National Law Institute University

Computation of Damages in Torts

Prof. (Dr.) Rajiv Kumar Khare Pulkit Rahangdale

Professor of Law BA.L.L.B.2010– ‘6

NLIU A-1054

Introduction

The word “tort” in law means a wrong or injury, that is redressable in an action for damages at the instance of the person wronged or injured. We can consider assault, libel, trespass and nuisance as few examples. A tort, precisely, is the violation of a right of a person or a breach of duty of another towards him/her.

In tort law, a remedy in the form of monetary compensation is given to the aggrieved party. Damages, in a legal sense, is the sum of money, the law impose for a breach of duty or violation of some right. More appropriately, damages are money claimed by, or ordered to be paid to, a person as compensation for loss or injury. Generally there are two categories of damages:a)Compensatoryb)Punitive 

The term “damages” typically includes both categories, but the term “actual damages” is synonymous with compensatory damages and excludes punitive damages. Compensatory damages are intended to relieve the injured party for his loss or injury.

The aim of tortious damages is to put the claimant back into the position he/she was in, pre-tort. The claimant will, therefore, be able to recover reliance loss. Damages in tort are subjected to the principles of remoteness, causation ad mitigation. The basic principle is that it should be tried that the claimant be fully compensated for loss as far as this can be done by an award of money.

Efficient damages awards are critical to the optimal functioning of the tort system. Though a number of rules exist for damage calculation, none are “the” rule in every situation. Optimal damage award depends on:a) The nature of the injury

b) The relationship of the parties and the type of risk

c) The liability rule 

d) Whether liability is individual or vicarious

e) Any existing imperfections

Aim and Objective-

The researcher has attempted to gain an understanding on the computation of damages in Indian tort law.

Scope and Limitation-

Problems in the computation and quantification of damages.

Method of Analysis-

The methodology of this paper is descriptive and analytical. A lot of study has been put in to prepare this paper.

Source of Data-

The researcher has got significant material from the internet. The project topic has been suggested by the respected course teacher, himself.

Research Questions-

What are the various types of damages sought in torts?

Whether the Multiplier Rule or the Interest rule be used to decide on damages in cases of tort?

DAMAGES IN TORT

Damages are the most important remedy which the plaintiff can avail of after the tort is committed. They are of various kinds-

Nominal Damages-

Nominal damages awarded to an individual in an action where the person has not suffered any substantial injury or loss for which he or she must be compensated.

This kind of damages reflects a legal recognition that a plaintiff's rights have been violated through a defendant's breach of duty or wrongful conduct. The amount awarded is ordinarily a trifling symbolic sum, such as a dollar, which varies according to the circumstances of each case. In certain jurisdictions, the amount of the award might include the costs of bringing the lawsuit.

In general, nominal damages may be recovered by a plaintiff who is successful in establishing that he or she has suffered a loss or injury as a result of the defendant's wrongful conduct but is unable to adequately set forth proof of the nature and extent of the injury. When a wrong is actionable per se, as for example, in the case of trespass, damage to the plaintiff is presumed and an action lies even though in fact the plaintiff may not have suffered any loss.

The most famous case of nominal damages was when Prime Minister Winston Churchill was awarded a shilling (about 25 cents) in a libel lawsuit he had brought against author Louis Adamic for writing that Churchill had been drunk during a dinner at the White House. The Prime Minister was vindicated, but the jury could not find that his towering reputation had been damaged.

In another case of Constantine v. Imperial London Hotels Ltd. [1], a West Indian cricketer was refused accommodation at a London hotel because of his nationality. He stayed at another hotel arranged by the defendants and he suffered no loss. It was held by Birkett, J. that nominal damages of five guineas be awarded in respect of defendants’ breach of their common law duty as innkeepers to provide accommodation for any traveller.

__________________________________________________________________ [1] (1944) K.B. 693

Contemptuous Damages-

Contemptuous damages are awarded when the level of harm caused to the claimant is low and the court feels that the claimant was wrong to bring a claim. They are the mirror image of nominal damages, in that the successful plaintiff is made to pay damages for bringing the lawsuit. 

