Supreme Court of Canada
Lewis v. Todd and McClure, 1980 CanLII 20 (SCC), [1980] 2 SCR 694
Date: 1980-10-28
Dianne Joyce Lewis (Plaintiff) Appellant;
and
Robert J. Todd and Dorothy McClure (Defendants) Respondents;
and
The Canadian Provincial Insurance Company (Third Party).
1980: February 25; 1980: October 28.
Present: Laskin C.J. and Dickson, Beetz, Estey and McIntyre JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Negligence—Liability—General damages—Constable killed at scene of accident on well‑lighted thoroughfare where ample flashing lights were in evidence—Constable in centre of road when struck—Whether or not constable contributed to his death by his own negligence—Whether or not Ontario Court of Appeal erred in reducing quantum of damages awarded at trial under The Fatal Accidents Act (Ontario) from $195,000 to $62,500.
Appellant’s husband, Constable Lewis, while investigating a traffic accident, was struck and fatally injured by a motor vehicle owned by Dorothy McClure and driven by her son Robert J. Todd. The accident occurred near midnight at a major intersection on a well-lighted four lane thoroughfare; the road surface was bare and slightly damp. Two other police officers, who assisted in directing traffic while hydro lines were being repaired, left the scene and Constable Lewis continued his investigation near the centre line. He wore the dark regulation uniform. The flashing lights and four way flashers of the police car and hydro vehicles at the scene were clearly visible for over a quarter of a mile. Two main questions arose in this appeal: (i) whether Constable Lewis contributed to his death by his own negligence and (ii) whether the Ontario Court of Appeal erred in reducing the quantum of damages awarded by the trial judge under The Fatal Accidents Act (Ontario) from $195,000 to $62,500.
Held: The appeal should be allowed.
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The constable did not depart from police practice and was not negligent in continuing his investigation on the road without assistance. The constable’s duty of care was less than that of a pedestrian for there were circumstances which should have alerted other drivers to the presence of police officers on the highway. There was evidence upon which the trial judge could find that the constable did not fail to keep a proper lookout and that he had not been negligent in continuing his investigation as he had.
The discount rate was normally a factual issue which turned on the evidence advanced in individual cases, as there was no authority by which the Court could legislate a fixed discount rate applicable for all cases. The Court of Appeal erred in treating the discount rate adopted in Arnold v. Teno as, virtually, a matter of law, turning to the evidence only to determine whether there was “a basis” for adopting a similar rate. The Court should have commenced its inquiry with the finding of the trial judge and the evidence adduced at trial, and should have left those findings undisturbed if supported on the evidence. The “trilogy” was available for guidance on basic questions of principle. Although productivity was not raised as a factor in the “trilogy”, it was an appropriate component of a damage award in a proper case. There was ample evidence to support the trial judge’s finding.
The tax impact upon the dependency and the earnings from the award was disregarded because of exceptional circumstances in the case. This holding was not to be taken as derogating from the principle enunciated in Keizer v. Hanna and Buch, that income tax should be deducted from the deceased’s income in calculating the annual dependency.
In principle, there was no reason why a court should not recognize and give effect to those contingencies, good or bad, which might reasonably be foreseen, but the courts were not justified in imposing an automatic contingency deduction. The court must attempt to evaluate the probability of the occurrence of the stated contingency. Since the actuarial tables projected a joint life expectancy but not a working expectancy for the deceased, it was appropriate to take into account general contingencies mentioned by the trial judge. Any evidence that took the deceased’s situation outside the “average” should have been considered—whether there were features of which no account had been taken in the actuarial tables either because the factor was entirely
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personal to the individual or because the “average” was not adopted for the category or class to which the person belonged, e.g. police officers. Since the Court of Appeal’s decision to change the contingency deduction made at trial was made without any stated reason as to why the trial judge’s determination was not appropriate, the trial judge’s finding must be restored.
The question of collateral benefits and the award of loss of guidance and training to the children did not need to be addressed.
The calculations of the actuary and of the trial judge contemplated the setting up of a fund at the date of judgment which, invested at a normal rate of 8.25 per cent, would provide the plaintiff with the amount to which they were entitled. The delay of over four and one-half years from the date of the judgment meant that interest which should have accumulated upon, and formed an essential element in the computation of the award had not been received by the plaintiff. The 8.25 per cent from the date of the judgment at trial was not awarded as interest but as part of the award. The trial judge properly declined to make an award of interest in respect of the period between the date of the accident and the date of the judgment.
