Compensation (in the context of litigation)

Compensation, in the context of litigation, refers to the payment made by way of reparation for loss or injury to a person or property. Under the common law in Australia, the terms “damages” and “compensation” are used interchangeably, whereas in equity, the term “equitable compensation” is used exclusively.

Common law damages

Damages are an award of money by a court that is designed to compensate a plaintiff for injuries caused by the defendant’s wrong.

In Australia, tort is the body of law that is regarded as the common law compensation regime. This is reflected in the primary purpose of tort law, being to put a person in the same position, so far as money can do it, as they were had the civil wrong not occurred (see Lord Blackburn in Livingstone v Rawyards Coal Co. (1880) 5 App Cas 25 at paragraph 39).

Common law damages are available to those who have suffered a civil wrong that was suffered through the fault of another party. As a result, the payment of compensation is one of the primary heads of damages available in tort.

The common law compensatory scheme was codified in the Civil Liability Act 20002 (NSW) and damages for both economic and non-economic loss are capped for specific causes of action.

Equitable compensation

Equity has the jurisdiction to award equitable compensation for loss that has occurred as a result of “purely equitable wrongs”. Although equitable compensation has the same purpose of damages at common law (putting a person in the same position they were in before a civil wrong), a plaintiff is unable to recover exemplary damages as this would offend the equitable protection against payment of penalties.

The principles governing the award of equitable compensation in equity normally are grouped into one of the three following categories:

  1. Misapplication of trust assets (breach of trust);
  2. Undisclosed conflicts of duty and interest; and
  3. Breach of equitable duty of care and skill.