RABELAIS PTY LTD v CAMERON & ORS

Judges:
Hodgson J

Court:
New South Wales Supreme Court

Judgment date: Judgment handed down 31 July 1995 Extract of judgment below.

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Hodgson J

[At first instance the plaintiff successfully claimed that it was entitled to a return of the deposit (NSW Supreme Court, Hodgson J, 8 February 1993). Damages were also claimed against both the purchaser and the purchasers' solicitor for the deficiency on resale and other losses. The court determined that the purchasers alone were liable for these damages. The purchasers defended the action on the ground that they were entitled to relief either pursuant to the Contracts Review Act or under the general law. The purchasers also sued their solicitor for damages upon the ground that he had breached his duty of care to them. All of these claims were rejected and it was held that no basis of relief had been made out nor had a breach of duty been established against the purchasers' solicitor. The decision on the question of liability was unsuccessfully appealed by the purchasers (Cameron & Anor v Bell & Anor, NSW Court of Appeal, Mahoney AP, Clarke and Powell JJA, 17 December 1993) and the question of damages was remitted to the judge at first instance for consideration. His Honour made a number of findings in relation to the damages claim, and then considered the taxation implications as follows:]

The other matter that has been debated concerns the possible liability of the plaintiff for capital gains tax under Pt. IIIA of the Income Tax Assessment Act 1936. It is put for the plaintiff, on the basis of the discussion in
Provan v. HCL Real Estate Limited & Ors 92 ATC 4644; (1992) 24 ATR 238, that the plaintiff has a potential liability for capital gains tax arising out of its judgment in this case. Mr. O'Loughlin referred me also to the case of
Tuite & Anor v. Excelby & Ors 93 ATC 4293; 25 ATR 81 which, in general terms, supported the decision of Rolfe, J. in Provan. He also referred me to
Carborundum Realty Pty. Ltd. v. RAIA Archicentre Pt~y. Ltd. & Anor 93 ATC 4418; (1993) Aust. Torts Rep. 81-229. In that case, in the Supreme Court of Victoria, Justice Harper considered that Pt. IIIA of the Income Tax Assessment Act was not intended to apply to transactions which did not involve the passing consideration, and which accordingly in his view, did not result in a gain. That case was criticised by an article in the Law Society Journal, 8th July 1993, by Michael Inglis.

In my opinion, the damages provided for in a judgment such as this could perhaps be regarded as consideration on disposal of an asset within Pt. IIIA of the Act, the relevant asset being the cause of action. However, it seems to me that any capital gain for the purposes of that Part would have to be calculated by deducting, from the amount of the damages, the cost base, being relevantly, in my opinion, the nett asset lost by the plaintiff as part of the production of the cause of action.

In this case, as in most cases, I think the whole of the capital component of the damages would reflect the nett value of whatever asset the plaintiff has lost in producing the cause of action; so that the cost base would be no less than the capital component of the damages awarded. Insofar as there are interest components under s.94 of the Supreme Court Rules, those amounts could well be caught by the capital gains provisions. I am inclined to think that those amounts would, in any event, be assessable income under the Income Tax Assessment Act. Insofar as they were assessable income, it seems to me there is no loss caused by the first defendants, except possibly insofar as the whole of the assessable income has to be paid in one income period, rather than paid over a number of years in respect of which lower marginal rates might apply.

If and insofar as there is income tax or capital gains tax loss caused in this general way, it seems to me that it would be recoverable as an item of damages. It is apparent from what I have said, however, that it would not be possible for me to make any assessment of that loss. It is desirable that all aspects of damages be disposed of in one hearing, but because there is the possibility of substantial loss, I would be prepared in this case to reserve leave to the plaintiff to apply for additional damages referable to income tax or capital gains tax considerations.