Cullen v. Trappell.

Judges: Barwick CJ
Gibbs J
Stephen J
Mason J

Murphy J
Aickin J
Wilson J

Court:
Full High Court

Judgment date: Judgment handed down 1 May 1980.

---

Murphy J.

The argument in this appeal focused on the question whether income taxation should be taken into account in assessing the future economic loss of a personal injury plaintiff. As there is a danger of dealing with the question in the abstract (and because the appellant suggested that the amount awarded by the Court of Appeal was, viewed as a whole, excessive), I will briefly state the facts, which are taken mainly from the findings by the trial judge and the Court of Appeal.

On 9 August 1974, the plaintiff, aged 32, stopped on a highway while travelling from Sydney to Perth to assist another motorist whose car had broken down. He was injured when a semi-trailer struck that car. He had left school at 15, entered the printing trade when he was about 22 as a general hand, and advanced by seniority. Until shortly before the accident, he was working as a rotary printing press machinist for John Fairfax & Sons Ltd., a large, well-established firm, and earning $8,449 per year; he held an executive position in his trade union. He led a very active life, and for some years had been an official in motor racing. He was married, with two young daughters. His wife was employed as a typist with Qantas. After flying to Perth to investigate prospects, he and his wife decided to move there. He had secured a position as a rotary printing press machinist with another large and well-established newspaper firm, Western Australian Newspapers, and had found a suitable house available for purchase at $20,000. He sold his house and possessions in Sydney, bought a new car, and had enough money to finance the purchase of the new house.

His injuries were very severe: bilateral comminuted fractures of the shafts of both femurs, a fracture dislocation of the left ankle, fracture of the right wrist, an injury to the stomach with internal bleeding, severe shock, pain, headaches, extreme bruising and soft tissue damage to the lower abdomen. He was treated at Hay Hospital and Griffith Base Hospital. He remained in hospital for over eight months until 15 February 1975 and suffered considerably. Both legs were in traction in Thomas splints. When his fractures did unite, his legs were deformed. He first walked with a frame, and was discharged on crutches. While he was in hospital, his wife obtained a flat for herself and the children in Griffith. After he came out of hospital, his wife had to nurse him; he could not attend to his own toilet requirements. He attended a physiotherapist daily. Because his wife had to drive him and look after him constantly, she was unable to work.

They stayed in Griffith until April 1975 then continued on to Perth. In Griffith, his family had been living on social services and his savings which were now eroded (social services were $57 per week; the rent was $40 per week). His job in Perth was gone and he was financially unable to purchase the home. He was still using a walking stick and treatment for his legs was continuing. His left leg was bent. He tried to work but his leg became so painful that his doctor decided to rebreak the leg and reunite it with a pin. This operation resulted in a good alignment. He was in hospital for four weeks; after discharge he wore a caliper for about two months with crutches, and then used a walking stick for two months. In June 1976, he entered Melville Rehabilitation Centre.

The trial judge found:

``He has tried to do the work of a well and healthy man, and in this he has failed. The fact that he has failed has again caused him distress and depression. He first obtained work in a sheltered workshop where they were doing some printing work and he was able to make his own pace and do his work unhurried. First of all he had to teach himself the art of offset printing, in which he was not experienced nor trained. He did this, and after carrying on in this work for some time it was decided that the workshop would amalgamate with another. He was then working in the printing shop of the combined organisations, in which

---

ATC 4198

everybody else working on the printing was able-bodied, and it was a commercial printing undertaking. This meant that it had to produce work in commercial competition with other printers, and he could not stand up to that. His physical disabilities were such that if the work was difficult for him he became tired and distressed, and he had eventually to give it up. He tried to work at a garage, in a greasing pit; he tried to drive a fork lift, and he has attempted other jobs. Finally he has finished back in the sheltered workshop, where he receives a salary and allowances amounting to $104 a week after tax and this is his present situation.

His condition will not improve. Indeed, with the passage of time it is more likely to worsen. He still has a Kuntscher nail in his thigh and that will have to come out at some time, and there is a possibility - if not a probability - that he will have arthritis in the knee joint.

The injuries he has received have had a depressing effect on him mentally. He seems, looking at him in the witness box, to be doing his best to overcome that and I think he has, to a large extent. However, it goes without saying that he will never work as a printer again, and it is difficult to see what he will do. He may be able to find some skilled work that he can do which does not involve standing all day. No doubt when he receives his damages he will find something to do and some investment for the money. But he has to be assessed, I believe, as a person who has had a very considerable, if not devastating, loss of his capacity to earn. His chosen work, his skilled work, is forever closed to him, as indeed is any other work which requires him to stand all day and to move with any agility, to life, to perform work which requires sustained effort or requires physical strength in all his limbs. He has - and I am satisfied this arose from the injuries, although he was not treated for it in the hospital having regard no doubt to the severity of his other injuries - suffered an injury to his back, and this restricts his capacity for lifting.''

