Fkiaras v Fkiaras

LEGISLATION CITED: Motor Accidents Compensation Act 1999

Kallouf v Middis [2008] NSWCA 61 CASES CITED: Kaplantzi v Pascoe [2003] NSWCA 386; (2003) 40 MVR 146 Doughty v Cassidy [2004] QSC 366

Theothera Fkiaris PARTIES: The Nominal Defendant Dimitrios Fkiaras

COUNSEL: 1&2A: K P Rewell SC / J Turnbull R: T K Tobin QC / D Campbell

SOLICITORS: 1&2 A: Caroll & O'Dea, Lawyers, Sydney R: Beston Macken McManis, Sydney

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 2009/298415 DC 2994/07

HODGSON JA TOBIAS JA MACFARLAN JA

Thursday 27 May 2010 THEOTHERA FKIARAS & ANOR v DIMITRIOS FKIARAS Judgment 1 HODGSON JA: I agree with Tobias JA. 2 TOBIAS JA: On 23 August 2004 the respondent was a passenger in a motor vehicle being driven by the first appellant, the respondent's wife, on the Hume Highway near Sutton Forrest. The vehicle overturned and the respondent sustained serious injuries. 3 In his Statement of Claim the respondent alleged that an unidentified vehicle drove into the lane in which the first appellant was travelling and forced her to swerve and lose control of her vehicle. Accordingly, the second appellant, the Nominal Defendant, was joined as a defendant. Ultimately, liability on the part of both appellants was admitted. With respect to the assessment of the respondent's damages, both appellants had common representation as they had on the appeal. 4 The proceedings were heard by her Honour Judge Truss of the District Court who on 21 August 2009 assessed the respondent's damages in the sum of $1,718,908. Of that amount her Honour assessed the respondent's past economic loss in the sum of $322,920 and his future economic loss in the sum of $269,813. The appellants' appeal to this Court is confined to those assessments, it being contended that as a consequence of the operation of s 125 of the Motor Accidents Compensation Act 1999 (the Act), the respondent is entitled only to $23,765 for past economic loss and nothing for future economic loss.

