Edith L Deutsch v Dorathea Loiterton [1986] ACTSC 62 (8 July 1986)

SUPREME COURT OF THE ACT

EDITH L. DEUTSCH v. DORATHEA LOITERTON
S.C. No. 230 of 1981
Personal Injuries

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Gallop J.(1)

CATCHWORDS

Personal Injuries - assessment of damages - income tax paid as part of workers' compensation entitlements - whether an appropriate head of damage where the Commonwealth was the plaintiff's employer.

Compensation (Australian Government Employees) Act 1971

Fox v. Wood (1981) 35 ALR 607

The Commonwealth v. Goodfellow (1980) 31 ALR 523

Goff & Jones, The Law of Restitution, 2nd Ed., Ch 14

HEARING

CANBERRA
8:7:1986

ORDER

There be judgment for the plaintiff in the sum of $99,905.37.

DECISION

This is an action for damages for personal injuries sustained by the plaintiff in a motor vehicle accident on 18 January 1979. Liability was admitted during the course of the hearing and thenceforth the trial was limited to the issue of damages.

2. The plaintiff was the driver of a motor vehicle which had come to a stationary position in Northbourne Avenue to allow her passenger to alight. The defendant drove her motor vehicle into the rear of the plaintiff's motor vehicle causing the plaintiff to be thrown backwards and forwards hitting her head on the steering wheel. She got out of her motor vehicle and immediately noticed that her legs were stiff, and her head was sore. She was shocked and could not speak properly. Her daughter picked her up and took her home to bed. She felt sick and had to vomit.

3. She attended the Casualty Department of the Royal Canberra Hospital on 22 January. She complained at the Hospital of pain and stiffness of the back low down, and neck pain with dizziness and headache. She was advised to have physiotherapy and was provided with a cervical collar and analgesics.

4. She consulted her general practitioner on 20 January 1979. He ordered physiotherapy and analgesics. By 26 January 1979 there was no improvement in her condition and he referred her to Dr Richard Vance, orthopaedic surgeon. She was first examined by Dr Vance on 20 February 1979. On examination her neck movements were restricted a little in all directions and she complained of tenderness over the right paracervical muscle. There were no signs in her arms. He stopped the physiotherapy and encouraged her to rest and use simple analgesics and wear her collar.

5. Dr Vance saw her again on 13 March 1979. By then he had received X-rays of her cervical spine which referred to degenerative changes but showed no evidence of bone or joint damage. He advised continuation of rest and analgesics and the use of the cervical collar. On 10 April 1979 she complained to Dr Vance that her pains were much the same and he noted that she had a loss of rotation movement to the left while other movements were good. On 11 June 1979 she was still having neck pain and headaches and Dr Vance again noted restriction of rotation movements to the left. He considered at that stage that a manipulation of her neck could be beneficial but she did not want to go ahead with that. Dr Vance diagnosed an aggravation of a pre-existing degenerative disc disease in the neck. She continued to complain of pains in the neck and headaches and in early October 1979 Dr Vance did a manipulation of her neck in hospital under general anaesthetic. On 16 October 1979 she said that her neck felt very much better although she was still having some headaches, her movements were considerably freer and were continuing to improve.

6. On 30 October 1979 Dr Vance noted that her neck was reasonably satisfactory. He confirmed his previous diagnosis. He saw her again at the request of the Commonwealth Medical Officer on 30 June 1980. After noting her complaints he found on examination that her neck moved freely and with a slight loss of rotation to the left. When he asked her to raise her arms she lifted them about shoulder level and said she was unable to go any further owing to pain in the neck and shoulder levels. He also noted depression, which he regarded as a major factor in her state of ill health.

7. Dr Vance re-examined her on 2 December 1985. He summarised her complaints and his examination to the effect that she continued to complain of neck symptoms and headaches and low back symptoms. He examined her again at the request of her solicitors on 3 February 1986. He then expressed the view that the plaintiff did not sustain any significant damage in two subsequent accidents in 1982 and 1985.

8. The plaintiff had a second manipulation on her neck in 1980 which made her "50% better". She could move her head more but still had neck pain. She rejected further treatment by way of a Cloward's operation because she was scared and felt that there was no guarantee that the operation would make her better. There is no other evidence of the plaintiff having any further treatment for her physical injuries.

