Husher v Husher & Anor B10/1999 [1999] HCATrans 205 (23 June 1999)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B10 of 1999

B e t w e e n -

JOHN LESLIE HUSHER

Appellant

and

WENDY JOAN HUSHER

First Respondent

TRANSPORT ACCIDENT COMMISSION INSURANCE

Second Respondent

GLEESON CJ

GUMMOW J

KIRBY J

HAYNE J

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON WEDNESDAY, 23 JUNE 1999, AT 10.19 AM

Copyright in the High Court of Australia

MR D.B. FRASER, QC: Your Honours, I appear with MR R.W. TROTTER for the appellant. (instructed by Messrs Dempseys)

MR J.S. DOUGLAS, QC: If the Court please, in this matter I appear with MR A.M. DAUBNEY for the respondent. (instructed by Quinlan, Miller & Treston)

GLEESON CJ: Yes, Mr Fraser.

MR FRASER: Your Honours, the factual matrix for this appeal is extensively canvassed in the written submissions that were provided a little while ago to the Court. May I simply summarise the position by saying that this case concerns a partnership where the appellant who was a block layer did the block laying work - - -

GUMMOW J: Was it a partnership at will?

MR FRASER: Yes, your Honour. There were no formal terms agreed. It was a mechanism which was entered into pursuant to the arrangements that are customary between tradesmen and others, with their partners or their spouses, to permit income sharing.

HAYNE J: Why does it concern a partnership at all? The plaintiff was injured. It was the plaintiff's earning capacity that was at risk. The fact is the plaintiff may in the past have acted in partnership in a company as an employee, might still have been a student, might have been anything. It was his earning capacity that was at risk.

MR FRASER: Exactly, your Honour.

KIRBY J: His earning capacity as demonstrated by his earnings, and his earnings, though, as a partner.

MR FRASER: Yes, your Honour.

GLEESON CJ: You mean they inaccurately demonstrated his earning capacity.

MR FRASER: Inaccurately assessed, I suppose, in the sense that the principle which was applied led to the error.

GLEESON CJ: The question is what was his earning capacity?

MR FRASER: Yes, your Honour.

GLEESON CJ: If his operations as a partner are to be treated as demonstrating his earning capacity, that simply raises a question of fact. That might be a good demonstration of it, or that might be a bad demonstration of it, but the ultimate question is, what was his earning capacity.

MR FRASER: That is the appellant's contention before this Court, and has been a contention at all stages, your Honour.

GUMMOW J: And the question is, how does one value it? It is capital matter, is it not?

MR FRASER: It is a matter of identifying what can be assessed as the productive results of the exercise of the earning capacity. That is the way we value these things, customarily. Then, the constraint that was seen below is that the regulation of the activity was carried out per medium of the partnership, and accordingly, the court felt constrained to assess both past and future loss on the basis of a half share of what was actually shown in the tax returns of the individual partners.

GUMMOW J: He could have been a sole trader.

MR FRASER: He could have operated as a sole trader.

GLEESON CJ: He could have got divorced.

KIRBY J: Allowance was made for the possibility that that might happen in the future - 25 per cent; a substantial allowance.

MR FRASER: We submit that that, in fact, does not emerge from the reasons of the trial judge, and we do not know where that came from in the Court of Appeal.

KIRBY J: He probably had some vague idea that one-third of Australian marriages break up; that this one had endured for a time, and therefore it was more likely to endure, and that he should make allowance for the fact, either that the marriage broke up or that the financial arrangements broke up, and he did, he made that allowance.

MR FRASER: Your Honours, certainly it would appear that his Honour the trial judge made reference to having to allow for the prospect that the partnership may not enure forever, but that still begs the underlying question, of course.

KIRBY J: The formula in Graham v Baker is because the diminution of his earning capacity is or may be productive of financial loss. So, the focus is not just on earning capacity, it is on how that produces financial loss. When you were, for other purposes of the law, asserting your financial gain or financial loss, you did so on a particular basis which the law recognises, namely, partnership. You take the benefit of it for tax purposes and now you come along here and you do not want to take the burden of it.

MR FRASER: Your Honour, that is an arrangement which is acceptable to the revenue. It does not - - -

KIRBY J: Of course it is acceptable as revenue, and you took advantage of it, but you do not want to have the burden of it.

MR FRASER: The response to that is, is it not an arrangement to which, ordinarily speaking, the tortfeasor will be a party, and if the result is that a particular - - -

GUMMOW J: There would be no action for the per quod submission at the institution at the action of partnership, would there?

MR FRASER: No, the partnership does not employ people.

GUMMOW J: Relevantly for that tort it would not apply.

KIRBY J: Could you explain that to me? I saw that in the written submissions. Why would a partnership not have a title? Assume damage that has been done by the tortfeasor to the partnership.

MR FRASER: Because the partnership does not actually employ the partners. The earnings that are derived and are paid, are paid on account - - -

KIRBY J: I see,...[inaudible]...is the missing elements.

MR FRASER: Yes, your Honour.

KIRBY J: Does not the partnership - is there no notion analogously, I mean, the per quod submitting is an old fashioned notion now. I do not know whether it has in some jurisdictions being abolished by statute. There is no analogous development of the partnership to say, "You are a tortfeasor. You damaged us, and therefore we are entitled to claim for the damage you have done to us"?

MR FRASER: In Australia the authorities are consistently against allowing such a claim, your Honour.

KIRBY J: It seems odd. If you damage a third party which happens to be a partnership the authorities say you have to sue for the personal loss.

MR FRASER: Yes, your Honour, and the answer may lie in the tendency it seems to confine the per quod action and to focus on the plaintiff's own loss as a basis for compensation.

GLEESON CJ: It would certainly give a new dimension to the expression "self employed".

MR FRASER: Yes, your Honour. I suppose, really, it is the basic principle that the cause of action grew out of the master and servant relationship, and without the element of service there is no - - -

GLEESON CJ: A partnership is not a legal entity that has an existence distinct from its members. That is the difference between a partnership and a company.

MR FRASER: Yes, your Honour, but the cause of action and its derivation would not owe anything to partnerships. It seems to be just treated as a separate cause of action available for - - -

KIRBY J: It is those last words, is it not, that we have to grapple with:

is or may be productive of financial loss.

Do you accept that criterion? Do you challenge anything that was said by the Justices in Graham v Baker?

MR FRASER: No, your Honour, it is a statement which has been repeated on many occasions. It has been discussed, and we refer in our outline to some of the ways - - -

KIRBY J: I just see through your written submissions a little bit of a heresy, or germ of a heresy, anyway, that we have to focus only on the economic capacity as if that is some sort of metaphorical notion that is separate, distinct. That it is the metaphorical notion as it manifests itself and is made flesh in the production of financial loss.

MR FRASER: The way we approach it is to make the submission that what is said in Graham v Baker demonstrates a principle, but it is a principle which is a principle to be applied, having regard to the one principle that is absolutely firm and which must control all else, that is, the statement recently referred to in Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60, at 63, about the basic tenet of damages, which is that the injured party should receive compensation in a sum which, so far as money can do, would put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed.

KIRBY J: Underline the word "that"; put "that party in", and if you are then concentrating on "that party", and only looking at "that party" in financial terms, then it is the damage of the loss of the partnership income.

MR FRASER: That party is also indemnified because the resources which were made available because of his application of the earning capacity and sending it in the direction of his spouse, had an immediate benefit to him. He has benefited because he as a member of the family gets to enjoy all that is available. The evidence in this case is that all the income that came in was pooled and applied to the benefit of the family.

HAYNE J: But this directs attention to what is being compensated. Is it compensation for loss of future income, or is it compensation for present loss of future earning capacity? They are the distinctions that were identified by Chief Justice Barwick in Arthur Robinson and like cases.

MR FRASER: Your Honour, the answer to that is contained within Graham v Baker, itself, at the bottom of page 346:

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.

Your Honour, the contest between earnings and earning capacity has been fought and won by those who propounded the earning capacity theory, and we do not discern any attempt to retreat from that position in our learned friend's submissions. We submit that the approach must be to value what the earning capacity is worth, and the way that that earning capacity is exploited is to apply it towards the benefit of the individual earner through medium of a partnership. It does not in any way devalue the value of the earning capacity.

KIRBY J: It is not a question of devaluing it. The problem with the notion of earning capacity is it is very nebulas. It is a capital item offence and therefore, in order to give it form and content, you have to look at how far it is productive of financial loss. How else in the real world of a trial would you do the calculations? Therefore, you go over to what the actual financial loss produced by the damage to the capacity causes, but to that plaintiff, not to the whole partnership.

MR FRASER: Yes, I suppose the immediate response is that that process of assessment will vary depending upon the facts and circumstances of each case, but in the circumstance where there is a partnership at will, and where, practically speaking, the benefits of setting up the affairs of the business in that way, flow from income splitting but, nonetheless, the benefits financially are still available to the person who is the - - -

HAYNE J: But that is to equate the partnership with the plaintiff.

MR FRASER: Yes, your Honour.

HAYNE J: The plaintiff is the person who is to be compensated. The question of assessment is the plaintiff's loss. The fact that the plaintiff, in the past, may have been unemployed, may have been a student, may be important evidentiary considerations, but it is to the plaintiff's loss that attention must be focused.

MR FRASER: That is the underlying principle, your Honour.

