The principle governing the award of damages in tort, is as nearly as possible to put the claimant in the same position they would have been in if the tort had not been committed (Livingstone v Raywards Coal Co).
In some cases, the claimant will have suffered several different kinds of loss. These types fall into various categories.
Pecuniary losses are losses capable of mathematical calculation in monetary terms. The damages awarded may be classified as special damages, where there can be a precise mathematical calculation of the amount to be awarded, or general damages where the amount can still be expressed in monetary terms but there’s no precise mathematical calculation.
An example is loss of earnings. Prior to the hearing, these can be worked out simply by calculating the net earnings for the claimant, including any bonuses, perks or overtime – these are special damages. The Court must however assess loss of earnings after the hearing based on how much the Claimant would have earned for the rest of their life had the accident not occurred. These are general damages worked out using a formula as the amount awarded cannot possibly be precisely calculated.
The process of assessing future loss of earnings involves finding the multiplicand, which is the Claimant’s net annual salary taking into account all possible deductions (e.g. tax, national insurance). This is then multiplied by the multiplier, a figure produced based on the length a Claimant is likely to suffer loss (which could be their life expectancy if they won’t work again) converted into a figure using an actuarial table such as the Ogden table. Where a Claimant’s life expectancy has been reduced, a deduction is made from the lost years (the difference between their original expected age of retirement and their current life expectancy) to account for the amount they would have spent on themselves – for example, 25% for a person married with dependent children (Pickett v British Rail Engineering Ltd).
In addition to loss of earnings, a Claimant may look at future medical care and future assistance in the home. These are again found by a multiplicand (the annual average cost of care or assistance) and multiplied using an actuarial table to reach a figure. In assessments, the multiplier is discounted to allow for anticipated investment return on the lump sum, to ensure the Claimant doesn’t profit.
In contrast with pecuniary expenses, non-pecuniary expenses are those that can’t be quantified in monetary terms – for example, loss of use of limbs. Clearly the Claimant cannot be put back in the position they were had the tort not occurred, and so the aim of such damages is to compensate for the injury sustained.
Non-pecuniary expenses fall under two headings – pain and suffering, and loss of amenity. Damages for pain and suffering are awarded subjectively – so for example, if the Claimant has been in a coma for three years, he/she won’t receive damages for pain and suffering for this period as they would not have been aware of it (Wise v. Kaye REF3). Loss of amenity involves compensation for loss of enjoyment of life – for example, loss of sight or smell. The test for this is objective and so it doesn’t matter whether the Claimant has been aware of the loss or not (West v Shepherd REF4).
For non-precuniary damages, there is no precise calculation and each case is assessed on its facts as losses mean different things to different people. Authorities for assessment of damages include Kemp and Kemp on Damages, or Current Law. Courts may also award interest on damages.
When assessing damages for serious injury, damages for future losses such as loss of earning capacity and the cost of ongoing medical and other care will probably make up the largest part of a lump sum award. These losses are difficult to assess accurately, as it cannot be known what will happen in the future, or what would have happened but for the accident – especially where the Claimant is a child.
The problems that follow is that the claimant be over compensated – for example, if the Claimant makes partial recovery, and is able to work or enjoy a better standard of living than anticipated. Medical or other expenses may be lower than predicted, or the Claimant may profit if he invests wisely. If the Claimant should die sooner than the life expectancy estimated, the balance of his damages become a windfall to his beneficiaries. The opposite may occur in that a claimant who survives significantly beyond the anticipated life expectancy may have to spend his life relying on social security when the damages are used up. Further, even where damages have been adequate, it’s assumed the defendant will invest wisely and not spend extravagantly – this may not be the case.
There are alternatives to the pitfalls of the lump sum payment. Compensation may be paid by regular installments, rather than in a single lump sum, using structured settlements, with the consent of both parties. These are provided by the Defendant’s insurers, who purchase an annuity with a lump sum.
The Law Commission’s report identifies a number of advantages of structured settlements. There are financial benefits to both parties as a result of tax concessions, and the structure can be tailored to the claimant’s needs. Further, the Claimant doesn’t have the worry of managing a lump sum and making it last.
Structured settlements do not adapt to changes in the claimant’s needs or improve the accuracy of compensation. There’s still a risk that the Claimant will be under- compensated or over-compensated because the settlement is based on the same assessments of needs, future expenses, and life expectancy made at the time of the hearing.
A further alternative to lump sums is an award of provisional damages under s.32 Supreme Court Act 1981. This award is made where there’s a possibility that the Claimant’s condition will deteriorate in future – the payment is an interim payment made on the basis that the Claimant’s condition won’t deteriorate, but the Claimant may return to Court within a specified period to make a further claim if their condition does deteriorate (Hurditch v Sheffield Health Authority (1989); Wilson v Ministry of Defence (1991)). The advantage to the Claimant is that there’s less chance of under-compensating him for his injuries. However, the Defendant, although paying less than an ordinarily lump sum award, does have the uncertainty that he may be called upon to make more undetermined payments in future.
One final point to mention is periodical payments, which are not currently used. These would be payments adjusted to meet the needs of the Claimant.
Returning to Peter Cane’s view, I agree that there are potentially serious problems in lump sum awards of damage, which I have discussed above. Although statistic tables show averages and past cases give a wealth of examples, each individual’s situation and life course will undoubtedly be unique, and accurately predicting the level of damages required to adequately compensate for their circumstances is to a large extent a haphazard affair. As an alternative, discussions of reviewable periodical payments and/or compensation which is partly lump sum for non-pecuniary loss and special damages, and partly income-based (for future loss based on actual requirements) seem advantageous for protection of the Claimant but gives financial uncertainty to the Defendant and/or his insurers.
1 Livingstone v Raywards Coal Co Ltd (1880) 5 App Cas 25 cited in Manual 2 (Units 13 & 14) W300: Law – Agreements Rights and Responsibilities (2003), p.166, Open University, Milton Keynes
2 Pickett v British Rail Engineering Ltd (1980) AC 136 cited in Manual 2 (Units 13 & 14) W300: Law – Agreements Rights and Responsibilities (2003), p.180, Open University, Milton Keynes
3 Wise v Kaye (1962) 1 QB 639 – Reading 25: Resource Book 1 W300: Law – Agreements Rights and Responsibilities (2003), Open University, Milton Keynes
4 West v Shephard 1964 AC 326 cited in Manual 2 (Units 13 & 14) W300: Law – Agreements Rights and Responsibilities (2003), p.189, Open University, Milton Keynes
5 Units 13 and 14: Remedies – B: Assessment of Damages, in Manual 2 (Units 13 & 14) W300: Law – Agreements Rights and Responsibilities (2003), p.190, Open University, Milton Keynes
6 Supreme Court Act 1981 Reading 28: Resource Book 1 W300: Law – Agreements Rights and Responsibilities (2003), Open University, Milton Keynes
7 Hurditch v Sheffield Health Authority (1989) 2 All ER 869 Reading 28: Resource Book 1 W300: Law – Agreements Rights and Responsibilities (2003), Open University, Milton Keynes
8 Wilson v Ministry of Defence (1991) 1 All ER 638 Reading 28: Resource Book 1 W300: Law – Agreements Rights and Responsibilities (2003), Open University, Milton Keynes