I. INTRODUCTION

A. The Common Law

6.1 Chapter 2 described the common law negligence action which, as modified by statute, provides the basis for compensation for personal injury arising out of motor vehicle and other transport accidents in New South Wales. Many of the defects of the common law action are almost universally recognized (see Chapter 3). The defects include:

• the failure to provide compensation to at least one-third of all transport accident victims, because they are unable to prove fault;
• the problems associated with paying damages in a lump sum, assessed on a once-and-for-all basis;
• the inevitable delays and administrative costs in determining liability and assessing damages; and
• the adverse effects of the common law negligence action on the rehabilitation of transport accident victims.

The compelling case for reform is supported by the vast majority of submissions (paragraph 3.2) and by proposals made both in Australia and overseas for changes to the common law, or for more radical changes to the compensation system. (Chapter 4). The fundamental question is not whether there should be change, but what form change should take.

6.2 The Working Paper proposed the introduction of a “ pure” no-fault transport accidents scheme, which would replace the common law negligence action. While the majority of submissions recognised the need for some token of no-fault compensation a number of them advocated a dual scheme which would provide limited no-fault benefits and preserve the common law, along the lines of the scheme operating in Victoria (paragraphs 4.26 to 4.38). Critics of the Working Paper proposals argued that the common law had certain features which could not be incorporated within the framework of any no-fault scheme which took its place. But it is wrong to assume that those features worthy of retention cannot be preserved in a no-fault scheme. There is no reason why a no-fault scheme cannot incorporate the worthwhile features of the common law, while at the same time overcoming its principal defects.

6.3 Chapter 5 demonstrates how the worthwhile features of the common law can be accommodated within a no-fault scheme. These features include:

• compensation for loss of earning capacity and provision for medical hospital and rehabilitation services, generally based on the principle of restitution;
• compensation for non-economic loss (but only where the loss results in permanent disability);
• individual assessment of compensation under the Scheme according to the circumstances of the claimant including, in cases of long-term incapacity, assessment of compensation for loss of potential for advancement;
• independent judicial determination in cases where entitlement to compensation is disputed; and
• administration of the Scheme independent of the government of the day.

B. Proposals for a Dual Scheme

6.4 The major supporters of a dual scheme were the Law Institute of Victoria and the Law Society of New South Wales. The Law Society of New South Wales presented its views in a recent proposal to the New South Wales Government. ¹ The proposal contains a no-fault component (Transport Injury Compensation Scheme), providing for immediate payment of limited compensation to all transport accident victims irrespective of fault. The main features of this no-fault component are as follows.

• Medical and other out-of-pocket expenses payable directly to the service providers for a minimum of five years after the accident (to the extent that these are not met by Medicare).
• Compensation for economic loss of a minimum of two years to a maximum of 85 per cent of pre-accident earnings subject to an indexed maximum of All Male Weekly Total Earnings for New South Wales (NSWAWE).
• Individual assessment of future economic loss for a minimum of two years (up to the same maximum as above) for injured employed.
• On the death of the principal breadwinner, payment of 100 per cent of the aggregate of two years NSWAWE.
• On the death of the spouse of the principal breadwinner, a variable amount according to the degree of financial support and contribution of the deceased.
• Administration and payment of these basic benefits by an independent statutory authority with an emphasis on speedy, non-adversary settlement of claims.
• Right of review and appeal to a judge.

6.5 The Law Society has yet to disclose further details of its proposals and a number of matters are left unclear. For example, some benefits are defined in terms of a minimum period of payment Put this way, it would be possible for the benefits to continue indefinitely. If this is intended the Society’s proposals would be closer to those of the Commission, although the Scheme proposed in this Report provides a substantially wider range of benefits. It is more likely, however, that for reasons of cost a maximum would be placed on the period for which no-fault compensation would be paid.

6.6 Because of the imprecision of the Society’s proposals, it is not possible to cost the ,suggested dual scheme. However, it is clear that t ‘ he costs of a dual scheme would require limitations to be placed on no-fault benefits, such as a restriction on the period for which compensation is provided. The result is that the scheme would fall to provide adequately for accident victims who suffer long-term disability or incapacity and who cannot prove fault. This is the case with the Victorian scheme on which the Law Society’s proposals are based. Proponents of dual schemes in Australia almost invariably assume that restrictions on cost should be borne by the no-fault component, rather than by attempting to minimise the costs of the common law negligence action.

6.7 The dual scheme proposed by the Law Society is an adaptation of the scheme currently operating in Victoria. From the outset of the reference the Victorian scheme has been regarded as an important option, warranting careful investigation. Before the release of the Working Paper, a detailed research study of the history and operation of the scheme was commissioned. ² In addition, the consulting actuary provided a costing of the present Victorian scheme adapted to New South Wales. ³ On a number of occasions members of the Commission have visited Victoria in order to obtain first-hand knowledge of the operation of the scheme. ⁴ Most recently, with the cooperation of the Victorian Motor Accidents Board, an examination of the Board’s claims statistics over a four-year period was undertaken. ⁵

6.8 The Victorian scheme provides the best available basis for comparison with the proposals in this Report. However, whatever model is adopted for the purpose of comparison there is a danger that it will become a “moving target”. This is illustrated by the changes to the no-fault component of the dual scheme in Victoria suggested recently by the Law Institute of Victoria. These had been referred to earlier (paragraph 4.38) but the more important include:

• extension of the scheme to cover public transport accidents as well as motor vehicle accidents;
• an increase in the maximum payment for loss of earning capacity and for the death of a spouse from $20,800 (after tax) to $28,900 (after tax);
• a provision enabling an injured person who is not entitled to common law damages to apply to the Motor Accidents Tribunal for compensation for loss of earning capacity in excess of the statutory maximum for a period of up to five years; and
• a provision enabling a seriously injured person who is not entitled to common law damages to apply to the Motor Accidents Tribunal for payment of medical, hospital and related expenses, beyond the present maximum of two years. ⁶

The Law Institute has offered no costing of these proposals, simply asserting that the overall cost “is unlikely to be substantial”. ⁷

6.9 Changes have also been proposed to the common law component of a dual scheme. For example, the Law Society of New South Wales has suggested, in addition to the introduction of a limited no-fault scheme, the following changes to common law actions.

