Westpac Banking Corporation v Jamieson - [2015] QCA 50

SUPREME COURT OF QUEENSLAND

CITATION:

Westpac Banking Corporation v Jamieson & Ors [2015] QCA 50

PARTIES:

WESTPAC BANKING CORPORATION
ABN 33 007 457 171
(appellant/cross respondent)
v
MARK BRYAN JAMIESON
(first respondent/first cross appellant)
LORRELL BERNADETTE JAMIESON
(second respondent/second cross appellant)
JAMIESON INVESTMENTS QLD PTY LTD ACN 103 273 070 as trustee for The M & L SUPER FUND
(third cross appellant)

FILE NO/S:

Appeal No 3234 of 2014
SC No 3536 of 2011

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

10 April 2015

DELIVERED AT:

Brisbane

HEARING DATES:

18 September 2014; 19 September 2014

JUDGES:

Margaret McMurdo P and Morrison JA and Applegarth J
Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS:

1. The appeal filed 4 April 2014 be dismissed.

2. The cross-appeals filed 22 April 2014 be dismissed.

3. The first respondent’s/cross-appellant’s application filed 10 September 2014 be dismissed.

4. The parties have leave to make submissions as to costs in accordance with Practice Direction 3 of 2013.

CATCHWORDS:

DAMAGES – GENERAL PRINCIPLES – OTHER MATTERS – where a bank was found to have given negligent and misleading investment advice to a customer – where the advice did not adequately disclose that more than 10 per cent of the investor’s wealth would be at risk if the investment performed poorly – where the investment performed poorly, partly as a result of the GFC, and the customer was liable for interest under loans made to finance the investment – whether the bank is responsible for the total loss suffered by the customer – whether the rule in Potts v Miller should have been applied to assess the loss – whether the primary judge erred in considering what the customer would have done had he not been induced to make the investment and associated loans – whether the investor would have borrowed and invested in a tax minimising scheme and suffered a loss on that alternative investment

CORPORATIONS – FINANCIAL SERVICES AND MARKETS – FINANCIAL PRODUCTS – GENERALLY – where a bank advised a customer to borrow to contribute to a self-managed superannuation fund – whether bank was negligent in failing to adequately advise the customer of the detriments of using borrowed money to make undeductible contributions

DAMAGES – INCIDENCE OF TAXATION AFFECTING DAMAGES – where the primary judge found that an award of damages would be assessable income under the Income Tax Assessment Act 1997 (Cth) – where the primary judge “grossed-up” the amount of damages on account of the tax treatment of the award – whether the figure used by the primary judge as the customer’s net loss was correct – whether the methodology used by the primary judge to “gross-up” the assessed loss was correct – whether the “grossed-up” award of damages should be “grossed-up” ad infinitum

Australian Securities and Investments Commission Act 2001 (Cth), s 12DA(1), s 12ED
Civil Liability Act 2003 (Qld), s 11(1)(a), s 11(1)(b), s 11(4)
Income Tax Assessment Act 1997 (Cth), s 20-20, s 20-25
Uniform Civil Procedure Rules 1999 (Qld), r 766(1)(c)

Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341; [2006] NSWCA 282, cited
Akron Securities v Iliffe (1997) 41 NSWLR 353, cited
Allsop v Federal Commissioner of Taxation (1965) 113 CLR 341; [1965] HCA 48, cited
Atlas Tiles Ltd v Briers (1978) 144 CLR 202; [1978] HCA 37, cited
Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1977] AC 191, considered
Batchelor v Commissioner of Taxation (2014) 219 FCR 453; [2014] FCAFC 41, cited
Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404, cited
Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2000] 3 All ER 493; [2001] QB 488; [2000] EWCA Civ 161, cited
Coco v Westpac Banking Corporation [2012] NSWSC 565, cited
County Personnel (Employment Agency) Ltd v Alan R Pulver and Co [1987] 1 WLR 916, cited
Cullen v Trappell (1980) 146 CLR 1; [1980] HCA 10, cited
Downs v Chappell [1997] 1 WLR 426, considered
Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22; [1998] UKHL 5, cited
Expectation Pty Ltd v PRD Realty Pty Ltd (2004) 140 FCR 17; [2004] FCAFC 189, cited
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; [1986] HCA 3, cited
Gill v Australian Wheat Board [1980] 2 NSWLR 795, considered
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54, cited
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41, cited
Jamieson v Chiropractic Board of Australia[2011] QCA 56, cited
Jamieson & Ors v Westpac (2014) 283 FLR 286; [2014] QSC 32, considered
Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413; [1999] HCA 25, cited
Langdale v Danby [1982] 1 WLR 1123, cited
March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506; [1991] HCA 12, cited
McLaurin v Federal Commissioner of Taxation (1961) 104 CLR 381; [1961] HCA 9, cited
Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; [2004] HCA 3, cited
New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68, considered
Potts v Miller (1940) 64 CLR 282; [1940] HCA 43, considered
Rentokil Pty Ltd v Channon (1990) 19 NSWLR 417, cited
Slough Estates Plc v Welwyn Hatfield District Council [1996] 2 PLR 50, cited
Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254; [1996] UKHL 3, cited
Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565, cited
Tomasetti v Brailey (2012) 274 FLR 248; [2012] NSWCA 399, cited
Toteff v Antonas (1952) 87 CLR 647; [1952] HCA 16, cited
Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] 1 CLC 662; [2013] EWHC 111, followed

COUNSEL:

S L Doyle QC, with A P J Collins and G J Watson for the appellant/cross respondent
C C Heyworth-Smith with L J Allen for the respondents/cross appellants

SOLICITORS:

Sparke Helmore for the appellant/cross respondent
Schultz Toomey O’Brien for the respondent/cross appellants

MARGARET McMURDO P: In mid-2007, Mark and Lorrell Jamieson obtained a statement of advice from Robert Tindall, a financial planner employed by Westpac Banking Corporation. Mr Jamieson acted on that advice by borrowing $5 million and investing it in a registered managed investment scheme, the MQ Gateway Trust, for three years. He hoped to generate a profit and to offset the costs of and interest on the loan to eliminate his substantial income tax liability. The Jamiesons also acted on Mr Tindall’s advice to borrow $600,000 for their superannuation fund to invest in shares which they hoped would be profitable, ultimately borrowing $700,000 for that purpose. Following the global financial crisis in late 2007, both investment strategies became unprofitable and the Jamiesons subsequently suffered significant losses. They and their superannuation fund trustee company sued Westpac for damages arising from Mr Tindall’s advice for breach of contract, negligence and statutory contraventions.
The Jamiesons were successful on some claims. The primary judge found that Westpac was negligent and in breach of contract and of its statutory obligations under s 12DA(1) Australian Securities and Investments Commission Act 2001 (Cth). His Honour determined that Mr Jamieson’s loss on the MQ Gateway Trust, after tax, was $623,236. Had he not taken up the Westpac recommendations, he would have invested $200,000 in agribusiness, resulting in a loss, unrelated to Westpac’s advice, of $134,107. The damages of $623,236 should be reduced by $134,107 to reflect this, so that Mr Jamieson’s net damages after tax were $489,129. As Mr Jamieson would have to pay tax on his damages of $489,129 pursuant to s 20-20 Income Tax Assessment Act 1997 (Cth), that figure had to be “grossed up” by an amount of $200,992 to ensure that he was left with $489,129 after tax. His Honour assessed Mr Jamieson’s total damages arising from the MQ Gateway Trust investment as $690,121. After adding interest of $228,535, his Honour gave judgment for Mr Jamieson in the sum of $918,656. In his reasons, his Honour made clear that he considered the assessable amount of the judgment for taxation purposes under s 20-20 was $489,129.
In the claim arising out of the superannuation fund investment, his Honour gave judgment for the Jamiesons inclusive of interest in the sum of $161,799.
Westpac appealed and the Jamiesons cross appealed, filed a notice of contention and applied to adduce further evidence in the appeal. I agree with Applegarth J’s reasons for refusing the appeal, the cross appeal and the application to adduce further evidence.
I wish to make some additional brief observations on the aspect of Mr Jamieson’s cross appeal relating to his Honour’s assessment of the amount of $200,992 awarded for the grossing up.
The relevant provisions of the Income Tax Assessment Act are set out in Applegarth J’s reasons at paragraphs [196] and [197]. It is uncontentious that Mr Jamieson’s damages of $489,129 were assessable under the Income Tax Assessment Act. The question in this aspect of the cross appeal is whether the award of $200,992 for grossing up to ensure Mr Jamieson was fully compensated for his loss is an assessable recoupment under s 20-20. If so, in order to properly compensate Mr Jamieson, it would be necessary to mathematically calculate a higher award of damages, effectively grossing up the entire award of damages other than interest ($690,121). That was referred to in this appeal as “grossing up the grossing up”.
It is true that the term “recoupment” is widely defined in s 20-25 Income Tax Assessment Act. But to be an “assessable recoupment” under s 20-20(2), both s 20-20(2)(a) and (b) must be met. It is arguable that the award of $200,992 to compensate Mr Jamieson for the tax he would have to pay on his damages award of $489,129 was an “indemnity” under s 20-20(2)(a). But nothing to which Mr Jamieson has referred this Court, either in the Income Tax Assessment Act or in case law, supports the conclusion that his award for grossing up was a payment within the terms of s 20-20(2)(b). I did not apprehend him to contend that s 20-20(3) applied to that payment but he has not taken us to anything in the Income Tax Assessment Act or case law to show it did. It follows that he has not demonstrated that his grossing up award of $200,992 to compensate for the fact that his damages of $489,129 will be likely to be taxed in the future is an assessable recoupment under s 20-20. The contention that Mr Jamieson’s grossing up award of $200,992 must be further grossed up to ensure he is adequately compensated must be rejected. The construction I would give to s 20-20 accords with common sense, the practicalities of assessing grossing up damages, and the ordinary meaning of the terms of s 20-20. And nothing to which this Court has been taken suggests that construction is offensive to the apparent spirit, purpose and scheme of the Income Tax Assessment Act.
As Westpac’s appeal has been unsuccessful, it is unnecessary to deal with the Jamiesons’ notice of contention.
I agree with the orders proposed by Applegarth J.
MORRISON JA: I have had the considerable advantage of reading the draft reasons of Applegarth J. I agree with what Applegarth J has written, but wish to express some observations of my own. To do so I will adopt the headings used in Applegarth J’s reasons.
The ten per cent risk issue
The Bank’s contention is that the Statement of Advice contained enough information in it to discharge its duty to the Jamiesons. When considering this issue it is important to keep in mind that the Bank admitted that it was retained to supply financial services, and in particular to provide a Statement of Advice recommending a financial plan. The Statement of Advice itself recorded that the advice was to achieve the following:
(a)to create wealth efficiently;
(b)to manage Mr Jamieson’s tax position;
(c)to protect assets; and
(d)to create a retirement fund for the medium term.[1]
[1]Statement of Advice page 8; AB 1585.
Thus the advice requested, and given, had to explain, with reasonable care, what was being proposed in order to achieve the ends.
The centrepiece of the Bank’s case on this aspect is a section of the Statement of Advice, dealing with the investment in the MQ Gateway Trust and associated loans:
“Investment Risk
Based on the assumptions in the illustrations attached to this Statement of advice, the following illustrates the potential outcomes in 3 different investment horizons.

Investment Return pa %

(Loss)/GAIN $ (After Tax)

0 or less

(601,875)

3.61

NIL

10

2,986,000

We have assumed the highest marginal tax rate on profits at 46.5%.”[2]
[2]AB 1590.

