Scottish Court of Session Decisions

Pursuers: Marshall, Solicitor Advocate; Thompsons

Defenders: N Mackenzie; Biggart Baillie

4 July 2008

[1] The pursuers are the executors and family of the late Edward Crossett who died from mesothelioma on 11 November 2005. The defenders are the successors of the rights and liabilities of Alexander Stephen & Son Limited, former employers of the deceased.

[2] When the case called before me for proof I was advised that the action, as far as relating to the second to sixth pursuers, had settled. So far as the first pursuers (the estate) were concerned, parties were agreed about all matters, save one. A joint minute of admissions was tendered in which the defenders admit liability to make reparation to the first pursuers and the parties agree (subject to the outstanding issue) damages in the sum of £70,000.

[3] The outstanding issue relates to a payment of £9,912 made to the deceased's estate under the Pneumoconiosis Etc. (Workers Compensation) Act 1979 and whether that should be deducted from the agreed damages.

[4] The joint minute narrates that the defenders are in liquidation and insolvent, that they were insured by Chester Street Insurance Holdings Limited (in Scheme of Arrangement) and that any sums which the first pursuers may eventually receive will be paid by the Financial Services Compensation Scheme ("FSCS" or "the scheme") in accordance with the Financial Services Authority Handbook, compensation section, which provides for payment under the scheme of a sum equivalent to 90% of a person's damages. In exchange for payment the first pursuers will be required to assigned to the scheme their whole rights against the defenders and their insurers.

Submissions for pursuer

[5] Counsel for the pursuers referred to various authorities (Mounkman on Damages 11th ed., Parry v Cleaver 1970 AC 1, Cantwell v CICB 2002 SC 1, Jobling v Associated Dairies 1982 AC 794 and Ballantyne v Newealls Insulation 2001 I.C.R. 25) but the principles taken from these cases were essentially ones of general application: namely that pursuers should be put as closely as possible in they position in which they would have been but for the defender's negligence. They should not be overcompensated but nor should they be undercompensated. I and that in relation to losses and benefits like should be compared to like.

[6]. Essentially the proposition for the pursuers was startlingly simple. The pursuers were not entitled to be over-compensated, hence in a simple issue with a wrongdoer the payment under the 1979 Act would require to be deducted. On the other hand a pursuers should not be under-compensated and should be put as closely as possible in the position they would have been in but for the defenders' negligence. In this case the effect of the scheme would in itself result in under-compensation since the pursuers require to accept a reduction of 10% in exchange for the assignation of their rights against the defenders. This under-compensation would be compounded if the 1979 Act payment were to be deducted. In that situation the court would grant decree for £60,088 of which the FSCS would pay only £54,079.20 (90%) in exchange for the assignations. The solicitor advocate for the pursuers submitted that such a result would be contrary to the principle that a pursuer should not be under-compensated and that in such a case as this the court required to look at all the circumstances before determining the amount for which decree should be granted. In particular, where the court was taking into account by way of deduction a payment under the 1979 Act, it should correspondingly recognise that the actual amount which a pursuer will receive under the scheme would be subject to a 10% deduction in terms of the scheme. In so far as deduction of the 1979 Act payment would produce for a pursuer a sum less than the damages agreed or determined by a court as appropriate, the court should not deduct the 1979 Act payment.

[7] Counsel drew my attention to the case of Ballantyne v Newealls Insulation Co Limited [2001] I.C.R. 25, an action in which the Court of Appeal held that as a matter of general principle, in order to avoid over-compensation, collateral benefits directly attributable to the injury which was the subject-matter of the cause were to be deducted from an award of damages. A payment under the 1979 Act was compensation for having the illness itself and the deceased having contracted it in circumstances to which the Act applied the payment was thus a collateral benefit directly attributable to the injury. It was therefore to be deducted from the damages which were to be awarded.

[8] The solicitor advocate for the pursuer did not take issue with the decision in that case, nor the reasoning on which it was founded. He accepted that it applied in any issue between a pursuer and a wrongdoer. His argument was that in a case covered, by virtue of the insolvency of insurers, by the Financial Services Compensation Scheme, the case of Ballantyne fell to be distinguished. In such a case there was no risk, as there had been in Ballantyne, of over-compensation, rather there was a risk of under-compensation. In assessing damages in such a case the court would require to look not only at the fact that a payment under the 1979 Act had been made, but also to the fact that, under the scheme, payment is limited to 90% of a pursuer's claim. His argument was that whilst ignoring 1979 Act payments would benefit a pursuer, ignoring the limitations of the scheme would be to ignore a detriment to the pursuer who would be 10% worse off.

[9] The calculation which the pursuers say the court should conduct carry out in order to avoid under-compensation is set out at paragraph 11 of an outline submission presented for the pursuers. That reads as follows:

"The calculation of the amount for which the court should grant decree is as follows: £70,000 - £9,912 = £60,088. If the court grants decree for £60,088, the pursuers would receive only £54,079.20 from FSCS. To produce a payment from FSCS of £60,088 that amount must be grossed up so that when 10% is deducted the difference is £60,088. So if X is the amount of the decree, X - 10X/100 = £60,088. Therefore X = £66,764.44."

Submissions for defenders

[10] The primary submission for the defenders was that the payment under the 1979 Act fell to be deducted, consistent with the decision in the case of Ballantyne, otherwise there would be double recovery. The source of payment of damages is not a relevant consideration in the assessment of damages. Counsel drew attention to the reasoning of the Court of Appeal in Ballantyne, in particular paragraph 21 in the Opinion of Buxton LJ where he states:

"As I have already said, the impact on computation of damages of an award under the 1979 Act has never been considered except in one County Court case, and never been considered by this court. It is, in my view, necessary to start with the principles that the court applies to the deduction of what might be called 'collateral benefits' that have been received as a result of the injury of which the claimant complains. The main principle is that, in order to avoid compensation on the part of the claimant, such benefits, if they are correctly attributable to the injury, should indeed be deducted" [subject to well-recognised exceptions].