• In appropriate cases the court should have the power to order continuing payments of medical and similar expenses, as an alternative to having such future expenses paid in the form of a single lump sum.
• The court should have the power in appropriate cases of serious injury, such as quadriplegia, to award periodic payments in respect of economic loss, rather than single lump sum payments.
• Court delays and the costs of litigation should be reduced by expansion of the new system of arbitration of civil claims.
• Current pre-trial procedures should be extended to further reduce delays in the courts. ⁸

Similarly, the Law Institute of Victoria suggested that in a common law negligence action the court should have power to order periodic payments where “the plaintiff is destined to remain institutionalised or in hostel-type accommodation”. ⁹ It is not clear whether the professional bodies contemplate that the court’s power to order periodic payments should be capable of exercise over the objections of the plaintiff. Both the Law Society and the Law Institute contemplate that entitlement to “full compensation” would still depend on proof of fault. Fault and substantial lump sums would be available only in common law actions (subject to the power of the court to award periodic payments).

6.10 If the Victorian dual model were modified in the way suggested by the Law Institute and if the common law negligence action were also modified to reduce substantially reliance on lump sum compensation the differences between a dual scheme and a pure no-fault system would diminish. For example, expanded no-fault benefits indicate acceptance of the general principle that compensation for economic losses should not generally depend on fault Indeed it would only be the most seriously incapacitated who would be denied substantial compensation for their economic losses, since the less seriously incapacitated would come within the limits imposed by the no-fault component of the dual scheme. Similarly, if periodic compensation became the rule in substantial common law claims, this would indicate more general acceptance of the principle that compensation should not be paid in the form of a lump sum assessed on a once-and-for-all basis. However, even if these developments occurred there would be important differences between a pure no-fault scheme and a dual scheme. In our view the former is to be preferred.

6.11 The reasons for this preference are closely related to the objectives of the compensation system discussed in Chapter 5, although they take into account the practical constraint that the resources available for compensation are not unlimited. The major reasons are that the no-fault scheme:

• removes distinction between transport accident victims who can and cannot prove fault, ensuring the objective of comprehensive entitlement for all people injured in transport accidents;
• provides restitution for economic loss subject to limited exceptions justifiable on policy grounds, and is especially suitable for meeting the needs of seriously disabled people on a long-term basis;
• permits individual assessment of loss;
• provides compensation in a form which meets the losses suffered by injured people and which provides maximum security;
• permits claimants to obtain independent judicial review of decisions affecting their compensation entitlement;
• provides compensation without delay;
• actively promotes rehabilitation; and
• is more likely to control costs than a dual scheme.

The following section explains these advantages in more detail. In demonstrating the advantages of a pure no-fault scheme over a dual scheme, we have not overlooked the fact that a dual scheme is capable of ameliorating some obvious deficiencies in a system which relies exclusively on the common law, such as the failure to provide any compensation to those who cannot prove fault. At the same time, if there is to be reform, it should address all of the fundamental defects of the existing system, some of which cannot be properly taken care of in an alternative in which the common law remains a major and separate component.

II. A COMPARISON: NO-FAULT AND A DUAL SCHEME

A. Abolition of Fault as a Criterion for Compensation

6.12 Some proponents of a dual scheme justify their support for retention of the common law on philosophical grounds. For the reasons discussed earlier, they argue that it is desirable to maintain a distinction, for compensation purposes, between people who can and cannot prove fault. Others support the fault principle on more pragmatic grounds. These commentators do not, in theory, oppose the provision of compensation assessed on a common law basis to all victims of transport accidents, but they recognise that financial constraints make this impracticable. Because resources are limited they take the view that first priority should be to provide full compensation for injured people who can prove fault. On this view, any remaining funds should be directed towards the provision of limited no-fault benefits.

6.13 Reasons have already been given for rejecting fault as a criterion of compensation. It has been pointed out that the benefits derived from the use of modern transport, together with the inevitability of accidents causing death and serious injury, justify the community’s bearing the cost of compensating all transport accident victims (paragraph 5.19). The argument receives further support from the practical difficulties of reliably allocating fault in the circumstances of accidents between fast-moving vehicles; and the high administrative and legal costs involved in linking compensation to proof of fault (see Chapter 3). A no-fault scheme abandons the reliance on such an unsatisfactory criterion. By contrast, retention of the fault principle as part of the dual scheme means that transport accident victims suffering similar disability and incapacity receive differing compensation. Among the most serious cases the differences are very substantial indeed. This is unjust and inefficient.

B. Full Compensation

6.14 No compensation system of which we are aware attempts to provide “full” compensation to all accident victims for both economic and non-economic losses. Cost constraints inevitably require limitations to be imposed on benefits. The question is where those limitations should be imposed.

