Damages

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A plaintiff must prove that he has suffered a loss (or 'damage') in order to be able to recover monetary compensation for the negligence of another. The monetary compensation for that loss is called damages. The laws regarding damages in tort law are as follows:

  • Damages are given on a compensatory basis - restoring the party to his original position.
  • Damages are given in a once and for all lump sum.
    • Can be made in periodic payments if both parties agree.
  • Damages are paid by the defendant (the fault system).
  • The plaintiff must prove his loss.

The majority of damages discussion deals with assessing the loss for which the plaintiff must be compensated. Since this assessment is a complex process, a succinct outline of how loss is catergorised and adjusted is provided in Damages (Outline).

This article is a topic within the subject Torts.

Contents

Required Reading

Sappideen, Vines, Grant & Watson, Torts: Commentary and Materials (Lawbook Co, 10th ed, 2009), pp. 535-596 [14.05-14.295].

Civil Liability Act 2002 (NSW), Part 2 (ss 11-26)

Introduction

There are three main types of damages:

  1. Compensation Damages - damages aimed at compensating the plaintiff. These are the damages used by the torts system.
  2. Exemplary (or 'punitive') damages - these are damages aimed at punishing or deterring wrongdoers. They allow windfall profits. These are prohibited by s 21 of the Civil Liability Act 2002 (NSW).
  3. Nominal (or 'contemptuous') damages - these are small sums awarded simply in recognition that a plaintiff’s rights have been invaded but no damage has been sustained. They don't really apply to negligence since damage being sustained is required for a negligence action.

Compensatory damages

[1] Damages under tort law are awarded in a compensatory manner. This involves:[2]

  1. The damages are meant to put the plaintiff in the same position as if he never got injured. This is called restitutio in integrum.
  2. Damages are recovered once and in the form of a lump sum to compensate for all past and future losses. This is called once and for all rule.
  3. The court is not concerned with how the plaintiff chooses to use the sum he was awarded.
  • The burden lies on the plaintiff to prove the injury or loss for which he seeks damages.

The tort system in Australia also relies on the 'fault' system, which means that the damages are paid by the defendant (the one at fault) to the plaintiff. This is a widely contested issue.

Exceptions to the 'once and for all' rule

[3] There are cases in which legislation allows for exceptions to the 'once and for all' rule. For example, s 24 of the Civil Liability Act 2002 (NSW) allows periodic payments ('structured settlement') if both parties consent to it.

Assessment of damages

[4] When assessing what damages are awarded to a plaintiff, the court must be careful not to compensate for the same loss twice. To clarify the assessment, damages are separated into three 'heads' of loss:

  1. Non-pecuniary loss - damages are awarded to compensate for pain and suffering etc.
  2. Loss of earning capacity - damages are awarded to compensate the plaintiff for the money he could have made but didn't due to due to his injury (ie missing work etc).
  3. Actual financial loss - damages are awarded to compensate for expenses incurred or likely to be incurred in the future because of the injury.

Another way to separate these damages, which is used by the common law as well as legislation, is to divide them into damages for economic loss and damages for non-economic loss.

Damages for economic loss

These are damages to compensate for economic losses incurred or likely to be incurred due to the injury. They are also called special damages, since they can be easily specified or estimated. These usually include:

  • Past out of pocket expenses.
  • Loss of earning capacity
  • New economic needed
  • Gratuitous care services

Note that damages the plaintiff receives for future losses are discounted to account for interest (present value discounting). In addition, damages the plaintiff receives for loss of future earning capacity will then be discounted to account for 'vicissitudes' as well.

Past out of pocket expenses

[5] Past out of pocket expenses refers to expenses incurred by the plaintiff during any reasonable medical treatment of to the injury. These are pretty straight-forward, ie hospital bills or counselling.

Loss of earning capacity

[6] A plaintiff is compensated for the income that he could have earned, but is now not able to because of the injury. This applies both to the past (income not earned before the trial) and future (income that will not be earned later).

  • When calculating future income, the court compensates according to the 'earning capacity' (or 'capital asset') of the person rather than just the exact wages he was making at the time. This takes into account the possibility of the person to advance in life to better paying jobs .[7]
    • This helps people who were unemployed or underemployed and the time.
  • The income awarded is the net income of the person after deducting expenses which a person usually incurs in the process of maintaining his job.[8]
    • This means that if the plaintiff actually did work, it would incur travel expenses, clothing expenses, equipment etc. Damages will be the income minus these expenses.
  • If the plaintiff is able to continue working somewhere despite his injuries, he can be compensated only if his net income is now lower than it would have been before.

