Supreme Court of SA|1993-03-25|Before: Perry J, Legoe J

JOHN LEONARD SPARGO v. HADEN ENGINEERING PTY LTD AND HOLDEN OVERSEAS CORPORATION TRADING AS HOLDEN MOTOR COMPANY No. SCRG 88/1997 Judgment No. 3793 Number of pages - 19 Appeal - Negligence (1993) 60 SASR 39 [1993] SASC 3793 (25 March 1993)

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA LEGOE (1), PERRY (2) AND DUGGAN (3), JJ

CWDS Appeal - excessive damages Sub-contractor receives injury while working for 1st respondent at premises of 2nd respondent - Learned Trial Judge award $645,453.61 damages - Excessive amount awarded for past and future economic loss - Learned Trial Judge failed to allow proper amount of income tax in determining pretrial and post-trial notional net earnings - To this extent appeal allowed - award of damages reduced to $504,453.69. Negligence - contributory negligence. Apportionment of liability and damages - ability of Court of Appeal to interfere with apportionment assessments - apportionment of Trial Judge where no error of law occurred should only be raised in exceptional cases - No error of fact - appeal dismissed as to apportionment of liability - appeal as to costs - the Trial Judge correctly exercised his discretion as to costs based on the findings of apportionment of liability - appeal as to apportionment of costs dismissed. Grantham v SA , applied. Pennington v Norris ; ; Wickham v STA and Ors and Stapley v Gypsum Mines ; , discussed.

HRNG ADELAIDE, 2 November 1992 #DATE 25:3:1993 Counsel for appellant: Mr D Peek Solicitors for appellant: Gun and Davey Counsel for respondent Spargo: Mr N Wallwork Solicitors for respondent Spargo: Piper Alderman Counsel for respondent Holden: Mr G Mueke Solicitors for respondent Holden: Lawson Downs

ORDER (a) Allow the appeal as to apportionment of liability between the defendants and substitute an order that liability between them be apportioned as to 50% each; (b) Allow the appeal as to the incidence of payment of the plaintiff's costs only so as to reflect the same variation, but not otherwise; (c) Allow the appeal as to the assessment of damages, and order that thre be substituted for the sum awarded by the learned Master in favour of the plaintiff the sum of $504,453.69 inclusive of interest.

JUDGE1 LEGOE J In this appeal, the appellant was the employer of the first respondent who claimed damages for personal injuries arising out of an industrial accident which occurred on the premises of the second respondent on the 2nd December, 1986. The relevant background and facts relating to the accident and the circumstances in which it occurred, as well as the first respondent's personal history and circumstances, are set out in the draft reasons of my brother Perry J which I gratefully adopt. This appeal was concerned with two substantial matters arising out of the reasons for judgment, wherein the learned Trial Judge found both the appellant and the second named respondent liable for damages in favour of the first respondent which were assessed in the sum of $645,453.69, which sum included interest on judgment. The learned Trial Judge found in favour of the appellant on its contribution notice that the second named respondent should be held 30% responsible by way of contributory negligence. 2. I agree with my learned brother Perry J that the appeal against the assessment of damages should be allowed to the extent that the damages awarded by the learned Trial Judge be set aside and that the sum of $504,453.69 be substituted which sum is to include interest on judgment. 3. However, I am of the opinion that the appeal against the apportionment of liability made by the learned Trial Judge and the order as to costs should be dismissed. I should state my reasons for that opinion. 4. The appellant in paragraph 7 of its statement of claim for contribution reads as follows:- 7. The grounds upon which the first defendant says that the second defendant was negligent and upon which it seeks contribution from the second defendant or its servants, agents or employees are as follows:- (a) The second defendant by its servants, agents or employees failed to advise the first defendant by its servants, agents or employees that it was unsafe for the plaintiff to cut the paint lines with oxy-acetylene equipment; (b) On the 22nd day of December 1986 the second defendant by its employee Keith Francis Alderson, Senior Project Engineer advised the first defendant by its employee Alan Roy Aitken, foreman pipe fitter that it was in order for the plaintiff to proceed to cut the paint lines with oxy-acetylene equipment; (c) The second defendant by its servants, agents, or employees failed to ensure that the paint lines were completely free, clean and dry before permitting the first defendant by its servants, agents or employees to proceed to use oxy-acetylene equipment to cut the paint lines; (d) The second defendant by its servants, agents, or employees issued to the first defendant 'Work Permit' No's 17160 and 17161 permitting the first defendant by its servants, agents or employees to use 'oxy-cutting' equipment amongst other equipment in the cutting of the paint lines at a time when the said paint lines were not free, clear and dry of inflammable material; (e) The second defendant by its servants, agents, or employees was at all material times aware that flammable material had been used to clean out the paint lines and specifically required that approval be sought from its own servants, agents or employees before paint lines were cut by either oxy-cutting or any other equipment; (f) At all times prior to and commencement of the work to be carried out by the first defendant at the premises of the second defendant, it was always understood between the first defendant and the second defendant that it was the second defendant's sole responsibility and duty to ensure that the paint lines to be cut by the servants, agents or employees of the first defendant were free, clean and dry of any inflammable liquid whether paint or any other substance used to clean the paint out of the paint lines." 5. The learned Trial Judge, as my brother Perry J has pointed out, accepted the evidence of Mr Aitken, the appellant's foreman where it conflicted with that of Mr Alderson on the question of whether or not, shortly prior to the incident, Mr Alderson gave permission to use the cutting equipment. In fact, the second respondent had issued a special permit for the use of the oxy-cutting of the pipes. Furthermore, some pipes had been cut by another subcontractor McMahon's shortly before the incident when the appellant's employee was injured. However, McMahon's had used hydraulic cutters which did not carry the danger that the oxy- torch with sparks patently displayed to anyone who was proposing to use such equipment in the circumstances. The learned Trial Judge went on to find that the second respondent (Holdens) had two opportunities to intervene so as to prevent the first named respondent (the plaintiff in the action) from cutting the paint lines with the cutting equipment. The duty of care owed by Holdens to the first named respondent required that Holdens intervene in order to prevent the paint lines being cut with the cutting equipment. His Honour then said:- "Both Mr Alderson and Mr Marano (an employee of the second named respondent who wet the floor prior to the use of the oxy-cutting equipment on the day of the accident) on respectively becoming aware that Haden intended to cut the paint lines with the cutting equipment, should have taken steps to prevent the task from being undertaken in the manner proposed by Haden. Although I consider that the plaintiff's safety was the primary responsibility of Haden, Haden's duty did not displace the duty

that Holdens owed to the plaintiff to take care for the plaintiff's safety whilst the plaintiff was on Holdens premises.

