BRYCE v TAPALIS; BRYCE v KEFFEL; M BRYCE and ASSOCIATE INC v TAPALIS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, MAHONEY and MCHUGH JJA 12 October 1988, 9 December 1988, 10 February 1989 [1989] NSWCA 28 DAMAGES — interest — delay — injuries in 1976; trial in 1987 — proper approach to award of interest under Supreme Court Act 1970 s94(1) — principles applicable — rate of interest applicable — held: (by the Court) No error had been shown in the approach by the Master to the award of interest on the damages and to the discount of that award by reference to the delay in bringing the proceedings. Bennett v Jones [1977] 2 NSWLR 355 applied; Australian Consolidated Press v Driscoll (1988) Aust Tort Reps 80-175 considered; (2) (by McHugh JA, Mahoney JA concurring; Kirby P dissenting) No error was shown in the application of commercial rates of interest as this was required by the decision of the High Court in Cullen v Trappell (1979-80) 146 CLR 1, 21. LAW REFORM — interest — rate of award of — risk of double compensation — remarks by all members of the Court on the desirability of awarding a true interest rate as distinct from interest at a commercial rate which involves double compensation. COURTS AND JUDGES — precedent — binding rule — authority of the Court of Appeal to depart from observations expressed in a judgment of the High Court of Australia — whether part of binding rule in decision — held: (McHugh JA, Mahoney JA concurring; Kirby P dissenting) The statement by Gibbs J in Cullen v Trappell (1979-1980) 146 CLR 121 that "where interest is allowed it should be allowed at ordinary commercial rates" is part of the binding rule in Cullen v Trappell and that fact, together with the practice of the Court, precludes the Court from substituting another rate of interest, even if it would otherwise favour doing so. Supreme Court Act 1970, s94(1). ORDERS (By the Court) 1. Appeal of Jean Bryce dismissed. 2. Appeal of Milton Bryce dismissed. (By majority) 3. Appeal of M Bryce and Associates Inc allowed. Judgment of the Master set aside. Judgment entered in favour of the appellant in the sum of $136,000. 4. No order as to the costs of the appeals. Kirby P It sometimes happens that an apparently ordinary appeal can unexpectedly present for decision an issue of general importance. This is what happened in Radnedge v Government Insurance Office of New South Wales (1987) 9 NSWLR 235. It is also what happened in the present case. The issue of general importance in this matter relates to the principles upon which interest should be awarded upon those components of a judgment for damages which relates to past losses. It was suggested during argument that the Court should not concern itself with general principle but should confine its attention to the resolution of the instant appeal. The suggested dichotomy between these two tasks illustrates a basic 2 UNREPORTED JUDGMENTS misapprehension about the appellate process. It is essential that a Court such as this should test the acceptability of principles proffered to solve the instant case by considering their likely operation as a general rule. This is not a needless extension to the law of the moral precepts of Emmanuel Kant. It is simply the commonsense requirement that appellate decisions should not be made ad hoc but should withstand scrutiny by the tests of consistency with legal principle and applicability of the rule applied to other like cases. About the particular facts of the three cases before the Court, I wish to say nothing. I am in agreement with what McHugh JA has written. I agree with the orders which he has proposed to dispose of the first two appeals. However, upon the matter of general importance, I wish to add some comments of my own. They lead me to a different conclusion in the third appeal. Power to award interest In the common law courts of England, the power to award interest on debts or damages was very limited. The history is referred to by Dixon CJ in Shaw Savill and Albion Company Limited v The Commonwealth (1953) 88 CLR 164, 166. The relevant cases are mentioned in Ritchie's Supreme Court Procedure, vol 1 at 1153. The first statutory provision to enlarge the power to award interest was s28 of the Civil Procedure Act 1833 (Imp) (Lord Tenterden's Act). A similar provision was included in s140 of the Common Law Procedure Act 1899 (NSW). However, that section provided for the jury "if they think fit" to allow interest to a creditor "upon all debts or sums certain recovered in any action'. There was an additional but limited power in the jury to award "damages in the nature of interest" under s141 of the same Act. But the cases to which the section applied were limited to conversion and action on policies of insurance. By s142 of the Act, interest was allowed upon a judgment, once recovered. See also s143. As the editor of Supreme Court Procedure points out, by reference to authority, the power to award interest in equity was much more extensive. As happened in a number of instances, those who drafted the Supreme Court Act 1970, like those who had earlier drafted the Judicature Acts in England, were influenced by the more modern, and often more just, equity practice. Furthermore, in England, the position changed by statute in 1934. The Law Reform (Miscellaneous Provisions) Act 1934 (UK) s3 provided a discretion to the court to award interest "in any proceedings tried in any court of record for the recovery of any bad debt or damages". The court was empowered to order the inclusion of interest in the sum for which judgment was given "at such rate as it thinks fit on the whole or any part of the debt or damage". This section was in turn amended by the Administration of Justice Act 1969 (UR) s22. By that section special provision was made in respect of damages for personal injury. Under the amended provision, the court was required to exercise the power "so as to include in that sum interest on those damages or on any such part of them as the court considers appropriate, unless the court is satisfied that there are special reasons why no interest should be given in respect of those damages". In Australia too, statute intervened to provide for interest on personal injuries damages. Thus by s79A(3)(b) of the Supreme Court Act 1958 (Vic), provision was made. That provision came under the attention of the High Court of Australia in Ruby v Marsh (1975) 132 CLR 642 to which it will be necessary to return. It is against this background, broadly sketched, that the provisions of s94 of the Supreme Court Act 1970 are to be understood. The section provides: UBRRYCE v TAPALIS; BRYCE v KEFFEL; M BRYCE and ASSOCIATE INC v TAPALIS (Kirb$ P) "94(1) In any proceedings for the recovery of any money (including any debt or damages or the value of any goods), the Court may order that there shall be included, in the sum for which judgment is given, interest at such rate as it thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date when the judgment takes effect." The marginal note refers to the English provision of 1934 which I have mentioned. In 1983, an amendment to s94 was enacted relating to proceedings for the recovery of a debt or liquidated damages. This is not