These issues were discussed in Sharman v Evans:

  • When assessing future income, the court deducts the outgoing expenses which would be incurred in the process of holding a job (transport, clothing etc) and that will now not be incurred. It is 'saved expenditure'.
    • However, there is no deduction for saving expenses which were incurred due to pastime activities, or maintenance of oneself or one's dependents.
  • A plaintiff is also compensated for money he would have made during his 'lost years' (this is when an injury is likely to shorten a person's lifespan and he will 'miss out' on years).
  • When accounting for 'lost years', the court deducts the amount that the person would have expended on himself during those years.

Loss of earning capacity will not only be discounted to account for interest (present value discount), but also for the 'vicissitudes' of life (see below).

New economic needs

[9] Another major basis for awarding damages is to recompense the plaintiff for the new expenses likely to be incurred due to the injury. This means future medical treatment or the cost of tools which the plaintiff is now required to have because of the injury caused by the defendant. This was discussed in Sharman v Evans:

  • Determining these losses is done on a standard of reasonableness. This means the defendant will only compensate for reasonable medical treatment.
  • Reasonableness is determined via a cost-benefit analysis.

Gratuitous care services

Often when an person is injured and becomes incapacitated, a relative or a friend provides care and services to the injured party on a gratuitous basis (free of charge). The court will sometimes include compensation for such services in the damages if those services are needed and would usually be paid for. This was discussed in Griffiths v Kerkemeyer:[10]

  • "It is common in cases where a plaintiff has been injured for some member of his family, or a devoted friend, to perform for him services that have been rendered necessary by his injuries."[11]
  • "In some cases the relative or friend suffers financial loss by providing the service - he may have to give up his employment or forego wages that would otherwise have been earned. In other cases the relative or friend may assume a heavy physical and emotional burden but may not suffer actual financial loss, either because he has no outside employment or because it is possible to perform the services in his spare time."[12]
  • The court only awards when a financial loss is likely to occur.
  • The inquiry is as follows:
    1. "is it reasonably necessary to provide the services, and would it be reasonably necessary to do so at a cost? If so, the fulfilment of the need is likely to be productive of financial loss.
    2. Next, is the character of the benefit which the plaintiff receives by the gratuitous provision of the services such that it ought to be brought into account in relief of the wrongdoer? If not, the damages are recoverable."[13]
  • Just because the services are gratuitous doesn't meant the damage is reduced.

Restrictions on gratuitous care

[14] The Civil Liability Act 2002 (NSW), s 15 sets some restrictions on when gratuitous care services may be compensated. The main restrictions are:

  • Care must be necessary.[15]
  • Care must be necessary only because of the injury (wasn't going to happen anyways).[16]
  • Care must be at least 6 hours a week for at least 6 consecutive months.[17]

Check the legislation for a comprehensive understanding of the limitations.

Damages for being unable to provide gratuitous care to others

[18] The question also arises whether a plaintiff can recover damages for being unable to provide such gratuitous services as a result of the defendant's negligence. The common law judgments were confusing with regards to this area, but s 15B of the Civil Liability Act 2002 (NSW) now makes such damages recoverable. The basic requirements to recover for such include (please read the section for a better understanding):

  • (a) the plaintiff used to provide such services before the accident.
  • (b) the person who the service is provided to is incapable of performing it himself by reason of their age or physical or mental incapacity.
  • (c) the services used to be provided for at least:
    • (i) 6 hours per week and
    • (ii) 6 consecutive months, and
  • (d) there is a reasonable need for the provision of such services and in that tendency.

Present value discounting

[19] All damages recoverable by the plaintiff for future losses are discounted to account for interest.[20] If the plaintiff received a 'one and for all' massive lump sum which represents all the money he was going to lose out on for the rest of his life, he will actually be over-compensated because he will accumulate interest off that sum which he wouldn't have accumulated if the moneys were spread out over the course of time. The rules of present value discount are as follows:

  • Present value discounts are negative compounding interest.
  • The default discount rate, as prescribed by s 14, is 5%.

Discounting for vicissitudes

[21] The court is also required to adjust the award of damages for loss of future earnings in order to consider 'vicissitudes' or 'contingencies'.[22] This means that when the court determines the most likely future earnings, it must allow for the ups and downs of everyday life such as the possibility of promotion, the likelihood of unemployment, the likelihood of leaving work to concentrate on domestic work, etc.