1. The No-Fault Scheme

6.15 In Chapter 5 it was foreshadowed that compensation for economic loss under the Scheme should be based on the restitution model. The two major qualifications to the restitution principle as applied to economic loss sustained by injured accident victims are:

• the ceiling on earnings by reference to which compensation is to be assessed (paragraphs 8.25-8.34); ¹⁰ and
• the absence of compensation for the first week of incapacity (paragraphs 8.41-8.44).

The first of these proceeds from a deliberate policy choice, based on considerations of equity rather than cost factors. Moreover, the ceiling affects only a very small proportion of incapacitated transport accident victims (paragraph 8.30) and could be raised without substantial additional cost to the Scheme. The second is justified primarily by the need to curtail costs, but is of relatively minor significance to a person suffering continuing incapacity, provided that compensation for loss of earning capacity beyond the first week is paid promptly.

6.16 A major departure from the principle of full compensation, as understood at common law, is that the no-fault scheme compensates for non-economic loss only in the case of permanent disability. The absence of compensation for non-permanent pain and suffering means that some accident victims will receive less compensation than they would have received at common law had they been able to prove fault-Again, this is a deliberate policy choice, the justification for which is fully argued in Chapter 11. One major advantage of limiting compensation for non-economic loss to permanent disability is that substantial resources can be freed in order to extend benefits to a wider class of accident victims and to provide more generously for the most severely disabled and incapacitated. Proposals to restrict damages for non-economic loss are not unique to no-fault schemes, but have been made in relation to the common law itself. By contrast proponents of a dual scheme argue that persons sustaining relatively minor injuries who can prove fault, should continue to receive compensation for pain and suffering, while no-fault compensation for the long-term disabled should continue to be restricted.

6.17 The removal of compensation for short-term non-economic loss permits the Scheme at reasonable overall cost, to provide a wide range of continuing benefits to seriously disabled and incapacitated people. These benefits include periodic compensation for loss of earning capacity; compensation for permanent disability, necessary medical, hospital and rehabilitation services; support services meeting needs for attendant care and household assistance; aids and appliances; modifications to a home and vehicle; and mobility allowances. It is our view that these benefits compare more than favourably with the “full” compensation, in the form of a lump sum once-and-for-all damages award, available to a seriously disabled and incapacitated person able to prove fault.

2. The Dual Model

6.18 The common law negligence action fails to compensate accident victims who cannot prove fault and provides less than full compensation to those whose damages are reduced by reason of contributory negligence. Moreover, in practice the commitment of the common law to the restitution principle is often not realised because claims are settled for less than their theoretical full value and because compensation, assessed once-and-for-all in the form of a lump sum, proves inadequate in cases of long-term disability and incapacity. Proponents of a dual scheme argue that no-fault benefits provided under, say, the Victorian scheme, are sufficient, in combination with the common law, to provide full compensation in all but a small proportion of cases. They suggest that improved no fault benefits, along the lines discussed earlier, would decrease further the proportion of injured people who do not receive full compensation for their economic losses because these losses exceed the maximum for which no-fault benefits are available.

6.19 It is not clear how many motor vehicle accident victims sustain economic losses, particularly, loss of earning capacity, beyond the limits of the no-fault component of the Victorian scheme. It has been suggested that the number of people who have no common law rights and who recover the maximum no-fault compensation for loss of earning capacity (currently $20,800) is less than 100 in any given year. ¹² The implication is that the dual scheme covers the economic losses of all but a very few accident victims. Table 6.1 is based on figures supplied by the Victorian Motor Accidents Board and provides information on no-fault compensation for loss of earning capacity under the Victorian scheme.

Table 6.1: Motor Accident Board: Loss of Earning Capacity Claims-Numbers and Percentages

Victoria 1979-1982

Year	1978-79	1979-80	1980-81	1981-82
Loss of earning capacity claims of $20,000 or more 1 (Percentage of loss of earning capacity claims)	272 (5.8)	272 (4.4)	300 (3.5)	267 (3.0)
Loss of earning capacity claims (Percentage of total accepted claims)	4,707 (14.7)	6,125 (17.7)	8,597 (20.8)	8,976 (20.2)
TOTAL ACCEPTED CLAIMS 2	32,004	34,534	41,294	44,455

1. $20,800 is the maximum payable under the Victorian no-fault scheme for loss of earning capacity. The numbers refer to claims recorded by 4 February 1984 in non-fatal cases.

2. Total accepted claims covers all non-fatal compensation claims accepted by the Board, regardless of the amount of the claim.

Source: Motor Accidents Board of Victoria

6.20 On the assumption that approximately one-third of motor vehicle accident victims are unable to prove fault, Table 6.1 suggests that a relatively small number of those victims suffer a loss of earning capacity over $20,800, and have no common law claim. ¹³ Nonetheless, the numbers are significant and they are precisely the people suffering the severest disabilities and the greatest losses. Moreover, the figures in the Table may underestimate the numbers of seriously disabled transport accident victims substantially under compensated by the Victorian dual scheme, for the following reasons.

• First, some accident victims may not claim or receive substantial compensation for loss of earning capacity from the Motor Accidents Board, although they would have a claim at common law (if fault could be proved). This is most likely to be the case with victims who were not earners at the time of the accident. ¹⁴
• Secondly, some claims would be settled before payments by the Motor Accidents Board had reached the limit of $20,800 and thus would not be recorded in the Table as having resulted in the maximum payment Where these cases are settled at “discount”, for example because of a dispute as to liability or alleged contributory negligence, the plaintiff would be undercompensated.
• Thirdly, some cases in which maximum no-fault benefits had been paid would be undercompensated, not because the plaintiff had no common law claim, but because the common law claim is reduced by contributory negligence or settled at a discount.