relevant to the present appeals. Rationale for awarding interest Two controversies arise in this case. It is an unusually suitable vehicle to proffer the second of them for decision. It is suitable to do so because of the small sums for which damages were awarded, the failure of the challenge to the quasi-discretionary judgment of the Master which resulted in his fixing those sums, and the very great delay which elapsed between the happening of the cause of action and the judgment eventually entered. In such circumstances, the principles upon and rate at which interest may be awarded to the appellants are nicely posed for decision in this case. I shall return in due course to the rate applicable. Let me, however, initially say something about the principles to be applied. First, it should be observed that the statutory power, which provides for the award of interest in cases such as the present, is expressed in the widest possible language. The rate of interest is to be such as the Court "thinks fit". It may be given on the "whole or any part of the money". It may be given for the "whole or any part of the period" between the date when the cause of action arose and the date when the judgment took effect. In fact, it would be difficult to frame legislation in language conferring a more ample discretion. The width of the discretion is highlighted when the New South Wales legislation is contrasted with that in Victoria and South Australia. In the latter Stages, the respective Parliaments have provided that interest shall run from the date of commencement of the action and not, as in this State, from "when the cause of action arose". Secondly, the very width of the discretion has a tendency to propel courts towards the laying down of guidelines or the adoption of conventional practices which will introduce an element of regularity and predictability into decisions of this kind. This is a perfectly understandable response in a system of justice which searches for consistency in place of individual whim - the rule of laws, not of men. Appellate courts frequently offer guidance for the way in which such broadly stated discretions are to be approached in practice. Cf Wright v British Railways Board [1983] 2 AC 773, 784. But such guidelines do not relieve the judicial officer, upon whom Parliament has conferred the broad discretion, of the duty, in the circumstances of each particular case, to consider the interest which is to be awarded. Cf The Pambula District Hospital v Herriman (Court of Appeal 1988, unreported); (1988) NSWJB 137. The exercise of the discretion in the particular case necessarily depends upon the circumstances of that case. Cf Birkett v Hayes and Another [1982] 1 WLR 816, 825. Thirdly, this last observation points up the limits which apply to appellate review of an award of interest under the statute. There is no perfect justice in cases of this kind. The base upon which interest is calculated is itself imperfect, depending as it does upon so many matters of evaluation and opinion. The amount of interest to be awarded likewise depends upon so many variables 4 UNREPORTED JUDGMENTS (including those mentioned in the Act) as to deny the possibility of one, and one only, correct decision. That is why appellate courts will not disturb such awards except on the grounds conventionally applicable to interference in discretionary decisions. See Cookson v Knowles [1979] AC 556, 566. Some error of principle must be shown. The court at first instance must be shown to have acted upon wrong or irrelevant facts or to have failed to take into account relevant considerations. Alternatively, it must be shown that the award made is so manifestly wrong that it demonstrates error, even if the precise source of the error cannot be identified. Fourthly, in asking these questions the appellate court must necessarily test what occurred at first instance against the purposes for which the award of interest is provided. These have been stated in several cases. In Ruby v Marsh (1975) 132 CLR 642 at 652-653, Barwick CJ explained them thus: "The purpose of giving courts the power to award interest on damages is to my mind twofold, and neither aspect of the purpose should be lost sight of. In the first place, the successful plaintiff, who by the verdict has been turned into an investor by the award of a capital sum, and whose claim in the writ has been justified to the extent of the verdict returned, ought in justice to be placed in the position in which he would have been had the amount of the verdict been paid to him at the date of the commencement of the action. In the second place, the power to award interest on the verdict from the date of the writ is to provide a discouragement to defendants, who in the greater number of actions for damages for personal injuries are insured, from delaying settlement of the claim or an early conclusion of proceedings so as to have over a longer period of time the profitable use of the money which ultimately the defendant agrees or is called upon by judgment to pay. Each of these reasons... calls for the judge to award a rate of interest related to the market place subject to the limit allowed by the legislature". The last-mentioned reference to the legislation is relevant to the reconsideration of these remarks, in New South Wales at least. In this State, as has been stated, the Act authorizes the award of interest back to the "date when the cause of action arose" and not to the "date of the commencement of the action". At the heart of the idea of interest and thus relevant to the calculation of the amount in a particular case) is the notion that the successful plaintiff has been "kept out of money". See Jefford v Gee [1970] 2 QB 130, 143; Batchelor v Burke (1981) 148 CLR 448, 455. The money which the plaintiff ultimately recovers is notionally seen by the law as belonging to him or her. There is an element of artificiality in this fiction, as Mahoney JA pointed out in Australian Consolidated Press v Driscoll (1988) Aust Torts Reports 80-175. See also Pheeney v Doolan [1977] 1 NSWLR 601, 619. It is based upon notions of investment which are derived from the more mercantile environment of actions for debt. Whereas creditors, in the case of a debt, might have been expected to invest the money had they enjoyed it, the image of the typical plaintiff in the case of personal injuries doing so is less convincing. Legislation has abolished the distinction between debt and damages for this purpose. And the plaintiff is deprived of the use of the money. Moreover the defendant, typically indemnified by an insurer, has had the "benefit" of the use of the money pending the judgment. See H Luntz, Assessment of Damages (2nd ed) at 497. Guarding against double counting, it is therefore legitimate for courts to add interest, as Parliament has envisaged. UBRRYCE v TAPALIS; BRYCE v KEFFEL; M BRYCE and ASSOCIATE INC v TAPALIS (Kirby P) Fourthly, attempts have been made to indicate the approach that should be taken where the delay is substantial. Some delay is inevitable in the very nature of litigation. Mahoney JA pointed this out in Driscoll. It is unusual for courts to enquire at length into the precise reasons