O'Connor v Stephens No. Scgrg-98-737 Judgment No. S87
[1999] SASC 87
•24 March 1999
O'CONNOR v STEPHENS
[1999] SASC 87
Full Court: Millhouse J, Prior and Duggan JJ
Millhouse J. On 5 April 1995 the respondent had an accident when she was on her way to her restaurant in Tanunda. She was driving a motor car when a truck driven by the appellant turned right across her path. To avoid it, the respondent collided with an ambulance travelling behind the truck.
She was quite badly injured, so badly she has not been and will not be, able to work again as a chef. She sued for damages. The learned trial judge was for the respondent on liability. He awarded her $202,086.30 damages.
The appellant originally had a number of grounds of appeal. At the time we heard the appeal, he had abandoned all except for a complaint about the assessment for loss of future earning capacity, $140,000 and the use of projections, probably prepared by the respondent's accountant, of the future earnings of the restaurant.
At the time of accident the respondent was 35. She had left school and home when she was 16 and had supported herself by gardening and other physical work. She developed a love of cooking. For ten years she had a catering business in the Barossa Valley. She had had a number of other business ventures, all to do with food.
In 1990 in Tanunda she started the restaurant "Crackers". The restaurant became very popular, highly regarded. Paradoxically it made little money. The learned trial judge said:-
"The profit and loss statements for the completed financial years of the restaurant reveal the following net profit:-
·.. 1991 $20,634
·.. 1992 $ 2,381
·.. 1993 $ 5,924
·.. 1994 $14,012
I say completed financial years because the plaintiff operated the business for part of the financial year 1990 and part of the financial year 1995. Mr Jay" (an accountant called by the defendant) "said that it was not appropriate to consider the financial results in those years as the restaurant only operated for part of a year."
The respondent didn't care about how little she was making. She loved cooking, she loved running the restaurant. She had a lifestyle which was right for her. She wasn't good with the books. She was an "accountancy illiterate" and left that side of things to professionals.
Maybe this is what got her into trouble with the taxation people. She did not pay her Group Tax in the financial years 1992 and 1993. At the time of the accident she had begun paying back what she owed to the Australian Taxation Office, about $31,000 in all, at $1,000 a month.
When she first started "Crackers" in 1990 she did the cooking herself and had an assistant at "front of house". When "Crackers" became so popular she employed several chefs and other staff. Then in 1994 she decided to reduce the operation so that by April 1995 she was back where she started, being her own chef and having one employee. This way she made rather more money but I doubt if that were the only reason for what she called a "sea change" in the way she ran the business.
Unfortunately the changes in the scale of the business - small, expansion, contraction again - made the learned judge's job of assessment pretty difficult. He did not have much to go on.
He did, though, look at one document (Exhibit D 24) which had been tendered by the appellant during cross-examination of the respondent. It was a projection up to the end of 1995 of monthly cash flows for the restaurant, apparently prepared by her then accountants Mick Hislop and Associates. The appellant had tried to use it to discredit the respondent. [In this he failed]. The respondent disowned the document. There was no evidence, called by either side, to prove it or the projections in it.
In his Reasons the learned judge said of other cash flow projections produced by another witness:-
"Opinions regarding the financial performance of the restaurant were given by Mr Peter Gregg, an accountant called on behalf of the plaintiff, and Mr Christopher Jay, an accountant called on behalf of the defendant. Mr Gregg produced cash flow projections of the business from 1996 to the year 2000. Mr Day, counsel for the plaintiff, in his address, conceded that he could not rely on those projections. In my opinion this was a correct and proper concession to make as the assumptions of fact upon which the projections were based were not established in evidence. Accordingly, I reject the evidence of Mr Gregg regarding his financial projections."
