Commonwealth v Chessell

30 FCR 154
101 ALR 182; FED No. 360; No. G433 of 1990

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(Judgment by: Sheppard J)

Re: Commonwealth of Australia
And: Keith William Chessell

Court:

Judges:
Sheppard JWilcox J
Einfeld J

Subject References:
Damages

Judgment date: 28 June 1991

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Judgment by:
Sheppard J

This is an appeal from a judgment of a Judge of this Court in a matter which was remitted to the Court by the High Court. The case was one in which the respondent sued the appellant for damages for personal injuries. The respondent was injured when he suffered a back injury in the course of duties he was engaged in as a member of the Royal Australian Engineers. Liability was not in issue and the only question was the amount to which the respondent was entitled. His Honour directed the entry of judgment in the sum of $465,000 which, before rounding off, was made up as follows:

The appellant has appealed, claiming that the award of damages is excessive. It has challenged the amounts awarded for past loss of earnings and for loss of future earning capacity and for general damages. Additionally, the appellant has submitted that the amount, when looked at globally, is in excess of what was reasonably required to compensate the respondent for the losses he suffered.

Having considered the submissions made by counsel for the appellant in relation to the amounts awarded for loss of future earning capacity and general damages, I can say quite shortly that I do not think either amount is open to challenge in this Court. The attack on the amount awarded for loss of future earning capacity was based on a submission that an allowance of $200 per week as the respondent's post trial earning capacity until he attained the age of 55 years, when he would have retired, was unreasonably low. In my opinion it was well open to his Honour to reach the conclusion that the respondent's earning capacity would have been no more than this sum when averaged out over the whole of the period in question. Nor do I think that it is open to the appellant to complain of the award of $25,000 for loss of earning capacity which the respondent would have had, but for the injury, between the ages of 55 and 65 years. I recognise that this required a projection forward to the day when the respondent would attain the age of 55 years and that proper allowance had to be made for the fact that the respondent would be receiving the money now and not in the future. His Honour did not approach the matter in any precise way but there was plainly material in the accounting evidence which well justified his conclusion that $25,000 was an appropriate sum.

The award of $110,000 for general damages may, at first sight, seem to be high. But the respondent's condition is most serious and his injury has deprived him of a career in which he was showing great promise. The evidence disclosed that, because of his education and background, not many careers were open to him. He found a career in the Army to his liking and the evidence established that he was likely to make a great success of it. It must have been a quite shattering blow to him to find that he was unable to pursue it and to be relegated into areas of employment in which he could not hope ever to make a future as satisfying and as rewarding as his career in the Army promised to be. It must be remembered that the award is being made in respect of the past, a period of 10 years, as well as for the future. In all the circumstances I cannot regard the amount as excessive.

The difficulties in the case arise in relation to the amounts awarded for past loss of earnings and for interest. In relation to the amount awarded for past loss of earnings, his Honour said:

"I have reached the conclusion that the applicant cannot be allowed the full amount of his claim for past economic loss. I think he has shown a continuing loss of earnings was suffered by him as compared with what he would have earned if uninjured; but I think the extent of that loss has been exaggerated by his choice to work for quite substantial periods of time for the extremely low remuneration paid by the Church of Scientology. He could, in my opinion, at least have earned the sums which he earned in the employ of the security firm. However, as against that, I think it was reasonable for a man in his condition to seek such comfort and support as might seem to him to be available through the Church of Scientology and, for that purpose, in all the circumstances, to take some time off from work for a period. On this basis, I shall deduct the sum of $10,000 only, allowing the sum of $53,604 in respect of loss of earning capacity for the past."

The issue between the parties is whether his Honour was in error in reducing the amount of past loss of earnings by no more than $10,000. The respondent had been forced to retire from the Army on 5 March 1985 . After leaving the Army he engaged in a variety of activities. He endeavoured to become a lapidary and then to do work with coloured glass. He found, however, that back pain prevented him from performing these activities fully and he sought something else. On 17 July 1986 he obtained work for a security firm. He did this work for about 15 months but not full time. He became interested in scientology and began attending meetings of the Church of Scientology. He became a course supervisor and, at the time of the trial, had almost completed his training for the ministry of that Church. After leaving the security work, which he continued to do until the end of 1987, he had not, at the time of the trial, engaged in any other paid employment. He was receiving about $20 per week from the Church and expected that that sum would increase to over $100 per week upon his becoming a minister. It was agreed that, up to the date of trial, the respondent's loss of earnings after he left the Army amounted to $63,604. That sum was the actual amount of his loss and was calculated upon the basis of what he had received including the sums of $20 per week during his employment by the Church. It was counsel's submission that his earning capacity was more accurately reflected in what he had been able to earn with the security firm and that the reduction of $10,000 made by his Honour in the passage I have cited from his judgment was inadequate.