Contemptuous damages are a derisory amount awarded to show disapproval at the bringing of a claim. This is where a court awards a very small amount of damages to indicate the court’s disapproval of the court action having been brought at all. This might be relevant in a defamation action, where the court considers that the person bringing the action already has a poor reputation, and that the false statement made about the person is unlikely to damage their reputation much further. 

It is to be distinguished from nominal damages because nominal damages are awarded when the plaintiff has suffered no loss, whereas contemptuous damages are awarded when the plaintiff has suffered some loss but he does not deserve to be fully compensated.

Compensatory Damages-

Compensatory damages are recovered in payment for actual injury, which does not include punitive damages. It is a sum of money awarded in a civil action by a court to indemnify a person for the particular loss, detriment or injury suffered as a result of the unlawful conduct of another. These damages provide a plaintiff with the monetary amount necessary to replace what was lost and nothing more. 

Aggravated Damages-

Damages awarded by a court to reflect the exceptional harm done to a plaintiff of a tort action. When insult or injury to the plaintiff’s feelings has been caused, the court may take into account the motive for the wrong and award an increased amount of damages. 

“Aggravated damages are an award, or an augmentation of an award, of compensatory damages for non-pecuniary losses. They are designed to compensate the plaintiff, and they are measured by the plaintiff's suffering. Such intangible elements as pain, anguish, grief, humiliation, wounded pride, damaged self-confidence or self-esteem, loss of faith in friends or colleagues, and similar matters that are caused by the conduct of the defendant; that are of the type that the defendant should reasonably have foreseen in tort cases or had in contemplation in contract cases; that cannot be said to be fully compensated for in an award for pecuniary losses; and that are sufficiently significant in depth, or duration, or both, that they represent a significant influence on the plaintiff's life, can properly be the basis for the making of an award for non-pecuniary losses or for the augmentation of such an award.”

Aggravated damages are an augmentation of general damages to compensate for aggravated injury.

Punitive Damages-

Punitive damages are triggered by conduct that may be described by such epithets as high-handed, malicious, vindictive, and oppressive. They are awarded where the court feels that the award of compensatory damages will not achieve sufficient deterrence and that the defendant's actions must be further punished. Punitive damages bear no relation to what the plaintiff should receive by way of compensation. Their aim is not to compensate the plaintiff, but rather to punish the defendant. It is important to emphasize that punitive damages should only be awarded in those circumstances where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishment and deterrence. 

As explained by McIntyre. J., "Punitive damages, as the name would indicate, are designed to punish. In this, they constitute an exception to the general common law rule that damages are designed to compensate the injured, not to punish the wrongdoer”.

Rules to Quantify Damages

Damages in case of Negligence (Hand Rule)-

Courts should develop theory and practice of damages for incompensable losses based on the response of reasonable people to daily risks. Specifically, courts should compute damages based on the reasonable person’s point of indifference between less risk and more expenditure on precaution. The Hand Rule describes this point of indifference. In its original notation, B=pxL, where “B” is the burden of precaution, “p” is the reduction in probability of harm caused by precaution, “x” is the multiplication sign, and L is “liability”. The equation describes the tipping point between negligent and non-negligent behavior. If B equals or exceeds pxL, then behavior is non-negligent. If pxL exceeds B, then behavior is negligent.Hand Rule Damages have some normatively desirable properties, which are: 

· Hand Rule Damages cause a potential injurer to internalize the value of the reduction in risk from his precaution. Consequently, Hand Rule Damages provide incentives for efficient precaution. This fact may be decisive for legal scholars committed to economic or utilitarian theories, but not to others. 

· Hand Rule Damages ideally satisfy the principle of restorative justice, which requires people to compensate others for harming them, including exposing them to the risk of in compensable losses.