The relevant findings of the primary judge on the issue of damages 5 The respondent suffered multiple injuries of an orthopaedic nature. Relevantly to the issues on the appeal, he also sustained significant brain damage. 6 At the time of the accident the respondent, in conjunction with his wife, owned either directly or indirectly a number of properties and businesses. In particular he had become a successful businessman. According to the primary judge (at [75]) he had purchased a number of properties; acquired skills in building construction and development and by the time of the accident had established a number of successful businesses which were operated through various corporate entities and trusts including a Hungry Jacks franchise at Traralgon, a town in Gippsland in Victoria where he and his wife resided. 7 The businesses and properties which the respondent and his wife controlled at the time of the accident through various entities, were summarised by the primary judge (at [76]) as follows: (a) a Hungry Jacks outlet which included the land, building, plant and equipment; (b) the land and buildings which he had constructed and leased to Harvey Norman and Captain Snooze; (c) an arcade which initially comprised 9 shops and a nursery which he had turned into 14 shops all but one of which was rented; (d) a retail business known as Sportsland which he and his wife operated out of one of the shops in the arcade; (e) an industrial development site in Swan Road, Morwell (10 acres); and (f) a rental property at Francis Street, Traralgon. 8 The various entities which controlled or operated the various businesses at the time of the accident were identified by her Honour at [81] as being: (a) Dimitrios & Theotera Fkiaras Partnership (b) The Fkiaras Family Trust (c) 25th Mimosa Pty Ltd (d) TJJ investments Pty Ltd (e) D&T Fkiaras & Sons Pty Ltd (f) D&T Developers Pty Ltd 9 Prior to the accident her Honour found (at [82]) that the whilst the respondent engaged the services of accountants, lawyers, surveyors, architects and real estate agents, he had the ultimate responsibility for the various operations to which reference has been made and, as the respondent said in evidence, he "did the thinking". In addition he performed construction work as well as routine maintenance on various properties, calling in tradesmen where necessary. 10 Her Honour also found (at [83]) that the respondent was a confident and astute businessman who was always looking for new deals and "had his finger on the pulse" of what was happening in Traralgon. He also had a good understanding of financial matters and plans. At the time of the accident the respondent was aged 60 and at the time of trial 65. Her Honour found that he would have retired at the age of 70. 11 The medical evidence accepted by the primary judge was that the respondent's cognitive deficits were such as to destroy his ability to make appropriate business decisions and then to implement them including undertaking property development, managing his investments or undertaking his previous duties with the family's Hungry Jacks franchise. 12 At [104] her Honour summarised the evidence, which she implicitly accepted with respect to the manner in which the respondent performed his business activities both before and after the accident: "(a) Mr Gibson who was the family accountant until 2006 said that before the accident the [respondent] was an astute businessman with his finger on the pulse of business opportunities in the area. He said that whereas the [respondent] had previously regularly called into his office without an appointment, after August 2004 he rarely came at all. He said that the ideas stopped and he dealt mainly with the [respondent's] wife on all matters whereas previously he had dealt with her mostly in relation to the financial aspects. (b) Mr Lowe gave evidence that since taking over as accountant from Mr Gibson in 2006 his detailed financial discussions have taken place with the [respondent's] wife generally with the [respondent] present. It is his impression the [respondent] has difficulty understanding the financial records. (c) Mr McDonough who has been the family solicitor since 1995 said that he now deals mostly with the [respondent's] wife and that although he often attends with her she now appears to have assumed the dominant role. It is his impression that the [respondent] is now quite reserved and no longer has the same capacity to conduct a transaction and his wife tends to take control. (d) Mr Marx, the surveyor, who is involved in the Hobson Park development said that since the accident the [respondent] has been less involved in the project, he has observed a lack of attention and his discussions are directed more to Mrs Fkiaras. (e) Mr Honkey said that whereas the [respondent] had previously played a key role it is his observation that he is very vague and that for any future franchise it will be necessary to work around him." 13 At [105] her Honour concluded that having regard to the totality of the evidence, she found that the respondent had no effective residual earning capacity with respect to either his own businesses or on the open labour market. There was no challenge to this finding. 14 With respect to the respondent's most likely future circumstances but for the injury, the primary judge concluded (at [134]) that on the evidence and up to the age of 70: "(a) he would have continued to oversee the existing businesses with similar involvement to what he was having up to the date of accident; (b) he would have continued with the Hobson Park development which would have been completed in some form or another. Because of its size he would have been unlikely to do it on his own; (c) he would have continued with the plan to open a Hungry Jacks outlet in Sale although there was always a chance, the [respondent] suggests 20%, that this would not eventuate for various reasons; (d) he would have sought other new business opportunities which in all probability would have been largely successful." 15 The primary judge then set out the respective cases of the parties, both of whom accepted that the income disclosed by the respondent in his personal income tax returns was neither indicative of his earning capacity nor representative of the actual income of which he had had the benefit through the various entities which conducted his various business operations. 16 Each of the parties called a forensic accountant for the purpose of providing evidence as to the economic loss, if any, for which each of the parties contended. It is fair to say that her Honour rejected the method of, but not the approach to the, assessment adopted by the respondent's expert but rejected the approach to that assessment by the appellants' expert. 17 The evidence of each of the experts also differed depending upon the true construction of s 125 of the Act which was adopted. It was in the following terms: "(1) This section applies to an award of damages: (a) for past or future economic loss due to loss of earnings or the deprivation or impairment of earning capacity, or (b) for the loss of expectation of financial support. (2) In the case of any such award, the court is to disregard the amount (if any) by which the injured or deceased person's net weekly earnings would (but for the injury or death) have exceeded $2,500."