Stein v. The Ship “Kathy K”, 1975 CanLII 146 (SCC), [1976] 2 S.C.R. 802; Keizer v. Hanna and Buch, 1978 CanLII 28 (SCC), [1978] 2 S.C.R. 342; Arnold v. Teno, 1978 CanLII 2 (SCC), [1978] 2 S.C.R. 287; Andrews v. Grand & Toy Alberta Ltd., 1978 CanLII 1 (SCC), [1978] 2 S.C.R. 229; Mallett v. McMonagle, [1970] A.C. 166; Livingstone v. The Rawyards Coal Company (1880), 5 App. Cas. 25; Fenn v. City of Peterborough (1978), 1979 CanLII 77 (ON CA), 25 O.R. (2d) 399, referred to.
APPEAL from a judgment of the Court of Appeal for Ontario1, altering a judgment of Henry J. Appeal allowed.
E.A. Cherniak, Q.C., and M.A. Sanderson, for the plaintiff, appellant.
M.N. Ellis, Q.C., and I.M. Thompson, for the defendants, respondents.
The judgment of the Court was delivered by
DICKSON J.—The unfortunate accident which gave rise to these proceedings occurred at about 12:20 a.m. on February 11, 1972 when Constable Donald H. Lewis of the Metropolitan Toronto
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Police Force, while investigating a traffic accident which had occurred earlier, was struck and fatally injured by a motor vehicle owned by Dorothy McClure and driven by her son Robert J. Todd. Two main questions arise in this appeal (i) whether Constable Lewis contributed to his death by his own negligence and (ii) whether the Ontario Court of Appeal erred in reducing the quantum of damages awarded by the trial judge under The Fatal Accidents Act, R.S.O. 1970, c. 164, as amended, from $195,000 to $62,250.
I
Liability
Just prior to midnight on the evening of February 10 and 11, Lewis, a first class constable of ten years experience, was called, while on duty, to investigate an accident in which a vehicle had skidded and struck a hydro pole, breaking it off at the top. The accident had occurred on a four-lane thoroughfare at a major intersection controlled by traffic lights. The roadway was well lighted by mercury street lamps. Hydro wires had fallen across the road and a hydro crew had been dispatched to the scene. Lewis, with officers Blatchford and Tweedell, directed traffic while the repairs were effected. Blatchford and Tweedell departed at 12:15 a.m. Constable Lewis proceeded alone with the investigation. A hydro service truck (operating its headlights, four way flashers, clearance lights on cab roof and sideview mirrors, two rotating flashing amber lights and two search-lights), a hydro supervisor’s car (with four way flashers) and a police cruiser car (with red flashing dome light and four way flashers) were present at the scene. There was a “profusion of lights”, illuminating, but distracting. These lights and the scene generally were clearly visible from over one-quarter of a mile away. The road was bare and slightly damp; the weather was clear and cold.
Constable Lewis was garbed, as required, in a dark policeman’s uniform, which had luminous
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stripes on it. He continued the investigation, walking along the centre line of the roadway. Two witnesses travelling the road that night in their car, Mr. and Mr. Burgess, happened upon him in the middle of the road. They passed within two feet of him. He had his head down, examining the road surface and did not look up. Mrs. Burgess testified that she had difficulty in seeing the road ahead due to the flashing lights; therefore, she had slowed her speed to a crawl. She said she could have stopped her car to avoid the officer if necessary.
Moments after the Burgess vehicle passed, Constable Lewis was struck by the car driven by Todd, thrown into the air and carried seventy-five feet. Todd did not brake or even slow his speed. Five hundred feet beyond the point at which Lewis’ body came to rest, Todd stopped the car. Constable Lewis died that day as a result of the injuries suffered.
The trial judge, Henry J., after a careful and exhaustive review of the evidence, found that Todd had not discharged the onus of satisfying the Court that he did not, by his negligence, cause or contribute to the death of Constable Lewis. On the contrary, the judge found, the evidence established positively that Todd was negligent in the operation of his motor vehicle. He was driving while fatigued having had virtually no sleep in the previous thirty-eight hours. He was proceeding at too great a speed having regard to the warning lights on the hydro vehicles and the police cruiser. He failed to reduce his speed and prepare to stop when he knew or ought to have known from the flashing lights that there was the likelihood of danger on the road ahead. He failed to keep a proper lookout. These findings of the trial judge were amply supported by the evidence, and have not since been challenged.
The trial judge then turned his attention to one of the issues raised in the present appeal, namely, whether the injuries and death of Constable Lewis were contributed to by any negligence on his part. Was he the author of his own misfortune? Again, the trial judge, carefully and in the best tradition, reviewed the evidence, and held that Constable
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Lewis was entitled to rely on the flashing lights on the vehicles to convey sufficient warning to traffic that activity was taking place in the area, including the road surface. He was entitled to assume that the warning would be heeded by motorists and that they would approach the scene with caution. He carried out the procedure normal in police investigations, having regard to the illumination and the warning lights, the weather conditions and the sparseness of traffic. The standards of experienced police officers in such circumstances did not call for added precautions on his part, such as the use of flares, the radar‑light or the assistance of other police officers. The judge concluded that (i) Constable Lewis had a duty to take care for his own safety and he did so in accordance with the ordinary standards of police officers in the circumstances, (ii) the defendants had not discharged the onus of satisfying the Court on the balance of probabilities that Constable Lewis’ injuries and death caused or contributed to by any negligence on his part.
