worked from time to time in businesses that she and/or her husband had run. In 2005 and 2006 she had been in employment. In 2007, at the time of the accident, she was working at the cake shop and had worked there during the course of that financial year. She had, however, tendered her resignation in order to venture again into business with her husband. 4The evidence from the income tax returns of the appellant revealed the following, which is taken from the schedule on p 429 of the combined appeal book. In 2002 and 2003, when the plaintiff was venturing into business, there is no taxable income. In the year ended 30 June 2004 there is the sum of $10,052. In the year ended 30 June 2005 there is the sum of $15,577 and in the year ended 30 June 2006 there is the sum of $8,386. Nevertheless, the primary judge made findings for 2005 and 2006, against which there is no appeal, that the declared earnings were $16,011 gross per annum or $308 per week for 2005, and $16,109 gross per annum or $310 per week for 2006. 5In 2007, on the findings of his Honour, working for the defendant the appellant earned $16,000 in seven months. She was, however, allegedly underpaid by the respondent in that period. She commenced an action in the Industrial Relations Commission and recovered after a mediation another $14,000 in unpaid and underpaid wages for the year 2007 by reference to the matters set out at p 446 of the combined appeal book. These figures are: $8,856.81 in underpaid overtime; $2,388.52 in unpaid holidays; $1,457.44 in unpaid weekend and late night penalty rates and loadings; and a further $1,317.39 in unpaid weekend and late night penalty rates and loadings. These matters are contained in the Notice to Employer asserting breaches of the Industrial Relations Act 1996 to which a plea of guilty was made by the respondents; and these sums formed the foundation of the mediation agreement. 6Thus for 2007, if this sum from the mediation can be added, there was $30,565 gross, or $588 per week. 7It was disputed on appeal as to whether this $14,000 should be added. However, what is plain is that the respondents at the Industrial Relations Commission pleaded guilty to breaches of the Act by underpayment of the award and agreed in a mediation (albeit without legal assistance) that the sums payable to the appellant were in the order of $14,000. There is no reason to doubt the acceptability of this as an approximate indication of the appropriate amount of remuneration. Alternatively, there was a finding that was not challenged that the appellant was paid $16,000 for seven months work. Thus it can be concluded that the appellant had a clear capacity to earn in the order of $30,000 per annum at 2007. This figure can be taken as in the order of 80 per cent of 2007 average weekly earnings. This was her proven employment capacity at the time of the accident whether one uses the Industrial Relations Commission settlement amount or not. 8The approach of the primary judge was as follows: "However, in my view it would be inappropriate to look at that over $30,000 figure as anything other than an unusual event in the history of the plaintiff's employment. Another aspect of that is that she tendered her resignation on the basis that she and her husband wanted to set up another takeaway food business near where she was employed by the defendants. That business apparently had gone - or been closed by the previous proprietors but the plaintiff was optimistic that she would be able to open the business and make it profitable. As it transpired, she and her husband did open the business with the assistance of their son but her capacity to assist in the business was very limited and the business did not succeed. In my view the appropriate way of looking at the salary which has been lost in the past and will be lost in the future is not to include the salary and award that the plaintiff received during 2007. In my view a more appropriate way to look at it is to look at the income for 2005 and 2006 which was $16,000 or just over $16,000. And on one view of it that is a generous view of the plaintiff's capacity for past and future economic loss because there were a number of years when she earned significantly less than that. Her history of employment apart from this one seven month period is one of part time work or work associated with business that she or she and her husband have operated. It would not be fair to the defendant to speculate that she would suddenly become a successful businesswoman or be able to engage in employment that earned her significantly more than the amounts that I have mentioned from her past history. Accordingly, the award that I propose to make is on the basis of her earning the sum of $16,200 in the past and also into the future. I should indicate that in coming to that figure I have taken into account the vicissitudes which ordinarily would reduce the amount of money paid to her and I have done that on the basis that it might be expected that into the future some greater sum than $16,200 might be earned and I believe those two matters balance out so that a fair compromise in relation to it is that which I have announced, namely $16,200 for the past and $16,200 a year for the future." (emphasis added) 9The appellant submits that the ignoring of the 2007 wage figures was both unconventional and arbitrary. The 2007 figure reflected in the appellant's submissions are her earning capacity in full time work at the time of the accident. It should have been used, it was submitted, as the foundation for the calculation of economic loss, even if it were to be averaged with the 2005 and 2006 figures. Alternative cases were put at the hearing. 10The respondent identifies the first emphasised passage above from the primary judge's reasons as central and as involving a number of subsidiary conclusions that: (a) the appellant had worked from time to time in business; (b) she intended to do so in the future; (c) her tax returns show low levels of earnings; and (d) 2007 was an unusual year. 11Both parties placed emphasis on the summary of principle in Kallouf v Middis [2008] NSWCA 61 at [46]-[61]. The principles are wellknown and need not be re-stated beyond that which is essential. I should add that there was no dispute about them. Compensation is for loss of earning capacity, not loss of earnings, but wage rates being, and likely to be, earned afford a basis for the assessment of the computation for loss of capacity. One must identify the capacity lost and the economic consequences that will probably flow from that loss. This of course involves the assessment of possibilities and the future. The judgment is a species of discretionary judgment as to what is fair and reasonable compensation for the injuries received. I refer, if I may, in particular to the statement of basic principle in Husher v Husher [1999] HCA 47; 197 CLR 138 at 146-147. 