Yet later he said:-
"I consider that assistance" (in assessing loss of future earning capacity) "may also be derived from a document tendered in evidence and entitled 'Projected Monthly Cash Flows'. This document was prepared by the plaintiff's then accountants, Mick Hislop and Associates, for presentation to the ATO in support of the submission that the plaintiff be granted approval to repay the outstanding Group Tax by instalments. Mick Hislop and Associates produced an estimate of monthly cash flows for the calendar year 1995. It was estimated that at the end of the year 1995 the restaurant would have achieved a cash surplus of $14,016. The estimates made by the accountants included an expenditure of $12,000 per annum representing instalments of $1,000 per month towards the discharge of the indebtedness which the plaintiff had for outstanding Group Tax. That indebtedness was approximately $31,000 in November 1994. If the plaintiff's financial results were close to the projections provided by Mick Hislop and Associates then her liability to the ATO was likely to be discharged sometime in 1996. ... Whilst it must be recognised that Mick Hislop and Associates' figures were only projections it should also be recognised that those figures were produced by the accountants who had looked after the financial affairs of the restaurant since its inception."
Having earlier given himself a proper warning about using projections unsupported by evidence, he appears then to have been inclined to do so. He went on:-
"As I mentioned when considering damages for past loss of earning capacity the projection of the accountants, Mick Hislop and Associates provided some assistance. If the actual results that were achieved were close to the estimates then at the date of trial the Group Tax debt would have been discharged. As I have also said, in my opinion the evidence discloses that it was probable that the restaurant could have achieved financial results in the time up to trial similar to that projected by the accountants or even a little more."
Mr Mark Livesey for the appellant attacked the use of the projections to undermine the learned judge's assessment of $140,000 for loss of future earning capacity.
The learned judge had said:-
"... an attempt to achieve a measure of precision in assessing the plaintiff's loss of future earning capacity is impossible. One method of looking at the question is to estimate the plaintiff's income from the restaurant at the date of trial. Using the projection of Mick Hislop and Associates as a guide then the plaintiff would have been earning before taxation was deducted an amount of $26,016. This figure is arrived at by adding to the cash surplus of $14,016 indicated in the projection calculation the sum of $12,000 being the amount identified as the ATO payment. As I earlier indicated it would have been more probable then not that the plaintiff would have satisfied that liability by the date of trial. This annual net profit translates to a weekly net profit before tax of about $500 per week before tax and an after tax amount of about $400 per week. If anything this amount may err a little on the conservative side because, in my view, there were indicators that the scaled down version of the restaurant was likely to produce better results by the end of 1997 than the projected results for 1995."
Mr Livesey made a vigorous attack on the use by the learned judge of the projections. He relied on Ramsay v Watson [1961] 108 CLR 642. The High Court was there considering expert medical evidence and held that expert opinions had to be based on evidence to be of value:-
"Hearsay evidence does not become admissible to prove facts because the person who proposes to give it is a physician. And, if the man whom the physician examined refuses to confirm in the witness box what he said in the consulting room, then the physician's opinion may have little or no value, for part of the basis of it has gone." (@ 649)
The rule is the same for any expert evidence. Here it is that of an accountant presumably, who prepared the projections but the accountant was not called nor were the figures on which he relied proved.
As a rule Mr Livesey would be quite right to criticise a trial judge for using projections which had not been strictly proved. However, in what Mr Livesey said to us, he did not take into account submissions made by counsel at trial to the learned judge. Both counsel in their addresses referred to the projections of Hislop and Associates and preferred them to the projections of Horwath and Horwath. Mr Crocker, counsel for the defendant said of the Hislop projections:-
"Of all the documents that your Honour has, projecting what this business may or may not have done, the cash flow in D24 might be as useful as any of them. This is prepared by the accountant in December 1994 and it illustrates she really doesn't have very much spare cash."
Mr Day in his address had the following conversation with the learned trial judge:
"MR DAY:.................. Yes, it's part of D24. That projection reflects the position in 1995, so far as we are aware. Obviously there is an element of speculation in that as well, but I think my learned friend pointed towards this projection as being a far more reliable guide of the plaintiff's loss, certainly than the Horwath projects.
HIS HONOUR: That is what the defendant suggested, isn't it?
MR DAY:Yes."
