Inkster v The Commissioner of Taxation of the Commonwealth of Australia

[1989] HCATrans 253

-~-~

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No P31 of 1989

B e t w e e n -

HAROLD MAYNARD INKSTER

Applicant

and

THE COMMISSIONER OF TAXATION

OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Application for special

leave to appeal

DEANE J
TOOHEY J

McHUGH J

Inkster

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON WEDNESDAY, 25 OCTOBER 1989, AT 2.30 PM

Copyright in the High Court of Australia

P lTl0/1 /ND 1 25/10/89

MR R. O'CONNOR: May it please the Court, I appear for the

applicant, together with my learned friend,

MS J. GOOD. (instructed by Messrs Kott Gunning)

MR D.R. WILLIAMS, QC:  May it please the Court, I appear

with my learned friend, MR GRAHAM WINDSOR, for the respondent. (instructed by the Australian

Government Solicitor)

DEANE J:  Yes, Mr O'Connor.

MR O'CONNOR:  May it please the Court. Your Honours, I did

have filed the applicant's outline of submissions.

Do Your Honours have that?

DEANE J:	We have them, yes.	If you would give us a moment
we will just - - -

MR O'CONNOR:	May it please the Court, I do also have copies of the authorities to which I wish to refer and
I could hand those up now.
DEANE J:	Thank you, Mr O'Connor.
MR O'CONNOR:	Your Honours, the question of law upon which

application for special leave is sought in this

case is that given that payments are made for the

loss of income earning capacity, a capital asset,

whether there are any factors which characterize

the payments received in this case as income rather
than capital, it being an additional fact here
that the applicant did not suffer any loss of income

but was paid, we say, for the loss of capital asset,

the applicant, in this case, Mr Inkster, suffered

from asbestosis, which is a form of pheumoconiosis,

a disease of the lungs caused by inhalation of

asbestos dust.

There are three relevant cases in this area

and if I could just briefly refer to what happened

in those three cases, the first to which I wish

to refer is TINKLER's case, TINKLER V COMMISSIONER

OF TAXATION - it is number two on my list of
authorities.	The second is SLAVEN's case - number
one on my list of authorities.	Both those cases

are decisions of the Full Federal Court of

Australia. And the third is D.P. SMITH V COMMISSIONER

OF TAXATION, a decision of the Full Court of this

honourable Court.

In TINKLER's case, the relevant legislation

was MOTOR ACCIDENTS ACT of Victoria and under

section 25(1) of that Act a person was entitled

to compensation for loss of income and Mrs Tinkler,

in that case, received amounts for loss of income.

There was a second subsection to section 25 which

provided for compensation where there was a reduction

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Inkster

in capacity to earn income by personal exertion.

It was submitted in that case that although

Mrs Tinkler had received amounts for loss of income
by virtue of the second subsection of section 25

it would be incongruous if she were assessed on

amounts received for loss of income because amounts

would not have been assessable for amounts paid

under the second subsection.

The Full Federal Court in that case consisted

of Justice Brennan, Your Honour Justice Deane and

Justice Fisher and the court held that the amounts

were assessable under section 25(1) and there were

dicta which indicated that amounts received under

the second subsection may also have been assessable,

even though it was not necessary for that point

to be considered.

The MOTOR ACCIDENTS ACT in Victoria was then

changed and the matter came before the court in

SLAVEN's case, the Full Federal Court, hearing

the matter on appeal, being Chief Justice
Sir Nigel Bowen and Justices Lockhart and Sheppard.

Five periodical payments were made to Slaven.

The legislation had been changed so that in all

cases the compensation was for "deprivation or

impairment of earning capacity". And there was

power given by section 32 for payments to be made
by instalments.

Nevertheless it was the board's task, in that

case, the Motor Accidents Board, to assess an amount
for deprivation or impairment of earning capacity.

Having regard to the changed wording of the MOTOR

ACCIDENTS ACT the court held that the amounts received,

even though by instalments, were capital and not

assessable income.

The third case to which I refer is D.P. SMITH

where the taxpayer was a beneficiary under a

disability insurance policy and it was agreed by

the Full Court that the policy was insurance against

loss of an ability, the capacity or ability to
earn being a capital asset.	In that case,

Dr Smith had suffered loss of income and his ability

to receive amounts under the policy in that case

was subject to proof of loss during any period of

total disability. And total disability was defined

and it was held by the High Court that the amounts

received were in substitution for income and therefore

took the place of a revenue receipt.

