O'Brien v McKean [1968] HCA 58;

O'Brien v McKean [1968] HCA 58; - HCA 1968 case summary — Zoe

[23]

15. I turn now to that question, namely, whether any allowance for future changes in the purchasing power of the currency should be made when damages to compensate for loss of earning capacity are being considered. I have elsewhere pointed out in relation to this aspect of economic loss in cases of personal injury, that it is the loss of earning capacity which has occurred by reason of the accident which is to be the subject of compensation by an award of damages: it is not a case of replacing the wages which would have been earned in the future by a sum of money which represents the present value of the total of such wages: see Arthur Robinson (Grafton) Pty. Ltd. v. Carter [1968] HCA 9; (1968) 41 ALJR 327 . That loss of earning capacity has already occurred and is either permanent or likely to continue for some estimable time. The fair compensation for it is to be determined as a matter of judgment and not of calculation. But it is of course to be an informed judgment. Though the damages as I have said are not to be a replacement of the future wages, part of the relevant information for the purpose of forming a judgment as to the fair and reasonable compensation is a broad estimate of what that earning capacity before its destruction or diminution was capable of producing during such time as it would have been likely to be gainfully exercised. In obtaining such a conspectus, the vicissitudes of life, as it has been said, must not be lost sight of. Included in the matters so to be observed and acknowledged in the broad estimate to be made is the probability, if it exists, that the lost or diminished capacity would in the future have produced more in real terms than it has done or does at the current time. But what would be thus earned would be expressed in money terms and the increased money returns from the exercise of the earning capacity may be due either to an attempt to compensate for a reduction in the purchasing power of money or to an advancement in the real reward paid for work performed, or partly to each of these considerations. In my opinion, changes in the amounts which would have been paid for the exercise of the lost or impaired earning capacity and which would be due solely to changes in the purchasing power of money ought not to be considered as relevant to the assessment of compensation for the lost earning capacity. But it is otherwise with respect to real advances in remuneration due to an increase in the real reward for an increased or a better regarded exercise of that capacity if there is solid evidence upon which the probability of such an advance can be inferred. Thus the probability that the injured person's present capacity would in time lead to his advancement, so that he would earn more in real terms may be reflected in the compensation for the lost capacity: but the probability that the current reward will increase in nominal terms merely to keep pace with a lessening in the purchasing power of money should not be so regarded. The earning capacity which has been lost or diminished cannot, in my opinion, command any greater compensation because in future the purchasing power of the nominal sum it presently earns will be maintained by an increase in the nominal reward for its exercise. Indeed, if that were not likely to happen, the present capacity which has been lost should be worth much less because its effective return in terms of what it will purchase throughout the future would be a diminishing quantity. If the compensation is assessed on the footing that the present value of the wages commanded by the earning capacity prior to the injury would be maintained, and the compensation expressed in money appropriate to the date of the assessment, the plaintiff will, in my opinion, be justly compensated for the lost or diminished earning capacity in a case where there is no probability that the earnings it will produce will advance in real terms. Smith J. in Tzouvelis v. Victorian Railways Commissioners (1968) VR, at pp 137, 138 approached this aspect of the problem from a somewhat different point of view but reached the conclusion that to increase the award to reflect decreases in the value of the currency would result in an over compensation of the plaintiff. I respectfully agree with this conclusion and if one were making a mathematical calculation of the kind used in his Honour's analysis, I would also agree with his Honour's steps in reaching it. But, as I have said elsewhere, I do not favour any attempt to arrive directly at the amount of general damages by calculations of that kind. (at p547)

[29]

