I. INTRODUCTION

5.1 Chapter 1 has explained why this Report is confined to compensation for victims of transport accidents. Chapter 3 identifies the numerous and widely acknowledged deficiencies in the existing common law system as the means of compensating victims of transport accidents. Chapter 4 reviews the range of proposals which have been made, and in some cases implemented, in Australia and overseas to rectify some or all of these deficiencies. This Chapter attempts to identify the objectives of a Transport Accidents Scheme for New South Wales.

A. Losses

5.2 The Pearson Royal Commission in the United Kingdom defined “compensation for personal injury” as

... the provision of something to the injured person (or to his dependents if he has been killed) in consequence of the injury or for the purpose of removing or alleviating its ill-effects. What is provided may be money, services, goods or real property. ¹

While this definition refers to “alleviating” the ill-effects of an injury, it provides no clear guidelines as to the means by which the alleviation should be implemented, nor the objectives that should be pursued. Moreover, the ill-effects (or losses) associated with transport accidents are of various kinds. Some are, and some are not precisely measurable in monetary terms.

5.3 The losses sustained by the individual victim or his or her family, can include:

• the cost of medical nursing and other rehabilitative services required to restore, so far as possible, health capacity for work and general well being;
• the loss of earning capacity suffered in consequence of the accident;
• the physical or mental disability, temporary or permanent, and any consequent impairment of enjoyment of life;
• the loss of support, whether of a financial or non-financial kind, sustained by the family of the victim; and
• the emotional trauma experienced by accident victims and their families.

From the communities point of view, the losses can include:

• the reduced participation of accident victims in the workforce and in community life generally;
• the cost of providing the services required to minimise the disruption to commercial and community life caused by transport accidents; and
• the cost of providing services and assistance to accident victims, whether or not as part of a formal compensation “system”.

B. Safety

5.4 The communities first objective must be to reduce the incidence and severity of transport accidents thereby reducing the losses flowing from them. There can be no serious quarrel with the proposition that safety and prevention measures should be made more effective. Indeed this has been officially recognised in New South Wales, most recently through the activities of the joint Standing Committee on Road Safety (the STAYSAFE Committee) and the Governmental responses to the Committee’s proposals. ² There have also been extensive publicity campaigns to highlight the need for safer driving and better road conditions. ³ The State Government has indicated its commitment to planning for a safer road system. ⁴

5.5 Compensation arrangements may have a bearing on safety and prevention, although there is little evidence as to the relationship between compensation systems and the incidence of accidental death and injury. ⁵ It is fair to say that measures other than compensation arrangements are likely to have a more direct impact on the incidence and severity of accidents. The criminal law plays a major role, by imposing penalties on (and thereby deterring) dangerous or careless driving of vehicles or other forms of transportation. ⁶ In New South Wales great emphasis has recently been placed on enforcing criminal sanctions against driving under the influence of alcohol, through the random breath testing program. ⁷ Others see improved vehicle safety, driver education and better road conditions as having a high priority in achieving a substantial reduction in-the road toll. ⁸

5.6 Whatever the best approach or combination of approaches it is clear that compensation arrangements should not jeopardise safety measures and, if possible, should enhance safety. This can be done in a variety of ways. Careful consideration should be given to establishing a structure for funding the Scheme which relates contributions to the risks created, for example, by particular classes of drivers or of vehicles. The Corporation responsible for administering the Scheme should maintain close contact with agencies responsible for promoting safety to monitor the impact of compensation policies on safety and prevention. For example, it will be important to ascertain the significance, if any, of narrow or broad exclusions from the Scheme on road safety. The Corporation should also be a source of funds for research into safety in the area of transport and for the promotion of safety measures, although it should not attempt or supplant the role of more specialised agencies. These matters are explained further in Chapter 17.

C. Rehabilitation

5.7 Despite the emphasis on accident prevention the Australian community accepts that deaths and injuries arising out of the use of motor vehicle transportation are inevitable. Theoretically it might be possible to eliminate all serious transport accidents. This could be done, for example, by imposing and strictly enforcing an absolute speed limit of, say, 10 kilometres per hour and by allocating sufficient resources to ensure that roads and vehicles are as safe as human ingenuity can make them. The reality is that the community values the great social and economic advantages of a swift and comprehensive transportation system to such an extent that it is prepared to accept not merely the risk but the certainty that substantial numbers of people will be killed and injured as a result. In short a judgment has been made that the social and economic costs of making transportation absolutely safe are too great to implement.

5.8 Thus, notwithstanding vigorous safety measures, there will continue to be a substantial number of deaths and injuries arising out of transport accidents. In Appendix A statistical details are provided of deaths and injuries in New South Wales motor vehicle accidents (paragraphs A.46-A.47). The figures show that despite reductions in the toll partly attributable to the introduction of random breath testing, in 1983, 966 people were killed and 33,978 people were injured in motor vehicle accidents in the State. The second objective, then, after the promotion of safety, should be to minimise as far as possible the human suffering and social and economic costs associated with transport accidents. In particular, where a person is injured the maximum effort should be made to rehabilitate him or her rapidly and effectively. The ideal result is, of course, the complete recovery-physically, emotionally, socially and vocationally of that person. But where that objective is not feasible the goal should be to realise the injured person’s potential for functional recovery as far as possible.

5.9 The emphasis on rehabilitation was well expressed in the 1974 report by the British group JUSTICE:

... the avoidance of accidents is prevention, the rehabilitation of victims is the cure, and compensation can never be more than a palliative. Prevention is notoriously better than cure, but cure is, in its turn, better than any mere palliative. ⁹

It is fundamental that the compensation system should attempt to achieve rapid rehabilitation of the victim, both by removing or minimising disincentives to recovery and by actively encouraging disabled persons to participate in effective rehabilitation programs. While this principle would seem to be incontrovertible, the current system is singularly deficient in achieving rapid rehabilitation (paragraphs 3.71-3.77).

5.10 The Scheme proposed in this Report attempts to maximise the chances of early and effective rehabilitation and to eliminate, as far as possible, features that are inimical to this process. The major characteristics of the Scheme which bear on rehabilitation are the following:

• entitlement to prompt and secure compensation, on a periodic basis, for loss of earning capacity and to medical hospital and related services;
• early access to (and encouragement to use) appropriate and flexible rehabilitation services;
• rejection of the principle of once-and-for all assessment¹⁰ and minimisation of adversary procedures within the decision-making process;
• provision for the needs of seriously disabled persons, such as home modification, aids and appliances;
• establishment of a Corporation responsible for satisfying entitlements to compensation and rehabilitation and for maintaining high quality decision-making; and
• maximisation of incentives to rehabilitation such as financial incentives to return to the workforce and assessment of permanent incapacity for those with long-term disabilities.

5.11 All these characteristics are important but the first two are particularly significant. Prompt compensation avoids the need for protracted litigation (or negotiations) to establish entitlements, and provides immediate financial security for the victim, who would otherwise risk substantial financial hardship. It also minimises the dislocation resulting from the accident and reduces the anxiety associated with pending court proceedings that, under the current system may not be resolved for several years. The Scheme is designed to offer the maximum incentive for active and voluntary participation by accident victims in rehabilitation programs especially by increasing the likelihood of early intervention by rehabilitation personnel.

5.12 Chapters 9 and 10 recommend a wide range of rehabilitation and support services for transport accident victims. These services are to be available, as of right, in the same way as monetary compensation for loss of earning capacity. The range of rehabilitation services is designed to provide the disabled accident victim with a choice of programs, reflecting his or her needs, abilities and aspirations. It is also designed to encourage innovation and flexibility in the rehabilitation programs themselves. Clearly there is a limit to the extent to which the Scheme can ensure that effective rehabilitation services are developed. But it can maximise both the opportunities for early intervention and the incentive for accident victims to participate actively in rehabilitation, and thereby ensure that the two systems complement each other.

