Did the Tribunal err in concluding that the amount was received "by way of insurance or indemnity"?
72 The first question of law in relation to the assessable recoupment finding by the Tribunal concerns the meaning of the word "indemnity", or the meaning of the composite expression "by way of insurance or indemnity", in s 20-20(2). The question is whether, when used in s 20-20(2), the meaning of "indemnity" is limited to an obligation to make good or compensate for a loss which may happen in the future.
73 In my opinion the answer to that question is "no". It follows that in my opinion, the Tribunal did not err in law in reaching the same conclusion.
74 The word "indemnity" is not defined in the ITAA 97. It accordingly bears its ordinary meaning. That is so even if considered as part of the composite expression "by way of insurance or indemnity", though the fact that the word appears in a composite expression may add context or colour to its meaning. The dictionary definitions of indemnity referred to in the Tribunal's reasons at [66] and [67] indicate that the ordinary meaning of indemnity is wide enough to encompass both the protection against loss that might occur in the future and compensation for loss or damage that may have occurred in the past. There are no textual or contextual factors or considerations that suggest that the word indemnity should be given a narrow meaning, or a meaning confined to the first of these dictionary meanings, namely an obligation to make good or compensate for a loss that may occur in the future.
75 Ms Batchelor correctly accepts that the word indemnity in s 20-20 is not limited to contractual indemnity. That concession is consistent with the authorities relating to s 26(j) of the ITAA 36: see Williamson v Commissioner of Railways [1960] SR (NSW) 252 at 273; (1959) 76 WN (NSW) 648 at 664. The authorities in relation to s 26(j) also indicate that the word indemnity should be given a wide construction: Wade at 116 (Kitto J) and 112 (Dixon and Fullager JJ); Briers v Atlas Tiles Ltd (1978) 8 ATR 176 at 188.5 (and the cases there cited). Those authorities do not support any temporal limitation of the sort imposed by the interpretation given to the word by Hunt J in the Commercial Banking Case. They essentially equate "indemnify" with "compensate" or "saving the taxpayer harmless from loss".
76 In Robert v Collier's Bulk Liquid Transport Pty Ltd [1959] VR 280, Gavan Duffy J referred (at 284) to the two meanings given to indemnity in the (then current) Oxford English Dictionary. Those two meanings are not dissimilar to the current dictionary definitions referred to in the Tribunal's reasons. His Honour refused to confine the meaning of indemnity to "security or protection against contingent hurt" (i.e. protection against future loss) and found that the ordinary meaning of "indemnity" extended to cover the second meaning, being "compensation for loss or damages incurred." As already indicated, other authorities in relation to s 26(j) also effectively equate indemnity with "compensation" without limiting its meaning to an obligation to compensate for losses that may occur in the future.
77 The contrary decision of Hunt J in the Commercial Banking Case was based largely on his Honour's view that the "normal use" of the word indemnity contemplated an obligation in relation to future losses. It may perhaps be accepted that this is the more usual way the word is used. It is, however, only one way in which the word may be used. The ordinary meaning, as the dictionary definitions show, encompasses the broader concept or notion of compensation, even if no obligation to compensate was in existence before the relevant loss was incurred. It is difficult to see, for example, why payments made under a statutory scheme set-up to compensate a class of persons for losses they had suffered in the past could not be considered to be payments by way of indemnity. Hunt J pointed to no textural or contextual considerations that compelled the conclusion that indemnity was limited to his view of the normal use of the word and did not encompass the broader notion of compensation. In my respectful opinion, Hunt J was wrong to confine the meaning of the word "indemnity" to an obligation to compensate for losses that may occur in the future. Nothing in the text of s 26(j), or the statutory context, supported or required the narrow meaning given to it by his Honour. Nor is a narrow construction warranted in the context of s 20-20(2).
