Millington v Waste Wise Environmental Pty Ltd
[2015] VSC 167
•29 April 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
JUDICIAL REVIEW AND APPEALS LIST
S CI 2014 04049
| MICHAEL MILLINGTON | Appellant |
| v | |
| WASTE WISE ENVIRONMENTAL PTY LTD (ACN 129 898 371) | Respondent |
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JUDGE: | CROFT J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 March 2015 |
DATE OF JUDGMENT: | 29 April 2015 |
CASE MAY BE CITED AS: | Millington v Waste Wise Environmental |
MEDIUM NEUTRAL CITATION: | [2015] VSC 167 |
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DAMAGES – Whether an award for damages should be GST-exclusive – Compensatory principle - The application of the “once-and-for-all” rule – Whether there is an obligation on a plaintiff to mitigate its loss – Taxable supply - Gagner Pty Ltd v Canturi Corporation Pty Ltd (2009) 236 FLR 401 – Peet v Richmond (No 2) (2009) 76 ATR 644 – Fulton Hogan Construction Pty Ltd v Grenadier Manufacturing Pty Ltd (in liq) [2012] VSC 358 – Provan v HCL Real Estate (1992) 24 ATR 238 – A New Tax System (Goods and Services) Act 1999 (Cth)
APPEAL – Question of law – Nature of an appeal from the Magistrates’ Court – Section 109, Magistrates’ Court Act 1989.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Dr P. Bender | Hall & Wilcox |
| Mr M. Flynn of Counsel appeared as amicus curiae. No appearance by or on behalf of the Respondent. | ||
HIS HONOUR:
Introduction
This is an appeal brought pursuant to s 109 of the Magistrates’ Court Act 1989 against final orders made on 7 July 2014 (“the Orders”) in the Melbourne Magistrates’ Court. The Orders provided that the appellant in this proceeding, Michael Millington (“Millington”), pay to the respondent, Waste Wise Environmental Pty Ltd (“Waste Wise”), the amount of $49,628.18, together with costs and interest, stayed for 30 days. The Orders provided further that on or before 1 November 2014, Waste Wise pay the sum of $4,168.26 back to Millington.
Section 109(1) of the Magistrates’ Court Act provides that a party to a civil proceeding in the Magistrates’ Court may appeal from a final order of that Court to the Supreme Court on a question of law. The Notice of Appeal filed by Millington on 6 August 2014 (“the Notice of Appeal”) in this Court set out the questions of law as follows:
1.Whether the Magistrate misapplied the compensatory principle in respect of damages by finding that Waste Wise’s loss and damage included an amount relating to goods and service tax (“GST”) on the repair costs for its vehicle which Waste Wise were entitled to claim as input tax credits pursuant to the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (“the GST Act”).
2.Whether the Magistrate misapplied the “once and for all rule” in respect of damages by awarding damages to Waste Wise, with an order that Waste Wise subsequently repay to Millington an amount equal to the input tax credit entitlement which Waste Wise was entitled to claim.
3.Further and/or alternatively, whether the Magistrate misapplied the law relating to mitigation of loss by:
(a)In substance, finding that Waste Wise were under a positive duty to mitigate its loss by claiming input tax credits in respect of the GST on its repair costs for its vehicle;
(b)Failing to reduce the damages awards by the amount of the GST on the repair costs in circumstances in which Waste Wise conducted its case on the basis that it would not claim any input tax credit in respect of that GST.
The Notice of Appeal sought the following orders:
(1) The appeal be allowed.
(2) The Orders be set aside and in place of the Orders:
a)a declaration that Waste Wise’s loss and damage is $45,459.92, being the GST exclusive costs and loss in respect of the damaged vehicle.
b)An order that Millington pay Waste Wise the sum of $45,459.92.
(3)Waste Wise pay Millington’s costs of this appeal, as well as the costs of the hearing before the Magistrates’ Court below.
This proceeding contains a somewhat unusual feature in that the parties have previously advised the Court that the matter the subject of the appeal has been resolved as between the parties.[1] Upon informing the Court of this, the parties sought orders by consent which would have the effect of the appeal going forward to hearing, but excusing Waste Wise from taking any further step in the proceeding. In effect, what was being sought was that the appeal proceed before this Court as a test case, due to the wider issues affecting the insurance industry at large, as well as the public importance of the legal principles in question.[2]
[1]See the Orders of Associate Justice Lansdowne made 15 October 2014.
[2]Affidavit of Lisa Chesson-Kistas sworn 14 August 2014, [21].
Concerns were raised by the Court at this initial stage of the proceeding as to whether, given that terms of settlement had been entered into by the parties, allowing the appeal to go forward may amount to the seeking of an advisory opinion of the Court, particularly if it were to proceed without any contradictor.[3]
[3]And see also, P W Young, Declaratory Orders, 2nd ed (Butterworths, 1984), 50-58.
The attention of the parties was directed to the relevant practice note for the Judicial Review and Appeal List,[4] which provides:
6.3 Where proposed consent orders would set aside the decision under review or appeal and/or would involve the remittal of any matter, judicial power is engaged in relation to the functions of other public authorities, and the Court may need to consider for itself whether the orders should be made, particularly where the decision below is executive or administrative in nature.[5] Where the orders of such a kind are sought “on the papers”, a joint memorandum explaining the legal justification for the proposed orders must be provided to the Court. The Court may nevertheless require the attendance of practitioners. Even if satisfied that the proposed consent orders are appropriate, the Court may consider it necessary to publish reasons for the making of the orders or at least to direct that a copy of the joint memorandum be served on the decision maker below together with a copy of the orders made.[6]
The Court adjourned the directions hearing to enable Millington to consider this mechanism, or any other by which the Court’s concerns may be allayed.[7]
[4]The relevant practice note at the time the appeal was issued was Practice Note 4 of 2009. An updated version of the Practice Note – Practice Note 9 of 2015 – came into effect on 1 January 2015.
[5]See Irwin v Military Rehabilitation and Compensation Commission (2009) 174 FCR 574 at 577 [12]-[16] and cases there cited, especially Kovalev v Minister for Immigration and Multicultural Affairs (2000) 100 FCR 323.
[6]See the cases referred to in the previous footnote.
[7]Orders of Associate Justice Lansdowne made 15 October 2014.
On 11 November 2014, Millington filed submissions[8] to address the concerns raised by the Court. These submissions referred to a number of authorities which demonstrate that a Court cannot simply allow an appeal on a question of law by consent in any situation. In order for a superior court to quash a decision of an inferior court or tribunal, the court must first be satisfied that there is an error of law. Further, it was submitted that the Court may hear an appeal to determine whether an error of law exists, even if it is unopposed. As determination of the issues in this proceeding is based on a concrete situation involving a dispute, it should not be seen as the giving of an advisory opinion by the Court. In Bass v Permanent Trustee Company Limited, the High Court said:[9]
It is true that some have seen the use of the declaratory judgment as little more than the giving of an advisory opinion.[10] However, one crucial difference between an advisory opinion and a declaratory judgment is the fact that an advisory opinion is not based on a concrete situation and does not amount to a binding decision raising a res judicata between parties. Thus, the authors of one recent text on declaratory judgments[11] emphasise that, where the dispute is divorced from the facts, it is considered hypothetical and not suitable for judicial resolution by way of declaration or otherwise.
