Services

HG Insurance Alert: Loss of Services What is the correct measure of damages? 7 November 2014

Calculating past loss of income arising out of personal injury is fairly straightforward.  But what happens when a corporate entity has lost the benefit of the services of an injured person integral to its operations and wishes to make a claim?

In this article, Senior Associate Anna Hendry considers the recent decision of Du Pradal & Anor v Petchell [2014] QSC 261 and the court’s approach to quantifying damages for loss of services.

Background

The first plaintiff, Mr Du Pradal, was seriously injured in a speed boat accident on 29 June 2008 for which the defendant was found liable.  Prior to the accident, the first plaintiff and his wife were directors and shareholders of the second plaintiff, a fashion business.  Mrs Du Pradal was the designer and the first plaintiff undertook administration and management of the business.

Following the accident, the first plaintiff was unable to undertake those duties and, rather than hiring substitute labour, they were taken over by Mrs Du Pradal.  The second plaintiff alleged that as a result of Mrs Du Pradal taking over the administrative and management duties, the business became less profitable and it sought to recover that loss of profit from the defendant by way of an action for loss of services of the first plaintiff.

The defendant alleged that loss of profit is not an appropriate measure of damages in an action for loss of services and that the second plaintiff’s pleaded case must fail on that basis.  At trial, the second plaintiff departed from its pleaded case by leading evidence that the cost of substitute labour would have been $70,000 and attempted to assert that value of the loss of services ought to be the cost of substitute labour less the distribution of $30,000 which would have been paid to the plaintiff had he not been incapacitated.

The Decision

In considering the correct measure of damages in an action for loss of services, Justice Mullins noted the High Court of Australia decision of Barclay v Penberthy (2012) 246 CLR 258 and in particular the majority judgment which held the measure of damages “should be the market value of the services, which will generally be calculated by the price of a substitute less the wages which the master is no longer required to pay to the injured servant”.  In separate reasons, Justice Kiefel also specifically addressed the issue of loss of net profits as a measure of damages, noting:

“To permit recovery on any wider basis, including for profits lost, would be to transform an exceptional remedy for a particular type of loss into a substantial exception to the general principles which have developed concerning recovery of economic loss in tort. In terms of the coherence of the law, that would be undesirable.”

Accordingly, Justice Mullins found that the second plaintiff’s pleaded case for loss of profits could not succeed and that the claim for the cost of replacement labour which was not in fact incurred (and had not been pleaded) must also fail.

Take Away Points

  • An action for loss of services is available to a corporate entity where it is wrongfully deprived of the services of the injured person.

  • The appropriate measure of damages is the actual cost of substitute labour incurred by the corporate entity, less the wages or distributions that would have been payable to the injured person had he or she not been injured.

  • The onus is on the corporate entity, as it is on all plaintiffs, to mitigate its loss in this regard.

For more information regarding insurance and risk matters, please contact HopgoodGanim’s Insurance and Risk team.

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