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Legal Information Access Centre (LIAC) - Hot Topics |
In New South Wales, the Government response to the ‘public liability crisis’ (see p 5) involved substantial change to the law through the introduction of new legislation and amendment to some existing legislation.
Changes to the law have been implemented in two separate waves. The first, known as Stage 1 reforms, aimed primarily at decreasing the number of claims and the cost of claims by placing limits on the amounts that can be paid in various circumstances. The Stage 2 reforms were far broader and involved a fundamental reassessment of the law of negligence and personal injury.
Most of the Stage 1 reforms were implemented through the passage of the Civil Liability Act 2002 (NSW). The remaining changes, which related to the way in which lawyers can advertise personal injury services, were effected by amending the Legal Profession Regulation 2002.
The Civil Liability Act 2002 (NSW) was assented to in June, but commenced operation on 20 March 2002. This is what is known as ‘retrospective’ legislation. The Civil Liability Act restricts the level of compensation available for personal injury negligence actions by placing limits on general damages and setting out maximum payouts for loss of earning capacity.
The table below summarises these changes.
The Civil Liability Act placed a ‘cap’ (maximum limit) of $350,000 on damages for non-economic loss. (This was subsequently adjusted to $384,500 in line with indexation.) Non-economic loss refers to damages awarded for pain and suffering, commonly known as general damages. Under the Act, the maximum amount can only be awarded in a ‘most extreme case’. There is also a threshold test for the award of non-economic loss, which eliminates small claims. Section 16(1) states that: ‘No damages may be awarded for non-economic loss unless the severity of the non-economic loss is at least 15 per cent of a most extreme case.’
There is also a cap on economic loss, that is, loss of actual earnings and of future earning capacity. The cap is calculated at three times the average weekly earnings. This is the case even if the person was earning more or expected to earn more than that limit. Furthermore, the discount rate to damages for future economic loss increased from three to five per cent, reducing the final figure awarded.
The Act also specifies that aggravated, exemplary and punitive damages cannot be awarded in personal injury negligence cases. This means extra damages cannot be awarded in an attempt to ‘punish’ the defendant for their wrongdoing.
Damages for gratuitous attendant care, that is, unpaid care of a nursing/domestic nature generally carried out by family members, are difficult to obtain. They are reduced or in many cases not available.
Parts of the Stage 1 reforms were aimed at reducing the way that barristers and solicitors advertise personal injury services. This was initially done by amending the Legal Profession Regulation 1994 (NSW). This regulation was subsequently repealed and replaced by the Legal Profession Regulation 2002 (NSW).
Lawyers cannot advertise personal injury services, except in some very restricted ways. For instance, they can have a sign displayed at their place of business that states their name, contact details, and accredited specialty. Similar information can be published in a practitioner directory. The restrictions do not apply in the case of advertising services to existing clients, or to people on the lawyers’ premises, as long as the advertisement cannot be seen from outside the premises. Other exceptions exist: see sections 140 and 140A of the regulation. The regulation stipulates that contravention of the advertising restrictions can amount to professional misconduct.
The Stage 2 reforms were much broader, having a fundamental impact on the law of negligence itself. They were not confined to those issues arising solely from public liability insurance increases; they also had an impact on other personal injury actions such as those relevant to medical indemnity insurance. The Civil Liability Amendment (Personal Responsibility) Act 2002 (NSW) made changes to various Acts, in particular, the Civil Liability Act 2002. Some parts commenced operation on 6 December 2002, others on 10 January 2003.
It is not possible to provide a comprehensive analysis of every reform, but major areas are outlined. Further details can be obtained by reading the legislation. See also the further reading section on page 24. A discussion of whether the reforms have been effective can be found in ‘Conclusion: Are the reforms working?’ (see p22).
The amendments set down various provisions that in some cases confirm the common law, in other cases override previous inconsistencies in the common law. For an outline of the common law of negligence see page 1 Overview.
A new Part IA was inserted into the Civil Liability Act, which was based on recommendations made in the Ipp report (The Review on the Law of Negligence). The effect of section 5B is that a person can only be found to be negligent if:
> the risk was foreseeable (the person knew or ought to have known of the risk); and
> the risk was ‘not insignificant’; and
> a reasonable person in that position would have taken precautions against the risk of harm.
To assist courts in deciding whether a reasonable person would have taken precautions against a risk of harm in those circumstances, the court is to consider:
> the probability that the harm would occur if care were not taken;
> the likely seriousness of the harm;
> the burden (ie, costs and difficulty) of taking precautions to avoid the risk of harm;
> the ‘social utility’ of the activity that creates the risk of harm (whether it can be seen as a ‘worthwhile’ activity).
Section 5C states that the fact that a risk of harm could have been avoided by doing something differently does not of itself give rise to liability for the way things were done. Taking action that would have avoided the risk, after an action has occurred, does not in itself constitute an admission of liability in connection with the risk.
