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Supreme Court of New South Wales - Court of Appeal |
Last Updated: 24 November 2003
NEW SOUTH WALES COURT OF APPEAL
CITATION: Screenco Pty Limited v R L Dew Pty Limited & Anor [2003] NSWCA 319
FILE NUMBER(S):
41139/02
HEARING DATE(S): 13 June 2003
JUDGMENT DATE: 14/11/2003
PARTIES:
A: Screenco Pty Limited
1R: R L Dew Pty Limited
2R: Ronald Steele t/as Dragon Scaffolding
JUDGMENT OF: Handley JA Sheller JA Tobias JA
LOWER COURT JURISDICTION: Supreme Court
LOWER COURT FILE NUMBER(S): SC 50067/99
LOWER COURT JUDICIAL OFFICER: McClellan J
COUNSEL:
A: Mr Newlinds / E.M. Frizell
1R: J. Turnbull
2R: P Taylor/M.W. Sneddon
SOLICITORS:
A: Michell Sillar
1R: McCabe Terrill
2R: Deacons
CATCHWORDS:
DAMAGES - Whether trial judge should have awarded interest on the capital value of chattels lost due to the negligence of the defendants in circumstances where the plaintiff had not paid for the chattels - Whether loss real or theoretical - Whether the fact that the plaintiffs had not paid the purchase price for the chattels relevant to award of interest - Supreme Court Act, s94
D
LEGISLATION CITED:
Law Reform (Miscellaneous Provisions) Act 1934, s3
Consumer Credit Act 1974 (UK)
Fair Trading Act 1985 (Vic)
Workers Compensation Act (1926) (NSW), s16
Supreme Court Act 1986 (Vic), s60
DECISION:
Appeal dismissed with costs
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 41139/02
HANDLEY JA
SHELLER JA
TOBIAS JA
Friday 14 November 2003
1 HANDLEY JA: This appeal involves the appellant's claim to interest, agreed at $537,044.88 (this interest), on the damages awarded to it for the loss of a "jumbotron" screen (the screen), a profit-earning chattel which it owned but had not paid for. After the loss the appellant obtained a replacement from Singapore on temporary loan from its United Kingdom parent, without cost to itself other than freight. It later purchased a permanent replacement.
2 The appellant carried on the business of hiring large outdoor screens to the organisers of sporting fixtures. In February 1998 it contracted with the organisers of the March 1998 Australian Grand Prix in Melbourne to supply the screen during this event.
3 On 21 October 1997 it leased the screen from its parent but later agreed to purchase it for its written down value. It was agreed at the trial in September 2002 that the property in the screen had passed to the appellant but it had not yet paid for it. There was no evidence that the appellant had any obligation to pay interest on the purchase price.
4 On 3 March 1998 the structure supporting the screen collapsed and it was effectively destroyed.
5 The appellant sued the first respondent for breach of its contract to erect scaffolding to support the screen and the second respondent, a sub-contractor, for negligence in the construction of the scaffolding.
6 McClellan J found that the respondents were liable and the parties agreed on all the items in the appellant's claim for damages other than the value of the screen and this interest. The Judge assessed the value of the screen at $A1,152,897.40 but declined to award this interest. The appeal is confined to this interest.
7 The appellant recovered its consequential losses including $79,000 for lost revenue and $91,015.19 for freight. The temporary replacement arrived within three days of the accident (T 59, 298) and was returned to the parent in Antwerp on 30 May 1998. The appellant incurred freight costs for the delivery of the replacement from Singapore (T 241) and its re-delivery at Antwerp (T 61-2). The award for lost revenue relates to the periods between the accident and the arrival of the permanent replacement in August 1998 (T 61) when the appellant lost revenue because it was without a screen of this type.
8 The Judge acknowledged that an award of interest on the value of a lost chattel would be "usual ... unless there are special circumstances". He said that the arrangements with the parent for the purchase of the screen had not been explained, and there was no evidence that the appellant would have to pay interest on the purchase price. He was not satisfied that any real or practical loss had been suffered by the appellant as a result of the delay in payment of this part of the damages and he declined to award this interest.
9 His Honour's reference to real and practical losses reflects the principle stated in Fire and All Risks Insurance Co Ltd v Callinan [1978] HCA 31; (1978) 140 CLR 427, 432 where in a joint judgment five Justices said:
"In the case of loss of earning capacity, interest should ... be allowed only on that part of the damages awarded under that head which represents compensation for those detriments the practical impact of which, in terms of economic loss actually incurred, has already, at the date of judgment, been experienced by the plaintiff." (emphasis supplied)
10 This passage was applied in Batchelor v Burke [1981] HCA 30; (1981) 148 CLR 448, 451 by Gibbs CJ who gave the principal judgment.
11 The appellant contended that the Judge erred in principle in refusing to award this interest. It owned a chattel which was destroyed and on the day of its loss was entitled to damages for its value. It had been kept out of its money until judgment was given on 14 November 2002 and should be compensated for the delay in receiving money to which it was legally entitled.
12 The appellant's proposition is supported by the general principles, which govern the exercise of a statutory power to award interest. The Court said in MBP (SA) Pty Ltd v Gogic [1991] HCA 3; (1991) 171 CLR 657, 663:
"The function of an award of interest is to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period."
13 This passage was applied in the joint judgment in Grincelis v House [2000] HCA 42; (2000) 201 CLR 321, 328. In Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60, 66 the majority said:
"... it is the award of damages and, where appropriate, interest ... for the period up until the judgment takes effect which allows the plaintiff to be ... restored to the situation, as far as money can do, in which he or she would have been but for the defendant's negligence."
14 However the complex facts of this case require a fuller analysis of the factors which govern an award of interest. The appellant owned the screen but had not paid for it when judgment was given. It lost the screen, and the use of the screen but in a real and practical sense had not lost its money because it had not paid for the screen. If it had paid for the screen before the accident the appellant would have lost both the price and the asset. As it was it only lost the asset. If it was liable to pay interest on the purchase price it would have incurred a liability which in a real and practical sense reflected the loss incurred by being kept out of its money prior to judgment. The appellant incurred no such liability.
15 Its claim for this interest, when it had neither paid the price nor incurred any liability for interest, is a claim that it suffered the same loss, calling for the same award of interest, as an owner who had paid for the chattel or was liable to pay interest on the purchase price. This appears to be contrary to principle because the real and practical loss in each of the latter cases seems greater than the real and practical loss in the former.
16 This problem does not appear to have been considered in any reported case but a plaintiff's entitlement to interest where it is insured against the loss has. In Harbutt's Plasticine Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447 CA (Harbutt's case) Lord Denning MR with the concurrence of the other Judges said at 468:
"The plaintiffs say that the Court should ignore the fact that they were insured, or have received insurance monies, and should give them full interest as if they had paid the cost of replacement out of their own pocket or borrowed money for the purpose. I think this goes too far. ... An award of interest is discretionary. It seems to me that the basis of an award of interest is that the defendant has kept the plaintiff out of his money; and the defendant has had the use of it himself. So he ought to compensate the plaintiff accordingly.
This reasoning does not apply when the plaintiff ... has in fact been indemnified by an insurance company. I do not think the plaintiff should recover interest for himself on the money when he has not been kept out of it."
17 However in H Cousins & Co Ltd v D & C Carriers Ltd [1971] 2 QB 230 CA the Court held that interest should be awarded in such cases in the normal way because the underwriters would be entitled by subrogation to the benefit of any award for the period after they had indemnified the insured. Widgery LJ said at 240:
"It is, I think, clear that it was uppermost in the mind of this Court in Harbutt's case that the interest in question would be retained by the plaintiff and not handed over to the insurers. This had been accepted by counsel on both sides in argument ... we have had the benefit of a full argument designed to show that ... interest awarded in respect of a period after the insurers had settled with the insured can be claimed by the insurers by subrogation."
18 His Lordship considered the subrogation principle and concluded that the assumption in the earlier case, that an indemnified plaintiff could retain an award of interest for its own benefit, was wrong and continued (243):
"I return therefore to Harbutt's case. The only point decided ... was that if the then plaintiffs would be entitled, as between themselves and the insurers, to retain the award of interest made by the trial judge, such award was an erroneous exercise of his discretion under the Act ..."
19 Davies LJ said (243) that the effect of the earlier decision was that if interest awarded for a period after the plaintiff had been indemnified would inure to its benefit "then interest ought not to be awarded, since such an award would result in the assured being over-compensated."
20 The difference in result did not flow from any difference in the principles governing the award of interest. In the first case Lord Denning MR rejected the submission that the plaintiff should recover interest "as if [it] had paid the cost of replacement out of [its] own pocket or borrowed money for the purpose". As Davies LJ said in the second case, if the assumption adopted in the first had been correct, the assured would have been over-compensated by the normal award of interest.