II. INFLUENCES ON POLICY MAKING

5.13 The remainder of this Chapter considers the policy options available and choices that should be made for the new Scheme. First, however, we discuss three important influences on policy making. These are that:

• the inquiry has been created at a State, not national level;
• there is an established compensation system for transport accidents, specifically for motor vehicle accidents; and
• any new system must be seen as affordable by the community.

A. A State Inquiry

5.14 Unlike the Woodhouse Committee, which was established as a national inquiry we are not reporting to the Commonwealth Government. This has certain advantages. There is no doubt, for example, that the State has the constitutional authority to legislate for a new compensation system in place of the common law negligence action, a step that is by no means clearly within the authority of the Commonwealth Parliament. ¹¹ On the other hand, recommendations cannot be made for changes in Commonwealth tax or social security arrangements. For example, since income tax is imposed in practice exclusively by the Commonwealth Government it is not realistic to propose that a new scheme be financed by levies on incomes. Similarly, while attempts can be made to minimise the conflict between the objectives of the social security and compensation systems, for example by limiting the opportunities for “double dipping”, perfect co-ordination between the two cannot be achieved. Again, it cannot be assumed that Commonwealth financial assistance will be forthcoming to extend compensation arrangements to new areas or to offset additional costs to the State.

B. The Established System

5.15 As has been discussed, there is an established system for compensating victims of motor vehicle accidents. The approach of the common law-for example, its nominal commitment to “full” compensation-clearly influences community expectations as to the proper objectives of a compensation scheme, especially one designed to replace the common law negligence action. This is reflected, for example, in submissions which argued for the Scheme to pursue the objective of full compensation ¹² and in the widespread view that compensation should be available for non-economic loss. The point here is not that common law principles are inviolable, nor that they should be preserved in the face of compelling arguments to the contrary. Nonetheless, in formulating recommendations, it is proper to take account of community expectations to the extent they are consistent with the fundamental objectives sought to be achieved.

C. Cost

5.16 If unlimited resources were available to compensate accident victims (or other victims of misfortune), an extremely generous approach to compensation could be easily justified. But resources are limited and this affects judgments as to what is feasible and, indeed, equitable. As one commentator has noted, even courts are not immune from these pressures and use a variety of techniques to trim damages awards. ¹³ Submissions made a similar point. For example, CSR Ltd. stated that the “ultimate aim” of a compensation system is to provide “total income maintenance for the injured persons”. However, the company accepted that

... the community as a whole should be willing to accept a slightly lower range of compensation benefits ... if it means all members of the community can participate in all the benefits. ¹⁴

5.17 One consequence of limited resources is that choices have to be made between competing priorities, each of which can be justified in the abstract. For example, financial constraints may make it necessary to choose between compensating people sustaining short-term disability for their pain and suffering, and providing adequate support services and income maintenance for the severely long-term disabled. ¹⁵ Similarly, care may have to be exercised in relation to desirable but potentially costly proposals such as providing replacement homemaker services or compensating non-earners for loss of future earning capacity. Although the Transport Accidents Scheme could be financed from existing sources of compensation (such as contributions equivalent to compulsory third party insurance premiums), it is impossible to identify the “correct” level of resources that should be applied to compensate victims. What is regarded as appropriate may vary according to changes in accident rates, economic conditions and community attitudes. For present purposes, however, it is enough to say that recommendations cannot be formulated independently of cost implications. They must take account of the harsh reality that every benefit to an injured person must be paid for by contributions from taxpayers at large or from particular sections of the community. This is, however, very different from suggesting that the Scheme should be formulated by reference to a predetermined cost. This would not be appropriate and has not been done.

III. COMPREHENSIVE ENTITLEMENT

5.18 The Woodhouse Committee, in its report on a national compensation scheme, emphasised the principle of “comprehensive entitlement”. ¹⁶ This required equal treatment for equal claims, whatever the cause of the incapacity and implied universal coverage for all accident victims (and indeed all victims of disability). Under this principle every Australian suffering incapacity through accidents of any kind (and ultimately through illness) would be compensated in accordance with the same criteria. A State body reporting only on compensation for victims of transport accidents, cannot recommend the implementation of the principle of comprehensive entitlement on a national basis. However, the principle is valid both in relation to transport accident victims as a discrete category of victims and as an objective to be pursued vigorously by policy makers in Australia. We therefore propose that transport accident victims suffering similar losses (however assessed) should receive similar compensation regardless of whether the victim can prove that somebody else was at fault, or whether he or she was at fault for the accident.

5.19 In suggesting this principle we have been influenced by three major considerations. First, there are what the Woodhouse Committee referred to as the “civilised reasons of humanity”, which dictate that accident victims should not be denied compensation because of the circumstances in which their accidents happened to occur. Secondly, the use of motor vehicles or public transport services creates a risk of death or serious injury which is an unavoidable part of everyday life. This risk, which is faced by virtually every member of the community, is present regardless of the care that each person takes for his or her own safety and for the safety of others. Moreover, as has been noted, a rapid and effective transportation system is an essential element of modern society and provides benefits to (as well as imposing costs on) the entire community. The common law negligence action, by employing fault as the criterion of entitlement to compensation, has the defect of denying compensation to a substantial proportion of transport accident victims. The fault criterion itself, as discussed in Chapter 3, is not a satisfactory basis for determining entitlement to compensation. Thirdly, compensation for motor vehicle accident victims is financed by compulsory third party insurance, which can be seen as a broadly based tax, the cost of which is met directly or indirectly by virtually all members of the community. Unless there are independent valid reasons for retaining the fault system, the funds provided by the community at large should be used for the benefit of all members of the community injured in transport accidents, and not merely of those who are able to prove that the accident was the fault of another person.

5.20 It follows from the principle of comprehensive entitlement that the availability of compensation should not depend on identifying an individual who has breached a specific duty owed to the injured person. If society in general rather than identifiable individuals, can be described as the “cause” of accident-producing activities such as transportation of people and goods, the responsibility for compensating accident victims should fall on the community as a whole. As one commentator has observed, this

... can best be understood as a response to the increasing complexity of social action in a modern industrial society. It is a possible interpretation of events in a world where it is no longer plausible to isolate discrete causes and effects of human action [and where] individuals [act] increasingly through other individuals and through the use of machines and other manufactured products. ¹⁷

5.21 Chapter 1 has explained the reasons for concentrating on a Scheme for transport accident victims (paragraphs 1.33-1.46). Clearly the objective of comprehensive entitlement cannot be perfectly realised in the absence of a national compensation scheme. However, the proposed Scheme will be capable of standing on its own and could hasten the advent of a national compensation scheme, whether by Commonwealth action or as the result of joint Commonwealth/State initiatives. The scheme is capable of serving as the model for extension of no-fault compensation arrangements to new areas, such as sporting injuries or injuries sustained by children at school. Such extensions could be made immediately, using the approach in this Report to establish the new arrangements. Alternatively, such extensions could be made after the Scheme has been in operation for some time, and the opportunity has been available to observe it in operation and to ascertain reasonably precisely the cost of extending compensation arrangements. To the extent that the Scheme establishes a standard for compensation it will lead to a rationalisation of existing arrangements and encourage greater uniformity in the treatment of accident victims.

IV. THE ASSESSMENT OF COMPENSATION

A. The Models

5.22 The principle of comprehensive entitlement requires consideration of the means by which compensation for transport accident victims should be assessed. As one submission noted, it is not enough to approach this question by characterising the proposals as “fair and adequate”. ¹⁸ Moreover, the question of assessment of compensation is not a problem confined to no-fault schemes. The rules governing the assessment of damages in common law negligence actions, for example, have changed substantially in recent years and are still in a state of flux, reflecting (partly at least) a reconsideration of the purposes of damages awards. This section considers the approach that should be taken to the assessment of compensation for transport accident victims within the framework of a no-fault scheme.

