Polites v. The Hydro-Electric Commission.

Judges:
Crisp J

Court:
Supreme Court of Tasmania

Judgment date: Judgment handed down 13 May 1970.

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Crisp J.: For the purposes of record and as foreshadowed at the time I now publish my reasons for the ruling given to the jury on the subject of damages in this case. I do so because this is the first time the matters discussed have been raised before me, and because, following the submissions made, I have found it necessary to depart from a well-established practice in this Court.

In actions for damages following personal injuries the question has been raised from time to time as to the applicability of British
Transport Commission v. Gourley (1956) A.C. 185, in the computation of damages insofar as they purport to recompense for the plaintiff's inability to follow his normal occupation from the date of the accident up to the date of trial. Put briefly, the question is whether the plaintiff's liability to tax for any income that he might have earned during this period should be taken into account or not. Past rulings in this Court, after some uncertainty, have taken the view that it should not (see
Whittaker v. Gobbey (1965) Tas. S.R. (N.C.) 15, in which earlier decisions are mentioned). I myself in Palantzas v. Kravosanos and Kahmann 16 December 1969 Crisp J., unreported, have followed and applied these decisions in a reserved judgment without reasons though the matter had not been raised and argued during the trial.

I admit the persuasive force of those decisions, and I would not lightly depart from a settled view of the law held by my brethren, but the matter having now been argued I am so clearly of the view that the opinion hitherto held is wrong (helped thereto by recent dicta of the High Court in which some ancient principles have been refurbished to shine with a new clarity) that I feel compelled to give effect to a view of the law which to me does not seem to permit of refutation.

Basically the question must be determined by reference to sec. 26(j) of the Income Tax Assessment Act 1939-1969. That section imposes liability to tax on -

``any amount received by way of insurance or indemnity for or in respect of any loss -

...

(ii) of profit or income which would have been assessable income,

if the loss had not incurred.''

If the amount awarded as damages or any part of it is properly regarded as an amount ``received by way of... indemnity for or in respect of any loss of... income'' then it is plainly taxable and it would be wrong in computing damages in respect of the period mentioned doubly to damnify the plaintiff by using as a basis for judgment earnings already reduced by tax deduction. In other words his gross earnings would afford the proper basis for any computation involved in the judgment. If on the other hand no part of the award is taxable in the plaintiff's hands, then it would be equally wrong to ignore the fact that his actual losses would be reflected in the net figures (i.e. after tax deducted). To proceed otherwise would be to recompense him on a fictitious basis by reference to amounts which he never would have received in fact.

For myself I now think it is clear beyond a peradventure that the total amount received for economic loss by a successful plaintiff in an action such as the present is compensation for the loss of earning capacity. None of it is properly to be regarded as compensation for loss of earnings whether the amount be computed as special or general damages. If that be so then no part of the total judgment is in a taxable sense an ``indemnity for loss of income'' and it is not taxable. It follows in my view that to direct the jury to ignore the relevant facts of the plaintiff's liability to tax for any period in which he is recompensed for loss of earning capacity is wrong and I intend so to direct them.

I adopt with respect and would follow the judgment of Gibbs J. in
Groves v. United Pacific Transport Pty. Ltd. (1965) Qd. R. 62. I would distinguish decisions of other State Courts which have been relied on by my learned brothers in this Court (viz.,
Robert v. Collier's Bulk Liquid Transport Pty. Ltd. (1959) V.R. 280, and
Williamson v. Commissioner for Railways (1959) 76 W.N. (N.S.W.) 648, by pointing out that those cases refer to loss of profits awarded as damages in actions in contract. If loss of profits is the proper measure of damages for breach of a contract - in the cases mentioned damages were specifically ascertained and awarded on this basis - then in terms there may be no reason for saying that the taxing statute is not applicable, but - perhaps for unnecessary caution - the matter has not been argued and I express no final opinion. But this is a different proposition from the contention that

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an indemnity for the loss of income is the same in law as compensation for loss of earning capacity, which is the narrow question I am here considering. As Windeyer J. said in
National Insurance Co. of New Zealand Ltd. v. Espagne (1961) 105 C.L.R. 569 at p. 588:

``A common law action for damages for personal injury, on the other hand, is not a claim to have a pecuniary loss made good, but to have a pecuniary compensation for all the consequences of physical injury.''