For the purposes of s 125(2) the current indexed amount at the date of trial was $3,584 which, it was accepted, applied to all years post-accident. 18 At [142] her Honour noted that in a straightforward case calculation of economic loss ordinarily required the court to:

(a) assess probable net weekly earnings but for the injury;

(b) assess post-accident earnings and/or residual earning capacity;

(c) award damages based on the difference between (a) and (b) adjusted for vicissitudes. 19 The appellants submitted, and her Honour accepted, that s 125(2) imposed a maximum on the first step in the above process. In particular, she accepted their submission that the word "earnings" in s 125(2) included "earnings" not necessarily received in the form of weekly, monthly or even yearly wages or salary but extended to benefits received from capital gains and trusts as well as dividends from companies. However, and this constituted the real dispute between the parties, the question was whether those "earnings" were required to be derived from the exercise of earning capacity on the part of the injured party. 20 Illustrative of the issue raised by s 125(2) was the evidence of the appellants' expert who approached the calculation of the respondent's pre and post-accident earnings on the basis, undisputed, of 50% of the aggregate of all business income available for distribution to him from the various entities which formed part of his business operations. The 50% was based on an apportionment with his wife in partnership income, rental returns, shareholdings and the like. 21 Thus, the appellants' expert estimated the annual operating results of the six entities referred to at [8], allowed for 50% of that amount and for income tax at the individual rate, and thereby reached the figures set out in the following table: Year ended 30 June [Respondent's] business income after tax (annual) [Respondent's] business income after tax (weekly) 2000 $23,839 $458 2001 $17,660 $340 2002 $48,211 $927 2003 $66,847 $1,286 2004 $100,759 $1,938 2005 $126,069 $2,424 2006 $202,694 $3,898 2007 $216,305 $4,160 2008 $252,888 $4,863

22 The respondent was injured on 23 August 2004 in the early part of the financial year ending 30 June 2005. According to the appellants' expert the respondent's business income after tax on a weekly basis for that year was $2,424, which was less than the s 125(2) maximum threshold of $3,584. The appellants submitted to her Honour and repeated to this Court that the respondent was entitled to past economic loss only for the 2005 financial year being the difference between $3,584 and $2,424 which resulted in a loss of $1,160 per week or a total of $23,765. 23 However, as (according to the table) the respondent's weekly business income after tax for the subsequent financial years up to trial exceeded the maximum of $3,584 per week, he was disentitled from any further past economic loss and for any future economic loss upon the assumption, which the evidence apparently established, that up to the age of 70 the respondent's weekly income after tax would continue to exceed the s 125(2) maximum. 24 Accordingly, as her Honour recorded at [171] of her judgment, the appellants submitted that based on their expert's calculations and the operation of s 125, the proper allowance for past economic loss was $23,765 for the 2005 financial year only. It is not clear how that figure was calculated but it matters not for present purposes. 25 The primary judge rejected this approach upon the basis that in her opinion it offended commonsense and failed to acknowledge: "► the full extent of the [respondent's] input and efforts in the past; ► but for injury he was likely to continue to contribute valuable input and effort into the existing businesses and to apply his entrepreneurial skills to create further business ventures consistent with what he had done in the past and which h ad a real prospect of being successful; ► it is implicit in the [appellants'] submission that the businesses existing at [the] time of the accident would have been no more successful than they had been had the plaintiff not be injured." 26 At [172] her Honour remarked that the other difficulty she had with the appellants' approach was that "the mathematical method by which post-accident earnings were determined fails to acknowledge that the [respondent] has had such earnings not because of any exertion on his part, but because of his efforts in the past." 27 This statement by her Honour was the kernel of the issue on the appeal for the appellants' case depended upon acceptance of the proposition that provided the post-injury earnings of the respondent resulted from his exercise of earning capacity in the past albeit pre-injury, it mattered not that they did not result from any exercise of earning capacity on the respondent's part post-injury. Nor, according to the appellants' submission, did it matter that those post-injury earnings may have been increased to the figures adopted by the appellants' expert in respect of the years following the accident without any direct input by the respondent or that that had occurred as a consequence of the contribution of the respondent's wife, family and other persons. No doubt, it was these considerations that offended what her Honour considered to be common sense. 28 Accordingly, at [173] the primary judge concluded that the respondent was the driving force behind the operations as a whole which depended upon his input and entrepreneurial skills. Notwithstanding that other members of the family had contributed to the success of those operations particularly post-accident, in her Honour's view the focus ought to be upon what the respondent's input would have been but for his injuries and not upon the family's input. 29 In her Honour's view (at [174]), the respondent was entitled to be compensated for the loss to him of the benefits "of his contribution" to the family businesses. As that contribution was incapable of being calculated on a strictly mathematical basis using financial records, her Honour considered (at [175]) that the proper approach was to place a value upon the respondent's likely contribution to the operations but for his injuries by reference to the cost of engaging another person to do what the respondent would have done had he not been injured. She calculated past and future economic loss accordingly and there is no challenge to that approach if otherwise the appellants' construction of s 125 is rejected.