Alderson could have intervened in a number of ways. He could, and should, have refused permission when speaking to Mr Aitken. Had Mr Aitken disputed his decision he could taken the matter up with Mr Bowman. However, because he gave approval, that approval formed part of the causative series of events leading to the cutting of the paint lines with the cutting equipment. So far as Mr Marano is concerned, I have already expressed the view that he had the authority to intervene and his authority was such that he probably could have prevented the task being undertaken at least for a period of time sufficient to enable higher authority to discuss the matter. At the very least he could, and should, have informed the plaintiff that the paint lines were not to be cut with the cutting equipment. Had he done so I have no doubt that the plaintiff would not have

undertaken the task without further clarification. In my view the approval of Mr Alderson and the inaction of Mr Marano

materially contributed to the happening of the incident. Nevertheless, as I have said, the primary responsibility for the

plaintiff's safety remained at all times with Haden. In all the circumstances I consider that responsibility for the incident should be apportioned between the defendants 30% to Holdens and 70% to Haden." 6. I agree with the learned Trial Judge that the primary responsibility for the first respondent's safety in all the circumstances remained with Haden; see in particular Jones v Santrans Pty Ltd and Shore Pipe Protection Pty Ltd (third party) (1991) 56 SASR 103 at 111 per White J and the various authorities referred to in that part of his judgment. As the learned Judge there pointed out, the employer in that case had "an overriding responsibility to safeguard him (the plaintiff/employee) against unreasonable risks, a responsibility which it could not delegate". I would also refer to the decision of the High Court in Kondis v State Transport Authority [1984] HCA 61; (1984) 154 CLR 672 to support the proposition that the employer owed a non-delegable duty of care to its employee to provide a safe system of work. The liability of the occupier of the premises (Holdens) is now judged on ordinary principles of negligence; see Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479 particularly at 488. The learned Trial Judge correctly directed himself on these matters. 7. It is important to bear in mind when applying these principles as the learned Trial Judge pointed out, that the exercise of cutting the paint lines with the oxy-acetylene equipment was:- "...an inherently dangerous task. The lines contained, at the time when they were cut, a highly flammable liquid or vapour and, at the place where the plaintiff actually cut into the lines, the last line cut by the plaintiff contained the highly flammable liquid. The heat produced by the cutting equipment was more than enough to ignite the liquid or vapour. It follows as the night does the day that to apply such intense heat to such a highly flammable substance is fraught with danger." It is patently clear from the reasons of the learned Trial Judge that this high degree of danger was known not only to the first respondent (the plaintiff who in fact asked his superior for permission to use the oxy-acetylene equipment in the circumstances) but also to the appellant and its principal officer Mr Aitken who was in charge at the carrying out of the subcontract work. 8. As the learned Trial Judge pointed out, both the appellant and the second named respondent were aware of the risks and dangers involved in the carrying out of the subcontract work, particularly in the cutting of the pipes with oxy-acetylene equipment. With this mind, as the learned Trial Judge observed, the second named respondent:- "...prior to any demolition work, cleaned the pipes with

thinners and then blew compressed air through them, with a view to removing the thinners in either liquid or vapour form. It is clear from the evidence of Mr Alderson, called by Holdens, that such a cleaning process does not guarantee that all liquid and vapour will be removed from the pipelines. There was no other evidence to the contrary and I accept his evidence to that effect. Consequently the process of cleaning and blowing compressed air through the lines only lessened the danger of ignition, it did not remove it. (My emphasis). 9. That the appellant was aware of the danger of cutting the clean lines with cutting equipment was expressly found by the learned Trial Judge. He did so on the evidence of the witnesses as to meetings held before the demolition work was undertaken. What was said at those meetings was the subject of dispute at the trial. The learned Trial Judge added:- "Nevertheless, the evidence as a whole, in my view, clearly establishes that Holdens made known to Haden the fact that paint lines to be cut would be cleaned with thinners and compressed air before demolition. The uncontested evidence is that Haden was at the time well versed in the nature of a spray-paint booth. It must follow, at least as a matter of necessary inference, that Haden was aware that, where a spray-paint booth is to be demolished and the paint lines leading thereto are to be removed, there is a real likelihood of ignition of thinners if the paint lines are cut using a process involving the application of heat. It seems to me that an experienced contractor such as Haden (and indeed, any intelligent layman) when confronted with the demolition of a spray-paint booth and the removal of the paint lines, would ask the questions: Has the paint been removed from the lines? Have the lines been flushed with a solvent and has the solvent been removed from the lines? If such questions were asked by the experienced contractor, that contractor would be aware that it was impossible to remove all of the thinners, either in liquid or vapour form, from the paint lines." 10. It is clear from further passages in the reasons of the learned Trial Judge, that the evidence was not clear as to whether the second respondent, Holdens, had insisted that cutting equipment not be used on these paint lines. In that regard the learned Trial Judge found the conversations and the so-called "permission" to cut the paint lines with oxy-acetylene equipment was that deposed to by Mr Aitken of Haden's. 11. Had the appellant used the alternative method available to cut the paint lines, namely, by using hydraulic shears which were used by the other subcontractor McMahon's, then in all probability this accident would not have occurred. It was not within the power of Holdens, the occupier of the premises, to dictate to the appellant that it must use hydraulic shears. It was however, clearly within the power of the appellant to do so. As the learned Trial Judge pointed out, hydraulic shears do not involve the generation of either sparks or sufficient heat to ignite any vapour or liquid present in the paint lines. His Honour found that the appellant should have made them available to the first named respondent. Clearly the appellant did not take any appropriate steps to obtain hydraulic shears to do the job. As found by the learned Trial Judge the only means of cutting the lines available to the appellant was the oxy-acetylene cutting equipment. His Honour rejected some faint suggestions in the evidence that the hydraulic shears would not have been suitable for cutting some parts of the paint lines. The fact remains that the other subcontractor had been able to use the hydraulic shears for that very purpose. 12. In addition to these matters, there were other factors which in my opinion justifies the conclusion of the learned Trial Judge that liability should be apportioned with the greater responsibility on the employer present at the premises and supervising the first named respondent's work and use of the oxy-acetylene cutting equipment. Briefly these matters are:- 1.Senior officers of the appellant had attended meetings prior to the job commencing where Holdens emphasised the real likelihood of ignition of thinners remaining in the pipes if the pipes were cut with oxy. This is clear from the evidence of the Mr Aitken and other witnesses for the employer. 2. The appellant knew that the other subcontractor McMahon had used hydraulic shears over some days to cut the paint lines and thereby was aware of the fact that thinners were present in some of the lines. 3. The appellant determined that the lines should be cut with oxy and three of the first named respondent superiors within the

