damages matters
Charity begins at home, and justice begins next door
The treatment of gratuitous benefits and services received by a plaintiff in quantifying economic loss
Publication No. 12-02 damages matters 1Introduction
Damages are intended to be compensatory in nature. They are designed to place an injured party back in the position in which it would have been had the relevant alleged wrong not occurred. While these principles have general acceptance, questions may still arise, including: What happens when an independent benefactor steps in to relieve the financial pain of the wrong-doing before damages are assessed? Should the financial impact of that relief be taken into account when quantifying damages, or should it be ignored, with the injured Plaintiff obtaining a “windfall gain” by being, in effect, paid twice? What if the injured Plaintiff takes independent action to reduce the financial impact of the loss, and is successful? Should that success relieve the wrongdoer from responsibility for the payment of damages? In this edition of Damages Matters, Andrew Ross, Partner and Anh Nguyen, Manager in our Sydney office discuss a recent decision of the Victorian Supreme Court of Appeal, Powercor Australia Limited v Thomas [2012] VCSA 87, which highlights an exception to the generally accepted principle that damages awarded in tort should aim to restore the Plaintiff to the position they were in had the tortious act not occurred, and should avoid placing the Plaintiff in a “better off” position.
Andrew Ross is a Partner in the Sydney Forensic team at KordaMentha and specialises in the provision of financial advice, valuation and forensic accounting.
Anh Nguyen is a Manager in the Sydney Forensic team at KordaMentha and specialises in disputes, valuation and financial investigations.
Page 2 damages matters 2Background
Background to Powercor Questions for Determination Australia Limited v Thomas In considering how to quantify Mr Thomas’s loss, [2012] VCSA 87 the judge at first instance formulated the following questions: Mr Thomas owned a farm at Drung, approximately Q1. What is the appropriate method of six kilometres south-east of Horsham in Victoria. assessment of damages in respect of items On ‘Black Saturday’, 7 February 2009, the farm such as loss of fencing, sheds and damage to suffered significant damage as a result of a fire. It stockyards? burnt out about 100 hectares of grazing and cropping land and killed 40 of Mr Thomas’s sheep. Q2. If repair or rectification of the damaged item A shearing shed, stockyards, and garage/farm shed has been or is to be undertaken by the were also damaged or destroyed. Plaintiff’s labour, is the Plaintiff entitled to damages for the labour component of that It was ultimately established that the fire was item? caused by the assembly at the top of a power pole Q3. If yes to 2, are the damages to be measured falling to the ground, with a consequent arcing of by reference to: electricity which ignited stubble in the surrounding paddock. The residual issues for determination at (a) The value of the work done if it were to first instance related solely to the quantum of loss be purchased commercially? suffered by Mr Thomas. (b) The hours that the Plaintiff spent or is to spend in such work? Mr Thomas claimed losses totalling approximately $188,000. His claims in relation to the damaged (c) Some other and if so what measure? fencing included a claim for the labour costs of Q4. If repair or rectification of the damaged item repairing it, calculated at $2,830 per kilometre. That has been or is to be undertaken by the claim was supported by a quote by a locally-based labours of persons other than the Plaintiff, fencing contractor. However, Mr Thomas did not without charges to the Plaintiff but for the engage a fencing contractor to undertake the repair intended benefit of the Plaintiff, is the Plaintiff work on his fences. Rather, the bulk of this repair entitled to damages in respect of that labour work was undertaken by Mr Thomas and a number component? of volunteers. Q5. If yes to 4, are the damages to be measured by reference to: (a) The value of the work done if it were to be purchased commercially? (b) The hours that the volunteer(s) spent or are to spend in such work? (c) Some other, and if so what measure?
Page 3 damages matters 3The Court’s Finding
Decision at first instance Decision on appeal In answer to Question 1, the Court at first instance The Court of Appeal disagreed. In doing so, the held that the appropriate method to quantify Court of Appeal set out a number of relevant Mr Thomas’s loss was to determine: principles, including that: The reasonable commercial cost of removing, In general, the measure of tortious damage to repairing and reinstating the damaged parts of fixtures such as fencing, sheds and stockyards fencing, sheds and stock yards. is the reasonable commercial cost of repairing and/or reinstating them. Moreover, the Court held that it was “immaterial” When goods are damaged by the negligence of that Mr Thomas carried out the work himself or with a tortfeasor, the owner of the goods suffers volunteer labour. The Court awarded damages in immediate loss represented by the diminution in relation to the labour costs for repairing the fences the value of the goods. In the present case, the at the quoted rate of $2,830 per kilometre. loss occurred at the time of the destruction of Powercor appealed. Its central contention was that the fence. an award of damages which disregards the benefits A distinction exists between losses suffered conferred upon Mr Thomson through the altruism of when a tort is committed (“direct loss”) and others would place him in a “better off” position losses suffered subsequently (“consequential than if the tort had not occurred. Specifically, loss”). The principles of mitigation to which Powercor argued, inter alia, that: Powercor referred were applicable to claims for Mr Thomas should only have been entitled to “consequential loss”, not “direct loss”. compensation for his own labour if he could Where an injured party has benefitted from the establish that there was a consequential loss to kindness of others not intended to relieve the his income producing activities as a farmer. wrongdoer of his or her obligation, such benefits Mr Thomas had a duty to mitigate his loss. should be ignored in the assessment of Consistent with accepted principles, where a damages. Plaintiff takes steps to mitigate his loss and those steps are successful, the Defendant is entitled to the benefit arising from those actions and is liable only for the loss as lessened by them. If Mr Thomas repaired the fences himself and was then reimbursed for the associated costs to do so he would have had the fences fixed “for nothing”. Mr Thomas could not recover in respect of damage to fences or other fixtures if that damage was repaired by volunteers.