for such delays. In some cases it may be caused by default on the part of the plaintiff or his or her advisers. In some cases it may be the fault of the defendant or his or her advisers. In some cases it may be no one's fault. In others it may be a combination of the faults of many. Cf Gray CJ in Catanzariti v Steadfast Insurance Co Ltd (1976) 14 SASR 15. See also Ruma v Christoff (1974) 9 SASR 289. In approaching the very large discretion conferred by the statute, it is appropriate for the court to keep it in mind that if a defendant wishes to prove that the damages of the plaintiff (or interest lawfully payable) should be reduced for delay, it is for the defendant to show by evidence or inference that the plaintiff is responsible for the delay. Catanzariti (ibid). Another matter to be considered is that it may be difficult, in the particular case, to pinpoint the actual prejudice suffered by the defendant as a result of delay. This was noted by Moffitt P in Simonius Vischer and Co v Holt and Thompson [1979] 2 NSWLR 322 at 339. It was repeated by what Hope JA said in Driscoll (above). There is no presumption of prejudice to a defendant occasioned by delay, as such. In the typical case, the defendant (or its insurer) will certainly know that interest will be claimed and normally allowed. Meanwhile, it has the use of the money. The real problem with delay, is that it leads to a judgment which is expressed in the inflated money value of a later time. It is upon this value that the interest awarded is calculated. It has long been recognised that this feature of the calculation carries a risk of double-counting, at least in times of inflation such as we have lately experienced in Australia. So much was pointed out by Moffitt P in Bennett v Jones [1977] 2 NSWLR 355 at 370-371. It is repeated by Mahoney JA in Driscoll. It is behind the observation that long delay is prima facie unfair to a defendant, as Moffitt P said in Fisher at 339. Another reason for so concluding is that some of the pain and suffering and other damages for which the eventual verdict is given occur not at the time of the cause of action but significantly later. In these circumstances, to give interest over the whole time may involve over-compensation. At least it may do so in respect of those components of the judgment attributable to losses and damage suffered at times more proximate to the trial. Behind the power to adjust the payment of interest where there has been long delay may also be a public policy which s94(1) of the Supreme Court Act 1970 reflects. This is to encourage parties to bring their claims to trial quickly under the threat of the sanction that, if they do not, they will lose interest in whole or part. See Robert Goff J (as he then was) in BP Exploration Co (Libya) v Hunt (No 2) [1979] 1 WLR 783, 846. Having listed these considerations, it is appropriate to say that the approach to be taken to the award of interest is a practical one. No scientific formula is available. Courts should avoid adding to the complexity of litigation by searching for precision in this matter. None exists. Cf Bennett v Jones at 364. There is no rule of thumb which can be laid down for universal application. Each case depends upon the evaluation by the court of the circumstances of the case, the length of the delay, the explanations, if any, given for the delay, the actual 6 UNREPORTED JUDGMENTS prejudice (if any) shown to have been occasioned by the delay and the need to avoid double-counting or excessive compensation which an award of full interest may otherwise produce. It is enough to dispose of the respondents' objection to what the Master did in this case to say that, leaving the rate of the award aside, there is no evidence in what the Master said, or in what he eventually did, to show that he erred in the exercise of his discretion to award interest. I see no indication that he took into account irrelevant matters, failed to take into account relevant ones or, by his order, produced a result which is manifestly erroneous. Various attempts have been made to suggest ways by which the general discretion to award interest can be harnessed, the inquiry posed by it limited and interest computed in a consistent and practical way. See eg Bennett v Jones at 364 and the remarks of Mahoney JA in Driscoll. But, in the end these attempts founder, in my opinion, on the legal obligation of the judge in each case to fashion an order for interest which reflects the circumstances of the particular case. The rate of interest The foregoing conclusion leaves the second challenge of the respondents. They attacked directly the reliance by the Master upon commercial rates of interest for the purpose of performing his calculation. It will be remembered that Barwick CJ in Ruby v Marsh had stated that a judge should award "a rate of interest related to the marketplace subject to the limit allowed by the legislation". His Honour did not elaborate this opinion. At about the same time as this opinion was expressed, the Law Commission for England and Wales in its Report on Personal Injury Litigation - Assessment of Damages 1973 (Law Com No 56) pointed out that it was inappropriate to award interest on damages for non-pecuniary losses. This was because those who received such damages had already obtained the benefit of any increase in the amount of the award by reason of inflation. In these circumstances, to add interest for delay could involve double compensation. At least it would do so if that interest were calculated at commercial rates. This fairly obvious point was accepted by the English Court of Appeal in Cookson v Knowles [1977] 1 QB 913, 921. A similar approach was adopted in this Court by Samuels JA in Bennett v Jones (at 380). His Honour said: "[I]t will be proper, where interest upon damages for non-economic detriment is concerned, to select initially a lower rate [of interest] in order to restrain the counter-inflationary benefit which the award itself includes". The approach contained in the foregoing remarks was, however, not accepted by the High Court of Australia in Cullen v Trappell (1979-1980) 146 CLR 1. The principal question involved in that case (and the one for which special leave to appeal was granted) was whether the High Court should reconsider its decision in Atlas Tiles Limited v Briers (1978) 144 CLR 202. The Court, by a majority, reversed its holding in that case. It determined that, in assessing damages for personal injury, a court should take into account the income tax which the plaintiff would have to pay on the earnings lost because of injury. But the Court also turned to a cross-appeal. This raised the question whether interest should be awarded on the whole amount of the judgment for damages for personal injury and, if not, what portion of such judgment should normally attract the award interest. The Court's decision on this point was given by Gibbs J. With him, Stephen, Mason, Murphy and Wilson JJ concurred. Barwick CJ alone took a different view. After referring to the broad terms in which s94 of the Supreme Court Act 1970 is expressed, its differences from legislation in other States and in England, Gibbs J acknowledged the risk of