appellant company thought it appropriate to use them. 4. The safety permit to weld, issued by the second named respondent, is a clear indication of the safety precautions which had to be taken by the subcontractor, the first respondent's employer, if oxy-acetylene cutting equipment was to be used on this job. That permit is dated from the 20th December, 1986 until the 18th January, 1987. The job was described in the permit as arc weld, oxy-cutting, friction saw demolition and rebuild first col. booth. The plant is identified as number 2 paint. And the bay as 204/207. The standard precautions are specified in the permit, and the special precautions being - 1. Sprinklers to be in service and the special precautions HMC. firewatchers on job. 2. Floors (a) sweep down (b) wet down (c) cover. The special precautions "at all times wet down all work. Petrol engines refuelled." 3. Flammable materials (a) remove 40 feet (b) cover and the special precautions "outside building". 4. Screen arc/flame (a) at sides (b) underneath. The special precautions on this item are "approval by fire marshall or supervisor prior to welding to ensure all paint lines are empty." 5. Provide extinguishers: No. Reqd. "FIRE CART". 13. That permit was apparently signed by Mr Alderson and approved by the Fire Marshall. It is clear from the issue of that permit that the so- called "permission" given by Mr Alderson was given on the basis of the numerous conditions and qualifications in the permit. 14. Based on the findings of the learned Trial Judge and these additional factors which I have enumerated I turn to consider the powers and qualifications expressed in a number of authorities on this court's scope of interfering with assessments of apportioning responsibility between tort feasors. 15. THE POWERS OF APPEAL COURTS TO INTERFERE WITH APPORTIONMENT ASSESSMENTS That the question of apportionment has often given rise to considerable difficulty particularly at the appellate stage, emerges from the reasons of all three members of the Full Court in Grantham v South Australia (1975) SASR 74 at 86 per Bray CJ and 97 per Jacobs J. After discussing an earlier case of Pollard v Ensor (1969) SASR 57 and the English decisions of Jennings v Norman Collison (Contractors) Ltd (1970) 1 All ER 1121 and The MacGregor (1943) AC 197 and The Koeningin Juliana, The Times Newspaper, 10th May 1975 where the House of Lords approved the dissenting judgment of Sir Gordon Willmer LJ in the Court of Appeal in the MacGregor decision (1974) 2 Ll.R. 353, Bray CJ applying Sir Gordon Willmer LJ's statement, came to the conclusion that:- "Apportionment of fault is not an easy task for any judge, but it must be said that the trial judge, who has the benefit of hearing the evidence at first hand and sensing the atmosphere of the case, enjoys an enormous advantage over any appellate tribunal. It has been established by a long series of decisions, culminating in that of the House of Lords in The MacGregor ... that in the absence of an error of law, where the appellate tribunal accepts the findings of fact of the court of below, it should only revise the apportionment in very exceptional cases. In the present case I can detect no error in law on the part of the learned judge, and I accept the findings of fact stated by him in the course of his full and careful judgment. This alone would, in my view, be a sufficient reason for not interfering with his apportionment of fault." 16. At page 91, Zelling J concluded that the learned Judge's apportionment of liability was clearly right. He added that the appellant must go further than this. The appellant must prove that it is wrong. His Honour also referred to the decision in The MacGregor in the judgment of Lord Wright (1943) AC 197 at 201. Jacobs J discussed and applied the same principles at pages 96/97. 17. In the present appeal, I am of the opinion that the learned Trial Judge, without expressly referring to the authorities, correctly applied the principles relating to apportionment of responsibility between tort feasors as discussed in the various authorities to which counsel referred this court, namely, Pennington v Norris [1956] HCA 26; (1956) 96 CLR 10 at 16, Wickham v STA & Others (1991) 162 LSJS 278 at 289, Stapley v Gypsum Mines [1953] UKHL 4; (1953) 2 All ER 478 and other cases in New South Wales illustrating the process of apportionment. 18. As the facts upon which the apportionment was made by the learned Trial Judge have not been disputed and there was clearly no error of fact demonstrated, I am of the opinion that this court should not and cannot interfere with the apportionment. If this court were to do so, it would merely be substituting the individual subjective views of the members of this court for that of the learned Trial Judge who had the opportunity first hand of detecting the atmosphere of the proceedings and of the claim and defence as it emerged in the evidence. For these reasons I would reject the appellant's submissions that the apportionment of responsibility should be varied by this court and confirm the apportionment of the learned Trial Judge. 19. For the same reasons I would reject the appellant's argument as to the incidents of the payment of the second named respondent's costs as in my opinion the learned Trial Judge correctly exercised his discretion on this aspect of the case, based on his findings and his assessment of the apportionment of responsibility between the appellant and the second named respondent. 20. However, as stated earlier in these reasons, I agree with my brother Justice Perry that the appeal should be allowed as to the assessment of damages and the order that he suggests should be substituted for the sum awarded to the first named respondent by the learned Trial Judge.

