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REPORT 

ON 

COMPENSATION FOR PERSONAL INJURIES AND DEATH 

ONTARIO LAW REFORM COMMISSION 




Ministry of the 1987 

Attorney 

General 






REPORT 

ON 

COMPENSATION FOR PERSONAL INJURIES AND DEATH 

ONTARIO LAW REFORM COMMISSION 




Ministry of the 1987 

Attorney 

General 



The Ontario Law Reform Commission was established by the Ontario 
Law Reform Commission Act for the purpose of reforming the law, legal 
procedures, and legal institutions. The Commissioners are: 



James R. Breithaupt, CStJ, CD, QC, MA, LLB, Chairman 

H. Allan Leal, OC, QC, LSM, LLM, LLD, DCL, Vice Chairman 

Earl A. Cherniak, QC 

J. Robert S. Prichard, MBA, LLM 

Margaret A. Ross, BA(Hon.), LLB 



M. Patricia Richardson, MA, LLB, is Counsel to the Commission. The 
Commission's office is located on the Fifteenth Floor at 18 King Street East, 
Toronto, Ontario, Canada, M5C 1C5. 



ISBN 0-7729-3319-7 



TABLE OF CONTENTS 

Page 

Letter of Transmittal ix 

Foreword 1 

Chapter 1 Introduction 3 

Chapter 2 Loss of Working Capacity 13 

1. General Introduction 13 

2. History and Current Law 13 

(a) Introduction 13 

(b) Fatal Injuries 14 

(i) Claims by the Estate for Loss of Earning 

Capacity 14 

(ii) Third Party Claims under the Family Law 

Act, 1986, Part V 15 

a. General 15 

b. Loss of Monetary Contributions 17 

c. Loss of Guidance, Care and 
Companionship 18 

d. Loss of Services 21 

(c) Non-Fatal Injuries 22 

(i) Claims by the Injured Person for Loss of 

Earning Capacity 22 

(ii) Third Party Claims under the Family Law 
Act, 1986, Part V, for Loss of Monetary 
Contributions, Services, and Guidance, Care 

and Companionship 22 

3. Problems with the Existing Law 24 

4. Who Should Be Able to Claim for Loss of Working 

Capacity? 29 

(a) A Proposal for Reform 29 

(b) Claims for Guidance, Care and Companionship 31 

(c) Possible Objections 35 

(d) Conclusions 36 

5. Earning Capacity 36 

(a) Current Law 36 

[iii] 



IV 



(b) Recommendations 42 

6. Capacity to Provide Household Services 43 

(a) Current Law 43 

(b) Approaches to Valuation: Opportunity Cost vs. 
Replacement Cost as the Measure of Damages 45 

(c) Recommendations 48 

7. Deductions from Working Capacity 49 

(a) Income Taxation 50 

(b) Cost of Earning 55 

(c) Personal Living Expenses 56 

8. Distribution of the Damages Award for Loss of Working 
Capacity 59 

9. Claims by Employers for Loss of Services 66 

10. Statement of Dissent and Explanation by Margaret A. 

Ross 70 

Recommendations 74 

Chapter 3 Damages for Non-Pecuniary Loss 79 

1. Introduction 79 

2. The Notion of Non-Pecuniary Loss 81 

3. The Purpose of Damages for Non-Pecuniary Loss 82 

(a) Introduction 82 

(b) Pain and Suffering , 82 

(c) Loss of Amenities and Shortened Expectation of Life 83 

(d) Conclusion 84 

4. Survival of Actions 86 

5. Other Jurisdictions 89 

(a) Canada 90 

(b) United Kingdom 93 

(c) New Zealand 97 

(d) Australia 97 

(e) United States 98 

6. Arguments Against the Approach in the Trilogy 99 

7. Conclusions 105 

(a) The Approach in the Trilogy 105 

(b) Jury Assessment of Damage Awards 108 



(c) Survival of Actions 109 

(d) Mental Distress 112 

Recommendations 114 

Chapter 4 Cost of Care 115 

1. Introduction 115 

2. Standard of Care 116 

(a) Introduction 116 

(b) Current Law 116 

(c) Conclusions 125 

3. Income Tax and Gross-Up 127 

(a) Introduction 127 

(b) Current Law 129 

(i) Entitlement 129 

(ii) Calculation: Influential Factors 131 

a. Rate of Future Inflation 133 

b. Income Tax Rules 134 

c. Nature of Investments 135 

d. Rate of Withdrawal 137 

e. Amount of Other Income 137 

(c) Deficiencies in the Current Law 138 

(d) Recommendations 139 

(i) Preferred Approach— Amendment of Tax 

Laws 139 

(ii) Alternative Approach— Standardization of 

Gross-Up Assumptions 141 

a. Rate of Future Inflation 142 

b. Income Tax Rules 143 

c. Nature of Investments 143 

d. Return on Investment 143 

e. Rate of Withdrawal 144 

f. Amount of Other Income 145 

g. Implementation and Review 146 

4. Duplication of Living Costs 147 

5. Third Party Claims 149 

Recommendations 152 



VI 



Chapter 5 Reviewable Periodic Payments 155 

1. Introduction 155 

2. The Arguments For and Against Periodic Payment of 
Damages 158 

3. Approaches in Other Jurisdictions 163 

(a) Manitoba 163 

(b) England 165 

(i) The Law Commission 165 

(ii) Royal Commission on Civil Liability and 

Compensation for Personal Injury ("Pearson 

Commission") 166 

(c) Australia 169 

4. Conclusions 170 

5. Statement of Dissent and Explanation by H. Allan Leal, 

O.C., Q.C 175 

Recommendation 178 

Chapter 6 Collateral Benefits 179 

1. Introduction 179 

2. The Present Law 179 

(a) The No-Deduction Rule 179 

(b) Mechanisms for Avoiding Double Recovery 182 

(i) Subrogation 182 

(ii) Direction by the Court to Repay .'. 185 

(iii) Independent Cause of Action by the Source of 

Collateral Benefit 186 

3. The Case for Reform 186 

(a) Arguments For and Against the No-Deduction Rule . . 186 

(b) Deficiencies in Mechanisms for Avoiding Double 
Recovery 189 

4. Conclusions 190 

Recommendations 194 

Chapter 7 Prejudgment Interest 195 

1. Introduction 195 

2. The Present Law 195 

3. The Law in Other Jurisdictions 199 

(a) England 199 



Vll 



(b) Canada 201 

(i) General 201 

(ii) British Columbia 201 

4. Conclusions 203 

(a) General 203 

(b) Time Period During Which Prejudgment Interest 

Accrues 204 

(c) Rate of Interest on Pre-Trial Pecuniary Loss 206 

(d) Compound Interest 207 

(e) Interest on Non-Pecuniary Loss 208 

(f) Special Damages 209 

(g) Scope of Recommendations 209 

5. Statement of Dissent and Explanation by 

Earl A. Cherniak, Q.C 209 

Recommendations 212 

Chapter 8 Miscellaneous Issues 213 

1. Contingencies 213 

(a) The Present Law 213 

(b) Conclusions 216 

2. Discount Rate 218 

3. Management Fees 225 

Recommendations 227 

Chapter 9 Exemplary Damages 229 

1. Introduction 229 

2. Exemplary and Aggravated Damages Distinguished 229 

3. Arguments For and Against Exemplary Damages 231 

4. Current Law 233 

(a) Great Britain 233 

(b) Canada 234 

5. Conclusions 235 

Summary of Recommendations 237 

Conclusion 245 

Appendix 1 Draft Bill: Personal Injuries Compensation Act 247 

Appendix 2 Draft Bill: Courts of Justice Amendment Act 253 



Vlll 



Appendix 3 Draft Rule for Inclusion in the Rules of Civil 

Procedure 255 

Appendix 4 Sample Awards Under Proposed Gross-Up Pules . . 257 

Appendix 5 Report of the Committee on Tort Compensation . . 259 

Appendix 6 List of Research Papers 277 




Ontario 
Law Reform 
Commission 



Ontario 



The Honourable Ian G. Scott, QC 
Attorney General for Ontario 



Dear Mr. Attorney: 

We have the honour to submit herewith our Report on Compensation 
for Personal Injuries and Death . 



[ix] 



FOREWORD 



In November, 1985, the Commission added to its program a Project on 
Compensation for Personal Injuries and Death, and appointed Professor 
Stephen M. Waddams, of the Faculty of Law, University of Toronto, as 
Project Director. In order to assess the utility of existing legal principles 
governing the assessment of compensation for personal injuries and death, 
the Commission engaged the services of a Research Team to prepare 
research papers on various topics in the area. In addition to the Project 
Director, the members of the Research Team were Professor Gordon Bale, 
of the Faculty of Law, Queen's University; Professor J. Bruce Dunlop, of the 
Faculty of Law, University of Toronto; Professor Bruce Feldthusen, of the 
Faculty of Law, University of Western Ontario; Professor Samuel Rea, Jr., of 
the Faculty of Law, Department of Economics, and the Institute for Policy 
Analysis, University of Toronto; and Professor Denise G. Reaume, of the 
Faculty of Law, University of Toronto. The Research Team prepared a 
number of papers 1 dealing with pre-trial losses; non-pecuniary loss, includ- 
ing compensation for loss of guidance, care, and companionship under the 
Family Law Act, 1986, 2 and monetary limits on non-pecuniary loss; loss of 
future earning capacity in the case of injury to, and death of, wage earners 
and non-wage earners; future care costs; collateral benefits; exemplary 
damages; prejudgment interest; income tax considerations; and periodic 
payments and structured settlements. 

In view of the great public importance of the subject matter of this 
Report, the Commission has endeavoured to consult widely with academ- 
ics, practising lawyers, liability insurance experts, and representatives of 
other sectors of the community affected by the subject matter of our Project. 
In the initial stage of the Project, we published a Notice inviting submissions 
from persons interested in the operation of this area of the law. 

The Commission also appointed an Advisory Committee, comprising 
members of the judiciary and the practising profession, as well as represen- 
tatives of government and the insurance industry. The members of the 
Advisory Committee were: the Honourable Mr. Justice S.L. Robins, of the 
Court of Appeal for Ontario; the Honourable Mr. Justice W.D. Griffiths, of 
the High Court of Justice for Ontario; Mr. T.P.D. Bates, Barrister and 
Solicitor, Toronto; Mr. E.W.G. Chick, Senior Executive— Claims, Royal 
Insurance Canada, Toronto; Mr. Kenneth E. Howie, Q.C., Barrister and 
Solicitor, Toronto; Mr. John L. Lyndon, President and Chief Executive 
Officer, Insurance Bureau of Canada, Toronto; Mr. Barry A. Percival, Q.C., 
Barrister and Solicitor, Toronto; Mr. Reno A. Stradiotto, Q.C., Barrister and 



1 The research papers are listed in Appendix 6 to this Report. It is proposed to deposit the 
research papers in the Legislative Library of Ontario. 

2 Family Law Act, 1986, S.0. 1986, c. 4, Part V. 



[1] 



Solicitor, Toronto; Mr. Bruce A. Thomas, Q.C., Barrister and Solicitor, 
Toronto; Mr. Herman Turkstra, Barrister and Solicitor, Hamilton; and Mr. 
John P. Weir, Superintendent of Insurance, Province of Ontario, Toronto. 
Early in 1987, the Advisory Committee met on a number of occasions to 
consider the research papers prepared by the Research Team. 

At a later stage of the Project a Subcommittee, comprising members 
and representatives of the Commission as well as Mr. Justice Griffiths and 
Mr. Stradiotto of the Advisory Committee, was struck to consider proposals 
for the standardization of assumptions underlying the calculation of gross- 
up. The Commission also sought the help of four experienced actuaries, who 
were asked to assess the reasonableness of the proposed assumptions. 
Accordingly, a submission to us was drafted by Mr. Paul Winokur, Consult- 
ing Actuary, Actrex Partners Ltd., Toronto; Mr. Murray Segal, Consulting 
Actuary, Eckler Partners Ltd., Don Mills; Mr. Robert E. Collins, Consulting 
Actuary, Robert E. Collins Actuarial Services Ltd., Mississauga; and Mr. H. 
Wayne Woods, Consulting Actuary, M.L.H. & A. Inc., Ottawa. 

The Commission wishes to express its gratitude to the Project Director, 
the Research Team, and the Advisory Committee for their invaluable 
contributions throughout the various stages of this Project, as well as to the 
consulting actuaries, mentioned above, and to those other persons who took 
the time and effort to make submissions to us or to offer us advice on 
various issues. In particular, we wish to acknowledge the contribution of the 
Project Director, Professor Stephen Waddams, whose understanding of this 
critically important field is both comprehensive and profound. We also wish 
to express our special thanks to Professor Samuel Rea, Jr., on whose 
expertise we relied on a great number of occasions, and to Mr. Arthur Stone, 
Q.C., former Senior Legislative Counsel, who prepared the draft legislation 
that accompanies this Report. 



CHAPTER 1 



INTRODUCTION 



There has been considerable public interest, particularly heightened in 
the past two years, in the subject of compensation for personal injuries and 
death. It is important, therefore, to indicate the scope of our study and its 
relationship with other studies conducted by the Commission and other 
bodies. 

The Commission's purpose in initiating the Project was to take a 
careful and balanced look at the legal principles governing the assessment of 
compensation for personal injuries and death, with the object of ensuring 
that such principles should be fair, reasonable, and consistent. It bears 
emphasizing at the outset that the commencement of the Project was not 
linked with any perceived crisis in the operation of the existing tort system, 
or, more specifically, with any perception of a so-called "insurance crisis". 
The Project Director was asked to assume, for the purposes of the Project, 
the continued existence of the present system of individual responsibility of 
wrongdoers for losses caused by injuries; thus, consideration of radical 
reform, such as replacing the tort system by a system of first party liability 
insurance, was excluded from the Project's terms of reference. The Project 
Director was also instructed to exclude consideration of workers' compensa- 
tion and of no-fault automobile insurance benefits. 

In January, 1986, the Government of Ontario established a Task Force 
on Insurance, chaired by Mr. David W. Slater. The Task Force reported in 
May, 1986. 1 The Report dealt, briefly, with some proposals for change in the 
law that fall within the scope of the Commission's present Project, and, in 
fact, referred specifically to the Commission's Project, recommending that 
it should be accelerated. 2 The Commission, recognizing the urgency of 
reporting on the subject, did proceed to advance the timetable for comple- 
tion of the Project. 

One of the recommendations of the Task Force was that consideration 
should be given to the establishment of a "no-fault" first party insurance 
scheme of compensation for automobile injuries. Following on this pro- 
posal, a single judge, the Honourable Mr. Justice Coulter Osborne, of the 
High Court of Justice for Ontario, was appointed in the fall of 1986 as a 



1 Ontario, Final Report of the Ontario Task Force on Insurance (1986) (hereinafter 
referred to as "Task Force Report"). 

2 Ibid., at 60. 

[ 3 ] 



Commissioner to make recommendations on the subject of automobile 
insurance. 

In some respects, Mr. Justice Osborne's terms of reference go beyond 
the scope of the Commission's Project, in that they include the possibility of 
the replacement of tort law by a system of first party insurance. In other 
respects, however, Mr. Justice Osborne's terms of reference are narrower, 
since they are confined to motor vehicle accidents. Thus, however Mr. 
Justice Osborne reports, and whatever action is taken as a result, there will 
still be a need to ensure that the principles governing the assessment of 
compensation for personal injuries and death outside the field of automo- 
bile accidents are satisfactory. 

It was said earlier that the object of the present study was to assess the 
present utility of these principles in order to determine whether they were 
fair, reasonable, and consistent. These criteria necessarily imply that the 
interests of both plaintiffs and defendants must be dispassionately consid- 
ered and equally protected. 

It bears emphasizing that often the defendant is a "wrongdoer" only in 
a technical legal sense. Strict liability is imposed on the small retailer for 
injuries caused by defects in products that could not possibly have been 
foreseen or prevented. 3 In some cases, the burden of disproving negligence 
rests on the defendant, who may, therefore, be held liable without affirma- 
tive proof of fault by the plaintiff. 4 In other cases, a person may be held liable 
for the negligence of another, notwithstanding the absence of any personal 
fault. For example, liability may be imposed on the owner of an automobile 
for injury caused by a person driving with his consent. 5 Even where liability 
is based on the fault of the defendant, that fault may consist of a momentary 
inattention that could not be considered morally blameworthy. Further- 
more, there is no necessary relationship between the degree of fault and the 
extent of the damage. A morally blameless act may cause a loss of several 
million dollars, while a shocking case of reckless conduct may cause only 
very slight damage. Since, therefore, each of us runs the risk of being held 
liable in one or more of the circumstances just described, we all have an 
interest in seeing that the principles governing compensation are fair and 
balanced from all points of view. 



3 



In such cases, liability is based on breach of warranty, and is, therefore, contractual. It is 
convenient at times to speak of "tort liability" or the "tort system" to refer to all liability 
for personal injuries; but it should be borne in mind that liability may equally be based 
on breach of contract. 

One example is s. 167(1) of the Highway Traffic Act, R.S.O. 1980, c. 198, which places 
the onus of disproving negligence on the owner or driver of a motor vehicle (except in 
cases of collision between motor vehicles and in certain other cases, as provided for in 
s. 167(2)). Another example is s. 68 of the Family Law Act, 1986, S.O. 1986, c. 4, which, 
in an action against a parent for personal injury or death caused by the fault or neglect of 
a child who is a minor, places the onus of establishing that the parent exercised 
reasonable supervision and control of the child on the parent. 

Highway Traffic Act, supra, note 4, s. 166. 



While, as we have said, the Commission's Project was not a response to 
any kind of perceived insurance crisis, and while the object of our study 
cannot simply be the reduction of insurance premiums by means of reform 
of the tort system, the impact of liability insurance, and particularly the 
events of the past two years, clearly cannot be ignored. 

The impact of liability insurance is, however, ambiguous. It has very 
often been said, expressly or impliedly, that since liability is borne by 
insurers, concern for the interest of defendants is misplaced. On the other 
hand, recent events have brought home the truth that the existence of 
liability insurance does not cause the cost of liability to disappear. Moreover, 
the insurance crisis has emphasized the point that the costs of resolving 
disputes— which include the costs of establishing, proving, and defending 
claims, both in and out of court— must be added to the total cost of liability. 
This cost is usually passed on to a wide section of the public in the form of 
increased liability insurance premiums, increased taxes, or an increase in 
the cost of goods or services. Litigation, as many have noted, burdens not 
only defendants, but also plaintiffs. 6 There may, of course, be arguments 
that support the spreading of losses over a wide section of the public, but 
these arguments do not support giving extravagant compensation, at public 
expense, to those who suffer personal injury. Accordingly, it is in the 
interests of the whole community to keep the costs of resolving disputes as 
low as is consistent with other important objectives. 

The actual costs of resolving disputes and compensating injured per- 
sons are not the only factors influencing the size of insurance premiums. 
Predictability, too, is important from an insurance standpoint. Unpredicta- 
bility of awards adds to the cost of insurance. 

The considerations discussed above do not lead to obvious conclusions 
in respect of particular issues. They do, however, offer an important 
perspective from which it is possible to conclude, first, that, whatever the 
merits of theories of loss spreading, the principles governing the assessment 
of compensation must be fair to both plaintiffs and defendants, and, 
secondly, that the attempt to give full compensation to the injured party 
must be tempered by the need to establish principles that are predictable and 
not excessively costly in application. 

Many commentators have remarked that the liability insurance sys- 
tem, combined with an expansive view of liability, have been operating 
during the last fifty years or so as a sort of half-formed accident compensa- 
tion scheme. 7 Though liability may depend on fault, it has been suggested 



See, for example, O'Connell and Kelly, The Blame Game (1987), at 99. 

See, for example, Fleming, The Law of Torts (5th ed., 1977), at 11-12. Fleming states as 
follows: "The 'official line' no doubt still is that insurance is contingent on liability, not 
vice versa, and therefore irrelevant to the tort issue. In practice, however, it is an 
influential factor even when hidden, though indeed nowadays increasingly brought out 



that judges have sometimes been willing to find fault, occasionally on 
slender evidence, where compensation seems desirable. 8 As this process 
advances, it is said, the tort system has come under obvious strain. There is a 
gap between the declared purposes of the law and its actual function; cases 
where liability (and, therefore, compensation) is denied have come to seem 
increasingly anomalous as the absence of fault on the part of the defendant 
is perceived to be an untenable reason for such denial. 9 Any difficulties to 
which these tensions may have given rise cannot, however, be resolved 
within the boundaries of the present Project, which deals with principles 
governing the assessment of compensation. 

There has been considerable debate concerning whether the purposes 
of tort law include a deterrent function and, if so, how that function ought to 
affect the rules respecting the assessment of compensation for personal 
injuries and death. Many commentators have argued that the deterrent 
effect of tort law is important as a means of affecting the behaviour of 
individuals, or as a means of attributing to activities their full social cost. 10 
On some matters, to be discussed later in this Report, this issue may be 
significant, but it does not lead to any clear conclusion concerning the 
principles to govern the measurement of compensation. While a legitimate 
function of the law is to affect the behaviour of defendants, compensation in 
individual cases must still be measured with due regard to the interests of 
both parties. An economic approach to the deterrent function of tort law 
requires that the wrongdoer should pay the amount of the plaintiff's loss, 
neither more or less. Balanced and equitable principles are needed to assess 
this loss, just as under any other theory concerning the purpose of tort law 

into the open. Without it, one could neither explain nor justify the pervasive trend 
towards strict(er) liability which runs like a golden thread throughout this textbook". 
{Ibid., at 12.) 

8 See the discussion in Task Force Report, supra, note 1, at 61-63. The Report referred to 
a speech by Mr. Justice Horace Krever, of the Ontario Court of Appeal, reported in 
Ontario Lawyers Weekly, Vol. 5, No. 39 (February 21, 1986), at 24. In his speech, Mr. 
Justice Krever commented on the unfairness and incoherence of the present fault-based 
tort system and on the "intellectual dishonesty" that it often breeds. See, further, infra, 
note 9. 

In response to Mr. Justice Krever, see the remarks of Mr. Justice Montgomery, 
reported in The Lawyers Weekly, Vol. 6, No. 13 (July 25, 1986), at 10. Mr. Justice 
Montgomery stated that he did not share the views expressed by Mr. Justice Krever. 

9 See the comments of Krever J. in Ferguson v. Hamilton Civic Hospitals (1983), 40 O.R. 
(2d) 577, at 618-19, 144 D.L.R. (3d) 214 (H.C.J.): "I confess to a feeling of discomfort 
over a state of affairs, in an enlightened and compassionate society, in which a patient 
who undergoes a necessary procedure and who cannot afford to bear the entire loss, 
through no fault of his and reposing full confidence in our system of medical care, 
suffers catastrophic disability but is not entitled to be compensated because of the 
absence of fault on the part of those involved in his care". The decision was affirmed 
(1985), 50 O.R. (2d) 754, 18 D.L.R. (4th) 638 (C.A.) (subsequent reference is to 50 O.R. 
(2d)). The Court stated (at 755): "We agree that in situations such as the instant one, 'an 
enlightened and compassionate society', to use the words of the learned trial judge, 
should do more". 



10 



See, for example, Posner, Economic Analysis of Law (3d ed., 1986), at 187-91. 



Traditionally, the primary function attributed to damages in tort law is 
to put right, so far as money can do so, the wrong caused by the defendant. 
The most widely quoted statement of the measure of damages is that of Lord 
Blackburn in Livingstone v. Rawyards Coal Co.: 11 

I do not think there is any difference of opinion as to its being a general rule 
that, where any injury is to be compensated by damages, in settling the sum of 
money to be given for reparation of damages you should as nearly as possible 
get at that sum of money which will put the party who has been injured, or who 
has suffered, in the same position as he would have been in if he had not 
sustained the wrong for which he is now getting his compensation or repara- 
tion. 

In no sphere of the law of damages has this principle been found to be self- 
applying. Even where the loss is solely a commercial one, difficulties 
constantly arise. Over thirty years before Lord Blackburn made the state- 
ment just quoted, Dr. Lushington said, in a case involving a ship collision: 12 

The general rule of law is, that. . .the party receiving the injury is entitled to an 
indemnity for the same. But although this is the general principle of law, all 
Courts have found it necessary to adopt certain rules for the application of it; 
and it is utterly impossible, in all the various cases that may arise, that the 
remedy which the law may give should always be the precise amount of the loss 
or injury sustained. In many cases it will, of necessity, exceed, in others fall short 
of the precise amount. 

Even more difficult is the task in cases involving personal injuries, 
where money can only be a very poor substitute for what has been lost. 
Throughout the law of damages there is a perpetual tension between, on the 
one hand, the search for perfect compensation, and, on the other hand, the 
recognition that the goal of perfect compensation is illusory. It has been 
conceded in many cases, explicitly or by implication, that, for the sake of 
consistency and for the saving of the time and expense of an inquiry into 
remote hypotheses in every individual case, certain rules of damage assess- 
ment must be adopted. 

As has been explained, the scope of the present study does not extend to 
the examination of systems of accident compensation other than the present 
system founded on the individual responsibility of wrongdoers. Nor does 
our study seek to measure the existing system against various possible 
alternatives to it. But it should be emphasized that all such alternative 
systems have been very vigorously attacked by their critics. While, therefore, 
we cannot say that the present regime is better than any one alternative, we 
do wish to make the point again that, in an imperfect world, all systems fall 
short of perfection. Since an ideal solution to the problem of accident 
compensation is not likely to be forthcoming, what must be sought is the 



11 (1880), 5 App. Cas. 25 (H.L.), at 39. 

12 The Columbus (1849), 3 W. Rob. 158, 166 E.R. 922, at 923 (Adm.). 



proper balance between, on the one hand, a comprehensive inquiry in each 
individual case into precisely what the plaintiff has lost, and, on the other 
hand, principles that are capable of fair, consistent, and reasonably inexpen- 
sive and expeditious application. 

Although the future of the tort system of liability for personal injuries 
and death is not within the scope of this study, the importance of the 
question of damages to the current debate cannot be doubted. Much of the 
criticism of the tort system in American jurisdictions rests, expressly or 
impliedly, on the supposition that some plaintiffs receive excessive awards, 
and that the chance of obtaining very high awards colours the settlement 
process. If critics of the tort system were convinced that awards would never 
exceed a fair and moderate assessment of actual losses, some (but not all) of 
their arguments would be seriously weakened. This Commission, in recom- 
mending, eight years ago, the extension of liability of suppliers of defective 
products, did so in the expectation, expressly stated, that Canadian courts 
were not likely to accept the large and unpredictable awards common in 
some American jurisdictions. 13 

Much publicity has been given to large awards in individual cases, 
particularly to two awards, one, subsequently reversed on appeal, of $6.3 
million to a quadriplegic 14 and the other, still under appeal, of $3.7 million 
to a child for the loss of a forearm. 15 There is a widespread impression not 
only that a significant number of damage awards are excessive, but also that 
the size of such awards has been increasing dramatically. The latter belief is 
supported to some extent by recent studies. 

For example, the Ontario Task Force on Insurance commissioned a 
study of automobile personal injury claims, which found the average yearly 
increase from 1976 to 1984 to be seven percent above the rate of inflation. 
The study stated that "it is impossible to prove statistically: (a) whether 
general damages for comparable injuries have increased losses and, if so, at 
what rate; and, (b) to what extent new categories for recovery have increased 
losses". 16 



13 Ontario Law Reform Commission, Report on Products Liability (1979), at 74-76. 

14 McErlean v. Sarel (1985), 32 C.C.L.X 199 (Ont. H.C.J.), rev'd unreported (September 
29, 1987, Ont. C.A.). Although the Court of Appeal reversed the decision of the lower 
court on the question of liability, it also commented on the assessment of damages. It 
stated that, if it had found the defendant liable, it would have altered the award of the 
trial judge to $3,689,435. 

15 Giannonev. Weinberg (1986), 37 C.C.L.T. 52 (Ont. H.C.J.). 

16 The Wyatt Company and Cassels, Brock & Blackwell, Report to the Task Force on 
Insurance on the Ontario Private Passenger Automobile Bodily Injury Claims Study 
(IBCData Base) (April 17, 1986), Appendix 11 to the Task Force Report, supra, note 1, 
309, at 312. The "losses" to which reference is made refer to "the costs of claims arising 
from bodily injury" {ibid., at 311). 

Figures published by Statistics Canada show an increase in the dollar value of 
claims paid and payable in non-automobile liability cases from $183,827,000, in 1980, 



In another study, 17 a commentator recalculated the award approved by 
the Supreme Court of Canada in Andrews v. Grand & Toy Alberta Ltd. is — 
one of the so-called "trilogy" of cases decided by that Court in 1978 19 — 
assuming similar facts requiring an assessment of damages in each of the 
years between 1978 and 1986. It was estimated that the award would have 
risen from $896,147, in 1978, to $3,731,871, in 1986, an increase of 316 
percent during a period when prices increased by only 84 percent. However, 
no suggestion was made that obvious conclusions could readily be drawn 
from these figures. Increases in damages awarded were due, in part, to the 
correction of what is now recognized to have been a wrong discount rate 
used by the Supreme Court of Canada in the trilogy. 20 In part, the increase 
was due to the allowance of prejudgment interest, which is generally agreed 
to be properly payable to the plaintiff. Increases in levels of awards might 
well indicate, then, that they were formerly inadequate or incorrectly 
calculated. Another plausible explanation for such increases is that sophisti- 
cated, and expensive, medical techniques now prolong the lives of plaintiffs 
who would formerly have died early, and offer opportunities of palliative 
and rehabilitative treatment that were formerly lacking. It cannot be 



to $602,294,000, in 1986. See Statistics Canada, Financial Institutions, Financial 
Statistics, Catalogue 61-006 (Quarterly). However, it cannot be deduced from these 
figures that comparable cases are necessarily producing increasingly higher awards and 
settlements over the years. For example, it may be that a larger number of persons are 
being held liable today. In addition, it seems likely that more sophisticated medical 
techniques, which may be more costly, are being used to a far greater extent, particularly 
in order to prolong the lives of those injury victims who would not have survived before. 

More significant are figures from the Canadian Medical Protective Association, 
showing an increase in the average damage award, paid by the Association, from $7,700 
in 1970 to $88,000 in 1984, and a rise in premiums for the highest risk group of 
physicians from $500 in 1983 to $8,200 in 1987. (The foregoing figures are taken from 
two papers presented at the Canadian Institute for the Administration of Justice, 
National Seminar on Professional Liability (October 29 - November 1, 1986), by C.G. 
Ferguson, Barrister and Solicitor, Halifax, and J. O'Brien-Bell, President, British 
Columbia Medical Association: see Ferguson, at 1, and O'Brien-Bell, at 2.) 

In another study, Professor Samuel Rea, Jr., found that, between 1978 and 1985, 
the average cost of claims in the automobile field had increased 58% more than the rate 
of inflation: Rea, "Economic Perspectives on the Liability Insurance Crisis", an 
unpublished paper to appear in Law Society of Upper Canada, Special Lectures of the 
Law Society of Upper Canada 1987 (1987). 

17 Rea, ibid. 

18 [1978] 2 S.C.R. 229, 83 D.L.R. (3d) 452 (subsequent reference is to [1978] 2 S.C.R.). 

19 In addition to Andrews, ibid., see Arnold v. Teno, [1978] 2 S.C.R. 287, 83 D.L.R. (3d) 
609, and Thornton v. Board of School Trustees of School District No. 57 (Prince George), 
[1978] 2 S.C.R. 267, 83 D.L.R. (3d) 480. The trilogy will be referred to later in this 
Report. 

20 The present practice of awarding damages for future pecuniary loss (that is, loss of 
earning capacity and the cost of care) involves a determination of the present value of 
the loss. Since the plaintiff will receive the lump sum award immediately and will earn 
interest on it, the amount must be discounted to avoid overcompensation. See infra, ch. 
8, sec. 2. 



10 



deduced from the rate of increase or the present level of awards that any 
impropriety or distortion has occurred in the assessment of damages. 21 

It is suggested, therefore, that caution must be used in drawing conclu- 
sions merely from the rate at which awards have increased. Nor can reform 
of the law of damages be supported simply on the ground that awards 
generally are too high, even aside from their rate of increase. Rather, reform 
must rest on the independent merits of the various arguments adduced in 
support of it. 

Before outlining generally the topics canvassed in each of the chapters 
of this Report, mention should be made of the classification of damages 
awarded to a plaintiff for personal injuries or death. Damages in favour of 
an injured person or her estate are awarded under various categories, or 
"heads". 22 While the terminology is not entirely consistent in all cases, the 
separate heads of damages endorsed by the Supreme Court of Canada in the 
trilogy 23 are as follows: (1) special damages; (2) prospective loss of earnings 
or profits; (3) cost of future care, that is, medical and rehabilitative treat- 
ment; and (4) non-pecuniary loss, that is, pain and suffering, loss of 
amenities (or loss of enjoyment of life), and loss of (or shortened) expecta- 
tion of life. The first three categories involve compensation for pecuniary 
loss, 24 while the last category involves compensation for non-pecuniary loss. 



21 Another study, by Eric Keen, an Actuarial Assistant at the Mercantile and General 
Reinsurance Company of Canada, Toronto, indicated the "average court awards by 
region across Canada for five 11-month periods from September 1981 through March 
1986". The source of the data was cases reported in the Canadian Insurance Law 
Reports. For Ontario, Mr. Keen found that, excluding claims exceeding $1 million, 
"General Damages", "Non-Pecuniary" damages (including awards to relatives under 
the Family Law Reform Act, R.S.0. 1980, c. 152, now the Family Law Act, 1986, supra, 
note 4, referred to infra, ch. 2), and "Pecuniary" damages increased, respectively, 21%, 
25%, and 19% annually. See Keen, "Recent trends in court awards", Canadian Insur- 
ance/Agent & Broker (July, 1986) 24. Mr. Keen indicated to the Commission that the 
category of "General Damages" was intended to be a subset of "Non-Pecuniary" 
damages and to include, essentially, damages for pain and suffering. In a December 29, 
1986 update sent to the Commission, Mr. Keen found that the "actual trend for all three 
regions combined. . .is 17.5%". In this update, "very large awards" were "capped" at $1 
million, but a "trend of 15%" was assumed. 

It would seem very doubtful, however, whether any firm conclusions can be based 
on these figures. The figures are based on reported cases, which are only a small fraction 
of the total number of claims paid. The sample is not necessarily representative, because 
cases establishing principles that lead to larger awards may tend to be selected by the 
judges as requiring written reasons, and by the editors of law reports as worthy of 
reporting. 

See, for example, Cooper-Stephenson and Saunders, Personal Injury Damages in 
Canada (1981), at 51, and Waddams, The Law of Damages (1983), paras. 354 et seq., at 
201 et seq. 

23 Supra, note 19. See, especially, Andrews, supra, note 18, at 235. 

4 Although compensatory damages may also serve a deterrent function. 



11 



The four heads of damage may also be divided in another way, that is, as 
between special damages and general damages, the latter comprising the 
heads of damage in categories (2) to (4). Special damages refer to pre-trial 
losses and may involve all three of the categories of general damages. Finally, 
in yet another classification scheme, damages awarded to an injured person 
may be said to be divided into exemplary damages (awarded primarily 25 to 
deter and punish the defendant), and compensatory damages (awarded, as 
we have said, primarily to compensate the plaintiff for his losses, both 
pecuniary and non-pecuniary). 

Not only may the wrongdoing give rise to an action for damages by the 
injured party or that party's estate, but it may also lead to separate claims 
made by and on behalf of certain dependants under Part V of the Family 
Law Act, 1986. 26 Such claims are advanced as a result of a loss to the 
dependant himself, rather than to the injured party. In Ontario, the spouse, 
child, grandchild, parent, grandparent, brother, and sister of the person 
injured or killed may recover in respect of a "pecuniary loss", 27 as well as 
"an amount to compensate for the loss of guidance, care and companion- 
ship that the claimant might reasonably have expected to receive from the 
person if the injury or death had not occurred". 28 

In chapter 2 of this Report, we shall consider, among other things, the 
present utility of these independent third party claims. The Commission's 
consideration of this and other related issues centres on the question 
whether dependants should continue to be entitled to claim compensation 
for certain losses arising from the injury or death of another person. Our 
review of the adequacy of existing law will take place in the context of a 
wider discussion of the distribution of awards of damages made in respect of 
what we shall call "loss of working capacity", that is, loss of earning capacity, 
loss of capacity to give care and guidance to certain named dependants, loss 
of capacity to provide household services, and loss of entitlement under a 
pension plan, annuity, or similar type of instrument. This broader discus- 
sion will include a consideration of the distribution of damage awards in 
both fatal and non-fatal accident cases. 

Chapter 3 of the Report will examine damages for non-pecuniary loss, 
that is, pain and suffering, loss of amenities, and loss of expectation of life, 
particularly in light of the principles laid down by the Supreme Court of 
Canada in its 1978 trilogy of cases. 29 We shall consider the approach in the 



25 However, sometimes exemplary damages are supported on the ground that they 
compensate the plaintiff for the pecuniary, or non-pecuniary, costs of litigation, or for 
other losses not recognized as compensable by the law of damages. 

26 Supra, note 4. 

27 Ibid., s. 61(1). 

28 Ibid., s.6\(2)(e). 

29 Supra, note 19. 



12 



trilogy; jury assessment of damage awards and the role of the trial judge and 
appellate court; survival of actions in favour of the injured person's estate; 
and damages for mental distress. 

In chapter 4, the Commission will deal with one facet of general 
damages, namely, the cost of future care for injured persons. The Commis- 
sion will consider, first, the level of care appropriate for the victim, and, 
secondly, the calculation of the award, with particular reference to the 
problems occasioned by the need to "gross-up" the award in order to offset 
liability for income tax on income derived from the investment of the 
award. In chapter 5, we shall discuss the form that an award of damages 
ought to take. In this context, we shall consider whether the court should be 
empowered to award damages in the form of periodic payments, in lieu of a 
lump sum award, regardless of whether all parties consent, and to review 
such an award at the instance of either party. 

Chapter 6 of the Report contains a discussion of the "collateral bene- 
fits" that may be received by an injured party, that is, benefits (such as 
insurance proceeds, welfare, pensions, and private gifts) other than the 
damages paid by the wrongdoer. The Commission will consider whether 
collateral benefits should be taken into account when assessing such dam- 
ages. 

In chapter 7, the Commission will examine prejudgment interest. More 
specifically, we shall offer proposals concerning the date from which interest 
should begin to accumulate and the level of interest that should be paid. In 
chapter 8, the Commission will deal with three miscellaneous issues, 
namely, the impact of contingencies on awards, involving a prediction of 
what would have happened to the injured person had the injury not 
occurred and what the future needs of that person will be; the application of 
the discount rate to the damages award, necessitated by the plaintiff's 
immediate receipt of a lump sum payment respecting future pecuniary 
losses; and the award of a management fee to enable the injured party to 
obtain professional investment advice. In the last chapter, chapter 9, the 
Commission will discuss exemplary damages. 

The Report also includes, as Appendices 1 and 2, respectively, two draft 
Bills, the Personal Injuries Compensation Act and the Courts of Justice 
Amendment Act , which are intended to give legislative form to the Commis- 
sion's recommendations. Also set out, in Appendix 3, is a draft Rule that 
would implement the Commission's proposals concerning the standardiza- 
tion of assumptions underlying the calculation of gross-up. Appendix 4 
contains a table that illustrates the amount of gross-up that would result, in a 
variety of factual situations, from the application of these assumptions. 
Appendix 5 reproduces the Ontario Report of the Special Committee of 
Bench and Bar, entitled the Report of the Committee on Tort Compensation 
(1980) (the "Holland Committee Report"). Finally, Appendix 6 lists the 
research papers prepared during the course of this Project. 



CHAPTER 2 



LOSS OF WORKING 
CAPACITY 



1. GENERAL INTRODUCTION 

When a person is injured or dies as a result of the wrongful act of 
another, that person, or her estate, suffers a loss of the income that would 
have been earned but for the wrongful act. An additional loss suffered is the 
loss of the victim's capacity to provide services, including guidance, care and 
companionship to others. These losses are related, as they have to do with 
the productive capacity of the victim, and we shall call them, together, 
working capacity. 

The law provides compensation for loss of earning capacity (or loss of 
future earnings) 1 and for loss of services, including guidance, care and 
companionship, but assigns the right to claim in respect of these losses in 
some cases to the injured person or her estate, and in others to third parties. 
In this chapter we shall review generally the adequacy of existing law 
governing these kinds of loss, with particular reference to the question of 
who should be entitled to claim compensation for them. While this question 
arises in connection with other losses as well, it is particularly pressing in 
connection with working capacity. Because people so often work and 
provide not only for themselves, but also for others, third parties, as well as 
the injured individual or her estate, may experience a loss resulting from the 
injury or death of a tort victim. Nevertheless, it will be apparent from the 
ensuing discussion of the history and current state of the law that the 
existing scheme, whereby compensation may be claimed in some cases by 
the injured person or the estate of that person, and in others by third parties, 
has given rise to a number of difficulties, both substantive and procedural. 

2. HISTORY AND CURRENT LAW 

(a) Introduction 

Historically, losses connected with fatal injuries have been treated quite 
differently from those associated with non-fatal injuries. While some of 
these differences have been eliminated in the course of the last decade, 
existing law continues to take a significantly different approach to compen- 



1 For a discussion of the categorization of loss of future income as either loss of the 
capacity to earn income or loss of a future stream of earnings, see infra, this ch., sec. 5. 

[13] 



14 



sation, depending on whether an injury is fatal or non-fatal. In the discus- 
sion that follows, we deal first with fatal injuries, and then with non-fatal 
injuries. 

(b) Fatal Injuries 

(i) Claims by the Estate for Loss of Earning Capacity 

Actions at common law by the estates of deceased victims of torts were 
excluded by the actio personalis moritur cum persona rule, which prevented 
any recovery after the death of one of the parties to an action. 2 This rule has 
been amended by statute in all common law Canadian jurisdictions, so that 
in Canada most actions, now survive death. 3 The governing provision in 
Ontario may be found in section 38(1) of the Trustee Act* which provides as 
follows: 

38.— (1) Except in cases of libel and slander, the executor or administrator of 
any deceased person may maintain an action for all torts or injuries to the 
person or to the property of the deceased in the same manner and with the same 
rights and remedies as the deceased would, if living, have been entitled to do, 
and the damages when recovered shall form part of the personal estate of the 
deceased; but if death results from such injuries no damages shall be allowed for 
the death or for the loss of the expectation of life, but this proviso is not in 
derogation of any rights conferred by Part V of the Family Law Reform Act. 

On the face of it, it would seem to follow from the above provision that 
a claim for loss of earning capacity 5 would survive to the estate of a deceased 
victim and, in fact, in Gammell v. Wilson , 6 the House of Lords reached this 
conclusion on the basis of a similarly worded provision in the United 
Kingdom. 7 This result, however, fit uneasily with the statutory rights, 



2 See references in Cooper-Stephenson and Saunders, Personal Injury Damages in 
Canada (1981), at 385. 

3 Ibid., n. 3. 

4 R.S.0. 1980, c. 512. 

5 Loss of earning capacity is discussed more generally below: see infra, this ch., sec. 5. 

6 Gammell v. Wilson, [1982] A.C. 27, [1981] 2 W.L.R. 248 (H.L.) (subsequent references 
areto[1982]A.C). 

7 Ibid., at 55. In England, prior to Gammell v. Wilson, as a result of the decision in Oliver 
v. Ashman, [1962] 2 Q.B. 210, [1961] 3 All E.R. 323 (C.A.), no damages were awarded to 
a tort victim for loss of earnings beyond her shortened life expectancy. A fortiori, if the 
plaintiff died immediately or before trial there could be no recovery at all for loss of 
future earnings. However, in Pickett v. British Rail Engineering Ltd., [1980] A.C. 136, 
[1979] 1 All E.R. 774, the House of Lords overruled Oliver, and shortly after, in 
Gammell v. Wilson, held that recovery for loss of future earnings for the "lost years" 
should extend to an action brought on behalf of a deceased tort victim's estate. 



15 



discussed below, 8 of family members to claim in respect of their pecuniary 
losses consequent upon the death of a tort victim, and gave rise to the 
possibility of the defendant paying twice. The United Kingdom Parliament 
responded by providing that no claim for loss of future earnings survives to 
the estate of a tort victim. 9 

In Ontario, a similar result may have been achieved by virtue of the fact 
that, in practice, courts do not permit recovery for loss of future earnings by 
the estate of a deceased tort victim. In the words of Cooper-Stephenson and 
Saunders: 10 

[D]amages for future loss seem in practice to be refused when in law they are 
arguably recoverable, on the ground that they are not statutorily prohibited. 

(ii) Third Party Claims under the Family Law Act, 1986 ', 
PartV 



a. General 

According to an early nineteenth century decision, Baker v. Bolton, u 
"the death of a human being could not be complained of as an injury". Not 
until Lord Campbell's Act 12 in 1846, a version of which was enacted in 
Ontario in 1847 (hereinafter referred to as The Fatal Accidents Act), 13 was 
this rule changed. The Fatal Accidents Act provided that a wife, husband, 
parent (which included grandparent) and child (which included grandchild) 
of a person whose death resulted from a wrongful act should have a right of 
action for damages against the wrongdoer. This statutory group was 
enlarged in Ontario in 1978 by section 60 of The Family Law Reform Act, 
1978, 14 now section 61 of the Family Law Act, 1986, 15 to include brothers 
and sisters. The current provision is as follows: 

61.— (1) If a person is injured or killed by the fault or neglect of another under 
circumstances where the person is entitled to recover damages, or would have 



8 Infra, this ch., sec. 2(b)(ii)b. 

9 Administration of Justice Act 1982, c. 53 (U.K.), s. 4. 

10 Supra, note 2, at 391. 

11 Baker v. Bolton (1808), 1 Camp. 493, 170 E.R. 1033. 

12 An Act for compensating the Families of Persons Killed by Accidents, 9 & 10 Vict., c. 93, 
commonly known as Lord Campbell's Act. 

13 An Act for compensating the Families of Persons Killed by Accident, and for other 
purposes therein mentioned, 10 & 11 Vict., c. 6. 

14 The Family Law Reform Act, 1978, S.0. 1978, c. 2. 

15 Family Law Act, 1986, S.0. 1986, c. 4. 



16 



been entitled if not killed, the spouse, as defined in Part III (Support Obliga- 
tions), children, grandchildren, parents, grandparents, brothers and sisters of 
the person are entitled to recover their pecuniary loss resulting from the injury 
or death from the person from whom the person injured or killed is entitled to 
recover or would have been entitled if not killed, and to maintain an action for 
the purpose in a court of competent jurisdiction. 

(2) The damages recoverable in a claim under subsection (1) may include, 

(a) actual expenses reasonably incurred for the benefit of the person 
injured or killed; 

(b) actual funeral expenses reasonably incurred; 

(c) a reasonable allowance for travel expenses actually incurred in visit- 
ing the person during his or her treatment or recovery; 

(d) where, as a result of the injury, the claimant provides nursing, 
housekeeping or other services for the person, a reasonable allowance 
for loss of income or the value of the services; and 

(e) an amount to compensate for the loss of guidance, care and compan- 
ionship that the claimant might reasonably have expected to receive 
from the person if the injury or death had not occurred. 

(3) In an action under subsection (1), the right to damages is subject to any 
apportionment of damages due to contributory fault or neglect of the person 
who was injured or killed. 

(4) No action shall be brought under subsection (1) after the expiration of 
two years from the time the cause of action arose. 

A Family Law Act, 1986 right is independent of the right in tort of the 
injured person although, by the terms of section 61(1), it is conditional on the 
existence of the latter. It arises out of the fact that an injury to another causes 
the claimant to suffer a pecuniary loss. It is not necessary that the claimant 
have been dependent on the injured person, merely that she is likely to have 
been deprived of some pecuniary advantage by the injury. 16 The basic 
principle that then governs assessment of damages to a Family Law Act, 
1986 claimant is the same as that which operates in tort law generally, that is, 
the claimant is to be put in the position that she would have occupied had 
the injury not occurred. 17 



16 Proctor v. Dyck, [1953] 1 S.C.R. 244, [1953] 2 D.L.R. 257. However, this seems to have 
been limited to those pecuniary advantages that arise solely out of the familial relation- 
ship to the exclusion of those arising out of a business relationship between family 
members. See, also, Burgess v. Florence Nightingale Hospital for Gentlewomen, [1955] 1 
Q.B. 349, [1955] 1 All E.R. 511, and Saikaley v. Pelletier, [1966] 2 O.R. 476, 57 D.L.R. 
(2d) 394 (H.C.J.). 



17 



Keizer v. Hanna, [1978] 2 S.C.R. 342, at 352, 82 D.L.R. (3d) 449. 



17 



We shall deal in chapter 4 with claims under clauses (a) to (d) of section 
61(2). 18 For present purposes, it is third party claims in respect of the 
deceased's lost earning capacity— that is, claims for loss of monetary contri- 
butions—and claims for loss of services, including guidance, care and 
companionship under section 61(2)(e), that are of concern. 

b. Loss of Monetary Contributions 

In assessing a claim for loss of monetary contributions, the court is 
required to consider the extent to which the injured person would have 
provided for the claimant. This generally means that the court must first 
evaluate the earning capacity of the deceased tort victim, considering the 
various contingencies and discount factors, as would be done in the case of a 
claim by the tort victim herself for loss of earning capacity. 19 

Claims under the Family Law Act, 1986 (which may also be called 
"relational loss claims") also involve additional speculations. 20 The court 
must estimate the length of time during which the claimant could have been 
expected to be supported. To the extent that this depends on the life 
expectancy of the claimant, this must be assessed in the same way as is the 
victim's life expectancy. Since both are relevant here, the joint life expect- 
ancy must be calculated. In the case of dependent children, it is the 
combination of the life expectancy of the tort victim and the period during 
which the child would have remained dependent that is relevant. In the case 
of a spouse, the period during which support would have continued also 
depends on how long the marriage (or common law relationship) would 
likely have lasted. 21 

As well as the contingencies regarding what might have happened if the 
injury had not occurred, the court must take into account contingencies 
surrounding what might happen to the claimant in the future to reduce the 
Toss caused by the death of the tort victim. For a spouse this typically 
involves the chance of pecuniary advantage from a possible or actual 
remarriage. Although the English courts have found this speculation so 
distasteful 22 that it has been removed by statute (at least with respect to 



18 Infra, ch. 4, sec. 5. 

19 For a discussion of how courts calculate damages for loss of earning capacity, see infra, 
this ch., sec. 5. 

20 For discussion, see Waddams, The Law of Damages (1983), paras. 690-94, at 393-95. 

21 Julian v. Northern and Central Gas Corp. Ltd. (1979), 31 0.R. (2d) 388, at 399-400, 1 18 
D.L.R. (3d) 458 (C.A.) (subsequent references are to 31 0.R. (2d)), leave to appeal to the 
Supreme Court of Canada denied (1980), 31 0.R. (2d) 388n., and Kwong v. The Queen in 
right of Alberta (1978), 14 A.R. 120, [1979] 2 W.W.R. 1 (S.C., App. Div.), aff'd [1979] 2 
S.C.R. 1010. 

22 Buckley v. John Allen & Ford (Oxford) Ltd., [1967] 2 Q.B. 637, [1967] 1 All E.R. 539. 



18 



widows), 23 there is no such statutory provision in Ontario, so that courts 
must continue to address the issue. 24 



c. Loss of Guidance, Care and Companionship 

Although Lord Campbell's Act, 25 and The Fatal Accidents Act 26 based 
on it, state simply that a wrongdoer is liable "to an action for damages", it 
was early held that only pecuniary loss was recoverable under this statutory 
cause of action: there was to be no compensation for grief or mental distress 
as solace for the loss. 27 The courts' understanding of pecuniary loss, how- 
ever, turned out to be rather expansive. In 1885, in The St. Lawrence & 
Ottawa Railway Co. v. Lett, Chief Justice Ritchie, on behalf of the majority 
of the Supreme Court of Canada, stated as follows: 28 



23 Fatal Accidents Act 1976, c. 30 (U.K.), s. 3(2), continued by the Administration of 
Justice Act 1982, supra, note 9, s. 3(3). It should be noted that this provision appears to 
have been repealed by the International Transport Conventions Act 1983, c. 14 (U.K.), 
Sch. 3. However, it seems reasonable to conclude that the repeal is for the limited 
purposes of the latter Act only. 

At least one Canadian jurisdiction has followed the English lead: see Fatal 
Accidents Act, S.P.E.I. 1978, c. 7, s. 7(l)(a), to the effect that "the probability that a 
dependant may marry or the effect of such probability on any other dependant" shall 
not be taken into account in assessing damages in a proceeding brought under the Act. 

24 See, for example, Ball v. Kraft (1966), 60 D.L.R. (2d) 35 (B.C.S.C); Dormuth v. 
Untereiner, [1964] S.C.R. 122, (1963), 43 D.L.R. (2d) 135; Fleming v.Markovich, [1942] 
O.W.N. 525, [1942] 4 D.L.R. 287 (C.A.); and Lefebvre v. Dowdall, [1965] 1 O.R. 1, 46 
D.L.R. (2d) 426 (H.C.J.). 

See, also, the following cases from other jurisdictions dealing with possible 
pecuniary benefit from remarriage: Sorensen v. Beach, [1971] 5 W.W.R. 488 (B.C.S.C); 
Tucker v. Lindstrom, [1972] 6 W.W.R. 757, [1972] I.L.R. 1-500 (B.C.S.C); Alaffe v. 
Kennedy (1973), 11 N.S.R. (2d) 457, 40 D.L.R. (3d) 429 (N.S.S.C, T.D.); MacDonell v. 
Maple Leaf Mills Ltd. (1972), 26 D.L.R. (3d) 106, [1972] 3 W.W.R. 296 (Alta. C.A.); 
Allain v. Dunn (1960), 23 D.L.R. (2d) 770, 45 M.P.R. 89 (N.B.C.A.); and Lamont v. 
Pederson (1979), 6 Sask. R. 361, [1979] 6 W.W.R. 577 (Q.B.), aff'd (1981), 7 Sask. R. 18, 
[1981] 2 W.W.R. 24 (C.A.). 

It has also been held that, in the case of a child claimant, the possibility of 
pecuniary advantage from legal or de facto adoption is relevant to assessment of 
damages: see, for example, Lefebvre v. Dowdall, supra, this note, and Fawns v. Green, 
[1972] 1 W.W.R. 272 (B.C.S.C). However, a very recent decision of the Ontario Court of 
Appeal is to the effect that the economic benefits of adoption, being the result of private 
benevolence, should not be taken into account to reduce the damages payable by a 
tortfeasor: Sheppard v. McAllister (1987), 60 O.R. (2d) 309, 22 O.A.C 57. 

25 Supra, note 12. 

26 Supra, note 13. 

27 Blake v. Midland Railway Co. (1852), 18 Q.B. 93, 118 E.R. 35; Franklin v. South Eastern 
Railway Co. (1858), 3 H. & N. 211, 157 E.R. 448 (Ex.); and Pym v. Great Northern 
Railway Co. (1862), 2 B. & S. 760, 121 E.R. 1254 (C.A.). 

28 The St. Lawrence & Ottawa Railway Co. v. Lett (1885), 1 1 S.C.R. 422, at 432-33. 



19 



I cannot think that in giving compensation to a child for the loss of its parent the 
legislature intended so to limit the remedy as to deprive the child of compensa- 
tion for the greatest injury it is possible to conceive a child can sustain, namely, 
in being deprived of the care, education and training of a mother, unless it could 
be shown that the loss was a pecuniary loss of so many dollars or so much 
property, a construction which, in ninety-nine cases out of a hundred, would 
simply amount to saying that though there was an almost irreparable injury, 
affecting the present and future interests of the child, no compensation was to 
be awarded; in other words it would be, in effect, to deny to a child compensa- 
tion for the death of a mother by negligence in almost every conceivable case. 

The majority awarded damages on the basis that "such education is a 
benefit and advantage to the child and is capable of being estimated in 
money". 29 No award was made, however, "to soothe the feelings of the 
husband or child". 30 Thus a new head of damage seemed to appear, not 
exactly pecuniary because it could not be said that the child had suffered a 
"loss of so many dollars or so much property", but constituting the depriva- 
tion of an advantage— a special form of "service"— for which an award of 
damages was justified other than on the basis of solace. 

Until very recently, courts in Canada have continued to treat the loss of 
a parent's care, training and guidance as pecuniary in nature. Thus, in 1967, 
in Vana v. Tosta, the Supreme Court of Canada, awarding damages for loss 
of "care and moral training", stated that there must be "evidence which 
makes it reasonably probable that the children will actually suffer a pecuni- 
ary loss as a result of their mother's death". 31 Similarly, loss of the "guid- 
ance, training and encouragement" of a father was considered pecuniary by 
the Ontario Court of Appeal. 32 

As discussed above, The Fatal Accidents Act was repealed in Ontario in 
1978, and its provisions became part of The Family Law Reform Act, 
1978, 33 which in turn was replaced in 1986 by the Family Law Act, 1986. 
The Legislature in 1978 seemed to adopt explicitly the limitation to pecuni- 
ary loss that had been imposed by the courts for over a century: section 60(1) 
entitled the statutory claimants to "recover their pecuniary loss resulting 
from the injury or death". However, section 60(2), in listing the types of 
damage that were recoverable under section 60(1), included the following: 



29 Ibid., at 436. 

30 Ibid., at 433. 

31 Vana v. Tosta, [1968] S.C.R. 71, at 92, 66 D.L.R. (2d) 91, per Ritchie J. Although Ritchie 
J. dissented in part, there was no disagreement on this point. 

32 Julian v. Northern and Central Gas Corp. Ltd., supra, note 21, at 391. 

33 Part V of the 1978 legislation implemented recommendations contained in the Ontario 
Law Reform Commission's Report on Family Law, Part I: Torts (1969). See discussion 
infra, thisch., sec. 3. 



20 



(d) an amount to compensate for the loss of guidance, care and companion- 
ship that the claimant might reasonably have expected to receive from the 
person if the injury or death had not occurred. 

Notwithstanding the obvious argument that guidance, care and compan- 
ionship were to be seen as pecuniary losses, the Ontario Court of Appeal 
concluded, in Mason v. Peters, 34 that the intention was actually to permit 
damages for a loss that is "essentially non-pecuniary in character". At the 
same time, however, the Court stressed that grief, sorrow and mental 
anguish had not been made compensable. 

The Court of Appeal in Mason v. Peters described the loss suffered by 
someone deprived of guidance, care and companionship as being "not 
generally capable of computation on a strictly monetary basis". 35 This point 
had been made by the Supreme Court of Canada in the St. Lawrence case 
but had not been considered an impediment to classifying the loss as 
pecuniary. The purpose of the compensation under this head is not made 
precisely clear in Mason v. Peters. "Pecuniary loss concepts", the Court 
said, "produced awards wholly incommensurate with the true loss 
sustained" 36 by the death of a close relation, in the particular case, a child. 
But the head of damage, if non-pecuniary, seems difficult to distinguish 
from other heads that are intended to serve as solace, including grief, sorrow, 
and mental anguish. 

Ontario decisions have diverged on the question of whether restraint or 
indulgence is the appropriate attitude to compensation for loss of guidance, 
care and companionship. In Reidy v. McLeod 31 Mr. Justice Bowlby of the 
High Court, in somewhat emotional terms, made what could be described 
as liberal awards to family members. The Court of Appeal, on appeal, 
indicated that the assessment was to be made "in as objective and unemo- 
tional a manner as possible in these sad cases", 38 and reduced the awards by 
half. 

In Nielsen v. Kaufmann 39 the Ontario Court of Appeal held that it was 
an error to base an award of damages under section 60(2)(d) of the Family 
Law Reform Act 40 (now section 61(2)(e) of the Family Law Act, 1986) on the 



34 Mason v. Peters (1982), 39 O.R. (2d) 27, at 38, 139 D.L.R. (3d) 104 (C.A.) (subsequent 
references are to 39 O.R. (2d)), leave to appeal to the Supreme Court of Canada denied 
[1982] 2 S.C.R. x, 46 N.R. 538«. 

35 Ibid., at 38. 

36 Ibid. 

37 Reidy v. McLeod (1984), 47 O.R. (2d) 313, 11 D.L.R. (4th) 411 (H.C.J.). 

38 Reidy v. McLeod (1986), 54 O.R. (2d) 661, at 662, 27 D.L.R. (4th) 317 (C.A.). 

39 Nielsen v. Kaufmann (1986), 54 O.R. (2d) 188, 26 D.L.R. (4th) 21 (C.A.) (subsequent 
references are to 54 O.R. (2d)). 

40 R.S.O.1980,c. 152. 



21 



principle of restitutio in integrum that is followed in calculating compensa- 
tion for the pecuniary loss of an injured person. While identifying the 
Family Law Reform Act as a remedial statute that must be liberally 
construed, the Court of Appeal refused to extend it "to include ideal and 
optimum schooling for a child who has already been generously compen- 
sated by an award of general damages for the loss of his mother's guidance, 
care and companionship". 41 In the opinion of the Court, this would have 
been an undue and unwarranted extension of the principle that money 
could be used to improve the future mental health of an injured person. The 
damages for loss of guidance, care and companionship payable to the son 
were reduced on appeal from $90,856 to $30,000. 

Speaking generally about the basis for assessing non-pecuniary awards 
under the Family Law Reform Act, the Court said: 42 

In time there may be awards for the loss of care, guidance and companionship 
in the 'average' family which will come to be recognized as 'conventional'. It is 
difficult now to see how such a family can be discovered or described. 

It is self-evident, as has been said, that the amount of compensation in any 
given case 'will depend on the facts and circumstances in evidence in the case': 

Mason v. Peters Although essentially non-pecuniary in character, there 

must be an actual loss of care, companionship and guidance. A brother of a 
deceased, for example, who lives in Vancouver and who has not seen the 
deceased, who lives in Toronto, for 20 years, although they exchange Christmas 
cards and a telephone call a year, would not, in our view, be entitled to any 
compensation. Undoubtedly, there would be grief and sorrow and a sense of 
loss but, under the circumstances recited, there would be no loss compensable 
under the section. 

The reference to "conventional" awards seems to imply that some degree of 
restraint and consistency is desirable. At the same time, it is clear that some 
element of subjectivity must enter into compensation decisions. In other 
words, the deprivation actually experienced by the particular claimant 
remains the basis for the calculation. 43 



d. Loss of Services 

The law has long provided compensation to third parties for loss of 
services that would have been provided by the deceased. 44 For example, a 
spouse or parent may claim "the cost of hiring reasonable services on a 



41 Nielsen v. Kaufmann, supra, note 39, at 195. 

42 Ibid., at 199-200. 

43 See, also, Zdasiuk v. Lucas (1987), 58 O.R. (2d) 443 (C.A.), which is to the same effect. 

44 See Waddams, supra, note 20, para. 710, at 405, and authorities cited therein. See, also, 
Cooper-Stephenson and Saunders, supra, note 2, at 430-40. 



22 



commercial basis to replace lost domestic services" performed by a spouse 
or child. 45 

In Nielsen v. Kaufmann 46 the Ontario Court of Appeal, referring to an 
award at trial for loss of future and past housekeeping services, stated as 
follows with respect to the propriety of such awards under Part V of the 
Family Law Reform Act: 

A money value was placed on this loss of 'care' on the basis of the market price 
of housekeeping services. The loss under s. 60(2)(d) [now section 61(2)(e) of the 
Family Law Act, 1986] is not a pecuniary loss in the strict sense of the word: 
Mason v. Peters et al. (1982), 39 O.R. (2d) 27, 139 D.L.R. (3d) 104, 22 C.C.L.T. 
21. However, we recognize the pecuniary component relating to damages for 
loss of housekeeping services under s. 60(1) [now section 61(1)] of the Family 
Law Reform Act . 

The Court accordingly added the sum of $60,000 for lost housekeeping 
services to the amount awarded to the plaintiff for loss of care pursuant to 
what is now section 61(2)(e) of the Family Law Act, 1986. 

(c) Non-Fatal Injuries 

(i) Claims by the Injured Person for Loss of Earning Capacity 

In the case of personal injury not resulting in death, the injured person 
has a claim in respect of loss of future earnings, or lost earning capacity. We 
shall deal at a later stage in this chapter 47 with the law relating to the 
categorization of this loss. 

(ii) Third Party Claims under the Family Law Act, 1986 ', Part 
V, for Loss of Monetary Contributions, Services, and 
Guidance, Care and Companionship 

Lord Campbell's Act , 48 and The Fatal Accidents Act 49 based on it, were 
enacted to remove the common law bar to recovery by a third party of losses 
consequent on the death of another. 50 The Acts applied only in the case of 
fatal injuries. In the case of non-fatal injuries, the common law governed, 
leaving third parties with limited scope to claim in respect of their losses. 



45 



Waddams, supra, note 20, para. 710, at 405, quoted with approval by the Ontario Court 
of Appeal in Nielsen v. Kaufmann, supra, note 39, at 196. 



46 Ibid. 

47 Infra, this ch., sec. 5. 

48 Supra, note 12. 

49 Supra, note 13. 
See discussion supra, this ch., sec. 2(b)(ii)a. 



50 



23 



There was authority that certain direct third party expenses, as well as an 
allowance for the cost of services provided by a third party to an injured 
person, were recoverable by the injured person in her own right, 51 and some 
cases held that such damages should be held on trust for the third party. 52 
These sorts of losses are now dealt with by sections 61(2)(a), (c) and (d) of the 
Family Law Act, 1986, 53 and are discussed in chapter 4 of this Report. 54 
However, the common law did not permit recovery by third parties for loss 
of monetary contributions. Loss of services and of guidance, care and 
companionship were compensable, if at all, only through the actio per quod 
servitium amisit and the actio per quod consortium amisit. The first, an 
action to recover the value of services that would have been provided by an 
injured person, is discussed later in relation to claims by employers. 55 
Together, the servitium and consortium actions allowed recovery by a 
husband in respect of the loss of a wife's services and companionship. 56 The 
servitium action was also available to a parent in respect of loss of a child's 
services. 57 The parent's and husband's actions were expressly abolished in 
Ontario by The Family Law Reform Act, 1978. , 58 

In 1978, with the enactment of The Family Law Reform Act, 1978, the 
provisions of Lord Campbell's Act were extended to apply to cases of non- 
fatal injury. 59 Accordingly, third parties in Ontario may advance the same 
claims in the context of non-fatal injuries, in respect of loss of monetary 
contributions, services, and guidance, care and companionship, as in the 
context of fatal injuries. The current provision is section 61 of the Family 
Law Act, 1986, set out above, 60 and the discussion above applies equally to 
cases of non-fatal injury. 

It should be noted that the possibility of a third party claim in respect of 
loss of monetary contributions rests somewhat uneasily with the recovery 
permitted to the injured person herself. Since there is no indication that the 
Act was intended to limit the rights of the injured party, the possibility of 
overlap in awards arises. It has been suggested 61 that, the Legislature's 



51 See Cooper-Stephenson and Saunders, supra, note 2, at 139-46, and Waddams, supra, 
note 20, paras. 368-73, at 210-14, and para. 664, at 376-77. 

52 Ibid., para. 370, at 212-13. 

53 Supra, note 15. 

54 Infra, ch. 4, sec. 5. 

55 Infra, this ch., sec. 9. 

56 See Cooper-Stephenson and Saunders, supra, note 2, at 484-85. 

57 See, generally, Waddams, supra, note 20, paras. 293-308, at 169-78. 

58 The Family Law Reform Act, 1978, supra, note 14, s. 69. See, now, Dower and 
Miscellaneous Abolition Act, R.S.O. 1980, c. 152, s. 69, as am. by S.0. 1986, c. 4, s. 71. 

59 The Family Law Reform Act, 1978, supra, note 14, s. 60. 

60 Supra, this ch., sec. 2(b)(ii)a. 

61 Waddams, supra, note 20, para. 436, at 256. 



24 



intention in permitting recovery for loss of monetary contributions 
"apparently being to provide a modern equivalent of the actions for loss of 
consortium and servitium abolished by. . .the Act", it is possible to interpret 
section 61 as restricting the rights of Family Law Act, 1986 claimants to the 
recovery of "such loss as is not recoverable by the injured person himself". 62 

3. PROBLEMS WITH THE EXISTING LAW 

As the foregoing discussion indicates, the current law treats loss of 
earning capacity and loss of services, including loss of guidance, care and 
companionship, as separate heads of damage. The first is considered a loss 
to the injured person, or (in theory, but not in practice) to her estate. The 
second is considered a loss to third parties and is compensated, in the case of 
both injury and death, under Part V of the Family Law Act, 1986. Associ- 
ated with, but quite distinct from, the injured person's claim for loss of 
earning capacity is the right of third parties under section 61(1) of the Family 
Law Act, 1986 to claim monetary contributions— that is, that portion of the 
future earnings of the tort victim that would have benefited them. 

The history of the law in this area has been one of an uneasy combina- 
tion of two theories of compensation— one, that the loss is that of the injured 
person and, therefore, in case of death, her estate; the other, that third parties 
should have independent rights in their own names. In 1846, Lord Camp- 
bell's Act 63 (a version of which was enacted in Ontario in 1847 64 ) selected, as 
the primary theory, that of independent rights in third parties, although the 
legislation contains features that can only be explained on a derivative 
theory. 65 The latter theory was reaffirmed in 1978 (when the Ontario Fatal 
Accidents Act was repealed and its provisions moved to The Family Law 
Reform Act, 1978 66 ) and was extended in several important respects. 

The combination of two theories of compensation, and the expansion 
in 1978 of the rights of third parties to recover in respect of monetary 
contributions and guidance, care and companionship in cases of both fatal 
and non-fatal injury, have created a number of problems in the law. 



62 ibid. 

63 Supra, note 12. 

64 Supra, note 13. 

65 See Waddams, supra, note 20, para. 787, at 448: 

[T]he action depended on the deceased's having been entitled himself to sue, and if 
the deceased settled or secured a judgment in his lifetime, the claimant's action was 
defeated, as also if the deceased lost an action or allowed it to become time barred. 
The action had to be a single action only, brought in the name of the deceased's 
personal representative, and was liable to reduction for the deceased's contributory 
negligence. 

Supra, note 14. 



66 



25 



First, there is uncertainty in the existing law about how to coordinate 
third party rights of recovery with the rights of the injured party or his estate. 
Thus, there is a potential overlap between claims by an injured person, or his 
estate, for loss of earning capacity and claims by third parties for their 
pecuniary loss under Part V of the Family Law Act, 1986. While the courts 
may have resolved this problem in the context of fatal injuries by refusing in 
practice to allow survival actions for loss of future earnings, 67 the issue does 
not appear to have been definitively resolved in the case law; nor does a 
straightforward reading of section 38(1) of the Trustee Act suggest the 
practical result. 68 Accordingly, it remains conceivable that an Ontario court 
will permit survival of an action for lost earning capacity, as did the House of 
Lords in Gammell v. Wilson , 69 with the resulting possibility of the defendant 
being forced to pay twice in respect of a deceased's earning capacity. 70 

As discussed above, 71 the potential for duplicative claims is present also 
in the context of non-fatal injuries, since, under section 61 of the Family 
Law Act, 1986, third parties have a right to claim for pecuniary loss in the 
case of non-fatal injury. 

A second difficulty arises out of the relational nature of an action for 
damages for loss of monetary contributions under the Family Law Act, 
1986. Since the cause of action depends upon proof of loss of expectation of 
pecuniary benefit, the court is obliged to engage in somewhat distasteful 
speculation concerning such matters as, in the case of a spousal claim, how 
long the marriage would have lasted. Prospects of pecuniary advantage from 
the possible remarriage of a widow or widower are also relevant in assessing 
the loss occasioned by the death. 72 



67 See Cooper-Stephenson and Saunders, supra, note 2, at 391. This issue is discussed 
supra, this ch., sec. 2(b)(i). 



68 
69 



Ibid. 

Supra, note 6, rev'd in England by the Administration of Justice Act 1982, supra, note 9, 
s.4. 



Waddams, supra, note 20, para. 765, at 439, has summarized the consequences of the 
holding in Gammell v. Wilson, supra, note 6, as follows: 

First, where the same persons are the beneficiaries of the estate and entitled to 
claim under Lord Campbell's Act (as is usual), recovery under the Act was 
effectively superseded, for the estate's recovery of the lost earning capacity will 
always equal or exceed the value of the lost dependency. A second consequence is 
that a tortfeasor who causes the death of an unmarried wage-earner has to pay 
much larger damages than formerly thought to be exigible, for the value of the lost 
earning capacity will be recoverable by the estate. Thirdly, if it should happen that 
the estate beneficiaries and the Lord Campbell's Act claimants are different 
persons, there is a real prospect of the defendant being made to pay twice over for 
the loss of the deceased's earning capacity. 



71 

72 



Supra, this ch., sec. 2(c)(ii). 
See supra, note 24. 



26 



Further difficulties may be seen as flowing from the enactment of Part 
V of the Family Law Reform Act, 1978 and its subsequent interpretation by 
the courts. As has been discussed, 73 previous fatal accidents legislation had 
restricted damages to proven pecuniary loss and had denied compensation 
for grief, sorrow and mental anguish. While this position had been modified 
somewhat by cases that allowed claims for loss of a parent's care, training, 
guidance, and encouragement, 74 the theory behind these cases was that 
these losses were pecuniary in nature. 

In 1969, this Commission, in Part I of its Report on Family Law, 15 
addressed briefly the question of non-pecuniary losses. The Commission 
considered that a full study of the question should be undertaken, and 
added: 76 

When a study is undertaken, the very difficult question of non-pecuniary 
loss should be examined. While the Commission has great sympathy for the 
wife whose husband is totally comatose as a result of a brain injury, what dollar 
and cents value can be placed on the loss of his affection and companionship? If 
an assessment of that value were to be made by the courts, would not this turn 
each case into an investigation of just how satisfying or unsatisfying the marital 
relationship had been? 

Accordingly, the Commission recommended (one Commissioner dissent- 
ing) that, in the contemplated legislation, "the damages recoverable be 
confined to pecuniary loss, as is the case under The Fatal Accidents Act" J 1 

When the provisions of the Ontario fatal accidents legislation were 
repealed and transferred to the Family Law Reform Act, 1978, a claim for 
guidance, care and companionship was "included", by section 60(2)(d), in 
the pecuniary loss resulting from injury or death recoverable by third parties 
under section 60(1). As we have indicated, the courts have now held that the 
intention of the Legislature was to make a marked change in the law, and to 
extend recovery to non-pecuniary losses. 78 

In theory, it remains the law that grief, sorrow and mental anguish are 
not compensable, but the cases show that it is difficult, if not impossible, in 
practice to distinguish damages for loss of guidance, care and companion- 



73 Supra, this ch., sec. 2(b)(ii)c. 

74 The St. Lawrence & Ottawa Railway Co. v. Lett, supra, note 28; Vana v. Tosta, supra, 
note 31; and Julian v. Northern and Central Gas Corp. Ltd., supra, note 21. 

75 Supra, note 33. 

76 Ibid., at 109. 

77 Ibid., at 1 10 (emphasis deleted). 

78 Mason v. Peters, supra, note 34, and Nielsen v. Kaufmann, supra, note 39. 



27 



ship from damages for grief. 79 In Mason v. Peters *° for example, the 
Ontario Court of Appeal stated that the deprivation of companionship 
caused by the wrongful death, 

. . .constitutes an irreplaceable loss for which [the plaintiff] is entitled to 
recovery. It is true that money cannot cure the loss, but it remains the only 
means available to society to recompense the wrongful destruction of the 
family relationship. 

Moreover, the subsequent decisions of Nielsen v. Kaufmann %x and Zdasiuk 
v. Lucas* 2 indicate that an inquiry is needed into the value of the lost 
relationship in each case. In Zdasiuk, the Court of Appeal held that the 
warmth of the affection and companionship that existed between the 
claimant and the deceased, and the extent to which the one had played a 
special role in the life of the other, had to be investigated with reference to 
the facts of the particular case. This is the very possibility that this Commis- 
sion foresaw in 1968. 83 

There is no doubt that the loss of a special, close or warm relationship 84 
is a real loss. Against the benefit of compensating this loss, however, must be 
weighed the costs of achieving compensation. Reference has been made 
above to the distasteful nature of the inquiry required to establish a claim to 
guidance, care and companionship. Moreover, as O'Connell and Kelly have 
pointed out, life insurance does not take into account the survivor's grief: 85 

[T]he face amount of the policy is paid— no more, no less, regardless of love, 
hate, or indifference. 



79 



The Manitoba Court of Appeal has called an award under similar legislation a 
"solatium": Larney Estate v. Friesen (1986), 41 Man. R. (2d) 169, 29 D.L.R. (4th) 444 
(subsequent reference is to 29 D.L.R. (4th)). 



5U Supra, note 34, at 40. 

81 Supra, note 39. 

82 Supra, note 43. 

83 See supra, the text accompanying notes 75-77. In Larney Estate v. Friesen, supra, note 
79, O'Sullivan J.A. said, at 449, for the majority of the Manitoba Court of Appeal: 

The problem with assessing an amount to be paid for loss of companionship 
is that, unless conventional figures are worked out, trials are likely to become filled 
with evidence of the worth or lack of worth of the deceased's life, of the nature of 
the relationship and the quality of the companionship given in life. This inquiry is 
likely to be futile. It would subject the grief of relatives of the deceased to the court 
process of examination and cross-examination to see whether one amount or 
another should be awarded for loss of companionship. This would be a hardship on 
all of the parties. 



84 



85 



The compensable loss in Zdasiuk v. Lucas, supra, note 43, was described in these terms 
by the Ontario Court of Appeal. 

O'Connell and Kelly, The Blame Game (1987), at 125. 



28 



The present legislation, however, compels everyone, in effect, to purchase 
insurance in respect of grief indirectly, through liability insurance premi- 
ums, taxes, and the costs of goods and services. The expense of permitting 
awards that are, in essence, by way of solace, is thus borne by all. 

There have been other, far-reaching, consequences of the Family Law 
Reform Act, 1978. The Act extended the class of relatives entitled to claim 
compensation to include brothers and sisters, and permitted recovery in the 
case of non-fatal injuries as well as death. These changes have given rise to a 
multiplicity of claims, 86 many of a minor or trivial nature, with the result 
that proceedings may be complicated and settlements delayed. Indeed, 
settlements with each of the eligible relatives may, when taken together, 
prove quite costly. 87 

The amounts awarded are not always small. Moreover, the Court of 
Appeal, in Nielsen v. Kaufmann, has held that there can be no conventional 
figure, but that the amount to be awarded will depend on the evidence in 
each case. The lack of a conventional award and the need to adduce 
evidence in each case in respect of a large number of claimants can lead to 
problems of inconsistency and high transaction costs. In a recent case where 
a husband and wife were injured in an automobile accident, each suffering 
fractures and spending a few days in hospital, a jury awarded $52,000 to the 
husband, and $39,000 to the wife under the Family Law Reform Act. There 
was some evidence of a personality change on the part of the wife, and of 
impotence on the part of the husband, but the Court of Appeal found this 
evidence to be unsatisfactory. Although the awards were set aside as unrea- 
sonable and a new trial ordered, the case established no guidelines for such 
awards, and it illustrates the very high costs associated with attempting to 
compensate such losses. 88 

Additional problems stem from procedural aspects of the Family Law 
Act, 1986. The Family Law Reform Act, 1978, like The Fatal Accidents Act 
before it, contained a provision prohibiting more than one action to recover 
third party losses in respect of the same occurrence. 89 A plaintiff advancing 
a third party claim was required by the Act to join in her statement of claim 
any other person "entitled to maintain an action" in respect of the same 



86 



One insurer has stated that in some cases the number of claimants exceeded fifty: see 
Allstate Insurance Company of Canada, Submission to the Ontario Task Force on 
Insurance on Family Law Reform Act (February, 1986), at 1. Such a case must be 
exceptional, but claims of twenty relatives, especially where there have been several 
marriages, are not hard to envisage. 



87 



See Canadian Bar Association— Ontario, Committee to Review Problems in the Casu- 
alty Insurance Industry, Submission to the Ontario Task Force on Insurance (April, 
1986), at 4. 

88 Vieczorek v. Piersma (1987), 58 O.R. (2d) 583, 36 D.L.R. (4th) 136 (C.A.). 

89 The Family Law Reform Act, 1978, supra, note 14, s. 60(4). 



29 



injury or death. 90 Moreover, the plaintiff had to file an affidavit asserting 
that the persons named in the statement of claim were "the only persons 
who are entitled or claim to be entitled to damages under section 60". 91 

The procedural provisions were inserted in order to avoid a multiplicity 
of actions by family members in respect of the same injury or death. 
However, the provisions gave rise to serious problems in practice. 92 As a 
result, the Legislature, when it enacted the Family Law Act, 1986, dropped 
the requirement that there be only one action by third parties. Under the 
1986 Act, each statutory claimant may commence her own action. 93 This 
state of affairs, however, has given rise to new problems, of open-ended 
liability and unrealistic results. 

Turning first to the problem of open-ended liability, under existing law 
defendants and their insurers do not know, when defending one suit, what 
claims may be advanced later. As a result, negotiations and settlements 
become difficult, and the legal and other costs of proceedings are increased 
because of the need to investigate and evaluate potential claims. 

With respect to unrealistic results, each person's capacity to provide, 
financially and otherwise, is finite. Particularly with respect to loss of 
guidance, care and companionship, however, multiple suits may result in a 
number of awards, which, taken together, exaggerate the capacity of the 
injured or deceased person. 

4. WHO SHOULD BE ABLE TO CLAIM FOR LOSS OF 
WORKING CAPACITY? 

(a) A Proposal for Reform 

The preceding discussion has focused on the present law, and its 
deficiencies, with respect to first and third party claims arising out of an 
injured or deceased person's loss of the capacity to earn future income or to 
provide services, including guidance, care and companionship. We have 
stated our view that the two capacities are closely related and we refer to 
them, together, as working capacity. 

