Hayhill Pty Ltd & Ors v Hodge [2006] VSCA 194

(a) The income the worker is earning or is capable of earning in suitable employment at the date of the hearing ("after injury earnings");

and

(b) the income that the worker was earning or was capable of earning "during that part of the period within 3 years before and 3 years after the injury as most fairly reflects the worker's earning capacity had the injury not occurred".

In both cases the income is limited to gross income from personal exertion and is to be annualised.

3 This provision was considered by this Court in Barwon Spinners v. Podolak,[1] which analysed the operation of s.134AB of the Act that had come into operation on 20 October 1999 in respect of injuries arising out of or in the course or due to the nature of employment on or after that date. As the Minister explained in the Second Reading Speech,[2] the new provision was introduced to restore common law rights to seriously injured workers, but so as to "ensure that the costs of the restoration of common law rights are confined and the number of common law claims and the cost of those claims can be actuarially measured in a reasonably predictable manner".

4 It was noted in Barwon Spinners[3] that the "new concept" of a 40 per cent threshold prescribed by paragraph (e)(i) was said by the Minister in the Second Reading Speech to provide "an objective criterion of a loss of earning capacity"[4]. The Minister said that:

" ... this objective standard is within the range which the Full Court found in Petkovski v. Galletti [1994] VicRp 32; 1994 1 V.R. 436 to be very considerable. There the Full Court considered a fact situation where the reduction in working hours was from about 40 to between 25 and 20. The Full Court said that such an interference with working capacity may fairly be regarded as a serious consequence."

That the calculation prescribed by paragraphs (e) and (f) will be difficult to implement was recognised in Barwon Spinners, in which the Court said:[5]

"Now, however straightforward it may be to calculate a financial loss of 40% or more when what is at stake is a reduction in working hours, the argument on these appeals has demonstrated how difficult it can be to calculate the extent of the loss, in the required terms, when what is at issue is employment in areas quite different from those in which the worker was engaged at the date of the relevant injury."

5 The Court pointed out that the without injury earnings are to be calculated by reference to the six-year "window" prescribed in paragraph (f), having earlier noted that the after injury earnings are to be calculated at the date of the hearing of the application. Thus, the Court said,[6] in relation to the without injury earnings, the trial judge is "required to go well beyond actual pre-injury earnings and consider (on the hypothesis that the worker was and remained free of the compensable injury at base) both earnings and capacity to earn during that portion of the six years marked out 'as most fairly reflects the worker's earning capacity'. As it stands, that task is not inconsiderable." With respect, we agree that the task is a very difficult one and that the judge is required to explain in the reasons how he or she arrived at the amount of the after injury earnings is yet another obligation that is imposed in this regard.

Error in the application of s.134AB(38)(f)

6 In determining whether the respondent met the requirements of s.134AB(38)(f), the judge said:

"18. The issue for determination is what work the plaintiff can perform and what income it could produce given his restrictions.

19. To say the least, his work history is chequered.

20. However, before dealing with this aspect, I refer to a fax which exists between the defendant and the plaintiff's solicitors which sets out the current rate of pay in the plaintiff's pre-injury employment. It indicates that in a standard week, the plaintiff would attract some $800 gross per week. Two Group Certificates for the year ended 30 June 2005 show that two truck drivers, who I presume are comparable employees, derived income of $49,724 and $49,020 respectively.

21. The plaintiff's gross income for the year ended 30 June 2000 was $40,332 and for the financial year ended 30 June 1999 was $35,405. However, the income for the period ended 30 June 1988 was $5,832.

22. Post-accident, for the years 30 June 2001 and 30 June 2002, the income is shown as $22,962 and $17,286 respectively, which is comprised of weekly payments. However, for the financial years ended 30 June 2003 to 2005, in which the plaintiff actually engaged in gainful employment, the figures are $13,646, $23,488 and $18,148.

23. Insofar as the figures which have been produced are concerned, assuming that the two comparable employees earned $49,000 for the year ended 30 June 2005 and the plaintiff earned $18,148 for the same period, then he has lost well in excess of 40% of his earning capacity. However, the legislation refers to a comparison of earning three years prior to the injury and then three years post injury. It may be said that those figures are somewhat artificial in dealing with people who have suffered serious injury. For example, in the first two years post injury, the plaintiff did not derive any income whatsoever but was totally incapacitated and in receipt of weekly payments of compensation. A strict application of the three year prior/post injury earnings only allows for a comparison to be made in respect of one year of post injury earning. In many cases, the Court has had to deal with a situation where, in the three years post injury, no earnings were derived whatsoever because of the severity of the injury, which often involves operative treatment and a substantial period of time devoted to rehabilitation. A strict literal application of sub-paragraph (f) of s.134AB would confine the plaintiff's post injury earnings up to 30 June 2003. Those earnings were $13,646, and create a substantial degree of unreality where the plaintiff's earnings for the year ended 30 June 1993 were a mere $5,832. Furthermore, a comparison between the plaintiff's earnings two years prior to injury produce figures of $40,332 and $35,405 compared to a total of nil in the period 30 June 2001 and 30 June 2002. In any event, when one deletes the two years in which the plaintiff returned nil income from personal exertion and takes into account his actual earnings in the period of three years post injury it is clear that he meets the 40% impairment of earning capacity."

7 Unfortunately, there are a number of inconsistencies in that section of the judge's reasoning with the effect of s.138AB(38)(f) and the decision in Barwon Spinners.

