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Supersized Loss of Dependency Claims? High Court says YES

NewsFlash 03 April 2014

On 2 April 2014 the High Court delivered a judgement that has the potential to substantially increase the quantum of claims by dependents following a death.1  The decision clarifies the operation of the cap on damages for loss of financial support in a claim under the Compensation to Relatives Act 1897 (NSW) but has implications for all Australian jurisdictions.

Calculation of loss of financial support

Following the 2002 reforms, tort legislation in most Australian jurisdictions includes a cap on damages for loss of earnings and loss of financial support following personal injury or death.  In NSW the relevant provision is Section 12 of the Civil Liability Act 2002 (CLA)2:

  1. This section applies to an award of damages:
  1. for past economic loss due to loss of earnings or the deprivation or impairment of earnings capacity; or
  2. for future economic loss due to the deprivation or impairment of earning capacity; or
  3. for the loss of expectation of financial support.
  1. In the case of any such award, the court is to disregard the amount (if any) by which the claimant’s gross weekly earnings would (but for the injury or death) have exceeded an amount that is 3 times the amount of average weekly earnings at the date of the award. (Emphasis added)

Background and lower court decisions

Mr Taylor was a land surveyor in private practice who was killed when an awning outside a shop collapsed. It was accepted that his likely future earnings would have exceeded the cap.  The issue before the Court was whether the cap referred to in Section 21(2) applied to the deceased’s likely post-death earnings, or to Mrs Taylor’s earnings.  Uncertainty regarding this issue arises in part from the absence of a definition of ‘claimant’ in the CLA.3

The trial judge, Justice Garling, agreed to determine this issue as a preliminary matter.  His Honour determined that consistency with the purpose of the civil liability legislation required that Section 12(2) be interpreted as applying the cap to the earnings of “the deceased upon whose earnings the claim depends.” 4 Mrs Taylor appealed.

In the NSW Court of Appeal 5 McColl JA agreed that the application of the cap to the claimant’s earnings was inconsistent with the purpose of the legislation. 6 Her Honour compared Section 12(2) with similar provisions of motor accident and workers compensation legislation, which apply the cap to the injured or deceased’s earnings. 7 Her Honour noted that the 2002 tort reforms essentially adopted the relevant part of the Health Care Liability Act 2001 (NSW) into the CLA and observed that the omission of a reference to the deceased’s earnings in that Act was not corrected when amending the CLA.  McColl JA described this as “a plain case of a drafting mistake” that was overlooked by the drafter of the CLA. 8 The appeal was dismissed but Mrs Taylor was granted special leave to appeal to the High Court.

High Court decision

Mrs Taylor submitted that McColl JA had erred by effectively re-writing Section 12(2) and not interpreting that section with its ordinary meaning.  The respondents argued that the words “expectation of financial support” in Section 12(1)(c) refer to benefits to be derived from the deceased’s income and therefore an expanded interpretation of “claimant’s gross weekly earnings” was required.

The majority (French CJ, Crennan & Bell JJ) agreed with Mrs Taylor and found that principles of statutory construction require that the cap apply only to the claimant’s earnings.  Their Honours held that expanding the reference to ‘claimant’ in Section 12(2) to include the deceased “cannot be reconciled with the language that Parliament has enacted.” 9

The majority held that:

“The purpose of s12 may be identified as the limitation of the component of the award that is assessed by reference to a claimant’s high earnings, in claims for personal injury damages brought by or on behalf of high-earning individuals.  The fact that the occasions for the application of the s12(2) limitation in Relatives Act awards may be infrequent is not a reason for identifying some different legislative purpose outside the terms of the statute.” 10

The minority (Gageler & Keane JJ) agreed with the NSW Court of Appeal that Section 12(2) should be interpreted as a reference to the earnings of the deceased on which the claimant relies.  The minority observed that the alternative – the approach adopted by the majority – would render the cap redundant in claims for loss of dependency because it would never apply to the subject of the claimant’s alleged loss.

Implications for dependency claims

The High Court’s decision has the potential to significantly increase the quantum of claims for loss of reliance on the earnings of deceased high-income earners.  The decision permits a dependant claimant to be awarded their dependency on the deceased’s full wage for the remainder of the deceased’s expected working life.  In a case relating to a deceased corporate executive or other high-income earner this could result in claimants being awarded sums substantially in excess of the current cap (presently highest in the ACT at $5,016 per week, equivalent to $262,086 per year).

Further, it is uncertain how this decision will affect claims where both the claimant and the deceased were earning income at the date of the death.  Calculation of damages for loss of dependency involves applying actuarial dependency percentages to calculate the level of the claimant’s dependency on the deceased’s income.  It is unclear whether the cap should be applied to the claimant’s income before or after calculating the dependency percentage.  If the cap is to be applied before calculating the dependency percentage, this could have the effect of decreasing the claimant’s earnings and increasing the share of the deceased’s income that they could claim.

At present we are unaware of moves to amend the relevant legislation to include references to the deceased’s income.  In the absence of changes to the legislation the High Court’s decision will affect all jurisdictions with similar damages provisions.

Insurers and defendants to claims for loss of dependency should re-assess existing claims for loss of financial support to ensure they are aware of the potential quantum of those claims and ensure that assessments of future claims are consistent with the High Court’s decision.

1 Taylor v The Owners – Strata Plan No 11564 & Ors [2014] HCA 9
2 An identical provision is included in the Victorian Wrongs Act 1958 – Section 28F
3 A definition of ‘claimant’ was repealed by the Civil Liability Amendment (Personal Responsibility) Act 2002 (NSW). Section 28B of the Victorian Wrongs Act includes a definition of ‘claimant’: “a person who makes or is entitled to make a claim for personal injury damages”
4 [2012] NSWSC 842, at [60], per Garling J
5 [2013] NSWCA 55
6 [2013] NSWCA 55 at [24]-[45], Basten JA and Hoeben JA agreeing
7 See Section 151I Workers Compensation Act 1987 (NSW) and Section 125 Motor Accidents Compensation Act 1999 (NSW)
8 [2013] NSWCA 55, at [42]
9 [2014] HCA 9 at [41]
10 [2014] HCA 9 at [44]

John Petts, Partner

NewsFlash 03 April 2014
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