5.23 Three models can be used as the basis for the assessment of compensation.

• The welfare model, under which compensation would be provided to the injured person ¹⁹ at a level sufficient to meet his or her needs (however defined and assessed). That person would not necessarily be placed in the position he or she would have enjoyed had the injury not occurred.
• The disability model, under which compensation would be assessed by reference to the degree of physical impairment suffered by the injured person regardless of the impact of the disability on that person’s financial position.
• The restitution model, under which the injured person receives compensation at a level designed, as far as possible, to restore that person to his or her pre-accident position.

These models are not necessarily self-contained or mutually exclusive. There are many variations on each and most compensation systems (including our proposals) incorporate aspects of more than one model.

B. The Welfare Model

1. Characteristics

5.24 A compensation scheme which adopted the welfare model would provide compensation to injured persons in order to meet needs arising from the injury. The benefits could include income maintenance payments and medical, hospital and rehabilitation services, as well as other assistance such as aids, appliances and home modifications required in cases of severe disability. The compensation would not necessarily be paid in monetary form, but might be provided in kind.

5.25 This approach is described as the “welfare model”, partly because it is needs based and partly because it has similarities to the Australian social security system. ²⁰ However, this model need not take only one form. For example, income maintenance payments vary considerably among different categories of social security pensioners and beneficiaries. While most are means tested, some are not. Other variations on the theme are possible. The New South Wales workers’ compensation system provides earnings (or award) related payments for short-term incapacity, but needs-based standard payments, which vary according to the number of dependents, for longer-term incapacity. ²¹ Some commentators have proposed that incapacitated accident victims should receive benefits assessed by reference to a stated percentage of the communities average weekly earnings. ²² Payments would be reduced by the amount the victim earns or is capable of earning, but not by the amount of income or support received from other sources.

2. Advantages

5.26 The welfare model has three major advantages. First, assessing compensation on a needs basis would assist in integrating the compensation system with the social security system and in achieving the objective of comprehensive entitlement on a national scale. If both accident compensation and social security payments were to be assessed in accordance with similar principles, it would be possible to reduce if not eliminate the disparities in treatment of different categories of disabled people. The Australian Council of Social Service summed up the argument by contending that

[a] scheme based on flat rate or substantially flat rate benefits would integrate appropriately with the present Commonwealth Social Security Scheme. ²³

5.27 Secondly, the welfare model would not be regressive in the same way as the current compensation system for motor vehicle accident victims. At present compulsory third party premiums are collected from all motor vehicle owners, regardless of their capacity to pay, but the largest compensation payments are awarded to victims who suffer the greatest “losses”, including loss of earning capacity. In the words of the New South Wales Council of Social Service

... the most important, and most painful, aspect of schemes wholly or substantially oriented towards compensation is that all other things being equal, a rich accident victim receives higher damages than a poor one, simply by virtue of having higher pre-accident earnings. This inequity is enhanced if, as presently occurs with motor accident compensation, contributions to the fund ... are levied at a flat rate. ²⁴

A related point is that a welfare model allows resources to be directed to improving the adequacy of payments and services to all eligible persons, rather than to those with the highest pre-accident earning capacity.

5.28 Thirdly, a practical reason for supporting the welfare model particularly where compensation is to be paid on a periodic basis, is that lower benefits may increase the incentive for an injured person to return to the workforce. It is commonly argued that if compensation is assessed by reference to pre-accident earnings for the duration of an incapacity, the injured person, whether consciously or unconsciously, may prolong the incapacity. If payments are needs-based, there will often be a greater gap between the levels of compensation and the remuneration available from paid employment and thus (it is said) a greater incentive to resume or accept remunerative employment.

3. Disadvantages

5.29 Against this must be considered the disadvantages. First, many injured persons will sustain substantial losses, such as the loss of capacity to earn above a basic income, which will not be compensated in full under a welfare model. In these cases the welfare model will fail to restore the injured person to anything like the financial position he or she could have fairly expected to enjoy but for the injury. The effect is that the fortuitous occurrence of an accidental injury will often make the injured person much worse off financially than before the accident.

5.30 Secondly, while the welfare model tends to modify rather than reinforce in equalities, it is arguable that the compensation system should not redress inequalities within the community. If the compensation system is used for this purpose, the effect is that only those well-off people with the misfortune to suffer serious incapacity (and without private insurance) would be reduced to the level of meeting basic needs; other well-off people would not be affected. On this argument, inequalities should be addressed primarily through the taxation and general social welfare systems and not through compensation systems, particularly those covering only specific kinds of accidental injury.

C. The Disability Model

1. Characteristics

5.31 Under the disability model, compensation would be assessed by reference to the degree of physical disability suffered by the victim, independently of the impact of the disability on the injured person’s earning capacity. Thus people with similar disabilities would receive similar compensation, regardless of the financial consequences flowing from those disabilities. Obviously this approach presupposes the availability of a technique to assess physical disability. In practice this could be done by reference to a table specifying a percentage of physical disability for particular impairments (paragraph 11.37).

5.32 Many social security systems and compensation schemes have relied to some extent on the disability approach. The English industrial injuries system, for example, provides disablement pensions for major long-term disability and gratuities (lump sums) for less serious long-term disabilities. The disablement pension or gratuity is not intended to compensate for loss of earning capacity and is payable whether or not any loss of earnings occurs. Additional allowances are paid where income loss occurs and to meet specific needs of injured workers. ²⁵ In Australia, the social security system incorporates the “disability” approach by providing a non-means tested pension f or the permanently blind. ²⁶ The disability approach also forms part of workers’ compensation legislation in most Australian States. In New South Wales, for example, a “table of maims” provides lump sum payments for specified injuries. Such payments are made regardless of the effect of the injury on the workers’ earning capacity, although separate provision is made for compensating lost earning capacity.

5.33 The Australian Woodhouse Committee was attracted to the disability approach as a means of providing compensation for people suffering from permanent partial disability. The Committee recommended that such people should receive a proportion of average weekly earnings, to be calculated by reference to a percentage degree of physical impairment, regardless of the effect of the impairment upon the individuals earning capacity. The sum provided was to compensate for both economic and non-economic loss. By contrast, people suffering total permanent incapacity were to receive 85 per cent of their actual loss of earnings. ²⁷ The Committee’s proposal was designed to overcome difficulties which the Committee thought could arise in assessing loss of earning capacity for people suffering permanent partial disability.

2. Advantages

5.34 Two arguments are often made in favour of the disability model. First, the payment of compensation for a physical disability, regardless of the effect of the impairment on earning capacity, may encourage people to return to the workforce. In GWR Palmer’s words:

... its signal advantage ... was the fact that no one needed to prove economic loss. Future economic loss is notoriously difficult to quantify, and the need to quantify it impedes rehabilitation. People have an incentive not to go back to work because their compensation is dependent upon their not working. ²⁸

5.35 Secondly, as the Woodhouse Committee argued assessment of the degree of physical disability, while not without difficulty, may be administratively simpler than the assessment of loss of earning capacity. Such an assessment can be performed by doctors who are required to examine only the person’s degree of physical impairment, without having to consider the economic and social factors affecting his or her earning capacity. ²⁹

3. Disadvantages

5.36 The most important disadvantage of the disability approach is that if compensation is assessed solely on the degree of physical impairment, without regard to the effect on earning capacity, inequitable results may follow. As Professor H Luntz has observed:

A consequence of [the Woodhouse Committee’s] method [of compensating permanent partial disability] is... that many people who suffer no loss of income whatsoever will be compensated for their incapacity ... A blue collar worker is justly indignant if he and a white collar worker receive the same benefit for the loss of a leg, but he alone has suffered reduction in his earnings, even though, when the benefit is added to his reduced earnings, he is financially not injured. ³⁰

5.37 A second disadvantage is that an assessment of physical disability cannot generally be made immediately after the accident has occurred. Even if a procedure for interim assessment were adopted, the initial assessment would usually not be feasible until completion of the acute stage of treatment. If the needs of injured people are to be met during this acute period, there must be some other basis for short term compensation. Furthermore, the administrative advantages of the disability approach are lessened if several assessments have to be made. These problems are minimised if the disability model is used only for permanent disability and as a supplement to other approaches to compensation. ³¹

D. The Restitution Model

1. Characteristics

5.38 Under this model, compensation, whether in the form of money or services, is designed to return the injured person, so far as feasible, to his or her pre-accident position. The principle is, of course, exemplified by the common law approach to the assessment of damages (paragraphs 2.29-2.30).

