New South Wales Supreme Court CITATION : Covington-Thomas v Cth of Australia [No 4] [2007] NSWSC 1401 30/10/06-31/10/06 01/11/06-03/11/06 06/11/06-07/11/06 10/11/06 13/11/06-14/11/06 16/11/06-17/11/06 20/11/06-23/11/06 28/11/06-29/11/06 01/12/06 12/12/06-13/12/06 HEARING DATE(S) : 02/03/07 22/03/07 03/04/07 11/04/07 17/05/07 28/05/07-30/05/07 21/06/07 25/07/07 02/08/07 24/08/07 17/09/07-18/09/07 25/09/07 JUDGMENT DATE : 5 December 2007 JURISDICTION : Common Law JUDGMENT OF : Kirby J DECISION : Confirmation of order entitling the plaintiff to judgment. CATCHWORDS : NEGLIGENCE - Melbourne/Voyager Collision - claim for damages - verdict found for plaintiff 2.8.07 - interest on damages - method of calculation - whether the usual rule of thumb should apply or precise calculation. Covington-Thomas v Cth of Australia [2007] NSWSC 779 Covington-Thomas v Cth of Australia [No 2] [2007] NSWSC 1059 Covington-Thomas v Cth of Australia [No 3] [2007] NSWSC 1062 Cullen v Trappell (1980) 146 CLR 1 CASES CITED : Metropolitan Meat Industry Board v Williams (1991) 24 NSWLR 54 Bennett v Jones (1977) 2 NSWLR 355 Malec v J C Hutton Pty Limited (1990) 169 CLR 638 Haines v Bendall (1991) 172 CLR 60 Todorovic v Waller (1981) 150 CLR 402 PARTIES : Peter Norman Covington-Thomas (Plaintiff) Commonwealth of Australia (Defendant) FILE NUMBER(S) : SC 21243/95 COUNSEL : G Melick SC/W Walsh/Ms K Sant (Plaintiff) C Barry QC/M Dicker (Defendant) SOLICITORS : James Taylor (Plaintiff) Australian Government Solicitor - Cth (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION JUSTICE DAVID KIRBY Wednesday 5 December 2007 21243/95 PETER NORMAN COVINGTON-THOMAS v COMMONWEALTH OF AUSTRALIA [No 4] JUDGMENT ON INTEREST 1 KIRBY J: On 2 August 2007, I gave judgment for the plaintiff in his action for damages against the Commonwealth, reserving a number of issues for further calculation (Covington-Thomas v Commonwealth of Australia [2007] NSWSC 779). Soon after, I recognised that I had made an error in respect of future economic loss, including future pension entitlements. After argument, I published a further judgment seeking to correct that error (Covington-Thomas v Commonwealth of Australia [No 2] [2007] NSWSC 1059). That judgment included a revised Schedule of Damages. The schedule incorporated the following: [vi] Interest on Past Loss of Earning Capacity To be calculated [viii] Interest on Past Loss of $220,519.00 Superannuation/Pension (to 3.8.07) 2 Calculations in respect of each of these items had been provided by experts retained by the parties. However, the calculations in respect of item [vi] had been made upon assumptions which differed from findings which I ultimately made and item [viii] needed to be adjusted for the further time that had elapsed before judgment. At that point there appeared to be no controversy about the method of calculating interest. When delivering Judgment [No 2], I had in mind that the plaintiff would make calculations in accordance with my reasons, employing the usual methodology, and the defendant's expert would check such calculations. 3 At the same time as Judgment [No 2] was handed down, a further judgment was published (Covington-Thomas v Commonwealth of Australia [No 3] [2007] NSWSC 1062) dealing with a number of applications, including an application by the plaintiff for indemnity costs and an application by the defendant for a stay of proceedings. I then went on leave. 4 Within a short time I was asked by the plaintiff to relist the matter for further argument. I was told that there was an issue concerning the method of calculating interest. I asked the parties to make written submissions and to agree that the issue could be dealt with "on the papers". I thereafter received such submissions. The parties agreed that I should deal with the issue upon the basis of that material. 5 On 18 October 2007 I sent an email to each of the parties in these terms: "I have read the submissions concerning interest. I accept the plaintiff's submissions. I rule that interest be calculated using the method set out in paragraph (2) of the plaintiff's submissions of 4 October 2007, namely: 'interest x amount x 1/2 period or 1/2 interest x amount x period' for both past loss of income and past loss of pension. The calculations should be made as at 18 October 2007. I will provide my reasons later. Once calculations have been made in respect of damages, a copy of the schedule should be forwarded to me." 6 I now provide my reasons for the ruling made on 18 October 2007. 7 The parties each provided helpful written submissions. This judgment sets out a summary of their arguments. The Plaintiff's submissions. 8 The plaintiff drew attention to the judgment of Gibbs J in Cullen v Trappell (1980) 146 CLR 1, where his Honour identified the approach which a Court should take in awarding interest: (at p22) "… that award of interest should always be approached in a broad and practical way, and this matter should not be allowed to assume disproportionate importance either at the trial or in the judge's consideration of the matter." 9 The plaintiff's submissions continued: "2. The normal practice in the Supreme Court is to apply simple interest to the damages by one of two methods either interest x amount x 1/2 period or 1/2 interest x amount x period - the result is the same using either method. See Metro Meat Industry Board v Williams (1991) 24 NSWLR 54 at 59B. See also Assessment of Damages for Personal Injury and Death by Harold Luntz 4th Edition paragraph 11.3.17." 