Herne and Herne v Colman
[2006] NSWWCCPD 83
•11 May 2006
WORKERS COMPENSATION COMMISSION
DETERMINATION OF APPEAL AGAINST A DECISION OF THE COMMISSION CONSTITUTED BY AN ARBITRATOR
CITATION:Herne and Herne v Colman [2006] NSWWCCPD 83
APPELLANT: Stuart Harvey Herne and Karen Louise Herne t/as Herne’s Freight Services
RESPONDENT: Sandra Colman
INSURER:Allianz Australia Workers Compensation (NSW) Ltd
FILE NUMBER: WCC4231-04
DATE OF ARBITRATOR’S DECISION: 11 October 2004
DATE OF APPEAL DECISION: 11 May 2006
SUBJECT MATTER OF DECISION: Death benefit; applicant partially dependent on worker; whether vicissitudes or contingencies need to be taken into account and how; section 26 Workers Compensation Act 1987
PRESIDENTIAL MEMBER: Acting Deputy President Lansdowne
HEARING:On the papers
REPRESENTATION: Appellant: Mulcahy Lawyers
Respondent: Lee Sames Egan
ORDERS MADE ON APPEAL: 1. The decision of the Arbitrator, dated 11 October 2004, is revoked and the following decision is made in its place:
(1) That Stuart Harvey Herne and Karen Louise Herne t/as Herne’s Freight Service (‘the Appellants’) pay Sandra Louise Colman (‘the Respondent’) the sum of $201,200 pursuant to section 26 of the Workers Compensation Act 1987.
(2) That this sum be paid to the Respondent and not to the Public Trustee.
(3) That the Appellants pay the Respondent’s costs of the proceedings before the Arbitrator as agreed or assessed.
2. No order as to the costs of the appeal.
BACKGROUND TO THE APPEAL
The original application to the Workers Compensation Commission (‘the Commission’) was filed by Mrs Sandra Colman in March 2004. Mrs Colman is the widow of Mr Matthew Colman, who was formerly employed by Mr and Mrs Herne as an interstate truck driver. Mr Colman, whom I will henceforth call ‘the Worker’, was killed in a single vehicle accident on 2 August 2003 while driving his truck for Mr and Mrs Herne, whom I will henceforth call ‘the Employers’ or ‘the Appellants’ as the context requires. Mrs Colman, whom I will henceforth call ‘the Applicant’ or ‘the Respondent’ as the context requires, applied for payment of compensation pursuant to section 26 of the Workers Compensation Act 1987 (‘the 1987 Act’) on the basis that she was partially dependent on the Worker. She sought payment of the maximum amount, being $282,150, on the basis that she was dependent to the extent of $250 per week on the Worker at the time of his death and he had an anticipated working life remaining of 34.5 years. The Employers were represented before the arbitrator who determined the application (‘the Arbitrator’) by the solicitors for their insurer, Allianz Australia Workers Compensation (NSW) Ltd (‘the Insurer’). The application was determined without oral hearing, on the basis of written submissions. The Insurer in its submissions disputed only the amount of compensation, not the liability of the Employers to pay compensation. The Insurer submitted that the appropriate award was in the range $36,975-$73,950. The Insurer arrived at this sum by assessing the Applicant’s level of dependency as between $50-$100 per week, which was then capitalised using an interest rate of 5%. The Insurer submitted that a further 15% should be deducted from the capitalised sum for “vicissitudes”, resulting in the range indicated.
The Arbitrator found for the Applicant, although not on the basis submitted by her. He declined to make any deduction for “vicissitudes” and made an award for the maximum payment. The Arbitrator’s decision was issued in a Certificate of Determination which is on its face dated 11 October 2004. Somewhat confusingly, the coversheet for the Certificate addressed to the parties is dated 8 October 2004. The Employers filed an appeal against the Arbitrator’s determination which was received by the Commission on 9 November 2004. The Employers now act in their own right, and are not represented by the Insurer. They seek an order on appeal that the sum awarded be reduced to $100,000, principally on the basis that the Arbitrator failed to make allowance for contingencies that may reduce the level of dependency. The Respondent submits that the appeal is out of time, that the Appellants have failed to demonstrate reviewable error by the Arbitrator, and, that to the extent contingencies should be considered, these contingencies should include those that might increase the level of dependency, as well as those that might reduce it.
THE DECISION UNDER REVIEW
The Certificate of Determination, dated 11 October 2004, records the Arbitrator’s orders as follows:
“1. That the Respondent pay the Applicant $280,050.
2. That the Respondent pay the Applicant’s costs as agreed or assessed.
3. That the costs be calculated on the basis that this was a complex matter and the preparation of written submissions are (sic) equivalent to attending and participating in an Arbitration Hearing.”
The Arbitrator calculated the amount of support provided by the Worker to the Applicant by adopting the Applicant’s evidence as to the household expenses, deducting an amount the Arbitrator determined as referable to the Worker’s own personal expenses then deducting from this amount (that he called “the Applicant’s expenses”) her net personal income. Adopting this method, which was not suggested by either party, he arrived at the conclusion that the Applicant was dependent on the Worker to the extent of $349 per week. The Applicant’s own case had been based on the assertion that she was dependent to the extent of $250 per week. It appears that the Arbitrator then multiplied the figure of $349 per week by the number of years until the Worker’s retirement age, because he states “If I accept the submission of the Respondent that the appropriate actuarial table is 5% then the lump sum payable amounts to $303,630 and if I accept the submission of the Applicant that the appropriate table is the 3% table then the sum payable would be considerably greater” (paragraph 28 Statement of Reasons).