I come now to the facts of the present case

where Mr Inkster received compensation under the

WORKERS COMPENSATION AND ASSISTANCE ACT 1981 of

this State. A decision was handed down in his

favour by the Administrative Appeals Tribunal saying

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Inkster

that amounts received were capital and not income

but on appeal to the Full Federal Court in the

decision handed down only 13 days ago the Full

Federal Court unanimously held that the amounts

were income. Justices Lee and Gummow found that

the amounts of compensation that were paid were for the loss of capacity to earn income and, in

fact, the calculation was directed to lump sum

payments in schedule 2 - that is at pages 62 and

63 of the appeal book.	I would like to turn to
that at this stage - pages 62 and 63.	In the first

new paragraph, at line 7, Mr Justice Lee, with
whom Mr Just ice Gummow agreed said:

In making a calculation based upon

notional earnings to assess the respondent's

entitlement to weekly payments of compensation
for his disability of pneumoconiosis, the

employer's insurer proceeded to an assessment

that disregarded whether, in fact, a partial

incapacity for work had resulted from the

disability and a loss of earnings had been

suffered by the respondent during such

incapacity. As was set out in the evidence

adduced before the tribunal._ the calculation
of the weekly payments of compensation paid
to the respondent represented an assessment
of the diminution of the respondent's
capacity to earn income and was made in
consequence of the finding of the medical
panel that the disease of pneumoconiosis had

impaired the respondent's ability to undertake

physical effort by 40 per cent.

No loss of income was established or

sought to be established nor inferred from

the facts. The calculation proceeded as if

the respondent had an entitlement to an
assessment for compensation which represented

the extent of the impairment of his ability

to gain income by personal exertion. As

such it was an assessment of the loss of capacity

to earn income and not a calculation of a

payment to serve as a contribution to offset

an actual loss of income. In that regard

it was directed more to the matters with which

Schedule 2 of the COMPENSATION ACT was concerned,

namely calculation of lump sum payments for

compensation for the impairment of a worker's ability to earning income by reason of bodily

injuries.

Despite making that finding, Their Honours

Justices Lee and Gummow then looked further to

see whether nevertheless the amounts received were

of an income nature and they held that they were

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for reasons which are set out in paragraph 4 of

the outline.

Shortly stated, Their Honours said that the

characterization of the amounts received in the

hands of the applicant depend upon the purpose

of the payments as per the statute - the COMPENSATION

ACT - and there they found that under the Act it

would have been capital but you must also look

at the further circumstances regarding receipt

in the hands of the applicant. And in this case,

the most important consideration they found was that under the provisions of the Act the loss of

earning capacity was to be looked at by reference

to earning capacity and regular weekly amounts

were to be paid.

TOOHEY J:  Mr O'Connor, were the amounts to be paid arrived

at by applying the percentage disability to the
average weekly earnings of a person in that type

of employment at the time that the assessment

was made by the medical tribunal or is that an

over-simplification?

MR O'CONNOR: Unfortunately, Your Honour, I think that is

an over-simplification. It is not spelt out with

clarity in either of the judgments of the tribunal

or the Federal Court.

TOOHEY J:  The figure of 40 per cent, of course, is mentioned

in the judgments, is it not?

MR O'CONNOR:	That was the first assessment of the extent of impairment of earning capacity; it was later
found to be 60 per cent but it seems that the
40 per cent was not applied to any figure and the 60 per cent was not applied to any figure. If
I could tell you what it was. The amount of
compensation actually paid was calculated firstly
by reference to what a fitter employed as at November 1983 would have earned as a fitter with
Westrail, compared with the adult basic wage as at that time. And the applicant was paid the
difference between the two.

Subsequently, when his impairment was 60 per

cent, the earnings were calculated by reference

to what he would have earned as a fitter and

deducted from that half the basic wage. The judgments

do not make clear as to why that calculation was

made that way but that was the basis of it.

TOOHEY J:  And is there any particular correlation between

the percentage disability and the amounts or the

manner in which the amounts were calculated?