In addition it is necessary to take account of the tendency of lump sum awards to prove inadequate in cases of long-term incapacity and the limited range of benefits (including the absence of any form of compensation for non-economic loss) in the no-fault component of the Victorian dual scheme.

6.21 Thus the dual scheme falls short of its objective of full compensation in a number of respects. Unlike the pure no-fault scheme the shortcomings adversely affect the most seriously disabled, rather than those with short-term injuries and incapacity.

C. Individual Assessment

6.22 Any scheme which adopts restitution as a major objective must develop methods for assessing the loss suffered by individual claimants. At common law, in the small proportion of cases which are determined by verdict, the plaintiff’s damages are assessed on the basis of his or her circumstances by a court or judicial officer. However, in the vast majority of the cases which are settled between the plaintiff and the insurer, the damages received by the plaintiff reflect the vagaries of the bargaining process, rather than any independent individual assessment by a court. Even where the plaintiff receives a verdict, the defects of the once-and-for-all system of assessing damages in the form of a lump sum often mean that the “Individual assessment” later proves to be inaccurate. Indeed, there are inherent limitations on the process of the individual assessment of losses where the decision-maker is required to predict future events, such as the likely rate of deterioration of a condition, but cannot make adjustments if the prediction turns out to be inaccurate.

6.23 It is often contended that a no-fault scheme does not offer an adequate opportunity for individual assessment of the losses sustained by accident victims. It is, of course, true that the desirability of an individual assessment of losses must be balanced against the need to minimise expenditure on administration and to provide compensation speedily. Nonetheless, a no-fault scheme is quite capable of assessing compensation by reference to the individual circumstances of the injured person, and indeed this must be done to achieve the goal of restitution. The Scheme proposed in this Report provides for individual assessment in relation to such matters as:

• the loss of earning capacity of earners, including power to depart from the standard of pre-accident earnings as the measure of compensation in appropriate cases;
• the loss of potential for advancement of accident victims sustaining long-term incapacity;
• the need for support services and other benefits available to disabled people including modifications to homes and cars, and the provision of aids and appliances; and
• the assessment of degree of permanent disability suffered by an injured person, for the purpose of determining compensation for non-economic loss.

Because those assessments are not made on a once-and-for-all basis, compensation is more likely than common law damages to meet the actual losses suffered by seriously injured people suffering continuing incapacity and/or disability.

6.24 The recommendation made later in this Report for compensation at standard rates to be paid to wholly incapacitated non-earners does not constitute a departure from the principle of individual assessment (paragraph 7.89). The standard compensation is designed to recognise the loss of opportunity to undertake employment, regardless of whether it can be proved that this opportunity would have been utilised. In this respect the Scheme constitutes a considerable advance on the approach of the common law. Moreover, non-earners suffering long-term incapacity have the opportunity under the Scheme to claim compensation for loss of potential for advancement.

D. Form of Compensation

6.25 It is fundamental to a no-fault scheme that compensation should be provided in a form which matches the type of loss and which is best suited to the needs and circumstances of individual claimants. Thus the proposed Scheme

• provides periodic compensation for loss of earning capacity, matching the form in which earnings would have been received had the accident not occurred;
• provides hospital, medical and related services as the need arises preferably through the general health care system or pays expenses as they are incurred;
• provides rehabilitation services to disabled people; and
• makes available a range of services, such as support services for severely disabled people and replacement household services, to meet the immediate and continuing needs of accident victims and their families.

6.26 Under dual schemes, people suffering long-term disability and incapacity must rely on common law damages when no-fault benefits are exhausted. The frequent failure of the lump sum to provide long-term secure income maintenance is examined in Chapter 3, and it is unnecessary to repeat the criticisms of compensation in the form of a lump sum assessed on a once-and-for-all basis. These defects are increasingly being acknowledged by proponents of dual schemes. Both the Law Institute of Victoria and the Law Society of New South Wales for example now recognise the undesirability of once-and-for-all assessment in cases involving long-term disability, and suggest that when such an injured person can prove fault, the court should have power to order periodic payments of medical, hospital and related expenses. ¹⁵ While these suggestions have not been developed in detail, they give some support to the approach of a no-fault scheme providing period payments instead of a once-and-for-all lump sum.

6.27 Further support for this approach has begun to emerge in practice through structured settlements, although in New South Wales these have taken a form different from their North American counterparts (paragraph 4.15). A settlement which, for example, provides for payment of all future expenses reasonably attributable to the accident ¹⁶ is not very different in concept from benefits available under the Scheme. If implemented on a regular basis, settlements of this kind would require an administrative and decision making structure to supervise the provision of periodic compensation and to resolve disputes. ¹⁷ One function of a no-fault scheme is to provide precisely such a structure to deal with a large volume of cases.

6.28 The Scheme proposed in this Report has another advantage. Generally, supporters of a dual scheme contemplate only monetary compensation. For example, the Victorian scheme provides compensation of up to $2,000 for household help and child care. The Law Institute of Victoria has suggested that the Motor Accidents Tribunal should have power to increase this amount, apparently without being bound by any maximum. ¹⁸ But payment of money for such ,services is of little assistance if services are not freely available, or are only available at excessive expense in the private market By contrast, the Scheme recognises that money compensation alone may not meet the accident-related needs of the injured person and contemplates rehabilitation, household, and support services being made available in kind.