The submissions of the parties on the appeal 30 In their written submissions in chief, the appellants submitted that her Honour ought to have approached the assessment of damages for economic loss in the following manner:

(a) What would the respondent's probable earnings have been had he remained uninjured, including his earnings from businesses already established at the time of the accident, together with any additional earnings from new businesses or opportunities?

(b) What have the respondent's actual earnings been since the accident notwithstanding his lack of personal input due to his injuries?

(c) Is the difference compensable having regard to s 125? 31 It was submitted on the basis of the table of earnings which I have extracted at [21] above, that apart from the financial year ending 30 June 2005, the respondent's actual earnings in the years following and in the future exceeded the cap of $3,584 net per week. It followed that an award of damages for past and future economic loss could not be made. 32 In his written submissions in chief, the respondent submitted the following:

(a) That it was necessary to distinguish between the product of capital (the business assets which generate a substantial return) and the product of the respondent's personal exertions; only the latter is relevant to the question of his earning capacity and the effect of his injuries thereon;

(b) The flaw in the appellants' contention is that it fails to distinguish between " earnings " and " earning capacity " (whether past or future) on the one hand and distributions made on account of earnings generated by an accumulation of capital on the other where that capital has previously (that is, pre-accident) been " the product of a combination of many decades of hard work, considerable business nous on the part of the [respondent] as well as the diverse practical skills he acquired over the years ";

(c) Section 125 does not operate so as to ensnare financial returns generated by businesses that are dependant not upon the then earning capacity of the injured person but which results from a combination of earnings on previously acquired capital and from the use of the personal skills of persons other than the injured person;

(d) Given the primary judge's finding that the accident destroyed the respondent's earning capacity, however one characterises his pre-injury capacity, any returns to the respondent from the businesses after the accident could not be said to have been generated by, or the product of, any ongoing exercise of his pre-injury earning capacity;

(e) Accordingly, the crucial question of the loss to the respondent of the benefits of his contribution to the relevant businesses cannot be answered by simply looking at the income generated by those businesses in which he had been actively involved prior to sustaining his injuries;