Though the analogy may not be exact, the difference is between the value of a capital asset, and the loss of income that its employment may have produced.

The argument has also served to raise another matter and that is whether there is any legal conceptual basis for the distinction inveterate in practice and often convenient between general and special damages in relation to the same subject. Common practice in such matters is reflected in the following passage from the judgment of Fullagar J. in
Paff v. Speed (1961) 105 C.L.R. 549 at pp. 558-559:

``In this case it may be well, elementary though the subject may be, to begin by briefly stating what I conceive to be the general basis on which damages are awarded at common law for personal injuries. The orthodox direction to a jury in such cases begins, even though it may not use those very terms, by drawing and explaining a distinction between `special damages' and `general damages'. Special damages are awarded in such cases in respect of monetary loss actually suffered and expenditure actually incurred. Their two characteristics are (1) that they are assessed only up to the date of verdict, and (2) that they are capable of precise arithmetical calculation or at least of being estimated with a close approximation to accuracy. The familiar examples are... and loss of income. Where the plaintiff has been employed at a fixed wage or salary, his loss of income can commonly be calculated with exactness. Where the plaintiff has not been employed, but is, for example, a professional man, his monetary loss can be estimated without difficulty by reference to his past earnings. In a high proportion of cases the amount of the `special damages' is agreed between counsel for the plaintiff and counsel for the defendant.

`General damages' on the other hand, are, of their very nature, incapable of mathematical calculation, and (although the expression is apt to be misleading) commonly very much `at large'. They are at large in the sense that a jury has, in serious cases, a wide discretion in assessing them. Also general damages may be assessed not with reference to any limited period, but with reference to an indefinite future... the question of general damages is generally, I think, put to a jury under three heads - (1) `economic loss'...

`Economic loss' may include expenditure (for, e.g., medical expenses) which it is shown that the plaintiff will probably incur in the future as a result of his injuries. But the major item of a claim under this head is usually put as `loss of wages' or `loss of income'. It would be more accurately described as `loss of earning capacity': see a recent article Mitigation of Tort Damages for Loss of Wages by Professor Ross Parsons (1955) 28 A.L.J. 563. Actual loss of wages or loss of income will have been already taken into account in assessing special damages, and what the plaintiff must receive in respect of the future is compensation for total or partial incapacity to earn income...''

But while no doubt accurate enough as a description of practice, I doubt whether the learned judge would in the context of his judgment as a whole have regarded it as doing any more than approving the evidentiary use of an amount computed by reference to a demonstrable loss as an aid to judgment in compensating for a loss of earning capacity over a period of elapsed time.

The point is clearly made in the joint judgment of Dixon C.J., Kitto and Taylor JJ., in
Graham v. Baker (1961) 106 C.L.R. 340 at pp. 346-347:

``So far the matter has been discussed as if the right of a plaintiff whose earning capacity has been diminished by the defendant's negligence is concerned with two separate matters, i.e. loss of wages up to the time of trial and an estimated future loss because of his diminished earning capacity. It is, we think, necessary to point out that this is not so. A plaintiff's right of action is complete at the time when his injuries are sustained and if it were possible in the ordinary course of things to obtain

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an assessment of his damages immediately it would be necessary to make an assessment of the probable economic loss which would result from his injuries. But for at least two obvious reasons it has been found convenient to assess an injured plaintiff's loss by reference to the actual loss of wages which occurs up to time of trial and which can be more or less precisely ascertained and then, having regard to the plaintiff's proved condition at the time of trial, to attempt some assessment of his future loss. We mention this matter because it has been suggested that since an injured plaintiff is entitled to recover damages for the impairment of his earning capacity, the fact that a totally incapacitated plaintiff has, during the period of his incapacity, received his ordinary wages is not a matter to be taken into consideration. To be more precise, however, an injured plaintiff recovers not merely because his earning capacity has been diminished but because the diminution of his earning capacity is or may be productive of financial loss.''

Dixon C.J. returned to the same point in Espagne's case (1961) 105 C.L.R. 569 at p. 572 (a judgment with which Fullagar J. concurred) when he said:

``For the problem is to compensate a man for bodily or other `physical' injuries which he has suffered in consequence of the negligent management of the instrument capable of harm. The tort is committed at the moment when he is injured. What we are concerned in is the consequences to him. The consequences must be traced out and so far as they lie in the future they must be pre-estimated and the result assessed together with the consequences which have already accrued and translated into money. I am disposed to adopt the view that fundamentally the damages are for the bodily and physical injuries and the incapacities and deterioration involved in them, using the word `physical' of course in a sense wide enough to include all mental and nervous conditions. There are many consequential heads of damage to which it is customary to direct evidence and which are submitted to a distinct or separate consideration. But in theory as I see it these are really evidentiary even if the evidence is often conclusive to show that they or some notional element based directly upon them must go into the assessment.''