General principles are also set down with regard to causation – the link between a breach of the duty of care and the injury suffered that is required by common law. Under section 5D, two components are required to determine that negligence caused the harm:
> ‘factual causation’ – the negligence was a necessary condition of the occurrence of the harm; and
> ‘scope of liability’ – that is, it is appropriate for the scope of the negligent person’s liability to extend to the harm so caused.
Section 5E places the onus of proof regarding any fact relevant to the issue of causation onto the plaintiff.
Sections were added to the Civil Liability Act to deal with the assumption of risk. This was an area that seemed to have been watered down by the common law over the previous decade. Section 5H states that there is generally no duty to warn of ‘obvious risks’, unless the plaintiff has requested such information from the defendant; or there is a law requiring a warning; or where the defendant is providing professional services.
Obvious risks are defined by s 5F to mean risks that would have been obvious to a reasonable person in that position. A risk of something occurring can be an obvious risk even though it has a low probability of occurring. Risks can be obvious even if the risk (or a condition or circumstance giving rise to the risk) is not prominent, conspicuous, or physically observable.
Injured people are presumed to be aware of obvious risks. It is enough to be aware of the type or kind of risk, even if they are not aware of the precise nature or extent of the risk. Similarly, s 5I says there is no liability in negligence for harm suffered as the result of the materialisation of an ‘inherent risk’. An inherent risk is a risk of something that cannot be avoided by the exercise of reasonable care and skill. However, the section does not exclude liability regarding the duty to warn of such risks.
Section 5R states that the principles applying to whether a person has been negligent also apply to contributory negligence. That is, the standard of care required of the injured person is that of a reasonable person in that position. The matter is determined on the basis of what that person knew or ought to have known at the time.
Section 5S holds that it is open for a court to determine a reduction in damages of 100 per cent if it thinks it just and equitable to do so. The result of this would be that the claim for damages is defeated.
Compensation for personal injury caused by negligence was typically awarded by the courts as a single lump sum. This was also generally the case for settlement agreements. However, the Stage 2 reforms included calls for an alternative to lump sums.
‘Structured settlements’ involve a small lump sum payment plus periodic payments for life. These periodic payments are funded by an annuity, purchased by the defendant (or its insurer) on behalf of the plaintiff. An annuity is a financial product provided by life insurance companies, and makes regular payments. The advantages and disadvantages of structured settlements are summarised in the following table.
Note: one of the main disadvantages of structured settlements was that they attracted tax, whereas a lump sum didn’t – this has since changed. The Taxation Laws Amendment (Structured Settlements and Structured Orders) Act 2002 (Cth) amended the Income Tax Assessment Act 1997 (Cth), the Income Tax Assessment Act 1936 (Cth), and the Life Insurance Act 1995 (Cth).
Periodic payments derived from structured settlements and structured orders entered into on or after 26 September 2001 are tax-exempt.
Structured settlements and orders must meet various criteria in order to receive the favourable tax treatment. There is a compulsory component – a personal injury annuity that provides the injured person with a minimum level of monthly payments for as long as they live. The minimum level of the annuity is equal to the basic age pension and pension supplement. This component is basically for the payment of future medical treatment, nursing care and other living expenses. There are also optional components, including an immediate cash component. This is a lump sum paid immediately so it can be used to pay costs, debts, purchase equipment and so on. Another option is to include a personal injury lump sum – a single premium paid by the defendant or their insurer in return for an agreement to pay a tax-free lump sum at an agreed future date or dates. This can be used to cover expected future costs, such as the upgrading or replacement of equipment.
With the taxation disadvantage settled, structured settlements are gaining popularity. New provisions were added to the Civil Liability Act to further encourage the making of structured settlements.
Section 23 requires the court to give the parties to proceedings a reasonable opportunity to negotiate a structured settlement. Section 24 allows the court to make consent orders for structured settlements. And section 25 places an obligation on legal practitioners to advise plaintiff clients in writing as to the availability of structured settlements and the desirability of their obtaining independent financial advice.
Mental harm means impairment of a person’s mental condition. Part 3 of the Civil Liability Act deals with mental harm arising in connection with personal injury.
Section 29 states that plaintiffs are not prevented from recovering damages simply because the personal injury arose wholly or in part from mental or nervous shock. But then section 30 goes on to outline the limits that exist on recovery for pure mental harm arising from shock. Plaintiffs are not entitled to damages for pure mental harm unless:
> the plaintiff witnessed, at the scene, the victim being killed, injured or put in peril; or
> the plaintiff is a close family member of the victim (that is, parent, spouse, partner, child, or sibling).
The nature of the duty of care owed is further explained in section 32. A person does not owe a duty of care to not cause mental harm unless they ought to have foreseen that a person of ‘normal fortitude’ might, in the circumstances, suffer a recognised psychiatric illness if reasonable care were not taken.
