Beyond the Pain Threshold

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1 Beyond the Pain Threshold Speech given by John North, President, Law Council of Australia at the Personal Injury and Compensation Forum organised by the Law Council of Australia, Sydney 3 June 2005 GPO Box 1989, Canberra ACT 2601, DX 5719 Canberra 19 Torrens St Braddon ACT 2612 Telephone Facsimile Law Council of Australia Limited ABN

2 Introduction Ladies and gentlemen, I would like to thank you all for attending this Personal Injury and Compensation Forum organised by the Law Council of Australia. The Law Council is a national organisation which represents more than 40,000 Australian lawyers who belong to the State and Territory Law Societies and Bar Associations that, together, constitute the Law Council. I am pleased to be joined today on this platform by the President of the largest of those Law Societies, Mr John McIntyre of the Law Society of NSW. But before you conclude that this forum is in fact a Personal Injury and Compensation Lawyers Forum, let me also thank and welcome Ms Gaye Tombs, the widow of Corporal Bret Tombs, who died in the 1996 Black Hawk disaster. The people for whom this forum is primarily aimed at and about are not lawyers, or judges, or insurers, or politicians and government officials although I expect that all of these people will be talked about over today s program. This forum is primarily about those people who are injured or killed in accidents because of negligence, and their dependents. So, again thank you Gaye for joining John and I here on this platform. Tort reform! Some examples of the changes that parliaments have enacted don t deserve the title reform. Arbitrary restrictions on compensation, particularly thresholds on compensation for pain and suffering, are hardly changes for the better which is what reform meant last time I looked. Today I want to outline how the system can be rebalanced so as to be fair and sustainable. How it can be rebalanced so that it properly carries out the multiple objectives that personal injury law has. Currently the system is out of balance. Insurance is a wonderful thing. It has served us well for so many years. But now it s got to the point where we re paying huge amounts for very little cover. Thinking about common law compensation Common law compensation is the usual term to describe compensation pursued through the courts, which is usually made by way of the action of negligence. In a submission to the Commonwealth Treasury in 2002, the Law Council said that [t]he present system is referred to as common law because, although there have been significant legislative enactments, the core principles of liability and the calculation of damages Beyond the Pain Threshold.docx Page 2

3 are determined by judge made law. 1 There are two observations that can be made about that statement: The first is a simple observation about the past. Namely, that the law of compensation through the courts for personal injury has been the product of an interaction between court decisions and statutory enactments for a very long time. And by a very long time, I mean at least since the statutory provision of claims for wrongful death which began in the mid-nineteenth century. 2 The second observation is that: just as past parliaments have recalibrated the law so as to readjust to contemporary situations, the most recent changes to the law are also not the last word. Let s hope they re not the last word and that s the purpose of this forum. I believe, as the Law Council warned at the time, 3 that the changes that were made to the common law in 2002 and following, were made hastily, and also without any proper thought to the consequences they would have for injured Australians. Although some of the changes including in relation to principles of liability can be seen as appropriate and received support from the Law Council, 4 I believe that the community will recognise that particular examples of tort reform are not in the best interests of a fair and sustainable system. And those examples, of which thresholds are the most conspicuous, should be reviewed and adjusted in order to restore balance. Before the Ipp changes : general comments Prior to the legislative changes in 2002 and following, which were based on the Ipp report, 5 public liability claimants had been spared the restrictions and abridgements which had been imposed in the 1980s and 90s on common law claims in relation to workplace and motor accidents. Public liability claimants could pursue claims for negligence in the courts under that rubric of judge-made 1 Law Council of Australia, Public Liability Insurance Conference Submission, 20 March 2002 at page 2. 2 Lord Campbell s Act (the Fatal Accidents Act 1846 (UK)), which was the basis for similar provisions in all Australian States and Territories. 3 See Law Council s comments on the timeframes and breadth of subject-matter for the Negligence Review Panel: Law Council of Australia, Submission by the Law Council of Australia to the Negligence Review Panel on the Review of the Law of Negligence, 2 August 2002 at pages See Law Council of Australia, Fourth Ministerial Meeting on Public Liability Insurance: Law Council Briefing, 7 November The Law Council supported the codification of the foreseeability test for negligence, but with a different formulation from that recommended by the Negligence Review Panel (which was subsequently enacted, see for example Civil Liability Act 2002 (NSW) section 5B): Fourth Ministerial Meeting on Public Liability Insurance: Law Council Briefing, 7 November 2002 at pages Negligence Review Panel, Review of the Law of Negligence: Final Report (2002). The Negligence Review Panel was chaired by the Honourable Justice David Ipp. For convenience, I refer to the legislative changes made in response to this report as the Ipp changes Beyond the Pain Threshold.docx Page 3