The Ontario Court of Appeal came to a different conclusion. In the view of that Court Constable Lewis was contributorily negligent in that he failed to keep a proper lookout, and in that he failed to avail himself of the two police officers who had been at the scene to have them control traffic while he continued his investigation at the scene. The Court did not discuss the evidence or the findings of the trial judge, nor did the Court point to any errors of the trial judge on the facts or in principle. The Court apportioned the negligence as 75 per cent against Todd and 25 per cent against Lewis.
When this appeal came on for argument the Court did not call upon the appellant to address the finding of contributory negligence but rather called upon the respondent to show on what basis the finding of the Court of Appeal could be sustained, having regard to the evidence and the findings of the trial judge. At the conclusion of argument on this point the Court did not feel it necessary to call upon counsel for the appellant to respond.
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It is trite law that an appellate court should not readily interfere with the findings of a trial judge, for reasons so often adumbrated but resting largely upon the advantage which a judge at trial enjoys over an appellate court, in having seen and heard the witnesses in the atmosphere of the arena. The most recent authoritative affirmation of this principle is to be found in Stein et al. v. The Ship “Kathy K”2. Ritchie J. reviewed a number of cases which stand for the proposition that an appeal court ought not to reverse the conclusions of a trial judge, then added:
These authorities are not to be taken as meaning that the findings of fact made at trial are immutable, but rather that they are not to be reversed unless it can be established that the learned trial judge made some palpable and overriding error which affected his assessment of the facts. While the Court of Appeal is seized with the duty of re‑examining the evidence in order to be satisfied that no such error occurred, it is not, in my view, a part of its function to substitute its assessment of the balance of probability for the findings of the judge who presided at trial, [at p. 808]
The Court of Appeal found that Constable Lewis should not have continued unassisted with his investigation on the road. To do so was negligent. The evidence was, however, that Constable Lewis did not depart from police practice. The trial judge did not misapprehend the evidence, or ignore evidence which would have suggested that police standards required more than one officer at an accident. There was no evidence, then, to support the conclusion that Constable Lewis needed assistance and that he was negligent in not asking for it. Moreover, in the circumstances of light traffic, good visibility and flashing lights, Henry J. found that motorists were warned of the presence of officers on the road. He held that even without the assistance of other officers directing traffic, drivers should have been alerted to the dangers and should have decreased speed and proceeded cautiously.
As to the second point, namely a failure to keep a lookout, there is more difficulty. The evidence is
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consistent with the conclusion that Constable Lewis paid no heed whatever, to oncoming traffic. He should have been aware of approaching traffic. There is conflict as to his location on the road and as to the direction in which he faced when struck, although Henry J. inferred that he had been struck from behind, in the legs.
The respondent argues that Henry J. erred in dealing with the officer’s conduct according to the standard of police officers. The duty to take care for one’s safety, it is said, can be no less than that of a pedestrian in the circumstances. In my view, it is incorrect, on these facts, to liken Constable Lewis to a pedestrian. There were circumstances here which should have alerted other drivers to the presence of police officers on the highway. There was evidence upon which Henry J. could find that Constable Lewis was not negligent in continuing the investigation as he had. The trial judge did not apply the standard of care wrongly; he did not misapprehend the evidence; there was neither palpable nor overriding error in his judgment. I would allow the appeal on this issue and restore the judgment at trial as to liability.
II
Quantum of Damages
Dianne Joyce Lewis, the widow of Constable Lewis, made claim on behalf of herself and her three children pursuant to the provisions of The Fatal Accidents Act. The judge at trial assessed the loss of dependency for Mrs. Lewis and her children at $175,000 and, in addition, awarded the sum of $20,000 to the children under the head of “Loss of Moral Education, Guidance and Training”. The Court of Appeal reduced the general damages for loss of dependency from $175,000 to $63,000 and, by a majority, left the award of $20,000 intact. The Court then reduced the $83,000 award by 25 per cent to $62,250 having found Constable Lewis to be 25 per cent responsible for his own death.
