Unformatted text preview: tead of being left idle. The court used the te
"rational" in the context of which it seems their Honours took it to mean a 'rational'
investor in the financial sense, but did not define it. 50 (1968)122C.L.R25at39.
(1993)179C.L.R 101 at 119.
"Rationality" in the financial sense states that for a given level of risk, an investor or manufacturer will
prefer the highest return and, therefore, is irrational if idle capacity is not used in the highest productive
51 330 A Full Bench o f the Federal Court relied o n Dart v Decor in Apand v Kettle Chip52
(1999) where another account of profits was ordered. The inclusion of a deduction for
overhead expenses was again being considered, and the court relied on the definition of
opportunity cost in Dart. Beaumont J. correctly pointed out that opportunity costs were
"what would have been"54 and Heerey J argued that the defendant was precluded from
deducting the opportunity cost of the profit from the offending product.55 In Federal Commissioner of Taxation v. Northumberland Development Co. Pty. Ltd56
(1995) the Full Federal Court affirmed that interest as damages were to be included in
the award from a single cause of action. Nevertheless, the court noted that the interest
so awarded formed part of the compensation awarded and, therefore, was not taxable as
income. This was an interesting outcome, for the 'compensation' was assessed at a value
from a starting date (31 December 1982) and then increased by an "incremental factor"
CO w hich w a s labelled at least in one place in the case as an "interest rate". T he court
based the decision on a strict interpretation of the statute giving rise to the
"compensation" which employed the words (s. 5) "interests in the coal", which meant,
exclusio alterius, that it did not comprise an element for lost income. The
characterisation of the supplemental factor in this case, although consistent with the
interpretation the court put upon it, does not seem consistent in a wider sense with the
attributes normally impressed upon interest components. The fact that the case was effort. See Reilly, F. K. 1994, Investment Analysis and Portfolio Management, 4th edition, Drysden Press,
Apand Pty. Ltd. v Kettle Chip Co. Pty. Ltd.  F C A 483 (unreported), 23 April 1999, Federal Court
Apand Pty. Ltd. v Kettle Chip Co. Pty. Ltd.  F C A 483 (23 April 1999) p. 8.
 F C A 483 at p. 17.
(1995) 95 A.T.C. 4,483.
(1995) 95 A.T.C. 4,483 at 4,485. 331 decided for purposes of income tax m a y have had an impact. T he High Court of
Australia, though, in M.B.P. (S.A.) Pty. Ltd. v Gogic (1991) in refusing an order for commercial rates of interest to apply to pre-trial economic losses, said that a plaintif
who is awarded interest at 4 per cent on those damages has not had to risk his or her capital and arguably does not have to pay income tax on that interest, noting that "most
investors in fixed securities in Australia since 1982 would be well satisfied to have maintained the real value of their capital and to have received an arguably tax-free retur of 4 per cent per annum on the current value of that capital."59 The interesting part of t
judgment is that the High Court seemed to have ignored the arguments of counsel that some regard needed to be taken of the prevailing interest rates during the relevant period
in that case. Counsel for the respondent, Gogic, had argued that "the use of the commercial rate of interest is more consonant with the objectives of an award of interes
on damages for pre-trial non-economic loss". The court returned that
[fjhe question remains, however, whether it is not fairer to the parties to use a formula which
applies the real rate of rates o f interest applicable in the relevant period rather than afixedfigure
such as the 4 per cent figure selected in Wheeler v Page. This could be done, for example, by
taking the commercial rate or the ten-year bond rate and deducting a figure for inflation. This
approach has the advantage of focusing on the real interest rate which would have been available
to a plaintiff for the purpose of investment during the period that the plaintiff w as kept out of his
or her money. But it tends to assume - erroneously - that the purpose of the award of interest is to
compensate a plaintiff for being deprived of the opportunity to invest his or her m oney. A plaintiff
is awarded interest because he or she has been deprived of the use of his or her money, not
because he or she has forgone investment opportunities. This statement indicates that the courts' view of opportunity cost, and the financial substantiation of opportunity cost is still far from being reconciled. The High Court, i (1995) 9 5 A .T.C. 4,483 at 4,489 per Beaumont J.
M.B.P. (S.A.) Pty. Ltd. v Gogic [1990-1991] 171 C.L.R. 6 57 at 665.
[1990-1991] 171 C.L.R. 6 57 at 6 66 332 Gogic a cknowledged that the rate fixed in Wheeler v Page61 ( 1982), w a s somewhat arbitrary. The South Australian Supreme Court had set a rate of 4% on past noneconomic...
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