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Lee, Michael J --- "A Matter of Time: Assessing Damages for Survivors of Institutional Child Sexual Abuse" [2023] PrecedentAULA 31; (2023) 176 Precedent 24

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A matter of time

Assessing damages for survivors of institutional child sexual abuse

By Michael J Lee FCA

The 2017 final report of the Royal Commission into Institutional Responses to Child Sexual Abuse exposed the extent of historical institutional child sexual abuse in Australia.^[1] The Commission had previously concluded that time limitation periods were problematic because survivors often took years to identify the link between their psychiatric or emotional injuries and the abuse they’d suffered.^[2] Jurisdictions have since removed time limitations for claims relating to institutional child sexual abuse, a change that can, however, present challenges when assessing losses.

The assessment of losses suffered by survivors of institutional child sexual abuse are governed by the same principles that underlie the assessment of other personal injuries; namely a comparison of the notional benefits the claimant would have obtained but for the abuse and the actual benefits they have or will obtain as a result of those matters.

When assessing damages for survivors of institutional child sexual abuse, there are several matters to be determined, including:

• notional earnings;

• actual earnings;

• discount rates; and

• superannuation.

DETERMINING NOTIONAL EARNINGS

Ascertaining a claimant’s earnings in child sexual abuse matters is similar to other assessments of economic loss. To determine what the earnings of the claimant would have been but for the abuse requires the following:

• consideration of the reasonableness of instructions;

• sourcing relevant earnings information;

• identifying reasonableness of career progression; and

• historical earnings.

Reasonableness of instructions

In most cases, claimants suffered the abuse prior to undertaking any form of employment, and accordingly are ‘untested’ in the workforce. Therefore, forensic accountants must be guided by their instructions regarding the claimant’s interests and career aspirations.

However, it is important to consider whether such instructions are reasonable. What would constitute a reasonable set of instructions? Obviously, it is a question of fact and there is no one definitive test, however, the following issues should be considered:

1. What have been the career paths of other members of the claimant’s family? For example, what were the occupations of the claimant’s parents? What were the careers of any siblings?

2. Did the claimant demonstrate any particular skill or excellence in any particular field of education prior to the abuse that may suggest they were likely to do tertiary study or were suited to a particular career path (for example, computer programmer, school teacher or tradesperson)?^[3]

In addition, given the uncertainty in relation to the claimant’s career path, sometimes more general assumptions as to the average earnings of, for example, tertiary-qualified employees, may be more appropriate.

In many matters, instructions request that an assessment be based on average weekly earnings (AWE) rather than the claimant’s earnings.^[4] In such cases it is normally prudent to adjust AWE to take educational attainment into account.^[5]

Sourcing earnings information

In many instances, the abuse occurred a long time ago, even as far back as the 1960s. This can make it difficult to source accurate information regarding earnings. Extensive research may therefore be required.

For many career paths, however, it may be possible to source relevant agreements and awards that provide earnings information, although this may entail accessing physical sources such as published gazette books, or requesting information directly from the Fair Work Commission or associated industry organisations.

In addition, the Australian Bureau of Statistics (ABS) and the Australian Taxation Office (ATO) have collated data regarding historical earnings for most (if not all) occupations. Depending on the source, the information may be quite general, providing simple averages rather than specific earnings (for example, information for commencement earnings, or earnings for part-time workers).

Other possible ways to determine notional earnings over time include making various adjustments to contemporary earnings information (for example, movements in average weekly earnings, consumer price indexes or wage price indexes).

Reasonableness of career progression

Career paths for numerous occupations have changed over time. In general, the requirement for higher levels of education has increased and, at times, the number of years of experience required to progress in a career has also risen.

To undertake an assessment of reasonable career progression, requires consideration of all available statistical information. For example, both federal and state governments compile information regarding their public service organisations. Information held by the ABS and ATO may also assist in regard to earnings following the completion of an apprenticeship, say, or additional qualifications. By using a combination of this information, general conclusions can be made regarding a claimant’s likely career progression.

Historical earnings

In situations where the claimant has both notionally (but for the abuse) and actually (as a result of the abuse) worked in the same occupation, a review of their historical earnings and career path may provide guidance regarding notional earnings.

In matters where the claimant would have notionally (but for the abuse) undertaken work in a certain occupation and they have actually (as a result of the abuse) worked in that occupation, a review of their actual earnings will provide a foundation for the assessment of notional earnings.

Once an understanding of the manner in which the abuse has impacted upon the claimant’s capacity in their chosen occupation, a build-up approach can be adopted. Examples of such impacts can include, but are not limited to:

• working reduced hours;

• an inability to expand their business;

• an inability to seek promotion or undertake more senior roles;

• taking extended leave or periods away from work; or

• a delay in the commencement of their career.