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Inkster

MR O'CONNOR:  As I understand it, there is no direct

correlation between the 40 per cent, takir~

into account the full basic wage,and 60 per cent

taking into account half the basic wage. The

judgments say, at several stages, that the amount

paid was a notional figure which was agreed between

the parties.

Mr Justice Pincus, as I say in the outline

and go into in more detail, was prepared to

apply SLAVEN's case, which is the case where the

MOTOR ACCIDENTS ACT in Victoria had been amended

to change the provisions so that compensation was

paid for impairment of income earning capacity

but he found that there were three distinguishing

features in SLAVEN's case.	He considered them
in the light of this case.	I do say, in my outline,

at paragraph 16, Mr Justice Pincus found that the

first guideline was satisfied but not the other

two.

That is incorrect as stated. What he actually

did is stated at page 32 of the appeal book and

at the middle paragraph of page 32 he says:

A broader consideration is that, as a

matter of common sense, what the compensation

statute calls the rights created should not

be decisive, for the purpose of exaction of

tax. Therefore, although I do not think that, as to description in the compensation statute, the payments in question should be classed

with those in SLAVEN, that is not in itself

a powerful reason for distinguishing SLAVEN.

So the first factor he found that it was not enough

to distinguish it. He did find against the applicant

on the other two factors and for the reasons which

I have stated in the outline extending over several

pages I disagree with those.

the decision in the applicant's case appears to We come to the situation where in this case

be contrary to what has been said by a decision

of the Full Federal Court in SLAVEN's case.

TOOHEY J: It may be difficult to say yes or no to that

without having some clearer idea of how the weekly

payments were arrived at. In the ordinary course,

if they represented some sort of difference between

what the worker was earning at the time of an

accident and what he or she was able to earn

thereafter, I suppose there might not be a great

deal of difficulty in concluding that those payments

were by way of income because they were intended

to meet the income that had been lost. But the

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judgments of Justice Pincus and Justice Lee both

speak of these payments as in some way ameliorating

the financial position of the applicant or

supplementing and I am not at all clear what it

is that is being ameliorated and what it is that

is being supplemented.

MR O'CONNOR:  That is the difficulty of the case,

Your Honour. Section 18 of the WORKERS COMPENSATION

AND ASSISTANCE ACT provides that compensation shall

be paid for a disability. And section S(l)(b)

defines the disability which occurs in this case.

Section 18 says:

If a disability of a worker occurs, the

employer shall, subject to this Act, be

liable to pay compensation in accordance with

Schedule 1.

The word "disability" occurs there. It is defined

as - in paragraph (b):

a disabling disease to which Part III

Division 3 applies -

and that does cover the disease in this case.

So the Act proper refers to compensation for

a disability. It does say "in accordance with
Schedule 1" and that brings in the weekly earnings.
But our submission is that the method of calculation
of the compensation does not determine the

character of it, as I refer in the outline to the

GLENBOIG FIRECLAY case and PHILLIPS case.	And
that point was discussed by Your Honour
Justice Deane in TINKLER's case.

The fact that compensation for the loss of

a capital asset might be calculated by reference

to weekly amounts does not make that compensation

itself of a revenue character. It is still necessary

to look at all the circumstances. I know, saying

"Look at all the circumstances" - - -

TOOHEY J: The difficulty about that, Mr O'Connor, is that

again before you can, I think, answer the question
whether it is compensation for destruction or

reduction of a capital asset, do you not need to

know something about the - not so much the method

of calculation but what the calculation is aimed

to do? And I under s tar'ri here that it seems to

have had no relation. _at all to what Mr Inkster was

earning at any given time. Indeed, when the

assessment was made he was retired, was he not?

MR O'CONNOR:  Yes. He worked in this area and the disability

occurred - or the genesis of it was in the late

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1940s and early 1950s as a fitter and turner with

the WAGR. He then was employed by the police force

and he retired in 1982 and it was subsequent to

that retirement when he was receiving superannuation

of an amount in excess of what he would have been

earning as a fitter and turner that it was discovered

that he had asbestosis. He did have some temporary

employment after he retired, he worked for Crown

Law and, once again, he was earning more there

than he would have as a fitter and turner.	But
the medical panel, having decided that he was

suffering a disability to which section 18 applied -

he was entitled to compensation but he was not

enduring a loss of income and it was agreed between

the parties t;hat he b~ paid a notional amount. It

had some reference to weekly earnings but it had

no connection with his weekly earnings, the Act

providing that the weekly earnings to which reference

was to be made were those in the late 1940s and

1950s, or the position he held then.

