Abolish the tort law lottery

Richard Ackland blogs writes about the Swain High Court decision in today’s SMH. You know, the bloke who got $3.75 million for diving into a sandbank between the flags at Bondi Beach and making himself a quadriplegic.

Ackland apparently shares my bemusement about the basis for the High Court majority’s decision, but still labels the legally-correct McHugh and Heydon JJ as “flinty“. But Ackland fails to note that the majority’s decision blatantly ignores existing authority and shifts the burden of disproof of negligence to the defendant local council even though the plaintiff Swain hadn’t made out a prima facie case for negligence (because he hadn’t established both that there was a foreseeable risk of injury from the placement of the swimming flags and that there was some practical and safer alternative). I suspect that this is one of those cases that will eventually be “distinguished and confined to its own facts” as lawyers euphemistically refer to wrong decisions by our highest court.

More interestingly, Ackland also muses in passing about whether a no-fault injury compensation scheme (like New Zealand) might be a better alternative to the existing expensive tort law lottery. He contrasts the Swain case with that of Glenn Ollier:

At least Swain has something to go on with, unlike Glenn Ollier, who was struck on the head by a golf ball hit by Mark Shanahan at the Magnetic Island Country Club near Townsville. Ollier is severely brain damaged as a result, and the Queensland Supreme Court awarded him $2.6 million. The club is not liable but Mr Shanahan is, although he has no money. It is unlikely that the victim will see much by way of damages or compensation.

There is something profoundly out of whack with a system that produces such divergent outcomes. Yet we see the president of the Law Council of Australia, John North, who is terrific in most respects, arguing against a no-fault compensation scheme for the catastrophically injured: “The common law system provides proper compensation to people injured as a result of negligence by someone else.”

Not if you’re Mr Ollier it doesn’t.

Precisely. Why is there little or no public debate about the desirability or otherwise of a universal no-fault injury compensation system? Especially with Labor governments in all States, because this is quintessentially an area of State responsibility. Such a system seems to be working quite well in New Zealand after some initial teething problems, as this article discusses:

The compensation of crime victims in New Zealand differs from other countries in that crime victims are treated in the same way as other accident victims. All are compensated as part of the no fault 24-hour cover accident compensation scheme.

The scheme provides compensation for those who suffer personal injury and it does not matter whether the injury was caused by a careless motorist or doctor, by the victim’s own fault in skiing too fast or by a criminal in a deliberate assault. All that has to be shown is that the victim suffered a personal injury that has cover under the Act. Personal injury is defined as physical injury and includes any mental injury which is an outcome of the physical injuries.

Benefits available to injured persons include: weekly compensation; an independence allowance; cover for medical costs; and, rehabilitation assistance. Whilst the benefits available in fatal claims include: surviving spouse weekly compensation; and, compensation for each child under 18 (or 21 if studying). Other payments include a survivor’s grant and a funeral grant.

The scheme is funded from premiums paid by motorists, employers and earners. The Government also makes a contribution for injuries which cannot be attributed to the above categories (for example non earners).

As the scheme has replaced workers compensation and the common law action for damages, employers, motorists and others no longer have to take out insurance against being sued in court for damages for personal injury. Thus in effect the scheme is mainly funded by transferring the insurance premiums that were previously being paid to various insurance companies into one central organisation: the Accident Compensation Corporation (ACC).

The scheme is fully funded, although it wasn’t until 1999 and there’s still a significant accumulated shortfall liability from those earlier days. It also seems to compare favourably in cost with the Australian tort-based system. Administration costs are much lower, and the huge litigation legal costs of Australian are non-existent (which means the legal profession opposes it). And the cost to employers and others funders of the scheme seems to be about the same as a tort-based system.

That is because the scheme is a trade-off. Everyone gets covered, but there are no big lump sums for pain and suffering, permanent impairment, loss of amenity and the like. Weekly benefits are fixed at 80% of the individual’s ordinary weekly earnings, but only to a capped amount (I think it’s presently around $70,000 pa or thereabouts, but I can’t find any reference to the cap on the ACC website). Thus higher income earners (and not all that high) are clearly under-compensated compared with a successful plaintiff in a tort-based system like Australia’s.

Personally I think such a system is worthy of serious consideration, which is why I’m blogging about it. This article by Hassan El Menyawi in Murdoch University’s E-Law journal summarises the arguments for and against a no fault injury compensation system.

The main argument against is that a no-fault system removes any deterrent/punishment/incentives for employers etc to take steps to minimise risks of injury in workplaces and the like. But it isn’t as powerful an argument as it might seem at first blush. Even under our existing tort-based system, the incentives for risk minimisation are fairly marginal. Insurance premiums in most sectors are set on an industry-wide basis, so individual operators can do little or nothing to reduce their insurance premium costs. Moreover, New Zealand’s scheme duplicates this aspect anyway, with differing annual compensation levy levels to the ACC depending on the risk profile of the industry concerned.