At the trial on 24 May 1977, his medical expenses were agreed at $9,300 and his loss of wages to trial at $14,500. Weekly earnings of a rotary printing press machinist in Western Australia were $213.70 gross, or $170 net, the tax payable being $43. His actual weekly wages were $109.87 gross, or $104 net, that is, $66 less than the net earnings of a printing machinist. The trial judge's assessment of future economic loss was based on a pre-injury working life as a machinist of 30 years which was discounted to 25 years; the $66 net loss over 25 years was discounted at 6% to arrive at $45,311. To this, the judge added $40,000 for pain and suffering, loss of amenities, and loss of enjoyment of life, bringing the damages to a total of $109,111. Influenced by the plaintiff's losses (for example, a similar house would have cost $55,000 at the time of the trial) which he felt could not be recovered as damages, the trial judge awarded interest on the damages at 10% from the accident to the time of trial (two years and nine months). The amount of interest, $30,005, brought the total to $139,116.

The Court of Appeal increased the amount for future economic loss to $71,282, basing this on gross wage loss rather than net, in accordance with the decision of this Court in
Atlas Tiles Limited v. Briers 78 ATC 4536 ; (1978) 52 A.L.J.R. 707 which was given after the trial. However, it reduced the interest to $2,580, to give a total verdict of $137,662.

The trial judge followed the prevailing approaches to assessment which operated unjustly against the plaintiff in a number of ways. The assessment of the loss of future earning capacity is unrealistic. The calculation assumes that the earnings of a worker (in the pre-injury occupation of the plaintiff) will remain constant at $213.70 per week for the next 30 years after the date of the trial, which is absurd. This approach also ignores the probable increase in real wages reflected throughout the Australian community (these had averaged about 3% per year over the 25 years before the trial, see Report of the Working Party on the Measurement of Labour Productivity, Department of Employment and Industrial Relations, Nov. 1975). It also ignores increases due to normal age progression and promotion. Most people tend to progress to a higher level of pay, through promotions, seniority, or long service. There was a strong likelihood that the plaintiff would have done

---

ATC 4199

so. The evidence was that ``in the newspaper industry everything works on seniority, so you start at the bottom and work your way to the top''. As well, the evidence shows that the plaintiff had the capacity and the will to better himself. Instead of this being taken into account by way of increase in the assessment, the amount was decreased by discounting the 30 years of his probable working life as a machinist to 25 years (apparently to allow for adverse contingencies).

Thus, the assessment of his future economic loss on the basis of 25 years of either a net loss of $66, or gross loss of $104, is unjust to him. The injustice is compounded when the notional wage loss is discounted by 6%. That discount rate is a reflection of inflation. To ignore the probable effects of inflation on future earnings or expenses while taking it into account by adopting inflated interest rates when assessing the present value of those earnings or expenses is clearly an injustice to injured plaintiffs.

The trial judge adopted the net wage loss, that is, he deducted tax from the plaintiff's actual earnings and from his notional earnings (if uninjured). However, although he took tax into account in assessing the value of the losses, he did not take it into account in assessing the value of the amount awarded as restitution for those losses. Thus, he measured the plaintiff's loss by using the amount of $66 per week clear of tax, but in purported restitution awarded a sum to restore the $66 a week which would be liable to tax. The extent to which it is liable is not easy to calculate because there is an element of capital as well as income in the notional figure of $66 per week. In this Court, the defendant conceded that, if tax were taken into account on the sum awarded, the 6% discount should be reduced to 4% (4.08) to allow for 32c in the dollar income tax so that a net loss of $66 per week would be assessable at $54,430 instead of $45,311 awarded by the trial judge (that is, an increase of 20%). Even so, this adjustment does not take account of the effect on the rate of income tax of probable increased earnings from investment of the amount ($40,000) awarded for pain and suffering, etcetera, or on part of that amount. Although an injured plaintiff should be able to treat such a sum as solatium and spend it freely without necessity for investing it, the practicalities of life (especially for plaintiffs who are given inadequate awards for their economic loss) are that they must invest it. When income from other components of an award are taken into account in serious personal injury cases, the effect of considering tax may sometimes be to increase the amount which otherwise would have been awarded for the loss of future earning capacity.

The theory of taking tax into account is quite logical if it is applied in assessing the value of the restitution as well as of the loss; in practice, however, as in this case, it is applied only to the assessment of the loss. The assessment at the trial was typical of assessments after
British Transport Commission v. Gourley (1956) A.C. 185 and before the decision of this Court in Atlas Tiles Limited v. Briers . The fact that tax is not taken into account in assessing the value of the sum awarded as restitution for loss of earning capacity means that the supposed restitution is illusory. By this, I intend no criticism of the trial judge who dealt with the case in accordance with the prevailing practice. For the reasons I gave in Atlas Tiles Limited v. Briers (briefly, that the theory is too difficult to apply in practice, and therefore is applied incorrectly and unfairly towards injured plaintiffs), I remain of the opinion that Gourley's case should not be followed.

The assessment of the plaintiff's loss of earning capacity from the trial for the rest of his working life at $71,000, let alone $54,000 or $45,000, is a grave injustice to him. In the result, he, like many other plaintiffs in serious personal injury cases, has received an unjustly low assessment of damages because of the techniques used to depress damages.

The appeal should be dismissed. I agree with Mr. Justice Gibbs that the cross-appeal should be allowed in respect of the interest.