Loss of Capital and the CLA Cap – a Near Miss?
Although not regularly a feature in personal injuries litigation, circumstances arise from time to time in which high income-earning plaintiffs own businesses, and a negligently caused injury causes significant financial loss. When it applies, the Civil Liability Act seeks to cap the past and future loss that can be awarded to the present value of three times average weekly earnings – but will that statutory cap apply to prevent a claim to loss of capital where the value of a business has diminished significantly as a result of the inability of the ‘key player’ to continue to work in it due to accident related injuries?
The issue has been considered in New South Wales in circumstances involving a dependency claim but in the context of a claim to future loss of capital growth, rather than a loss of existing value that had been created prior to the relevant accident.
Not yet having been a contentious issue in any claims heard in Queensland, the issue remains a live one and it seems only a matter of time before an appropriate case is the subject of judicial determination.
In Queensland, the Civil Liability Act (‘CLA’) was amended following the decision in Doughty v Cassidy where the Court found that (the now repealed) section 51 of the Personal Injuries Proceedings Act 2002 required that the Court assess damages by disregarding assumed earnings which exceeded an amount equal to three times average weekly earnings. The restrictive interpretation taken by the court was addressed by the Civil Liability (Dust Diseases) and Other Legislation Amendment Bill 2005 in the explanatory notes which said that:
The decision of the Supreme Court in Doughty v Cassidy had the effect of limiting the awards of damages that may be made for economic loss in personal injury claims further than what was originally intended by Parliament. The proposed amendment makes Parliament’s original intention clear given the decision.
As it presently stands section 54 of the CLA provides:
54 Damages for loss of earnings
- In making an award of damages for loss of earnings, including in a dependency claim, the maximum award a court may make is for an amount equal to the limit fixed by subsection (2).
- The limit is an amount equal to the present value of three times average weekly earnings per week for each week of the period of loss of earnings.
- In this section—
present value means the value when the award is made.
The term ‘average weekly earnings’ is defined in the dictionary in Schedule 2 to the CLA. The relevant definition is:
Average weekly earnings, for a financial year, means the amount of Queensland full-time adult persons ordinary time earnings declared by the Australian Statistician in the original series of the statistician’s average weekly earnings publication most recently published before the start of the financial year.
The dictionary goes on to define ‘loss of earnings’ in the following terms:-
Loss of earnings means—
- past economic loss due to loss of earnings or the deprivation or impairment of earning capacity; and
- future economic loss due to loss of prospective earnings or the deprivation or impairment of prospective earning capacity.
Interpreting Section 54 of the CLA
Presumption Against Removing Rights
As a principle of statutory interpretation, it has long been held that legislation should not be interpreted as removing citizen’s rights unless it does so clearly and unambiguously. For example, in Kriz v King and Anor, McMurdo P with whom Gerrard JA and Helman J agreed, said at :
Because s59 restricts a claimant’s previously unfettered common law right to seek damages for gratuitous services, the section should only be regarded as limiting that common law right if it does so clearly and unambiguously: Potter v Minahan; Bropho v Western Australia; Coco v The Queen and Grice. For that reason, s59(1)(c) should be interpreted in the way which least diminishes a claimant’s common law rights to damages for gratuitous services…
Of course, in more recent times, this presumption seems to have been given less weight and it may be a principle of diminishing importance. But it could be argued that section 54 of the CLA should be interpreted from the starting point of a presumption against the removal of common law rights.
Where there is ambiguity, the court may have regard to extrinsic material such as explanatory notes and second reading speeches – as a result of section 14B of the Acts Interpretation Act 1954, which provides that extrinsic material including the explanatory notes may be taken into account in assisting in interpretation.
The explanatory notes to the Civil Liability (Dust Diseases) and Other Legislation Amendment Bill 2005 are silent on the issue of loss of capital but does make it clear that the legislature thought that the interpretation taken in Doughty v Cassidy was too restrictive. Might that influence a court to construe the CLA in a way which preserves existing heads of damage?
Statutory Cap in New South Wales
The New South Wales version of the Civil Liability Act contains a similar provision to that found in the Queensland legislation – though not the same. As a result, reliance on the NSW decisions is not particularly helpful. Section 12 of the Civil Liability Act 2002 provides:
12 Damages for past or future economic loss—maximum for loss of earnings etc
- This section applies to an award of damages—
- for past economic loss due to loss of earnings or the deprivation or impairment of earning capacity, or
- for future economic loss due to the deprivation or impairment of earning capacity, or
- for the loss of expectation of financial support.
- In the case of any such award, the court is to disregard the amount (if any) by which the claimant’s gross weekly earnings would (but for the injury or death) have exceeded an amount that is three times the amount of average weekly earnings at the date of the award.
