THE FIRTH V SUTTON DECISIONS

Transcription

1 THE FIRTH V SUTTON DECISIONS Introduction In professional negligence proceedings against a solicitor, the court s aim is to determine what amount of money would put the plaintiff in the position he would have been in had the solicitor not been negligent. 1 Frequently, in claims involving lost personal injury actions, a plaintiff will sue his or her former solicitor for a failure to give adequate advice concerning alternative rights against the notional tortfeasor. Accordingly, the allegation against the solicitor is that this failure caused the plaintiff to pursue a right that was less valuable than his or her alternative rights. The proceedings against the solicitor will then involve a comparison between what the plaintiff has received, and what he or she would have received had he or she pursued their alternative rights. This can arise in situations, for instance, where a plaintiff is injured in the workforce and has the option to pursue a common law action against the employer, or alternatively, to pursue their workers compensation rights. The comparison between the alternative rights ordinarily involves the application of discounts and deductions, to ascertain if the plaintiff in fact has lost a valuable right by reason of the solicitor s negligence. Earlier this year, the Court of Appeal in Firth v Sutton [2010] NSWCA 90 and Firth v Sutton [2010] NSWCA 109, refined the approach that should be taken with respect to discounts and deductions. The court also endorsed a different approach to the calculation of interest. Collectively, these changes may have a substantial effect on the assessment of damages in proceedings against solicitors involving a claim for the lost opportunity of recovering personal injury damages. Facts of Sutton v Firth; Firth v Sutton In 1994, at the age of 13, Renee Sutton (Plaintiff) commenced part time work at a Go-Lo variety store. Her work duties consisted of lifting and moving boxes. The Plaintiff alleged that this system of work caused her back pain over a number of years, which intensified in She finally ceased working in that year and she lodged a worker s compensation claim and commenced receiving benefits. In 1999, the Plaintiff consulted Firths Compensation Lawyers (Firths), concerning her rights in relation to the above work injury. She ultimately was advised that she would be best served by pursuing her lump sum permanent impairment rights and weekly workers compensation rights. She instructed Firths to proceed as advised. The pursuit of her permanent impairment rights constituted an election, meaning that she effectively had given up her rights to commence common law proceedings against the employer unless she was able to have the election revoked. The Plaintiff did however receive lump sum compensation and she continued to be entitled to receive weekly workers compensation payments, and her medical expenses were paid. The Plaintiff eventually consulted other solicitors and sued Firths in negligence on the basis that Firths inadequately advised her of her options, and as a result, she was unable to make an informed decision as to whether she wanted to pursue a common law damages claim against the employer. Firths denied any breach of duty of care, and also defended the claim on the basis that the Plaintiff had suffered no loss, because her workers compensation rights ultimately were more valuable than her rights at common law. 1 Nikolaou v Papasavas; Phillips & Co (1989) 166 CLR 394, per Mason CJ.

