Rosniak v Government Insurance Office of NSW
[1998] HCATrans 78
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S77 of 1997
B e t w e e n -
LEAH SHEREE ROSNIAK by her Tutor JOHN ROSNIAK
Applicant
and
GOVERNMENT INSURANCE OFFICE OF NEW SOUTH WALES
Respondent
Office of the Registry
Sydney No S25 of 1997
B e t w e e n -
PAUL JONATHON BLAKE by his Tutor BRIAN EDWARD PORTER
Applicant
and
WALTER THOMAS PATMORE NORRIS
Respondent
Applications for special leave to appeal
GAUDRON J
McHUGH J
GUMMOW J
TRANSCRIPT OF PROCEEDINGS
AT SYDNEY ON FRIDAY, 13 MARCH 1998, AT 12.03 PM
Copyright in the High Court of Australia
___________________
MR T.D. KELLY I appear in this matter with MR J.P. GOULD for the applicant in the matter of Rosniak. (instructed by T.D. Kelly & Co)
MR M.J. NEIL, QC: May it please the Court, I appear with my learned friend, MR R.S. TONER, SC, for the respondent in the Rosniak matter. (instructed by J.M. Crestani)
MR D.M.J. BENNETT, QC: May it please the Court, in Blake v Norris I appear with my learned friends, MR R.F. MARGO and MR H. PACKER for the applicant. (instructed by T.D. Kelly & Co)
MR D.F. JACKSON, QC: Your Honours, in Blake v Norris I appear with my learned friend, MR C.R.R. HOEBEN, SC, for the respondent. (instructed by Ferguson Holz)
GAUDRON J: Now, with some suitable adjustment for time, may your Todorovic v Waller point be heard at the same time as Mr Kelly’s ‑ ‑ ‑
MR BENNETT: We would ask that, yes, your Honour.
GAUDRON J: Thank you. Mr Kelly, if you would take up your 20 minutes, I suppose, and then Mr Bennett, would it be convenient for you to follow on, not taking up the full 20 minutes.
MR BENNETT: I will not need 20 minutes, your Honour.
GAUDRON J: Thank you. Then we will see what happens. Thank you, Mr Kelly.
MR KELLY: This application, your Honours, is brought on behalf of a young woman who sustained grave and permanent brain damage in 1983 when she was 11 years old. At the time of the retrial in 1995 she was found to have a future life expectancy of 58 years. That would take her into the second half of the next century. She also then had before her, but for this injury, a working life of 37 future years. The matter was sent back for a retrial by the Court of Appeal arising in part out of some submissions made on behalf of the respondent in the appeal proceedings. The matter was sent back to enable the applicant, should she so elect, to pursue in this Court a challenge to the Todorovic authority.
If I could take your Honours firstly to the judgments in Todorovic which appears in the applicant’s authorities at page 37. There were, your Honours, numerous references throughout the judgments in that case to the inadequacy of the material that was then before the Court.
GAUDRON J: Since that decision, however, the States have each legislated in this regard, have they not?
MR KELLY: In some areas, your Honour. In some States and in some areas.
GAUDRON J: Yes. It is a powerful reason for leaving it to the legislatures now, is it not?
MR KELLY: In my submission not, your Honour. In so far as a discount rate should be seen to have some basis in true and fair compensation of course the legislature has intervened in some areas, your Honours.
McHUGH J: In New South Wales the Motor Accidents Act, it is 5 per cent, is it not?
MR KELLY: That is so, your Honour.
McHUGH J: In the Workers Compensation Act it is 3 per cent. In Queensland it is 5 ‑ ‑ ‑
MR KELLY: It is 5 per cent in the Workers Compensation Act in New South Wales, your Honour, in respect, that is, of accidents occurring since July 1987.
McHUGH J: In Queensland it is 5 per cent for all awards of damages.
MR KELLY: That is so, your Honour.
McHUGH J: In South Australia, in relation to motor vehicle accidents, it is 5 per cent. In Tasmania ‑ ‑ ‑
MR KELLY: That is at the present time, your Honour, yes.
McHUGH J: Yes, I know. In Tasmania it is 7 per cent, Victoria it is 6 per cent, I think, for injury arising out of transport accidents and 3 per cent for work place accidents. In Western Australia it is 6 per cent for damages. So there has been legislative intervention all around the nation. Why should this Court get into this area again?
MR KELLY: If your Honour is just looking at it on a State by State basis, the present situation in respect of accidents occurring in this country today is that some 70 per cent of the population live in States or Territories where the common law discount rate still applies in one area or another and in the ACT where it applies in all areas. Thus, your Honour, it has not become an academic matter. It is a matter that affects 70 per cent of the population.
