Smorgon Steel Tube Mills Pty Ltd v Majkic [2008] VSCA 230

2 An X-ray at the hospital revealed a fracture of the medial cuneiform bone. Doctors later diagnosed fractures to a number of metatarsal bones in the foot and reflex sympathetic dystrophy. Doctor Lim, a consultant in rehabilitation medicine, described the latter condition as a chronic pain condition caused by instability of the neurological system responsible for the maintenance of the normal functioning of the body.

3 In the middle of 2003 the respondent returned to work on light duties, consisting of office duties such as filing, making labels, photocopying and entering data in spreadsheets. The respondent gradually built up his hours of work from three hours a day until he was working full time. The respondent continued on light duties until late-2006 or early-2007, when his hours of work were reduced to 30 per week. The reduction was agreed upon by the respondent, his general practitioner and an occupational therapist.

4 The respondent sought leave pursuant to the provisions of s 134AB of the Accident Compensation Act 1985 ('the Act') to bring proceedings to recover damages in respect of the injury to his foot. A County Court judge gave the respondent leave to bring proceedings to recover damages for pain and suffering and for pecuniary loss. His Honour held that the respondent had established that he had sustained permanent serious impairment or loss of a body function within the meaning of paragraph (a) of the definition of 'serious injury' contained in s 134AB(37) and that he had sustained a loss of earning capacity of 40 per centum or more.

5 The respondent's employer has appealed against the grant of leave to bring proceedings to recover damages for pecuniary loss.

6 Section 134AB(19) of the Act provides that a court must not grant leave to bring proceedings at common law unless it is satisfied that the injury is a serious injury. Section 134AB(38) provides that the term 'serious' is to be satisfied by reference to the consequences to the worker of any impairment or loss of body function with respect to loss of earning capacity when judged by comparison with other cases in the range of possible impairments or losses of body function[1] and that an impairment or loss of a body function shall not be held to be serious unless the loss of earning capacity consequence is, when judged by comparison with other cases in the range of possible impairments or losses of a body function, fairly described as being more than significant or marked and as being at least very considerable.[2]

7 In order to obtain leave to bring proceedings to recover damages for loss of earning capacity the worker must also establish that at the date of the decision the worker has sustained a loss of earning capacity of 40 per cent or more and the worker will continue permanently to have a loss of earning capacity which will be productive of financial loss of 40 per cent or more.[3] The loss of earning capacity is to be measured by comparing the worker's 'gross income from personal exertion ... which the worker is earning or is capable of earning in suitable employment' as at the date of the hearing with the gross income that the worker was earning or was capable of earning from personal exertion or would have earned or would have been capable of earning from personal exertion during that part of the period within three years before and three years after the injury as most fairly reflects the worker's earning capacity had the injury not occurred.[4]

8 In making the comparison which paragraph (f) of s 134AB(38) requires, the trial judge held that at the date of his decision the respondent had no capacity to earn income from personal exertion in suitable employment. His Honour relied upon the evidence of an occupational therapist, which was not challenged. The evidence was that the respondent had no vocational qualifications other than a licence to drive a forklift. The respondent was 39 years' old. He went to school in Yugoslavia and worked as a forklift driver, crane chaser and machine operator before migrating to Australia in 1984. He read English at the level of a 10 year old and could barely spell. The respondent could not lift five kilograms more than occasionally, experienced increased pain if he remained in any one posture for a significant period of time, had a sitting tolerance limited to 45 minutes, had to sit down after 10 minutes standing, his walking tolerance was restricted to approximately 25 minutes, used a walking stick, was unable to climb a ladder, could not squat, or run, his driving capacity was restricted to approximately 30 minutes in an automatic car modified to enable him to operate the accelerator with his left foot, could not perform household tasks such as digging in the garden and clearing the house gutters and his capacity to concentrate and retain information was affected by pain and the medication he took. The witness considered various types of employment which the respondent might possibly pursue and said that in her opinion there was no work for which the respondent was suited.

