IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20110222

Docket: 06-2649

Registry:
Victoria

Between:

Dino
Sartori

Plaintiff

And:

Robert
Gates

Defendant

Before:
The Honourable Mr. Justice R. D. Wilson

Reasons for Judgment

I.

[1]            
Following the trial of the plaintiff’s personal injury action, a jury
returned a verdict for the plaintiff, which included a cost of future care
assessment of $62,000.

[2]            
The jury found the plaintiff 33 1/3% at fault.  The parties agree that,
after apportionment of fault, the jury’s assessment, under the cost of future
care head of damages, is $41,333.33.

[3]            
The plaintiff now seeks a “tax gross up” addition, to those damages, to
reflect the award on that head of damage.

[4]            
In support of their positions on this application, each of the parties has
filed actuarial reports.  The reports are not in harmony with one another. 
They introduce certain controversies.

[5]            
First, Mr. Wickson, for the plaintiff, has employed a method of
calculating a tax gross up, which does not take into account the tax
ramifications of a “tax free savings account” available to the plaintiff,
pursuant to s. 146.2 of the Income Tax Act.

[6]            
Mr. Szekely, for the defendant, has taken into account those tax ramifications
of that income tax provision, in one of his models.

[7]            
In result, Mr. Wickson proposes a tax gross up ranging from $9,164 to
$10,025, while Mr. Szekely proposes a range of $3,112 to $3,697.

II.

[8]            
The plaintiff contends that the income tax benefits available to the
plaintiff are not a lawful factor for consideration in defining the tax gross
up amount.  He says the defendant’s proposition is tantamount to forcing him to
put his award into a tax free savings account, for the defendant’s benefit. 
That proposition, he argues, is contrary to the principle cited in Townsend
v. Kroppmanns[1]
that:

It is improper for a trial judge
to consider what the plaintiff does with awarded damages.

[9]            
In response, the defendant contends that the tax free savings account is
a legitimate factor to take into consideration, in defining the tax gross up. 
Until that gross up is defined, there is no “award”.

[10]        
The defendant further argues that the plaintiff continues to be under a
duty to mitigate his damages.  And there is no reasonable justification for the
plaintiff not to take advantage of this tax benefit.

[11]        
Perhaps it is a matter of characterization, but I think the defendant is
correct in his argument that the tax free savings account benefits are relevant
considerations in defining the tax gross up amount.  For two reasons.

[12]        
First, I agree, that at this stage, before the award is defined, the
plaintiff has a duty to mitigate his damages.  It is clear from Mr. Szekely’s
opinion that use of a tax free savings account would mitigate the plaintiff’s
damages under the cost of future care head of damages.

[13]        
Second, in Whetung v. West Fraser Real Estate Holdings Ltd.,[2]
this court found consideration of disability tax credits under s. 118.3 of the Income
Tax Act to be a relevant consideration.  Seemingly, it was there argued
that in defining the tax gross up, the plaintiff was entitled to the tax
benefits prescribed under that section of the act.  There is no suggestion that
there was anything unlawful about the defendants forcing the plaintiff to apply
for the tax benefits so prescribed.

[14]        
Indeed, the court considered that factor and concluded that the
plaintiff would not qualify for the deduction.  Seemingly, if she did qualify,
then the resulting tax benefits would be relevant in defining the tax gross up
amount.

[15]        
Mr. Wickson argues that, in Hudniuk v. Warkentin,[3]
this court refused to permit a plaintiff to take advantage of a deduction for
RRSP contributions prescribed by the Income Tax Act.  Mr. Wickson
further argues:

We suggest that inasmuch as the
courts are not inclined to give plaintiffs the benefit of these potential
investments in calculating awards it is inappropriate to penalize them in this
instance.

[16]        
I think Hudniuk is distinguishable on its facts.

[17]        
First, the issue in Hudniuk was the determination of “net income”
pursuant to the provisions of s. 54 of the then Insurance (Motor Vehicle)
Act, R.S.B.C. 1996, c. 231.  That was a past loss issue; not a future
loss issue.

[18]        
Second, Ms. Hudniuk had not made contributions to her RRSP to the maximum
permitted by the Canada Revenue Agency.  Nevertheless, she sought to include
deductions, for expenditures she had not so incurred, in determining her tax
liability, for the purposes of defining her net past loss income award.  The
court refused to include those deductions.  At para. 24, the court said:

[24]      Both the provincial and
federal Income Tax Acts restrict the deduction of RRSP premiums to amounts that
have been paid as premiums to such plans.  Since no regulation has been
prescribed under the Act to alter the rules in that regard, no deduction may be
made for purposes of computing “net income loss” for any amount in respect of
an RRSP contribution except to the extent an amount was actually paid.  Simply
stated, entitlement to any deduction for income tax purposes in relation to
RRSP premiums is dependent upon a premium actually having been paid.  Were it
otherwise, the calculation of income tax would not have been made in accordance
with either provincial or federal income tax legislation.

[19]        
Accordingly, it is not correct to say that courts are not inclined to
give plaintiffs the benefit of these potential investments, nor is it correct
to say that it is inappropriate to penalize them by taking into consideration
the tax benefits of a tax free savings account.

