Kaplantzi & Anor. v. Pascoe [2003] NSWCA 386

LOWER COURT District Court JURISDICTION : LOWER COURT 92/01 (Wagga Wagga) FILE NUMBER(S) : LOWER COURT Goldring DCJ JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41114/02 DC 92/01

HODGSON JA McCOLL JA CRIPPS AJA

Monday 22 December 2003 KAPLANTZI & ANOR. V. PASCOE Judgment 1 HODGSON JA: On 5 November 2002, Goldring DCJ gave a verdict for Joanne Maree Pascoe in the sum of $1,714,924.20, in proceedings brought by her against the appellants seeking damages under the Compensation to Relatives Act 1897 by reason of the death of her husband Peter Pascoe. The appellants appeal to this Court from that verdict.

CIRCUMSTANCES 2 Mr. Pascoe was killed in a motor vehicle accident on 11 July 2000, as a result of the negligence of the appellants. He was then aged 49. He left a widow, the respondent, then aged 37, and two children then aged 11 and 9. 3 The deceased and his wife had conducted a number of businesses through two companies. Each of them owned one share in each company. At the time of death, each of them was employed by the businesses at an annual salary of $35,000.00. However, the profits of the businesses far exceeded $70,000.00 per year. Expert evidence called for the respondent, based on increases in the shareholders' funds in the companies over the years ending June 1996 to June 2000, was to the effect that the gross income generated by the businesses in those years averaged about $425,000.00. From that figure, the expert subtracted the wage paid to the widow, superannuation payments, and tax (assuming equal division between two taxpayers) to arrive at a figure for the deceased's sustainable net income of about $225,000.00 per year, amounting to $4,310.00 per week. 4 The primary judge accepted that the widow's annual salary of $35,000.00 was a reasonable remuneration for the work she did, and, it seems, a realistic assessment of that contribution to the businesses; and while the primary judge did not expressly adopt the expert's figure of $4,310.00 per week as representing the deceased's net weekly earnings, he noted the acceptance of both parties that these earnings exceeded $2,834.00 per week, a limit imposed pursuant s.125 of the Motor Accidents Compensation Act 1999, which applied to these proceedings. 5 The primary judge calculated past economic loss on the basis that the deceased's earnings would have been $2,834.00 per week and that 74% of that would have been applied for the support of his family, and he deducted 2.5% for the possibility of the respondent's re-marriage, giving a figure of $242,479.87. 6 The primary judge calculated future economic loss on the basis that the deceased's earnings would have been $2,834.00 per week, that 74% of this would have been applied for the support of the family, that the deceased would have worked to the end of the year he turned 65, and that there should be a deduction of 15% for vicissitudes. Again deducting 2.5% for the possibility of re-marriage, he arrived at a figure of $800,214.87. 7 In addition, the primary judge awarded $36,973.06 for loss of superannuation benefits, holding that the statutory contributions towards superannuation made by an employer for the benefit of an employee are not earnings, and thus not affected by the limit in s.125 of the Motor Accidents Compensation Act. 8 The primary judge also held that the family had been caused financial loss, in that they were deprived of the chance that the value of the business assets would have increased, based on the increases in the net worth of the businesses prior to the deceased's death, due to the efforts of the deceased. On this matter, the primary judge awarded $500,000.00. 9 The primary judge considered whether the award should be reduced because of accelerated benefits received by reason of the death of the deceased, notably the deceased's half share in the businesses valued at about $1.2 million. He held that this value was reduced by the death of the deceased and the need to sell assets, and was offset by the chance of increases in the value of these assets over and above the $500,000.00 already allowed, and as a result made no reduction in the award due to these accelerated benefits. 10 In addition to the amounts I have specified, there was included in the total verdict agreed out-of-pockets of $6,617.70, and amounts for domestic care, being $29,452.50 for the past and $99,187.20 for the future.

