Fox v Wood

[1981] HCA 41

HIGH COURT OF AUSTRALIA

Gibbs C.J., Murphy, Aickin, Wilson and Brennan JJ.

FOX v. WOOD

(1981) 148 CLR 438

7 August 1981

Damages

Damages—Negligence—Loss of earnings—Receipt of workers' compensation payments—Tax deducted from payments—Statutory liability to repay gross amount—Whether difference between net amount received and gross amount repayable recoverable from tortfeasor—Workmen's Compensation Act 1971 (S.A.), s. 84 (b).

Decisions

August 7.
The following written judgments were delivered: -
GIBBS C.J. This appeal from a judgment of the Full Court of the Supreme Court of South Australia (1) is brought pursuant to special leave, which was granted to enable this Court to determine a question that arises when a plaintiff, who has sustained personal injury as a result of the negligence of the defendant, and has in consequence been unable to work and has suffered a loss of earnings during the period before the trial of the action, has received workers' compensation from his employer in respect of that injury. In argument the question was said to be whether in such a case the plaintiff's loss of earnings before trial should be assessed on the basis of his net income, after tax had been deducted, or on the basis of his gross income. As will be seen, however, this statement of the question proceeds upon a misunderstanding of the effect of the receipt of workers' compensation on the assessment of damages. Where an injury for which compensation is payable under the Workmen's Compensation Act 1971-1974 (S.A.) is caused under circumstances creating a legal liability in some person other than the employer ("the third party"), a workman who receives any money from the third party in respect of the injury and compensation under the Act is obliged to repay to the employer such amount of the compensation as does not exceed the amount recovered from the third party: s. 84 (b). It is common ground that the workman is liable to repay to the employer the whole of the compensation received (provided that it does not exceed the amount received from the third party), notwithstanding that he has had to pay tax on it; he must repay the gross amount received without any deduction for the tax which it attracted. In the present case the respondent, the plaintiff in an action brought against the appellant for damages for personal injuries, received $9,222 by way of weekly payments of workers' compensation in respect of the period before the trial during which she was unable to work. There was no evidence as to the tax which was payable on the amount so received, but the learned trial judge assumed that the respondent would have paid tax amounting to 20 per cent of her pre-trial earnings. He then assessed damages for economic loss before trial as follows. He found that if the respondent had not been injured she would have earned $45,364 gross, i.e. without any deduction for taxation, but that in fact she had earned $42,747, which included the compensation payments of $9,222 but made no allowance for taxation. The difference between these figures is $2,617, and when 20 per cent is deducted to take account of tax, that figure is reduced to $2,093.60. However, the respondent's loss was larger than this, for the amount of compensation, which had been included by the judge in the amount of earnings received, had to be repaid to the employer. The learned trial judge therefore made an addition to the sum of $2,093.60; the amount which he added, $7,377.60, represented the amount of compensation actually repayable ($9,222) reduced by the tax payable on it at the rate of twenty per cent ($1,844.40). On appeal the Full Court held that the learned trial judge was in error in deducting tax from the compensation received and increased the damages by $1,844.40. (at p440)

2. It is established by Cullen v. Trappell (1980) 146 CLR 1 that in assessing damages for loss of earning capacity the tax which a plaintiff would have paid on the earnings of which he has been deprived must be taken into account. To assess damages on the basis that the plaintiff has lost his gross earnings, when in fact the earnings would have been subject to tax, and the award of damages is not subject to tax, would give the plaintiff more than he had really lost, and would depart from the fundamental principle referred to in British Transport Commission v. Gourley (1956) AC 185, at p 197 , "that the tribunal should award the injured party such a sum of money as will put him in the same position as he would have been in if he had not sustained the injuries." That general principle must of course govern the present case, but the particular application of it in Cullen v. Trappell is not of assistance in determining the question that now arises. (at p441)

3. A trial judge, in assessing damages in a case such as the present, must first determine what loss of earnings the plaintiff has suffered, using net earnings as the basis of the assessment. Then the effect of the receipt of the workers' compensation must be considered. The receipt of workers' compensation is not something too remote to be taken into consideration for this purpose. I have referred to this question in Batchelor v. Burke (1981) 148 CLR 448 and need not repeat what I there said. If the legislation did not require a plaintiff who had been paid damages to repay the compensation which he had received, clearly the receipt of the compensation would reduce the damages otherwise payable. If, on the other hand, the plaintiff repaid to the employer the net amount of compensation which he had received, so that he neither gained nor lost anything by the receipt and repayment, the question of workers' compensation could for practical purposes be ignored in the assessment of damages. In the present case, although the employer got back exactly the same amount as he paid by way of compensation, the respondent was required to repay an amount larger than that which she received for her own benefit. She was required to repay the gross amount of compensation which she received ($9,222) but she had the benefit only of the net amount which remained after tax had been deducted ($7,377.60). As a result of the receipt and repayment of the compensation she was worse off to the extent of $1,844.40. (at p441)