21. This brings me to the final question, namely, whether or not a firm basis can be found for the inclusion amongst the factors to be considered in deciding the proper global sum to be awarded for personal injuries of a figure to reflect the probability of rising costs of the particular goods and services. It can be conceded that in the past over a substantial period of time the purchasing power of the nominal unit of currency in general has declined. Indeed, it may be possible to express that decline in percentage terms of the nominal value of the unit of currency. This decline is not a new experience but an experience of mankind over centuries: but changes in purchasing power have not always been by way of decline nor has the decline been uniform. At times because of particular economic or social conditions in particular places the rate of decline may accelerate, or, for that matter, deceleate, or there may be occasions in the future as there have been in the past when the currency will appreciate. No doubt also there will be periods of greater inflation, such as the present generation has known. So many imponderables must, of course, enter into the causes of these fluctuations; for example, alterations in the mode of production or distribution of the particular community in question or of a representative commodity or commodities of which the cost is taken as a reference point for a general conclusion, or alterations in the social habits of the community creating or diminishing the demand for a commodity. But, notwithstanding these fluctuations, it is possible, by taking a long span of time, that a progressive decline in the purchasing power generally may be demonstrated, though it will not have been regular. But it seems to me that whatever the overall experience in relation to goods and services generally, nothing better in general than a speculation can be made as to the cost in the future of particular goods and services. There is no more room, in my opinion, in the determination of an award of damages, for acting upon a speculation than there is for doing so in the determination of liability. Solid proof, on the basis of probability, is required of all the elements which can properly be reflected in the award. Consequently, in my opinion, evidence which does no more than provide ground for speculation as to the future cost of the required goods and services is inadmissible. (at p550)

[44]

3. In Parente v. Bell (1967) 116 CLR 528 I stated my opinion on that. What I then said was quoted, approved and expressly adopted by the Full Court in this case. Was I right in the case last year? It was the trial of an action in the original jurisdiction of this Court. The question arose on an objection to evidence. I said what I said as soon as the hearing ended. This time the question arises on an appeal. I have had time to consider it afresh, and after the benefit of further argument. However, I remain of the opinion I expressed last year. I would leave the matter at that were it not that I am aware that what I then said had been taken to be inconsistent with some remarks I had earlier made, in Teubner v. Humble [1963] HCA 11; (1963) 108 CLR 491, at p 509 ; and these I realize have been quoted and relied upon in other courts. I could perhaps now say only that I consider my second thoughts the better and that so far as the two statements are inconsistent I must recant the former. But there is more to it than that. The former statements occur in a passage in a judgment given in relation to the peculiar facts of the case then in hand. It was an appeal from a decision in an action tried in the Supreme Court of South Australia (Teubner v. Humble (1962) SASR 117 ). An actuary's report described as showing "loss of wages" had been produced at the trial. It stated a monetary value at the date of the trial of the action of wages which it was said the plaintiff could have earned in the future, if it had not been for the accident and he had lived to the age of sixty-five. This sum was calculated on the basis of wages prevailing at the date of the accident. But this was two years before the date of the trial; and in the interval there had been an increase in the award wages of employees of the grade of the plaintiff. Counsel for the plaintiff had urged that the calculation should be accepted without any qualification or adjustment for "contingencies". Any such allowance, he suggested, would be offset by the increase in award wages since the accident and the possibility of further increases in the future. The learned trial judge rejected this arbitrary solution; and then in an arbitrary way discounted for "contingencies" the figure the plaintiff proposed. In doing so his Honour made some observations which appeared to me to be mistaken. I commented on them, using, I must confess, wide words which could be and have proved to be, as I think, misleading. I was concerned with the reasons his Honour had given for estimating a loss of earning capacity by reference to the rate of wages payable at the time the incapacity occurred rather than with the rate payable for the same work at the time when damages fell to be assessed, namely the date of the hearing. I considered that it was in the light of all facts then existing that the damages flowing from the tort should be measured. I was not concerned with the question which arises in this case or which arose in Parente v. Bell (1967) 116 CLR 528 . (at p555)

At a glance

Court

Decision date

Before

Source

Judgment (62 paragraphs)

O'Brien v McKean [1968] HCA 58; (1968) 118 CLR 540 (10 September 1968)

Parties

Cases Cited (8)