The NSW provision has already been found to be problematic in the context of a dependency claim because of the reference to “the claimant’s gross weekly earnings”. The High Court found in Taylor v The Owners – Strata Plan No 11564 that the deceased could not be described as “the claimant”. As a result, the High Court thought that the New South Wales provision could not impose a cap based on the deceased’s gross weekly earnings given that they were not the “claimant”. That situation probably doesn’t arise under the Queensland version of the Act because it specifically includes a dependency claim, whereas the New South Wales legislation does not.
Loss of Capital
There have been many cases in which courts have already determined that a loss of capital on the part of a negligently injured plaintiff is foreseeable and subject to other relevant considerations, will be compensable. For example, in Argent Pty Ltd v Huxley, the plaintiff was injured in a car accident and was the operative force behind a group of companies that manufactured and sold footwear. Hoare J found that when the family had to sell the business following his injuries, because it was sold without the benefit of an efficient manager of experience and business acumen, this depressed the price obtained. At first instance, His Honour said at 339:
In my opinion if these companies can establish that their earnings have diminished to the extent of $X due to their having lost the services of the plaintiff Box, then subject to the limitations of foreseeability (The Wagon Mound  A.C 288) prima facie they are entitled to damages for that amount. It does not appear to me that the principle of foreseeability prevents recovery of proved damage in these circumstances.
Similarly, in Raccanello and Ors v Motor Accident Commission, Deuter J was called on to consider circumstances in which injuries to the plaintiff resulted in a decision being made to sell existing water entitlements because of pressure being applied to them by their financier. The plaintiffs felt they had no alternative but to sell assets. Her Honour found that the losses flowing from the sale of the water entitlements were caused by Mr Raccanello’s inability to return to truck driving until later in 2014 – and that this was solely a consequence of the relevant motor vehicle accident. In reaching this view, Her Honour had regard to the scenario in Wilson v Montemaggioriwhere the Court had found that an injured plaintiff was entitled to recover losses suffered as a result of panicking after a motor vehicle accident and selling a heavily mortgaged property which then triggered additional capital gains tax. The decision to allow the damages for loss caused by the decision to sell was upheld on appeal in Montemaggiori v Wilson.
Statutory Cap in sec 54 CLA
Whilst it seems uncontroversial that a loss of capital can found the basis for an award of damages where it is reasonably foreseeable and flows from the plaintiff’s injuries, black and white soon develops into shades of grey when a statutory cap such as that imposed by section 54 of the CLA applies. It is beyond the scope of this article to consider the issue in the context of a claim per quod servitium (where the High Court in Barclay v Penberthy has identified other restrictions on the recoverability of damages).
In New South Wales, the Court of Appeal had reason to consider a similar (though not identical) cap in Kaplantzi & Anor v Pascoe. The case involved a dependency claim in which the deceased and his wife had conducted several businesses through two companies in which they each held shares. At trial, the primary judge held that the family had suffered financial loss due to the loss of chance that the value of the business assets would have increased, due to the efforts of the deceased. An award was made to loss of these future profits and value creation in a sum of $500,000. At the time, section 125 of the Motor Accidents Compensation Act 1999 provided:
125 Damages for past or future economic loss— maximum for loss of earnings etc
- This section applies to an award of damages:
- for past or future economic loss due to loss of earnings or the deprivation or impairment of earning capacity, or
- for the loss of expectation of financial support.
- In the case of any such award, the court is to disregard the amount (if any) by which the injured or deceased person’s net weekly earnings would (but for the injury or death) have exceeded $2,500.
In allowing an appeal and denying the award of $500,000 the Court of Appeal (Hodgson JA with whom McColl JA and Cripps AJA agreed) said:
In my opinion, the Motor Accidents Compensation Act in general, and s.125 in particular, shows a clear legislative intention that there be an effective limit put on claims by dependants of persons whose efforts would have produced very high financial benefits to those dependants, irrespective of how the remuneration or financial gains of those persons is structured or how their wealth-creating capacity is exercised. In my opinion it would be inconsistent with this intention to give a narrow construction to “net weekly earnings”……
The decision isn’t decisive in interpreting sec 54 of the Queensland CLA, as in Kaplantzi, the court was required to apply legislation that was aligned to that considered by the Queensland Court of Appeal in Doughty v Cassidy. In addition, in Kaplantzi, the contentious award was in relation to future events rather than past. The decision is arguably of little assistance in considering a circumstance in which an injured plaintiff has seen a diminution on value of an asset that had already been created and which existed at the time of the relevant accident.