4. It was submitted that this loss was caused, not by the injuries which the respondent received as a result of the negligence of the appellant, but by her own voluntary act in accepting the payments of workers' compensation. However, it is obvious that as a matter of fact the respondent received the workers' compensation because she had been injured. Moreover her conduct in accepting the compensation was reasonably foreseeable. Indeed it would be surprising and exceptional for a worker entitled to compensation to refuse it on the ground that he or she might later receive damages; the legislation provides that the worker may receive the compensation notwithstanding the existence of a right to damages, and generally speaking it would be imprudent of a worker not to accept it: for one thing, the claim for damages might fail. The receipt of the compensation was a natural and foreseeable consequence of the injuries, and the repayment is not, as was suggested in argument, a special loss due to the financial embarrassment of the respondent, within the principle of Liesbosch, Dredger v. Edison, S.S. (Owners) (1933) AC 449 . The act of the respondent in accepting the payments was not a superseding cause of the respondent's loss on repayment; see Chapman v. Hearse (1961) 106 CLR 112, at pp 124-125 . (at p442)

5. The Full Court took the view that the damages for that portion of the lost earnings which was replaced by the compensation should be assessed by having regard to the gross earnings lost, because if the respondent received damages "assessed on a net after tax basis", but had to repay the equivalent in full, she would receive less than her true loss. Although I agree with their Honours' conclusion, it seems to me that it is not right to regard the question for decision as whether the respondent's loss of earnings is to be assessed after taking tax into account, notwithstanding her receipt of payments of workers' compensation. The question is rather whether the receipt and repayment of the compensation increased the respondent's loss, and if so whether that increased loss was caused by the appellant's negligence and was not too remote to be taken into account. For the reasons I have given I consider that the respondent should be compensated for this additional loss, and that if it were not taken into account the damages would provide inadequate compensation for the consequences of her injuries. (at p442)

6. It is hardly necessary to add that this judgment proceeds on the assumption that the tax paid on the workers' compensation receipts was not recoverable when the compensation was repaid. The argument also proceeded on this assumption and at no stage of the case has any suggestion been made to the contrary. (at p442)

7. I would dismiss the appeal. (at p442)

MURPHY J. Assessment of common law damages in personal injury cases has become complicated by statutory provisions like workers' compensation Acts designed to alleviate losses, also by the impact of the Income Tax Assessment Act 1936. I agree with Brennan J.'s observations on the inapplicability of Liesbosch, Dredger v. Edison, S.S. (Owners) to personal injury cases. The plaintiff's damage is often aggravated by financial problems which are a result of the accident. Insurance companies, which are almost always the real defendants, could avoid aggravation of damages by advancing moneys to the plaintiff. (at p442)

2. To ignore the fact that workers' compensation payments must, on recovery of common law damages, be repaid in full, although the worker is liable to include the payments in his taxable income, would undermine one of the benefits of the Workmen's Compensation Act 1971-1974 and offend the elementary principle of restitution. The injured person should not suffer the loss of income tax paid on compensation repayable in accordance with the Act. (at p443)

3. The appeal should be dismissed. (at p443)

AICKIN J. I have had the advantage of reading the reasons for judgment of the Chief Justice in this appeal. I agree with those reasons and there is nothing I can usefully add. (at p443)

2. I would dismiss the appeal. (at p443)

WILSON J. I agree with the reasons for judgment of the Chief Justice, and would dismiss the appeal. (at p443)

BRENNAN J. In November 1974, the respondent was injured in a motor collision. In the Supreme Court of South Australia, she recovered a judgment for damages against the appellant, by whose negligence her injuries were caused. Mohr J. assessed her damages at $41,410.25 to which interest of $1,995 was added. Judgment was entered for $43,405.25 and costs. The appellant's appeal to the Full Court against his Honour's assessment of damages was dismissed, and the respondent's cross appeal was allowed (1980) 25 SASR 138 . The judgment was increased by adding two amounts, both of which are related to the payment by the respondent's employer of $9,222 by way of workers' compensation during periods before the trial when she was off work because of her injuries. The first increase was in the amount of $1,844 or 20 per cent of $9,222. Mohr J. assumed that tax would have been levied at the rate of 20 per cent on the gross earnings which the plaintiff had lost before trial, and his Honour therefore allowed as damages only 80 per cent of the gross earnings which included $9,222 made up by workers' compensation paid by the employer. The second increase was in the amount of $1,936 interest which the Full Court held ought to have been allowed upon the whole of the lost earnings although $9,222 had been made up by workers' compensation paid by the employer. The present appeal is limited to the question whether the first increase should stand; the principle applicable to the second increase has now been determined in Batchelor v. Burke 148 CLR 448. . (at p443)

