A judgment delivered on January 10, 2019 in the names of Alfred Cuschieri v Mary Louise Refalo (577/10GM) Civil Court, First Hall is a significant one in the sense it may have very well reconceived the judicial approach to quantification of damages in personal injury (“tort”) cases.
The Maltese system of tort is based on full restitution (known with the Latin maxim, restitutio in integrum), that is that an injured party is – through the awarding of damages – restored to the state which would have prevailed had no injury been sustained. This means that the victim of a tortious event may not derive any profit from his own misfortune; the court merely tries to restore to the plaintiff all actual (and since the amendments of Act No. XXXII of 2018, in some cases, moral and/or psychological) damages suffered.
According to Maltese law, the damage which is to be made good by the person responsible for a tortious event shall consist in the actual loss which the act shall have directly caused to the injured party, the expenses which the latter may have been compelled to incur in consequence of the damage, in the loss of actual wages or other earnings, and in the loss of future earnings arising from any permanent incapacity, total or partial, which the act may have caused.
Much of the quantification exercise is often simple arithmetic. The tricky part for our courts has always been to quantify the damages deemed as being those losses of future earnings arising from any permanent incapacity, whether total or partial (known in the legal sphere as, lucrum cessans), particularly since the law itself does not provide for a hard and fast mechanism for quantification.
Ever since the celebrated judgment of Michael Butler v Peter Christopher Heard (1967) – known to every law student and lawyer alike – our courts have been trying to devise a standard and harmonised formula to effectively determine the quantity of these damages, in homage of the restitution principle. In time, this formula was retouched and remodelled into what today is a mechanism which – by and large – has done its job well. (See formula below)
Another factor needs to be taken into account: the rule usually known as “the lump sum reduction”.
The rules of quantification of damages continue to evolve steadfastly
Traditionally, the Maltese courts have adopted a regiment whereby a reduction of around 20 per cent is affected from the damages awarded as lucrum cessans to compensate for the fact that the plaintiff would have been awarded one whole sum (and investable as such) as restitution for a loss (future earnings arising from any permanent incapacity) which otherwise would have accumulated over a number of years. Indeed, this principle is yet another tribute to the principle of restitutio, since without this rule, the benefit derived from interest received on that lump sum payment would actually result in a payment that goes beyond mere restitutive compensation.
Eventually, this system was reorganised, and the courts started providing for a reduced deduction where cases would have taken a certain amount of years to be decided. Usually, for every year following the third year from the institution of the law suit, a two per cent reduction is made from the original 20 per cent. Therefore, by way of example, court cases decided after five years could see a reduction of 16 per cent instead of 20 per cent.
On January 10, in Cuschieri v Refalo, the Civil Court, First Hall gave a novel and interesting twist to this traditional instrument. It observed in today’s world, the principle of the lump sum reduction does no longer make sense, given that the original purpose behind such a system is no longer relevant.
The court declared it will not affect any lump sum reduction. It stated that it is true that such a reduction did make sense until a few years ago, in a time when commercial banks paid interest at five per cent on fixed deposits. This meant that in some cases, it happened that the injured party would have been paid the compensation as one capital, and on top of that, would have earned a sum which sometimes is even equivalent to the salary he or she would have earned if the incident did not happen. The court argued that this is not the case today, since interest paid is practically negligible, and all the capital is consumed.
The reasoning adopted by the court is thought-provoking, to say the least. While through the years, there had been some judgments that had expressed some reservations about the rule of the “lump sum reduction” and whether it is still fully applicable, rarely before had a court refuted it so emphatically.
It will be interesting to see whether the reasoning adopted by Mr Justice Grazio Mercieca in this judgment is one that will catch on and become the trend, or whether our courts will still cling to the strict traditional application of the lump sum reduction rule. This is an important question to ask, not only on the legal front, but also from a financial point of view, since a total refutal of the lump sum reduction rule could potentially bring therewith a 20 per cent increase in sums awarded in a lot of tort cases.
It is also interesting to discuss whether the lump sum reduction rule should solely rest on banking interest tendencies, or whether other investments which would justify the survival of the rule (for example, today, investment in property is still considered to be lucrative) should be considered as well.
What is certain is that 50 years on from the judgment of Butler v Heard, the rules of quantification of damages continue to evolve steadfastly, as new judges bring with them new experiences, new approaches, and new interpretations of a law that cannot but grow with the passing of time.
Carlos Bugeja is senior associate at Azzopardi, Borg & Abela Advocates.
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