E. Independent Judicial Review

6.29 Chapter 3 referred to the argument that the common law gives injured people the opportunity to have an independent and impartial judge, rather than an administrative body, to determine liability and assess compensation. As explained in Chapter 5 proponents of a dual scheme often express concern that a scheme replacing the common law would create a bureaucracy, which could not be effectively challenged or subjected to public scrutiny, and which would be more vulnerable than the courts to political control. ¹⁹ This position encounters a difficulty since the no-fault component of a dual scheme presumably suffers from the defects with which the proponents are concerned.

6.30 Clearly the Scheme should not confer unfettered discretion on the Corporation responsible for administering it and that the Corporation should be subjected to close public scrutiny. Moreover, claimants should have the right to appeal to an independent judicial tribunal with power to substitute its own judgment on the merits of the claim. Chapter 16 explains in detail the appeal system proposed, which is based on the model operating for administrative appeals under Commonwealth law. The point is that the right to have a claim determined by an independent and impartial judge can be accommodated within a no-fault scheme, although decision-making processes will differ from those used in common law claims and, in particular, will place much less emphasis on adversary procedures.

6.31 Under the Scheme, it would not be possible for the Government of the day to give directions either to the Accident Compensation Corporation or to the tribunals deciding appeals. Each would be independent. It would be possible for the government to “interfere” by legislating to reduce benefits. It is inherent in a democracy that the Government should have this power and no compensation system, including the common law, is immune from it (paragraph 3.95).

F. Delays

6.32 The delays inherent in the common law system were described in Chapter 3. Such delays often cause extreme hardship and anxiety (paragraphs 3.80-3.83) and are strongly anti-rehabilitative(paragraph 3.74). By providing for immediate payment of no-fault benefits, a dual scheme alleviates the hardship and anxiety occasioned by delay, but does not overcome the problem.

• No-fault benefits, especially for loss of earning capacity, may cut out under a dual scheme well before the common law claim has been resolved, whether or not that claim is ultimately successful. ²⁰ This is most likely to be the case for seriously injured accident victims, who may need to wait for a considerable period until the injury stabilises.
• The no-fault component of a dual scheme does not, of itself, reduce the time required to resolve the common law claim. Thus the anxiety associated with delay in finalising the claim is not eliminated.

G. Rehabilitation

6.33 A dual scheme has an advantage over the common law because, at least for a period, accident-related losses and expenses are met. Dual schemes may also make some provision for rehabilitation. For example, the Victorian Motor Accidents Board is playing an increasingly active role in this area. ²¹ Compensation for loss of earning capacity and provision of medical and rehabilitation services may ameliorate some of the more immediate anti-rehabilitative effects of the delay and costs experienced under the common law. However, the retention of once-and-for-all assessment of damages at common law, combined with the limitations on no-fault benefits, means that most of the anti-rehabilitative effects of the common law remain, particularly in the case of the seriously or long-term disabled. The incentive to exaggerate or prolong disability in order to maximise the common law verdict is likely to come in direct conflict with rehabilitation efforts under the no-fault component of the scheme. This is clearly the major deficiency of a dual scheme from the point of view of rehabilitation.

6.34 There has been continuing debate on the rehabilitative effects of once-and-for-all lump sums compared with periodic payments which can be re-assessed from time to time. Supporters of the common law assert the advantages of a once-and-for-all assessment which gives the injured victim “freedom, dignity and independence”. In contrast, periodic payments are attacked as anti-rehabilitative.

[P]eriodic payments do not make the disabled “self-reliant”, they make them dependent and they lose all motivation to improve their status. ²²

This is seen as likely where periodic payments are linked with the continuing reassessment

[P]eriodic payments do not allow of any closure, but rather continue the whole accident process indefinitely, reinforcing and maintaining the individual in the sick role that they have to maintain to ensure their income. ²³

6.35 The argument in favour of lump sums is weakened to the extent that proponents of a dual scheme are prepared to accept the principle of periodic compensation in cases of serious disability and incapacity. Moreover periodic compensation can be combined with finality of decision-making through the concept of assessment of permanent incapacity. This concept, the adoption of which is recommended in Chapter 8, allows the incapacitated person to apply for compensation for loss of earning capacity to be assessed permanently thus avoiding further recourse to the Scheme. The assessment can be reopened if the incapacitated person’s condition deteriorates, but not if he or she resumes employment or increases earnings. Such an assessment creates a risk that the claimant ultimately will be “overcompensated” for the incapacity, but this has to be balanced against the possible anti-rehabilitative effects of periodic reassessment of incapacity.

6.36 A system of periodic compensation cannot be considered in isolation from other features of the Scheme. The Corporation is under a duty to ensure that the victim receives effective rehabilitation services promptly. Compensation is to be maintained at a level which preserves incentives to return to work, while those returning to work will be compensated for a greater proportion of the loss sustained (paragraph 8.24). Incentives are also provided to prospective employers to accept partially incapacitated accident victims in employment following rehabilitation. These provisions, along with support services and compensation for the non-optional costs of disability, are designed to ensure financial security and to encourage rehabilitation both in relation to work and independent living. In short, periodic compensation creates novel opportunities for integration of the compensation and rehabilitation systems.