9. After the accident, however, she also developed acute depression. Dr Vance noted the depression in 1980 and regarded it as a major factor in her state of ill health in July 1980. She consulted Dr M.R. Tennant, consultant psychiatrist, at the Woden Valley Hospital on 22 November 1982. Dr Tennant said in her report of 10 January 1983 that the plaintiff looked most unwell. She found that the plaintiff was anxious and depressed due to a number of causes i.e. the death of her husband after a long and distressing illness, followed by her mother's death 6 years ago, pain, headache and limited mobility since the 1979 accident and concern over the worsening of her diabetic condition and other medical problems. Dr Tennant expressed the view that at that time her problems were 50% due to the accident and 50% due to her other health problems.

10. Dr Tennant re-examined the plaintiff on 27 February 1986. In the meantime she had seen the plaintiff on a number of occasions. Depression had been a significant factor in Dr Tennant's opinion, varying in intensity and degree of incapacity but consistently present. Dr Tennant said that the plaintiff became more acutely depressed in December 1985, which was a reaction to these proceedings not being finalised as the plaintiff expected. Dr Tennant expressed the view that these proceedings should be terminated as a matter of some urgency as the plaintiff's mental health was obviously suffering and could be expected to deteriorate further with the prolonging of the present situation.

11. The plaintiff was examined by Dr Robert C. McDonald, consultant psychiatrist, at the request of her solicitor on 17 March 1981. She presented as a rather nervous, somewhat depressed woman. Dr McDonald expressed the opinion that the accident did not initiate any of the basic pathology. He noted that prior to the accident she had, in addition to a degenerative disease of the spine, anxiety and depression which had, under stress, shown physical symptoms and mild diabetes. He said that the accident had aggravated her spinal condition and this aggravation and its consequences had aggravated her anxiety and depression.

12. After a few months the plaintiff returned to work but then had more time off. Eventually she was not able to do the work properly and had to give it up. She was retired from the Australian Public Service on the grounds of invalidity with effect from 17 July 1980, following an examination by the Commonwealth Medical Officer. There were really three conditions which gave rise to her retirement. The estimated percentage of contribution to incapacity in relation to each condition was: diabetes 20%, anxiety neurosis 50%, cervical spondylosis 30%.

13. It is difficult to determine the impact of the subject accident upon the general health of the plaintiff because she was not a completely fit person prior to the accident and she had a number of complicating health conditions subsequent to the accident. It is appropriate to make some findings about her condition prior to the accident.

14. The plaintiff was born in Germany on 8 September 1935 (now 50 years of age). She was married in October 1957 and there were two children of the marriage who are now adults. She came to Australia in 1961 and that marriage broke down in 1962. She was later divorced. She commenced work as a shop assistant in 1967 and remarried. Her second husband died in 1976 following a long and, for the plaintiff, distressing illness. In 1973 the plaintiff had obtained employment as a Clerical Assistant in the Taxation Office because it was a better and easier job than working as a shop assistant. She claimed that prior to her husband's illness and subsequent death they had led a very active life going swimming, dancing and attending clubs in Canberra. Following his death the plaintiff did some overseas travel and claimed that by 1977 or 1978 she was over his death and feeling all right again.

15. She claimed also that prior to the subject accident her general health was good. The fact is, however, that three years prior to the subject accident she had been diagnosed as suffering from diabetes. The condition was controlled by diet and medication. It became worse after the accident. She now takes insulin twice a day by injection. In November 1979 just a few months after the accident she developed gall bladder trouble. She had a gall bladder operation in February 1980 from which she made a good recovery. Also in 1982 she had an operation for the removal of cataracts and was in hospital for eight days.

16. On 26 February 1982 she was involved in another motor vehicle accident in Goulburn. She suffered injuries to her right foot, chest and nose. She was kept in hospital overnight. A report from the Goulburn Base Hospital states that she complained of a painful left chest, sore neck and painful nose and on examination there was slight tenderness over the cervical spine. A full range of movement was present and no abnormal neurological signs were detected. She returned for treatment to her right ankle and knee the next day.

