Volume 42 | Number 2 Spring 2007
Choice of Law for Quantification of Damages: A Judgment of the House of Lords Makes a Bad Rule Worse
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II. Harding v. Wealands
Mr. Harding, an Englishman, and Ms. Wealands, an Australian, began a relationship in Australia.20 She moved to England to live with him.21 Ms. Wealands returned to Australia to attend a family wedding.22 He later joined her for a holiday and to visit her parents.23 While she was driving in New South Wales (NSW) with Mr. Harding as a passenger, she lost control and the vehicle turned over.24 He was badly injured and became tetraplegic as a result of the injury.25 Ms. Wealands owned the vehicle and carried liability insurance issued by an Australian company.26 Both Mr. Harding and Ms. Wealands returned to England.27
A NSW statute places limits on compensation for various damages including lost earnings and non-economic damages, and in other ways restricts recovery.28 Under NSW law the plaintiff would recover about thirty percent less than under English law.29 The United Kingdom Private International Law Act 1995 abolished the double actionability choice-of-law rule for torts30 and created a presumption that that the law of the place of injury governs31 unless it is “substantially more appropriate” to apply some other law.32 Section 14(3)(b) states that the statute does not authorize “questions of procedure in any proceedings to be determined otherwise than in accordance with the law of the forum.”33
Mr. Harding sued Ms. Wealands in the High Court of Justice in London.34 That court ruled that English law determined the damages.35 Justice Elias gave two reasons: (1) the NSW caps on damages were “procedural”;36 (2) even if damages were substantive it was “substantially more appropriate” to apply English law because the parties “were living together in a settled relationship and resident in England,”37 and “the costs of alleviating the consequences of the accident will be borne in” England.38 The Court of Appeal allowed the appeal and applied Australian law.39 The judges of the Court of Appeal agreed that it was not more appropriate to apply English law if the NSW statutory caps on damages were substantive,40 but they split 2-1 on the issue of whether the caps were substantive, the majority voting for the substantive classification.41 With five Law Lords participating, the House of Lords unanimously allowed the appeal and restored the judgment of the trial court on the ground that quantification of damages is procedural.42
Lord Hoffman stated that he found no ambiguity in the meaning of “procedure” as used in section 14(3)(b) of the Private International Law Act 1995.43 Procedure in English private international law had always included all issues relating to quantification of damages.44 The only authority that statutory limits on recovery are substantive is found in one of the leading English treatises on conflict of laws:
But Mr. Palmer, who appeared for the defendant, submitted that in English private international law a limit or “cap” on the damages recoverable is regarded as substantive. There is, it is true, some authority for this proposition. The 7th edition (1958) of Dicey’s Conflict of Laws edited by Dr. JHC Morris, contained the statement, at p 1092, “statutory provisions limiting a defendant’s liability are prima facie substantive; but the true construction of the statute may negative this view.”45
Lord Hoffman rejected this statement in Dicey’s treatise as “too widely stated” because the case cited by Dicey is only “authority for the proposition that a contractual term which limits the obligation to pay damages for a breach of contract or a tort, or a statutory provision which is deemed to operate as such a term, qualifies the substantive obligation.”46
On the question of whether the NSW statutory limits on recovery are procedural, Lord Hoffman states “we could not have better authority than that of the High Court of Australia in Stevens v Head.”47 Stevens v. Head held that the damage limits in an earlier version of the NSW statute were procedural and did not apply to a suit in Queensland by a New Zealand citizen against a Queensland resident.48 The defendant struck the plaintiff in NSW near the Queensland border with a motor vehicle that was insured and registered in Queensland.49 Lord Hoffman noted50 that the High Court of Australia had overruled Stevens v. Head in John Pfeiffer Pty. Ltd. v. Rogerson.51 Pfeiffer held that limits on non-economic damages in the NSW Workers’ Compensation Act were substantive, and applied to a suit in the Australian Capital Territory.52 A Capital Territory employee of a Capital Territory employer had been injured on the job in NSW.53 Lord Hoffman dismissed this overruling as “required by constitutional imperatives of Australian federalism.”54
Pfeiffer states:
Within a federal nation such as Australia, the capacity of a party to legal proceedings to choose the forum within which to bring such proceedings can be one of the advantages of the interconnected polity. However, such a facility ought not to involve the capacity of one party seriously to prejudice the legal rights of an opponent.55
It may be reasonable to recognize the right of a litigant to choose different courts in the one nation by reason of their advantageous procedures, better facilities, or greater expedition. However, it is not reasonable that such a choice, made unilaterally by the initiating party, should materially alter that party’s substantive legal entitlements to the disadvantage of its opponents. If this could be done, the law would no longer provide a certain and predictable norm, neutrally applied as between the parties. Instead, it would afford a variable rule which particular parties could manipulate to their own advantage. Such a possibility would be obstructive to the integrity of a federal nation, the reasonable expectations of those living within it, and the free mobility of people, goods, and services within its borders—upon the assumption that such movement would not give rise to a significant alteration of accrued legal rights.56
This statement expresses, not some peculiar aspect of “Australian federalism,” but sound general choice-of-law principles that would mandate the opposite result in Harding.
