Redding v Lee
151 CLR 11747 ALR 241
(Judgment by: MURPHY J)
Between: REDDING
And: LEE
Between: EVANS
And: MULLER
Judges:
Gibbs C.J.
Mason J.
Murphy J.Wilson J.
Brennan J.
Deane J.
Dawson J.
Subject References:
Damages
Judgment date: 19 May 1983 NBERRA
Judgment by:
MURPHY J
The question is whether, in assessments of damages for personal injury, awards should be reduced by offsetting Commonwealth invalid pensions and unemployment benefits against loss of earnings or earning capacity.
The general principle is that the measure of damages is restitution; the injured party is compensated so as to restore him or her, as far as can reasonably be done, to the circumstances he or she would be in if not injured. Non-financial loss, such as permanent physical injury is compensated by subjective assessment. Loss of earning capacity is met by award of an amount payable by the wrongdoer which is intended accurately to replace the loss. Whether payments made to or benefits conferred on the plaintiff from other sources are to be offset in an assessment against such loss is a continuing problem.
Various national legal systems have adopted one or other of four main solutions (see Fleming, "Collateral Benefits" in International Encyclopaedia of Comparative Law (Torts), vol. XI, Ch. 11 (1971)).
By one, adopted under early Anglo-American workers' compensation laws, the injured person was put to his or her election between recourse against the tortfeasor or accepting compensation from the "collateral source". In practice this gave little choice to a victim who needed compensation immediately. This solution has gradually fallen into disfavour (Sykes and Yerbury, Labour Law in Australia, vol. 1, "Individual Aspects" (1980), pp. 310-316; Fleming, p 6).
By a second, adopted by many Scandinavian countries (see Ussing "The Scandinavian Law of Torts - Impact of Insurance on Tort Law", Am. Jo. of Comparative Law, vol. 1 (1952), p. 359; Kruse "The Scandinavian Law of Torts - Theory and Practice in the Twentieth Century", Am. Jo. of Comparative Law, vol. 18 (1970) 58, at p 77; Fleming, p. 47), assessments of damages may be reduced by the amount of any collateral benefit without providing for reimbursement to the collateral source.
A third, which Fleming describes as in a "marked position of ascendency as the most widely favoured solution" (p. 16) involves reimbursement of the collateral source, in this case public funds for social service payments, by means of repayment, subrogation or indemnity. This has been authorized by social security statutes in many countries including France, Germany, Belgium, Israel, Japan and New Zealand (Fleming, pp. 21-24 and 43-46; Social Security Act 1964 (N.Z.) s. 71(1)(b)).
A fourth allows the injured person to cumulate benefits and damages even in excess of his or her loss. The United States has adopted this as a general solution. This is the "collateral source" rule and has been in use since 1854 (see The Propeller Monticello v. Mollison (1855) 58 US (17 How) 153 (15 Law Ed 68) ). There has been a general acceptance that it should apply to payments such as private charity and plaintiff's insurance. It has also been generally applied to receipts from public funds, for example unemployment benefits (Kurta v. Probelske (1949) 36 NW2d 889 ), disability pension payments (Eichel v New York Central Railroad Co (1963) 375 US 253 (11 Law Ed 307) ), United States Employment Service disability payments (Gersick v Shilling (1950) 218 P2d 583 ), social security payments and veterans' pension payments (A H Bull Steamship Co v Ligon (1960) 285 F2d 936); Stein Damages and Recovery: Personal Injury and Death Actions (1972), pp 321-322; 22 Am Jurisprudence 2d, Damages, ss 206- 211).
The collateral source rule has also largely prevailed in Australia though with some exceptions that do not exist in the United States. Thus in National Insurance Co. of New Zealand v. Espagne (1961) 105 CLR 569 , a statutory pension for the blind was held to be in the nature of a bounty on humanitarian grounds, and not to be taken into account in assessing damages. Espagne has been followed by this Court in relation to private superannuation funds in Graham v. Baker (1961) 106 CLR 340 ; Ramsay v. Watson (1961) 108 CLR 642 and Jones v. Gleeson (1965) 39 ALJR 258. The decision has also been applied, not always consistently, to other social welfare benefits in the Supreme Courts of the States. It has been applied to widows pensions (Vaughan v. Olver (1977) Qd R1 ; Lindquist v. Maier (1980) Qd R203 ), bushfire relief payments (Wollington v. State Electricity Commission of Victoria (No. 2) (1980) VR 91 ) and to invalid pensions or benefits (Fearnley v. Griffiths (1975) 10 SASR 236 ; Donaldson v. Korostovetz (1980) Qd R 294 ; Tsanaktsidis v. Oulianoff (1980) 24 SASR 500 ). However there has been a tendency to take unemployment benefits into account (see Tuncel v. Renown Plate Co. Pty. Ltd. (1976) VR 501 ; Cobb v. O'Donoghue (1980) Qd R 402 ; McIntosh v. Mair (1979) 21 SASR 150 ; Vassilef v. B.G.C. Marine Services (NSW) Pty. Ltd. (1980) Qd R 21 ; Luntz, Assessment of Damages for Personal Injury and Death, 2nd ed. (1983), pp. 380-381; but see Henman v. Stephenson (1980) Qd R 410 ; Canny v. John Pfeiffer Pty. Ltd. (1979) 37 FLR 105 ; 28 ACTR 11 and Morley v. Murray (1980) 42 FLR 271 ; 31 ACTR 25 ).
