On 22 May 2017, a company and its director were ordered by the District Court to pay its employee $226,300 to top-up ACC in respect of future loss of earnings as a result of his being rendered a tetraplegic by a workplace accident involving farm machinery.

This is the first award in criminal proceedings of a significant sum compensating loss of earnings. It arises from a change in the law in December 2014 designed to improve the lot of victims of crime, but it presents a difficult balancing act for the Courts in preserving the integrity of the ACC system of universal benefits.

This change represents a shift in financial exposures for business. To address this exposure, statutory liability insurance has routinely been included in portfolios of business cover, but at limited premium because the exposure has in the past been limited to modest awards for emotional harm and defence costs. Premiums may increase to reflect the new exposure.

The development of awards of reparation for loss of earnings

Until the law was changed in 2014[1], no recovery of the 20% shortfall between actual earnings and the 80% paid by ACC could be recovered, either through suing for negligence in the civil courts, or through the criminal process. The reason for that is founded in the social contract which underpins ACC: the right to sue was removed in return for a universal benefit payable without having to prove fault, and the compromise that 80% rather than 100% of lost earnings is paid.

Only through the criminal process can the 20% top-up of income which is not paid by ACC, be recovered by the injured person. In that respect, the change in the law creates a two-tiered system of compensation for personal injury in New Zealand. That has been enabled by the government on the basis that victims of crime are in a different category to other injured people. The difficulty there is that not all victims of crime will likely receive the same compensation, because offenders who commit crimes requiring proof of intent are not insured for the injury they cause to others. It is only crimes of negligence that will be insured, thereby ensuring the offender has the ability to pay such awards.

WorkSafe New Zealand v Wai Shing Limited

Wai Shing Limited and its director were prosecuted and pleaded guilty to offences under the Health & Safety in Employment Act 1992, arising from an accident at work. Some agricultural equipment fell on the worker and he is a tetraplegic as a result. He is 29 years of age and unable to work again. [2]

The Court has adopted a calculation of the victim's loss by reference to his current salary at the time of his accident (he had been given a raise due to a change in his job profile only a week before the accident). That calculation takes account of an increase over time by reference to the Labour Cost Index (inflation) with no allowance for promotional increases, or change of hours. The sum adopted was $455,600.

The Court then deducted sums already paid by Wai Shing and then discounted that sum by 50% to arrive at $226,300. The Court set out the reasons for the introduction of the accident compensation scheme which are found in the Royal Commission report known as the Woodhouse Report. It noted the many disadvantages of the common law process identified in that report. The Court's reasons for the discount are as follows:

[87] …The injuries are so catastrophic that they have rendered the victim incapable of making any decision that would have had an impact on his future earnings.

[88] However, one cannot deny the fact that the victim has obtained a degree of ‘benefit’ from the accident compensation scheme. Therefore the question turns to what value one can put on this benefit. The victim has avoided the time, cost and stress of litigation that would be necessary if we did not have the current system. The ACC scheme provides a degree of certainty to the victim. The victim has not had to initiate his own proceedings to benefit from the system.

[89] Any value one places on this benefit is arbitrary, but at the same time a significant value does need to be placed upon it to protect the integrity of the system and the societal benefits gained out of the no fault system.

[90] In this respect I consider it appropriate to discount the figure, representing the 20% not covered by ACC, by half. To a certain extent, this also takes account of the fact that the victim will be entitled to a lump sum payment - another ‘benefit’ to be gained from the ACC scheme. This will result in an award of reparation at a higher level than has previously been seen. However, the amendment to s32 allows it and in my view justice requires it for Mr [x] and his wife.

WorkSafe's expert had advised the Court that the ACC top-up, i.e. the 20% shortfall as calculated by reference to the ACC scheme was $226,800. The Court did not adopt that as a starting point, but having applied the 50% deduction, ended up at a similar amount of $226,300.

Clearly there is a significant difference between the assessment of loss as calculated under the ACC scheme, and actual loss by reference to what a particular person might predictably have earned over a lifetime's work.

The defendants said that the correct approach for calculating the injured person's loss was to adopt the assessment made by ACC, because the purpose of the amendment to the Sentencing Act was to enable the recovery of the 20% that ACC does not pay. Under that ACC legislation the benefits are 'fair' not full and it would be inconsistent with the scheme of compensation under that Act to assess reparation to victims of crime on a different basis. In turn, because its expert evidence was that sadly the victim was unlikely to live until he was 65, the period for which the compensation was properly payable was shorter, and the calculation should be done on the basis the Court has previously applied to the investment of lump sum payments[3]. The Court disagreed on both those counts.

Comment

The assessment of future loss is commonplace in other countries where the right to sue for personal injury remains open to those who have suffered due to the negligence of others. Of course the process is quite different, because those injured parties have to first prove negligence of another person in Court, with all the uncertainty, delay and cost that entails. The injured person and the defendant will each have professional accountancy evidence and their witnesses will be open to the full trial process. In cases of serious injury, a number of factors are taken into account in calculating the loss, such as past earnings and prospective earnings in light of past educational attainment, and the like.

In New Zealand, we have not undertaken such calculations since the advent of ACC in the early 1970s. Injured persons simply fill in the ACC form and receive their entitlements under the scheme.

In calculating the loss the Court did not squarely adopt the ACC methodology for calculating the top-up. Instead the Court adopted a calculation of actual loss and then discounted that amount by 50%. The methodology adopts a different method of calculating the top-up to the method used by ACC. As the Court says, the discount is arbitrary.

The result is not altogether different from the calculation of the ACC top-up amount (though the defence said that should have been discounted further to reflect reduced life expectancy and the appropriate investment rate).

All employers will be advised to check they have statutory liability insurance in place and to ensure they have sufficient cover for awards of reparation at this level in the event of accidents in the workplace.