8 To begin with, there is the judge's reference in paragraph 20 of his reasons to the salaries which were being earned by truck drivers as at the time of the hearing. As has been seen, s.134AB(38)(f) requires a comparison of the respondent's post-accident earning capacity with his pre-accident earning capacity, determined such that the latter is to be calculated by reference to the gross income (expressed as an annual rate) that the respondent was earning or was capable of earning from personal exertion or would have been capable of earning from personal exertion during that part of the period which, starting three years before the accident and finishing three years after the accident, most fairly reflects the respondent's earning capacity had the injury not occurred. It seems to us, however, that whatever truck drivers may have been earning more than five years after the accident was irrelevant to these calculations unless it were to be used as a basis from which to infer the amount that the respondent might have been capable of earning in the three years following the accident, and it is plain that that is not the way in which the judge applied it.

9 Secondly, and for the same reasons, the comparison undertaken in the first sentence of paragraph 23 of the reasons - between what other truck drivers were earning as at the end of 2005 and what the plaintiff returned as his income for the year ended 30 June 2005 - was irrelevant. It appears also to have been informed by an assumption that the amount of income returned by the taxpayer as his assessable income for the year of income ended 30 June 2005 was necessarily identical to his earning capacity expressed as an annual figure. It may be noted in passing that there were substantial issues, which the judge did not resolve, as to whether the respondent had returned all of his assessable income for tax purposes and, if he had, whether he had a capacity to earn more than he said he earned.

10 In the third place, the statement in the third sentence of paragraph 23 of the reasons - that "the legislation refers to a comparison of earning three years prior to the injury and then three years post injury" - is not to be found in the legislation. As has been noted, it calls for a comparison of the respondent's after injury earning capacity with his without injury earning capacity, as described.

11 The same error is repeated two sentences later with the statement that "a strict application of the three-year prior/post injury earnings only allows for a comparison to be made in respect of one year of post-injury earning", and in turn that leads to the comparison of earnings for the two years before the accident and the two years following the accident which is set out in the latter part of paragraph 23 of the reasons.

12 Finally, and consequently, it is plain that the conclusion expressed in the last sentence of paragraph 23 of the reasons is misplaced. We consider that it is simply not apparent that if "one deletes the two years in which the plaintiff returned nil income from personal exertion and takes into account his actual earnings in the period of three years post injury it is clear that he meets the 40% impairment of earning capacity".

13 In short, it cannot be known whether the respondent meets the 40% impairment requirement test until and unless one has carried out the comparison required by s.134AB(38)(f) of the respondent's after injury earning capacity with his without injury earning capacity determined as described. That comparison, however, was not undertaken in this case.

14 In the course of argument, it was conceded by the respondent's counsel, rightly, we think, that the judge had erred in the respects which we have identified, and it was accepted, therefore, that the matter must be remitted to the County Court for redetermination according to law.

15 In case, however, it may be of assistance to the judge of the County Court who next deals with the matter, we make the following further observations about the reasons for judgment in this case.

16 It was not in controversy below that the respondent had sustained a back injury at work which had resulted in permanent injury or that he had an incapacity which rendered him fit to perform only light work. The judge made findings to that effect. What was in issue, however, was the extent of the incapacity caused by the injury and whether the applicant had established a pain and suffering claim or a loss of earning capacity sufficient to constitute a serious injury within the meaning of the Act. In such circumstances it was not enough for the respondent to rely on the fact that he had a permanent back injury which restricted him to performing light work. And the findings made by the judge were not sufficient to determine the extent of the applicant's incapacity.

17 We note that counsel for both parties rightly accepted that the trial judge must undertake an analysis of the consequences of the respondent's incapacity. That such an analysis was undertaken and findings made which were sufficient to support the ultimate conclusion as to the consequences of the injury must be apparent from the judge's reasons.

Findings on issues of credit bearing upon the extent of the incapacity

18 Where the credibility of a plaintiff is in issue as to the extent of his pain and suffering or the extent of his loss of earning capacity, it is necessary for the trial judge to make findings and give reasons sufficient to enable the parties to understand how and why the judge resolved those issues in the manner in which he or she did. Where that is not done, the losing party is left with a justifiable sense of grievance at the outcome. That is not to say that the judge is required to deal with each separate factual dispute. More general conclusions may be sufficient. Some issues may assume such importance that they should be separately addressed. But whatever approach is adopted by the trial judge, the judge's reasons must make evident the reasoning process and the conclusions reached.

19 As the present case illustrates, where the applicant's after injury earning capacity is in issue and the amount earned by the applicant is disputed, it will not be sufficient for the trial judge to rely merely on the applicant's tax returns without explanation of why it was appropriate to do so.

20 For the reasons which we have given, the appeal will be allowed and the judgment below will be set aside and, pursuant to s.74(3) of the County Court Act 1958, it will be directed that the proceeding be reheard before the County Court.

21 Subject to submissions by counsel, the respondent should pay the appellants' costs of the appeal.

CHERNOV, J.A.:

22 The Court orders as follows:

1. The appeal is allowed. The judgment below is set aside and, pursuant to s.74(3) of the County Court Act 1958, it is directed that the proceeding be reheard before the County Court.

2. The respondent pay the appellants' costs.

3. That the costs of the subject trial below be determined by the judge hearing the matter afresh.

There will be a certificate granted to the respondent under the Appeal Costs Act 1998.

[1] [2005] VSCA 33.

[2] Hansard, Legislative Assembly, 13 April 2000, at p.1001.

[3] At [21].

[4] Hansard, at p.1003.

[5] At [21].

[6] At [23].