Lloyd's Maritime and Commercial Law Quarterly
INTEREST RATES ON GENERAL DAMAGES PRIOR TO JUDGMENT
MBP (SA) Pty. Ltd. v. Gogic
The High Court of Australia has recently had to decide whether interest on damages for pre-trial pain and suffering should be awarded at a commercial rate of interest or at some other arbitrary interest rate.
The Supreme Court of South Australia1 had adopted the practice of awarding interest at a rate which represented the difference between the prevailing rate for secure investments and the rate of inflation, upon the basis that damages for pain and suffering sustained prior to the trial are assessed at trial on the basis of the value of money at that date. Therefore, to award interest at a commercial rate would overly compensate the plaintiff for being kept out of his money. This practice was inconsistent with the High Court’s judgment in Cullen v. Trappell.2 In that case, the High Court had said that, although the awarding of interest was a discretionary matter for the trial judge, where interest is awarded it should be allowed at ordinary commercial rates.
In MBP v. Gogic,3 in a joint judgment, the full bench of the High Court came to the conclusion that the decision of Cullen v. Trappell was incorrect insofar as it related to interest on pre-hearing general damages. In coming to this conclusion, the court made the following comments:4
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 …. But the loss or detriment which the plaintiff suffers by being kept out of his or her damages for pre-trial pain and suffering cannot be equated with the amount which those damages, invested at the commercial rate of interest, could have earned during the relevant pre-trial period … Damages for pre-trial non-economic loss, however, are assessed in accordance with the value of money as at the time of the award. In no way is any loss which a plaintiff incurs by reason of being deprived of his or her damages for pre-trial non-economic loss brought about by inflationary factors. In those circumstances, to award interest on damages for non-economic loss during the pre-trial period by reference to commercial rates is to compensate the plaintiff for a “loss” which he or she has not sustained.
The court debated what would be the appropriate rate of interest to apply, and
1. Gogic v. MBP (SA) Pty. Ltd. (1990) 53 S.A.S.R. 394 (S.A.S.C.).
2. (1980) 146 C.L.R. 1.
3. (1991) 65 A.L.J.R. 203.
4. Ibid., 205.
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