KIRBY J: Quite; but it begs the question of whether it is the plaintiff's loss as expressed in economic terms and as affecting the plaintiff, not affecting his partnership arrangement. I am putting these matters argumentatively, and I am not at all convinced one way or the other - I notice most authorities seem to support your propositions but I am concerned, so no doubt you will deal with it, with the suggestion made that the view that you argue for, outside the case of income splitting - if one can just put that to one side as a little class - say in the case of a partner of a legal firm, or let it be added a partner of a legal firm which has some arrangement to share part of its profits with an associated company which provides photocopying services, et cetera, which is controlled by and for the benefit of wives, or spouses, partners, partners in the social sense, so we have to formulate a principle that works, not just in your little case of income splitting, but in the whole realm of partnerships, or where income is not necessarily the full amount that the earning capacity is productive - - -

MR FRASER: There are, as your Honour has pointed out, wider implications, but the way that that can be addressed, in our submission, is this: the financial loss must be one in which the injured plaintiff has a direct or an indirect interest. The statement in Graham v Baker does not, in terms, say who the financial loss must be suffered by, but it is plain that it must be referable to the plaintiff.

Secondly, in order to make any recovery for a head of damage of this kind there must be a diminution in the earning capacity of the plaintiff. So, in that respect we have the two elements - diminution in earning capacity, and impairment financially to the plaintiff. The question which is begged in Graham v Baker is the nature and extent of the financial loss which must be suffered, and the precise way in which it must accrue.

There is one third element, I suppose, as a matter of policy, and that is this: is there any other entity which may have a claim in respect of this loss, for example, the per quod action which might be available to a company which employed a particular individual?

GUMMOW J: There is a Canadian Supreme Court decision which has been criticised which seems to have given a possibility of double counting. It is called D'Amato v Badger (1996) 137 DLR (4th) 129, which is criticised by Professor Waddams in his book on damages, in the third edition, paragraph 3.760. There must be some problem with the possibility of double - there was a corporation involved there.

MR FRASER: That may well be a difficulty in that arena, but I mention the point to say that no such policy consideration applies in our case because no one else can sue in respect of this loss.

At its stark and basis level, the contention which is advanced - this is by the respondent against us - is that there is no remedy at law for that part of the appellant's lost earning capacity which is not directly reflected in the share of earnings that he derived from the partnership, notwithstanding that his earning capacity was fully exercised, and notwithstanding that he lost, not just the share of the net income that was actually derived under the partnership, but also the economic benefits that he enjoyed because of it.

GUMMOW J: In paragraph 3.15 of your outline at the top of page 12 you refer to Spargo's Case which is a South Australian Full Court case.

MR FRASER: Yes, your Honour.

GUMMOW J: You mention the treatment there of tax. Is the reference there to the passage in [1993] SASC 3793; 60 SASR 39 at 54 in the judgment of Justice Perry? If you go to the bottom of page 53, his Honour seems to be accepting what you have been putting to us as correct.

KIRBY J: I think somewhere here you collect all the authorities and with the possible exception of the Victorian Court of Appeal they all tend to support your proposition, do they not?

MR FRASER: That is the position, your Honour.

GUMMOW J: They do not, really, because that is why I am taking you to page 54, the paragraph beginning, "But it does not follow". How should one deal with that?

MR FRASER: That passage is designed to identify a process which establishes a degree of fairness, both to plaintiff and defendant. If a particular plaintiff - - -

GUMMOW J: Do you say that is right or wrong?

MR FRASER: That is the result we contend for in this case, so we must submit that it is correct. So far as the result, if a different approach were taken, it would seem to be an unjust and unfair result that if someone is injured then because they have a particular tax structure in place, instead of paying what one would expect to be the net earnings, or the net loss of wages as a basis for the assessment of the valuation of earning capacity loss, one would be paying more than that, and that seems to be something that offends - - -

GUMMOW J: But if this man were a sole trader, and one were going through the processes we are going through here, what would tax liability have to say how to enter into the matter?

MR FRASER: Only that conventionally damages are assessed based on the net after tax loss sustained.

KIRBY J: Right, and that will be much higher.

MR FRASER: It will be much higher - - -

KIRBY J: Are we just to ignore that and let you take the advantage of the tax arrangement and just give you the net that would be free from the arrangement of tax that he may or may not have made with his wife.

MR FRASER: On our approach, we end up receiving less than the total net that would have been received by the household, but the amount as if we had been a sole trader.

GLEESON CJ: Mr Fraser, may I ask you a question related to the facts?

MR FRASER: Yes, your Honour.

GLEESON CJ: What was the nature and extent of your client's disability resulting from the accident?

MR FRASER: He suffered a fractured vertebra which made his ability to carry out block laying very much more difficult, or affected his ability, and eventually, if he had continued to do block laying he would have done further damage to his spine.

GLEESON CJ: What was the partnership business?

MR FRASER: Block laying, your Honour.

GLEESON CJ: Well then, what affect on the continuance of the partnership did his inability to carry on the partnership business have?

MR FRASER: Well, there was no point in carrying it on any further, because - - -

GLEESON CJ: Did not the partnership come to an end?

MR FRASER: It did, your Honour.

GLEESON CJ: So that the accident that gave rise to the claim for damages brought an end to the partnership?

MR FRASER: That is the case, your Honour. After a little period of attempt to return to work, it took a while, but it brought it to an end eventually, I think, by March 1996.

KIRBY J: But in order to calculate the loss of earning capacity, does not conventional theory require that you have to do so in terms of its impact on the income of that particular person and that that means income without the end of the partnership, except that it must allow that in the future it may, at some future time, come to an end for extraneous reasons? You assume its continuance.

MR FRASER: Your Honour, if one approaches it from the perspective of assessing that the income, as shown in the tax returns, well that is the conventional way, but our submission is that that has not been the approach, simply to look at the tax return and say that is the end of it; it is a prima facie tool that one can use, but if there has been understatement of income or overstatement of expenses, although there may be repercussions for the particular plaintiff with the revenue, the court proceeds to assess based upon its conclusions as to the demonstrated value of the earning capacity. So it would be curious if, in an area where a person had defrauded the revenue, he recovers what he was worth and a situation where a person has complied with, all that he is asked to comply with, under the revenue provisions about partnerships, he receives considerably less. It would seem an anomalous result.

KIRBY J: You do not like those words "is or may be productive of financial loss"; you either drop them out or your voice drops whenever you mention them.

MR FRASER: Well that is probably the psychology of the words, your Honour, but our approach is to say that they are subservient to the dominant principle.

KIRBY J: Yes, but they guide you as to how the dominant principle is to be made real. I mean, we have to think of how practical judges, at every level of the hierarchy, are going to be approaching these problems. If you say, "There is a little exception which we all, because we all know income splitting goes on between spouse and partners and therefore we just do not pay too much trouble about that, because realism requires us to say this is a bit of a wink/wink". Well, okay, let us have that as our principle, but it does not sound like a legal principle.

MR FRASER: Well, your Honour, the approach in Batt v Wilkinson has been to regard the ability of the plaintiff to direct his income in this way, as being an asset which has value to him and when he loses that ability, which he can apply to his advantage, he loses something of value; that is the analysis in Batt v Wilkinson.

KIRBY J: By drawing attention to Spargo, Justice Gummow has drawn attention to something I had not thought about, and that is if one, as it were, puts to one side and, in a sense, ignores, for the purpose of calculating your client's loss of earning capacity, the income arrangements that he had, what then is his taxable income? Do you, as it were, assume away the partnership and then work on his taxable income for the purpose of seeing how the impact on the earning capacity is or maybe productive financial loss, his taxable income is a sole trader, without his wife's partnership?

MR FRASER: Yes, your Honour. In our submission, yes.

KIRBY J: So we unravel and we completely ignore the legal arrangement of partnership, we go behind it, we pretend it never existed and we look to what would have been the case if he had been a sole trader.

MR FRASER: Yes, your Honour.

KIRBY J: Why?

MR FRASER: And there are two reasons for that. Firstly, in Queensland, assessment of damages proceeds by reference to the net loss of wages. That is in our Commonwealth practice Act.

GUMMOW J: It is in your statute, is it?

MR FRASER: Yes, your Honour.

GUMMOW J: Could you give us the reference for that?

MR FRASER: Yes, your Honour.

GUMMOW J: Not necessarily now, but at some stage.

KIRBY J: We better have that handed up to us, so we see exactly the context.

MR FRASER: The second reason is that that has been the conventional approach anyway, because the compensation which is received is not, generally speaking, assessable to tax, therefore to compensate an injured plaintiff by reference to the gross wages would be to give him more than he would end up with and, because it is the claim which is personal to the plaintiff in every case, that is, in our submission, a sound policy reason for approaching the Spargo situation in the way in which Justice Perry did.

KIRBY J: Is that on the assumption that he has already been taxed, and your problem is that there can be no such assumption in this case, because he has not been taxed as a sole trader?

MR FRASER: It is the basis upon which conventionally plaintiffs' damages are assessed, not because he has been taxed, but because, if he had continued to derive income commensurate with the value of his earning capacity, he would receive the net rather than the gross.

HAYNE J: But it is not just a matter of convention, is it? The point may be illustrated by the case of the injured student; the final year student in a degree that will lead to a professional employment. That student has no history of past earnings. The loss of earning capacity is not to be informed by looking at that student's past taxation records. The problem confronting the court is, in principle, no different from the problem that confronts the court in assessing loss of earning capacity of a wage earner, of a self-employed person or a student.

MR FRASER: Your Honour, it demonstrates the underlying principle is to assess the value of the lost earning capacity, regardless of how - - -

HAYNE J: But the past may be useful, it may be essential, evidentiary materials to be taken into account, but you are not assessing a present value of lost future wages, you are assessing a capital sum.

MR FRASER: And, your Honour, we respectfully adopt what your Honour said in that respect - - -

HAYNE J: It is founded, what I have said, on Chief Justice Barwick's statements in Arthur Robinson.

MR FRASER: Yes, your Honour.

KIRBY J: Is that the accepted doctrine of the Court? My recollection is that they have got some nuances about that, saying, well it is difficult to work out what that capital sum is, except by reference to actual earnings. I mean, in reality what happens; people sit down at the table and they have calculators and they - I mean, that is the real thing, I have not forgotten that.

