Learning Outcomes
After reading this article, you will understand the core principles for calculating damages related to loss of earnings in personal injury and fatal accident claims. This includes the distinction between pre-trial and post-trial losses, the methods used for calculating future losses (such as the multiplier-multiplicand approach), the duty to mitigate, and specific considerations for claims arising from death under relevant legislation. This knowledge will assist you in applying these principles to SQE1 assessment questions.
SQE1 Syllabus
For SQE1, you are required to understand the principles governing the award of damages in tort, particularly concerning financial losses resulting from personal injury or death. This includes the calculation of both past and future loss of earnings.
Your revision should focus on:
- The objective of compensatory damages in tort.
- Distinguishing between pecuniary and non-pecuniary losses.
- Methods for calculating pre-trial loss of earnings, including relevant deductions.
- The multiplier-multiplicand approach for assessing future loss of earnings.
- The relevance of the Ogden Tables in calculating future losses.
- The claimant's duty to mitigate financial losses.
- Principles governing claims under the Law Reform (Miscellaneous Provisions) Act 1934 and the Fatal Accidents Act 1976, specifically regarding loss of dependency.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the primary objective of awarding compensatory damages in tort?
- Distinguish between special damages and general damages in the context of loss of earnings.
- What is the 'multiplier-multiplicand' method used for?
- Under which Act can dependants of a deceased person claim for loss of financial support?
Introduction
When a claimant succeeds in a tort claim involving personal injury or death, a significant component of the remedy awarded is damages designed to compensate for financial losses. A primary element of this financial loss is the loss of earnings, both those incurred before the trial or settlement (pre-trial loss) and those anticipated to be lost in the future (post-trial loss). Assessing these losses requires applying specific legal principles and calculation methods to achieve the fundamental aim of tort damages: restoring the claimant, as far as possible, to the position they would have been in had the tort not occurred. This article details the key rules and approaches used by the courts in England and Wales to quantify loss of earnings claims.
Compensatory Damages: Core Principles
The overarching principle guiding damages in tort is restitutio in integrum, meaning restoration to the original position. This aims to place the claimant, financially, where they would have been without the defendant's wrongful act. Damages are broadly categorised into pecuniary (financial) and non-pecuniary (non-financial) losses. Loss of earnings falls under pecuniary losses.
Key Term: Pecuniary Loss
Financial losses that can be quantified in monetary terms, such as lost earnings, medical expenses, and care costs.Key Term: Non-Pecuniary Loss
Losses that are not easily quantifiable in monetary terms, principally pain, suffering, and loss of amenity (PSLA).
Pre-Trial Loss of Earnings
This head of damage covers the period from the date of the injury up to the date of the trial or settlement. It is classified as special damages because it represents losses that have already crystallised and can, in theory, be calculated precisely.
Calculation
The calculation aims to determine the claimant's net loss of earnings during this period. This involves:
- Establishing Gross Earnings: Determining the total income the claimant would have earned, including salary, wages, bonuses, overtime, and benefits in kind (e.g., company car, health insurance).
- Deducting Outgoings: Subtracting statutory deductions like income tax and National Insurance contributions, as well as work-related expenses the claimant no longer incurs (e.g., travel costs).
- Accounting for Actual Receipts: Deducting any earnings the claimant did receive during the period (e.g., sick pay from the employer, earnings from alternative work if mitigation occurred).
Evidence such as payslips, employment contracts, tax returns, and employer statements is essential.
Mitigation
Claimants have a duty to mitigate their loss. This means they must take reasonable steps to minimise their financial losses. In the context of pre-trial loss of earnings, this might involve seeking suitable alternative employment if unable to return to their previous role, or undertaking reasonable medical treatment to facilitate recovery. Failure to take reasonable steps to mitigate can result in a reduction in the damages awarded for losses that could have been avoided.
Post-Trial Loss of Earnings
This covers the loss of earnings anticipated from the date of trial or settlement into the future. It is classified as general damages because it involves estimating future losses and cannot be calculated with absolute precision.
