Tort; remedies; damages; allowance for future inflation.
Facts: Waller, a man aged 35 at the date of the trial, suffered brain damage which rendered him virtually unemployable.
Issue: In assessing damages for loss of earning capacity, and for the cost of goods and services needed in the future because of the plaintiff’s injury, should the court make allowance for future inflation, or the possibility of the plaintiff earning future interest on the sum of damages paid? If so, how is this to be done?
Decision: Damages for future economic loss that are awarded in the form of a lump sum should be adjusted to bring future cash flows to present values.
Reason: Following some disagreement between the presiding judges, a consensus was reached and the court issued a statement to provide a predictable and uniform approach to making appropriate allowances for future inflation, changes in rates of pay, changes in tax rates, etc. The statement said (at 409):
"In an action for damages for personal injury evidence as to the likely course of inflation, or of possible changes in rates of wages or prices, is inadmissible. Where there has been a loss of earning capacity which is likely to lead to financial loss in the future, or where the plaintiff's injuries will make it necessary to expend in the future money to provide medical or other services, or goods necessary for the plaintiff's health or comfort, the present value of the future loss ought to be quantified by adopting a discount rate of 3% in all cases, subject, of course, to any relevant statutory provisions. This rate is intended to make the appropriate allowance for inflation, for future changes in rates of wages generally or of prices, and for tax (either actual or notional) upon income from investment of the sum awarded. No further allowance should be made for these matters."
Note: This common law discount rate has since been adjusted by legislation in the various jurisdictions. For instance, s 14 of the Civil Liability Act 2002 (NSW) sets a discount rate of 5% for future economic loss in damages for personal injury.