CIRCOSTA v FALZON

COUNSEL : JJ Graves SC & K Hawes - Appellant GTW Miller QC & GM Preston - Respondent SOLICITORS : McMahons, Sydney - Appellant Mario J Azzopardi - Parramatta CATCHWORDS : DAMAGES - non-economic loss - whether acceptance of medical evidence paid due regard to other evidence showing histories given to doctors were exaggerated - no point of principle - economic loss - whether evidence justified assessment based on average weekly earnings of a tradesman factored up - permissible course (Dunlany v The Hunters Hill Bus Co Pty Ltd, CA, 12 May 1993, unreported; Graham v Baker (1961) 106 CLR 344; Husher v Husher (1999) 72 ALJR 1414; Todorovic v Waller (1981) 150 CLR 402 referred to) - justified on the evidence. DECISION : Appeal dismissed with costs.

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

MEAGHER JA GILES JA HODGSON CJ in Eq

JUDGMENT 1 MEAGHER JA: I agree with the judgment of Giles JA. 2 GILES JA: The respondent was injured in an accident on 14 October 1994, when the motor vehicle driven by the appellant passed onto the wrong side of the road and collided with the motor vehicle driven by the respondent. Liability was admitted early in the trial, but quantum was significantly in issue. After a hearing over three days commencing on 17 February 1999, on 24 February 1999 Garling DCJ found a verdict in favour of the respondent for $610,516.00. 3 The major constituents of the verdict were non-economic loss of $129,500, past economic loss of $149,000, and future economic loss of $275,000. The appellant challenged each of these amounts, and submitted that there should be a new trial limited to assessment of damages.

Non-economic loss 4 The non-economic loss was assessed on the basis of 50 per cent of a most extreme case under s 79 of the Motor Accidents Act 1988. The grounds for the challenge to this amount in the notice of appeal were that his Honour had failed to disclose adequately or at all the reasoning upon which he found it appropriate to assess the non-economic loss on that basis; that he had failed to disclose any or adequate process of reasoning by which he assessed the non-economic loss on that basis; and in the alternative that his assessment was excessive. 5 At the hearing of the appeal the challenge was more confined. In the appellant's written submissions it was expressed in the terms that his Honour - " … fell into error by failing to appreciate his acceptance of the view of Dr Scougall and the other medical witnesses as to the extent of the respondent's incapacity, had to be tempered by the contradictory and compelling evidence, accepted by his Honour, contained in a video film of the respondent and an affidavit sworn by the respondent in family court proceedings."

It was said in the written submissions that the other evidence was found by his Honour to be "at odds markedly with the respondent's presentation to medical practitioners and indeed to the Court". In the appellant's oral submissions it was said that his Honour did not "hold up the opinions of Dr Scougall … against the criticisms of the respondent revealed through the video film and the affidavit" and, in short, that the medical evidence accepted by his Honour was based on histories given to the medical practitioners which the video film and the affidavit showed were incorrect. 6 The dispute over the extent of the respondent's incapacity resulting from the accident involved both the nature of his injuries in the accident and the effect of the injuries upon him. The respondent tendered a large number of medical and associated reports, the appellant tendered a lesser number. As well as from general practitioners, they include reports from specialists in orthopaedic medicine, neurology, psychiatry, and neuropsychology. 7 Having reviewed in his reasons a number of the reports and the oral evidence given by some of the medical practitioners, and observed that the report of Dr Walker "in a lot of ways sums up the plaintiff's problems", his Honour said that where there was dispute he preferred the opinions of Dr Scougall, an orthopaedic surgeon, and Dr Canaris, a psychiatrist. The reports of both had been tendered in the respondent's case, and Dr Scougall gave oral evidence. His Honour noted that Dr Scougall had said that "the symptoms which the plaintiff is displaying are in excess of what the doctor would have expected", and that Dr Walker had said "virtually the same things". The report of Dr Walker, a neurologist, had been tendered in the appellant's case. 8 In Dr Scougall's opinion the injuries to the respondent in the accident falling within his expertise had been soft tissue injuries, and he attributed the extent of disability of which the respondent complained to an "associated pathology" and possibly anxiety and depression. Dr Canaris diagnosed major depression, not of itself disabling but making it difficult for the respondent to work in the open market place and in combination with continued pain bringing loss of earning capacity. Dr Walker had said that no specific pathological mechanism had been shown that would adequately explain the level of pain of which the respondent complained, and that there was "a significant functional overlay". Expressly or inferentially, each of these medical practitioners thought the respondent unfit for the heavy work of his pre-injury occupation as a builder. 9 His Honour found that as a result of the accident the respondent sustained multiple soft tissue injury to his cervical spine, lumbar spine, knees, foot and ankle, a minor head injury, and an injury to the chest, and that he suffered from depression and had a functional overlay. He said that he found that the respondent "exaggerates his condition to some extent, and whilst he suffers from pain and disability, it is not at the level which he complains of to this Court." He found that the respondent would continue to suffer some pain and disability in the future, that the conclusion of the proceedings would "assist him to some extent", but that he was "not fit for work as a builder/contractor or for heavy work". 10 It is as plain as can be that his Honour came to the view he did as to the extent of the respondent's incapacity in the light of the video film and affidavit on which the appellant's submission rested. 11 Very early in his reasons his Honour said - "The plaintiff was not an impressive witness. He suggested he was in a far worse condition than appeared to be the case, in a short video film I saw, and there were differences in his evidence particularly differences between an affidavit sworn for a Family Law Court proceedings and his evidence in this case. I am not suggesting that he was a totally unreliable witness but that I have to take care with his evidence."