In relation to the Court’s concern regarding the lack of a contradictor, Millington offered – an offer which was accepted by the Court – for counsel to appear as amicus curiae to act as contradictor.
[8]Submissions to Address Issue Raised by the Court filed on behalf of the Millington, 11 November 2014.
[9](1999) 198 CLR 334 at 356, [48] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan J).
[10]Foster, “The Declaratory Judgment in Australia and the United States”, Melbourne University Law Review, vol. 1 (1958) 347, at 373.
[11]Zamir & Woolf, The Declaratory Judgment, 2nd ed (1993).
On 14 November 2014, the Court informed the parties that it was satisfied that it was appropriate that the appeal proceed unopposed, on the basis that there would be a contradictor, and the matter was set down for trial before me on 17 March 2015.
Background
On 12 October 2013, a vehicle driven by Millington was involved in a collision with a garbage truck owned and operated by Waste Wise.[12] The accident was caused by Millington’s failure to stop at a red traffic control signal at the intersection of Johnson Street and Brunswick Street, Fitzroy.[13] At the hearing before the Magistrate, Millington did not dispute that his failure to stop at the red traffic signal was the cause of the accident.[14]
[12]Appellant’s Outline of Submissions dated 23 January 2015 (“Millington’s Submissions”), [4(3)].
[13]Exhibit DAF-1 to the Affidavit of Darren Anthony Ferrari affirmed 11 August 2014.
[14]Affidavit of Darren Anthony Ferrari affirmed 11 August 2014, [8].
The car being driven by Millington was insured by Insurance Manufacturers of Australia Pty Ltd (IMA). Pursuant to that insurance policy, IMA had agreed to indemnify Millington in respect of his liability to Waste Wise arising from the collision.[15] Assessment of the damage caused to the garbage truck and the engagement of a contractor to repair that damage was organised by Waste Wise, with the assessment and estimates for the costs of the repairs all in Waste Wise’s name.[16]
[15]Affidavit of Lisa Chesson-Kistas sworn 14 August 2014, [6].
[16]Exhibit DAF-3 to the Affidavit of Darren Anthony Ferrari affirmed 11 August 2014.
On 28 January 2014, Waste Wise filed a complaint in the Melbourne Magistrates’ Court, claiming an amount of $49,628.18,[17] which included a GST component of $4,203.26. Other than requiring Waste Wise to prove ownership of the garbage truck, the only dispute Millington had with the claim was contained in paragraph 4 of the notice of defence filed at the Magistrates’ Court on 7 April 2014, which provided:
Save that the defendant admits the amount claimed for the plaintiff’s costs of repairs (exclusive of GST), assessment fee (exclusive of GST) and loss of use (exclusive of GST), the defendant states that the plaintiff is registered for GST and entitled to a 100% tax input credit, and is therefore not entitled to claim the GST component on any amounts sought to be recovered from the defendant.
[17]Exhibit DAF-1 to the Affidavit of Darren Anthony Ferrari affirmed 11 August 2014.
The findings the Magistrate made during the course of the hearing (there were no written reasons for the Magistrate’s decision) are helpfully set out in the Millington’s Submissions,[18] and can be summarised as follows:
[18]Millington’s Submissions, [25].
(a) Waste Wise operated a business and was a registered entity for the purpose of the GST Act, the garbage truck being damaged in the course of that business;
(b) There was no contractual relationship either between Millington and the repairer, nor between IMA and the repairer. The only relevant contractual relationship existed between Waste Wise and the repairer;
(c) Input tax credits could be claimed by Waste Wise for GST payable in respect of the repairs to the garbage truck;
(d) The measure of Waste Wise’s loss and damage was $49,628.18, being the GST inclusive amount. It is apparent from discussions undertaken at the hearing before the Magistrate that if Millington was not to be ordered to pay the GST inclusive amount, from the time of the repairs being paid and the time at which Waste Wise were able to claim the tax inputs, Waste Wise has lost the use of that money paid as the GST component of the repairs;[19]
(e) Waste Wise were under no legal obligation to claim the input tax credits to which they were entitled. However, it was obligated to mitigate its loss by claiming the tax inputs.
[19]Exhibit DAF-2 to the Affidavit of Darren Anthony Ferrari affirmed 11 August 2014 - Magistrates’ Court Transcript, page 12, lines 8 to 10; page 34, lines 6 to 14; page 44, lines 18 to 29.
The Legislative Framework
In HP Mercantile Pty Ltd v Commissioner of Taxation, Hill J discussed the legislative purpose of the GST Act:[20]
The language of the GST Act, as seen in the context of value added taxation generally, makes it clear that the legislative scheme is that a taxpayer will be entitled to an input tax credit where it is necessary that a credit be given to ensure that output tax payable by the taxpayer is not imposed upon an amount which already includes tax payable at some early stage in the commercial cycle.
[20](2005) 143 FCR 553 at 564-5.
For present purposes, GST is payable on taxable supplies. A taxable supply is defined in s 9-5 of the GST Act as follows:
You make a taxable supply if:
(a)you make the supply for *consideration; and
(b)the supply is made in the course or furtherance of an *enterprise that you carry on; and
(c)the supply is *connected with Australia; and
(d)you are *registered or *required to be registered
Under s 9-40 of the GST Act, liability to pay GST falls on an entity making a taxable supply.
Division 78 of the GST Act sets out special rules relating to insurance. Section 78-65 of the GST Act provides:
78‑65 Payments etc. to third parties by insurers
(1)The making of any payment by an insurer to an entity is not treated as *consideration for a supply to the insurer by the entity, to the extent that:
(a)the payment is made in settlement of a claim under an *insurance policy under which the entity is not insured; and
(b)the payment is to discharge a liability owed to that entity by the entity insured.
(2) The making of any supply by an insurer to an entity:
(a)is not to be treated as a *taxable supply by the insurer; and
(b)is not to be treated as *consideration for a supply to the insurer by the entity, or any other entity;
to the extent that:
(c)the supply is made in settlement of a claim under an *insurance policy under which the entity is not insured; and
(d)the supply is to discharge a liability owed to that entity by the entity insured.
(3)This section has effect despite section 9‑5 (which is about what are taxable supplies) and section 9‑15 (which is about consideration).
Payment by an insurer to a non-insured third party therefore does not constitute consideration for a supply to the insurer by that third party. Accordingly, the insurer will ordinarily not be entitled to an input tax credit in respect of such a payment made to a non-insured entity.
This situation was explained by the Commissioner of Taxation’s ruling number GSTR 2006/10, where it was stated:
65. If the insurer meets an insured’s liability to the supplier without the supplier taking on any other binding obligation to the insurer, the payment by the insurer is simply a payment by a third party entity, that is, the insurer. This payment arrangement does not change the fact that the supplier makes the supply to the insured, and not to the insurer. The insurer is not making an acquisition under Division 11 and is not entitled to input tax credits for payments made to the supplier. It does not matter that the insurer and the supplier actually have arrangements in place before the event (whether under an agreement or not) to pay for the goods or services supplied to the insured or a third party, whether invoices are sent directly to the insurer or whether costs are directly debited to the insurer.