5.39 Other compensation systems incorporate aspects of the restitution model, although they do not necessarily attempt to restore the injured person wholly to his or her pre-accident position. The workers’ compensation systems in the Australian States generally adopt the restitution principle in respect of lost earnings for a limited period. In New South Wales, workers’ compensation is earnings-related for the first six months but then, in effect reverts to needs based payments. ³² The no-fault motor accident schemes in Victoria, Tasmania and the Northern Territory provide earnings-related compensation to injured persons although there are various restrictions on the compensation available in each scheme. ³³

5.40 Some social security or national insurance schemes adopt the restitution principle, at least to some extent, for earnings lost by a disabled person. In England, for example, some forms of benefit are funded partly by earnings-related contributions from employers and employees. In the case of both industrial and non-industrial accidents, the system provides a flat-rate weekly sum together with an earnings-related component during the first six months of incapacity. ³⁴ The Social Security Act 1975 (UK) introduced earnings-related additions to retirement pensions and to long-term invalidity pensions. According to Professor P. Atiyah:

... [the] introduction and spread of the earning related principle has important, and indeed, perhaps fatal implications for the tort system for it represents a movement in the whole national insurance system towards doing what the tort system is also doing, namely to compensate people for lost earnings at a variable rate. ³⁵

2. Advantages

5.41 The main argument in favour of the restitution model is that the compensation system should attempt to replace the losses actually sustained by accident victims. Any other model means that the fortuitous occurrence of an injury may leave the injured person substantially worse off than he or she would have been but for the accident.

5.42 Both the New Zealand and Australian Woodhouse Reports strongly supported this argument. ³⁶ In the words of the Australian Report:

... the levels of compensation must be realistic for all. Earlier philosophies which were content to provide meagre benefits related merely to need must be set aside. Real compensation demands the provision of income-related benefits for lost income throughout the whole period of incapacity and the opportunity for every incapacitated person to maintain the living standards he or she had earlier achieved by energy and hard work. ³⁷

This approach was further justified by reference to the financial hardship that earners and their families suffer if their household income is interrupted as the result of incapacity.

5.43 The Woodhouse Reports considered but rejected the view that compensation should be assessed by reference either to the needs or to the extent of the victim’s physical disability. The Australian Report, for example, argued that

... a system of flat rate benefits would give preference to all those with lesser losses, at the expense of those whose losses were great. The former could recover all their lost earnings while some would receive no more than a small fractional part. Yet others might be obliged to meet the difference for only a limited time, while those with long-term incapacities could be left with the accumulating difference for year after year. ³⁸

5.44 Secondly, many groups, no doubt influenced by the common law, strenuously argue in favour of retaining the restitution model. For them, the common law becomes the touchstone by reference to which any new scheme must be assessed. For example, the Law Society of New South Wales stated that the restitution principle, as applied by the common law

... is a very broad one and enables the award of just compensation in a wide variety of factual situations. Furthermore the common law is a developing system which enables the Courts to modify the system continually so as to reflect changes in society. ³⁹

Many submissions were critical of the suggestions in the Working Paper that a ceiling should be placed on compensation for loss of earning capacity in order to limit the regressive effects of the Scheme. Most of these implicitly supported the view that the role of the Scheme should be to return the accident victim to his or her pre-accident position so far as possible. ⁴⁰

3. Disadvantages

5.45 First it has been argued that the restitution model preserves inequalities in the form of income differentials which can be justified only by reference to differences in the value of productive labour. According to this argument, income differentials should no longer apply as between people who are unable to work productively. In the words of Professor H. Luntz:

Earnings are a reward for work [and the] amount paid varies according to the value the community places on the work. If a person is prevented from working, there is no a prion’ reason why he should be paid as if he had worked. ⁴¹

Supporters of this argument contend that it is especially difficult to justify compensation payments to the families of deceased persons by reference to the different earning capacities of the deceased. The deceased’s capacity to earn income does not affect the ability of the surviving family members to perform productive work and indeed substantial compensation based on the deceased’s earning capacity, may discourage family members from seeking or retaining remunerative employment.

5.46 A second and related argument is that a compensation system which utilises public resources to implement the restitution principle is regressive and therefore inequitable. The present system of compulsory third party insurance involves redistribution from lower income earners to higher income earners, since premiums are collected from motor vehicle owners at a standard rate, regardless of capacity to pay. ⁴² Professor P Atiyah refers to the tort system as a whole as

... the only systematic method of compensation which pays [in effect] earnings-related benefits without earnings-related contributions. ⁴³

While this comment can fairly be applied to the common law system, a compensation scheme adopting the restitution principle need not necessarily be regressive. In particular, if the funds required for the scheme are based on earnings-related contributions from virtually all potential beneficiaries (which would only be possible in a national scheme) the scheme will not exacerbate existing inequalities, although it is unlikely to ameliorate them.

5.47 Thirdly, the restitution principle may not be easy to apply to a person with little or no earnings at the date of the accident. This category would include:

• people not currently employed and not presently intending to enter the workforce, such as children and homemakers;
• school leavers, students and young adults who have not entered the workforce, or who have very low earnings; and
• unemployed people actively seeking work. ⁴⁴

5.48 Some submissions argued that a compensation scheme which attempts to return the injured person to his or her pre-accident position would make inadequate provision for these groups. The submissions argued that an earnings-related scheme would give insufficient recognition to the economic value of unpaid services provided, for example, by homemakers and voluntary workers. Moreover, it was pointed out that a scheme which relied very heavily if not exclusively on pre-accident earnings as a measure of loss would inevitably fail to compensate for the loss of potential earning capacity suffered by many workers. Thus the Women’s Co-ordination Unit expressed their conviction that

... there is no objective fairness in tying periodic compensation to pre-accident earnings. While it seems reasonable in the short-term since people usually gear their commitments to their current income, in the long term it becomes clear that a person’s earning ability at the time of the accident constitutes a completely arbitrary measure upon which to base compensation ... A woman, for instance, may begin her working life in relatively unskilled work, may become married and leave the workforce for some years to rear children but may return later with professional skills after a period of vocational training. One can see that if she were to have an accident and to receive earnings-related compensation at different points in her life, her fortune would vary dramatically-in a way governed more by luck than justice. ⁴⁵

This analysis tends to assume that pre-accident earnings must be the major, or perhaps only, measure of loss of earning capacity and also does not address whether the restitution principle can be applied otherwise than by compensating for lost earning capacity. Nonetheless, it raises important issues that are examined later in the Report.

5.49 Fourthly, the restitution principle, if applied to injured people suffering long-term incapacity, might create disincentives to rehabilitation. An incapacitated person who has his or her loss of earnings capacity compensated in full for the duration of the incapacity, may have little incentive to resume paid employment. The common law attempts to overcome this problem by paying compensation in the form of a single lump sum but this creates other serious problems. The payment of full compensation for lost earning capacity on a periodic basis raises questions as to how any anti-rehabilitative effect can be countered. One important counter measure is to provide for assessment of permanent incapacity, thus avoiding the need for the incapacitated person to remain subject to the scrutiny of the compensation authority and allowing that person to resume employment without loss of compensation (paragraphs 8.52-8.60).

5.50 Finally, the restitution model creates significant difficulties in assessing the losses in respect of which compensation is to be paid. There are two major problems. Any assessment of loss which includes a component related to what might have occurred but for the accident, must be speculative to some extent. It is, however, possible to cut down the scope for speculation by avoiding the common law principle that compensation must be assessed once-and-for-all on a lump sum basis. For example, if compensation for lost earning capacity is paid in the form of indexed periodic payments for the duration of the incapacity, the need to predict life expectancy or future rates of inflation is overcome. Nonetheless, it is impossible to be certain what income the claimant would have earned had the accident not occurred.