JUDGE2 PERRY J The appellant, Haden Engineering Pty Ltd ("Haden") was one of two defendants sued by the first respondent, John Leonard Spargo ("the plaintiff") for damages for personal injury arising out of an industrial accident which occurred on 22 December 1986. Haden employed the plaintiff as a sheet metal worker. On the day of the accident the plaintiff was working in the course of his employment at premises at Elizabeth occupied by the second respondent Holden Motor Overseas Corporation (trading as Holden Motor Company) ("Holdens"). 2. The learned Master who heard the trial found both defendants liable. He assessed damages in favour of the plaintiff inclusive of interest in the sum of $645,453.69. He gave judgment for that amount against both Haden and Holdens. There were contribution proceedings between the defendants. In those proceedings, he held Haden 70% responsible and Holdens 30%. Haden appeals against the apportionment of liability and also against the assessment of damages. 3. Holdens had engaged Hadens to demolish a booth in its paintshop. Most of the work was done by a sub-contractor to Haden described in evidence as McMahon's. During the course of the work performed by them, McMahon's used hydraulic shears to sever a number of metal pipes described as paint lines which, until it was demolished, ran into the booth. There were about thirty pipes or paint lines in all, clustered in two layers, each of fifteen pipes, running parallel to each other and held by brackets against a concrete slab about five metres above floor height. 4. McMahon's had cut the paint lines so that they were open at both ends. The learned Master found that the plaintiff was directed by his supervisor, a Mr Meggins, to cut the lines again so as to reduce them to convenient lengths for removal. Mr Meggins instructed him to cut the pipes with oxy-acetylene cutting equipment. The plaintiff enquired whether it was safe to cut the pipes with such equipment. He was told by two other employees of Haden that it was safe to do so. I refer later in greater detail to the evidence as to that. 5. The plaintiff then proceeded with the task. He did so in the presence of a Mr Marano, who was a fire-watcher employed by Holdens and who was specifically assigned to oversee this task. Mr Marano, or someone at his direction, applied water to the floor of the paintshop immediately below the point at which the paint lines were to be cut. Mr Marano stood by with fire fighting equipment, including a fire extinguisher. The plaintiff then mounted scaffolding which had been erected under the pipes and proceeded to cut them. He cut several pipes without incident. However, on proceeding to cut another pipe, liquid ran out of it and caught fire. The fire spread to the plaintiff, the scaffolding and the floor below. In an endeavour to escape the flames the plaintiff jumped from the scaffolding to the ground, a distance of about three metres. Although it does not appear that he suffered any serious injury from the fire itself, the impact with the ground when he jumped from the scaffolding caused serious injuries to his feet. Appeal on Liability 6. It is clear that the learned Master carefully considered the evidence. He arrived at a number of factual findings none of which were placed under serious dispute on the hearing of the appeal. He correctly directed himself as to the extent of the duty of care owed respectively by Haden and by Holdens: in the case of the former he found that they owed a non-delegable duty of care to provide a safe system of work (see Kondis v State Transport Authority [1984] HCA 61; (1984) 154 CLR 672), and in the case of the latter he found that they owed a duty to the plaintiff as an invitee to take all reasonable steps to avoid injury to the plaintiff while he was on Holden's premises, the ordinary principles of negligence being of application rather than any particular category of occupier's liability (Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479 at 488.) The thrust of the argument pursued by Haden on the hearing of the appeal was that the learned Master failed to attribute a sufficiently high proportion of responsibility to Holdens having regard to the role which they played, particularly as to the preliminaries leading to the accident. 7. In order to understand the arguments adduced on the appeal, it is necessary to start a few days earlier than the day upon which the incident occurred. 8. Prior to the demolition commencing and after the plant had been shut down, an attempt was made to empty the paint lines of paint. Following that, to quote the evidence of a Mr Alderson, an engineer in the employ of Holdens:- "After the paint was taken out they (the lines) were flushed for a few hours with thinners and then the dirty flushing solvent was emptied into drums for reprocessing and cleaning. The lines were then blown through with compressed air to finally give them or get as much of the solvent out as possible - that part of the operation was carried out by General Motors paint people. Q. Was that done before or after the demolition actually started? A. No. Demolition did not start until that was completed and the all-clear was given. Q. When you say the all-clear was given, what do you mean by that? A. There was no paint circulating in the lines." 9. Despite that evidence, the learned Master accepted other evidence of Mr Alderson that such a cleaning process as was undertaken did not guarantee that all liquid and vapour would be removed from the paint lines. He expressly found that the process of cleaning and blowing compressed air through the lines only lessened the danger of ignition, but did not remove the danger. 10. Clearly, if there was anything to indicate that any residual thinners remained in the pipes, the act of cutting the pipes by a process involving the application of heat, was fraught with danger. This must follow from the learned Master's finding that thinners evaporated readily, and that both in its liquid and vapour form it was highly flammable. 11. The danger of ignition was minimised if a form of cutting was used which did not involve the application of heat. As I have indicated, McMahon's used hydraulic shears, which did not involve the application of heat, at least at the point of cutting the paint lines. 12. Before the work commenced, meetings were held between representatives of Holdens, Hadens and McMahon's to discuss the work to be done and in particular, safety precautions. The learned Master found: "Given the evidence of Mr Alderson and Mr Alomes (a leading hand foreman of Hadens) as to the meetings that took place before the commencement of the contract, it is clear that Holdens appreciated the danger of cutting paint lines with the cutting equipment." 13. Evidence of Mr Alderson and another engineer employed by Holdens, a Mr Holmes, was that before the demolition work had commenced, Holdens had made it plain to Hadens and to McMahon's that the paint lines were not to be cut by oxy-acetylene cutting equipment. It is clear, however, that notwithstanding the use by McMahon's of hydraulic shears, the learned Master did not accept that evidence. In the first place, it was contradicted by the evidence of Mr Aitken, a tradesman welder employed on the site by Hadens as a foreman, to the effect that no absolute prohibition had been laid down by Holdens against cutting the paint lines with oxy-acetylene cutting equipment. 14. More importantly, it was contradicted by evidence of a "welding permit" issued by Holdens several days before Hadens came to work on the booths, namely on 18 December 1986. On that day Holdens issued to Hadens two documents headed "Safety - Permit to Weld". The permits authorised welding, oxy-cutting and the use of a friction saw in the process of demolishing and rebuilding the painting booths. One of the permits states, under the heading "Special Precautions":- "Approval by fire marshall or supervisor prior to welding to ensure all paint lines are empty." 15. Both permits were signed by Mr Alderson, described in them as "Originating Supervisor", as well as by somebody designated as "Fire Marshall". The permits were treated by Hadens as authorising the use of the oxy-acetylene equipment in cutting the pipes, provided that the precautions laid down in the permits were observed. 16. In the course of the learned Master's reasons for judgment, he found:- "... when McMahon's cut the paint lines in the paint booth as part of the process of demolition, thinners were found to be present in the pipes which were cut. Whatever doubt may have existed in the minds of either Holdens or Haden prior to demolition as to the presence of thinners or otherwise in the paint lines, such doubt must have been removed after McMahon's cut the paint lines with hydraulic shears. The only reasonable conclusion to be drawn by either defendant after McMahon's cut the paint lines was that there was a real likelihood of thinners, in either liquid or vapour form, being present in the remaining lines. This is so even in relation to the lines cut by the plaintiff which had been isolated at either end. It was said that, because the paint lines had been isolated "for a couple of days", any thinners that may have been present in them would have evaporated. There was no expert or other evidence called to support such a contention. In my view, the state of the evidence on the topic is unclear, and in the absence of clear evidence, I consider that the appropriate inference to be drawn is that neither of the defendants could properly assume that any thinners that may have been present at the time the demolition took place would have evaporated by the time the plaintiff was required to cut the lines with the cutting equipment. Such an inference is supported by the undoubted fact that when the plaintiff cut the lines, thinners in liquid form were present." 17. I have already indicated that before embarking on the task of cutting the pipes, the plaintiff enquired as to whether or not it was safe to do so using the oxy-acetylene cutting equipment. Before commencing the work, the plaintiff spoke to Mr Ray Alomes, a leading hand foreman employed by Hadens, and asked of him whether it was appropriate to use oxy-acetylene to cut the pipes. Mr Alomes made an enquiry of a Mr Mercer, the senior project managing engineer of Hadens, and then advised the plaintiff, according to the finding of the learned Master, that "it was in order to cut the paint lines with the cutting equipment". The plaintiff made a similar enquiry of another Hadens engineer, namely a Mr Aitken. Mr Aitken's evidence as to this was: "Q. John Spargo asked you a question about whether it was safe to cut the paint lines with oxy-acetylene. A. That's right. Q. After he asked you that question, did you say anything to him. A. I said I would go and make sure that the lines were safe. Q. Did you go and see somebody from that point. A. Yes. Q. Whom did you go to see. A. Mr Keith Alderson. Q. Are you able to tell us what employment Mr Keith Alderson had at that time. A. He was an engineer employed by General Motors and was one of the project engineers involved in the demolition and construction of this first colour booth. Q. Had you known Mr Alderson during the two months you had been at the site. A. Yes. Q. You had been in regular contact with him.