9 This conclusion was challenged by the appellant on the basis that the starting point of the comparison in paragraph (f) is the 'income from personal exertion which the worker is earning.' The appellant contended that the respondent was earning money from personal exertion, and it was irrelevant that he could not find suitable employment in the open market. The words 'suitable employment' qualified only income the earner was capable of earning, not income actually earned.

10 In my opinion the phrase 'in suitable employment' applies equally to income the worker is earning and is capable of earning. The element to be ascertained is the worker's loss of earning capacity, and requires comparison between what the worker was earning or was capable of earning at the date of the decision and what he was earning or would have earned had the injury not occurred. If the phrase 'suitable employment' qualifies only the income from personal exertion the worker is capable of earning, the work on one side of the comparison may be a contrived, adventitious, short-term occupation bearing little or no resemblance to the work for which the worker is suited. I consider that the legislature intended that the worker's loss of capacity was to be determined having regard to work that is generally available in the employment market, rather than a position tailored to meet the peculiar needs of an individual worker, who is incapable of performing his normal work.

11 Section 5 of the Act provides that 'suitable employment' means:

... employment in work for which the worker is currently suited (whether or not that work is available), having regard to the following -

(a) the nature of the worker's incapacity and pre-injury employment;

(b) the worker's age, education, skills and work experience;

(c) the worker's place of residence;

(d) the details given in medical information including the medical certificate supplied by the worker;

(e) the worker's return to work plan, if any;

(f) if any occupational rehabilitation services are being provided to or for the worker;

...

The definition directs attention to the realities of the labour market. It does require that regard is to be had to any return to work plan. A return to work plan must include an offer of suitable employment[5], and such an offer may take the form of employment catering for the disabilities caused to a worker by injury, such as the position created for the respondent. It is one thing to have regard to a return to work plan for the light it may throw upon a worker's ability to work, which can be turned to account in the commercial world outside the special relationship between a worker and an employer concerned to cater for the worker's special needs. It is another to equate the work offered by such a plan with suitable employment for the purposes of s 134AB(38)(f). The definition does not require the second step to be taken.

12 The conclusion that the respondent had no capacity to earn income from personal exertion in suitable employment was sufficient to satisfy the requirement imposed by paragraph (f). The trial judge also held that the income which the respondent was earning at the date of the decision was less than 60 per cent of the income he would have been capable of earning had the injury not occurred. I agree with his Honour's conclusion, notwithstanding that his reasoning involved a miscalculation.

13 It was common ground that the respondent's gross income from personal exertion at the date of the decision was $40,987.18 per annum. Accordingly, in order to prove a loss of more than 40 per cent of his earning capacity, the respondent was required to prove that he would have earned at least $68,312 per annum but for the injury. The trial judge found that the respondent would have earned $69,704.96 per annum. A component in the calculation was the overtime that the respondent would have worked. His Honour calculated that the respondent would have worked an average of 56.8 hours per week. The calculation was incorrect and should have been 55.1 hours per week. When multiplied by the earning rate, the correct number of hours produced an amount less than $68,312.

14 The average overtime was based upon the evidence of the appellant's human resources officer, who said that between nine and ten hours per week overtime was achieved by those who wished to work overtime. The trial judge adopted nine hours as the basis of his calculation. In my opinion that was incorrect. The respondent's uncontradicted evidence was that he worked as much overtime as was available. Accordingly, it was appropriate to conclude that the respondent's overtime would have been at the top of the available range. If the trial judge had used 10 hours in his calculations, the respondent's loss of earnings would have exceeded 40 per cent. Section 134AB of the Act requires this Court to decide for itself whether the worker has made out his case.[6]

15 At the hearing of the appeal, the appellant for the first time advanced another argument designed to reduce the amount the respondent would have earned but for the injury below $68,312 per annum. Counsel for the appellant submitted that the trial judge erred in proceeding upon the basis that the respondent would have earned overtime wages each week of the year, for in so doing his Honour failed to take into account the fact that there would be no overtime during the respondent's four weeks annual leave. The short answer to this contention is that the evidence demonstrated that the respondent continued working throughout the year and accumulated his annual leave.