5.51 In addition, some losses are inherently incapable of precise quantification. The most obvious example is the compensation provided for such intangible items as pain and suffering, loss of enjoyment of life and permanent physical disability. The common law, for example, provides a sum by way of general damages to cover these items, while the workers’ compensation system has relied on a table of maims providing specified amounts for particular kinds of physical disabilities. In Australia, the courts have developed conventional figures for the award of general damages, but they tend to vary from State to State and are very different from the standards applied in other common law jurisdictions, such as North America. Similarly, the workers’ compensation tables of maims vary from Jurisdiction to jurisdiction. The reality is that, while pain and physical disability undoubtedly can be characterised as a loss, there is no universally acceptable or obvious means of measuring that loss.

E. The Approach

1. Background

5.52 No single model should be adopted exclusively as the basis for assessing compensation for transport accident victims. In formulating the proposals in this Report, we have been influenced by a number of factors.

5.53 First, the arguments in favour of the restitution principle are strongest in relation to loss of earning capacity and other economic losses sustained by the injured person, such as the need to receive medical, hospital and rehabilitation services. The arguments have less force in relation to non-economic losses, such as pain and suffering and loss of enjoyment of life, which are inherently incapable of precise measurement in financial terms. They also have less force in relation to compensation to surviving family members of a deceased accident victim who have suffered no disability themselves. One problem is to find an equitable balance between alleviating misfortune by providing monetary compensation and directing limited resources to those suffering the severest disability.

5.54 Secondly, in the case of compensation for loss of earning capacity, the arguments for the restitution principle are most powerful where a scheme is designed to replace the common law for a particular category of accident victim The argument in favour of the welfare model, especially for long-term incapacity, is stronger if the issue arises in the context of the development of a comprehensive national compensation scheme and especially in those areas where the common law has played a relatively minor role. The integration of the social security and compensation systems, for example, would be promoted if each were based on a needs principle. This does not imply that, on the welfare model compensation payments should be set at similar levels to current social security income maintenance payments. The standard for compensation could be set substantially above social security payments with the intention of ultimately raising those payments to the compensation standard. The proposals in this Report are, however, confined to transport accident victims and until moves towards a comprehensive scheme develop further, the restitution principle should be given substantial weight.

5.55 Thirdly, the restitution principle should be modified or adapted to ensure that it is consistent with other objectives, including the need to:

• tailor benefits to maximise incentives to and opportunities for rehabilitation;
• avoid unfairness to injured people who happen to be outside the workforce at the date of the accident (see paragraphs 5.47-5.48);
• minimise the inequitable effects of a compensation system funded otherwise by earnings-related contributions; and
• (in the case of health care services) integrate the compensation and national health care systems.

5.56 Fourthly, the proposals should emphasise long-term security and income maintenance to accident victims suffering serious permanent disability and incapacity. These victims include, for example, people suffering from paraplegia, quadriplegia or brain damage, who require attendant care and other support. To the extent that choices must be made as to the allocation of limited resources, this emphasis will have to be at the expense of victims of short-term disability and incapacity. In particular, generous compensation for pain and suffering, where the victim recovers from his or her disability within a relatively short period, is not an appropriate use of the community’s resources, if the effect is to limit compensation to the more severely disabled.

2. The Restitution Model

5.57 The recommendations in this Report give effect to the restitution model in a number of ways, including the following.

• Subject to certain qualifications, the Scheme compensates the victim of a transport accident for loss (or impairment) of earning capacity. This principle should apply both to earners and non-earners and includes, in cases of long-term incapacity, compensation for loss of potential for advancement.
• The Scheme provides or meets the cost of medical hospital, rehabilitation and ancillary services required as a result of the disability. In addition, the Scheme compensates severely disabled persons for the non-optional costs flowing from the disability, including those related to personal care, aids and home modifications.
• Compensation is provided for the loss of unpaid household services required for the maintenance and preservation of the household of the disabled person. ⁴⁶

5.58 There are three major qualifications to the restitution principle as applied to compensation for loss of earning capacity. First, a ceiling is imposed on the compensation payable for such a loss. ⁴⁷ This approach has been taken largely because a ceiling limits the inequities of the restitution principle in a Scheme in which contributions cannot be based on an earnings-related basis. In addition, higher income earners have a greater capacity to take out insurance to provide coverage for losses above the ceiling. Secondly, compensation for loss of earning capacity is paid, not in full but for a proportion of the loss (which generally speaking, is set at 80 per cent of the loss). This proposal is justified primarily, but not exclusively, by the need to preserve incentives to rehabilitation. Thirdly, for those not defined as earners, compensation for loss of earning capacity is payable only in respect of long-term incapacity (that is, in excess of two years).

5.59 The application of the restitution principle to non-earners presents difficulties, as indeed it does in all compensation systems. It is particularly difficult to estimate likely future earnings for someone who has never been attached to the workforce or who has been outside the workforce for a substantial period. The Scheme attempts to resolve these difficulties by a number of measures. These include:

• a generous definition of earner, so as to include, for example, many long-term unemployed who have not been in employment for a considerable period before the accident;
• compensation for long-term loss of earning capacity (over two years) by non-earners assessed by reference to conventional standards; and
• the opportunity for a non-earner suffering long-term loss of earning capacity to apply for assessment of compensation by reference to potential for advancement.

3. The Disability Model

5.60 We do not regard the disability model as an appropriate basis for compensating accident victims for their economic losses. However, some non-economic consequences flow from injuries sustained in accidents. At common law, general damages are awarded to compensate for non-economic losses such as pain and suffering, loss of amenities, and enjoyment of life and loss of expectation of life (paragraphs 2.30, 11.20-11.30). In theory, this approach gives effect to the restitution principle, by granting the claimant a sum of money which, as nearly as possible, restores him or her to the pre-accident position. In practice a damages award can never make good the precise loss suffered by the accident victim. The assessment of damages involves a substantial arbitrary element, since the losses are inherently unquantifiable.

5.61 For reasons explained in more detail in Chapter 11 the Scheme should not attempt to allow for the effect on individual lifestyle of the injury or physical disability, except in so far as it produces economic losses, such as loss of earning capacity. Moreover, as already suggested, scarce resources should not be used to compensate people for pain and suffering or loss of enjoyment of life which is not an element of permanent disability. In other words, the Scheme should not attempt to compensate for short-term pain and suffering or loss of enjoyment of fife. In this respect the Scheme constitutes a major departure from the common law. On the other hand, a person suffering a permanent disability as the result of an accident has sustained a loss, even where there is no economic loss, and compensation is appropriate in such a case. As the New Zealand Woodhouse Committee report said

... whether or not such a loss of physical faculty has economic consequences, it is nonetheless a loss to the individual concerned, and in a greater or lesser degree may adversely affect him thereafter. ⁴⁸

The disability model of compensation is clearly best suited to the task of compensating for permanent disability and we adopt it for this purpose. The result is that persons sustaining similar permanent disabilities in transport accidents will receive similar compensation for those losses, but compensation for financial losses will be determined by other principles.

4. The Welfare Model

5.62 It is appropriate to include elements of a welfare model of compensation in the Scheme. One important reason for this is that the limitations on resources available for compensation make the application of the restitution principle impracticable and unwarranted in some circumstances. Moreover, there are cases in which the application of the restitution principle may create undesirable disincentives to remunerative employment. These considerations apply to compensation for the death of an earner, particularly where compensation is paid on a periodic basis. The recommendations on death benefits (Chapter 12) broadly adopt a welfare model aimed at meeting the short term problems of adjustment to the changed circumstances immediately following death and periodic compensation to those members of the immediate family who are prevented from exercising their own earning capacity. These benefits apply to surviving children and to spouses with child-care responsibilities or with impaired earning capacity due to poor health, advanced age or the need to care for an aged or infirm family member. Only in limited circumstances is the restitution model used, namely where periodic payments to the surviving spouse of a deceased earner with child-care responsibilities are calculated on the basis of the deceased’s earning capacity for a maximum period of five years after the death. In cases of both injury and death, needs-related criteria also apply to the provision of household services to the accident victim’s family beyond a period of four weeks from the date of incapacity or death.