A. Yes. Q. You have told us that you went to see him. Where did you go to. A. I had to go and find him. His office was probably where it's got 'paint shop', within that vicinity, to the northern side. Q. You see the words 'paint shop' and next to an arrow saying 'north' on the plan. A. Yes. Q. There appears to be a wall between the words 'paint shop' and the arrow pointing north. A. Yes. Q. Was it south of that wall, that is on the side where the words 'paint shop' are or north of that wall. A. North of that wall. Q. Is that the point where you talked to Mr Alderson. A. I caught up with Mr Alderson about the corner of the first colour booth. Q. Is this your evidence, that you went to his office where he would normally be and he wasn't there. A. I never got to his office. He was standing alongside the construction site. Q. You set off to talk to him. A. Yes. Q. You never got to his office because you found him before you got there. A. Yes. Q. Did you have a conversation with Mr Alderson. A. I did, yes. Q. What did you say to him. A. I asked him if the paint lines were safe to be cut by oxy-actylene. Q. Did he make a reply to you. A. Yes, he did. Q. What did he say to you. A. That the lines had been secure and were terminated either end and should be quite safe to cut them with oxy-acetylene. Q. Did you say anything to him in response to his reply to you. A. No, I don't think so, no. Q. What happened next in relation to yourself. A. I went back and spoke to John and told him I had been assured the lines had been cleared and it was quite safe to be cut by