78 It should be noted, however, that there is one aspect of the reasons of Hunt J in the Commercial Banking Case with which I respectfully agree. That is his Honour's finding (at 154) that "a reimbursement is not the same as an indemnity, as a matter of the ordinary English usage of those two words". His Honour gave the following example:
If a company advertises for applications from overseas for employment, it may state in that advertisement a willingness to consider the "reimbursement" of travelling expenses incurred by applicants who attend for an interview; but it would seem to be a misuse of language to use the word "indemnity" in such a situation, because there was no antecedent obligation to indemnify.
79 I respectfully agree that the example given by Hunt J would not amount to an indemnity, though not necessarily for the reasons given by his Honour. In my view it does not matter that there was no anterior obligation to indemnify. The reimbursement of the travel expenses would not ordinarily be considered to be an indemnity simply because such a payment would not ordinarily be seen to be compensation for loss or damages incurred.
80 It follows that in my opinion the Tribunal did not err in law in preferring the construction of the word "indemnity" in Goldsbrough Mort to the construction given by Hunt J in the Commercial Banking Case, at least in relation to the supposed temporal limitation imposed by Hunt J. The Tribunal did not err in law in construing the word indemnity as capable of encompassing compensation for loss or damage, including compensation for loss incurred in the past.
81 The second question of law raised by Ms Batchelor in relation to whether the receipt of $47,927 was an assessable recoupment is more difficult. It is more difficult because of the way the matter was conducted by the parties in the Tribunal, including their conduct in relying on deficient and, in many respects, ambiguous agreed facts. It is further complicated because in her submissions in the Tribunal Ms Batchelor appeared to accept or concede the availability of the characterisation of the receipt of $47,927 that she now seeks to challenge.
82 The question is essentially whether, putting aside the supposed temporal limitation, it was open to the Tribunal to find that the receipt of $47,927 by Ms Batchelor was a recoupment "by way of insurance or indemnity". This question turns on the proper characterisation of the receipt. It was common ground in the Tribunal and on appeal that the receipt could be properly characterised as a recoupment. It also appears to have been common ground in the Tribunal and is common ground on the appeal that for a recoupment to be by way of indemnity, the recoupment must involve some element of compensation. That too appears to follow from the ordinary meaning of indemnity as including "compensation for loss or damage". The question, then, is whether it was open to the Tribunal to find that the relevant payment or receipt here was compensatory in nature.
83 A receipt which is properly characterised as a mere refund or reimbursement is unlikely to be properly characterised as being compensatory in nature and therefore a receipt by way of indemnity. That would appear to follow from the ordinary dictionary meaning of "compensate" which, in this context, is "to make amends or to recompense". The repayment or refund of an amount previously paid would not ordinarily be considered to be the payment of compensation for a loss.
84 More significantly, the conclusion that a mere refund or reimbursement does not constitute an "indemnity" also follows from the text of ss 20-20(2) and 20-25(1). The word "recoupment" is defined broadly in s 20-25(1) as including "any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described". The type of recoupment caught by s 20-20(2)(a) is, however, more limited. The recoupment must be "by way of insurance or indemnity". The other types of payments or receipts referred to in s 20-25(1) are not referred to in s 20-20(2)(a). If the words of limitation in s 20-20(2)(a) are to be given any meaning, or any work to do, they must exclude from the operation of the subsection receipts that can only be characterised as mere reimbursements or refunds.
85 The question, then, is whether the amount of $47,927 received by Ms Batchelor could, on the material before the Tribunal, properly be characterised as some form of compensation for loss or damage, and not merely a refund or reimbursement. In answering that question, two difficulties emerge. First, in the Tribunal Ms Batchelor appeared to concede that the receipt could, or even should, properly be characterised as compensation or damages paid to Ms Batchelor in respect of the rescission of the contract for the sale of land by Cresthaven arising from an alleged repudiation by Primelife.
