Seymour v Gough

[1994] QCA 539

IN THE COURT OF APPEAL	[1994] QCA 539
SUPREME COURT OF QUEENSLAND	Appeal No. 239 of 1993
Brisbane
Before	Fitzgerald P. Davies J.A. Pincus J.A.

[Suncorp Insurance and Finance v. Seymour]

BETWEEN:

RONALD STANLEY CLARK SEYMOUR

(Plaintiff) Respondent

AND:

IAN GOUGH

(First Defendant)

AND:

MARIA GOUGH

(Second Defendant)

AND:

SUNCORP INSURANCE AND FINANCE

(Defendant by Election) Appellant

REASONS FOR JUDGMENT - FITZGERALD P.

Judgment delivered 14/12/1994

The circumstances giving rise to this appeal are set out in the reasons for judgment of Pincus J.A., and need not be fully repeated.

At the time when he was injured on 9 September 1987, the respondent (plaintiff) was a member of an equal partnership between himself and his wife, presumably to allow them to split the income which was earned, principally from work performed by the respondent. At the end of that financial year, the partnership was replaced by a company, in which the respondent and his wife are equal shareholders, and apparently equally share legal control. In practice, it seems that the respondent's wife has deferred to him in decision making.

As a result of the respondent's injuries, first the partnership and then the company had to employ additional labour, at a cost of $400 per week. This reduced the profit of the partnership in the 1987-1988 financial year to $40,628.20. In that year, the profit of the partnership was shared equally between the respondent and his wife. It is a reasonable inference that the extra profit which the partnership would have gained if the respondent had not been injured would have been similarly shared. The respondent accordingly lost an amount equivalent to $200.00 per week for 40 weeks (9 September 1987 to 30 June 1988), i.e., $8,000.00. It is convenient to leave any question of discounting until later.

From 1 July 1988 to the trial of the action on 4 October 1993, the company lost $20,800.00 per year, and this reduced the amount available to be distributed to the respondent and his wife. It also diminished the value of the respondent's (and his wife's) investment in the company, but that loss is merely a reflection of the company's loss and is not recoverable in this action by the respondent: Gould v. Vaggelas (1985) 157 CLR 215. The respondent is entitled to be recompensed for his actual loss of income during this period, which is largely a matter of calculation, although inferences must be drawn as to how any additional profit of the company, if the additional labour had been unnecessary, would have been distributed.

It seems that there was some overlap between the operations of the partnership and the company in the 1988-1989 financial year, but in the result that is of little practical significance. After paying a director's salary of $19,500.00 each to the respondent and his wife, the company had an operating loss of $5.12. The partnership had a loss of $1377.00, which according to the partnership income tax return was also equally shared. Had it not been for the additional labour, there would have been additional profit of $19,417.88 ($20,800.00 minus $1,377 and $5.12). It a reasonable inference that this would have been paid to the respondent and his wife in equal shares. He therefore lost an additional $9,708.94.

In the 1989-90 financial year, the respondent received only $3,780.00 and his wife received $4,960.00 from the company, which sustained a loss of $880.66, resulting in accumulated losses of $885.78. Had it not been for the additional labour, the company would have had $19,914.22 for distribution which it is reasonable to infer would have been distributed between the respondent and his wife. In the absence of any clear evidence as to what would have occurred, I infer that the distribution would have been directed to overall equality between the respondent and his wife for that financial year. On that basis, the further payment to the respondent would have been an amount equal to half of the aggregate of $3,780.00 + $4,960.00 + $19,914.22; i.e., $14,327.11, less the $3,780.00 which the resopondent in fact received, an amount of $10,547.11.

In the 1990-1991 financial year, the company made an operating loss of $23,523.53 after payments of $5,200.00 to the respondent and $1,300.00 to his wife. Had it not been for the additional labour, the company's loss would have been only $2,723.53. I infer that no further payment would have been made to the respondent or his wife in that financial year, but that that smaller loss would have been carried forward into the 1991-1992 financial years.

