ON 1 MAY 1980, the High Court of Australia delivered Cullen v Trappell [1980] HCA 10; (1980) 146 CLR 1 (1 May 1980).

“Damages – Negligence – Personal injuries – Effect of taxation liability on quantum of damages – Whether damages should be reduced by tax plaintiff would have paid in respect of earnings if he had not been injured – Gourley principle.
Practice (N.S.W.) – Judgment – Interest – Damages for personal injuries – Damages for economic loss up to date of judgment – Damages for other than economic loss – Discretion – Supreme Court Act, 1970 (N.S.W.), s. 94 (1).”

http://www.austlii.edu.au/au/cases/cth/HCA/1980/10.html

The court overruled the earlier High Court decision of Atlas Tiles Ltd v Briers (1978) 144 CLR 202 and affirmed the rule in British Transport Commission v Gourley [1956] AC 185.

Damages are to compensate the plaintiff for the loss suffered, no more or no less. If the damages are taxable income, allowance should be made for this by an award of the gross sum.  If the damages are not taxable, the award should be reduced by any tax the plaintiff would have been required to pay. If the plaintiff is entitled to a tax deduction as a result of the loss, an allowance should be made in the award.

In a claim for personal injuries damages, a court must assess the plaintiff’s pre-injury earning capacity with regards to their net income after tax.  An assessment involving gross income would result in over-compensation.

Interest on past continuing losses is not to be paid at the full rate for the whole period as this would lead to over-compensation. Instead, interest is to be paid at half the rate over the full period or at the full rate over half the period so as to take into account the gradual way in which interest accrues. The awarding of interest is a discretionary matter that must be approached in a “broad and practical way”.

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