In the matter of AAI Limited & Anor v Marinkovic the appeal court decided that even where a claimant’s previous tax returns were fraudulent or dishonest, this does not prevent the court from determining the claimant’s loss of earning capacity using other evidence at hand, for the purposes of awarding appropriate compensation.
Mr Marinkovic was in a stationary line of traffic when his motor vehicle was struck from behind without warning by a vehicle driven by Mr McNaughton. Mr Marinkovic sustained injuries to his neck, right shoulder and lower back. As a result of those injuries he developed a psychological condition. He was successful in a claim for damages against Mr McNaughton and his insurer, AAI Limited. The defendant’s then sought to appeal the award of damages.
Issues on Appeal
Mr McNaughton and AAI Limited challenged the amount of damages awarded by the District Court on the basis that they were too high. They argued that there were two findings made by the trial judge that should have affected the award, namely that Mr Marinkovic’s tax returns were a “work of fiction” and that Mr Marinkovic was an unreliable witness. They also argued a number of other specific points, including: the awards for damages exceeded that which was claimed; and the trial judge failed to give proper reasons for adopting an uplift of 25 percent.
Therefore, the Court of Appeal had to decide the issue of the proper award of damages.
The trial judge made a number of findings concerning the reliability of Mr Marinkovic based on inconsistencies between his evidence and what was contained in his tax returns. The trial judge said “the most plausible explanation for the inconsistency… is that the [tax returns] are a work of fiction.” Mr McNaughton and AAI Limited argued that this should have caused the trial judge to reject Mr Marinkovic’s evidence. This ought to have in turn influenced the award of damages for loss of earning capacity or economic loss.
The Court of Appeal said there was a misunderstanding as to what was meant by the trial judge. Morrison JA explained that the extent of the finding was that the trial judge did not accept the tax returns as reliable.
Tax returns can be used as evidence in determining the amount of damages to award for loss of earning capacity or economic loss. The Court of Appeal said that where there has not been honest compliance with taxation laws a finding about loss of earning capacity or economic loss can be made on other evidence if there is a sufficient amount to do so.
The trial judge considered medical evidence to suggest Mr Marinkovic was limited in his ability to do anything physical associated with his occupation as a tiler. The trial judge accepted that there was reduced earning capacity. The Court of Appeal said this decision was consistent with the evidence.
The trial judge then had to asses the economic loss that resulted from the reduced earning capacity. In other words, the position Mr Marinkovic would have been in at the time of the trial but for the accident. The trial judge accepted evidence as to what could have been earned if Mr Marinkovic had accepted job offers and then applied a number of discounting factors to account for various possibilities, including physical degeneration that comes with age. The Court of Appeal held that there was no error in his assessment of damages.
The Court of Appeal noted that in Australia, a person is compensated for loss of earning capacity not loss of earnings. The Court quoted McHugh J in Medlin v State Government Insurance Commission where it was said that “earning capacity is an intangible asset. Its value depends on what it is capable of producing. Earnings are evidence of the value of earning capacity but they are not synonymous with the value of lost earnings.” In practice, there is usually little difference.
Award of damages over that pleaded or in the Statement of Loss and Damages
Mr McNaughton and AAI Limited complained that damages awarded were in excess of that claimed in either the Statement of Claim or the Statement of Loss and Damage. They relied on a decision which suggests that where a Statement of Loss and Damage is expressly used as particulars of a pleading; damages in excess of what was pleaded cannot be awarded. It was not expressly pleaded in this case, and therefore, the trial judge was entitled to make an award in excess of that stated.
The appellants were largely unsuccessful in their challenge to the award of damages. The appeal was allowed, but only to substitute a correct interest figure.
There are a number of important lessons that can be learned from this case, including:
- A person is compensated for loss of earning capacity not loss of earnings; and
- Tax returns can be used as evidence in determining the amount of damages to be awarded for loss of earning capacity or economic loss. However, the court is also entitled to determine this on the basis of other evidence.
For more information regarding loss of earning capacity, please contact our Business Development Team or call us on (07) 3252 0011 to book an appointment with one of our specialist No Win No Fee Brisbane Lawyers today.
 (1995) 182 CLR 1