In that year, after a payment of $13,855.00 to the respondent (and nothing to his wife), the company made a further loss of $7,354.67, bringing its accumulated losses to $10,0078.20 ($2,723.53 + $7,354.67). Had it not been for the additional labour, the company's profit would have been $10,721.80. I infer that that amount would have been distributed to the respondent, as with all other money paid by the company to its shareholders and directors that year.

That only takes the figures to 30 June 1992, and the trial was not held until 4 October 1993 (with judgment on 15 October 1993); the intervening period is a little over 15 months. However, the trial judge found that the respondent (or the partnership or company) "was out of" the business from which income was earned "for a period of 3 months at some time after he had been injured." In the circumstances, it is convenient to proceed on the basis that the respondent's pre-trial loss of earnings should be increased by reference to a further period of 1 year. For want of any better yardstick, I assume that the additional labour employed by the company in that period caused the respondent the same loss as in the previous financial year, i.e., $10,721.80.

That brings the total pre-trial loss to the respondent to $49,699.65, say $50,000.00. This is not much different from a loss of $200.00 per week (half the cost of the additional labour) during the period between the respondent's injury and the date of trial, with the one year in which the company would have made a loss even if there had been no need to employ additional labour omitted.

As is pointed out by Pincus J.A., the primary judge took as his starting point a higher weekly loss to the respondent and then discounted it by 25%. On the basis which I have adopted, I see no need to make any further discount to ascertain the amount which the respondent lost pre-trial.

To the amount of $50,000.00 which I have arrived at, interest must be added. Using Pincus J.A.'s figures, the amount of interest should be $(50,000/65,000 x 23,400), i.e., $18,000.00.

Although I have arrived at a different figure from Pincus J.A., on the point of principle which was argued before us I agree that the Full Court's decision in Lago v. Lago (1983) 2 QdR 29 is to be preferred to its slightly later decision in Batt v. Wilkinson (1983) 2 Qd.R. 659 with respect to the proper method of ascertainment of pre-trial damages when a plaintiff's injuries necessitate the employment of extra labour in a family partnership or company of which the plaintiff is a member.

The position in relation to the respondent's future economic loss is different. He is entitled to be compensated for any financial loss suffered because of the loss or diminution of his earning capacity: Graham v. Baker (1961) 106 CLR 340, 347; Griffiths v. Kerkemeyer (1977) 139 CLR 161, 165. This is a matter of estimation, related to the amount which he could have earned if he had not been injured, taking into account all appropriate contingencies, including the circumstance that he was not obliged to continue to work for the family company or to split his income with his wife.

On this basis, I can discern no sufficient reason to interfere with the judgment of the trial judge, who adopted the figure of $400.00 per week as a basis of calculation and then discounted it heavily to take account of contingencies for the remainder of the period for which the respondent would have worked but for his injuries. The figure of $400.00 seems to me justified as an indication of what the respondent could have earned, being the cost of replacement labour.

In the result, I would reduce the respondent's judgment by $53,000.00. The trial judge awarded the respondent $89,000.00 for past economic loss, which I would reduce to $50,000.00, and $32,000.00 for interest on past economic loss, which I would reduce to $18,000.00.

The appeal should therefore be allowed, with costs to be taxed, and the total amount awarded to the respondent for damages and interest reduced from $222,319.00 to $169,319.00.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 239 of 1993.

Brisbane

[Seymour & Ors. v. Suncorp Insurance and Finance]

BETWEEN:

RONALD STANLEY CLARK SEYMOUR

(Plaintiff) Respondent

- and -

IAN GOUGH

(First Defendant)

- and -

MARIA GOUGH

(Second Defendant)

AND:

SUNCORP INSURANCE AND FINANCE

(Defendant by Election)Appellant

____________________________________________________________

_____

Fitzgerald P
Pincus J.A.

Davies J.A.