16 The appellant's final complaint was that the trial judge failed to isolate the respondent's loss of earning capacity due to physical injury the subject matter of the claim from the psychological or psychiatric consequences of the injury and physical conditions other than the claimed organic injury.

17 Section 134AB(38)(h) provides:

(h) the psychological or psychiatric consequences of a physical injury are to be taken into account only for the purposes of paragraph (c) of the definition of serious injury and not otherwise; ...

The appellant contended that the trial judge failed to identify and exclude from consideration any loss of earning capacity which could not be shown on the balance of probabilities to have an organic or physical basis. His Honour was required to exclude loss of earning capacity which resulted from functional overlay.[7]

18 The appellant relied upon evidence said to support the conclusion that in part the pain experienced by the respondent was the result of functional overlay, which might be described as an overreaction to an organic injury, which is characterised by symptoms continuing long after the clinical signs of the injury have ended.[8]

19 Thus Dr Barton, an occupational physician, gave evidence that 'the respondent's presentation of specific features about his condition point [to] his problem being functionally rather than physically based'. Mr Conroy, a surgeon, said that assessment of the respondent was rendered difficult by symptoms which could not be explained on an anatomic basis, and said that he suspected 'this is either the manifestation of some form of abnormal illness behaviour or is factitious'. Miss Schellenberger, a surgeon, gave evidence that the respondent was capable of walking and the limp from which he suffered 'was contrived'. Mr Jones, an orthopaedic surgeon, said that there was a substantial functional component in the respondent's condition. Mr Rush, a surgeon, said that there was significant psychological reaction to the accident and 'not a lot of objective evidence of significant organic disease'. Mr Miller, an orthopaedic surgeon, said that he was concerned that the respondent had 'established chronic pain syndrome.'

20 On the other hand, there was a considerable body of evidence that the respondent had suffered physical injury and that his loss of earning capacity was the result of the physical condition described as chronic regional pain syndrome.

21 Several doctors described a crush injury causing fractures to a number of metatarsals and upper tarsal bones, in particular the medial cuneiform. More importantly for present purposes, they expressed the opinion that the respondent suffered from chronic or complex regional pain syndrome.

22 That condition was described by Dr Lim, a pain management specialist, in these terms:

Complex regional pain syndrome is a persistent or chronic pain condition associated with injury and due to the amplification and/or maintenance of pain by instability of the sympathetic nervous system. It was previously known as reflex sympathetic dystrophy.

The sympathetic nervous system is part of the autonomic nervous system, the neurological system that is responsible for the maintenance of the homeostasis or normal function of the body. The injury associated with complex regional pain syndrome may or may not be serious. Due to pain amplification, the severity of the pain that is experienced may not necessarily reflect the severity (or lack of) of the injury.

The natural history of complex regional pain syndrome is variable. It can resolve, with or without medical intervention. It can persist and involve to an end stage, the "atrophic" phase, with the affected limb remaining severely and persistently painful and becoming wasted (atrophic) and contracted and associated with major loss of function and resulting in severe, permanent physical disability.

23 Mr Kiellerup, an orthopaedic surgeon, diagnosed the broken bones in the respondent's foot and also complex regional pain syndrome. He thought it unlikely that the respondent's foot 'will ever return to totally normal' and he would 'have ongoing problems with pain, swelling and loss of functions'. He foreshadowed degenerative changes and the need for surgery. The respondent's treating doctor, Dr Sadhai, also described the broken bones and diagnosed continued, unremitting pain in the respondent's foot. The trial judge noted that Dr Sadhai was 'firmly of the opinion that the [respondent's] foot pain is organically based.' Mr Dooley, an orthopaedic surgeon, referred to the crush fractures in the respondent's foot and corroborated the diagnosis of chronic complex regional pain syndrome. Mr Rush, an orthopaedic surgeon, diagnosed the respondent's injuries as soft tissue injury to the cervical and lumbar spines and a crush injury to his foot with fractures of the medial cuneiform bone and possible fractures at the base of the second, third and fourth metatarsals, as a result of which the respondent developed reflex sympathetic dystrophy or chronic regional pain syndrome, and as a consequence suffered a disability which Mr Rush described as 'moderately severe'.