21 In the present case the appellant's parent has been kept out of its money because it neither received the purchase price nor became entitled to interest on it. In substance it has indemnified the appellant against those losses but is not subrogated to the appellant's rights against the respondents. It would seem that the principle stated by Lord Denning MR in Harbutt's case [16]: "I do not think the plaintiff should recover interest for himself on the money when he has not been kept out of it" should be applied.
22 The effect of payments received from third parties on awards of interest in personal injury cases was considered in Batchelor v Burke [1981] HCA 30; (1981) 148 CLR 448 and Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60. In the former Gibbs CJ, who gave the principal judgment, said at 451:
"... interest should not be awarded in respect of the respondent's loss of earnings before the trial, since that loss has been made good by the payments of workers' compensation, and the respondent has not suffered any financial detriment from a practical point of view." (emphasis supplied)
23 He considered (453) whether payments of weekly compensation should be ignored as collateral benefits and concluded (454-5) that they were not irrelevant when considering whether the plaintiff had suffered a practical detriment by his loss of earnings before trial. He said at 455:
"... when the plaintiff who has lost earnings has received compensation instead, he has not been out of pocket by reason of the failure to pay him damages, even though the compensation is repayable when the damages have been received."
24 The statute which required repayment of the compensation from damages recovered from a tortfeasor did not require it to be repaid with interest, and the employer could not recover interest under the Court's ordinary powers for the time before the worker received his damages. See Kwanchi Pty Ltd v Kocsis (1996) 40 NSWLR 270, 279.
25 In Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60 the Court extended this principle to lump sum compensation received for an injury for which damages were later recovered from the employer. The joint judgment stated at 72:
"If the [lump sum] payment is not taken into account for the purpose of making the interest calculation, the respondent will receive an award of interest in respect of that amount, notwithstanding that he has had the benefit of it before judgment. This result would not conform to the fundamental compensatory principle ... that the award of damages and interest on those damages should restore rather than improve the plaintiff's position." (emphasis supplied)
26 There was no general power to award interest on common law damages in England prior to s 3 of the Law Reform (Miscellaneous Provisions) Act 1934 and in this State prior to s 94 of the Supreme Court Act 1970. However, long before such legislation, the Admiralty Court awarded interest on damages on the same principles that have been applied to the statutory powers.
27 In collision cases involving the loss of a profit earning ship the Admiralty Court developed principles for awards of interest on the value of the ship and for the loss of profits from its use. The leading case is The Northumbria (1869) LR3Ad&Ec 6, 12 where Sir Robert Phillimore said:
"in the case of a vessel sunk with a cargo onboard, the restitutio in integrum was effected by a calculation of a probable value of the ship at the end of her voyage, and of the freight which she would have earned, making at the same time certain deductions as to the expenses which the owners must have incurred in order to complete the voyage ... and, e converso, giving interest on the value if not paid until after the probable end of the voyage. In the event of the vessel sunk having no cargo, then interest upon the value of the ship from the day of the collision was given; the reason being, that in the former case, by giving freight you had really given the interest on the use of the vessel during the interval between the collision and her arrival in port; whereas in the case of there being no cargo, there was no freight to represent the interest, and it was therefore expressly given. So that in the first case, to have given interest as well as freight would have been to place the sufferer in a better position than he would have been but for the collision; and, in the second case, to have refused him interest would have been to place him in a worse position on account of the collision than he would otherwise have been." (emphasis supplied)
28 In The Kate [1899] P 165, 174-5 Sir F. H. Jeune P said:
"Sir Robert Phillimore states that the value should be taken as at the end of the voyage, and therefore lets in freight or interest as an additional compensation ... The present case, which is that of a vessel without cargo, but under charter, being totally lost, is not exactly that contemplated by Sir Robert Phillimore; but it appears to me to follow from his judgment that the value of the vessel may in such case be taken as at the end of her voyage, and something allowed in respect of the period between the time of collision and the end of the voyage ... the profits under the charterparty should take the place of interest, as more accurately representing the loss to the owner, and may fairly be considered to be the equivalent of freight when a cargo is on board. Indeed I can see no distinction in principle between the case of freight when a cargo is on board and ... a charterparty under which cargo is to be taken."
29 These principles were applied in The Racine [1906] P 273 CA and The Philadelphia [1917] P 101 CA although in the latter case the Court declined to award the value of the ship at the end of its voyage because the market had risen. This line of decisions was approved by Lord Wright in Liesbosch Dredger v S. S. Edison [1933] UKHL 2; [1933] AC 449, 463.
30 The Admiralty cases are important because they recognise that interest and loss of earnings are alternative bases for assessing compensation and both should not be awarded for the same period.
31 An unusual feature of this case is that the appellant obtained a temporary replacement from its parent within three days of the loss without incurring any legal obligation to pay for its use apart from the freight to and from Australia. It thus succeeded in substantially mitigating its claim for loss of profits.
32 The appellant made no claim for loss of the use of its screen. Such claims have been allowed in respect of non-profit-earning ships under decisions of the House of Lords beginning with The Greta Holme [1897] AC 596. These decisions were considered by this Court in Anthanasopoulos v Moseley [2001] NSWCA 266; (2001) 52 NSWLR 262 where claims by motor vehicle owners for the cost of hiring vehicles, while their own were being repaired, were allowed because they had lost the use of their own vehicles. The hiring charges had been paid by their comprehensive insurer, although it was under no obligation to its insureds to do this, and there was no evidence that they were liable to reimburse the insurer. An application for special leave is pending.
33 In The Marpessa [1907] AC 241 and Admiralty Commissioners v S. S. Chekiang [1926] AC 637 interest on the depreciated value of non-profit-earning ships was awarded as damages for loss of their use. However in Admiralty Commissioners v S. S. Valeria [1922] 2 AC 242 this line of authority was held to have no application to claims for the loss of or damage to profit-earning ships. See also The Edison [1932] P 52 CA, 61 per Scrutton LJ.
34 Giles v Thompson [1993] UKHL 2; [1994] 1 AC 142 also involved claims to recover hiring charges while damaged vehicles were off the road. Lord Mustill said at 166:
"I now turn to the ... question whether the motorists ... proved that they have suffered recoverable loss ... The defendants say that they have not, because the cars were replaced by substitute vehicles which the motorists were able to use free of charge. In essence, it is said that the motorists have mitigated what would otherwise have been a valid claim for general damages reflecting their loss of the opportunity to make use of their own vehicles ... this contention admits a very short answer. In my judgment the motorists do not obtain the replacing vehicle free of charge ... In the light of this conclusion I find it unnecessary to discuss ... what the position would have been if the use of the substitute car really had been free; as, for example, if it had been lent by a kindly friend."
35 The question arose again in Dimond v Lovell [2002] 1 AC 384 where the owner had hired a replacement vehicle under an agreement made unenforceable by the Consumer Credit Act 1974. Lord Hoffmann said at 398, 400:
"[The appellant's] next point was that it did not matter whether Mrs Dimond was liable to pay for the hire ... The fact was that Mr Lovell had negligently deprived her of eight days' use of her [vehicle]. This was her loss and the fact that she had been lucky enough to obtain the use of another car for nothing was, as one used to say, res inter alios acta. It should not affect Mr Lovell's liability, anymore than if a friendly neighbour who happened to be going on holiday had put his car at her disposal. ... A general principle that benefits provided by third parties are res inter alios acta is obviously strongly supportive of [the appellant's] argument."
36 He referred to Donnelly v Joyce [1974] QB 454 CA (followed in Griffiths v Kerkemeyer [1977] HCA 45; (1977) 139 CLR 161), and to Hunt v Severs [1992] 2 AC 350 where the House of Lords rejected the broad res inter alios acta principle of Donnelly v Joyce. In the latter case the House treated the situations mentioned by Lord Reid in Parry v Cleaver [1969] UKHL 2; [1970] AC 1, 14, namely receipts from insurance and from benevolent third parties, as apparent exceptions to the rule against double recovery and declined to create another exception for services provided voluntarily by a third party. (In Kars v Kars [1996] HCA 37; (1996) 187 CLR 354 the High Court declined to follow Hunt v Severs on this point). Lord Hoffmann concluded at 400:
"The only way ... in which Mrs Dimond could recover damages for the notional cost of hiring a car which she has actually had for free is if Your Lordships were willing to create another exception to the rule against double recovery. I can see no basis for doing so ... There is no reason of policy why ... Mrs Dimond should be able to retain that benefit and make a double recovery rather than that it should reduce the liability of Mr Lovell's insurers."
37 In the insurance and workers' compensation cases the payments taken into account in awarding interest, were made under a legal obligation. However the existence of such an obligation is not sufficient because payments under accident policies do not reduce a plaintiff's damages: Bradburn v The Great Western Railway Co (1874) LR10Exch 1; Manser v Spry [1994] HCA 50; (1994) 181 CLR 428, 436. The same principle applies to pension and superannuation payments purchased or provided by the plaintiff, in whole or in part, to which he is legally entitled: Paff v Speed [1961] HCA 14; (1961) 105 CLR 549; Jones v Gleeson (1965) 39 ALJR 258. This principle was also applied to a social security invalid pension: Redding v Lee [1983] HCA 16; (1983) 151 CLR 117.
