Husher v Husher and ANOR B28/1998 [1999] HCATrans 19 (12 February 1999)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B28 of 1998

B e t w e e n -

JOHN LESLIE HUSHER

Applicant

and

WENDY JOAN HUSHER

First Respondent

TRANSPORT ACCIDENT COMMISSION INSURANCE

Second Respondent

Application for special leave to appeal

GAUDRON J

KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 FEBRUARY 1999, AT 11.00 AM

Copyright in the High Court of Australia

MR D.B. FRASER, QC: If it please the Court, I appear for the applicant with MR R.W. TROTTER. (instructed by Dempseys)

MR W. SOFRONOFF, QC: May it please the Court, I appear with my learned friend, MR J.A. McDOUGALL, for the respondent. (instructed by Quinlan, Miller & Treston)

GAUDRON J: Yes, Mr Fraser.

MR FRASER: Your Honour will have seen from the application book that the decision appealed from from the Court of Appeal of Queensland involved a choice by the members of that court between two fairly recent decisions in relation to the question of whether or not the assessment of damages for economic loss of an injured partner should be limited to the share that the partner derived from his partnership or whether or not the assessment should extend to the entirety of the earning capacity as it was applied to that partnership.

The two decisions are the decisions of Seymour v Gough, which the court below felt - - -

GAUDRON J: What is the position of authority in the rest of Australia?

MR FRASER: The rest of Australia follows the position of the earlier decision, in our submission, of Batt v Wilkinson which was not followed in this case by the court below. The only qualification, perhaps, I should make to that is that in the New South Wales Court of Appeal the position was stated that the principles have not been finally settled. That appears in case No 6 in our outline, Taroporewalla v Berkery - - -

KIRBY J: In terms of principle, if you organise your affairs so that you are in a partnership, a business partnership, and that is the actual basis upon which you are receiving your earnings or your income, why is that not the basis upon which a court should then, that being the factum, approach the calculation of your damages and your economic loss?

MR FRASER: I suppose at the heart of it it comes down to this: the assessment of damages for economic loss involves a measure between the person's earning capacity before he is injured and his earning capacity afterwards. He is given money to put himself in the position he would have been in had he not been injured.

In the circumstance of the standard husband and wife tradesman partnership what is achieved by the legal relationship is that the husband provides for his wife and family in discharging his obligation to maintain that person by adopting the tax effective and legally acceptable arrangement of a partnership.

KIRBY J: So you want to have the tax advantages but you do not want to take the burden that goes with the consequence of organising your affairs in this particular way. Why should the Court encourage that?

MR FRASER: Because to do otherwise would lead to the anomalous result that in a Lord Campbell's Act claim, such loss is recoverable. The widow and dependants recover the whole of the earning capacity. The partner, the wife who is not injured, cannot sue to recover the loss of dependency that the husband would otherwise have provided if he remains alive. There are decisions of the courts consistently saying that there is no claim by the uninjured partner. The final position on that is that in essence what is involved in a partnership at will of this kind is really, I suppose, a gift by the husband to the wife of his earning capacity, a continuing gift. If it were simply an asset, the presumption of advancement would clearly apply. As we assess damages by reference to the notion that the earning capacity is an asset, it is difficult to see anything anomalous about assessing the damages of the fully employed partner on the basis that what he had was his to give away, which is the approach in Batt v Wilkinson.

KIRBY J: If you get special leave, I hope that you will advance the argument in terms of domestic partnerships that are not necessarily stereotyped. I mean, there are plenty of non-married couples who have arrangements which are not those necessarily of the male supporting the female. There are females who support males nowadays. It is a question of principle. I should know this, Mr Fraser. That was just a little warning to you about nomenclature. I though that there was authority in the Court that talks of earning capacity as a sort of capital, as distinct from the actual earings. In other words, that what the courts are looking, when they are calculating damages, is the capacity.

GAUDRON J: The loss is earning capacity but it is compensated to the extent that it is productive of economic loss. Is that not - - -

MR FRASER: Your Honour, the proviso in Graham v Baker is that you recover damages for your lost earning capacity in so far as it is productive of financial loss. When one looks at the judgment of the majority in that case it is plain that they deal with it in terms of economic loss and that is carried through in some of the later cases.

KIRBY J: That is in your favour, is it not, in the sense that it what one is looking for is the capacity, then that belongs to the human being who has the capacity.

MR FRASER: Yes, your Honour.

GAUDRON J: The economic loss, you say, is in any event not restricted to the share of - in a situation like this - it is not restricted to the share of profits because the economic loss runs through to the household expenditure and household level of standard of living.