oxy-acetyelene." 18. It is not without significance, as I have already pointed out, that it was Mr Alderson who had signed the two welding permits. 19. One of the major factual issues addressed at the trial was whether or not Mr Alderson gave the approval which Mr Aitken said in evidence he had given. Mr Alderson was called to give evidence and denied having done so. The learned Master deals in his reasons with the contentions of the parties as to the resolution of that conflict in the evidence at some length. He concludes in favour of the view that Mr Alderson did give permission to Mr Aitken to cut the paint lines with the oxy-acetylene equipment. The Master had the benefit of seeing and hearing the witnesses, and no ground has been demonstrated which would justify this Court in disturbing that finding. 20. Against the background of the findings to which I have so far referred, it was inevitable that the Master should have gone on to conclude, as he did, that both Holdens and Hadens were guilty of negligence contributing to the plaintiff's injuries. 21. It appears to me, however, that on the question of contribution, in assigning a degree of responsibility of no more than 30% to Holdens, the learned Master has, with respect, failed to give effect to the findings which he had made as to the extent of Holdens involvement in the events leading up to the incident. This was not a case where the occupier of the premises had little to do with the work being performed. Far from Hadens being left to make their own decisions as to matters relevant to the safety of the operation, Holdens were very much involved in that aspect from the start. 22. The Master did not make a specific finding that Holdens were negligent in issuing the permits in the terms in which they did. In my opinion, he should have done so. The terms of one of the permits clearly contemplated the use of welding equipment on the paint lines. Having regard to the hazards caused by residual thinners in the lines, which the Master held it was impossible entirely to eliminate, a permit should not have been given to use such equipment for that task. 23. The situation was then compounded by the very person who had signed the safety permit giving permission just before the operation was commenced, for it to proceed using the oxy-cutting equipment. At that time Holdens knew, or should have known, that the cutting of the pipes by McMahon's only a short time before had indicated the presence of a residue of thinners in the pipes. Furthermore, the presence at the scene of the fire-watcher Mr Marano, apart from being strongly corroborative of the fact that Mr Alderson had given permission for the work to be performed with the oxy-acetylene equipment, provided a further opportunity for Holdens to intervene and prevent the task being undertaken in that way. Instead Mr Marano stood by and made preparations appropriate for the use of oxy-acetylene equipment on the pipes. The learned Master made the specific finding:- "It is clear from the evidence of Mr Alderson that Mr Marano had the power to intervene." 24. In my opinion, the negligence of Holdens in issuing a permit in the terms in which they did, in then giving permission for the work to proceed using oxy-acetylene equipment when they knew, or should have known, of the residue of thinners in the pipes, and in failing through Mr Marano to intervene and prevent the work proceeding, given their position as occupiers who had taken an active interest, indeed what might fairly be described as a controlling say as to the manner in which the work was to be performed, should have resulted in an apportionment against them in excess of 30%. 25. It is true that Haden's duty of care as the employer of the plaintiff was a high one. It is clear that Haden was in breach of its duty to provide a safe system of work in failing to obtain and use shears rather than oxy-acetylene equipment to cut the pipes, and having made the decision to proceed with oxy-acetylene equipment, in failing to ensure that it was safe to proceed in that way, notwithstanding the assurance given by Mr Alderson to Mr Aitken. However, even allowing for those matters, in all the circumstances, in my opinion, liability should have been apportioned on a 50/50 basis. 26. I would allow the appeal on liability and substitute an apportionment as between the defendants in those terms. Appeal as to Assessment of Damages 27. The plaintiff was aged 37 at the time of the accident. He qualified as a sheet metal worker in Perth where he was born. From 1982 he carried on business on his own account in that trade. The Master accepted that the plaintiff was the major manufacturer in Western Australia of sleeper cabs and bull bars for the trucking industry. The operation of the plaintiff's business was physically demanding, requiring strength and agility. The plaintiff worked long hours. He had one permanent employee and brought in part-time tradesmen when necessary. 28. The plaintiff sold his sheet metal business in 1986 at a time when he described it as "very profitable". By 1986 the plaintiff had paid off the mortgage on his house, and before his children became of school-going age, he wished to make a trip around Australia with his wife. He bought a bus which he converted into a mobile home. The accident occurred on the first leg of the journey while he was in Adelaide, where he sought and obtained employment with Haden. 29. The consequence of the accident and injuries was to render the plaintiff fit only for physical work of a light nature. He had not succeeded in obtaining secure employment before the trial, and the most which the learned Master would allow for in the future was the possibility that he might obtain work at some time, perhaps as a sales representative in the industry with which he was familiar. 30. A summary of the assessment made by the learned Master is as follows: Pain and suffering Past $25,000.00 Future $25,000.00 Special damages Past $12,278.69 Future $10,000.00 Voluntary services
$7,500.00 Loss of earning capacity Past $136,675.00 Future $400,000.00 Interest $29,000.00 Total $645,453.69 31. In its Notice of Appeal, Haden complains that the amounts awarded for past and future loss of earning capacity were manifestly excessive. 32. Mr Peek for Hadens contended that the awards under both of the heads to which I have referred reflected an over-generous assessment by the learned Master of the profitability of the plaintiff's business immediately before its sale, and further that the Master had failed to allow a proper amount by way of income tax in determining the pre-trial and post-trial notional net earnings. 33. As to the first point, Mr Peek contended that insofar as the profitability of the business was assessed by reference to certain profit and loss accounts tendered in evidence, this was in error, in that the figures should have been discounted by reference to a number of expenses incurred in operating the business which were not fully taken into account in accounts for the last financial year before its disposal. In my opinion, that criticism is not made out, and the finding by the learned Master that a net income after deduction of expenses and taxation at the time the plaintiff disposed of the business in mid-1986 of between $30,000 and $35,000, except for the question of the appropriate amount of taxation to be allowed for, was correct. 34. However, Haden's appeal insofar as it relates to the question of the appropriate deduction for taxation in determining the net income of the business should, in my view, be allowed. 35. Before its sale, the business was operated by a company known as Spargo Nominees Pty Ltd, which was trustee for the J.L. Spargo Family Trust. The family trust was a discretionary trust, in the operation of which the income derived from the plaintiff's exertion in the business was distributed between various family members, including the plaintiff's wife and children. In the result, a liability arose for only small amounts of income tax, and in some instances no income tax at all, to be paid by the family members. 36. In fact, the earnings of the business were not paid to the family members, but credits representing the unpaid distributions of profit were raised in the loan account of the company. If the plaintiff had been carrying on business in his own name, and brought the whole of the income to account as his own, he would have been subjected to substantially more income tax than the aggregation of income tax paid by the family members to whom the income was credited by way of distribution of the trust moneys. 37. In approaching the assessment of damages for loss of earning capacity, the learned Master accepted the argument that it was appropriate to regard the total income of the trust as the gross income referable to the plaintiff's exertion in the business, and further to deduct from it only the aggregate of the small amounts of income tax paid by such of the family members as were assessed as liable for tax. 38. In my opinion, that approach was erroneous, insofar as it deals with the question of the deduction for income tax. 39. It might have been contended that the only amount to be allowed by way of loss of earning capacity for the plaintiff was the amount represented by whatever distribution was made to him by the family trust. Such an approach, however, would have been inappropriate, as what is compensated for is loss of earning capacity rather than actual loss of earnings. In this case, the starting point in determining the true measure of the incapacity was the total income produced by reason of the plaintiff's exertions in the business, even although by reason of the mechanism of the family trust, that income was distributed, at least in large measure, to other family members. 40. But it does not follow that if the Court should properly have regard to the total income produced in the business in assessing the plaintiff's loss of earning capacity, in determining the net income for the purpose of calculating the amount to be allowed for loss of earning capacity, only the small amounts of tax, if any, paid by the various family members with reference to the amounts allocated to them, should be deducted. To do so, is to be over-generous to the plaintiff. If he is to be given the benefit of aggregating the distributed income for the purposes of measuring his earning capacity, the allowance for income tax in determining the net earnings should approximate the amount which he might have paid on the gross earnings if they had been brought to account by him rather than by the family trust. 41. In dealing with this aspect of the matter, the learned Master made the following observation:- "Mr Wallwork referred me to a number of authorities to support his contention that the tax minimisation scheme is a proper factor to be taken into account both for the purposes of assessment of past loss of earning capacity and future loss of

