Why actual earnings are not always an accurate reflection of future potential earnings: Alldinger v Du Ranot [2023] NSWCA 271

Judgment date: 10 November 2023

Citation: Alldinger v Du Ranot [2023] NSWCA 271

Jurisdiction: Court of Appeal, Supreme Court of NSW

Key principles

• Actual, as opposed to disclosed, past earnings are not always an accurate reflection of future potential earnings.
• In calculating future economic loss, the Claimant’s ‘most likely future circumstances but for the injury must be determined’, which involves considering the impact of external factors, such as tax fraud discovery and bankruptcy, on future potential earnings.
• Where there are significant discrepancies between a Claimant’s actual and reported earnings, a buffer allowance with a discount is appropriate in order to reflect the likelih ood of any external factors affecting future potential earnings.

Background

The Claimant in Alldinger v Du Ranot [2023] NSWCA 271 was involved in a motor vehicle accident on 19 June 2017, at which time he was a sole trader operating a café in Moss Vale. There were significant differences between his actual earnings, the earnings shown in his bank statements and the earnings declared in his tax returns.

The Claimant originally claimed $654,122.81 for future economic loss, plus a $150,000 buffer to reflect his loss of earning capacity and a loss of opportunity to grow his business.

At first instance, the Claimant was awarded a total of $1,103,234.45. This included a buffer award of $450,000 for future economic loss which included a discount of 30%, to account for the following factors:

1. The Claimant had demonstrated a capacity to run the café after the accident.
2. His earnings in the 2019 Financial Year were significantly higher than in the previous years and therefore may not have been maintainable.
3. There was a significant risk that the tax authorities would investigate his business with the inevitable result that any outstanding tax would need to be repaid with interest.
4. As he did not have the financial means to repay any outstanding amount, he would be bankrupted.
5. Upon bankruptcy, he would have been forced to work as an employee where his earnings would revert to the amount shown in his Notices of Assessment for the 2010-2012 Financial Years.

The Trial Judge accepted that the Claimant’s most likely future circumstances, but for the accident, would be that his café business would fail at some point once his tax evasion was discovered by the authorities.

The Claimant appealed the Trial Judge’s assessment of future economic loss.

The Court of Appeal held that the method of calculating future economic loss was correct, in accordance with section 126 of the Motor Accident Compensation Act 1999 (NSW). Section 126 required the Court to:

• determine the Claimant’s most likely future circumstances but for the injury;
• state the assumptions on which the award was based; and
• adjust the amount by reference to the chances that the events might have occurred but for the injury,

all of which the Trial Judge did.

The Court of Appeal commented that an assessment of future economic loss involves a comparison between the position the appellant is in because of the accident and the position they would have been in but for the accident.

His Honour accepted that the Trial Judge was correct in using the evidence of the Claimant’s past earnings as a guide for the future.

The Court of Appeal also accepted that the Trial Judge was entitled to consider his adverse findings of the Claimant’s credit in assessing his most likely future circumstances, but for the injury – as once the tax fraud was discovered, the potential for bankruptcy would be ever-present and would have brought the Claimant’s business to an end.

Key takeaways

The decision in Alldinger v Du Ranot [2023] NSWCA 271 demonstrates that actual business earnings that are at significant odds with declared business earnings, are not always an accurate depiction of potential future earnings.

The decision also highlights that assessing a claim for potential future earnings/increased profits, where significant discrepancies exist, involves a determination of the Claimant’s ‘most likely future circumstances but for the injury’.

This includes numerous considerations such as:

• the reasons for the discrepancy;
• any external implications that may arise in the future due to the discrepancy (such as the discovery of tax fraud or bankruptcy); and
• the likelihood of these implications eventuating had the accident not occurred.

If you have a query relating to any of the information in this case note, or would like to discuss a similar matter of your own, please don’t hesitate to get in touch with CTP Insurance Lawyer Raissa Galang today.