His Honour's reason for not reducing the claim, however, was his conclusion that it was reasonable for a man in the respondent's condition to seek comfort and support through the church and, for that purpose, to take some time off from work "for a period". I would only interfere with what his Honour has done if I thought there was some error of principle disclosed in his reasons. The submission that there was error was based on the circumstance that his Honour was assessing loss of past earnings and not dealing with general damages. The evidence disclosed that he had a capacity to earn much more than $20 per week and his Honour should, so it was submitted, have endeavoured to arrive at a figure which would allow for what he could reasonably have earned in the open market.

No doubt this submission was put to his Honour and accounts for his reducing the amount by $10,000. What one needs to understand is the reason why his Honour did not reduce it further. It seems to me that he concluded that the respondent was not, in all the circumstances, fully fit for work available to him away from the Church. Undoubtedly he may have been able to pursue his employment with the security firm and receive more money. But implicit in his Honour's conclusion is, I think, a finding that, in the light of the very bad experience through which the respondent was going, he was not really fit for work with the security firm. In those circumstances, he thought that it was reasonable for him to go to the shelter of the Church in a poorly paid position. Accordingly, I would not be prepared to interfere with his Honour's award of $53,604 for past loss of earnings.

I come to the question of interest. The learned primary Judge included in his award of damages the sum of $21,535 which he described in his summary of the various components of the award as an allowance for interest on past loss of earnings. The amount was not awarded pursuant to s. 51A of the Federal Court Act 1976 because the cause of action upon which the respondent relied arose prior to the coming into force of that section. But his Honour considered that the decision of the High Court in Hungerfords v Walker (1989) 63 ALJR 210 enabled him to award a sum of money in the nature of interest on the amount to be awarded the respondent for past loss of earnings. His Honour refused to make a similar award in respect of the amount awarded for past pain and suffering and loss of amenities of life. No challenge was made to his Honour's conclusion in that respect, but the appellant challenges the correctness of his Honour's decision to award a sum in the nature of interest on the amount recovered for past loss of earnings.

The argument relied upon by the appellant necessitates a consideration of the Hungerfords case and of the position in relation to interest which prevailed at common law until sections such as s. 51A of the Federal Court of Australia Act were inserted into that Act and the various Supreme Court Acts of the States and Territories.

The facts in Hungerfords case were that Hungerfords, who were accountants, were the defendants in an action in the Supreme Court of South Australia brought by the Walkers. The Walkers carried on a business which involved the selling, hiring and servicing of television sets and other electronic goods. Hungerfords were engaged to prepare the partnership and individual income tax returns for the years 1974 to 1981 inclusive. In the partnership return for the 1975 year Hungerfords made an error in calculating the amount of depreciation allowable as a deduction. The error was carried through in the succeeding returns. The error led to the Walkers paying more income tax than was in fact due. After the error was discovered by another accountant, the Walkers were able to recover the overpaid tax for the 1978, 1979 and 1980 years of income and to amend their return for the 1981 year. But the tax overpaid in respect of the 1975, 1976 and 1977 years of income could not be recovered because the claim for it was statute barred.

The Walkers sued for the amount of the overpaid tax and claimed on it compound interest at market rates. As an alternative to the claim for interest that they made, the Walkers claimed damages for loss of the use of the money overpaid. The action was tried by Bollen J. ((1987) 88 2 ATC 4920 ) who found Hungerfords liable for the negligent discharge of their obligations. He held that the Walkers were not entitled to interest by way of damages except such amount as they were entitled to recover pursuant to s. 30C of the Supreme Court Act 1935 (S.A.). That section is in terms similar to s. 51A of the Federal Court of Australia Act. Both sections include a provision that the section does not authorise the giving of interest upon interest or of a sum in lieu of such interest; thus section 30C did not authorise the awarding of compound interest. Bollen J. found that some of the money which was overpaid would have been used to pay off those loans made to the Walkers which bore the highest interest rate and that some of the money would have been used in the business in other ways.