In AAG v IAG Limited, Principal Member Harris adopted the decision in Kaplantzi and found that the loss of capacity which affected an ability to generate assets, fell within the meaning of “loss of earning capacity” and was otherwise subject to the cap imposed by the legislation.
The Member went on to accept that a loss of earning capacity impacting the goodwill and value of a business, might be recoverable as damages, but thought that it would need to be added to the assessment of past economic loss for the purpose of determining whether the statutory cap had been met.
In Fkiaras v Fkiaras, the primary judge had found that section 125(2) of the Motor Accidents Compensation Act 1999 imposed a maximum on the first step in the process of assessing impairment of earning capacity. Her Honour thought that the word “earnings” included wages but also extended to benefits received from capital gains and trusts as well as dividends from companies. On appeal, the Court (Tobias JA, with whom Hodgson JA and Macfarlan JA agreed) observed that it is loss of earning capacity that is to be compensated, rather than loss of earnings, so income received from a business established pre-accident, by a plaintiff who retained no residual earning capacity, was to be ignored in the calculation of loss. Tobias JA, said:-
 Once it is accepted, as in my opinion it should be, that the reference in s 125 to the word “earnings” is a reference to income earned by the exercise of the injured person’s earning capacity, it follows that the appellants’ construction of s 125(2) must be rejected. This section is concerned with the awarding of past or future economic loss due, relevantly, to the deprivation of the respondent’s earning capacity as a consequence of his injuries. Post-accident, that earning capacity was nil. But for his injuries he had full earning capacity which if exercised would have earned him in excess of the cap the subject of s 125(2).
Importantly, the Court thought that the reference to “earnings” is a reference to income earned by the exercise of the injured person’s earning capacity (which would support the argument that loss of capital is excluded from the cap).
The applicability of the Kaplantzi logic was, however, distinguished in Barden v Seric where the Court was dealing with a claim for loss of opportunity to expand a farming business because of the compensable injuries.
Existing Capital or Assets
In circumstances in which an injured plaintiff has an existing asset (created through pastendeavours) which is reduced in value because of their injury, it is the writer’s view that it is highly arguable that an award of damages for that loss should be undiminished by the cap imposed by section 54 of the CLA.
The New South Wales authorities referred to above are somewhat unhelpful in construing section 54 of the Queensland CLA given the significant amendments made to the Queensland legislation in 2005, following the Doughty decision.
Insofar as past loss is concerned, the court is required to consider past economic loss due to loss of earnings or the deprivation or impairment of earning capacity. Insofar as future economic loss is concerned, the court is concerned with loss of prospective earnings or the deprivation or impairment of prospective earning capacity.
In the author’s view, where the loss is the inability to realise the value of an existing asset where, but for the tortiously caused injuries, that value would have been realised, then a court might not regard the loss as one of a loss of earning capacity. After all, how could the capital loss be seen as “loss of earnings or the deprivation or impairment of earning capacity”- so as to come within the definition of “loss of earnings”? On the other hand, if a claim were made on the basis that the injury caused a loss of ability to continue to grow the capital value of the asset as well as a loss of income, then in the author’s view, those future losses would both properly be categorised as an impairment of prospective earning capacity such that they would be caught by the section 54 cap.
Further complexities arise in cases where corporate entities are used to hold business assets but as an issue of principle, there must surely remain a live prospect that a section 54 CLA cap will not be applied to loss in value of an existing asset caused by compensable injuries. Perhaps, in Queensland, a past loss of capital avoids the CLA cap?
 Civil Liability Act 2003 (Qld).
  QSC 366.
 Explanatory Notes, Civil Liability (Dust Diseases) and Other Legislation Amendment Bill 2005 (Qld) 2.
 Civil Liability Act 2003 (Qld) s 54.
  1 Qd R 327.
 See for example, Coffey v Queensland  QCA 291, -, Daly v Thiering (2013) 249 CLR 381, -; King v Philcox (2015) 255 304, .
 Doughty v Cassidy  QSC 366.
 Civil Liability Act 2002 (NSW) s 12.
  HCA 9.
  Qd R 331.
 Ibid, 339.
  SADC 84.
  WADC 55.
  WASA 177.
  HCA 40.
  NSWCA 386.
 Motor Accidents Compensation Act 1999 (NSW) s 125.
 Kaplantzi & Anor v Pascoe  NSWCA 386, .
 Doughty v Cassidy  QSC 366.
  NSWPIC 57.
 Ibid, .
 Ibid, .
 (District Court of New South Wales, Truss DCJ, 28 August 2009).
 Fkiaras v Fkiaras  NSWCA 116.
 Ibid, .
  NSWSC 1480.
 It might be different however if the asset was held in a corporate entity – but that situation is beyond the scope of this article.