17. She was also involved in yet another motor vehicle accident on 19 April 1985 and was treated at Calvary Hospital suffering from severe pain in the left knee. She was given analgesics and anti-inflammatory drugs and put on a course of physiotherapy and ultrasound treatment. Her progress was very sluggish and she complained of persistent pain and tenderness along the inner side of the left knee and leg.

18. Her present complaints are that she has pain in her neck, she cannot look down or up properly, she gets headaches and then depression. She claims that she cannot do her housework, and that she has headaches nearly every day, for which she takes tablets. She said in evidence she is never free of neck pain, especially at night, which interferes with her sleep and the neck pain is worst in the morning. She says that her right arm is no good. She said that she cannot do any work now, not even part-time work. Three years ago she started doing some part-time community work driving old people around two days per week. Her son looks after the lawn at home. She still wears the cervical collar when the pain in her neck becomes too great. She said that she wears it several times a week but not at night.

19. I find on the evidence that the plaintiff is partially incapacitated for work at present, but I am not satisfied that she is unlikely to work again. Nor am I satisfied, on the balance of probabilities, that the plaintiff is as incapacitated as she claims. The defendant produced in evidence a video film of the plaintiff at her home. The film shows the plaintiff over a number of days, namely 2 May and 29 June 1984, 14 January, 25 March and 27 March 1985. They portray the plaintiff bending freely at the waist, weeding with her left hand, walking, hanging out washing on a rotary clothes line with her arms above her head and without any apparent restriction in movements, driving her motor vehicle forwards and in reverse and getting in and out of the motor vehicle, opening and closing some iron gates at the side of the house, half running up an incline of the driveway described as "reasonably steep", and moving about apparently without restriction.

20. Nor am I satisfied of the causal relationship between the accident and her present disabilities. There is some evidence from Dr Cairns, who last examined the plaintiff recently and reported on 14 April 1986 that the plaintiff's ongoing disability in respect of her cervical and lumbar areas as a result of the 1979 accident is minimal to moderate, consistent with degenerative disc disease in these areas and subjected to significant psychogenic magnification. In Dr Cairns' opinion there was no aggravation of these injuries in the accidents of September 1982 and April 1985.

21. I accept Dr Cairns' opinion that the plaintiff's cervical and lumbar conditions, although static, permanent and unlikely to change with the future passage of time, are not sufficient to preclude gainful employment nor the execution of her household activities. I accept his opinion that the major reason why the plaintiff remains unfit for employment is related to psychogenic magnification of her symptoms, the end result of which renders her unfit for employment simply on the grounds that no matter what anybody says to her she believes that she is not fit to work.

22. The plaintiff was examined by Dr E.J. Cassar, consultant physician, on behalf of the defendant on 10 April 1986. I accept his opinion that the plaintiff has a 10% loss of function of the cervical spine with headaches and discomfort on lying in bed, doing needlework, or prolonged and continuous desk work. He does not accept incapacity in relation to domestic, recreational or occupational lifestyles on the basis of injuries sustained in the 1979 accident. I accept that opinion. He also expressed the view that any disability as a result of the 1979 accident ceased prior to 1981 and other medical and additional injuries contributed to her ill health thereafter. Dr Cassar based his opinions upon the number of times she sought medical treatment from her general practitioner for symptoms relating to the cervical spine, his own findings on examination of the plaintiff, and the other undoubted medical conditions from which the plaintiff is suffering and has suffered. Her most serious and disabling condition is her diabetes which has been in existence for 10 years and, according to Dr Cassar, is only just coming under control now.

23. I have also derived benefit in the assessment of the degree of the plaintiff's incapacity from the evidence of Dr J.R. Corry, rehabilitation consultant, and his report to the defendant's solicitors dated 7 May 1986. He examined the plaintiff on behalf of the defendant on 2 May 1986. He expressed the opinion that her persisting symptoms are such as to limit her from doing heavier activities or activities requiring elevation of the arms. There is no evidence, however, that Dr Corry ever viewed the video film which was in evidence. The film clearly portrays the plaintiff hanging out the washing and getting it in again with her arms above her head. It may be true to say that the effect of that activity in terms of pain is not known, but the film clearly demonstrates that she can engage in that sort of activity.