The Walkers' appealed to the Full Court of the Supreme Court of South Australia ((1987) 88 2 ATC 4920 ). The principal judgment was written by King C.J. who concluded (p 4937) that, to the extent that the Walkers would have devoted the additional funds to the business, their loss could not be less than the rate of interest the Walkers were paying on the highest interest loans, that rate being 20 per cent per annum. King C.J. said (pp 4937-8) that the loss occasioned by the overpayments of tax, assuming that all the additional money was devoted to the business, should be measured by compound interest at the highest interest loans rate on the amounts overpaid for the period during which the Walkers were deprived of their use. King C.J. reduced that amount on the basis that it could not be inferred that all the money would have been used in the business. He made a deduction to allow for that circumstance.

Hungerfords appealed to the High Court against the award of damages for the loss of the use of money assessed by reference to an annual compound interest rate of 20 per cent. The Walkers sought leave to cross appeal against the finding that some of the overpaid amounts would not have been used in the business and the consequential reduction in the award of damages on this account. In the result the appeal was dismissed and leave to cross appeal was refused.

The principal judgment in the Hungerfords case was delivered by Mason C.J. and Wilson J. Brennan and Deane JJ. expressed their general agreement with it and they added some remarks of their own. The judgment of Mason C.J. and Wilson J. contains a detailed account of the way in which the common law relating to claims for interest developed and makes reference to the different approaches which were adopted both by courts of admiralty and of equity. They decided that the introduction of provisions such as s. 30C of the Supreme Court Act (S.A.) did not inhibit the common law continuing to develop because such provisions were not intended to be a comprehensive code. The existence of such a provision was not a reason for the Court refusing to give effect to the logical development of common law principle. They added (p 217), "It would be ironic if a legislative attempt to correct defects in the common law resulted in other flaws becoming ossified in the common law."

In the course of their discussion, Mason C.J. and Wilson J. referred, inter alia, to Lord Tenterden's Act of 1833 and to the decisions in London, Chatham and Dover Railway Co. v South Eastern Railway Co. [1893] AC 429 , Marine Board of Launceston v Minister of State for the Navy (1945) 70 CLR 45 , Norwest Refrigeration Services Pty. Ltd. v Bain Dawes (W.A.) Pty. Limited (1984) 157 CLR 149 , President of India v La Pintada Compania [1985] AC 104 and President of India v Lips Maritime [1988] AC 395 . After a discussion of these authorities and some others Mason C.J. and Wilson J. said (p 215):-

".... such a policy (a policy that encourages recovery of expense actually incurred and discourages or denies recovery of opportunity cost) would be at odds with the fundamental principle that a plaintiff is entitled to restitutio in integrum. According to that principle, the plaintiff is entitled to full compensation for the loss which he sustains in consequence of the defendant's wrong, subject to the rules as to remoteness of damage and to the plaintiff's duty to mitigate his loss. In principle he should be awarded the compensation which would restore him to the position he would have been in but for the defendant's breach of contract or negligence. Judged from a commercial viewpoint, the plaintiff sustains an economic loss if his damages are not paid promptly, just as he sustains such a loss when his debt is not paid on the due date. The loss may arise in the form of the investment cost of being deprived of money which could have been invested at interest or used to reduce an existing indebtedness. Or the loss may arise in the form of the borrowing cost, ie, interest payable on borrowed money or interest forgone because an existing investment is realised or reduced.

The requirement of foreseeability is no obstacle to the award of damages, calculated by reference to the appropriate interest rates, for loss of the use of money. Opportunity cost, more so than incurred expense, is a plainly foreseeable loss because, according to common understanding, it represents the market price of obtaining money. But, even in the case of incurred expense, it is at least strongly arguable that a plaintiff's loss or damage represented by this expense is not too remote on the score of foreseeability. In truth, it is an expense which represents loss or damage flowing naturally and directly from the defendant's wrongful act or omission, particularly when that act or omission results in the withholding of money from a plaintiff or causes the plaintiff to pay away money."