The Bank’s contention is that the reference to an “after tax” loss in that table was sufficient to inform an astute investor with business and investment experience (as Mr Jamieson was) that the amount “at risk” was higher than had been promised by the Bank’s financial adviser, Mr Tindall. He had told Mr Jamieson that the advice was appropriate, in part because “by using $5m in gearing we put less than 10 per cent of your overall net wealth at risk of loss”.
I agree with what Applegarth J has said in respect of this issue at paragraphs [59] – [71] of his reasons. However, there is an additional factor.
The learned primary judge made various findings in respect of the evidence of Mr Jamieson, accepting his evidence in some areas, and rejecting it in others. Those findings were made with the benefit, which this Court does not have, of having seen and heard Mr Jamieson over the course of his evidence. Two findings are reflected in paragraph [42] of the primary judge’s reasons:
“I accept that Mr Jamieson did not fully understand the amount of his exposure or liability under the loans associated with investment in the MQ Gateway Trust. But I reject that he believed his only exposure was the amount of the three annual interest payments of $198,750.”[3]
[3]Jamieson & Ors v Westpac Banking Corporation [2014] QSC 32.
The Bank’s contentions refer to the second finding in that paragraph, but fail to grapple with what flows from the first finding. That finding is that Mr Jamieson did not fully understand the amount of his exposure or liability under the loans associated with the MQ Gateway Trust. Rejection of Mr Jamieson’s evidence on the second finding in that paragraph does not detract from the first finding. The first finding was open to the learned primary judge, and not directly attacked on the appeal.
The Bank’s contentions essentially are that if Mr Jamieson had been more clever in piecing together the significance of the “after tax” reference in the Statement of Advice, then the qualification on the advice would have been apparent.
In my view that contention should not be accepted. First, acceptance of it would permit a financial adviser to avoid performance of their duty to give advice which spelt out, in simple terms, what was being proposed, and would allow them to hide the real message in a puzzle of references. Secondly, it confronts the finding that Mr Jamieson did not fully understand the amount of his exposure or liability. Thirdly, it would give little effect to Mr Tindall’s admission, on 20 March 2009, that by reason of an oversight on his part, he had not advised Mr Jamieson of his extra exposure in respect of interest accrued in respect of the Capitalised Interest Assistance Loan. There was no suggestion that Mr Jamieson was aware of that exposure before that time. It is that exposure which is the subject of the finding in the first sentence of paragraph [42] of the primary judge’s reasons.
Alternative investment – the point of principle
In paragraphs [142] – [155] of his reasons, Applegarth J deals with an issue raised by Mr Jamieson. The contention was that it was irrelevant to enquire into what the Jamiesons would have done, or what other transactions they might have entered into, had they not entered into the transaction induced by the Bank’s breach. Whilst I agree with what Applegarth J has said, there are some reservations which I feel should be expressed.
First, the contention was raised as a legal principle, but it must not be overlooked that it was raised in a case where there was a specific pleading of an alternative loss-making transaction. In that sense the contentions were clearly confined to the present case.
Secondly, policy and pragmatic considerations applicable to the administration of justice would, in my view, dictate that a defendant cannot invoke the legal principle outside the confines of a properly pleaded case. The evidential burden and level of proof required, as referred to by Leggatt J in Yam Seng Pte Ltd v International Trade Corporation Ltd[4] highlight the fact that excursions into this area must be controlled in a principled way so that parties’ resources are not wasted on speculative allegations in an attempt to extract documentary proof of some alternative transaction. Nor should the court’s time be wasted on speculative pursuits. Any such contention would have to be pleaded with specificity and proven rigorously, as Yam Seng suggests.
[4]Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] 1 CLC 662 at [217]; [2013] EWHC 111 (QB). (Yam Seng)
The same comments apply in respect of the points made in paragraphs [173] – [178] of the reasons of Applegarth J.
I have also had the benefit of reading the draft reasons of the President. I agree with those reasons.
I agree with the orders proposed by Applegarth J.
APPLEGARTH J: Like many other high earners, Mr Mark Jamieson used financial advisers and accountants to ensure that he paid little or no income tax under Australian law. He earned a high salary as Chief Executive Officer of APN News & Media Ltd. For several years prior to 2007 he invested in “agribusiness” managed investment schemes. These resulted in tax deductions that allowed him to pay no income tax.
Mr Jamieson had been a customer of Westpac for decades. Being a wealthy client, Westpac provided him with a “private banker”, who in early 2007 introduced Mr Jamieson to a Westpac financial planner, Mr Robert Tindall. This appeal is about the written advice which Mr Tindall gave in May 2007 and its aftermath.
The advice was contained in a document which was given to Mr Jamieson and his wife, Ms Lorrell Jamieson, on 16 May 2007. The Statement of Advice recorded that Mr and Mrs Jamieson were seeking the advice to achieve the following:
“∙   To create wealth efficiently
∙   To manage Mark’s tax position
∙   To protect assets
∙   To create a retirement fund for the medium term.”
Based upon the information the Jamiesons had provided, the statement listed their total assets as $13,220,880 and their total liabilities as $6,582,003, resulting in a net worth of $6,638,877.
The Statement of Advice contained two main strategies which were implemented in reliance upon it.
The first was for Mr Jamieson to borrow $5m from the Macquarie Bank and to invest the proceeds in a managed investment scheme promoted by Macquarie called the MQ Gateway Trust. The investment was for a term of three years and the investment of $5m was capital-protected, thereby allowing the principal of the loan to be repaid. The loan of $5m was a Macquarie Structured Investment Loan for a three year term at an interest rate of 7.95 per cent per annum, with a rebate from Westpac of $44,750, resulting in an effective fixed rate loan of 7.5 per cent. Mr Tindall wrote that he believed the advice was appropriate for a number of reasons. The first reason was:
“By using $5m in gearing we put less than 10% of your overall net wealth at risk of loss.”

The Statement of Advice went on to explain that the investment allowed interest costs incurred in producing assessable income to be deducted for tax purposes. Entering into the loan and the MQ Gateway Trust was said to satisfy the Jamiesons’ “objectives of building additional wealth through protected gearing in a tax effective manner”.

The second strategy was to borrow $600,000 against existing property and “make an undeducted contribution to your newly established Self Managed Superannuation Fund”. The Statement of Advice noted:
“The interest on this debt will not be tax deductible. All debt repayment should be focussed firstly towards reducing and eliminating this loan.”
Both investments were unsuccessful, in part because of the effect of the Global Financial Crisis. Mr and Mrs Jamieson sued the bank and claimed damages for breach of contract, negligence and contravention of statute.
The bank admitted that it was retained by Mr and Mrs Jamieson in about February or March 2007 to supply financial services, and in particular to provide a Statement of Advice recommending a financial plan. There was an implied term that the bank would take reasonable care in providing such a statement. The bank also admitted that it was under a tortious duty to take reasonable care in providing financial advice to the Jamiesons. In addition, it admitted that financial services were provided to each of the Jamiesons as a “consumer” within the meaning of s 12ED of the Australian Securities and Investments Commission Act 2001 (Cth), and that there was an implied warranty in the contract that its services would be rendered with due care and skill.

The bank’s liability – MQ Gateway Trust

The pleadings were voluminous and complex. The Jamiesons alleged that the Statement of Advice was deficient in numerous respects, but succeeded on only a few bases.
The learned primary judge found that the bank was in breach of contract and negligent with respect to the MQ Gateway Trust and associated loans in three respects. Its conduct in that regard also amounted to conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 12DA(1) of the ASIC Act.
First, the Statement of Advice failed to mention the Capitalised Interest Assistance Loan or to describe more accurately its operation, and in particular that interest would be payable on the capitalised interest in a significant amount. The Statement of Advice referred to, without any explanation, “interest assistance”. Its executive summary consisted of a chart and included the statement “Interest payments totally deductible. Approx $375,000 06/07 financial year”. It also contained a box containing the words “Upfront Cash Outlay (net) $187,500”. It referred to a net cash outlay of $187,500 in each of the second and third years. As the primary judge observed, because the “upfront” component was half of the total annual “payment” of interest, it was a fair deduction that half of the interest “payment” was to be capitalised, but no more than that.[5]
[5]Jamieson & Ors v Westpac (2014) 283 FLR 286 at [64] (Jamieson).
The Statement of Advice did not state in terms that Mr Jamieson would borrow 50 per cent of the interest on the Macquarie Structured Investment Loan through the Capitalised Interest Assistance Loan, which was to be repaid by him at the date of maturity of the loans. The Statement of Advice did not make clear that 50 per cent of the interest would have to be repaid on maturity and the executive summary made no reference to this. However, as the primary judge noted, it was a fair deduction that it would be so, given the statement that the interest payments of $375,000 net per annum would be deductible for an upfront net amount of $187,500 per annum.[6] Critically, there was no reference to the “capitalised” interest bearing interest, let alone that it would be in a significant amount.
[6]At [65].
The second basis of the bank’s liability concerned its statement of risk, namely that “we put less than 10% of your overall net wealth at risk of loss”. The primary judge found that the total sum at risk was much more than this and that the Statement of Advice should not have made such an unqualified statement.
Another part of the Statement of Advice contained a section about investment risk in the following terms:
“Investment Risk
Based on the assumptions in the illustrations attached to this Statement of Advice, the following illustrates the potential outcomes in three different investment horizons:

Investment return pa % (Loss)/GAIN $ (After Tax)

0 or less (601,875)

3.61 Nil

10 2,986,000
We have assumed the highest marginal tax rate on profits at 46.5%”

The basis of the calculation of $601,875 was not set out in the Statement of Advice, but the primary judge concluded that it could be deduced without too much difficulty.[7] The document proposed annual interest “payments” of $375,000 over three years, totalling $1.125m. As a matter of arithmetic, $601,875 equals 53.5 per cent of $1.125m. The “after tax” loss was a statement about the loss that would be suffered if payments totalling $1.125m were tax deductible from income attracting a marginal rate of tax of 46.5 per cent. Incidentally, that calculation of after-tax loss did not bring into account the payment of interest in excess of $100,000 on the Capitalised Interest Assistance Loan.

[7]At [15].

With the inclusion of that amount, the total amount which was at risk of being lost was more than $1.2m. The Jamiesons did not want to put at risk more than ten per cent of their overall net wealth. The primary judge accepted their complaint that the proposed transaction put at risk before tax approximately twice that amount:
“The statement that less than ten percent of Mr and Mrs Jamieson overall net wealth is at risk of loss must be a statement of the amount of money that is put at risk. The net wealth which was calculated on page five of the updated statement of advice did not incorporate any adjustments for any potential tax liabilities (or credits) that might be associated with the realisation of any of the assets. The calculation of loss or gain through the investment on an “after tax” basis tended to understate the amount of the overall cash exposure in such a way that it appeared that only ten percent, namely the sum of $663,887, or less, was at risk. In fact, the gross sum at risk was in excess of $1,125,000 by at least the amount of the interest on the capitalised interest.”[8]
[8]At [76].
The third respect in which the bank was liable was in failing to provide to Mr and Mrs Jamieson the full terms and conditions of the Macquarie Structured Investment Loan, including the Capitalised Interest Assistance Loan and the Product Disclosure Statement (“PDS”) for the MQ Gateway Trust. Investment in the MQ Gateway Trust and the associated loans was said by the primary judge to be “a highly complex contractual arrangement based on investments in derivative financial products.”[9] It was incumbent upon the bank, in recommending such a complex product, to provide copies of the relevant documents so that the risks and benefits could be assessed by the client.
[9]At [91].