It seems that he actually received an agreed

amount which had some reference to weekly earnings,

as I said, what a fitter and turner would have

been earning in November 1983 when the disability

showed itself, compared with the minimum wage for

an adult male at that stage. It was agreed

between -

TOOHEY J:  And when the disability was assessed at 60 per

cent rather than 40 per cent, was the amount of

weekly payments or fortnightly payments also agreed

or were they the subject of some determination?

MR O'CONNOR:  No, they were agreed and from the figure which

a fitter and turner would have earned, was deducted

half the adult basic wage as at that stage instead

of the full basic wage which was the case when

he was assessed at having 40 per cent impairment.

TOOHEY J: That seems to be, if not based on, at least to

have some notion underlying it of a capacity to

earn but not in the sort of employment in which

the person was engaged at the time that the disease

was contracted. Was that the way it was looked

at?

MR O'CONNOR:  No, the Act provides - even though it does

not seem to ·have been followed to tfie • ·

letter, .. that the disability be calcuiated by

reference to the employment as at the time when
the disability occurred and that means back in

the late 1940s/1950s and that is why the first

figure looked at is what a fitter and turner would

be earning in November 1983. That was the

employment - - -

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TOOHEY J: Yes. I dld not mean to suggest otherwise but what I

was asking you was whether underlying the approach

to the payments to be made was the notion that
the person concerned can work but cannot work in
the range of employment that was available to him
at the time or immediately before the disease was
contracted. Is that in any way reflected in the

manner in which the compensation is assessed?

MR O'CONNOR:	Mr Justice Lee states in his judgment that actual loss of income is not relevant because the
Act is aimed at compensating for a disability. So
if a disability occurred in a particular occupation
there is an entitlement regardless of whether the
person is working in that particular field or any
other field at the time he becomes entitled to
compensation.

Your Honours, there are several factors

mentioned by Justice Lee and agreed with by

Justice Gummow and I have identified them in

paragraph 4. I do not intend to go through them

in detail now. ~hey are listed there. There are

eight factors. I have commented on them in the

reasons and, shortly stated, I say that really they
only look to periodicity once again, having already

said themselves that periodicity in itself is not

sufficient to make receipts income. They also

refer to the fact that the Act requires reference

to weekly earnings but I submit that they do not
give sufficient consideration to the fact that

the Act does provide for compensation for loss

of an ability, loss of a capacity to earn.

And as mentioned a while ago, the GLENBOID cases and the PHILLIPS' cases which I mentioned in paragraph 9 say that that is insufficient to

change the character of an amo't:1Bt,4tself. The difficulty is

that the decided cases do not say what facts you

do have to look to or what you can look to to

determine it. It is necessary to look at all the circumstances and, in our submission,there are	insufficient circumstances here to turn it into	income when regard is had to two special facts,
the fact that the compensation is for a disability
and the fact that there was no loss of income
actually in this case.

TOOHEY J:  When you say it is for disability, what exactly

do you mean? I mean, it is not for a disability

as I understand it in the sense that the schedule 2

payments, if they still exist under this Act -

and I am not terribly familiar with the current

statute - but, in other words, loss of use of an

arm or loss of use of a leg, is it that sense in

which you are speaking of disability or are you

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speaking of disability in the sense of an

inability, if only notionally, to earn what could

have been earned before the disease was contracted?

MR O'CONNOR:  I think it is the second one you mentioned,

Your Honour. Could I refer to SLAVEN's case, the

joint judgment of Their Honours at page 21,
1 FCR, where Their Honours say:

The exercise in which the Board is required to engage by the Act is not merely

one of assessing lost earnings. It is in

fact an exercise in valuation. It is true

to say that the amount of compensation payable
to an injured person is quantified by a
consideration of what the use of the lost

or diminished earning capacity might be expected

to produce. In some simple situations the

amount of lost earnings may be a certain and

ready guide to the amount of entitlement.
But the Board's task is essentially to
determine the compensation payable to a person
having regard to the deprivation or

impairment of hris earning capacity by reason of the injury. The distinction between loss of earnings and loss of earning capacity is

well established; it is by no means fictional.

