Compensation (‘Damages’)

Compensation - man at desk

Introduction

Common law assessment of damages has the aim of restoring the plaintiff to the position he or she was in, before the injury, in a once-and-for-all-time assessment. The Courts, of course, acknowledge that they cannot award ‘perfect compensation’.

Moderation and fairness are hallmarks of the assessment. 1

In general terms, whenever damages are assessed, the fact-finder considers the following:

  • Who was the plaintiff before the tort? (For example, what job, interests, activities etc did he or she have or engage in?)
  • Who would the plaintiff have been in the future, had she or he not been injured by the defendant’s tort? (Future job, interests, activities etc?)
  • Who is the plaintiff now? (That is, at the date of trial: what job, capabilities, needs etc does he or she have now?)
  • Who will the plaintiff be, in the future? (That is, what sort of job will she or he have? What will her or his future capabilities be? What will his or her future needs be? Has his or her life expectancy, abilities, or anything else been affected as a result of the defendant’s negligence?)

The answers to the above questions will assist in determining what ‘damages’ (compensation) the Court will award, within the rules found in statutes and the common law.

Some Basic Common Law Principles

Some basic common law principles for damages may be drawn from Todorovic v Waller (1981) 150 CLR 345. These are that:

  • the plaintiff is to be awarded a sum of money to put the plaintiff back in the position as if the plaintiff had not sustained injury: ‘restitutio in integrum’;
  • damages are recovered once and for ever in a lump sum award (*note due to legislation the Court can now approve periodic payments if parties agree, as part of ‘structured settlements’);
  • the court is not concerned with how the plaintiff uses the lump sum;
  • the burden is on the plaintiff to prove the injury/loss.

The civil law standard of proof applies, which is that the Plaintiff must prove on the balance of probabilities that they have suffered some kind of loss/harm as per their claim in negligence.

As with other causes of action, in personal injury cases ‘an injured party will be required to take reasonable steps to limit the loss which flows from his injury, as, for example, submitting to medical treatment where the refusal to submit to that treatment would be unreasonable’. 2 The Courts have recognised though that the scope for mitigating loss in personal injury cases may not be as great as in other causes of action (for example, contract). 3

What kind of things may be claimed?

Compensation - man on crutches
In CSR Ltd v Eddy 4 the Court said:

A plaintiff who has suffered negligently caused personal injury is traditionally seen as able to recover three types of loss.

The first covers non-pecuniary losses such as pain and suffering, disfigurement, loss of limbs or organs, loss of the senses – sight, taste, hearing, smell and touch; and loss of the capacity to engage in hobbies, sport, work, marriage and child-bearing. Damages can be recovered in relation to these losses even if no actual financial loss is caused and even if the damage caused by them cannot be measured in money.

The second type of loss is loss of earning capacity both before the trial and after it. Although the damages recoverable in relation to reduced future income are damages for loss of earning capacity, not damages for loss of earnings simpliciter, those damages are awardable only to the extent that the loss has been or may be productive of financial loss. Hence “the valuation of the loss of earning capacity involves the consideration of what moneys could have been produced by the exercise of the [plaintiff’s] former earning capacity”…

The third type of recoverable loss is actual financial loss, for example, ambulance charges; charges for medical, hospital and professional nursing services; travel and accommodation expenses incurred in obtaining those services; the costs of rehabilitation needs, special clothing and special equipment; the costs of modifying houses; the costs of funds management; and the costs of professionally supplied home maintenance services. It is not necessary for the costs actually to have been incurred by the time of the trial, but it is necessary that they will be incurred.

Another way of categorizing the above would be to focus on ‘non-economic’ loss and ‘economic-loss’. (This is how it is framed in current legislation in all States and Territories of Australia).

Other reference is also sometimes made to

  • special damages‘, which means damages from the date of the injury to the date of the trial that can be specifically quantified (eg. medical costs to the date of the trial); and
  • general damages‘, which refers to all other calculations that can only be estimated (past and future).

Note that adjustments are made to an award which may reduce the total amount claimed in relation to future economic loss. For example, there is a general reduction for the ‘vicissitudes of life’ (that is, the acknowledgement that people suffer ups and downs in life, including periods of unemployment, illness, and so on). This has generally meant a reduction in the award by around 15% subject to the individual being able to present evidence that it should be otherwise. 5 There is also a ‘discount rate’ for lump sum awards to ensure that investment of a lump sum does not lead to over-compensation. At common law this was 3%, but see below regarding how legislative provisions have increased this. The point to be made here is that although all of the above damages may be claimed, the compensation awarded will not represent a dollar for dollar award of total claimed loss.

How does legislation influence the award?

Compensation - money stack going down
All states and territories except the Australian Capital Territory, have legislation that may affect a plaintiff’s final award of compensation.

The following simply notes a number of areas in which legislative provisions may affect an award:

Non-economic Loss

Legislation now bars recovery of compensation for non-economic loss (for example, pain and suffering) unless the plaintiff meets some kind of threshold in regard to the severity of loss (NSW); 6 the type of injury i.e. being ‘significant’ (Vic); 7 the time in which their ability to lead a ‘normal life’ has been affected (SA); 8 the amount of the award (being above a prescribed minimum) (WA & Tas); 9 the percentage of impairment of the whole person (NT); 10 or the level of injury as compared to a scale (Qld). 11

There are also caps (limits) on the amount that may be awarded for non-economic loss in some jurisdictions.

Future Earning Capacity

Caps upon the award for loss of earning capacity also exist. A number of states/territories specify in legislation a maximum amount payable, based on “average weekly earnings” (for example, three times average weekly earnings, although the specific formula for calculating this award varies between jurisdictions).

‘Discount rate’ (reduction of award when paid in lump sum)

The award for future economic loss is reduced because the money is being paid in a lump sum, rather than over a lifetime. As the money may be invested and accrue interest, the reduction was applied to ensure a plaintiff was not over-compensated. The High Court of Australia determined that a reasonable discount rate would be around 3% (Todorovic v Waller), however most jurisdictions apply a reduction rate of 5% or higher. This makes a significant difference to the award.

Gratuitous Care

A Plaintiff may claim for their need for services (for example home nursing), even if those services are provided gratuitously (that is, they are provided for free, for example, by a parent or spouse). All states and territories, except the ACT, have imposed requirements regarding the number of hours and time that such services are provided, and how the sum is calculated. 12

Wrongful Death

When the negligence of a wrongdoer causes the death of a person,  if the victim had dependents, the dependents may sue under wrongful death legislation for the loss they have suffered since the date of death (for example, loss of financial support or loss of care-giving).

The person’s estate can also bring a claim under survival of actions legislation to recover any financial losses incurred by the victim between the date of the accident and the date of the death (for example, ambulance costs and/or medical expenses between the date of injury and death). Funeral expenses may also be claimed.

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