4 and statutory rules, which, as I noted above, is usually called common law compensation. Since the case which developed the modern law of negligence, Donoghue v Stevenson, 6 the snail in the bottle case, it has become conventional to say that negligence will be established when a claimant (plaintiff) shows: that the defendant owed the plaintiff a duty of care; that there was a breach of that duty; and the plaintiff suffered damage as a result of the breach. 7 As I have noted, the Ipp changes have codified significant elements of that common law formula in relation to principles of liability and causation. Notwithstanding that partial codification, I believe that the principal functions of negligence law remain today, as the Law Council said in 2002: the compensation function (fair and just recompense for persons injured through fault); the deterrent function (encouragement of safety and risk management); and the corrective justice or responsibility function (a just allocation among wrongdoers of responsibility for compensation). 8 These three functions compensation, promoting safety and allocating responsibility can point in different directions, and the particular state of the law at any one time reflects a balance, set by courts and parliaments, between these three functions. But when you have a glance at what Premier Bob Carr s reforms have done here in NSW, those three very important functions of negligence law have been severely diluted. Fair and just compensation for people injured through fault has become, in many instances, a thing of the past; 6 [1932] AC Law Council of Australia, Second Submission by the Law Council of Australia to the Negligence Review Panel on the Review of the Law of Negligence, 2 September 2002 at page 1. 8 Law Council of Australia, Submission by the Law Council of Australia to the Negligence Review Panel on the Review of the Law of Negligence, 2 August 2002 at pages Beyond the Pain Threshold.docx Page 4

5 Individuals and organisations are no longer being sufficiently deterred from employing poor safety and risk management practices; and Personal responsibility among wrongdoers has virtually gone out the window. To a certain degree, some changes to negligence laws were necessary, we acknowledge that. But as Carr stated recently, in making changes he admits he went even further than the insurers advised him to go. Quite simply, he went way too far! When you look with that trinity compensation, deterrent and responsibility uppermost in your mind, you see, I suggest, that before 2002 in public liability (where there had been less legislative intervention than in the motor accident and workplace fields) these three functions were in a better state of balance than they are now. The tort reforms and how they can be rebalanced The tort reforms begun in 2002 had their origin in the earlier changes to common law entitlements in relation to motor vehicle accidents and workrelated accidents. The Negligence Review Panel, chaired by Justice Ipp, had the previous restrictions on common law before it when they drew up their recommendations. These Ipp recommendations became the inspiration for the changes made in States and Territories. The recommendations were meant to provide a principled basis for reform. 9 The Law Council agrees that amendments to the common law system of compensation should be principled. Unfortunately, the Ipp inspired tort reform has in some cases become an opportunity for further ad hocery rather than for bringing order to the system. This is particularly the case in NSW, as exemplified by Carr s comments that he went further than he needed to go. A current NSW parliamentary inquiry is looking at the personal injury regimes in relation to public liability, workers compensation and motor accidents. 10 The NSW Law Society and Bar Association have both made submissions to that inquiry, and are encouraging reforms of general application which will remove the many disparities between personal injury claims whether they are in the context of public liability, motor accidents or the workplace. 9 Negligence Review Panel, Review of the Law of Negligence: Final Report (2002) at page NSW Legislative Council General Purpose Standing Committee No. 1 s Inquiry into Personal Injury Compensation Legislation Beyond the Pain Threshold.docx Page 5

6 The Law Council has often said that the common law system provides proper compensation to people injured as a result of negligence by someone else. The Law Council has said that because, in relation to damages for negligence, the law s aim is to compensate for loss. It is well understood that the law attempts, in so far as money can, to put the injured party back in the position in which he or she would have been in if he or she had not sustained the wrong which is the subject of compensation. 11 However, because of tort reform this elegantly simple principle has been hedged about with a forest of restrictions, many of which are simply arbitrary. These restrictions include :12 caps on economic loss; thresholds and caps on damages for gratuitous care; and increases in the discount rate on future economic loss to 5% in a number of States, and even higher rates in others despite this being contrary to the recommendation of the Ipp report. 13 A particularly ugly weed in this forest is thresholds on compensation for noneconomic loss, pain and suffering. When people are injured, they have real pain and inconvenience they often can't do the everyday things that make life worthwhile. The defenders of thresholds note that even if a claimant cannot obtain damages for pain and suffering, that there is still a right to claim for medical expenses and economic loss. However, this can be illusory. Those claimants who have no or minimal claims for economic loss or medical expenses, and so for whom pain and suffering would be the most significant part of an award, are particularly affected by steep thresholds, for example as enacted in NSW 14 and Victoria See the summary statement of the law in Nominal Defendant v Gardikiotis (1996) 186 CLR 49 at 54 per McHugh J. Punitive or exemplary damages is an exception to this rule. 12 A convenient summary of tort reform across Australia is in Australian Competition and Consumer Commission, Public liability and professional indemnity insurance: Fourth monitoring report (2005) at Appendix B (pages 49-63) and see also at table 2.1 (pages 8-10). 13 The discount rate is a technical mechanism to reduce a lump sum awarded for future loss or expenses in recognition of the ability of the plaintiff to invest the lump sum to receive income. The higher the discount rate the greater the reduction in damages paid. The Negligence Review Panel commented that using a discount rate higher than can reasonably be justified by reference to the appropriate criteria would be an unfair and entirely arbitrary way of reducing the total damages bill : Review of the Law of Negligence: Final Report (2002) at page 210. The Negligence Review Panel recommended establishing the discount rate at 3% and then being subject to amendment by regulation by an appropriate regulatory body (recommendation 53 in ibid at page 211). 14 For motor accidents, there is a threshold of 10% whole person impairment: Motor Accidents Compensation Act 1999 (NSW) section 131. For public liability claims, the threshold is 15% of the most extreme case: Civil Liability Act 2002 (NSW) section 16. Even if that threshold is reached, however, there is a phase in of the amount payable, so that for example a person who reached 15% would only be entitled to 1% of the maximum amount payable for non-economic loss. Not until a claimant reaches 33% of the most extreme case does he or she receive the full amount of damages for non-economic loss that would otherwise be payable. See the table at sub-section 16(3) of the Civil Liability Act 2002 (NSW) Beyond the Pain Threshold.docx Page 6

