Australia: Assessing the economic loss of an entrepreneurial plaintiff
Curwoods Case Note

McDonnell v McAliece [2012] NSWCA 346

Judgment date: 15 October 2012

Jurisdiction: New South Wales Court of Appeal ¹

In Brief

• When assessing compensation payable for economic loss, the capacity lost and the economic consequences that could flow from that loss must be identified. This involves consideration of possibilities and the exercise of a discretionary judgment as to what is fair and reasonable.
• In the case of an entrepreneurial plaintiff, weight may be given to the increased vicissitudes of life by reference to the risks of business.

Background

On 18 June 2007, the appellant (Ms McDonnell) slipped and fell on a recently mopped floor at her place of work, a cake shop run by the respondent employer. The appellant suffered injury as a result of the fall and sought work injury damages.

At first instance, Chief Judge Blanch of the District Court found the respondent employer had breached its duty of care and awarded damages for past and future economic loss in the sum of $354,052 pursuant to s 151G of the Workers Compensation Act 1987 and Part 6 of the Workplace Injury Management and Workers Compensation Act 1998.

The evidence regarding the appellant's pre-injury earnings was that she had worked from time to time in businesses that she and/or her husband had operated and that, at the time of her work injury, she had tendered her resignation in order to again venture into business. Income tax returns revealed the appellant had earned wages of between $nil (when she had ventured into business) and $15,577 gross per annum in the financial years ending 30 June 2002 to 30 June 2006.

In the financial year ending 30 June 2007, the appellant had earned $16,000 in 7 months whilst employed by the respondent employer. The appellant had, however, allegedly been underpaid and had commenced proceedings in the Industrial Relations Commission. Following mediation, the appellant had recovered a further $14,000 in underpaid wages.

Blanch CJDC stated that the appropriate way to assess the appellant's past and future economic loss was to not include the salary and award she had received in 2007, but to look at her income from 2005 and 2006. Blanch CJDC considered that approach to be generous as there were a number of years during which the appellant had earned less. It would not be fair to the respondent employer to speculate that the appellant would suddenly become a successful businesswoman or be able to engage in employment that earned her significantly more that what was indicated by her past history.

Court of Appeal

The appellant appealed on the basis that Blanch CJDC had erred in his assessment of the foundation for the award of past and future economic loss. The appellant submitted that ignoring the 2007 wage figures was both unconventional and arbitrary and that those figures represented the appellant's earning capacity in full-time work at the time of her injury.

Reliance was placed by both parties on the Court of Appeal's summary of principles relevant to the assessment of damages for economic loss in Kallouf v Middis ² , namely, that:

• compensation is for loss of earning capacity, not loss of earnings, but wage rates being, and likely to be, earned afford a basis for the assessment of the computation for loss of capacity;
• one must identify the capacity lost and the economicconsequences that will probably flow from that loss. This involves the assessment of possibilities and the future; and
• the judgment is a species of discretionary judgment as to what is fair and reasonable compensation for the injuries received: Husher v Husher ³.

Applying the above principles to the appellant's position, President Allsop (Tobias AJA agreeing) could not agree with the approach taken by Blanch CJDC.

As to past economic loss, his Honour noted the appellant was to leave employment and attempt a business venture at the time of her injury. His Honour observed that had the business not prospered, the appellant would still have had her capacity to work on the open labour market. The business could also have succeeded. Assuming the business failed, that would likely occur within 15 months. His Honour concluded therefore that a fair assessment of past economic loss would be to deduct a period of 10 months, leaving an earning capacity of 3 years and 6 months (from the date of injury to the date of judgment). Average weekly earnings, taken at around 80 per cent, could then be applied.

As to future economic loss, his Honour stated that one had to begin with a proper and clear understanding of the appellant's capacity. The evidence indicated that, from time to time, the appellant would attempt small business ventures; however, her husband had become injured in 2000. Logic and common sense would therefore have it that should any business venture not succeed, the appellant would be required to take paid employment. The appellant's future loss should therefore take into account the 2007 figures as representative of the appellant's employment capacity. That should then be discounted for the potential lower returns of any unsuccessful business venture, though the possibility of success of any such business should also be taken into account. The assessment would be necessarily imprecise.

His Honour stated at [16]-[17]:

On the basis of his Honour's reasons, and as agreed by the parties, the appeal was allowed and judgment was entered in favour of the appellant in the sum of $483,854.

Implications

This case reconfirms the principles applicable to the assessment of economic loss summarised by the Court of Appeal in Kallouf v Middis ⁴ . In particular, this case confirms that when assessing the economic loss applicable to an entrepreneurial plaintiff, it is necessary to undertake an assessment of possibilities related to the plaintiff's business activities. Where the evidence indicates there are risks associated with the plaintiff's business ventures, a reasonable approach may be to increase the percentage deducted on account of vicissitudes.

Footnotes

¹ Allsop P and Tobias AJA
² [2008] NSWCA 61
³ [1999] HCA 47
⁴ Op cit

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