Henry Berenson v Tamsin Kelly; Tamsin Kelly v Henry Berenson [1998] ACTSC 149 (17 February 1998)

  
  
  
  

  
   

  

   IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

   MILES CJ, CRISPIN AND RYAN JJ

  

  

   ASSESSMENT OF DAMAGES - Medical practitioner reducing professional services
due to disabilities - reorganisation of practice to
achieve offsetting gains -
no actual reduction in income - whether damages for loss of earning capacity
available - whether damages
should have been awarded for loss sustained prior
to reorganisation - adequacy of buffer for future loss if arrangement with
another
medical practitioner terminated.

  

   ADEQUACY OF GENERAL DAMAGES - Continuing pain involving limitation of
professional work
and some social activities - plaintiff still pursuing
vigorous lifestyle - frustration at having to limit practice.

  

   EXPENDITURE
INCURRED BY THIRD PARTY - Whether value of ergonomic furniture
leased by a unit trust properly included as component of damages awarded
to
plaintiff.

  

   Batt v Wilkinson (1983) QdR 619 applied; referred; distinguished

   Griffith v Kerkemeyer [1977] HCA 45;  (1977) 139 CLR 161 referred

   Selby v The Commonwealth (1946) 47 SR (NSW) 150 distinguished

   Spargo v Haden Engineering Pty
Ltd (1993) 60 SASR 53 applied

  

  

   CANBERRA, 5 November 1997 (hearing), 17 February 1998 (decision)

   #DATE 17:02:1998

  

   Appearances

   Counsel for the Appellant/Cross Respondent: Mr G Stretton

   Instructing solicitors: Snedden Hall & Gallop

  

   Counsel for the Respondent/Cross Appellant: Mr L Morris QC with

   Ms C E Adamson

   Instructing solicitors: Abott Tout
Harper & Blain

  

  

  

   Order:

   1. The appeal and cross appeal be dismissed.

  

   2. Each party pay his or her own
costs of the appeal.

  

  

  

   1. THE COURT: This is an appeal by the plaintiff against the assessment of
damages made by the
Master in relation to personal injuries sustained in a
motor vehicle accident on the 14 January 1993.

  

   2. The plaintiff is
a medical practitioner with a long established general
practice at Macgregor in the Australian Capital Territory. Following the
accident
he suffered from pain in the neck, left shoulder and arm and these
symptoms were still continuing as at the date of the hearing on
April 1997.
There was a difference of medical opinion as to whether these symptoms were
attributable to an aggravation of underlying
degenerative changes to his back
and neck or whether they were due to thoracic outlet syndrome and damage to
his facet joints in
his neck. However the Master found that, whatever the
precise medical explanation, the appellant's continuing symptoms were
attributable
to the accident. He also found that they caused a degree of
ongoing discomfort and were particularly troublesome when he was forced
to
adopt difficult postures while performing various medical procedures during
the course of his general practice. The symptoms also
caused some disruption
to leisure activities such as gardening and on occasion caused embarrassment
because he sometimes dropped
or knocked over drinks. The Master found that the
injuries had had a genuine impact on his life style but noted that he
continued
to pursue a range of vigorous outdoor activities. He awarded damages
calculated as follows:

  
TABLE


   general damages $20,000.00
  
   interest on $10,000 being component $860.00
   of general damages for past loss
  
   future economic loss $24,000.00
  
 
 cost of obtaining ergonomic equipment $15,475.10
  
   allowance for purchase of a spa $4,000.00
  
   cost of fitting cruise control
to car $410.00
  
   out of pocket expenses $6,709.10
  
   future physiotherapy expenses $5,000.00
  
   TOTAL $76,454.20
  

 
 3. The award was attacked on a number of bases.

  

   4. First, it was said that the Master had erred in failing to make any
award
for past loss of earning capacity. The evidence established that the
practice had been operated by a company named H A Berenson Pty
Ltd (the
'practice company') and that the plaintiff was employed by that company. There
was also a unit trust with a corporate trustee
named R. H. S. Services Pty Ltd
which provided services to the practice company. The structure was described
by the plaintiff's accountant
as a means of splitting income "across family
members" for tax purposes.