The Multiplier-Multiplicand Method
The standard method for calculating future loss of earnings involves two key figures:
Key Term: Multiplicand
The claimant's net annual loss of earnings, representing the yearly financial loss projected into the future. This figure is based on the claimant's likely earnings but for the injury, considering potential career progression, minus any residual earning capacity.Key Term: Multiplier
A figure representing the number of years the loss is expected to continue. It is derived from actuarial tables (the Ogden Tables) and adjusted to account for factors like the claimant's age, expected retirement date, and contingencies of life (e.g., potential unemployment, early retirement). It also incorporates a discount rate to reflect the accelerated receipt of the compensation as a lump sum.
The future loss is calculated by multiplying the multiplicand by the multiplier.
Ogden Tables
These actuarial tables provide statistical data used to determine the appropriate multiplier. They factor in mortality rates, employment probabilities, and other contingencies. The tables are updated periodically, and their use is standard practice in personal injury litigation to ensure consistency and accuracy in future loss calculations.
Key Term: Ogden Tables
Actuarial tables used by courts in the UK to calculate multipliers for assessing future financial losses in personal injury and fatal accident claims.
Contingencies and Discount Rate
The multiplier derived from the Ogden Tables is adjusted for contingencies other than mortality (e.g., sickness, unemployment) unless already factored into the specific table used. Importantly, it incorporates a discount rate. This reflects the fact that the claimant receives the compensation as a lump sum, which can be invested to generate returns. The discount rate aims to ensure the claimant is not overcompensated due to this investment potential. The rate is set by the Lord Chancellor under the Damages Act 1996; the current rate in England and Wales is -0.25%.
Loss of Earning Capacity (Smith v Manchester Award)
Sometimes, a claimant returns to their pre-injury earnings level but the injury places them at a disadvantage on the open labour market should they lose their current job. In such cases, the court may make a separate award for this loss of earning capacity, often referred to as a Smith v Manchester award. This compensates for the risk that future job searches might be more difficult or result in lower earnings due to the injury.
Worked Example 1.1
Question: Sarah, aged 30, was a graphic designer earning £40,000 net per year. Due to a negligently caused injury, she can now only work part-time in an administrative role earning £15,000 net per year. She planned to retire at 67. How is her future loss of earnings initially calculated?
Answer: The multiplicand is her net annual loss: £40,000 - £15,000 = £25,000. The multiplier would be determined using the Ogden Tables, based on a female aged 30 with a retirement age of 67, adjusted for contingencies and using the current discount rate (-0.25%). Multiplying the £25,000 multiplicand by the appropriate multiplier gives the lump sum award for future loss of earnings.
Damages on Death
When a person's death is caused by a tort, specific statutory frameworks govern the recovery of damages, primarily the Law Reform (Miscellaneous Provisions) Act 1934 (LR(MP)A 1934) and the Fatal Accidents Act 1976 (FAA 1976).
Law Reform (Miscellaneous Provisions) Act 1934
This Act allows certain causes of action vested in the deceased at the time of death to survive for the benefit of their estate. The estate can claim for losses suffered by the deceased up to the date of death. This includes:
- Pain, suffering, and loss of amenity experienced before death.
- Loss of earnings incurred between injury and death.
- Expenses incurred before death (e.g., medical costs).
- Funeral expenses if paid by the estate.
Damages recovered become part of the deceased's estate and are distributed according to their will or intestacy rules.
Fatal Accidents Act 1976
This Act allows specified dependants of the deceased to bring a claim in their own right for losses suffered as a result of the death. The key claims are:
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Loss of Dependency: Compensates dependants for the loss of financial support they would have received from the deceased.
- Eligibility: Only dependants listed in s.1(3) FAA 1976 (e.g., spouse, civil partner, cohabitee (living together for at least two years pre-death), children, parents) can claim.
- Assessment: Uses the multiplier-multiplicand method. The multiplicand is the annual value of the financial dependency (deceased's net income less amount spent solely on themselves). The multiplier reflects the expected duration of the dependency, adjusted using Ogden Tables.