GAUDRON J: If they were injured before ‑ ‑ ‑
MR KELLY: No, your Honour, as at today, 70 per cent of the population live in areas where the common law discount rate still applies in some type of accident or another; that is to say in the States of New South Wales, Victoria, South Australia, Australian Capital Territory and the Northern Territory, areas comprising 70 per cent of the population.
Your Honour, in respect of those legislated discount rates, they have not been presented by the governments enacting them as representing any fine assessment of what represents fair compensation and, in my submission, your Honours should not be influenced by those legislative interventions in different areas of the country and to different degrees in assessing at common law what is full and fair compensation.
Could I take your Honours to the judgments in Todorovic, using, your Honours, the page numbers of the Commonwealth Law Reports.
GUMMOW J: What do we get out of this, Mr Kelly?
MR KELLY: The deficiencies, your Honour, in the material that was before the Court in Todorovic. Firstly, your Honours, if I could take you to the joint judgment of the then Chief Justice and Justice Wilson at page 421:
We regard it as impossible to say that it is commonly and certainly known that rates of interest do no more than match the current inflation rate ‑ ‑ ‑
McHUGH J: What part of the page?
MR KELLY: That is at the top of the page, I am sorry, your Honour.
No published statistics showing the position in Australia, authentic enough to warrant judicial notice being taken of them, have been brought to the notice of the Court which would support the view that there is no real interest rate in Australia.
It is our submission, your Honours, that the exhibit AAA to which I would seek to take your Honours, reproduced on page 25 of the application book, sustains that very proposition.
Secondly, your Honours, there was no evidence before the Court in Todorovic as to the interaction of interest rates, inflation rates and the tax laws of Australia. In that regard, I seek to take your Honours to page 439, a passage in the judgment of Justice Stephen,, the second paragraph.
to adapt the unsatisfactory tool of a presently paid lump sum award of damages to the case of the future loss of inflation‑affected earnings, more assistance in the way of expert evidence about the effect of the tax factors referred to above, additional to any before the Court in these appeals, is necessary.
His Honour was as one there, your Honours, with the Supreme Court of Canada and in that regard I would seek to take your Honours to ‑ ‑ ‑
GUMMOW J: But is this designed to show that Todorovic at the time was erroneous or reached on insufficient materials?
MR KELLY: Reached on insufficient material, your Honours.
GUMMOW J: So that there should be some revision of what was decided there with retrospective effect in some way?
MR KELLY: Yes, your Honour.
GAUDRON J: What sort of retrospective effect?
MR KELLY: Your Honour, if Todorovic were to be revised, that revision would affect all litigation coming through the courts to which the common law discount rate applied.
GUMMOW J: Yes; but applied when? Which rate, at what time? The rate for which you now argue would apply to what cases?
MR KELLY: Any matter that is coming before the courts covered by the common law rate.
GUMMOW J: Hereafter?
MR KELLY: Yes, your Honour, as indeed Todorovic has been applied. Do your Honours have Lewis v Todd at page 271, page 163 of the authorities book, in the middle of the page?
Calculation of the tax impact on interest earnings upon a damage award is complex. Computation is impossible without the evidence of expert witnesses. As no such evidence is before this Court, tax factors could only be considered if the matter were referred back to the trial Judge for a rehearing on this issue.
At the retrial, your Honours, the tax interaction with the statistical records of inflation and interest rates was addressed by an actuary on behalf of the applicant and the respondent.
GAUDRON J: That evidence was not admitted, was it?
MR KELLY: No, your Honours, on the basis that only this Court could entertain such evidence. If I could take your Honours to what the effect of that evidence would be. If your Honours could come to exhibit ‑ ‑ ‑
GAUDRON J: That is not an agreed matter, of course, is it? There is dispute between the parties as to the effect of the evidence.
MR KELLY: Not as to the statistical evidence upon which the actuaries addressed their calculations. The schedule in exhibit AAA, reproduced at page 25 of the application book, has been collected from material in evidence, from publications of the Bureau of Statistics and the Reserve Bank and from the archives of the Protective Commissioner’s Office. That discloses, as your Honours will see, that over the 60 years in Australia prior to the retrial, the bond rate averaged 6.93 per cent, inflation averaged 5.97 per cent and average weekly earnings increased at an average rate of 7.91 per cent. Taken over 45 years, the corresponding figures are 8.10 per cent for the bond rate, 6.41 per cent for CPI inflation and 8.43 per cent for the average increase in average weekly earnings. Those figures were not a matter of contention or controversy.