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At the time of the accident Constable Lewis was 32 years of age and his wife 27 years. The children ranged in age from 9 years to 5 years.
a) At Trial
The trial judge took the following approach, as I understand it, in assessing the dependency claim of each family member. He first determined the average gross income for the year 1971-72, which for a constable such as Constable Lewis was $14,100. He found that $4,880 or 40 per cent of the family income (i.e. of $12,000 in 1970) was allocated to the personal and living expenses of Constable Lewis. In reaching this conclusion he relied upon the family budget. He deducted Lewis’ share of the expense of carrying the house for mortgage interest, taxes, insurance and utilities. Food, clothing and transportation expenses of Constable Lewis were calculated according to the evidence led at trial. No deduction was made in respect of income tax. Making the adjustment for the increased gross income of 1972, Henry J. assessed the annual value of the family’s dependency at $8,460, i.e. 60 per cent of $14,100.
The annual amount had to be capitalized over the joint life expectancy of Constable Lewis and his wife, as well as Constable Lewis and his children. At the date of the accident, the joint life expectancy of the spouses was 36 years and 5 months, and actuarial evidence of the temporary life expectancy of Lewis with his children (i.e. the number of years to termination of dependency at eighteen years of age) was adduced.
Henry J. accepted the evidence of the appellant’s actuary, Mr. Segal, who calculated the present value of a joint life annuity of $1,000 per year, over the lives of Mrs. Lewis and her husband. The calculation was based upon an interest rate of 8.25 per cent “the current rate available on high grade investments for long term duration”. The judge expressly accepted the evidence of Mr. Segal as to the interest rate. To create in 1972, an annuity of $1,000 per year, during the period of the joint life expectancy, a sum of $11,412 was
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needed. For the deceased and each of his children, the present value of a temporary joint life annuity of $1,000 per year was as follows:
Constable Lewis and his daughter Leona $ 6,494
Constable Lewis and his daughter Wendy $ 7,738
Constable Lewis and his son Randy $ 8,216
TOTAL $ 22,448
The joint life annuity, as above, was calculated in the absence of any adjustment for future increases in the cost of living or for ‘productivity’, i.e. the upward trend of incomes over the forecast period, or more realistically referred to as ‘effective collective bargaining’. It became necessary, then, to factor in such adjustments. Economic evidence concerning the projected rate of inflation was given. It was summarized in this way by the trial judge:
Dr. J.J. Singer, a consulting economist, whose qualifications I accept, has studied trends in inflation and productivity and advises business clients with respect to these factors. He explained that the consumer price index, based on 1961 = 100, has risen in 1974 to 166.8 on a national basis and that for 1975, it will in his opinion rise by a further 10 per cent or 11 per cent. The anti-inflation programme of the federal government and Parliament aims at decreasing the present rate of inflation to 6 per cent in 1977 and 4 per cent in 1978 at which point the objective is that it should level off. In his opinion, the economy could tolerate annual inflation at a maximum rate of 5 to 8 per cent on a continuing basis.
On the basis of an 8.25 per cent interest rate, and an “increase factor” of 6 per cent (4 per cent for inflation and 2 per cent for productivity) the present value on February 11, 1972 of annuities of $1,000 were as undermentioned:
Joint life of Mr. and Mrs. Lewis to age 65 $ 22,241
Joint life of Mr. and Mrs. Lewis after age 65 $ 5,610
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Joint life of each child to age 18
Leona $ 7,242
Wendy $ 9,511
Randy $ 10,553
On the base dependency of the family for 1972 (i.e. $8,460), the widow would have received $6,500 and each child $720. Upon his retirement at age 65, the widow would have been entitled to 60 per cent of Lewis’ gross salary of $13,000 or $7,800. Though Constable Lewis probably would have spent more on himself with the passage of time, ‘that is supposition and not evidence’. The present value capitalized over the life expectancy and discounted as above, was multiplied by the dependency factor for each dependent, with this result:
Constable and Mrs. Lewis (up to age 65) $22,241 x 6.5 $ 144,566.50
After age 65 $5,610 x 7.8 $ 43,758.00
For the children $27,306 x.72 $ 19,660.32
Global Amount $ 207,984.82
Henry J. disallowed a claim for loss of interest on the capital sum between the date of the accident and the time of trial. The result would be, in his view, unfairly to provide interest to the plaintiff at the expense of the defendants.
The global award had to be adjusted to account for two further factors: (a) contingencies and (b) collateral benefits which the family received as a result of the death. Henry J. referred to a number of contingencies. He held:
I consider it realistic to take into account the risk of premature death inherent in Constable Lewis’s occupation as a police constable and to make some adjustment for it.
He made no adjustment, however, to the average life expectancy, for the surviving wife and children. Certain contingencies affecting the deceased’s employment were relevant—“dismissal, lay-off, reduction in the wage level… accident or unforeseen illness”. The remarriage of the appellant was not a relevant contingency. His conclusion as to the appropriate contingency factor was, as follows:
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This factor [contingencies] must be assessed according to the evidence and circumstances in each case and it must also be borne in mind that all contingencies do not necessarily work against the interest of the Plaintiff.
Making allowance for these factors, I consider that the global amount… should be reduced to $190,000.00.