The Commission has concluded that many of the problems of the 
existing law identified above stem from the fact that the loss of working 



90 
91 

92 



Ibid., s. 62(1). 

Ibid., s. 62(2). Section 60 (now s. 61 of the Family Law Act, 1986) set out the rights of 
third parties to recover in respect of the injury or death of another. 

The problems are described in Spiegel, "The New Family Law Act", Lecture given for 
the Law Society of Upper Canada, Continuing Education Program, May 24, 1986, at 
F-16 to F-17. See, also, Waddams, supra, note 20, para. 782, at 445. 



93 Family Law Act, 1986, supra, note 15, s. 61(1). 



30 



capacity is not assigned clearly, and exclusively, to the injured person or her 
estate. We believe that a fundamental change in the law to this effect, 
involving abolition of all third party claims in respect of working capacity, 
would greatly simplify and rationalize the law, and would decrease costs, 
while preserving fair compensation. 

In our opinion, the loss of capacity to work should be viewed primarily 
as a loss to the victim. To be deprived of this capacity involves loss not only 
of its fruits, but also of the choice as to how to use it. The loss to family 
members, on the other hand, is derivative and contingent. They suffer a loss 
only to the extent that the victim would have chosen to spend the proceeds 
of her labour or her energies on their behalf. 

This view, we would note, is consistent with the existing position that an 
injured person with reduced opportunities to pursue the amenities of life 
should nevertheless recover the full value of her lost earning capacity. 94 It is, 
moreover, reflected in part by the Family Law Act, 1986, which, notwith- 
standing its according of independent rights to third parties, contains 
features that can only be explained on a derivative theory: under the Act, 
third party claims are maintainable only "under circumstances where the 
[injured] person is entitled to recover damages, or would have been entitled 
if not killed". 95 

In proposing that all recovery for loss consequent upon an injury be 
channelled through the injured person or her estate, we do not suggest that 
the interests of family members are unimportant. To ensure that family 
members are provided for is clearly a worthwhile social policy, and the 
decision to do so by creating independent rights of action for them is 
understandable, especially given the history of their creation. At the time 
when the first fatal accidents legislation was passed, actions at common law 
by the estates of tort victims were precluded by the actio personalis moritur 
cum persona rule, preventing any recovery after the death of a party to an 
action. 96 The existence of this rule, together with the rule in Baker v. 
Bolton 91 prohibiting a suit by a third party for the death of another, meant 
that the only way to secure the interests of persons dependent on tort victims 
was through legislation providing dependants with their own actions. 

However, with the principle of survival of actions enshrined in the 
Trustee Act 9 * and antecedent legislation since 1886," we are free to make a 



94 Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229, 83 D.L.R. (3d) 452 
(subsequent references are to [1978] 2 S.C.R.). 

95 Family Law Act, 1986, supra, note 15, s. 61(1). See, also, supra, note 65. 

96 See supra, this ch., sec. 2(b)(i). 

97 Supra, note 11. 

98 Supra, note 4, s. 38(1), reproduced supra, text accompanying note 4. 

99 See The Statute Amendment Act, 1886, 49 Vict., c. 16, s. 23, which repealed and 
substituted new ss. 8 and 9 of An Act Respecting Trustees and Executors and the 
Administration of Estates, R.S.0. 1877, c. 107. 



31 



principled decision about how to compensate for losses consequent on 
personal injury. Once it is accepted that a personal action does not die with 
the person, it seems to follow that the rights of an estate of an injured person, 
who then dies, ought to be the same as those that the injured person herself 
could have asserted, had she lived. It is anomalous for the recovery to vary 
dramatically according to whether the injured person dies just before, or just 
after, judgment. 

The primary benefit of channelling all recovery through the injured 
person or her estate would be that the courts would have to deal with only 
one kind of action for the losses encompassed in loss of working capacity. 
Damages would be calculated on the same principles regardless of whether 
and when the victim dies. 10 ° The law would thus be greatly simplified, and, 
at least with respect to the earning capacity component of a claim arising out 
of lost working capacity, consideration of many of the contingencies respect- 
ing what a deceased victim might have contributed to a family member 
would be obviated. The courts would be relieved of the difficult and 
distasteful task of estimating the chance of the formation by the claimant of 
future relationships of dependency. The typical case has been the remarriage 
of a widow, but the same principles apply to widowers, and to children who 
are or may be adopted— or supported— by others. The claim being that of 
the estate, the stability of the former family relationship would become 
irrelevant in an action for loss of future earnings. 

There would be other benefits. The potential overlap with Part V 
claims under the Family Law Act, 1986 would be eliminated, although it 
should be noted that this problem, like the relevance of the possible future 
formation of dependency relationships, referred to above, could be solved 
by specific amendments to existing legislation. The proposed framework 
would also be more consistent with modern views of family relationships 
than the existing law, which is based on the assumptions of 1846, namely, 
that an earner owed a duty of support to his wife and children and had a 
corresponding right to their services. 101 

(b) Claims for Guidance, Care and Companionship 

Turning to claims for guidance, care and companionship now available 
to specified third parties under section 61(2)(e) of the Family Law Act, 1986 , 
the scheme outlined above contemplates the replacement of such third 
party claims with a first party claim for loss of the ability to provide care and 
guidance, which would survive death. Loss of companionship, in our view, 
raises different considerations and will be dealt with below. While this 
approach would be a major conceptual change from the existing law, we 
believe it has many advantages. 



100 See Waddams, "Damages for Wrongful Death: Has Lord Campbell's Act Outlived its 
Usefulness?" (1984), 47 Mod. L. Rev. 437, at 441. 

101 In this respect, see Waddams, ibid., at 449-50. 



32 



Earlier, we explained our view that the capacity to provide guidance 
and care is closely related to other productive capacities, the loss of which 
are compensable at law, namely, the capacities to earn and to perform 
household services. Conceptual consistency suggests, then, that the three 
types of capacity be treated similarly. 

The provision of guidance and care connotes a relationship, certainly, 
and persons other than the victim are affected. Nonetheless, as we have 
stated, we believe, as a matter of principle, that it is right to view the losses 
arising from an injury as belonging primarily to the injured person. In the 
case of a non-fatal injury, she will be able to distribute the award as she 
chooses, just as she would have been free to choose how to give guidance and 
care had the injury not occurred. In the case of a fatal injury, we consider 
that our scheme of distribution, proposed in a later section of this chapter, 102 
will generally channel awards to those who would have benefited from the 
guidance and care of the deceased. 

In the preceding section of this chapter, we discussed the difficulties 
that have arisen as a result of the enactment, and subsequent interpretation, 
of Part V of the Family Law Reform Act, 1978 . It will be recalled that section 
60(2)(d) of that Act (now section 61(2)(e)) has been interpreted as permitting 
compensation for a type of non-pecuniary loss, which, while theoretically 
not extending to grief and mental anguish, is indistinguishable from a type 
of solatium and depends upon evidence concerning the nature of the 
relationship between the claimant and tort victim. Moreover, because the 
1978 legislation extended a right of action to non-fatal injuries and 
expanded the class of statutory claimants to include brothers and sisters, a 
substantial number of claims may now be made for losses that were 
formerly not recognized. The large number of potential claimants, and the 
fact that each is entitled to bring her own action, have created a system of 
open-ended liability that causes difficulty with respect to the settlement of 
claims and increases costs. In addition, results in individual cases may, when 
taken together, suggest an unrealistic capacity on the part of the victim. 

In attempting to resolve these problems, the Commission gave consid- 
eration to a suggestion by the Canadian Bar Association— Ontario that the 
legislation should be amended to apply only to losses of a serious or 
permanent nature. 103 We are concerned, however, that this would add a new 
question to be litigated, namely, the meaning of "serious or permanent", 
and it is not at all clear that it would achieve its desired objective. The effect 
might well be to inflate some claims so as to bring them within whatever 
criteria of serious or permanent were established, as one way of indicating 
that a claim is serious is to put a high dollar value on it. 



102 Infra, this ch., sec. 8. 

103 Canadian Bar Association— Ontario, Committee to Review Problems in the Casualty 
Insurance Industry, supra, note 87, at 6. 



33 



The Commission also considered the possibility of permitting conven- 
tional, or fixed sum, awards for non-pecuniary relational losses. This 
approach has been adopted in Alberta 104 and in England, 105 and would have 
the advantages of introducing predictability and consistency into this area of 
the law, and avoiding the distasteful necessity of hearing evidence to 
establish individual losses. However, some might object that this would 
amount to the Legislature putting a dollar value on life. Certainly, any dollar 
amount would be arbitrary. 

Accordingly, we have opted in favour of abolishing third party claims 
for guidance, care and companionship, and replacing such claims with a 

104 Section 8 (2) of the Alberta Fatal Accidents Act, R.S.A. 1980, c. F-5, provides as follows: 

8.— (2) If an action is brought under this Act, the court shall, without reference 
to any other damages that may be awarded and without evidence of damage, give 
damages for bereavement of 

(a) $3000 to the spouse of the deceased person, 

(b) $3000 to the parent or parents of the deceased child, to be divided 
equally if the action is brought for the benefit of both, and 

(c) $3000 to the minor child or children of the deceased parent, to be 
divided equally among the minor children for whose benefit the action 
is brought. 

105 Section 1A of the U.K. Fatal Accidents Act 1976, supra, note 23, as added by the 
Administration of Justice Act 1982, supra, note 9, provides as follows: 

1A.— (1) An action under this Act may consist of or include a claim for damages 
for bereavement. 

(2) A claim for damages for bereavement shall only be for the benefit— 

(a) of the wife or husband of the deceased; and 

(b) where the deceased was a minor who was never married— 
(i) of his parents, if he was legitimate; and 

(ii) of his mother, if he was illegitimate. 

(3) Subject to subsection (5) below, the sum to be awarded as damages under 
this section shall be £3,500. 

(4) Where there is a claim for damages under this section for the benefit of both 
the parents of the deceased, the sum awarded shall be divided equally between 
them (subject to any deduction falling to be made in respect of costs not recovered 
from the defendant). 

(5) The Lord Chancellor may by order made by statutory instrument, subject 
to annulment in pursuance of a resolution of either House of Parliament, amend 
this section by varying the sum for the time being specified in subsection (3) 
above. 

In Current Law Statutes Annotated 1982 (1983), at 53-17, it is stated that the claim for 
damages for bereavement is "entirely new and follows the limited recommendations of 
the 1973 Report of the Law Commission (Law Com. No. 56, H.C. 373) rather than the 
broader recommendations, for 'loss of society' awards, of the Pearson Commission 
((1978), Cmnd. 7054)". This limited claim for bereavement is in addition to any claim 
for lost financial support under the Act. 



34 



first party claim for loss of the capacity to provide care and guidance, which 
would survive death. We would not permit a claim for loss of the capacity to 
provide companionship. In our view, such a claim is incompatible with the 
concept of the loss as that of the injured person. Moreover, prior to the 
enactment of the 1978 Act, loss of companionship, unlike loss of care and 
guidance, was not considered a pecuniary loss for which compensation was 
available under the principles in The St. Lawrence & Ottawa Railway Co. v. 
Lett and Vana v. Tosta, 106 and its inclusion in the 1978 legislation has 
undoubtedly contributed to the characterization of such losses as non- 
pecuniary. 

We would also restrict the class of persons in respect of whom loss of the 
ability to provide care and guidance may be claimed to spouses, dependent 
children and dependent parents. "Spouses" we would define as spouses 
within the meaning of Part III of the Family Law Act, 1986. "Dependent 
children" would include minors, and children who have attained the age of 
majority who have a reasonable expectation of receiving substantial pecuni- 
ary benefit 107 from the injured or deceased person. Parents with a reason- 
able expectation of receiving substantial pecuniary benefit also would be 
considered "dependent". 

A number of advantages would, we believe, attend the foregoing 
changes. First, although not eliminated entirely, the need to investigate the 
nature of the relationship between the provider and the recipient of care and 
guidance should be much diminished, as the loss would be that of the tort 
victim and would be compensable only with respect to a restricted class of 
person. 

Secondly, while it is impossible to guarantee against compensation for 
non-pecuniary loss, the fact that the loss would be characterized as that of 



106 In Mason v. Peters, supra, note 34, at 32, the Court of Appeal stated (emphasis added): 

Damages in the nature of a compassionate allowance, or as solatium for grief 
or mental anguish, or for loss of society or companionship caused by the untimely 
death are not measurable in pecuniary terms and, although undoubtedly real, are 
not recoverable. But the strict pecuniary standards have been modified in this 
province, at least to the extent that the loss of care and guidance suffered by a child 
as a result of a mother's death has been held capable of evaluation on a monetary 
basis and thus compensable as a pecuniary loss under the Fatal Accidents Act: 
Vana v. Tosta;St. Lawrence R. Co. v. Lett. On the other hand, in England the loss of 
a mother's care and guidance has not been treated as an item of pecuniary damages 

for which recovery may be awarded In neither jurisdiction has a loss of 

companionship been included in the category of pecuniary loss. Like the loss of 
parental or filial love or the loss of the joys of a happy home, the loss of those benefits 
of association in a family unit which may be included under the heading of 
'companionship' has not been considered a pecuniary loss for which compensation 
may be granted under the Fatal Accidents Act. 



107 



We expect that the term "pecuniary benefit" would be given a broad interpretation, in 
keeping with the meaning assigned to the word "pecuniary" in The St. Lawrence & 
Ottawa Railway Co. v. Lett, supra, note 28; Vana v. Tosta, supra, note 31; and Julian v. 
Northern and Central Gas Corp. Ltd., supra, note 21. Thus, for example, household help 
given to a parent by a child would constitute a pecuniary benefit. 



35 



the tort victim, rather than of third parties, and that loss of companionship 
would not be compensable, would tend to restrict compensation to provable 
pecuniary loss. 

Perhaps most importantly, the present system of multiple proceedings 
would be avoided: there would be one action, in which the claims in respect 
of a restricted class of persons would be determined with reference to the 
obviously limited capacity of the injured or deceased person to provide care 
and guidance. We would anticipate that, over time, conventional amounts 
would be awarded under the head. 

(c) Possible Objections 

Two lines of objection have been raised to our proposal to abolish all 
third party claims in favour of a first party claim for loss of working capacity 
that would survive death. The first is that family members may be under- 
compensated. In the context of non-fatal injuries, however, our proposal 
would leave the injured person with the same discretion respecting the level 
of provision to family members as she would have had but for the accident. 
Accordingly, we do not consider that family members would be undercom- 
pensated in these circumstances. In the case of fatal injuries, we shall make 
recommendations in a subsequent section of this chapter concerning how 
damages received by an estate should be distributed so as to benefit those 
persons who would likely have benefited from the deceased's working 
capacity but for the accident. 108 

The opposite objection is that, where there are no dependants, the 
estate would be overcompensated. In our view, however, the proposed rights 
of recovery by the estate are consistent with the general principle of survival 
of actions. In this vein, compensation received by an estate in respect of loss 
of working capacity may be likened to any other recovery by an estate 
through a survival action. 109 Indeed, objections to recovery by the estate for 
loss of working capacity may be understood as objections to the basic notion 
of inheritance of wealth. As Waddams has observed, 110 the proposed scheme 
is not different in this respect from the current legal position when an 
injured person recovers in respect of lost earning capacity and then dies 
unexpectedly. Either way, the estate is enriched without regard to whether 
expectations of support were held by third parties. 

We would add that our recommendations for assessment of damages to 
be awarded to an estate in respect of lost working capacity will provide for 
deductions for what the deceased would have spent on herself. It will be seen 
that in the case of a deceased with no dependants, for example, a child, these 



108 Infra, this ch., sec. 8. 

109 Waddams, supra, note 100, at 441-42. 

110 Ibid. 



36 



would be considerable, and recovery by the estate would be restrained 
accordingly. 111 

(d) Conclusions 

In conclusion, we recommend 112 the repeal of section 61 of the Family 
Law Act, 1986, providing for recovery by certain family members of their 
pecuniary losses resulting from wrongful injury to or death of another 
person. More particularly, we recommend repeal of section 61(2)(e), provid- 
ing for recovery by specified family members for loss of the guidance, care 
and companionship that would have been received if the death or injury had 
not occurred. In chapter 4 of this Report, we shall address claims permitted 
under section 61 by a third party for certain direct expenses and for the value 
of services provided, and shall recommend that these be abolished as well. 
Taken together, these proposals amount to a recommendation that Part V of 
the Family Law Act, 1986 be repealed. 113 

Finally, we recommend that legislation be enacted that would clearly 
provide for survival of actions in respect of loss of working capacity. 114 Loss 
of working capacity should be defined to mean loss of productive capacity, 
including loss of the capacity to earn, to provide care and guidance to a 
spouse, dependent children or dependent parents of the injured or deceased 
person, and to provide household services. 115 

We have already discussed the capacity to provide care and guidance. In 
the next two sections, we look more closely at the other two capacities that 
we would include in the term "working capacity". 

5. EARNING CAPACITY 

(a) Current Law 

There has been considerable debate as to whether compensation for 
loss of future income should be categorized as compensation for actual 
proven future losses, or as compensation for loss of a capacity to earn 
income. 116 The former characterizes the plaintiff's loss as the future stream 



111 See infra, this ch., sec. 7(c). 

112 One of the Commissioners, Mrs. Margaret A. Ross, dissents from certain of the 
following recommendations: see infra, this ch., sec. 10. 

113 See the draft Personal Injuries Compensation Act proposed by the Commission (herein- 
after referred to as "draft Compensation Act"), infra, Appendix 1, s. 17. 

114 Ibid., ss. 3(l)and4(l)(a). 

115 Ibid., s. 5. See s. 1 for the definitions of "spouse", "dependent child" and "dependent 
parent". 

116 See, generally, Cooper-Stephenson and Saunders, supra, note 2, at 196-204, and 
Waddams, supra, note 20, para. 395, at 228. 



37 



of income that the plaintiff would have earned over the course of her life and 
that she now will be unable to earn. The latter treats the loss as one of a 
capital asset, namely, the capacity to earn. Although the courts frequently 
use these two terms interchangeably and do not advert to the potential 
differences between them, the choice of one over the other can have an 
important impact in some types of case. 

Canadian law on this point starts with the Supreme Court judgment in 
The Queen in right of Ontario v. Jennings, , 117 in which it was decided that 
compensation under this head of damages is for loss of the capacity to earn 
income, which is to be treated as a capital asset that must be valued. The 
issue in Jennings was whether tax should be deducted from the damage 
award, so that it could be argued that it is only for this purpose that the loss is 
to be viewed in this way. This characterization was, however, reiterated 
more recently in Andrews v. Grand & Toy Alberta Ltd., m where it was used 
primarily to justify awarding compensation for the loss of earnings over the 
plaintiff's pre-accident working life expectancy. 

Despite these characterizations, in the typical case, the starting point in 
calculating damages is what the plaintiff was actually earning at the time of 
the accident. The court must then determine the probability that the 
plaintiff would have increased her earnings over the years due to promotion 
or the benefits of seniority, or that they would have been diminished by lay- 
off or ill health. 119 In this respect the task looks like it is designed to assess 
how much the plaintiff would actually have earned over her working life if 
the injury had not occurred. 

The task is much more speculative in the case of young adults who have 
not yet chosen a career path and infants whose talents and capabilities have 
not yet been fully developed, but the approach is essentially the same. Based 
on the information that the court does have about the plaintiff, it must 
decide as best it can what kind of occupation she is likely to have pursued 
and what her level of earnings likely would have been if not for the injury. 12 ° 
This has led some commentators to argue that, despite the courts' use of the 
terminology of "loss of earning capacity", damages are really being deter- 
mined according to the loss of earnings approach. 121 It is argued that the 
adoption of the loss of earning capacity approach would require the courts 
to consider what the plaintiff could have earned given her capabilities if she 
were to put her talents to the best possible use. Instead, the court is simply 



117 The Queen in right of Ontario v. Jennings, [1966] S.C.R. 532, 57 D.L.R. (2d) 644 
(subsequent references are to [1966] S.C.R.). 

118 Supra, note 94. 

119 See Cooper-Stephenson and Saunders, supra, note 2, at 244-49, and Waddams, supra, 
note 20, para. 396, at 229-30. 

This is discussed in more detail later in this section. 

121 Cooper-Stephenson and Saunders, supra, note 2, at 196-204. 



38 



asking the hypothetical question, "What would this plaintiff probably have 
earned over the course of his working life?", and this really amounts to 
regarding the loss as that of the stream of earnings that she would have 
received if the injury had not occurred. This is essentially the loss of earnings 
approach. 

The choice of approach is most significant in cases in which the 
plaintiff had been underemployed by choice or was performing work for 
which no remuneration was received. The latter cases are especially dra- 
matic because, if the loss of earnings approach were used, the plaintiff would 
receive no compensation under this head because she would have received 
no earnings even if the injury had never occurred. With the exception of 
cases involving full-time homemakers, very few of these cases are reported. 

In Turenne v. Chung, 122 the plaintiff was a teaching sister in a religious 
order who had directed that her salary be paid to her order. The defendant 
argued that, since she suffered no actual loss of earnings, she should receive 
no compensation under this head of damages. Damages were nevertheless 
awarded on the ground that the plaintiff was entitled to do anything she 
wished with her earnings, including give them away. 123 On the other hand, in 
Varkonyi v. C.BR., 124 the plaintiff had been a self-employed drywaller. For 
several years prior to the accident he had been working only about half the 
year, devoting the remainder of his time to leisure pursuits. Although the 
Court invoked the concept of loss of earning capacity to describe the 
plaintiff's loss, Kerans J. declined to award compensation for what he could 
have earned if he were to work full time. He stated that "[w]hile he has lost 
the capacity, the value of that loss to him is lessened substantially if it is not 
likely that he would have taken advantage of it". 125 

Turning to the much more common case of the homemaker, it is clear 
that on a straightforward loss of earnings approach, homemakers would 
receive no compensation under this head of damages in respect of periods of 
time during which they would not have participated in the paid labour force. 
While the tasks of the homemaker are things for which there is a market, 
and while some people do earn their livelihood in this way, typically when 
such tasks are performed for one's family, no wages are paid. On the loss of 
earning capacity approach, on the other hand, compensation could argu- 
ably be awarded for what the plaintiff could have earned, even if she was not 
actually earning or planning to earn wages. 126 In fact, as will be discussed, 



122 (1962), 36 D.L.R. (2d) 197, 40 W.W.R. 508 (Man. C.A.) (subsequent references are to 40 
W.W.R.). 

123 Ibid., at 509. 

124 (1981),26A.R.422(Q.B.). 

125 Ibid., at 442. 

For discussion, see Cooper-Stephenson and Saunders, supra, note 2, at 196-97, and 
Waddams, supra, note 20, paras. 402-09, at 233-36. 



39 



the courts have not compensated homemakers in respect of periods of time 
during which they would have worked in the home by reference to earning 
capacity. 127 

For analytical purposes, we distinguish between compensation in 
respect of the period of time during which the injured or deceased person 
would have, but for the injury or fatality, worked in the paid labour force, 
and compensation in respect of the period of time during which she would 
have worked in the home. The former type of compensation is addressed in 
this section. The latter type of compensation should, we believe, recognize 
the intrinsic value of the housekeeping capacity, and is discussed in the next 
section. 

Until recently, there was very little discussion of compensation for 
homemakers in the case law. Cooper-Stephenson and Saunders comment 
that, in the past, female claimants generally, and homemakers in particular, 
were seriously undercompensated under this head of damages. 128 In recent 
years, however, the courts have become somewhat more sensitive to the 
issue of fair compensation for loss of earnings, or earning capacity, for 
homemakers, but the grounds on which damages are awarded are often 
unclear. 

The most obvious changes in the case law have been with respect to the 
treatment of the wage earning potential of homemakers who were not in 
paid employment at the time the injury occurred and of young unmarried 
female plaintiffs. With respect to the former situation, it is no longer 
assumed that a married woman would never have taken paid employment 
merely because she was not so employed at the time of the accident. In 
McLeod v. Palardy, 129 the Court estimated the total wages that someone 
with the plaintiff's characteristics would likely be able to earn and then 
discounted this by the likelihood that she would only have worked part-time 
for much of her life because of her family responsibilities. This approach 
seems consistent with the loss of earnings approach because the result is to 
compensate the plaintiff only for what she probably would have earned if 
not for the injury, and not for what she could have earned by devoting 
herself to full-time paid employment. 

Illustrating the new attitude to young unmarried female plaintiffs, 
Spence J. stated, in Arnold v. Teno, as follows: 130 



127 Infra, this ch., sec. 6(a). 

128 Supra, note 2, at 207-16. 

129 (1981), 10 Man. R. (2d) 181, 124 D.L.R. (3d) 506 (C.A.). The plaintiff was a thirty-one 
year old woman with six children. 

130 Arnold v. Teno, [1978] 2 S.C.R. 287, at 329, 83 D.L.R. (3d) 609 (subsequent references 
areto[1978]2S.C.R.). 



40 



I do not think we can assume that a bright little girl would not grow up to earn 
her living and would be a public charge, and we are not entitled to free the 
defendants, who have been found guilty of negligence, from the payment of 
some sum which would be a present value of the future income which I think 
we must assume the infant plaintiff would earn 

While this passage indicates the abandonment of the assumption that all 
women marry and are supported by their husbands, there is still cause to 
question whether the compensation under this head in the case was ade- 
quate. To begin with, the Court settled on a damage award for loss of 
earnings or earning capacity at halfway between the poverty level and the 
salary that the plaintiff's mother earned as a teacher. This seems signifi- 
cantly lower than a similarly situated male plaintiff would have received. 131 
Secondly, Spence J. also seemed to be relying on the alternative ground that 
"like everyone else, the infant plaintiff has to eat, clothe herself and shelter 
herself". 132 Although this is true of everyone, both male and female, courts 
would not tend to base damage awards to male plaintiffs merely on the 
plaintiff's basic necessities. Given that the actual amount of the award in 
Arnold v. Teno merely coincided with the cost of basic necessities, it may be 
asked whether the Court was deciding on the basis of loss of earnings or 
earning capacity at all. 

This reasoning is more explicitly relied upon in Fenn v. City of 
Peterborough. , 133 The case involved a married woman who had been a full- 
time homemaker but who had separated from her husband due to the stress 
created in their relationship because of her extensive disability. The Court 
clearly treated lost earning capacity and basic living expenses as alternative 
grounds for the award and arrived at a sum of $6,000 per year. 

Different approaches have been taken in the English cases. In Moriarty 
v. McCarthy, m O'Connor J. acknowledged that the plaintiff was unlikely to 
earn as much in wages over her lifetime as a man would have because she 
was likely to have married and withdrawn from the labour market for at 
least a time. However, his Lordship went on to note that this would result in 
insufficient compensation because it failed to take into account the support 
the plaintiff would have received from a husband during the time that she 
was not in paid employment. The proposed solution was to compensate the 



131 Cooper-Stephenson and Saunders, supra, note 2, at 211, draw the comparison between 
the award in this case and those in the two other cases in the "trilogy" of 1978, Andrews 
v. Grand & Toy Alberta Ltd. , supra, note 94, and Thornton v. Board of School Trustees of 
School District No. 57 (Prince George), [1978] 2 S.C.R. 267, 83 D.L.R. (3d) 480. 
Although Diane Teno received $7,500 per year, the award in Andrews was $14,400 per 
year, and in Thornton was $10,200 per year. 

132 Supra, note 130, at 327. 

133 (1979), 25 O.R. (2d) 399, 104 D.L.R (3d) 174 (C.A.), aff'd on other grounds, [1981] 2 
S.C.R. 613, 129 D.L.R. (3d) 507. 



134 



[1978] 1 W.L.R. 155, [1978] 2 All E.R. 213 (Q.B.). 



41 



plaintiff for loss of prospects of marriage at approximately the same rate at 
which she would have been compensated for lost earnings. 

This clearly moves damages for loss of marriage prospects out of the 
realm of non-pecuniary damages and treats marriage as an alternative 
source of income for women. It would seem to follow from this that, in the 
case of an already married woman whose marriage does not break down 
because of the injury, the plaintiff would receive no compensation under 
this head because her husband continues to support her. However, in an 
unreported case, Carrick v. Camden London BC, 135 the same judge, O'Con- 
nor J., took the view that it was simpler to disregard the intervention of 
marriage because, even if the plaintiff had married and ceased paid employ- 
ment in favour of housekeeping, she would still have been working or 
producing an economic gain. This latter approach was followed in Hughes v. 
McKeown, 136 and is suggestive of compensation for loss of the housekeeping 
capacity itself. As indicated above, compensation recognizing the intrinsic 
value of the capacity to provide household services is analytically distinct 
from compensation in respect of loss of earning capacity, and is discussed in 
the next section. 

One further subject, adverted to above, requires elaboration, namely, 
compensation for loss of earning capacity suffered by infant plaintiffs. The 
younger a child is, the more difficult it is to predict how she would have used 
her capacities. In the case of a young adult, she may already have job plans 
and have taken steps toward training for a certain occupation even though 
she is not yet employed. In such cases, damages tend to be based on the 
average wage in that trade or occupation, subject to any discount required to 
take account of the chance that the plaintiff might not have completed her 
training, or might have been unable to find a job in that field. 137 This would 
seem to apply even when the plaintiff had planned a very lucrative and 
exclusive occupation, although the difficulty of successfully entering such 
occupations commonly leads the courts to discount the award heavily 
because of the possibility that the plaintiff might not have succeeded in her 
goal. 138 



135 Unreported (July 25, 1979, Q.B.). 

136 [1985] 1 W.L.R. 963, [1985] 3 All E.R. 284 (Q.B.). A similar approach was taken by 
Murphy J. in Sharman v. Evans (1977), 138 C.L.R. 563 (H.C.), at 598, but this is a 
dissenting judgment. The majority also did not reduce the female plaintiff's award for 
loss of working capacity because of the possibility that she might have married, but they 
preferred to base this decision on the expediency of ignoring the plaintiff's marriage 
prospects in view of the speculative nature of such a judgment on the facts of the case. 

137 Conklin v. Smith, [1978] 2 S.C.R. 1107, 88 D.L.R. (3d) 317; McKay v. Board of Govan 
School Unit No. 29 of Saskatchewan, [1968] S.C.R. 589, 68 D.L.R. (2d) 519; and 
McErlean v. Sarel, unreported (September 29, 1987, Ont. C.A.). 

138 Daigle v. Theo Couturier Ltd. (1973), 6 N.B.R. (2d) 679, 43 D.L.R. (3d) 151 (C.A.); 
Hearndon v. Rondeau (1984), 54 B.C.L.R. 145, 29 C.C.L.T. 149 (C.A.); Clinton v. County 
of Hastings (1923), 53 O.L.R. 266 (App. Div), aff'd [1924] S.C.R. 195, [1924] 2 D.L.R. 



42 



In the case of younger children, who have not yet formulated a career 
plan, the courts look at any evidence as to the child's capabilities. Degree of 
success in school is important in this regard. 139 The most difficult cases are 
those of very young children who have not yet displayed any particular 
aptitude. 140 There seems to be no doubt that many such plaintiffs are 
undercompensated. In some cases, no award was made at all under this 
head. 141 In others, the award was barely above subsistence level. 142 Even in 
Arnold v. Teno, 143 discussed above, where the Supreme Court of Canada 
recognized the necessity of making an award under this head even for young 
children, the amount arrived at was not far above the poverty level. The 
result of the current approach is that infant plaintiffs generally receive much 
lower awards for loss of earning capacity than most adult plaintiffs. 

(b) Recommendations 

Existing law has not differentiated clearly between loss of earnings and 
loss of earning capacity. Although we view the latter characterization as 
preferable, we consider that, generally, results have tended to be fair and 
reasonable. The cases of women and children, however, deserve comment. 

Our examination of current law reveals a tendency on the part of the 
courts to undervalue the earning capacity of women. At the same time, we 
note that the courts have abandoned the assumptions that women are likely 
to marry and, once married, are likely not to take paid employment. Thus, 
the courts are prepared to consider the degree to which a homemaker or 
unmarried woman would have participated in the paid work force, and the 
level of earnings she might have expected to obtain. In light of this, we do 
not believe that legislation is warranted at this time. In our view, it is well 
within the capacity of the courts to effect the necessary adjustments in levels 
of compensation on the basis of existing principles. As already stated, the 



217; and VanCamp v. Anderson (1928), 63 O.L.R. 257, [1929] 1 D.L.R. 429 (App. Div.), 
rev'd on other grounds [1930] S.C.R. 156, [1929] 4 D.L.R. 625. But see Schicchi v. 
Gronow (1985), 62 B.C.L.R. 174 (C.A.), suggesting that, unless the plaintiff can establish 
on a balance of probabilities that she would have achieved her goal, the measure of 
compensation should not be based on that occupation, but on something more 
attainable. 

139 Bogusinski v. Rashidagich, [1974] 5 W.W.R. 53 (B.C.S.C), and Floyd v. Bowers (1978), 
21 0.R. (2d) 204, 89 D.L.R. (3d) 559 (H.C.J.), var'd (1979), 27 O.R. (2d) 487, 106 D.L.R. 
(3d) 702 (C.A.). 

140 Jones v. Lawrence, [1969] 3 All E.R. 267 (Assizes), and S. v. Distillers Co. (Biochemicals) 
Ltd., [1970] 1 W.L.R. 114, [1969] 3 All E.R. 1412 (Q.B.). 

141 Loney v. Voll, [1974] 3 W.W.R. 193 (Alta. S.C., T.D.), and Connolly v. Camden and 
Islington Area Health Authority, [1981] 3 All E.R. 250 (Q.B.). 

142 Wipfli v. Britten (1984), 56 B.C.L.R. 273, 13 D.L.R. (4th) 169 (C.A.). Leave to appeal to 
the Supreme Court of Canada was granted: (1985), 13 D.L.R. (4th) 169«. 

143 Supra, note 130. 



43 



question of compensation for loss of capacity to provide household services 
is addressed separately, below. 144 

Turning to compensation for loss of earning capacity by children, we 
are concerned that infant plaintiffs tend to receive considerably less com- 
pensation under this head than do adult plaintiffs. It cannot be the case that 
all young plaintiffs would have achieved little better than subsistence 
earnings if they had remained uninjured. Nonetheless, we do not recom- 
mend legislative reform in this context. In reaching this conclusion, we bear 
in mind that assessment of a child's loss of earning capacity is unavoidably 
speculative. We would add, however, that there is no reason why the courts 
should not make use of the best statistical means available to guide the 
effort. As social science information and methods become more sophisti- 
cated there should be an increasing degree of accuracy in the prediction of 
such matters. 

A more specific question involves loss of the capacity to earn an 
annuity, pension, or the like. The problem may arise under the present law 
where the defendant wrongfully reduces the plaintiff's life expectancy, and 
will arise more frequently under our proposal for the replacement of Part V 
of the Family Law Act, 1986. As we observed earlier, it is well established 
that, in case of reduction of life expectancy, compensation for loss of earning 
capacity is to be based on the plaintiff's pre-accident life expectancy. 145 It 
has been held, also, that compensation is available for loss of pension 
earning capacity. 146 Most of the cases, however, involve impairment of a 
person's capacity to work. In order to put the matter beyond doubt, we 
recommend that legislation provide that compensation for loss of working 
capacity may include compensation for loss of entitlement under a pension, 
annuity, or similar instrument. 147 

6. CAPACITY TO PROVIDE HOUSEHOLD SERVICES 

(a) Current Law 

The primary way in which current law recognizes loss of capacity to 
provide household services is through awards to third parties for their own 
losses. 148 Third party claims of this kind were discussed earlier in this 



144 Infra, this ch., sec. 6. 

145 Supra, this ch., sec. 5(a). 



146 Lamont v. Pederson (1981), 17 Sask. R. 18, [1981] 2 W.W.R. 24 (C.A.); Lewis v. Todd, 
[1980] 2 S.C.R. 694, 115 D.L.R. (3d) 257 (retirement benefit); Keddy v. Minshull (1969), 
1 N.S.R. 1965-69 418, 5 D.L.R. (3d) 156 (N.S.S.C, T.D.); Julian v. Northern and Central 
Gas Corp. Ltd., supra, note 21, at 397; and Smith v. Canadian Pacific Ry. Co. (1963), 41 
D.L.R. (2d) 249, 45 W.W.R. 170 (Sask. Q.B.). 

147 Draft Compensation Act, s. 5(2)(c). 

148 Cooper-Stephenson and Saunders, supra, note 2, at 213-16. 



44 



chapter. 149 It will come as no surprise that we do not consider this to be a 
satisfactory approach to loss of the capacity to provide household services, 
as it fails to address the primacy of the victim's own loss. The injured 
provider of household services is deprived thereby of the right to make 
choices about how to provide to those around her. 

There are, as well, a number of cases that have allowed some compensa- 
tion to the victim in respect of impaired housekeeping ability, although 
without articulating a general approach to the matter. Thus, loss of house- 
keeping capacity has been compensated sometimes as part of a cost of care 
award, 150 sometimes under the head of loss of amenities of life and pain and 
suffering, 151 and sometimes, without much discussion, as part of a global 
assessment of damages. 152 There is, however, no clear or reliable basis for 
recovery by a victim in respect of loss of capacity to provide household 
services. This state of affairs has led Cooper-Stephenson and Saunders to 
observe that existing law respecting compensation for impaired housekeep- 
ing capacity leaves a "vacuum in the damages awarded to female plaintiffs", 
which should be filled. 153 We agree, and would add that loss of housekeeping 
capacity on the part of male plaintiffs should also be recognized in damages 
awards. Below, we make recommendations to this effect. 

Almost as important as the question of whether a claim for loss of 
housekeeping capacity may succeed is the question of how the loss should be 
valued. Existing law on this point has developed in the context of third party 
claims for loss of services. In the 1976 case of Franco v. Woolfe, 154 the 
Ontario Court of Appeal rejected evidence by an economist that the Court 
characterized as going to the "contribution that the average Canadian 
housewife makes to the gross national product", and stated as follows: 155 

In assessing damages for the death of a wife, the Court must determine the 
value of the services rendered by a particular wife to a particular husband; 



149 
150 



Supra, this ch., sec. 2(b)(ii)d. 



See, for example, Fenn v. City of Peterborough, supra, note 133, and McLeod v. Palardy, 
supra, note 129. Cooper-Stephenson and Saunders have pointed out that awards for cost 
of care do not normally include compensation for loss of capacity to provide services to 
persons other than the victim: supra, note 2, at 214. As such, this is at best a very partial 
way of compensating for impaired housekeeping capacity. It is particularly inadequate 
where there is no third party able to claim for loss of services. 

151 See, for example, Daly v. General Steam Navigation Co. Ltd., [1981] 1 W.L.R. 120, [1980] 
3 All E.R. 696 (C.A.), and Lefebvre v. Kitteringham (1985), 39 Sask. R. 308 (Q.B.), both 
with respect to loss of housekeeping capacity in the pre-trial period. 



152 



See, for example, Strong v. Laughlin, [1973] 1 W.W.R. 289 (B.C.S.C.), and Rietze v. 
Bruser(No. 2), [1979] 1 W.W.R. 31 (Man. Q.B.). 



153 Supra, note 2, at 216. 



154 



(1976), 12 O.R. (2d) 549, 69 D.L.R. (3d) 501 (C.A.) (subsequent references are to 12 O.R. 
(2d)). 



155 Ibid., at 551. 



45 



evidence of the value of the services rendered by the average Canadian 
housewife to the average Canadian husband is irrelevant to this determination. 

In assessing the value of lost services, however, the Court considered that the 
cost resulting from the hiring of a housekeeper could be taken into 
account. 156 To this end, the evidence of an employee of a domestic employ- 
ment agency was considered admissible. 

This position was reaffirmed in Nielsen v. Kaufmann, 157 in which the 
Court of Appeal quoted the following passage from Waddams, The Law of 
Damages, 15 * with approval: 159 

It is universally accepted that the cost of hiring reasonable services on a 
commercial basis to replace lost domestic services is an allowable claim. 

Once again, the evidence of an economist was rejected as being too general, 
and that of an employee of an employment service was admitted. 

It is not clear to us why economic evidence should be considered less 
specific, or relevant, than evidence of the cost of hiring a housekeeper. 160 We 
would emphasize that the practical result of the current position is that the 
value that is placed by law on household work is severely limited. In the next 
section, we look beyond the case law and discuss possible approaches to the 
valuation of household services. 



(b) Approaches to Valuation: Opportunity Cost vs. 
Replacement Cost as the Measure of Damages 

Debate in the academic community on how to evaluate loss of the 
ability to provide household services has tended to focus on two possible 
approaches: the "opportunity cost" method of assessment and the "replace- 
ment cost" measure. 161 The former assumes that, if an individual is faced 
with a choice between working in the home for no pay and taking a job 
outside the home at $15.00 per hour, her choice to stay home to work 
indicates that she values this activity at least as much as the amount she 
could earn in the workforce. If she did not so value homemaking, the 
rational individual would take the paid employment instead. Therefore, it is 



156 Ibid., at 552. See, also, Griffiths v. Canadian Pacific Rys. (1978), 6 B.C.L.R. 115 (C.A.). 

157 Supra, note 39. 

158 Supra, note 20, para. 710, at 711. 

159 Supra, note 39, at 196. 

160 See Finlay, "Household Services and the Ontario Court of Appeal" (1987), 8 Advocates' 
Q. 320, at 330-32, for a critique of the distinction. 

161 See, generally, Komesar, "Toward a General Theory of Personal Injury Loss" ( ) 974), 3 J. 
Legal Stud. 457, and Yale, "The Valuation of Household Services in Wrongful Death 
Actions" (1984), 34 U. Toronto L.J. 283. 



46 



argued that the value of her homemaking services should be assessed at the 
value of other opportunities (in this case, paid employment) that she 
forgoes in order to be a homemaker. 

The alternative approach is to assess the loss according to what it would 
cost to replace the services that the homemaker can no longer perform. Two 
means of assessing this cost have been suggested in the literature. 162 The first 
is the "substitute homemaker" approach, which seeks to determine how 
much it would cost to employ a person of the plaintiff's qualifications to do 
the things she used to do. The second is to compile a catalogue of the various 
services that the plaintiff used to perform, determine how many hours she 
spent on each of them, and assess the loss with reference to how much it 
would cost to hire someone on an hourly basis to perform each of those 
tasks. Numerous studies have been done to estimate the value of the average 
homemaker 's work using the catalogue of services approach. 163 

The main objection to the opportunity cost approach, and one that 
strongly disposes us against it, is that it may result in different levels of 
compensation to two people who performed the same tasks with the same 
degree of skill. Despite the fact that their household work was identical, one 
homemaker who had the unused skill to be a professional would receive 
more in damages than another whose only alternative to homemaking was 
some form of unskilled labour. 164 Such a result strikes us as unfair. Certainly, 
two homemakers may fairly receive quite disparate awards for loss of 
earning capacity, in respect of any periods of time during which they might 
have been expected to participate in the paid work force. However, awards 
in respect of loss of housekeeping capacity should reflect the intrinsic worth 
of that capacity, not the value of a capacity that the homemaker chooses not 
to exploit for the period in question. 

In addition, we are mindful of the speculative nature of valuing 
household services according to opportunities forgone. The approach 
could easily result in overcompensation if care were not taken to ensure that 
the forgone opportunities used to determine the award are opportunities 
that really were available to the plaintiff. Not only would there have to be 



16 See Bruce, Assessment of Personal Injury Damages (1985), at 256-60; Cooper-Stephen- 
son and Saunders, supra, note 2, at 218-25; and Newsom, "Torts— Wrongful Death— 
'How Much is a Good Wife Worth?' " (1968), 33 Mo. L. Rev. 462, discussing this issue in 
the context of fatal accident cases. 

163 Adler and Hawrylyshyn, Estimates of the Value of Household Work, Canada, 1961, and 
1971 (Institute for Economic Research, Queen's University, 1977); Hawrylyshyn, "The 
Value of Household Services: A Survey of Empirical Estimates" (1976), Review of 
Income and Wealth 101; Hawrylyshyn, Estimating the Value of Household Work in 
Canada (Statistics Canada, Office of the Senior Advisor on Integration, 1978); Kome 
and Pringle, About Face: Towards a Positive Image of Housewives (The Ontario Status 
of Women Council, 1977); and Proulx, Women at Work: Five Million Women, A Study 
of the Canadian Housewife (Advisory Council on the Status of Women, 1978). 

164 Adler and Hawrylyshyn, supra, note 163, at 7, and Cooper-Stephenson and Saunders, 
supra, note 2, at 218. 



47 



good evidence that the plaintiff who says she gave up the opportunity to be 
an accountant actually had the ability and skills to be an accountant, but it 
would also be necessary to assess the chances that this kind of work would 
have been available to the plaintiff given existing conditions in the job 
market. 

On the other hand, it is forcefully argued by supporters of the opportu- 
nity cost approach that the replacement cost method carries with it the 
danger of either undercompensating or overcompensating the plaintiff. 
Komesar has stated the requirements of an accurate assessment of value on 
the basis of replacement cost, and the difficulties involved, in the following 
terms: 165 

In theory, such a system would provide an accurate measure of the loss to the 
extent that (1) all services were enumerated, (2) each was adjusted for the 
quality of the performance, and (3) a substitute market service could be 
identified. In fact, each of these conditions for accuracy presents substantial 
problems, especially the last two. It appears that, in practice, the valuation is 
limited to a few basic domestic services that have easily identifiable market 
substitutes. While such a system is superior to no evaluation, it is likely to 
underestimate seriously many losses. 

There is also a concern expressed by some commentators that the replace- 
ment cost method will not adequately value the uniqueness of the injured 
homemaker's contribution. 166 Others have argued that the substitute house- 
keeper approach in particular will result in undercompensation, because the 
substitute will rarely perform all of the tasks, or work the number of hours, 
that the plaintiff did. 167 Conversely, it has been argued that, since it may take 
a small army of workers to replace the plaintiff, the cost will be out of 
proportion to the value realized. 168 This is especially relevant to the cata- 
logue of services approach, as is the caution that, for the full-time home- 
maker, some of her enumerated jobs can be performed simultaneously. 

We recognize a measure of validity in both the opportunity cost and the 
replacement cost approaches. We recognize as well that there is a lack of 
social consensus about the value that may reasonably be assigned to house- 
hold work. Thus, to the extent that our recommendations for reform should 
reflect a social consensus, our task is very difficult indeed. 

There is one important element of both approaches that we take as the 
starting point for our reform proposals in this area. That is, household work 



165 Komesar, supra, note 161, at 480. 

166 Pottick, "Tort Damages for the Injured Homemaker: Opportunity Cost or Replacement 
Cost?" (1978-79), 50 U. Colo. L. Rev. 59, at 67-68. 

167 Cooper-Stephenson and Saunders, supra, note 2, at 224. 

168 Peck and Hopkins, "Economics and Impaired Earning Capacity in Personal Injury 
Cases" (1969), 44 Wash. L. Rev. 351, at 366. 



48 



has intrinsic and significant economic value. We are concerned that any 
reform proposal should clearly recognize this value. Moreover, the law 
should be framed in such a way that litigation costs and elements of 
subjectivity are minimized. With these goals in mind, we set out our specific 
recommendations in the next section. 



(c) Recommendations 

In arriving at our recommendations respecting household services, we 
are influenced more by practical than by theoretical considerations. We do 
not endorse the opportunity cost approach, primarily for reasons of fairness, 
outlined above. 169 With respect to the replacement cost approach, we are 
mindful that results in individual cases can be reached only after a great deal 
of evidence, at considerable expense, has been adduced. Moreover, we have 
already explained that the levels of compensation achieved in this way could 
easily be either inadequate or excessive. 

While market approximations may be found for household services, 
there is in fact no paid labour market for the full array of household services 
performed by people in their homes and for their families. Thus, any 
assessment of the value of such services must be, to some extent at least, 
arbitrary and artificial. We favour, therefore, an approach to valuation that 
has reference to a standard that is both fair, in its recognition of the inherent 
value of household work, and simple to apply. We believe that the average 
weekly earnings statistics for Ontario provide such a standard. Accordingly, 
we recommend that compensation for loss of capacity to perform house- 
hold services should be assessed with reference to the average weekly 
earnings in Ontario (industrial aggregate). 170 

Thus, in the case of a full time homemaker, compensation for complete 
loss of capacity to perform household services would be assessed on the basis 
of the full average weekly earnings figure. We believe that compensation on 
a weekly, as opposed to hourly, basis, would be appropriate. Average Ontario 
weekly earnings would also be the benchmark when valuing loss of capacity 
to perform household services by persons other than full time homemakers. 
It would be up to the courts to assure fair proportionality of awards as 
between full time and part time providers of household services, on a case by 
case basis. 

Similarly, it would be up to the courts to achieve fair proportionality of 
awards in cases of partial, as opposed to complete, loss of capacity to 



169 We recognize that this diverges from the position taken in this Commission's Report on 
Motor Vehicle Accident Compensation (1973), at 93, and 109, Recommendation 17. 
However, for the reasons that we have stated, we feel obliged to depart from the earlier 
position. 

1*7 A 

Draft Compensation Act, s. 5(2)(b). The average weekly earnings (industrial aggregate) 
for Ontario is published monthly by Statistics Canada. 



49 



perform household services. Again, awards would be made with reference to 
average weekly earnings. However, we anticipate the possibility that, in 
cases of slight incapacity, replacement cost valuation might be more appro- 
priate than selecting some fraction of the average weekly earnings figure. We 
consider that our recommendation is flexible enough to permit the courts to 
assess damages according to the replacement cost method of valuation in 
such cases. 

In fact, our recommendation is in general terms precisely to permit this 
sort of flexibility. We considered recommending a more detailed statutory 
scheme. Such a scheme might, for example, distinguish between full time 
and part time homemakers, and between complete and partial loss of 
capacity to perform household services. However, it is our view that such 
distinctions are best left to be drawn by the courts, as .cases come before 
them. A detailed legislative scheme in this area would not provide the 
latitude needed to respond appropriately to the varied fact situations that 
will undoubtedly arise. 

We realize that difficulties may arise from time to time in distinguish- 
ing between care and guidance, on the one hand, and household services, on 
the other. Again, we would not wish to fix any rules on this question in 
legislation. Rather, we leave it to the courts to draw the appropriate distinc- 
tions in response to the cases that come before them. 

Finally, we would emphasize that implementation of this recommenda- 
tion would not alter or limit existing rights to compensation for loss of 
earnings or earning capacity in respect of any period of time during which 
an injured or deceased person would have, but for the injury or fatality, 
participated in the paid labour force. 



7. DEDUCTIONS FROM WORKING CAPACITY 

In a previous section of this chapter, 171 we made recommendations 
respecting the principles governing compensation for loss of an injured 
person's working capacity, which will apply regardless of whether death 
ensues from that injury. Determination of working capacity in accordance 
with these proposals, however, does not conclude the process of calculating 
this head of damages. This determination is but an initial step that renders a 
gross amount; certain deductions must be made in order to reflect more 
accurately the loss to the injured person or the estate, as the case may be. In 
this section, we shall discuss the treatment that should be given to the 
following three items: income taxation; the cost of earning; and personal 
living expenses. We turn first to the question of taxation. 



171 



Supra, this ch., sec. 4(d). 



50 



(a) Income Taxation 

Of the three matters that we shall consider, income taxation is the most 
controversial. At issue is the appropriate approach to be taken to the fact 
that the plaintiff's income would have been subject to tax had an injury not 
occurred. The position in Canada differs from that in England and Austra- 
lia, and, in Canada, a distinction is drawn between personal injury and fatal 
accidents. 

In England, the decision of the House of Lords in British Transport 
Commission v. Gourley 111 firmly established that an award of damages for 
loss of earnings should be reduced by the amount that the plaintiff would 
have had to pay in income tax had he continued in his job, but that, as a 
matter of tax law, he would now be relieved of the obligation to pay. 
Invoking the compensatory purpose of a damages award, the Court was of 
the view that, since the plaintiff would not have had at his disposal his gross 
income, he could not claim gross income as his actual loss. 

In Gourley, the House of Lords neglected to take into account the 
burden of taxation that would fall upon the investment income that would 
be produced by the award of damages. As a result, the plaintiff would be 
undercompensated. 173 The House of Lords subsequently rectified this defi- 
ciency in Taylor v. O'Connor, 114 which held that the award should be 
"grossed-up" 175 to produce an annual income that, after tax, would be the 
equivalent of the plaintiff's after-tax income before the injury. 

In Australia, the English approach has been endorsed by the High 
Court of Australia 176 and enshrined in legislation in the States of Victoria 177 
and Queensland. 178 

As we have indicated, the position in Canada is somewhat more 
complicated, as different approaches are taken in cases of personal injury 
and fatal accidents. With respect to personal injury cases, the Supreme 



172 British Transport Commission v. Gourley, [1956] A.C. 185, [1956] 2 W.L.R. 41 (subse- 
quent references are to [1956] A.C). 

173 In Gourley, the award had been calculated to provide a lump sum that, when invested, 
would produce an annual income equal to the plaintiff's pre-injury, after-tax income. 
The plaintiff, however, would have been required to pay tax on at least the interest 
portion of that investment income, with the consequence that his disposable income 
would be less after the accident than it had been before. 

174 Taylor v. O'Connor, [1971] A.C. 115, [1970] 2 W.L.R. 472. 

175 "Grossing-up" an award of damages refers to the inclusion of an amount in the award to 
offset liability for income tax on income from investment of the award. 

176 Cullen v. Trappell (1980), 146 C.L.R. 1 (H.C.). 

177 Wrongs Act 1958, No. 6420, s. 28A, as en. by No. 9353, 1979, s. 2(b). 

178 Common Law Practice Act, 1867-1981, s. 4, as en. by No. 84 of 1978, s. 2. 



51 



Court of Canada has held that no deduction should be made from an award 
of damages in respect of lost earning capacity in order to reflect the fact that 
the plaintiff would have had to pay tax on his income, had the injury not 
taken place. In the leading case, Jennings, 119 the Court emphatically 
rejected the approach adopted by the House of Lords in Gourley, in later 
decisions, it reaffirmed its position with little discussion. 180 

By contrast, in fatal accident cases, the award of damages payable to a 
third party under the legislation is based on the deceased's after-tax 
earnings. 181 In holding that a deduction must be made in respect of the 
income tax that the deceased would have been obliged to pay, had he lived, 
the Supreme Court of Canada reversed its earlier position 182 that fatal 
accidents were to be treated like personal injury cases. Since the award is 
reduced to take account of the tax that would have been payable, it must 
then be "grossed-up" in order to ensure realization of a sum that will 
account for the fact that income tax will be payable in respect of the 
investment income earned by the award. 183 

Having set out this background, it remains to consider, first, whether 
the present rule should continue to govern cases of personal injury and, 
secondly, what approach should be taken to fatal accidents, in light of our 
proposal to repeal Part V of the Family Law Act, 1986 . 184 In order to decide 
these matters, it would be instructive to review the underlying rationales of 
the existing positions. 

In Jennings, Judson J. gave the judgment that addressed the tax issue in 
the greatest depth. His main reasons for rejecting the Gourley approach 
were three in number, and can be briefly summarized. 185 First, he relied on 
the characterization of the plaintiff's loss as that of "his natural capital 
equipment", 186 holding that "[t]he plaintiff has been deprived of his capac- 
ity to earn income [and it] is the value of that capital asset which has to be 
assessed". 187 Secondly, Judson J. argued that the defendant had no right to 
consider how the plaintiff would have spent his income, whether in paying 



179 Supra, note 117. 

180 Andrews v. Grand & Toy Alberta Ltd.. supra, note 94, and Guv v. Trizec Equities Ltd., 
[1979] 2 S.C.R. 756, at 766, 99 D.L.R. (3d) 243. 

181 Keizer v. Hanna, supra, note 17. 

182 Gehrmann v. Lavoie, [1976] S.C.R. 561, 59 D.L.R. (3d) 634. 

183 See, generally, Cooper-Stephenson and Saunders, supra, note 2, at 426-27. 

184 Supra, note 15. 
For a lengthy discussion, see Cooper-Stephenson and Saunders, supra, note 2, at 185-95. 
Supra, note 117, at 545. 



185 
186 



187 Ibid., at 546. 



52 



taxes or otherwise. 188 Finally, Judson J. noted the enormous complexities 
involved in attempting to estimate what the plaintiff's tax liabilities would 
have been as a reason for refusing to take them into account. 

The English position, as we have indicated, rests on the assertion that 
an injured plaintiff cannot be said to have lost more than her after-tax 
income, which is the amount that would have been received had the wrong 
not been done. 

In the considerable literature bearing upon this issue, the relative merits 
of the two positions have received close scrutiny. The English approach has 
been criticized on both pragmatic and conceptual grounds, as has the 
Jennings rule. 

The practical objection to the Gourley rule is that it imposes upon 
courts the difficult task of assessing the amount of tax that the plaintiff likely 
would have paid on his income over his working life. 189 This requires the 
court to take into account any other possible income of the plaintiff, to 
speculate as to whether he would have made use of any of the tax planning 
devices available in order to decrease his tax liability, and to assess the 
probability that the tax rates will increase or decrease, or that the plaintiff 
might have moved to a jurisdiction with a higher or lower rate. 190 The 
problems of estimating future tax liabilities are even greater if the plaintiff's 
income was from operating a business. 191 Calculating the correct amount of 
the deduction for tax requires courts not only to speculate as to what might 
happen to the domestic tax system, but also to intepret and predict the 



188 In this regard, he quoted with approval the following excerpt from the minority report of 
the Seventh Report of the Law Reform Committee {ibid., at 545): 

What the plaintiff would have done or have been required to do with his money 
had he not suffered the injury complained of is, so far as the defendant is 
concerned, irrelevant. Tax is not a charge on income before it is received and there 
is no more reason for taking it into account than rates, mortgage interest and any 
other liabilities which the plaintiff may have to meet. To do so means that the 
defendant is making something less than full restitution for the injury. In other 
words, each £1 of income lost is worth £1 to the plaintiff , either to spend on himself, 
or to discharge his liabilities, including that for income tax. 

See Seventh Report of the Law Reform Committee, Effect of Tax Liability on Damages 
(Cmnd. 501, 1958), at 4 (emphasis in the original). 

189 The other practical difficulty with the Gourley decision— the failure of the Court to take 
into account the fact that tax would be payable on the income generated by the damages 
award, which would lead to undercompensation— was recognized in Taylor v. 
O'Connor, supra, note 174. 

190 See Bale, "British Transport Commission v. Gourley, Reconsidered" (1966), 44 Can. B. 
Rev. 66, at 85-92, and Street, Principles of the Law of Damages (1962), at 88-104. 



191 



Bale, supra, note 190, at 87-88. 



53 



future of foreign tax laws. 192 In response to these assertions, it has been 
argued that the degree of speculation required in the tax context is no greater 
than that already imposed on the courts in assessing the value of the 
plaintiff's lost earnings, and that mere difficulty of assessment has never 
been accepted as a reason for refusing to take a relevant factor into 
account. 193 

The conceptual attack on the English rule is that it is inconsistent with 
the characterization of the plaintiff's loss as a loss of the capacity to earn, 
which should be treated as a capital asset, the full value of which the plaintiff 
should receive. The income from the sum designed to replace the asset 
would then be subjected to tax just as the income from the use of the asset 
would have been taxed if the plaintiff had never been injured. 194 Indeed, this 
was the only reason adverted to by the Supreme Court of Canada in 
Andrews 195 when it affirmed its rejection of the Gourley approach. 

Concerns of both practicality and principle are inherent in the objec- 
tion to the Jennings rule as well. The Jennings approach has been criticized 
on the basis that the failure to take tax into account leads to overcompensa- 
tion of injured plaintiffs. 196 It is argued that, since the plaintiff would not 
have had the benefit of her gross income, she is in a better position than prior 
to the injury, and thus will be able to enjoy a higher standard of living than 
could have been achieved through actually working, even though the future 
investment income is taxable. 197 

In fact, the question of overcompensation is a complex one. It has been 
shown that "[t]he extent of overcompensation under the Jennings approach 
depends crucially on the amount of earnings lost, the length of the working 
life, and the rate of inflation". 198 The degree of overcompensation thus 
varies and, indeed, there may even be undercompensation "at higher levels 
of lost earnings". 199 



192 Ibid., at 79-80. 

193 See Cooper-Stephenson and Saunders, supra, note 2, at 191-92. See, also, McLachlin, 
"What Price Disability?" (1981), 59 Can. B. Rev. 280. 

194 See Waddams, supra, note 20, para. 417, at 242-43. 

195 Supra, note 94. 

196 See Cooper-Stephenson and Saunders, supra, note 2, at 195; Bale, supra, note 190, at 
100; Gibson, "Repairing the Law of Damages" (1978), 8 Man. L.J. 637, at 654-55; and 
Rea, "Inflation, Taxation and Damage Assessment" (1980), 58 Can. B. Rev. 280. 

197 Ibid., at 286-87. 

198 Ibid., at 292. 

199 Ibid., at 293. 



54 



Dissatisfaction with the approach to taxation has led some critics to 
propose an amendment to the Income Tax Act 200 to provide for taxation of 
the damages award in the hands of the plaintiff. 201 

The Commission has concluded that the existing rule should continue 
to govern the determination of damages for loss of working capacity in cases 
of non-fatal injury, and we so recommend. It is our view that the incidence 
of taxation is a concern extraneous to the assessment of damages as between 
plaintiff and defendant; it is a matter solely between the plaintiff and 
Revenue Canada. Should the impact of the Income Tax Act be regarded as 
overgenerous to plaintiffs, the legislation may be amended by Parliament. 

We believe further that the defendant should pay compensation for the 
full amount of the loss that she has caused, regardless of whether the plaintiff 
subsequently may be obliged to account to Revenue Canada. In this case, 
what the plaintiff has lost— working capacity— is a loss of a capital nature 
that can be valued as a capital asset. It is analogous to a lost annuity, the 
compensation for which is the full capital value of the annuity, regardless of 
whether the income would have been taxable. Presumably, the plaintiff will 
invest the award in some way, and will pay income tax on the proceeds of the 
investment. If income tax were deducted in the initial calculation of the 
damages, the damages would have to be "grossed-up" in order to ensure that 
the plaintiff receives the proper income in view of the anticipated taxes on 
the investment income. Even though we shall make recommendations to 
address problems associated with gross-up under the present law, 202 not all 
of the difficulties would be removed. 203 The experience with gross-up in 
assessing future care has not been so favourable as to persuade us that it 
should be extended. 204 

As indicated, in relation to fatal accidents the Supreme Court of 
Canada has held that, in calculating damages, a deduction must be made in 



200 R.S.C. 1952, c. 148, as substantially re-enacted by S.C. 1970-71-72, c. 63. 

201 See Krishna, "Taxation of Personal Injury Awards: A Wiry Methuselah" (1976-77), 3 
Dalhousie L.J. 385, and Krishna, "Tax Factors in Personal Injury and Fatal Accident 
Cases: A Plea for Reform" (1978), 16 Osgoode Hall L.J. 723. See, also, Bale, supra, note 
190, at 101, and Cooper-Stephenson and Saunders, supra, note 2, at 196. 



202 
203 



See infra, ch. 4, sec. 3(d). 



In some cases, gross-up would lead to large awards: see United Kingdom, Royal 
Commission on Civil Liability and Compensation for Personal Injury, Report (Cmnd. 
7054, 1978) (hereinafter referred to as "Pearson Report"), Vol. I, para. 705, at 152. 

204 See Waddams, supra, note 20, para. 417, at 242-43. If Revenue Canada were to change 
its policy and tax the award of damages for loss of working capacity, presumably 
appropriate allowance would have to be made for receipt within a single year of a sum of 
money representing loss over several years, and for the tax that would inevitably be paid 
by the plaintiff on the investment income. To avoid undercompensation, the award of 
damages either would have to be grossed-up or Revenue Canada would have to establish 
a tax-sheltered scheme for the damages, which would obviate the need for gross-up, 
along the lines that we recommend for the cost of future care: see infra, ch. 4, sec. 3(d)(i). 



55 



respect of the income tax that would have been payable by the deceased. 
Generally, academic commentators have criticized the different treatment 
of taxation in personal injury and fatal accident cases. 205 However, although 
commentators agree with respect to the desirability of consistency, they 
disagree about the approach to be favoured, with the Gourley approach 206 
and the Jennings approach 207 each having its proponents. 

For us, the answer to this issue lies in our fundamental recommenda- 
tion that the deceased's loss of working capacity should be regarded as a loss 
of the estate— a recommendation that would assimilate the position of the 
estate of an injured person to that of the injured person herself. Accordingly, 
the assessment of damages should not vary according to whether the injured 
person dies just before, or just after, judgment is given. Moreover, if the 
compensation were calculated net of income tax, and no allowance, by 
means of gross-up, were made for the taxes to be paid by survivors from the 
proceeds of investment of the award, the survivors, in our view, would be 
undercompensated. 

We therefore recommend that, where personal injury results in death, 
no deduction should be made from an award of damages for loss of working 
capacity in respect of the income tax that would have been payable by the 
deceased. 208 



(b) Cost of Earning 

Where an injured person suffers a loss of earning capacity, the calcula- 
tion of damages may include a deduction in respect of the expenses incurred 
by the plaintiff in earning income. Such a deduction is required where the 
plaintiff is no longer able to earn income, or must accept employment that 
does not involve these costs or involves lesser costs. As Cooper-Stephenson 
and Saunders point out, "[t]his can be seen as reflecting the plaintiff's 
reduced need for that portion of his earnings, or alternatively as reflecting an 
award of real earnings, in the sense that the plaintiff is entitled only to his net 
financial profit from employment". 209 On this analysis, loss of earnings is 

205 But see Waddams, supra, note 20, para. 420, at 245-46. 

206 See Rea, supra, note 196. 

See Sheppard, "The Tax Element in Compensation since The Queen v. Jennings & 
Cronsberry" (1971), 19 Can. Tax J. 448, at 450-51. See, also, Krishna, "Taxation of 
Personal Injury Awards: A Wiry Methusaleh", supra, note 201, for a critique that goes 
beyond the inconsistency of approach and suggests a legislative alternative to both 
Gourley and Jennings; and Cooper-Stephenson and Saunders, supra, note 2, at 195-96. 



207 



208 Draft Compensation Act, s. 6(1). 



209 



See Cooper-Stephenson and Saunders, supra, note 2, at 288. The authors refer to the 
statement by McGillivray J.A. (dissenting in part) in Jennings v. Cronsberry and the 
Queen in Right of Ontario, [1965] 2 O.R. 285, at 317, 50 D.L.R. (2d) 385 (C.A.), that "[i]t 
is customary when computing loss of income, to take into consideration the cost of 
earning such income and to deduct the same from the award". 



56 



analogized to loss of profits, insofar as gross earnings are not considered to 
represent the real loss to the plaintiff. 210 

In cases of non-fatal injury, the cost of earning income is deducted. 
Where life expectancy has been reduced, a deduction is made in respect of 
the cost of earning that would have been incurred during the so-called "lost 
years". 

In determining claims under fatal accidents legislation, a deduction 
similarly must be made in respect of the deceased's cost of earning. 211 Cost of 
earning, like income tax, is deducted to reflect the fact that the dependants 
have lost only what the deceased would have actually had available to give 
them. 

In the case of personal injury not leading to death, the law is sufficiently 
clear, and we recommend that no legislative statement of the principle be 
made. With respect to fatal accidents, we believe that our recommendation 
that legislation should provide expressly that a claim for loss of working 
capacity should survive to the estate of an injured person calls for general 
guidance as to the contours of that change. We therefore recommend that 
the draft Personal Injuries Compensation Act should provide expressly that, 
where personal injury results in death, the award of damages for loss of 
working capacity, other than damages for loss of capacity to give care and 
guidance, should be reduced by the cost of earning that would have been 
incurred by the deceased had death not resulted from the personal injury. 212 

(c) Personal Living Expenses 

The deduction of personal living expenses has been the subject of 
judicial consideration in England, but not in Canada. In Pickett v. British 
Rail Engineering Ltd., 213 the House of Lords held that, where the life 
expectancy of an injured person has been reduced, there should be a 
deduction of the living expenses that the plaintiff would probably have 
incurred during the "lost years". 214 In Gammell v. Wilson, which held that 



210 See Cooper-Stephenson and Saunders, supra, note 2, at 289. 

211 Ibid., at 428. 

212 Draft Compensation Act, s. 6(1). 

213 Supra, note 7. 

214 In Pickett v. British Rail Engineering Ltd., ibid., at 163, Lord Edmund-Davies said: 

[T]he court should make what it regards as a suitable deduction for the total sum 
which Mr. Pickett would have been likely to expend upon himself during the 'lost 
years'. This calculation, too, is by no means free from difficulty, but a similar task 
has to be performed regularly in cases brought under the Fatal Accidents Act. And 
in Scotland the court is required, in such cases as the present, to 'have regard to any 
diminution. . .by virtue of expenses which in the opinion of the court the pur- 
suer. . .would reasonably have incurred. . .by way of living expenses For, maca- 
bre though it be to say so, it does not seem right that, in respect of those years when 



57 



an action for loss of earning capacity survived in the case of immediate 
death, Lord Scarman stated that "[t]he loss to the estate is what the deceased 
would have been likely to have available to save, spend, or distribute after 
meeting the cost of his living at a standard which his job and career prospects 
at time of death would suggest he was reasonably likely to achieve". 215 

While the necessity of deducting personal living expenses in respect of 
the lost years is clear in England, and presumably is the law in Canada as 
well, 216 the precise meaning of the deduction is less certain. While endorsing 
the subtraction of "living expenses", the seminal decisions of the House of 
Lords do not explain the meaning of the phrase. This concept, however, was 
considered in White v. London Transport Executive. 217 The Court explained 
that, in respect of a deceased young man, it was necessary to deduct from 
prospective net earnings "the cost of maintaining himself"; this cost was 
said to include "the cost of his housing, heating, food, clothing, necessary 
travelling and insurances and things of that kind, if relevant". 218 

Calculation of the appropriate deduction is, in essence, a rough esti- 
mate. In Gammell v. Wilson, the House of Lords upheld an award of 
damages based on one-quarter of the net lost earnings of a young unmarried 
man. In White v. London Transport Executive, the Court allowed damages 
in the amount of one-third of the net lost earnings for the period during 
which the deceased would have been earning an income while living at 
home with his mother, and one-quarter for the period during which the 
deceased would have been living on his own, on the assumption that the 
deceased's expenses would have been less in the former case. 219 

Consistent with the approach that we have taken to deductions for the 
cost of earning, we believe that the deduction of personal living expenses 
should be expressly required where a claim for loss of working capacity 
survives to the estate of the deceased. In the case of a person leaving a spouse 
and children, the amount that would have been spent on personal living 
expenses would ordinarily be much less than if the person were unmarried 
and had no children; hence, a larger portion of the compensation for the lost 
working capacity would survive to the estate in the former case. 

A further issue arises as to whether the determination of the deceased's 
personal living expenses should be left to the court, or whether fixed 

ex hypothesi the injured plaintiff's personal expenses will be nil, he should recover 
more than that which would have remained at his disposal after such expenses had 
been discharged. 

215 Gammell v. Wilson, supra, note 6, at 78. 

216 See Waddams, supra, note 20, para. 413, at 239. 

217 [1982] Q.B. 489, [1982] 2 W.L.R. 791 (subsequent references are to [1982] Q.B.). 

218 Ibid., at 499. See, also, Waddams, supra, note 20, at 239. 

219 Supra, note 217, at 500-01. 



58 



amounts or percentages should be established by legislation. This question 
involves a dilemma familiar to the enterprise of law reform, and, indeed, 
inherent in the law of damages as a whole. If the quantification of living 
expenses is left entirely open, without any legislative guidance whatsoever, 
account can be taken of the individual characteristics of particular cases. 
However, an inevitable corollary of this approach, apart from the attendant 
uncertainty, is that in every case it will be necessary to present and test 
evidence with respect to the amount that the deceased probably would have 
spent on herself, had she lived. That such an inquiry will involve concomi- 
tant additional expense is obvious. 

The advantages and disadvantages of fixing the personal living 
expenses as a proportion of income are the mirror image of leaving the 
matter entirely to the court. Flexibility will be sacrificed to secure certainty, 
as well as the saving of time and expense. 

On balance, we favour the establishment of fixed percentages by 
legislation. Put simply, we regard the advantages of this approach, to both 
the parties and the court, as more weighty than the single disadvantage— the 
inability to respond to those cases where the conclusive percentages are 
inappropriate. We recommend that the personal living expenses that are to 
be deducted from the deceased's damages for loss of working capacity, other 
than damages for the loss of capacity to give care and guidance, should be 
conclusively presumed to be three-quarters of the projected income of a 
person who dies without a spouse or dependent children; 220 one-quarter of 
the projected income of a person who dies with a spouse but without any 
dependent children, during the anticipated joint life expectancy of the 
deceased and his spouse; and fifteen percent of the projected income of a 
person, with or without a spouse, who dies with dependent children, during 
the projected period of dependency. 221 

Earlier in this chapter, 222 we noted that an objection to channelling 
recovery through the estate is that there would be overcompensation where 
the deceased has no dependants. We explained that our proposals for 
deduction of personal living expenses would meet this reservation. Accord- 
ingly, it would be useful to compare the treatment of the death of a child 
under our recommendation to the position under the present law. 



220 



221 



222 



This is consistent with the position taken by the House of Lords in Gammell v. Wilson, 
supra, note 6. 

Draft Compensation Act, s. 6(2). In Nielsen v. Kaufmann, supra, note 39, at 198-99, the 
Ontario Court of Appeal held that in a two-income family, where there was a pooling of 
resources, the surviving spouse was entitled to 60% of the net income of the deceased 
spouse and each child was entitled to 4% of net income. In the case of a one-income 
family, this so-called "dependency rate" is 70% for a surviving spouse and 4% for each 
child. 

Supra, this ch., sec. 4(c). 



59 



Under our proposals, in the case of a child of five years who, if 
permanently disabled, would have been entitled to an award of $300,000, 223 
the estate would recover about $75,000. If this seems to be an excessive sum, 
it must be compared with the current system, whereby the parents, 
grandparents, brothers, and sisters are all entitled to individually assessed 
awards for loss of guidance, care and companionship, as well as for any 
pecuniary loss that can be established. In some cases, these will exceed, in 
total, the figure mentioned. To the actual sums awarded must be added the 
costs of assessing the value of guidance, care and companionship— costs 
that, while not eliminated entirely under our scheme, would be reduced 
significantly. It is suggested that the increased cost to defendants of the 
proposed scheme in some cases will be offset by the gains in predictability 
and ease of assessment. In all cases, the total working capacity of the 
deceased, less the cost of earning and personal living expenses, will provide a 
firm maximum to the damages awardable. 

8. DISTRIBUTION OF THE DAMAGES AWARD FOR LOSS OF 
WORKING CAPACITY 

In this section, we shall discuss the distribution of an award of damages 
that is made in respect of loss of working capacity. We shall consider 
separately non-fatal injuries and fatal injuries, beginning with the former. 

At present, in the case of a non-fatal injury, where an injured person, 
other than a person under a disability, is awarded damages, the disposition 
of the award is entirely within the discretion of that person, subject to the 
existence of the obligations of support established under Part III of the 
Family Law Act, 1986. 224 Where, however, the injured person is a person 
under a disability, such as a minor, an award of damages must be paid into 
court, unless the court orders otherwise. 225 Generally speaking, money may 
be paid out of court only in accordance with an order or report. 226 



223 The present value of lost earnings of a child of 5, based on average industrial wages in 
1986 ($22,407), is $391,924. The assumptions on which this calculation is based are no 
loss of pension or fringe benefits, no cost of earning, male mortality, no productivity 
increases, and an earning span from ages 20-65. A contingency deduction of 25% would 
lead to approximately the figure given here of $300,000. Some recent cases have used 
much smaller figures: see, for example, $140,000 in Scarffv. Wilson (1986), 10 B.C.L.R. 
(2d) 273, 39 C.C.L.T 20 (S.C.). 

224 Family Law Act, 1986, supra, note 15, s. 30 (obligation to spouse), s. 31 (obligation of 
parents to child), and s. 32 (obligation of non-minor child to parent). 

225 Rules of Civil Procedure, O. Reg. 560/84, r. 7.09. For the form of an order where 
payment is to be made on behalf of a minor, see, ibid., r. 59.03(5). 

226 Ibid., r. 73.03(1). Where money is in court to the credit of a person under a disability, an 
order for payment out may be obtained on motion to a judge by, or on notice to, the 
Official Guardian, except where the Public Trustee is committee of the person's estate, 
in which case the motion must be made by, or on notice to, the Public Trustee: ibid., 
r. 73.03(10). It may also be paid out on consent in respect of money paid under an offer 
to settle or an acceptance of an offer or as security for costs: ibid., r. 73.03(1) and (4). 



60 



We do not propose any changes with respect to the distribution of 
damage awards in the case of non-fatal injury, save, of course, for our 
recommendation to preclude third party claims by repealing Part V of the 
Family Law Act, 1986. This exception follows from our view that loss of 
earning capacity and loss of the capacity to give care and guidance are 
properly viewed as losses suffered by the injured party; family members 
suffer loss only to the extent that the victim would have chosen to devote the 
fruits of her labour to their benefit. Where an injured plaintiff recovers 
damages in respect of loss of working capacity, she should be free to 
determine whether, and how, it is to be distributed to others, subject only to 
the support obligations under the Family Law Act, 1986. 

With respect to fatal accidents, we have taken an entirely different 
approach. Although we have recommended earlier that independent third 
party claims be abolished in favour of giving the right of action to the injured 
person or to her estate, as the case may be, we have not abandoned entirely 
the notion that the interests of certain third parties should be taken into 
account in the case of fatal accidents. We believe that the surviving spouse, 
dependent children, and dependent parents should continue to be entitled 
to receive a share of the damages recovered for loss of the deceased's working 
capacity. 

Even in this limited context, we realize that retention of the notion that 
third parties should receive individual awards is a significant exception to 
the general theory of compensation that we have endorsed in this chapter, 
that is, that a loss should be considered to be that of the injured person or the 
estate. Theoretical consistency and purity, however, are not sacrosanct 
values. Occasionally, there are other values to which they must defer. In this 
case, it is our view that an exception to the general theory is warranted in 
order to avoid possible unexpected dispositions, according to the general law 
of succession, to persons other than those to whom the deceased would have 
devoted a portion of her productive capacity. That the law will thus continue 
to embody elements of two theories of compensation— one focusing on the 
loss of the injured person or her estate, the other on the needs of certain 
relatives of the victim— is not in itself objectionable, for this has long been a 
feature of the law in this area. Moreover, we emphasize that retention of a 
compensatory rationale in favour of certain family members in no way 
detracts from the major advantages that flow from our basic theory, in 
particular, the replacement of a number of independent actions, with their 
attendant transaction costs to the system and the parties, with a single action 
brought by an injured person or her estate. 

Accordingly, in the case of fatal accidents, while damages for loss of 
working capacity would form part of the estate, we do not propose that the 
award should be subject to distribution under the general law governing 
succession or to the claims of creditors of the deceased. Rather, in order to 
accommodate the compensatory purpose that we have identified above, we 
shall propose below a scheme for the distribution of the damages awarded in 
respect of the deceased's loss among the surviving spouse, dependent 
children, and dependent parents. 



61 



As indicated, we are endorsing a limited exception to our general 
theory that, where an injury occurs, the loss is that of the victim, rather than 
that of a third person. If the deceased is not survived by any of the persons 
who, we believe, should enjoy a special claim to share in the damages, there 
is no reason to treat the award differently from that arising under any other 
cause of action that devolves upon a personal representative under section 
38 of the Trustee Act. 111 We therefore recommend that, where there is no 
surviving spouse, dependent children or dependent parents, the damages in 
respect of loss of working capacity should be payable to the estate, and 
should be distributed like any other asset of the estate under the general law 
governing succession, and subject to the claims of creditors. 228 

We now turn, in the balance of this chapter, to our specific recommen- 
dations governing the apportionment of an award among a surviving 
spouse, dependent children, and dependent parents. 