The actuarial calculations prepared by Mr Moini, the actuary called on behalf of the applicant, adopt a drawing policy set out at page 27 of the application book, commencing with the initial lump sum that would be provided to fund such a policy on the 3 per cent discount rate and factoring in the tax to be paid on interest, adjusting the tax scales by the assumed inflation rate. The end result of that, your Honours, is illustrated in a series of charts from Mr Moini, two of which are reproduced in the application book. If I could take your Honours to the chart at page 33. That takes your Honours to the 60 year average in Australia and, as will be seen, damages calculated at the 3 per cent discount rate will last, not for the 59 years intended, but will be exhausted in year 25. If your Honours would then go to page 35, the same calculations have been made taking the 45 year averages and as will be seen there, the fund is exhausted in year 22.
Even in times of low inflation the fund will still prove inadequate. In that regard, I would ask your Honours to come to summary of argument, the page appearing 205 in the application book. Similar calculations by Mr Moini indicate, if your Honours go to line 20, that if one assumes a 6 per cent rate of return and a 3 per cent inflation rate, the fund will be exhausted in 34 years. A 6 per cent interest rate and a 2 per cent inflation rate, the fund will be exhausted in 44 years.
This, your Honours, in our submission, arises from three matters: the prolonged period of zero or negative inflation after tax returns on money and the effect of the tax laws which will tax the top dollars of the fund at 47 cents in the dollar but merely provide a rebate of 20 cents in the dollar of expenditure on attended carers and the like.
I see, your Honours, my time is nearly up. There is one procedural matter that I would like to address in closing. I would seek leave to file in Court an amended draft notice of appeal as we have foreshadowed, your Honours, in the reply to the written submissions at page 227.
GAUDRON J: You have not addressed on vicissitudes or costs. Are they still in contention?
MR KELLY: Your Honours, I see my time is coming to a close here. I was not clear whether your Honours had intended that the issue of Todorovic be fully dealt with first and that we would come back to that.
GAUDRON J: That is a matter for you, Mr Kelly.
MR KELLY: The vicissitude - do your Honours wish me to proceed?
GAUDRON J: If you wish to say anything further to your vicissitudes or your costs matters, you should do so now.
MR KELLY: Could I firstly, your Honour, just hand up the proposed amended draft notice of appeal. Copies have been served and, as I say, it was foreshadowed. It merely seeks to include a ground in the light of a point taken by the respondent, that the Court of Appeal erred in ‑ ‑ ‑
GUMMOW J: Which ground is it? It should have been underlined.
MR KELLY: I am sorry, your Honour, it is highlighted.
GAUDRON J: It is (a)(i).
GUMMOW J: It is underlined, thank you.
MR KELLY: In relation to the vicissitudes, your Honours, it is contended on behalf of the applicant that a discount of 15 per cent for the adverse contingencies was balanced to extinction by two losses that this applicant has sustained. Firstly, she has lost the opportunity to participate in the societal increases in prosperity in this community that she would have enjoyed as an earner being the difference between increases in average weekly earnings and the consumer price index which has averaged, this century, as indicated in the exhibit reproduced on page 39, 1.62 per cent. The compounding effect of that, your Honours, is detailed on the exhibit reproduced on page 40 which indicates that a person on average weekly earnings in 1994 has a purchasing power 240 per cent of the purchasing power of a person on average weekly earnings in 1949-50. Transformed from a wage earner into an investor, the applicant has been shut out from that stream of future increases in real earnings.
The second matter that she has lost is any prospect of finding a husband and the financial support that that would have brought to her. Balancing those two losses against the possible adverse contingencies, it is in my submission inappropriate that a calculation based on her earnings as postulated but for accident earnings at the date of trial should be discounted by 5 per cent for contingencies.
GAUDRON J: I think your time is up, Mr Kelly. Yes, Mr Bennett.
MR BENNETT: If the Court pleases. Your Honours, of all the decisions this Court has ever made, Todorovic v Waller is probably the one most applied daily in courts round Australia. It can be demonstrated fairly clearly ‑ ‑ ‑
GAUDRON J: It must have a limited application now, surely.
MR BENNETT: I will come to that, your Honour. It can be demonstrated clearly that there are repeated references in it to the inadequacy of the material on which the Court made the findings and came up with the rate which it came up with in that case.
Your Honours have been taken to what was said by the Chief Justice and Justice Wilson and by Justice Stephen, but similar remarks critical of the material before the Court appear elsewhere in the judgments.