MR FRASER: We submit that the approach below was flawed because it confuses loss of earnings and loss of earning capacity. Your Honours, may I make the further point that the analysis in Seymour v Gough does not allow any room for what was identified in Taroporewalla v Berkery, that is this very circumstance where the money which comes into the household is applied in relief of the breadwinner's obligation to maintain his dependants. There is a specific aspect of that case where, in the main judgment delivered, that point was identified as being a point where damages would otherwise fall to be seen in a different light to the perhaps prima facie measure of a partnership.

KIRBY J: We had a case - did Seymour v Gough come up for special leave?

MR FRASER: Seymour v Gough itself did not come up but there was an application for special leave last year, Battaglia v Mason - - -

KIRBY J: I sat on it in Brisbane, I think.

MR FRASER: In Brisbane, your Honour, yes. It is actually No 15 in our list of authorities. We have extracted the transcript of the proceedings before your Honours on the special leave application.

KIRBY J: Special leave was refused, I think.

MR FRASER: It was refused in that case because the respondents advised that had the point been sought to be reserved before the trial judge, matters would have been different. In other words, they could have led evidence to deal with some of the issues.

KIRBY J: So that problem does not exist in this case, in your submission.

MR FRASER: No, your Honour. We asked the trial judge to make an assessment on the alternate view of the world, that is the Batt v Wilkinson view.

KIRBY J: Now, if Justice Callinan were here I would not ask this question, but why should we be troubled about a line of authority in the Court of Appeal of Queensland on a particular issue and particular areas of the law in damages cases? Why should we try to sort this out?

MR FRASER: Because, your Honour, the Batt v Wilkinson approach has been expressly followed in a number of the other States. If this Court takes the view of Seymour v Gough, which is not a case that has been considered, so far as we have been able to find, in any of those other States, is an appropriate resolution of this issue which is described by the Court of Appeal in this State as unsettled, then single judges of the courts really will not know where to go. In particular, in our court, it is plain that the members of the court below saw that each of the positions, both Batt v Wilkinson and Seymour v Gough, had something to commend each of the positions but, by reference to the more recent decision of Seymour v Gough, felt constrained to follow it because it was not, as they described, obviously wrong. I do not know that I can advance it any more.

Perhaps there is one aspect as to the qualification or the proviso, that it has to be productive of financial loss. It is, of course, interesting that in a household situation the husband has an insurable interest in his wife's chattels and vice versa, so the very arrangement between partners of that kind is such as to give rise to what the law has recognised as an interest which can support a policy of - - -

KIRBY J: You are.... back to husband and wife nomenclature.

MR FRASER: I apologise for doing that, your Honour, but it was the most obvious situation where the circumstances between them were seen to be different and I appreciate that Yerkey v Jones has recently been revisited by this Court - - -

KIRBY J: I do not think that you should mention that case.

MR FRASER: No, your Honour, but it is obvious that the relationship between the parties is of a very significant component in assessing whether or not an injured plaintiff in the applicant's position here is given just compensation where he is not put back into the position he would have been in had it not been for the negligence of the party who injured him.

GAUDRON J: Yes. I think we would be assisted by hearing from Mr Sofronoff now.

MR SOFRONOFF: Your Honours, in our submission, the point of principle is not in doubt. It was laid down in Graham v Baker and it is the point that your Honour Justice Gaudron remarked upon a moment ago, that although it is loss of earning capacity that is in issue, compensation is only provided to the extent that that capacity is productive of financial loss.

KIRBY J: Is it in that formula that compensation is only provided or that in order to find this elusive concept of capacity, you naturally look to the way in which people's income flows in?

MR SOFRONOFF: The precise sentence in Graham v Baker, your Honours, was this:

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.

KIRBY J: "May be" indicates that it is not definitional, it is merely evidential.

MR SOFRONOFF: No, no the factual inquiry.

KIRBY J: It is evidentiary.

MR SOFRONOFF: Yes, quite.

KIRBY J: And if the evidence because of the particular relationship and the way they have ordered their affairs suggests that it does not provide a true measure of the capacity, then surely the evidence cannot blot out the search for the real objective, which is the capacity.

MR SOFRONOFF: Absolutely not, your Honour, and that is our submission, that the authorities recognise that the particular circumstances of the plaintiff in a partnership, whether it is a purely commercial partnership or a partnership that has as a component of it a domestic relation, will affect the question whether and to what extent the loss of earning capacity is productive of financial loss.