double compensation involved in the fact that UBRRYCE v TAPALIS; BRYCE v KEFFEL; M BRYCE and ASSOCIATE INC v TAPALIS (Kirby P) earnings for which compensation is given occur week by week. He recounted the "rough and ready" formulae adopted in England to avoid the risk of double compensation on this ground. He then turned to a decision of this Court in Bennett v Jones. Referring to the opinions expressed in this Court, he expressed them thus (at 21): "... the damages for pain and suffering and loss of amenities, being fixed at the standard prevailing at the date of judgment, are higher than they would be if fixed for the same loss at the date of the accident and contained "a built in inflationary factor"... or 'counter-inflationary benefit"... With all respect, this seems to me to be the same fallacy as that which misled the English Court of Appeal in Cookson v Knowles, and which was condemned by the House of Lords in Pickett v British Rail Engineering Limited." It was these observations which led Gibbs J to continue: "The power to award interest in New South Wales is a discretionary power, and in the proper exercise of the discretion the judge must of course have regard to the facts of the particular case. It may sometimes be appropriate in the particular circumstances to dissect that part of the award which relates to non-economic loss and to allow interest only on the part that is awarded in respect of past loss. However, I do not understand Fire and All Risks Insurance Co Ltd v Callinan to require that the discretion should necessarily be exercised in that way. There is obviously a greater difficulty in dissecting into past and future loss that part of an award which is made in respect of pain and suffering and loss of amenities than there is in dealing with economic loss, and in many cases it will be unnecessary to make a dissection in the former case. The decision in Fire and All Risks Insurance Co Ltd v Callinan permits a dissection to be made in appropriate circumstances, but does not require it to be made in all cases. Where interest is allowed, it should be allowed at ordinary commercial rates." There is no binding rule of the High Court It seems doubtful to me that, in these remarks, Gibbs J was laying down any absolute rule of law in respect of the rate of interest applicable on judgments for damages for personal injuries. By the statute, Parliament had specifically reserved to the judicial officer awarding interest the determination of the "rate" as he or she "thinks fit". In the face of the clear terms of the legislation, it would be remarkable if a judicial decision could replace a wide discretion with a hard and fast rule, applicable to every case. This would be even more remarkable where the result of the rule was to produce the very risk of over-compensation which the ample language of the section was designed to enable judicial officers to avoid. McHugh JA has demonstrated how the award of commercial rates of interest leads to double compensation in times of inflation. In these circumstances, that risk being clearly exposed, it is better that it should be corrected, and the injustice and economic burden of it removed, than that this Court should persist with error. It is preferable to be eventually right than consistently wrong. But is the Court bound by what Gibbs J said? If it is, its function is limited to calling the suggested error to notice. Its duty then is to apply the holding established by the authority of the High Court. The majority of the Court considers that Gibbs J's remark as to the rate of interest is part of the binding rule established by Cullen. With respect, I do not agree. A reference to the notes of the arguments of counsel does not support the contention. The point in issue, and that decided by the case in the cross-appeal, was whether a court might award interest on the component representing 8 UNREPORTED JUDGMENTS economic loss up to the date of judgment. The binding rule of the decision is confined to the holding on that point. Every respect must be paid to the remarks of the Justices in their reasoning to that binding rule. This is particularly so where, as here, Gibbs J expressed himself in clear terms and, on this point, with the concurrence of the other members of the Court, except Barwick CJ. The Chief Justice did not advert to the rate of interest. This fact too suggests that the point argued before us was not explored, or fully explored, in Cullen. Most fundamentally, it is not for judges to insist upon a universal rule of "commercial rates" of interest where Parliament has reserved a discretion to award the rate of interest which the judicial officer at the trial "thinks fit", having regard to the circumstances of the case. I acknowledge that the practice of this Court since Cullen has been, understandably enough, to allow commercial rates of interest. That practice and the remarks of Gibbs J are reasons to pause before embarking upon a different course. But the matter is tendered to the Court here for decision. Unless bound to reach the opposite conclusion, I am obliged to give effect to the clear language of Parliament. In Daniels v Jones [1961] 1 WLR 1103, Holroyd Pearce LJ (at 1110) reminded judges that "arithmetic is a good servant but a bad master". It is easy in repeated functions to slip into the comfortable routine of mathematical calculations, forgetting the terms in which and purposes for which those calculations have been provided by law and assuming, rather than checking, the formulae. Here the Court has been asked to perform the latter function. For my own part, I do not believe that the remarks of Gibbs J in Cullen, or the practice of the Court which has followed those remarks, bind this Court to come to a conclusion which flies in the face of the language of the statute. Least of all is the Court so obliged where (as Mahoney JA demonstrated in earlier decisions and as McHugh JA has demonstrated so convincingly in this) the result of the application of Gibbs J's remarks is unjustly to over compensate the plaintiff in the particular case and to burden the insuring public in all cases. I suspect that one of the reasons for the pressure to terminate judicially calculated awards of damages for personal injury is the public perception of the over-compensation of some cases. Where that over compensation can be lawfully corrected, the Court should do so. Orders No cross-appeal was lodged by the respondents challenging the award of interest. As I am of the opinion that the appeals by the individual appellants should otherwise be dismissed, for the reasons given by McHugh JA, I would leave the judgments in those cases (including the awards of interest) untouched. But in the appeal of M Bryce and Associates Inc, as I agree with McHugh JA that an error has occurred, it is necessary for the Court to recalculate damages. It is accordingly necessary to recalculate interest. I would do so by awarding the true rate of interest, say 3 per cent, not commercial rates. It will be necessary for the parties to perform the calculation. Accordingly the orders which I propose are: 1. Appeal of Jean Bryce dismissed. 2. Appeal of Milton Bryce dismissed. 