GAUDRON J: That may be so as at the time it was decided. As of now, there is a very formidable difficulty in adjusting it, other than in conformity with statutory rates, because what you find is a degree of favouritism, as it were, or advantage for those who are not caught by the legislative provisions.
GUMMOW J: In other words, would not the common law have to adapt by analogy to the statute? That is what it comes to.
MR BENNETT: We would submit the reverse would be more likely to occur, your Honour, that it would be a powerful moral argument in the halls of lobbying in the States to be able to say, “The High Court, looking at the matter objectively, has determined on a much lower discount rate or no discount rate.”
McHUGH J: That does not seem to have been recent experience. Some of the legislatures have got 6 and 7 per cent as their discount rate, notwithstanding.
MR BENNETT: They have, your Honour. We can demonstrate on the material, obviously not in the application today, but it can be demonstrated on the material before the Court that the true rate is negative and that a zero ‑ particularly when one bears in mind that one is dealing with, in my case, in Blake’s Case, a person who has to employ a number of people to look after him for the rest of his life, and one can demonstrate from tables going back to 1934, indeed going back earlier if necessary, the trends in relation to the average weekly earnings which outstrip both the CPI rates and the bond rate. So he invests at the bond rate or perhaps a little better, he pays tax on that and has his employees who he needs to employ to look after him increasing at the higher rate. That is a 30 second capsule of the argument. But it can be demonstrated by materials which were simply not available to the Court in 1981 and are available now. We would submit that it is appropriate, in those circumstances, 16 or 17 years later, for the Court to look at it in the light of what is now available. There are annual books of statistics published; there are all sorts of materials far, far more extensive than were available then.
Your Honours, in relation to the State Acts may I just say this ‑ ‑ ‑
McHUGH J: One problem is that you cannot get perfect justice in this area, on any view of it. Inflation rates change dramatically and, as a result, so do interest rates. Interest rates have all sorts of other pressures applied to them, irrespective of the rate of inflation.
MR BENNETT: Of course one cannot get perfect justice, your Honour, but one can do the best one can and we can demonstrate that we can do a lot better in showing what a fairer result is than was done on the inadequate materials available in 1981 in Todorovic and the inadequate published materials available then and certainly the inadequate tendered materials, which many of the Justices regarded themselves as using exclusively.
Your Honours, as far as the States are concerned, the Australian Capital Territory has no restriction. New South Wales has no restriction other than in the work related and road accident fields. Victoria is restricted ‑ ‑ ‑
McHUGH J: That is a fairly substantial area.
MR BENNETT: Occupier’s liability is left as are numerous other areas of personal liability. In Victoria it is only transport accidents. Queensland, Western Australia and Tasmania, it affects all categories.
McHUGH J: Victoria also has the 3 per cent rate, and that is by statute, but that is in work place accidents.
MR BENNETT: Yes. South Australia has the common law in relation to matters other than work and road, as does the Northern Territory. Now, your Honours, these are substantial areas of cases occurring every day. If there be a disparity between the best the courts can do and the statutes, so be it. That disparity exists at the moment. But we submit there should be a greater disparity and we can demonstrate that it should be a greater disparity. What we seek is the opportunity to do that.
If I can just show your Honours by way of example how extreme the position is, if your Honours look at the ‑ ‑ ‑
GAUDRON J: But there is, is there not, at the end of the day no logic as to why pre-1988 verdicts should be on one level and subsequent verdicts on another, why one area should be one way and one area another? I mean, if the Court was to intervene, why would it not simply elevate the common law discount rate to the discount rate applying in the particular State.
MR BENNETT: For a number of reasons, your Honour. Your Honour asked two questions. The answer to the first question is - the answer to the second question is that the legislative rate is purely a matter of the relative bargaining power of injured plaintiffs and insurance companies.
McHUGH J: Well, maybe, but on another view of the statutes, they represent the public interest and in Warnock v Townley Lord Diplock said that where possible, the common law should be developed in accordance with the public interest as disclosed in statutes.
MR BENNETT: That is a different sort of public interest, your Honour.
McHUGH J: I know it is and I am sure these statutes, like many other statutes, are a compromise between powerful interest groups in which injured persons are not one of those who take part in the compromise.
MR BENNETT: Precisely, your Honour. And that is the very reason why we submit this is a role that the courts have to continue to assume. There is no reason why they should abrogate their role merely because some legislatures have spoken in some areas. That is the first aspect.
The second aspect is that if it is demonstrated ‑ ‑ ‑
GUMMOW J: Another aspect is that the State percentages can be adjusted by regulation, can they not, from minute to minute?
