Graham v Baker [1961] HCA 48; (1961) 106 CLR 340 (11 August 1961)

HIGH COURT OF AUSTRALIA

GRAHAM v. BAKER [1961] HCA 48; (1961) 106 CLR 340

Damages

High Court of Australia
Dixon C.J.(1), Fullagar, Kitto(1) and Taylor(1) and Menzies JJ.
(THE HONOURABLE MR. JUSTICE FULLAGAR died at Melbourne prior to the delivery of judgment in this appeal.
THE HONOURABLE MR. JUSTICE MENZIES did not deliver a judgment in this appeal.)

CATCHWORDS

Damages - Personal injury - Matters to be considered in reduction of damages - Pension payable on compulsory retirement - Sick leave payments.

HEARING

Sydney, 1961, May 5; August 11. 11:8:1961
APPEAL from the Supreme Court of New South Wales.

DECISION

August 11.
The following written judgment was delivered:-
DIXON C.J., KITTO AND TAYLOR JJ. On 21st May 1956 the respondent, a station sustained personal injuries as the result of the appellant's negligence. He was fifty-five years of age at the time and in the ordinary course of events would have been due for retirement on 7th November 1960. But following his injuries, he was compulsorily retired on 18th October 1957 whereupon he became entitled to a pension at the rate of 34 pounds 3s. 10d. per fortnight. This pension accrued to him as the result of his participation in a contributing superannuation scheme established pursuant to the Superannuation Act, 1916-1957 (N.S.W.). At the trial it appeared that the amount which would accrue to him and which he would receive from this source in the period from 18th October 1957 to 7th November 1960 would be approximately 2,700 pounds. Before his premature retirement on the former date he had, in respect of 178 days immediately succeeding the accident, received from his employer what have been referred to as "sick leave payments" but his entitlement to "sick leave" was exhausted some time before his actual retirement. (at p342)

2. Questions concerning these two items now come before us on an appeal from an order of the Full Court of the Supreme Court of New South Wales which dismissed the present appellant's motion to that Court for the new trial of an action in which the respondent had sought to recover damages. At the conclusion of the trial the jury returned a verdict for the respondent for 12,000 pounds and the ground upon which the motion to the Full Court was made was that the damages awarded were excessive and that the learned trial judge had erroneously excluded evidence relating to the items in question. Upon this appeal, however, no general ground is taken that the verdict was excessive, the appellant contenting himself with the submission that the trial judge wrongfully excluded evidence relating to these items. (at p342)

3. It was proved at the trial, which took place in October 1959, that the injuries which the respondent received had seriously impaired his earning capacity and a document was tendered on his behalf for the purpose of establishing that if he had not been injured and his employment by the Board had continued, he would have received by way of wages or salary up to the date of his retirement in the ordinary course a specified sum. Allowing for the incidence of income tax this figure was said to be 5,720 pounds and some odd shillings. This figure was mentioned by the learned trial judge in the course of his summing-up but he pointed out that there should be set off against it an amount representing the earnings and estimated future earnings of the respondent in another occupation which he had managed to obtain after his retirement and before the trial. The resultant figure, it was pointed out to the jury, was not absolute and a proper direction was given as to how the jury should use it in estimating damages. But the appellant contended, and still contends, that in relation to this head of damage there should also be taken into account in his favour both the amount of the so-called "sick pay" which the respondent received before his premature retirement and also the amount which, after that event and prior to 7th November 1960, he would become entitled to receive by way of pension. (at p343)

4. We agree with both the learned trial judge and with the members of the Full Court that no account should be taken of the pension payments which accrued to and were paid to the respondent prior to the last-mentioned date. Indeed, this conclusion follows, if not expressly, then by implication from the decisions of this Court in The National Insurance Co. of New Zealand Ltd. v. Espagne [1961] HCA 15; (1961) 105 CLR 569 and Paff v. Speed [1961] HCA 14; (1961) 105 CLR 549 . Quite clearly, in the language of Dixon C.J. in the former case, the pension rights of the respondent had the "additional" and "distinguishing characteristic namely that they are conferred on him not only independently of the existence in him of a right of redress against others but so that they may be enjoyed by him although he may enforce that right: they are the product of a disposition in his favour intended for his enjoyment and not provided in relief of any liability in others fully to compensate him" (1961) 105 CLR, at p 573 . This and other observations in the cases referred to are sufficient, in our opinion, to conclude this question in favour of the respondent. (at p343)