3. Appeal of M Bryce and Associates Inc upheld, the parties to bring in short minutes of orders to reflect the judgment of the Court. 4. No order as to costs in the first two appeals which took little additional time. In the third, where the appellant has succeeded, the respondent to pay the appellant's costs. UARYCE v TAPALIS; BRYCE v KEFFEL; M BRYCE and ASSOCIATE INC v TAPALIS (McHugh JA) Mahoney JA In judgments for personal injury in recent years, the interest component has become of increasing importance. the basis on which it is to be assessed, under the general law, is therefore of importance. In this case, the Court has considered whether it should reconsider that basis. It invited the submissions of the parties as to what course should be taken. In the end, my conclusion accords with that of McHugh JA. The accepted basis for the award of pre-judgment interest is, in my respectful view, not fully satisfactory. Unassisted by authority, I would be generally of the view which I summarised in Pheeney v Doolan [1977] 1 NSWLR 601 at 618-9. However, for the reasons to which McHugh JA has referred, I do not think that that view can be given effect in this case, at least by this Court. I agree otherwise with what McHugh JA proposes. McHugh JA These three appeals are against the alleged inadequacy of awards of damages made by Master Sharpe as the result of a motor car accident involving Mr Milton Bryce and Mrs Joan Bryce on 14 March 1976. The Master awarded Mrs Bryce $2,000 general damages and $1,000 for interest on that sum. He awarded Mr Bryce $7,000 general damages, $3,000 for interest on that sum, and $971.47 for out-of-pocket expenses. He awarded M Bryce and Assoc. Inc. the sum of $US68,000 for its loss of the services of Mr Bryce during his incapacity as the result of the accident on 14 March 1976. Each appellant complains that the sum for general damages and the award of interest thereon were inadequate. The appeals involves important questions of principle concerning the calculation of interest in respect of damages for injury which occurred a long time before the trial of the action. The background facts On 14 March 1976, Mr and Mrs Bryce, two United States citizens, were passengers in a taxi which struck a pole in Victoria Road, Gladesville. At the time Mrs Bryce was forty seven years of age; her husband was fifty years of age. The Bryces had arrived in Australia only the day before the accident. Mr Bryce was visiting Australia on behalf of M Bryce Assoc. Inc., an Information Systems Consulting firm which marketed a licence to use its "proprietary systems design methodology" called "PRIDE". His visit was for the purpose of installing the methodology at Bradmill Industries Limited which had recently purchased the product. Both Mr and Mrs Bryce suffered injuries in the accident. The Claim of Mrs Bryce Mrs Bryce was taken to the Casualty Department at Ryde Hospital complaining of stiffness over the lumbo-sacral spine region. An X-ray revealed no recent bone or joint injury. No other abnormalities were detected. She was discharged from hospital on the following day. However, Mrs Bryce also suffered a bruised buttock which gave her discomfort for some time. More importantly, she suffered from a phobic anxiety state for a year which was described by a psychiatrist who examined her in March 1987 as being "mild". The anxiety state manifested itself by a fear of travelling in motor vehicles and lasted for some six months. However, the Master accepted that at the date of the trial she still had "some anxiety about travelling as a passenger in a taxi". Mrs Bryce's total out-of-pocket expenses were only $14.00. Master Sharpe awarded the sum of $2,000 for general damages. The sum awarded is very low. But I do not think that it is so low as to entitle this Court to interfere with what is a discretionary judgment: see Moran v McMahon (1985) 3 NSWLR 700. The Master also awarded Mrs Bryce $1,000 interest. But I shall leave the discussion of this matter until later. 10 UNREPORTED JUDGMENTS The Claim of Mr Bryce Mr Bryce was conveyed by ambulance to Ryde Hospital. He sustained a three inch laceration across the left forehead, a one inch laceration across the left forehead parallel to the eye, a one inch laceration at the inner end of the left eyebrow, a one inch laceration at the outer angle of the left eye, an abrasion over the right shin and tenderness over the left chest. A piece of glass was embedded in the cut at the inner end of the left eyebrow. An X-ray showed an incomplete fracture of the left tenth rib. But X-rays taken some months later showed that the first to eighth ribs on the left side had been fractured. There was also a possible fracture of the medial aspect of the head of the left clavicle. At the hospital, a plastic surgeon carried out repair of Mr Bryce's facial lacerations. An operation revealed a division of the left supra-orbital and on examination a superficial laceration of the cornea and sclera of the left eye with a possible minor intro-ocular haemorrhage was observed. The eye injury, however, required no active surgical treatment. On 17 March 1976 Mr Bryce was transferred to another hospital and discharged seven days later. A report dated 5 April 1976 from the plastic surgeon who operated on Mr Bryce at Ryde Hospital stated that the fate of the divided supra-orbital nerve was unpredictable but that it was likely that recovery would be incomplete. If it was incomplete, an area of skin on the left forehead and left side of the scalp would probably be numb or have an unpleasantly altered sensibility. Mr Bryce left Australia for the United States on 30 March 1976. Before he left he instructed a solicitor to commence proceedings on his behalf. On his return to the United States, Mr Bryce saw Dr Schluter. On | February 1982 Dr Schluter reported that he had seen Mr Bryce at monthly intervals between 31 March 1976 and 23 June 1976 and that Mr Bryce required low-dose narcotic medication for relief and control of chest and body discomfort. Another Ohio specialist, Dr Poon, reported on 4 April 1976 that there was no evidence of any ocular damage. The Master found that the plaintiff was unable to do anything for three months after the accident and he worked part time for some period thereafter. At the trial in March 1987, Mr Bryce's only complaints was that he had some minor irritation in the area of the fractured ribs and that he had one scar on his leg which, if subjected to trauma, might bleed. He also had some barely noticeable forehead and facial scarring. There was no medical evidence concerning his condition after June 1976. The plaintiffs out-of-pocket expenses were $971.47. The Master awarded general damages of $7,000 of which he allotted $6,000 to the pre-trial period. Counsel for Mr Bryce complained that the award of general damages was inadequate. But I see no grounds for disturbing the discretionary judgment of the Master. The Master also awarded Mr Bryce $3,000 interest. I shall leave the discussion of this matter until later. The Claim by M Bryce and Associates Inc M Bryce and Associates Inc (the company) claimed damages for the loss of profits arising from the inability of Mr Bryce to perform his full duties