Commercial, Compulsory Third Party Insurance, Insurance

“Damages for economic loss contingent on whether earnings are derived through exertion or input” – Fkiaras v Fkiaras

29 May, 2010

Author: Nathan Morehead

Judgement Date: 1st June, 2010

Citation: Fkiaras v Fkiaras (2010) NSWCA 116

Jurisdiction: New South Wales Court of Appeal

In Brief

  • An assessment of damages for economic loss pursuant to s 125 of the Motor Accidents Compensation Act 1999 is a three-stage process. Firstly, probable net weekly earnings but for the injury, which are capped by s 125(2), must be assessed. Next, post-accident earnings and/or residual earning capacity, which are not capped, must be assessed. Lastly, the difference, if any, between probable net weekly earnings and post-accident earnings and/or residual earning capacity forms the basis for any award.
  • The reference to “earnings” in s 125 is a reference to income earned by the exercise of the injured person’s earning capacity, that is, through his/her physical exertion or input.
  • An injured person’s post-accident earnings and/or residual earning capacity cannot be traced back to the exercise of their earning capacity prior to the accident.

Background

Mr Fkiaras suffered multiple injuries, including significant brain damage, in a motor vehicle accident which occurred on 23 August 2004.

Prior to the accident, Mr Fkiaras and his wife owned a number of properties and businesses which were successful. This was largely because he was a competent and astute businessman, had a sound understanding of financial matters and plans, performed construction work and routine maintenance and always looked for new deals. Following the accident Mr Fkiaras allegedly sustained significant economic loss due to the incapacity arising from his injuries.

District Court of NSW – Truss DCJ

It was found that Mr Fkiaras’ cognitive deficits were such as to destroy his ability to make appropriate business decisions and then implement them. In effect, he had no residual earning capacity with respect to his own businesses or on the open labour market.

The appellants submitted that Mr Fkiaras was entitled to an award for past economic loss for the 2005 financial year only, calculated at $23,765, on the basis that, with the exception of that year, his business income after tax on a weekly basis exceeded the s 125(2) threshold.

This submission was rejected by Judge Truss as it “offended commonsense” and failed to acknowledge three factors. Firstly, the full extent of Mr Fkiaras’ input and efforts in the past. Secondly, the likelihood that, but for injury, he would continue to contribute value input and effort into the existing businesses and apply his entrepreneurial skills to create further business ventures, consistent with what he had done in the past and which had a real prospect of being successful. Thirdly, the submission incorrectly assumed the businesses existing at the time of the accident would have been no more successful than they had been had he not been injured.

Judge Truss concluded that Mr Fkiaras was the driving force behind the operations, which depended upon his input and entrepreneurial skills. Notwithstanding that other members of the family had contributed to the success of those operations, it was decided that the focus ought to be on what Mr Fkiaras’ input would have been but for his injuries, not the family’s input.

It was determined that Mr Fkiaras was entitled to be compensated for the loss to him of the benefits “of his contribution” to the family businesses. This was incapable of being calculated on a strictly mathematical basis using financial records and, for that reason, was quantified by reference to the cost of engaging another person to do what Mr Fkiaras would have done had he not been injured. Judge Truss assessed damages of $322,920 for past economic loss and $269,813 for future economic loss, the latter calculated to 70 years of age.

The Court of Appeal

was the following remark by Judge Truss that formed the basis of the issue on appeal:

“The mathematical method by which post-accident earnings were determined fails to acknowledge that the (respondent) has had such earnings not because of any exertion on his part, but because of his efforts in the past.”

It was submitted that the correct approach to the assessment of damages for economic loss involved three questions:

  1. What would the respondent’s probable earnings have been had he remained uninjured, including his earnings from businesses already established at the time of the accident, together with any additional earnings from new businesses of opportunities?
  2. What have the respondent’s actual earnings been since the accident, notwithstanding his lack of personal input due to his injuries?
  3. Is the difference compensable having regard to s 125?

In answering those questions, the appellants made two primary submissions. Firstly, s 125 required all of Mr Fkiaras’ post-accident earnings to be taken into consideration when assessing whether he had sustained any compensable economic loss. What was to be deducted from his net weekly earnings but for his injuries was his actual post-accident earnings from his businesses, notwithstanding his injuries had deprived him of any earning capacity. Secondly, the word “earnings” in s 125(1)(a) and s 125(2) is not confined to earnings from Mr Fkiaras’ exercise of any earning capacity but for his injuries. Rather, it extends to any earnings from those businesses to which he had contributed prior to his injuries.

The appellants maintained that, apart from the 2005 financial year, Mr Fkiaras’ actual earnings in the years following, and in the future, exceeded the s 125(2) cap and, therefore, an award of damages for past and future economic loss could not be made.

The Court rejected the appellant’s submissions. It held that the authorities upon which the appellant relied, clearly construed the word “earnings” wherever they appeared in s 125 of the Act as earnings which were the product of the exercise of a person’s earning capacity, that is, through the personal exertions or input of the injured person that results in a particular output.

The flaw in the appellant’s submission was that it depended on an acceptance of the proposition that the effect of s 125(2) was to deprive Mr Fkiaras of any award of damages for economic loss where his “residual earnings” exceed the relevant cap notwithstanding that, as a consequence of his injuries, he has been deprived of any residual earning capacity. In an attempt to overcome this deficiency, the appellants submitted it was sufficient if the post-injury earnings of Mr Fkiaras resulted from the exercise by him of his pre-injury earning capacity in that there was some causative link between the exercise of that capacity and his post-injury earnings. The Court found this approach was not permitted by the statute.

The Court also noted it was impossible to determine the extent to which the exercise by Mr Fkiaras of his pre-injury earning capacity contributed to the earnings that he received following the accident, or the extent to which his weekly business income after tax was contributed to by other external factors and related to his personal exertions in the years preceding the accident.

In confirming the assessment by Judge Truss, the Court remarked:

“Once it is accepted, as in my opinion it should be, the reference in s 125 to the word ‘earnings’ is a reference to income earned by the exercise of the injured person’s earning capacity, it follows that the appellant’s construction of s 125(2) must be rejected. This section is concerned with the awarding of past or future economic loss due, relevantly, to the deprivation of the respondent’s earning capacity as a consequence of his injuries. Post-accident, that earning capacity was nil. But for his injuries he had full earning capacity which if exercised would have earned him in excess of a cap the subject of s 125(2).

Accordingly, he was not entitled to be compensated for any loss of earnings on a weekly basis that exceeded that cap. Once it was determined that his post-injury incapacity was nil, it followed that he was entitled to an award of damages for past and future economic loss.”

Implications

When insurers are responding to a claim for economic loss, particularly where the injured person was/is self-employed, what needs to be taken into consideration is the extent to which the earnings of the business are attributable to the exercise of the injured person’s earning capacity. This will involve a consideration of at least two factors. Firstly, the activities of the injured person, as distinct from other persons, prior and subsequent to the accident, and the extent to which they contribute to the income derived by the business. Secondly, the injuries arising from the accident and the extent to which they affect the injured person’s earning capacity and, in turn, the income derived by the business.

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