HAYNE J: In an area of exactitude to what is, in truth, a process of estimation and judgment, not a process of calculation.

MR FRASER: It is a process of replacement by money of what has been lost.

KIRBY J: Perhaps it will manifest itself in income.

MR FRASER: Well, it is an evidentiary issue, as your Honour pointed out at the outset, and the question then is, what is the exercise directed to? In our submission, is to quantify the earning capacity which has been lost.

GLEESON CJ: Mr Fraser, may something turn in a particular case upon the nature and terms of the partnership contract? It is possible to imagine, for example, a partnership agreement which contains a provision limiting an individual's capacity to work and earn income. It may contain a restrictive covenant, for example, which you could not ignore.

MR FRASER: No, your Honour. It may well turn upon precisely provisions of that kind, for this reason: if a person has agreed to provide services to a particular partnership over a period for the future and negotiates a price for that, and is not obliged to serve that particular partnership in any particular way, but is obliged not to exercise his skills elsewhere, in competition, then the defendant can say, "Well, you have suffered no loss, because you have already agreed that you will not do these things."

GLEESON CJ: Or you have limited the amount by which you could exploit your capacity to earn income. Let me give you an example away from the facts of the present case. Suppose a person suffers an injury which results in a loss of earning capacity, but there is evidence that that person had committed himself to work only part-time for the remainder of his life, committed himself either legally or socially, for example, by making an agreement to that effect with his wife. How would that bear upon the assessment of the loss of earning capacity?

MR FRASER: Your Honour, it would certainly bear on it, because the conventional approach has been to identify that where a person has taken early retirement and does not propose to work any more, even if he had residual earning capacity, if he were not disposed to exercise it, whether by agreement or by choice, then, to that extent, he has suffered no loss. So the overriding principle would say, he has lost nothing, in that respect; he does not require compensation.

GLEESON CJ: Or lost less than might appear at first sight.

MR FRASER: Yes, your Honour.

GLEESON CJ: If a man had promised his wife that in future, for the rest of his life, he would only work two days a week, then that would be a factor to take into account, would it not, in measuring his loss of earning capacity?

MR FRASER: Yes, your Honour, but it differs from our present circumstances because the earning capacity is there, not to be exercised, so, whatever the plaintiff in that situation was going to do with the fruits of the exercise of his earning capacity in fact, he would have less amount that he could apply in that way.

HAYNE J: Well how then does that sit with the finding of fact at page 78, at line 22:

I think the high probabilities are they would have continued in partnership until the end of his working life.

Does that not mean that in the face of that finding and in the process of calculation, a discount, perhaps a significant discount, is to be made in the course of the calculation, not as a matter of principle, but driven by the principle that you are estimating this man's loss of capacity?

MR FRASER: Your Honour, because one of the underlying premises for that conclusion is that it was to the advantage of the plaintiff to continue in that way by virtue of the tax structure that had been adopted and the way in which he could get more disposable income for himself and his family rather than less and, to that extent, it is not an answer, in our respectful submission, to the question of how does one assess what the value of the earning capacity of lost is.

KIRBY J: We are not calculating the loss to the family, but calculating the loss to him. The family may or may not have other actions; by the sound of it they do not. We are only looking at his loss.

MR FRASER: But, each occasion upon which he goes to work, he makes a choice as to how he will dispose of his earning capacity. If one looks at the tort as being complete, when the earning capacity is damaged - I am sorry, that cannot be right, because there must be damage first - but if there is damage to the earning capacity, then the way in which that would be exercised in the future is something that the man has lost or the person has lost, in each case.

KIRBY J: Is this what your fundamental proposition is then, that to meet the partnership with the specific terms the Chief Justice mentions, to meet the legal partnership, to meet a complex business partnership or to meet this very simple partnership, fundamentally the Court has to look at the realities in the particular case?

MR FRASER: Yes, your Honour.

KIRBY J: That those realities would tender the answer, as a matter of fact, to the fundamental question of the loss of earning capacity reflected in income and, therefore, you are given some sort of authority to look past the income splitting and say, well that really is not very significant, it was just a device.

MR FRASER: Your Honour, it is not so much a question of looking past the income splitting, but using it as a tool, as part of the evidentiary matters that are brought to account. If, in this case, we had simply tendered the partnership returns and his income tax returns and done nothing else, then the court would be compelled to assess damages based upon the partnership returns and based on half, but, instead of that, we adduced the evidence of how that result was derived and how it was that it was the plaintiff's earning capacity which lead to the total amount being derived for the business. So, it is a question of evidence in each case and, in our submission, the error at the basic level is to confuse the process which requires assessment of lost earning capacity rather than lost earnings. It really cannot be any more than that, because it is the earnings that seem to have been the concern of the trial judge and the court below.

GUMMOW J: Now, is there a particular passage in Seymour v Gough? That seems to be the presently prevailing authority in - - -

MR FRASER: There are two, your Honour.

GUMMOW J: Which you quarrel with.

MR FRASER: The first, your Honour, is at page 95.

KIRBY J: Is this Justice Fitzgerald or Justice Pincus?

MR FRASER: I am sorry, Justice Pincus.

KIRBY J: Justice Pincus.

MR FRASER: This is at the bottom of page 95, about line 46. There is this advance:

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 as well as his physical condition. If a plaintiff is, under provisions in a partnership agreement, excluded from the partnership because he or she is so injured as not to be able to work full-time, one would expect the whole loss to be recoverable, even if disproportionate to the diminution of working capacity.

Well, in our submission, that would offend Graham v Baker, because it is the loss of earning capacity that must be compensated for.

CALLINAN J: Can I ask you, Mr Fraser, in Taroporewalla v Berkery, a New South Wales case, Justice Mahoney said, at page 35:

There is, in my opinion, no single rule which determines the quantification of damages for a plaintiff in such a case. The damages to be awarded will depend on, inter alia, the nature of the partnership and the plaintiff's relationship to the income which would have been derived from it.

You do not need to go any further than that proposition, for this case, do you?

MR FRASER: No, your Honour, we do not.

KIRBY J: But does that not substitute for a fairly simple logical and legal course, that is, you are calculating the earning capacity, as Chief Justice Barwick said, but you are doing it by reference to the financial loss. You therefore look to the financial loss of a particular individual. If they are an employee, you look to their wages; if they are company directors, you look to their income for that purpose; if they are a partner, you look to their income for that purpose; it is a very simple rule. Easy for lawyers, easy for judges, and saving of court time because - - -

GLEESON CJ: And it has the advantage that you do not have to confuse people with the facts.

KIRBY J: Well, you do not have to confuse people with their taxation arrangements, which they want to take advantage of, for tax purposes, but not when the crunch comes and they have to claim against somebody else.

CALLINAN J: Well, I do not know, with respect, about that, because many people today are employed upon very sophisticated packages. It would seem to me to be potentially unjust if perhaps you just looked at the sum of money and did not look at the reality of what the package was worth, which involved having regard to the facts as the Chief Justice has just mentioned.

MR FRASER: We are given some instances: for example, a car for private use, but what about situations where there may be a salary package which includes membership of a club or the education of a child at considerable expense elsewhere, if the person is injured and that is lost, are they matters which will not be brought to account because they do not result in immediate financial loss?

KIRBY J: No one would suggest otherwise, but where there is income splitting, for other purposes of the law, the issue is whether that is or may be productive of a financial loss calculated by reference to what they have for legal purposes done.

MR FRASER: But, your Honour, going back to the illustration: for legal purposes, the amount of tax that the injured employee under a salary package will pay, will be determined by reference to the amount of the salary he receives, exclusive of the balance of the package.

KIRBY J: Does that mean the Commissioner can come back at your client after this and say, "You have not paid tax on this basis and we are going to come at you for the unpaid tax, because you have been compensated on it, an assumption which was not that which you presented to us."?

MR FRASER: But we will never accrue the income in the future; what we will do is receive compensation for something we have lost and we receive that based upon a net, after tax basis, so, logically the Commissioner could not come back at us in that way.

GUMMOW J: Now, you said there were two passages, I think, in Seymour v Gough.

MR FRASER: Yes, your Honour; the second is at page 96, again from Justice Pincus, at about line 30:

I do not understand how the respondent in the present case can be treated as having lost more than the records of the business, whose accuracy is unchallenged, show. Perhaps purely for tax reasons, but nevertheless genuinely, the respondent entered into a partnership with his wife. The consequence of his having done so is that the profits and losses of the business are shared between the partners; one cannot, simply on the grounds that the partnership was probably formed for tax reasons and that the respondent is the dominant partner, justify treating a partnership loss as if it were a loss to that partner alone.

Now, your Honour, it may be that the genesis of Seymour v Gough has led to the result that we now face, because - - -

GUMMOW J: Just before you leave that page 96, it seems his Honour was not impressed with the New South Wales Court of Appeal judgment; is that right? Taroporewalla; he refers to that above on page 96.

MR FRASER: Well, he describes that as:

The reasoning is equivalent to treating as a gift from the husband the wife's excess profits, by which is meant the amount by which the profits earned by her exceeded the value of her contribution of labour to the partnership.

Our submission is that that is going beyond the process of assessment of lost earning capacity. It seems to be expanding upon, or at least entering into, the field of earnings, per se.

KIRBY J: Yes, but it is earnings for the purpose of what is or may be productive financial loss. I mean, in this case, as I understand it, the wife is scarcely doing block laying.

MR FRASER: No, that is right.

KIRBY J: And, therefore, she is doing the minimal activities - I think there is some finding to that effect - and therefore, what is the balance of the amount received by her, except something in the nature of a gift or arrangement of their income which she gets for being a wife rather than being block-layer's assistant?