In addition, if the claimant has had a career deriving earnings that are, prima facie, consistent with the commercial range of earnings, it may indicate that, but for the abuse, they may have been more successful in that role. Accordingly, it may be more appropriate to consider earnings at the higher end of the commercial range.

DETERMINING ACTUAL EARNINGS

Ascertaining the actual earnings of a survivor of institutional child sexual abuse can be more complicated than other assessments of economic loss, and may require:

• review of financial documents provided;

• assumptions for periods where no financial documents are available;

• consideration of intervening events; and

• consideration of residual earnings.

Review of financial documents provided

As in other personal injury matters, a detailed review of the provided documents is required to determine an accurate assessment of actual earnings. These documents may include primary financial documents such as income tax returns, profit-and-loss statements, notices of assessment, PAYG payment summaries or payslips.

In some instances, a survivor may have had periods of ‘normal’ employment or self-employment and, accordingly, those periods may demonstrate a commercial return on their labour. Possible reasons for this may include, for example, that the survivor has had a mentor who has ‘shielded’ them, or the abuse has not manifested itself until later in their career. In such cases, a detailed review of financial and associated documents is required to determine the time that the abuse began to impact upon the claimant’s earnings.

A complicating factor in these matters is that a survivor’s financial knowledge or their understanding of financial-related questions in relation to career path, for example, may be limited.

Assumptions for periods where no financial documents are available

Given that the period over which loss is assessed is likely to be long, it is probable that a complete set of financial documents cannot be provided or sourced, and therefore the actual earnings of the claimant may be difficult to ascertain.

When estimating a claimant’s actual earnings during periods in which documents do not exist, it may be appropriate to adopt a variety of assumptions and approaches, including, but not limited to:

• adopting average historical earnings;

• adopting a commercial level of earnings for the type of work the claimant was undertaking during the period; or

• relying on specific instructions.

The most appropriate approach or assumptions to adopt will depend on the individual case and the facts. However, the underlying cornerstone should be a reasonable, conservative estimate of those earnings.

Consideration of intervening events

In some cases, intervening events – such as motor vehicle accidents or workplace injuries – that occur subsequent to the abuse may have an impact on the claimant.^[6] Intervening events complicate the assessment of actual earnings, because such events may affect or alter a survivor’s career path, resulting in earnings that may be lower or higher than expected.^[7]

In these situations, it may be appropriate to adopt an alternate assessment of actual earnings based on average historical earnings or on the commercial earnings of comparable roles to those the claimant performed before the intervening event, as this alternate assessment implicitly adjusts for the impact of any such intervening events.

If it is found that the intervening event would have occurred regardless of the matters that form the basis of the action, the impact of the intervening event on the claimant’s earnings may not be readily identifiable. In particular, the injuries sustained from the intervening event may impact on the claimant differently due to the alleged psychological impacts of the abuse.

Consideration of residual earnings

The assessment of residual earnings is likely to be complicated in matters relating to child sexual abuse. This is because the claimant may have had a relatively successful career up to a certain point of time before the abuse had an impact on the claimant’s working capacity. In situations such as these, the historical financial data may not be the best indicator of the claimant’s future residual earning capacity.

In addition, in undertaking an estimate of residual earnings, it may be necessary to allow for periods of reduced employment, unemployment or a change in career (for example, a role that is less stressful). It may also be appropriate to consider circumstances where the claimant may be ‘forced’ to retire earlier than they would have, but for the abuse.

To assist the court in matters where there is substantial uncertainty regarding the residual earning capacity of a claimant, it may therefore be appropriate to present a number of different residual capacities.

As with other economic loss matters, the assessment of residual earnings is a matter of fact and may be assisted by expert medical evidence in regard to the impact of the matters that form the basis of the action on the survivor’s residual earning capacity.

SUPERANNUATION – STATUTORY REGIME AND OCCUPATIONAL SCHEMES

When ascertaining notional superannuation benefits, two factors need to be determined:

1. The type of scheme to which the claimant would have belonged.

2. The level of contributions that would have been provided to the claimant, but for the abuse.

The statutory scheme

In the 1991 Budget, the Australian Government announced the introduction of a superannuation guarantee that would provide a compulsory system of superannuation for Australian employers. The Superannuation Guarantee (Administration) Act 1991 (Cth) (SGA) took effect on 1 July 1992.

The superannuation guarantee is an accumulation-based benefit that is calculated on a percentage of ordinary-time employment earnings. In many matters, this is the most appropriate superannuation approach for assessing a loss of superannuation, even if another scheme (for example, a defined-benefit scheme) existed. ^[8]

Under the SGA, the minimum statutory contribution rate has increased since from 3 per cent in 1992 to the current level of 10.5 per cent.