In the course of their judgment, the two judges referred to Trans Trust SPRL v Danubian Trading Co. Limited [1952] 2 QB 297 . There Denning L.J. (as he then was) said (p 306) that the ground on which the law refused interest for late payment of a debt for damages was that interest was generally presumed not to be within the contemplation of the parties. Reference was made to Bullen and Leake, Precedents of Pleadings, 3rd ed. at p 51. Denning L.J. went on to say that he thought that that was the only real ground on which damages could be refused for non-payment of money. It was because the consequences were as a rule too remote. The Court of Appeal in England applied what Denning L.J. had said in Wadsworth v Lydall (1981) 1 WLR 598 and held that a plaintiff was entitled to recover as special damages the loss suffered by him as the result of the failure of the defendant to pay a sum due to him under a contract, the circumstances being that the defendant ought to have known that the plaintiff would need to acquire another farm or smallholding using the amount payable under the contract for the purpose, so that if it were not paid the plaintiff would be compelled to incur expense in arranging alternative finance and paying interest. The Court distinguished the London, Chatham and Dover Railway Co. case on the ground that it was concerned with the first, but not the second, limb in Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145.

Later (p 216) Mason C.J. and Wilson J. referred to decisions of this Court in Frith v Gold Coast Mineral Springs Pty. Limited (1983) 47 ALR 547 and Sanrod v Dainford (1984) 54 ALR 179 where interest had been awarded in the circumstances of those cases in actions brought for damages for breaches of the Trade Practices Act 1974. There are other cases in this Court where awards of interest actually paid by parties on money owed to them by respondents have been made. I refer, for example, to the decision of the Full Court in Australasian Meat Employees' Union v Mudginberri Station Pty. Limited (Federal Court of Australia, Full Court, 16 June 1987 , unreported on this point; see pp 67-70).

Mason C.J. and Wilson J. said that the measure of damages in tort, as well as in contract, was such as to include an award for the loss of the use of money. They concluded (p 218):-

"Although the admiralty model has obvious attractions, the common law has steadfastly declined over a very long time to adopt the admiralty approach in awarding compensation for late payment of damages in the general run of cases. But we see no reason for allowing the reluctance of the common law to extend to cases where the defendant's breach of contract or negligence has caused the plaintiff to pay away or the defendant to withhold money and, as a result, the plaintiff has been deprived of the use of the money so paid away or withheld. The recovery of compensation for the loss may be ascribed to the operation of the second limb in Hadley v Baxendale. However, we would prefer to put it on the footing that it is a foreseeable loss necessarily within the contemplation of the parties, which is directly related to the defendant's breach of contract or tort.

On this footing the Full Court was correct in awarding damages for the added cost of funding the business with borrowed money as a result of the loss of the use of money overpaid in tax. The award of interest was of necessity compound interest. Simple interest would not reflect accurately the extent of the respondents' loss. Simple interest almost always undercompensates the injured party's true loss."

The first of the above paragraphs was relied upon by the learned primary Judge in the present case as the justification for his conclusion that it was open to him to award interest on past loss of earnings. His Honour also relied upon what was said by Brennan and Deane JJ. in their joint judgment, namely (p 219):-

"There is, in our view, a critical distinction between an order that interest be paid upon an award of damages and an actual award of damages which represents compensation for a wrongfully caused loss of the use of money and which is assessed wholly or partly by reference to the interest which would have been earned by safe investment of the money or which was in fact paid upon borrowings which otherwise would have been unnecessary or retired. On the one hand, there is no common law power to make an order for the payment of interest to compensate for the delay in obtaining payment of what the court assesses to be the appropriate measure of damages for a wrongful act. If such interest is to be awarded at common law, it must be pursuant to statutory authority. On the other hand, there is no acceptable reason why the ordinary principles governing the recovery of common law damages should not, in an appropriate case, apply to entitle a plaintiff to an actual award of damages as compensation for a wrongfully and foreseeably caused loss of the use of money. To the extent that the reported cases support the proposition that damages cannot be awarded as compensation for the loss of the use of a specific sum of money which the wrongful act of a defendant has caused to be paid away or withheld, they are contrary to principle and commercial reality and should not be followed."