earning capacity. I do not derive any assistance from two of the cases cited but I refer to the third, Meldrum v McMullen (1979) ACLD para 334, an unreported decision of the Full Court of the Supreme Court of Queensland. There is only a brief report of a case. It was held that '...in assessing damages for loss or impairment of earnings or earning capacity evidence is admissible that the plaintiff, from a generous income, so used the income tax laws as to render himself liable for payment of far less income tax than would have smitten a tax payer less fortunate or less astute'." 42. In Meldrum v McMullen the plaintiff, who claimed damages arising out of a road accident, conducted two relevant businesses, namely that of a veterinary surgeon, and separately from that business, a grazing business. He appealed against the alleged inadequacy of the award of damages made with respect to his loss of earning capacity on the footing that the trial judge calculated his loss of earning capacity on the basis of a lower income than was proper, having regard to the effect of the appellant's grazing business upon the appellant's assessable income. 43. Although, with respect to the justices constituting the Court, I have not found the judgments of the Full Court of the Supreme Court of Queensland entirely clear on the point, it appears to me that that case could not have been one in which a less than proper amount of income tax was allowed for in estimating the loss of earning capacity, as that would have resulted in an award which was higher, rather than lower, than a proper award. I assume that what gave rise to the plaintiff's contention in that case that the award was too low, was the fact that there were moneys paid in the conduct of the grazing business which were allowable deductions from the plaintiff's income for the purposes of determining his assessable income for tax purposes. In such circumstances it would clearly not be right to treat the assessable income as indicative of the earnings of the plaintiff for the purposes of calculation of loss of earning capacity. 44. It does not appear from the report in Meldrum v McMullen that there was in that case any question of splitting the plaintiff's income with others. Putting aside difficulties of the kind which arose in that case, where a plaintiff remains legally entitled to the whole of the income produced by his exertions, the actual rate of tax paid by him, which may, of course, vary for a number of reasons, may in most cases be relied upon as an appropriate amount to take into account in determining the net income after tax. 45. But in a case where the plaintiff has divested himself of much of his income, the amount of tax paid by those who become entitled to the divested income is irrelevant in determining the notional net income of the plaintiff for the purposes of calculating loss of earning capacity. 46. According to the trading and profit and loss accounts of the business, the net profit before tax for the year ended 30 June 1986 was $37,876 and for the year ended 30 June 1985 was $41,012. Bearing those two figures in mind, it is obvious that His Honour's finding that the net after tax profitability of the business at the time of its disposal in about mid-1986 was of the order of something between $30,000 and $35,000, took into account a level of income taxation which was far too low. 47. According to other evidence which was before His Honour, and from which Mr Peek extracted figures tendered on the appeal as part of his argument, if $41,012 was taxed at a rate appropriate if the plaintiff had earned that sum in his own right, the net income after tax would have been $26,011. 48. Adopting a similar process, $37,876 would become $24,804 after tax. Given those figures, Mr Peek submitted that it was appropriate to take a "base" figure of approximately $25,000 rather than the learned Master's figure of $30,000-$35,000. In my opinion, that submission is correct. 49. During the period between the date of the accident and until the plaintiff's return to Perth in May 1988, he was paid weekly payments of worker's compensation. His Honour allowed the sum of $15,675 for that period, reducing the amount somewhat below the gross amount of compensation received, bearing in mind the likelihood that the plaintiff would only have worked 40 weeks a year while away from Perth. The amount of $15,675 should not further be adjusted. The learned Master found that for the period from May 1988 to the date of judgment, the plaintiff would have commenced to establish a business of the same nature as that which he sold prior to embarking upon the trip around Australia. The Master found that within a period of about twelve months it is likely that he would have regained his former earning level. 50. In allowing, as he did, for the period from May 1988 to May 1989, a figure of $21,000, the learned Master obviously had in mind a lower rate of income tax than that which, having regard to the principles to which I have referred, should have been allowed. If allowance is made for a proper rate of tax, the amount to be allowed for the period from May 1988 to May 1989 becomes approximately was $15,000. 51. The learned Master next considered the period from May 1989 to the date of judgment, which was 22 May 1992, a period of three years. As to that period, His Honour's findings were as follows:- "I must next consider the period from May 1989 to date. Of necessity a broad brush approach must again be taken. I find that had the plaintiff been able to re-establish his business after is return to Perth in May 1988 he would have done so using the same or a similar tax minimisation scheme as that previously used. Bearing in mind my findings relating to the profitability of the former business I consider, and so find, that by 30th June 1990 a net profit after tax of $35,000 would have been achieved, for the year ended 30th June 1991 a net profit after tax of $40,000 would have been achieved and for the year ended 30th June 1992 a net profit after tax of approximately $45,000 would have been achieved.