____________________________________________________________

_____

Judgment delivered 14/12/1994

SEPARATE REASONS FOR JUDGMENT OF FITZGERALD P. PINCUS J.A.
AND DAVIES J.A. FITZGERALD P. AND DAVIES J.A. CONCURRING IN
PART; PINCUS J.A. AND DAVIES J.A. CONCURRING IN PART.
____________________________________________________________

_____

APPEAL ALLOWED. JUDGMENT OF PRIMARY JUDGE VARIED BY
SUBSTITUTING FOR THE SUM OF $187,959.00 MENTIONED THEREIN
THE SUM OF $140,959.00 AND BY SUBSTITUTING FOR THE SUM OF
$34,360.00 MENTIONED THEREIN THE SUM OF $20,360.00.
____________________________________________________________
_____

CATCHWORDS: APPEAL AND NEW TRIAL - quantum - personal injuries - plaintiff injured foot, requiring employment of person at $400.00 per week to perform plaintiff's duties - trial judge assessed pre-trial loss at $400.00 per week with 25% discount - plaintiff member of partnership and then company with wife - whether assessment of pre-trial and future economic loss excessive.

Lago v. Lago [1983] 2 Qd.R. 29.

Dal Zotto v. Bonnani (1980) 47 F.L.R. 239.

Counsel:	Mr W Sofronoff with him Mr K Holyoak for the appellant. Mr M Halliday for the respondent.
Solicitors:	McInnes Wilson Jenson for the appellant. R J Webster for the respondent.

Hearing date: 8 June 1994.
IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 239 of 1993.

Brisbane

Before Fitzgerald P
Pincus J.A.
Davies J.A.

[Seymour & Ors. v. Suncorp Insurance and Finance]

BETWEEN:

RONALD STANLEY CLARK SEYMOUR

(Plaintiff) Respondent

- and -

IAN GOUGH

(First Defendant)

- and -

MARIA GOUGH

(Second Defendant)

AND:

SUNCORP INSURANCE AND FINANCE

(Defendant by Election)Appellant

REASONS FOR JUDGMENT - PINCUS J.A.

Judgment delivered 14/12/1994

This is an appeal from the District Court in an action for damages for personal injuries, the appellant contending that the damages awarded were too high. The injured respondent was at relevant times in partnership with his wife and was subsequently a co-shareholder with his wife in a company; the partnership, and then the company, conducted a business of reading electricity meters and doing certain other work for SEQEB. The physical work was done by the respondent and by employees of the business. The wife's role in the business was not comprehensively defined; it was said that she actively backed the respondent up and looked after the books.

As a result of the respondent's injury it was necessary for the business to spend $400 per week for additional labour. The primary judge discounted that figure by 25%, apparently to allow for tax, and made an assessment of past economic loss on the basis of $300 per week from the date of accident to the trial, with the exception of a three month period which is mentioned below. As for the future, the judge again accepted a figure of $400 per week as a basis of calculation and discounted the figure that would produce for the remainder of the respondent's working life by 60%, for various contingencies. The result was an award including a component of $89,000 for past economic loss and $80,000 future economic loss.

The only challenge which the appellant makes to this calculation is that the judge should not have started with the loss incurred by the partnership, and then by the company, of $400 per week, but should have taken a lower figure to allow for the fact that the loss of $400 per week did not fall on the respondent; the respondent's loss was, it was said, not the same as that of the partnership, nor that of a company.

Leaving aside the unlikely case in which a partnership or company is alleged and proved to be a mere sham, I think that in this sort of situation the existence of a partnership or company to which the injured person has contributed labour may not simply be ignored. Some mention was made in argument of "lifting the veil", but that is a doctrine whose principal, if not sole, application is against persons seeking the protection of a corporate structure, not in their favour. It may safely be assumed that the substantial reason for the formation of the partnership as the trading vehicle, as for the subsequent use of the company, was the saving of income tax; that does not appear to me to be a sufficient or indeed any reason to treat these arrangements as non-existent when assessing damages for personal injury. The judge held that "the partnership was really the plaintiff". But that was true only in the sense that the respondent controlled the business, or as the respondent's wife put it, he did "all the heavy decision making" and she went to him first before she did anything. The wife made her own, lesser, contribution to the business and there worked in the business, apart from the respondent and his wife, a number of employees.

