Are personal injury damages for loss of superannuation benefits capped at the Commonwealth minimum statutory employer contributions? The short answer is no. Read on for the full explanation.
The Civil Liability Act 2003 (Qld) (‘CLA’) was enacted after the Ipp Report in 2003 in response to concerns about affordability of insurance and the cost of personal injury claims. In it’s original form, s 56 stated:
56 Damages for loss of superannuation entitlements
(1) The maximum amount of damages that may be awarded to an employee for economic loss due to the loss of employer contributions is the relevant percentage of damages payable (in accordance with this part) for the deprivation or impairment of the earning capacity on which the entitlement to the contributions is based.
(2) The relevant percentage is the percentage of earnings that is the minimum percentage required by a written law to be paid on the employee’s behalf as employer superannuation contributions.
The CLA re-print as at 2 March 2020 has not been amended.
Second Reading Speech
The second reading speech for the CLA from 11 March and 1, 2 and 3 April 2003 make no direct reference to superannuation in the context of personal injury damages for loss of earnings or earning capacity. However, there are many references to the Ipp Report and it is clear that the CLA was drafted in response to that report, taking into consideration its recommendations. This was discussed in Najdovski v Crnoljovic [2008] NSWCA 175 (see below).
Arbitrary Cap or Method of Calculation?
In Najdovski v Crnoljovic, a question of legal principle arose relating to the proper construction of s 15C of the Civil Liability Act 2002 (NSW). Section 15C in the NSW CLA is identical to s 56 of the Qld CLA except for the last part of subsection 2 which reads “… required by law to be paid as employer superannuation contributions.” The difference between the NSW and Qld sub-section 2 does not seem significant. The following passage from Najdovski v Crnoljovic is relevant (our emphasis):
[53] It has generally been assumed that the calculation required takes as the “relevant percentage” the figure specified in the Superannuation Guarantee (Administration) Act 1992 (Cth) which has, since the 2002/2003 tax year, been 9% of the employee’s gross ordinary time earnings: see Zorom Enterprises Pty Ltd v Zabow [2007] NSWCA 106 at [72] (Campbell JA). (For ease of calculation, and because damages are assessed by reference to earnings net of tax, the calculation is sometimes undertaken on the basis of 11% of net earnings.)
[54] The respondent contends, correctly, that the relevant percentage is therefore 9%. However, he notes that the damages payable for deprivation or impairment of earning capacity must be based on net earnings and, accordingly, the cap on superannuation losses must be calculated by applying 9% to net earnings.
[55] Read literally, the section undoubtedly bears that construction. If the section were intended to provide an arbitrary cap, that reading might be appropriate. If, on the other hand, the section is merely intended to provide a mechanism for calculation of an otherwise uncapped amount, the literal construction is inappropriate.
[56] To determine the purpose of s 15C, it may be permissible to consider its legislative history: see Interpretation Act 1987 (NSW), ss 33 and 34; Harrison v Melhem [2008] NSWCA 67 at [172] (Mason P, Spigelman CJ, Beazley and Giles JJA agreeing); cf Shorten v David Hurst Constructions Pty Ltd [2008] NSWCA 134 at [10]-[27]. In my view, the provision is ambiguous in the sense that it has two possible meanings and is obscure because it is unclear which meaning should apply. Accordingly it is legitimate to consider extrinsic material which is capable of assisting in ascertaining the meaning of the provision, pursuant to s 34. That approach is also available under general law principles, without the need to identify ambiguity: CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; 187 CLR 384 at 408 (Brennan CJ, Dawson,
Toohey and Gummow JJ).
[57] Such assistance may be derived from the Final Report of the Review of the Law of Negligence, published in September 2002 (“The Ipp Report”). The Report dealt with the calculation of loss of superannuation benefits at pars 13.128-13.133. The recommendation made in the Report (recommendation 58) is clearly reflected in the present form of s 15C. However, the concern of the Committee was to reconcile the differing approaches to such a calculation revealed in Roads and Traffic Authority v Cremona [2001] NSWCA 338; 35 MVR 190 and Jongen v CSR Ltd [1992] Aust Torts Rep ¶81-192 (WASC). In Cremona , this Court calculated the relevant loss by reference not merely to the employer contributions, but also to income and capital growth which those contributions would have generated in a superannuation fund. That approach was rejected in the Report. The alternative approach adopted by Anderson J in Jongen was considered preferable but was also thought to be “undesirably complex”: at par 13.132. Although not disclosed by the Report, the basis of the rejection appears to be that Anderson J considered that the taxation at a concessional rate of contributions to the fund should also be taken into account: see generally Zorom at [64]-[65]. The purpose of the recommendation of the Report was to “bring about certainty, simplify matters and reduce costs”: at par 13.133. As a result, “[s]ophisticated calculations by accountants and actuaries would be rendered unnecessary, opportunities for disagreement between the parties would be reduced, and out-of-court settlements of claims would be facilitated”: par 13.133. It is therefore clear that the purpose of s 15C, as envisaged in the Ipp Report, was to simplify calculations and not to impose an arbitrary cap on the amount allowed by way of superannuation entitlements.