It is further developed in the judgment of Barwick C.J. in
Arthur Robinson (Grafton) Pty. Ltd. v. Carter (1968) A.L.R. 257; 122 C.L.R. at pp. 657, 658:

``The compensation for the injury in this case must cover loss of earning capacity, necessary recurrent expenditures flowing from the injuries and the loss of the amenities of life.

I should like to say something about each of these. The respondent is not to be compensated for loss of earnings but for loss of earning capacity. However much the valuation of the loss of earning capacity involves the consideration of what moneys could have been produced by the exercise of the respondent's former earning capacity, it is the loss of that capacity, and not the failure to receive wages for the future, which is to be the subject of fair compensation. In so saying, I realize that many statements may be found in the reported cases where loss of earnings has been the description of this element in special damages. But I do not find that, in these, it was necessary to consider or draw the distinction between the loss of earnings and the loss of earning capacity. But where in Australia attention has been drawn to the distinction, authoritative expressions with which I respectfully agree have indicated that it is loss of earning capacity and not loss of earnings that is to be the subject of compensation. But though this is, I think, the recognized position in Australia, the wages which would have been earned between the receipt of the injury and the date of trial are somewhat illogically, as I think, calculated and treated as special damages. In my opinion, it would be better that they should not be so treated for amongst other things, such treatment tends to plant in the mind the idea that it is the loss of earnings which is to be compensated. On the other hand, not to so treat them would help to emphasize that it is the loss of earning capacity which is the subject of the damages. However, in most cases they may have but small practical significance; and in this case, in relative terms, none. In any case, the inclusion of the amount of $4,920 for loss of wages up to

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the date of trial was a matter of concession by the appellant.''

And cf. per Windeyer J. in
Parente v. Bell (1967) (1968) A.L.R. 174 at p. 178; 116 C.L.R. 528 at p. 534:

Practice and convenience do not change the law. The defendant is entitled as he proposes to do to challenge the evidentiary value of the calculations embodied in the particulars of special damage given to the jury. These are a statement as to earnings allegedly lost and purport by arithmetical means to quantify the plaintiff's damages for loss of earning capacity up to the date of trial. Equally the plaintiff is entitled to argue their adequacy and accuracy as a guide to judgment in estimating the loss over the same period due to interference with earning capacity. My task will be to inform the jury that however they approach it, the fundamental obligation is to award a total sum - not an aggregate of totals - which reflects a ``broad'' estimate of what that earning capacity before its destruction or diminution was capable of producing during such time as it would have been likely to be gainfully exercised (
O'Brien v. McKean (1968) 42 A.L.J.R. 223 at p. 225; 118 C.L.R. 540 at pp. 546, 547) per Barwick C.J. and that the obligation, so expressed, extends uniformly over both time elapsed since the injury and the indefinite future. They may have regard of course to the evidence of wages earned at the time of the injury and they may, after having regard to the arguments of counsel and my direction, think that the claim based on the difference between what he earned up to the trial and what he might have earned had he remained in the plaintiff's employment accurately reflects the compensation that should be awarded in respect of that period or they may not. Or they may take some lesser period, such as I suggested in argument which would be up to the time of the stabilisation of the plaintiff's injuries which coincides approximately with the date on which Dr. Rogers judged the plaintiff as fit to return to work. This could well be a proper course in the circumstances of this case, having regard to the defendant's contention that since that date the plaintiff has not pursued his employment opportunities with the vigour to be reasonably expected of a plaintiff seeking to mitigate his loss. The jury may express their verdict in a total sum ignoring any distinction between special and general damages for loss of earnings or they may if they see fit indicate to the court that in arriving at a total figure they have decided to quantify the period up to trial or any lesser period on one basis and the future on another. All this so long as they clearly understand that their task is to fix an overall sum once and for all as compensation for the plaintiff's injuries, not to quantify in separate sums heads of damages under which argument or evidence was advanced.