  • Note: the discounting for vicissitudes is done after present value discounting. It is a simple interest discount.

Vicissitudes were discussed in Wynn v NSW Insurance Ministerial Corp:[23]

  • Facts: Plaintiff injured in a car accident by the Defendant and unable to work. Defendant was claiming a discount because a previous injury sustained would have meant that the Plaintiff might have retired early anyway.
  • Held: "It is necessary to say something as to contingencies or 'vicissitudes'. Calculation of future economic loss must take account of the various possibilities which might otherwise have affected earning capacity."[24]
  • "Positive considerations which might have resulted in advancement and increased earnings are also to be taken into account."
  • "Finally, contingencies are to be considered in terms of their likely impact on the earning capacity of the person who has been injured, not by reference to the workforce generally...Even so, the practice in New South Wales is to proceed on the basis that a 15% discount is generally appropriate, subject to adjustment up or down to take account of the plaintiff's particular circumstances."

Collateral source

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Loss of entitlement

[25] In many cases, a plaintiff will only be incapable of working because of the injury for a short period of time, and that time might be covered by entitlements such as sick pay or holiday pay. If the plaintiff is able to return to work after, he will be entitled to be compensated by the Defendant for the loss of those entitlements, since he might require them for the future. [26].


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Certainty and proof of loss

[27] When assessing future damage, once is sometimes faced with the difficult question of whether the injury itself would be the cause of loss of future profits, or whether another (unrelated to the injury) condition of the plaintiff would have meant a loss future income anyway. This was discussed in Malec v Hutton:

  • Damages for future losses which are hard to ascertain are awarded according to the probability - if there was a probability of 60% that the future loss would have been sustained for another reason unrelated to the injury, than the plaintiff will only be able to recover 40% of the damage.
  • Note: this is to be distinguished from causation. Only once liability as a whole has been proved does the court accounts for the possibility of a future loss occurring through a reduction of damages.


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Damages for non-economic loss

A plaintiff can also recover damages for non-economic loss (also termed general damages since they are harder to quantify). Under s 3 of the Civil Liability Act 2002 (NSW), non-economic loss may include:

  • (a) pain and suffering,
  • (b) loss of amenities of life,
  • (c) loss of expectation of life,
  • (d) disfigurement.

Non-economic damages were discussed in Skelton v Collins:[28]

  • Facts: the plaintiff went into a come due to the defendant's negligence and expected to die within 6 months. The court was determining whether the fact he is unconscious and unaware of his condition should mean he should get less non-economic damages.
  • Held: Yes, a person who is aware of his condition and has to live with it suffers more than the unconcious person and therefore will get receives more compensation for pain and suffering etc, loss of amenities etc.
    • "it may be said that a person who is obliged for the rest of his life to live with his incapacity, fully conscious of the limitations which it imposes upon his enjoyment of life, is entitled to greater compensation than one who, although deprived of his former capacity is spared, by insensibility, from the realization of his loss and the trials and tribulations consequent upon it."[29]

Limitations on non-economic damages

[30] There are limitations (or thresholds) on the recovery of damages for non-economic loss set in s 16 of the Civil Liability Act 2002 (NSW). The section is broken down as follows:

  • The maximum damages available for non-economic loss is $350,000 (subject to inflation).[31]
  • However, this maximum amount can only be awarded in what the court considers a most (very) extreme case.[32]
  • So, the court has a responsibility of determining how 'serious' this non-economic loss was in comparison to 'the most extreme case'. It decides the proportion in terms of a percentage.
  • If the court determines that the non-economic loss was less than 15% of the most extreme case, no damages are to be recovered.[33]
  • If the court determines that the non-economic loss was more than 15% of the most extreme case, it awards damages according to the table set in s 16(3). The table is a sliding scale.
    • For example, if a court determines the loss is 22% of a most extreme case, the table allows 4.5% of the maximum damage.
    • Say the maximum damage is still $350,000 (it changes according to inflation), 4.5% of $350,000 is $15,750.
  • Note: A plaintiff is not required to show extreme loss under all four heads of non-economic loss in order to qualify as a 'most extreme cast'.[34]

Interest on damages

[35] s 18 of the Civil Liability Act 2002 (NSW) sets the law with regards to interest on awards of damages. Interest is not awarded for:[36]

  • (a) Non-economic loss.
  • (b) Gratuitous care services.
  • (c) Loss of capacity to provide gratuitous care services.