The judge deducted approximately $18,000 or less than 10 per cent for adverse contingencies.
No deductions were made for certain collateral financial benefits received by the dependents as a result of Constable Lewis’ death, namely, Canada Pension Plan, Workmen’s Compensation benefits, payments under the contributory pension plan of the Metropolitan Toronto Police Force, the value of the matrimonial home which passed to Mrs. Lewis on the death of her husband.
Deductions were, however, made in respect of certain direct benefits totalling $14,850. Counsel for the plaintiff at trial conceded that the first two items were properly deductible:
Metropolitan Toronto Police
Widows and Orphans Fund (no dispute) $ 12,000
Death Benefit (no dispute) $ 550
Cash & Other Property (acceleration on $2,500) $ 2,300
$ 14,850
The result was to reduce the global amount from $190,000 to $175,000.
Although urged to do so, Henry J. refused to allow an additional amount for the severe emotional suffering of Mrs. Lewis and the children, though he did make an allowance of $20,000 in apportioned sums, to the children for the loss of the guidance and training of their father. He held:
The evidence in this case is that Constable Lewis was a kind and loving father, who devoted himself when he could to the welfare of his children and would have continued to do so at the expense of his own personal hobbies and recreation. I therefore allow the following amounts:—
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In the result, general damages in the amount of $195,000 were awarded as follows:
Mrs. Lewis $ 122,500
Leona $12,250 plus $5,000 $ 17,250
Wendy $19,250 plus $7,000 $ 26,250
Randy $21,000 plus $8,000 $ 29,000
b) On Appeal
i) The Court of Appeal noted that no deduction had been made for income tax calculating the disposable income of the deceased as the trial judge had decided the case before release of this Court’s judgment in Keizer v. Hanna and Buch3. The Court of Appeal accordingly made such a deduction and applied a 15 per cent tax rate. Subtracting the incidence of income tax, and the 40 per cent which Constable Lewis would have absorbed from his net annual income, the family was left with a disposable income of $6,345. The children’s share of $720 as found by Henry J. on the basis of $8,460 per year, remained constant. Mrs. Lewis’ share up until retirement, dropped from $6,500 to $4,185 per annum. After retirement, she would share in 50 per cent (or $6,500) of the pension income of $13,000. No reason is given for altering the finding of Henry J. that she would enjoy 60 per cent of the post-retirement income. Moreover, it may be noted that the Court of Appeal did not deduct income tax from the pension income, as it did on the pre-retirement earnings.
ii) The Court also observed that the trial judge had had to decide the case before the judgment of this Court in Arnold v. Teno4. Speaking for the Court, Jessup J.A., on the subject of discount rate stated “we think he [Henry J.] would have followed that precedent, particularly as in the evidence before him there was a basis for adopting a discount rate of 7 per cent”. The Court of Appeal made the
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calculation found below, using a 7 per cent rate, to reach the following global award:
Adopting such a rate results in a global award of $71,405, which might be rounded out to $71,500, calculated as follows: husband and wife income before age 65—$12,162 x 4.2 equals $51,080; husband and wife after age 65—$392 x 6.5 equals $2,548; Leona—$7,143 x .72 equals $5,142; Wendy—$8,512 x .72 equals $6,128; Randy—$9,038 x .72 equals $6,507—total—$71,405.
iii) The Court added an amount of $15,000 to cover the impact of taxation on the income produced from the award.
iv) A contingency deduction of 10 per cent or $8,500 was imposed.
v) The collateral benefits of $15,000 were deducted.
vi) Two members of the Court (Jessup and Wilson JJ.A.) supported the allowance of $20,000 to the children for the loss of the guidance and training they would have received from their father; one member of the Court (Lacourciere J.A.) would have disallowed the $20,000 item on the ground that no special consideration justified an award for loss of guidance, which, as a separate head of pecuniary damages, was tantamount to awarding double compensation.
In the result, the plaintiffs damages were reduced from $195,000 to $63,000 which, after giving effect to the reduction due to the finding of contributory negligence, was reduced to $47,250, apportioned $34,000 to Mrs. Lewis, $3,300 to Leona, $4,300 to Wendy and $5,650 to Randy. In addition 75 per cent of $20,000, i.e. $15,000 was awarded for loss of guidance and training, making a total award of $62,250.
III
Before considering the various adjustments made by the Court of Appeal there are several threshold comments I should like to make.
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First, when the Court sought to illuminate some of the dark crannies of the law of personal injury compensation, in three judgments delivered on January 19, 1978, sometimes referred to as the “trilogy”, one question was uppermost, the standard of future care. As the headnote to Andrews v. Grand & Toy Alberta Ltd.5, states “The paramount issue to be decided was whether in a case of total or near-total disability the future care of the victim should be in an institutional or a home care environment”. A number of other issues were canvassed in the several judgments but these were of secondary importance. It was well recognized that the treatment of these other issues depended in large measure upon the evidence adduced in the particular cases and the findings thereon in the courts below. The full development and “fine tuning” of these issues would await further cases. The present case affords the first such opportunity.