66. A feature of these arrangements is that the agreement for the supply of the goods or services is between the supplier and the insured and that an obligation to pay remains with the insured. The fact that the insurer meets the insured’s liability does not alter this. There is no binding obligation between the supplier and the insurer for the supply of goods or services to the insured, nor a pre-existing framework or agreement which establishes a liability owed by the insurer to the supplier (not the insured or third party) in the event that there is a supply by the supplier to the insured or third party (see paragraph 64B of this Ruling). The arrangement between the supplier and the insurer remains that of a payment arrangement.
It is apparent then that the only relevant entity which would be able to claim any input tax credit for the GST paid on the repairs to the garbage truck is Waste Wise, as IMA was simply meeting Millington’s liability, as no taxable supply was made by IMA.
The Subject Matter of the Appeal
Before I turn to the individual grounds of appeal, I will first address a preliminary submission raised by the amicus as to what the actual subject matter of an appeal brought under s 109 of the Magistrates’ Court Act relates to. These submissions were made in relation to the first ground of appeal, namely the breach of the compensatory principle, but do apply equally to the discussion below relating to the alleged failure of the Magistrate to properly apply the law relating to mitigation of loss.
It was submitted by the amicus that any appeal brought under s 109 relates only to the orders of the Magistrate; it is not sufficient for the purposes of an appeal under that section to identify an erroneous step or an illogical reasoning process unless either of those results in an incorrect order.[21] While the transcript of the hearing before the Magistrate did reveal that on a number of occasions references to the position of the Magistrate being that an award for damages should be GST inclusive,[22] the amicus submits this erroneous reasoning is not enough; the error of law must be found in the operative part of the reasoning – the final orders. In this instance, the orders made that Millington pay to Waste Wise the GST inclusive amount, with a subsequent order that Waste Wise recompense Millington the GST amount once Waste Wise has received that amount back from the ATO, should not be seen to violate the compensatory principle, as the ultimate effect of the order is that Waste Wise is properly compensated for the actual amount of loss and damage which it has suffered.
[21]Transcript, page 38, lines 3 to 10.
[22]Exhibit DAF-2 to the Affidavit of Darren Anthony Ferrari affirmed 11 August 2014 – Magistrates’ Court Transcript, page 9, lines 30 to 31; page 18, lines 27 to 30; page 34, lines 9 to 14; page 44, line 24 to page 46, line 16; page 50, lines 28 to 31.
In Wong v Carter, Tadgell JA discussed the nature of an appeal under s 109. His Honour said: [23]
Section 109(1) of the Magistrates’ Court Act 1989 confers on a party to a civil proceeding in the Magistrates’ Court a right of appeal to the Supreme Court, on a question of law, from a final order of the Magistrates’ Court in that proceeding. The nature of an appeal of that character was considered in Transport AccidentCommission v. Hoffman[24]. The Full Court there decided that the right of appeal conferred by s.52 of the Administrative Appeals Tribunal Act 1984 (now repealed) “on a question of law, from a decision of” the Administrative Appeals Tribunal was to be construed as granting a right of appeal “on a question of law which is involved in” the decision. The appeal authorized by s 109 of the Magistrates’ Court Act (and by s 92 in criminal cases) is to be similarly construed. So much has been stated time and again when the words I have just quoted from Hoffman’s Case have been applied. Nevertheless, as judges in this State have had occasion to say more than once before today, the concept of an appeal “on a question of law which is involved in” a decision appears to be commonly misunderstood. An appeal to the Supreme Court is not authorised by the Magistrates’ Court Act unless it is brought on a question of law which is involved in the final order from which the appeal is brought.
[23][2000] VSCA 53 at [43].
[24][1989] VR 197 at 199.
The decision of Hoffman to which Tadgell JA refers was also discussed in a recent Victorian Court of Appeal case of McVey v G J & L J Smith Pty Ltd,[25] the decision in which provides by analogy further support for the position that an appeal on a question of law should include those questions of law involved in the final order. In McVey, an appeal was brought under s 52(1) of the Accident Compensation Act 1985, which provides:
[A]ny person who was a party to proceedings before the County Court at which a judgment or decision was given or made may appeal to the Court of Appeal on a question of law raised during those proceedings.
[25](2012) 37 VR 433.
While the statutory language of that section when compared to s 52 of the Administrative Appeals Act - and by the analogous reasoning in Wong to s 109 of the Magistrates Court Act - contain come important distinctions, Maxwell P and Tate JA, held that the differences in statutory language between the sections did not preclude analogous reasoning on their construction.[26] Their Honours explained their reasoning for this conclusion by reference to another decision of Tadgell JA dealing with statutory language of a similar nature to s 109:[27]
In Green,[28] the reasoning proceeded in three stages. First, by reading s 52(1) of the [Accident Compensation] Act as including a reference to the “decision” of the court, there was a fixed and objective point of reference in relation to which an appeal could be brought, which the terms of the subsection had omitted to provide. Secondly, this made the judgment or decision the focal point in respect of an appeal. Thirdly, this construction allowed for the reasoning in Hoffman to apply. The right of appeal was not to be confined to judgments or decisions on questions of law because that would be overly restrictive. Nor was it to be read so broadly as to encompass an appeal from any judgment or decision which had itself involved a question of law. Rather, the questions of law on which an appeal could be brought were to be confined to those matters which were involved in the judgment or decision from which the appeal was brought.[29]
[26](2012) 37 VR 433 at 442, [33].
[27](2012) 37 VR 433 at 439, [23].
[28][1997] 1 VR 364.
[29]Footnote added.
To construe the basis upon which an appeal may be brought under s 109 of the Magistrates’ Court Act in the manner submitted by the amicus would clearly be overly restrictive.
Ground One of the Appeal: Application of the compensatory principle.
The first ground upon which this appeal is brought is that, in finding that Waste Wise’s loss and damage was GST inclusive, the Magistrate failed to apply the compensatory principle correctly.
The compensatory principle is that the object of an award for damages is to provide a sum of money the effect of which is to place the party who has been injured in the same position they would be in if they had not sustained the wrong for which they are now being compensated.[30] In general terms, a court will award compensation for all losses that a plaintiff would not have suffered but for the wrong. Conversely, an injured plaintiff is not entitled to make a profit in an action in tort or contract; in other words, to be awarded damages for a loss never suffered.[31]
[30]Millington’s Submissions, [32]; and see Gagner Pty Ltd v Canturi Corporation Pty Ltd (2009) 236 FLR 401 at 409, [30] (Campbell JA); Livingstone v Raywards Coal Co (1879-80) LR 5 App Cas 25 at 39 (Lord Blackburn); Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185 at 191 (Taylor and Owen JJ); Johnson v Perez (1988) 166 CLR 351 at 355 (Mason CJ), 367 (Wilson, Toohey, and Gaudron JJ) and 386 (Dawson J).
[31]Wertheim v Chicoutimi Pulp Co [1911] AC 301 at 307-308, (Lord Atkinson); McCrohon v Harith [2010] NSWCA 67, [53].
The application of the compensatory principle was recently discussed by the New South Wales Court of Appeal in Gagner Pty Ltd v Canturi Corporation Pty Ltd[32] (“Gagner”). In Gagner, the appellant was the operator of a restaurant situated on the first floor of a city building. Immediately below the restaurant was a jewellery store operated by the respondent. Flooding which occurred in the appellant’s premise entered the respondent’s premises, causing damage to some of the internal fit-out of the jewellery store. At first instance, the primary judge found the appellant vicariously liable in negligence and awarded damages for the cost to bring the premises back to the pre-flooding condition, including an amount for the GST on the repairs which the respondent would have had to pay. The respondent was registered under the GST Act and was entitled to an input tax credit for the GST component of any costs incurred on replacement items and other repairs.