Once the court determines the amount of damages payable by the 
defendant in respect of lost working capacity, there is an issue as to how the 
award should be apportioned. We believe that a distinction must be drawn 
between that part of the damages awarded in respect of the deceased's loss of 
capacity to give care and guidance and the rest of the damages that are 
awarded for loss of working capacity. With respect to the former, it is our 
view that the persons in respect of whom the capacity to give care and 
guidance has been lost should be entitled to recover the amount of damages 
that have been attributed to that loss at trial. Since, by its very nature, this 
loss is assessed in relation to identified individuals, it would be inappropri- 
ate to propose otherwise. We therefore recommend that, where personal 
injury results in death, damages awarded for loss of capacity to give care and 
guidance should be distributed among the surviving spouse, dependent 
children, and dependent parents in the amounts assessed in respect of each 
of them. 229 

With respect to damages awarded for loss of working capacity, other 
than the damages awarded for loss of capacity to give care and guidance, the 
damages should be apportioned among the surviving spouse, dependent 
children, and dependent parents. The matter of apportionment should be 
decided by the court; since the appropriate apportionment will depend on 
the particular circumstances of individual cases, the matter should be left to 
the court without any express legislative direction. 230 

Should there be agreement among the surviving spouse, dependent 
children, and dependent parents with respect to the appropriate apportion- 
ment of the damages, the fact of unanimous agreement may be communi- 



227 Supra, note 4. 

228 Draft Compensation Act, s. 9(b). 

229 Ibid., s. 10. 

230 Ibid.,s. 11(1). 



62 



cated by counsel for the plaintiff, and the court may order apportionment in 
accordance with that consent. Where unanimous agreement cannot be 
attained, the surviving spouse, dependent children, and dependent parents 
may wish to make representations to the court, either through the plaintiff 
or independently. In some circumstances, however, the court may form the 
view that these representations are inadequate to allow it to decide appor- 
tionment, and that further evidence should be presented and tested. Accord- 
ingly, we recommend that, in determining apportionment of the damages 
awarded for loss of working capacity, other than for loss of capacity to give 
care and guidance, the court should be able to order the trial of an issue and 
to give such directions for that purpose as are considered just. 231 

A related procedural issue concerns the participation in the proceed- 
ings of the surviving spouse, dependent children, and dependent parents. 
None of these persons would be parties to the action, except in the cases 
where they also act as personal representative, or where, in accordance with 
a recommendation made below, they bring the action instead of the personal 
representative. Therefore, if they wish to participate in the proceedings and 
make representations to the court with respect to apportionment, or if the 
trial of an issue is ordered, it will be necessary for them to intervene as 
parties to the action. Rule 13.01 of the Rules of Civil Procedure governs 
intervention as an added party. Given the novel character of our proposed 
distribution scheme, it would be useful to clarify how these persons may 
become actively involved in the proceedings. Accordingly, we recommend 
that legislation should provide that the surviving spouse, dependent chil- 
dren and dependent parents may intervene as parties to the action under 
Rule 13 of the Rules of Civil Procedure. 232 

A further procedural issue relates to the possibility that one or more of 
the surviving spouse, dependent children, or dependent parents may be a 
person under a disability within the meaning of the Rules of Civil 
Procedure. 233 In such a case, special attention will have to be given to their 
interests. The court may form the view that, in order to apportion the 
damages award, more information is needed about their position than has 
been presented by the personal representative or, indeed, by a litigation 
guardian acting on their behalf, should there be intervention. Accordingly, 
we recommend that, where one or more of the surviving spouse, dependent 
children, and dependent parents entitled to apportionment is a person 
under a disability, the court should be able to order that notice be given to 
the Official Guardian or the Public Trustee or any other person whom the 
court considers appropriate. 234 

An important issue concerns whether the damages award should be 
exposed to the claims of the deceased's creditors or called upon to defray the 



231 Ibid.,s. 11(4). 

232 Ibid.,s. 11(3). 

233 See Rules of Civil Procedure, supra, note 225, r. 1.03.10, which defines "disability' 

234 Draft Compensation Act, s. 11(2). 



63 



costs of administering the estate. Since the loss of working capacity is to be 
regarded as the loss of the injured person, in the case of a fatal accident it 
would be an asset of the estate and, as such, would be liable to the claims of 
creditors. In the absence of special protection, the surviving spouse, depen- 
dent children, and dependent parents might see their shares of the damages 
reduced or even consumed entirely by the creditors of the deceased. By 
contrast, third party claimants under Part V of the Family Law Act, 1986 
need not concern themselves with such creditors, as their causes of action 
arise entirely independently of the estate. An analogous problem is that, as 
part of the estate, the damages would be liable for the various expenses 
incurred in the administration of the general estate by the personal repre- 
sentative, including whatever legal costs are involved. To meet both these 
problems, we recommend that, where damages for loss of working capacity, 
including loss of the capacity to give care and guidance, are distributed by 
the court among the surviving spouse, dependent children, and dependent 
parents, the damages should not be subject to the claims of creditors of the 
deceased person or to the costs arising from the administration of the 
estate. 235 

Another important procedural issue relates to who should bring the 
action in respect of lost working capacity. It must be borne in mind that the 
loss is that of the deceased, and that the damages in respect of the loss will be 
treated like any other asset of the estate if the deceased is not survived by a 
spouse, dependent children, or dependent parents; consequently, the action, 
like any other claim for damages vested in a deceased, would ordinarily be 
brought by the deceased's personal representative. Where, however, the 
persons who are to receive damages in respect of loss of working capacity 
differ from the beneficiaries of the estate generally, it may be inappropriate 
to rely exclusively on the personal representative to bring the action. Where, 
for example, the deceased has made a will leaving the estate to persons other 
than the surviving spouse, dependent children, or dependent parents, an 
action for loss of working capacity, by definition, could bring no benefit 
either to the estate or to its beneficiaries. 

Depending on the particular circumstances, the personal representa- 
tive may judge the initiation of an action to be ill-advised, for it may be 
apparent that it can bring no financial advantage to the estate. If this is the 
case, unless there is some other means by which the action can be brought, 
the surviving spouse, dependent children, and dependent parents will not 
receive any damages at all for a reason totally extraneous to the merits of the 
claim or the justice of allowing them compensation. The sole way to 
overcome this potential difficulty is to confer a right to bring an action in 
respect of loss of working capacity on one of the surviving spouse, depen- 
dent children, or dependent parents, as was done under the former Family 
Law Reform Act and its predecessor, The Fatal Accidents Act. 236 



235 Ibid., s. 9(a). 

236 Family Law Reform Act, R.S.O. 1980, c. 152, s. 61(2), and The Fatal Accidents Act, 
R.S.O. 1970, c. 164, s. 7(1). 



64 



We believe, however, that, before an action is brought by someone other 
than the personal representative, the latter should be permitted a reasonable 
period of time in which to assess the situation and to determine whether to 
commence an action. Under the former legislation, 237 a period of six 
months after the death of the deceased was allowed. This seems to be an 
appropriate interval. Where, however, a cause of action may be barred 
because of the impending expiration of a limitation period or a period for 
giving notice, a rigid requirement that six months elapse would work to the 
serious disadvantage of a surviving spouse, dependent children, or depen- 
dent parents. In order to avoid an injustice of this nature, the minimum six 
month period of time that must elapse before an action may be brought by a 
surviving spouse, dependent child, or dependent parent should be subject to 
an exception where leave of the court has been obtained. 

Accordingly, we recommend that, as a general rule, an action for 
damages in respect of loss of working capacity should be brought by the 
personal representative on behalf of the estate. 238 Where, however, such an 
action has not been brought by the personal representative within six 
months of the death, we recommend that a surviving spouse, dependent 
child, or dependent parent should be able to bring the action that the 
personal representative could have brought. Finally, it is recommended that 
the surviving spouse, dependent child, and dependent parent should be 
entitled to bring the action before the lapse of the proposed six month period 
upon obtaining leave of the court. 239 

The matter of appeals warrants special treatment in light of the scheme 
for distribution that we have proposed. While we are of the view that the 
surviving spouse, dependent children, and dependent parents should have 
no right to appeal a judgment, insofar as it determines the fact and amount 
of the defendant's liability, except where the surviving spouse, dependent 
child, or dependent parent is also the plaintiff, the issue of allocation of the 
damages awarded stands on a very different footing. With respect to the 
issues of liability and the amount of damages, a surviving spouse, dependent 
child, or dependent parent is a stranger, whose interest is inchoate and 
indirect at best. However, once these issues have been determined and the 
question of allocation is to be decided, their interest in the proceedings 
becomes immediate and direct. At this juncture, the persons opposed in 
interest would be the others who might share in the damages award. Given 
the nature of their interest, we recommend that the surviving spouse, 
dependent children, and dependent parents should have a right of appeal 
from an order distributing or apportioning damages for loss of working 
capacity, notwithstanding that they are not parties or intervenors in the 
action. 240 



237 Ibid. 
8 Draft Compensation Act, s. 3(2). 



239 Ibid., s. 13. 

240 Ibid., s. 16(2). 



65 



A further issue concerns settlement of the main action. Even though 
the action, in theory, is that of the deceased or his estate, the surviving 
spouse, dependent children, and dependent parents will be the ultimate 
recipients of any damages awarded in respect of the loss of working capacity. 
In view of their interest in the action, the consent of all of them should be 
given before a settlement is effective. Accordingly, we recommend that 
legislation should provide that a settlement of a claim in respect of loss of 
working capacity requires the consent of the surviving spouse, dependent 
children and dependent parents whose existence is reasonably within the 
knowledge of the person making the claim. 241 In order to minimize the 
possibility of subsequent challenge to a settlement on the basis of failure of 
consent by a person claiming to be a spouse, dependent child or dependent 
parent, we believe that provision should be made for an application or 
motion to the court for a determination whether a particular individual is a 
person whose consent to a settlement is required. We so recommend. 242 

With respect to a settlement involving the interests of a person under a 
disability, we are of the view that the applicable policy should be that 
generally governing settlement of claims made by or against such a person. 
Rule 7.08 of the Rules of Civil Procedure provides that a settlement is not 
binding on the person without the approval of a judge. We believe that this 
requirement is entirely appropriate and that the procedure for obtaining 
approval of settlement, also set out in rule 7.08, should apply to claims by an 
estate in respect of lost working capacity. We therefore recommend that, 
where one or more of the surviving spouse, dependent children, and 
dependent parents is a person under a disability, the provisions of the Rules 
of Civil Procedure governing settlement of a claim made by or against a 
person under a disability should apply with necessary modification. 243 

The final issue relates to costs. In analyzing this issue, it is useful to 
distinguish between successful actions and unsuccessful actions. Turning to 
the former, where the action is brought as an action of the estate by the 
personal representative, the damages recovered are an estate asset, and the 
personal representative should be able to reimburse himself from them. 
Where the action has been brought by the surviving spouse, a dependent 
child, or a dependent parent, and, as a result, a fund of damages in which 
others may share has been recovered, on equitable, restitutionary prin- 
ciples, the person who has recovered such a fund should be able to obtain 
from that fund whatever costs are not reimbursed by an award of party and 
party costs against the defendant. The Commission is of the view that these 
principles ought to govern in the case of successful actions. We therefore 
recommend that costs incurred by the plaintiff in an action for damages for 
loss of working capacity that are not recovered from the defendant or 



241 Ibid., s. 8(1). 

242 Ibid., s. 8(2). 

243 Ibid., s. 8(3). 



66 



another party should be paid out of the damages on a pro rata basis before 
they are distributed. 244 

We now turn to consider unsuccessful actions. Where the action has 
been brought by a personal representative or by one of the surviving spouse, 
dependent children or dependent parents, that person will be primarily 
liable for the party and party costs of the defendant, and to pay her own 
lawyers. However, there will be no fund from which such costs may be paid. 
Nevertheless, for the reasons set out below, we see no need to deal with this 
matter by legislation. 

Where the action has been brought by the personal representative for 
the benefit of the estate and the estate beneficiaries, reimbursement may be 
sought from the estate as in any other action brought on behalf of an estate. 
Of course, the surviving spouse, dependent children and dependent parents 
may differ from the beneficiaries of the estate, and in these circumstances 
reimbursement from the estate will not be possible. However, as a condition 
of commencing the action, the personal representative can always seek an 
agreement for indemnity from the persons among whom the damages will 
be apportioned. Similarly, where the action is brought by one of the 
surviving spouse, dependent children and dependent parents, rather than by 
the personal representative, that person also can seek an agreement for 
indemnity from fellow fund beneficiaries. 



9. CLAIMS BY EMPLOYERS FOR LOSS OF SERVICES 

The action per quod servitium amisit allows an employer to recover 
damages arising from injury to his employee caused by a tortfeasor. 245 The 
action traces its roots to medieval times, when a master could assert a 
proprietary interest in his servant, and was founded on the status relation- 
ship between a master and his servant. 246 It allowed the master to sue for a 
loss that was measured by the support that he was obligated to continue to 
provide to his servant, despite the servant's inability to work. 

Employment is currently dictated by contractual and not status rela- 
tionships. In Ontario, the per quod action is maintainable by any employer 



244 Ibid., s. 12. 

245 Fleming, The Law of Torts (6th ed., 1983), at 645. 

246 For discussion of the history of the action, see, generally, Hansen and Mullan, "Private 
Corporations In Canada: Principles of Recovery for the Tortious Disablement of 
Shareholder/Employees", in Klar (ed.), Studies in Canadian Tort Law (1977) 215; 
Jones, "Per Quod Servitium Amisit'" (1958), 74 Law Q. Rev. 39; Irvine, "The Action Per 
Quod Servitium Amisit In Canada" (1980), 11 C.C.L.T 241, at 242; Law Reform 
Commission of British Columbia, Report on the Action Per Quod Servitium Amisit, 
LRC 89 (1986) (hereinafter referred to as "B.C. Report"); and Genereux v. Peterson 
Howell & Heather (Canada) Ltd., [1973] 2 O.R. 558, at 562-64, 34 D.L.R. (3d) 614 
(C.A.) (subsequent references are to [1973] 2 O.R.). 



67 



whose employee has been tortiously injured. 247 The action is used to protect 
the employer's economic interest in the continued services of his employee. 
In Genereux v. Peterson Howell & Heather (Canada) Ltd. 24S the Ontario 
Court of Appeal held that an employer may recover "the actual value of the 
services lost" and any out-of-pocket expenses incurred as a result of the 
injury to the employee. 249 The Court held that, "[s]ave in exceptional 
circumstances, the damages recoverable by the master are the same as those 
which in a proper case would be recovered by the servant". 250 In the usual 
case, then, the amount an employer paid in wages to his injured employee 
would represent "the actual value of the services lost". Medical expenses 
paid by the employer on the employee's behalf would also be recoverable in 
a per quod action. 

In Genereux, however, the employer had, in fact, obtained the services 
of another person to take the place of the employee. The employer then 
sought to recover from the tortfeasor the amount paid to that person— an 
amount that exceeded the wages of the employee. The Court, in allowing the 
employer's claim for the full amount paid to secure equivalent services, 
viewed the circumstances of the case as "exceptional", because the 
employee had received wages not commensurate with the services rendered. 
In this case, therefore, an alternative method of computation for "the actual 
value of the services lost" was utilized. However, in Ontario at least, it has 
been clearly articulated that, as a general principle, the employer's eco- 
nomic loss and lost profits are beyond the limits of foreseeability and too 
remote to be included in the calculation of damages. 251 

In The Queen v. Buchinsky 252 the leading Supreme Court of Canada 
authority, Dickson J., in a separate majority judgment, commented on the 
origins of the action and posed questions concerning its continued 
existence: 253 

The per quod action developed during an era in which the master/servant 
relationship was analyzed in status terms, whereas we have long since treated 



247 In England, the action was limited to situations of loss of service of a domestic servant: 
Inland Revenue Commissioners v. Hambrook, [1956] 3 W.L.R. 643, [1956] 3 All E.R. 
338 (C.A.). The action has been abolished by legislation: Administration of Justice Act 
1982, supra, note 9, s. 2. 

248 Supra, note 246. 

249 Ibid., at 571. 

250 Ibid., at 570. 



251 



252 



Ibid., at 571-72. See, also, Racicot v. Saunders (1979), 27 O.R. (2d) 15, 103 D.L.R. (3d) 
567 (H.C.J. ). In other jurisdictions, the extent and categorization of damages for loss of 
services is subject to controversy. For a discussion of the different approaches, see, 
generally, Hansen and Mullan, supra, note 246, at 225. For a summary of the cases that 
have allowed for recovery of lost profits, see Irvine, supra, note 246, at 247. 

The Queen v. Buchinsky, [1983] 1 S.C.R. 481, 145 D.L.R. (3d) 1 (subsequent reference is 
to [1983] 1 S.C.R.). 



253 Ibid., at 490. 



68 



the employment relationship as a contractual one. The debate is not whether 
the original assumptions underlying the action can any longer be supported. 
That rationale is plainly offensive in today's society. The serious question is 
whether, despite its antiquated origins, the action can now find a different 
justification. Does it serve a useful purpose that would not otherwise be met? Is 
it consistent with general principles of tort law concerning collateral benefits 
and recovery for economic loss? Do employers, simply because they are 
employers, merit a special cause of action? Should the action per quod servitium 
amisit be abandoned, maintained or expanded? In a future case it may be 
appropriate to address these issues. 

The Commission agrees that, divorced from its historical proprietary 
rationale, the per quod action is archaic and anomalous. 254 Moreover, it 
violates the general rule that precludes a person from recovering economic 
loss that is consequent upon physical damage suffered by a third party. This 
rule, despite frequent challenges and the existence of a number of excep- 
tions, is well established and is applied in all common law jurisdictions. 255 
The justification usually advanced for the general exclusionary rule is that, 
in its absence, a single negligent act may culminate in an indeterminate 
number of causes of action. 256 If one accepts, as the courts generally have, 
that the rule is sound, the issue is whether an exception in favour of 
employers ought to be recognized on policy grounds. 257 

One possible justification for the continued existence of the per quod 
action is as a means of recovering lost business profits. It is difficult, 
however, to justify recognition of a special status for employers on this basis. 
The policy arguments suggest that employers are themselves best able to 
predict and absorb losses arising out of injury to employees. 258 In large 



254 Genereux v. Peterson Howell & Heather (Canada) Ltd., supra, note 246, at 564, and 
England, The Law Commission, Report on Personal Injury Litigation— Assessment of 
Damages, Law Com. No. 56 (1973) (hereinafter referred to as "Law Commission 
Report"), para. 142, at 39. 

255 The seminal decisions are Cattle v. The Stockton Waterworks Co. (1875), L.R. 10 Q.B. 
453; Simpson v. Thomson (1877), 3 App. Cas. 279 (H.L.); and Robins Dry Dock & 
Repair Co. v. Flint, 275 U.S. 303 (1927). See, generally, Feldthusen, Economic Negli- 
gence (1984), ch. 5. See, also, Leigh and Sillivan Ltd. v. Aliakmon Shipping Co. Ltd., 
[1985] Q.B. 350, [1985] 2 W.L.R. 289 (C.A.), aff'd [1986] A.C. 785, [1986] 2 W.L.R. 902 
(H.L.), where the general rule was reaffirmed and a previously recognized exception 
overruled. 

256 See, for example, Fleming, supra, note 245, at 136. 

257 Ibid., at 646, and Hansen and Mullan, supra, note 246, at 244. It should be noted that, 
from an historical perspective, the per quod action, being, in effect, the master's claim 
for damage to property, is not an exception. It is only when that rationale is rejected that 
it stands as an exception. 

258 England, The Law Commission, The Actions for Loss of Services, Loss of Consortium, 
Seduction and Enticement, Working Paper No. 19 (1968), para. 9, at 11-12. See, also, 
Hansen and Mullan, supra, note 246, at 245-46. 



69 



enterprises, employee absence from many causes is entirely predictable and 
therefore incorporated into management planning. "Key-man" insurance is 
available to compensate for the lost services of an indispensable employee. It 
seems impractical to substitute for such existing schemes a per quod action 
in the case of tortious injuries to the employee, or to protect employers who 
do not find it worthwhile to protect themselves otherwise. 

Another justification advanced in favour of retention of the per quod 
action is that the possibility of reimbursement creates an incentive for 
employers to provide medical care, disability pay or pensions to injured 
employees. 259 The Commission is of the view, however, that this rationale 
provides an insufficient basis for retention of the action. While such an 
incentive may have been important in an earlier social and economic 
context, there are today other means of ensuring the provision of injury 
benefits to employees. Apart from the existence of private insurance, and 
public programs such as the Ontario Hospital Insurance Plan providing for 
comprehensive medical coverage, the matter of reimbursement in respect of 
benefits provided by an employer to an injured employee may be the subject 
of agreement between the parties. For example, terms may be incorporated 
into the employee's contract of service to provide for indemnification of the 
employer in the event that the employee recovers damages from the 
tortfeasor. 260 Alternatively, the contract may provide that disability benefits 
provided by the employer are in the form of a loan that is subject to 
repayment. 261 It should also be noted that recommendations relating to 
collateral benefits made in chapter 6 of this Report would facilitate recovery 
by an employer, directly from the wrongdoer, of the amount of any benefit 
in the nature of an indemnity paid to an injured employee. 262 

In conclusion, the historical justification for the action per quod servi- 
tium amis it is irrelevant and repugnant in the twentieth century. Moreover, 
there is no compelling justification for an exception, in the case of 
employers, to the rule against recovery of economic loss consequent upon 
physical damage suffered by a third party. Private agreements between 
employers and employees, as well as insurance, can fulfil the original 
functions of the per quod action. Throughout this chapter we have taken the 
position that the injured person, rather than third parties, should recover 
damages in respect of lost working capacity. Consistent with this position, 
we recommend that the action per quod servitium amis it should be abol- 
ished by legislation. 263 



259 Ibid., at 244-45, and Fleming, supra, note 245, at 646. 

260 B.C. Report, supra, note 246, at 18, and Irvine, supra, note 246, at 295. 

261 Law Commission Report, supra, note 254, paras. 146-48, at 40-41. 

262 See infra, ch. 6, sec. 4, and draft Compensation Act, s. 14. 

263 Ibid., s. 2. 



70 



10. STATEMENT OF DISSENT AND EXPLANATION BY 
MARGARET A. ROSS 

The current law, Part V of the Family Law Act, 1986 ("FLA"), permits 
claims by third parties (the "FLA Class") as listed in s. 61(1) for the loss of 
that portion of future earnings of the tort victim that would have benefited 
them. The same third parties are also permitted to claim for loss of care, 
guidance and companionship that the claimant might reasonably have 
expected to receive from the tort victim if injury or death had not occurred. 
The loss of ability to earn income or loss of earning capacity of the victim is 
treated separately from those claims of third parties. 

As is fully canvassed in the text (this ch., sec. 3), there exist two theories 
of compensation: (1) that the loss is that of the injured person or, in case of 
death, the estate; and (2) that third parties should have independent rights in 
their own names. 

It is recognized that problems exist under the current law which allows 
claims by third parties in cases of personal injury and death. These problems 
may be briefly summarized as follows: 

(1) The double recovery concern. (The potential overlap between 
claims by an injured person or the estate for loss of earning 
capacity and claims by third parties for their pecuniary loss under 
Part V of the FLA.) 

(2) The inquiry into the relationship problem and the attendant costs. 
(Since the cause of action for damages for loss of monetary 
contribution under the FLA is relational and involves distasteful 
speculation as to dependency, length of marriage, etc.) 

(3) The difficulty of distinguishing compensable losses. (Care, guid- 
ance and companionship from grief, which is not, in theory, 
compensable.) 

(4) The concern about nuisance claims. (The FLA Class and its ability 
to claim in fatal and non-fatal cases has led to many trivial claims, 
added considerably to the complexity of actions and impeded 
settlement.) 

(5) The possibility of multiple actions. (Under the FLA each statutory 
claimant may commence its own action— which must be investi- 
gated, evaluated and defended.) 

(6) Unpredictability and inconsistency in awards. 

The Commission's recommendations for reform endorse the theory 
that the loss is that of the injured person or, in the case of death, the estate. 



71 



Accordingly, the third party claims for loss of monetary contributions and 
care, guidance and companionship would be abolished and would be 
replaced by a first party claim for loss of earning capacity and loss of the 
capacity to provide care and guidance, which would survive death. There 
would be no claim for loss of capacity to provide companionship. Therefore, 
a claim would be advanced by the victim (or the representative of the estate) 
which would include damages for loss of "working capacity", the aggregate 
of loss of ability to earn income and loss of capacity to provide care and 
guidance. The FLA Class in respect of whom the loss of ability to provide 
care and guidance may be claimed, would be restricted (the "restricted 
class") to spouses (as defined in the FLA, Part III), dependent children and 
dependent parents. Siblings, grandparents and grandchildren are excluded. 

I share my colleagues' view that there are problems which exist as a 
result of the current system. I would support, in addressing the problems of 
nuisance claims and multiple actions, the restriction of the FLA Class to 
those family members most likely to be directly affected by the injury or 
death of a loved one. 

However, I am not persuaded that embracing the theory of loss to the 
victim and the procedural recommendations which flow from the loss of 
working capacity claim advances the cause of reform or achieves any real 
progress in solving the existing problems. In addition, the scheme proposed 
by my colleagues would create, in its application, numerous problems 
(discussed below), which, in my opinion, outweigh any perceived advantage 
or improvement. 

In theory, the notion that any loss should be perceived as a loss to the 
victim is not objectionable. I do not agree that it has any more validity than 
the theory that certain family members experience a real loss, albeit in some 
cases non-pecuniary in nature, in the form of the deprivation of an advan- 
tage upon the injury or death of a relative, for which an award of damages is 
justified. Given the problems which I believe are created by the application 
of the proposed scheme, I cannot support my colleagues in their adherence 
to the loss of the victim theory. 

It is convenient here to digress momentarily with respect to the recom- 
mendation to delete the companionship component of the care, guidance 
and companionship claim. The rationale for this decision as set forth in 
chapter 2 appears to be that loss of companionship, more so than loss of 
guidance and care, is suggestive of non-pecuniary loss, or grief. The proposal 
to delete companionship is further based on the perception that the cost of 
compensating for such loss is unwarranted. The case law does not provide 
adequate support for the rationale and the decision to exclude companion- 
ship. Companionship cannot, in my view, be isolated as the culprit respon- 
sible for awards that look like solace. Put differently, the cases do not seem to 
rely on the word "companionship" as opposed to "guidance" and "care" in 
making awards that may be seen as solace or that may respond to seemingly 



72 



non-pecuniary loss. I am not persuaded that anything is gained by distin- 
guishing the meaning of the word "companionship" from the meaning of 
the words "guidance" and "care". 

The Commission's recommendations include a proposal to restrict the 
class of persons in respect of whom loss of the ability to provide care and 
guidance may be claimed to spouses, dependent children and dependent 
parents. The proposal's objective is to diminish the need to investigate the 
nature of the relationship between the provider and the recipient of care and 
guidance and to reduce or eliminate nuisance claims. While, as earlier 
stated, I support the notion of the restricted class, in my view there will 
continue to be a need for an inquiry into the nature of the relationship 
between the injured or deceased and the person to whom care and guidance 
was provided. Thus, one of the principal reasons for adopting the recom- 
mendation is not valid. In addition, it will still be necessary to continue to 
prove and defend a claim for the provision of care and guidance. Therefore, 
on the one hand the proposed change would produce little advantage and on 
the other hand would produce several disadvantages. 

Although the proposed system would eliminate multiple proceedings in 
the sense that there would only be one action, the problems created in the 
proposed assessment, notice, apportionment and distribution procedures 
are far more cumbersome than the existing system which permits separate 
claims but where, in practice, the norm is one action. 

A further problem with the proposed scheme is that fatal and non-fatal 
claims are treated differently. In non-fatal cases, it is anticipated that the 
injured person would prove a loss of capacity to provide care and guidance 
(by inquiry into the nature of the relationship with the restricted class) and 
then receive the damage award directly, being free to retain it or pay it over if 
desired. In fatal cases, the damages would not go to the estate (except where 
there are no members of the restricted class) but to a fund which is then 
distributed to the members of the restricted class in accordance with the 
proportions allocated by the trial Judge. This is done in order that the 
restricted class benefit regardless of whether they would take under ordinary 
succession law and in order that the fund avoid the claims of creditors. The 
result is that the recipient of the damage award is entirely different depend- 
ing on whether one is dealing with a fatal or non-fatal case. Moreover the 
right of the restricted class to receive a benefit is only recognized in fatal 
cases. 

There is a difficulty with the recommended distribution scheme which, 
in my view, represents an additional theoretical inconsistency. Damages for 
loss of working capacity in fatal cases, other than the damages awarded for 
loss of capacity to give care and guidance, would be apportioned by the 
Court and payable to members of the restricted class rather than becoming 
an asset of the estate. Moreover, this aspect of the Commission's scheme is 
dependent on unanimous agreement between plaintiff's counsel and 



73 



members of the restricted class. If such unanimous agreement cannot be 
achieved, the members of the class may make representations to the Court 
concerning apportionment, which may result in the trial of an issue and, 
hence, more litigation. The trial of this issue would proceed in the absence of 
the defendant since presumably once the claim for lost working capacity has 
been assessed his interest ceases. In addition, since none of the members of 
the restricted class would be parties to the action, except in the situation 
where they act also as a personal representative or bring the action in lieu of 
the personal representative, they must intervene as third parties pursuant to 
Rule 13.01. As earlier stated, without assurances that unanimous agreement 
will be achieved in the majority of cases, this situation cannot be seen as an 
improvement to the existing law. 

Another procedural difficulty relates to who should bring the action in 
respect of loss of working capacity. Under the Commission's proposals, the 
action, like any other claim for damages, would ordinarily be brought by the 
deceased's personal representative. However, in cases where the persons 
who are to receive damages in respect of loss of working capacity differ from 
the beneficiaries of the estate, it may be inappropriate to rely on the personal 
representative to bring the action as the bringing of such action would not 
necessarily be to the advantage of those persons whom he represents. 

The Commission, having foreseen this problem, recommended that a 
member of the restricted class should be able to bring the action that the 
personal representative could have brought. The result is two separate 
actions that will proceed simultaneously— one by the personal representa- 
tive for damage suffered by the estate (for example, for past pecuniary loss) 
and one by a member of the restricted class for loss of working capacity 
alone. The potential, therefore, exists for multiple actions based on the same 
facts, with the same defendant, and the same issues as to liability. Presum- 
ably, these actions will eventually be tried together, but the goal of simplicity 
and reduced cost is again defeated. 

One further important issue which argues against the Commission's 
proposal is that, for settlement purposes, the consent of each member of the 
restricted class would be required before a settlement is effective. It would be 
incumbent on the personal representative to obtain the consent of each 
member of the restricted class. In the event there were any disputes as to the 
issue of dependency or the definition of spouse, this would require an 
application or motion to the Court for settlement purposes. This impedi- 
ment to settlement and its attendant cost is a further argument against the 
proposed reform. 

In conclusion, it is my view that, taken together, the difficulties men- 
tioned above outweigh any advantages of the proposed scheme. Where the 
choices involve (as some writers have advocated) total elimination of 
compensation for loss of guidance, care and companionship, or the Com- 
mission's proposed recommendations, or retention of the existing system, I 



74 



would recommend the retention of the latter with the modification of a 
restricted class. Restriction of the class would have the advantage of avoid- 
ing some of the so-called nuisance claims and reducing the number of 
claimants, thus keeping costs limited to those "real claims". With respect to 
claims for loss of working capacity, I would support my colleagues' recom- 
mendations regarding income tax treatment and deduction of cost of 
earnings. 

Retention of the existing system, as earlier recognized, still perpetuates 
certain difficulties but there are possible approaches to reform of this system 
which may be an improvement. Firstly, if one accepts that our law does not 
allow recovery for grief, perhaps both "guidance" and "companionship" 
could be deleted and recovery allowed only for "care" insofar as this has a 
pecuniary aspect. Secondly, as already mentioned, these claims should be 
limited to a narrower class of claimant as defined by the Commission's 
recommendation . 

The scheme proposed by my fellow Commissioners does not, in my 
view, improve the existing system. In fact, it perpetuates many of the 
problems already recognized under that system and creates other problems 
which potentially have the effect of protracting the litigation and adding to 
the cost in pursuit of a loss to the victim theory. 

Recommendations 

The Commission makes the following recommendations:* 

1. (1) Third party claims under Part V of the Family Law Act, 1986 for 

pecuniary losses and for loss of guidance, care and companionship 
resulting from wrongful injury to or death of another person 
should be abolished and replaced by a first party claim for loss of 
"working capacity", as defined in Recommendation 3, infra. 

(2) Accordingly, section 61(1) and section 61(2)(e) of the Family Law 
Act, 1986 should be repealed. (See, further, infra, ch. 4, Recom- 
mendation 8, concerning repeal of the remainder of section 61.) 

2. Legislation should provide clearly that a claim for loss of working 
capacity survives to the estate of a deceased tort victim. 

3. Loss of working capacity should be defined to mean loss of productive 
capacity including, 

(a) loss of the capacity to earn; 



* 



One of the Commissioners, Mrs. Margaret A. Ross, dissents from most aspects of the 
scheme embodied in the following recommendations: see supra, this ch., sec. 10. 



75 



(b) loss of the capacity to provide care and guidance to a spouse, 
dependent children or dependent parents of the injured or 
deceased person as defined in Recommendation 4, infra; 

(c) loss of the capacity to provide household services; and 

(d) loss of entitlement under a pension, annuity or similar instrument. 

4. For the purposes of Recommendation 3(b), supra, 

(a) "spouse" should be defined to mean a spouse within the meaning 
of Part III of the Family Law Act, 1986; 

(b) "dependent child" should be defined to mean a child who is a 
minor, or a child who is not a minor but who has, or who 
immediately before the death had, a reasonable expectation of 
receiving substantial pecuniary benefit from the injured or 
deceased tort victim; and 

(c) "dependent parent" should be defined to mean a parent who has, 
or who immediately before the death had, a reasonable expecta- 
tion of receiving substantial pecuniary benefit from the injured or 
deceased tort victim. 

5. For the purposes of Recommendation 3(c), supra, compensation for 
loss of capacity to perform household services should be assessed with 
reference to the average weekly earnings in Ontario (industrial aggre- 
gate). 

6 . In cases of non-fatal injury, the existing rule, that income tax should not 
be deducted from the award, should continue to govern the determina- 
tion of damages for loss of working capacity. 

7. Where personal injury results in death, no deduction should be made 
from an award of damages for loss of working capacity in respect of the 
income tax that would have been payable by the deceased. 

8 . Where personal injury results in death, the award of damages for loss of 
working capacity, other than damages for loss of capacity to give care 
and guidance, should be reduced by the cost of earning that would have 
been incurred by the deceased but for the personal injury. 

9. (1) Where personal injury results in death, the award of damages for 

loss of working capacity, other than damages for loss of capacity to 
give care and guidance, should be reduced by the amount of the 
deceased's personal living expenses as determined under para- 
graph (2). 

(2) The personal living expenses that are to be deducted from the 



76 



damages award should be conclusively presumed to be three- 
quarters of the projected income of a person who dies without a 
spouse or dependent children; one-quarter of the projected 
income of a person who dies with a spouse but without any 
dependent children, during the anticipated joint life expectancy of 
the deceased and his spouse; and fifteen percent of the projected 
income of a person, with or without a spouse, who dies with 
dependent children, during the projected period of dependency. 

10. Where there is no surviving spouse, dependent children or dependent 
parents, the damages in respect of loss of working capacity should be 
payable to the estate, and should be distributed like any other asset of 
the estate under the general law governing succession, and subject to 
the claims of creditors. 

11. Where damages are assessed in respect of the loss of capacity to give 
care and guidance, the damages should be distributed among the 
surviving spouse, dependent children, and dependent parents in the 
amounts assessed in respect of each of them. 

12. Damages awarded for loss of working capacity, other than the damages 
awarded for loss of capacity to give care and guidance, should be 
apportioned among the surviving spouse, dependent children and 
dependent parents. The matter of apportionment should be decided by 
the court. 

13. In determining apportionment of the damages awarded for loss of 
working capacity, other than for loss of capacity to give care and 
guidance, the court should be able to order the trial of an issue and to 
give such directions for that purpose as are considered just. 

14. Legislation should provide that the surviving spouse, dependent chil- 
dren and dependent parents may intervene in respect of the issue of 
apportionment as parties to the action under the Rules of Civil Proce- 
dure. 

15. Where one or more of the surviving spouse, dependent children, and 
dependent parents is a person under a disability, the court should be 
able to order that notice be given to the Official Guardian or the Public 
Trustee or any other person whom the court considers appropriate. 

16. Where damages for loss of working capacity, including loss of the 
capacity to give care and guidance, are distributed by the court among 
the surviving spouse, dependent children, and dependent parents, the 
damages should not be subject to the claims of creditors of the deceased 
person or to the costs arising from the administration of the estate. 

17 . (1) Subject to paragraph (2), an action for damages in respect of loss of 

working capacity should be brought by the personal representative 
on behalf of the estate. 



77 



(2) A surviving spouse, dependent child or dependent parent should 
be able to bring the action that the personal representative could 
have brought where an action has not been brought by the personal 
representative within six months of the death, or sooner with leave 
of the court. 

18. The surviving spouse, dependent children, and dependent parents 
should have a right of appeal from an order distributing or apportioning 
damages for loss of working capacity, regardless of whether they are 
parties or intervenors in the action. 

19. (1) Legislation should provide that, where personal injury results in 

death, a settlement of a claim in respect of loss of working capacity 
requires the consent of the surviving spouse, dependent children 
and dependent parents whose existence is reasonably within the 
knowledge of the person making the claim. 

(2) Legislation should provide that an application or motion may be 
made to the court to determine whether any person is a spouse, 
dependent child or dependent parent whose consent is required 
under paragraph (1). 

(3) Where one or more of the surviving spouse, dependent children, 
and dependent parents is a person under a disability, the provisions 
of the Rules of Civil Procedure governing settlement of a claim 
made by or against a person under a disability should apply with 
necessary modification. 

20. Costs incurred by the plaintiff in an action for damages for loss of 
working capacity that are not recovered from the defendant or another 
party should be paid out of the damages on a pro rata basis before they 
are distributed. 

21. The action per quod servitium amisit should be abolished. 



CHAPTER 3 



DAMAGES FOR 
NON-PECUNIARY LOSS 



1. INTRODUCTION 

In this chapter, the Commission will consider the nature and role of 
compensation for non-pecuniary loss suffered by an injured person. 
Although the view of what constitutes non-pecuniary loss has changed 
somewhat over the years, 1 the modern tendency is to describe such loss as 
involving three distinct elements: pain and suffering; loss of amenities 
(sometimes called loss of enjoyment of life); and loss of (or shortened) 
expectation of life. 

It is obvious that not all forms of non-pecuniary loss are necessarily 
present in every personal injury case. Where two or more are present, 
however, the Supreme Court of Canada, in a series of cases commonly 
referred to as the "trilogy", 2 has held that it is proper and necessary to assess 
a single global sum to cover all non-pecuniary loss. As we shall see, this view 
reflects the essential similarity of purpose, as well as the basic imprecision, at 
least in monetary terms, of the three heads of damage. 

Until recently, damages for pain and suffering, including mental dis- 
tress, could be recovered only by a plaintiff who had also suffered a personal 
injury as a result of negligence or a nominate intentional tort. Mental 
distress alone could not form the basis for a separate award or an indepen- 
dent action. Emotional distress sufficiently serious to cause "objective and 
substantially harmful physical or psychopathological consequences" 3 can 
now provide the basis fora separate claim, although in such circumstances it 
is possible to label the harm a "personal injury" and it is likely that the 
plaintiff will have suffered pecuniary loss as well. However, the law in this 



1 The concepts of pecuniary and non-pecuniary loss did not, in fact, appear until the 19th 
century, by which time there was a distinct law of torts. See Cheraiak and Sanderson, 
"Tort Compensation— Personal Injury and Death Damages", in Law Society of Upper 
Canada, Special Lectures of the Law Society of Upper Canada 1981[:J New Develop- 
ments in the Law of Remedies (1981) 197, at 202. 

2 Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229, 83 D.L.R. (3d) 452 
(subsequent references are to [1978] 2 S.C.R.); Arnold v. Teno, [1978] 2 S.C.R. 287, 83 
D.L.R. (3d) 609; and Thornton v. Board of School Trustees of School District No. 57 
(Prince George), [1978] 2 S.C.R. 267, 83 D.L.R. (3d) 480 (subsequent reference is to 
[1978] 2 S.C.R.). 

3 Fleming, The Law of Torts (6th ed., 1983), at 146. 

[79] 



80 



area is evolving at a relatively rapid pace. The English Court of Appeal, for 
example, has allowed damages for emotional distress in breach of contract 
cases, 4 and Ontario courts seem prepared to follow suit. 5 

In Ontario, there may also be an award of damages for non-pecuniary 
loss arising from the interference with relational interests where such loss 
flows from the injury or death of an individual. This type of award is 
provided for in section 61(2)(e) of the Family Law Act, 1986, 6 which states 
that the damages recoverable include "an amount to compensate for the loss 
of guidance, care and companionship that the claimant might reasonably 
have expected to receive from the person if the injury or death had not 
occurred". While it was at one time asserted that damage of this kind was 
pecuniary in nature, it now appears to be generally accepted that such a 
classification was something of a fiction. Those entitled to make a claim 
under the Act are the spouse, children, grandchildren, parents, 
grandparents, brothers, and sisters of the person injured or killed. Other 
jurisdictions have statutes that limit recovery to cases of wrongful death and 
include a less extensive family group, omitting brothers and sisters. Most 
also limit recovery to pecuniary loss. 7 

In our examination of damages for non-pecuniary loss, the Commis- 
sion will consider whether such damages should continue to be awarded to a 
living plaintiff and, if so, whether there should be any change in the law- 
more particularly, the $100,000 limit— set forth by the Supreme Court of 
Canada in the trilogy, that is, Andrews v. Grand & Toy Alberta Ltd.* Arnold 
v. Teno, 9 and Thornton v. Board of School Trustees of School District No. 57 
(Prince George) . 10 Given our endorsement of awards of damages for non- 
pecuniary loss, we shall examine several further matters that arise in 
connection with such awards. The first matter concerns whether, and, if so, 
the degree to which, guidance should be given by the trial judge to the jury in 
respect of the quantum of damages awardable, and whether counsel should 
be entitled to speak to this issue. In this context, we shall also consider the 
review of jury and court awards by appellate courts. 

The second matter arising in connection with awards for non-pecuni- 
ary loss concerns the survival of actions in favour of the estate of a deceased 



4 Jarvis v. Swans Tours Ltd. , [1973] Q.B. 233, [1972] 3 W.L.R. 954 (C.A.), and Heywood v. 
Welters, [1976] Q.B. 446, [1976] 2 W.L.R. 101 (C.A.). 

5 Pilon v. Peugeot Canada Ltd. (1980), 29 O.R. (2d) 711, 114 D.L.R. (3d) 378 (H.C.J.). See, 
also, Brown v. Waterloo Regional Board of Police Commissioners (1983), 43 O.R. (3d) 
113, 150 D.L.R. (3d) 729 (C.A.). 

6 S.0. 1986, c. 4. 

For a discussion of third party claims, including claims for loss of guidance, care, and 
companionship, under the Family Law Act, 1986, see supra, ch. 2. 

8 Supra, note 2. 

9 Supra, note 2. 

10 Supra, note 2. 



81 



injury victim. The Commission will discuss whether there should be any 
change in the law that now permits the estate to recover damages in respect 
of the deceased's pain and suffering and, apparently, loss of amenities, 
although not loss of expectation of life. 

The final related matter pertains to damages for emotional distress. 
The Commission will consider whether damages for such distress, standing 
alone, should be recoverable, and, if so, whether the right to recover them 
should be enshrined in legislation. 

2. THE NOTION OF NON-PECUNIARY LOSS 

The essential idea of a pecuniary loss is relatively straightforward. An 
injury or death may generate a variety of expenses and reduce or eliminate a 
number of opportunities and expectations having a clear pecuniary compo- 
nent. While the calculation of the dollar value of these losses may not always 
be simple to perform— because, in the case of permanent injury or death, 
the lump sum damage award involves predictions or educated guesses as to 
the future— it is not difficult to think of these as losses. 

The notion of a non-pecuniary loss is more difficult. Certainly there is a 
sense of loss experienced by someone who, because of some physical 
impairment, can no longer enjoy life to the same extent as before the injury, 
or who suffers continuing discomfort or disability, or who now has a shorter 
lifespan. And while there may be no physical pain, emotional distress, or 
frustration experienced by an unconscious victim, there is still the loss of the 
ability to enjoy life, as well as, in many cases, the loss of expectation of life. 
But, whereas an objective pecuniary value can be determined, or at least 
approximated, where a person, for example, requires medical care or can no 
longer earn income because of a disability, 11 one cannot, except arbitrarily, 
attach a dollar value to non-pecuniary loss. Thus, we are here considering a 
"loss" of a different order. 

It is not, of course, essential, in order to justify an award of damages or 
to decide on the appropriate amount of compensation, to continue to refer 
to these conditions as losses. One may well choose other labels. But the 
issues canvassed in this chapter clearly transcend the matter of characteriza- 
tion. Rather, they deal with the central questions of policy respecting awards 
of damages for non-pecuniary loss— for example, whether they should 
continue to play a role in a future compensation regime and, if so, the 
principles on which they should be calculated. In order to be able to make 
these determinations, it is necessary first to consider the purpose of such 
awards. 



But see United Kingdom, Royal Commission on Civil Liability and Compensation for 
Personal Injury, Report (Cmnd. 7054, 1978) (hereinafter referred to as "Pearson 
Report"), Vol. 1, para. 360, at 85, where it is said that "[although in theory all expenses 
resulting from injury are recoverable as pecuniary loss, in practice some of them may 
well be unquantifiable. . .". 



82 



3. THE PURPOSE OF DAMAGES FOR NON-PECUNIARY LOSS 



(a) Introduction 

Before examining briefly the three heads of damage for non-pecuniary 
loss, a general comment relating to awards of damages for such loss ought to 
be made. The Supreme Court of Canada's approval in the trilogy of a global 
award for non-pecuniary loss involved a recognition of the essential similar- 
ity of purpose of the three heads of damage and that a separate assessment 
would suggest a capacity for precision that would simply be misleading. In 
Andrews v. Grand & Toy Alberta Ltd., Mr. Justice Dickson, delivering the 
reasons for judgment of the unanimous Court, asserted: 12 

It is customary to set only one figure for all non-pecuniary loss, including 
such factors as pain and suffering, loss of amenities, and loss of expectation of 
life. This is a sound practice. Although these elements are analytically distinct, 
they overlap and merge at the edges and in practice. To suffer pain is surely to 
lose an amenity of a happy life at that time. To lose years of one's expectation of 
life is to lose all amenities for the lost period, and to cause mental pain and 
suffering in the contemplation of this prospect. These problems, as well as the 
fact that these losses have the common trait of irreplaceability, favour a 
composite award for all non-pecuniary losses. 

(b) Pain and Suffering 

The use of the two words "pain" and "suffering" usually denotes two 
conditions: physical discomfort and mental or emotional distress. As in the 
case of the other heads of non-pecuniary loss, an award of damages under 
this head can be expected to do nothing more than to provide solace. It 
cannot function in the fashion of an analgesic to deaden the pain or as a 
tranquillizer to lighten the distress. It cannot replace the physical comfort or 
emotional tranquillity that may be considered to have been "lost". But it 
may have an important consoling effect nonetheless, in that it signifies a 
recognition by the law of the unhappy consequences that a personal injury 
has brought upon its victim. An award may also help to alleviate some pain 
and suffering or distract the injured party by permitting him to purchase 
material or other comforts that he may otherwise lack. 

Few seem to question the propriety of an award for this purpose, 13 
although it seems to be agreed that, if the injury victim is unconscious and, 
therefore, unaware of his condition, there should be no award for pain or 
suffering. 14 It has also been suggested "that giving damages for physical pain 



12 Supra, note 2, at 264. 

13 Although, as will be noted infra, this ch., sec. 6, some no-fault proposals would omit all 
non-pecuniary heads of compensation. 

14 No such damages were awarded in The Queen in right of Ontario v. Jennings, [1966] 
S.C.R. 532, 57 D.L.R. (2d) 644. See, also, Lim v. Camden and Islington Area Health 



83 



that is wholly past, not continuing and not expected to recur, is simply an 
anomaly, for there can be no solace for past pain". 15 But unlike the 
unconscious injury victim, the victim whose pain is a thing of the past is 
nevertheless aware of having had that experience; arguably, therefore, it is 
still possible for the law to signify to the injury victim, by an award of 
damages, its recognition of the fact that he has had an unpleasant experi- 
ence, the memory of which may well continue. 16 

Where pain and suffering are permanent or long term, it is normally 
because the injury is disabling to some degree. Thus, there is also likely to be 
a loss of amenities, that is, a loss of the capacity to do certain things or to 
enjoy doing them. There may not necessarily be a shortened expectation of 
life. However, as we have noted, the Supreme Court has established that a 
global sum should be assessed, thereby recognizing, among other things, the 
similarity of the three heads. 17 

(c) Loss of Amenities and Shortened Expectation of Life 

The independent claim for loss of expectation of life was first explicitly 
recognized by the courts in Rose v. Ford . 18 The loss was seen as something in 
the nature of a loss of a property interest. As Lord Wright stated: 19 

[A] man has a legal right that his life should not be shortened by the tortious act 
of another. His normal expectancy of life is a thing of temporal value, so that its 
impairment is something for which damages should be given. 

Authority, [1980] A.C. 174, [1979] 3 W.L.R. 44 (H.L.) (subsequent reference is to [1980] 
A.C.), and Pearson Report, supra, note 11, para. 394, at 91. Concerning the distinction 
between pain and suffering, on the one hand, and the other two heads of damage, on the 
other, with respect to the question whether an award should be made to an unconscious 
plaintiff, see text accompanying notes 22-25, 35-36, and 101-04, infra. 

15 Skelton v. Collins (1966), 39 A.L J.R. 480 (H.C.), at 496, per Windeyer J. 

16 For pain that is past, damage awards tend to be moderate, although in minor injury 
cases— which represent the majority of cases— pain and suffering is often the biggest 
single head of damages. An examination of Stonehouse et al. (eds.), Goldsmith's 
Damages for Personal Injury and Death in Canada (Digest Service) discloses that, for 
minor injuries, non-pecuniary damages can go as high as $10,000, but that the usual 
range is from $500 to $3,500. A not untypical case described injuries that required no 
treatment other than ice packs and analgesics, cleared up completely and brought an 
award of $1,500 in non-pecuniary damages. See, also, Cheng, Report on Modified No- 
Fault Automobile Insurance Plan in Ontario (February 25, 1986), in State Farm 
Insurance Companies, Submission To: The Ontario Law Reform Commission Project 
on Compensation for Personal Injury and Death (May 31, 1986), Appendix A. "Nui- 
sance" and "minor injury" cases accounted for 72% of claims, "non-economic loss" for 
86% of damages paid in "nuisance" cases and 76% in "minor injury" cases (Exhibit 2 A 
to Appendix A). 

17 Andrews v. Grand & Toy Alberta Ltd., supra, note 2, at 264. 

18 [1937] A.C. 826, [1937] 3 All E.R. 359 (H.L.) (subsequent reference is to [1937] 3 All 
E.R.). 

19 Ibid., at 371-72. 



84 



In Benham v. Gambling, 20 the House of Lords stated that damages should 
be assessed on the basis of "an objective estimate of what kind of future on 
earth the victim might have enjoyed. . .". A reasonable and moderate figure 
should be awarded. 21 

As we have said, loss of the amenities of life refers to the loss of the 
ability to engage in normal activities and, therefore, the loss of the ability to 
enjoy life to its fullest. Loss of the amenities of life, together with shortened 
expectation of life, have frequently been distinguished from pain and 
suffering on the basis that the last mentioned head of damage is said to be 
subjective, whereas the first two are said to be objective. This means, 
presumably, that pain and suffering depend upon an awareness of these 
conditions on the part of the victim, while loss of amenities and shortened 
expectation of life can be said to exist notwithstanding the victim's lack of 
awareness. Thus, in H. West & Son Ltd. v. Shephard 22 a majority of the 
House of Lords declined to award damages for pain and suffering to an 
unconscious plaintiff, but did award damages for loss of amenities and 
shortened expectation of life. 

This case was followed by the Supreme Court of Canada in The Queen 
in right of Ontario v. Jennings 23 but without any analysis of the issues. 
However, the minority in the House of Lords in H. West & Son Ltd. v. 
Shephard and the majority of the High Court of Australia in Skelton v. 
Collins 24 believed that the damages awarded under the three different heads 
served roughly the same purpose— solace— and that that purpose would not 
be advanced by an award to an unconscious plaintiff. 25 

(d) Conclusion 

Professor Anthony Ogus 26 has outlined three approaches to the assess- 
ment of damages for lost amenities: 27 the conceptual approach, which treats 



20 [1941] A.C. 157, at 167, [1941] 1 All E.R. 7 (H.L.) (emphasis added). 

21 See, also, Bechthold v. Osbaldeston, [1953] 2 S.C.R. 177, 4 D.L.R. 783, and Northland 
Greyhound Lines Inc. v. Bryce, [1956] S.C.R. 408, 3 D.L.R. (2d) 81. 

22 [1964] A.C. 326, [1963] 2 W.L.R. 1359 (H.L.). This case followed Wise v. Kaye, [1962] 1 
Q.B. 638, [1962] 2 W.L.R. 96 (C.A.). 

23 Supra, note 14. 

24 Supra, note 15. 

25 In the words of Mr. Justice Windeyer of the High Court, damages for non-pecuniary loss 
are "solace for a condition created" rather than "payment for something taken away" 
(ibid., at 495). See, also, Pearson Report, supra, note 11, paras. 393-95, at 91-92. 

26 Ogus, "Damages for Lost Amenities: For a Foot, a Feeling or a Function" (1972), 35 
Mod. L. Rev. 1. 

27 Professor Margaret Somerville suggests that the three different methods could be 
applied to pain and suffering as well: see Somerville, "Pain and Suffering at Interfaces of 
Medicine and Law" (1986), 36 U. Toronto L.J. 286, at 291-92. 



85 



faculties as personal assets, each having an objective "value"; the personal 
approach, which attempts to evaluate the past, present, and future loss of 
pleasure and happiness of each injured person; and the functional approach, 
which awards such a sum as might be used to provide the injured individual 
with reasonable solace. 28 

In the trilogy, the Supreme Court of Canada considered these three 
methods of assessment and purported to choose the functional approach. In 
Andrews, Mr. Justice Dickson stated: 29 

If damages for non-pecuniary loss are viewed from a functional perspec- 
tive, it is reasonable that large amounts should not be awarded once a person is 
properly provided for in terms of future care for his injuries and disabilities. 
The money for future care is to provide physical arrangements for assistance, 
equipment and facilities directly related to the injuries. Additional money to 
make life more endurable should then be seen as providing more general 
physical arrangements above and beyond those relating directly to the injuries. 
The result is a coordinated and interlocking basis for compensation, and a more 
rational justification for non-pecuniary loss compensation. 

At the same time, however, the Court brought an element of subjectivity 
into the calculation. Notwithstanding that such awards are arbitrary or 
conventional and that assessability, uniformity, and predictability are 
important, the Court was of the view that they must have some regard for 
the individual situation of the victim: 30 

For example, the loss of a finger would be a greater loss of amenities for an 
amateur pianist than for a person not engaged in such an activity. Greater 
compensation would be required to provide things and activities which would 
function to make up for this loss. 

Thus, the view of the Supreme Court of Canada may be summed up in 
the following propositions. There should be recognition by the law, through 
an award of damages, that the injury victim has suffered distress and a sense 
of loss. There is, however, no conclusive test of the appropriate amount of 
damages to compensate the victim. The award, which must be arbitrary, 
should be substantial, but limited and, in a sense, conventional. The 
amount of the award was set by the Supreme Court of Canada at $100,000, 
in 1978 dollars, 31 in cases involving two quadraplegic plaintiffs and one- 
brain damaged plaintiff, and was described by the Court as a "rough upper 
limit" for non-pecuniary loss generally. 



Professor Somerville argues that different approaches could be taken to the award of 
damages for non-pecuniary loss. For example, a subjective approach could be taken to 
the award of damages for pain and suffering, while an objective approach could be taken 
to loss of amenities. See ibid., at 291. 

29 Supra, note 2, at 262. 

30 Ibid., at 263. 

31 This figure is now just under $200,000. See, for example, Scarffv. Wilson (1986), 10 
B.C.L.R. (2d) 273, 39 C.C.L.T. 20 (S.C.), where an award for non-pecuniary damages of 



86 



In the subsequent case of Lindal v. Lindal? 2 in which the Supreme 
Court of Canada took the opportunity to "continue the exposition" of the 
principles sketched in the trilogy, 33 the Court rejected what has been called 
the corrlparative approach to determining damages for non-pecuniary loss. 
It was of the view that the amount recovered does not depend on the 
seriousness of the injury or the extent of the plaintiff's "lost assets"; 
accordingly, courts should not measure the difference in value between the 
losses caused by different injuries, so that a person injured only half as 
seriously would receive only half as much. 34 However, while a sliding scale 
for awards was rejected, the Court did countenance some degree of flexibil- 
ity in the awards given to different plaintiffs; consequently, some sort of 
comparison between victims was, it seems, necessarily contemplated. 

On the question whether damages should be awarded for lost amenities 
to someone who is not aware of the loss, the Supreme Court's decision in 
Andrews v. Grand & Toy Alberta Ltd. may be seen to imply that they should 
not, although the point is not made explicit and there is no reference to The 
Queen in right of Ontario v. Jennings. If the objective of the damage award is 
the provision of reasonable solace for misfortune— that is, physical arrange- 
ments that can make life more endurable— then that objective cannot be 
met. Money will not, to use Dickson J.'s words, "serve a useful function in 
making up for what has been lost in the only way possible, accepting that 
what has been lost is incapable of being replaced in any direct way". 35 
However, as we have seen, conflicting approaches have been taken in 
England and Australia, and distinctions have been drawn between pain and 
suffering, on the one hand, and loss of amenities, on the other. 36 

4. SURVIVAL OF ACTIONS 

As we have seen, 37 at common law, tort actions did not survive the 
death of the injured person in favour of his estate. 38 However, all Canadian 

$188,842 was made; Baumeister v. Drake (1986), 5 B.C.L.R. (2d) 382, 38 C.C.L.T. 1 
(S.C.), where there was an award for non-pecuniary damages of $181,783; and Mitchell 
v. U-Haul Co. of Can. Ltd. (1986), 47 Alta. L.R. (2d) 193 (Q.B.), where an award was 
made for non-pecuniary damages of $181,000. 

32 Lindal v. Lindal, [1981] 2 S.C.R. 629, 129 D.L.R. (3d) 263 (subsequent references are to 
[1981] 2 S.C.R.). 

33 Ibid., at 630. 

34 Ibid., at 641-43. See, also, Richards v. B &B Moving & Storage Ltd., unreported (June 
27, 1978, Ont. C.A.). 

35 Andrews v. Grand & Toy Alberta Ltd., supra, note 2, at 262. 

36 See text accompanying notes 13-14 and 22-25, supra. 

37 Supra, ch. 2, sec. 2(b)(i). 

38 For a discussion of survival actions, see Waddams, The Law of Damages (1983), ch. 12; 
Cooper-Stephenson and Saunders, Personal Injury Damages in Canada (1981), ch. 8; 
and Luntz, Assessment of Damages for Personal Injury and Death (2d ed., 1983), ch. 9, 
sec. 1. 



87 



jurisdictions have adopted legislation reversing this position, 39 although no 
two jurisdictions have enacted precisely the same provisions. Presumably 
reflecting the controversial nature of the issues involved, Canadian provi- 
sions respecting damages for non-pecuniary loss vary from outright refusal 
to permit such an award (in Alberta, New Brunswick, Newfoundland, Nova 
Scotia, and Prince Edward Island) to allowance of an award under some 
heads of non-pecuniary loss, although, except in the Yukon and the North- 
west Territories, not for loss of expectation of life. 

In Ontario, section 38(1) of the Trustee Act 40 provides for the survival of 
actions as follows: 

38.— (1) Except in cases of libel and slander, the executor or administrator of 
any deceased person may maintain an action for all torts or injuries to the 
person or to the property of the deceased in the same manner and with the same 
rights and remedies as the deceased would, if living, have been entitled to do, 
and the damages when recovered shall form part of the personal estate of the 
deceased; but if death results from such injuries no damages shall be allowed for 
the death or for the loss of the expectation of life, but this proviso is not in 
derogation of any rights conferred by Part V of the [Family Law Act, 1986 41 ]. 

Two points should be noted concerning section 38(1). First, damages for 
death or for loss of the expectation of life are excluded only "if death results 
from such [tortiously caused] injuries". Accordingly, such damages are 
presumably recoverable by the injured person's estate where that person's 
death is caused independently of the injuries brought on by the conduct of 
the defendant tortfeasor. 

Secondly, while at first blush loss of amenities appears to be recoverable 
under section 38(1)— because it has not been expressly excluded— in the 
British Columbia case of Child v. Stevenson 42 it was held that the statutory 
exclusion "for the death" of an injured person effectively precluded an 
award for loss of amenities. 43 However, "if death was delayed, the claim for 
loss of amenities (which relates to the period while the deceased remained 
alive) seems untouched by the statute; the loss is not 'for the death' nor 'for 
the loss of expectation of life' ", 44 

It has been argued that, given the similarity of the British Columbia and 
Ontario provisions, the award of damages for loss of amenities in Ontario is 



39 See Waddams, supra, note 38, at 593, n. 2. 

40 R.S.0. 1980, c. 512. 

41 Supra, note 6. 

42 (1973), 37 D.L.R. (3d) 429 (B.C.C.A.). But see Krujelis v. Esdale (1971), 25 D.L.R. (3d) 
557 (B.C.S.C). 

43 Supra, note 42, at 436-37. 

44 Cooper-Stephenson and Saunders, supra, note 38, at 394, n. 92, commenting on Child 
v. Stevenson, supra, note 42. 



88 



subject to the same restrictions, that is, damages "are restricted to the period 
before death, and the death must have been independently caused". 45 

In the trilogy, the Supreme Court of Canada said that damages for the 
non-pecuniary losses of a living plaintiff should not be assessed separately; 
rather, a global award ought to be made. Presumably, however, in a survival 
action by the estate, the exclusion of loss of the expectation of life and, 
perhaps, loss of amenities, would serve to reduce the award. Section 38(1) of 
the Trustee Act does, in fact, differentiate between the usual heads of non- 
pecuniary loss— by specifically excluding one and perhaps inferentially 
excluding another— thereby compelling the courts to focus on each head 
separately. 

While, in Ontario, damages under certain heads of non-pecuniary loss 
are recoverable by the deceased's estate, the measure of damages is clearly 
affected by the death. Two commentators have stated the general rule in 
Anglo-Canadian jurisdictions in this way: 46 

But though a claim survives, the death will frequently affect the measure of 
damages, sometimes drastically. . . . [W]here the victim dies his estate will 
almost invariably recover less than would have been recovered inter vivos; so 
much so that in some instances the right of the estate to sue turns out to be 
illusory. 



Since the law preserves only such rights as were vested in the deceased 
immediately before he died, the general rule is that an estate can recover in 
respect of all the losses for which the injured party would have been compen- 
sated had he survived to pursue his claim, subject only to the effect of the death 
on the substance of those losses. However, most jurisdictions have legislatively 
modified this rule, in one or both of two ways: (a) by excluding some damages 
normally allowed, e.g. , damages for non-pecuniary loss, and (b) by allowing 
some damages normally excluded, e.g. funeral expenses. In the result, the 
measure of damages in a survival action is the above-stated general rule as 
amended, if at all, by the statute in question. This measure is applicable to all 
relevant heads of damage 

With respect to the quantification of non-pecuniary loss in survival 
actions, the commentators argue that "generally speaking this cannot be on 



45 Ibid., at 394. Another suggestion respecting s. 38(1) is that the phrase "for the death" has 
much the same scope as damages for loss of expectation of life, which is expressly dealt 
with in the section: Waddams, supra, note 38, para. 1036, at 598. 

46 Cooper-Stephenson and Saunders, supra, note 38, at 386 and 387-88. See, also, 
Waddams, supra, note 38, para. 1038, at 601, where he says that damages for pain and 
suffering, recoverable in Ontario by the estate, are limited by the plaintiff's shortened 
life. In the case of instantaneous death, it has also been held that the claim for loss of 
amenities and the claim for shortened expectation of life are duplicative, although this 
may not be so where the deceased survived for a while before dying; in the latter case, a 
claim for loss of amenities could refer to the period prior to death. See Crosby v. 
O'Reilly, [1975] 2 S.C.R. 381, (1974), 51 D.L.R. (3d) 555 (subsequent reference is to 
[1975] 2 S.C.R.), and Cooper-Stephenson and Saunders, supra, note ™ ** ™* ne 



89 



the same basis as in personal injury suits", 47 where the Supreme Court of 
Canada's functional approach governs. As a result, courts tend to utilize "a 
modified version of the personal approach", described earlier, 48 focusing 
mainly, although not exclusively, on the deceased's age. However, the 
functional analysis of damage awards for non-pecuniary loss does have a 
moderating effect on the quantum of such awards in survival actions, since 
it is recognized that the sum awarded cannot, in fact, benefit the victim. On 
the other hand, it has been noted that, unlike English courts, Canadian 
courts generally do not award what amounts to a conventional sum and are 
more generous than their English counterparts. 49 

Yet, notwithstanding moderation in awards of damages for non-pecu- 
niary loss in survival actions, both in Canada and elsewhere, such awards 
have come under attack in several jurisdictions. The "principal criticism" of 
a possible claim for loss of expectation of life by the estate of the deceased has 
been "that such a claim [is] personal to the deceased and when vested in his 
personal representative, [does] not further the purposes of compensation", 
since the "award benefitted someone who had not suffered any loss". 50 As 
we have seen, in Canada this argument has prevailed in all but one 
jurisdiction, insofar as loss of expectation of life is concerned, but (at least in 
terms of express statutory language) not universally in respect of claims for 
pain and suffering and loss of amenities: damages under the latter two heads 
remain recoverable in some jurisdictions despite the apparent theoretical 
applicability of the "principal criticism" just described. 

In the end, however, the prevailing judicial theory underlying the 
measure of damages in survival actions, and the way in which the courts 
actually quantify non-pecuniary loss in such actions, render the issue of 
much less importance than compensation to a living victim. Indeed, it 
appears that, in Canada, except for the two territories, "the question of 
compensation for non-pecuniary loss in survival actions is, practically 
speaking, insignificant". 51 

5. OTHER JURISDICTIONS 

In this section, the Commission will describe briefly the law and major 
approaches to reform in other jurisdictions in respect of damages for non- 
pecuniary loss. We shall consider awards to living plaintiffs as well as awards 



47 Cooper-Stephenson and Saunders, supra, note 38, at 396. 

48 See ibid., at 397, and supra, this ch., sec. 3(d). 

49 Cooper-Stephenson and Saunders, supra, note 38, at 398-99. See Benham v. Gambling, 
supra, note 20, where the House of Lords held that the award for loss of expectation of 
life was to be a conventional sum. See, also, Waddams, supra, note 38, para. 1037, at 
599-600. 

50 Manitoba Law Reform Commission, Report on The Estate Claim for Loss of Expecta- 
tion of Life, Report #35 (1979), at 4. 

51 Cooper-Stephenson and Saunders, supra, note 38, at 393, and Supplement (1987), at 27. 



90 



in favour of the estates of deceased victims. It bears noting at the outset that, 
with respect to compensation to living victims for pain and suffering, loss of 
amenities, and shortened expectation of life, a policy of restraint is to be 
found in other Canadian jurisdictions, and, as we shall see, in England and 
Australia. This policy is reflected as well in awaras to the estates of deceased 
victims. 

(a) Canada 

In 1984, the Law Reform Commission of British Columbia published 
its Report on Compensation for Non-Pecuniary Loss. 52 In its Report, the 
Commission, critical of the Supreme Court's imposition of what the Court 
called a "rough upper limit", argued that no such limit was necessary in 
order to ensure that damage awards would not escalate beyond what was 
justified by inflation. 53 Moreover, the Commission believed that it was 
undesirable to roll back damages for non-pecuniary loss awarded by the 
courts prior to the trilogy "to what the Supreme Court of Canada perceived 
to be moderate levels". 54 Accordingly, the Commission recommended that 
legislation should abolish the upper limit as established by the trilogy. 
However, at the same time, it argued in favour of a "fair upper reference 
point", 55 which it thought was represented by the trial award of $200,000 in 
Thornton. Adjusted for inflation, because the award was made in 1975, the 
Commission, in its earlier Working Paper, 56 had "tentatively proposed that 
legislation should confirm that the rough upper limit for damages for non- 
pecuniary loss be set at $400,000 as of April, !983". 57 The Commission 
reaffirmed this position in its subsequent Report. 58 After what it said would 
be some "temporary uncertainty", "[a]ppellate review will quickly restore 
certainty to assessing damages for non-pecuniary loss and ... in short 
order, general ranges of compensation for particular kinds of injuries will be 
established". 59 

The British Columbia Commission recognized that, in one sense, the 
$400,000 limit was no more readily justifiable than any other level, except 
that it accorded with what the courts had been assessing, whereas in the 
trilogy the Supreme Court of Canada "had rolled back damages for non- 



52 Law Reform Commission of British Columbia, Report on Compensation for Non- 
Pecuniary Loss, LRC 76 (1984) (hereinafter referred to as "B.C. Report"). 

53 Ibid., at 26. 

54 Ibid. 

55 Ibid. 

56 Law Reform Commission of British Columbia, Compensation for Non-Pecuniary Loss, 
Working Paper No. 43 (1983). 

B.C. Report, supra, note 52, at 27. Note the reference to a "rough upper limit". 

58 Ibid., at 29. 

59 Ibid., at 3\. 



91 



pecuniary loss by selecting an upper limit which was significantly less than 
awards that had been made for the most serious kinds of injuries". 60 

Survival of actions for damages for non-pecuniary loss has been consid- 
ered by law reform agencies in two Canadian jurisdictions. In 1977, the 
Alberta Institute of Law Research and Reform issued a Report on the 
subject. 61 The Institute's conclusions respecting the estate's claim for dam- 
ages for loss of expectation of life— conclusions that the Institute said 
applied equally to loss of amenities and pain and suffering— were as 
follows: 62 

We think that the estate's claim for damages for loss of expectation of life 
should be abolished. By its very nature it cannot go to the person who has 
suffered the injury because he is dead; it must be a windfall for others who may 
be creditors, non-dependant beneficiaries or dependant beneficiaries. It is 
against the whole conception of the common law to compensate a person who 
has not suffered. Secondly, the amount of the award is artificial and continues 

to create problems Thirdly, the award does not help dependants because if 

they are beneficiaries of the estate the sum they receive is deducted from the 
amount they are entitled to under the Fatal Accidents Act. 

The Institute accepted the argument that "the natural feelings of the 
survivors call for some pecuniary recognition". 63 However, it was of the 
view that such recognition should come not by means of an estate claim for 
damages for non-pecuniary loss, but rather in the form of compensation for 
"bereavement", 64 which would not survive to the estate of the deceased 
relatives who would be given this right of action. 65 

The Institute acknowledged that a consequence of its proposal would 
be that "the plaintiff's recovery of damages for loss of expectation of life will 
depend on his surviving to judgment, which is a matter of chance". 66 
However, it viewed its proposed compensation for bereavement as a suffi- 
cient counterbalance. 

The Legislative Assembly of Alberta subsequently enacted the Survival 
of Actions Act. 61 Section 5 of this Act provides, among other things, that 



60 Ibid., at 27. 

61 Alberta, Institute of Law Research and Reform, Survival of Actions and Fatal Accidents 
Act Amendment, Report No. 24 (1977). 

62 Ibid., at 14. 

63 Ibid. 

64 Ibid., at 16 et seq. 

65 Ibid. 

66 Ibid., at 15. 

67 R.S.A. 1980, c. S-30. 



92 



where a cause of action survives, "damages for loss of expectation of life, 
pain and suffering, physical disfigurement or loss of amenities are not 
recoverable". 

In 1979, the Manitoba Law Reform Commission reported on survival 
of actions in respect of loss of expectation of life. 68 The Commission 
described the origins of the claim by living plaintiffs and the difficulties 
faced by courts in attempting to assess damages under this head. Existing 
legislation and law reform agency proposals to preclude such claims vesting 
in the estate of a deceased were discussed and endorsed. A majority of the 
Commission recommended that the estate's claim for damages for loss of 
expectation of life should be abolished, to be replaced by a new cause of 
action, vested in third parties, for loss of guidance, care, and 
companionship. 69 

One Commissioner dissented, quoting with approval the passage by 
Lord Wright in Rose v. Ford, reproduced earlier in this chapter. 70 He 
dismissed several arguments against the retention of claims by the estate for 
the shortening of the deceased's life, including the contention that, since the 
deceased cannot benefit directly from the award, it ought not to be made. 71 
He also attempted to counter the view that an award would amount to a 
windfall to the estate: 72 

It has been stated that an estate's creditors are sometimes the only ones to 
benefit from an award granted under 'The Trustee Act\ Where is the windfall in 
this regard? Surely it is the honourable discharge of an executor's or personal 
representative's duties to pay all debts that are justly incurred by the deceased. 
Most certainly, the deceased, if he were alive, would be gratified in having his 
economic liabilities discharged. This is in furtherance of a proper policy of the 
law, and in many instances would directly benefit a deceased's heirs and 
beneficiaries. It would lead, in many instances, to more money being available 
upon the ultimate distribution of an estate's assets to estate beneficiaries. 

Finally, responding to the proposal of the majority for a new "fatal 
accidents" cause of action, he stated: 73 

In my respectful opinion, to award damages for loss of expectation of life 
under the guise of 'solatium' or for 'loss of guidance, care and companionship' 
is unconscious intellectual subterfuge. If a layman were to be asked why a 
deceased's estate should not receive a payment for loss of expectation of life, his 
probable response would be 'why not?'. This is no more illogical than other 



68 Supra, note 50. 

69 Ibid., at 25. See An Act to Amend The Fatal Accidents Act and The Trustee Act, S.M. 
1980, c. 5. 

Supra, note 18. The passage is quoted in the text following note 19, supra. 

71 Supra, note 50, at 29. 

72 Ibid., at 30. 

73 Ibid., at 32. 



93 



illogicalities in the field of law. It would appear to be the most direct, respon- 
sible and cogent method of awarding damages. It would serve, in most respects, 
to assuage the anomaly that is raised by the oft quoted maxim 'it is cheaper to 
kill than to maim'. A direct payment to the estate would not serve to fully 
eradicate this anomaly; but I do not think that it is the proper function of the 
law to attempt to do so. 

(b) United Kingdom 

In the United Kingdom, starting with Phillips v. London and South 
Western Railway Co., 14 which allowed damages under non-pecuniary 
heads, but which specified that the amount awarded should be "fair and 
reasonable compensation under all the circumstances of the case", the 
courts have used language calculated to induce restraint. 75 

The decision of the Court of Appeal in Walker v. John McLean & Sons 
Ltd., 76 upholding an award of £35,000 to a sixteen and a half year old 
paraplegic for pain and suffering, loss of amenities of life, and shortened 
expectation of life is consistent with this view and with Canadian decisions. 
So, too, is the decision of the House of Lords in Lim v. Camden and 
Islington Area Health Authority. 11 While neither of these cases discusses the 
issue as thoroughly as the Supreme Court of Canada, there is a clear 
indication in the Lim case that conventional, moderate awards are justified, 
but with the recognition that increases to offset inflation are necessary "if 
only to prevent the conventional becoming the contemptible". 78 

In 1971, the English Law Commission published its Working Paper on 
assessment of damages, 79 followed in 1973 by its final Report. 80 The 



74 

75 



76 

77 



(1874),4Q.B.D.406,at408. 

See Scott v. Musial, [1959] 2 Q.B. 429, at 432, [1959] 3 W.L.R. 437 (C.A.), the report of 
which reproduces the following direction to the jury given by Mr. Justice Paull at the 
trial of the action (the appeal from which was unanimously dismissed): 

It is not going to be a grossly extravagant sum in the sense that you would say: 'I 

would not have that happened to me for a million pounds' Obviously it is not 

going to be a small sum; obviously it will be a substantial sum— you may think a 

pretty substantial sum, but of course not absurdly extravagant [Although you 

realise that these injuries are very serious and the results are very unpleasant, you 
must not run away and give him a fantastic sum; you must take some sum which 
you think is reasonable for the defendant to pay and for the plaintiff to receive, and 
I can help you no further about that. 

[1979] 1 W.L.R. 760, [1979] 2 All E.R. 965 (C.A.). 

Supra, note 14. 



78 Ibid., at 189. 



79 



80 



England, The Law Commission, Personal Injury Litigation— Assessment of Damages, 
Working Paper No. 41 (1971) (hereinafter referred to as "Law Commission W.P."). 

England, The Law Commission, Report on Personal Injury Litigation— Assessment of 
Damages, Law Com. No. 56 (1973) (hereinafter referred to as "Law Commission 
Report"). 



94 



Commission was of the general view that it was not possible to devise 
legislative guidelines concerning the assessment of damages for non-pecuni- 
ary loss. Existing law in this regard, including the rule that no account 
should be taken of the fact that the victim cannot, in fact, use the damages 
awarded to him in respect of loss of amenities and loss of expectation of life, 
should continue to govern. 81 In addition, courts should assess damages 
without the use of a legislative tariff. 82 

In terms of the types of claim for non-pecuniary loss, the Law Commis- 
sion recommended that "claims for damages for loss of expectation of life as 
a separate head of non-pecuniary loss be abolished, but that the court 
should be required to take into account, in assessing damages for pain and 
suffering, any suffering caused or likely to be caused by awareness of lost 
expectancy". 83 Even if damages were to continue to be awardable for loss of 
expectation of life, the Law Commission would preclude recovery of such 
damages by the deceased victim's estate, "mainly because persons who have 
not suffered any loss may get the benefit of the award". 84 However, the Law 
Commission was of the view that the survival of other claims for non- 
pecuniary loss raised different issues. The Report quoted 85 the following 
passage from its earlier Working Paper 86 in endorsing the survival of these 
claims: 

The deceased may have suffered severe pain over a considerable period 
before death and may even, during that time, have spent some of the damages 
he was advised he would recover; and, during this period, relatives may have so 
acted in looking after him as to be not undeserving of the reward he may have 
intended to bestow upon them. We can see no reason why, injustice, a victim's 
death, perhaps wholly unconnected with the injury, should lead to this compen- 
sation being taken away. 



81 



Ibid., para. 31, at 10. See Wise v. Kay, supra, note 22, and H. West & Son Ltd. v. 
Shephard, supra, note 22 (discussed supra, this ch., sec. 3(c)), concerning the proposi- 
tion that damages for loss of amenities and loss of expectation of life, "should not be 
reduced because the plaintiff could not use them" (Law Commission W.R, supra, note 
79, para. 90, at 46). The Working Paper did note, however, that "there are ... 
considerable difficulties in defining what is meant by 'use' " {ibid., para. 91, at 47). For 
example, "[i]s money 'used' if it is bequeathed by will?" (ibid.). Must the victim be 
aware of such potential "use"? The Working Paper stated that "[ejven in cases of lack of 
consciousness there is no reason why the money should not be spent by the relatives in 
seeking to establish contact with the plaintiff and in helping him, where possible, to 
return to some form of life" (ibid., para. 92, at 47). 



return 10 some lorm oi me \wia., para, yz, ai ^ /;. 

82 Law Commission Report, supra, note 80, paras. 32-35, at 10-11. 

83 Ibid., para. 99, at 26. 

84 Ibid., para. 100, at 26. 

85 Ibid., para. 101, at 27. 



86 



Law Commission W.R, supra, note 79, para. 67, at 36. For a comment on the quoted 
passage in the Working Paper, see Luntz, supra, note 38, para. 9.1.05, at 396, reproduced 
infra, note 166. 



95 



After the publication of the Working Paper, criticism was levelled at this 
view on the ground that the money would not benefit the victim, but would 
be distributed to some relative or even to the deceased's creditors. But for 
reasons that relate in part to certain procedural changes in the United 
Kingdom, the Law Commission affirmed its earlier provisional proposal 
that claims for damages for non-pecuniary loss, other than for loss of 
expectation of life, should continue to survive for the benefit of the estate. 87 

In 1978, the United Kingdom Royal Commission on Civil Liability and 
Compensation for Personal Injury issued its Report (the Pearson Report). 88 
The Report noted that "[t]here was no significant pressure ... for the 
abolition of damages for non-pecuniary loss". 89 However, while it did 
"consider that there is a place for damages for non-pecuniary loss", 90 and 
did recommend the retention of awards for loss of amenities 91 and, by a 
majority, for pain and suffering, 92 the Report proposed that "damages for 
loss of expectation of life as a separate head of damage should be 
abolished". 93 Such damages, it said, had "an air of unreality" 94 and should 
be replaced by "an award [to specified relatives of the deceased] for loss of 
society on Scottish lines". 95 

Insofar as loss of amenities and pain and suffering are concerned, the 
Report rejected a legislative tariff to control awards. However, "struck by 
the high cost of compensation for non-pecuniary loss", 96 the Report did 
recommend, by a majority, that "no damages should be recoverable for non- 
pecuniary loss suffered during the first three months after the date of 
injury". 97 The Royal Commission was equally divided on the issue whether 
a "ceiling" should be imposed on awards for non-pecuniary loss: some 
members were of the view that "a maximum could ... act as a useful point 
of reference for the courts", 98 while others believed that the appellate courts 
"can— and do— secure a reduction of awards which are excessive", so that 
"the introduction of a statutory maximum would be an unnecessary 



87 Law Commission Report, supra, note 80, para. 104, at 28. 

88 Supra, note 11. 

89 Ibid., para. 361, at 86. 

90 Ibid., para. 362, at 86. 

91 Ibid., para. 380, at 89. 

92 Ibid., para. 381, at 89. 

93 Ibid., para. 372, at 87. 

94 Ibid., para. 371, at 87. 

95 Ibid., para. 370, at 87. See ibid., paras. 418 et seq., at 96 et seq. 

96 Ibid., para. 382, at 89. 

97 Ibid., para. 388, at 90. 

98 Ibid., para. 391, at 91. 



96 



complication". 99 However, all were agreed that the "emphasis in compensa- 
tion for non-pecuniary loss should ... be on serious and continuing losses, 
especially loss of faculty" 100 and that some type of control on awards should 
exist. 

The Report also concluded that the assessment of damages raised 
particular difficulties in the case of the permanently unconscious plaintiff. 
The Royal Commission noted the widely divergent views on this issue, 
depending in part on whether one sees the award as compensation for a loss, 
determined objectively, or as solace. 101 The Commissioners did "not think it 
is possible to regard either of these approaches as necessarily right and the 
other as necessarily wrong". 102 However, on balance it recommended that 
"non-pecuniary damages should no longer be recoverable for permanent 
unconsciousness", 103 since such damages should be awarded "only where 
they can serve some useful purpose, for example, by providing the plaintiff 
with an alternative source of satisfaction to replace one that he has lost". 104 

Finally, in dealing with the survival of actions, the Report recom- 
mended that "claims for pain and suffering and loss of amenity should 
continue to survive for the benefit of the claimant's estate". 105 The Report 
quoted with approval the passage in the English Law Commission's Work- 
ing Paper reproduced above. 106 

Insofar as claims for loss of expectation of life are concerned, the 
proposals in both the English Law Commission Report and the Pearson 
Report ultimately had their effect. In 1982, Parliament in the United 
Kingdom enacted the Administration of Justice Act 1982, 107 section 1(1) of 
which provides as follows: 

1.— (1) In an action under the law of England and Wales or the law of 
Northern Ireland for damages for personal injuries— 

(a) no damages shall be recoverable in respect of any loss of expectation 
of life caused to the injured person by the injuries; but 



99 Ibid., para. 392, at 91. 

100 Ibid., para. 384, at 90. 

101 Ibid., paras. 394-95, at 91-92. 

102 Ibid., para. 396, at 92. 

103 Ibid., para. 398, at 92. 

104 Ibid., para. 397, at 92. 

105 Ibid., para. 444, at 100. 

106 Ibid., para. 442, at 100. The passage is reproduced in the text following note 86, supra. 

107 C. 53. The abolition of claims in respect of loss of expectation of life made it unnecessary 
to amend, in this respect, the Law Reform (Miscellaneous Provisions) Act, 1934, c. 41, 
which provides for the survival of causes of action to a deceased's estate. This was noted 
by the Law Commission: Law Commission Report, supra, note 80, para. 100, at 26. 