2 2 The proceedings were heard by his Honour Judge Hungerford in the District Court over 5 days in February Judge Hungerford at first instance: Sutton v Firth (No 2)[2009] NSWDC 53; Sutton v Firth (No 3) [2009] NSWDC 68 Hungerford J delivered an initial judgment on 12 March 2009 in No 2 referred to above. His Honour ultimately found Firths to be in breach of their duty of care. This part of the judgment is not examined in this article. Relevantly for the purposes of this article, his Honour found that if the Plaintiff had pursued a common law damages claim against her former employer, the assessment of those damages would have amounted to $379, In order to assess the value of the lost chance, his Honour adopted a certain methodology 2, which we have summarised below: from the notional heads of damages, a deduction was applied for solicitor/client costs which would have not have been recovered by the plaintiff if common law proceedings had been commenced against her former employer (unrecoverable solicitor/client costs); his Honour then deducted the workers compensation payments (including weekly payments, lump sum payments and medical expenses) made to or on behalf of the Plaintiff to the date of the assumed notional trial, which would have been deducted from any common law damages award against her former employer, pursuant to section 151A of the Workers Compensation Act; following this, his Honour deducted the projected future workers compensation benefits (including weekly compensation, lump sum payments and medical expenses) likely to be paid to or on behalf of the Plaintiff but which she would not have been entitled to if she had received a common law judgment against the employer, following the assumed notional trial; his Honour then applied a discount for the lost chance to reflect the contingencies of the litigation. After applying the above deductions and discount, the value of the notional heads of damage was reduced to $81, His Honour proposed to apply interest to this amount, from the date of the assumed notional trial, to the professional negligence judgment date, to reflect the interest the Plaintiff could have earned on the notional verdict if she had received the judgment at the time. His Honour called for submissions in relation to the appropriate calculation of interest. 4 The matter was re-listed on 17 March On behalf of the Plaintiff, it was submitted that interest should be calculated in accordance with schedule 5 of the Uniform Civil Procedure Rules [2005], a rate which, in recent years, has fluctuated between 9 and 10%. On behalf of Firths, it was submitted that the claim was controlled by section 18 of the Civil Liability Act 2002 (NSW), which provides for the application of the long term government bond rate. This rate has averaged between 4 and 6% in recent years. In Firth v Sutton (No 3), Hungerford J agreed with the submissions made on behalf of Firths, and at [3] of the judgment, his Honour held: The question then is whether interest...should be according to s 18 of the Civil Liability Act or at court rates, that is, pursuant to Sch 5 of the Uniform Civil Procedure Rules. In my view, the Civil Liability Act applies to this action. This is an action which is, effectively, a loss of opportunity action for professional negligence. It is not an action under the Workers Compensation Act 1987 as to personal injury for modified common law damages. Accordingly, the primary submission put by the plaintiff for the non-application of the Civil Liability Act interest rate must fail. I emphasise that the matter is not an action pursuant to the exclusion contained in s 3B(1)(g) of the Civil 2 Sutton v Firth (No2) NSWDC 53 at [115]-[133]. 3 Firth v Sutton (No2) [2010] NSWDC 53 at [134] 4 Ibid at [135]

3 3 Liability Act as to workers compensation matters. It is true, as counsel for the plaintiff said, that liability for this action arose before the Civil Liability Act commenced but the action was brought after the Civil Liability Act commenced and represents an action to which that statute therefore applies. In my view, interest is controlled by the terms of s 18 of the Civil Liability Act. A verdict and judgment ultimately was entered in favour of the Plaintiff in the sum of $107, plus costs. Court of Appeal proceedings: Firth v Sutton [2010] NSWCA 90; Firth v Sutton (No 2) [2010] NSWCA 109 Firths filed an appeal from the decision of Judge Hungerford, relevantly challenging his Honour s approach to the assessment of damages, in relation to the ordering of the discount for the lost chance and in relation to certain deductions. A notice of cross appeal was filed on behalf of the Plaintiff. The appeal was listed for hearing on 20 November Their Honours President Allsop, Macfarlan JA and Young JA heard the appeal. Judgment was handed down by the Court of Appeal in April and May On behalf of Firths, it was submitted that the discount for the lost chance should be applied before all other deductions. The Court of Appeal accepted this argument, and at [161] of the initial appeal judgment, President Allsop held: The aim of the assessment of the notional common law claim is not to provide Ms Sutton with 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...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. President Allsop went further to deal with what he believed to be the correct approach to the deductions to be applied in order to arrive at the value of the lost chance, and in relation to the calculation of interest. The following is a summary of the approach taken by President Allsop (with the agreement of Macfarlan JA and Young JA), following the re-assessment of the notional heads of damage: 5 deduct unrecoverable solicitor/client costs; apply interest from the assumed notional trial date to the professional negligence judgment date, at the rate discussed in this article below; deduct past workers compensation benefits paid to or on behalf of the Plaintiff to the date of the professional negligence judgment; deduct interest assessed on past workers compensation benefits received by the Plaintiff at the rate discussed below. Interest on lump sum payments is to be calculated from the date of receipt of the payment, to the date to the professional negligence judgment. Interest on weekly and medical payments is to be calculated by assuming that the total amount of payments was received half way through the relevant period between the date of first receipt and the date of the professional negligence judgment (ie, if the notional trial date fell on 1 March 2001 and the professional negligence judgment date fell on 1 March 2010, and the total compensation payments received in that period was $100,000, then interest is to be calculated on $100,000 for half of that period, namely 5 years); 5 See Firth v Sutton [2010] NSWCA 90 at [159]-[192]; and Firth v Sutton (No 2) [2010] NSWCA 109 at [9].

