Bp sa pty ltd v gogic 1991 171 clr 657 at 666 von

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Unformatted text preview: e disputes where the damages claimed included future and past elements have been largely inconsistent with the economic approach. Translating the time value of future and past sums to a present value has presented the courts with challenges in different ways and under different classifications. Nominalism, Inflation, and Acceptance of Economic Theory Many past cases have been settled on the 'nominalistic' theory of money, although Luntz asserts that the reported cases show increasingly fewer instances where this has been 75 M.B.P. (S.A.) Pty. Ltd. v Gogic (1991) 171 C.L.R. 657 at 666; Von Bohm-Bawerk 1914, Vol. 1, Chapte Three. 260 d one. N o m i n a l i s m is the view that one unit of currency at a point in time equates with the same unit of same currency at all later times. In short, the actual purchasing power of the currency in real terms is ignored. The difference between the rates of interest imputed by the court on an award, and the actual loss attributable to a bona fide opportunity cost, manifests injustice to plaintiffs to the extent that the difference represents an underpayment, and an injustice to the defendant to the extent that the difference represents an overpayment of damages to the plaintiff in real purchasing terms. T h e nominalistic view of m o n e y clashes, in view of inflation, with the notion of restoration of a position under the doctrine of restitutio in integrum. It cannot be said that a plaintiffs position would be restored if a nominal view of money dictated that a dollar of currency was always equal to a dollar of the same currency regardless of the time frame. This concept is repugnant to the entire framework of commercial enterprise and investment theory. Since at least World War I, inflation has been an integral part of economic consideration . In addition, financial theory recognizes the time value of money as a legitimate principle in itself, which the courts have historically been reluctant to openly embrace.78 In 1970, Lord Reid in Taylor v O'Connor79 recognised that a conflict existed, supported by the propagation of nominalism in the courts, and said: I am well aware that there is a school of thought which holds that the law should refuse to ha any regard to inflation but that calculations should be based on stable prices, steady or slowly 76 Bonython v The Commonwealth (1948) 75 C.L.R. 589 at 621 affirmed [1951] A.C. 201; also cited in Luntz 1990, pp. 295-6. M ann 1992, however, raises an argument which refutes the assertion and alleges that courts have held a nominalistic view since the formation of the common law, and more particularly in the 20th century, w hen inflation became a central economic consideration. This is explored below. M ann, F. A. 1992, The Legal Aspect of Money, 5th edition, Oxford, Clarendon Press, chapters 4 and 10. 77 Twigger 1999, shows that between 1881 and 1899 the highest inflation in England was 1.5% p.a. and over the whole period the total inflation was -5.5% in aggregate. This must have had an influence on the economic considerations of appeals court judges during the period. In contrast, inflation starting at the beginning of World War I, i.e., 1915, w as 12.5%, and the aggregate inflation over the next 4 years was nearly 9 8%. See Inflation: The Value of the Pound 1750-1998, Research Paper 99/20, 23 February 1999, House of C ommons Library, Table 1. 78 This aspect is examined in Chapter five. 261 increasing rates of remuneration and low rates of interest. That must, I think, be based either on an expectation of an early return to a period of stability or on a nostalgic reluctance to recognise change. It appears to m e that s ome people fear that inflation will get worse, some think that i will t t go on much as at present, s ome hope that i will be slowed d own, but comparatively few believe that a return to the oldfinancialstability is likely in the foreseeable future. T o take any account of future inflation will no doubt cause complications and make estimates even more uncertain. N o t doubt w e should not assume the worst but it would, I think, be quite unrealistic to refuse to take i into account at all.80 Lord Reid's willingness to accept that inflation was a part of the reality of social circumstances which should be incorporated into the damages amounts was not widespread amongst the judiciary. The judicial resistance to acceptance of inflation portrays how little some judges have kept abreast of the changes in economic knowledge. In Lim Poh Choo v Camden and Islington Area Health Authority (1980),81 Lord Scarman objected to the consideration of future inflation in damages awards and gave three suggested reasons: 1) it is pure speculation whether inflation will increase, stay the same, or disappear in the future; 2) inflation should be dealt with by an investment policy; and 3) the recipient of a lump sum should be in "the same position as others, who have to rely on capital for their support to face the future". In...
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