Reliance and causation

The primary judge concluded that Mr Jamieson proved that he would not have made the investment in the MQ Gateway Trust:

(a) if the bank had not failed to mention that the Capitalised Interest Assistance Loan or to more accurately describe its operation, and in particular that interest would be payable on the capitalised interest in a significant amount;

(b) if the representation that less than ten per cent of overall net wealth was at risk of loss had not been made; or

(c) if the bank had not failed to provide the full terms and conditions of the Macquarie Structured Investment Loan, Capitalised Interest Assistance Loan and the PDS for the MQ Gateway Trust.[10]
[10]At [108] – [110].

There was no reason to assume that Mr Jamieson would not have carefully read the documents. On the issue of factual causation in respect of loss arising from investment in the MQ Gateway Trust and associated loans, the primary judge made the following findings:

“[120]Had Mr Jamieson read and considered those documents with care it would have been apparent to him that the true amount of the exposure upon the Macquarie Structured Product Investment Loan including the Capitalised Interest Assistance Loan would have been in excess of $1,125,000 by a substantial amount, in cash flow terms. Even if the updated statement of advice had fairly or accurately disclosed the effect of the loan documents, that exposure would have been apparent to Mr Jamieson. In my view, it was not apparent to him at the time.
[121]In my view, had Mr Jamieson known those facts he would not have invested in the MQ Gateway Trust and associated loans, because the full cash flow amount of his true exposure on the associated loans would have detracted from the attraction of the immediate taxation benefits of the proposed investment.
[122]Next, had Mr Jamieson been aware that the exposure was in excess of $1,125,000 by a substantial amount, and that the amount at risk substantially exceeded ten percent of Mr and Mrs Jamieson’s overall net wealth, in my view he would not have invested in the MQ Gateway Trust and associated loans for an amount of $5 million because the amount of the exposure exceeded the amount that Mr and Mrs Jamieson agreed with Mr Tindall was appropriate to expose as a percentage of their net wealth.
[123]As well, if Mr Jamieson had read the MQ Gateway Trust PDS with care, it would have become clear that the hurdle rate of return required to make a profit on the investment on its conditions was significant, having regard to the 7.95% gross or 7.5% net interest rate applying to the associated loans and other likely expenses to be taken into account. In my view, this would have made it even more likely that he would not have invested in the MQ Gateway Trust and associated loans.”

On the basis of these findings, the proven breaches of contract and negligence in relation to the MQ Gateway Trust and associated loans were found to constitute “a necessary condition” of the harm alleged in terms of s 11(1)(a) of the Civil Liability Act 2003 (Qld). In other words, the bank’s failure to take reasonable care caused Mr Jamieson to enter the recommended transaction, and if each of the breaches had not occurred the transaction would not have come about.

Loss and damage

A separate issue, which may be described in the language of causation, was whether the bank’s breach, having caused the transaction to come about, caused the claimed loss. The issue was whether the bank’s liability should extend to all of the losses arising from the investment in the MQ Gateway Trust and associated loans. A related issue was proof of loss in such a “no transaction” case and the most appropriate approach to measure it.
The bank contended at the trial that Mr Jamieson did not prove any recoverable loss because:

(a) the applicable measure is in accordance with the so-called “rule in Potts v Miller”[11] being the difference between the price paid and real value of what was acquired at the time of entering into the MQ Gateway Trust investment and associated loans; and

(b) Mr Jamieson would have entered into some other similar transaction, in any event, and therefore was required to prove that alternative transaction in order to demonstrate that he had suffered compensable loss, by comparison with the actual investment and associated loans.

The primary judge, applying the decision of the High Court in HTW Valuers Pty Ltd v Astonland Pty Ltd,[12] found that the measure discussed in Potts v Miller does not apply in all cases. His Honour reviewed leading authorities about the appropriate measure of damages in a case such as this and adopted what may be described as “the net gains or losses approach”. Such an approach necessarily includes gains or losses which occur after the transaction. The bank objected to that approach in this case on the basis that it captured loss caused by general market decline. It argued that the general market decline was “extraneous and not caused by the contravening conduct”. However, the primary judge concluded that the loss caused by the general market decline associated with the GFC should not be regarded as extraneous in measuring the loss that was caused by the breaches of contract, negligence or breach of statute.[13]

[11](1940) 64 CLR 282 at 289, 299.

[12](2004) 217 CLR 640 at 656 – 7 [35] (“Astonland”).

[13]Jamieson at [216].

In assessing loss, the primary judge rejected a submission by Mr Jamieson that once it was determined that he would not have invested in the MQ Gateway Trust it is irrelevant to have regard to what he would or might have done instead. His Honour also rejected the bank’s general proposition that Mr Jamieson was required to prove the alternative transaction that he would have entered into in order to demonstrate that he had suffered compensable loss by comparison with the actual investment and associated loans.
The primary judge went on to find that there was a reasonable likelihood that had Mr Jamieson not invested in the MQ Gateway Trust and associated loans he would have sought out an alternative investment that had the effect of substantially reducing his liability to income tax. In each of the 2003, 2004, 2005 and 2006 tax years Mr Jamieson made investments in agribusiness financial products in a way that reduced his income tax liability to nil. The result was that the amount of taxation paid by his employer by deduction of instalments during the year was returned to Mr Jamieson. In effect, Mr Jamieson was investing in a way where the return of the sum paid on account of his income tax for the year “funded” the agribusiness investment he made, at least in part. Against this background, the primary judge concluded that had Mr Jamieson not invested in the MQ Gateway Trust and associated loans, it is more likely than not that he would have made another or other agribusiness investments similar to those that he had made in prior years for the purpose of reducing or eliminating his liability to pay tax for the 2007 tax year.[14] He would have made an alternative investment in agribusiness in 2007 in the global amount of $200,000.
[14]At [240].
As to whether Mr Jamieson would have made a similar investment in the year ending 30 June 2008, the primary judge found that by this time there were “significant tremors in equity markets consequent upon the dislocation which spread through credit markets in the second half of 2007”.[15] He was not able, on the evidence, to conclude that Mr Jamieson would have made a similar investment in the year ending 30 June 2008. It was a matter of speculation whether Mr Jamieson might have made any other investment and what its outcome might have been.
[15]At [243].
Because the primary judge was unable to find what Mr Jamieson would have done by way of an alternative investment in either 2008 or 2009 if he had not invested in the MQ Gateway Trust and associated loans for those years, the amount of the reduction to Mr Jamieson’s loss reflected the after-tax effect of an alternative agribusiness investment of $200,000 in the year ended 30 June 2007. That investment would have been lost. As a result, Mr Jamieson’s claim for damages was reduced to reflect the after-tax effect of a lost investment of $200,000.
Having arrived at the basis upon which to calculate the total of Mr Jamieson’s damages from investing in the MQ Gateway Trust, the primary judge concluded that a sum would need to be added to that amount to “gross up” any receipt under a judgment to take account of the tax liability on an assessable recoupment. He invited the parties to make further submissions about the calculation of the “grossed-up sum”. Judgment was awarded to Mr Jamieson for $918,656, inclusive of statutory interest of $228,535.

Superannuation investment

In April 2007 Mr Jamieson was keen to establish a self-managed superannuation fund. He established one on 20 April 2007. Having been informed in the Statement of Advice of the advantages of making a large contribution to superannuation in the 2007 financial year, Mr and Mrs Jamieson borrowed $700,000 from the bank. It was contributed to the fund before 30 June 2007. The trustee of the fund invested the contribution in self-funding instalment warrants. This accorded with the bank’s advice.
Mr and Mrs Jamieson and the trustee made numerous allegations of breach of contract, negligence and breach of statute in connection with the recommendation to borrow from the bank and to contribute the amount and other amounts as undeducted contributions to the superannuation fund. The claim by the trustee failed for reasons which are not presently relevant. Many of the Jamiesons’ allegations about a failure to exercise due care and skill also failed. These centred on the advice to invest in self-funding instalment warrants.
Mr and Mrs Jamieson succeeded, however, on one aspect of their claim in respect of the bank’s advice to use borrowed money to make undeducted contributions to superannuation. The following paragraphs of the judgment are an essential background to the crucial finding that the bank failed to exercise due care and skill in not properly advising about the detriments of using borrowed money to make undeducted contributions to superannuation.
“[286]In assessing the viability of the investment strategy of borrowing to make a superannuation contribution, the cost of borrowing (here about 7%) and the tax payable on income of the superannuation fund (15%) have to be taken into account. The borrowing is non-deductible, so there is no offsetting tax benefit of borrowing to make the investment. In the result, if the aim of the investment is growth, while the borrowing exists, the rate of return needs to exceed the cost of borrowing and the tax costs of earnings in the fund, as well as any inflation. The relevant comparison would be made with borrowing for a direct investment by Mr or Mrs Jamieson. A complete comparison would also require consideration to be given to any tax payable on a notional distribution on the scenario that the investment is held for a period and sold for a profit or loss.
[287]The Bank relies on the recommendation in the updated statement of advice that that [sic] Mr and Mrs Jamieson repay the non-deductible borrowing (ultimately $700,000) as soon as possible. Had that occurred, the effect of borrowing $700,000 to make the contributions would have been avoided.”
The primary judge’s critical finding on the bank’s liability followed:
“[288]However, in my view, in April and May 2007, the Bank can have given little or no consideration to from where the cash flow to repay that debt as soon as possible might come. Mr and Mrs Jamieson were relatively highly geared before this borrowing, including an amount of excess of $1 million for the Aspect unit as their official principal place of residence. Other assets which were held as investments were likely to have tax liabilities associated with any sale to fund repayment of the non-deductible borrowing proposed. As well, Mr Jamieson’s investment in the Macquarie Gateway Trust and associated loans would produce an additional negative net cash flow of about $200,000 per annum for the next three years to his existing investments. In the absence of a likely source of cash flow to pay down the non-deductible borrowing, in my view the strategy of borrowing $700,000 from the Bank to make undeducted contributions of superannuation in the 2007 year was flawed. In my view, without proper explanation of that flaw, the Bank’s recommendation of that strategy was made in breach of contract or negligently.”
The Jamiesons claimed damages for their loss in relation to borrowing $700,000 from the bank to make contributions to their self-managed superannuation fund. They claimed the interest incurred in borrowing the $700,000 from May 2007 to the date of judgment.
The primary judge concluded that had Mr and Mrs Jamieson not been advised to borrow from the bank to make undeducted contributions to their self-managed superannuation fund, they would not have done so.[16] Having found that the bank’s breach of contract, negligence and contravention of statute caused them to borrow $700,000, the primary judge considered the appropriate scope of loss and whether the bank’s liability to Mr and Mrs Jamieson should extend beyond the initial interest payments that were made to the full period to trial and for the future. His Honour concluded that the bank was not liable for, in effect, the indefinite cost of replacing the $700,000 borrowed from the bank. Damages were assessed on the footing that the Jamiesons should be compensated for the interest paid as a loss unless they should have avoided that liability. There was no immediate reason for them to realise that the advice they had been given to borrow for the purpose of making superannuation contributions was negligent. However, they were advised to pay down the loan as soon as possible, and Mr and Mrs Jamieson did not do so.
[16]At [317].

The primary judge concluded that it was reasonable in the circumstances to treat the interest payable for two years as caused by the bank and as not being too remote for the purpose of assessing damages. However, by mid-2009, Mr and Mrs Jamieson should have been able to realise other assets to repay the borrowing of $700,000. As a result, interest paid for the year ended 30 June 2008 and the year ended 30 June 2009 totalling $106,587 was awarded. No adjustment by reason of tax was required. The addition of statutory interest of $60,496 resulted in a judgment of $167,083 in favour of Mr and Mrs Jamieson.