Second, counsel for the appellant has advanced in his factum many contentions which, if accepted in their entirety, would result in a global award greater than that of the trial judge. It should be noted, however, that the relief sought is simply restoration of the trial judgment, with interest.
Third, the award of damages is not simply an exercise in mathematics which a judge indulges in, leading to a “correct” global figure. The evidence of actuaries and economists is of value in arriving at a fair and just result. That evidence is of increasing importance as the niggardly approach sometimes noted in the past is abandoned, and greater amounts are awarded, in my view properly, in cases of severe personal injury or death. If the Courts are to apply basic principles of the law of damages and seek to achieve a reasonable approximation to pecuniary restitutio in integrum expert assistance is vital. But the trial judge, who is required to make the decision, must be accorded a large measure of freedom in dealing with the evidence presented by the experts. If the figures lead to an award which in all the circumstances
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seems to the judge to be inordinately high it is his duty, as I conceive it, to adjust those figures downward; and in like manner to adjust them upward if they lead to what seems to be an unusually low award.
Fourth, it might be observed, though this should hardly be necessary, that a court, in our adversarial system, is largely confined to the evidence adduced at trial, and to argument related thereto. In the “trilogy” the evidence was in some respects not as complete as one might have wished. Since then the periodic literature has abounded with economic facts and theories which were not before the Court in any of the three earlier cases, nor indeed in the case at bar.
IV
a) Discount Rate
It is clear that the discount rate is a critical factor in determining quantum in any fatal accident, or serious personal injury, litigation. Some confusion seems to have attended this Court’s acceptance of a 7 per cent discount rate in the “trilogy” and a 6½ per cent rate in Keiser v. Hanna and Buch, supra. Some courts have interpreted the question of discount rate as a matter of law and have applied the 7 per cent rate utilized in the trilogy. Others have given effect to the Court’s statement in Andrews v. Grand & Toy Alberta Ltd., supra, that, “The result in future cases will depend upon the evidence adduced in those cases” (at p. 259) and have felt free to depart from the 7 per cent figure. It is important, I think, that the Court affirm the principle that the discount rate is normally a factual issue which will turn on the evidence advanced in individual cases.
It would be useful to recall precisely the function which the “discount rate” is intended to serve. In the case of a fatal accident the Court is
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endeavouring to compensate the dependents of the deceased for loss of a future stream of income which the dependents might have expected to receive but for the death of the deceased. As it is not open to a court, in the absence of enabling legislation, to order periodic payments adjusted to future needs, the dependents receive immediately a capital sum roughly approximating the present value of the income they would have received had the deceased survived. They are able to invest this capital sum and earn interest thereon. A proportion of the interest received may be offset by the effect of inflation. To the extent that the interest payments exceed the rate of inflation, there is conferred on the dependents, through payment today of a stream of future income, a benefit which can be expressed as the “real rate of return”. There would clearly be enrichment of the plaintiff at the expense of the defendant if the court did not take this benefit into account in making an award. Accordingly, the court applies a so-called “discount factor”, i.e. the real rate of return which the plaintiff can expect to receive on the damage award. This is what the Court was suggesting in Andrews when it was stated “The approach which I would adopt, therefore, is to use present rates of return on long-term investments and to make some allowance for the effects of future inflation”. (at p. 258)
It has been suggested at various times that there is no need for a court to hear evidence on expected rates of interest and inflation as the relationship between these two factors and thus the real rate of return is constant. (See generally Gibson, “Repairing the Law of Damages”6; Braniff and Pratt, “Tragedy in the Supreme Court of Canada: New Developments in the Assessment of Damages for Personal Injuries”7.) Such an approach has been termed the “Lord Diplock approach” or “modified Lord Diplock approach”, following Mallett v. McMonagle8.
I know of no authority by which this Court, if so minded, could legislate a fixed discount rate, appli-
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cable for all cases. Even if such authority were present, I would be loathe to exercise it in the present case. At trial, the plaintiff called one economist and one actuary to give evidence on future trends in inflation and interest rates. It would be irresponsible for this Court to make an immutable pronouncement on a complex issue on the basis of such limited evidence. The findings made herein should, in justice, only bind the parties to the present litigation.
The principle remains that, absent legislation (see The Judicature Amendment Act, 1979, 1979 (Ont.), c. 65, s. 6(5)) which directs the manner of calculating discount rate (e.g. by setting a figure or by pegging the interest rate to return on specific investment vehicles and inflation to a particular index), the discount rate will vary according to the expert testimony led at trial.