  

   5. It was conceded that the plaintiff's income from
both the practice
company and the unit trust remained constant from the time of the accident to
the time of the hearing and that
the financial benefit to him in real terms
increased because of substantial increases in the amount of superannuation
contributions
made on his behalf. It was not disputed that as a result of his
continuing symptoms the plaintiff reduced his work load by seeing
fewer
patients. The medical services which he provided personally declined during
the first 15 months after the accident and then
stabilised at a level some 25%
below the pre-accident level.

  

   6. The plaintiff's accountant calculated that the reduction
in the
plaintiff's personal exertions was reflected in a net loss of income to the
practice company amounting to some $16,000 per
annum. However, the plaintiff
and his wife, who was the practice manager, made a number of changes to the
practice in order to offset
that reduction. In particular, they began to more
diligently pursue unpaid fees, to see and hence charge patients seeking repeat
prescriptions, and to decline seeing patients in relation to workers
compensation or third party insurance claims because there were
extensive
delays in payment for consultations of that kind. After some months they hired
another medical practitioner as a locum.
Subsequently, in May 1994, the
plaintiff entered into an arrangement with Dr Lowe for her to conduct an
independent practice from
the same surgery. The arrangement with Dr Lowe
involved her accounting to the practice company for 55% of her gross billings.
In
return she received the entitlement to the use of a spare room in the
premises, support staff who were apparently engaged by the
unit trust, and
other goods and services. A report provided by the plaintiff's accountant
revealed that the amount paid to the company
in respect of Dr Lowe's billing
within the last few weeks of 1993-94 was $13,256 and that the amount paid in
respect of the 1994-95
financial year was $90,609. The cost associated with
deriving this additional income was estimated to be "in the vicinity of
$15,000
- $20,000 only." In the light of this evidence the Master found that
the plaintiff had re-arranged his affairs as a consequence of
the accident in
a manner which had enabled him to fully mitigate his loss.

  

   7. Counsel for the appellant contended that at
the very least some
allowance should have been made for the period prior to the commencement of
the arrangement with Dr Lowe. Dr
Lowe was not engaged until May 1994 and the
evidence revealed that there were 563 fewer medical services provided during
the year
ended 30 June 1994 than were provided during the previous financial
year. Counsel for the appellant calculated the financial value
of these
services as $10,088.78. These calculations were not challenged. Of course, the
period between the accident and beginning
of the arrangement with Dr Lowe was
not co-extensive with the financial year, but the comparison provides some
basis for estimating
the loss of income during the period in question. Counsel
for the appellant contended that it would be reasonable to assume a loss
of
fees amounting to $10,000 during this period.

  

   8. In Batt v Wilkinson (1983) 2 QdR 619 at 622 it was held that an injured
plaintiff was entitled to recover the full cost of replacing his labour in a
partnership business. Derrington J, with whose reasons
Matthews and Kneipp JJ
agreed, held at 624 that the plaintiff had lost not only his earning capacity,
but the opportunity to put
that capacity to work for the benefit of himself
and his partner. Similarly, in Spargo v Haden Engineering Pty Ltd [1993] SASC 3793;  (1993) 60
SASR 39 at 53 it was held that a plaintiff might recover damages for loss of
earning capacity based on the total income
produced by his exertions in the
business, even though that income was distributed by means of a trust to
family members. In our
view the same principle is applicable in the present
case where the income lost would have been generated solely by the plaintiff's
exertion in the practice, even though it would have been received by a family
company. Of course, this loss was sustained not by
the plaintiff personally
but by the practice company. However the plaintiff is entitled to be
compensated for the loss of his earning
capacity. If he has chosen to arrange
his affairs so that the fruit of his labour is diverted to his company and
ultimately shared
among others that fact does not prevent recovery of the full
value of the loss of his earning capacity.

