Basic Principles

2.1 Common law damages are designed in theory to provide full compensation for both the economic and non-economic loss sustained by the injured person. The court endeavours, by awarding a sum of money, to place a plaintiff, to the extent possible, in the position he or she would have been in, if he or she had not been injured.

2.2 There are a number of principles fundamental to this assessment of damages. Of primary importance is the principle that damages can only be claimed once in respect of a cause of action and must be awarded in the form of a lump sum. This rule, which had its origins in the United Kingdom,¹ has been consistently applied in Australia. Apart from some statutory modifications,² the rule operates in New South Wales.

Advantages of the Common Law System.

2.3 Arguments exist for the retention of this system.

• It is in the interests of the parties and the community not to prolong disputes, but to have the litigation settled once and for all. Any protracted litigation necessarily incurs increased administrative and legal costs. These increases would ultimately flow through and affect the community at large in the form of decreased services and the availability and cost of insurance.
• There are difficulties in ensuring future payments in a system that requires interim, provisional or periodic payments, whether the defendant is an insurer or not.
• This system promotes rehabilitation and encourages a plaintiff to become independent.

Disadvantages of the Common Law System

2.4 The common law system also has its disadvantages. In particular the deficiencies of assessing damages on a once-and-for-all basis, the difficulties and inconsistencies which arise in assessing damages for non-economic loss and the substantial legal and administrative costs associated with a common law damages action.

2.5 In a system based on lump sum awards, the potential to over-or under-compensate will always exist, especially in those cases where the medical prognosis is that the full manifestations of a plaintiff’s injury will not be apparent for some years after trial. The once-and-for-all lump sum award is in those situations a seemingly inadequate form of compensation, because the task of translating the assumptions as to the future into the money figure to be awarded to a plaintiff as a single sum, is incapable of being performed with accuracy.³

2.6 Previous studies⁴ conducted by the Commission support this view. Surveys undertaken by the Commission as part of these studies found the lump sum award to be inadequate when awarded on the assumption that a plaintiff will wisely invest the award to produce income for the period of incapacity assessed by the court. The Commission found that in some cases the compensation was dissipated within three years of the award. These studies also found inaccuracy in the lump sum award where inadequate allowance was made for the effects of inflation on the cost of items and services including wheelchairs, pharmaceuticals and home nursing. Other inaccuracies were found in the failure to assess accurately the physical capabilities of the victim and his or her likely lifestyle and employment prospects.

2.7 Ultimately the process must always be one of judgment rather than calculation.⁵ The court must take into account a number of variables that may affect a plaintiff’s condition. At the same time it has no means on which it can rely to accurately predict the effect those variables will have. The variables include:

• the degree of recovery or deterioration in a plaintiff’s existing medical condition;
• the nature of future employment opportunities that might be available to someone with the plaintiff’s disabilities;
• the life expectancy of the plaintiff;
• general economic factors such as the rate of inflation and rate of return on investment, which are relevant to determining an appropriate lump sum to produce a particular income stream.

Other Approaches

2.8 Some Australian states have made exceptions to the lump sum rule. In Western Australia⁶ a court is empowered to award damages by way of lump sum, periodic payments or both. Such an award only applies to claims of damages for death or personal injury directly caused by a motor vehicle. Apart from the legislation’s narrow application, the powers it gives the court are wide. The periodic payments may be made for any length of time and the order may be terminated or varied by the court acting on its own motion or on the application of either party.

2.9 In South Australia,⁷ a court in an action for damages (personal injury or otherwise) can enter declaratory judgment on the question of liability and adjourn the final assessment of damages. In a personal injuries matter, the judge must proceed to final assessment where the medical condition of a plaintiff has stabilized, or four years has expired since declaratory judgment was entered. (Under special circumstances final judgment can be deferred). In the interim, a court can order the defendant to make such payments on account of damages as appears just. The interim order may be varied on the application of either party. The legislation does not, however, allow the recovery of non-economic loss by way of interim payments, unless a serious and continuing disease exists, or a plaintiff’s contributory negligence prevents recovery of the full amount of his or her economic loss. This legislation and the legislation referred to in paragraph 2.8 have rarely been used in practice.

2.10 In New South Wales,⁸ motor accident victims may avoid lump sum payments in respect of future economic loss by making an arrangement with the defendant (such arrangement being subsequently approved by the court) for the periodic payment of damages assessed for future economic loss in the form of a “structured settlement”. Such a discretion allows the court to make variable arrangements for compensating future economic loss in cases of severe permanent or long-term disability. The relevant section, s81, has been held to be an exception to the general rule that the court has no concern with the manner in which a plaintiff uses the award. In making an order pursuant to s81 the court shall have regard to the ability of the plaintiff to manage and invest any lump sum award of damages.⁹

A New Scheme in New South Wales?

2.11 The Personal Injury Damages Bill 1991 (NSW) if enacted would replace the common law assessment of damages in personal injury actions. The main features of the Bill are:

• It applies to awards of damages in respect of an injury caused by the fault of another, excluding awards of damages in respect of intentional torts, but applying to awards in respect of intentional torts committed in the course of health care or treatment.
• The imposition of a limit on the amount that can be awarded for non-economic loss. The maximum amount is to be in line with the maximum applying under the Motor Accidents Act 1988 and is indexed annually.
• Where a jury assesses damages, the court is entitled to require the jury to separately determine the amount of damages for non-economic loss, future economic loss and past economic loss.
• The introduction of deductions from awards of damages for non-economic loss to be made at half the rate applying under the Motor Accidents Act. The effect of this being that no award of damages for non-economic loss will be made if the award would be less than $8,025. From $8,025 to 21,400 there will be a deduction of $8,025 and from $21,400 to $29,425 the deductible amount is progressively reduced until at $29,425 there will be no deduction.
• A restriction of compensation for home care services. Compensation for home care gratuitously provided by a family member can only be recovered after it has been provided for six months, only after it is provided for six hours per week and so long as it does not exceed the average weekly earning rates.
• In cases where the plaintiff and defendant agree, or the court considers it to be appropriate, an arrangement known as a “structured settlement” may be awarded by the court. Such an arrangement will provide an alternative to a lump sum award, but only in respect of future economic loss.
• The abolition of the defence of volenti non fit injuria, but the court can still reduce damages where the defence would have been available.
• The abolition of awards of exemplary or punitive damage.
• The court is required to have regard to any failure by a defendant to take all reasonable steps to minimise the risks arising from the defendant’s activities, with particular regard to the social utility of those activities.

1. Fitter v Veal (1701) 12 Mod 542.

2. Workers Compensation Act 1987, as amended by Workers Compensation (Benefits) Amendment Act 1989, s151Q; Motor Accidents Act 1988, s81.

3. Todorovic v Waller (1981) 150 CLR 403 at 457, per Aicken J.

4. As part of the Accident Compensation reference the Commission conducted a detailed study of the experiences of plaintiffs who had received compensation in a common law negligence action (Accident Compensation Research Report No 1, 1984).

5. Todorovic v Waller (1981) 150 CLR 403, 413 per Gibbs CJ and Wilson J.

6. Motor Vehicle (Third Party Insurance) Act 1943, s16.

7. Supreme Court Act 1935 (SA), s30 b.

8. Motor Accidents Act 1988, s81.