[32](2009) 236 FLR 401.
On appeal, one of the issues was whether the primary judge erred by including GST in the assessment of damages, insofar as the respondent suffered no net loss because it was entitled to an input credit for any cash outflow in payment of GST. It was argued that by including an amount inclusive of GST for which the respondent would be entitled to recover through input tax credits, the decision at first instance was in breach of the compensatory principle.
After a review of the relevant provisions of the GST Act regarding what would be considered to be a “creditable acquisition” for the purposes of that act, Campbell JA (with whom Macfarlan JA and Sackville AJA agreed) went on to say regarding the inclusion of GST in an award of damages:[33]
146.I accept that the consequence of these provisions is that, even though the Respondent might pay out an amount of GST in connection with the goods and services which it acquired for the purpose of making good the damage to its premises, it would be able to recover that amount back, either in the form of a reduction of the net amount it must remit to the Commissioner for the quarter in which the payment was made, or as a refund. Thus the amount of GST component of any payments it made for making good the premises would not ultimately be a loss that it suffered. Given the compensatory purpose of the damages award, it was wrong to include that component in the award of damages.
[33](2009) 236 FLR 401 at 432,
His Honour acknowledged that while there were a number of cases in which damages for a tort have included a GST component,[34] none of these involved matters where the relevant party was shown to be registered for GST purposes, and thus entitled to the benefit of an input credit on any GST paid. As the plaintiffs in these proceedings were not entitled to an input credit on any GST paid, the result would be that the net loss they had suffered would have included the amount of GST which they were required to pay.[35] In this regard, his Honour said:[36]
… as the GST legislation currently stands, if the plaintiff in an action for tort is registered for GST purposes, and stands to receive an input credit for any GST payments incurred in making good its damage, and there is no impediment to the plaintiff receiving the full benefit of the input credit, that GST amount should be excluded from the quantum of damages recoverable.
[34]Vrkic v Otta International [2003] NSWSC 641 at [25]-[26]; Thornton v Apollo Nominees Pty Ltd (2005) 15 Tas R 35; Tenderwatch Pty Ltd v Reed Business Information Pty Ltd (2008) 78 IPR 329.
[35](2009) 236 FLR 401 at 433, [149].
[36](2009) 236 FLR 401 at 433, [150].
While Gagner is authority for the proposition that an award of damages properly calculated should not include an amount for GST where the plaintiff is entitled to claim input tax credits for that amount, a recent decision in this Court held that, in appropriate circumstances, an award amount for damages can include an amount for GST. In Peet v Richmond (No 2)[37] (“Peet”) the Court made a quantum meruit award for expenses the plaintiff had paid to third parties as contractors, as well as for work performed by the plaintiff’s own employees. A short time after judgment was delivered, the Court heard argument from the parties in relation to GST. The main issue which arose in this respect was whether the judgment sum should be grossed up for the GST which was to be levied upon the judgment amount. Unless such a step was to be taken, it was the plaintiff’s submission that the award would be diminished in that the plaintiff would receive 1/11th less than the Court had intended to order in granting what it deemed to be a fair and reasonable remuneration for the loss suffered.
[37](2009) 76 ATR 644.
An objection was made to the gross up on the basis that the Court could not be satisfied there would be any liability for GST until such time as the judgment sum was paid. After agreeing with the plaintiff that as the very nature of a quantum meruit award is payment for services rendered at an earlier point in time, such an award is likely to give rise to a GST liability,[38] Justice Hollingworth discussed the reasoning process which a court will undertake where uncertainty lies as to any amount of GST which will be payable on an award for damages, before ordering an effective way of dealing with these concerns:[39]
80. Obviously, this court is not being asked to determine, as between Peet and the Commissioner of Taxation, whether there is in fact a GST liability. It is being asked to make an award which fairly and reasonably reflects a liability which is expected to arise upon payment of the judgment sum.
…
82.At the end of day, I have determined that the fairest and most efficient way of dealing with GST is in the following manner. Peet will provide a tax invoice to Mrs Richmond upon request by her. Mrs Richmond will pay one-tenth of the quantum meruit sum to Peet within 30 days of receiving such a tax invoice from Peet, in respect of Peet’s GST liability. Within 30 days of remitting the relevant GST to the Commissioner, Peet will provide to Mrs Richmond documentary proof of the amount of GST it has remitted. Peet will refund to Mrs Richmond the balance, if any, remaining after it has remitted the GST.[40]
By structuring the award amount in such a way, her Honour addressed the uncertainty in a manner which did not offend the compensatory principle, as the plaintiff was fully compensated for the loss suffered without creating a situation where the plaintiff would in fact be over-compensated, should the GST liability fail to eventuate to the full amount “predicted” by the Court.
[38]Public Ruling GSTR 2001/4 deals with the GST consequences of court orders.
[39](2009) 76 ATR 644 at 647, [80]-[82].
[40]Emphasis added.
Fulton Hogan Construction Pty Ltd v Grenadier Manufacturing Pty Ltd (in liq)[41] (“Fulton”) was another case in which this Court dealt with the question of the effect of GST on an awards for damages. In Fulton, the plaintiff had been contracted to construct, supply and install a footbridge over a highway. The plaintiff then subcontracted the work to the first defendant, who in turn engaged the second defendant to carry out coating works on the trusses and handrails of the footbridge. Liability in the proceeding turned on whether the failure of the coating system was caused by the defective products of the paint manufacturer, or by the poor application of the coating system by the various contractors engaged. For present purposes, the issue was whether damages awarded for loss arising from property damage should take into account the GST component which had been paid on the earlier supply of goods and services.
[41][2012] VSC 358.
The manufacturers of the coating system submitted that Peet was distinguishable on the facts in that Peet involved a quantum meruit claim where the plaintiff had provided goods or services to the defendant and no payment had been made. In Fulton, the plaintiff had already paid to third parties the amounts which it then sought to recover as damages, including GST. As the usual practice of businesses is to routinely set off GST collected against GST paid, it was submitted that the court should infer that the plaintiff in Fulton had already claimed an input tax credit in respect of the GST amounts it paid.[42]
[42][2012] VSC 358, [467].
After agreeing that Peet was distinguishable from Fulton on the facts, Almond J said:[43]
As a consequence of the defective coating Fulton Hogan had to pay third parties for goods and services plus GST with respect to those goods and services. I accept that in the ordinary course, Fulton Hogan would have received an input tax credit to the extent of the GST it had paid against the GST it collected on services it had supplied to third parties. Without the delamination of the coating, Fulton Hogan would not have needed to pay the GST on those goods and services and would not have received an input tax credit equal to that payment. In my opinion, it is reasonable to infer, and I do infer, that Fulton Hogan has already been compensated by the input tax credit it would in the ordinary course have received equivalent to the GST paid. Damages are compensatory; they are to recompense the plaintiff for loss suffered in paying third parties for goods and services. I accept that if damages were awarded for an amount equivalent to the GST component already paid, then Fulton Hogan would be doubly compensated.[44]
In Fulton an eventual recoupment to the plaintiff was allowed, but only in relation to a small portion of the claim to which there was evidence that Fulton had not claimed any GST.
[43][2012] VSC 358, [468].
