Economic Loss

Interest

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Below is a interesting quote from the judgment of Mason  CJ, Brennan , Deane , Dawson , Toohey , Gaudron and McHugh  JJ in MBP (SA) Pty Ltd v Gogic (1991) 98 ALR 193 where Cullen v Trappell (1980) 146 CLR 1 ; 29 ALR 1  was overruled:

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"The contentions of Mr Anderson that the use of the 4 per cent figure selected in Wheeler v Page has worked to the disadvantage of plaintiffs in South Australia and that the use of the commercial rate of interest is more consonant with the objectives of an award of interest on damages for pre-trial non-economic loss than the 4 per cent figure cannot be accepted.

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The question remains, however, whether it is not fairer to the parties to use a formula which applies the real rate or rates of interest applicable in the relevant period rather than a fixed figure such as the 4 per cent figure selected in Wheeler v Page . This could be done, for example, by taking the commercial rate or the 10-year bond rate and deducting a figure for inflation. This approach has the advantage of focusing on the real interest rate which would have been available to a plaintiff for the purpose of investment during the period that the plaintiff was kept out of his or her money. But it tends to assume — erroneously — that the purpose of the award of interest is to compensate a plaintiff for being deprived of the opportunity to invest his or her money. A plaintiff is awarded interest because he or she has been deprived of the use of his or her money, not because he or she has forgone investment opportunities. It would be wrong, for example, to refuse to award a plaintiff interest simply because the real rate of interest during the relevant period was zero or a negative figure. Moreover, to award interest calculated by reference to the real rate of interest, when it has been a positive figure, ignores the important fact that the return to the real-life investor from his or her investment is diminished by income tax on both the inflationary and real profit components of that return. Thus, the use of the real rate of interest figure as the measure of a plaintiff's loss in being deprived of his or her damages for pre-trial pain and suffering does not seem inherently superior to the use of a fixed figure.

No doubt the selection of a figure such as the 4 per cent figure chosen in Wheeler v Page is somewhat arbitrary. But it represents the judgment of the Supreme Court of South Australia as to what is fair and reasonable compensation for a plaintiff in that State for being deprived of the use of his or her money after taking into account that, from time to time, the real rate of interest will rise above or fall below that figure. Until the present case it had been acted upon in South Australia for over seven years. In the circumstances, the use of the 4 per cent figure seems to us to be more likely to achieve fair and reasonable compensation for plaintiffs than the use of the real rate of interest figure — which may result at times in a plaintiff obtaining no or little interest and at other times an amount of interest greater than the return which could be achieved by real-life investors on a comparable sum after the incidence of income tax."

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