97 



(b) if the injured person's expectation of life has been reduced by the 
injuries, the court, in assessing damages in respect of pain and 
suffering caused by the injuries, shall take account of any suffering 
caused or likely to be caused to him by awareness that his expectation 
of life has been so reduced. 



(c) New Zealand 

In 1982, New Zealand passed the Accident Compensation Act 1982, m 
which consolidated and revised the Accident Compensation Act 1972 109 and 
its subsequent amendments. 110 Pursuant to these enactments, a no-fault 
accident compensation plan was introduced in New Zealand. The plan 
provides for awards for non-pecuniary loss, but sharply limits them. Section 
78 of the 1982 Act permits an award of up to NZ$17,000 as compensation 
for non-pecuniary losses involving "the permanent loss or impairment of 
any bodily function", assessed on the basis of a schedule that attributes a 
percentage loss to each part of the body. Where an injury does not appear on 
the schedule, the Accident Compensation Corporation is empowered to pay 
the sum it considers appropriate. Under section 79, up to NZ$10,000 may be 
awarded for loss of amenities or capacity for enjoying life, including 
disfigurement and pain and mental suffering (the latter of which would 
comprehend nervous shock). No compensation is payable under this sec- 
tion unless the Corporation is of the opinion that "having regard to its 
nature, intensity, duration, and any other relevant circumstances", the loss 
or the pain is serious enough to justify payment. 111 According to one 
commentator, section 79 has been the most contentious section in the 
Act. 112 



(d) Australia 

In Australia, the case law reflects an outlook similar to that manifested 
in the English cases. While the courts have rejected the idea of a tariff and 
have indicated that each case must be judged on its own facts, at the same 
time they have favoured consistency and, evidently, moderation in awards 
for non-pecuniary loss. 113 



108 1982, No. 181. 

109 1972, No. 43. 

110 See supra, note 108, Second Schedule, Part I. 

111 Supra, note 108, s. 79(1). 

112 Palmer, "Lump Sum Payments Under Accident Compensation", [1976] N. Z.L.J. 368, 
at 370. 

113 For example, in Sharman v. Evans (1977), 138 C.L.R. 563 (H.C.), the High Court of 
Australia reduced an award of AUS$80,000 for pain and suffering and loss of amenities 
experienced by a young quadraplegic to AUS$55,000. A separate award of AUS$6,000 
for shortened expectation of life was reduced to AUS$2,000. 



98 



(e) United States 

In the United States, on the other hand, damages for non-pecuniary 
loss tend to be much higher, although there are significant variations from 
area to area, in part, no doubt, because tort law is a state matter and 
different courts have different attitudes to compensation for non-pecuniary 
loss. 

American terminology is not precisely parallel to our own. Section 905 
of the Second Restatement of the Law of Torts states: 114 

Compensatory damages that may be awarded without proof of pecuniary loss 
include compensation 

(a) for bodily harm, and 

(b) for emotional distress. 

Sometimes American courts speak of pain and suffering as embracing both 
physical and emotional distress and, apparently, as taking into account loss 
of amenities and shortened expectation of life. 

An example of how dramatic a difference there can be in the American 
outlook, as compared with our own, is a decision of the Arizona Court of 
Appeals upholding a jury award of $2.5 million for pain and suffering in the 
case of a motor vehicle accident victim who had suffered brain damage that 
changed his personality, and scarring that is described as amounting to 
deformity, but who had a normal life expectancy. 115 The Court indicated 
that it would not interfere with a jury award unless it were "so outrageously 
excessive as to suggest, at first blush, passion or prejudice". 116 This, evi- 
dently, was not such a case. The Court rejected the idea of a conventional 
award or a schedule, on the basis that no two injuries and no two plaintiffs 
were the same. The Court also rejected the argument that awards should be 
limited for various policy reasons, asserting that there was no justification 
for restricting a plaintiff to less than appropriate compensatory damages. 
The Court evidently saw no circularity in this argument. 

In 1986, the American Tort Policy Working Group on the Causes, 
Extent and Policy Implications of the Current Crisis in Insurance Availabil- 
ity and Affordability recommended limiting non-pecuniary damages, 
including punitive damages, to $100,000. 117 In fact, a considerable number 



114 American Law Institute, Restatement of the Law, Second— Torts 2d (1979), § 905. 

115 Wry v. Dial, 503 P. 2d 979 (Ariz. Ct. App. 1973). 

116 Ibid., at 991. 

117 Report of the Tort Policy Working Group on the Causes, Extent and Policy Implications 
of the Current Crisis in Insurance Availability and Affordability (1986), at 69. 



99 



of American states have now enacted dollar limits with respect to such 
damages. 118 

In California, for example, the Medical Injury Compensation Reform 
Act 119 provides that non-economic damages, to compensate for pain, suffer- 
ing, inconvenience, physical impairment, disfigurement, and other intang- 
ible damages, should be limited to $250,000 in personal injury accidents 
against health care providers. While the California limit is greater than the 
current value of the $100,000 upper limit set in the Supreme Court of 
Canada's trilogy, it is also fair to say that California is identified as one of the 
areas in the United States where jury awards have tended to be most 
generous. Hence, in a sense, the California limit established by statute 
represents an even more dramatic policy decision than that represented in 
Canada by the trilogy, which merely adopted as a "rough upper limit" an 
amount that had been among the highest awarded in personal injury cases 
prior to the decisions of the lower courts in Thornton, Andrews, and 
Arnold.™ 

6. ARGUMENTS AGAINST THE APPROACH IN THE TRILOGY 

There is, of course, no demonstrably correct approach to the awarding 
of damages for non-pecuniary loss. It is, as Canadian, English, and other 
courts have repeatedly pointed out, an undertaking for which there is no 
objective measure. 121 The process can, however, be informed by a coherent 
policy so that the decision will not be arbitrary in the particular case; that is, 
it need not be contingent solely upon the unfettered discretion of a judge or 
a jury. 

In this section, we shall examine briefly the contention that the present 
law, represented by the trilogy in the Supreme Court of Canada, is deficient 
and therefore ought to be reformed. 122 We leave to the next section the 
narrower questions of the respective roles of the judge and jury, survival of 
actions, and the award of damages for emotional distress alone. 



118 

119 
120 

121 

122 



See Council of State Governments, Backgrounder (December, 1985), which lists 32 
states with such legislation. 

Cal. Civ. Code §3333.2. 

But see, for example, Jackson v. Millar, [1972] 2 O.R. 197 (H.C.J.), where $150,000 was 
awarded for non-pecuniary loss. This award was left untouched in the Court of Appeal 
([1973] 1 O.R. 399) and the Supreme Court of Canada ([1976] 1 S.C.R. 225). 

It has been said that, in the trilogy, the "monetary evaluation of non-pecuniary losses 
was held to be more a philosophical and policy exercise than a legal or logical one": 
Cherniak and Sanderson, supra, note 1, at 212. 

See, generally, B.C. Report, supra, note 52, esp. at 16-17. For a response to that Report, 
see Waddams, "Compensation for Non-Pecuniary Loss: Is There a Case for Legislative 
Intervention?" (1985), 63 Can. B. Rev. 734. 

With respect to the recommendation in the B.C. Report to "abolish" the rough 
upper limit established in the trilogy, Waddams notes the "unresolved conflict" in the 



100 



In some cases, criticism of the present law has led to the conclusion that 
no award should be made for non-pecuniary loss. Two arguments can be 
raised in favour of such a policy. The first is that because many injury 
victims now go uncompensated for their pecuniary losses, it would be 
preferable to direct the money to meeting that shortcoming of the system 
rather than add it to the compensation of those whose pecuniary awards are 
adequate. 

The other argument raised for abolishing damages for non-pecuniary 
loss is that such damages constitute a barrier to rehabilitation. It is said that 
the injury victim's belief that damages for non-pecuniary losses will be 
reduced by successful efforts on his part to overcome his injury can be 
subversive of rehabilitation. 123 

With respect to the first argument, it bears emphasizing that the 
abolition of the right to damages for non-pecuniary loss under the present 
tort system would not, in itself, serve to redirect the money to any other 
particular purpose. Redirection— in order to provide full compensation for 
pecuniary losses, where this is thought to be lacking, or for any other 
reason— would occur only where it is expressly mandated by a different type 
of compensatory regime. For example, the denial of damages for non- 
pecuniary loss tends to be associated with schemes of universal no-fault 
compensation, either for victims of a particular type of accident or for injury 
victims generally. In this connection, reference may be made to the Com- 
mission's Report on Motor Vehicle Accident Compensation, m in which we 
proposed a no-fault compensation scheme in respect of motor vehicle 
accidents. In that Report, it was recommended that "no compensation 
should be paid for non-pecuniary losses suffered as a result of a motor 
vehicle accident". 125 Workers' compensation schemes frequently exclude 
the possibility of such damages under certain circumstances. By providing 
compensation for all accident victims in respect of their pecuniary loss, they 
concentrate resources on the cost of care. 

The second argument— concerning the allegedly negative effect of an 
award of damages for non-pecuniary loss on the rehabilitative efforts of 
injured persons— is, it appears, a factor in the abolition or limitation of such 
damages in many of the schemes described above. However, to the extent 
that the argument carries any weight, it does so only in respect of the period 

Report between the desire to impose a known limit, or "reference" point, on damages 
for non-pecuniary loss and the desire to give a "largely unfettered power in trial courts" 
to award such damages {ibid., at 740). 

123 Ontario Law Reform Commission, Report on Motor Vehicle Accident Compensation 
(1973) (hereinafter referred to as "O.L.R.C. Report"), ch. VI. In the B.C. Report, supra, 
note 52, at 18, it was said that one argument allegedly favourable to an upper limit on 
non-pecuniary damages was that, without it— that is, if damages were "at large"— there 
would be "an incentive for personal injury victims to dwell on their misfortunes". 



124 



O.L.R.C. Report, supra, note 123. 



125 Ibid., at 107. 



101 



of time between the injury and the judgment. Once the quantum has been 
fixed by the court, any malingering by the plaintiff would serve no purpose 
and, accordingly, any disincentive to rehabilitation would be removed. 

Finally, it should be noted that the two arguments considered above 
may, in fact, be used to advance a cause other than that of completely 
abolishing awards of damages for non-pecuniary loss. Assuming their 
validity, at least under some circumstances, it may be said that both of these 
arguments could be made by those who favour a conventional, limited 
award, like that endorsed in the trilogy, rather than no award at all. 

Criticism of existing law also comes from those who favour a policy of 
higher awards, sometimes with no upper limit. Several arguments have been 
advanced in favour of higher awards. One argument that had been raised in 
the past is that a fixed limit involves the prospect of erosion by inflation. 126 
But arguments based purely on the adverse effects of this factor can be easily 
countered. The courts are now prepared to take inflation into account in 
applying the upper limit imposed by the trilogy. In Fenn v. City of 
Peterborough, 121 the Ontario Court of Appeal justified an award of 
$125,000 for non-pecuniary damages on the ground that there had been an 
erosion in the value of money since the upper limit was established. The case 
went to the Supreme Court of Canada, which upheld the award, without 
commenting on the Court of Appeal's reasoning. 128 In Lindal v. Lindal, 129 
although the Supreme Court of Canada upheld the decision of the British 
Columbia Court of Appeal to reduce a trial judgment from $135,000 for 
non-pecuniary damages to $100,000, it also stated: 130 

Account may be taken of inflation in awarding damages and it is not 
suggested that the figure of $100,000 should not vary in response to economic 
conditions, in particular, the debasement of purchasing power as a result of 
inflation. 

It has also been argued that, with an upper limit of $100,000, the 
amounts available for less serious injuries quickly diminish; but, again, the 
courts seem to have rejected the notion that there is a sliding scale, with the 
person injured only half as seriously receiving only half as much. 131 In 
Lindal v. Lindal, the Court explained: 132 



126 Cherniak and Sanderson, supra, note 1, at 220 et seq. 

127 (1979), 25 O.R. (2d) 399, 104 D.L.R. (3d) 174 (C.A.). 

128 Sub nom. Consumers' Gas Co. v. City of Peterborough, [1981] 2 S.C.R. 613, 129 D.L.R. 
(3d) 507. 

129 Supra, note 32. 

130 Ibid., at 643. 

131 Ibid. 

132 Ibid., at 637. 



102 



[T]he amount of an award for non-pecuniary damage should not depend alone 
upon the seriousness of the injury but upon its ability to ameliorate the 
condition of the victim considering his or her particular situation. It therefore 
will not follow that in considering what part of the maximum should be 
awarded the gravity of the injury alone will be determinative. An appreciation 
of the individual's loss is the key and the 'need for solace will not necessarily 
correlate with the seriousness of the injury' (Cooper-Stephenson and Saunders, 
Personal Injury Damages in Canada (1981), at p. 373). In dealing with an award 
of this nature it will be impossible to develop a 'tariff. An award will vary in 
each case 'to meet the specific circumstances of the individual case' (Thornton 
atp.284ofS.C.R.). 

A further argument in favour of higher awards for non-pecuniary loss is 
that greater deterrence would thereby be achieved. While that proposition is 
no doubt true, the important issue from an economic perspective is obtain- 
ing the correct level of deterrence. Whether one is thinking in terms of 
deterring individuals from rash behaviour or deterring people generally 
from engaging in a particular activity, the economic argument is that the 
appropriate degree of deterrence is achieved by requiring that potential 
wrongdoers face the full social cost of their activities. Accordingly, on this 
analysis, the appropriate amount of damages from a deterrence standpoint 
is the social cost of the losses occasioned by the wrongful activity. But this 
principle does not readily dictate the appropriate amount of damages 
because the inquiry returns to the question, "What is the appropriate 
evaluation of the loss?". Unless it can be shown that the Supreme Court's 
approach does not amount to an adequate assessment of the injured 
person's losses, the economic conception of deterrence requires no greater 
award than that endorsed in the trilogy. 

Some have argued, in effect, that damages for non-pecuniary loss 
should be sufficiently high— that is, beyond the Supreme Court of Canada's 
"rough upper limit"— to compensate the injured person for pecuniary losses 
not specifically dealt with or foreseen at trial. 133 The Commission cannot, 
however, see why the courts, or the Legislature, should do indirectly what 



133 See Pearson Report, supra, note 11, para. 360, at 85. See, also, B.C. Report, supra, note 
52, at 14-16. After appearing to make this type of argument, the B.C. Report stated 
(ibid., at 15): 

We do not mean to suggest that damages for non-pecuniary loss should be 
considered as compensation for other heads of loss for which inadequate or no 
damages are awarded. We merely doubt whether it is safe to assert that adequate 
compensation on other heads of loss is sufficient reason to assess non-pecuniary 
losses moderately. 

But then the B.C. Report made these comments (ibid., at 16): 

Because of the uncertainty inherent in accurately estimating pecuniary loss, an 
award for non-pecuniary loss often provides a sum which safeguards the plaintiff 
from a financial shortfall arising because the assumptions made were wrong. 
Placing a ceiling on damages for non-pecuniary loss may seriously impair a 
function performed by those damages as an element of the whole process of 
adequately compensating the plaintiff. 



103 



they might do directly. If it is thought to be essential to expand the heads of 
damage for pecuniary loss in order to compensate the victim more fully, this 
ought to be done expressly. Damages to provide solace for such intangible 
"losses" as pain and suffering, loss of amenities, or loss of expectation of life 
should not be used as a means of rectifying any basic deficiency in the law 
relating to awards of damages for pecuniary loss. 

Finally, it is said that the policy adopted by the Supreme Court of 
Canada in the trilogy simply results in inadequate compensation for injured 
persons with respect to non-pecuniary loss. In other words, it is an argument 
in favour of greater generosity— basically, more solace— to the victims of 
injury. 

As we have said already, since all agree that there is no truly objective 
measure of the loss suffered, the determination concerning what constitutes 
appropriate compensation is a policy decision based on a number of 
considerations. The Supreme Court, in the trilogy, clearly directed its 
attention to whether the amount it was awarding was enough to compensate 
the injured party adequately for non-pecuniary loss. One may disagree, 134 
but one cannot prove the Court wrong. 135 

In the trilogy, the Supreme Court of Canada partly justified its policy of 
restraint on the basis of what it considered to be the likely adverse effect on 
liability insurance premiums of unlimited and unpredictable awards. The 
Law Reform Commission of British Columbia was highly critical of the 
Supreme Court's reasoning with respect to the impact of insurance. The 
British Columbia Commission was of the opinion that the Court's assess- 
ment of the matter was superficial, resting partially on what it said was 
misleading— and, it appears, ultimately withdrawn— publicity, sponsored by 
the insurance industry in the United States, claiming that high damage 
awards would lead to prohibitively high insurance premiums. Indeed, it 
would appear that the Court's statements on the effect of damage awards on 
insurance premiums were not based on any empirical evidence; nor was the 
issue even argued before the Court. 



See, also, ibid., at 12: "[W]e have doubts whether damages for non-pecuniary loss serve 
any one narrow purpose. Confining the level of those damages overlooks a number of 
other kinds of loss for which a plaintiff usually receives no compensation". 



134 



135 



The B.C. Report, ibid., at 21, stated: 

It [the limit imposed in the trilogy] has . . . probably led to undercompensating 
personal injury victims generally. . . .The only conclusion that can be reached with 
absolute certainty is that the current 'limit' is far too low. 

In the B.C. Report, the dissenting Commissioner stated as follows (Memorandum of 
Dissent by Anthony F. Sheppard, ibid., at 33): 

Critics of the rule have not shown and indeed cannot show convincingly that the 
limit is unfair because non-pecuniary losses cannot be objectively quantified and 
because $100,000 adjusted for inflation and with court order interest is a substan- 
tial sum of money. 



104 



The British Columbia Commission stated that damages for non-pecun- 
iary loss generally represent a small portion of the total damage award, that 
awards are not as high as one would believe simply by reading newspaper 
accounts, and that American awards are, and will likely remain, higher than 
British Columbia awards because the cost of medical care is much greater in 
the United States. 136 The Commission conducted a study "to predict the 
impact on motor vehicle insurance premiums of higher awards for non- 
pecuniary loss", 137 and drew the conclusion that "concerns over the costs of 
insurance with respect to compensating for non-pecuniary loss were over- 
stated by the Supreme Court of Canada". 138 It said that increases in 
premiums, while not nominal, would not be prohibitive. 

We are of the view that the question whether the abolition of the 
trilogy's "rough upper limit" would result in dramatically increased liability 
insurance premiums cannot be answered conclusively without further 
empirical data. Arguments have been marshalled on either side; yet, since 
most evidence is anecdotal, answers are generally speculative and, we 
believe, will remain so for some time. 139 

The British Columbia Commission raised a further argument against 
the approach taken by the Supreme Court of Canada in the trilogy. The 
argument was that, in settling a "rough upper limit" for damages for non- 
pecuniary loss, the Supreme Court was usurping the role of the Legislature. 
While, for example, the Commission was willing to countenance the Court 
'"[defining] the role to be played by damages for non-pecuniary loss", the 



136 Ibid., at 13. 

137 Ibid., at 30. 

138 Ibid. 



139 



However, it has been argued that "the cost of high awards is ultimately borne by large 
sections of the public through liability insurance premiums, and that unpredictability of 
awards as well as their large size increases the cost of insurance": Waddams, supra, note 
122, at 736. The Ontario Task Force on Insurance also referred, inter alia, to the effect of 
large damage awards on liability insurance premiums (Ontario, Final Report of the 
Ontario Task Force on Insurance (1986), at 38): 

There is no doubt that the current insurance crunch is dominated by a crisis 
in liability insurance. As noted above, the causes of this crisis are difficult to 
discern but relate primarily to the extreme uncertainty associated with 'long-tail' 
risks. The insurer's exposure may extend for many years beyond the time when the 
insured occurrence took place, and systemic socio - legal and economic changes are 
constantly shifting the parameters of liability and quantum of damage. This 
uncertainty has made it impossible for insurers to price the various types of risks 
and has led directly to the severe problems in availability, adequacy and affordabil- 
ity of liability insurance coverage. 

The Task Force indicated that the problem was not serious in all areas of liability- 
generating activity. The problem seemed most pressing for product manufacturers, 
municipalities, tavern owners, hotels, hospitals, volunteer groups, contractors, truckers, 
bus operators, and newspapers. The Task Force called for responses broader than the 
mere limitation of damages for non-pecuniary losses. But its conclusions do support 
such a limitation. 



105 



Commission was of the view that the Court "was not in the best position to 
determine whether to impose an arbitrary limit on damages for non- 
pecuniary loss". 140 

We cannot agree. We believe that it is the proper function of appellate 
courts to control damage awards. An appellate court, and particularly a 
court of last resort, must ensure that such awards are fair and consistent, 
that is, that they are fair as between plaintiffs similarly injured and as 
between defendants, as well as between the parties in individual cases. It 
does not appear to us that the objectives of fairness and consistency can be 
achieved unless there is some sort of scale for comparing one case with 
another. Any such scale must have an upper end, more or less clearly 
defined. In our opinion, it is not beyond the proper jurisdiction of an 
appellate court to indicate, for the guidance of trial courts, where that upper 
end lies. 

7. CONCLUSIONS 

(a) The Approach in the Trilogy 

The Commission has come to the conclusion that, in a compensation 
regime based on the idea that a "wrongdoer" should pay for the injury done 
to another person, it is not appropriate to abolish awards of damages for 
non-pecuniary loss. We are unaware of any significant public sentiment in 
favour of abolishing the award of damages under this head. 141 While some 
surveys have suggested that people might be prepared to give up such 
compensation in favour of a system that provided compensation for all 
pecuniary losses on a no-fault basis, 142 this option does not come within the 
terms of reference of this Report. However, it bears emphasizing that even 
the no-fault accident compensation regime in New Zealand permits awards 
for non-pecuniary loss, although of a very modest amount. 

Our endorsement of awards of damages for non-pecuniary loss applies 
equally to past, as well as present, pain and suffering. For some, the notion 
of "solace", the purpose advanced by the Supreme Court of Canada in the 
trilogy as the basis of damages for non-pecuniary loss, involves the spending 
of the award in order to furnish some form of comfort only for anticipated 
on-going pain and suffering. We believe, however, that the need for solace is 
not inconsistent with the memory and experience of past pain and suffering, 
and that it is the receipt of the award that furnishes that solace. 143 



140 B.C. Report, supra, note 52, at 16. 

141 In this connection, see Pearson Report, supra, note 11, para. 361, at 86. 

142 O.L.R.C. Report, supra, note 123, at 79. 

143 See Cooper-Stephenson and Saunders, supra, note 38, at 353-54, and Waddams, supra, 
note 38, para. 393, at 226-27. 



106 



In our view, once the decision has been made to retain awards of 
damages for non-pecuniary loss, the realistic choice is between accepting the 
general approach laid down by the Supreme Court of Canada in the trilogy, 
which embraces the idea of moderation in awards and a rough upper limit 
or, alternatively, recommending more liberal or indulgent awards, perhaps 
with no upper limit. At this level, the Commission has no trouble endorsing 
the approach enunciated by the Supreme Court of Canada. It is probably 
fair to say that no system fully accepts an approach that would involve no 
upper limit. Even in American jurisdictions, where awards that would be 
regarded as astronomical in Canadian terms have been permitted, it is 
nevertheless accepted that an appellate court has the authority to limit or 
reduce amounts assessed by juries. The importance of recognizing a sense of 
loss and attempting to provide solace must be balanced against the social 
burdens of indulgent awards, as well as the impossibility of equating distress 
with money. 

Having said this, the question for the Commission ultimately comes 
down to what the upper limit should be. The argument for a higher, but still 
moderate, limit, consistent with the approach adopted by the Supreme 
Court of Canada, involves several strands, for example, that it would permit 
more flexibility and give greater scope for assessing adequate awards in less 
serious cases. In the end, however, the argument seems to be founded on the 
subjective belief that $100,000, adjusted for inflation but otherwise forming 
the limit except in very exceptional circumstances, is simply not enough and 
that the "laddering" effect this has on awards for less serious, but still severe, 
injuries results in inadequate awards for these injuries. 

As we have indicated, in its 1984 Report the Law Reform Commission 
of British Columbia recommended that "[t]he rough upper limit on com- 
pensation for non-pecuniary loss established by the Supreme Court of 
Canada in the 'trilogy' [should] be abolished". 144 In its place, the Commis- 
sion proposed a "fair upper reference point", 145 represented by the 1975 trial 
award of $200,000 in Thornton. The difference between the British Colum- 
bia Commission's "reference point" and the Supreme Court of Canada's 
"rough upper limit" is not altogether clear. 146 Both attempt to keep damages 
from escalating in an uncontrolled fashion and to provide consistency and 
certainty in awards for various kinds of injuries. Fundamentally, then, the 
distinction would appear to be simply that the reference point imposes the 
limit at a higher dollar figure. 

By way of summary, the Commission believes that the goals of consis- 
tency, predictability, and fairness— as between one award and another, and 
as between awards in one province and awards in another— necessitate the 
retention of some sort of limit. Since money cannot alleviate pain and 



144 Supra, note 52, at 31 (emphasis deleted). 

145 Ibid., at 26. 

146 See Waddams, supra, note 122, at 735-36. 



107 



suffering or return to the injured person the lost years or lost amenities of 
life, and given the social burdens of indulgent awards, a reasonable, moder- 
ate award is required. In order to advance the goals referred to above, 
appellate review of lower court awards is essential. So long as some flexibil- 
ity is assured, in order to deal with very exceptional cases demanding higher 
awards, 147 and so long as there is an adjustment for inflation in the level of 
awards, we believe that injured persons are adequately protected by the 
existing law respecting damages for non-pecuniary loss. If such persons are 
not properly compensated in respect of pecuniary losses, the remedy clearly 
lies in reform of that facet of the law. Indeed, it is an essential goal of our 
recommendations to ensure full recovery for such losses. Accordingly, the 
Commission recommends that there should be no change in the present law 
and practice, as enunciated by the Supreme Court of Canada in the trilogy, 
respecting awards of damages for non-pecuniary loss. 148 



147 After a review of the jurisprudence, Waddams concludes that "though in principle the 
limit might be exceeded on grounds of seriousness of injury, it will in practice be difficult 
to establish such a case" (supra, note 38, para. 381, at 219). See, generally, ibid., paras. 
379-81, at 217-19. 

148 Dr. H. Allan Leal, O.C., Q.C., Vice Chairman of the Commission, dissents from this 
recommendation: 

As Chairman of the Ontario Law Reform Commission, I was a signatory of 
its 1973 Report on Motor Vehicle Accident Compensation. The Commission at that 
time, apart from the Chairman, comprised three legal practitioners, one of whom 
specialized as counsel in these particular areas of litigation, and the fourth was the 
distinguished former Chief Justice of the High Court of Ontario whose judicial 
career necessarily involved in this area an intimate knowledge of the law and a 
broad experience in its decision making. The Report of the Commission was 
unanimous, including the recommendation that "no compensation should be paid 
for non-pecuniary losses suffered as a result of a motor vehicle accident." 

Nothing that I have read or heard since then has persuaded me that our 
decision at that date was wrong and it is therefore with regret that I must dissent 
from the recommendation of my colleagues in the current Report with respect to 
the award of non-pecuniary damages. It goes without saying that if there is to be 
compensation for non-pecuniary loss I would support the view that an upper limit, 
adjusted from time to time for inflation, be fixed by legislation. The figure of 
$100,000 was determined in the Andrews case by the Supreme Court of Canada to 
be a proper award and my colleagues have recommended that the practice of our 
courts on this point since that case be confirmed. It is clear, of course, that the 
fixing of the figure at $100,000, subject to adjustment for inflation, is no less 
arbitrary and no more logical than any other figure. 

It was said in the Andrews case that there is no medium of exchange for 
happiness. There is no market for expectation of life. The monetary evaluation of 
non-pecuniary losses is a philosophical and policy exercise more than a legal or 
logical one. It must also be said that as a philosophical matter it is highly doubtful 
whether money can buy back happiness or palliate pain, and even assuming that it 
can, when does one establish where an infusion of dollars begins to be palliative 
and at what point in future dosage does one run into the law of diminishing 
returns? It is a given, of course, that everything that can reasonably be provided in 
terms of present and future care ought to be provided and certainly one should not 
skimp on the one with an expectation that the slack will be taken up on the other. 

It has been said in our current Report that some surveys have suggested that 
the people might be prepared to give up damages for non-pecuniary losses as a quid 



108 



(b) Jury A ssessment of Damage Awards 

One point that has given rise to difficulty is whether, and, if so, the 
degree to which, guidance should be given to a jury in respect of the 
$100,000 limit. It has been the established rule that no specific figures 
should be mentioned by the trial judge, and this rule was reaffirmed by the 
Ontario Court of Appeal in 1984. 149 However, we believe that it is impossible 
to reconcile this approach with the requirement of rational analysis, rational 
explanation, and consistency of damage awards. It is true that empowering 
the judge to give guidance to the jury will reduce the independence, or at 
least the power, of the jury. But reduction of the jury's independence or 
power is not necessarily objectionable. Indeed, the history of trial by jury has 
witnessed the development of several devices for controlling the jury. 150 



pro quo in a system that provided compensation for all pecuniary losses on a no- 
fault basis. As a factual matter that may very well be, but it must be stressed that 
this was not stated as the reasoning behind the recommendation in the Commis- 
sion's 1973 Report. Whether my colleagues at that time, or any of them, harboured 
that view is not known. I certainly did not. 

I have given much thought to the question whether any one of the customary 
tripartite divisions of non-pecuniary damages— loss of amenities of life, pain and 
suffering and loss of expectation of life— might justify the retention of an award. It 
seems to me that there are a few cases where the nature and the severity of the loss 
of an amenity would justify an award even where compensation for lost earning 
capacity was not a factor. One thinks in this connection of an accomplished and 
dedicated but non-professional pianist. Apart from quantum which would remain 
a substantial problem there would be the difficulty of separating this factor from, 
say, suffering. In result, I would not favour the award of damages even for loss of 
amenities. And I am aware that the Andrews case counsels us that there should be 
no attempt to hive off any one of the trilogy of factors in non-pecuniary loss. 

As a policy matter we do not attempt to compensate our wounded soldiers, 
injured workers, and generally incapacitated persons for non-pecuniary loss. It is, 
of course, no answer to say that in the tort regime we are dealing with a matter 
strictly between the parties. In today's society compensation for personal injury 
under the tort regime is far from a private matter. This particular manifestation of 
social engineering is called loss distribution and affects us all. Compulsory auto- 
mobile insurance is an obvious but certainly not the only example of this. 

One is also aware that New Zealand's comprehensive no-fault accident 
compensation scheme provides for compensation for pain and suffering. Recent 
experience with the funding of the New Zealand plan and the "massive cost blow- 
out" in compensation payments has prompted a review committee to say that the 
scheme "could not continue in its present form". 

In the end it comes down to this, that to attempt to compensate for non- 
pecuniary loss we are inevitably driven out of the realm of rationality and logic and 
into the type of guesswork which has earned for this particular branch of the law 
the sobriquet "the forensic lottery". 

149 Howes v. Crosby (1984), 45 O.R. (2d) 449, 6 D.L.R. (4th) 698 (C.A.). But see Crosby v. 
O'Reilly, supra, note 46, at 386-87, per Laskin C.J. (for the Court). See, also, Waddams, 
supra, note 38, at 218, n. 157. 

150 Watson, "Assisting the Jury in Assessing General Damages— Gray v. Alanco Develop- 
ments Revisited" (1970), 48 Can. B. Rev. 565, at 574. 



109 



Against the advantages of jury independence must be weighed the need for 
fairness, consistency, and rationality in damage awards, and the expense and 
inconvenience— some might say the absurdity— of compelling the trial 
judge to enter judgment for an amount that he knows is contrary to law, and 
must be set aside on appeal, with the consequent necessity of another jury 
assessment with, perhaps, the same defects as the first. 151 We believe, 
therefore, that complete deference to jury awards is no longer appropriate. 
Accordingly, it is recommended that, in the trial of an action for damages for 
personal injuries, the judge should be empowered to give guidance to the 
jury concerning the quantum of damages for non-pecuniary loss. 152 

It is further recommended that, in order to advance the goals of fairness 
and rationality, counsel should have the right to make submissions to the 
judge or the jury, as the case may be, on the quantum of damages. 153 We 
believe that any excess by counsel in this regard can and should be dealt with 
by the trial judge in the same way in which he would deal with any 
inappropriate behaviour, that is, pursuant to the judge's overriding discre- 
tion to control proceedings of the court. 

Finally, the Commission recommends that an appellate court should 
have power, when setting aside a jury assessment of damages for non- 
pecuniary loss, to substitute its own assessment, instead of ordering a new 
trial, if it thinks this to be just in the circumstances. 154 A similar power 
should continue to be exercisable in the case of an appellate court review of 
a judicial assessment of damages. 

(c) Survival of Actions 

A further matter arising in connection with non-pecuniary loss con- 
cerns damages awarded to the estate upon the death of an injured person. 
We have seen that section 38(1) of the Trustee Act 155 permits the estate of an 



151 See Vieczorek v. Piersma (1987), 58 O.R. (2d) 583, 36 D.L.R. (4th) 136 (C.A.), where a 
husband and wife were injured in an automobile accident, sustaining fractures, with 
some loss of arm movement in the husband. A jury awarded damages to the husband for 
non-pecuniary loss of $54,600, and damages under the former Family Law Reform Act, 
R.S.O. 1980, c. 152, s. 60 (now s. 61 of the Family Law Act, 1986, supra, note 6) of 
$52,000 and $39,000 to the husband and wife, respectively. The Ontario Court of 
Appeal set the awards aside as extravagantly high, but held that it had no power to 
substitute its own assessment in the absence of consent of both parties. 

See the draft Personal Injuries Compensation Act proposed by the Commission (herein- 
after referred to as "draft Compensation Act"), infra, Appendix 1, s. 15. 

Ibid. 

Ibid., s. 16(1). See supra, note 151. Reform of the law on these lines has recently been 
recommended by the Law Reform Commission of British Columbia : Report on Review 
of Civil Jury Awards, LRC 75 (1984). See, also, the Memorandum of Dissent by 
Anthony F. Sheppard, in B.C. Report, supra, note 52, at 34. 

155 Supra, note 40, s. 38(1), reproduced supra, this ch., sec. 4. 



152 

153 
154 



110 



injured person to recover damages for pain and suffering and, apparently, 
loss of amenities, but not loss of expectation of life. In addition, as we have 
indicated, section 61(2)(e) of the Family Law Act, 1986 156 provides that 
certain named relatives of the person injured or killed may recover "an 
amount to compensate for the loss of guidance, care and companionship 
that the claimant might reasonably have expected to receive from the person 
if the injury or death had not occurred". 157 

The Commission recognizes that there are certain anomalies respecting 
the theoretical basis of damages awarded to the estate of the deceased. If one 
accepts the functional approach to such awards, as adopted by the Supreme 
Court of Canada in the trilogy, then it seems difficult to justify an award 
where the victim is dead: 158 if, in other words, the sole purpose of awards for 
non-pecuniary loss is solace for the injured person, this purpose cannot be 
realized after death. 159 Some commentators have also expressed the view 
that "intangible losses are purely personal to the plaintiff", with "no loss at 
all to the estate". 160 Difficulties in this area have, therefore, led to calls for 
the abolition of awards for non-pecuniary loss in survival actions. 161 

The Commission believes, however, that the abolition of survival 
actions would give rise to significant problems. The Alberta Institute of Law 
Research and Reform, which recommended the abolition of damages for 
non-pecuniary loss (although it proposed compensation for "bereavement" 
in its place), acknowledged two such problems in this way: 162 

We recognize that a consequence of this recommendation is that the 
plaintiff's recovery of damages . . . will depend on his surviving to judgment, 
which is a matter of chance. We recognize also, that on the one hand, that state 
of the law may put pressure upon a plaintiff to sue early, and, that on the other, 
it may provide some inducement to a defendant to delay matters. 



156 Supra, note 6. See discussion supra, this ch., sec. 1. 

157 The Commission's recommendations concerning such claims appear supra, ch. 2. 

158 It has been acknowledged by one commentator that, since the Supreme Court of 
Canada's "functional theory [respecting the calculation of non-pecuniary loss] is 
inapplicable where the victim is dead", "if assessment is to continue as before, it must be 
under either the conceptual or personal approach": Cooper-Stephenson and Saunders, 
supra, note 38, at 397. These approaches are described supra, this ch., sec. 3(d). 

159 Cooper-Stephenson and Saunders, supra, note 38, at 396-97, and Luntz, supra, note 38, 
para. 9.1.04, at 395. 

160 Cooper-Stephenson and Saunders, supra, note 38, at 399. 

161 See, for example, Alberta, Institute of Law Research and Reform, Survival of Actions 
and Fatal Accidents Act Amendment , supra, note 61, and Survival of Actions Act, supra, 
note 67. 

162 Supra, note 61, at 15. 



Ill 



In the absence of survival actions, then, a victim's estate would not be 
entitled to benefit from an award for non-pecuniary loss where the victim 
died immediately before judgment, but would be able to do so where the 
victim died immediately after judgment. 163 

The Commission does, of course, recognize the difference between 
these two situations. 164 Where the plaintiff is alive at the time of judgment, 
damages for non-pecuniary loss are awarded in the belief that they will, in 
fact, provide some solace to her for the anticipated duration of her life. 
Clearly, as we have said, no such purpose can be realized where the victim 
dies before judgment. 

However, we do not believe that this difference is significant enough to 
warrant the imposition of different legal consequences.* We believe that it 
would be unjust and undesirable to make the recovery of damages for non- 
pecuniary loss dependent on what the Alberta Institute acknowledged to be 
a "chance" occurrence, namely, when the victim died. 

Moreover, we are of the view that the argument that the present law 
countenances a "windfall" to the estate, and on that basis ought to be 
rejected, is not conclusive. Even assuming that the damages recoverable by 
the estate are properly characterized as a windfall, such good fortune is not 
unique to survival actions: whether the victim dies either immediately 
before or immediately after judgment, it will be the estate, not the victim, 
that benefits from an award. 165 Furthermore, in some cases the injured 
party may have expended funds prior to judgment in a manner consistent 
with the purpose of an award for non-pecuniary loss. Recovery by the estate 
in respect of such expenditure seems to us to be reasonable and hardly a 
windfall to the beneficiaries. 166 



163 
164 



Luntz, supra, note 38, para. 9.1.06, at 396-97. 
See Luntz, ibid., at para. 9.1.06, at 397: 



Nevertheless, hard cases make bad law and if at the time when judgment is to be 
pronounced it is known that damages can no longer compensate, effect should be 
given to that knowledge. If the plaintiff, having obtained judgment for damages- 
including damages for non-pecuniary loss— then dies, a court on appeal would 
probably have to regard the claim as merged in the judgment and the death alone 
would not be a good ground for allowing the appeal (cf Ryan v. Davies Bros Ltd. 
(1921) 29 CLR 527); but if there are other grounds for allowing the appeal, the court 
should not shirk its duty because on the retrial or reassessment damages for non- 
pecuniary loss would be excluded. 

165 Of course, the estate may also benefit where the injured party never spends any of the 
damage award before he dies. 

166 Law Commission W.P., supra, note 79, para. 67, at 36 (see the passage quoted in the text 
following note 86, supra); Law Commission Report, supra, note 80, paras. 100-07, at 
26-29; and Pearson Report, supra, note 1 1, paras. 442-44, at 100. In response, see Luntz, 
supra, note 38, para. 9.1.05, at 396: 



112 



On balance, therefore, we recommend that there should be no change 
in the law, under section 38(1) of the Trustee Act, respecting the entitlement 
of the estate of an injured person to recover damages for non-pecuniary 
loss. ,67 We do recognize that, as a result of this proposal, estates would 
continue to be unable to recover damages for loss of expectation of life. Two 
main factors have influenced our decision. First, while perhaps justifiable 
on a conceptual level, the introduction of new legislation permitting an 
estate to recover damages for loss of expectation of life would add new and 
perhaps unanticipated complexities to an already controversial area of the 
law. We are mindful of the arguments marshalled specifically against such 
recovery in a survival action. Secondly, the Commission's other proposals in 
this Report are designed to provide, as much as possible, full compensation 
to an injured person and adequate protection to certain named dependants 
and others. In this sense, then, the provision of a new right to recover 
damages is unnecessary if its purpose is simply to secure better compensa- 
tion. 

(d) Mental Distress 

A final matter relates to damages for mental distress, standing alone. 
We noted earlier that, in the absence of any physical injury, such distress 
may well be regarded as a species of personal injury. 168 However, tort law has 
been reluctant to compensate such losses unless they amount to actual 
bodily harm, although it has been said that the law "seems to be moving in 
the direction of enlarging liability". 169 

The first reason is, it is believed, specious. Issues of liability, contributory negli- 
gence and quantum are usually too doubtful to allow victims to act confidently on 
such predictions. In any event, it cannot be assumed that such expenditure was 
motivated by the expectation of receiving damages for non-pecuniary, as opposed 
to economic, loss. 

It is not at all clear why the alleged doubtfulness of the award and the motivation of the 
injured person are telling factors against the Law Commission's argument. Where the 
prejudgment expenditure was clearly to provide an amenity "lost" to the victim as a 
result of his injury, recoupment by the estate is, we believe, justifiable. 

The Law Commission also stated that "relatives may have so acted in looking after 
him as to be not undeserving of the reward he may have intended to bestow upon them" 
(Law Commission W.R, supra, note 79, para. 67, at 36). Luntz responded as follows 
(supra, note 38, para. 9.1.05, at 396): 

With regard to the deserving relatives, it would be fortuitous if the ones to benefit 
from the award of damages to the estate for non-pecuniary loss were the ones who 
rendered the services, or if there was any correspondence between the value of the 
services and the amount received. 

167 See draft Compensation Act, s. 4(1), which begins: "In addition to damages otherwise 
recoverable in law". This statutory language would refer, inter alia, to s. 38(1) of the 
Trustee Act, supra, note 40. 

168 Supra, this ch., sec. 1. See, also, Waddams, supra, note 38, paras. 448 et seq., at 263 et 
seq. 

169 Ibid., para. 448, at 263. 



113 



In respect of negligence claims, it may be argued that any extension of 
the law in this area would have the effect of putting a premium on 
protestations of misery, lead to enormous difficulty in bringing about the 
settlement of claims, create heavy systemic costs, impose an enormous 
burden on those whose careless acts cause emotional distress, and drastically 
affect liability insurance premiums. In the case of intentional behaviour, on 
the other hand, other than that constituting an assault and battery or other 
nominate tort, it may be more justifiable to impose liability in the kind of 
case contemplated by the following provisions of the American Second 
Restatement of the Law of Torts: 170 

One who by extreme and outrageous conduct intentionally or recklessly causes 
severe emotional distress to another is subject to liability for such emotional 
distress, and if bodily harm to the other results from it, for such bodily harm. 

It may be thought anomalous, as Prosser once pointed out, to have "a rule 
which permitted recovery for a gesture that might frighten the plaintiff for a 
moment, and denied it for menacing words which kept him in terror of his 
life for a month". 171 

The issue of awarding damages for emotional distress associated with a 
breach of contract not producing a physical injury is one that has been 
explored by the courts. In recent years, there have been a number of contract 
cases that have imposed liability. 172 Some commentators have argued 
against the extension of damages in such cases, 173 and, in several instances, 
the scope of liability has been restricted in various ways. 174 

As in the torts context, the law of contract in this area exhibits some 
degree of uncertainty, but is also developing rapidly. Having regard to this 
state of affairs, there does not appear, at present, to be a convincing case for 
legislative intervention. Accordingly, the Commission recommends that the 
law respecting the award of damages for emotional distress alone should be 
allowed to develop on a case-by-case basis, without such intervention. 



170 Supra, note 114, §46(1). 

171 Prosser, Handbook of the Law of Torts (3d ed., 1964), at 44. 
See cases cited in Waddams, The Law of Contracts (2d ed., 1984), at 564-69. 



172 
173 



Rea, "Nonpecuniary Loss and Breach of Contract" (1982), 11 J. Legal Stud. 35. On the 
other hand, the developments were defended in Harris, Ogus, and Phillips, "Contract 
Remedies and the Consumer Surplus" (1979), 95 Law Q. Rev. 581. 

174 In Brown v. Waterloo Regional Board of Police Commissioners, supra, note 5, it was 
held that a claim for mental distress could not be attached to an unconnected breach of 
contract, and the Court stressed the need for the loss to have been within the contempla- 
tion of the parties at the time of the contract. In wrongful dismissal cases, only the 
additional distress, if any, caused by the failure to give proper notice is compensable. 



114 

Recommendations 

The Commission makes the following recommendations: 

1. There should be no change in the present law and practice, as enunci- 
ated by the Supreme Court of Canada in the trilogy, respecting awards 
of damages for non-pecuniary loss. 

2. (1) In the trial of an action for damages for personal injuries, the judge 

should be empowered to give guidance to the jury concerning the 
quantum of damages for non-pecuniary loss. 

(2) Counsel should have the right to make submissions to the judge or 
the jury, as the case may be, on the quantum of damages, subject to 
the trial judge's overriding discretion to control proceedings of the 
court. 

(3) An appellate court should have power, when setting aside a jury or 
court assessment of damages for non-pecuniary loss, to substitute 
its own assessment, instead of ordering a new trial, if it thinks this 
to be just in the circumstances. 

3. There should be no change in the law, under section 38(1) of the Trustee 
Act, respecting the entitlement of the estate of an injured person to 
recover damages for non-pecuniary loss. 

4. The law respecting the award of damages for emotional distress, 
standing alone, should be allowed to develop on a case-by-case basis, 
without legislative intervention. 



* Dr. H. Allan Leal, O.C., Q.C., Vice Chairman of the Commission, dissents from this 
recommendation: see supra, note 148. 



CHAPTER 4 



COST OF CARE 



1. INTRODUCTION 

As we noted earlier, 1 the method of assessing general damages in 
separate amounts received the imprimatur of the Supreme Court of Canada 
in Andrews v. Grand & Toy Alberta Ltd. 2 As a result, subsequent damage 
awards for personal injury have been divided, typically, into four separate 
heads of damage. 3 In recent cases involving serious personal injury the 
largest component in the assessment of general damages has been the award 
for cost of care. Such an award is intended to provide compensation for the 
future cost of medical and rehabilitative treatment judged necessaryTor the 
injured person by reason of the accident. "[T]he prime purpose of the 
court", it has been said, "is to assure that the terribly injured plaintiff should 
be adequately cared for during the rest of her life." 4 

The court's determination of the future care award involves a two-fold 
task. First, it must decide the kind of care to which the plaintiff is entitled. 
This will include, for example, a consideration of whether the plaintiff ought 
to be awarded the cost of home or institutional care, what special equipment 
ought to be paid for and whether rehabilitative or counselling services are 
warranted. The court must then decide how best to calculate the award in 
order to enable those goods and services to be provided during the entire 
period of disability. These are clearly determinations of two very different 
sorts. The first raises questions of broad social values; considerations of 
policy will undoubtedly affect whether a given level of compensation is 
considered adequate. The second requires resolution of financial and legal 
issues of a rather more concrete and technical nature. 

It is this two stage process in the assessment of damages for future care 
that is addressed in this chapter. First we shall examine the standard of care, 
that is, the level of care appropriate for an injured tort victim. In the 



1 Supra, ch. 1. 

2 [1978] 2 S.C.R. 229, 83 D.L.R. (3d) 452 (subsequent references are to [1978] 2 S.C.R.). 

3 The four heads of damage are: (1) special damages; (2) damages to compensate for lost 
future income; (3) damages to compensate for pain and suffering (non-pecuniary loss); 
and (4) damages to compensate for the cost of future medical and related care 
necessitated by the injury. See supra, ch. 1. 

4 Arnold v. Teno, [1978] 2 S.C.R. 287, at 320, 83 D.L.R. (3d) 609 (subsequent references 
areto[1978]2S.C.R.). 

[115] 



116 



remaining sections we shall examine several of the quantum related issues 
that affect the calculation of the award. 



2. STANDARD OF CARE 

(a) Introduction 

The term "standard of care" is applied to two unrelated concepts in the 
law of torts. As part of the analytic process of fixing liability, "standard of 
care" is a familiar stage in the duty-breach-damage scheme. A much less 
familiar use of the term is its application to the wholly distinct issue of future 
care for the successful plaintiff in a personal injury action. It is in this second 
sense that we use the term in this chapter. 

Once liability has been determined, the primary function of the court, 
in a case of personal injury, is the assessment of the damages to which the 
plaintiff is entitled. Where an injury has had lasting effects that will require 
future medical, nursing, rehabilitative or attendant care, or the purchase of 
special equipment or prostheses, a damage award will include an amount to 
cover those costs. An award for future care will have as its objective the 
provision of enough money to enable the tort victim to be cared for 
throughout the entire period of her disability, or, where the disability is 
permanent, for the remainder of the victim's life. 

In awarding compensation for the anticipated cost of future care, some 
sort of test is needed to determine the level or kind of care that should be 
assumed. There is a wide range of care and treatment options available in 
Canada for the sick, injured and disabled. For example, it is possible for a 
seriously injured person to be cared for either in an institution or at home, 
the latter option usually involving a much greater expense. Similarly, it is 
possible for a person who has lost a limb to use inexpensive and simple 
prostheses, or, alternatively, to use expensive and highly sophisticated 
devices. It is also possible for an injured person to purchase expensive 
equipment, such as a swimming pool for physiotherapy or a computer for 
home management, although it is equally possible for an injured person to 
manage without such equipment. It is the wide range of care and treatment 
options that exist between these extremes that renders it necessary for the 
court to determine the appropriate level of care to which the plaintiff is 
entitled. 

(b) Current Law 

The three cases decided by the Supreme Court of Canada in 1978 5 have 
been perceived generally as restrictive of the plaintiff's right to damages. An 



5 



Andrews v. Grand & Toy Alberta Ltd., supra, note 2; Thornton v. Board of School 
Trustees of School District No. 57 (Prince George), [1978] 2 S.C.R. 267, 83 D.L.R. (3d) 
480 (subsequent references are to [1978] 2 S.C.R.); and Arnold v. Teno, supra, note 4. 



117 



important element in those cases was the ceiling placed on damages for non- 
pecuniary loss. 6 However, the Court made it very clear that the quid pro quo 
for the restriction on damages for non-pecuniary loss was a guarantee that 
proven pecuniary losses would be compensated in full. If the plaintiff was to 
lose the right to a large non-pecuniary award, full compensation for the 
plaintiff's actual costs had to be assured. By encouraging plaintiffs to prove 
every item of pecuniary loss, and by requiring courts to award compensa- 
tion for those losses, the net effect of the cases seems to have been to enlarge, 
rather than to reduce, the overall size of damage awards. 

The test for determining whether compensation should be based upon 
the more or the less expensive alternative has generally been stated simply as 
whether the expenses claimed are "reasonable". In Andrews v. Grand & Toy 
Alberta Ltd., Dickson J., as he then was, explicitly rejected the argument 
that, in order to determine the appropriate standard of care for a person 
injured as a result of tortious conduct, the court ought to consider the 
standards adopted by society generally, as those standards are manifested by 
such statutory compensation schemes as Workers' Compensation. 7 Those 
programs, he suggested, aim merely at provision, rather than the full 
compensation that is the objective of the tort system. Mr. Justice Dickson 
stated: 8 

The standard of care expected in our society in physical injury cases is an 
elusive concept. What a legislature sees fit to provide in the cases of veterans 
and in the cases of injured workers and the elderly is only of marginal 
assistance. The standard to be applied to [the injured plaintiff] is not merely 
'provision', but 'compensation': i.e. what is the proper compensation for a 
person who would have been able to care for himself and live in a home 
environment if he had not been injured? 

In the case of a totally or almost totally disabled plaintiff, the para- 
mount issue is whether the victim should be cared for in an institution or a 
home care environment. 9 In Andrews v. Grand & Toy Alberta Ltd. Mr. 
Justice Dickson noted that the evidence given at trial supported the conclu- 
sion that the plaintiff would be benefited, not only psychologically and 
emotionally, but also medically, by a home care environment. 10 Given that 
evidence, the question became one of the principles underlying a future care 



6 See, generally, supra, ch. 3. 

7 Supra, note 2, at 245-46. 

8 Ibid., at 246. 

9 Ibid., at 238. Since the 1978 trilogy of Supreme Court of Canada cases, supra, note 5, the 
term "home care" has come to have a recognized meaning as the provision of medical, 
nursing and/or professional supervisory service to an individual in a private residence, 
either on a 24 hour basis, or for more limited periods each day. "Institutional care", on 
the other hand, is the provision of the needed services in a residential institution, such as 
an auxiliary hospital. Institutional care costs are usually lower than those of home care. 



10 



Supra, note 2, at 238. 



118 



award. The basic principle, the Court asserted, was the reasonable use of 
money to benefit the plaintiff's health: 11 

In theory a claim for the cost of future care is a pecuniary claim for the 
amount which may reasonably be expected to be expended in putting the 
injured party in the position he would have been in if he had not sustained the 
injury. Obviously, a plaintiff who has been gravely and permanently impaired 
can never be put in the position he would have been in if the tort had not been 
committed. To this extent, restitutio in integrum is not possible. Money is a 
barren substitute for health and personal happiness, but to the extent within 
reason that money can be used to sustain or improve the mental or physical 
health of the injured person it may properly form part of a claim. 

In respect of entitlement to home care, therefore, the Court has 
indicated a definite predisposition in favour of the plaintiff. Where home 
care is sought by a plaintiff who would benefit therefrom medically, the 
Court will be reluctant to deny such care. Mr. Justice Dickson stated: 12 

[BJefore denying a quadriplegic home care on the ground of 'unreasonable' cost 
something more is needed than the mere statement that the cost is unreason- 
able. There should be evidence which would lead any right-thinking person to 
say: 'That would be a squandering of money— no person in his right mind 
would make any such expenditure.' Alternatively, there should be evidence that 
proper care can be provided in the appropriate environment at a firm figure, 
less than that sought to be recovered by the plaintiff. 

The Supreme Court of Canada's effective determination that home 
care is prima facie a reasonable expense has made home care the norm for a 
disabled plaintiff, provided that evidence is led to demonstrate that life at 
home would be to the plaintiff's benefit, and subject to the overall require- 
ment that the costs to be incurred not be entirely disproportionate to the 
benefit to be gained. For example, in both De Champlain v. Etobicoke 
General Hospital 1 * and Schmidt v. Sharped a severely disabled plaintiff was 
awarded the cost of future care in the home after appropriate expert 
evidence had been adduced. 

An exception to the general willingness of the Ontario courts to fix 
awards for future care on the basis of home care is the recent decision in 
Suitter v. Blake-Knox. 15 In this case the combination of the plaintiff's severe 
physical disability, which Hollingworth J. found amounted to her virtual 
confinement to bed, and her considerable mental impairment, led the Court 
to reject a claim for home care. It is interesting to note that the judgment in 



11 Ibid., at 241. 

12 Thornton v. Board of School Trustees of School District No. 57 (Prince George), supra, 
note 5, at 280-81. 

13 (1985), 34 C.C.L.T. 89 (Ont. H.C.J.). 

14 (1983), 27 C.C.L.T. 1 (Ont. H.C.J.). 

15 Unreported (August 1, 1985, Ont. H.C.J.). 



119 



Suitter makes no reference to expert testimony regarding the benefit to the 
plaintiff of living at home, but rather notes that Hollingworth J. himself 
"had the rare opportunity of seeing the patient and of watching her 
behaviour closely for a period of over one hour". 16 It is thus unclear whether 
the case, which is quite unusual in its award of institutional care only, is 
better seen as delineating a medical situation in which a plaintiff's entitle- 
ment will be restricted, or as a demonstration of the continuing necessity of 
expert evidence on the plaintiff's behalf. In favour of the first interpretation 
is the British Columbia case Wipfli v. Britten, 11 in which a child who had 
suffered severe and irreversible brain damage was awarded the cost of 
institutional care, capitalized to a lump sum of approximately $1.4 million. 
Together, Suitter and Wipfli suggest that an effectively insensate plaintiff 
may not be entitled to home care. 

In the Andrews case, Dickson J. alluded to the possibility that some 
acceptable middle ground might exist between the extremes of home care 
and institutional care: 18 

Is it reasonable for Andrews to ask for $4,135 per month for home care? 
Part of the difficulty of this case is that twenty-four hour orderly care was not 
directly challenged. Counsel never really engaged in consideration of whether, 
assuming home care, such care could be provided at lesser expense. Counsel 
wants the Court, rather, to choose between home care and auxiliary hospital 
care. There are unanimous findings below that home care is better. Although 
home care is expensive, auxiliary hospital care is so utterly unattractive and so 
utterly in conflict with the principle of proper compensation that this Court is 
offered no middle ground. 

Due to the lack of suitable intermediate attendant care facilities, the 
Court, in this case, was confronted with choosing between two extreme 
alternatives. The choice at one end of the scale (institutional care) was so 
utterly unacceptable that, in effect, the Court was compelled to adopt, as the 
appropriate standard, the choice at the other end of the scale (home care). 
The indication in this case that some "middle ground" might have been the 
appropriate standard in the circumstances could have been anticipated to 
promote the evolution of a range of intermediate attendant care facilities. 
To the extent that such facilities have developed, and will continue to 
develop, the choices to be made by courts in the future will become less 
stark. 19 



18 
19 



Ibid., at 72-73. 

(1982), 22 C.C.L.T. 104 (B.C.S.C.). Supplementary reasons were issued concerning the 
amount of damages to be awarded for the cost of future institutional care: (1983), 43 
B.C.L.R. 1, 145 D.L.R. (3d) 80 (S.C.). While an appeal on this issue was allowed, a cross- 
appeal, on the home or institutional care issue, was dismissed: (1984), 56 B.C.L.R. 273, 
13 D.L.R. (4th) 169 (C.A.). Leave to appeal to the Supreme Court of Canada was 
granted: (1985), 13 D.L.R. (4th) 169«. 

Supra, note 2, at 247-48. 

At present, two main programs of the Ontario Ministry of Community and Social 
Services make attendant care services available for the disabled. The first, started in 



120 



For example, in a recent judgment, the Manitoba Court of Appeal 
adopted the middle ground advocated by the defendant as being the appro- 
priate standard of care in the circumstances, and it reduced the trial award 
accordingly. In Watkins v. Olafson 20 the plaintiff sought a future care award 
calculated on the basis of home care, with a full-time live-in attendant and a 
part-time home-maker. The defendants contended, and the appellate court 
agreed, that, under the circumstances, the plaintiff's demand to live in a 
private home was unreasonable. Two circumstances appeared to be of 
particular significance. First, during the nine and a quarter years between 
the date of the injury and the date of the trial, the plaintiff was required to 
spend in excess of six years in an institutional setting. While he did attempt 
to live independently during that period, he did so without success. It is 
possible, of course, that the plaintiff's lack of success in the private home 
care setting was a result of his inability to afford the necessary professional 
care, rather than an indication of the plaintiff's unsuitability for such care. 
Nevertheless, the Court concluded that, notwithstanding the plaintiff's 
desire to live in a private setting, he would likely require hospital care for a 
substantial portion of his future years. Secondly, the type of middle ground 
referred to by Dickson J., which was not available to the court when 
Andrews was decided, had become available to the Manitoba Court of 
Appeal. The government of Manitoba had established a number of residen- 
tial apartment suites, known as "Fokus units", that were designed specific- 
ally for severely disabled individuals. Each building containing Fokus units 
had an attendant on call at all times, thus providing twenty-four hour care 
for the occupants. Since the attendant was available to provide care for 
several disabled persons within the building, substantial savings would be 
realized over the cost of a private attendant. 

Huband J.A. speculated that, despite the plaintiff's wishes to the 
contrary, accommodation in a Fokus unit might well prove more satisfac- 
tory for the plaintiff than living in his own private dwelling. 21 After noting 
that the function of the court is to compensate the plaintiff according to 
some reasonable standard, Mr. Justice Huband concluded that "[i]n my 
view, a Fokus unit would seem to constitute that reasonable standard for a 



1979, is the Support Service Living Unit Program (also referred to as the "Attendant 
Care Program"), which, primarily through a variety of transfer payment arrangements, 
makes attendant care available at specified locations. Typically, services are provided in 
residential buildings, designed or modified to accommodate a number of disabled 
tenants. Attendant care is made available on a 24 hour a day basis. Currently, there are 
56 such buildings in Ontario, providing services for approximately 700 clients. 

The second program, the Attendant Care Outreach Program, initiated in 1984, 
was intended specifically to fill at least part of the gap between home care and 
institutional care. Under this program, a variety of community agencies provide 
services for the disabled, on a visitation basis, in the individual's own home. However, 
services are limited to a maximum of 90 hours per month. At present, approximately 
350 clients receive services under this program. 

20 [1987] 5 W.W.R. 193 (Man. C.A.). 

21 Ibid., at 214. 



121 



person with the plaintiff's disabilities". 22 Monnin C.J.M. agreed that a 
Fokus unit would be preferable to a private home in this case and that such 
accommodation represented the appropriate standard of care in the 
circumstances. 23 The Chief Justice also questioned "whether courts will in 
future be able to provide each and every victim with a separate residential 
property". 24 

The award of future care costs calculated on the basis of a Fokus unit 
contrasts markedly with the recent decision of Osier J. in MacDonald v. 
Travelers Indemnity Co. of Can . 25 In this case, a young woman was rendered 
almost totally paralyzed and profoundly brain-damaged as a result of a head 
injury suffered in an automobile accident. As a consequence of her injuries 
she was dependent upon others for virtually every aspect of her physical 
care. There was substantial medical evidence that the level of institutional 
care received by the plaintiff, prior to her return to her family home, was 
entirely inadequate to her needs, and that the plaintiff's life span would be 
shortened if she were returned to a chronic care facility. The medical 
evidence established that the plaintiff required intensive and continuous 
nursing care. On such evidence, Mr. Justice Osier had no hesitation in 
accepting home care as being reasonably necessary for the plaintiff. Care 
was to be provided for the plaintiff on a twenty-four hour basis, seven days 
per week. Such care was to include the services of a registered nurse for one 
of the three daily shifts, and a registered nursing assistant for each of the two 
remaining shifts. Provision was also made for the services of two health care 
aides per day during the week (one for eight hours and one for four hours), 
and one health care aide for four hours per day on the weekend. The total 
cost of this standard of nursing care was calculated to be $176,553.52 per 



22 Ibid., at 215. 

23 Ibid., at 203. 

24 Ibid., at 201-02. 

25 (1987), 60 O.R. (2d) 385 (H.C.J.). The plaintiff was a passenger in an automobile 
involved in an accident in the State of Michigan. The case concerned, primarily, the 
quantification of the plaintiff's damages in respect of the cost of future care. The 
defendant company, which was the plaintiff's father's insurer, had brought an earlier 
action to determine the extent of its liability. It was held in that action that the law of 
Michigan applied, and that the defendant was primarily liable to pay no-fault benefits to 
the plaintiff, on the scale of benefits provided under the law of Michigan {Travelers 
Canada v. MacDonald (1984), 48 O.R. (2d) 714 (C.A.)). The Michigan Insurance Code 
of 1956, Mich. Comp. Laws Ann. § 500.3107, provides, in part, as follows: 

§ 500.3107. Personal protection insurance benefits are payable for the 
following: 

(a) Allowable expenses consisting of all reasonable charges incurred for 
reasonably necessary products, services and accommodations for an 
injured person's care, recovery or rehabilitation 

Section 500.31 10(4) provides that "personal protection insurance benefits payable 
for accidental bodily injury accrue not when the injury occurs but as the allowable 
expense. . .is incurred". Finally, § 500.3142(1) provides that "personal protection insur- 
ance benefits are payable as loss accrues". 



122 



year. Since the defendant's liability, as principal no-fault insurer, was to pay 
the plaintiff's reasonable medical and rehabilitation expenses, during her 
lifetime, on the scale provided under the law of the State of Michigan, the 
total liability of the defendant was not quantified. However, since the 
plaintiff was only twenty-eight years old, and had a relatively normal life 
expectancy, the future nursing care costs alone could well have a present 
value of nearly $5,000,000. 26 

Another approach to the standard of care issue is the "staged care" 
concept found in the recent decision of the Ontario Court of Appeal in 
McErlean v. Sarel. 21 In that case the calculation of damages, at trial, was 
based on the assumption that, for the remainder of his life, the plaintiff 
would be cared for in the home. The Court of Appeal rejected that assump- 
tion, referring to a variety of possibilities, including the future inability of 
the respondent's parents to provide care for the respondent. The Court 
concluded that, having regard to the respondent's mother's age and health, 
damages should have been awarded on the basis of home care, for the first 
twenty years, and on the basis of institutional care, for the balance of the 
respondent's life. 28 

For a disabled plaintiff, life in a private residence may entail costs 
beyond those of medical and nursing care. For example, housekeeping costs 
will be incurred if a plaintiff, who lives alone, is incapable of contributing 
significantly to the upkeep of his home or the preparation of his meals. 
Additional costs stem from the typical unsuitability of ordinary houses and 
apartments for use by the disabled. Extensive modifications are often 
necessary and, not infrequently, a more appropriate home must be pur- 
chased or leased. In general, courts in Ontario and elsewhere in Canada have 
recognized the need for special housing that arises from an award of home 
care. In order to provide greater safety of movement for a disabled plaintiff, 
the additional cost of a new house has been included in the calculation of 
future care costs. 29 In another case a $40,000 award to upgrade a plaintiff's 
house was upheld on appeal, despite the fact that the resulting standard of 
housing would exceed that of the surrounding community. 30 



26 Assuming that the annual nursing care cost of $176,553.52 would continue for approxi- 
mately 40 years (since the plaintiff was only 28 years old and had a relatively normal life 
expectancy) the defendant's total cost over the 40 year period would be approximately 
$7,000,000. The present value of this sum is approximately $5,000,000. 

27 Unreported (September 29, 1987, Ont. C.A.). 

28 The factors considered by the Court were said to be contingencies, the deduction for 
which could have been effected either by adopting the "staged care" approach, or by 
deducting a percentage of the award. The former approach was preferred in the 
circumstances. Ibid., at 58-59. Contingencies are discussed infra, ch. 8, sec. 1. 

29 See, for example, Reynard v. Can (1983), 50 B.C.L.R. 166, at 200, 30 C.C.L.T 42 (S.C.), 
appeal allowed, in part, on other grounds, (1986), 10 B.C.L.R. (2d) 121 (C.A.). 

30 McLeodv. Palardy (1981), 10 Man. R. (2d) 181, 124 D.L.R. (3d) 506 (C.A.). 



123 



Unlike the issue of home or institutional care, the compensability of 
home modifications was not addressed in a clear manner in the trilogy. An 
award to compensate for necessary changes in housing was allowed in only 
one of the two trilogy cases in which the issue arose. In Thornton, the 
Supreme Court of Canada restored the trial level award of damages, which 
was based upon an expert's recommendation that $45,000 be awarded for 
the cost of a home. In Andrews, on the other hand, the trial court rejected an 
equivalent claim for the purchase price of a house in the future care award. 
While the trial judge referred to the "physical adjustments" necessary to 
allow the plaintiff to live at home, he denied that the defendant was obliged 
to pay for a house. 31 Although this aspect of the trial decision would appear 
to permit compensation, at least for the cost of modifying an apartment, no 
such allowance was made either by the trial judge, or by the Supreme Court 
when it restored home care as the basis for calculating the award. Since there 
is no indication that the issue arose in Arnold v. Teno, that case does not cast 
a deciding vote, and the trilogy thus remains equivocal on the question of 
the special housing expenses incurred by a disabled individual. 

It is possible to interpret the Supreme Court's treatment of this issue as 
less a lapse in fidelity to principle than a distinction rooted in the trial 
records. In contrasting the apparent uncertainty on home modification to 
the consistency shown by the trilogy on the issue of home or institutional 
care, it may be pointed out that, with respect to both questions, the Supreme 
Court was restoring awards originally made at trial, and that the trial courts 
in Andrews and Thornton were presented with different evidence, making 
appropriate their differing conclusions on the home modification issue. The 
Supreme Court, on this view, implicitly endorsed the principle of compensa- 
tion for home alterations in its Thornton decision, while in Andrews the 
Court simply respected whatever evidentiary deficiencies had led the trial 
judge not to make such an award. 

In any event, it is clear that post-trilogy decisions, on the whole, have 
strongly endorsed the idea that necessary structural changes or home 
purchases are compensable. Thus, in a 1984 British Columbia case, a 
defendant who sought to reduce the award made in this category did so by 
arguing, not that the plaintiff's claim for a house was unreasonable, but 
rather that living in an apartment or condominium would be to the 
plaintiff's advantage, since he would be more likely, in such a setting, to 
build a healthy social life. 32 



31 Andrews v. Grand & Toy Alberta Ltd. (1974), 54 D.L.R. (3d) 85, at 113-14, [1974] 5 
W.W.R. 675 (Alta. S.C., T.D.). 

32 Bissky v. Trottier (1984), 54 B.C.L.R. 288 (S.C.), at 297-98. Interestingly, a similar 
argument was advanced by the defence in Andrews, at the trial level. This contention 
was rejected by Macdonald J., who noted that the defendant had failed to lead evidence 
as to the availability of the proposed alternative accommodation. 



124 



A person who has suffered significant impairment of normal physical 
functioning may benefit from the use of special equipment. Items for which 
Ontario courts have made awards in this category range from an $80 electric 
potato peeler 33 to relatively sophisticated and expensive prosthetic devices. 
More typical articles include wheelchairs, vans with hand controls, and 
special furniture. In many cases, although the items are not themselves 
exceptionally expensive, their aggregate cost can account for a sizeable 
proportion of the total award. Further, because certain equipment tends to 
have a rather short useable life, an award for such equipment must include a 
replacement cost. 

It is with respect to this category that recent judgments tend to display 
the greatest variation in the treatment given the standard of care dimension 
of future care awards. In this connection, the principle, once again, is that 
"reasonable" needs will be met. While the trilogy provided a somewhat 
more concrete guide for deciding between home and institutional care, no 
such guide exists in respect of special equipment. Trial judges will assess the 
reasonableness of each item for which a claim is advanced, usually assisted 
by a report prepared by an expert witness. 

There would appear to be some inconsistency in the judicial recogni- 
tion of claims for specific items of equipment. For example, a computer was 
deemed a reasonable expense in De Champlain 24 but in the Schmidt case, 
despite a recommendation by a psychologist from the Ontario Crippled 
Children's Centre, it was not. 35 Of course, allowing a computer to one 
severely disabled plaintiff, but not to another, is not necessarily evidence of 
any real inconsistency, provided the same approach to principles of entitle- 
ment and to expert evidence is taken in both cases. It would appear, 
however, that Canadian courts employ a variety of approaches in this area. 
For example, Houle v. City of Calgary 2 ' 6 and Giannone v. Weinberg 2,1 both 
involved young children who had lost a forearm. In the former case, only 
half of the twelve year old plaintiff's claim of $138,000 for prostheses was 
allowed. Medhurst J. explained the reduction of the award by referring to 
the uncertainty regarding the availability of governmental and private 
funding, the plaintiff's possible unwillingness to use advanced prostheses, 
and future technological development. 38 Thus, the plaintiff in the former 



33 De Champlain v. Etobicoke General Hospital, supra, note 13, at 100. 

34 Ibid. 

35 Schmidt v. Sharpe, supra, note 14. 

36 (1983), 44 A.R. 271, 26 Alta. L.R. (2d) 34 (Q.B.) (subsequent references are to 44 A.R.). 
On appeal, damages for loss of future earnings were reduced; a cross-appeal as to 
damages, including cost of future care, was dismissed: (1985), 60 A.R. 366, 20 D.L.R. 
(4th) 15 (C.A.). Leave to appeal to the Supreme Court of Canada was refused: (1985), 20 
D.L.R. (4th) 15/i. 

37 (1986), 37 C.C.L.T. 52 (Ont. H.C.J.). 

38 Supra, note 36, at 287. 



125 



case recovered $69,000 for the anticipated cost of prostheses. The plaintiff 
in the latter case, however, recovered $953,867 for the same item, that is, the 
anticipated cost of prostheses. The difference is quite dramatic, although it 
should be noted that the Giannone case is under appeal. 

In this section we have identified three components of the standard of 
care issue: the often logically prior question of home care; and, as ancillary 
questions, the inclusion in the award of funds to enable home modifications 
and the purchase of special equipment. Of course, other components might 
be included in the future care head of damage. For example, there might be 
future medical or hospital expenses; the provincial health care scheme, 
however, will normally be subrogated to this portion of the cost of care 
award. There might also be significant medication costs. 39 The court's 
decisions on all of these issues, taken together, will comprise its evaluation of 
the standard of care that the future care award is designed to provide. 

From the above discussion, it would appear that a successful plaintiff in 
an Ontario case involving personal injury serious enough to require long- 
term care will likely receive an award for home care, unless the plaintiff is 
mentally handicapped to such an extent that home care would be of little 
benefit. The trilogy decisions in this regard are clear, and their principles 
have been consistently followed: where the evidence establishes that the 
plaintiff's health— mental, emotional and/or physical— will benefit from 
home care, the expense entailed will ordinarily be found to be reasonable. 

The cost of necessary modifications to the plaintiff's home, or even the 
purchase of a new one, is also likely to be included in the award, despite the 
lack in the trilogy of an unequivocal endorsement of the compensability of 
home alterations. The courts' treatment of the plaintiff's needs for special 
equipment is somewhat less clear, particularly where an item is very 
expensive or only recently available. Expert evidence that the device will aid 
the plaintiff is necessary, but may be insufficient to induce the court to 
accept the item as a reasonable claim. 

(c) Conclusions 

The two concerns that have been expressed about this area of the law 
are: (1) cost; and (2) inconsistency. Taking first the question of cost, it is 
obvious that the cost of damage awards is spread over a wide section of the 
public, directly through the cost of liability insurance premiums, and 
indirectly through the cost of goods and services generally. It has also 
become increasingly obvious that infinite costs cannot be absorbed. On the 
other hand, the mere magnitude of the cost of compensation is not, in itself, 
a sufficient reason to reduce the size of damage awards. All actual pecuniary 



39 Henrikson v. Parke (1981), 29 A.R. 431 (Q.B.), at 448. 



126 



losses suffered by the plaintiff must be borne, inevitably, by one or the other 
of the parties. If the defendant is not required to bear the cost of those losses, 
then, of necessity, the plaintiff must do so. 40 The magnitude of a loss can be 
no justification for undercompensation. 

In Thornton it was said that a quadriplegic should only be denied home 
care if a right-thinking person would say that such a provision would 
amount to a squandering of money. 41 Although this test appears to be very 
favourable from the plaintiff's point of view, 42 the context shows that 
Dickson J. did not intend to depart from the general test of "reasonable- 
ness". In the Andrews case, which, it will be recalled, was decided at the 
same time as Thornton, Dickson J. said: "I agree that a plaintiff must be 
reasonable in making a claim." 43 Further, in Andrews, Dickson J. said: "In 
theory a claim for the cost of future care is a pecuniary claim for the amount 
which may reasonably be expected to be expended in putting the injured 
party in the position he would have been in if he had not sustained the 
injury." 44 



"Reasonableness", however, is a notion capable of different interpreta- 
tions, and, in the absence of a single, orthodox interpretation, particularly 
with respect to special equipment costs, the requirement of reasonableness 
has left a great deal of room for judicial discretion. The result is some 
inconsistency in the standards of care awarded to plaintiffs, and potential 
inadequacy in some instances. One of the objects of the civil litigation 
system must be to achieve justice, not only as between plaintiff and 
defendant, but also as between plaintiff and plaintiff. Indeed, consistency 
was one of the principal reasons for the $100,000 limit imposed by the 
Supreme Court of Canada in the 1978 trilogy of cases. 45 Although Houle v. 
City of Calgary 46 and Giannone v. Weinberg 41 may be exceptional cases, 
discrepancies such as exist between them are disturbing from the point of 
view of both fairness and predictability. 



40 Of course, in the event that the plaintiff is unable financially to bear the full cost of his 
losses, to some extent, through a variety of social welfare programs, they may be borne 
by the state. 

41 Thornton v. Board of School Trustees of School District No. 57 (Prince George), supra, 
note 5, at 280-81. 

42 See supra, text accompanying note 12. 

43 Supra, note 2, at 240. 

44 Ibid., at 241. 

45 Supra, note 5. 

46 Supra, note 36. 

47 Supra, note 37. 



127 



Notwithstanding the apparent lack of consistency between judicial 
standards for the awards of home care as compared to awards for special 
equipment, we have concluded that it would be advisable to permit the 
courts to evolve their own standards for what constitutes reasonable care. 
We are confident that, over time, the identified inconsistency will diminish. 



The present law is that the plaintiff is entitled to compensation if she 
establishes that her claim is reasonable. This, in our view, is the appropriate 
test. We do not believe it would be helpful to attempt to evolve some test of 
reasonableness to assist the courts in assessing future care awards. Most 
impartial observers would concede that, in general, the courts have acted 
responsibly in the assessment of damages. Moreover, it is difficult to 
perceive how some generalized standard would be helpful to the courts. The 
circumstances of such claims are so varied that we do not think that any 
statutory refinement is likely to improve upon the existing law on this 
question. Further, we believe that the general test of "reasonableness" is the 
appropriate test to ensure that the courts are able to respond to new 
developments in the provision of health care services. As the health care 
system continues to evolve, and the range of intermediate care facilities 
continues to expand, the test of "reasonableness" is sufficiently flexible to 
enable the courts to accommodate alternatives that did not exist when 
Andrews was decided. Accordingly, there appears to us to be no need for 
legislation designed to determine the standard of care. 



3. INCOME TAX AND GROSS-UP 

(a) Introduction 

We have already noted 48 that the purpose of the cost of care award is to 
put the injured plaintiff in the position she would have been in had the 
accident not occurred. Traditionally, the courts have sought to achieve this 
purpose by awarding a lump sum amount which, together with the proceeds 
of its investment, is intended to provide the plaintiff with sufficient funds to 
meet the ongoing costs of future care during the entire period of disability. 
Given the purpose of the award, and given the current realities of income 
taxation, the question we now turn to address is whether, and to what extent, 
an additional amount ought to be awarded in order to account for the 
taxation of the income generated by investment of the lump sum award. 
The need for this "gross-up" of the future care award, to allow for the 
incidence of taxation, has been described as follows: 49 



48 See supra, text accompanying note 11. 

49 De Champlain v. Etobicoke General Hospital, supra, note 13, at 101. 



128 



The income on the capital sum awarded to produce the number of dollars 
assessed for future care cost will be eroded by income tax. It is, therefore, 
necessary to 'gross up' the capital sum to offset the ravages of income tax and 
ensure that the sum of $40,000 per year [the projected annual cost of care] will 
be available to pay those future care costs. 

Thus, if the purpose of the future care award is to be achieved, and full 
compensation awarded, it is essential that an amount be included to 
compensate the plaintiff for any income tax that must be paid on the income 
derived from investment of the award. 

As we shall discuss more fully below, the magnitude of the gross-up 
required for a future care award is reduced substantially by a number of 
factors. For example, no allowance is appropriate in respect of that portion 
of a future care award to which a provincial health plan is subrogated. 50 
Further, account must be taken of the deduction permitted by the Income 
Tax Act 51 for medical expenses, 52 and for the tax free status of awards for 
plaintiffs under the age of twenty-one. 53 Moreover, no allowance is appro- 
priate in respect of basic living expenses, if such expenses are included in the 
cost of care award. 

Even if these mitigating factors are taken into account, however, there 
may still be some adverse effect from taxation for which the plaintiff ought 
to be compensated. This derives principally from two factors. First, not all 
costs recognized by the courts as allowable costs of future care qualify for the 
medical expense deduction under the Income Tax Act. Secondly, even if all 
future care costs were deductible in calculating taxable income, tax would 
still be payable on a portion of the investment income in the early years, 
while, in the later years, the medical expense deduction would be wasted 
since insufficient income would be available from which to make the 
deduction. 54 This is a consequence of the fact that, in times of high inflation 
and high interest rates, a "self-extinguishing" fund must be invested such 
that, in the early years, a portion of the income generated by the future care 
award may be reinvested. This capitalized income is intended to ensure that 
the rising cost of care can be met, in later years, without exhausting the fund 
before the end of the period of disability. As a result, however, investment 
income might exceed the cost of care in the early years, resulting in 
overtaxation, while the cost of care might exceed investment income in the 
later years. 



50 

51 

52 
53 
54 



Since the plaintiff would not receive this portion of the award, no investment income 
will be generated thereby that would be taxable in the plaintiff's hands. 

R.S.C. 1952, c. 148, as substantially re-enacted by S.C. 1970-71-72, c. 63 (subsequent 
references are to sections of the 1970-71-72 statute, as amended). 

Ibid.,s. 110(l)(c). 

Ibid., s. 81(l)(g.l). 

The medical expense deduction, of course, would not be wasted in later years if the 
plaintiff has sufficient additional income from other sources. 