24. I accept Dr Corry's view that from a physical point of view alone the plaintiff could probably cope with some form of clerical duties, certainly on a part-time basis. In my judgment she lacks the motivation.

25. I have also had the benefit of a number of reports by Dr Colin J. Andrews, consultant neurologist, who has examined the plaintiff from time to time on behalf of the defendant. I have taken those reports into account. I note that she told Dr Andrews at her most recent review by him on 30 April 1986 that she was looking for part-time work. He said in his latest report that she is capable of returning to part-time clerical work.

26. For pain and suffering, inconvenience, and loss of enjoyment of life due to the defendant's negligence, I provisionally assess the sum of $20,000.

27. The plaintiff tendered in evidence a report by a firm of actuaries. Set out therein are some calculations of past and future earnings loss based upon certain assumptions. The defendant did not dispute the accuracy of the calculations made, provided the assumptions of fact were otherwise proved in evidence. The salary levels at various stages of the plaintiff's public service career were agreed, otherwise the facts upon which the actuaries made their calculations were proved in evidence.

28. The actuaries calculation for past earnings loss is $64,477. Counsel for the plaintiff conceded that a proportion of the period of incapacity from the date of accident to the date of trail could not be attributed to the subject accident and suggested a period of 12 months or thereabouts. In my view this is far too generous on the whole of the evidence, particularly having regard to the apportionment of contributions to incapacity calculated by the Commonwealth Medical Officer at the date of the plaintiff's retirement. It is not possible to fix even an approximate date or period of time applicable to the plaintiff's incapacity because of the complicating factors referred to. Taking into account the vicissitudes of life between the date of accident and the date of trial, and the other illnesses and medical conditions which have contributed to the plaintiff's overall state of health during that period, I provisionally assess the sum of $30,000.

29. With regard to the future, the plaintiff said in evidence that she proposed to stay in the Public Service until age 65 years. At the time of the accident she was a Clerical Assistant Grade 1, acting Grade 2. I accept the evidence of Mr Lyristakis, who was her supervisor in the Taxation Office, that the office has grown in staff considerably since the accident and because of that factor the plaintiff had very good prospects of advancement to a Grade 4 position, provided she proved herself, by the year 1985. On that basis the actuaries have calculated her future loss of earnings on the basis of retirement at age 60 at $111,796, and at age 65 at $157,999.

30. Doing the best I can with the evidence before me, I think it is extremely improbable that the plaintiff would have worked until even age 60. She has had so many medical problems since the accident and still suffers from diabetes and some sort of heart condition, she would in my judgment probably have been retired well before the age of 60 years. I have also to take account of the fact that she has not lost all her earning capacity as a result of the accident. Using the actuaries figures as a guide and assuming retirement at about 54 years, I provisionally assess the sum of $40,000 for future loss of earning capacity.

31. Medical expenses paid on the plaintiff's behalf by the Commonwealth, and which the plaintiff will be liable to repay out of the damages, are agreed at $1,928.37. I allow that sum. I also allow the amount of the medical fees paid to Dr R. McDonald in the sum of $65.

32. There is also a claim for housekeeping expenses. I am in no doubt that for some time the plaintiff was so incapacitated as a result of the injuries sustained in the accident that she could not manage her housework and that until 1981 she was paying her daughter $10-20 per week for household assistance. The daughter was living with the plaintiff during that period and left in 1981 to be married. Since then the daughter has continued to perform some housekeeping services and the plaintiff has engaged other housekeeping help. The total amount claimed between the date of accident and the date of trial is in the order of $5,700. I allow $2,000 which is approximately $20 per week for 2 years in respect of the daughter and another $1,000 for housekeeping expenses paid to other people. The total allowed for housekeeping is $3,000.

33. With regard to the future I am not persuaded that the plaintiff has to engage housekeeping help because of injuries sustained in the accident and I make no provision in that respect.

34. The plaintiff also claims an amount of $7859 which is the amount which was deducted from compensation payments paid to her pursuant to the Compensation (Australian Government Employees) Act 1971. The total of those payments up to 4 July 1986 was $47,890.57. By letter dated 4 July 1986 the Assistant Commissioner of the Australian Taxation Office has informed the Australian Government Solicitor that the amount to be paid to the Australian Taxation Office is that figure i.e. $47,890.57 and that the tax component is as stated above i.e. $7859.