2. The question arises in this way. The respondent's damages for deprivation of her earning capacity had to be assessed at the trial by reference, inter alia, to her loss of earnings prior to trial. She had lost earnings as an employee of the South Australian Railways, and the amount she would have earned net of tax was a material figure in assessing the respondent's damages (Cullen v. Trappell (1980) 146 CLR 1 ). But the respondent had been entitled to payments of workers' compensation under the Workmen's Compensation Act 1971-1974 (S.A.) and $9,222 gross had been paid by her employer under that Act. The respondent did not actually receive the whole of that amount but only the amount net of tax. Yet she is obliged by s. 84 (b) of the Act to repay to her employer, when she is paid the judgment, the whole of the amount of $9,222 paid out by her employer. She will thus be out of pocket by a sum representing the tax deducted from the payment of workers' compensation; that is, or is assumed to be, $1,844. (at p444)

3. The appellant submits that this is not a loss for which he as tortfeasor is liable. It is submitted that whether the question is approached as one of causation or remoteness of damage, the loss is to be attributed to the voluntary act of the respondent in seeking and accepting workers' compensation payments and the loss is not to be sheeted home to the appellant tortfeasor. There would be much to support this submission if the financial loss occasioned by deprivation of the respondent's earning capacity before trial was made good by an award of the sum of the net earnings which she had lost. On the hypothesis that such an award placed the respondent in the same position as she would have been in if she had not been injured, an additional loss sustained by the respondent in seeking and accepting workers' compensation payments would have exceeded what was necessary to restore the respondent to that position, and it would not have been recoverable. A tortfeasor is not an insurer of his victim's future financial dealings; his liability in damages for economic loss is limited to what is needed to restore the victim to the position he would have been in if he had not been injured. The limit of a tortfeasor's liability is not increased by a loss which his victim incurs in a transaction into which he voluntarily enters as a result of the tort, even if the transaction or the loss incurred in it is reasonably foreseeable by the tortfeasor (cf. Admiralty Commissioners v. S.S. Amerika (1917) AC 38, at p 42 ). (at p444)

4. However, an award limited to net earnings lost before trial does not necessarily give fair compensation to an injured plaintiff who has been tortiously deprived of earning capacity. A natural person's capacity to earn income is usually employed to earn weekly or periodic payments of salary or wages; and the value of those receipts over an extended period is greater than an equivalent lump sum paid at the end of the period. An injured plaintiff's incapacity to acquire income regularly or at frequent intervals may occasion grave damage to his financial position: family and other commitments, particularly hire-purchase obligations, are often undertaken in the expectation that income to defray these payments will be regularly earned. If income dries up because the capacity to earn it has been tortiously taken away, the subsequent payment of a lump sum, equivalent to the total of the lost net regular earnings, will frequently be found inadequate to place the plaintiff in the same position as he would have been in if he had not been injured: the lump sum will fall short of the value to an injured plaintiff of the capacity to earn income which the tortfeasor has impaired or destroyed. At the least, the plaintiff is kept out of income which he would otherwise have received regularly prior to trial, and that is sufficient to attract a payment of interest in addition to an award of the total of the net income which has been lost (see Cullen v. Trappell (1980) 146 CLR 1, at p 19 , per Gibbs J.). (at p445)

5. When an injured plaintiff is entitled to workers' compensation payments, however, he is able to mitigate the loss which he would otherwise suffer by being deprived of his earning capacity. By applying for and accepting regular workers' compensation payments, he can avoid in part or in whole loss which would otherwise have followed upon the cessation of his wages or salary. Thus, in Batchelor v. Burke 148 CLR 448. it was held that the receipt of workers' compensation was relevant to the inquiry whether in fact a plaintiff has suffered a practical detriment by the loss of his wages, and it was held that the defendant should not have to bear a liability for interest upon the lost wages in place of which the workers' compensation had been received. Gibbs C.J., with the concurrence of the other members of the Court, said 148 CLR 454. :
"The legislation has treated the payment of compensation and of damages in respect of any one injury as closely related, and the fact that the lost earnings have been replaced by compensation paid under a statutory scheme whose very purpose is to provide money to take the place of the lost wages should be regarded when the Court comes to consider whether a plaintiff has suffered any practical detriment by the loss of the earnings." (at p445)