5. But it is difficult, as was contended, to place the respondent's "sick pay" in the same category although there have been some judicial pronouncements which, if accepted, would produce this effect. The latest pronouncement, however, is that of Windeyer J. in Paff v. Speed (1961) 105 CLR, at p 566 and it is to the contrary. It is to the effect that a plaintiff who has been injured, but whose employment has not been terminated, cannot recover as lost wages what he was entitled to have from his employer by way of wages whether it be called "sick pay" or not. This observation gives a clear indication that the character of the respondent's so-called "sick pay" is of such importance in relation to the point under discussion that it is convenient to leave consideration of the somewhat vexed judicial pronouncements until its precise character has been defined and identified. (at p344)

6. There was evidence in the case which showed that the terms of the respondent's employment with the Board were, to some extent at least, governed by an industrial agreement which provided that employees of the Board should be entitled to three weeks' sick leave "on full pay in any one year accumulative to a maximum of twenty-four weeks". The agreement was to date from 9th September 1955 but a credit was to be established for those members with service prior to that date "on the basis of three weeks' sick leave for each completed year of service during the previous ten years ... less the amount of sick leave actually taken and paid for by the Board as sick leave". There was a prescribed maximum entitlement, sick leave beyond the scale provided was "to be without pay", and it was "to cover absence caused by ordinary illness and incapacity as the result of injuries sustained whilst off duty" subject to certain immaterial exceptions. (at p344)

7. Examination of the reasons both of the learned trial judge and of the Full Court shows that the conclusion that the evidence concerning the "sick pay" which the respondent had received was irrelevant to the assessment of damages was reached by two steps. First of all, it was said, the amounts received constituted "sick pay" and not wages or salary. As the learned trial judge said: "it cannot truly be said that sick leave payments are the receipt of wages such as the plaintiff would have received but for the accident, for the wages are moneys arising contractually out of periods of service week by week, which service the plaintiff is able to perform in his uninjured state whereas sick leave payments are moneys in reality earned by virtue of a contract of service or the appointment to an office coupled with services performed over the period prior to the accident. In this sense they are remuneration extra to wages and in so far as they relate to services performed the services are services prior to the incapacity". According to the Full Court the payments could not be said to constitute wages for precisely the same reasons. Involved in these brief observations is the notion that the performance of the services called for by a contract of employment is a condition precedent to a right to wages arising and that since the respondent did not, and was not required to, work during the relevant period the remuneration which he received could not be characterized as wages. Then, having so decided, both the learned trial judge and the Full Court were at some pains to show that the amount received could not be set off against the proved loss of wages before trial. (at p344)