38 The authorities dealing with statutory payments by third parties were reviewed in Manser v Spry [1994] HCA 50; (1994) 181 CLR 428 and Harris v Commercial Minerals Ltd (1996) 186 CLR 1. In the former the Court, in its joint judgment at 434-5, quoted the following from the joint judgment in Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60, 63:
"The settled principle governing the assessment of compensatory damages ... is that the injured party should receive ... a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed ... Compensation is the cardinal concept ... which must control all else ... Cognate with this concept is the rule ... that a plaintiff cannot recover more than he or she has lost."
39 At 436-7 the Court in the later said:
"To ascertain whether a statutory benefit possesses the `distinguishing characteristic' that it is to be enjoyed independently of, and cumulatively upon, the right to damages, the court must endeavour to discover the intention of the legislature.
There are three possible indicia of a relevant legislative intention: the financial source of the benefit, the presence of a provision which requires a repayment ... out of the damages ... and the nature of the benefit. If a scheme for provision of a benefit be funded by contributions made by employers and employee-beneficiaries as a kind of insurance against misfortune, the principle in Bradburn v Great Western Railway Co indicates that the benefit is to be enjoyed ... without reduction of the damages ... If statute provides that a particular benefit is to be repaid out of damages, there is a clear indication that that benefit is not to go in reduction of the tortfeasor's liability ...
Finally, if all indicia of intent fail, the `settled principle governing the assessment of compensatory damages' which the majority stated in Haines v Bendall must be applied."
40 The benefits obtained by the appellant from its parent had no statutory basis and were voluntary. However the established exceptions for insurance receipts and voluntary payments motivated by benevolence have one or both of these characteristics. It seems that, outside the established exceptions, which in Australia include that established by Griffiths v Kerkemeyer and confirmed in Kars v Kars [1996] HCA 37; (1996) 187 CLR 354, and benefits provided by statute, this Court should apply the settled principle stated in Haines v Bendall [38].
41 The decisions emphasise the discretionary nature of an award of interest under a statutory power and the need to avoid over-compensation which would "improve the plaintiff's position" [25]. In Harbutt's case [1970] 1 QB 447 Lord Denning MR said at 468:
"In assessing damages, we ignore ... the fact that the plaintiffs are insured. But, in awarding interest, it is different. An award of interest is discretionary. It seems to me that the basis of an award of interest is that the defendant has kept the plaintiff out of his money ...
This reasoning does not apply when the plaintiff ... has in fact been indemnified by an insurance company. I do not think the plaintiff should recover interest for himself on the money when he has not been kept out of it. The receipt from the insurance company should go in relief of the defendants."
42 In Giles v Thompson [1993] UKHL 2; [1994] 1 AC 142 the House of Lords rejected a claim for interest on hiring charges for a replacement vehicle. Lord Mustill said (167-8):
"The argument ... proceeds on the basis that the motorist's cause of action against the defendant, and the financial loss resulting from it, came into existence at the moment of the accident, and was later quantified ... when the hiring period came to an end. At this time, so the argument runs, the defendant should have recompensed the motorist for her loss. Thereafter, she was kept out of her money, a detriment for which she should be recompensed by an award of interest.
Although this argument seemed logical at first sight, it ignores the fact that the power to award interest is discretionary, and that the exercise of this power should correspond with reality. In the present case although the motorist incurred a genuine liability for the hire charges day by day, it was not a liability capable of immediate enforcement by the hire company. In both practical and legal terms the financial position of the motorist was wholly unaffected by the defendant's failure to make immediate payment, since ... until judgment was given she was not obliged to pay the hiring charges ... Thus, although an award of interest is always discretionary, I am unable to detect any grounds on which ... the discretion could properly be exercised in favour of the motorist." (emphasis supplied)
43 The trial Judge's reference to interest being refused where there is no "real or practical loss" is directly supported by the High Court decisions referred to in [9] and [22], and this speech of Lord Mustill.
44 The parent, by forbearing to require payment of the price or to exact an obligation to pay interest, may have intended to benefit its subsidiary or perhaps the matter was simply overlooked. It would not be appropriate to apply the principle that payments motivated by sympathy or benevolence are to be disregarded to benefits conferred by inadvertence.
45 It is also inappropriate, in the absence of evidence, to apply that principle to business dealings between a subsidiary and its parent. If the benefits were deliberately conferred the parent may have made a hard headed business decision taking into account matters such as anticipated movements in exchange or interest rates, taxation advantages including profit deferral or profit shifting, and the appellant's need for working capital. The companies may also have been advised that the appellant could recover this interest for its own benefit.
46 Harbutt's case [41], Batchelor v Burke and Haines v Bendall [22-5] establish that matters which are irrelevant in the assessment of damages may be relevant to the award of interest.
47 If the appellant is awarded this interest, on the evidence before the Court, it will be entitled to retain it for its own benefit. Such an award would "improve" the appellant's position rather than simply "restore" it [25].
48 The appellant did not give evidence of what it intended to do with this part of the damages when received. If it intended to immediately pay the debt to its parent it would be clear that the parent alone had been kept out of its money and an award of this interest would not be justified. The position would be otherwise if the appellant was entitled, by arrangement with its parent, to retain the money for a significant period.
49 Subject to any adjustment required to prevent awards of interest and loss of profits for the same period an award of this interest would have followed as a matter of course if the appellant had paid for the screen, received it as a gift, or been obliged to pay interest on the purchase price. Thus in Metal Box Ltd v Currys Ltd [1988] 1 WLR 175 McNeill J allowed interest on damages awarded for the loss of stock in trade in a warehouse destroyed by fire without proof of consequential loss. See at 178, 180. However the ordinary inference in such a case is that the plaintiff had incurred costs in purchasing or manufacturing the stock.
50 If the appellant had been liable to pay interest to its parent at less than gazetted rates the Court would have adopted the lower rate to ensure that the "interest should restore rather than improve the plaintiff's position" [25]. If the appellant's interest recovery in such a case would be capped by its interest liability, no interest should be awarded where money has not been paid and there is no interest liability.
51 The appellant would not be entitled, in any event, to interest for the whole period between the casualty and judgment. For some of that period it has been compensated by an award for loss of profits and the principle in The Northumbria [27] denies recovery of interest and profits for the same period. The parties' agreement as to quantum may have taken this into account, but if not it would have been necessary to disallow interest for the periods covered by the award for loss of profits, and to ask the parties to bring in short minutes with an adjusted figure.
52 In my judgment the appeal fails and should be dismissed with costs.
53 SHELLER JA: I have had the benefit of reading in draft the judgments prepared by Handley and Tobias JJA. Their Honours' review of the cases helps to resolve a problem which poses at least theoretical difficulties. The trial Judge compensated the plaintiff with damages for lost revenue for the period before a replacement screen became available.
54 In an accounting sense on destruction an asset goes from the balance sheet and is replaced, if appropriate, by a claim against a third party or insurer for monetary compensation which may not, in fact almost certainly will not, bear fruit for a period of time. That loss of the use of that money for that period is ordinarily compensated for by an award of interest. It should make no difference that a comparable asset is acquired by purchase or hire or loan or gift capable of producing the revenue lost when the original asset was destroyed. This no doubt explains awards of interest where the loss is of a non-income earning asset.
55 Nothing is known in the present case about how the damaged screen was treated in the books of the plaintiff. Conceivably the plaintiff may have been under a liability to pay a price for the asset which was forgiven or partially forgiven when it was damaged.
56 For the reasons given by the other members of the Court I am content to accept that it has not been shown by the plaintiff that the loss of the use of money in the form of compensatory damages for the damage to the screen was a real and practical one and not merely theoretical. On that basis, and in light of the material to which their Honours have referred, I agree with the order proposed.
57 TOBIAS JA: This is an appeal from a decision of McClellan J given on 16 September 2002 and 11 November 2002, whereby his Honour awarded damages to the appellant for negligence and breach of contract by the first and second respondents. The issue on the appeal pertains solely to the question of whether his Honour should have added interest to the damages awarded for a particular category of loss.
The facts
58 The appellant is a company which supplies video screens to the organisers of sporting fixtures throughout Australia and overseas. In February 1998, it contracted with the organisers of the 1998 Australian Grand Prix to supply a number of screens, one of which was a large screen known as a "Jumbotron" screen (the screen), consisting of 16 modules.
59 On 21 October 1997, the appellant entered into an agreement to lease the screen from its United Kingdom parent company, Screenco Limited (the parent), upon condition that it be returned on or before 15 May 1998 in good working order and condition.
60 Although the evidence before the primary Judge on the matter was sketchy, it appears that sometime between October 1997 and March 1998, the appellant had agreed to purchase the screen from its parent at a price equivalent to its written-down value, which was agreed at £477,984. As at the date of judgment, the appellant had not paid the purchase price of the screen to its parent. This, according to the primary Judge, was due to "arrangements" made between the parties to that transaction which remained "unexplained".