24 The trial judge discounted the evidence of Dr Barton and Mr Jones on the basis that their reports demonstrated partisan views, incorrect assumptions and misstatements. Thus, Mr Jones misstated the injury as a fracture of one of the small tarsal bones, proposed that the respondent be kept under surveillance and recommended that the respondent apply for positions requiring management and other sophisticated skills without enquiring as to whether the respondent possessed those skills. Dr Barton accused other medical practitioners of providing 'quasi medical diagnosis to account for [the respondent's] symptoms which in turn justifies their various treatments.' His Honour doubted the opinion of Miss Schellenberger, who found 'no symptoms to suggest true physical reflex sympathy dystrophy'. In the light of the number of medical practitioners who diagnosed that condition, I consider the trial judge's scepticism was justified.

25 This was not a case that required the disentangling of the effects of physical and psychiatric conditions. Rather, the question was whether or not the respondent suffered from complex regional pain syndrome, which did have an organic or physical basis. As his Honour noted, without demur from the appellant on appeal, the appellant did not contend that the complex regional pain syndrome was other than an organic or physical problem. I consider that the medical evidence taken as a whole warranted the conclusion that the respondent's foot injury produced a complex regional pain syndrome, that is, real, chronic and disabling pain, which was physical, not psychiatric, in origin. That pain prevented the respondent from returning to his employment as a machine operator or performing heavy physical work. Accordingly, in my opinion it is clear that the physical injury was the cause of the respondent's reduced earning capacity.

26 That is not to say that the physical injury to the respondent's foot alone produced the loss of earning capacity. There was evidence that the respondent suffered neck pain, lower back pain and depression. The effect of those conditions, however, was relatively minor. The loss of earning capacity attributable only to the physically based consequences of the injury satisfied the statutory test. The evidence established that it was the injury to the respondent's foot that limited him to the 30 hours work he was able to perform each week. The evidence did not permit the conclusion that the respondent may have been able to perform more than 30 hours work each week but for the effects of the accident other than the injury to the respondent's foot.

27 The present case may be contrasted with the case of Zivolic v Hella Australia Pty Ltd[9]. In that case the President said:

In any case, as the judge said, the difficulty he had in separating the psychological from the physical causes of the appellant's pain and suffering

meant that he could not be satisfied that any loss of earning capacity attributable only to the physically based pain and suffering consequences satisfied the narrative test. Once the former task in relation to pain and suffering consequences proved to be impossible, the latter task in relation to loss of earning capacity was also impossible.

In the present case the judge concluded, correctly in my view, that the loss of earning capacity claimed by the respondent was caused by physically based pain in the respondent's foot. The presence of other factors could not negate the effect of that pain.

28 For the foregoing reasons I would dismiss the appeal.

29 For the reasons expressed by him, I agree with the Presiding Judge that this appeal should be dismissed.

30 I have had the benefit of reading in draft the reasons for judgment prepared by Buchanan JA. I agree with them. I agree the appeal should be dismissed. I wish to add some observations on one issue.

31 In seeking leave to issue proceedings, Mr Majkic had to establish that at the date of the hearing before the learned trial judge he had a loss of earning capacity of 40 per centum or more. That was to be measured by comparing what may be described as his after-injury earning capacity with his without-injury earning capacity.

32 The learned trial judge found Mr Majkic was currently earning $40,987.18 expressed at an annual rate. Smorgon Steel does not dispute that finding. Smorgon Steel contends, however, that the learned trial judge made three errors in calculating the loss of earning capacity in percentage terms.

33 First, Smorgon Steel contends that the learned trial judge erred in finding that for the purposes of measuring Mr Majkic's loss of earning capacity he was to

compare the income Mr Majkic was earning 'in suitable employment' or capable of earning 'in suitable employment' to the with-out injury earning capacity rather than comparing simply the income Mr Majkic was earning. Secondly, Smorgon Steel contends that if the determination required the earnings to be 'in suitable employment', that the learned trial judge erred in not finding that the income Mr Majkic was earning was in suitable employment. Thirdly, Smorgon Steel contends that the learned trial judge made a mathematical miscalculation of Mr Majkic's loss of earning capacity. I agree with the reasons of Buchanan JA on each of those three issues but seek to add some observations on the first contention only.

