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QUANTUM LEAPS

1. Civil Liability Act 2002 (NSW) NEW
The Civil Liability Act 2002 (NSW) has applied since 20 March 2002.

Applying where over-riding legislation does not apply, the Civil Liability Act 2002 (NSW) impacts on the calculation of loss/damages in personal injury and death claims so that:

  • damages for future economic loss (loss of earning capacity) must be capped at an amount equal to three times the average weekly total earnings of all employees in NSW for the most recent quarter
  • the discount rate to be applied in calculating future economic loss is 5 per cent
  • no interest will apply to past gratuitous care claim
  • interest for past losses will be calculated at the 10 year Federal Government Bond rate, not the Court rate.

Please contact us for further information.

2. RTA-v-Cremona (2001) NSW CA 338 NEW
Calculating loss of superannuation benefit.

Much debate amongst lawyers and forensic accounting experts has been sparked by the recent case of Cremona-v-RTA (2001) NSW CA 338. One of the key issues relates to determining whether interest (as a proxy for expected returns) should be applied to lost employer-sponsored superannuation contributions. In the case in question, reference was made to an Intech "Growth Funds" Performance Survey as at a certain date as an indicator of an appropriate rate of interest (ie expected return) to apply to superannuation contributions.

We have provided lawyers and insurers with expert testimony, research, detailed advice, and our opinion regarding the methods that can be applied in calculating loss of superannuation benefit. We have also been retained to respond to reports from other experts on this matter.

Please contact us for further information.

3 . Entity Structure Analysis
A technique which can help pinpoint the key issues in a complex business structure.

When analysing any complex business structure, the key issues are: what does each of the entities within the structure own, how is income derived and distributed within/outside the structure, and who ultimately benefits from the distribution of income? For instance, a business structure which encompasses a company, discretionary trusts, a partnership, and a superannuation fund, has an enormous amount of scope in determining how to move income around.

Frequently faced with the task of unravelling these scenarios, we recognise that each business structure and its operation are unique. This means a unique approach must be tailored for each situation. We have developed a pro forma worksheet that provides a straightforward method for identifying what a particular complex business structure actually does. We are happy to provide you with an example of our worksheet, which combines graphics and tables.

Please contact us for further information.

4. Financial Discovery Matrix
What document do I need and where can I find it? Simplifying the perplexing.

Having been involved in many matters over the years, we have amassed considerable experience in locating financial evidence critical to a case. We know what information exists and where it can be found. On more than one occasion, we have found that a comprehensive request for documents and information has led to the withdrawal of a claim.

Our structured approach to the documentary trail will enable you to manage the process of identifying and assembling information. The Financial Discovery Matrix is a worksheet presenting a table full of possible documents and where they are likely to be found. We are happy to provide you with a copy of the checklist and to explain how to use it.

Please contact us for further information.

5. Regression Analysis
A powerful way of examining business trends.

We are often faced with the task of assessing whether a business suffered a downturn as the result of an event. For example, in one case we investigated, the plaintiff alleged that his business had been defamed on a television program, and as a result, sales had decreased. Another plaintiff (a tenant of a shopping centre) alleged that the shopping centre owner had ceased to properly maintain and promote the shopping centre and that as a result, sales of the plaintiff's business had fallen. Typically in these situations, annual financial statements are produced in support of allegations of loss. These may indeed show a noticeable decline in sales in the financial year following the alleged event. Case proven? Not necessarily.

When we looked closely at figures for the businesses mentioned above, we found that declines in sales had commenced prior to the alleged events. In one instance, we showed that the beginning of the decline was linked in time to the opening of competition. In both instances, we found no detectable impact on sales from the date of the alleged event.

Regression analysis is a technique we have applied. It can be used to analyse the relevance of an event through its impact on an aspect of a business eg sales. Regression analysis can be used to examine the relationship between two variables. For example, the relationship between daily temperature and water consumption may be the association of higher daily temperatures with increased water consumption. In respect of advertising expenditure and sales, regression analysis may prove that increased expenditure on advertising boosts sales. Time and sales is another such relationship.

Regression analysis can assist in identifying a trend in a business both before and after an alleged event. If the alleged event has had no impact on a business's sales, the trend both before and after the event will be the same (or at least very similar). On the other hand, if there has been an impact, the trends before and after the alleged event will differ.

In the two matters referred to above, there was a declining trend in the sales of the two subject businesses after the alleged event. However, the declining trend had started some months prior to the alleged event, and the trend in sales both before and after the alleged events were indistinguishable.

If you are faced with the task of assessing whether an alleged event has impacted on a business, regression analysis may prove helpful. Although regression analysis is not suitable in all situations, when appropriate, it is a powerful analytical tool.

Please contact us for further information.

6. Median -v- Average
Is there a better way of estimating an expected value than with an average?

The average can be described as a measure of central tendency. It is a single value that is meant to provide a fair estimate of a particular set of values. However, an average value may in some circumstances be flawed.

Extreme values in the population can shift or skew an average. As there are more extremely large (or extremely small) values, the average tends to move towards the extreme values. In considering average income, average weekly ordinary time earnings (AWOTE) may be skewed if there are very high-income earners in the population. The conclusion that an "average" person would earn AWOTE may be flawed. In this case, it is likely that an average person would earn somewhat less than AWOTE.

A variety of statistical techniques (eg standard deviation) provide indicators of the reliability (as a representative measure) of an average. A simple alternative measure is the median. The median is the middle value in a set of data. It is not influenced by extreme values, and as a result is considered by some to be a fairer representation of a set of numbers than an average.

Please contact us for further information.

7. Husher-v-Husher (1999) HCA 47
Substance over Form!

Recent Court decisions have determined that an assessment of economic loss should be based on a party's actual role, duties and contribution to the business. This may differ from a taxation treatment of the business's income. In assessing the economic loss of one of two partners who has suffered an injury causing economic loss, the taxation solution may be to split the income 50/50 between the partners. However an accounting assessment may consider actual roles and contributions to the earnings of the business. This may lead to an assessment somewhat different from 50 per cent.

Please contact us for further information.