61 The appellant entered into a contract with the first respondent, a scaffolding contractor, for the erection of the scaffolding required to support the screen. The first respondent then entered into a contract with the second respondent to construct the necessary scaffolding.
62 On 3 March 1998, the structure supporting the screen collapsed. It was alleged, and ultimately found by the primary Judge, that the main beam incorporated into the scaffolding was inadequate to support the weight of the screen. The screen was extensively damaged, much of it beyond repair.
The proceedings before the primary Judge
63 The appellant brought an action against the first respondent for breach of contract and against the second respondent for negligence and breach of the Fair Trading Act 1985 (Vic). The primary Judge found in favour of the appellant against both respondents. In particular, his Honour found that the first respondent was liable to the appellant for breach of contract and that the second respondent was liable to the appellant in negligence.
64 A number of items of damage were claimed by the appellant. The major component of the appellant's claim related to the loss of twelve complete modules of the screen. The balance of its claim related to consequential losses arising out of the destruction of the screen, including the cost of temporarily replacing the screen and lost revenue. The parties agreed on all items of damage and their quantum, other than the value of the screen. Ultimately the primary Judge found that the value of the screen as written down in the books of the parent was the appropriate measure of damage recoverable by the appellant in respect of its destruction. Based on the relevant rate of exchange, this item of damage amounted to $1,152,897.40.
65 The total damages awarded by the primary Judge amounted to $1,461,045.57. This amount included the agreed value of the screen together with consequential losses, including the agreed sum of $79,000.00 for "lost revenue" which the primary Judge held reflected income lost to the appellant before a replacement screen became available. The award also included interest under s 94 of the Supreme Court Act (the Act), payable upon all items of damage other than the value of the screen. His Honour refused to award interest in relation to that part of the damages attributable to the value of the screen and it is that particular decision which is the subject of the appeal before this Court. The parties have agreed that the quantum of this interest, should it be awarded, is $537,044.88.
The primary Judge's decision
66 The primary Judge summarised the principles applicable to an award of interest pursuant to s 94 of the Act as follows:
"5. A successful plaintiff who obtains an award of damages is generally entitled to an award of interest up to the date of judgment pursuant to s 94 of the Supreme Court Act (see Ruby v Marsh [1975] HCA 32; (1975) 132 CLR 642 at 644).
6. The fundamental principle is that interest is ordered "simply because the plaintiff has been of the use of money which was due to him". BP Exploration Co (Libya) Ltd v Hunt (No 2) (1979) 1 WLR 783 at 845. Interest is not awarded as a punishment, but "is awarded because it is only just that the person who has been deprived of the use of the money due to him should be paid interest on that money for the period during which he was deprived of that enjoyment" (General Tire & Rubber Co v Firestone Tyre & Rubber Co Ld (1975) 1 WLR 819 at 841; and see the comprehensive discussion by Beaumont and Einfeld JJ in SCI Operations Pty Ltd & ACI Operations Pty Ltd v Commonwealth of Australia (1996) 69 FCR 346).
7. In John Fairfax & Sons Ltd v Kelly (1987) 8 NSWLR 131 McHugh JA identified the fact that interest is "awarded to compensate the plaintiff for the loss which he suffers in being kept out of his money" (Batchelor v Burke [1981] HCA 30; (1981) 148 CLR 448 at 455). Ordinarily a plaintiff "is not entitled to interest on damages in respect of payments which he has not made and which in point of legal theory are payable by him to a third party:" (Settree v Roberts [1982] 1 NSWLR 649). Interest should be "awarded for real and practical, and not merely theoretical losses:" (Fire and All risks Insurance Co Ltd v Callinan (1978) 140 CLR at 432; Thompson v Faraonio [1917] HCA 36; (1979) 54 ALJR 231 at 233).
8. In Pheeney v Doolan (No 2) [1977] NSWLR 601 Reynolds JA described the discretion given by s 94 as providing an ancillary power the purpose for which "is to aid the court to do more complete justice between the parties than is otherwise possible." Its purpose is to provide compensation "where it is otherwise appropriate to do so for the circumstance that a sum of money has been outstanding to him for a period of time." (at 613).
9. Many of the decisions in which the exercise of the discretion to award interest has been discussed involve personal injuries. The fact that interest may be awarded when no payment has actually been made has been recognised in Grincelis v House [2000] HCA 42; (2000) 201 CLR 321. It is important to appreciate that not only may a plaintiff have been deprived of money but also the defendant may have had the use of money to which it was not entitled, since the date when the cause of action arose. However, the overriding purpose of an award of interest is to ensure that in the particular circumstances, the plaintiff is justly compensated. "
67 The primary Judge's conclusion in relation to the award of interest on the damages attributable to the loss of the screen was expressed in the following terms:
"10. The Jumbotron screen was lost on 3 March 1998 in the circumstances I have already identified. The quantum of damages for that loss have been assessed, by the agreement of the parties, by considering the value of the screen in pounds sterling at the date of its loss and converting that sum to Australian dollars. In these circumstances it would be usual, if Screenco is to be properly compensated, that interest should be awarded from 3 March 1998 until the date of judgment unless there are special circumstances. (Ruby v Marsh).
11. As it happens, at the date of the accident, Screenco was in the process of purchasing the screen from its English "parent" company but had not made any payment for it and has still not done so. This is apparently because of arrangements which it has been able to make with the "parent" company. However, those arrangements have not been explained by the evidence and there is nothing before me to confirm that Screenco will either have to make payment for the screen or more importantly, pay any amount of interest. If Screenco was required to carry an interest charge or, perhaps, because of currency movements it might otherwise suffer loss because of a delay in payment, it would probably be entitled to interest. However, in the present circumstances I am not satisfied that any "real" or "practical" loss has been occasioned to Screenco by the delay in the payment of damages. Accordingly, interest should not be awarded in relation to the damages attributable to the loss of the screen. "
68 As I have already observed, the primary Judge awarded interest on the agreed quantum of all other items of damage, including the lost revenue of $79,000.00. So far as the latter item was concerned, his Honour held that this was money the receipt of which had been denied to the appellant, and therefore should carry an award of interest pursuant to s 94.
The appellant's submissions
69 It was accepted that the purpose of an award of interest pursuant to s 94 of the Act is to compensate for loss occasioned to a successful party by virtue of having been kept out of his or her damages between the time the cause of action arose and the date of judgment. The appellant submitted that notwithstanding the fact that s 94 is cast in discretionary terms, the courts have repeatedly stated the proposition that an exercise of the s 94 discretion must proceed from the assumption that an award of interest will almost invariably be appropriate. It is said that this is necessary in order to ensure that the successful party is fully compensated for the damage it has sustained.
70 The appellant submitted that the primary Judge erred in the exercise of his discretion in the following respects:
(a) in so far as his Honour relied on Settree v Roberts and other personal injury cases to support the proposition that the appellant was not entitled to interest as it had not suffered a loss in respect of the screen because it had not yet paid the purchase price to its parent, he erred as the principal decision relied on, Settree v Roberts, had been overruled by a majority of the High Court in Grincelis v House;
(b) the question of whether the appellant had paid the purchase price of the screen to its parent was an irrelevant consideration in the exercise of the discretion embodied in s 94;
(c) given that the primary Judge accepted that interest should be "awarded for real and practical and not merely theoretical losses", there could be no doubt that the screen was lost to the appellant in a real and practical sense on the date that it collapsed. Accordingly, the appellant suffered a "real and practical loss" from that date to judgment. As it was kept out of the damages to which it was entitled in respect of that loss, it should have been awarded interest on that sum for that period;
(d) in any event, there was no onus upon the appellant to "explain" whether it proposed to pay for the screen and/or whether its parent would charge interest on the unpaid purchase price. This is particularly so in light of the fact that the appellant sought leave to adduce evidence with respect to these matters but was prevented from doing so by the primary Judge (this last mentioned factual assertion did not appear to be challenged by the respondents);
(e) if there was to be a departure from the prima facie position that a successful party was entitled to interest for being kept out of its judgment money, the evidentiary onus lay upon the respondents to prove such facts as were necessary to justify that departure. In this case, no such facts were either proved or found. The fact that the "arrangements" between the appellant and its parent remained "unexplained" did not provide an adequate reason to depart from the usual position with respect to the awarding of s 94 interest;
(f) accordingly, the primary Judge's discretion miscarried.