H. Costs

1. Administrative Expenses

6.37 Chapter 3 identified the heavy costs associated with common law negligence actions including the significant proportion of judicial time devoted to common law negligence claims and the high legal and administrative expenses incurred in processing claims. Proponents of the common law usually do not deny that such costs exist, but argue that they can be justified as a proper price to pay for the opportunity to litigate a compensation claim before a judge. ²⁴ The difficulty with this assertion is not that the right of claimants to independent judicial review should be abrogated or limited. The difficulty is that much of the time of lawyers, insurers, judges and witnesses is spent considering or resolving questions of fault, whether as a criterion of liability or in relation to a claim of contributory negligence.

Additional time is required to assess damages on the basis of evidence (or speculation) as to likely future events, a process which can be minimised, if not avoided, in a scheme providing periodic compensation. Moreover, the adversary process often puts in issue matters that can be resolved quite simply in a system designed to ensure that a claimant receives his or her statutory entitlement to compensation.

6.38 Obviously a no-fault scheme will not eradicate all legal and administrative expenses. A system of appeals must generate costs. Nevertheless, the removal of disputes about fault, the creation of a non-adversary system within the Corporation for determining entitlement to compensation and the provision of compensation on a periodic basis, is likely to lead to significant overall savings.

6.39 The suggestion that administrative costs will be comparatively low tends to be borne out by the experience in other jurisdictions. It should be acknowledged that no identical scheme to the one proposed has been introduced elsewhere and the concept of administrative expenses does not embrace all expenses associated with the Scheme, such as the legal cost of unsuccessful claimants or the cost of the judicial tribunals hearing appeals from decisions of the Corporation. ²⁵ Nonetheless, experience in New Zealand under the no-fault component of the Victorian scheme is useful. For the year ended 31 March 1983, the proportion of administrative costs to benefits paid under the New Zealand scheme was 10.6 per cent. ²⁶ The administrative costs included rehabilitation and safety promotion, neither of which are undertaken by the common law, as well as claims’ handling and revenue collection costs. If rehabilitation and safety costs are excluded, administrative expenses as a proportion of claims paid falls to 7.1 per cent, down from 12.5 per cent in 1980-81 and 9.4 per cent in 1981-82. For the year ended 30 June 1982, the administrative costs were 9.1 per cent of benefits paid under the no-fault component of the Victorian scheme; ²⁷ this figure decreased to 8.7 per cent for the year ended 30 June 1983. Administrative expenses of this order compare favourably with the common law where legal and investigative costs are likely to amount to a higher percentage of the compensation. ²⁸

6.40 One question is whether a dual scheme will produce substantial savings in the cost of common law claims because victims suffering minor injuries are content with their no-fault benefits. It has been suggested, on the basis of returns furnished to the Victorian Government Statistician and Actuary covering incidents reported to authorised insurers, that many trivial claims have been eliminated. ²⁹ Caution must be exercised before relying on these figures since they relate to incidents reported to licensed insurers, whether or not any common law action is commenced. Such incidents may be reported by the prospective plaintiff or defendant, or by the Motor Accidents Board, and are not necessarily an accurate record of the number of common law claims commenced or concluded.

6.41 Nonetheless, it is fair to conclude that there has been some reduction in the number of smaller common law claims in the Victorian dual scheme. Even so, the numbers of such claims are substantial and the vast majority are for relatively small amounts, a major component of which is likely to be damages for pain and suffering. Table 6.2 shows the estimated number of files finalised over a five year period. ³⁰

Table 6.2: Motor Vehicle Third Party Claims: Finalised Files

Victoria 1979-1983

Year ended 30 June	Number of Finalised Files
1979	9,373
1980	10,819
1981	11,546
1982	11,050
1983	13,479

Source: Victoria State Insurance Office

Information is available on the payments made in the year ended 30 June 1983 in the 7,532 cases in which a common law action was commenced in the Victorian Supreme Court or County Court. This indicates that the amounts recovered are generally comparatively low.

• 93.2 per cent of awards and settlements in cases are below $50,000;
• 79 per cent of awards and settlements are below $20,000;
• only 2.51 per cent of awards and settlements are above $100,000. ³¹

6.42 These figures suggest that a significant number of Victorian motor vehicle accident victims suffering relatively minor injuries are not satisfied with the limited no-fault compensation. Accordingly, they commence common law proceedings to recover additional damages, particularly compensation for non-economic loss which is not available on a no-fault basis. The conclusion is that, while the common law remains a component of the dual scheme the heavy costs incidental to its operation are unlikely to be reduced substantially.

2. Overall Costs

6.43 The introduction of a dual scheme in Victoria has not contained the costs of compensating motor vehicle accident victims in that State. ³² In its most recent report, the Victorian Third Party Insurance Premium Committee recommended substantial increases in premiums in order to keep pace with increasing claim costs. ³³ The consulting actuary has estimated that for the Victorian dual scheme to operate in that State on a fully funded basis, an average premium of $246 per vehicle would be required for the accident year ending 30 June 1985. ³⁴ This would require a premium increase of about 82 per cent from the average premium per vehicle for the year ending 30 June 1984 of $141.

6.44 The Victorian scheme is not unique in encountering cost difficulties. However there is a particular reason why a dual scheme could be expected to experience escalating claims. The availability of no-fault benefits may enable some accident victims, who would previously have settled for a small sum in order to overcome immediate financial difficulties, to hold out for a longer period and ultimately receive higher common law damages. It is not, of course, suggested that people should be subjected to financial hardship to ensure that they settle their claims cheaply. Rather, it should be recognised that containment of the costs of the common law negligence action in New South Wales occurs, in part, as a result of the financial pressures on accident victims to settle their claims. If a dual scheme were introduced, these pressures would be reduced if not eliminated with consequences for the costs of the common law component of the scheme.