86 It is sufficient to give two examples of the apparent concessions by Ms Batchelor. First, in paragraph [17] of the written submissions relied upon by Ms Batchelor in the Tribunal, it is submitted, perhaps somewhat ambiguously, that the "refund of the Deposit [the payment of $47,927 to Ms Batchelor] is properly to be analysed as representing compensation (i.e. damages) for the Purchaser's (and hence the Applicant's) loss arising from the Vendor's breach of the Contract…no other answer is readily available and the analysis made is plainly the correct one" (emphasis added). Second, in paragraph [28] of Ms Batchelor's written submissions in the Tribunal, Ms Batchelor submits (again perhaps ambiguously) that following the rescission of the contract "the Partnership's business venture came to an end and the Applicant, pursuant to rights under the Contract, ultimately received her share of the proceeds of the refunded Deposit monies by way of her aliquot share of damages for the loss sustained by the Partnership (and hence the Applicant as a partner in a Partnership)" (emphasis added).
87 Having regard to these apparent concessions or submissions, it is perhaps not surprising that the Tribunal's decision and reasons appear to implicitly, if not explicitly, characterise the relevant receipt or payment as damages or compensation, not a mere refund or reimbursement. This would also account for why the Tribunal effectively provides no reasons for that characterisation.
88 The second difficulty arises from the fact that before the Tribunal the parties proceeded on the basis of an inadequate and ambiguous agreed statement of facts and an incomplete tender of documents. The critical question in resolving the s 20-20(2) issue involved the characterisation of the receipt of $47,927 by Ms Batchelor. Yet the ASF barely refers to the payment or receipt. The receipt is obliquely referred to in ASF [19], but only in the context of correspondence between the parties following the receipt. The correspondence that is referred to in ASF [19], a letter from Ms Batchelor's accountant to the Australian Taxation Office, referred to the amount as being "Ms Batchelor's share of the return of the deposit." Other than that, the only facts referred to in the ASF which could shed light on the character of the receipt were the facts concerning the Supreme Court proceedings commenced by Cresthaven against Primelife "for alleged repudiation of the contract" (at ASF [10]), the Supreme Court settlement deed, which indicated, amongst other things, that the Settlement Sum comprised an amount "in respect of the return of the deposit" and the final orders made in the Federal Court proceedings. In relation to the Settlement Sum, it is said in ASF [15], again somewhat ambiguously, that Ms Batchelor "had an interest in the Settlement Sum through their [sic] interest in TPC No.2".
89 Whilst the Settlement Deed and Federal Court Orders were tendered in the Tribunal, the pleadings in the Supreme Court action were not. The ASF did not contain any details of the causes of action or relief sought in the Supreme Court proceedings. Nor does the Settlement Deed reveal the nature of the cause of action and relief sought in the Supreme Court. At most, it refers (at recital O) to correspondence between the parties in which Cresthaven's solicitors alleged repudiation and demanded repayment of the deposit and interest under the terms of the contract. It is unclear from the ASF whether, when proceedings were later commenced, Cresthaven sought damages for breach or repudiation, or a claim for the return of the deposit pursuant to the terms of clause 10 of the contract, or a claim for restitution, which is not a claim for damages: Foran v Wight (1989) 168 CLR 385 at 438; CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd [2004] VSCA 232 at [10].
90 In these circumstances, the question arises whether, or to what extent, the Tribunal was at liberty to rely on Ms Batchelor's apparent concession concerning the characterisation of the receipt. Given the apparent concession and the inadequacies of the ASF and evidence, can it be said that the Tribunal erred in law (in the context of proceedings under s 44 of the AAT Act) in effectively characterising the receipt by Ms Batchelor as the receipt of damages and therefore as a receipt by way of indemnity?
91 The extent to which the Tribunal is entitled to act on factual concessions was considered by the Full Court in Repatriation Commission v Warren (2008) 167 FCR 511. In a passage that has been cited and approved in many subsequent judgments of this Court, Lindgren and Bennett JJ (at [78]) summarised the relevant principles in the following terms:
The following principles, which we take to be established, must be understood against the background that the tribunal under consideration, like the Tribunal here, is required to "review" a primary decision, is given all the powers and discretions that were conferred on the original decision-maker, is not bound by the rules of evidence, is required to proceed with little formality and technicality, and is, of course, bound to apply the provisions of the relevant statute, even if there is no challenge by the parties:
The general rule that a litigant is bound by, and accordingly is entitled to act on, admissions and concessions does not automatically apply, although cases concerned with the exercise of judicial power may be of assistance (Kuswardana 54 FLR at 342: 35 ALR at 194 per Bowen CJ).