[44]See also Gagner Pty Ltd Trading As Indochine Cafe v Canturi Corporation Pty Ltd [2009] NSWCA 413, 25 [151] and Merringtons Pty Limited v Luxottica Retail Australia Pty Ltd [2006] VSC 525, 12-13 [40]-[41].
It is clear when one looks at the decisions in these cases that the keystone in the decision-making process is the concept of certainty. In both Gagner and Fulton, the loss suffered was easily quantified, as the monetary amounts had already been paid by the plaintiff in the course of the dealings which led to the dispute before the court. The claims being made entailed the plaintiffs attempting to be recompensed for this monetary loss suffered. In these circumstances, the Court’s task in determining an award amount is made manifestly easier, as a fixed amount may be awarded which is readily quantified in compliance with the compensatory principle. Peet was a different case. While the monetary amount for damages may have been readily calculated with a high degree of certainty, the GST component of the loss suffered was not so easily quantified, as it lay on the award amount itself rather than any costs which had already been paid. This case is, like Fulton, clearly distinguishable from Peet in this regard. The amount of the loss suffered by Waste Wise is, and has been, clearly quantified. In these circumstances, an order for a fixed sum of money can readily be made, without the need for any secondary amount to be paid back, or indemnity provided, to any party in order to comply with the compensatory principle.
There was some suggestion that the Orders were structured in such a manner as a result of the Magistrate’s concern that Waste Wise would have to bear the GST inclusive cost of paying the repairer of the vehicle until such time as an input tax credit could be claimed.[45] On this point, I agree with Millington’s submissions that even if it were correct that the respondent had suffered loss in respect of the time it had taken to claim an input tax credit, the proper application of the compensatory principle would have resulted in an amount of interest be added to the award of damages to compensate for the time value of the damages amount.
[45]Millington’s Submissions, [40].
For these reasons, I find that the Magistrate did fail to properly apply the compensatory principle. Accordingly, Ground One of the Notice of Appeal is made out.
Ground Two: The application of the once and for all rule
The second ground of appeal is that in providing that Waste Wise was obliged to pay an amount of money back to Millington after the time by which a tax refund may be received had elapsed, the Orders breached the “once-and-for-all” rule for damages. The rule was stated in Todorovic v Waller:[46]
Certain fundamental principles are so well established that it is unnecessary to cite authorities in support of them. In the first place, a plaintiff who has been injured by the negligence of the defendant should be awarded such a sum of money as will, as nearly as possible, put him in the same position as if he had not sustained the injuries. Secondly, damages for one cause of action must be recovered once and forever, and (in the absence of any statutory exception) must be awarded as a lump sum; the court cannot order a defendant to make periodic payments to the plaintiff.
[46](1981) 150 CLR 402 at 412 (Gibbs CJ and Wilson J).
While it was not the case in the current proceeding, it will often be the situation that the task of calculating an amount of damages which will put the plaintiff in exactly the position they would have been if not for the loss will be an impossible one. Compensation to be paid to a plaintiff will often be more a matter of judgment rather than some precise calculation based on certain integers or events, though such judgment should always be formed after an examination of the estimates and calculations as can reasonably be made.[47] It has also been said that the difficulty inherent in the assessment of damages provides no reason for the courts to avoid the task of arriving at the estimate most likely to provide fair and reasonable compensation.[48]
[47]Cullen v Trappell (1980) 146 CLR 1 at 38 (Aicken J).
[48]Todorovic v Waller (1981) 150 CLR 402 at 413.
The difficulty in the task of providing fair and reasonable compensation in a commercial setting can be complicated further due to the intricate financial arrangements which may exist both within and between the parties. In Namol Pty Ltd v AW Baulderstone Pty Ltd,[49] the parties provided to the court a complicated order containing various stages of payment, which ran for some four pages in length and was referred to as being “so inconsistent with the approach of the common law to the assessment of damages, which is to award a fixed sum having regard to the probabilities of the case, that … no court would adopt it.”[50] In discussing the need to take into account the various possibilities that may arise in relation to a final judgment amount, Davies J said:[51]
Ordinarily, damages are assessed on the probabilities of the case. But if risks or possibilities have to be taken into account because they are part of the matrix of relevant facts, then a court must do the best it can and will adjust the award to take account of that risk or possibility. It is inconsistent with common law principles to make a conditional order either providing for an additional award should a certain event occur or reducing or providing for a reduction of an award should an expected event not come to pass. In the circumstances of the present case, I am of the view that ordinary common law principles should be applied.
[49](1993) 47 FCR 388.
[50](1993) 47 FCR 388 at 191.
[51](1993) 47 FCR 388 at 191.
Davinski Nominees v Bowler Holdings[52] involved an appeal from a decision of the Victorian Administrative Appeals Tribunal (“VCAT”) which involved relocation notices served by the plaintiff on the defendants under the Retail Leases Act 2003. At VCAT, it was found that the relocation notices were not validly issued, and that the defendants were entitled to be compensated for the income which they had lost as a result of the wrongful interruption to their leases. The main issue on appeal relevant to this proceeding was whether VCAT should have calculated the compensation to the defendants on the post-tax earnings which they had lost, as well as the correct amount of grossing-up to be added to the judgment amount to accurately reflect the amount of taxation to be imposed on that amount.
[52][2011] VSC 220.
After a review of a number of the authorities relating to the manner in which courts have dealt with the effect of taxation on the calculation of compensation, Kaye J said:[53]
58In effect, those propositions reflect the application of the fundamental principle that the function of damages is to provide fair compensation for a loss sustained by a claimant. Thus, where an award of damages is not liable to taxation, it is just that the damages should be assessed by reference to the post-tax earnings of the claimant. Otherwise, the award of those damages would be well in excess of fair compensation for the loss sustained by the plaintiff. Further, where the award of damages is liable to taxation, and where it is possible, to calculate, with reasonable certainty, both the damages on the basis of the plaintiff’s lost post-tax earnings, and also the tax liability arising from the compensatory verdict, it would be unfair to assess damages, without taking the relevant tax implications into account. In such a case, the assessment of damages, ignoring tax, would not result in an amount of compensation, which is fair both to the claimant and to the defendant.
59On the other hand, a difficulty may arise where there is a degree of uncertainty attaching to the nature, or the amount, of the taxation which might be imposed on the award of damages. In such a case, the law is cautious about taking into account the tax implications of such an award. In particular, where that process would involve a number of assumptions or imponderables, an award, taking the taxation implications into account, may not constitute fair and just compensation. In that event, an award of damages, based on the plaintiff’s lost post-tax damages, might be liable to the imposition of an amount of taxation, in respect of which the plaintiff is not properly compensated. Further, in such a case, the assessment of damages would involve an impermissible degree of speculation, and become unduly entangled with collateral issues involving the complexities of taxation law. It is those considerations which explain the caution expressed by Gibbs J in Atlas Tiles v Briers, and which are reflected in the third proposition stated by Clark JA and Sheller JA in Daniels & Ors v Anderson. Where there is a lack of reasonable certainty as to the existence, nature or quantification of the tax liability of the damages verdict, an award of damages, in such a case, could not be described as being unjust or unfair, if it were assessed without taking into account taxation.
[53][2011] VSC 220, [58]-[59].