The appeal and cross-appeal

The bank’s appeal, Mr Jamieson’s cross-appeal and Mr and Mrs Jamieson’s cross-appeal raise numerous issues which may be grouped as follows:

MQ Gateway Trust

1. The ten per cent risk issue;

2. Factual causation issues, particularly whether Mr Jamieson would have entered into the Macquarie Gateway Trust investment and the associated loans:

(a) if he had been told that interest was capitalised on the Capitalised Interest Assistance Loan (so that, in effect, interest would be payable on the deferred component of the interest to be paid on the $5m loan);

(b) if the true extent of his exposure had been disclosed in cash flow terms, so as to inform Mr Jamieson of his true risk of loss and that it substantially exceeded ten per cent of Mr and Mrs Jamieson’s net wealth;

(c) if he had been provided with the full terms and conditions of the MQ Gateway Trust and the various loans.

3. Responsibility for loss and measure of loss issues, particularly:

(a) whether Mr Jamieson’s recoverable loss is restricted to no more than the capitalised interest because the loss of the $1.125m principal interest was unrelated to the bank’s breach and caused by the unsatisfactory performance of the MQ Gateway Trust; and

(b) whether the approach in Potts v Miller should have been applied, leading to an award of damages no greater than the difference between the price paid (being the total interest payable) less the true value of what was received (which, according to the bank, was the total interest excluding the unknown capitalised interest) thereby producing a figure of $107,774 before tax or $57,659 after tax.

4. Alternative investment issues, particularly:

(a) Mr Jamieson’s contention that it is irrelevant to inquire what he would have done had he not been induced to enter into the transaction, and that the primary judge erred by reducing the award to reflect the after-tax effect of an alternative agribusiness investment of $200,000 in the year ended 30 June 2007;

(b) The bank’s contention that the primary judge erred in finding that the amount of that investment should be limited to $200,000 in the financial year 30 June 2007, and erred in failing to find that an alternative investment in agribusiness would have been made in the financial year ended 30 June 2008.

Superannuation Investment

5. The bank’s liability in respect of the superannuation investment, when, according to the bank, the Jamiesons were given all the information necessary to make an informed choice about the risks of the proposed strategy and understood that they should pay down the non-deductible debt as soon as possible.

6. The Jamiesons’ cross-appeal against the decision to limit damages in relation to the superannuation fund loan to two years’ interest payments.

Grossing-Up Damages

7. Mr Jamieson’s cross-appeal against the methodology used by the primary judge to “gross-up” the assessed loss, and the correctness of the figure used as Mr Jamieson’s net loss.

The ten per cent risk issue

The bank appeals against the finding that it stated “in an unqualified way that investment in the MQ Gateway Trust and associated loans put less than ten percent of Mr and Mrs Jamieson’s overall net wealth at risk of loss”.[17] It relies on the fact that the Statement of Advice referred to in the table which I have set out above was an “after tax” loss. If the loss after tax was $601,875, then the pre-tax loss would be more. As a result, when the Statement of Advice was read as a whole it did not make an unqualified statement that less than ten per cent of the Jamiesons’ net asset position was at risk.
[17]At [90].
The primary judge rejected Mr Jamieson’s evidence that he believed that his only exposure was the amount of the three annual interest payments of $198,750,[18] but accepted that he did not fully understand the amount of his exposure or liability over the loans associated with the investment in the MQ Gateway Trust.[19] On the basis of the Statement of Advice, it was possible for Mr Jamieson to conclude that he would be required to pay three annual amounts of $375,000 or $1.125m, despite that figure not being stated in the Statement of Advice.
[18]Which reduced to $187,500 after receipt of the interest rebate.
[19]Jamieson at [42].
Any appreciation by Mr Jamieson that his exposure or liability under the loan agreements involved three annual amounts of $375,000 is relevant to the issue of causation. It does not determine, however, the prior issue of the content of the bank’s contractual and other duties in advising about the risks associated with the proposed transactions. In essence, the bank’s position is that its duty extended no further than:

· stating that its strategy put less than ten per cent of the Jamiesons’ overall net wealth (i.e. less than $663,887.70) at risk of loss;

· providing somewhere else in the document a statement about the after tax loss which might be suffered based on an assumption about the highest marginal tax rate of 46.5 per cent and certain other unspecified assumptions;

and leaving it to the client to work the rest out. Even then, the Statement of Advice would not allow the client to work out the true exposure to loss. It omitted any reference to the operation of the Capitalised Interest Assistance Loan, and that interest would be payable on the capitalised interest in a significant amount. The Statement of Advice did not allow a person in Mr Jamieson’s position to calculate the extent of his exposure to loss so as to allow him to understand how much more than $1.125m his pre-tax loss might be.

The bank’s duties under the general law, and its statutory obligation to not engage in conduct that was likely to mislead, required it to do more than state without immediate and obvious qualification that its strategy put less than ten per cent of the Jamiesons’ overall net wealth at risk of loss. The exercise of reasonable care required the bank to spell out in simple terms that its strategy risked losing much more than ten per cent.
If the bank chose to assert that less than ten per cent was at risk of loss, then it should have immediately qualified this by stating that this was an after-tax loss and that its calculation of $601,875 depended on Mr Jamieson:

(a) having the cash flow to pay his annual interest obligations;

(b) continuing to work or otherwise earn a sufficiently high income so that interest payments would be allowable deductions on income that would otherwise be taxed at a marginal rate of 46.5 per cent;

and that it did not take account of the fact that he was required to pay, not only three annual payments totalling $1.125m, but also interest totalling $107,774 by way of interest on the Capitalised Interest Assistance Loan, and to repay that loan (including interest) at the end of the three year period. More than $700,000 would need to be found at that point to repay the loan.

Mr and Mrs Jamieson should not be supposed to have been interested in simply the risk of an after-tax loss. An accurate statement about the percentage of their estimated net wealth that was at risk by the proposed transaction required a clear statement about the amount that was in fact at risk, and the assumptions upon which an after-tax loss limited to $601,875 was based. The exercise of reasonable care by a trusted professional financial adviser also required the bank to alert Mr and Mrs Jamieson to the risk of those assumptions not being realised.
The Jamiesons, and Mr Jamieson in particular, required the cash flow to implement the strategy so that losses might be limited to less than ten per cent of net wealth after paying tax. The bank knew that the Jamiesons wanted to put no more than ten per cent of their net wealth at risk. The fact that the proposed strategy achieved the objective of putting less than ten per cent of their overall net wealth at risk of loss was the first matter mentioned by the bank in the Statement of Advice in explaining why its advice was appropriate.
If Mr Jamieson lost his employment, or otherwise was not able to pay annual interest totalling $1.125m, then the risk of loss was higher than ten per cent. If the interest payments were not able to be claimed as deductions against income which attracted a marginal tax rate of 46.5 per cent then the loss would be higher than the figure of $601,875 which the bank calculated (even disregarding the interest that would be payable on the capitalised interest of $107,775 or $57,569 after tax at that assumed rate).
It was not sufficient for the bank, in discharging its duties to the Jamiesons, to include a reference to a potential after-tax loss of approximately $600,000, and to not refer to the true nature and extent of their exposure. Even ignoring the undisclosed liability to pay interest on the capitalised interest, the bank’s advice did not state the amount of money which the Jamiesons would need to find and place at risk in order to limit their eventual loss to $601,875. The primary judge was correct to conclude that the calculation of loss or gain through the investment on an “after-tax” basis tended to understate the amount of the overall cash exposure in such a way that it appeared that only ten per cent, namely the sum of $663,887 or less, was at risk. In reality that was based on certain assumptions which the Statement of Advice should have recognised and explained. The Statement of Advice was found to have not made apparent to Mr Jamieson the true amount of his exposure in cash flow terms and that the amount at risk substantially exceeded ten per cent of net wealth.
The cash flow implications of the bank’s strategy were important matters that should have been disclosed in the Statement of Advice or elsewhere in a document which the Jamiesons would read and understand. That the Jamiesons required a large cash flow to limit their loss to less than $663,887 on an after-tax basis was an important matter for a financial adviser in the bank’s position to mention. The significance of cash flow was increased by the fact that the Statement of Advice recommended at the same time that the Jamiesons borrow $600,000 to make an undeducted contribution to superannuation. The recommendation to borrow $600,000 had cash flow implications which were not adverted to in the Statement of Advice in connection with the cash flow required to service the recommended borrowing of $5m to invest in the MQ Gateway Trust.
The Statement of Advice went on to recommend that Mr Jamieson exercise options and contribute their net proceeds to superannuation, also as an undeducted contribution. If Mr Jamieson followed this advice then the proceeds of those employee options would not be available to fund interest expenses or to partly repay the capitalised interest which was to fall due. Borrowing $600,000 might be supposed to result in an asset held in the self-managed superannuation fund of equal value in the form of investment warrants, and not change the overall net-asset position of the Jamiesons and their self-managed superannuation fund. However, borrowing the $600,000 reduced Mr Jamieson’s capacity to borrow to meet obligations under the proposed $5m loan, namely to make annual interest payments, to pay capitalised interest and to pay interest on the capitalised interest. After meeting annual interest payments, Mr Jamieson would need to find more than $700,000 to pay out the Capitalised Interest Assistance Loan. The Statement of Advice should have made clear that the potential loss was not limited to the three annual interest payments referred to in the executive summary and included interest on interest.
The Statement of Advice was careless and misleading in not highlighting that the total sum at risk was in excess of $1.125m by at least the amount of the unstated interest on the capitalised interest. The bank’s duty to its clients required it either to not make the statement that the strategy put less than ten per cent of the Jamiesons’ overall net wealth at risk or to immediately qualify such a statement. An appropriate qualification required it to state that the transaction placed at risk much more than ten per cent of the Jamiesons’ overall net wealth and that the loss would only be limited to ten per cent or less of their wealth on an after-tax basis if certain assumptions were fulfilled:

· if the Jamiesons were able to fund interest payments from available cash flow; and

· if Mr Jamieson continued to earn a high income so that interest payments would be deductible from income otherwise attracting a marginal tax rate of 46.5 per cent.

In summary, the Statement of Advice was deficient in simply representing that less than ten per cent of the Jamiesons’ overall net wealth was at risk of loss and only qualifying this statement by a later entry about an after-tax loss which was calculated on the basis of largely unstated assumptions.

Factual causation

The bank challenges findings that if each of the three breaches found by the trial judge had not occurred, then Mr Jamieson probably would not have made the investment in the MQ Gateway Trust and entered the associated loans. Grounds 8, 11 and 12 of its notice of appeal separately challenge factual causation findings in relation to each of the bank’s three breaches. In addition, the bank challenges what it describes in its submissions as conclusions in a “rolled up form” which I have earlier quoted[20] about the collective effect of the bank’s breaches.
[20]See [42] and [43] above and Jamieson at [120] – [124].
The primary judge’s conclusions about the causal potency of each breach, considered separately, and what probably would have happened if the bank had done its duty, are largely founded on findings which are not challenged by the bank. These include findings that:

(a) the bank did not disclose that interest was capitalised on the Capitalised Interest Assistance Loan (so that in effect interest would be charged and payable on the deferred component of the interest to be paid on the loan of $5m);

(b) Mr Jamieson did not fully understand the amount of his exposure;[21]
[21]Jamieson at [42].

(c) if the bank had provided him with documents which explained the terms and conditions of the transaction, then he would have read them and thereby appreciated that the true amount of his exposure “would have been in excess of $1,125,000 by a substantial amount, in cash flow terms”;[22]
[22]At [110], [119], [120].

(d) his true exposure would have been disclosed to be substantially more than ten per cent of Mr and Mrs Jamieson’s net wealth and higher than the agreed exposure;[23]

(e) the full cash flow amount of his true exposure would have detracted from the taxation benefits of the proposed transactions;[24]

(f) the rate of return required to make a profit on the investment was significant.[25]

[23]At [122].