8. On the assumption that their Honours were right in treating the respondent's "sick pay" as an independent benefit which the respondent had secured to himself by past services and not otherwise there might be something to be said for the final conclusion which they reached. But, in our view, the first step which they took was erroneous. It may be true, to some extent at least, that the amount of "sick pay", or to be more precise "sick leave", to which an employee of the Board will become entitled will depend to some extent upon the length of his service. But it is quite wrong to say without qualification that if he is permitted to be absent on leave, or on sick leave, on "full pay", and so relieved of the obligation to perform his duties, the pay which he receives cannot, therefore, be regarded as wages or salary. Generally, no doubt, the performance of services is a condition precedent to the right to wages and it is for this reason that it is said, as no doubt their Honours were aware, that a servant who has been wrongfully dismissed cannot wait till the determination of the period for which he was hired and then sue for the whole of his wages. But this, as Jordan C.J. pointed out in Watson v. Automatic Fire Sprinklers Pty. Ltd. (1946) 46 SR (NSW) 336; 63 WN 107 , is not universally true. It is, as he says, "correct only in cases in which, by the contract of employment, the actual doing of work is made a condition precedent to the right of wages" (1946) 46 SR (NSW), at p 342; 63 WN, at p 110 . See also per Latham C.J. and Dixon J. (as he then was) in Automatic Fire Sprinklers Pty. Ltd. v. Watson (1946) 72 CLR, at pp 452, 465 where the same view is expressed in less general terms. The circumstances of that case were, however, exceptional and for present purposes the decision is not of importance except to illustrate that wages, in every sense of the word, may become payable according to the terms of a contract of employment even though the employee is not called upon to, and does not, in fact, render service. Perhaps, it should also be said that in the present case we are not so much concerned with the fact that an arrangement of such a character may sometimes be found as one of the incidents of a contract of service; we are concerned with a contract pursuant to which, generally speaking, the employee was bound to work for his wages. But the contract contemplates the possibility that circumstances of a defined character may arise and prevent the employee from performing his duties. In those circumstances he is to be entitled to absent himself on sick leave and, subject to specified limits, to receive "full pay" whilst on leave. In our view the respondent's contract says no more and no less than that, if he becomes unable by reason of sickness or other specified causes to perform his ordinary duties, nevertheless his right to "full pay" or, in other words, his ordinary wages, shall continue to be payable, subject to the limits specified, during the period of his absence. If, therefore, the claim be made, as it was, that the respondent lost the whole of his wages between the date of the accident and the date of trial then the appellant was entitled to answer it by showing that for a period of 178 days he received his full wages. (at p346)

9. The conclusion that the respondent's so-called "sick pay" constituted wages in every sense of the word is completely in accord with a long line of authority concerning the right of an employee to receive his ordinary wages in respect of a period during which he is unable, by reason of sickness or accident, to perform his duties. We refer particularly to Cuckson v. Stones [1859] EngR 924; (1859) 1 E & E 248 (120 ER 902) ; Warren v. Whittingham (1902) 18 TLR 508 ; R. v. Islip (Inhabitants) (1721) 1 Stra 423 (93 ER 611) ; Niblett v. The Midland Railway Co. (1907) 23 TLR 240 ; Petrie v. Mac Fisheries Ltd. (1940) 1 KB 258 ; O'Grady v. M. Saper Ltd. (1940) 2 KB 469 and Orman v. Saville Sportswear Ltd. (1960) 1 WLR 1055 . This line of authority, in spite of some differences of expression on matters with which we need not concern ourselves, clearly shows that where, by virtue of an implied term of the contract of employment, "wages" are payable to an employee who, by reason of illness, is absent from work, the amounts which he receives during the period of his absence are his ordinary wages and not something additional thereto or of any different character. The position is, of course, precisely the same where, as here, the matter is not left to implication and the contract of employment provides expressly for "sick leave on full pay". (at p346)

