Fox v. Wood148 CLR 438
35 ALR 607
(Judgment by: Gibbs CJ)
Loss of Earnings
Receipt of workers compensation payments
Tax deducted from payments
Statutory liability to repay gross amount
Whether difference between net amount received and gross amount repayable recoverable from tortfeasor
Workmen's Compensation Act 1971 (SA) - Paragraph 84(b)
Judgment date: 7 August 1981
This appeal from a judgment of the Full Court of the Supreme Court of South Australia (1) is brought pursuant to special leave, which was granted to enable this Court to determine a question that arises when a plaintiff, who has sustained personal injury as a result of the negligence of the defendant, and has in consequence been unable to work and has suffered a loss of earnings during the period before the trial of the action, has received workers' compensation from his employer in respect of that injury. In argument the question was said to be whether in such a case the plaintiff's loss of earnings before trial should be assessed on the basis of his net income, after tax had been deducted, or on the basis of his gross income. As will be seen, however, this statement of the question proceeds upon a misunderstanding of the effect of the receipt of workers' compensation on the assessment of damages. Where an injury for which compensation is payable under the Workmen's Compensation Act 1971-1974 (SA) is caused under circumstances creating a legal liability in some person other than the employer ("the third party"), a workman who receives any money from the third party in respect of the injury and compensation under the Act is obliged to repay to the employer such amount of the compensation as does not exceed the amount recovered from the third party: s. 84 (b). It is common ground that the workman is liable to repay to the employer the whole of the compensation received (provided that it does not exceed the amount received from the third party), notwithstanding that he has had to pay tax on it; he must repay the gross amount received without any deduction for the tax which it attracted. In the present case the respondent, the plaintiff in an action brought against the appellant for damages for personal injuries, received $9,222 by way of weekly payments of workers' compensation in respect of the period before the trial during which she was unable to work. There was no evidence as to the tax which was payable on the amount so received, but the learned trial judge assumed that the respondent would have paid tax amounting to 20 per cent of her pre-trial earnings. He then assessed damages for economic loss before trial as follows. He found that if the respondent had not been injured she would have earned $45,364 gross, i.e. without any deduction for taxation, but that in fact she had earned $42,747, which included the compensation payments of $9,222 but made no allowance for taxation. The difference between these figures is $2,617, and when 20 per cent is deducted to take account of tax, that figure is reduced to $2,093.60. However, the respondent's loss was larger than this, for the amount of compensation, which had been included by the judge in the amount of earnings received, had to be repaid to the employer. The learned trial judge therefore made an addition to the sum of $2,093.60; the amount which he added, $7,377.60, represented the amount of compensation actually repayable ($9,222) reduced by the tax payable on it at the rate of twenty per cent ($1,844.40). On appeal the Full Court held that the learned trial judge was in error in deducting tax from the compensation received and increased the damages by $1,844.40.
It is established by Cullen v. Trappell (1980) 146 CLR 1 that in assessing damages for loss of earning capacity the tax which a plaintiff would have paid on the earnings of which he has been deprived must be taken into account. To assess damages on the basis that the plaintiff has lost his gross earnings, when in fact the earnings would have been subject to tax, and the award of damages is not subject to tax, would give the plaintiff more than he had really lost, and would depart from the fundamental principle referred to in British Transport Commission v. Gourley  AC 185 , at p 197 , "that the tribunal should award the injured party such a sum of money as will put him in the same position as he would have been in if he had not sustained the injuries." That general principle must of course govern the present case, but the particular application of it in Cullen v. Trappell is not of assistance in determining the question that now arises.
A trial judge, in assessing damages in a case such as the present, must first determine what loss of earnings the plaintiff has suffered, using net earnings as the basis of the assessment. Then the effect of the receipt of the workers' compensation must be considered. The receipt of workers' compensation is not something too remote to be taken into consideration for this purpose. I have referred to this question in Batchelor v. Burke (1981) 148 CLR 448 and need not repeat what I there said. If the legislation did not require a plaintiff who had been paid damages to repay the compensation which he had received, clearly the receipt of the compensation would reduce the damages otherwise payable. If, on the other hand, the plaintiff repaid to the employer the net amount of compensation which he had received, so that he neither gained nor lost anything by the receipt and repayment, the question of workers' compensation could for practical purposes be ignored in the assessment of damages. In the present case, although the employer got back exactly the same amount as he paid by way of compensation, the respondent was required to repay an amount larger than that which she received for her own benefit. She was required to repay the gross amount of compensation which she received ($9,222) but she had the benefit only of the net amount which remained after tax had been deducted ($7,377.60). As a result of the receipt and repayment of the compensation she was worse off to the extent of $1,844.40.
It was submitted that this loss was caused, not by the injuries which the respondent received as a result of the negligence of the appellant, but by her own voluntary act in accepting the payments of workers' compensation . However, it is obvious that as a matter of fact the respondent received the workers' compensation because she had been injured. Moreover her conduct in accepting the compensation was reasonably foreseeable. Indeed it would be surprising and exceptional for a worker entitled to compensation to refuse it on the ground that he or she might later receive damages; the legislation provides that the worker may receive the compensation notwithstanding the existence of a right to damages, and generally speaking it would be imprudent of a worker not to accept it: for one thing, the claim for damages might fail. The receipt of the compensation was a natural and foreseeable consequence of the injuries, and the repayment is not, as was suggested in argument, a special loss due to the financial embarrassment of the respondent, within the principle of Liesbosch, Dredger v. Edison , S.S. (Owners)  AC 449 . The act of the respondent in accepting the payments was not a superseding cause of the respondent's loss on repayment; see Chapman v. Hearse (1961) 106 CLR 112 , at pp 124-125 .
The Full Court took the view that the damages for that portion of the lost earnings which was replaced by the compensation should be assessed by having regard to the gross earnings lost, because if the respondent received damages "assessed on a net after tax basis", but had to repay the equivalent in full, she would receive less than her true loss. Although I agree with their Honours' conclusion, it seems to me that it is not right to regard the question for decision as whether the respondent's loss of earnings is to be assessed after taking tax into account, notwithstanding her receipt of payments of workers' compensation. The question is rather whether the receipt and repayment of the compensation increased the respondent's loss, and if so whether that increased loss was caused by the appellant's negligence and was not too remote to be taken into account. For the reasons I have given I consider that the respondent should be compensated for this additional loss, and that if it were not taken into account the damages would provide inadequate compensation for the consequences of her injuries.
It is hardly necessary to add that this judgment proceeds on the assumption that the tax paid on the workers' compensation receipts was not recoverable when the compensation was repaid. The argument also proceeded on this assumption and at no stage of the case has any suggestion been made to the contrary.
I would dismiss the appeal.