Lord Hoffman writes that if the word “procedure” were ambiguous in section 14(3)(b) of the Private International Law Act, “this is as clear a case . . . as anyone could hope to find”57 where resort to legislative history would demonstrate that Parliament intended that term to include quantification of damages:
At the Report stage in the House of Lords, Lord Howie of Troon put down an amendment to add a further paragraph to what is now section 14(3), so that it would read: “[nothing in this Part] (d) authorises any court of the forum to award damages other than in accordance with the law of the forum.” Lord Howie declared an interest on behalf of Cape Industries plc, which had a few years earlier been sued in Texas for asbestos-related injuries and was anxious that Part III should not import American scales of compensation into English courts. In the debate on 27 March 1995 Lord Mackay of Clashfern LC [Lord Chancellor] made what was obviously a carefully prepared statement: “With regard to damages, issues relating to the quantum or measure of damages are at present and will continue under Part III to be governed by the law of the forum; in other words, by the law of one of the three jurisdictions in the United Kingdom. Issues of this kind are regarded as procedural and, as such, are covered by clause 14(3)(b). It follows from this that the kind of awards to which the noble Lord referred of damages made in certain states, in particular in parts of the United States, will not become a feature of our legal system by virtue of Part III. Our courts will continue to apply our own rules on quantum of damages even in the context of a tort case where the court decides that the “applicable law” should be some foreign system of law so far as concerns the merits of the claim. Some aspects of the law of damages are not regarded as procedural and, in accordance with the views of the Law Commissions in their report on the subject, Part III does not alter this. These aspects concern so-called “heads of damages”—the basic matter which is being compensated for—such as special damage relating to direct financial loss. Whether a particular legal system permits such a head of damage is not regarded as procedural but substantive and therefore not automatically subject to the law of the forum. This seems right given the intimate connection between such a concept and the particular nature of the case in issue. But again, I foresee no significant increase in awards of damages because a particular head of damage permitted by some foreign system of law would continue, so far as the quantum allocated to it in any finding is concerned, to be regulated by our own domestic law of damages. I hope the noble Lord will feel reassured.”58
This excerpt from the Parliamentary proceedings focuses on avoiding introducing “American scales of compensation into English Courts.”59 That policy would not apply to rejecting statutory limits on damages that would reduce recovery below the English standard. Lord Roger of Earlferry recognizes this distinction:
The particular problem raised by Lord Howie related to the high level of damages in the United States which he was anxious should not be replicated here. But it would be equally unacceptable if, say, United Kingdom courts had to award damages according to a statutory scale which, while adequate in another country because of the relatively low cost of services etc there, would be wholly inadequate in this country, having regard to the cost of the corresponding items here.60
This is an argument, not for treating the NSW statutory limits on recovery as procedural, but for applying English substantive law on one of the grounds stated by Justice Elias in his High Court of Justice decision—that it was “substantially more appropriate” to apply English law because the parties “were living together in a settled relationship and resident in England.”61
The fact that Ms. Wealands carried liability insurance issued by an Australian company does not make it less appropriate to apply English law. Justice Elias also addressed the effect of Australian insurance.62 He referred to Justice Garland’s opinion in Edmunds v. Simmonds,63 which applied English law in a suit between English residents to recover compensation for injuries incurred in a motor vehicle accident in Spain:
The judge accepted that the fact that the insurers were Spanish was a relevant factor, but he did not consider that it was sufficiently strong in that case to prevent section 12 dis-applying Spanish law. He accepted a submission that the insurers would contemplate that many of their clients hiring cars would be foreign and there was always a possibility that damages would be assessed in accordance with another system of law.64
Another way of saying this is that the payment in Edmunds v. Simmonds was just grist for the actuarial mill. The payment is added to costs that are used to calculate future premiums.65
