Fox v. Wood148 CLR 438
35 ALR 607
(Judgment by: Brennan J.)
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
In November 1974, the respondent was injured in a motor collision. In the Supreme Court of South Australia, she recovered a judgment for damages against the appellant, by whose negligence her injuries were caused. Mohr J. assessed her damages at $41,410.25 to which interest of $1,995 was added. Judgment was entered for $43,405.25 and costs. The appellant's appeal to the Full Court against his Honour's assessment of damages was dismissed, and the respondent's cross appeal was allowed (1980) 25 SASR 138 . The judgment was increased by adding two amounts, both of which are related to the payment by the respondent's employer of $9,222 by way of workers' compensation during periods before the trial when she was off work because of her injuries. The first increase was in the amount of $1,844 or 20 per cent of $9,222. Mohr J. assumed that tax would have been levied at the rate of 20 per cent on the gross earnings which the plaintiff had lost before trial, and his Honour therefore allowed as damages only 80 per cent of the gross earnings which included $9,222 made up by workers' compensation paid by the employer. The second increase was in the amount of $1,936 interest which the Full Court held ought to have been allowed upon the whole of the lost earnings although $9,222 had been made up by workers' compensation paid by the employer. The present appeal is limited to the question whether the first increase should stand; the principle applicable to the second increase has now been determined in Batchelor v. Burke 148 CLR 448 .
The question arises in this way. The respondent's damages for deprivation of her earning capacity had to be assessed at the trial by reference, inter alia, to her loss of earnings prior to trial. She had lost earnings as an employee of the South Australian Railways, and the amount she would have earned net of tax was a material figure in assessing the respondent's damages ( Cullen v. Trappell (1980) 146 CLR 1 ). But the respondent had been entitled to payments of workers' compensation under the Workmen's Compensation Act 1971-1974 (SA) and $9,222 gross had been paid by her employer under that Act. The respondent did not actually receive the whole of that amount but only the amount net of tax . Yet she is obliged by s. 84 (b) of the Act to repay to her employer, when she is paid the judgment, the whole of the amount of $9,222 paid out by her employer. She will thus be out of pocket by a sum representing the tax deducted from the payment of workers' compensation; that is, or is assumed to be, $1,844.
The appellant submits that this is not a loss for which he as tortfeasor is liable. It is submitted that whether the question is approached as one of causation or remoteness of damage, the loss is to be attributed to the voluntary act of the respondent in seeking and accepting workers' compensation payments and the loss is not to be sheeted home to the appellant tortfeasor. There would be much to support this submission if the financial loss occasioned by deprivation of the respondent's earning capacity before trial was made good by an award of the sum of the net earnings which she had lost. On the hypothesis that such an award placed the respondent in the same position as she would have been in if she had not been injured, an additional loss sustained by the respondent in seeking and accepting workers' compensation payments would have exceeded what was necessary to restore the respondent to that position, and it would not have been recoverable. A tortfeasor is not an insurer of his victim's future financial dealings; his liability in damages for economic loss is limited to what is needed to restore the victim to the position he would have been in if he had not been injured. The limit of a tortfeasor's liability is not increased by a loss which his victim incurs in a transaction into which he voluntarily enters as a result of the tort, even if the transaction or the loss incurred in it is reasonably foreseeable by the tortfeasor (cf. Admiralty Commissioners v. S.S. Amerika  AC 38 , at p 42 ).
However, an award limited to net earnings lost before trial does not necessarily give fair compensation to an injured plaintiff who has been tortiously deprived of earning capacity. A natural person's capacity to earn income is usually employed to earn weekly or periodic payments of salary or wages; and the value of those receipts over an extended period is greater than an equivalent lump sum paid at the end of the period. An injured plaintiff's incapacity to acquire income regularly or at frequent intervals may occasion grave damage to his financial position: family and other commitments, particularly hire-purchase obligations, are often undertaken in the expectation that income to defray these payments will be regularly earned. If income dries up because the capacity to earn it has been tortiously taken away, the subsequent payment of a lump sum, equivalent to the total of the lost net regular earnings, will frequently be found inadequate to place the plaintiff in the same position as he would have been in if he had not been injured: the lump sum will fall short of the value to an injured plaintiff of the capacity to earn income which the tortfeasor has impaired or destroyed. At the least, the plaintiff is kept out of income which he would otherwise have received regularly prior to trial, and that is sufficient to attract a payment of interest in addition to an award of the total of the net income which has been lost (see Cullen v. Trappell (1980) 146 CLR 1 , at p 19 , per Gibbs J).