35. The plaintiff claims the amount as an expense which she will incur as a result of the defendant's negligence pursuant to the decision of the High Court in Fox v. Wood (1981) 35 ALR 607.

36. The defendant resists the payment of that amount or any proportion of it on the grounds that, even though the Australian Taxation Office has indicated that that is the amount it will seek by way of repayment, such a claim is unconscionable and should be resisted by the plaintiff for the following reasons. At all material times the plaintiff was employed by the Commonwealth and income tax was deducted under the PAYE provisions of the Income Tax Assessment Act 1936. Hence the Commonwealth has been paid by way of those deductions the full amount of $7859. The plaintiff cannot be obliged to pay to the Commonwealth the amount of those deductions out of any award of damages which she receives. For the Commonwealth to claim that amount again would amount to a windfall to the Commonwealth of $7859.

37. I am satisfied on the evidence that the gross amount of compensation paid to the plaintiff pursuant to the Compensation (Australian Government Employees) Act 1971 is $47,890.57 and that the tax component in that amount is $7859. I am also satisfied that the amount which the Commonwealth will seek to recover from the plaintiff out of the damages award is the full amount of $47,890.57 subject only to the amount of the damages for past economic loss being equal to or in excess of that amount.

38. It is necessary to examine the principles laid down by the High Court in Fox v. Wood. In that case the worker had sustained personal injury as a result of the negligence of the appellant. The worker received workers' compensation from her employer (not the appellant) in respect of the injury. Under the Workers' Compensation Act 1971 (SA) where an injury creates a legal liability in some person other than the employer, a worker who receives any money from that person in respect of the injury and who receives compensation under the Act is obliged to repay to the employer such amount of the compensation as does not exceed the amount recovered from the third party without any deductions for the tax which the compensation attracted. The worker had received only the amount net of tax of the workers' compensation. She was thus out of pocket by a sum representing the tax deducted from the payment of the compensation. The High Court took the view that the worker was entitled to recover the lost taxation component from the person who caused her injury.

39. It is important to observe the principle upon which the court so decided. Gibbs CJ reached that conclusion because the receipt and payment of compensation increased the worker's loss. The increased loss was caused by the other person's negligence and was not too remote to be taken into account. Accordingly, he held that the worker should be compensated for the additional loss, because if it was not taken into account the damages would provide inadequate compensation for the consequences of her injury. It is also important to observe that under the terms of the South Australian legislation then under consideration, the worker was liable to repay to the employer the whole of the compensation received notwithstanding that she had had to pay tax on it. She had to repay the gross amount received without any deduction for tax which it attracted. The other members of the court reached the same conclusion as the Chief Justice.

40. The Compensation (Australian Government Employees) Act 1971 is not in such precise terms as the South Australian legislation under consideration in Fox v. Wood. The relevant provision is s.99 of the Compensation (Australian Government Employees) Act 1971 which reads:

"99.(1) If -

(a) an employee recovers damages from the Commonwealth
or from any other person in respect of an injury
to the employee or in respect of the loss of, or
damage to, property used by the employee; or
(b) damages are recovered by, or for the benefit of, a
dependant of a deceased employee from the
Commonwealth or from any other person in respect
of the death of the employee,

the succeeding provisions of this section have effect.

(2) Subject to this section, the compensation
that is payable under this Act to the employee in
respect of the injury, loss or damage or for the
benefit of the dependant in respect of the injury that
resulted in the death, as the case may be, is so much
(if any) of the compensation under this Act that, but
for this section, would be so payable as exceeds the
amount of the damages recovered by the employee or by
or for the benefit of the dependant, as the case may
be.
(3) Subject to this section, if, before the
recovery of the damages by or for the benefit of the
employee or dependant, any compensation under this Act
was paid to the employee in respect of the injury, loss
or damage or for the benefit of the dependant in
respect of the injury that resulted in the death, as
the case may be, the employee or dependant is liable to
pay to the Commonwealth the amount of the compensation
so paid to him or for his benefit or, if the amount of
the damages recovered by him or for his benefit is less
than the amount of that compensation, the amount of
those damages.
(4) . . .
(5) . . .
(6) . . .
(7) If, before the recovery of the damages by or
for the benefit of the employee or dependant, an amount
of compensation under this Act was paid to the employee
in respect of the injury, loss or damage or for the
benefit of the dependant in respect of the injury, loss
or damage or for the benefit of the dependant in
respect of the injury that resulted in the death, as
the case may be, the employee or dependant is liable to
pay to the Commonwealth so much of that amount as would
not, by reason of the last two preceding sub-sections,
have been paid if that amount had become payable
immediately after the damages were recovered.
(8) . . .
(9) . . .
(10) . . ."