12 The finding that the respondent was not fit for work as a builder/contractor or for heavy work was preceded by the reference to the respondent's exaggeration of his condition, and was immediately followed by - "The early impression I had of the plaintiff when he was giving evidence was that to some extent he was exaggerating his problems. When I saw a short video taken in August 1998 I saw a man who had disabilities but also a man who moved with a lot more freedom and agility than the man I saw in this Court. He could furthermore move his neck to a far greater degree than he showed in this Court. It is interesting to read the histories taken by the doctors at about the time of the video and compare the video and those histories. It becomes quite clear that the plaintiff has exaggerated his disabilities, but as I have said he does suffer disabilities, the doctors clearly support that and I will base my judgment on those findings I have made."

13 This passage shows that his Honour was well aware that the histories given by the respondent to the medical practitioners had to be tested against what was revealed by the video film, and the earlier reference to the affidavit shows that his Honour also had it well in mind. The affidavit was again referred to, as a document controverting the respondent's claimed major inability to attend to household matters, when his Honour dealt with (and rejected) damages for care. He accepted that, after allowance for these, there remained in the opinions of Dr Scougall and Dr Canaris grounds for the incapacity he found, and it was open to his Honour to do so. There is no reason to conclude that, as was submitted by the appellant, his Honour only paid lip service to the significance of the video film and the affidavit. He did not fall into the error asserted, and the challenge to the assessment of non-economic loss, on the basis in the end put forward, should not be upheld.

