Determining Residual Earning Capacity Involves a Practical Assessment

Mead v Kerney [2012] NSWCA 215

Judgment date: 23 July 2012

Jurisdiction: NSW Court of Appeal¹

In Brief

Although a court may find an individual to have a residual earning capacity in theory, it may be of no value where there are no practical job opportunities available for the individual to exercise that capacity.

Background

On 25 November 2001, the plaintiff, Mr Kerney, was severely injured in a motor vehicle accident. Mr Kerney sustained serious ongoing permanent orthopaedic disability in his right leg. His right leg was shortened and he walks with a noticeable limp. At the time of the accident he was employed by Telstra as a senior technician. During the 4 years prior to the trial, Mr Kerney unsuccessfully sought employment. Mr Kerney resides in Kandos which is about one hour's drive from Mudgee.

The primary judge, Garling J, assessed Mr Kerney's damages at $1,756,219.00.

The defendants challenged the primary judge's assessment of economic loss. They contended that the primary judge erred in concluding that, although the plaintiff has a theoretical earning capacity of 40%, that capacity was of no value because there was no prospect of him obtaining work to utilise it.

Mr Kerney cross-appealed and contended that the primary judge erred in:

1. finding that the -plaintiff had any residual earning capacity at all;
2. using the rate of increase of net earnings of a comparable employee to estimate the increases in the Plaintiff's earnings that were likely to have occurred in the absence of his injury;
3. assuming a retirement age of 65 years, rather than 67, in calculating future economic loss.

At trial

The primary judge made the following observations about the onus of proof of residual earning capacity²:

The primary judge opined ³ , that Mr Kerney was fit to work part time in light or restricted duties, probably for no more than 3 hours a day, in a job where he could sit and stand as necessary, and in which he was not required to walk over rough or uneven ground or climb stairs. Accordingly, the primary judge determined Mr Kerney's residual earning capacity from 1 September 2007, when he last saw Dr Harris and was discharged from his care, to date was in the order of 40%.

His Honour then proceeded to determine whether the plaintiff could, as a practical matter, utilise that capacity to obtain work in the geographical area in which it was reasonable for him to seek work. This reflected the approach in Nominal Defendant v Livaja 4 as follows:

The primary judge opined the following circumstances were relevant ⁵ :

1. Mr Kerney was in his mid-30s at the time of the accident and is now aged about 45.
2. The telecommunications field in which Mr Kerney was skilled at the time of the accident had undergone technological change and without undergoing retraining, work in the telecommunications industry would not be open to Mr Kerney.
3. Mr Kerney had lived all his life in Kandos. His elderly parents who are failing in health live there and it cannot be reasonably expected that Mr Kerney should exercise his residual earning capacity by moving away from Kandos.
4. The places open for Mr Kerney to exercise his work capacity are cities and towns within one hour's drive of Kandos.
5. Although Mr Kerney has capacity to work 3 hours a day, Mr Kerney may be in a position of taking more sick leave than would an ordinary employee.

The primary judge found ⁶ :

Therefore, the primary judge concluded Mr Kerney's residual earning capacity had no value and he was entitled to the entirety of his Telstra earnings from the time of the accident up to judgment. His Honour calculated future economic loss upon the basis that, but for the accident, Mr Kerney was likely to have worked at Telstra or a similar employer until the ordinary retirement age of 65 years.

On Appeal

The defendants contended that, as the primary judge deemed it reasonable for Mr Kerney to travel daily to Mudgee for work, they had discharged their evidential onus by proving that Mr Kerney was fit for the kinds of employment that could reasonably be expected to be available in Mudgee. Macfarlan JA found ⁷ there was no evidence from which an inference could be drawn about the availability of particular jobs in Mudgee.

Importantly, Macfarlan JA held ⁸ that the evidence of what occurred in the period of almost 4 years prior to the trial strongly supported the primary judge's finding that there was, or was likely to be, no practically available work for which Mr Kerney's theoretical capacity could be exercised.

The defendants submitted that a percentage lower than 40%, say 25%, should be adopted to reflect the prospect of Mr Kerney utilising his earning capacity in the future. Macfarlan JA rejected this submission for the following reasons ⁹ :

1. Mr Kerney had tried unsuccessfully to obtain employment for nearly 4 years prior to the trial.
2. 2. The evidence at trial offered no reason to suggest that the position would be any different in the future.
3. The appellants did not identify any practical job opportunities that were available to Mr Kerney in the past, which he failed to avail himself or any future opportunities that might arise.

The Cross-Appeal

The plaintiff contended the primary judge erred in not finding that he had no residual earning capacity at all. Macfarlan JA explained ¹⁰ that this was in fact the primary judge's ultimate finding.

The plaintiff complained of the primary judge's use of the rate of increase of a comparable colleague, Mr Wellington's base salary excluding overtime, rather than that of his total earnings. Macfarlan JA ¹¹ found no error in this approach because there was no evidence to suggest that the plaintiff would have worked similarly increasing amounts of overtime.

The plaintiff submitted that the primary judge should have used the movements in average weekly earnings between 2001 and 2011 instead of Mr Wellington's earnings. Macfarlan JA found ¹² that the primary judge did not err in his approach of using the earnings of a comparable colleague rather than the average increases in earnings of workers throughout the economy.

Macfarlan JA did not consider ¹³ that the primary judge erred in his assumption in his calculations of a retirement age of 65 rather than the relevant statutory retirement age of 67 in light of the arduous physical nature of the plaintiff's pre-accident employment.

The Court dismissed the appeal and cross-appeal with costs.

Implications

This case reflects the principle espoused in Nominal Defendant v Livaja ¹⁴ that, notwithstanding the plaintiff's theoretical ability to perform, there must be a practical assessment of the likelihood of the plaintiff in fact obtaining such jobs. In other words, although an individual may have a theoretical work capacity, a court must determine whether the individual could, as a practical matter, exercise that capacity to obtain work.

This determination would, ordinarily, take into account factors such as the plaintiff's age; the nature of work he or she is capable of by reason of qualifications, education and experience; the availability of that work in the area in which the plaintiff lives; together with personal and other circumstances which may impact upon the ability to work.

Footnotes

¹ McColl and Macfarlan JJA and Sackville AJA
² at 190
³ at 206
⁴ [2011] NSWCA 121
⁵ at 213
⁶ at 219
⁷ at 29
⁸ at 32
⁹ at 37
¹⁰ at 42
¹¹ at 45
¹² at 48
¹³ at 49
¹⁴ [2011] NSWCA 121

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