Hand Rule Damages are reasonable, although they are also too difficult conceptually for common sense to encompass. To illustrate, if the loss in question is the wrongful death of a child, then the court must begin by identifying a reasonable standard of care towards children. If the legal rule at issue is negligence, determining liability requires the court to determine a reasonable standard of precaution. Consequently, the court must identify a reasonable standard of precaution before turning to damages. If the legal rule at issue is strict liability, then determining liability does not require the court to determine a reasonable standard of precaution. Nevertheless, the court must determine a reasonable standard of precaution in order to compute Hand Rule Damages. Having identified a reasonable standard of care, the court can then plug its values into the Hand Rule to find damages.

Commentators sometimes ask whether this approach should be used to set damages. Landes and Posner discussed this possibility briefly and tentatively conclude in favour of courts adopting this approach.

Damages in case of shortening of expectation of life: 

The House of Lords laid down certain rules to determine the quantum of damages, in situations where a person’s normal span of life is shortened due to the wrongs done by the defendant:

· The test to determine compensation is not the length of time of life of which a person has been deprived, but it should be the prospect of a predominantly happy life.

· The test of happiness of life is not to be subjective, i.e., how the deceased thought about the chances of his own happiness, the test is an objective one. 

· Very moderate damages should be allowed for an action under this head

· The economic and social position of a deceased has to be ignored in assessing such damages as the happiness of life does not necessarily depend on such things.

Damages in case of death of a person:

Interest Theory: Here the dependants are paid such lump sum the interest from which would be equivalent to the loss suffered by them. It has to be seen as to how much interest a certain amount will bring if invested in a fixed deposit. Thus if the loss to any dependant is assessed at “x”, such sum could be awarded by way of compensation, which will fetch that much interest every month to such dependant.

Multiplier Theory: According to this theory, the likely further loss is assessed by multiplying the likely loss due to occur every year with a multiplier which indicates the number of years for which the loss is likely to continue. Certain factors like the age of the deceased and of the dependant may have to be taken into consideration to determine the multiplier to be used for assessing compensation payable. So, the value of the multiplier is decided on a case-by-case basis. 

in State Farm Mutual Automobile Insurance Co. v. Campbell [2], the Utah Supreme Court computed the quantum of damages using the multiplier theory.

__________________________________________________________________[2] 538 U.S. 408 (2003)

Kautilya on Tort Law during the Fourth Century BCE

“Kautilya’s Arthashastra” [3] has been considered as the most important treatises on the civil and criminal laws in ancient India. Kautilya wanted to build a prosperous, secure, safe, secular and fairness-based empire. He considered both ethical and economic perspectives on creating laws. His proposal on tort law contained many noteworthy elements.

· He introduced monetary fines to complement the existing expiation measures for preventing losses caused due to negligence. 

· Liabilities were based on negligence since that was considered as preserving and promoting ethical values.

· Deterrence being the primary goal, tort law was designed to minimize the probability of a loss caused by negligence or intention. That is, wealth maximization was the overriding concern.

· Punitive damages particularly if intent was involved were large and all the receipts went to the treasury. 

· In addition to the punitive damages, the injurer was required to compensate the victim for serious physical injuries and for all financial losses and government was responsible for taking care of the disabled individuals out of the general revenue. It appears that, to some extent, corrective justice was a part of distributive justice.

Thus the existence of the practice of Hand rule dates back to a very long time, even before Judge Learned Hand formulated and described the rule.

______________________________________________[3] Balbir S. Sihag, Kautilya on Tort Law during the Fourth Century BCE, University of Massachusetts, Revised Draft, April 16, 2008

Conclusion

Economic analysis has greatly enriched our understanding of damage rules. It reveals that damages serve a complex and multi-faceted role: deterring risk takers, helping victims spread risks and compensating them for their losses. This has also helped us to design tort liability and design rules, which can guide legislators and courts as they design tort liability and damage rules.

It is suggested that at present damage awards for serious personal injury and death generally are not sufficiently large to induce potential injurers to take due care and engage in optimal activity levels. Yet economic analysis also shows that victims of physical injuries may be receiving too much compensation. This suggests decoupling of defendants’ liability from victims’ compensation should be considered.

While considering the situation in India, it can be seen that all the rules for the purpose of damage calculation are not predominantly utilized. The Multiplier Rule is extensively used to decide on damages in cases of death due to tort.