4 4 deduct the projected value of future workers compensation benefits. Hungerford J s finding that section 18 of the Civil Liability Act 2002 (NSW) applied to the calculation of interest, was not challenged on appeal. However, in response to this finding, President Allsop at [189] 6 stated: His Honour, correctly in my view, characterised this as a loss of opportunity action and saw interest controlled by the Civil Liability Act 2002 (NSW), s 18. His Honour awarded interest therefore on the basis of the long term bond rate. Accordingly, the Court of Appeal held in its initial decision and subsequently in Firth v Sutton (No 2) 7 that the various interest calculations referred to in bullet points 2 and 4 on page 3 of this article, ought to be performed by using the long term government bond rate. On appeal, Hungerford J s judgment was set aside and a verdict was entered in favour of the Plaintiff for an amount under $30,000. However, this reduction was not solely due to the different approach taken by the Court of Appeal to the discounts and deductions. It also reflected a successful challenge by Firths to part of Hungerford J s assessment of the notional heads of damage, which has not been examined in this article. Implications of the Firth v Sutton decisions The decisions are clearly relevant and applicable to professional negligence proceedings against solicitors which require the application of a discount for the lost chance, deductions for sums already received by the Plaintiff from alternative rights pursued, and in relation to the application of interest. At first blush, one would expect that the methodology applied by the court in Firth v Sutton will result in lower judgments, due to the application of a considerably lower interest rate. This expectation does transpire in some cases, resulting in a considerable reduction in the assessment of damages. However, in other cases, it could have the unexpected effect of increasing damages in comparison to the way damages were assessed previously. The decisions will affect cases differently and will heavily depend on the individual circumstances of each case. Another implication of the decisions is that it raises the question of whether part 2 of the Civil Liability Act 2002 (NSW) applies to professional negligence proceedings against solicitors, arising from claims for the lost opportunity of pursuing personal injury damages. The Court of Appeal endorsed the application of section 18 of the Civil Liability Act in these particular claims in relation to interest. Interestingly, that section falls within part 2 of the Civil Liability Act a part which deals purely with personal injury damages claims. One must query whether the Court s endorsement of the application of section 18, gives rise to an implication that part 2 also applies generally to professional negligence claims of this nature. An important consequence of this would be the possible application of other laws affecting personal injury damages claims, such as section 338 of the Legal Profession Act 2004 (NSW). That section sets out tough restrictions on the recovery of costs in personal injury damages claims, where the amount recoverable by a plaintiff is $100,000 or less. Whether section 338 applies to professional negligence claims involving the loss of opportunity to recover personal injury damages, to our knowledge, has not been tested by any superior court. December 2010 This article was prepared by Mary Vitalone, Senior Associate with the assistance of Bruce Yeldham, Director. 6 Firth v Sutton [2010] NSWCA 90 7 Firth v Sutton (No 2) [2010] NSWCA 109 at [9].

5 5 For further assistance with matters concerning the assessment of damages in claims involving the loss of a chance of recovering personal injury damages, please contact Bruce Yeldham, Director (t: , e: byeldham@ypol.com.au) or Mary Vitalone (t: , e: mvitalone@ypol.com.au) On 1 September 2007, three of the leading insurance and commercial litigators of DLA Phillips Fox joined forces with the established and respected insurance and commercial litigation specialist, Yeldham Lloyd Associates to create our firm. On 5 May 2008 we enhanced our capability and commitment to the insurance and reinsurance industry with the addition of a specialist corporate and regulatory team. We are a specialist incorporated legal practice. We are focused on insurance, reinsurance and commercial litigation. Our directors are recognised locally and internationally as among the best in their fields. They are supported by an experienced and talented team. We are accessible, straightforward and responsive. We are about providing the best legal service at a reasonable cost. LEVEL 2, 39 MARTIN PLACE SYDNEY NSW 2000 DX 162 SYDNEY T: F: YPOL PTY LTD TRADING AS YELDHAM PRICE O BRIEN LUSK ACN LIABILITY LIMITED BY A SCHEME APPROVED UNDER PROFESSIONAL STANDARDS LEGISLATION. LEGAL PRACTITIONERS EMPLOYED BY YPOL PTY LIMITED ARE MEMBERS OF THE SCHEME For more information on our firm please visit DISCLAIMER This paper was prepared by Mary Vitalone with the assistance of Bruce Yeldham. This update is intended to provide a general summary only and does not purport to be comprehensive. It is not, and is not intended to be, legal advice. YPOL Pty Limited