And the cases quoted are PAFF V SPEED, GRAHAM V

BAKER, SKELTON V COLLINS, ATLAS TILES V BRIERS

and CULLEN V TRAPPELL. That is the distinction

I am trying to make. As Your Honour put it, through

the loss of a limb or such, an inability to earn the income as distinct from the income itself not earned.

DEANE J:	But if you quantify lost earning capacity in the
context of a weekly amount, for example, that you
say his loss of earning capacity is $40 per week
and you then go on and say, "And we will compensate him $40 per week for every week to which that loss
of earning capacity applies", you are in an area
where there is no case that says, "That's not
revenue".

(Continued on page 11)

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MR O'CONNOR:  That would appear to be a clear-cut case,

Your Honour where the amount of loss is exactly

compensated.

DEANE J:	Even though he was not working and did not intend
to work?
MR O'CONNOR:	That adds an additional fact, Your Honour. I was under the impression that in the example you were given the person had lost $40 per week.
DEANE J:	Let us say A and Bare identically qualified people
who suffer identical injuries, A does not propose to
work, B does, their loss of earning capacity is the same and it is said, "Each has lost earning capacity in the amount of $40 per week, we will pay each of them
$40 for each week in which that loss of earning
cap a c i t y  i s a pp 1 i cab 1 e" , and we w i 11 say, "We w i 11
finish at 65 and they will get a lump sum because
after 65 the earning capacity becomes irrelevant on
a weekly basis". It surely cannot affect the result
whether A was going to work, or not, or - - -
MR O'CONNOR:	Well, it would depend upon the wording of the

statutory provisions and the payments you envisage

are paid in two different sets of circumstances and

I would imagine there would be different provisions

covering them and on the basis of SLAVEN's case,

if the one who did not intend to work, if the

legislation there provided for compensation for loss

of income earning ability I would respectfully

submit that that could be covered. That, with respect,

statute the reference is always to the loss or diminution of income earning ability.

is what seems to have been held in SLAVEN's case. throughout the

It is obvious from the reading of TINKLER's

and SLAVEN's cases, and it is expressly stated by

the Court, quoting the judge at first instance, that

the Act there was changed to overcome the tax

situation the disadvantage suffered by the accident victims to
save them - so they would get the money earlier	and they
did not have to pay tax.	So the Act was carefully

worded so that consistently it was always referred

to as a diminution of income earning ability and

based on that wording and the consistency of it the

Full Court said that what was received, even though

it was received by five instalments, was of a

capital nature.

They did have some difficulty. They said the

evidence surrounding the five payments was sparse -

that is referred to at page 23 - but nevertheless

they did not have much difficulty in still finding
that it was capital and that was because of the

wording of what the compensation was for.	We submit
that it is the same situation here.	In all the

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Inkster

important provisions of our COMPENSATION ACT it is

for the disability. It is not for loss of wages.

At no stage in the Act is there a reference to loss

of wages and Justice Lee has expressly found that

it is not necessary that there be a loss of wages and there was not here, so it cannot be for that.

DEANE J:	But that does not really face the problem and
that is if the case is as I put to you and Justice
Gummow and Justice Lee seem to have seen it that way,
it is then but a short step to say, to use their
phrase, that the loss of earning capacity of $40 per
week has been realized and you have received the $40
per week for the $40 which, but for the injury, you
might have earned regardless of whether you would
have or not.  Now, if it goes that way it is difficult
to see it is not revenue. If it goes the way you
would put it there is force in the view that it is
capital.
MR O'CONNOR:	Your Honour, I am aware of the views you

expressed in TINKLER's case.

DEANE J: 

I was not conscious of expressing those views at all.

It seems to me all these cases are, to some extent, a

matter of impression and when you start trying to put

it all in terms of principle from one case or another
case you run into a minefield.

MR O'CONNOR: 

With respect, that is correct, Your Honour, and,

with respect, I submit that that is a reason why
special leave should be granted because it is a
minefield, the area is confusing and it is an appropriate
case in which special leave should be granted so that

the matter can be clarified.  Those are my

submissions, Your Honour.