It is to be observed that the High Court in Hungerfords case has decided that it is, in appropriate cases, correct to include in awards of damages for breach of contract an amount for the loss of use of money and that such an award may be made in reliance upon the first limb of the decision in Hadley v Baxendale. One is not restricted to the second limb as King C.J. thought in the Full Court and as Brightman L.J. (as he then was) thought in Wadsworth v Lydall. Similarly, an award for the loss of use of money may be made in actions of tort if it was reasonably foreseeable by the defendant that the plaintiff might suffer damage as a result of being out of money which the defendant had wrongfully withheld or caused him to lose.

The cause of action in the present case is negligence so it is the tortious measure which applies. The question which must be asked is whether the appellant ought reasonably to have foreseen that the respondent would suffer damage as a result of the failure of the appellant to make up the earnings which the respondent would have earned had he not been injured. There is no evidence here of what effect the failure of the appellant to make up the lost earnings had upon the respondent's financial position. Certainly there is no evidence that he borrowed money as a result of the late payment or that he would have paid off indebtedness on which he was paying interest if he had received the moneys when he should have done.

Thus, this is a case where there is no evidence of any consequential financial loss actually suffered by the respondent as a result of the late payment of the amount due to him for loss of earnings up to the trial. That was not the case in Hungerfords nor was it the case in a number of the cases in this Court such as Frith, Sanrod and Mudginberri.

The question is whether the fact that there is no evidence of financial loss concludes the matter in the appellant's favour. I have reached the conclusion that it does. The judgments in Hungerfords proceed on the basis that amounts which plaintiffs are entitled to recover pursuant to the principles which they propound are damages. Such amounts are intended to compensate plaintiffs for losses they have suffered as a result of having to pay money away or having money withheld from them in consequence of a defendant's wrongful act.

That this is what was intended is made clear by the opening words of the passage cited from the judgment of Brennan and Deane JJ., namely, that there is a critical distinction between an order that interest be paid upon an award of damages and an actual award of damages which represents "compensation for a wrongfully caused loss of the use of money." Likewise, in the last of the passages cited from the judgment of Mason C.J. and Wilson J., their Honours refer to "the recovery of compensation" for loss and to the two rules in Hadley v Baxendale, a case about compensatory damages. Later their Honours emphasised that nothing less than an award of interest at rates which were compounded would properly compensate the Walkers for the losses suffered by them in the Hungerfords case.

In every case where a common law award of moneys in the nature of damages for loss of interest has been made, there has been proof of actual loss or damage. Furthermore, the High Court made it clear that sections such as s.30C of the Supreme Court Act (S.A.) were not to cease to have effect; they were not superseded by the common law. The principal reason why such sections were enacted was to overcome the apparent injustice to plaintiffs, kept out of their money by the wrongful conduct of defendants, in being unable to recover a sum for interest without the need for the proof of actual loss. The Hungerfords case establishes that the common law has now developed a remedy which exists alongside the remedy provided for in sections such as s.30C and which, in an appropriate case, will enable the Court not only to award a sum in the nature of interest but such a sum calculated at compound rates of interest.

The question to be determined has occasioned me a degree of anxiety and I do not pretend that my conclusion has been easily reached. The dicta of the judges of the High Court upon which the learned primary Judge relied are widely expressed and taken at face value may seem to point to the power of a court to do as his Honour did in this case. But having reflected on the matter, I have reached the conclusion that it is not an appropriate exercise of the discretion which a judge awarding damages has to take such a course unless there is actual evidence of a loss occasioned by the defendants' wrongful conduct in withholding money from the plaintiff or causing him to have to pay out money which he would not otherwise have been obliged to pay.

In the result, therefore, I am of opinion that it was not open to the learned primary Judge to include the sum of $21,535 in the award of damages with the consequence that the amount of the award should be reduced by this sum.

I have considered whether or not the resulting sum is, when viewed overall, excessive. Having done so, I am not persuaded that it is. I would therefore vary the judgment appealed from by reducing the amount awarded from $465,000 to $443,465. The appeal should otherwise be dismissed.

I would make no order as to the costs of the appeal. The respondent should have a certificate under the Federal Proceedings (Costs) Act 1981.