As far as I can see, the option of no-fault injury compensation wasn’t canvassed at all (and certainly not seriously) when tort law reform was all the rage a couple of years ago in the wake of September 11 and the HIH crash. I’ll be stuffed if I know why; it seems such an eminently sensible measure. Come to think of it, I reckon I do know the reason. It’s drastically contrary to the interests of the legal profession and the insurance industry, and most other businesses would benefit only marginally. And the rest of us aren’t interested in these sorts of issues because we don’t think we’ll ever get injured and incapacitated. And we’re just isolated individuals anyway without the power of an industry lobby behind us.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
This entry was posted in Law. Bookmark the permalink.
Subscribe
Notify of
guest
8 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Ken Miles
2022 years ago

Two observations about the NZ system (which I favour):

* Sometimes big payouts are made. If memory serves me correct, the survivor from the Caves Creek disaster got a big payout from the Department of Conservation.

* I suspect that NZ’s adventure tourism industry has grown significantly because of the no-faults system. While the adventure tourism industry does periodically kill/seriously injure someone, I don’t think that you could run this sort of thing without the odd accident.

Manas
2022 years ago

I must say, my foremost concern when reading this was the issue of workers’ comp. I think my reaction is primarily the result of my fundamental belief that employers need to take far more responsibility than they do currently to ensure that workplaces are safe, to minimise the risk of accidents.

Also, I’m curious as to exactly what falls within the ambit of ‘no-fault injury’. Does, for instance, being hit by a passing motorist fall within that, as your piece suggests? What kinds of accidents (even if technically there is someone ‘at fault’) fall within the compensable boundary?

I’m also curious – would you see it as subsuming industrial manslaughter legislation?

And further – is there an ethical debate to be had about whether such a scheme would decrease the responsibility people take in their own actions? I’m not sure myself, I’m just musing.

Law student that I am, I couldn’t give a toss about the law profession making lots of money, so that’s not my concern. The scheme does sound considerably better than relying on the court system to deliver a fair and equitable outcome in the raft of cases about people whacking their heads on the beach when they swim, and so forth, which as you say are delivering very divergent judgments.

Ken Miles
2022 years ago

Also, I’m curious as to exactly what falls within the ambit of ‘no-fault injury’. Does, for instance, being hit by a passing motorist fall within that, as your piece suggests?

An Australian friend on mine was biking through NZ and got hit by a car (breaking a arm). ACC compensated her, even when she returned to Australia.

Francis Xavier Holden
2022 years ago

Theres no reason why with a no fault system there still couldn’t be a premium / penalty based on risk and claims rates froma workplace.

Even though here in VIC WorkCover has industry based rates there is still significant incentives for workplaces to lower claims and improve return to work rates.

Ken Parish
Ken Parish
2022 years ago

Carita

Ken Miles is correct. The NT also has a no fault Motor Accidents Compensation (MACA) scheme that operates very much like workers’ compo, and that covers all road users including interstate and overseas visitors. The NZ scheme really just extends the familiar workers comp and MACA-type schemes to cover all injuries to the person wherever and however they occur (although the NZ scheme doesn’t cover purely psychological injuries), including by crime or medical negligence, as well as occupiers liability claims, claims against recreation providers, local councils etc etc.

I think we should regard issues of workplace safety etc as distinct from the compensation system. As I said in the main post, the existing industry-wide system of premium setting really doesn’t create any incentive for businesses to improve safety anyway (although, as Francis observed, it would theoretically be possible to set premiums on a business by business basis). I would expect that bodies like Work Health Authority (as it’s called in the NT) would continue to enforce workplace safety regulation irrespective of the type of injury compensation regime in place, and similarly there’s no reason why industrial manslaughter laws ought not to apply. Compensation of injured people and regulation of safety are logically distinct functions.

tim miller
2022 years ago

I am not related to John Miller, the author of the document discussing the origins and workings of the ACC in NZ. I am however a kiwi who has both benefitted and suffered from the ACC system. I am also aware of the large number of “ripoffs” that occur from the system, though the recent moves to limit the payouts have reduced that somewhat. However the weekly payment scheme is still being rorted heavily. The reason for the ACC’s lack of full funding and its current carriage of liability from previous years is that it all but bankrupted itself. Hopefully the annuity type program now will allow the capital fund reserves the ability to generate the income needed to meet ongoing payment committments.
The missing information in this discussion so far is the inherent unfairness of the system.
Sure anybody is covered and the cases of non payment (like ollier mentioned above) dont exist, but likewise swain would never have received his abnormally huge payout either.
no the unfairness is the forced opt in. The concept of insurance from its earliest days was the gathering of like minded people financially to cover risk. Lloyds was established on this basis. All insurance around the world works this way. You choose to join and your premium is the cost of joining as an assesment of the additioanl risk you bring to the pool.
With ACC there is no choice. You are forced to pay (its deducted from your wages at source, or if you are an employer levied from you additional to the wage deduction).
The arguments for and against go like this:
If you are a careful manager of risk then you are unfairly ‘taxed’ or levied for an insurance you didnt need and may not have chosen to take given the choice.
if perchance you are the victim of crime, misfortune or pure accident then you are covered – fortunately though you did not prepare for that.
If however – and this is the one that bites – you are plain stupid, careless, accident prone or a worthy recipient of a darwin award, then you are covered for no additional cost even though you bring a greater risk to the pool. (there is no premium increase for continued multiple claims.) You may not even contribute (being a welfare recipient for example – i’m not picking on them so don’t argue this point) but are still covered once again where you may have not chosen or been able to financially afford to do so.
Would be interested in further comments

ctd
ctd
2022 years ago

Of course, some argue that Australia has some sort of no fault scheme, in that as a last resort people are covered by Medicare/social security etc. Its at a lower level (eg disabled pension is rarely 80% of your income). Plus we already have workers comp to cover work place accidents. Those and motor vehicle accidents are the majority.