MR FRASER: Well, your Honour, every moment that they continue with the partnership, that is the situation. In terms of the legal position between the parties, perhaps the wife, in this case, may have been able to assert some rights. Perhaps one of the anomalies, or one of the underlying fallacies, I should say, in the respondents' argument is this: because it is a partnership at will, because there is no agreement as to the work that the appellant had to do, he does not have to work for the partnership. That is a matter of his choice. He may not be able to compete with the partnership while it is going on, but if it is terminated, if it is dissolved, he can do whatever he likes and so the value of the involvement of the husband in the partnership in this case, to the partnership, is negligible, because it is determinable at will. So there is no countervailing consideration that the husband, the appellant here, has given anything away.

HAYNE J: In calculating the value of lost earning capacity, is the trial judge to take any account of the likely course of the plaintiff's productive activities, had, in this case, he not been injured?

MR FRASER: Yes, your Honour. To the extent that he needs to identify how the earning capacity would have been continued to be exercised, he must take into account all - - -

HAYNE J: So, for example, he should take to account whether it was likely that he would be employed as a wage earner or self-employed?

MR FRASER: If the probabilities were that he would be employed as a wage earner, for example, if, at the time he was injured, he applied for and received a - - -

HAYNE J: Whatever the evidentiary base for it, leave aside how you go about proving it, would it be a relevant consideration to know whether it was probable that the plaintiff would have continued as a wage earner for some or all of the remaining part of his working life?

MR FRASER: Yes, your Honour, that would be a relevant consideration to take into account, because it would demonstrate how the plaintiff proposed to exercise his earning capacity and it would assist in the process of valuation.

HAYNE J: And, therefore, is it important that the judge made a finding that it was probable - he said "highly probable" - that this plaintiff would have continued in partnership?

MR FRASER: Well, on our submission, it is irrelevant because it would not have made any difference to the extent to which he would exercise his earning capacity. It is only really in respect of what the plaintiff's future plans are that one looks to identify what may happen so far as the earning capacity is concerned. One does not look to see that his particular structure of remuneration may be in one or other way.

KIRBY J: So that you just completely ignore the fact that he is sharing his income with his spouse? What if it was a good friend, not a spouse, not a partner in the social sense, just some good friend, you just ignore it?

HAYNE J: Or tithing it to his church or giving 50 per cent of it away?

CALLINAN J: Well that is what happened in Meldrum, which is that unreported case. It is referred to in the South Australian case at some length. It went to the Full Court here; I remember it. There the plaintiff was a veterinary surgeon, but it made no distinction between his practice and his farming activities and at that stage he was given massive income tax reductions, which he was doing. The judge, at first instance, assessed damages upon the basis of his net income, which was artificially reduced, because of the way in which he used it, and that was reversed. It is a case perhaps you should look at.

MR FRASER: Your Honour, I have looked at that case, but it really is an illustration that the proceeds of the exercise of the earning capacity are a matter for the particular plaintiff.

CALLINAN J: Exactly, you can utilise the fruits of your earning capacity in any way you like: you can go to the race track and put it on and you might be the worst gambler in the world - - -

MR FRASER: And, if one then looks at the question of, does it make any difference as to how the income is actually derived, the answer must be no, because of the salary package illustration.

KIRBY J: What about the case of the legal partner, the partner in a legal firm, who is the big earner, a sort of litigation expert, and therefore he brings in very big money, as distinct from the poor old conveyancers and others, who are bringing in peanuts, but they share it equally?

MR FRASER: Well, your Honour, if he is wise, perhaps he might like not to complain too much because of the reciprocal nature of the business, but, if a situation of that kind were postulated as going on forever, one would think that human nature, being what it is, it would not last, but if the postulation is that it will go on forever - - -

KIRBY J: No, partners like each other, they get on and they say, "Well, we share and share alike." But his earning capacity is bigger, but his earnings are smaller, because he has got this arrangement, now what is your answer to that?

MR FRASER: The answer is that he has no direct or indirect interest in the result of the exercise of his earning capacity in that sense. If it is purely for reasons of his own comfort, he chooses to recover less than his earning capacity could otherwise derive, then he has made a choice. It is as though, for example - - -

KIRBY J: I must get to the bottom of this, because this tests your proposition outside this little category of income splitting with spouses and partners, social partners. Now, what is the test we lay down for trial judges? "Oh, do not worry about that, do not worry about the income of the solicitor's, his earning capacity", you just look at his earning capacity.

MR FRASER: Well, your Honour, if we assume that there are no other benefits to him, there it is simply a matter of he is content to receive less than his earning capacity would otherwise command, with no countervailing economic advantages, then he would be limited to that, because the exercise of the earning capacity is something that will not be productive of financial loss to anyone, except perhaps to his partners, and they have no claim.

KIRBY J: So that you are not really only looking at earning capacity; you are looking at earning capacity as it is productive of financial loss?

MR FRASER: Your Honour, that is the stricture in Graham v Baker and the stricture is part of the principle. The answer perhaps, if one goes to the next step, is, he cannot be compensated for something in respect of which he suffers no loss at all, if that is the governing principle. So the principle in itself will be applied with sufficient flexibility to identify that if there is no basis for recovery under the dominant principle, then there will be no recovery under the principle, Graham v Baker.

GLEESON CJ: An individual's earning capacity can be diminished, and in some cases entirely destroyed, by circumstances, either personal to the individual or extrinsic to the individual. A person's earning capacity might be diminished because he has made a binding commitment to somebody that he will not exploit it to the full, that he will retire or work only two days a week; it might be diminished or taken away because he chooses to live in an area where it is impossible for him to exploit his talents; it might be diminished because he has entered into a contract, including a partnership agreement with somebody, which produces the result that, irrespective of any future decision he might make for himself, he cannot exploit his earning capacity to the full, so it might turn upon the nature of the particular partnership agreement, as Mr Justice Mahoney said.

MR FRASER: Yes, your Honour, and to that extent, if he does not establish that he has lost anything, he will not receive compensation.

GLEESON CJ: An entertainer, for example, might enter into a partnership arrangement, or an arrangement with a corporation, which binds him hand and foot for years as to the circumstances in which he can exploit his talents, and that would be a matter of fact relevant to a judgment as to the extent to which the accident diminished his earning capacity in a way that was productive of financial loss.

MR FRASER: Yes, your Honour, because he cannot point to loss in so far as something has already gone. That is the distinction. Where a person in the appellant's situation differs is that he has lost the freedom to appropriate or to direct the proceeds of his earning capacity, or its fruits, to use the other expression, in a manner of his choosing. That is taken away from him. It has not already gone.

GLEESON CJ: The circumstance that a partnership is a mere income-splitting arrangement may only be significant because it may be suggestive of the fact that the partnership is at will and one which could readily be put an end to if the person should, for some reason, such as divorce, decide to exert in the future his earning capacity for his own benefit solely.

MR FRASER: Your Honour, in our submission, it would be preferable to come back to the overriding principle to say that, if, from an evidentiary point of view, one regards the fact that the partnership is at will is simply being an indication that, perhaps some time in the future it may not be in existence, that does not allow any prospect of compensation for the ability of the partner to dispose of what he can produce as he sees fit and to his best advantage. So that is what is lost.

KIRBY J: Where is the partnership agreement? Is there a written - - -

MR FRASER: No, your Honour, it is - - -

KIRBY J: No partnership agreement.

MR FRASER: None at all, your Honour.

KIRBY J: Why have we got all this medical evidence in our appeal books? Why are we concerned with that?

MR FRASER: I do not think it assists your Honours at all.

KIRBY J: No, as usual, trees have been felled to give us irrelevant material.

MR FRASER: That is right. Perhaps it is an abundance of enthusiasm from those who prepared it.

KIRBY J: You still have to help us on what is to follow if you are successful in this argument.

MR FRASER: Yes, your Honour.

KIRBY J: I am not suggesting you do that out of your turn. You have been interrupted a lot. You might have some other development of the principle. It may be important for us to know if there is a common theme through the decisions of other States of Australia which support your proposition and/or what has been said in England and in New Zealand and Canada on this and/or what - you have mentioned Professor Luntz and I would be interested to know what Professor Luntz has said.

MR FRASER: Your Honour, I had not proposed to take your Honours to each of the decisions in turn. The references are set out quite fully in the submissions and there is no suggestion they are not accurate, although Justice Gummow pointed out that I may not be entirely correct in one.

KIRBY J: What does the Court of Appeal of Victoria say though? It apparently found a little bit more attractive the Pincus theory.

MR FRASER: Your Honour, I have been unable to locate a Court of Appeal decision in Victoria. That is a single justice decision.

KIRBY J: Single justice, is it? I see.

MR FRASER: The way that it was approached in that case was to say if that principle be correct then, in this case, they do not fall within that principle so there has just been no determination that I have been able to locate. Now, that may be a fault of mine but - - -

KIRBY J: I am surprised, there is a lot of income splitting. One would assume a lot of people are in this position.

MR FRASER: Yes, your Honour, but I researched it as well as I could and could not find anything and I would be surprised because the technique threw up all the other cases in the other States.

HAYNE J: Could I ask you this: loss of earning capacity, does it require consideration of what moneys could have been produced by the exercise of the former earning capacity or does it require consideration of what moneys would have been produced?

MR FRASER: It requires, your Honour, an assessment of what the value of the earning capacity is.

HAYNE J: I should, perhaps, show the knife in the napkin.

MR FRASER: Yes.

HAYNE J: The words are taken from Chief Justice Barwick in Arthur Robinson where his Honour says that:

However much the valuation of the loss of earning capacity involves the consideration of what moneys could have been produced by the exercise of the respondent's former earning capacity, it is the loss of that capacity, and not the failure to receive wages for the future, which is to be the subject of fair compensation.

But his Honour refers to what could have been produced, not what would have been produced and the argument may, perhaps, be encapsulated in that way. Is it "could" or "would"?