10. So far the matter has been discussed as if the right of a plaintiff whose earning capacity has been diminished by the defendant's negligence is concerned with two separate matters, i.e. loss of wages up to the time of trial and an estimated future loss because of his diminished earning capacity. It is, we think, necessary to point out that this is not so. A plaintiff's right of action is complete at the time when his injuries are sustained and if it were possible in the ordinary course of things to obtain an assessment of his damages immediately it would be necessary to make an assessment of the probable economic loss which would result from his injuries. But for at least two obvious reasons it has been found convenient to assess an injured plaintiff's loss by reference to the actual loss of wages which occurs up to the time of trial and which can be more or less precisely ascertained and then, having regard to the plaintiff's proved condition at the time of trial, to attempt some assessment of his future loss. We mention this matter because it has been suggested that since an injured plaintiff is entitled to recover damages for the impairment of his earning capacity, the fact that a totally incapacitated plaintiff has, during the period of his incapacity, received his ordinary wages is not a matter to be taken into consideration. To be more precise, however, an injured plaintiff recovers not merely because his earning capacity has been diminished but because the diminution of his earning capacity is or may be productive of financial loss. And if, notwithstanding such impairment, both his contract of employment and his right to ordinary wages continue, how can it be said that his impairment has resulted in any loss so far as his earning capacity is concerned? According to Windeyer J. in Paff v. Speed (1961) 105 CLR, at p 566 the answer to this question is clear and the same view has been taken on other occasions. In McInnes v. Crowe (1925) 27 WALR 102 McMillan C.J. treated "sick pay" received by the plaintiff in the circumstances of that case as ordinary wages and, after referring to the principle enunciated in Bradburn v. Great Western Railway Co. [1854] EngR 538; (1874) LR 10 Ex 1 , he said: "That principle has no application to the facts of the present case where the plaintiff has not lost the right to her salary, but has merely been relieved of the obligation to work for it" (1925) 27 WALR, at p 103 . And in Receiver for the Metropolitan Police District v. Croydon Corporation (1957) 2 QB 154 Lord Goddard C.J. said: "The obligation of the defendants here was to compensate the injured men, and to pay them the damage which they had sustained. If a man's employer has agreed to pay him wages, whether he is well or whether he is ill, it seems to me that that affords a benefit in one sense to a defendant, because he does not have to pay the damage which he would have had to pay if that agreement had not been made. That simply means that he does not have to compensate the plaintiff for an injury which he has not suffered. The obligation is, in the words of Earl Jowitt, simply to pay 'such damages as, by reason of his (the defendant's wrongdoing, the plaintiff has sustained'. Having paid that, his obligation seems to me to be at an end" (1957) 2 QB, at pp 163, 164 . The same view was taken by Urquhart J. in Cossitt v. C.P.R. (1948) 4 DLR 461 where, notwithstanding the existing "custom", he rejected the contention that a plaintiff whilst on sick leave with pay could be said to have suffered a loss of earnings or wages during the relevant period. Notwithstanding the earlier "custom" his decision seemed to his Honour to be in accord with the earlier unreported case of McFarland v. Heeney which had been the subject of a decision upon appeal. Again, the same view seemed to be implicit in much of the relevant reasoning in Treloar v. Wickham [1961] HCA 11; (1961) 105 CLR 102 . (at p348)

11. The contrary view, however, was taken by Wolff J. (as he then was) in Guthrie v. Baker and Short (1953) 55 WALR 67 when he refused to take into account in diminution of the plaintiff's damages sick leave payments to which the plaintiff had become entitled pursuant to the Commonwealth Public Service Act. The plaintiff's "sick leave benefits" were, his Honour thought, "part of the return he receives in addition to his salary for the services he performs" (1953) 55 WALR, at p 68 . The italics are ours and serve to indicate the clear point of divergence between this decision and that of the Full Court of the Supreme Court of Western Australia in McInnes v. Crowe (1925) 27 WALR 102 . The two decisions, it seems to us, are diametrically opposed and it is difficult to understand the concluding observation of Wolff J. in the later case that his reasoning was "in accord with that applied by the Full Court in McInnes v. Crowe (1925) 27 WALR 102, and in accordance with the decision of the Supreme Court of Queensland in Cusack v. Heath (1950) QWN 16" (1953) 55 WALR, at p 68 The last-mentioned case it should, perhaps, be said, was of an entirely different character and throws no light on the present problem. The decision of Wolff J. was followed in South Australia in (Francis v. Brackstone (1955) SASR 270 ) and in the course of an elaborate judgment Ross J., after referring to the view, as expressed by Wolff J., that "sick leave payments are part of the return he (the employee) receives in addition to the salary for the services he performs" (1953) WALR, at p 68 and to that expressed by McMillan C.J. in the earlier case that "the plaintiff has not lost the right to salary, but has merely been relieved of the obligation to work for it" (1925) 27 WALR, at p 103 , said: "Personally I prefer the first view as it seems to me that the employee, in effect, has bought from his employer a right to sick pay by accepting a lower rate of wages. Payments received under such a contract are very similar to payments received under an accident insurance policy and it is clear law that insurance payments cannot be taken into account in reduction of damages" (1955) SASR, at p 273 . For this conclusion his Honour found some support in a passage from the Restatement of the Law of Torts to the following effect: "Where a person has been disabled and hence cannot work but derives an income during the period of disability from . . . a contract of employment which requires payment during such period his income is not the result of earnings but of previous contractual arrangements for his own benefit, not the tortfeasor's". But as will appear from a perusal of an instructive article by Professor Ross Parsons - Mitigation of Tort Damages for Loss of Wages, (1955) 28 ALJ 563, at p 569 - the Courts of the United States have not been uniform in their approach to the problem. To the American cases mentioned in this article Rigney v. Cincinnati Street Railway Co. (1955) 52 AmLR 2d 1443 may be added. In that case it was held that remuneration received by the plaintiff whilst on sick leave could not be taken into account in diminution of her claim for loss of wages. But it is made clear in the report of the case that the extinguishment of the plaintiff's accumulated sick leave credits had resulted in a well defined financial loss. For the plaintiff upon leaving her employment would be "entitled to receive from the United States Government (her employer) an amount of money calculated on the basis of her salary, multiplied by the time represented by the number of days to her credit in her annual and sick leave account" (1955) 52 AmLR 2d, at p 1448 . Accordingly, and since the plaintiff was entitled to convert her accumulated sick leave credits into cash at any time, it was not of much consequence whether the plaintiff recovered as for a loss of wages during the period of her disability or as for the extinguishment of her sick leave credits. The annotation to this case is instructive and gives some indication that in some States - New York and Louisiana at least - the contrary view may be current. But the character of the sick leave entitlement in the cases mentioned does not appear. Nor does it appear how far the variations in the views which have been expressed in different States may have resulted from differences in the character of the so-called sick leave credits. (at p349)