[24]At [121].

[25]At [123].

The bank’s challenge to the “rolled up” conclusions on causation rests largely on the argument that the additional matters that the bank was required to advise Mr Jamieson about would not have significantly altered his knowledge because he already knew much about his exposure. The bank’s argument on factual causation centres on what Mr Jamieson knew and what more he would have known if the bank had done its duty.
The primary judge found that Mr Jamieson knew that his exposure was more than the three annual interest payments of $198,750, and that the annual interest was $375,000, which was fully deductible.[26] By March 2009, in reliance on the Statement of Advice, he believed his “exposure” to Macquarie was $601,875, being “three years interest assistance”.[27] The figure was wrong because $601,875 was not the true amount of the capitalised interest, let alone the total amount of capitalised interest together with interest upon it. But Mr Tindall told Mr Jamieson on 20 March 2009 that the figure was correct as the amount of the three years interest assistance, and broke the news to Mr Jamieson that there was an interest expense on the interest assistance loan. Later that day he admitted that this was an oversight by him. The present relevance of these 2009 communications is that:
[26]At [42] – [57].
[27]At [47] – [50].

(a) Mr Jamieson knew then of his exposure to pay the amount of interest assistance;

(b) he presumably knew at an earlier stage of an exposure in this regard;

(c) he did not know that interest accrued on the interest assistance because, as the bank admits, it had not told him about this.

The primary judge did not specifically find that Mr Jamieson knew that the interest assistance was $187,500 per annum, and found that it was far from clear on the face of the Statement of Advice that 50 per cent of the interest would have to be paid on maturity. However, this was a “fair deduction.”[28] The inference is that Mr Jamieson must have known that half of the annual interest of about $375,000 was the subject of “interest assistance”.
[28]At [65].
Mr Jamieson’s evidence was that the Statement of Advice and Mr Tindall’s oral references to “interest assistance” and a certain level of “participation rate” led him to believe that in return for providing this assistance, Macquarie, not him, would enjoy “the upside” beyond that participation rate. The primary judge concluded that an objective reader of the Statement of Advice would not assume that the “participation” or “participation rates” meant that Macquarie would not require repayment of 50 per cent of the interest, but did not specifically reject Mr Jamieson’s evidence about what he understood about “interest assistance” and who benefitted above a certain level of “participation”.
The primary judge’s findings are consistent with Mr Jamieson having some understanding that he was potentially liable to repay half of the interest payment at the end of the three year period. As the primary judge found, “Mr Jamieson did not fully understand the amount of his exposure or liability under the loans”.[29] There is no evidence that he knew that the half of the interest paid by Macquarie itself attracted interest.
[29]At [42].
The bank’s case on factual causation was fairly acknowledged by its counsel on the appeal to depend upon the success of its appeal on the ten per cent risk issue. The bank’s case was that the Jamiesons did not need to be told that more than ten per cent of their net wealth was put at risk by the MQ Gateway Trust Strategy because:

(a) the Statement of Advice qualified its advice that less than ten per cent of their net wealth was at risk of loss;

(b) Mr Jamieson knew that he had to make three annual “payments” of about $375,000; and

(c) he could have worked out that more than ten per cent of his and his wife’s net wealth was at risk.

From this foundation, the bank contended that if the Jamiesons had been told more about the transaction, by being given various documents which explained the transaction and its risks in greater detail, it probably would not have made a difference. In addition, if the Jamiesons had been told about the Capitalised Interest Assistance Loan and that Mr Jamieson was required to pay about $107,000 interest on capitalised interest, it probably would not have made a difference to the decision to enter the MQ Gateway Trust transaction and the associated loans.

The ten per cent risk issue

The causal issue is not tested by constructing what Mr Jamieson actually knew and by inquiring into the exposure and risks which he would have assessed based on that knowledge, left to his own devices. It is tested by inquiring what he probably would have done if he had been told by the bank in the Statement of Advice and other documents what his true exposure was in cash terms and that his exposure greatly exceeded ten per cent of the Jamiesons’ estimated net wealth.
If the bank had been true to the agreed objective of not exposing the Jamiesons to a loss of more than ten per cent of their net wealth, the proposal should not have been advanced at all, or only on the basis of a clear statement that the true exposure greatly exceeded this figure. In that event, Mr Jamieson would have better understood the extent of his liability and his exposure to loss, and, as the primary judge found, probably would not have entered the transaction. Instead, the bank, by referring in one place to an after-tax loss, and otherwise making the unqualified statement that less than ten per cent of the Jamiesons’ net wealth was put at risk, understated the amount of their actual exposure. As the primary judge found, the Statement of Advice made it appear that only ten per cent, namely a sum of $663,887, or less, was at risk.
If instead of misleading the Jamiesons in this and other respects, the bank had disclosed that the proposed transactions put at risk a sum that was far in excess of $1.125m and that their risk of loss exceeded ten per cent, then the Jamiesons probably would not have committed to the transaction.

Documents

Because on this basis the MQ Gateway Trust and associated loan transactions would not have proceeded and loss would not have been suffered as a result, the separate causative potency of the bank’s other breaches are not practically important for the purpose of the appeal. However, because they are the subject of separate challenges they need to be addressed.
The bank has a reasonable argument about the causative potency of the documents breach, viewed in isolation and based on a certain hypothesis. On the counter-factual hypothesis that the Statement of Advice had properly advised the Jamiesons about the extent of their exposure and adequately informed them about the substance of the complex transactions that the bank was recommending, then providing them with the PDS and other documents which the bank should have provided may not have made much of a difference. The documents, once read, would have more fully informed the Jamiesons of what was involved in the proposed transactions and their risks, but not greatly altered their understanding of those matters. But as it happened, the deficient Statement of Advice, unaccompanied by the documents which the bank should have provided,[30] did not explain the nature and extent of the “interest assistance” to which it referred or other aspects of the loan transactions. Critically, it did not bring home to the Jamiesons that in addition to annual interest payments, they were required to repay the Capitalised Interest Assistance Loan and interest on that interest of more than $100,000. This resulted in a pre-tax exposure to loss of much more than ten per cent of their wealth.
[30]Unchallenged findings that the relevant documents were not provided appear at Jamieson [61] and [81].
The causative potency of the bank’s breach in relation to the documents, considered in isolation, depends on the counter factual assumption that is made. If one assumes that the Statement of Advice itself clearly and comprehensively set out the nature of the proposed transactions and their risks, then providing documents which spelled these things out in greater detail probably would not have made much difference to the decision to proceed with the transactions. However, because the Statement of Advice was an incomplete statement of the nature of the transactions and their risks, the bank’s failure to provide documents which more fully explained these things did make a difference.
Because the Statement of Advice itself was seriously deficient, the bank’s breach of duty in not providing the documents led to the Jamiesons being misled in circumstances in which provision of the documents would have given them much-needed information and advice about the bank’s proposal and its risks. The primary judge’s separate finding on the factual causation issue relating to the documents breach should be understood as a finding about the difference which providing the documents would have made in the circumstances which in fact prevailed. Viewed in that context, the primary judge’s finding that providing the documents probably would have made a difference to entry into the transactions has not been shown to be erroneous.

Capitalised Interest Assistance Loan

I turn to the separate finding about the difference which informing the Jamiesons about the Capitalised Interest Assistance Loan’s operation would have made. Again, context is important.
Lamentably, the Statement of Advice did not explain the nature of the “interest assistance”, or refer to the Capitalised Interest Assistance Loan and that it operated to generate an additional liability to pay about $107,000 interest. The Statement of Advice’s executive summary did not even record that the capitalised interest, together with interest on that interest, would be payable in three years’ time. That this liability existed came as something of a surprise to Mr Tindall in early 2009 when the issue arose. He might be forgiven for having forgotten about it if he relied on the Statement of Advice.
If the Statement of Advice on its own, or in combination with other documents, had properly informed the Jamiesons about the nature of the transactions and their risks, but neglected to disclose that an additional amount of about $100,000 of “interest on interest” would have to be paid under the Capitalised Interest Assistance Loan, then it is debatable whether that neglect would have made a difference. The argument is that in a transaction of this proposed scale, with the potential to produce the after-tax profit described in the table, an additional exposure of $107,774 (or $57,659 after tax) would make no difference. Incidentally, the potential after-tax profit of $2,986,000 appearing in the table was incorrectly calculated by the bank. The pre-tax profit, assuming a ten per cent investment return per annum and a 120 per cent “participation rate”, was $1,986,000. The correct after-tax figure on this amount is $1,062,510. In other words, the bank overstated the assumed after-tax profit by about $2m.
Ignoring this significant error, the bank’s argument has some attraction if the Capitalised Interest Assistance Loan breach is viewed in isolation and the Jamiesons are supposed to have been informed of other matters by the bank in accordance with its duties, including the true extent of their exposure to loss if things went badly. A properly informed client, who was clearly told that he stood to lose at least $1.125m if things went badly and who committed to the transaction knowing of that risk, may have done the same thing if he also had been told of the additional interest on interest liability of approximately $100,000. However, this scenario does not reflect the reality. As the primary judge found, the Jamiesons did not appreciate their true exposure to loss and the Statement of Advice did not make the Jamiesons appreciate that more than ten per cent of their net wealth was at risk.
The bank’s inadequate explanation of the risk of loss is the true context in which to assess the difference which disclosing more about the Capitalised Interest Assistance Loan liability would have made. In that context, a disclosure of a liability to pay a further $107,000 in interest would have served to focus attention on the pre-tax losses to which Mr Jamieson would be exposed. That, in turn, would have highlighted to the Jamiesons that the “less than ten per cent” representation about loss was referring to an after-tax loss, which was based on a number of assumptions about Mr Jamieson’s continuing income levels, cash flow and tax rate. In that context, an additional exposure of more than $100,000 was likely to make a difference.
It is not particularly to the point to say that on an after-tax basis the further payment of $107,774 would be reflected in an after-tax loss of $57,569, which when added to the represented after-tax loss of $601,875 appearing in the table would still be less than ten per cent of the Jamiesons’ estimated net worth. The bank’s duty was not to focus the Jamiesons’ attention on the potential after-tax loss, based on a number of unspecified assumptions, leaving them to work out their cash exposure and whether they would have the resources to meet it. The bank’s duty required it to give reasonable advice and essential information in the Statement of Advice about the Jamiesons’ exposure to an actual loss in cash terms. It was not confined to disclosing what their loss might later be limited to if they had the cash flow to pay those liabilities and claim the interest payments as allowable deductions on income that would attract a high marginal rate of tax.
If one assumes that the bank performed its duty, save for explaining the liability to pay interest on interest of more than $107,000, and also assumes that Mr Jamieson would have committed to the investment and associated loans in those circumstances, then disclosing the additional liability to pay interest on interest may not have made a difference. Even then, I am not persuaded that the additional $100,000 cash exposure may not have changed the course of events, especially if the bank had correctly calculated the potential “upside”. However, the assumption that the bank otherwise performed its duty is misplaced.
For the reasons given, the bank did not disclose to the Jamiesons all that its duties required. Disclosure of how the Capitalised Interest Assistance Loan operated probably would have led to a fuller explanation of the cash flow implications of the proposed transaction, the pre-tax losses to which Mr Jamieson would be exposed and that they exceeded ten per cent of the Jamiesons’ estimated net wealth. These explanations would have given the Jamiesons a better appreciation of their exposure. The primary judge did not err in concluding that the transactions would not have occurred if the bank had done its duty and properly explained the operation of the Capitalised Interest Assistance Loan.

