Jones, Griffith Morgan & Ors v Mortgage Acceptance Nominees Ltd & Ors Jones, Griffith Morgan & Ors v C E Heath Casualty & General Insurance Ltd

[1996] FCA 301

IN THE FEDERAL COURT OF AUSTRALIA  )        
  )        
NEW SOUTH WALES DISTRICT REGISTRY  )  No G 711 of 1991
  )
GENERAL DIVISION  )    

BETWEEN:               GRIFFITH MORGAN JONES

FREDERICK LANCE MESH
  EARLE WILFRED BAILEY
  THOMAS ALFRED INGLIS BRAYE
  JEFFREY WALL
  BRIAN DAVID THORNTON
  KEVIN IAN PERKINS
  PAUL EDWARD NEILSON
  ANTHONY MARMADUKE CARMICHAEL
  GLEN WILLIAM GREEDY
  PAUL STENBERG
  GORDON FRASER
  JOHN HOPE GIBSON
  EDWARD JAMES AIRD (JNR)
  DONALD LEVICK
  NOLA LEVICK
  JEFFREY CECIL FOSTER
  MARK THOMAS SEALES    

Applicants

AND:  MORTGAGE ACCEPTANCE NOMINEES LIMITED

RODERICK STUART McDONALD
  GREGORY ALFRED FARROW
  JARPAN MANAGEMENT SERVICES PTY LTD
  PETER DONE
  BRIAN KING
  JAMES BESTER
  AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LTD

Respondents

No G 491 of 1994

BETWEEN:               GRIFFITH MORGAN JONES

FREDERICK LANCE MESH
  EARLE WILFRED BAILEY
  THOMAS ALFRED INGLIS BRAYE
  JEFFREY WALL
  BRIAN DAVID THORNTON
  KEVIN IAN PERKINS
  PAUL EDWARD NEILSON
  ANTHONY MARMADUKE CARMICHAEL
  GLEN WILLIAM GREEDY
  PAUL STENBERG
  GORDON FRASER
  JOHN HOPE GIBSON
  EDWARD JAMES AIRD (JNR)
  DONALD LEVICK
  NOLA LEVICK
  JEFFREY CECIL FOSTER

MARK THOMAS SEALES

Applicants

AND:  C E HEATH CASUALTY & GENERAL INSURANCE LIMITED

Respondent

Coram:        Davies J.
Date:           25 March 1996
Place:          Sydney

DAMAGES AND TAXATION

In my opinion, the damages awarded to the applicants will not be assessable income in their hands.  That is because the award is of damages for loss arising from breach of the Trade Practices Act 1974 (Cth), for negligent conduct and for breach of fiduciary duty. These are not matters of such a nature that the damages would be brought to tax as income or as receipts of a profit making undertaking or scheme.

Although items which were taken into account in the assessment of damages, if they had been looked at separately, could have had the character of assessable income, eg., if an item took the place of or indemnified the applicants against loss or expenditure which was deductible under s.51 of the Income Tax Assessment Act 1936 (Cth), I think that such elements fail to attain that character by reason of their being simply a part of the overall award, and I think that they take their character from that award, which is an assessment of damages arising from the conduct that I have mentioned.

Therefore, the damages payable will not be taxable in whole or in part in the hands of the applicants.

In my opinion, the taxation benefits which the applicants claimed and which they received, presumably in the 1989, 1990 and 1991 taxation years, are properly taken into account because those benefits reduced the loss which the applicants suffered.  It seems to me that those claims were properly made and properly allowed, and that the applicants' losses were less because of the taxation benefits which they received.

We do not know what happened in subsequent years, but I assume that, as the applicants' notice avoiding the agreements was given in October 1991, that thereafter claims would not have been made.  So in my opinion, it is proper to reduce the damages by those taxation benefits which were received in respect of those first three years, 1989, 1990 and 1991.

I agree with counsel that many of the elements that are being taken into account would have been incurred in years prior to the current year.   Most of the rent and interest which was incurred by the applicants would have been incurred in prior years.  Some of it will be incurred in the current year, but it seems to me that, insofar as that is offset by the damages received or receivable, it is unlikely that it will be allowed by the Commissioner of Taxation as a deduction.   That rent and interest will presumably be paid out of the damages which the applicants receive from the respondents.   The Commissioner of Taxation is likely to take that fact into account.

I think this is a case where, if relevant, the principles discussed in Placer Pacific Management Pty Ltd v Federal Commissioner of Taxation (1995) 45 ATC 4,459 would be applied. Riverside Road Lodge Pty Ltd (In Liq) v Commissioner of Taxation (1990) 23 FCR 305 was a different case.

Damages should be assessed on the basis of the loss suffered.   The loss suffered should take into account the taxation benefits which have been received and, if that is done, the applicants will be compensated for the totality of the loss which they have suffered.  I think they will not be liable to pay tax on any part of the damages they receive.

There may be a question in relation to this if the applicants were now to seek amendments to prior years' assessments or to claim deductions in the current year.  However, I think the better way to approach this matter is to ignore the possibilities in relation to it, for it seems to me to be unlikely that the applicants will receive any net income tax benefit should they take that course.

The costs of today should be costs in the proceedings and I will so order.  The issues as to tax raised their heads at various stages and differing views were put.  What has been put today is somewhat different on both sides from that which was put previously.

I certify that this and the 2 preceding pages
are a true copy of the reasons for judgment herein of
the Honourable Justice Davies.

Associate:

Date:    25 March 1996

Counsel for the 1st applicant  
and the 3rd to 18th applicants:  R F Edmonds SC
  L S Einstein
Solicitors for the 1st applicant  
and the 3rd to 18th applicants:  Gadens Ridgeway

Counsel for the 1st respondent/
cross-respondent:  D E Grieve QC
  M G Skinner
Solicitors for the 1st respondent/
cross-respondent:  R B Monteith & Co

Counsel for the 5th respondent/
cross-respondent:  I V Gzell QC
  T D Castle
Solicitors for the 5th respondent/
cross-respondent:  Allen Allen & Hemsley

Counsel for the 8th respondent/
cross-respondent:  M Dicker

Solicitor for the 8th respondent/
cross-respondent:  Minter Ellison

For the 2nd & 6th respondents/
cross-respondents:  Appearing in person.  

For the 7th cross-respondent:  Appearing in person

Counsel for the 14th & 15th
cross-respondents:  P Taylor SC

Solicitors for the 14th & 15th
cross-respondents:  Phillips Fox

Counsel for C.E. Heath Casualty
& General Insurance Limited:  L.J.W. Aitken

Solicitors for C.E. Heath Casualty
& General Insurance Limited:  Phillips Fox

Dates of hearing:  6 - 10 March; 13-14 March 1995        
  16 - 17 March 1995
  20 - 24 March 1995
  27 - 31 March 1995
  3 - 6 April 1995
  10-11 April, 13 April 1995
  5 May; 17 May & 19 May 1995
  18 December 1995
  7 February 1996
  25 March 1996

Date of judgment:  25 March 1996