In rejecting a suggestion that the problem may be resolved by the matter being remitted back to VCAT with a direction that an order be made declaring the plaintiff indemnify the defendants in respect of any tax liability which might be levied on an award for damages, his Honour followed the observations of Davies J in Namol and found that “the difficulty with that proposition [to indemnify] is that it cuts across the basic common law principle that damages are awarded once and for all.”[54]
[54][2011] VSC 220 at [71].
While these decisions provide support for the proposition that a court should impose a once-off lump sum payment when compensating a plaintiff, they also shed some light on the inherent conflict which exists in the decision-making process the court must undertake when determining an amount which fairly and reasonably compensates a plaintiff in a manner which does not offend the “once-and-for-all” rule.
This difficulty becomes even more apparent when one considers the number of decisions submitted by the amicus which do indicate in certain circumstances courts have been prepared to make orders which are inconsistent with the “once-and-for-all” rule when faced with uncertainty as to how taxation liability may effect an award of damages.
In Provan v HCL Real Estate[55] (“Provan”), Rolfe J dealt with the uncertainty by determining that the plaintiff was entitled to a declaration indemnifying him against any capital gains tax to which he may become liable. His Honour gave the following rationale as to why the declaration did not contravene the “once-and-for-all” rule:[56]
This approach, particularly in view of the way the case was argued, does not affront the principle that damages must be determined once and for all. That principle is subject to the qualification that liability may be considered in proceedings separate from those which quantify damages. Also, and particularly when there is a consideration of damages in equity proceedings or in proceedings involving equitable relief, orders are frequently made referring the matter to the appropriate judicial officer to determine the amount e.g. by the taking of the accounts.
If I adopt the approach that I make a declaration granting an indemnity in the event of the plaintiff’s being held liable to pay capital gains tax I also avoid an area of potential prejudice to the defendants.
[55](1992) 24 ATR 238.
[56](1992) 24 ATR 238 at 249.
In Tuite v Exelby,[57] a situation analogous to Peet arose in that it was likely the plaintiff would incur a tax liability on the judgment amount. In making an order that appears to adopt a similar rationale to the orders made in Peet, Shepherdson J said:[58]
I have been concerned as to how best to deal with the possibility that tax under Part IIIa is not ultimately assessed and payable on the $808,940. I have concluded that I should seek and obtain from the first plaintiffs their undertaking to be given in open court that, in the event that such tax is not assessed at all or that such tax is assessed at less than $517,191, they will refund to the first and second defendants the whole of the $517,191 or the amount by which $517,191 exceeds the tax assessed as the case may be.
[57](1992) 25 ATR 81.
[58](1992) 25 ATR 81 at 93.
In PM Sules v Daihatsu Aust, Kirby J summarised the line of authority which had developed along the same lines as Provan before saying: [59]
It is, of course, desirable that all damages should be assessed at the one time, and the matter disposed of completely. However, I do feel myself able to deal with this aspect at this time. There is uncertainty as to whether the plaintiff will be liable for tax, and if it is, the basis of that liability. Different considerations arise if the amount awarded is characterised as subject to Capital Gains Tax. There is also considerable uncertainty in respect of the deduction which may be available to the plaintiff to offset any such liability. I believe, in these circumstances, I should give leave to the plaintiff to apply for additional damages referable to Income Tax should it be assessed.
[59][2001] NSWC 798, [119].
Finally, in Duke Group Ltd (in liq) v Pilmer,[60] the Full Court of the Supreme Court of South Australia, in upholding a Provan-type order made by trial judge, made the following comments:
Close consideration must be given to the suggestion that the order breaches the once and for all rule. However it is our view that the order does not offend against the principle behind that rule, namely, that there should be finality to litigation. The trial judge determined liability and assessed damages. In relation to this particular head of damages the quantum to be paid in respect of the tax was stated to be the amount of the tax, so that certainty was achieved to that extent. The trial judge simply identified the event upon which that component of damages would become payable. The order is an indemnity for an amount which will be precisely defined in the event of the collection of tax. The order might give rise to some practical problems but they are not such as to outweigh the central consideration of arriving at a just award of damages.[61]
[60](1999) 73 SASR 64 at 181, [562].
[61]On appeal to the High Court, the decision of the Full Court of the Supreme Court of South Australia was overturned, primarily due to an incorrect calculation of damages, rather than the appropriate form of the orders. There was no discussion as to whether the orders of the Full Court of South Australia should be deemed to have breached the “once-and-for-all” rule.
In his reply submissions, Millington pointed to a number of cases which suggest the line of authority established in Namol and Davinsky provides the approach which this Court should follow. In Osric Investments Pty Ltd v Woburn Downs Pastoral Pty Ltd,[62] Drummond J preferred[63] to follow the approach of Davies J in Namol, while Harper J in Carborundum Realty Pty Ltd v RAIA Archicentre Pty Ltd[64] suggested that the approach taken in Provan should be seen as being inconsistent with the “once-and-for-all” rule.[65]
[62](2001) FCA 1402.
[63][2001] FCA 1402, [197].
[64](1993) 93 ATC 4,418.
[65](1993) 93 ATC 4,418 at 4,429.
In many ways, a review of the authorities only muddies the already-opaque waters. While the “once-and-for-all” rule is rightly seen as a long-standing common law rule, clearly there are numerous examples where courts have been prepared to make an award of damages in a manner that provides, as accurately as possible, an appropriate amount to compensate a party for the loss suffered, even if a lack of certainty as to the actual amount has led to the orders being at odds with any “requirement” to provide a once-off, lump sum payment for damages.
Policy considerations
In support of his argument that this Court should find that the Orders breached the “once-and-for-all” rule, Millington advanced a number of policy reasons why the Orders should be considered inappropriate, including problems caused by:[66]
[66]Millington’s Submissions, [60].
(i)adding complexity, delay and uncertainty to the resolution of third party claims;
(ii)adding administrative costs and complexity to manage the recovery of the GST component of insurance claims;
(iii)the need to pursue subrogated recovery proceedings against parties who fail to repay the GST component of compensation;
(iv)the need to abandon uncommercial recovery rights;
(v)IMA bearing the commercial risk of the GST component of claims which need to be reimbursed by recipients of compensation which cannot be recovered;
(vi)possible losses to IMA arising from the increased administrative costs and from the GST component of compensation;
(vii)increased premium due to increased average claims costs, including administrative costs.
It must be said that there is much weight in these policy considerations. Requiring the recipient of an award of damages to repay an amount to the tortfeasor leaves open the possibility of further litigation by the tortfeasor to recover the amount if the recipient of the award fails to repay the amount. This is an undesirable position and once which the Court should strive to avoid as far as possible. But the question remains whether orders such as those made here would breach the principle of finality which lies behind much of these policy considerations, and was referred to by the Full Court of the Supreme Court of South Australia in Duke v Pilmer.