MR FRASER: Your Honour, it is "could" to the extent that there would have been an exercise in the earning capacity but it is not directed, as we understand it, to compensating someone who has a magnificent earning capacity but the evidence shows will not exercise it to any extent.

HAYNE J: Does it mean then that the man or woman who was a surgeon, capable of maintaining a fashionable and lucrative practice but who had determined upon going and doing missionary work, is to receive little compensation for loss of future income capacity, loss of capacity to earn?

MR FRASER: No, your Honour, because he has lost what was important to him - - -

HAYNE J: He or she.

MR FRASER: - - - that is, his ability to give away, in a fashion of his choosing what he could achieve by the exercise of his earning capacity.

KIRBY J: So the compensation is for philanthropy.

MR FRASER: Well, you take away from - - -

KIRBY J: Your client to his wife; the surgeon to the missionaries. This is the problem when you focus on capacity, that when you actually start applying the test in the real world and counsel or judges sitting in a case, it is not a very helpful feat to guide us through these waters.

MR FRASER: One illustration of the result of what your Honour has called "philanthropy" is in that Manitoban decision of Turenne that we have listed in our outline. It is the 15th case, Turenne v Chung (1962) 40 WWR 508.

KIRBY J: Your answer to Justice Hayne's question was the test is "could".

MR FRASER: Yes, your Honour.

KIRBY J: And your answer to why it is "could" is because that is his privilege, and he may change his mind anyway, to work for missionaries.

MR FRASER: Yes, your Honour.

KIRBY J: He has lost a capacity, he is entitled to be compensated for the capacity, and everything else is merely an indication of how you get at that capacity as a matter of fact, but what is lost, what the law must focus on is the capacity of capital value.

MR FRASER: But, your Honour, it must be so for the situation of a person who tithes, for example. If he tithes with the proceeds of the actual wages that he receives, if he gives that away, then that would otherwise be a different position to the person who tithes by providing the services in kind and because the services have a value and are able to be valued, then there is no reason in principle to distinguish the two.

GLEESON CJ: A barrister who retires at the age of 50 from practice and goes to become a farmer and who, the following year, is knocked down by a motor car would be compensated by reference to the income of farmers, not the income of barristers, would he not?

MR FRASER: Yes, your Honour.

KIRBY J: Except that, perhaps, would you have to allow something for the fact that he could have changed his mind and gone back to be a barrister? He could even become a judge.

GLEESON CJ: That may depend on the facts and circumstances of the individual case.

MR FRASER: Yes, your Honour. It would be a process of assessment but the critical feature is that he was disposed no longer to exercise his earning capacity.

GLEESON CJ: It might be different if the barrister had said, "I'm going to a farm for a while and I'll decide in five years time whether or not to return to practice".

MR FRASER: Well, that would be an evidentiary consideration as to the assessment of how he would have exercised his earning capacity.

GLEESON CJ: Yes.

KIRBY J: I suppose these figures would plunge if the possibility was that he was going to be appointed as a judge at some future time.

MR FRASER: It would depend, your Honour, to which court and how good his practice was.

CALLINAN J: Mr Fraser, say the facts here were that instead of discontinuing block laying your client had employed somebody else to do the work that he had done and made his contribution to the partnership from the earnings of his employee. What would he be entitled to recover then?

MR FRASER: Your Honour, one would expect that that would find an adjustment in the arrangement between the partners if it were to continue on that basis.

CALLINAN J: Assume it did. There would be no reason why he could not do that if he wanted...[inaudible]...of his rights.

MR FRASER: Your Honour, the bulk of the authorities supports the view that he would find his damage to be assessed based on the cost of the replacement labour.

CALLINAN J: That is what happened in the South Australian case, I think, was it not?

MR FRASER: In each of the cases where it has been considered in more recent times. Some earlier decisions to the contrary were overruled South Australian cases.

CALLINAN J: It seems artificial, does it not, that if he could recover it in that situation but he could not recover it in a situation in which he says that it is just not practical and too onerous to carry on the block laying business any more?

MR FRASER: In fact, in the latter situation, he loses more because he loses the ability to income split. I suppose there is some question about the capital of the partnership and what it might be able to produce but here we are concerned only with earning capacity and that is not a confusion.

CALLINAN J: It is a bit like Griffiths v Kerkemeyer in a way. The damages there do not depend upon whether, in fact, you pay somebody to undertake good care or whether somebody does it voluntarily and gratuitously.

MR FRASER: Your Honour, Griffiths v Kerkemeyer has been treated by this Court as being in a different category.

CALLINAN J: I know but, on principle, the decision stands for the proposition that you do not take account of whether, in fact, actual money is expended or not.

MR FRASER: Certainly, your Honour. I mean, that is how it is approached but, indeed, in the most recent discussion of the case, which we have referred to in our outline, of Medlin v The State Government Insurance Commission [1995] HCA 5; (1994-1995) 182 CLR 1, there is a passage at page 4 that seems to support this view of what is meant by Graham v Baker. Your Honours, that is at about point 1 of page 4 where the response is made in the joint judgment of Justices Deane, Dawson, Toohey and Gaudron to the suggestion that Graham v Baker was inconsistent with the reasoning in Griffiths v Kerkemeyer as follows:

That is not so. No doubt, the considerations which supported the conclusion in those and other cases to the effect that compensation for the increased needs of a plaintiff should not be reduced to take account of the extent that those needs have been or will be satisfied by gratuitous services are applicable to preclude the reduction of damages for loss or impairment of earning capacity by reason of the financial or other support provided by relatives or friends to reduce the deprivations of unemployment. Those considerations are not, however, applicable to entitle a plaintiff to be compensated for diminution in earning capacity as a distinct additional head of economic loss in circumstances where the diminution has had and will have no adverse effect on actual earnings and will be productive of no economic loss.

So there is a bit of a drift away from the pure financial loss concept of the direct financial loss philosophy that might have thought to be one way of looking at Graham v Baker. It also throws up another illustration. If in the family partnership situation, the partnership travels on for a while and substitute wages are employed and payments are made out of the share of capital, for example, that is held by either of the parties, those payments are not payments made in any way intended to reduce the loss which the defendant is liable. They are payments that are simply made in consequence of the need to obtain replacement labour because of the negligence of the tortfeasor.

But, your Honours, may I turn then to the evidence which deals with how the assessment process developed and I can do that very shortly. We have set out the detail of the partnership evidence in paragraphs 2.2.1 to 2.2.7 and to that I should add a reference as to the basis of payment for a block layer:

Blocklayers are paid per block and supply cement and sand.

He does not supply the blocks. That is at the appeal book page 87 paragraph 28. There are minimal capital requirements for such an operation. You have a cement mixer and a utility truck.

GUMMOW J: Was this set out in your outline?

MR FRASER: Most of it is, your Honour. The only matter I was going to take your Honours to was some references that are not included.

KIRBY J: I read what was in the outline but I was not exactly sure what we are to do. You ask us on page 284 to allow the appeal and, in effect, to substitute a different judgment being that which, contingently, the primary judge made.

MR FRASER: Yes, your Honour.

KIRBY J: But if that is a matter of agreement, there is no problem but if it is not - - -

MR FRASER: We are content with that, your Honour. Yes.

KIRBY J: Well, I do not know whether the respondent is but, anyway, we will hear that in due course.

MR FRASER: Yes.

KIRBY J: If it is agreed that if your point of legal principle is correct, that the alternative contingent calculation by the primary judge was that to which you were entitled on your proposition, then we need not get into that.

MR FRASER: Quite, your Honour.

KIRBY J: I just did not quite understand the bits and pieces.

MR FRASER: Your Honour, the bits and pieces that I was going to take your Honours to was against the contingency that some different approach, based on the 80 per cent in New South Wales cases, ought be adopted.

GUMMOW J: You seem to have an agreement, do you not?

MR FRASER: If I do not need to do that then I certainly will not.

GUMMOW J: Well, I do not know.

GLEESON CJ: Is that agreed, Mr Douglas.

MR DOUGLAS: Yes. From our point of view, if our learned friend's contentions get up legally, we are content with the assessment of damages proceeding on the basis that Justice Cullinane did alternatively, $145,000 for past economic loss and $160,000 for future economic loss.

GLEESON CJ: Thank you.

KIRBY J: Well, we do not have to be concerned about those things.

MR FRASER: Your Honour, the only remaining matter was to take your Honours to how the principle was stated in Batt v Wilkinson (1983) 2 Qd R 619 which is the second case in our list of authorities and the passage commences in the judgment at page 623C.

KIRBY J: This is the pre-existing authority?

MR FRASER: Yes, your Honour. In the judgment of Justice Derrington:

It is not easy to translate this authoritative statement into the present situation because there is an added factor which raises doubt as to the meaning of "financial loss", and that is that the plaintiff was actually exercising his full earning capacity.

It is going too far to say that this uncomfortable translation results in the need that the only compensible financial loss which the plaintiff suffers should be confined to a result of less money in his pocket. His earning capacity is an asset providing he uses it in such a way that the deprivation of it causes him a loss of something which he otherwise would have had. If he chose that the fruits of his work were to go to another person, that does not reduce or otherwise affect the validity of his claim to the full value of that which he would have had, but has lost.

CALLINAN J: Mr Fraser, I just see - I was looking at this case you have given us from Manitoba.

MR FRASER: Yes, your Honour.

CALLINAN J: And it involves facts of the kind that one of the members of this Court has just suggested to you, a case in which the plaintiff had dedicated or directed her salary to be paid to a religious order. The court nonetheless held, in a very short judgment, but held that it was not relevant. She was entitled to the full value.

MR FRASER: And, your Honour, the philosophy was what she does with her own incapacity does not matter to the defendant. The only issue is whether she is going to exercise it, although they do not - as your Honour says, it is a very short judgment.

GLEESON CJ: Yes, but it would make a difference if somebody had taken a vow of poverty, would it not?

