ON THIS DAY in 1996, the High Court of Australia delivered Nominal Defendant v Gardikiotis [1996] HCA 53; (1996) 186 CLR 49 (24 April 1996).

McHugh J set out the principles for assessing compensatory damages for negligence:

“Principles

4. When a defendant has negligently injured a plaintiff, the common law requires the defendant to pay a money sum to the plaintiff to compensate that person for any damage that is causally connected to the defendant’s negligence and that ought to have been reasonably foreseen by the defendant when the negligence occurred(5). The sum of money to be paid to the plaintiff is that sum which will put the plaintiff, so far as is possible, “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”(6). Consequently, when a plaintiff asserts that, but for the defendant’s negligence, he or she would not have incurred a particular expense, questions of causation and reasonable foreseeability arise. Is the particular expense causally connected to the defendant’s negligence? If so, ought the defendant to have reasonably foreseen that an expense of that kind might be incurred? Those questions arise in the present case. Is the expense of fund management causally connected to the negligence of the defendant? If so, was the incurring of the expense a reasonably foreseeable consequence of the defendant’s negligence? If either of those questions is answered in the negative, the expense cannot be recovered from the defendant.
5. If a defendant’s negligence results in the plaintiff being so mentally or physically incapacitated that she is unable to manage day-to-day tasks, the basic principles of compensation for tortious conduct entitle the plaintiff to damages both for the disability and the expense of managing those tasks. The expense is just as much a product of the defendant’s negligence as is the disability. It is compensable therefore unless it is damage of a kind that a defendant could not reasonably foresee. Similarly, if a plaintiff can no longer manage her affairs with the same skill as before the accident, both the reduction in skill and any expense reasonably incurred in bringing the management of those affairs to the pre-accident level are compensable in damages. Likewise, if the defendant’s negligence has aggravated a pre-existing incapacity, the plaintiff is entitled to be compensated to the extent that the aggravation has increased the incapacity and caused expense to the plaintiff.
6. Damages may therefore be awarded for the expense of managing a plaintiff’s verdict moneys when the plaintiff’s disabilities prevent him or her from managing those moneys and the disabilities are the foreseeable consequence of the defendant’s negligence. Damages may also be awarded for the expense of investment advice where, as the result of the defendant’s negligence, the plaintiff is no longer able to make adequate decisions concerning his or her own financial affairs. In both cases, damages are payable by the defendant because the expense is the necessary product of the defendant’s negligence and is not the result of the free, informed and voluntary act of the plaintiff. The expenses have been brought about by the loss of the plaintiff’s ability to do what that person was capable of doing before the occurrence of the tort which gives rise to the claim for compensation.
7. But a different area is reached when the plaintiff seeks damages, not for expense necessarily incurred as the result of a disability caused by the defendant’s negligence, but for an expense arising merely from the size of an award of damages and the exercise of a choice by the plaintiff as to how to invest those damages. The expense of exercising that choice is not the consequence of the plaintiff’s injury. It is the result of the plaintiff’s decision to invest his or her money (usually in a professionally managed fund) rather than to spend it or to invest it in a fixed asset or some other form of investment. It is true that such an expense would not have been incurred but for the defendant’s negligence. But the common law of Australia has rejected the “but for” test as the legal test of causation although, “applied as negative criterion of causation, (that test) has an important role to play in the resolution of the question”(7).
8. Under the common law theory of common sense causation, a free, informed and voluntary act of the plaintiff or a third party, which builds on a situation resulting from the defendant’s tort and causes loss or damage to the plaintiff, negatives any causal connection between that tort and the loss or damage(8). That is so even though the act of the plaintiff or third party would not have occurred but for the defendant’s tort. Consequently, unless a defendant’s wrong has caused a disability that requires the plaintiff to obtain assistance in managing his or her verdict moneys, the cost of such assistance is not caused by the defendant’s negligence and is not recoverable as damages from the defendant. Nor, as we shall see, is it a factor such as income tax(9) which must be taken into account if the plaintiff is to receive a full indemnity.”

http://www.austlii.edu.au/au/cases/cth/HCA/1996/53.html

Sydney, Australia

1300 00 2088