The Supreme Court recently ruled in a case centring on the question of whether income received by the injured party before the liability event on which taxes and contributions were wrongfully not paid (so-called income from ‘undeclared’ work) may be taken into account in the calculation of damages for diminished working capacity.

The facts

What was at play here? In January 2015, the injured party, who had run a sole proprietorship in the field of internet products, security cameras and satellite dishes since 1997, installed internet cables on behalf of a primary school. While carrying out the work, he fell from a ladder provided by the school. As a result of the fall, he sustained ankle injuries. The injured party held the school liable for his damages. Liability for the consequences of the fall was recognised by the school's liability insurer.

As part of the settlement of damages, a business report was prepared by an accountant at the joint request of the parties. According to this report, the operating result of the injured party's sole proprietorship before tax was €10,270 in 2012, €8,865 in 2013 and €11,646 in 2014. In discussions with the insurer about the claim settlement, the injured party took the position that, in addition to the above-mentioned income, he had income that was not accounted for in the records. If taken into account, his income in 2013 would be €51,500 and in 2014 €51,750. He claimed to have generated this income from sales transactions in his shop, which he kept off the books, as well as from work such as installing camera installations, satellite dishes and sound systems. These works were performed by himself after the shop was closed, or by on-call workers hired for this purpose, which were also not accounted for in the books. He did not pay income tax on this income.

The proceedings at first instance

In partial dispute proceedings under section 1019w Rv, the insurer requested the court to rule that, should the injured party succeed in proving that he had income from undeclared work before the accident (and that he would have continued this undeclared work without the accident), the income from undeclared work should be disregarded when determining the extent of the damages that the insurer must compensate the injured party for loss of working capacity. This request was rejected by the court.

Appeal

The insurer then appealed.
The court upheld the court's ruling:
“Insofar as the injured party suffered damage due to the fact that, as a result of the accident, he is no longer able to generate the same income through work as he would have done without the accident, this damage cannot be regarded as damage to a non-legal interest. After all, his damage does not consist of missed black income as such, but of the loss of earning capacity. The standard violated in this case by the school towards the injured party - the obligation to provide a safe ladder - serves to protect against this damage, so that the relativity requirement is also met. The fact that the injured party itself breached a standard vis-à-vis the tax authorities by failing to pay tax and contributions on the work carried out is independent of that."

Cassation

In cassation, the insurer complained that the court of appeal had failed to recognise that, when estimating damages for reduced working capacity, no account should be taken of income from undeclared work generated by the injured party before the liability event.
According to the insurer, the injured party had to state and prove whether and to what extent, in the hypothetical situation without the liability-fixing event, he would have been able to enjoy and would have continued to enjoy white income. To the extent it was not plausible that the injured party would have performed the same work (to the same extent) white in the hypothetical situation, the injured party had to state and prove that and what other choices he could have made to generate other white income and for what amount. The insurer held that the criminality and illegality of undeclared work precluded meeting the injured party's burden of proposition and proof on this point.

The insurer's complaints failed. The Supreme Court ruled as follows:

"According to the Supreme Court's established case law, the existence and extent of damage due to diminished working capacity as a result of a liability-fixing event should be determined by comparing the injured party's income in the actual situation after that event and the income that the injured party would have acquired in the hypothetical situation without that event (hereinafter: the hypothetical situation). In principle, the burden of proof and proof of the existence and extent of the damage rests on the injured party. However, no strict requirements may be imposed on the injured party when comparing the actual and hypothetical situation. When comparing the actual and hypothetical situation, reasonable estimates must be made of how the injured party's income will develop or how it would have developed in the absence of the liability event. These estimates rely on reasonable expectations of future developments in the injured party's working capacity after that event or without that event, respectively. In that context, the good and bad chances must be weighed, in which assessment the court has a considerable degree of freedom.

When estimating the extent of damage due to reduced capacity to work, income from undeclared work of the injured party in the period before the event giving rise to liability may be taken into account - insofar as the work is lawful to perform as such. Indeed, the fact that the injured party had such income before the liability-fixing event indicates that the injured party was able to earn income through work, and thus says something about his working capacity existing at that time.

If, before the liability-fixing event, the injured party had income from undeclared work, the performance of which is lawful as such, it is necessary to assess (i) whether, and if so to what extent, the injured party in the hypothetical situation would have performed such work, or would have performed other work in its place, and (ii) what net income, after withholding or remittance of the tax and contributions due, the injured party would have received from the aforementioned work."

Final Remarks

The appeal was dismissed by the Supreme Court. The Supreme Court confirmed that missed income from undeclared work can be eligible for compensation.

Want to know more or need advice on compensation for damages? If so, please feel free to contact one of our lawyers without any obligation. We will be happy to assist you and keep you informed of further developments!