KIRBY J: We would have to allow for their fact of...[inaudible]...

CALLINAN J: Plenty of vows that are broken, including the marriage ...[inaudible]...as Justice Kirby has gone through.

MR FRASER: Your Honour, it perhaps come from an attempt to treat what is said in Graham v Baker as being by way of a statute. It is not a statute. It is just simply a principle that needs to be applied with the dominant principle in mind and I do not know that I can identify that or expand on that to any great extent.

Your Honour, the other statements from Justice Derrington, which I will not read to your Honours, continue to about point F on page 624 and then the reason for the decision is at about halfway between F and G:

In the case where there is no specific agreement and so no obligation upon the plaintiff to contribute any particular work to the partnership, then the part of his earning capacity which he subscribes is his choice. His work is his to give, not only for his own benefit, but for that of his partner. That part which he gives to his partner is obviously something of value, and if he loses it, he loses a thing of that value. The basic tenet of the opposing view is that, because the plaintiff chooses to make a gift of part of his asset, that part has no value to him. In logic and ordinary human values, this proposition is unacceptable.

KIRBY J: Does that suggest that if the partnership here had been a written one with a whole series of terms and a restrictive covenant on the wife and so on that the position may well have been different?

MR FRASER: Yes, your Honour, because if the result was that the plaintiff could not exercise his earning capacity in any other way than for the partnership and the result of doing that meant that he would be limited in what he might recover, then he would not lose anything to the extent of that limitation.

KIRBY J: Your written submissions, for which I compliment you, are very thorough on the case law but I do not think, apart from the reference to Professor Luntz, there is really much reference to academic or scholarly opinion. Do you not do that up here in Queensland?

MR FRASER: We do, on occasion, your Honour, but in a case where all the authorities - - -

KIRBY J: We do look at these things now, you know. I am sure this issue would have been written about. I mean, there must have been captive tort scholars. It is probably...[inaudible]...of Professor Fleming are full of discussion on this question. Have you looked at that, or not, because I am going to look for it?

MR FRASER: Your Honour, I suppose in this situation where the authority at appellate level seem to favour the proposition so soundly, it took a - - -

KIRBY J: Yes, but they might have all been following each other and then nobody has done the actual hard yards of analysis which is what the academics are paid and have the time to do. What did Professor Luntz say? Have you got an extract of what he said?

MR FRASER: Yes, your Honour, that is the ninth extract that we have provided to your Honour.

KIRBY J: He favours your theory, does he?

MR FRASER: Yes, your Honour, he thought - - -

KIRBY J: Does he propound a test that can be applied on the base of the very simple ones as to what the outcome was?

MR FRASER: It is at page 252 in paragraph 5.5.11 under the heading "Analysis and policy".

KIRBY J: I see he refers to "legal fossil".

MR FRASER: And at paragraph 5.5.13 he deals with the "Measure of loss" and states:

The measure of the loss should, therefore, be: (a) where substitute labour is employed, the full cost of that substitute labour, as in Szittner v Harriott.....and Dahm v Harmer.....plus any additional loss due to the substitute's relative inefficiency (Zachopoulos v SGIC); (b) where no substitute labour is employed, the value of the plaintiff's labour (if that can be readily ascertained, as in Linke v Howard - - -

KIRBY J: That is the sole academic opinion we are going to get?

MR FRASER: Your Honour, the only other matter that I saw which might bear on that issue is the statement by Professor Atiyah 45 ALJ 228 where there is an extensive discussion of "Loss of Earnings or Earning Capacity?" and the point of interest, from our perspective, was that the policy reason behind recovery of damages was said to be - the relevant passage, your Honour, is at page 231:

After all one of the principal social purposes of awarding damages for lost earnings is to enable to the victim to meet his normal commitments-mortgage payments, hire-purchase payments, etc.-without suffering too drastic a change in his ordinary manner of living.

That seemed to be a reasonable statement of why people should recover damages.

GLEESON CJ: Yes, thank you, Mr Fraser. Yes, Mr Douglas.

MR DOUGLAS: If the Court please. In our submission, the factual findings here make this a very particular and clear case. First, there was a partnership which highly probably would have continued between the plaintiff and the defendant for the plaintiff's working life and that is a finding made by Justice Cullinane which is reproduced twice in the appeal book. The second time is at page 264 at about point 5. The second point to make is that there was no evidence that the partnership was a sham.

KIRBY J: No, not suggested it was a sham but it was a partnership of a particular kind in which it is not really the evidence that the spouse played a very active part in block laying.

MR DOUGLAS: That is so. She did some book work which might have been worth a bit over $1,000 a year, your Honour.

KIRBY J: Book work, was it?

MR DOUGLAS: Book work, telephone messaging, those sorts of services, delivering documents sometimes, I think, too, but it was minor work, not comparable to the work done by the plaintiff.

GLEESON CJ: It would not make any difference if she was what is sometimes called a sleeping partner, would it?

MR DOUGLAS: No, it would not, your Honour, not conceptually. Nor was there any evidence that the arrangements were likely to be terminated at will even though, of course, it was a partnership terminable at will and that may, perhaps, distinguish it from the English Court of Appeal decision relied by on by our learned friends of Ward v Newalls Insulation at page 1,730 of that decision.

The fourth relevant fact in this case is that the defendant's partner, his wife, drove the vehicle in which the accident occurred, and I will get back to that later. The plaintiff brought in the partnership income. There was no attempt to measure the loss by the cost of replacement labour nor any factual circumstance which suggested that that should or would have occurred.

Finally, the calculations of loss on either basis of the approach to assessing damages in this case are not the subject of any challenge. In those circumstances, the effect of the plaintiff's argument is that he is entitled to bring an action on behalf of the partnership for a partnership loss dressed up as his loss of earning capacity. Now, in normal circumstances, that argument has a superficially plausible attraction, the argument really being that the true measure of a partner's loss of earning capacity is what he or she is worth to the partnership. It does not withstand proper analysis, however. The true measure, the loss of earning capacity, say of a partner of a firm of pathologists is not the fees brought in by the partner. From them must be deducted expenses and, more importantly, one must test the lost of capacity against the requirement that it be productive of financial loss as your Honour Justice Kirby has pointed out on a number of occasions.

GLEESON CJ: If there were a family law dispute between Mr and Mrs Husher, there is not much doubt about the way the Family Court would go about calculating the earning capacity of Mr Husher, is there?

MR DOUGLAS: They would take into account the fact that after the dissolution of the marriage he would have, by far, the greater earning capacity and take that into account in either providing maintenance or dividing property amongst, I presume, the partners to the marriage.

KIRBY J: But that would be on a different hypothesis than the hypothesis on which damages are calculated in tort. The one has to prove the fact that the marriage has broken down; the other requires a peering into the future to assume that things remain much as they do, but to allow the continuance if they may not.

MR DOUGLAS: Yes. It is the approach in Malec v Hutton, your Honour. You look at what the likelihood is had the accident not occurred and the likelihood here, had the accident not occurred, the high likelihood is that the partnership would have continued. The marriage, as I think it did, would have subsisted and the arrangements as they had been entered into before the accident would have continued.

KIRBY J: But can we craft a wink and nudge rule that everybody knew this is income sharing and this is not the reality. This is to save tax and the law of torts in its grand common law robustness looks at the realities. It just does not worry too much with these tax arrangements.

MR DOUGLAS: Our submission is, your Honour, that the Court should not do that. The closest that we think the courts have come to trying to do that is the New South Wales Court of Appeal decision in Taroporewella. There may be some of your Honours who know it better than I.

KIRBY J: It is before our time.

MR DOUGLAS: Yes, and I will come to that in due course, but there is a curious twist to the facts here, namely, that the wife partner is also the tortfeasor. That highlights why there are conceptual problems in trying to adopt any sort of a wink or nudge rule in an area like this and we have said something about that in our written submissions and I will come back to it shortly.

Getting back to my example of the firm of pathologists, the loss to the partner in that situation must be the partnership profit distribution that he or she might otherwise have earned. Now, the loss to the partnership, of course, is the income able to be brought in by the partner but the partner individually cannot sue for that and nor can the partnership. Those obvious truths in the case of a large firm have become blurred in some of the small partnerships dealt with in the cases on this topic.

Our learned friends seek to justify the approach by equating the loss of a capacity to maintain dependence and lifestyle with the loss of a share of partnership profits and they say that at paragraph 3.1.4 of their written submissions. In our submission, that approach is conceptually wrong and what highlights the error here is the coincidence that the other partner is the tortfeasor, that the error is apparent even without that twist in the facts and, in our submission, one should look at the judgment of Justice Pincus in the passage at page 96 to which our learned friend has already taken the Court to illustrate why, conceptually, the right approach is to take the structure that the parties have chosen and examine the loss based on that structure.

GUMMOW J: But what is the loss? You say examine the loss.

MR DOUGLAS: The loss is the loss of earning capacity as productive of financial loss reflected by the existence of the partnership, taking into account the possibility that in the future other arrangements may be entered into differently by the plaintiff.

HAYNE J: A partnership in which there was only one fee earner.

MR DOUGLAS: Yes.

HAYNE J: Unlike the pathologists.

MR DOUGLAS: Yes, but in which the distribution of profits resulted in profits going to both parties. That is really why this curious coincidence here, that the defendant is the other partner, highlights the difficulty we say the plaintiff faces.

For the reasons we have advanced in our written submissions, an assessment on the basis proposed by the plaintiff will have one or two effects. Either, the defendant would profit from her own wrong in respect of any sums for which the plaintiff should account to her, and an example of a possible situation where such an obligation to account could arise is, particularly for the period between the date of the accident, 24 November 1994, and the date of dissolution of the partnership, 23 March 1996. Those dates you can see are from pages 88 and 90 of the appeal book, respectively.