(f) It followed that the primary judge was correct in limiting her assessment to the loss to the respondent of the benefit of the contribution which he would have made but for his incapacity and not what would have been derived in any event irrespective of his incapacity. 33 In their written submissions in reply, the appellants submitted that s 125 required that all post-accident earnings of the respondent be taken into account in assessing whether he had sustained any compensable economic loss. What was to be deducted from the respondent's net weekly earnings but for his injuries was his actual post-accident earnings from his businesses notwithstanding that his injuries had deprived him of any earning capacity to enable him to contribute to the ongoing operations of those businesses. 34 In oral submissions the appellants in essence submitted first, that the word "earnings" both in ss 125(1)(a) and (2) was not confined to earnings from the respondent's exercise of any earning capacity but for his injuries. Rather, it extended to any earnings from those businesses to which the respondent had contributed prior to his injuries. 35 In other words, where it could be said, that the respondent's post-injury earnings from the relevant businesses were as a result of some flow on effect (albeit not measurable) from his contribution to those businesses before he was injured, it mattered not that those earnings were not the result of any residual earning capacity exercised post-injury. Accordingly, the fact that he had been wholly deprived of any earning capacity by his injuries was irrelevant.

The appellants' submissions should be rejected 36 The principles with respect to the assessment of damages for economic loss under the general law are well established. Thus in Kallouf v Middis [2008] NSWCA 61 McColl JA summarised those principles relevantly as follows (omitting some citations): "46. Damages for both past loss and future loss are allowed to an injured plaintiff 'because the diminution of his earning capacity is or may be productive of financial loss'…; As McHugh J said in Medlin v The State Government Insurance Commission 'the loss of earning capacity principle more accurately compensates a plaintiff for the effect of an accident on the plaintiff's ability to earn income'. 47. Although it is loss of earning capacity and not loss of earnings that is the subject of compensation, the rate of wages being earned and the rate of wage likely to be earned in the future afford a basis for assessing compensation for a loss of earning capacity … 48. It is necessary to identify both what capacity has been lost and what economic consequences will probably flow from that loss. Only then will it be possible to assess what sum will put the plaintiff in the same position he or she would have been in if the injury had not been sustained …" 37 Of course, these principles are subject in the case of a motor vehicle accident to the provisions of s 125. As the appellants correctly submitted, that section does not provide a cap on the award of past and future economic loss: it merely places a cap on the first component of the process which the primary judge identified at [142] of her reasons: see [18] above. 38 The appellants relied upon a passage from the judgment of Hodgson JA, with whom McColl JA and Cripps AJA agreed, in Kaplantzi v Pascoe [2003] NSWCA 386; (2003) 40 MVR 146 where, at [32], his Honour said: "In my opinion, the Motor Accidents Compensation Act in general, and s.125 in particular, shows a clear legislative intention that there be an effective limit put on claims by dependants of persons whose efforts would have produced very high financial benefits to those dependants, irrespective of how the remuneration or financial gains of those persons is structured or how their wealth-creating capacity is exercised . In my opinion it would be inconsistent with this intention to give a narrow construction to 'net weekly earnings'. It is common for persons who generate great financial benefits that these benefits not be received weekly or monthly or even yearly, and that some of these benefits be received by way of capital gains rather than income. In so far as the financial loss of dependants derives from the loss of the capacity of the deceased to generate assets for their benefit, all contributions to those assets that would have occurred through the exercise of that capacity are properly considered as earnings; and in my opinion, in so far as those earnings, when calculated as a net weekly figure, exceed the figure specified pursuant to s.125, those earnings are to be disregarded." (Emphasis added) 39 Although the appellants relied upon this passage from his Honour's judgment in support of the proposition for which they contended, it is clear from those parts which I have emphasised, that he was clearly construing the word "earnings" wherever appearing in s 125 as earnings which were the product of the exercise of a person's earning capacity: that is, through the personal exertions or input of the injured person that results in a particular output although that output may take various forms. 