GROUNDS OF APPEAL 11 The appellants relied on the following grounds of appeal: 1. Past Loss of Earnings The amount awarded by His Honour in respect of past loss of earnings was excessive in that His Honour: 1.1 Failed to properly construe and apply the provisions of S.125 of the Motor Accidents Compensation Act (1999) ("the MAC Act"). 1.2 Erroneously concluded that in calculating the amount of damages payable in respect of the past, the maximum sum fixed pursuant to S.125 and 146 of the MAC Act at the date of judgment, namely $2,834 per week, should be applied to the whole of the period since the date of the deceased's death, rather than apply the lesser maximum amounts which were prescribed at different times during the period namely:- - 11.7.00 to 30.9.00 $2,500 pw - 1.10.00 to 30.9.01 $2,603 pw - 1.10.01 to 30.9.02 $2,712 pw - 1.10.02 to 5.11.02 (date of judgment) $2,834 pw (see details in Schedule of Damages) 1.3 Failed to deduct the earnings which the plaintiff continued to draw from her work in the business in the sum of $514.87 per week. 1.4 Erroneously concluded that as a general principle the earnings of a surviving spouse are irrelevant to a claim under the Compensation To Relatives Act ("the Act") even though the uncontradicted evidence in the case was: (a) the moneys which the plaintiff was paid both prior to the death of the deceased and following it, were received by the plaintiff out of the earnings of the family business; (b) the work that she performed in the business was frequently paid at a very high rate of remuneration; (c) the sum of $35,000 per annum was, as found by His Honour, a reasonable remuneration for the work the plaintiff in fact performed; and (d) was accepted by the Trial Judge as the true value of her earnings from the business. 2. Loss of Future Support His Honour erred in awarding the plaintiff a sum of $800,214.87 in respect of the loss of future support by failing to allow for or take into account the wages which the plaintiff would in all likelihood continue to derive from her work in the business earning approximately $514.87 per week. 3. Loss of Chance of Future Accrual of Assets His Honour erred in awarding a global sum of $500,000 in respect of a loss of chance of future accrual of assets (in addition to the amount allowed for a future loss of expected support in that:- 3.1 The award of any amount in respect of the loss of the chance of future accrual of assets in addition to the calculations already made in respect of the loss of expected support from earnings which would have been derived from the deceased's exertions is contrary to the prohibition and caps contained in S.125 of the MAC Act. 3.2 There was no evidence to support such a figure. 3.3 The amount arrived at by His Honour was based upon assumptions which were not proven or were demonstrated to be erroneous. 3.4 The "approximation" which His Honour made, failed to take into account: (a) the accelerated benefits which the plaintiff and her family received from the sale of assets of the businesses in the sum of $918,951.15; (b) the reduction in debt and liabilities which had been achieved from the proceeds of asset sales; (c) the income which was and in the future would be likely to be able to be derived from the investment of the balance of the proceeds of the sale of assets; and (d) the plaintiff had continued to successfully run the motel business which would in all likelihood continue to provide both wages and other income for the plaintiff and her children for the foreseeable future. 3.5 If contrary to the submission set out in 3.1 above, the Court concludes that S.125 of the MAC Act has no application to a calculation of the loss of chance of future accrual of assets, the amount of any such loss of chance was on the evidence unlikely to exceed the accelerated benefit received by the plaintiff in the sum of $918,951.15. 4. Loss of Superannuation His Honour erred in awarding the sum of $36,973.06 as loss of superannuation benefits contrary to the prohibition and caps imposed by S.125 of the MAC Act. 12 There was also in the Notice of Appeal a Ground 5 challenging the awards in respect of domestic care, but that ground was abandoned. 13 At the hearing, the respondent sought to rely on the following Notice of Contention: The respondent contends that it is entitled to retain the amount awarded by the learned Trial Judge on another ground, that is:- That the learned Trial Judge erred in awarding the respondent the sum of only $500,000 for the loss of future capital benefit when his Honour was of the view that it was "reasonable to award more than $500,000 under this head" (Red Book 36 T) and that "this loss amounts to far more than the $500, 000 claimed by the plaintiff".

Leave was not given at that stage, but it was indicated that the matter would be considered in the judgment. 14 I will consider in turn the issues of indexation under the Motor Accidents Compensation Act 1999 s.125 (Grounds 1.1 and 1.2); the treatment of the wife's earnings (Grounds 1.3, 1.4 and 2); the award of $500,000.00 and the question of accelerated benefits (Ground 3); and superannuation (Ground 4).