DEANE J: 

Thank you, Mr O'Connor. Yes, Mr Williams.

MR WILLIAMS: 

Your Honours, the respondent submits that special

leave ought not to be granted in this case and does

so strongly submitting that the decision of the

Full Federal Court was plainly correct. The case	involves the application to a particular workers
compensation statute of fairly well established principles in relation to the construction of those
statutes and there is nothing unusual about this particular statute and there is nothing unusual
about the statement or the application of the
principles. The case involves the application of
well established principles for characterizing regular
payments as either capital or income, that is payments under workers compensation legislation, and no
question of principle not previously dealt with 1n
any authority really arises in this situation.

The authorities that have been referred to state

those principles. Each deals with its own fact

PlTll/2/HS	12	25 /10 I 89,
Inkster

situation and really, at bottom, none of the three

decisions to which principal reference has been

made contains any statement of principle

inconsistent with those that have been applied by

the Court in this case.

Could I, before responding to the outline of submissions, just briefly state the manner in which

the respondent sees the issues arising. Under

section 18 of the Act the employer has a liability

to pay compensation if a disability arises and

under section 21 the employer:

is liable to pay compensation under

this Act from the date of incapacity

resulting from the disability.

Now, up to that point all it says is that there

is a liability and a concomitant entitlement to

compensation. In the pneumoconiosis situation the

disability and incapacity are dealt with on a slightly

different basis. In section 33 it is provided that:

Where a worker IB disabled from earning

full wages by reason of suffering

from .....

(a) pneumocon1os1s .....

and the disease is, or was, du~ to the nature

of any employment in which the worker was

employed at any time previous to the date

of the disablement -

and if something else is shown -

a disability, being pneumoconiosis .....

of the worker occurs and this Act applies

to that disability subject, however, to

this Division.

Now, section 41(1) provides that, subject to

exceptions: 

the compensation is recoverable from the

employer who last employed the worker

during -

a certain period in a certain case -

or, in the case of pneumoconiosis who

last employed the worker, in the

employment to the nature of which the

disease is, or was, due.

Now, the distinction between the ordinary situation

and the pneumoconiosis situation is that a disability

in the ordinary case is equated in pneumoconiosis

PlTll/3/HS	13
Inkster

with the disability by reason of the disease

from earning full wages. So instead of incapacity

we have simply disability from earning full wages.

That is defined, but the definition does not add

anything, in section 5:

"disabled from earning full wages"

means rendered less able to earn

full wages.

Now, up to that point the entitlement is simply to compensation for a disability or for a disabling

disease. Section 42 then provides that:

The amount of the compensation shall be

calculated with reference to the earnings

of the worker under the employer from

whom the compensation is recoverable.

Now, that means that where in the schedule dealing

with the weekly earnings there is reference to

weekly earnings from employment it means weekly

earnings from the employer of the person who employed

the person at the time they were exposed to the dust

which caused the pneumoconiosis. There is nothing

said up to that point as to anything but an entitlement

to compensation, other than to an entitlement to

compensation. There is nothing said as to what that

compensation is. When one turns to what the

compensation is there is nothing in the Act that even

suggests that there is a direct attempt by the

legislature to direct a calculation of a loss of

earning capacity. There is a formula provided and

the formula is the be-all and end-all of the matter.

In the particular case of a partial incapacity

with which we are concerned in schedule 1, clause 7,

it provides that:

where a partial incapacity for work

results from the disability, a weekly

payment during the partial incapacity equal to the amount by which the total

weekly earnings of the worker calculated

and varied in accordance with this

Schedule would exceed the weekly amount

exclusive of -

certain items -

which he is earning or is able to earn

in some suitable employment or business

after the occurrence of the disability.

So what he is entitled to in the ordinary workers

compensation situation is his weekly earnings minus

a deduction of what he could earn by reason of being

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only partially capable of working. It is a formula,

it is not a valuation. Weekly earnings is then

defined in clause 11(1) in a particular way that
relates the earnings to the award or other source

of direction applicable to the worker at the time

he suffered the injury or the disability so that if
he changes the nature of his employment he still,

for example, in this case would have his

entitlement determined on the basis of being a fitter

and turner.