MR BENNETT: Yes, they can, your Honour. But that does not affect the principle. It is certainly ‑ ‑ ‑
GUMMOW J: No, but it would make it difficult to analogise the common law.
MR BENNETT: Yes, and it is no reason why the common law should not be analogised. I am grateful to your Honour.
But the main point is simply this. At the moment, where the statutes do not apply, the courts are applying Todorovic’s Case and are saying 3 per cent. If it can be demonstrated that those percentages are wrong, based on the wealth of statistical material now available, and that one can get something closer to reality by having zero, we say it is demonstrable that the true position is negative, but zero is an acceptable compromise for the courts to adopt, as in Todorovic itself, a compromise was accepted. Your Honours recall some Justices said 4 per cent, some said 2, some said 3, some said zero and ‑ ‑ ‑
GUMMOW J: When you say it would be zero, it would be zero for how long - common law would be zero for how long?
MR BENNETT: Until such time, your Honour, as someone could demonstrate to this Court, perhaps 20 years would be an appropriate time to have a look at it again, maybe less if there were dramatic changes in the economy, that it was inappropriate.
GUMMOW J: There have been great fluctuations.
MR BENNETT: There have been, your Honour, but what is demonstrated if one looks at exhibit AAA in Rosniak, which is the most convenient one to go to, one sees averages can be drawn over very long periods.
McHUGH J: That is so, but one problem is that this economy has been, in recent years, and is still being restructured in ways that will make the economy bear little relationship to the economy that is reflected in those figures. Australia was a protectionist society throughout most of those. Protectionism is gone or certainly it is on its last legs. Economic rationalism is the doctrine of the day.
MR BENNETT: But however one puts it, your Honour, there is no year where one can look at the increase in average weekly earnings rate, contrast that with the bond rate and say that 3 per cent is an appropriate figure. One simply cannot do it. Once one averages, whether it takes recent years or more distant years, one just sees that there is no way a person who receives a verdict, calculated on the basis that he needs $1,000 a year to pay an employee, is going to be able to maintain that, bearing in mind the rate at which average weekly earnings historically increase compared to the rate at which the bond rate increases. When one adds the impact of taxation, it is just very clearly a negative figure. That can be demonstrated, as I say, very easily.
Of course one has to take into account all the other factors referred to in Todorovic. No one disputes that. They are matters for argument. Of course it is difficult, at the end of the day, to select the right figure. Of course there are elements of judgment in it. But having said all that, if it can be shown, as we say these figures show, that the 3 per cent rate is just inappropriate, the fact that 20 years ago or 18 years ago 3 per cent was
selected, and the fact that various legislatures have intervened to protect defendants for various reasons and impose higher rates, neither of them are reasons why this Court should not do what is the most appropriate thing for litigants who come to it and say, “I’m entitled under common law rules to be compensated for what has occurred.” That ultimately is the issue in this case, your Honours.
There is just no doubt that Blake’s money and Rosniak’s money will run out if invested in the normal way long before the dates for which they were expected to last occur. That is occurring substantially because of the adoption of what we submit is an unfair discount rate.
May it please the Court.
GAUDRON J: Thank you, Mr Bennett. We need not trouble the respondents in these matters.
In the case of Rosniak, we simply observe that there are three issues raised by the application. The first is whether this Court should review either its decision in Todorovic v Waller (1980) 150 CLR 402 or the discount rate as determined in that case. On this issue the Court is of the view that given the subsequent legislative interventions in the area and given also economic developments since that time, it is not an area that should now be revisited. The second issue is whether an allowance of 15 per cent should have been made for vicissitudes. The third issue in Rosniak is whether it was appropriate for Justice Badgery‑Parker to award indemnity costs with respect to the argument before him on the Todorovic v Waller point.
We see no reason to doubt the correctness of the decision of the Court of Appeal on those last two matters. Accordingly, special leave is refused.
MR NEIL: I ask for costs, your Honour.
GAUDRON J: Yes. You cannot resist that, Mr Kelly?
MR KELLY: No, your Honour.
GAUDRON J: It is refused with costs.
In Blake v Norris we simply observe that, as in the case of Rosniak v Government Insurance Office of New South Wales, the Court does not consider it is now appropriate to reconsider the questions whether there should be a discount rate and, if so, what that rate should be. Accordingly, special leave is refused.
Now, there is an outstanding question of costs from the time that matter was before the Court.
MR BENNETT: Assuming an application is made, there is nothing I can say, your Honour.
MR JACKSON: I make that application, your Honours.
GAUDRON J: Yes. With costs, and that is costs of the entire application, lest there be any doubt as to that.
AT 12.43 PM THE MATTER WAS CONCLUDED
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