Economic loss 14 It is convenient immediately to set out his Honour's reasons - "The main part of the claim is for loss of income. The plaintiff worked as a builder at the time of his accident. He says he has been unable to work since the accident, he has considerable support from the doctors who say he is unfit for work as a builder, he is unfit for heavy work, he is not suitable for a desk type job. Doctor Scougall says that he is unfit for work and virtually is unemployable. I am satisfied that he may be able from time to time to do some sort of light work but he is fifty years of age, to get that sort of work with his qualifications at that age would indeed be difficult, and I take that all into account. I take into account that he did have a pre-existing condition and that he was vulnerable. The next difficult part of this case, as with every part of it, was what he actually earned. His income tax returns do not reveal any substantial income from his building business before the accident. Moneys were paid into a trust but even when you look at the trust at its highest point it did not reveal any substantial income. On the other hand there is evidence that he was a competent builder and a hard working builder. It has been submitted by senior counsel for the plaintiff that the way to approach it is to allow the wages which would be paid to a craftsman such as a carpenter and to multiply it by a certain percentage starting at one and a half times that and going up to, I think about, two or three times. I am provided with various calculations and I am content that the way to assess the plaintiff is to take the average weekly earnings and multiply it by 1.5 and doing that for the past I allow $149,000. In the future I note such an allowance would total $338,000 but that has to be reduced on several bases, one that he would have always been vulnerable to loss of time from work and loss of income even without this accident, and secondly there is no guarantee he just would have continued earning that sort of money in the future and doing the best I can and taking all that into account I allow the plaintiff a future loss of income in the sum of $275,000." 15 The grounds for the challenge to these amounts in the notice of appeal were that his Honour had failed to disclose adequately or at all the reasoning upon which he found it appropriate to assess the respective economic losses by reference to average weekly earnings multiplied by 1.5; that he had failed to disclose any or any adequate process of reasoning by which he assessed the respective economic losses on that basis; and in the alternative that his assessments were excessive. 16 Again, at the hearing of the appeal the challenge was more confined. In the appellant's written submissions it was said first that there was "not a scintilla of evidence" underpinning the calculation of economic loss on the basis of a multiple of average weekly earnings, and secondly that "the judgment does not disclose the essential steps in the trial judge's reasoning process that led to his Honour's acceptance of the submission to adopt and apply a multiplier of average weekly earnings". In the appellant's oral submissions it was accepted that, in principle, the economic loss could have been assessed on the basis of average weekly earnings, even factored up average weekly earnings, but it was said that the evidence in this case did not permit that course because it could not be found that it would throw up "a fair assessment" of economic loss. If the evidence did not permit the basis his Honour adopted, of course, an inadequate reasoning process would not be surprising. 17 The respondent was called as the first witness. He gave evidence of his early employment as a machinist, of learning bricklaying and carpentry, of working in the building industry as an employee and sub-contractor, and of obtaining an appropriate licence and beginning to do jobs as a builder a few years before the accident. The building jobs were described. He also undertook some property development activity in those years. The building and development work was undertaken by the respondent's company, Dynpan Pty Ltd ("Dynpan"), which acted as the trustee of a family trust. 18 Income tax returns for the respondent and Dynpan were tendered. A report of Furzer Crestani Services ("the Furzer report") had been served on behalf of the respondent as an accountant's assessment of damages for economic loss. When the cross-examination of the respondent turned to that area there was discussion between counsel and his Honour in which each counsel foreshadowed how his Honour would be asked to approach the assessment. 19 Counsel for the respondent referred to the Furzer report. It took two "scenarios", and within each scenario three alternative assumptions of residual earning capacity. The first scenario took earnings as a successful builder. Counsel for the respondent observed that it might not find favour because it depended on the perhaps unlikely assumption that the respondent would always be successful as a builder. The second scenario took average weekly earnings of a carpenter, but it was said that, on the basis that the respondent had an earning capacity greater than simply as a tradesman, the average weekly earnings should be increased by one and a half or two times. Counsel for the respondent indicated that he would primarily be relying on this basis for assessment of economic loss. 20 Counsel for the appellant accepted that there was "undoubtedly some loss of capacity", but said that the respondent "was never close to" the factored up average weekly earnings and that he would be submitting that "the base figures that he had been earning for years before hand" were the beginning and the end of putting a figure on lost earning capacity. 21 In due course the Furzer report was tendered. Its author was not cross-examined. 22 For the purposes of the first scenario the historical taxable income of the respondent and net income of Dynpan were summarised, and there was a separate profit and loss statement for a property development current at the date of the accident (it lost money). The net income of Dynpan showed a marked upward trend for the years ended 30 June 1990 to 30 June 1993, with a marked reduction for the 1994 year because of an extraordinary expense for commission. This expense was not explained; but for it, the upward trend would have continued. As his Honour said, the amounts were not substantial, although they were not insignificant (Dynpan's net income for the 1990 year was $11,179, for the 1993 year $32,495, and for the 1994 year $172 after the commission of $249,779). 23 But the first scenario took a more sophisticated approach than averaging or projection of the results of the five years. A separate schedule of "taxable income of the trust" analysed according to the building jobs described by the respondent was prepared, showing total taxable income of $89,558.00 generated in the 16 month period before the accident. The income was increased by $44,428 after adjustment for extraordinary items. The resulting $133,986 over 16 months was used as the basis for calculations of past and future economic loss. The past economic loss was $264,196 and, depending upon the assumed residual earning capacity, the future economic loss ranged from $807,651.00 (no residual earning capacity) to $581,167.00 (residual earning capacity of $500 per week gross before tax). These calculations took 30 June 1998 as the division between past and future. 24 For the second scenario the Furzer report took the average weekly earnings of a carpenter, not factored up, and calculated past economic loss at $93,137 and future economic loss, on the same alternative assumptions of residual earning capacity, from $291,219 to $64,735. The date dividing past and future was again 30 June 1998. 25 The Furzer report did not include calculations for factored up average weekly earnings. In due course there was tendered a "mathematical upgrade" of the calculations, using 16 February 1999 as the date dividing past and future and factoring up the average weekly earnings by 1.5, 1.75, and 2.00. The figure for the second scenario past economic loss based on average weekly earnings factored up by 1.5 was $149,302, corresponding to the $93,137 earlier mentioned. The figure for second scenario future economic loss based on average weekly earnings factored up by 1.5 and assuming no residual earning capacity was $388,179, corresponding to the $291,219 earlier mentioned. These were obviously the source of the figures of $149,000 and $338,000 found in his Honour's reasons. 26 There was no evidence to the effect that, but for the accident, the respondent would have worked as a carpenter earning the average weekly earnings or the average weekly earnings factored up by 1.5. But that does not mean that the approach his Honour took was erroneous. 27 The respondent exercised his earning capacity through Dynpan, and the tax returns show that his income was diverted via the family trust to members of his family. While his income tax returns did not reveal a substantial personal income, plainly they did not reflect his earning capacity. The net income of Dynpan was also not substantial, but it showed (subject to the unexplained commission) the marked upward trend to which I have referred. An upward trend would not be unexpected, given that the respondent's income earning activity was maturing into building and development work on his own account. Although not specifically referred to by his Honour, in narrowing down the income earning activity to the 16 months prior to the accident, producing a considerably increased figure for the respondent's recent income earning activity, the Furzer report provided a rational alternative approach to the assessment of economic loss, one productive of greatly increased damages. It is unnecessary to express a view on the soundness of the alternative. The point is that what counsel for the appellant had referred to as "the base figures that he had been earning for years before hand" did not give a particularly satisfactory basis for forecasting the earning of income after the accident, because the translation of the respondent's earning capacity into income was muddied by interposition of Dynpan and the family trust and because it was necessary to have regard to the evolving business activity. 28 In such circumstances it is well accepted that it is permissible to look to a hypothetical wage rate. So in Dunlany v The Hunters Hill Bus Co Pty Ltd (CA, 12 May 1983, unreported) Moffitt P said - "To digress, before coming to the third reason, I add that the problem in a case such as the present arises at times in cases before the court where a working owner or partner receives injury and cannot do as much as previously in a business which however changes in character and administration from time to time in such a way that although it is clear that there is a diminution in working capacity and that of necessity there must be some economic detriment to the business, it is difficult, or perhaps impossible precisely to quantify the loss, or demonstrate with precision or perhaps at all a mechanism by which the loss occurs. In the judgment of this Court in Blasetto v Wilson (CA, 17 May 1978, unreported) it was said - 'These losses, present and future, some of which, although contingent, are real, are not susceptible of any satisfactory statistical proof. Insofar as they are being sustained at present, their precise amount is largely masked by other circumstances not casually connected with the plaintiff's injury. This however does not prevent the inference on the evidence in the present case that losses are being properly sustained and will be sustained in the future. If there is a real diminution in earning capacity which it can be inferred is or will cause economic loss, it should not go uncompensated because of the difficulty or, it may be, the impossibility of producing evidence which will precisely quantify it at the date of trial or in the years to come.'