Could I ask your Honours to look briefly at Taroporewalla which is the decision of the New South Wales Court of Appeal. I think it was No 6 on our learned friend's list, at page 38. After having referred to Graham v Baker, if your Honours go to the foot of the page, Justice Mahoney considered a third factual situation:

in some cases, a plaintiff may be able to claim from the defendant in respect of benefits which he would have derived from the application of the portion of the profits received by the other partner. Thus, in a husband and wife partnership, the wife may apply her share of the profits in reduction of the household expenses which the plaintiff otherwise would have borne. But a defendant is not to be readily burdened with such indirect benefits.

Now, your Honours, a domestic partnership may have a number of facets to it.

KIRBY J: That seems a little illogical. If the person would have secured the income solely for themselves and then gone home and put $1,000, $100 on the mantelpiece, he can recover or she can recover that sum, but if in fact that is a term of the partnership arrangements, you cannot.

MR SOFRONOFF: In my submission, what his Honour is referring to there is the possibility that whereas on the one hand one may have a purely commercial relationship of partners, where in no sense would one expect that the injured partner would be able to recover what the other partner obtains, but at the other end of the spectrum, there may be a domestic relation in which, as a matter of fact, the loss of earning capacity which prevents that person acting as a partner in earning the income, has resulted in a greater loss than merely the share of the partnership profits. That is a factual inquiry and, as Taroporewalla recognises, that is a matter of evidence that can be led at the trial and acted upon and - - -

KIRBY J: Yes, but in this case the domestic partnership, the marriage of the husband and wife, had broken up and yet that does not seem to have been taken into account.

MR SOFRONOFF: Your Honour, there was no evidence in this case of the kind referred to at the foot of page - - -

KIRBY J: No, but there was evidence of an analogous kind, that in fact marriages are vulnerable. One in three marriages in this country end up in the Family Court of Australia and in this particular case, after the accident, the marriage broke up. And yet the Court of Appeal does not seem to have considered that to have been a matter to be taken into account.

MR SOFRONOFF: Your Honour, it was taken into account in this sense by the trial judge, that when he considered what amount to allow in respect of future economic loss he allowed a proportion for the contingency that the partnership might have broken up.

KIRBY J: So although the fact was known, and the contingency and possibilities had come to fruit in reality, it did not determine the outcome of the case.

MR SOFRONOFF: It determined the outcome of the case. The prospect of the partnership coming to an end and the plaintiff then being in the position to reap 100 per cent of the rewards of his own exertions was taken into account by the judge by the allowance that he made. The fact that the - - -

KIRBY J: It is logical, but it does not seem very fair.

MR SOFRONOFF: Your Honour, what would be fair in any particular case will depend upon the facts. In the case posited by Justice Mahoney of the husband and the wife in circumstances where the husband does recover a great deal of the benefit that, in legal terms, is the partnership drawing of the wife, is a matter that can be led by any plaintiff in proof. But there is no examination of that issue at the trial before Justice Cullinane in this case and so it does not arise on appeal and so the net result was that the court was faced with the position where all that was known was that the couple was married, they were in partnership, the tax arrangement was real and was not a sham and, consequently, prima facie, the extent to which the impairment of earning capacity resulted in financial loss was 50 per cent.

So our submission, your Honours, is that our learned friends do not seek to challenge the principle enunciated in Graham v Baker. That principle has been sought to be applied in cases since then. Its application on a set of particular facts may raise particular interesting issues but even in the case of a domestic partnership of any kind, one has to examine the facts. There are not any facts here raised of the kind Justice Mahoney spoke of at the foot of page 38 - - -

KIRBY J: I do not think his Honour was covering the entire field. He was just dealing with the particular circumstances of that case.

MR SOFRONOFF: Quite, your Honour, but what we have - - -

KIRBY J: But is it not a fact that nowadays there are more business relationships between people in different personal relationships that make the intersection of the business relationships and the personal relationships highly relevant to the approach to be taken by courts throughout this country every day in hundreds of court houses in relation to the issue of the calculation of damages of the people affected?

MR SOFRONOFF: That is unarguably so, your Honour, but nor is it unknown in the courts where the facts are examined that that is unarguably so and it lies in the plaintiff's power, in any particular case and in this one, to establish, if it is the fact, that although the legal complexion is that of a partnership giving strict legal rights to each to draw - - -

GAUDRON J: Would the statement of principle adopted by the Queensland court in this case actually allow for that evidence?

MR SOFRONOFF: I hear my learned friend saying "no".

GAUDRON J: That seems to be the difficulty. The problem seems to be that there are two sort of goalpost rules, as it were, that have been erected and it may be that really the proper approach is a midway approach but it is not clear that it is allowed for.