A difficulty for the Arbitrator and on this appeal is that only the 5% actuarial table is in evidence, not the 3% table. The Arbitrator stated in paragraph 30 that he considered the 3% rate to be the “appropriate rate”, but there was no evidence before him as to what the present day value of the capital sum would be if capitalised at 3%, and he could only conclude that it would be “considerably greater” than $303,630. The Arbitrator’s preference for the 3% rate, coupled with the difficulty of calculating a sum at that rate in the absence of the table, may have been the reason why he stated in paragraph 30 “In my opinion the 3% discount rate is the appropriate rate for the calculation of benefits and if I accept the 5% rate as submitted by the Respondent I should not make any allowance for vicissitudes”. The final paragraph of this portion of the Statement of Reasons states “The sum derived from the 5% calculation exceeds the maximum that I can award and consequently I shall award the maximum amount payable” (paragraph 31). Thus it appears that the Arbitrator capitalised the weekly dependency found by him at the 5% rate, and because he considered it too high made no allowance for vicissitudes.
ISSUES IN DISPUTE
The issues in dispute in the appeal are:
(1) In relation to leave to appeal, was the appeal filed in time, and, if not should time be extended for the making of the appeal?
(2) If leave to appeal is granted, did the Arbitrator err in any of the following respects:
(a) by failing to make allowances for contingencies that may affect the level of the Applicant’s dependency on the Worker, and, in particular by failing to reduce the sum to be awarded having regard to such contingencies;
(b) in his calculation of the level of dependency, in particular by taking the whole of the mortgage payment into account for the full remaining period of the Worker’s working life; or
(c) by awarding the maximum sum although the Applicant was only partially dependent on the Worker?
(3) If the Arbitrator did err, should a substituted decision be made, and, if so, what, or should the matter be remitted to the Arbitrator for determination?
ON THE PAPERS REVIEW
Section 354(6) of the Workplace Injury Management and Workers Compensation Act 1998 (‘the 1998 Act’) provides:
“(6)If the Commission is satisfied that sufficient information has been supplied to it in connection with proceedings, the Commission may exercise functions under this Act without holding any conference or formal hearing.”
The case was initially determined by the Arbitrator on the papers. The then solicitors for the Appellants did not agree with this approach at the time, but the current solicitors for the Appellants do not take any objection to this approach and indeed submit that the appeal including a substituted decision may be determined on the papers. The Respondent does not disagree with this submission. Having regard to these matters, Practice Directions Numbers 1 and 6, and the documents that are before me, I am satisfied that I have sufficient information to proceed ‘on the papers’, without holding any conference or formal hearing, and that this is the appropriate course in the circumstances.
LEAVE: WAS THE APPEAL FILED IN TIME AND SHOULD TIME BE EXTENDED?
Before proceeding to deal with an appeal the Commission must determine whether the application meets the requirements of section 352 of the 1998 Act. Sub-section 352(2) provides for quantum restrictions on awards that may be the subject of appeal. There is no dispute in this case that the minimum restrictions are met. Sub-section 352(4) provides that “an appeal can only be made within 28 days after the making of the decision appealed against”. The Respondent contends that this time limit has not been met and leave to appeal should not be granted.
Rule 77 of the Workers Compensation Commission Rules 2003 (‘the Rules’) provides in sub-rule (2) that “a decision is made” for the purpose of lodging an appeal against that decision “when the Commission issues a certificate as to the determination of the dispute as required by section 294(1) of the 1998 Act”. In this case, this certificate, the Certificate of Determination, is dated 11 October 2004, although the covering letter is dated 8 October 2004. Whichever date is the date the Certificate “issued” for the purposes of Rule 77, the appeal was clearly not filed within time. It is marked received by the Commission on 9 November 2004. If the date on which the decision was made was 8 October 2004, then the 28th day after that date was Friday 5 November 2004. If the date on which the decision was made was 11 October 2004, then the 28th day after that date was 8 November 2004.
Rule 77(1) provides for the extension of time to lodge an appeal. Rule 77(8) provides that time may be extended in “exceptional circumstances”, where “to lose the right to seek leave to appeal would work demonstrable and substantial injustice”. The Appellants seek that time be extended on the basis that the appeal was posted on Thursday 4 November 2004 and that “in the normal course of postal business” the appeal would have been lodged within time, which they assume to be by Monday 8 November 2004. The Appellants say that it would be a demonstrable and substantial injustice to the Appellants not to extend the time for making the appeal in view of the impact of the Arbitrator’s award on their workers compensation premium. They also rely on the fact that the Respondent was made aware of the intention to appeal by fax sent 2 November 2004.
The Respondent concedes that this notice was given but says that the appeal was not served until 19 November 2004 which was outside the service period of 7 days from registration stipulated by rule 77(4) as the appeal was registered on 9 November 2004.
I consider that in determining this issue the date that should be used as the starting point of the appeal period is the later of the different dates appearing on the Certificate of Determination itself and the covering letter. That date is 11 October 2004. Accordingly, the appeal was received only one day late. That is not in itself a sufficient basis for extension of time, although it is a factor that I take into account. The principles to apply in cases of extension of time have been recently summarized in Department of Education and Training v Mekhail [2006] NSW WCC PD (‘Mekhail’). In that case the arbitrator’s decision was also issued on 11 October 2004 and the appeal was filed 11 November 2004 i.e only 3 days late. Acting Deputy President Handley refused an extension of time to appeal and leave to appeal.
Acting Deputy President Handley summarised the relevant principles as follows:
“15. The Rules do not set out the factors to be considered in the exercise of the discretion to extend the time for filing an appeal against the decision of an Arbitrator. However, this issue has often been the subject of judicial consideration. A leading case is Gallo v Dawson (1990) 93 ALR 479 where Justice McHugh set out a number of guiding principles. He emphasised that the discretion to extend time should only be exercised where strict compliance with the rules will lead to an injustice for the applicant. In so deciding, regard should be had to (i) the history of the proceedings, (ii) the conduct of the parties, (iii) the nature of the litigation, (iv) the consequences for the parties of the grant or refusal of the application for extension of time, (v) the prospects of the applicant succeeding if leave is granted, and (vi) the respondent’s right, after the expiry of the time for appealing, to rely upon the decision made. These principles have been applied in Commission proceedings: see, for example, Howell v Stringvale Pty Ltd [2004] NSW WCC PD 22, and Alexandru v State Rail Authority of NSW [2004] NSW WCC PD 54.”
