It is a universal rule that the plaintiff cannot recover more than he has lost and that realities must be considered rather than technicalities. The damages to be awarded for personal injury including loss of earnings should reflect the fact that tax would have been payable on those earnings in a case where the damages would not be taxable in the hands of the recipient.
The plaintiff was awarded damages after being injured in a rail crash. In calculating damages for loss of earnings, the judge did not deduct from the plaintiff’s gross lost earnings the sums he would have had to have paid for income tax etc.
Held: The defendant’s appeal succeeded. Income tax and other deductions are to be taken into account in assessing both past and future loss of earnings in claims for damages for personal injuries.
Earl Jowitt said: ‘The broad general principle which should govern the assessment of damages in cases such as this is that the tribunal should award the injured party such a sum of money as will put him in the same position as he would have been in if he had not sustained the injuries (see per LORD BLACKBURN in Livingstone v. Rawyards Coal Co.) . . The principle can . . afford some guidance to the tribunal in assessing compensation for the financial loss resulting from an accident, and in such cases it has been referred to as ‘the dominant rule of law’ (see per Lord Wright in Liesbosch (Dredger) v. Steamship Edison (Owners), The Edison). There are, no doubt, instances to be found in the books of exceptional cases in which this dominant rule does not apply, as, for instance, in cases of insurance, or cases calling for exemplary or punitive damages, or in certain cases dealing with the loss of use of a chattel. But, as Lord Sumner said in Admiralty Comrs. v. Chekiang (Woners), The Chekiang: ‘The measure of damages ought never to be governed by mere rules of practice, nor can such rules override the principles of the law on this subject’.’
Lord Jowitt said that the award should be realistic so as properly to make god the plaintiff’s loss: ‘I agree with Lord Sorn in thinking that to ignore the tax element at the present day would be to act in a manner which is out of touch with reality. Nor can I regard the tax element as so remote that it should be disregarded in assessing damages… I see no reason why in this case we should depart from the dominant rule, or why the respondent should not have his damages assessed on the basis of what he has really lost; and I consider that, in determining what he has really lost, the judge ought to have considered the tax liability of the respondent.’ Lord Jowitt did not accept that the tax element should be disregarded to avoid benefitting the wrongdoer: ‘My Lords, It is, I think, if I may say so with the utmost respect, fallacious to consider the problem as though a benefit were being conferred on a wrongdoer by allowing him to abate the damages for which he would otherwise be liable. The problem is rather for what damages is he liable; and, if we apply the dominant rule, we should answer, ‘He is liable for such damages as, by reason of his wrongdoing, the plaintiff has sustained’.’
Lord Reid: ‘In considering the importance of practical difficulties, I would weigh them against the importance of the element of tax liability, with tax at modern levels, in determining the real loss which the plaintiff has suffered.’
Earl Jowitt, Lord Goddard, Lord Reid, Lord Radcliffe, Lord Tucker, Lord Jeith, Lord Somervell
 AC 185,  3 All ER 796,  2 WLR 41,  UKHL 4
England and Wales
Explained – Parry v Cleaver HL 5-Feb-1969
PI Damages not Reduced for Own Pension
The plaintiff policeman was disabled by the negligence of the defendant and received a disablement pension. Part had been contributed by himself and part by his employer.
Held: The plaintiff’s appeal succeeded. Damages for personal injury were . .
Cited – Geoffrey Chatwin v Janice Lowther CA 21-May-2003
The case concerned the meaning of the phrase ‘compensation for earnings lost’ as it applied to self employed persons.
Held: The fact that a person’s accounts described fees as turnover, did not prevent them being still earnings within the Act. . .
Explained – Phipps v Orthodox Unit Trusts Limited CA 1958
The court discussed the case of BTC v Gourley: ‘Since that decision (i.e. Gourley) it has been established that where a claim is made for damages, whether for personal injuries or for wrongful dismissal, the income tax and surtax liability of the . .
Cited – West Suffolk County Council v W Rought Ltd HL 1957
The principle in Gourley v BTC was applicable to compensation for the compulsory acquisition of land used in a trade or business in a case where it was accepted that the compensation would not be taxable in the owner’s hands. . .
Cited – Parry v Cleaver CA 9-May-1967
The plaintiff policeman was hit by a car whilst he was on traffic duty. When he claimed damages in negligence the defendant sought to have deducted from his award an amount received by way of additional pension payments received which had been . .
Cited – Browning v War Office CA 1962
The plaintiff had been a technical sergeant in the United States Air Force; his pay had been $450 per month and after his injuries caused by the negligence of the defendants’ driver he received only a ‘veteran’s benefit’ of $217 per month
Cited – Metropolitan Police District Receiver v Croydon Corporation 1957
Where an employer is under a statutory obligation to pay wages whether the employee is fit for duty or not, the law is that the employee has suffered no loss and can recover no damages, and where the plaintiff continues to be paid these sums, they . .
Cited – O’Brien and others v Independent Assessor HL 14-Mar-2007
The claimants had been wrongly imprisoned for a murder they did not commit. The assessor had deducted from their compensation a sum to represent the living costs they would have incurred if living freely. They also appealed differences from a . .
Cited – Cheltenham Borough Council v Laird QBD 15-Jun-2009
The council sought damages saying that their former chief executive had not disclosed her history of depressive illness when applying for her job.
Held: The replies were not dishonest as the form could have been misconstrued. The claim failed. . .
These lists may be incomplete.
Updated: 16 January 2021; Ref: scu.181849