In that and other similar cases the Court has resorted, as a guide, to the level of wages paid to an employee performing work which the owner or partner could not do. What it would cost to employ somebody else for the time he could not work or what he might earn if he had sought employment himself is capable of providing some guide as a basis from which an estimate of the loss to the business or to him can be made. Such a guide may be of particular assistance in assessing the award for a continuing diminution or loss of earning capacity because a future loss is not necessarily tied to a particular business." 29 Permissible resort to such a guide is consistent with two fundamentals of the assessment of damages for economic loss in cases such as the present. 30 The first is that the damages are for loss or diminution of earning capacity. The damages are because and to the extent that the loss or diminution of earning capacity is or may be productive of financial loss (Graham v Baker (1961) 106 CLR 340 at 347), but nonetheless the conceptual foundation emphasises that the damages are not necessarily a calculation from past earned income; see also Husher v Husher (1999) 73 ALJR 1414 at 1416. 31 The second is that a great deal of estimation is involved. The court is necessarily prophesying, even as to past economic loss. Speaking of future economic loss, in Todorovic v Waller (1981) 150 CLR 402 Aickin J said (at 457-458) - "The task of translating the assumptions as to the future into a money figure to be awarded to the plaintiff as a single sum is one which, from its very nature, is incapable of being performed with accuracy. The result can never be tested by reference to information available at the time of the trial. It is thus inevitable that assumptions must be made about every one of the variables which may, and generally speaking will, affect the future of any individual plaintiff. There has been a tendency, perhaps natural enough, to attribute to what are not more than guesses a degree of accuracy which is often misleading. One factor which has to be borne in mind is that most of the relevant factors in the calculation are not only unknown but such that knowledge of them is impossible to obtain."