INDEXATION UNDER MOTOR ACCIDENTS COMPENSATION ACT 1999 S.125 15 Sections 125, 134 and 146 of the Motor Accidents Compensation Act 1999 provide as follows: 125 Damages for past or future economic loss - maximum for loss of earnings etc (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.

134 Maximum of amount of damages for non-economic loss (1) The maximum amount that a court may award for non-economic loss is $284,000. (2) If that amount is adjusted by the operation of section 146 (Indexation of amounts relating to award of damages), the applicable maximum amount is the amount as at the date the award is made.

146 Indexation of amounts relating to award of damages (1) The Minister is, on or before 1 October 2000 and on or before 1 October in each succeeding year, to declare, by order published in the Gazette, the amounts which are to apply, as from the date specified in the order, for the purposes of sections 125 and 134. (2) The amounts declared are to be each of the amounts applicable under section 125 or 134 (or those amounts as last adjusted under this section) adjusted by the percentage change in the amounts estimated by the Australian Statistician of the average weekly total earnings of full-time adults in New South Wales over the 4 quarters preceding the date of the declaration for which those estimates are, at that date, available. (3) An amount declared for the time being under this section applies to the exclusion of the corresponding amount under section 125 or 134. (4) If the Australian Statistician fails or ceases to estimate the amounts referred to in subsection (2), the amounts declared are to be the amounts determined in accordance with the regulations. (5) In adjusting an amount to be declared for the purpose of section 125, the amount determined in accordance with subsection (2) is to be rounded to the nearest $1 (with the amount of 50 cents being rounded up). (6) In adjusting an amount to be declared for the purpose of section 134, the amount determined in accordance with subsection (2) is to be rounded to the nearest $1,000 (with the amount of $500 being rounded up). 16 The operation of s.125 commenced on 5 October 1999. The accident in this case occurred on 11 July 2000. 17 Pursuant to s.146, an order was made on 22 September 2000 as follows: 1 Name of Order This Order is the Motor Accidents Compensation (Determination of Loss) Order No 1. 2 Commencement This Order commences on I October 2000. 3 Notes The explanatory note and table of contents do not form part of this Order. 4 Section 125: Damages for past or future economic loss-maximum for loss of earnings etc It is declared that, in the case of an award under section 125(1) of the Motor Accidents Compensation Act 1999, the court is to disregard the amount (if any) by which an injured or deceased person's net weekly earnings would (but for the injury or death) have exceeded $2,603. 5 Section 134: Maximum of amount of damages for non-economic loss It is declared that the maximum amount that may be awarded for non-economic loss of an injured person as a consequence of a motor accident is $271,000. 18 Similar orders were made on 3 September 2001 and 18 September 2002, which respectively substituted figures of $2,712.00 for the purposes of s.125 as from 1 October 2001, and $2,834.00 for the purposes of s.125 as from 1 October 2002. 19 It is to be noted also that, under s.137 of the Act, no interest is payable on past economic loss. 20 The primary judge took the view that what had to be disregarded in respect of the deceased's weekly earnings, both up to the date of the trial and thereafter, was so much as exceeded $2,834.00. The appellants' contention is that, in respect of weekly earnings from 11 July 2000 to 30 September 2000, he should have disregarded the excess over $2,500.00; that in respect of the weekly earnings from October 2000 to 30 September 2001, he should have disregarded the excess over $2,603.00; and so on. 21 Mr. Deakin QC for the appellants submitted that the primary judge had given the order of 18 September 2002 a retrospective operation, when that was precluded by words such as "are to apply", "as from the date specified", "are to be", "for the time being" and "is to be" appearing in s.146. He submitted that the provisions concerning s.125 were quite different from those in s.134, dealt with in Hodgson v. Crane (2002) 55 NSWLR 199, where the limit is specifically directed to the date the award is made. He referred to the prima facie rule of construction that Acts should given prospective operation only: Fisher v. Hebburn Limited (1960) 105 CLR 188 at 194; and submitted that the primary judge's approach was also vitiated by a mistake, when he asserted that assessment of damages was to be made as at the date of the trial, not the date of death: Ruby v. Marsh (1975) 132 CLR 642 at 647-8. 22 In my opinion, as at the date the primary judge made his award of damages, s.125 required that, in the case of an award for past or future economic loss, the Court was to disregard the amount by which the deceased's weekly earnings would have exceeded $2,834.00. In my opinion, the section did not require the primary judge to consider what s.125 would have required at earlier times. It is explicitly addressed to past as well as future economic loss, and it directs what the Court in awarding damages is to do. This, and not what the legislation may have required at earlier times, is the standard which the Court is required to apply to past events. 23 I note that Ruby v. Marsh confirms that damages are to be awarded in money of the day of the award: see also O'Brien v. McKean (1968) 118 CLR 540 at 544-5. The amounts in s.125 are indexed by reference to movements in average weekly earnings. In circumstances were no interest is awardable, it is reasonable that there should be indexing of a cap, which of course will only apply if actual earnings exceed that cap. Regarding the provision in this way, I do not think there is any conflict with the policy of the Act to encourage early settlement: the indexing has occurred and is likely to continue to occur at a rate substantially lower than the interest rate provided by the Supreme Court Rules. 24 Accordingly, in my opinion the appellants fail on this point.