[58] The ambiguity of purpose may thus be resolved by rejecting the literal interpretation proposed by the respondent and allowing the calculation of superannuation contributions to be made by taking the relevant percentage of gross ordinary time earnings which are treated as the value of lost earning capacity.
It is clear then that in Queensland, s 56 of the CLA provides a method of calculation, not an arbitrary cap, on loss of superannuation and the “relevant percentage” of superannuation is to be applied to the gross ordinary time loss of earning capacity. What is the “relevant percentage?”
Relevant Percentage
In Heywood v Commercial Electrical Pty Ltd [2013] QCA 270 at [56] the Court held that “the primary judge erred in calculating future loss of superannuation by failing to take into account that under the Superannuation Guarantee (Administration) Amendment Act 2012 (Cth), employers are required to pay superannuation benefits as follows:
(i) For the year starting on 1 July 2012 9%
(ii) For the year starting on 1 July 2013 9.25%
(iii) For the year starting on 1 July 2014 9.5%
(iv) For the year starting on 1 July 2015 10%
(v) For the year starting on 1 July 2016 10.5%
(vi) For the year starting on 1 July 2017 11%
(vii) For the year starting on 1 July 2018 11.5%
(viii) For the year starting on or after 1 July 2019 12%
[57] Counsel for the appellant submitted that by applying the five per cent multiplier tables and the deferred aspect of the above rates, loss of future superannuation should be awarded at the rate of 11.33 per cent of the sum awarded for loss of earning capacity so that an award of $400,000 for such loss would result in an award of $45,320 for loss of future superannuation. Consequently, an award of $150,000 for future loss of earning capacity would result in an award of $16,995 for future loss of superannuation.“
Clearly then the “relevant percentage” will take into account future increases in superannuation rates under the Superannuation Guarantee (Administration) Act 2012 (Cth) (“SGAA”). Section 19(2) of the SGAA as at 2 February 2021 lists the superannuation rates since the 2014 financial year, through to the 2026 financial year and beyond. The rate is currently 9.5% (2021 financial year) and by the 2026 financial year will have increased to 12%. The next question then is what is “a written law?”
A Written Law
The above rates in the SGAA are obviously “a written law” for the purpose of s 56 of the CLA. Could a written law impose a higher percentage than the SGAA and apply under s 56 of the CLA? This was considered in Yamaguchi v Phipps & Anor [2016] QSC 151 (our emphasis):
[145] Mr Lee’s report contains material about the Japanese pension system. The material indicates that it has two parts. The first is the National Pension which is a basic public pension system, designed to provide people with common pension benefits. The other is Employees’ Pension Insurance. The National Pension is compulsory for all residents of Japan aged between 20 and 59. The plaintiff’s father has continued to pay her contributions as required, and it does not feature in an assessment of her loss. The Employees’ Pension Insurance is a system which provides an “earning-related pension” on top of the basic pension. If a person works for a company or a factory which regularly employs five workers or more, then the person is subject to compulsory coverage. Others may enrol in the system on a voluntary basis. The employee and the employer contribute equally based upon a monthly standard remuneration and a standard monthly bonus amount. Reforms introduced in 2004 provide for an increase in the annual contribution rate each year. In around 2003 the total contribution was 13.58 per cent (i.e. employer and employee contribution rates were 6.79 per cent respectively). By September 2009 it had increased to a total of 15.704 per cent (i.e. employer and employee contribution rates were 7.852 per cent respectively). The contribution rate rises 0.354 per cent each year. From 2017 onwards the total contribution rate will be 18.30 per cent (i.e. employer and employee contribution rate will be 9.15 per cent respectively). Presently, it is less than 18 per cent and so the current employer contribution is less than nine per cent.