12Applying these principles to the appellant's position, I cannot agree with the approach of the learned primary judge in relation to past and future economic loss. As to past economic loss, we know that the appellant was to leave employment and once again attempt a small business enterprise with her husband. Nevertheless, should this not prosper, she had her capacities to work in the labour market. Assuming the business failed, that would likely occur within fifteen months. That would leave three years to earn money as an employee. The business, however, might also succeed, but we know of her employment capacity. It seems to me, with respect to the learned primary judge, that to ignore the 2007 figure was arbitrary and wrong. A fair assessment of the four year and four month period is to deduct ten months, leaving earning capacity for three years and six months. In my view, a conventional mechanism would be to take this by reference to the proportion of the average weekly earning rates from 2008 to 2011 that were taken at approximately 80 per cent of those figures. 13The respondents accepted that use of their average weekly earnings as a mechanism for bringing up to date the appellant's earning capacity demonstrated in 2007. Therefore, taking 80 per cent of $781, the figure comes to approximately $85,500. There will need to be added the usual additional matters of superannuation and Fox v Wood. 14As to the future, one must begin, it seems to me, with the proper and clear understanding of her capacity which was demonstrated by the 2007 figures. That was her employment potential at about 80 per cent of the average weekly earnings. The evidence permitted the conclusion that she would from time to time attempt small business, but her husband had become injured in 2000. Logic and commonsense would have it that should any business enterprise not succeed, the family responsibilities would require her to take paid employment. As the children grow, these family responsibilities would perhaps lessen. In my view, the future loss should have taken the 2007 figure into account as representing her employment capacity and this should have been discounted for the potential lower returns in any unsuccessful small business, and to some extent necessary for the possibility of not working for fifty-two weeks, but nevertheless there should be a taking into account of the possibility of success of such business. The assessment is necessarily imprecise. 15The appellant put forward two calculations, A and B, which are in the submissions. A used the 2007 earnings, using a figure of 83 per cent of average weekly earnings and applying that to the 2011 average weekly earnings. That did not give adequate weight to the possibility of lower earnings, in particular by, but not limited to, reference to the history of unsuccessful small business. The second, B, took an average of the three years 2005, 2006 and 2007, and derived a percentage of 59 per cent of average weekly earnings. This way of approaching the matter gives significant weight to the possibility of poor returns from employment and in business comparable with past experience. It indeed gives greater weight to those than it gives weight to the appellant's full capacity. The weighting of two poor years with one full year in my view would not fairly represent a balanced assessment of the impaired capacity of the appellant. 16Given my view that the primary judge erred in putting out of account the demonstrated earning capacity of 2007 either on an extrapolated fifty-two week basis or taking into account the Industrial Relations Commission payment, the Court should reassess the damages. In my view, the 2007 figures demonstrated a capacity that should be taken at least as the foundation for the assessment of the loss and impaired earning capacity. Weight should be given to the increased vicissitudes of life by reference to the risks of business. Further, there is the question of the returns on employment and the time during which she would work during the year. 17Taking into account these figures, the mechanism for bringing the matter up to date from the 2007 earnings being the average weekly earnings, in my view the appropriate recovery is to take a reasonable approximation of 80 per cent of the average weekly earnings and a discount for vicissitudes of 20 per cent. Using these figures, one derives something in the order of $560 per week net, less the 20 per cent for vicissitudes. There will need to be additional matters for superannuation and Fox v Wood. 18The consequences of this should be derived and agreed by the parties and short minutes brought in later today. The consequences of the matter would mean that the difficulty faced by reference to costs would not obtain and there should be an order for costs of the trial as well as on appeal. The order I would make now would be that the parties bring in short minutes as agreed for orders to be made in chambers pursuant to these reasons, but if there be any debate about the proper form of those orders the matter can be re-listed after the leave application today, that is not before 3.00 pm. 19TOBIAS AJA: I agree with the approach of the President for the reasons that he has given. [The parties brought in orders as below.] 1. Appeal allowed. 2. Judgment in the District Court as to damages and costs be set aside and in lieu thereof order that: (a) judgment be entered for the plaintiff in the sum of $483,854; (b) the plaintiff's costs be payable in accordance with the Workers Compensation Regulation 2010; and (c) such costs be paid by CGU Workers Compensation (NSW) Limited - Agent for the NSW Workcover Scheme. 3. The appellant's costs of the appeal be payable in accordance with Reg 104 of the Workers Compensation Regulation 2010. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 October 2012