12. In the present case the sick leave credit or entitlement is not such that it can be converted into cash if the employee does not otherwise find it necessary to avail himself of it. It is the measure, no more and no less, of the employee's right to receive ordinary pay notwithstanding his absence on sick leave. If received pursuant to such a right it is, in our view, impossible to say that, pro tanto, there has been any loss of wages. Several contentions are advanced against this proposition. First of all it is said that payments received pursuant to such a contractual right are not wages or salary but we have already dealt with this contention. Needless to say, such payments are quite different in character from ex gratia payments made or advanced either unconditionally or conditionally on repayment at some future date or so that they will be repayable upon a contingency. Nor do they share the same character as payments made to an employee pursuant to some provident or social welfare scheme. Then it is said that nevertheless the right to such payments are purchased by an employee by his past services and that to characterize such payments as wages is a matter of words only. This suggestion is in accordance with the observations of Ross J. in Francis v. Brackstone (1955) SASR 270 where he suggested that an employee, in effect, buys from his employer a right to sick pay by accepting a lower rate of wages. This notion is, in our view, unrealistic and, indeed, there is not the slightest reason for thinking that it has any foundation in fact. Coupled with this notion is the suggestion that "sick pay" or "sick leave" is a reward for past services. This, of course, is founded upon the circumstance that it appears that the extent of the entitlement of any employee to sick leave on full pay whilst in the service of the Board depends, up to a point, upon his length of service. But this means no more than that employees of some standing are given more favourable terms of employment than others. Further, it would be quite anomalous to make a distinction between cases where, on the one hand, the terms of the contract of employment condition the right to sick leave by reference to a qualifying period of service and where, on the other, it does not. Indeed, in the present case it will be seen that the industrial agreement in question gives a right to sick leave in the prescribed circumstances from the very moment an employee commences his service. He is entitled to three weeks' sick leave in any one year and at the very outset of his employment the conditions appropriate for the exercise of his right may arise. Should then a distinction be made between the case where an employee goes on sick leave at the very outset of his employment and the case where sick leave is taken by an employee in the second or some later year of his service? Clearly, we think, the answer must be in the negative. The fact of the matter is that it is not a reward for past service; it is a right secured by the contract of service as part of the consideration for the employee's services generally and the right is a right in the specified circumstances to absent himself from his work on full pay. Again, it should perhaps be mentioned that the respondent had been in the employ of the Board for twenty-six years prior to the accident so that by virtue of the industrial agreement in question, as from 9th September 1955, his sick leave entitlement was the maximum and a credit to that extent was then established. But in no sense did he then become entitled to sick leave as a reward for past services; he became entitled to sick leave on full pay as one of the conditions of his continuing obligation to serve the Board. (at p351)