The Law of Torts is not well developed in India as in countries like the United States of America and the United Kingdom. Hence applicability of its various aspects is also limited in the country.

Damages form a very integral part of Tort Law. The Legislature should come up with sufficient and practical rules and theories for computation of quantum of damages. This will lead to a decrease in ambiguities that we come across in various cases regarding the calculation of compensation.

Interest theory

In the case of Joki Ram v. Smt. Naresh Kanta,[A.I.R 1977 P. & H. 214, at 219] the Tribunal Court had held that

a) that Om Parkash Sharma (deceased) was employed as a Line Superintendent in the Haryana State Electricity Board and was drawing a salary of Rs. 390 per month; and

b) that the wife of Om Parkash Sharma (deceased) got pension on the death of her husband at the rate of Rs. 120 per mensem.

c) After deducting Rs. 70 per mensem on account of rent of the house, Rs. 37 per mensem as share of the deceased and Rs. 60 per mensem as expenditure on himself out of his salary of Rs. 390 per mensem, in addition to Rs. 120 on account of the monthly pension, the loss to the applicants was assessed at Rs. 103 per mensem.

d) Om Parkash Sharma (deceased) was found to be 37 years old at the time of the accident and calculating his life expectancy at 60 years, damages for 23 years at the rate of Rs. 103 per mensem were calculated at Rs. 28,428.

e) Om Parkash Sharma (deceased) was insured for Rs. 2,000 which amount was received by the applicants after his death. After excluding one-third of this amount, Rs. 666 was deducted from the amount of damages. Besides, the gratuity amounting to Rs. 2,200 was also deducted. After making all these deductions, the Tribunal awarded an amount of Rs. 25,562 to the applicants and the insurance company was directed to pay this amount within two months,

f) Jokhi Ram, the owner of the truck, Sher Singh, its driver, and the Vanguard Insurance Company have filed these three separate appeals challenging the award. Mr. Surj, the learned counsel for the appellants, in F.A.O. No. 114 of 1972, raised the following contention:

The amount of compensation as awarded by the Tribunal is excessive. The same should not have exceeded the amount which if deposited in the Bank would yield a monthly interest equivalent to the monthly pecuniary loss to the applicants on account of the demise of Om Parkash Sharma. Thus we find the application of the Interest Theory in determining the compensation to be paid.Though the Supreme Court later held that “It is correct that in the above-mentioned cases compensation has been awarded keeping in view the interest which may be earned by making a deposit in the Bank. However, this interest theory cannot be adopted as an inflexible principle for the purpose of assessing the compensation especially in these days when the purchasing power in, terms of money is being eroded after: short intervals on account of runaway inflation”.

Multiplier Theory:

In United India Insruance Co. Ltd. V. Bindu and Ors., [(2009) 3 SCC 705] the Supreme Court applied the multiplier of 13 where the age of the deceased was 32 years. The Court referring to Mallett v. Mc Mongle[22] and other decisions preceding the same opined:

“In both General Manager, Kerala State Road Transport Corporation, Trivandrum v. Susamma Thomas (Mrs.) and Ors.[23] and U.P. State Road Transport Corporation and Ors. v. Trilok Chandra and Ors.[24], the multiplier appears to have been adopted by the Supreme Court taking note of the prevalent banking rate of interest. In fact in Trilok Chand's case after reference to Second Schedule to the Act, it was noticed that the same suffers from many defects. It was pointed out that the same is to serve as a guide, but cannot be said to be invariable ready beckoner. However, the appropriate highest multiplier was held to be 18. The highest multiplier has to be for the age group of 21 years to 25 years when an ordinary Indian Citizen starts independently earning and the lowest would be in respect of a person in the age group of 60 to 70, which is the normal retirement age. Keeping in view the parameters indicated above it would be appropriate to fix the multiplier at 13 and the rate of interest at 6% p.a.”

Thus, it can be seen that computation of damages through the Multiplier Rule is a common parlance in India. There are several other cases which support the same.