‘Intoxication’ refers to being under the influence of alcohol or a drug, regardless of whether the drug is taken for a medicinal purpose and whether it is taken lawfully.
The effect of intoxication on the duty and standard of care is covered by section 49, which states that:
> in determining whether there is a duty of care, it is not relevant to consider the possibility that intoxication has exposed someone to increased risk because their ability to exercise reasonable care and skill is impaired;
> a person is not owed a duty of care merely because they are intoxicated;
> the fact that someone is intoxicated does not of itself increase the standard of care owed to them.
Section 50 goes on to add that, if the person’s capacity to take reasonable care and skill is impaired due to intoxication, a court is not to award damages unless it is satisfied that the injury is likely to have occurred even if the person had not been intoxicated. In such situations, a person is presumed to have been contributorily negligent unless the court is satisfied that the person’s intoxication did not contribute in any way to the cause of the injury. This section does not apply if the intoxication was not self-induced.
Under the common law, no duty of care is owed to someone who is engaged in criminal activity. This provision was codified in the Civil Liability Act as section 54, and then further amended by Civil Liability Amendment Act 2003. Criminals are not to be awarded damages if the injury or death occurred at the time of or following conduct that, on the balance of probabilities, constitutes a serious offence, where that conduct contributed materially to the injury or risk of injury. If a mentally ill patient commits a serious offence, damages are limited: see section 54A.
As a related matter, the Civil Liability Amendment (Offender Damages) Act 2004 introduced a new Part 2A which came into effect from 19 November 2004. The Part places limitations on the ability of offenders to claim damages for personal injury against ‘protected defendants’ (such as the Crown and its servants) for injuries arising while they are in custody.
The intention of this reform was to protect ‘good Samaritans’ – people who voluntarily help in emergencies – to ensure that such people are not at risk of being judged after the event of not having helped well enough. This was basically already the position at common law, but nevertheless a new Part 8 was added to the Civil Liability Act to specifically deal with good Samaritans.
Section 57 states that a good Samaritan does not incur any personal civil liability regarding their act or omission in an emergency when assisting a person who is apparently injured or at risk of being injured. But there are some situations where the protection does not apply:
> where it was the good Samaritan’s actions that caused the injury or risk of injury in the first place; or
> where the good Samaritan failed to exercise reasonable care and skill because their ability to do so was significantly impaired because they were (voluntarily) intoxicated; or
> where a person is impersonating a health care or emergency services worker or a police officer, or otherwise falsely represents that they have skills in connection with emergency assistance.
A related issue is the protection of volunteers and community organisations for the purposes of ‘community work’. That is, work that is not for private financial gain performed for charitable, sporting, educational or cultural purposes.
Section 61 holds that a volunteer is not liable for any act or omission done in good faith when doing community work organised by a community organisation or as an office holder of a community organisation.
The protection does not apply if (among other things):
> the volunteer was engaged in a criminal offence at the time
> the volunteer was intoxicated
> the volunteer was acting outside the scope of his/her activities or contrary to the community organisation’s instructions.
Also, the requirement for incorporated associations to have $2 million of public liability insurance was repealed from the Associations Incorporation Regulation 1999, on 10 May 2002.
The provisions of Part 10 state that an apology made by a person does not constitute an express or implied admission of fault or liability. Evidence of an apology is not admissible in civil proceedings as evidence of fault or liability in connection with that matter.
A limitation period works by limiting the time within which a plaintiff can commence proceedings. Changes to the Limitation Act 1969 (NSW) mean that a case cannot be brought after the expiration of whichever is the first to expire out of:
> three years running from the date on which the cause of action is discoverable to the plaintiff; or
> twelve years from the time of the act or omission that is alleged to have resulted in the injury.
See section 50C; exceptions exist for minors (section 50E) and cases of disability (section 50F).
The reforms to the law in this area are described under the section headed ‘Sporting bodies’.
This is dealt with under the section headed ‘Public authorities’.
For details, please refer to section headed ‘Medical negligence’.