FAILURE TO TAKE INTO ACCOUNT MRS. PASCOE'S EARNINGS 25 It is common ground that, prior to the death of the deceased, Mrs. Pascoe was paid about $700.00 per week gross or about $515.00 per week net. As mentioned earlier, the primary judge found this to be a fair reflection of the value of her contribution to the business. In considering whether the award should be reduced by reason of Mrs. Pascoe's earnings, the primary judge referred to Carroll v. Purcell (1961) 107 CLR 73 as founding a general principle that earnings of a surviving spouse are irrelevant to the claim. However, he also referred to the agreement of the parties about the extent of dependency of Mrs. Pascoe and the children on Mrs. Pascoe, as being 74%; and he said that, if there had not been such an agreement, he may have found that Mrs. Pascoe's receipt of salary may have affected that dependency. In the result, he made no reduction by reason of Mrs. Pascoe's earnings before or after death. 26 Mr. Deakin QC referred the Court to Halvorsen Boats Pty. Limited v. Robinson (1993) 31 NSWLR 1, at 11-13; and he submitted that Carroll does not support the proposition that a widow's earnings or capacity to work are irrelevant to assessment of damages. He submitted that the agreement that the dependency was 74% was on the basis that it was open to the appellants to submit that the award should be reduced by an amount representing the true value of Mrs. Pascoe's services to the business. 27 In my opinion, the concession of 74% dependency must be a concession to the effect that, of the earnings of the deceased, he would have applied 26% for his own benefit and the remaining 74% for the benefit of the family. So understood, this concession leaves no basis on which the earnings of Mrs. Pascoe or the value of her contribution should be deducted. 28 Had the concession meant merely that the amount applied for the benefit of the family, including so much as was earned by Mrs. Pascoe, was equal to 74% of the deceased's earnings, that would have justified some deduction in respect of her earnings; but that is plainly not what a concession of 74% dependency means. Alternatively, if the concession had meant that 74% of the combined earnings of the deceased and Mrs. Pascoe were applied for the family, the judge would have been justified in adding Mrs. Pascoe's earnings to those of the deceased, taking 74% of that total, then subtracting Mrs. Pascoe's earnings; but again, this is not what a concession of 74% dependency means. 29 Accordingly, this challenge also fails.

AWARD OF $500,000.00 30 This aspect of the award to the respondent is challenged on two bases: (1) As a matter of statutory construction, the deceased's contribution to increases in the value of the businesses owned by the deceased and his wife were earnings, and must be included in the calculation of the deceased's net weekly earnings; so that, in so far as those contributions exceeded $2,834.00 per week, they had to be disregarded.