7 People in this situation can include children, the unemployed, retirees and stayat-home parents. Dependent on the facts of the case, such claimants can be left in a position where, because of the reduction in entitlement for pain and suffering compensation, it is not economically practical for them to pursue a claim, even if at law they would be entitled to compensation for economic loss or medical expenses. That is why I say that their right to claim for medical expenses and economic loss can be illusory. Specific suggestions for changes to thresholds for non-economic loss in NSW have been made by the NSW Law Society 16 and Bar Association 17 in their submissions to the parliamentary inquiry referred to already. In Victoria, an option would be to include a narrative test in the statutory definition of significant injury in the Wrongs Act 1958 (Vic), so that a claims for non-economic loss would be possible by a public liability claimant if the whole person impairment threshold was not reached but the injury was nevertheless significant. The kinds of reductions on eligibility to compensation I have referred to do nothing to improve the taking of personal responsibility by persons at risk of having accidents. They simply relieve costs for defendants in fact reduce the need for them to take responsibility. And claimants and defendants are not exotic species, they are you and I: everyday as we walk about, drive about, work and play we have the potential to be both victims and wrongdoers. Another point that should be noted, and needs to be watched, is changes to limitation periods. Limitation periods that run while a child is in the care of a parent or guardian put a child claimant at risk to the good sense and prudence of their parent/guardian. Children s interests have been compromised by reform to limitation periods in this area. I think we will need to see whether this effectively prevents claims for sexual abuse being made by children against schools and other institutions it would be understandable for children not to discuss such sensitive issues with their parents. I believe that tort reforms such as those I have referred to are bad not simply because they reduce the effectiveness of compensation, but because to return to the other elements of the threefold objectives of compensation law, there are: 15 For public liability claims in Victoria the threshold is for physical injuries (with certain exceptions) a 5% whole person impairment threshold, and for psychiatric injuries a 10% whole person impairment threshold: Wrongs Act 1958 (Vic) sections 28LB and 28LF. 16 Law Society of NSW, Inquiry Submission: Legislative Council General Purpose Standing Committee No. 1 Inquiry into Personal Injury Compensation Legislation: Submission by the Law Society of New South Wales at pages New South Wales Bar Association Submission to the Legislative Council Standing Committee on the Inquiry into Personal Injuries Compensation Legislation at pages Beyond the Pain Threshold.docx Page 7

8 Transfers of costs that would have been met through insurance held by wrongdoers to the public purse, particularly social security and public hospital costs. That is the allocation of responsibility is not working properly. A potential deterioration in safety standards due to less deterrent bite in tort law. It is probably too early to know yet the effect of this, but the Law Council is concerned that this issue will materialise if a rebalancing of more extreme tort reform is not made soon. Conclusions Today, I have laid out my views on tort reform. Arbitrary restrictions on compensation, particularly thresholds on compensation for pain and suffering, are not changes for the better. Tort reform should not compromise the three objectives of common law compensation: fair and just recompense for persons injured through fault; encouragement of safety and risk management; and a just allocation of responsibility among wrongdoers. Earlier I spoke about insurance being a wonderful concept. And it is. But if you hold dear the notion as I do that if your life is ruined by someone else s negligence, then you will also believe that insurance should help place you back to where you were before that incident occurred. However, this is clearly not happening. Something needs to be done. The law should be rebalanced so as to be fair and sustainable. Because currently the system is out of balance. We must move beyond the pain threshold to a fairer system. Disclaimer: This document remains the property of the Law Council of Australia and should not be reproduced without permission. Please contact the Law Council to arrange a copy of this speech. Elenore Eriksson Director, Public Affairs m e Beyond the Pain Threshold.docx Page 8

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