The respondents' submissions
71 The respondents submitted that:
(a) given that an award of interest under s 94 of the Act involves the exercise of a discretionary power, the appellant could only succeed in this Court if it demonstrated that the primary Judge's exercise of that discretion was other than in accordance with principle;
(b) although the general purpose of the statutory discretion justifies the proposition that an award of interest will usually (or "almost invariably") be appropriate as "just compensation" for the delay in payment of the judgment sum, a successful plaintiff does not have an automatic right to interest and bears the onus of establishing a sufficient reason for an exercise of the discretion in its favour;
(c) the principle informing the exercise of the statutory discretion is "just" compensation for the loss of the use of money involved in the delay between damage and judgment. In claims involving property damage or economic loss, the relevant questions are:
(i) what damage/loss has been suffered;
(ii) what is the plaintiff's position at the time of judgment in relation to that damage or loss; and
(iii) what is necessary to put the plaintiff in a position equivalent to its "but for the damage/loss" position;
(d) accordingly, the critical question in the present case was: "what is the plaintiff's position at judgment?" There are only two answers to this question, namely:
(i) that the appellant had not paid the contract price for the screen; and
(ii) it continued to earn, or was fully compensated for, all the income that it would have earned but for the damage/loss of the screen;
(e) in the foregoing circumstances, it was reasonably open to the primary Judge to conclude that no compensatory principle required the respondents to pay pre-judgment interest on that component of the judgment sum representing the value of the loss of the screen.
72 It was further submitted that the primary Judge correctly identified the following concepts as informing the proper exercise of the relevant discretion:
(a) the "fundamental principle" that interest is "generally" payable to a successful plaintiff exists because an award of interest represents "just compensation" for being "deprived of the use of money";
(b) nevertheless, there must be a "real and practical loss" resulting from delay in the payment of damages; and
(c) interest ought not be awarded on "losses" for which the plaintiff has in fact been compensated prior to judgment.
73 It was also submitted that in applying these basic principles, the primary Judge properly recognised that:
(a) where damages compensate for economic or financial loss, interest ought only be awarded where actual loss (and not merely liability) has been incurred in the pre-judgment period; and
(b) the present case was different to those, such as personal injury cases, where damages compensate for non-economic loss and where interest may be awarded as part of the compensation for that loss, notwithstanding that the plaintiff has not incurred a corresponding expense.
74 In the application of the foregoing principles, the respondents referred to the following factual considerations:
(a) the screen had been temporarily replaced by the parent without cost to the appellant within three days of its loss. The cost of returning the temporary screen to Antwerp by 30 May 1998 was incorporated into the quantum of damages awarded (together with interest thereon);
(b) by August 1998, the appellant had obtained a permanent replacement of the screen which consisted of new and less expensive technology;
(c) the appellant recovered damages for lost revenue associated with the use of the temporary replacement screen between the date of its arrival and the date of its return to Antwerp. There was apparently no loss sustained by the appellant between the time when the temporary replacement screen was returned to Antwerp and the time when a new permanent replacement screen was obtained (being the period between May 1998 and August 1998);
(d) although the appellant had agreed to purchase the screen from its parent and the parties agreed that it had title thereto, it had neither paid the purchase price nor, so far as the evidence revealed, incurred any interest cost in relation to the non-payment thereof;
(e) it was to be inferred (and the primary Judge did so infer) that the non-payment of the purchase price was a result of arrangements made between the appellant and its parent following the loss of the screen; and
(f) it was common ground that there was no relevant market for second-hand "Jumbotron" screens. This was, however, due to a lack of vendors, not to a lack of prospective purchasers who, had such a screen been available, would have paid the "as new" cost for it.
75 According to the respondents, it therefore followed that the primary Judge was entitled to approach the exercise of the statutory discretion vested in him by s 94 of the Act on the basis that the appellant had suffered no uncompensated loss in regards to the use of the screen or its revenue generating potential; that it had not incurred any interest-related cost to its parent as a result of the delay in payment of the value of the screen; that it would not incur any future expenses in relation to "making good" the damage to the screen; and that it had not been deprived of any funds as a result of that damage.
76 Accordingly, the respondents submitted that the appellant had suffered no "real or practical" loss resulting from the delay in the payment of the damages representing the value of the screen, so that to now award the appellant interest on those damages would result in over-compensation. This was particularly the case where the appellant had been awarded damages (together with interest thereon) in respect of all losses consequential upon the destruction of the screen and those damages served to place the appellant in the same position as it would have been in had the screen not been destroyed.
The modern authorities
77 I have already set out a summary of the principles adopted by the primary Judge. These were not in dispute. However, it is necessary to refer further to some of the relevant authorities.
78 In Grincelis v House [2000] HCA 42; (2000) 201 CLR 321 at 328 [16], the majority joint judgment of the High Court cited with obvious approval the following passage from the judgment of that Court in MBP(SA) Pty Limited v Gogic [1991] HCA 3; (1991) 171 CLR 657 at 663:
"The function of an award of interest is to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period."
The joint judgment then continued:
"There is no doubt that this is a very important purpose of statutory provisions providing for the award of interest on the amount of a debt or damages in respect of the period between the cause of action accruing (or, in some statutory provisions, the commencement of proceedings) and the date of judgment."
79 Like Gogic, Grincelis was a personal injury case. In the case of non-economic loss (that is to say, general damages for pain and suffering and the loss of the amenities of life), it has always been accepted that interest is awarded on such damages from the date that the injuries were suffered (which is when the cause of action arose) to the date of judgment. However, that has not necessarily been the case with respect to economic or financial loss, such as loss of earnings in personal injury cases. Thus, in Bachelor v Burke [1981] HCA 30; (1981) 148 CLR 448, Gibbs CJ (with whom Aickin, Wilson and Brennan JJ agreed) at 451 cited the statement of principle articulated by the High Court in Fire and All Risks Insurance Co Ltd v Callinan [1978] HCA 31; (1978) 140 CLR 427 at 432 that in the case of loss of earning capacity, interest should be allowed:
"only on that part of the damages awarded under that head which represents compensation for those detriments the practical impact of which, in terms of economic loss actually incurred, has already, at the date of judgment, been experienced by the plaintiff." (my emphasis)
His Honour then applied this principle on the basis that interest should not be awarded in respect of the plaintiff's loss of earnings before the trial since that loss had been made good by the payment of workers compensation and the plaintiff had therefore not suffered any financial detriment from a practical point of view.
80 In the same case, Murphy J succinctly put the matter in the following terms (at 455):
"Interest should not be awarded on the basis that the plaintiff was deprived of a sum or sums of money representing his probable earnings or part of his earnings when the fact is that by operation the (Workers Compensation) Act he was not deprived of them. To the extent that his earnings were made up by workers compensation he suffered no deprivation."
81 There is, of course, no doubt that the power to award interest pursuant to s 94 is discretionary. As Moffitt P said in Pheeney v Doolan (No 2) (1977) 1 NSWLR 601 at 605B (also a personal injury case):
"While the essential nature of the award is to compensate a plaintiff by reason of delay in payment of moneys, there is no entitlement to interest. The court must be persuaded that it is just, between the plaintiff and defendant, to make an order of interest in relation to each of the elements referred to in the section, namely the rate, the sum to bear interest, and the period for which interest is to accrue."
82 In the same case, Reynolds JA observed (at 613) that the purpose of s 94 is:
"....to aid the court to do more complete justice between the parties than otherwise possible. It does not confer a substantive right to interest upon creditors and persons who have suffered injury to personal property, and its application is dependent upon proceedings being instituted in the Supreme Court and continuing to judgment. It is not designed to compensate a plaintiff for loss arising out of cause of action, but to provide compensation where it is otherwise appropriate to do so for the circumstance that a sum of money has been outstanding to him for a period of time."
83 His Honour noted (at 614) that in the case of debt, breach of contract or damage to property, the award of interest prior to judgment has not occasioned great difficulty. He continued:
"The first of the competing views is based upon the concept that, when a cause of action arises giving rise to a claim for a money sum, whether debt or damages, the whole of the debt or damages ultimately found by the Court to be due should in law have been paid at the moment the cause of action was complete or, at the latest, when proceedings were commenced. This being so, prima facie, the plaintiff is, from the time the cause of action arose, or the institution of proceedings, thenceforth out of his money until judgment and, therefore, should have his interest on the whole sum for the whole period. This I would call a conceptual approach."
It is also the approach advocated by the appellant in this case.
84 Although speaking in the context of personal injury claims, Reynolds JA (at 615) proceeded to articulate what he referred to as a "competing view" in the following terms:
"The other view is that it is permissible, notwithstanding the underlying concept of the role and function of an award of damages, to go behind the lump sum award and dissect it for the purpose of determining in what respect the plaintiff has been financially disadvantaged by delay."
His Honour then referred to the majority view in Ruby v Marsh [1975] HCA 32; (1975) 132 CLR 642 and continued:
"Without attempting a precise analysis to determine a ratio decidendi in that case, which concerned a matter of statutory construction, it is possible to discern a prevailing view against a doctrine that the conceptual approach, that the loss which a plaintiff suffers is exchanged for a notional investment fund at the moment of its initial infliction, is of controlling effect in determining what is a proper allowance of interest. That case decides that the conceptual approach should not be driven to unacceptable conclusions."