A party to the proceeding is not necessarily precluded from arguing on "appeal" matters that were conceded before the tribunal. Whether the party is so precluded depends on the nature of the matter conceded, its conduct of its case, whether the concession represented an agreement by the parties as to the facts to be decided and other relevant circumstances (Kuswardana 54 FLR at 343; 35 ALR at 195 per Bowen CJ and at 348; 199 per Fox J).
Where a concession is made, there must be some difficulty in finding an "error of law" when the contrary of the concession is raised for the first time in this Court (Federal Commissioner of Taxation v Raptis (1989) 20 ATR 1262 at 1267 per Gummow J).
A tribunal does not err in law in failing to regard as material a fact which counsel failed in submissions to contend was material (Federal Commissioner of Taxation v Perkins (1993) 26 ATR 8 at 10 per Davies J).
There is a difference between factual matters not canvassed before the tribunal and a new issue relating to the validity of a regulation (Tefonu Pty Ltd v Insurance and Superannuation Commissioner (1993) 44 FCR 361 at 367 per Beazley J).
Even though the parties may be "able, in practical terms, to narrow the issues by concession ... even a concession does not permit the [t]ribunal to avoid its duty as an administrative decision-maker to make the correct or preferable decision ... on all relevant aspects of the matter before it" (Peacock v Repatriation Commission (2007) 161 FCR 256 at [23]).
A concession "does, however, permit the decision-maker to reach the correct or preferable decision by reference to the concession as well as to its findings on disputed questions" (Peacock 161 FCR 256 at [23]; and see Comcare v Fiedler (2001) 115 FCR 328 at 337-338).
The Court will more readily permit a matter to be raised for the first time in this Court on an appeal from a tribunal where:
(a) the matter is a pure question of law, such as a question as to the validity of a regulation (Kuswardana 54 FLR at 343; 35 ALR at 195; Tefonu 44 FCR at 367) or a question as to whether the tribunal had applied the correct standard of proof on the true construction and application of legislation (Ferriday 69 FCR at 527-528 per Lee J);
(b) the matter goes to a misapprehension that was shared by the parties before the tribunal and therefore by the tribunal itself (Perpetual Trustee Company (Canberra) Ltd v Commissioner for Revenue (ACT) (1994) 50 FCR 405 at 418-419 per Wilcox J) such as a shared misapprehension as to the applicable law (cf Thomas 50 FCR at 120 per Beazley J); or
(c) the matter goes to a condition precedent to the availability of a power, the exercise of which will have a serious impact on the individual (Kuswardana 54 FLR 334; 35 ALR 186).
92 No issue arises here as to the ability of Ms Batchelor to argue on this appeal that the receipt was not damages or compensation in nature. The Commissioner consented to the filing of the amended notice of appeal and did not contend that Ms Batchelor could not raise the argument. However, the Commissioner did submit, in effect, that the Tribunal was entitled to rely on Ms Batchelor's concessions and that there is no error of law if the Tribunal failed to address issues of fact and law not the subject of argument by the taxpayer.
93 In support of the latter proposition, the Commissioner cited the decision of this Court in Federal Commissioner of Taxation v Glennan (1999) 90 FCR 538 at [82] (Glennan). In Glennan, a taxpayer who had successfully appealed a decision of the AAT under s 44 of the AAT Act sought to rely, by way of notice of contention filed in the appeal, on two arguments that had not been put to the AAT. The question raised before the Court was whether, in the context of a statute which places the burden of proof on the taxpayer of proving that an assessment is excessive, the AAT is bound to consider, and make findings of fact concerning, a contention which may be open on the evidence before it, but which was neither formulated nor advanced by the taxpayer (see [77]). The Court addressed that question as follows (at [82]-[83]):
As a matter of general administrative law, it has long been accepted that it is no part of the duty of the decision-maker to make out a case for the applicant: Prasad v Minister for Immigration and Ethnic Affairs (1985) 6 FCR 155 at 170, per Wilcox J. In a statutory context in which a taxpayer seeking to challenge an assessment is required to specify the grounds of his objection, and bears the burden of proving that it is excessive, as a general rule it cannot be said that the AAT is bound to make findings of fact and rulings on issues not relied upon by the taxpayer in the proceedings before it. It follows that, as a general rule, there is no error of law if the AAT fails to address issues of fact and law not the subject of argument by the taxpayer.