I consider that this case is similar to Mekhail in relation to the reason for the delay in filing and the shortness of the extension required. In that case the Acting Deputy President found that the main reason for the delay was administrative error. Here the Appellants assumed that mail posted in Lennox Head on a Thursday would arrive in Sydney only two working days later, on the following Monday. They have submitted no evidence that mail is generally received in Sydney two working days after postage from their offices. Section 76 of the Interpretation Act 1987 provides that service by post is deemed to be effected on the fourth working day after postage. Even more significantly, there are quicker means for filing available which would have guaranteed that the appeal was filed in time, being facsimile or, perhaps, express post. However, I consider that the facts in this case are distinguishable from Mekhail in the following significant respects. In that case the Acting Deputy President considered that the arbitrator had made an error, but that it would not have affected her ultimate decision and that decision was defensible on the basis of the evidence. Accordingly, he considered that the appellant’s prospects of success were not great. Here, as is set out in more detail later in this decision, I consider that the Arbitrator erred and that the correct application of principle would have caused a different decision.
Further, the amount of the award in Mekhail was relatively small, whereas in this case the award is large and so the consequences for the Appellants if leave is refused are considerable. Finally, I have taken into account that the Appellants put the Respondent on notice within the appeal period that they intended to appeal. In my view, these factors, which equate to factors (v), (iv) and (vi) of the list in Gallo v Dawson, satisfy the tests of “exceptional circumstances” and “demonstrable and substantial injustice” in sub-rule 77(8).
In relation to the Respondent’s submissions, she may not be aware that the time for service of the appeal was extended by direction of the Commission dated 15 November 2004 to 25 November 2004. There is no evidence that the Appellants served this direction with their appeal and written submissions as to extension of time as they were required to do by the direction. It is evident from the documents that the solicitors for the Appellants were lax in a number of respects in their preparation and handling of the appeal. The principal documents, the appeal and the further submissions on extension of time were, however, served in accordance with the extended time frame. In all the circumstances I extend the time for the making of the appeal and grant leave to appeal.
EVIDENCE AND SUBMISSIONS
In relation to the substantive grounds of appeal, the documents before me are as follows:
(1) The application and reply and documents attached to each.
(2) Directions made at the telephone conference on 9 June 2004.
(3) Further evidence filed on behalf of the Applicant being bank statements for the period January to May 2004 filed 18 June 2004; joint account statements for the period 31 July 2002- 30 June 2003 and home loan statements for the period 17 May 2002-13 July 2003 filed 12 July 2004; and two additional statements of the Applicant dated 28 June 2004 and 22 June 2004 both filed 30 June 2004. Although all the financial information was filed by the Applicant outside the time frame stipulated in the directions made at the telephone conference the Arbitrator apparently admitted it without objection.
(4) Submissions by the Applicant filed in time on 2 July 2004.
(5) Submissions by the Employers filed in time on 3 August 2004.
(6) Submissions by the Applicant in reply filed 5 August 2004. The Employers objected to these submissions being taken into account and the Arbitrator admitted them only in relation to questions of law.
(7) Clarification of a factual assertion in the Applicant’s submissions in reply filed 26 August 2004. The Arbitrator does not refer to this document, presumably because he did not admit the factual assertions in the submissions in reply.
(8) Certificate of Determination and Statement of Reasons each dated 11 October 2004.
(9) Appeal filed 9 November 2004.
(9) Submissions in reply to the appeal filed 25 November 2004.
DISCUSSION AND FINDINGS
As the Respondent correctly asserts review of a decision of an arbitrator is not a rehearing de novo. The Commission can only intervene on review if the Appellant establishes that the Arbitrator’s decision is affected by a legal, factual or discretionary error (Mayne Health Group t/as Nepean Private Hospital v Sandford [2002] NSW WCC PD 6 ). The Appellants assert that their “principal” ground of appeal is that the Arbitrator erred in that he failed “to make allowance for contingencies as required by the NSW Court of Appeal decision in Warrilla Timber & Hardware Pty Ltd v Newton (1995) 11 NSWCCR 546”. The correct spelling of the appellant in that case is Warilla Timber & Hardware Pty Ltd and the case is referred to in this decision as Warilla.
The law in relation to allowance for contingencies
Section 26 of the 1987 Act provides as follows:
“26 Death of worker leaving partial dependants
If death results from an injury and the worker does not leave any dependants wholly dependent upon the worker for support, but leaves dependants in part so dependent, the compensation payable by the employer under this Act shall be:
(a) if the employer so agrees—the amount that would have been payable under section 25 if those dependants had been wholly dependent on the worker,
(b) if agreement is reached for the payment of an amount less than the amount provided by paragraph (a) and the amount agreed on is approved by the Commission as reasonable and proportionate to the injury to those dependants—the amount so approved, or
(c) in default of agreement as to the amount to be paid or in default of approval by the Commission for payment of an agreed amount under paragraph (b)—such amount (not exceeding the amount provided by paragraph (a)) as is determined by the Commission to be reasonable and proportionate to the injury to those dependants.”
It is evident that the section does not specify how the Commission is to determine the amount that is “reasonable and proportionate” as provided in paragraph (c), and makes no reference to how, if at all, contingencies are to be taken into account. These matters were the subject of Warilla. In Warilla the deceased worker was the son of the applicant. As in this case, the applicant was partially dependent only on the deceased worker. The applicant in that case received a government pension and the deceased worker paid her board, and did work around the house. The judge at first instance found that the “support” provided by the deceased worker to the applicant by way of income and work about the house was in the amount of $90 per week. He made an award of $95,000 in favour of the applicant pursuant to section 26 of the 1987 Act. He did not indicate the steps by which he arrived at this sum. Evidence at the appeal established that if $90 per week was capitalised at the discounted rate of 3 per cent for the estimated remaining life span of the applicant (17 years) then the capital sum would be $62,757. If discounted on the basis of 5 per cent, the resulting sum would be $54,250.