41. The question arises whether the income tax component of the compensation received by the plaintiff was compensation "paid to the employee in respect of the injury" within the meaning of s.99(3) set out above.

42. I have derived considerable assistance from the judgment of Northrop J. in The Commonwealth v. Goodfellow (1980) 31 ALR 523 which was an appeal to the Federal Court from a decision of the Commonwealth Employees' Compensation Tribunal. The Act referred to in the questions is the Compensation (Australian Government Employees) Act 1971. Two of the questions which Northrop J. was asked to resolve were as follows:

(1) Does the amount of compensation paid to the
respondent that the respondent is liable to repay
to the appellant pursuant to s.99(7) of the Act
include the amount deducted by the appellant
pursuant to Division 2 of Part VI of the Income
Tax Assessment Act 1936.
(2) Does the amount of compensation paid to the
respondent that the respondent is liable to repay
to the Commonwealth pursuant to s.99(7) of the Act
equal the amount payable to the respondent under
s.45 of the Act.

43. Because there is no apportionment of liability in this matter s.99(7) is not applicable. The relevant provision is s.99(3). His Honour held that in calculating the amount of s.45 compensation paid to the respondent within the meaning of s.99(7) of the Compensation Act, it is necessary to add the amounts actually paid to the Commissioner of Taxation for the credit of the respondent. After referring to the terms of the Income Tax Assessment Act 1936 relating to PAYE deductions, his Honour referred to the general principles that a person who has under compulsion of law made a payment whereby he has discharged the primary liability of the other is entitled to be re-imbursed by that other (Goff & Jones, The Law of Restitution, 2nd Ed., Ch.14). His Honour held that in making the deduction and paying the amounts so deducted to the Commissioner of Taxation, the Commonwealth discharged its liability to pay s.45 compensation to the respondent and said that clearly that liability was thereby discharged and the compensation was "paid" to the respondent. Accordingly, his Honour answered both questions in the affirmative.

44. Applying that reasoning to the present matter, I hold that the amounts paid by the defendant to the Commonwealth by way of PAYE deductions of income tax are amounts "paid to the employee in respect of the injury" within the meaning of s.99(3) of the Compensation Act. It is that amount of compensation which the employee is required to repay to the Commonwealth. Section 99(3) describes the amount as "the amount of the compensation so paid to him".

45. I agree with the submission made on behalf of the defendant that it is unconscionable that the Commonwealth should be able to recover from a successful plaintiff the income tax component in the plaintiff's compensation entitlements when that component was deducted by the Commonwealth under the PAYE provisions. The Commonwealth derives a windfall simply because the compensated employee has obtained an award of damages from another person. However, that is the only appropriate construction to be given to s.99(3) of the Compensation (Australian Government Employees) Act 1971.

46. I therefore propose to add to the award of damages for the plaintiff a pro rata taxation component pursuant to the principles laid down by the High Court in Fox v. Wood. For the purposes of calculation I have rounded the gross sum of compensation off to $48,000 and calculated the taxation component as being that proportion of $7,859 which $30,000 (the amount provisionally assessed for past economic loss) bears to $48,000. The resulting sum is $4,912.

47. My provisional assessments therefore are:

General damages $20,000.00
Past loss of earnings 30,000.00
Future loss of earnings 40,000.00
Agreed medical expenses 1,928.37
Medical fees paid to Dr R. McDonald 65.00
Housekeeping expenses 3,000.00
Fox v. Wood component 4,912.00
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Total $99,905.37
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48. There will be judgment for the plaintiff in the sum of $99,905.37.

49. I shall hear counsel on the question of costs.