Calculating damages for economic loss < Back

Generally in order to claim damages you must be certified as having sustained a serious injury and must be able to prove negligence on the part of another person.

If you are entitled to claim damages and if this includes economic loss damages, very strict legal principles apply to the calculation of a loss. This area of law is very complex and this information should not be construed as a complete explanation of the way in which damages are calculated. The major principles set out in order to assist potential claimants understand the way in which the courts must approach calculation of damages. Obviously each case is different and this information is not intended to be a substitute for individual legal advice. Set out below are the major elements of the approach that a court must take. These are as follows:

  • A court must carefully assess your pre-injury earnings. These will almost always be the most accurate guide to your future earning potential had you not been injured. Where there is a special feature in your circumstances which establishes that you would have (not may have) had significantly increased earnings in the future a court can take this into account.

  • A court must then assess your future potential for earning income following your injury. This is the most difficult part of an assessment because the court does not look solely at your post injury earnings (if any) but will look also at your actual potential. This means that even if somebody is not working or earning income, it is possible that a court, on the evidence before it, may decide that the claimant is capable of light work and thus earning a specific amount per week. In most cases there is usually very different medical evidence called by both parties about the claimant's capacity for work following injury. If a court considers that the claimant does have a potential to earn income following injury, the assessment of a future lost income will only be on the difference between the lost potential earnings and the post injury earning capacity.

  • A further component of the loss of earnings must be calculated. This loss relates to the claimants superannuation fund. If a claimant has not been receiving income, and possibly only receiving WorkCover payments, they will have missed out on their employer's superannuation contribution. This loss is calculated for the past and the probable loss in the future is calculated. In addition to the lost contributions, it is necessary to calculate the lost income which would have been earned in the claimants superannuation fund had the additional money had been received.

  • Having calculated the weekly loss of earnings, this loss will be converted into a 'net loss' i.e. after the payment of taxation. This is because there is no taxation on damages and thus the calculation of a gross weekly loss would in effect over compensate a claimant.

  • After the weekly loss in the future has been assessed (this assessment can take account of fluctuations e.g. for periods of total absence), then a court is required to estimate the likely retirement date of the claimant had they not been injured. Again, this is an extremely difficult exercise. It involves some guess work. This exercise is made even more difficult by the fact that many people are tending to work longer now than in the past or to work part-time after normal retirement age. In each case a court will take account of a claimant's evidence as to their intention had they not been injured. The court will also take into account other evidence such as the average retirement date in the particular industry etc. The court will determine what they think the claimant's likely retirement date would have been. Obviously, insurers will argue strongly that the claimant would have retired early e.g. 55 or 60 had they not been injured. This is because the damages will be less as a shorter period for income loss will be claimable.

  • Having decided the weekly loss and the number of years which the loss is likely to occur, a court is then required to discount the gross amount. The first discount factor is contained in the WorkCover legislation which applies a percentage 'notional' interest rate which a capital amount can earn. This occurs because when the gross amount of damages is calculated, it will not be paid slowly each week over many years but will be paid in a single lump sum. Obviously the value of an amount paid over many years is smaller than if it is paid immediately as damages. This is because the claimant has the ability to invest those funds and obtain interest on those funds. The WorkCover legislation requires this to be done on a 6% discount rate and actuarial tables are used to calculate this result. Another way to look at this discount is to view it as a calculation of the lump amount necessary to provide the claimant with an ability to draw down on funds in such a way as to replace the net lost income so that the fund will be depleted by the estimated retirement date.

  • The next discount which is applied is for what is quaintly termed ' vicissitudes '. This term is used to describe the risks that everybody faces in their life which can have a potential effect on your ability to earn income in the future even if you had not been injured. Some people are 'run over by a bus', involved in motor vehicle accidents, suffer cancer or other medical conditions that may have stopped them working in any event. The courts therefore apply a discount to take into account this risk in the future. Normally, a court will apply a 15% discount to the capital amount to take account of this risk.

  • The estimated past loss and future loss are combined and this constitutes the economic loss damages. In some cases a court may be required to apply a further discount to what is known as "contributory negligence". This occurs where a defendant has been successful in getting the court to accept that the claimant was in part to blame for their injury. For example, if a court concludes that the claimant was 20% to blame for the injury then the gross damages calculated on the basis set out above are further discounted by this percentage.

  • When a court makes an order for the payment of damages it is required to deduct from any pain and suffering damages any amount paid for permanent impairment. It is also required to deduct any weekly compensation paid in the past from the economic loss damages.
Most cases are resolved without going to court, through negotiation or mediation. All the factors listed above are taken into account by the lawyers for each party in those negotiations. However, in private negotiations one further extremely important factor is taken into account. Put simply, this factor is the question of whether the claimant will win or lose the court case. Of course if a claimant loses the case no damages are payable. If negligence is found damages are payable on the basis set out about above.

In some cases it is possible for the claimant's lawyer to make a very good assessment of the chances of success in court. In other cases it is extremely difficult as it may simply turn on which evidence the jury or Judge is likely to accept. This is particularly difficult to predict where a jury is involved. It is therefore common for these risks to be factored into working out the 'commercial value' of a case.

When your damages are being assessed by your lawyer, many other factors must be taken into account. These factors include the additional legal costs incurred in proceeding to court, your exposure to other party legal costs (if any) from rejecting an offer, liability refunding Centrelink etc. the calculation of economic loss damages is an extremely important issue that you should understand in your case. It is also important to appreciate that if your lawyer is experienced and familiar with outcomes at court he or she will be able to give you the benefit of their skill and knowledge.


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