The injury occurred on 9 September 1987, during the 1987/1988 fiscal year; for simplicity that will be called the "1988 year" and a similar usage will be applied to other periods, from the 1988 year up to and including the 1992 year. The books showed the respondent and his wife as sharing equally in the business' revenue insofar as there was any, with the qualification that in the 1990 year that was slightly varied; the respondent took 43% in that year and his wife 57%. Until the company was formed, during the 1989 year, this sharing of the revenue results was evidenced by an indicated distribution in the profit and loss account of the partnership. After the formation of the company the respondent and his wife each took money from the company by way of fees or wages in each year, except the 1992 year when the wife took nothing. It should further be noticed that in the 1991 year the respondent is recorded as having received four times as much from the business as did his wife - $5,200 as against $1,300.

In each of the years being dealt with, the business - i.e. the partnership or company - showed a loss as a result of its operations except for the first, 1988, year, when there was a profit of a little over $40,000. But if one "adds back" the $400 a week which the business lost as a result of the injury, then there would be shown a profit in every year except 1991.

One could speculate that perhaps the expenses of the business were inflated and its results in reality better than the books showed, but there is no evidence of that, nor any sound reason to proceed on that basis. The poor results of the business over the relevant period had a consequence which should be noticed; the balance sheet of the company as at 30 June 1992 showed an excess of liabilities over assets of some $36,000, and the liabilities included a secured bank loan of over $40,000. It should not I think be assumed, either against or in favour of the respondent, that this was not a real deficiency, indicating a substantial worsening of the capital position of the business from the 1988 year; in that year there was a surplus of assets over liabilities.

The primary judge, distinguishing the decision of the Full Court in Lago v. Lago [1983] 2 Qd.R. 29, and following Batt v. Wilkinson [1983] 2 Qd.R. 619, found that the respondent's loss was $400 per week - i.e. the whole, rather than half, the cost of the extra labour which the partnership and later the company had to employ on account of the respondent's loss of working capacity. It was contended by Mr Sofronoff QC who led for the appellant that the learned judge erred in failing to take into account that it was the partnership and then the company which had to expend the $400 per week so that the respondent's loss, he said, was not so much as $400 per week.

The contrasting approaches which may be found in the authorities dealing with this kind of case are exemplified by the two Queensland decisions I have mentioned; it is desirable to discuss them, particularly since they influenced the judge's decision.

In the earlier case, Lago & Lago, a substantial business was under the control of two corporate trustees, each representing a family company. The injured plaintiff was a beneficiary under a discretionary trust of which one of the family companies was the trustee. As a result of the injury, extra labour had to be employed, as here; that was paid for by the central trust and up to the date of judgment it had spent $30,000. That expenditure had no direct impact on the income of the plaintiff. Campbell CJ, with whom the other judges in the Full Court agreed, accepted the primary judge's finding that the plaintiff was not likely to bear any part of the expense of hiring the substitute labour and therefore accepted the judge's conclusion that no part of the $30,000 should be included in the award. The Court dealt with future loss in a different way, apparently on the ground that in due course some of the estimated costs of future labour, which it appears were thought likely to be well over $100,000, would fall on the plaintiff; the Court held that a component of $37,500 should be included in the award to compensate the plaintiff for future economic loss.

It may perhaps be assumed that the relevant trust was at least indirectly controlled by the plaintiff, and that is consistent with the description of the two trustees as "the family companies of each of the brothers" and the relevant trust as "the respondent's family trust", in the reasons for judgment. But the reasons do not proceed on the express basis that the distribution of funds from the trust was or was not controlled by the plaintiff; the court simply took the trusts at face value, at least as to past loss, and seems to have treated the absence of any proof that the $30,000 expended on substitute labour up to the date of judgment would cause the plaintiff loss as justifying a refusal of any compensation for his loss of earning capacity up to that date.

An approach which is, as it seems to me, rather different was taken in the later Queensland case, Batt v. Wilkinson, where the injured plaintiff was a member of a partnership in a newsagency, the other partner being his wife. Again, the claim in question related to the cost of substitute labour employed by the business; the plaintiff recovered the full cost of the labour. Some of the remarks made in the reasons of Derrington J, with whom the other members of the court agreed, might be taken to imply that there was no "true" partnership; the reasons referred to the partnership as being an "artificial arrangement relating to the division of profits" (624). But the broad grounds upon which the decision rests suggest that it was not any peculiarity of the partnership which led to the decision in favour of the plaintiff. Those grounds were, in brief, that it was the diminution of earning capacity for which the plaintiff was entitled to be compensated; that was properly measured by the cost of substitute labour, not by the amount (presumably half of the former sum) lost to the plaintiff by way of income from the partnership. It appears to me that the decision is difficult to reconcile, in principle, with Lago v. Lago, and that application of the reasoning in Batt v. Wilkinson would result in dismissal of the present appeal.