85 Later (at 616A-C) he expressed his conclusion in these terms:
"The courts, speaking generally, have, in the case of claims for death or personal injury, declined to allow the simple conceptual approach to govern a situation or over-ride other considerations. They have, on the other hand, been prepared, where that is possible, to look to the purpose and function of the components which go to make up the total award to resolve the question as to whether it can be said, as a matter of practicality and justice, that the plaintiff has been denied part of his money for the whole or part of the pre-trial period and that the defendant has had the use of it, so that he should pay the price of that use. If the cause of action is debt, the answer will generally be fairly obvious,..."
His Honour (at 617E) then warned that an award of interest, which resulted in the over-compensation of a plaintiff, did not constitute a due exercise of discretion. This is consistent with the statement of McHugh JA (with whom Kirby P agreed) in John Fairfax & Sons v Kelly (1987) 8 NSWLR 131 at 142G that:
"(t)he settled doctrine of the Australian courts relating to awards of interest requires that interest should be awarded for real and practical and not merely theoretical, losses." (emphasis supplied)
86 In Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60 (also a personal injury case), the majority articulated (at 63) the settled principle governing the assessment of compensatory damages (in both tort and contract) that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been but for the breach. It then stated (at 66) (omitting citations):
"An award of interest up to the date of judgment is an award of interest in the nature of damages. This statement acknowledges that the award of interest is an integral element in the attainment of the object of damages, namely, to compensate a plaintiff for injuries sustained. Hence the award of interest is compensatory in character in Thomson v Faraonio the Privy Council stated that `(t)he reason for awarding interest is to compensate the plaintiff for having been kept out of money which theoretically was due to him at the date of the accident'. (emphasis added) The award of interest for the period of delay in payment between the date of accrual of the cause of action and judgment affords the fair legal measure of compensation. Thus, it is the award of damages and, where appropriate, interest awarded on damages for the period up until the judgment takes effect which allows the plaintiff to be placed in or restored to the situation, as far as money can do, in which he or she would have been but for the defendant's negligence."
87 Their Honours went on to consider the effect of a payment to the plaintiff under s 16 of the Workers Compensation Act (1926) (NSW) prior to judgment and continued (at 72):
"If the s 16 payment is not taken into account for the purpose of making the interest calculation, the respondent will receive an award of interest in respect of that amount, notwithstanding that he has had the benefit of it before judgment. This result would not conform to the fundamental compensatory principle stated at the beginning of this judgment that the award of damages and interest on those damages should restore rather than improve the plaintiff's position and that interest should be awarded only when a plaintiff is being kept out of money due to him or her." (my emphasis).
88 Finally, reference may be made to the following passage in the judgment of Kirby J in Victorian Workcover Authority v Esso Australia Ltd [2001] HCA 53; (2001) 207 CLR 520 at 547 [71]:
"Inflation erodes the value to parties kept out of their moneys of the sum ultimately recovered in proceedings in a court. That is why Lord Wilberforce explained that statutory interest on judgments was intended to do no more than to `compensate' (the party successful in litigation) for being kept out of (the) `real' value of money. Especially in commercial transactions, between parties well able to use funds found to be owing to their financial advantage, the provision of interest pursuant to statute is a fulfilment of the general legislative purpose to provide the power and duty to courts to award such interest. Therefore, on the face of things, the provision to the appellants of interest upon the sum recovered by them in the present proceedings in the Supreme Court would represent no more than the fulfilment of a general objective of enacting the provisions of s 60 as part of the Supreme Court Act."
The foregoing passage, however, must be considered in light of the fact that s 60 of the Supreme Court Act 1986 (Vic) mandates the payment of interest unless good cause be shown to the contrary. It is to be contrasted with s 94 of the Act, which contains no such mandatory element.
89 Nevertheless, the above passage is pertinent in that it emphasises the need, particularly where commercial transactions are involved, to consider whether, as a matter of practical reality, the appellant did in fact sustain loss or detriment by virtue of being kept out of its judgment money. Further, as Clarke JA pointed out in Star v O'Brien (1996) 40 NSWLR 695 at 701G (albeit dissenting in the result), all the circumstances must be considered in order to ensure that an award of interest is substantially just for both parties. As his Honour observed, the general rule is not to be regarded as an inflexible maxim to be applied in all circumstances.
90 In my opinion, it follows from the foregoing considerations that pre-judgment interest is only to be awarded to a plaintiff where, as a consequence of being deprived of the use of the judgment money during the relevant period, it has suffered a real and practical loss or detriment for which it should be compensated in order to ensure that it is restored fully to the position in which it would have been but for the defendant's wrongdoing.
The practice in Admiralty
91 At the end of the hearing before this Court, counsel for both parties were requested to provide supplementary written submissions with respect to the practice in Admiralty regarding the payment of interest where a vessel was lost. Those submissions were duly provided and the second respondent in particular analysed the Admiralty cases in some detail.
92 The relevant practice in Admiralty was summarised in Roscoe on the Admiralty Jurisdiction & Practice of the High Court of Justice, 4th ed (1920) at 396 in the following terms:
"By the report interest, usually at the rate of 4% per annum, is allowed on the amount awarded from a date stated in the report; usually in cases of damage from the date of the payment of the principal bill...but the matter is one for the discretion of the registrar. The object of awarding this interest is to give the claimant as nearly as may be restitutio in integrum.
As regards the application of the principle: when a vessel is totally lost, if she is (1) in ballast, interest will generally be allowed from the date of her loss: The Northumbria (1869), 3 Ad. & Ecc. 6; (2) if she is under charter but not loaded, and a sum in respect of freight is allowed, interest will usually run from the date at which it is assumed the freight would have been received: The Kate (1899) P.161; (3) when a vessel has cargo on board interest is generally allowed from the assumed end of the voyage and payment of the freight: The Northumbria, supra."
93 It seems to have been generally accepted that the practice in Admiralty with respect to the payment of interest was authoritatively described in the judgment of Sir Robert Phillimore in The Northumbria, where his Lordship said (at 12):
"The practice under the old law, which decreed a restitutio in integrum by the wrongdoer to the sufferer, was as follows: - In the case of a vessel sunk with a cargo on board, the restitutio in integrum was effected by a calculation of the probable value of the ship at the end of her voyage, and of the freight which she would have earned, making at the same time certain deductions as to the expenses which the owners must have incurred in order to complete the voyage, such as the wages of the crew, &c., and also making a deduction for the discount if the value found were paid before the probable end of the voyage....In the event of the vessel being sunk having no cargo, then interest upon the value of the ship from the day of the collision was given; the reason being, that in the former case, by giving freight you had really given the interest on the use of the vessel during the interval between the collision and her arrival in port; whereas, in the case of there being no cargo, there was no freight to represent the interest, and it was therefore expressly given. So that, in the first case, to have given interest as well as freight would have been to place the sufferer in a better position than he would have been but for the collision; and in the second case, to have refused him interest would have been to place him in a worse position on account of the collision than he would otherwise have been; whereas the principle of restitutio in integrum is to replace the sufferer in the condition in which he was at the time when the wrong was done."
94 In The Kong Magnus (1891) P223, Sir Charles Butt, P. contrasted the rule which existed in collision suits in the Admiralty Division of the High Court of Justice with that which prevailed in a Common Law Court with respect to the inclusion of interest in damages awarded. As to the practice in Admiralty, his Lordship said (at 235):
"On the other hand, I presume the view of the Court of Admiralty has been that the person liable in damages, having kept the sum which ought to have been paid to the claimant, and having therefore been able to receive interest upon it, ought to be held to have received it for the person to whom the principal was payable. If the matter was res integra, I might be disposed to think that the more logical and better rule was that followed by a Court of Common Law; but I am not in a position to take that course because a clear and uniform rule has long existed in the Court which this tribunal now represents..."
His Lordship therefore refused to interfere with the reasons given by the Assistant Registrar, Mr E S Roscoe, in his report. The Assistant Registrar had described the basis for the award of interest in the following terms (at 236):
"As I understand the subject, interest has always been given by the registrar and merchants, not as interest on a judgment debt, but as part of the damages to represent the amount of profit arising from the use of the capital sum. The plaintiffs had for a number of years been deprived of the capital sum, and equally also of the profit derivable from it."
95 The above passage is consistent with the function of an award of interest as described in the modern authorities, namely, as compensation to a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period. The second respondent submitted that the complicated history of the Admiralty Practice yielded no clear statement of principle and offered but slender assistance in identifying the principles governing the modern statutory discretion encapsulated in s 94 of the Act. However, it did acknowledge that it was tolerably clear that the Admiralty practice recognised the need, at least where a limitation of liability did not apply, to discern the extent to which interest and damages for loss of income were alternative means of providing compensation. It was thus submitted that the cases established that an award of interest was not appropriate where the damages already compensated the claimant for income lost as a result of the collision.