[20]        
In result, I find the tax free savings account benefits to be a lawful
consideration in defining the tax gross up amount.  That said, however, Townsend
is also authority (among many, many others) for the principle that,
“compensation aims at restoring the victim to the position that person would
have been in had no loss been incurred”.

[21]        
A cost of future care award is founded on the theory that the tortfeasor
must provide a fund from which the victim may draw to meet future expenses as
they occur.  It is a presumption of law that the fund will be invested and will
earn income.  According to the theory, as I understand it, the fund and its
income, is a separate stand-alone phenomenon.  It appears to me that Mr.
Szekely has treated it as such in his analysis.  Therefore, the tax benefits
available to the plaintiff, by virtue of a tax free savings account, are
exhausted in this separate stand-alone account.

[22]        
Commencing 1 January 2009, the plaintiff has been entitled to the tax
benefits of a tax free savings account.  It seems to me that if I assign all of
the tax benefits, from a tax free savings account, to this stand-alone account,
then I will not be restoring the plaintiff to the position he would have been
in had no loss been incurred.  To put it in Mr. Wickson’s terms, adopting Mr.
Szekely’s approach, fails to recognize the plaintiff’s right to use the tax
free savings account for his “first slice” income.

[23]        
I have considered the tax benefits of a tax free savings account as a
legitimate factor in determining the tax gross up and having done so, I
conclude that in this particular case, Mr. Szekely’s calculations are not
applicable in the determination of the tax gross up amount.

III.

[24]        
Mr. Szekely has included in his reports a calculation of a tax gross up
which does not apply the tax free savings account factor.  He posits a figure
of $7,860.

[25]        
The difference between Mr. Szekely’s figure, and Mr. Wickson’s maximum
figure of $10,025 is due to the actuarial models employed by each of Mr.
Szekely and Mr. Wickson.  The difference is further explained by differences in
the allocation of the source of the income realized by the investment, that is
to say, the fund would earn income by interest, or capital gains, or dividends.

[26]        
Mr. Szekely attributes the income as consisting of 60% interest, 20%
capital gains and 20% dividends.  Mr. Wickson attributes 100% of the income to
interest.

[27]        
The competition between these two actuarial models has been addressed by
this court in two previous decisions referred to by counsel.

[28]        
The first in time is Whetung.[4] 
I will quote extensively from the judgment:

[7]        The two actuarial models proposed by counsel to
account for depletion of the cost of care differ in that the approach employed
by the plaintiff’s expert, Mr. Struthers, suggests the cost of care funds would
be accounted for as being depleted by the sum judged necessary to cover the
monthly expenditures, less a probability factor needed to discount for negative
contingencies, notably survivability.  The method employed by the defendant’s
expert, Mr. Szekely, would deplete the fund by the full cost of care required
each month, with no application of this probability factor.

[8]        The probability accounting method matches the
method employed to assess costs of future care and depletion of the fund on the
probability basis, at least notionally, makes the fund available through the
plaintiff’s lifespan.

[9]        The accounting on the basis of a full reduction
each month for the cost of care judged appropriate, will result in a depletion
of funds at a considerably earlier point in time.  The additional effect of
this full deduction model is a shorter period of time during which funds are
available for investment, and a reduced requirement for a tax gross-up.

[10]      In my view, there
should be a consistent basis employed for the calculation of damages and in
accounting for the depletion of funds.  Theoretical symmetry is not the only
question.  I think it is likely that a person suffering a disability, knowing
that the cost of care needs to be sustained will make economies, accepting a
lower standard month-to-month, so that the funds applied each month will be
sustained as far into the future as can be reasonably managed, or will use
other resources to help defray costs.  In either case this form of management
is better and more equitably described by the method proposed by the plaintiff.

[29]        
The second in time is Burdett (Guardian ad litem of) v. Mohamed.[5] 
Again, to quote from the reasons for judgment:

[7]        Mr. Carson’s calculation assumes that amounts for
future care will be spent on a constant basis over the course of the plaintiff’s
life.  By contrast, Mr. Szekely assumes those costs will be front loaded —
that is that the bulk of the award will be spent by the plaintiff prior to the
age of 45, since it is notionally assumed she will be raising children and
spending large amounts on child care.

[11]      It must also be noted that if one accepts Mr.
Szekely’s front end approach, the fund is effectively exhausted by the time the
plaintiff reaches the age of 73, well before the conclusion of her actual life
expectancy.  Adopting Mr. Carson’s approach, the fund will be able to meet
those costs throughout her lifetime.

[12]      Having heard and
considered the evidence and the reports of both Mr. Carson and Mr.
Szekely, I prefer the approach set out by Mr. Carson

[30]        
No compelling reason has been advanced which persuades me that I should
not follow those two previous decisions of this court.

[31]        
Finally, the fund available to meet the plaintiff’s costs of future care
is $41,333.33.  I find it is more probable than not that the income to be
earned from the investment of this fund will be interest income.  Therefore, I
make no allocation for capital gain or dividend income and assess the tax gross
up at $10,025.

IV.

[32]        
I accept the plaintiff’s calculations of the award based on the jury’s
verdict, after apportionment of fault, as follows:

[33]        
The plaintiff is at liberty to enter judgment for that amount.  If
necessary, costs may be spoken to.

                   “R.
D. Wilson, J.”                    

The
Honourable Mr. Justice R. D. Wilson