MR SOFRONOFF: If the decisions of the Court of Appeal in Queensland were as absolute as that, then it may justify this Court entertaining the issue. But the case that went to the Court of Appeal on this occasion, and in Seymour v Gough, were cases simply where we knew that the parties were in partnership and they were husband and wife, I think, in both cases.

GAUDRON J: If it is a rule that you only get your share of partnership earnings, evidence as to what happens to the money thereafter would be irrelevant.

KIRBY J: Unless you show it is a sham.

MR SOFRONOFF: If that were the rule, your Honour.

GAUDRON J: Yes.

KIRBY J: Unless you set out to show that it was a sham, which may have all sorts of other complications for people.

MR SOFRONOFF: No, your Honours. If it were the rule that that was so, then that would merit examination.

GAUDRON J: Perhaps we had better have a look at it, the statement of the rule then.

MR SOFRONOFF: Yes, your Honour. If your Honours take it in sequence, if you go to Seymour v Gough firstly at page 93, line 30.

GAUDRON J: The rule seems to be at page 95, does it not?

MR SOFRONOFF: I am sorry, your Honour.

GAUDRON J:

The defendant must take the plaintiff as he finds him and, prima facie, one would expect that rule to apply to the plaintiff's working arrangements - - -

MR SOFRONOFF: That is the conclusion, yes, your Honour.

GAUDRON J: And the rule seems to be, in the end, that the defendant is entitled to proceed on the basis of whatever the plaintiff has erected by way of financial arrangements.

MR SOFRONOFF: But, your Honour, only if the financial arrangements that are in evidence are limited to the existence of a partnership. But if, for example - - -

GAUDRON J: Where does it say that?

MR SOFRONOFF: It must be understood that way, your Honour, because - - -

GAUDRON J: Was it understood that way in this case?

MR SOFRONOFF: In this case if one ignored the partnership, as the applicant advocated, then there would have been a higher assessment of the value of the earning capacity.

KIRBY J: You see, the formula, as Justice Gaudron has pointed out, is plaintiff's working arrangements, and if in fact the plaintiff's working arrangements are that of a corporation, which is not all that uncommon, then it may well be that that provides a wholly artificial, or at least partly artificial, income which does not truly reflect the earning capacity.

MR SOFRONOFF: But, your Honour, nobody would blind the court to the artificiality of it if that is so.

KIRBY J: They say, prima facie, you just go and look at the - - -

GAUDRON J: His Honour just says "prima facie, one would expect that rule to apply", and then applies it. It does not read to me as though his Honour was allowing it as a prima facie rule, which can be displaced by evidence.

MR SOFRONOFF: Your Honour, in Taroporewalla, which is the best explanation of how the facts can be examined in - - -

GAUDRON J: Yes, but what happened in this case? Fortunately they did not seek special leave in Taroporewalla, as I understand it.

MR SOFRONOFF: I will not respond to that, if your Honour excuses me from that. But in Taroporewalla, your Honour, Justice Mahoney suggested a situation in which, for example, the partnership agreement obliged the working partner to provide the labour, in which case the cost of replacement labour would fall upon that partner wholly and would be 100 per cent recoverable. That is a fact that can be examined by a plaintiff. Or in the example that I drew your Honours' attention to at the foot of page 38, it may be that the effect of the living arrangements between the partners is such that, as a matter of fact, the loss of earning capacity translates into more than a 50 per cent production of economic loss because of the facts that are advanced.

In our submission, the Court of Appeal when faced with only this evidence, the couple was married and were partners and lived together. That alone would not remove the applicability of the conclusion that what the plaintiff is prima facie entitled to lawfully is 50 per cent of the earnings and, therefore, the valuation of his earning capacity - - -

GAUDRON J: Can I take you back to application book page 16A. From line say 4 onwards, does that correctly state the way in which the Seymour principle is applied in practice in Queensland?

MR SOFRONOFF: I think that is correct, that is how it is applied.

GAUDRON J: So that does not allow for any evidence as to the household arrangements.

MR SOFRONOFF: But that was written in a case where there was no evidence of household arrangements, your Honour.

GAUDRON J: It would be irrelevant, would it not?

MR SOFRONOFF: But not at the trial, your Honour, where this point was taken. This was not taken for the first time on - - -

GAUDRON J: But in brief, Seymour adopts as the measure the loss of earning capacity that would have produced income actually received.

MR SOFRONOFF: Yes.

GAUDRON J: Well, that does not allow for any further inquiry as to the domestic arrangements, does it?