96 In support of the above proposition, reliance was placed upon the decision of Sir Francis Jeune, P. in The Kate (1899) P165. Whilst proceeding in ballast from London to a North American port under charter to load a cargo for the Continent, the plaintiffs' barque came into collision with the defendants' steamer and was totally lost. The defendants admitted liability. In assessing damages, the registrar awarded a sum representing the value of the barque as at the date when she would have accomplished the homeward voyage, together with a sum for the loss of the profit which would have been realised under the charter. Interest was awarded on the total sum at 4% per annum, but only from the date when the barque might have been expected to arrive at its homeport at the end of the charter until payment.
97 It was argued that in the case of a total, as distinguished from a partial, loss of a vessel without cargo, the plaintiffs would only be entitled to the market value of the vessel at the time of loss. This was rejected by Sir Francis Jeune, P., who confirmed the report of the registrar that the proper measure of damage was the value of the vessel at the end of the voyage plus the profits lost under the charter party. After citing the passage of Sir Robert Phillimore from The Northumbria referred to in [37] above, his Lordship continued (at 174):
"It is clear, therefore, that in the opinion of Sir Robert Phillimore the practice was that if a vessel totally lost a cargo on board, the freight which she would have earned was to be allowed, and the value of the ship calculated as at the end of her voyage, and if she had no cargo on board interest was given from the time of the collision...Dr Lushington indicates that the value of the vessel is to be taken at the time of the collision, which does not, as I have suggested above, exclude a fact such as the existence of a profitable charter from being allowed to enhance the value of the vessel at that time. Sir Robert Phillimore states that the value should be taken as at the end of the voyage, and therefore lets in freight or interest as an additional compensation. The result of the two calculations in figures should be practically identical."
98 The President concluded in these terms (at 175):
"I think, therefore, that the proper measure of damage in this case is the value of the vessel at the end of her voyage, plus the profits lost under the charterparty, and this is what the learned registrar has allowed."
99 There was no discussion in The Kate as to whether it was appropriate for the registrar to have awarded interest on the value of the vessel and the loss of profits only from the date upon which the vessel would have accomplished its homeward voyage until the date of payment. It seems to me that the rationale for choosing such a date was that the vessel was of no relevant value to the owner until that date (being the date upon which the charter would have concluded and the vessel would have again become available to its owner to be put to profitable use), except for the profits which would have been earned on the charterparty. Accordingly, it was only as and from that date that the owner suffered the actual loss of the value of the vessel.
100 The second respondent submitted, however, that the cases in Admiralty recognised that interest could not be awarded where doing so would involve double compensation and that the treatment of "interest" and "freight" as alternatives illustrated this proposition. It was submitted that the principle of avoiding double compensation informed the decision with respect to the date from which interest was payable in The Kate and, as such, was applicable to the circumstances of the present case. I shall return to this proposition after referring to two other authorities.
101 The first is Liesbosch Dredger v SS Edison [1933] UKHL 2; (1933) AC 449, an authority relied upon by the appellant to support the proposition that Admiralty was prepared to allow interest on loss of goods and loss of profits from the date the loss was incurred. As is well known, Lord Wright's speech in Liesbosch related principally to establishing the appropriate measure of damage. His Lordship did, however, refer to the practice in the Admiralty Court, particularly as stated by Sir Robert Phillimore in The Northumbria and by Sir Francis Jeune in The Kate, that in the case of a vessel being totally lost by collision whilst on her way in ballast to load under a charter, the proper measure of damages against the vessel solely liable for the collision was the value of the vessel at the end of her voyage together with the profits lost under the charterparty. His Lordship noted that there is no question that when a vessel is lost by collision due solely to the negligence of the wrongdoing vessel, the owners of the former vessel are entitled to restitutio in integrum, which his Lordship explained (at 459):
"...means that they should recover such a sum as will replace them, so far as can be done by compensation in money, in the same position as if the loss had not been inflicted on them, subject to the rules of law as to remoteness of damage."
102 Having held that the value of the Liesbosch to the appellant should be capitalised as at the date of the loss, his Lordship said in addition that interest on the capitalised sum so assessed should run from the date of the loss. He said this (at 468):
"It is on the true value so ascertained that the interest at 5% from the date of the collision will run, as further damages, on the principles of the Court of Admiralty stated by Sir Charles Butt in The Kong Magnus, that is, damages for the loss of the use of the money representing the lost vessel as from the date of the loss until payment."
103 The appellant submitted, and it appears to be the case, that the capitalised sum representing the lost dredge in Liesbosch took into account the loss sustained by the appellants in carrying out their contract with the Harbour Authority over the period of delay, that being the period between the loss of the dredge and the time at which a substituted dredge could reasonably have been available for use.
104 The second authority to which I would refer is the decision of Sheppard J in R W Miller & Co Pty Limited v The Ship Patris (1975) 1 NSWLR 704. This was a case decided in the Admiralty Division of the Supreme Court, relating to the Admiralty jurisdiction to award interest. The case did not involve a total loss of the relevant vessel but damage thereto, resulting in the owner incurring the cost of repairs. His Honour held that interest was awarded in Admiralty because of the delay which occurs between the time when the plaintiff loses its ship or is forced to disburse money for repairs, and the time when it recovers damages. In so holding, he relied (at 707) on the following passage from the judgment of Lord Denning MR in Jefford v Gee (1970) 2 QB 130 at 144-145:
"When a profit-earning ship was sunk in a collision, the Admiralty Court awarded interest on the value of the ship, capitalised at the date of loss, from the date of the loss to the date of the trial: see The Kong Magnus as applied by the House of Lords in The Liesbosch. When a ship was not sunk, but only damaged, the Admiralty Court awarded interest on the cost of repairs, but only from the time when the repair bill was actually paid, because that was the date from which the plaintiff had been out of pocket."
105 His Honour then referred to the judgment of Brandon J in The Mecca (1968) P665, where (at 674) his Lordship said (so far as is presently relevant):
"With respect to the judgment of Bucknill J, I find myself unable to agree with this reasoning. In the first place, I think that the supposed distinction between interest on damages and interest as part of damages is unreal. In substance, if not in form, it comes to the same thing. In my view the purpose, and the sole purpose, of awarding interest, whether in an action for damages or a limitation action...is to compensate for the fact that the damages are paid late; see The Amalia and The Northumbria, in which The Amalia is cited with approval. The fact that damages are paid late may be looked at in two ways, by considering either that the wrongdoer has had the money, or that the injured party has been without it. These are, however, only two sides of the same coin."
106 His Honour concluded in the following terms (at 709F):
"Accordingly, despite what Bucknill J said in The Theems, it is clear that interest was awarded in the Court of Admiralty because of the delay (ex mora) which occurred between the time when a plaintiff lost his ship, or was forced to disburse money for repairs to it, and the time when he recovered damages."
It is apparent from the foregoing that the practice with respect to the awarding of interest in the Admiralty Division of this Court is generally in line with that of the courts in the United Kingdom.
107 In my opinion, the aforementioned Admiralty cases establish that where a vessel in ballast and thus carrying no cargo is totally lost, interest is awarded on the value of that vessel from the date of the loss. If at the time she is so lost the vessel is under charter but the cargo has not been loaded, then a sum representing the lost profit of the charter will be awarded together with the value of the vessel as at the date the charter would have been concluded and interest is awarded only from that date, rather than from the date she was lost. This is upon the basis that the former date is the time when the owner's loss of the value of the vessel occurs. Where the vessel has cargo on board at the time she is lost, so that the damages include both the value of the cargo as well as the value of the vessel, interest is only awarded from the date of the assumed end of the voyage. The assumed payment of the freight with respect to that cargo is again paid upon the basis that the assumed end of the voyage is the time when the owner sustains the loss.
108 In The Northumbria, Sir Robert Phillimore explained as follows the reason why interest was allowed from the date of the collision in one case but from the end of the interrupted voyage in the other: by giving freight in the latter case, one really gives interest on the use of the vessel during the interval between the collision and her intended arrival in port; whereas in the former, there was no freight to represent interest, which was then awarded from the date the vessel was lost. The basis for this distinction is explained thus: were interest to be given together with freight, the owner would be placed in a better position than it would have been but for the collision; whereas were it not entitled to freight, it would be placed in a worse position on account of the collision than it would otherwise have been.
109 In my opinion, however, a preferable, or perhaps additional, explanation for this distinction is this: where the vessel is loaded with cargo in respect of which freight is payable upon the discharge of that cargo at the port of destination, it is only at the assumed time of discharge that the owner loses the value of that freight and it is also only then that it would have, but for the collision, regained the ability to use the vessel to transport another cargo. As Sir Robert Phillimore in effect made clear in The Northumbria, where the vessel is loaded with cargo, it is the freight payable in respect of that cargo that represents to the owner the value of the use of the vessel up to the date that the cargo would otherwise have been discharged. On the other hand, if the vessel is not so loaded, the owner loses the use of the vessel from the date of the collision.