(2) There was double-counting in this particular case, in that increases in the value of the businesses relied on by the primary judge in reaching the figure of $500,000.00 had already been taken into account by the respondent's expert in reaching his figure for weekly earnings of $4,130.00 per week. 31 Mr. Toomey QC for the respondent submitted that the limit was only as to weekly earnings, that is, a continuing loss of revenue calculated on a weekly basis. The limit did not affect capital gains due to the deceased's efforts. He submitted that the case of Gillett v. Callagher (1962) 36 ALJR 72 showed that loss of support extended not merely to periodic earnings but also capital gains. 32 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. 33 For those reasons, in my opinion the award of $500,000.00 must be set aside. It also follows that the ground in the proposed Notice of Contention must fail. 34 I would add that in this case also, the contributions of the deceased which justified the award of $500,000.00 had already been taken into account by the respondent's expert in arriving at a weekly figure of $4,310.00. Some at least of these benefits had to be taken into account, if the maximum figure of $2,834.00 was to be achieved. Accordingly, there clearly was double-counting in this case. Theoretically, double-counting might have been avoided if the increases in the value of the business had been taken into account only to the extent necessary to reach $2,834.00, and the balance applied in calculating some kind of capital loss. However, that possibility really underscores the circumvention of the statutory intention that would be involved by this kind of exercise. 35 Since the award of $500,000.00 is to be set aside, the appellants do not press their submissions concerning the deduction of accelerated benefits. However, I think it is appropriate to make some comments on this matter. 36 In allowing nothing for the accelerated benefits, the primary judge first stated that the death of the deceased caused a decrease in the value of the widow's half share in the company, which was to be balanced against the accelerated benefit of receiving the deceased's half share. That appears to be incorrect. Of course, if shares are listed on the stock exchange, and the death of a person who has made a significant contribution to the success of the company causes a drop in the price of such shares, that would be a loss to shareholders; and although it seems that this loss could not be claimed as part of a dependant's action, it is a loss that could be set off against accelerated benefits. However, in this case there was no market for the shares; and in my opinion, the loss to the value of the shares caused by the death of the deceased was essentially the loss of the chance of future gains, which had already been taken into account and were in any event limited by s.125. 37 Furthermore, in so far as the primary judge took into account the loss of future capital accretions to the businesses exceeding the figure of $2,834.00 per week, there is a question whether that can be taken into account in determining the value of the accelerated benefits. 38 However, I think there are powerful reasons for thinking that the accelerated benefit in this case was very little: certainly, in my opinion, it was nothing like the figure of over $900,000.00 arrived at by deducting, from the $1.2 million value of the deceased's half interest, the value of that amount deferred 31 years of around $260,000.00. 39 In the first place, the view could be taken that the family would in any event have received about 74% of the benefit of the businesses throughout the deceased's lifetime, making the acceleration of benefits realistically apply only to 26% of the value of the businesses, not 50%. There is some analogy here with the family home: it seems clear that in general, a wife's succession to a husband's half share of the family home is not treated as an accelerated benefit, in circumstances where, had the husband lived, the home would have been used by the family in much the same way as it will be used after the husband's death. 40 Secondly, even that 26% would have been enhanced by the deceased's earnings within the ceiling of $2,834.00, over and above what would actually have been spent: it seems clear that the actual spending of the family was substantially less than $2,834.00 per week. 41 Thirdly, there is a real question whether this cap applies, when one is addressing the question of accelerated benefits. What one is comparing is the value of what the family receives at the death of the deceased, as compared with what they would have received some time later, at the end of the deceased's life expectancy. That essentially is a valuation exercise, and one does not have direct regard to the progressive earnings of the deceased over the years, which are the basis of the dependency claims. However, it is not necessary to decide that question in this case.

SUPERANNUATION 42 In my opinion, the benefit of superannuation contributions made by an employer is an element of asset acquisition through the exercise of the deceased's earning capacity, and thus also is to be taken into account as part of net weekly earnings. It follows that the separate award of $36,973.06 in relation to superannuation must also be set aside.

CONCLUSION 43 It follows from the above discussion that the sum of $536,973.06 must be deducted from the award made by the primary judge, giving a figure to be substituted of $1,177,951.14. 44 In my opinion, the Court should make the following orders: 1. Appeal allowed with costs. 2. The sum of $1,177,951.14 to be substituted for the verdict given by the primary judge. 3. Respondent to have a certificate under the Suitors Fund Act if otherwise eligible. 45 McCOLL JA: I agree with Hodgson JA. 46 CRIPPS AJA: I agree with Hodgson JA. **********

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