The principle of finality was explained by the High Court in D’Orta-Ekenaike v Victoria Legal Aid:[67]
[34]A central and pervading tenet of the judicial system is that controversies, once resolved, are not to be reopened except in a few, narrowly defined, circumstances. That tenet finds reflection in the restriction upon the reopening of final orders after entry[68] and in the rules concerning the bringing of an action to set aside a final judgment on the ground that it was procured by fraud.[69] The tenet also finds reflection in the doctrines of res judicata and issue estoppel. Those doctrines prevent a party to a proceeding raising, in a new proceeding against a party to the original proceeding, a cause of action or issue that was finally decided in the original proceeding.[70] It is a tenet that underpins the extension of principles of preclusion to some circumstances where the issues raised in the later proceeding could have been raised in an earlier proceeding.[71]
[35]The principal qualification to the general principle that controversies, once quelled, may not be reopened is provided by the appellate system. But even there, the importance of finality pervades the law. Restraints on the nature[72] and availability of appeals, rules about what points may be taken on appeal[73] and rules about when further evidence may be called in an appeal (in particular, the so-called “fresh evidence rule”[74]) are all rules based on the need for finality. As was said in the joint reasons in Coulton v Holcombe:[75] “[i]t is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial”.
[67](2005) 223 CLR 1 at 17, [34]-[35] (Gleeson CJ, Gummow, Hayne and Heydon JJ).
[68]DJL v Central Authority (2000) 201 CLR 226.
[69]DJL v Central Authority (2000) 201 CLR 226 at 244-245 [35]-[38].
[70]See, eg, Hoysted v Federal Commissioner of Taxation (1925) 37 CLR 290; Blair v Curran (1939) 62 CLR 464; Jackson v Goldsmith (1950) 81 CLR 446; Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR 353.
[71]Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.
[72]Victorian Stevedoring & General Contracting Co Pty Ltd v Dignan and Meakes (1931) 46 CLR 73.
[73]Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; O’Brien v Komesaroff (1982) 150 CLR 310; Coulton v Holcombe (1986) 162 CLR 1.
[74]Orr v Homes (1948) 76 CLR 632; Ratten v The Queen (1974) 131 CLR 510 at 516-517 (Barwick CJ); Gallagher v The Queen (1986) 60 CLR 392; Mickelberg v The Queen (1989) 167 CLR 259.
[75](1986) 162 CLR 1 at 7.
Structuring the orders in the manner adopted by the Magistrate in this instance may leave open the possibility of future litigation should the recipient of the award fail to repay the amount ordered by the Magistrates’ Court to be returned once the tax liability can be accurately determined. But this may also be the case should the judgment debtor fail to make the initial payment, something that would necessitate further enforcement proceedings in any event. Of greater significance is the consideration of the key aspect of the principle of finality in that the substantial issues between the parties are settled. Here, and in other proceedings where a court has made an order for a repayment to be made, the substantial issues have been adjudicated upon to point of liability being finally determined, so all that remains is the amount to be quantified upon the happening of a certain event, i.e the imposition of a tax.
In much the same way as the earlier discussion regarding the correct interpretation of the compensatory principle was imbued with the concept of certainty of judgment amount, so it is here when one looks at the manner in which courts have approached the interpretation of the “once-and-for-all” rule. It is also readily apparent that by the very nature of these two principles they can at times be at odds in their application. How is it that a court can properly compensate a plaintiff for the loss and damage suffered in a single, lump-sum payment in circumstances where a known event will occur in the near future which will have the effect of altering the actual loss by an amount that cannot be readily calculated at the time the orders were made? Of course, the law answers this by saying that the task before the court when assessing a quantum for damages involves the weighing of all the ‘risks and possibilities’ so that a figure can be reached, with reasonable certainty, which adequately compensates the wronged party. But while the calculation of damages is not an exercise in perfection, nor does it allow for an impermissible degree of speculation. Certainty and accuracy in calculation would appear to be eminently desirable and consistent with principle where it can be achieved with reasonable expedition and lack of procedural inconvenience at a significant cost.
A further question that must be asked is how far the Court should go in its investigation into the risks and possibilities that may arise and which will effect an amount of damages, particularly in the complex company arrangements prevalent in today’s commercial environment. While the balancing exercise which the Court must undertake is clearly established, this must be undertaken only after a thorough investigation of the evidence. Civil litigation in this jurisdiction has undergone considerable change in recent years. Obligations are now imposed on all parties to conduct themselves in a manner which promotes the overarching purpose of the Civil Procedure Act 2010 (“CPA”); the just, efficient, timely and cost-effective resolution of the real issues in dispute. It is also incumbent upon the Court to give effect to this overarching purpose.[76] Section 8 of the CPA provides:
[76]Yara Australia Pty Ltd v Oswal [2013] VSCA 337.
Section 8: Court to give effect to overarching purpose
(1)A court must seek to give effect to the overarching purpose in the exercise of any of its powers, or in the interpretation of those powers, whether those powers—
(a)in the case of the Supreme Court, are part of the Court’s inherent jurisdiction, implied jurisdiction or statutory jurisdiction; or
(b)in the case of a court other than the Supreme Court are part of the court’s implied jurisdiction or statutory jurisdiction; or
(c)arise from or are derived from the common law or any procedural rules or practices of the court.
(2)Subsection (1) applies despite any other Act (other than the Charter of Human Rights and Responsibilities Act 2006 ) or law to the contrary.
Allowing parties to adduce what may indeed be necessary, but lengthy or voluminous, evidence to assist the Court in calculating a proper amount of compensation when complicated issues of taxation arise creates a very real risk of greatly lengthening trials, creating increased costs for all involved, including the public. While this should not necessarily be seen as a reason for the Court to exclude otherwise relevant and admissible evidence, the expeditious and cost effective resolution of disputes is a consideration of significant importance.
And so what should the Court do in this current proceeding? It would not be surprising if it were suggested that the current state of the law relating to the interpretation of the “once-and-for-all” rule may be seen as somewhat unsatisfactory. While I share Harper J’s reservation in Carborundum Realty[77] in that it is difficult to reconcile the orders made in Provan (and the other authorities to which I have referred and which have adopted a similar approach) with a strict adherence to the “once-and-for-all” rule, it would be reasonable to suggest that orders of the nature made in Provan do provide a mechanism for a court to achieve certainty and accuracy in the calculation of damages in an expeditious, cost effective and convenient manner.
[77]See above [51].
In its reply submissions, Millington referred to the rationale behind the decision in Provan (as well as a number of other authorities which have adopted a similar approach) before setting out, in some detail, the reasons why this current proceeding can be distinguished. I accept these submission on the basis of their reasoning and the authorities relied upon, so it is helpful to set them out:[78]
[78]Appellant’s Reply Submissions, [23] – [33].
23.The rationale simply does not exist in this case. Liability for damages and their quantum were not determined separately by the Magistrate.
24.There are other reasons for distinguishing the Provan line of authority, even if it is good law in Victoria. In Carborundum Realty Pty Ltd v Raia Archicentre Pty Ltd & Anor,[79] Harper J distinguished Provan’s case for a number of reasons. Two of those reasons relate to the specific facts of the case. A final reason was that in Provan’s case counsel for both parties accepted that declaratory relief was appropriate in the circumstances. No such agreement was made before the Magistrate in the current case. The appellant disputed the Magistrate’s proposed orders.
25.Provan’s case and Duke v Pilmer are also distinguishable on the basis that they involved additional damages awarded to a plaintiff in circumstances in which there was uncertainty surrounding quantum and there would have been a possibility of loss to the plaintiff if such a declaration were not made. No such circumstances existed in the current case. In the current case, damages could and should have been awarded as a single lump sum, not by way of an initial award followed by a refund of part of that award after a period of several months had passed.
…
29.Further, all of the cases referred to above deal with situations in which additional damages were possibly going to be awarded to a plaintiff. They did not deal with a scenario in which damages were awarded to a plaintiff and then a refund was to be made by the plaintiff at some future point in time.