110 In my opinion and contrary to the submissions of the second respondent referred to in [100] above, the distinction in the Admiralty cases between allowances for interest on the one hand and freight on the other does not illustrate the avoidance of double compensation. Rather, it recognises that interest is only awarded to the owner on the value of the lost vessel from the date such loss is incurred. It is only from that date that the owner is kept out of its money represented by the then value of the lost vessel in the sense that it is then deprived of its further use for which it is entitled to be compensated.
The insurance cases
111 During the course of argument, reference was made to a decision of the Court of Appeal in H Cousins & Co Ltd v D&C Carriers Ltd (1971) 2 QB 230. In that case the defendants, under a contract of carriage with the plaintiffs, took possession of a quantity of goods which had been imported by the plaintiffs. The goods disappeared and the plaintiffs then claimed upon their insurers, who settled the claim. Pursuant to their right of subrogation, the insurers decided to pursue a claim against the defendants for damages representing the value of the lost goods together with interest. The defendants paid into court the maximum amount recoverable in the action under the terms of the contract of carriage but did not include any interest. The plaintiffs claimed interest between the date when they would have received payment had the goods been delivered and the date when the insurer had paid out the plaintiffs' claim.
112 The Court of Appeal allowed the plaintiffs' appeal upon the ground that insurers who had indemnified an insured were entitled under the doctrine of subrogation to sue the wrongdoer in the name of the insured, not only to recover the loss but also interest thereon. The fact that the insurers had paid off the insured was held, in effect, to be irrelevant. This was because the insurer was subrogated to the right of the insured not only with respect to the value of the goods but also to the insured's right to interest. In so holding, the Court distinguished its earlier decision in Harbutt's "Plasticine" Ltd v Wayne Tank & Pump Co Ltd (1970) 1 QB 447 upon the basis that in that case their Lordships had proceeded on the false premise (albeit accepted by both parties) that interest awarded in respect of a period after the insurers had settled with the insured could not be claimed by the insurers by way of subrogation. As Widgery LJ said in Cousins (at 240C):
"It is, I think, clear that it was uppermost in the mind of this Court in Harbutt's case that the interest in question would be retained by the plaintiff and not handed over to the insurers."
113 In Harbutt, Lord Denning M.R., on the accepted basis referred to above, dealt with the matter of interest in these terms (at 468):
"The plaintiffs received considerable sums from their insurance company after the fire: £50,000 within eight weeks, and so forth. Are those to be taken into account in awarding interest? The plaintiffs say that the court should ignore the fact that they were insured, or have received insurance moneys, and should give them full interest as if they had paid the cost of replacement out of their own pocket or borrowed money for the purpose. I think this goes too far. In assessing damages, we ignore, of course, the fact that the plaintiffs are insured. But, in awarding interest, it is different. An award of interest is discretionary. It seems to me that the basis of an award of interest is that the defendant has kept the plaintiff out of his money; and the defendant has had the use of it himself. So he ought to compensate the plaintiff accordingly.
This reasoning does not apply when the plaintiff has not been kept out of his money but has, in fact, been indemnified by an insurance company. I do not think that the plaintiff should recover interest for himself on the money when he has not been kept out of it."
Cross and Widgery LJJ agreed with Lord Denning's approach.
114 In Cousins, Widgery LJ (at 243) held that the only point decided by Harbutt was that if the then plaintiffs would be entitled, as between themselves and the insurers, to retain the award of interest made by the trial judge, such an award would be an erroneous exercise of his discretion under the relevant legislation. Davies LJ, who agreed with Widgery LJ, also accepted that the effect of Harbutt was that, if any interest awarded would enure for the benefit of the assured, as it was wrongly assumed by all concerned to be the case, then interest ought not to be awarded since such an award would result in the assured being over-compensated. Karminski LJ agreed with Davies and Widgery LJJ's analysis of Harbutt and considered that the insurers, having been kept out of their money, were entitled to interest, as any other result would be manifestly unfair and unjust.
115 These authorities are relevant to the present case only in that they confirm the position in Australia that a plaintiff who has been kept out of his or her money between the date of loss and the date of judgment is entitled to be awarded interest on those moneys for that period. On the other hand, if the plaintiff has not been kept out of his or her money for that period, it is not appropriate to make such an award. I do not consider that these authorities are relevant to this case in any other respects.
Application of the relevant principles to the facts
116 As I have already recorded, the primary Judge held that the appellant had not suffered any "real" or "practical" loss by the delay in the payment of that part of the damages represented by the value of the screen. It was so held on the ground that it had never been required to pay the purchase price thereof to its parent and there was no evidence that the parent was seeking, or would in the future seek, the payment of interest on that unpaid purchase price. Accordingly, the appellant was never out of pocket with respect to the value of the screen and therefore had not been "kept out of its money" in the relevant sense.
117 In my opinion, the fact that the appellant had not paid the purchase price for the screen was relevant to the issue of whether interest should be awarded from the date that the screen was destroyed. In the present case, there was no evidence before the primary Judge as to the arrangements, contractual or otherwise, between the appellant and its parent with respect to the payment of that purchase price. It may well be that no adverse inference can be drawn against the appellant with respect to those arrangements, but that does not assist the appellant's case.
118 Principle required that if those arrangements were relevant, as I consider they were, to the issue of whether an award of interest was necessary to ensure that the appellant was properly and fairly compensated for its "real or practical loss", the onus was upon the appellant to establish that loss. In my opinion, it did not do so. The situation may have been different in the absence of evidence (or a concession) that the appellant had not paid the purchase price of the screen. In those circumstances, it may have been properly inferred that the purchase price had been paid, such that when the screen was destroyed, its monetary value in the hands of the appellant was, as a matter of practical reality, lost.
119 Thus, in Metal Box Co Ltd v Currys Ltd (1988) 1 WLR 175, it was held that a plaintiff who had been deprived of the value of its goods (there being no suggestion that the plaintiff had not paid for them) because they had been destroyed by the defendant's negligence, was entitled an award of interest on the judgment sum (being the value of the destroyed goods), notwithstanding that there was no claim for damages for any consequential loss. McNeill J said this (at 180):
"Putting the matter more vividly, he invited the court to consider a work of art or a Ming vase which was destroyed. That it had no profit-earning capacity was irrelevant to the question whether or not interest should be paid on the unpaid damages awarded for its destruction. Interest did not depend on the use to which the chattel was put. He submitted, and so far as my own knowledge goes I agree, that there is no authority for the proposition that the plaintiff who has been deprived of his chattel by the defendant's tort, and who is kept out of the value of the chattel (at least after knowledge of the claim and until judgment) should not be awarded interest on the judgment sum. To my mind to hold otherwise would be to confuse damages for consequential loss with interest. Indeed, it may well be that in some circumstances there can be interest upon damages for consequential loss.
120 In reality, the appellant did not lose the monetary value of the screen when it was destroyed because it had not paid for it. It owned the screen and therefore it did lose the ability to use it in a profit-making enterprise. However, that loss was duly compensated by the award of $79,000 for lost revenue (upon which interest was properly awarded).
121 To also award interest on the capital value of the screen would, in my opinion, overcompensate the appellant, as it would be placed in a better position than if the screen had not been destroyed by the respondents' breach of contract and/or negligence: cf. Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 82. The true value of the screen to the appellant, had it not been destroyed, was that it could be put to a profitable use. As it had not paid for the screen, it was not out of pocket with respect to its monetary value as a capital item.
122 In summary, although it was entitled as owner of the screen to damages equivalent to its capital value, the fact that it was "kept out of its money" between the date of the destruction of the screen and judgment has not resulted in it being deprived, in any real sense, of the use of that money, for it never outlaid or proved that it had an enforceable obligation to pay that money to acquire the screen in the first place.
123 I can accept that an award of interest is not dependent upon whether the destroyed chattel can be put to a profit-making use. The Ming vase example referred to by McNeill J in the Metal Box case makes this clear. However, it may (and often will) depend on the nature of the plaintiff's ownership of the chattel. If the chattel has been paid for or interest must be paid on the unpaid purchase price or if the chattel was the subject of a gift, then an award of interest will generally be justified. As such an award is discretionary, there may be many circumstances which will bear upon the appropriateness of an award in a particular case. However, it is always necessary to bear in mind the overriding principle that interest is only awarded to compensate a plaintiff for the financial detriment it has suffered from a practical point of view: see [79]. The loss must be real, not just theoretical: see [85].
Conclusion
124 In the present case, to have awarded the appellant interest on the capital value of the screen which it would be entitled to retain (there being no evidence that it would, or would be obliged to, disgorge it to its parent) would have improved its position, rather than merely restored it: see [87] above. In my opinion, the primary Judge was therefore correct in holding that in these circumstances the appellant had not suffered any "real" or "practical" loss by the delay in the payment of so much of the damages which represented the capital value of the screen.
125 It follows that the appeal should be dismissed with costs.
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LAST UPDATED: 20/11/2003
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