Counsel submitted that the payment under the 1979 Act was indeed correctly attributable to the injury, drawing attention to the passage at paragraph 8 in the Opinion of Buxton LJ that:

"It is clear therefore that a pre-condition of the application of the Act is the existence of an at least potentially culpable injury suffered by the claimant."

Accordingly, counsel's submission was that the 1979 Act payment to the estate fell to be deducted from the damages of £70,000 with the result that decree in the sum of £60,088 should be granted. The role of the court is the assessment of damages and it is important to recognise the difference between the assessment of damages and the means of payment.

[11] An esto argument that were the court to look at the means of payment, the first pursuers ought to receive £54,079.20, the sum which would follow from the operation of the scheme, need not be rehearsed.

[12] Counsel made submissions in relation to the arithmetic of the pursuers' calculations which I comment on below. He made reference in addition to Cameron v Vinters Defence Systems Limited [2008] P.I.Q.R. p.5, Mitchell v Laing 1998 S.C. 342, and Adair v Colville 1927 S.C. 116.

Discussion

[13] The task for the court in any case for damages is to assess the amount of the pursuer's loss arising from the defender's negligence. In that respect, as Lord Reed said in Parry v Cleaver (page 13C) in a passage quoted by the solicitor advocate for the pursuers:

"Two questions can arise. First what did the plaintiff lose as a result of the accident? What are the sums which he would have received but for the accident but which by reason of the accident he could no longer get? and secondly, what are the sums which he did in fact receive as a result of the accident but which he would not have received if there had been no accident? And then the question arises whether the latter sums must be deducted from the former in assessing damages."

It is the issued raised in that last sentence which arises in the present case. The pursuers did not dispute that in the ordinary case a payment under the 1979 Act is a payment which he did in fact receive as a result of the injury which he would not have received if there had been no injury. They do not dispute that in the ordinary case, by virtue of the reasoning set out in Ballantyne, supra it is a payment which would fall to be deducted to avoid over-compensation of a pursuer.

[14] The sole basis for saying that it should not however be deducted in the present case is that the defenders are not in a position to make satisfaction of any decree which the court may pronounce and the pursuers must therefore rely on the operation of the FSCS. It is to me a novel proposition that in assessing damages the court should take into account the impecuniosity of a defender, and the fact that full recovery might not follow. That is a matter entirely outwith the issue of the assessment of damages which the court must undertake. If appropriate damages are agreed at £70,000 and the pursuers have received £9,912 under the 1979 Act, the court requires to deduct that sum from the £70,000 in order to arrive at the sum (£60,088) for which decree should be pronounced in order to ensure that the court's decree contains no element of double recovery or over-compensation.

[15] The fact that the defenders are not in a position to satisfy that decree is one entirely extraneous to the assessment of damages, as is the existence of the scheme. But for the existence of the scheme, the court's assessment of damages would in this situation be £60,088 of which the pursuers would receive precisely nothing. Why the existence of a Government scheme, designed to assist pursuers in such a situation should have the effect of altering a court's assessment of the true measure of loss is beyond me. It is not a the case that the pursuers will be 10% worse off: by virtue of the scheme and by virtue of that alone, the pursuers are significantly better off than they would be.

[16] The pursuers' argument is no more than an attempt to get round the limitations of the scheme. That, together with the absurdity, and impossibility of applying, the pursuers' proposition appears very clearly when one examines the arithmetic.

In the first case the pursuers are not ultimately arguing that the whole 1979 Act payment should not be deducted. Decree is sought in the sum of £66,764.44, which reflects a deduction of £3,235.56. This is achieved by means of a complicated formula which would have to be varied with every case, and on the pursuers' own concession would not operate at all where the amount of the 1979 Act payment was less than 10% of the overall damages, because in such a case the result would be over-compensation. For example, to apply the formula to a situation where the damages were £70,000 and the 1979 Act payment £5,000, the amount of the decree to achieve the desired effect would be more than £72,000, in other words a sum greater than the total value of the damages.

[17] It is quite clear that the formulation of the pursuers' calculation quoted at paragraph 9 above is one designed to achieve for the pursuers payment from the FSCS of the sum which would have been obtained from a solvent defender, namely a net sum of £60,088 - in other words a sum which bypasses the limitation of the scheme that it will only pay 90% of a claim. The pursuers' formula would result in a total payment of £60,088 from the scheme plus £9,912 already received, in other words £70,000.

[18] Furthermore, and in any event, the pursuers' approach exaggerates the extent to which the pursuers will suffer as a result of the insolvency of the defenders and their insurers. If the 1979 Act payment is deducted they will receive from the FSCS 90% of £60,088, namely £54,079.20. Having already received £9,912 they will in fact have obtained payment of a total of £63,991.20. By following the course of the action which they have done, obtaining a payment under the 1979 Act before pursuing an action, they have obtained £991.20 more than they would have done by pursuing the action alone.

Decision

[19] I am entirely satisfied that the payment under the 1979 Act falls to be deducted from the sum of £70,000, with the result that decree should follow in the sum of £60,088.

[20] Parties were agreed that I should reserve the question of interest in the meantime. For that reason, and to dispose of the action so far as the other pursuers are concerned I will put the case out by order.

21 I was advised by the solicitor advocate for the pursuers that there were many cases in which this issue remained outstanding and that it is likely to recur repeatedly in the Outer House until resolved by a decision of the court. In an attempt to avoid such a situation I have decided to issue this opinion in writing.