KIRBY J: Is there not something said in Kars v Kars about looking behind these forms at the reality of the arrangement?

MR DOUGLAS: Kars v Kars does not like an analysis suggesting that, for example, an award of damages, under the rule in Griffiths v Kirkemeyer, is held in trust by the plaintiff for the care giver. Because, as Justice Callinan pointed out earlier, the assessment there is an assessment based on the needs of the plaintiff in circumstances where, to meet those needs, care is required. But the fund taken by the plaintiff as damages is held by him, not in trust for the care giver but in recompense for his needs to dispense as he or she would like, perhaps for the care giver who has already given care but also for possible other future care givers.

We would say it is rather different here, because if the assessment of damages on the basis put forward by our learned friends is correct, it is an assessment based on what is brought into the partnership by this fee earner. In circumstances where there would be a legal obligation, we would submit, for those sorts of damages to be held partly in trust for the other partner or - - -

GUMMOW J: Why? Is this part of partnership law?

MR DOUGLAS: Yes. Let me put it this way by using an example from partnership law we have referred to in our written outline. Say the partnership had suffered loss by reason of a negligent mistake and made to it by some adviser, one partner sues in the name of the partnership for that loss and recovers damages for the period during which the partnership subsists. There would be a liability to account to his or her other partners for the damages obtained.

GUMMOW J: The suit would not have been properly constituted, would it?

MR DOUGLAS: It could have been because one partner can sue in the name of the firm. You could constitute the suit by an action "Smith and Partners, a firm v Jones". The partner bringing the proceedings instructs solicitors to sue in the name of the firm, recovers damages and perhaps has not accounted to the other partners of the firm. There would be a liability to account.

HAYNE J: But this limb of your argument proceeds from the premise, does it not, that "in truth" this is an action brought by the partnership?

MR DOUGLAS: Yes.

HAYNE J: And if the premise fails, the argument fails.

MR DOUGLAS: Yes. Now, in form, it is not an action brought by the partnership, and it could not be. But the approach to the assessment of damages argued by our learned friends is that you should assess the damages as if this were a partnership action. Approaching it that way, we would say, conceptually, what you have is a claim for damages as if it were a partnership action, damages obtained, at least for a period during which the partnership subsisted, based on that assessment where there may be a liability to account to the other partner, she being the tortfeasor.

CALLINAN J: Mr Douglas, in that New South Wales case of - - -

MR DOUGLAS: Taroporewalla or whatever it is, your Honour, yes.

CALLINAN J: The difficult name. Page 39 in the judgment of his Honour Justice Mahoney, just after letter C, his Honour seemed to treat it as decisive there:

The plaintiff's relationship to the partnership and.....his capacity in practice to take whatever profits it earned.

MR DOUGLAS: I was going to come to that passage, your Honour.

CALLINAN J: I think it may be a difficulty for you in the sense that her earlier statements in that case would support you.

MR DOUGLAS: Quite.

CALLINAN J: And his Honour's conclusion, it does not sit entirely happily with some of the earlier statements, I think myself, but that statement seems to be his Honour's conclusion in the matter. His Honour's approach was adopted, in effect, in the English Court of Appeal in the Ward v Newalls Case. But if that statement of principle is right, and if it is a statement of principle, it is really directly against you here, is it not?

MR DOUGLAS: We have arguments against that which I might as well deal with now.

CALLINAN J: I do not want to interrupt you.

MR DOUGLAS: No, it is convenient, I can come back to what I was going to say otherwise. Your Honour Justice Kirby asked is there, in effect, some principle by which one can give a nod to some difference in this area of the law to the normal partnership situation. This really is the most or the highest it seems to be put against us that we have found in this passage that Justice Callinan has referred to in the New South Wales Court of Appeal. There are two issues we would like to make in response to your Honour's question. The first is that, is there evidence here that the plaintiff had the capacity to take whatever profits he earned?

CALLINAN J: It is a partnership at will.

MR DOUGLAS: It is a partnership at will.

CALLINAN J: So he could have discontinued the partnership at any time and then employed his earning capacity solely for his own benefit. He did have the capacity, I would have thought, inevitably, simply because it is a partnership at will. You will tell me if I am wrong about that.

MR DOUGLAS: Well, factually, we do not know whether he could have - - -

KIRBY J: There was a finding in your favour, or this finding's favour to you, that it was highly probable. "Highly probable", I think the word used, that it would continue.

MR DOUGLAS: That is so, your Honour.

CALLINAN J: That is right, but of course what his Honour Justice Mahoney talks about is not a probability, whether he will or will not do it, he talks about capacity.

MR DOUGLAS: But it has to be capacity productive of financial loss, which gets back to the issue of the finding of fact.

CALLINAN J: That capacity to withdraw, I am sorry. He does not talk about probability of whether he will or will not withdraw his services from the partnership, he talks about a capacity to do so.

MR DOUGLAS: Let us assume he had that capacity which, with a partnership terminable well he did have. It is still a question whether he had a capacity in practice to take whatever profits he earned. There is really no evidence about that and one can imagine a number of different possible factual situations which could throw light on it.

CALLINAN J: Could he not do that simply by terminating the partnership and saying, "The only partnership I will either not go into partnership again, or I will only go into partnership upon the basis that proper recognition is given to my efforts."?

MR DOUGLAS: Yes, but if he does that, he still has other potential obligations which would affect his earning capacity as it is productive of financial loss to him.

CALLINAN J: What are they, Mr Douglas?

MR DOUGLAS: Family obligations. Assuming his marriage persists, in respect of paying off the house, he and his wife - - -

CALLINAN J: But that is his money. He can do what he likes with it. That is the Medlin's Case.

MR DOUGLAS: I will come back to that, too, your Honour. I want to make a point about that. He would also have legal obligations to provide support for his wife, say, for example, of the situation your Honour posited occurred in the case of a divorce or a break-up of the marriage. He would have other legal obligations requiring him to pay money to his wife, either by property settlement or by maintenance, in a situation like this.

CALLINAN J: But courts do not reduce the damages of an injured plaintiff because he has three dependent children for whose support he is liable.

MR DOUGLAS: Yes, but the courts look at the assessment of damages based on loss of earning capacity as it is productive of financial loss to the plaintiff. When the court says here that the plaintiff has a capacity in practice to take whatever profits he earned. There is really just no evidence good enough to suggest that this would have been done because of the factual finding made by his Honour, and (b) that it could have been done to a particular degree.

CALLINAN J: I suppose what you say is that the factual finding contradicts the likelihood of any exercise in that capacity, that is the capacity to withdraw from the partnership.

MR DOUGLAS: That is one answer. The second answer which I am coming to is that it does appear quite clearly from his Honour's assessment of future loss of earning capacity that there has been some allowance made for a possible future change in arrangements. Our learned friends say that this is not discernible from the judgment and they say that Justice Derrington's finding, to that effect, they cannot work out. It is really quite clear, however, even if you look at our learned friend's written submissions. Can I take you to paragraphs 2.1.3 and 2.1.4 of those submissions where the figures are collected, and I have done this for convenience because it is the easiest way to see them all together at the one time.

Justice Cullinane, on the alternative basis, asked for by our learned friends at the trial, assessed damages for future loss of earning capacity at $160,000. That is on the basis that the plaintiff recovers all that he would have brought into the partnership. Ergo, if you are looking at a 50:50 split, $80,000 would come in. However, in the trial, he assessed the damages for future loss of earning capacity at $100,000. So, $100,000 minus $80,000 is $20,000, and $20,000 25 per cent of $80,000. It is pretty clear.

GLEESON CJ: Mr Douglas, I think you indicated a little earlier that it is agreed that if the legal argument advanced on behalf of the appellant is correct, then we should reassess damages on the basis of this alternative calculation made by the judge.

MR DOUGLAS: Yes.

GLEESON CJ: Are the parties agreed on what the actual order we should make in that event would be?

MR DOUGLAS: I think we probably could be, yes.

KIRBY J: There is an order sought in the appeal papers.

MR DOUGLAS: Yes, in a particular sum. I will just seek instructions on that.

GLEESON CJ: We would be obliged if you could. We do not want to have to perform any calculations ourselves.

MR DOUGLAS: No.

CALLINAN J: Mr Douglas, are those figures necessarily correct, because the incidence of income tax changes, does it not?

MR DOUGLAS: Your Honour, there was a fair deal of evidence in the trial, not only about the incidence of income tax but also about working conditions in Townsville at the time and whether there had been a slump in the building industry.

CALLINAN J: No, I mean from the point of view of your figure of saying simply that it is the difference between 80 and 100 if, in fact, the income is split, is to be treated as split, then the appellant, in fact, would probably be paying something less in income tax.

KIRBY J: Much less.

CALLINAN J: So it may not be a figure of $80,000, it might be a figure considerably in excess of $80,000.

MR DOUGLAS: Yes, that is the passage in Spargo that Justice Gummow referred to.

CALLINAN J: What I am saying is, I do not think your arithmetic is necessarily correct.

KIRBY J: That is why I raised those questions earlier, because I shared the concern that Justice Callinan has mentioned. But if we are told that - you see, the problem with it is that if we get into the point in Spargo as Justice Gummow drew to attention to, then we have to do it correctly.

MR DOUGLAS: Yes, but that point does not really arise. I concede it is a very significant issue and it is the sort of thing which could be examined at trial but the matter comes before this Court without those arithmetic issues being in question.

GLEESON CJ: Yes. In all events, we would expect that before this hearing concludes, the parties will tell us their agreement as to what the actual order we should make will be if we accept the appellant's legal argument.

MR DOUGLAS: Yes. But getting back to what your Honour Justice Callinan said, if it is the case that this should be taken into account the risk of a future change of arrangements, it has been done. It is obvious that it has been done from the trial judge's findings. So, factually, that issue is covered and there is no reason to allow an appeal on that basis.