Conclusion – factual causation

Because the primary judge was correct to find the bank breached its duty in the three respects, the relevant causal inquiry is not limited to the causal potency of each breach, viewed in isolation. The breaches together led the Jamiesons to not be properly informed of their exposure to loss and that it substantially exceeded ten per cent of their net wealth.
Critically, the statement that the strategy put less than ten per cent of their wealth at risk was not properly explained or qualified at the point in the Statement of Advice at which this influential statement was made. The primary judge’s finding that this breach caused Mr Jamieson to enter the transaction when he probably otherwise would not have done so was correct. Being alerted to the fact that the strategy put more than ten per cent of wealth at risk would have made a difference. The bank accepts that a failure to overturn the causation finding on the ten per cent risk issue undermines its causation arguments in respect of its two other breaches. Each of those other breaches, even when viewed in isolation, had the potential to make a difference to Mr Jamieson’s decision to commit to the recommended transactions. This is because if the bank had provided all of the necessary documents or explained the Capitalised Interest Assistance Loan’s operation, Mr Jamieson would have better appreciated the commitments he would be required to make, their cash flow implications, his exposure to loss and that it significantly exceeded ten per cent of his and his wife’s net wealth. The Statement of Advice did not give him a proper appreciation of these things because of the individual and combined effects of the bank’s breaches of duty.
The fact that Mr Jamieson knew some things about the proposed transaction and its risks, and should have deduced other things, does not invalidate the primary judge’s findings on factual causation. The fact that Mr Jamieson committed to the proposal knowing many things about it does not mean that he still would have done so if the bank had advised him that his true exposure in terms of cash far exceeded the agreed ten per cent level. The bank did not even correctly state the extent of Mr Jamieson’s after-tax exposure to loss.
On the issue of factual causation, one is concerned with the difference between a deficient, negligent and uninformative Statement of Advice and one which would have disclosed the true extent of loan obligations, their cash flow implications and the risk that, with their other commitments, the Jamiesons may lack the cash flow to meet the loan obligations. The primary judge was correct to conclude that the MQ Gateway Trust and the associated loans probably would not have been entered into if the bank had not breached its duty. To adopt the language of the Civil Liability Act 2003 (Qld), s 11, the bank’s breaches were “a necessary condition of the occurrence of the harm”. The bank’s parallel contravention of the ASIC Act by engaging in conduct that also constituted a breach of contract and negligence caused Mr Jamieson to enter the transactions. He would not have done so if the bank had not contravened the Act.

Causation: attribution of legal responsibility

When lawyers use the term “causation” one of two different types of enquiry may be involved. The first and factual enquiry is the role played by something in the history of an outcome. It is about “how things came about”.[31]It may be an enquiry into whether a defendant’s breach of contract, negligence or contravention of statute played a role, along with other conditions or “causes”, in the plaintiff’s entry into a loss-making transaction. This is a “factual causation” enquiry.
[31]J Stapleton, “Perspective on Causation” in J Horder (ed), Oxford Essays in Jurisprudence (Oxford: Oxford University Press, 61).
The second enquiry is not about how things came about. It proceeds on the basis of an understanding of factual causes. It enquires into whether legal responsibility should be attributed to the defendant for a given occurrence, for example, the economic loss suffered by the plaintiff arising from a transaction.
Causation in law is not concerned simply with a factual or historic enquiry into the relationship between conditions. As Mason CJ stated:
“In law, ... problems of causation arise in the context of ascertaining or apportioning legal responsibility for a given occurrence. ... Thus, at law, a person may be responsible for damage when his or her wrongful conduct is one of a number of conditions sufficient to produce that damage.”[32]

In undertaking the second type of enquiry in deciding whether or not to attribute legal responsibility for a given occurrence, value judgments are made about the appropriate scope of liability.

[32]March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 509.

A court may refuse recovery of all or part of claimed losses, despite, as a matter of incontrovertible fact, the defendant’s conduct being a cause of the loss, in the sense that the loss would not have occurred but for the defendant’s conduct. Sometimes this occurs because the losses were incurred beyond a certain date. In other cases it is because the losses are characterised as too remote or not foreseeable. In some cases the loss, although having been caused as a matter of historical fact by the defendant’s conduct, will not be recoverable because extreme or unreasonable conduct by the plaintiff occurs, such that the court concludes that the defendant’s conduct should be found not to have “caused” the plaintiff’s loss. In other cases, recovery of all or part of claimed losses may be denied because of a supervening factor. In each of these cases the court limits the recovery of losses on the basis of a judgment about the appropriate scope of legal responsibility, not on the basis of an enquiry into historical fact.
At law, a person may be responsible for a loss when his or her conduct was one of a number of conditions sufficient to produce that loss. Whether or not the person is made legally responsible for all or part of a loss for which his or her conduct was a cause is an enquiry into whether it is appropriate to attribute legal responsibility for a given occurrence in the context of particular legal norm.[33]
[33]Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 at 27.
The enquiry into attribution of legal responsibility for loss in this case occurs in the light of the conclusions earlier reached about factual causation. These are that the bank’s breach of contract, negligence and contravention of statute caused Mr Jamieson to enter the MQ Gateway Trust investment and associated loans, which resulted in Mr Jamieson suffering a loss. In theory, different normative or policy-based factors may affect an enquiry into attribution of legal responsibility in the context of contravention of a statute concerned with consumer protection for advice about financial products to those that apply to liability for breach of a contractual or tortious duty to take reasonable care in providing financial advice to a client. However, the parties did not suggest that different outcomes would apply in respect of each cause of action. The causal enquiry into attributing legal responsibility is governed by s 11(1)(b) of the Civil Liability Act 2003 (Qld) in respect of the claims for breach of duty. The enquiry is whether “it is appropriate for the scope of the liability of the person in breach to extend to the harm so caused.” In deciding this “scope of liability” issue, the court is “to consider (among other relevant things) whether or not and why responsibility for the harm should be imposed on the party who was in breach of the duty.”[34]
[34]Civil Liability Act 2003 (Qld) s 11(4).
The factual basis upon which the scope of liability enquiry and the parallel causal enquiry in respect of the statutory contravention proceeds is that the breaches of duty and contravention caused Mr Jamieson to invest $5m in the MQ Gateway Trust and assume obligations under loan agreements. But for the bank’s conduct the transaction would not have occurred and Mr Jamieson would not have sustained a liability to pay interest which was unable to be funded by returns on the investment. Because the transaction had a protection on capital, capital losses on the investment did not materialise into an actual loss, and the ultimate loss on the transaction was the unfunded liability to pay interest.
The essential “causation in law” issue is this: the bank’s breaches having in fact caused the loss, should the bank have legal responsibility for that loss attributed to it? In the terms of the Civil Liability Act 2003 (Qld), why should responsibility for the harm which the bank’s breach caused not be imposed upon it? To adapt the words of Gleeson CJ in the case of a contravention of a consumer-protection statute which also constituted negligent advice:
“What is there ... in the justice and equity of the particular case that might lead to a conclusion that [the bank] should not be regarded as legally responsible for the whole of the loss, even though the contravention was a cause of the whole of the loss? Upon what principle might such responsibility be diminished?”[35]
[35]I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 122 [33].

Disallowance of the bank’s plea that the Jamiesons failed to mitigate their loss and thereby contributed to it did not remove the need for the primary judge to make a principled and practical determination of what loss should be treated as having been caused by the bank’s conduct, so as to not make the bank legally liable for loss which might be described as too remote or simply unreasonable in terms of its quantum. Disallowance of the bank’s amendment did not remove the need for the Jamiesons to prove factual causation and also the “causation in law” or scope of liability issue that the bank should bear legal responsibility for the claimed ongoing loss.
The Jamiesons did not establish why in point of principle they should be compensated for interest payments made over the several years between the date the $700,000 loan was taken out and the date of judgment. The primary judge made a practical assessment of what loss was not too remote in the circumstances. His finding that it was “reasonable in the circumstances to treat the interest payable for two years as caused by and as not too remote for the purpose of assessing damages”[80] was supported by the evidence. Notwithstanding the bank’s failure to identify in the Statement of Advice a source from which the borrowing should be paid down, the Jamiesons took no steps to follow the recommended strategy. In fact, for reasons that were not adequately explained by the Jamiesons, the loan of $700,000 was changed in late 2007 from a variable loan to a fixed loan. The fact that the bank agreed with Mr Jamieson to fix the loan for three years (without Mr Tindall being made aware of this) does not alter the fact that Mr Jamieson chose to take that course: a course inconsistent with the bank’s original advice. By mid-2009 at the latest, and notwithstanding the cash flow demands that had arisen as a result of entry into the MQ Gateway Trust, the Jamiesons might have realised assets to reduce or eliminate the $700,000 loan. The primary judge’s determination of what was a reasonable period over which to assess the loss caused by the bank’s conduct was open on the evidence, and should not be disturbed.
[80]At [327].

Mr Jamieson’s cross-appeal about the methodology to gross-up his net loss

This aspect of the cross appeal raises the question of whether or not the entirety of a judgment sum in Mr Jamieson’s favour, including a component awarded because of a potential tax liability, is subject to taxation.
The primary judge heard the parties’ submissions on the quantum of damages and took issue with the method by which the accounting experts had calculated the grossed-up component of the award. The first expert to undertake the calculation engaged in the process of continuing to gross-up the grossed-up component.The second expert adopted that approach. Neither expert claimed expertise in the tax treatment of an award of loss in a case such as this. The primary judge rejected their approach and determined that the amount assessed as Mr Jamieson’s net loss should be grossed-up by 46.5 per cent because the award of damages for this loss would be a recoupment for the purposes of s 20-20 of the Income Tax Assessment Act 1997 (Cth) (“ITAA”).[81] The amount would be grossed-up by that amount in order to ensure the assessed loss was actually received after taxation.
[81]Following Tomasetti v Brailey (2012) 274 FLR 248 at 253 [149].

The parties’ submissions

Mr Jamieson challenged this approach in his cross-appeal. He criticised the primary judge’s methodology on the basis that the tax consequences of the award must be assessed from the point of view of the recipient of the award. If part of the award is a recoupment but the entirety of the award is received as a lump sum then there is no reason why, when assessed from the position of the recipient, the entirety of the award would not be characterised as a recoupment. If the award is to be assessed on that basis then it would be appropriate to gross-up the entirety of the judgment; that is, to gross-up the grossed-up component of the judgment. The primary judge was said to have fallen into error by failing to adopt this approach.
The bank contends that Mr Jamieson’s submission is “wrong in principle and contrary to the object and purpose of grossing up an award of damages and unsupported by any authority or evidence.” The bank accepted that Mr Jamieson’s award should be grossed-up. However it challenged the proposition that the amount by which the award is to be grossed up should itself be grossed-up. Such an approach was said to stretch the meaning of the word “recoupment” beyond any acceptable limit and to lead to the problem of being required to gross-up awards ad infinitum.
In reply Mr Jamieson argued that:

1. There is no basis under s 20-20 of the ITAA to dissect the judgment sum into the net loss amount and the grossed-up component since both components are capable of being taxed in his hands.

2. “Recoupment” is defined broadly under s 20-25 of the ITAA as “any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery however described, and a grant in respect of the loss or outgoing”. That definition is broad enough to encompass an amount received on account of anticipated future tax that will be payable on the judgment.