Espagne (1961) 105 CLR 569 has also been accepted in the United Kingdom (see Parry v. Cleaver (1970) AC 1 ; Daish v. Wauton [1972] 2 QB 262 and Lincoln v. Hayman (1982) 1 WLR 488 ; [1982] 2 All ER 819 ). English law, however, has never subscribed unreservedly, to the "collateral source" rule. Under the Law Reform (Personal Injuries) Act 1948 (UK) half of the specified social security benefits received during the first five years of incapacity are taken into account in an assessment of damages (see Atiyah, "Collateral Benefits Again", Modern Law Review, vol. 32 (1969) 397, at p 406)
The rationale for a differential treatment of pensions and unemployment benefits under the Australian system is not obvious, especially where recipients of invalid pensions who originally lost jobs because of injury might have become unemployed anyway during the period in question because of economic conditions.
Application of the "collateral source" rule so that a plaintiff receives benefits from public funds, in addition to full compensation from the wrongdoer, is hard to reconcile with the principle of restitution. In the Australian social welfare system invalid pensions and unemployment benefits represent replacement, or part replacement, of earnings "lost" because of sickness or unemployment. If, under an award of damages, a person receives and retains compensation for lost earnings (or "lost earning capacity") of an amount equal to or greater than the amount of social welfare benefits paid to him or her over the same period then the system is not operating rationally. Social welfare benefits are a heavy burden on the community, especially during the present widespread and persisting unemployment. It appears socially unjust for the recipient to retain the benefits as well as full recovery of lost earnings. As Fleming writes:
"Aside from the U.S.A. the world's Social Security systems adhere with almost undeviating consistency to the overriding philosophy that beneficiaries should not be permitted to enrich themselves through cumulative recoveries"
Where social welfare benefits are low, ignoring them when assessing damages may do rough justice because often other factors which should appreciably offset the benefits are not taken into account, such as costs of attempts to gain work (although these may be recoverable as costs of attempting to mitigate the damage; see Rench v. Hayes Equipment Manufacturing Co. (1932) 8 P2d 346 ). Also, many workers who lose earnings by industrial or road accidents cannot maintain their standard of living on an invalid pension or unemployment benefits and must borrow (at high interest) or use up savings (as I pointed out in Kaufmann v. Van Rymenant (1975) 49 ALJR 227, at p 229 ). Those losses are not fully compensated by orders for payment of interest. However where the benefits are higher because the injured worker has a dependent spouse or spouse and children, these offsets will generally be relatively less. Often cases take three or four years from accident to trial so that the amount in question may be substantial; amounts of the order of twenty or thirty thousand dollars will not be rare.
Almost all awards are met by insurers. If the benefits are taken into account to reduce the award, the defendant's insurer is advantaged. This may seem anomalous, but if it reduces insurance costs, in theory, the public should benefit. One disadvantage of this is that lowering the awards will tend to reduce the pressure for action to reduce deaths and personal injuries on the roads and in work places (to which I referred in Todorovic v. Waller (1981) 150 CLR 402 ). Another disadvantage is the strong incentive for insurers to delay the assessment (by trial or settlement). In general, plaintiffs, anxious to obtain an award including amounts for pain and suffering, do not have an incentive to delay.
Since Espagne's Case (1961) 105 CLR 569 the social welfare legislation has been amended many times, without purporting to supersede its ruling, from which it is proper to infer that it has been accepted by the legislature. A coherent solution of the problem consistent with Espagne's Case can only be achieved by legislation. When assessing pre-trial loss there is no real justification for distinguishing between sickness benefits, invalid pensions, unemployment benefits or workers' compensation. Pre-trial benefits should be repayable to the Commonwealth just as there is return of workers' compensation payments when a plaintiff receives a verdict for damages under State or federal legislation (see for example, Workers Compensation Act 1926 (NSW) s. 64(a); Workers' Compensation Act 1958 (Vict.) s. 79(3A); Workers' Compensation Acts 1916-1965 (Q.) Schedule 1 c. 24A(2); Compensation (Commonwealth Government Employees) Act 1971 (Cth) s. 99(7)). This is already done, but not so definitely and directly, in respect of some other federal benefits. Thus sickness benefits, and rehabilitation training and treatment costs, are recoverable under the Social Security Act (Cth) 1947 s. 115(4) and s. 135R(1A). However, the Director-General of Social Security has a discretion to release a person from the liability if satisfied that "special circumstances" exist (ss. 114(4A), 135R(1B)).
My conclusion is that pre-trial amounts of invalid pension and unemployment benefits should not be taken into account in an assessment of damages.
This case demonstrates starkly the desirability of federal legislation for recoupment of social service benefits out of awards. Such recoupment may need to allow for factors such as reduction of awards due to contributory negligence, and also for special circumstances.
The appeals should be dismissed.