129 



(b) Current Law 

(i) Entitlement 

In the 1978 Supreme Court of Canada trilogy 55 no gross-up was allowed 
for the tax that might have to be paid on the investment income derived 
from the lump sum cost of care award. In rejecting the plaintiff's claim for 
such an allowance in the Andrews case, 56 Mr. Justice Dickson drew atten- 
tion to the fact that the impact of taxation on the income generated by the 
award would be mitigated by the deduction for medical expenses contained 
in section 110(l)(c) of the Income Tax Act. 57 He also referred to the 
possibility that Parliament might amend the Income Tax Act. He said: 58 

The exact tax burden is extremely difficult to predict, as the rate and 
coverage of taxes swing with the political winds. What concerns us here is 
whether some allowance must be made to adjust the amount assessed for future 
care in light of the reduction from taxation. No such allowance was made by the 
Courts below. Elaborate calculations were provided by the appellant to give an 
illusion of accuracy to this aspect of the wholly speculative projection of future 
costs. Because of the provision made in the Income Tax Act and because of the 
position taken in the Alberta Courts, I would make no allowance for that item. 
The Legislature might well consider a more generous income tax treatment of 
cases where a fund is established by judicial decision and the sole purpose of the 
fund is to provide treatment or care of an accident victim. 

An allowance for income tax was refused for the same reasons in 
Thornton, 59 and for similar reasons in Arnold v. Teno. 60 

In some provinces the above-quoted passage has been interpreted to 
mean that, as a matter of law, no award may be made to account for the 
incidence of taxation. 61 However, in Fenn v. City of Peterborough 62 the 
Ontario Court of Appeal denied that the Supreme Court of Canada had 
established a rule of law forbidding a court to gross-up the future care award 
to compensate the plaintiff for income taxes payable on the investment 
income derived from the award. The Court concluded that the claims for 



55 Supra, note 5. 

56 Supra, note 2, at 259-60. 

57 Supra, note 51. 

58 Supra, note 2, at 260. 

59 Supra, note 5, at 284-85. 

60 Supra, note 4, at 324-25. 

61 See, for example, Scarffv. Wilson (1986), 10 B.C.L.R. (2d) 273, 39 C.C.L.T 20 (S.C.). 

62 (1979), 25 O.R. (2d) 399, 104 D.L.R. (3d) 174 (subsequent references are to 25 O.R. 
(2d)). 



130 



future tax liability had failed in the Supreme Court of Canada simply for 
lack of evidence. 63 For the same reason the claim also failed in Fenn v. City 
of Peterborough . 64 

Thus, in Ontario, it would appear that an award for income tax is to be 
made, provided it is supported by the evidence. 65 Such evidence is routinely 
adduced, and such awards are routinely made, varying in amount from zero 
percent, to approximately one hundred and fifty-three percent, although 
thirty-five percent appears to represent a relatively common gross-up 
amount. 66 

The need for an allowance for income tax, to ensure full compensation, 
is due primarily, in our view, to the two factors we identified above. As we 
explained, there are certain costs awarded for future care that are not 
deductible as medical expenses under the Income Tax Act. Moreover, there 



63 Ibid., at 456. 

64 Ibid. 



65 



66 



The Ontario Court of Appeal has confirmed this interpretation in the recent decision in 
McErlean v. Sarel, supra, note 27, at 64. 

For example, in Turner v. MacDonell, unreported (October 5, 1984, Ont. H.C.J.) 
Rosenberg J. considered a gross-up on the future care award, but refused to grant it 
because the injured person had received a tax subsidy by having his past and future loss 
of income awarded without deduction for taxes. Rosenberg J. believed that the benefit 
of that tax subsidy on lost income would exceed the tax liability that would accrue from 
the investment of the future care award. In Schmidt v. Sharpe, supra, note 14, at 43, 
Gray J., accepted that there should be a gross-up of the future care fund. However, while 
the plaintiff claimed 100%, Gray J. allowed only 35%. Mr. Justice Gray did not indicate 
whether he was unconvinced by the evidence about the rate of inflation or whether he 
thought a larger portion of the award would qualify for the medical expense deduction. 
In Nielsen v. Kaufmann (1984), 28 C.C.L.T. 54 (Ont. H.C.J.), a fatal accident case, a 
gross-up amount of $140,704 (that is, gross-up at a rate of approximately 63%) was 
calculated on a future income fund of $222,237.75. The actual amount awarded in 
respect of gross-up, however, was reduced by 25% to $105,528. Holland J. applied "a 
contingency reduction of 25 per cent to represent the reduction in the tax that may be 
affected by the investment of at least part of the sum in tax-sheltered securities and by 
the possibility that the Government of Canada in times of inflation in the future may 
protect or exempt from tax certain other classes of securities, such as municipal 
debentures, as has been done in other countries" {ibid., at 63-64). Although the 
assessment of damages was varied on appeal, the gross-up rate and the 25% contingency 
deduction applied by the trial judge were retained ((1986), 54 O.R. (2d) 188, 26 D.L.R. 
(4th) 21 (C.A.) (subsequent references are to 54 O.R. (2d))). Finally, in McErlean v. Sarel 
(1985), 32 C.C.L.T. 199 (Ont. H.C.J.) a future care award of $2,054,366 was supple- 
mented by an income tax gross-up of $3,136,324, that is, a gross-up of approximately 
153% of the cost of care award. On appeal, however, the Ontario Court of Appeal 
concluded that the trial judge had erred insofar as he "accepted all of the respondent's 
expert evidence and, more significantly, its ultimate results, uncritically" {supra, note 
27, at 71). Since the trial judge had failed to consider a variety of factors that contributed 
to the speculative and uncertain nature of future tax liability, and since, in the opinion of 
the Court, the award was "inordinately high", the Court of Appeal would have reduced 
the award by one-half. As the Court would also have reduced the future care award to 
$1,749,707, it concluded that the appropriate gross-up amount would have been 
$845,029, that is, approximately 50% of the cost of care award {ibid., at 71-72). 



131 



is the fact that, in inflationary times, the future care fund is overtaxed 
because of the high income necessary in the early years to produce the 
required series of receipts in the later years. As we shall discuss below, the 
most desirable solution may well be an amendment of the income tax rules, 
but, so long as the need for gross-up continues to exist, the courts, in our 
opinion, are on sound ground in taking it into account. An award of 
damages calculated to compensate the plaintiff for the cost of care only, and 
not also for the tax payable on income generated by the award, would 
undercompensate the plaintiff. We would note that a recent English case, 67 
although not referring to the Ontario cases, has held that it is a proper factor 
to be taken into account on ordinary compensatory principles. 

(ii) Calculation: Influential Factors 

In order to quantify accurately the appropriate allowance for income 
tax, it is necessary to calculate the size of the fund that would be required to 
generate sufficient income to pay future income taxes, in addition to the 
anticipated future care costs. Unfortunately, the calculation of the required 
increase is not simply a mechanical or arithmetical task. It depends upon a 
number of assumptions on issues about which wide divergences of opinion 
are to be found among experts. Moreover, a very slight variation in one of 
the assumptions can lead to an extremely large variation in the final figure. 
Not unexpectedly, experts are to be found who will make all assumptions in 
a manner favourable to the plaintiff, while other experts are to be found who 
will do the same in favour of the defendant. In the result, the trial judge will 
often be in the position of having to choose between substantially different 
figures. 

Neither judges nor juries can be expected to be expert in accounting or 
actuarial science. The explanations of the precise methods of calculating 
these amounts are extremely complex. Moreover, judges have not always 
indicated, in their reasons, how the calculations have been made. In Gian- 
none v. Weinberg?* for example, Fitzpatrick J. said simply, in a section 
dealing largely with a different question, and headed "Future Inflation": 69 

I find that the figure which should be used for future inflation is 8 1/2 per 
cent and, using that figure and the other figures found, it will require $1,615,000 
to provide for the income taxes which the plaintiff Antonella Giannone will 
have to pay. 



67 The case for a supplement to recognize the impact of income tax was accepted by the 
English Court of Appeal in Thomas v. Wignall, [1987] 2 W.L.R. 930, [1987] 1 All E.R. 
1185 (subsequent reference is to [1987] 2 W.L.R.). The supplement approved amounted 
to approximately 15%, which the Court described as "quite a generous adjustment, but 
not an excessive one" {ibid., at 937). 

68 Supra, note 37. 

69 Ibid., at 55. 



132 



One of the express purposes of the Supreme Court of Canada in the 
1978 cases was consistency and rationality. Dickson J. said: 70 

The method of assessing general damages in separate amounts, as has 
been done in this case, in my opinion, is a sound one. It is the only way in which 
any meaningful review of the award is possible on appeal and the only way of 
affording reasonable guidance in future cases. Equally important, it discloses to 
the litigants and their advisers the components of the overall award, assuring 
them thereby that each of the various heads of damage going to make up the 
claim has been given thoughtful consideration. 

These objectives are jeopardized if the court does not explain how the 
figures have been calculated. A defendant may reasonably ask for an 
assurance that the gross-up is being applied only to the appropriate portion 
of the future care award 71 and that the assumptions underlying the court's 
calculation of the gross-up are reasonable. The factors that influence the 
determination of the appropriate gross-up, about which the court must 
make its assumptions, and to which we now turn, are the following: the rate 
of future inflation, the future impact of income taxation, the nature of the 
investments to be made with the capital sum, the rate of withdrawal or 
"draw-down", and the amount of other income of the plaintiff. Although 
substantial reforms to the income tax system have been proposed, 72 at 
present they remain merely proposals. Accordingly, we shall consider only 
the current law in the following discussion. 



70 Andrews v. Grand & Toy Alberta Ltd., supra, note 2, at 235-36. 

71 As we noted earlier, supra, this ch., sec. 3(a), no gross-up is appropriate in respect of that 
portion of a future care award to which a provincial health plan is subrogated, nor is an 
allowance appropriate in respect of basic living expenses, if included in the cost of care 
award. Moreover, allowance must be made for the tax free status of the fund until the 
plaintiff is 21 and account must be taken of the tax deduction for medical expenses. 

72 Substantial reform of the income tax system was proposed by the Minister of Finance, in 
the House of Commons, on June 18, 1987. Numerous changes contemplated in the 
Minister's White Paper would have a direct effect upon the reasonableness of the gross- 
up assumptions. For example, income tax rates would be lowered and the number of tax 
brackets would be reduced from 10 to 3. The lifetime exemption for capital gains would 
be limited to its current level of $100,000 and the proportion of capital gains to be 
included in income would be increased from one-half to two-thirds in 1988 and to three- 
quarters in 1990. The dividend tax credit would be reduced. The $1,000 interest and 
dividend income deduction would be eliminated. However, the proposal that would 
have the most dramatic effect upon the gross-up calculation is the proposal to convert 
the deduction for medical expenses in excess of 3% of income into a credit of 17% of 
medical expenses in excess of 3% of income. Conversion of the medical expense 
deduction into a tax credit at the rate of 17% will have no adverse tax consequences for 
individuals with taxable income below $27,500, since their tax rate would be 17%. 
However, it would reduce the tax savings for individuals with taxable income in excess 
of $27,500, and, accordingly, for those individuals, a greater gross-up amount would be 
required. See Canada, Department of Finance, The White Paperf:] Tax Reform 1987 
(1987), at 25-36. 



133 



a. Rate of Future Inflation 

As the Income Tax Act 73 taxes nominal income rather than real 
income, 74 the rate of future inflation is a major factor in determining the 
gross-up. That is, the real rate of taxation increases with inflation because 
taxes are based on nominal interest, not real interest. Thus, the higher the 
rate of inflation, the higher will be the interest income, and the higher will be 
the rate of taxation. Of course, this, in turn, will require a higher gross-up 
amount. 

The rate of inflation assumed in the gross-up calculation has been the 
subject of debate in the recent larger tort cases in Ontario. Two approaches 
have emerged. One approach applies a forecast of inflation based on the 
current inflation rate, that is, a macroeconomic forecast. 75 The other 
approach subtracts 2.5 percent (the presumed real rate of interest) from the 
current nominal interest rates for long-term bonds to arrive at a forecast of 
the rate of inflation. 76 Of course, the latter approach is only as correct as the 
2.5 percent discount rate. 77 

A relatively small difference in the forecast of the rate of inflation can 
lead to a relatively large difference in the gross-up. Moreover, it would 
appear that, in each case, the trial judge must determine the future rate of 
inflation, based upon the evidence presented. In Davies v. Robertson 1 * the 
Ontario Court of Appeal stated: 79 



73 Supra, note 51. 

74 Nominal (observed) interest rates reflect two components: (1) the rate of expected price 
inflation; and (2) a "real" rate of return. That is, some of the return on an investment is 
simply compensation for the declining value of the principal in terms of purchasing 
power. Nominal interest rates will equal, approximately, the expected real rate of return 
plus the expected rate of inflation. For example, if interest rates are 10% and inflation is 
predicted to be 7%, the expected real rate of return is about 3%. 



75 
76 

77 



See, for example, De Champlain v. Etobicoke General Hospital, supra, note 13. 

See, for example, Giannone v. Weinberg, supra, note 37, at 54-55. The theory underlying 
this approach is discussed, briefly, supra, note 74. 

In Rea, "Inflation, Taxation and Damage Assessment" (1980), 58 Can. B. Rev. 280, the 
author suggests that, rather than attempting to forecast the rate of inflation for the 
purpose of calculating future losses, and thereafter determining the present value by 
discounting the anticipated losses using the nominal interest rate, it would be easier to 
make all predictions of future losses in terms of current prices, thereby ignoring 
inflation, and to then determine the present value by discounting the losses using the 
real rate of interest. 

Rule 53.09 of the Rules of Civil Procedure, O. Reg. 560/84, now provides as 
follows: 

53.09 The discount rate to be used in determining the amount of an award in 
respect of future pecuniary damages, to the extent that it reflects the difference 
between estimated investment and price inflation rates, is 2 1/2 per cent per year. 

78 (1984), 5 O.A.C. 393. 

79 Ibid., at 398. 



134 



Once again the rate set for the calculation of the gross up figure will 
depend on the evidence adduced and the findings made in each case. It will be 
determined primarily by the rate of future inflation found to be appropriate by 

the trial judge The rate for determining the gross up figure cannot be 

arbitrarily set by the trial judge. It must be based upon the evidence adduced 
and the findings made. 

In this case, on the evidence, the trial judge estimated the future 
inflation rate to be ten percent. Based upon that inflation rate the actuary 
determined that the gross-up figure should have been 53.2 percent. The trial 
judge, however, applied the lower rate of twenty-five percent. The Court of 
Appeal concluded that, since the trial judge found the future inflation rate to 
be ten percent, he ought to have used the gross-up figure based upon that 
inflation rate, as determined by the actuary. 80 

b. Income Tax Rules 

One of the assumptions concerning future taxation is the extent to 
which income taxes will become a larger share of personal income in the 
future. Given that the tax system is not perfectly indexed, future inflation 
would increase real taxes over time. Moreover, productivity gains for wage 
earners would raise individuals into higher tax brackets. However, given 
that the ratio of aggregate income taxes to aggregate personal income has 
remained virtually unchanged since 1970, 81 it is reasonable to assume that 
the nominal amounts in the tax system, such as the personal exemption and 
the tax brackets, will be increased with inflation. Thus, the indexation of 
personal exemptions and tax brackets for inflation only in excess of three 
percent under the current Income TaxAct n will likely mean that there will 
be ad hoc periodic adjustments to those nominal amounts to repair the 
erosion caused by the cumulative effect of failing to index for the initial 
three percent. Although this assumption is frequently made by actuaries, it 
is not applied uniformly. 

The appropriate gross-up amount will also depend upon the extent to 
which tax concessions are and continue to be available, and the extent to 
which they are utilized. For example, section 81(l)(g.l) of the Income Tax 
Act S3 excludes, from the computation of income, the investment income 
derived from a personal injury award until the injured person attains the age 
of twenty-one. Similarly, section 110(l)(c) of the Income TaxAct S4 permits a 



80 Ibid. But see McErlean v. Sarel, supra, note 27, discussed supra, note 66, in which the 
Court of Appeal criticized the trial judge for accepting the respondent's expert evidence, 
and its ultimate results, uncritically. 

81 The ratio of aggregate income taxes to aggregate personal income was 13.2% in 1970, and 
13.9% in 1985 (Statistics Canada, CANSIM data tapes). 

82 Supra, note 51, s. 117.1. 

83 Ibid. 

84 Ibid. 



135 



deduction for medical expenses to the extent they exceed three percent of 
income. Although nursing care is deductible under this section, housekeep- 
ing services are not. Even if all future care expenses were deductible, 
however, the problem explained earlier, 85 with respect to the nature of a self- 
extinguishing fund during periods of inflation, would still remain. As we 
indicated, even if medical needs were spread evenly over time in these 
circumstances, the medical deduction would be insufficient in the early 
years, and wasted, in part, in the later years. Moreover, where future care 
expenses are not spread evenly over time, for example, where an artificial 
limb must be replaced periodically, the medical expense deduction again 
may not be utilized fully. 

c. Nature of Investments 

A crucial assumption in the gross-up calculation, which is associated 
closely with the assumptions made in connection with the future impact of 
income taxation, is the manner in which the future care award is to be 
invested. The Canadian tax system treats income differently, depending 
upon its source. For example, capital gains are taxed at one-half the usual 
rate, 86 and there is a $500,000 lifetime exemption on gross capital gains. 87 
Further, in general, dividend income is taxed at a lower rate than interest 
income. 88 Therefore, given the present tax system 89 and the expected 
before-tax rates of return on various types of investments, it may not be 
rational economically to invest one hundred percent of one's assets in 
interest bearing securities. 

As a result of the preferential treatment accorded to dividends and 
capital gains income, the expected after-tax rates of return on corporate 
shares will be much higher than for interest bearing securities, particularly 
when there is inflation. 90 Moreover, there are other tax-favoured invest- 
ments available to the average person, for example, the owner occupied 
home. Thus, the recipient of an award may benefit from investing in her 
own home, by reducing her mortgage. 

In view of the differential tax treatment accorded to various securities, 
it is abundantly clear that the appropriate gross-up amount will depend 
upon the investment strategy adopted by the plaintiff. For example, the 
lifetime capital gains exemption will lead defendants to argue that plaintiffs 



85 Supra, this ch., sec. 3(a). 

86 Income Tax Act, supra, note 51, s. 38(a). 

87 Ibid., s. 110.6. 

88 Ibid., ss. 82(1) and 121. 

89 Existing proposals for reform of the income tax system might affect the reasonableness 
of the assumption. See supra, note 72. 

90 This assumes that interest rates do not adjust perfectly to offset tax liability. 



136 



should arrange their investment portfolio to take advantage of this tax 
concession. However, many courts do not believe a plaintiff should be 
expected to engage in sophisticated investment schemes with substantial 
risk; rather they assume that the lump sum will be invested in government 
bonds, even though this increases the amount of the gross-up. 

In Julian v. Northern and Central Gas Corp. Ltd., 91 Morden J.A. dealt 
with the issue in the following terms: 92 

As far as investment in common stocks is concerned (presumably it is the 
dividend tax credit which is contemplated in this submission) the evidence was 
that the widow should not be expected to take investment risks and the gross[- 
up] rate was determined as being that available on secure investments. I think 
that this is the right approach. 

Similarly, in Perciballi v. Leamington District Memorial Hospital 93 it 
was contended that the plaintiff should invest in shares of Canadian 
companies in order to take advantage of the Indexed Security Investment 
Plan provisions of the Income Tax Act ? A which excluded from tax the gain 
attributable to inflation. Mr. Justice O'Leary rejected this submission, 
saying "it would in my view be wrong to require the plaintiff to run the risk 
of investing in such shares". 95 

On the other hand, in De Champlain v. Etobicoke General Hospital, 96 
Mr. Justice Montgomery accepted the concept of a balanced safe portfolio 
consisting of treasury bills, preferred and common stocks and some safe tax- 
favoured investments. Montgomery J. stated that "[w]hile the plaintiff 
should have safe investments and is not obliged to gamble, the defendant, in 
my view, is entitled to have gross-up calculated on the basis that the plaintiff 
will do with her money what any sensible investor in her position would 
do". 97 Finally, in Nielsen v. Kaufmann? % the Ontario Court of Appeal 
acknowledged, and then resolved, the competing interests in the following 
manner: 99 



91 (1979), 31 0.R. (2d) 388, 118 D.L.R. (3d) 458 (C.A.) (subsequent reference is to 31 0.R. 
(2d)), leave to appeal to the Supreme Court of Canada denied (1980), 31 0.R. (2d) 388«. 

92 Ibid., at 399. 

93 Unreported (March 6, 1985, Ont. H.C.J.), aff'd unreported (April 10, 1987, Ont. C.A.). 

94 Supra, note 51, s. 47.1. Section 47.1(l)-(25) was repealed by S.C. 1986, c. 6, s. 20(1), to 
delete the rules governing Indexed Security Investment Plans in respect of taxation 
years after 1986. 

95 Supra, note 93, at 46. 

96 Supra, note 13. 

97 Ibid., at 105. 

98 Supra, note 66. 

99 Ibid., at 205-06. 



137 



There is no doubt that an assumption based on total investment in long- 
term bonds substantially increases the amount of the gross-up and, in effect, 
substantially imposes the relevant future risks on the defendant. On the other 
hand, while an assumption based on an investment in stocks ameliorates the 
position of the defendant, at the same time it also imposes well-known 
investment risks on the plaintiff who, of course, is not the wrongdoer. A 
reasonable balance has to be found on the facts of any given case. 

d, Rate of Withdrawal 

A further ingredient in the gross-up calculation is the assumption 
concerning the rate of withdrawal of the funds for future consumption or 
care. 100 For example, if a plaintiff were to spend all of her award immedi- 
ately, there would be no investment income generated by the award and, 
consequently, no income tax would be payable. The longer the plaintiff 
delays consumption, the greater will be the impact of taxation, and the 
greater will be the required tax gross-up. 

At present, actuaries determine the amount of constant real consump- 
tion that the damages award can support over the plaintiff's life expectancy. 
The withdrawals are assumed to occur as equal real amounts per year. 

e. Amount of Other Income 

The rate of tax on the investment income derived from the future care 
award will depend upon the amount of other income the plaintiff might 
have. The higher the total income of the plaintiff, the higher the tax rate, and 
the greater the required gross-up amount will be. Thus, the logic of the gross- 
up calculation requires that account be taken of the incremental tax 
resulting from any additional investment or other income of the plaintiff. 

In De Champlain v. Etobicoke General Hospital 101 the gross-up was 
calculated on the fund for future care without regard to the existence of 
other income. Although this would understate the tax liability of the 
plaintiff, because the marginal rates would be unrealistically low, Montgom- 
ery J. did suggest that he would take account of the possibility of higher taxes 
as a contingency favouring the plaintiff. 102 

On the other hand, in Nielsen v. Kaufmann, m the Court of Appeal 
acknowledged that "a choice exists to treat the award to be grossed up as the 
first income of the plaintiff for the purpose of computing a rate of taxation 



100 This is often referred to as the "draw-down" assumption. 

101 Supra, note 13. 

102 Ibid., at 104. 

103 Supra, note 66. 



138 



or, alternatively, as the last item of income and hence the highest marginal 
rate". 104 The Court made its choice by concluding that "[t]here is no 
justification for ignoring Mr. Nielsen's probable actual tax rate which, of 
course, would be based on his total income". 105 

(c) Deficiencies in the Current Law 

The specific concerns that have been raised in connection with the 
gross-up calculation are the large sums of money involved, the unpredicta- 
bility of result, and the high transaction costs. The high transaction costs are 
a direct result of the -fact that, in every case, expert evidence must be 
adduced respecting factors that are external to the parties to the action. 
Thus, for example, in every case the court must hear expert evidence about 
the anticipated rate of inflation. It is of interest to note that the discount rate, 
now prescribed in the Rules of Civil Procedure, was established for the very 
purpose of avoiding this repetitive and costly process. Yet, the precise 
problem that the prescribed discount rate was intended to avoid has re- 
emerged in the highly analogous context of gross-up. In order to calculate 
gross-up the court, in every case, must hear, in addition to evidence 
concerning the anticipated rate of inflation, expert evidence about the 
anticipated future income tax laws. These are matters about which expert 
opinions may vary. Not surprisingly, therefore, the requirement that they be 
proved in each case has contributed to the undue variability and uncertainty 
of result associated with the gross-up calculation. Indeed, there have been 
aberrational results of extraordinarily high gross-up amounts in some 
cases. 106 

In Nielsen v. Kaufmann, w the Ontario Court of Appeal made the 
following remarks concerning the unsatisfactory state of the current law: 

The foregoing indicates that what is a proper amount for gross-up will 
depend largely on the facts presented to the court. The results in individual 
cases can, accordingly, vary widely. If a substantial degree of uniformity of 
treatment is considered desirable in these cases, then it appears to us that this is 



104 Ibid., at 204. 



105 



106 



107 



Ibid., at 205. This case concerned an action for damages for wrongful death. An amount 
for gross-up was included in the award of Mr. Nielsen, the husband of the deceased, as 
compensation for his future income tax liability on the income derived from the award 
for future pecuniary loss. The Court of Appeal confirmed that Mr. Nielsen's own 
income should be included in the calculation. While no extensive analysis of the issue 
was provided, the decision may be interpreted as authorizing inclusion, in the gross-up 
calculation, of only the plaintiff's other earned income. 

See, for example, Giannone v. Weinberg, supra, note 37, in which an award of $1,190,141 
was supplemented by a gross-up amount of $1,615,000 (that is, gross-up at the rate of 
approximately 136%). It should be recalled, however, that this case is currently under 
appeal. See, also, McErlean v. Sarel, supra, note 27, discussed supra, note 66. 

Supra, note 66, at 206. 



139 



a matter for legislative intervention. The application of a precise statutory 
formula would, of course, be bound to involve certain arbitrary features. This, 
however, would be a policy matter appropriate for the Legislature. 

More recently, in McErlean v. Sarel, the Court of Appeal repeated this 
observation, and added the following: 108 

If fundamental approaches to the problem, such as amending the Income 
Tax Act to exempt from liability for tax income from a fund established by an 
award or settlement to provide for the cost of future care of injured persons are 
not taken, it may be that, more modestly, steps could be taken to provide for 
uniform investment and inflation rates based on reasonable data and adjusted 

from time to time on the basis of current data Such a provision would cover 

important components in the initial calculation of a gross-up and would result 
in a larger measure of uniformity and predictability with respect to these 
awards than we now have. 



(d) Recommendations 

(i) Preferred Approach— Amendment of Tax Laws 

Undoubtedly the most effective, and, in our view, the preferred solution 
to the gross-up problem would be an amendment to the income tax laws. 
With respect to the first factor we identified above as contributing to the 
need for gross-up, we anticipate that, from time to time, the income tax 
authorities will give consideration to bringing the medical expense deduc- 
tion, insofar as possible, into conformity with the items allowable by the 
courts as legitimate costs of care. With respect to the second contributing 
factor, we acknowledge that it might not be reasonable, as some have 
suggested, to expect that the federal government would allow a complete tax 
exemption for the investment of damage awards, since there is no guarantee 
that the proceeds actually would be spent on medical care. However, a 
simple expedient would be to permit a tax sheltered plan, analogous to a 
registered retirement savings plan, that would shelter the investment 
derived from the portion of the award or settlement attributable to the cost 
of future care. Indeed, a variety of such schemes can be envisaged. 

The closest analogy to a registered retirement savings plan would 
permit the plaintiff to pay into the plan, annually, an amount equal to the 
income received from the invested proceeds of the award. The plaintiff 
would receive a corresponding tax deduction in each year. Withdrawals 
from the plan, however, would be taxed in the year of withdrawal, subject to 
the present rules, including the medical expense deduction. Although the 



108 Supra, note 27, at 73. It is of interest to note that this Commission had reached a similar 
conclusion prior to the release of the Court of Appeal decision. See the recommenda- 
tions discussed infra, this ch., sec. 3(d)(ii). 



140 



need for gross-up would not disappear under such a scheme, it would be 
very much reduced. 109 

A second possible scheme would permit investment in the plan of the 
entire amount of compensation awarded for future care. Investment 
income could then accumulate in the plan, free of tax, while the plaintiff 
would be taxed on withdrawals; again, subject to the present rules. However, 
since the sum originally deposited in the plan represented a capital sum, 
only withdrawals of the accumulated interest should be taxed. Accordingly, 
under this scheme, the plaintiff would be taxed on withdrawals from the 
plan only until the amount remaining in the plan equalled the amount 
originally paid in. That amount, being a capital sum, could then be with- 
drawn by the plaintiff free of tax. 

A third possible variation would tax withdrawals from the plan only 
insofar as they were not spent for the purposes for which the compensation 
was awarded. This would have the advantage of extending the tax benefit to 
expenses that are recognized by courts as proper costs of future care, but are 
not deductible as medical expenses under the Income Tax Act. n0 On the 
other hand, it might create difficulties, particularly in cases of settlement, in 
determining precisely what expenses were envisaged when the amount of 
compensation was determined. 

A potential difficulty with the first scheme described above is that the 
plan holder might be able to meet her medical expenses out of other 
resources, thereby maximizing the benefit of the tax shelter by investing the 
whole of the income in the plan. Such a plaintiff would indeed obtain a tax 
advantage, although she would have to pay tax on the proceeds of the plan 
when ultimately withdrawn. Similarly, the second scheme might create the 
incentive to maximize the tax benefit by simply allowing the funds to 
accumulate in the account, tax free, while medical expenses are met out of 
other resources. Again, however, the plaintiff would have to pay tax on the 
proceeds of the plan when ultimately withdrawn. Another potential diffi- 
culty that might arise in respect of each of the above schemes is that they 
might create an incentive to negotiate settlements in which the portion 
eligible for investment in the protected plan would be exaggerated. In this 
respect, however, it might be said, legitimately, that, as in many other 
instances, in a disputed case Revenue Canada will assess the reasonableness 
of the allocation. 



109 It will be recalled that only medical expenses in excess of 3% of income are deductible. 
Further, as we have indicated, not all costs allowable as costs of future care qualify for 
the medical expense deduction. It would seem desirable for the Income Tax Act, supra, 
note 51, to be amended to permit the deduction of all medical expenses, not only those 
in excess of 3% of income, and so that the definition of medical expenses will correspond 
with the items allowable by the courts as legitimate costs of care. However, the existing 
proposals for reform of the income tax system, described supra, note 72, would not 
effect these amendments. 

110 Supra, note 5\. 



141 



On balance, the second scheme described above seems to us the 
simplest to administer, and the one most apt to remedy the problem of 
overtaxation, in the early years, of the income generated by the award. As 
we noted above, the need for gross-up would not disappear with the 
establishment of a tax sheltered plan, but it would be much reduced. 111 The 
cost of such a plan to Revenue Canada would not be great. Upon the death 
of the plaintiff, the entire amount of the interest earned and remaining in 
the plan would be taxable in the hands of his estate, with probable gains to 
Revenue in many cases. The costs of administering and policing the present 
exemptions would disappear. Judicial time would be saved, and the costs of 
litigation would be diminished greatly by the reduced need for experts on 
both sides to assemble and give evidence. 

We wish to emphasize that the case for such tax reform is not that 
special treatment should be given to a favoured group, which, it seems, is 
currently an unpopular view in tax circles. Rather, it is that the tax rules, 
during periods of inflation, overtax the income, in the early years, from a 
fund invested to produce a postponed annuity. This is the same principle 
that underlies the present system of retirement savings plans. We recom- 
mend, therefore, that the Government of Canada be urged, by strong 
representations at the highest level, to introduce such a scheme. 

(ii) Alternative Approach— Standardization of Gross-Up 
Assumptions 

So long as there is an adverse affect from income taxation, resulting in a 
continuing need for gross-up, we have concluded that reform should be 
instituted provincially, irrespective of any amendments to the Income Tax 
Act, to resolve some of the current problems associated with the calculation 
of gross-up. 112 Abolition of gross-up seems to us impossible to support, for if 
the plaintiff actually proves the loss, there seems no sound principle upon 
which it could be denied. Indeed, the Ontario Court of Appeal has recently 
articulated the compensatory rationale underlying the award of gross-up in 
the following terms: 113 

As a matter of principle, regard has to be paid to the impact of taxation on 
income from the award for the cost of future care. If this impact is ignored. . . 
then the award cannot accomplish its prime purpose, which is to assure that the 
plaintiff should be adequately cared for during the rest of his life. The effect of 
the impact of taxation on the award would be to require capital portions of the 
fund created by the award to be expended sooner than they otherwise would be, 
with the inevitable result that the fund would be exhausted before it has served 
its purpose. 



Ill 



Set supra, note 109. 



112 An essentially similar approach was suggested by the Ontario Court of Appeal in 
McErlean v. Sarel, supra, note 27. See supra, note 108 and accompanying text. 

113 McErlean v. Sarel, supra, note 27, at 64-65. 



142 



Thus, to the extent that income tax continues to be payable on the 
income derived from investment of the future care award, the objective of 
full compensation requires that an amount be included in the award to 
offset that liability. We therefore strongly endorse the principle underlying 
the award of gross-up, and we recommend that legislation should be 
enacted, at the earliest opportunity, to provide that an award of damages for 
future care shall include an amount that would offset liability for income tax 
on income from investment of the award. 114 

We have concluded, however, that the assumptions underlying the 
gross-up calculation should be standardized in order to achieve consistency, 
and to avoid the necessity of repeated hearings on the estimates of future 
inflation, income tax changes, and the complex actuarial and accounting 
principles involved, and we so recommend. 115 The rationale for standardiz- 
ing the assumptions underlying the gross-up calculation is that, although 
standardization may lead to a slightly less precise result in any individual 
case, this loss is outweighed by the advantage of consistency and by the 
savings to the parties and to the courts in costs. We set out below our specific 
recommendations as to the assumptions to be made concerning the rate of 
future inflation, the future impact of income taxation, the investment 
strategy to be followed with the lump sum award, the rate of withdrawal, and 
the amount of other income of the plaintiff. The table in Appendix 4 
illustrates the amount of gross-up that would result, in a variety of factual 
situations, upon an application of the assumptions we recommend. 

We note that our recommendations standardizing the assumptions 
underlying the gross-up calculation do not address all of the variables 
affecting the calculation. A number of factors will remain to be proved on a 
case by case basis, for example, the plaintiff's life expectancy and the 
percentage of the future care costs that would qualify for the medical 
expense deduction under the Income Tax Act. 

a. Rate of Future Inflation 

In order to respond to the inevitable changes in economic conditions, 
and yet avoid any sudden and anomalous results, we recommend that the 
future rate of inflation should be assumed to be the average of the annual 
rates of change in the Consumer Price Index (all items, Canada) for the five 
year period ending in October of the year prior to the year in which 
judgment is given. We further recommend that this amount should be 
adjusted to the nearest one-half percentage point. 116 We believe that this 



114 See the draft Personal Injuries Compensation Act proposed by the Commission (herein- 
after referred to as "draft Compensation Act"), infra, Appendix 1, s. 7. 

115 See the draft Rule for Inclusion in the Rules of Civil Procedure proposed by the 
Commission (hereinafter referred to as "draft Rule"), infra, Appendix 3. 

116 Draft Rule, para. (b). 



143 



assumed rate of inflation would be averaged over a sufficiently long period 
of time to ensure that no undesirably large changes in the assumed rate 
would result from year to year. The average for the five year period ending in 
October would be available six weeks later, and would apply to the next 
calendar year. This figure would be 5.5 percent for the current year. 

b. Income Tax Rules 

We recommend that the gross-up calculation should be made using the 
income tax laws enacted or made at the time of trial, including any future 
changes in the income tax laws, enacted or made at the time of trial, but not 
applicable until a subsequent tax year. However, we have concluded that all 
fixed dollar amounts in the Income Tax Act nl should be assumed to 
increase annually at the assumed rate of inflation, and we so recommend. 118 
If the nominal amounts in the current tax system were not indexed for 
inflation, tax brackets would creep upward by three percent per year, and 
items such as the $1,000 interest and dividend deduction would become 
trivial. Ultimately, a person with average income, in today's prices, would be 
in the highest tax bracket. It is expected, therefore, that as long as inflation 
persists, periodic modifications will be made to the tax system to mitigate 
this effect. 

c. Nature of Investments 

The funds from an award for future care, in our view, should be 
assumed to be invested fifty percent in equities and fifty percent in interest- 
bearing investments. 119 While it might be argued that this recommendation 
presupposes the assumption of an unacceptably high degree of risk, we 
emphasize the fact that the future care funds would not be the only funds 
available for investment: ordinarily compensation for loss of future working 
capacity would also be awarded. Accordingly, the plaintiff's total invest- 
ment portfolio might well include a much higher percentage of secure 
interest-bearing investments. It is only the award for future care that would 
be assumed to be invested as set out above, and only for the purpose of 
calculating gross-up. We recognize that, in practice, a wide variety of 
investment strategies will actually be followed by successful plaintiffs. 

d. Return on Investment 

In respect of both interest-bearing securities and equity securities the 
real rate of return on investment should be assumed to be the rate specified, 



117 Supra, note 51. 

118 Draft Rule, para. (a). 

119 Ibid., para. (e). 



144 



from time to time, in rule 53.09, 12 ° in respect of the discount rate, and we so 
recommend. 121 This would ensure that a single, constant, real rate of return 
is utilized throughout the damage assessment process. The current real rate 
of return, therefore, would be assumed to be 2.5 percent. In the case of 
equity securities, however, the total annual return should be assumed to be 
composed of dividend income, at the annual rate of 3.5 percent of capital, 122 
and capital gains, to the extent of the remainder. Moreover, it should also be 
assumed that the capital gains are realized in each year. 123 This latter 
assumption has the effect of raising taxes once an individual has exhausted 
the lifetime capital gains exemption. In practice, those who are subject to tax 
on their capital gains could reduce their effective rate of tax considerably by 
delaying the realization of the gains. 

e. Rate of Withdrawal 

We noted earlier 124 that, at present, actuaries determine the amount of 
constant real consumption that the damages award can support over the 
plaintiff's life expectancy, and assume withdrawals to occur as equal real 
amounts per year. The problem with this approach is that it is not possible to 
guarantee that an individual will live a given number of years. One must 
save for the possibility of greater than average longevity. There are, however, 
at least two other methods of dealing with the timing of consumption. 

The first approach would require that the damages be determined for 
every possible outcome and the expected tax in respect of each outcome 
then calculated. For example, the plaintiff might die at the age of 103 (the 
last year in the life tables) with probability .00001. The damages that would 
provide benefits to the age of 103 without taxes would be calculated, 
followed by a calculation of the gross-up for someone living to 103 years of 
age. The expected loss would be .00001 multiplied by the sum of the 
damages and the gross-up. The damages would then be calculated for the 
possibility that the victim would die at the age of 102 years, and so on. While 
this approach is conceptually correct, in the sense that it gives the expected 
loss, the actual taxes that will be incurred will not equal the predicted taxes. 
The actual taxes are a function of the actual withdrawal of funds. An 
advantage of this approach is that it is not dependent on any particular 
assumption concerning the pattern of consumption. A disadvantage of this 
approach is the added computational complexity; it requires that the 
damages and gross-up be calculated many times over. 



120 Reproduced supra, note 77. 

121 Draft Rule, para. (c). 

122 The average dividend yield on the Toronto Stock Exchange was 3.6% for the period 1956 
through 1986 (Statistics Canada, CANSIM data tapes). 

123 Draft Rule, para. (d). 

124 Supra, this ch., sec. 3(b)(ii)d. 



145 



The final approach, which we believe is preferable, would assume that 
the withdrawals for consumption equal the expected loss for the year. For 
example, if the loss is $1,000 in the first year, and the probability of surviving 
that year is .99, the expected loss for the first year is $990. If the probability 
of surviving the next year is .98, the withdrawal in the second year is $980. 
The damages prior to gross-up are, in fact, the discounted sum of these 
values. 

There is also an economic argument in favour of this approach. 
Someone who is relying on a capital fund for consumption will have to 
decide how much to consume in each year, not knowing when she will die. If 
all of the funds are consumed in the first year, there will be nothing left in the 
event that she survives to the second year. On the other hand, if she does not 
consume everything in the first year, there is a possibility that she will die 
without having enjoyed the funds that she has received. Given certain 
assumptions concerning the utility function, the optimal pattern of con- 
sumption under such uncertainty will be downward sloping with the proba- 
bility of survival, in precisely the way that the expected loss declines. 125 

This method thus has the advantage that it provides a rational basis for 
a particular pattern of consumption. Accordingly, we recommend that the 
rate of withdrawal from the fund for future care in any year should be 
assumed to equal the expected loss for that year, taking account of the 
probability of surviving to that year and all contingencies used in the 
calculation of the present value of the costs of future care. 126 

/ Amount of Other Income 

With respect to the other income of the plaintiff, there are a number of 
possible approaches. As we noted above, 127 one approach would simply 
calculate the gross-up on the fund for future care without regard to the 
existence of other income. This, as we pointed out, would understate the tax 
liability of the plaintiff. Another approach, articulated by the Ontario Court 
of Appeal in Nielsen v. Kaufmann, m is to recognize the plaintiff's other 
income on the ground that "[t]here is no justification for ignoring [the 
plaintiff's] probable actual tax rate which, of course, would be based on his 
total income". 129 We have concluded that the desirable approach lies 
between the extremes of no recognition and full recognition of the plaintiff's 



125 See Kotlikoff and Spivak, "The Family as an Incomplete Annuities Market" (1981), 89 
J. Pol. Economy 372. 

126 Draft Rule, para. (f). 

127 Supra, this ch., sec. 3(b)(ii)e. 

128 Supra, note 66. 

129 Ibid., at 205. 



146 



other income. Accordingly, we are of the view that the plaintiff's future 
income, earned after the accident, and the plaintiff's investment income 
derived from the award for loss of working capacity should be taken into 
account in the gross-up calculation, but the plaintiff's income from other 
sources should be ignored for this purpose, and we so recommend. 13 ° 

We recognize that the effect of a rule that would not account for all of 
the plaintiff's other income would be, in certain circumstances, to ignore 
the plaintiff's actual rate of income tax. We are persuaded, however, that the 
principle of equality of treatment of similarly injured plaintiffs militates 
against a rule that would account for all of the plaintiff's investment and 
other income. 131 

Moreover, if all of the plaintiff's investment and other income were 
taken into account, enormous awards of gross-up, in some cases, would 
have to be made. While the rule we recommend is inevitably arbitrary, we 
take some comfort in the knowledge that, to the extent it will result in 
undercompensation, it will do so most often in those cases in which the 
plaintiff has substantial wealth, and is therefore best able to cope with the 
result. 

g. Implementation and Review 

In order to ensure that the above rules remain responsive to prevailing 
economic conditions, they should be implemented by amendment to the 
Rules of Civil Procedure, 132 and should be subject to review by the Rules 
Committee. Accordingly, we recommend that the Courts of Justice Act, 
1984 133 should be amended to provide that the Rules Committee of the 
Supreme and District Courts may make rules in relation to the method of 
calculating the amount to be included in an award for damages for future 
care that would offset liability for income tax on income from investment of 
the award. 134 The rules recommended in this section should be reviewed if 
they appear to lead to an incorrect assessment of losses in light of future 
economic developments. For example, changes in the tax system might 
affect the reasonableness of the above assumptions. 135 In any event, we 
recommend that the rules should be reviewed formally at least once every 



130 Draft Rule, para. (g). 

The plaintiff's other income was apparently ignored on this ground in Taylor v. 
O'Connor, [1971] A.C. 115, [1970] 2 W.L.R. 472 (H.L.). 

132 O. Reg. 560/84. 

133 S.0. 1984, c. 11. 

134 See the draft Courts of Justice Amendment Act proposed by the Commission (hereinaf- 
ter referred to as "draft CJA Act"), infra, Appendix 2, s. 1(1). 

135 See supra, note 72. 



147 



four years and that the Courts of Justice Act, 1984 136 should be amended 
accordingly to so provide. 137 

4. DUPLICATION OF LIVING COSTS 

A potential for duplication exists between compensation in respect of 
the cost of future care and compensation in respect of lost earning capacity. 
The source of this potential overlap is the amount awarded for basic 
necessities of life; that is, compensation for food, clothing and shelter. The 
nature of the overlap and the alternative methods of resolving the conflict 
were addressed by Dickson J. in Andrews v. Grand & Toy Alberta Ltd., in the 
following terms: 138 

It is clear that a plaintiff cannot recover for the expense of providing for 
basic necessities as part of the cost of future care while still recovering fully for 
prospective loss of earnings. Without the accident, expenses for such items as 
food, clothing and accommodation would have been paid for out of earnings. 
They are not an additional type of expense occasioned by the accident. 

When calculating the damage award, however, there are two possible 
methods of proceeding. One method is to give the injured party an award for 
future care which makes no deduction in respect of the basic necessities for 
which he would have had to pay in any event. A deduction must then be made 
for the cost of such basic necessities when computing the award for loss of 
prospective earnings: i.e. the award is on the basis of net earnings and not gross 
earnings. The alternative method is the reverse: i.e. to deduct the cost of basic 
necessities when computing the award for future care and then to compute the 
earnings award on the basis of gross earnings. 

Mr. Justice Dickson then expressed his preference for the first 
approach. Reasoning that "proper future care is the paramount goal of 
[personal injury] damages", 139 his Lordship preferred to ensure that the 
costs of care included all the plaintiff's needs, while the cost of basic 
necessities were deducted from the loss of earnings. The same approach was 
adopted in Thornton v. Board of School Trustees of School District No. 57 
(Prince George) . 140 The opposite method, however, was applied by Spence J. 
in Arnold v. Teno, m which held that the cost of basic necessities should be 
excluded from the award for cost of future care. 142 



136 Supra, note 133. 

137 Draft CJA Act, s. 1(2). A similar recommendation for review, at least once every four 
years, is made herein in respect of the discount rate. See infra, ch. 8, sec. 2. 

138 Supra, note 2, at 250. 

139 Ibid. 

140 Supra, note 5. 

141 Supra, note 4. 

142 This approach has also been employed by the House of Lords (Lim Poh Choo v. Camden 
and Islington Area Health Authority, [1980] A.C. 174, [1979] 3 W.L.R. 44) and the 
Ontario High Court {Schmidt v. Sharpe, supra, note 14). 



148 



It has been suggested, 143 that thcplaintiff 's losses may be categorized as 
either positive or negative. According to this analysis, future care costs are 
best understood as being positive: as a result of the injury, the defendant has 
caused the plaintiff additional expenses for which the plaintiff is entitled to 
receive compensation. Loss of earnings, on the other hand, are best under- 
stood as being negative: the defendant has deprived the plaintiff of the 
benefit of the use of her working capacity. Analyzed in this way, compensa- 
tion in respect of the plaintiff's basic living expenses do not fall conceptually 
under the rubric of future care costs. They are not added expenses that have 
been imposed upon the plaintiff as a result of the injury; rather they 
represent expenses that all individuals must meet, whatever their cir- 
cumstances. It is only if the injury has caused some additional expense, for 
example, for special accommodation or a special diet, that the cost of care 
head of damage is properly invoked. In these circumstances, moreover, the 
future care head of damage is appropriate only to the extent of the excess, 
that is, the amount by which the cost of the plaintiff's post-accident basic 
necessities exceeds the cost that would have been incurred by the plaintiff 
for necessaries had the injury not been sustained. If the plaintiff is then 
awarded full compensation for her loss of earnings, she will be restored 
financially to her pre-accident position; she will be required to meet her 
basic living expenses out of earnings precisely as she would have been 
required to do had the injury not occurred. 

The approach adopted in the Andrews case might produce an inequit- 
able result if the court were simply to calculate how much the plaintiff 
would have spent on food, clothing and shelter and deduct that amount 
from the loss of earnings award. Such an approach would appear to be 
premised on an assumption that the plaintiff's post-accident basic necessity 
expenses equal the basic necessity expenses that the plaintiff would have 
incurred had he not been injured, and that subtracting that amount from 
earning capacity corrects duplication that would otherwise result from its 
inclusion under the future care award. Such an assumption, however, may 
be false. Depending upon income and preferences, a plaintiff requiring 
institutional care could be predicted to have spent, had he not been injured, 
either more or less than the cost of necessities provided by the institution. 
Thus, for example, where the plaintiff requires institutional care, this 
method would fail to account for the difference in quality between the 
standard of living that the plaintiff would have purchased for himself and 
the standard of living that the plaintiff would receive through the 
institution. 144 

If, as part of the future care award, the plaintiff received only the 
additional cost of living occasioned by the accident, together with the full 
loss of earnings award, he would be free to improve upon the standard of 



143 See Munkman, Damages for Personal Injuries and Death (7th ed., 1985), at 12-13. 

144 See Shearman v. Folland, [1950] 2 K.B. 43, [1950] 1 All E.R. 976 (C.A.). 



149 



living provided by the institution, if possible, or to divert his earnings to 
some other interest, just as he might have done had he not been injured. If, 
however, the court deducts from the loss of earnings award whatever the 
plaintiff would have spent on shelter, food and clothing, this may be more 
than the cost of necessities provided by the institution. In this case the 
plaintiff would be denied the opportunity to maintain . for himself the 
standard of living he would have been able to afford had he continued his 
employment. The means of doing so— his full income— has been denied 
him. Instead, he will be confined to whatever standard the institution 
provides. 

We believe that conceptual clarity would be fostered by a solution that 
would award the plaintiff his full damages for loss of working capacity and, 
as part of the future care award, only the additional cost of basic necessities 
incurred as a result of the accident. To the extent that such an approach 
would compensate the plaintiff only for his net costs after accounting for the 
costs that would have been incurred in any event, it is consistent with the 
restitutionary principle approved throughout the Andrews decision. Moreo- 
ver, such an approach would enable the proper calculations to be made in 
respect of the appropriate expectancy period, 145 contingencies, 146 and gross- 
up for income tax. 147 We believe these would be substantial advantages. 
Nevertheless, we do not recommend specific legislative intervention. Not 
only would legislation be difficult to draft, but the problems in this area of 
the law, identified above, are likely to be solved in due course by the courts 
themselves. 



5. THIRD PARTY CLAIMS 

Prior to the 1970s, where care or the cost of care was provided by a third 
party, the plaintiff was held to have suffered no pecuniary loss, and was not 
compensated unless she was under a moral or legal obligation to repay the 
third party. 148 The rule favoured only the plaintiff who was shrewd enough 
to contract with the care giver for the required services. 

In two decisions of the English Court of Appeal, rendered in 1973, it was 
held that an injured party, cared for by a close relative, could recover the 



145 

146 
147 
148 



The pre-accident life expectancy is relevant for the calculation of loss of earning 
capacity, while the post-accident life expectancy is the relevant period for calculating the 
future cost of care. 

See infra, ch. 8, sec. 1. 

See supra, this ch., sec. 3. 

See Waddams, The Law of Damages (1983), para. 368, at 210-11. Asa factual matter, it is 
usually a relative of the victim who provides such care, although the same problems may 
arise when care is provided by others, for example, a close friend. 



150 



value of the nursing services provided even though there was no obligation 
to reimburse the provider. 149 Conceptually, these cases assessed the victim's 
loss as a need for services caused by the defendant, rather than the cost of the 
services actually incurred. This approach has since been adopted in 
Canada 150 and endorsed by the Supreme Court of Canada. 151 Some cases 
have held that the plaintiff will be required to hold the money on trust. 152 

The enactment of The Family Law Reform Act, 1978 153 created two 
uncertainties. For the first time the Act gave a right of action to the members 
of a designated class 154 for the following: (1) "actual expenses reasonably 
incurred for the benefit of the person injured or killed"; 155 (2) "actual 
funeral expenses reasonably incurred"; 156 (3) "a reasonable allowance for 
travel expenses actually incurred in visiting the person during his or her 
treatment or recovery"; 157 and (4) "where, as a result of the injury, the 
claimant provides nursing, housekeeping or other services for the person, a 
reasonable allowance for loss of income or the value of the services". 158 
Thus, a sister who provided care presumably would have a claim under the 
Act, but a cousin, who was not a member of the designated class, would not. 
Because the Act permitted an action to be brought only by the eligible 
relatives, the question arises whether the legislation was intended to abro- 
gate the common law rights of the injured plaintiff to recover, and then, 
perhaps, to account for, the value of the services provided by a cousin. The 
better view, we suggest, is that the additional claims enumerated in the 
legislation were intended solely for the benefit of the designated class. There 
would appear to be no difficulty with the modern common law position 
insofar as it affects non-designated relatives and other providers of care 



149 Donnelly v. Joyce, [1974] Q.B. 454, [1973] 3 W.L.R. 514 (C.A.), and Cunningham v. 
Harrison, [1973] Q.B. 942, [1973] 3 W.L.R. 97 (C.A.). 

150 See Waddams, supra, note 148, para. 369, at 211-12, and cases cited ibid., nn. 127-28. 

151 Thornton v. Board of School Trustees of School District No. 57 (Prince George), supra, 
note 5. 

152 Cunningham v. Harrison, supra, note 149, and Thornton v. Board of School Trustees of 
School District No. 57 (Prince George), supra, note 5. See, also, Coderre v. Ethier (1978), 
19 O.R. (2d) 503, 85 D.L.R. (3d) 621 (H.C.J.), in which the plaintiff gave an undertaking 
to pay the money over. 

153 S.0. 1978, c. 2. See, now, Family Law Act, 1986, S.0. 1986, c. 4, s. 61. 

154 Section 61(1) of the Family Law Act, 1986, ibid., permits an action to be brought by the 
spouse, children, grandchildren, parents, grandparents, brothers and sisters of the 
person injured or killed. 

155 This is the present language of s. 61(2)(a) of the Family Law Act, 1986, ibid. Previously 
the wording was "actual out-of-pocket expenses reasonably incurred for the benefit of 
the injured person" {Family Law Reform Act , R.S.0. 1980, c. 152, s. 60(2)(a)). 

156 Family Law Act, 1986, supra, note 153, s. 61(2)(b). 

157 Ibid., s. 61(2)(c). 

158 Ibid., s. 61(2)(d). 



151 



services. Their claims may be compensated, if at all, indirectly through the 
victim's own recovery. 

More problematic is the determination of the proper party to claim the 
value of services provided by one of the relatives designated in the legisla- 
tion. Is the proper party the relative who has been designated specifically in 
the statute, or, alternatively, is the proper party the injured plaintiff, as under 
the common law? It has been suggested that the Act should be construed to 
provide a cause of action in the named relative only in respect of losses not 
recoverable by the injured person. 159 This, however, might lead to an 
injustice in the event that the plaintiff were to recover the value of care 
provided by the relative and then to refuse to refund that sum to the provider 
of care. The legislation would seem to contemplate that the dependant could 
make the claim in his or her own right to avoid such a situation. If so, 
however, there would appear to be no reason for restricting that particular 
right to a limited class of dependants. 

To resolve this problem it is necessary to decide whether the provision 
of such care generally is truly in the nature of a gift, in which case the 
plaintiff should recover the sum and then refund it, or not, according to her 
conscience; or to recognize the provision of such care as entailing a 
corresponding right (albeit not a contractual right) in the provider to recover 
its value, in which case all persons who provide care other than by statute or 
contract, and not just designated dependants, should enjoy such a right. 
This latter view raises the possibility of increased litigation, but perhaps no 
more than is already inherent in the other provisions of section 61 of the 
Family Law Act, 1986 . 160 

The current law in Ontario would appear to permit both approaches. In 
Dziver v. Smith 161 it was held that the Act did not repeal the right of an 
injured party to assert a claim in respect of the services provided if the 
relative did not assert a similar claim. No case has yet arisen in which the 
victim and the relative have asserted competing claims, the type of case in 
which the court would be called upon to decide the precise issue addressed 
above. 

We have concluded that the present uncertainty surrounding the 
relationship between Family Law Act, 1986 claims and the injured person's 
own claim should be resolved by legislation. Since the injured person will 
still have to claim such damages, in her own right, in those cases in which the 
provider is not one of the eligible relatives under the Family Law Act, 1986, 
we have concluded that the overlap ought to be removed by repealing 
section 61(2)(a), (b), (c), and (d) of the Family Law Act, 1986, 162 while 



159 See Waddams, supra, note 148, para. 372, at 213-14. 

160 Supra, note 153. 

161 (1983), 41 O.R. (2d) 385, 146 D.L.R. (3d) 314 (C.A.). 

162 Draft Compensation Act, s. 17. 



152 



providing, for the sake of certainty, that the injured person has the right to 
compensation in such cases, and that the court may order that the compen- 
sation be held on trust for the provider of the services. 163 We so recommend. 
As a factual premise, it seems to us most likely that relatives provide care 
without the expectation of reward from the victim. In most cases, however, 
if they were to turn their minds to the question, the victim and the relative 
would probably agree that the victim would account for any recovery in 
respect of such services to the provider. The above recommendation would 
not only remove the potential overlap between a Family Law Act, 1986 
claim and an injured plaintiff's own claim; it would also enable the court to 
give effect to the legitimate expectations of the individuals involved. 

Recommendations 

The Commission makes the following recommendations: 

1. There should be no change in the present law respecting the general test 
of "reasonableness" to determine the standard of care to be awarded to 
a successful plaintiff in a personal injury action. 

2. (1) The Government of Canada should be urged, by strong represen- 

tations at the highest level, to introduce a tax sheltered plan, 
analogous to a registered retirement savings plan, that would 
permit investment in the plan of the entire amount of compensa- 
tion awarded for future care. 

(2) Investment income should be permitted to accumulate in the plan, 
free of tax. 

(3) The plaintiff should be taxed on withdrawals from the plan, 
subject to the ordinary rules, including the medical expense deduc- 
tion, only until the amount remaining in the plan equals the 
amount originally paid in, which amount the plaintiff should then 
be able to withdraw free of tax. 

3. Legislation should be enacted, at the earliest opportunity, to provide 
that an award of damages for future care shall include an amount that 
would offset liability for income tax on income from investment of the 
award. 

4. The Courts of Justice Act, 1984 should be amended to provide that the 
Rules Committee of the Supreme and District Courts may make rules 
in relation to the method of calculating the amount to be included in an 
award of damages for future care that would offset liability for income 
tax on income from investment of the award. 



163 Ibid., s. 4(1) (b)-(e), and (2). 



153 



5 . For the purpose of calculating the amount to be included in an award of 
damages for future care under Recommendation 3, the following 
assumptions should be standardized and implemented by amendment 
to the Rules of Civil Procedure: 

(a) the rate of inflation should be assumed to be the average of the 
annual rates of change in the Consumer Price Index (all items, 
Canada) for the five year period ending in October of the year prior 
to the year in which judgment is given, adjusted to the nearest one- 
half percentage point. 

(b) the income tax laws should be assumed to be the income tax laws 
enacted or made at the time of trial, including any future changes 
in the income tax laws, enacted or made at the time of trial, but not 
applicable until a subsequent tax year; however, all fixed dollar 
amounts in the income tax laws should be assumed to increase 
annually at the assumed rate of inflation. 

(c) the funds from an award for future care should be assumed to be 
invested fifty percent in equities and fifty percent in interest- 
bearing investments. 

(d) after taking inflation into account, the annual rate of return, in 
respect of both equities and interest-bearing investments, should 
be assumed to be the rate specified in the Rules of Civil Procedure, 
from time to time, in respect of the discount rate, which, at present, 
would be 2.5 percent. 

(e) the total annual return on equity investments, as determined 
under paragraphs (a) and (d), should be assumed to be composed 
of the following: 

(i) dividends, at the annual rate of 3.5 percent of capital; and 

(ii) capital gains, as to the remainder, realized annually. 

(f) the amount that the injured person should be assumed to with- 
draw from the fund for future care in each year should be the 
expected cost of future care for that year, taking into account the 
probability of surviving to that year and all contingencies used in 
the calculation of the present value of the costs of future care. 

(g) the plaintiff's future income earned after the accident, and the 
plaintiff's investment income derived from the award for loss of 
working capacity should be taken into account, but the plaintiff's 
income from other sources should be ignored. 

6. The Courts of Justice Act, 1984 should be amended to provide that the 
rules made in relation to the method of calculating the amount to be 



154 



included in an award of damages for future care that would offset 
liability for income tax on income from investment of the award shall 
be reviewed at least once every four years. 

7. Legislation should not be enacted to deal with the possibility, in the 
assessment of damages in a personal injury action, of duplication in 
respect of the award for basic necessities of life. 

8. The present uncertainty surrounding the relationship between third 
party claims under the Family Law Act, 1986 and the injured person's 
own claim should be resolved by repealing section 61(2)(a), (b), (c), and 
(d) of the Family Law Act, 1986, while providing that the injured 
person has the right to compensation in such cases, and that the court 
may order that the compensation be held in trust for the third party. 









CHAPTER 5 



REVIEWABLE PERIODIC 
PAYMENTS 



1. INTRODUCTION 

In this chapter, we shall consider the form that an award of damages 
should take. The common law has long favoured the award of damages in a 
lump sum; indeed, in 1927, the Privy Council stated that this was the only 
permissible form of damages, 1 a view that has been affirmed more recently 
by the Supreme Court of Canada. 2 

In Ontario, however, a lump sum is no longer the only form in which 
damages may be awarded to a party. Section 129 of the Courts of Justice Act, 
1984 3 provides that, in a proceeding in which damages are claimed for 
personal injuries, or in a proceeding brought under Part V of the Family 
Law Act, 1986, 4 where all the affected parties consent, the court may order 
the defendant to pay all or part of the award of damages periodically on such 
terms as the court considers just, or order that the award of damages be 
subject to future review and revision in such circumstances and on such 
terms as the court considers just. Thus, under Ontario law, the parties to a 



1 See Fournier v. Canadian National Ry Co., [1927] A.C. 167, at 169, where Lord 
Atkinson described the attempt of a jury to award periodic payments as "quite improper 
and illegal". See, also, Waldron v. Rural Mun. ofElfros (1922), 70 D.L.R. 726, at 731 
(Sask. K.B.), aff 'd [1923] 4 D.L.R. 1209 (C.A.), where the Court held that a jury's award 
of periodic payments was "mere surplusage and beyond [its] jurisdiction". 

2 Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229, 83 D.L.R. (3d) 452 
(subsequent references are to [1978] 2 S.C.R.). See, also, Lewis v. Todd, [1980] 2 S.C.R. 
694, at 710, 115 D.L.R. (3d) 257, where, in the course of discussing the discount rate, 
Dickson J. commented that "it is not open to a court, in the absence of enabling 
legislation, to order periodic payments adjusted to future needs". In McErlean v. Sarel, 
unreported (September 29, 1987), the Ontario Court of Appeal stated (at 66) that "the 
respondent [the injured plaintiff] is legally entitled to a lump sum judgment and is not 
legally obliged to accept periodic payments". But see the recent judgment of the 
Manitoba Court of Appeal in Watkins v. Olafson, [1987] 5 W.W.R. 193, in which the 
Court ordered a "structured judgment" in respect of the plaintiff's future care costs. The 
Court explained that "[a] structured settlement becomes feasible because in this 
instance one of the defendant tortfeasors is the Government of Manitoba, and it 
provides permanency to what is now proposed" (per Huband J. A., at 223). 

3 S.0. 1984, c. 11. 

4 S.0. 1986, c. 4. 

[155] 



156 



personal injury action or an action brought under Part V of the Family Law 
Act, 1986 have three options: they may agree to a settlement of the action, 
providing for payment either by a lump sum or by means of a "structured 
settlement"; 5 they may allow damages to be assessed by the court as a lump 
sum; or, pursuant to section 129 of the Courts of Justice Act, 1984, they may 
agree to allow the court to order periodic payment of the award of damages, 
which may also be subject to subsequent review and revision. We under- 
stand that there has been no recourse to the last of these alternatives, so that 
it appears to be more theoretical than real. 

Section 129 of the Courts of Justice Act, 1984 implemented certain 
recommendations made in the Report of the Committee on Tort Compensa- 
tion, which was submitted in 1980 by a Special Committee of the Bench and 
Bar, chaired by Mr. Justice R. E. Holland. 6 The Special Committee had been 
appointed in response to comments by Mr. Justice Dickson, as he then was, 
of the Supreme Court of Canada, in favour of a system of periodic payments 
for future losses arising out of serious personal injury and wrongful death. In 



5 A structured settlement is an agreement to settle an action out of court, under which the 
casualty insurer of the tortfeasor characteristically undertakes to make periodic pay- 
ments in settlement of part of the plaintiff's claim by means of the purchase of an 
annuity that guarantees regular payments to the plaintiff. Often a structured settlement 
may include an initial lump sum payment in respect of pain and suffering and for other 
nonrecurring items of expense, such as medical expenses, past lost wages, and legal bills. 
The periodic payments may remain constant in amount or may increase, either 
annually or after a fixed duration, by a stipulated percentage designed to compensate for 
the effect of inflation. The terms of the agreement will vary according to the needs of the 
injured plaintiff. 

The most important practical advantage of a structured settlement is that Reve- 
nue Canada permits the plaintiff to receive the payments under the annuity free from 
liability from taxation. Revenue Canada has established the attributes that a structured 
settlement must have in order to qualify for favourable treatment in Interpretation 
Bulletin IT-365R2, "Damages, Settlements and Similar Receipts" (May 8, 1987). See, 
generally, Weir, Structured Settlements (1984), and Baxter, "Structured Settlements— 
An Update", in LSUC Continuing Legal Education, Personal Injury Damages: Current 
Law Under Attack (May 24, 1986). 

6 Ontario, Special Committee of Bench and Bar, Report of the Committee on Tort 
Compensation (1980) (hereinafter referred to as "Holland Committee Report"). This 
Report is reproduced as Appendix 5 to this Report. The Special Committee was 
concerned, inter alia, about circumstances in which a plaintiff, while not mentally 
incompetent, was clearly incapable of managing a large sum of money. Rather than 
force proceedings to be brought under the Mental Incompetency Act, R.S.O. 1980, 
c. 264, to protect such a plaintiff, it was thought advisable to give the court a power to 
restrict the disposition of the award in such cases. Accordingly, the Special Committee 
also recommended that the Rules should provide that "[t]he court may, in its discretion, 
order a defendant to pay any part of a judgment sum representing the cost of future care 
of an injured plaintiff to the Public Trustee, the Accountant of the Supreme Court or 
such other person as the court may approve, to be invested on behalf of the plaintiff and 
paid out to or for the plaintiff at such times and in such circumstances as the court may 
order": see Holland Committee Report, at 26-27, reproduced infra at 275. This 
proposal was not implemented in the Courts of Justice Act, 1984. 



157 



Andrews v. Grand & Toy Alberta Ltd., Dickson J. had commented as 
follows: 7 

The subject of damages for personal injury is an area of the law which cries 

out for legislative reform When it is determined that compensation is to be 

made, it is highly irrational to be tied to a lump sum system and a once-and-for- 
all award. 

The lump sum award presents problems of great importance. It is subject 
to inflation, it is subject to fluctuation on investment, income from it is subject 
to tax. After judgment new needs of the plaintiff arise and present needs are 
extinguished; yet, our law of damages knows nothing of periodic payment. The 
difficulties are greatest where there is a continuing need for intensive and 
expensive care and a long-term loss of earning capacity. It should be possible to 
devise some system whereby payments would be subject to periodic review and 
variation in the light of the continuing needs of the injured person and the cost 
of meeting those needs. 

In essence, the basic issue is whether the court should be given jurisdic- 
tion to award damages in the form of periodic payments, regardless of 
whether all affected parties consent, and to review these payments subse- 
quently at the behest of either party. By no means are we pioneers in 
addressing this issue, for it has already been considered not only by the 
Special Committee of the Bench and Bar, but also by law reform bodies in 
other jurisdictions 8 and by various academic and other commentators. 9 

In the following section, drawing on the work that has preceded us, we 
shall review the policy arguments that have been offered in favour of and 
against a system of periodic payments. We shall then canvass the approaches 
that have been proposed or adopted in other jurisdictions. Finally, we shall 



Supra, note 2, at 236. Similar comments were made by Dickson J. in the David B. 
Goodman Memorial Lectures, Faculty of Law, University of Toronto (November 13-15, 
1979), reprinted as "The Role and Function of Judges" (1980), 14 L.S.U.C. Gazette 138, 
at 149-50. 

8 See, for example, England, The Law Commission, Report on Personal Injury Litiga- 
tion—Assessment of Damages, Law Com. No. 56 (1973) (hereinafter referred to as "Law 
Commission Report"); United Kingdom, Royal Commission on Civil Liability and 
Compensation for Personal Injury, Report (Cmnd. 7054, 1978) (hereinafter referred to 
as "Pearson Report"), Vol. I; and Manitoba Law Reform Commission, Report on 
Periodic Payment of Damages for Personal Injury and Death, Report #68 (1987) 
(hereinafter referred to as "Manitoba Report"). 

9 See, for example, Waddams, The Law of Damages (1983), paras. 325-50, at 188-99; 
Cooper-Stephenson and Saunders, Personal Injury Damages in Canada (1981), at 9-11; 
Luntz, Assessment of Damages for Personal Injury and Death (2d ed., 1983), paras. 
1.2.08-1.3.09, at 17-29; Feldthusen and McNair, "General Damages in Personal Injury 
Suits: The Supreme Court's Trilogy" (1978), 28 U. Toronto L.J. 381; Rea, "Lump-sum 
versus Periodic Damage Awards" (1981), 10 J. Legal Stud. 131; Bale, "Encouraging the 
Hearse Horse Not to Snicker: A Tort Fund Providing Variable Periodic Payments for 
Pecuniary Loss", in Steel and Rodgers-Magnet (eds.), Issues in Tort Law (1983) 91; and 
Bruce, "Four Techniques for Compensating Tort Damages" (1983), 21 U.W. Ont. L. 
Rev. 1. 



158 



state our own conclusions with respect to the adoption of a system of 
reviewable periodic payment of damages in Ontario. 

2. THE ARGUMENTS FOR AND AGAINST PERIODIC 
PAYMENT OF DAMAGES 

Various arguments have been presented in favour of adopting a system 
of periodic payments. For the most part, these arguments are directed to 
three concerns: improving accuracy of assessment; avoiding delays; and 
protecting plaintiffs who may dissipate their lump sum awards. We shall 
briefly discuss each of these themes. 10 

The major argument in favour of abandoning lump sum awards is that 
periodic payments will significantly enhance the accuracy of assessment of 
damages. The very nature of a lump sum award in respect of future losses, 
whether for cost of care or loss of earning capacity, virtually ensures that the 
damages will be an inaccurate measure of the plaintiff's loss, as the extent of 
the loss will depend on events that cannot be predicted with certainty. 11 As 
Dickson J. stated in Andrews v. Grand & Toy Alberta Ltd., " [a] fter judgment 
new needs of the plaintiff arise and present needs are extinguished". 12 Nor 
are the uncertainties confined to the future medical condition of the 
plaintiff. Precise assessment may depend, as well, on economic or financial 
factors, relating to what the plaintiff would have earned in the future but for 
the injury and what she now will be able to earn in whatever remunerative 
activity she is capable of undertaking. While adjustments are made for 
contingencies to reflect the uncertainty of the plaintiff's future needs and 
future events, this process does not purport to ensure accuracy. 



10 For more detailed discussion, see Waddams, supra, note 9, paras. 326-34, at 189-92; 
Luntz, supra, note 9, paras. 1.2.09-1.2.17, at 17-22; and Holland Committee Report, 
supra, note 6, at 4-9. 

11 With respect to the assessment of damages in a lump sum, the Pearson Report, supra, 
note 8, stated (paras. 557-58, at 122): 

557 This process is inevitably inexact. The court must compare the plaintiff's 
expected income with the income which he might have enjoyed if he had not been 
injured. Allowance must be made for the likely duration of incapacity, and for the 
chances of promotion or increase in earnings; and, on the other hand, for the 
chances of loss of earnings, unemployment, unconnected illness or death. The 
court must also make assumptions about future economic conditions. In particu- 
lar, it must make some assumptions about future rates of inflation, tax, and return 
on invested capital. 

558 None of these factors is certain. The plaintiff may live for a longer or shorter 
period than was assumed; his medical condition may improve or deteriorate 
unexpectedly; he may lose his job or fail to find another; or he may be unable to 
derive the hoped-for return on his investment. As a result, he may be extensively 
over compensated or under compensated. 

See, also, Cooper-Stephenson and Saunders, supra, note 9, at 10, and Manitoba Report, 
supra, note 8, at 47. 

12 Supra, note 2, at 236. 



159 



Apart from the impossibility of predicting future developments, there 
are at least two other sources of inaccuracy, which have the effect of 
compounding the inaccuracy of the initial determination. First, where 
damages are awarded as a lump sum, the amount must be discounted to 
take account of the fact that the plaintiff receives the entire amount 
immediately. In other words, most of the award represents the plaintiff's 
future losses, and it is only the present value of that future loss to which the 
plaintiff is entitled. Some discounting factor must be applied to the award in 
order to take account of the plaintiff's ability to earn income by investing it, 
which in turn must take into account the effect of inflation. 13 

The second factor is that, since the plaintiff must pay income tax on the 
interest earned by the investment of the lump sum award, the award must 
be "grossed-up" in order to achieve true compensation. 

A system of periodic payments, it is argued, would respond to these 
problems of accuracy. Regardless of whether the payments were subse- 
quently reviewable, periodic payments would obviate the need to discount 
judgments and, assuming that Revenue Canada would accord favourable 
tax treatment to periodic payments, by analogy to its treatment of "struc- 
tured settlements", the necessity for "gross-up" would vanish. If, further- 
more, periodic payments were reviewable, flexibility would be introduced in 
the assessment of damages for future loss, and courts would be spared the 
difficult, if not impossible, task of estimating the plaintiff's future needs and 
predicting future developments. Payments could be adjusted to accommo- 
date changing circumstances. Support for periodic payments is buttressed 
by the related argument that a plaintiff in fact does not suffer any loss until it 
actually occurs and "[pjerfect compensation, therefore, would be compen- 
sation of the plaintiff's actual losses as they accrued". 14 

A second series of arguments in favour of periodic payments relate to 
the view that a lump sum award encourages delay on the part of plaintiffs, 
both in bringing the action to trial and in commencing the process of 
rehabilitation. These arguments are clearly stated in the following excerpt 
from the Holland Committee Report: 15 



13 In Ontario, the discount rate is set by the Rules of Civil Procedure, O. Reg. 560/84, r. 
53.09: see discussion infra, ch. 8, sec. 2. With respect to legislated discount rates, the 
Manitoba Law Reform Commission, supra, note 8, at 57, comments as follows: 

The elimination of the need to discount judgments for future losses would 
also result in greater accuracy. A discount rate is applied because the plaintiff is 
receiving monies now for losses that he will not incur until some point in the 
future. Though the implementation of a legislated discount rate [The Judgment 
Interest and Discount Act, S.M. 1986, c. 39, s. 9] results in consistency from case to 
case, the rate is nonetheless based on predictions of the long-term rate of return on 
investments and the long-term rate of inflation and may or may not be an accurate 
rate for the future. 

14 Waddams, supra, note 9, para. 326, at 190. 

15 Supra, note 6, at 5-7, reproduced infra at 262. 



160 



3. The Present System Causes Delay by The Plaintiff in Litigation 

The argument here is that a once-and-for-all system of damage assessment 
compels the plaintiff to delay the trial as long as possible in order to gather the 
best possible evidence of the long-term effects of his injury. If the plaintiff knew 
that the assessment could be re-opened if unexpected complications ensued, he 
would have no incentive to delay: prompt trials would be in the interests of both 
parties and in the interests of the courts. Against this, however, must be set the 
costs of review procedures under any periodic payment system permitting 
subsequent adjustments. 

4. The Present System Delays The Plaintiff's Rehabilitation 

The argument is that because it will pay the plaintiff to prove at trial that 
his injuries are serious, he will not seriously attempt to rehabilitate himself 
before trial. Against this argument must be set the consideration that with a 
system of periodic payments liable to be reduced if the plaintiff regains health, 
the plaintiff will have an indefinite incentive against rehabilitation. 

5. The Present System Deprives The Plaintiff of Compensation 
Immediately After The Accident when He May Need It Most 

The delay caused by the once-and-for-all system (point 3, above) means 
that the plaintiff must do without compensation for months, and perhaps 
years, after the accident. Compensation at an early date is a humane provision 
to a seriously injured person and an important tool of rehabilitation. The force 
of this consideration has been significantly reduced in automobile accident 
cases by the scheme of 'no fault' benefits. The recent amendment to The 
Judicature Act providing for pre-judgment interest will also doubtless encour- 
age insurers to make advance payments. 

6. 'Compensation Neurosis' 

A system of adjustable periodic payments would eliminate or reduce the 
anxiety and, hence, the deleterious effect on the plaintiff's mental health of his 
whole future support depending on a single proceeding. 

7. The Present System puts Undue Pressure on The Plaintiff to Settle 

As mentioned above in para. 5, the long delay before trial means that the 
plaintiff will not have full compensation for some time after the injury. The 
defendant is certain to take advantage of this need in settlement negotiations, 
and it will be an advantage taken at the expense of those least able to afford it 
(i.e. those plaintiffs whose need is the most pressing). 

The third line of argument in favour of allowing the court to order 
periodic payments is that plaintiffs should be protected from the possibility 
of squandering their awards, an opportunity that arises particularly in the 
case of lump sum awards. Successful plaintiffs, it holds, often find them- 
selves in sudden possession of an amount of money far greater than the 
amounts with which they are used to dealing. To manage such a sum 
properly requires considerable financial sophistication, and there is a risk 



161 



that a plaintiff— even the best intentioned plaintiff— will dissipate her 
award. No doubt this argument involves a certain paternalism, and raises a 
basic question as to whom the damages belong. However, to the extent that 
dissipation of the award may eventually cast the burden of supporting an 
injured plaintiff on the social welfare system, a general public interest may 
be said to inhere in this argument as well. 

There are a number of arguments against periodic payments. 16 A 
principal argument is that, by its very nature, a system of reviewable 
periodic payments undermines the public interest in the final resolution of 
disputes. 17 Any system of payments that could be modified to respond to 
changing circumstances would involve increased costs to the courts, which 
would have to accommodate the burden of additional review proceedings, 
and to the parties, who would have to retain legal counsel and expert 
witnesses to appear on their behalf. Changing circumstances could compre- 
hend not only alterations in the plaintiff's medical condition, but also 
economic and other changes that otherwise bear on the assessment of the 
plaintiff's loss. 18 

A second argument, allied to the first, is that, while a lump sum gives a 
plaintiff an incentive to rehabilitate herself, a system of periodic payments 
will have precisely the opposite effect. It is argued that, if the plaintiff is 
guaranteed regular payments that cover her actual losses, but only actual 
losses, there will be no incentive to rehabilitation. Successful rehabilitation 
will bring no financial reward because the damages award will be reduced 
accordingly. 19 The applicability of this argument must necessarily be con- 
fined to plaintiffs who are capable of rehabilitation, but who do not attempt 
efforts in that direction because their loss is securely met. For very severely 



16 See, generally, Waddams, supra, note 9, paras. 335-47, at 192-98; Luntz, supra, note 9, 
paras. 1.2.18-1.2.28, at 22-28; and Holland Committee Report, supra, note 6, at 10-23, 
reproduced infra at 265-73. 

17 This interest is often articulated by the Latin maxim "interest reipublicae ut sit finis 
litium". 

18 With respect to the possibility of establishing a minimum prerequisite to review, as a 
means of addressing the potential burden inherent in allowing all periodic awards to be 
reconsidered, Waddams, supra, note 9, para. 337, at 193, argues as follows: 

The burden of rehearings might be reduced by setting some threshold 
requirement, for example, that only substantial changes in costs or in needs would 
be considered. Such a proposal raises considerable difficulties, however, in finding 
a satisfactory definition of 'substantial changes'. If the phrase is undefined, 
litigation will be required in each case to determine if a matter can be reopened. If 
defined, for example, in dollar or percentage figures, it will give rise to anomalies 
and injustice in depriving claimants of a variation where the change falls short of 
the specified figure, and a tendency to inflate claims in order to cross the threshold. 

19 It is important to note the following comments of the Holland Committee, supra, note 
6, at 12, reproduced infra at 266: 

It is not necessary to support this argument with accusations of malingering. It is 
enough to say that, perhaps subconsciously, some claimants will tend to remain in 
a state of health that will be financially advantageous. 



162 



injured plaintiffs without any possibility of rehabilitation and those who are 
incapable of appreciating an incentive to rehabilitation— for example, a 
person who has suffered brain damage— the presence or absence of incen- 
tives is entirely irrelevant. It has also been observed "that malingering or its 
psychological equivalent has not proven an insuperable obstacle to periodic 
payments in social security schemes such as workers' compensation, or in 
schemes of disability insurance". 20 

A third argument, also related to loss of finality, is that, since an 
improvement in the condition of the injured plaintiff or an increment in her 
earnings would lead to a reduction of damages, a defendant or her insurer 
will have an incentive to scrutinize aspects of a plaintiff's private life. 

Several arguments relate to what generally may be regarded as insur- 
ance concerns. It has been argued that, under the present tort regime, a 
system of reviewable periodic payments would create serious difficulties for 
insurers. The possibility of subsequent review of damage awards, it is said, 
would result in "open-ended liability", thereby preventing insurers from 
estimating losses with the degree of certainty necessary to calculate premi- 
ums accurately. The problem of open-ended liability is particularly acute 
with respect to the impact of inflation. While it is obvious that, unless 
periodic payments were fully indexed for inflation, plaintiffs would be 
inadequately protected, insurers object that they cannot give an open-ended 
guarantee against inflation. 21 



20 
21 



Waddams, supra, note 9, para. 340, at 194. 

In The Law of Damages, supra, note 9, para. 343, at 195, Waddams notes that "[i]n 
respect of inflation, the burden on the insurer could be made predictable by limiting cost 
of living increases to some standard measure of interest rates, such as the government 
treasury bill rate, or by a state-run insurance scheme of some sort". 

The problem of open-ended liability could be met by a tort fund compensation 
system of the kind that has been proposed by certain commentators: see Bale, supra, 
note 9, and Feldthusen and McNair, supra, note 9. In essence, the tort fund could 
operate as a self-financing branch of the Workers' Compensation system. General 
damages assessed by the court would be paid into the fund as a lump sum by the 
defendant, whose involvement would then cease. The fund would provide to the 
plaintiff income-replacement and health care benefits, which would be variable accord- 
ing to both changes in need and, in the case of income replacement, changes in the 
average industrial wage. Such a fund, however, would require government participation 
to guarantee against shortfall. 