3. There is authority for the proposition that the grossed-up component of the award should itself be grossed-up.

Mr Jamieson’s oral submissions started with the proposition that the entirety of the lump sum award, that is the award including its gross-up component, will be assessable in his hands. On this assumption Mr Jamieson would be undercompensated unless one continued to gross-up the grossed-up component ad infinitum; or at least to the point that the amount is reduced to cents.
Counsel for Mr Jamieson later submitted that the purpose of grossing-up the grossed-up component of the judgment was to compensate for the risk that the Australian Taxation Office would treat the whole of the award, including the grossed-up component, as a recoupment for the purposes of taxation. That risk was said to be a real one, evidenced by the fact that both of the experts proceeded on the basis that the entirety of the award would be the subject of taxation.
The bank responded to this point by referring to the words of the relevant sections of the ITAA. No case was said to support Mr Jamieson’s proposition that under s 20-20 the grossed-up component of an award would be assessable. In addition, no evidence was led about the likelihood of that risk.

The issue

This aspect of the appeal turns on a fairly narrow point: for the purposes of s 20-20 of the ITAA is the entirety of judgment, which has been grossed-up for tax, taxable as an “assessable recoupment”.

Relevant provisions

Section 20-20 of the ITAA provides:
“20-20   Assessable recoupments
Exclusion
(1)An amount is not an assessable recoupment to the extent that it is ordinary income, or it is statutory income because of a provision outside this Subdivision.
Insurance or indemnity
(2)An amount you have received as recoupment of a loss or outgoing is an assessable recoupment if:
(a)   you received the amount by way of insurance or indemnity; and
(b)   you can deduct an amount for the loss or outgoing for the current year, or you have deducted or can deduct an amount for it for an earlier income year, under any provision of this Act.
Other recoupment
(3)An amount you have received as recoupment of a loss or outgoing (except by way of insurance or indemnity) is an assessable recoupment if:
(a)   you can deduct an amount for the loss or outgoing for the current year; or
(b)   you have deducted or can deduct an amount for the loss or outgoing for an earlier income year;
under a provision listed in section 20-30.”
“Recoupment” is defined in s 20-25 as:
“20-25 What is recoupment?
General
(1)Recoupment of a loss or outgoing includes:
(a) any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described; and
(b) a grant in respect of the loss or outgoing.”

Authorities

Mr Jamieson cites Atlas Titles Ltd v Briers[82] in which Stephen J (in dissent) observed that:
“Throughout the process of assessment it is to be kept clearly in mind that substantial fairness rather than precise accuracy must be the aim. For example, the effect of adding into the award the tax which will be payable upon the taxable five per cent of the award will, by increasing the damages awarded, necessarily slightly increase the amount of tax payable; to seek to engage in further adjustments so as to take account of this effect will be to add undesirable complexity without worthwhile result. Accordingly it may be disregarded”.[83]

That passage points to the mathematical difficulty of grossing-up a grossed-up amount. The decision related to very different facts and does not address how s 20-20 of the ITAA should be interpreted. The controversy surrounding the decision in Atlas Titles was laid to rest a few years later where the majority of the High Court in Cullen v Trappell[84] followed the dissenting opinions of Gibbs and Stephen JJ. That personal injuries case also did not address s 20-20 of the ITAA.

[82](1978) 144 CLR 202.

[83](1978) 144 CLR 202 at 236 – 237.

[84](1980) 146 CLR 1.

In Gill v Australian Wheat Board Rogers J held that “[t]he whole essence of the decision in Cullen’s case is that the reality of the impact of taxation must be recognized and allowed for.”[85] Justice Rogers held that the net amount of losses should be calculated and the tax liability payable by the plaintiff should also be awarded so that after paying that liability the amount of compensation received by the plaintiff is equal to his net losses. This approach accords with the approach taken by the primary judge: namely to assess an amount of net loss, calculate the tax payable on that amount and increase the net amount by that figure to arrive at a judgment amount.
[85][1980] 2 NSWLR 795 at 807.
Justice Rogers, while discussing this methodology, commented that “I recognize as a matter of pure mathematics, that objective is impossible to attain completely, but I am of the view that it constitutes the nearest approximation of a just verdict”.[86] These observations are not authority for the proposition that the grossed-up component should itself be grossed-up, and the case was not concerned with the assessment of “statutory income” under s 20-20 (as distinct income according to ordinary concepts).
[86]Ibid.
In New South Wales Cancer Council v Sarfaty[87] Gleeson CJ and Handley JA adopted the approach of Stephen and Gibbs JJ, as followed by Rogers J in Gill v Wheat Board, that allowance should be made for the impact of taxation on the damages award so as to allow that compensation to remain in the hands of the plaintiff after its receipt has been subject to tax. However, this does not establish that the grossed-up component of the award is required to be grossed up further because of the operation of s 20-20 of the ITAA.
[87](1992) 28 NSWLR 68 at 79 – 80.
In the same case Mahoney JA observed that:
“there is a difficulty in principle arising from the award of damages to reimburse the plaintiff in respect of income tax. On one view, an award of a single sum to represent the plaintiff’s loss from the breach of the contract plus income tax calculated, not upon the loss but upon the loss plus the amount of the income tax reimbursement. And, on the principle referred to, it is arguable that there should then have to be awarded an additional sum to reimburse the plaintiff for that additional income tax.”[88]

This recognises the kind of argument advanced by Mr Jamieson. However, two observations should be made about that passage. First, the comments were strictly obiter. As Mahoney JA noted, the point had not been argued. Secondly, the argument seems to proceed on the assumption the entirety of the award, including the grossed-up component, would be taxable. The basis for that assumption was not explained by Mahoney JA.

[88]At 96.

The word “recoupment” extends to an indemnity under the definition in s 20-25. The term “indemnity” is to be interpreted broadly.[89]
[89]Batchelor v Commissioner of Taxation (2014) 219 FCR 453 at 458 [10].

Characterisation of the components of the award

I am unable to accept Mr Jamieson’s submission that the component of the lump sum award that is added to the assessed compensation so as to gross it up is a “recoupment of a loss or outgoing” for the purposes of s 20-20 of the ITAA. While recoupment is defined broadly under the ITAA it still incorporates the idea of recouping a loss or outgoing. It is hard to understand how the amount by which an assessed figure is grossed-up for the purpose of compensating the claimant against a future tax liability can be viewed as a “recoupment” of a loss or outgoing.
Counsel for Mr Jamieson argued that his submissions were supported by the fact that both experts appeared to adopt the assumption that the entirety of the award would be the subject of taxation. However, neither expert purported to explain the basis of that assumption. The experts may simply have adopted that assumption. They did not purport to express an expert opinion about the relevant tax law. In any event, the question is one of law which the opinion of the experts could not resolve. They did not purport to describe any practice of the ATO in dealing with damages awards in cases like this.
Counsel for Mr Jamieson also contended that, in his hands, there was only one award for a lump sum and there is no reason why the ATO would dissect such an award. It is correct that there is only one lump sum paid. However, the primary judge’s reasons make it clear that he awarded an amount as compensation for a loss and a further amount to reflect the tax that would be payable on that compensation. This fact distinguishes this case from older cases dealing with the issue of dissection of payments for taxation purposes such as McLaurin v Federal Commissioner of Taxation[90] and Allsop v Federal Commissioner of Taxation.[91] In a case such as this, identified parts of a lump sum award may be separately characterised for the purpose of applying s 20-20.[92]
[90](1961) 104 CLR 381 at 392.
[91](1965) 113 CLR 341 at 351.
[92]Tomasetti v Brailey (2012) 274 FLR 248 at 253 [148].
In practice and in light of the primary judge’s reasons it may be supposed that Mr Jamieson will declare only the compensatory amount as an assessable recoupment, with the amount awarded by way of grossing-up remaining to meet the expected tax on the assessable recoupment. One would not expect in the face of the primary judge’s ruling that the ATO would treat the entire amount, including the grossed-up component, as subject to tax.
As was pointed out in the course of argument, if the ATO took the position for which counsel for Mr Jamieson contended then it is odd that such a position has not been challenged in the courts at some point. Neither party was able to point to a decision where this issue had been directly raised.
As to the suggested risk of the ATO taking a different view and extending the definition of recoupment to include the grossed-up component of the award, there was no evidence led below, and no evidence was sought to be led in this Court, to establish what the likelihood of that risk eventuating was. It would be inappropriate and unfair to subject the bank to a liability to compensate for the risk that the ATO would adopt a view of the operation of s 20-20 of the ITAA which is at odds with the primary judge’s conclusion about the application of that section to the facts at hand. The primary judge was correct to adopt the methodology he did to grossing-up the net amount he assessed, which was a recoupment of the net loss Mr Jamieson suffered as a result of investing in the MQ Gateway Trust on the basis of the banks’ advice.

Mr Jamieson’s cross-appeal about the figure used to calculate his net loss

Mr Jamieson contends that the primary judge adopted an incorrect net loss figure of $489,129 before calculating the amount by which that figure would need to be grossed up to reflect the income tax payable on it. Mr Jamieson’s contention depends upon his being given leave to adduce an accounting report dated 18 July 2014, which was finalised and served on the bank well after judgment was given on 9 March 2014. The bank notes that this report (and an earlier version of it dated 29 March 2014) were not part of the evidence at the trial and submits that they should not be received in evidence on the appeal. Mr Green’s report dated 18 July 2014 criticises calculations made by the other accounting expert, Mr Richards. The bank contends that those criticisms could and should have been made to the primary judge. Finally, it contends that criticisms of Mr Richards’ calculations are incorrect.

Background

Reasons for judgment were delivered on 7 March 2014, with a direction to the parties to submit a calculation or further submissions as to the amount of the judgment on or before 14 March 2014. The parties requested further time, and this was granted. The matter was relisted for 24 March 2014. In the period prior to 24 March 2014 the parties provided calculations to each other. On 12 March 2014 the Jamiesons provided to the bank a draft calculation prepared by Mr Green. On 13 March 2014 the bank provided to the Jamiesons a draft calculation prepared by Mr Richards. On 18 March 2014 the Jamiesons provided to the bank two revised calculations performed by Mr Green. On 21 March 2014 the bank provided to the Jamiesons a revised calculation prepared by Mr Richards, along with submissions.
The accountants’ calculations differed in certain respects. One aspect was that Mr Green’s calculations were on the basis that the award should be by reference to the amount of interest incurred whereas Mr Richards preferred to adopt the amounts in fact paid. The primary judge adopted Mr Richards’ approach and Mr Jamieson does not take issue with that finding. The primary judge heard further submissions on the issue of methodology and the calculation of the judgment sum on 24 March 2014. Reasons and judgment were given that day.
It was only after judgment was given that the Jamiesons’ solicitors requested Mr Green to prepare a report about the calculations. Mr Green prepared a preliminary report dated 29 March 2014, but this was not finalised since soon after the bank filed a notice of appeal. Mr Green was asked to consider other matters and his draft preliminary report was not provided to the Jamiesons’ solicitors until July 2014. It was provided to the bank’s solicitors on 18 July 2014.

Alleged errors in calculation

Mr Richards’ calculations are said to be in error because:

(a) they were based on estimates of Mr Jamieson’s tax position rather than actual tax returns for the relevant years;

(b) amounts of $44,750 and $15,000 received by Mr Jamieson as rebates were included to increase the tax benefits obtained by him (and thereby reduce his award of damages). However, according to Mr Jamieson’s submission those amounts were assessable income and he paid income tax on them. Accordingly, they should have been factored into any calculation, and the total tax benefits should have been reduced by 46.5 per cent of each of those figures.

Mr Green has reported that using actual tax returns results in a tax benefit of $549,576, rather than the figure of $595,922.

Mr Jamieson’s written submissions on appeal also contended that there was a double count in respect of the Capitalised Interest Assistance Loan interest, when those tax benefits were already included in the calculation of tax benefits. However, the bank’s submissions responded to this contention by reference to notes in Mr Richards’ spreadsheet so as to establish there was no double counting. No submission was made in reply on this point.

