HIGH COURT CONSIDERS RECOVERABLE ECONOMIC LOSS IN THE ‘LOST YEARS’ FOLLOWING DEATH

Legal Directions

Publication of Reasons 13 June 2018

Amaca Pty Limited v Latz, Latz v Amaca Pty Limited [2018] HCA 22

Summary

In hearing the appeal stemming from the South Australian litigation involving Amaca Pty Limited and Mr Latz (Latz), discussed in our Stop Press article of 3 November 2017, the High Court grappled with the issues of whether the loss of expected receipt of the age pension and/or a Commonwealth superannuation pension after the negligently caused (premature) death sounded in damages and, in the case of the superannuation pension, if so, whether it was appropriate to reduce the entitlement to damages by the value of the reversionary pension payable to a dependant. The Court considered whether the claims fell within the heads of loss identified as compensable for negligently inflicted personal injury by the High Court in CSR Limited v Eddy (2005) and as to the general principles of compensation for ‘economic loss’.

The Court unanimously held that the age pension did not give rise to a compensable loss; however, it was divided in its consideration of the entitlements arising from a statutory superannuation pension. The majority held that a superannuation pension was a compensable economic loss and that the measure of that loss was calculated with a reduction to take into account the value of the reversionary pension to a dependant, if any. The minority held that a superannuation pension did not constitute compensable economic loss but, if it did, the damages should not be reduced by the extent of a revisionary pension. In coming to that conclusion, the minority identified a need for legislative intervention to clarify the entitlements arising from statutory-based superannuation schemes.

Facts

Mr Latz developed mesothelioma as a consequence of exposure to asbestos dust and fibre from Amaca’s products. It was uncontroversial that Amaca was negligent and that the mesothelioma arose as a consequence of that negligence. The disease manifested after Mr Latz had retired from work and at a time when he was in receipt of both the Commonwealth age pension and a statutory Commonwealth superannuation pension. Upon Mr Latz’s retirement, he had made a binding election to receive the superannuation pension as an ongoing payment for life rather than a lump sum. Mr Latz had a dependent spouse who was, upon his death, entitled to a pension for the balance of her life, measured at two thirds of the annual entitlement received by Mr Latz at the time of his death.

Mr Latz commenced proceedings in the District Court of South Australia seeking damages. Relevant to the issues on appeal, he sought damages for the loss of the benefit of both the aged and the superannuation pensions for 16 years, being his expectation of life beyond the date of his expected death as a consequence of mesothelioma. Amaca argued that neither the age nor the superannuation pension represented a recoverable loss under Australian law; however, if the superannuation pension was a recoverable loss, the measure of that loss must be reduced by the quantum of the reversionary pension.

At trial, the plaintiff prevailed in both arguments and Amaca failed on its argument relevant to the calculation of the quantum of the loss. Amaca appealed to the Full Court of the Supreme Court of South Australia (the Full Court).

The Full Court rejected Amaca’s arguments that neither the age pension nor the superannuation pension constituted a recoverable loss. However, it upheld Amaca’s appeal as to quantification of the loss. The majority of the Full Court held that it was appropriate to take into account the current lump sum value of the reversionary pension to assess the value of the damages for the loss of the superannuation pension.

Both Amaca and Mr Latz obtained grants of special leave to appeal to the High Court of Australia – Amaca on the arguments relevant to the availability of damages (if any) for the age pension and the superannuation pension, Mr Latz on the quantification of the superannuation pension.

The High Court

The Superannuation Pension

Significant argument developed as to whether the three category of damages available for personal injury identified by the High Court in CSR Limited v Eddy were exhaustive. Those categories comprise:

  • Non-pecuniary loss, being loss of the amenities of life
  • Loss of earning capacity
  • Actual financial loss, being outgoings incurred by reason of the injury.

Although Mr Latz argued that the categories were not exhaustive and, as such, if the pension claims did not fall within ‘loss of earning capacity’, they were nonetheless recoverable, the High Court unanimously rejected that submission and held that the categories identified in Eddy were exhaustive. A difference in view arose on the question of whether the pensions fell within the category of ‘loss of earning capacity’.

The majority (comprising Justices Bell, Gageler, Nettle, Gordon and Edelman) held that the superannuation pension comprised loss of economic capacity. The majority held that the ‘loss of earning capacity’ is appropriately described as a capital asset, being the capacity to earn money from the use of personal skills.

The majority went on to note the fairly straightforward approach applied towards a person who suffers injury during their working lifetime and consequently suffers a reduction in one or both of their income and their life expectancy.

