The High Court in Husher v Husher (1999) 197 CLR 138 found that the plaintiff was entitled to recover the total profits of the partnership as being representative of his earning capacity.
The plaintiff was a self employed block layer operating in a 50/50 partnership with his wife. His personal exertion and activities resulted in 100% of the earnings of the partnership. His wife’s only contribution was minor bookkeeping and message taking tasks.
There were two alternative views, one that the plaintiff was only entitled to 50% of the profits of the partnership in accordance with the tax structure. The other alternative was that he was entitled to 100% of the profits adjusted for the value for the wife’s contribution to the business. The later prevailed, in essence because the plaintiff is being compensated for his loss of earning capacity rather than his loss of earnings.
The principles of Husher & Husher can be applied to other corporate structures such as companies and trusts, where the plaintiff’s skill and labour generates the income of the business. This is particularly the case in the construction industry, where most are employed as sub-contractors through a company structure. The most common structure is now companies rather than partnerships.
Applying Husher & Husher
In preparing an economic loss using the principles set down in Husher & Husher it is necessary to establish:
- that the income of the company was the result of the skill and labour of the plaintiff. Where a company with two working bricklayers as shareholders and directors, the principles of Husher & Husher will not apply and the plaintiff’s loss would not include the profits derived by the skill and labour of the other shareholder. In this case only 50% of the profits could be claimed. This can prove difficult where say replacement labour is employed and both shareholders share in the cost of the replacement labour. This can be avoided where each partner is paid a salary based on their contribution to the business (hourly rate).
- an adjustment for the contribution of the non-essential shareholder or partner is made. If the wife worked 2 hours per week in the business then profits would need to be reduced for a commercial wage for those 2 hours per week.
The application of Husher & Husher is more difficult when the business is a trading business or has a significant capital component. It would then be necessary to establish the link between the plaintiff’s earning capacity and the operation and profitability of the business.