It follows from what we have said that we do not see the problem facing the taxpayer as simply being that he has sought in this Court to raise fresh arguments not put to the AAT. It is not simply a matter of whether the AAT would have found in favour of the taxpayer had the arguments been put and whether raising those arguments before the Court creates "prejudice" to the Commissioner. The issue in the present case is, in the context of the relevant provisions of the TAA, whether the AAT erred in law by not addressing the arguments now sought to be raised: cf Australian Fisheries Management Authority v P W Adams Pty Ltd (No 2) (1996) 66 FCR 349 (FC). In our view, it did not.
94 It is to be noted that in these passages the Court refers to the "general rule" that applies where an argument sought to be raised on appeal was not raised in the Tribunal. It is implicit in this that there may be exceptions to the general rule. The Court concluded in the particular and somewhat unusual circumstances of that case that the AAT had not erred in not considering the argument.
95 The Court in Glennan was not dealing with the precise situation presented by this matter, where apparent concessions are made in the face of inadequate agreed facts and evidence. That situation has been considered in two decisions of this Court.
96 In Perpetual Trustee Co (Canberra) Ltd v Commissioner for ACT Revenue (1994) 50 FCR 405 (Perpetual Trustee), the Court dealt with the situation where the ACT Administrative Appeals Tribunal decided a review application on the basis of an agreed statement of facts that did not contain all material facts necessary for it to determine the critical issue in the matter before it. The Court allowed the appeal and remitted the matter for redetermination on the basis that the procedure adopted by the Tribunal was unsatisfactory. Wilcox J said (at 418 - 419):
However, I agree with Davies J that the procedure adopted in this case by the Administrative Appeals Tribunal was unsatisfactory. The Tribunal agreed to determine the critical question in the case on the basis of a statement of agreed facts that was patently inadequate. If we were concerned with a decision of a court, made on the basis of issues framed by the parties' pleadings, there would be much force in an argument that, the case having been fought on those issues, the unsuccessful party should not be allowed a second chance. However, we are not concerned with such a decision, but with the decision of a body whose function was "to review the administrative decision that is under attack before it". Those words were used by Bowen CJ and Deane J in Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409 at 419 in relation to the Commonwealth Administrative Appeals Tribunal, but they apply equally to its Australian Capital Territory counterpart. The statutory function of the Tribunal requires that it form its own view about the matter in issue. In approaching that task, it is legitimate for the Tribunal to be guided by the parties as to the salient issues and to accept relevant admissions of fact, but the Tribunal should never permit parties to place it in the position of deciding a case on an artificial or inadequate factual basis. (emphasis added)
97 This passage was cited with approval by the Full Court in Comcare v Fiedler (2001) 115 FCR 328 (Fiedler). In that matter Comcare, which was the respondent in review proceedings in the AAT, raised no issue and led no evidence about whether the applicant had satisfied one of the criteria in the section of the relevant legislation that allowed an injured employee to claim compensation. After citing the passage from the judgment of Wilcox J in Perpetual Trustee, the Court said (at [39]):
The Tribunal is not, as a general rule, required to ignore the fact that one or both parties have made admissions or concessions, express or implied, that particular issues which the original decision-maker may have had to consider need not be the subject of inquiry and determination by the Tribunal. The Tribunal will, however, fall into error of law by failing to inquire of its own motion into, and make a finding on, an issue the subject of an admission or concession by a party that is material to its decision if there is reason to doubt that the admission or concession is factually justified. But in the absence of there being some reason to question the admission or concession, the Tribunal will generally be entitled not to inquire into the issue for itself, but to act on that admission or concession in making its decision. (emphasis added)
98 The Court concluded that, in the circumstances, the Tribunal was entitled to infer that Comcare had impliedly conceded in the proceedings before it that the relevant criteria had been satisfied. There was nothing in the material before the Tribunal to suggest that it could not properly rely on that concession in determining the case.
