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Damages, professional negligence

Sadi Mustafa Karabay v Malcolm Carr t/as Forshaws Neill Solicitors & Anor [2012] NSWSC 1386. Hidden J.

After quoting from Johnson v Perez [1988] HCA 64, (1988) 166 CLR 351, Wilson, Toohey and Gaudron JJ at 366-7, and Nikolaou v Papasavas [1989] HCA 11, (1988-89) 166 CLR 394, Hidden J said:

[31] The approach to the assessment of damages in cases of this kind was recently revisited by the Court of Appeal in Firth v Sutton [2010] NSWCA 90 [see summary below]. The effect of the judgment of Allsop P, with whom Macfarlan and Young JJA agreed, at [159] ff is succinctly summarised in the submissions of Mr Braham and Mr Smith as follows: 

(a) arrive at a notional award; 

(b) apply a discount for the contingency of obtaining a judgment; 

(c) deduct the cost of obtaining the notional award (non-recoverable costs); 

(d) deduct for receipts such as social security; 

(e) add interest (under the Civil Liability Act 2002).

Firth v Sutton [2010] NSWCA 90. Allsop P, Macfarlan & Young JJA agreeing. 

An employed solicitor was held to have neglected to advise with respect to common law in a young woman’s 1998 supermarket lifting injury claim, which settled for ss 66/67 $27,500 the following year.

In his leading judgment, Allsop P detailed facts, the prompt conduct of the claim, 1987 Act provisions, and evidence in the District Court. His Honour noted Johnson v Perez (1988) 166 CLR 351, Willis v The Commonwealth (1946) 73 CLR 105, Nikolaou v Papasavas (1989) 166 CLR 394 to admissibility of evidence of actual occurrences in putative reckonings.

The President determined [156] a solicitor acting reasonably in 1999 and the notional trial judge would have awarded $330,596.42, comprising nel $80,000, past OPs $ 2,350.80, future OPs $85,000, past economic loss $2,445.62, fel buffer $100,000, superannuation $10,800, and future domestic assistance $45,000.

Deductions from the notional judgment sum were: solicitor client costs for obtaining it, past workers compensation payments, the value of future workers compensation payments, and a discount for the contingencies of obtaining the judgment.

“I think a one third deduction should be made if the chance of showing breach of duty was 70 per cent. That is an arbitrary calculation, but it reflects an overall broad brush analysis of the attendant chances of pursuing the common law litigation,” Allsop P said [in 160].

“A dispute arose whether this percentage should be deducted before or after the other deductions to which I have referred were made. In my view, the defendant is correct and this discount or deduction should be made before the other deductions. The aim of the assessment of the notional common law claim is not to provide Ms Sutton with the common law damages she would have received but to give her the value of the lost chance of such a claim. That assessment necessarily must take into account the contingencies and risks of obtaining that valuable judgment.

"Only when that has been assessed should the real value of what she has received be brought to account. In other words, what should be brought to account is the full value of what is possessed – the WC entitlements. To deduct these from the notional sum and only afterwards discount for the loss of the chance of obtaining the judgment at common law is to devalue, for no relevant reason, the value of what is possessed in the form of the WC Act entitlements: see F Green v Berry [2001] 1 Qd R 605 and Chamberlain v Ormsby [2005] NSWCA 454. [161]

One third deduction left $220,397.61. Then deducting solicitor client costs of $25,000 yielded $195,397.61. Then deducted [166] was the value of all compensation received, $87,193.70, leaving $108,203.91.

Evaluating future workers compensation was complex. Allsop P determined a deduction of $55,000 for future medical expenses compensation [172], leaving $53,203.91.

To weeklies: “Given that the payments are ongoing they are subject to the vicissitudes of re-evaluation from time to time and the risk of views being taken by insurance company employees over the years of circumstances affecting her entitlement.

"In other words, over the years, Ms Sutton faces the risk of the insurance company taking a view as to her entitlements contrary to her interests. She may need to engage in litigation in enforcing those rights, and expend money in that regard.

"These are practical risks inherent in a long term reliance upon a stream of income from the insurer dependent upon value judgments (which common experience reveals would be contestable) from time to time as to underlying condition and extent of wage loss. Further, there is the risk of further amendment to the WC Act, which might be unfavourable to the interests of Ms Sutton,” his Honour said [in 184].

“n the necessary absence of likely precise future calculations for partial incapacity entitlements, a relevant starting point can be seen to be a buffer of something in the order of $100,000, allowing for the reduction in the 9 years of income stream since the notional trial, the further delay in claiming while her children grow up and the present value of money compared to 2000.

"The discount for the chance involved in gaining that sum of one third that I have found does not apply to these future rights under the WC Act. That one third discount was for the risks involved in running and succeeding in the piece of litigation posited to take place in July 2000. I accept, however, the arguments put forward on the cross-appeal that there should be deductions for the risks involved in the future operation of the WC Act regime, which would include the expenditure of money on legal fees.

"I consider that a one third contingency is appropriate. It also, through a broad brush approach, makes roughly equivalent the worth of the further economic components of the notional trial verdict and the future benefits under the WC Act.

"Given Ms Sutton’s circumstances and likely average wage levels and the operation of the WC Act, especially provisions ss 40, 40A, 42 and 68A, that brings about a certain symmetry which has a rational and just basis. I would therefore deduct $66,000 for the worth of future economic entitlements.”[185]

Those sums resulted in a deficit before interest. At the date of the notional trial in 1999, the value of the lost action was $195,397.61, after deductions for contingencies of the lost chance and solicitor client costs.

The President said [188]: “This was the value of the chose in action on 1 September 1999 valued at the date of the notional trial. A component of interest should be added to that sum to reflect the deprivation that Ms Sutton suffered in not receiving it in 2000.

"That interest calculation should, however, take into account the timing of payments of workers compensation entitlements received to the date of the professional negligence trial. These totalled $87,193.70. They were received during the period 1998 to 2009. For present purposes, I will simply deduct that sum from the net value of the chose in action at 1 July 2000 ($195,397.61) giving a rounded down sum of $108,000. This backdating of the amounts received in WC Act benefits to 1 July 2000 is probably to the disadvantage of Ms Sutton. One of the benefits of the lump sum payment was its ability to earn interest. The lump sum could have earned interest, although it would have been drawn down upon for various expenses from time to time.”

Then [191], “Approaching the matter this way, Ms Sutton would be entitled to a judgment calculated by adding interest under the long term bond rate to $195,397.61 from 1 July 2000 until March 2009 adjusting, however, for a temporal component fairly assessing the time of the receipt of the actual benefits for workers compensation entitlements. From that total sum there should be deducted the assessments for the worth of future entitlements under the workers compensation legislation being $55,000 for medical expenses and $66,000 for future wage loss entitlements.”

Further submissions to interest were required.

His Honour found the respondent would have elected to common law.

“It can be accepted that the decision would have been a marginal one. That is reflected by the calculations I have made about loss. That Ms Sutton could be in a worse position (before the assessment of interest in the way I have suggested) is a reflection of the proper accounting for risk of the gaining of the common law claim and the necessity to bring to account the full value of benefits received under the WC Act. The importance of the calculation of interest from the date of the notional trial reflects, in itself, the value of the lump sum which Ms Sutton saw as important,” Allsop P said [195].

Appeal allowed, orders pending submissions to interest and costs,

A: G M Watson SC, R Goodridge, inst Firths. R: K W Andrews, inst Brennan Legal.







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