Mitigation

[37] When a plaintiff suffers a loss, he has a duty to mitigate that loss. Mitigation means taking all reasonable steps to minimise the loss suffered.[38] Losses that could have been avoided by taking reasonable steps will not be recoverable to the extent that they could have been mitigated.

  • For example, a plaintiff may suffer injuries due to the negligence of the defendant and then doesn't seek reasonable medical treatment and ends up aggravating his injuries. Since he could have mitigated and avoided that extra loss (ie, by taking a reasonable step such as seeking medical treatment), he is barred from recovering damages for that loss.

Mitigation was discussed in Glavonjic v Foster:[39]

  • Facts: the plaintiff was injured by the defendant and refused to undergo brain surgery (meant to alleviate the harm) because he's had a history of bad experiences with hospitals and because he suffered from anxiety etc.
  • Held: in mitigation, the onus of proof is on the defendant to show that:
    1. The proposed steps could have actually have mitigated the harm (in this case, the defendant successfully showed how the surgery probably would have mitigated the harm).
    2. The proposed steps were reasonable, or that the refusal to take them is unreasonable.
  • When examining whether a refusal to mitigate was unreasonable (or, whether the step to mitigate was reasonable), a court considers what a reasonable person in all the circumstances of the plaintiff would have done.
    • This means taking into account his history etc.
    • Note: this is a strange mix between the objective and subjective test - objective because it is standard of a reasonable man, but subjective because it is applied to the exact circumstances.
  • In this case, it was not unreasonable for the plaintiff to refuse when one considers his particular circumstances. Since his refusal was valid, the plaintiff did not fail to mitigate and he can recover for the additional harm.

Mitigation is usually associated with contract law, but it has been accepted into cases of negligence as well. (see mitigation (Contract) for more detail on mitigation).

Taxation

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Wrongful death

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End

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References

Textbook refers to Sappideen, Vines, Grant & Watson, Torts: Commentary and Materials (Lawbook Co, 10th ed, 2009).

CLA refers to Civil Liability Act 2002 (NSW)

  1. Textbook, pp. 537-8 [14.25-14.35]
  2. Todorovic v Waller (1981) 150 CLR 402, 412
  3. Textbook, p. 538 [14.40]
  4. Textbook, pp. 544-5 [14.85]
  5. Textbook, p. 545 [14.90]
  6. Textbook, pp. 545-6 [14.95]
  7. Cullen v Trappel (1980) 146 CLR 1, 7-8 (Barwick CJ); Atlas Tiles Ltd v Briers (1978) 144 CLR 202, 210 (Barwick CJ).
  8. Cullen v Trappel (1980) 146 CLR 1, Atlas Tiles Ltd v Briers (1978) 144 CLR 202.
  9. Textbook, pp. 565-6 [14.160]
  10. (1977) 139 CLR 161
  11. (1977) 139 CLR 161, 163
  12. (1977) 139 CLR 161, 163
  13. (1977) 139 CLR 161, 169
  14. Textbook, pp. 570-1 [14.180]
  15. CLA, s 15 (2)(a)
  16. CLA, s 15 (3)(a)+(b)
  17. CLA, s 15 (2)(b)+(c)
  18. Textbook, pp. 571 [14.180]
  19. Textbook, pp. 573-4 [14.195]
  20. CLA, s 14
  21. Textbook, pp. 558-9 [14.140]
  22. CLA, s 13
  23. (1995) 184 CLR 485
  24. (1995) 184 CLR 485,
  25. Textbook, p. 552 [14.110]
  26. Graham v Baker (1961) 106 CLR 340
  27. Textbook, p. 554 [14.125]
  28. (1966) 115 CLR 94
  29. (1966) 115 CLR 94, 133 (Taylor J)
  30. Textbook, pp. 584-4 [14.240]
  31. CLA, s 16(2). Rules regarding inflation are specified in s 17.
  32. CLA, s 16(2). 'Most' has been interpreted as 'very' in Dell v Dalton (1991) 23 NSWLR 528, 533
  33. CLA, s 16(1)
  34. Dell v Dalton (1991) 23 NSWLR 528, 531
  35. Textbook, p. 590 [14.260]
  36. CLA, s 18 (1)
  37. Textbook, p. 591 [14.270]
  38. British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673
  39. [1979] VR 536
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