Now, in this particular case we have two

added complications; one is that his employer is an

employer who employed him many years ago and not the
current employer or even the second-last employer,
the second complication is that he is not actually in
employment or desiring to be in employment so that

the calculation is notional in two additional senses.

Now, what was done then by the applicant and the

insurer is briefly stated in the judgments.

Mr Justice Pincus at page 25 of the appeal book said:

The payments of compensation, taxation

of which is in issue, were calculated

by subtracting the minimum wage from

the fitter's wage as at November 1983.

Now, we do not get an explanation there of why the

minimum wage was used. At page 57, line 15:

It was necessary for the respondent to

demonstrate what amount he was able to

earn -

that is using the words of clause 7 of the schedule -

if he were required to do so, but the

employer waived that requirement and

accepted that the respondent was only

able to earn the minimum weekly wage

payable to an adult male. Both parties

were satisfied that a notional calculation

represented the appropriate measure of

the compensation payable under the

COMPENSATION ACT in respect of the reduction

in the respondent's capacity to earn income.

Now, there was a complication introduced by the medical

panel's second finding that increased the disability

from a 40 per cent disability to a 60 per cent

disability. That was dealt with by Mr Justice Lee

at page 47, line 15,where he refers to the further

finding. He then says at line 20:

After April 1985 the amount of

compensation paid to the respondent was

increased to the difference between one

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half of the State Male Minimum Wage

and the wage payable to a fitter

employed by his former employer.

Now, what that results in is that there is as between

the parties an agreement as to his ability to earn

a wage which represents the deduction from the

notional weekly earnings that he would have earned
had he continued to be a fitter and turner at the

time that he was employed. So in every sense of

the word the traditional formula has been maintained
by applying notions or fictions to cater for the
situations that (a) it was not a current employer,

(b) it occurred a long time ago, (c) he was not in

employment, and (d) it was not known what he would

be able to earn or was not sought to be required to

be proven what he would be able to be earning.

When one analyses it in that sense there is no

attempt anywhere in any of the calculation exercises

to do a valuation of a loss of earning capacity.

It is purely an application of the formula by slotting

in things that are not there with things that are

either agreed or seen to be applicable, and then

when one sees what the court has done, in particular

Justices Gummow and Lee, one can see that they have

accepted that they have accepted that the statutory

entitlement is a compensation for loss of earning

capacity but the statutory measure is one in which,

in effect, the impairment of the fruit-bearing tree

is supplied by a regular supply of the fruit that the

tree would otherwise have provided. I use there the

analogy that was adopted by the judgment of four

members of the court in the SMITH case to which my

learned friend referred.

What Justices Gummow and Lee then did was to

say, ''Well, what are the factors which, notwithstanding
that the entitlement is to a compensation for a

capital item, a loss of earning capacity, which

suggest that the payments received were of a revenue

nature", and what they did is then set out at pages 67
and following in the appeal book.	The first point

they make at line 3 on page 67 is that:

Although the payments had their origins

in capital, they were,not in the nature

of payments by instalments of a fixed

sum due and owing.

There was no evaluation and no instalments of a lump sum, and secondly:

The payments were intended to serve the purpose of providing a regular income

supplement to the respondent.

That is the statutory purpose of WORKERS COMPENSATION legislation.

PlTll/6/HS	16
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They then considered to the extent there was

any evidence at all what was the nature of the money in the hands of the taxpayer and accepting, as they

say, at line 16, that:

the respondent may not have relied
upon the payments to meet his regular

expenditure ..... the payments were

calculated as weekly payments by
reference to notional weekly earnings

and were received fortnightly by the respondent over a significant period of time.

They highlight that the Act provides for weekly

payments and they highlight the fact that they were

paid regularly. Seen in that light, it is not

accurate, in our submission, to say that the only

factor relied upon by the court was the periodicity

of the payments. That fails to have regard to the
fact that the whole formula, the method of calculation
decreed by the Act, is one which provides for payments

in the nature of revenue and in the nature of

regular receipts in the way that income would have been
received.

In our submission, at the bottom in order to succeed in an appeal in this case the applicant would

have to challenge the basic principle that weekly
payments in the ordinary routine or orthodox situation
are revenue. In other words, apart from the fact that

there are some fictional or deemed factors, there is

nothing, in our submission, that takes this out of the

regular application of the Act. It means that every

worker who receives weekly payments because he is

disabled in his current employment would have the

same arguments open to them. It is not to the point to

say he was not in receipt of income, it is not therefore

a replacement for that income. The Act provides for

the payment of income whether or not the worker
chooses, at the time he seeks compensation, to work

or not to work.