- Irrelevant Factors: Prospects of remarriage or civil partnership for a surviving spouse/partner are disregarded (s.3(3) FAA 1976). Benefits accruing to dependants from the estate (e.g., inheritance) are also disregarded (s.4 FAA 1976).
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Bereavement Damages: A fixed statutory sum (currently £15,120) awarded for grief and suffering. Only specific relatives can claim (spouse/civil partner, cohabiting partner (for deaths after 6 Oct 2020), parents of an unmarried minor child (shared if both parents claim)).
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Funeral Expenses: Can be claimed if paid for by the dependants (rather than the estate).
"Lost Years" Claim
Under the LR(MP)A 1934, the estate can also claim for the deceased's loss of earnings during the "lost years" – the period the deceased would have lived and worked but for the tortious death (Pickett v British Rail Engineering Ltd [1980] AC 136). This award is calculated based on the deceased's net earnings during those years, less an estimated amount for their personal living expenses had they survived.
Key Term: Lost Years
In a fatal accident claim, the period between the deceased's predicted date of death due to the tort and their predicted date of death had the tort not occurred. The estate can claim for net loss of earnings during this period, less the deceased's likely living expenses.
Worked Example 1.2
Question: David, aged 45, was killed instantly in an accident caused by Tom's negligence. David earned £50,000 net annually. He is survived by his wife, Chloe (aged 43), and two children (aged 10 and 12). David would have retired at 67. What claims might Chloe bring?
Answer: Chloe can bring claims under the FAA 1976.
- Loss of Dependency: She can claim for herself and the children. The multiplicand will be based on David's £50,000 net income, less his personal living expenses (likely a 25% or 33% deduction). The multiplier will be based on the duration of dependency (until David's retirement for Chloe, potentially until age 18/21 for children), adjusted via Ogden Tables.
- Bereavement Damages: Chloe can claim the fixed statutory sum (£15,120).
- Funeral Expenses: If she paid them. David's estate could also bring a claim under the LR(MP)A 1934, but as death was instant, PSLA and pre-death losses are nil. The estate could potentially claim for the "lost years" (earnings from age 45 to 67, less living expenses).
Special Considerations
Periodical Payments
Courts Act 2003 allows courts to order damages for future pecuniary loss (like loss of earnings or care costs) to be paid as periodical payments rather than a single lump sum. This can provide greater financial security for claimants with long-term needs.
Provisional Damages
Where there is a proven chance that the claimant may develop a serious disease or suffer a serious deterioration in their condition in the future, the court may award provisional damages under the Senior Courts Act 1981, s 32A. This allows the claimant to receive damages for their current condition and return to court for further damages if the specified disease or deterioration occurs later.
Exam Warning
When calculating damages, pay close attention to the specific heads of loss. Distinguish clearly between pre-trial (special damages) and post-trial (general damages) losses. Remember that pure economic loss principles generally prevent recovery for the cost of a defective product itself, but consequential economic loss flowing from personal injury or damage to other property is usually recoverable. Fatal accident claims require careful application of the LR(MP)A 1934 and FAA 1976 rules.
Key Point Checklist
This article has covered the following key knowledge points:
- The aim of compensatory damages in tort is restoration (restitutio in integrum).
- Loss of earnings is a key head of pecuniary loss, divided into pre-trial (special damages) and post-trial (general damages).
- Pre-trial loss is calculated based on net earnings lost up to the trial date, considering deductions and mitigation.
- Post-trial loss is calculated using the multiplier-multiplicand method, often utilising the Ogden Tables and incorporating a discount rate.
- Claimants have a duty to mitigate their losses.
- Smith v Manchester awards compensate for loss of earning capacity/labour market disadvantage.
- Damages on death involve claims under the LR(MP)A 1934 (for the estate) and the FAA 1976 (for dependants).
- FAA 1976 claims include loss of dependency, bereavement damages, and funeral expenses.
- "Lost years" claims compensate the estate for earnings lost due to shortened life expectancy.
- Periodical payments and provisional damages are exceptions to the lump sum rule.
Key Terms and Concepts
- Pecuniary Loss
- Non-Pecuniary Loss
- Multiplicand
- Multiplier
- Ogden Tables
- Lost Years