I take into account that the plaintiff has since March 1989 earned income, the precise amount of which is not able to be ascertained but may safely be taken as approximately $7,500. I take into account the ordinary vicissitudes of life which may have precluded the plaintiff during the last three years from realising the full potential of his business. I also allow for the fact that in my findings for likely income in the last 3 years my last finding was in relation to the end of the current financial year which is some six weeks away. For the period from May 1989 to date I would allow the sum of $100,000." 52. If the figures for the year to 30 June 1990 and the two following financial years were reduced from $35,000, $40,000 and $45,000 to $25,000, $27,500 and $30,000, respectively, being figures which reflect a more accurate allowance for income taxation, and the further refinements made as referred to by His Honour, the resultant total is likely to be of the order of $70,000. The figure is unlikely to be much different, if calculated from May to May instead of from June to June in each year. 53. The adjustments to which I have referred so far would reduce the allowance for pre-judgment loss of earnings as follows: Master Burley Adjusted

$ $ December 1986-May 1988 15,675 15,675 May 1988-May 1989 21,000 15,000 May 1989-May 1992 100,000 70,000 $136,675 $100,675 54. Accordingly, I would allow the appeal as to that aspect of the matter by reducing the allowance for past loss of earning capacity by $36,000. 55. The learned Master's estimation of the amount to be allowed for future loss of earning capacity finds expression in the following passage from his reasons for judgment:- "As to future loss of earning capacity I find that had the plaintiff not sustained the injuries in the accident he would have a present earning capacity of approximately $850 per week after tax. I consider, and so find, that the plaintiff would have worked to age 65. The relevant multiplier according to exhibit "P1" is $807. Bearing in mind my previous findings as to the plaintiff's residual working capacity and his chances in the future of obtaining and maintaining employment and the various contingencies both adverse and positive relating to an assessment of future loss of earning capacity, I award the sum of $400,000." 56. The sum of $850 per week represents a little more than $44,000 net clear of tax per annum. Presumably, it is based upon the earlier observations made in the passage which I have cited above, in which the Master assumed an earning level for the year ended 30 June 1992 of approximately $45,000 net profit after tax. But if the allowance for income tax was adjusted to a proper level, that figure would reduce to something of the order of $30,000 per annum or $577 per week. Accepting the same multiplier as the Master, namely 807, this would give a grossed up figure of $465,600 as opposed to a grossed up figure of $685,950 based on the learned Master's figure of $850 per week. 57. Against the figure of $465,600 should be allowed an amount to reflect the residual earning capacity of the plaintiff and also an appropriate discount for contingencies. The Master discounted $685,950 to $400,000, after allowing for those matters. 58. There are the usual imponderables and one can only proceed upon the basis of broad estimates. In all the circumstances, in my opinion, the amount to be allowed for future loss of earning capacity should be reduced from $400,000 to $300,000, namely a further reduction of $100,000 on the amount of the judgment. 59. There will have to be an adjustment on the award of $29,000 for interest. The amount of interest should be reduced to $24,000, a net reduction of $5,000. 60. The total amount of the judgment entered by the learned Master should therefore be reduced by $141,000, namely from $645,453.69 to $504,453.69. Appeal as to Costs 61. The learned Master delivered a separate judgment on the question of costs (Judgment S3479, delivered 26 June 1992). He held that "the respective liabilities for the plaintiff's costs of action should be determined in accordance with" his determination that Haden was 70% responsible and Holdens 30% responsible. In so finding, he observed: "It is my understanding that this is the invariable practice of the Court and I see no reason to depart from such a practice. It is trite law to say the Court will not embark upon an examination of individual issues where parties may or may not have been successful with a view to determining what costs should be awarded." 62. The argument which preceded that ruling was put by counsel for Haden on the footing that because Haden had succeeded in what was described as a "major factual issue at the trial", its liability for a proportion of the plaintiff's costs of action should be less than 70%. The major factual issue upon which it was suggested that Haden had succeeded was as to whether or not Holdens engineer, Mr Alderson, had given permission to use the oxy-acetylene cutting equipment. 63. The learned Master was clearly right in the observations he made as to the reluctance of the Court to have regard to success or failure on individual issues in determining the incidence of costs. See, for example, Cretazzo v Lombardi (1975) 13 SASR 4 per Jacobs J at 16:- "Having said that, I would wish to sound a note of cautious disapproval of applications, which are being made with increasing frequency, to apportion costs according only to the success or failure of one party or the other on the various issues of fact or law, which arise in the course of a trial. It is true that in the case of Foster v Farquhar, which is often relied upon, a successful plaintiff, acting throughout in good faith, was deprived of his costs and ordered to pay the defendant's costs on certain issues. But there are two things to notice about that case. In the first place, it was a jury trial and the relevant rule (Order LXV, rule 1) under which the general discretion was conferred carried a proviso, that '...where any action ... is tried by a jury, the costs shall follow the event unless the judge ... shall for good cause otherwise order'. The general discretion of the Court was not being invoked. Secondly, the plaintiff claimed damages for breach of contract under four distinct heads, in total some three hundred and ninety-four pounds, but his verdict was for only twelve guineas, being less than half the claim under one head of damage. The three severable heads of damage, in respect of which the defendant was awarded costs, did not flow from the defendant's breach, and in respect of those severable items the claim was misconceived. But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues." 64. In any event, for the reasons which I have given, I would vary the apportionment as between the defendants so that it now is more favourable to Haden. I would vary the incidence of payment of the plaintiff's costs on the same basis, that is, on the footing that each defendant pay half. 65. I would allow the appeal as to this aspect of the matter to effect that adjustment. 66. In the result, I would: (a) allow the appeal as to apportionment of liability between the defendants and substitute an order that liability between them be apportioned as to 50% each; (b) allow the appeal as to the incidence of payment of the plaintiff's costs only so as to reflect the same variation, but not otherwise; (c) allow the appeal as to the assessment of damages, and order that thre be substituted for the sum awarded by the learned Master in favour of the plaintiff the sum of $504,453.69 inclusive of interest.

JUDGE3 DUGGAN J I agree that this appeal should be allowed to the extent referred to by Perry J, and I concur in the orders proposed by him. I also agree with the reasons advanced by Perry J in support of his conclusions.

Grantham v SA

At a glance

Court

Decision date

Before

Source

Judgment (20 paragraphs)

JOHN LEONARD SPARGO v. HADEN ENGINEERING PTY LTD AND HOLDEN OVERSEAS CORPORATION TRADING AS HOLDEN MOTOR COMPANY No. SCRG 88/1997 Judgment No. 3793 Number of pages - 19 Appeal - Negligence (1993) 60 SASR 39 [1993] SASC 3793 (25 March 1993)

Parties

Cases Cited (7)