Given that there is only a minor variation 1n

relation to the pneumoconiosis situation from the

ordinary one and that relates only to the entitlement

to compensation and not to the quantification of it
there is no difference in this case from any other

because it is a pneumoconiosis case and not an

ordinary case. In making those submissions I think

I generally addressed the comments that my learned

friend has addressed in respect of the judgment of

Justice Lee and Justice Gummow agreed. I have not

consistent with that of the other two members of the court but he goes into the particular

addressed directly the judgment of Justice Pincus. completely

exercise of seeking to determine whether or not there

PlTll/7/HS	17
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are any cases inconsistent with the decision sought

to be made and he distinguishes SLAVEN for very

good reason. SLAVEN was a case in which the statute

said the payment to which the person is entitled is

a payment which is a valuation of a lost earning

capacity. It is an entirely different situation

because it did not just give rise to an entitlement.

It said that the payment is to be that value,

although it may be paid by instalments, and if

SLAVEN's case does not support the applicant, as

it does not in our submission, then there is no case

which does. They are our submissions.

DEANE J:  Thank you, Mr Williams. Mr O'Connor.

MR O'CONNOR:  My learned friend has referred to the provisions

of the Act, referring several times to words such

as "disability". I submit that that merely

reinforces our argument that we are dealing with a

capital asset. He says that the formula is the be-all

and end-all. I submit that that is incorrect in that

the formula only comes in via the schedule.

The Act itself refers to disability which is talking

in terms of a capital asset. He says that it is not
to the point to refer to the periodicity elements
only. He suggested that I had ignored the formula.

That is not so. I referred to the formula and then

referred to GLENBOIG and PHILLIPS' cases. He says

that our case would mean challenging the whole basis

of the assessability of regular receipts. That is
not so. It is necessary to look at all the

circumstances as well as the purpose for which a

payment is made under a statute.

One of the important circumstances is what the

amount in substitution is received for, that being

the main point arising out of SMITH's case. In this

case the special circumstances are that it is for

impairment of a capital asset and there is no loss

of income. He says that in SLAVEN's case there is

a valuation of lost earning capacity. We submit

The payments to be made under schedule 1 pursuant that essentially that is what is happening here.	to the direction in section 18 are in respect of
disability. The calculations to be made under the
schedules are for the capital asset referred to in
section 18. Your Honours, what we have here is
someone who suffers a disability which originates
40-odd years ago. It has left him in a condition
where he is not able to earn as much as he otherwise
would.

Nevertheless he has been in other employment.

He is now no longer working.	He is receiving
superannuation.	He has had other jobs from which

he has derived income but, nevertheless, as a result

of what happened in the late 1940s, early 1950s,

PlTll/8/HS	18
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his ability to earn has been affected. The Act

provides that that is to be compensated and in a
schedule it sets out how it is to be calculated

but nevertheless it is for the loss of a use, to

some extent, of a bodily function, and that should

be treated as capital and not assessable income.

There are many people in a similar situation,

many people receiving compensation under the

COMPENSATION ACT who will be assessable when all

the circumstances are taken into account. If they

have lost income and the amount is to compensate

them for that, having regard to the calculations under the schedule, they will be assessable. In

other cases, depending on the facts in the particular

case, the amount should not be assessable and we

submit that this case is an appropriate one in which

those guidelines should be set down by the High Court

and for those reasons we seek special leave.

May it please the Court.

DEANE J:	Having heard the argument the Court has come to the
view that the decision of the Full Federal Court is
not attended by sufficient doubt to warrant the
grant of special leave to appeal. Special leave to
appeal is accordingly refused.
MR WILLIAMS:	We would seek an order, Your Honour, dismissing the application with costs?
DEANE J:	Mr O'Connor.
MR O'CONNOR:	I believP there are no submissions I can put

forward in opposition to that, Your Honour.

DEANE J:  Very well. Special leave to appeal is refused

with costs.

AT 3.25 PM THE MATTER WAS ADJOURNED SINE DIE

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