over a period of several months. The Master found that Mr Bryce was not fully active in his employment with the company for a period of up to six months and that this had had an adverse impact on the earnings of the company for the year ended 30 September 1977. The reason that the effect of Mr Bryce's injuries did not show up in the accounts of the company until the fiscal period for 1977 was that there was an approximate delay of six to eight months from the first sales contact with a client to the receipt of payment of a licence fee. UARYCE v TAPALIS; BRYCE v KEFFEL; M BRYCE and ASSOCIATE INC v TAPALIS (McHugh JA) The company contended that the Master was in error in confining its loss of profits to the financial year ended 30 September 1977. It contended that it also lost profits in the financial year for 1978. However, there seem to be three answers to this contention. First, for practical purposes Mr Bryce was working at full capacity from September 1976 and it is difficult to see how any delay prior to that date would show up in the 1978 accounts. Secondly, a note to a financial statement for 30 September 1982 prepared by the company's accountant, referred to the "loss of income to the company primarily reflected in 1977". Thirdly, the gross sales figures for the year 1978 make it difficult to see how there was any loss in the financial year ended 30 September 1978. Accordingly, I turn to the question whether the Master erred in awarding $40,000 for loss of profits. In making his assessment, the Master followed a course which did not represent the case for either the plaintiff or the defendant. Expert accounting opinion on behalf of the company was that for the 1977 fiscal year the company suffered a loss of US$140,642. Expert accounting opinion called on behalf of the defendant suggested a loss of $84,047. The company contended that the Master was in error in his approach and that he had mistakenly taken as overhead expenses three items which were in fact distributions of income. The learned Master found that the gross turnover in 1977 would probably have been approximately $785,000 instead of the $613,000 which the company earned. This was a loss in turnover of $172,000. He also found that on an historical basis for the period 1974 to 1981 the percentage of pre-tax profit in relation to gross turnover was 8 per cent. Accordingly, he took 8 per cent of the gross turnover of $785,000, which gave a figure of $62,800 and from that he deducted the company's actual Pre-Tax Income of $22,307.00 for the fiscal year ending 30 September 1977. The company complained that the Pre-Tax Income figure of $22,307 was obtained after taking into account $41,000 for bonuses, $31,368 for profit sharing, and $20,912 for pensions. The company submitted that these sums were distributions of income and not operating charges. The basis of this submission is found in evidence which appears in a report prepared by the company's expert witness. Those passages are as follows: "Tt is a fact of American corporate life (we understand) that small corporations, such as MBA, are prohibited from accumulating more than $250,000 (prior to 1980 - approx. $125,000) retained earnings; that is a penalty in the form of double taxation is imposed, as advised. (There are prescribed guidelines for a company to exceed this level of retained earnings, which MBA has satisfied since the 1980 year). This forces companies to distribute, by way of bonuses and profit sharing schemes, the bulk of its pre-tax income. In addition, as an employer, MBA is required by law to contribute 10% of an employees gross income into a pension fund. Both in the case of the pension fund and the profit sharing fund, these funds are drawn by the company on its trading account and directed to its bankers who act as trustees for the beneficiaries (all the employees of MBA, including M. Bryce and J. Bryce). All employees of MBA earn income from a base salary and bonuses (which is based on performance). These components are grossed together to form the employees income upon which their pension (a legal requirement) and profit sharing (a company - discretionary - policy) are based. The profit sharing scheme can range from nil distribution to 15% of the employees gross income. The company has advised that it has never paid, to its employees, less than the 15% mentioned since the commencement of the scheme. PROFITABILITY 12 UNREPORTED JUDGMENTS A business profit is measured as being the net of all costs or charges (including income tax) against its revenue/income. Operating profit for these presentations can be measured as the net profit of the company before income taxes and declaration of bonus, profit sharing and pension entitlements... We have discussed, in the preamble, the position regarding the declaration of bonuses, pension scheme entitlements and profit sharing distributions. These items of overhead are declared after the company arrives at the achieved operating profit and, once assessed, are deducted therefrom." In his judgment, the Master said: "Since administration, advertising etc expense continues whether or not turnover increases or declines, it is appropriate also to find that a gross $785,000 should have yielded a pre-tax profit of approximately 8 per cent, namely $62,800. In fact the pre-tax figure on actual earnings was $22,307. If the company is required by law either to distribute moneys which represent accumulated earnings or to be taxed on them, it is difficult to see how the payments can be characterised as a charge on revenue. I think that this is the case even though the moneys are paid to employees. On the other hand the payment of a pension although required by law is ordinarily a revenue expense. Payment of bonuses are also a revenue expense when they are paid by reference to the performance of employees. Consequently, the pension and bonus payments are prima facie chargeable against revenue and, on the Master's approach, deductible from the figure of $62,800. But the payment of the sum of $31,368 for profit sharing does not seem deductible on any view. The effect of the oral evidence of Mr Muller, the company's expert witness, however, was that the payments of bonuses and payments to the pension scheme are also dependent in part on the amount of profit which the company earned. In evidence he said: "...my point is that if I made $100,000 profit I would then distribute it out as $90,000 in bonuses, $9000 in pension and be left, say for example, with a $1000 profit and therefore I would be clearing a very small profit. The company had a much higher profit that its bottom line shown. Q. Bonuses are not pension schemes. Could we differentiate. A pension scheme goes in as part of the company's outgoing profit; bonuses surely go their employees in a discretionary way? A. Discretionary way. Q. As part of the employees' earnings and therefore comes out of the company's profits. So both those items come off the profits say before you get a taxable income for the company? A. Yes." Accordingly, I think that the Master was in error in deducting the sum of $31,368 from the figure of $62,800. The profit sharing distribution was a distribution of profits rather than a