99 The circumstances in this case are more akin to the circumstances considered in Perpetual Trustee than Fiedler or Glennan. The ASF and the limited documentation before the Tribunal were inadequate and did not contain all material facts necessary to determine whether the receipt of $47,927 by Ms Batchelor was in fact paid by way of compensation or damages and therefore was capable of being characterised as having been received by way of indemnity. There was sufficient reason to doubt the apparent concession by Ms Batchelor that the receipt could properly be characterised as damages. In these circumstances, the Tribunal erred in law by failing to inquire into and make findings concerning the correct characterisation of the receipt. Without any detail of the causes of action and relief sought in the Supreme Court proceedings it was not possible to determine whether the Settlement Sum paid by Primelife to Cresthaven comprised compensatory damages as opposed to a restitutionary repayment or refund of the deposit under the terms of the contract or otherwise. The Deed of Settlement itself described the sum as comprising "the return of the Deposit". The fact that the Settlement Sum included an amount representing interest on the deposit did not mean that the sum was compensatory in nature, particularly given that the contract also provided for the payment of interest upon the return of the deposit.
100 The Commissioner's submission that it was open to the Tribunal to infer that the Supreme Court proceedings were an action by Cresthaven for damages and that the Settlement Sum therefore represented the payment of damages must be rejected. Such an inference is not supported by the ASF or the Deed of Settlement. The Deed of Settlement says nothing about the cause of action or relief sought and does not mention damages. It simply refers to the return of the deposit.
101 A further difficulty is that even if it was possible to conclude, on the basis of the inadequate facts and documents put before the Tribunal, that the payment by Primelife to Cresthaven could properly be characterised as the payment of damages, it does not follow that the amount received by Ms Batchelor represented her "share of the damages". It is true that the effect of the orders made by the Federal Court was that a portion of the Settlement Sum was to be paid to TPC No. 2 as bare trustee of the TPC No. 2 Partnership and that TPC No. 2 was then required to pay a portion of that sum to the partners in the TPC No. 2 Partnership, including Ms Batchelor, presumably in proportion to their interests in the partnership. It does not follow, however, that the ultimate receipt by Ms Batchelor constituted her share of the damages. It is equally open to regard the series of payments specified in the orders as simply constituting payments that the parties agreed should be made consequent upon the winding up of the business of the Cresthaven Village Partnership as a result of the finding that the business of the partnership was an unlawful managed investment scheme. Those payments simply reflected a refund or repayment to the partners or participants in the failed scheme of monies they had put into the scheme or venture. Such payments could not, or at least would not necessarily, properly be characterised as the receipt by the partners of a share of the damages paid to Cresthaven. Nor does it necessarily follow that the payments were compensatory. A refund or repayment of an amount initially paid into a scheme is not necessarily compensatory in nature.
102 In these circumstances, the Tribunal erred in law in finding, expressly or implicitly, that the receipt by Ms Batchelor was a receipt of damages and therefore a recoupment by way of indemnity. The agreed facts and tendered documents did not contain all material facts necessary to arrive at this finding and there were reasons to doubt the apparent concession by Ms Batchelor that the receipt was compensatory in nature. The material before the Tribunal was not capable of supporting the finding and the Tribunal erred in simply accepting the concession, or simply assuming that the payment was Ms Batchelor's share in the damages. This was not a mere error of fact. The Tribunal was obliged to make a finding in relation to this critical issue. It did so on an artificial and inadequate factual basis and on the basis of an apparent concession that there was good reason to doubt. The procedure adopted in the Tribunal was manifestly deficient.