In this context, the only viable unfair surprise argument concerning insurance focuses on unfair surprise to the insured. This may occur if the liability regimes of the place of injury and a distant forum are so different that liability insurance adequate at the place of injury is inadequate to meet forum standards for quantifying damages. If the tortfeasor cannot reasonably foresee the need for insuring at the higher level, it is unfair to impose forum law to compensate a forum resident. For example, suppose a Texas resident vacationing in Mazatlán on the Pacific coast of Mexico is run over by a Mexican driver. The law of Sinaloa, the Mexican state where Mazatlán is located, does not permit recovery for pain and suffering, and has low statutory limits on the recovery of economic damages.66 Under Sinaloa law, the Texan would recover a small fraction of what he would recover under Texas law. Then further suppose that a Texas court acquires personal jurisdiction over the Mexican driver in Texas by personal service while the Mexican is visiting Texas. The Mexican defendant has liability insurance that is adequate under Sinaloa compensation standards, but is wholly inadequate under Texas measurements of recovery. It would be outrageous to apply Texas law to determine either heads of damages or compensation under those heads. On the other hand, if two Texas friends vacation together in Mazatlán and one injures the other while driving in that city, the driver had better have liability insurance keyed to Texas compensation standards. A Texas court will apply Texas law as the jurisdiction that has the “most significant relationship” to the parties and the occurrence.67 If the defendant is surprised, it is because he did not heed the warning that the Supreme Court of Texas issued in 1979.68
Lord Hoffman gives mixed signals on whether he would invoke the “substantially more appropriate” avoidance of the law of the place of wrong if he were not compelled by legislative history to consider foreign statutory limits on recovery as procedural.69 One passage seems to say, “yes”: “Even if there appeared to be more logic in the principle in Pfeiffer’s case [in which the High Court of Australian treated statutory limits on recovery as substantive] . . . the question is not what the law should be but what Parliament thought it was in 1995.”70 At the end of his opinion he states, however, that because the NSW statutory limits on recovery are procedural:
it is unnecessary to decide whether, if they had been properly characterised as substantive, it was open to the Court of Appeal to reverse [the trial judge’s] judgment that it was substantially more appropriate to apply English law. The hypothesis necessary to raise this question is in my view somewhat artificial, because most of the reasons why it may be more appropriate to apply English law are the reasons why the assessment of damages is traditionally characterised as a matter for the lex fori. I would therefore prefer not to express a view on this question.71
On the contrary, as demonstrated above by the two hypothetical cases concerning automobile accidents in Mexico,72 it will sometimes be appropriate to ignore foreign limits on damages and sometimes outrageous, depending on the forum’s contacts with the parties and the occurrence.
Lord Woolf offers another reason for regarding the NSW statutory limits on recovery as procedural:
The limits on the amount of damages on which the defendant seeks to rely are contained in the Motor Accidents Compensation Act 1999 of New South Wales. That Act contains in Chapters 3, 4, 5 and 6 a detailed statutory procedural code containing the machinery for recovering compensation for motor accident injuries, including the way damages are to be assessed. The code is clearly one that has provisions which it would be very difficult, if not impossible, to apply in proceedings brought in this country, even though they may be capable of being applied in other parts of Australia. To have different parts of that code dealt with by different systems of law would not be an attractive result and in some cases this would produce an impractical result. (See for example section 132 which requires, in the case of a dispute over non economic loss, for the degree of impairment to be assessed by a medical assessor in New South Wales.) The greater part of the code is clearly procedural and those parts which could be arguably regarded as substantive should be treated as being procedural as well.73
That some provisions of the NSW statutory scheme cannot be applied in England is not a reason for ignoring limits on compensation included in that scheme. If, for example, Mr. Harding had been injured by a stranger in NSW and the stranger, a resident of NSW, was served with process while visiting England to obtain personal jurisdiction over him,74 an English court should not deprive the defendant of the protection of the NSW statutory limits on recovery.