V. FORM OF COMPENSATION

5.63 The general principles governing the assessment of compensation do not determine the form in which compensation should be provided. Two basic issues arise.

• Should compensation be provided, as under the common law, only by way of monetary awards, or should it be provided, in part, in the form of services?
• To the extent that compensation is provided in monetary form should it be paid in a lump sum or on a periodic basis?

A. Money or Services

5.64 The common law limits compensation to monetary awards. Other compensation schemes have tended to take the same approach, although recently statutory schemes have begun to pay greater attention to the provision of rehabilitation services to accident victims. By contrast, the social security and health care systems attempt to meet needs through a variety of programs and services. Commonwealth and State departments, local government authorities and publicly subsidised voluntary agencies all provide services relevant to accident victims. At the Commonwealth level for example, these include health benefit cards entitling eligible invalid pensioners and sickness beneficiaries to optometrical and hearing aid services and subsidised pharmaceuticals; ⁴⁹ the provision of aids to disabled people; ⁵⁰ a specialist employment service for disabled people provided by the Commonwealth Employment Service; ⁵¹ and rehabilitation services provided through the Commonwealth Rehabilitation Service. ⁵²

5.65 Because of the traditional emphasis of compensation systems on monetary awards, the community has tended to undervalue the importance of rehabilitation. As the New South Wales Conybeare Report commented:

... people in this community have grown up to believe that the appropriate consequence of injury is financial recompense, and have never been encouraged to think beyond that. ⁵³

Moreover, the services required by disabled people may not be readily available in the free market, or may be available only at excessive cost. Such services may not be

... proper subjects for the operation of market forces, either because the social costs of mistaken decisions are too great or because, adopting a paternalistic stance, it is not to be assumed that in such areas individuals always act as rational maximisers of their own welfare. ⁵⁴

To the extent that monetary awards are not used for the purposes envisaged, opportunities for improving the injured person’s position may be lost, causing the community ultimately to bear additional costs flowing from the injury.

5.66 Those who support monetary compensation rather than provision of services, argue that this maximises individual freedom, by enabling claimants to purchase necessary services on the free market or, if they wish, to forego the services and use the funds for other purposes. Under this approach the way in which

... money is to be spent remains a matter of individual liberty and responsibility. Benefits in kind are thus reserved for those who are incapable of exercising that responsibility...⁵⁵

An argument is commonly made that the provision of services in kind requires the injured person to maintain a continuing relationship with the administering authority and possibly reinforces his or her dependence on that authorities goodwill.

5.67 It is clearly important to preserve the independence of disabled people, particularly those with long-term disabilities. Nonetheless, there are circumstances in which compensation should be provided in the form of services required by injured people and their families. Such an approach allows services to be made available as and when they are required, in a form that matches so far as possible the precise nature of the losses sustained. It also enables the resources and expertise of existing agencies to be utilised so as to provide the services efficiently and in a manner which breaks down distinctions between different categories of accident victims. The provision of services in kind can be undertaken in a manner which preserves choice and the autonomy and dignity of claimants. An example concerning rehabilitation services illustrates the point. If rehabilitation is to be a primary objective of the scheme, it is not enough simply to pay sums of money sufficient to permit the victim, if he or she wishes, to participate in a rehabilitation program. To be effective, rehabilitation should possible after the disability occurs. This requires rehabilitation commence as soon as programs to be integrated with the payment of compensation and for the objective of rehabilitation to be vigorously pursued. Accordingly, the Scheme should ensure that disabled accident victims gain access to rehabilitation services. For this purpose, the Scheme should ensure the provision of such services through programs offered by government, voluntary agencies or the private sector.

5.68 Other kinds of services will be made available to accident victims, preferably through existing agencies. For example, in certain circumstances, household services will be provided to the victim or his or her family, preferably through agencies such as the Home Care Service of New South Wales. Again, it is essential that seriously disabled people receive support services required for personal care and to cope with the disability. These support services will be made available through the Scheme, in a manner intended to preserve the disabled person’s freedom of choice, yet ensure that resources are devoted to providing the necessary services.

B. Lump Sums or Periodic Payments

5.69 As has been noted, common law damages take the form of a lump sum which is awarded once-and-for-all. The award is unalterable, even if based on predictions which later prove to be incorrect. Although the common law theoretically accepts the restitution principle as the basis for compensation once-and-for-all assessment in the form of a lump sum involves a high probability, in serious cases, of either under or overcompensation. We have explored elsewhere other disadvantages of the common law approach (paragraph 3.16ff.).

5.70 The question of whether monetary compensation should be paid in a lump sum or on a periodic basis is not confined to a no-fault compensation scheme. The same issue arises even if the common law negligence action were to be retained. It is desirable, whatever the criteria governing eligibility for compensation, that the problems of prediction inherent in a once-and-for-all lump sum award be avoided to the maximum extent practicable. It is also desirable that compensation should be provided in a form which, as nearly as practicable, matches the losses sustained by the injured person and which enables benefits to be provided promptly. Accordingly, compensation for loss of earning capacity should be provided in the form of periodic payments which continue for the duration of the incapacity. In general had the accident not occurred, the injured person would have expected to receive his or her income from personal exertion on a periodic basis, normally in the form of salary or wages. Similarly, medical, hospital and rehabilitation expenses should be met as they are incurred, although it is generally appropriate for these services to be provided in kind.

5.71 The argument in favour of compensation on a periodic basis is strongest where economic losses are involved. We have earlier proposed that the disability model should be used to assess compensation for non-economic loss, the standard being the degree of permanent physical impairment suffered by the victim. On balance, compensation under this head should be provided in the form of a single lump sum. Several factors justify this conclusion:

• the victim will receive separate compensation for financial losses, so that payment of a lump sum for physical disability can be made without placing his or her long term security at risk and without jeopardising the principle that compensation for financial losses should be provided promptly;
• a lump sum is widely seen by the community, at least in areas where the common law has operated in the field, as a solace for permanent disability and as a means of giving the disabled person additional flexibility to adjust to his or her condition; and
• since the victim’s loss cannot be quantified precisely in monetary terms, a lump sum is as appropriate a form of compensation as periodic payments.

5.72 The lump sum should also be a major form of compensation on death where it serves the important function of alleviating the immediate economic and social disruption caused to the family. A lump sum offers a flexible means of adjusting to the future. Additional benefits can be provided in the form of periodic payments, on a modified restitution model in some cases and on a needs basis in others, where the process of adjustment is especially difficult and therefore requires support over an extended period (paragraph 5.62).

VI. ADMINISTRATION AND DECISION-MAKING

5.73 The administrative and decision-making process will be of major importance in determining whether the objectives of the Scheme are realised in practice. Care must be taken, therefore, to state the objectives of this process and to establish systems and procedures designed to achieve those objectives.

A. Administration

5.74 One test of the effectiveness of the administrative process is its “efficiency”. This test is usually employed to emphasise that any systems should keep to a minimum the resources required to process claims. As a general proposition it is difficult to dispute that the administrative expenses of a compensation system should be low in relation to compensation payments. It is clearly desirable that limited community resources should be directed to accident prevention and to compensating and rehabilitating accident victims, rather than being used to meet unnecessary administrative expenses.

5.75 This is not to say that all money spent on administration is wasted. It is important as is explained in more detail in Chapter 15, to balance the objective of administrative efficiency with other objectives that may be of equal or greater significance. Chapter 15 outlines five principles that should guide the Corporation responsible for administering the Scheme. These are:

• the principle of entitlement, under which each injured person receives the full benefits to which he or she is entitled and the assistance required to present his or her claim effectively;
• the principle of independence, under which the administration of the scheme is independent of the government of the day;
• the principle of flexibility, which allows the scheme to perform a range of functions and to respond adequately to a variety of circumstances;
• the principle of high quality decision-making, which emphasises the need for well-trained decision-makers, with the authority to determine claims and to undertake appropriate investigation at an early stage; and
• the principle of speed in providing compensation, which involves the speediest possible determination of claims consistent with the verification of entitlement.

