COLLATERAL BENEFITS: DEFENDING THE CAUSAL RATIONALE.

• Author: Boyd, James

I INTRODUCTION 94 II HISTORICAL ARGUMENTS IN FAVOUR OF CAUSATION 96 A. The Foundational Case: Bradburn v Great Western Railway Co 96 B. The Origin of Collateral Benefits in Causal Principles 97 C. The Widespread Historical Acceptance of the Causal Rationale 98 D. The Problematic Rejection of Causation: Parry v Cleaver 99 E. Conclusion 104 III ARGUMENTS AGAINST THE CONTEMPORARY APPROACH IN CANADIAN LAW 104 A. Insurance Exception: Payment Rationale 104 B. Insurance Exception: Indemnity Rationale 107 C. Gifts Exception: Public Policy Rationale 110 D. Gifts Exception: Calculation Difficulties Rationale 111 E. Conclusion 111 IV RECONCILING CAUSATION WITH THE GENERAL PRINCIPLES OF DAMAGES 112 A. Calculating Damages under Heads of Loss 112 B. Time of Assessment 114 C. Mitigation 116 D. Remoteness 118 E. Conclusion 121 V REBUTTING THE CRITICISM OF THE CAUSAL RATIONALE 121 A. The Leading Scholarly Opinions 121 B. The Leading Jurisprudence 122 C. Conclusion 124 VI THE CURRENT STATE OF THE LAW: CANADA VS THE UK 125 A. The Supreme Court of the United Kingdom: The "New Flamenco" 126 B. The Supreme Court of Canada: IBM Canada Ltd v Waterman 126 C. Conclusion 127 VII CONCLUSION 128 I INTRODUCTION

Collateral benefits are gains that flow to a plaintiff after a defendant's wrong (aside from the damages being claimed against the defendant) that the plaintiff would not have received but for the wrong. (1) Where a plaintiff receives a collateral benefit, there may be a concern that the awarding of damages for the full amount of the plaintiff's loss could result in excess compensation for the plaintiff. As a result, the court must determine whether to deduct the amount of the collateral benefit from the award for damages.

Although it is commonplace for plaintiffs to receive various sorts of benefits prior to trial, Canadian courts have failed to adopt a clear, coherent test for determining the deductibility of collateral benefits. Currently, the courts will hold a benefit to be non-deductible if it is sufficiently similar to one of two established types of non-deductible benefits: insurance payments and gifts. (2) This analysis by analogy is hampered by judicial disagreement regarding the appropriate rationale for allowing plaintiffs to retain these types of benefits. In the leading case of IBM Canada Ltd v Waterman, the Supreme Court of Canada listed several general propositions in relation to deductibility drawn from case law, but declined to articulate a singular principle to explain deductibility. (3)

Due to the unsettled state of the law, collateral benefits cases are highly unpredictable. As the Supreme Court suggested in Waterman, there remains a need for an "applicable rule [that] is clear, coherent and easy to apply". (4)

This paper argues that the "causal rationale" should be adopted as the guiding principle for collateral benefit problems. According to the causal rationale, the courts should ignore a collateral benefit when calculating damages where the true cause of the benefit is not the defendant's wrong, but some independent cause. (5) The term causa causans describes a cause that is the source of the plaintiff's legal right to a benefit (e.g. a contract, gift, statute, etc.), (6) whereas the term causa sine qua non describes a cause that triggers the plaintiff's entitlement to the benefit in a particular situation. (7)

For example, where a plaintiff is injured by a wrong and recovers upon an insurance policy, the causa causans of the payment is the insurance contract, while the causa sine que non is the tort. The insurance payment is in this way collateral to the tort and, under the causal model, should not reduce the scope of any damages award. (8)

This article argues that the causal analysis provides the most compelling historical and doctrinal framework for resolving collateral benefits issues in Canadian law.

First, I examine the historical jurisprudence surrounding collateral benefits. I argue that, when viewed in its historical context, the causal rationale should appropriately be considered the leading approach to collateral benefit issues. I argue that:

* The foundational case on collateral benefits adopted a causal approach

* The casual approach was founded on longstanding legal principles;

* The courts successfully applied the causal approach for decades; and

* The causal approach was abandoned on the strength of unpersuasive precedent

* adopted by the Supreme Court, namely Lord Reid's judgment in Parry v Cleaver.

