The Design of Compensation Systems: Tort Principles Rule, O.K.?

56 Pages Posted: 8 Feb 2013 Last revised: 5 Jun 2015

See all articles by Sir Geoffrey Palmer QC

Sir Geoffrey Palmer QC

Victoria University of Wellington - Faculty of Law

Date Written: 1994


In the 1994 Monsanto Lecture, Professor Sir Geoffrey Palmer argues that the New Zealand experience in abolishing tort law as a method of compensating personal injuries contains some lessons for the United States. The common-law tort action for damages was removed twenty-one years ago in New Zealand. Despite its removal, the common law exerts a powerful influence on the statutory scheme substituted for it. Common-law analogies speak to both coverage of the scheme and the benefits. This conclusion is counter-intuitive. It might have been anticipated that after more than twenty years the influence of the common law had been forgotten, allowing the whole issue to be dealt with on the basis of an integrated and comprehensive income-maintenance scheme. So long as the scheme in New Zealand is confined to accidental injuries, that will not be possible.

Recent legislative changes to the New Zealand scheme have opened up the possibility of common-law actions again in some areas, conspicuously nervous shock. The range of these changes is analysed here. The law relating to nervous shock is analysed both at common law and under the New Zealand scheme to try to determine the range of policy options available for handling what is admittedly a difficult problem.

A reduction in both coverage and benefits in the New Zealand scheme since 1992 has caused a demand for return to the common law. The New Zealand policy is currently undergoing further revision. It appears likely that the common-law analogies in areas like nervous shock will demonstrate again the necessity of ensuring that the statutory scheme follows the baseline of protection provided by the common law. The New Zealand experience further suggests that it is impossible to ignore elements of pain and suffering altogether, as intangible losses represent real human values.

For United States reformers, the New Zealand experience suggests that it is not practicable to offer in the United States substitute schemes comparable to the American common law. The American level of awards for non-pecuniary loss, the contingent fee, the vagaries of trial by jury, the relatively liberal availability of punitive damages, and community hostility toward centralised state control of substitute schemes that would keep the administration costs down, suggest that reform efforts based on the offering of substitutes will never succeed. Yet, the American tort system appears to be an expensive, incoherent mess about which little positive can be said. Society would be better off without it.

Thus, the conclusion reached here is that the United States tort system should be abolished for personal injury, and no statutory scheme should be substituted. That would allow for many and various creative private responses to fill the gap. It would in effect mean starting again with the accident problem. In the end, that will produce better solutions than the existing tort system which appears to achieve no goal whatsoever with any consistency or focus. Without some change in direction, American reformers will achieve little in the foreseeable future. The tort system will limp along, the object of obloquy. It will mutate in strange new ways. Before anything good can happen, the beast must be slaughtered.

Keywords: accident compensation, common law, tort system, American tort system, New Zealand, personal injury

JEL Classification: K32, K39

Suggested Citation

Palmer QC, Sir Geoffrey, The Design of Compensation Systems: Tort Principles Rule, O.K.? (1994). 29 Valparaiso University Law Review 1115, 1995; Victoria University of Wellington Legal Research Paper Series Palmer Paper No. 72/2015. Available at SSRN:

Sir Geoffrey Palmer QC (Contact Author)

Victoria University of Wellington - Faculty of Law ( email )

PO Box 600
Wellington, 6140
New Zealand

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