40 Although the appellants also relied upon the decision of McMurdo J of the Supreme Court of Queensland in Doughty v Cassidy [2004] QSC 366 where his Honour was concerned with the Queensland equivalent of s 125, it is clear from that learned judge's reliance upon the judgment of Hodgson JA in Kaplantzi that he was not differing from the latter's construction of the New South Wales provision. Thus, at [33] McMurdo J observed that: "[t]he assessment of damages for an impairment of earning capacity involves the evaluation of the capital asset of the injured person, which is his or her capacity to earn money. A person whose ability to work is affected by the injury is compensated for the loss of earning capacity, and not for the loss of earnings." 41 Further, his Honour recognised that the relevant section was engaged where the court is assessing damages at common law for the loss or impairment of earning capacity. In my view there is nothing in McMurdo J's decision that in any way supports the construction of s 125 for which the appellants contend. 42 In my view the fundamental flaw in the appellants' argument is that their submission depends upon acceptance of the proposition, which I would reject, that the effect of s 125(2) was to deprive the respondent of any award of damages for past or future economic loss where his "residual earnings", which I take to mean the earnings received by the respondent post-injury from whatever source, exceed the relevant cap and that this is so notwithstanding that as a consequence of his injuries, the respondent has been deprived of any residual earning capacity whatsoever. 43 When faced with the flaw in this proposition the appellants submitted that it was sufficient if the post-injury earnings of the respondent resulted from the exercise by him of his pre-injury earning capacity in that there was some causative link between the exercise of that capacity and his post-injury earnings. However, the difficulty with this contention is that although s 125(2) controls the maximum amount of the first of the components referred to at [18] above, it is silent with respect to the second. What the appellants seek to do is to fix the amount of the second component by reference to any post-accident earnings that can be traced back to the exercise of the respondent's earning capacity pre-accident. In my view there is no statutory warrant for such an approach. 44 A further difficulty with this proposition is that in a case such as the present, it is simply impossible to determine the extent to which, if at all, the exercise by the respondent of his pre-injury earning capacity contributed to the earnings that he received post-accident. Although one can accept for present purposes the evidence of the appellants' expert as to the actual earnings, or more accurately, income, received by the respondent post-accident as set out in the table which I have extracted at [21] above and that from and including the financial year 2006 the amount of that income exceeded $3,584 net per week, nevertheless there was no attempt made by the appellants' expert, or for that matter by the appellants, to determine what proportion, if any, of the respondent's weekly business income after tax in the years in question was contributed to by the respondent's exercise of his earning capacity in the years prior to the accident. No doubt the reason for this is that it would, as the primary judge recognised, be an impossible exercise given the nature of the respondent's contribution pre-accident to his business ventures and their ongoing operation. 45 Furthermore, no attempt was made, nor from a practical viewpoint could it have been, to determine the extent to which the respondent's weekly business income after tax set out in the table was contributed to by other external factors unrelated to the respondent's personal exertions in the years prior to him sustaining his injuries. 46 Once it is accepted, as in my opinion it should be, that the reference in s 125 to the word "earnings" is a reference to income earned by the exercise of the injured person's earning capacity, it follows that the appellants' construction of s 125(2) must be rejected. This section is concerned with the awarding of past or future economic loss due, relevantly, to the deprivation of the respondent's earning capacity as a consequence of his injuries. Post-accident, that earning capacity was nil. But for his injuries he had full earning capacity which if exercised would have earned him in excess of the cap the subject of s 125(2). 47 Accordingly, he was not entitled to be compensated for any loss of earnings on a weekly basis that exceeded that cap. But once it was determined that his post-injury incapacity was nil, it followed that he was entitled to an award of damages for past and future economic loss. 48 On the approach of the primary judge, which assumed a calculation based upon the cost of engaging another person to perform the work which would have been performed by the respondent had he not been injured, the cap fixed by s 125(2) became irrelevant. However, there was no challenge by the appellants to the method of calculation adopted by her Honour and no cross-appeal by the respondent suggesting that her Honour's assessment was inadequate. 49 In these circumstances her Honour's assessment of the respondent's past and future economic loss should be confirmed.

Conclusion 50 In my opinion, the appellants' approach to the interpretation of s 125 of the Act is erroneous and that of the respondent should be accepted. I would therefore propose that the appeal be dismissed with costs. 51 MACFARLAN JA: I agree with Tobias JA. **********

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