  

   9. Whatever the position
may have been after May 1994 the evidence does not
establish that the plaintiff was able to mitigate the loss of earning capacity
prior to that time. However, had additional fees amounting to $10,000 been
received, that sum would presumably have been taxable
either in the hands of
the plaintiff or the company. The plaintiff's income exceeded $62,400 per
annum in respect of each of the
financial years in question and if this sum
had been received by him it would have incurred tax at the highest marginal
rate. Similarly,
there is no evidence to suggest that the full rate of company
tax would not have been payable had the company retained the additional
income
rather than passing it on to the plaintfiff. In the circumstances it is
appropriate to reduce this amount to allow for the
incidence of taxation. We
would allow the sum of $6,000 in relation to this component of loss. Interest
should be allowed on that
sum in the amount of $1,500.

  

   10. It was also submitted that the Master should have awarded a further sum
of about $8,000
per annum up to the time of the hearing on the basis that
there was a continuing loss of earning capacity. This submission was based
substantially on the proposition that there was a chance that the plaintiff
might have entered into an arrangement with another doctor
such as Dr Lowe
even if he had not sustained the accident. In that event, the argument ran,
the additional income would not have
been related to his injuries and could
not have been regarded as mitigating the financial losses that otherwise
flowed from the reduction
in the medical services he was able to provide
personally. Hence, he should be compensated for the loss of that chance.
However,
the plaintiff gave evidence that he had always conducted his practice
as a sole practitioner and that he had no plans to do anything
but continue in
a sole practice. When asked,"Is that how you like to be?", he answered "That's
the way I function best." At the time
of the accident the plaintiff had
carried on the practice as a sole practitioner for some 18 years. In our view,
the Master was entitled
to act upon his evidence that he intended to continue
to maintain a sole practice and to conclude that there was no significant
chance
that, but for the accident, he would have departed from that intention.

  

   11. It was also argued that because the Master should
not have found that
the loss had been fully mitigated, the additional income received from Dr Lowe
had to be balanced not only against
the costs directly related to her
practice, but other factors such as the loss of the use of the room which she
occupied or rent
which might otherwise have been derived from it. However,
this argument assumes the plaintiff had demonstrated a loss of $16,000
per
annum and was entitled to recover damages for that loss unless the evidence
established that it had been wholly mitigated in
the manner described. We
appreciate that the Master adopted such an approach but are unable to accept
that it was warranted. The
onus lay upon the plaintiff to prove any loss which
he claimed to have sustained. His earning capacity was dependent upon income
directly received in the form of salaries from the practice company and the
unit trust, other benefits such as superannuation and
the provision of a car
owned by the practice and perhaps further benefits arising from his equity in
one or both of those entities.
It was for him to demonstrate within this
context, that he had sustained a compensable loss. It is true that damages are
awarded
for loss of earning capacity but that does not mean that a plaintiff
is entitled to damages merely because he is unable to work if
, in fact, he is
fully remunerated and the impairment of his earning capacity does not result
in any loss. See Griffith v Kerkemeyer
[1977] HCA 45;  (1977) 139 CLR 161 per Gibbs CJ (at
165); Batt v Wilkinson per Derrington J at 624. Similarly, if the plaintiff as
a professional
person has been able to re-organise his practice so as to
derive the same income as before, he cannot recover damages for loss of
earning capacity because the impairment of that capacity has not resulted in
any loss. In our view the appellant has failed to demonstrate
any entitlement
to damages for loss of earning capacity in the period from May 1994 to the
date of the trial and no question of mitigation
arises.

  

   12. Similar considerations arise in relation to future economic loss. The
plaintiff again failed to demonstrate that
there is any entitlement to damages
for loss of earning capacity during such periods as the relationship with Dr
Lowe or some comparable
arrangement might subsist. The Master adverted to the
chance that the arrangement with Dr Lowe might terminate and that it might
take some time to re-establish a similar arrangement. Accordingly, he allowed
the sum of $24,000 as a buffer. This sum was calculated
on the basis of a
reduction in earnings of $16,000 per annum which the practice company would
have sustained had it not been able
to mitigate the loss due to the reduction
in services performed by the plaintiff. The Master applied that figure for a
period of
one and a half years. In our view, this was an entirely adequate
buffer.

  

   13. So far as general damages are concerned we are
inclined to think that
the plaintiff's continuing symptoms, the disruption to his life style and the
frustration which he must have
experienced at being unable to maintain his
practice as he had done for the previous 18 years, did warrant a higher figure
than the
sum of $20,000 allowed. Subject to what follows that figure should be
increased to $30,000. The sum of $15,000 should be allocated
to the period up
to trial and the interest on that sum is $1,290.