charge on revenue. Part of the bonus and pension payments were also in reality a distribution of profits. However, the matter before the Court do not enable us to say what part of the bonus and pension scheme payments were chargeable against revenue. In the circumstances, I think that we cannot follow the approach of the Master. Moreover, his approach was not that which was adopted by the expert witnesses. Counsel for the company submitted that the proper approach was to adopt the opinion of the expert witness called for the company who assessed its loss for the financial year ended 30 September 1977 as US$140,642. However, for the reasons set out in the report of Messrs Deloitte Haskins and Sells dated 10 March 1987, I think that there are a number of problems in the methodology adopted by the company's expert. UARYCE v TAPALIS; BRYCE v KEFFEL; M BRYCE and ASSOCIATE INC v TAPALIS (McHugh JA) For the reasons given in that report, I also think that the proper approach is to assume an increase in expected gross sales or 25.14 per cent for the financial year ended 30 September 1977. This produces a figure of $872,375 as compared with the sum of $612,976 actually earned. The average gross profit achieved for the period 1974-1980 excluding 1976 and 1977 was 48.7 per cent. On projected gross sales for 1977 of $872,375, the projected gross profit figure is $424,827. The actual gross profit was $303,664 leaving a difference of $121,183. The defendant's expert witness who prepared the report for Deloitte Haskins and Sells thought that, with an increase in gross sales, there would also be some increase in administrative overheads. He estimated a figure of 12 per cent. On this basis he was of the opinion that the net loss of pre-tax operating profit was $106,641. As the effective rate of income tax levied upon the plaintiff company for the seven years to 1980 averaged 24 per cent, the net loss for the plaintiff company after tax was $81,047. The figures set out above, of course, are only approximate. But they seem accurate enough to make it proper to award the company the sum of US$80,000 for loss of profits. The Master also awarded interest on the sum which he awarded. He said that, in the circumstances of the case, although the loss was suffered in 1977, interest should not be awarded for a period extending beyond 1982. The Master said that "the total interest owing include, pursuant to s94 of the act is 70% for the relevant five years, namely US$28,000". If the Master's approach to the assessment of interest is correct, the award in the present case for interest would have to be increased to US$56,000. To the question of interest I now turn. The Claim for Interest In dealing with the question of interest on the claim of Mrs Bryce, the Master said: "Insofar as interest is concerned, almost invariably in actions for personal injury the Court will adopt as the prime consideration the fact that the Insurer has had the use of the money and the Plaintiff deprived of its use over the years from date of injury. To allow interest at the rates suggested in the Practice Note would be to add 10.3 years at an average of (say) 12% ie to increase the award by approximately 125%." The Master awarded Mrs Bryce only $1,000 as interest on her verdict of $2,000. When he dealt with Mr Bryce's case, the Master said that, so far as interest was concerned, he made the same observations as he did in relation to Mrs Bryce's case. He allowed Mr Bryce $3,000 interest on the $6,000 general damages which he allocated to the pre-trial period. The Master's approach in respect of the award of interest to the plaintiff company was similar. The assessment of interest by the Master gave rise to far reaching and fundamental submissions on behalf of the parties. Counsel for the Bryce interests contended that they were entitled to interest at the commercial rates specified in the Practice Note for the whole of the pre-trial period. Counsel for the respondents contended that no interest at all should be awarded and, in the alternative, that interest should only be awarded at the true rate of interest. By true rate, he meant the commercial rate of interest for any relevant period minus the percentage of inflation for that period. If the matter were free from authority, I would substantially accept the alternative submission of the respondents. To award interest at commercial rates in respect of damages allotted for pain and suffering during the period prior to the 14 UNREPORTED JUDGMENTS trial is to award double compensation to the plaintiff. A simple illustration will demonstrate the validity of this proposition. According to the expert evidence placed before the Court, the consumer price index increased by a factor of 2.6 between 1976 and 1987. That may be taken as an approximate guide to the rate of inflation. Let it be assumed that a plaintiff commenced an action in 1976 for an injury in which she no longer had any continuing disability and in respect of which the proper award of damages, if the action had been heard in 1976, would be $1,000. If the action was heard in 1987, and assuming that verdicts have kept pace with inflation, the same plaintiff would be awarded $2,600. To award her interest at commercial rates for the period 1976 to 1987 on the 1987 verdict is to compensate her for inflation although she has not suffered loss by reason of inflation. This is because commercial rates of interest reflect a true return on investment component and a component to compensate for inflation. When inflation is low or negligible, interest rates in a country like Australia may be around 3 per cent. When inflation is running at a very high rate, the commercial interest rate may reach 20 per cent, most of which will reflect the inflationary component. What the plaintiff has lost in this hypothetical case is the use of her $1,000 during the period 1976-1987. She can, and should be, compensated for this by awarding her compensation for the true interest lost during this period. This is probably best done by awarding her the true interest rate (say 3%) on the present value of the compensation for pain and suffering ($2,600) for the period 1976-1987. An alternative method would be to award interest at commercial rates on the verdict discounted for inflation to the time of sustaining the injury or issuing the writ or some other appropriate time. The error in awarding a plaintiff in a personal injuries action the commercial rate of interest throughout the pre-trial period is also demonstrated by comparing that case with that of an action for debt. If a Plaintiff sued in 1987 for a debt incurred in 1976 for $1,000, she would obtain a verdict of $1,000 plus interest at the commercial rate of interest. But the plaintiff suing in 1987 for 1976 injuries gets a verdict which reflects the effect of inflation in the community. She will get $2,600 in 1987 and, under the present practice, interest at the commercial rate on that verdict. Interest at commercial rates for pain and suffering can only be justified if today's verdict is discounted to its equivalent verdict at the date of the injury. Counsel for the plaintiff recognised the force of these arguments and sought to meet