This does not mean that there will never be any uniformity in the selection of discount rate. As litigants in these cases produce more thorough and rigorous economic data and as the judiciary becomes more familiar with this data, a certain uniformity will no doubt emerge.
As I have earlier indicated, the trial judge selected 8.25 per cent as the reasonable rate of return for high-grade investments of long-term duration. This was balanced against inflation (4 per cent) and yielded a real rate of return of 4.25 per cent. A productivity factor of 2 per cent was then introduced. The Court of Appeal did not deal at any length with the evidence on this issue. Rather, it overturned the trial judge’s finding on the sole basis that this Court had adopted a 7 per cent discount rate in Teno v. Arnold, supra, and there was “a basis” for adopting a similar rate in the present case. In imposing a 7 per cent discount rate, the Court of Appeal did not explicitly state the assumptions which supported such figure. It is not clear, for example, whether the Court was eliminating the 2 per cent productivity factor included by the trial judge; nor is it clear what nominal rate of return the Court considered the plaintiff would receive through investment of the
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damage award.
With respect, the Court of Appeal erred in treating the discount rate adopted in Teno as, virtually, a matter of law. The Court turned to the evidence in the case only to determine whether there was “a basis” for adopting a similar rate here. The Court should have commenced its inquiry with the finding of the trial judge and evidence adduced at trial, and should have left those findings undisturbed if supported on the evidence. The “trilogy” of cases was available for guidance on the basic questions of principle.
Turning to that evidence, it is true there was testimony which could have supported a higher discount rate. There was, however, ample evidence to support the trial judge’s finding that inflation would run at approximately 4 per cent and long-term investment rates would average 8.25 per cent. Productivity was not raised as a factor in the “trilogy” but I consider it an appropriate component of a damage award in a proper case. There was evidence to support the 2 per cent figure selected by the trial judge.
In the result, I would reverse the judgment of the Court of Appeal on this point and restore the finding at trial.
b) Income Tax
The purpose of awarding damages in cases of fatal injury is to compensate the dependents for the loss suffered by the accident. This was stated a century ago by Lord Blackburn in Livingstone v. The Rawyards Coal Company9 and repeated by this Court in Andrews:
…in settling the sum of money to be given for reparation of damages you should as nearly as possible get at
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that sum of money which will put the party who has been injured, or who has suffered, 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 or reparation, [at p. 241]
This principle of compensation formed the basis of the Court’s holding in Keizer v. Hanna and Buch, supra, that income tax should be deducted from the deceased’s income in calculating the annual dependency. Had the accident not occurred, the wage-earner would have paid taxes on his taxable income. Thus, if the tax factor is not included in computing the flow of income, the result is over‑compensation of the plaintiff and violation of the principle of restitutio in integrum.
The Court of Appeal disposed of the tax question in the following manner. The Court first calculated the deceased’s gross income, and then deducted the personal expenses of the deceased. The tax exigible on this sum was then estimated and deducted. The Court recognized that interest receipts on the damage award would be subject to tax and $15,000 was added to the award to cover this eventuality.
No reasons were given for selecting $15,000 to cover the impact of taxes on earnings from the damage award. No evidence was adduced on this issue at trial, as tax considerations were deemed irrelevant. Calculation of the tax impact on interest earnings upon a damage award is complex. Computation is impossible without the evidence of expert witnesses. As no such evidence is before this Court, tax factors could only be considered if the matter were referred back to the trial judge for a re-hearing on this issue. It is, however, now eight and one-half years since the accident. The dependents of Constable Lewis have yet to receive any compensation. To order more proceedings would result in further delay and in my view this would be intolerable. In light of these exceptional circumstances I would propose, as the only practical course, that the Court disregard the tax impact upon both the dependency and the earnings from the award. This holding is based on the peculiar facts of the present case and should not be taken as derogating in any way from the principles enun-
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ciated in Keizer v. Hanna and Buch, supra.
c) Contingencies
In principle, there is no reason why a court should not recognize, and give effect to, those contingencies, good or bad, which may reasonably be foreseen. This is not to say that the courts are justified in imposing an automatic contingency deduction. Not all contingencies are adverse. The court must attempt to evaluate the probability of the occurrence of the stated contingency. It is here that actuarial evidence may be of aid. I merely repeat what was said in Andrews:
…actuarial evidence would be of great help here. Contingencies are susceptible to more exact calculation than is usually apparent in the cases. [at p. 253]
In this case the actuarial tables projected a joint life expectancy but not a working expectancy for the deceased; thus it was not inappropriate to take into account general contingencies such as those mentioned by the trial judge.
A trial judge should consider whether there is any evidence which takes the deceased’s situation outside the ‘average’; whether there are any features of which no account was taken in the actuarial tables, either because the factor is entirely personal to the individual or, because the ‘average’ is not adapted for the category or class to which the person belongs, e.g. police officers.