Occupational schemes

Prior to the introduction of the statutory superannuation scheme, some employers provided their employees with their own superannuation funds (for example, police officers, public servants and military personnel). Generally, these superannuation funds provided a ‘defined benefit’ based on the duration of employment and historical earnings. Some occupations continue to have access to defined superannuation funds.

Occupational schemes can provide far higher benefits than compulsory accumulation superannuation. For example, the Commonwealth Superannuation Scheme, available for Commonwealth public servants during a limited period of time, provides a CPI-indexed pension and the option of either a non-CPI-indexed pension or a lump-sum payment.

Therefore, research is required to ensure that the applicability of ‘defined benefit’ superannuation and the calculation of loss is reasonable.

OTHER ISSUES TO CONSIDER

Income tax rates

Given the duration of the loss in child sexual abuse matters and that economic loss is assessed on an after-tax basis, relevant income tax rates will need to be identified, taking into account that Australia’s income tax regime has changed significantly over the past few decades. For example, the highest marginal tax rate dropped considerably between 1966 and 2015, as set out in the table below:

Retirement age

While the notional intended date of retirement for any claimant is a question of fact, having regard to their personal circumstances, there has been a tendency to adopt the pensionable age as being representative of a claimant’s likely date of retirement. However, the claimant may be forced to retire earlier than the pensionable age due to the injuries caused by the abuse.

Discount rates

The appropriate discount rate to use in calculating future losses will depend on the jurisdiction. In summary the following rates would appear to apply:

Interest and indexation

There is no common law right to an award of interest. Instead, it is a creation of statute. Generally speaking, interest can be claimed from the date of the incident(s) to judgment date.^[17] The exception is Victoria, where interest can be only claimed from the date of the writ to the date of the judgment.

Obviously, in cases that span decades, the level of interest can be significant. For example, in Province Leader of the Oceania Province of the Congregation of the Christian Brothers v Lawrence^[18] the Court of Appeal increased the original award of $400,000 for interest to $560,000 for the 58-year period. In ZAB^[19] the interest awarded was $577,000 for a period of 21 years and six months.

In order to address the issue of limitations on awards for interest, some practitioners have considered the indexation of past losses in each period by the relevant movements in the Consumer Price Index to current values.

As Professor Luntz notes in the Assessment of Damages for Personal Injury and Death, it is possible that the loss may well be calculated based on the value of the earnings at the date of trial and not at the lower rates since the injury. In other cases, the losses should be the current equivalent value.^[20]

Accordingly, for practitioners in Victoria, alternate calculations may be considered.

CONCLUSION

When undertaking an assessment of losses suffered by a survivor of institutional abuse, legal practitioners should be fully aware of the issues and unique circumstances that are likely to impact any claim.

In nearly all instances, the most challenging aspect of assessing losses in institutional abuse claims relate to the period of time that has elapsed since the abuse allegedly occurred.

Difficulties often arise in attempting to estimate both the claimant’s notional and actual earnings. As a result, calculating damages using a simple approach is likely to misstate the level of economic loss suffered by the claimant.

Michael J Lee FCA is a Director in the Vincents Forensic Accounting unit. His primary area of expertise is the calculation of economic loss resulting from personal injury and property disputes. EMAIL mlee@vincents.com.au

^[1] Royal Commission into Institutional Responses to Child Sexual Abuse, Final Report, 2017, <https://www.childabuseroyalcommission.gov.au/final-report>.

^[2] Royal Commission into Institutional Responses to Child Sexual Abuse, Redress and Civil Litigation Report, 2015, 52–53, <https://www.childabuseroyalcommission.gov.au/sites/default/files/file-list/final_report_-_redress_and_civil_litigation.pdf>.

^[3] See, eg, ZAB v ZWM [2021] TASSC 64 (ZAB).

^[4] See, eg, Brockhurst v Rawlings [2021] QSC 217; O’Connor v Comensoli [2022] VSC 313; ‘B’ v Reineker [2015] NSWSC 949.

^[5] See, eg, Perez v Reynolds [2020] VSC 537.

^[6] See, eg, Lawrence v Province Leader of the Oceania Province of the Congregation of the Christian Brothers [2020] WADC 27.

^[7] There are contrasting approaches to dealing with the issue. As examples see Baker v Willoughby [1969] UKHL 8; [1970] AC 467 (HL) and Jobling v Associated Dairies Ltd [1981] UKHL 3; [1982] AC 794 (HL).

^[8] See, eg, Waks v Cyprys [2020] VSC 44.