6.45 The consulting actuary has prepared estimates of the cost of adopting the Victorian scheme in New South Wales (that is introducing a limited no-fault scheme with benefits identical to those offered in Victoria as a supplement to the common law). He estimates that as at June 1984, the pay-as-you-go premium needed for such a scheme would be approximately $255 per vehicle per annum. ³⁵ This compares with the pay-as-you-go levy required for the proposed Transport Accidents Compensation Scheme of approximately $177 per vehicle per annum and the pay-as-you-go premium of $255 per vehicle per annum required for the compulsory third party insurance system. The respective figures on a funded basis are $285, $160 and $235. The purpose of this comparison is not to suggest that cost should be the sole consideration. Rather, it is to point out that the dual scheme, which has a number of disadvantages compared with the proposed Scheme, has the further disadvantage of apparently being substantially more expensive.

6.46 SuggestionsthattheUnitedStatesexperienceindicatesthatno-faultschemesarelikely to prove more costly than dual schemes are misleading. ³⁶ Implicit in such suggestions is the assumption that the word “no-fault” or “true no-fault”, when used in the American context, is a description of a scheme based exclusively on no-fault in which common law rights have been abolished. In fact no such scheme is in operation in any part of the United States. The word “no-fault” is used in that country to describe schemes in which common law rights are restricted by means of a “threshold” which may be monetary or defined according to the type of injury (the so-called “verbal threshold”. ³⁷ But all such schemes are varieties of the dual scheme because of the retention of common law rights above that threshold. The fact that recent cost analyses ³⁸ suggest that such schemes have proved unexpectedly costly is a reflection more on dual schemes, than on pure no-fault schemes in the sense that we have used the term, and bears out the difficulties facing the Victorian scheme.

III. SUMMARY

6.47 This Chapter has compared a no-fault scheme of the kind proposed in this Report with a dual scheme such as that operating in Victoria. There is a good deal of common ground among the proponents of each kind of scheme. Thus the supporters of a dual scheme accept, implicitly or explicitly, that:

• the vast majority of motor vehicle accident victims should receive full or close to full compensation for their economic losses, regardless of their ability to prove fault; and
• lump sums are not necessarily the appropriate form of compensation for accident victims, particularly those sustaining severe disability and incapacity.

The no-fault Scheme proposed in this Report applies the principles that:

• there should be an individual assessment of the loss sustained by a claimant and compensation should be calculated on the basis of that assessment; and
• claimants should be entitled, if they are dissatisfied with the initial decision to have their claim determined by an independent judicial tribunal, with power to exercise its own judgment on the merits.

6.48 There are several major differences of principle between the proposed Scheme and a dual scheme.

• The Scheme favours the most severely incapacitated ahead of those suffering less serious consequences of accidental injury. It does this by providing generous compensation to all seriously incapacitated accident victims and by eliminating compensation for short-term non-economic loss.
• The dual scheme denies substantial compensation for economic loss by reason of inability to prove fault only to the most seriously incapacitated. Those sustaining relatively minor economic losses are largely covered by the no-fault component of the scheme, while victims able to prove fault can also recover damages for short-term pain and suffering. In this way the dual scheme favours the less seriously incapacitated over the more seriously incapacitated.
• The no-fault scheme rejects lump sum compensation for future economic loss in favour of periodic compensation, including the provision of services in kind where appropriate. The dual scheme relies exclusively on monetary compensation, and retains (subject to proposed qualification of uncertain scope) lump sums for future economic losses for those who can prove fault
• The no-fault Scheme provides opportunities for integration of the compensation and rehabilitation systems that are not available to a dual scheme, partly because it continues to rely heavily on assessment of compensation in the form of a once-and-for-all lump sum damages award.
• The no-fault Scheme compensates non-earners sustaining long-term incapacity but no comparable provision is made in a dual scheme.

6.49 Ultimately the policy choice between pure no-fault and a dual scheme rests on whether the concept of fault should be used (as it is in a dual scheme) to compensate short-term incapacity far more generously than long-term incapacity. We are strongly of the view that where resources are limited-as they inevitably are-priority should be accorded to compensating the most seriously incapacitated. The concept of fault is a wholly unsatisfactory basis for compensating the less seriously incapacitated at the expense of those suffering the greatest losses and experiencing the greatest needs.

1. Law Society of New South Wales, “The Society’s No-Fault Transport Injury Compensation Proposals” (1984) 22 Law Society Journal 208.

2. R Graycar, Research Paper on Road Accidents Scheme in Victoria (unpublished Commission document 1982).

3. E S Knight and Co, Cost Estimates for a Victorian No-Fault Motor Accident Compensation Scheme in New South Wales (Report to New South Wales Law Reform Commission) dated 30 July 1982, p.37ff.

4. These included discussions with the Victorian Motor Accidents Board and State Insurance Office, as well as attendance at and participation in conferences on the Victorian scheme.

5. Statistical surveys by Motor Accidents Board (Victoria), “Statistics of Major Injury Claims Arising From Accidents” and “Statistics of Non-Fatal Claims Arising From Accidents”: unpublished information Supplied by Motor Accidents Board.

6. Law Institute of Victoria, paper on suggested amendments to the Motor Accidents Act 1973 (December 1983), paras.2.2. 2.3 and 2.5.