34 Under para (f) of s 134AB(38) of the Accident Compensation Act 1985, a worker's loss of earning capacity is to be measured by comparing the worker's gross income from personal exertion (expressed at an annual rate) which the worker is earning or was capable of earning in suitable employment as at that date with the gross income (expressed at an annual rate) that the worker was earning or was capable of earning from personal exertion or would have earned or would have been capable of earning from personal exertion during that part of the period within three years before and three years after the injury as most fairly reflects the worker's earning capacity had the injury not occurred.

35 'In suitable employment' is defined in s 5 to mean as follows:

Suitable employment in relation to a worker, means employment in work for which the worker is currently suited (whether or not that work is available), having regard to the following -

(a) the nature of the worker's incapacity in pre- injury employment;

(b) the worker's age, education, skills and work experience;

(c) the worker's place of residence;

(d) the details given in medical information including the medical certificates supplied by the worker;

(e) the worker's return to work plan, if any;

(f) if any occupational rehabilitation services are being provided to or for the worker.

...

36 The definition of in suitable employment requires the identification of 'work for which the worker is currently suited.' The definition also requires certain matters specified in (a) to (f) to be had regard to in identifying such work.

37 Smorgon Steel contends that contrary to the findings of the learned trial judge, the words 'in suitable employment' applies to qualify income the worker is capable of earning but not to income which the worker is earning. The learned trial judge found that there was no suitable employment available to Mr Majkic and that the work he was doing was not suitable employment. (As indicated above, Smorgon Steel contends this was in error.) Accordingly, the trial judge found that Mr Majkic was not earning any income from suitable employment or capable of earning income from suitable employment. Without admitting the judge was correct in his characterisation of the work done by Mr Majkic, Smorgon Steel contends that the trial judge erred in ignoring the income Mr Majkic was actually earning by requiring it to be earned from suitable employment.

38 The purpose of paragraph (f) is to measure the worker's loss of earning capacity. It is unlikely that the Act would permit the unqualified actual earnings to be used in the measurement if an injured worker was working in low paying employment when, injuries notwithstanding, he was capable of earning more in higher paying employment. Similarly, it would be unlikely the legislation would use in measuring an injured worker's earning capacity his actual earnings where the worker was being employed, in an act of charity, to do work for which he or she was not suited and beyond his or her capabilities. In neither circumstance, would his or her actual earnings assist one to determine the worker's loss of earning capacity in the normal sense of those words.

39 Under the Act, the worker's after-injury earning capacity is to be measured by the worker's gross income (expressed at annual rate) that 'the worker is earning or is capable of earning in suitable employment.' (My italics) What is the function of the alternative measures? If the worker is not currently earning income from personal exertion, then the paragraph requires an assessment of the income he or she is capable of earning in suitable employment. If the worker is earning income from personal exertion in suitable employment then normally that would be the equivalent of the income he or she is capable of earning in suitable employment. It is difficult to conceive that the Act intended to put forward as alternatives, income being earned from possibly unsuitable employment and income the worker was capable of earning in suitable employment. The existence of the alternative measures do not support Smorgon Steel's construction but rather support the construction that the words 'in suitable employment' qualifies both actual earnings and earnings the worker was capable of earning.

40 For these reasons and the reasons put forward by Buchanan JA, I find that the learned trial judge did not err in his construction of paragraph (f) of s 134AB(38).

[6] Dwyer v Calco Timbers Pty Ltd [2008] HCA 13; (2008) 82 ALJR 669.

[7] See Mutual Cleaning and Maintenance Pty Ltd v Stamboulakis [2007] VSCA 46, [9] (Maxwell P).

[8] Transport Accident Commission v Lincoln (2002) 6 VR 199, 207-8 (Winneke P).

[9] [2007] VSCA 142.