On appeal the award was reduced to $60,000. The majority judgment on appeal was given by Mahoney A-P., with whom Clarke J.A. agreed. Kirby A-C.J. gave a separate judgement, which agreed with the result but by different reasoning. Mahoney A-P. held that the decision of the judge must be set aside because “I do not think there could be any other explanation of the $95,000 adopted by the Judge other than that the Judge employed some principle which does not appear in terms from the judgement and which, in the light of the proper principles, is not acceptable” (page 552). Mahoney A-P then proceeded to reach his own determination of the proper award. He said that the “degree of dependency” and the “period of dependency” must be taken into account. In relation to the first he adopted the figure found by the judge of $90 per week and in relation to the second adopted the estimated remaining life span of the applicant based on actuarial tables, being 17 years. He continued:
“However, it would be wrong merely to do a mathematical present value calculation of $90 per week over the period of 17 years. The figure must be reduced to a present-day basis and allowance must be made for contingencies. In this case the contingencies are not great. I am conscious of the possibility that the son may have married. If he married, it may be that his contribution to his mother would have been less. One does not know. That is a matter to be treated as a contingency. It may be that he would have continued living with his mother, even if he had married. It may be that he would not have married but would have continued with her until the end of her life. There does not appear to have been any reason to suggest that the mother would not have lived to the end of her expectation of life, namely, 17 years” (pages 552-553) (emphasis added).
Mahoney A-P then arrived at the figure of $60,000 by saying “Having regard to these contingencies but I think not discounting the figure involved too greatly, I would be of the opinion that a proper sum to be awarded would be $60,000” (page 553) (emphasis added). Mahoney A-P did not specify what interest rate he applied to obtain the present day value of the capitalised sum arrived at by multiplying the amount of support by the period of dependency, but it is apparent from his reference to “discounting” that he must have used the figure of 3 per cent. Further, it is significant that he only refers to contingencies that might reduce the amount of the award. By contrast, Kirby A-CJ. refers in his judgment to contingencies that might increase the size of the award, as well as those that might reduce it, in particular, the possibility that the applicant may live longer than the age arrived at by actuarial tables, given that her own mother was still alive at 92. He concludes immediately after the reference to this possibility as follows:
“These are considerations which are to be taken into account in testing, as we must, the un-elaborated provision by Maguire CCJ. But even when full allowance is made for such considerations, I have regrettably come to the view that the amount of $95,000 allowed is excessive for the limited financial purposes provided by the Act. I believe that the considerations last mentioned are reasons why the amount provided should be higher than secured by a pure mathematical computation. However, a level is reached. In my opinion that limit is $60,000” (page 556) (emphasis added).
It is apparent from the reference by Kirby A-CJ to the award being “higher” than a mathematical computation that he must have employed a discount rate of 5 per cent in arriving at the present day value, although this is not made express in his decision.
It flows from Warilla that an arbitrator must make allowance for relevant contingencies in determining the size of an award pursuant to section 26. What is less clear is whether the only contingencies to be considered are those that might reduce the degree of dependency or period of dependency, or whether contingencies that might increase one or both of these factors should also be considered. In this case it was asserted by the Respondent before the Arbitrator that her degree of dependency was likely to increase by virtue of the plans she and her husband had made to have children, as she would leave work to care for them. Further, the judgments in Warilla do not make express which discount rate is to be adopted for the purpose of calculating the present day value of a capitalised sum.
The parties have not referred me to any further decisions on the taking into account of contingencies in the application of section 26, and I have not located any in my own research. The decision of the High Court in De Sales v Ingrilli [2002] HCA 52 (‘De Sales’) (to which the Respondent to this appeal does refer) provides further assistance by way of analogy. In that case the appellant brought proceedings under the West Australian legislation for compensation to relatives arising from wrongful death following the death of her husband on the property of the respondent. The widow was successful in establishing liability (diminished by her husband’s contributory negligence) but the trial judge reduced her award by 5 % having regard to the possibility that she may obtain financial advantage by remarriage. The respondent sought a greater reduction on appeal to the Supreme Court of Western Australia and was successful: the full Supreme Court by majority reduced the award by 5% for general contingencies and by 20% for the possibility of financial advantage from remarriage. The widow appealed to the High Court. The High Court by majority (Gaudron, Gummow and Hayne JJ. in a joint judgment and Kirby J. in a separate concurring judgment) held that there should be no separate discount for the possibility of financial advantage from remarriage in wrongful death cases. While they agreed that this factor is one factor to consider in a general discount for the vicissitudes of life, Gaudron, Gummow and Hayne J.J stated that the prospect of remarriage would not ordinarily enlarge this discount because “(i)t is wrong to fasten upon one of the myriad possible paths that life may take and say that, on account of that possibility, it is right to enlarge the discount that must be made. The discount can be assessed only as a single sum which reflects all of the possibilities” (paragraph 77). The majority restored the 5% discount but described it as a discount for general vicissitudes.
Although that case concerned a wrongful death claim, in my view the reasoning applied is applicable by way of analogy to a claim under section 26. Both heads of liability require determination of an amount of compensation that is proportionate to the injury to the claimants arising from the death. As a result, although there is no specific legislative reference to consideration of factors that may have impacted on the amount of support had the deceased not died, the case law has held in each case that consideration of those factors is required. Mahoney A-P in Warilla specifically refers to wrongful death cases as providing assistance by way of analogy (page 549), as does Ferrari J. in another authority referred to by the Respondent, Pluzek v The Commissioner for Railways [1964] WCR 221.
The specific matter for consideration in De Sales was whether or not there should be a distinct discount for remarriage. The parties agree in this case that the effect of De Sales is that there should not. De Sales is also authority for the proposition that there should, however, usually be a discount in wrongful death cases, and, by analogy, section 26 cases, from the sum obtained by mathematical calculation of the amount of support lost by the death, having regard to the vicissitudes of life. All the members of the High Court agreed on this point. In the joint decision, Gaudron, Gummow and Hayne J.J. stated that “It will be apparent from what has been written above that, as a general rule, some allowance should be made for the various possibilities that impact upon the assessment of the pecuniary loss suffered in consequence of the wrongful death of a partner and/or parent” (paragraph 81). They continued “Of course, it is not to be assumed that the possibilities are all adverse” and quoted with approval a statement by Windeyer J. to the effect that each case must be judged on its own facts. They noted that the trial judge had not made any allowance for a general discount, because he took the view that “the chance of the deceased improving his earnings over time balanced or outweighed negative contingencies which had to be taken into account” but said that, although there was evidence to support such a view, “adverse possibilities such as illness, the loss of employment due to economic downturn and, even, early retirement had to be taken into account” (paragraph 82). Their conclusion was that a discount of 5% should be applied, to make allowance for “the various contingencies”.
