Illegal Income in a Personal Injury Claim

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W. Eric Pedersen

In a personal injury action, the injured party can claim against the defendant for both past income loss (being their actual lost income up to the date of the trial), as well as for potential future lost income earning ability (called a “loss of capacity” claim).  In both cases, the plaintiff must satisfy the court on a balance of probabilities that they have suffered these losses, as well as the amount of the loss.  In many cases, past wage loss can be a simple calculation – for example, a plaintiff can use pay stubs, or income tax returns to show how what their earnings were up to the accident, and can readily calculate how much income was lost – for example, if the plaintiff earned $600 a week, and was off for two weeks, their lost income is easily calculated to be $1,200.   Bringing a claim for lost income can be tricky if your income comes from more unorthodox sources.

If you are the purveyor of an illegal marijuana grow-op (for example), and you were in a motor vehicle accident that impairs you from carrying out your business, you are going to face difficulty in establishing a lost income claim.  Such a claim would presumably expose the claimant to criminal penalty.  Further, courts are reluctant, to condone illegal behaviour – in contract and tort law, the courts have developed the doctrine of ex turpi causa non oritur actio, (Latin for “from a dishonourable cause an action does not arise”), and will refuse to enforce contracts of an illegal nature.  

In addition, such income is likely to be undeclared on any tax returns – and courts have in the past used a failure to declare income on a tax return to find that the plaintiff is not a credible witness, for example, in the 2010 case of Tran v. Kim Le Holdings Ltd., 2011 BCSC 1690, the court found as follows:

[64]           My confidence in Ms. Tran’s credibility is undermined by the fact that she has, on at least two occasions, admittedly not told the truth. In her tax return for 2003, Ms. Tran knowingly understated her income by a very substantial amount. Although she proffered an explanation for doing so, the fact remains that she lied about her income. It seems to me also to be likely that Ms. Tran did not declare income she received from part-time work before the accident. Ms. Tran also lied about her income in her examination for discovery. In substance, she said that the income tax statement from 2003 was accurate when, subsequently, she was forced to acknowledge that it was not. She said that she lied then because she was frightened to admit the truth, having lied about her income in the past. I did not find this explanation persuasive. Ms. Tran must have understood the importance of telling the truth on her examination for discovery, but did not do so. Ms. Tran is someone who has demonstrated that she is prepared to lie, even under oath, when it is to her advantage to do so. That being so, I am unable to give weight to her account of how the accident occurred except to the extent that it is corroborated by other evidence.

 That said, despite the obvious problems in proving such a claim, courts tend to take a liberal approach to awarding compensation to injured persons.  For example, in the  case of Dhillon v. Kastelein, [1982] B.C.J. No. 883, the defendant sought to exclude a past income award from the plaintiff, who had been working illegally in Canada at the time.  In that case, the court disagreed, writing as follows:

14     Counsel for the defendant took the position that the whole wage loss should be based on the wages he could have earned in India rather than in Canada. His argument being that it would be contrary to public policy to allow a Canadian wage base when he was illegally in this country. He was unable to cite any authority in support of that proposition and I am unable to accept it. In Fleming – Law of Torts, 5th ed. (1977) at p. 271, the learned author has this to say:


Generally speaking, the mere fact that the plaintiff happened to be engaged on something unlawful at the time of his injury is no disqualification in tort. The victim of a motor accident may be a child playing truant from school, an employee absent from work in breach of contract, or a burglar on his way to a professional engagement, but none of this has any bearing on his rights against the negligent driver. It is neither causally relevant in the accepted sense, since it did not in any significant way increase the risk of his injury, nor is the need to deter unlawful conduct nowadays consider so urgent that it is better public policy to make the offender in effect an outlaw by depriving him of all tortious redress.”

15     In a footnote at the same page he has this to say:

“The maxim Ex turpi causa non oritur actio is nowadays handled with caution. According to a widely held view, its sole legitimate function is to deny a plaintiff legal aid for accomplishing an illegal object, like enforcing a contract; at most to preclude him from relying on an illegal transaction necessary to establish his claim. Neither is generally applicable to negligence claims. The maxim’s bite is least where the illegality is not even associated with the accident but only with damages: public policy would rarely oppose recovery of lost earnings merely because they would have been made in a tainted employment: Mills v. Baitis [1968] V.R. 583 (trade in prohibited area); Le Bagge v. Buses [1958] N.Z.L.R. 630 (Sunday driving); contra: Burns v. Edman [1970] 2 Q.B. 541 (professional criminal).”

The court’s adoption of these passages in the above case indicates a liberal and flexible approach to lost income claims involving unorthodox or illegal sources of income.  While a court is unlikely to award business losses to an injured drug kingpin, the courts are not likely to deny an income loss claim simply because the income was earned in technical breach of a statute, such as a failure to obtain a business license.


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