Moreover, settlement may be a problem. It has been suggested that, given the 
relatively small number of claims resulting in large personal injury awards, and the 
much greater number of settlements, the viability of the fund might well depend on 
including as participants plaintiffs who have opted to settle. The difficulty here is that 
there would be an incentive for the parties to settle at a low figure, discharging the 
defendant, and giving the plaintiff a lifetime claim on the fund. It would appear to be 
necessary, therefore, for the fund to be represented in all settlement negotiations, and to 
have a power to disallow any settlement that it considered unreasonably low. This would 
seem to create difficulties, and might force parties into litigation against the wishes of 
both of them. 



163 



A second insurance-related argument is that periodic payments would 
constitute a heavy burden for uninsured or underinsured defendants. 
Underinsurance is now very common in automobile cases, and the prospect 
of imposing on an individual, who may not have been personally at fault, 
not only the loss of all his wealth, but also an ever increasing series of 
payments that would amount to a permanent mortgage on his lifetime 
earning capacity appears to be draconian. 22 If indexed fully against infla- 
tion, what began as a reasonably modest annual payment could become an 
enormous sum over time. 

There are other arguments against periodic payments. For example, it 
has been said that allowing the court to order periodic payments, regardless 
of the wishes of the parties, denies plaintiffs the result they would prefer. 
Unless private settlement of actions for lump sums were forbidden, plain- 
tiffs could simply evade a compulsory system of periodic payments by 
settling the action. It is also argued that, with the spectre of periodic 
payments looming over the negotiations, the bargaining position of plain- 
tiffs inevitably would be weakened, for the price of securing agreement 
would be assent to a lesser lump sum than would have been realized under 
the existing system. 23 

Finally, certain practical difficulties with the implementation of a 
periodic payments scheme have been identified. Among the several difficul- 
ties that have been raised are the necessity for the defendant to provide 
adequate security in order to ensure continuing payment and the assignabil- 
ity of the plaintiff's periodic payments. 24 

3. APPROACHES IN OTHER JURISDICTIONS 

As indicated in the introduction to this chapter, the subject of periodic 
payments has received the attention of law reform bodies and legislatures in 
other jurisdictions. In this section, we shall briefly canvass various 
approaches that have been taken to this issue. 

(a) Manitoba 

The most recent consideration of periodic payments can be found in 
Report on Periodic Payment of Damages for Personal Injury and Death , 25 a 



22 Moreover, it is doubtful whether bankruptcy would offer any relief in the case of an 
obligation that accrued periodically. In the Pearson Report, the Minority Opinion on 
Periodic Payments commented that "[t]o convert a plaintiff into a pensioner of the 
defendant throughout the period of disability is an innovation which cannot be desirable 
even if practicable": Pearson Report, supra, note 8, para. 621, at 135. 

23 Waddams, supra, note 9, paras. 342 and 346, at 194 and 196-97. 

24 Ibid., para. 347, at 197-98, where several other difficulties are discussed briefly. 

25 Manitoba Report, supra, note 8. 



164 



March, 1987 Report of the Manitoba Law Reform Commission, which was 
undertaken in response to a Reference from the Attorney General of 
Manitoba. 

The basic recommendation in the Report is that "legislation be enacted 
to authorize the courts to award damages for personal injury or death by 
way of periodic payments". 26 In making this proposal, the Manitoba Law 
Reform Commission sought to address three problems: the inherent inaccu- 
racy of lump sum awards; the large size of damages awards; and "money 
management", that is, concern over the possibility that plaintiffs may 
dissipate lump sum damages awards. 

The Manitoba Law Reform Commission did not recommend that 
periodic payments be made subject to review The Commission rejected a 
system of reviewable payments because of the loss of finality, the additional 
burden and expense that would be placed on the courts and the parties, and 
the difficulties that would be faced by insurers, the last of which, it sug- 
gested, would necessarily lead to increased costs that would be reflected in 
higher liability insurance premiums. 27 The Commission was of the view that 
further study would be necessary before it could propose a reviewable 
system. 28 The Commission did acknowledge, however, that merely provid- 
ing for periodic payments would preserve a "major element of 
inaccuracy" 29 and would not alleviate the problem of delay. 

The Manitoba Law Reform Commission made more than twenty 
recommendations dealing with various aspects of periodic payments. We 
shall mention only the most significant of them. 

The Commission recommended that no restriction should be placed 
either on the types of case in which courts may grant damages in the form of 
periodic payments or on the heads of damage in respect of which periodic 
payments may be ordered. 30 The Commission further recommended that 
the decision to order periodic payments should rest entirely in the discretion 
of the court, and expressly rejected systems under which the jurisdiction to 
do so depends on the preference of either party, or both of them. 31 



26 Ibid., at 63. 

27 Ibid., at 65-66. 

28 The Manitoba Law Reform Commission also considered a scheme of provisional 
damages, such as that recommended by the English Law Commission (see Law 
Commission Report, supra, note 8), and later enacted by the Administration of Justice 
Act 1982, c. 53 (U.K.), s. 6, as well as the possibility of interim damages: see Manitoba 
Report, supra, note 8, at 67-68. As with reviewable periodic payments, its view was that 
further study was necessary before either of these alternatives could be endorsed. 

29 Ibid., at 63. 

30 Ibid., at 74-79. 

31 Ibid., at 79-83. It was further recommended that "the legislation authorizing the 
awarding of damages by periodic payments contain neither guidelines for the exercise of 
the court's discretion nor a preamble as to the legislation's purpose": ibid., at 85. 



165 



With respect to the important question of securing future payments, 
the Commission made several proposals. The basic recommendation was 
that adequate security for an award of periodic payments should be posted 
by or on behalf of the defendant, unless the court determined otherwise. The 
Report proposed further that "security be in the form of an annuity contract 
issued by a life insurer satisfactory to the court or in any other form of 
security satisfactory to the court". 32 

With respect to the impact of inflation, the Commission recommended 
that, rather than allow courts to determine the inflation rate on a case-by- 
case basis, "all judgments awarding damages by periodic payments provide 
that the amount of the periodic payments shall increase over time in 
recognition of inflation at a rate specified in the legislation". 33 The specified 
rate of inflation, it was proposed, should reflect the long-term rate of 
inflation in Canada, and should not be varied to take account of short-term 
changes in inflation. The Commission further recommended that the 
specified rate of inflation, to be established in consultation with the life 
insurance industry, should be based on the long term trend of the Consumer 
Price Index for Canada, All items (Not Seasonally Adjusted) . 34 

In addition to the foregoing matters, the Commission considered 
whether a plaintiff who receives periodic payments should be allowed to 
convert or commute them into a lump sum, whether the right to periodic 
payments should be assignable, and the form that a judgment should take. 35 

(b) England 

(i) The Law Commission 

In its 1973 Report on the assessment of damages in personal injury 
litigation, 36 The Law Commission rejected the introduction of periodic 
payments. In an earlier Working Paper, 37 The Law Commission had 
expressed the view that it would favour periodic payments as an optional 
alternative to lump sum awards unless consultation revealed that an obliga- 
tory scheme was widely demanded. 

According to the 1973 Report, the ensuing consultation indicated "that 
the introduction of a system of periodic payments would meet with vehe- 



32 Ibid., at 90. 

33 Ibid., at 101. 

34 Ibid., at 101-06. 

35 Ibid., at 90-99 and 106-10. 

36 Law Commission Report, supra, note 8. 

37 England, The Law Commission, Personal Injury Litigation— Assessment of Damages, 
Working Paper No. 41 (1971). 



166 



ment opposition from almost every person or organisation actually con- 
cerned with personal injury litigation". 38 Furthermore, The Law 
Commission was of the view that periodic payments would be used only 
rarely unless they were introduced as a replacement for a lump sum award, 
rather than merely as an optional alternative. Against this background, The 
Law Commission concluded that "[w]hatever merits periodic payments 
would have within a different system of compensation for injury, we are 
satisfied that, in a fault based system, it would not be worth while introduc- 
ing periodic payments". 39 

(ii) Royal Commission on Civil Liability and Compensation for 
Personal Injury ("Pearson Commission") 

In 1978, the Royal Commission on Civil Liability and Compensation 
for Personal Injury, chaired by Lord Pearson, published its Report. The 
Report dealt with numerous issues, including the question of periodic 
payments. 

The Pearson Commission recommended that damages for past pecuni- 
ary loss and for non-pecuniary loss should continue to be awarded as a lump 
sum. 40 On the question of whether periodic payments should be awarded in 
respect of future pecuniary loss, the Commission was divided. The majority 
favoured the introduction of a system of periodic payments, while a minor- 
ity preferred retention of the lump sum award. 

The majority recommended that, in the case of future loss caused by 
death or serious and lasting injury, the court should be required to order 
damages in the form of periodic payments, unless it is satisfied, on the 
application of the plaintiff, that a lump sum award would be more 
appropriate. 41 Where injuries are not serious or lasting, it was proposed that 
the court should have a discretion to award damages in the form of periodic 
payments for the loss. 42 



38 Law Commission Report, supra, note 8, para. 27, at 10. 

39 Ibid., para. 29, at 10. 

40 Pearson Report, supra, note 8, paras. 550-52 and 612-14, at 121 and 132-33. With respect 
to non-pecuniary loss, the Commission stated (para. 612, at 132): 

612 We do not think that the arguments in favour of periodic payments apply with 
equal force to damages for non-pecuniary loss. Such damages are an arbitrary 
acknowledgment of an essentially unquantifiable loss. They are not intended to 
provide financial support; and we do not think there is the same need to take 
account of post-trial changes. Indeed, there is no rational basis for saying whether a 
particular award represents over compensation or under compensation, except by 
comparison with other awards. 



41 Ibid., paras. 574-76, at 125. 

42 Ibid., para. 580, at 126. 



167 



Several advantages were cited in support of periodic payments in 
serious cases. First, the plaintiff would be more closely restored to her 
original position. Secondly, if reviewable, periodic payments would allow 
adjustments to take account of later changes. Thirdly, there would be tax 
advantages. Fourthly, "other compensation received by the plaintiff could 
be more accurately offset from damages if the damages were awarded in the 
form of periodic payments". 43 Finally, the Commission noted the view, 
expressed by the Royal College of Physicians and Surgeons of Glasgow, that 
the advantages of periodic payments in relieving financial anxiety out- 
weighed the risk that they would prolong incapacity. 44 

On the question of the reviewability of periodic awards, the majority 
recommended that the payments should be subject to review, but only in 
respect of changes in the plaintiff's medical condition that affected the 
amount of her pecuniary loss. 45 

With respect to financial changes, the majority made recommenda- 
tions designed to protect plaintiffs against the effect of inflation. First, it 
recommended that "periodic payments should be revalued annually in line 
with the movement of average earnings". 46 Secondly, having concluded that 
some form of government involvement would be necessary if the scheme 
were to be inflation proof, it recommended that the periodic payments 
provided by insurance be financed by a fixed escalation scheme. 47 



43 Ibid., para. 570, at 124. 

44 See, generally, ibid., paras. 566-71, at 124. 

45 Ibid., paras. 586-91, at 128-29. 

46 Ibid., para. 600, at 130. 

47 It explained the scheme as follows (paras. 605-06, at 131): 

605 The third possibility had a precedent in the contracting out provisions of the 
new state pensions scheme. Insurers would undertake to provide periodic pay- 
ments escalating at one of two fixed rates (at present 5 per cent and 8 1/2 per cent). 
If the lower rate was chosen, the insurer would also pay a 'limited revaluation' 
premium to the Government. In return, the Government would supplement the 
payments in order to provide full inflation proofing in years when the inflation rate 
exceeded the fixed escalation. If the higher rate was chosen, the Government 
would again supplement the payments if necessary, but, in years when the inflation 
rate was lower than the fixed escalation, the Government would have the benefit of 
the difference. In either case, there would be an agreed minimum period of notice 
before the escalation rate could be changed. 

606 We decided. . .in favour of the fixed escalation scheme. Apart from its relative 
simplicity this scheme would have the advantage of following an established 
precedent. It is also the only one of the three options which could provide an equal 
chance of the Government making a profit or a loss. At the same time, the funds 
required to pay tort compensation would remain substantially in private hands, in 
keeping with the role of tort as a private remedy. There would be no need for 
insurers to make provision for meeting inflation proofed liabilities of uncertain 
extent. 



168 



As indicated, a minority of the Pearson Commission rejected the 
introduction of periodic payments, and favoured continuation of the assess- 
ment of lump sum awards for damages in tort. While the minority acknowl- 
edged that the arguments presented by the majority in favour of periodic 
payments did have force, it did not consider them to be sufficiently weighty 
to justify the proposed "radical" change. 

In support of its own position, the minority advanced a number of 
arguments, 48 several of which will be mentioned here. The minority noted 
that "there is opinion evidence . . . that periodic payments tend to destroy 
initiative and produce lack of incentive towards rehabilitation". 49 While it 
agreed that a system of periodic payments must include a review procedure, 
the minority regarded this as "an undesirable continuation of the adver- 
sarial process and relationship which is not in the plaintiff's best 
interests". 50 Concern was expressed also about the position of the defend- 
ant, the amount of whose ultimate liability would be uncertain. The 
minority commented that "[t]o convert a plaintiff into a pensioner of the 
defendant throughout the period of disability is an innovation which cannot 
be desirable even if practicable". 51 

Another reason given for the rejection of a system of periodic payments 
was that it would increase administrative costs for defendants and insurers, 
and legal costs for the parties. 52 

The minority conceded that lump sum awards for future loss could not 
result in exact compensation, due to uncertainties about future develop- 
ments, but stated that this did not become "a cause of serious complaint, 
until the comparatively recent onset of inflation, the failure of the law to 
recognize and make allowances for its effect, and the very high incidence of 
liability to tax on the income from invested damages". 53 Its view was that 
the objective of full compensation would be better achieved by adopting the 
Report's recommendations respecting the impact of inflation on damage 
assessment than by introducing periodic payments. 54 

Apart from the foregoing practical objections, the minority preferred 
lump sum awards as a matter of principle, as the following passage makes 
clear: 55 



48 Ibid., paras. 621-29, at 134-36. 

49 Ibid., para. 620, at 134. 

50 Ibid., para. 621, at 135. 

51 Ibid. 

52 Ibid., para. 626, at 135. 

53 Ibid., para. 627, at 135-36. 

54 Ibid. 

55 Ibid., para. 628, at 136. 



169 



628 Further and in any event we do not believe that it is right to take away 
from a plaintiff his entitlement to receipt of the whole of his damages from a 
defendant in the form of a lump sum awarded by the court on trial and to 
compel him— against his will— to accept a series of periodic payments in its 
place. 

(c) Australia 

Legislation providing for periodic payments has been enacted in two 
Australian states. 56 In 1966, with the enactment of the Motor Vehicle (Third 
Party Insurance) Act Amendment Act, 1966, 57 Western Australia became 
the first jurisdiction in the common law world to depart from the lump sum 
award of damages. 58 The following year, the Supreme Court Act, 1935-1966 
was amended in South Australia to confer authority on the courts to order 
periodic payments. 59 

Under the Western Australia Motor Vehicle (Third Party Insurance) 
Act, 1943, 60 the court 61 has power to order payment of damages by way of 
lump sum or periodic payments, or both, in claims for death or bodily injury 
caused by, or arising out of, the use of a motor vehicle. Periodic payments 
may be ordered for whatever period the court determines. At any time, the 
court, either acting on its own motion or an application of a party, may 
review the payments and order them to be varied or terminated. Apparently, 
periodic payments have been ordered rarely under the legislation. 62 

Pursuant to section 30b of the South Australia Supreme Court Act, 
1935-80, in an action for damages, the court may make a declaratory order 
on the issue of liability and postpone the determination of damages. Where 
such an order is made, the court may order interim payments on account of 
damages. In addition to, or instead of, an order for interim payment, the 



56 See, generally, Luntz, supra, note 9, paras. 1.3.01-1.3.09, at 29-35. 

57 No. 95 of 1966, s. 15. 

58 In non-common law jurisdictions, damages by way of periodic payments may be 
ordered: see, generally, Fleming, "Damages: Capital or Rent?" (1969), 19 U. Toronto L.J. 

295. 



59 
60 
61 



Supreme Court Act Amendment Act (No. 2), 1966-1967, No. 21 of 1967, s. 4. 

No. 32 of 1943, s. 16(4), as en. by No. 42 of 1972, s. 6. 

Originally, the power to order periodic payments had been given to a special motor 
claims tribunal, known as the Third Party Tribunal. In 1972, on its abolition, the power 
was conferred on the court: see Motor Vehicle (Third Party Insurance) Act Amendment 
Act, 1972, No. 42 of 1972. 

62 New South Wales Law Reform Commission, Report on a Transport Accidents Scheme 
for New South Wales, LRC No. 43 (1984) (hereinafter referred to as "New South Wales 
Report"), Vol. 1, para. 4.6, at 82. In the first 15 years of the Act's operation, only 33 
orders for reviewable periodic payments were made: see Luntz, "Damages for Personal 
Injury: Rhetoric, Reality and Reform from an Australian Perspective" (1985), 38 
Current Legal Probs. 29, at 34. 



170 



court may order periodic payments for a fixed period or until a further 
order. On the application of any party, periodic payments may be varied or 
terminated by the court. 63 

Unlike the Western Australia legislation, the availability of periodic 
payments is not confined to compensation for motor vehicle accidents, but 
extends to all actions that may be brought in the Supreme Court. There is, 
however, a limitation as to the heads of damage. Interim payment in respect 
of non-pecuniary loss is not permitted, except in certain, specified cases. 64 

As in Western Australia, the power to order periodic payments has been 
exercised only rarely. 65 In neither Western Australia nor South Australia has 
there been any study of the reasons why there has been so little recourse to 
periodic payments. 66 

4. CONCLUSIONS 

We have considered carefully the arguments for and against the intro- 
duction of a system of reviewable periodic payments and the approaches to 
reform that have been suggested or taken in other jurisdictions. On balance, 
a majority of the Commission 67 has concluded that the law in Ontario 
should not be changed to accommodate such a system. In the remainder of 
this chapter, we shall outline the reasons for this decision. 

Before doing so, however, we wish to explain briefly why we did not 
accept the alternative, recommended recently by the Manitoba Law 
Reform Commission, to institute a system of nonreviewable periodic 
payments. 68 First, we do not believe that the Manitoba scheme addresses 
adequately the problem of inflation. Although awards would be adjusted 



63 Where the court has postponed the determination of damages, any party may apply for 
a final assessment of damages. In an action for personal injury, where such an 
application has been made, the judge must undertake a final assessment where the 
plaintiff's medical condition has stabilized, or where a period of four years has elapsed 
since the original declaratory judgment. However, even where these conditions are met, 
a final assessment may be refused if the judge is of the view that there are special 
circumstances that justify continuing postponement of that assessment: see Supreme 
Court Act, 1935-80, s. 30b(6), as en. by No. 21 of 1967, s. 4. 

64 Ibid., s. 30b(2). 

65 New South Wales Report, supra, note 62, para. 4.7, at 83. 



66 



67 



Ibid. Professor Veitch suggests that the South Australia changes have "not found favour 
with the legal profession, the bench or litigants", because they fail to affect significantly 
three key problems of the tort system— delay, inexactitude of assessment and cost: see 
Veitch, "Cosmetic Reform: Periodic Payments and Structured Settlements" (1981-83), 7 
U. Tasm. L. Rev. 136, at 144. 

Dr. H. Allan Leal, O.C., Q.C., the Vice Chairman of the Commission, dissents from this 
view: see infra, this ch., sec. 5. 



68 Manitoba Report, supra, note 8. 



171 



annually for inflation, the amount of increase would be fixed at the date of 
judgment based on the anticipated long-term rate of future inflation, and no 
subsequent adjustment would be possible to take account of the actual 
inflation rate. This could result in undercompensation or overcompensa- 
tion should the actual inflation rate not equal the stipulated rate of increase. 
Secondly, by not providing for the review of periodic payments, the Mani- 
toba proposal fails to offer the benefits extolled by Mr. Justice Dickson in 
Andrews v. Grand & Toy Alberta Ltd. 69 — that is, accuracy of assessment and 
the ability to respond to changes in circumstances. Indeed, the Manitoba 
Law Reform Commission itself conceded that its scheme would involve a 
"major element of inaccuracy". 70 

Turning then to the main question of whether a system of reviewable 
periodic payments should be instituted in Ontario, it was the Commission's 
view that the arguments favouring such a scheme were least tenable in 
relation to claims for loss of earning capacity. To date, calculations of lost 
earning capacity in cases of injury and death have not caused insuperable 
problems for the courts; nor have they resulted in very large awards. 71 

Moreover, it was in respect of loss of earning capacity that the argu- 
ments against introducing a system of reviewable periodic payments 
appeared strongest, particularly the argument that such a system would 
create an incentive for the injured person to remain disabled. 72 We were also 
concerned that imposing periodic payments on an unwilling plaintiff would 
be inconsistent with our acceptance of the fundamental principle that the 
loss of working capacity involves the loss of a capital asset, to which a value 
may be assigned. 73 A plaintiff should be able to choose a capital sum as 
compensation, which she could then invest, at her discretion, in order to 
generate a flow of income. 



69 Supra, note 2, at 236. 

70 Manitoba Report, supra, note 8, at 63. 

71 Several reasons explain why the assessment of loss of earnings has not resulted in 
particularly large awards. In the first place, in non-fatal cases, there is no deduction for 
income tax (see supra, ch. 2, sec. 7(a)) and hence there is no gross-up of the award. In 
most non-fatal cases, the loss is a partial loss of earning. Generally speaking, the 
calculation of the loss is based on the average national wage in Canada, an amount that 
is often greatly exceeded by the cost of care on an annual basis. 



72 



With respect to this argument, it is useful to distinguish between payment of medical 
costs, and payment of lost earnings. In respect of medical costs, and other costs of care, 
the incentive to incur unnecessarily heavy costs would not, it would seem, be very great 
under a system where the plaintiff did not have the right to receive more than a 
reimbursement (or direct payment to the supplier) of costs actually incurred. There 
would be some incentive to choose more expensive and comfortable methods of care 
and treatment, particularly where items were in question that contributed to the 
plaintiff's comfort and amenities, but the opportunity for such choices would be 
limited. On the other hand, in respect of lost earnings, there might well be a serious 
problem. 



73 



See supra, ch. 2, sec. 5(b). 



172 



Accordingly, we concluded that reviewable periodic payments should 
not be introduced in respect of loss of working capacity. 

The policy arguments favouring a system of reviewable periodic pay- 
ments are considerably stronger in relation to awards for future care, so far 
as concerns that portion of the cost of care that is not met by the Ontario 
Hospital Insurance Plan. 74 It is in this area that uncertainties concerning 
future eventualities have posed major difficulties for the courts, leading to 
calls for reform. 

For this reason, the Commission gave serious consideration to the 
possibility of recommending a scheme 75 for the periodic payment of costs of 
future care. While, for reasons that are outlined below, the Commission 
ultimately rejected this scheme, it will be useful to describe briefly its main 
features and advantages. Under the scheme, an insurer, or a corporation that 
has been approved as a self-insurer, on satisfying the Superintendent of 
Insurance of adequate reserves, would be permitted, before or after judg- 
ment, to elect to satisfy the future care portion of a lump sum award by 
undertaking to pay the plaintiff's actual reasonable costs as they arose. 76 We 



74 With respect to O.H.I.P., the Holland Committee Report, supra, note 6, at 15, repro- 
duced infra at 268, explains as follows: 

Since O.H.I.P is subrogated to the portion of the claim for future medical 
expenses that fall within the coverage of the health insurance scheme, there can be 
no question of the plaintiff dissipating this portion of the award or of the plaintiff 
being over-compensated or under-compensated, since he will receive what he 
needs from O.H.I.P.— no more and no less. It would be most inconvenient, 
therefore, to contemplate periodic reviews of this portion of the award, and very 
wasteful to conduct reviews to adjust accounts between O.H.I.P and the defend- 
ant's insurer according to changes in the plaintiff's state of health. It would be even 
more anomalous to contemplate such reviews in the case of an uninsured defend- 
ant. All consideration seem to point to the advantages of a lump sum settlement in 
favour of O.H.I.P. 

75 This proposal is a modest version of a scheme that has been proposed for the United 
States by Professor O'Connell: see O'Connell, "Offers That Can't Be Refused: Foreclo- 
sure of Personal Injury Claims by Defendants' Prompt Tender of Claimants' Net 
Economic Losses" (1982), 77 Nw. U.L. Rev. 589; Moore and O'Connell, "Foreclosing 
Medical Malpractice Claims By Prompt Tender of Economic Loss" (1984), 44 La. L. 
Rev. 1267; and O'Connell and Kelly, The Blame Game (1987). His proposal, however, 
applies not only to costs of care, but also to loss of income, in respect of which he 
recommends that a ceiling on recovery be imposed. In addition, his scheme would 
deprive the plaintiff entirely of her claim for non-economic loss. Undoubtedly, these 
features will attract opposition from the American plaintiffs' bar. In the Canadian 
context, where awards for non-pecuniary loss and for loss of earning capacity are 
moderate and reasonably predictable, there seems to be no need to interfere with the 
plaintiff's present rights in respect of these heads of damage. Consequently, the alterna- 
tive that we considered was confined to the cost of future care. 

76 The casualty insurer would be able to take advantage of "sub-standard mortality 
annuities" (that is, annuities at favourable rates based on a life insurer's judgment that— 
as is said often to be the case— the actual life expectancy of a seriously injured person will 
be shorter than that on which judicial awards are based). We have been informed that 
life insurers compete for this business, which tends to drive the prices of such annuities 
down. 



173 



understand that, under the Michigan no-fault automobile insurance plan, 
insurers undertake to pay, without limit, actual medical and rehabilitative 
costs for a person's life. 77 

Under the scheme, on the giving of such an undertaking, the plaintiff's 
claim would abate accordingly. While the plaintiff would lose the right to a 
lump sum assessment of this head of damage, this would occur only on 
receipt of an adequate alternative, that is, a guarantee of having her actual 
costs met as they arise. 

From the perspective of defendants, such a scheme would go a long way 
to meeting the objections of insurers and others that extravagant sums are 
awarded for costs of care that in fact are never spent for their intended 
purpose, and that the gross-up for income tax is excessive. An insurer who 
was dissatisfied with an actual or prospective award on such grounds would 
have the option of paying the actual costs as they arose. The objection to 
excessive gross-up would be met, as the gross-up element in the award would 
not be payable if the insurer elected to undertake periodic payments on this 
basis and if Revenue Canada were to accord to periodic payments the 
preferential tax treatment that is extended to structured settlements. 78 

In the case of an insurer whose liability was subject to a limit, the 
insurer could undertake to pay the actual costs as they arose up to the limit. 
The costs, as they were incurred, would be discounted to their value at the 
date of the undertaking. Thus, the plaintiff would always know the balance 
remaining in her account, and could govern her conduct accordingly in 
making claims. 



77 The Michigan Insurance Code of 1956, Mich. Comp. Laws Ann. § 500.3107, provides, 
in part, as follows: 

§ 500.3107. Personal protection insurance benefits are payable for the following: 

(a) Allowable expenses consisting of all reasonable charges incurred for 
reasonably necessary products, services and accommodations for an 
injured person's care, recovery or rehabilitation 

Section 500.31 10(4) provides that "personal protection insurance benefits payable 
for accidental bodily injury accrue not when the injury occurs but as the allowable 
expense. . .is incurred". Finally, § 500.3142(1) provides that "personal protection insur- 
ance benefits are payable as loss accrues". 

Under the Michigan no-fault scheme, there is no limit on the benefit for medical 
and rehabilitation expenses. Where, however, the victim's total loss in respect of 
personal injury protection claims— which includes work loss— exceeds $250,000, the 
amount paid by an insurer in respect of the excess is indemnified by the Michigan 
Catastrophic Claims Association (MCAA). All Michigan auto insurers are members of 
the association; each must contribute its pro rata share, based on the number of cars 
insured, to cover the association's cost. The MCAA was created because insurers had 
objected that "unlimited rehabilitation and medical benefits., .imposes an excessive 
and unfair burden on small insurance companies that happen to have insured a person 
who suffers a catastrophic injury": see Ontario, Final Report of the Ontario Task Force 
on Insurance (1986), Appendix 14, at 341. 

78 See supra, note 5. 



174 



In giving judgment in a personal injury action, the judge would be 
empowered to specify what level and kind of care should be provided, and 
any undertaking given would be for the provision of that level and kind of 
care, unless a material change in circumstances after the date of the 
judgment were proved. This would, in part, address the problem of disputes 
arising with respect to the reasonableness of expenses and with respect to 
whether they were caused by the injury. 

Notwithstanding the advantages of such a scheme, however, we were 
not persuaded in the end that the benefits outweighed the costs. In the first 
place, we had serious reservations about whether the scheme would be 
attractive to Ontario insurers. We doubted whether insurers would wish to 
undertake to pay, without limit, the cost of care for the duration of an 
injured person's life— a cost that could be potentially enormous. 79 In this 
respect, it is significant that, while the Submission of the Insurance Bureau 
of Canada to the Inquiry into Motor Vehicle Accident Compensation in 
Ontario endorsed a modified no-fault automobile plan that draws on the 
Michigan no-fault scheme, it proposed limits on the benefits for long-term 
care. 80 

Secondly, we were concerned that such a scheme could work to the 
serious disadvantage of plaintiffs in cases where the amount awarded at trial 
equals or exceeds the insurance limit. In such circumstances, insurers, faced 
with the choice of a lump sum payment or periodic payments, would 
invariably choose the latter; for, if the plaintiff were to die early, the 
obligations of the insurer would cease and the insurer, rather than the 
plaintiff's estate, would reap the financial benefit of the premature death. 
Even if the plaintiff were to survive to her full life expectancy, the periodic 
payments payable by the insurer would reach the limit and be exhausted 
prior to the plaintiff's death. In such a case, it would be preferable for the 
plaintiff to receive a lump sum payment, thereby allowing her the flexibility 
to arrange her care as best she can in light of the anticipated shortfall. 



1 The potential cost of such an undertaking is illustrated by MacDonald v. Travelers 
Indemnity Co. of Canada (1987), 60 O.R. (2d) 385 (H.C.J.), which is discussed supra, 
ch. 4, sec. 2(b). 

We note that, under the Michigan no-fault system, where the total loss of a victim 
exceeds $250,000, individual insurers are indemnified under a re-insurance scheme for 
payments in excess of that amount: see discussion supra, note 77. 



80 



See Insurance Bureau of Canada, Submission to The Hon. Mr. Justice Coulter A. 
Osborne (April, 1987), at 12. Under the IBC's plan, benefits would be provided up to 
$200,000 for long term care "where the injured person is not capable of performing 
tasks necessary to sustain an independent lifestyle". The Submission (ibid.) states that 
indemnity would be limited to the lesser of 

(i) the monthly cost of group residence appropriate for the needs of the insured, 
or 

(ii) the monthly cost of long term care not exceeding 12 hours per day. 



175 



Our major concern, however, was the lack of finality inherent in the 
proposal. Because subsequent disagreement about the standard of care 
could not be avoided entirely, the system would involve the continuation of 
an adversarial relationship between the plaintiff and the defendant or her 
insurer. Inevitably, plaintiffs would be in the position of supplicants and, 
regardless of how carefully designed, the scheme would see them at a 
psychological and possibly financial disadvantage in seeking adjustments in 
their favour. Apart from a concern for injured plaintiffs, we saw the 
introduction of a potential for disputes on a continuing basis as adding an 
undesirable burden to an already strained court system. 

While we have rejected a scheme of reviewable periodic payments, it 
should be noted that the parties will be able to agree to periodic payments 
under section 129 of the Courts of Justice Act, 1984. We note also that one of 
the problems that the introduction of periodic payments is designed to 
address would be ameliorated by recommendations that we have made in 
chapter 4 of this Report dealing with gross-up. 81 Finally, we observe that 
little recourse has been made to periodic payments in both Western Austra- 
lia and South Australia. 

The Commission therefore recommends that the law of Ontario should 
not be changed to accommodate a system of reviewable periodic payments 
that could be ordered by the court without the consent of the parties. 

5. STATEMENT OF DISSENT AND EXPLANATION BY 
H. ALLAN LEAL, O.C., Q.C. 

In the Andrews case in 1978, Dickson J. (as he then was) in delivering 
the judgment of the Supreme Court of Canada said: 

The subject of damages for personal injury is an area of the law which cries 
out for legislative reform. The expenditure of time and money in the determi- 
nation of fault and of damage is prodigal. The disparity resulting from lack of 
provision for victims who cannot establish fault must be disturbing [at the 
present level of decision the McErlean case is surely one of these]. When it is 
determined that compensation is to be made, it is highly irrational to be tied to 
a lump sum system and a once-and-for-all award. 

The lump sum award presents problems of great importance. It is subject 
to inflation, it is subject to fluctuation on investment, income from it is subject 
to tax. After judgment new needs of the plaintiff arise and present needs are 
extinguished; yet, our law of damages knows nothing of periodic payment. The 
difficulties are greatest where there is a continuing need for intensive and 
expensive care and a long-term lack of earning capacity. It should be possible to 
devise some system whereby payments would be subject to periodic review and 
variation in the light of the continuing needs of the injured person and the cost 
of meeting those needs. In making the comment I am not unaware of the 



81 



Supra, ch. 4, sec. 3(d). 



176 



negative recommendation of the British Law Commission (Law Com. 56— 
Report on Personal Injury Litigation— Assessment of Damages) following 
strong opposition from insurance interests and the plaintiffs' bar. 

The apparent reliability of assessments provided by modern actuarial 
practice is largely illusionary, for actuarial science deals with probabilities, not 
actualities. This is in no way to denigrate a respected profession, but it is 
obvious that the validity of the answers given by the actuarial witness, as with a 
computer, depends upon the soundness of the postulates from which he 
proceeds. Although a useful aid, and a sharper tool than the 'multiplier- 
multiplicand' approach favoured in some jurisdictions, actuarial evidence 
speaks in terms of group experience. It cannot, and does not purport to, speak 
as to the individual sufferer. So long as we are tied to lump-sum awards, 
however, we are tied also to actuarial calculations as the best available means of 
determining amount. 

In spite of these severe difficulties with the present law of personal injury 
compensation, the positive administrative machinery required for a system of 
reviewable periodic payments, and the need to hear all interested parties in 
order to fashion a more enlightened system, both dictate that the appropriate 
body to act must be the Legislature, rather than the Courts. Until such time as 
the Legislature acts, the Courts must proceed on established principles to award 
damages which compensate accident victims with justice and humanity for the 
losses they may suffer. 

In Andrews and the remaining two cases of the trilogy, Thornton v. 
School District No. 57 (Prince George) and Arnold v. Teno the Supreme 
Court proceeded to rationalize and restate the principles governing com- 
pensation under the tort regime but, for the reasons given by Dickson J., did 
nothing to advance the reform of the system and the statement quoted 
above remains a cri de coeur and not a blueprint for action. In its current 
project the Ontario Law Reform Commission is under no such strictures 
and, indeed, is under a heavy burden to recommend such reforms as will 
alleviate the difficulties and obstacles of the present tort regime on damage 
compensation which are visited upon us by the imperfections of that 
system. 

It is true that following the trilogy of cases and other studies the Ontario 
Legislature moved to confer statutory jurisdiction on the courts to order 
periodic payment of damage awards. The Courts of Justice Act, 1984, S.O. 
1984, c. 11, s. 129, reads as follows: 

129. In a proceeding where damages are claimed, 

(a) for personal injuries; or 

(b) under Part V of the Family Law Reform Act, for loss resulting from 
the injury to or death of a person, 

the court may, with the consent of all affected parties, 

(c) order the defendant to pay all or part of the award for damages 
periodically on such terms as the court considers just; 



177 



(d) order that the award for damages be subject to future review and 
revision in such circumstances and on such terms as the court 
considers just. 

Although it is perhaps too early at this stage to pass final judgment on 
the ameliorative effect of these provisions, since serious injuries involved in 
most current cases were suffered prior to 1984, it is an educated guess that 
the section will prove to be a dead letter because its application expressly 
requires the consent of all affected parties. Disagreement is the stuff of 
litigation and it would appear to be asking too much that its terminal 
process be made the subject of unanimity. 

My colleagues on the Commission have recommended that the law of 
Ontario should not be changed to accommodate a system of reviewable 
payments. It is a matter of regret that the Report of the Manitoba Law 
Reform Commission of March, 1987 on Periodic Payment of Damages for 
Personal Injury and Death was not received in time to permit a full 
discussion of its recommendations before this initial decision was taken. In 
fact, the Manitoba recommendation is that, as a first step, non-reviewable 
periodic payments be ordered in an award of damages for personal injury or 
death. Their Commission was of the view that further study would be 
necessary before it could propose a reviewable system. In a subsequent 
decision my colleagues also rejected the proposal for the acceptance of the 
principle of non-reviewable awards. I personally regret that I cannot agree 
with my colleagues on this issue. My first preference would be to recom- 
mend that legislation be passed authorizing, in proper cases, an award to be 
made in the form of reviewable periodic payments, particularly in the area 
of future care compensation. This would not be a replacement for a lump 
sum award in all cases nor, indeed, on all items of loss in any given case. My 
preference is strong for this principle because it avoids many, if not all, of the 
difficulties and highly undesirable consequences of lump sum, once-and- 
for-all awards. This, of course, would include the elimination of any 
necessity for an additional sum to cover tax liability on any income which 
the investment of the lump sum generates. It will be obvious from the 
current report that much time and energy were devoted to an attempt to 
rationalize the "gross-up" factor in lump sum awards. If the federal tax 
authorities were prepared to grant the same dispensation to periodic pay- 
ment awards (reviewable or non-reviewable), as they do to structured 
settlements at present, there would be no necessity to even consider the tax 
generated aspects of lump sum awards. 

My alternative recommendation would be, and here I would adopt the 
final recommendation of the Manitoba Commission, to authorize through 
legislation the award, in proper cases, of compensation in the form of non- 
reviewable periodic payments. The Manitoba Commission, in a thorough 
and scholarly way, has canvassed all the reasons why lump sum awards are 
unsatisfactory and demonstrated how the alleged problem areas of non- 
reviewable periodic payments can be resolved. They acknowledge that non- 
reviewable awards would not alleviate the major element of inaccuracy. 
Therein lies my preference for reviewable awards. They would treat facts as 
they exist and not as they may be imagined. 



178 



I refrain from repeating here the long litany of disadvantages inherent 
in our system under the tort regime of compensation payable by lump sum 
awards. I also refrain from an extensive repetition of the advantages of the 
system of periodic payments. They are all set forth in a balanced manner in 
the Manitoba Report and I commend the reading of that Report to anyone 
interested in the solution of this seemingly endless and intractable problem. 
Of this I am persuaded, that we accomplish little in the critical cause of law 
reform by applying our best talents and resources in shoring up a system 
which is fundamentally flawed and for which there is a conceptually 
acceptable alternative. 

Recommendation 

The Commission makes the following recommendation: 

*1. The law in Ontario should not be changed to accommodate a system of 
periodic payments, whether reviewable or non-reviewable, that could 
be ordered by the court without the consent of the parties. 



* Dr. H. Allan Leal, O.C., Q.C., Vice Chairman of the Commission, dissents from this 
recommendation: see supra, this ch., sec. 5. 



CHAPTER 6 



COLLATERAL BENEFITS 



1. INTRODUCTION 

Following an injury, an injured person often receives assistance, or 
benefits, from a number of sources. One source may be the wrongdoer who 
has caused the injury and who is accordingly liable to pay to the injured 
person the full amount of the loss suffered. Other sources of benefits, 
commonly referred to as "collateral benefits", may include a variety of 
private sources, such as gifts from friends, family, and employers, or insur- 
ance benefits for which the injured person has contracted, as well as public 
income replacement sources, such as unemployment insurance, statutory 
disability pensions, or welfare. The difficult question raised by the broad 
availability of such collateral benefits is whether they should be taken into 
account when assessing the damages payable by the wrongdoer to the 
injured person. 

Three alternative approaches may be taken to this issue. An injured 
person may be allowed to recover the full amount of damages from the 
wrongdoer as if no collateral benefit had been received; however, this 
approach may give rise to double recovery, that is, the possibility that the 
injured person will recover twice in respect of the same loss. Alternatively, 
the value of the collateral benefit may be deducted from the award of 
damages, so that the wrongdoer will be liable only for the net loss of the 
injured person; under this approach, the wrongdoer becomes, in effect, the 
beneficiary of the benevolence of the donor, or of the foresight of the injured 
person in insuring against the loss. The third alternative would deny the 
wrongdoer the advantage of the deduction of the collateral benefit from the 
damage assessment, but would require the injured person to repay the value 
of the collateral benefit to its source. 

2. THE PRESENT LAW 

(a) The No-Deduction Rule 

In Ontario, no collateral benefits of any kind are deducted from an 
award of damages payable by a wrongdoer to an injured person. In 1973, in 
Boarelli v. Flannigan} the Ontario Court of Appeal held that no deduction 



[1973] 3 O.R. 69, 36 D.L.R. (3d) 4 (subsequent references are to [1973] 3 O.R.) 

[179] 



180 



should be made for welfare payments received by an injured person. 
Furthermore, in dicta, the Court clearly indicated that a wrongdoer should 
not obtain the advantage of the deduction of any other collateral benefits, 
whether from private or public sources. 

In the course of his judgment, Dubin J. A. reviewed the leading English 
and Canadian authorities governing collateral benefits. In 1874, in Brad- 
burn v. Great Western Railway Co., 2 it was held that no deduction should be 
made for any benefit received from first party insurance that provides for 
payment of a fixed sum in the event of an accident. Such insurance was 
characterized as being in the nature of a wager, since "one who pays 
premiums for the purpose of insuring himself, pays on the footing that his 
right to be compensated when the event insured against happens is an 
equivalent for the premiums he has paid; it is a quid pro quo, larger if he gets 
it, on the chance that he will never get it at all". 3 The Court in Boarelli 
approved the following rationale, articulated in Shearman v. Folland, 4 for 
not allowing deduction of private insurance benefits: 5 

If the wrongdoer were entitled to set off what the plaintiff was entitled to recoup 
or had recouped under his policy, he would in effect be depriving the plaintiff of 
all benefit from the premiums paid by the latter, and appropriating that benefit 
to himself. 

With respect to gratuitous payments, Dubin J.A. observed in Boarelli 6 
that money received by an injured person as a result of either public or 
private benevolence has never been taken into consideration in assessing 
damages for loss of income or earning capacity, and quoted Lord Reid in 
Parry v. Cleaver, 1 to the following effect: 8 

It would be revolting to the ordinary man's sense of justice, and therefore 
contrary to public policy, that the sufferer should have his damages reduced so 
that he would gain nothing from the benevolence of his friends or relations or of 
the public at large, and that the only gainer would be the wrongdoer. 

In holding that welfare payments are not deductible from an award of 
damages payable by the wrongdoer, the Court in Boarelli stated that there is 



2 (1874), L.R. 10 Ex. 1, 44 L.J. Ex. 9 (subsequent references are to L.R. 10 Ex.). 

3 Ibid., at 4. 

4 [1950] 2 K.B. 43, at 46, [1950] 1 All E.R. 976 (C.A.). 

5 Supra, note 1, at 76. 

6 Ibid., at 73. 

7 [1970] A.C. 1, at 14, [1969] 2 W.L.R. 821 (H.L.) (subsequent references are to [1970] 
A.C.). 

8 Supra, note 1, at 73. 



181 



no difference in principle between benefits received under social welfare 
legislation and those received by way of public or private benevolence. 9 

Dubin J. A. also dealt, in dicta, with the deductibility of benefits derived 
from employment. He referred to the leading English case, Parry v. 
Cleaver, 10 in which the House of Lords had held that benefits received under 
a statutory pension plan were not to be considered in assessing damages. In 
that case, after emphasizing that benefits from private insurance plans are 
not deductible, Lord Reid stated: 11 

Then I ask— why should it make any difference that [the injured person] 
insured by arrangement with his employer rather than with an insurance 
company? In the course of the argument the distinction came down to be as 
narrow as this: if the employer says nothing or merely advises the man to insure 
and he does so, then the insurance money will not be deductible; but if the 
employer makes it a term of the contract of employment that he shall insure 
himself and he does so, then the insurance money will be deductible. There 
must be something wrong with an argument which drives us to so unreasonable 
a conclusion. 

In Boarelli, Dubin J. A. expressly adopted, in respect of collateral 
benefits received by virtue of employment, the following approach taken by 
Lord Pearce in Parry v. Cleaver. 12 

If one starts on the basis that Bradburn's case . . . decided on fairness and 
justice and public policy, is correct in principle, one must see whether there is 
some reason to except from it pensions which are derived from a man's contract 
with his employer. These, whether contributory or non-contributory, flow from 
the work which a man has done. They are part of what the employer is prepared 
to pay for his services. The fact that they flow from past work equates them to 
rights which flow from an insurance privately effected by him. He has simply 
paid for them by weekly work instead of weekly premiums. 

Is there anything else in the nature of these pension rights derived from 
work which puts them into a different class from pension rights derived from 
private insurance? Their 'character' is the same, that is to say, they are intended 
by payer and payee to benefit the workman and not to be a subvention for 
wrongdoers who will cause him damage. 

The Court in Boarelli, therefore, extended the rationale for no-deduc- 
tion, articulated in Parry v. Cleaver in respect of pensions, to all benefits 
derived from employment, including sick pay, 13 disability pensions, and 



9 Ibid., at 74. 

10 Supra, note 7. 

11 Ibid., at 14-15. 

12 Ibid., at 37. 

13 In the earlier English case of Browning v. War Office, [1963] 1 Q.B. 750, [1962] 3 All E.R. 
1089, the Court of Appeal held that sick pay benefits should be deducted from a damage 



182 



early retirement benefits. Dubin J.A. also approved an earlier decision of 
the New Brunswick Court of Appeal, which had refused to allow deduction 
of statutory unemployment benefits on the basis that "the wrongdoer is not 
entitled to the benefit of a policy of insurance for which he has paid 
nothing". 14 

In Canadian Pacific Ltd. v. Gill, 15 the Supreme Court of Canada 
approved and adopted the reasoning of Parry v. Cleaver when it refused to 
deduct from an award of damages Canada Pension Plan benefits, which 
were characterized as insurance "contracted" for as part of the injured 
person's employment. More recently, the Supreme Court reaffirmed this 
position by refusing to deduct private employment pension benefits. 16 

As a result of the foregoing decisions, any benefit that can be character- 
ized as being in the nature of insurance, or as having been derived from a 
contract of employment, will not be deducted from an award of damages 
payable by a wrongdoer. Furthermore, it appears that benefits that can be 
considered to be benevolent payments, whether from a private or public 
source, likewise will not be deducted. 

(b) Mechanisms for Avoiding Double Recovery 

The broad application of the no-deduction rule does not mean that an 
injured person who has received a collateral benefit invariably will be 
overcompensated by double recovery for the loss. A number of mechanisms 
exist to ensure that the third party source of the collateral benefit is 
reimbursed. 



(i) Subrogation 

The first means of avoiding double recovery is through the exercise of 
the right of subrogation. Subrogation is an equitable right of an insurer, who 
has paid for a loss, to receive the benefit of all the rights and remedies of the 
insured against third parties that, if satisfied, will extinguish or diminish the 
ultimate loss sustained. 17 An insurer who has paid for a loss is generally 



award in order to avoid overcompensation. That case dealt specifically with a disability 
pension and, to that extent, has been overruled by Parry v. Cleaver, supra, note 7. 
However, it appears that Browning may still apply in England in cases where the salary 
of the injured person is simply continued under the terms of his contract as though he 
continued to work. 

14 Bourgeois v. Tzrop (1957), 9 D.L.R. (2d) 214, at 224-25. 

15 [1973] S.CR. 654, 37 D.L.R. (3d) 229. 

16 Guy v. Trizec Equities Ltd. , [1979] 2 S.CR. 756, 99 D.L.R. (3d) 243. 

See Partington, O'Dowd, Leigh- Jones, and Longmore (eds.), MacGillivray & Parking- 
ton on Insurance Law (6th ed., 1975), at 776. The doctrine was described in Gibson v. 
Sun Life Assurance Co. of Canada (1984), 45 O.R. (2d) 326, 6 D.L.R. (4th) 746 (H.C.J.) 



183 



entitled to reimbursement from an insured who has recovered damages for 
that loss from a wrongdoer. 18 

In Glynn v. Scottish Union & National Insurance Co. Ltd., 19 the 
Ontario Court of Appeal dealt with subrogation in relation to an insurance 
policy that provided for payment of medical benefits in the event of an 
accident. The Court held that the right of subrogation arises, unless 
expressly excluded, in every contract of indemnity insurance. And every 
contract of insurance is to be construed as a contract of indemnity, unless 
the terms of the agreement make it clear that the intention of the parties was 
not to enter into a contract of indemnity. 20 

The Court of Appeal in Glynn recognized that certain kinds of insur- 
ance, such as life insurance and some accident insurance, are not indemnity 
insurance, in that they provide for payment of a specific sum on the 
happening of a contingency, irrespective of whether pecuniary loss is 
sustained. 21 Subrogation does not arise from such non-indemnity insurance 
contracts unless expressly provided. Where, however, proof of loss, as well as 
the happening of the event, must be shown in order to recover under the 
policy, the contract is an indemnity contract, carrying with it the right of 
subrogation, unless subrogation is expressly excluded. 22 Moreover, a 
requirement of proof of loss will be implied in every contract of insurance, 
unless the terms of the agreement expressly indicate the contrary. 23 

The decision in Glynn makes it clear that the designation or title of an 
insurance policy is not determinative; rather, the terms of the contract, 
express or implied, must be considered in order to determine whether or not 



(subsequent references are to 45 O.R. (2d)), adopting (at 333) the following statement 
from National Fire Ins. Co. v. McLaren (1886), 12 O.R. 682 (Ch. Div.), at 687: 

The doctrine of subrogation is a creature of equity not founded on contract, but 
arising out of the relations of the parties. In cases of insurance where a third party is 
liable to make good the loss, the right of subrogation depends upon and is regulated 
by the broad underlying principle of securing full indemnity to the insured, on the 
one hand, and on the other of holding him accountable as trustee for any 
advantage he may obtain over and above compensation for his loss. Being an 
equitable right, it partakes of all the ordinary incidents of such rights, one of which 
is that in administering relief the Court will regard not so much the form as the 
substance of the transaction. The primary consideration is to see that the insured 
gets full compensation for the property destroyed and the expenses incurred in 
making good his loss. The next thing is to see that he holds any surplus for the 
benefit of the insurance company. 

18 See Parkington, O'Dowd, Leigh-Jones, and Longmore, supra, note 17. 

19 [1963] 2 O.R. 705, 40 D.L.R. (2d) 929 (subsequent references are to [1963] 2 O.R.). 

20 Ibid., at 711. 

21 Ibid., at 709-10. 

22 Ibid., at 713. 

23 Ibid., at 711. 



184 



it is indemnity insurance. It is arguable that many collateral benefits of a 
"quasi-insurance" nature— such as unemployment benefits, pensions and 
disability benefits— that have been characterized by the courts as 
"insurance" 24 and are intended to indemnify the injured person for a 
specific pecuniary loss, give rise to a right of subrogation exercisable by the 
source of that benefit, regardless of whether a right of subrogation has been 
expressly provided by contract or statute. 25 

The right of subrogation does not arise until the injured person has 
been fully indemnified for his total loss. 26 Accordingly, where, for example, 
a total loss of $2,000 is suffered, of which $1,000 represents lost wages for 
which the injured person has been indemnified by a collateral source, and 
the wrongdoer is able to pay only $1,500 of the total loss, the right of 
subrogation of the collateral source will not arise until the injured person has 
received at least $1,000 from the wrongdoer. 

There currently exists some doubt, however, concerning whether there 
is a right of subrogation where an injured person recovers a partial indem- 
nity from a collateral source and a partial indemnity from the wrongdoer 
that, in total, exceed the amount of the loss. 27 Nevertheless, a persuasive 
argument may be made that, on general principles of subrogation, an 
insurer should be entitled to be subrogated after the injured person has 
received a full indemnity, regardless of the source. 

Many statutory compensation schemes expressly provide for subroga- 
tion with respect to benefits paid. 28 Other statutory schemes provide that 



24 //?/</., at 715. 

25 See Cooper-Stephenson and Saunders, Personal Injury Damages in Canada (1981), at 
478-79, and 487. 

26 Ledingham v. Ontario Health Services Commission, [1975] 1 S.C.R. 332, 46 D.L.R. (3d) 
699. 

27 See Gibson v. Sun Life Assurance Co. of Canada, supra, note 17, at 338, where the Court 
stated as follows: 

The principle derived from these decisions is that the insured is required to 
account to the subrogated insurer for money received from third parties on 
account of the loss to the extent that the money received exceeds the amount 
required for full indemnity; but the insurer cannot assert a claim to recover money 
it has paid to the insured, or withhold future payments under the policy, until such 
time as the insured has received full indemnity from the tortfeasor. (Emphasis 
added) 

28 See, for example, Unemployment Insurance Act, 1971, S.C. 1970-71-72, c. 48, s. 51, as 
am. by S.C. 1974-75-76, c. 80, s. 19; Compensation for Victims of Crime Act, R.S.O. 
1980, c. 82, s. 26, as am. by S.0. 1986, c. 37, s. 5; Insurance Act , R.S.O. 1980, c. 218, ss. 
129, 231(5), and 242; and Health Insurance Act, R.S.O. 1980, c. 197, ss. 36-43. In the 
area of motor vehicle accidents, the Ontario Health Insurance Plan has agreed to accept 
an annual payment from the major insurance companies in lieu of subrogation rights. 
We are advised that the current annual payment is approximately $40-45 million. 



185 



benefits may be conditional upon the recipient giving a prior undertaking to 
reimburse the source in the event of recovery from the wrongdoer. 29 

(ii) Direction by the Court to Repay 

A second method of avoiding double recovery and overcompensation 
involves a direction by the court that a portion of damages attributable to a 
specific loss be held in trust and repaid to the third party source of the 
collateral benefit. A number of Canadian cases 30 have followed this 
approach, first taken by Lord Denning in the English case of Dennis v. 
London Passenger Transport Board} 1 In that case, an award of damages was 
made for a loss that had been covered by a collateral benefit, subject to a 
direction that the injured person pay over the moneys to the third party 
source of the benefit. 

However, it is unclear how broadly this approach would be applied by a 
court. Such a direction to pay appears to have been limited to circumstances 
where the injured person was under a moral, but not a legal, obligation to 
repay the benefit, and may be dependent on some prior voluntary undertak- 
ing to repay the donor. 32 There is some indication that, in the absence of 
such a prior agreement, a court nevertheless would award the amount of the 
loss, and leave the injured party and her benefactor to resolve the matter of 
reimbursement between themselves. 33 

Nevertheless, it has been suggested that the imposition of a direction to 
repay a collateral benefit may be considered an aspect of the indemnity 
doctrine of insurance law, whereby "subrogated rights are protected by the 
imposition of a trust". 34 Alternatively, it may be argued that the practice is 
defensible on the basis that a constructive trust arises in favour of the donor 
when the injured person recovers for the same loss from the wrongdoer. 35 
Either analysis might persuade a court to allow a broader application of this 
mechanism of repayment of collateral benefits. 



29 See, for example, R.R.0. 1980, Reg. 318, s. 10(1), made pursuant to the Family Benefits 
Act, R.S.O. 1980, c. 151; and R.R.O. 1980, Reg. 441, s. 4(1), made pursuant to the 
General Welfare Assistance Act, R.S.O. 1980, c. 188. 

30 Myers v. Hoffman, [1955] O.R. 965, 1 D.L.R. (2d) 272 (H.C.J.); Rawson v. Kasman, 
[1956] O.W.N. 359, 3 D.L.R. (2d) 376 (C.A.), varying [1955] O.W.N. 895 (H.C.J.); and 
Coderre v. Ethier (1978), 19 O.R. (2d) 503, 85 D.L.R. (3d) 621 (H.C.J.). 

31 [1948] 1 All E.R. 779 (K.B.). 

32 See Cooper-Stephenson and Saunders, supra, note 25, at 487-88. 

33 Boarelli v. Flannigan, supra, note 1, at 80. See, also, Donnelly v. Joyce, [1974] Q.B. 454, 
at 463-64, [1973] 3 All E.R. 475 (C.A.). 

34 Cooper-Stephenson and Saunders, supra, note 25, at 488. 

35 Ibid., n. 64. 



186 



(iii) Independent Cause of Action by the Source of Collateral 
Benefit 

Another method of avoiding double recovery for the same loss is to give 
the source of the collateral benefit a separate right of action against the 
wrongdoer to recover the amount paid to the injured person. As we have 
discussed, 36 an employer may have a common law cause of action, the actio 
per quod servitium ami sit, to recover lost wages and medical expenses paid 
to an injured employee. Similarly, as discussed above, 37 a claim may be 
made by a third party against the wrongdoer pursuant to section 61 of the 
Family Law Act, 1986, 38 for such items as out-of-pocket expenses reasona- 
bly incurred, or the value of nursing, housekeeping, and other services 
provided. 

Since many of the losses claimable by third parties in a separate action 
also may be claimed by the injured person, a possibility exists that the 
wrongdoer may be required to pay twice for the same loss. However, it 
appears that the courts have taken care to deny double recovery for the same 
loss by both the third party and the injured person in separate actions. 39 

3. THE CASE FOR REFORM 

(a) Arguments For and Against the No-Deduction 
Rule 

The current law in Ontario, which does not permit the deduction of 
collateral benefits from a damage award, has been severely criticized, on 
both theoretical and practical grounds, for overcompensating victims of tort 
injuries. Double recovery, it is said, is both wasteful and unjustifiable, and 
brings the tort system into disrepute. 

The no-deduction rule is most commonly defended on the ground that 
it is better that an injured person should be overcompensated than that a 
wrongdoer should benefit by reason of benevolence intended for the injured 
person, or by the providence of the injured person in purchasing insurance 
benefits. A related argument focuses on the injustice of depriving the 
injured person of benefits for which she has paid. 



36 Supra, ch. 2, sec. 9. 

Supra, ch. 2, sec. 2(c)(ii) and ch. 4, sec. 5. 

38 S.O. 1986, c. 4. 

39 See Nugent v. Board ofRosetown School Unit No. 43, [1977] 5 W.W.R. 224, 2 C.C.L.T. 
325 (Sask. C.A.); Greenwood v. Sparkle Janitor Service (1983), 43 B.C.L.R. 333, 145 
D.L.R. (3d) 711 (S.C.); and Chan v. Butcher (1984), 51 B.C.L.R. 337, 11 D.L.R. (4th) 233 
(C.A.). The exception is the possible double recovery of medical expenses by members 
of the Canadian Armed Services: see Attorney-General of Canada v. Szaniszlo (1985), 69 
B.C.L.R. 96, 25 D.L.R. (4th) 606 (S.C.). 



187 



Economic arguments are also advanced for imposing full liability on 
the wrongdoer. While there is some disagreement whether, in light of the 
widespread use of liability insurance, individual deterrence is achieved by 
the no-deduction rule, it is argued that an activity will be more or less 
popular according to its cost, and that the attribution to dangerous activities 
of their full cost may affect the extent to which they are pursued. 

It is further argued in support of the existing rule that, from a practical 
point of view, overcompensation is more apparent than real: due to theoreti- 
cal and practical shortcomings of the tort regime, it is said, even successful 
plaintiffs are not fully compensated for their losses, and the no-deduction 
rule helps to provide some "rough justice". 

As we have indicated, the main argument advanced against the rule 
precluding the deduction of collateral benefits is that it leads to double 
recovery and overcompensation. Critics point out that it is a fundamental 
principle of tort law that an injured person should be compensated for the 
full amount of his loss, but no more; an injured person should not be 
entitled to turn an injury into a "windfall". As a practical matter, double 
recovery is said to be wasteful of scarce resources, 40 a fact that is regarded as 
particularly objectionable when it is generally accepted that many accident 
victims are undercompensated, or not compensated at all. The problem of 
overcompensation is compounded by the fact that prejudgment interest 
must be paid on the entire judgment, including that portion of the loss for 
which the injured person has recovered twice. 

In response to the arguments in favour of the no-deduction rule, critics 
of the rule say that to focus on the alleged "benefit" to the wrongdoer is to 
misconstrue the essential goal of the tort system, that is, corrective justice: 
tort principles are intended to restore the injured person to the position she 
enjoyed prior to the injury, not to punish the wrongdoer whose "fault" may 
have consisted merely of a momentary inadvertence. 

The companion argument that the victim should not be deprived of 
benefits for which he has paid may also be criticized, at least so far as 
indemnity payments are concerned. In such cases, what the victim has paid 
for, loosely speaking, is insurance against specific losses. The insured obtains 
the security of coverage should the loss occur, and indemnity for the loss 
when it does occur. Where a tort victim receives indemnity from an 
alternative source, it may be argued that he obtains exactly what was paid 
for, unless the position is taken that what the victim paid for is the very 
prospect of double recovery. 



40 It is alleged that overcompensation encourages injured persons to remain absent from 
work longer than they otherwise might, which increases the perception of the serious- 
ness of their injuries, thereby magnifying damage awards: Insurance Bureau of Canada, 
Submission to the Ontario Law Reform Commission, Project on Compensation for 
Personal Injuries and Death (June, 1986), at 10. 



188 



A further argument that favours deduction of collateral benefits from 
an award of damages has been made from the perspective of loss distribu- 
tion and reallocation. This argument calls for a recognition that tort 
damages and collateral benefits, for the most part, are not paid by individu- 
als or isolated sources; rather, both sources of payment to the injured person 
are, in fact, "risk pools" or "risk communities", 41 comprising large sections 
of the public, which absorb the cost through insurance, or through the loss 
spreading processes of large-scale organizations. 

"Risk pools" are either third party or first party in nature. Third party 
"risk pools" are made up of all persons who participate in a risk-creating 
activity, such as driving a car, and who insure against damage they may 
cause to others through such activity. First party "risk pools" are composed 
of persons who have contributed to a scheme of insurance against losses to 
themselves; such risk pools may vary in size, from a limited number of 
persons, such as those who purchase private accident insurance, to a large 
portion of society, such as those who contribute to the unemployment 
insurance scheme, and may even include the entire taxpaying public, as in 
the case of publicly funded health care or welfare. 42 There is often a 
significant overlap between those persons who comprise the first party and 
third party risk pools from which an injured person may receive double 
recovery; for example, large numbers of the driving public who buy third 
party automobile insurance also contribute to the unemployment insurance 
scheme. 43 It has been argued that contributors to both such pools may 
justifiably object to the injured person obtaining recovery from both 
sources. Furthermore, it is not regarded as "axiomatic" that the third party 
risk pool should bear the burden of the loss in every case. 44 It has been 
argued that, particularly in the case of publicly provided benefits, such as 
health care or welfare, the first party risk pool should absorb the loss, by 
allowing the collateral benefit to be deducted. 

A number of reasons for this position have been advanced. 45 First, it is 
argued that the donor of such collateral benefits ordinarily will be in as good 
a position to spread the risk as the wrongdoer, and often will be in a better 
position. It is emphasized that statutory benefit schemes, in particular, are 
designed to spread such losses among the greatest number of contributors, 



41 Cooper-Stephenson and Saunders, supra, note 25, at 479. See, also, Conard, "The 
Economic Treatment of Automobile Injuries" (1964-65), 63 Mich. L. Rev. 279, at 311- 
12. 

42 Cooper-Stephenson and Saunders, supra, note 25, at 480. 

43 Conard, supra, note 41. 

44 Cooper-Stephenson and Saunders, supra, note 25, at 480. See, also, Friedmann, Law in 
a Changing Society (2d ed., 1972), at 183-84. 

45 These arguments are fully canvassed in Cooper-Stephenson, "A Collateral Benefits 
Principle" (1971), 49 Can. B. Rev. 501, at 521-33, and are summarized in Cooper- 
Stephenson and Saunders, supra, note 25, at 481-82. 



189 



often the taxpaying public at large. Secondly, it is argued that deduction of 
such benefits would avoid the costly and timeconsuming process of 
retransferring or readjusting the loss by the exercise of a recovery mechan- 
ism, such as subrogation, or a third party action by the donor of the benefit. 
Finally, it is said that a readjustment of the loss will be of little consequence 
to those who eventually pay; since most people contribute in one way or 
another to both the first and third party risk pools, any reshifting of the loss 
will be largely irrelevant. 

These arguments appear to have persuaded the Pearson Commission in 
England, which recommended that all social security benefits should be 
deducted from damage awards. 46 

(b) Deficiencies in Mechanisms for Avoiding Double 
Recovery 

In light of the various mechanisms for repayment of collateral benefits 
to their source, described above, it might be expected that incidences of 
double recovery would be rare, and not a matter of great concern. As we 
have discussed, 47 the right of subrogation is generally available wherever a 
payment in the nature of an indemnity for a specific pecuniary loss is made. 
Statutory subrogation rights are often provided with respect to publicly 
provided benefits. 48 Furthermore, third party donors who have made 
voluntary donations of a collateral benefit may seek a direction from the 
court for repayment, 49 or bring their own action against the wrongdoer to 
recover the value of services or donations made to the injured person. 50 

Nevertheless, for largely practical reasons, the current rule of no- 
deduction of collateral benefits continues to raise concerns about double 
recovery and overcompensation. Most significantly, we are advised that 
disability insurers and employers generally do not exercise their rights of 
subrogation. Most disability and accident insurers apparently regard the 
cost of establishing a system of subrogation to be unwarranted in light of the 
benefit that would be derived and, accordingly, prefer to absorb and spread 
the amounts paid to the insured through their own funding structure. 
Employers also regard the exercise of subrogation rights to be impractical 
and costly, particularly where recovery would be attempted months or years 
after providing the benefit. They often have no effective means of monitor- 
ing the progress of the injured person's claim, or of identifying what parts of 



46 United Kingdom, Royal Commission on Civil Liability and Compensation for Personal 
Injury, Report (Cmnd. 7054, 1978), Vol. I, paras. 277-80, at 68. 

47 Supra, this ch., sec. 2(b)(i). 

48 Ibid. 

49 Supra, this ch., sec. 2(b)(ii). 

50 Supra, this ch., sec. 2(bXiii). 



190 



a settlement represent lost wages. Furthermore, there is a reluctance on the 
part of employers to exercise such a right of recovery because of its possibly 
detrimental impact on employee relations. 

Similarly, where the collateral benefit has been given voluntarily, 
whether by an employer, friend or relative, there is often a natural reluctance 
to seek recovery from the injured person, although it may have been entirely 
reasonable for the donor to expect such reimbursement when the injured 
person obtained full compensation from the wrongdoer. Moreover, as we 
have said, 51 it is not entirely clear whether a court would make a direction to 
repay the collateral benefit in the absence of a prior voluntary agreement on 
the part of the injured person to reimburse the donor. 

4. CONCLUSIONS 

The Commission is of the view that fundamental principles of tort law 
require that, so far as reasonably possible, an injured person should be fully 
compensated, but should not recover doubly for the same pecuniary loss. 
We also believe that the goal of deterrence, as well as a general sense of 
justice and fairness, require that a wrongdoer should be held liable to pay the 
full amount of the loss caused by his negligent conduct. Despite allegations 
that the collateral source rule gives rise to significant overcompensation, 
there appears to be little empirical evidence to indicate the magnitude of 
such overcompensation, or the effect that the rule has on insurance 
premiums. 52 Nevertheless, it is apparent to us in light of the abovemen- 
tioned principles that, regardless of the actual extent of overcompensation, 
the optimal solution to the debate with respect to collateral benefits will lie 
in providing an efficient and inexpensive mechanism for repayment to its 
source of any amount that constitutes overcompensation for the same 
pecuniary loss. 

Before proceeding to our reform proposals, one important point should 
be clarified. We believe that the current no-deduction rule can be criticized 
only insofar as it allows for double recovery with respect to the same 
pecuniary loss. In our view, a collateral benefit, whether in the nature of 
insurance or a benevolent payment, that is not clearly duplicative of an item 



51 

52 



Supra, this ch., sec. 2(b)(ii). 

At the final stage of preparation of this Report, the Commission received some data 
from the preliminary results of a claims survey conducted for the Inquiry Into Motor 
Vehicle Accident Compensation in Ontario (the "Osborne Inquiry"). Although the 
survey suggests that some degree of overcompensation is taking place, the results are not 
yet final and we are reluctant to draw any firm conclusions from the available data. 
Nevertheless, we are persuaded that, across a range of possible empirical results, the 
solution that we have proposed— which provides a mechanism for avoiding double 
recovery and does not diminish the defendant's responsibility— is the appropriate 
response. 

We are grateful to the Osborne Inquiry for the information and assistance we have 
received in respect of the claims survey. 



191 



of damage or loss claimed by the injured person from the wrongdoer, cannot 
be said to constitute double recovery. A non-indemnity accident benefit that 
pays a specified sum upon proof of the event of an accident, but without 
proof of loss, cannot be regarded as duplicating recovery for a loss. Similarly, 
a gift to an injured person from a relative of a sum of money, not designated 
to relieve a particular loss, would not be in pari materia with any specific 
pecuniary claim by the injured person and, accordingly, in our view, cannot 
be considered, in theory or in fact, double recovery. 

It is where a collateral benefit is in the nature of an indemnity for a 
specific pecuniary loss that double recovery, and therefore overcompensa- 
tion, can be said to arise. It should be re-emphasized that requiring an 
injured person to repay an amount obtained over and above the actual loss 
for which she has been indemnified does not detract from the "benefit" for 
which she contracted; rather, as we have discussed, 53 the nature of an 
indemnity arrangement contemplates full compensation, with any amount 
paid in excess being subject to subrogation. While subrogation is the most 
common mechanism available for avoiding duplication of recovery of a loss 
for which the injured person has been indemnified by a collateral source, we 
have seen that this right generally has not been exercised by insurers or 
employers for a number of reasons, including the cost, inconvenience, and 
negative implications for employee relations of implementing an effective 
scheme of subrogation. 

As we have indicated, where the collateral source has made ex gratia 
payments, or gifts, to the injured person in order to allay specific losses or 
needs, such as wages or medical expenses, uncertainty may arise with 
respect to entitlement to repayment of such benefits. In our view, despite 
their voluntary nature, it is not unreasonable to assume that such a collat- 
eral source expects to be reimbursed eventually for such amounts, if the 
injured person is fully compensated by the wrongdoer. 

We have concluded that the process of subrogation, or reimbursement 
of the collateral source, will be facilitated, and the principle that the 
wrongdoer should pay the full amount of the loss will be maintained, by the 
following proposal. Where an injured person has received an indemnity, or 
an ex gratia payment, in respect of any specific pecuniary loss claimed from 
a wrongdoer, the damages in respect of that loss should be held in trust for 
the collateral source. 54 Moreover, the wrongdoer or his insurer should be 
entitled to make payment of such damages directly to the collateral source 
and should be entitled to receive a discharge of liability to the injured 
person, to the extent of such payment. Payment of such amount of damages 
should also include prejudgment interest on the amount. 55 



53 Supra, this ch., sec. 2(b)(i). 

54 See the draft Personal Injuries Compensation Act proposed by the Commission (herein- 
after referred to as "draft Compensation Act"), infra, Appendix 1, s. 14(l)(b). 

55 Ibid.,s. 14(l)(a). 



192 



As we have discussed, the right of subrogation currently does not arise 
until the injured person has been indemnified for his total loss. 56 We believe 
that the present law in this respect should not be altered. However, there is 
some uncertainty regarding the right of subrogation where there has been 
partial indemnity from a wrongdoer and partial indemnity from a collateral 
source that, cumulatively, exceed the full loss. 57 In our view, a collateral 
source should be entitled to be repaid after the injured person has received 
full indemnity, from any source. Accordingly, we have concluded that the 
recommendations proposed above should not apply until the injured person 
has been fully indemnified for her entire loss from any source or combina- 
tion of sources, and we so recommend. 58 

It may be argued that ex gratia payments from friends or employers, 
being in the nature of outright gifts, should not be subject to this proposal. 
However, we are of the view that, if the donor of such collateral benefits does 
not expect, or want, repayment, he would remain free, upon reimburse- 
ment, to remake the gift to the injured person. 

The Commission has also considered whether collateral benefits 
received from a public source, such as welfare or health care services, should 
be excepted from the general recommendation, and should be taken into 
account to reduce the liability of a wrongdoer for damages in respect of 
losses indemnified by the public source. The argument in favour of such a 
proposal is a practical one: it would eliminate the costs involved in recovery. 
Such costs are regarded as unwarranted, since recovery, in effect, merely 
transfers the loss from one source to another. It is argued that, since those 
persons who fund third party insurance sources are largely the taxpaying 
public, who also fund the public source, such a retransfer of the loss is 
wasteful and ultimately of benefit to no one. 

While the argument for deduction of publicly provided benefits has 
some attraction, we hesitate to embrace it at this time, for a number of 
reasons. For one thing, the proposal is, at least in theory, inconsistent with 
the deterrence objectives of tort law. For another, the desirability of transfer- 
ring to the entire taxpaying public the cost of an activity carried on by only a 
portion of the public may be questioned. The force of this objection 
depends, of course, on the extent of congruence between the two groups, 
which will vary from benefit to benefit, and from accident to accident. 



56 Supra, this ch., sec. 2(b)(i). 

57 Ibid. 



58 



Draft Compensation Act, s. 14(2). The Commission recognizes that its recommenda- 
tion permitting payment by the wrongdoer directly to the collateral source may affect 
settlement behaviour on the part of the wrongdoer, or her insurer, and the injured 
person. The latter might, for example, be persuaded to accept less than full indemnity 
with respect to a specific loss for which she has already received a collateral benefit in 
return for an agreement by the wrongdoer not to make the payment to the collateral 
source. Nevertheless, we consider that the advantages of our proposal outweigh any 
negative implications for the settlement process. 



193 



Finally, we do not have sufficient information to assess the cost savings to be 
achieved by permitting deduction of collateral benefits received from public 
sources. The Commission has no evidence to indicate the costs incurred as a 
result of transferring losses from one source, or "risk pool", to another, 
although it would appear that the Ontario Health Insurance Plan regarded 
the potential overall savings in administrative or "retransfer" costs signifi- 
cant enough to enter into an agreement with motor vehicle insurers to 
receive a direct payment based on a percentage of premiums in exchange for 
forgoing its statutory subrogation rights. Nor do we have information 
concerning amounts actually recovered by various public sources through 
the exercise of subrogation rights or pursuant to undertakings to repay, 
except, once again, in the area of motor vehicle accidents, where we know 
that the yearly payment to the Ontario Health Insurance Plan by the 
insurance industry is substantial. 59 

On balance, therefore, we have concluded that, without further study, 
no change should be made to the current law prohibiting the deduction of 
publicly funded benefits from damage awards. To the degree that such 
benefits constitute indemnities for specific pecuniary losses, they should be 
subject to the foregoing recommendations. At the same time, we would 
welcome detailed empirical analysis of public benefit programs to deter- 
mine whether, for any class of accidents, (for example, automobile, medical 
malpractice) the potential administrative cost savings to be obtained from 
abrogating the collateral benefits rule would outweigh the loss of deterrence 
inherent in establishing liability at less than the full social loss. 

It will be a question of fact in each case whether the collateral benefit is 
in pari materia with the damage claimed, and, accordingly, subject to the 
Commission's proposals. Certain kinds of benefit will be readily identifi- 
able as indemnity benefits; obvious examples would be private or public 
wage replacement benefits, including unemployment insurance and sick 
leave income supplements, or payments of medical expenses, such as 
private extended medical coverage. Other kinds of benefit would clearly not 
be indemnity payments; for example, retirement pension benefits contrib- 
uted to and earned as a part of employment, or disability benefits in the 
nature of non-indemnity accident or life insurance, 60 should not be encom- 
passed by our proposals. 

Finally, we would note that our recommendations are not intended to 
apply to collateral benefits that might be paid in the future. If the future 
collateral benefits are to be paid pursuant to a non-indemnity insurance 
contract, they are not encompassed by our recommendations. If such 
benefits are indemnity payments in respect of a specific loss, and the injured 
person has recovered for that same loss from the wrongdoer, the indemnity 



59 This payment is currently approximately $40-45 million: see supra, note 28. 

60 Canada Pension Plan death benefits were characterized as equivalent to life insurance 
benefits in Canadian Pacific Ltd. v. Gill, supra, note 15. 



194 



insurer is under no obligation to make any further payments in respect of 
that loss. 61 Double recovery with respect to future payments may be avoided 
simply by giving notice to the indemnity insurer that the loss has been fully 
paid. If the indemnity insurer nevertheless decides to continue making 
payments, such payments would be equivalent to a gift. 

The same holds true for a benevolent or ex gratia source of a collateral 
benefit. Our recommendations with respect to ex gratia payments assume 
that the donor would not have made the payments, or would have expected 
to recover the payments, if damages in respect of the loss had been paid by 
the wrongdoer. If notice of full payment of a specific loss is given to the 
benefactor, and she nevertheless continues to make payments, it may be 
assumed that such payments are intended as gifts. 

Recommendations 

The Commission makes the following recommendations: 

1. Where an injured person has received an indemnity, including an ex 
gratia payment, in respect of any specific pecuniary loss claimed from 
a wrongdoer, the damages in respect of that loss should be held in trust 
for the collateral source. 

2 . (1) The wrongdoer, or her insurer, should be entitled to make payment 

of such damages directly to the collateral source, and should be 
entitled to receive a discharge of liability to the extent of such 
payment. 

(2) Payment of damages to the collateral source should include pre- 
judgment interest. 

3. Recommendations 1 and 2 should not apply until the injured person 
has been fully indemnified for her entire loss from any source or 
combination of sources. 



61 



Parkington, O'Dowd, Leigh- Jones, and Longmore, supra, note 17, at 780. 



CHAPTER 7 



PREJUDGMENT INTEREST 



1. INTRODUCTION 

Considerable time can elapse between an accident and the final resolu- 
tion of a resulting personal injury claim. In the absence of prejudgment 
interest, this creates a natural advantage for the defendant, who has the use 
of the money pending disposition of the claim. The lapse of time can create 
difficulties for a plaintiff, who will usually suffer a loss of income, but who 
must nevertheless cover normal living costs as well as accident-related 
expenses. To meet such expenses, most injured persons must either draw on 
savings or borrow money, thereby incurring an additional loss, that is, the 
loss of interest on savings or the cost of interest on money borrowed. 

Most persons agree that some form of interest should be paid on losses 
incurred prior to judgment. There is disagreement, however, concerning the 
date from which interest should begin to accumulate and the rate of interest 
that should be paid. These issues form the subject matter of this chapter. 

2. THE PRESENT LAW 

At common law, a defendant was not required to pay interest on 
damages that had accrued to the time of trial. l This rule has been explained 
as reflecting the view that no debt was owed by the defendant until the court 
had decided in favour of the plaintiff. 2 It has also been attributed to the 
longstanding prejudice in Christian countries against usury. 3 

In Ontario, legislation was introduced in 1977 to provide for payment 
of prejudgment interest. 4 Section 138 of the Courts of Justice Act, 1984, 5 
which governs prejudgment interest, provides, in part, as follows: 



1 See Waddams, The Law of Damages (1983), para. 870, at 495-96. 

2 Bruce, Assessment of Personal Injury Damages (1985), at 209. 

3 McGregor, McGregor on Damages (14th ed., 1980), para. 447, at 328. 

4 The Judicature Amendment Act, 1977 (No. 2), S.O. 1977, c. 51, s. 3. 

5 S.O. 1984, c. 11. 

[195] 



196 



138.— (1) A person who is entitled to an order for the payment of money is 
entitled to claim and have included in the order an award of interest thereon at 
the prejudgment interest rate, calculated, 

(b) where the order is made on an unliquidated claim, from the date the 
person entitled gave notice in writing of his claim to the person liable 
therefor to the date of the order. 

(2) Where the order includes an amount for special damages, the interest 
calculated under subsection (1) shall be calculated on the balance of special 
damages incurred as totalled at the end of each six-month period following the 
notice in writing referred to in clause (l)(b) and at the date of the order. 

(3) Interest shall not be awarded under subsection (1): 

(a) on exemplary or punitive damages; 

(b) on interest accruing under this section; 

(c) on an award of costs in the proceeding; 

(d) on that part of the order that represents pecuniary loss arising after 
the date of the order and that is identified by a finding of the court; 

(e) where the order is made on consent, except by consent of the debtor; 
or 

(f) where interest is payable by a right other than under this section. 

An action for damages for personal injury is a claim for unliquidated 
damages. Under section 138(l)(b), therefore, the date from which prejudg- 
ment interest begins to run is the date that written notice of the claim is 
given. 

The whole of the pre-trial loss generally does not arise at one time; 
rather, it cumulates from the date of the injury until judgment. For example, 
where an injured person is not compensated for two years, he may have a 
total income loss of $30,000 prior to trial. However, the injured person 
would have received only a portion of that total amount on a weekly or 
monthly basis, and, accordingly, can only be considered to have suffered the 
loss of its use from the time each portion of the amount would have become 
due. In response to this problem, section 138(2) provides that interest is to be 
calculated on the balance of "special damages" incurred, as totalled at the 
end of each six-month period following written notice of the claim, and at 
the date of judgment. 

The term "special damages" is not defined by the Act. Furthermore, 
the term has no settled meaning in the law of damages. In personal injury 
cases, "special damages" generally refers to actual pecuniary losses incurred 
between the dates of the injury and the trial. 6 However, some uncertainty 



6 



Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229, 83 D.L.R. (3d) 452. See, also, 
Jefford v. Gee, [1970] 2 Q.B. 130, at 146, [1970] 1 All E.R. 1202 (C.A.) (subsequent 
references are to [1970] 1 All E.R.). 