CALLINAN J: As a matter of a finding of fact, you say that is so, the way in which I put it to you before.

MR DOUGLAS: Yes, and it is based on the high probability that the partnership would have continued and on the fact that his Honour made an allowance for a higher loss than otherwise would have been the case for future economic loss.

KIRBY J: But forget his 25 per cent, that was just his assessment?

MR DOUGLAS: There is nothing in the evidence to show how it came from. It may well be what your Honour suggested, there is a risk in this society that marriages will break up, that partnerships will dissolve, that future arrangements will change and no doubt that is why he allowed it.

KIRBY J: Yes. Well we do not get into the nuts and bolts of that, do we?

MR DOUGLAS: No, and really there is nothing in the factual finding that would assist you there either.

CALLINAN J: Mr Douglas, I am sorry to go back to this, I just want to be clear about it for my own point of view. I must say I do not, initially, read what Mr Justice Mahoney says as depending upon any finding of fact if the capacity exists. I think you really have to disagree and make a submission that his Honour goes too far on your submission.

MR DOUGLAS: We certainly do. I think we have said in our written submissions that Justice Pincus's views in Seymour v Gough are the rigorous conceptual approach that the Court should adopt in cases like this, particularly in the factual situation present here.

I had said earlier on, I had made some reference to the possibility of an obligation to account. Let us say I am wrong about that. An assessment, however, on the approach adopted by our learned friends would also have the effect that the defendant would, practically speaking, not in rigorous legal conceptual terms, recover damages for pure economic loss arising out of her own wrong, because the probabilities would be that the moneys would be held, partly at least, to benefit her because they are assessed on the basis that it is the moneys that went into the partnership and partnership moneys would have been used to help benefit her.

Those factual complications in the case, in our submission, show why the approach adopted by Justice Pincus's in Seymour v Gough is the path to the proper resolution of this case. Justice Kirby expressed some concern earlier on, for example, about the fact that the actio pro quod provision was not available to a partnership in respect of injuries to a partner. There has been some attempt to modify the law in that respect in South Australia, for example, via section 34 of the Wrongs Act in that State. By that section a spouse may recover for his or her loss due to an injury to the other spouse, impairing the participation of the latter in a business in which they were both engaged. But even, say, that law reform had implemented here, it would not make a difference to this situation because of the fact that the spouse here was the tortfeasor. You could not expect her to be able to recover damages arising out of her own wrong. And even if that partnership were permitted to bringing an actio pro quod, again, you would not expect a law reform of that nature to affect this situation because the defendant is the tortfeasor.

KIRBY J: I have a feeling that there are passages in Kars that stand against these propositions. I may be wrong. Kars gave some hints that you look behind the fact that the tortfeasor is the wrongdoer, and the reality of the fact that she is just the insured - - -

MR DOUGLAS: They did, and in Kars that approach was adopted on the basis of what I submitted before that the approach to assessing damages under the rule in Griffiths v Kirkemeyer is to look at the need of the plaintiff. Now, here, what we are looking at is loss of earning capacity as it is productive of financial loss. The need of the plaintiff is one that exists independently of the fact that the tortfeasor was both the care giver and the tortfeasor. You will still have a need for the services of a care giver in any event. So the fact that that need was created by the tortfeasor who is currently meeting it, is not said in the case to detract from the fact that the damages should be assessed by reference to the need rather than to the loss caused.

HAYNE J: Can the financial loss that this man suffered be described as the loss of what he could have expected to have had at his disposal but for the accident?

MR DOUGLAS: We would submit, if you look at Graham v Baker, the answer should be "would", because it is loss of earning capacity productive of financial loss, and we would say to him.

HAYNE J: Then, is it the loss of what he would have expected to have had at his disposal but for the accident?

MR DOUGLAS: Yes, on the basis that there was a higher probability that the partnership would continue and that he would receive a partnership distribution.

HAYNE J: What he would have had at his disposal but for the accident is the fruits of his labours disposed of according to whatever arrangements he chose to make for their disposition.

MR DOUGLAS: According to whatever arrangements the probabilities were that he made for their distribution. That is Malec v Hutton.

HAYNE J: And, relevantly, the arrangement that it was highly probably he would have made is that he would have continued in an arrangement in which he shared the fruits of his labours with his wife without requiring any significant contribution of either labour or capital by her.

MR DOUGLAS: No, the structure is different. The structure is a partnership, you cannot ignore that.

HAYNE J: I understand that. But what labour or capital does she bring to the partnership other than the $1,000 worth of bookkeeping, message taking, and the like?

MR DOUGLAS: None, but what he receives as the distribution of profits.

HAYNE J: I understand that.

MR DOUGLAS: That brings me to the example Justice Callinan referred to before and your Honour referred to before about a medical doctor who tithes for example, as compared to a medical missionary. Structure is important. Our learned friend referred to the Canadian case where the nursing sister received a salary but directed it to her order. That is a loss of earning capacity productive of financial loss.

HAYNE J: For it was money at her disposal.

MR DOUGLAS: Yes, she received it, and disposed of it; gave it away. Consider, however, Mother Theresa's missionary sisters of charity in India, and somebody who had taken a vow of poverty who works for that, is qualified as a medical doctor but enters a structure in which she receives no income. She has nothing to give away. There is no loss. There is certainly earning capacity but it is not productive of financial loss because she does not receive money.

KIRBY J: We do not have to argue about Mother Theresa because Mother Theresa's great drawing power would have brought in an awful lot of money and the fact that she personally made a vow of poverty, I think it is really muddy waters to bring her case in.

MR DOUGLAS: I can do it quite easily otherwise. You can have a medical missionary who earns a small amount of money - - -

KIRBY J: Yes, Justice Hayne's example of the doctor who tires of the busy life and is sick of Collins Street Melbourne and goes out to Zimbabwe - - -

HAYNE J: To work twice as hard.

MR DOUGLAS: For much less money.

HAYNE J: For one per cent of what otherwise - - -

KIRBY J: There are many such people. I have met them.

MR DOUGLAS: Yes, and the structure is important, your Honour. When you are examining damages for loss of earning capacity, one must look at the structure.

CALLINAN J: Or Gauguin who leaves the stock exchange in Paris to paint in the South Seas. He did not have a bad earning capacity in the end.

MR DOUGLAS: He thought of futures, your Honour, in both senses of the word. Accordingly then, in our submission, either factually or legally, the approach adopted by the learned trial judge is correct and should not be disturbed on the appeal. There is one further issue relating to costs. If our learned friend's argument succeed and a judgment is - - -

KIRBY J: He asked for a special order for costs.

MR DOUGLAS: That is so.

KIRBY J: Because you made an offer of seven. It was lower even than the amount to which he would be entitled if the appeal succeeds. Why should he not get the special order as to costs?

MR DOUGLAS: The only thing we say about that, your Honour, is that it is a discretionary decision to allow solicitor/client costs.

KIRBY J: Why would one not exercise discretion in favour of it? That is the whole point of those rules.

MR DOUGLAS: It is. The only submission we make about that is that, at the time the law in Queensland, at the time the offer was made, was clear in Seymour v Gough and the offer was made on that basis.

KIRBY J: So the assumption would be that that law was incorrect, and that he has valiantly striven and made his decisions on the assumption that he would ultimately come to this Court and get justice according to law.

MR DOUGLAS: That is a good argument against that submission, your Honour, but the submission is that, at the time, Seymour v Gough was the law and it was clear and it was appropriate to make an offer in that - - -

KIRBY J: What is the form of the order in the event that he is entitled to a special order as to costs? Is there some agreement as to what that order would be?

MR DOUGLAS: I think the notice of appeal has - - -

GLEESON CJ: Page 284.

MR DOUGLAS: Thank you, your Honour.

KIRBY J: That is what he is entitled to if the discretion is exercised in his favour on this point?

MR DOUGLAS: Yes.

GLEESON CJ: Have we an agreement on the amount?

MR DOUGLAS: We will send a letter to the Court advising of that.

KIRBY J: Is that the amount at 284?

MR DOUGLAS: Can we send a letter to the Court about that?

GLEESON CJ: Yes, and with that letter you can send the statutory provision that was referred to earlier concerning the - - -.

MR DOUGLAS: The Supreme Court Act?

GLEESON CJ: Yes. Thank you, Mr Douglas. Yes, Mr Fraser.

MR FRASER: Two matters only, your Honours. Firstly, the reference that Justice Kirby, I think, was alluding to in Kars v Kars [1996] HCA 37; (1996) 187 CLR 354 at page 381. The issue is identified in this way:

It is by no means certain that, as urged by the appellant, the provision of voluntary services by a tortfeasor would necessarily be classified as conduct reducing the tortfeasor's liability to the plaintiff, such that the insurer could take advantage of it. Quite apart from the fact that the services in question are typically provided in kind, and without financial recompense, their character for legal purposes would depend upon the intention of the parties.

The second point is that, so far as this posited obligation to account is concerned, earning capacity is a concept. It is not an asset which is beneficially owned by a partnership. Thank you your Honour.

KIRBY J: I wanted to ask Mr Douglas if he had found any academic scholarly opinions on this.

MR DOUGLAS: I am sorry your Honour, we have not got that but we will look.

KIRBY J: We do look at these things now and because it is the sort of area where there is often...[inaudible...]

MR DOUGLAS: I should have realised that now because the last time your Honour - - -

KIRBY J: ...[inaudible]... stuff here, you only want to look at the cases.

GUMMOW J: Footnote 229 of Professor Waddams' book, the third edition on the Law of Damages, refers to some United States authority which, he says, supports the prevailing view in Canada, which is the prevailing view in Australia, but for the case of Seymour.

MR DOUGLAS: Thank you.

GLEESON CJ: We will reserve our decision in this matter.

AT 12.12 PM THE MATTER WAS ADJOURNED