It is plain that loss of working capacity does not necessarily justify an award for economic loss; a person who is injured after retirement may be able to show a considerable, perhaps complete, loss of earning capacity as a result of the injury, but will receive nothing for that if the court finds that he would never have worked again. But the decision in Batt v. Wilkinson rests on narrower ground than the proposition that it is always loss of earning capacity, not loss of earnings, for which the plaintiff must be compensated; it can be regarded as deciding that where the worth of the working capacity lost is higher than the amount which, because the plaintiff is working in a partnership, is lost to him, then the defendant should pay that higher sum. It would remain for consideration whether, if partnership arrangements resulted in the plaintiff losing more rather than less than the true value of his lost earning capacity - which is by no means inconceivable - the principle could be used against a plaintiff.

The defendant must take the plaintiff as he finds him and, prima facie, one would expect that rule to apply to the plaintiff's working arrangements as well as his physical condition. If a plaintiff is, under provisions in a partnership agreement, excluded from the partnership because he or she is so injured as not to be able to work full-time, one would expect the whole loss to be recoverable, even if disproportionate to the diminution of working capacity.

I will refer to only two more of the decisions in this
area. The first is Dal Zotto v. Bonnani (1980) 47 F.L.R.
239; the reasons in Lago v. Lago rely on this decision.
There the plaintiff and his wife each had a quarter share in
the profits of a partnership, the other partner being
entitled to a half share. The relevance of the wife's
position went by concession; it was agreed that the wife's
interest was to be left out of account and that the position
was to be looked at as if the plaintiff was entitled to a
half share (245). The question which arose then was whether
the whole cost to the partnership of substitute labour, or
only one half of it, should be allowed; by a majority, the
Full Court of the Federal Court held that the lesser sum
only was recoverable. In Taroporewalla v. Berkery (1983) 3
N.S.W.L.R. 28 the plaintiff was in partnership with his
wife, the greater part of the work being done by him.
Although the profits were divided equally, the court upheld
an assessment on the basis that the plaintiff's loss was 80%
of the loss of business income consequent on the injury.
One reason why 80% rather than 50% of it was allowed was
that the court thought that the plaintiff could have
"appropriated to himself such portion of the partnership
profits as he saw fit".

"The plaintiff's relationship to the partnership and, as I infer, his capacity in practice to take whatever profits it earned, warrant the conclusion that his loss should be calculated by reference to the whole or substantially the whole of the profits which the partnership would have derived".(39)

The reasoning is equivalent to treating as a gift from the husband the wife's excess profits, by which is meant the amount by which the profits earned by her exceeded the value of her contribution of labour to the partnership.

I do not understand how the respondent in the present case can be treated as having lost more than the records of the business, whose accuracy is unchallenged, show. Perhaps purely for tax reasons, but nevertheless genuinely, the respondent entered into a partnership with his wife. The consequence of his having done so is that the profits and losses of the business are shared between the partners; one cannot, simply on the grounds that the partnership was probably formed for tax reasons and that the respondent is the dominant partner, justify treating a partnership loss as if it were a loss to that partner alone.

Similar considerations apply to the respondent's position as a shareholder and director of the company. In the years in which the business recorded a substantial trading loss, the anomaly created by treating the whole of the $400 per week expended to replace the respondent's labour as if it had been expended by the respondent is particularly apparent. In the 1991 year, for example, there was an operating loss of over $23,000 and would still be a loss even if the $400 per week were brought to credit. But the loss fell upon the company, in which each of the respondent and his wife were equal shareholders.

If the company was worth anything at the beginning of the year, then its capital position worsened by the whole sum lost. If it was not, then the same result ensued; the deficiency in shareholders' funds increased. In either case, the contention that the $400 per week loss fell on the respondent cannot be sustained. If one is permitted to identify a worsening of the company's capital position with a worsening of that of the shareholders, there is no reason why one of the two equal shareholders should be treated as having lost more than the other; but of course one would not ordinarily assume that a capital loss by the company is practically equivalent to a capital loss by the shareholders.