MR SOFRONOFF: In my submission, it does, because the income actually received and the benefits actually enjoyed would include those benefits that a plaintiff could point to which, as a matter of fact, he or she received in the case before the Court of Appeal.

KIRBY J: I am a little bit influenced by the case in which special leave was refused. As I recollect it, the same approach was taken.

MR SOFRONOFF: Yes, it was.

KIRBY J: You just look at the business arrangements and if the business arrangements are not suggested to be a sham, then that is the foundation on which you calculate. Now, the question is, is that the proper approach?

MR SOFRONOFF: In our submission, in the absence of evidence suggesting that greater benefits were received notwithstanding the business arrangements, that would be the correct approach. If this case stood as authority for the proposition that one is obliged to ignore benefits actually received, then I would need to concede that we would be in difficulty and that the matter would justify the Court granting special leave. This case does not stand for that authority, nor do the facts in this case demonstrate anything of the kind that Justice Mahoney was referring to in the examples that he gave in Taroporewalla.

KIRBY J: The formula that Justice Gaudron drew attention to seems to be too widely phrased but it does not, as it were, contain within its articulation the provision for exceptions and looking at the actual evidence and actually focussing on the object in mind. But do you say that is because in this case none of those issues were really raised?

MR SOFRONOFF: Yes. That sentence was written in a case in which two absolutes were presented to the court.

KIRBY J: That seems curious given that evidence was tendered that the marriage had broken down after the accident. That rather suggests - - -

MR SOFRONOFF: Your Honour, I am not sure that that is correct. Would you excuse me? Your Honours, the marriage did not break down. The partnership ceased because of the injury having occurred and the - - -

KIRBY J: I thought the parties separated. Am I wrong about that?

MR SOFRONOFF: No, I do not think so.

KIRBY J: I see, I have misunderstood something I read.

MR SOFRONOFF: Your Honours, that the rule is not an absolute one which precludes inquiry into any other facts is demonstrated even in this case by the fact that Justice Cullinane, and the Court of Appeal affirming that, allowed a sum in respect of the contingency that something might happen which would result in the plaintiff deriving a greater economic benefit from his earning capacity in the future.

Those are our submissions, your Honours.

GAUDRON J: Thank you, Mr Sofronoff. Yes, Mr Fraser.

MR FRASER: Your Honour, can I just correct one perhaps very important factual matter which has been raised and that is this: there was evidence as to the household arrangements and it was led, obviously, with this point in mind, that all of the income that came into the household was treated as being pooled to pay for the household expenses. The two partners, the husband and wife, had one joint bank account and one credit card between them and all the money came was applied to discharge the obligations that would otherwise have fallen upon the husband to pay himself. So there was evidence as to the domestic arrangements.

KIRBY J: So you say that the principle in Seymour is being applied as it appears at page 16A to which Justice Gaudron drew attention just as an absolute rule.

MR FRASER: Exactly, your Honour.

KIRBY J: And that there is no inquiry into the actual domestic arrangements of the business partners.

MR FRASER: Yes, your Honour. These submissions were made both at trial and at the Court of Appeal level and, indeed, it can be seen, in the reasons for judgment of the trial judge, that he at page AB7 applied the principles in Seymour v Gough:

It seems to me in relation to the past the plaintiff is entitled to recover one half of the losses of the partnership, which I assess as flowing from his disabilities and in so far as the future is concerned, whilst some allowance has to be made, as I have already said, for the possibility that things might have changed, I think that again a similar principle has to apply in view of the finding that I have made that all the probabilities are that the plaintiff and his wife would have continued to conduct business in partnership as they had in the past.

It has been applied in this case without reference to the domestic arrangements in light of the view, in our respectful submission, that there is no scope for considering those arrangements. The approach is assessed having regard to where the income is derived.

KIRBY J: That was my recollection of what was troubling me in the case where special leave was refused, that this is being applied as a very rigid principle, but there were particular factual situations in that case that did not make it a suitable vehicle.

MR FRASER: In that case there was a corporate structure and the point was made that the company can issue a writ. In this case, there is no company which can issue a writ. No one else can recover this loss. The application of the principle which was developed in relation to a claim, in effect, for damages equivalent to the wages incurred by a partnership to replace those energies of the injured partner has then been extrapolated to establish a principle which seems to have been applied without any provision for flexibility in relation to the earning capacity, both past and future, where the partnership comes to an end. It seems an absurd result, with respect.

GAUDRON J: Yes, thank you, Mr Fraser. There will be a grant of special leave in this matter.

The Court will adjourn briefly to reconstitute.

AT 11.32 AM THE MATTER WAS CONCLUDED