Page 4 damages matters 4Issues to consider
In considering whether the work done by volunteers The Court of Appeal observed that there was no should be taken into account in assessing evidence to indicate that the work of the Mr Thomson’s damages, the Court of Appeal held volunteers was intended to benefit Powercor that it was necessary to take into consideration the (rather than to help Mr Thomas), and it was intent of those volunteers. The Court of Appeal inherently improbable that it was. As a result, it adopted the following principles articulated by the held that the benefit conferred on Mr Thomas High Court in National Insurance Co of through this act of benevolence should not result in New Zealand v Espagne1: a reduction in Powercor’s liability to make good Mr Thomas’s loss. In assessing damages for personal injuries, However, in adopting the principles from Espagne, benefits that a plaintiff has received or is to the Court of Appeal did not address the second receive from any source other than the scenario considered by the High Court which defendant are not to be regarded as includes recipients of benefits or services under a mitigating his loss, if: pre-existing contractual arrangement. These a. they were received or are to be received benefits may include payments received under an by him as a result of a contract he had accident insurance policy, social benefit pension made before the loss occurred and by the or employee benefit scheme. The High Court express or implied terms of that contract finding suggests that practitioners quantifying they were to be provided notwithstanding damages in these circumstances should consider any rights of action he might have; or seeking advice from instructing Counsel as to the legal treatment of such benefits when faced with b. they were given or promised to him by these facts. way of bounty, to the intent that he should enjoy them in addition to and not in diminution of any claim for damages.
Page 5 damages matters 5Lessons to be learned
This judgment emphasises that the quantification Moreover, the mere fact that charitable assistance of economic loss may depend on more than just a is given to the injured Plaintiff cannot be used by strict analysis of the change in the monetary the wrong-doing Defendant as a means to escape position of the injured Plaintiff. As the facts here responsibility for the loss they have caused. illustrate, there are times where an injured Plaintiff Indeed, it would be a strange outcome if it were who receives an award in damages may end up any different, with the likelihood of a Defendant “better off” (at least in monetary terms), especially being made responsible for the consequences of where they have also had the benefit of support their actions being dependent on whether or not from friends, family or volunteers, or have the injured Plaintiff happened to have these received benefits or services from a source other alternative means of social support. A friend in than the Defendant. need is a friend indeed2. About the authors Andrew Ross Andrew leads the Sydney Forensic practice having joined Partner KordaMentha in January 2010 with over 22 years’ experience in the provision of financial advice, valuation Sydney and forensic accounting. Tel: +61 2 8257 3051 [email protected] Prior to joining KordaMentha, Andrew was a Partner at Arthur Andersen and Ferrier Hodgson in Sydney having also held the role of National Chair of the Forensic Accounting Special Interest Group ‘FASIG’ of the Institute of Chartered Accountants in Australia from 2005 to 2008. Andrew is a prolific writer and frequent speaker on topics related to expert evidence and valuation. He has prepared expert reports for, and given evidence in both Federal and State Courts on numerous occasions.
Anh Nguyen Anh Nguyen is a Manager, and joined the Forensics Team Manager at KordaMentha in January 2010, after beginning his professional career in a similar role at Ferrier Hodgson. Sydney Anh specialises in forensic accounting, disputes and Tel: +61 2 8257 3074 financial investigations [email protected]
Endnotes 1 Powercor Australia Limited v Thomas [2012] VSCA 87 (9 May 2012) 2 First attributed to John Heywood’s A Dialogue Conteynyng at 78ww. Prouerbes and Epigrammes, 1562
This publication, and the information contained therein, is prepared by KordaMentha Forensic Partners and staff. It is of a general nature and is not intended to address the circumstances of any particular individual or entity. It does not constitute advice, legal or otherwise, and should not be relied on as such. Professional advice should be sought prior to actions being taken on any of the information. The authors note that much of the material presented was originally prepared by others and this publication provides a summary of that material and the personal opinions of the authors. Limited liability under a scheme approved under Professional Standards Legislation.
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