Matter restricted Cap or restriction Section of Act
cap on non-economic loss $350,000 s 16(2)
(general damages or pain and suffering) (later adjusted to $384,500)threshold for access to non-economic loss 15% of a most extreme case s 16(1)
cap on economic loss 3 2 average weekly earnings s 12(2)
(loss of earnings and earning capacity)discount to damages for future economic loss 5% s 14(2)
exemplary, punitive and aggravated damages cannot be awarded for negligence s 21
family care (gratuitous attendant care) reduced or not available s 15
Advantages of structured settlements
> plaintiff benefits from an increased after-tax award of compensation and a cash flow that can be guaranteed for life
> a structured settlement can be linked to inflation ensuring its adequacy over the years
> compensation payout is not susceptible to the fluctuating investment returns of an investment lump sum
> structured settlements are flexible
> defendant’s insurer will have to pay less money overall in compensation if it is paid in instalments rather than in a lump sum (estimates range between 10 to 15 % lower cost than lump sum)
> plaintiffs who deplete their lump sum early often turn to the social security system, therefore the Federal Government will benefit from the use of structured settlements through reduced welfare payments (despite lower tax receipts)
> structured settlements shift the risk of living too long from the plaintiff to life insurance companies, which are better able to handle that risk
Disadvantages of structured settlements
> annuities that make up part of structured settlements incur tax, whereas lump sum payments are non-taxable (this has since changed – see note below)
> lump sums provide greater flexibility and choice in determining how a compensation payment is best spent than structured settlements
> a lump sum payment offers a plaintiff greater potential to change his or her lifestyles or career after an injury, which is critical to recovery for many patients
> lump sum payments provide certainty and finality to litigation
> possible psychological benefit in receiving a lump sum payout, in terms of empowering a plaintiff to take control of his or her life
> possible associated costs of administering structured settlements
> risk that the provider of an annuity may go bankrupt
(Source: Lozusic R, Public Liability – an update: Briefing Paper 11/2002, Parliament of New South Wales, pp 21-2)
Name of Act Act amended Date of Effect What the changes mean
Commonwealth
Taxation Laws Amendment Income Tax Assessment 19 Dec 2002 removes tax barriers to structured settlements
(Structured Settlements and Act 1997 Structured Orders) Act 2002Trade Practices Amendment Trade Practices Act 1974 19 Dec 2002 allows people to sign waivers and assume the risk of
(Liability for Recreational participating in risky recreational activities Services) Act 2002Commonwealth Volunteers 24 Aug 2003 exempts Commonwealth volunteers from liability
Protection Act 2002Trade Practices Amendment Trade Practices Act 1974 13 July 2004 prevents claims for damages for injuries or death
(Personal Injuries and Death) resulting from contraventions the Trade Practices Act Bill 2003 1974New South Wales
Civil Liability Act 2002 20 March 2002 > upper limits imposed for non-economic loss
($350,000) and lost earnings (three times NSW average weekly earnings) > application of a threshold of 15% impairment for general damagesCivil Liability Amendment Civil Liability Act 2002 6 Dec 2002 for > allows people to sign waivers and take personal (Personal Responsibility) most, Sch 1[5] responsibility for risk
Act 2002 1 Dec 2003 > protects volunteers and ‘good Samaritans’ > ensures that saying ‘sorry’ does not represent an admission of guilt > imposes new limitation periods for personal injury casesCivil Liability Amendment Civil Liability Act 2002 19 Dec 2003, > no damages to be awarded for the costs of rearing
Act 2003 except Sch 2 on a child (unless child has disability) 1 Dec 2004 > criminals cannot be awarded damagesCivil Liability Amendment Civil Liability Act 2002 > deals with damages for negligence for death or injury
(Offender Damages) Act 2004 suffered by offenders in custodyCivil Liability Amendment Civil Liability Act 2002 > deals further with damages for negligence for death or
(Offender Damages) Act 2005 injury suffered by offenders in custody*Note: This table does not include legislation relating to workers compensation accidents or motor vehicle accidents.
> Civil Law (Wrongs) Amendment Act 2003
> Civil Law (Wrongs) (Proportionate Liability and Professional Standards) Amendment Act 2004
> Consumer Affairs and Fair Trading (Amendment) Act 2003
> Personal Injuries (Civil Claims) Act 2003
> Personal Injuries Proceedings Act 2002
> Wrongs (Liability and Damages for Personal Injury) Amendment Act 2002
> Statutes Amendment (Structured Settlements) Act 2002
> Recreational Services (Limitation of Liability) Act 2002
> Law Reform (Ipp Recommendations) Amendment Act 2000
> Wrongs and Other Acts (Public Liability Insurance Reform) Act 2002
> Wrongs and Limitation of Actions Acts (Insurance Reform) Act 2003
> Wrongs and Other Acts (Law of Negligence) Act 2003
> Civil Liability Amendment Act 2003
> Volunteers (Protection from Liability) Act 2002
HOT TIP
NSW legislation is available at www.legislation.nsw.gov.au Select ‘Browse in Force’ option.
HOT TIP
Contributory negligence refers to the issue of whether the person injured was partly (or wholly) responsible for their injury due to their own negligence. That is, they themselves may also have been to blame for failing to take precautions against the risk of harm. Not looking where they were going, running over a wet surface while wearing slippery shoes, swimming in dangerous waters – these are all examples of possible contributory negligence.
HOT TIP
Structured settlements are the result of an agreement between parties, while structured orders are the result of a court order, often without agreement by the parties.