197 



remains as to when damages will be considered "special", as opposed to 
"general", in nature. 7 

The rate of interest paid on pre-trial loss is established by section 
137(l)(d) of the Courts of Justice Act, 1984, which defines the prejudgment 
interest rate as follows: 

137.— (1) In this section and in sections 138 and 139, 

(d) 'prejudgment interest rate' means the bank rate! 8 ! at the end of the 
first day of the last month of the quarter preceding the quarter in 
which the proceeding was commenced, rounded to the next higher 
whole number where the bank rate includes a fraction, plus 1 per cent; 

The rate used when prejudgment interest was first introduced was not 
the "bank rate", but, rather, the "prime rate", 9 which is the rate at which the 
chartered banks lend to their best, or "prime", customers. 10 

Section 140 of the Act confers on the court a discretion with respect to 
the award of prejudgment interest, "having regard to changes in market 
interest rates, the circumstances of the case, the conduct of the proceeding or 
any other relevant consideration". The court in its discretion may disallow 
interest, or may allow interest at a higher or lower rate, or for a period other 
than that provided by section 138. Such variation may be made in respect of 
the whole or any part of the amount on which interest is payable under 
section 138. 

The current provision for prejudgment interest prohibits the award of 
compound interest. Section 138(3)(b) of the Act provides that "[i]nterest 
shall not be awarded under subsection (1). . .on interest accruing under this 
section". 

The same rate of prejudgment interest currently applies to both pre- 
trial pecuniary loss and non-pecuniary loss awarded at trial. In Borland v. 
Muttersbach, 11 the Ontario Court of Appeal upheld the lower court decision 



7 See discussion in Waddams, supra, note 1, paras. 857-61, at 488-91. 

8 Section 137(l)(a) of the Courts of Justice Act, 1984 defines "bank rate" as follows: 

(a) 'bank rate' means the bank rate established by the Bank of Canada as the 
minimum rate at which the Bank of Canada makes short-term advances to 
the chartered banks; 

9 The Judicature Amendment Act, 1977 (No. 2), supra, note 4, s. 3. 



10 



Apparently, the bank rate was adopted under the Courts of Justice Act, 1984 as a result of 
difficulties that had been encountered using the prime rate, arising from the fact that the 
Bank of Canada Review is not published until some time after the rates are set. The bank 
rate, on the other hand, can be determined immediately: Watson and Perkins (eds.), 
Holmested and Watson, Ontario Civil Procedure, Vol. 1, at CJA-158. 

(1985), 53 O.R. (2d) 129, 23 D.L.R. (4th) 664 (subsequent references are to 53 O.R. 
(2d)). 



198 



in which Barr J. awarded the same rate of prejudgment interest for both 
pecuniary and non-pecuniary loss. The issue had been addressed in an 
earlier case, Graham v. Persyko, 12 in which the Court had apparently 
accepted the argument that the rate of interest reflects not only compensa- 
tion for loss of the use of money, but also an allowance for the decline in the 
value of money, that is, an adjustment for inflation. Because non-pecuniary 
losses already are adjusted to reflect inflation to the date of trial, 13 Holland 
J., in Graham, reduced the rate of prejudgment interest on that portion of 
the damage award to 2.5 percent. 14 

In Borland v. Muttersbach, the trial judge rejected this argument 
explicitly. 15 The Ontario Court of Appeal upheld this decision on the ground 
that there was no evidence that the trial judge had erred. 16 The Court did not 
expressly consider the argument accepted by Holland J. in Graham. 



12 (1984), 27 D.L.R. (4th) 701, 30 C.C.L.T. 85 (Ont. H.C.J.), cross-appeal related to the 
issue of prejudgment interest allowed (1986), 27 D.L.R. (4th) 699 (C.A.), at 717 
(subsequent references are to 27 D.L.R. (4th)). 

13 In Lindal v. Lindal, [1981] 2 S.C.R. 629, at 643, 129 D.L.R. (3d) 263, the Supreme Court 
of Canada recognized that the $100,000 limit on non-pecuniary losses, established in 
Andrews v. Grand & Toy Alberta Ltd., supra, note 6, should be indexed for inflation 
occurring after January, 1978. 

14 Graham v. Persy ko, supra, note 12, at 715. 

15 (1984), 49 O.R. (2d) 165, at 187-88, 15 D.L.R. (4th) 486 (H.C.J.). The Court's reasons 
were as follows: 

The award of $170,000 will purchase no more goods and services than 
$100,000 in 1978. The plaintiff receiving $170,000 in 1984 is receiving the same 
compensation as the plaintiff receiving $100,000 in 1978 although expressed in 
different dollars. Whatever the award, the statute gives the plaintiff the prima facie 
right to receive prejudgment interest on it at the prime rate prevailing in the month 
before it was issued. A defendant who is prepared to forgo investment income may 
reduce or extinguish the plaintiff's claim for prejudgment interest by making an 
advance payment or payments. An insurer who wishes to invest the money at 
current high rates should not profit by having the benefit of such rates while being 
required only to pay a nominal rate of interest to the plaintiff. In my view, this 
would discourage advance payments, thereby adding to the distress of the victims 
and would be contrary to the policy reflected by s. 36. 

I am troubled too by the practical application of the Graham case. The 
context suggests that the trial judge there had in mind inflation occurring since the 
Trilogy. If inflation continues the upper limit, and presumably awards, will double 
in a matter of years if awards are adjusted for inflation. A case tried ten years hence 
will have an upper limit (assuming inflation at 7% per annum continuing) of 
$350,000, an increase of $250,000, an amount which will undoubtedly exceed the 
prejudgment interest accumulated after the statutory rate. To follow the Graham 
case would result in a refusal of prejudgment interest and, in effect, the abolition of 
prejudgment interest on non-pecuniary damages in such cases. 

I conclude that the fact of inflation is not a proper ground to deprive the 
plaintiffs of their prima facie right to receive prejudgment interest at the prime 
rate. 



16 



Supra, note 11, at 145-47. 



199 



3. THE LAW IN OTHER JURISDICTIONS 

(a) England 

While the courts in England were given the discretion to award pre- 
judgment interest on personal injury damages as early as 1934, 17 prejudg- 
ment interest was rarely granted until 1969, when legislation was amended 
to make such an award mandatory in respect of judgments over £200, in the 
absence of "special reasons why no interest should be given". 18 Under the 
English legislation, prejudgment interest accrues from the date when the 
cause of action arose, and the court has a discretion to award simple interest 
at such rate as it thinks fit, on the whole or any part of the damages, and for 
the whole or any part of that period. In Jefford v. Gee, 19 the Court of Appeal 
set out general guidelines with respect to the award of prejudgment interest, 
including the manner in which the discretion regarding the rate is to be 
exercised. The Court observed that the rate of prejudgment interest should 
reflect the earning capacity of the money during the time the plaintiff has 
been kept out of his money. The Court held that, in practice, a court should 
be guided by the rate payable on money in court that is placed on short-term 
investment account. 20 

The Court in Jefford v. Gee also dealt with the issue of special damages, 
which it defined as actual pre-trial pecuniary loss. 21 Unlike the position in 
Ontario, where special damages are cumulated at regular intervals until the 
date of trial, the Court held that special damages should earn interest at one- 
half the interest rate "determined to be appropriate", that is, one-half the 
rate paid on the short-term investment account established for payments 
into court. 22 The explanation for this rule is that this half-rate basis of 
calculation is "designed to provide a rough and ready but fair method of 
averaging out compensation for losses of earnings and out-of-pocket 
expenses which range over a period and comprise an aggregate of smaller, 
and often trifling, individual sums". 23 

In Jefford v. Gee, the Court of Appeal held that non-pecuniary losses 
should carry interest from the date of service of the writ to the date of trial. 24 



1 Law Reform (Miscellaneous Provisions) Act, 1934, c. 41 (U.K.), s. 3(1). 

18 Administration of Justice Act 1969, c. 58 (U.K.), s. 22. See, now, Supreme Court Act 
1981, c. 54 (U.K.), s. 35A, as en. by Administration of Justice Act 1982, c. 53 (U.K.), 
s. 15. 

19 Supra, note 6, at 1206. 

20 Ibid., at 1210 and 1212. 

21 Ibid., at 1208. 

22 Ibid., at 1212. 

23 England, The Law Commission, Law of Contract: Report on Interest, Law Com. No. 88 
(1978), at 33. 

24 Supra, note 6, at 1209 and 1212. 



200 



This rule was subsequently altered by the Court of Appeal in Cookson v. 
Knowles 25 where it was held that no interest should be awarded on non- 
pecuniary losses. The English Law Commission also took the view that no 
interest should be awarded on such losses. The rationale given by the 
Commission was that, since these losses are calculated in dollar values as of 
the date of trial rather than injury, the injured person has already "gained" 
by the increase in the award due to inflation, and ought not to have interest 
as well. 26 

The Royal Commission on Civil Liability and Compensation for 
Personal Injury (the "Pearson Commission") took a similar position with 
respect to damages for non-pecuniary loss, but for slightly different 
reasons: 27 

[W]e agree. . .that no interest should be awarded on non-pecuniary damages. 
As we have pointed out elsewhere, in present economic conditions an investor 
may well be unable to do more than maintain the real value of his investment, 
once tax and inflation are taken into account, if indeed he can manage to do 
this. To award no interest on non-pecuniary damages may therefore be at least 
as favourable as the award of interest at a market rate on damages for past 
pecuniary loss. A more important justification, however, lies in the conven- 
tional nature of non-pecuniary damages. We do not think that it would be 
appropriate to subject essentially arbitrary figures to detailed financial calcula- 
tions. 

This position was subsequently rejected by the House of Lords in 
Pickett v. British Rail Engineering Ltd., 28 where the Court held that interest 
should be awarded on damages for non-pecuniary loss, in order to "com- 
pensate for being kept out of that real value" of money. However, the Court 
did not say anything in that case about the appropriate rate that should be 
allowed. 

In Wright v. British Railways Board, 29 the House of Lords accepted two 
percent as the real rate of interest after accounting for inflation. This rate 
was not fixed, however, but constituted a guideline that might be subject to 
revision in the event of fresh economic evidence. 



25 [1977] 1 Q.B. 913, [1977] 3 W.L.R. 279. 

26 England, The Law Commission, Report on Personal Injury Litigation— Assessment of 
Damages Law Com. No. 56 (1973), at 74. 

27 United Kingdom, Royal Commission on Civil Liability and Compensation for Personal 
Injury, Report (Cmnd. 7054, 1978) (hereinafter referred to as the "Pearson Report"), 
Vol. 1, para. 747, at 162. 

28 [1980] A.C. 136, at 151, [1979] 1 All E.R. 774. 

29 [1983] 2 A.C. 733, at 784-85, [1983] 2 All E.R. 698. The 2% real rate was first adopted by 
the English Court of Appeal in Birkett v. Hayes, [1982] 1 W.L.R. 816, [1982] 2 All E.R. 
710 (subsequent references are to [1982] 1 W.L.R.), where Lord Denning observed, at 



821: 



[T]he plaintiff in 1981 received £30,000. I can see no possible justification for 
giving her interest on that inflated figure for the 4 2/3 years. . .she was not kept out 
of £30,000 for those 4 2/3 years. She was only kept out of £20,000. 



201 



(b) Canada 

(i) General 

All Canadian common-law provinces, except Saskatchewan, 30 have 
passed legislation that provides for the award of prejudgment interest in 
personal injury actions. 31 With the exception of Ontario, those provinces 
that have provided for the award of prejudgment interest have specified that 
interest accrues from the date upon which the cause of action arose. As in 
England, all prejudgment interest provisions in Canada use mandatory 
language, providing that the Court shall award prejudgment interest. How- 
ever, in each of those provinces that have provided for prejudgment interest 
in personal injury actions, except British Columbia, the court has a discre- 
tion, if the circumstances warrant, to refuse to award prejudgment interest, 
or to award such rate of interest as the court considers appropriate. 32 

As a number of reform issues relating to prejudgment interest have 
been considered recently by the British Columbia Law Reform 
Commission, 33 it will be useful to consider the law in that jurisdiction in 
more detail. 

(ii) British Columbia 

British Columbia was the first Canadian jurisdiction to provide for the 
award of prejudgment interest on personal injury awards. 34 As is the case in 
most other Canadian jurisdictions, prejudgment interest is calculated from 
the date on which the cause of action arose to the date of the order, and the 
award of prejudgment interest is mandatory. However, unlike the position 
elsewhere in Canada, the court in British Columbia has no discretion to 



30 Section 46 of the Saskatchewan Queen's Bench Act, R.S.S. 1978, c. Q-l, provides as 
follows: 

46. Interest is payable in all cases in which it is now payable by law or in which 
it has been usual for a jury to allow it. 

In Lamont v. Pederson (1981), 7 Sask. R. 18, at 32, [1981] 2 W.W.R. 24, the Saskatchewan 
Court of Appeal disallowed a claim for prejudgment interest in a personal injury action, 
stating that "[s]ince damages have to be assessed and are not generally payable until they 
have been determined by a court, it has not been the practice of this jurisdiction to allow 
interest before judgment". 

31 The Judgment Interest Act, S.A. 1984, c. J-0.5, s. 2; Court Order Interest Act, R.S.B.C. 
1979, c. 76, s. 1; The Judgment Interest and Discount Act , S.M. 1986, c. 39, s. 13(4)(1); 
Judicature Act, R.S.N.B. 1973, c. J-2, s. 45; The Judgment Interest Act, S.N. 1983, c. 81, 
ss. 3-4; Judicature Act, S.N.S. 1972, c. 2, s. 38, as am. by S.N.S. 1980, c. 55, s. 1; and 
Judicature Act, R.S.P.E.1. 1974, c. J-3, s. 33, as am. by S.P.E.I. 1982, c. 13, s. 1. 

32 See statutory provisions cited supra, note 31. 

33 Law Reform Commission of British Columbia, Report on the Court Order Interest Act, 
L.R.C. 90 (1987) (hereinafter referred to as "B.C. Report"). 

34 Prejudgment Interest Act, S.B.C. 1974, c. 65. 



202 



deny interest to a successful litigant. The rate of interest awarded is, on the 
other hand, discretionary in part: section 1(1) of the Court Order Interest Act 
provides that the rate should be such as "the court considers appropriate in 
the circumstances", although "the rate shall not be less than the rate that 
applies to interest on a judgment under the Interest Act (Canada)". 35 The 
current minimum rate is five percent. 

As in Ontario, calculation of interest that accrues during the prejudg- 
ment period on "special damages" is made at six month intervals. 36 The 
term "special damages" is not defined. The British Columbia legislation 
also prohibits the award of compound interest. 37 

In its 1987 Report, 38 the British Columbia Law Reform Commission 
recommended that prejudgment interest should continue to be mandatory, 
and should be awarded based on a non-discretionary fixed rate established 
by statute. 39 Under this proposal, the only discretion available to the court 
would arise with respect to cases in which foreign interest rates are in issue. 40 

In determining the appropriate rate of prejudgment interest, the British 
Columbia Commission considered both the bank rate and the "prime" rate; 
the latter rate was defined as the rate charged on prime interest loans. The 
British Columbia Commission opted for the prime rate because, in its view, 
that rate responds quickly to changes in the marketplace and to inflation. 41 
The Commission was further influenced in its choice by the fact that, in 
British Columbia, the rate payable on funds in court, and on default 
judgments, has been set by reference to the prime rate charged by that 
province's banker. 42 

The British Columbia Commission recommended that prejudgment 
interest should be compounded, because compounding "reflects more 
accurately the operation of the marketplace and more fully and accurately 
measures the cost of delay to the successful plaintiff". 43 



35 Court Order Interest Act, supra, note 31, s. 1(1). 

36 Ibid., s. 1(2). 

37 Ibid., s. 2(c). 

38 Supra, note 33. 

39 Ibid., at 26. 

40 Ibid. 

41 Ibid., at 30-31. 

42 Ibid. 

43 Ibid., at 31. The Commission was satisfied that any difficulties in calculation would be 
addressed by the operation of the "multiplier" mechanism that had been proposed in its 
Report for the calculation of prejudgment interest. 



203 



The Commission recognized that use of the undefined term "special 
damages" had resulted in uncertainty. Accordingly, the Commission recom- 
mended that the term "special damages" should be replaced by the term 
"past pecuniary loss" to describe pecuniary loss arising before judgment. 44 

On the issue of non-pecuniary loss, the British Columbia Commission 
accepted the argument that the full award of prejudgment interest would 
result in double compensation for loss due to inflation. Pointing out that 
non-pecuniary losses are adjusted for inflation to the date of trial, the 
Commission stated as follows: 45 

To the extent that prejudgment interest attempts to compensate the plaintiff for 
loss of value of money, an award of prejudgment interest at market rates will 
compensate the plaintiff twice over for the loss of value of money— once when 
the principal value of the judgment is calculated, and again when interest is 
added to it. 

Accordingly, the Commission recommended that interest on non- 
pecuniary loss should be awarded at a "real rate" of return, which was 
defined as the actual recovery of interest in times of stable currency. The 
Commission chose as the appropriate real rate 3.5 percent, which is the 
discount rate established by the Chief Justice of the Supreme Court under 
section 51(3)(b) of the Law and Equity Act . 46 

4. CONCLUSIONS 



(a) General 

Two different rationales may be advanced for an award of prejudgment 
interest. The first is a compensatory rationale that characterizes prejudg- 
ment interest as but one aspect of the primary goal of the tort system, that is, 
corrective justice through full compensation of the injured person for losses 
caused by the wrongdoer. From this perspective, an injured person is 
entitled to recompense for her loss as of the date of the injury, or as her losses 
arise, until the date of the resolution of the claim. If prompt payment had 
been made, the injured person would have been able to invest the moneys, 
or to avoid the cost of borrowing to cover expenses. Prejudgment interest is 
intended to compensate for the distinct loss that arises as a result of the 
injured person being kept out of that money. The compensatory purpose of 
prejudgment interest was recognized very early in the context of admiralty 
law, in the following statement by Dr. Lushington: 47 



44 Ibid., at 54. 

45 Ibid., at 61. 

46 R.S.B.C. 1979, c. 224, as am. by S.B.C. 1981, c. 10, s. 30. 

47 TheAmalia (1864), 5 New Rep., at 164«. 



204 



Interest is not given by reason of indemnification for the loss, for the loss was 
the damage which had accrued, but interest was given for this reason, namely, 
that the loss was not paid at the proper time. If a man is kept out of his money it 
is a loss in the common sense of the word, but of a totally different description 
and clearly to be distinguished from a loss which has occurred by damage done 
at the moment of a collision. 

The compensatory rationale is not dependent on any notion of wrong- 
ful withholding or delay in payment by the defendant. Nor is the award of 
prejudgment interest intended to punish a wrongdoer. Indeed, since proof of 
loss by the injured person is a necessary element of the operation of the tort 
system, it is often entirely reasonable that payment by the wrongdoer should 
be delayed. The compensatory rationale simply recognizes that, without an 
award of prejudgment interest, the injured person would be undercompen- 
sated. 

The alternative rationale offered for awards of prejudgment interest is 
that such awards are intended to encourage expeditious resolution of claims 
and proceedings. In the absence of prejudgment interest, a wrongdoer has an 
obvious, and often significant, incentive to delay payment to the injured 
person, in order to have the benefit of the continued use of the money. 
Accordingly, from the perspective of the settlement rationale, prejudgment 
interest is imposed as an incentive to achieve a quick resolution of the claim 
or action by, in effect, penalizing the defendant for delay. 

The Commission recognizes that expeditious settlement of personal 
injury claims is an important goal that should be fostered. In our view, the 
ideal prejudgment interest rules should be neutral with respect to settlement 
behaviour, in the sense that such rules should operate in such a way that 
neither the injured person nor the wrongdoer can benefit from delaying 
settlement or resolution of the action. However, we reiterate our belief, 
expressed throughout this Report, that the goal of full compensation of the 
injured person should remain the paramount concern of the tort system. To 
the degree that there exists any tension between the goal of expeditious 
settlement and that of full compensation, compensation should take prece- 
dence. 

This position has guided the policy choices embodied in the recom- 
mendations that follow. However, we are satisfied that the reforms proposed 
address the overall concerns that have been expressed with respect to the 
current operation of the prejudgment interest rules, and satisfy, to a large 
measure, the goals of both settlement and compensation. 

(b) Time Period During Which Prejudgment Interest 
Accrues 



As we have discussed, prejudgment interest currently begins to run 
from the date upon which written notice of a claim is given by the injured 
person to the wrongdoer. This rule was probably originally designed to 



205 



induce timely claims on the part of the injured person, and is consistent with 
the goal of expeditious settlement or resolution of the action. Nevertheless, 
the time period is subject to criticism from both the settlement and compen- 
sation perspectives. 

From the point of view of compensation, the existing rule may be said 
to be unsatisfactory because it fails to compensate the injured person for the 
period between the date the loss was incurred and the date when written 
notice of the claim is given. The goal of full compensation requires that 
prejudgment interest be calculated from the date upon which the cause of 
action arose. 

The Canadian Bar Association— Ontario ("C.B.A.O."), on the other 
hand, has proposed a change in the current rule that is clearly intended to 
encourage more expeditious resolution of claims. The Association has urged 
that prejudgment interest should not begin to accrue until a defendant can 
be reasonably expected to make payment of the claim. 48 The C.B.A.O. 
suggests that the appropriate time from which interest should run is the date 
upon which the injured person offers to submit to medical examination, 
since it is only then that the defendant has the information upon which to 
assess the validity of the claim. 

As we have said, the Commission recognizes that wrongdoers and their 
insurers have a legitimate interest in avoiding undue delay in the resolution 
of claims. However, we are of the view that sacrificing full compensation in 
order to promote prompt settlement is unfair to the injured person, and 
contrary to the primary aim of tort law. 

It may be entirely reasonable for an injured person to delay in making a 
claim; some injuries, for instance, can be slow in manifesting themselves. In 
the meantime, the wrongdoer or the insurance company has the use of the 
money. An injured person who unreasonably delays settlement or litigation 
may be penalized by use of other available mechanisms, including costs 
penalties and the exercise of the court's discretion with respect to the award 
of prejudgment interest. Occasional undue delay by some injured persons 
should not deprive the majority of claimants of the fair and proper measure 
of compensation. 

We are not alone in this view. As discussed, 49 England, and all Canadian 
provinces that have provided for prejudgment interest awards in personal 
injury actions, have chosen the date upon which the cause of action arose as 
the relevant starting point for accrual of such interest. 



48 See Canadian Bar Association— Ontario, Committee to Review Problems in the Casu- 
alty Insurance Industry, Submission to the Ontario Task Force on Liability Insurance 
(April, 1986), at 10. 



49 



Supra, this ch., sec. 3. 



206 



For the reasons given above, we recommend that section 135(1) of the 
Courts of Justice Act, 1984 50 should be amended to provide that prejudg- 
ment interest should accrue from the date upon which the cause of action 



arises. 



51 



(c) Rate of Interest on Pre-Trial Pecuniary Loss 

As discussed, the rate of prejudgment interest currently awarded is the 
bank rate prevailing on "the first day of the last month of the quarter 
preceding the quarter" in which the action was commenced, rounded to the 
next higher whole number where the bank rate includes a fraction, plus one 
percent. This choice of prejudgment interest rate raises a number of issues. 

The first relates to the date upon which the rate itself is established. A 
significant period of time, sometimes several years, can elapse from the date 
of the injury until the trial or settlement of an action. Interest rates can 
fluctuate widely during that period of time. Fixing the interest rate as of the 
last month prior to the quarter in which the action is commenced can lead to 
anomalies that, in turn, may affect settlement behaviour. Where interest 
rates fall after the action is commenced, the injured person has an incentive 
to delay in order to obtain the beneficial interest rate on the amount due. 
Conversely, where interest rates have risen, the wrongdoer may benefit from 
delay and the investment of the amount payable at a higher interest rate. 

It has been suggested that a more precise award of damages, more 
accurately reflecting the injured person's actual loss, would be obtained by a 
revision of the interest rate at regular intervals during the period in which 
prejudgment interest is payable. We agree with this position. In order to 
reflect more closely changes in interest rates generally, we recommend that 
the prejudgment interest rate should be adjusted on a quarterly basis. 52 

The current choice of prejudgment interest rate, one percent above the 
bank rate, rounded up to the next highest percentage point, has been 
criticized. The current rate is approximately the same as that charged to 
corporate borrowers. Because the interest rate charged to other, non- 
corporate borrowers is generally higher, the current prejudgment rate may 
not fully compensate some injured persons who must borrow to meet 
expenses. 

On the other hand, the wrongdoer or insurer would almost certainly 
earn less than the current prejudgment rate on short-term investments prior 
to judgment; an insurer would probably earn about two percent less than 



50 Supra, note 5. 

51 See the draft Courts of Justice Amendment Act proposed by the Commission (hereinaf- 
ter referred to as "draft CJA Act"), infra, Appendix 2, s. 3(1). 

52 Ibid. 



207 



that rate. Moreover, the current prejudgment interest rate is generally higher 
than the rate of return that can be earned by individuals on short-term 
investments, so that some injured persons who have not borrowed may be 
overcompensated. 

It has been argued that injured persons do not generally borrow money, 
and that awarding a rate higher than they might otherwise earn encourages 
delay. It is also pointed out that, where an injured person is forced to borrow, 
the cost of such borrowing can be proved at trial, and awarded by the court 
as an aspect of special damages, or through the exercise of the court's 
discretion under section 140 of the Courts of Justice Act, 1984 to depart from 
the usual rate. 

On balance, we believe that, subject to the recommendation that 
follows, the appropriate prejudgment interest rate should be the average 
bank rate for each quarter, and we so recommend. 53 

It has also been suggested that the current prejudgment interest rate 
formula, which rounds a fractional rate up to the next percentage point, may 
increase unduly the amount of prejudgment interest payable to an injured 
person. The purpose of rounding up is apparently to simplify calculations. 
However, such an increase can represent a large amount of money over time 
and can result in significant overcompensation: a bank rate of 9.1 percent 
would be rounded up to ten percent, an increase of almost a full percentage 
point. 

This seems difficult to support. Fairness requires a more precise 
calculation of the loss to the injured person, which could be achieved by 
rounding the bank rate, either up or down, to the nearest tenth of a 
percentage point. We so recommend. 54 

(d) Compound Interest 

As discussed, existing prejudgment interest provisions prohibit the 
award of interest on interest, that is, compound interest. This prohibition 
may reflect a concern that compound interest involves complex calcula- 
tions that can result in practical difficulties. 55 However, it has been strongly 
argued that the prohibition against awarding compound interest can result 
in significant undercompensation. If the injured person had been promptly 
paid, the money could have earned compound interest. While the defendant 
holds the money, compound interest may be earned. The difference 



53 Ibid., s. 2. 

54 Ibid. 

55 This appears to be the view taken by the English Law Commission, which opted to 
retain simple, rather than compound, interest: supra, note 23, at 45-47. See, also, Sun 
Alliance Insurance Co. v. Alvin Keenan Ltd. (1985), 32 A.C.W.S. 254 (N.B.C.A.). 



208 



between simple and compound interest can be significant. For example, if 
the prejudgment interest rate were ten percent, denial of compounding 
would reduce the effective rate to 9.1 percent on a three year debt. 

We share the view expressed by the British Columbia Law Reform 
Commission that compounding prejudgment interest more accurately 
reflects the operation of the marketplace and the cost of delay to the injured 
person. 56 The calculation of compound interest has been simplified immea- 
surably by computerization and there would appear to be no reason to deny 
this method of ensuring full compensation. Accordingly, we recommend 
that prejudgment interest should be compounded, with quarterly 
calculations. 57 

(e) Interest on Non-Pecuniary Loss 

As discussed, prejudgment interest is awarded at the same rate for both 
pecuniary and non-pecuniary losses. This practice has been criticized on the 
ground that it overcompensates the injured person. The $100,000 limit on 
non-pecuniary loss established by the Supreme Court of Canada is adjusted 
for inflation from the date of injury to the date of trial. Because commercial 
interest rates comprise not only an amount reflecting the "real rate" of 
interest, but also an amount reflecting the loss of the value of money over 
time, an award of prejudgment interest at the full prejudgment interest rate, 
in effect, allows double recovery in respect of the loss due to inflation. 

The argument for a reduction of the current rate of prejudgment 
interest awarded on non-pecuniary losses seems to us compelling. There 
appears to be no good reason why an injured person should be doubly 
compensated for inflation. A person who, in 1978, suffers a non-pecuniary 
loss for which the maximum of $100,000 in non-pecuniary damages would 
be awarded, but who is not compensated until 1987, will receive almost 
$200,000. To paraphrase Lord Denning in Birkett v. Hayes, 5 * that person 
was not kept out of $200,000 for nine years; she was only kept out of 
$100,000. We agree with the position taken by Holland J. in Graham v. 
Persyko, 59 the House of Lords in Wright v. British Railways Board, 60 the 
Province of Alberta, 61 and the British Columbia Law Reform 
Commission, 62 that prejudgment interest should be awarded only for that 
component that represents the "real rate" of interest. 



56 B.C. Report, supra, note 33, at 31, discussed supra, this ch., sec. 3(b)(ii). 

57 Draft CJA Act, s. 3(1). 

58 Supra, note 29. 

59 Supra, note 12. 

60 Supra, note 29. 

61 Section 4(1) of the Alberta Judgment Interest Act, supra, note 31, provides that interest 
on non-pecuniary damages shall be calculated at the rate of 4% per year. 

62 B.C. Report, supra, note 33, at 64. 



209 



In taking this position, the Commission accepts that some awards— 
particularly awards for less serious injuries— may not be adjusted for 
inflation with the same degree of precision as maximum awards, which are 
directly referable to $100,000 in 1978. However, it is our view that this 
concern can be addressed through careful submissions by counsel, who can 
alert the courts to the assumption underlying the reduced interest rate, that 
is, that all awards have been properly adjusted for inflation. We fully expect 
that the courts will, over time, come to make the appropriate adjustments as 
a matter of general practice. 

As to the appropriate "real rate", in Graham v. Persyko, 63 the Court 
awarded an interest rate of 2.5 percent for damages for non-pecuniary loss. 
This is the same rate used for discounting future losses. 64 On balance, this 
would appear to be a fair choice. Accordingly, a majority of the Commission 
recommends 65 that prejudgment interest should be awarded on damages for 
non-pecuniary loss at the rate specified in the Rules of Civil Procedure, 
from time to time, in respect of the discount rate, which, at present, would 
be 2.5 percent. 66 

(0 Special Damages 

As discussed, the term "special damages" is undefined by the Courts of 
Justice Act, 1984, and its meaning is uncertain at common law. Such 
uncertainty is unnecessary. Accordingly, we recommend that section 138(2) 
of the Courts of Justice Act, 1984 should be amended by replacing the term 
"special damages" with the term "past pecuniary loss". 67 

(g) Scope of Recommendations 

Despite the limited scope of the present project, the foregoing recom- 
mendations in respect of prejudgment interest are not restricted to cases of 
personal injury or wrongful death. There seems to be no plausible argument 
for a distinction, on these questions, between different kinds of cases in 
which damages are awarded, and it would appear to be introducing an 
anomaly to set up such a distinction. 

5. STATEMENT OF DISSENT AND EXPLANATION BY EARL A. 
CHERNIAK, Q.C. 

I am unable to agree with the recommendation of my fellow Commis- 
sioners that prejudgment interest on non-pecuniary general damages 

63 Supra, note 12, at 715. 

64 Rules of Civil Procedure, O. Reg. 560/84, r. 53.09. 

65 One of the Commissioners, Mr. Earl A. Cherniak, Q.C, dissents from this recommen- 
dation: see infra, this ch., sec. 5. 

66 Draft CJA Act, s.3(la). 

67 Ibid., s. 3(2). 



210 



should accrue only at the rate of 2.5 percent, rather than the rate applicable 
to all other awards for past damages. 

As we point out in the Report, the existing jurisprudence in Ontario 
combined with the statutory authority allows full prejudgment simple 
interest on non-pecuniary general damages. The cases which so held were 
fully argued and the present law represents the considered judgment of the 
Ontario Court of Appeal. 

The basis advanced for the recommendation of the majority of the 
Commission is the proposition that non-pecuniary awards have already 
been adjusted for inflation by the Courts, and, therefore, the awarding of 
interest at a rate which contains an inflationary component amounts to 
double recovery. 

This criticism, to the extent that it has validity, is true only of awards at 
the very top end of the range, since the maximum non-pecuniary award is 
adjusted regularly for inflation, as laid down by the Supreme Court of 
Canada in Lindal. There is no evidence to support the proposition that 
other awards, especially in the middle and low ranges, are being similarly 
adjusted. Judges do not mentally calculate what an award would have been 
in 1978 and add an inflation factor, nor can most awards be categorized so 
that such a comparison could be made. Personal injury awards are case 
specific and not injury specific. The same injury may affect different 
individuals quite differently. The Court must consider not only the injury, 
but also the particular evidence brought before it in the individual case. 
Judges have been warned repeatedly by Appellate Courts that there is not a 
sliding scale of awards between zero and the maximum. Factors which may 
have contributed to an award in 1978 may well have changed in such a way 
as to make a 1987 comparison inappropriate. Advances in medicine in 
many areas have dramatically changed the prognosis for many injuries. 
Even in those areas where there is thought to be some degree of uniformity, 
the "typical" flexion extension injury, it is far from clear, for instance, that 
the $10,000 case in 1983 has been adjusted upwards by inflation. The 
experience of most counsel who practise in the area is to the contrary. There 
is certainly no jurisprudence to indicate that trial judges consciously make 
any such adjustment. 

In these circumstances, restricting prejudgment interest to 2.5 percent 
is a retrograde step. In those cases where non-pecuniary damages are the 
largest part of the claim, such a provision will be a disincentive to defen- 
dants to settle, since a defendant can earn far greater interest on her money 
or an insurer on its reserve by delaying payment as long as possible. This 
disincentive and the resulting injustice to plaintiffs was the primary reason 
why prejudgment interest reform came about in the first place, and one of 
the principal reasons why the Court in Borland rejected the double recovery 
argument. 

A defendant who is concerned about double recovery and wishes to 
avoid it, always has the option of estimating the non-pecuniary damages 



211 



and prepaying them, thus stopping both the interest and the inflation clock 
running as of the date of the payment, to the extent that there has been a 
realistic estimate of the damages. The estimate is especially easy in cases 
which call for the maximum award, where the money is usually also most 
needed, for these cases are often readily identifiable. 

Even in the case of the maximum award, the double recovery argument 
is not necessarily valid. It was pointed out to the Court of Appeal in Borland 
that the plaintiff, had she been paid the maximum award to which she was 
held to be entitled as it was on the date of the accident, could have used the 
money to purchase a residence (a common and wise use of such funds for 
disabled persons), lived rent free, and obtained the benefits of inflation by 
virtue of the appreciation in value of the property. 

These factors have persuaded me that no case for reform has been made 
out. 

I do, however, recognize that there is a perception, particularlyamong 
insurers, that there is double recovery, and that my fellow Commissioners 
have found this argument persuasive. In addition, the recommendation to 
change the prejudgment interest rule to mandate compound interest is long 
overdue and I fully support it. 

There is a middle ground that would, if adopted, for all practical 
purposes eliminate the risk of double recovery, and yet not create the 
potential for injustice that a blanket 2.5 percent rate creates. While I 
recognize that the formula that I propose is not a perfect solution, I believe 
that it achieves a greater measure of rough justice, and allows for more 
flexibility than the current recommendation. 

As I have pointed out, we do not know, and there is no empirical 
evidence to indicate whether, and if so which, awards, if any, other than the 
maximum award, are being adjusted for inflation. We do know, however, 
that any award in excess of $100,000 must contain an inflation component 
of at least the amount in excess of $100,000. We also know from practical 
experience that small awards for less serious injuries have not increased, or 
at least not significantly increased, since 1978, so that an award of interest at 
less than the full rate in these cases will result in undercompensation unless 
judges consciously make an effort to adjust these awards for inflation. 

The formula that I propose is not novel. In part, it was used by 
Montgomery J. in De Champlain v. Etobicoke General Hospital (1985), 34 
C.C.L.T. 89. 

If there is to be any change, I propose that prejudgment interest for non- 
pecuniary damages should be awarded on a maximum award at the rate of 
2.5 percent. For all other awards, prejudgment interest should be calculated: 

-at the full rate on the first $100,000; 



212 



—at 2.5 percent on any amount that exceeds $100,000; and 

—provided that no award should exceed the maximum award for non- 
pecuniary loss (including prejudgment interest at 2.5 percent) that 
could have been awarded for the same period of time. 

With this formula, there is still a risk of double compensation for inflation 
on some awards, but this can be avoided if the Court takes the inflation and 
interest factors into account in setting the awards, and is preferable to 
undercompensation with respect to other cases, particularly in the lower 
and middle ranges which comprise the vast majority of awards. The use of 
the 2.5 percent rate on amounts over $100,000 will eliminate any possibility 
of serious overcompensation. 

In summary, in my view the case for change is not made out. To the 
extent that others are convinced that a case for reform has been made, a 
reduced interest rate should be applicable only to that part of a non- 
pecuniary award over $100,000. 

Recommendations 

The Commission makes the following recommendations: 

1. Section 138(1) of the Courts of Justice Act, 1984 should be amended to 
provide that prejudgment interest should run from the date upon 
which the cause of action arises. 

2. Prejudgment interest rates should be set quarterly. 

3. The rate of prejudgment interest should be equal to the average bank 
rate for each quarter, rounded to the nearest one-tenth of a percentage 
point. 

4. Prejudgment interest should be compounded, with quarterly calcula- 
tions. 

*5. Prejudgment interest should be awarded on damages for non-pecuni- 
ary loss at the rate specified in the Rules of Civil Procedure, from time 
to time, in respect of the discount rate, which, at present, would be 2.5 
percent. 

6. Section 138(2) of the Courts of Justice Act, 1984 should be amended by 
replacing the term "special damages" with the term "past pecuniary 
loss". 



* One of the Commissioners, Mr. Earl A. Cherniak, Q.C., dissents from this recommen- 
dation: see supra, this ch., sec. 5. 



CHAPTER 8 



MISCELLANEOUS ISSUES 



In this chapter, we shall consider three matters that affect the assess- 
ment of damages: the impact of so-called "contingencies"; the application of 
the discount rate; and the award of a management fee. 

1. CONTINGENCIES 



(a) The Present Law 

In assessing damages for personal injury, courts are required to make 
necessarily speculative predictions about what the injured person would 
have done if the injury had not occurred and about the future needs of that 
person as a result of the injury. For example, in order to assess the value of 
the injured person's earning capacity, the court must assess the chances that 
he would have been promoted, or that he would have acquired improved 
skills so as to increase his income. In order to assess damages for cost of 
future care, other predictions must be made with respect to the nature and 
level of care that the injured person will require. 

It has been the practice of courts to make adjustments in personal 
injury damage awards for what are referred to as "contingencies". In so 
doing, courts have recognized that predictions regarding future income and 
future cost of care are, in essence, best guesses, and that account must also be 
taken of the "ordinary vicissitudes of life", such as illness or interruptions in 
employment, that may not be predictable with respect to a particular 
individual, but that generally affect most people from time to time. 

The principle of adjusting personal injury damage awards for contin- 
gencies was articulated in Phillips v. London and South Western Railway 
Co., 1 where Brett L.J. stated: 

As to compensation for money loss for the time to come, supposing there had 
been no accident, there are a thousand circumstances which might have 
prevented the plaintiff from earning a fixed income. He would be subject to the 

ordinary vicissitudes of trade No doubt the jury are wrong if they do not 

consider those circumstances as upon the doctrine of chances. You cannot give 
evidence of them, and a [j]udge can only leave it at large to the jury, telling them 
that these circumstances and possible chances must be taken into account — 



1 (1879), 49 LJ. Q.B. 233, at 237, [1874-80] All E.R. 1176 (C.A.). 

[213] 



214 



I agree that it is a wrong direction to tell the jury that the proved income is the 
basis, in the sense that it is the only basis of compensation. 

The practice of adjusting for contingencies was confirmed by the 
Supreme Court of Canada in McKay v. Board of Gov an School, Unit No. 29 
of Saskatchewan? where the Court approved the following instructions that 
had been given to the jury with respect to contingencies: 3 "damages must 
take into consideration, in varying degrees according to the circumstances, 
the many contingencies of life, its misfortunes as well as its good fortunes". 4 

The practice, in effect until recently, of assessing damages globally 

discouraged precision in quantifying the effect of contingencies. 5 However, 

' since the Supreme Court of Canada judgment in Andrews v. Grand & Toy 

Alberta Ltd., 6 which endorsed the itemization of damage awards, the courts 

have given more careful consideration to the issue of contingencies. 

In Andrews, Dickson J., as he then was, observed that "[t]his whole 
question of contingencies is fraught with difficulties, for it is in large 
measure pure speculation", 7 and that "[t]he figure used to take account of 
contingencies is obviously an arbitrary one". 8 Nevertheless, in Andrews and 
in Thornton v. Board of School Trustees of School District No. 57 (Prince 
George), 9 the practice of adjusting for contingencies was reaffirmed, and 
guidelines were established for assessing such contingencies. 

Dickson J. emphasized that an adjustment for contingencies is not 
mandatory; 10 rather, the adjustment will depend on the facts of the individ- 
ual case, with particular reference to the nature of both the injury and the 
occupation, as well as the age, of the injured person. 11 

Although courts had almost invariably made adjustments only with 
respect to adverse contingencies, the Court in Andrews pointed out that 



2 McKay v. Board of Govan School, Unit No. 29 of Saskatchewan, [1968] S.C.R. 589, 68 
D.L.R. (2d) 519 (subsequent references are to 68 D.L.R. (2d)). 

3 Ibid., at 527. 

4 Ibid., quoting Warren v. King, [1964] 1 W.L.R. 1, [1963] 3 All E.R. 521 (C.A.). 

5 Cooper-Stephenson and Saunders, Personal Injury Damages in Canada (1981), 
at 47-48. 

6 Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229, 83 D.L.R. (3d) 452 
(subsequent references are to 83 D.L.R. (3d)). 

7 Ibid., at 46S. 

8 Ibid., at 470. 

9 Thornton v. Board of School Trustees of School District No. 57 (Prince George), [1978] 
2 S.C.R. 267, 83 D.L.R. (3d) 480 (subsequent references are to 83 D.L.R. (3d)). 

10 Ibid., at 489. 

11 Andrews v. Grand & Toy Alberta Ltd., supra, note 6, at 470, and Thornton v. Board of 
School Trustees of School District No. 57 (Prince George), supra, note 9, at 489. 



215 



"not all contingencies are adverse". 12 Dickson J. referred with approval to a 
decision of the High Court of Australia in which it had been asked rhetori- 
cally: "Why count the possible buffets and ignore the rewards of fortune?" 13 
In that case, the Australian High Court had also observed that each case 
depends on its own facts and that in some cases "it may seem that the chance 
of good fortune might have balanced or even outweighed the risk of bad". 14 

The Ontario Court of Appeal took a similar view in the third case of the 
personal injury "trilogy", Arnold v. Teno, 15 where it refused to discount the 
award for contingencies with respect to future care. Zuber J.A. observed 
that, in that case, there was "[a] real possibility of extra expenses for special 
recreation, special education, transportation, special clothing, extra vaca- 
tion costs. . .and in countless small matters", and held that "the contingen- 
cies tending to increase damages are sufficient to outweigh the 
contingencies which would diminish damages, and lead to a moderate 
increase". 16 The Supreme Court of Canada in Arnold v. Teno left the issue of 
contingencies undisturbed. 17 

The Court held that, since damages are to be itemized, rather than 
assessed globally, contingencies should be calculated separately for loss of 
earning capacity and for future care. As to loss of earning capacity, Dickson 
J. stated that a court should consider particularly the nature of the injured 
person's occupation or the industry in which she is employed, in order to 
determine the likelihood of such events as layoffs, unemployment, and 
injuries. 18 He suggested, however, that generally the percentage deduction 
with respect to loss of future earnings will be small. 19 

With respect to future care, the Court in Thornton explained that 
contingencies of this kind are distinct from those that might affect future 
earnings, in that contingencies for future care relate essentially to the 
duration of the expense. 20 Dickson J. noted, for example, with respect to 



12 Supra, note 6, at 470. 

13 Bresatz v. Prizibilla (1962), 108 C.L.R. 541 (H.C.), at 544, quoted in Andrews v. Grand & 
Toy Alberta Ltd., supra, note 6, at 470. 

14 Bresatz v. Prizibilla, supra, note 13. 

15 Arnold v. Teno (1976), 11 O.R. (2d) 585, 67 D.L.R. (3d) 9 (C.A.) (subsequent references 
are to 67 D.L.R. (3d)). 

16 Ibid., at 30. 

17 Arnold v. Teno, [1978] 2 S.C.R. 287, 83 D.L.R. (3d) 609 (subsequent references are to 83 
D.L.R. (3d)). 

18 Andrews v. Grand & Toy Alberta Ltd., supra, note 6, at 470, and Thornton v. Board of 
School Trustees of School District No. 57 (Prince George), supra, note 9, at 489. 

19 Andrews v. Grand & Toy Alberta Ltd., supra, note 6, at 470, referring to Prevett, 
"Actuarial Assessment of Damages: The Thalidomide Case— I" (1972), 35 Mod. L. Rev. 
140, at 150. 

20 Supra, note 9, at 488. 



216 



home care, that "the duration of such care may be affected by such 
contingencies as difficulty in staffing a self-contained establishment or the 
need to enter hospital for special treatment". 21 

In Andrews, Dickson J. expressed regret about the lack of evidence 
upon which to determine contingencies in that case, and observed that 
"[contingencies are susceptible to more exact calculation than is usually 
apparent in the cases". 22 He clearly encouraged the use of actuarial evidence 
at trial in order to obtain some degree of specificity. 23 

The Court in Andrews cautioned that, in order to ensure full compen- 
sation, care must be taken in assessing the appropriate contingencies not to 
duplicate reductions that have already been made in the original assessment 
of either future earnings or future care. Dickson J. pointed out, for example, 
that "contingencies implicitly are already contained in an assessment of the 
projected average level of earnings of the injured person, for one must 
assume that this figure is a projection with respect to the real world of work, 
vicissitudes and all". 24 Similarly, since account is taken of decreased life 
expectancy in the original assessment of future care, damages should not be 
discounted again for this factor when contingencies for future care are being 
determined. 25 

As a final qualification with respect to adjustments for contingencies, 
the Court observed that "there are many public and private schemes which 
cushion the individual against adverse contingencies", 26 presumably refer- 
ring to the wide availability of such benefits as unemployment insurance, 
sick pay, and disability pensions. 

(b) Conclusions 

The practice of discounting for contingencies gives rise to two concerns. 
First, it is said that the deduction appears arbitrary and results in excessive 



21 Ibid. 

22 Supra, note 6, at 470. 

23 Ibid., at 470, referring to Traversi, "Actuaries and the Courts" (1956), 29 Austl. L.J. 557. 

24 Supra, note 6, at 470. 

25 Ibid., at 467. In McErlean v. Sarel, unreported (September 19, 1987), the Ontario Court 
of Appeal found that the plaintiff would require cost of care based on a standard of 
home care for twenty years, but that circumstances would mandate institutional care for 
the balance of his life. Specific evidence was introduced with respect to the reduced cost 
of institutional care that would be required after 20 years. The Court pointed out, at 
pages 58-59, that this adjustment was, in effect, an adjustment for contingencies, which 
could have been made alternatively by deducting a percentage of an award for future 
care that contemplated home care for the plaintiff's entire life. The Court regarded the 
more specific calculation of damages to be less arbitrary in the circumstances of the 
case. 

26 Andrews v. Grand & Toy Alberta Ltd., supra, note 6, at 470. 



217 



reductions of damage awards: critics point out that, in both Andrews 21 and 
Thornton, 1 * deductions for contingencies of twenty percent with respect to 
future earnings were left undisturbed— a particularly bleak prediction when 
one considers that this represents the equivalent of one day per week of a 
person's working life. Secondly, there exists the possibility of conflict with, or 
duplication of, reductions that have already been made in the original 
assessment. 

There is some evidence that tends to support the first concern. A 
number of statistical studies have indicated that the appropriate deduction 
for contingencies with respect to income loss is far lower than those that 
have been commonly applied. A study of the Australian statistics concludes 
as follows: 29 

[T]he maximum possible allowance in the average case of a man in regular 
employment for contingencies other than death causing loss of income appears 
to be no more than 6 per cent, being about 3.5 per cent for unemployment and 
2.5 per cent for the other contingencies. 

An analysis of the English statistics suggests a range of two to six percent. 30 
This has been followed by a suggestion of the English Law Commission that 
a range of two to four percent should be adopted. 31 In Canada, one 
commentator has suggested, based on higher Canadian unemployment 
rates, that approximately eight percent (5.5 percent unemployment and 2.3 
percent sickness) would be appropriate. 32 

Undoubtedly, part of the difficulty experienced by the courts in calcu- 
lating contingencies has been caused by the insufficiency, or complete 
absence, of evidence with respect to such matters. In Andrews, however, 
Dickson J. clearly welcomed the use by the Court of statistical and actuarial 
evidence on questions of contingencies, stating that this is an area to which 
such evidence is particularly suited. 

In light of this statement by the Supreme Court of the relevance of 
statistical and actuarial evidence, it is clear that evidence of this sort can, and 
should, be called in order to avoid excessive deductions for contingencies. 
Because of the sensitivity of such evidence to changes in the economy and 



27 Supra, note 6. 

28 Supra, note 9. 

29 Luntz, Assessment of Damages for Personal Injury and Death (2d ed., 1983), para. 
6.4.15, at 300. See, also, Traversi, supra, note 23, at 561, concluding that 2% would be an 
accurate deduction. 

30 Street, Principles of the Law of Damages (1962), at 120-25. 

31 England, The Law Commission, Personal Injury Litigation— Assessment of Damages, 
Working Paper No. 27 (1970), Appendix B, para. 27. 

32 Bruce, "The Calculation of Foregone Lifetime Earnings: Three Decisions of the 
Supreme Court of Canada" (1979), 5 Can. Pub. Policy 155, at 158-60. 



218 



progress in medical knowledge, and because contingencies depend on the 
facts of the particular case, we believe that it would be inappropriate to 
legislate a particular percentage deduction to be applied in all cases. In our 
view, a degree of flexibility is necessary, which legislation cannot provide. 

As to the concern about inconsistent and duplicative deductions for 
contingencies, it has been suggested that this danger would be reduced by 
requiring the court to specify precisely the contingency that is contem- 
plated, and the evidence upon which it is based, at the time that losses are 
itemized and assessed, rather than making a general reduction at the end of 
the calculation. Again, we are of the view that legislation to this effect is 
unnecessary and would probably not alter the result in most cases. In light of 
the clear cautionary note raised by Dickson J. in Andrews, 33 we expect that 
the courts are alive to the possibility of discounting doubly for contingen- 
cies. In our view, careful submissions by counsel in this regard will be more 
effective than a statutory direction to the court, which would be difficult to 
draft and might have unanticipated side effects. 

In conclusion, while the issue of contingencies is a difficult one involv- 
ing, of necessity, an element of arbitrariness, 34 we are of the view that the 
guidelines and cautions issued by the Supreme Court of Canada clearly 
afford the courts sufficient direction and flexibility to arrive at a more 
precise and fair assessment of the appropriate deduction for contingencies in 
each case than had previously been possible. In our view, the responsibility 
lies with counsel to ensure that sound statistical and actuarial evidence, 
based on the facts of each case, is introduced with respect to contingencies, 
including the effect of such factors as disability or unemployment schemes 
to which the tort victim would otherwise have contributed, and which might 
have cushioned him from life's "vicissitudes". Moreover, it is incumbent on 
counsel to assist the courts so that double discounting for contingencies may 
be avoided. 

2. DISCOUNT RATE 

In an earlier chapter, 35 we rejected the introduction of a system of 
periodic payments, and recommended continuation of the requirement 
that damages be awarded in the form of a lump sum, except where all the 
affected parties consent. 36 The practice of awarding damages for future 
pecuniary loss as a lump sum, whether as compensation for loss of earning 
capacity or cost of care, involves the determination of the present value of 
the future flow of payments necessary to compensate that loss. 



33 Supra, note 6, at 470. 

34 See the statement of Dickson J. in Andrews v. Grand & Toy Alberta Ltd., ibid., quoted 
supra, text accompanying note 8. 

35 Supra, ch. 5, sec. 4. 



36 Courts of Justice Act, 1984, S.0. 1984, c. 11, s. 129. 



219 



In determining the present value of future losses, it would be inappro- 
priate for a court simply to assess the plaintiff's annual loss and multiply it 
by the number of years during which the loss will be suffered. Since the 
plaintiff will receive the award in respect of the future losses immediately, 
and will earn interest on it, 37 the amount must be discounted. Otherwise, 
the plaintiff will be overcompensated at the expense of the defendant. 

In the absence of inflation, the present value of the future payments 
could be calculated easily by discounting the award by the actual amount of 
interest the plaintiff could be expected to receive by investing the award, an 
amount known as the "nominal interest rate". However, inflation is an 
economic reality, and this complicates the determination of the discount 
rate. 

The need to take account of inflation, which has been clearly recog- 
nized by the Supreme Court of Canada, 38 arises from the fact that the 
nominal interest rate paid by a borrower not only involves payment of 
interest for use of the money— known as the "real interest rate"— but 
incorporates an element of payment to account for the expected decline in 
the value of money over the period of the loan. 39 Accordingly, if the expected 
inflation rate over one year is five percent, the nominal interest rate for a 
one year term will be approximately five percent plus whatever the market 
determines as the appropriate "rent" for the use of the money. Assuming 
that the latter is three percent, the prevailing nominal interest rate would be 
approximately eight percent. 

If the nominal rate were used to discount damage awards, however, 
plaintiffs would receive no protection from inflation, and inevitably would 
be undercompensated. While a plaintiff would be able to invest the award at 
eight percent, five percent of that return would be designed to compensate 
for the effect of inflation, and would not represent a gain in real terms. 40 



37 In calculating the lump sum required to compensate the plaintiff for a future stream of 
payments, it is commonly assumed that the plaintiff will invest the money so that it 
earns income. Consequently, the objective is to provide a sum that, when invested, will 
produce an annual blended payment, composed partly of interest and partly of capital, 
and that will be exhausted at the end of the period for which compensation is given. 
Where there is a so-called "self-extinguishing fund" compensating loss over a long 
period, the annual payments will be composed mostly of interest in the early years, and 
will consist mostly of capital towards the end of the period. If the plaintiff were awarded 
a sum that would yield income every year equal to the amounts required to compensate 
the loss, the plaintiff would be left with a lump sum at the end of the period. 

38 Andrews v. Grand & Toy Alberta Ltd., supra, note 6, and Lewis v. Todd, [1980] 2 S.C.R. 
694, 115 D.L.R. (3d) 257 (subsequent references are to [1980] 2 S.C.R.). 

39 Without an increment in the interest rate to account for anticipated inflation, a lender 
would not be assured of receiving back a principal amount worth the same in real terms 
as at the time the loan was made. 

40 The undiscounted award is based on the plaintiff's future losses valued in real terms as 
of the date of trial. For example, suppose that a court determines that over the coming 
year the plaintiff should be compensated for a loss of $10,000 in real terms, that is, 



220 



There are two theoretically correct ways of determining the appropriate 
discount rate to apply to the award. Either one can increase the award of 
damages to ensure that the amount of the flow of future payments increases 
commensurately with the rate of inflation and then discount it by the 
nominal rate of interest, or one can calculate the value of the future losses 
without reference to the impact of inflation on the value of those losses, and 
then discount by the real rate of interest. 

As we have indicated, the Supreme Court of Canada has decided that, 
in order to avoid undercompensation, account should be taken of future 
inflation in determining the discount rate to be applied to an award of 
damages. In Andrews v. Grand & Toy Alberta Ltd., 41 Dickson J. held that the 
discount rate should be the real rate of interest, which is to be calculated by 
subtracting the projected long-term rate of inflation from the present 
nominal rate of return on long-term investments. In Andrews, the evidence 
indicated that "high quality long-term investments" were yielding a rate of 
return in excess often percent and that a forecast of the rate of inflation over 
the long term was 3.5 percent. Mr. Justice Dickson thus used a discount rate 
of seven percent to determine the present value of the award for loss of 
earnings and for future care. He did not attempt to establish that a discount 
rate of seven percent should be used as a general rule, but said that "[t]he 
result in future cases will depend upon the evidence adduced in those 
cases". 42 The same discount rate was applied by the Supreme Court of 
Canada in Arnold v. Teno 43 and Thornton v. Board of School Trustees of 
School District No. 5 7 (Prince George) 44 While there was an initial tendency 
among some lower courts to consider themselves bound by the seven 
percent discount rate, 45 the Supreme Court of Canada subsequently reaf- 
firmed that the selection of a discount rate is a question of fact that is to be 
determined on the evidence presented at trial. 46 

enough to buy what $10,000 would buy at the time of trial. If the plaintiff is awarded 
$10,000 less the prevailing nominal interest rate of 8%, or $9,200, and invests it at 8%, 
she will receive approximately $10,000 at the end of one year. However, if the rate of 
inflation during that year is 5%, this ultimate amount of $10,000 will buy goods and 
services worth only $9,500 in real terms at the end of the year. The plaintiff will have 
thus been undercompensated. This occurs because the undiscounted award assessing 
the value of the plaintiff's future loss has not been increased to account for inflation, but 
is being reduced by a discount figure that includes the rate of inflation, rather than by an 
amount that reflects only the real rate of return that the plaintiff can expect from 
investing the award. 

41 Supra, note 6. 

42 Ibid., at 474. 

43 Supra, note 17. 
Supra, note 9. 



44 
45 



See, for example, Conklin v. Smith, [1978] 2 S.C.R. 1107, 88 D.L.R. (3d) 317; Trizec 
Equities Ltd. v. Guy (1978), 85 D.L.R. (3d) 634, 40 A.P.R. 1 (N.S.S.C, App. Div), rev'd 
[1979] 2 S.C.R. 756, 99 D.L.R. (3d) 243; and Lewis v. Todd (1978), 5 C.C.L.T. 167 (Ont. 
C.A.), rev'd Lewis v. Todd, supra, note 38. 

46 Lewis v. Todd, supra, note 38, at 709. Dickson J. commented as follows (at 710-11): 



221 



The approach that has been adopted by the Supreme Court of Canada 
may usefully be compared to that followed in England and Australia. In 
England, the method of discounting lump sum awards to arrive at present 
value is to reduce the "multiplier", that is, the number of years by which the 
plaintiff's anticipated annual loss is multiplied. Leaving aside the impact of 
inflation, this method should not produce an amount different than that 
produced by simply reducing the total award by the nominal rate of 
interest. 47 With respect to inflation, English courts, although acknowledging 
the problem caused by the prospect of inflation, have traditionally been 
more skeptical about their ability to estimate future trends so that inflation 
can accurately be taken into account. 48 Their initial response, exemplified 
by the decision of Diplock L.J., as he then was, in Fletcher v. Autocar and 
Transporters Ltd., 49 was to ignore inflation. In the last twenty years, 
however, both the English courts and Lord Diplock have refined their 
approach. It is now accepted that inflation cannot simply be disregarded. 50 
The approach that has been adopted avoids the difficulty of trying to predict 
future trends in inflation. Usually referred to as the "Diplock approach", it 
was articulated by Lord Diplock in Mallett v. McMonagle 51 as follows: 52 

[T]he only practicable course for courts to adopt in assessing damages awarded 
under the Fatal Accidents Acts is to leave out of account the risk of further 
inflation, on the one hand, and high interest rates which reflect the fear of it and 
capital appreciation of property and equities which are the consequence of it, 
on the other hand. 

Thus, the impact of inflation is not to be explicitly calculated: in determin- 
ing the present value of the lump sum damage award, courts are to use not 
the prevailing interest rates, which "reflect the fear" of inflation, but 
"interest rates appropriate to times of stable currency such as 4 per cent to 5 
per cent". 53 This approach was subsequently reaffirmed by the House of 
Lords. 54 



I know of no authority by which this Court, if so minded, could legislate a fixed 

discount rate, applicable for all cases The principle remains that, absent 

legislation . . . which directs the manner of calculating discount rate . . . the dis- 
count rate will vary according to the expert testimony led at trial. 

47 Waddams, The Law of Damages (1983), paras. 421-23, at 246-48. 

48 See, for example, Young v. Percival, [1975] 1 W.L.R. 17, [1974] 3 All E.R. 677 (C.A.). 

49 Fletcher v. Autocar and Transporters Ltd., [1968] 2 Q.B. 322, at 348, [1968] 1 All E.R. 
726 (C.A.). 

50 Taylor v. O'Connor, [1971] A.C. 115, at 129-130, [1970] 1 All E.R. 365 (H.L.). 

51 Mallett v. McMonagle, [1970] A.C. 166, [1969] 2 All E.R. 178 (H.L.) (subsequent 
references are to [1970] A.C). 

52 Ibid., at 176. 

53 Ibid. 

54 Lim Poh Choo v. Camden and Islington Area Health Authority , [1980] A.C. 174, [1979] 3 
W.L.R. 44 (H.L.), and Cookson v. Knowles, [1979] A.C. 556, [1978] 2 W.L.R. 978 (H.L.). 



222 



This approach is not very different from that, outlined above, of 
calculating the real rate of interest in order to discount the award to present 
value. It has been suggested, however, that rather than interest rates in times 
of stability, Lord Diplock should have used rates when inflation is zero. 55 
This would result in a discount rate of closer to three percent. This criticism 
seems to be confirmed by a report issued under the auspices of the British 
Government Actuary's Department, 56 which recommended a discount rate 
of between 2.5 to 3.5 percent, based on the interest available on Index- 
Linked Government Stocks, the redemption value and dividends of which 
are adjusted from time to time so as to maintain the real value of the stock in 
the face of inflation. 57 

In Australia, courts shared the English doubt about their ability to 
predict future trends in inflation accurately so that inflation could be taken 
into account directly. 58 In fact, for several years after inflation began 
accelerating in the mid-1970's, many courts used prevailing interest rates to 
discount the award to present value. Although certain courts had adopted 
the "Diplock approach" at an early stage, 59 it was not until 1981 that it was 
authoritatively recognized by the High Court of Australia that some adjust- 
ment had to be made to the discount rate in order to take account of 
inflation. 60 However, in that case, a majority of the Court could not agree on 
what discount rate should be applied. The resulting confusion was ended by 
Todorovic v. Waller, in which the High Court fixed the discount rate at three 
percent, and held that no further allowance was to be made for inflation. 61 

The approach to the discount rate that was adopted by the Supreme 
Court of Canada in Andrews v. Grand & Toy Alberta Ltd. required the 
presentation, in every case, of expert evidence concerning inflationary 
trends and interest rates. This increased the cost of litigation for the parties, 
and led to a certain degree of inconsistency. Moreover, the determination 



55 Rea, "Inflation, Taxation and Damage Assessment" (1980), 58 Can. B. Rev. 280, at 285. 

56 Working Party of Government Actuary's Department, Personal Injury and Fatal 
Accident Cases (1984), reprinted in part in (1984), 134 New L.J. 454. 

57 However, in Spiers v. Halliday, Times, London (June 30, 1984), it was held that this 
report was not admissible in evidence. 

58 See, for example, O'Brien v. McKean (1968), 118 C.L.R. 540 (H.C.), and Barrell 
Insurances Pty. Ltd. v. Pennant Hills Restaurants Pty. Ltd. (1981), 145 C.L.R. 625, 34 
A.L.R. 162 (H.C.). For a detailed discussion of the discount rate issue in Australia, see 
Luntz, supra, note 29, sec. 7.4, at 326-39. 

59 See, for example, Lindsley v. Hawkins, [1973] 2 N.S.W.L.R. 581 (C.A.), var'd (1974), 4 
A.L.R. 697 (H.C.). 

60 Barrell Insurances Pty. Ltd. v. Pennant Hills Restaurants Pty. Ltd., supra, note 58. 

61 (1981), 150 C.L.R. 402, 37 A.L.R. 481 (H.C.). This rate was also intended by the Court to 
take account of the tax that would have to be paid on the damage award, an adjustment 
necessitated by the Australian courts' adoption of the Gourley rule: see discussion 
supra, ch. 2, sec. 7(a). In Queensland, a 5% discount rate was prescribed by the Common 
Law Practice and Limitation of Actions Amendment Act, 1981, No. 87 of 1981, s. 5. 



223 



was inherently wasteful, for there were no facts peculiar to individual cases 
to be determined in setting the discount rate. Indeed, there was a general 
consensus among economists that there was a more or less fixed gap 
between the anticipated nominal rate of interest and the anticipated rate of 
inflation over the long term, based on historical data with respect to past 
performance. 62 

Among the provinces and territories, several jurisdictions, including 
Ontario, responded to the problem of unnecessary transaction costs by 
legislating a discount rate. In 1980, Ontario became the first jurisdiction to 
specify a discount rate. Following study by a special committee, 63 the 
Supreme Court of Ontario Rules of Practice were amended by a rule 
providing for a discount rate of 2.5 percent. 64 The current version of this 
rule appears in the Rules of Civil Procedure as follows: 65 

53.09 The discount rate to be used in determining the amount of an award 
in respect of future pecuniary damages, to the extent that it reflects the 
difference between estimated investment and price inflation rates, is 2 1/2 per 
cent per year. 

This rule was intended to reflect the difference between the nominal rate of 
interest on long-term investments and the predicted rate of future 
inflation. 66 

Certain other jurisdictions also have chosen a legislative response to the 
discount rate problem. In New Brunswick 67 and Nova Scotia, 68 a discount 
rate of 2.5 percent has been fixed by the respective court rules in precisely 
the same terms as the present Ontario rule; in Saskatchewan, the Queen's 
Bench Rules have fixed a rate of three percent, "[e]xcept where there is 
evidence to the contrary". 69 In 1981, a discount rate of 2.5 percent was fixed 



62 See, for example, Rea, supra, note 55, at 283. 

63 See Report to the Committee of the Supreme Court of Ontario on Fixing Capitalization 
Rates in Damage Actions (February 14, 1980) (hereinafter referred to as "Committee 
Report"). 

64 Supreme Court of Ontario Rules of Practice, R.R.0. 1980, Reg. 540, r. 267a, added by 
O. Reg. 379/80, s. 3. See, also, The Judicature Amendment Act, 1979, S.O. 1979, c. 65, 
s. 6(5), which authorized the rule. 

65 Rules of Civil Procedure, O. Reg. 560/84, r. 53.09. 

66 Committee Report, supra, note 63, at 5. 

67 Rules of Court, Reg. 82-73, r. 54.10(2). See, also, Judicature Act, R.S.N.B. 1973, c. J-2, s. 
73(l)(j), as en. by S.N.B. 1981, c. 36, s. 13, which authorized the rule. 

68 Civil Procedure Rules, r. 31.10(2). See, also, Judicature Act, 1972, S.N.S. 1972, c. 2, 
s. 42(fa), as en. by S.N.S. 1980, c. 54, s. 4, which authorized the rule. 

69 The Queen's Bench Rules, r. 284B(l)(b). See, also, The Queen's Bench Act, R.S.S. 1978, 
c. Q-l, s. 89(l)(g.l), as en. by S.S. 1983, c. 59, s. 15, which authorized the rule. 



224 



by ordinance in the Northwest Territories. 70 Recently, in Manitoba, The 
Judgment Interest and Discount Act, which specifies a discount rate of three 
percent, came into force. 71 

In British Columbia, a somewhat different solution has been adopted, 
insofar as the Law and Equity Act authorizes the establishment by regula- 
tion of two discount rates. 72 One discount rate is "deemed to be the future 
difference between the investment rate of interest and the rate of increase of 
earnings due to inflation and general increases in productivity". The other is 
"deemed to be the future difference between the investment rate of interest 
and the rate of general price inflation". The former rate is used to calculate 
loss of dependency under the Family Compensation Act, 73 and the present 
value of lost earnings; a rate of 2.5 percent has been established. The latter 
discount rate is applied to the determination of all other kinds of future 
damage; a rate of 3.5 percent has been fixed. 74 

In Ontario, and indeed elsewhere, the adoption of a rule fixing the 
discount rate undoubtedly has reduced the cost of litigation by rendering it 
unnecessary in many cases to hear economic evidence about the rate of 
interest and the rate of inflation. Presumably, the duration of personal 
injury trials has been reduced as well. In addition, by eliminating uncer- 
tainty, in theory, the rule should facilitate settlements. However, where it is 
necessary to "gross-up" the future care award, evidence about inflation, 
rates of return, and taxation will continue to be relevant. 75 

In large measure, the efficacy of the approach adopted in Ontario rests 
on adherence to the specified discount rate. In McDermid v. The Queen 76 
however, the Court departed from the rule, and applied a different discount 
rate. In that case, the evidence indicated that the short-term real rate of 
interest was substantially higher than the 2.5 percent discount rate. Mr. 
Justice Rosenberg was of the view that, although the language of rule 53.09 
was mandatory, the evidence made it just to deviate from the rule in the 



70 Judicature Ordinance, R.O.N.W.T. 1974, c. J-l, s. 47(1), as en. by O.N.W.T. 1981, c. 9 
(3d), s. 3. 

71 S.M. 1986, c. 39, s. 9. The 3% rate is "deemed to be the percentage difference between 
the long-term rate of return on safe, but productive, investments and the long-term rate 
of general price inflation". 

72 Law and Equity Act, R.S.B.C. 1979, c. 224, s. 51, as en. by S.B.C. 1981, c. 10, s. 30. 

73 R.S.B.C. 1979, c. 120. 

74 B.C. Reg. 352/81. 

75 Of course, this would not be the case should our recommendations respecting gross-up 
be implemented: see supra, ch. 4, sec. 3(d)(ii). 

76 (1985), 53 O.R. (2d) 495, 5 C.P.C. (2d) 299 (H.C.J.). In Davies v. Robertson (1984), 5 
O.A.C. 393 (C.A.), a rate of 2% was used; since it was intended to reflect productivity, it 
was not a departure from r. 53.09. 



225 



special circumstances of the case. He concluded that rule 2.03 authorized 
him to disregard rule 53.09. 77 

If applied, McDermid v. The Queen would seriously undermine the 
cost and efficiency advantages attendant upon prescribing a discount rate. 
In our view, the case should not be followed. We note that a recent High 
Court decision, Crew v. Nicholson, has expressly elected not to follow 
McDermid, for reasons with which we entirely agree: 78 

For the Court to adopt a discount rate other than two and a half percent is to 
invite a return to the same kind of speculation that existed before Rule 53.09 
and its predecessor was introduced. The drafters of the rule knew it would not 
always accurately reflect the real return on capital over certain periods. It will 
always be possible to show that for a period in the past the two and one half 
percent rate has not been accurate, and so to predict that it is unlikely to be 
accurate for some period in the future. That kind of speculation and uncer- 
tainty the rule was designed to eliminate. 

It is our opinion that the present rule dealing with the discount rate 
should continue to apply to all cases of future loss. We therefore recommend 
that there should be no change in the law governing discount rates in 
Ontario. 

Nonetheless, we are of the view that it would be useful to require 
regular review of the discount rate in order to ensure that it remains 
reasonably consistent with economic reality. Accordingly, we further recom- 
mend that, at least once every four years, the Rules Committee of the 
Supreme and District Courts should review the discount rate to be used in 
determining the amount of an award in respect of future pecuniary dam- 
ages, and the Courts of Justice Act, 1984 should be amended accordingly so 
to provide. 79 

3. MANAGEMENT FEES 

Damages for future pecuniary loss are quantified on the assumption 
that the lump sum award will generate a predicted return if prudently 
invested by an unsophisticated person. In Canada, where an award is 
substantial, 80 and where there is evidence suggesting that the victim lacks 



7 Rule 2.03 provides that "[t]he court may, only where and as necessary in the interest of 
justice, dispense with compliance with any rule at any time". 

78 Crew v. Nicholson, unreported (February 20, 1987, Ont. H.C.J.), at 38-39 {per 
O'Leary J.). 

79 See the draft Courts of Justice Amendment Act proposed by the Commission, infra, 
Appendix 2, s. 1(3). A similar recommendation has been made in relation to the 
assumptions underlying gross-up: see supra, ch. 4, sec. 3(d)(ii)g. 

80 See McLeod v. Palardy (1981), 10 Man. R. (2d) 181, 124 D.L.R. (3d) 506 (C.A.), and 
MacDonald v. Alderson (1982), 15 Man. R. (2d) 35, [1982] 3 W.W.R. 385 (C.A.). See, 
also, Cooper-Stephenson and Saunders, supra, note 5, at 324. 



226 



the capacity to invest the lump sum prudently, the court will sometimes 
award a management fee, that is, an additional sum of damages to enable 
the victim to secure professional investment counselling. The management 
fee, properly allocated, ensures that the victim will make a prudent invest- 
ment and receive the optimum return. There is, however, no reported case 
in which damages have been reduced to reflect the victim's expertise as an 
investor. 

In Arnold v. Teno* 1 a case involving a mentally incapacitated child and 
an award in excess of half a million dollars, Spence J. endorsed the 
management fee awarded by the Court of Appeal. He seemed to indicate 
that anyone, not just an incapacitated victim, would require assistance in 
managing such a sum. However, in Ontario, 82 and in most other Canadian 
jurisdictions, 83 a management fee ordinarily will be awarded only to a 
plaintiff who has suffered mental incapacity, or who otherwise demonstrates 
more than a general inability to manage a large award. 

The arguments against making an allowance for management fees are 
twofold. First, there is no guarantee that the fee will be used for the intended 
purpose. Secondly, the court is effectively discriminating against the more 
sophisticated investor when it awards management fees to others. Those 
who manage their own investments must spend time and income managing 
those investments. If someone chooses or is forced to hire someone else to 
perform this function, whether to avoid the effort or to generate a higher 
return, arguably, it should not be a concern of the court. 

At the same time, there is an obvious need for some form of investment 
assistance in the case of a mentally impaired victim; there is no point in 
awarding damages on an assumption of prudent investment with which the 
plaintiff cannot possibly comply. 

We have concluded that the present practice of declining to award 
management fees except in cases where the victim is clearly incapable of 
managing her own fund is satisfactory. There does not appear to be suffi- 
cient reason to recommend legislation on this point. 



81 Supra, note 17. 

82 McErlean v. Sarel, unreported (September 29, 1987, Ont. C.A.), at 74-75; Fenn v. City of 
Peterborough (1979), 25 O.R. (2d) 399, 104 D.L.R. (3d) 174 (C.A.), aff d [1981] 2 S.C.R. 
613; De Champlain v. Etobicoke General Hospital (1985), 34 C.C.L.T. 89 (Ont. H.C.J.); 
and Lapensee v. Ottawa Day Nursery (1986), 35 C.C.L.T. 129 (Ont. H.C.J.). 

83 Laird v. Costain; Costain v. Mungall's Estate (1978), 24 N.B.R. (2d) 510, 48 A.P.R. 510 
(Q.B.); Dupuis v. Melanson (1978), 24 N.B.R. (2d) 312, 48 A.P.R. 312 (Q.B.); Wilson v. 
Lackie Bros. Ltd. (1985), 62 N.B.R. (2d) 236, 161 A.P.R. 236 (Q.B.); Mandas v. 
Thomschke (1983), 44 B.C.L.R. 322, 145 D.L.R. (3d) 530 (S.C.); Lan v. Wu, [1979] 2 
W.W.R. 122, 14 C.C.L.T. 282 (B.C.C.A.); Loney v. Voll, [1974] 3 W.W.R. 193 (Alta. 
S.C.J.D.); and Lamont v. Pederson (1981), 7 Sask. R. 18, [1981] 2 W.W.R. 24 (C.A.). 



227 

Recommendations 

The Commission makes the following recommendations: 

1. Legislation should not be enacted to prescribe a percentage deduction 
for contingencies in all cases or to deal with the possibility of discount- 
ing doubly for contingencies. 

2. There should be no change in the law governing discount rates; how- 
ever, at least once every four years, the Rules Committee of the 
Supreme and District Courts should review the discount rate to be used 
in determining £he amount of an award in respect of future pecuniary 
damages. 

3. There should be no change in the current law governing the award of 
management fees. 



CHAPTER 9 



EXEMPLARY DAMAGES 



1. INTRODUCTION 

Unlike all other heads of damage discussed in this Report, exemplary 
damages are not awarded to compensate the plaintiff for loss suffered as a 
result of the defendant's conduct. l Rather, they are awarded to punish the 
defendant; to deter similar conduct in the future on the part of the defend- 
ant and others; or to express the court's disapproval of the defendant's 
behaviour. 

The ability of the court to award exemplary damages has been the 
subject of considerable controversy. As we shall discuss below, the argu- 
ments presented on both sides of the debate call into question the very 
nature of the tort liability system itself. Moreover, the approaches to 
exemplary damages adopted in various jurisdictions have not been consis- 
tent. In this chapter, therefore, after discussing the distinction between 
exemplary damages and aggravated damages, we highlight some of the 
arguments that have been made, both for and against exemplary damages. 
Thereafter, we discuss briefly the current law of exemplary damages in 
Great Britain and Canada. Finally, we draw certain conclusions in respect of 
the reform of the law of exemplary damages. 

2. EXEMPLARY AND AGGRAVATED DAMAGES 
DISTINGUISHED 

Terminology in this area of the law has been the source of some 
confusion. 2 The expression "aggravated damages" has often been used to 
designate an award that is not easily distinguished from exemplary dam- 
ages. In Rookes v. Barnard? however, the House of Lords drew a sharp 



1 Exemplary damages are also often referred to as "punitive damages". As we note infra, 
this ch., sec. 3, it has been argued that exemplary damages may be justified on the basis 
that they compensate the plaintiff for loss that would otherwise not be compensated. 

2 Some of the terms that have been used, often interchangeably, to describe damages 
intended to punish the defendant are: "aggravated", "deterrent", "exemplary", "penal", 
"punitive", "retributory", and "vindictive". 

3 [1964] A.C. 1 129, at 1221, [1964] 2 W.L.R. 269 (H.L.) (subsequent references are to [1964] 
A.C.). 

[229] 



230 



distinction between aggravated damages and exemplary damages, indicat- 
ing that, while the former were compensatory in nature, the latter were not. 
Thus, the term "aggravated damages" was said to be applied appropriately 
only to damages awarded by way of compensation, that is, damages to 
compensate for the additional injury caused to the plaintiff by the humilia- 
tion and distress suffered by reason of the defendant's conduct. 

The functional distinction enunciated in Rookes v. Barnard* between 
exemplary and aggravated damages has been adopted in Canada, even 
though the restrictions imposed by the House of Lords in that case, on the 
availability of exemplary damages, apparently have been rejected. In a 
recent decision, for example, Robins J. A., speaking for the Ontario Court of 
Appeal, described the nature of aggravated damages in the following terms: 5 

Aggravated damages are damages which take into account the additional harm 
caused to the plaintiff's feelings by such reprehensible or outrageous conduct 
on the part of the defendant. Their purpose is compensatory and, being 
compensatory, they properly form part of a general damage award. Aggravated 
damages, it should be understood, are not punitive— punishment is not the 
function of a compensatory award. They must be distinguished from 'punitive' 
or 'exemplary' damages. . .which are non-compensatory and have as their 
object punishment and deterrence. 

Mr. Justice Robins distinguished exemplary damages from aggravated 
damages as follows: 6 

Exemplary damages bear no relation to what the plaintiff ought to receive 
as compensation. They form a separate and distinct head of damage. Unlike 
aggravated damages which represent a real loss suffered by the plaintiff and are 
intended to put him, so far as money can do so, in the position he would have 
enjoyed but for the extra harm inflicted by the defendant's bad conduct, their 
function is not compensatory. Exemplary damages have been characterized as 
'fictional, ox judicial damages, designed to indicate the displeasure of the court, 

whether judge or jury, at the heinousness of the defendant's conduct' They 

are intended to serve the societal purpose of punishing the wrongdoer and 
deterring him and others from similar conduct in the future. For all practical 
purposes, they constitute a fine for conduct deemed worthy of punishment and 
as such provide a windfall for the plaintiff. 

Finally, Robins J.A. noted that, although objectionable behaviour on 
the part of the defendant might give rise to either or both types of damage, 
exemplary damages and aggravated damages are distinct functionally: 7 



4 The restrictions imposed by the House of Lords in this case are discussed infra, this ch., 
sec. 4(a). 

5 Walker v. CFTOLtd. (1987), 59 O.R. (2d) 104, at 111, 39 C.C.L.T. 121 (C.A.) (subsequent 
references are to 59 O.R. (2d)). 

6 /6zW.,atl20. 

7 Ibid., at 119-20. 



231 



Misconduct of the type described by such terms as 'insulting', 'high-handed', 
'malicious', 'oppressive', 'outrageous', 'reprehensible' or 'in contumelious 
disregard of the plaintiff's rights' may in the circumstances of any given case 
give rise to one or the other or both of these forms of damage. But it must be 
recognized that aggravated and exemplary damages serve fundamentally dif- 
ferent functions and fall under separate classifications in a damage assessment. 

3. ARGUMENTS FOR AND AGAINST EXEMPLARY DAMAGES 

In this section we set out the arguments typically advanced for and 
against the award of exemplary damages. 8 In view of the conclusions we 
reach below, we do so briefly and without comment as to their relative 
merits. 

The primary argument in favour of exemplary damages begins with the 
assertion that, in addition to compensation, both deterrence and punish- 
ment are legitimate objectives of tort law. During the course of a civil action 
conduct might come to the attention of the court that, quite apart from 
justifying an award of compensatory damages, is itself deserving of punish- 
ment and the condemnation of the court. For a variety of reasons, the 
criminal law might not punish the defendant, or might not punish her 
adequately, and the power of the civil court to award exemplary damages in 
these circumstances fills this lacuna in the justice system. 