5.76 With the possible exception of the second, each of these principles is, if implemented, likely to impose greater administrative costs on the Scheme than a more rigid or less sympathetic system. For example, costs will be incurred if efforts are made to ensure that accident victims, including those who are ignorant of their rights, receive their full statutory entitlement. Similarly, it may be more expensive, at least initially, to engage only highly qualified people as primary decision-makers than to regard the initial assessment of claims as a relatively low-level task. In short, it will sometimes be necessary to incur administrative costs in order to achieve objectives that are central to the Scheme. Chapter 15 discusses the way in which the balance between efficiency and the principles governing administration of the Scheme should be struck.

B. Dispute Resolution

5.77 One objective of the decision-making process should be to minimise disputes, preferably by sympathetic and consistent administration of the Scheme. Nonetheless, some disputes are inevitable. Some will concern the claimants initial or continuing eligibility for compensation. Others will relate to the appropriate level of compensation or benefits under the Scheme, bearing in mind that this may vary over the period of incapacity or disability. Some disputes will turn on the facts and perhaps raise issues of the claimant s credibility. Some will depend largely on a medical assessment of the claimants degree of disability. A smaller proportion will involve interpretation of the governing legislation, or other questions of law. It is fundamental to the Scheme that provision should be made for the fair resolution of disputes. Procedures should be established to protect a claimant against the danger of incorrect or harsh decisions and provide an adequate opportunity to put his or her case before an independent decision-maker.

5.78 Critics of statutory compensation schemes often attack administrative procedures for claims determination arguing that claims should be decided by a court, rather than an administrative body. They stress the impartiality and independence of the courts. They suggest that an administrative system is more susceptible to political control less open to public scrutiny and prone to take a harsh approach to claimants in the interests of conserving resources. The submission of the Law Society of New South Wales referred to “the impossibility of a fair individual assessment of loss within a bureaucratic system”. It went on to contrast such a system with the approach of the common law.

While the common law system involves bureaucracy in the form of Courts administration, the Police Department and so on, its great strength lies in the independence of the judiciary and its ability to individually assess each case on its merits rather than applying arbitrary rules. In many instances under the Transport Accidents Scheme, its administrators will exercise discretionary power... The Society strongly believes that no government or quasi-government instrumentality should have the unfettered discretionary power to make such far-reaching decisions, particularly when there is no right to legal representation in the initial stages of a claim. ⁵⁶

While this analysis underestimates the extent to which common law damages claims are resolved by settlements (rather than by court verdicts), the dangers pointed out by the Law Society warrant careful attention.

5.79 The proposition that the compensation scheme should not confer “unfettered discretionary powers” on the administering authority is clearly correct. The legislation should specify the rights of injured and incapacitated persons as precisely as possible, although it is clearly not feasible to avoid entirely the exercise of discretionary powers. Claimants who are in dispute with the administering authority (the Accident Compensation Corporation) should have ready access to independent appeals tribunals which can respond speedily and informally to the appeal. They should have an opportunity, if they wish, to put their case to a judicial tribunal which should have full power to review the Corporation’s decision.

5.80 We do not share the Law Society’s opinion that it is impossible, within the frame work of a statutory scheme, to establish procedures which adequately protect claimants and curb the danger of administrative excesses. As explained in Chapter 16, the Corporation, as the administering authority, should initially determine compensation claims. Special efforts should be made to ensure that initial adjudication is carried out carefully and sympathetically by well-trained senior staff known as assessing officers. Thereafter there should be a system of review modelled on the administrative appeals system operating under Commonwealth law, specifically applicable to social security appeals. The first appeal should be to an independent Compensation Review Panel-constituted of three members and chaired by a person with legal qualifications. The emphasis at this stage of the appeal process should be on informal speedy adjudication. An appeal should be from the Panel to the Accident Compensation Appeal Tribunal, constituted of a judge, and (usually) two lay members. Ideally the Tribunal should be part of a general administrative appeals tribunal for the State but, in the absence of such a body, should be established as a separate tribunal. Both the Panel and the Tribunal should have power to substitute their view of the case for that of the Corporation and should not be bound by Corporation policy. In other words, the powers of review should extend not only to cases where the Corporation has misinterpreted the legislation or wrongly assessed the facts, but where the Panel or Tribunal considers that a discretion conferred by the legislation should be exercised on a basis different from that adopted by the Corporation. An appeals structure of this kind will add to the cost of administering the Scheme and expose it to the risk of unsympathetic or perhaps unduly technical interpretation. This is the price which must be paid if claimants are to be entitled to challenge adverse decisions before an independent tribunal.

5.81 The right of appeal provides the ultimate safeguard to the individual claimant. This does not mean that the appeal process should constitute the sole or even the major means of external scrutiny of the Corporation’s administrative and policy-making role. There are a number of reasons why appeals are not an especially effective method of reviewing the general performance of the Corporation. A special body, independent of the Corporation, should be established to monitor the operations of the Scheme and the activities of the Corporation. This body, which should be called the Policy Review Committee, should report to Parliament and should propose such amendments to the legislation and to the practices of the Corporation as are thought desirable.

VII. SUMMARY

5.82 This Chapter has examined the principles that should determine the design of a no-fault transport accidents scheme for New South Wales. Later Chapters discuss the specific recommendations governing the compensation to be provided to transport accident victims and their families. The major principles are outlined as follows:

• comprehensive entitlement for transport accident victims;
• rationalisation of existing compensation arrangements;
• choice of appropriate compensation models for different kinds of losses;
• compensation in a form to match losses;
• administrative efficiency; and
• fair dispute resolution.

Comprehensive Entitlement

5.83 The community should accept responsibility for compensating people injured and the families of people killed in transport accidents. The fault principle is an unsatisfactory basis for determining entitlement to compensation since the effect is to deny compensation to a substantial proportion of accident victims who cannot demonstrate that another person was at fault.

Rationalisation of Existing Arrangements

5.84 Ultimately the community should accept responsibility for compensating the victims of all accidents. The establishment of a no-fault Transport Accidents Scheme should be consistent with that ultimate objective and should constitute a suitable model for extension to other areas of disability and incapacity. However, the Scheme standing alone should be capable of overcoming the major deficiencies which characterise the existing compensation system. The Scheme should maximise the opportunity for rehabilitation of injured people, so that wherever possible they can return to an active and productive life within the community. The Scheme should link the assessment of compensation to the aim of promoting rehabilitation.

Appropriate Compensation Models

5.85 Generally speaking, the Scheme should implement a restitution model in relation to economic loss, by attempting to restore the injured person to his or her pre-accident position. However, the restitution model should be qualified by the need to:

• promote rehabilitation as a paramount objective;
• ensure that the compensation provided does not exceed the limits of the community s resources;
• give priority to the long-term requirements of people sustaining serious and permanent disability and incapacity; and
• minimise inequities flowing from the fact that a State scheme cannot be funded by earnings-related contributions.

5.86 It is sometimes appropriate to assess compensation by reference to the needs of the claimant (the welfare model) in preference to the restitution model. This is true in the case of compensation on death and, except for an initial four week period, the provision of household services to the accident victim’s family where these were provided by the accident victim prior to his or her injury or death.

5.87 Compensation should be paid, in addition to other forms of compensation, for permanent disability sustained by a transport accident victim, by reference to the degree of permanent disability. The Scheme should not compensate for pain and suffering or loss of enjoyment of life where these are not elements of permanent disability.

Form of Compensation

5.88 Compensation should generally be provided in a form which matches the losses sustained by accident victims. Thus compensation for loss of earning capacity should be paid on a periodic basis and the medical support and other services required by disabled people should be provided as the need arises. In two specific cases, compensation for death and compensation for permanent disability, a lump sum is appropriate.