Thus even where there is evidence to the effect that the amount of support may have increased in the future, thus providing a reason for increasing an award, or not discounting it, the thrust of De Sales is that the possibility of reduction in support for a variety of reasons should on balance lead to an overall discount. All of the judges in De Sales were of the view that a discount should be applied, notwithstanding that both positive and negative factors must be considered.
What is less clear is how much that discount should ordinarily be. De Sales originated in Western Australia and in that state the usual discount was apparently in the range of 2-6% (see joint judgment paragraph 83, McHugh J. paragraph 99). A majority in the High Court (all judges except McHugh J.) could accept a discount of 5%, although they differed in their approaches to a separate discount for remarriage, in these circumstances. A number expressed the view, however, that 5 % was low, particularly when compared with a usual discount of 15% in New South Wales for personal injury cases (McHugh J. paragraph 99, Kirby J. paragraph 163). McHugh J. expressed the view that he now considered 15% to be too high, and that “(o)nce allowance is made for contingencies being favourable, as well as adverse, a figure of five per cent may not be unreasonably low for the contingencies involved in personal injury claims”. He considered five per cent too low, however, for general contingencies in wrongful death claims, because of “the ever threatening spectre of divorce, its high rate, and the other contingencies in a wrongful death action”. Callinan J., agreed that 5% was too low a deduction for remarriage for a young widow (paragraph 197). McHugh J. and Callinan J. were, of course, in the minority in their views on the significance of a deduction for remarriage.
Kirby J. specifically noted the disparity between the usual deduction in different jurisdictions in Australia, specifically Western Australia and New South Wales, for general contingencies made to an award of damages in tort (paragraph 163) and stated that “this disparity… may one day need to be considered by this Court” (paragraph 164). As the issue had not been fully argued in De Sales he accepted 5% although he expressed the view that “it seems rather low” (paragraph 165). The parties to this appeal have not referred me to any case authority as to the “usual” deduction in New South Wales. In Dwight v Boucher & Ors [2003] NSWCA 3 (‘Dwight v Bouchier’), the New South Wales Court of Appeal upheld a deduction of 10% by the trial judge in a wrongful death case brought by a widow for herself and her two children. The appellant in that case argued that “there was no basis for reducing the figure below the conventional 15%”. Stein J., with whom Mason P. and Heydon JA. agreed, did not cavil with the description of 15% as the “conventional” deduction, but did not consider any error was shown. This case suggests that, even if 15% is the “conventional” deduction in New South Wales, the lesser deduction of 10% can be acceptable.
The Arbitrator’s decision in relation to contingencies
I have set out earlier the reasoning adopted by the Arbitrator in making his award (see paragraphs 3-5). In my view this reasoning does not accord with Warilla or De Sales. Both cases establish that the first instance decision maker must take into account the various contingencies that may have affected the level of support had the provider of support lived. De Sales makes it clear, in my view, what was less explicit in Warilla, that both positive and negative factors must be considered, but that, overall, generally a deduction or discount is the appropriate way to reflect these uncertainties. In other words, generally speaking, factors that may reduce the level of support, such as unemployment, divorce, ill health or early death, are to be taken into account by reducing the amount otherwise payable.
In this both parties made submissions to the Arbitrator about contingencies that may have affected the level of support in the future- in the case of the Applicant, the plans the couple had to have children, in the case of the Appellants the probability of capital gain from the sale of the couple’s home. Both parties referred to authorities including Warilla, although, in fairness to the Arbitrator, neither party specifically quoted the portion that requires the first instance decision maker to take vicissitudes into account. The Arbitrator made no reference to the specific contingencies raised by the parties in his Reasons, did not discuss the usual practice of allowing for possible contingencies by reducing the amount otherwise payable (other than to say that the Appellants had not provided any reasons to support the suggested range of 15%,) and made no reference to any of the authorities they cited, most relevantly Warilla. The Arbitrator declined to make any allowance for contingencies not because of the evidence in the case, which may have been permissible, but because he had insufficient evidence to make an award on the basis of a 3% capitalisation and he thought 5% already sufficiently reduced the award. In my view this approach was flawed. It confuses the capitalisation rate (which reflects the fact that the applicant is receiving now a capital sum, rather than periodic support over a period of time) with the next step, of making a further allowance for contingencies. Warilla and De Sales make it clear that these are distinct steps.
For these reasons I consider that the Appellants have established that the Arbitrator erred in failing to take contingencies into account. I propose to make a new decision on the evidence before the Arbitrator, in the interests of finalising the claim. The other two grounds of appeal are that the Arbitrator erred in relation to the mortgage payments and that he erred in awarding the maximum sum although the Applicant was only partially dependent on the Worker. It is not necessary to consider these for the purpose of establishing error, as the first ground is established. My view in relation to the mortgage payments will be set out in the substituted decision. In relation to the second, there is clear authority that it may be appropriate to award the maximum sum even though an applicant was only partially dependent on the deceased worker i.e. the maximum is a cap, it is not appropriate to use it as a measure of total dependency in order to calculate degrees of award depending on degrees of dependency ( Pluzek v The Commissioner for Railways [1964] WCR 220; Warilla at page 552; State of New South Wales (Department of Corrective Services) v Brown [1995] NSWCA 7 ).