30.Tuite & Anor v Exelby & Ors[80] appears to be the only case in which a mechanism for a refund of damages by a plaintiff has been contemplated (other than Peet Ltd v Richmond (No 2)[81] which has been discussed in the appellant’s primary submissions and which did not, in any event, consider the Provan line of authority). That case, however, is still distinguishable from the current situation. In Tuite’s case, Shepherdson J increased the award of damages for potential taxation, but made no orders requiring the taxation component of the award to be refunded by the plaintiff to the defendant if it eventuated that no tax was payable. Instead, his Honour simply proposed to seek and obtain an undertaking from one of the plaintiffs in open court that, in the event no tax was assessed (or a lesser sum was assessed), that plaintiff refund the part of the damages representing taxation that did not have to be paid to the revenue authorities.
…
32.In the current case, the Magistrate’s orders for a refund were also made to provide compensation for the time value of money, not for an adjustment of the damages due to an uncertain future event (despite no compensation for the time value of money being sought in any of the pleadings). The Provan type of order is not appropriate in such a situation. Interest is the appropriate compensation for the time value of money. If interest had been sought and awarded, the Magistrate could have made orders for a single lump sum of damages. Such an award would have complied with the once and for all rule.
33.In summary, even if the Provan line of authority were good law in Victoria, those cases are distinguishable for the reasons given.
[79](1993) 93 ATC 4,418 at 4,426.
[80](1993) 93 ATC 4,293.
[81](2009) 76 ATR 644.
There are a number of other reasons why the Orders were inappropriate in the current proceeding, and why they may be seen to offend the once-and-for-all rule. As the policy considerations to which I referred earlier indicate,[82] the Orders do create considerable risk of unnecessary complexity and difficulty in circumstances which simply do not call for it. There was no evidence of complexity in any financial structure which would leave itself open to complicated tax arrangements which may render it impossible for a court to accurately determine an appropriate amount of compensation, nor could it be said that there were events the occurrence of which could not fairly be predicted. While there was an indication before the Magistrates’ Court that the collection of input tax credits would not occur as Waste Wise did not intend to claim them, as the discussion below will indicate, there was no merit in this argument. In addition, on the material before the Court, this was a remarkably straightforward transaction upon which an accurate and easily calculable amount could be determined as to the tax liability and the treatment which would eventuate.
[82]See above [53]-[54].
While there may be situations where, for the reasons which I have indicated, the particular circumstances of a proceeding may be such that it is appropriate, indeed preferable, for the court to make orders of the type made in Provan in order to achieve greater accuracy in the calculation of damages, the preferred approach must always be to provide an order which as accurately as possible compensates the party for the loss suffered in a single, “once-off” payment. Where this is impossible to achieve, given the commercial complexities of the proceeding, the orders of the type made in Provan and the authorities which have followed that line of reasoning may be appropriate where liability has been determined to achieve finality in the litigation, save for the final calculation of the amount of damages. In any event, this is not a proceeding where any need arose to make any order other than a “once-off” amount for damages. Accordingly, I find that the Orders were in breach of the once-and-for-all rule. The second ground in the Notice of Appeal is also made out.
Third Ground of Appeal: Misapplication of the law relating to mitigation of loss
Ground 3 of the Notice of Appeal alleges that the Magistrate misapplied the law relating to mitigation of loss in two respects. First, in finding that incumbent upon Waste Wise was a duty to take positive steps to mitigate its loss by claiming input tax credits for the GST component of the vehicle repair costs. Secondly, by failing to reduce the award of damages by the GST component in circumstances in which the respondent conducted its case on the basis that it would not claim any input tax credits.[83]
[83]Millington’s Submissions, [62].
The law relating to mitigation of loss was stated by the New South Wales Court of Appeal in Karacominakis v Big Country Developments Pty Ltd:[84]
A plaintiff who acts unreasonably in failing to minimise his loss from the defendant’s breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the plaintiff is not under a positive duty. The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which he has not.[85] Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did.[86]
[84](2000) 10 BPR 18,235 at 18,271, [187] (Giles JA, with whom Handley and Stein JJ agreed).
[85]TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130.
[86](Banco de Portugal v WaterlowandSons Ltd (1932) AC 452; Pilkington v Wood (1953) Ch 770; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5).
After referring to this extract in Karacominakis, Garde J in Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd set out a number of principles that guide the assessment of loss in cases where mitigation is in issue:[87]
(a)there is in fact no duty to mitigate loss – rather, damages are reduced to the extent that the plaintiff has not acted reasonably;
(b)the onus of proof is on the defendant to show that the plaintiff has not acted reasonably in minimising loss arising from the defendant’s breach of contract;
(c)the defendant must prove the extent of the plaintiff’s failure to minimise loss, i.e. the amount of the plaintiff’s loss that was occasioned by the plaintiff’s failure to act reasonably;
(d)a high standard of conduct is not required of the plaintiff, because the defendant is a wrongdoer; and
(e)a plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct, so long as it was reasonable for the plaintiff to act in the way that he did.
[87][2014] VSC 57, [158].
It is quite clear upon a reading of the transcript of the hearing before the Magistrate that a primary reason the Orders were structured in the manner in which they were was because of the erroneous view taken that there existed a positive duty upon Waste Wise to mitigate its loss by claiming the input tax credits to which it was entitled.[88] As was stated in Karacominakis, no such positive duty exists. Nor was the Court directed to any provision under the GST Act which would have created a statutory obligation. The correct view, in my opinion, is that a person who claims a loss must take all reasonable steps to mitigate the loss consequent upon the defendant’s wrong and will not be entitled to recover an amount for damages for any such loss which he, she or it could have avoided, but has failed to avoid through their own unreasonable action or inaction. While there was no positive duty here, it would be inconceivable to think – at least in the absence of any strong evidence to the contrary - that requiring a business to claim input tax credits to which it was properly entitled could be considered an unreasonable imposition. To the contrary, it would be entirely inappropriate for a Court to sanction the action, or inaction, of a plaintiff who wished to avoid what would most likely amount to a simple task of completing paperwork with which it would be highly familiar and would complete on a regular basis and then oblige a defendant to meet expenses of the plaintiff which it has incurred or not recouped due to its own unreasonable behaviour. While it was not the case here, it is also no answer to suggest that the extra administrative work involved in claiming any tax input, even if it were to involve significant cost, could properly be considered a reason not to hold the failure of a plaintiff to do so be unreasonable. A plaintiff who takes reasonable steps to mitigate its loss can claim the costs of so doing.[89]
[88]Exhibit DAF-2 to the Affidavit of Darren Anthony Ferrari affirmed 11 August 2014 - Magistrates’ Court Transcript, lines 24 to 29, page 44; lines 10 to 31, page 46.
[89]Hatfield v TCN Channel Nine Pty Ltd (No 2) [2011] NSWSC 737.
Accordingly, the correct application of the law relating to the mitigation of loss in this instance requires that the award of damages be reduced to the extent that Waste Wise has not acted reasonably in claiming the input tax credits to which it was entitled. On this basis, I find that the third ground in the Notice of Appeal is made out.
Conclusion
For the preceding reasons, I find that all three grounds as set out in the Notice of Appeal are made out. The question of costs is reserved. Orders may be brought in to give effect to these reasons.
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