At trial, actuarial evidence on the probable life expectancy of Constable Lewis and his wife was adduced. There was no evidence with respect to any of the other contingencies considered by the trial judge. The trial judge resisted the temptation to use a “conventional figure of 20 per cent” and explicitly noted that “all contingencies do not necessarily work against the interest of the Plaintiff”. In his judgment, less than 10 per cent should be deducted for adverse contingencies.
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The Court of Appeal held that 10 per cent was an appropriate contingency deduction. This conclusion is stated without any reason as to why the determination of the trial judge was inappropriate. It may be that the Court was simply “rounding off” the deduction made by the trial judge. In the result, I would restore the finding of the trial judge.
d) Collateral Benefits
It would appear that the reduction for collateral benefits was not disputed at trial nor cross‑appealed in the Court of Appeal. The appellant does not press the point other than to give greater strength to her submission that the trial award ought to be restored. Accordingly, I do not think it is necessary to address the question and I leave undisturbed, as did the Court of Appeal, the disposition of the trial judge.
e) Loss of Guidance and Training
As to the award of loss of guidance and training to the children, the same situation prevails.
f) Interest
The trial judge declined to make an award of interest in respect of the period between the date of the accident and the date of judgment and I would not disturb that ruling.
In this Court, the appellant asks that the judgment at trial be restored with interest on the award at the rate of 8.25 per cent from the date of judgment to the date of payment. The respondent submits that interest in the amount of 8.25 per cent ought not to be awarded on the judgment as, it is contended the interest on the damages has not been lost, only delayed. It is further argued that the damages are intended to produce an annual income for an estimated period of time and that the delay in receiving the award will only mean that the fund will last four years longer. This argument is fallacious. The calculations of the
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actuary and of the trial judge contemplated the setting up of a fund at date of judgment which, invested at a nominal rate of interest of 8.25 per cent, would provide the dependents with the amount to which they were properly entitled. The delay of over four and one-half years from the date of judgment at trial to the present date has meant that interest which should have accumulated upon, and formed an essential element in the computation of, the award has not been received by plaintiff. The defendant has enjoyed the use of the moneys in the intervening period and earnings thereon.
Section 13 of the Interest Act, R.S.C. 1970, c. I-18, provides that “Every judgment debt shall bear interest at the rate of five per cent per annum until it is satisfied”. Section 14 states, in part, that “Unless it is otherwise ordered by the court, such interest shall be calculated from the time of rendering of the verdict or of the giving of the judgment, as the case may be…”. Section 52 of the Supreme Court Act, R.S.C. 1970, c. S-19, provides, in part, that “Unless otherwise ordered by the Court, a judgment of the Court bears interest at the rate and from the date applicable to the judgment in the same manner of the court of original jurisdiction…”.
In Fenn v. City of Peterborough10 the Ontario Court of Appeal accepted the argument that if the payment of the required capital sum is delayed the calculations made by the trial judge are no longer valid. The Court pointed out that this could have been guarded against if the trial judge had ordered that the capital sum awarded should bear interest at 10 per cent per annum (the anticipated investment rate in Fenn) from the date of judgment at trial to the date of payment—not as interest on the sum awarded but as part of the sum awarded. Thereby the requisite capital fund, when eventually paid, would be sufficient to achieve what was intended. In Fenn, the Ontario Court of Appeal made such an award. I think this Court should make an award of the same nature in the present case, that is to say 8.25 per cent from the date of judgment at trial to date of payment of the judg-
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ment—not as interest but as part of the award.
In the result, I would allow the appeal, set aside the judgment of the Ontario Court of Appeal, and restore the judgment at trial, together with 8.25 per cent interest compounded annually, upon the award at trial, computed from the date of judgment at trial to the date of payment. The appellant is entitled to costs throughout.
Appeal allowed with costs.
Solicitors for the plaintiff, appellant: Lerner & Associates, London.
Solicitors for the defendants, respondents: Walker, Ellis & Pegzack, Toronto.
Footnotes
- (1979), 5 C.C.L.T. 167.
- 1975 CanLII 146 (SCC), [1976] 2 S.C.R. 802.
- 1978 CanLII 28 (SCC), [1978] 2 S.C.R. 342.
- 1978 CanLII 2 (SCC), [1978] 2 S.C.R. 287.
- 1978 CanLII 1 (SCC), [1978] 2 S.C.R. 229.
- (1978), 8 Man. L.J. 637, 651.
- (1979), 37 U.T. Fac. L. Rev. 1, 26.
- [1970] A.C. 166.
- (1880), 5 App.Cas. 25.
- (1978), 1979 CanLII 77 (ON CA), 25 O.R. (2d) 399.