SUBSTITUTED DECISION
The first issue is whether the Applicant was the sole dependant of the Worker. The only evidence on this point is the Applicant’s statement of 28 June 2004 to the effect that to the best of her knowledge she was the only dependant of the Worker. This statement is made in the context of her other evidence about the long period of time she had known the Worker, both prior to and after their marriage. Their marriage is evidenced by the marriage certificate and the death certificate of the Worker notes that the Worker had no children. This issue was not contested before the Arbitrator. I find that the Applicant was the only dependant of the Worker at his death, and was partially dependant only. The preconditions for the application of section 26 are thus satisfied.
The starting point for the calculation of the amount to be awarded under section 26, as set out by Mahoney A-P in Warilla, is to calculate the degree of dependency and the period of dependency. In relation to the degree of dependency, the Applicant supplied taxation returns evidencing the respective incomes of herself and her husband for the year ending 30 June 2003. The Appellants did not dispute that the total income before tax of the Worker was $63,818 and that of the Applicant $33,634 but argued in their submissions before the Arbitrator that the proportion of the Worker’s income that was an allowance for his expenses while on the road should not be included. The only evidence as to how in fact the Worker utilised this income was provided by the Applicant. Her evidence is that he regarded this allowance as part of his income to be utilised for joint purposes, and that he lived very frugally on the road to maximise his take home income. I find accordingly.
The Appellants further argued before the Arbitrator that the sum should be disregarded because of the way allowances are treated in sections 42 and 43 of the 1987 Act. I do not consider that argument correct. The definitions of “current weekly wage rate of a worker” in section 42 are expressly said to apply only for the purposes of that Division of the Act, dealing with weekly compensation. Section 43 applies generally, but only to the phrases “earnings” and “average weekly earnings”. These phrases do not appear in section 26. An applicant under section 26 must establish the “support” provided by the worker, not his or her average weekly earnings, as was the requirement under the earlier legislation. Given this change in the legislation, the term “support” has been interpreted more broadly than pure financial support, to include, for example the performance of work around the home (Kirby A C-J page 554 of Warilla). In relation to the characterisation of the allowance as being for on road expenses, I consider the correct approach is to look at how in fact the money was used, not how it was characterised for other purposes. I am fortified in this conclusion by the approach of the Court of Appeal in the wrongful death case, Dwight v Bouchier, mentioned earlier. In that case, the liable party argued that the widow could only rely on earnings disclosed as income received by her husband for the purposes of taxation. The Court of Appeal rejected that argument, saying that the trial judge was entitled to look at the “realities” of the situation, and accept the evidence of the widow that in fact the couple received a much larger sum (Stein J. paragraph 54). Here, the only evidence was that of the Applicant that the allowance was used largely for joint purposes, like their other income. I accept that evidence.
The difficulty lies in determining how next to proceed. The Applicant supplied details of the gross income of the Worker and herself, but not their income after tax. She supplied details of their weekly outgoings, but in the absence of the net income figures it is not possible to tell whether the couple were living within their income. Further, the Applicant did not specify how much the weekly outgoings had been reduced by the death of her husband due to amounts for his personal use no longer being required. In the absence of this information the fact finder can only estimate, or speculate, as to the support provided by the Worker to the Applicant by way of paying her weekly expenses over and above her own income. It is clear that substantial support was provided, because on an annualised basis their joint weekly expenses of $1054 amount to $54,808, well above the Applicant’s gross income, let alone her net, but it is simply not possible on the evidence supplied by the Applicant to reach a figure.
The Arbitrator found that the Applicant’s net income for 2003 was $26,659 (paragraph 27 of the Reasons). He does not specify the evidence on which he relied in making this finding. The only relevant evidence I can locate is the Applicant’s return for 2003 but the return does not contain an estimate of the tax payable. In my view it is dangerous in the absence of specific evidence for a fact finder to seek to calculate the net figure on the basis of the return only even in the case of a salary earner from whom tax is withheld such as the Applicant. If one were to assume that the tax withheld was the correct amount (i.e. disregard all deductions or other adjustments) then on the figures shown on the return her net income would have been $26,515. The Arbitrator then took the approach of himself determining expenses solely referable to the Worker, which he did on a very modest basis, deducting these from the joint expenses, and reaching the conclusion that the Applicant was dependant on the Worker to the extent that the balance of expenses exceeded her net income. This gave him a figure of $349 per week dependency.
This figure far exceeds the figure actually relied upon by the Applicant in her submissions to the Arbitrator. That was a figure of $250 per week. The Arbitrator rejected this figure because he could not determine from the evidence and submissions how it was arrived at, and nor can I, but I do not think that is sufficient warrant to embark on a different approach that results in a far higher figure, without at least giving the other party the opportunity to comment. The manner of calculation adopted by the Arbitrator is appealing in its simplicity and elegance, but I do not consider the fact finder should readily depart from the case as put by the Applicant. This is for two reasons. First, there may be reasons for that case that are sound but are not immediately apparent, and, secondly, and even more significantly, it is the Applicant who bears the onus of proof. Here the Applicant has not even supplied the facts necessary to support the approach adopted by the Arbitrator.
For these reasons I propose to adopt the degree of dependency as advanced by the Applicant. In her submissions to the Arbitrator she indicates she relies on her letter of 19 January 2004 to the Insurer. In that letter she asserts a dependency of $250 per week for 34.5 years (to the anticipated retirement date of the Worker) to be capitalised at 3%. The letter asserts the resulting figure to be $282,150. The Applicant sought to advance a different case in a document entitled Submissions in Reply filed 5 August 2004. In that document the Applicant asserted that the figure of $250 per week already reflected a deduction for vicissitudes, and the “real” dependency was “somewhere near $400 per week”. This change in tack was apparently in response to the Insurer’s submissions that a deduction must be made for vicissitudes. However, the Applicant must be taken to be on notice of the applicable law from the commencement of the case, and indeed she refers to Warilla in her letter of 19 January 2004 and to the possibility that her dependency may have increased in her submissions in chief.
