Mcveigh v Auspine Ltd No. DCCIV-99-510

McVEIGH V AUSPINE LTD.
[2000] SADC 58

Judge Bright
Civil

On 12th May 2000 I delivered a preliminary judgment (No [2000] SADC 24), in which I assessed the gross loss of the plaintiff at $60,000. I reserved for further argument the impact of income tax on the award, having in mind that I should put the plaintiff in the same nett position as if he had received wages in the ordinary course. My assumption was that the principle of Gourley’s case (British Transport Commission v Gourley (1956) AC 185) applied and that the effect would be that, if payment by way of judgment attracted a lower tax rate than the same amount paid by way of wages, an adjustment should be made to leave the plaintiff with the same amount of money, nett, in his pocket, as if he had been paid wages.
Counsel for the plaintiff, however, contended that I should not do that. He argued that Gourley’s case applies when a judgment puts money free of tax into a plaintiff’s hands, but not where the judgment bears some tax, albeit at a different rate. It is accepted that the whole of the amount that I will award will bear tax as a termination payment at 31.5%, whereas, if it had been received as wages, it would have attracted a marginal rate of tax of 49.5%. The plaintiff is, argues counsel, is entitled to retain the extra 18%. It is not, he says, a windfall, to be allowed to the credit of the defendant, but simply an effect of changing tax scales and not to be taken into account.
His starting point is the judgment of Gibbs J. in Atlas Tiles v Briers (1978) 144 CLR 202 at 219. That was a dissenting judgment. However, a reconstituted High Court, in the later case of Cullen v Trappell (1980) 146 CLR 1, overturned Atlas Tiles and approved Gibbs J’s. judgment in that case. Accordingly I go to that judgment.
The original trial judge had held that Gourley’s case did not apply in a situation similar to this case. At page 224 Gibbs J. says:
“I agree with the English cases already cited that the principle of Gourley’s case applies to the assessment of damages for wrongful dismissal, provided, at least, that the lost earnings would have been taxable in the hands of the plaintiff if he had received them, and that the damages when received are not subject to tax”. (My underlining)
Reliance is placed on the last proviso “That the damages when received are not subject to tax”. It is urged on me that I should infer that, if ANY tax is payable on the judgment, Gourley’s case does not apply.
Support is sought from the later words of Gibbs J. at page 227:
“Whatever may be the correct decision in the United Kingdom, it seems to me that the principle in Gourley’s case should be applied in assessing damages for wrongful dismissal in Australia, notwithstanding that 5% of the award will be taxable. As I have already said I consider that, in general, the principle applies only where damages are not taxable, and this would be so even if the tax payable on the award were considerably less than the notional tax on the lost earnings.” (The underlining is mine)
Counsel for the defendant argues that the position is made clear by Gibbs J’s. further words on page 227:
“But where only a small fixed proportion of the award is subject to tax, it would be manifest that a plaintiff would receive more than was necessary to compensate him for the loss caused by his wrongful dismissal if his damages were assessed on the footing of his gross earnings, when all of those earnings would have been subject to tax. The reasons underlying Gourley’s case in my opinion require that in such a case the court should assess damages on the basis of the nett earning that represented the plaintiff’s real loss, but should adjust the result by taking account of the fact that a proportion of the award will bear tax.” (my underlining)
Nevertheless, the fact that Gourley’s case was held to apply could, in theory, be supported on the basis that, though the tax was to be levied on 5% of the award, 95% would be tax free - and that 95% should be reduced to a nett figure. I think that that is a misreading. In the passage just quoted, Gibbs J. notes that, if a tax figure is applied to the whole award to reduce it to a nett figure, there is still the 5% which will bear tax. He does not see that as impinging on the rounding down, acknowledging that mathematical precision may be difficult, but holding that that is not necessary.
I can see no reason why there should be a difference in principle between an award which bears no tax and one which bears tax, but at a much lower (or, possibly higher) rate. Surely what underlies Gourley, Gibbs J. in Atlas, and the court in Cullen, is that a plaintiff is to be compensated by putting him in the same nett position he would have been in, had the tort or breach not occurred.
Gibbs J. in Atlas, and the judges in Cullen referred with approval to Stewart v Glentaggart (1963) SLT 119, where that was the approach adopted. In New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68, the New South Wales Court of Appeal applied that approach, obviously believing it was following what fell from the High Court in Atlas and Cullen. I accept that, if it was wrong to so believe, I would remain bound by the High Court - but I do not think it was wrong.
With respect, I think that counsel for the plaintiff has taken certain words of Gibbs J. out of context and has sought to derive from them a proposition which the rest of the judgment makes plain is not correct. I accept that there is force in the literal reading for which he contends. However, although the rest of the judgment, and the later cases do not specifically address this question, they appear to proceed on the basis contended for by the defence.
I mention a couple of subsidiary arguments, though I believe them to be at odds with what I have so far held.
First, it is noted that the plaintiff was given an initial “golden handshake” of around $60,000. That was taxed as a termination payment at 31.5%, so the plaintiff was better off than if he had been paid wages, though we do not have evidence of his actual average tax rate, against which to compare it. The defendant believes that not a great amount is involved and is content to let the plaintiff have that benefit, without bringing it to strict account.
However, the plaintiff asserts that it would be odd, even unfair, for my award to be treated differently. I disagree. The plaintiff is lucky to have got the benefit which the defendant does not bring to account.
Next, the plaintiff argues that, as of the moment when he was dismissed, he was entitled to a termination payment which, ignoring the difficulty of calculating it at that time, would have given him the balance of the $60,000 gross, which I have assessed. Had that happened, he would have paid tax at 31.5% on all of it. The argument appears to be predicated on the proposition that, had the defendant met its full obligations at dismissal, it would all have been a termination payment. I agree - but that begs the question how much it should have been. The answer to that question is that it should have been the amount of the “golden handshake” plus the amount I am now about to award.
The defendant prepared a calculation of the sum, to be taxed at 31.5%, which is necessary to leave the plaintiff with the amount he would have received if he had paid tax at 49.5% on $60,000. The plaintiff does not dispute the arithmetic. The sum necessary is $44,233.58.
The plaintiff argues that interest should be paid on the whole judgment for the whole period since the dismissal. I do not accept that. The “golden handshake” put the plaintiff in the position where he had no loss until it ceased to cover his accruing weekly loss. Thereafter, the loss accrued at a steady rate. I hold that the conventional calculation made by the defendant is the correct approach and award a lump sum of $1,800 for interest.
There will be judgment in the sum of $46,033.58. I will hear the parties on costs.

[2000] SADC 58

26 May 2000