Making Sense of Time Value of Money and Agency Considerations in Structuring Legal Settlements in Canada

Abstract

In countries following common law practices, courts award compensatory or punitive damages to
aggrieved plaintiffs in civil trials. Given the growing litigious nature of the public, many parties on the defending side have lobbied for caps to be placed on these settlements as they may be quite large. Courts rely on expert witnesses, such as actuaries and time value of money experts, to provide a quantum of the damages, which will either be paid in a lump sum upfront or spread out over a finite period. On the opposite side are lawyers representing the plaintiff arguing against caps in advocating on behalf of victims. This paper examines the issues associated with the structuring of these settlements from a financial perspective.