The Respondent also seeks to rely on this portion of the Submissions in Reply on this appeal. The Insurer objected to these Submissions in Reply being taken into account by the Arbitrator, because there had been no provision made for submissions in reply in the Arbitrator’s timetable. In my view this fundamental change in the way the Applicant couches her case was made too late for it to be taken into account by the Arbitrator. Even were it to be taken into account the Applicant did not supply before the Arbitrator the factual evidence on the basis of which her dependency could be calculated. The same difficulty confronts the Applicant as Respondent in this appeal. Factual determination on this appeal is limited to the evidence before the Arbitrator. That evidence does not allow a figure to be calculated for dependency without speculation, but does suggest that the appropriate figure would not exceed $250 per week. For that reason I consider the proper course is to adopt the degree of dependency advanced before the Arbitrator, that is $250 per week, on the basis that it is likely that the actual dependency would not be less than this.
There is no dispute between the parties that the appropriate period of dependency is the number of years until the Worker’s anticipated retirement, being 34.5 years. The parties are in dispute in relation to the percentage rate that should be utilised when capitalising the present day capital sum to provide this periodic amount over 34.5 years. The Respondent has maintained throughout that the appropriate rate is 3%, the Insurer and now the Appellants 5%. The Appellants submit that the 5% tables should be utilised because this is consistent with the requirement under section 151J of the 1987 Act to utilise a discount rate of 5% when calculating the present day value of future economic loss for the purpose of the award of common law damages for death arising from employer negligence. The Respondent submitted in her Submissions in Reply before the Arbitrator that 3% is consistent with the common law approach and 5% is only required if specifically imposed by statute.
The Respondent has not cited any case authority to support her proposition that at common law 3% is the appropriate rate. The point was not specifically argued in Warilla, and the judges there took different approaches to the discount rate, although they arrived at the same conclusion. There is no statutory specification in section 26 as to which rate to adopt. Recent statutory indications are that 5% is now considered appropriate. This is the rate specified not only in section 151J of the 1987 Act but also in the Motor Accidents Compensation Act 1999 (section 127) and the Civil Liability Act 2002 (section 14) as the rate to adopt, unless altered by regulation, when calculating the present day value of future economic loss. The Respondent appears to concede this point in the Submissions in Reply, but uses the existence of such specific statutory provisions to support her argument that in the absence of statutory modification the rate is 3%.
In my view the appropriate rate to adopt is 5%. I consider that it is appropriate to use the same measure in the calculation of compensation for future economic loss in this arena (no fault death claim) as is used in the calculation of potentially identical loss in other arenas, such as damages payable by an employer for wrongful death (s151J of the 1997 Act), by a driver for wrongful death (Motor Accidents Compensation Act s127) or other person liable for personal injury in negligence (Civil Liability Act s14). The source of liability may be different, but the form of loss is the same. This is particularly striking in the case of section 127 of the Motor Accidents Compensation Act, which specifically includes “loss of expectation of financial support” as one of the heads of damage to which the 5% rate applies (section 127(1)(b)). In the absence of binding authority to the contrary, I consider that it is more appropriate to use this same measure, than to adhere to what may have been the approach in former years and different economic circumstances, because I consider that the discount rate is intended to reflect economic conditions of interest rates and inflation, not a legal principle.
Utilising the 5% discount rate and the table supplied by the Insurer to the Arbitrator, the present day value of $250 per week for 34.5 years is $217,500 as the Appellants assert. The next question is whether this sum should be altered, and, specifically, whether it should be reduced, having regard to the possibility that changes in the circumstances of the Worker or the Applicant may have affected the level of support he provided had he not died.
As set out earlier, my interpretation of De Sales is that even taking into account the possibility that changes may have increased the level of support, as well as reducing it, then in the absence of special circumstances a discount of at least 5% is appropriate, for a case originating in Western Australia. De Sales raises the issue as to whether the discount rate in New South Wales should be 15%. Dwight v Bouchier does not cavil with the proposition that 15% may be the “conventional” discount in this state, but establishes that nevertheless 10% may be acceptable. In neither case was there mention of any specific contingency that was taken into account in the calculation of the percentage deduction, although there is a glancing reference in Dwight v Bouchier (judgment of Stein J.A. paragraphs 39 and 71) to the intention of the widow to withdraw from the family business operated with the deceased to have more children. It is unclear whether either the trial judge or the Court of Appeal took this into account in calculating the appropriate deduction. It is also unclear whether the withdrawal of the widow from the business would have lead to any actual increase in her dependency, given that the majority of the income from the family business was already derived from the efforts of the husband, and not the widow (Stein J.A., paragraph 71), although the taxation returns were to the contrary. Thus it is not clear whether Dwight v Bouchier approves a new norm of 10% deduction for hypothetical contingencies, or whether 10% was a reflection of the specific facts of that case.
I will first consider the specific contingencies said by the parties to be applicable in this case on the evidence. The Respondent relies on her evidence that she and her husband planned to have children, and had taken steps to achieve this aim by the Worker undertaking a higher paying job, by constructing a family home, attempting natural conception, and, when that did not immediately succeed, enrolling in an IVF program. Her evidence is that they had discussed having more than one child, and that the proposal was that she would leave work and stay at home with the children until they were “well into school age” (statement dated 27 February 2004). She says that she considers she “probably would have returned to the workforce at some stage but only part time” (statement dated 22 June 2004). There is no evidence to the contrary, and I accept the Respondent’s evidence on these matters. There is no evidence that allows me to evaluate the chances of the Worker and the Respondent succeeding in their aim of having children, but I consider it was a real prospect. Further, I accept that had they done so, the Respondent’s dependency on the Worker would have been total at least for a period, and thereafter greater than at the time of his death due to reduction in her own earnings. Had they succeeded in their wish to have more than one child then the increase in her dependency would potentially have lasted for quite a number of years. This increase in dependency would have been by virtue of the creation of further dependants, who would also have had a claim under section 26 but I do not consider that prevents me taking the increase into account given that section 26 sets a cap on the amount that can be recovered, not a sum to be proportioned in appropriate shares between dependants.