And in the same case Gibbs CJ and Wilson J said (at 413) that in no case can there be any solid basis on which to determine what the plaintiff would have earned if he had not received the injuries in respect of which he sues, and that the uncertainties mean that - " … damages for financial loss likely to result from personal injury 'can only be an estimate, often a very rough estimate, of the present value of his prospective loss': British Transport Commissioner v Gourley ((1956) AC 185 at 212) per Lord Reid. Ultimately the process must always be one of judgment rather than calculation." 32 In the present case, in my view it was open to his Honour to take the average weekly earnings of a carpenter as a guide in the assessment of the financial loss produced by the respondent's lost or diminished earning capacity, both in relation to past economic loss and in relation to future economic loss. But there was more, contrary to the appellant's submission being evidence on which it was open to his Honour to use factored up average weekly earnings. 33 His Honour had what he described as "evidence that [the respondent] was a competent builder and a hardworking builder". Involved in that evidence was the respondent's progression to a builder carrying on business on his own account and the recently obtained building contracts. Even with the well known vagaries of the building industry which caused counsel for the respondent to lose faith in the first scenario, the assessment according to the first scenario in the Furzer report indicated the possibility, at the least, of financial loss from the effect on the respondent's earning capacity in an amount considerably greater than that calculated in the assessment according to the second scenario. A competent and hardworking builder carrying on business on his own account would be likely to earn more than an employed carpenter. In my view it is tolerably clear that, with that in mind, his Honour considered it appropriate to take not just the average weekly earnings for a carpenter as his guide, but the average weekly earnings factored up to reflect the greater earnings which a competent and hardworking builder might have achieved, as the first scenario suggested but with a substantial discount. There was estimation in this, even rough estimation. But there was no error. 35 It follows that I do not think that the appellant's challenge should be upheld so far as asserting lack of evidence to ground what his Honour did. Nor do I consider that there was any failure to disclose the essential steps in the reasoning process leading his Honour to using factored up average weekly earnings for his assessment. While the reasons are economical, they sufficiently show that his Honour paid regard to income revealed in the income tax returns of the respondent and Dynpan, but did not think it appropriate to remain with that information alone because the respondent was a competent and hardworking builder. This was obviously enough because his Honour did not think that the financial consequences of the respondent's loss of or diminution in earning capacity, as a competent and hardworking builder, was truly measured according to in the income in those documents, and the other matters to which I have referred and the Furzer report supported such a conclusion. In an exercise of estimation and expressly "doing the best I can", his Honour resorted to the alternative guide of average weekly earnings factored up. His use of the average weekly earnings factored up was by a sufficiently explicit, and permissible, process. 36 The appellant's submissions in relation to economic loss did not challenge what his Honour did with the average weekly wages factored up: for example, it was not said that the reduction from $338,000 to $275,000 was an insufficient allowance for contingencies. In the manner the challenge was confined, it is unnecessary to go further. 37 I propose that the appeal be dismissed with costs. 38 HODGSON CJ in Eq: I agree with the judgment of Giles JA. ____________

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