them with the only two arguments which are, with respect, available. First, he argued that damages awarded in 1987 have not kept pace with awards in 1976 when the latter awards are adjusted for inflation. Secondly, he argued that it is impracticable to work out the true rate of interest, that an arbitrary figure is called for, and that the courts should simply use the commercial rates. In a matter as inexact as the estimation of general damages, it is virtually impossible to say whether awards of damages in 1987 have kept pace with inflationary trends since 1976. My impression, however, is that in real terms they have not slipped behind. As to the respondents' second argument, while it must be acknowledged that there is a certain degree of arbitrariness in selecting a true interest rate, a figure of say 3 per cent seems to me to be generally fairer than the use of the commercial rate figures. However, I think that authority and the practice of this Court over a long period precludes this Court from giving effect to the respondents' submissions. The decision of the High Court in Cullen v Trappell (1980) 146 CLR 1 seems the UBRYCE v TAPALIS; BRYCE v KEFFEL; M BRYCE and ASSOCIATE INC v TAPALIS (McHugh JA) complete answer to both submissions of the respondents. In that case Gibbs J, with whose judgment Stephen, Mason, Murphy and Wilson JJ agreed, said (at 21): "In New South Wales it was held in Bennett v Jones (1977) 2 NSWLR 355 that the amount awarded as damages in respect of pain and suffering and loss of amenities should be dissected into that part which relates to detriment suffered before judgment and that which relates to detriment suffered in the future, and that interest should be allowed only on the sum referable to detriment already incurred. It was further held that the rate of interest on that part of an award which is referable to non-economic detriment suffered in the past should be lower than the commercial rate which will be allowed on that part of the award which represents economic loss. Their Honours considered that the damages for pain and suffering and loss of amenities, being fixed at the standard prevailing at the date of judgment, are higher than they would be if fixed for the same loss at the date of the accident and contained "a built in inflationary factor" or *counter-inflationary benefit". With all respect, this seems to me to be the same fallacy as that which misled the Court of Appeal in Cookson v Knowles and which was condemned by the House of Lords in Pickett v British Rail Engineering Ltd." Gibbs J went on to note that in New South Wales the power to award interest was a discretionary power and that in the proper exercise of the discretion the judge was required to have regard to the facts of the particular case. His Honour went on to say (at 21-22): "Where interest is allowed, it should be allowed at ordinary commercial rates. As the words of s94 show, in New South Wales interest may be awarded from the date when the cause of action arose: the position is not the same in all states. Special circumstances may require the discretion to be exercised differently in some cases. However the award of interest should always be approached in a broad and practical way, and the matter should not be allowed to assume disproportion of importance either at the trial or in the judge's consideration of the matter." An attempt to outflank the decision in Cullen v Trappell was rejected in Herbert v Mulvaney (Court of Appeal) (6 March 1984). Samuels JA with whose judgment Moffitt P and Priestley JA agreed said: "...in order to make good the submission Counsel would have to persuade us to reject the statement in the judgment of Gibbs J (as he then was) in Cullen at p 21, of which 'only the most relevant portion, namely: 'where interest is allowed, it should be allowed at ordinary commercial rates.' It is perfectly true that Gibbs J recognised that there is an element of discretion which enters into the calculation of interest under s94, but it seems to me that, that discretion having been exercised when the judge determines to allow interest, he should do so at ordinary commercial rates, which in the present case at the relevant time were not less than the ten per cent which the Master evidently selected." In the same case, Moffitt P added some additional words of his own in respect of the question of interest. After referring to Cullen v Trappell, his Honour said: "So far as what was there decided, in particular by Gibbs J, was upon a matter of law so a binding precedent of law was created, it is not open to the appellant to have us depart from that decision on the basis that the reasoning of the House of Lords in Wright v British Railways Board [1983] 2 All ER 689 or what is alleged can be deduced from the decision of the High Court itself in Todorovic v Waller." 16 UNREPORTED JUDGMENTS With great respect to the judgment of Gibbs J in Cullen v Trappell, although it is a fallacy to refuse to award any interest on the ground that the verdict contains a built in inflationary factor, it is equally fallacious to hold that proper compensation requires that the plaintiff be awarded interest at the commercial rate on a verdict given several years after the injury occurred. To award the commercial rate of interest on awards of general damages for pain and suffering during periods of inflation is to award double compensation for the plaintiff provided, of course, verdicts are keeping pace with inflation. Nevertheless, I do not see how this Court, consistently with its duty to give effect to authoritative decisions of the High Court, can refuse to follow what was said by the High Court in Cullen v Trappell. Counsel for the respondents submitted that the remarks in that case were appropriate only when there was no delay involved. But I can see nothing in the judgment which supports this conclusion. Since Bennett v Jones [1977] 2 NSWLR 355, the Courts of this State have frequently refused to award interest for the whole period of pre-trial loss when there has been gross delay on the part of the plaintiff. The respondents made no attempt to argue that Bennett v Jones should be overruled. Accordingly, I think that in all three actions the Master was entitled to take into account the gross delay which occurred before the sustaining of injury and the hearing of the action. No error in the exercise of his discretion has been shown. Orders Accordingly, in my opinion the appeals by Mr and Mrs Bryce should be dismissed. But the damages and interest awarded to M Bryce and Associates Inc should be increased to $US136,000. The parties were represented by the same solicitors and counsel in each action. In the circumstances the appropriate order is that there be no order as to the costs of these appeals. 1. Appeal of Jean Bryce dismissed. 2. Appeal of Milton Bryce dismissed. 3. Appeal of M Bryce and Associates Inc allowed. Judgment of the Master set aside. Judgment entered in favour of the appellant in the sum of $136,000. 4. No order as to the costs of the appeals. Counsels for appellant: C G Gee QC and F Corsaro Solicitors for appellant: Minter Ellison Counsel for respondent: G R Petty Solicitor for respondent: Mr G D Glare