The other issue is this: if you are not at fault and suffer injury (someone runs a red light, for example), your loss is not just income. It might be pain for the rest of your life. It might be a need for assistance around the house, modifications to your living environment, a new car. It might cause you to change jobs or your spouse to reduce working hours to look after you. All sorts of things.

Is it ‘fair’ that a life changing accident that was not your fault results in you getting only a reduced income and your medical expenses covered. Dont you deserve some other compensation (general damages, for example, or home care assistance payments) for what has happened to you?

The argument is that, in return for giving up all those additional payments that might assist you, a person who was at fault (the guy who crashed into you, for example) gets money and may well get more money than you (if they had a higher income, perhaps).

Now its a diffcult question – the greater good for the greater number results in a no fault scheme. But what about ‘responsibility’ and compensation for things that aren’t your fault?

Plus all the practical issues – rorting, what comes within cover (all injuries? what if I cut my hand building a new deck at home? etc).

Also – the point everyone seems to miss about the Swain case is that the High Court did not ‘uphold’ the verdict as such. What the court said is that it was not unreasonable, on the evidence, for the JURY (that is, not the lawyers or the judges) to find there was negligence. The court of appeal said the jury was unreasonable; the High Court (some of them reluctantly) said the question was one for the jury and the jury decision could not be challenged in the circumstances. I think the judgment made it pretty clear that none of the judges actually thought the decision was correct but they were not asked to decide that. All they decided was that it was open for a jury to have made that decision.

Something for anyone who supports the criminal jury system.

Ken Parish
Ken Parish
2022 years ago

The rorting issue is a potential problem for any no-fault system (e.g. workers comp and MACA where it exists) and to a lesser extent common law as well. There is no reason in principle why a ACC-type body couldn’t employ just as many private detectives as insurance companies do to detect fraud and malingering. Indeed, paying wekly benefits on an ongoing basis, as opposed to a once-only lump sum verdict at common law, provides an ongoing opportunity to detect fraud.

Responsibility (of the defendant) is an issue I covered in the primary post. The structure of setting insurance premiums at present doesn’t really provide any incentive towards responsible behaviour (safe practices and premises etc) in any event. Safety is better viewed as a separate issue from compensation.

If you mean responsible behaviour by plaintiffs, then you’re simply arguing against a no fault system per se. The principal feature of a no fault system is that people are covered even though they may have been adjudged wholly or partially at fault in a common law system. But “deserving” litigants (i.e. those who weren’t at fault at all, but couldn’t recover at common law because they were injured by someone with no insurance or assets) can also recover in a no fault system. It’s primarily these people I would like to see covered.

One might argue that there’s no reason why we should cover all people who are injured, but exclude those who suffer purely psychiatric injuries, and also exclude people who suffer catastrophic illness (as opposed to accident). Why should people who suffer injury/accident be covered for 80% of ordinary earnings irrespective of fault, whereas people who suffer illness must rely on social security and Medicare (and/or accumulated sick leave), unless they’ve taken out disability insurance? It’s a good question to which I don’t have a really good answer. But the reality is that any system must draw a line somewhere, and the cost of a universal disability scheme for both accident and illness would be vastly higher than one covering just accidents and excluding purely psychiatric injuries. So a system confined to acident is unavoidably arbitrary but has the advatnage of financial expedience.

Leaving it to the chance of finding a defendant with assets or insurance, as the common law does, is a lottery. The winners win big, but the losers (who are just as deserving and desperate) miss out completely. Moreover, I am really just advocating extension of existing no-fault workers comp and MACA systems to cover occupiers liability, product liability and medical negligence. Most potential defendants are insured against such risks anyway, so I’m really just advocating a shift in the destination of premiums, with a moderate cap on claims (for high income earners + severe limits on lump sums for pain and suffering ec) as a trade-off for making benefits available to all injured people.

On the question of the High Court Swain decision, I’m simply arguing (like McHugh J and Heydon J) that properly regarded it WASN’T open to a jury to find negligence, because the plaintiff had not discharged the onus of showing that not only was there a foreseeable risk of injury from placement of the flags, but that there was somewhere else safer where they could have been positioned. The judge should have directed the jury to that effect (as the Court of appeal found). The High Court majority only avoided that conclusion by holding that it was open to the jury to find negligence despite the second part of the above not being proven nor any evidence of it adduced. A jury is only entitled to find negligence in the absence of any evidence of a safer alternative if it is self-evident that that is the case or they’re entitled to rely on their lay knowledge to reach that conclusion. Neither was the case here. The majority perverted existing principles in order to find for the plaintiff/appellant.