Principles governing an application for leave to adduce further evidence

Rule 766(1)(c) of the Uniform Civil Procedure Rules 1999 (Qld) permits this Court to receive further evidence as to questions of fact on “special grounds”. The following statement of principle has been applied of the present kind:
“… first, it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case, although it need not be decisive; thirdly, the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.”[93]
[93]Langdale v Danby [1982] 1 WLR 1123 at 1133 followed in, inter alia, Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404 at 408, and Jamieson v Chiropractic Board of Australia [2011] QCA 56.

Application of these principles

These principles fall to be applied in the context of evidence criticising calculations. A substantial part of Mr Jamieson’s submissions on the application to adduce evidence on the appeal related to the impact on the result of the case if he succeeded on the other aspect of his cross-appeal concerning the methodology used in grossing up the net loss. Mr Green’s report addressed different scenarios in that regard. The financial implications of the alleged calculation errors are less significant.
The threshold issue is whether Mr Green’s evidence about alleged errors in calculation could have been obtained with reasonable diligence for use at the hearing on 24 March 2014.
The calculations of Mr Richards which have become the subject of Mr Green’s 18 July 2014 report were served on the Jamiesons prior to the hearing. The spreadsheet of the calculations that were sent on the morning of 13 March 2014 to the Jamiesons’ solicitors was largely in the form of the final spreadsheet. An additional note was added to a footnote concerning interest, but the spreadsheet was essentially the same. The Jamiesons had an opportunity to criticise Mr Richards’ calculations. The tax returns of Mr Jamieson which have been referred to in Mr Green’s later report were in evidence at the trial. The Jamiesons might have criticised Mr Richards’ calculations on the basis which they now do and sought to advance competing calculations based upon Mr Jamieson’s tax returns.
As to the rebates, they were taken into account in reaching the agreed figure of $1,219,158 as the amount of the total loss suffered by Mr Jamieson before account was taken of tax benefits. They were included in Mr Richards’ spreadsheet. The notes to his calculations stated when the amounts were paid and stated that they “should be off-sets against interest and would therefore be taxable, however as I have been unable to identify them in personal tax returns, I have assumed they were not treated as taxable income.” The Jamiesons had an opportunity to address that issue. At the hearing on 24 March 2014 reference was made to the “different tax treatment” given by Mr Richards. The Jamiesons and their legal advisers were aware of the issue, but did not put forward competing figures or call evidence about whether the amounts were treated as taxable income and income tax paid on their receipt. The primary judge referred to this issue in his reasons on 24 March 2014. In the absence of evidence and argument about what adjustment should be made the primary judge concluded that it was inappropriate to determine whether an adjustment was required.
I consider that the criticisms of Mr Richards’ calculations could and should have been made at or prior to the hearing on 24 March 2014 and that, if the Jamiesons sought further time to advance those criticisms and to adduce evidence on the point then an application should have been made. A request to consult the accountants that day related to the issue of methodology, not the correctness of Mr Richards’ calculations.
In my view, Mr Jamieson has not shown that the evidence upon which he seeks to rely in relation to the correctness of Mr Richards’ calculations could not have been obtained with reasonable diligence for use at the final hearing in relation to the calculation of loss. He has not established the “special grounds” required by r 766(1)(c) to adduce the report of Mr Green dated 18 July 2014 in the cross-appeal.
This makes it unnecessary to address the bank’s alternative submission that the criticisms are misplaced. For completeness I will briefly do so. The bank points to notes in Mr Richards’ calculations which make it clear that he had reference to tax returns and notices of assessment. However, that does not seem to answer the point made in Mr Green’s report as to how the tax benefits calculated by him were derived. Mr Green’s report and paragraph 4 of the Jamiesons’ submissions in reply on the cross-appeal suggest that the benefits were calculated by Mr Richards based on assumptions about the costs of the MQ Gateway Trust loan and the application of the top marginal rate of tax. His calculations differ from Mr Green’s calculations. The latter are said to have been based on income tax returns filed in each of the relevant years.
As to the rebate issue, Mr Jamieson’s submission asserts that he included those amounts as assessable income and paid income tax on them. There is no satisfactory evidence that those amounts were returned as taxable income. That is not to say that they were not. The simple point is that Mr Richards said that he was unable to identify their inclusion in tax returns. There was no proper proof that they had been. In the absence of evidence that they had been it was appropriate for the primary judge to adopt Mr Richards’ calculations. Mr Green’s 18 July 2014 report does not clearly address the issue. It assumes that the receipts were included but there remains inadequate proof of this.
In conclusion, Mr Jamieson has not established the grounds for his cross-appeal. He has not established that the methodology used by the primary judge to gross up the loss was erroneous. He has not established that the primary judge was in error in adopting Mr Richards’ calculations. He also has not established that the primary judge erred in having regard to the alternative agribusiness investment which would have been made in the year ended 30 June 2007 and subsequently lost.

Conclusion and orders

The bank’s appeal, Mr Jamieson’s cross-appeal and Mr and Mrs Jamieson’s cross-appeal should each be dismissed. This makes it unnecessary to address the Jamiesons’ notice of contention. Mr Jamieson’s application filed on 10 September 2014 to adduce evidence on the appeal should be dismissed.
The starting point on costs, and subject to further submissions, would be for the costs of the appeal and the costs of the cross-appeals to follow the event. The unnecessary costs and complications of having more than one assessment of costs should be avoided, if possible. The parties should be encouraged to resolve the issue of costs.
I would order:

1. The appeal filed 4 April 2014 be dismissed.

2. The cross-appeals filed 22 April 2014 be dismissed.

3. The first respondent’s/cross-appellant’s application filed 10 September 2014 be dismissed.

4. The parties have leave to make submissions as to costs in accordance with Practice Direction 3 of 2013.

CITATION:	Westpac Banking Corporation v Jamieson & Ors [2015] QCA 50
PARTIES:	WESTPAC BANKING CORPORATION ABN 33 007 457 171 (appellant/cross respondent) v MARK BRYAN JAMIESON (first respondent/first cross appellant) LORRELL BERNADETTE JAMIESON (second respondent/second cross appellant) JAMIESON INVESTMENTS QLD PTY LTD ACN 103 273 070 as trustee for The M & L SUPER FUND (third cross appellant)
FILE NO/S:	Appeal No 3234 of 2014 SC No 3536 of 2011
DIVISION:	Court of Appeal
PROCEEDING:	General Civil Appeal
ORIGINATING COURT:	Supreme Court at Brisbane
DELIVERED ON:	10 April 2015
DELIVERED AT:	Brisbane
HEARING DATES:	18 September 2014; 19 September 2014
JUDGES:	Margaret McMurdo P and Morrison JA and Applegarth J Separate reasons for judgment of each member of the Court, each concurring as to the orders made
ORDERS:	1. The appeal filed 4 April 2014 be dismissed. 2. The cross-appeals filed 22 April 2014 be dismissed. 3. The first respondent’s/cross-appellant’s application filed 10 September 2014 be dismissed. 4. The parties have leave to make submissions as to costs in accordance with Practice Direction 3 of 2013.
CATCHWORDS:	DAMAGES – GENERAL PRINCIPLES – OTHER MATTERS – where a bank was found to have given negligent and misleading investment advice to a customer – where the advice did not adequately disclose that more than 10 per cent of the investor’s wealth would be at risk if the investment performed poorly – where the investment performed poorly, partly as a result of the GFC, and the customer was liable for interest under loans made to finance the investment – whether the bank is responsible for the total loss suffered by the customer – whether the rule in Potts v Miller should have been applied to assess the loss – whether the primary judge erred in considering what the customer would have done had he not been induced to make the investment and associated loans – whether the investor would have borrowed and invested in a tax minimising scheme and suffered a loss on that alternative investment CORPORATIONS – FINANCIAL SERVICES AND MARKETS – FINANCIAL PRODUCTS – GENERALLY – where a bank advised a customer to borrow to contribute to a self-managed superannuation fund – whether bank was negligent in failing to adequately advise the customer of the detriments of using borrowed money to make undeductible contributions DAMAGES – INCIDENCE OF TAXATION AFFECTING DAMAGES – where the primary judge found that an award of damages would be assessable income under the Income Tax Assessment Act 1997 (Cth) – where the primary judge “grossed-up” the amount of damages on account of the tax treatment of the award – whether the figure used by the primary judge as the customer’s net loss was correct – whether the methodology used by the primary judge to “gross-up” the assessed loss was correct – whether the “grossed-up” award of damages should be “grossed-up” ad infinitum Australian Securities and Investments Commission Act 2001 (Cth), s 12DA(1), s 12ED Civil Liability Act 2003 (Qld), s 11(1)(a), s 11(1)(b), s 11(4) Income Tax Assessment Act 1997 (Cth), s 20-20, s 20-25 Uniform Civil Procedure Rules 1999 (Qld), r 766(1)(c) Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341; [2006] NSWCA 282, cited Akron Securities v Iliffe (1997) 41 NSWLR 353, cited Allsop v Federal Commissioner of Taxation (1965) 113 CLR 341; [1965] HCA 48, cited Atlas Tiles Ltd v Briers (1978) 144 CLR 202; [1978] HCA 37, cited Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1977] AC 191, considered Batchelor v Commissioner of Taxation (2014) 219 FCR 453; [2014] FCAFC 41, cited Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404, cited Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2000] 3 All ER 493; [2001] QB 488; [2000] EWCA Civ 161, cited Coco v Westpac Banking Corporation [2012] NSWSC 565, cited County Personnel (Employment Agency) Ltd v Alan R Pulver and Co [1987] 1 WLR 916, cited Cullen v Trappell (1980) 146 CLR 1; [1980] HCA 10, cited Downs v Chappell [1997] 1 WLR 426, considered Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22; [1998] UKHL 5, cited Expectation Pty Ltd v PRD Realty Pty Ltd (2004) 140 FCR 17; [2004] FCAFC 189, cited Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; [1986] HCA 3, cited Gill v Australian Wheat Board [1980] 2 NSWLR 795, considered HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54, cited I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41, cited Jamieson v Chiropractic Board of Australia[2011] QCA 56, cited Jamieson & Ors v Westpac (2014) 283 FLR 286; [2014] QSC 32, considered Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413; [1999] HCA 25, cited Langdale v Danby [1982] 1 WLR 1123, cited March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506; [1991] HCA 12, cited McLaurin v Federal Commissioner of Taxation (1961) 104 CLR 381; [1961] HCA 9, cited Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; [2004] HCA 3, cited New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68, considered Potts v Miller (1940) 64 CLR 282; [1940] HCA 43, considered Rentokil Pty Ltd v Channon (1990) 19 NSWLR 417, cited Slough Estates Plc v Welwyn Hatfield District Council [1996] 2 PLR 50, cited Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254; [1996] UKHL 3, cited Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565, cited Tomasetti v Brailey (2012) 274 FLR 248; [2012] NSWCA 399, cited Toteff v Antonas (1952) 87 CLR 647; [1952] HCA 16, cited Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] 1 CLC 662; [2013] EWHC 111, followed
COUNSEL:	S L Doyle QC, with A P J Collins and G J Watson for the appellant/cross respondent C C Heyworth-Smith with L J Allen for the respondents/cross appellants
SOLICITORS:	Sparke Helmore for the appellant/cross respondent Schultz Toomey O’Brien for the respondent/cross appellants

Investment Return pa %	(Loss)/GAIN $ (After Tax)
0 or less	(601,875)
3.61	NIL
10	2,986,000

Investment return pa %	(Loss)/GAIN $ (After Tax)
0 or less	(601,875)
3.61	Nil
10	2,986,000