In accordance with the decision of the High Court in Todorovic v Waller, the majority restated that the objective in those circumstances was to award a sum of money that will, as nearly as possible, put the claimant into the same position as if they had not sustained an injury. In that respect, the Court had historically held – correctly in the majority’s view – that a person suffering personal injury during their working life was entitled to damages to compensate for loss of superannuation benefits, being an assessment made specific to the particular claimant involved. Todorovic operated on the basis that loss of superannuation benefits is valued separately and as a subset of the claim for loss of economic capacity. The rationale for this approach was accepted to be recognition that superannuation benefits are part of remuneration and comprise a capital asset constituted by the body of the rights which the claimant has as a result of both national statutory superannuation requirements plus the superannuation arrangements available to that claimant. Consequently, valuation of the lost rights must take into account the specific content of those rights, including taking into account the probable period of the claimant’s working life, rather than the period to anticipated death as a result of the negligence.

The majority rejected Amaca’s argument that a relevant difference arises in circumstances where the impact of the negligence occurred when Mr Latz was a retiree. Amaca argued that the impact of the loss of the superannuation benefits was felt by his family members after his death and thus does not constitute the relevant ‘personal loss’ required to be compensable. The majority held that Mr Latz had suffered a personal loss which can be quantified.

The Court held that the value of the asset constituted by Mr Latz’s rights under the superannuation legislation had been diminished by the mesothelioma, since the value of those entitlements would have, but for Amaca’s negligence, been more valuable. The Court considered Mr Latz had lost the net present value of the benefit of the converted capital asset for the remainder of his pre-illness life expectancy – that is, the extra 16 years. In reaching that conclusion, the majority accepted Mr Latz’s submission that the entitlement to the superannuation pension is appropriately categorised as delayed remuneration for current work and consequently, was intrinsically connected to earning capacity as representing a type of remuneration that is reward for work.

The majority considered that it would be incongruent to decide against awarding Mr Latz damages for the future expectation of superannuation benefits in circumstances where, had he developed mesothelioma before he retired, he would have been entitled to recover damages for the expected future loss.

The minority (comprising Chief Justice Kiefel and Justice Keane) did not accept that a reduction in the superannuation pension comprised loss of economic capacity under Australian law. The minority characterised the superannuation pension entitlements as being akin to the enjoyment of the benefit of an asset pool earned prior to retirement. That was not recognised under Australian law as loss of economic capacity. In reaching this conclusion, the minority identified the distinction between compensable economic loss in the UK and in Australia, noting a number of Australian authorities to have rejected the UK approach.

In essence, the minority held that in order to be compensable in damages, it was necessary for the loss to be sustained as a consequence of a reduction in, or impact on, the immediate and future capacity to actually work rather than enjoy the accumulated benefit of having worked.

The Reversionary Pension

The majority, having decided the superannuation pension sounded in damages, moved to consideration of how the quantum of that damage should be assessed. In considering the relevant legislation, the majority held that the entitlement to the future superannuation pension must be assessed holistically to take into account the value of that pension, both to the claimant and to an eligible dependant. That ‘picked up’ the methodology utilised by the majority of the Full Court in assessing the pension entitlements as a ‘composite benefit’ to Mr Latz and his spouse. In doing so, the majority held that the calculation was correctly made by the Full Court.

The minority disagreed with taking that approach, noting the incongruity between a claimant’s entitlements to damages being dependent upon whether the claimant had a defined dependant, as contemplated by the legislation. The minority, consistent with the dissenting decision in the Full Court, construed the legislation to provide independent benefits to the claimant and to the dependant. Accordingly, the minority decided that if a state superannuation pension constituted recoverable damages, then the reversionary pension should not be applied to reduce that entitlement, because the reversionary pension provided a separate and distinct right to a dependant to receive the superannuation pension vested in the claimant.

The Age Pension

The High Court unanimously held that the age pension was not of a character to sound in damages. Quite different from the superannuation pension (which was held by the majority to arise from the direct earnings of the claimant), the High Court unanimously held that as the age pension did not derive from the earning capacity of the recipient, it did not constitute recoverable economic loss.

Conclusion

Latz is helpful in confirming that the categories of loss for personal injury particularised in Eddy are exhaustive under Australian law. Having said that, the decision shows that consideration of what constitutes ‘loss of earning capacity’ involves a complicated analysis.

It may also be that this case provides arguable authority to permit claims for loss of anticipated future earnings from an annuity outside a statutory superannuation scheme, although the decision of the minority is strongly against including that class of claim within recoverable loss.

It is, however, plain that the future entitlement to the benefit of a superannuation pension (and arguably, an alternatively passive income stream) by a dependant is to be taken into account in assessing the current lump sum value of any loss. That, of itself, provides a benefit to defendants in toxic tort litigation as, historically, claims have been pressed by claimants for the loss of statutory superannuation benefits without taking into account the reversionary pension.

Further information / assistance regarding the issues raised in this article is available from the author, Stephen Taylor-Jones, Partner, or your usual contact at Moray & Agnew.


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