13. For these reasons the appeal should, we think, be allowed and, since the parties are not in agreement that we should dispose of the appeal by reducing the verdict by the amount involved, there must be a new trial on the issue of damages. But before parting with the case it is desirable to point out that, in an appropriate case, the extinguishment or diminution of sick leave credits of the character in question here may, notwithstanding the view we have expressed, result in some damage. As Windeyer J. said in Paff v. Speed [1961] HCA 14; (1961) 105 CLR 549 : "A plaintiff entitled to be paid by his employer (whether the payments be called sick pay is immaterial) while incapacitated, and who when he recovered returned to work in his old position, may nevertheless have suffered some compensable loss by his absence. If, for example, he was by the terms of his employment permitted only a certain number of days sick leave on pay during the year, he would incur some loss if those days were used up in an absence caused by the defendant" (1961) 105 CLR, at p 566 . In other words, he may incur a loss because he may face the possibility of being sick in future from extraneous causes at his own expense so far as wages are concerned. In Cossitt v. C.P.R. (1948) 4 DLR 461 Urquhart J. refused to take this factor into account observing: "There is no doubt that the plaintiff in this case, by using up her sick-leave with pay, has put herself, and will if she has to be off work for six months more, as the jury, believing the evidence of her physician, undoubtedly considered, in a very precarious position as regards her salary. The only case to which I have been referred and in which the matter has come up is an unreported case in 1944, McFarland v. Heeney, where Chevrier J. allowed one-half of the amount of wages claimed in lieu of loss of the accumulation of sick-leave. The case was appealed and although the appeal was dismissed the damages were reduced by the amount so allowed. I am advised that the ground of the disallowance was that the claim was too remote. In this case the plaintiff might die; she might retire, and she might never be ill while in the Government service and need to draw upon her reserve of sick-leave with pay. I think I must therefore disallow the claim of $690 allowed by the jury for loss of wages in estimating the special damages" (1948) 4 DLR, at p 463 (at p351)

14. The possibility, however, may be real and indeed in some cases it may appear that before trial the possibility has become a reality. But in the present case the question does not arise quite in this form because the respondent left the appellant's employment in October 1957 and the verdict which he will receive should compensate him for the loss which his diminished earning capacity will entail. Nevertheless, consistently with the opinion which we have already expressed concerning the character of the respondent's so-called sick pay, the fact that the terms of his employment with the Board entitled him to specified sick leave on full pay is a factor to which some regard ought to be paid in assessing that loss. In effect, it was part of the remuneration which, unimpaired, he was able to secure by his contract of service and, with his impairment, he may not be able to obtain employment on such a favourable basis. (at p352)

15. The actual amount involved in our decision is a very small sum compared with the amount of the verdict. It can, of course, be precisely ascertained and it is unfortunate that we have no alternative but to send the matter back for a new trial. The possibility of this situation arising was mentioned to counsel at the conclusion of argument when the appellant's counsel intimated that in this event he would be content to have the verdict reduced by the appropriate amount. However, counsel for the respondent was not prepared to agree to this course. But no complaint has been made that the verdict was inadequate and since the new trial would, in the ordinary course, involve the appellant in additional expense, which we think was avoidable, we think it proper that a special order as to the costs of the first trial should be made. Accordingly, while we shall direct the appellant to pay the costs of that trial which established his liability we shall except so much of the costs as are referable to the issue of damages. (at p352)

ORDER

Appeal allowed with costs. Order of the Full Court of the Supreme Court set aside and in lieu thereof order that there be a new trial of the action limited to the issue of damages. Costs of the first trial to be borne by the appellant except in so far as they are referable to the issue of damages.