The award of exemplary damages has also been justified, perhaps as a 
specific instance of the deterrence rationale, as a means of preventing unjust 
enrichment in cases in which the defendant would otherwise profit from the 
misconduct. 9 This would address the case, for example, where the defendant 
would benefit economically from her misconduct, even after compensating 
the plaintiff for her loss. 

A number of subsidiary arguments have also been advanced in favour 
of exemplary damages. For instance, the availability of exemplary damages 
has been said to provide a desirable incentive to private prosecution; in the 
absence of the availability of such damages the plaintiff might not be 
motivated to bring the action. 

Notwithstanding the court's desire to ensure that the plaintiff recovers 
full compensation, the plaintiff will often suffer uncompensated loss. More- 
over, the plaintiff will ordinarily recover only a portion of her legal costs. 
Exemplary damages, it has thus been argued, enable the court to relieve the 
innocent plaintiff of these burdens, which, it is pointed out, were imposed 
upon the plaintiff by the reprehensible conduct of the defendant. 



8 The arguments are canvassed more fully in Fridman, "Punitive Damages in Tort" 
(1970), 48 Can. B. Rev. 373, at 399-408. See, also, Waddams, The Law of Damages 
(1983), paras. 980-87, at 563-67. 

9 Indeed, the Commission defended punitive damages on this ground in its Report on 
Class Actions (1982), Vol. II, at 588. 



232 



The case against exemplary damages is founded largely upon the 
assertion that punishment and deterrence are objectives that belong 
exclusively within the jurisdiction of criminal law. A wrongdoer who has 
been punished by the criminal law ought not to be subject to additional or 
double punishment at the instance of a civil court. On the other hand, a 
wrongdoer who has not been punished by the criminal law might not have 
been punished for good reason. For example, the objectionable conduct 
might not have been constituted an offence by appropriate legislation. In 
these circumstances, it is doubtful whether a civil law court could, or should, 
in effect, create its own offence or devise its own regulatory standards. If the 
wrongdoer has been prosecuted and acquitted in a criminal proceeding, it is 
questionable whether punishment should be imposed nevertheless in a 
subsequent civil proceeding. Similarly, if the wrongdoer has been prosecuted 
and either discharged or punished lightly, it seems objectionable for a civil 
court in effect to review the decision of a criminal court. Finally, if the 
decision has been taken not to prosecute the wrongdoer criminally, it may be 
argued that the discretion of the Crown prosecutors ought not to be 
reviewed by the civil court. 

The case against exemplary damages also raises the anomaly that the 
"fine" imposed upon the wrongdoer goes not into the government treasury, 
but into the pocket of the plaintiff who, by hypothesis, has suffered no 
corresponding loss. The arguments against exemplary damages were sum- 
marized by Lord Reid in 1972 as follows: 10 

[T]he plaintiff, by being given more than on any view could be justified as 
compensation, was being given a pure and undeserved windfall at the expense 
of the defendant, and. . .in so far as the defendant was being required to pay 
more than could possibly be regarded as compensation he was being subjected 
to pure punishment. 

I thought and still think that that is highly anomalous. It is confusing the 
function of the civil law which is to compensate with the function of the 
criminal law which is to inflict deterrent and punitive penalties. 



I think that the objections to allowing juries to go beyond compensatory 
damages are overwhelming. To allow pure punishment in this way contravenes 
almost every principle which has been evolved for the protection of offenders. 
There is no definition of the offence except that the conduct punished must be 
oppressive, high-handed, malicious, wanton or its like— terms far too vague to 
be admitted to any criminal code worthy of the name. There is no limit to the 
punishment except that it must not be unreasonable. The punishment is not 
inflicted by a judge who has experience and at least tries not to be influenced by 
emotion: it is inflicted by a jury without experience of law or punishment and 
often swayed by considerations which every judge would put out of his mind. 
And there is no effective appeal against sentence. 



10 Cassell&Co. Ltd. v. Broome, [1972] A.C. 1027, at 1086-87, [1972] 2 W.L.R. 645 (H.L.). 



233 



It has also been argued that the availability of exemplary damages may 
affect the settlement process. There is some anecdotal evidence that a threat 
to demand exemplary damages might be sufficient to induce the defendant 
to settle the claim, and pay a higher amount than the circumstances would 
otherwise have warranted. In effect, elements of plea bargaining are thus 
introduced into the civil process, thereby permitting the plaintiff to take 
personal advantage of what, in some respects, may be seen as equivalent to a 
threat to prosecute. Further, in cases in which exemplary damages are not 
covered by liability insurance, 11 the defendant may have a conflict of 
interest with her insurer. In such cases, separate counsel will often be 
required, and the cost of settlement will be increased accordingly. 

4. CURRENT LAW 

(a) Great Britain 

In Rookes v. Barnard, 12 Lord Devlin admitted that exemplary damages 
represented an anomalous confusion of the functions of civil and criminal 
law, but, for two reasons, he nevertheless acknowledged a continuing role for 
such damages. First, he suggested that, simply through the force of prece- 
dent, the right to grant exemplary damages could not be eliminated in its 
entirety. 13 Secondly, Lord Devlin conceded that "there are certain categories 
of cases in which an award of exemplary damages can serve a useful purpose 
in vindicating the strength of the law and thus affording a practical justifica- 
tion for admitting into the civil law a principle which ought logically to 
belong to the criminal". 14 

The categories referred to by Lord Devlin resulted in the restriction of 
exemplary damages, by the House of Lords, to the following three situa- 
tions: (1) cases where exemplary damages are authorized specifically by 
statute; (2) cases where there has been "oppressive, arbitrary or unconstitu- 
tional action by the servants of the government" 15 including the police and 
local authorities; and (3) cases "in which the defendant's conduct has been 
calculated by him to make a profit for himself which may well exceed the 
compensation payable to the plaintiff". 16 Several years later, in Cassell & 



11 There is doubt about whether or not exemplary damages are covered by the ordinary 
liability insurance policy. Moreover, some insurance policies exclude exemplary dam- 
ages expressly. 

12 Supra, note 3. 

13 Ibid., at 1225-26. 

14 Ibid., at 1226. 

15 Ibid. 

16 Ibid. 



234 



Co. Ltd. v. Broome, 11 the House of Lords held that Rookes v. Barnard was 
not decided per incuriam and, notwithstanding conflicting decisions else- 
where in the Commonwealth, represented the law of England. 

(b) Canada 

It would seem that the restrictions imposed by the House of Lords on 
the award of exemplary damages have not been adopted in Canada. The 
Canadian position is, perhaps, a little uncertain since Rookes v. Barnard x% 
has never been approved or disapproved explicitly by the Supreme Court of 
Canada. However, in a judgment given more than ten years after Rookes v. 
Barnard, which did not refer to the House of Lords decision, the Supreme 
Court of Canada awarded exemplary damages in a case that, arguably, 
might not have fallen within any of the specified categories. i9 The law in 
Canada has been summarized, somewhat more recently, in the following 
terms: "[i]n Canada. . .the weight of judicial authority is against accepting 
those limitations on the court's power to award exemplary damages, and at 
this juncture it can fairly be concluded, as Professor Waddams has, 'that the 
restrictions laid down in Rookes v. Barnard are not part of Canadian 
law' ". 20 

Assuming that the right to award exemplary damages is not restricted 
in Canada to the categories laid down in Rookes v. Barnard, it is nevertheless 
confined to behaviour that is "malicious, high-handed, arbitrary, oppres- 
sive, deliberate, vicious, brutal, grossly fraudulent, evil, outrageous, callous, 
disgraceful, willful, wanton, in contumelious disregard of the plaintiff's 
rights, or in disregard of every principle that actuates the conduct of a 
gentleman". 21 

In the past, therefore, exemplary damages have been awarded, typi- 
cally, only in cases of deliberate misconduct. 22 However, in 1981, the British 
Columbia Court of Appeal held that exemplary damages were available 
where injury was caused by negligence combined with what the Court found 
to be high-handed and arrogant conduct. 23 The Court of Appeal said that 



Supra, note 10. 
Supra, note 3. 



H.L. Weiss Forwarding Ltd. v. Omnus, [1976] 1 S.C.R. 776, 63 D.L.R. (3d) 654. But see 
Waddams, supra, note 8, para. 997, at 571. 

20 Walker v. CFTO Ltd., supra, note 5, at 118. For a description of the "cool reception" 
received by Rookes v. Barnard in other Commonwealth jurisdictions see Waddams, 
supra, note 8, para. 996, at 570. 



21 

22 



Ibid., para. 998, at 571. 

See, for example, Dandurand v. Pier 1 Imports (Canada) Inc. (1986), 55 O.R. (2d) 329, 15 
O.A.C. 156 (C.A.). 

23 Robitaille v. Vancouver Hockey Club Ltd. (1981), 30 B.C.L.R. 286, 124 D.L.R. (3d) 228 
(C.A.) (subsequent reference is to 30 B.C.L.R.). 



235 



the trial judge was justified in awarding exemplary damages "because, on 
the facts, the conduct of the defendants was such as to merit condemnation 
and, in addition, caused damage to the plaintiff". 24 More recently, Mr. 
Justice Cohen, of the British Columbia Supreme Court, awarded $25,000 
exemplary damages in a medical malpractice case. 25 While he acknowl- 
edged that an award of exemplary damages was rare in such cases, 26 he 
concluded that "the defendant exhibited behaviour towards his profession 
and the plaintiff that can only be described as reprehensible". 27 The defend- 
ant's conduct, Mr. Justice Cohen said, "demonstrated not only a lack of care 
amounting to negligence but a wanton disregard for the safety and health of 
the plaintiff". 28 



5. CONCLUSIONS 

We have referred above to the controversy surrounding exemplary 
damages. Not only have Commonwealth jurisdictions differed as to the 
availability of such damages, but the theoretical basis of exemplary damages 
has been the subject of serious debate. Moreover, a variety of statutory 
provisions have been proposed or enacted in the United States to address a 
current perceived crisis concerning exemplary damages in that jurisdiction. 
These statutory provisions include the following: an increase in the standard 
of proof required to establish entitlement to exemplary damages; 29 a prohi- 
bition against exemplary damages, either with respect to certain causes of 
action, or more generally; 30 the imposition of a limit on the quantum of 
such damages, the limit being either absolute or relative to the amount of 



24 Ibid., a.i 311 

25 Coughlin v. Kuntz (1987), 17 B.C.L.R. (2d) 365 (S.C.). 

26 Ibid., at 46. 

27 Ibid, at 45. 

28 Ibid, at 46. 

29 For example, in Iowa, § la(4) of Senate File 248, filed February 25, 1987, would require 
the plaintiff to prove the defendant's culpability and all elements authorizing the 
imposition of punitive damages beyond a reasonable doubt. In Maine, House Paper 
204, introduced February 5, 1987, would require that, before imposing punitive 
damages, there must be a finding of actual malice or actual fraud by clear and 
convincing evidence. 

30 For example, in Tennessee, § 6 of Senate Bill 913, filed on February 18, 1987, would 
abolish the right of an injured party to recover punitive or exemplary damages. In 
Wyoming, House Bill No. 0168, 1987, would have prohibited an award of punitive 
damages being made against any governmental entity. In Louisiana the general rule is 
that, absent specific statutory authorization, punitive damages may not be awarded: see 
Redden, Punitive Damages (1980), § 5.2(A)(18), at 280. A similar general prohibition, in 
the absence of specific legislation, applies in Massachusetts, Nebraska and Washington: 
see Redden, ibid. , § 5.2(A)(21), (27), and (47), at 313, 379, and 489. 



236 



compensatory damages otherwise awarded; 31 and a requirement that all or a 
stated portion of such damages be paid into the state general fund, or some 
other specified fund. 32 

In light of this controversy, we have concluded that it would be 
inappropriate, within the specific context of this Report, to consider the case 
for and against reform of the law of exemplary damages. Although exem- 
plary damages have been identified as a contributing factor to the recent 
"insurance crisis" in the United States, there is no evidence that such 
damages, which have been awarded only rarely in this jurisdiction, have had 
similar consequences in Ontario. Accordingly, even if it is determined that 
reform of the law of exemplary damages generally is desirable, there appears 
to us to be no urgent need to resolve the issue in the context of this Report. 

The main thrust, running throughout this Report, is the desire to 
ensure that the injured plaintiff receives full compensation for all losses 
actually suffered as a result of the defendant's misconduct, no more and no 
less. While this might argue against the retention of exemplary damages, on 
the ground that they constitute a windfall to the plaintiff, we believe that the 
question whether, and to what extent, exemplary damages serve a rational 
purpose other than compensation ought not to be determined within the 
scope of this Report. Moreover, in this Report, compensation has been 
considered only as it relates to cases involving personal injury and death. 
Exemplary damages, of course, are not so restricted. Indeed, they have been 
awarded "for most non-contractual wrongs, including defamation, assault, 
false imprisonment, trespass, nuisance, interference with contract, slander 
of title, conversion and wrongful seizure of goods, breach of copyright, 
conspiracy, abuse of legal process and wrongful denial of a building 
permit". 33 Clearly, therefore, a review of exemplary damages, limited to the 
present context of personal injury and death, would be unduly and artifi- 
cially restricted. In the result, we have concluded that no recommendation 
ought to be made with respect to exemplary damages in this Report, and 
that a separate project on exemplary damages might usefully be undertaken 
by the Commission. 



31 For example, in Alabama, in the case of civil actions for wrongful death, § 5B of Act No. 
87-189, restricts the amount of recovery for non-economic losses, including punitive 
damages, to the sum of $400,000. In the case of other civil actions, § 2 of Act No. 87- 185 
provides that an award of punitive damages shall not exceed $250,000 unless certain 
conditions are fulfilled. In California, Assembly Bill No. 1522, introduced March 4, 
1987, would limit punitive damages to twice economic damages. In Colorado, House 
Bill No. 1197 (enacted May 16, 1986) limits the amount of punitive damages to the 
amount of actual damages awarded. In Indiana, § 7 of House Bill 1332, introduced in 
the 1987 legislative session, would limit the amount of punitive damages to the greater of 
$100,000 and three times the amount of actual damages. 

For example, in California, Assembly Bill No. 363, introduced January 22, 1987, would 
require 75% of exemplary damages awarded in excess of $5,000 to be paid into the 
Consumer Protection and Education Fund, established under the Bill. In Colorado, 
House Bill No. 1197, supra, note 31, requires that one third of punitive damages be paid 
into the state general fund. 

33 Waddams, supra, note 8, para. 1000, at 573-74. 



32 



SUMMARY OF RECOMMENDATIONS 



The Commission makes the following recommendations: 

*CHAPTER 2: LOSS OF WORKING CAPACITY 

1. (1) Third party claims under Part V of the Family Law Act, 1986 for 

pecuniary losses and for loss of guidance, care and companionship 
resulting from wrongful injury to or death of another person 
should be abolished and replaced by a first party claim for loss of 
"working capacity", as defined in Recommendation 3, infra. 

(2) Accordingly, section 61(1) and section 61(2)(e) of the Family Law 
Act, 1986 should be repealed. (See, further, Recommendation 33, 
concerning repeal of the remainder of section 61.) 

2. Legislation should provide clearly that a claim for loss of working 
capacity survives to the estate of a deceased tort victim. 

3. Loss of working capacity should be defined to mean loss of productive 
capacity including, 

(a) loss of the capacity to earn; 

(b) loss of the capacity to provide care and guidance to a spouse, 
dependent children or dependent parents of the injured or 
deceased person as defined in Recommendation 4, infra; 

(c) loss of the capacity to provide household services; and 

(d) loss of entitlement under a pension, annuity or similar instrument. 

4. For the purposes of Recommendation 3(b), supra, 

(a) "spouse" should be defined to mean a spouse within the meaning 
of Part III of the Family Law Act, 1986 ; 

(b) "dependent child" should be defined to mean a child who is a 
minor, or a child who is not a minor but who has, or who 
immediately before the death had, a reasonable expectation of 



* One of the Commissioners, Mrs. Margaret A. Ross, dissents from most aspects of the 
scheme embodied in the recommendations made in ch. 2: see supra, ch. 2, sec. 10. 



[237] 



238 



receiving substantial pecuniary benefit from the injured or 
deceased tort victim; and 

(c) "dependent parent" should be defined to mean a parent who has, 
or who immediately before the death had, a reasonable expecta- 
tion of receiving substantial pecuniary benefit from the injured or 
deceased tort victim. 

5. For the purposes of Recommendation 3(c), supra, compensation for 
loss of capacity to perform household services should be assessed with 
reference to the average weekly earnings in Ontario (industrial aggre- 
gate). 

6. In cases of non-fatal injury, the existing rule, that income tax should not 
be deducted from the award, should continue to govern the determina- 
tion of damages for loss of working capacity. 

7. Where personal injury results in death, no deduction should be made 
from an award of damages for loss of working capacity in respect of the 
income tax that would have been payable by the deceased. 

8. Where personal injury results in death, the award of damages for loss of 
working capacity, other than damages for loss of capacity to give care 
and guidance, should be reduced by the cost of earning that would have 
been incurred by the deceased but for the personal injury. 

9. (1) Where personal injury results in death, the award of damages for 

loss of working capacity, other than damages for loss of capacity to 
give care and guidance, should be reduced by the amount of the 
deceased's personal living expenses as determined under para- 
graph (2). 

(2) The personal living expenses that are to be deducted from the 
damages award should be conclusively presumed to be three- 
quarters of the projected income of a person who dies without a 
spouse or dependent children; one-quarter of the projected 
income of a person who dies with a spouse but without any 
dependent children, during the anticipated joint life expectancy of 
the deceased and his spouse; and fifteen percent of the projected 
income of a person, with or without a spouse, who dies with 
dependent children, during the projected period of dependency. 

10. Where there is no surviving spouse, dependent children or dependent 
parents, the damages in respect of loss of working capacity should be 
payable to the estate, and should be distributed like any other asset of 
the estate under the general law governing succession, and subject to 
the claims of creditors. 

11. Where damages are assessed in respect of the loss of capacity to give 
care and guidance, the damages should be distributed among the 



239 



surviving spouse, dependent children, and dependent parents in the 
amounts assessed in respect of each of them. 

12. Damages awarded for loss of working capacity, other than the damages 
awarded for loss of capacity to give care and guidance, should be 
apportioned among the surviving spouse, dependent children and 
dependent parents. The matter of apportionment should be decided by 
the court. 

13. In determining apportionment of the damages awarded for loss of 
working capacity, other than for loss of capacity to give care and 
guidance, the court should be able to order the trial of an issue and to 
give such directions for that purpose as are considered just. 

14. Legislation should provide that the surviving spouse, dependent chil- 
dren and dependent parents may intervene in respect of the issue of 
apportionment as parties to the action under the Rules of Civil Proce- 
dure. 

15. Where one or more of the surviving spouse, dependent children, and 
dependent parents is a person under a disability, the court should be 
able to order that notice be given to the Official Guardian or the Public 
Trustee or any other person that the court considers appropriate. 

16. Where damages for loss of working capacity, including loss of the 
capacity to give care and guidance, are distributed by the court among 
the surviving spouse, dependent children, and dependent parents, the 
damages should not be subject to the claims of creditors of the deceased 
person or to the costs arising from the administration of the estate. 

17. (1) Subject to paragraph (2), an action for damages in respect of loss of 

working capacity should be brought by the personal representative 
on behalf of the estate. 

(2) A surviving spouse, dependent child or dependent parent should 
be able to bring the action that the personal representative could 
have brought where an action has not been brought by the personal 
representative within six months of the death, or sooner with leave 
of the court. 

18. The surviving spouse, dependent children, and dependent parents 
should have a right of appeal from an order distributing or apportioning 
damages for loss of working capacity, regardless of whether they are 
parties or intervenors in the action. 

19. (1) Legislation should provide that, where personal injury results in 

death, a settlement of a claim in respect of loss of working capacity 
requires the consent of the surviving spouse, dependent children 
and dependent parents whose existence is reasonably within the 
knowledge of the person making the claim. 



240 



(2) Legislation should provide that an application or motion may be 
made to the court to determine whether any person is a spouse, 
dependent child or dependent parent whose consent is required 
under paragraph (1). 

(3) Where one or more of the surviving spouse, dependent children, 
and dependent parents is a person under a disability, the provisions 
of the Rules of Civil Procedure governing settlement of a claim 
made by or against a person under a disability should apply with 
necessary modification. 

20. Costs incurred by the plaintiff in an action for damages for loss of 
working capacity that are not recovered from the defendant or another 
party should be paid out of the damages on a pro rata basis before they 
are distributed. 

21. The action per quod servitium amisit should be abolished. 

CHAPTER 3: DAMAGES FOR NON-PECUNIARY LOSS 

*22. There should be no change in the present law and practice, as enunci- 
ated by the Supreme Court of Canada in the trilogy, respecting awards 
of damages for non-pecuniary loss. 

23. (1) In the trial of an action for damages for personal injuries, the judge 

should be empowered to give guidance to the jury concerning the 
quantum of damages for non-pecuniary loss. 

(2) Counsel should have the right to make submissions to the judge or 
the jury, as the case may be, on the quantum of damages, subject to 
the trial judge's overriding discretion to control proceedings of the 
court. 

(3) An appellate court should have power, when setting aside a jury or 
court assessment of damages for non-pecuniary loss, to substitute 
its own assessment, instead of ordering a new trial, if it thinks this 
to be just in the circumstances. 

24. There should be no change in the law, under section 38(1) of the Trustee 
Act, respecting the entitlement of the estate of an injured person to 
recover damages for non-pecuniary loss. 

25. The law respecting the award of damages for emotional distress, 
standing alone, should be allowed to develop on a case-by-case basis, 
without legislative intervention. 



* Dr. H. Allan Leal, O.C., Q.C., Vice Chairman of the Commission, dissents from this 
recommendation: see supra, ch. 3, note 148. 









241 

CHAPTER 4: COST OF CARE 

26. There should be no change in the present law respecting the general test 
of "reasonableness" to determine the standard of care to be awarded to 
a successful plaintiff in a personal injury action. 

27. (1) The Government of Canada should be urged, by strong represen- 
tations at the highest level, to introduce a tax sheltered plan, 
analogous to a registered retirement savings plan, that would 
permit investment in the plan of the entire amount of compensa- 
tion awarded for future care. 

(2) Investment income should be permitted to accumulate in the plan, 
free of tax. 

(3) The plaintiff should be taxed on withdrawals from the plan, 
subject to the ordinary rules, including the medical expense deduc- 
tion, only until the amount remaining in the plan equals the 
amount originally paid in, which amount the plaintiff should then 
be able to withdraw free of tax. 

28. Legislation should be enacted, at the earliest opportunity, to provide 
that an award of damages for future care shall include an amount that 
would offset liability for income tax on income from investment of the 
award. 

29. The Courts of Justice Act, 1984 should be amended to provide that the 
Rules Committee of the Supreme and District Courts may make rules 
in relation to the method of calculating the amount to be included in an 
award of damages for future care that would offset liability for income 
tax on income from investment of the award. 

30. For the purpose of calculating the amount to be included in an award of 
damages for future care under Recommendation 28, the following 
assumptions should be standardized and implemented by amendment 
to the Rules of Civil Procedure: 

(a) the rate of inflation should be assumed to be the average of the 
annual rates of change in the Consumer Price Index (all items, 
Canada) for the five year period ending in October of the year prior 
to the year in which judgment is given, adjusted to the nearest one- 
half percentage point. 

(b) the income tax laws should be assumed to be the income tax laws 
enacted or made at the time of trial, including any future changes 
in the income tax laws, enacted or made at the time of trial, but not 
applicable until a subsequent tax year; however, all fixed dollar 
amounts in the income tax laws should be assumed to increase 
annually at the assumed rate of inflation. 



242 



(c) the funds from an award for future care should be assumed to be 
invested fifty percent in equities and fifty percent in interest- 
bearing investments. 

(d) after taking inflation into account, the annual rate of return, in 
respect of both equities and interest-bearing investments, should 
be assumed to be the rate specified in the Rules of Civil Procedure, 
from time to time, in respect of the discount rate, which, at present, 
would be 2.5 percent. 

(e) the total annual return on equity investments, as determined 
under paragraphs (a) and (d), should be assumed to be composed 
of the following: 

(i) dividends, at the annual rate of 3.5 percent of capital; and 

(ii) capital gains, as to the remainder, realized annually. 

(f) the amount that the injured person should be assumed to with- 
draw from the fund for future care in each year should be the 
expected cost of future care for that year, taking into account the 
probability of surviving to that year and all contingencies used in 
the calculation of the present value of the costs of future care. 

(g) the plaintiff's future income earned after the accident, and the 
plaintiff's investment income derived from the award for loss of 
working capacity should be taken into account, but the plaintiff's 
income from other sources should be ignored. 



31. The Courts of Justice Act, 1984 should be amended to provide that the 
rules made in relation to the method of calculating the amount to be 
included in an award of damages for future care that would offset 
liability for income tax on income from investment of the award shall 
be reviewed at least once every four years. 



32. Legislation should not be enacted to deal with the possibility, in the 
assessment of damages in a personal injury action, of duplication in 
respect of the award for basic necessities of life. 



33. The present uncertainty surrounding the relationship between third 
party claims under the Family Law Act, 1986 and the injured person's 
own claim should be resolved by repealing section 61(2)(a), (b), (c), and 
(d) of the Family Law Act, 1986, while providing that the injured 
person has the right to compensation in such cases, and that the court 
may order that the compensation be held in trust for the third party. 



243 



CHAPTER 5: REVIEWABLE PERIODIC PAYMENTS 

*34. The law in Ontario should not be changed to accommodate a system of 
periodic payments, whether reviewable or non-reviewable, that could 
be ordered by the court without the consent of the parties. 

CHAPTER 6: COLLATERAL BENEFITS 

35. Where an injured person has received an indemnity, including an ex 
gratia payment, in respect of any specific pecuniary loss claimed from 
a wrongdoer, the damages in respect of that loss should be held in trust 
for the collateral source. 

36. (1) The wrongdoer, or her insurer, should be entitled to make payment 

of such damages directly to the collateral source, and should be 
entitled to receive a discharge of liability to the extent of such 
payment. 

(2) Payment of damages to the collateral source should include pre- 
judgment interest. 

37. Recommendations 35 and 36 should not apply until the injured person 
has been fully indemnified for her entire loss from any source or 
combination of sources. 

CHAPTER 7: PREJUDGMENT INTEREST 

38. Section 138(1) of the Courts of Justice Act, 1984 should be amended to 
provide that prejudgment interest should run from the date upon 
which the cause of action arises. 

39. Prejudgment interest rates should be set quarterly. 

40. The rate of prejudgment interest should be equal to the average bank 
rate for each quarter, rounded to the nearest one-tenth of a percentage 
point. 

41. Prejudgment interest should be compounded, with quarterly calcula- 
tions. 

**42. Prejudgment interest should be awarded on damages for non-pecuni- 
ary loss at the rate specified in the Rules of Civil Procedure, from time 



* Dr. H. Allan Leal, O.C., Q.C., Vice Chairman of the Commission, dissents from this 
recommendation: see supra, ch. 5, sec. 5. 

** One of the Commissioners, Mr. Earl A. Cherniak, Q.C., dissents from this recommen- 
dation: see supra, ch. 7, sec. 5. 



244 



to time, in respect of the discount rate, which, at present, would be 2.5 
percent. 

43. Section 138(2) of the Courts of Justice Act, 1984 should be amended by 
replacing the term "special damages" with the term "past pecuniary 
loss". 

CHAPTER 8: MISCELLANEOUS ISSUES 

44. Legislation should not be enacted to prescribe a percentage deduction 
for contingencies in all cases or to deal with the possibility of discount- 
ing doubly for contingencies. 

45. There should be no change in the law governing discount rates; how- 
ever, at least once every four years, the Rules Committee of the 
Supreme and District Courts should review the discount rate to be used 
in determining the amount of an award in respect of future pecuniary 
damages. 

46. There should be no change in the current law governing the award of 
management fees. 



CONCLUSION 



In this Project, the Commission has attempted to examine the utility of 
existing legal principles governing the assessment of compensation for 
personal injury and death. While public concern with this subject has been 
exacerbated in recent years by a perceived "crisis" respecting the availability 
and cost of liability insurance, it must be emphasized that this concern is, in 
fact, of very long standing and that the issues that arise are broader and more 
fundamental than those pertaining exclusively to insurance. 

In our terms of reference, the Commission has excluded consideration 
of radical reform measures, such as replacing the existing tort regime with a 
system of first party liability insurance. Rather, our focus has been on the 
difficult and recurring assessment problems that, today, press for resolution 
under the present fault-based tort system. The Commission has offered 
proposals for reform designed to ensure that, so long as this system is 
retained, the principles governing the assessment of compensation under it 
are fair, reasonable, and consistent, having regard to the interests of all 
parties. 

In our study, we have been ably assisted by a great many persons, whose 
contributions have been acknowledged in the Foreword to this Report. The 
Commission wishes, once again, to record our gratitude to those who 
devoted their time, energy, and expertise to the Project, and, particularly, to 
our Project Director, Professor Stephen M. Waddams, of the Faculty of Law, 
University of Toronto. 

All of which is respectfully submitted, 




LUt^ut^y Le<2^- 



J. R. Breithaupt H. Allan Leal 

Chairman Vice Chairman 




^il_d 




E. A. Cherniak J. R. S. Prichard 

Commissioner Commissioner 




''Wcfduj/ 



M. A. Ross 
Commissioner 

November 10, 1987 

[245] 



i 



APPENDIX 1 



Draft Bill 

Bill 00 198. 

An Act to revise the Law respecting 

Compensation for personal Injuries 

and wrongful Death 



HER MAJESTY, by and with the advice and consent of the 
Legislative Assembly of the Province of Ontario, enacts as 
follows: 

1. In this Act, Interpre- 

tation 

"child" includes a person who is a child of a parent as 
defined in this section; 

"dependent child" means a child of a parent who is an 
injured person, where the child is a minor, or where the 
child is not a minor, who has a reasonable expectation of 
receiving substantial pecuniary benefit from the injured 
person or, where the injured person dies as a result of the 
personal injury, had such expectation immediately 
before the death; 

"dependent parent" means the parent of a child who is an 
injured person where the parent has a reasonable expec- 
tation of receiving substantial pecuniary benefit from the 
injured person or, where the injured person dies as a 
result of the personal injury, had such expectation imme- 
diately before the death; 

"injured person" means a person who has a right of action 
in damages for a personal injury, notwithstanding that 
the injury results in death; 

"parent" includes a person who has demonstrated a settled 
intention to treat a child as a child of his or her family, 
except an intention under an arrangement where the 
child is placed for valuable consideration in a foster home 
by a person having lawful custody; 

[247] 



248 



1986, c. 4 



Actio per quod 
servitium 
amisit 
abolished 

Action for 
damages for 
personal injury 

Idem 



Extended 
grounds 



Beneficiaries 
of awards 



Loss of 

working 

capacity 

Idem 



"spouse" means spouse as defined under Part III of the 
Family Law Act, 1986. 

2. The right of action by an employer for the loss of 
services arising from the personal injury of his or her 
employee is abolished. 

3.— (1) The right of action for damages for personal 
injury referred to in this Act survives the death of the 
injured person. 

(2) Subject to section 13, an action for damages for 
personal injury shall be maintained only by the person 
suffering the personal injury or, where such person is 
deceased, his or her personal representative. 

4.— (1) In addition to damages otherwise recoverable in 
law, an action for damages for personal injury may include, 

(a) damages for loss of working capacity, notwith- 
standing that the personal injury results in death; 

(b) actual expenses reasonably incurred by another 
person for the benefit of the injured person and 
arising out of the injury; 

(c) a reasonable allowance for travel expenses actu- 
ally incurred by another person in visiting the 
injured person during his or her treatment or 
recovery; 

(d) a reasonable allowance for the value of nursing, 
housekeeping or other services provided by 
another person as a result of the injury; and 

(e) where the injury results in death, actual funeral 
expenses reasonably incurred. 

(2) The court may, if it considers it just to do so, order 
that any amount recovered under clause (l)(b), (c), (d) or 
(e) be received in trust upon such terms and for the benefit 
of such persons as are provided in the order. 

5.— (1) Damages for loss of working capacity arising 
from personal injury are compensation for the loss of 
productive capacity, including loss of capacity to earn. 

(2) Without limiting the generality of subsection (1), 
damages for loss of working capacity arising from personal 
injury may include, 



249 



(a) compensation for loss of capacity to give care and 
guidance to a spouse, dependent children and 
dependent parents of the injured person; 

(b) compensation for loss of capacity to perform 
household services, assessed with reference to the 
average weekly earnings in Ontario (industrial 
aggregate); and 

(c) compensation for loss of entitlement of the 
injured person under a pension plan, annuity or 
similar instrument. 

6.— (1) Where personal injury results in death, the dam- 
ages for loss of working capacity other than loss of capacity 
to give care and guidance shall be reduced by the amount of 
personal living expenses as determined under subsection 
(2), and the cost of earning that would have been incurred 
if the death had not resulted from the personal injury. 

(2) For the purposes of subsection (1), the personal living 
expenses shall be conclusively presumed to be, 

(a) when the deceased dies without a spouse or depen- 
dent child, 75 per cent of the projected income; 

(b) when the deceased dies having a spouse and no 
dependent children, 25 per cent of the projected 
income during the projected joint life expectancy 
of the deceased and his or her spouse; and 

(c) when the deceased dies having one or more depen- 
dent children, 15 per cent of the projected income 
during the projected period of dependency. 



Calculation 
of damages 
for loss of 
earning 
capacity 



Idem 



7. An award of damages for future care shall include an 
amount that would offset liability for income tax on 
income from investment of the award. 



Gross-up 
of damages 
for future care 



8.— (1) Where personal injury results in death, a settle- 
ment of a claim for loss of working capacity requires the 
consent of the surviving spouse, dependent children and 
dependent parents whose existence is reasonably within 
the knowledge of the person making the claim. 

(2) An appliction or motion may be made to the court to 
determine whether any person is a spouse, dependent child 
or dependent parent whose consent is required under 
subsection (1). 



Settlement 



Application 
to court for 
directions 



250 



Person under 
disability 



Disposition 
of damages 
re working 
capacity 
where death 



Distribution 
of damages re 
care and 
guidance 



Apportionment 
of damages 
for loss of 
working 
capacity 



Notice 



Intervention 



Trial of 
an issue 



Costs 



(3) For the purposes of subsection (1), the Rules of Civil 
Procedure governing settlement of a claim made by or 
against a person under a disability apply with necessary 
modification in respect of a person mentioned in subsec- 
tion (1) who is under a disability. 

9. Where personal injury results in death, damages in 
respect of loss of working capacity form part of the estate of 
the deceased person and, 

(a) where there is a surviving spouse, dependent child 
or dependent parent, are subject to distribution 
under sections 10 and 11 and are not subject to 
claims of creditors of the deceased person or costs 
arising from the administration of the estate; 

(b) where there is no surviving spouse, dependent 
child or dependent parent, are an asset of the 
estate for payment of debts and distribution as 
part of the estate. 

10. Where personal injury results in death, damages 
awarded for loss of capacity to give care and guidance shall 
be distributed to the surviving spouse, dependent children 
and dependent parents of the deceased in the amounts 
assessed in respect of each of them. 

11.— (1) Where personal injury results in death, damages 
awarded for loss of working capacity other than loss of 
capacity to give care and guidance shall be apportioned 
among the spouse, dependent children and dependent 
parents of the deceased in such proportions as the court 
may order. 

(2) Where a person who is entitled to apportionment is 
under a disability, the court may require notice to be given 
to the Public Trustee, Official Guardian or any other 
person that the court considers appropriate. 

(3) The spouse, dependent children and dependent 
parents may intervene under Rule 13 of the Rules of Civil 
Procedure in respect of their apportionment. 

(4) The Court may order the trial of an issue in respect of 
the apportionment of damages under subsection (1), and 
may give such directions for the purpose as are considered 
just. 

12. Costs that are incurred by the plaintiff in an action in 
which damages for loss of working capacity are awarded 



25 



and that are not recoverd from the defendant or another 
party, shall be paid out of the damages pro rata before they 
are distributed. 

13. Where the personal representative of the deceased Action by 
person does not commence an action for loss of working dependents 
capacity within six months of the death, a spouse, depen- 
dent child or dependent parent may bring the action that 
the personal representative could have brought, or may 
bring the action sooner with leave of the court. 

14.— (1) Where a person suffering personal injury has Indemnities 
been indemnified in respect of any specific pecuniary loss 
claimed in an action for the personal injury, whether by gift 
or otherwise, 

(a) the person liable may pay the amount of the 
damage recoverable in respect of that loss directly 
to the indemnitor and receive a discharge, to that 
extent, of liability to the injured person; and 

(b) any amount received from the person liable by the 
person injured in respect of the part of the dam- 
ages for which he or she is indemnified shall be 
held in trust for the indemnitor. 



(2) Subsection (1) does not apply unless the injured 
person has received full indemnity for the entire loss from 
any source or combination of sources. 



Idem 



15. In an action for damages for personal injury, the Guidance and 

court may give guidance to the jury on the amount of submissions to the 

damages, and the parties may make submissions to the J urv on amount of 

jury on the question of the amount of damages. damages 

16.— (1) On an appeal from an award for damages for Power of 

personal injury, the court may, if it considers it just, substi- court on 

tute its own assessment of the damages notwithstanding appeal 
that the appeal is from a jury verdict. 

(2) Any person who is entitled to distribution or appor- Appeal of 

tionment of damages under section 10 or 1 1 may appeal the distribution 

order for distribution or apportionment notwithstanding or 

that he or she is not a party or intervenor in the action, apportionment 

17. Part V of the Family Law Act, 1986, being chapter 4, 
is repealed. 

18. Subsection 38(1) of the Trustee Act, being chapter 
512 of the Revised Statutes of Ontario, 1980, is amended by 



252 



striking out "for the loss of the expectation of life, but this 
proviso is not in derogation of any rights conferred by Part 
V of the Family Law Reform Act" in the ninth, tenth and 
eleventh lines and inserting in lieu thereof "except as 
specifically provided by statute, or for the loss of expecta- 
tion of life". 

Act binds Crown 19. This Act binds the Crown. 

Application 20.— (1) This Act, except section 7, applies to personal 

of Act injuries occurring after this Act comes into force. 

Idem (2) Section 7 applies to actions for personal injury com- 

menced after this Act comes into force. 

Commencement 21. This Act comes into force on a day to be named by 
proclamation of the Lieutenant Governor. 

Short title 22. The short title of this Act is the Personal Injuries 

Compensation Act, 19 . 



APPENDIX 2 



Draft Bill 



Bill 00 



198. 



An Act to amend the 
Courts of Justice Act, 1984 

HER MAJESTY, by and with the advice and consent of the 
Legislative Assembly of the Province of Ontario, enacts as 
follows: 

1.— (1) Subsection 90(1) of the Courts of Justice Act, 
1984, being chapter 11, is amended by adding thereto the 
following clause: 

(qa) the method of calculating the amount to be 
included in an award for damages for future care 
that would offset liability for income tax on 
income from investment of the award; 

(2) Section 90 of the said Act is amended by adding 
thereto the following subsection: 

(3) Rules made under clauses (l)(q) and (qa) shall be 
reviewed at least once every four years. 

2. Clause 137(l)(d) of the said Act is repealed and the 
following substituted therefor: 

(d) "prejudgment interest rate" means the average 
bank rate during each calendar quarter rounded 
to the nearest one-tenth of a percentage point. 

3. Subsections 138(1) and (2) of the said Act are repealed 
and the following substituted therefor: 

(1) A person who is entitled to an order for the payment 
of money is entitled to claim and have included in the order 
an award of interest thereon, compounded quarterly, at the 
prejudgment interest rate prevailing in each calendar quar- 
ter during which the interest is payable, calculated from the 
date the cause of action arose to the date of the order. 

[253] 



Review of 
rules under 
clauses l(q) 
and (qa) 



Prejudgment 
interest 



254 



Exception for (la) Notwithstanding subsection (1), the rate of interest 

non-pecuniary on damages for non-pecuniary loss in an action for per- 

loss on personal sonal injury shall be assumed to be the rate specified in rule 

injury 53.99. 



Calculation 
for past 
pecuniary 
loss 



(2) Where the order includes an amount for past pecuni- 
ary loss, the interest calculated under subsection (1) shall be 
calculated on the balance of past pecuniary loss incurred as 
totalled at the end of each six-month period following the 
date the cause of action arose and at the date of the order. 



4. Clause 138(3)(b) of the said Act is repealed. 

Application 5. Sections 2, 3 and 4 apply in respect of interest on 

of Act amounts awarded in actions that are commenced after this 

Act comes into force. 

Commencement 6. This Act comes into force on the day it receives Royal 
Assent. 



Short title 



7. The short title of this Act is the Courts of Justice 
Amendment Act, 19 



i 






APPENDIX 3 



Draft Rule for Inclusion in the 
Rules of Civil Procedure 

For the purpose of calculating the amount to be Rule 00 
included in an award of damages for future care that would 
offset liability for income tax on income from investment 
of the award, 

(a) the income tax law shall be assumed to be the law 
existing at the time of trial, whether applicable in 
the current tax year or not, and fixed dollar 
amounts in the income tax law shall be assumed 
to increase annually at the rate of inflation deter- 
mined under clause (b); 

(b) the rate of inflation shall be determined as the 
average of the annual rates of change in the Con- 
sumer Price Index for the five-year period ending 
in October of the year prior to the year in which 
the judgment is given, adjusted to the nearest one- 
half percentage point; 

(c) the rate of return on equity investments and inter- 
est-bearing investments, after taking inflation into 
account, shall be assumed to be the rate specified 
in rule 53.09; 

(d) the total annual return on equity investments 
shall be assumed to be composed of, 

(i) dividends at the annual rate of 3 . 5 per cent of 
capital; and 

(ii) capital gains as to the remainder, realized 
annually. 

(e) 50 per cent of the award shall be assumed to be 
invested in equity investments and 50 per cent 
shall be assumed to be invested in interest-bearing 
investments; 

(0 the amount that the injured person is assumed to 
withdraw from the fund for future care in each 

[255] 



256 



year shall be the expected cost of future care in 
that year multiplied by the factors in that year for 
the probability of survival and the factors for other 
contingencies that were used in the calculation of 
the value of the fund; 

(g) anticipated income of the injured person from a 
source other than the award for future care shall 
not be taken into account, other than, 

(i) investment income from an award for loss of 
working capacity, and 

(ii) anticipated future earnings from work. 



APPENDIX 4 



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APPENDIX 5 



REPORT OF THE COMMITTEE ON TORT COMPENSATION 

(Special Committee of Bench and Bar 
chaired by R.E. Holland J., 1980) 



ORIGIN OF COMMITTEE AND SCOPE OF ITS ENQUIRY 

For many years, academic writers have proposed a system of periodic 
payments for future losses in cases of wrongful death and serious personal 
injury. 1 More recently Mr. Justice Dickson, of the Supreme Court of 
Canada, has made the same proposal, inside 2 and outside 3 the courtroom. It 
was in response to these proposals that the Chief Justice of Ontario arranged 
for the Committee of The Bench and Bar to appoint a special committee to 
examine the question. 

The Committee's terms of reference, though not spelled out in writing, 
were deduced from the circumstances of its appointment. The Committee 
considered its task to be the examination of the desirability and feasibility of 
instituting a scheme in Ontario for the periodic payment of judgments and 
for the variation of judgments. The Committee appointed Professor S.M. 
Waddams of the University of Toronto as research director and is grateful 
for his considerable assistance in the preparation of this report. 

One question that the Committee excluded from its terms of reference 
was that of interim payments before judgment. The Advocates' Society, in 
its submission to us, drew attention to section 223 of The Insurance Act 4 
enabling prejudgment payments to be made by an insurer in motor vehicle 
cases without prejudice to its defence of an action. The Advocates' Society 
suggested that this section be moved to The Judicature Act 5 so that it could 
be made applicable to all defendants, whether insured or not and to all types 



1 Fleming, "Damages: Capital or Rent?" (1969), 19 U. Toronto L.J. 295; Fleming, The 
Law of Torts (5th ed., 1977), 214-15. 

2 Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229, at 236. 

3 Goodman Lecture, University of Toronto (1979), 14 Law Society of Upper Canada 
Gazette 138, at 149-50. 

4 R.S.O. 1970, c. 224. 

5 R.S.O. 1970, c. 228. 

[259] 



260 



of cases. This proposal seems meritorious to us, and we recommend that 
consideration should be given to implementing it by the Rules Committee 
and the Council of Judges. The possibility of interim payments ordered by 
the Court should also be considered, together with alternatives such as 
imposing an interest or cost penalty on a defendant who refuses unreason- 
ably to make interim payments. 

DESCRIPTION OF COMMITTEES PROCEEDINGS 

The Committee met several times, between January and July, 1980. We 
advertised in the legal and in the daily press inviting briefs, and we sent 
letters to all insurers carrying on business in Ontario, to large organizations 
that might be expected to be self-insurers, to Law Reform Commissions and 
Provincial Justice Departments across Canada, and to Canadian and 
selected American torts teachers. Memoranda were prepared on the law and 
practice relating to periodic payments in various Commonwealth and 
foreign jurisdictions, including the United Kingdom, South Australia, 
Western Australia, France, West Germany and the American States. 
Extracts from academic writings on the subject were also made available to 
us and considered. The Report of the Pearson Commission, 6 and the 
arguments set out in it for and against periodic payments, were carefully 
considered. 

The response to our advertisements and letters was fairly low, as 
perhaps was to be expected. Many of the insurers replied, quite understand- 
ably, that they were leaving the Insurance Bureau of Canada to speak for 
them. To those who did reply, it was plain that the possibility of "open- 
ended" liability was of major concern. The Insurance Bureau of Canada, 
after consideration, informed us that it could not make submissions on so 
complex a matter without very careful consideration and extensive study, 
which seemed impossible within the time schedule contemplated by the 
Committee. This was a quite reasonable attitude for the Bureau to take, but 
the result was that we had to proceed without any substantial comment from 
the persons most likely to be affected by the introduction of a scheme of 
periodic payments. The response that we did receive, however, was suffi- 
cient to indicate to us that any system of variable "open-ended" payments 
would be viewed by insurers with grave concern. 

ARGUMENTS FOR AND AGAINST PERIODIC PAYMENTS 

An attempt is made in this section of the report to summarize the chief 
points for and against introducing a system of periodic payments. As a 
starting point, it seems sensible to take the words of Dickson J., in Andrews 
v. Grand & Toy Alberta Limited 7 which may be said indirectly to have led to 
the establishment of this Committee. 



Royal Commission on Civil Liability and Compensation for Personal Injury, Cmnd. 
7054-1 (1978). 

7 [1978] 2 S.C.R. 229, at 236-37. 



261 



Dickson J. said: 

The subject of damages for personal injury is an area of the law which cries 
out for legislative reform. The expenditure of time and money in the determi- 
nation of fault and of damage is prodigal. The disparity resulting from lack of 
provision for victims who cannot establish fault, must be disturbing. When it is 
determined that compensation is to be made, it is highly irrational to be tied to 
a lump sum system and a once-and-for-all award. 

The lump sum award presents problems of great importance. It is subject 
to inflation, it is subject to fluctuation on investment, income from it is subject 
to tax. After judgment, new needs for the plaintiff arise and present needs are 
extinguished; yet, our law of damages knows nothing of periodic payment. The 
difficulties are greatest where there is a continuing need for intensive and 
expensive care and a long term loss of earning capacity. It should be possible to 
devise some system whereby payments would be subject to periodic review and 
variation in the light of continuing needs of the injured person, and the cost of 
meeting those needs. In making this comment I am not unaware of the negative 
recommendation of the British Law Commission, (Law Com. 56— Report on 
Personal Injury Litigation— Assessment of Damages) following strong opposi- 
tion from insurance interest and the plaintiffs' bar. 

The apparent reliability of assessments provided by modern actuarial 
practice is largely illusionary, for actuarial science deals with probabilities, not 
actualities. This is in no way to denegrate a respected profession, but it is 
obvious that the validity of the answers given by the actuarial witness, as with a 
computer, depends upon the soundness of the postulates from which he 
proceeds. Although a useful aid, and a sharper tool than the "multiplier - 
multiplicand" approach favoured in some jurisdictions, actuarial evidence 
speaks in terms of group experience. It cannot, and does not purport to, speak 
as to the individual sufferer. So long as we are tied to lump sum awards, 
however, we are tied also to actuarial calculation as the best available means of 
determining amount. 

In spite of these severe difficulties with the present law of personal injury 
compensation, the positive administrative machinery required for a system of 
reviewable periodic payments, and the need to hear all interested parties in 
order to fashion a more enlightened system, both dictate that the appropriate 
body to act must be the Legislature rather than the Courts. 

ARGUMENTS FOR A PERIODIC PAYMENT SYSTEM 

1. Reliability of Assessment 

This is probably the strongest argument in favour of a change from the 
present system. The point seems to have weighed heavily with Dickson J., as 
he said: "After judgment, new needs of the plaintiff arise and present needs 
are extinguished." The lump sum system therefore may under-compensate 
(e.g. where unforeseen medical complications occur) or over-compensate 
(e.g. where the plaintiff makes a speedy recovery or dies shortly after 
judgment and his estate succeeds to the proceeds). Where there is a chance 
of the occurrence of an identifiable future event, an award discounted by the 
probability of occurrence is certain to be either too high or too low in the 



262 



individual case. Another aspect of the same matter, also apparent in 
Dickson J.'s words, is the dissatisfaction felt by judges in facing the impossi- 
ble task of estimating, accurately, the plaintiff's future needs. Additional 
support for periodic payments is found in the argument that the claimant 
does not really suffer any loss until it is actually incurred. Perfect compensa- 
tion, therefore, will be compensation of the plaintiff's actual losses as they 
accrue. 

2. Comparison with Social Security Programmes 

Comparison with Social Security programmes lends support to these 
considerations. Welfare, unemployment insurance and workers' compensa- 
tion programmes have adopted periodic payments as the standard medium 
of compensation. To those who see the tort system as a kind of accident 
compensation scheme funded by liability insurance, the comparison with 
social loss compensation schemes has cogency. 

3. The Present System Causes Delay by The Plaintiff in Litigation 

The argument here is that a once-and-for-all system of damage assess- 
ment compels the plaintiff to delay the trial as long as possible in order to 
gather the best possible evidence of the long term effects of his injury. If the 
plaintiff knew that the assessment could be re-opened if unexpected compli- 
cations ensued, he would have no incentive to delay: prompt trials would be 
in the interests of both parties and in the interests of the courts. Against this, 
however, must be set the costs of review procedures under any periodic 
payments system permitting subsequent adjustments. 

4. The Present System Delays The Plaintiff's Rehabilitation 

The argument is that because it will pay the plaintiff to prove at trial 
that his injuries are serious, he will not seriously attempt to rehabilitate 
himself before trial. Against this argument must be set the consideration 
that with a system of periodic payments liable to be reduced if the plaintiff 
regains health, the plaintiff will have an indefinite incentive against rehabili- 
tation. 

5. The Present System Deprives The Plaintiff of Compensation 
Immediately After The Accident when He May Need It Most 

The delay caused by the once-and-for-all system (point 3, above) means 
that the plaintiff must do without compensation for months, and perhaps 
years, after the accident. Compensation at an early date is a humane 
provision to a seriously injured person and an important tool of rehabilita- 
tion. The force of this consideration has been significantly reduced in 
automobile accident cases by the scheme of "no fault" benefits. The recent 
amendment to The Judicature Act providing for prejudgment interest will 
also doubtless encourage insurers to make advance payments. 



263 



6. "Compensation Neurosis" 

A system of adjustable periodic payments would eliminate or reduce 
the anxiety and, hence, the deleterious effect on the plaintiff's mental health 
of his whole future support depending on a single proceeding. 

7. The Present System puts Undue Pressure on The Plaintiff to Settle 

As mentioned above in para. 5, the long delay before trial means that 
the plaintiff will not have full compensation for some time after the injury. 
The defendant is certain to take advantage of this need in settlement 
negotiations, and it will be an advantage taken at the expense of those least 
able to afford it (i.e., those plaintiffs whose need is the most pressing). 

8. Tax Calculations 

The present system requires complex calculations of the incidence of 
income tax in a fatal accident claim with an initial reduction in respect of the 
deceased's liability to income tax and then a "grossing up" to allow for the 
incidence of income tax on the plaintiff's investment income. 8 The need for 
these calculations in fatal cases would be eliminated if periodic payments 
could be ordered, leaving it to Parliament to determine the incidence of 
taxation, if any. 

9. Income Tax Advantages of Periodic Payments 

A different point is the potential tax advantage to the claimant of tax- 
free periodic payments as opposed to a lump sum to be invested to produce 
(taxable) income. 

It appears that voluntarily agreed schemes of periodic payments 
(known as "structured settlements") have an important income tax advan- 
tage, in that Revenue Canada has been willing to treat receipts under such 
settlements as tax-free in the plaintiff's hands, whereas, if the plaintiff 
accepted a lump sum and purchased an annuity, tax would be payable on the 
interest element in the annuity payments. It is unnecessary to stress the 
point that in times of high interest rates the difference in tax treatment is 
very substantial, and the benefit can, in effect, be divided between the 
parties in settlement negotiations. 

We were interested to discover whether the same tax benefits would 
attach to periodic payments ordered by the court and, accordingly, commis- 



See Keizer v. Hanna, [1978] 2 S.C.R. 342. Somewhat different considerations apply in 
personal injury claims, as medical expenses are deductible in part from income tax (see 
Fenn v. City of Peterborough (1979), 25 O.R. (2d) 399, at 456), and compensation for 
loss of earning capacity is calculated without deduction of tax that would have been 
payable on the plaintiff's earnings. See R. v. Jennings, [1966] S.C.R. 532, Andrews v. 
Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229, at 259, per Dickson J. 



264 



sioned an opinion on this question, which is attached to this report as 
Appendix C. The opinion indicates that periodic payments ordered by the 
court would probably be treated as tax free in the hands of the judgment 
creditor. We considered, therefore, that a substantial advantage could be 
obtained by both parties from a provision empowering the court to order 
periodic payments at least on consent. 

10. Periodic Payments Would Avoid the Distasteful Necessity of 
Assessing A Widow's (or Widower's) Prospect of Remarriage in Fatal 
Accident Claims 

The argument is that periodic payments would simply be awarded, and 
would cease or be reduced if the claimant later remarried. It is hardly 
necessary to point out that this scheme opens up the even more distasteful 
prospect of setting up an economic disincentive to remarriage. A scheme 
whereby periodic payments were varied on "de facto" remarriage might 
solve this particular problem but would invite all the difficulties associated 
with monitoring and "snooping" into the plaintiff's private life. 

11. Dissipation of Awards 

An argument commonly made in favour of a change from the present 
system is that plaintiffs tend to squander the proceeds of their judgments. 
The point raises the question of whose money is the award. If it really is the 
plaintiff's money, and the plaintiff is of full age and understanding, it is 
difficult to object to his doing what he likes with it. However, if the tort 
system is viewed as an accident compensation scheme funded indirectly by 
the public through liability insurance premiums (now compulsory for 
motorists in Ontario), dissipation of judgment proceeds is a matter of public 
concern, especially as the plaintiff, if he leaves himself destitute, will be 
thrown upon the public purse for support by the social welfare system. 
Another point is that there are degrees of competence and there may be a 
case for controlling disposition of a large judgment sum even in the hands of 
a claimant whose condition would not justify an order under The Mental 
Incompetency Act . 9 

12. Protection Against Inflation 

It is said that periodic payments provide a better protection than lump 
sum awards against inflation. This depends on what system of cost of living 
indexing is employed for a periodic payment system. If periodic payments 
are inadequately indexed, the plaintiff would be better off with a lump sum 
that could, at least in theory, be invested to give protection against the 
decline in value of money. 10 A periodic payment system fully indexed 



9 R.S.0. 1970, c. 271. 

10 Twelve American States have adopted periodic payment provisions in some medical 
malpractice cases, but almost all exclude any possibility of subsequent variation. See 



265 



against inflation would certainly offer an attractive alternative to the present 
system, but it is not easy to see how such a system could be financed without 
state participation of some sort. 11 

ARGUMENTS AGAINST PERIODIC PAYMENTS 

1. Lack of Finality 

The well-known maxim: "interest reipublicae ut sit finis litium" 
undoubtedly has force, though against the interest in finality must be 
weighed the interest of the plaintiff in a full and fair assessment of the 
damage caused by the defendant's wrong, and reasonable assurance of 
receiving just compensation for it. 

Any system of periodic payments adjustable in the light of changing 
circumstances will involve the direct costs of the review process. The burden 
on the court of hearing applications to vary awards and appeals from 
variations could be expected to be considerable. The costs to the parties of 
legal representation and of assembling and presenting the necessary evi- 
dence must also be taken into account. Expert witnesses would almost 
always be required on both sides whenever a change in medical condition 
was alleged. 

Applications for variation could be expected in respect of changes in 
the value of money, changes in costs not reflected in the change in value of 
money, and changes in the claimant's actual needs. A formula could be 
envisaged that would automatically vary the claimant's award according to 
some predetermined measure of the change in the value of money. Such a 
change, however, would almost never exactly match the claimant's actual 
costs. In principle, therefore, a search for perfect compensation would 
require a hearing to determine the amount of each loss as it accrued. 
Changes in the claimant's needs should require similar treatment. Conve- 
nience would, presumably, demand some time period between assessments; 
perhaps annual hearings would be the most frequent feasible with provision 
for interest to be paid on any money owing from the date of accrual of the 
loss until actual payment. 

The burden of re-hearings might be reduced by setting some threshold 
requirement, for example, that only substantial changes in costs or in needs 
would be considered. Such a proposal raises considerable difficulties, how- 
ever, in finding a satisfactory definition of "substantial changes". If the 
phrase is undefined, litigation will be required in each case to determine if 



Elliget, "The Periodic Payment of Judgments", [1979] Ins. Counsel J. 130. These 
provisions were enacted hastily in what was perceived as a "medical malpractice crisis". 
Their constitutionality is in question. See American Bank & Trust Co. v. Community 
Hospital, 163 Cal. Rptr. 513 (1980). 

The French system is financed by a State-run reinsurance scheme. 



266 



the case can be re-opened. If defined, for example, in dollar or percentage 
figures, it will give rise to anomalies and injustice in depriving claimants of a 
variation where the change falls short of the specified figure and a tendency 
to inflate claims in order to trigger the threshold. 

One possibility sometimes discussed is to make variation dependent on 
the occurrence of a specified event mentioned at trial. This proposal was 
adopted by the English Law Commission. 12 It would certainly reduce the 
burden of continual re-assessment, but might give rise to its own anomalies. 
Everything would depend on the exact words used by the trial judge in 
defining the circumstances that would permit review. "The plaintiff may 
apply for a re-assessment if he develops epilepsy" might not cover the case of 
the plaintiff developing a brain tumor. One could foresee a tendency on the 
part of trial judges to define very broadly the circumstances that would 
permit review. Such a tendency would lead to the difficulties mentioned 
above, and would only make more anomalous those cases where review was 
denied. 

The burden of review would be reduced by a provision that application 
could only be made once, or only once in a long period of time, or only 
within a certain period of time following a judgment, 13 but such systems 
would have most of the deficiencies of the present one. 

2. Loss o£ Incentive to Rehabilitation 

A point very commonly made against a variable system of periodic 
payment is that if it paid the claimant to remain disabled, some claimants (at 
the margin, at least) will tend to remain disabled, whereas with compensa- 
tion settled, they might achieve more rapid rehabilitation. It is not necessary 
to support this argument with accusations of malingering. It is enough to say 
that, perhaps subconsciously, some claimants will tend to remain in a state 
of health that will be financially advantageous. 

Supporters of a change from the present system generally concede this 
point, but consider it to be offset by the ill effects on the plaintiff's health of 
the present system. 14 Another point that can be made is that malingering, or 
its psychological equivalent, has not proved an insuperable obstacle to 
periodic payments in social security schemes, such as Workers' Compensa- 
tion. 



19 

Law Com. Report on Personal Injury Litigation— Assessment of Damages, No. 56, 

1973, pp. 64-65. 

to , 

Article 296 of Book V of the proposed Quebec Civil Code would permit review within 

five years of judgment or settlement if the creditor's position "subsequently worsened 

substantially." 

14 Pearson Commission Report, para. 571. 



267 



3. The Defendant (or His Insurer) will be Encouraged to Snoop into the 
Plaintiff's Private Life 

This point may be considered, like the last, to be an aspect of loss of 
finality. If it will pay the defendant to prove that the plaintiff is less disabled 
than he claims or that he is earning more than he admits, it may pay the 
defendant also to investigate the plaintiff's affairs in search of evidence. This 
prospect would be particularly distasteful in fatal accident claim cases if the 
claim for lost support were to be diminished by the claimant's obtaining 
support from other sources. Any system whereby a claim to support were to 
cease on the claimant's "de facto" marriage, would run into this difficulty. 
Loss of the claim on actual remarriage would not run into the same 
objection, but would be open to the objection that it discouraged actual 
remarriage in favour of "de facto" marriage relationships. Against these 
arguments, insofar as they apply to personal injury claims, can be made the 
point that snooping by insurers has not proved to be an unmanageable 
problem in the case of long-term disability insurance, where the same 
incentives exist. 

4. The Claimant is Deprived of His Preferred Result 

The argument here is for freedom of choice. The plaintiff can always 
purchase an annuity if he wishes to do so, with the proceeds of a lump-sum 
judgment or otherwise invest it to produce periodic income. Moreover, the 
plaintiff can agree on a "structured" settlement and this is being done with 
increasing frequency. It is argued that there is no justification for compelling 
the plaintiff to accept an annuity and that the net effect may be to lower the 
plaintiff's bargaining power in settlement negotiations, leaving the plaintiff 
who prefers a lump sum simply with a smaller lump-sum settlement than he 
would obtain under the present system. The strength of this argument 
depends on the weight to be accorded the arguments mentioned earlier that 
the plaintiff does not really suffer a loss until it accrues, that the proceeds of 
the judgment are funded indirectly by the public in the form of liability 
insurance premiums, and that it is consequently justifiable for the state to 
restrain dissipation of a lump sum award. 

5. Insurers Are Unable to Close Their Books or to Estimate Their 
Liabilities 

As is clear from the response to our letter to insurers, this is an 
important concern to the insurance industry. The argument is that insur- 
ance losses must be capable of estimation with reasonable certainty in order 
to calculate appropriate premiums. "Open-ended" liability prevents this 
calculation. 

Against this argument it may be said that insurers, better than anyone 
else, should be able to estimate the value of uncertain future events. Where 
the uncertainty is the length of the claimant's life, it must surely be conceded 



268 



that there can be no actuarial difficulty. Where the uncertainty is the future 
state of the claimant's health, it can be argued that cases where health 
improves unexpectedly will balance those where it deteriorates. The force of 
this argument depends on the weight to be given to the point made earlier 
about the claimant's tendency to malinger (deliberately or subcon- 
sciously)— a problem from the insurance point of view of "moral hazard". 

In respect of inflation, insurers commonly say that only the govern- 
ment can afford a fully inflation-proofed pension. This argument appears to 
have force but could be met in several ways; for example, by a state-run re- 
insurance scheme of which various forms are possible, or by a cost of living 
increase in the periodic payments not to exceed a standard measure of 
interest rates, e.g. the Government of Canada Treasury Bill rate, readily 
available to a prudent investor. 

6. In Respect of Future Lost Earnings Justice Requires an Injured 
Plaintiff to Receive a Lump Sum 

The argument here is that the plaintiff who is disabled loses a capital 
asset, and that he ought to have the option of receiving a capital sum in 
compensation so that, for example, a disabled carpenter might set up in the 
construction business. This argument is supported by the Supreme Court of 
Canada in R. v. Jennings and by the House of Lords in Pickett v. British Rail 
Engineering Limited, [1978] 3 W.L.R. 955, both cases holding that a claim 
for future lost earnings is equivalent to a claim for a capital asset and 
represents a present loss. In answer to these points, it may be argued that a 
periodic payment scheme could make allowance for the commutation of 
periodic payments to a lump sum on good cause shown by the claimant. 

7. Future Medical Expenses are already Subject to Subrogation in 
Favour of O.H.I.R 

Since O.H.I.R is subrogated to the portion of the claim for future 
medical expenses that fall within the coverage of the health insurance 
scheme, 15 there can be no question of the plaintiff dissipating this portion of 
the award or of the plaintiff being over-compensated or under-compensated, 
since he will receive what he needs from O.H.I.R— no more and no less. It 
would be most inconvenient, therefore, to contemplate periodic reviews of 
this portion of the award, and very wasteful to conduct reviews to adjust 
accounts between O.H.I.R and the defendant's insurer according to changes 
in the plaintiff's state of health. It would be even more anomalous to 
contemplate such reviews in the case of an uninsured defendant. All 
considerations seem to point to the advantages of a lump sum settlement in 
favour of O.H.I.R 



15 The Health Insurance Act, 1972, S.O. 1972, c. 91, s. 35(1). By agreement between 
O.H.I.R and many insurers, the right of subrogation in automobile cases is given up in 
return for a payment by the insurer. 



269 



8. Only a Comparatively Small Area Remains which a Periodic 
Payment Scheme would Apply 

If points 6 and 7 are soundly based, we will have excluded a substantial 
portion of most personal injury awards and will be left only with claims for 
future pain and suffering and loss of amenities (limited to a conventional 
maximum) 16 and claims for the cost of future care not covered by O.H.I. P. 
The argument is that it is hardly worth the effort of introducing a major 
change in the present system when the change will have no effect on most of 
the damages awarded in respect of future losses caused by personal injury. 

9. Periodic Payments put an Undue Burden on the Uninsured Defendant 

Although many defendants are adequately insured against liability for 
personal injuries, some are not. Even with compulsory automobile insur- 
ance, the low statutory minimum ($100,000.00) means that many motorists 
will be under-insured. When it is recalled that modern tort law (judicial and 
statutory) may impose liability without any finding of real fault (e.g. 
vicarious liability of the owner of an automobile who lends it to a friend) it 
must surely give us pause to contemplate burdening an innocent defendant 
with a perpetual open-ended liability. It would, as the dissenting Pearson 
commissioners commented, 17 make the plaintiff the defendant's pensioner 
for life. It is true that approximately such a result is effected in matrimonial 
support cases, but the justification here is presumably what is still regarded 
as the life-long commitment of marriage. It seems doubtful whether the 
concept should be extended to a tortfeasor, especially one who is not, in any 
real sense, at fault. The point is strengthened by a contemplation of the 
effect of inflation-proofed periodic payments. A relatively modest award of 
$20,000.00 per annum to a person disabled by an accident would, if indexed 
at a 10% annual rate of inflation with yearly rests, rise to $57,062.00 in the 
twelfth year for a total payment at the end of that year of $427,684.00. The 
impact of such a liability on an uninsured defendant whose after-tax income 
was rising at a slower rate than the rate of inflation, would be devastating, 
and bankruptcy would provide no relief if, as would seem probable, the 
obligation to make payments were held to accrue periodically. Supporters of 
periodic payments might make the point that the impact of a judgment on a 
defendant should be irrelevant to the proper assessment of compensation; 
however, the practical considerations mentioned here cannot be ignored. 

10. The Plaintiff Can Evade Any Periodic Scheme by Making a Lump 
Sum Settlement 

The point here is that unless lump sum settlements are controlled, a 
claimant will be free, even if periodic payments are introduced, to settle his 



16 See Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229, Arnold v. Teno, [1978] 2 
S.C.R. 287, Thornton v. School District No. 57 (Prince George), [1978] 2 S.C.R. 267 
($100,000); Lindal v. Lindal, [1978] 4 W.W.R. 592 (B.C.S.C.) ($135,000); Fenn v. City of 
Peterborough (1979), 25 O.R. (2d) 399 (C.A.) ($125,000). 

17 Pearson Commission Report, para. 621. 



270 



claim for a lump sum. Thus, the rationale for periodic payments that 
depends on the desirability of preventing the plaintiff from dissipating his 
award loses most of its force if the plaintiff can evade the control by settling 
for a lump sum and dissipating that. The net effect may be that the plaintiff 
who prefers a lump sum will simply be induced to settle for a smaller sum. 
There are two major arguments in favour of periodic payments, prevention 
of dissipating of awards, and the securing of more exact compensation. 
Unless the settlement point can be met, the first argument loses much of its 
force. The second, however, stands, and a periodic payment system could 
rationally be supported on that ground alone, if other objections could be 
satisfactorily answered. 

It is not easy to see an answer to the settlement point, unless we were 
willing to contemplate the control (for example, by the court) of all settle- 
ments. This would cause a heavy administrative burden and would prob- 
ably be resisted by the profession and perhaps by the public as an undue 
restriction on the freedom of plaintiffs and defendants to settle their own 
litigation. The Pearson Commission conceded this point, merely imposing a 
duty on the plaintiff's adviser to point out the advantages of periodic 
payments before agreement to a lump sum settlement. 18 Of course, if the 
periodic payment scheme were sufficiently attractive, plaintiffs would be 
expected to elect periodic payments, but so long as lump sum settlements 
are allowed, it cannot be a major justification for periodic payments that the 
plaintiff will be prevented from dissipating the proceeds of his judgment. 

11. The Problem of Fixed Dollar Insurance Limits 

Inflation-proofed periodic payments are not easily compatible with 
fixed dollar limits on liability insurance. Consider the example mentioned 
above of an award of $20,000.00 per annum for lost income. Let us suppose 
that the disabled person is a man aged 22 and that his life expectancy is not 
affected by the disability. Under current practice, such an award would be 
calculated by finding the plaintiff's life expectancy to retirement age (40 
years) and then finding the present value of $20,000.00 per annum for 40 
years at a discount rate of, say, 2 1/2% (about $51 1,400.00). Deduction would 
then be made for adverse contingencies, such as sickness and loss of 
employment, etc. With even slight deductions for contingencies, the award 
would be within the limits of a $500,000.00 insurance policy such as is 
carried by many responsible motorists. Consider, now, the effect of a 
$20,000.00 per annum periodic payment for the plaintiff's life indexed to 
inflation at 10% (higher rates of inflation are not beyond contemplation). 
Unless the insurer were required to set aside and invest the sum of 
$500,000.00 in the first year for the benefit of the insured, the $500,000.00 
limit would be eaten up in thirteen years, and the payment required in the 
fourteenth year would exceed the policy limit by $59,498.00, sufficient to 
put many defendants into bankruptcy. Unless future payments were held to 



18 



Pearson Commission Report, paras. 577-78. 



271 



be discharged by the bankruptcy, the defendant would then be left with 
liability for ever-increasing payments for a further 26 years. It may be said in 
reply to this point that insurance practices would have to change to accom- 
modate a system of periodic payments. It is doubtful, however, whether this 
accommodation could be left to chance. Probably, periodic payments would 
have to be introduced with accompanying legislation to have immediate 
effect on existing and future insurance policies. The American model 
Periodic Payment of Judgments Act meets this point by including a provi- 
sion in the model legislation that deems full liability of the defendant to be 
within the policy limits if the capitalized value of the award is less than the 
amount of the policy limit. A provision along these lines would have to be 
included in any scheme proposed for Ontario, though the capitalization 
formula would be far more complex than that in the Periodic Payment of 
Judgments Act, if the defendant's liability were "open-ended", i.e., subject 
to uncertain increases in the future. A scheme limited to motor vehicle 
accidents could meet the point by requiring compulsory insurance without 
limit, as in England and other countries. This possibility, however, was 
outside the Committee's terms of reference, and would require careful 
consideration and wide consultation. 

12. Problems Associated with The Plaintiff's Death 

Two questions arise from the possibility of the death of a plaintiff in 
receipt of periodic payments. It should be noted that death may be caused 
either by the accident itself for which the defendant is responsible, or by 
independent causes. First, what portion of the unpaid judgment passes to 
the plaintiff's estate? Second, what rights have dependants under Part V of 
the Family Law Reform Act! If the present view of the courts is soundly 
based, that the claim of an injured person for lost future earnings represents 
a present capital loss to him, the right to recover compensation for that loss 
ought, in principle, to pass to the plaintff 's estate, as held by the House of 
Lords in Pickett v. British Rail Engineering Limited, and in the more recent 
case of Kandalla v. British European Airways Corp., [1980] 2 W.L.R. 730 
(Q.B.). The result would be that the capitalized value of the unpaid portion 
of the periodic payments representing lost earnings should pass to the 
plaintiff's estate, and this result should ensue whatever the cause of the 
plaintiff's death. The reason has nothing to do with the defendant's respon- 
sibility for the death . In order to preclude the necessity of later hearings to 
determine the appropriate recovery to the estate, provision would have to be 
made in any periodic payment scheme for the trial court to indicate the 
findings of fact necessary to enable the calculation to be easily made on the 
plaintiff's death (that is, life expectancy, contingencies and annual loss). 

The second question, that of the rights of the dependants, requires a 
different answer. The dependants' claim arises only if the defendant is 
responsible for the death. A separate hearing would, therefore, be required, 
in case of dispute, to determine both the value of the lost dependancy and 
the defendant's responsibility for the death. The Pearson Commission 
accepted this necessity even though recognising that "this would be a 



272 



departure from the usual rule that more than one action should not be 
brought for the same injury". 19 If the basic periodic payment scheme were to 
be extended to fatal accident cases, the award would then be payable to the 
dependants as periodic payments; otherwise, as a lump sum, which would 
require capitalization. 

13. The Need for Adequate Security 

Provision would have to be made in any periodic payment scheme for 
the defendant to put up security. In the absence of such security the plaintiff 
should have the option of taking a lump sum judgment and seeking to 
enforce it immediately. 

14. Assignment of Rights to Periodic Payments 

If one object of the periodic payment scheme is to prevent the plaintiff 
from dissipating an award, provision would have to be made in any periodic 
payment scheme to prevent assignment by the plaintiff after judgment of his 
rights to periodic payments, except as security for the provision of health 
care and, perhaps, for certain other purposes (for example, legal fees related 
to the claim and family support). This would not be a difficult concept to 
accept, as wage assignments have long been prohibited in Ontario (except to 
credit unions) and O.H.I.P. will be subrogated to a substantial portion of the 
judgment representing future cost of medical care. A related question is 
whether periodic payments should be exempt in whole or in part from 
claims of creditors. Alternative views are tenable on this question. It is 
arguable that seizure should be permitted to the extent that wages can be 
attached, and that there should be an exception for family support obliga- 
tions. 

15. Procedural Changes would be Required to Require Trial Courts to 
make Specific Findings on Relevant Matters 

Specific findings would be required of the precise components of the 
periodic payments award for purposes of capitalising the award or the 
remaining part of it, or the lost earnings portion of it, in the event of a failure 
of the defendant's security, or of the plaintiff's death, or of the commutation 
of the award to a lump sum for other good reason, if that were permitted, 
and for rational calculations of adjustments to portions of the award in the 
light of changing circumstances. Provision would have to be made, there- 
fore, for the trial judge, in case of trial by judge alone, to make specific 
findings of the relevant facts, and for the jury, in case of trial by jury, to 
answer detailed interrogatories to a similar end. 



19 Pearson Commission Report, para. 593. 



273 



16. Periodic Payments are Less Suited to Fatal Accident Cases than to 
Injury Cases 

Even if the arguments for periodic payments in personal injury cases 
are accepted, the case for extending the system to fatal cases is a weaker one, 
for the lapse of time will never resolve the uncertainties of the deceased's 
future. However, the recipient would still have the benefits of whatever 
protection the scheme might give against inflation, and of the income tax 
advantages of periodic payments. 

THE COMMITTEES CONCLUSIONS 

Some of the arguments against periodic payments considered above are 
relatively minor. Certainly, if such a scheme were thought desirable, prob- 
lems of security, assignment, and the form of the judgment would not be 
insuperable obstacles. However, other arguments are substantial. 

We agree with the Pearson Commission that control of voluntary 
settlements would be neither justifiable nor practicable. 20 Consequently, 
plaintiffs would remain free to settle their claims for a lump sum and to 
dissipate the proceeds, even if a periodic payment scheme were introduced. 
Subject, therefore, to the limited recommendation made below, we do not 
consider that restraint on the disposition of awards can be adopted as a 
sufficient reason in itself for instituting a system of periodic payments. 

The other major argument for periodic payments is that it yields more 
perfect compensation than the present system. We accept that this is so but 
consider, briefly speaking, that the benefits of perfect compensation are 
outweighed by the loss of finality. In particular, we do not see an easy 
solution to the problems of fixed dollar insurance limits and of the burden of 
variable periodic payments on the uninsured defendant. We are also per- 
suaded that the direct costs to the State and to the parties of the review 
process required by variable payments would be high. The parties would 
also have to bear the cost of the uncertainty introduced by variable periodic 
payments. 

One possible solution that has been suggested to some of these prob- 
lems involves the creation of some sort of fund to which the defendant 
would pay a lump sum and from which the plaintiff would draw periodic 
payments. 21 This proposal, however, would involve the creation of some 
sort of Board or Tribunal to administer the fund. The solvency of the fund 
would require State assurance. Even though, in theory, the gains and losses 
to the fund would even out in the long term, we consider that in practice, 



20 Pearson Commission Report, para. 577. 

21 See Feldthusen and McNair, "General Damages in Personal Injury Suits: The Supreme 
Court's Trilogy" (1978), 28 U. Toronto L.J. 381, at 425. 



274 



partly because of the "moral hazard" problem referred to earlier, the 
creation of such a fund would put a burden on public funds. We are not 
convinced that it would be desirable to create what would, in effect, be a 
State-run insurance agency operating in one small field of personal injury 
compensation. 

For these reasons, we have rejected any general scheme of variable 
periodic payments that would be imposed on the parties against their will. 
However, we see no objection to the entering of a reviewable judgment on 
consent of the parties as has, in fact, been done in the past. 22 As there is some 
doubt about the basis of such a judgment in the existing Rules, we recom- 
mend an amendment to make it clear that the court has power, on consent, 
to enter such a judgment. 

Secondly, and for similar reasons, we see no objection to a judgment for 
periodic payments with the parties' consent. We see potential advantage to 
both parties in the shape of income tax savings, 23 and we accept that there is 
a need for this possibility to be made explicit, so that parties can obtain on 
judgment the same income tax advantages that are available on voluntary 
settlement. We recommend that the Rules be amended accordingly. 

Thirdly, we consider that there is a case to be made for restricting the 
plaintiff's disposition of an award in certain very limited circumstances. 
Cases arise in which the plaintiff, though not mentally incompetent, is 
plainly incapable of managing a large sum of money. In borderline cases, it 
would often be distressing to the plaintiff to have proceedings brought under 
the Mental Incompetency Act , and if the only need is to restrain disposition 
of a single award, it is surely too stark a choice to compel an election 
between no restraint at all, and the institution of mental incompetency 
proceedings. The judge who has seen the plaintiff in the witness box can, we 
consider, in the limited class of cases contemplated, make a decision on such 
a question. Although we contemplate that the power would only be exer- 
cised in "near-incompetency" cases, we do not consider it desirable 
expressly to limit the judge's power by the use of such a phrase. We consider 
that the exercise of the power can safely be left to the judge's discretion. We 
would limit this recommendation to the portion of the judgment represent- 
ing the cost of future care, and, since a substantial portion of these costs is in 
any case subject to subrogation in favour of O.H.I.P. it will be seen that the 
recommendation is a very restricted one. We accept also, as stated above, 
that voluntary settlements cannot be controlled, so it will be seen that the 
power that we contemplate will only rarely be exercised in a very limited 
field. We consider, however, that such a power would be useful in the limited 
circumstances described. The Committee was informed by the Public 
Trustee that judges have several times in the past few years ordered judg- 
ments to be paid to the Public Trustee to be invested for the plaintiff in such 



22 See Steeves v. Fitzsimmons (1975), 11 O.R. (2d) 387 (H.C.) 

See pp. 7-8 abo 
not reproduced 



See pp. 7-8 above [reproduced supra at 263-64], and Appendix C, below. [Appendices 



275 



cases. We recommend that the Rules be amended to provide clear authority 
for this practice. 

We are conscious that these are modest proposals, but we think it wise 
to proceed with caution. We recommend that the proposed new Rules 
should be reviewed after a period of five years with a view to their possible 
extension at that time. 



SUMMARY OF RECOMMENDATIONS 

We recommend the following additions to the Rules: 

A. An award of damages may, in cases of wrongful death or personal 
injury, in the court's discretion and on consent of all parties, be 
made open to review on such terms and in such circumstances as 
the court may consider just. 

B. The court may, in cases of wrongful death or personal injury, with 
the consent of all parties to an action, order the defendant to pay 
damages periodically on such terms as the court considers just. 

C. (i) The court may, in its discretion, order a defendant to pay any 

part of a judgment sum representing the cost of future care of 
an injured plaintiff to the Public Trustee, the Accountant of 
the Supreme Court or such other person as the court may 
approve, to be invested on behalf of the plaintiff and paid out 
to or for the plaintiff at such times and in such circumstances 
as the court may order. 

(ii) Any order made under subsection (i) may be rescinded or 
varied at any time on application to the court by the judgment 
creditor. 

The Honourable Mr. Justice Richard E. Holland, Chairman 
J. Roderick Barr, Q.C. Earl A. Cherniak, Q.C. 

His Honour Senior Judge N. Douglas Coo 
Stephen B. McCann Brendan O'Brien, Q.C. 

Theodore H. Rachlin, Q.C. 



APPENDIX 6 



Ontario Law Reform Commission 

Compensation for Personal 
Injuries and Death Project 

List of Research Papers 



1. Bale: 

2. Dunlop: 

3. Feldthusen: 

4. Rea: 

5. Reaume: 



Cost of Future Care, Periodic 
Payments, Structured Settlements, 
Discounting, Taxation and Gross-up 

Non-Pecuniary Loss and Exemplary 
Damages 

Research Paper 

An Economic Perspective 

Compensation for Loss of Working 
Capacity 



Note: It is proposed to deposit the Research Papers in the Legislative 
Library of Ontario. 



[277] 



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