10 That practice, as the defendant acknowledged, has been followed in the past by the Commonwealth in Voyager cases. It was the method identified in the plaintiff's submissions on economic loss before judgment was reserved. The defendant, at that point, did not suggest otherwise. In the plaintiff's submission, that practice should be followed in this case. The Defendant's submissions. 11 The defendant responded by drawing attention to the history that lay behind the decision of the Court of Appeal in Metropolitan Meat Industry Board v Williams (1991) 24 NSWLR 54. The Court, in that case, followed Bennett v Jones (1977) 2 NSWLR 355 at 371-372, 374 and 380-381. The defendant's submission said this: "4. … An analysis of those pages shows that the different members of the Court of Appeal appeared to qualify their approach by the amount of years over which interest was to be calculated. See for example the comments of Moffitt P at 371-372. Moffitt P described the various approaches and at 372B-C referred to the fact that 'some rule of thumb may be appropriate to be applied'. 5. The approach adopted by the Plaintiff and which the Plaintiff submits should be applied is, it is submitted, precisely that: a rule of thumb which must in an appropriate case give way to precise mathematical calculations to the extent they can be made." 12 Here the defendant urged that, having regard to the size of the verdict and the length of time over which interest was to be awarded, it was fairer for interest to be calculated precisely. Application of the rule of thumb would overcompensate the plaintiff. The submission was accompanied by an expert's report in which alternative calculations were put forward (Lexiq 8 October 2007). The defendant sought to reopen its case and tender that report. The plaintiff opposed that tender. 13 The monetary difference between the approach suggested by the plaintiff and that suggested by the defendant was substantial. The interest in the Schedule of Damages calculated as at 18 October 2007 in respect of the issues which had been reserved, was as follows: [vi] Simple interest on past loss of income at the Supreme Court rate: $543,762.00 (6% x amount x period up until 9/6/07 from then interest at 10% as the loss is complete until judgment) [viii] Interest on past loss of pension at the Supreme Court rate: $229,082.54 14 The total of these two amounts is $772,844.54. 15 The amount suggested by Lexiq, the defendant's actuary, in the report of 8 October 2007, on the other hand, was as follows: (Lexiq p7) (Interest on) Loss of Income $410,233 (Interest on) Loss of Superannuation/Pension $163,986 TOTAL $574,219 16 The difference between the two amounts therefore ($772,844.54 less $574,219.00) is $198,625,54. 17 The difference in methodology was explained by Lexiq in their report in these terms: "However, as the losses in this matter cover periods of up to 34.94 years and are not consistent losses over the various periods of the different losses, the averaging method, in our view, does not produce an accurate figure for interest. Should it be determined that the interest on the losses determined by the Judgment (No 2) should be calculated on the more accurate method of applying the simple interest at the applicable rates for the relevant periods we have recalculated the interest applicable to the Loss of Earnings and Loss of Superannuation/Pension in this report." 18 The defendant drew attention to my own words in Judgment [No 2] (supra in paras [30ff]) where, in the context of the issue concerning Malec v J C Hutton Pty Limited (1990) 169 CLR 638, I dealt with two differing approaches on that issue, one being broad-brush and the other more precise and mathematical. I favoured the latter, although in a context where it seemed to me the outcome would not be greatly different, whichever approach were adopted. 19 There are, however, differences between a finding in respect of a particular loss, on the one hand and interest on the other. In respect of losses sustained by the plaintiff, precision, where it can be achieved, has some attraction. Interest, on the other hand, is a consequential order. The application of a mechanical formula to the loss found has the twin virtues of simplicity and certainty. Submissions by the plaintiff in reply. 20 The plaintiff responded to the defendant's submissions by acknowledging that the Court had a discretion in respect of interest (Haines v Bendall (1991) 172 CLR 60). The defendant advanced two reasons for departing from the usual rule. First, it was argued that a departure was warranted by the lapse in time involved in this case, which was unusually long (relying upon Bennett v Jones (supra)) and, secondly, the amount awarded to Mr Covington-Thomas was large. No authority was provided as to the relevance of the second aspect. 