When an injured plaintiff is entitled to workers' compensation payments, however, he is able to mitigate the loss which he would otherwise suffer by being deprived of his earning capacity. By applying for and accepting regular workers' compensation payments, he can avoid in part or in whole loss which would otherwise have followed upon the cessation of his wages or salary. Thus, in Batchelor v. Burke 148 CLR 448 it was held that the receipt of workers' compensation was relevant to the inquiry whether in fact a plaintiff has suffered a practical detriment by the loss of his wages, and it was held that the defendant should not have to bear a liability for interest upon the lost wages in place of which the workers' compensation had been received. Gibbs C.J., with the concurrence of the other members of the Court, said 148 CLR 454 :
"The legislation has treated the payment of compensation and of damages in respect of any one injury as closely related, and the fact that the lost earnings have been replaced by compensation paid under a statutory scheme whose very purpose is to provide money to take the place of the lost wages should be regarded when the Court comes to consider whether a plaintiff has suffered any practical detriment by the loss of the earnings."
It was submitted, however, that where a plaintiff receives workers' compensation to take the place of lost earnings, the cost of repayment is not to be charged to the defendant because any detriment which a plaintiff would have suffered consequential upon and additional to his loss of earnings prior to trial is a consequence of the plaintiff's impecuniosity, and is too remote to be taken into account in assessing damages. Reference was made to Liesbosch, Dredger v. Edison , S.S. (Owners)  AC 449 , and to some cases at first instance in Queensland where Liesbosch was cited. It is not necessary now to consider either the present authority of Liesbosch or its applicability to heads of damage for personal injury other than financial loss occasioned by deprivation of a natural person's earning capacity, for it has no application to that head. In Liesbosch , Lord Wright (1933) AC, at p 460 held that the loss actually sustained by the owners of the dredge in so far as it was due to their impecuniosity arose from that impecuniosity "as a separate and concurrent cause, extraneous to and distinct in character from the tort", and he held that that impecuniosity "was not traceable to the respondents' acts". What Lord Wright said in Liesbosch is not to be applied to a case where a discontinuance of the regular receipt of wages, caused solely by the defendant's tortious impairment or destruction of the plaintiff's capacity to earn, occasions impecuniosity and financial loss greater than the sum of the net wages actually lost. Reliance upon the regular receipt of income in the ordering of a natural person's financial affairs - whether the person be affluent or not - is so much a feature of ordinary life that it would misapply Lord Wright's reasoning to suggest that where the cessation of regular receipts of income is occasioned by a tortious deprivation of earning capacity and impecuniosity and financial loss follow, the impecuniosity and loss are causally unrelated to the tort. And a tortfeasor, sharing the common awareness of the financial importance of regular receipts of income, will seldom be able to show that such impecuniosity and loss was not reasonably foreseeable. In the present case any impecuniosity and loss which the respondent suffered or would have suffered but for the workers' compensation receipts were or would have been caused directly by the appellant, who deprived the respondent of the capacity to earn regular wages.
Where the plaintiff is able to take steps to restore his regular receipt of income and thereby to avoid further loss, and where he incurs costs in doing so, the costs may be recoverable from the defendant. In principle, a tortfeasor's liability for the cost of mitigation of damage is not to be tested in the same way as his liability for an item of damage which is said to have been caused by the tort. Where particular steps in mitigation are a commonplace, it is natural to think of their costs as items of damage which are foreseeable by the tortfeasor and not too remote to be excluded from the items for which he is liable: for example, the cost of a surgical operation to ameliorate personal injury (cf. McGregor on Damages , 14th ed. (1980), p. 174, par. 242). But foreseeability and remoteness are not the criteria of a tortfeasor defendant's liability for a cost incurred by the plaintiff in mitigating or attempting to mitigate damage for which the defendant is liable or for which he would have been liable but for the plaintiff's ability to avoid the damage by taking a step in mitigation. The criterion is whether the plaintiff has reasonably incurred the costs in mitigating or in reasonably attempting to mitigate that damage and it is a question of fact whether the plaintiff has acted reasonably (see Simonius Vischer v. Holt and Thompson (1979) 2 NSWLR 322, at p356 ; Moore v. DER Ltd. (1971) 1 WLR 1476 , at p 1480; (1971) 3 A11 ER 517, at p 520 ).
In the present case, there can be no doubt as to the reasonableness of the respondent's conduct in seeking and receiving regular payments of workers' compensation under the conditions prescribed by the Act. Before her injury, she had been in constant employment and in receipt of regular wages, and she secured for a time the continuity of those receipts under the Act which has the manifest purpose of keeping the injured worker's receipts up to the same level. The cost of securing that benefit must be paid by the appellant. In Mohr J.'s assessment of damages, only 80 per cent of $9,222 has been allowed. The whole of that amount should be allowed, and accordingly the Full Court was right to increase the judgment by $1,844.
It may be that the receipt of workers' compensation removed any practical detriment which would have flowed from a loss of wages in a corresponding amount, and that interest ought not to have been awarded in favour of the respondent; but the appellant's liability to pay for the cost of mitigating the respondent's damage is not dependent upon the appellant's being relieved of a corresponding or greater liability.
As the present appeal does not bring up the Full Court's award of interest for consideration, the appropriate order is that the appeal be dismissed with costs.