7. Id., para.4.2.

8. Law Society of New South Wales, “Transport Injury Compensation Scheme” (April 1984), paras.3.6.1-3.6.4.

9. See note 6 above, para.3.2.

10. The limitation on compensation for loss of earning capacity to 80 per cent of the loss is not included as a significant qualification to the restitution principle. One reason is that the 80 per cent figure reflects in part the reduced expenses of a person not attached to the workforce, a factor also taken into account by the common law: Sharman v. Evans (1977) 138 CLR 563, at p.577, per Gibbs and Stephen JJ. Another is that the proportion of loss compensated will increase as in the case of a person who returns to work part-time: paras.8.18-8.24.

11. See eg. Pearson Report, paras.382-389 where it was recommended that no damages be recoverable for non-economic loss suffered during the first three months after the date of the injury.

12. D A Miles, “Enhancing the Victorian System of Compensation” (1983) 57 Law Institute Journal 1359.

13. The Law Institute of Victoria has claimed that the proportion of such victims who have no common law claims is less than one-third: see note 6 above, para.2.26. We are not aware, however, of any statistical evidence to support these claims. Indeed there is some evidence to the contrary. For example, of claims arising out of accidents occurring in 1978-79 where the claimant received maximum compensation from the Motor Accidents Board of Victoria for loss of earning capacity, only 52.2 per cent had resulted in a completed common law claim by 4 February 1984: information supplied by Motor Accidents Board of Victoria and State Insurance Office of Victoria. Of course some common law claims (despite the passage of approximately five years) would still have been pending at that date but it seems unlikely that the proportion of completed common law claims would rise above two-thirds.

14. Since December 1979 compensation under the Victorian no-fault scheme has been available not merely for loss of earnings but for loss of earning capacity. Nonetheless only 4 per cent of claimants classified by the Motor Accidents Board of Victoria as “non-earners” received any compensation for loss of earning capacity under the scheme during the year ended 30 June 1982: information supplied by Motor Accidents Board of Victoria. This suggests that some seriously incapacitated non-earners may not be claiming or receiving substantial compensation for loss of earning capacity from the Board.

15. See note 6 above, para.2.5, Submission W28, p.29: see also note 8 above.

16. See Archer v. Richards, 28 June 1984, terms of settlement lodged in Supreme Court of New South Wales, Common Law Division; see para.4.15.

17. The terms of settlement allowed for arbitration by a referee, being a specialist medical practitioner, nominated by the President of the New South Wales branch of the Australian Medical Association, id., p.5.

18. See note 6 above, paras.2.5.4-2.5.5.

19. Submission W28, p.16. See also paras 5.78-5.81 above.

20. Letter from I M Dunn, dated 28 June 1983, p.9.

21. Motor Accidents Board, Ninth Annual Report for Year ended 30 June 1982 Victoria (1983) pp.5-6.

22. Submission W24, p.9.

23. Submission W69, p.2, see also Submission S94, pp.6-7.

24. J L Sher, QC, “The Case for the Retention of Common Law Rights” (1983) 57 Law Institute Journal 1356.

25. It is assumed that the cost of the intermediate appeal tribunals called Compensation Review Panels should be borne directly by the Scheme.

26. Accident Compensation Corporation, Report of the Accident Compensation Corporation for the Year Ended 31 March 1983 (New Zealand 1983), p.16.

27. See note 20 above; see also E S Knight & Co, Cost Estimates for Motor Vehicle Accident Compensation, (Report for the New South Wales Law Reform Commission, April 1983), appendix, P2.

28. See paras.3.89-3.94.

29. Motor Accidents Board, Eighth Annual Report for Year Ended 30 June 1981 (Victoria 1982), p.6: Submission W28, p.25, suggesting that the numbers had decreased by 32 per cent.

30. These include files finalised on which no payment was made, that is, the plaintiffs were unsuccessful or abandoned their claims. It does not include claims handled by an insurer other than the State.

31. These figures were provided by the State Insurance Office and do not cover settlements effected by the RACV General Insurance Pty. Ltd. as agent for the State Insurance Office. No similar information is available on those settlements.

32. State Insurance Office, Annual Report and Balance Sheet 81182, p.2. See to the same effect, Annual Report and Balance Sheet 82183, p.l.

33. Twenty-Third Annual Report of the Third Party Insurance Premiums Committee for Year Ended 30 June 1983 (Victoria 1984), appendix 1.

34. Letter from J R Cumpston, E S Knight and Co, 14 August 1984.

35. Actuary’s Report, paras.12.1-12.8. The estimates for the Victorian scheme applied in New South Wales assume that the 5 per cent discount rate and other statutory limitations introduced in New South Wales do not apply. The reason is that these limitations do not apply in Victoria.

36. Such suggestions have been made frequently to us in discussions on the Working Paper.

37. A comprehensive survey of schemes operating in all United States-jurisdictions is contained in: Institute for Civil justice, Automobile Accident Compensation IV-State Rules (May, 1984). For an earlier account see J O’Connell, “Operation of No-fault Auto Laws: A Survey of the Surveys” (1977) 56 Nebraska Law Review 23.

38. J E Johnson, G B Flanigan and J K Weeks, “An Empirical Investigation of the Costs of Adopting No-fault Insurance Systems: 1971-1980” (1983) 2 Journal of Insurance Regulation 168: C C Kelly and B L Webb, “No-Fault: A Review of its Cost” (1983) Journal of Insurance Regulation 176.