21 Dealing with each aspect, the plaintiff made the following submissions: "8. The 'lapse of time' is relevant but only to the extent to which it results in economic disadvantage to the plaintiff or the defendant: see Bennett v Jones at page 367.F. There is no relevant economic disadvantage to the defendant because it has had the benefit of the money since the cause of action arose. However, there is economic disadvantage to the plaintiff for having been deprived of his money for such a period of time, a disadvantage which is compounded by the fact that for a significant period of the time that the plaintiff is deprived of his money he is not being compensated by an award of interest. …" 22 In respect of the authority relied upon, Bennett v Jones (supra), the plaintiff made the following submissions: "9. …The defendant also relies on a quote from Moffit P in that case at p. 372 that "some rule of thumb may be appropriate to be applied" as a basis to move away from the usual method applied by the Courts in calculating interest to a method proposed by the defendant. However, the defendants interpretation or analysis of Bennett v Jones , with all due respect, is not correct. Moffit P was, as did Hutley and Samuels JJA, proposing an averaging method in determining interest where the loss may vary over the period and suggested that half the rate of interest should apply to the amount over the whole period [see 372.C, 374.F and 380.F], which is no different from the view expressed by Gibbs J in Cullen v Trappell (see also Metropolitan Meat Industry Board at page 59.B) or the approach proposed by the plaintiff . … " 23 The submissions continued: "We refer the Court to the comments by Samuels JA in Bennett v Jones at page 381.B as to the approach the Court and the parties should take in determining interest awards. The approach suggested by Samuels JA goes against the specific method suggested by the defendant, and is similar to the views of Justice Gibbs in Cullen v Trappell. The averaging or simple interest method is a realistic approximation. For ease of reference we set the passage out below: 'I emphasize, however, the importance of approaching awards of interest in a broad and practical way, without striving for theoretical satisfaction in a field which ought primarily to be governed by pragmatic solutions. It would be no service to the expeditious decision of cases of this kind if a great deal of time were spent in contriving sophisticated answers to questions which can be adequately and fairly dealt with by realistic approximations . Per Samuels JA at 381.B'" (emphasis in original) 24 Attention was also drawn to Todorovic v Waller (1981) 150 CLR 402 where it was said that mathematical accuracy and certainty should be sacrificed for predictability and uniformity when determining interest rates. 25 The plaintiff's submissions continued: "10. … We say this same view is appropriate when determining the method that should be used in calculating the interest on economic loss. The method we propose is robust, pragmatic and predictable and one that can be applied uniformly and quickly by the Court or the parties, without having to go to the unnecessary expense and further delay of each party briefing an actuary to provide a report. The method proposed by the plaintiff is also one that complies with the overriding purpose of the Civil Procedure Act 2005 which is "to facilitate the just, cheap and quick resolution of the real issues in the proceedings". Further, the plaintiff's method has the practical advantage of enabling parties to quickly work out what the Court will award as interest which assists settlement discussions as the parties are able to quickly calculate the interest on damages that they are likely to receive by the Court in comparison with what the other party is willing to pay in settlement of the matter. The simple method is complementary to the secondary purpose of awarding interest ie settlement. " 26 Further, the plaintiff asserted that the calculations made by the defendant's expert did not produce a mathematically precise figure. The following was said: "11. …The defendant's expert has wrongly assumed that the damages awarded by the Court for past loss of earning capacity of $255,000 can be broken down to the specific periods. There is no finding as to this. Indeed, the relevant reduction in damages to $255,000 is due to uncertainty as to events at the end of the period of loss (judgment [No 2] of 25 September 2007 [45]-[46]). Hence the defendant's proposed methodology can not apply to the amount for past loss of income. " Conclusion. 27 Whilst accepting that I have a discretion, there is much to commend the usual rule. It is the rule suggested by decisions that bind me. It has the virtue of simplicity, once economic loss has been found or agreed. Such a rule facilitates settlement. It is the rule followed routinely in personal injury litigation, including Voyager cases. I am not persuaded that there is any cogent reason for departing from that rule in the circumstances of this case. All Voyager cases involve a significant period of time. The time, in this case, is only marginally greater than in cases determined in the past, where the usual rule has been applied. The award itself is large because the plaintiff had unusual potential for advancement in the Navy, such that his loss was greater. There is no logical reason why the verdict, reflecting the plaintiff's loss, should call for a lesser rate of interest than the norm. Order. 28 I have previously made the relevant order entitling the plaintiff to judgment, which I confirm by these reasons. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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