It is clear that Mr Crocker, for the defendant, conceded that the Hislop projections could be used in determining economic loss. The learned judge therefore should not be criticised for relying on a document accepted by both counsel.
That aside, His Honour came to the same result by another path, using the relevant industrial award. This he was also entitled to do:-
"Even if the plaintiff closed the restaurant in the future it was likely that she could have earnt income from other work of at least $400 per week after deduction for taxation. In so doing I note that the Cafe and Restaurants (South Australia) Award provides for a weekly salary for a Cook (Tradesperson) as gross $451.20 per week which translates to about $364 per week after tax. It is clear from the evidence that the plaintiff was a chef of some distinction. I have no doubt that she could have commanded a higher salary than that amount."
There was only one qualification to the use of the award in this case. Two psychologists were of opinion that the respondent's personality made it difficult for her to work with others. She is a loner. However the learned judge came to the conclusion that she could cope:-
"... the plaintiff may encounter difficulties working in an employed environment but she could cope. ... I am of the view that had the plaintiff ceased operating the restaurant then she would have had the capacity to undertake work whether it be in the form of self-employment or employment by others. I have little doubt that if she had undertaken employment or self-employment that she would be successful. Such employment could have included that of a chef in another establishment operated by some other person. It is likely that she may not have been suited to all kitchens but there would have been many kitchens which would have been compatible with her personality."
In the light of his finding about the respondent His Honour was quite entitled to use the Award as a guide in assessing loss of earning capacity.
By using the Award he came to the same figure - $400 per week - as he had in using the projections of Mick Hislop and Associates.
I pause to remark that this figure of $400 shews a much greater earning capacity than the respondent had been using in running the restaurant. It doesn't matter. In Medlin v the State Government Insurance Commission (1995) 182 CLR 1, McHugh J succinctly described the difference between loss of earnings and loss of earning capacity:-
"Earning capacity is an intangible asset. Its value depends on what it is capable of producing. Earnings are evidence of the value of earning capacity but they are not synonymous with its value. When loss of earnings rather than loss of capacity to earn is the criterion, the natural tendency is to compare the plaintiff's pre-accident and post-accident earnings. This sometimes means that no attention is paid to that part of the plaintiff's capacity to earn that was not exploited before the accident. Further, there is a tendency to assume that if pre-accident and post-accident incomes are comparable, no loss has occurred."
That she had had the capacity is one thing: whether she had been choosing to use it is another. She preferred doing something she enjoyed with a small financial return, rather than doing something else with a larger financial return. This did not affect her capacity to earn.
Using a net loss of $400, by reference to the table in Professor Luntz' book the learned judge came to a figure of $305,200. Having weighed up the contingencies he concluded:-
"Accepting that something of a broad brush approach is required I assess the plaintiff's damages for loss of future earning capacity at $140,000."
It seems a fair figure. We should not disturb it.
PRIOR J I agree with what Millhouse J has said about the use of projections by the trial judge. Given what occurred at the trial, no proper complaint is made out with respect to the use of those projections as a guide to what the respondent could have earned had she continued as a chef. That figure was then one to take into account against the reality that, whilst the respondent retained an earning capacity, that was unexploited in the past and subject to the particular difficulties identified in the trial judge’s reasons including the problem of exercising the retained earning capacity in a competitive market. All that the trial judge did was to use the estimate of a loss of total earning capacity as “some assistance in assessing damages for loss of future earning capacity”, the broad brush approach resulting in the assessment complained of.
This Court cannot interfere with the award for future economic loss. The trial judge did not act on a wrong principle of law, misapprehend the facts, or make a wholly erroneous estimate of the damage suffered[1].
[1] Miller v Jennings (1954) 92 CLR 190 at 195 - 196
The appeal should be dismissed.
DUGGAN J. I agree that this appeal should be dismissed for the reasons given by Millhouse J.
JUDGMENT CITATIONS
LISTED IN ORDER OF APPEARANCE IN JUDGMENT
Miller v Jennings(1954) 92 CLR 190 at 195 - 196
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2
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