…
[148] He notes that his calculation of the plaintiff’s future loss of pension benefits at the rate of 9.15 per cent might appear to exceed the amount stated in s 56. However, leaving aside issues of concessional tax rates on contributions, notional superannuation contributions are based on a contribution rate of up to 9.15 per cent of the plaintiff’s gross earnings. Mr Lee noted in this regard the decision in Najdovski v Crnojlovic.
[149] The defendants submit that loss of superannuation benefits should be allowed at the rate of 9.25 per cent in respect of past benefits and 11 per cent in respect of future benefits.
[150] The plaintiff submits that in the absence of evidence of a statutory requirement upon an employer to pay “employer’s superannuation contributions”, s 56 is not engaged. In his evidence, Mr Lee was unsure whether the entitlement to Employees’ Pension Insurance was a matter provided for by a Japanese statute or was, in effect, a contractual entitlement. However, I infer from the material that the obligation on a relevant employer to contribute equally under the Employees’ Pension Insurance is a matter of compulsion under Japanese law. Although styled an earnings-related pension, in the absence of argument to the contrary, I am inclined to treat it as being in the nature of a scheme which provides for “employer superannuation contributions” within the meaning of s 56(1).
[151] The plaintiff relies upon Najdovski v Crnojlovic in which Basten JA (with whom Allsop P agreed) concluded that account must be taken of the fact that damages payable for deprivation for impairment of earning capacity are based on net earnings whereas the then minimum percentage required by law to be paid as employer’s superannuation benefits of nine per cent was of an employee’s “ordinary time earnings”. As a result, the calculation of the maximum amount of damages to be awarded under s 15C of the Civil Liability Act 2002 (NSW) was assessed on the basis of 11 per cent of earnings net of tax. The defendants’ submissions do not question the correctness of that approach and I respectfully follow it. In this case, the employer contribution in the past has always been less than nine per cent. The figure of 9.15 per cent that will apply in 2017 and later years, is calculated on the basis of gross earnings. Having regard to the adjustment required by the decision in Najdovski v Crnojlovic, the plaintiff’s future loss of pension benefits as a result of the loss of prospective employer superannuation contributions does not exceed the amount allowed under s 56 of the Civil Liability Act 2003 (Qld).
[152] The loss will be calculated in accordance with Mr Lee’s approach. I have calculated the percentage which his figure for past loss of pension entitlements bears to his figure for past economic loss under Scenarios 1, 2 and 3. Subject to adjustments earlier noted arising from Exhibit 4, the percentage is approximately 18.5 per cent. I apply that percentage to past economic loss of ¥8,292,835 to arrive at a figure for past loss of pension entitlements of ¥1,534,174. As for the future, the figures calculated by Mr Lee in respect of future loss of pension entitlements compared to future economic loss under different scenarios are approximately 21.5 per cent. I apply that percentage to the figure which I assess for impaired earning capacity of ¥55,250,000 to arrive at a figure for future loss of pension entitlements of ¥11,878,750. The total for lost pension entitlements is ¥13,412,924.
The written law it appears must then be a law of Australia, not an overseas jurisdiction such as Japan – although this is not absolutely clear from the Court’s language in Yamaguchi. There appears no reason why an Australian written law other than the SGAA would not apply. It is apparent too that in Queensland the method of calculation for loss of superannuation regulated by s 56 of the CLA is: [the superannuation percentage the employer is required to pay under a written law (not a contract)] x [the gross loss of ordinary time earning capacity]. It is a method of calculation, not an arbitrary cap. Superannuation payments not required to be paid under a written law are not regulated by s 56 and will be subject to ordinary common law principles for assessment of damages. Salary sacrificing and contractual employer superannuation contributions beyond the minimum SGAA rate are not subject to s 56 of the CLA. While Yamaguchi did not recover the cost of voluntary pension insurance premiums paid by her father, those amounts would not be deducted from the gross or net loss of earning capacity so are in effect covered by the damages award.
The result then is that for employees such as State and Commonwealth government workers, who may be entitled to superannuation well above the minimum SGAA rate, s 56 of the CLA is to be used to calculate the loss of the SGAA component of superannuation (an any other additional statutory amount) applied to the gross loss of ordinary time earning capacity and ordinary common law principles to the loss of earning capacity caused by loss of salary sacrificed earnings and additional non-statutory (contractual) employer contributions. For non-SGAA or other additional statutory minimum contributions, a forensic accounting expert such as Mr Lee of Vincents in Yamaguchi may be required because the simple method of calculation in s 56 of the CLA does not apply. Enquiries may need to be made with the plaintiff’s superannuation fund about the basis for higher than normal employer superannuation contributions.