6. It was submitted, however, that where a plaintiff receives workers' compensation to take the place of lost earnings, the cost of repayment is not to be charged to the defendant because any detriment which a plaintiff would have suffered consequential upon and additional to his loss of earnings prior to trial is a consequence of the plaintiff's impecuniosity, and is too remote to be taken into account in assessing damages. Reference was made to Liesbosch, Dredger v. Edison, S.S. (Owners) (1933) AC 449 , and to some cases at first instance in Queensland where Liesbosch was cited. It is not necessary now to consider either the present authority of Liesbosch or its applicability to heads of damage for personal injury other than financial loss occasioned by deprivation of a natural person's earning capacity, for it has no application to that head. In Liesbosch, Lord Wright (1933) AC, at p 460 held that the loss actually sustained by the owners of the dredge in so far as it was due to their impecuniosity arose from that impecuniosity "as a separate and concurrent cause, extraneous to and distinct in character from the tort", and he held that that impecuniosity "was not traceable to the respondents' acts". What Lord Wright said in Liesbosch is not to be applied to a case where a discontinuance of the regular receipt of wages, caused solely by the defendant's tortious impairment or destruction of the plaintiff's capacity to earn, occasions impecuniosity and financial loss greater than the sum of the net wages actually lost. Reliance upon the regular receipt of income in the ordering of a natural person's financial affairs - whether the person be affluent or not - is so much a feature of ordinary life that it would misapply Lord Wright's reasoning to suggest that where the cessation of regular receipts of income is occasioned by a tortious deprivation of earning capacity and impecuniosity and financial loss follow, the impecuniosity and loss are causally unrelated to the tort. And a tortfeasor, sharing the common awareness of the financial importance of regular receipts of income, will seldom be able to show that such impecuniosity and loss was not reasonably foreseeable. In the present case any impecuniosity and loss which the respondent suffered or would have suffered but for the workers' compensation receipts were or would have been caused directly by the appellant, who deprived the respondent of the capacity to earn regular wages. (at p446)

7. Where the plaintiff is able to take steps to restore his regular receipt of income and thereby to avoid further loss, and where he incurs costs in doing so, the costs may be recoverable from the defendant. In principle, a tortfeasor's liability for the cost of mitigation of damage is not to be tested in the same way as his liability for an item of damage which is said to have been caused by the tort. Where particular steps in mitigation are a commonplace, it is natural to think of their costs as items of damage which are foreseeable by the tortfeasor and not too remote to be excluded from the items for which he is liable: for example, the cost of a surgical operation to ameliorate personal injury (cf. McGregor on Damages, 14th ed. (1980), p. 174, par. 242). But foreseeability and remoteness are not the criteria of a tortfeasor defendant's liability for a cost incurred by the plaintiff in mitigating or attempting to mitigate damage for which the defendant is liable or for which he would have been liable but for the plaintiff's ability to avoid the damage by taking a step in mitigation. The criterion is whether the plaintiff has reasonably incurred the costs in mitigating or in reasonably attempting to mitigate that damage and it is a question of fact whether the plaintiff has acted reasonably (see Simonius Vischer v. Holt and Thompson (1979) 2 NSWLR 322, at p356 ; Moore v. DER Ltd. (1971) 1 WLR 1476, at p 1480; (1971) 3 A11 ER 517, at p 520 ). (at p447)

8. In the present case, there can be no doubt as to the reasonableness of the respondent's conduct in seeking and receiving regular payments of workers' compensation under the conditions prescribed by the Act. Before her injury, she had been in constant employment and in receipt of regular wages, and she secured for a time the continuity of those receipts under the Act which has the manifest purpose of keeping the injured worker's receipts up to the same level. The cost of securing that benefit must be paid by the appellant. In Mohr J.'s assessment of damages, only 80 per cent of $9,222 has been allowed. The whole of that amount should be allowed, and accordingly the Full Court was right to increase the judgment by $1,844. (at p447)

9. It may be that the receipt of workers' compensation removed any practical detriment which would have flowed from a loss of wages in a corresponding amount, and that interest ought not to have been awarded in favour of the respondent; but the appellant's liability to pay for the cost of mitigating the respondent's damage is not dependent upon the appellant's being relieved of a corresponding or greater liability. (at p447)

10. As the present appeal does not bring up the Full Court's award of interest for consideration, the appropriate order is that the appeal be dismissed with costs. (at p447)

Orders

Appeal dismissed with costs.