Since it is the mode of distribution of the loss - i.e. wholly to the respondent - and not the proposition that the loss was distributable to the shareholders, which is challenged, the only question the Court has to determine is how much of the loss should be treated as the respondent's and how much of it should be treated as his wife's. As to past economic loss, I propose to proceed on the assumption that the $400 per week loss discounted by 25% as the judge did was distributable in accordance with the proportion in which other profits and losses were distributed. The calculation is complicated a little by the fact that the judge found that the "plaintiff was out of his Telecom contract for a period of 3 months at some time after he had been injured"; it is not quite clear what period the length of loss taken by the trial judge (5 years 9 months) covers.

The judge worked on that period, rather than 6 whole years. To simplify the calculation, past economic loss will be

worked out on the basis I have indicated - i.e. on the
assumption that the loss of $400 per week would have been
distributed as were the profits and losses actually made -
over a period of 6 years and then discount by 1/24th.
Perfect accuracy cannot be attained because some assumptions
are necessary, in particular an assumption as to the mode of
distribution of profits from 30 June 1992 to the date of
trial. Past economic loss will be assessed on the basis
that there were 3 years of equal distribution, 1 year in
which the distribution was 80% in favour of Mr Seymour (as
it was in the 1991 year) and 2 years in which the
distribution was 100% in favour of Mr Seymour (as it was in

the 1992 year). The results are as follows:

First 3 years: $ 7,800 per year:	$23,400
Fourth year:	$12,480

Fifth and sixth years: $15,600 per year: $31,200

$67,080

Discounting 1/24th, one arrives at $64,285 - say $65,000, to which must be added interest of $23,400.

Future economic loss is assessed on the basis that the extent to which the respondent's wife would share in the profits of any venture was substantially in the control of the respondent. Further, the respondent would not necessarily (during the 13 years of working life the judge assumed were left to him) work in a company in which his wife shared, nor even in the business which he was engaged in at the time of trial. The personal losses which the respondent was likely to incur cannot be estimated with any accuracy, but it seems to me that some discount should be made because the respondent and his wife had shared in the business for 6 years prior to trial and there was no specific evidence that any change in that situation was contemplated. I propose to discount post-trial economic loss by 10% to allow for the wife's share, on the basis that that was the average share taken by the wife in the last 2 years for which figures were available to the judge.

The result is that the award for past economic loss and interest on that loss must be reduced by $32,600, and the award for future economic loss must be reduced by $8,000.

The appeal will be allowed, the judgment of the learned primary judge varied by substituting for the sum of $187,959 mentioned therein the sum of $155,959, and by substituting for the sum of $34,360 mentioned therein the sum of $25,760.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 239 of 1993

Brisbane

Before Fitzgerald P.
Pincus J.A.
Davies J.A.

[Seymour & Ors. v. Suncorp Insurance and Finance]

BETWEEN:

RONALD STANLEY CLARK SEYMOUR

(Plaintiff) Respondent

- and -

IAN GOUGH

(First Defendant)

and -

MARIA GOUGH

(Second Defendant)

- and -

SUNCORP INSURANCE AND FINANCE

(Defendant by Election)Appellant

REASONS FOR JUDGMENT - DAVIES J.A.

Judgment delivered 14/12/94

I have had the advantage of reading the reasons for judgment of the President and Pincus J.A. I agree that the appeal should be allowed and I agree with the statement of principle by Pincus J.A. As to the result of the application of that principle I prefer that reached by the President with respect to the respondent's pre-trial loss of earnings and the result reached by Pincus J.A. with respect to his future loss of earning capacity, for the reasons given by each respectively; that is I would substitute for the amount of $89,000 for past economic loss the sum of $50,000 upon which I would allow interest of $18,000 and substitute for the amount of $80,000 for future economic loss the sum of $72,000.

I would therefore allow the appeal, set aside the judgment below and substitute in lieu judgment for the respondent for $161,319.