Administrative Efficiency

5.89 A Statutory Corporation should administer the Scheme efficiently, in the sense of ensuring that excessive resources are not devoted to administration. However, the emphasis should not be exclusively or even primarily on saving costs. The Scheme should ensure, so far as possible, that transport victims receive their full statutory entitlements and that compensation, whether in the form of money or services, is provided without delay. The Scheme should be independent of Government and should emphasise high quality decision-making.

Fair Dispute Resolution

5.90 The Scheme should safeguard the rights of individual claimants by establishing an independent and accessible appeal system for resolving disputes about entitlement to, and levels of, compensation. This system should allow review of decisions on the merits and include provision for appeal to a judicial tribunal.

1. Pearson Report, vol.1, p.8.

2. See eg. Motor Traffic (Road Safety) Amendment Act, 1982 which implemented the STAYSAFE proposals on Random Breath Testing.

3. See eg. the 1984 campaign by the Daily Telegraph entitled “Declare War on 974”, and the continuing campaign in the Magazine of the National Road and Motorists’ Association, Open Road.

4. As evidenced by the establishment of the Joint Standing Committee on Road Safety by the New South Wales Parliament on 30 March 1980.

5. See R Posner, Economic Analysis of Law (2nd ed. 1977), pp.153-157; E M Landes, “Insurance, Liability and Accidents: A Theoretical and Empirical Investigation of the Effects of No-Fault Accidents” (1982) 25 Journal of Law and Economics 49. There are two major difficulties in constructing studies. One is that no-fault schemes take various forms, with American schemes in particular being very different from the proposals in this Report. A second difficulty is to isolate the compensation system from other variables.

6. See eg. Motor Traffic Act 1909, ss.4, 4A, 4B and 4E, Crimes Act 1900, ss.24, 52A, 53 and 54.

7. See recommendations found in Report of Joint Standing Committee on Road Safety, Alcohol, Other Drugs and Road Safety (First Report, 1982), paras.7.5, 7.6. The provisions governing random breath testing came into force and effect as from 17th December 1982: Motor Traffic (Road Safety) Amendment Act,1982, schedule 5.

8. See eg. Submission S39.

9. JUSTICE (British Section of the International Commission of jurists), No Fault on the Roads (1974). para.102.

10. Assessment of permanent incapacity is an exception to this principle, but is designed to minimise the anti-rehabilitative effects of repeated assessments of those sustaining long-term incapacity (see paras. 8.52-8.60).

11. Senate Standing Committee on Constitutional and Legal Affairs, The Clauses of the National Compensation Bill 1974 (1975), appendix C; F Brennan, QC, A Gleeson, QC, and R McGarvie, QC, were all of the opinion that such a step would be outside the constitutional powers of the Commonwealth Parliament.

12. See eg. Submission W28, p.2; W48, pp.14-15.

13. M R Chesterma, Accident Compensation-Proposals to Modify the Common Law (New South Wales Law Reform Commission-CP 2, 1983), para.2.1.9. Illustrations are discounting heavily for contingencies or allowing insufficiently for the effects of inflation.

14. Submission S43, p.12. See also Submission S32, p.20.

15. That a choice of this kind is not fanciful is demonstrated by recent events in New South Wales concerning the discount rate in common law negligence actions involving motor vehicles (see para.2.32).

16. Australian Woodhouse Report, vol.1, para.255.

17. R. Gaskins, “Tort Reform in the Welfare State: The New Zealand Accident Compensation Act” (1980) 18 Osgoode Hall Law Journal 238, at pp.242-243.

18. Submission W73; Cf. Working Paper, paras.5.2-5.8.

19. Obviously any system has to address the problem of compensation in respect of death. A reference to an injured person includes (unless the context suggests otherwise) the surviving members of the family of a person who has been killed.

20. T H Kewley, Social Security in Australia 1900-72 (2nd ed. 1973), part IV.

21. Theoretically the Workers’ Compensation Act, 1926, retains an earnings-related base for long-term incapacity. The Act provides weekly compensation to a worker incapacitated for more than six months at a rate not exceeding 90 per cent of his or her average weekly earnings, as defined, subject to a relatively low maximum, currently $139.90: s.9(l)(a). In practice most workers receive the maximum, with additional allowances for dependents.

22. See eg. H Luntz, “The Benefits Payable Under a Statutory Scheme”, paper delivered at the Seminar entitled “Accident Compensation: The Prospects for Reform” (Sydney, August 1983), p. 14. Professor Luntz also proposed payment of earnings-related benefits for a limited period. See also Submission W31, p.2.

23. Submission S70, p.3.

24. Submission S52. p.3. See also Submissions S70, p.3-1, W13, passim; W49, p.2: W1, p.l1 and W31, p.1.

25. For a more detailed description of the English industrial injuries system. see P S Atiyah, Accidents, Compensation and the Law (3rd ed. 1980). ch.15. See also A I Ogus and E M Barendt, The Law of Social Security (1978), ch-8.

26. Social Security Act 1947 (Cth.), ss.24, 28.

27. Australian Woodhouse Report, vol.1, paras.397-401. Cf. National Rehabilitation and Compensation Bill 1977 (Cth.), ss.33-36; G.W.R. Palmer, Compensation for Incapacity (1979), p.232.

28. Id., G.W.R. Palmer, p.222.

29. Australian Woodhouse Report, vol.1, para.391.

30. H. Luntz, Compensation and Rehabilitation (1975), p.82. The submission of the Compensation Reform Action Group, Submission S62, p.2, echoed this criticism.

31. We note that several submissions supported a disability model, at least in conjunction with other approaches. For example, the Women’s Co-ordination Unit suggested that the commission should explore further a needs or disability-based scheme and that some combination of these might be appropriate: Submission W1, p.8ff.

32. See para.2.39.

33. See paras.4.28-4.29, 4.39 and 4.46.

34. See eg. A I Ogus and E M Barendt, note 25 above, pp.26-30, 136, 163 and 303.

35. See P S Atiyah, note 25 above, p.372.

36. Australian Woodhouse Report, vol.1, paras.257, 365: New Zealand Woodhouse Report, paras.261-267.

37. Australian Woodhouse Report, vol.1, para.257.

38. Id., para.249.

39. Submission W28, p.2. See also Submission W48, pp.14-15.

40. See Submission W60, p.6. See also Submissions W52. p.14: W2, p.3; S13, p.2; W23 pp.6-7; W34, p.1; W38; and W64. As to earlier Submissions, see generally Submissions S30, p.6; S32, p.20; and S34, p.29.

41. See H. Luntz, note 22 above, p.12. See also P S Atiyah, note 25 above. pp.535-537.

42. Some potential beneficiaries, such as pedestrians and passengers who are not necessarily low income earners) pay no contributions. Some submissions contended that higher income earners were disproportionately unlikely to sustain incapacity in transport accidents, but none offered evidence to support the assertion.

43. See P S Atiyah. note 25 above. p.200.

44. See Working Paper, para.7.2 ff.

45. Submission W31, p.1.

40. The recommendations concerning compensation on death include aspects of the restitution model, but only in respect of a limited class of family members and for a limited period: see para.5.62.

47. This means that there should be a maximum imposed on the weekly earning capacity by reference to which compensation should be assessed. It does not involve the imposition of a limit on the total paid for loss of earning capacity over the period of incapacity.

48. New Zealand Woodhouse Report, para.291.

49. Health Insurance Act 1973 (Cth.), s.23 A: National Health Act 1951 (Cth.), ss.9A.87.

50. The Program of Aids for Disabled People was introduced under the National Health Act 1953 (Cth.), s.9A.

51. Commonwealth Employment Service Act 1978 (Cth.).

52. Social Security Act 1947 (Cth.), part VIII.

53. Workers’ Compensation Commission of New South Wales. Report on the Inquiry into the Feasibility of Establishing a System for the Rehabilitation of Injured Workers in New South Wales (1970), para.6(15).

54. See A I Ogus and E M Barendt, note 25 above. p.33.

55. Ibid.

56. Submission W28, p.16.