Second, each of the other rationales endorsed by the Supreme Court to justify the non-deductibility of insurance and gifts are examined and dismissed. These include:

* The "payment" rationale for insurance;

* The "indemnity" rationale for insurance;

* The "public policy" rationale for gifts; and

* The "calculation difficulties" rationale for gifts.

Third, I argue that the causal rationale is logically consistent with well-established legal principles governing the calculation of damages in tort and contract law, namely:

* Calculating damages under separate heads of loss;

* The time of assessment of damages;

* Mitigation of damages; and

* Remoteness of damages.

Fourth, I address logical criticism of the causal rationale in the leading scholarship and jurisprudence. I argue that the criticism is reducible to the view that the causal approach is difficult to apply; a view that is only borne of a misunderstanding of the causa causans/causa sine que non distinction.

Finally, 1 compare the leading decision of the Supreme Court of Canada with the latest statement of the UK's Supreme Court on collateral benefits in order to highlight the normative and conceptual virtues of the causal rationale.

I conclude that Canadian courts should adopt the causal rationale as the preferable legal framework for addressing collateral benefit questions.

II HISTORICAL ARGUMENTS IN FAVOUR OF CAUSATION

Historically, the causal rationale was the guiding principle underlying the law of collateral benefits in Canada. To begin with, a causal analysis was at the heart of the ratio decidendi of Bradbum v Great Western Railway Co, the first case where collateral benefits were at issue. (9) In Bradburn, the court's acceptance of the causal approach represented a coherent stage in the use and development of causal principles in private law dating back over a century. Once adopted, the courts then consistently applied the causal rationale over a period of several decades. The eventual rejection of the causal rationale in Canadian law, which began with the Supreme Court's decision in Gill v Canadian Pacific Railway in 1973, (10) was unsubstantiated; a change in the law sparked by a single set of reasons with little persuasive value and marked by a misquotation of that same decision by the Supreme Court. The causal rationale was always intended to be at the core of collateral benefit issues. In what follows, I argue against the historical abandonment of the causal rationale by the Supreme Court.

1. THE FOUNDATIONAL CASE: BRADBURN V GREAT WESTERN RAILWAY CO

   Acceptance of the causal rationale would mark a return to the original approach to collateral benefit questions in Canadian law. The case that first examined the issue of collateral benefits, the 1874 decision of Bradburn v Great Western Railway Co, was, in fact, decided based on a causal analysis. (11)

   In Bradburn, the Court of Exchequer held that the amount of damages awarded against a defendant who causes an injury should not be reduced by the amount of insurance payments that a plaintiff receives as a result of the injury. (12) This created an "exception" to the general rule that courts should deduct the amounts of all benefits received by the plaintiff from any award. The Honourable Baron Pigott held that "[the plaintiff] does not receive that sum of money because of the accident, but because he has made a contract providing for the contingency; an accident must occur to entitle him to it, but it is not the accident, but his contract, which is the cause of his receiving it." (13) Therefore, the original legal principle explaining why certain collateral benefit should not reduce compensatory damage award was causation. (14)

   In the contemporary context, insurance payments remain non-deductible in Canada, and the courts continue to cite Bradburn as the definitive authority on the "insurance exception". (15) Not only has Bradburn never been overruled in Canada; (16) the British, Australian, and American legal systems all accept the case as correctly decided. (17) So long as Bradburn stands, the causal rationale will continue to represent a legitimate option for addressing collateral benefit questions at common law. (18)

2. THE ORIGIN OF COLLATERAL BENEFITS IN CAUSAL PRINCIPLES

   Further support for the causal rationale is that Bradburn was the conclusion of a line of causal reasoning developed by the courts for more than a century. The first noteworthy development occurred in the mid-eighteenth century when the English courts created the equitable right to subrogation. (19) This right permitted an insurer, upon compensating an insured plaintiff for a loss suffered by a tort, to take the place of the injured party in litigation. The insurer was then able to sue the tortfeasor for the loss. (20)

   The right to subrogation created new questions for the courts. Did the receipt of insurance payments preclude a plaintiff from bringing a tort action himself? And conversely, did the receipt of damages preclude a plaintiff from recovering an insurance payment thereafter? In each case, the courts found that a plaintiff who had exercised the right to recover payment from one party (be it the tortfeasor or the insurer) did not forfeit the right to recover from the other. (21) Finally in 1838, the Court of Common Pleas definitively held that an insurer's decision to exercise a right of subrogation should have no effect on a plaintiff's rights to recover both from the defendant and his...