The Appellants assert that a specific factor that should reduce the award in this case is the mortgage payment. The Appellants put this argument on two bases. First, they say that the fact that mortgage payments include capital as well as interest should be taken into account in calculating the amount of periodic support provided to the Respondent. I consider that adequate reflection of this fact (if it is relevant, which I do not determine) is made by limiting the finding of the amount of dependency to $250 per week. Next, the Appellants assert that the prospect of capital gain on the sale of the home should reduce the amount of dependency. They cite no authority for this proposition. In my view the reasoning is inconsistent with Fernance v Walker Bros [1966] WCR (NSW) 183 (Fernance), a decision of the Court of Appeal. In that case the Court held that compensation under the precursor to section 26 is payable for loss of periodic support, and accordingly inheritance of a capital sum was properly considered as irrelevant by the then Workers Compensation Commission. While the type of capital sum in this case is different, in my view the distinction between capital and periodic support is still binding. The legislation under consideration in Fernance used the words “dependent upon (the worker’s) earnings” rather than the current phrase “dependent upon the worker for support”. This change had been enacted by the time Fernance was determined by the Court of Appeal, but due to the commencement date did not apply to the case. Walsh J.A., with whom Wallace P. and Holmes J.A. agreed, said that he would have reached the same conclusion had the amendments i.e. the current wording applied. The proposition advanced by the Appellants also sits at odds with the approach taken in Warilla, in which the employer did not seek that superannuation received by the mother on the death of her son be taken into account.
For these reasons I consider that the real prospect of the Respondent’s level of dependency on the Worker increasing in the near future due to the couple having children is a factor that should be taken into account in assessing whether the capitalised sum should be altered for contingencies. I do not consider that the capital sum received by the Respondent on the sale of the home, which sale became necessary due to the death of the Worker, should be taken into account. My starting point is that on the basis of the dicta in De Sales in the absence of special factors, a reduction of 15% should be made to the capitalised sum to reflect factors that may have reduced the support provided by the Worker. Once the prospect that the support would increase due to the Respondent ceasing work to care for children is taken into account, I consider that the discount should be halved, to 7.5%. This is a substantial decrease in the deduction, and corresponding increase in the award, but I consider it is appropriate given the impact the care of children would have had on the Respondent’s level of dependency. I consider that this case is distinguishable from Dwight v Bouchier, in which a 10% deduction was approved, although the widows in each case expressed the intention of withdrawing from work to care for children (in that case more children), because in this case the Respondent’s earnings were not drawn from a family business. There is no doubt that if she left work to care for children, her earnings would cease, and so her dependency increase. In Dwight v Bouchier the couple drew their income from a family business, and the evidence was that the division of earnings made for taxation purposes did not in fact reflect the independent earnings of the widow. Accordingly, her actual dependency would not necessarily increase if she worked less.
The result is that I consider that the Appellants are required to pay the Respondent the sum of $201,200, being $217,500 less 7.5% (and rounded to the nearest hundred dollars).
It appears from a letter to the Commission from the solicitors for the Respondent dated 26 November 2004 that the Respondent sought a further order from the Arbitrator by letter dated 11 October 2004, that being an order that the compensation be paid direct to the Respondent (then the Applicant) and not to the Public Trustee. The original of the letter dated 11 October 2004 is not on the Commission file, and it is unclear if it was ever placed before the Arbitrator for his determination. The letter states that the Insurer was served, and invited to put any submissions to the contrary. None appear on the Commission file. I can see no necessity on the evidence before me for the compensation to be paid to the Public Trustee as envisaged by section 85 of the 1987 Act, and it would seem to cause unnecessary cost and delay, given that the Respondent is a competent adult and the only dependant. I note that section 85(1)(a) itself provides an exception to payment to the Public Trustee where the award specifies payment to a particular person, and that under section 85A the Commission can authorise payment of compensation payable in respect of the death of a worker direct to the person entitled to that compensation, here the Respondent. My order will be that the compensation be paid to the Respondent. The Appellants have leave to seek reconsideration of the order that payment be direct to the Respondent rather than the Public Trustee within 28 days.
The Arbitrator ordered the then respondents, now the Appellants, to pay the costs of the then Applicant, now Respondent. Although I have reduced the amount to be paid to the original Applicant, the amount still exceeds the amount proposed by the Insurer in the proceedings before the Arbitrator. Accordingly, it remains appropriate that the Appellants pay the costs of the Respondent of the proceedings before the Arbitrator. However, the Arbitrator purported to entitle the parties to costs on the basis that the matter was complex and that their preparation of written submissions was equivalent to attendance at a conference. I can understand the object sought to be obtained, but am not confident that there is any basis in the costs schedule (Schedule 6 to the Rules) for such an order. There is no item for the preparation of written submissions, and item 4.10 arguably requires attendance at a conference, as items 4.09 and 4.11 clearly do. For these reasons my order will simply be that the Appellants pay the costs of the Respondent of the proceedings before the Arbitrator as assessed or agreed.
DECISION
The decision of the Arbitrator dated 11 October 2004 is revoked and the following decision is made in its place:
1.That Stuart Harvey Herne and Karen Louise Herne t/as Herne’s Freight Service (‘the Appellants’) pay Sandra Louise Colman (‘the Respondent’) the sum of $201,200 pursuant to section 26 of the Workers Compensation Act 1987.
2.That this sum be paid to the Respondent and not to the Public Trustee.
3.That the Appellants pay the Respondent’s costs of the proceedings before the Arbitrator as agreed or assessed.
COSTS OF THE APPEAL
The Appellants have been successful on the appeal, although in a far lesser degree than sought. The Appellants proposed an order in the sum of $100,000 i.e half the amount I have awarded. The Commission has the discretion as to whether to award costs on appeal, even where the appellant has been successful (sections 341 and 345 of the 1998 Act). In all the circumstances I do not consider it appropriate to make an order for costs of the appeal.
Robyn Lansdowne
Acting Deputy President
11 May 2006
I CERTIFY THAT THIS IS A TRUE AND ACCURATE RECORD OF THE REASONS FOR DECISION OF ROBYN LANSDOWNE, ACTING DEPUTY PRESIDENT OF THE WORKERS COMPENSATION COMMISSION.
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