  

   14. In our view a case for an adjustment has also been
made out on the
cross appeal. It is clear that the ergonomic equipment for which the Master
awarded the sum of $15,475.10 was not
purchased by the plaintiff but leased by
or on behalf of the unit trust. Counsel for the appellant/cross respondent
submitted that
the net purchase price of this equipment should be allowed on
an analogous basis to that in Batt v Wilkinson where the plaintiff
recovered
the full loss of earning capacity notwithstanding the fact that he had chosen
to divert the fruit of his labours to others.
However, this is not a claim for
the loss of his capacity to earn income and cases such as Batt v Wilkinson
have no application.
This is essentially a claim for reimbursement of
expenditure which the evidence does not show the plaintiff has incurred.

  

 
 15. In awarding damages for this claim the Master was guided by the
following passage from Luntz, Assessment of Damages for Personal
Injury and
Death , 3rd ed. para 5.5.6:

  

  

   "...the victim ought to be able to recover the loss which he or she has
sustained
in reduced distributions from the company, provided such reduction
can be shown to be due to incapacity caused by the injury. In
Selby v The
Commonwealth (1946) 47 SR (NSW) 150 (FC), 152 Jordan CJ appears to have
contemplated that the jury could have allowed
the plaintiff any loss caused to
him 'either directly, or indirectly through the medium of his company,' which
it was satisfied was
due to his temporary disablement."

   16. This passage does not accurately reflect the judgment of Jordan CJ in
Selby v The Commonwealth
. On the facts of that case his Honour thought that a
jury could have regarded the plaintiff's company as his alter ego and
concluded
that his 'salary' was in substance a drawing which he preferred to
take in the name of salary rather than as dividends. In that context,
it had
been open to the jury to fail to be satisfied that he had lost the amount of
salary claimed, part of which had been paid to
him under an insurance policy
and refunded to the company. The case did not deal with a situation in which a
company or trust incurs
expenditure in purchasing equipment on an injured
plaintiff's behalf.

  

   17. It was submitted by counsel for the appellant/cross
respondent that the
award could be defended by reference to the principle in Griffiths v
Kerkemeyer . We do not accept that this
principle extends to expenditure
incurred in this manner.

  

   18. Nonetheless, as the passage in Luntz suggests, a plaintiff
may be able
to recover any loss sustained due to reduced distributions from the company
occasioned by his incapacity. In the present
case, it was open to the
plaintiff to demonstrate that the lease of the equipment adversely affected
the performance of the unit
trust and that as a consequence he suffered loss.
However, he did not do so. There is no basis in the evidence for assumptions
that
the trust sustained losses as a result of leasing the equipment, that
such losses were equal to the net purchase price, that they
were not offset by
the benefit of having new equipment which was also used by Dr Lowe, and that
all such losses were passed on to
the plaintiff.

  

   19. The above findings made in relation to the appeal and cross appeal,
would involve a recalculation of damages
as follows:

  

   general damages: $30,000.00

  

   interest on $15,000 being component

   of general damages for past loss:
$1,290.00

  

   past economic loss $6,000.00

  

   interest on past economic loss: $1,500.00

  

   future economic loss: $24,000.00

  

   allowance for purchase of spa: $4,000.00

  

   cost of fitting cruise control to car: $410.00

  

   out of pocket expenses:
$6,709.10

  

   future physiotherapy expenses: $5,000.00

  

   TOTAL $78,909.10

  

   20. However, this amount differs only
slightly from the amount of
$76,454.20 awarded by the Master. The latter amount reflected the total amount
of various sums awarded
in relation to different components of the damages.
Some of those sums were not amenable to precise calculation but were arrived
at by making a general assessment in the exercise of a discretion. In all the
circumstances, we do not think it is possible to conclude
that the award of
damages, viewed globally, falls outside the range of fair and reasonable
compensation for the plaintiff's injuries.
Accordingly, the appropriate order
is that both the appeal and cross appeal be dismissed with each party to pay
his or her own costs
of the appeal.