As income it is taxable. We cannot comment on whether the judge is correct in law. However, the decision raises three important issues of public policy. The ruling highlights a fundamental problem about the way in which the courts award interest. A study of medical negligence cases in the NSW Supreme Court, which we conducted last year, found that judges and lawyers often do not apply the concept of interest correctly.
Interest is the payment of income for the delay in receiving compensation.
As income, it is taxable. However, our study found that interest is also used by judges to compensate for inflation, changing community standards and the additional pain and suffering caused by the delay. The payment for these factors is not income, and so should not be taxable. The second issue is the possible retrospective application of the ruling. The president of the Australian Plaintiff Lawyers' Association, Mr Peter Semmler QC, warned against making the ruling retrospective.